How Race-Based Admissions Preferences being Deemed Unconstitutional May Impact the DBE Program
Category | Announcements
By Nick M. Lewis
Nick is a member of the firm’s Construction Law Department. He can be reached at 612.359.7650 or NLewis@fwhtlaw.com.
Last summer, in a landmark decision, the Supreme Court of the United States held in The Students For Fair Admission v. Harvard case that race-based admissions standards implemented in schools across the country were unconstitutional.[1] Classifications based on race are only constitutional if they are narrowly tailored to serve a compelling government interest. In its decision, the Court held that affirmative action in education was both not narrowly tailored and did not serve a compelling interest, failing the test of strict scrutiny.[2] After this decision, not just educational institutions were forced to re-evaluate their diversity, equity, and inclusion policies, but many business and government entities, such as corporations, law firms, and public construction programs may have to review their programs as well.
In a more recent decision on September 23, 2024, a Kentucky federal court in the Mid-Am. Milling case held a Disadvantaged Business Enterprise program established by the federal Department of Transportation (“DOT”) to be unconstitutional in light of the previous Fair Admissions decision, finding no reason in the Court’s holding to differentiate between education and public procurement. As a result, contractors should be aware of how race-based public procurement programs may be impacted by these decisions.
Background and Importance
The DOT Operating Administrations distributes substantial funds each year to finance construction projects initiated by state and local governments, public transit agencies, and airport agencies. If a project is assisted by DOT funds, the DOT requires that the projects attempt to meet certain Disadvantaged Business Enterprise (“DBE”) program participation rates so minority- and women-owned contractors competing for project contracts are not disadvantaged by unlawful discrimination. The DOT describes its DBE program as one of its most powerful tools for preventing unlawful discrimination.[3] Additionally, the DBE program attempts to realize this goal by requiring ten percent of funds authorized for the highway and transit financial assistance programs be expended with DBEs.[4] To illustrate the fiscal impact of the federal DBE program, the Infrastructure Investment and Jobs Act alone will require approximately a total of fifty-five billion dollars set aside to DBEs from 2022 through 2026.[5]
The DOT states that the DBE program is designed to “level the playing field by providing small businesses owned and controlled by socially and economically disadvantaged individuals a fair opportunity to compete for federally funded transportation projects.”[6] On September 23, 2024, a federal court in Kentucky analyzed the DOT’s DBE program under the Fair Admissions standard, finding the DBE program also to be unconstitutional. If the decision is upheld, this holding may result in significant restructuring of the entire federal DBE program.
Potential Challenges to the DBE Program
When the government undertakes an action that is based on race, that action must satisfy the judicial standard known as strict scrutiny. Under this standard, the action will only be deemed constitutional if the government demonstrates both that the action is justified by a compelling interest and that the action is narrowly tailored.[7] Before the Students for Fair Admissions decision, courts traditionally held that the DBE program did serve a compelling interest that was narrowly tailored. The Fair Admissions case, has likely changed that analysis.
Compelling Interest Prong
The Supreme Court has identified only two situations where the government has an interest so compelling as to constitutionally permit race-based government action: 1) remediating a specific, identified instance of past discrimination that violated the constitution or a statute, and 2) avoiding imminent and serious risks to human safety.[8] For the former, a three-part test is employed: 1) the interest cannot be based on a generalized assertion that there has been past discrimination; 2) there must be evidence of intentional discrimination in the past, supported by more than statistical disparities; and 3) the government must have had a hand in the past discrimination it is now seeking to remedy.[9]
In the recent Kentucky federal district court case, Mid-Am. Milling Co., LLC v. United States Dep’t of Transp., the government contended the DBE program “[t]argets and seeks to remedy past, intentional discrimination in the transportation industry—discrimination that the government has had a hand in.” No. 3:23-CV-00072-GFVT, 2024 WL 4267183, at *7 (E.D. Ky. Sept. 23, 2024). Further, the government presented evidence of over 200 disparity studies, other reports and studies, and congressional testimony. The court held that this evidence was not specific enough, and that the evidence necessary should be extremely precise, as though “operat[ing] with a scalpel”. “If [the DOT] wants to grant preferences to certain groups, it must specifically show how the Department of Transportation has previously discriminated against those groups. It cannot group all minority owned businesses into one gumbo pot but then try to scoop out only the sausage and not the okra.”[10] For this lack of specificity, the government’s interest could not be compelling.
Narrowly Tailored Prong
Even if the DBE program has a compelling interest, it may not be found to be narrowly tailored under the Fair Admissions standard. Narrow tailoring requires courts to examine, among other things, whether a racial classification is “necessary—in other words, whether race-neutral alternatives could adequately achieve the governmental interest.”[11]
In theory, the DBE program at issue in Mid-am Milling was “flexible” as DOT-fund recipients must attempt to meet the DBE participation goal by using race- and gender-neutral means whenever possible. The DOT also claimed its DBE program was “flexible” in that the 10 percent participation goal has never been stated to be a quota, but rather “an aspirational goal at the national level”, which the DOT uses as a tool in evaluating and monitoring individual DBE opportunities to participate in DOT-funded contracts and projects.[12] In practice, however, the DOT’s aspirational goals often appear to be quotas because if the “goals” are not met, the bidder or proposer is held to be non-responsive or not responsible.
The Kentucky federal court found the DOT’s claims unconvincing, holding the DBE program to both be a scattershot approach and to lack a logical end point for the program. For both these reasons, the program was not narrowly tailored. The court noted that the DBE program had an unclear connection between the means employed and the ends pursued. There, the court stated that the DBE program assesses past discrimination against minority-owned businesses broadly, but then carves out preferences for only some minority groups. Preferences for specific minority groups without clear support for why other groups are not entitled to preferences amounts to a scattershot approach according to the Kentucky court.[13] And according to the US Supreme Court, a scattershot approach cannot be narrowly tailored.[14]
However, even if a court found the DBE program to have a clear connection between the means pursued and the end goals, the Kentucky decision at issue illustrates that such programs may yet still fail. In a 2003 Supreme Court decision, the Court stated, “[A]ll race-conscious admissions programs have a termination point; they must have reasonable durational limits; they must be limited in time; they must have sunset provisions; they must have a logical end point; their deviation from the norm of equal treatment must be a temporary matter.”[15] Without a logical endpoint, the program cannot be considered narrowly tailored. While that quote was in the context of college admissions programs, the Kentucky court saw “no reason to believe” that it should not extend to all race-conscious programs, including the DBE program.[16]
Almost to the tune of Billy Joel’s We Didn’t Start the Fire, the court illustrated the DBE programs resistance to time by stating, “DOT’s DBE program has been around since the Cold War. It was implemented during the same year that the Space Shuttle Challenger launched its maiden voyage. Star Wars: Episode VI—Return of the Jedi was the top grossing domestic movie, and Kenny Rogers’s and Dolly Parton’s Islands in the Stream topped the country music charts for two straight weeks.” [17]
In conclusion, the Kentucky federal court found the DBE program before it untethered to any foreseeable conclusion, and lacking a logical endpoint. Accordingly, the court held that it was not narrowly tailored.
What Happens Next
First, the federal DOT’s DBE program has not been eliminated. Importantly, the Mid-Am Milling decision has limited reach because it only applied to the plaintiffs of that case, with no effect on any other contractors. Even contractors working in Kentucky will likely still face government bid requests where meeting DBE goals will increase the chances receiving an award of the contract. That being said, the decision is still precedential for federal courts in Kentucky, and another similarly situated plaintiff may challenge the DBE program in other jurisdictions on the same grounds.
Accordingly, this Mid-Am Milling decision will almost certainly inspire similar litigation in other states. If you are in any state other than Kentucky, it remains uncertain if a court would adopt this Kentucky standard. Notably, the Kentucky court found three independent grounds to find the DBE program unconstitutional, each of which would be sufficient by itself for a holding that program is unconstitutional. It is entirely possible that a federal court in a future decision may authorize a nationwide injunction using the same rationale as Mid-Am Milling.[18]
As a contractor, recognizing how this will affect the competitiveness of your responsive and responsible bid is vital. Public agencies still award contracts based on which bidder achieves the stated DBE goal. State and local governments are interested in raising their DBE participation percentage as this can directly influence the amount of federal DOT funds the local or state government entity receives. If the DOT DBE program was significantly modified or eliminated by an injunction, the primary focus for awards would shift back to lowest bid. Another possible scenario is the federal DOT might amend its DBE classification presumptions in an effort to ensure constitutional compliance before the program is voided entirely. Regardless of how the DBE program is modified or changed, contractors must be prepared to respond.
Conclusion
The Fair Admissions precedent was a stone—perhaps cannonball—in the pond, creating major ripple effects in race-based government action. The impact of these ripples is now affecting the DOT’s DBE program, with the potential to affect other DBE programs as well. A Kentucky federal court has held the federal DOT’s program fails strict scrutiny for lack of a compelling interest and for not being narrowly tailored. While it is unclear how this will shake out through the appeals process or in other courts around the county, it is important for contractors to begin re-evaluating the extent to which their bids or proposals should be subject to or disqualified for failing to meet various DBE program goals. If you have questions on how this may affect your business or how to best set your business up for success in the bidding process, please contact Fabyanske, Westra, Hart & Thomson’s construction attorneys.
[1] Students for Fair Admissions, Inc. v. President & Fellows of Harv. Coll., 600 U.S. 181 (2023).
[2] Id.
[3] U.S. Dep’t of Transp., Disadvantaged Business Enterprise (DBE) Program, (November 25, 2022), https://www.transportation.gov/civil-rights/disadvantaged-business-enterprise.
[4] U.S. Dep’t of Transp., DBE Program Overview, (January 5, 2016), https://www.transportation.gov/civil-rights/disadvantaged-business-enterprise/dbe-program-overview.
[5] Infrastructure Investment and Jobs Act, Pub. L. No. 117-58 (2021).
[6]Id.
[7] Students for Fair Admissions, Inc., 600 U.S. at 206–207.
[8] Students for Fair Admissions, Inc., 600 U.S. at 207.
[9] Mid-Am. Milling Co., LLC v. United States Dep’t of Transp., No. 3:23-CV-00072-GFVT, 2024 WL 4267183, at *7 (E.D. Ky. Sept. 23, 2024).
[10] Id. at *8.
[11]Students for Fair Admissions, 600 U.S. at 311
[12] Mid-Am. Milling Co., LLC v. United States Dep’t of Transp., No. 3:23-CV-00072-GFVT, 2024 WL 4267183, at *7 (E.D. Ky. Sept. 23, 2024).
[13] Mid-Am. Milling Co., LLC v. United States Dep’t of Transp., No. 3:23-CV-00072-GFVT, 2024 WL 4267183, at *9 (E.D. Ky. Sept. 23, 2024).
[14] Students for Fair Admissions, 600 U.S. at 187.
[15] Grutter v. Bollinger, 539 U.S. 306, 342 (2003) (internal quotations omitted).
[16] Mid-Am. Milling Co., LLC v. United States Dep’t of Transp., No. 3:23-CV-00072-GFVT, 2024 WL 4267183, at *10 (E.D. Ky. Sept. 23, 2024).
[17] Id (cleaned up).
[18] Fed. R. Civ. P. 65.
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