Plan of ACTION: The federal government is ready to try a new way to pass the SupremeCourt's tough test for giving preferences to minority biddersAuthor(s): MICHAEL HIGGINSSource: ABA Journal, Vol. 84, No. 4 (APRIL 1998), pp. 68-71Published by: American Bar AssociationStable URL: http://www.jstor.org/stable/27840196 .

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AFFIRMATIVE ACTION

The federal government is ready to try a new way to pass the

Supreme Court's tough test for

giving preferences to minority bidders

Ian

f ACTION BY MICHAEL HIGGINS

Ron Blackstone credits affir mative action programs with helping him build a $2-mil

lion-a-year food service and janitor ial business.

But the 60-year-old president of RJB Properties Inc. of Home wood, 111., doesn't expect young Af rican-American entrepreneurs to

follow in his footsteps. "I think it's going to all go away," he says.

Like many supporters of af firmative action, Blackstone has watched grimly as lawsuits have begun to unravel race-based prefer ences in government contracting. Pressure on the programs has picked up steadily since the U.S. Supreme Court's 1995 decision in Adarand Contractors v. Pena, 515 U.S. 200, which held that federal contracting programs that make dis

Michael Higgins, a lawyer, is a reporter for the ABA Journal.

tinctions based on race must meet the Court's tough "strict scrutiny" standard.

But the U.S. Justice Depart ment is fighting back. This spring it is expected to present the key com

ponent of a multifaceted plan to preserve affirmative action in fed eral contracting. That component: studies designed to show how much discrimination exists in each of more than 80 industries in different parts of the nation.

The study results then would be used to compute "price credits," or discounts to be applied to bids by minority-run companies. Where discrimination was found to be sig nificant, bids by minority-owned firms would be considered as if they were submitted at a lower, or discounted, amount and, if success ful on that basis, paid at the cost submitted.

The Justice Department plan, which has been two years in the making, would make 1998 "proba

bly the most important year H^^^^pi since the Adarand decision," pv'^f'--: says Frank Hamner, a partner ffe; with Gray, Harris and Robinson \ 'P'??k in Orlando, Fla., who counsels * local governments on contract-

**|^| ing issues. "It will act as a lit-

^(B mus test in the courts for what will and will not survive."

Affirmative action oppo nents?citing Adarand and the Supreme Court's 1989 decision FiP"_ in City of Richmond v. J.A. Cro son Co., which announced a strict scrutiny standard for state and local programs?say nothing in Justice's new scheme will reverse the trend toward color-blind con

tracting. "I don't underestimate the in

tellectual power of the federal gov ernment," says Michael Kennedy, general counsel for Associated Gen eral Contractors of America, a

Washington, D.C.-based group of 32,000 businesses that has long op posed preferences. "Nothing is cer

68 ABA JOURNAL / APRIL 1998

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tain in litigation ... [But] I think the direction has been set."

Yet the Justice Department is determined to change that direc tion. Mindful of the Clinton admin istration's edict to "mend, not end" affirmative action, Justice devised the plan to comply with the U.S. Supreme Court's 5-4 Adarand de cision. In practice, that means try ing to squeeze through a narrow

opening left by Justice Sandra Day

With federal contracts, Ron Blackstone built his business into a large janitorial/security service.

O'Connor's majority opinion, which suggested that strict scrutiny of af firmative action programs need not always be fatal.

"The unhappy persistence of both the practice and the lingering effects of racial discrimination against minority groups in this country is an unfortunate reality," O'Connor wrote, "and government is not disqualified from acting in re sponse to it."

Some aspects of the plan al

ready have been announced. For example, the new approach:

Eliminates pure set-asides, such as the Defense Department's "Rule of Two," in which nonminori ty-owned firms could be entirely shut out if at least two minority firms made qualified bids on a job.

Promises more assistance, such as training programs, to small contractors generally, regardless of ownership. The plan leaves it to in

dividual federal agencies to create those programs.

Makes it easier for white owned businesses to qualify as dis advantaged by lowering the stan dard of proof to a preponderance of the evidence, rather than by clear and convincing evidence.

Cracks down on fraud by making it more difficult for white owners to use minorities to front a business.

But to meet strict scrutiny, the

Justice Department must show that federal race-based programs are "narrowly tailored" to serve a

compelling government interest. That's why number crunchers

at the U.S. Commerce Department have been analyzing data by indus try across at least half-a-dozen geo graphic regions to try to measure the extent to which discrimination has held back minority businesses.

Not 100 Percent Precise There are two parts

to the analysis, Justice Department officials say. First, analysts look at the existing minority businesses and deter mine how much work they would be expected to get absent discrimi nation.

Second, and more

controversial, analysts study whether discrimi nation has discouraged minority firms from forming or expanding.

"You can't do [this analysis] with absolute certainty," says William Yoemans, acting deputy assistant attorney gen eral for civil rights.

"What you can do is have economists and social scientists do their very best," he says.

The result of the analysis will be a num ber, or benchmark, that will represent how much work would go to minor ity firms if not for dis crimination.

Under the Justice Department plan, gov ernment agencies then would be able to apply price credits of up to 10 percent toward bids by minority contractors or contractors who hire mi

nority subcontractors. For example, if the federal gov

ernment determined that minor ity firms should have 15 percent of the electrical contracting work in the Southeast, but only have 3 per cent, their bids would be discounted by a greater percentage than if the disparity in the region were small or nonexistent.

If the full 10-percent price cred it were in effect, a minority-owned firm's bid to do a job for $100,000

ABAJ/RICHARD SHAY ABA JOURNAL / APRIL 1998 69

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Frank Hamner advises local governments to devise race-neutral programs for small firms.

would be considered as if it were for $90,000.

The minority firm's $100,000 bid would be deemed lower than a competing $95,000 bid from a non

minority-owned firm. The minori ty-owned business then would be

fiven

the contract and paid its full 100,000 bid for its work.

Justice officials hope to imple ment the plan by October. It would immediately change how the gov ernment awards money in pro grams that accounted for $4.5 bil lion in awards in 1996. It would al so affect how the government steers awards under the larger $6.3 billion program run by the Small Business Association, officials say, although exactly how is not yet clear.

"We're going to see significant

changes in these programs," Yoe mans says. "It's obviously a very important year."

Opposition Well-Primed Affirmative action opponents

had their banner year in 1997. Among their victories:

A federal judge in Colorado, evaluating the Adarand case on re

mand, struck down the preference program in highway construction at issue there.

The 9th U.S. Circuit Court of Appeals at San Francisco invalidat ed a California law that set aside 15 percent of subcontracting work for minority businesses.

The 11th U.S. Circuit Court of Appeals at Atlanta struck down a Dade County, Fla., program that

set goals for minority participation in construction projects.

A federal judge in Houston killed a program that encouraged bidders for work on the county's public transit system to allot 21 percent of their contract to disad vantaged businesses.

With those cases setting the pace, race-based preferences in con

struction could be gone within five years, estimates contractors' attor

ney Kennedy. The federal government, Ken

nedy says, has never shown it can

separate out the various nondis criminatory factors that might pre vent minority businesses from get ting work. In some areas, minority firms may get less work because they're smaller, less experienced or bid less frequently than their non

minority competitors. "It's certainly a rational goal

to want to increase minority par ticipation in the construction in

dustry," says Jim Killian, a partner with Maslon Edelman Borman & Brand in Minneapolis and counsel to contractors who challenged pref erence programs in Minnesota.

"But if you want to carry out that goal, it's best to educate people themselves, get them in apprentice programs and foster training. ... It

just strikes [contractors] as inher ently unfair to allow some people preferences when it's an industry based on razor-thin margins."

Simply assuming that discrim ination exists won't pass strict scrutiny, Kennedy adds. "You have to identify the discrimination with enough particularity to fashion a

narrowly tailored remedy." But minority business owners

such as Blackstone stress that al though discrimination may be tough to identify, that does not mean it does not exist.

Blackstone started his entre

preneurial career with top-notch cre dentials: He was a University of Chi cago M.B.A. graduate and a former

manager at printing giant R.R. Donnelly & Sons.

Yet ask him how his company landed a $1.7 million contract to clean a high-rise federal building in Chicago and he'll say, "Affirmative action." In the private sector, build

ing managers let contracts "under the 'good ol' boy' network system, which doesn't include us," he says.

Local Small Business Adminis tration officials cite Blackstone as a success story for affirmative action.

70 ABA JOURNAL / APRIL 1998 ABAJ/KEVIN KOLCZYNSKI

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He began his own business in 1985 as the owner of a Wendy's restaurant. He got a break the next year when he found a large food service company that was looking for a minority subcontractor to help feed prisoners at the Cook County jail. His company took on 30 per cent of an $11 million contract.

Blackstone eventually expand ed RJB to provide janitorial and security guard service. All in all, he has landed 20 government con tracts, about half involving some kind of race-based preference, he says. His company now has about 475 full- and part-time employees and had more than $2 million in sales last year.

"If there were no federal affir mative action programs, I would be going around trying to clean little office buildings in a van," Black stone says. "I wouldn't even go down

Weldon Latham fears "nervous bureaucrats" will overreact and terminate programs.

town except to pay my taxes." The stakes are high for minor

ity-owned businesses nationwide. In 1996, the federal government awarded $10.8 billion in contracts to "socially and economically dis advantaged" businesses, which are overwhelmingly minority-owned. That was only 5.5 percent of the government's total procurement budget of $197 billion, but it ac counted for 21 percent of the dollars

that went to small business. Meanwhile, as the Justice De

partment rolls out its new plan and yet more cases head to court, law yers wonder what to tell their clients. Hamner of Orlando tells government officials that they can still help minority businesses, but they need to devise race-neutral programs to do it.

For example, if minority firms have trouble getting permits, a city or county might consider making it easier for small firms?minority and nonminority?to qualify. Gov ernments could look at similar pro grams to help all small firms get bonding or start-up loans.

"Mandatory set-asides aren't

going to work," advises Hamner, who chairs the minority hiring is sues subcommittee of the ABA State and Local Government Law Section. "Let's look at what the problems

are and let's see if there are solu tions." While Adarand did leave some unanswered questions, Ham ner says, given "the way the pendu lum is swinging right now," the de cision is going to favor race-neutral programs.

But that doesn't sit well with affirmative action advocates.

Weldon Latham, general coun sel of the National Coalition of Mi nority Businesses, says his biggest

fear after Adarand is not that pro grams can't survive strict scrutiny.

Instead, Latham worries that "nervous bureaucrats who don't want to support minority and fe male businesses" will fold programs altogether.

"People overreact and say you can't do things, even though that's not the law of the land," says Lath am, a partner at Shaw, Pittman, Potts & Trowbridge in Washing ton, D.C.

Court Battles Ahead It's likely to take another Su

preme Court decision to find out whether Latham is right. And that leaves affirmative action watchers trying to figure out what kind of program Justice O'Connor, the like ly swing vote, might approve.

O'Connor hasn't closed the door on using race as a "plus factor"

of some kind, says law professor I Jonathan Entin of Case West I ern Reserve University in Cleve I land. But exactly how race may I be used is unclear. I "There are three or four I places in the opinion where she

W\ goes out of her way to say that strict scrutiny doesn't neces sarily mean that all of these

a programs are going to fall," En tin points out. "There is a lot of

j ambivalence."

:i Some affirmative action ad 'M vocates fear that even if the

m Justice Department's new plan does survive strict scrutiny, it may amount to a compromise in which contracts to minority firms survive but are cut back.

That result would not sat isfy either side: Not affirmative action opponents who see the issue as one of constitutional

Irights, and not supporters like Latham, who see a level table being tilted once again.

"What the critics today of these programs want to do is forget history," Latham says.

White men own large contract ing firms for the same reason they account for virtually all CEOs of Fortune 500 companies, Latham ar gues. "Because for 300 years, white men were favored for every posi tion that there is."

What becomes of the Justice Department plan this year, though, may well determine whether future business owners like Ron Black stone are able to write a new chap ter to that history.

ABAJ/ROB CRANDALL ABA JOURNAL/APRIL 1998 71

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