Time to Set Aside Set-Asides

Wednesday, January 30, 2002

We appear to be entering the decisive legal phase of the struggle over race preferences. On October 31, the Supreme Court heard argument in the case of Adarand Constructors, Inc. v. Mineta, affectionately known among some as "Adarand VII" (the number of times the gritty little Colorado guardrail manufacturer has asked federal courts to prevent his low bids from losing out to competitors of favored race or gender categories).

Six years earlier—in "Adarand V"—the Supreme Court had held that federal race classifications, like those of states, would receive the strictest judicial scrutiny; opponents of race preferences were hoping this latest case would wipe from the books more-sophisticated federal efforts to achieve the same end. The Justice Department, defending the transportation construction program at issue, however, argued that the program affecting Adarand was race-neutral and asked that the case be dismissed as having been improvidently granted. The reason: The federal government had found no evidence of racial discrimination in Colorado road construction and would, under applicable regulations, refrain from race-conscious contract-letting procedures in the state.

Solicitor General Theodore B. Olson declared, "They have not demonstrated they have lost a single contract under the provisions they are challenging now"; his brief claimed that Adarand’s suit "had outlived the program that provoked it." Not all of the Supreme Court Justices seemed to agree, and counsel for Adarand urged that a bad law cannot be resuscitated by regulations that can change abruptly. But even should the federal argument prevail, its "victory" would be grounded in the conclusion that no race-conscious policies had been present rather than that race-conscious policies had been present but constitutionally justified. A decision along those lines would do little to stop the judicial momentum against race preferences.

"A 5-4 antipreference majority emerged on the Supreme Court during the last decade. Will it hold?"

That momentum received a boost from two separate federal appellate cases decided late last August. On August 20, in Rothe Development Corporation v. Department of Defense, the United States Court of Appeals for the Federal Circuit vacated a lower court ruling that had approved the 5 percent minority set-aside provisions of the so-called 1207 program, the military construction provisions of the Defense Authorization Act of 1987 and its progeny. Not only had the lower court erred in taking a deferential approach to the findings of discrimination, which, the government argued, had provided a "compelling need" for the set-aside, but the district court had also mistakenly allowed postauthorization evidence to beef up the flimsy record supporting the initial program.

Seven days later, in Johnson v. Board of Regents, University of Georgia, the United States Court of Appeals for the Eleventh Circuit unanimously held as unconstitutional practices by the University of Georgia that provided bonus points toward admission for members of designated minority groups. The court specifically rejected UGA’s argument that the need for student body diversity was sufficiently compelling to warrant disparate treatment on the basis of race, a contention rooted in Justice Powell’s opinion in the 1978 case Regents of the University of California v. Bakke. Race, the court reasoned, is not a proxy for diversity. A case involving race-conscious admissions practices by the University of Michigan, but supported by far more voluminous and sophisticated evidence on the claimed benefits of racial diversity, plus a veritable army of American business corporations, was argued December 6, 2001, before the United States Court of Appeals for the Sixth Circuit. Few legal observers doubt that the two education cases will eventually reach the Supreme Court. But Adarand is already there and, despite the evolving factual context, may still provide information as to whether the 5-4 antipreference majority that emerged during the last decade will hold.

"Groups often fight their way onto the government’s list of ‘disadvantaged business enterprises’ by engaging in lobbying and other forms of political action rather than by providing evidence of lingering discrimination."

The case has already shown that the Bush administration will not leap to reverse the Clinton positions on race preferences. In August, the Justice Department filed a 50-page brief arguing that the federal government is "not disqualified" from taking steps in response to "both the practice and the lingering effects of racial discrimination against minority groups in this country," a position repeated by Mr. Olson. In his October oral argument he urged that any race-consciousness in the challenged legislation merely reflected the federal government trying to deal with a serious problem "in a highly responsible way." The remainder of this analysis, then, will treat the contracting issue and examine how it has been affected by modifications in federal implementation procedures.


State and municipal rules setting aside a percentage of government construction contracts for minorities were held illegal by the Supreme Court in the 1989 case City of Richmond v. Croson, whereas federal contracts received similar treatment in Adarand’s 1995 case against former transportation secretary Federico Peña. Because the cases involved racial and ethnic categories, the Court held they would be subject to strict scrutiny, meaning they must materially advance a "compelling public interest" and must be "narrowly tailored" to achieve that interest with the minimum use of judicially disfavored racial categorization. The sole interest the Court was willing to recognize as compelling was specific past discrimination. General societal discrimination was insufficient, and the government entity seeking to favor particular races or ethnic groups had itself to have participated in that discrimination, actively or passively.

"The Bush administration has already shown that it will not leap to reverse the Clinton positions on race preferences."

Thus, private discriminatory conduct could not, in and of itself, provide the basis for relief. More was needed than proof of a prime contractor who snubbed minorities, a bank that was slow to extend credit to them, or a surety bondsman who charged them higher rates or declined minority business altogether. Again, the discrimination had to be pervasive, with the government an active or passive participant. Further, the discrimination had to be recent. Hoary tales of past wrongs were of no value unless they had an impact on the status of the minority contractor today. Otherwise, as George La Noue of the University of Maryland, Baltimore—perhaps the nation’s foremost authority on racial issues in contracting—has pointed out, one might assume that the processes had become more fair and the minorities, aided by decades of affirmative action, more competitive.

The requirement that remedies be narrowly tailored addressed both the identity of the group to be assisted and the scope of the remedy. If a case could be made, for example, that African Americans had suffered from government-sanctioned discrimination in the recent past, they—not Aleuts, Filipinos, or women—should be the beneficiaries of relief. And if a minority contractor could prove that lenders had repeatedly provided her with terms less favorable than similarly situated white customers, rather than a guaranteed contract, a more generous interest rate or healthier advance might do the trick. Time too is an element of narrow tailoring. Even if preferences can be justified in redress of past discrimination, no one suggests that, in the words of one Supreme Court justice, "a court could uphold remedies that are ageless in their reach into the past, and timeless in their ability to affect the future." In other words, the prescribed relief ought not to be open-ended, particularly once the contractor in question has shown the ability to compete on even terms. And if he does not show the ability to "graduate" from government assistance after a reasonable period, perhaps the initial problem involved more than discrimination.

Although wary of playing a numbers game, the Supreme Court, in its Croson and Adarand V decisions, did leave the door open to mathematical evidence from which courts could appropriately draw an inference of discrimination. If studies showed an otherwise inexplicable disparity between the number of minority contractors available to perform the needed work and the number actually selected, the explanation might lie in bias backed actively or passively by government.

"During the Clinton administration, the Justice Department produced a rationale for continuing minority set-asides in government construction projects that was weak and unconvincing. Rarely has national policy hung by so slender a thread."

The suggestion that race preferences in contracting could be sustained on the basis of arithmetic led to the instant formation of a cottage industry, as county and municipal jurisdictions sought to justify their programs on the basis of disparity studies. La Noue has estimated that more than $60 million has been invested by local jurisdictions in such studies, yet despite a parade of expert witnesses seeking to persuade the courts that one study or another proves the existence of discrimination, not a single challenged state or local study has been held persuasive by the courts. Several defendant jurisdictions, such as Texas and the city of Baltimore, were forced to settle or simply quit the litigation. Others, such as the city of Philadelphia, lost decisions on the merits. The trend cuts across judicial ideologies and presidential appointments.

One reason for this has been difficulty in defining the number of available minority contractors for a particular job. Simply checking phone book yellow pages or municipal registries is not enough, as many an expert witness has learned to her detriment. The minority contractors in question must be qualified, willing, and able to do the job in question; the best evidence of that is having submitted a bona fide bid to do the work. Moreover, there is serious question as to whether minorities are truly underrepresented. A benchmark study undertaken by the Department of Commerce in the late 1990s—using state boundaries as the appropriate competitive regions—found only eight regions in which minority contractors were used significantly less often than their availability would suggest.


The result of the repeated failure of state and local jurisdictions to have their minority preference programs upheld by the courts has been a sharply diminished number of reputable consulting firms willing to undertake disparity studies and the development of new litigation strategies by formerly shy contractors. La Noue claims that only three national consulting firms still take on disparity studies and has expressed confidence that the end of state and local race preference programs in contracting can be foreseen.

The federal situation is markedly different. Adarand is before the Supreme Court, having lost in the Tenth Circuit Court below. And the government is conducting spirited defenses of its programs, not only in Colorado, but in Nebraska, Minnesota, and elsewhere. The critical cases all involve the mammoth Transportation Equity Act for the 21st Century (TEA-21) enacted by Congress in 1998 and administered by the Department of Transportation. Ten percent of federal highway funds are earmarked for "disadvantaged business enterprises" (DBEs), including those owned at least 51 percent by women. In its final two years, the Clinton Justice Department did what it could in terms of drafting implementing regulations to protect the law against the kind of legal attacks that had doomed similar programs. Even before that it had laid the foundation for the law by publishing in the Federal Register a 15-page nationwide compilation of disparity studies and other reports assessing industry discrimination entitled "The Compelling Interest for Affirmative Action in Federal Procurement: A Preliminary Study" (often referred to as "Appendix A").

In litigation to date, Justice has offered a number of defenses of TEA-21. Although acknowledging that Congress undertook no systematic study of alleged discrimination against minorities in construction, Justice argues that anecdotal evidence of such discrimination presented at several hearings, together with the information in Appendix A, provided Congress with a compelling interest justifying race-conscious legislation. Most of this testimony involved claims that the construction industry in one location or another is dominated by white males, that minorities and women have trouble obtaining financing, and that minorities and women also find it difficult to establish the kind of personal relationships with prime contractors or local officials that would get and keep them in the information flow. These kinds of complaints are very general in nature and would seem to lack the specificity required by the Supreme Court to support raceconscious remedies.

"According to all reliable studies, discrimination in the construction industry barely exists."

Justice also claims that several provisions in TEA-21 insulate the system from abuse. For example, an otherwise eligible contractor cannot be enrolled unless his net worth is $250,000 or less, excluding the value of his business and primary home, and cannot remain in the program once that net worth exceeds $750,000. Further, a DBE remains eligible for only nine years.

But it is in implementing the regulations that the government makes its strongest stand. Those administering the various contracts are instructed to invoke affirmative action only where the evidence shows an underrepresentation of minority firms and where that underrepresentation is due to discrimination. Further, the numerical minority utilization goal must do no more than restore the environment to what it would be had no discrimination been practiced. Moreover, the officials involved must first explore race-neutral means of achieving their nondiscriminatory ends. In a case involving the Nebraska Department of Roads, for example, officials established a minority utilization goal of 9.95 percent, only about half of which was achieved through race-conscious measures. The government’s trial brief maintains that "this modest 4.82 percent race- and gender-conscious goal leaves non-DBEs, which make up 90.05 percent of all contractors in the relevant market area, free to compete for at least 95.18 percent of [state road] contracting dollars."

But the Mountain States Legal Foundation (representing Adarand) and others challenging TEA-21 insist that the changes from past practices are essentially cosmetic and that under the powder and makeup lies a wrinkled old quasi-quota program. The foundation’s argument begins with the racial and gender group beneficiaries. In addition to the traditional groups—African Americans, Hispanics, and Native Americans—the list of victims includes women, plus individuals whose ancestors came from any of 42 different countries, including China, Japan, Korea, India, Singapore, Nepal, Portugal, Fiji, Tonga, and Tuvalo, the latter identified in one brief as "an equatorial nation consisting of ten thousand people living on less than 450 square miles of coral atolls." Those deemed "socially and economically disadvantaged" comprise about two-thirds of the U.S. population, including many from wealthy countries and many whose experience in the United States places them well above average in terms of both education and income. Asian Americans, for example, have far higher income and education numbers than the population at large, whereas Korean Americans enjoy the highest rate of family business formation in the land. Moreover, the evidence is that often groups fought their way onto the DBE list though lobbying and other forms of political action rather than through proving lingering discrimination. An important General Accounting Office study released in June 2000 found no evidence that firms participating in the TEA-21 program as DBEs were any more worthy than those kept out: "A lack of key information prevents anyone from gaining a clear understanding of the firms that participate in the DBE program and how these firms compare with the rest of the transportation and contracting community."

Neither could GAO find evidence of underlying discrimination. The Department of Transportation did not maintain records of complaints by minority construction firms on alleged discrimination, and the situation among the states during the period 1999–2000 furnished little support for compensatory relief. The GAO report states: "Eighty-one percent of the states and transit authorities reported that they did not receive any written complaints of discrimination filed by DBEs during this period. Nineteen percent of the states and transit authorities reported that they received a total of 31 written discrimination complaints from DBEs in 1999 and 2000. Of the 31 complaints filed, 29 had been investigated. Four of these investigations resulted in findings of discrimination." Despite the volume of findings debunking the myth of pervasive discrimination, the Tenth Circuit Court found to the contrary in Adarand. According to La Noue’s compilation, that court "took 23 quotes from witnesses appearing before 12 different committee hearings over a decade and found them to be evidence of a compelling interest for TEA-21."

"Laws against discrimination have long been with us. They work."

The net worth limits established by the Act—which do not include property owned by one’s spouse—do little winnowing out. Upward of 80 percent of all construction industry contractors would qualify under the $250,000 program entrance limit, and more than 90 percent could remain in a program with a $750,000 limit.

With respect to Appendix A, rarely has a major piece of national policy hung by a more slender thread. Rather than a searching analysis of discrimination in the construction industry, the report was little more than a survey of existing literature, including some material that went back as far as 1964, and 58 disparity studies, the validities of which were never independently checked. Clearly the purpose of the study was not to determine whether discrimination in the construction industry was widespread or even existed. Rather it was to document discrimination in order to support race- and gender-conscious remedies. According to court records, the author of the study, Sean Flynn, was a four-year paralegal at Justice who has since left to attend law school. He was given a week to do his work. Superiors checked that work for style and clarity but not for accuracy of content. Indeed, part of Appendix A was based on an incomplete survey of possible discrimination in the construction industry conducted by the Urban Institute. In its final version, however, UI’s report examined twice as many studies as Mr. Flynn and concluded that discrimination against minority construction contractors in the aggregate was not statistically significant and that such disparities as do exist "do not necessarily translate into proof of discrimination on the part of state and local governments."

As a United States senator from Missouri, John Ashcroft opposed race preferences in government contracting and elsewhere. In the Senate debate on TEA-21, he challenged the fundamental equation between minority ownership and social and economic disadvantage.

The notion that every small business owned by a racial minority is somehow economically disadvantaged is nonsense. It flies in the face of reality. As a matter of fact, it is an affront to many of the businesses owned by racial minorities and women in this country. Many are very successful. For us to presume that because a black person or a Hispanic person or an Asian person owns a business it is disadvantaged or it is economically failing is for us to encourage rank prejudice in my mind.

Ashcroft is now the Bush administration’s top lawyer. He represents a president who, as governor of Texas, never truly came to grips with the issue of racial and gender preferences. And Ashcroft represents all cabinet officers, including Transportation Secretary Norman Mineta, the named defendant in the Adarand case. As a Democratic member of the House, Mineta, in 1979, introduced the bill that expanded the list of national preferences to include Asian Americans. To date, Ashcroft has indicated an intention to represent the views of his "clients" in this volatile area, rather than asserting his own values.

More farsighted leadership from the administration on this issue could be helpful, even decisive. After all, the underlying news is good. From all reliable studies, discrimination in the construction industry against minorities and women barely exists, with or without the active or even passive support of government. The numbers argue that, in most states, firms headed by minorities get about the amount of business one would expect, given their availability.

Nor is this surprising. Minorities have used the right to vote effectively for a generation. Their numbers make them politically potent in most of the nation’s large urban areas and dominant in some. Laws and the enforcement machinery intended to prevent racial or gender discrimination from impeding economic opportunity have long been with us. They work. They do their job, not perfectly, but well.

But although the news is good, politics seems to be running the other way. TEA-21 could not have passed either house of Congress without considerable Republican support. The overwhelming vote provided by African Americans to the national Democratic ticket in 2000 came within an eyelash of putting Al Gore in the White House. Republicans are now trying to cut into this Democratic advantage or at least offset it with the support of other minorities and women, also beneficiaries of race and gender preference programs. The tendency among members of both the executive and the legislative branches is to act in one’s political interest. The assumption is that the judiciary will come to the rescue as it has in the past, repairing the constitutional damage, reestablishing such quaint notions as due process and equal protection.

Maybe, and maybe not. There are three possible ways the Court can go. First, it can decide race preference questions on a case-by-case basis, rejecting most as failing to meet compelling interest or narrowly tailored standards but keeping the door ajar in the event that the future brings a more persuasive factual situation before the Court.

Second, it can hold that Congress, despite its shotgun approach, established a sufficient evidentiary basis for its preference legislation and that the Departments of Justice and Transportation, through implementing regulations and practices, have narrowly tailored the race-conscious remedies sufficiently to pass constitutional muster. State programs might still face rough going in the courts, but they would at least have an approved federal model for future guidance, something that would probably serve to keep such programs going at both the state and federal levels for at least another generation.

Third, the Supreme Court could seize the opportunity to declare that, at least in terms of government contracting, this society has passed the point where officially sanctioned discrimination serves as a bar to minority opportunity and thus the point at which a compelling interest sufficient to justify race preferences can be demonstrated. This would, in effect, take judicial notice of the vast and healthy changes that have occurred in the United States during the past several decades and underline the fact that the responsibility for current racial and ethnic stereotyping now rests with those loudly proclaiming their inability to compete in the hope of achieving special treatment. For at least three conservative justices nearing retirement, that would be a wholesome legacy.

"The tendency among members of both the executive and the legislative branches is to act in their own political interest. Observing due process and equal protection? That’s up to the judicial branch."

Will it happen? Perhaps. But in the absence of leadership by the Bush administration, probably not. This Court’s popular foundation was shaken by attacks on its resolution of the Florida presidential battle, and its conservative majority has seemed somewhat fragile if not defensive in several postelection votes. If President Bush and Attorney General Ashcroft remain silent on this issue or, worse yet, continue to defend racial preferences, the sense here is that the Supreme Court will itself be cautious. On an issue that goes far toward defining who we are and what we stand for, that would be unfortunate.