Contractors Ass'n of Eastern Pennsylvania, Inc. v. City of Philadelphia

• Citation: 91 F.3d 586
• Decision Date: 05 September 1996
• Docket Number: Nos. 95-1095,95-1138,s. 95-1095
• Parties: CONTRACTORS ASSOCIATION OF EASTERN PENNSYLVANIA, INC.; General Building Contractors Association, Inc.; Associated Master Painters & Decorators of Philadelphia, Inc.; Employing Bricklayers Association of Delaware Valley, Inc.; Interior Finish Contractors Association, Inc.; Mechanical Contractors Association of Eastern Pennsylvania, Inc.; Roofing and Sheet Metal Contractors Association, Inc.; Sub-Contractors Association of Delaware Valley, Inc.; National Electrical Contractors Association, Inc. v. CITY OF PHILADELPHIA; Elizabeth Reveal, as Director of Finance for the City of Philadelphia; Curtis Jones, Jr., as Director of the Minority Business Enterprise Council; United Minority Enterprise Associates, Inc.
• Court: United States Courts of Appeals. United States Court of Appeals (3rd Circuit)

Page 586

91 F.3d 586

CONTRACTORS ASSOCIATION OF EASTERN PENNSYLVANIA, INC. General Building Contractors Association, Inc.; Associated Master Painters & Decorators of Philadelphia, Inc. Employing Bricklayers Association of Delaware Valley, Inc. Interior Finish Contractors Association, Inc.; Mechanical Contractors Association of Eastern Pennsylvania, Inc. Roofing and Sheet Metal Contractors Association, Inc.; Sub-Contractors Association of Delaware Valley, Inc.; National Electrical Contractors Association, Inc. v. CITY OF PHILADELPHIA; Elizabeth Reveal, as Director of Finance for the City of Philadelphia; Curtis Jones, Jr., as Director of the Minority Business Enterprise Council; United Minority Enterprise Associates, Inc.

Nos. 95-1095, 95-1138.

United States Court of Appeals, Third Circuit.

Argued Dec. 7, 1995.

Decided July 31, 1996.

Sur Petition for Rehearing Sept. 5, 1996.

John J. McAleese, Jr., John H. Widman (argued), McAleese, McGoldrick & Susanin, King of Prussia, PA, for Appellees in Nos. 95-1095 and 95-1138.

Charles W. Bowser (argued), Luther E. Weaver, III, James P. Cousounis, Leslie B. Hope, Bowser, Weaver & Cousounis, Philadelphia, PA, and Joseph A. Dworetzky, City Solicitor, Michael F. Eichert, Karen Singletary, City of Philadelphia, Law Department, Philadelphia, PA, for City of Philadelphia, Elizabeth Reveal and Curtis Jones, Appellants in No. 95-1095.

Robert T. Vance, Jr. (argued), Vance, Jackson, Simpson & Overton, Philadelphia, PA, for United Minority Enterprise Associates, Inc., Appellant in No. 95-1138.

Before: STAPLETON, SAROKIN and ROSENN, Circuit Judges.

OPINION OF THE COURT

STAPLETON, Circuit Judge:

The City of Philadelphia (City) and intervening defendant United Minority Enterprise Associates (UMEA) appeal from the

district court's judgment declaring that the City's set-aside program for black construction contractors, Phila. Code § 17-500 et. seq. (Chapter 17-500 or Ordinance), violates the Equal Protection rights of the Contractors Association of Eastern Pennsylvania (CAEP) and eight other contracting associations (Contractors). We agree with the district court that Chapter 17-500 is not narrowly tailored to serve a compelling state interest, and we will affirm.

I.

Chapter 17-500 was adopted by the Philadelphia City Council in November of 1982. As originally enacted, it contained a sunset provision calling for it to expire after seven years. In May of 1987, Council extended the Ordinance until January 1, 1998. In 1988, the program was amended, inter alia, to include the set-aside for handicapped persons.

The preamble of Chapter 17-500 set forth only the following general legislative findings:

WHEREAS, ... in the City of Philadelphia Minorities constitute approximately forty-six percent of the population including thirty-eight percent Black, five percent Spanish surname, two percent Oriental and one percent Indian and women constitute approximately fifty percent of the population; and

WHEREAS, A pattern of past and present racial, sexual and economic discrimination have unfairly limited the ability of Minority and Female Owned Businesses to compete for an equitable share of such contracts with the City of Philadelphia; and

WHEREAS, The citizens of Philadelphia share a commitment to the eradication of present manifestations of such discrimination; and

* * * * * *

WHEREAS, A series of goals for Minority and Female Owned Business participation would increase such participation and eradicate such manifestations and so that they will reach economic parity with majority businesses at large....

The preamble of the 1987 Ordinance extending the program includes the following additional legislative findings:

WHEREAS, Economic parity with majority businesses at large has not yet been reached, and based on the progress already demonstrated, cannot be reached within the remaining effective period of this Chapter; and

WHEREAS, The Council desires to extend the effective period of this Chapter in order to more fully implement its goals program in the economic development of Minority and Female Owned Businesses, and to help eliminate the large amount of unemployment among the City's population--particularly its minority population....

No additional legislative finding relevant to the issues before us has been made.

Chapter 17-500, in its current form, seeks to increase the participation of "disadvantaged business enterprises" (DBEs) in City contracting. DBEs are businesses defined as those at least 51% owned by "socially and economically disadvantaged" persons. "Socially and economically disadvantaged" persons are, in turn, defined as "individuals who have ... been subjected to racial, sexual or ethnic prejudice because of their identity as a member of a group or differential treatment because of their handicap without regard to their individual qualities, and whose ability to compete in the free enterprise system has been impaired due to diminished capital and credit opportunities as compared to others in the same business area who are not socially disadvantaged." Phila. Code § 17-501(11). As we found in Contractors Ass'n of Eastern Pa. v. City of Philadelphia, 6 F.3d 990, 999 (3d Cir.1993) (Contractors II ), ¹ this definition "includes only individuals who are both victims of prejudice based on status and economically deprived." Businesses majority- Chapter 17-500 sets participation "goals" for different categories of DBEs: racial minorities (15%), women (10%) and handicapped (2%). These percentage goals are percentages of the total dollar amount spent by the City in each of the three contract categories: vending contracts, construction contracts, and personal and professional service contracts. Dollars received by DBE subcontractors in connection with City financed prime contracts are counted towards the goals as well as dollars received by DBE prime contractors. ²

owned by racial minorities (minority business enterprises or MBEs) and women are rebuttably presumed to be DBEs, see § 17-501(11)(a), but businesses that would otherwise qualify as DBEs are rebuttably presumed not to be DBEs if they have received more than $5 million in City contracts.

The 1982 Ordinance created the Minority Business Enterprise Council (MBEC) to oversee the set-aside program, promulgate regulations, and certify the eligibility of contractors to participate. ³ Under the program, each City agency is expected to meet the participation goal in each type of contract. The MBEC or an agency may recommend exempting individual contracts or groups of contracts from Chapter 17-500's requirements when there are insufficient DBEs in the Philadelphia Standard Metropolitan Statistical Area to ensure adequate competition and reasonable prices for the contracts. § 17-505(1) & (2).

Chapter 17-500 and its implementing regulations call for City agencies and the MBEC to formulate an annual plan for achieving the established goal in the construction area. See MBEC Reg. §§ 5, 11. Two different strategies are authorized. When there are sufficient DBEs qualified to perform a City contract to ensure competitive bidding, a contract can be let on a sheltered market basis--i.e., only DBEs will be permitted to bid. In other instances, the contract will be let on a non-sheltered basis--i.e., any firm may bid--with the goals requirements being met through subcontracting. The sheltered market strategy has seen little use. It was attempted on a trial basis, but there were too few DBEs in any given area of expertise to ensure reasonable prices, and the program was abandoned. ⁴ See App. at 262-63. Evidence submitted by the City indicates that no construction contract was let on a sheltered market basis from 1988 to 1990, see App. at 4493, and there is no evidence that the City has since pursued that approach. Consequently, the Ordinance's participation goals have been achieved almost entirely by insisting that bidding prime contractors subcontract work to DBEs in accordance with the goals.

When the goals are to be achieved by imposing subcontracting requirements, each would-be prime contractor must submit a "Schedule for Participation" (Schedule) of DBEs or a "Request for Waiver." See MBEC Reg. § 6.1. A Schedule details the names and addresses of participating DBE subcontractors, the type and amount of work they are to perform, and the dollar value of their services. A Request for Waiver consists of a statement that the contractor has made a good faith effort to utilize DBEs but has failed to meet the goals for the contract, along with documentation of the good faith effort and a list of those DBEs with whom the contractor was able to make commitments. § 6.1(C).

Compliance with Chapter 17-500's goals is to be considered "an element of responsiveness" of the bid when an agency awards a contract. § 6.1(A). The significance of complying with the goals is determined by a series of presumptions. Where at least one bidding contractor submits a satisfactory Schedule for Participation, it is presumed that all contractors who did not submit a satisfactory Schedule did not exert good faith efforts to meet the program goals, and the "lowest responsible, responsive contractor" gets the contract. § 6.1(D). Where none of the bidders submits a satisfactory Schedule, it is presumed that all but the bidder who proposes "the highest goals" of DBE participation at a "reasonable price" did not exert good faith efforts, and the contract is awarded to the "lowest, responsible, responsive contractor" who is granted a Waiver and proposes the highest level of DBE participation at a reasonable price. § 6.1(E). Non-complying bidders in either situation must rebut the presumption in order to secure a waiver.

The district court found that the practical effect of the regulations and the system of presumptions is to create a protected segment of City construction work for which non-DBE contractors could not compete. See Contractors Ass'n v. City of...