FROM:
DATE:
Sid Hemsley, Senior Law Consultant
June 21, 2001
MEMORANDUM
RE: County Minority Set-Aside Program
I have the following comments about the County Disadvantaged Business Enterprise
Utilization Guidelines. Many of these comments are bas ed upon the collective “wisdom” about the problems courts have found with set-asides. But I have paid particular attention to Adarand
Constructors, Inc. v. Slater, 228 F.3d 1147 (10 th Cir. 2000), and General Contractors of Ohio v.
Drabik, 214 F.3d 730 (6 th Cir. 2000). The first case upheld the revised federal program governing minority contract set-asides in highway construction, and the second case derives from the Sixth U.S. Circuit Court of Appeals, in which Tennessee is located.
My focus is on construction contracts because such contracts appear to be the focus of the Guidelines. While the Guidelines set a 10% goal for both construction contracts and goods and services, the only reference to goods and services is Section (F), in which
The County is proactive in encouraging purchases of goods and services from DBEs. The County’s purchasing Department Staff will, within the context allowable by the County’s Purchasing Rules, offer information to assist DBEs and other firms in proposing or bidding on county purchases of goods and services.
Finally, my focus is also on what might be wrong with the County Guidelines. The “good faith” and “goal” provisions of the Guidelines probably solve the narrow-tailoring problems quotas and mandatory DBE use provisions have caused in other set-aside programs.
For that reason, I directed my attention to the proof of discrimination problems and other narrowtailoring problems to which the courts have pointed in striking down all or parts of set-aside programs.
1. I have no access to the proof of discrimination upon which the County relied. As the recent cases on minority set-asides make clear, that proof must be based on convincing statistics, and such proof is not as easy to gather and to justify as the proponents of set-aside programs would initially assume. As I pointed out in my general treatment of minority set-asides, recent cases reflect courts that have achieved considerable sophistication in statistical analysis, and some of them are not easy to please.
If the County statistics are solid, it might be possible for the city to piggy-back on them to justify its own program. There is some disagreement among the courts on whether the statistics showing discrimination on the part of the political jurisdiction can taken in an area larger than the jurisdiction, but the city would have an argument that they should take in at least the County.

June 21, 2001
Page 2
2. In connection with the requirement that the program be narrowly tailored, I note that the Guidelines say that, the “County will set and enforce program goals as specified in 49 CFR
26BTitle 49 and other applicable federal and state laws, rules and regulations.” [Section (A), last paragraph]. It is also said in the Guidelines, that,
The County’s annual goal shall be that at least 10% of the funds expended in the contracted construction arena shall be awarded to
DBEs. In addition, the County’s annual goal shall be that at least
10% of the funds expended for goods and services shall be awarded to DBEs. [Section (A), third paragraph]
I assume that Section (A), last paragraph of the Guidelines intends to apply 49 C.F.R.,
Part 26 only to federally-assisted highway construction contracts in the County. However, that point could be made clearer. Notably, in Section (A), last paragraph of the Guidelines, the 10% annual goal applies to all construction contracts, which is the same goal that applies to highway construction contracts under 49 C.F.R., Part 26. Is it the intention of the Guidelines that 49
C.F.R. Part 26 apply to all construction contracts issued by the County?
In either case, 49 C.F.R., Part 26, contains elaborate rules and regulations for minority programs in the area of federally assisted highway construction. In Adarand Constructors, Inc. v. Slater, above, the Court in an appendix explained the application of those rules and regulations. That part of the appendix is worth quoting at length here:
Regarding the allocation of subcontracts to DBEs, the current regulations explicitly prohibit the use of quotas. See id. Section
26.43(a). Similarly, the current regulations prohibit use of setasides except in “limited and extreme circumstances...when no other method could be reasonably expected to redress egregious instances of discrimination.” Id section 26.43(b). Although acknowledging that ISTEA and TEA-21 set a goal of 15% DBE participation in government contracts, the current regulations term this “an aspirational goal at the national level .” [Emphasis is mine.]
Id. Section 26.41(b), which does not authorize or require recipients to set overall or contract goals at the 10 percent level, or at another other particular level. Id section 26.41(c) [Emphasis is mine.]
Extensive regulatory requirements must be met before goals may be set for DBE participation in a particular market. See id. Section
26.45. Goals must be based on “demonstrable evidence of the availability of ready, willing and able DBEs relative to all businesses ready, willing and able to participate” and must make
“reference to the relative availability of DBEs in the recipients local market.” Id. Section 26.45(b). In addition, goal setting must involve “examining all evidence available in [the recipient’s]

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Page 3 jurisdiction .” Id. Section 26.45(c). [Emphasis is mine.] Such evidence may include census data and valid disparity studies. See id. Section 26.45(c)(1)B(3). After examining this evidence, the recipient must adjust its DBE participation goals by examining the capacity of DBEs to perform needed work, disparity studies, and other evidence. See id. Section 26.45(d) When submitting these goals, the recipient must include a description of the methodology and evidence used in setting them. See id. Section 26.45(f)(3)...
In short, the County’s statistical burden to support the 10% goal for highway construction contracts is large; it cannot be pulled out of the air. There must be a connection between the goal and the availability of DBEs.
The set-aside cases make clear that the County has a similar burden with respect to all contracts.
3. Similarly, with respect to the requirement that the program be narrowly tailored, I have no access to information that the county might have tried race-neutral means of encouraging minorities to bid on county contracts. The program itself includes such race-neutral programs under Section (B) EQUITABLE OPPORTUNITY TECHNIQUES, but as I read most of the setaside cases, the county must make some preliminary finding that it cannot meet its goals through race-neutral means.
4. The d efinitions of “Socially and economically disadvantaged individual” in Section (A), second paragraph, probably suffers from both over-inclusiveness and under-inclusiveness. With respect to over-inclusiveness, it includes persons of virtually every ethnic background. While on its face that aspect of the program might reflect the program’s attempt to facilitate broad equality in the awarding of county contracts, in reality, there probably exists little, if any, proof that some of those groups have ever been the victims of discrimination in the awarding of contracts in the
County . It is not enough to show that those groups have been the victims of such discrimination someplace. For example, under the set-aside cases merely because the statistics show that, say, Tongans have been awarded no contracts, does not constitute the quality of proof necessary to show that Tongans have been the victims of discrimination.
In addition, if, say, 10% of the contracts are awarded to persons of Japanese decent, and none to African Americans, the county has met its goals without the antecedent showing that persons of Japanese descent are even the victims of discrimination in the awarding of contracts.
With respect to under-inclusiveness, apparently the program does not take into account the potential (and I suspect likely) award of contract to businesses that might otherwise qualify as DBEs, except that they are not certified.
5. I am at a loss as to how the DBE certification process found in Section G functions.
Certification as a DBE is achieved though the Small Business Administration or through TDOT.
I confess that I do not know how those certifications work, but in local set-aside programs the

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Page 4 purpose of the certification is to obtain a body of competent contractors and subcontractors to help correct discrimination in the award of contracts within the political jurisdiction. In this case, the political jurisdiction is the County. The Guidelines contain no objective criteria for how the certification works with respect to the County. For example, this question remains outstanding: does the certification apply to every BDE that has been certified by the SBA or TDOT? There is a good possibility the Guidelines are not narrowly tailored with respect to the certification process.
6. There is a periodic review of the program provided in Section (I), but I am not sure that review qualifies as a deadline for the program. It is not a sunset provision, providing merely for review and evaluation for effectiveness “and recommendation for continuation” every three years. While that provision might pass muster, I suspect one with a more clearly final deadline every three years, and including provisions for “graduation” of DBEs would be better.