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DBEs may be smaller, newer, and otherwise less competi- minority groups for which insufficient evidence is found of dis-
tive because of the very discrimination sought to be reme- crimination from DBE goal credit.398
died by the adoption of the program. It is simply wrong to At a minimum, Western States counsels that Ninth Circuit
use the outcomes of discrimination as the measure of a state DOTs must significantly customize their goals to with-
race-neutral market.394 stand strict scrutiny. It is not enough to plug the Step 1 avail-
· The disparity between the estimated 11.17% DBE avail- ability estimate into a formula without consideration of the
ability and the actual 9% utilization of DBEs on contracts effects of discrimination on the analysis. While the opinion
without goals is not "small." In fact, this disparity is 0.8, affirms that the Step 2 adjustment is the appropriate point at
which would be considered "large," or "substantively sig- which to undertake this inquiry, a conceptually rigorous model
nificant," or "constitutionally significant" pursuant to, for must be applied. That does not mean that an adjustment is
example, the Equal Employment Opportunity Commis- always warranted or supportable, but there must be evidence
sion's four-fifths rule.395 and discussion of discrimination in the goal setting submis-
sion. The court's analysis also casts doubt on the value of using
Given the Ninth's Circuit's reliance on Sherbrooke, what the recipient's past levels of DBE utilization as a measure of the
WSDOT lacked was the type of expert statistical evidence pre- availability of DBEs "but for" discrimination. In any event, any
sented by Mn/DOT in support of its program.396,397 The Mn/ adjustment undertaken must be statistically valid. It must be a
DOT Availability Study provided a comprehensive, market- quantifiable representation of the qualitative judgment that the
wide estimate of DBE availability weighted by the geographic ongoing effects of past or current discrimination either do or
and products markets in which Mn/DOT did business. This do not continue to impede DBEs' full and fair access to the
addresses the Ninth Circuit's concern that DBEs may not be recipient's market.
located where WSDOT's prime contractors awarded subcon- If WSDOT had presented a Sherbrooke-type study and
tracts. The study further provided a detailed Step 2 analysis of proffered expert testimony in support of its analysis, the court
statistical disparities in DBEs' formation and earnings relative may very well have approved the program. Whether addi-
to similarly situated non-DBEs and summarized the anecdotal tional evidence of discrimination should be included in a dis-
evidence extant in that jurisdiction. Thus, the Sherbrooke court parity study for Ninth Circuit state DOTs is not clear. While
reviewed ample targeted evidence of DBEs' availability to per- the court suggests disparity study evidence is required, it also
form on Mn/DOT's contracts and subcontracts as well as evi- clearly relied upon cases where such evidence was not pre-
dence of the discriminatory barriers those firms face in pur- sented. The Ninth Circuit's misreading of a previous Seventh
suing those contracts and subcontracts. Circuit case399 led it to reject the proposition that meeting the
Western States implies that when a recipient determines that requirements of a constitutional federal mandate by a recip-
not all the enumerated groups have suffered discrimination in ient is sufficient. Perhaps the Seventh Circuit's clarification,
its market, it must petition U.S.DOT for a waiver of the prohi- discussed below, of this misreading will affect the outcome of
bition against separate goals for racial and ethnic minorities and a future challenge to a Ninth Circuit grantee's program.
white women. Waivers to remove some racial or ethnic groups
or white women from credit toward meeting DBE contract goals Additional Evidence
have been filed by at least two state DOTs. The court's concern of Discrimination
about the application of TEA-21's "laundry list" of racial and
ethnic minorities to particular markets suggests that serious con- Past Utilization of DBEs on State DOT Contracts
sideration must be given to a waiver petition to permit the use of
Past utilization of DBEs on department contracts is useful
subcontracting goals that exclude DBEs owned by members of
in suggesting a "floor" of the availability of DBEs in that the
award of prime contracts and subcontracts without doubt
394See, e.g., Concrete Works VII, 321 F.3d at 981, 983 ("M/WBE construction firms
means the DBEs are "ready, willing and able." Utilization can
are generally smaller and less experienced because of discrimination. . . . Addi- also form the basis for an analysis of whether there remain
tionally, we do not read Croson to require disparity studies that measure whether statistically significant disparities between the availability of
construction firms are able to perform a particular contract.") (emphasis in the
original).
39529 C.F.R. § 1607.4(d).
396"Both Minnesota and Nebraska had hired outside consulting firms to conduct 398407 F.3d at 998 ("We have previously expressed similar concerns about the
statistical analyses of the availability and capacity of DBEs in their local markets, haphazard inclusion of minority groups in affirmative action programs ostensi-
and the Eighth Circuit relied upon those studies to hold that the states' DBE Pro- bly designed to remedy the effects of discrimination. . . . The overly inclusive des-
grams independently satisfied strict scrutiny's narrow tailoring requirement." ignation of benefited minority groups was a `red flag' that the legislation is not
407 F.3d at 997. narrowly tailored.").
397To its credit, WSDOT had commissioned such a study during the litigation, 399Milwaukee County Pavers Ass'n v. Fiedler, 922 F.2d 419, 424 (7th Cir. 1991),
which formed the basis for its FFY 2006, 2007, and 2008 DBE goal submissions. cert. denied, 500 U.S. 954 (1991).
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minority- and women-owned firms and the utilization of ularly persuasive" was evidence that M/WBE participation
such firms in the department's contracting activities. "Where declined significantly when the program was amended in
there is a significant statistical disparity between the number 1989. The "utilization of M/WBEs on City projects has been
of qualified minority contractors willing and able to perform affected by the affirmative action programs that have been in
a particular service and the number of such contractors actu- place in one form or another since 1977. Thus, the non-goals
ally engaged by the locality or the locality's prime contrac- data is [sic] the better indicator of discrimination in public
tors, an inference of discriminatory exclusion could arise."400 contracting" and supports the position that discrimination
This is known as the "disparity index" or "disparity ratio." was present before the enactment of the ordinances.404
This index is calculated by dividing the utilization of M/W/ While § 26.45(d) clearly defines "capacity" as past utiliza-
DBEs by the availability of M/W/DBEs. Courts have looked tion, some agencies have added a gloss of "capacity analysis"
to disparity indices in determining whether Croson's eviden- to lower the Step 1 base figure.405 They note that DBEs are
tiary foundation is satisfied.401 An index less than 100% indi- often smaller and newer than established white male-owned
cates that a given group is being utilized less than would be businesses406 and may lack the qualifications needed for DOT
expected based on its availability. work (prior DOT track record, high bonding capacity, own-
The government need not prove that the statistical infer- ership or long term leases of equipment, existing union agree-
ences of discrimination are "correct." For example, in uphold- ments, etc.). The agency therefore lowers the remedial goal to
ing Denver's M/WBE Program, the Tenth Circuit noted that reflect the "real world" effects of discrimination.407
strong evidence supporting Denver's determination that The Ninth Circuit has further confused the issue by reject-
remedial action was necessary need not have been based upon ing the only type of "capacity" marker required to be consid-
"irrefutable or definitive" proof of discrimination. Statistical ered by the regulations it held to be constitutional: past state
evidence creating inferences of discriminatory motivations DOT DBE utilization. WSDOT argued that DBE capacity
was sufficient and therefore evidence of marketplace discrim- should reflect the relationship between its Step 1 availability
ination was properly used to meet strict scrutiny. It is the estimate and its past utilization. The court, however, held that
plaintiff who must prove by a preponderance of the evidence was "no evidence of discrimination" because utilization was
that such proof does not support those inferences.402 affected by the imposition of DBE contract goals.408
That DBEs are utilized on the agency's contracts at greater
percentages than the Step 1 headcount does not end the DBE "Capacity"
inquiry into whether discrimination still creates barriers to
equal contracting opportunities. Where the government has Some cases have stated that DBE "capacity," usually as meas-
been implementing affirmative action remedies like the long- ured by firm size, number of contracts awarded, etc., must be
standing U.S.DOT DBE Program, DBE utilization reflects controlled for to determine availability. For example, the Ninth
those efforts; it does not signal the end of discrimination. In Circuit rejected the disparity between DBE availability and
denying the plaintiff's motion for summary judgment against WSDOT's utilization because the availability measure did not
the IDOT's program, the court was "convinced that the rela- statistically control for "factors that may affect the relative
tively high (or appropriately high) level of DBE participation capacity of DBEs to undertake contracting work. Indeed, the
on goals contracts has resulted not from a lack of discrimina- fact that DBEs constitute 11.17% of the Washington market
tion, but from the success of IDOT's DBE Program. . . . Plain- does not establish that they are able to perform 11.17% of the
tiff presented no persuasive evidence contravening the con-
clusions of IDOT's studies."403
404Concrete Works IV, 321 F.3d at 98788; see also Western States, 407 F.3d at 992;
Likewise, the Tenth Circuit held that Denver's overutiliza-
Hershell Gill Consulting Engineers, Inc. v. Miami-Dade County, Florida,
tion of M/WBEs on city projects with goals went only to the 333 F.Supp.2d 1305, 1318 (S.D. Fla. 2004) ("[The court] will keep the potential
weight of the evidence because it reflected the effects of a effect of the MWBE programs in mind when analyzing the evidence presented
remedial program. Denver presented evidence that goals and by the County").
405But cf. Western States, 407 F.3d at 1000 (rejecting WSDOT's upward capacity
nongoals projects were similar in purpose and scope and that adjustment as influenced by the operation of the program goal).
the same pool of contractors worked on both types. "Partic- 406See, e.g., the 2002 Survey of Business Owners, Geographic Area Series:
Economy-Wide Estimates of Business Ownership by Gender, Hispanic or
Latino Origin, and Race: 2002 (available online at http://factfinder.census.gov/
servlet/IBQTable?_bm=y&-geo_id=D&-ds_name=SB0200A1&-_lang=en, and
400 Croson, 488 U.S. at 509; see Webster, 51 F.Supp.2d at 1363, 1375. http://factfinder.census.gov/servlet/IBQTable?_bm=y&-geo_id=&-fds_name=
401 Scott, 199 F.3d at 218; Concrete Works II, 36 F.3d at 15261527; O'Donnell v. EC0200A1&-ds_name=SB0200CSCB01&-_lang=en.)
District of Columbia, 963 F.2d at 426; Cone Corp. v. Hillsborough County, 908 F.2d 407For example, Maine DOT lowered its FFY 2008 goal by the percentage of DBEs
908, 916 (11th Cir. 1990), cert. denied, 498 U.S. 983 (1990). that reported difficulties with obtaining bonding or cash flow or other business
402Concrete Works IV, 321 F.3d at 971. issues, based on its interpretation of § 26.45(d)(2)(i).
403 408
Northern Contracting II, 2004 U.S. Dist. Lexis at *81. Western States, 407 F.3d at 1000.
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work."409 Rothe VII likewise discusses the lack of capacity con- Moreover, the construction industry--by far the most
trols as problematic for the six local studies relied upon by common target of M/W/DBE challenges--is particularly elas-
DOD, although it does not refer to Western States.410 Neither tic, such that any firm's "capacity" today is not its "capacity"
court addressed opinions that reject using the effects of dis- tomorrow, as the award of new contracts, the completion of
crimination, that is, DBEs' size and experience, as "neutral" existing projects, and the ability to employ temporary workers
outcomes. There is also no discussion of the effects of the pro- and rent equipment make the ability to perform a contract
gram on DBE "capacity" (that is, supply) by creating more impossible to determine. "At trial, Denver introduced evidence
opportunities to work (that is, demand) by the application of that the median number of employees of all construction firms
contract goals. in the Denver MSA is three and presented testimony that even
Northern Contracting II and III, the most recent decisions firms with few permanent employees can perform large, pub-
examining the DBE program, cut through this analytical fog. lic contracts by hiring additional employees or subcontractors
The trial court accepted the testimony of IDOT's expert that and renting equipment."414 In fact, at least one court has noted
capacity measures are themselves reflective of discrimina- that the plaintiff in the case was a "small firm whose only
tion.411 The Seventh Circuit agreed: lack of DBE "capacity" employee other than the owner is the secretary."415
reflects the taint of discrimination; it is not an argument for If WSDOT and DOD had presented expert testimony on
limiting the cure. Size, longevity, bonding limits, past bidding proper statistical modeling, the elasticity of the construction
history, etc. have been affected and reduced by the discrimi- industry, and business formation and earnings and credit mar-
nation the legislation seeks to cure, and therefore cannot be ket disparities, in conjunction with anecdotal testimony,416 then
used to dilute the remedy. The court agreed with IDOT that perhaps those programs would likewise have met strict scrutiny.
"such discrimination indirectly affects the ability of DBEs to
compete for prime contracts, despite the fact that they are Unremediated Markets Data
awarded solely on the basis of low bid, cannot be doubted."412
Proper statistical analysis should not control for the variables It is critical to measure the participation of minority- and
affected by the behavior sought to be isolated. women-owned firms in the absence of affirmative action goals,
As recognized by the Tenth Circuit in the Denver case, if such evidence is available. Evidence of race and gender dis-
while there was: crimination in relevant "unremediated"417 markets provides an
important indicator of what level of actual DBE participation
uncontroverted evidence that M/WBEs are generally smaller and can be expected in the absence of government-mandated affir-
less experienced than majority firms . . . M/WBE construction mative efforts to contract with M/W/DBEs.418 For example, in
firms are generally smaller and less experienced because of dis- finding that Congress had strong evidence of discrimination in
crimination. In addition, Denver's expert . . . testified that dis- the construction industry, the Tenth Circuit noted that:
crimination by banks or bonding companies would reduce a
firm's revenue and the number of employees it could hire. . . .
The government presents powerful evidence that "[a]ll too
Additionally, we do not read Croson to require disparity studies
often, contracting remains a closed network, with prime contrac-
that measure whether construction firms are able to perform a
tors maintaining long-standing relationships with subcontractors
particular contract. . . . Based on the uncontroverted evidence
presented at trial, we conclude that the district court did not give
sufficient weight to Denver's disparity studies because of its erro-
neous conclusion that the studies failed to adequately control for 414Id.
size and experience. Denver is permitted to make assumptions 415North Shore v. City of New York, 1998 U.S. Dist. Lexis 6785 at *25 ("plaintiff
about capacity and qualification of M/WBEs to perform con- North Shore is a small firm whose only employee other than the owner is a sec-
struction services if it can support those assumptions. The retary. It, however, has bid on projects worth over $1 million, including the [con-
assumptions made in this case are consistent with the evidence tract] which is at issue in this litigation").
416Concrete Works IV, 321 F.3d at 981 (anecdotal testimony about discrimination
presented at trial and support the City's position that a firm's size
does not affect its qualifications, willingness, or ability to per- bolstered the statistical evidence); Northern Contracting II, 2004 U.S. Dist. Lexis
at *76 ("The results of these [statistical] studies were consistent with the testi-
form construction services and that the smaller size and lesser
mony of DBE owners.").
experience of M/WBEs are, themselves, the result of industry 417"Unremediated market" means "markets that do not have race- or gender-
discrimination.413 conscious subcontracting goals in place to remedy discrimination." Northern
Contracting II, at *36.
418See, e.g., Western States, 407 F.3d at 992 (Congress properly considered evidence
409 Id. of the "significant drop in racial minorities' participation in the construction
410 545 F.3d at 1043. industry" after state and local governments removed affirmative action provi-
411Northern Contracting II, 2004 U.S. Dist. Lexis at *76 ("IDOT presented an sions); Adarand VII, 228 F.3d at 1186 (evidence included "studies of local sub-
array of statistical studies concluding that DBEs face disproportionate hurdles in contracting markets after the removal of affirmative action programs"); H.B.
the credit, insurance, and bonding markets."). Rowe, Inc. v. Tippett, 2008 U.S. Dist. LEXIS 100569, * 25 (E.D. N.C. 2008) ("evi-
412Id. at *77. dence relied upon by the legislature demonstrated a dramatic decline in the uti-
413
Concrete Works IV, 321 F.3d at 981, 983. lization of MBEs during the program's suspension").
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with whom they prefer to work. Because minority owned firms are contracts and the channeling of those funds due to private dis-
new entrants to most markets, the existence and proliferation of crimination. The first discriminatory barriers are to the forma-
these relationships locks them out of subcontracting opportuni- tion of qualified minority subcontracting enterprises due to pri-
ties. As a result, minority-owned firms are seldom or never invited vate discrimination, precluding from the outset competition for
to bid for subcontracts on projects that do not contain affirmative public construction contracts by minority enterprises. The sec-
action requirements."419 ond discriminatory barriers are to fair competition between
minority and non-minority subcontracting enterprises, again
The courts are clear that the government has a compelling due to private discrimination, precluding existing minority firms
from effectively competing for public construction contracts.425
interest in not financing the evil of private prejudice with
public dollars.420 If DBE utilization is below availability in
Thus, if DBEs are suffering discrimination in the private
unremediated markets, an inference of discrimination may
markets, the government has an interest in ensuring that it
be supportable. The virtual disappearance of M/W/DBE par-
ameliorates this pattern to the best of its abilities in its own
ticipation after programs have been enjoined or abandoned
contacting activities. In holding that the City of New Haven's
strongly indicates substantial barriers to minority subcon-
M/WBE Program lacked a sufficient evidentiary basis, the
tractors, "raising the specter of racial discrimination."421 This
court noted that:
analysis addresses whether the government has been and con-
tinues to be a "passive participant" in such discrimination, in [w]hat is lacking is information which would suggest that a rea-
the absence of affirmative action remedies.422 sonable level of minority contract awards would not continue,
The results of nongoals contracts can help to demon- absent a set aside. For example, statistics or other evidence might
strate that, but for the interposition of remedial affirmative show that a level of private contracts commensurate with the
action measures, discrimination would lead to disparities in number of MBEs/WBEs available and able to do the work are not
and/or will not be awarded to them now or in the future. By pro-
government contracting. The "dramatic decline in the use of ducing evidence that MBEs and WBEs attempted to win private
M/W/DBEs when an affirmative action program is terminated, contracts and were systematically rejected despite their bids hav-
and the paucity of use of such firms when no affirmative action ing been the lowest, the city might have shown that discrimina-
program was ever initiated," was proof of the government's tion exists and, thus, that the need for a set aside existed. There
was some evidence that in 198788 WBEs and MBEs received
compelling interest in employing race- and gender-conscious
only 17% and 27%, respectively, of their income from private
measures.423 Evidence of unremediated markets "sharpens the contracts. Though it has not been shown if private contracts
picture of local market conditions for MBEs and WBEs."424 exceed, in dollar amount, public contracts, MBEs and WBEs
would not seem to be getting contracts from the private sector in
any proportion close to the percentage of their participation in
Economy-Wide Utilization of DBEs public contracts. Without set asides, it could then be argued that
contractors on public contracts will award subcontracts more
In addition to data for other governments' utilization of closely following patterns of private subcontract awards in pri-
DBEs in the absence of affirmative remedies, courts have held vate contracts, i.e., at a lower rate to MBEs and WBEs, perhaps
that evidence of discriminatory barriers in the private sector so low as to constitute the requisite disparity. Such a practice, and
or economy-wide activities is relevant. likelihood in the future, however, is not established in the
record.426
[T]he evidence presented by the government in the present case
demonstrates the existence of two kinds of discriminatory bar- Economy-wide evidence has consisted of various types. Bar-
riers to minority subcontracting enterprises, both of which riers to the formation of DBE subcontractors have included the
show a strong link between racial disparities in the federal following:
government's disbursements of public funds for construction
· Exclusion from "good old boy" networks, often the result of
several generations of family participation in the industry;
419 Adarand VII, 228 F.3d at 1170 (quoting The Compelling Interest, 61 Fed. Reg,
· Barriers to union membership; and
26,058, nn.9899).
420See, e.g., Drabik, 214 F.3d at 734735. · Race-based denial of access to start-up and working
421Adarand VII, 228 F.3d at 1174; cf. AGC v. New Haven, 791 F.Supp. at 947 ("The
capital.427
record does not reflect whether the existing MBEs and WBEs will be able to attract
and obtain business on the basis of relevant competitive criteria, such as price,
quality, reliability, without being excluded on the basis of discrimination. What
is lacking is the information which would suggest that a reasonable level of minor- 425Adarand VII, 228 F.3d at 116768.
ity contract awards would not continue, absent a set aside."). 426AGC v. New Haven, 791 F.Supp at 947.
422See also Philadelphia III, 91 F.3d at 599601. 427Id, at 116870, n.13 (While "[l]ending discrimination alone of course does not
423BAGC v. Chicago, 298 F. Supp.2d at 737; see also Concrete Works IV, 321 F.3d justify action in the construction market . . . discrimination, which is already
at 987988. unlawful under federal law, supports the assertion that the formation, as well as
424
Concrete Works II, 36 F.3d at 1529. utilization, of minority-owned construction enterprises has been impeded.").
