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12 Guidelines for Conducting Disparity mentation of the DBE Program.40 One is to conduct a dispar- and Availability Studies ity study. Over 300 disparity studies have been conducted in the The objective of the study is to develop the following tools 20 years since Croson.41 Studies have varied considerably in for state DOTs: content and in quality. At their best, they have been inde- pendent, objective, comprehensive assessments conducted in Guidelines to assist them in determining when and if a accordance with accepted practices in social science research disparity/availability study is recommended; and have been instrumental in assisting government entities, A Model Scope of Work to be included in future RFPs or including state DOTs, to survive constitutional challenges to similar solicitations for disparity/availability studies; and their M/WBE or DBE Programs. At their worst, they have Detailed recommendations on how to design and imple- been poorly conceived and executed, ultimately wasting the ment availability and disparity studies. scarce public resources expended on them when they proved inadequate in litigation or even leading to ongoing programs In Croson, the city's central piece of statistical evidence being dropped without a legal challenge. was that "while the general population of Richmond was Below, we describe in more detail the major and minor 50% black, only 0.67% of the city's prime construction con- components that are typically found in the best disparity tracts had been awarded to minority businesses [between] studies. In summary, such studies typically include the fol- 1978 and 1983."37 The Court ruled, in essence, that the city's lowing major elements: disparity statistic compared "apples to oranges" and there- fore did not support an inference of discrimination. The 1. A legal review discussing Croson and subsequent case law correct benchmark for business discrimination cases was and legal standards; held to be the percentage of minority-owned firms in the 2. An empirical assessment of the appropriate geographic business population of an area. The Court stressed that "proper" market relevant to an agency's contracting activity; statistical evidence--evidence that revealed significant racial 3. An empirical assessment of the appropriate product disparities between a government's minority procurement markets relevant to an agency's contracting activity; and the availability of minority businesses in the surround- 4. An estimate of the fraction of businesses within the ing economy--would be an acceptable form of evidence in agency's geographic and product markets that are owned future litigation. Such evidence--possibly standing alone, by DBEs (i.e., "availability"); or in combination with other factual showings--could be 5. An estimate of the percentage of all prime contract and used to support an inference of discriminatory exclusion. subcontract dollars earned by DBEs (i.e., "public sector "There is no doubt that `[w]here gross statistical disparities utilization"); can be shown, they alone in a proper case may constitute 6. A statistical comparison of public sector utilization to prima facie evidence of a pattern or practice of discrimina- availability (i.e., "public sector disparity ratios"); tion' under Title VII."38 7. Econometric analyses of DBEs' success, relative to non- In light of Croson and subsequent decisions, many state and DBEs' (e.g., in business formation rates and in business local governments abandoned their efforts at race-conscious owner earnings), and holding nondiscriminatory factors contracting either voluntarily or upon being enjoined by the constant, in the market area surrounding the agency in courts.39 Others took a different approach and commissioned question (i.e., "private sector disparity ratios"); disparity studies to determine whether, in light of Croson, there 8. Econometric analysis of DBEs' access to capital and was sufficient evidence of discrimination for their jurisdictions credit, relative to non-DBEs', holding balance sheet and to justify continuation or enactment of race-conscious con- creditworthiness information constant; tracting programs. 9. Qualitative evidence from DBEs and non-DBEs concern- At the federal level, the Adarand case established that Con- ing experiences doing business or attempting to do busi- gress must also meet strict scrutiny. To meet this test, the ness in the relevant marketplace, including experiences DBE Program was revised in 1999 based upon the necessary of institutionalized discrimination and/or individual dis- compelling interest, and narrowly tailored regulations were parate treatment, gathered through surveys, personal inter- adopted. 49 C.F.R. Part 26 describes five methods recipients views, and/or public hearings (i.e., "anecdotal evidence"); may employ to set narrowly tailored goals for their imple- 37Croson, 488 U.S., at 47980. 40 49 CFR. 26.45. 38 488 U.S. at 501. 41 We have catalogued over 300 disparity studies performed between 1989 and 39 For example, programs in New Jersey, Atlanta, Cleveland, Cook County, 2008. Of these, 39 were performed directly for state DOTs or included state Columbus, the District of Columbia, Miami, and Philadelphia were enjoined. DOTs among the agencies studied and explicitly included federally assisted DOT The State of Louisiana and the City of Milwaukee voluntarily dropped their race- contracts. Ten of these 39 have been superseded at their respective agencies by conscious contracting programs. more recent studies. See Table 2.

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13 Of the 11 elements that comprise a quality disparity study, a quality availability study focuses primarily on elements 2 through 4. Availability studies often include the business formation studies listed under number 7 above as part of the "Step 2" goal-setting procedure,43 and therefore provide compelling interest evidence in addition to their primary focus on narrow tailoring.44 Prior to Western States, some state DOTs chose to forgo the expense of conducting a full disparity study because recipients are not required to inde- pendently demonstrate compelling interest (since that has previously been established by Congress).45 Instead, some commissioned availability studies to assist their programs to become narrowly tailored by providing improved estimates Figure 1. An availability study is a of DBE availability from which to set annual DBE participa- subset of a disparity study. tion goals, as required by 49 CFR 26. To date, this approach has been upheld by the court that has addressed the issue.46 In the remainder of this chapter, we identify best practices 10. Qualitative and/or quantitative analysis of the effective- regarding if, when, why, and how state DOTs should conduct ness of race-neutral measures to address low DBE partic- disparity or availability studies rather than employ one of the ipation in public contracting; and other four methods allowed for under 49 CFR 26.45.47 These 11. Review of existing policies and procedures related to results will contribute to improved state DOT decision mak- DBE participation, with recommendations for changes/ ing and more effective implementation of the DBE Program. revisions designed to improve the effectiveness of the program and increase legal compliance. When is a Study Required? Additionally, the best studies are supervised by profession- It is neither possible nor prudent to provide definite or als who can be qualified as expert witnesses under the exact- absolute answers to the question of when or if a state DOT ing standards of the Federal Rules of Evidence to testify about should conduct a disparity or availability study since the law a disparity or availability study's data, methods, and find- in this field is constantly evolving and each state DOT's situ- ings.42 To the extent that the content of these studies largely ation is likely to be unique in several respects. With this caveat involves economics and statistics, the courts will require firmly in mind, we offer the following guidance. expert witnesses to possess professional experience and qual- Part 26 does not require state DOTs to independently ifications, such as a doctoral degree, in these fields rather than establish evidence of business discrimination within their in other tangential disciplines such as, for example, political contracting marketplace in order to satisfy the compelling science or anthropology. interest prong of constitutional strict scrutiny. The Western Closely related to the disparity study is the "availability States ruling, however, has created uncertainty about this study." This has often caused confusion about the differences, principle for Ninth Circuit state DOTs.48 if any, between the two. An availability study is a subset of a disparity study, focusing primarily on measuring the fraction of businesses in the relevant marketplace that are DBEs or 4349 C.F.R 26.45(d). 44This is because business formation studies use econometrics to answer the potential DBEs (see Figure 1). Its main purpose is to assist question of "how different would minority (or female) business formation rates federal grant recipients to meet the narrow tailoring require- be if they faced the same market structure as similarly situated non-minority ments of strict scrutiny, and it operates on the assumption that males?" If minority or female business formation rates would be statistically sig- evidence of the recipient's compelling interest in remedying nificantly larger under the nonminority male market structure, this difference can be used to quantify a "Step 2" adjustment under 49 CFR 26.45. Most econ- discrimination is not required. omists would also accept it as evidence of discrimination. See, e.g. Oaxaca (1973), Fairlie and Meyer (2000), and Wainwright (2000). 45Adarand Constructors, Inc. v. Slater, 228 F.3d 1147 (10th Cir. 2000), cert. granted, 532 U.S. 941, then dismissed as improvidently granted, 534 U.S. 103 (2001) 42Fed. Reg. Ev. 702 ("If scientific, technical, or other specialized knowledge will (Adarand VII); Sherbrooke Turf, Inc. v. Minnesota Department of Transportation, assist the trier of fact to understand the evidence or to determine a fact in issue, (8th Cir. 2003), cert. denied, 541 U.S. 1041 (2004). a witness qualified as an expert by knowledge, skill, experience, training, or edu- 46Sherbrooke Turf, Inc, 345 F.3d. at 97374. cation, may testify thereto in the form of an opinion or otherwise, if (1) the tes- 47I.e., (1) using DBE directories and Census data; (2) using bidders lists; (3) using timony is based upon sufficient facts or data, (2) the testimony is the product of the DBE goal of another U.S.DOT recipient; or (4) using other types of contrac- reliable principles and methods, and (3) the witness has applied the principles tor lists. and methods reliably to the facts of the case.") 48See Chapter One, supra, and Appendix C, infra.

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14 State DOTs in the Ninth Circuit must now gather evidence The greater the perceived likelihood of a legal challenge to of discrimination (as part of a disparity study, an availability the DBE Program, the more prudent it becomes to consider study, or through other means), if they have not already done commissioning a disparity or availability study. so, and include it as part of their annual DBE goal submis- Although we do not read the law as requiring it, if a legal sion. All nine state DOTs in the Ninth Circuit have opted to challenge does occur, being able to rely on a reasonably cur- collect such evidence by means of a disparity study. rent and high-quality disparity or availability study, and Compliance with the federal regulations and guidance, how- access to credible expert witnesses to testify about the data, ever, is only one of several considerations. First, the state DOT's methods, and findings of the study, will be a great asset to legal counsel must consider the likelihood of litigation against state DOT defendants. In Sherbrooke and Northern Contract- its implementation of the DBE Program.49 Litigation risks can ing, proffering these studies along with qualified experts to be influenced by many factors, including the following: testify about these studies' data, methods, and findings, con- tributed significantly to each agency's successful defense. The level of consensus in the local contracting community, In the Western States case, in contrast, WSDOT's DBE both DBE and non-DBE, concerning the need for and goals at the time were not based on an availability study and appropriateness of race-conscious contracting goals;50 no expert testimony was presented. In general, race-conscious The quality of relationships between the state DOT and the contracting programs supported by only an outdated study, local contracting community, both DBE and non-DBE; or a study with inadequate evidence, or no study at all, have The extent of the race-neutral aspects of the DBE Program not fared well when challenged.51 and the level of resources devoted to such efforts; There is one other circumstance in which a disparity study How vigorously the race-conscious aspects of the DBE Pro- should be considered: where all or most of a state DOT's gram are implemented and enforced; annual DBE goal is projected to be met through race-neutral The reasonableness of the current overall DBE goals; means. Although an all race-neutral program is unlikely to The reasonableness of the current contract-level DBE goals draw a constitutional challenge, it must be consistent with and the method by which they are determined; Congress' findings that discrimination still results in a lack of The reasonableness of the agency in granting waivers of equal opportunities for DBEs. Therefore, state DOTs that DBE goals when legitimate good-faith efforts to achieve the propose to wholly or mostly eliminate race-conscious con- goals proved insufficient; and tract goal setting should be confident that such an approach Whether there is a race-conscious program for state- to ensuring a level playing field is warranted by quantitative funded transportation contracts in addition to the federal and qualitative evidence of a lack of discrimination in its rel- DBE Program. evant markets, a consistent ability in the past to meet its DBE goals without race-conscious means, and a numerical goal 49It seems probable that the U.S.DOT directive and an assessment of increased that fairly reflects DBE availability. likelihood of a challenge played a role in Ninth Circuit state DOTs' decision to conduct disparity studies. 50Building and achieving consensus is important. If racial and ethnic disparities Disparity Study or Availability Study? in business enterprise emerge due to unequal business opportunities caused by discrimination, then the entire country pays a price resulting from decreased State DOTs in the Ninth Circuit would be prudent to con- competition, underdeveloped human resources, and reduced social cohesion. duct disparity studies rather than availability studies to make Marshall (1991, 10), for example, has observed that, ". . . as long as minorities and women are denied access to business opportunities, the distribution of wealth, income, and power will continue to be unfair and even to polarize, with grave consequences for the economy, polity, and society." Similarly, Fairlie and 51See, e.g., Thompson Building Wrecking Company, Inc., v. Augusta, Georgia, 2007 Meyer (1994, 12), note that U.S. Dist. LEXIS 27127 (S.D Ga. 2007) (13-year-old study not sufficient to estab- lish ongoing compelling interest, M/WBE program enjoined); Builders Associa- Understanding the ethnic/racial character of self-employment is impor- tion of Greater Chicago v. County of Cook, 256 F.3d 642 (7th Cir. 2001) (no dis- tant for at least three reasons. First, conflicts between ethnic and racial parity study or analysis); Associated Utility Contractors of Maryland, Inc. v. Mayor groups in the U.S. have often been partly caused by business ownership and City Council of Baltimore et al, 83 F.Supp.2d 613 (D. Md. 2000) (10-year-old patterns. . . . Second, self-employment has historically been a route of evidence to justify goals is equivalent to no evidence); Association for Fairness in economic advancement for some ethnic groups. . . . Third, small busi- Business, Inc. v. New Jersey, 82 F.Supp.2d 353 (D. N.J. 2000) (no evidence lead- ness owners have an important effect on political decisions in the U.S. ing to particularized findings of discrimination); W. H. Scott Construction Com- The under-representation of many ethnic/racial groups in business pany, Inc. v. City of Jackson, Mississippi, 199 F.3d 206 (5th Cir. 1999) (study means that these groups may possess less political power than is sug- addressed only prime contracts; no evidence about the availability and utiliza- gested by their proportion of the population. tion of subcontractors); Associated General Contractors of Ohio, Inc. v. Drabik, 50 F.Supp.2d 741 (S.D. Ohio 1999) (old evidence was insufficient); Associated Gen- Aronson (1991, 7677) expressed similar concerns, noting, "[h]istorically, self- eral Contractors of America v. City of Columbus, 936 F.Supp. 1363 (S.D. Ohio employment and small business ownership have been an important path by 1996) (studies rejected as invalid and incomplete); Associated General Contrac- which ethnic, racial, and religious minorities in the United States have overcome tor of Connecticut v. City of New Haven, 791 F.Supp. 941 (D. Conn. 1992) (no sta- social and cultural disabilities and entered the so-called mainstream." tistical evidence presented).

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15 sure that they have examined the type of evidence of discrim- Timing ination in their markets that establishes the need to use race- conscious measures to meet the annual DBE goal. While If a state DOT's DBE Program that is not based on a study the court in Western States clearly held that the regulations are for its annual DBE goal setting is challenged, then it may still constitutional, and the regulations are explicit in not requir- be possible in some cases to commission a study and employ ing a disparity study,52 the types of evidence listed by the the results at trial. The obvious advantage to this strategy is Ninth Circuit would be included in a disparity study but not that, if no challenge occurs, it saves the resources that would typically in an availability study.53 otherwise be expended on a study. There are at least three dis- Outside the Ninth Circuit, an availability study may be suf- advantages to not collecting independent evidence prior to a ficient to meet a state DOT's constitutional obligations under legal challenge. strict scrutiny. There are risks to this approach, however, as First, the state DOT runs the risk that the trial court will only the Eighth Circuit has relied solely upon an availability either deny the motion to supplement the record or will not study to uphold a recipient's program. Therefore, if the state allow enough time to complete the work and prepare wit- DOT believes there is a substantial likelihood of a challenge nesses before trial. Such was the case in Kossman Contracting to the DBE Program, then serious consideration should be Co., Inc. v. Texas Department of Transportation.57 The chal- given to conducting a disparity study that provides quantita- lenge to Texas' Historically Underutilized Business Program tive and qualitative evidence of discrimination. An availabil- for state-funded contracts was filed just before Christmas ity study, in contrast, generally does not present any qualita- 1999, and the judge set the trial date for mid-February 2000-- tive or quantitative evidence regarding discrimination.54 leaving insufficient time for the state to prepare its defense, If a constitutional challenge is not likely, but consensus let alone conduct a new study. As a result, TxDOT settled the regarding the DBE Program is still lacking in the local con- case by dropping race-conscious subcontracting goals and tracting community, a disparity study can still be a useful tool paying the plaintiff's legal fees and costs. for building agreement about the need for a race-conscious Second, the costs of a study procured during litigation are remedy and the scope of the remedy. If consensus exists, then likely to rise due to the time pressures involved. Nevertheless, a periodic disparity or availability study can play a role in this is preferable to going to trial with no study at all. maintaining such consensus.55 Finally, failing to gather and evaluate evidence beyond If the state as a whole (not just the state DOT) has a race- DBE directories and bidders lists risks presenting an incom- conscious M/WBE Program for state-funded transportation plete picture of the barriers to full opportunities for DBEs. contracts, then a disparity study is strongly recommended Adopting broad measures of availability, examining economy- because such a program may not be able to rely upon Congres- wide data, and gathering anecdotal evidence gives a fuller pic- sional findings of a compelling interest.56 In such cases, the mar- ture of the elements relevant to a narrowly tailored program ginal cost of expanding the scope of such a study to also include as well as provides a supportable benchmark for determining a DBE availability or disparity study should be relatively mod- the level of DBE participation in a marketplace that does not est. Therefore, it may be sensible for a state DOT to consider discriminate. This furthers the overall remedial purpose of adding a DBE study onto the state-funds disparity study. the DBE Program. 52 The "Department is not requiring recipients to do a disparity study." 64 Fed. Reg. 5110. Quality of Disparity and Availability Studies 53 407 F.3d at 9991001 (evidence of discrimination against each minority group and women in the state's marketplace, detailed availability analysis, disparity Completing a disparity or availability study before a chal- testing, anecdotal evidence, etc.). lenge is only part of the equation. The study must also be of 5449 C.F.R. 26.45 requires public input regardless of the method chosen to set sufficient breadth, depth, and quality to withstand judicial DBE goals. 55The State of Maryland, for example, under the supervision of the Maryland scrutiny. Moreover, to the extent the study is used as a tool Department of Transportation (MDOT) conducts a disparity study, by law, for consensus building, its scope and quality matter regard- every 5 years. Each study is used to revise the state's MBE Program, as well as to less of the likelihood of a challenge. provide current data to support the DBE goal-setting activities at all of MDOT's In the remaining sections of this report, we review disparity modal administrations. The study also collects feedback from DBEs and non- DBEs about the operation of the various programs. and availability studies performed for state DOTs, identifying 56Therefore, a state or local government that is setting race-conscious goals on included and excluded elements and discussing differences in non-federally funded contracts should have a disparity study documenting that how the elements have been designed and implemented. Next, such goals are based on a compelling government interest and are narrowly tai- lored to the evidence relied upon. For contracts subject to 49 C.F.R. Part 26 or we provide an overview of goal-setting methods currently in Part 23, outside the Ninth Circuit, an availability study may still suffice to use at state DOTs along with an extended discussion of our rec- demonstrate a narrowly tailored program. Since Western States, it seems clear that in the Ninth Circuit it would be prudent to supplement an availability study with evidence of discrimination. 57 C.A. No. H-99-0637 (S.D. Tex. 2000).