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A handful of lawsuits challenging the constitutionality of workforce goals in federal construction contracts could make it harder for underrepresented groups to qualify for these lucrative jobs in 2024.
Lawsuits have multiplied following the US Supreme Court landmark Students for Fair Admissions a ruling last year that effectively banned race-based affirmative action admissions decisions at universities.
One lawsuit has already been successful in bringing changes to the Small Business Administration’s 8(a) program, which was established in 1978 and is designed to help socially and economically disadvantaged business firms participate in federal contracts.
Another lawsuit targets the DOT’s Disadvantaged Business Enterprise Program, which former President Ronald Reagan signed into law in 1983. In 2021, President Joe Biden reauthorized that legislation, which sets a goal of awarding at least 10% of federally contracted project funds to DBEs. , when he signed the Investment in Infrastructure and Employment Law.
But now, because both programs designate specific groups they’re trying to help, just as affirmative action policies designated black applicants in college admissions, their legal situation has become more awkward, they say construction experts.
Chris Slottee
Courtesy of Schwabe
“This Supreme Court decision really provided a template,” said Chris Slottee, a Schwabe attorney in Anchorage, Alaska, who represents Alaska Native corporations in federal procurement. “The argument is this [these programs represent] unconstitutional racial discrimination”.
“Rebuttable Presumption”
In the SBA case, known as Ultima Services Corp. v. US Dept. of Agriculturea white businesswoman successfully argued that the agency’s 8(a) program violated her Fifth Amendment equal protection rights, because she was excluded from the designated groups for which the program was established.
That challenge, filed in the U.S. District Court for the Eastern District of Tennessee, was based on the legal concept of a “rebuttable presumption” of who was qualified to participate in the programs in the first place, Slottee said.
For example, the SBA’s 8(a) program previously assumed this certain groups were economically disadvantaged. These included Black Americans, Hispanic Americans, Native Americans, Asian and Pacific Americans, and other minorities. Thus, someone from one of these groups would have automatically qualified, based on their race or ethnicity.
But the last decision, which came out in July, a few weeks after the Students for Fair Admissions decision, forced SBA to modify its 8(a) requirements. Inclusion based on these presumptions is no longer a given. Instead, applicants must now tell the agency why they should qualify.
“They require certain disadvantaged social narratives to come forward,” Slottee said, noting that the change caused a temporary slowdown in the processing of applications as the agency altered its process. “I think it will definitely make it harder because there will be an extra step that people will have to take to prove social disadvantage.”
Pointing to the DOT
A separate suit, known as Mid-America v. US Department of Transportationfiled in October in the US District Court for the Eastern District of Kentucky, takes direct aim at DOT’s DBE program.
Similar to the success argument last used against the SBA, posits that the DOT program violates the Equal Protection Clause of the Fifth Amendment, due to its rebuttable presumption criteria. In addition to the groups designated by the 8(a) program, DOT’s DBE program specifically includes women.
The lawsuit was filed by the Wisconsin Institute for Law & Liberty, a conservative think tank focused on free market policy. The group represents Mid-American Milling Co., based in Jeffersonville, Ind., and Bagshaw Trucking, based in Memphis, Ind., two highway contractors.
In the complaintthe two companies claim they have been discriminated against because the goals of the DBE program prevent them from competing for contracts on an equal footing “with businesses owned by women and certain racial minorities.”
The suit argues that “non-designated racial groups, such as white Americans or Middle Easterners, are excluded and therefore disadvantaged, apparently having been considered ‘advantages.'” Both companies claim they have lost in specific federally funded contracts, despite being the highest bidder, to DBE companies by race and gender.
Justin Chiarodo, a government contracts attorney in Blank Rome’s Washington, DC office, said oral arguments in the case would likely depend on the companies showing specific instances where they were discriminated against because of the DBE program.
But he also said the lawsuit could force the DOT’s hand to do the same: prove actual cases of discrimination against the program’s own participants, an aspect previously assumed under a rebuttable presumption.
From this perspective, one result could be that applicants need to document histories of racism, discrimination or exclusion, just as the SBA now requires narratives of social disadvantage.
“The programs are meant to address cases where these people were racially discriminated against,” Chiarodo said. “I think it’s about the evidentiary showing that agencies can make to prove actual discrimination.”
Fourth generation success
But Wendell Stemley, national president of the National Association of Minority Contractors, which advocates for minority access to contracts and has criticized the DBE’s goals as lacking enforcement teeth, said. Middle America approach could also be counterproductive.
For example, WILL issued a press release when he filed the lawsuitnoting that Mid-America was a fourth-generation company and that Bagshaw Trucking had grown from two employees in 1982 to one of the largest fleets of trucks in Northern Kentucky.
Stemley noted that companies were able to achieve this success despite 10% DOT DBE targets or 20% targets in other government contracts.
“That means 80 percent of the work is still in the open market, and obviously because these guys have been in the business for four generations, that 80 percent has served them very well,” Stemley said. “That argument, to me, is a little off base, because most of us would turn around to have a fourth-generation company.”
Taking IIJA
A third case, Nuziard v. Minority Business Development Agencyit was already successful last year in obtaining a preliminary injunction against the MBDA, which was established through the IIJA to help minority businesses.
The lawsuit, filed in the United States District Court for the Northern District of Texas, argued that certain MBDA programs were racially discriminatory because they were only available to socially or economically disadvantaged individuals.
A judge granted the injunction in June, effectively barring three of MBDA’s offices from using race or ethnicity to determine eligibility for agency services or benefits. The MBDA did not appeal the decision. Instead, he answered the complaint and sought summary judgment in the case, which is still pending.
Sentencing expected this year
Whatever the final results of these cases Slottee said the combined impacts of the suits cannot be overstated. He awaits a sentence at Middle America case sometime this year.
“The question is, what kind of order would the court issue and how broad would it be?” Slottee said. “More importantly, what will the federal government’s response be? We know there will be some downstream impacts, we just don’t know what they will be.”
