DATE: January 14, 2000

FROM: Barry McVay, CPCM

SUBJECT: Supreme Court Decision 99-295, Adarand Constructors, Inc. v. Rodney Slater, Secretary of Transportation, et al., January 12, 2000

ACTION: Decision

SYNOPSIS: On January 12, the U.S. Supreme Court overturned the U.S. Court of Appeals for the Tenth Circuit decision that the Adarand Constructors, Inc. v. Slater case was moot, and directed that the Court of Appeals conduct further proceedings. Adarand v. Slater is the appeal of the Adarand Constructors, Inc. v. Pena case, in which the Supreme Court ruled that the federal government may employ affirmative actions programs that are based on race "only if they are narrowly tailored measures that further compelling governmental interests." This ruling caused the government to completely revise its affirmative action programs, especially those involving federal contracts.

SUPPLEMENTAL INFORMATION: In 1989, DOT awarded a contract for a federal highway project in Colorado to Mountain Gravel and Construction Company under its Disadvantaged Business Enterprise (DBE) program. (EDITOR'S NOTE: The DBE program is covered in Parts 23 and 26 of Title 49 of the Code of Federal Regulations (CFR).) Mountain Gravel's contract included a clause that provided incentives for the contractor to subcontract with DBEs. Under the DBE program, state highway agencies certify the DBE status of small businesses seeking to participate in federally assisted highway projects, and the state highway agencies require the state highway agencies to presume that people who are black, Hispanic, Asian Pacific, Subcontinent Asian, Native American, members of other groups designated by the Small Business Administration, and women are socially disadvantaged. Small businesses that are owned and controlled by people who are not members of these groups may be certified as socially disadvantaged if they can demonstrate social disadvantage.

Adarand Constructors, whose principal owner is a white man, submitted a low bid on a guardrail subcontract under Mountain Gravel's contract, but Mountain Gravel awarded the subcontract to a firm that had been certified by the Colorado Department of Transportation (CDOT) as a DBE. In doing so, Mountain Gravel earned the DBE subcontracting incentive.

Adarand filed suit against DOT on the grounds that the DBE subcontracting incentive violated its Constitutional right under the 5th amendment to "due process" and its 14th amendment right to "equal protection under the law." All lower courts ruled against Adarand. However, on June 12, 1995, the Supreme Court found that "the 5th and 14th amendments to the Constitution protect persons, not groups. It follows from that principle that all governmental action based on race...should be subjected to detailed judicial inquiry to ensure that the personal right to equal protection of the laws has not been infringed." Therefore, the Supreme Court sent Adarand v. Pena back to the District Court for the District of Colorado for further consideration in light of the principles it had announced.

On June 2, 1997, the District Court ruled that the DBE subcontracting incentive was unconstitutional because it could not survive the standard mandated by the Supreme Court (Adarand II). The court found "the presumption that members of the enumerated racial groups are socially disadvantaged to be both overinclusive and underinclusive, because it includes members of those groups who are not disadvantaged and excludes members of other groups who are." This District Court decision was appealed by the government to the Court of Appeals for the Tenth Circuit (the appeal has become Adarand Constructors, Inc. v. Slater, the current secretary of transportation). (EDITOR'S NOTE: The DBE program in 49 CFR Parts 23 and 26 was revised by DOT on February 2, 1999, to conform to its interpretation of the Supreme Court's Adarand Constructors, Inc. v. Pena decision.)

Meanwhile, while the appeal was still pending, Adarand filed another suit in District Court, this time against CDOT's use of the federal guidelines for certifying DBEs for federally assisted projects (Adarand Constructors, Inc. v. Romer). However, shortly after the District Court's ruling in Adarand II, Colorado altered its DBE certification program by doing away with the presumption of social disadvantage for certain minorities and women. In its place, Colorado substituted a requirement that all applicants certify that each of a firm's majority owners "has experienced social disadvantage based upon the effects of racial, ethnic, or gender discrimination." Colorado required no further showing of social disadvantage by any applicant.

A few days after Colorado altered its DBE certification program, the District Court noted during a preliminary hearing in Adarand v. Romer that its decision in Adarand II held that the federal government had discriminated against Adarand's owner "by the application of unconstitutional rules and regulations" and, as a result of that improper race-based discrimination, Adarand was probably eligible for DBE status under the CDOT's DBE certification program that was the issue in Adarand v. Romer. Subsequently, Adarand requested and received DBE status from CDOT.

When the Court of Appeals for the Tenth Circuit found out about Adarand's DBE status, it held that the appeal in Adarand v. Slater was moot because Adarand had obtained the preferential status it had been seeking all along. This decision is the subject of the January 12 Supreme Court ruling.

The Supreme Court said that the Tenth Circuit "confused mootness with standing" and "placed the burden of proof on the wrong party. If this case is moot, it is because the federal government has accepted CDOT's certification of petitioner as a disadvantaged business enterprise, and has thereby ceased its offending conduct." But DOT has yet to approve CDOT's procedure for certifying DBEs.

DOT's DBE program regulations at 49 CFR 26.67(a)(1) require that state highway agencies presume that certain minorities and women are socially disadvantaged. Before individuals not members of those groups may be certified, the state highway agency must make individual determinations as to disadvantage. Since CDOT's new procedures accept without investigation a firm's self-certification of DBE status, "it is not at all clear that CDOT's certification is a 'valid certification'" that DOT will accept. In addition, DOT "has the power to require states to initiate proceedings to withdraw a firm's disadvantaged status if there is 'reasonable cause to believe' that the firm 'does not meet the eligibility criteria' set forth in the federal regulations."

The Supreme Court concludes by stating that "it is no small matter to deprive a litigant of the rewards of its efforts, particularly in a case that has been litigated up to this Court and back down again. Such action on grounds of mootness would be justified only if it were absolutely clear that the litigant no longer had any need of the judicial protection that it sought. Because that is not the case here, the petition for writ of certiorari is granted, the judgment of the United States Court of Appeals for the Tenth Circuit is reversed, and the case is remanded for further proceedings consistent with this opinion."

In a statement issued by Secretary Slater, he said the Supreme Court decision is "largely procedural, reinstating the lower court ruling on the constitutionality of the DOT's program and the court's injunction against the Colorado program. It also revives the government's appeal in federal court from the district court's decision. The revival of Adarand's challenge to the program simply will become another case, in addition to several now pending that challenge the DOT program. The Department of Transportation's affirmative action program was carefully crafted to meet the court's constitutional standard, and we will continue to vigorously defend it."

EDITOR'S NOTE: While DOT and the federal government will continue to "vigorously defend" their revised affirmative action programs (including those in Federal Acquisition Regulation (FAR) Subpart 19.11, Price Evaluation Adjustment for Small Disadvantaged Business Concerns, and Subpart 19.12, Small Disadvantaged Business Participation Program), the fact that the Supreme Court has ruled for a second time in favor of Adarand, and the tone of the decision, would indicate that the government would probably be wise to avoid a third trip to the Supreme Court, at least until the membership of the court changes in favor of affirmative action.

FOR FURTHER INFORMATION CONTACT: Barry McVay at 703-451-5953 or by e-mail to BarryMcVay@FedGovContracts.com.

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