The message to be taken from these developments: all race-based programs and, by extension, potentially all gender-based programs—including ones that require or reward participation of Minority Business Enterprises (“MBE”) or Women Business Enterprise (“WBE”) in construction programs—currently stand on shaky ground.
This post will explain the constitutional foundations at play, the decisions shaking things up, and why well-rounded dialogue is urgently needed to address the status of these programs before they’re dead in the water.
An MBE/WBE Constitutional Law Primer in Construction
Before examining the recent court cases in more detail, it may be helpful to understand how MBE and WBE programs developed from a constitutional law basis. Following passage of the Civil Rights Act of 1964, cities and municipalities began implementing strong race and gender specific remedial programs. The programs operated for years with aggressive minority and women contracting goals. Designed to bring disenfranchised players to the table, the ever-increasing goals, while genuinely motivated, slowly began losing relevance when measured against local statistics. In 1989, a key Supreme Court decision rocked the commercial construction industry by reviewing and declaring unconstitutional Richmond, Virginia's race-based program. See City of Richmond v. J.A. Croson Co. (“Croson”), 497 U.S. 547 (1989). By extension, this decision invalidated the majority of most state and local race-based programs then in existence.
The goal program challenged in Croson included 30% goals for its defined
minority and women groups. It was not
flexible, thereby converting stated goals into quotas. It identified goals for certain groups, like
Alaskan Inuit, who were not statistically present in Richmond. The 30% goal also lacked statistical support based
on current local availability and capability analysis.
The Croson
decision was famously authored by Justice Sandra Day O'Connor, herself the
victim of discrimination. Graduating at
the top of her legal class, she nonetheless was unable to obtain employment as
a lawyer and initially was limited to working as a legal secretary. Noting discrimination continues to be a real
and present problem, Justice O'Connor nonetheless outlined the standards for justifying
race-based programs. The Croson factors, as they became known, stated:
- Any program based on race is inherently suspect and thus sustainable only under a "strict scrutiny" standard of review.
- "Strict scrutiny" requires the government to prove:
- A "compelling interest" in creating the program (i.e. whether the goal is sufficiently important enough to justify a particular use of suspect classification) AND
- The program is "narrowly tailored" to address that interest.
Croson identified
the data necessary to prove the "compelling interest." Later known as Croson or Disparity Studies,
these data-intensive reviews analyzed: (1) specific identification of the
MBE/WBE firms located in that region; (2) the scopes and magnitude of work they
were capable of performing; and (3) the forms and types of discrimination
barring them from access, including lack of educational opportunities, business
education and formation, credit and financing, bonding, and job procurement. Without
a current Croson study, a program could not meet the "compelling
interest" element of strict scrutiny.
Croson also
required remedial programs to be "narrowly tailored." A
"narrowly tailored" program required proof that it:
- Was more than racial balancing;
- Was based on the number of local, qualified MBE and WBE firms in the region who were capable of performing the work required in each contract;
- Was not over-inclusive by presuming discrimination against certain minorities;
- Was not under-inclusive by omitting race neutral measures designed to assist small businesses in general, and
- Did not implement either expressly or by practice mandatory quotas.
These factors, which would govern for over 34 years, still left some gaping holes.
First, Croson addressed race-based local and state programs. This left gender-based programs impliedly covered but not constitutionally analyzed at that time. This remains at issue even today. Gender-based classifications are reviewed under a different—and more lax—"intermediate scrutiny" standard but are nonetheless typically lumped in with race-based programs under strict scrutiny.
Croson was also limited
to local and state programs; it did not apply to federal programs which, at
that time, were reviewed under the same, softer "intermediate
scrutiny" review. "Intermediate
scrutiny" required the program to:
(1) serve an important governmental interest; and (2) be "substantially
related" to achieving the objective. Craig v. Boren, 429 U.S. 190
(1976). This softer review made both
gender-based, and federal MBE programs tougher to legally challenge, permitting
a presumption federal agencies could rely on broader, more generalized national
data to support findings of past discrimination.
This
different treatment ended in 1995 through three cases known collectively as the
Adarand cases, which were decided between1992 and 2001.[i] Adarand held Croson’s
"strict scrutiny" standards for race-based programs were as
equally applicable to federal programs as to state and local programs. This
approach remained the law of the land through today.
MBE/WBE Programs Under the Croson and Adarand
Regimes
While
Croson and Adarand operated to bring statistical foundations to
local, state and federal programs, and where the disparity studies identified
and revealed important data on race and gender availability and participation,
the history of these studies also revealed a not-so-surprising trend. When
there were goals and strong enforcement incentives to meeting those goals,
utilization was high. This created a
legal conundrum in that proof of success by its very nature disproved ongoing
evidence of discrimination. In other words, if the goal was identified to
remedy past discrimination, and a governmental entity hit or exceeded that
goal, it statistically had "remedied" the past discrimination. For
this reason, the programs were deemed to be short term in nature and to imply
an end date.
But the statistics also revealed another problem. The utilization figures waxed and waned in accordance with the goals. Federal programs implementing annual adjustment, i.e. the increase or decrease of goals based on prior year's performance, reflected a corresponding bell curve of utilization. When goals were high, utilization was high. When goals were low, utilization was low. This reflected issues with the program's long-term performance and full realization of the remedial intent.[ii] The programs also ignored legal precedent warning that an expiration of the programs was always anticipated and constitutionally required.
Students for Fair Admission's
Roll-Back of Affirmative Action
From 2018 to 2020, the Trump Administration's appointment
of two Supreme Court justices formed one of the most conservative Supreme
Courts since 1931.[iii] This ideological shift set the stage for the Students for Fair Admissions decision.
After providing a detailed analysis of legal precedent
defining the parameters of race-based remedial programs over the years, the majority in Students for Fair Admissions concluded the remedial programs had outlived their time. While nominally limited to race-based university admissions programs under Title VI of the
Civil Rights Act of 1964 (the "Act"), the decision contains language which seems aimed at future analysis of all race-based
programs. Specifically, the Court states:
"[e]liminating racial discrimination means eliminating all of it. Accordingly, the Court has held that the Equal Protection Clause applies “without regard to any differences of race, of color, or of nationality”— it is “universal in [its] application” . . . . “[t]he guarantee of equal protection cannot mean one thing when applied to one individual and something else when applied to a person of another color.” (citations omitted, emphasis added).
Justice
Gorsuch's concurring opinion impliedly expands application of the holding from Title VI cases
(prohibiting discrimination in federally funded programs) to Title VII of the Act,
which prohibits race-based discrimination in employment and government and
private contracting. This directly
impacts EEOC compliance programs, MBE goal programs, and race-based, Diversity Inclusion programs.
The Eastern District of Tennessee's Decision in Ultima
On July 19, 2023, a Tennessee federal district court in Ultima Services Corp. v. U.S. Department of Agriculture became the first to accept Justice Gorsuch's invitation to expand the holding of Students for Fair Admission to other contexts.
Following
the guidelines enunciated in Students for Fair Admissions, the judge
in Ultima issued an injunction against the Small Business
Administration's ("SBA") 8(a) program because it incorporated a race-based presumption of social and economic disadvantage in its
application process. Instead of
appealing the district court's decision, the SBA posted a terse notice on its website stating:
"On July 19, 2023, the United States District Court for the Eastern District of Tennessee enjoined the SBA from applying a rebuttable presumption of social disadvantage to individuals of certain racial groups applying to the 8(a) Business Development Program. SBA has temporarily suspended new 8(a) application submissions to comply with the Court's decision. Thank you for your patience and interest in the 8(a) Business Development program." (Emphasis in original).[iv]
It is anticipated that the SBA’s compliance efforts will result in a new application process removing presumptions of disadvantage and instead require all applicants to submit a narrative outlining their particular evidence of same.
Following the decisions in Students for Fair Admission and Ultima, the status of existing 8(a) certifications which were made on racial presumptions is uncertain. Equally uncertain is the impact these cases will have on numerous race-based programs currently in existence.
The Cons of Overnight Elimination
Given the potentially far-reaching implications of the recent constitutional policy reversals, there is an amazing lack of discussion concerning proactive steps to address current M/WBE goals in contracts and EEOC Diversity Inclusion programs. This silence is not only unwise but potentially devastating, as was evidenced in a 2005 Missouri case: Behavioral Interventions, Inc. v. Missouri Office of Administration.
In Behavioral Interventions, the plaintiff alleged the State's mandatory M/WBE requirement that 30% of the dollar value of contracts go to firms certified as M/WBE was unconstitutional where the goals were based on outdated statistics and had become inflexible quotas under Croson. The court agreed and granted a preliminary injunction holding the M/WBE program unconstitutional. Behavioral Interventions, Inc. v. Missouri Office of Administration, No. 04-0872-CV-W-GAF (W.D. Mo. Jan. 24, 2005) (order granting preliminary injunction). While the issuance of any future M/WBE goal projects was barred, the decision also suspended contracts for work-in-process that had been issued under unconstitutional M/WBE goals. As Missouri at that time lacked a corresponding "small business" program, the voided contracts could not be saved by conversion into a race and gender-neutral small business award. The court’s decision left all impacted participants reeling.
Contractors
and owners scrambled to rebid significant amounts of MBE contract work already
partially completed, but realized problems with: (a) how to classify court-voided
contracts and what contract termination procedures applied; (b) whether the
contract terms and procedures applied if a contract was deemed legally void; (c)
how final payment and retainage issues were to be handled; (d) how to treat
materials ordered and delivered but not yet incorporated or paid under the
voided contracts; and, perhaps most importantly, (e) how warranties were to be
honored where follow on contractors were understandably twitchy about
warranting the work of another terminated contractor. It was, in two words: a
mess.
A negotiated
settlement quickly brought Missouri's program into constitutional conformity
while also creating a small business contracting program operating next to the
M/W/DBE programs. But for a period of time, Behavioral
Interventions’ overnight injunction left the parties in a world of
hurt. All government entities and their
related construction partners face similar messes if the parties do not act
proactively.
The Potential Impact of Students
for Fair Admissions on Private Contracting
The impact
of Students for Fair Admission is also filtering into private and EEOC
corporate programs. Referencing Students
for Fair Admission, on July 13, 2023, Attorney Generals from thirteen states—Alabama,
Arkansas, Indiana, Iowa, Kansas, Kentucky, Missouri, Mississippi, Montana,
Nebraska, South Carolina, Tennessee and West Virginia—wrote the CEOs of the Fortune
100 companies urging them to:
"refrain from discriminating on the basis of race, whether under the label of "diversity, equity and inclusion" or otherwise. This includes preferences in hiring, recruiting, retention, promotion, and advancement on race but also pressuring contractors to adopt racially discriminatory "quotas and preferences."[v]
In
response, on July 19, 2023, twenty state Attorney Generals—from Arizona,
California, Colorado, Connecticut, Delaware, District of Columbia, Hawaii,
Illinois, Maine, Maryland, Massachusetts, Michigan, Minnesota, New Jersey, New
Mexico, New York, Oregon, Rhode Island, Vermont, and Washington—argued Students
for Fair Admission was limited to college admissions and not currently
relevant to other programs. Although responding Attorney Generals advocated the
importance of recognizing historic and ongoing inequities, the value of
workplace diversity, and the socio-political-economic reasons justifying
diversity as a primary objective, it is unclear what the companies are to do.
Concluding Remarks
It is clear the ripples created by Students
for Fair Admission will be far-reaching. While, the constitutional validity of race
and gender considerations in employment, government, and private contracting is
unsettled for the time-being, the writing is on the wall. Just as Croson changed
the nature of contracting goal programs overnight, Students for Fair
Admission, as applied in the Ultima case, likely spells the end of race-specific
remedial programs as we know them. While gender-based programs continue to
float somewhere in legal limbo, it is likely ANY program currently based on
race and gender is legally vulnerable. If parties continue to avoid confronting the issue, there is a significant
chance they will be caught unprepared and subject to consequences similar to
Missouri's Behavioral Interventions case.
Anyone
who finds themselves disheartened by recent court developments and curious
about what steps can be taken, here are some ideas:
- IMPLEMENT SMALL BUSINESS CONTRACTNG PROGRAMS. Immediately see if your local government or state has a small business contracting goal program. If so, do an immediate outreach ensuring all current certified MBE and WBE companies are also registered under the small business program. If no such program exists, take the steps needed to authorize, enact, and implement one.
- ORGANIZE BRAINSTORMING ROUNDTABLES WITH STAKEHOLDERS. Meet with interested players in your community to discuss the impact of these responses to Students for Fair Admission and how it impacts diversity and inclusion programs in your area. Brainstorm and be proactive in suggested approaches.
- CHANGE THE FOCUS. Continue the discussion on the proven benefits of diversity in the workplace, but change the focus to culture, geography, and the benefits of differing perspectives versus a specific race or gender focus.
- CREATE LOCAL HUB-ZONE TYPE AWARD PROGRAMS. Consider incorporating HUB-Zone like programs at the local and state levels. Currently a federal program, HUB-Zone channels 3% of all federal contracts to Hub-Zone qualified companies. Certification requirements include: (1) the company's primary business office is located within a designated economically disadvantaged area and (2) the company employs 35% of its workforce from that area.[vi] These types of programs meet many of the goals of the M/W/DBE program but in a race and gender-neutral manner. The program also generates economic viability to economically distressed areas.
- CHANGE THE MESSAGE. For minority and female employees and business owners, the sales pitch can no longer be "hire me because of past discrimination." The new dialogue needs to be "hire me because: (1) I'm good; (2) I provide great goods and services in a timely, workmanlike and cost efficient manner; (3) I'm important economically, socially and politically to the community and to the nation; (4) I'm creating tax revenues for the community; and (5) I'm creating an example for the next generation of politically, socially and economically important target groups who have earned their place at the table.
There are as many creative approaches available as there are intelligent people facing the issue. The key is to start the discussions that lead to the solutions. Don't simply ignore the problem in the hope it will go away. It won't.
© Denise Farris Scrivener, Farris Legal Services LLC. (August 28, 2023). All rights reserved. This article may not be copied or reproduced without the author's permission.
[i] The Adarand cases include: ADARAND I: 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); Adarand Constructors, Inc. v. Pena 16 F.3d 1537, 1539 (10th Cir. 1994), vacated, 115 S. Ct. 2097 (1995); Adarand Constructors, Inc. v. Pena, 115 S.Ct. 2097 (1995). ADARAND II: Adarand Constructors, Inc. v. Pena, 965 F. Supp. 1556(D. Colo. 1997); and ADARAND III: Adarand Constructors, Inc. v. Mineta, 122 S.Ct. 511 (2001). See also: "Diversity in Government Contracting", Denise E. Farris, Patricia A. Meagher, Larry D. Harris, ABA Forum on the Construction Industry 2012 Annual Meeting "Advanced Project Delivery: Improving the Odds of Success" (Las Vegas Apr 26-28, 2012).
[ii] See
"Affirmative Action and the Utilization of Minority- and Women-Owned
Businesses in Highway Procurement", Justin Marion, University of California (February 2009), available at:
[iii] See
https://www.npr.org/2022/07/05/1109444617/the-supreme-court-conservative.
[iv] See https://certify.sba.gov/
[v] See "Shaking the Foundations of DEI? The
Impact of the Students for Fair Admissions Decision on Corporate Diversity
Initiatives", Dawn Siler-Nixon, Nancy Van Der Veer Holt, and Danielle E.
Pierre, Ford Harrison July 24, 2023.
[vi] https://www.sba.gov/federal-contracting/contracting-assistance-programs/hubzone-program.
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