North Carolina LEGAL FUNDAMENTALS OF MWBE PROGRAMS MWBE CONFERENCE 235 Peachtree Street, NE Suite 400 Atlanta, GA 30303 Phone: (404) 584-9777 Fax: (404) 584-9730

THE GRIFFIN & STRONG TEAM

Fundamentals of m/wbe programs Understand the legal principles and key court decisions that govern the constitutionality of M/WBE Programs Understand the basic strategies for avoiding and surviving legal challenges to M/WBE Program

14TH AMENDMENT OF THE U.S. CONSTITUTION The Equal Protection Clause Section 1. All persons born or naturalized in the United States, and subject to the jurisdiction thereof, are citizens of the United States and of the State wherein they reside. No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.

14TH AMENDMENT OF THE U.S. CONSTITUTION The Equal Protection Clause Laws that explicitly favor one class of citizens over another, may run afoul of the Equal Protection Clause of the Fourteen Amendment. M/WBE programs and legislation are among the types of laws invoking such concerns.

JUDICIAL SCRUTINY The strict scrutiny standard is applied to any race based program involving government procurement of goods and services. Strict scrutiny, the most stringent standard of judicial review used by U. S. courts, is a two-pronged test: A “compelling governmental interest” A "narrowly tailored” remedy

City of Richmond v. j.a. croson In City of Richmond v. J.A. Croson, 488 U.S. at 509 the United States Supreme Court ruled that the City of Richmond’s Minority Business Enterprise (hereinafter “MBE”) program failed to satisfy the requirements of “strict scrutiny.”

City of Richmond v. j.a. croson No Compelling Governmental Interest In Croson, the Supreme Court concluded that the City of Richmond failed to show that its minority set-aside program was “necessary” to remedy the effects of discrimination in the marketplace.

City of Richmond v. j.a. croson The Court reasoned that a mere statistical disparity between the overall minority population in Richmond (50 percent African-American) and awards of prime contracts to minority-owned firms (0.67 percent to African-American firms) was an irrelevant statistical comparison and insufficient to raise an inference of discrimination.

City of Richmond v. j.a. croson The Croson Court Held: [W]here there is a significant statistical disparity between the number of qualified minority contractors willing and able to perform a particular service and the number of such contractors actually engaged by the locality or the locality's prime contractors, an inference of discriminatory exclusion could arise.

City of Richmond v. j.a. croson The Importance of Anecdotal Evidence The Court in Croson stated that identified anecdotal accounts of past discrimination also could provide a basis for establishing a compelling interest for local governments to enact race-conscious remedies. A combination of statistical disparities in the utilization of MWBEs and particularized anecdotal accounts of discrimination by the MWBEs (or others) are required to satisfy the factual predicate.

City of Richmond v. j.a. croson Remedy Not Narrowly Tailored The Croson Court ruled that Richmond’s MBE program was not narrowly tailored to redress the effects of discrimination because it provided preferential treatment to minorities such as Eskimos and Aleuts, groups for which there was no evidence of discrimination in Richmond. Thus, the scope of the City's program was too broad.

City of Richmond v. j.a. croson Under the Croson framework, any race-conscious plan must be narrowly tailored to ameliorate the effects of past discrimination. Croson’s progeny provide significant guidance on how remedies should be narrowly tailored. “Generally, while ‘goals’ are permissible, unyielding preferential ‘quotas’ will normally doom an affirmative action plan.” Virdi v. DeKalb County School District, 135 Fed. Appx. 262 (2005); see also Sherbrooke Turf, 345 F.3d at 972 (citing Croson, 488 U.S. at 496).

City of Richmond v. j.a. croson

City of Richmond v. j.a. croson Narrow tailoring does not require exhaustion of every conceivable race-neutral alternative, but it does require serious, good faith consideration of workable race-neutral alternatives.

ADARAND constructors v. pena In Adarand Constructors, Inc. v. Pena, 515 U.S. 200 (1995), the U.S. Supreme Court extended the requirements of Croson to federal programs. The Court upheld the federal program as meeting the strict scrutiny test and found both barriers to entry and barriers to competition for minority contractors. .

Kossman contracting co. v. city of Houston In Kossman Contracting Co. v. City of Houston, Case No. H-14-1203 (S.D. Texas February 16, 2016), the City of Houston, Texas M/WBE program was challenged. The Court focused on the factual predicate for the program that established the compelling governmental interest: the disparity study. The Court, 17 years after the Croson decision, confirmed “Croson’s Continuing Significance”

Kossman contracting co. v. city of Houston Significant disparity in the utilization of Hispanic-owned businesses in the unremedied private sector (as opposed to MBE program) provided strong evidentiary basis for including such firms in the program along with African-American and Asian-owned businesses for whom clear adverse disparities were shown in the City’s utilization.

Kossman contracting co. v. city of Houston Utilization of WBEs declined 50% when they were no longer covered under the program: “The precipitous decline in the utilization of WBEs after WBEs were eliminated and the significant statistical disparity when WBEs did not benefit from preferential treatment provide a strong basis in evidence for the necessity of remedial action [i.e., inclusion in the program].”

Kossman contracting co. v. city of Houston Program features noted by the Court: Waivers for good faith efforts at achieving MBE participation. Non-minority, male-owned SBE can be substituted for an MBE or WBE for up to 4% value of the covered contract. Program review every 5 years to determine continuing need/coverage and effectiveness.

Assoc. gen. contractors v. caltrans In Associated General Contractors of America, San Diego Chapter v. California DOT, 713 F.3d 1187 (9th Cir. 2013) the Caltrans federal DBE program withstood a challenge to both the federal DBE program itself and as implemented based upon the findings of its disparity study and the determination that the program was narrowly tailored.

Assoc. gen. contractors v. caltrans Disparity study found that M/WBEs should be expected to receive 13.5% of the federally-funded contracts. State projects provided “control” group for comparison to help determine whether previous affirmative action programs skewed the data.

Transportation DBE cases Other recent DOT cases challenging both the federal DBE program and as implemented have all withstood the challenges: Mountain W. Holding Co. v. Montana DOT, No. CV 13-9-BLG-DLC, (D. Mont., Nov. 26,2014) M.K. Weeden Constr., Inc. v. Montana DOT, No. CV 13-49-H-CCL, 2013 WL 4774517 (D. Mont. Sept. 4, 2013) Dunnet Bay Constr. Co. v. Hannig (C.D. Ill., 2014) Geyer Signal, Inc. v. Minn. Dep't of Transp., No. 11-321 (JRT/LIB), (D. Minn., Mar. 31, 2014) Midwest Fence Corp. v. U.S. Dep't of Transp., No. 10 C 5627, (N.D. Ill., Mar. 24, 2015)

H.B. ROWE V. W. LYNDO TIPPETT In H.B. Rowe Company, Incorporated v. W. Lyndo Tippett, 615 F.3d 233 (4th Cir. 2010) a prime contractor asserted that the state’s goals violated the Equal Protection Clause. The Court upheld the goals as to African Americans and Native Americans, but not with regard to other ethnicities or women owned firms.

H.B. ROWE V. W. LYNDO TIPPETT H.B. Rowe emphasized that there must be on-going support for the continuation of programs through statistically-sound collection of data from appropriate sources; testing of that data once collected to ensure high confidence; and anecdotal corroboration of findings to disprove other explanations for apparent disparities.

H.B. ROWE V. W. LYNDO TIPPETT Key findings regarding study and MBE program: Any race- or gender-based legislation must mirror the findings of the most recent disparity study with specificity as to the race and gender category. Each category that is included in the program much have a strong basis in evidence for a finding of discrimination. .

H.B. ROWE V. W. LYNDO TIPPETT An annual aspirational goal may be set for each race and gender category for which a strong basis in evidence has been established to infer discrimination. It is crucial that any aspirational goals have a good faith component which allows contractors to obtain waivers if they can demonstrate a good faith effort under specific criteria. .

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