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By J. Kent Holland

The manner in which Washington State ’s DOT applied the Transportation Equity Act of the 21st Century (TEA-21) was held to violate the constitutional guarantee of equal protection. The state failed to proffer evidence of discrimination within its own contracting market.  In fact the record was devoid of any evidence suggesting that minorities currently suffer or ever suffered discrimination in the Washington transportation contracting industry.  Washington thus failed to meet its burden of demonstrating that its DBE program is narrowly tailored to further Congress’s compelling remedial interest.

In Washington States Paving Co., Inc. v. Washington State Department of Transportation, (No. 03-35783, 2005),  the Washington State Department of Transportation (WSDOT) mandated that a City of Vancouver project obtain 14 percent minority participation on a project.  A subcontract bidder, Western States, was rejected by the prime contractor in favor of a higher bidder because Western States failed to meet the minority utilization requirement.

Western States sued  WSDOT and the city, seeking declaratory judgment that the TEA-21 minority preference program violates equal protection under the Fifth and Fourteenth Amendments of the U.S. Constitution either on its face or as applied by the State of Washington.  The U.S. district court held that TEA-21’s minority preference program is constitutional on its face.  It also found that the manner in which WSDOT applied the statue was satisfactory.  Western States appealed to the U.S. Ninth Circuit Court of Appeals.

The appellate court held that TEA-21 and its implementing regulations create a narrowly tailored remedial program.  The court concluded “Race-conscious remedies are used only when race-neutral means prove ineffective, these race-conscious measures are employed in a flexible manner and for a limited duration, and the program is tied to the labor market in each State and is designed to minimize the burden on non-minorities.”  For these reasons, the court rejected the subcontractor’s challenge to the statute and regulations, and affirmed the constitutionality of TEA-21.

In analyzing the second aspect of subcontractor’s challenge, however, the court reached several significant decisions.  The court concluded that WSDOT was not required to demonstrate an independent compelling interest for its DBE program since Congress had already accomplished that when it enacted TEA-21.  Even if discrimination does not exist in Washington , says the court, “the State’s implementation of TEA-21 nevertheless rests upon the compelling nationwide interest identified by Congress.”

But the inquiry does not end there, says the court.  It is necessary to undertake an as-applied inquiry into whether the state’s DBE program is narrowly tailored for the particular facts involved.  It is not sufficient for the state to merely show that it complied with the federal program’s requirements.  “Whether Washington ’s DBE program is narrowly tailored to further Congress’s remedial objective depends upon the presence or absence of discrimination in the State’s transportation contracting industry.  If no such discrimination is present in Washington , then the State’s DBE program does not serve a remedial purpose; it instead provides an unconstitutional windfall to minority contractors solely on the basis of their race or sex.”

The court went on to state that “even when discrimination is present within a State, a remedial program is only narrowly tailored if its application is limited to those minority groups that have actually suffered discrimination.”  According to the court, the only figure that Washington can rely upon to demonstrate discrimination is the disparity between the proportion of DBE firms in the state (11.17%) and the percentage of contracting funds that are awarded to DBEs on race-neutral contracts (9%).   But this was entitled to little weight by the court because it fails to account for factors that could affect the relative capacity of DBEs to undertake contracting work.

The fact that DBEs constitute a certain percentage of the market does not establish that they are able to perform that same percentage of the work.  A number of factors could prevent that.  For example, “DBE firms may be smaller and less experienced than non-DBE firms (especially if they are new businesses started by recent immigrants) or they may be concentrated in certain geographical areas of the State, rendering them unavailable for a disproportionate amount of work.”

The court states that “to the extent that this small disparity has any probative value, it is insufficient, standing alone, to establish the existence of discrimination against DBEs.”  “The WSDOT [   ] did not introduce any anecdotal evidence of discrimination.”  Claims of general societal discrimination and generalized assertions about discrimination in an industry “cannot be used to justify race-conscious remedial measures.”

In this case, the court found that “The State of Washington [   ] has not proffered any evidence of discrimination within its own contracting market and has thus failed to meet its burden of demonstrating that its DBE program is narrowly tailored to further Congress’s compelling remedial interest.”   For these reasons, the court reversed the district court’s grant of summary judgment as to WSDOT, the city and the county, and remanded the matter to the district court with instructions to enter summary judgment in favor of the subcontractor on its challenge to how the Act and regulations were applied.

Comment:  This decision continues a line of decisions clarifying what must be proved by state agencies in order to create racial preferences in their various construction programs.  The Eight Circuit Court of Appeals, in the case of Sherbrooke Turf, Inc. v. Minnesota Dept. of Transportation, 345 F.3d 964 (8th Cir. 2003), required the state to show that its program was narrowly tailored to achieve Congress’s remedial objective. The court considered whether discrimination had actually occurred in the state.  “To be narrowly tailored, a national program must be limited to those parts of the country where its race-based measures are demonstrably needed.”  Id. At 971.

The U.S. Supreme Court in the case of City of Richmond v. J.A. Croson Co., 488 U.S. 469 (1989), invalidated a program that required contractors to subcontract a minimum of 30 percent of funds to minority owned businesses.  This was deemed by the Court to be a “rigid racial quota.”  The TEA-21 regulations prohibit the use of quotas.  Instead, the TEA-21 allows states to establish race-conscious contracting “goals.”  These can be satisfied by a contractor either meeting the numeric goal or by demonstrating that, despite “good faith efforts” to meet the goal, it couldn’t do so.  This flexibility provided by TEA-21 has been approved by a number of U.S. circuit courts as constitutionally permissible.

According to the Supreme Court, several factors must be considered in determining whether a racial classification is narrowly tailored.  These include “the efficacy of alternative remedies; the flexibility and duration of the relief, including the availability of waiver provisions; the relationship of the numerical goals to the relevant labor market; and the impact of the relief on the rights of third parties.” United States v. Paradise, 480 U.S. 149, 171 (1987).  And the Supreme Court has also stated that “[A]ll racial classifications, imposed by whatever federal, state, or local government actor, must be analyzed by a reviewing court under strict scrutiny.” Adarand Constructors, Inc. v. Pena, 515 U.S. 200, 227 (1995).

States that are utilizing federal funds such as those granted by the U.S. Department of Transportation, must be prepared to demonstrate the specific facts upon which they have “narrowly tailored” their minority preference criteria.  A contractor’s challenge to how the state agency has applied preference programs is the challenge most likely to succeed.  Since the courts demand “strict scrutiny” of how the programs are applied, the state agency has the burden of presenting evidence of discrimination in the affected construction industry and showing that its preference program is “narrowly tailored to remedy the discrimination.

About the author: Kent Holland is a construction lawyer  in Tysons Corner, Virginia, and is risk management consultant for environmental and design professional liability.  He is also publisher of ConstructionRisk.com Report.  For several years in the early mid 1980s, as an attorney with the U.S. Environmental Protection Agency (U.S. EPA),  Mr. Holland served as legal advisor to the Small and Minority Business Enterprise Office of the Agency and was involved in advising the Agency on numerous disputes involving MBE and WBE goals, and “good faith efforts” to achieve the goals. Since leaving the Agency, he has represented contractors in bid protests, and various claims involving DBE and MBE matters.  He may be reached at Kent@ConstructionRisk.com.