On September 15, 1989, the
Central Federal Lands Highway Division (CFLHD)--part of the
Department of Transportation’s Federal Highway
Administration--awarded a prime contract for a highway
construction project in Colorado.
The prime contractor solicited bids for guardrail work
and Adarand, a guardrail contractor, submitted the low
subcontract bid. However,
Adarand’s bid was rejected and the subcontract was awarded to
another firm with a higher bid.
The prime contract was awarded
under the Surface Transportation Assistance Act of 1982 (STAA)
and its successor the Surface Transportation and Uniform
Relocation Assistance Act of 1987 (STURAA).
The act required states, as a prerequisite to the receipt
of federal funds, to set aside at least ten percent of all
federally aided highway contracts to Disadvantaged Business
Enterprises (DBE). Specifically,
the act provided
"Except
to the extent that the Secretary determines otherwise, not
less than 10 percent of the amounts authorized to be
appropriated . . . shall be expended with small business
concerns owned and controlled by socially and economically
disadvantaged individuals."
"The
term 'socially and economically disadvantaged individuals' has
the meaning such term has under section 8(d) of the Small
Business Act (15 U.S.C. 637(d) and relevant subcontracting
regulations promulgated pursuant thereto; except that women
shall be presumed to be socially and economically
disadvantaged individuals for the purposes of this
subsection."
Under Section
8(d) of the Small Business Act, "socially and economically
disadvantaged individuals" included
“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.”
Section 8(a) of the Small
Business Act stated that
“Socially disadvantaged
individuals" are those who have been subjected to racial or
ethnic prejudice or cultural bias because of their identify as a
member of a group without regard to their individual
qualities."
“Economically disadvantaged
individuals are those socially disadvantaged individuals whose
ability to compete in the free enterprise system has been
impaired due to diminished capital and credit opportunities as
compared to others in the same business area who are not
socially disadvantaged."
STURAA also required the Secretary
of Transportation to establish minimum uniform criteria for state
governments to follow in certifying whether a concern qualified as
a DBE participating in the
program. However,
third parties were allowed to provide evidence to contest the status
of an individual business.
The disputed
contract included an incentive provision referred to as the
Subcontracting Compensation Clauses (SCC) that stated
"The
Contractor will be paid an amount computed as followed
-
If a
subcontract is awarded to one DBE, 10 percent of the final
amount of the approved DBE subcontract, not to exceed 1.5
percent of the original contract amount.
-
If
subcontracts are awarded to two or more DBEs, 10 percent of
the final amount of the approved DBE subcontracts, not to
exceed 2 percent of the original contract amount.”
The CFLHD adopted the SCC program
in 1979 to satisfy agency goals required by another part of the
Small Business Act—specifically 15 U.S.C. 644(g) or section 502
of the Act. That
section of the Act stated
"The President shall annually
establish Government-wide goals for procurement contracts
awarded to small business concerns and small business concerns
owned and controlled by socially and economically disadvantaged
individuals . . . . Notwithstanding 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
performance of contracts let by such agency."
The SCC is the reason that
Adarand’s bid was rejected because the prime contractor said that it would have accepted
Adarand’s low bid had it not been for the additional payment it
received for using a DBE.
