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79 disparity study, including data about the non-WMBE and scrutiny.324 Just as in the local government context, when WMBE contractors in the City. In producing the study, Defen- evaluating federal legislation and regulations: dant introduces evidence which raises the inference of dis- criminatory exclusion in the local construction industry and [t]he strict scrutiny test involves two questions. The first is links its public spending to that discrimination. . . . In a case whether the interest cited by the government as its reason for such as this, the party opposing the use of a remedial race clas- injecting the consideration of race into the application of law is sification must introduce credible, particularized evidence to sufficiently compelling to overcome the suspicion that racial rebut the City's initial showing of the existence of a compelling characteristics ought to be irrelevant so far as treatment by the interest.318 government is concerned. The second is whether the govern- ment has narrowly tailored its use of race, so that race-based clas- Therefore, it is not enough for a challenger to criticize the sifications are applied only to the extent absolutely required to government's evidence; it must carry its "ultimate burden of reach the proffered interest. The strict scrutiny test is thus a recog- persuading the court that the [government entity's] evidence nition that while classifications based on race may be appropriate in certain limited legislative endeavors, such enactments must be did not support an inference of prior discrimination and thus carefully justified and meticulously applied so that race is deter- a remedial purpose."319 minative of the outcome in only the very narrow circumstances to which it is truly relevant.325 Standard of Appellate Review In the wake of Adarand, Congress reviewed and revised the With one exception, the circuits that have directly addressed DBE Program statute326 and implementing regulations327 for the question have held that the proper standard of review of Federal-aid contracts in the transportation industry. To date, a facial challenge to the constitutionality of government every court that has considered the issue has found the regu- race-based decision making is de novo review.320 The DBE Pro- lations to be facially constitutional.328 gram has been reviewed under this test.321 The Eleventh Cir- We note that a recent decision from the Federal Circuit cuit, however, treated the district court's determination Court of Appeals struck down the Department of Defense of the constitutionality of the local legislation as factual (DOD) Program for Small Disadvantaged Businesses (SDBs).329 findings and therefore applied the "clearly erroneous" The program set an overall annual goal of 5% for DOD con- standard.322 tracting with SDBs. The court held that Section 1207,330 which among other race-conscious remedies provides a 10% bid pref- Strict Scrutiny as Applied to erence to SDBs, violates strict scrutiny because Congress did not have a "strong basis in evidence" before it in 2006, upon which the Disadvantaged Business to conclude that the DOD was a passive participant in racial dis- Enterprise Program crimination in relevant markets across the country. The six local We now turn to the application of strict scrutiny to the disparity studies upon which DOD primarily relied did not U.S.DOT DBE Program. In Adarand v. Pea,323 the Court meet the compelling interest prong, and in any event were not extended the analysis of strict scrutiny under the Due Process "before" Congress when it reenacted the program in 2006. Clause of the Fourteenth Amendment to federal enactments. The opinion mostly restates the current strict scrutiny stan- It overruled existing case law that held federal racial classifi- dards and reaffirms that with proper evidence, the federal gov- cations to be subject to a less rigorous standard than strict ernment can adopt a race-conscious program to remedy 318 West Tennessee Chapter of Associated Builders and Contractors, Inc. v. City of 324 Fullilove v. Klutznick, 448 U.S. 448 (1980). Memphis, 302 F.Supp.2d 860, 864 (W.D. Tenn. 2004). 325 Adarand Constructors IV, 965 F. Supp. at 15691570; see also Adarand III, 515 319Wygant, 476 U.S. at 293. U.S. at 227. 320See, e.g., Philadelphia III, 91 F.3d at 596 (whether a strong basis in evidence 326Transportation Equity Act for the 21st Century (TEA-21), Pub. L. No. 105178 exists is a question of law);. Scott. v. Jackson, 199 F.3d at 211 ("we review the (b)(1), 112 Stat. 107, 113. court's findings of fact for clear error; its conclusions of law are reviewable de 32749 C.F.R. Part 26. novo"); Drabik II, 214 F.3d at 734 ("The constitutionality of a statute is a ques- 328Adarand Constructors, Inc. v. Slater, 228 F.3d 1147 (10th Cir. 2000) (Adarand tion of law, reviewable de novo."); Northern Contracting III, 473 F.3d at 720 ("we VII), cert. granted then dismissed as improvidently granted, 532 U.S. 941, 534 U.S. review the district court's legal conclusion that IDOT's program is constitutional 103 (2001); Sherbrooke Turf, Inc. v. Minnesota Department of Transportation, 345 de novo and its factual determinations for clear error"); Adarand VII, 228 F.3d F.3d. 964 (8th Cir. 2003), cert. denied, 541 U.S. 1041 (2004); Northern Contract- at 1161; Rothe V, 262 F.3d at 1316. ing, Inc. v. Illinois Department of Transportation, 2004 U.S. Dist. LEXIS 3226 at 321Northern Contracting III, 473 F.3d at 720 ("we review the district court's legal *64 (N.D. Ill., Mar. 3, 2004) (Northern Contracting I); Western States Paving Co., conclusion that IDOT's program is constitutional de novo and its factual deter- Inc. v. Washington Department of Transportation, 407 F.3d 983, 993 (9th Cir. minations for clear error"); cf. Sherbrooke, 345 F.3d at 970 (court took a "hard 2005), cert. denied, 126 S.Ct. 1332 (2006). look at the evidence"). 329Rothe Development Corporation v. U.S. Department of Defense, 545 F.3d 1023 322Engineering Contractors II, 122 F.3d at 90304. (Fed. Cir. 2008) (Rothe VII). 323 330 515 U.S. 200 (1995) (Adarand III). 10 U.S.C. 2323.

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80 identified discrimination that is supported by a strong basis in competing for public construction contracts. The government also evidence. Since this is the standard that governs the DBE Pro- presents further evidence in the form of local disparity studies of minority subcontracting and studies of local subcontracting mar- gram, Rothe VII does not implicate or undermine Adarand VII, kets after the removal of affirmative action programs.335 Sherbrooke, Western States, or Northern Contracting. The opin- ion barely mentions those cases, let alone suggests that their Relevant evidence included: reasoning or results are wrong. Since DOD did not rely on the evidence Congress relied upon in adopting Part 26, the court Disparities between the earnings of minority-owned firms did not consider that record. Of particular relevance to our and similarly situated white-owned firms; project is that the court opined that there is no fixed time limit Disparities in commercial loan denial rates between black on the relevance of data; an agency should use the "most recent business owners compared to similarly situated white busi- available data."331 Further, regression analysis is a proper tool.332 ness owners; It noted that the six local government studies proffered by DOD The large and rapid decline in minorities' participation in were the major evidence relied upon and questioned their the construction industry when affirmative action pro- approaches to availability and "capacity." The court noted "that grams were struck down or abandoned; and a minority-owned firm's capacity and qualifications may them- Various types of overt and institutional discrimination by selves be affected by discrimination."333 The opinion pointedly made no blanket pronouncements about methodologies or prime contractors, trade unions, business networks, sup- what evidence would suffice to support Congress' legislation pliers, and sureties against minority contractors.336 for DOD. There was almost no consideration of narrow tailor- ing, which of course is the focus for state DOTs. The Eighth Circuit Court of Appeals took a "hard look" at the evidence and concluded that the legislature had: Congress Established its Compelling Interest spent decades compiling evidence of race discrimination in gov- in Remedying Discrimination ernment highway contracting, of barriers to the formation of minority-owned construction businesses, and of barriers to entry. All courts agree that the first prong of strict scrutiny is satis- In rebuttal, [the plaintiffs] presented evidence that the data were fied by the Congressional record that forms the basis for the susceptible to multiple interpretations, but they failed to present affirmative evidence that no remedial action was necessary because DBE program. "In light of the substantial body of statistical and minority-owned small businesses enjoy non-discriminatory access anecdotal material considered at the time of TEA-21's enact- to and participation in highway contracts. Thus, they failed to ment, Congress had a strong basis in evidence for concluding meet their ultimate burden to prove that the DBE program is that--in at least some parts of the country--discrimination unconstitutional on this ground.337 within the transportation contracting industry hinders minori- ties' ability to compete for federally funded contracts."334 The Tenth Circuit specifically rejected the idea that in enact- Congress' conclusion that the effects of widespread race dis- ing the DBE Program, Congress must make specific findings crimination in the construction industry must be redressed is on every possible ethnic subgroup that might be subject to supported by the record. discrimination. [T]he evidence presented by the government in the present case [B]ecause of the unreliability of racial and ethnic categories and demonstrates the existence of two kinds of discriminatory barri- the fact that discrimination commonly occurs based on much ers to minority subcontracting enterprises, both of which show broader racial classifications, extrapolating findings of discrimi- a strong link between racial disparities in the federal govern- nation against Native Americans, Asian-Pacific Americans, and ment's disbursements of public funds for construction contracts Asian-Americans to include Aleuts, Samoans, and Bhutanese, and the channeling of those funds due to private discrimination. respectively, is more a question of nomenclature than of narrow The first discriminatory barriers are to the formation of qualified tailoring. The Constitution does not erect a barrier to the govern- minority subcontracting enterprises due to private discrimina- ment's effort to combat discrimination based on broad racial clas- tion, precluding from the outset competition for public con- sifications that might prevent it from enumerating particular eth- struction contracts by minority enterprises. The second discrim- nic origins falling within such classifications.338 inatory barriers are to fair competition between minority and non-minority subcontracting enterprises, again due to private discrimination, precluding existing minority firms from effectively 335 Adarand VII, 228 F.3d at 116768. 336 Western States, 407 F.3d at 99293. 337Sherbrooke Turf, 345 F.3d. at 970; see also Adarand VII, 228 F.3d at 1175 (Plain- 331545 F.3d at 1039. tiff has not met its burden "of introducing credible, particularized evidence to 332Id. at 1043. rebut the government's initial showing of the existence of a compelling interest in 333Id. at 1045. remedying the nationwide effects of past and present discrimination in the fed- 334Western States, 407 F.3d at 993; see also Sherbrooke Turf, 345 F.3d. at 969; eral construction procurement subcontracting market."). Adarand VII, 228 F.3d at 1176; Northern Contracting III, 473 F.3d at 721. 338 Adarand VII, 228 F.3d at 118586.

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81 It is important to note that courts have recognized that evi- ulations place strong emphasis on the use of race-neutral means dence beyond the results of the DBE Program is probative of to achieve minority and women participation. Relying upon whether a recipient would be a passive participant in discrimi- Grutter v. Bollinger, the Eighth Circuit held that while "[n]arrow nation without affirmative action measures. "Furthermore, we tailoring does not require the exhaustion of every conceivable may consider public and private discrimination not only in the race-neutral alternative . . . it does require serious, good faith specific area of government procurement contracts but also in consideration of workable race-neutral alternatives."344 the construction industry generally; thus, any findings Congress The DBE Program is also flexible. Eligibility is limited to has made as to the entire construction industry are relevant."339 small firms owned by persons whose net worth is less than $750,000. There are built-in Program time limits, and the state DOT may terminate the use of any race-conscious meas- DBE Regulations are Facially Narrowly Tailored ures if it meets its annual overall goal through race-neutral Next, the regulations meet the second prong of strict means for two consecutive years. Moreover, the authorizing scrutiny. Unlike the prior program,340 Part 26 is facially nar- legislation is subject to Congressional reauthorization that rowly tailored because: will ensure periodic public debate. Next, the goals are tied to the relevant market. "Though the The overall goal must be based upon demonstrable evi- underlying estimates may be inexact, the exercise requires the dence of the number of DBEs ready, willing, and able to States to focus on establishing realistic goals for DBE partici- participate on the recipient's federally assisted contracts. pation in the relevant contracting markets. This stands in The goal may be adjusted to reflect the availability of DBEs stark contrast to the program struck down in Croson."345 but for the effects of the DBE Program and of discrimination. Finally, Congress has taken significant steps to minimize The recipient must meet the maximum feasible portion of the race-conscious nature of the program. "[W]ealthy minor- the goal through race-neutral measures as well as estimate ity owners and wealthy minority-owned firms are excluded, that portion of the goal it predicts will be met through such and certification is available to persons who are not presump- measures. tively [socially] disadvantaged but can demonstrate actual The use of quotas and set-asides is limited only to those sit- social and economic disadvantage. Thus, race is made rele- uations where there is no other remedy. vant in the program, but it is not a determinative factor."346 The goals are to be adjusted during the year to remain nar- Nonminority males are not unduly burdened by the Pro- rowly tailored. gram. "Implementation of the race-conscious contracting Absent bad-faith administration of the program, a recipi- goals for which TEA-21 provides will inevitably result in bids ent cannot be penalized for not meeting its goal. submitted by non-DBE firms being rejected in favor of higher The presumption of social disadvantage for racial and eth- bids from DBEs. Although this places a very real burden on nic minorities and women is rebuttable, "wealthy minor- non-DBE firms, this fact alone does not invalidate TEA-21. If ity owners and wealthy minority firms are excluded, and it did, all affirmative action programs would be unconstitu- certification is available to persons who are not presump- tional because of the burden upon non-minorities."347 tively disadvantaged but can demonstrate actual social and Challenges to the DBE program require more than vague economic disadvantage."341 attacks or unsupported speculation about other possible out- Anyone can challenge the disadvantage of any firm.342 comes and methodologies for narrow tailoring. While plaintiff: Each firm's owner is regularly reviewed to ensure that his or her economic disadvantage has not exceeded the per- presented evidence attacking the reliability of [the Availability Study's] data, it failed to establish that better data was [sic] avail- sonal net worth limit.343 able or that Mn/DOT was otherwise unreasonable in undertaking Exemptions and waivers from any or all Program require- this thorough analysis and in relying on its results. The precipitous ments are available. drop in DBE participation in 1999, when no race-conscious meth- ods were employed, supports Mn/DOT's conclusion that a sub- These elements have led the courts to conclude that the DBE stantial portion of its 2001 overall goal could not be met with race- Program meets the second prong of strict scrutiny. First, the reg- neutral measures, and there is no evidence that Mn/DOT failed to adjust its use of race-conscious and race-neutral methods as the year progresses, as the DOT regulations require.348 339Id. at 116667. 34049 C.F.R. Part 23. 341Sherbrooke Turf, 345 F.3d. at 973. 344 Sherbrooke Turf, 345 F.3d. at 972. 34249 C.F.R. 26.87. 345 Id. 343See Adarand VII, 228 F.3d at 118687 ("The current regulations more precisely 346Id. at 973. identify the proper minority recipients of DBE certification by periodically 347Western States, 407 F.3d at 995. rescreening for economic disadvantage all candidates for such certification."). 348 Id.