Adarand Constructors, Inc. v. Pena

• Decision Date: 16 February 1994
• Docket Number: No. 92-1242,92-1242
• Citation: 16 F.3d 1537
• Parties: 65 Empl. Prac. Dec. P 43,366 ADARAND CONSTRUCTORS, INC., a Colorado corporation, Plaintiff-Appellant, v. Federico PENA, Secretary of Department of Transportation; Thomas D. Larson, Administrator of the Federal Highway Administration; Louis N. MacDonald, Administrator of Region VIII of the Federal Highway Administration; and Jerry Budwig, Division Engineer of the Central Federal Lands Highway Division, Defendants-Appellees.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1537

16 F.3d 1537

65 Empl. Prac. Dec. P 43,366

ADARAND CONSTRUCTORS, INC., a Colorado corporation, Plaintiff-Appellant, v. Federico PENA, Secretary of Department of Transportation;

Thomas D. Larson, Administrator of the Federal Highway

Administration; Louis N. MacDonald, Administrator of Region

VIII of the Federal Highway Administration; and Jerry

Budwig, Division Engineer of the Central Federal Lands

Highway Division, Defendants-Appellees.

No. 92-1242.

United States Court of Appeals, Tenth Circuit.

Feb. 16, 1994.

William Perry Pendley, Mountain States Legal Foundation (Todd S. Welch, John G. Nelson, with him on the brief), Denver, Colorado, for plaintiff-appellant.

Lisa J. Stark, Attorney, Civil Rights Division, United States Department of Justice (James P. Turner, Acting Assistant Attorney General, David K. Flynn, Lisa C. Wilson, Attorneys, Civil Rights Division, United States Department of Justice, on the brief), Washington, D.C., for defendants-appellees.

Before HOLLOWAY, GARTH ^* and McKAY, Circuit Judges.

GARTH, Circuit Judge.

This appeal involving a reverse discrimination challenge requires us to review the constitutionality of a federal program designed to provide contract awards for disadvantaged business enterprises.

Appellant Adarand Constructors, Inc. ("Adarand") appeals an order of the district court granting summary judgment in favor of the Government appellees [hereinafter "Government"]. 790 F.Supp. 240. On appeal, Adarand raises three arguments. First, it argues that the district court erred in holding that the proper standard to be applied is found in Fullilove v. Klutznick, 448 U.S. 448, 100 S.Ct. 2758, 65 L.Ed.2d 902 (1980), rather than in City of Richmond v. J.A. Croson, Co., 488 U.S. 469, 109 S.Ct. 706, 102 L.Ed.2d 854 (1989).

Second, relying on Croson, Adarand asserts that the Central Federal Lands Highway Division (CFLHD) must make specific findings of past discrimination in order to justify its reliance on the disadvantaged business enterprise (DBE) program which furnishes the necessary criteria for the federal agency's implementation of a race-conscious subcontracting compensation clause ("the SCC program").

Third, Adarand contends that section 502 of the Small Business Act, 15 U.S.C. Sec. 644(g), which provides the statutory authorization for the challenged SCC program, is unconstitutional as applied because it impermissibly delegates to federal agencies the authority to develop minority-participation goals and the means for achieving those goals.

Our jurisdiction is invoked under 28 U.S.C. Sec. 1291, and we affirm the district court's judgment of April 21, 1992 for the Government. We do so, however, on grounds different from those relied upon by the district court. ¹

I.

Adarand, a highway construction company run by a white male, sought declaratory and permanent injunctive relief against officials of the federal Department of Transportation (DOT) and other DOT officials on the grounds that the SCC program utilized by the CFLHD violates the equal protection guarantees of the Fifth and Fourteenth Amendments and the privileges and immunities guaranteed by 42 U.S.C. Sec. 1983 and 42 U.S.C. Sec. 2000d (Title VI). ² Adarand's complaint erroneously alleged that the statutory authorization for the SCC program was provided by two transportation assistance acts: the Surface Transportation Assistance Act of 1982, Pub.L. No. 97-424, Sec. 105(f), 96 Stat. 2097, 2100 (STAA), and its successor, the Surface Transportation and Uniform Relocation Assistance Act of 1987, Pub.L. No. 100-17, Sec. 106(c), 101 Stat. 132, 145 (STURAA). Both Adarand and the Government filed cross motions for summary judgment with the district court. The district court also mistakenly determined that the challenged program was authorized by STAA and STURAA. For purposes of this appeal, both parties stipulate that the SCC program is authorized by section 502 of the Small Business Act, 15 U.S.C. Sec. 644(g), and that the constitutionality of STAA and STURAA is not at issue.

A.

The Small Business Act provides the statutory authority for agencies to establish specific utilization goals for disadvantaged small businesses. 15 U.S.C. Sec. 644(g). In compliance with section 502 of the Small Business Act, the heads of the various federal agencies, including the DOT, must establish annual goals for small business participation in federal procurement contracts. ³ Id. Sec. 644(g)(2). These goals must present the "maximum practicable opportunity" for small business concerns, including those "owned and controlled by socially and economically disadvantaged individuals." Id. Sec. 644(g)(1).

The SCC program was implemented in 1979 by the Federal Lands Highway Program (FLHP) of the Federal Highway Administration (FHWA), an agency within the DOT, to satisfy the agency goals requirement of the Small Business Act. CFLHD and the other two regional offices of FLHP utilize the SCC program as a means of meeting their respective apportioned shares of the DOT goal for disadvantaged small business participation. Under the SCC program, a Subcontracting Compensation Clause is included in small-value contracts or where the prime contractor is a small business. Prime contractors whose DBE subcontracts exceed 10% of the overall contract amount are eligible for incentive payments of up to 1.5% of the original contract amount for utilization of one DBE, or up to 2% for hiring two or more DBEs. Small business prime contractors are not required to hire DBEs as a contractual condition of eligibility for award of the prime contract. Rather, the SCC program provides prime contractors with the option of either hiring DBE subcontractors and receiving commensurate incentive payments, or ignoring the option entirely.

To qualify for eligibility under the SCC program, small businesses must demonstrate through an annual certification process that they are indeed socially and economically disadvantaged. The Subcontracting Compensation Clause and the eligibility criteria comport with section 502 of the Small Business Act. The eligibility criteria, however, are derived from the DBE regulatory program implemented pursuant to two transportation funding authority acts: STAA and its renewal act, STURAA. ⁴ A subcontractor thus qualifies for the SCC program if it qualifies for DBE status under STURAA regulations.

As an agency within the federal DOT, CFLHD is not itself subject to STURAA implementing regulations. See 54 Fed.Reg. 43835-01; 45 Fed.Reg. 21172 (1980); 49 C.F.R. 23.2. Consequently, small business prime contractors awarded contracts let directly by the CFLHD do not have to satisfy the 10% DBE set-aside required of states and localities who receive STURAA funds for federally-assisted highway contracts.

STURAA, and previously STAA, define "socially and economically disadvantaged individuals" with reference to the Small Business Act. 15 U.S.C. Sec. 637(d). ⁵ Under the Small Business Act, a small business must be at least 51% owned and controlled by individuals who are socially and economically disadvantaged. Id. Members of certain minority racial and ethnic groups and women are presumed socially and economically disadvantaged. ⁶ Id. That presumption is rebuttable under the DBE criteria incorporated into CFLHD's SCC program. Both minority-owned small disadvantaged business enterprises (DBEs) and women-owned small business enterprises (WBEs) may be decertified if it can be established that they are not socially and economically disadvantaged. Non-minority-owned small businesses also are eligible for DBE certification by the Small Business Administration, provided that they satisfy the same eligibility criteria as minority-owned small businesses. See 15 U.S.C. Sec. 637(a).

B.

On September 15, 1989, the CFLHD awarded a $1-million-plus prime contract to a small business contractor, Mountain Gravel & Construction Company, for a federal highway project in Colorado known as the West Dolores project. ⁷ Funding for the West Dolores project was allocated to CFLHD under STURAA. Because the contract was let by an agency within the DOT, Mountain Gravel was not required to hire DBEs as part of its contractual obligation for the West Dolores project. However, anticipating that Mountain Gravel would use DBEs as subcontractors, CFLHD followed its usual practice and added 1% of the bid as a contingent sum to the prime contractor's bottom-line bid. This contingent amount would be paid to the prime contractor only if 10% of the subcontracts on the West Dolores Project was with DBEs. The Subcontracting Compensation Clause included in the contract read:

Monetary compensation is offered for awarding subcontracts to small business concerns owned and controlled by socially and economically disadvantaged individuals * * * * Compensation is provided to the Contractor to locate, train, utilize, assist, and develop DBEs to become fully qualified contractors in the transportation facilities construction field. The Contractor shall also provide direct assistance to disadvantaged subcontractors in acquiring the necessary bonding, obtaining price quotations, analyzing plans and specifications, and planning and management of the work. * * * The Contractor will become eligible to receive payment under this provision when the dollar amount * * * of the DBE subcontract(s) awarded exceeds [10% for Colorado] of the original [prime] contract award.

Shortly thereafter, Adarand submitted a subcontract bid to Mountain Gravel seeking to construct the guardrail portion of the West Dolores project. Adarand is not a certified DBE. ⁸ Although Adarand was the lowest bidder, Mountain Gravel exercised the option provided by the SCC program and awarded the subcontract for the guardrail systems to a certified DBE who had submitted a higher bid than Adarand's. By subcontracting with the DBE, Mountain Gravel thereby became entitled to a bonus payment of approximately $10,000.

Adarand challenged...