Minority Contracting and Affirmative Action for Disadvantaged Small Businesses: Legal Issues
Prepared for Members and Committees of Congress
Since the early 1960s, minority participation “goals” have been an integral part of federal policies
to promote racial and gender equality in contracting on federally financed construction projects
and in connection with other large federal contracts. Federal contract “set-asides” and minority
subcontracting goals evolved from Small Business Administration (SBA) programs to foster
participation by “socially and economically disadvantaged” entrepreneurs (SDBs) in the federal
procurement process. Minority group members and women are presumed to be socially and
economically disadvantaged under the Small Business Act, while non-minority contractors must
present evidence to prove their eligibility. “Goals” or “set-asides” for minority groups, women,
and other “disadvantaged” individuals have also been routinely included in federal funding
measures for education, defense, transportation, and other activities over much of the last two
The U.S. Supreme Court has narrowly approved of congressionally mandated racial preferences
to allocate the benefits of contracts on federally sponsored public works projects, while generally
condemning similar actions taken by state and local entities to promote public contracting
opportunities for minority entrepreneurs. Disputes prior to City of Richmond v. J.A. Croson
generated divergent views as to whether state affirmative action measures for the benefit of racial
minorities were subject to the same “strict scrutiny” as applied to “invidious” racial
discrimination under the Equal Protection Clause, an “intermediate” standard resembling the test
for gender-based classifications, or simple rationality. In City of Richmond, a 5 to 4 majority
resolved that while “race-conscious” remedies could be legislated in response to proven past
discrimination by the affected governmental entities, “racial balancing” untailored to “specific”
and “identified” evidence of minority exclusion was impermissible.
Until Adarand Constructors, Inc. v. Pena, however, a different more lenient standard was thought
to apply to use of racial preferences in federally conducted activities. The majority there applied
“strict scrutiny” to a federal transportation program of financial incentives for prime contractors
who subcontracted to firms owned by socially and economically disadvantaged group members.
Although the Court refrained from deciding the constitutional merits of the particular program
before it, and remanded for further proceedings below, it determined that all “racial
classifications” by government at any level must be justified by a “compelling governmental
interest” and “narrowly tailored” to that end. But the majority opinion, by Justice O’Connor,
sought to “dispel the notion” that “strict scrutiny is ‘strict in theory, but fatal in fact,’” by
acknowledging a role for Congress as architect of remedies for discrimination nationwide.
Bottom line, Adarand and its progeny suggest that racial preferences in federal law or policy are a
remedy of last resort, which must be adequately justified and narrowly drawn to pass
The Adarand Decision and Its Progeny.....................................................................................3
Background and History of Adarand..................................................................................3
The Supreme Court Declines to Decide the Case...............................................................8
Post-Adarand Regulatory Developments................................................................................10
Post-Adarand Judicial Decisions.............................................................................................13
Author Contact Information..........................................................................................................22
t has long been the policy of the federal government to assist minority and other “socially and
economically disadvantaged” small businesses become fully competitive and viable business 1
concerns. The objective has largely been pursued through the federal procurement process by I
allocating federal assistance and contracts to foster disadvantaged business development. Federal
assistance has taken a variety of forms, including targeting procurement contracts and
subcontracts for disadvantaged or minority firms, management and technical assistance grants,
educational and training support, and surety bonding assistance.
Present day set-aside programs authorizing preferential treatment in the award of government
contracts to “socially and economically disadvantaged” small businesses (DBEs) originated in § 2
utilized its § 8(a) authority to obtain contracts from federal agencies and subcontract them on a
noncompetitive basis to firms agreeing to locate in or near disadvantaged areas and provide jobs
for the unemployed and underemployed. The § 8(a) contracts awarded under this program were
not restricted to minority-owned firms and were offered to all small firms willing to hire and train
the unemployed and underemployed in five metropolitan areas, as long as the firms met the 3
program’s other criteria. As the result of a series of executive orders by President Nixon, the
focus of the § 8(a) program shifted from job-creation in low-income areas to minority small
business development through increased federal contracting with firms owned and controlled by 4
socially and economically disadvantaged persons. With these executive orders, the executive
branch was directed to promote minority business enterprise and many agencies looked to SBA’s
§ 8(a) authority to accomplish this purpose.
The administrative decision to convert § 8(a) into a minority business development program
acquired a statutory basis in 1978 with the passage of P.L. 95-507, which broadened the range of
assistance that the government—SBA, in particular—could provide to minority businesses.
Section 8 (a), or the “Minority Small Business and Capital Ownership Development” program,
authorizes SBA to enter into all kinds of construction, supply, and service contracts with other
federal departments and agencies. The SBA acts as a prime contractor and then “subcontracts” the
performance of these contracts to small business concerns owned and controlled by “socially and 5
economically disadvantaged” individuals, Indian Tribes or Hawaiian Native Organizations.
Applicants for § 8(a) certification must demonstrate “socially disadvantaged” status or that they
“have been subjected to racial or ethnic prejudice or cultural bias because of their identities as 6
members of groups without regard to their individual qualities.” The Small Business
Administration “presumes,” absent contrary evidence, that small businesses owned and operated
by members of certain groups—including Blacks, Hispanics, Native Americans, and Asian 7
Pacific Americans—are socially disadvantaged. Any individual not a member of one of these
1 This report was originally written by Charles V. Dale, Legislative Attorney.
2 15 U.S.C. §637(a).
3 Minority Contracting: Joint Hearing Before the Senate Comm. on Small Business and the House Subcomm. on
Minority Enterprise and General Oversight of the Comm. on Small Business, 95th Cong., 2d Sess. 37 (1978).
4 E.O. 11652, 3 C.F.R. § 616 (1971), reprinted in 15 U.S.C. § 631 authorized the Office of Minority Business
Enterprise created by preceding order, E.O. 11458, to provide financial assistance to public or private organizations that
provided management or technical assistance to MBEs. It also empowered the Secretary of Commerce to coordinate
and review all federal activities to assist in minority business development.
5 15 U.S.C. § 637(a).
6 Id. at § 637(a)(5).
7 13 C.F.R. § 124.105(b).
groups must “establish individual social disadvantage by a preponderance of the evidence” in 8
order to qualify for § 8(a) certification. The § 8(a) applicant must, in addition, show that
“economic disadvantage” has diminished its capital and credit opportunities, thereby limiting its 9
ability to compete with other firms in the open market. Accordingly, while disadvantaged status
under the SBA includes a racial component, in terms of presumptive eligibility, it is not restricted
to racial minorities, but also includes persons subjected to “ethnic prejudice or cultural bias” who 10
are able to satisfy specified regulatory criteria. It also excludes businesses owned or controlled 11
by persons who, regardless of race, are “not truly socially and/or economically disadvantaged.”
The “Minority Small Business Subcontracting Program” authorized by § 8(d) of the Small
Business Act codified the presumption of disadvantaged status for minority group members that 12
applied by SBA regulation under the § 8(a) program. Prime contractors on major federal
contracts are obliged by § 8(d) to maximize minority participation and to negotiate a
“subcontracting plan” with the procuring agency which includes “percentage goals” for
utilization of small socially and economically disadvantaged firms. To implement this policy, a
clause required for inclusion in each such prime contract states that “[t]he contractors shall
presume that socially and economically disadvantaged individuals include Black Americans,
Hispanic Americans, Native Americans, Asian Pacific Americans, and other minorities, or any
other individual found to be disadvantaged by the Administration pursuant to § 8(a)...” All federal
agencies with procurement powers were required by P.L. 95-507 to establish annual percentage
goals for the award of procurement contracts and subcontracts to small disadvantaged businesses.
A decade later, Congress enacted the Business Opportunity Development Reform Act of 1988,13
directing the President to set annual, government-wide procurement goals of at least 20% for
small businesses and 5% for disadvantaged businesses, as defined by the SBA. Simultaneously,
federal agencies were required to continue to adopt their own goals, compatible with the
government-wide goals, in an effort to create “maximum practicable opportunity” for small
disadvantaged businesses to sell their goods and services to the government. The goals may be
waived where not practicable due to unavailability of DBEs in the relevant area and other 14
factors. Federal Acquisition Act amendments adopted in 1994 amended the 5% minority
procurement goal, and the minority subcontracting requirements in § 8(d), to specifically include
8 Id. at 124.103(c).
9 The statute, 15 U.S.C. § 637(a)(6)(A), defines economic disadvantage to mean “socially disadvantaged individuals
whose ability to compete in the free enterprise system has been impaired due to diminished capital and credit
opportunities as compared to others who are not socially disadvantaged, and such diminished opportunities have
precluded or are likely to preclude such individuals from successfully competing in the open market.”
10 15 U.S.C. §§ 637(a)(5), (d). Criteria set forth in the regulations requires non-minority individuals to prove by “a
preponderance of the evidence,” that they have personally experienced “substantial and chronic social disadvantage in
American society” as the result of “[a]t least one objective distinguishing feature,” including “long term residence in an
environment isolated from the mainstream of American society,” with a “negative impact “on his or her “entry into the
business world.” “In every case ... SBA will consider education, employment, and business history, where applicable,
to see if the totality of circumstances shows disadvantage in entering into or advancing in the business world.” 13
C.F.R. § 124.105(c).
11 See 49 C.F.R. Pt. 23, Subpt. D, App. C.
12 15 U.S.C. § 637(d). See also 13 C.F.R. § 124.106.
13 P.L. 100-656, § 502, 102 Stat. 3887, codified at 15 U.S.C. § 644(g)(1).
14 See, e.g., 49 C.F.R. §§ 23.64(e), 23.65 (setting forth waiver criteria for the Department of Transportation).
“small business concerns owned and controlled by women” in addition to “socially and 15
economically disadvantaged individuals.”
Additionally, statutory “set-asides” and other forms of preference for “socially and economically
disadvantaged” firms and individuals, following the Small Business Act or other minority group
definition, have frequently been added to specific grant or contract authorization programs.
“Goals” or “set-asides” for minority groups, women, and other “disadvantaged” individuals have
routinely been part of federal funding measures for education, defense, transportation and other 16
activities over much of the last two decades. Early on, Congress established goals for
participation of small disadvantaged businesses in procurement for the Department of Defense,
NASA, and the Coast Guard. It also enacted the Surface Transportation Assistance Act of 1982 17
(STAA), the Surface Transportation and Uniform Relocation Assistance Act of 1987 1819
(STURAA), the Intermodal Surface Transportation Efficiency Act of 1991 (ISTEA), and the st20
Transportation Equity Act for the 21 Century (TEA-21), each of which contained a 10%
minority or disadvantaged business participation goal on federally funded projects. TEA-21
lapsed on May 31, 2005, but was extended through FY2009 by P.L. 109-59, signed into law th21
during the 109 Congress.
Litigation surrounding racial preferences in federal contracting has followed a convoluted course
since 1995, when the Supreme Court settled the constitutional parameters of the issue but avoided 22
a decision of the merits in Adarand Constructors Inc. v. Pena (Adarand I). By the time it
returned to the High Court six years later, as Adarand Constructors Inc. v. Mineta, the legal and
factual framework of the case was considerably altered by multiple lower court decisions and
appeals, and by changes in the plaintiff’s legal standing, the details of the challenged federal
program, and regulatory reforms to “amend, not end” federal affirmative action by the former
Clinton Administration. To the chagrin of many legal observers, the Court in 2001 once again
sidestepped the constitutional issues posed by the Adarand case and, after agreeing to reconsider
the controversy, dismissed the appeal as “improvidently granted.” The object of the Court’s latest
action—or inaction—was the Tenth Circuit’s two-part ruling in Adarand Constructors v. Slater 23
(Adarand III). The federal appeals court there invalidated a federal highway program of
financial incentives to promote minority and “disadvantaged” small business utilization in force
15 P.L. 103-355, 108 Stat. 3243, 3374, § 7106 (1994).
16 See CRS Report RL32565, Survey of Federal Laws and Regulations Mandating Affirmative Action Goals, Set-asides,
or Other Preference Based on Race, Gender, or Ethnicity, by Charles V. Dale and Cassandra L. Foley.
17 P.L. 97-424, § 105(f), 96 Stat. 2097 (1982).
18 P.L. 100-17, § 106(c), 101 Stat. 132 (1987).
19 P.L. 102-240, § 1003, 105 Stat. 1914 (1992).
20 P.L. 105-178, § 1101, 112 Stat. 107 (1998).
21 See § 1101(b) of P.L. 109-59, the “Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for
Users” (SAFETEA-LU), 119 Stat. 1144 (8-10-2005).
22 515 U.S. 200 (1995).
23 228 F.3d 1147 (10th Cir. 2000).
at the time of Adarand I. But as revised and amended in 1997, the program was found to be
narrowly tailored to a compelling governmental interest and passed constitutional muster.
Prior to Adarand, the U.S. Supreme Court had narrowly approved of congressionally mandated
racial preferences to allocate the benefits of contracts on federally sponsored public works 24
projects in Fullilove v. Klutznick, while generally condemning similar actions taken by state and
local entities to promote public contracting opportunities for minority entrepreneurs in City of 25
Richmond v. J.A. Croson Co. These disputes generated divergent views as to whether state
affirmative action measures for the benefit of racial minorities were subject to the same “strict
scrutiny” as applied to “invidious” racial discrimination under the Equal Protection Clause, an
“intermediate” standard resembling the test for gender-based classifications, or simple rationality.
In City of Richmond, a 5 to 4 majority resolved that while “race-conscious” remedies could be
legislated in response to proven past discrimination by the affected governmental entities, “racial
balancing” untailored to “specific” and “identified” evidence of minority exclusion was
Until Adarand Constructors, Inc. v. Pena, however, a different, more lenient standard was
thought to apply to use of racial preferences in federally conducted activities. The majority there
applied “strict scrutiny” to a federal transportation program of financial incentives for prime
contractors who subcontracted to firms owned by socially and economically disadvantaged group
members. Although the Court refrained from deciding the constitutional merits of the particular
program before it, and remanded for further proceedings below, it determined that all “racial
classifications” by government at any level must be justified by a “compelling governmental
interest” and “narrowly tailored” to that end.
There have been three distinct phases to the Adarand litigation. The case originated with a now-
discontinued “race-conscious subcontracting compensation clause (SCC)” program conducted by
the Federal Highway Lands Program of the Federal Highway Administration. The SCC did not
allocate or set-aside a specific percentage of subcontract awards for DBEs or require a
commitment on the part of prime contractors to subcontract with minority firms. Rather,
“incentive payments” varying from 1.5% to 2% of the contract amount were paid to prime
contractors whose subcontracts with one or more qualified DBEs exceeded 10% of total contract
value. The program incorporated the racial presumption from the Small Business Act and
regulations, in effect relieving minority group subcontractors of the burden of demonstrating
disadvantaged status imposed upon non-minorities.
Suit was brought by Adarand Constructors, Inc., a white-owned construction firm whose low bid
on a subcontract for highway guard rails was rejected in favor of a higher bidding DBE. Both the
federal trial court and the Tenth Circuit initially upheld the program by applying “lenient” judicial
review—“resembling intermediate scrutiny”—rather than strict scrutiny, requiring far less
remedial justification by the government. Because the program was not limited to racial
minorities, and non-disadvantaged minority group members were ineligible to participate, the
appeals court concluded, the program was “narrowly tailored.” In Adarand I, the Supreme Court
reversed this first round of decisions.
24 448 U.S. 448 (1980).
25 488 U.S. 469 (1989).
The majority in Adarand I rejected the equal protection approach that applied “intermediate
scrutiny” or some other relaxed standard of review to racial line-drawing by the Congress.
“Because the “race-based rebuttable presumption” in the DOT program was an “explicit” racial
classification, the Court determined, “it must be analyzed by a reviewing court under strict
scrutiny,” and to survive, must be “narrowly tailored” to serve a “compelling governmental
interest.” Adarand I undermined prior judicial holdings, which had afforded substantially greater
latitude to Congress than to the states or localities when crafting affirmative action measures for
racial or ethnic minorities. To “dispel the notion,” however, that “strict scrutiny is ‘strict in theory,
but fatal in fact,’” the Court appeared to reserve a role for the national legislature as architect of
remedies for past societal discrimination. “The unhappy persistence of both the practice and
lingering effects of racial discrimination against minorities in this country is an unfortunate 26
reality, and the government is not disqualified from acting in response to it.” Thus, a majority of
the Court appeared to accept some forms of racial preference by Congress in at least some 27
circumstances. No further guidance was provided, however, as to the scope of remedial
authority remaining in congressional hands or the conditions for its exercise. Indeed, the Court
refrained even from deciding the merits of the constitutional claim before it in Adarand I, instead
remanding the case to the lower courts to determine the outcome.
On remand, the district court in Adarand II decided that the “congruence” required by the Court
did not mean that federal affirmative action must be supported by the same “particularized” 28
showing of past discrimination as state and local programs. Rather, as national legislature,
Congress was empowered to enact broad discrimination remedies based on nationwide findings
derived from congressional hearings and statements of individual federal lawmakers. “Congress,”
in other words, “may 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.” The DOT incentive program failed the “narrow tailoring” test, however,
because it linked a race-based presumption to the award of financial “bonus[es]” to prime
contractors whose choice of a subcontractor was based “only on race.” The racial presumption
was found to be both “overinclusive”—in that its benefits were available to all named minority
group members—and “underinclusive”—because it excluded members of other minority groups
or caucasians who may share similar disadvantages. Although “more flexible” than a “rigid racial
quota” or mandatory set-aside, the SCC program was tainted by the government-wide 5% goals 29
and transportation set-asides which it implemented.
26 515 U.S. at 217.
27 In their separate concurrences, Justices Scalia and Thomas, espoused a far more restrictive view that would foreclose
all governmental classifications by race or ethnicity. Justice Scalia declared that “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.” Justice Thomas was of the view that the “racial paternalism” of affirmative action was more
injurious than beneficial to minorities. “In my mind, government-sponsored racial discrimination based on benign
prejudice is just as noxious as discrimination inspired by malicious prejudice. In each instance, it is racial
discrimination, plain and simple.”
28 Adarand Constructors Inc. v. Pena, 965 F. Supp. 1556 (D.Colo. 1997).
29 Two aspects of the district court’s analysis of the “narrow tailoring” requirement were especially unsettling for
federal small disadvantaged business programs. 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 cast a long shadow over
other federal minority contracting efforts—e.g., the § 8(a) set-aside, bid or evaluation preferences, and the like—which,
under the district court’s reasoning, may 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, if not more so. Similarly, the fact that the
SCC program did not expressly incorporate any “goals, quotas, or set-asides” was not sufficient to divorce it, in the
The Tenth Circuit in 2000 issued its decision on the merits of the controversy.30 The appellate
panel in Adarand III reversed the district court injunction against future implementation of DOT’s
disadvantaged business enterprise (DBE) program in Colorado. In so doing, the court of appeals
considered the constitutionality of the program, both as structured at the time of the district court
decision and of later revisions to DBE regulations adopted in 1997. First, it generally agreed with
the district court that the SCC system of financial incentives, in effect at time of Adarand I, had
not been narrowly enough tailored to satisfy the constitutional requirements of strict scrutiny. But
after lengthy congressional hearings, the financial incentives were eliminated, and other reforms
were adopted to DBE requirements imposed by DOT regulation on state and local highway aid
recipients. As a result, the appeals court ultimately concluded that the DOT disadvantaged
business enterprise program as currently structured—though not the former, discarded program of
financial incentives—passed constitutional muster.
Initially, the appellate tribunal aligned itself with the district court’s finding that the federal
government had a “compelling interest” in preventing and remedying the effects of past
discrimination in government contracting. And the scope of Congress’s authority to act was not
limited geographically or to specific instances of discrimination—as in the case of the states and
localities under Croson—but extended “‘society-wide’ and therefore nationwide.” The range of
admissible evidence to support racial line-drawing by Congress was both direct and
circumstantial, including post-enactment evidence and legislative history, demonstrating public
and private discrimination in the construction industry. The court was largely dismissive of
individual statements by members or from committee reports as “insufficient in themselves to
support a finding of compelling interest.” Congressional hearings over nearly a two-decade
period, however, depicted the social and economic obstacles—e.g., “old boy networks,” racism in
construction trade unions, and denial of access to bonding, credit, and capital—faced by small
and disadvantaged entrepreneurs, mainly minorities, in business formation and in competition for
government contracts. Moreover, “disparity studies” conducted after Croson in most of the
nation’s major cities compared minority-owned business utilization with availability and “raise[d]
an inference that the various discriminatory factors the government cites have created that
disparity.” This record satisfied the Tenth Circuit panel that Congress had a “strong basis in
evidence” for concluding that passive federal complicity with private discrimination in the
construction industry contributed to discriminatory barriers in federal contracting, a situation the
government had a “compelling” interest in remedying.
district court’s view, from the percentage goal requirements imposed by statutes the program was designed to
implement. Those statutory provisions—the 5% minimum disadvantaged small business goal in § 8(d) of the SBA and
the parallel 10% requirement in STURAA and ISTEA—were deemed invalid for lack of narrow tailoring. In effect, the
district court ruling questioned much of the federal government’s statutory infrastructure for advancing minority small
business participation in the procurement process by race-conscious means.
30 Adarand Constructors Inc. v. Slater (Adarand III), 228 F.3d 1147 (10th Cir. 2000). This court of appeals decision was
preceded by an intervening appellate ruling and Supreme Court review confined to procedural questions of standing
and mootness occasioned by the plaintiff’s change in circumstances. After the district decision in Adarand II, the State
of Colorado did away with the racial presumption and certified the non-minority owner of Adarand Constructors Inc. as
disadvantaged. As a result, the Tenth Circuit dismissed the case as moot and the vacated the judgment against the th
government. Adarand v. Slater, 169 F.3d 1292 (10 Cir. 1999). The district court decision was reinstated on January
20, 2000, however, when the Supreme Court rejected the mootness finding because there was nothing to prevent the
government from reviving the abandoned policy, and returned the case to the circuit court for further proceedings.
Adarand Constructors v. Slater, 528 U.S. 216 (2000).
The appellate tribunal adopted a two-stage review of the “narrowly tailored” requirement,
focusing on the DBE program both as in effect prior to1997 and later as revised to comply with
Adarand I. Basically, it determined that many of the constitutional flaws that defeated the
program in the district court’s opinion—an outcome with which the appellate panel largely
agreed—had been eliminated by the government’s regulatory reforms. In effect, the latest
decision lays the old program to rest while reversing the district court’s order insofar as it would
bar implementation of the revised version. The appeals court also clarified the scope of the DBE
program under review. It disagreed with, and specifically reversed, elements of the district court
judgment raising issues beyond the specific DBE program as applied by Colorado officials to
federally funded highway procurements within that state. Because the 5% and 10% goals in the
SBA and underlying transportation authorization measures “are merely aspirational and not
mandatory,” they were not the reason that “Adarand lost or will lose” contracts, and any
challenge to those provisions were outside the scope of the remand in Adarand I. Thus, any
broader potential implications of the district court ruling for § 8 (a) set-asides or government-
wide goals for DBE participation under the Small Business Act were largely blunted by the 31
The constitutional virtues of the revised program over the pre-1996 SCC program at issue in
Adarand I were several. First, race-neutral measures dating back to the 1958 enactment of the
SBA had preceded Congressional adoption of “aspirational goals” and other affirmative action
measures for minority groups in government-wide contracting. DOT had not considered such
alternatives before adopting race-conscious subsidies for prime contractors who select minority
subcontractors. However, this defect was cured by the revised regulations, which specifically
directed recipients to exhaust race-neutral alternatives—bonding, financing, and technical 32
assistance, etc.—before taking race into account. Secondly, the revised regulations incorporated
the time limits and graduation requirements for participation of disadvantaged businesses in the 33
§§ 8(a) and 8(d) programs, thereby ensuring the later program’s limited duration. The court of
appeals also found that the revised DOT program was more flexible than the mandatory set-asides
in Fullilove and Croson because they were voluntary on the part of the prime contractors and 34
because the post-1996 revisions adopted an express waiver. Any use of “aspirational goals” by
recipients of federal highway funds had to make “reference to the relative availability of DBEs in
the market” and was restrained in other ways by the new regulations so that “there is little danger 35
of arbitrariness in the setting of such goals....” The burden of the revised program on third
parties was mitigated by placing monetary caps on subsidies to prime contractors—limiting the
incentive to hire further DBEs—and by adopting “preponderance of the evidence” for proof of
31 Specifically, the Tenth Circuit opinion states: “Subsection 8(a) does not involve the use of SCCs, nor has Adarand
made any showing that it has been injured by non-inclusion in the § 8(a).... This case does not involve, nor has Adarand
ever demonstrated standing to bring, a generalized challenge to the policy of maximizing contracting opportunities for
small disadvantaged businesses set forth in 15 U.S.C. §§ 637 and 644(g), or to the various goals for fostering the
participation of small minority-owned businesses promulgated pursuant to 15 U.S.C. § 644(g). Nor are we presented
with any indication that Adarand has standing to challenge ... § 637d.” 228 F.3d at 1152.
32 49 C.F.R. § 26.51(a),(b)(2000).
33 Participation in the § 8(a) program is limited by statute and regulation to ten and one-half years, and each DBE is re-
evaluated, and may be graduated from the program, based on the submission of financial and other information
34 49 C.F.R. § 2615 (2000)(allowing recipients to seek waivers and exemptions, despite the already non-mandatory
nature of the program).
35 The court of appeals found that the SCC had been based in part on “an ill-defined 12-15% goal apparently adopted
by the Federal Highway Administration, for which “it could find no explanation in the record.” This alone would have
warranted summary judgment for Adarand, it concluded.
“social disadvantage” by members of “non-presumed” groups in lieu of the former “clear and
convincing” standard. Finally, the revised program avoided the constitutional vice of over- and
under-inclusiveness by “disaggregating the race-based presumption that encompassed both
“social” and “economic” disadvantage” in the former regulation. Thus, an individualized showing
of economic disadvantage is now required of all applicants to the program, minority and non-
minority alike. This change, the appeal court believed, effectively satisfied the Croson
requirement of an “inquiry into whether or not the particular MBE seeking a racial preference has 36
suffered from the effects of past discrimination.”
The U.S. Supreme Court granted certiorari in an appeal from the Tenth Circuit’s final decision,
marking the third High Court appearance by the Adarand case. During oral arguments, the
Justices appeared more concerned with procedural irregularities in the case, as outlined by the
Justice Department, than with the substance of the constitutional claims. In essence, the
government argued that Adarand’s legal challenge was limited to the DOT program and
regulations applicable to direct procurement of highway construction on federal lands, like the
contract denied, not to the separate regulatory scheme governing federal highway assistance to
states. Petitioner Adarand Constructors, Inc., made a parallel argument—but for a different
reason—that the court of appeals misconceived the scope of the appeal. In particular, petitioner’s
brief contended, the Tenth Circuit’s analysis considered revisions to DOT regulations applicable
to federally assisted state and local highway projects, which are irrelevant to the separate set of
rules governing direct federal procurement, thereby undermining the court’s conclusion that the
SDB program was narrowly tailored. Because the race conscious aspects of the original financial
incentive program had been suspended in Colorado and several other states as the result of
administration reforms to affirmative action rules after Adarand I, counsel for the company had
difficulty arguing that its client “is still unable to compete on an equal footing” or had “lost a
single contract under the provisions they are now challenging.” Further complicating Adarand’s
position, the Tenth Circuit had rejected its earlier attack upon the entire statutory framework for
federal small disadvantaged business programs, a ruling not appealed to the Supreme Court. The
government, therefore, contended that Adarand’s lawsuit had “outlived the program that provoked
it,” and in oral arguments to the Justices, the Solicitor General urged the Court to dismiss the
petition for certiorari as improvidently granted.
It came as no great surprise, therefore, that the Justices complied with the government’s request 37
and dismissed the case. In a per curiam opinion, the Court emphasized technical flaws with the
present appeal, as framed during oral arguments. First, Adarand was challenging a by now
defunct aspect of the program that the Tenth Circuit had not ruled upon, asking “whether the
various race-based programs applicable to direct federal contracting could satisfy strict scrutiny.”
Nor had the company sought review of those aspects of the DOT statute and regulations
respecting the state and local procurement program on whose constitutionality the appeals court
had spoken. Consequently, the Supreme Court declined to reach the merits of a controversy
36 The current regulations impose additional requirements on applicants with regard to individualized showing: they
must submit a narrative statement describing the circumstances of that purported economic disadvantage. 13 C.F.R. §
124.104(b)(1)(2000). See also, 49 C.F.R. § 26.67(b)(1)(2000)(providing a $750,000 net worth limit for DBEs under
transportation programs); id. § 26.65(b)(stating that businesses exceeding a certain amount of gross receipts are
ineligible for the DBE program).
37 Adarand Constructors, Inc. v. Mineta, 534 U.S. 103 (U.S. 2001).
regarding which neither the parties nor the courts below appeared to be reading from the same
Left unanswered, therefore, were two major questions presented by the petition for review. First
was “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 past
discrimination.” The Tenth Circuit found that Congress had a “solid basis in evidence” for
concluding race-conscious action necessary based on its dissection of hearing testimony,
legislative reports, and state and local disparity studies. Generally, its approach conformed to
earlier rulings, which have stressed deference to congressional fact-finding under section 5 of the
Fourteenth Amendment. As the national legislature, Congress may not be constrained by the same
requirements of specificity in regard to regional scope and classes of individuals benefitted by
race conscious programs.
But recent Court rulings parsing the scope of congressional § 5 power to override state sovereign
immunity under a variety of federal civil rights laws have emphasized the need for “congruence 38
and proportionality” of the remedy to any problem perceived by the Congress. The
ramifications of this principle for § 5 race discrimination legislation is undetermined, and
questions remain. Conversely, some would argue, the affirmative grant of congressional authority
to legislate remedies for equal protection violations by states conferred by § 5 is even broader
than its power to place similar conditions on direct spending for federal procurements, which is th
limited by 5 Amendment due process.
The second aspect of strict scrutiny analysis would have required the Court to determine whether
the means chosen by DOT to promote minority group participation in the federal procurement
process is “narrowly tailored.” In this regard, the Tenth Circuit found that after eliminating
financial bonus or subsidy, the adoption of “aspirational goals” for utilization of disadvantaged
firms based on “good faith efforts,” as required by current regulations, was a more flexible and
narrowly tailored alternative. That conclusion, however, has been questioned by other courts,
which have found that governmentally required goal-setting, coupled with enforcement
sanctions—in Adarand’s case, liquidated damages under § 8 (d)—is inherently coercive and
encourages racial quotas. The Ninth Circuit, for example, has invalidated a California affirmative
action statute that required bidders on state contracts to subcontract a percentage of their work to 39
female- and minority-owned firms or document a “good faith” effort to do so. Similarly, in 40
Lutheran Church-Missouri Synod v. FCC, the D.C. Circuit blurred the distinction between so-
called “inclusive” and exclusive “affirmative” action. FCC regulations required broadcast license
holders (1) to engage in “critical self-analysis” of minority and female underrepresentation, and
(2) to undertake affirmative outreach by using minority and female-specific recruiting sources.
38 See, e.g., Bd. of Trs. of the Univ. of Alabama, 531 U.S. 356 (2001)(Congress could not abrogate state sovereign
immunity to suit for compensatory damages under Title I of the Americans with Disability Act since historical record
“fails to show that Congress did in fact identify a pattern of irrational state discrimination in employment against the
disabled,” and the rights and remedies provided against the state “raise the same sort of concerns as to congruence and
proportionality” as found in previous cases.); Kimel v. Florida Bd. of Regents, 528 U.S. 62 (2000)(Applying
“congruence and proportionality” standard, the Court determined that the Age Discrimination in Employment Act was
not “appropriate legislation”under § 5); United States v. Morrison, 529 U.S. 598 (2000)(Court invalidated provision of
Violence Against Women Act, providing victims of gender-motivated violence with a civil damages remedy, since
even as a “prophylactic measure,” it was “overbroad” and applied uniformly throughout the nation, rather than merely
in states with congressionally documented records of this type gender discrimination.).
39 Monterey Mech. Co. v. Wilson, 125 F.3d 702 (9th Cir.1997), reh’g en banc denied, 138 F.3d 1270 (9th Cir. 1998).
40 141 F.3d 344 (D.C.Cir. 1998).
Strict scrutiny was held to be appropriate and the regulations were unlawful since beyond simple
outreach, their effect was to influence ultimate hiring decisions; that is, the threat of government
enforcement “coerced” stations to maintain a workforce that mirrors racial breakdown of the
The Court’s disposition of the latest Adarand appeal means that a definitive review of federally-
mandated affirmative action must be postponed to another day. That day, however, may not be too
far distant. Percolating in the lower federal courts are cases that pose similar questions regarding
the power of Congress to enact racial preferences in federal contracting as were bypassed by the
Court’s inconclusive determination in Adarand.
Federal regulatory reforms put forward by the former Clinton Administration sought to “narrowly
tailor” federal minority and disadvantaged small business programs in line with Adarand. The
Justice Department in 1996 proposed a structure for reform of affirmative action in federal
procurement, setting stricter certification and eligibility requirements for minority contractors
claiming “socially and economically disadvantaged” status under § 8(a) and § 8(d) of the Small 41
Business Act. The plan suspended for two years set-aside programs in which only minority
firms could bid on contracts. Statistical “benchmarks” developed by the Commerce Department
and adjusted every five years were made the basis for estimating expected disadvantaged business
participation as federal contractors, in the absence of discrimination, for nearly 80 different
industries. Where 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 credit would be lowered or suspended in that industry for the
following year. The system is monitored by the Commerce Department, using data collected to
evaluate the percentage of federal contracting dollars awarded to minority-owned businesses, and
relies more heavily on “outreach and technical assistance” to avoid potential constitutional
The Justice Department’s response to comments on its proposal, together with proposed
amendments to the Federal Acquisition Regulation (FAR) to implement it, were published in 42
1997. Several procurement mechanisms interact with benchmark limits pursuant to the FAR
regulation jointly proposed for the Departments of Defense, General Services Administration, and
National Aeronautics and Space Administration. An “evaluation” credit applies to bids by non-
minority prime contractors participating in joint ventures, teaming arrangements, or subcontracts
with such firms, and contracting officers may employ “monetary incentives” to increase
subcontracting opportunities for disadvantaged firms in negotiated procurements.
“Benchmarking” by the Commerce Department is the key feature of the program, designed to
narrowly tailor the government’s use of race-conscious subcontracting in line with Adarand. The
Commerce recommendation relies “primarily on census data to determine the capacity and
availability of minority-owned firms.” As explained by DOJ:
41 61 FR 26042, Notices, Department of Justice, Proposed Reforms to Affirmative Action in Federal Procurement.
(May 23, 1996).
42 Response to Comments to Department of Justice Proposed Reforms to Affirmative Action in Federal Procurement,
62 FR 25649 (1997).
[A] statistical calculation representing the effect discrimination has had on suppressing
minority business development and capacity would be made, and that calculation would be
factored into benchmarks ... The purpose of comparing utilization of minority-owned firms
to the benchmark is to ascertain when the effects of discrimination have been overcome and
minority-owned firms can compete equally without the use of race-conscious programs. Full
utilization of minority-owned firms in [an] SIC code may well depend on continued use of
race-conscious programs like price or evaluation credits. Where utilization exceeds the
benchmark, the Office of Federal Procurement Policy may authorize the reduction or
elimination of the level of price or evaluation credits, but only after analysis has projected 43
the effect of such action.
Final regulations implementing Justice Department recommendations with respect to the § 8(a)
business development and small disadvantaged business program were issued by the SBA in 44
1998. The reforms include a new process for certifying firms as small disadvantaged businesses
and, in place of set-asides, a price evaluation adjustment program administratively tied to the
Commerce benchmarks. In the past, the government relied on self-certification for purposes of
“disadvantaged” eligibility, which allowed firms to identify themselves as meeting certification
requirements. Under the new procedure, SBA, or where SBA deems appropriate, SBA-approved
state agencies, or private certifiers make a threshold determination as to whether a firm is actually
owned or controlled by specified individuals claiming to be disadvantaged. After ownership or
control is established, the application is reviewed by SBA for purposes of a determination of
The definition of social and economic disadvantage remains largely intact under the SBA
regulation. Members of designated minority groups participating in disadvantaged small business
programs continue to enjoy a statutory presumption of social disadvantage. They are required,
however, to state their group identification and meet certification criteria for economic
disadvantage and are subject to third-party challenge under current administrative mechanisms.
Individuals who are not within the statutory presumption may qualify by proving that they are
socially and economically disadvantaged under SBA standards. Under prior SBA § 8(a)
certification standards, however, persons not members of presumed disadvantaged groups had to
prove their status by “clear and convincing evidence. The revised SBA regulations ease this
burden on non-minority applicants by adopting a “preponderance of evidence” rule.
Similarly, USDOT responded to Adarand Constructors and its progeny by issuing revised
regulations to implement minority set-aside provisions in current federal transportation st
authorization measures. The Transportation Equity Act for the 21 Century (TEA-21), as enacted
by Congress in 1998, provided that
[e]xcept to the extent that the Secretary [of Transportation] determines otherwise, not less
than 10 percent of the amounts made available for any program under titles I, III, and V of
43 Id. at 25650-52. An interim rule incorporating proposed DOJ revisions to the FAR regulation became effective in
1998. Federal Acquisition Regulation; Reform of Affirmative Action in Federal Procurement; Interim rule with request
for comment, 63 FR 52426 (1998).
44 63 FR 35726, 35767 (1998).
this Act shall be expended with small business concerns owned and controlled by socially 45
and economically disadvantaged individuals.
One in a succession of laws dating back more than two decades, TEA-21 lapsed on May 31, th46
2005, but was extended by P.L. 109-59, signed into law during the 109 Congress. The new law
continues through FY2009 longstanding USDA policy of setting aside 10% of federal highway
and surface transportation funds for small disadvantaged firms “[e]xcept to the extent the
Secretary of Transportation determines” otherwise.
The revised DOT regulations track the Small Business Act in defining disadvantaged business
enterprises (DBE’s), including the presumption regarding designated minority groups and
women, except that any small business owner with more than $750,000 in assets—or who is
otherwise shown not to be socially or economically disadvantaged—is disqualified. Members of
non-designated groups (i.e., a white male) may qualify for DBE status if the individual 47
demonstrates social and economic disadvantage in fact.
Describing the 10% goal as merely “aspirational,” the regulations de-centralize administration of
the DBE program by delegating implementation to state agencies receiving federal transportation
funds. A two-step process is established for states to determine “the level of DBE participation 48
[that] would [be] expect[ed] absent the effects of discrimination.” First, the relative availability
locally of “ready, willing, and able” DBE’s must be calculated. This baseline figure is then
adjusted upward or downward to reflect other capability factors and evidence of discrimination
against DBE’s drawn from statistical “disparity” studies. The final adjusted figure represents the
portion of federal transportation funding that a state must allocate to DBE for that year.
A state must meet the maximum feasible portion of this goal through race- (and sex-) neutral
means. Race-conscious contract goals must be applied to achieve any portion of the utilization 49
requirement not attainable by other means. Even when race-conscious measures are necessary,
however, the regulations do not require that DBE goals be included in every contract—or that
they be set at the same level in every contract where used—as long as the overall effect is to
obtain the required DBE participation level. Prime contractors to whom a state awards federally
funded transportation contracts must undertake good faith efforts to satisfy any included goal by 50
allocating the designated percentage of funds to DBE firms. States are prohibited from
instituting rigid quotas that do not account for a prime contractor’s good faith efforts to 51
subcontract works to DBEs.
45 § 1101(b)(1), 112 Stat. at 113.
46 See § 1101(b) of P.L. 109-59, the “Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for
Users” (SAFETEA-LU), 119 Stat. 1144 (8-10-2005).
47 49 C.F.R. pt. 26 (2003).
48 Id. at § 26.45.
49 Id. at § 26.51.
50 Id. at § 26.53(a).
51 Id at § 26.43(a).
Since Adarand, several lower federal courts have addressed the issue of congressional authority
to fashion affirmative action remedies. Courts in these cases have generally concluded from the
record of committee hearings and other documentary evidence before Congress that the
government had a compelling interest for the program in question. However, in applying the
constitutional demand for a “narrowly tailored” remedy, there is a divergence of judicial opinion
as to whether states or localities must independently justify the use of racial preferences to
implement federal mandates within their individual jurisdictions.
The Supreme Court in 2004 refused to revisit issues left unsettled by Adarand when it denied
review of the Eighth Circuit’s consolidated ruling in Sherbrooke Turf, Inc. v. Minnesota 52
Department of Transportation and Gross Seed Company v. Nebraska Department of Roads. The
Sherbrooke court joined the Tenth Circuit in upholding the DBE program under current DOT
regulations and, beyond that, approved specific state plans to implement that program. Pursuant
to TEA-21 and the DOT revised regulations, state highway departments in Minnesota and
Nebraska established specific goals for the award of federally-funded contracts to DBEs. In both
states, white-owned contractors had submitted the low bid on DOT funded subcontracts, but were
passed over in favor of a presumptively disadvantaged minority competitor. Petitioners
challenged DBE contract awards, alleging unconstitutional race discrimination and that continued
enforcement of the programs would deny them the right to compete on an equal basis for future
contracts. Federal district courts in both states upheld the program.
The government conceded that the federal highway DBE program, on its face and as applied, is
subject to strict scrutiny because it uses a race-based rebuttable presumption to define its
beneficiaries and employs race conscious remedial measures. Such governmental consideration of
race is constitutional only if narrowly-tailored to further a compelling governmental interest.
Neither Sherbrooke nor Gross Seed disputed that the federal government has “a compelling
interest in not perpetuating the effects of racial discrimination in its own distribution of federal
funds and in remediating the effects of past discrimination in the government contracting markets
created by its disbursements.” Rather, petitioners argued that Congress and DOT have no “hard
evidence” of widespread intentional discrimination in the contracting industry; they relied instead
on a Justice Department summary of over 50 documents and 30 congressional hearings on 53
minority-owned businesses prepared in response to the Adarand decision. The Eighth Circuit
nonetheless agreed with the Tenth Circuit conclusion in Adarand that “Congress has spent
decades compiling evidence of race discrimination in federal highway contracting,” and
petitioners failed to meet the burden of showing that no remedial action was necessary.
Nor were the Minnesota DOT and Nebraska road department required to independently satisfy
the compelling government interest aspect of strict scrutiny review. To be narrowly tailored,
however, a national program must be limited to those parts of the country where its race-based
measures are demonstrably needed. “To the extent the federal government delegates this tailoring
52 345 F.3d 964 (8th Cir. 2003), cert. denied 541 U.S. 1041 (U.S. 2004).
53 See Appendix—The Compelling Interest for Affirmative Action in Federal Procurement: A Preliminary Survey, 61
FR 26050 (May 23, 1996).
function, a State’s implementation becomes critically relevant to a reviewing court’s strict
scrutiny.” Under the current DOT program, the opinion notes, race-conscious methods cannot be
used unless race-neutral means are projected to fall short of achieving the overall goal, and racial
preferences or set-asides are limited to those instances “when no other method could be
reasonably expected to redress egregious instances of discrimination.” In addition, because the
goals for DBE participation are tied to the relevant labor markets, have built in durational limits,
and are subject to “good faith” waiver and exemptions, the programs were deemed narrowly
tailored on their face. Finally, the court reviewed Minnesota’s and Nebraska’s implementation,
including each state’s reliance on findings by independent consultants in setting goals for
minority-owned business participation, and concluded that the DBE program was narrowly
tailored as applied at the state level.
Similarly, the issue presented in Western States Paving Co., Inc. v. Washington State Department 54
of Transportation is whether TEA-21—which allocates 10% of certain federal transportation
funds for small disadvantaged and minority contractors—is unconstitutional on its face, or as
applied by the State of Washington. As discussed above, DOT regulations “presume”
disadvantaged status for minority groups and women, provided the small business owner has a
net worth of less than $750,000, but members of other groups are eligible if they can demonstrate,
in fact, that they are “socially and economically disadvantaged.” A three-judge panel of the Ninth
Circuit agreed with the Eighth and Tenth Circuits that race and sex preferences for highway
contractors under TEA-21 are facially valid. The compelling interest was in ensuring that federal
funding is not distributed in a manner that reinforces the effects of either public or private
discrimination within the transportation construction industry. The evidence relied on by
Congress and reviewed by the court demonstrated a continuing pattern of race and sex
discrimination in the industry.
The court further determined that the TEA-21 racial preferences were narrowly tailored to
furthering compelling federal governmental interests. In this regard, the court pointed to several
factors. First, the revised DOT regulations “explicitly prohibit the use of quotas” and require a 55
state to “meet the maximum feasible portion of [its] overall goal by using race-neutral means.”
Where racial goals are not met, the state may yet comply with federal standards by showing
“good faith efforts” to achieve its goals. Moreover, “durational limitations” imposed by the
legislative reauthorization process “ensure that Congress regularly evaluates” whether continuing
need exists for the minority preference program. The regulation also makes clear that the statute’s
10% DBE goal is “aspirational” only, with individual state goals determined by “the realities of
[each state’s] own labor market” and the availability locally of qualified minority contractors.
But these findings did not shield the Washington State program from Fourteenth Amendment
challenge. Because the record was “devoid of any evidence suggesting that minorities currently
suffer—or have ever suffered—discrimination” in the award of transportation infrastructure
contracts within Washington State, Judges O’Scannlain and Bea found that the state’s
implementation program “is not narrowly tailored to further Congress’ remedial objectives.” A
narrowly tailored remedy “depends on the absence or presence of discrimination,” these judges
urged, and it was not enough “simply [that] the state complied with the federal program’s
requirements.” Thus, each of the six principal minority groups identified in Washington’s DBE
program must be shown to have suffered contract award discrimination.
54 407 F.3d 983 (9th Cir. 2005), cert. denied, 126 S. Ct. 1332 (2006).
55 49 C.F.R. § 26.51(a).
The ruling of another post-Adarand appellate tribunal appears to impose a heavier burden on the
federal government for demonstrating a “strong basis in evidence” to support minority 56
contracting preferences. In Rothe Development Corporation v. U.S. Department of Defense, the
trial judge appeared to defer uncritically to congressional evidence and findings to uphold § 1207
of the National Defense Authorization Act of 1987. That statute incorporates the SBA definition
of small disadvantaged business, including the racial presumption, and establishes a 5% 57
participation goal for such entities in Department of Defense contracts. The § 1207 program
authorizes DOD to apply a price evaluation adjustment of 10% in order to attain the 5% goal. In
effect, this means that DOD may raise the bids of non-DBEs by 10% in order to give
disadvantaged entrepreneurs a preference. The statutory goal-setting provision in §1207 was
reauthorized in 1989, and again in 1992 and 2003, because DOD efforts in the initial years fell
short of meeting the 5% goal. A non-minority bidder in Rothe sued DOD and the Department of
the Air Force for violating its equal protection rights in awarding a contract to a higher bidder,
International Computer and Telecommunications, Inc., because of the race of its owner, who was
of Korean descent.
The U.S. Court of Appeals for the Federal Circuit rejected what it viewed as the “deferential
standard of review” applied by the district court and vacated the judgment. In so doing, it
advanced a different conception of both the constitutional basis for Congress’s enactment of
§1207 and the degree of scrutiny demanded. As national legislature, it said, Congress could enact
race-based programs as a condition to the exercise of its Article I spending powers or pursuant to
§ 5 of the Fourteenth Amendment as a remedy for lingering discrimination by state and local
governments. Whatever deference may be owed to congressional remedies for state equal
protection violations under § 5, when legislating racial preferences in federal spending programs,
Congress is restricted by the Fifth Amendment, which incorporates its own equal protection
component. “Strict scrutiny is a single standard and [it] must be followed here,” said the appeals
court. The proper judicial inquiry was whether a “strong basis in evidence” supported Congress’s
conclusion that discrimination existed and remedial action was warranted. A “mere listing” of
evidence before Congress when it enacted the original statute in 1987 was insufficient, the
Federal Circuit warned. Rather, detailed statistical information regarding the existence of
discrimination in 1992 was necessary to find the reauthorized § 1207 constitutional. Moreover,
the government must produce evidence of pre-enactment discrimination; reports generated after
the statute was enacted showing discrimination against specific groups cannot be used to prove
the constitutionality of the program when enacted. The “strong basis in evidence” must have
existed at the time the law was enacted if it is to survive strict scrutiny. In remanding for further
proceedings, the appeals court confirmed that when it comes to race-based federal programs, 58
there is only “one kind of strict scrutiny.”
56 262 F.3d 1306 (Fed.Cir. 2001).
57 10 U.S.C. § 2323.
58 The appellate opinion underscored certain additional elements for the lower court’s review on remand. In
determining whether a “compelling Government interest” justified the SDB program, the lower court must decide if the
§ 1207 program is “truly remedial.” This requires a determination whether the program targets present discrimination
or the “lingering effects” of past discrimination. If the latter, the opinion notes, the probative currency of the evidence
must be determined, as must the existence of specific evidence of discrimination against Asian Americans in the
particular industry involved in this case. As to whether the § 1207 program is narrowly tailored, the Federal Circuit
highlighted three areas for remand consideration. First, the trial court should conduct “a probing analysis of the efficacy
of race-neutral alternatives” to the § 1207 program. Second, the court must review evidence demonstrating whether the
5% goal of SDB participation was relevant to the number of qualified, willing, and able SDBs in the industry. Finally,
the lower court had to determine whether the § 1207 program was over-inclusive by “presuming” that the five groups
On remand, the district court bifurcated Rothe’s claim into a challenge to § 2323 “as applied” in 59
1998, when the case was filed, and a broader challenge to the statute on its face. This required it
to analyze both the circumstances known to Congress when the statute was reauthorized in 1992
and later when the statute was reauthorized in 2003. The evidence purporting to justify the earlier
claim was viewed to be “anecdotal” and did “not demonstrate a strong basis for Congress to
believe that a race based remedial program was necessary because of the lack of statistical
evidence of discrimination.” Despite congressional testimony and findings of racial bias in the
private and public sectors affecting the award of defense contracts, this evidence lacked statistical
focus on discrimination against Asian Americans, the racial classification of the company
awarded the contract instead of Rothe, and the particular industry involved. The court, therefore,
found that “the program, as reauthorized in 1992 and applied in 1998, was unconstitutional.”
As to Rothe’s claim that §2323 was facially unconstitutional, the district court determined that
Congress had met its burden of demonstrating statistical evidence documenting pervasive
discrimination when it reauthorized the program in 2003. Specifically, it found that “59 statistical
studies from across the nation succinctly demonstrate that Congress was reacting with a strong
basis in evidence.” The court focused on evidence regarding all minority groups—rather than
simply Asian American as in the prior “as-applied” portion of its opinion—because proof that a
program can be constitutionally applied in any one set of circumstances will sustain the statute
from a facial challenge. It, therefore, held that § 2323, as re-authorized in 2003, was
constitutional and denied Rothe any prospective relief.
Likewise, courts have considered challenges to SBA’s § 8(a) program for socially and
economically disadvantaged businesses. While upholding the constitutionality of the § 8(a)
program on its face, the district court in Cortez III Service Corporation v. NASA required federal
officials “to decide whether there has been a history of discrimination in the particular industry at 60
issue” before applying a race-based set-aside. Other courts, however, have denied firms or
individuals standing to challenge the racial presumption in the SBA statute and regulations on the
rationale that they were disqualified from contract consideration because of inability to 61
demonstrate “social and economic disadvantage,” and not race.
With increasing frequency, state and local affirmative action programs have met with
constitutional objection from courts applying strict judicial scrutiny. Several federal circuit courts
have addressed the legality of racial preferences in employment and public contracting programs 62
since the Supreme Court’s ruling in City of Richmond v. J.A. Croson. Croson emphasized the
obligation of state and local governments to anchor their affirmative action efforts by identifying
with specificity the effects of past discrimination. This meant that the governmental entity has to
have a “strong basis in evidence”—just short, perhaps, of that required to establish a “prima
identified in the statute were victims of discrimination.
59 Rothe Dev. Corp. v. U.S. Dep’t of Defense, 324 F. Supp.2d 840 (W.D.Tex. 2004).
60 950 F. Supp. 357 (D.D.C. 1996). See also Klaver Constr. Co. v. Kansas Dep’t of Transp., 211 F. Supp.2d 1296
61 See Interstate Traffic Control v. Beverage, 101 F. Supp. 2d 445 (S.D. W.Va. 2000); Ellsworth Associates v. United
States, 926 F.Supp. 207 (D.D.C. 1996).
62 488 U.S. 469 (1989).
facie” case in a court of law—for its conclusion that minorities have been discriminatorily
excluded from public contracts in the past.
In Croson, a 30% set-aside for minority subcontractors adopted by the City of Richmond failed
this constitutional test. First, the program was premised on a comparison of minority contractor
participation in city contracts with general minority population statistics rather than the
percentage of qualified minority business enterprises in the relevant geographic market. There
was, moreover, no evidence of discrimination in any aspect of city contracting as to certain
groups—i.e., Orientals, Indians, Eskimos, and Aleuts—who nonetheless were granted a
preference under the plan. With respect to “narrow tailoring,” the 30% “quota” was deemed “too
inflexible”and had been implemented by the city without any prior consideration of “race-
neutral” alternatives. Finally, the “waiver” built into the Richmond plan was too “rigid” because it
focused solely on minority contractor “availability” with “no inquiry into whether or not the
particular MBE seeking a racial preference has suffered from the effects of past discrimination by
the city or prime contractors.”
The heightened standards of proof articulated by Croson and further developed by Adarand led
many states, counties and municipalities to reevaluate existing minority business enterprise 63
programs. Judicial challenges followed, and while several race-conscious programs survived,
many others were less successful, either because they lacked a compelling remedial justification
or were not sufficiently “narrowly tailored” to withstand strict judicial scrutiny. As to the former,
local jurisdictions primarily sought to establish a “strong basis in evidence” with “disparity”
studies depicting the extent of minority exclusion from public contracting activity within the
jurisdiction, coupled with any available “anecdotal” evidence. After the Court’s 1995 Adarand
decision, such studies were generally poorly received in the courts. Almost universally cited as
the basis for judicial rejection of such statistical proof was over-reliance by the governmental unit
on general or undifferentiated population data that failed to adequately reflect minority contractor
availability or to account for contractor size and other factors relevant to contractor 64
qualifications. Other major faults have been failure to “narrowly tailor” the remedy—whether a
minority participation goal, preference, set-aside, or other “sheltered” bidding arrangement—to 65
any disparities revealed by statistics and anecdotal proof of discrimination; the failure to 6667
properly limit the program in scope and duration; the absence of a “waiver” provision; or
63 See, e.g., Indianapolis Minority Contractors Ass’n v. Wiley, 187 F.3d 743 (7th Cir. 1999); Associated Gen.
Contractors of California v. Coalition, 950 F.2d 1401, 1416-18 (9th Cir. 1991), cert. denied , 503 U.S. 585 (1992);Coral th
Constr. Co. v. King County, 941 F.2d 910 (9 Cir. 1991), cert. denied, 502 U.S. 1033 (1992).
64 See, e.g., Builders’ Ass’n of Greater Chicago v. Cook County, 256 F.3d 642 (7th Cir. 2001); Associated Gen.l
Contractors of Ohio, Inc. v. Drabik, 214 F.3d 730 (6th Cir. 2000), cert. denied, 531 U.S. 1148 ( 2001); W.H. Scott th
Constr. Co., Inc. v. City of Jackson, 199 F.3d 206 (5 Cir. 1999); Engineering Contractors Ass’n v. Metro. Dade th
County, 122 F.3d 895 (11 Cir. 1997), cert. denied, 523 U.S. 1004 (1998); Concrete Works of Colorado, Inc. v. City th
and County of Denver, 36 F.3d 196 (10 Cir. 1994), cert. denied 514 U.S. 1004 (1995); O’Donnell Constr. Co. v.
District of Columbia, 963 F.2d 420 (D.C.Cir. 1992).
65 See, e.g., Contractors Ass’n of Eastern Pennsylvania, Inc. v. City of Philadelphia, 91 F.3d 586 (3rd Cir. 1996), cert.
denied, 519 U.S. 1113 (1997); Associated Util. Contrs. of Md., Inc. v. Mayor of Baltimore, 83 F. Supp. 2d 613 (D. Md.
2000); Main Line Paving Co. v. Bd. of Educ., 725 F. Supp. 1349 (E.D. Pa. 1989).
66 See, e.g., Associated Gen. Contractors of Ohio v. Drabik, 214 F.3d 730 (6th Cir. 2000); Kornhass Constr., Inc. v.
State of Oklahoma, 140 F. Supp. 2d 1232 (W.D.Okla, 2001); Webster v. Fulton County, Ga. 51 F. Supp.2d 1354 (N.D.
Ga. 1999); Associated Gen. Contractors v. New Haven, 791 F. Supp. 941, 948 (D. Conn. 1992).
67 Associated Gen. Contractors, 214 F.3d 730. Compare Builders Ass’n of Greater Chicago v. City of Chicago, 298 F.
Supp. 2d, 725, 740 (finding DBE plan not to be narrowly tailored where waivers were “rarely or never granted”) with th
N. Contr., Inc. v. Illinois, 2005 U.S. Dist. LEXIS 19868 (D. Ill. 2005), aff’d 2007 U.S. App. LEXIS 320 (7 Cir.
2007)(state transportation funding plan approved where flexibility assured by “the employment of individualized DBE
neglecting first to consider race-neutral alternatives, such as bonding and credit assistance 68
programs, to ameliorate minority underutilization.
The courts, however, have yet to resolve several important issues. As noted, the first relates to
whether different fact-finding standards pertain to independent state or local minority contracting
initiatives than to state plans explicitly adopted in aid of enforcing federal law. Notwithstanding
Croson, decisions by three different circuit courts suggest that no independent findings may be
required to established a “compelling” governmental interest where the state agency acts not on
its own authority, but pursuant to federal mandate requiring remedial state or local action to
counteract the effects of past or present discrimination on federally funded projects.
Compelling government interest looks at a statute or government program on its face. When
the program is federal, the inquiry is (at least usually) national in scope. If Congress or the
federal agency acted for a proper purpose and with a strong basis in the evidence, the
program has the requisite compelling government interest nationwide, even if the evidence 69
did not come from or apply to every state or locale in the Nation.
The principle here seems to be that the evidentiary record compiled by Congress to find a
compelling interest for the federal program provides the factual leverage necessary to sustain
supporting action at the state and local level.
Likewise, in Western State Paving Co. v. Washington DOT, the Ninth Circuit reviewed “as 70
applied” challenges to state programs mandated by federal law. As discussed earlier, the court
followed the Eighth Circuit in finding the 10% DBE set-aside of federal transportation funds 71
under TEA-21 facially constitutional. But even if Washington demonstrates compliance with
TEA-21 and its implementing regulations, it must separately meet strict scrutiny to survive an as-
applied challenge. Thus, the majority found that while the state does not have to re-establish a
compelling state interest, it still has to show that is program is narrowly tailored. That, in turn,
“depends upon the presence or absence or discrimination in the state’s transportation contracting
Washington admitted that no statistical studies were done to establish the existence of
discrimination in the highway contracting industry. What arguments the state did make regarding
discrimination—based on estimates of minority contractor participation in state transportation
contracting—were rejected. The court concluded that those percentages proved little because they
failed to account for factors affecting the capacity of minority contractors to undertake
goals on a contract-by-contract basis, and through the maintenance of a waiver provision to account for those situations
in which achievement of the set DBE goals is not reasonably possible.”).
68 See, e.g., Contractors Ass’n of Eastern Pennsylvania, 91 F.3d 586; Associated Gen. Contractors of Ohio, 214 F.3d
730; Concrete Works of Colorado v. City and County of Denver, 86 F. Supp 2d 1042 (D.Colo. 2000).
69 Sherbrooke Turf, 345 F.3d 964, 970 (8th Cir. 2003), cert. denied 541 U.S. 1041 (U.S. 2004).; see also Milwaukee
County Paver Ass’n v. Fiedler, 922 F.2d 419, 423 (7th Cir. 1991)(“If the state does exactly what the statute expects it to
do, and the statute is conceded for the purposes of the litigation to be constitutional, we do not see how the state can be
though to have violated the Constitution.”).
70 407 F.3d 983 (9th Cir. 2005), cert. denied, 126 S. Ct. 1332 (2006).
71 Generally, the court determined that Congress had a compelling interest in creating a remedial scheme to overcome
effects of past discrimination in the transportation contracting industry. Further, TEA-21 was narrowly tailored to this
end because it created no quotas, it is limited in duration (Congress must periodically re-authorize it), and it contains
income limits to lessen the burden on non-minority firms.
contracting work; for example, DBEs could be smaller, less experienced or concentrated in a
particular part of the state. Moreover, the court observed that historical minority participation on
contracts with affirmative action components “does not provide any evidence of discrimination
against DBEs” in a race-neutral market. Washington also lacked anecdotal evidence of
discrimination, which could not be inferred from statistics alone. Finally, “even when
discrimination is present within a State, a remedial program is narrowly tailored if its application 72
is limited to those minority groups that have actually suffered discrimination.”
In a more recent ruling, Northern Contracting Inc. v. State of Illinois,73 the Seventh Circuit
reached a result similar to the Ninth Circuit’s ruling in Western States Paving. In affirming the
district court, the Seventh Circuit “considered the question of whether the federal government’s
interest in remedying discrimination in highway contracting provided sufficient justification for
the state to engage in a federally mandated DBE program, and ... concluded that it did.” As a
result, the only question that remained was whether the state highway contracting program was
narrowly tailored to achieve this compelling interest. After reviewing the statistical evidence and
evaluating the state’s compliance with federal regulations, the court determined that the state’s
program was narrowly tailored and therefore passed constitutional muster.
By contrast, a more restrictive evidentiary approach is represented by a different Seventh Circuit 74
ruling in Builders Association of Greater Chicago v. County of Cook, a case that involved a
locally adopted minority contracting program rather than a federal program. The court there held
that Cook County had failed to establish a compelling interest supporting its contract set-aside
program. In defense of its program, the County presented anecdotal evidence that prime
contractors failed to solicit minority- and women-owned subcontractors at the same rate as
similarly situated firms owned by white males. In addition, the County put forward statistical data
demonstrating that a number of firms rarely or never solicit minority- or women-owned firms for
subcontract work. This evidence, however, failed to persuade the court of a systematic refusal to
solicit such firms for subcontract work because it was based on the practice of a mere thirteen
general contractors. In affirming the decision, the appeals court also noted that the program failed
to link its set-aside levels (30% minorities, 10% women) to evidence of their availability on the
Western States Paving and related cases may have important implications for future challenges
against both state and federal affirmative action programs. Under the Ninth Circuit’s rationale,
while federal programs may be insulated by appropriate congressional fact-finding, state
affirmative action in furtherance thereof must be supported by proof of discrimination on a state-
by-state basis. Moreover, even federal programs could fall under question as the statistical
foundation for their enactment becomes strained by the passage of time, perhaps necessitating
renewed evidentiary justification. Meanwhile, USDOT has issued guidance concerning the effects 75
of the Western States Paving decision on recipients in the Ninth Circuit.
72 Id. at 998.
73 2007 U.S. App. LEXIS 320 (7th Cir. 2007).
74 123 F.Supp.2d 1087 (N.D. Ill. 2000), aff’d 256 F.3d 642 (7th Cir. 2001).
75 A notice describing DOT’s implementation of the guidance was published in the Federal Register on Aug. 21, 2006.
71 FR 48579. Questions and answers regarding Western States Paving are available on the DOT website at
Another issue that has divided the federal circuit courts since Croson is whether post-enactment 76
evidence of discrimination is sufficient to justify minority set-asides and preferences. In 1996,
the Supreme Court in Shaw v. Hunt ruled that, in the context of racial gerrymandering, a
legislature must have sufficient evidence to support a racial distinction “before it embarks on an 77
affirmative action program.” Shaw demanded a “strong basis in evidence” for race-based
governmental action, which has been interpreted by the Federal Circuit to mean that “the
quantum of evidence that is ultimately necessary to uphold racial classifications must have 78
actually been before the legislature at the time of enactment.” In this view, proof that the
legislature had a constitutionally permissible intent requires strong pre-enactment evidence. But
the Tenth Circuit decision in Adarand III allowed consideration of post-enactment evidence in
addition to congressional findings because the defendants had gathered it in response to the 79
Supreme Court’s application of strict scrutiny to the statutes in question. The Supreme Court
recently chose not to address this and other issues when it declined an appeal from the Tenth 80
Circuit ruling in Concrete Works of Colorado, Inc. v. City and County of Denver.
In Concrete Works, the federal circuit court examined a city ordinance establishing goals for
participation in the construction industry by minority- and female-owned businesses. In 1990, the
Denver City Council passed Ordinance 513 to promote participation by minority-owned business
enterprises (MBEs) and women-owned business enterprises (WBEs) in public work projects “to
an extent approximating [their] availability and capacity.” The city determined availability and
capacity by conducting periodic studies of minority participation in each contract area. The
Ordinance also directed the Office of Contract Compliance (OCC) to establish MBE and WBE
participation goals on each individual city contract. The statutory goals for total annual
expenditures were 16% for MBEs and 12% for WBEs. According to the ordinance, if the OCC
established an individual project goal, all bidders had to either meet the goals or demonstrate their
good faith efforts to do so. The city revised the program in 1996 and 1998, reducing the annual
goals for MBEs and WBEs in construction contracts to 10% and prohibiting M/WBEs from
counting self-performed work towards the goals.
Concrete Works of Colorado, a construction firm owned by a white male, sued the city in 1992,
alleging that it had been denied three contracts for failure to meet the goals or to make good faith
efforts, and sought injunctive relief and money damages. The city relied on three categories of
evidence to demonstrate a compelling remedial purpose for the ordinance. First, major studies—
in 1990, 1995, and 1997—revealed large disparities between M/WBE availability and utilization
on city projects without goals. Census data revealed like patterns of minority and female
underutilization as contractors and subcontractors in state-wide construction, public and private.
At trial, M/WBEs also testified to discrimination they confronted in qualifying and bidding on
private sector jobs, in obtaining capital and credit, in dealing with suppliers, and of harassment
suffered at work sites, including physical assaults.
76 See, e.g., Rothe Dev. Corp. v. United States DOD, 262 F.3d 1306 (Fed. Cir. 2001); Associated Gen. Contrs. of Ohio,
Inc. v. Drabik, 214 F.3d 730 (6th Cir. 2000); Eng’g Contractors Ass’n of S. Fla., Inc. v. Metro. Dade County, 122 F.3d thrd
895, 911-13 (11 Cir. 1997); Contractors Ass’n of E. Pa., Inc. v. City of Philadelphia, 91 F.3d 586, 605 n.21 (3 Cir. th
1996); Concrete Works of Colo., Inc. v. City & County of Denver, 36 F.3d 1513, 1520-21 (10 Cir. 1994); Harrison & nd
Burrowes Bridge Constructors, Inc. v. Cuomo, 981 F.2d 50, 60 (2 Cir. 1992); Coral Constr. Co. v. King County, 941 th
F.2d 910, 919-20 (9 Cir. 1991).
77 517 U.S. 899 (1996).
78 Rothe Dev. Corp. v. United States DOD, 262 F.3d 1306, 1327 (Fed. Cir. 2001).
79 Adarand Constructors Inc. v. Slater, 228 F.3d 1147 (10th Cir. 2000).
80 321 F.3d 950 (10th Cir. 2003), cert. denied, 540 U.S. 1027 (U.S. 2003).
The principal issue presented by Concrete Works was whether the government’s statistics and
other evidence established a remedial justification for racial and gender preferences in public
contracting. The circuit court adopted an expansive approach, finding that “irrefutable or
definitive” proof of the city’s own “guilty” actions was unnecessary where the city’s “passive”
participation in marketplace discrimination by its spending practices was shown.
Denver’s only burden was to introduce evidence which raised the inference of discriminatory
exclusion in the local construction industry and link its spending to that discrimination....
Denver was under no burden to identify any specific practice or policy that resulted in
discrimination. Neither was Denver required to demonstrate that the purpose of any such
practice or policy was to disadvantage women or minorities. To impose such a burden on a
municipality would be tantamount to requiring proof of discrimination and would eviscerate 81
any reliance the municipality could place on statistical studies and anecdotal evidence.
Croson’s admonition against relying on “mere societal discrimination” did not apply, the opinion
states, where evidence of discrimination in the industry targeted by the program is shown—
whether motivated by an attitude “shared by society” or “unique to the industry” is
constitutionally irrelevant. The trial court was wrong to require Denver to “show the existence of
specific discriminatory policies and that those policies were more than a reflection of societal
The trial court also faulted the city’s disparity studies, in part, for failure to control for firm size,
area of specialization, and whether the firm had actually bid on city contracts. Such factors were
thought important because, due to their generally smaller size, M/WBE’s might lack the requisite
experience and qualifications, diminishing their availability and capacity to perform on city
construction projects. The Tenth Circuit accepted the studies, nonetheless, reasoning that small
firms can expand and contract to meet their bidding opportunities, and because size and
experience are not race or gender-neutral variables. “M/WBE construction firms are generally
smaller and less experienced because of discrimination.” The disparities, moreover, were not
shown to disappear when such variables were controlled for, or held constant, and taking the
number of city bidders into account might distort the picture by including unqualified firms.
Likewise, “lending discrimination” and “business formation” studies were properly relied on by
the city for the “strong link” they demonstrated between disbursement of public funds and the
“channeling” of those funds due to private discrimination. Private barriers precluded entry of
M/WBE’s into the market “at the outset” and made impossible “fair competition” for public
contracts by minority firms that did submit bids.
An appeal from the Tenth Circuit ruling, filed by petitioner Concrete Works of Colorado, Inc., 82
was denied by the Supreme Court. In an unusual move, Justice Scalia was joined by Chief
Justice Rehnquist in filing a written dissent from the Court’s refusal to grant certiorari. The
dissenters argued that Denver’s policy violated the standards of proof required by the Court’s
According to their view, there must be some evidence that discrimination was so pervasive that
any minority business would have suffered. “Absent such evidence of pervasive discrimination,
Denver’s seeming limitation of the set-asides to victims of racial discrimination is a sham, and the
only function of the preferences is to channel a fixed percentage of city contracting dollars to
firms identified by race.” In declining review, Justice Scalia opined that his fellow Justices had
81 Id. at 973.
82 Concrete Works of Colorado v. City and County of Denver, cert. denied 540 U.S. 1047 (2003).
“abandoned” their former insistence on a “strong basis in evidence,” relying instead on the “good
faith” of local governments to act responsibly when using racial preferences.