No. 93-1841 In the Supreme Court of the United States OCTOBER TERM, 1994 ADARAND CONSTRUCTORS, INC., PETITIONER v. FEDERICO PENA, SECRETARY OF TRANSPORTATION, ET AL. ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE TENTH CIRCUIT BRIEF FOR THE RESPONDENTS DREW S. DAYS, III Solicitor General DEVAL L. PATRICK Assistant Attorney General PAUL BENDER Deputy Solicitor General CORNELIA T.L. PILLARD Assistant to the Solicitor General DAVID K. FLYNN LISA C. WILSON Attorneys Department of Justice Washington, D.C. 20530 (202)514-2217 STEPHEN H. KAPLAN General Counsel PAUL M. GEIER Assistant General Counsel for Litigation EDWARD V.A. KUSSY Deputy Chief Counsel Federal Highway Administration Department of Transportation Washington, D.C. 20590 ---------------------------------------- Page Break ---------------------------------------- QUESTIONS PRESENTED 1. Whether the equal protection component of the Fifth Amendment prohibits Congress from enacting a rebuttable presumption that minority-owned and -controlled businesses are disadvantaged business en- terprises under the Small Business Act. 2. Whether the equal protection component of the Fifth Amendment prohibits the Department of Transportation, pursuant to the Small Business Act, from offering added compensation to federal govern- ment prime contractors who choose to subcontract 10 % or more of their contract work to disadvan- taged business enterprises in order to cover the costs of assisting the disadvantaged businesses. (I) ---------------------------------------- Page Break ---------------------------------------- TABLE OF CONTENTS Opinions below . . . . 1 Jurisdiction . . . . 1 Constitutional and statutory provisions involved . . . . 2 Statement . . . . 2 1. Statutory background . . . . 4 2. Regulatory background . . . . 12 3. The Subcontracting Compensation Clause . . . . 17 4. Proceedings below . . . . 19 Summary of argument . . . . 22 Argument: I. The Subcontracting Compensation Clause is constitutional . . . . 25 A. The Clause is based on social and economic disadvantage; minority racial status plays only a procedural role through a rebuttable presumption of such disadvantage . . . . 25 B. Petitioner lacks standing to challenge the use of the race-based rebuttable presumption . . . . 27 C. The Clause does not constitute a preference for disadvantaged subcontractors . . . . 31 D. The rebuttable presumption of disadvantage is based on congressional findings of racial discrimination and serves the compelling governmental objective of remedying past discrimination . . . . 33 1. Race-based remedial action by Congress is subject to intermediate scrutiny . . . . 34 2. Intermediate scrutiny applies here . . . . 38 3. Congress had a firm and compelling basis to act . . . . 41 E. The Clause is narrowly tailored to achieve Congress's constitutional objectives . . . . 43 (III) ---------------------------------------- Page Break ---------------------------------------- IV Argument-Continued: 1. The Clause is not underinclusive . . . . 43 2. The Clause is not overinclusive . . . . 44 3. The Clause does not involve a fixed quota or set-aside . . . . 47 4. The rebuttable presumption is of limited duration . . . . 48 II. Principles of stare decisis support the continuing vitality of Fullilowe v. Klutznick . . . . 49 Conclusion . . . . 50 Appendix A . . . . 1a Appendix B . . . . 18a Appendix C . . . . 37a TABLE OF AUTHORITIES Cases: Allen V. Wright, 468 U.S. 737 (1984) . . . . 30 Autek Systems Corp. V. United States, 835 F. Supp. 13 (D.D.C. 1993), aff'd, No. 93-5399 (D.C. Cir. May 13, 1994) . . . . 14 City of Richmond V. J.A. Croson Co., 488 U.S. 469 (1989) . . . . passim Dandridge v. Williams, 397 U.S. 471 (1970) . . . . 26 Doe V. Heatherly, 671 F. Supp. 1081 (D. Md. 1987), aff'd, 854 F.2d 1316 (4th Cir. 1988) . . . . 13 EEOC V. Wyoming, 460 U.S. 226 (1983) . . . . 35 Ellis V. Skinner, 961 F.2d 912 (lOth Cir.), cert. denied, 113 S. Ct. 374 (1992) . . . . 50 Fullilove V. Klutznick, 448 U.S. 448 (1980) . . passim Harrison & Burrowes Bridge Constructors, Inc. V. Cuomo, 981 F.2d 50 (2d Cir. 1992) . . . . 50 Heart of Atlanta Motel, Inc. V. United States, 379 U.S. 241 (1964) . . . . 35 Hodel V. Indiana, 452 U.S. 314 (1981) . . . . 35 Johnson v. Transportation Agency, Santa Clara County, 480 U.S. 616 (1987) . . . . 48 Jones V. Alfred H. Mayer Co., 392 U.S. 409 (1968 ) . . . . 38 Katzenbach v. McChung, 379 U.S. 294 (1964) . . . . 35 Katzenbach v. Morgan, 384 U.S. 641 (1966) . . . . 37 ---------------------------------------- Page Break ---------------------------------------- v Cases-Continued: Page Lujan v. Defenders of Wildlife, 112 S. Ct. 2130 (1992) . . . . 29 McDonald v. Sante Fe Trail Transp. Co., 427 U.S. 273 (1976) . . . . 25 Metro Broadcasting, Inc. V. FCC, 497 U.S. 547 (1990) . . . . passim Milwaukee County Pavers Ass'n V. Fielder, 922 F.2d 419 (7th Cir. ), cert. denied, 500 U.S. 954 (1991) . . . . 37, 50 Mobile, J. & K.C.R.R. V. Turnispeed, 219 U.S. 35 (1910) . . . . 46 NLRB v. Baptist Hospital, Inc., 442 U.S. 773 (1979) . . . . 46 Northeastern Florida Chapter of Associated Gen- eral Contractors V. City of Jacksonville, 113 S. Ct. 2297 (1993) . . . . 30 Norwood v. Harrison, 413 U.S. 455 (1973) . . . . 35 O'Donnell Construction Co. v. District of Colum- bia, 963 F.2d 420 (D.C. Cir. 1992) . . . . 50 Planned Parenthood V. Casey, 112 S. Ct. 2791 (1992) . . . . 50 Regents of the University of California V. Bakke, 438 U.S. 265 (1978) . . . . 42 Reno V. Flores, 113 S. Ct. 1439 (1993) . . . . 33 Runyon V. McCrary, 427 U.S. 160 (1976) . . . . 38 Slaughter-House Cases, 83 U.S. (16 Wall.) (1873) . . . . 36 St. Mary's Honor Center v. Hicks, 113 S. Ct. 2742 (1993) . . . . 45 Tennessee Asphalt Co. v. Farris, 942 F.2d 969 (6th Cir. 1991) . . . . 50 United States V. Gainey, 380 U.S. 63 (1965) . . . . 46 United States V. Salerno, 481 U.S. 739 (1987 ) . . . . 33 Usery V. Turner Elkhorn Mining Co., 428 U.S. 1 (1976) . . . . 46 Wygant V. Jackson Board of Education, 476 U.S. 267 (1986) . . . . 42 Constitution, statutes and regulations: U.S. Const.: Art. I, 8, Cl. 1(Spending Clause) . . . .2, 35, 1a Art. I, 8, Cl. 3(Commerce Clause). . . .2, 35, la ---------------------------------------- Page Break ---------------------------------------- VI Constitution, statutes and regulations-Continued: Page Amend. I . . . . 41 Amend. V . . . . 20 Amend. XIII . . . . 2, 35, 36, 37, 38, 1a Amend. XIV . . . . 2, 20, 35, 36, 37, 38, la Section 5 . . . . 37, 38, 2a Act of Oct. 24, 1978, Pub. L. No. 95-507, 92 Stat. 1757: 201,92 Stat. 1760 . . . . 8 211,92 Stat. 1767 . . . . 8 Act of July 2, 1980, Pub. L. No. 96-302, 118, 94 Stat. 840 . . . . 10 Business Opportunity Development Reform Act of 1988, Pub. L. No. 100-656, 102 Stat. 3853: 101,102 Stat. 3855 . . . . 10 207,102 Stat. 3861-3862 . . . . 10 Civil Rights Act of 1964, Tit. VI, 42 U.S.C. 2000d.. 20 Consolidated Omnibus Budget Reconciliation Act of 1985, Pub. L. No. 99-272, 518015, 100 Stat. 370 (1986) . . . . 10 Intermodal Surface Transportation Efficiency Act of 1991, Pub. L. No. 102-240, 1003 (b), 105 Stat. 1919-1921 . . . . 5 Public Works Employment Act of 1977, Pub. L. No. 95-28, Tit. I, 91 Stat. 116 . . . . 41 Small Business Act, 15 U.S.C. 631 et seq. (1988 & Supp. V 1993) . . . . 2, 3, 2a 15 U.S.C. 631 (f) (1) (B) . . . . . 7, 39, 2a 15 U.S,C. 631 (f) (1) (C) . . . .7, 39, 2a 15 U.S.C. 631b (1988& Supp. V 1993) . . . . 48, 4a 15 U.S.C. 632 (a) (l)-(3) (Supp. V 1993) . . . . 6 15 U.S.C. 636(j) (10) (F) (1988 & Supp. V (1993) . . . . 15 15 U.S.C. 636(j) (10) (H) (1988 & Supp. V (1993) . . . . 15 15 U.S.C. 637 (a) . . . . 8, 6a 15 U.S.C. 637 (a) (5) . . . . 6, 13, 7a 15 U.S.C. 637 (a) (6) (A) . . . . 6, 14, 7a 15 U.S.C. 637(a) (6) (B) . . . . 15, 8a ---------------------------------------- Page Break ---------------------------------------- VII Statutes and regulations-Continued: page 15 U.S.C. 637(a) (6) (C) (Supp. V 1993) . . . . 15, 8a 15 U.S.C. 637(a) (6) (C) (i) (Supp. V 1993) . . . . 15,8a 15 U.S.C. 637 (d) (Supp. V 1993) . . . . 7, 9a 15 U.S.C. 637 (d) (1) (Supp. V 1993) . . . . 4,9a 15 U.S.C. 637 (d) (3) (C) (SUPP. V 1993) . . . . 6, 7, 39, 11a 15 U.S.C. 644 (g) (1) . . . . 5, 12a 15 U.S.C. 644(h) (1988 & Supp. V 1993) . . . . 48, 14a 15 U.S.C. 644 (h) (1) . . . . 5, 14a 15 U.S.C. 645 (d) . . . . 47 Surface Transportation and Uniform Relocation Assistance Act of 1987, Pub. L. No. 100-17, 101 Stat. 132 . . . . 106,101 Stat. 144-146 . . . . 2, 15a-16a 106(c)(1),101 Stat. 145 . . . . 5, 7, 16a 106 (c) (2) (B), 101 Stat. 146 . . . . 7, 17a 106(c) (4), 101 Stat. 146 . . . . 34, 17a 42 U.S.C. 1983 . . . . 20 13 C.F.R.: Pt. 121: Section 121,601 . . . . 6 Pt. 124 . . . . 12 Subpt. A: Section 124.5 . . . . 47 Section 124.6 . . . . 47 Section 124.101 (c) (2) . . . . 15 Section 124.103 . . . . 47 Section 124.104 . . . . 47 Section 124.105 (b) . . . . 13 Section 124.105 (b) (1) . . . . 16 Section 124.105 (c) (1) (i) . . . . 14 Section 124.105 (c) (1) (v) . . . . 14 Section 124.105(c) (1) (v) (A) - (C) . . . . 14 Section 124.105-124 .106 . . . . 13, 39 Section 124.106 (a) (1) (ii) . . . . 14 Section 124.106 (a) (2) . . . . 14 Section 124.106 (b) . . . . 14 Section 124.108 . . . . 47 Section 124.109 . . . . 47 ---------------------------------------- Page Break ---------------------------------------- VIII Regulations--Continual: Page Section 124.111 (c) . . . . 15 Section 124.208 . . . . 15 Subpt. B . . . . 15, 29,39 Section 124.603 (b) . . . . 15 Section 124.605 (b) (2) . . . . 15 Section 124.607 (a) . . . . 15 Section 124.608 . . . . 15 Sections 124.608-124.609 . . . . 29 Section 124.609 . . . . 15 Section 124.609 (d) (3) . . . . 15 48 C.F.R.: Section 19.703 . . . . 44 Section 52.219-8 . . . . 7 Section 52.219-13 . . . . 7,17 49 C.F.R. Pt. 23 . . . . 13 Subpt. C: Sections 23.51-23.53 . . . . 47 Subpt. D . . . 15 Section 23.62 . . . . 15, 16, 17 Section 23.62 (a) - (e) . . . . 16 Section 23.64 (e) . . . . 5 Section 23.65 . . . . 5 Section 23.69 . . . . 29, 39 Section 23.69 (b) (1) . . . . 16 App. A . . . . l6, 17, 26, 44 App.C. . . . 16, 29, 39, 44, 47 Subpt. E . . . . 16 Miscellaneous: Page Barriers to Full Minority Participation in Fed- erally Funded Highway Construction Projects: Hearing Before a Subcomm. of the House Comm. on Government Operations, 100th Cong., 2d Sess. (1988) . . . . 10,38 124 Cong. Rec. (1978): p. 29,641 . . . . 9 p. 29,644 . . . . 9 ---------------------------------------- Page Break ---------------------------------------- Ix Miscellaneous-Continued: Page p. 34,097 . . . . 8 p. 35,408 . . . . 8 133 Cong. Rec. 33,314-33,315 (1987) . . . . 10-11 Disadvantaged Business Set-Asides in Transporta- tion Construction Projects: Hearings Before the Subcomm. on Procurement, Innovation, and Minority Enterprise Development of the House Comm. on Small Business 100th Cong., 2d Sess. (1988) . . . . 10 Federal Contracting Opportunities for Minority and Women-Owned Businesses-An Examina- tion of the 8(d) Subcontracting Program: Hear- ings Before the Senate Comm. on Small busi ness, 98th Cong., 1st Sess. (1983) . . . . 9 Federal Highway Administration, U.S. Dep't of Transportation, Disadvantaged Business Enter- prise (DBE) Program Administration Partici- pant's Manual (Apr. 1990) . . . . 34 H.R. 1807, 100th Cong., 1st Sess. (1987) . . . . 11 H.R. 5612, To Amend the Small Business Act to Extend the Current SBA 8(a) Pilot Program: Hearing on H.R. 5612 Before the Senate Select Comm. on Small Business, 96th Cong., 2d Sess. (1980) . . . . 9 H.R. Rep. No. 468, 94th Cong., 1st Sess. (1975) . . . .9 H.R. Rep. No. 1714, 95th Cong., 2d Sess. (1978) . . . . 8, 26 H.R. Rep. No. 460, 100th Cong., 1st Sess. (1978) . . . . 11 Minority Business and Its Contribution to the U.S. Economy: Hearing Before the Senate Comm. on Small Business, 97th Cong., 2d Sess. (1982 ). . . . 9 Minority Business Participation in Department of Transportation Project: Hearing Before a Sub- comm. of the House Comm. on Government Op- erations, 99th Cong., 1st Sess. (1985) . . . . 38 Minority Enterprise and General Small Business Problems: Hearing Before the Subcomm. on SBA and SBIC Authority, Minority Enterprise, and General Small Business Problems of the House Comm. on Small Business, 99th Cong., 1st Sess. (1985) . . . . 10 ---------------------------------------- Page Break ---------------------------------------- x Miscellaneous-Continued: S. Rep. No. 1070, 95th Cong., 2d Sess. (1978) . . . . 8 S. Rep. No. 4, 100th Cong., 1st Sess. (1987) . . . . 12 S. Rep. No. 394, 100th Gong., 2d Sess. (1988) . . . . 48 Small and Minority Business in the Decade of the 1980's (Part 1): Hearings Before the House Comm. on Small Business, 97th Cong., 1st Sess. ( 1981) . . . . 9 Small Business Problems: Hearings Before the House Comm. on Small Business, 100th Cong., Ist Sess. (1987) . . . . 10 State of Hispanic Small Business in America: Hearing Before the Subcomm. on SBA and SBIC Authority, Minority Enterprise, and General Small Business Problems of the House Comm. on Small Business, 99th Cong., 1st Sess. (1985 ) . . . . 9-10 Surety Bonds and Minority Contractors: Hearing Before the Subcomm. on Commerce, Consumer Protection, and Competitiveness of the House Comm. on Energy and Commerce, 100th Cong., 2d Sess. (1988) . . . . 10 The Disadvantaged Business Enterprise Program of the Federal-Aid Highway Act: Hearing Be- fore the Subcomm. on Transportation of the Senate Comm. on Environment and Public Works, 99th Cong., 1st Sess. (1985) . . . . 19 Women Entrepreneurs-Their Success and Prob- lems: Hearing Before the Senate Comm. on Small Business, 98th Cong., 2d Sess. (1984) . . . . 9 ---------------------------------------- Page Break ---------------------------------------- IN THE SUPREME COURT OF THE UNITED STATES OCTOBER TERM, 1994 No. 93-1841 ADARAND CONSTRUCTORS, INC., PETITIONER v. FEDERICO PENA, SECRETARY OF TRANSPORTATION, ET AL. ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE TENTH CIRCUIT BRIEF FOR THE RESPONDENTS OPINIONS BELOW The opinion of the court of appeals (Pet. App. 1-24 ) is reported at 16 F.3d 1537. The opinion and order of the district court (Pet. App. 27-37) are re- ported at 790 F. Supp. 240. JURISDICTION The judgment of the court of appeals was entered on February 16, 1994. The petition for a writ of cer- tiorari was filed on May 17, 1994, and granted on (1) ---------------------------------------- Page Break ---------------------------------------- 2 September 26, 1994. The jurisdiction of this Court rests on 28 U.S.C. 1254 (1). CONSTITUTIONAL AND STATUTORY PROVISIONS INVOLVED The Spending Clause, the Commerce Clause, and the Thirteenth and Fourteenth Amendments to the Constitution are reprinted at App., infra, la-2a. Per- tinent provisions of the Small Business Act, 15 U.S.C. 631 et seq. (1988 & Supp. V 1993), and of Section 106 of the Surface Transportation and Uni- form Relocation Assistance Act of 1987, Pub. L. No. 100-17, 101 Stat. 144-146, are reprinted at App., infra, 2a-17a. STATEMENT This case concerns the constitutionality of a stand- ard contract clause, the Subcontracting Compensa- tion Clause (Clause or SCC ), included in highway construction contracts let by the Central Federal Lands Highway Division (CFLHD) of the Federal Highway Administration (FHWA) of the United States Department of Transportation (DOT). The Clause encourages, but does not require, prime con- tractors to hire small disadvantaged business enter- prises (DBEs) as subcontractors on federal highway construction subcontracts by offering them financial compensation for the added expenses of their employ- ing and assisting such subcontractors. Petitioner, a losing bidder on a federal highway guardrail con- struction subcontract, challenges the constitutionality of the Clause, asserting that it caused the prime con- tractor to reject its bid and to award the subcontract to Gonzales Construction Company, a small disad- vantaged business. ---------------------------------------- Page Break ---------------------------------------- 3 The Federal Lands Highway Program (FLHP)" in- cludes the Compensation Clause in its prime contracts as one means to implement its statutory responsibilities under the Small Business Act ( SBA), 15 U.S.C. 631 et seq. (1988 & Supp. V 1993), which applies to all federal agencies' contracts for goods and services. The Clause also helps the FLHP meet the require- ments of the Surface Transportation and Uniform Relocation Assistance Act of 1987 (STURAA), Pub. L. No. 100-17, 101 Stat. 132, which provided the funding for the highway project in this case. The SBA establishes a 5 % government-wide minimum goal for participation by small disadvantaged busi- nesses in government contracting and subcontract- ing, and requires each federal agency to implement that government-wide goal through subsidiary agency goals. STURAA, which applies only to DOT, establishes a goal at not less than 10$% for use of small disadvantaged businesses in federally funded transportation programs. Under both statutes, "disadvantage" requires a showing of both social and economic disadvantage. A presumption of disadvantage operates where mem- bers of specified minority groups seek to have their firms certified as disadvantaged. That presumption is rebuttable if disadvantage does not in fact exist. ___________________(footnotes) 1 The CFLHD is one of three regional divisions of the FLHP, a component of the FHWA. Each of the divisions is responsible for the design and construction of roads on fed- eral lands, including national parks and forests. C.A. App. 320. The CFLHD includes within its jurisdiction roads on federal lands within Arizona, California, Colorado, Hawaii, Kansas, Nebraska, Nevada, New Mexico, North Dakota, South Dakota, Texas, Utah, and Wyoming. Pet. App. 9 n.7. ---------------------------------------- Page Break ---------------------------------------- 4 Under STURAA, small businesses owned by women are also presumed to be disadvantaged; expenditures with businesses owned by women thus constitute expenditures with disadvantaged subcontractors under the Clause, and are counted toward both the STURAA and SBA goals. In addition, businesses owned by men who are not members of minority groups are treated as disadvantaged under both stat- utes if the persons who own and control the firms are socially and economically disadvantaged. Peti- tioner, which did not claim that it was itself disad- vantaged, did not challenge the fact that Gonzales Construction Company was disadvantaged, nor did it seek to rebut any presumption of disadvantage that may have applied to Gonzales. Petitioner in- stead makes a facial challenge to the Clause. 1. Statutory background. A. Both the SBA and STURAA establish a federal policy of doing business with small disadvantaged business enterprises.2 The statutes seek to foster nationwide economic develop- ment by permitting small disadvantaged businesses to share in the economic benefit of the government's vast purchasing activity. The statutes also reflect Congress's belief that, by contracting with small dis- advantaged business enterprises, and by working with them through a variety of business development pro- ___________________(footnotes) 2 Section 8(d) (1) of the SBA, 15 U.S.C. 637(d) (1) (SUPP. V 1993), provides: It is the policy of the United States that small business concerns, and small business concerns owned and con- trolled by socially and economically disadvantaged in- dividuals, shall have the maximum practicable oppor- tunity to participate in the performance of contracts let by any Federal agency, including contracts and sub- contracts. ---------------------------------------- Page Break ---------------------------------------- 5 grams, the government can strengthen such businesses and thereby enhance market competition for the goods and services the government buys. The SBA requires annual, government-wide goals to be set for contracting for supplies and services from small businesses, and also from small disadvan- taged businesses. The Act sets a 5% floor for the latter goal, 15 U.S.C. 644(g)(1). The President is required to adjust that government-wide goal an- nually, and each executive agency is required to de- velop a goal appropriate to its own contracting needs and the markets from which it purchases goods and services.3 The goals at every level may be waived where not practicable,4 and `no penalty- attaches to failure to meet them. In STURAA, enacted in 1987, Congress comple- mented the SBA'S provisions by setting a disadvan- taged business enterprise goal specific to STURAA transportation construction. Section 106 (c) (1) of STURAA contained a goal of not less than 10% for disadvantaged business expenditure of federal funds appropriated under STURAA for fiscal years 1987 through 1992. Pub. L. No. 100-17, 101 Stat. 145.5 Expenditures through disadvantaged businesses are counted toward both STURAA and SBA goals. ___________________(footnotes) 3 The subsidiary disadvantaged business contracting goal DOT assigned to the CFLHD for 1989 was approximately 12-15 %. Pet. App. 9 n.7. 4 See 15 U.S.C. 644 (h) (1) (requiring justification for fail- ure to meet goals) ; 49 C.F.R. 23.64 (e), 23.65 (setting forth waiver criteria for DOT). 5 The disadvantaged business enterprise goals are now being implemented under the successor to STURAA, the Intermodal Surface Transportation Efficiency Act of 1991, Pub. L. No. 102-240, 1003 (b), 105 Stat. 1919-1921. ---------------------------------------- Page Break ---------------------------------------- 6 B. The definition of small disadvantaged business that applies under both statutes is set out in the SBA. A small business is one that is independently owned and operated, is not dominant in its field of operation, and has annual gross receipts not in ex- cess of the level set by regulation for the industry in which the business operates. 15 U.S.C. 632(a) (1)- (3) (Supp. V 1993 ).4 A small business is disadvan- taged if it is at least 51% owned and controlled by persons who are both socially and economically dis- advantaged. 15 U.S.C. 637(d) (3) (C) (Supp. V 1993). A "socially disadvantaged" person is one who has been subjected to "racial or ethnic prejudice or cultural bias because of [his or her] identity as a member of a group without regard to [his or her] individual qualities." 15 U.S.C. 637(a) (5). An "economically disadvantaged" person is a socially disadvantaged person who also demonstrates that his or her "ability to compete in the free enterprise sys- tem has been impaired due to diminished capital and credit opportunities as compared to others in the same business area who are not socially disadvan- taged." 15 U.S.C. 637(a) (6) (A). The goals of both the SBA and STURAA are thus directed at the employment of disadvantaged business enterprises. That category is not limited to members of racial minority groups, nor are all members of such groups included in the disadvantaged category. Congress, however, expressly recognized in both stat- utes that racial discrimination in the United States ___________________(footnotes) 6 A small business, in the case of highway construction specialty subcontractors such as Gonzales and petitioner, is one whose average annual gross receipts do not exceed $7,000,000. 13 C.F.R. 121.601 (Major Group 17, SIC Code 1799). ---------------------------------------- Page Break ---------------------------------------- 7 has been a principal cause of current disadvantaged status. Congress found in the SBA that "many [socially and economically disadvantaged] persons are socially disadvantaged because of their identifica- tion as members of certain groups that have suffered the effects of discriminatory practices or similar in- vidious circumstances over which they have no con- trol," and that "such groups include, but are not limited to, Black Americans, Hispanic Americans, Native Americans, Indian tribes, Asian Pacific Amer- icans, Native Hawaiian organizations, and other mi- norities." 15 U.S.C. 631(f) (1) (B) and (C). The SBA'S subcontracting provision, Section 8(d), thus authorizes prime contractors to "presume that socially and economically disadvantaged individuals include Black Americans, Hispanic Americans, Native Ameri- cans, Asian Pacific Americans, and other minorities, or any other individual found to be disadvantaged by the [Small Business] Administration pursuant to section 8(a) of the [SBA]." 15 U.S.C. 637(d) (3) (C) (Supp. V 1993). STURAA utilizes the SBA'S defini- tion of disadvantaged business, see Pub. L. No. 100- 17, 106(c) ( 1), 101 Stat. 145, except that STURAA also provides that, in the context of highway construction, "women shall be presumed to be socially and economically disadvantaged individuals," 106(c) (2) (B), 101 Stat. 146.7 C. Congress's findings that disadvantage is highly correlated with race were based on extensive evidence of racial discrimination affecting government con- ___________________(footnotes) 7 The Federal Acquisition Regulations, 48 C.F.R. 52.219-8 and 52.219-13, referred to in the Subcontracting Compensa- tion Clause, J.A. 24, define disadvantaged business consist- ently with the SBA, and include women-owned businesses. ---------------------------------------- Page Break ---------------------------------------- 8 tracting. The SBA first made express reference to race in the 1978 Amendments to the statute. Act of Oct. 24, 1978, Pub. L. No. 95-507, $$201, 211, 92 Stat. 1760, 1767. Congress there recognized "[t]he fact that minority small businesses have had an espe- cially difficult time in fully participating in the economic system," and decided that the SBA'S small business development program "should be used only for developing minority and other socially and eco- nomically disadvantaged businesses." S. Rep. No. 1070, 95th Cong., 2d Sess. 16 (1978) ; see also H.R. Rep. No. 1714, 95th Cong., 2d Sess. 22 (1978)? ___________________(footnotes) 8 Representative Addabbo, the floor manager of the bill in the House, stated that " [o] ur findings clearly state that groups such as black Americans, Hispanic Americans, and Native Americans, have been and continue to be discrim- inated against and that this discrimination has led to the social disadvantagement of persons identified by society as members of those groups." 124 Cong. Rec. 34,097 (1978). Senator Nunn, who managed the bill in the Senate, also emphasized that " [b] ecause of present and past discrimina- tion many minorities have suffered social disadvantagement." Id. at 35,408. See S. Rep. No. 1070, supra, at 14 (analyzing the 1978 Amendments to SBA Section 8(a) that "establish [cd] the policy goal of developing businesses owned by socially and economical y disadvantaged persons" as "also recogniz [ing] the pattern of social and economic discrimination that con- tinues to deprive racial and ethnic minorities, and others, of the opportunity to participate fully in the free enterprise system") ; id. at 20 ("many individuals are socially and economically disadvantaged as a result of being identified as members of certain groups, including but not limited to, black Americans and Hispanic Americans") ; id. at 22 (directing the Small Business Administration to "recognize the historic past discrimination of minorities in their efforts to participate in the free enterprise system"). ---------------------------------------- Page Break ---------------------------------------- 9 At the time of the 1978 Amendments, minority businesses constituted only 4% of the total number of firms in the United States and accounted for less than 1% of total nationwide business receipts. 124 Cong. Rec. 29,641 (1978) (remarks of Sen. Glenn); id. at 29,644 (statement by Sen. Heinz). A 1975 report of the Subcommittee on SBA Oversight and Minority Enterprise of the House Committee on Small Business set forth statistics showing that, " [w]hile minority persons comprised] about 16 per- cent of the Nation's population," only 3 % of busi- nesses in the United States were minority-owned. H.R. Rep. No. 468, 94th Cong., 1st Sess. 2. The re- port determined that those statistics were "not the result of random chance," but resulted from "past discriminatory systems [that] have resulted in pres- ent economic inequities." Ibid. Since 1978, Congress has repeatedly revisited the issue of disadvantage in federal contracting caused by racial discrimination: and has found that those ___________________(footnotes) 9 See, e.g., H.R. 5612, To Amend the Small Business Act to Extend the Current SBA 8(a) Pilot Program: Hearing on H.R. 5612 Before the Senate Select Comm. on Small Busi- ness, 96th Cong., 2d Sess. (1980) ; Small and Minority Busi- ness in the Decade of the 1980's (Part 1): Hearings Before the House Comm. on Small Business, 97th Cong., Ist Sess. {1981) ; Minority Business and Its Contribution to the U.S. Economy: Hearing Before the Senate Comm. on Small Busi- ness, 97th Cong., 2d Sess. (1982) ; Federal Contracting Op- portunities for Minority and Women-Owned Businesses- An Examination of the 8 {d) Subcontracting Program: Hear- ings Before the Senate Comm. on Small Business, 98th Cong., Ist Sess. (1988) ; Women Entrepreneurs-Their Success and Problems: Hearing Before the Senate Comm. on Small Busi- ness, 98th Cong., 2d Sess, (1984) ; State of Hispanic Small Business in America: Hearing Before the Subcomm. on SBA ---------------------------------------- Page Break ---------------------------------------- 10 Consequently, each time the disadvantages continue. Congress has retained or ex- SBA has been amended, panded upon the findings of social disadvantage based on race.10 When Congress amended the SBA in 1988 to add the disadvantaged business enterprise goals, it reaffirmed that the SBA'S disadvantaged business contracting program is "the most significant effort of the Federal Government to reduce the effects of discrimination on entrepreneurial endeavors." 133 ___________________(footnotes) and SBIC Authority, Minority Enterprise, and General Small Business Problems of the House Comm. on Small Business, 99th Cong., 1st Sess. (1985) ; Minority Enterprise and Gen- eral Small Business Problems: Hearing Before the Subcomm. on SBA and SBIC Authority, Minority Enterprise, and Gen- eral Small Business Problems of the House Comm. on Small Business, 99th Cong., 1st Sess. (1985] ; Disadvantaged Busi- ness Set-Asides in Transportation Construction Projects: Hearings Before the Subcomm. on Procurement, Innovation, and Minority Enterprise Development of the House Comm. on Small Business, 100th Cong., 2d Sess. (1988) ; Barriers to Full Minority Participation in Federally Funded Highway Construction Projects: Hearing Before a Subcomm. of the House Comm. on Government Operations, 100th Cong., 2d Sess. (1988) [hereinafter 1988 Barriers Hearing] ; Surety Bonds and Minority Contractors: Hearing Before the Sub- comm. on Commerce, Consumer Protection, and Competitive- ness of the House Comm. on Energy and Commerce, 100th Cong., 2d Sew. (1988); Small Business Problems: Hearings Before the House Comm. on Small Business, 100th Cong., 1st Sess. (1987). 10 See Act of July 2, 1980, Pub. L. No. 96-302, 118, 94 Stat. 840: Consolidated Omnibus Budget Reconciliation Act of 1985, Pub. L. No. 99-272, $18015, 100 Stat. 370 (1986); Business Opportunity Development Reform Act of 1988, Pub. L. No. 100-656, $5101, 207, 102 Stat. 3855, 3861-3862. ---------------------------------------- Page Break ---------------------------------------- 11 Cong. Rec. 33,314-33,315 (1987) (remarks of Rep. LaFalce upon introduction of H.R. 1807). The House Committee on Small Business specifically found that "discrimination and the present effects of past dis- crimination" continue to- hinder minority business development, H.R. Rep. No. 460, 100th Cong., 1st Sess. 18 (1987), and that an increase in the effective- ness of the SBA was necessary "to redress the effects of discrimination on entrepreneurial endeavors," id. at 16. Evidence before Congress in 1988 showed that the disadvantaged business program had thus far made unsatisfactory progress in removing discriminatory barriers to minority business success: "[0]nly six percent of all firms are owned by minorities; less than two percent of minorities own businesses while the comparable percent for nonminorities is over six percent ; and the average receipts per minority firm is less than 10 percent the average receipts of all businesses," H.R. Rep. No. 460, supra, at 18. Federal procurement data revealed a similar pattern: In 1986, "total prime contracts approached $185 billion, yet minority business received only $5 billion in prime contracts, or about 2.7 percent of the prime contract dollar." Ibid. Repeating the observations that had been made a decade earlier, the Committee Report concluded that the disparity between minority and nonminority businesses' participation in the economy and in federal procurement was "not the result of random chance," but that "discrimination and the present effects of past discrimination have hurt socially and economically disadvantaged individuals in their entrepreneurial endeavors." Ibid. The enactment of STURAA in 1987 was also sup- ported by additional evidence and findings of racial and gender discrimination specific to the highway ---------------------------------------- Page Break ---------------------------------------- 12 construction industry. The Senate Committee on En- vironment and Public Works reported on STURAA: The Committee has considered extensive testi- mony and evidence on the bill's DBE provision, and has concluded that this provision is necessary to remedy the discrimination faced by socially and economically disadvantaged persons attempt- ing to compete in the highway and mass transit construction industry. * * * * * * [B]arriers still remain, preventing mi- norities and women from successfully competing in the industry. Moreover, the Committee has concluded that the findings adopted by Congress in 1978 when enacting legislation covering proj- ects under the Small Business Act, 15 U.S.C. 631(e), apply equally to the federally-funded highway and mass transit construction- projects covered by this bill. S. Rep. No. 4, 100th Cong., 1st Sess. 11 (1987). We have collected in Appendix B, infra, 18a-36a, more examples of hearings, floor debates and committee re- ports in which Congress's choice of a limited, race- based remedy was repeatedly debated and reaffirmed. 2. Regulatory background. Under the Subcon- tracting Compensation Clause that is challenged in this case, a small business concern will be considered disadvantaged if it has been certified as such by the Small Business Administration (Administration) or any state highway agency. J.A. 24.11 In certifying ___________________(footnotes) 11 The Administration certifies disadvantaged businesses pursuant to the Small Business Act and its implementing regulations, 13 C.F.R. Pt. 124. State highway and transporta- tion agencies certify disadvantaged businesses for partici- ---------------------------------------- Page Break ---------------------------------------- 13 businesses as disadvantaged, the Administration de- termines on a case-by-case basis (a) whether a firm claiming disadvantage is actually owned and con- trolled by the person claiming disadvantage, (b) whether that person is socially disadvantaged, and (c) whether that person is economically disadvan- taged. In making those determinations, the Admin- istration employs a rebuttable presumption that, "[i] n the absence of evidence to the contrary," Black Americans, Hispanic Americans, Native Americans, Asian Pacific Americans, and Subcontinent Asian Americans are socially disadvantaged. 13 C.F.R. 124.105 (b). Minority status is, however, neither a sufficient nor a necessary basis for certification. Be- cause the presumption of social disadvantage is re- buttable, members of the specified groups may none- theless be considered not to be socially disadvantaged. In addition, people who are not members of the speci- fied minority groups may also be treated as disad- vantaged under the Clause. 15 U.S.C. 637 (a) (5) ; 13 C.F.R. 124.105-124.106. For example, persons who have suffered ethnic or cultural bias on account of their ancestry, physical handicap,12 or "long-term residence in an environment isolated from the main- ___________________(footnotes) pation in DOT programs pursuant to 49 C.F.R. Pt. 23. The FLHP also accepts certification by other government agen- cies, provided the Contracting Officer has determined that comparable procedures are followed. J.A. 24. 12 See, e.g., Doe V. Heutherly, 671 F. Supp. 1081 (D. Md. 1987) (applying nonracial inquiry into "cultural bias" to evaluate disadvantage claim by person with calligraphic dys- graphia and dyslexia), aff'd, 854 F.2d 1316 (4th Cir. 1988) (Table). ---------------------------------------- Page Break ---------------------------------------- 14 stream of American society" may be deemed socially disadvantaged. 13 C.F.R. 124.105(c)(1)(i) .13 Small business owners who establish their social disadvantage must also demonstrate to the Adminis- tration that they are economically disadvantaged "as compared to others in the same business area who are not socially disadvantaged." 15 U.S.C. 637(a) (6) (A) ; 13 C.F.R. 124.106(b). The separate showing of economic disadvantage ensures that certification does not "assist concerns owned and controlled by socially disadvantaged individuals who have accumu- lated substantial wealth, who have unlimited growth potential or who have not experienced or have over- come impediments to obtaining access to financing, markets and resources." 13 C.F.R. 124.106(a) (1) (ii). In evaluating whether a business owner is in fact economically disadvantaged, the Administration considers the personal financial condition, business financial condition, and access to credit and capital of the individual claiming disadvantaged status. 13 C.F.R. 124.106(a) (2)?' Where a competitor, such as petitioner, believes that a certification of a subcontractor as disadvan- taged is unwarranted, it may submit information to ___________________(footnotes) 13 The Administration "will entertain any relevant evi- dence in assessing [the social disadvantage] element of an applicant's case," 13 C.F.R. 124.105 (c) (1) (v), and the reg- ulations set forth factors to be taken into account, 13 C.F.R. 124.105 (c) (1) (v) (A) - (C) (education, employment, business history). 14 See, e.g., Autek Systems Corp. V. United States, 835 F. Supp. 13 (D.D.C. 1993) (upholding Administration's de- termination that minority business owner's personal income disqualified him from participation), aff'd, No. 93-5399 (D.C. Cir. May 13, 1994). ---------------------------------------- Page Break ---------------------------------------- 15 the contracting officer and seek initiation of a protest. 13 C.F.R. 124.603(b); see generally 13 C.F.R. Pt. 124, Subpt. B, "No specific form is required" for a protest to disadvantaged status, 13 C.F.R. 124.607 (a), and it may be filed at any time before the work under the subcontract is completed, 13 C.F.R. 124.605 (b) (2). When such a protest is filed, the Ad- ministration must investigate, 13 C.F.R. 124.608, and make a prompt determination as to disadvantage, 13 C.F.R. 124.609. In making that determination, the Administration is required lo review "ownership and control of each protested firm as well as social and economic disadvantage regardless of the grounds specified in the protest." 13 C.F.R. 124.609 (d) (3) 15 States that certify disadvantaged businesses apply standards that generally mirror those promulgated under the SBA. 49 C.F.R. Pt. 23, Subpt. D; see Pet. App. 8. Under STURAA'S implementing regulations, as under the SBA'S, members of certain minority groups are rebuttable presumed to be disadvantaged. 49 C.F.R. 23.62.'" However, state certification of dis- ___________________(footnotes) 15 The Administration has independent review responsibil- ities even in the absence of a protest. The SBA provides that businesses that are not in fact both socially and economically disadvantaged must be decertified or "graduated." 15 U.S.C. 636(j) (10) (F') and (H) (1988 & Supp. V 1993), 637 (a) (6) (C) (Supp. V 1993) ; 13 C.F.R. 124.208. The financial information that disadvantaged businesses must file annually, 15 U.S.C. 637 (a) (6) (B), or credible evidence coming to the attention of the Administration from any other source, 13 C.F.R. 124.101 (c) (2), 124.111 (c), may trigger a review, and the Administration is required to investigate and to satisfy itself that the criteria have been met, 15 U.S.C. 637(a) (6) (C) (i) (Supp. V 1993). 16 The groups as to which the rebuttable presumption ap- plies are virtually the same under both statutes. Both include ---------------------------------------- Page Break ---------------------------------------- 16 advantage under STURAA, like certification by the Small Business Administration, is also available to nonminorities.17 Thus, persons such as "disabled Vietnam veterans, Appalachian white males, Hasidic Jews, or any other individuals who are able to demon- strate to the [State] that they are socially and eco- nomically disadvantaged may be treated as eligible to own and control a disadvantaged business, on the same basis as a member of one of the presumptive ___________________(footnotes) Black Americans, Hispanic Americans, Native Americans, and Asian-Pacific Americans. The STURAA regulations, however, specify "Asian-Indian Americans" in place of the SBA regulations' "Subcontinent Asian Americans." Compare 49 C.F.R. 23.62 (a)-(e) ("socially and economically disadvan- taged individuals") (defining precise contours of listed groups) with 13 C.F.R. 124.105(b) (1) (same). The rebuttable presumption under DOT's STURAA regula- tions provides that "members of the named [minority] groups * * * are presumed to be both socially and economically dis- advantaged," 49 C.F.R. Pt. 23, Subpt. D, App. C Par. 2, while the parallel presumption in the SBA regulations applies only to social disadvantage. Under both sets of regulations, the cer- tifying agency is entitled to consider all relevant evidence in order to ensure that the statutory disadvantage criteria are met as to each subcontractor. With respect to the rebuttal of the presumption, see 49 C.F.R. 23.62, the STURAA regula- tions provide that "[a]ny third party" may bring a chal- lenge, 49 C.F.R. 23.69 (b) (1); see 49 C.F.R. Pt. 23, Subpt. E, and may "present evidence that the firm's owners are not truly socially and/or economically disadvantaged, even though they are members of one of the presumptive groups," 49 C.F.R. Pt. 23, Subpt. D, APP). C Par. 2. 17 The state agencies "may determine, on a case-by-case basis, that individuals who are not a member [tic] of one of the [minority] groups are socially and economically disad- vantaged." 49 C.F.R. 23.62 (defining "socially and economi- tally disadvantaged individuals"); see 49 C.F.R. Pt. 23, Subpt. D, APP. A Par. 10 (analysis of Section 23.62). ---------------------------------------- Page Break ---------------------------------------- 17 groups." 49 C.F.R. Ft. 23, Subpt. D, App. A Par. 10 (analysis of Section 23.62). Women are also pre-sumed to be socially and economically disadvantaged. 49 C.F.R. 23.62; see also 48 C.F.R. 52.219-13 (cited in Subcontracting Compensation Clause, J.A. 24 ). 3. The Subcontracting Compensation Clause. The Subcontracting Compensation Clause is a standard clause developed by FHA's Federal Lands Highway Program and is used in most of the Program's sealed- bid contracts. The Clause is one of several means employed to aid DOT in implementing its statutory responsibilities to make efforts to expend contract and subcontract funds through disadvantaged small businesses. As its name suggests, the Clause is de- signed to offset the financial disincentives that would otherwise exist to employing and assisting disadvan- taged businesses as subcontractors by covering the additional expenses associated with such employment. J.A. 24-26; Pet. App. 10; C.A. Supp. App. 33-34, 54, 108-109. In return for compensation under the Clause, the prime contractor thus must agree to locate, train, utilize, assist, and develop [disad- vantaged businesses] to become fully qualified contractors in the transportation facilities con- struction field. The Contractor shall also provide direct assistance to disadvantaged subcontractors in acquiring the necessary bonding, obtaining price quotations, analyzing plans and specifica- tions, and planning and management of the work. J.A. 25. Compensation is available to a prime contractor under the Clause when at least 10 % of the prime contract amount is expended with one or more dis- ---------------------------------------- Page Break ---------------------------------------- 18 advantaged subcontractors. J.A. 25.18 The clause limits compensation to 10% of the amount actually subcontracted to disadvantaged subcontractors. In this case, the subcontract amount was $104,800; the prime contractor was thus entitled to compensa- tion of approximately $10,000. Pet. App. 11. In addition, total compensation under the Clause may not exceed 1.5 % of the prime contract amount if the prime contractor employs one disadvantaged subcon- tractor, or 2% of the prime contract amount if the prime contractor employs more than one disadvan- taged subcontractor. J.A. 26. Thus, if Mountain Gravel and Construction Company (Mountain Gravel), the prime contractor on the project involved in this case, had subcontracted 40% of the work on a $1,000,000 project, its compensation would not be the full $40,000 representing 10$70 of the subcontracted amount; rather, if one disadvantaged subcontractor performed the entire 40 % portion, compensation would be capped at $15,000 (i.e., 15% of the prime contract amount), and if more than one disadvan- taged firm were involved, compensation could not ex- ceed $20,000 (i.e., 2 % of the prime contract amount). The compensation amount is deemed to be "full com- pensation for locating, selecting, training, and assist- ing DBE subcontractors; for maintaining supporting records; and for supplying all facilities and services to complete this DBE subcontracting provision." Ibid. The Clause does not impose any requirement that prime contractors subcontract with any disadvantaged subcontractors; a prime contractor remains fully eli- gible to be awarded a contract whether or not it does ___________________(footnotes) 18 This 10 % threshold can be modified "based on the avail- ability of eligible subcontractors." C.A. Supp. App. 39-40, 52-53, 103. ---------------------------------------- Page Break ---------------------------------------- 19 so. See Pet. App. 7; J.A. 25 (eligibility for compen- sation) ; C.A. Supp. App. 96.10 4. Proceedings below. A. In September 1989, the CFLHD awarded Mountain Gravel a prime contract for a federally funded highway construction project in the San Juan National Forest known as the West Dolores project. Pet. App. 9. The contract included the Subcontracting Compensation Clause. Id. at 10. Mountain Gravel solicited bids to subcontract the guardrail installation portion of the contract. In subcontracting, Mountain Gravel was not required to accept the lowest bid. Although petitioner sub- mitted a slightly lower bid, Mountain Gravel awarded the guardrail subcontract to Gonzales, a certified small disadvantaged business, and thus received com- pensation under the Clause. Id. at 10-11. Petitioner did not seek disadvantaged status for itself, did not ___________________(footnotes) 19 The mechanism of prime contractors assisting disadvan- taged businesses in a mentor-like relationship was proposed to Congress by the American Association of State Highway and Transportation Officials (AASHTO) in a hearing that preceded the passage of STURAA. See The Disadvantaged Business Enterprise Program of the Federal-Aid Highway Act: Hearing Before the Subcomm. on Transportation of the Senate Comm. on Environment and Public Works, 99th Cong., 1st Sess. 101 (1985) ("The management of a high- way contracting organization requires many skills, including knowledge of estimating and bidding, the employment and administration of managers, technicians and laborers, and the overall financial management of the business. These skills are not easily learned [.] * * * In time, it can be ex- pected that as expertise is acquired, many of today's subcon- tractors will become prime or general contractors if they so desire. To help this process along, we believe in AASHT() that wider usage of the mentor-protege concept, the forma- tion of partnerships between new DBE and WBE firms and established contracting organizations, holds great promise."). ---------------------------------------- Page Break ---------------------------------------- 20 question Gonzales's actual disadvantaged status, and did not seek to rebut any presumption that might have been applied to Gonzales in the certification process. On August 10, 1990, petitioner filed suit fordeclar- atory and injunctive relief against officials of DOT, alleging that the use of the Clause violates 42 U. S. Cl. 1983, Title VI of the Civil Rights Act of 1964, 42 U.S.C. 2000d, and the Fifth and Fourteenth Amend- ments to the Constitution. On cross-motions for sum- mary judgment, the district court granted summary judgment for respondents. Pet. App. 27-37. The court rejected petitioner's argument that the chal- lenged federal program must be subjected to strict judicial scrutiny under City Richmond V. J.A. Croson Co., 488 U.S. 469 (1989), holding instead that Fullilove v. Klutznick, 448 U.S. 448 (1980), and Metro Broadcasting, Inc. v. FCC, 497 U.S. 547 (1990), establish the relevant standard. The district court was satisfied that here, as in Fullilove, Congress had an "abundant historical basis" to support the chal- lenged program. Pet. App. 35 (quoting Fullilove, 448 U.S. at 478 (opinion of Burger, C.J.)). " [T]he mere fact that CFLHD implements a federal program within Colorado does not convert it into a state pro- gram requiring Croson-type analysis." Pet. App. 34. The district court held that the Clause is narrowly tailored to serve Congress's important objectives. Pet. App. 35-36. The court found that the Clause is not "overinclusive," because the annual certification proc- ess ensures that only legitimately disadvantaged sub- contractors participate in the program. Ibid. It is also not "underinclusive," because disadvantaged ---------------------------------------- Page Break ---------------------------------------- 21 firms that are not presumptively disadvantaged may apply for certification and become qualified to partici- pate. Id. at 36. The court further noted that the waiver mechanism properly relieves federal agencies of their disadvantaged business obligations when there are not enough qualified disadvantaged businesses available to achieve the agency's goal. Ibid. B. The court of appeals affirmed. Pet. App. 1-24. In an undivided opinion, the court held, as had the district court., that Fullilove, not Croson, controls. Id. at 15. "Under Fullilove, if Congress has expressly mandated a race-conscious program, a court must apply a lenient standard, resembling intermediate scrutiny, in assessing the program's constitutional- ity.)' Ibid. "Indeed," the court observed, "the Metro Broadcasting majority held that even non-remedial race-conscious measures mandated by Congress are constitutionally permissible if they satisfy intermedi- ate scrutiny." ld. at 19. The court rejected petitioner's argument that, be- cause the challenged program was also "fashioned and specified by an agency and not by Congress," Pet. App. 17, particularized findings of past discrimina- tion were required to justify the program under Croson. The court stated that "[petitioner] cites no authority, nor do we know of any, to support the proposition that a federal agency must make inde- pendent findings to justify the use of a benign race- conscious program implemented in accordance with federal requirements." Id. at 18. The court of ap- peals found that the particular aspects of the pro- gram petitioner challenges were specifically author- ized by Congress. In including the Subcontracting Compensation Clause in prime contracts, the CFLHD thus "did exactly what Congress explicitly directed it to do" under the SBA. Id. at 20. ---------------------------------------- Page Break ---------------------------------------- 22 Finally, the court of appeals held that the Clause is constitutional because it is narrowly tailored to achieve the important governmental objective of pro- viding opportunities for minority subcontractors. "The qualifying criteria of the SCC program [are] not limited to members of racial minority groups," and "minority businesses that do not satisfy that economic criteria cannot qualify for DBE status." Pet. App. 23. The court also pointed out that the 1070 threshold for using disadvantaged subcontrac- tors in the Clause "is an optional goal, not a set-aside," because "it is entirely at the discretion of the prime contractor whether to exercise its option under the Subcontracting Compensation Clause." Id. at 12 n.9. The SCC program was " appropriately limited in *** duration because federal procurement and construction contracting practices are subject to regu- lar reassessment and reevaluation by Congress. " Id. at 23 (quoting Fullilove, 448 U.S. at 489 (opinion of Burger, C. J.) ) . SUMMARY OF ARGUMENT I. A. Petitioner has brought a facial constitutional challenge to the use of the Subcontracting Compensa- tion Clause on the ground that it incorporates race- basecl classifications. The Clause, however, is sub- stantively based on disadvantaged status; race plays a role in the operation of the Clause only through a rebuttable presumption that small businesses owned and controlled by members of racial minority groups are disadvantaged. That presumption may be set aside or rebutted if a minority subcontractor is not actually disadvantaged. In addition, the compensa- tion program challenged by petitioner applies to en- courage the utilization of disadvantaged subcontrac- tors who are not members of minority groups. ---------------------------------------- Page Break ---------------------------------------- 23 Petitioner also mischaracterizes goals set under the Small Business Act as "race-based set-asides." Those goals, however, are neither based on race nor are they used to set aside funds exclusively for minori- ties. The goals do not apply to all minority businesses, but only to those owned by disadvantaged minorities. The goals also apply to government contracting with women and members of other disadvantaged groups. Because the percentage levels of the goals are not tied to race, they are not subject to heightened constitu- tional scrutiny. B. Petitioner lacks standing to challenge the use of the rebuttable presumption associated with the Sub- contracting Compensation Clause. Petitioner failed to show that the presumption was applied to the successful bidder in this case, or that, if it was applied, it led to an incorrect determination of dis- advantage. Nor did petitioner show that it was itself disadvantaged. Petitioner, moreover, seeks only fu- ture relief, to which it is not entitled on a record that demonstrates, at best, only remote and specula- tive future harm. C. Nor is the challenged Clause correctly viewed as conferring a racial preference. The Clause does not create an artificial incentive to subcontract with disadvantaged businesses. It seeks instead to remove disincentives to using such businesses by compensat- ing prime contractors for the additional expenses and time associated with that use. Specifically, the Clause requests that prime contractors train and assist dis- advantaged subcontractors, and, where they agree to do so, it offers them compensation to offset the cost to them of such additional effort. D. Because the challenged presumption was en- acted by Congress as a remedial measure based on legislative findings of racial discrimination affecting minority business opportunity, intermediate scrutiny ---------------------------------------- Page Break ---------------------------------------- 24 is the appropriate standard of constitutional review. The presumption is, however, constitutional under any degree of scrutiny. It serves a compelling re- medial objective, and, because rebuttable and non- exclusive, is closely tailored to serve that objective. Congress determined that a remedy was necessary based on its findings that racial discrimination con- tinues to impair minority access to subcontracting opportunities in federal procurement generally, and in road construction specifically. E. The presumption challenged in this case is more narrowly tailored than any race-based remedial meas- ure this Court has yet considered. It is not under- inclusive, because it provides the same compensation for contracting with nonminority-owned as with minority-owned disadvantaged small businesses. It is not overinclusive, because it is accompanied by proce- dures to exclude minorities who are not in fact dis- advantaged. The Clause imposes no fixed requirement of subcontracting with disadvantaged businesses and is neither a set-aside nor a quota. The presumption employed under the Clause is also appropriately lim- ited in duration, because it is subject to active and ongoing congressional assessment of its continuing necessity. II. Finally, this Court should reaffirm its decision in Fullilove. As clarified by this Court's subsequent decisions in Croson and Metro Broadcasting, Fulli- love has provided a workable standard of constitu- tional review of race-conscious measures adopted by Congress after extensive factfinding and delibera- tion. There is no conflict in the Circuits regarding the proper application of Fullilove. The decision in that case reflects appropriate judicial respect for congressional determinations on matters of race that touch federal spending programs. ---------------------------------------- Page Break ----------------------------------------. 25 ARGUMENT 1. THE SUBCONTRACTING COMPENSATION CLAUSE IS CONSTITUTIONAL A. The Clause Is Based On Social And Economic Dis- advantage; Minority Racial Status Plays Only A Procedural Role Through A Rebuttable Presump- tion Of Such Disadvantage Petitioner challenges the Subcontracting Compen- sation Clause on its face. Although that Clause em- ploys a presumption of disadvantage that is based on racial group membership, the presumption is rebutt- able and nonconclusive. The presumption therefore plays a procedural rather than a substantive role in the contracting program that employs the Clause, The program is, at the same time, open to subcon- tractors who have been the targets of ethnic prejudice or cultural bias, as well as to those subcontractors who have been victims of racial prejudice.20 All sub- contractors covered by the Clause also must, in addi- tion to having suffered social disadvantage caused by group prejudice or bias, have suffered economic dis- advantage. A member of a racial minority group who has not himself or herself been the victim of racial prejudice is thus not to be treated as disadvantaged under the challenged program. Nor is such a minority group member to be treated as disadvantaged, even if he or she has been the victim of racial prejudice, if that prejudice has not resulted in economic disadvantage to him or her. On the other hand, subcontractors who are not racial minorities are to be included in the program if they are both economically and so- ___________________(footnotes) 20 The program also broadly covers all disadvantage caused by racial prejudice-not only racial prejudice directed against racial minorities. Cf. McDonald V. Santa Fe Trail Transp. Co., 427 U.S. 273 (1976) . ---------------------------------------- Page Break ---------------------------------------- 26 cially disadvantaged. Women subcontractors consti- tute the largest category of nonminorities who are included. Members of ethnic minorities are also cov- ered. In addition, the Conference Report on the 1978 SBA Amendments refers to the potential disadvan- taged status of "a poor Appalachian white person," see HR., Rep. No. 1714, supra, at 22, and the regu- lations under STURAA give disabled Vietnam vet- erans and members of Hasidic Jewish sects as other illustrations of the program's reach beyond racial minorities, see 49 C.F.R. Pt. 23, Subpt. D, App. A Par. 10. The Subcontracting Compensation Clause program is thus a program based cm disadvantage, not on race. There is no constitutional impediment to legis- lative action based on such disadvantage beyond the requirement that the means be nonarbitrary and ra- tionally related to the objective. Government regula- tion "in the social and economic field" requires only the most relaxed judicial scrutiny. See Dandridge V. Williams, 397 U.S. 471, 484 (1970). Congress's decision to foster the economic development of small disadvantaged businesses clearly serves legiti- mate objectives- improving the disadvantaged busi- nesses' stability and business competence, and en- hancing competition in the marketplace for govern- ment contracts-and the means chosen by Congress to achieve those objectives are just as clearly rationally related to the legislative ends. Petitioner's facial challenge to the CFLHD'S goals depends entirely on its inaccurate assertion that they are race-based. Petitioner erroneously equates dis- advantaged businesses with minority businesses, as- serting that, " [w]hile Congress may have had a basis for the adoption of a program authorizing the set- aside of 5 percent of government contracts on the basis of race, * * * the decision by the CFLHD to ---------------------------------------- Page Break ---------------------------------------- 27 adopt a program in which 12 to 15 percent of its contracting funds are apportioned on the basis of race is without the factual basis required by this Court." Pet. Br. 20 (emphasis added); see id. at 47-49. However, all percentages that petitioner re- fers t-including the 5% SBA goal, the 10% STURAA goal, the 12-15 % CFLHD goal, and the 10 % subcontracting threshold in the SCC-reflect expenditures with disadvantaged businesses of all types, nonminority-owned as well as minority-owned. Petitioner's incorrect characterization of the goals as race-based leads it to focus on the level of the goals, and on how and by whom they are set. If petitioner seeks to challenge the Clause as race-conscious, the proper focus of that challenge is on the only aspect of the program that is race-based: the race-based re- buttable presumption used in some certification de- terminations under the Subcontracting Compensation Clause. B. Petitioner Lacks Standing TO Challenge The Use Of The Race-Based Rebuttable Presumption The Subcontracting Compensation Clause employs a race-based criterion in the limited form of a re- buttable presumption of disadvantage flowing from minority group membership. As we explain below, that presumption, although calling for intermediate scrutiny under the Court's equal protection prece- dents, easily passes constitutional muster. As a pre- liminary matter, however, we believe that petitioner has failed to demonstrate, as it must, that it has standing to challenge the limited procedural use of that racial criterion in the Compensation Clause pro- gram, Petitioner has completely failed to show that the presumption affected the award of the subcon- tract in this case to another bidder, and petitioner has also failed to allege or prove that the future ---------------------------------------- Page Break ---------------------------------------- 28 relief it seeks would affect its business opportunities. Petitioner challenges its loss of a subcontract that was awarded to a certified disadvantaged business enterprise, arguing that the contract award was the result of a racial preference, but has failed to estab- lish that race played any role whatever in the chal- lenged award. First, petitioner never alleged or proved that the basis of Gonzales Construction Com- pany's certification as a disadvantaged business was its ownership and control by a member of a racial minority group. Petitioner submitted no evidence regarding the criteria actually used in that certifica- tion.21 So far as the record reveals, Gonzales may have been certified as a disadvantaged business be- cause of ownership and control by a woman, by an ethnic minority, or by a physically disabled person, or on some other ground.22 There has thus been no showing that the race-based rebuttable presumption, which is the only racial component of the challenged program, was actually applied so as to affect the award of the subcontract in this case. Second, petitioner failed to establish that, even assuming that Gonzales's ownership by a racial mi- nority group member was the basis of the certifica- tion, the owner was not socially and economically disadvantaged. Although the SBA and STURAA regulations provide a procedure through which any interested person may challenge whether a certified ___________________(footnotes) 21 Petitioner did not depose or otherwise seek discovery from the owner of the Gonzales firm, nor from any of the state or SBA officials involved in disadvantaged business certifications. 22 Petitioner simply refers repeatedly and consistently to Gonzales as a disadvantaged business enterprise, or "DBE," without indicating the basis of the finding of disadvantage. See, e.g., J.A. 18 (Complaint); Pls. Answers to Defs. Interrog. 16; Pet. 5; Pet. Br. 11; see J.A. 30. ---------------------------------------- Page Break ---------------------------------------- 29 disadvantaged subcontractor is actually disadvan- taged, 13 C.F.R. Pt. 124, Subpt. B; 49 C.F.R. 23.69, petitioner chose chose not to take advantage of that procedure. A challenge by petitioner to Gonzales's certification would have required the certifying agency not simply to confirm the race of those who own and control the company, but to review and verify the company's actual disadvantaged status. See 13 C.F.R. 124.608-124.609; 49 C.F.R. Pt. 23, Subpt. D, App. C. If Gonzales is actually disadvan- taged and if petitioner, as appears, see Pet. Br. 24 n.2l, had a fair opportunity to challenge that status but chose not to do so, petitioner can hardly claim now that any rebuttable presumption used to deter- mine that Gonzales was disadvantaged was uncon- stitutional. Nor has petitioner ever claimed or established that it is itself disadvantaged. Thus, petitioner cannot challenge the rebuttable presumption on the ground that it unconstitutionally prefers minorities by mak- ing it easier for them than for nonminorities to be certified as disadvantaged. The abstract nature of petitioner's claim is further underscored by its failure to show that the relief it seeks would actually affect its business. Petitioner does not seek retrospective relief for Mountain Gra- vel's failure to award it the subcontract. Rather, pe- titioner seeks only to enjoin and declare unlawful the future use of the Clause by the FHLP. J.A. 22-23. Petitioner thus has standing only if it faces " `actual or imminent' injury." Lujan v. Defenders of Wild- life, 112 S. Ct. 2130, 2138 (1992). The asserted future harm upon which petitioner's claim is based is, however, both remote and highly contingent. In the 18 years that petitioner has been in the guard- rail construction business, the subcontract on the West Dolores project is the only subcontract that ---------------------------------------- Page Break ---------------------------------------- 30 petitioner has allegedly lost due to the Subcontract- ing Compensation Clause. Pls. Answers to Defs. Interrog., Attachs. 1, 3. In Colorado, where peti- tioner bids, the only agency using the Clause is the CFLHD, which has on average less than one guard- rail subcontract per year in each State. Defs. An- swers to Pls. Interrog. 13. Petitioner has not always bid on government subcontracts, and when it did it most often failed to make the lowest bid. Pls. An- swers to Defs. Interrog. 9, Attach. 1. In addition, most highway construction projects on which peti- tioner bids are not administered by the CFLHD, but by the State, and therefore do not include the Sub- contracting Compensation Clause. Finally, if peti- tioner lost future contracts under the Clause to dis- advantaged businesses owned by nonminorities, an injunction against use of the racial presumption in the Clause would provide it no relief. All these fac- tors make the "links in the chain of causation be- tween the challenged Government conduct and the asserted injury * * * far too weak for the chain as a whole to sustain [petitioner's] standing." Allen v. Wright, 468 U.S. 737, 759 (1984 ).= Petitioner, in sum, has not established-nor does it appear to have-any factual basis for challenging ___________________(footnotes) 23 Northeastern Florida Chapter of Associated General Con- tractors v. City of Jacksonville, 113 S. Ct. 2297 (1993), is not to the contrary. That case was brought by an association of 240 contractors and subcontractors that regularly bid on contracts affected by the challenged set-aside, in contrast to petitioner here, which faces only the most speculative chance that it will be affected by the challenged program. The pro- gram in City of Jacksonville was also fundamentally different from the one at issue here, because it was an exclusively minority program, whereas the Clause here neither prevents petitioner from obtaining certification as a disadvantaged business nor, even if not so certified, from bidding on and ob- taining subcontracts on prime contracts including the Clause. ---------------------------------------- Page Break ---------------------------------------- 31 the constitutionality of the only factor of any kind in the Compensation Clause program that is based on minority racial status. As we show below, the rebuttable presumption, in the context of a program that seeks not to give a preference, but to alleviate discriminatory barriers that would otherwise imperil disadvantaged subcontractors, is unquestionably con- stitutional. On the present record, however, the only aspect of the Compensation Clause open to challenge is its implementation of Congress's decision to in- crease the share of federal procurement business al- located to disadvantaged subcontractors, whether minority or not. There can be no serious question as to the legitimacy of that congressional objective. C. The Clause Does Not Constitute A Preference For Disadvantaged Subcontractors Petitioner's constitutional attack on the Subcon- tracting Compensation Clause depends not only on petitioner's incorrect assertion that the Clause focuses on race rather than disadvantage, but also on its con- tention that the Clause constitutes a "bonus" or "re- ward" (Pet. Br. 9 & n.9, 10 & n.12, 11) to prime contractors to induce them to prefer contracting with disadvantaged subcontractors. That contention is also factually erroneous. Rather than constituting a preference for disad- vantaged subcontractors, the Compensation Clause is designed to remove barriers that would otherwise exist to the free participation by disadvantaged businesses in bidding for subcontracts on federal highway projects. As explained by the text of the Clause itself and by the legislative record, disadvan- taged subcontractors, who by definition must have diminished capital resources and credit opportunities, will, without assistance, often be unable to compete with more affluent subcontractors for work on gov- ---------------------------------------- Page Break ---------------------------------------- 32 ernment projects. The Clause is part of a FLHP effort to encourage prime contractors on federal high- way projects to lend that needed assistance and to be willing to utilize disadvantaged subcontractors de- spite the extra costs associated with that effort. As the Clause notes, among the additional costs of employing disadvantaged subcontractors are pay- ments to assist the subcontractors to get bonding, the expense and time involved in providing assistance in business, financial and labor management, and technical planning and organization of the subcon- tracted work. J.A. 25-26. The prime contractor is required to keep records "documenting these activi- ties and shall make them available for Government review upon request." J.A. 25. If those extra ex- penses were not negated by the Clause, disadvan- taged subcontractors would often either be denied needed assistance, be forced to submit higher bids than more affluent subcontractors who face fewer disadvantages, or be excluded from government pro- curement business altogether. Any of those results would conflict with Congress's objectives of using its procurement program to spur economic development and of encouraging healthy price competition on gov- ernment projects.24 ___________________(footnotes) 24 Petitioner has made no effort to show that the compensa- tion figure used under the Clause exceeds the costs of doing business with disadvantaged subcontractors so as to consti- tute a preferential "bonus" or "reward." In addition, com- pensation is initially calculated at 10% of the dollar amount of the subcontracts placed with disadvantaged businesses, but cannot exceed 2 % of the amount of the prime contract. Thus, any affirmative incentive it might provide in a particular situation would, in all events, be a limited one. ---------------------------------------- Page Break ---------------------------------------- 33 D. The Rebuttable Presumption Of Disadvantage Is Based On Congressional Findings Of Racial Dis- crimination And Serves The Compelling Govern- mental Objective Of Remedying Past Discrimination In amending the SBA since the mid-1970's, and in enacting STURAA in 1987, Congress identified past and continuing racial discrimination, specifically in- cluding discrimination in the highway construction industry, as having impaired the ability of minorities to participate in economic activity, and it sought to ensure that federal procurement spending not com- pound the effects of that discrimination, but rather help to remedy it. In this effort, Congress chose to utilize, in addition to other means, a narrow and flexible rebuttable presumption of disadvantage ap- plicable to racial minorities seeking to participate in federal contracting activity. Insofar as petitioner has standing to raise the issue, this case presents the question whether, in assessing the disadvantaged sta- tus of a particular small business, the CFLHD may properly rely on certifications of disadvantage in which the presumption has been employed.25 The presumption itself is both nonconclusive and rebuttable. Certifying agencies are to presume dis- advantage if a subcontractor is a member of any of ___________________(footnotes) 25 As noted, petitioner has not identified the certification process actually used in this case. For that reason, it is unclear which regulations are at issue-those under the SBA or those under STURAA. Accordingly, in order to reverse the decision below, this Court would have to find all poten- tially applicable regulations facially unconstitutional. See Reno V. Flores, 113 S. Ct. 1439, 1446 (1993) (citing United States v. Salerno, 481 U.S. 739, 745 (1987)). So long as the "projected administration give [s] reasonable assurance that the program will function within constitutional limitations," Fullilove V. Klutznick, 448 U.S. 448, 490 (1980) (opinion of Burger, C.J.), the program must be upheld. ---------------------------------------- Page Break ---------------------------------------- 34 a list of minority groups, or, in the case of the agen- cies implementing STURAA, is a women. The over- riding statutory obligation of the certifying agencies remains that of determining whether each small busi- ness is, in fact, socially and economically disadvan- taged; the agency may rely on the presumption only in the absence of contrary information. Where avail- able information shows, for example, a lack of eco- nomic disadvantage, the presumption must be dis- regarded. Moreover, unlike a court, the certifying agency is entitled to implement independent investi- gative procedures to satisfy itself that the statutory criteria are being met.26 In addition, in any case in which a non-disadvantaged business believes applica- tion of the presumption may result in discrimination against it, it may trigger an investigation into whether the minority business has truly suffered both social and economic disadvantage. L Race-based remedial action by Congress is sub- ject to intermediate scrutiny. This Court has never applied strict scrutiny to a remedial, race-conscious measure adopted by Congress, and should not do so here, where the program involves neither a quota, a set-aside, nor any other kind of substantive racial preference. Cf. City of Richmond v. J.A. Croson Co., 488 U.S. 469, 499 (1989). The rebuttable presump- tion employed in programs under the SBA and STURAA is instead subject to the intermediate standard of review set forth in this Court's decisions ___________________(footnotes) 26 See Federal Highway Administration, U.S. Dep't of Transportation, Disadvantaged Business Entreprise (DBE) Program Administration Participant's Manual 65 (Apr. 1990) (advising state agencies to require applicants for dis- advantaged business certification to submit gross receipts for at least three previous years and income tax returns for each owner); STURAA 106 (c) (4), 101 Stat. 146. ---------------------------------------- Page Break ---------------------------------------- 35 in Metro Broadcasting, Inc. v. FCC, 497 U.S. 547 (1990), and Fullilove v. Klutznick, 448 U.S. 448 (1980). Intermediate scrutiny applies because of Congress's broad powers in matters of race. Those powers de- rive from an "amalgam" of sources, Metro Broad- casting, 497 U.S. at 564 n.11 (quoting Fullilove, 448 U.S. at 473 (opinion of Burger, C.J.)), including Congress's "institutional competence as the National Legislature," as well as its constitutional powers under the Spending Clause,27 the Commerce Clause, 28 and the enforcement clauses of the Civil War Amend- ments, Metro Broadcasting, 497 U.S. at 563. Unlike the States and localities, Congress is a co-equal branch, and the Court is bound to give its decisions "great weight." Fullilove, 448 U.S. at 472 (opinion of Burger, C.J. ). Congress's role as the national leg- islature-a bicameral, representative body subject to presidential veto-makes it less likely than state or local governing bodies to be captured by parochial and biased interests. It thus does not present the "height- ___________________(footnotes) 27 Article I, Section 8, Clause 1. See Fullilove, 448 U.S. at 474 (opinion of Burger, C.J.); Metro Broadcasting, 497 U.S. at 563. "It is beyond dispute that any public entity, state or federal, has a compelling interest in assuring that public dollars, drawn from the tax contributions of all citizens, do not serve to finance the evil of private prejudice." Croson, 488 U.S. at 492 (citing Norwood V. Harrison, 413 U.S. 455, 465 (1973) ). 28 Congress has vast powers under the Commerce Clause, Article 1, Section 8, Clause 3, to regulate any activity that "has a real and substantial relation to the national interest." Heart of Atlanta Motel, Inc. v. United States, 379 U.S. 241, 255 (1964); EEOC v. Wyoming, 460 U.S. 226 (1983); id. at 248 (Stevens, J., concurring); Hodel v. Indiana, 452 U.S. 314, 323-324 (1981 ); Katzenbach V. McClung, 379 U.S. 294, 304 (1964) . ---------------------------------------- Page Break ---------------------------------------- 36 ened danger of oppression from political factions" present in smaller political units. Croson, 488 U.S. at 523 (Scalia, J., concurring in the judgment).~ Moreover, in the event that Congress should err in its choice of a remedy, its broadly representative char- acter provides a check. In matters of race, the Civil War Amendments ex- pressly granted "additional powers to the Federal government," and specifically to Congress, and laid "additional restraints upon those of the States." Croson, 488 U.S. at 491 (opinion of O'Connor, J.) (quoting the Slaughter-House Cases, 83 U.S. (16 Wall.) 36, 68 (1873)) .30 "It is fundamental that in no organ of government, state or federal, does there repose a more comprehensive remedial power than in the Congress, expressly charged by the Constitution with competence and authority to enforce equal pro- tection guarantees." Fullilove, 448 U.S. at 483 (opin- ion of Burger, C.J. ) ; id. at 508-510 (Powell, J., concurring). 31 ___________________(footnotes) 29 See also Fullilove, 448 U.S. at 473 (opinion of Burger, C. J.) (federal legislation represents not a conclusion reached "by a single judge or a school board, but a considered decision of the Congress and the President"). 30 " [I] t is one thing to permit racially based conduct by the Federal Government-whose legislative powers concern- ing matters of race were explicitly enhanced by the Four- teenth Amendment, see U.S. Const., Amdt. 14, 5-and quite another to permit it by the precise entities against whose conduct in matters of race that Amendment was specifically directed." Croson, 488 U.S. at 521-522 (Scalia, J., concurring in the judgment). 31 As those Justices who addressed the issue in Croaon took care to point out, Congress has powers that States and locali- ties lack to act in an affirmative, race-conscious manner. 488 U.S. at 486-493 (opinion of O'Connor, J., joined by Rehnquist, ---------------------------------------- Page Break ---------------------------------------- 37 Congress's powers under Section 5 of the Four- teenth Amendment supported the federal race- conscious measures in both Fullilove, 448 U.S. at 483- 484 (opinion of Burger, C.J. ), and Metro Broadcast- ing, 497 U.S. at 564-565, and similarly authorize the rebuttable presumption of disadvantage at issue in this case. "Congress, unlike any state or political subdivision, has a specific constitutional mandate to enforce the dictates of the Fourteenth Amendment. The power to `enforce' may at times also include the power to define situations which Congress determines threaten principles of equality and to adopt pro- phylactic rules to deal with those situations." Croson, 488 U.S. at 490 (opinion of O'Connor, J.) (citing Katzenbach v. Morgan, 384 U.S. 641, 651 (1966)) ("Correctly viewed, 5 is a positive grant of legisla- tive power authorizing Congress to exercise its discre- tion in determining whether and what legislation is needed to secure the guarantees of the Fourteenth Amendment." ) ) ; see also Fullilove, 448 U.S. at 476 (opinion of Burger, C.J. ). Because Congress in this area has constitutionally coordinate power to define racial inequality and to devise appropriate remedies, the Court must accord special respect to congressional judgment regarding both means and ends. Congress's remedial powers under the Thirteenth Amendment similarly require deference to its identifi- cation of private discrimination and its choice of remedy. The enforcement clause of the Thirteenth Amendment is a source of uniquely federal power "to enact laws `direct and primary, operating upon the acts of individuals, whether sanctioned by State legis- ___________________(footnotes) C.J., and White, J.). Judge Posner in Milwaukee County Pavers Ass'n v. Fielder, 922 F.2d 419, 423-424 (7th Cir.), cert. denied, 500 U.S. 954 (1991 ), articulated the same principle. ---------------------------------------- Page Break ---------------------------------------- 38 lation or not.' " Runyon v. McCrary, 427 U.S. 160, 179 (1976) (quoting Jones v. Alfred H. Mayer Co., 392 U.S. 409, 438 (1968) ). Petitioner errs in contending that Congress's Sec- tion 5 powers are not relevant here because this case "involves a federal program implemented by a fed- eral agency" and "no state or local government is involved." Pet. Br. 33 n.29. The legacy of discrimi- nation that Congress aimed to remedy in STURAA and the SBA is a history not only of private.32 but also of state-sponsored discrimination.33 Nothing in the Fourteenth Amendment requires that a federal remedy for such discrimination be implemented only through the States.34 Congress's powers under the Thirteenth Amendment do not, in all events, turn on state responsibility for past and present racial dis- crimination. 2, Intermediate scrutiny applies here. It is thus "of overriding significance" to this case that the rebuttable presumption of disadvantage "ha [s] been ___________________(footnotes) 32 Discriminatory practices by prime contractors, banks, unions, vocational schools, and the like are among the prac- tices Congress sought to redress by expressly recognizing racial minorities as disadvantaged in highway construction and devising measures to remedy disadvantage in federal contracting. Some illustrations of the bases for Congress's action are touched upon in Appendix B, and in the materials referred to therein. 33 See, e.g., Minority Business Participation in Department of Transportation Project: Hearing Before a Subcomm. of the House Comm. on Government Operations, 99th Cong., 1st Sess. 185 (1985); 1988 Barriers Hearing 82, 117. 34 Under STURAA, however, Congress in fact chose in large part to implement its remedial program through the States: The vast majority of the funds allocated under STURAA-approximately 98%-is for aid to the States, which is also spent subject to STURAA disadvantaged busi- ness enterprise contracting provisions. ---------------------------------------- Page Break ---------------------------------------- 39 specifically approved-indeed, mandated-by Con- gress." Metro Broadcasting, 497 U.S. at 563. Al- though agency regulations define some aspects of the rebuttable presumption, Congress made the "critical determinations." Fullilove, 448 U.S. at 468 (opinion of Burger, C.J.). Congress thus determined that per- sons who are "socially disadvantaged because of their identification as members of certain groups that have suffered the effects of discriminatory practices" "in- clude, but are not limited to, Black Americans, His- panic Americans, Native Americans, Indian tribes, Asian Pacific Americans, Native Hawaiian Organiza- tions, and other minorities." 15 U.S.C. 631(f) (1) (B) and (C). It also determined that, in subcontracting, those minorities may be "presume [d]" to be disad- vantaged. 15 U.S.C. 637(d) (3) (C) (Supp. V 1993). The Administration and DOT each elaborated on those determinations in their regulations by outlining evidence relevant to determinations of social and eco- nomic disadvantage, 13 C.F.R. 124.105-124.106; 49 C.F.R. Pt. 23, Subpt. D, App. C, and by spelling out the procedures available for rebutting the presump- tion, 13 C.F.R. Pt. 124, Subpt. B; 49 C.F.R. 23.69; 49 C.F.R. Pt. 23, Subpt. D, App. C. The role of the agencies in "flesh[ing] out this skeleton, pursuant to delegated rulemaking authority," does not make the crucial race-based, remedial determination any less the decision of Congress. Fullilove, 448 U.S. at 468 (opinion of Burger, C.J.). The appropriate constitutional test for determining the validity of the rebuttable presumption of disad- vantage is set forth in the plurality opinion of Chief Justice Burger in Fullilove and in the majority opin- ion in Metro Broadcasting. Relying on Fullilove, this Court in Metro Broadcasting held that "benign race- ---------------------------------------- Page Break ---------------------------------------- 40 conscious measures mandated by Congress * * * are constitutionally permissible to the extent that they serve important governmental objectives within the power of Congress and are substantially related to achievement of those objectives." Metro Broadcast- ing, 497 U.S. at 564-565. In a facial challenge such as is presented in this case, "given a reasonable con- struction and in light of its projected administration, if [the Court] find [s] the [minority business enter- prise] program on its face to be free of constitutional defects, it must be upheld as within congressional power," Fullilove, 448 U.S. at 480-481 (opinion of Burger, C.J.). " [D]oubts must be resolved in sup- port of the congressional judgment that this limited program is a necessary step to effectuate the constitu- tional mandate for equality of economic opportunity." Id. at 489. Petitioner does not ask this Court to overrule Fulli- love. Rather, it contends that Chief Justice Burger's opinion effectively applied strict scrutiny, and urges this Court to so hold. Pet. Br. 26-27; Pet. 7-11. But the Court observed in Metro Broadcasting that "[a] majority of the Court in Fullilove did not apply strict scrutiny to the race-based classification at issue," 497 US. at 564-an observation with which the dissent- ing Justices in that case agreed. See id. at 608 (O'Connor, J., dissenting) ("the Court correctly ob- serves that a majority [in Fullitove] did not apply strict scrutiny" ). In any event, whatever label is given to the degree of scrutiny employed in Fullilove, the result there requires validation of the presumption challenged here, which is as strongly justified and more narrowly tailored than the set-asides at issue in Fullilove.35 ___________________(footnotes) 35 Petitioner also does not question the validity of the Court's decision in Metro Broadcasting, but seeks to distin- ---------------------------------------- Page Break ---------------------------------------- 41 3. Congress had a firm and compelling basis to act. Although Congress "need not make specific find- ings of discrimination to engage in race-conscious re- lief ," Croson, 488 U.S. at 489 (opinion of O'Connor, J.) ; see also Fullilove, 448 U.S. at 478 (opinion of Burger, C.J.), the presumption at issue here is in fact supported by explicit congressional findings that minorities are disadvantaged in participating in high- way construction projects because of racial discrim- ination and its continuing effects. See pp. 7-12, supra; App., infra, 18a-34a. As it did in enacting the Public Works Employment Act of 1977 (PWEA) at issue in Fullilove, Congress in the SBA and STURAA sought to ensure that state and private entities receiving federal funds and contracts would not employ procurement practices that Congress had decided "might result in perpetuation of the effects of prior discrimination which had impaired or fore- closed access by minority businesses to public con- tracting opportunities." Fullilove, 448 U.S. at 473 (opinion of Burger, C.J. ). Census data available to Congress further demonstrate that minorities in the construction industry, and in the economy generally, ___________________(footnotes) guish it as applicable only to non-remedial affirmative action in which First Amendment interests are at stake. Pet. Br. 28-31. Intermediate scrutiny applicable to a non-remedial race-conscious program, however, should, a fortiori", apply to a remedial program such as this one, given that the interest in remedying racial discrimination is the most compelling reason the Court has yet identified for race-based legislative distinc- tions. See Metro Broadcasting, 497 U.S. at 611 (O'Connor, J., dissenting). The First Amendment interests at stake in Metro Broadcasting did not contribute to the Court's view that a lesser level of scrutiny was required, but rather fac- tored into the determination whether, under the intermediate test the Court employed, the government had established a sufficiently "important governmental objective[]." Id. at 565. ---------------------------------------- Page Break ---------------------------------------- 42 have continued to lag far behind whites in securing economic opportunities. Appendix C to this brief sets forth census figures showing that, although there have been modest improvements in some respects since 1978, the participation of racial minority groups in the construction industry, and the economic benefit they derive from construction work they do, continue to lag far behind that of whites. Such data, as well as all legislative materials, are relevant to the determination that Congress was acting to remedy the effects of prior discrimination, since "Con- gress, of course, may legislate without compiling the kind of `record' appropriate with respect to judicial or administrative proceedings." Metro Broadcasting, 497 U.S. at 572 (quoting Fullilove, 448 U.S. at 478 (opinion of Burger, C,J,)) ; see also Metro Broad- casting, 497 U.S. at 572 (quoting Fullilove, 448 U.S. at 502-503 (Powell, J., concurring)). Congress may act broadly both in identifying dis- crimination and in fashioning a remedy for it.36 In Croson, which concerned action taken by a city coun- cil, not Congress, the plurality rejected the appellee's view that "the city must limit any race-based re- medial efforts to eradicating the effects of its own prior discrimination." 488 U.S. at 486 (opinion of O'Connor, J.). Congress may also act with the forward-looking goal of increasing opportunities for ___________________(footnotes) 36 "Congress may identify and redress the effects of society- wide discrimination. " Croson, 488 U.S. at 490 (opinion of O'Connor, J.) ; see also Wygant V. Jackson Board of Educa- tion, 476 U.S. 267, 287 (1986) ( O'Connor, J., concurring in part and concurring in the judgment) ("a plan need not be limited to the remedying of specific instances of identified discrimination for it to be deemed sufficiently `narrowly tail- ored,' or `substantially related,' to the correction of prior discrimination by the state actor"). ---------------------------------------- Page Break ---------------------------------------- 43 those who have been disadvantaged by racial discrim- ination. "A central purpose of the Fourteenth Amend- ment is to further the national goal of equal oppor- tunity for all our citizens," but remedying past harms need not be done without "studying their probable impact on the future. " Croson, 488 U.S. at 511 (Stevens, J., concurring in part and concurring in the judgment) ; see Metro Broadcasting, 497 U.S. at 601 (Stevens, J., concurring). E. The Clause Is Narrowly Tailored To Achieve Con- gress's Constitutional Objectives Although satisfaction of intermediate scrutiny is all that is required, the Subcontracting Compensation Clause is sufficiently narrowly tailored to satisfy even the most stringent constitutional scrutiny. In- deed, the use of the rebuttable presumption of dis- advantage under the SBA, rather than a fixed set- aside for minorities, is the very program that the petitioners in Fullilove advocated as an acceptable, because "less onerous," alternative to the program they challenged in that case. Brief for Petitioner, General Building Contractors of New York State, Inc., at 30 (No. 78-1007). The Fullilove petitioners emphasized that SBA disadvantaged business certifi- cations are not limited to minorities, but are "struc- tured to assisting businesses of socially and econom- ically disadvantaged individuals. " Ibid. They favor- ably characterized the certification program in this case as "similar to the race-conscious approach taken by Harvard College in its admission program, which Justice Powell has found constitutional." Id. at 30 n.37 (citing Regents of the University of California v. Bakke, 438 U.S. 265, 316 (1978)). 1. The Clause is not underinclusive. The race- conscious affirmative measures this Court has previ- ---------------------------------------- Page Break ---------------------------------------- 44 ously approved, unlike the Clause at issue here, have not allowed minority business enterprises to partici- pate. See, e.g., Metro Broadcasting, 497 U.S. at 630 (0'Connor, J., dissenting) (opportunity to compete for licenses in distress sales "depends entirely upon race or ethnicity" ). The criteria for qualification for disadvantaged status under the SBA and STURAA, in contrast, allow businesses owned by persons who are not members of minority groups to participate when they establish their social and economic dis- advantage. 48 C.F.R. 19.703; 49 C.F.R. Pt. 23, Subpt. D., Apps. A and C. 2. The Clause is not overinclusive. At the same time, the Clause is not overinclusive, because it does not include all minority-owned businesses in its cov- erage, without regard to whether they have in fact suffered from social or economic disadvantage. In Fullilove, where all minority-owned contractors were included, the Court was satisfied that the 10 % set- aside there was sufficiently tailored because the pro- gram included: (1) administrative scrutiny to weed out "minority-f rent entities," (i.e., businesses that purported to be owned and controlled by members of racial minority groups but that were in fact nonminority-owned and -controlled businesses), 448 U.S. at 487-488 (opinion of Burger, C. J.) ; (2) pro- cedures for a prime contractor to obtain a waiver of the set-aside requirement in order to avoid dealing with a minority business that was "attempting to exploit the remedial aspects of the program by charg- ing an unreasonable price, i.e., a price not attributable to the present effects of past discrimination," id. at 488: and (3) procedures permitting the set-aside goals to be waived when the grantee could show that its "best efforts will not succeed or have not succeeded in achieving the statutory 10% target for minority ---------------------------------------- Page Break ---------------------------------------- 45 firm participation within the limitations of the pro- gram's remedial objectives," ibid. The Clause here is significantly more closely tailored to ensure that only disadvantaged minorities benefit from the subcon- tracting program. The rebuttable presumption employed under the Clause is a fitting response to Congress's findings of competitive business disadvantage due to racial dis- crimination. The presumption responds to those find- ings in a manner designed effectively to ameliorate the insidious harms caused by racial discrimination, while neither limiting the remedy to race nor benefit- ing minorities who are not in fact disadvantaged. Congress recognized that the racial minorities to whom the presumption applies have been pervasively subjected to social and economic disadvantages-es- pecially in the construction industry, where racial dis- crimination has been particularly virulent and tena- cious- because of discrimination against them. The rebuttable presumption recognizes that it is factually accurate in most cases to presume that such disad- vantage has affected a small minority subcontractor. By enacting a presumption, rather than a conclusive determination, Congress recognized the realities that not all minority group members have equally borne the brunt of racial discrimination and that other bias- related disadvantages may equally affect the ability of small businesses to compete for government contracts. The use of the presumption thus operates to focus the inquiry on disadvantage by indicating a result in the absence of additional evidence. See St. Mary's Honor Center v. Hicks, 113 S. Ct. 2742 (1993). Such a presumption is valid if it rests on "a sound factual connection between the proved and inferred facts." ---------------------------------------- Page Break ---------------------------------------- 46 IVLRB v. Baptist Hospital, Inc., 442 U.S. 773, 787 ( 1979) .37 Chief Justice Burger in Fullilove found the minority business set-aside there adequately tailored precisely because it effectively operated as a presump- tion subject to rebuttal: Congress assumed that minor- ity business enterprise prices would reflect the effects of discrimination, and that, in the absence of discrimi- nation, minority participation in federal construction projects would be approximately 10%. Crucial to the finding of narrow tailoring, however, was that "each of these assumptions may be rebutted in the admin- istrative process. " Fullilove, 448 U.S. at 487 (opin- ion of Burger, C.J.) ; see Croson, 488 U.S. at 489 (opinion of O'Connor, J.) (noting with approval that, in Fullilove, both " `assumptions' could be `rebutted' by a grantee seeking a waiver of the 10% require- ment" ). Here, the very participation of a minority business enterprise in the program is subject to proof of actual disadvantage if the rebuttable presumption of disadvantage is brought into question.38 ___________________(footnotes) 37 It is "only essential that there shall be some rational connection between the fact proved and the ultimate fact presumed, and that the inference of one fact from proof of another shall not be so unreasonable as to be a purely arbi- trary mandate." Usery v. Turner Elkhorn Mining Co., 428 U.S. 1, 28 (1976) (quoting Mobile, J. & K.C.R.R. v, Turn- ispeed, 219 U.S. 35, 43 (1910) ). Because the "process of making the determination of rationality is, by its nature, highly empirical, * * * significant weight should be accorded the capacity of Congress to amass the stuff of actual experi- ence and cull conclusions from it." Ibid. (quoting United States v. Gainey, 380 U.S. 63,67 (1965)). 38 The Statutes and the regulations contain provisions more forceful and extensive than those in the program reviewed in Fullilove to prevent the minority presumption from being abused by nonminority, non-disadvantaged business "f rents" ---------------------------------------- Page Break ---------------------------------------- 47 3. The Clause does not involve a fixed quota or set-aside. A third way in which the Clause is nar- rowly tailored is that it does not establish a racial set-aside or reflect any fixed or rigid racial quota. Specifically, the SBA'S overall goals for the use of disadvantaged small businesses do not, contrary to petitioner's repeated contention (Pet. Br. 20, 47, 48), function as set-asides, They are benchmarks against which the procuring agencies, the Small Business Administration, Congress, and the President may measure the agencies' performances in contracting with those businesses. As petitioner itself explained in the court of appeals: The mere setting of a "goal" does no harm. This is because a goal, in and of itself, has no substantive effect. Constitutional problems arise only when a public entity grants a race-based preference to one class of persons in order to achieve a goal. Thus, the question of the means used to achieve a racial goal is entirely separate from the setting of the goal itself. Adarand C.A. Br. 19. Nor does the particular program challenged here -the Subcontracting Compensation Clause-estab- lish any set-aside or percentage contracting require- ment. Agreeing to subcontract with disadvantaged businesses is not a contractual condition of eligibility for award of the prime contract. Contractors are entirely free to contract with any subcontractor they ___________________(footnotes) posing as disadvantaged businesses. See 15 U.S.C. 645 (d) (providing that misrepresentations of disadvantaged status in order to obtain contracts are punishable by up to 10 years' imprisonment and/or $500,000 fine) ; 13 C.F.R. 124.5, 124.6, 124.103, 124.104, 124.108, 124.109 ; 49 C.F.R. Pt. 23, Subpt. D, App. C (other eligibility considerations, addressing require- ment of ownership and control) ; 49 C.F.R. 23.51-23.53. ---------------------------------------- Page Break ---------------------------------------- 48 believe will best and most economically do the job. They are affirmatively encouraged to utilize and sup- port disadvantaged businesses by the opportunity to recover the additional costs attending that use and support, but there are no sanctions or penalties if a prime contractor elects not to take advantage of that opportunity. Because prime contractors are not ob- ligated to accept the lowest bidder on subcontracts, no "legitimate, firmly rooted expectation" is disturbed by the Clause. Johnson v. Transportation Agency, Santa Clara County, 480 U.S. 616, 638 (1987). Nor does it appear that a disproportionate number of subcontracts is directed toward disadvantaged sub- contractors through use of the Clause. In fact, non- disadvantaged businesses obtain more than 95% of the subcontracting dollars on federal contracts.39 4. The rebuttable presumption is of limited dura- tion. Finally, the rebuttable presumption applicable under the Subcontracting Compensation Clause is "appropriately limited in extent and duration," be- cause the statutes that establish it are subject to regular "reassessment and reevaluation by the Con- gress." Fullilove, 448 U.S. at 489 (opinion of Bur- ger, C.J. ). STURAA, like the PWEA, is an appro- priations measure of finite duration. The SBA, though of more permanent nature, is also subject to periodic and extensive congressional oversight. The SBA requires annual reporting to Congress and the President. 15 U.S.C. 631b, 644(h) (1988 & Supp. V 1993 ). Congress also frequently holds hearings on the operation of the SBA'S disadvantaged business ___________________(footnotes) 39 In Fiscal Year 1987, "only 3.1 percent of the federal pro- curement prime subcontracting awards were performed by minority businesses" and "only $1.5 billion in subcontracts were directed to minority firms out of a total of $63 billion. " S. Rep. No. 394, 100th Cong., 2d Sess. 81, 82 (1988). ---------------------------------------- Page Break ---------------------------------------- 49 enterprise programs. See Appendix B, infra, 18a-36a. Congress closely follows the efforts of federal agen- cies to utilize disadvantaged businesses, and the SBA allows the goals to be set by the agencies at lower levels as circumstances warrant. The high degree of congressional concern is a forceful indication that underutilization of disad- vantaged businesses is the acute social and economic problem facing the Nation; petitioner's claim that the program at issue here unfairly over-utilizes mi- nority businesses finds no support in either the rec- ord or facts of this case or in the unusually exten- sive legislative record developed by a Congress deeply concerned with both economic development and racial justice. Congress can, moreover, confidently be ex- pected to prevent any expansion of its programs that would give undue competitive advantages to disad- vantaged businesses; such advantages would be en- 0tirely-inconsistent with Congress's purposes to stim- ulate national economic activity and to improve the efficiency of federal procurement. II. PRINCIPLES OF STARE DECISIS SUPPORT THE CONTINUING VITALITY OF FULLILOVE V. KLUTZNICK This Court should not depart from the funda- mental constitutional principle of Fullilove that Con- gress has unique powers to enact race-based reme- dies. That principle was reaffirmed in Croson.40 No conflict has developed in the lower courts as to the proper interpretation or application of Fullilove. See, ___________________(footnotes) 40 488 U.S. at 490-491 (O'Connor, J., joined by Rehnquist, C.J., and White J.) ; id. at 521-522 (Scalia, J., concurring in the judgment) ; id. at 557-558 (Marshall, J., joined by Bren- nan and Blackmun, JJ., dissenting). See also Metro Broad- casting, 497 U.S. at 606-609 (O'Connor, J., dissenting) ; id. at 634 (Kennedy, J. dissenting). ---------------------------------------- Page Break ---------------------------------------- 50 e.g., Harrison & Burrowes Bridge Constructors, Inc. v. Cuomo, 981 F.2d 50, 57 (2d Cir. 1992) ; Ellis v. Skinner, 961 F.2d 912, 915 (lOth Cir.), cert. de- nied, 113 S. Ct. 374 (1992) ; Tennessee Asphalt Co. v. Farriss, 942 F.2d 969, 975 (6th Cir. 1991) ; Mil- waukee County Pavers Ass'n v. Fielder, 922 F.2d 419, 423-424 (7th Cir.), cert. denied, 500 U.S. 954 (1991 ) ; see also O'Donnell Construction Co. v. Dis- trict of Columbia, 963 F.2d 420, 423 (D.C. Cir. 1992 ) ; id. at 429 (Ginsburg, J., concurring). The central rule of Fullilove has in no way "been found unworkable," Planned Parenthood v. Casey, 112 S. Ct. 2791, 2809 (1992), and no new principle of law has called its correctness into question. This Court should continue to sustain Congress's vital role in remedying the effects of racial discrimination that continue to burden the Nation's economy and polit- ical life by reaffirming Fullilove. CONCLUSION The judgment of the court of appeals should be affirmed. Respectfully submitted, DREW S. DAYS, III Solicitor General STEPHEN H. KAPLAN DEVAL L. PATRICK General Counsel Assistant Attorney General PAUL M. GEIER Assistant General Counsel for Litigation EDWARD V.A. KUSSY Deputy Chief Counsel Federal Highway Administration Department of Transportation PAUL BENDER Deputy Solicitor General CORNELIA T.L. PILLARD Assistant to the Solicitor General DAVID K. FLYNN LISA C. WILSON Attorneys DECEMBER 1994 ---------------------------------------- Page Break ---------------------------------------- APPENDIX A CONSTITUTIONAL PROVISIONS INVOLVED 1. The Spending Clause of the United States Con- stitution, Article I, Section 8, Clause 1, provides: The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defense and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States. 2. The Commerce Clause of the United States Con- stitution, Article I, Section 8, Clause 3, provides: The Congress shall have Power * * * To regulate Commerce with foreign Nations, and among the sev- eral States, and with the Indian Tribes. 3. The Thirteenth Amendment to the United States Constitution provides: Section 1. Neither slavery nor involuntary servi- tude, except as a punishment for crime whereof the party shall have been duly convicted, shall exist within the United States, or any place subject to their juris- diction. Section 2. Congress shall have power to enforce this article by appropriate legislation. 4. The Fourteenth Amendment to the United States Constitution provides, in pertinent part: Section 1. * * * No State shall make or enforce any law which shall abridge the privileges or immuni- ties of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, (la) ---------------------------------------- Page Break ---------------------------------------- 2a without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws. * * * * * Section 5. The Congress shall have power to en- force, by appropriate legislation, the provisions of this article. STATUTORY PROVISIONS INVOLVED 1. The Small Business Act, 15 U.S.C. 631 et seq. (1988 & Supp. V 1993), provides, in pertinent part: 631. Declaration of policy * * * * * (f) Findings; purpose (1) With respect to the Administration's business development programs the Congress finds- (A) that the opportunity for full participa- tion in our free enterprise system by socially and economically disadvantaged persons is essential if we are to obtain social and economic equality for such persons and improve the functioning of our national economy; (B) that many such persons are socially dis- advantaged because of their identification as members of certain groups that have suffered the effects of discriminatory practices or similar invidious circumstances over which they have no control; (C) that such groups include, but are not limited to, Black Americans, Hispanic Ameri- cans, Native Americans, Indian tribes, Asian ---------------------------------------- Page Break ---------------------------------------- 3a Pacific Americans, Native Hawaiian Organiza- tions, and other minorities; (D) that it is in the national interest to ex- peditiously ameliorate the conditions of socially and economically disadvantaged groups; (E) that such conditions can be improved by providing the maximum practicable opportunity for the development of small business concerns owned by members of socially and economically disadvantaged groups; (F) that such development can be materially advanced through the procurement by the United States of articles, equipment, supplies, services, materials, and construction work from such con- cerns; and (G) that such procurements also benefit the United States by encouraging the expansion of suppliers for such procurements, thereby encour- aging competition among such suppliers and pro- moting economy in such procurements. (2) It is therefore the purpose of section 637(a) of this title to- (A) promote the business development of small business concerns owned and controlled by socially and economically disadvantaged individ- uals so that such concerns can compete on an equal basis in the American economy; (B) promote the competitive viability of such concerns in the marketplace by providing such available contract, financial, technical, and man- agement assistance as may be necessary; and (C) clarify and expand the program for the procurement by the United States of articles, supplies, services, materials, and construction ---------------------------------------- Page Break ---------------------------------------- 4a work from small business concerns owned by socially and economically disadvantaged individ- uals. * * * * * 631b. Reports to Congress; state of small business (a) Report on Small Business and Competition The President shall transmit to the Congress not later than January 20 of each year a Report on Small Business and Competition which shall- (1) examine the current role of small busi- ness in the economy on an industry-by-industry basis; (2) present current and historical data on production, employment, investment, population, job creation and retention, annual business fail- ures, annual business startups, and other eco- nomic variables for small business in the econ- omy as a whole and for small business in each sector of the economy, with, to the extent prac- ticable, specific statistics divided as to urban, suburban, and rural areas; (3) identify economic trends which will or may affect the small business sector and the state of competition; (4) examine the effects on small business and competition of policies, programs, and activities, including. but not limited to the Internal Revenue Code [26 U.S.C. 1 et seq.], the Employee Retirement Income Security Act [29 U.S.C. 1001 et seq.], the Securities Act of 1933 [15 U.S.C. 77a et seq.], and the Securities Ex- change Act of 1934 [15 U.S.C. 78a et seq.], and regulations promulgated thereunder; iden- tify problems generated by such policies, pro- ---------------------------------------- Page Break ---------------------------------------- 5a grams, and activities; and recommend legislative and administrative solutions to such problems; and (5) recommend a program for carrying out the policy declared in section 631a of this title, together with such recommendations for legisla- tion as he may deem necessary or desirable. (b) Appendix to report The President also shall transmit simultaneously as an appendix to such annual report, a report, by agency and department, on the total dollar value of all Federal contracts exceeding $10,000 in amount and the dollar amount (including the subcontracts thereunder in excess of $10,000) awarded to small, minority-owned and female-owned business. * * * * * (e) Small business concerns owned by disadvan- taged individuals and by women The information and data required to be reported pursuant to subsection (a) of this section shall sepa- rately detail those portions of such information and data that are relevant to- (1) small business concerns owned and con- trolled by socially and economically disadvan- taged individuals, by gender, as defined pursuant to section 637(d) of this title; and (2) small business concerns owned and con- trolled by women. * * * * * ---------------------------------------- Page Break ---------------------------------------- 6a 637. Additional powers (a) Procurement contracts; subcontracts to disad- vantaged small business concerns; performance bonds; contract negotiations; definitions; eligi- bility; determinations; publication; recruit- ment; construction subcontracts; annual esti- mates; Indian tribes * * * * (4) (A) For purposes of this section, the term "socially and economically disadvantaged small business concern" means any small business con- cern which meets the requirements of subpara- graph (B) and- (i) which is at least 51 per centum un- conditionally owned by- (1) one or more socially and eco- nomically disadvantaged individuals, (II) an economically disadvantaged Indian tribe (or a wholly owned busi- ness entity of such tribe), or (III) an economically disadvantaged Native Hawaiian organization, or (ii) in the case of any publicly owned business, at least 51 per centum of the stock of which is unconditionally owned by- (1) one or more socially and eco- nomically disadvantaged individuals, (II) an economically disadvantaged Indian tribe (or a wholly owned busi- ness entity of such tribe), (III) an economically disadvantaged Native Hawaiian organization. ---------------------------------------- Page Break ---------------------------------------- 7a (B) A small business concern meets the re- quirements of this subparagraph if the manage- ment and daily business operations of such small business concern are controlled by one or more- (i) socially and economically disadvan- taged individuals described in subparagraph (A) (i) (I) or subparagraph (A) (ii) (I), (ii) members of an economically disad- vantaged Indian tribe described in subpara- graph (A) (i) (II) or subparagraph (A) (ii) (II), or (iii) Native Hawaiian organizations de- scribed in subparagraph (A) (i) (III) or subparagraph (A) (ii ) (III). (C) Each Program Participant shall certify, on an annual basis, that it meets the require- ments of this paragraph regarding ownership and control. (5) Socially disadvantaged individuals are those who have been subjected to racial or ethnic prejudice or cultural bias because of their iden- tity as a member of a group without regard to their individual qualities. (6) (A) Economically disadvantaged individ- uals are those socially disadvantaged individuals whose ability to compete in the free enterprise system has been impaired due to diminished cap- ital and credit opportunities as compared to others in the same business area who are not socially disadvantaged. In determining the de- gree of diminished credit and capital opportuni- ties the Administration shall consider, but not be limited to, the assets and net worth of such socially disadvantaged individual. In determin- ---------------------------------------- Page Break ---------------------------------------- 8a ing the economic disadvantage of an Indian tribe, the Administration shall consider, where available, information such as the following: the per capita income of members of the tribe ex- cluding judgment awards, the percentage of the local Indian population below the poverty level, and the tribe's access to capital markets. (B) Each Program Participant shall annually submit to the Administration- (i) a personal financial statement for each disadvantaged owner; (ii) a record of all payments made by the Program Participant to each of its disad- vantaged owners or to any person or entity affiliated with such owners; and (iii) such other information as the Ad- ministration may deem necessary to make the determination required by this para- graph. (C) (i) Whenever, on the basis of informa- tion provided by a Program Participant pur- suant to subparagraph (B) or otherwise, the Administration has reason to believe that the standards to establish economic disadvantage pursuant to subparagraph (A) have not been met, the Administration shall conduct a review to determine whether such Program Participant and its disadvantaged owners continue to be im- paired in their ability to compete in the free enterprise system due to diminished capital and credit opportunities when compared to other con- cerns in the same business area, which are not socially disadvantaged. ---------------------------------------- Page Break ---------------------------------------- 9a (ii) If the Administration determines, pursu- ant to such review, that a Program Participant and its disadvantaged owners are no longer economically disadvantaged for the purpose of receiving assistance under this subsection, the Program Participant shall be graduated pursu- ant to section 636(j) (10) (G) of this title sub- ject to the right to a hearing as provided for under paragraph (9). * * * * * (d) Performance of contracts by small business concerns; inclusion of required contract clause; subcontracting plans; contract eligibility; in- centives; breach of contract; review; report to Congress (1) It is the policy of the United States that small business concerns, and small business concerns owned and controlled by socially and economically disadvan- taged individuals, shall have the maximum practica- ble opportunity to participate in the performance of contracts let by any Federal agency, including con- tracts and subcontracts for subsystems, assemblies, components, and related services for major systems. It is further the policy of the United States that its prime contractors establish procedures to ensure the timely payment of amounts due pursuant to the terms of their subcontracts with small business con- cerns and small business concerns owned and con- trolled by socially and economically disadvantaged individuals. (2) The clause stated in paragraph (3) shall be included in all contracts let by any Federal agency except any contract which- ---------------------------------------- Page Break ---------------------------------------- 10a (A) does not exceed the small purchase threshold; (B) including all subcontracts under such con- tracts will be performed entirely outside of any State, territory, or possession of the United States, the District of Columbia, or the Common- wealth of Puerto Rico; or (C) is for services which are personal in nature. (3) The clause required by paragraph (2) shall be as follows: "(A) It is the policy of the United States that small business concerns and small business con- cerns owned and controlled by socially and eco- nomically disadvantaged individuals shall have the maximum practicable opportunity to partici- pate in the performance of contracts let by any Federal agency, including contracts and subcon- tracts for subsystems, assemblies, components, and related services for major systems. It is fur- ther the policy of the United States that its prime contractors establish procedures to ensure the timely payment of amounts due pursuant to the terms of their subcontracts with small busi- ness concerns and small business concerns owned and controlled by socially and economically dis- advantaged individuals. "(B) The contractor hereby agrees to carry out this policy in the awarding of subcontracts to the fullest extent consistent with the efficient performance of this contract. The contractor further agrees to cooperate in any studies or sur- veys as may be conducted by the United States Small Business Administration or the awarding ---------------------------------------- Page Break ---------------------------------------- 11a agency of the United States as may be necessary to determine the extent of the contractor's com- pliance with this clause. " (C) As used in this contract, the term small business concern' shall mean a small business as defined pursuant to section 3 of the Small Business Act [15 U.S.C. 632] and relevant regulations promulgated pursuant thereto. The term `small business concern owned and con- trolled by socially and economically disadvan- taged individuals' shall mean a small business concern- " (i) which is at least 51 per centum owned by one or more socially and economically disadvantaged individuals; or, in the case of any publicly owned business, at least 51 per centum of the stock of which is owned by one or more socially and economically dis- advantaged individuals; and "(ii) whose management and daily busi- ness operations are controlled by one or more of such individuals. "The contractor shall presume that socially and economically disadvantaged individuals include Black Americans, Hispanic Americans, Native Americans, Asian Pacific Americans, and other minorities, or any other individual found to be disadvantaged by the Administration pursuant to section 8(a) of the Small Business Act [15 U.S.C. 637(a)]. "(D) Contractors acting in good faith may rely on written representations by their subcon- tractors regarding their status as either a small business concern or a small business concern ---------------------------------------- Page Break ---------------------------------------- 12a owned and controlled by socially and economically disadvantaged individuals." * * * * * 644. Awards or contracts * * * * * (g) Goals for participation of small business con- cerns in procurement contracts (1) The President shall annually establish Govern- ment-wide goals for procurement contracts awarded to small business concerns and small business con- cerns owned and controlled by socially and econom- ically disadvantaged individuals. The Government wide goal for participation by small business con- cerns shall be established at not less than 20 percent of the total value of all prime contract awards for each fiscal year. The Government-wide goal for par- ticipation by small business concerns owned and con- trolled by socially and economically disadvantaged individuals shall be established at not less than 5 percent of the total value of all prime contract and subcontract awards for each fiscal year. Notwith- standing the Government-wide goal, each agency shall have an annual goal that presents, for that agency, the maximum practicable opportunity for small business concerns and small business concerns owned and controlled by socially and economically disadvantaged individuals to participate in the per- formance of contracts let by such agency. The Ad- ministration and the Administrator of the Office of Federal Procurement Policy shall, when exercising their authority pursuant to paragraph (2), insure that the cumulative annual prime contract goals for all agencies meet or exceed the annual Government- ---------------------------------------- Page Break ---------------------------------------- 13a wide prime contract goal established by the President pursuant to this paragraph. (2) The head of each Federal agency shall, after consultation with the Administration, establish goals for the participation by small business concerns, and by small business concerns owned and controlled by socially and economically disadvantaged individuals, in procurement contracts of such agency. Goals es- tablished under this subsection shall be jointly estab- lished by the Administration and the head of each Federal agency and shall realistically reflect the po- tential of small business concerns and small business concerns owned and controlled by socially and eco- nomically disadvantaged individuals to perform such contracts and to perform subcontracts under such con- tracts. Whenever the Administration and the head of any Federal agency fail to agree on established goals, the disagreement shall be submitted to the Administrator of the Office of Federal Procurement Policy for final determination. For the purpose of establishing goals under this subsection, the head of each Federal agency shall make consistent efforts to annually expand participation by small business con- cerns from each industry category in procurement contracts of the agency, including participation by small business concerns owned and controlled by socially and economically disadvantaged individuals. The head of each Federal agency, in attempting to attain such participation, shall consider- (A) contracts awarded as the result of unre- stricted competition; and (B) contracts awarded after competition re- stricted to eligible small business concerns under ---------------------------------------- Page Break ---------------------------------------- 14a this section and under the program established under section 637 (a) of this title. (h) Reports to Administration; submittal of infor- mation to Congress (1) At the conclusion of each fiscal year, the head of each Federal agency shall report to the Adminis- tration on the extent of participation by small busi- ness concerns and small business concerns owned and controlled by socially and economically disadvan- taged individuals in procurement contracts of such agency. Such reports shall contain appropriate justi- fications for failure to meet the goals established under subsection (g) of this section. (2) The Administration shall annually compile and analyze the reports submitted by the individual agencies pursuant to paragraph (1) and shall sub- mit them to the President. The Administration's submission to the President shall include the fol- lowing: (A) The Government-wide goals for partici- pation by small business concerns and small business concerns owned and controlled by so- cially and economically disadvantaged individ- uals and the performance in attaining such goals. (B) The goals in effect for each agency and the agency's performance in attaining such goals. (C) An analysis of any failure to achieve the Government-wide goals or any individual agency goals and the actions planned by such agency (and approved by the Administration) to achieve the goals in the succeeding fiscal year. ---------------------------------------- Page Break ---------------------------------------- 15a (D) The number and dollar value of con- tracts awarded to small business concerns and small business concerns owned and controlled by socially and economically disadvantaged indi- viduals through- (i) noncompetitive negotiation, (ii) competition restricted to small busi- ness concerns owned and controlled by so- cially and economically disadvantaged in- dividuals, (iii) competition restricted to small busi- ness concerns, and (iv) unrestricted competitions, for each agency and on a Government-wide basis. (E) The number and dollar value of subcon- tracts awarded to small business concerns and small business concerns owned and controlled by socially and economically disadvantaged indi- viduals. (F) The number and dollar value of prime contracts and subcontracts awarded to women- owned small business enterprises. (3) The President shall include the information required by paragraph (2) in each annual report to the Congress on the state of small business prepared pursuant to section 631b (a) of this title. * * * * * 2. Section 106 of the Surface Transportation and Uniform Relocation Assistance Act of 1987, Pub. L. ---------------------------------------- Page Break ---------------------------------------- 16a No. 100-17, 101 Stat. 144-146, provides, in pertinent part: SEC. 106. AUTHORIZATION OF APPROPRIA- TIONS. (a) From the Highway Trust Fund.-For the pur- pose of carrying out the provisions of title 23, United States Code, the following sums are hereby author- ized to be appropriated out of the Highway Trust Fund (other than the Mass Transit Account) : * * * * * (8) Forest highways .-For forest highways $55,000,000 per fiscal year for each fiscal years 1987, 1988, 1989, 1990, and 1991. * * * * * (c) Disadvantaged Business Enterprises.- (1) General rule.- Except to the extent that the Secretary determines otherwise, not less than 10 percent of the amounts authorized to be ap- propriated under titles I and III of this Act or obligated under titles I, II, and III (other than section 203 ) of the Surface Transportation As- sistance Act of 1982 after the date of the enact- ment of this Act shall be expended with small business concerns owned and controlled by so- cially and economically disadvantaged indi- viduals. (2) Definitions.- For purposes of this subsec- tion- (A) Small business concern.-The term "small business concern" has the meaning such term has under section 3 of the Small Business Act (15 U.S.C. 632); except that such term shall not include any concern or group of concerns controlled by the same ---------------------------------------- Page Break ---------------------------------------- 17a socially and economically disadvantaged in- dividual or individuals which has average annual gross receipts over the preceding 3 fiscal years in excess of $14,000,000, as ad- justed by the Secretary for inflation. (B) Socially and economically disadvan- taged individuals .-The term "socially and economically disadvantaged individuals" has the meaning such tern- has under section 8 (d) of the Small Business Act (15 U.S.C. 637 (d) ) and relevant subcontracting regu- lations promulgated pursuant thereto; ex- cept that women shall be presumed to be socially and economically disadvantaged in- dividuals for purposes of this subsection. (3) Annual listing of disadvantaged business enterprises.-Each State shall annually survey and compile a list of the small business concerns referred to in paragraph (1) and the location of such concerns in the State. (4) Uniform certification .-The Secretary shall establish minimum uniform criteria for State governments to use in certifying whether a concern qualifies for purposes- of- this subsec- tion. Such minimum uniform criteria shall in- clude but not be limited to on-site visits, personal interviews, licenses, analysis of stock ownership, listing of equipment, analysis of bonding capac- ity, listing of work completed, resume of prin- cipal owners, financial capacity, and type of work performed. (5) Applicability.Section 105 (f) of the Sur- face Transportation Assistance Act of 1982 shall not apply to amounts authorized under such Act and obligated after the date of the enactment of this Act. ---------------------------------------- Page Break ---------------------------------------- 18a APPENDIX B Statements in Congress Regarding Racial Discrimination and its Effects on Minority Business Enterprises The following remarks by Members of Congress and industry experts in testimony received in hear- ings before congressional committees are relevant to our submission that, in enacting the disadvantaged business enterprise (DBE) provisions in the Small Business Act ( SBA) and the Surface Transportation and Uniform Relocation Assistance Act of 1987 (STURAA), Congress was seeking, among other things, to remedy the effects of discrimination against minorities. Before Congress enacted the laws at issue here, and throughout the period they have been in place, Congress has repeatedly considered testimony on both sides of the debate about whether race- conscious remedial measures are needed. The following are illustrative statements in sup- port of the measures: 1. When Congress in 1978 debated amending the SBA to add findings of the disadvantage suffered by racial minorities, it considered the effects of racial discrimination on minority participation in public contracting. Following the introduction of the Conference Re- port to the Senate, Senator Weicker stated: The pattern of social and economic discrimina- tion that continues to deprive racial and ethnic minorities of the opportunity to participate fully in the free enterprise system is recognized. 124 Cong. Rec. 35,204 (1978). See also id. at 29,637 (remarks of Sen. Weicker) ("This legislation recog- nizes the pattern of social and economic discrimina- ---------------------------------------- Page Break ---------------------------------------- 19a tion that continues to deprive racial and ethnic minor- ities of the opportunity to participate fully in the free enterprise system." ) ; see id. at 24,021 (remarks of Rep. Mitchell) ("The promises of equality for minorities are inanitions." ).1 Senator Dole argued for the passage of the Minor- ity Business Development and Assistance Act of 1977 (amending the SBA), stating that the "underlying rationale" of the bill "is that minority businessmen can compete equally when given an equal opportunity. One of the most important steps this country can take to insure equal opportunity for its hispanic, black and other minority citizens is to involve them in the mainstream of our free enterprise system." 124 Cong. Rec. 7681 (1978). This Court, in upholding the minority set-asides in the Public Works Employment Act of 1977 in Fulli- love v. Klutznick, 448 U.S. 448 (1980), relied sub- stantially on the findings of discrimination supporting the 1978 SBA Amendments at issue here. See 448 U.S. at 460, 463-468 (opinion of Burger, C.J. ). Chief Justice Burger relied on a report of the Committee on Small Business that summarized the Committee's ongoing activities in the period leading up to the 1978 SBA Amendments, see H.R. Rep. No. 1791, 94th Cong., 2d Sess. (1977). He also quoted from a re- port of the Subcommittee on SBA Oversight and Minority Enterprise of the House Committee on Small Business referred to therein, see H.R. Rep. No. 468, 94th Cong., 1st Sess. (1975), which concluded: The effects of past inequities stemming from racial prejudice have not remained in the past. ___________________(footnotes) 1 See generally 124 Cong. Rec. 321-323 (1978) (statements of Sen. Brooke on the state of minority businesses). ---------------------------------------- Page Break ---------------------------------------- 20a The Congress has recognized the reality that past discriminatory practices have, to some degree, adversely affected our economic system. Id. at 1-2. See also Fullilove, 448 U.S. at 466-468 (opinion of Burger, C.J.) (referring to other reports making findings of discrimination that were con- sidered by Congress shortly before the SBA Amend- ments). 2. In 1980, the Senate Select Committee on Small Business held a hearing on legislation to amend pro- visions of the SBA that pertain to the Section 8(a) program. H.R. 5612, To Amend the Small Business Act to Extend the Current SBA 8(a) Pilot Program: Hearing on H.R. 5612 Before the Senate Select Comm. on Small Business, 96th Cong., 2d Sess. (1980) [here- inafter 1980 SBA 8(a) Pilot Program Hearing]. Witnesses presented evidence that the effects of dis- crimination continued to depress the percentage of construction dollars going to minority-owned firms. Id. at 16-17. The Committee received testimony that minority-owned construction firms generated approxi- mately $3 billion in gross receipts, in comparison with the total $200 billion generated by all construc- tion firms. According to the testimony, if minority- owned firms had performed as actively as nonminority- owned firms, the gross receipts for the minority- owned firms would have been closer to $30 billion Ibid. Witnesses also described the ongoing effects of discrimination faced by minority-owned firms in get- ting subcontracts, even on Section 8(a) projects. See id. at 19-23. In 1981, the House Committee on Small Business held hearings, see Small and Minority Business in the Decade of the 1980's (Part 1): Hearings Before the ---------------------------------------- Page Break ---------------------------------------- 21a House Comm. on Small Business, 97th Cong., 1st Sess. (1981 ), in which the Committee heard evidence con- cerning problems experienced by small and minority- owned firms that prevented them from becoming viable, competitive businesses. Those problems in- cluded: ( 1 ) difficulties getting bonding for construc- tion projects, id. at 10, securing adequate financing and credit terms, id. at 33-34, 220, and getting prompt payment from prime contractors for work completed, id. at 65; (2) the impact of the negative perception by the public and private sectors as to the skills and competence of minority and disadvan- taged businesses, id. at 106, 221; and (3) criticism that federal agencies were not fully promoting the utilization of minority and disadvantaged subcontrac- tors by prime contractors, id. at 114, 118, 120, 241. The problems were attributed in part to racial dis- crimination. Id. at 4 ("racism and other barriers to the free enterprise system have placed a heavier bur- den on the development and maturity of minority businesses" ). 3. Section 106(c) of STURAA, enacted in 1987, was preceded by a similar provision, Section 105(f) of the Surface Transportation Assistance Act (STAA). Section 105(f) was originally introduced as an amendment to STAA by Representative Mitchell, who intended the amendment to ensure "the participation of [disadvantaged] businesses in these massive public spending." 128 Cong. Rec. 28,927 (1982 ). Representative Mitchell expressed concern about the "disproportionate unemployment enjoyed by minorities," and his fear that, without Section 105 (f), "the twin forces of racism and economic dis- crimination will once again raise their ugly heads" and exclude blacks and other minorities from the ---------------------------------------- Page Break ---------------------------------------- 22a "employment rejuvenation program" contemplated by STAA. Ibid. 4. Both the Section 8(a) program and Section 105 (f) received close congressional scrutiny through- out the 1980's. Numerous congressional hearings were conducted where the success and continued via- bility of both the Section 8(a) program and Section 105 (f) were debated. In those hearings, testimony was presented documenting the current discrimina- tion that frustrated minority small businesses gen- erally, and highway contractors specifically, seeking to compete equally. For instance, at a hearing in 1985 to determine whether the DBE provision of STAA should be included in STURAA, Representa- tive Mitchell stated that "[w] hen this Nation ad- vances to what I think it ought to be, then there will be no need for this kind of effort. But until we get there, there is a demonstrable need for [Section] 105 (f) or something similar to it in terms of prefer- ential treatment." The Disadvantaged Business En- terprise Program of the Federal-Aid Highway Act: Hearing Before the Subcomm. on Transportation of the Senate Comm. on Environment and Public Works, 99th Cong., 1st Sess. 10 (1985) [hereinafter 1985 DBE Hearing. In prepared testimony at that hearing, Roberto Rohas, National Executive Director of the National Hispanic Association of Construction Enterprises, stated that if prime contractors "used `good faith' efforts in utilizing [the services of Hispanic contrac- tors], hearings such as these would become a thing of the past." 1985 DBE Hearing 221. James K. Laducer, Director of the North Dakota Minority Business Enterprise Programs, United Tribes Educational Technical Center, noted in written ---------------------------------------- Page Break ---------------------------------------- 23a testimony that local banks "refuse to lend monies to minority businesses from nearby Indian communities" because "Bankers tend to view lending capital to such businesses as potentially harmful to `their own' small businesses and local economic base." 1985 DBE Hearing 363. Also in 1985, a Subcommittee of the House Com- mittee on Government Operations conducted a hear- ing in which testimony was received documenting racial discrimination in the transportation con- struction industry, which hindered the effectiveness of STAA and prevented minority firms from entering the economic mainstream. For instance, James Haughton, President of Fight Back, commented on the highway construction industry in New York, stating that there was "unbridled racism in the con- struction industry. As you well know, it is not some- thing recent, it's the history of this industry and sorry to say over the years conditions have not im- proved for black people, Hispanic people, and women. Indeed, the conditions have gotten much worse." Minority Business Participation in Department of Transportation Project: Hearing Before a Subcomm. of the House Comm. on Government Operations, 99th Cong., 1st Sess. 179 (1985) [hereinafter 1985 Trans- portation Hearing]. He later remarked that to ob- tain a construction contract in New York, a contrac- tor must contract with a union, and "I have known contractors who have suffered very heavily because they have been victims to that discrimination as prac- ticed by the unions." Id. at 201. At that same hearing, R.E. Castro, a small business- man, testified about problems faced by minority firms in the transportation construction industry as a result of racial discrimination. 1985 Transportation Hearing ---------------------------------------- Page Break ---------------------------------------- 24a 197. He then remarked that "it is impossible to legis- late people's attitudes of responsibilities," but "[i] t seems to me that unless we take effective action to ensure that equal access to economic opportunity be- comes a reality in this country, we might as well take the Constitution and put it aside because the equal protection provision of the Constitution will never be lived up to." Id. at 198. In hearings concerning preservation of the Sec- tion 8(a) program, testimony was presented that discrimination had hindered the ability of minority members to compete in business, and that the Section 8(a) program helps remedy that discrimination. Representative Conyers remarked: "The fact in American life is that blacks have been cut out of business. We are not doing them a favor by creating these programs. They are created out of an experi- enced need. So, I am more concerned about getting a level playing field and that is what we have been trying to redress for so long." A Bill to Reform the Capital Ownership Development Program: Hearings on H.R. 1807 Before the Subcomm on Procurement, Innovation, and Minority Enterprise Development of -the House Comm. on Small Business, 100th Cong., Ist Sess. 14 (1987) [hereinafter 1987 Capital Own- ership Hearings]. At those hearings, Representative Mfume stated: [I]n the area of civil rights-and particularly in the area of discrimination-the existence of the protections does not insure that the protec- tions are, in fact, enforced. * * * And that has been strikingly absent from much of the civil rights legislation and protection programs that have been instituted by this Nation. ---------------------------------------- Page Break ---------------------------------------- 25a * * * I am concerned about the enforcement, and I think this program goes a long way in making sure that some of the things that are supposed to happen do, in fact, take place. 1987 Capital Ownership Hearings 22. Former Representative Parren Mitchell, Chairman of the Minority Business Enterprise Legal Defense and Education Fund, Inc., also testified: A part of my concern is that I think that there is an antiblack, antipoor, anti-Hispanic, anti- minority attitude developing in this country. I see it as I travel around the country. I see its manifestations. Therefore, I assume that a part of the attacks on the Federal effort on behalf of minority businesses, a part of those attacks are reflective of the resurgence of racism in this Nation, which is a very troublesome thing to me. 1987 Capital Ownership Hearings 32-33. Mitchell described the problems faced by minority-owned bus- inesses as a result of discrimination: The hard fact of the matter is that the major- ity firms that are trying to do something to in- corporate minority businesses admit openly and publicly that their own membership is reluctant to do business. * * * There are a dozen of them in various States who will work on behalf of minorities. But they will be the first to say, "I cannot get the other guys whose names are on the letterhead to do business with minority firms." Why is that? * * * First, the "old boy" net- work. *** * * * * * ---------------------------------------- Page Break ---------------------------------------- 26a The other real significant thing in that private sector, and people do not like to hear talk like this, but that private sector is not immune to the resurgence of racism that is taking place in this country. * * * You get it in the private sector and you get it in Government where the festering of racism immediately establishes at- titudes which are against those of us who are black, or brown, or the minorities. Id.at 34. Finally, at those same hearings, Edward Irons, ting Superintendent of the Office of Banking and Financial Institutions for the District of Columbia, testified that "the evidence of racism is irrefutable in the business arena" and hinders opportunities for minorities. 1987 Capital Ownership Hearings 593. In hearings preceding the 1988 amendment to Section 8(a), Parren Mitchell testified that " [t]he harsh reality is that in the private sector, there is a wall that is set up, there is an institutional net- work, there is an old-boy network, that makes it exceedingly difficult for minority firms to break into the private commercial sector." Minority Business Development Program Reform Act of 1.987: Hear- `s on S. 1993 and H.R. 1807 Before the Senate nm. on Small Business, 100th Cong., 2d Sess. 127 1988). In those hearings, Senator Levin urged re- authorization of the Section 8(a) program, stating t the program "gives important business oppor- tunities to members of our society who have been denied such opportunities for too long. " Id. at 189. Hamilton Bowser, of Evanbow Construction Co., titified during a hearing on the problems of minority contractors in, obtaining surety bonds that "[w] e know that our minority contractors have been cut ---------------------------------------- Page Break ---------------------------------------- 26a The other real significant thing in that private sector, and people do not like to hear talk like this, but that private sector is not immune to the resurgence of racism that is taking place in this country. * * * You get it in the private sector and you get it in Government where the festering of racism immediately establishes at- titudes which are against those of us who are black, or brown, or the minorities. Id. at 34. Finally, at those same hearings, Edward Irons, Acting Superintendent of the Office of Banking and Financial Institutions for the District of Columbia, testified that "the evidence of racism is irrefutable in the business arena" and hinders opportunities for minorities. 1987 Capital Ownership Hearings 593. In hearings preceding the 1988 amendment to Section 8 (a), Parren Mitchell testified that "[t]he harsh reality is that in the private sector, there is a wall that is set up, there is an institutional net- work, there is an old-boy network, that makes it exceedingly difficult for minority firms to break into the private commercial sector." Minority Business Development Program Reform Act of 1987: Hear- ings on S. 1993 and H.R. 1807 Before the Senate Comm. on Small Business, 100th Cong., 2d Sess. 127 (1988). In those hearings, Senator Levin urged re- authorization of the Section 8(a) program, stating that the program "gives important business oppor- tunities to members of our society who have been denied such opportunities for too long." Id. at 189. Hamilton Bowser, of Evanbow Construction Co., testified during a hearing on the problems of minority contractors in obtaining surety bonds that "[w]e know that our minority contractors have been cut ---------------------------------------- Page Break ---------------------------------------- 27a out of entering the bond market with this, the biases that are developed. * * * It is our guess that less than one-tenth of 1 percent of bonding issued by the surety companies in America go [es] to minority firms." Surety Bonds and Minority Contractors: Hearing Before the Subcomm. on Commerce, Consumer Pro- tection, and Competitiveness of the House Comm. on Energy and Commerce, 100th Cong., 2d Sess. 6 (1988). Representative Hastert testified during a hear- ing that "[t]he DBE program is * * * an admission of sorts that minority and women-owned businesses have been treated unfairly in the past." Barriers to Full Minority Participation in Federally Funded Highway Construction Projects: Hearing Before a Subcomm. of the House Comm. on Government Oper- ations, 100th Cong., 2d Sess. 3 (1988). Representative Hastert noted that "[t] he DBE program * * * pro- vides businesses which previously found it difficult to effectively compete for federally aided highway con- tracts with the opportunity to at least get their foot in the door." ibid. During hearings on DBE participation in trans- portation construction projects, Joann Payne, Presi- dent of PSM Consultants, noted that, "[h]istorically, minorities and women-owned businesses have had a difficult time competing fairly in the highway con- struction industry. * * * [B]ecause of the ethnic and sex discrimination practiced by lending institu- tions, it was very difficult for minorities and women to secure bank loans, and bonding insurance." Dis- advantaged Business Set-Asides in Transportation Construction Projects: Hearings Before the Subcomm. on Procurement, Innovation, and Minority Enterprise Development of the House Comm. on Small Business, ---------------------------------------- Page Break ---------------------------------------- 28a 100th Cong., 2d Sess. 25-26 (1988) [hereinafter 1988 DBE Transportation Construction Hearings]. At the same hearing, Carolyn Jordan, Board Mem- ber of the Illinois Association of Black Women Busi- ness Owners, testified that, "[b]asically, the system discriminates, and the people that implement the sys- tem condone a system that allows only white males and white females the opportunity to work and earn a living while the black and minority women sit back and get more and more frustrated * * *. The intent of the law * * * is to maximize participation of minorities and women in an industry that-has been dominated by men and to prevent discrimination," 1988 DBE Transportation Construction Hearings 96-98.2 Representative Savage, then-Chairman of the Sub- committee on Economic Development of the House Committee on Public Works and Transportation, tes- tified about racial discrimination in the industry: Now, let me * * * explain the specific problem which concerns this subcommittee. * * * It is simply this: Because of historically and often ___________________(footnotes) 2 See also 1988 DBE Transportation Construction Hearings 61-62 (testimony of Patricia Low, President of PAL Indus- tries, Inc. ) ("I believe that there has been discrimination against minorities and women in the industry"); id. at 69-70 (testimony of Low); id. at 87 (testimony of Cleve Chapman, President of Midwest Contractors for Progress); id. at 107 (testimony of Marjorie Herter, National President of the Women Construction Owners and Executives, USA) ("Dis- crimination against women and minorities in the bonding market is quite prevalent."); id. at 107-109 (testimony of Glendis Hambrick, of the Chicago Chapter of the Coalition of Black Trade Unionists). ---------------------------------------- Page Break ---------------------------------------- 29a legally imposed disadvantages, it has been deemed by the U.S. Congress and the U.S. Supreme Court that certain minorities * * * have been denied equal opportunity for employment, promotions, and contracts by Government and private business. Present evidence of these disadvantages are found in the following sampling of statistics. For 1987, * * * the unemployment rate for white males and females was only about 5.3 percent, but for Hispanics, it was 8.8 percent and for blacks, it was 13 percent * * *. In 1986, 27.3 percent of Hispanics and 31.1 percent of blacks suffered incomes below the pov- erty level, nearly 3 times the rate for whites. 1988 DBE Transportation Construction Hearings 112. Representative Savage added that both the Section 8(a) program and the DBE provision of STURAA attempt to remedy the specific disadvantages caused by discrimination in small businesses and in the high- way construction industry. Id. at 112-113. Repre- sentative Savage later stated that discrimination in the highway construction industry is evidenced by the fact that the federal government has never "con- tracted anywhere close to fairly with minorities and the figures show it." Id. at 120.3 ___________________(footnotes) 3 Numerous other hearings conducted between 1980 and 1988 further demonstrate the close congressional serutiny of both Section 105 (f) and the Section 8(a) program. See, e.g., 1980 SBA 8(a) Pilot Program Hearing, supra; Minority Business and Its Contributions to the U.S. Economy: Hearing Before the Senate Comm. on Small Business, 97th Cong., 2d Sess. (1982); Federal Contracting Opportunities for Minority and Women-Owned Businesses-An Examination of the 8 (d) Subcontracting Program: Hearings Before the Senate Comm. ---------------------------------------- Page Break ---------------------------------------- 30a 5. In response to the continued existence of dis- crimination and its harmful effects on minority busi- nesses generally, and minority businesses in the con- struction industry specifically, Congress has repeat- edly chosen to retain the Section 8 (a) program in the SBA and the DBE set-aside provision of STURAA. a. In the 100th Congress, H.R. 1807 was introduced to amend Section 8(a). Following the introduction of H.R. 1807 in the House of Representatives, Repre- sentative Conte quoted from the 1987 report of the President on the state of small business, which stated that minorities represented 2070 of the population, but only 1.8% of the minority-owned businesses, com- pared to 6.4% of nonminorities. 133 Cong. Rec. 33,318 (1987 ). Among minority-owned businesses, 94 % were sole proprietorships, compared to 6970 ___________________(footnotes) on Small Business, 98th Cong., 1st Sess. (1983); Women Entrepreneurs-Their Success and Problems: Hearing Be- fore the Senate Comm. on Small Business, 98th Cong., 2d Sess. (1984); State of Hispanic Small Business in America: Hearing Before the Subcormm. on SBA and SBIC Authority, Minority Enterprise, and General Small Business Problems of the House Comm. on Small Business, 99th Cong., M Sess. (1985); Minority Enterprise and General Small Business Problems: Heating Before the Subcomm. on SBA and SBIC Authority, Minority Enterprise and General Small Business Problems of the House Comm. on Small Business, 99th Cong., 2d Sess. (1986); To Present and Examine the Result of a Survey of the Graduates of the Small Business A Administra- tion Section 8 {a) Minority Business Development Program: Hearing Before the Senate Comm. on Small Business, 100th Cong., Ist Sess. (1987); The Small Business Competitiveness Demonstration Program Act of 1988: Hearing on S. 1559 Before the Senate Comm. on Small Business, 100th Cong., 2d Sess. (1988). ---------------------------------------- Page Break ---------------------------------------- 31a of all businesses. Ibid. Representative Conte indi- cated that discrimination was the cause of these deficiencies, ibid., and urged passage of the bill: Mr. Speaker, we have a chance to make history today. In doing so we can address program- matic failures and shortcomings of the 8(a) pro- gram and create a workable mechanism to finally redress past discriminatory practices. Id. at 33,320. Representative Conyers also spoke in support of the bill. He, too, cited statistics indicating that the "struggle" for "economic empowerment" for minor- ity businesses was not yet complete. 133 Cong. Rec. 33,321 (1987 ). Representative Conyers stated: Two-thirds of all black firms earn less than $10,000 annually, and one-third of Hispanic firms gross less than $5,000 annually. In addition re- ceipts from black firms are only 0.16 percent of all business receipts in this country. The 8(a) program, which enabled minority businesses to perform more than $1 billion in Federal con- tracts last year, is an essential step in overcom- ing the appalling circumstances which continue to plague minority Americans and in achieving parity and growth in the minority business community. Ibid. Additionally, during the introduction of H.R. 1769, the Minority Business Development Act of 1988 (amending Section 8(a)), Representative Mfume stated that "[w] e know that over the years blacks and other racial and ethnic minorities have suffered ---------------------------------------- Page Break ---------------------------------------- 32a the effects of racial discrimination, discrimination which has impaired the ability of many within the minority business community to be able to access resources and markets that have been essential to economic viability." 134 Cong. Rec. 30,078-30,079 (1988). In speaking about the Act, Representatiw Mfume stated: [Discrimination * * * has moved to impair the ability of the minority business community to access resources and markets essential to eco- nomic viability. * * * Today as we ask the question whether or not there remains a compelling need for special Federal programs to provide socially and eco- nomically disadvantaged persons with the oppor- tunity * * * for full participation in our free enterprise system, the answer unfortunately re- mains a resounding yes. The need to devote Federal resources to assist minority businesses in overcoming economic disadvantages is no less apparent today. Id. at 16,584. b. In the Senate, S. 1993 was introduced as the companion bill to H.R. 1807. During the introduc- tion of the bill, Senator Bumpers noted that " [o]nly 1.8 percent of all minorities have been financially able to start firms, and well over 94 percent of such businesses are sole proprietorships. They continue to face discrimination in access to credit and markets. Therefore, the restricted resources with which these firms must deal have stagnated economic expansion in many areas." 133 Cong. Rec. 37,814 (1987). Senator Weicker recited the benefits of the bill and stated that, "[a]lthough remnants of discrimination ---------------------------------------- Page Break ---------------------------------------- 33a remain in this society as well as other economic or financial barriers which minority entrepreneurs must face, many are making it, who might not have, with- out the 8(a) program." 133 Cong. Rec. 37,821 (1987). Senator Kerry also spoke in support of the pro- gram, stating: It is my belief that one of the most important missions of the Small Business Administration is to help members of disadvantaged and mi- nority groups and others who suffer from social and economic discrimination in our society to participate in the great American tradition of starting and owning a business. 133 Cong. Rec. 37,824 (1987). Senator Kerry ex- pressed his view that Section 8(a), as amended by S. 1993, would provide such support.4 Senator Weicker stated, regarding the Section 8(a) program, that "[d] incrimination * * * and other social or economic disadvantages that minority citizens still face on the road to business opportunity are being challenged through this small but very vital program." 134 Cong. Rec. 17,136 (1988). Similarly, Senator Sasser stated that "the 8(a) program provides important business opportunities ___________________(footnotes) 4 Senator Kerry had then recently introduced S. 1848, the Minority Business Development Act. 133 Cong, Rec. 30,771 (1987). Upon introduction of that bill, Senatory Kerry stated: Let us make no mistake; there is still a tremendous amount of work to be done before we can say that racism and other forms of discrimination have been abolished in the economic marketplace. Minority business owner- ship is still dramatically below that of nonminority busi- ness ownership in most areas of the country. ---------------------------------------- Page Break ---------------------------------------- 34a to members of our society who have long been denied such opportunity." 134 Cong. Rec. 17,149 (1988). After presenting the Conference Report on the Section 8 (a) program to the Senate, Senator Bum- peers stated that the program "is intended to provide access to the Federal procurement system to those who have been denied access for a long time, and it is intended to build business skills and to develop capital through the performance of essential Govern- ment contracts. " 134 Cong. Rec. 31,492 (1988). Senator Levin stated that "[t] he 8 (a) Program is intended to give disadvantaged individuals a chance to own their own businesses and to bring them needed jobs and training by giving them an opportunity to participate in the Federal acquisition process. * * * [T]he 8(a) Program provides important business opportunity to members of our society who have long been denied such opportunity." 134 Cong. Rec. 31,493 (1988). 6. Considering the extensive floor debates and numerous hearings regarding the necessity, success and viability of the DBE set-aside provision of STAA and the Section 8(a) program, "it is incon- ceivable that Members of both Houses were not fully aware of the objectives of the * * * provision [s] and of the reasons prompting [their] enactment." Fullilove, 448 U.S. at 467 (opinion of Burger, C.J.). 7. Since the passage of STURAA and the SBA, Congress as well as the Executive Branch have con- tinued to monitor closely the success and progress of the Section 8(a) program and the Section 106(c) DBE provision of STURAA. See, e.g., Federal Ac- quisition Streamlining Act of 1994, Pub. L. No. 103- 355, 108 Stat. 3243; international Surface Transporta- tion Efficiency Act of 1991, Pub. L. No. 102-240, 1003(b), 105 Stat. 1919-1921; Minority Franchis- ---------------------------------------- Page Break ---------------------------------------- 35a ing-Is Discrimination a Factor?: Hearing Before the House Comm. on Small Business, 103d Cong., 1st Sess. (1993 ) ; SBA'S Minority Business Development Pro- gram: Hearing Before the House Comm. on Small Business, 103d Cong., 1st Sess. (1993) (hearing to discuss reforms to SBA'S Section 8(a) program); Problems Facing Minority and Women-Small Small Businesses Procuring U.S. Government Contracts: Hearing Before the Subcomm. on Commerce, Con- sumer, and Monetary Affairs of the House Comm. on Government Operations, 103d Cong., 1st Sess. (1993) ; Discrimination in Surety Bonding: Hearing Before the Subcomm. on Minority Enterprise, Fi- nance, and Urban Development of the House Comm. on Small Business, 103d Cong., 1st Sess. (1993); Small Business Development: Hearing Before the Subcomm. on Procurement, Tourism, and Rural De- velopment of the House Comm. on Small Business, 102d Cong., 2d Sess. (1992) ; Problems with Equal Employment Opportunity and Minority and Women Contracting the Federal Banking Agencies: Hear- ing Before the House Comm. on Banking, Finance and Urban Affairs, 102d Cong., 2d Sess. (1992) ( dis- cussion of RTC'S progress in satisfying goals for utilizing DBEs ) ; Small Disadvantaged Business Is- sues: Hearings Before the Investigations Subcomm. of the House Comm. on Armed Services, 102d Cong., 1st Sess. 11 (1991) (remarks by Rep. Collins that the Department of Defense (DOD) "simply has not made adequate good faith outreach efforts"; DOD's subcontracting with DBEs "has resulted in a paltry performance of 2.5 to 3 percent each year, and many of those contracts were for janitorial and kitchen serv- ices" ) ; Minorities and Franchising: Hearing Before the House Comm. on Small Business, 102d Cong., 1st Sess. 54 (1991) (statement by Chairman LaFalce ---------------------------------------- Page Break ---------------------------------------- 36a that problem areas that are more pronounced and specific to minority franchising include "problems relating to the exclusion of minorities, or groups of minorities, from franchise systems" ) ; Acquisition Issues: Hearings Before the Investigations Subcomm. of the House Comm. on Armed Services, 10lst Cong., 2d Sess. 12 (1990) (chart showing percentage of DOD subcontracts awarded to DBEs as 1.9% in 1988, and 2.370 in 1989) ; Minority Construction Contracting: Hearing Before the Subcomm. on SBA, the General Economy, and Minority Enterprise De- velopment of the House Comm. on Small Business, 10lst Cong., 1st Sess. (1989) (examination of minor- ity and women's subcontracting opportunities in fed- eral construction projects ) ; Implementation of Small Business Subcontracting Program: Hearing Before the House Comm. on Small Business, 100th Cong., 2d Sess. (1988); Subcontracting with Small and Disad- vantaged Businesses-GSA Oversight: Hearing Be- fore a Subcomm. of the House Comm. on Government Operations, 100th Cong., 2d Sess. (1988) ; General Accounting Office, Minority Contracting: DOD's Re- porting Does Not Address Legislative Goal (July 1993) (discusses failure of DOD to meet procure- ment obligations) ; General Accounting Office, Prob- lems Continue With SBA'S Minority Business Devel- opment Program (Sept. 1993 ) ; General Accounting Office, Resolution Trust Corporation: Status of Mi- nority and Women Outreach and Contracting Pro- gram (May 1993) (concluding that RTC is short of goal for contracting with minority- and women-owned law firms) ; H.R. Rep. No. 1044, 100th Cong., 2d Sess. (1988) (documenting failure of GSA to meet its statutory mandate to provide subcontracting op- portunities for small businesses and minority-owned businesses on major GSA contracts). ---------------------------------------- Page Break ---------------------------------------- 36a that problem areas that are more pronounced and specific to minority franchising include "problems relating to the exclusion of minorities, or groups of minorities, from franchise systems" ); Acquisition Issues: Hearings Before the Investigations Subcomm. of the House Comm. on Armed Services, 10lst Cong., 2d Sess. 12 (1990) (chart showing percentage of DOD subcontracts awarded to DBEs as 1.9% in 1988, and 2.3 % in 1989) ; Minority Construction Contracting: Hearing Before the Subcomm. on SBA, the General Economy, and Minority Enterprise De- velopment of the House Comm. on Small Business, 10lst Cong., 1st Sess. (1989) (examination of minor- ity and women's subcontracting opportunities in fed- eral construction projects) ; Implementation of Small Business Subcontracting Program: Hearing Before the House Comm. on Small Business, 100th Cong., 2d Sess. (1988); Subcontracting with Small and Disad- vantaged Businesses-GSA Oversight: Hearing Be- fore a Subcomm. of the House Comm. on Government Operations, 100th Cong., 2d Sess. (1988); General Accounting Office, Minority Contracting: DOD's Re- porting Does Not Address Legislative Goal (July 1993 ) (discusses failure of DOD to meet procure- ment obligations) ; General Accounting Office, Prob- lems Continue With SBA'S Minority Business Devel- opment Program (Sept. 1993 ) ; General Accounting Office, Resolution Trust Corporation: Status of Mi- nority and Women Outreach and Constructing Pro- gram (May 1993 ) (concluding that RTC is short of goal for contracting with minority- and women-owned law firms) ; H.R. Rep. No. 1044, 100th Cong., 2d Sess. (1988) (documenting failure of GSA to meet its statutory mandate to provide subcontracting op- portunities for small businesses and minority-owned businesses on major GSA contracts). ---------------------------------------- Page Break ---------------------------------------- 37a APPENDIX C Census Data Available to Congress Regarding Minority-Owned Businesses in Construction and Related Census Data Minorities are underepresented in business gener- ally, and in the construction industry particularly. In 1987, there were over 1.2 million minority-owned firms with gross receipts of just under $78 billion. Bureau of the Census, U.S. Dep't of Commerce, 1987 Economic Censuses-Survey of Minority-Owned Business Enterprises: Summary 3 (Aug. 1991) [hereinafter Summary]. Minority-owned firms ac- counted for 8.9% of the total number of individual proprietorships, partnerships, and subchapter S cor- porations in the United States and 3.9% of their gross receipts. Ibid. In 1987, the gross receipts for minority-owned construction firms constituted approximately 3% of the total receipts for all construction firms. Bureau of the Census, U.S. Dep't of Commerce, 1987 Eco- nomic Censuses-Characteristics of Business Owners 8-9 (Table 1) (Apr. 1992) [hereinafter Character- istics] 1 The total number of minority-owned firms in the construction industry was approximately 6.6% of the total number of firms in that industry. Ibid. Minorities were even less well represented in the heavy construction industry, in which minority- owned firms were approximately 5.3 % of the total number firms in that industry, and accounted for ___________________(footnotes) 1 There are three main types of construction activities reported in census data: general building contractors, heavy construction contractors, and special trade contractors. The building of roads, bridges, sewers, tunnels, etc., is reported in the heavy construction category. ---------------------------------------- Page Break ---------------------------------------- 38a only 1.996 of the total receipts for all heavy con- struction firms. Ibid. Moreover, minority-owned businesses occupy a pro- portionally smaller market share and are on the whole less prosperous than their nonminority coun- terparts. In 1987, the average gross sales and re- ceipts in the construction industry was $146,103 for nonminority-owned firms. That figure was 2.7 times the average for American Indian-owned firms, 2.5 times the average for black-owned firms, 2.4 times the average for Hispanic-owned firms, and 1.6 times the average for Asian-owned firms. Characteristics 8 (Table 1); Summary 10 (Table 1). Hispanic con- struction-firm owners were 50 % more likely to have household incomes of less than $10,000 compared to nonminority male construction-firm owners. Char- acteristics 74 (Table 12a). Further, only 27.6 % of minority-owned construction firms had paid employ- ees, compared to 34.7 % of nonminority-owned con- struction firms. Summary 10 (Table 1), 84 (Table lo). Minority-owned firms tend to employ minorities at a greater rate than nonminority male-owned firms. 57.3% of minority-owned construction firms with employees had minority employees on the pay- roll, compared to 34.3 % of nonminority male-owned firms. Characteristics 178-179 (Table 24a). In those industries that sell and produce supplies and equipment for construction, minority-owned firms were equally underrepresented as in the con- struction industry taken as a whole. Minority-owned firms in the wholesale trade industry accounted for only 6.1 of the total number of firms in that in- dustry and only approximately 2.7% of the gross receipts. Characteristics 8-9 (Table 1). In the manu- ---------------------------------------- Page Break ---------------------------------------- 39a facturing industry, only 7% of the total number of firms were minority-owned, and those firms accounted for only 1.8% of the gross receipts. Ibid. Most of this country's racial and ethnic minorities remain poorer and less educated and suffer greater unemployment than the white majority. For exam- ple, in 1992 the percentage of families with incomes below the poverty level was 3.5 times higher among black families than among white families. 1990 census data show that 8.8% of white families had incomes below the poverty level, compared to 30.4% of black families, 26.5% of families of Hispanic origin, 12.970 of Asian and Pacific Islander families, and 30.9910 of American Indians, Eskimos and Aleuts. Bureau of the Census, U.S. Dep't of Commerce, Statistical Abstract of the United States: 1993, at 47 (Table 50), 471 (Table 741), 473 (Table 743) (1993) [hereinafter 1993 Statistical Abstract]? Overall, the median income for minority families was approximately three-fifths of the median for white families. Zd. at 462 (Table 721). If wealth instead of income is compared, the picture is even bleaker. When average net worth is considered, minorities owned fewer than $23 in assets for every $100 in assets owned by whites; when median net worth is considered, minorities owned fewer than $7 in assets for every $100 in assets owned by whites. Id. at 477 (Table 753). Minorities also have received less education than white persons. Among persons 25 years old and ___________________(footnotes) 2 We note the similarity between those rates and the pov- erty rates for minority families we described 15 years ago in our brief to the Court in Fullilove V. Klutznick, 448 U.S. 448 (1980). U.S. Br. at 3a (No. 78-1007) (29.8 % of black fami- lies, 20.4% of families of Spanish heritage, and 33.3% of American Indian families). ---------------------------------------- Page Break ---------------------------------------- 40a older, 79.1% of white persons had completed four years of high school or more by the time of the 1990 census. l993 Statistical Abstract 154 (Table 233). Only 66.2% of black persons, 50.8% of persons of Hispanic origin, and 65.6% of American Indians had completed high school. Ibid.; Bureau of the Census, U.S. Dep't of Commerce, 1990 Census of Population: Characteristics of American Indians by Tribe and Language 95 (Table 4) (July 1994) [hereinafter Characteristics of American Indians]. In the same age group, 22.0% of all white persons had completed four years of college or more, while only 11.3 % of black persons, 9.2% of persons of His- panic origin, and 9.4% of American Indians had finished college. 1993 Statistical Abstract 154 (Table 233) ; Characteristics of American Indians 95 (Table 4). Unemployment affects minorities at a greater rate than whites. While whites in 1990 had an unemploy- ment rate of 4.7 % and Asians a rate of 4.2 %, blacks suffered at 11.3%, persons of Hispanic origin at 8.0%, and Native Americans at 14.4% 1993 Statis- tical Abstract 47 (Table 50), 395 (Table 625) ; Bu- reau of the Census, U.S. Dep't of Commerce, 1990 Census of Population-Social and Economic Charac- teristics: United States 111 (Table 108) (Nov. 1993). Those statistics demonstrate a worsening of the eco- nomic position of minority families. By 1990, the median income for white families had increased in constant dollars by $3,890 since 1975, while the median income for black families had increased by only $1,049, and the median income for Hispanic families had increased by only $1,270. 1993 Statisti- cal Abstract 462 (Table 721). The greater increase ---------------------------------------- Page Break ---------------------------------------- 41a in white income reduced the ratio of minority-to-white median family income from approximately two-thirds in 1975 to three-fifths in 1990. Ibid. Racial/ethnic composition as of April 1,1990 White Black Hispanic Indian/ Asian Other Eskimo/ Pacific Aleut Islander United States 80.3 12.1 9.0 0.8 2.9 3.9 Colorado 88.2 4.0 12.9 0.9 1.8 1993 Statistical Abstract 18 (Table 18), 30-31 (Table 32) * U.S.GOVERNMENT PRINTING OFFICE, 1994 387147 20021