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Race Preferences for Federal Contracts Coming to an End?

Posted By Ian Smith On June 17, 2014 @ 12:30 am In Daily Mailer,FrontPage | 31 Comments

One case coming up to D.C.’s District Court could strike a serious blow to the government’s controversial use of racial preferences in federal contracting. Through several agencies and covering many industries, the federal government since the late seventies has administered a host of programs which set aside contracts specifically for minority-owned businesses. In 2008, after a 10-year long fight in the courts, Rothe Development Inc., a federal contractor from Texas, scored a big victory in D.C.’s Federal Circuit court forcing a key set-aside program to be declared wholly unconstitutional. Now, thanks to a new complaint from the company, the days of the government allocating federal contracts on the basis of race may be numbered.

The program at issue in Rothe’s 2008 victory was the “Small Disadvantaged Business program” (SDB), which had allowed the Department of Defense (DoD) and other agencies to take 10 percent off the price of bids submitted by so-called “small disadvantaged businesses” giving them an artificial boost in the bidding process. Although more competitive, Rothe, a white-owned business, was denied a contract to build a switchboard system for an army base in Mississippi. A “competing” bid from a Korean-owned business was given a “10 percent price evaluation adjustment” and as a result, Rothe was denied the bid.

Like most racial preference programs, the SDB program ran on the presumption that any non-white contractor was “socially and economically disadvantaged.” In response to Rothe’s 2008 complaint, the court overturned this presumption and decided that a “strong basis in evidence” was required to show that broad discrimination had existed in the industry in question. In other words, for a program of racial preferences to pass constitutional muster, it had to be shown that a minority-owned business was actually disadvantaged. In Rothe’s case, because zero evidence of discrimination was offered by the government, the statute enacting the SDB program was declared “facially unconstitutional” or unable to pass constitutional scrutiny under any circumstance. The court’s decision sent ripples throughout federal agencies and the contracting industry.

Thanks to Rothe, racially discriminatory programs now must be supported with a “strong historical record” of broad discrimination or be subject to constitutional challenge. Non-whiteness alone can no longer be enough to substantiate such programs. This made some commentators fret that now a “strong basis of evidence” would have to be made in order to justify other racial preference programs. Rothe’s latest lawsuit is confirming those fears.

In its new challenge, Rothe is seeking to have declared “facially unconstitutional” another major race-preferences program used by DoD and others, the so-called “8(a) Business Development Program.” Like the SDB program, the 8(a) program defines participants as disadvantaged merely if they’re non-white; no conclusive evidence of discrimination is needed. Instead of artificially boosting minority contractor-bids, the 8(a) program offers these companies technical assistance and outreach and allows them to bid for ”set-aside contracts” or contracts that are off-limits to white-owned businesses. 8(a) is far larger than the SDB program and allocates around 10 billion in taxpayer dollars every year.

For the government to save a broad program of racial preferences, according previous court decisions, it need only show that some statistical, non-conclusive, evidence of discrimination, such as a ”disparity study,” was shown to Congress before they enacted the statute. Disparity studies attempt to measure the difference between the number contracts awarded to minority-owned companies and the number contracts that could’ve been awarded. Although disparity studies are widely criticized as results-driven ”junk studies”, because such a study did accompany the 2006 re-enactment of the 8(a) program, a court may be satisfied that this constituted a “strong basis in evidence” and deny a facial challenge.

According to the Competition in Contracting Act, federal contracts outside set-aside programs like 8(a) must be awarded to the lowest-bidder on the basis of merit; a process that’s made transparent at every step and which should make it relatively easy to uncover and correct any discrimination. What’s hoped for in Rothe’s new challenge is for the court to agree that, in the area of federal contracting, there’s always easier and better ways to remedy discrimination other than by the use of racial preferences.

Notably, such a broad holding would thwart what’s plagued this area of law since then-Justice Sandra Day O’Connor’s opinion in City of Richmond v. J.A. Croson. In an otherwise positive decision for proponents of equal opportunity in contracting, Justice O’Connor in just one line managed to keep open the racial preferences-system by saying state and local governments would be allowed to infer discrimination and thereby justify race-based programs if they could point to a “significant statistical disparity” between minority and non-minority contractor-award rates. Since that 1989 decision, many state and local governments have strained themselves to locate such disparities by paying consultants to construct results-driven disparity studies. But if a court simply found that discrimination in contracting should always be remedied without the use of racial preferences then set-aside programs could never be justified, with or without a “disparity study”, validly constructed or otherwise.

Rothe is trying to expand its own 2008 precedent to other programs that restrict competition on the basis of race. Although no doubt a positive step, it’s important to remember that should Rothe win we’d still be far from achieving a ”post-racial” society. Any policy of minority favoritism in contracting still tells your typical white contractor that because prejudice took place in the industry he happens to be in, government programs that discriminate against him are fair and reasonable. Such a policy punishes an individual not for his own shameful activities but for those activities of his entire race.

Supporters of the Constitution should wish Rothe Development Inc. all the best in their continuing fight. Let us hope that it’s fairly awarded.

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