Rothe Development, Inc. v. Department of Defense

Large battle to end Small Business Act discrimination

Cases > Equality Under the Law > Rothe Development, Inc. v. Department of Defense
Lost: U.S. Supreme Court declined to review the case
Case Court: U.S. Supreme Court

Rothe Development, a small contracting business located in Texas, submitted the lowest bid on a Defense Department contract. But because the Small Business Act creates a preference for firms owned by socially or economically disadvantaged individuals, Rothe was not awarded the contract. Rothe sued the Defense Department and the Small Business Administration (SBA) alleging that the preferences violate the Equal Protection Clause. The district court and a split D.C. Circuit court rejected his lawsuit because the statute speaks of individual victims, rather than groups, who have experienced discrimination. Rothe is now petitioning the U.S. Supreme Court to review the case.

Section 8(a) of the Small Business Act allows the Small Business Administration to set aside government contracts for “socially and economically disadvantaged” small business owners. The SBA considers a person to be “socially disadvantaged” if he or she has suffered prejudice on the basis of race. The Act does not constrain or guide the SBA’s use of race to designate individuals as socially disadvantaged. The SBA also enjoys broad authority to decide which industries, government departments, and locations may employ racial classifications. The Small Business Administration identifies which races enjoy favored access to contracts and then decides when and how to use racial preferences across the vast array of goods and services purchased by the federal government. As such, the Act creates a racial preference regime that violates the Equal Protection Clause. Moreover, by giving the Small Business Administration almost unlimited discretion to discriminate based on race, the Small Business Act violates the separation of powers. PLF supports Rothe’s petition to the Supreme Court to review the constitutionality of this program.

Rothe Development is a computer services firm based in San Antonio, Texas, that regularly bids on Department of Defense contracts. Because it is not a “socially disadvantaged” business, the company is prohibited from bidding on numerous DOD contracts that are set aside for such businesses under the Section 8(a) program. The government’s refusal to allow Rothe to compete on an equal footing with minority-owned businesses violates the Equal Protection Clause. The district court upheld the program and a split panel of the District of Columbia Circuit Court of Appeals affirmed. Circuit Judge Henderson dissented, however, because the SBA interprets the statute as mandating that an individual’s membership in certain racial groups automatically constitutes “social disadvantage.” These preferred firms are eligible for billions of dollars’ worth of government contracts.

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What’s at stake?

  • Congress must not imbue an agency with unbridled discretion to create and manage racially segregated markets for coveted federal contracts.
  • The delegation of legislative power to decide winners and losers based on race is especially disturbing because it erodes the rule of law, which depends upon keeping lawmaking power out of the hands of officials who lack the people’s consent to govern them.

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