- 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.
- B – “BEYOND CROSON – THE CONSTITUTIONAL PARAMETERS OF AFFIRMATIVE ACTION”.
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]
- 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]
- 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]
III. C – “CONSILIENCE THROUGH ADARAND”
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]
- 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:
- 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
- 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]
- 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.
- “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.
- “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]
- POST-ADARAND REGULATORY DEVELOPMENTS
- 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]
- 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. 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]
- Administrative Policy Changes
In addition, the administration responded with formal policy changes that implemented additional modifications in response to the Adarand decisions:
- 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]
- 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.
- 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.
- 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]
- 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]
- 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.
- FUTURE PROGNOSIS FOR AFFIRMATIVE ACTION
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.
- AFFIRMATIVE ACTION PROGRAM COMPLIANCE
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: firstname.lastname@example.org.
[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.
[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).
[lxi] 115 S. Ct. at 2125 (J. Stevens, dissenting).
[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.
[lxix] Adarand Constructors, Inc. v. Mineta, 122 S.Ct. 511 (2001).
[lxx] Adarand Constructors, Inc. v. Pena, 965 F. Supp. 1556(D. Colo. 1997)
[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).
[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).
[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.
[cvi] 488 U.S. at 507, 510.
[cviii] Id. at 526 (Scalia, J., concurring).
[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).
[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 www.4judicialrestraint.org.
[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).
[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.
[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
[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