[state and local government] || affirmative action and the construction industry

Affirmative Action and the Construction IndustryAuthor(s): Margery NewmanSource: Public Contract Law Journal, Vol. 25, No. 2, [State and Local Government] (Winter1996), pp. 433-449Published by: American Bar AssociationStable URL: http://www.jstor.org/stable/25754221 .

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Affirmative Action and the Construction Industry Margery Newman

I. Introduction 433 II. Abuses in M/WBE Programs 434

III. Constitutional Scrutiny of Affirmative Action 437 IV. Affirmative Action After Croson 440 V. Affirmative Action After Adarand 445 VI. Conclusion 448

I. Introduction Over the past thirty years, participation by Minority and Women Business

Enterprises (M/WBE) in public construction projects has become an integral part of American public policy, as federal, state, and local governments have mandated such participation through a variety of affirmative action pro

grams.1 One of the reasons that M/WBE programs were mandated was the continued unwillingness on the part of many majority contractors to utilize

M/WBE firms. As a result of this discrimination, M/WBE firms had failed to

become assimilated into the mainstream of the construction industry. Today, however, there is an organized movement away from affirmative

action programs in the construction industry. The reasons propounded for

excluding M/WBE firms from the construction process?often by majority contractors?include:

(1) a philosophical opposition to preferential treatment programs; (2) a belief that M/WBE firms are inexperienced, incompetent, and/or

financially weak; (3) a belief that affirmative action programs increase costs; and

(4) a charge that such programs discriminate against majority-owned busi nesses.

This movement to eliminate or limit M/WBE programs has drawn popu lar support and momentum from reports of program abuses, as well as from a string of court decisions, including the Supreme Court's 1995 decision in

Margery Newman is a partner in the Construction Division of the Real Estate Group of Bell, Boyd & Lloyd. Ms. Newman acknowledges the valuable insights into the Adarand decision

provided by David J. O'Keefe of Schain, Firsel & Burney, Ltd. 1. See, e.g., Federal Acquisition Regulation, Part 19 (Small Business and Small Disad

vantaged Business Concerns); N.Y. COMP. CODES R. & REGS. tit. 17 (1995) (Disadvan taged/Womens Business Enterprises Programs; ORLANDO, FLA. CODE ch. 57, Articles

II and III (Minority and Women-Owned Business Enterprises); Chicago, 111., Executive Order 89-7, Regulations Governing Certification of Minority and Women-Owned Busi nesses.

433



434 Public Contract Law Journal Vol. 25, No. 2 Winter 1996

Adarand v. Pena2 that has subjected such programs to rigorous constitutional

scrutiny. This article examines some of the abuses that occur in M/WBE

programs, along with courts' responses to instances of program abuse. In

addition, the article examines the precedential and public policy under

pinnings of the Supreme Court's decision in Adarand v. Pena. The article

suggests that the decision should not necessarily mean the end of affirmative

action programs in public contracting, but a new era of more focused and

substantiated programs for the construction industry.

II. Abuses in M/WBE Programs In theory, M/WBE programs can be extremely beneficial to the construction

industry. They enable more companies to compete for work, which benefits

the owner through reduced costs for a project. They also bring more compa nies into the industry, which helps reduce unemployment and enables

smaller companies to compete for larger projects. Nevertheless, as long as

M/WBE programs are used to meet affirmative action requirements, there

is a risk of abuse from those who seek to take advantage of the process. In some regions, for example, only certain M/WBE contractors consis

tently are awarded contracts. The domination of these M/WBEs in an area

prevents other qualified M/WBEs from participating in programs designed to benefit a broad class of contractors. For example, in 1989, the Atlanta

Business Chronicle reported that "[w]henever the City of Atlanta or Fulton

County cranks up a project costing more than $5 million, at least one of The Big Four [contractors] has a nearly 100 percent chance of being involved. And on more than half of those projects, two or more of The Big Four end

up with portions of the work."3 Another common problem occurs when a majority contractor subcon

tracts or enters into a joint venture with a M/WBE with the intent of having the majority perform all or most of the contract work. Indeed, with

M/WBE goals a requirement on many public sector jobs, some unscrupulous contractors seek to meet their goals through business "shams."4 In a "sham"

2. Adarand Constructors, Inc. v. Pena, 115 S. Ct. 2097 (1995). 3. Emory, Thomas, Jr., The Big Four of Big Contracts, ATLANTA BUS. CHRON., Feb.

20, 1989, at 1A. 4. See, e.g., WASH. ADMIN. CODE ? 326-02-020 (1995). The Washington Code defines

a number of "sham business arrangements as follows:

A. "Conduit" means a WBE, MBE, or combination MWBE that agrees to be named as a subcontractor on a contract in which such WBE, MBE or combination MWBE does not perform the work but, rather, the work is performed by the prime contractor, prime consultant, material supplier, purchasing contractor, or any other non-MWBE business; B. "Front" means a business that purports to be: (a) A WBE but is in fact owned or controlled by a man or men; (b) a MBE but is owned or controlled by a nonminority person or persons; or (c) a combination MWBE but is owned or controlled by a man or men or by a nonminority person or persons to a greater extent than is allowed by ? 326-02-030(3);

C. "Pass-through" means a business that buys goods from a non-WBE, non-MBE, or noncombination MWBE and simply resells those goods to the state, state contractors or other persons doing business with the state for the purpose of allowing those goods to be counted towards fulfillment of WBE or MBE goals; D. "Switch business" means a business that was previously owned and controlled by a man, men or nonminorit ies, that has made technical changes to its business structure so that it is now purportedly owned and controlled



Affirmative Action and the Construction Industry 435

business arrangement, contractors represent that M/WBEs are performing certain work or meet certain independence requirements, whereas, in reality, they perform no work or are so dependent upon the majority contractor that there is a serious question about the independence of the M/WBE.

The following are "red flag" circumstances that raise serious questions about the independence of a M/WBE:

(1) The M/WBEs status as a party to any long-term contract or lease with non-M/WBE persons or firms;

(2) The M/WBEs status as a party to any contract or lease on terms at variance with industry standards or prudent business practices;

(3) Interlocking stock ownership of the M/WBE and majority contractor in the same or related industry;

(4) Common directorates/officers between the M/WBE and the major ity contractor;

(5) The M/WBEs use of employees, equipment, expertise, or facilities "shared" with or obtained from non-M/WBE contractors;

(6) The receipt by the majority contractor of financial benefits (divi dends, loans, salaries and/or distributions) from the M/WBE that exceeds its proportionate ownership interest;

(7) The M/WBEs failure, after a reasonable period, to demonstrate its

ability to operate as a viable entity without continuing, substantial reliance

upon equipment and facilities leasing or creditor-debtor relationships with the majority contractor;

(8) Any previous and/or continuing employer-employee relationship among or between present M/WBEs and the majority contractor;

(9) Recent certification of the M/WBE; (10) An obvious lack of ability of the M/WBE to perform its percentage

of the contract, such as: an M/WBE joint venturer whose previous contracts

range from $100,000 to $600,000 now scheduled to perform $10,000,000 as

its part of the joint venture; no line of credit; no bonding capacity; and lack of equipment;

(11) A majority of the M/WBEs full-time employees are nonminorities or men;

(12) No M/WBE liability on the project; and (13) No requirement that the M/WBE perform any part of the contract

work.5

How does a governmental entity avoid entering into a contract with a

majority contractor that utilizes such business "shams"? Public contracts are most frequently entered into through competitive bid and proposal pro cedures. For example, statutes governing the procurement process generally

by a woman or women or by a minority person or persons, but continues to operate in substantially the same manner as it did prior to the written revisions of the business structure.

Id.

5. See S.A. Healy Co. v. Washington Metro. Area Transit Auth., 615 F. Supp. 1132

(D.D.C. 1985).




dictate that the award of a construction contract go to the lowest responsible6 and responsive7 bidder. To avoid the use of business "shams," governmental agencies charged with awarding construction contracts review bids to deter mine whether the bidder has met its M/WBE goals. A bid that fails to list

any M/WBE firms in accordance with a policy mandating M/WBE goals may be rejected.8 Similarly, a bid that fails to adequately document the M/WBE status of the proposed subcontractors may also be rejected.9

In Gilbert Central Corp. v. Kemp10 a contractor brought an action alleging that the Kansas Department of Transportation (KDOT) wrongfully rejected its low bid on a road construction project. The project had an overall

M/WBE participation goal of 14 percent, with at least 12 percent of the contract amount going to MBEs and at least 2 percent of the contract amount going to WBEs. Gilbert Centrals bid had a total MBE participation of 9.2 percent (less than required) and a total WBE participation of 20.2

percent (revised downward by KDOT to 4.03 percent). The second lowest

bidder, J.H. Shears Sons, Inc., was more than $33,000 higher than Gilbert Central. Shears M/WBE participation, however, complied with KDOT's

requirements, and Shears, therefore, was awarded the contract over the lowest bidder.

In rejecting Gilbert Central's request for injunctive relief preventing KDOT from contracting with Shears, the court agreed with KDOT that Gilbert Central had failed to make a good faith effort to meet the MBE

participation goal: As explained by William Michael Lackey, KDOT's Director of Operations, the letter sent to the fourteen DBEs [Disadvantaged Business Enterprises] was merely a "generic letter" that failed even to refer to a specific project on which bids were being solicited.

According to Mr. Lackey, MBE subcontractors receive hundreds of such letters each

year and they are almost uniformly ignored because they are insufficiently specific. Moreover, KDOT determined that plaintiffs follow-up to the letters and phone calls

failed to rise to the level of good faith. Finally, plaintiff conceded to KDOT that it had contacted only one of the four DBE subcontractors with whom Shears had

arranged subcontracts.11

Similarly, in S.A. Healy Co. v. Washington Metropolitan Area Transit Au~

thority,12 a joint venture made up of a majority contractor (S.A. Healy Co.) and a MBE (Vanessa General Builders, Inc.) had its low bid of $49.4 million

rejected by the Washington Metropolitan Area Transit Authority. The joint

6. "Responsible" means a bidder "who can or will be able to perform the contract as promised." City of Rochester v. EPA, 496 F. Supp. 751, 756 (D. Minn. 1980).

7. "Responsive" means a bidder who "promises to do exactly, precisely, and specifi cally what the invitation for bids requests the bidder to do. Id.

8. See Carl Bolander and Sons Co. v. City of Minneapolis, 451 N.W.2d 204, 207-08 (Minn. 1990).

9. See Gil-Bern Constr. v. City of Brockton, 233 N.E.2d 197, 199 (Mass. 1968). 10. 637 F. Supp 843 (D. Kan. 1986). 11. Id. at 850. 12. 615 F. Supp. 1132 (D.D.C. 1985). At the time of the bid, Vanessa Builders was

not yet certified as a MBE. It was seeking certification through the Transit Authority.




venture intended to meet its MBE obligation by having Vanessa Builders

perform 20 percent ($9.88 million) of the work on the contract. In rejecting the bid, the Transit Authority found the following deficiencies:

(1) The largest jobs performed by Vanessa Builders in the previous three

years ranged from $103,000 to $600,000; (2) Out of the MBE's thirty-five full-time employees, only three or four

were minority employees; (3) The MBE had no line of credit at any financial institution; (4) The MBE had no bonding capability; (5) The MBE had no responsibility or liability on this or its other projects;

and,

(6) The MBE had limited equipment.13 At the Transit Authority's certification hearing, one of the board members summarized the MBE's status as follows:

Vanessa Builders is nothing but a broker, if you would, for large corporations trying to satisfy their minority business input. They have 14 jobs and all but one is federally funded.14

Thus, state and local governments currently enforce their M/WBE pro grams by monitoring the bid process and rejecting bids that fail to reasonably demonstrate a capability and commitment to meet the M/WBE require ments of the solicitation. Nonetheless, abuses of M/WBE programs will

undoubtedly continue in the future, as governments simply do not have the resources or ability to eliminate every unscrupulous contractor from the

public contracting process.

III. Constitutional Scrutiny of Affirmative Action The greatest threat to the continuation of affirmative action programs in the construction industry, however, does not come from the abuse of the

programs. It comes from a misinterpretation of a recent U.S. Supreme Court

case, Adarand v. Pena.15 The true function of Adarand as precedent was to

dispel the confusion that had been created by the Court's prior decision in Metro Broadcasting, Inc. v. FCC.16 The significance of Adarand, however, for the affirmative action and constitutional principles that it articulates is

slight compared to the practical impact that Adarand has and will continue to have on women and minority contractors.17 The Court's decision in

Adarand, therefore, has been characterized as a watershed in the potential demise of affirmative action programs in the United States.

13. Id. Vanessa Builder's equipment consisted of one truck, two pickups, one sedan,

welding machines, and construction tools. Id. at 1134.

14. Id.

15. Adarand Constructors, Inc. v. Pena, 115 S. Ct. 2097 (1995). 16. 497 U.S. 547, reh'g den., 497 U.S. 1050 (1990). 17. The statutory authority for the program challenged in Adarand expressly included

women in its definition of minority contractors. See Surface Transportation and Uniform

Relocation Assistance Act of 1987, 23 U.S.C. ? 101 (1987).




The development of constitutional principles in the area of affirmative action has basically proceeded along parallel tracks. On one track, the Court is engaged in an inquiry as to the appropriate standard for constitutional

scrutiny of affirmative action programs, while on the other track the Court has labored over whether or not the Fifth and Fourteenth Amendments

require that the level of scrutiny established on the parallel track be applied with equal vigor to both state and federal programs.

The chain of decisions leading to Adarand begins with the 1978 case of

Regents of the University of California v. Bakke.18 The Bakke case involved a suit by a white applicant allegedly denied entrance to the University of California due to minority enrollment quotas. As characterized by the Adarand Court, Bakke stands for the propositions that: (1) the motives be hind race-based classifications are irrelevant; and (2) there will be no lesser standard of constitutional scrutiny for programs designed for "remedial pur

poses."19 Sociologically, Bakke represented the first signs of resistance to the wave of affirmative action programs that had spun off from the civil rights movement of the preceding decade. In Justice PowelPs Bakke opinion, there are harbingers of the Adarand decision:

If it is the individual who is entitled to judicial protection against classifications based upon his racial or ethnic background because such distinctions impinge upon personal

rights, rather than the individual only because of his membership in a particular group, then constitutional standards may be applied consistently. Political judgments

regarding the necessity for the particular classification may be weighed in the constitu

tional balance, but the standard of justification will remain constant. This is as it

should be, since those political judgments are the product of rough compromise struck

by contending groups within the democratic process. When they touch upon an

individual's race or ethnic background, he is entitled to a judicial determination that the burden he is asked to bear on that basis is precisely tailored to serve a compelling governmental interest. The Constitution guarantees that right to every person regard less of his background.20

Thus, Bakke can be viewed as the starting point of the process by which the Court has gone back and forth in an effort to find some basis for constitutional

scrutiny of race-based preferences. As shown below, where the Court travels on this serpentine path is often a function of the political make-up of the Court. Also, as shown below, the abuses that Adarand is likely to generate, such as legislators attempting to dismantle entire affirmative action programs that have been developed over the past ten years,21 may lead the Court back in the direction of a more relaxed scrutiny of affirmative action programs.

The case of Fullilove v. Klutznick,22 decided two years after Bakke, repre sented a swinging of the pendulum in the opposite direction. In Fullilove, the Court set up a relaxed standard of "intermediate scrutiny" for federal

18. 438 U.S. 265 (1978). 19. Adarand, 115 S. Ct. at 2097. 20. Bakke, 438 U.S. at 299 (footnote and citations omitted). 21. See infra part V.

22. 448 U.S. 448 (1980).



Affirmative Action and tho Construction Industry 439

set-aside programs based on race classifications.23 The opinions rendered in Fullilove demonstrate that: (1) the philosophical split on the Court followed

largely political lines; and (2) even in 1980, the seeds that would later sprout into Adarand were being sown by the conservative wing of the Court. In the Court's Fullilove opinion, Chief Justice Burger, along with Justices White and Powell, established a two-part standard for Fifth Amendment scrutiny of race-based set-asides. The Court declared that programs would pass consti tutional muster if they promoted an objective within the powers of Congress and such objectives were attained through the application of "constitution

ally permissible means."24 Compare this to the Adarand standard that a

"compelling government interest" must be accomplished through "narrowly tailored" means.25

More significantly, in his dissent in Fullilove, Justice Stevens assailed racial classifications as "pernicious"26 and opined that such classifications war

ranted an enhanced level of scrutiny, while in a separate dissent Justice Stewart and now Chief Justice Rehnquist indicated that the standards ap plied to federal programs under Fifth Amendment scrutiny should be of the same level as the standards applied to state programs under the Fourteenth

Amendment.27 Fullilove also illustrates the manner in which the two formerly parallel tracks have became intertwined; whether or not a particular wing favors application of the same level of scrutiny to state and federal programs depends on what level of scrutiny is the standard at that particular time.

Meanwhile, the development of Fourteenth Amendment scrutiny stan

dards for state programs was becoming stricter. In Wygant v. Jackson Board

of Education,28 the Court struck down a program that favored minority status over seniority in the implementation of a local school board policy governing lay-offs. In language that would echo in Adarand, the Court toughened the standard and required that race-based classifications serve a "compelling state purpose" and be "narrowly tailored" to accomplish that purpose.29

The Court went on to say that the establishment of minority role models is not a compelling state purpose and that anyone desiring to implement such programs must present "convincing evidence" that remedial action is

warranted.30 This last comment by the Court raised the bar for anyone

seeking to implement race-based affirmative action programs. It also articu lated the standard that would likely be applied in the future to disparity studies or other compilations of objective data establishing discrimination or economic disadvantage.

23. Id. at 472-73. 24. Id. 25. Adarand Constructors, Inc. v. Pena, 115 S. Ct. 2097 (1995). 26. Fullilove v. Klutznick, 448 U.S. at 537. 27. Id. at 523. 28. 476 U.S. 267 (1986). 29. Id. at 274. 30. Id. at 276.




The 1989 case of City of Richmond v. J.A. Croson Co. continued in the same vein as Wygant, although using markedly different language. In its

version of strict scrutiny, the Court struck down a minority set-aside program

implemented by the City of Richmond and adopted the principles of "skepti cism," "consistency," and "congruence" for its test:

Proper findings in this regard are necessary to define both the scope of the injury and the extent of the remedy necessary to cure its effects. Such findings also serve

to assure all citizens that the deviation from the norm of equal treatment of all racial

and ethnic groups is a temporary matter, a measure taken in the service of the goal of equality itself. Absent such findings, there is a danger that a racial classification is merely the product of unthinking stereotypes or a form of racial politics.32

Although Croson may have confused the standards previously articulated for scrutiny of state and local affirmative action programs, Metro Broadcasting rejected them altogether on the federal level. In Metro Broadcasting, the Court upheld a program of federal preferences for minorities in the issuance of radio and television licenses by the Federal Communications Commission. The Court adopted a standard of "intermediate scrutiny" as the standard of review for what it termed "benign" racial classifications, or those designed to accomplish noble if not remedial purposes. In fact, the Court indicated that the program in question simply need serve "important government objectives" within congressional powers that are substantially related to that

particular objective.33 In this sense, Metro Broadcasting echoed the since

repudiated Fullilove decision and flew in the face of the line of affirmative action decisions that preceded it.

In fact, in its subsequent Adarand opinion, the Court took direct aim on Metro Broadcasting. Noting that "Metro Broadcasting was ... a significant departure from much of what had come before it," Justice O'Connor, in

summarizing her Adarand opinion, directly and unequivocally repudiated the holding in Metro Broadcasting:

Accordingly, we hold today that all racial classifications, imposed by whatever federal, state, or local governmental act, must be analyzed by a reviewing court under strict

scrutiny. In other words, such classifications are constitutional only if they are neatly tailored measures that further compelling governmental interests. To the extent that

Metro Broadcasting is inconsistent with that holding, it is overruled.34

IV. Affirmative Action After Croson After Croson, there was a flurry of legal challenges to state and local affirma tive action programs. Initially, these challenges were successful,35 and the

31. 488 U.S. 469 (1989). 32. Id. at 510. 33. Metro Broadcasting Inc. v. FCC, 497 U.S. at 564. 34. Adarand Constructors, Inc. v. Pena, 115 S. Ct. 2097 (1995). 35. See, e.g., Contractors Ass'n of E. Pa., Inc. v. City of Philadelphia, 893 F. Supp.

419 (E.D. Pa. 1995) (Philadelphia ordinance requiring that 15% of contract dollars be awarded to MBEs lacked the necessary factual evidence and was not narrowly tailored);

American Subcontractors Ass'n, Ga. Chapter, Inc. v. City of Atlanta, 376 S.E.2d 662

(Ga. 1989) (ordinance lacked necessary factual data).




end result was a marked decline in the percentage of M/WBE firms participat ing in state and local construction projects. In an address to members of the

American Bar Association, E. Mabry Rogers and Rodney L. Moss outlined Croson's effect upon M/WBE programs as follows:

1990 (one year after Croson)?Fifteen programs were voluntarily dismantled, thirty five were being reevaluated, and twenty-seven faced legal challenges; 1991?Sixty state and local governments spent over $ 13 million on disparity studies to show the evidence of discrimination required by Croson;

1993?Thirty programs were voluntarily suspended, ninety were being reevaluated, and fifty-five were challenged. Less than fifteen were successfully defended on the

merits. Approximately four of those defended were state or local (i.e., not tied to

federal programs) with a mandatory or involuntary requirement;

1994?Seventy-five disparity studies were complete (all showing a disparity/discrimi nation). Approximately ten more studies were in progress and more than seven

lawsuits in progress.36

The experience of the City of Richmond perhaps best exemplifies the effect of Croson on state and local affirmative action programs.37 Prior to the institution of Richmond's original affirmative action program, the MBE's share of city construction work was less than 1 percent. This was despite the fact that Richmond's population was more than 50 percent minority.38

After the institution of Richmond's affirmative action program, MBE partici pation in city construction work increased to approximately 40 percent.39 After Croson, and Richmond's dismantling of its original affirmative action

program, MBE participation in city construction work dropped down to

10 percent.40 In an effort to pass the Croson strict scrutiny and narrow tailoring tests,

Richmond and other state and local entities sought to design new affirmative

programs. For example, Richmond contracted with a consulting firm to

prepare a disparity study41 showing the degree to which MBE contractors were entitled to city construction business, based upon an analysis of antici

pated utilization versus actual utilization of MBE firms in Richmond. Based

upon this study, which cost the city $150,000, Richmond set goals of 16

percent for MBE contractors.42 According to Richard Bobb, Richmond's

city manager, the revised affirmative action program was necessary to ensure

the utilization of MBE contractors: "The good-old-boy system was back at

36. E. Mabry Rogers &l Rodney Moss, M/WBE Subcontracting: Is It Working/Workable?, in Public Bonding and Construction Through the Year 2000 (ABA 1994). 37. See omaha world herald, Mar. 27, 1995, ? News at 5 . 38. Id. 39. Id. 40. Id. 41. A "disparity" or "predicate" study compares actual utilization of M/WBE contrac

tors by governmental entities and their prime contractors with the anticipated M/WBE utilization barring discriminatory practices. Any significant disparity between actual

utilization and anticipated utilization leads to an inference of discrimination. The antici

pated utilization is then used to set M/WBE goals. 42. Omaha World Herald, Mar. 27, 1995, ? News, at 5.




work [after Croson]. No amount of jawboning or negotiations was sufficient to keep minority firms at work."43

The existence of a disparity study to support affirmative action goals, however, is not always enough to withstand a post-Croson challenge, as

illustrated in Contractors Association of Eastern Pennsylvania, Inc. v. City of

Philadelphia.^ In 1982, the City of Philadelphia enacted an ordinance for the declared purpose of increasing the city's contracting opportunities for

M/WBE businesses.45 The original ordinance contained a 15 percent "goal" for MBE contract participation and a 10 percent "goal" for WBE contract

participation. In 1987, the ordinance was amended to expand coverage to

all "disadvantaged" business enterprises and to include a 2 percent "goal" for contract participation by handicapped-owned business enterprises.46

In striking down Philadelphia's program, the court in City of Philadelphia found the following defects in both the program and the disparity study underlying the program:

(1) the purported statistical disparity between actual MBE utilization and

anticipated MBE utilization was not linked to additional evidence of discrimi nation and, therefore, was not dispositive of racial discrimination;

(2) the anecdotal testimony provided by MBEs before the City Council Committee on Finance was insufficient for the racial preference in the pro gram to withstand strict scrutiny;

(3) there were race-neutral explanations for the MBE utilization disparity, including, but not limited to: a failure to account for how many MBEs

actually attempted to participate in the City's construction contracting; a failure to document whether local MBEs were involved in other construction work such as federally assisted public works contracts that then made them unavailable for local construction work; and a failure to document whether the available MBEs were qualified to perform City construction work;

(4) the disparity study ignored MBE participation at the subcontractor

level; (5) the program was not narrowly tailored to redress identified discrimina

tion because: the city failed to consider alternative race-neutral measures such as training programs; the minorities included in the program (such as Pacific Islanders) were merely a random inclusion of various racial groups that may never have suffered discrimination in Philadelphia; the program was not geographically limited to Philadelphia; and the ordinance was not of limited duration.47

Thus, in order to successfully structure and defend an affirmative action

program, the following actions are required:

43. Id.

44. 893 F. Supp. 419, 423 (E.D. Pa. 1995). 45. Id.

46. Philadelphia, Pa., Code ? 17-503(1) (1987). 47. City of Philadelphia, 893 F. Supp. at 429-47.




(1) an analysis of the state or local governmental agency's purchasing and contract award procedures;

(2) an analysis of past M/WBE participation in governmental construc tion contracting at both the prime and subcontracting level;

(3) thorough documentation of historical discrimination in the local

economy;

(4) an analysis of the adverse effects of such discrimination on the compet itiveness of M/WBEs;

(5) a review of the responses to surveys of M/WBEs regarding their at

tempts to obtain work with the state or local governmental agency; and

(6) documentation of the barriers encountered by M/WBEs in obtaining work.

Once the historical foundation is laid for an affirmative action program, what then are the characteristics of a constitutional affirmative action pro

gram? Basically, those programs upheld have included the following features:

(1) Substantial statistical evidence inferring discrimination; (2) Anecdotal or historical testimony of discrimination by those groups

included in the affirmative action program; (3) Implementation of race/gender neutral means to increase M/WBE

participation, such as: mentor-protege programs, prompt payment require ments, and lending and bonding assistance;

(4) Waiver provisions if good-faith efforts to find sufficient M/WBEs are

unsuccessful; (5) Sunset provisions including limited duration graduation; and

(6) Limitation of the program within the local entity's boundaries.48

Following the outline above, and based upon more extensive disparity studies, state and local programs that involve no federal money have passed

muster under the Croson strict scrutiny test, at least at the lower court level.49 For example, the City of Denver conducted a disparity study that compiled federal studies; anecdotal responses to questions about past discrimination;

independent analyses of the use of M/WBE firms on city projects funded

by city bonds; city council hearings regarding alleged discrimination; and census data and statistical evidence of the disparity in the use of M/WBEs on locally funded projects versus federally funded projects.50

The U.S. District Court for the District of Colorado determined that

Denver's affirmative action program, based upon the foregoing analysis, met

the Croson strict scrutiny test. The district court granted summary judgment for the city against a nonminority prime contractor's challenge to the city's

MBE program. While this decision was reversed and remanded on appeal for further proceedings to resolve certain factual issues, such as "potential"

48. See, e.g., Concrete Works of Colo., Inc. v. City and County of Denver, 823 F.

Supp. 821 (D. Colo. 1993), rev'd, 36 F.3d 1513 (10th Cir. 1994) (remanded for further

proceedings). 49. Concrete Works, 36 F.3d at 151344. 50. Id. at 1524-30.




flaws in the city's data, the Court of Appeals for the Tenth Circuit stated that:

Our decision to reverse the district court's order and to remand for a trial in no way reflects our judgment of Denver's likelihood of success at trial on the existing factual

record.51

Although remanded for further proceedings, the Tenth Circuit's decision in Concrete Works of Colorado is instructive regarding the evidence required to withstand the Croson test of strict scrutiny. Specifically, the Court con

cluded (at various points in the decision):

[W]e hold that data from the Denver MSA [Metropolitan Statistical Area which comprises a six (6) county area, not just the City of Denver] is adequately particularized for strict scrutiny purposes;52

[W]e deem anecdotal evidence of public and private race and gender discrimination

appropriate supplementary evidence in a strict scrutiny calculus;53

[EJvidence of discrimination existing subsequent to enactment of the . . . Ordinance is properly before us;54

[t]he federal agency reports of discrimination in Denver's contract awards support Denver's contention that race and gender discrimination existed prior to the enact

ment of the challenged Ordinance; 5

[ajlthough we do not read Croson as requiring the municipality to identify an exact

linkage between its award of public contracts and private discrimination, such evi

dence would at least enhance the municipality's factual predicate for a race- and

gender-conscious program; and

[AJnecdotal evidence about minority-and women-owned contractors' experiences can

bolster empirical data that gives rise to an inference of discrimination.56

Moreover, the prime contractor never challenged or appealed the district court's conclusion in Concrete Works of Colorado with respect to the second

prong of the Croson test: that Denver's Ordinance was narrowly tailored to remedy past and present discrimination.57 A review, therefore, of the

findings from the district court case is instructive on what constitutes narrow

tailoring of an affirmative action program. First, the district court found Denver's remedy to be narrowly tailored to

redress the consequences of past discrimination. It contained "race-neutral" means of increasing M/WBE participation in public contracting. These in cluded breaking contracts down to smaller sizes to facilitate small business

51. Id. at 1531. 52. Id. at 1520. 53. Id. at 1521. 54. Id. 55. Id. at 1525. 56. R at 1530. 57. W. at 1531, n.24.




participation, a prompt-payment ordinance, and a bond guarantee pro 58 gram.

Second, the program did not contain any rigid numerical quotas for M/WBE participation; rather, the program contained goals for M/WBE

participation and good-faith compliance on a project-by-project basis.59 As the district court stated, "[e]xamples of waiver and alternative routes of

compliance in the Ordinance read like a how-to manual on narrowly tailored

aspirational goals ordinances."60 Unlike the Denver program that was instituted for "city-funded" public

works projects,61 state and local programs that include federal funds62 tradi

tionally had been reviewed under a more deferential standard of review, based upon the Fullilove decision. After Adarand, however, this "deferential standard of review" is no longer applicable. Now such programs will have to meet the same strict scrutiny test traditionally applied to affirmative action

programs funded purely by state and local governments.

V. Affirmative Action After Adarand The Adarand decision involved a subcontractor in Colorado that was the low bidder for the installation of guardrails in connection with a federal

highway project. Notwithstanding its low bid, the subcontractor was rejected by the prime contractor, who instead contracted with a minority subcontrac tor in order to obtain certain benefits under the "Subcontracting Compensa tion" clause in the general contractor's contract with the Federal Highway

Administration. The factual setting of Adarand did not involve set-asides or penalties, but rather a clause included in many federal contracts providing inducements for meeting certain levels of minority subcontracting.63

The more salient aspects of the Adarand decision deal with the appropriate level of constitutional scrutiny for raced-based affirmative action programs.

The Court, in moving away from Metro Broadcasting, articulated a new

enhanced standard of strict scrutiny. The Court held, in essence, that all racial classifications, state or federal, must satisfy the strict scrutiny standard

by demonstrating that they serve a "compelling government interest" and that they are narrowly tailored to achieve that interest. The Court makes

58. Concrete Works, 823 F. Supp. at 841. 59. Id. at 841-44. 60. Id. at 843. 61. Id. at 824. The opinion in City of Philadelphia does not involve the issue of federal

funds.

62. Milwaukee County Pavers Ass'n v. Fiedler, 922 F.2d 418 (7th Cir.), cert, denied, 500 U.S. 954 (1991).

63. One of the significant constitutional questions in Adarand, i.e., the issue of stand

ing, is not addressed in this article. There were two standing issues that had to be resolved

by the Court before they could get to the constitutional aspect of the affirmative action

program. One involved the likelihood of future injury to Adarand and the other involved Adarand's erroneous citation of the constitutional authority for the program being

challenged.




no allowance for programs motivated solely by an intent to generally remedy past discrimination. As Justice Scalia notes in his more narrow, concurring opinion, there can be no compelling government interest in discriminating to make up for past discrimination.64 The standard articulated by the Court in Adarand is reminiscent of Wygant and suggests that nothing less than clear and convincing evidence that remedial action is warranted will support affirmative action programs. The strict scrutiny standard that was used by the Court during the 1950s and 1960s to strike down discriminatory measures thus becomes a two-edged sword and will apply with equal force to affirmative action programs. The opinions rendered in Adarand paint with broad brushes and can be fairly characterized by Justice Scalia's statement in his

concurring opinion, "In the eyes of government, we are just one race here. It is American."65

The social and political fall-out from Adarand has exceeded and may outlive its constitutional impact. As noted above, the opinion itself serves more to smooth out the bump in the road created by Metro Broadcasting than to announce any innovative constitutional principles in terms of the level of scrutiny of affirmative action programs. The practical effects, how ever, are and will be substantial. In particular, the Adarand decision has

provided a springboard for legislative attacks on existing programs. The

legislative attack on affirmative action programs is being spearheaded at the federal level by Senator Robert Dole (R-Kansas) and Senator Phil Gramm

(R-Texas). In 1995, Senator Dole introduced Senate Resolution 1085, the

Equal Opportunity Act of 1995, which would largely eliminate any federal set-asides for minority and women businesses. A parallel bill was introduced in the House by Representative Canady (R-Florida), along with some seventy cosponsors. The Equal Opportunity Act of 1995 would prohibit the use of any race- or gender-based classifications in the awarding of federal contracts, federal hiring, and in the implementation and administration of federal programs. The bill would also prohibit the federal government from requir ing or providing incentives for granting race- or gender-based preferences in hiring or contracting.

Meanwhile, Senator Gramm announced that he intended to introduce, as an amendment to every appropriations bill considered in the Senate, legislation that would prohibit Congress from awarding any contract based in whole or in part on the race, color, national origin, or gender of the contractor or subcontractor. While Gramm's efforts met with resistance, Representative Franks (R-Connecticut) announced his intention to pursue the same tactic in the House. Frank's efforts on the first appropriations bill to which he attached his amendment also met with resistance, not necessarily

64. Adarand Constructors, Inc. v. Pena, 115 S. Ct. 2097 (1995). 65. Id.




by those philosophically opposed to his position, but by those intent on

protecting subcontractors in the defense industry.66 On state levels, legislatures are also considering proposals that echo the

Federal Equal Opportunity Act. For example, State Senator Walter Dudycz of Illinois has introduced the Illinois Equal Opportunity Act of 1995, which

provides in pertinent part as follows:

Notwithstanding any other provisions of state law, neither the State of Illinois nor

any of its political subdivisions or agents shall use, race, color, ethnicity, gender or

national origin as a criterion for either discriminating against or granting preferential treatment to any individual or group in the operation of the state system of public

employment, public education or public contracting.67

The Dudycz bill is an example of the aggressive policy adopted by opponents of affirmative action in the face of Adarand. California's Gover nor Pete Wilson took Adarand as his cue to eliminate over 150 affirmative action advisory panels in California alone, as well as reduce the state

imposed goal of 20 percent for participation in federal highway projects by disadvantaged business enterprises to the federally mandated minimum of 10 percent.68

Adarand has thus set up a partisan political debate over the fate of existing affirmative action programs. While some note that Congress will have even

greater impetus to repeal many federal set-aside programs because Congress has a duty to uphold the Constitution,69 the executive branch of govern ment, headed by an incumbent Democratic president, is meeting these efforts head-on. In a memo from Assistant Attorney General Walter Dellinger to

the general counsels of all federal departments, the White House advised

agencies that no affirmative action program should be suspended until it has been evaluated by the White House (and presumably the Justice Depart ment) to determine whether or not it meets the new strict scrutiny standards articulated in Adarand.70 The question remains as to who will prevail in the

partisan battle to interpret and react to Adarand; nonetheless, on the na

tional level, the deck appears to be stacked in favor of the Republicans, not

only because they control Congress, but also because a majority of the

Supreme Court was appointed by former Presidents Reagan and Bush.

Adarand, however, does not suggest that the problems of discrimination have been solved. The Court merely rejects the proposition that minority

enterprises are, by definition, economically disadvantaged business enter

prises. The Court is no longer willing to make any presumptions about the extent of discrimination in America today. That is why even nominal set-aside or incentive goals do not pass constitutional muster without compel

66. Minorities in Business Insider, Aug. 2, 1995, at 1-4 [hereinafter MBI]. 67. S. 1184, 89th General Assembly, State of Illinois (1995). 68. constructor (Associated Gen. Contractors of Am.), June 1995, at 7.

69. Id.

70. MBI, July 5, 1995, at 1-3.




ling underlying evidence tying those goals to actual, quantifiable acts of past discrimination. Moral justifications for affirmative action programs, rejected as long ago as Bakke and revived as recently as Fullilove, are also squarely

rejected in Adarand. There is nothing in Adarand to suggest that governments are precluded from assisting economically disadvantaged business enter

prises; there is everything in Adarand to suggest that governments will no

longer be able to simply equate economically disadvantaged business enter

prises with minority or women business enterprises. Actually, Adarand may beg more questions than it answers. Eliminating

minority status as a touchstone for disadvantaged business enterprises creates a vacuum. Various quarters have proposed that the new standard be based on some form of pure economic disadvantage, but no one has as yet come to grips with how this ephemeral new standard might be established or

applied. One response has been to suggest that the new standard will be to implement preferences for businesses located in economically depressed areas.71 This suggestion, however, raises several issues. First, it does not

appear to eliminate the potential for abuses that existed in prior affirmative action programs. Second, and most unresponsive to the Adarand decision, it does not appear to be narrowly tailored to meet the compelling government interest of promoting business to economically disadvantaged business enter

prises.

Adarand does not require that race- and gender-based classifications be

abandoned; rather, Adarand requires that the need for the programs be

objectively demonstrated. The most likely method appears to be the use of

disparity studies, which are studies performed on a particular geographic level (municipal, countywide, statewide, nationally) that examine the general and minority (including female) populations of the area in question and seek to quantify past acts of discrimination. The sheer magnitude of such

projects, and the uncertainty as to the standards to be applied in their

review, however, will make such studies daunting tasks. Moreover, as a

practical matter, disparity studies are enormously expensive to perform. Thus, it may be extraordinarily difficult to convince state and local govern ments that substantial resources should be dedicated to disparity studies, especially when those studies may or may not establish the need for affirma tive action programs beyond those which are already in place, or justify those programs already in place.

VI. Conclusion At first blush, there is little solace for proponents of affirmative action in the Adarand opinion. The opinion appears to have raised the bar so high, and to have endorsed the efforts of affirmative action opponents so clearly, that the prospects for implementing new affirmative action programs will be bleak, even though the need may be profound. Reading between the

71. MBI, July 19, 1995, at 2.




lines in Adarand, however, proponents of affirmative action programs can find cause for encouragement. Indeed, it is difficult to characterize the opin ion as altogether unfriendly to affirmative action. It is unfriendly only to

simplistic, broad-based, race-based, and gender-based classifications that are not rationally related to economic disadvantage.

An important development that likely will come out of Adarand is an

increased reliance on disparity studies. Although, as noted above, disparity studies may be expensive and unwieldy, the fact that they need to be con

ducted on a local level means that the opportunity for input will be greater and the compelling government purpose will be clearer. Also, because the studies will be conducted in a focused manner, once the "compelling govern

ment purpose" has been established, it will not require a quantum leap to

get at a "narrowly-tailored" program. In other words, the disparity study may not only establish the compelling government purpose, but also may

suggest the extent to which the program should be implemented. Another benefit of the Adarand decision (although open to debate) is

that in establishing a test difficult for proponents of affirmative action to

pass, the Court has nonetheless apparently eliminated the ambiguity \n the

prior decisions. Any time there exists ambiguity, there is the possibility that

somebody will seek to use that ambiguity to his or her own advantage. To the extent that Adarand has eliminated ambiguity, the risk of program abuse

may have been substantially diminished. In short, Adarand does not have to be the death knell for affirmative

action programs. Rather, Adarand may be interpreted as more clearly estab

lishing the criteria for legitimacy of affirmative action programs by setting standards to: eliminate arbitrary and capricious levels of set-asides, eliminate

minimal and undifferentiated hiring goals, and eliminate the overly simplistic equation that all M/WBEs are inherently deemed to be economically disad

vantaged.



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