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(A revised version of this article will appear in The
Construction Lawyer, Volume 21, No. 1, January 2001,
published by the American Bar Association's Forum on the
Construction Industry.)
By
John W. Ralls
Thelen Reid Brown Raysman & Steiner LLP
Another
decision has been handed down in the 10-year legal battle
between Adarand Constructors and the U.S. Department of
Transportation, a battle that already has reached the U.S.
Supreme Court twice. In the latest decision, the 10th Circuit
held that the challenged federal DBE program was unconstitutional
but that the current program -- modified in light of intervening
U.S. Supreme Court decisions -- is narrowly tailored to
meet a compelling state interest and therefore does not
violate the equal protection clause of the Constitution.
Adarand Constructors, Inc. v. Slater, 2000 WL 1375571,
2000 U.S. App. Lexis 23725 (10th Cir. 2000).
In
1990, a non-DBE subcontractor (Adarand) sued DOT to challenge
the constitutionality of DOT's use of the subcontractor
compensation clause ("SCC"). The SCC was included
by DOT in general contracts for highway construction. The
SCC provided that general contractors would receive additional
compensation (up to 10 percent of the subcontract price)
by using DBE subcontractors. The prevailing regulations
provided that the entities which certify businesses as "disadvantaged"
(including state highway agencies) must presume that persons
who are black, Hispanic, Asian Pacific, Subcontinent Asian
and Native American are disadvantaged. Adarand claimed it
would have been awarded a particular subcontract but for
the fact that the SCC provided additional compensation to
the general contractor to accept the higher bid of a DBE
subcontractor.
The
U.S. District Court and the 10th Circuit Court of Appeals
rejected the subcontractor's challenge. However, in Adarand
Constructors, Inc. v. Pena, 515 U.S. 200 (1995) (Adarand
I), the U.S. Supreme Court held that DOT's use of race-based
measures must be subjected to strict scrutiny and remanded
the case to the District Court for application of that standard.
On
remand, the District Court granted summary judgment for
the subcontractor, and the government appealed. On appeal,
the 10th Circuit vacated on the grounds that the case was
moot because while the appeal was pending, Adarand applied
for and was granted DBE certification by the Colorado Department
of Transportation. By virtue of Adarand's DBE certification,
the 10th Circuit concluded that Adarand no longer could
demonstrate an injury. In January of 2000, the U.S. Supreme
Court reversed and remanded to the 10th Circuit to consider
the merits of the appeal.
In
considering the merits of the appeal, the 10th Circuit not
only examined the DBE program challenged by Adarand but
also the programs as they have been revised. "Since
the district court last considered this case, and after
lengthy Congressional hearings in response to the Adarand
[I] decision, the federal government has significantly
changed the way in which it implements the challenged race-conscious
programs in highway construction contracting.
"Mindful
of the Supreme Court's mandate to exercise particular care
in examining governmental racial classifications, we conclude
that the… SCC was insufficiently narrowly tailored
as applied in this case and is thus unconstitutional under
Adarand [I]'s strict standard of scrutiny."
The court noted, among other things, that the challenged
program required officials to presume that persons who are
black, Hispanic, Asian Pacific, Subcontinent Asian and Native
American were disadvantaged. This presumption was over-inclusive
because it included members of those groups who are not
disadvantaged (e.g., the Sultan of Brunei) and also under-inclusive
because it excluded members of other groups who are disadvantaged
(e.g., a white subcontractor from rural Appalachia).
The
court came to a different conclusion regarding current programs.
"[A]fter examining the current SCC and DBE certification
programs, we conclude that the [prior] defects have been
remedied and the relevant programs now meet the requirements
of narrow tailoring." The court noted that the current
regulations create a rebuttable presumption that particular
racial groups are socially disadvantaged and eliminate the
race-based presumption of economic disadvantage. 13 C.F.R.
§124.103 (b), 48 C.F.R. §19.703. The current regulations
also require applicants to submit a narrative statement
describing the circumstances of that purported economic
disadvantage. 13 C.F.R. §124.104 (b) (1). The current
regulations also establish net worth and gross receipts
limits for DBEs. 49 C.F.R. §26.65 (b). Whenever possible,
the current regulations require recipients of federal funds
to use race-neutral means to meet the maximum feasible portion
of their overall DBE participation goals. 49 C.F.R. §26.51
(a). The regulations also enumerate a list of race-neutral
measures, such as helping DBEs to overcome bonding obstacles.
49 C.F.R. § 26.51 (b). As a result of these regulatory
changes, the current programs are narrowly tailored to meet
the government's compelling interest in not perpetuating
the effects of racial discrimination in the distribution
of federal funds and in remediating the effects of past
discrimination in government contracting.
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For more information about the issues covered in this report, please contact John Ralls in our San Francisco office at 415-369-7210 or at jralls@thelen.com or contact your Thelen attorney. For more information about Thelen's Construction and Government Contracts Department, click here.
©2000 Thelen Reid Brown Raysman & Steiner LLP
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