Prior to 1995, only state and local affirmative action programs were subject to the highest level of scrutiny by the courts. In 1995, the United States Supreme Court held that "strict scrutiny" applies to federal programs as well. This change was announced in the 1995 case of Adarand Constructors, Inc. v. Pena. Under the Adarand "strict scrutiny" test, the federal government must show that the DBE race classifications: (1) serve a compelling governmental interest and, (2) are narrowly tailored to further that interest.
Since Adarand, challenges have begun to states' implementation of federal programs. Such is the case in In Re Sherbrooke Sodding, wherein the United States District Court for Minnesota examined the Minnesota DBE program for federally funded projects. This was made necessary because of a suit filed by turf and sod subcontractors who contended that they had been unjustly and illegally disadvantaged when bidding on road construction projects because of their race and gender. Upon applying the Adarand "strict scrutiny" test, the court ultimately found that the DBE program at issue in Minnesota was not narrowly tailored to serve a compelling governmental interest and therefor was unconstitutional.
In order to achieve its objectives, the federal government created several highway construction and funding acts. The one at issue in Sherbrooke Sodding is the Intermodal Surface Transportation Efficiency Act of 1991 ("ISTEA"). Congress authorized Minnesota to use federal highway funds, provided that not less than 10% of those funds be expended with DBEs. ISTEA expired on September 30, 1997, but its DBE provisions still applied to funds obligated but unspent from prior fiscal years. Hence, ISTEA and its DBE provisions applied to Minnesota highway construction projects being let in 1998 which relied on fiscal year 1997 funding. These funds and the ISTEA's DBE provisions were at issue in Sherbrooke Sodding.
Minnesota established its DBE program in accordance with the mandates and regulations issued by the federal government. One such regulation (and the one at issue in Sherbrooke Sodding) provided that certain individuals, based on race and gender, are presumed to be socially and economically disadvantaged, i.e., Black Americans, Hispanic Americans, Native Americans, Asian-Pacific Americans and Asian-Indian Americans (in Sherbrooke Sodding, women also fell in to the category of being a socially and economically disadvantaged group). Conversely, other individuals are not presumed to be socially and economically disadvantaged, i.e. Caucasian males. Accordingly, the strict scrutiny test was applied to ascertain whether the DBE race (and gender) classifications served a compelling governmental interest and were narrowly tailored to further that interest.
Under the strict scrutiny test, the government must first demonstrate that a "compelling governmental interest" lies behind a government program established for the benefit of minorities. The Sherbrooke Sodding defendant (USDOT) contended that the compelling governmental interest was to remedy the negative effects of discrimination on the ability of small minority-owned contractors to compete on an equal footing with non-minority contractors in the highway construction industry nationwide. The USDOT argued that Congress adequately considered the question of discrimination against minority contractors. Defendant further argued that Congress was well within its rights to regulate the DBE program in Minnesota based on discrimination it found in the nation as a whole, rather than just particularized to Minnesota. The court agreed with USDOT's argument and found, as it had in Adarand, that Congress had a strong basis in evidence of minority discrimination, providing a compelling governmental interest in enacting a race-conscious plan.
The next step in the strict scrutiny investigation is to ascertain if the program is "narrowly tailored" to serve the established compelling governmental interest. This analysis considers several factors; i.e., the necessity for relief and the efficacy of alternative remedies; the flexibility and duration of the relief, the relationship of the numerical goals to the relevant labor market and the impact of the relief on the rights of third parties.
The court found that the inclusion of almost all non-white people on the list of those qualifying for DBE status did not reflect a narrowly tailored focus to the DBE program. The random inclusion of racial groups that as a practical matter may never have suffered from discrimination in the construction industry (i.e., Aleuts or Native Hawaiians) suggests that the underlying reason behind the Minnesota DBE program was not in fact to remedy past discrimination but was perhaps some other objective.
Moreover, the court considered the "flexibility" of Minnesota's DBE program. The government contended that the goals for the DBE program were aspirational, and were not inflexible quotas. As evidence of the flexibility of the Minnesota DBE program, the government stated that several times the DBE goals were not met in Minnesota, but that sanctions were never imposed. The plaintiffs refuted this argument and the court agreed. The court believed that government-granted preferences, based on immutable conditions acquired at birth, confer benefits on those who have done nothing to earn them and conversely, impose burdens on those who had done nothing to require them to be shouldered. The court found the Minnesota DBE program to be an outlet used to enforce a quota imposed by the government. As such, the quota penalized some and gave advantages to others, each without justification under our Constitution.
Another factor considered by the court under the "narrowly tailored" part of the "strict scrutiny" analysis is whether any consideration was given to the use of race-neutral means to increase minority business participation in government contracting. In Sherbrooke Sodding, the USDOT offered no evidence that Congress considered any alternatives to ISTEA's DBE program. Consequently, the court found that the United State's failure to consider race, national origin and gender neutral alternatives strongly suggested that the DBE program was constitutionally flawed.
Since the court was alerted to the possibility of a constitutional defect, it then considered the burden placed on plaintiffs. The defendants argued that the plaintiffs were not made to bear an unreasonable burden because all of the plaintiff companies were economically thriving. However, the plaintiffs contended that specialty subcontractors like themselves were greatly impacted by the DBE program. The plaintiffs asserted that highway turf work is less capital-intensive than several other highway construction/maintenance subtrades, such as grading, guardrail, landscaping and fencing. As such, the DBE program falls heaviest on smaller companies engaged in non-capital intensive operations. When a preference is given to a non-white or non-male portion of this group, the preference's impact necessarily falls heaviest on white male contractors who practice these trades. The court accepted this argument and found that the plaintiffs did bear an undue burden under the DBE program. The court found that the typical way to compete in the subcontracting marketplace is to provide quality work at the lowest possible price. Plaintiffs would have won in this competition, but lost on numerous occasions simply because of their race, national origin and gender.
To date, Louisiana courts have not yet determined if Louisiana's implementations of federal DBE programs pass constitutional muster. However, under non-federal DBE programs, racial classifications are absolutely prohibited, as can be seen in the recent case entitled Louisiana Associated General Contractors, Inc. v. State of Louisiana, wherein the Louisiana Supreme Court held that a Louisiana, non-federal DBE program violated the Louisiana Constitution.
Sherbrooke Sodding is only a District Court case; however, it undoubtedly will have far reaching repercussions. We will keep you informed of developments as they occur.
Russel W. Wray is a partner with Wray & Kracht, L.L.P., practicing in the field of construction law and civil litigation. Mr. Wray may be reached at Wray & Kracht, L.L.P., 5643 Corporate Boulevard, Post Office Box 80239, Baton Rouge, Louisiana 70898, (225) 928-3200 or by E-mail firstname.lastname@example.org for any comments or questions you may have.