Contractors on federal, state and local projects are required to comply with Disadvantaged Business Enterprise (DBE) affirmative action programs whose goals are established by the government agency funding the project.
How do these programs work? How did they develop? What do regulations require? Construction Equipment Guide (CEG) interviewed knowledgeable officials at the Federal Highway Administration (FHWA) and U.S. Department of Transportation (USDOT) to find the answers.
Their comments help explain a timely, sometimes controversial, topic, which can confuse highway and other contractors.
(In the following interview with CEG, Charles Klemstine, director of program operations of the Federal Highway Administration’s Office of Civil Rights in Washington, D.C., explained how the federal DBE program has developed for highway and transit contractors)
How does FHWA fit into the DBE
picture?
We’re one mode of the three that are subject to the DBE program. The legislation of the TEA-21 act only applies to highways and transit. The FTA [Federal Trade Administration] and the FAA [Federal Aviation Administration], also have programs.
Explain the legal background for DBE programs on Federal-aid projects.
In 1995, the U. S. Supreme Court, in the Adarand v. Pena decision, said that the standard for affirmative action programs, which had been set for states and counties, in the Croson v. City of Richmond decision, would also apply for affirmative action programs on federal contracts. This standard is strict scrutiny judicial review in which you must do two things: One, establish a compelling governmental interest and two, if you do so, you must narrowly tailor your program to specifically meet that interest. That [standard] was then required by Congress in the reauthorization of our funding under the TEA-21 highway bill. Back in 1997-98, there was a great deal of debate both in the Senate and the House because there were amendments on the floor of both houses to eliminate the program. When TEA-21 was passed, it did include a provision for such a program. The Clinton Administration took a very set position on it.
What happened then?
The Supreme Court never has found the DBE program to be unconstitutional. People argue that, because of that, Adarand established a new standard to follow. The Clinton Administration came up with the motto that you should mend, not end, the program. One of the key things you had to do was ensure that your program was narrowly tailored. Therefore, the Department of Transportation [USDOT] in February 1999 issued new regulations whose intent was to narrowly tailor the program. These regulations gave the requirements provisions and principles that you would carry out to narrowly tailor your program if you were the recipient of federal funds.
Does the proportion of DBEs depend on local conditions?
That’s reflected in the overall goal that they set. There’s a requirement that anyone who’s subject to a DBE program — in our case that’s the state transportation agency — must set an overall goal. That goal does account for local market conditions, and it has to be established by each and every recipient. So each of our state DOTs have gone through what’s required in the regulations in establishing a goal-setting methodology that does account for relative availability and also accounts for evidence that may exist towards the DBEs capacity or any evidence of discrimination they may have in hand themselves. Then in turn they are to take that into account and adjust whatever the dataline of availability is. Each state establishes an overall annual goal each and every year based on specific available data at that time.
It’s no longer just 10 percent?
That is correct. The 10-percent goal, which is actually still in legislation, is referred to by many people as an aspirational goal, which the USDOT itself only uses as sort of an evaluation tool to see how it’s generally going. But states do not use it.
What has been the Bush Administration’s stance on the DBE program?
The Bush Administration, actually Mr. Olsen himself [the solicitor general], argued before the Supreme Court on behalf of the program. The court didn’t rule one way or the other whether it was constitutional or not. They basically said that Adarand’s arguments had no standing. The Mountain States Legal Defense Fund took, I guess, a different tack as far as their argument against the program. The 1995 decision stood, and still stands today. The court was only speaking specifically to the challenge, which was being raised by Adarand himself as it affected him specifically. So we’re still under the same Supreme Court decision. The USDOT issued new regs in 1999 to deal with that. Also those 1999 regs were developed to speak to what was debated in the congressional hearings. Today we’re still carrying out the same program.
What is the administration’s policy on affirmative action in construction?
I would have to refer you to our public affairs department. That’s not really my job. I can tell you specifics about the program but, when it comes to policy or what the administration is thinking, that’s not my area.
(In the following interview with CEG, Robert Ashby, deputy assistant general counsel for regulation and enforcement of the U. S. Department of Transportation in Washington, D.C., explained the DOT regulations applying to affirmative action in the construction industry. Ashby has been the primary author of all the department’s regulations.)
You have written DOT regulations since 1980. Will you write any new ones that come down the pike?
Yes, I’m the primary drafter of DOT regulations. I assume that if, for example, the Administration or Congress does something, which calls for a new regulation, I’ll be involved in it.
When did DOT’s regulations on disadvantaged business enterprises begin?
The roots of our DBE program go back only to the mid-to-late 1970s, when various parts of DOT started out with minority business programs, in the Federal Highway Administration, for example. We had the first department-wide regulation in 1980 and the first statute mandating a DBE program in 1983. There are other programs, of course, for affirmative action in employment by federal contractors. Someone who contracts directly with a federal agency has to have it [affirmative action] in employment. Initially, these were specifically directed at construction industry.
The DBE program, on the other hand, is not an employment program, as such. It’s for getting business to [disadvantaged] contractors. It involves business on all sides.
It’s not who you hire, but what businesses work for you.
The DBE program means getting business to minorities, including women, does it not?
Yes, the DBEs can be owned either by women or minorities, or, in fact, anybody else who is found to be disadvantaged on an individual basis. We have, for example, a few cases of a white male who has a disability and has been certified as having it.
Is there any aspect of DBEs that is unique to construction?
I think highway construction is probably the area where the DBE program has its biggest impact, but the program is very emphatically not limited to construction. It could be any kind of business that one of our grantees hires in the context of a federal agency contract.
A DBE has to be a small business under Small Business Administration [SBA] standards. If I’m saying that either socially or economically I am a disadvantaged individual, my personal net worth must be less than $750,000. The size of the business depends on its type. SBA has this very lengthy chart that talks about the number of employees the business can have or the gross receipts a business can earn in a year to be considered a small business.
Could you explain the present DBE
requirements?
The basic 1999 rule is that recipients have to go through a process of determining an appropriate overall goal [for minority participation], basically what would be a level playing field for DBEs, and then they would also establish contract goals that bidders have to show good faith efforts to meet.
Who are the recipients?
State and local governments, airport and transit authorities, state highway departments.
Hasn’t that become more flexible because it depends on local conditions?
Well, the 1999 rule is probably more flexible in this respect than its predecessor.
It’s no longer held to 10 percent?
That’s correct. State highway departments, airports and transit authorities set an overall goal based on the best available data based on the availability of DBEs in their area. Those goals are sent into the department for review. We review those goals to make sure the approach or methodology, which the recipient takes, is consistent with the rule, and that their conclusions flow from their data and that kind of thing.
What’s happened in the past few years as far as Department of Transportation regulations on Disadvantaged Business Enterprises in construction?
The 1999 regulations are the ones that remain in effect. More than a year and a half ago, we issued a Notice of Proposed Rulemaking to make a sort of miscellaneous set of amendments to the 1999 rules. These are getting close to going final. They have gone through the public comment phase and we’re in the final phase of drafting the final rule. They’re basically administrative chang-es, which don’t affect the substance of the rules a great deal, like a uniform reporting form and a uniform application form, or a prompt payment issue. A lot of people will be very glad to see these. They have been very anxious, for instance, for the reporting form.
Does the general trend seem to be toward limiting or loosening DBE requirements for highway and other contractors in construction, making the requirements more flexible?
I wouldn’t say limiting or loosening. They are more flexible only in the sense that one of the things that we did in 1999 was to really put language in the rule that hit folks over the head with things we had been saying all along. For example, in a state highway department, you can’t be running a quota system. You can’t say ’You as a highway contracting company bidding on this contract must get “X” percent of DBE participation or you’re out.’ We’ve always said you have to make good-faith efforts.
Years ago, you could always show it by documenting how you tried. I think the flexibility had always been there. We placed a good deal more emphasis on it, made it much more front-and-center headlines than it had been in the previous version of the rule.
How do you tell whether contractors are complying?
That’s the job of state and locals. We don’t have any very-direct relationship with the contractors. The state and locals have to see that the contractors are complying.
Can you explain the difference between the two U.S. Supreme Court decisions dealing with DBEs, the Croson v. City of Richmond decision in 1989 and its Adarand v. Pena decision in 1995?
The Croson decision applied to programs of this general kind that are operated by state and local governments under their own state and local legal authority as distinct from a program like this [DOT’s], which is operated under authority deriving from a congressional enactment. The Adarand decision essentially said that the courts should apply strict scrutiny in examining a federal program just as the court had ruled earlier [in Croson] for state and local programs. One of the differences is, once a Congress makes a finding of compelling need, that goes for anyplace the program is used.
Could you explain recent developments in the Adarand case?
I’m not aware of anything happening currently in Adarand. What happened in the case was that about a year ago, last September, the circuit court, which covers Colorado, made a decision in the case, which had been remanded back to it by the Supreme Court, that the DBE program was in fact constitutional. It met the test for constitutionality that had been set out in the original 1995 Adarand decision by the Supreme Court. There was a compelling need shown; the program was narrowly tailored.
Adarand then appealed that decision to the Supreme Court, which accepted the case [a second time] for argument. There was an oral argument, following which the Supreme Court decided that the procedural stance of the case was such that it wasn’t appropriate to make a substantive decision, and, as a result the Supreme Court dismissed the case without really deciding the substantive issues involved.
It looks from the decision that the court thought that the case was so procedurally confused that it was very difficult to make a substantive decision on the constitutionality. Therefore the 10th Court decision remained in force. In the meantime, there have been some district court decisions in Minnesota, Nebraska and Kansas that have upheld the constitutionality of the program. Those decisions either are now, or may be in the future, appealed, but, at least, as of today, you have the 10th Circuit decision and you have these district court decisions, which have upheld the constitutionality of the program on to the 1999 regulations.
The Clinton Administration issued a ’Mend, not End’ policy towards the DBE program in construction. Has the Bush Administration taken a similar stance?
I’m not aware of any policy statements [on construction] by the administration. However, in the University of Michigan admissions case [on affirmative action in schools], the Administration supported a decision invalidating the university’s provision. There are a lot of both factual and conceptual distinctions between those admissions programs at the university and the DBE program. To the best of my knowledge, the Administration has not stated any position [on DBEs]. Obviously, the Administration was in office when the most recent version of the Adarand case was argued at the Supreme Court. The Administration, through the Solicitor General’s office, defended the constitutionality of the DBE program before the court.
I’m surprised the Administration didn’t take a more pro-business, pro-contractor, position.
Of course, with the DBE program, you have contractors with all kinds of questions.
It all depends on where they’re coming from.
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