The social injustice of government race-based contracting programs

August 13, 2014 | By RALPH KASARDA

PLF attorneys are filing a brief in support of Midwest Fence Corporation in its “David versus Goliath” legal challenge against race-based public contracting programs in Illinois.  Both federal and state programs are at issue, and Midwest Fence had to sue several state and federal agencies to try to save their business.  Here is PLF’s brief in Midwest Fence v. United States Department of Transportation.

The challenged racial preference programs place small firms owned by nonminority males, like Midwest Fence, at a competitive disadvantage against firms the government prefers simply because of the race and sex of the owners.  The government argues this is necessary to remedy discrimination (which it claims to exist on the basis of flawed statistical studies).  But it does not matter that the burdened firms are innocent third parties who have never engaged in, or even been accused of engaging in discrimination.  Indeed, because the shunned firms are small subcontractors, they are far removed from any decisions by the government or prime contractors that could be discriminatory.

The programs being challenged apply to highway construction projects.  Like other states, as a condition of receiving federal highway funds, the Illinois Department of Transportation (IDOT) must implement a federal contracting program called the Disadvantaged Business Enterprise (DBE) Program.  Whenever Congress reauthorizes a federal-aid highway bill, the DBE Program is renewed.

A DBE is defined as a small business owned and controlled by one or more individuals who are socially and economically disadvantaged.  Minority and women contractors receive preferential treatment under the program because they are presumed to be socially and economically disadvantaged.  The term “small business” is relative.  Minority and woman contractors are considered to be economically disadvantaged as long as their net worth – not including the value of their home – is less than $1,320,000.  You read that correctly, that’s $1.32 million.  Under the federal DBE Program, minority and women contractors who are millionaires are still presumed to be economically disadvantaged and entitled to a preference.  Nonminority male contractors are not entitled to the presumption and preference even if they are poor and going out of business.   And in some states, minority contractors of one race are preferred over minority contractors of another.

So how does the DBE Program work?  Like a quota.  On any given highway construction contract, prime contractors are required to hire a certain percentage of DBE subcontractors or demonstrate “good faith efforts” to do so.  If the prime contractor fails to document strict compliance with either of these two options, the prime contractor is punished by having his or her bid rejected as nonresponsive, even if it is the lowest bid.  The problem here is that as a result of the government preference program, DBEs have concentrated in certain fields, such as trucking, or guard rail installation – the work in which Midwest Fence specializes.  So when prime contractors need to fill their quota of DBE subcontractors, they must hire the DBEs from those speciality areas, because DBEs are scarce among other specialty trade contractors.

That means small nonminority subcontractors who specialize in certain trades are effectively bearing the brunt of the DBE Program and being forced out of business.  It doesn’t matter if a nonminority subcontractor submits the lowest bid to a prime contractor.  Prime contractors must accept the higher bid of DBEs or risk failing the “good faith efforts” requirement.  The U.S. Department of Transportation denies that any “overconcentration” of DBEs exists in certain types of work.  But in the year prior to filing its lawsuit, Midwest Fence’s low bids were rejected over 100 times by prime contractors who felt compelled by government regulations to accept the higher bids of DBEs.

It is imperative that discrimination be eradicated, but not through new discrimination by  government.  Any prime contractor that does engage in discrimination can be debarred and prohibited from bidding on public contracts.  And the victims of such discrimination can and should be made whole.  Additionally, race-neutral alternatives are available instead of race-based programs.  For instance, government agencies can’t discriminate against prime contractors on the basis of race or sex, because by law they must award contracts to the lowest responsible bidder, and the results are published.  As a condition of doing business with the government, a similar transparent process can be required at the prime contractor to subcontractor level.

In this day and age it’s hard to imagine that our government is powerless to stop the discrimination it claims to exist on highway construction projects without mandating more discrimination.  But even if that were true – and it’s not – the Supreme Court has held that an affirmative action program may not heavily impact innocent third parties.  Any such burden must be light and diffuse.  For instance, in Wygant v Jackson Board of Education, the Supreme Court invalidated a school board policy of extending preferential protection against layoffs to minority employees, but not innocent nonminority teachers.  Similarly, the impact on Midwest Fence, and other innocent subcontractors being forced out of business by IDOT’s DBE Program, is more than the Constitution allows.