Guidelines for Conducting a Disparity and Availability Study for the Federal DBE Program (2010) / Chapter Skim
Currently Skimming:
Pages 68-95
The Chapter Skim interface presents what we've algorithmically identified as the most significant single chunk of text within every page in the chapter.
Select key terms on the right to highlight them within pages of the chapter.
From page 68... ...
Strict scrutiny requires that a government entity prove both its "compelling interest" in remedying identified discrimination based upon a "strong basis in evidence," and that the measures adopted to remedy that discrimination are "narrowly tailored" to that evidence. However benign the government's motive, race is always so suspect a classification that its use must pass the highest constitutional test of "strict scrutiny." The Court struck down Richmond's Minority Business Enterprise Plan that required prime contractors awarded city construction contracts to subcontract at least 30% of the project to Minority Business Enterprises (MBEs)
|
From page 69... ...
It is sheer speculation how many minority firms there would be in Richmond absent past societal discrimination.224 Richmond's evidence was found to be lacking in every respect. The city could not rely upon the disparity between its utilization of MBE prime contractors and Richmond's minority population because not all minority persons would be qualified to perform construction projects; general population representation is irrelevant.
|
From page 70... ...
First, Richmond presented no evidence regarding the availability of MBEs to perform as prime contractors or subcontractors and no evidence of the utilization of minority-owned subcontractors on city contracts.230 Nor did Richmond attempt to link the remedy it imposed to any evidence specific to the Program; it used the general population of the city rather than any measure of business availability. The "city has not ascertained how many minority enterprises are present in the local construction industry nor the level of their participation in city construction projects.
|
From page 71... ...
Whether affirmative action procurement programs that benefit women are subject to the lesser constitutional standard of "intermediate scrutiny" has yet to be settled by the Supreme Court.236 Most courts have applied intermediate scrutiny to local program preferences for women,237 and then evaluated the female preference under that standard.238 This may be a distinction without meaningful difference, as only one post-Croson court has upheld gender-based provisions while striking down race-based measures.239 Further, as observed by the Seventh Circuit Court of Appeals, applying intermediate scrutiny to gender "creates the paradox that a public agency may provide stronger remedies for sex discrimination than for race discrimination; it is difficult to see what sense that makes."240 In any event, courts reviewing the constitutionality of the DBE program have applied strict scrutiny to the gender-based preference.241 The Ninth Circuit noted that "intermediate scrutiny would not yield a different result than that obtained under strict scrutiny's more stringent standard."242 Therefore, state DOTs would be wise to meet the rigors of strict scrutiny for gender preferences. Establishing a "Strong Basis in Evidence" for Local Race-Conscious Contracting Programs The Croson Court's guidance regarding the type of evidence necessary to support a race-conscious contracting program gave rise to the "disparity study." Dozens of cities, states, and other local entities engaged consultants to conduct studies to provide statistical and anecdotal evidence of discrimination against MBEs and WBEs.
|
From page 72... ...
The results of this improved approach to conducting disparity research and defending challenges to race-conscious contracting programs have been dramatic for local programs. Denver's M/WBE Program was upheld by the Tenth Court of Appeals, and the Supreme Court declined review.262 The City of Chicago's M/WBE Program for local construction contracts was also held to meet compelling interest using this framework.263 72 245See, e.g., Associated General Contractors of Ohio, Inc.
|
From page 73... ...
A telephone survey to determine the availability and utilization of M/WBEs in the Denver MSA showed large disparities in the construction and professional design industries. The 1995 study included discussion of a 1993 study for the Denver Housing Authority which found disparities for M/WBEs in some areas in some years, including those when it implemented an affirmative action program, and a 1992 study for the Regional Transportation District that found large disparities for both prime and subcontracting in the Denver marketplace.
|
From page 74... ...
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 any reliance the municipality could place on statistical studies and anecdotal evidence."270 Similarly, the trial court was wrong to reject the statistical evidence because such evidence cannot identify the individuals responsible for the discrimination.271 Contrary to the district court's conclusion, the burden of compliance need not be placed only upon those firms directly responsible for the discrimination.
|
From page 75... ...
After more than seven years of pretrial motions and discovery and almost seven weeks of trial, the federal district court found that the City of Chicago proved its compelling interest in remedying identified discrimination against black-, Hispanic- and women-owned construction firms.283 The court relied in large part on the statistical analysis that was similar to that upheld in Concrete Works. However, the program as implemented in 2003, which had not been reviewed since its inception in 1990, was not sufficiently narrowly tailored to meet strict constitutional scrutiny.
|
From page 76... ...
After finding that Chicago met the compelling interest prong, the court held that the city's program was not narrowly tailored to address these market distortions and barriers because: • There was no meaningful individualized review of M/WBEs' eligibility; • There was no sunset date for the ordinance or any means to determine a date; • The graduation threshold of $27.5 million was very high and few firms have graduated; • There was no personal net worth limit; • The percentages operated as quotas unrelated to the number of available firms; • Waivers were rarely granted; • No efforts were made to impact private sector utilization of M/WBEs; and • Race-neutral measures had not been promoted, such as linked deposit programs, quick pay, contract downsizing, restricting prime contractors' self-performance, reducing bonds and insurance requirements, local bid preferences for subcontractors, and technical assistance. Chicago is the only city ever to have received a stay to permit revision of its program to meet narrow tailoring.
|
From page 77... ...
First, the determination of presumptive social disadvantage of each racial and ethnic group must be based upon the evidence.292 In striking down the District of Columbia's MBE program, the court noted that there were no "findings with respect to discrimination in the construction industry against Hispanic Americans, Asian Americans, Pacific Islander Americans, or Native Americans, all of whom are included in the Act's definition of ‘minority.' "293 The "random inclusion" of groups that may never have experienced discrimination in the entity's marketplace may indicate impermissible "racial politics."294 Similarly, the Seventh Circuit, in striking down Cook County's program, remarked that a "state or local government that has discriminated just against blacks may not by way of remedy discriminate in favor of blacks and Asian Americans and women."295 However, at least one court has held that some quantum of evidence of discrimination for each group is sufficient. The Tenth Circuit held that Croson does not require that each group included in the ordinance suffer equally from discrimination.296 Next, the level of specificity at which to define beneficiaries must be addressed.
|
From page 78... ...
. While the District's effort to avoid unintentional discrimination should certainly be ongoing, its reliance on racial classifications should not."307 In contrast, the U.S.DOT DBE Program's periodic review by Congress has been repeatedly held to provide adequate durational limits.308 This means that affirmative action programs must be regularly reviewed to ensure that a strong basis in evidence remains to use the highly suspect tool of race in government decision making.
|
From page 79... ...
.329 The program set an overall annual goal of 5% for DOD contracting with SDBs. The court held that Section 1207,330 which among other race-conscious remedies provides a 10% bid preference to SDBs, violates strict scrutiny because Congress did not have a "strong basis in evidence" before it in 2006, upon which to conclude that the DOD was a passive participant in racial discrimination in relevant markets across the country.
|
From page 80... ...
The government also presents further evidence in the form of local disparity studies of minority subcontracting and studies of local subcontracting markets after the removal of affirmative action programs.335 Relevant evidence included: • Disparities between the earnings of minority-owned firms and similarly situated white-owned firms; • Disparities in commercial loan denial rates between black business owners compared to similarly situated white business owners; • The large and rapid decline in minorities' participation in the construction industry when affirmative action programs were struck down or abandoned; and • Various types of overt and institutional discrimination by prime contractors, trade unions, business networks, suppliers, and sureties against minority contractors.336 The Eighth Circuit Court of Appeals took a "hard look" at the evidence and concluded that the legislature had: spent decades compiling evidence of race discrimination in government highway contracting, of barriers to the formation of minority-owned construction businesses, and of barriers to entry. In rebuttal, [the plaintiffs]
|
From page 81... ...
If it did, all affirmative action programs would be unconstitutional because of the burden upon non-minorities."347 Challenges to the DBE program require more than vague attacks or unsupported speculation about other possible outcomes and methodologies for narrow tailoring. While plaintiff: presented evidence attacking the reliability of [the Availability Study's]
|
From page 82... ...
database, determine the number of all ready, willing, and able businesses available in your market that perform work in the same SIC codes.353 Divide the number of DBEs by the number of all businesses to derive a base figure for the relative availability of DBEs in your market.
|
From page 83... ...
ny recipient that believes it has available to it better sources of local data from which to make a similar calculation for its base figure is encouraged to use them."356 As discussed in Chapter 2, the bidders list approach has been commonly used by state DOTs to estimate the Step 1 base figure. However, those courts that have addressed this approach directly have pointed out that lists can be either under-inclusive or over-inclusive.
|
From page 84... ...
The IDOT availability study included a "custom census" designed to provide an accurate calculation of the current relative availability of DBEs, employing a seven-step analysis that: • Created a database of representative IDOT projects; • Identified the appropriate geographic market for IDOT's contracting activity; • Identified the appropriate product market for IDOT's contracting activity; • Counted all businesses in those relevant markets; • Identified minority-owned and women-owned businesses in those markets; • Verified the ownership status of minority-owned and women-owned businesses; and • Verified the ownership status of all other firms. The IDOT Availability Study estimated that DBEs comprised 22.77% of IDOT's available firms.368 The IDOT Study next examined whether and to what extent there are disparities between the rates at which DBEs form businesses relative to similarly situated White men, as well as disparities in the relative earnings of those businesses.
|
From page 85... ...
But as the district court correctly observed, NCI has pointed to nothing in the federal regulations indicating that a recipient must so narrowly define the scope of ready, willing, and available firms. The NERA custom census reflects an attempt by IDOT to arrive at more accurate numbers than would be possible through use of just the list.
|
From page 86... ...
"Both Minnesota and Nebraska had hired outside consulting firms to conduct statistical analyses of the availability and capacity of DBEs in their local markets, and the Eighth Circuit relied upon those studies to hold that the States' DBE programs independently satisfied strict scrutiny's narrow tailoring requirement."385 In contrast, WSDOT had chosen option 1 in § 26.45(c) to determine its Step 1 base figure of DBE availability: divide the number of certified DBEs by the total 86 374NERA Economic Consulting.
|
From page 87... ...
However, the court held that this 14% figure reflects the effects of the DBE Program, and thus is not indicative of DBE utilization in a race-neutral market. "Indeed, even in States in which there has never been discrimination, the proportion of work that DBEs receive on contracts that lack affirmative action requirements will be lower than the share that they obtain on contracts that include such measures because minority preferences afford DBEs a competitive advantage."387 Therefore, the only figure upon which WSDOT can "plausibly rely to demonstrate discrimination is the disparity between the proportion of DBE firms in the state (11.17%)
|
From page 88... ...
Perhaps the Seventh Circuit's clarification, discussed below, of this misreading will affect the outcome of a future challenge to a Ninth Circuit grantee's program. Additional Evidence of Discrimination Past Utilization of DBEs on State DOT Contracts Past utilization of DBEs on department contracts is useful in suggesting a "floor" of the availability of DBEs in that the award of prime contracts and subcontracts without doubt means the DBEs are "ready, willing and able." Utilization can also form the basis for an analysis of whether there remain statistically significant disparities between the availability of 88 394See, e.g., Concrete Works VII, 321 F.3d at 981, 983 ("M/WBE construction firms are generally smaller and less experienced because of discrimination.
|
From page 89... ...
The "utilization of M/WBEs on City projects has been affected by the affirmative action programs that have been in place in one form or another since 1977. Thus, the non-goals data is [sic]
|
From page 90... ...
"At trial, Denver introduced evidence that the median number of employees of all construction firms in the Denver MSA is three and presented testimony that even firms with few permanent employees can perform large, public contracts by hiring additional employees or subcontractors and renting equipment."414 In fact, at least one court has noted that the plaintiff in the case was a "small firm whose only employee other than the owner is the secretary."415 If WSDOT and DOD had presented expert testimony on proper statistical modeling, the elasticity of the construction industry, and business formation and earnings and credit market disparities, in conjunction with anecdotal testimony,416 then perhaps those programs would likewise have met strict scrutiny. Unremediated Markets Data It is critical to measure the participation of minority- and women-owned firms in the absence of affirmative action goals, if such evidence is available.
|
From page 91... ...
The "dramatic decline in the use of M/W/DBEs when an affirmative action program is terminated, and the paucity of use of such firms when no affirmative action program was ever initiated," was proof of the government's compelling interest in employing race- and gender-conscious measures.423 Evidence of unremediated markets "sharpens the picture of local market conditions for MBEs and WBEs."424 Economy-Wide Utilization of DBEs In addition to data for other governments' utilization of DBEs in the absence of affirmative remedies, courts have held that evidence of discriminatory barriers in the private sector or economy-wide activities is relevant.
|
From page 92... ...
was free to present its own witnesses to either refute the incidents described by Denver's witnesses or to relate their own perceptions on discrimination in the Denver construction industry."434 Additional Elements of Narrowly Tailored DBE Goal Setting Definition of State DOT's Marketplace Part 26 directs grantees to set goals based on the "relative availability of DBEs in your market."435 State DOTs must therefore apply economic principles to empirically establish the geographic and industry dimensions of their contracting marketplace in order to ensure that the evidence is narrowly tailored. The studies relied upon by IDOT and Mn/DOT defined the geographic and industry markets as the location and industries that comprised over 80% of the contract dollars awarded.
|
From page 93... ...
ntil that future day when national aspiration and national reality converge, the [Supreme] Court has made clear that under certain circumstances the federal government may use race-conscious means to remedy the effects of historical and present-day racial discrimination."450 In addition to the overall aspirational goals for their annual aggregate spending, state DOTs must set subcontracting goals for specific projects based upon the availability of DBEs to perform the anticipated scopes of subcontracting.451 As provided in Part 26, goals should reflect the particulars of the contract, not reiterate annual aggregate targets.452 For example, in considering a challenge to the City of Baltimore's M/WBE Program, the court noted that the new ordinance, in contrast to an earlier program struck down as unconstitutional, specifically required that goals be set on a contract-by-contract and craft-by-craft basis.453 Not only is contract-specific goal setting probably necessary to ensure flexibility,454 but also setting goals that reflect the reality of the scopes of work of the job instead of overall agency spending targets reduces the need to conduct good faith efforts reviews because the goal will reflect the realities of actual subcontractable scopes of work as well as the temptation to create "front" companies and sham participation.
|
From page 94... ...
The ability of a prime contractor that has made good faith efforts to meet a contract goal to receive a waiver has been central to the holding that the DBE Program meets the narrow tailoring requirement. State DOTs should collect data on the frequency and circumstances of waivers to ensure that its implementation of Part 26 is flexible.
|
From page 95... ...
The Seventh Circuit explained the Ninth Circuit's misreading of a previous Seventh Circuit case, but the IDOT trial presented evidence of the type referred to by the Ninth Circuit, so it again is impossible to know the outcome had Illinois relied solely upon its Availability Study. What is certain is that at a minimum, Ninth Circuit state DOTs, and perhaps all recipients, must significantly customize their goals to withstand strict scrutiny.
|
Key Terms
This material may be derived from roughly machine-read images, and so is provided only to facilitate research.
More
information on Chapter Skim is available.