Mechanics Lien Summary – Kansas

Lien claimants? General contractors, subcontractors, sub-subcontractors, Suppliers, and Architects/Engineers. Does NOT permit liens by: suppliers to suppliers or suppliers to sub-subcontractors. 
Lien covers? Labor, materials, supplies, equipment and transportation costs utilized or incorporated into the project. 
Filing Deadline? General: Four months after last substantive labor ormaterial provided*


Subcontractor/Supplier: 3 months after last substantive labor or material provided **


*Filing deadline may be extended if notice of extension filed within original filing deadline time.


Notice Requirements? General Contractor: No notice required 

Subcontractor/Supplier: Lien must be served on owner and parties with an equitable interest in the property.


Notice of Intent to Lien? General Contractor:   Not Required 

Subcontractor/Supplier: Not Required


Lien Foreclosure? 1 year: Must initiate litigation to foreclose on the mechanics lien no later than one year after the lien was filed. 


© Denise E. Farris, Esq.(March 2006). All rights reserved.

Farris Law Firm LLC, 20355 Nall, Stilwell, KS 66085. Tel: 913-685-3192.

Email: Web page:

The above article is provided free for generally informing the reader; and is not intended to provide legal advice. For specific information reader should seek legal counsel licensed to practice law in the state of Kansas.


Mechanics Lien Summary – Missouri

Lien claimants? General contractors, subcontractors, sub-subcontractors, suppliers, and Architects/Engineers. 
Lien covers? Labor, materials, supplies, and equipment utilized or incorporated into the project. 

Under Missouri case law, does NOT include equipment rental costs.


Filing Deadline? Six months after last date substantive labor or materials provided to the jobsite. 

“Substantive” does NOT include warranty or punch list items, but last work substantially required to complete substantial completion of the work scope under the contract.


** For subcontractors, notice of intent to file lien must be filed ten (10) days prior to filing the line, thus shortening the filing deadline time.


Notice Requirements? General Contractor: Required by statute; wording set forth under RSMo 429.012. 

Must be provided to owner BEFORE any payments are received by general contractor.


Notice may be provided:

–          At time of contracting (ie on contract form)

–          When materials are delivered (on delivery tickets)

–          When work is commenced (notice of commencement), or

–          With the first invoice (ie on invoice)

Notice of Intent to Lien? General Contractor:  Not RequiredSubcontractor or lower tier claimants: Required 10 days before filing lien. Must be served on owners of record as of the date construction began.


Lien Foreclosure? 6 months: Must initiate litigation to foreclose on the mechanics lien no later than six months after the lien filed. Recommended it be commenced at five months to allow sufficient time to serve all necessary parties. 


© Denise E. Farris, Esq.(March 2006). All rights reserved.

Farris Law Firm LLC, 20355 Nall, Stilwell, KS 66085. Tel: 913-685-3192.

Email: Web page:

The above article is provided free for generally informing the reader; and is not intended to provide legal advice. For specific information reader should seek legal counsel licensed to practice law in the state of Missouri.


IDIQ Contracts

Indefinite Delivery Contracts

I. (§16.1) What Is an Indefinite Delivery (ID) Contract?

A. (§16.2) Definite Quantity Contract
B. (§16.3) Requirements Contract

II. (§16.4) What Is an Indefinite Delivery Indefinite Quantity (IDIQ) Contract?

III. Basic Rules of ID Contracting

A. (§16.5) Advisory and Assistance Services
B. (§16.6) Task Order or Job Order Contracting

1. (§16.7) Contract Requirements
2. (§16.8) Minimum Quantity
3. (§16.9) Funding the Contract
4. (§16.10) Inter-Agency Acquisitions
5. Potential Problem Areas with JOC Administration

a. (§16.11) Low Bid Factor of Coefficient
b. (§16.12) Inconsistent Contractor Line Item Proposal vs. Government Scope of Work
c. (§16.13) Determination of Unit Price Item Inclusions
d. (§16.14) Unit Price Book Inaccuracies
e. (§16.15) Distinguishing Pre-Priced From Non-Prepriced Items
f. (§16.16) Quality Standards
g. (§16.17) Inaccurate Proposals

IV. Preparing the Work Statements for TOC/JOC Contracts

A. (§16.18) Indefinite Delivery Contracts
B. (§16.19) Performance Based Contracting

V. (§16.20) Pricing

A. (§16.21) Government’s Pricing Problem
B. (§16.22) Contractor’s Pricing Problem

VI. (§16.23) Multiple Awards

VII. (§16.24) FAR Part 36 and Job Order Contracting

A. (§16.25) FAR 36.202 Specifications
B. (§16.26) FAR 36.204—Disclosure of the Magnitude of Construction Projects
C. (§16.27) FAR 36.500, et seq.—Construction Contract Clauses

VIII. (§16.28) Modifying a Task Order

IX. (§16.29) Conclusion

X. Representative Cases

A. (§16.30) Defining When a Task Is Not in Scope
B. (§16.31) Protests of Individual Task Orders
C. (§16.32) Government Requirement to Honor Acquisition Regulations
D. (§16.33) Government Duty to Provide Realistic Estimates
E. (§16.34) Governmental Tort Liability
F. (§16.35) Equitable Relief vs. Government
G. (§16.36) Mistake in Bid
H. (§16.37) Bid Protest

I. (§16.1) What Is an Indefinite Delivery (ID) Contract?

Existing in federal procurement since 1981, and only recently making its way down to state and municipal levels, Indefinite Delivery (ID) contracting is a procurement mechanism designed to streamline the competitive bidding process for governmental owners. Invented by the Department of Defense for use by the North Atlantic Treaty Organization, ID contracts have been used routinely and effectively by the DOD for installation maintenance, minor repair, and construction projects since its inception in 1981. If the indefinite delivery contract covers the provisions of construction services, it is typically referred to as a “JOC,” or “Job Order Contract.” Contracts designed primarily for non-construction related services are referred to as “TOC,” or “Task Order Contracts.” Vernon Edwards, “Task Order Contracting: Understanding and Using Task Order Contracts,” Government Contracting Training and Consulting (January 1999). Whether classified as an ID, JOC, or TOC contract, each shares certain similarities.

As a relatively new contracting mechanism at the state level, there are no reported Missouri cases addressing the application of ID, JOC, or TOC contracts. But as there are a number of JOC-type contracts currently in process in the state, this article will attempt to address the overall parameters of the contract form’s use, creation, application, and interpretation.

There are essentially three types of Indefinite Delivery contracts: definite quantity contracts, requirement contracts, and indefinite delivery indefinite quantity contracts.

Depending on the circumstances, one form or another of these ID contracts is used to acquire supplies and/or services when the exact times and/or exact quantities of future deliveries are not known at the time of contract award. FAR 16.501-2(1), ¶ 30,202. Although the rules governing the application of each vary, all three permit Government stock to be maintained at minimal levels. All three also authorize direct shipment to users. FAR 16.051-2(b). All three permit agencies to defer ordering, and to defer specifications. Vernon, n.2, at 5.

In addition, indefinite quantity contracts and requirement contracts permit the government flexibility in both quantities and delivery scheduling, and also the ordering of supplies or services after the requirements materialize. FAR 16.501-2(b)(2), ¶ 30,202. Requirement contracts permit faster deliveries when production lead time is involved, because contractors are usually willing to maintain limited stocks when the Government agrees to obtain all of its actual purchase requirements from the contractor. Id. In contrast, indefinite quantity contracts limit the government’s obligation to a stated minimum quantity identified in the contract, without an exclusivity condition. Costs or pricing arrangements that provide for an estimated quantity of supplies or services must comply with the appropriate procedures under FAC 90-32; 60 FR 48206 (9/18/95); FAC 90-33; 60 FR 49706 9/26/95.

To understand what an IDIQ contract is not, it is important to understand the definitions and uses of the other two Indefinite Delivery forms of contracts, Definite Quantity and Requirements. The usage and definition distinctions become important in analyzing case law interpreting the usage, impact and liability issues associated with each.

A. (§16.2) Definite Quantity Contract

A “definite quantity” contract provides “for the delivery of a definite quantity of specific supplies or services for a fixed period, with deliveries or performance to be scheduled at designated locations upon order.” FAR 16.502(a), ¶ 30,203. This type of contract should be used when it can be determined in advance that (1) a definite quantity of supplies or services will be required during the contract period and (2) the supplies or services are regularly available or will be available after a short lead time. Id.

B. (§16.3) Requirements Contract

A “requirements contract” provides for filling all actual purchase requirements of designated Government activities for supplies or services during a specified contract period, with deliveries or performance to be scheduled by placing orders with the contractor.” FAR 16.504(a), ¶ 30,204.

Requirement contracts are appropriate for acquiring any supplies or services when the Government anticipates recurring requirements but cannot predetermine the precise quantities of supplies or services that designated Government activities will need during a definite period. Id. Unlike Indefinite Quantity contracts, which may include but do not require estimated quantities from the government owner, requirement contracts require the contracting officer to “state a realistic estimated total quantity in the solicitation and resulting contract.” FAR 16.503(a)(1), ¶ 30,204. The estimated quantity may be obtained from records of previous requirements and consumption, or by other means, and should be based on the most current information available. FAR 16.503(a)(1).

Although requiring an estimated quantity schedule in the solicitation, this estimate is not to be construed as a representation to an offeror or contractor that the estimated quantity will be required or ordered, or that conditions affecting requirements will be stable or normal. Id.

II. (§16.4) What Is an Indefinite Delivery Indefinite Quantity (IDIQ) Contract?

In contrast to Definite Quantity and Requirement Contracts, as defined by the Federal Acquisition Regulations, an Indefinite Delivery Indefinite Quantity contract, also known as JOC (Job Order Contract) or TOC (Task Order Contract): “provides for an indefinite quantity, within stated limits, of supplies or services to be furnished during a fixed period, with deliveries or performance to be scheduled by placing orders with the contractor.” FAR 16.504, ¶ 30,295.

Accordingly, the IDIQ contract requires:

· an indefinite quantity

· within stated limits

· of supplies or services

· provided within a fixed period

· scheduled by placing individual orders with the contractor.


In contrast to Definite Quantity and Requirements contracts, an IDIQ contract may be used when the Government cannot predetermine, above a specified minimum, the precise quantities of supplies or services that will be required during the contract period, and it is inadvisable for the Government to commit itself for more than a minimum quantity. FAR 16.504(b), ¶ 30,205. An IDIQ contract should be used only when a recurring need is anticipated. Id.

To provide an element of certainty in an otherwise uncertain contract mode, the parties are required to follow certain rules as set forth in the FAR. FAR 16.504(a)(1). This section provides:

(1) The contract shall require the Government to order and the contractor to furnish at least a stated minimum quantity of supplies or services and, if and as ordered, the contractor to furnish any additional quantities, not to exceed a stated maximum. The contracting officer may obtain the basis for the maximum from records of previous requirements and consumption, or by other means, the maximum quantity should be realistic and based on the most current information available.


To ensure that the contract is binding, the “minimum quantity must be more than a nominal quantity, but it should not exceed the amount that the Government is fairly certain to order.” FAR 16.504(2). The contract may also “specify maximum or minimum quantities that the Government may order under each task or delivery order, and the maximum that it may order during a specific period of time.” FAR 16.504(3).

While a stated minimum quantity is typically required, the Court of Federal Claims recently ruled that IQ contracts that lack minimum quantity terms are not unenforceable for lack of consideration if the parties establish a clear intention to be bound. Howel v. United States, 51 Fed. Cl. 516 (2002). If this is found, the court will supply the missing terms in the contract. Id. The Court relied on the Restatement (Second) of Contracts § 204 in Howel to hold that if there is “bargained-for exchange” consideration and the parties intended to be bound by the contract, the contract will be enforceable. Id. In determining the missing minimum quantity terms, the court must set a minimum of more than a nominal amount. Id.

The Board of Contract Appeals also ruled recently that the absence in the contract document of requirements and IQ clauses, and of a designated minimum quantity of supplies and services, “does not end the inquiry into the type of contract the parties intended.” Trans Com Sys. v. United States, ASBCA No. 53,865, 2003 WL 2012889 (May 1, 2003). The Board ruled that the specified terms and conditions of the contract must be reviewed, including the Government’s estimate of the quantity of supplies or services and the parties’ course of dealing. Id. In this case, the Board stated: “[c]onsidered in isolation from other facts, the original statement of work, ‘The Contractor shall provide all personnel . . . and services necessary to perform medical . . . transcription of clinical services dictated by the 95th Medical Group,’ fell short of the exclusivity language necessary for a requirements contract.” But once the Board reviewed the other language in the contract, it was determined that the intent was of exclusivity, and therefore it was a requirements contract.


III. Basic Rules of ID Contracting

A. (§16.5) Advisory and Assistance Services

Advisory and Assistance Services, defined at 31 U.S.C. § 1105(g)(1) and FAR 37.201, include services to support or improve organizational policy development, management and administration, program and/or project management and administration, and research and development activities. Id. See also Nations, Inc., Comp. Gen. Dec. B-272455 (11/5/96).

Classified under the TOC (Task Order) form of contracting, FAR 16.503(d) limits the use of requirements contracts for this type of governmental need. Specifically:

· If your requirement is for advisory and assistance services,

· AND the contract will exceed $10 million and three years (including options)

· THEN you cannot use a requirements contract

· UNLESS the agency determines, in writing, that (1) the services are unique or highly specialized and (2) it is impracticable to make multiple awards.


The limit does not apply if the A & A services are:

· Necessarily incident to other services or supplies, and

· Is not a significant component of the requirement contract.

In addition, if a requirement contract is being utilized for Advisory and Assistance Services, under FAR 16.505(c), the ordering period cannot exceed five years.

B. (§16.6) Task Order or Job Order Contracting

As a reminder, Task Order contracts typically refer to the procurement of non-construction related services, while Job Order contracting typically refers to construction related services.

1. (§16.7) Contract Requirements

Under either TOC or JOC, FAR 16.504(a)(4) sets out certain basic requirements for the contract, including:

· A defined period of the contract, including options

· A total minimum and maximum to be ordered

· Minimum and maximum order limitations (optional)

· A state of the required work

· Ordering procedures, and

· If multiple awards are to be made, the criteria to be used in providing a “fair opportunity.”

FAR Contract clauses for TOC/JOC contracts include: 52.216-27 (Single or multiple awards); 52.216-28 (multiple awards for advisory & assistance services); 52.216-18 (Ordering); 52.216-19 (order limitations); 52.216-21 (requirements); 52.216-22 (Indefinite quantity); 52.216-28 (multiple awards).

2. (§16.8) Minimum Quantity

The minimum quantity required under FAR 16.504(a)(1), (2), and (4)(ii) is required in order to provide the “consideration” that binds both parties. Vernon Edwards, “Task Order Contracting: Understanding and Using Task Order Contracts,” Government Contracting Training and Consulting n.2, at 17 (Jan. 1999). While the minimum quantity must be more than a “nominal” amount, there are no hard and fast rules as to what is “nominal.” The amount may be stated in terms of units, or dollars; and the agency must obligate the funds to cover the minimum at the time of award. Id. But the agency does not have to order the minimum at the time of the award. Id. See also Mac’s Cleaning & Repair Serv., ASBCA 49652, 97-1 BCA ¶ 28,748.

3. (§16.9) Funding the Contract

Although the agency is required to fund the minimum quantity order under the contract at the time of award, this timing may vary under certain facts and circumstances, particularly where the contract involves the issuance of multiple delivery orders under one umbrella JOC or TOC contract. One authority providing guidance on this point states:

A fairly simply generalization can be deduced from the decisions: In a variable quantity contract (requirements or indefinite-quantity), any required minimum purchase must be obligated when the contract is executed; subsequent obligations occur as work orders or delivery orders are placed, and are chargeable to the fiscal year in which the order is placed…thus in a variable quantity contract with no guaranteed minimum -–or any analogous situation in which there is no liability unless and until an order is placed—there would be no recordable obligation at the time of award. 63 Comp. Gen. 129 (1983); 60 Comp. Gen. 219 (1981); 34 Comp. Gen. 459 (1955); B-124901, October 26, 1955 (“call contract”). Obligations are recorded as orders are placed.”

Principles of Federal Appropriation Law, 2nd d. GAO/OGC 92-13 (Dec. 1992), pp. 7-17 to 7-18.

4. (§16.10) Inter-Agency Acquisitions

Under the Economy Act, as covered in FAR Subpart 17.5, agencies may make “interagency acquisitions,” by (1) ordering against another agency’s task order contract or (2) ordering from another office within the agency. If done, the ordering agency is the “requesting agency,” and such order requires a Determination and Findings pursuant to FAR 17.503. The D & F must state that:

· The Interagency acquisition is in the best interest of the Government

· It is more convenient or economic than contracting with the private sector.

FAR 17.503.

5. Potential Problem Areas with JOC Administration

a. (§16.11) Low Bid Factor of Coefficient

An initial sign of potential contract problems is where one contractor’s bid factor is substantially lower than the next lowest bid.

Another issue arises where the coefficient is not based on clearly defined parameters, which in turn creates the potential for the government paying for services not actually performed. Unless otherwise specified, the typical contract states that certain items are included within the overall JOC coefficient, which applies to all projects/task-orders. Therefore, unless performed, the government is entitled to a downward equitable adjustment. Id. The most common oversights include: hydrostatic testing, chlorination of new water lines/taps, mechanical systems balancing, and various testing procedures that are performed as standard industry practice, by code, by law, or by specification. Be sure the contract specifies some basic parameters for the coefficient. An example of one installation’s contract states that the contractor’s coefficient must include, but not be limited to, overhead, profit prime contractor, profit subcontractor, insurance, environmental compliance, taxes, protection of and moving government property, administrative work, as-builts, submittals, price quotations, contractor adjustments to government unit prices, final clean up, wastage factors, permits, licenses and fees, modifications, on-site office and utilities, and quality control inspection. Id. It is thus easy to understand, after reviewing this list, why a low bid factor should be an immediate red flag at the time of bid evaluation.

b. (§16.12) Inconsistent Contractor Line Item Proposal vs. Government Scope of Work

In the JOC system, the contractor uses a line item proposal to derive a bottom line, fixed price to apply to the government’s Statement of Work. The analysis of whether the line item proposal is to be considered in determining whether the contractor supplied the ordered items to the government remains a matter of contract interpretation. See Appeal of Brown & Root, ASBCA No. 44,020, 1995 WL 447135 (July 19, 1995) (holding that wording of the contract conditioned contractor’s required performance upon Statement of Work rather than contractor line item proposal); see also Inspection and Acceptance, JOCKey, U.S. Army Center for Public Works (June 1998) (noting that under Army’s JOC system, it is inappropriate to use the contractor’s line item proposal rather than the government’s statement of work for inspection and acceptance purposes, and stressing important of detailed statement of work).

c. (§16.13) Determination of Unit Price Item Inclusions

The final fixed price for the government’s statement of work is derived from a detailed line item proposal prepared by the contractor, utilizing the unit price items, cost and contractor’s bid factor to arrive at the bottom line, fixed price. It is important for both the contractor and the government contracting officer to verify the accuracy of the line item proposal, with respect to quantities and tasks identified. Typically, unit price books include line items for individual components (i.e., install doorknob), or assembly components (i.e., install door and hardware). A savvy contractor can artificially inflate the line item proposal costs by duplicating unit versus assembly items. Likewise, duplication exists for demolition costs versus remove and replace itemizations; and quantities can be overstated or duplicated. In some instances, contractors may derive pricing from including line items clearly non-applicable to a particular scope of work (i.e., brick and mortar tuckpoint on a residence without any brick). Inspection and Acceptance, JOCKey, U.S. Army Center for Public Works n.39, at 2 (June 1998).

d. (§16.14) Unit Price Book Inaccuracies

The government and the contractor should verify the Unit Price costs at the outset, to ensure the costs reflect the market price in that area. Id.

e. (§16.15) Distinguishing Pre-Priced From Non-Prepriced Items

For Non-Prepriced items, the contractor is typically authorized to charge the fair market price for that work. But the government must double check all notices of NPP items to verify that those items are, in fact, absent from the UPB. Id. If you are dealing with NPP items, be sure to ask for vendor quotes to back up the alleged fair market price requested. Id. at 3. Once the new price is negotiated, it must be added to the UPB book for future use and reference. Id.

f. (§16.16) Quality Standards

Once the government has established quality standards, ensure their delivery by checking line items where specified quality standards are required. If the line item indicates a particular grade of product, or a particular type of installation, which is relied on in deriving the initial cost proposal, then the government needs to ensure that it is receiving the quality for which it has paid.

g. (§16.17) Inaccurate Proposals

This is the prevalent problem with implementing JOC contracting. Some inaccuracy is typical at the initial outset of the project, particularly with parties new to the contract form. But, “if after an initial 6 to 12 months, there is a pattern of abuse, this may be fraud. Doing your homework is the only sure cure.” Id.


IV. Preparing the Work Statements for TOC/JOC Contracts

A. (§16.18) Indefinite Delivery Contracts

Under an Indefinite Delivery contract, FAR 16.504(a)(4)(iii) requires a statement of work, specifications or other description that reasonably described the general scope, nature, complexity and purpose of the supplies or services to be acquired under the contract in a manner that will enable a prospective offeror to decide whether to submit an offer.”

B. (§16.19) Performance Based Contracting

In the case of task order contracts, the statement of work for the basic contract need only define the scope of the overall contract. FAR 16.504(a)(4)(iii). The statement of work for each task issued under a task order shall comply with paragraph (b) of this subsection.” FAR 37.602-1-(a).

Pursuant to an opinion of the GAO, Letter from GAO to Secretary of the Army (Jan. 26, 1998):

Statements of work that are too general provide insufficient information for prospective offerors to decide whether to submit a proposal or what to offer to best meet the agency’s needs. Also, inclusion of broad categories of work in one statement of work constitutes a form of bundling, since different kinds of work (or tasks in different geographical or technical areas) are combined into one procurement, and an overly broad statement of work can unjustifiably diminish competition just as bundling does, by deterring businesses, particularly small businesses, from competing for a contract, notwithstanding their ability to perform some of the work at issue. See National Customer Eng’g., 72 Comp. Gen. 132 (1993), 93-1 CPD ¶225; Airport Markings of Am., Inc., et al., 69 Comp. Gen. 511 (1990), 90-1 CPD ¶543. Provisions or conditions that restrict competition (such as bundling) are permitted only to the extent necessary to satisfy the contracting agency’s needs. 10 U.S.C. 2305(a)(1)(B)(ii); National Customer Eng’g., supra.”


At a minimum, the contract statement of work should include the following:

· Background Information

· Scope of Services

· Period of Performance

· Place of Performance

· Contract Management Requirements

· Contract Quality Assurance Requirements

· Government Furnished Property and Services

· Data and Reports

Vernon Edwards, “Task Order Contracting: Understanding and Using Task Order Contracts,” Government Contracting Training and Consulting n.2, at 26 (Jan. 1999).

Contract Management Requirements should include:

· Points of contact and representation;

· Task Order Planning and Processing, including preparation of estimates and schedules; fact-finding and negotiations; work planning and preparation; and

· Task Order Management Pricing Arrangements.


V. (§16.20) Pricing

Under Task Order contracting, pricing arrangements may include fixed price, cost-reimbursement, time and materials, labor hour, or for negotiated contracts, any type or combination of types of the foregoing. Vernon Edwards, “Task Order Contracting: Understanding and Using Task Order Contracts,” Government Contracting Training and Consulting (Jan. 1999). “Contracts negotiated under Part 15 [i.e., contracts awarded without using sealed bidding procedures, FAR 15.101] may be of any type or combination of types that will promote the Government’s interest, except as restricted in this part.” FAR 16.102(b).

Cost plus Percentage of cost is not allowed. FAR 16.102(c).

For indefinite delivery contracts, the contract “may provide for any appropriate cost or pricing arrangement under Part 16. Cost or pricing arrangements that provide for an estimated quantity of supplies or services (e.g. estimated number of labor hours) must comply with the appropriate procedures in this subpart.” FAR 16.501-2(c).

A. (§16.21) Government’s Pricing Problem

“Price” establishes a means to assign a dollar value to the services provided. But under TOC or JOC, contract describes only services. Specific work is unidentified at the time of contract award. The costs of performance typically vary with the details per each delivery order. How does the government set its prices? By using price resources (input and output pricing) to price the specific services.

“Output” pricing assigns dollar values to the specific task or job unit to be performed. Typically used in Job Order or Construction contracting, price may be assigned to a job unit, e.g. square foot of painting. Values can be based on industry standards such as R.S. Means.

“Input” pricing assigns a dollar value to “resources,” e.g., a “loaded” or “burdened” hourly labor rate. Vernon Edwards, “Task Order Contracting: Understanding and Using Task Order Contracts,” Government Contracting Training and Consulting n.2 at 40–43 (Jan. 1999).

B. (§16.22) Contractor’s Pricing Problem

Obtaining the contract alone costs the contractor money. This includes the cost of the order-processing apparatus, where multiple delivery orders are expected under the contract. Costs also include the administrative time assisting in the preparation of individual delivery or task orders. The contractor is also required to work with a mixture of fixed costs for various job units, incorporated into burdened hourly labor rates, all based on an indefinite sales quantity. The recommended solution is to use a fixed price contract management line item, i.e., to delineate on a unit by unit basis all tasks to be included in that delivery order, multiplied by the Unit Price and the contractor’s bid factor, to arrive at a fixed price for the work to be performed. Vernon Edwards, “Task Order Contracting: Understanding and Using Task Order Contracts,” Government Contracting Training and Consulting p. 46 (Jan. 1999).

VI. (§16.23) Multiple Awards

Multiple awards are mandatory if:

· the contracts are for Advisory and Assistance Services; and

· the contract is for an indefinite quantity; and

· the contract will exceed three years and $10,000,000 including options;

· unless:

Ø uniqueness or specialization make it impracticable; or

Ø only one offeror is capable; or

Ø only one offer is received.

FAR 16.504(c)(2).

Multiple awards do not apply to requirements contracts, and should not be used when:

· services are unique or highly specialized (sole source)

· single award will yield more favorable terms

· administrative costs will exceed benefits

· tasks will be integrally related

· total estimated value is less than $100,000 for non-commercial items, or $5 million for commercial items, or

· not in the Government’s best interests.

FAR 16.504(c)(a)(i)–(vi). See also Memorandum from Director of Defense Procurement, Use of Multiple Award Task Order Contracts” (4/30/99).

VII. (§16.24) FAR Part 36 and Job Order Contracting

Many of the above regulations deal generically with Task Order Contracting. But in the construction arena, governing Job Order Contracting, the practitioner must take into account the provisions of FAR Part 36. Part 36 deals with “policies and procedures peculiar to contracting for construction and architect/engineer services. It includes requirements for using certain clauses and standard forms that apply also to contracts for dismantling, demolition or removal of improvements.” FAR 36.000, ¶ 30,750.

When a requirement under FAR 36 is inconsistent with another regulation, “this Part 36 shall take precedent if the acquisition of construction or architect-engineer services is involved.” FAR 36.101(b). If an acquisition involves both construction and supplies or services, the contract “shall include (1) clauses applicable to the predominant part of the work.” FAR 36.101(c).

To date, there are no known reported cases reconciling apparent conflicts between FAR Part 36 and the various provisions relevant to IDIQ contracts. But the following areas are noted as potential conflict areas.

Under FAR 36.103(a), “contracting officers shall acquire construction using sealed bid procedures . . .” within the United States, but “negotiation” for acquiring architect-engineer services. FAR 36.103(b). Accordingly, this would imply that mixed pricing arrangements permissible under FAR 16.102(b) would not be permitted for construction contracts. But under FAR 36.207, a combination of lump sum and unit pricing is permissible. Lump sum is preferred, except when:

· large quantities of work such are grading, paving and site preparation are involved;

· quantities of work, such as excavation, cannot be estimated with sufficient confidence to permit a lump sum offer without a substantial contingency, or

· estimated quantities of work may change significantly during construction, or

· offerors would have to expend unusual effort to develop adequate estimates.

FAR 36.207.

Other relevant provisions under FAR 36 include:

A. (§16.25) FAR 36.202 Specifications

Under FAR 36.202, the contracting officers must insure that references in specifications are to widely recognized standards or specifications promulgated by governments, industries, or technical societies. FAR 36.202(b). When brand name or equal descriptions are necessary, the specifications must clearly identify and describe the particular physical, functional, or other characteristics of the brand name items that are considered essential to satisfying that requirement. FAR 36.202(c).

B. (§16.26) FAR 36.204—Disclosure of the Magnitude of Construction Projects

Under FAR 36.204, the government is required to offer the bidder advance notice stating the magnitude of the requirement in terms of physical characteristics and estimated price range. While the government’s estimate is not to be disclosed, the project must nonetheless state a range of estimated magnitude, e.g., between $500,000 and $1,000,000.

C. (§16.27) FAR 36.500, et seq.—Construction Contract Clauses

FAR 36.500, et seq., sets forth various contract clauses to be inserted into governmental construction contracts, including:

· Performance of the work by Contractor (36.501);

· Differing Site Conditions (FAR 36.502);

· Site Investigation (36.503);

· Physical Data (36.504);

· Material and Workmanship (36.505);

· Superintendence by the Contractor (36.506);

· Permits and Responsibilities (36.507);

· Other contracts (36.508);

· Protection of Existing Vegetation (36.509);

· Operations and Storage Areas (36.510);

· Use and Possession Prior to Completion (36.511);

· Cleanup (36.512);

· Accident Prevention (36.513);

· Utility Services (36.514);

· Schedules (36.515);

· Quantity Surveys (36.516);

· Layout of Work (36.517);

· Work Oversight in Cost Reimbursement Contracts (36.518);

· Organization and Direction of the Work (36.519);

· Specifications and Drawings for Construction (36.521);

· Preconstruction Conference (36.522); and

· Site Visit (36.523).

VIII. (§16.28) Modifying a Task Order

A contracting officer can modify a task order, but subject to the following criteria:

· only if the contract permits changes, and only if the changes are in accordance with the procedures of the contract;

· unilateral changes must be within the “scope of the contract”

· changes to the contract may require an “equitable adjustment.”

Vernon Edwards, “Task Order Contracting: Understanding and Using Task Order Contracts,” Government Contracting Training and Consulting n.2, at 83 (Jan. 1999).

IX. (§16.29) Conclusion

In conclusion, the ID contract in general, and the IDIQ contract specifically, is a complicated form of contracting that requires extensive contract administration and supervision. But given its multiple benefits to governmental owners, the practitioner must become familiar with its use and application as the contract becomes more prevalent on a state and municipal level.

X. Representative Cases

A. (§16.30) Defining When a Task Is Not in Scope

Appeal of Brown & Root Services, ASBCA No. 44,020, 1995 WL 447135 (July 19, 1995). In an IDIQ contract, the pricing data used to price individual delivery orders contained references to chutes used for disposal. But the delivery orders (and the included Scope of Work) did not mention such items. B&R claimed for extra costs for the chutes. The court held that:

· the contract was to be interpreted by its express provisions;

· the contract was a lump sum contract based on the accepted delivery order (without integration of the pricing date); and

· B&R was obligated to provide what was contained in the Scope of Work or Delivery Order.

Ervin & Associates, Inc., B-279083, B-279219 (4/30/98). In deciding whether a task order is beyond the scope of the contract originally ordered, GAO will look to whether there is a material difference between the task order and that contract. MCI Telecomms. Corp., supra; see AT&T Communications, Inc. v. Wiley, Inc., 1 F.3d 1201, 1205 (Fed. Cir. 1993). Evidence of such a material difference is found by reviewing the circumstances attending the procurement that was conducted; examining any changes in the type of work, performance period, and costs between the contract as awarded and as modified by the task order, and considering whether the original contract solicitation adequately advised offerors of the potential for the type of task order issued. Ervin & Assocs., Inc., supra, at 8. The overall inquiry is “whether the modification is of a nature which potential offerors would reasonably have anticipated.” Neal R. Gross & Co., Inc., B-237434, Feb. 23, 1990, 90-1 CPD ¶ 212 at 3, cited in AT&T Communications, Inc. v. Wiltel, Inc., 1 F.3d at 1207.

B. (§16.31) Protests of Individual Task Orders

A contractor cannot protest the award of an individual task order pursuant to FAR 16.505(a)(7), but they can file a claim based on breach of contract for failure to provide a “fair opportunity.” FAR 16.505(b)(1).

C. (§16.32) Government Requirement to Honor Acquisition Regulations

G.L. Christian & Associates v. United States, 312 F.2d 418 (Ct. Cl. 1963). This case established the rule that clauses that are required by regulations to be included in a contract are incorporated into such contracts by operation of law. The contract at issue did not contain a clause authorizing the government to terminate the contract for its convenience. But the Armed Services Procurement Regulations required that such a clause in be inserted in certain contracts, including the contract at issue. The court ruled that since the Armed Services Procurement Regulations “were issued under statutory authority, those regulations . . . had the force and effect of law. Because they applied, there was a legal requirement that the plaintiff’s contract contain the standard termination clause and the contract must be read as if it did.”

Condec Corp. v. United States, 369 F.2d 753 (Ct. Cl. 1966) In this case, a contractor submitted its bid on a project for the Army Corps of Engineers in the amount of $1,952,067. Before bid opening, the contractor sent a bid modification via Western Union. Western Union failed to deliver the modification on time. But at the bid opening it was determined that the contractor’s original bid was already the lowest. The contractor attempted to withdraw its bid modification pursuant to §§ 2.304 and 2.305 of the ASPR, arguing that the bid modification was late and should have been disregarded. The Government sought to hold the contractor to the lower bid. The court considered a regulation binding on the government, even though the regulations did not require that a clause to that effect be inserted in the contract. In holding that the contractor was entitled to modify his bid, the court expressly relied on certain language contained in the regulations—even though the regulation was not inserted into the contract nor was it considered a mandatory clause.

American Electric Contracting Corp. v. United States, 579 F.2d 602, 217 (Ct. Cl. 1978). If a governmental agency violates a regulation intended for the benefit of the contracting party, the contract is made in violation of the law and the contracting party is thereby entitled to reformation of the contract.

DeMatteo Construction Co. v. United States, 600 F.2d 1384 (Ct. Cl. 1979). The court held that “[f]ailure of a government contracting agency to abide by a provision of its own regulation is material . . . if the provision is for the benefit of the contractor and there is a causal nexus between the failure and the asserted financial injury to the contractor.”

General Engineering & Machine Works v. O’Keefe, 991 F.2d 775 (Fed. Cir. 1993). A contractor with the United States Navy appealed from a decision of the Armed Services Board of Contract Appeals confirming Navy’s entitlement to reimbursement of $86,775 in material handling fees. The court held that the Navy was entitled to reimbursement based on the contractor’s failure to maintain material handling charges in separate cost pool in accordance with regulatory payments clause included in contract. In its deliberations, the court stated that “[t]he Christian Doctrine applies to mandatory contract clauses which express a significant or deeply ingrained strand of public procurement policy” as well as “less fundamental or significant mandatory procurement clauses if not written to benefit or protect the party seeking incorporation.” It additionally declared that “[f]ederal regulations which are based upon a grant of statutory authority ‘have the force and effect of law, and, if they are applicable, they must be deemed terms of the contract even if not specifically set out therein.”

American Telephone & Telegraph Co. v. United States, 1999 WL 333409 (Fed. Cir. 1999). A contract made in violation of a regulation is not void. The court recognized that “[w]hen a contract or a provision thereof is in violation of law but has been fully performed, the courts have variously sustained the contract, reformed it to correct the illegal term, or allowed recovery under an implied contract theory . . . .”

Mid-Eastern Industries, Inc., 02-1 BSA ¶ 31,657, ASBCA No. 53016 (Nov. 16, 2001). The contractor sought payment of the guaranteed minimum price under the IQ contract. The Board ruled that if the contractor is required to have the capacity to provide not only the minimum, but also the maximum service as established by the IDIQ contract and the government fails to order the minimum guaranteed amount, the contractor is entitled to the minimum guaranteed dollar amount less any amount previously paid for orders performed. The Board determined that under the contract the contractor was obligated to provide and maintain the capability of providing up to the maximum amount of services set forth in the contract. The minimum guaranteed amount was the consideration for the contract and the only available source of recovery for the contractor to maintain its capability.

Hermes Consolidated, Inc., ASBCA No. 52308 (Feb. 15, 2002). The contractor wanted the Government to pay the original minimum that was guaranteed in the contract, but the Board ruled that when the government partially terminates for convenience an amount of services or material to be provided under an IDIQ contract, the original minimum guaranteed amount is also reduced by that amount, even though the termination did not expressly reduce the original contract’s minimum guarantee.

D. (§16.33) Government Duty to Provide Realistic Estimates

Coastal States Petrochemical Co. v. United States, 214 Ct. Cl. 520, 559 F.2d 1 (1977). The contractor was one of several contractors awarded contracts to supply the government with jet fuel, at a time when the Vietnam War was in progress. Shortly after plaintiff’s contract began, combat activities in Vietnam substantially decreased, resulting in the government’s jet fuel estimates being sharply reduced. As a result, the plaintiff’s jet fuel obligation was reduced to 57% of the original estimate. In seeking relief for its resultant losses, the plaintiff’s principal argument was that it had a requirements contract and therefore the government breached the contract by failing to obtain all of its jet fuel requirements from Coastal States. The court rejected this argument holding that the contract was an IDIQ contract and, therefore, the government had not breached its contract by obtaining jet fuel from other suppliers. In so ruling, the court specifically held that when the government contracted with the plaintiff, it had properly based its estimates of future needs on its past experience. Thus, the court tangentially addressed the question of whether the estimates were accurate; the court, in essence, held that the government could not have known at the time of contracting that the Vietnam War would de-escalate, causing a reduction in its fuel requirements.

Applied Devices Corp. v. United States, 591 F.2d 635 (Ct. Cl. 1979). The court held that the provision requiring the government to provide a realistic estimate was incorporated into the parties’ contract by operation of the Christian Doctrine even though there was no FAR clause requiring its inclusion.

DOT Systems, Inc. v. United States, 231 Ct. Cl. 765 (1982). The contractor was awarded an IDIQ contract, which provided a minimum quantity of $500 worth of work and an estimated maximum of $11,689. But the plaintiff received orders of less than 10% of the estimates. The plaintiff argued that he was entitled to compensation for the government’s error in its estimates. The estimates were based on the government’s past needs. The director preparing the estimates consulted with other offices. “The actual estimates were prepared by taking a percentage of the historical data and, when in doubt, adopting a higher figure.” While the court recognized that the government with an IDIQ contract is not held to the same negligence standard as a requirements contract, the regulations do set forth the requirement that the estimate be “as realistic as possible.” The regulations stated that “[t]he maximum may be obtained from the records of previous requirements and consumption, or by other means.” Because the estimates were prepared based on historical data of the entity’s past needs, the agency complied with C.F.R. 1-3.409(c)(1) and therefore there was no breach.

Art Anderson Associates, ASBCA No. 27807, 84-1 B.C.A. 17,225 (1984). Indefinite quantity contract is used where the United States cannot estimate its needs except in terms of minimums and maximums.

Deterline Corp., 89-3 BCA 22,069, ASBCA No. 33,090 (May 19, 1989). The plaintiff-contractor was awarded an IDIQ contract with a $12 million maximum quantity. He contended that he “reasonably anticipated” that the orders would meet or exceed that amount based on the amounts the government had ordered under prior similar contracts and based on the government’s oral representations that they anticipated the orders would “approach the maximum amount.” Although the contractor claimed the government negligently prepared its estimates, the facts established the estimates admittedly were properly based on prior history. Thus, the ASBCA rejected the contractor’s arguments, stating:

The contractor was on notice prior to submitting its bid of the minimum amount it could receive and bore the risk it would be limited to that amount. Even assuming for purposes of this motion that the Government indicated at a pre-bid conference that it anticipated ordering or exceeding the maximum amount, no facts have been indicated, even for purposes of this motion, which would absolve appellant from the terms of the contract which set forth the minimum dollar amount which the Government was obligating itself to order. To interpret the contract as appellant argues would vitiate a major provision of the contract.

Crown Laundry & Dry Cleaners, Inc., 90-3 BCA 22,993, ASBCA No. 39,982 (May 21, 1990). This case involved a mistaken assumption on the part of the contractor that the government would order more than was ordered. The government ordered 66% of the maximum quantity identified under an IDIQ contract. Crown Laundry argued that the government negligently prepared the estimates based solely on the fact that the actual orders were less than the estimate, and based on the disparity between the $85,000 minimum and $991,644 maximum. There was no mention that the government completely disregarded FAR 16.504, or that the government knowingly included a project that was clearly outside the scope of an IDIQ contract. In the 1990 decision, the court held that it would not examine the reasonableness of an IDIQ governmental estimate. But see 29 Fed. Cl. 506 (1993) below.

C.F.S. Air Cargo, Inc., 91-2 BCA 23,985, ASBCA 40,694 (April 30, 1991). The contractor sought an equitable adjustment based on the fact that the government estimates had been grossly overstated. The contractor argued that:

· the estimates were negligently prepared;

· the estimates were not realistic and based on the most recent information available in violation of FAR 16.504(a)(1);

· the Navy was estopped from denying the accuracy of its estimates; and

· the contractor was entitled to relief for mutual or unilateral mistake.

The court merely reiterated the holdings in Deterline and Crown Laundry, that “we do not examine the reasonableness of the estimates in indefinite quantity contracts.”

Medart v. Austin, 967 F.2d 579 (Fed. Cir. 1992). The regulations provided that the government “should base the estimate on the most current information available.” 48 C.F.R. § 16.503(a)(1). A contractor was awarded a requirements contract to supply storage and wardrobe cabinets to several hundred federal agencies. The government prepared the estimates based on the number of units ordered during the previous fiscal year. The actual requirements varied from 24% to 70% less than the estimate. The contractor complained that simply relying on the previous year’s orders to prepare the estimates was unreasonable, and that the use of other methods would have improved the accuracy of the estimates. Although the court rejected this argument, it did so only because it found that the estimate had been made in good faith in that it was based on a method expressly authorized by federal regulations.

Crown Laundry & Dry Cleaners, Inc. v. United States, 29 Fed. Cl. 506 (1993). The court recognized that a government agency may be held liable for failing to provide good faith estimates when it knew that the contractor had to rely on those estimates in formulating its bid. Here, the plaintiff was awarded a contract to provide laundry and dry cleaning services to the U.S. Missile Command at Redstone Arsenal. Soon after beginning performance of the contract, the plaintiff discovered that it was receiving far less work than had been estimated. It complained to the contracting officer, to no avail. After completing the contract, it was determined that the actual requirements were 45% less than the estimate. The plaintiff sought damages as a result of the government’s alleged lack of due care in preparing its estimate. The court noted that “[i]t is settled that a bidder on a government contract is entitled to rely on government estimates set forth in the contract as representing honest and informed conclusions.” Where a government contracting officer knows that the contractor “had to rely on the estimates in the formulation of its bid, . . . the government was required to act in good faith and use reasonable care in computing its estimated needs. The court held that “[w]here a contractor can show by preponderant evidence that estimates it relied on were negligently prepared or were unreasonably inadequate, indicating a lack of due care in the preparation at the time the estimates were made, the government may be liable for resulting damages. The government is not free to carelessly guess at its needs.”

Rice Lake Contracting, Inc. v. United States, 33 Fed. Cl. 144 (1995). The contractor argued that it had a requirements contract and, therefore, the government breached the contract when it failed to purchase the “full complement of services under the contract . . . .” The government contended that the contract was an IDIQ contract. Thus, it did not breach the contract since it had ordered more than 11 times the minimum quantity. The court’s ruling that the government had not breached the contract turned on the fact that this was an IDIQ contract rather than a requirements contract. Because it was an IDIQ contract, the government was not required to purchase all of its requirements from the plaintiff, as plaintiff claimed, and, therefore, the cause of action failed.

Travel Centre v. General Services Administration, 1999 WL 636168, GSBCA No. 14057 (Aug. 18, 1999), and its original decision found at 1997 WL 745049, GSBCA 14057, 98-1 BCA 29,422, 98-1 BCA 29,536 (Nov. 26, 1997. In Travel Centre the Board of Contact Appeals held that the GSA may be held liable for breach of an IDIQ contract for providing grossly inaccurate estimates to bidders when it knows that such estimates are irrational (or recklessly disregards information that would give it such knowledge) and withholds that material information from bidders, even though the government has satisfied its obligation to purchase at least the stated minimum quantity. In Travel Centre, the GSA solicited bids for an IDIQ contract to operate a travel management center for federal agencies in the New England area. The solicitation provided that the successful bidder would be the preferred—but not the mandatory—travel agent in that region. The solicitation further provided estimates of expected business from which the bidders were instructed to base their bids. During the solicitation process, the GSA received notices from the incumbent contractor, Dube Travel, that another contractor had been awarded a separate contract to provide travel services to the Department of Defense and its related entities. The Department of Defense business comprised more than 50% of the anticipated business from the State of Maine and, as a result, the estimates provided in the bid solicitation were “vastly overstated.” The GSA did not notify the bidders of this material information. The contract to provide travel services to Maine and New Hampshire was subsequently awarded to Travel Centre. Travel Centre began performance of the contract, and the GSA ordered more than the minimum quantity of $100. But when the additional anticipated revenue failed to materialize, Travel Centre had to close its business.

The Board of Contract Appeals held that the GSA acted in bad faith by withholding the information about the exclusion of the Department of Defense’s business from the contract and that such bad faith constituted a breach of the contract. It held that bidders are “entitled to rely on Government estimates as representing honest and informed conclusions;” otherwise, the inclusion of such estimates would be merely surplusage. Travel Centre, 1997 WL 745049. It noted that the GSA’s “irrationally-arrived-at estimate was not merely the result of a run-of-the-mill mistake,” but rather the GSA either knew that its estimates were vastly overstated or recklessly disregarded information that would reveal such inaccuracies, and yet it failed to disclose that information to the bidders. Id. In addition, the GSA’s bad faith was further noted by the court in that the GSA knew that bidders had based their bids on the solicitation’s estimates. Furthermore, the court rejected the GSA’s arguments that the solicitation expressly provided that the estimates were “‘solely for informational purposes.’” The Court held: “It is well established that where the Government requires offerors to base their proposals on information it provides, it may not absolve itself of risk merely by labeling data supplied in the solicitation ‘for information purposes only.’” Id. (emphasis added) (citing Cherry Hill Constr. Corp. v. Gen. Servs. Admin., GSBCA 11217, BCA ¶ 25,179). Accordingly, the court held that the “GSA withheld crucial information material to an offeror’s decision whether to submit a proposal at all and, if so, how to structure it. By withholding this information from offerors, GSA exhibited the ‘bad faith’ necessary to sustain a finding of breach of contract.” Travel Centre, 1999 WL 636168. The court further noted that “[t]here is no type of contract; including one for an indefinite quantity, in which the contractor assumes the risk that the Government has intentionally misled it.” Id. (emphasis added). Importantly, the Court characterized the holdings in prior cases such as Dot Systems, Inc. v. United States, 231 Ct. Cl. 765 (1982), C.F.S. Air Cargo, Inc., ASBCA 40694, 91-2 BCA ¶ 23,985, and DynCorp., ASBCA 38862, 91-2 BCA ¶ 24,044 (all suggesting that the Government cannot be held liable under IDIQ contracts where it orders at least the minimum quantity) as standing for the proposition that “Anyone who is dumb enough to rely on the Government’s promises deserves what he gets”—a proposition that the Travel Centre court expressly rejects. Travel Centre, 1999 WL 636168.

Petcham, Inc., 01-2 BCA ¶ 31,656, ASBCA No. 51,687 (Nov. 20, 2001). In an IDIQ contract, the Government is only obligated to order the minimum quantity stated in the contract, not the estimated, guaranteed, or expected amount of service.

Varilease Technology Group, Inc. v. United States, 289 F.3d 795 (Fed. Cir. 2002). The contractor expected the contract to be a requirements contract while the Government believed the language of the contract made it an IDIQ contract. The court ruled that when determining the type of contract, the plain language of the contract should be relied on rather than the expectations of a party. “[T]he intention of a party entering into a contract is determined by an objective reading of the language of the contract . . . .” Id. at 799.

If an IDIQ contract has option periods, such periods does not result in the formation of separate and distinct requirement contracts. “We discern no basis in either the relevant regulations or case law for treating option periods of an ID/IQ contract as separate contracts . . . Minimum quantities are not required to be associated with each option period.” Id. at 799, 800.

J. Cooper & Associates, Inc. v. United States, 53 Fed. Cl. 8 (July 12, 2002). Contractor sued the Government for breach of contract because (1) the government failed to provide work in excess of the minimum quantity and (2) for not awarding all the work in the government’s pre-contract estimate to the contractor. The court stated that an IDIQ contract only requires the government to order a stated minimum quantity of supplies or services, and once that minimum has been met, the government does not need to provide contractor with any more work and may purchase additional supplies or services from any other source it chooses. “An IDIQ contract does not provide any exclusivity to the contractor.” Travel Centre v. Barram, 236 F.3d 1316, 1319 (Fed. Cir. 2001). “The minimum quantity guaranteed … was not nominal, so purchase of that quantity ended the government’s legal obligation.” 48 C.F.R. § 16,504(a)(2).

Under an IDIQ contract, the contracting agency is not under an obligation to terminate the letter contract for convenience, and can allow it to lapse, when no task orders will be interrupted or terminated by the agency by allowing such lapse and when the agency has paid the contractor in excess of the minimum guarantee in the letter contract.

The presumption is that government officials have acted in a lawful manner, and such can only be overcome with clear and convincing evidence.

E. (§16.34) Governmental Tort Liability

Gemsco, Inc. v. United States, 115 Ct. Cl. 209 (1950). “In the interpretation of contracts dealing with ‘indefinite quantities,’ . . . unless all considerations of equity and justice are disregarded, a high degree of good faith should be required on the part of the Government and its agents.” Thus the court held that the U.S. had breached its contract with the plaintiff.

United States v. Neustadt, 366 U.S. 696 (1961). Misrepresentation allegations are claims in tort, which are beyond Tucker Act jurisdiction.

Bird & Sons, Inc. v. United States, 420 F.2d 1051 (Ct. Cl. 1970). Where an alleged “negligent” act of a governmental entity constitutes a breach of contractually created duty, the Tucker Act does not preclude relief. An action may be maintained that arises primarily from a contractual undertaking regardless of the fact that the loss resulted from the negligent manner in which defendant performed its contract.

H.F. Allen Orchards v. United States, 749 F.2d 1571 (1984). Here no contractual duty exists; negligent performance of a non-contractual duty cannot be the basis of a breach of contract claim. Rather, the negligent disclosure of information by the government, when the government had no contractual duty to supply such information, may sound in tort.

H.H.O. v. United States, 7 Cl. Ct. 703 (1985). The Court of Federal Claims has jurisdiction over cases in which it is alleged that the government tortiously breached its contract. “The test for jurisdiction in this Court, under the Tucker Act, is whether there has been a “tortious” breach of contract, rather than a tort independent of the contract. In order for this Court to have jurisdiction over suits of this nature, there must be a direct connection between the Government’s contractual obligations and the alleged tortious conduct. It is not jurisdictionally sufficient if the alleged tortious conduct is merely “related” in some general sense to the contractual relationship between the parties.” Here the plaintiff alleged that the government breached its implied obligation “not to hinder or delay the plaintiff’s performance nor to increase his costs.” The court held that “insofar as plaintiff’s references to defendant’s alleged misrepresentations are merely another way of asserting that a breach of contract occurred,” the court had jurisdiction over such a claim.

Edwards v. United States, 19 Cl. Ct. 633 (1990). The court held that it had jurisdiction over the plaintiffs’ claims that a Postal Service agent made false representations concerning the suitability of a certain tract of land for the construction of post office. Thus, the Court of Federal Claims has jurisdiction over cases in which it is alleged that the government tortiously breached its contract.

Beckering v. United States, 22 Cl. Ct. 30 (1990). The government’s duties were imposed by law, not contract, thus injury resulting from incomplete or insufficient performance of duties, if redressable at all, is actionable only as tort.

LeBlanc v. United States, 50 F.3d 1025 (Fed. Cir. 1995). The court rejected the allegation that the contractor’s claim was based on the False Claims Act rather than the Tucker Act. It found that the Tucker Act did not grant the Court of Federal Claims jurisdiction over tort claim of illegal government interference.

Morris v. United States, 33 Fed. Cl. 733 (1995). The plaintiff was the purchaser of surplus government real estate. He alleged that a government agent misrepresented the tenant’s payment history. The court held that it had jurisdiction over the plaintiff’s claims of misrepresentation, failure to disclose superior knowledge and breach of implied obligation of good faith and fair dealing. In addition, it held that an “obligation of good faith dealing is implied in every contract with the government . . . . Where there is privity of contract, misrepresentation has a contract aspect in addition to its tort aspect . . . . In its contract aspect, a claim of misrepresentation is in large measure analogous to a claim for breach of warranty . . . . [B]inding precedent indicates that the government may be held liable when it makes erroneous representations to those with whom it enters into contractual relations.”

Nematollahi v. United States, 38 Fed. Cl. 224 (1997). The plaintiffs, purchasers of HUD property, alleged that HUD had contractually misrepresented the “existence, nature, magnitude and effects” of hazardous waste in the property’s groundwater. The court held that these misrepresentation claims “revolve around the defendant’s alleged breach of contract, not an action in tort,” and therefore it had jurisdiction over such claims.

F. (§16.35) Equitable Relief vs. Government

Bowen v. Massachusetts, 487 U.S. 879 (1988). The Court of Claims has no power to grant equitable relief. Injunctive relief is equitable relief over which the court lacks jurisdiction. Furthermore, Claims Court does not have the general equitable powers of a district court to grant prospective relief. But regarding the Tucker Act, a limited exception may apply. Equitable relief may be available in the context of a bid protest.

Brookter v. United States, 14 Cl. Ct. 232 (1988). Because inspection and appraisal were not contractual obligations, improper inspection and appraisal cannot give rise to breach of contract claim; claim is one of misrepresentation, which falls outside Tucker Act Jurisdiction.

Bobula v. Department of Justice, 970 F.2d 854 (Fed. Cir. 1992). Regarding the Tucker Act, a limited exception may apply. Equitable relief is available pursuant to the Tucker Act if the equitable relief is an incident of and collateral to a claim for money damages.

ABF Freight System, Inc. v. United States, 2003 WL 1024483 (Fed. Cl.) (Feb. 26, 2003). Three bidders—one received an award, one did not receive an award, and one did not bid—filed a post-award bid protest, challenging the terms of the solicitation. The Court stated: “Injunctive relief for a disappointed bidder is appropriate ‘only in extremely limited circumstances.’” Id. at 2 (quoting CCL Serv. Corp. v. United States, 48 Fed. Cl. 113, 120 (2000) (quoting C.A.C.I., Inc.-Fed v. United States, 719 F.2d 1567, 1581 (Fed. Cir. 1983) (quoting United States v. John C. Grimberg Co., 702 F.2d 1362, 1372 (Fed. Cir. 1983)))). “Because injunctive relief is extraordinary in nature, a plaintiff must demonstrate the right to such relief by clear and convincing evidence. ABF Freight System, Inc., 2003 WL 1024483 at 2.

To obtain injunctive relief, plaintiff must show four things:

1. either a likelihood or actual success on the merits of the case;

2. that it will suffer irreparable injury unless injunctive relief is not granted;

3. that, if the injunction is not granted, the harm to plaintiff outweighs the harm to the Government and third parties; and

4. that no harm will be inflicted on the public interest.

G. (§16.36) Mistake in Bid

Chris Berg, Inc. v. United States, 426 F.2d 314 (1970). A contractor submitted a bid on a contract with the Navy. The bid contained a computation error, which resulted in a lower bid than was intended. The Navy suspected the bid was in error, and the contractor confirmed the error. The contractor sought to modify its bid by increasing it to the correct amount, but the Navy refused, giving the contractor the option of either rescinding the bid or accepting the contract at the lower bid price. The applicable regulations governing mistaken bids provided that the contractor was entitled to modify its bid under these circumstances. The court held that the Navy’s “award of the contract to plaintiff at the bid price, with knowledge of its mistake and over its protest, was a clear-cut violation of law,” thereby entitling the plaintiff to reformation of the contract reflecting the modified bid amount. In so holding, the court stated: “If officials of the Government make a contract they are not authorized to make, the other party is not bound by estoppel or acquiescence or even failing to protest.”

H. (§16.37) Bid Protest

Dynamic Decisions, Inc. v. Dep’t of Health & Human Resources, 95-2 BCA 27,732 (May 4, 1995). The court considered a contractor’s protest of a bid solicitation for an IDIQ contract based on the government’s failure to comply with FAR 16.504(a)(1). It held that the government lacked a reasonable basis for providing its maximum estimated quantity. It also found that the estimate “was not reached because of any established budgetary limitations or because of any true analysis of requirements, but because of the expedience of avoiding a level of review by GSA.” Accordingly, the court granted the bid protest.

ABF Freight System, Inc. v. United States, 2003 WL 1024483 (Fed. Cl. Feb. 26, 2003). For standing in a bid protest case, potential bidder must establish that it had a substantial chance of securing the award. Such suing bidder must be a disappointed bidder—if the bidder received a contract award, then such bidder did not have standing to assert a bid protest. If contractor participated in the bid preparation process, and then did not submit a bid due to the alleged improprieties in the solicitation, such contractor had standing to bring bid protest—it must show it would have had a substantial chance of securing the award if not discouraged by the alleged improprieties. Essentially, bid protesters must show they were themselves injured by improprieties.

Al Ghanim Combined Group Co. Gen. Trad. & Cont. W.L.L. v. United States, 2003 WL 21302931 (Fed. Cl. May 22, 2003). A losing bidder, in protest of the Government’s solicitation of a construction contract, sought injunctive relief requiring the United States to resolicit the contract due to the arbitrariness of the Government’s decisions. For a court to find that the procuring agency’s actions was arbitrary and capricious, the offeror must establish that (1) the Government officials involved in the procurement process were without a rational and reasonable basis for their decision or (2) the procurement procedure involved a clear and prejudicial violation of applicable statues and regulations. “A protester has the burden of proving by a preponderance of the evidence the arbitrary and capricious nature of the Government’s actions or the violation of an applicable procurement regulation.”


Ms. Farris received her B.L.A. and J.D., with honors, from the University of Missouri-Kansas City School of Law. She is a past chairperson of The Missouri Bar Construction Law Committee and is a member of the American Bar Association’s national steering committee for the Forum on the Construction Industry, Division 10, Environmental and Legislative. Ms. Farris has litigated IDIQ/JOC contracts from the perspectives of a governmental owner, a general contractor, and a subcontractor. She is a solo practitioner with Farris Law Firm, L.L.C., Kansas City, Missouri.

© Denise E. Farris, Esq. (2003). All rights reserved.
Farris Law Firm LLC, 20355 Nall, Stilwell, KS 66085. Tel: 913-685-3192.
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The above article is provided free for generally informing the reader; and is not intended to provide legal advice. For specific information reader should seek legal counsel licensed to practice law in the state of Kansas.

Missouri Materialmen’s Lien Valid Even Where Materials Removed

Innocent Materialman Has Lien
A recent Missouri case held that a materialman’s lien remained valid even where materials were wholly removed following defective installation by a subcontractor. A seller of concrete delivered material in good condition, but Subcontractor improperly installed it, requiring its total removal. The trial Court improperly denied Seller a mechanic’s lien. “Lien interest attached to the property at the time it provided materials that were used, which does not necessarily mean “a permanent part of the construction.” “The materialman stands in a far different position than a contractor. He has no contractual relationship with the owner and cannot contractually allocate the risk of loss and would likely be unable to insure most risks.”
Bates County Redi-Mix, Inc., Appellant v. Loren D. and Debbie K. Windler d/b/a Windler Backhoe Services, Defendant, Michelle L. Cole, Respondent; and National City Mortgage, d/b/a Commonwealth United, Respondent. Missouri Court of Appeals Western District . 2005

Developing Issues in Lead Based Paint Abatement

by Denise E. Farris, Esquire*


In 1980, it was reported that over 800,000 workers were exposed to airborne lead in the workplace, resulting in such health risks as kidney damage, as well as damage to the peripheral and central nervous systems. [i] In response to the health hazards associated with exposure to airborne lead in the workplace, the Occupational Safety and Health Administration (“OSHA”) developed regulations designed to protect workers from excessive lead exposure.[ii] In addition, contractors working on older project renovations are also subject to compliance with a myriad of other regulatory and statutory requirements designed to protect the worker and public from lead poisoning.

Until recently, the majority of cases addressing liability issues relative to abatement of lead-based paint occurred in the residential landlord/tenant relationship. Unlike its environmental cousins, polychlorinated biphenyls (“PCB”) and asbestos, lead-based paint has remained a relatively unnoticed and remarkably low-key issue in residential and commercial construction. However, numerous medical studies now conclusively link overexposure to lead-based paint to serious long-term health problems.[iii] These studies, viewed in conjunction with the prevalence of lead-based paint in virtually all buildings constructed prior to 1978, render lead based paint abatement a construction liability issue potentially exceeding that raised by asbestos nearly a decade ago. This article addresses construction liability issues related to lead-based paint activities in the residential and commercial construction context, with a particular focus on statutory, regulatory and contractual obligations, licensing requirements, and disclosure requirements.


Understanding the developing litigation issues related to lead based paint abatement requires an understanding of the various pieces of Federal legislation governing the treatment of lead-based paint and/or lead products. For the past 15 years, the Environmental Protection Agency (“EPA”) and the Consumer Product Safety Commission (“CPSC”) have aggressively banned or significantly reduced lead in gasoline, paint and plumbing products.[iv] This legislation was followed by additional legislation aimed at disclosure of lead-based paint hazards, abatement training, and testing, summarized below.

A. Housing and Community Development Act of 1987

This Act required the Department of Housing and Urban Development to undertake a comprehensive program for testing and abatement of lead-based paint in all public and Indian housing units built before 1978.[v]

B. Residential Lead-Based Paint Hazard Reduction Act

Also known as Title X, §1018 of this law directed HUD and EPA to require the disclosure of known information on lead-based paint and lead-based paint hazards before the sale and lease of most housing built before 1978.[vi] Subtitle B of Title X concerns training and certification of contractors working with lead-based paint hazards.[vii] Under Title X, the Occupational Safety and Health Administration (“OSHA”) developed standards for exposure to lead and protection from exposure to lead for construction workers.[viii] 

C. HUD Lead Paint Disclosure Regulations

HUD regulations regarding the disclosure of lead-based paint hazards are found at 24 CFR 35, entitled “Lead Based Paint Poisoning Prevention In Certain Residential Structures”. The regulations target residential dwellings that were constructed prior to 1978, including common areas in multifamily housing structures and dwellings commonly used by children, such as a child care centers. The effective dates of the regulations are September 6, 1996 and December 6, 1996 for owners of 5 or more dwellings and owners of 1 to 4 dwellings, respectively. The disclosure requirements assure that purchasers and tenants of housing constructed prior to 1978 are notified of the hazards of lead-based paint which may exist on the dwelling; of the symptoms and treatment of lead-based paint poisoning; and of the importance and availability of maintenance and removal techniques for eliminating such hazards. Sellers, agents and lessors must retain documentation of compliance for no less than three years. [ix]

The penalties for non-compliance include fines of up to $10,000 for civil infractions; fines of up to $25,000 and one year in jail for criminal violations; and treble damages plus attorneys fees in private civil suits. Violation of the regulation does not invalidate the sale or lease contract.

D. Lead Based Paint Poisoning Prevention Act (LBPPPA) 42 U.S.C. 4822

Enacted in response to the 1989 HUD Independent Agencies Appropriations Act, the LBPPPA establishes guidelines for testing abatement, cleanup, and disposal of lead-based paint in public and Indian housing. It requires the housing authority to conduct random sample of dwellings and common areas where children live or are expected to live.

E. Worker Safety

The OSHA standards for occupational safety, health and environmental controls, found at 29 C.F.R. §1926, were amended in 1993 under new §1926.62, containing employee protection requirements for construction workers exposed to lead. The OSHA construction standard applies, but is not limited to, (1) demolition or salvage of structures where lead or materials containing lead are present; (2) removal or encapsulation of materials containing lead; (3) new construction, alteration, repair or renovation of structures, substrates, or portions containing lead or materials containing lead; (4) installation of products containing lead; (5) lead contamination from emergency cleanup; (6) transportation, disposal, storage or containment of lead or materials containing lead on the site or location at which construction activities are performed; and (7) maintenance operations associated with construction activities described above.[x]

The Amendment sets maximum limits of exposure to workers, referred to as the Permissible Exposure Limit (“PEL”). No employee may be exposed to lead at airborne concentrations greater than 50 ug/m3 (50 micrograms of lead per cubic meter of air) averaged over an 8 hour period.[xi] If an employee is exposed to lead for longer than an eight hour period in any work day, the employee’s permissible exposure should be reduced by 400 divided by the total number of hours worked in the day.[xii]

The amendment also establishes an “action level”, above which the employer must perform monitoring. If there is any lead presence in the workplace, the employer is required to make an initial determination by monitoring the employee’s exposures to determine whether the employees are exposed to lead in excess of the action level. The action level is equal to thirty micrograms of lead per cubic meter of air averaged over an eight hour day.[xiii] If employee exposure is above the action level and PEL level, the employer must monitor quarterly, continuing until two consecutive measures are at or below the PEL. Employees must also be advised in writing of the employee’s exposure assessment results within 5 working days after its receipt.[xiv] Until the monitoring reflects that exposure limits are at or below the PEL, the employer is required to treat employees performing certain tasks as though they are exposed to lead in excess of the PEL, and to provide those employees with respirators, protective clothing and biological monitoring.[xv]

F. EPA Regulations

EPA’s regulations include, among other requirements, a mandate that all lead inspections, lead hazard screens, risk assessments and abatement activities be conducted by certified personnel in accordance with specific work practices designed to inform and protect the individuals most likely to be exposed to lead. 

Recently, the EPA revised its regulations concerning abatement work practices to add a “de minimus” rule which excludes certain small scale projects involving lead handling.[xvi] Under regulations that went into effect on March 6, 2001, EPA exempted certain projects from the work practice requirements (i.e. occupant protection procedures, clearance testing, use of certified personnel and other similar specialized lead hazard control practices and procedures) for conducting lead-based paint activities under both EPA’s regulations and HUD’s regulations. The exempted projects are those where the paint-lead hazards are less than:

1) Two square feet of deteriorated lead-based paint per room or equivalent;

2) Twenty square feet of deteriorated paint on the exterior building; or

3) Ten percent of the total surface area of deteriorated paint on an interior or exterior type of component with a small surface area. 

G. Other Federal Regulations

In addition, building contractors should be aware that separate federal regulations may have an overriding application to construction projects based upon the ultimate intended use of the facility. For example, building renovations designed to house children of head-start age (i.e. 3 to 5 years old), are subject to 45 C.F.R. 1304.53(a)(8) and (a)(10)(ix), which mandate that any day care center receiving federal funding must be lead-free, or in the alternative, the lead presence must be in an amount deemed “non-hazardous” to the minor occupants.

H. State and Local Lead Abatement Laws 

1. Missouri Lead Abatement Statutes and Regulations

Missouri currently requires lead abatement contractors for any lead abatement project to be licensed. Missouri has also enacted notification and work practice requirements for lead inspection and abatement projects. 

2. Kansas City Ordinance, Chapter 34

Kansas City’s “Lead Poisoning Control” Ordinance, Sec. 34-401 et seq., applies to all buildings or portions of buildings occupied or inhabited by humans. It prohibits the construction, erection, remodeling, or alteration of any dwelling that has exposed lead-bearing substances; or repairing, renovating, or demolishing any dwelling that might result in any person being exposed to lead bearing substances or their dust, debris, or contaminants. It is unlawful to apply any lead-bearing coating (including paint) on any interior or exterior surface of a dwelling, any toy, piece of furniture, or to sell any lead-bearing coating. 

The city has the right to enter into any dwelling to inspect for the presence of lead-bearing substances and has subpoena power to enter in the event that access is denied. If a violation is determined, the owner must submit, within 14 days of notification, a plan acceptable to the Kansas City health authority for remediation of the lead paint. If the plan is rejected, a hearing can be requested. Failure to remediate can lead to prosecution. The penalties can include declaration of the building as a nuisance (including ordering the building to be vacated until remediated), fines up to $500 and imprisonment up to 180 days.


In the past, lead-based paint was not considered a “hazardous material” per se. As a Massachusetts court recently held: “[L]ead paint is not hazardous when it remains embedded in a wall; it becomes so only when it is somehow released from the wall and ingested by humans.”[xvii] Reflecting this traditional viewpoint, the 1987 version of the American Institute of Architects AIA A201 General Terms and Conditions, Commercial Construction Contract, defined hazardous materials as including only asbestos and polychlorinated biphenyls (PCB’s). If either asbestos or PCB was discovered by the contractor, the contractor was entitled, upon written notice to the owner, to stop work until the materials were removed or rendered harmless.[xviii] The contractor would also be entitled to recover performance extension and delay damages for the interrupted time. Prior to 1997, no similar provisions existed relative to the discovery of unanticipated lead based paint. This left the contractor in the position of incurring significantly higher performance costs to comply with OSHA regulations on projects with lead based paint, with no corresponding contractual remedy save that of arguing, after the fact, a “changed condition”. Many contractors would also be unable to perform this work for lack of appropriate licensing, or applicable hazardous material insurance coverage.

This problem has largely been remedied through modifications made in the 1997 AIA’s model Construction Contract, A201 General Terms and Conditions. Specifically, the Terms and Conditions have been expanded to broadly include in their definition of hazardous material asbestos, PCBs, or “any other hazardous material”. If discovered, the Owner, following written notice by the contractor, must:

1. Retain a licensed laboratory to verify presence of hazardous material

2. Render the hazardous material harmless

3. Verify that it has been rendered harmless

4. Permit an extension of contract performance time, and

5. Allow the contractor “reasonable additional costs of shut-down, delay and start-up.” [xix]

Contractors who do not use the AIA A201 General Terms and Conditions and are performing on a pre-1978 structure should be sure to check the “hazardous material” definition clause in the contract, to ensure the definition includes lead-based paint.


The treatment of lead based paint in commercial construction remains subject to continued argument and modification. The “de minimum” exceptions play an important role in determining if or when abatement procedures must be followed. Sometimes these guidelines are ambiguous when applied to specific circumstances. However, contractors are urged to remember that good business practice stresses the importance of safety to the contractor’s workers, as well as to the general public. Accordingly, when facing lead based paint issues, the safest route is resolution of the issue in favor of maximum safety to all involved.


This article provides general coverage of its subject area. It is provided free, with the understanding that the author does not intend this article to be viewed as rendering legal advice or service. If legal advice is sought or required, the services of a competent professional should be sought. The author shall not be responsible for any damages resulting from any error, inaccuracy or omiss

* Ms. Farris acknowledges the assistance of Courtney Lieb in the preparation of this article. Ms. Lieb is a 1st year law student at the University of Missouri – Kansas City School of Law.

[i] United Steelworkers of Am. V. Marshall, 647l F.2d 1189, 1204 (D.C. Cir. 1980).

[ii] Id. At 1202.

[iii] Erio, Mary, “Lead-Based Paint Risk Management in Commercial and Residential Construction”, KCMBA Construction Law Seminar (Kansas City, MO 8/11/98).

[iv] Denton, William J., Esq., “Lead-Based Paint Disclosure Regulations”, KCMBA Construction Law Seminar (Kansas City, MO 8/11/98).

[v] Id.

[vi] Id.

[vii] Id.

[viii] Id.

[ix] Denton, “Lead Based Paint Disclosure Requirements”, supra, fn. 2

[x] 1993 Amendment, Subpart D, Title 29, CFR 1926

[xi] 29 C.F.R. §1926.62(c)(1993).

[xii] Id.

[xiii] 29 C.F.R. at §1926.62(d).

[xiv] Id.

[xv] Id.

[xvi] RSMo 701.316.

[xvii] Dorchester Mut. Fire Ins. Co. v. First Kostas Corp., 1998 WL 90742 (Mass. Super. Ct. 2/26/98).

[xviii] AIA A201 General Terms and Conditions, §10.1.2 (1987).

[xix] AIA A201 General Terms and Conditions, §§10.3.1; 10.3.2; 10.3.3 (1997). See also, Erickson , David R. and Bumb, Cathleen S., “Lead-Based Paint Regulations: A New Concern?”, 18 CONST. LAW. 4 (Oct. 1998).



A variety of liability issues regarding lead-based paint have been addressed in case law since the specific federal, state, and local statutes, regulations, and ordinances were enacted. The following summarizes some of the more recent cases dealing with abatement of lead-based paint in residential and limited commercial settings.

A. Actions Under Federal Tort Claim Act

Lancaster v. United States, 927 F.Supp. 887 (D. Maryland 1996). Tenant of VA Hospital staff housing brought action under Federal Tort Claim Act based on child’s exposure to lead paint. The Court granted the Government’s motion to dismiss finding: (1) prior hospital memo to residents established a policy regarding the lead-paint problem was general and thus did not deprive hospital officials of discretion, and (2) the decision regarding the scope of a subsequent warning to residents was a discretionary one grounded in economic and policy considerations.

B. Actions Against Lead Paint Manufacturer

City of Philadelphia v. Lead Industries Association, Inc., 994 F.2d 112 (3rd Cir. 1993). City and PHA sued lead paint manufacturers to recover costs associated with lead based paint abatement, asserting claims for product liability, negligent product design, strict product liability, negligent failure to warn, breach of warranty, fraud and misrepresentation, indemnification, restitution and punitive damages. The District Court granted Defendants’ motion to dismiss. Affirming on appeal, the court held that that Pennsylvania law would not permit recovery under theories of market share liability, alternative liability or enterprise liability.

C. Actions Against Landlords and Realtors

Williams-Ward v. Pitts, Inc., 908 F. Supp. 489 (D. Mass. 1995). A minor sued the manager of a HUD-owned apartment building for injuries that allegedly resulted from lead paint ingestion. The claims were asserted under the Massachusetts Lead Paint Act and the Court held that the Act was not preempted by any federal law. The Court further found that, under the Act, the manager was not the “owner” and that there was a genuine issue of fact as to the manager’s knowledge that a child under six years of ages resided at the premises that precluded summary judgment.

Davis v. Philadelphia Housing Authority, 121 F.3d 92 (3rd Cir. 1997). A minor, injured by lead poisoning, and his mother sued their landlord and the city housing authority under the Lead-Based Paint Poisoning Prevention Act and Pennsylvania state law. The District Court dismissed the case for lack of prudential standing. However, the Court of Appeals reversed the dismissal and held that the plaintiffs, as successors to the intended beneficiaries of the Act, satisfied the “zone of interest” test for prudential standing. 

Chapman v. Mutual Service Casualty Insurance Company, 35 F. Supp. 2d 699 (E.D. Wisconsin 1999). A minor and his parents brought a negligence suit against real estate agency and vendor alleging faulty inspection of their home for lead-based paint. Overruling defendants Motion for Summary Judgment, the court held that (1) the residential real estate contract’s “as is” clause did not bar claims against the agency for the negligent hiring, supervision, and inspection of contractor hired to paint house in connection with the mortgage loan approval process; (2) the “as is” clause barred claims against the agency for failure to investigate and warn about the presence of lead based paint, but only to the extent those claims were based on duties not imposed by statute or regulation; (3) a genuine issue of fact remained as to whether the agency violated its statutory duty to investigate and warn; (4) that vendor did not have a duty to investigate or warn purchasers about the presence of lead based paint; and (5) vendor did not have a duty to exercise reasonable care in hiring and supervising the contractor hired to paint the house.

D. Actions Against Housing Authorities

Elliott v. Chicago Housing Authority 2000 WL 263730 (N.D.Ill.) Feb. 28, 2000. Mothers of lead-poisoned children brought putative class action against Chicago Housing Authority (“CHA”) for alleged “pervasive and systemic violations” of the federal lead-based paint statutes by failing to inspect for lead paint, to enforce lead paint abatement, and to notify tenants of potential lead-based paint .Plaintiffs were granted (1) mandatory injunctive relief requiring CHA to comply with the federal lead-based paint regulations and (2) an order requiring CHA to establish a fund to medically monitor children exposed to lead-based paint hazards as result of CHA’s failure to comply with federal lead based paint statutes and regulations.

Hurt v. Philadelphia Housing Authority, 806 F. Supp. 515 (E.D. Pa. 1992). Low income housing tenants brought class action against Philadelphia Housing Authority, the City of Philadelphia, HUD, Pennsylvania Department of Health, manufacturers and sellers of lead pigment and paint, and related trade associations to recover damages for lead poisoning. The Court held that (1) the tenants could sue the PHA, but not the City, to enforce the Lead Based Paint Poisoning Preventing Act and the United States Housing Act; (2) the tenants were the intended beneficiaries of annual contribution contract between HUD and PHA; and (3) theories of enterprise liability and market share liability could not be used in suit against manufacturers and sellers.

E. Actions Against Cities

Santiago v. Hernandez and City of New York, 1999 WL 279512 (E.D. NY 4/29/99). Mother brought suit, against New York City and her landlord, on behalf of herself and her infant child for injuries related to child’s lead poisoning. Claims were alleged under the Lead Based Paint Poisoning and Prevention Act, the Housing and Community Development Act; and common law. The City moved to dismiss the claim against it and the Court held that, even through the City was a recipient of federal funds designed to address such hazards, it had no duty to remove lead-based paint hazards in Plaintiff’s home when those hazards were more appropriately dealt with by the landlord.

F. Actions Against Insurers

Campbell v. Metropolitan Property and Casualty Insurance Company (200 WL 297174 (S.D.N.Y.) March 21, 2000). When there are elevated levels of lead in a child’s blood during a time period for which the landlord has liability insurance, the child is deemed to have suffered bodily injury during the policy period and is entitled to policy coverage.

Chapman v. Mutual Service Casualty Insurance Company, 35 F. Supp. 2d 693 (E.D. Wisconsin 1999). A minor, son of the purchasers of home, developed lead toxicity and brought a negligence action against the real estate broker and insurer that issued business-owner’s policy. The Court held that the policy’s “professional services” exclusion did not exclude coverage for broker’s alleged negligence in selecting painter, inspecting his work, and failing to warn purchasers about presence of lead-based paint.

G. Actions Against Contractors: Hazardous Waste Disposal

In Re: Leon Sloan, Sr., J & L Renovation Company and Jimmie L. Furby, 1996 WL 506267, HUDBCA No. 96C106D3, HUDBCA No. 96-C107-D4, HUDBCA No. 96C-108-C5 (1996). HUD suspended, and considered debarring, contractors as a result of alleged (1) irregularities surrounding the clean-up of waste from a lead-based paint abatement project; (2) improper disposal of debris from the project; and (3) failure to adhere to HUD regulations concerning proper protective gear for workers involved in the project. The contractors requested a hearing, at which the Government withdrew the third charge based on changes to the contract. The first charge was dismissed by the judge because the clean-up, although hazardous, was not deemed unsafe due to high levels of lead, which was the basis for the HUD charge. The second charge was also dismissed because the contractors were able to persuade the judge that they would not have improperly disposed of the construction debris if they had known of a recent change in the law that prohibited the dumping. As a result of the hearing, no contractor was debarred and their suspensions were terminated.

H. Contract Disputes

TDS Painting and Restoration, Inc. v. Cooper Beech Farm, Inc., 699 A.2d 173 (Conn. App. 1997). TDS entered into a contract with Cooper Beech Farm for renovation of the main building on the farm. The contract did not set forth lead abatement requirements; however, the majority of the work required exterior painting, with the required work areas to be “covered thoroughly and cleaned up daily”. The owner subsequently withheld payment when contractor allegedly allowed dust and chips from the lead paint to contaminate the surrounding property. The contractor took no lead abatement precautions, other than using tarpaulins and other coverings, but the owner was unable to prove that this was a deviation from industry standards. The Court held that the contractor was not liable for the lead contamination.

Missouri Retainage Law: Show Me The Money Or Holding The Money?

Effective August 28, 2002, the Missouri Legislature enacted new requirements governing retainage treatment and release on private construction projects. The new legislation is intended to level the economic playing field, and in doing so, alters the former rules governing private construction projects and the computation and release of retainage. The statute additionally contains various penalties to assist in its enforcement. In particular, a heavy-handed owner, general contractor or upper tier subcontractor could find itself in violation of the statute.

The following seminar will address the nuts and bolts of the new statutory scheme, identify potential compliance issues for owners, general contractors and subcontractors, and employ a panel presentation of questions and answers to flesh out various aspects of the new law.

I. Historical Tie: Missouri Private Prompt Payment Act

A. Overview

The Missouri Private Prompt Payment Act (hereinafter referred to as the MPPPA) was enacted in 1995 and is applicable to late payments on private construction contracts. [1] The statute underwent extensive revisions in 2002 to include significant revisions to the law on retainage withholding.

The Missouri Private Prompt Pay Act (MPPPA) applies to all private contracts executed after August 28, 1995, except those for improvements or construction to owner-occupied residential property involving four units or less. The newly enacted and related retainage statute, RSMo §436.300, applies to all contracts entered after August 28, 2002.

B. Payment Due

Unlike the Public Works Prompt Payment Act, the statute governing private construction payment does not outline various scenarios of when payment is due. The statute merely provides that “payment due” is based upon the contract terms expressing the agreement of the parties. Owners and contractors alike are encouraged to closely review contract terms defining when payment is due.

C. Remedies

The MPPPA allows the court to award statutory penalty interest and attorneys fees to the prevailing party. [2] The most significant deviation of the MPPA (public contracts) from the MPPPA (private contracts) is that the private statute does not require a finding of “bad faith” in the withholding decision in order to apply to the Act’s penalties. In other words, under the public Prompt Payment Act (MPPA), penalty interest and attorneys fees will not be awarded without evidence of “bad faith” in the withholding. In contrast, the private Prompt Payment Act can assess penalties based only on evidence that payment was not made when due under the contract.

The private Prompt Payment Act assesses penalty interest “up to one and one-half percent per month from the date payment was due pursuant to the terms of the contract.” [3] The amount of penalty interest is discretionary with the court, but cannot exceed the one and one-half percent per month amount. Since the penalty amount is not defined, the owner and general contractor should specifically negotiate the interest amount that will be applicable. If the contract is silent, the statute permits the court full discretion to set the penalty interest amount, up to 18% per annum. The statute also permits the court full discretion to award recovery of attorney’s fees to the “prevailing party”. [4]

II. Missouri Retainage Act

A. Overview

In 2002, the private Prompt Payment Act was amended by the legislative enactment of related statute RSMo §436.300 et. seq.. Applicable to all private construction contracts entered into after August 28, 2002[5], the new statute contains specific limitations on retainage and timing of retainage payments on projects. Prior to this law, there were no statutory restrictions on retainage for private construction projects in Missouri.

First note that “retainage” is a term which refers to a specific portion of a contract sum that is withheld from progress payments in a construction contract. The purpose of retainage is to provide the holder security against a performance default.

The new Retainage Act contains specific limitations on retainage and timing of retainage payments, plus automatic penalties if retainage is not released according to the timeframes and conditions set forth in the statute. Prior to this law, there were no statutory restrictions on retainage for private construction projects in Missouri.

Because the Act is new, there is, and most likely will be, no interpretative case law defining its parameters for several years. This fact, combined with the broad and somewhat vague provisions in the Act, has left the impact of the Act open to some speculation. The following is a summary of the Act’s most significant requirements.

B. Significant Requirements

The Act’s significant new requirements include:

(1) It limits the contract retainage rate in most private construction contracts, subcontracts and purchase orders to no more than 10%. [6] The owner may withhold more retainage only upon a determination that additional amounts must be withheld to protect satisfactory performance of the contract. [7]

(2) If a contractor or a subcontractor supplies the owner with “acceptable substitute security” (specifically defined as a surety bond, a certificate of deposit or unconditional letter of credit[8]), that contractor or subcontractor’s retainage must be released by the owner within 5 days after acceptable substitute security is provided.[9]

(3) If a subcontractor or contractor tenders substitute security in the form of a letter of credit, it must be renewed at least sixty days before its expiration or the owner may draw upon it regardless of the contractor’s or subcontractor’s performance, in the amount of any work yet unperformed.[10]

(4) The Act prohibits any contractor from withholding retainage from its subcontractors or suppliers in an amount greater than that withheld by the project owner, unless additional sums are necessary to ensure satisfactory performance of the contract.[11]

(5) It requires the project owner to release the retainage of early finishing subcontractors “following the general contractor’s request for the release of the retainage,” if it is determined that the subcontractor’s performance has been satisfactorily completed,” and if it is determined that such release is “without risk to the owner. [12]

(6) It requires the project owner to release all retainage within 30 days of substantial completion, less an amount equal to 150% of the costs to complete any remaining punch list work. [13] (Under the statute, “substantial completion” is determined by the issuance of a certificate of substantial completion by the project architect or engineer or by the owner’s acceptance of the “performance of the full contract.”)[14]

(7) It requires the general contractor to release retainage to subcontractors within 7 days of receipt of retainage from an owner.[15]

(8) It authorizes a court to award attorney’s fees and 18% interest to a claimant in the event that retainage is improperly withheld. [16] However, it also protects the owner and general contractor from frivolous litigation by authorizing award of attorney fees to the “prevailing party” if litigation ensues.[17]

The Act does not apply to single family residential construction or contracts for the construction of other residential construction of four or fewer units in a building.[18] The Act additionally provides that agreements will be unenforceable to the extent that they are inconsistent with this law for any contracts entered into on or after August 28, 2002. [19] In other words, if your contract contains language which requires the payment of retainage on terms which conflict with Missouri’s retainage statute, the statute will legally trump the conflicting contract terms and potentially expose non-complying parties to the statutory penalties.

C. Potential Issues

Aside from the prompt payment implications of the Act, the law has far-reaching and important consequences for most players in the construction industry.

1. The “Trust Fund” Issues

Section 436.303 of the Act compels an owner to hold retainage “in trust for the benefit of the contractor and the contractor’s subcontractors, sub-subcontractors, and suppliers at whatever tier who are not in default, in proportion to their respective interests.”

For owners, this language can create several potential issues, including:

It prohibits the owner from using retainage held for the benefit of any subcontractor, sub-subcontractor or supplier who is not in default to ensure the performance of the project. In essence, the owner must figure out which sub is likely to be at fault for a problem that has come up, and only hold that sub’s money after substantial completion.[20] This is a new obligation for owners since the typical construction contract gives the owner the unfettered right to withhold retainage and other contract amounts otherwise due to the general contractor in the event of a default no matter whether the general contractor, a subcontractor or a supplier was responsible for the default.

It obligates the owner to require its general contractor to obtain and disclose to the owner the amount of retainage held against every subcontractor, sub-subcontractor and supplier on the project. Without this information, an owner cannot comply with the “trust fund” requirement in § 436.303 and withhold the correct amount on each subcontractor. The statute will result in prudent owners taking on significant accounting responsibility. Additionally, general contractors may see contract forms from owners which contain accounting and disclosure obligations not previously required of the general contractors.[21]

It requires release of retainage to subcontractors or suppliers who have completed work or material deliveries prior to substantial completion of the entire project, based on a determination that there is no “risk to the owner involving the subcontractor’s work.” There is, however, no direction in the Act concerning whom or how that determination must be made.

The “trust fund” language in the Act arguably creates a fiduciary duty from the owner to subcontractors and suppliers. The breach of this duty may create a tort cause of action which, in rare circumstances, could expose the owner to punitive damage claims. [22]

It exposes the owner, contractor or upper tier subcontractor holding retainage to 18% interest on funds and the attorney’s fees of the claimant in the event of a breach of the Act.[23]

2. “Substitute Security” Issues

The Act requires an owner to pay retainage within 5 days of receiving “acceptable” substitute security (letter of credit, surety bond or CD). [24] This in turn raises several issues, including:

The Act requires the owner and general contractor, in the short five day time period, to determine if the substitute security is “acceptable” under the Act and, if so, make payment of the retainage. The Act leaves some discretion to the owner in evaluating whether the security is “acceptable.” For instance, a Certificate of Deposit must be in a form “mutually agreeable to the project owner and contractor or subcontractor.” Additionally, while the Act states that a retainage bond must be “in the amount of the retainage released,” it is silent on the terms and conditions in the bond itself.

The “5 working day” payment time frame may cause issues because, on many private projects, the dispersal of funds to pay for construction is controlled by the lender. The traditional loan agreement, in most cases, does not anticipate release of retainage funds until the Project is over. Unless the owner has language in its loan documents obligating the bank to disperse retainage within “5 working days” of receiving adequate substitute security, the owner may have to look for money from other sources to avoid violating the Act and subjecting itself to interest and attorney’s fees penalties.

If the contractor has a surety bond in place, it may be necessary for the owner to get the surety’s consent prior to release of retainage. This will be difficult to do within the 5 day period contemplated by the Act.

The statute identifies “retainage bonds” as one form of acceptable “substitute security.” The retainage bond requirement, however, requires that the owner be named as the bond’s obligee. Most sureties will not issue a bond in favor of a party not “in privity of contract” with the obligee. This fact will make it difficult for a subcontractor or supplier, which does not have a contract with the Owner, to provide this type of security. The surety market is currently addressing this issue, however, it is unclear how many (if any) sureties will write retainage bonds in the form required by the Act. Some sureties are exploring the use of “dual obligee bonds,” although such bonds are typically disfavored in the industry. Costs for these bonds are uncertain as well.

Contractors, subcontractors and suppliers will have to weigh the cost of substitute security against the value of receiving its retainage. A retainage bond encumbers the subcontractor’s bonding capabilities, and may prevent the subcontractor from pursuing other work. A letter of credit or certificate of deposit requires either security or a cash outlay in an amount equal to the instrument. This may prevent entities from using retainage as working capital once they obtain the release of their retaingage by providing substitute security. Although the contractor is entitled to receive interest on the substitute security, contractors will have to determine whether that gain outweighs time and expense associated with obtaining a release of the retained funds.

3. Other Issues

In addition to the issues listed above, the statute raises other concerns which should be discussed and addressed by all companies potentially affected by the statute. Additional areas of concern include:

Statutory compliance may require extra attention when key employees are absent. Contract payment duties must be assigned to an adequate replacement due to the short time frames within the statute.

More owners may elect to abandon retainage altogether and look for other ways to ensure performance, such as requiring performance bonds more frequently. If they do so, general contractors will not have the right to hold retainage either. This may lead general contractors to require performance bonds from subcontractors (raising construction costs), or restrict the number of subcontractors with whom they will work (decreasing competition).

The law applies to all “contracts entered into after August 28, 2002,” but it is not clear how it applies to a contract between an owner and contractor entered before that date, and related subcontracts or purchase orders executed after that date. Theoretically, the owner-contractor agreement can call for retainage under the “old rules” but the subcontracts would be governed by the “new rules.” In other words, if the owner has no “trust” obligations because the general contract was executed before August 28, 2002, it is uncertain how a subcontractor can enforce its trust rights upstream where the owner is under no legal obligation to honor the statute.

III. Conclusion

The new retainage statute, read in conjunction with Missouri’s private Prompt Payment Act, serves the primary purpose of encouraging fair and prompt payment which in turn supports the growth of a vigorous and competitive construction industry. The Act aims to deter payment abuses by owners or general contractors against lower tiered subcontractors through unjustified retention of contract proceeds. The Prompt Payment laws shift the balance of power in the contracting arena toward the subcontractor. Owners, prime contractors and subcontractors alike may decide to withhold payment from their lower tiered subcontractors and vendors. However, the penalty provisions of the Acts, the developing case law stressing the remedial purpose of the acts, and the uncertainty of how a distant judge and jury will evaluate the surrounding facts, makes any withholding decision a potential economic liability.

Industry players should also realize that practical aspects of this statute suggest the statute’s procedures for retainage release will only be used in extraordinary situations. The substitute security provisions of the statute require the subcontractor or supplier to bear some expense, whether it is the financial cost of obtaining a letter of credit or certificate of deposit, or the reduction of its bonding capacity if a retainage bond is obtained. The costs to secure each of these substitutes must be measured against the economic advantage gained by the early retention release. Where the retainage at a maximum amounts to only 10% of the contract value, in most instances it will not be economically feasible to secure this early release.

As a final caveat, please note that the retainage and private prompt payment statutes are new and untested in the courts. It is likely that the retainage statute will be the subject of attempted legislative revisions to address some of the issues identified in this article. Even if no legislative amendments occur, subsequent court decisions will guide future application of the process. Under these facts, the contracting community is encouraged to be aware of the law, to understand its applications and potential issues, and with that knowledge to seek the professional advice of a local attorney, banker and accountant should you need more specific guidance on how these Acts may impact your company on a contract specific basis.

© Denise E. Farris. Esq. and Paul Odum, ,Esq., December 2002. All rights reserved. This article may not be reprinted nor reproduced in any manner without prior written permission by the authors The author may be contacted at: (913) 685-3192.

This article provides general coverage of its subject area. It is provided free, with the understanding that the authors, sponsors and/or publishers do not intend this article to be viewed as rendering legal advice or service. If legal advice is sought or required, the services of a competent professional should be sought. The authors, sponsors and/or publishers shall not be responsible for any damages resulting from any error, inaccuracy or omission contained in this publication.

Retainage, Trust and Escrow Requirements


Public Works Contracts         Private Contracts
AL      AZ     AR     CA             MO
CO     CT     DE      FL
GA     HI      KS     KY
LA      ME     MI     MN
MS     MT     NH     NJ
NM     NY     OK     OR
PA      RI      SD     TN


Public Works Contracts         Private Contracts
AZ     CO     DE     IL             AZ     CO     DE     IL
LA     MD     MI     NJ             MD     MI     MO    OK
NY     NC     ND     OK            TN     TX     WI
OR     PA     WA     WI


Public Works Contracts         Private Contracts
Mandatory    Optional            Mandatory    Optional
AR     IN         AL     CA         CA                 TN
MD    MI         CO     DE
NJ     NM        GA     KS
OH    VT         LA     NY
VA    WY        NC     PA

[1] RSMo 431.180 & RSMo 436.300 (2002)

[2] RSMo 431.180.2 (Supp. 2002)

[3] RSMo 431.180.2 (Supp. 2002)

[4] Id.

[5] RSMo §436.333; 436.336 (2002).

[6] RSMo §436.303 (2002).

[7] RSMo §436.303 (2002).

[8] RSMo §436.312.1 (1-3)(2002).

[9] RSMo §436.306.2 (2002)(contractors); RSMo §436.309 (2002). Note that the owner is required to release the retainage within five days of receipt of acceptable substitute security from the contractor. The contractor is required to release to the subcontractor retainage within five days of receipt of retainage from the owner after acceptable substitute security has been submitted to the owner.

[10] RSMo §436.312.1.1 (2002).

[11] RSMo §436.315 (2002).

[12] RSMo §436.321 (2002).

[13] RSMo §436.324 (2002).

[14] RSMo §436.327 (2002).

[15] RSMo §436.324 (2002).

[16] RSMo §436.333 (2002).

[17] Id.

[18] RSMo §436.336 (2002).

[19] RSMo §436.333 (2002).

[20] RSMo §436.303 (2002); RSMo §436.309 (2002); RSMo §436.321 (2002); RSMo §436.324 (2002).

[21] RSMo §436.321 (2002).

[22] See e.g. People v. Miller, 259 N.W. 2d 877, 78 Mich.App. 336 (1977) (identifying breach of fiduciary duty claim in similar Michigan retainage trust fund statute.)

[23] RSMo §436.333 (2002).

[24] RSMo §436.303; 436,306; 436.309; and 436.312 (2002).

Legal Landmines in Tenant Improvement Liens

Tenant space improvements are a common practice in the day to day life of small businesses. The small business owner may be the building owner and landlord, the tenant, or perhaps the construction contractor, subcontractor, supplier or design professional. In any case, when either performance or payment issues arise, potential tenant liens follow. The following article briefly explains, from a commercial construction context, these statutory and often complex laws:


  1. What is a mechanics lien? A mechanics lien is a statutory remedy which exists in all states. While varying from state to state, the mechanics lien typically permits an unpaid contractor, subcontractor, supplier or design professional who has provided labor or material improving the property to assert a “lien” against the real estate to cover the unpaid debt. In certain instances, the lien claimant (that is, the party filing and asserting the lien for nonpayment) can force a judicial sale of the real estate to collect its money.


  1. What is required to file a lien? In most instances the owner of the property must receive some form of notice indicating the party’s ability or intent to file a lien. The timing on these notices varies from state to state, and also the status of the lien claimant (i.e. whether it is a general contractor or a subcontractor or supplier). The notice is mandatory and failure to technically comply with the form, time and content of the notice may be fatal to the lien. In addition, all liens must be filed within strict time guidelines. Commercial construction liens in Missouri must be filed within six months of last providing labor or materials to the project. In Kansas, the claimant must file within four months of last providing labor or materials to the project if a General Contractor, and three months if a subcontractor. This time consideration does not include “punch list” or minor repair items, but is intended to cover substantive work to the project. The lien must also contain a “just and true account” of amounts due, must specifically identify the fee simple owner of the property as well as the legal description of the property, as well as other potential interest holders in the property such as mortgage holders, and must be served according to the specific statutes of the state in which it is filed. Because strict compliance with the statutes are required, and due to the technical nature of the lien process itself, all claimants should seek legal counsel to assist in full compliance with the statutory requirements.


  1. What effect does a lien filing have? The lien is recorded as an encumbrance, or “cloud”, on the title to that property. A property typically cannot be sold or transferred without the lien first being addressed. In other situations, a judicial lien foreclosure can order sale of the liened property to satisfy the lien. However, foreclosure of the lien requires strict compliance with the statute, within a specific time. Foreclosures in Kansas must occur within one year of the time of filing the lien; Missouri foreclosure actions must be commenced within six months after the lien filing.


  1. What happens if the work is done on leased property? Typically a lien against real property (i.e., the real estate and buildings constructed on same) apply only where the general contractor is working directly with the property’s fee simple owner. Thus contractors that work for tenants on leased property do not have lien rights under the general mechanics lien statute, but instead are subject to independent statutes which give lesser rights and rarely attach to the real estate but instead is limited to the removeable furniture, fixtures, equipment, construction materials, etc. of the tenant within the tenant space. In addition, a tenant lien claimant may claim an interest in any unexpired term of the lease; that is, purchase the lease in the foreclosure sale and attempt to sell the remaining rights under the lease at a commercially higher value than that purchased.


  1. What is “removable” items? Typically “removable items” will include new construction, materials, fixtures, machinery and other personal property (i.e., removeable property) installed on leased premises. Since the definition of “removeable” can be a source of great debate, it is typically defined as something which can be removed in an economically feasible manner without significant structural impairment or alteration.


  1. What procedural requirements apply to claiming a tenant lien? The lien is limited to those who provid the work or materials under contract with a tenant or agent of the tenant. The tenant lien claimant must comply with all of the procedural requirements that regular liens are subject to; i.e. notice to the owner of the property, filing and content deadlines, the submission of a just and true account, proper identification of property owners as well as the tenant space owner, and foreclosure compliance. Assuming that the court confirms the claimants lien rights, removable items cannot merely be carted off, but the claimant must first establish that the removal of improvements or machinery or other personal property is economically feasible and can be accomplished without damaging the premises.


  1. What occurs if a purchaser at a tenant lien foreclosure buys the forfeited lease and improvements? As mentioned above, the tenant lien foreclosure action permits a buyer to purchase not only the improvements but also the tenant’s remaining unexpired interest in the lien. When this occurs, the purchaser is given the same rights to the lease as would an assignee of the unexpired term of the lease. This is true even if the tenant had forfeited the lease, provided the landlord has not regained possession or obtained a judgment for possession before the work was performed. Thus the purchaser can reinstate the lease if the purchaser pays all past due rents, interest, costs and other money owed under the lease, or can assign the lease to another.


  1. Can a tenant lien ever be asserted against the real estate instead of just the tenant space and lease? Only if the lien claimant can establish that the tenant, in securing the contract for tenant space improvements, was acting as the “agent” of the property owner. The mere relationship of tenant/landlord does not create this agency. Instead, the tenant must show he/she was obligated to make the improvements at the demand of the landlord at the time the tenant executed the lease. Agency can also be proven if the premises are leased subject to a specific purpose and the premises can’t be used for that purpose without the necessary tenant improvements. The two most important factors are: (1) the owner’s knowledge and involvement in the construction of the improvements, and (2) the value and benefit of the improvements to the owner. If these two elements are present, a court may find the necessary agency relationship. This in turn exposes the entire property, and not just the tenant space, to the lien.


The lien process is obviously quite complicated. For this reason, whether you are a potential lien claimant, a tenant or landlord, if you are involved in a tenant lien situation, the advice of experienced legal counsel is urged.




This article provides general coverage of its subject area. It is provided with the understanding that the author, publisher and/or publication do not intend this article to be viewed as rendering legal advice or service. If legal advice is sought or required, the services of a competent professional licensed in your state should be sought. The author and the publisher shall not be liable for any damages resulting from any error, inaccuracy or omission contained in this publication.


© Denise E. Farris (July 2004). All rights reserved. This article may not be reprinted nor reproduced in any manner without the express permission of the author, who can be contacted at: Denise Farris, Farris Law Firm, L.L.C., 20355 Nall, Stilwell, KS 66085. Tel: 913-685-3192. Fax: 913-685-3292. Email:


Ms. Farris practices commercial construction, business and equine law. She has served as the past Chairperson of the Missouri Bar Construction Law Committee as well as the Kansas City Metropolitan Bar Committee, and is a current member of the national steering committee of the American Bar Association’s Forum on the Construction Industry. She also served as a board member to the City of Kansas City’s Fairness in Construction Board, and is a frequent author and lecturer on construction law topics both locally and nationally.

Socio-Economic Issues in Government Contracting: The A B C’s of Affirmative Action Compliance

  1. A: The “A”dvent of Affirmative Action

“Affirmative Action” remains one of the most divisive issues in public contracting today. However, where most government contracts require adherence to minority and women-owned business (MBE/WBE) utilization goals, the government contractor and legal practitioner alike must understand both the policy reasons underlying the programs, and the legal parameters in which those programs operate.

Broadly defined as a “formal effort to provide increased opportunities for women and ethnic minorities to overcome past patterns of discrimination,”[i] affirmative action dates back to the passage of Title VII, Civil Rights Act of 1964, which prohibited discrimination by private employers on the basis of race, color, religion, sex or national origin.[ii]

Executive orders subsequently issued in the 1960s, including Executive Order 11246,[iii] required federal government contractors’ compliance with implementation of affirmative action plans for recruitment, employment and promotion. In the early 1970s, regulations promulgated by the Nixon administration required preparation of written affirmative action plans, including goals and timetables, by those entities wishing to do business with government agencies.[iv] Additional programs, including the Section 8 program of the Small Business Administration, identified government contracts to be set aside specifically for small businesses owned and controlled by socially and economically disadvantaged individuals.[v] Accordingly, from the 1960s through the mid-1980s, affirmative action preferences and set-asides were treated as the accepted law of the land.

This landscape changed dramatically with the 1989 U.S. Supreme Court decision in City of Richmond v. J.A. Croson. Co.[vi] Issued in a political climate weary of unthinking set-asides, and in the face of a nation restlessly threatening a “reverse discrimination” backlash, the Croson decision identified an arsenal of Fourteenth Amendment Equal Protection challenges that in turn spelled the immediate demise of many state and municipal programs as they existed at the time. Thus the 1990s ushered in a decade of significant cases in which many affirmative action programs were either legally prohibited as violating the Fourteenth Amendment’s Equal Protection clause, or, in the alternative, were significantly modified to meet and survive the constitutional “strict scrutiny” requirements set out in Croson.

While Croson addressed municipal and state programs, the U.S. Supreme Court also took on federal affirmative action programs in the 1995 pivotal decision of Adarand Constructors, Inc. v. Pena [vii]. In Adarand, Congress, previously enjoying only “intermediate scrutiny”[viii] review of its federal affirmative action programs, was now judicially required to submit those programs to the same “strict scrutiny” review used under Croson for evaluating municipal and state affirmative action programs.

The years following these critical cases have been devoted to a detailed and painful reexamination of affirmative action, the underlying statistical studies establishing the basis for affirmative action programs, and the political ramifications of attacks against, or support of, continued affirmative action programs. Just as the Adarand case has now experienced three trips to the U.S. Supreme Court, so the public debate on affirmative action rages on. The issue generates intense interest from the construction associations as well as minority and women- owned businesses which face abandonment of more than one hundred sixty federal programs, statutes, regulations and executive orders granting some measure of “preference” to women or minorities in the areas of hiring, federal contracts, educational opportunities and grants.[ix]

This chapter examines the legal parameters for establishing constitutionally valid affirmative action programs; contains a brief summary of existing municipal, state and federal programs still in place; provides a prognosis as to affirmative action’s expected future status in light of the current makeup of the Supreme Court as well as the current presidential administration; and provides summaries of cases applying the Croson and Adarand standard. This chapter will also address potential consequences should contractors fail to comply with existing programs.


Affirmative action” is typically defined as those programs that “attempt to equalize the opportunity for women and racial minorities by explicitly taking into account their defining characteristics – sex or race – which have been the basis for discrimination.”[x] Thus, “affirmative action” is expressly based upon those race- and gender-specific classifications that are “inherently suspect” under the concept of a gender-neutral and color-blind Constitution.[xi]

  1. Development of the Standard of Review

To understand Adarand and Croson, the reader must understand the factual parameters of those cases developing the intermediate and strict scrutiny standards of constitutional review as applied to race or gender based programs.

The Court’s 1978 decision in Regents of the University of California v. Bakke[xii] is generally viewed as one of the first constitutional cases identifying the appropriate level of review for equal protection challenges to non-federal affirmative action programs.[xiii] In Bakke, the court reviewed the constitutional complaints of a white male applicant denied admission to the university’s medical school. Mr. Bakke alleged his denial resulted from the university’s minority admissions program, which was developed to increase racial diversity and mandated reservation of sixteen positions exclusively for disadvantaged minority applicants.[xiv] Justice Powell, author of the Court’s decision, recognized that a “strict scrutiny” standard should apply whenever classifications deny individual opportunities or benefits enjoyed by others because of race or ethnicity.[xv] Specifically, the Bakke decision stands for the proposition that “[r]acial and ethnic distinctions of any sort are inherently suspect, and thus call for the most exacting judicial examination.”[xvi] In a six to three decision, [xvii] the court determined the university’s benign racial preference, while potentially compelling, was not narrowly tailored to achieve racial diversity. The program was thus declared unconstitutional.[xviii]

Two years after Bakke, the Court in Fullilove v. Klutznick,[xix] used an “intermediate” or middle level of scrutiny to review the constitutionality of a federal minority set-aside program included in The Public Works and Employment Act of 1977. The Act contained an affirmative action provision which, while authorizing grants to state and local entities to use in local public works projects, simultaneously required ten percent of those funds to be awarded to minority-owned businesses. The ten percent goal was based on Congressional findings of past discrimination on a national basis.[xx]

Chief Justice Burger, writing for the majority, acknowledged judicial deference to Congress’ attempts to remedy past discrimination, identifying Congress as “a co-equal branch charged by the Constitution with the power … to enforce … the equal protection guarantees of the Fourteenth Amendment.”[xxi] Thus deferring to Congress’ “inherent authority”, the Court utilized a new “intermediate” level of scrutiny. The Court found the Act constitutional where the Act was deemed “substantially necessary to advance a compelling governmental interest.”[xxii]

In 1986, in Wygant v. Jackson Board of Education,[xxiii] the Court was asked to review a local board of education’s minority hiring preference set out in its collective bargaining agreement. Applying strict scrutiny to this non-federal program, the Court declared the program unconstitutional. Justice Powell, joined by Chief Justice Burger and Justices Rehnquist and O’Connor, held that the interest of providing minority role models as teachers was not a “sufficiently compelling governmental interest”. The court further found the program was not “narrowly tailored” to achieve that interest, even were it deemed compelling.[xxiv]

  1. Clarifying the Standard: City of Richmond v. J.A. Croson

In 1989, in the landmark case of City of Richmond v. J.A. Croson,[xxv] the Supreme Court prepared to delineate a universal standard of review for local and state affirmative action programs. The Croson Court was asked to review the constitutionality of a Richmond, Virginia municipal ordinance requiring prime contractors with city construction contracts to subcontract 30 percent of the dollar amount of each contract to minority-owned companies. The Richmond program was adopted after public hearing evidence which revealed that although the population of the city was approximately 50 percent African American and other minorities, less than one percent of the prime contracts awarded by the city over the preceding five years had gone to minorities. The city council, declaring its plan “remedial,” relied heavily on national data concerning discrimination in the construction industry. This data included information indicating that contractors’ associations in Richmond had few minorities; testimony of a city councilman that he was aware of widespread discrimination in the Richmond construction industry, and the Supreme Court’s deference to congressional findings of national discrimination in Fullilove v. Klutznick.[xxvi]

Under this factual backdrop, the J.A. Croson Company was low bidder on a city contract requiring installation of plumbing fixtures at the city jail. The Company attempted to meet the contract’s set-aside requirements by hiring a minority firm to supply the fixtures. When it could not find a minority supplier, it requested a waiver from the city.[xxvii] After a minority supplier was subsequently located, the City denied Croson’s waiver request. Because the bid by the minority firm for fixtures was substantially higher than the market price utilized in Croson’s initial bid, Croson asked the city to increase the contract price. The city refused and the project was put up for rebid.[xxviii]

Croson challenged the ordinance as unconstitutional both on its face and as applied, claiming the set-aside program violated his right to equal protection under the Fourteenth Amendment.[xxix] The U.S. Court of Appeals, Fourth Circuit, found the ordinance constitutional under an intermediate level of review. [xxx] Croson appealed. The Supreme Court vacated and remanded the Fourth Circuit decision for reconsideration under the strict scrutiny standard set forth in Wygant.[xxxi] The Fourth Circuit reversed its earlier decision and held the Richmond ordinance unconstitutional.[xxxii]   Richmond then appealed the Fourth’s Circuit’s holding, and the Supreme Court granted certiorari to review the case.

Justice O’Connor, writing for Croson’s five-member plurality, analyzed the ordinance under Wygant’s strict scrutiny standard of review.[xxxiii] Struggling with the different standards of review previously used by the Court, Justice O’Connor noted: “That Congress may identify and redress the effects of society-wide discrimination does not mean that, a fortiori, the States and their political subdivisions are free to decide that such remedies are appropriate.”[xxxiv] She further noted that where racial classifications are considered inherently suspect under the Constitution, the constitutional validity of any local, municipal or state affirmative action program must be analyzed under strict scrutiny.[xxxv] Accordingly, racial classification would be deemed constitutional only when justified by a “compelling government interest”, and “narrowly tailored” to accomplish that interest.[xxxvi] While the Croson decision addressed only municipal and state programs, it nonetheless suggested that this same standard of review would be applicable to any race-remedial program.[xxxvii]

The Croson decision was additionally instrumental in identifying specific factors used in evaluating whether a program was “narrowly tailored”. Specifically, the Court suggested that a “narrowly tailored” remedial program should:

  • be more than a mere promotion of racial balancing,
  • be based on the number of qualified minorities in the area capable of performing the scope of work identified in the set-aside plan;
  • not be over-inclusive by presuming discrimination against certain minorities,
  • consider race-neutral alternatives to set-aside programs, and
  • not require numerical quotas.[xxxviii]


Under this factual inquiry, the court found Richmond’s ordinance unconstitutional, where the City failed to identify specific acceptable evidence of past discrimination against blacks; based its program on inappropriate consideration of societal discrimination; relied on national Congressional findings of discrimination that were not directly applicable to the Richmond area; and implemented a plan that was not narrowly tailored to remedy discrimination, contained no race neutral alternatives and contained an inflexible waiver process.[xxxix]

Despite Croson’s seemingly clear guidelines, one year later in Metro Broadcasting, Inc. v. FCC,[xl] the Court again reverted to an intermediate level of scrutiny, [xli] surprisingly failing to follow its previous suggestion in Croson that all race remedial programs should be subject to strict scrutiny review. The conflict is explained as follows.

In Metro Broadcasting, the Court was asked to review the constitutionality of an FCC program that (1) awarded extra credit to minority-owned businesses in comparative proceedings for new licenses, and (2) provided station owners in danger of losing their FCC licenses the means to transfer those licenses to approved minority enterprises under a “distress sale.”[xlii] Writing for the majority, Justice Brennan noted the Court’s deference to Congress, and its decision to utilize intermediate scrutiny, because the FCC’s minority ownership programs had not only been specifically approved, but also mandated by Congress.[xliii] Moreover, the court noted that both Congress and the President ratified the program through appropriation bills that specifically barred the FCC from using federal funds to re-examine that policy.[xliv] The Court thus found the program constitutional, noting the difference between the standard of review used for local and state programs on the one hand, and federal programs on the other. Specifically the Court noted:

[B] enign race-conscious measures mandated by Congress – even if those measures are not “remedial” in the sense of being designed to compensate victims of past governmental or societal discrimination – are constitutionally permissible to the extent that they serve important governmental objectives within the power of Congress and are substantially related to achievement of those objectives…Much of the language and reasoning in Croson reaffirmed the lesson of Fullilove, that race-conscious classifications adopted by Congress to address racial and ethnic discrimination are subject to a different standard than such classifications prescribed by state and local governments…[xlv]



Against this mottled background, the Court in the 1995 decision Adarand Constructors, Inc. v. Pena, [xlvi] was forced to confront the legal inconsistencies it had created over the previous 20 years. The Court appeared clearly troubled with the notion that race-remedial programs implemented by local, municipal and state governments were subjected to a much more exacting review than similar programs implemented by Congress. Adarand presented the right facts for the Court to reexamine and conclusively resolve the conflict.

In Adarand, the court examined a 1989 award of a prime highway construction contract by the Central Federal Lands Highway Division to Mountain Gravel & Construction Company.[xlvii] The contract provided that Mountain Gravel would receive additional compensation if it hired subcontractors that were small business certified and controlled by “socially and economically disadvantaged individuals.” This provision was incorporated into the contract pursuant to a separate federal statutory subcontracting clause that required such incentives to be inserted into most federal agency contracts.[xlviii] The federal contracting clause also identified specific categories of individuals presumed to be “socially and economically disadvantaged”.[xlix]

Pursuant to this incentive clause, Mountain Gravel awarded a subcontract to Gonzales Construction, a certified disadvantaged small business enterprise, even though competing majority-owned subcontractor Adarand Constructors, Inc. had submitted a lower bid.[l] Adarand challenged the constitutionality of the subcontractor’s clause in the federal district court on equal protection grounds.[li] At the District Court level, Adarand lost on summary judgment where the district court deemed the program constitutional under the intermediate scrutiny test established in Fullilove and Metro Broadcasting.   Adarand appealed to the U.S. Court of Appeals for the Tenth Circuit, which affirmed the district court’s grant of summary judgment against Adarand.[lii] The Supreme Court granted certiorari.[liii] The issue before the Court was whether the trial court and Tenth Circuit erred in reviewing the federal construction program under an intermediate scrutiny standard.

The Court, in a 5-4 split decision common in affirmative action rulings, held that the Tenth Circuit had erred, even though the Tenth Circuit’s decision had followed judicial precedent from Fullilove and Metro Broadcasting. The Adarand majority opinion, written by Croson author Justice O’Connor, held that strict scrutiny is the appropriate standard of review for any program, federal or non-federal, which uses racial or ethnic classifications as the basis for decision making.[liv]

Forced to explain its decision in Metro Broadcasting, Justice O’Connor noted the Court’s prior failure to produce majority opinions in Fullilove and Wygant. This “left unresolved the proper analysis for remedial race-based governmental action.”[lv]   Justice O’Connor reasoned that equal protection analysis under both the Fifth and Fourteenth Amendments were essentially the same,[lvi] thus arguably destroying those policy arguments that previously supported deference to Congress. Justice O’Connor criticized the Court’s earlier decision in Metro Broadcasting both as a departure from the legal principles set forth in Croson, and for ignoring the Court’s proposition in Croson which espoused application of similar standards to review of both federal and state racial classifications.[lvii]

In a strong concurring opinion, Justice Scalia wrote “the government can never have a ‘compelling interest’ in discriminating on the basis of race in order to ‘make up’ for past racial discrimination in the opposite direction … There can be no such thing as either a creditor or a debtor race.”[lviii] Justice Thomas submitted a separate concurring opinion, noting that while the program may have been motivated by good intentions, that fact alone “cannot provide refuge from the principle that under our Constitution, the government may not make distinctions on the basis of race.”[lix] Adopting Justice Powell’s sentiments from the 1978 decision of Bakke, Justice Thomas reasoned that set-aside programs caused minorities “to adopt an attitude that they are ‘entitled’ to preferences,” which in turn stamps a badge of inferiority on minorities to their detriment.[lx]

Justices Stevens, Souter and Ginsberg filed dissenting opinions, the latter joined by Justice Breyer. Justice Stevens, the author of the court’s 1978 majority opinion in Bakke, criticized the Court for not differentiating between federal and state affirmative action programs in accordance with precedent and the concept of congressional deference.[lxi] Justice Stevens stated “[a] n attempt by the majority to exclude members of a minority race from a regulated market is fundamentally different from a [race-based] subsidy that enables a relatively small group of [minorities] to enter that market.”[lxii] Stevens also criticized the majority’s analysis of the doctrine of stare decisis, noting the court failed to follow Fullilove yet did not expressly overrule it.[lxiii] The presence of strong concurring and/or dissenting opinions on each of the major affirmative action decisions emphasizes the divisive nature of this complex legal issue.

In a separate dissent, Justice Souter argued that Fullilove established judicial precedent that simply could not be ignored by the court.[lxiv]   Agreeing with Justices Stevens and Souter, Justice Ginsburg also argued that the Court’s prior judicial deference to Congress was appropriate when reviewing federal affirmative action programs.[lxv] However, Justice Ginsburg also advocated “close review” of affirmative action programs, so that preferences do not “trammel unduly upon the opportunities of others.”[lxvi]

The ultimate holding in Adarand I, applicable to federal as well as non-federal remedial programs, is that under a strict scrutiny level of review, racial classifications will survive constitutional review “only if they are narrowly tailored measures that further compelling governmental interests.”[lxvii] The case was thus remanded back to the District Court for a factual determination of whether the government had proven its compelling interest, and if so, whether the program was “narrowly tailored” to address that interest.[lxviii]

  1. Subsequent Adarand History

Adarand took a complicated path following its first remand to the trial court, and ultimately found its way to the U.S. Supreme Court two additional times.[lxix] The facts and legal issues framed in Adarand I were significantly altered in Adarand II .[lxx] Among the changed circumstances were changes in the plaintiff’s legal standing, changes in the details of the challenged federal program, and regulatory reforms instituted under the Clinton Administration’s “Mend It—Don’t End It” policy.[lxxi]

On Adarand’s first remand, the district court addressed the proper scope of Congressional authority in finding evidence of “national” discrimination. [lxxii] Adopting through dicta the deference to Congress earlier expressed in Fullilove, the court ruled that the “congruence” factor cited by Justice O’Connor did not mean that federal affirmative action programs must be supported by the same “particularized” showing of past discrimination required in state and local programs.[lxxiii] Instead, the district court opined that “Congress’ constitutionally imposed role as … guardian against racial discrimination” under §5 of the Fourteenth Amendment more broadly empowered the national legislature to enact remedies for discrimination nationwide. Thus under the district court’s ruling, findings of nationwide discrimination derived from congressional hearings and statements of federal lawmakers were entitled to greater weight than the “conclusory statements” of state or local legislators rejected by Croson. Congress was thus able to “recognize a nationwide evil and act accordingly provided the chosen remedy is narrowly tailored so as to preclude the application of a race-conscious measure where it is not warranted.” [lxxiv] The court additionally found that although Congress had proven a “compelling interest”, the challenged program was not sufficiently “narrowly tailored” to pass constitutional scrutiny.

The district court’s finding rested on a very detailed analysis of the federal contract program being challenged. However, legal scholars and others reviewing the decision were disturbed by the district court’s definition of factors constituting a “narrowly tailored” program, fearing that the decision would relate unfavorably to existing federal small disadvantaged business programs. As one commentator noted:

First, the optional or voluntary nature of the SCC program was not enough to save it, notwithstanding the fact that prime contractors were free to accept bid proposals from any subcontractor, regardless of race or ethnicity. The government’s failure to prevail on this issue was deemed to cast a long shadow over other federal minority contracting efforts … which, under Judge Kane’s reasoning, could generally be viewed as imposing a “choice based only on race” at least as “mandatory” and “absolute” as the incentive payment to prime contractors in Adarand. … [Second,] the fact that the SCC program did not expressly incorporate any “goals, quotas or set-asides” was not sufficient to divorce it, in the district court’s view, from the percentage goal requirements imposed by statutes the program was designed to implement. Those statutory provisions … were deemed invalid for lack of narrow tailoring. If left standing, the district court ruling would have placed in question much of the federal government’s current effort to advance minority small business participation in the procurement process by race-conscious means”.[lxxv]


The government appealed this second district court opinion. However, before the 10th Circuit could hear the appeal, the State of Colorado voluntarily modified its racial presumptions as set forth in the challenged program. The State additionally certified the non-minority owner of Adarand Constructors, Inc. as “disadvantaged.” As a result of these two significant factual changes, the Tenth Circuit dismissed the pending appeal as “moot,” and vacated the judgment against the Government.[lxxvi] The Tenth Circuit’s order was then appealed to the U.S. Supreme Court, who on January 20, 2000 rejected the 10th Circuit’s argument that the matter was moot. Specifically, the Supreme Court in Adarand II held that where there was nothing to prevent the government from reviving the abandoned policy, the matter was not yet moot. The Supreme Court thus remanded the case to the Tenth Circuit Court of Appeals for further legal findings.[lxxvii]

On September 25, 2000, the Tenth Circuit Court of Appeals issued its ruling in Adarand Constructors v. Slater.[lxxviii] The appellate court held that while the challenged federal highway program’s use of financial incentives to promote use of minority and “disadvantaged” small businesses was unconstitutional as it existed at the time of Adarand I, as revised and amended in 1997 under Adarand II, it was now sufficiently narrowly tailored to address a compelling interest. The program was thus found constitutional as it currently stood. [lxxix]

The Tenth Circuit’s opinion contains a number of significant holdings, many of which were not earlier considered by the Supreme Court. The Tenth Circuit agreed that the federal government had a “compelling interest” in preventing and remedying the effects of past discrimination in government contracting. However, it also held that the scope of Congress’ authority to act was not limited geographically, or to specific instances of discrimination – as in the case of states and localities under Croson – but extended “society-wide and therefore nationwide.”[lxxx]   The appellate court further found that the evidence relied upon by Congress, as derived in large part from national, state and municipal disparity studies generated over a twenty year period, sufficiently identified barriers to minorities in construction in the form of “old boy networks,” racism in construction trade unions, and denial of access to bonding, credit and capital faced by small and disadvantaged businesses and, predominantly, minority businesses.[lxxxi] Accordingly, the 10th Circuit found that Congress had a “compelling interest,” or a “strong basis in evidence,” in concluding that passive federal complicity with private discrimination in the construction industry contributed to discriminatory barriers in federal contracting.[lxxxii]

Next addressing whether the program was “narrowly tailored”, the Tenth Circuit adopted a two-tiered analysis. First, the Tenth Circuit concluded that many of the constitutional flaws identified in the district court’s remand decision had been eliminated and/or remedied through the program’s subsequent modifications. Specifically, the revised program implemented a variety of race-neutral measures, which were previously identified in the 1958 enactment of the Small Business Act but had never subsequently been considered by the Department of Transportation in earlier versions of its program. These included bonding, financing and technical assistance services made uniformly available to minorities and small businesses alike, regardless of race or gender.[lxxxiii] Second, the revised regulations incorporated the time limits and graduation requirements for participation of disadvantaged businesses in the §§8(a) and 8(d) programs, which ensured the programs’ limited duration.[lxxxiv] The revised program’s financial incentives were found to be more flexible than any mandatory set-asides where they were voluntary on the part of prime contractors, and where the post-1996 revisions included express waiver and exemption procedures.[lxxxv]

Despite its careful and scholarly wording, the Tenth Circuit’s decision was again appealed. In November of 2001, the Adarand case made its third trip to the Supreme Court. In granting the writ for certiorari, the Court anticipated addressing only two discrete issues:

  1. Whether the Court of Appeals misapplied the strict scrutiny standard in determining if Congress had a compelling interest to enact legislation designed to remedy the effects of racial discrimination; and


  1. Whether the United States Department of Transportation’s current Disadvantaged Business Enterprise program is narrowly tailored to serve a compelling governmental interest.[lxxxvi]


The nation awaited this final appeal in hopes that Adarand III would provide the end-all, be-all definition as to the legality of affirmative action. However, the Court’s ultimate opinion was a vast disappointment to all, where a short summary disposition was issued on the basis of various procedural issues which negated any substantive analysis. Specifically, the legal issues framed in the 10th Circuit decision were altered by subsequent developments in the program and the parties’ standing. After reviewing the briefs, the Supreme Court concluded that Adarand was now, on its third visit to the Court, asking the Court to determine issues that had not previously been reviewed by the Tenth Circuit. Originally, the Tenth Circuit “confined its opinion to the constitutionality of the DOT’s DBE program as it pertains to procurement of federal funds for highway projects let by States and localities.”[lxxxvii] However, when the case came before the Supreme Court for the third time, Adarand modified its challenge from the DOT’s state and local procurement program to “only the statutes and regulations that pertain to direct procurement of DOT funds for highway construction on federal land”. The court found this inquiry substantially different from those reviewed by the Tenth Circuit and certified for appeal.[lxxxviii]   The court noted that the procurement of federal funds for highway projects let by states and localities were governed by regulations issued by the Secretary of Transportation under the TEA-21 legislation, while the Small Business Act governed federal procurement.[lxxxix] Accordingly, the Court dismissed the case for two reasons, the first being that the Court of Appeals did not consider or rule on the new challenge raised by the petitioner (i.e., whether race-based programs applicable to direct federal contracting could satisfy strict scrutiny) and thus precluded the Supreme Court from deciding the issue,[xc] and the second being that the Court of Appeals had already determined that the subcontractor did not have standing to challenge other race-based programs. Although the Court noted its obligation to examine standing sua sponte where standing has been erroneously assumed, the Court did not agree to examine standing to reach an issue for which standing had already been denied. Although finding the issues asserted in the briefs of “fundamental national importance”, the Court did not want to usurp the adjudicatory process.[xci]

Lacking Supreme Court guidance as to the 10th Circuit’s definition of “narrowly tailored”, there again remains elements of uncertainty regarding affirmative action challenges at the state and federal level. However, certain principles have emerged from the Croson and Adarand decisions. Lower courts addressing the constitutional validity of local affirmative action programs have found evidence of local past discrimination to constitute a “compelling governmental interest.” However, the same courts have reached varied results as to whether the resulting program was “narrowly tailored” so as to pass strict scrutiny examination.[xcii]

  1. Requisite “Croson” Statistical Studies

Perhaps the most significant result of Croson and Adarand is the development of case law requiring programs asserting a “compelling interest” to be backed by targeted and statistically valid discriminatory impact studies. Accordingly, the vast majority of failed municipal, state and federal programs result from constitutional challenges based upon the program’s lack of valid statistical support. Referred to generically as “Croson Studies,” these studies are a crucial element in applying, and then legally defending, any form of government race based programs.

  1. “The Compelling Government Interest”

Under Croson and Adarand, to be constitutionally valid, an affirmative action program must first serve a “compelling governmental interest”.[xciii] Remedying a governmental entity’s own past discrimination constitutes this “compelling government interest.”[xciv] However, governments must have a “strong basis in evidence for its conclusion that remedial action [is] necessary.”[xcv]

Given what Justice O’Connor determined to be the gross inadequacy of the record in Croson, the Court did not fully address what showing was required to demonstrate a compelling government interest. However, in Wygant, the Court stated that a local or state public employer need not “convinc[e] the court of its liability for prior unlawful discrimination; nor does it mean that the court must make an actual finding of prior discrimination based on [the government’s] proof before the [the government’s] affirmative action plan will be upheld.”[xcvi] Rather, the courts should follow a flexible approach in determining whether there exists a “firm basis” for determining that affirmative action is warranted.[xcvii] The government’s burden of establishing a compelling governmental interest is thus satisfied by establishing reliable statistical proof of past discrimination against specifically identified minority or gender-based groups.

The Croson decision provides generic guidance as to the requirements of a valid study. Justice O’Connor suggested that “[w]here gross statistical disparities can be shown, they alone in a proper case may constitute prima facie proof of a pattern or practice of discrimination under Title VII.”[xcviii] By implication, this same standard would apply to set-aside plans. However, as evidenced in Coral Constr. Co. v. King County,[xcix] lower courts prefer to rely on a combination of both statistical as well as testimonial or anecdotal evidence. In addition, where testimonial evidence is given, that evidence must first be reliable, and must moreover relate to specific instances of discrimination versus the generalized allegations of discrimination rejected in Croson.

Challenges to existing programs rely heavily on the lack of reliable statistical studies to refute proof of a “compelling government interest”.[c]   These challenges demonstrate that courts will not accept conclusory or anecdotal allegations of discrimination, but instead require proof of the compelling interest via detailed and statistically sound disparity impact studies which are probative, regionally relevant, and analyzed as to discriminatory versus non-discriminatory factors such as company size versus race or gender of owners. [ci] The cases additionally suggest that the statistical studies must be current, which in turn implies an affirmative duty upon governmental owners to update the studies on a regular basis.[cii] This duty, while largely unexplored in a legal context, may in fact prove a pointed weapon against certain affirmative action programs where it is certain that years of affirmative action program implementation and government record keeping since Croson may have the unintended consequence of statistically proving that past discrimination has effectively been “remedied” during that period.

  1. “Narrowly Tailored”

In addition to proof of “compelling interest” (i.e. evidence of past discrimination), the affirmative action program must also be “narrowly tailored” to address and remedy that discrimination. This analysis looks to whether the program, on its face or as applied, is overbroad or under inclusive, as well as whether it contains race neutral factors. As recalled, the Croson decision tells us that a “narrowly tailored” analysis must examine whether the program is:

  • More than a mere promotion of racial balancing,
  • Based on the number of qualified minorities in the area capable of performing the scope of work identified in the set-aside plan;
  • Not over-inclusive by presuming discrimination against certain minorities,
  • Complete with race-neutral alternatives to set-aside programs, and
  • Not based upon numerical quotas.[ciii]

In other words, for a program to be constitutionally valid, it must identify remedial steps to remedy past discrimination against those specifically identified groups, and not to all identified minority groups where such groups do not have a statistical presence in the affected region. Thus if an affirmative action program includes groups that have not been subject to past discrimination, the entire program may be declared overbroad and thus constitutionally invalid. For example, the affirmative action plan in Croson was declared invalid where it provided set-asides not only for African Americans, but also for persons of Hispanic, Oriental, Indian, Eskimo and Aleutian heritage. [civ] The program was declared overbroad where there was no evidence proving a statistical presence of either Eskimo or Aleutian contractors in the Richmond area. [cv]

In Croson, the Court also suggested that Richmond’s program was unconstitutional where it did not consider “race neutral” means to increase minority participation in contracting before adopting its race-based measure.[cvi] The Court reasoned that because minority businesses tend to be smaller and less-established, providing race-neutral financial and technical assistance to small and/or new firms and relaxing bonding requirements might achieve the desired remedial results in public contracting by increasing opportunities for minority businesses.[cvii]

Justice Scalia suggested a more aggressive idea, namely to “adopt a preference for small businesses, or even for new businesses – which would make it easier for those previously excluded by discrimination to enter the field. Such programs may well have a racially disproportionate impact, but they are not based on race.”[cviii] Where such programs would be race-neutral in their entirety, they would not be subjected to strict scrutiny review. [cix]

Other race neutral factors include, but are not limited to, advertising contracting opportunities in publications and media targeted to minorities, women and small business; providing written notice to small companies in sufficient time to allow them to bid; educating small businesses on how to do business with the governmental entity; encouraging the formation of joint ventures between majority/minority and/or small business firms; assisting small contractors in obtaining bonds, lines of credit and insurance; segmenting larger contracts into smaller jobs capable of performance by small contractors; and utilizing the resources of business development organizations to assist small contractors in the growth of their business.[cx]

  2. Internal Agency Directives

The government confusion engendered by the Adarand cases was immediately apparent through review of numerous internal directives issued fast on the tail of Adarand I. First, the Department of Justice issued a thirty-seven-page memorandum to federal agencies providing guidance in light of the Adarand I decision. Briefly summarized, the Memorandum advised:

  • All federal programs that used race or ethnicity as a basis for decision-making had to be re-evaluated to determine if they complied with the strict scrutiny standard set forth in Adarand and
  • Such evaluations had to take place before the suspension of any program.
  • The programs were to be evaluated under a list of questions provided by the Department of Justice.

–           The agencies were to further look to the affirmative action program and agenda as propounded by the Clinton Administration.[cxi]

Many agencies relying on federal programs for funding decided to simply put their affirmative action programs on hold pending further clarification from the courts. For example, the Missouri Highway and Transportation Commission issued a memorandum to its contractors that advised:

“After discussions with our legal counsel and with the Federal Highway Administration, we believe it is necessary to put our DBE set-aside program on hold until we have further information concerning the legality and possible problems involved with programs such as our DBE Set-Aside Program.”

In contrast, many of the funding agencies adopted a divergent approach. For example, soon after Adarand I was issued, the Federal Highway Administration issued a memorandum discussing Adarand’s effect on the Department of Transportation programs. The memo concluded that because the Court in Adarand did not declare any federal law unconstitutional, the current laws and regulations encouraging minority contracting would remain in effect as a condition of receiving federal monies “until further notice”. This conclusion reflected the general sentiment among governmental agencies that until the district court issued a decision in Adarand on remand, or a binding legal decision was rendered that actually found that the government’s existing program was unconstitutional, federal agencies should proceed with their existing MBE/WBE programs on a “business as usual” basis. This approach appeared justified by Justice O’Connor’s opinion in Adarand, as noted in the syllabus:

“Requiring strict scrutiny is the best way to ensure that courts will consistently give racial classifications a detailed examination, as to both ends and means. It is not true that strict scrutiny is strict in theory, but fatal in fact. Government is not disqualified from acting in response to the unhappy persistence of both the practice and the lingering effects of racial discrimination against minority groups in this country. When race-based action is necessary to further a compelling interest, such action is within constitutional constraints if it satisfies the “narrow tailoring” test set out in this Court’s previous cases.[cxii]

Many of the fact-based inquiries identified in Adarand I were thus addressed and subsequently remedied by the State of Colorado’s modified program, discussed and held constitutionally valid by the 10th Circuit in Adarand v. Slater.[cxiii]

  1. Regulatory Reforms

While some confusion remains, most government contracting programs still employ various affirmative action measures. In reaction to the Adarand decisions, the government is continually evaluating and modifying its programs in light of the Adarand “strict scrutiny” standards. Some of the effects of the Adarand decisions are summarized below.

  1. 1. Existing Programs

Existing federal programs affected by affirmative action regulatory reforms include:

–   The National Defense Authorization Act,[cxiv] for the Department of Defense, Coast Guard and NASA, which contains a 5% SDB (Small Disadvantaged Business) utilization goal;

–     The Small Business Act,[cxv] which sets forth SDB qualifications; and

  • The Federal Acquisition Streamlining Act[cxvi], which provides set-aside programs for SDB’s.[cxvii]

In addition, various other agency programs funded through federal dollars honor the Small Business Administration’s §8(a) certifications to meet their internal affirmative action goals. These include affirmative action programs under the Department of Transportation Airport and Airway Trust Fund;[cxviii] section 105(f) of the Surface Transportation Assistance Act of 1982;[cxix] the Surface Transportation and Uniform Relocation Assistance Act of 1987;[cxx] and the Intermodal Surface Transportation Efficiency Act of 1991.[cxxi] These programs identify a 10% minority or disadvantaged business participation goal, as well as other financial assistance programs that are administered by the Department of Transportation, and adopt the Small Business Act’s definition of disadvantaged business entity (DBE).[cxxii]

Also affected are various Department of Transportation grant programs that require recipients of financial assistance to ensure that Minority Business Enterprises (MBE’s) or Small Disadvantaged Businesses (SDB’s) “have the maximum opportunity to participate in the performance of contracts and subcontracts financed in whole or in part with federal funds provided under this agreement.”[cxxiii]

  1. Administrative Policy Changes

In addition, the administration responded with formal policy changes that implemented additional modifications in response to the Adarand decisions:

  1. Suspension of DOD’s “Rule of Two”

The Clinton Administration’s initial post-Adarand focus was to suspend the use of the Department of Defense program known as the “Rule of Two.” Under the “Rule of Two,” whenever a contract officer could identify two or more qualified disadvantaged firms to bid on a project within a specified cost range, the officer was required to set the contract aside for bidding exclusively by those disadvantaged entities. [cxxiv] In addition to the Department of Defense, the Federal Acquisition Streamlining Act of 1994 extended the “Rule of Two” to all agencies of the federal government.[cxxv] Due to Adarand, the use of the “Rule of Two” was suspended.[cxxvi]

  1. Justice Department Affirmative Action Reform Proposals

Beginning in May of 1996, the Justice Department began reforming affirmative action policies in federal procurement. The changes implemented by the Justice Department set stricter certification and eligibility requirements for minority contractors claiming “socially and economically disadvantaged” status under §8(a) and §8(d) of the Small Business Act, while somewhat loosening standards for similar certification for non-minority applicants.[cxxvii]

The Justice Department reforms also required the Commerce Department to establish statistical benchmarks that estimated the expected disadvantaged business participation in federal contracts, in the absence of discrimination, for nearly 80 different industries. Under the Justice Department reforms, actual minority participation would be measured against the estimated benchmarks. Where the actual minority participation in an industry falls below the benchmark, bid and evaluation credits or incentives are authorized for economically disadvantaged firms and prime contractors who commit to subcontract with such firms. Conversely, when such participation exceeds an industry benchmark, the credits and incentives would be lowered or suspended in that industry for the following year. The new programs also rely more heavily on “outreach and technical assistance” to avoid potential constitutional problems. The new system is monitored by the Commerce Department, using data collected to evaluate the percentage of federal contracting dollars awarded to minority-owned businesses.[cxxviii]

Under the Justice Department’s proposals, three procurement mechanisms now interact with the benchmarks to promote contracting by disadvantaged contractors:

  • A “price evaluation adjustment,” not to exceed fair market value by more than 10%, as authorized by current law, available to disadvantaged firms bidding on competitive procurement;
  • An “evaluation” credit applied to bids by nonminority prime contractors participating in joint ventures, teaming arrangements, or subcontracts with disadvantaged firms; and
  • Contracting officers may employ “monetary incentives” to increase subcontracting opportunities for disadvantaged firms in negotiated procurements.[cxxix]

The “benchmarking” by the Commerce Department is the key feature of the new program. This aspect of the program is designed to narrowly tailor the government’s use of race-conscious subcontracting in line with Adarand.[cxxx] An interim rule incorporating the Department of Justice revisions to the FAR regulation became effective October 1, 1998.[cxxxi] It is this author’s opinion that the next round of legal challenges may well require the implementation of this type of “benchmarking” system at the local and state levels as well as federal levels, in order to meet on a continued basis proof of a “compelling” government interest.

  1. SBA §8(a) Modifications

The Small Business Administration (SBA) issued final regulations implementing the Justice Department recommendations with respect to the §8(a) business development and small disadvantaged business (SDB) programs on June 30, 1998.[cxxxii] The reforms included a new process for certifying firms as small disadvantaged businesses, and replaced set-asides with a price evaluation adjustment program administratively tied to the Commerce Department benchmarks.

  1. New Certification Regulations

Under the new procedure, 51% ownership by a disadvantaged individual or individuals is still required in order for a business to qualify as an SDB. However, the SBA, or an SBA-approved state agency or private certifier, must make a threshold determination as to whether a firm is actually owned or controlled by specified individuals claiming to be disadvantaged before the business will qualify as an SDB.[cxxxiii]

In addition to certifying ownership, the SBA will examine a contractor to determine whether the contractor is disadvantaged. The definition of social and economic disadvantage has been modified somewhat but remains largely intact under the new SBA regulations. Under the new regulations, designated minority groups still enjoy a statutory presumption of social disadvantage. However, such minorities are required to meet certification criteria for economic disadvantage. Individuals who are not within the minority groups that enjoy the statutory presumption may still qualify by proving that they are socially and economically disadvantaged under SBA standards. The revised SBA regulations ease the burden on non-minority applicants by adopting a “preponderance of the evidence” rule rather than the previous “clear and convincing evidence” standard. Certification of minority status is subject to third-party challenge under current administrative mechanisms. [cxxxiv]

  1. New Price Evaluation Adjustment Program

A second key reform is the establishment of an SBA price evaluation adjustment program, enacted pursuant to authority in the 1994 Federal Acquisition Streamlining Act.[cxxxv]   Under this new program, which is separate from the §8(a) business development program, disadvantaged firms submitting bids on competitively awarded federal contracts may qualify for a price evaluation credit of up to 10%. Credits are available only to businesses that have been certified as socially and economically disadvantaged by the SBA. Only if price credits, over a sustained period, fail to achieve full benchmark utilization of disadvantaged entrepreneurs may agencies consider the use of set-asides in awarding contracts.[cxxxvi]

  1. Agency Information and Assistance

The ever-changing nature of the above regulatory requirements can be intimidating at best. While this chapter gives a thumbnail sketch of each agency’s current requirements, additional interpretative assistance can be obtained through various information centers, including:

–     The Defense Contract Management Command Area Operation Centers, which provides information about government contracting opportunities to businesspersons;

–     The Department of Commerce Minority Business Development Agency, which promotes the formation and expansion of minority owned firms and market development opportunities for such firms; and

–     The General Services Administration Enterprise Development Center, which provides information regarding MBE/WBE/SDB utilization in the GSA’s “Simplified Threshold Plan.”

In addition, each federal agency has an Office of Small and Disadvantaged Business Utilization, as required under the 1978 amendment of the Small Business Act of 1953.[cxxxvii] OSDBU staffs provide technical assistance and information to small and disadvantaged businesses seeking contracting opportunities. The staff includes Small and Disadvantaged Business Utilization Specialists and Small Business Technical Advisors. These advisors have the specific purpose of ensuring that small SDB/DBE/MBE, veteran, or WBE actively participate in contracts let by the agency as well as in subcontracts awarded by the agency’s prime contractors. These offices do not, however, control any contract awards.[cxxxviii] Addresses and phone numbers for these offices are included in Appendix B.


Adarand established that Croson’s statistical proof of past discrimination is required to establish a constitutionally valid affirmative action program, at all levels. In order to comply with the Croson requirements, by March of 1991 twenty-nine state and local jurisdictions had completed some sort of post-Croson discrimination study at an estimated cost of over $5.5 million dollars. [cxxxix] Despite the investment in such statistical studies, there have been more than two hundred successful challenges asserted against state and local minority contractor programs after Croson. [cxl] Each successful challenge was based on governmental failure either to establish statistical evidence of past discrimination or to design a plan narrowly tailored to remedy that discrimination.[cxli]

Even with the current limitations placed on affirmative action programs, opponents argue that these programs should be completely eliminated because they are unconstitutional, create reverse discrimination and create a bias in the award of government contracts.[cxlii] Opponents also broadly construe the recent demise of most affirmative action programs as evidence that affirmative action as a policy is one step towards the door.

Conversely, proponents of affirmative action argue that evidence of racial discrimination continues through today, as recognized by Justice O’Connor in Adarand I.[cxliii] Affirmative action proponents thus blame the recent demise of affirmative action programs as merely reflecting poor statistical studies, rather than as a refutation of the validity of the programs themselves.

Prior to the 1996 election, analysts predicted an aggressive political attack against affirmative action programs if Bob Dole brought a Republican administration to the White House and was supported by a Republican majority in Congress.[cxliv] However, the 1996 election results temporarily arrested the anti-affirmative action ground swell. While the Republicans maintained control of Congress, President Clinton’s reelection, and his administration’s commitment to a “newer, improved” form of affirmative action, sustained the nation’s affirmative action programs in their new and “mended” style. President Clinton’s judicial appointments, totaling three hundred seventy four, also bear significant relation to the potential outcome of affirmative action challenges at the lower court levels.[cxlv]

The current Bush administration now brings significant conservative influence upon the future of affirmative action. The most controversial of Bush’s cabinet appointees, John Ashcroft, was confirmed as the United States Attorney General despite significant public concerns over perceived anti-minority positions. To date, however, Attorney General Ashcroft through the Department of Justice has supported the government’s affirmative action programs, albeit modified to pass Adarand’s strict scrutiny standards.

In similar fashion, Bush’s Secretary of Labor, Asian-American Elaine Chao, entered her cabinet post generally opposed to racial preference programs, even having challenged President Clinton in a PBS “Newshour” debate on race.[cxlvi]   Similarly to Ashcroft, Secretary Chao has also remained supportive of existing government programs in their modified, more restricted applications.

  • However, the cardinal issue most likely lies with the status of the sitting Justices of the state, federal and United States Supreme Court.   As it stands, those Supreme Court Justices broadly supporting affirmative action (including recognition and deference to Congressional power to devise remedial measures based upon national evidence of past discrimination) include Justices Stevens, Ginsburg, Beyers, and Souter. While loosely referred to as the “liberal bloc,” these justices remain far to the right of prior Justices Brennan and Marshall, strong proponents of early affirmative action decisions. Justice Stevens, the oldest sitting member of the court, has suffered from prostate cancer as well as open-heart surgery, and is expected to step down during this presidential term, leaving his position most likely open for appointment of a more conservative Bush appointee.

Those Justices supporting affirmative action only as it passes the strict scrutiny test are Chief Justice Rehnquist, Justice O’Connor, and Justice Kennedy. Justices Scalia and Thomas, while supporting the majority opinion in Croson and Adarand, remain the most outspoken critics of affirmative action programs, calling the programs “unnecessarily paternalistic” and thus an impediment to minority development.[cxlvii]

News accounts already imply the retirement wishes of Supreme Court Chief Justice William Rehnquist and Justice Sandra Day O’Connor. Justice O’Connor is the swing vote on most affirmative action decisions and the author of both the Croson and Adarand decisions.[cxlviii] The retirement of Justice O’Connor could prove to be the most significant change in the Court. Although she has exhibited a conservative approach, believing government should have a limited role in solving society’s problems, Justice O’Connor personally experienced the sting of gender bias after graduating from Stanford Law School in 1952, only to be offered a position as secretary when she applied to a prestigious law firm. Thus her decisions consistently recognize the remaining existence of prejudice, while questioning the appropriate mechanisms used to identify and remedy the problem.[cxlix]

Should any or all of these three Justices be replaced with conservative appointments in this next term, the public should expect even stronger judicial scrutiny and limitations on race-based remedial programs. In addition, in the event of Chief Justice Rehnquist’s retirement, recent newspaper accounts have identified President Bush’s interest in appointing a conservative constitutionalist as his replacement, mentioning Justices Scalia and Thomas as representative models. As the two most vocal critics of affirmative action, such an appointment could dramatically alter the court’s philosophical makeup, and change the judicial temperament relative to the review of race remedial programs. Conversely, since his inauguration, President Bush has elicited strong criticism from his right wing constituents for tracking a more moderate application of his programs and policies while in office, thus leaving the door open to potential moderate versus conservative appointment possibilities.

In addition, following the public outcry and criticism concerning the 2000 elections, members of the Court are rumored to be particularly sensitive about public perception. Therefore, continued judicial support of affirmative action programs may depend in some small part on political sentiment, for “[i]n truth, the Supreme Court has seldom, if ever, flatly and for very long, resisted a really unmistakable wave of public sentiment.”[cl] While public sentiment appears to be in support of applying these programs in a more limited yet fair and statistically validated manner, it is likely that affirmative action programs will continue to be present for quite some time. Economic statistics reveal a strong growth in successful minority and women-owned businesses. These businesses represent an ever-increasing voting bloc, sufficiently strong to exert enough political and economic pressure to keep affirmative action programs alive and well. Additionally, the general sentiment among governmental agencies is that federal agencies will proceed with their existing MBE/WBE programs on a “business as usual” basis, utilizing the various program modifications following Croson and Adarand. This approach appears to be the centrist method of appeasing affirmative action proponents and opponents alike, and complies with the court’s majority philosophy as expressed by the Court’s opinions in the Croson and Adarand cases, which state:

“Requiring strict scrutiny is the best way to ensure that courts will consistently give racial classifications a detailed examination, as to both ends and means. It is not true that strict scrutiny is strict in theory, but fatal in fact. Government is not disqualified from acting in response to the unhappy persistence of both the practice and the lingering effects of racial discrimination against minority groups in this country. When race-based action is necessary to further a compelling interest, such action is within constitutional constraints if it satisfies the “narrow tailoring” test set out in this Court’s previous cases.”[cli]

Thus local and state governments will proceed with their “Croson” studies, while federal programs will be measured by the Department of Commerce “Benchmark Study,” reviewing race remedial programs on an ongoing basis. The programs and statistical studies supporting those programs will continue to be challenged in the courts.[clii] These court challenges will further develop the principles set forth in Croson and Adarand and address issues such as the standard of review for gender remedial programs. Both the judicial decisions and regulatory measures concerning affirmative action will be impacted and refined according to the political sentiments of the nation at large.


While the programs remain subject to various legal challenges, most federal, state and local government construction and/or professional service projects contain MBE/WBE utilization goals which are components of the bid evaluation and award mechanicsm. Thus government bid specifications typically identify the respective goals for projects, while additionally requiring contractors to show in their bid documents how these goals will be met. Typically, the Request for Proposal issued by the government owner will require bidders to identify intended MBE/WBE subcontractors, as well as the scope of work and estimated percent of the dollar amount of the contract to be performed by each MBE/WBE subcontractor.

These bid documents also typically contain signed certifications warranting the truth of the information submitted by the bidder. Thus deviations from stated MBE/WBE performance criteria can, and has, subjected contractors to substantial and sometimes severe consequences.

In most situations, false information submitted in the bid document, and later warranted in subsequent government pay applications, creates contractor liability under the False Claims Act and similar state legislation.[cliii] The False Claims Act, established to protect the federal government from fraud, has experienced increasing usage in the last decade as a vehicle for punishment of those who knowingly present false claims for payment to the government.[cliv] The Act imposes potentially dire remedies against those who seek to collect payment from governmental owners under false pretenses, including contract fund forfeiture, disbarment, and in extreme situations, criminal penalties and imprisonment.[clv] These actions may be enforced by the government, or by third parties seeking a bounty under qui tam actions.[clvi] Consequently, even a contractor who innocently lists certain MBE/WBE subcontractors with the intention of later securing the requisite MBE/WBE participation, is subject to dire penalties if the representations are later proven to be “false”.

The severity of these penalties is demonstrated in various cases. For example, in 1995, two employees of a Kentucky construction firm received one year sentences in federal prison for receiving a contract award based upon their representations that their construction company was a woman owned business enterprise.[clvii] One employee’s wife owned 51% of the firm’s stock, but had no role in running the company. The government construed this bid misrepresentation as a false representation violative of the state’s False Claims Act, and the two men were convicted of government fraud. The company was simultaneously disbarred from doing further business with the government.

Similarly, in January 2002, the owner of a research and development company received a sentence of six-month’s home confinement and a fine of $2.9 Million for defrauding the government by falsely representing that work in a contract between his company and the government was performed by a MBE/WBE subcontractor.[clviii]   In yet another case, an MBE contractor was disbarred from further government work based upon a determination that his company was essentially controlled by a majority owned general contractor based on the size and extent of several large unsecured loans made by the general contractor to the minority sub.[clix]

Each of these cases demonstrates that one cannot lightly disregard MBE/WBE requirements and/or deviations in government contracts. In addition, recent developments in False Claims Act litigation suggest that innocent mistakes are no defense. For instance, in one case a government contractor was held liable under the False Claims Act for submitting a series of invoices based on incorrect unit price calculations.[clx] Therefore contractors doing business with the government are STRONGLY encouraged to keep the government owner advised with respect to any change in the utilization of MBE/WBE’s on the project, and to familiarize themselves with, and aggressively use, any waiver process implemented by the government owner. In most cases, the contractor should conscientiously record and prove it informed the government owner about utilization and/or certification deviations. Any such changes should be recorded via the government’s contractually designed waiver process.

Thus it is extremely important that contractors recognize and understand use of the waiver process. For example, in a 1998 Kansas City, Missouri case, the city awarded a $24.2 million contract to a contractor who was significantly below the MBE/WBE targets for the project and who made no showing of good faith efforts to meet the goals. The successful bidder was $549,630 lower than the second lowest bidder who did substantially meet the MBE/WBE goals for the project. The affirmative action ordinance in place at that time did not carry as stringent “good faith” requirements as a more current ordinance, and also outlined the ability of the City to waive noncompliance if deemed in the “best interests” of the city.

Rather than dismissing the lowest bid as non-responsive, the city chose to accept the lowest bid as in the “best interest” of the public. The Eighth Circuit affirmed this reasoning in a similar case where it held that governments could waive MBE/WBE requirements where the cost savings are clearly in the best interest of the public.[clxi] These cases demonstrate the uneven playing field often associated with government contracts, where in one instance disregard of the MBE/WBE goals can result in a non-responsive bid, while in another situation the same facts can result in an award of the contract for the same reasons. As a precaution, the contractor is advised to err on the side of strict compliance with the bid specifications, or in the alternative to ensure strict compliance with the owner’s waiver procedures.


At some point, the courts, governments and public at large may finally agree that affirmative action has served its purpose in opening previously closed doors. However, until that time, affirmative action programs will continue to be present, albeit in a more highly scrutinized and more limited manner.[clxii] Substantial civil and criminal penalties can lie against those who either intentionally or negligently misrepresent their affirmative action compliance to government owners. Therefore, the programs must continue to be taken seriously, with contractors and practitioners alike strictly adhering to the program parameters so long as they remain a viable element of public contracting.

© Denise E. Farris, Esq. (2004). All rights reserved. All rights reserved. This article may not be reprinted nor reproduced in any manner without the express permission of the author, who can be contacted at: Denise Farris, Farris Law Firm, L.L.C., 20355 Nall, Stilwell, KS 66085. Tel: 913-685-3192. Fax: 913-685-3292. Email:

[i]Academic American Encyclopedia, 1995,vol.1, p.132; vol. 7, p.223-224.

[ii] P.L. 88-352, July 2,1964; 78 Stat. 241,253. Title VII is codified at 42 U.S.C.2000e ET. Seq.

[iii] U.S. President (L. Johnson) Executive Order 11246, Reassignment of Civil Rights Functions, September 24, 1965. Weekly Compilation of Presidential Documents, v.1, September 27, 1965, p. 305.

[iv] Bruno, Andorra, CRS Report 98-992, Affirmative Action in Employment: Background and Current Debate.

[v] 15 U.S.C. 631 et. seq.

[vi] 488 U.S. 469 (1989).

[vii] 515 U.S. 200 (1995).

[viii] Where the program does not include invidious discrimination based on race or ethnic background, the government need show only (a) an important governmental interest, and (b) a program substantially related to achievement of that interest. Korematsu v. United States, 323 U.S. 214 (1944); Kiyoshi Hirabayashi v. United States, 320 U.S. 81 (1943).

[ix] Congressional Research Service, Library of Congress, American Law Division Memorandum (3/8/95).

[x] T. Mullen, Affirmative Action in the Legal Relevance of Gender, 244-266 (S. McLean & N. Burrows 1988).

[xi] Regents of the University of California v. Bakke, 438 U.S. 265, 318-320 (1978); U.S. CONST. Amend. V (1791); U.S. CONST. Amend. XIV (1868).

[xii]   438 U.S. 265 (1978)

[xiii] Barron, Dienes, McCormack, Redish, The Meaning of Equal Protection, in Constitutional Law: Principles and Policy 564-587 (The Michie Company 3d ed. 1987).

[xiv]   Bakke, 438 U.S. at 291.

[xv]   Note, supra n. 12, at 944-945. See also, Bakke, 438 U.S. at 291.

[xvi]   Bakke, 438 U.S. at 318-320.

[xvii]   The 6-3 split in Bakke is representative of the sharply divided stance the Court often takes on affirmative action decisions. As will be discussed on a case-by-case basis, the decisions are often rendered in a 6-3 or 5-4 vote. The prevalence of concurring and dissenting opinions is believed to significantly contribute to the uncertainty surrounding and sometimes-inconsistent legal doctrines applied to affirmative action program challenges.

[xviii] 438 U.S. at 320. Many of Justice Powell’s opinions in Bakke form the philosophical context of current Supreme Court opinions. For example, note the following excerpt from Bakke: “Moreover, there are serious problems of justice connected with the idea of preference itself. First, it may not always be clear that a so-called preference is in fact benign. Courts may be asked to validate burdens imposed upon individual members of particular groups in order to advance the groups’ general interest. Nothing in the Constitution supports the notion that individuals may be asked to suffer otherwise impermissible burdens in order to enhance the societal standing of their ethnic groups. Second, preferential programs may only reinforce common stereotypes holding that certain groups are unable to achieve success without special protection based on a factor having no relationship to individual worth. Third, there is a measure of inequity in forcing innocent persons in respondent’s position to bear the burdens of redressing grievances not of their making.” Id.; cf. Adarand Constructors, Inc. v. Pena, 115 S. Ct. 2097 (1995)(Thomas, J., concurring).

[xix] 448 U.S. 448 (1980).

[xx] 448 U.S. at 468-470.

[xxi] 448 U.S. at 472.

[xxii] 448 U.S. at 495-496 (J. Powell, concurring).

[xxiii] 476 U.S. 267 (1986).

[xxiv] 476 U.S. at 274-76.

[xxv] 488 U.S. 469 (1989)

[xxvi] 488 U.S. at 499-504. See also S. Oliver, 1991 Minority Law Teachers Conference: A Survey of Post-Croson Developments, 38 Loyola L. Rev. 7 (Spring 1992).

[xxvii] 488 at 481-82.

[xxviii] 488 U.S. at 483.

[xxix] 488 U.S. at 483.

[xxx] J.A. Croson v. City of Richmond, 779 F.2d 181, 194 (4th Cir. 1985), vacated, 478 U.S. 1016 (1986), after remand, 822 F.2d 1355 (4th Cir. 1987), aff’d. 488 U.S. 469 (1989)(holding the ordinance failed the Wygant test).

[xxxi] 478 U.S. 1016 (1986).

[xxxii] 822 F.2d 1355 (4th Cir. 1987).

[xxxiii] 488 U.S. at 493. Justice Antonin Scalia went one step further, analyzing the ordinance under a standard even more stringent than strict scrutiny. Id. at 524.

[xxxiv] 488 U.S. at 490.

[xxxv] 488 U.S. at 493-94.

[xxxvi] 488 U.S. at 491-92.

[xxxvii]   Id.

[xxxviii] 488 U.S. at 507-08.

[xxxix] 488 U.S. at 499-500.

[xl] 497 U.S. 597 (1990).

[xli] See also   Astroline Communications Co. v. Shurberg Broadcasting, 110 S. Ct. 1316 (1990), the companion case to Metro Broadcasting.

[xlii] 497 U.S. at 566-567.

[xliii] 497 U.S. at 563.

[xliv] 497 U.S. at 560, n. 9.

[xlv] 497 U.S. at 564-68.

[xlvi] 115 S. Ct. 2097 (1995).

[xlvii] Adarand Constructors, Inc. v. Pena, 115 S.Ct. 2097, 2102-2105 (1995). See also, Note, supra n. 12.

[xlviii]   115 S.Ct. at 2102-05; see also 15 U.S.C. Section 637 (d)(2), (3).

[xlix]   115 S.Ct. at 2102-05. The Small Business Act establishes a government-wide goal of “not less than 5 percent of the total value of all prime contracts and subcontract awards for each fiscal year” to be awarded to socially and economically disadvantaged small business concerns. 15 U.S.C. Section 644 (g)(1). Members of designated racial and ethnic minority groups presumed to be socially and economically disadvantaged include African American, Hispanic, Asian Pacific, subcontinent Asian, and Native American. 15 U.S.C. Section 637(a)(5); 13 C.F.R. Sect. 124.105(b)(1). The presumption is rebuttable. 13 C.F.R. Sect. 124.111(c),(d); 1245.601-124.609.

[l] 115 S.Ct. at 2102-05.

[li] Adarand Constructors, Inc. v. Skinner, 790 F. Supp. 240, 241 (D. Colo. 1992), aff’d sub nom. Adarand Constructors, Inc. v. Pena, 16 F.3d 1537 (10th Cir. 1994), vacated, 115 S. Ct. 297 (1995).

[lii] Adarand Constructors, Inc. v. Pena 16 F.3d 1537, 1539 (10th Cir. 1994), vacated, 115 S. Ct. 2097 (1995).

[liii] 115 S.Ct. 41 (1994).

[liv] 115 S. Ct. at 2113.

[lv] 115 S.Ct. at 2108-2109; Note, supra n. 12, at 942.

[lvi] 115 S. Ct. at 2105-2113

[lvii] Id.; Note, supra n. 12, at 943.

[lviii] 115 S.Ct. at 2118 (J. Scalia, concurring in part and concurring in the judgment).

[lix] 115 S.Ct. at 2119 (J. Thomas, concurring in part and concurring in the judgment).

[lx] Id.

[lxi] 115 S. Ct. at 2125 (J. Stevens, dissenting).

[lxii] Id.

[lxiii] 115 S.Ct. at 2126-2128.

[lxiv] 115 S.Ct. at 2132. (J. Souter, dissenting).

[lxv] 115 S.Ct. at 2134-2136. (J. Ginsburg, dissenting).

[lxvi] Id. T he Adarand dissenters strongly criticized the Court’s departure from stare decisis. For an excellent discussion of the evolution and governing principles of stare decisis, and its relevance to the decision in Adarand, see Note, supra n.12.

[lxvii] 115 S. Ct. at 2113.

[lxviii] Id.

[lxix] Adarand Constructors, Inc. v. Mineta, 122 S.Ct. 511 (2001).

[lxx] Adarand Constructors, Inc. v. Pena, 965 F. Supp. 1556(D. Colo. 1997)

[lxxi] Id.

[lxxii] 965 F. Supp. 1556(D. Colo. 1997)

[lxxiii] Dale, Charles V., and CRS Report for Congress, Affirmative Action Revisited: A Legal History and Prospectus, Report No. RL30470, (10-12-00) (hereafter Dale, Affirmative Action Revisited), at p. 12.

[lxxiv] Id. (citing Adarand II, 965 F.Supp. at 1575 ).

[lxxv] Dale, Affirmative Action Revisited, supra, at p. 13.

[lxxvi] Adarand Constructors, Inc. v. Slater, 169 F.3d 292 (10th Cir. 1999).

[lxxvii] Adarand Constructors, Inc. v. Slater, No. 99-295, 120 S.Ct. 722 (1-12-2000).

[lxxviii] 228 F.3d 1147 (10th Cir. (Colo.) 2000).

[lxxix] Id.

[lxxx] 228 F.3d at 1165.

[lxxxi] 228 F.3d at 1168-70.

[lxxxii] 228 F.3d at 1147; see also Dale, Affirmative Action Revisited, supra, at p. 14.

[lxxxiii] 49 C.F.R. §26.51(a),(b)(2000).

[lxxxiv] Participation in the §8a program is limited by statute and regulation to ten and one-half years. Each DBE is re-evaluated and may be graduated from the program, based on the submission of financial and other information required annually.

[lxxxv] 49 C.F.R. §2615 (2000)(allowing recipients to seek waivers and exemptions despite the already non-mandatory nature of the program).

[lxxxvi] Adarand Constructors, Inc. v. Mineta, 532 U.S. 967 (2001).

[lxxxvii] Adarand Constr. Inc. v. Mineta, 122 S.Ct. 511, 513, 534 U.S. 103 (2001).

[lxxxviii] Id.

[lxxxix] Id.

[xc] Id. at 513-14.

[xci] Id. at 514.

[xcii] See e.g. Christian v. United States, 2000 WL 760521(Fed.Cl.); Rothe Development Corp. v. U.S. Department of Defense, 49 F.Supp.2d 937 (W.D. Tex. 1999); In Re Sherbrooke Sodding Co., 17 F.Supp.2d 1026 (D. Minn.1998); Cortez III Serv. Corp. v. National Aeronautics & Space Administration, 950 F.Supp. 357 (D.D.C.1996). See also Appendix A for detailed summary of various cases addressing program challenges.

[xciii] Adarand, 115 S. Ct. at 2113; Croson, 488 U.S. at 492.

[xciv] Croson, 488 U.S. at 492.

[xcv] Id. at 500 (quoting Wygant v. Jackson Board of Education, 476 U.S. 267, 277 (1986)).

[xcvi] Wygant, 476 U.S. at 292-293 (O’Connor, J., concurring).

[xcvii] Id. at 293. See also Associated General Contractors v. Coalition for Economic Equity, 950 F.2d 1401 (4th Cir. 1991).

[xcviii] Croson, 488 U.S. at 501 (quoting Hazelwood Sch. Dist. v. United States, 433 U.S. 299, 307-08 (1977)).

[xcix] 941 F.2d 910, 929 (9th Cir. 1991), cert. denied 112 S.Ct. 875 (1992).

[c] See Associated General Contractors of America v. City of Columbus, 936 F. Supp. 1363 (S.D. E. D. Ohio 1996)(challenging the validity of the city’s statistical study), vacated by 172 F.3d 411 (6th Cir. 1999).

[ci] Monterey Mechanical Co v. Wilson,125 F.3d 702 (9th Cir. 1997); L. Tarango Trucking v. County of Contra Costa, 181 F.Supp. 2d 1017 (N.D. Cal. 2001); Concrete Works of Colorado, Inc. v. City and County of Denver, 86 F. Supp. 2d 1042 (D. Colo. 2000); Cortez III Serv. Corp. v. National Aeronautics & Space Administration, 950 F. Supp. 357 (D.C. 1996); Engineering Contractors Assoc. of South Florida, Inc. v. Metropolitan Dade County, 122 F.3d 895 (11th Cir. 1997).

[cii] Id. See also Appendix A.

[ciii] 488 U.S. at 507-08.

[civ] Croson, 488 U.S. at 478, 506.

[cv] Id.

[cvi] 488 U.S. at 507, 510.

[cvii] Id.

[cviii] Id. at 526 (Scalia, J., concurring).

[cix] Id.

[cx] See generally, City of Kansas City, Missouri Disparity Study, pg. E15, E40 (1994).

[cxi] Memorandum to General Counsels from Walter Dellinger, Assistant Attorney General (June 28, 1995).

[cxii] Adarand, 515 U.S. at 202 (syllabus).

[cxiii] 228 F.3d 1147 (10th Cir. (Colo.) 2000).

[cxiv] P.L. 99-661, codified at 10 U.S.C. § 2323.

[cxv] 15 U.S.C. § 637 et. seq.

[cxvi] 15 U.S.C. § 644 (g).

[cxvii] Susan McGreevy, Construction Contract Assistance Programs Available to Minorities and Women, p. A21, fn11, MBE/WBE/DBE Construction and Design Seminar, (Missouri Bar 1997).

[cxviii] 49 U.S.C. § 48103.

[cxix] P.L. 97-424, §05(f), 96 Stat. 2097 (1982).

[cxx] P.L. 100-17, §106(c), 101 Stat. 132 (1987)

[cxxi] P.L. 102-240, §1003, 105 Stat. 1914.

[cxxii] Dale, Affirmative Action Revisited, supra.

[cxxiii] 49 C.F.R. §23.43(a)(l).

[cxxiv] Dale, Affirmative Action Revisited, p. 20.

[cxxv] Id.; P.L. 103-355, §7102, 108 Stat. 3243 (1994). FASA states that in order to achieve goals for DBE participation in SBA procurements, an “agency may enter into contracts using – (A) less than full and open competition by restricting the competition for such awards to small business concerns owned and controlled by socially and economically disadvantaged individuals described in subsection (d)(3)(c) of section 8 of the Small Business Act (15 U.S.C. §637); and (b) a price evaluation preference not in excess of 10 percent when evaluating an offer received from such a small business concern as the result of an unrestricted solicitation.”

[cxxvi] Dale, Affirmative Action Revisited, p. 20.

[cxxvii] 61 Fed. Reg. 26042, Notices, Department of Justice, Proposed Reforms to Affirmative Action in Federal Procurement.

[cxxviii] Dale, Affirmative Action Revisited, p. 21.

[cxxix] Id.; See Response to Comments to Department of Justice Proposed Reforms to Affirmative Action in Federal Procurement, 62 Fed.Reg. 25649 (1997).

[cxxx] Dale, Affirmative Action Revisited, p. 21.

[cxxxi] Federal Acquisition Regulation; Reform of Affirmative Action in Federal Procurement; Interim Rule with request for comment, 63 Fed. Reg. 52546 (1998).

[cxxxii] 63 Fed. Reg. 35726, 35767 (1998).

[cxxxiii] Id.; Dale, Affirmative Action Revisited, p. 22.

[cxxxiv] Dale, Affirmative Action Revisited, p. 22; 63 Fed. Reg. 35726, 35767 (1998).

[cxxxv] 10 U.S.C. §2323.

[cxxxvi] See Response to Comments to Department of Justice Proposed Reforms to Affirmative Action in Federal Procurement, 62 Fed. Reg. 25649 (1997).

[cxxxvii]P.L. 95-507, 15 U.S.C. §644(k).

[cxxxviii] McGreevy, Construction Contract Assistance Programs.

[cxxxix] G. LaNoue & J. Sullivan, But For Discrimination: How Many Minority Businesses Would There Be, 24 Colum. Hum. Rts. L. Rev. 93 (1993).

[cxl] A representative sampling of these cases are included in Appendix A.

[cxli] Kenneth Martin, Craig Holman and Kurt Rylander, Is This the End of Federal Minority Contracting?, 42 Federal Lawyer 44, 48 (Feb. 1995).

[cxlii] Id.

[cxliii]515 U.S. at 235-239.

[cxliv] Id. Affirmative action opponents in Congress include Senator Phil Gramm of Texas. (See, H. Idelson, Ruling Rocks Foundation of Affirmative Action, Cong.Q.Wkly.Rep. (June 19 1995 at 1743)(Senator Gramm proposes using “must-pass” appropriations bills to preclude affirmative action programs)). Other opponents include House Representative Charles Canady, who plans to introduce “a major bill outlawing virtually all federal affirmative action programs.” Id.

[cxlv] See

[cxlvi] Elaine Chao – An American Success Story, (Heritage Foundation, Fall 1999)( “I believe most Americans don’t care for preferential treatment based on race…. We’re a country based on merit, built by immigrants of all ethnic backgrounds who worked hard and took risks”.)

[cxlvii] Justices Scalia and Thomas constitute a tight voting bloc on the court, statistically voting the same in over 80% of the court’s cases. Joan Biskupic, Justice O’Connor and Affirmative Action, Washington Post (10/5/97).

[cxlviii] Id.

[cxlix] Id.

[cl] Note, The Supreme Court’s Step in the Trend Toward Eliminating Affirmative Action Programs in Adarand, Inc. v. Pena, 33 Houston L. Rev. 939, 962 (citing R. McCloskey, The American Supreme Court 23 (1960)).

[cli] Adarand, 515 U.S. at 202 (case synopsis).

[clii]   See also Houston Contractors Chapter Association v. Metropolitan Transit Authority of Harris County, 993 F. Supp. 1027 (S.D. Tx. 1996)(issuing preliminary injunction upon finding that Metro’s affirmative action program unconstitutional under Croson and Adarand).

[cliii] 31 U.S.C. § 3729 et seq.

[cliv] Id.

[clv] Id.

[clvi] Id.§3730.

[clvii] Botts, Sherman and Farris,Denise, “Beware of Front Companies”, Modern Builder Vol. ___ Issue ____ (1994);

[clviii] “Contractor Fined $2.9 Million for Minority Preference Fraud”, 19 Andrews Gov’t Cont. Litig. Rep. 4.

[clix] Missouri Department of Transportation vs. Mabin Construction Company

[clx] (Insert)

[clxi] Bash, Roy, “Lowest and Best Bidder: Clarification or Muddying the Waters?”, Modern Builder Vol.   Issue     (     )


[clxii] For a detailed analysis of cases addressing constitutional validity of municipal, state and federal cases, refer to Appendix A. For a detailed listing of federal assistance offices, refer to Appendix B.


A detailed analysis of cases addressing constitutional validity of municipal, state and federal cases

A detailed listing of federal assistance offices