July 23, 2010

North Carolina's contracting quotas found to be unconstitutional in H.B. Rowe v. Tippett

By North Carolina's contracting quotas found to be unconstitutional in H.B. Rowe v. Tippett

Author:  Ralph W. Kasarda

Under the guise of its Minority Business Enterprise and Woman Business Enterprise Program (MWBE Program), North Carolina has operated a discriminatory public contracting program since 1989.  Yesterday, the Fourth Circuit Court of Appeals, in H.B. Rowe v. Tippett, held that most of the MWBE Program is unconstitutional as applied to businesses owned by Hispanics, Asians and women.  However, NCDOT may continue to grant preferences to African American and Native American subcontractors.

In 2002, H.B. Rowe Co., a family-owned road construction business submitted the low bid on a state funded road construction project.  But the North Carolina Department of Transportation (NCDOT) rejected Rowe's low bid because it failed to meet the quota set for the participation of minority- and women-owned businesses, or demonstrate good faith efforts to do so.  The state awarded the contract to another company whose bid included a higher level of minority participation, even though its bid was higher than Rowe's low bid.

In 2003, Rowe filed a lawsuit alleging that the MWBE Program violated the Equal Protection Clause.  The United States District Court for the Eastern District of North Carolina found the MWBE Program to be constitutional although it distributes benefits and burdens based on race and sex, and although it was implemented and administered in an unconstitutional manner for several years.  See the case summary here.  H.B. Rowe, represented by PLF attorneys, appealed.

When the government discriminates and gives preferences on the basis of race, that action must be subjected to strict scrutiny, meaning the government's program must be narrowly tailored to further a compelling interest.  In the context of public contracting, the government may only have a compelling interest in remedying the effects of past or present discrimination.  Furthermore, the government must identify that discrimination with some specificity before it may use race-conscious relief.

Because of a lack of evidence of discrimination, the Fourth Circuit did not believe that North Carolina met its burden of proof with respect to Asian Americans, Hispanic Americans, or women.  But using a disparity study's analysis of subcontracting dollars, the court found that disparities existed for businesses owned by African Americans and Native Americans.  Based on these disparities and the results of interviews of minority subcontractors reported in the disparity study (no subcontractor testified at the underlying trial), the court concluded that North Carolina was justified in requiring prime contractors to grant preferences on public highway subcontracts to businesses owned by African Americans and Native Americans. 

The court's analysis regarding African American and Native American subcontractors is disappointing in several respects.  First, the court relied upon statistics from an admittedly flawed disparity study to prove intentional discrimination.  In addition to many methodological defects, the disparity study did not factor out through regression analysis important non-discriminatory factors - such as the size and experience of firms - that may have accounted for the disparity on public highway contracts.  So the study could not have proven that the disparities were the result of discrimination. 

Second, since no witness at the underlying trial testified as to any instance of discrimination, the court relied upon a section of the disparity study that reported on telephone interviews and a few segregated round table discussions in an attempt to bolster the questionable statistics.  However, the state conceded that none of this anecdotal information was ever verified. 

While there are many other deficiencies in the disparity study that were not mentioned in the court's opinion, the bottom line is that North Carolina cannot require its prime contractors on highway contracts to grant preferences based on race and sex to all minority- and women-owned businesses.  In reality, such preferences have been a way of life on NCDOT transportation contracts for over twenty years, and they are likely to continue.  The state already has another disparity study, and NCDOT will undoubtedly continue to administer its MWBE Program the same way it has been doing since the program was unconstitutionally implemented in 1989.

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