Adarand Constructors, Inc. v. Mineta, (Adarand VIII"), 21 S.Ct. 2588, 69 USLW 3806 (2001) (mem) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 2, 13, 14, 50

Adarand Constructors, Inc. v. Slater, ("Adarand VII"), 228 F.3d 1147 (10th Cir. 2000), cert. granted sub nom., Adarand Constructors, Inc. v. Mineta, 121 S. Ct. 1401 (Mar. 26, 2000), cert. modified, 121 S. Ct. 1598, (Apr. 13, 2001) 14, 30, 35, 42,
43

Associated Gen. Contractors v. Coalition for Econ. Equity, 950 F.2d 1401 (9th Cir. 1991) 19,
20, 22,33

City of Richmond v. J.A. Croson, 488 U.S. 469 (1989) 14, 15, 17, 30, 38, 42

Cortez III Serv. Corp. v. NASA, 950 F. Supp. 357, 361 (D.D.C. 1996) 33

Cone Corp. v. Hillsborough County, 908 F.2d 908 (11^th Cir. 1990) . . . . . . . . . . . . . . . . . . . 20, 22

Ensley Branch, N.A.A.C.P. v. Seibels, 31 F.3d 1548 (11th Cir. 1994) 42

Fullilove v. Klutznick, 448 U.S. 448, 475 (1980) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13, 34, 37

In re Sherbrooke Sodding Co. ("Sherbrooke I"), 17 F. Supp. 2d 1026, 1034-1035 (D. Minn. 1998) 33, 50

Members of the City Council of the City of Los Angeles v. Taxpayers for Vincent, 466 U.S. 789 (1984) 1

Monell v. Dep't of Soc. Servs., 436 U.S. 658 (1978) 16

Nguyen v. I.N.S., 21 S. Ct. 2053, 150 L.ED 2d 115 (2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13

Peightal v. Metro. Dade County, 26 F.3d 1545 (11th Cir. 1994) 42

Rothe Dev't Corp. v. Dep't of Defense, 49 F. Supp. 2d 937, 951 (W.D. Tex. 1999) (appeal pending) 33

United States v. Paradise, 480 U.S. 149, 171 (1987) 34

United States v. Salerno, 481 U.S. 739 (1987) 1

United States v. Virginia, 518 U.S. 515 (1996) 13

United Steelworkers of Am. v. Weber, 443 U.S. 193 (1979) 16, 23

Wygant v. Jackson Bd. of Educ., 476 U.S. 267 (1986) 15

OTHER AUTHORITIES

U.S. Const. art. I, cl. 1 13

FEDERAL REGULATIONS

49 C.F.R. pt. 26 1, 6, 7, 38, 46, 54

49 C.F.R. ï½§ 26.9 7

49 C.F.R. ï½§ 26.15 38, 39

49 C.F.R. ï½§ 26.29 36

49 C.F.R. ï½§ 26.33 44

49 C.F.R. ï½§ 26.41 41

49 C.F.R. ï½§ 26.45 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 41, 43, 44, 46, 47, 48

49 C.F.R. ï½§ 26.47 41

49 C.F.R. ï½§ 26.51 2, 36, 37, 49

49 C.F.R. ï½§ 26.53 42

49 C.F.R. ï½§ 26.65 38, 40

49 C.F.R. ï½§ 26.67 38-40, 43

49 C.F.R. ï½§ 26.69 39

49 C.F.R. ï½§ 26.71 39

49 C.F.R. ï½§ 26.83 40

49 C.F.R. ï½§ 26.87 40

49 C.F.R. ï½§ 26.107 40

64 Fed. Reg. 5102-03 5, 39

64 Fed. Reg. at 5114 42

Intermodal Surface Transportation Efficiency Act of 1991 (ISTEA), Pub. L. No. 102-240, ï½§ 1003(b), 105 Stat. 1919-1921 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4, 34, 50

Participation by Disadvantaged Business Enterprises in Department of Transportation Programs, 64 Fed. Reg. 5096 5

Surface Transportation Assistance Act of 1982 (STAA), Pub. L. No. 97-424, ï½§ 105(f), 96 Stat. 2100 4

Unconstitutional Set-Asides: ISTEA's Race-Based Set-Asides After Adarand:

Hearing Before the Subcomm. on the Constitution, Federalism, and Prop. Rights of

the Senate Judiciary Comm., 105^th Cong., 1^st Sess. (1997).............................19, 21, 23, 24, 26, 33

CONGRESSIONAL MATERIALS

Disadvantaged Bus. Enter. Program of the Federal-Aid Highway Act: Hearing Before the Subcomm. on Transp. of the Senate Comm. on the Env't and Public Works, 99th Cong., 1st Sess. 56 (1985) 26

144 Cong. Rec. at H3958 (Daily ed. May 22, 1998) . . . . . . . . . . . . . . . .16, 17, 24, 25, 28, 29, 30

144 Cong. Rec. H3945, 1998 WL 259603 (daily ed. May 22, 1998) 34

144 Cong. Rec. H1885, 1998 WL 147914 (daily ed. Apr. 1, 1998) . . . . . . . . . . . . . . . . .16, 32, 34

144 Cong. Rec. S1395, 1998 WL 93837 (daily ed. Mar. 5, 1998) . . . . . . . . . . . . . . .16, 25, 31, 32

144 Cong. Rec. S1481-06, 1998 WL 95848 (daily ed. Mar. 6, 1998) 16

144 Cong. Rec. S5403, 1998 WL 259681 (daily ed. May 22, 1988) . . . . . . . . . . . . .20, 15, 16, 31

Affirmative Action, 142 Cong. Rec. H23600 (1996) 26

Availability of Credit to Minority-Owned Small Businesses: Hearing Before the Subcomm. on Fin. Inst. Supervision, Regulation & Deposit Ins. of the House Comm. on Banking, Fin., and Urban Affairs, 103d Cong., 2d Sess. 20 (1994) 26

Barriers to Full Minority Participation in Federally Funded Highway Construction: Hearing Before a Subcomm. of the Comm. on Government Operations, House of Representatives, 100th Cong. 50-51 (Apr. 1, 1988) 21

City of Richmond v. J.A. Croson: Impact and Response: Hearing Before the Subcomm. on Urban and Minority Owned Business Development of the Senate Comm. on Small Bus., 101^st Cong., 2d Sess. (August 1, 1990) 19

Establishment of a Minority Bus. Dev. Admin. in the Dep't of Commerce: Hearing Before the Subcomm. on Gen. Oversight and Minority Enter. of the House Comm. on Small Bus., 96th Cong., 2d Sess. 26 (1980) 26

Federal Minority Bus. Issues: Hearing Before the House Comm. on Small Bus., 102 Cong., 1st Sess. 5 (1991) 26

Housing and Urban Development Act, 15 U.S.C. ï½§ 694(a), (b) (2001), repealed by Pub. L. 100-590, Title I, ï½§ 111(b) 102 Stat. 2995 (Nov. 3, 1988) 35

How State and Local Gov'ts Will Meet the Croson Standard: Hearing Before the Subcomm. on Civil and Constitutional Rights of the House Comm. on Civil and Constitutional Rights of the House Comm. on the Judiciary, 100th Cong. 54 (1989) 21

Problems Facing Minority and Women-Owned Small Businesses, Including SBA Section 8(a) Firms, in Procuring U.S. Gov't Contracts: An Interim Report, H.R. Rep. No. 103-870, 103d Cong., 2d Sess. 15 (1994) 28

Sur. Bonds and Minority Contractors: Hearing Before the House Subcomm. on Commerce, Consumer Prot. and Competitiveness of the Comm. on Energy and Commerce, 100th Cong., 2d Sess. (1988) 27-29

The Civil Rights Act of 1997: Hearing Before the Subcomm. on the Constitution of the House Judiciary Comm., 105th Cong., 1st Sess. 91 (1997) 26

The Meaning and Significance for Minority Bus. of the Supreme Court Decision in the City of Richmond v. J.A. Croson: Hearing Before the Subcomm. on Minority Bus. Enter., Fin., and Urban Dev. of the House Comm. on Small Bus., 103d Cong. 113, 121 (1993) 19, 22, 30, 31

The Small Bus. Admin.'s 8(a) Minority Bus. Dev. Program: Hearing Before the Senate Comm. on Small Bus., 104th Cong., 1st Sess. 103 (1995) 26

Unconstitutional Set-Asides: ISTEA's Race-Based Set-Asides After Adarand:

Hearing Before the Subcomm. on the Constitution, Federalism, and Prop. Rights of

the Senate Judiciary Comm., 105^th Cong., 1^st Sess. (1997) .................19, 21, 23, 24, 26, 33

INTRODUCTION

AND SUMMARY OF ARGUMENT

This case challenges the constitutionality of the Congressionally mandated Disadvantaged Business Enterprise ("DBE") program authorized by Section 1101(b) of the Transportation Equity Act for the 21^st Century, Pub. L. No. 105-178, 112 Stat. 107 (1998) ("TEA-21") and implemented pursuant to 49 C.F.R. pt. 26. Plaintiff challenges the statute and its implementing regulations on their face. Plaintiff, therefore, cannot prevail merely by asserting that they might be applied in an unconstitutional manner. Instead, the Plaintiff may prevail only if it "[i]s apparent that" the statute and regulations "could never be applied in a valid manner." Members of the City Council of the City of Los Angeles v. Taxpayers for Vincent, 466 U.S. 789, 797-798 (1984) (emphasis added).⁽¹⁾ Plaintiff has failed to satisfy this burden.⁽²⁾

The Supreme Court has made clear that government race-conscious measures are subject to strict scrutiny. However, the Court has also made clear that the strict scrutiny to be applied to race-conscious remedial measures is not "fatal in fact." Adarand Constructors, Inc. v. Peña, 515 U.S. 200, 224, 235-37 (1995) ("Adarand III"). "The unhappy persistence of both the practice and the lingering effects of racial discrimination against minority groups in this country is an unfortunate reality, and the government is not disqualified from acting in response to it." Id. at 237.

As the United States explained in its brief in Adarand Constructors, Inc. v. Slater, 228 F.3d 1147 (10th Cir. 2000) ("Adarand VII"), cert. granted sub nom., Adarand Constructors, Inc. v. Mineta, 121 S. Ct. 1401, 149 L. Ed. 2d 344, (Mar. 26), cert. modified, 121 S. Ct. 1598, (Apr. 13, 2001) ("Adarand VIII") and the Federal Defendants argued in their earlier filings in this Court, in enacting TEA-21 Congress had sufficient evidence to demonstrate a compelling interest forestablishing a nationwide program to remedy discrimination and the effects of discrimination in construction when it enacted the narrowly tailored DBE program. That national program requires recipients of DOT financial assistance to establish local DBE programs. Those programs may utilize race-conscious measures in only those jurisdictions where discrimination or its effects are a problem and race-neutral relief is insufficient. See U.S. Br. in Adarand VIII at 37. Local programs "may use race-conscious remedies only as a last resort." Id. at 19.⁽³⁾ See also id. at 5-6; 49 C.F.R. ï½§ï½§ 26.45, 26.51. To ensure that remedies for the effects of discrimination are tailored to local conditions, the Secretary of Transportation's regulations require states and localities receiving federal aid to establish numerical measurements, based on local DBE availability and other evidence, to assess discrimination or its effects in their own jurisdictions. In particular, state and local recipients must estimate "the level of DBE participation [the recipient] would expect absent the effects of discrimination." 49 C.F.R. ï½§ 26.45(b).

The Nebraska Department of Roads ("NDOR") established and maintains a DBE program consistent with the federal requirements. NDOR's DBE program contains race-neutral and race-conscious measures. See Part V of this brief, infra. Only the race-conscious aspects of the program are at issue in this case. At trial, the defendants presented ample evidence that discrimination and its effects are a problem within the Nebraska market, and that race-neutral relief is insufficient. Such evidence included a study commissioned by NDOR which assessed DBE availability, the effects of discrimination, and the insufficiency of race-neutral remedies in the Nebraska market, as well as trial and deposition testimony of Nebraska DBE participants. NDOR's use of race-conscious measures is constitutional because those measures were adopted only as a last resort, after race-neutral alternatives were found wanting. Therefore, the challenged Federal DBE program, as well as NDOR's implementation of that program, are constitutional.

ISSUES

The issues for this Court to decide are:

1. Whether Congress had a compelling interest in enacting Section 1101(b)'s DBE nationwide provisions.

2. Whether DOT's nationwide DBE program is narrowly tailored to serve a compelling governmental interest.

3. Whether NDOR's DBE program is narrowly tailored to serve a compelling governmental interest.

FACTUAL BACKGROUND AND PARTIES

The President signed TEA-21 into law on June 9, 1998. Section 1101(b) of TEA-21 seeks to redress the effects of discrimination by requiring that the DOT ensure a level playing field for small businesses owned and controlled by socially and economically disadvantaged individuals that participate in contracts funded, in whole or in part, by the DOT. TEA-21's DBE provisions re-authorize measures included in former statutory provisions enacted to remedy discrimination in federally-assisted construction contracting.⁽⁴⁾

I. Plaintiff

Plaintiff Gross Seed Company ("Plaintiff") operates as a retail seeding outlet and provides seeding services. See (John Gross Dep. at 12, ll. 22-25) [Ex. 599]. In the past, Plaintiff has bid on seeding work on construction contracts let by NDOR. John Gross is President of the Plaintiff company and owns 50% of its issued stock. (Id. at 11, ll.19-20; 14, ll. 19-22.) The remaining 50% of Plaintiff's issued stock is owned by Mr. Gross' wife, Peggy Gross, who serves as Treasurer and Secretary of the Plaintiff company. See (Peggy Gross Dep. at 10, ll. 4-12) [Ex. 600].

The Plaintiff has suffered no significant financial loss from the DBE program authorized by TEA-21. While Gross Seed Company asserts that it lost a single seeding project in early

2000 due to NDOR's implementation of the DBE program encompassed in TEA-21, there was no evidence presented at trial that the Plaintiff suffered any actual losses as a result of this program. In fact, the Plaintiff has continued to grow, expanding into the role of prime contractor, while continuing to win subcontracts. See (John Gross Dep. at 34, ll. 8-11; 36, ll. 9-11). Moreover, Plaintiff's financial statements indicate that Plaintiff's revenue has increased since the current DOT regulations took effect on March 4, 1999. See 1999 and 2000 Financial Reports of Gross Seed [Ex. 603, 695].Furthermore, Plaintiff claims no monetary damages in this action. See (Plaintiff's Second Amended Complaint).

On March 21, 2000, Plaintiff filed this lawsuit against NDOR and its director, John L. Craig, challenging the constitutionality of NDOR's application of the DBE program in Nebraska, and seeking a temporary restraining order until the Court could reach the merits of its claims. This Court denied Plaintiff's motion for a temporary restraining order, and scheduled a hearing on Plaintiff's motion for preliminary injunction. On April 4, 2000, this Court granted the United States, United States Department of Transportation ("DOT"), and the Federal Highway Administration ("FHWA") leave to intervene in the case. On September 14, 2000, Plaintiff filed a Second Amended Complaint naming the United States, DOT and FHWA as Federal Defendants and challenging the constitutionality of TEA-21 and its implementing regulations.

II. Federal Defendants

DOT is a cabinet-level executive agency of the United States responsible for implementing and administering transportation programs on behalf of the United States government. DOT is also charged with promulgating regulations to implement TEA-21's DBE provisions. On February 2, 1999, in response to the Supreme Court's decision in Adarand III, and recent congressional debates, DOT issued a final rule establishing new DBE program regulations. See Participation by Disadvantaged Business Enterprises in Department of Transportation Programs, 64 Fed. Reg. 5096, 5102-03 (Feb. 2, 1999) (codified at 49 C.F.R. pt. 26) [Ex. 554].

FHWA is an operating administration within DOT that implements and administers federal highway programs. Recipients of certain categories of federal transportation funding must submit to the FHWA, for its review and approval, DBE programs consistent with the DOT's DBE regulations.

III. State Defendants

Defendant NDOR and its director, Defendant John Craig, are responsible for administering highway and transportation policy for the State of Nebraska, which includes overseeing the construction and maintenance of highways within the State. NDOR lets construction contracts through a public bidding process. NDOR lets prime contracts for roadbuilding, paving, highway maintenance and repair, bridge construction, building construction (such as rest areas along major highways), culverts, and landscaping and erosion control. See (Claude Oie Testimony, Trial Tr. at 879, l. 4- 880, l. 13). The contracts let by NDOR include both those funded solely by state monies, as well as contracts financed, in whole or in part, by TEA-21 funds. State-funded projects typically are similar in size to federally-funded projects, and provide approximately the same number of subcontracting opportunities. (Id. at p. 1035, ll. 16-21.)

Firms wishing to bid on NDOR contracts as prime contractors must first be qualified by NDOR as prime contractors. NDOR imposes certain requirements on firms qualified as prime contractors, including bonding requirements. In addition, prime contractors must perform at least thirty percent of the work on prime contracts with their own equipment and employees. NDOR does not select, prequalify or otherwise impose qualifications on subcontracting firms that perform work on NDOR construction projects.⁽⁵⁾

As a recipient of federal highway funds, NDOR must operate a DBE program in compliance with the federal regulations promulgated following Adarand III. 49 C.F.R. pt. 26; [Ex. 554]. Pursuant to 49 C.F.R. pt. 26, NDOR submitted to FHWA a DBE Program Plan for approval on August 30, 1999. [Ex. 560].⁽⁶⁾ FHWA reviewed NDOR's DBE Program Plan for compliance with federal DBE regulations and approved that Plan on March 20, 2000. See Statement of Robert C. Ashby, Deputy Assistant Gen. Counsel for Regulations & Enforcement, U.S. Dep't of Trans.' Approval of Nebraska's FY 2000 DBE Program (Sept. 2000) [Ex. 570]. NDOR continues to operate its DBE program according to this Program Plan, and, as required by federal regulations, it reevaluates its level of DBE participation- including the race-conscious portion of its annual goal- on an annual basis. See (Claude OieTestimony, Trial Tr. at 973, l. 16- 974, l. 24). Based on this annual review, each year NDOR proposes a level for the next year's goals and submits that proposal to the FHWA for review and approval. (Id. at 1000, ll. 16-22.) The FHWA approved NDOR's fiscal year 2001 goal in December 2000 and reaffirmed that approval in May 2001. [Ex. 566].

During approximately the past five years, DBE firms have received between 9% and 12% of the total contract dollars awarded on federally-aided construction projects let by NDOR. By contrast, DBE firms have received between 2% and 3% of NDOR contract dollars on state-funded contracts. See MGT Study [Ex. 202]; Chart [Ex. 535].

IV. The Construction Sector>

The construction sector is comprised of loosely connected branches of the economy, including highway and heavy construction, residential construction, and commercial building construction that are defined by the nature of their products. All of the evidence adduced at trial indicates that the various industries within the construction sector often overlap, and firms that perform highway construction generally perform other types of construction work as well. See (Ray MarshallTestimony, Trial Tr. at 54, ll. 1-22).> For example, landscaping and grading work is required in almost all new construction projects. (Id. at 56, ll. 14-15; 65, ll. 2-6.) In addition, Herta Bouvia, a female co-owner of a DBE firm in Nebraska, which primarily installs rebar and mesh, testified that her company, R.A.E. Rebar, Inc., installs rebar for both highway and commercial building construction projects. See (Herta BouviaTestimony, Trial Tr. at 344, l. 21- 345, l. 16). Stanford Madlock, the African-American owner of Madlock Trucking, testified that his company hauls aggregates for highway, commercial building, and residential projects. See (Stanford MadlockTestimony, Trial Tr. at 623, ll.16-24). Likewise, Gross Seed, the Plaintiff company, provides seeding services for a variety of construction projects, including, but not limited to, highway construction projects. See (John Gross Dep. at 12, l. 22- 13, l. 4) [Ex. 599]. In addition, even large prime contractors in Nebraska typically perform both highway and commercial building projects. See (Claude Oie Testimony, Trial Tr. at 893, ll. 17-23). For example, Paulsen Inc., a prime contractor in Nebraska, performs both highway and building contracting. See (Randy DeansTestimony, Trial Tr. at 1322, l. 24- 1323, l. 8).

In the construction sector, business relationships play a particularly important role in a firm's success. See e.g. Report of Federal Defendants' Expert Professor Ray Marshall at 5, 36 [Ex. 700]. Due to the complex and dynamic nature of the construction industry, prime contractors rely on business relationships and personal networks when deciding which subcontractors they will solicit to perform specific work on a project. See (Ray MarshallTestimony, Trial Tr. at 68, ll. 6-19). Minorities have essentially been frozen out of these personal networks, especially in the private sector. See (id. at 99, ll. 4-22). See generally Part III(B), infra. For the most part, women and minorities in construction receive most of their work in the public sector, which generally is less lucrative and entails more administrative burdens than comparable work in the private sector. See (Ray Marshall Testimony, Trial Tr. at 99, ll. 9-15).

As discussed in greater detail below, in numerous respects, women and minorities historically have been excluded from the most lucrative opportunities in construction.⁽⁷⁾ (Id. at 75, ll. 24-25.) The residual effects of past discrimination, such as institutionalized patterns of discrimination, continue to pervade many areas of the construction sector, including heavy and highway construction. See (id. at 73, ll. 1-12; 75, ll. 22-23). When it enacted TEA-21, Congress had available to it an enormous body of evidence of discrimination and the effects of discrimination, both in the construction sector generally, and in heavy and highway construction in particular. See Index to Federal Defendants' Trial Exhibits attached to Federal Defendants' Trial Brief. See also Part III, infra.

The persistence of overt and institutionalized discrimination is exemplified by the experiences of minority contractors in Nebraska. Herta Bouvia, who started the DBE firm R.A.E. Rebar in 1997, testified that when she began her business, she received approximately three to four harassing phone calls each week on her unpublished business phone-a number that was only available to others involved in construction. See (Herta BouviaTestimony, Trial Tr. at 355, ll. 1-19). These anonymous callers--all of whom appeared to be males--insinuated that R.A.E. Rebar could not be owned by a woman because they did not believe a woman should own a construction company. On some occasions, these anonymous callers also made sexually explicit comments. (Id. at 355, l. 20- 356, l. 19.) At trial, Ms. Bouvia also testified that she is routinely subjected to whistles and sexual remarks from men working at job sites, including comments such as "what's that chick doing here, what's she trying to prove." (Id. at 356, ll. 23-25; 357, ll. 1-11; 17-20.) During her first two years in business, Ms. Bouvia had great difficulty obtaining work on projects to which no DBE goal applied, despite routinely bidding on such projects. (Id. at 350, l. 18- 352, l. 11; 373, ll. 4-17; 374, l. 23- 375, l. 2; 376, l. 6- 378, l. 2.)

Stanford Madlock, whose trucking business is certified as a DBE in Nebraska and specializes in hauling rock, sand, and gravel, is one of only two African-American firm owners amongst hundreds of trucking companies in Nebraska. See (Stanford MadlockTestimony, Trial Tr. at 626, ll. 9-17). Mr. Madlock testified that he has experienced discrimination on account of his race, and that, generally, he is the sole minority working on a construction project or attending a NDOR bidletting event. (Id. at 640, l1. 1-16; 643, ll. 6-15; p. 673, ll. 6-8.) On non-DBE goal projects, prime contractors do not call him to solicit his quote, but do contact his white male competitors, even though Mr. Madlock has performed good work for these prime contractors in past projects that had DBE goals. (Id. at 634, l. 14- 635, l. 5.) In fact, within the past year, Mr. Madlock had the low quote on a project, but, nonetheless, lost some of the work when the prime contractor chose to split the job between Mr. Madlock and a white competitor. (Id. at 635, l. 11- 636, l. 14.) Suppliers fail to communicate with Mr. Madlock about the availability of aggregates and otherwise make it more difficult for him to obtain aggregates than they do for his white competitors. (Id. at 660, ll. 9-14; 661, l. 19- 662, l. 4; 671, l. 22- 673, l. 23.) Throughout his years of working in construction in Nebraska, Mr. Madlock has had to endure the use of racial slurs, including the term "nigger" aimed at him and his family. (Id. at 628, ll. 2-13; 640, l. 17- 641, l. 2.) Moreover, when Mr. Madlock's father, the previous owner of Madlock trucking, was killed in a trucking accident, instead of offering sympathy, his competitors let it be known that they were "glad to see my father dead because it was the end of that minority trucker." (Id. at 630, ll. 2-12.)

Additionally, Plaintiff's officer and co-owner, Mrs. Peggy Gross, who herself owns and operates a DBE in Nebraska, admits to having experienced discrimination from other contractors. According to Mrs. Gross, the fact that she is a woman has made it difficult for her to break into the contracting business because "[m]en don't treat women equally. They don't think you can do anything...in all the work you do." (Peggy Gross Dep. at 112, l. 23 - 113, l. 9; 113, ll. 15-21; 159, ll. 16-19; 162, ll. 12-19) [Ex. 600] (further noting that men do not believe that women are able to operate a tractor or perform any manual labor). Mrs. Gross stated that she experienced this disparate treatment from men who work in all aspects of the construction industry, including men who work for prime contractors, those who work for subcontractors, as well as those who work for suppliers. (Id. at 160, l. 8- 161, l. 2.)

On construction projects without DBE goals, prime contractors solicit quotes only from those subcontractors who they know, from their personal and business experience and networks, might be interested in doing the work. See (Randy Deans Testimony, Trial Tr. at 1350, l. 25- 1351, l. 4). This has the effect of often excluding minorities from the opportunity to submit quotes on projects without DBE goals. See (Stanford Madlock Testimony, Trial Tr. at 634, ll. 15-20). Moreover, prime contractors who will be bidding on NDOR projects traditionally take rooms at a hotel the night before each NDOR bidletting, drink and socialize with subcontractors, and then go to their individual rooms to receive quotes from those subcontractors. See (Claude Oie Testimony, Trial Tr. at 881, l. 21- 882, l. 8; 899, ll. 3-4). Attempts by contractors to shop quotes at these bidlettings with those they know are rampant. See (Larry Paulsen Dep. at 50, ll. 11-15) [Ex. 601]; (Randy Deans Testimony, Trial Tr. at 1356, ll. 11-14). Very few minorities are present at these bidlettings, and, therefore, do not reap, or even know about, the benefits that personally interfacing with prime contractors at the bidlettings may offer. See (Stanford Madlock Testimony, Trial Tr. at 643, ll. 3-22).

Peggy Gross describes the DBE program as having the effect of leveling the playing field. (Peggy Gross Dep. at 110, ll. 8-10) [Ex. 600]. Likewise, Herta Bouvia got her initial chance to prove her ability to install rebar and mesh successfully when, due to a minority/female business enterprise program, R.A.E. Rebar was given the opportunity to work on the Roman Hruska Federal Courthouse in Omaha, Nebraska. See (Herta BouviaTestimony, Trial Tr. at 353, l. 16- 354, l. 3). Without such opportunities available to minority and female contractors to prove themselves in the industry, they would not have been able to start and/or maintain their businesses. (Id. at 364, l. 20- 365, l. 1.) See also (Stanford Madlock Testimony, Trial Tr. at 645, ll. 12-18).

DISCUSSION

I. Congress Possessed the Authority to Enact TEA-21's DBE Provisions

A federal statute represents a valid exercise of legislative power if its objectives are within a power delegated to Congress in the Constitution. The objectives of TEA-21's DBE provisions-- to remedy the effects of invidious discrimination in construction-- fall well within Congress' constitutional authority. For example, the Spending Clause provides that Congress may authorize expenditures for public purposes. U.S. Const. art. I, ï½§ 8, cl. 1. The Supreme Court has held that Congress may use its spending power to combat the effects of discrimination in public contracting. Fullilove v. Klutznick, 448 U.S. 448, 473-75 (1980). As previously articulated in this case and in the U.S. Brief in Adarand VIII, Congress had ample constitutional authority in enacting the DOT's DBE provisions.

II. The Challenged DBE Provisions Satisfy the Requirements of Strict Scrutiny

The race-conscious provisions of the challenged DBE program are constitutional if "they are narrowly tailored measures that further compelling governmental interests." Adarand III, 515 U.S. at 227.⁽⁸⁾ The Tenth Circuit Court of Appeals reviewed and upheld the constitutionality of DOT's current DBE program authorized by Section 1101(b) on the grounds that it satisfies the strict scrutiny test. Adarand Constructors, Inc. v. Slater, 228 F.3d 1147 (10th Cir. 2000) ("Adarand VII"), cert. granted sub nom., Adarand Constructors, Inc. v. Mineta, 121 S. Ct. 1401, 149 L. Ed. 2d 344, (Mar. 26), cert. modified, 121 S. Ct. 1598, (Apr. 13, 2001). While that decision is not binding on this Court, its comprehensive analysis of the constitutionality of the DBE program is persuasive and we urge this Court to adopt the analysis and conclusions reached by the Tenth Circuit in evaluating Plaintiff's challenge herein. As set forth below, Section 1101(b)'s race-conscious provisions are constitutional and should be upheld.

III. Congress Had a Compelling Interest in Authorizing DOT's DBE Program

The Supreme Court has repeatedly held that the need to remedy the effects of discrimination provides a compelling interest for race-conscious government action. E.g., Adarand III, 515 U.S. at 237; Croson, 488 U.S. at 490. "The unhappy persistence of both the practice and the lingering effects of racial discrimination against minority groups in this country is an unfortunate reality, and government is not disqualified from acting in response to it." Adarand III, 515 U.S. at 237. Evidence available to Congress when it enacted TEA-21 revealed that the "old boy network" continued to exclude women and minorities from essential business relationships; that shopping a minority contractor's bid to non-minority competitors remained common; that discrimination continued to impede minority and female contractors' access to capital, bonding, supplies, equipment, training opportunities and skilled labor; that minorities continued to be subject to acts of overt discrimination as well as suffer the consequences of institutionalized discrimination at the hands of prime contractors, customers in the private sector, competitors and their employees, and state officials; and that where DBE programs have been discontinued, minority and female participation in the relevant market drops precipitously, sometimes to zero.

This Court must uphold the challenged DBE program if, in enacting Section 1101(b), Congress had a "strong basis in evidence for [the] conclusion that remedial action was necessary" to counteract the effects of discrimination,⁽⁹⁾ Croson, 488 U.S. at 500 (quoting Wygant v. Jackson Bd. of Educ., 476 U.S. 267, 277, (1986), and that Congress has "identif[ied] [the] discrimination . . .with some specificity." 488 U.S. at 504. As demonstrated at trial, the evidence considered by Congress was more than sufficient to meet both of these requirements.

A. Based on Extensive Evidence, Congress Determined that Race-Conscious Measures Were Needed to Combat Pervasive Discrimination in the Construction Industry

In authorizing the DBE program at issue in this litigation, a bipartisan majority of Congress explicitly recognized that this program is necessary to remedy discrimination in construction. As Senator Chafee, one of the floor managers of the legislation and the Chairman of the committee of jurisdiction, noted during the consideration of the conference report on the legislation, the DBE program:

has proven both necessary to and effective in our efforts to remedy discrimination in transportation procurement markets. By reauthorizing the DBE program again this year, Congress has signaled its belief that the evidence remains clear: we need this program if we are to remove the continuing barriers confronted by minority- and women-owned businesses.

144 Cong. Rec. S5403 at S5414, 1998 WL 259681 (daily ed. May 22, 1998) (statement of Sen. Chafee) [Ex. 612].

Senator Baucus, also a floor manager of the legislation and ranking member of the committee of jurisdiction, agreed stating that the Senate debate had reinforced the fact that Congress had a compelling interest in enacting the DBE program. He noted that "[t]here was discussion of discrimination in the construction industry, and of statistics showing the underutilization of women- and minority-owned businesses in that industry, such as evidence of dramatic decreases in DBE participation in those areas in which DBE programs have been curtailed or suspended." 144 Cong. Rec. at S5414 (statement of Sen. Baucus) [Ex. 612].⁽¹⁰⁾ See also id. at S5403-17 (debate of conference committee report) [Ex. 612]; 144 Cong. Rec. S1395, S1402, 1998 WL 93837 (daily ed. Mar. 5, 1998) (statement of Sen. Baucus) [Ex. 616] (recognizing that the program is necessary to give "women and . . . minority groups a fair shot at . . . economic opportunity. It gives them a seat at the table."); id. (statement of Sen. Kerry); id. at S1410 (statement of Sen. Wellstone); 144 Cong. Rec. S1481-06, S1485, 1998 WL 95848 (daily ed. Mar. 6, 1998) (statement of Sen. Specter) [Ex. 615]; id. at S1490 (statement of Sen. Lautenberg); id. at S1491 (statement of Sen. Durbin); 144 Cong. Rec. H1885, H2006, 1998 WL 147914 (daily ed. Apr. 1, 1998) (statement of Rep. Jackson-Lee) [Ex. 676]; id. at H2006 (statement of Rep. Scott); id. at H2007 (statement of Rep. Andrews); 144 Cong. Rec. H3945-02, H3957-59, 1998 WL 259603 (daily ed. May 22, 1998) (statement of Rep. Norton) [Ex. 613].

Congress based its determination that discrimination hinders the ability of minorities and women to compete for construction contracts on a wealth of anecdotal and statistical evidence, including the testimony of witnesses at the Senate hearing regarding the program; disparity studies from numerous jurisdictions within the United States; reports received from constituents and interested parties; reports and statistics from other governmental agencies; and information developed during prior Congressional hearings and debates. See 144 Cong. Rec. H3957-3960, 1998 WL 259603 (daily ed. Apr. 1, 1998) (statement of Rep. Norton) [Ex. 613]. This information revealed that discrimination hinders the access of minorities and women to the mainstream of business networks in the construction business -- including limiting their access to information and opportunities, capital and bonding, experience and expertise and, skilled labor and supplies -- all of which in turn directly impact their ability to compete for construction contracts on an equal footing with white male competitors. See Ray Marshall Testimony at 70, ll. 8-22. As discussed below, taken together the sources of evidence available to Congress regarding discrimination faced by minorities and women in construction provided detailed information about the nature and extent of the problem, which more than sufficed to meet Croson's requirement that the government "identify [the] discrimination . . .with some specificity." 488 U.S. at 504.⁽¹¹⁾ Plaintiff has failed to demonstrate at anytime in this litigation that Congress lacked this strong basis in evidence to reach its determination.

B. The Effects of Discrimination Have Excluded Minority and Female Construction Contractors From Essential Business Relationships

In the construction industry, business relationships play a particularly important role in a firm's success and may mean the difference between receiving crucial information about upcoming contracts and learning about opportunities too late to put together a competitive bid. See, e.g., Report of Federal Defendants' Expert Professor Ray Marshall ("Marshall Report") at 5, 36. [Ex. 700.] Both minority and white contractors commonly refer to this system of business relationships within the community of construction contractors as "the old boys network." (Ray Marshall Testimony, Trial Tr. at 112, l. 25- 114, l. 11.) Because success in construction contracting is highly dependent upon business relationships, firm owners who are excluded from business networks will lack access to information and contacts necessary to learn of opportunities to bid on a contract, to put together a competitive bid, or in some cases, even to have a low quote accepted by a prime contractor or customer. See (id. at 114, l. 18- 115, l. 3). Prime contractors' decisions about which subcontractors to use often are influenced by their familiarity with the individual subcontractors. (Id. at 114, ll. 4-11.) See also (Larry Paulsen Dep. at 68, ll.10-12) (white male-owned Nebraska firm relies on "associations," "contacts," and "personal friends" to evaluate unknown subcontractors) [Ex. 601]; (Randy Deans Dep. at 20, l. 13- 21, l. 3) (when preparing to bid for a prime contract in Nebraska, estimator at white male-owned firm contacts those potential subcontractors he knows to be "players" prior to the bid letting) [Ex. 602]. Furthermore, prime contractors sometimes refuse to subcontract with firms that submit the lowest quote if they do not regard that company as "established." (Randy Deans Dep. at 49, l. 17- 50, l. 2) [Ex. 602].

Congress considered evidence that women and minorities as a group have traditionally been excluded from mainstream business networks among construction contractors, and often for explicitly discriminatory reasons. For instance, some white-male owned prime contractors prefer to contract with the same white-male-owned subcontractors with whom they worked in the past and often solicit bids from white male subcontractors with whom they prefer to work even before the official bid letting occurred. Unconstitutional Set-Asides: ISTEA's Race-Based Set-Asides After Adarand: Hearing Before the Subcomm. on the Constitution, Federalism, and Prop. Rights of the Senate Judiciary Comm., 105th Cong., 1st Sess. at 62 (1997) [Ex. 669] ("September 30, 1997 Hearing"); The Meaning and Significance for Minority Bus. of the Supreme Court Decision in the City of Richmond v. J.A. Croson: Hearing Before the Subcomm. on Minority Bus. Enter., Fin., and Urban Dev. of the House Comm. on Small Bus., 103d Cong., 2^nd Sess. 113, 121 (1993) (testimony of Latino contractor, Manuel Rodriquez, that white-owned prime contractors consistently refuse to include him and other minority subcontractors on list of firms that would be invited to bid) [Ex. 654]. (Ray Marshall Testimony, Trial Tr. at 110, l. 8- 112, l. 1.) See also City of Richmond v. J.A. Croson: Impact and Response: Hearing Before the Subcomm. on Urban and Minority Owned Business Development of the Senate Comm.on Small Bus., 101^st Cong., 2d Sess. (August 1, 1990) [Ex. 655] . Congress had evidence from throughout the United States that business networks in construction frequently operate to exclude minority and women contractors. See, e.g., Nat'l Econ. Research Associates, The State of Texas Disparity Study: A Report to the Texas Legislature as Authorized by H.B. 2626, 73d Legislature 148 (1994) [Ex. 539] (Texas Disparity Study) (cited in the September 30, 1997 Hearing at 62 n.99 [Ex. 669]). See also Associated Gen. Contractors v. Coalition for Econ. Equity, 950 F.2d 1401, 1415 (9th Cir. 1991) ("old boy network" in the local construction industry precluded minority businesses from breaking into the mainstream of "qualified" public contractors). Since business contacts and relationships are important to successes in the construction industry, a failure affirmatively to counteract the effects of these relationships would merely perpetuate an exclusionary system, essentially locking minorities and women into the position of outsiders in highway contracting.

The Evidence Before Congress Indicated that Discriminatory Quote-Shopping Affects the Market for Construction ⁽¹²⁾

Congress considered evidence that one manner in which minority and female contractors are excluded from fair competition is through discriminatory bid-shopping, a process by which white prime contractors allow a preferredsubcontractor to match a low quote submitted by a minority or female-owned contractor. See September 30, 1997 Hearing [Ex. 669]; Coalition for Econ. Equity, 950 F.2d at 1416 (citing reports that minority firms were "denied contracts despite being the low bidder," and "refused work even after they were awarded the contracts as low bidder"); Cone Corp. v. Hillsborough County, 908 F.2d 908, 916 (11th Cir. 1990) ("Contrary to their practice with non-minority subcontractors," local prime contractors took minority subcontractors' bids "around to various non-minority subcontractors until they could find a non-minority to underbid" the minority bidder). See also State of Colorado and the Colorado Dep't

of Transp. Disparity Study, Final Report, 5-56, 5-59 (1998) [Ex. 503] ("Colorado Disparity Study") (cited by Sen. Chafee, 144 Cong. Rec. S1493 [Ex. 615], 144 Cong. Rec. S5413 [Ex. 612]); State of Louisiana Disparity Study, 69, 73 (1991) ("Louisiana Disparity Study") (cited by Sen. Kennedy, 144 Cong. Rec. S1482 [Ex. 615]). Congress also had available to it evidence of bid-shopping developed through extensive testimony at prior congressional hearings. See, e.g., How State and Local Gov'ts Will Meet the Croson Standard: Hearing Before the Subcomm. on Civil and Constitutional Rights of the House Comm., 100th Cong. 54 (1989) [Ex. 651].

Discrimination by State Officials ⁽¹³⁾

The evidence available to Congress also indicated that discrimination by state and local government officials had helped to exclude individual minority contractors from business networks and contracting opportunities. For instance, in an extensive hearing before the House of Representatives' Subcommittee on Government Operations, an official of one state department of transportation admitted that it had failed to act in good faith in administering the federal DBE program. Barriers to Full Minority Participation in Federally Funded Highway Construction: Hearing Before a Subcomm. of the Comm. on Government Operations, House of Representatives, 100th Cong. 50-51 (Apr. 1, 1988) (testimony of Wyvetter Younge, Illinois State Representative) [Ex. 647]. During the hearing, Congress heard testimony that the state of Illinois had imposed discriminatory prequalification requirements to prevent blacks from

bidding. Id. at 81, 160-62, 172, 178-79. In addition, other state and local agencies have traditionally excluded minority contractors from the planning and consultation phases of projects, effectively preventing them from gaining timely access to information that is vital to success in the bidding competition. See, e.g., September 30, 1997 Hearing at 67 & n.112 [Ex. 669].

Discrimination by Private Sector Customers Also Limits the Ability of Minorities and Women to Compete

Congress also had information showing that some private sector customers resist contracting with minority businesses. See, e.g., Coalition for Econ. Equity, 950 F.2d at 1416; Cone Corp., 908 F.2d at 916. A Department of Commerce study in 1982 confirmed that 40% of black-owned construction businesses nationwide worked mostly for minority customers, the highest rate for any minority group. See Ray Marshall & Andrew Brimmer, 2 Public Policy & Promotion of Minority Econ. Dev.: City of Atlanta and Fulton County, Georgia, (1990) [Ex. 501] ("Brimmer-Marshall Report") (cited in The Meaning and Significance for Minority Bus. of the Supreme Court Decision in the City of Richmond v. J.A. Croson: Hearing Before the Legislation and Nat'l Sec. Subcomm. of the House Comm. on Gov't Operations, 101st Cong., 2^nd Sess. 193-194 (1990)). [Ex. 654].

C. The Effects of Discrimination Hinder the Access of Minority and Female Contractors to Essential Supplies and Equipment ⁽¹⁴⁾

There was ample evidence available to Congress that suppliers charged higher prices to minorities and women than to their white male counterparts. September 30, 1997 Hearing at 71-72 [Ex. 669]. The record of the 1997 Senate hearing on TEA-21 includes a reference to a minority firm in Georgia that found this problem so pronounced that it began sending white employees to shop for supplies. This firm found that a white employee was quoted prices two- thirds lower than those quoted to the minority-owned company. Id. at 72 [Ex. 669] (citing Brimmer & Marshall, 2 Public Policy and Promotion of Minority Econ. Dev.: City of Atlanta and Fulton County, Georgia 76 (1990) [Ex. 501]). The Senate debates regarding TEA-21 contain specific references to suppliers' charging higher prices to firms owned by women or minorities. See, e.g., Colorado Disparity Study at 5-78 [Ex. 503]; Louisiana Disparity Study at 89 [Ex. 506]. This discrimination by suppliers raises the cost of doing business for minority and female-owned firms and hinders their ability to compete on a level playing field. Given the evidence that the effects of discrimination raise production costs for minority and female contractors, exclusive reliance on a system of low-price bidding competitions (assuming that such a system could be enforced) would impermissibly assist private discriminators. Croson, 488 U.S. at 503. Because these factors deny women and minorities a fair opportunity to compete, Congress may adopt race-conscious measures to ensure that it does not become a "passive participant" in perpetuating the effects of such discrimination by private actors. Croson, 488 U.S. at 492-93.

D.The Effects of Discrimination Have Limited the Ability of Minority and Female Firm-Owners to Develop Necessary Experience and Expertise in Construction

It is well-established that women and minorities were traditionally excluded from educational and training opportunities that aid in developing a successful construction firm. Indeed, "judicial findings of exclusion from crafts on racial grounds are so numerous as to make such exclusions a proper subject for judicial notice." Weber, 443 U.S. at 198 n.1. Even today, race and gender discrimination have limited the ability of qualified women and minorities to attain professional experience. September 30, 1997 Hearing at 55-56 & nn.75-78 [Ex. 669] (citing Federal Glass Ceiling Comm'n, Good for Bus.: Making Full Use of the Nation's Human Capital (1995)). The historical denial of job opportunities to minorities and their consequent inability to gain experience has impeded their entry into business. Id. at 56-57.

E. Discrimination has Limited the Ability of Minority and Female Contractors to Obtain Capital Needed to Compete for Construction Contracts ⁽¹⁵⁾>

The evidence available to Congress showed that in general, and in the construction sector specifically, minority applicants have significantly more difficulty obtaining business loans than non-minorities with identical collateral and credentials. See September 30, 1997 Hearing at 58 & nn.86 & 87, 59 [Ex. 669] (citing, inter alia, Availability of Credit to Minority and Women Owned Small Businesses: Hearing Before the Subcomm. on Financial Institutions, Supervision, Regulation & Deposit Ins. of the House Comm. on Banking, 103d Cong. 27 (1994) [Ex. 633]). In a study supported by the U.S. Bureau of the Census and National Science Foundation, researchers analyzed 286 owners entering the construction industry and found that "blacks, controlling for borrower risk, are less likely to have their business loan applications approved than other business borrowers," and generally receive smaller loans when they do receive them at all.Caren Grown & Timothy Bates, Commercial Bank Lending Practices and the Dev. of Black Owned Construction Companies, 14 J. Urban Affairs 25, 26, 39 (1992) (Grown & Bates) [Ex. 542] (discussed by Rep. Norton, 144 Cong. Rec. H3958 (1998) [Ex. 613] & cited in September 30, 1997 Hearing at 59 n.91 [Ex. 669]). See also U.S. Comm'n on Minority Business Development, Final Report (1992) [Ex. 604] (cited by Rep. Norton, 144 Cong. Rec. H3959 (May 22, 1998) [Ex. 613]).⁽¹⁶⁾ An Urban Institute study of 58 state and local disparity studies in government contracting similarly stated that "African Americans with the same level of financial capital as whites receive about a third of the loan dollars when seeking business loans" and "[m]inorities are also less likely to obtain business loans than are white owners with the same borrowing credentials." Maria E. Enchautegui, et al., Urban Institute, Do Minority-Owned Businesses Get a Fair Share of Gov't Contracts? 36 (Dec. 1997) [Ex. 578] citing Timothy Bates, Commercial Bank Financing of White- and Black-Owned Small Business Start-Ups, 31 Quarterly Review of Economics and Business (Spring 1991); and discussing Faith H. Ando, Capital Issues & Minority-Owned Business, Review of Black Political Economy (Spring 1988) [Ex. 532], and Grown & Bates [Ex. 542]. (discussed by Rep. Norton, 144 Cong. Rec. H3959 (1998) [Ex. 613]). The Congressional debates also include references to statistical evidence that African-Americans were three times more likely to be rejected for business loans than whites, and loan rejection rates for Hispanics were 1.5 times as high as those for whites, according to a Denver study, 144 Cong. Rec. S1493 (Mar. 6, 1998) [Ex. 615].

These statistics were corroborated by abundant anecdotal evidence presented to Congress. Members of Congress received, and specifically discussed, reports from individual minority and female contractors who complained of overt discrimination by financial institutions. For example, Dorinda Pounds, President of Mid-West Contractors, Inc., was told by bank employees that they were reticent to lend her money because they knew that male contractors would shut her out. 144 Cong. Rec. S1430, 1998 WL 93837 (1998) [Ex. 616]. Additionally, Janet Schutt, a female contractor, testified at the September 30, 1997 Senate hearing regarding the TEA-21 DBE program that it took her three years to secure a line of credit for her company, and that she was successful in doing so only after finding a female loan officer. September 30, 1997 Hearing at 120 [Ex. 669].⁽¹⁷⁾

These statistical findings likely underestimate the degree to which discrimination hinders minority contractors' access to capital because many of the ostensibly race-neutral factors controlled for in these analyses - including experience, firm size, firm net worth - may themselves be tainted by discriminatory practices. Marshall Report at 7-8 [Ex. 700]. Controlling for firm size may underestimate the effects of discrimination, because evidence exists that discrimination itself limits firm size. Blanchflower Report at 5, 7, 15-16 [Ex. 520]. As a result, the fact that these measures of lending discrimination control for such factors renders them inherently conservative. Even given this likelihood of underestimation, however, commercial lending discrimination against black business owners rises to a level that is statistically significant. Id. at 32. Furthermore, this evidence of statistically significant discrimination is essentially the same when one looks specifically at commercial loans for construction firms. Id. at 33. Lack of access to financing can prevent minorities from forming businesses in the first place or securing the equipment or persons needed to perform a specific construction project.

>F. Discrimination Limits the Ability of Minority and Female Contractors to Obtain Bonding ⁽¹⁸⁾

State procurement rules may require contractors to post surety bonds and in some circumstances to provide their bond rating. See Sur. Bonds and Minority Contractors: Hearing Before the House Subcomm. on Commerce, Consumer Prot. and Competitiveness of the Comm. on Energy and Commerce, 100th Cong., 2d Sess. (1988) (Rep. Collins). For example, according to Claude Oie, in Nebraska, bonding is required of all firms that bid on prime contracts let by NDOR and may be required of subcontractors at the prime's discretion. (Claude Oie Testimony, Trial Tr. at 1036, l. 19- 1037, l. 3.) Construction firms also are often required to post bonds when bidding for contracts let in the private sector. (Ray Marshall Testimony, Trial Tr. at 111, ll. 8-13.) Thus, the ability to obtain bonding is directly relevant to a firm's ability to compete for construction contracts.

The evidence available to Congress indicated that discrimination restricts access to bonding for firms owned by women or minorities. As concluded in a report by the House Committee on Government Operations, minority-owned businesses' "inability to obtain bonding is one of the top three reasons that new minority small businesses have difficulty procuring U.S. Government contracts." Problems Facing Minority and Women-Owned Small Businesses, Including SBA Section 8(a) Firms, in Procuring U.S. Gov't Contracts: An Interim Report, H.R. Rep. No. 103-870, 103d Cong., 2d Sess. 15 (1994) (cited by Rep. Norton, 144 Cong. Rec. H3958) [Ex. 613]. A survey by the National Association of Minority Contractors concluded that for minority firms "inadequate bonding was a greater deterrent to growth than the lack of financing." Sur. Bonds and Minority Contractors, 100th Cong. at 8-9 (1988) (Hamilton Bowser) [Ex. 650]. The results of the survey further showed that as the DBE and its needs grew, surety companies "put caps and growth limitations on the larger DBEs which were not placed on white contractors." Id. at 9. This problem with securing bonding was borne out by the anecdotal evidence presented to various Congressional committees.⁽¹⁹⁾

G. The Evidence Before Congress Indicated Gross Statistical Disparities in Contract Awards to Minority and Female Firms

Congress had evidence of statistical disparities in government contract awards to minority businesses in the form of a report completed by the Urban Institute. A summary of the Urban Institute Report was provided to every member of Congress. 144 Cong. Rec. at H3959 (statement of Rep. Norton) [Ex. 613]. The Urban Institute study, which was based on evidence contained in 58 disparity studies from around the country, found statistically significant underutilization of black, Hispanic, Asian, and Native-American owned businesses based on their availability in every industry. (Ray Marshall Testimony, Trial Tr. at 124, 1. 7- 125, l. 12.) That study found that minority-owned firms received only 57 cents, and women-owned businesses received a mere 29 cents, for every dollar they would be expected to receive given their availability to perform work on government contracts. Enchautegui, et al., Do Minority-Owned Firms Get a Fair Share of Gov't Contracts? at 15 [Ex. 578]. More specifically, "black-owned firms received 49 cents on the dollar, Latino-owned firms received 44 cents on the dollar, Asian-owned firms received 39 cents on the dollar, and Native American-owned firms received 18 cents on the dollar" compared with their respective availabilities to perform government construction contracts. 144 Cong. Rec. at H3959 (daily ed. May 22, 1998) (statement of Rep. Norton) [Ex. 613] (discussing results of Enchautegui, et al., Do Minority-Owned Firms Get a Fair Share of Gov't Contracts? at 16 [Ex. 578]). In particular, in construction the study found statistically significant underutilization of firms owned by African Americans, Latinos, Asians and women. Enchautegui at 16, Table 2.2 [Ex. 578]. These disparities raise an inference of discrimination. Croson, 488 U.S. at 509 (O'Connor, J.) ("Where there is a significant statistical disparity between the number of qualified minority contractors willing and able to perform a particular service and the number of such contractors actually engaged by the locality or the locality's prime contractors, an inference of discriminatory exclusion could arise.")

Some of the most pertinent evidence that race-neutral programs are insufficient to combat discrimination in the construction industry nationwide include the dramatic drop-off in DBE participation in jurisdictions where race-conscious state programs were eliminated or curtailed compared to participation rates in the federal DBE program where race-conscious measures were still in use. (Ray Marshall Testimony, Trial Tr. at 191, ll. 10-15; 250, l. 17- 251, l. 11.) See also Adarand VII, 228 F.3d at 1174. For instance, Senator Baucus stated that the state-funded portion of the highway program in Michigan fell to zero nine months after that program ended, while the federal DBE program in Michigan was able to maintain a 12.7% participation rate. 144 Cong. Rec. S1404, 1998 WL 93837 (1998) [Ex. 616]. Similar decreases in DBE participation occurred in Louisiana, Hillsborough County, Florida, and San Jose, California, id. at S1409-1410 (statement of Sen. Kennedy); as well as in Tampa and Philadelphia, id. at S1429-1430. See also U.S. Comm'n on Minority Bus. Dev., Final Report, at 99 [Ex. 604] (statement of Rep. Norton, 144 Cong. Rec. H3958 [Ex. 613]).⁽²⁰⁾ These "dramatic decreases in DBE participation in those areas in which DBE programs have been curtailed or suspended" proved not only that there was an "underutilization of women- and minority-owned business in the [construction] industry," 144 Cong. Rec. S5414 (1998) (statement of Sen. Baucus) [Ex. 606], but also that race-neutral alternatives could not level the playing field for DBEs in government procurement. In addition, in states and localities with no DBE program, DBEs received markedly fewer state and local contracts than they did federally-funded contracts which provide an incentive for primes to use DBEs.⁽²¹⁾ See Chart of Fiscal Year 1996 Participation Levels in States that Use DOT's DBE Program But Have No State DBE Program [Ex. 535] (144 Cong. Rec. S1420, 1998 WL 93837 (statement of Sen. Mosley-Braun) [Ex. 616]).

H. Congress Considered Evidence that Overt Discrimination Persists in the Construction Industry ⁽²²⁾

Congress also had before it anecdotal evidence of overt race-motivated harassment and other invidious discrimination against minorities and women working in construction, which served to confirm the findings of the statistical studies and academic research regarding discrimination in this area. Congress was presented with anecdotes from local disparity studies, live witnesses testifying at congressional hearings, as well as letters from constituents referenced in and/or read in their entirety into the record of the floor debates surrounding the passage of TEA-21 and its preceding legislation. These instances include: reports that African-American workers arrived at job sites to find signs bearing racial epithets, 144 Cong. Rec. S1429, 1998 WL 93837 (1998) [Ex. 616]; that an African-American contractor was asked to leave a site by a white customer because he had not told her he was black and did not "sound" black when they spoke on the telephone, id.; and the statement by a female owner of a trucking company who found that others in the industry do not judge her by her work, but view her as a "stupid woman" and "foolish female." 144 Cong. Rec. H2003, 1998 WL 147914 (1998) [Ex. 676].

Furthermore, Congress had received letters or other contacts from several female and minority contractors to the effect that despite their qualifications, they could not receive sufficient work to earn a profit without the DBE program because of ongoing discrimination. 144 Cong. Rec. S1420, 1998 WL 93837 (1998) [Ex. 616]; 144 Cong. Rec. S1482, 1998 WL 95848 (1998) [Ex. 615]; 144 Cong. Rec. H2003, 1998 WL 147914 (1998) [Ex. 676]. In the words of Mary Aguillare of Coast & Harbor Associates, if there is a goal, prime contractors will call DBEs; if not they will not call."> 144 Cong. Rec. S1482, 1998 WL 95848 (1998) [Ex. 615].

During the Senate's September 30, 1997 hearing, Ms. Schutt also testified that she was subjected to gender-motived harassment while working as the sole female on a construction project. She described working in highway construction while forced to endure verbal and physical harassment from male contractors. Ms. Schutt testified for instance that a male contractors told her "[t]hat is a nice dress, but it would look a lot better next to my bed," and, that when she attended a contract letting to bid on work, she was slapped on her buttocks by a contractor who asked "'Hey, hon, are you bidding something today or would you just like to bite me?'" September 30, 1997 Hearing at 119. [Ex. 669]. Ms. Schutt additionally described being denied an opportunity to participate in committees of her trade association because of her gender, and averred that certain contractors, subcontractors and suppliers refused even to talk to her when she sought to make business contacts. Id. Viewed together with the statistical and other information before Congress when it passed TEA-21, these accounts of overt discrimination present powerful evidence of the compelling need for remedial legislation.

At trial, Plaintiff provided no evidence to refute the conclusion that the DBE program it challenges is supported by a compelling governmental interest. Based on the evidence described above, every court that has considered the constitutionality of federal race-conscious contracting programs since the Supreme Court's decision in Adarand III has held that they were supported by a compelling interest. See, e.g., Adarand VII, supra; In re Sherbrooke Sodding Co. ("Sherbrooke I"), 17 F. Supp. 2d 1026, 1034-1035 (D. Minn. 1998); Adarand IV, 965 F. Supp. at 1570-77 (D. Colo. 1997); Rothe Dep't Corp. v. Dep't of Defense, 49 F. Supp. 2d 937, 951 (W.D. Tex. 1999) (appeal pending); Cortez III Serv. Corp. v. NASA, 950 F. Supp. 357, 361 (D.D.C. 1996). This Court should follow the precedent set by these courts and find that Congress had a compelling interest to adopt a race-conscious remedy found in TEA-21's DBE provisions.

IV. The Challenged Federal DBE Program is Narrowly Tailored

The following factors are relevant to narrow tailoring under the strict scrutiny standard: (1) the necessity for relief and efficacy of alternative remedies; (2) the flexibility of the relief, including the availability of waiver provisions; (3) the duration of the planned relief; (4) the relationship of numerical goals to the relevant labor market; and (5) the impact of the relief on third parties. United States v. Paradise, 480 U.S. 149, 171 (1987) (Brennan, J., plurality opinion). Most important to this inquiry is whether race-neutral means of correcting discrimination were evaluated before adopting race-conscious measures, and whether the program was appropriately limited to last no longer than the problem it was meant to eliminate. Adarand III, 515 U.S. at 237-38 (citing Fullilove, 448 U.S. at 496). TEA-21 and its implementing regulations satisfy each of the Paradise elements.⁽²³⁾

A. Consideration of Race-Neutral Alternative Remedies

TEA-21's legislative history demonstrates that Congress considered creating an entirely race-neutral program in lieu of the DBE provisions that it ultimately adopted. In addition, during the debates concerning TEA-21, Congress considered two amendments that would have eliminated the presumption of social disadvantage for women and minorities. Bipartisan majorities in both Houses rejected these amendments, determining that race-neutral measures would be insufficient to remedy the effects of discrimination. See 144 Cong. Rec. at S1496 (1998) [Ex. 615]; 144 Cong. Rec. at H2011, 1998 WL 147914 (1998) [Ex. 676].

The Congressional debates on TEA-21 must be considered along with the information that Congress had available to it when it considered other race-neutral approaches to similar programs. For example, Congress considered and utilized race-neutral measures for at least twenty-five years prior to enacting the 1978 amendments to the Small Business Act, including the portions of Section 8(d), 15 U.S.C. ï½§ 637(d) (2001), that were incorporated in the Intermodal Surface Transportation Efficiency Act of 1991 ("ISTEA"), Pub. L. No. 102-240, 105 Stat. 1914, and its predecessors, and now in TEA-21. In 1970, the Housing and Urban Development Act, 15 U.S.C. ï½§ 694(a), (b) (2001), repealed by Pub. L. 100-590, Title I, ï½§ 111(b) 102 Stat. 2995 (Nov. 3, 1988), authorized the Small Business Administration to establish the Surety Bond Guarantee Program to help small businesses obtain surety bonds. By 1975, however, the General Accounting Office reported that the "[Small Business Act's] success in helping disadvantaged firms to become self-sufficient and competitive has been minimal." Library of Congress, Congressional Research Service, Minority Enterprise and Public Policy 53 (1977). Thus, in 1978, Congress enacted Sections 8(a) and 8(d) of the Small Business Act, 15 U.S.C. ï½§ï½§ 637(a), 637(d), 644(g) (2001), establishing procurement contracting goals for, among others, businesses owned and controlled by socially and economically disadvantaged individuals, only after determining that race-neutral alternatives had been unsuccessful in opening up opportunities for small disadvantaged businesses.

Finally, in considering TEA-21, Congress was very much aware that if reauthorized, DOT would promulgate new DBE regulations that would give priority to race-neutral means to achieve the DBE program's objectives. In response to Congressional concerns, the regulations implementing TEA-21 explicitly provide for the maximum use of race-neutral means whenever possible. Adarand VII, 228 F.3d at 1179. Robert Ashby, the Department of Transportation's Deputy Assistant General Counsel for Regulation and Enforcement, who assisted in drafting the DBE regulations, testified that recipients of federal funding must maximize feasible DBE participation through race-neutral means.⁽²⁴⁾ (Robert Ashby Testimony, Trial Tr. at 396, ll. 2-4; 418, ll. 7-16; 418, l. 24- 419, l. 2; 456, ll. 4-8; 456, ll. 14-19; 479, ll. 14-23; 598, l. 15- 599, l. 2.) See also 49 C.F.R. ï½§ 26.51 (2001). If a recipient expects to be able to meet its entire overall goal through race-neutral means, it must implement its program without any use of race- or gender-conscious contract goals. 49 C.F.R. ï½§ 26.51(f)(1); (Robert Ashby Testimony, Trial Tr. at 418, l. 24- 419, l. 2; 456, ll. 4-8; 479, ll. 20-23).

In fact, the regulations specifically mandate that recipients consider race-neutral measures such as "assistance in overcoming limitations such as inability to obtain bonding or financing" by "simplifying the bonding process, reducing bonding requirements, eliminating the impact of surety costs from bids, and providing services to help DBEs, and other small businesses, obtain bonding and financing," 49 C.F.R. ï½§ 26.51(b)(2) (emphasis added)). Recipients must also consider offering small businesses "technical assistance," 49 C.F.R. ï½§ 26.51(b)(3), and logistical and business support, 49 C.F.R. ï½§ 26.51(b)(9). The regulations identify other race-neutral measures that recipients must consider, such as: arranging solicitations, bid presentation times, quantities and job sizes, specifications and schedules to make it easier for small and new businesses to participate, 49 C.F.R. ï½§ 26.51(b)(1); ensuring dissemination of opportunities and guidelines to the relevant communities, 49 C.F.R. ï½§ 26.51(b)(4); and requiring prompt payment and retainage clauses to assist all small businesses, 49 C.F.R. ï½§ 26.29.⁽²⁵⁾ See also (Robert Ashby Testimony, Trial Tr. at 440, l. 7-443, l. 7); (Claude Oie Testimony, Trial Tr. at 906, ll. 16-20; 927, ll. 12-23; 929, ll. 2-10). NDOR considered these race-neutral measures, and successfully implemented many of them, as part of their program plan that has been reviewed and approved by DOT. See infra Section V.

Limited Duration

In Adarand III, one of the issues Justice O'Connor identified for the lower court to consider on remand was whether the challenged racial classification is appropriately limited such that it "will not last longer than the discriminatory effects it is designed to eliminate." 515 U.S. at 238 (citing Fullilove, 448 U.S. at 513 (Powell, J., concurring)). The challenged provisions of TEA-21 meet this requirement of limited duration, since they will automatically expire in 2004 unless Congress determines that they need to be reauthorized. Before deciding to reauthorize the DBE program, Congress will have the opportunity to examine the state of transportation contracting and determine whether the federal DBE program continues to be necessary in order to remedy the effects of discrimination.

To ensure that race-conscious remedies are not used any longer than absolutely necessary, 49 C.F.R. ï½§ 26.51(f) requires recipients to reduce or entirely eliminate the use of race-conscious contract goals to the extent that they become unnecessary both during a fiscal year and from year to year. An example can be found in NDOR's own application of the program. After reviewing DBE achievements for fiscal year 2000, NDOR determined that in Fiscal Year 2001 it could achieve a greater degree of DBE participation through race-neutral measures than it had anticipated the previous year. Accordingly, NDOR reduced the race-conscious portion of its DBE goal from the 8.67% approved for fiscal year 2000 to 4.82% in fiscal year 2001. See Nebraska Department of Roads DBE Program [Ex. 568]; Report of MGT of America ("MGT Study") at 4-9 to 4-10 (October 2000) [Ex. 202]. Both of these goals are below the proportion of DBEs available to do business in the relevant market area. MGT Study at 3-2, Exhibits 3-1, 3-2 [Ex. 202]. Thus, the DBE program challenged here is a far cry from the type of "unyielding racial quota" rejected in Croson, 488 U.S. at 470.⁽²⁶⁾

In addition to Congress' periodic review of the entire DBE program, the Regulations place safeguards upon the DBE program by limiting the individuals and firms that participate in the DBE program. (Robert Ashby Testimony, Trial Tr. at 409, l. 20- 410, l. 7.) For example, the current program sets a limit of $750,000 on DBE owners' personal net worth and maintains an overall business size cap. 49 C.F.R. ï½§ï½§ 26.65, 26.67; (Robert Ashby Testimony, Trial Tr. at 409, l. 24- 410, l. 3; 411, l. 9 - 412, l. 8). When an individual's personal wealth exceeds the $750,000 limit, he or she will no longer be eligible to participate in the DBE program. 49 C.F.R. ï½§ 26.67; (Robert Ashby Testimony, Trial Tr. at 412, ll. 4-8.); (Claude Oie Testimony, Trial Tr. at 977, ll. 14-19). Similarly, when a firm's receipts grow beyond the small business size standards, that firm may no longer participate in the program. 49 C.F.R. ï½§ 26.65.

C. Flexibility of Regulations and Program

The waiver provisions of the regulations set forth in 49 C.F.R. pt. 26 enhance the flexibility of the DBE program. First, the regulations permit a recipient of DOT funds to apply for waivers releasing the recipient from many of the specific requirements of the regulations if the recipient believes that equal opportunity for DBEs can be achieved through other approaches. See 49 C.F.R. ï½§ 26.15. For example, the new regulations permit a recipient to seek waivers if the recipient believes that it can operate its DBE program differently from the manner recommended in the regulations. 49 C.F.R. ï½§ 26.15(b). Waiver requests could pertain to such subjects as different ways of counting DBE participation in certain industries, and the use of separate overall or contract goals to address demonstrated discrimination against specific categories of socially and economically disadvantaged individuals. 49 C.F.R. ï½§26.15. See also Participation by Disadvantaged Business Enterprises in Department of Transportation Programs, 64 Fed. Reg. 5102-03 (1999). A recipient acting in good faith can also receive an exemption from any provision in the event that exceptional circumstances make compliance impractical. 49 C.F.R. ï½§ 26.15.

Second, the assistance provided to DBEs is not based solely on immutable status or characteristics acquired at birth but rather on a more extensive, probing inquiry into the ownership and control of each business seeking DBE certification and whether the owner of the applicant firm has suffered the effects of discrimination. 49 C.F.R. ï½§ï½§ 26.69, 26.71. The certification provisions of the new DBE program, and particularly the social and economic disadvantage provisions of 49 C.F.R. ï½§ 26.67, ensure that only firms owned and controlled by individuals who are in fact socially and economically disadvantaged can participate in the program, thereby assuring that the program is not over- or under-inclusive. See also Nebraska Dep't of Roads Certified Disadvantaged Business Enterprises [Ex. 538]; (Claude Oie Testimony, Trial Tr. at 978, ll. 4-11; 979, ll. 12-23). Under DOT's regulations, the owners of firms seeking DBE designation must submit a notarized statement that they are socially and economically disadvantaged. 49 C.F.R. ï½§ 26.67(a). The new regulatory program imposes for the first time an economic standard for the owners of firms seeking DBE status. 49 C.F.R. ï½§ 26.67. See also (Robert Ashby Testimony, Trial Tr. at 445, l. 24- 446, l. 5). Under the current program, owners of DBE firms are required to submit a notarized statement of personal net worth with appropriate supporting documentation of financial status, signed under penalty of perjury, from all persons whose ownership and control of the firm are relied upon for DBE certification. 49 C.F.R. ï½§ 26.67(a)(2)(i).The personal net worth standard for rebutting the presumption of economic disadvantage has been established at $750,000, and those firms whose owners exceed this standard are excluded from the program. 49 C.F.R. ï½§ï½§ 26.65, 26.67(b). See also (Robert Ashby Testimony, Trial Tr. at 559, ll. 14-23); (Claude Oie Trial Testimony, Trial Tr. at 988, ll. 6-13). The DOT regulations require that any DBE firm that exceeds the $750,000 personal net worth cap or any other regulatory requirement notify the recipient, in writing, of such a change. 49 C.F.R. ï½§ 26.83(i). In addition, every DBE firm must annually sign an affidavit, under penalty of perjury of the laws of the United States, stating that the firm does not exceed the personal net worth cap and is otherwise eligible for DBE status. 49 C.F.R. ï½§ 26.83(j).

In addition, the current DBE program permits DOT, a recipient of TEA-21 funds, or any individual, to challenge a DBE's entitlement to the presumptions of social and economic disadvantage. 49 C.F.R. ï½§ 26.87; (Robert Ashby Testimony, Trial Tr. at 446, ll. 6-24); (Claude Oie Testimony, Trial Tr. at 978, ll. 4-25; 980, ll. 2-24). The regulations make it clear that DOT "may refer to the Department of Justice, for prosecution under 18 U.S.C. ï½§ 1001 or other applicable provisions of law, any person who makes a false or fraudulent statement in connection with participation of a DBE in any DOT-assisted program." 49 C.F.R. ï½§ 26.107(e).⁽²⁷⁾

The current program also reaffirms that people who are not presumed to be socially and economically disadvantaged (e.g., non-minorities) can secure DBE certification. 49 C.F.R. ï½§ 26.67. See also (Claude Oie Testimony, Trial Tr. at 968, ll. 13-18) (testifying that a white male is currently certified as a DBE in Nebraska). To do so, the firm must demonstrate to the recipient that its owner is disadvantaged socially and economically. 49 C.F.R. ï½§ 26.67. Recipients are required to make case-by-case decisions concerning such applications. Id. As a result, the current DBE program is now more precisely focused on remedying the effects of discrimination, thereby reducing reliance on membership in certain designated minority groups.

Third, the new DBE regulations emphasize that the DBE program is not a quota program, and may not be permitted to operate as one. As Mr. Ashby testified at trial, explicit language appears in the new regulations stating that recipients are prohibited from using quotas on DOT-assisted contracts. (Robert Ashby Testimony, Trial Tr. at 391, l. 7- 392, l. 1.) See also 49 C.F.R. ï½§ 26.43. The DOT DBE program does not require any recipient or contractor to have 10 percent (or any other specific percentage) DBE goals or participation. 49 C.F.R. ï½§ 26.41(c); (Robert Ashby Testimony, Trial Tr. at 448, ll. 10-18). Unlike the former regulations, the new regulations do not require a recipient to take any special administrative steps if its annual overall goal is less than 10%. 49 C.F.R. ï½§ 26.41(c). Recipients are required under 49 C.F.R. ï½§ 26.45 to set goals consistent with their own local circumstances. 49 C.F.R. ï½§ 26.45(b); (Robert Ashby Testimony, Trial Tr. at 399, l. 2- 400, l. 9). The new DBE program also makes it clear that in setting annual overall goals, recipients should aspire to achieve only the amount of DBE participation that would be obtained in a local market absent discrimination. 49 C.F.R. ï½§ 26.45(b); (Robert Ashby Testimony, Trial Tr. at 392, ll. 9-15). For this reason, there is no link between the national 10% aspirational goal set forth in Section 1101(b) and the way a recipient operates its program.⁽²⁸⁾ (Robert Ashby Testimony, Trial Tr. at 599, ll. 3-20.) Moreover, the new regulations explicitly state that a recipient operating in good faith cannot be penalized or found in non-compliance for failure to meet the annual goal it has established. 49 C.F.R. ï½§ 26.47(a); (Robert Ashby Testimony, Trial Tr. at 410, ll. 21-24; 411, ll. 3-8).

The program outlines what bidders must do to be responsive and responsible on DOT-assisted contracts having contract goals. (Robert Ashby Testimony, Trial Tr. at 402, l. 22- 404, l. 17; 404, l. 21- 405, l. 9.) Recipients are prohibited from denying a contract to a bidder simply because it did not obtain enough DBE participation to meet the goal. 49 C.F.R. ï½§ 26.53; (Robert Ashby Testimony, Trial Tr. at 405, ll. 10-13). Furthermore, recipients are required to consider bidders' documentation of good faith efforts. 49 C.F.R. ï½§ 26.53; (Robert Ashby Testimony, Trial Tr. at 405, ll. 4-20). When a bidder makes a good faith effort to attain a contract goal, that bidder has complied with its obligation under the DBE program administered by a recipient, even when it cannot fulfill a contract goal. 49 C.F.R. ï½§ 26.53(a); (Robert Ashby Testimony, Trial Tr. at 403, l. 18- 404, l. 3). See also Participation by Disadvantaged Bus. Enterprises in Dep't of Transp. Programs, 64 Fed. Reg. at 5114. To ensure that a contractor's documentation of its good faith efforts is taken seriously, the regulation requires recipients to offer administrative reconsideration to bidders whose good faith efforts are initially rejected for failure to meet a DBE goal. 49 C.F.R. ï½§ 26.53(d); (Robert Ashby Testimony, Trial Tr. at 405, l. 19- 406, l. 14).

D. Relationship of Numerical Goals to the Relevant Labor Market

An analysis of over- or under-inclusiveness generally focuses on "the relationship of the numerical goals to the relevant labor market." E.g., Peightal v. Metro. Dade County, 26 F.3d 1545, 1558 (11th Cir. 1994); Ensley Branch, N.A.A.C.P. v. Seibels, 31 F.3d 1548, 1576 (11th Cir. 1994) (court asked whether goals were "reasonably related to the pool of qualified minorities"). The process by which recipients set DBE goals is rigorous and avoids the danger of arbitrariness identified in Croson, 488 U.S. at 507. See Adarand VII, 228 F.3d at 1182.

The DOT DBE regulations require each recipient annually to set overall goals that reflect market conditions that might have existed had discrimination not impaired the contracting opportunities of minorities and women. 49 C.F.R. ï½§ 26.45. The direct effect of this goal-setting process is to narrow the program's focus to DBEs that actually are ready, willing, and able to compete in that recipient's market and to exclude firms outside that market.

The federal DBE program implemented by NDOR does not result in the random or unjustified inclusion of minority groups not present in the relevant market. While on a national basis Congress has determined the need to include all of the designated groups within its list of individuals who are presumptively disadvantaged, NDOR and other recipients of DOT funds include only those designated groups present in the relevant local market in their counting of available firms used to set overall goal. 49 C.F.R. ï½§ 26.45(b). Moreover, if an individual firm owner is not socially disadvantaged, the presumption of social disadvantage may be rebutted, regardless of that owner's race or gender. 49 C.F.R. ï½§ 26.67(b)(2). See supra Section IV(C).

E. The Minimal Impact on Third Parties>

The current DOT DBE program is designed to impact only minimally the legitimate interests of third parties (for example, non-DBE prime contractors and non-DBE subcontractors) because the current program is aimed at replicating a market in which there are no effects of discrimination. 49 C.F.R. ï½§ 26.45. The design of the overall goal provisions ensures that the use of race-conscious remedies are used only to the extent that they are needed to counter the effects of discrimination. See Adarand VII, 228 F.3d at 1182. Each recipient of TEA-21 funds sets and attains goals based on demonstrable evidence of the relative availability of ready, willing and able DBEs in the areas from which it obtains contractors, and race-conscious means are used only to the extent that they are needed to counter the effects of discrimination in the recipient's market. 49 C.F.R. ï½§ 26.45. Therefore, goals will not bestow any undue benefits on DBEs, but merely places them on a level playing field with non-DBE firms.

The DOT's DBE Regulations require DOT-fund recipients, such as NDOR, to address any overconcentration of DBEs in certain types of work that unduly burdens the opportunity of non-DBE firms to participate in those work areas. 49 C.F.R. ï½§ 26.33(a). The regulations further provide examples of mechanisms that DOT fund recipients can use to address overconcentration. Id. at ï½§ 26.33(b). As Robert Ashby explained in his trial testimony, the DOT has never been presented with any data indicating an overconcentration of DBEs in any particular work code. (Robert Ashby Testimony, Trial Tr. at 415, ll. 7-9.) However, should a state recipient find such a DBE overconcentration, TEA-21's regulations require the state recipient to mitigate the problem and reduce any undue burden on third parties. (Id. at 415, ll. 4-24.) This minimal impact on third parties certainly does not preclude a finding that the DBE program is narrowly tailored. See Fullilove, 448 U.S. at 484 ("When effectuating a limited and properly tailored remedy to cure the effects of prior discrimination . . . 'a sharing of the burden' by innocent parties is not impermissible."); Rothe Dev. Corp. v. U.S. Dep't of Def., 49 F. Supp. 2d 937, 951 (W.D. Tex. 1999), appeal argued, No. 00-1171 (Fed. Cir. Nov. 8, 2000) ("[Plaintiff] has not provided evidence showing that, in this case, the number of contracts awarded with or without the preference exceeded any constitutional limit that might be placed on Congress."). Indeed, the Rothe court concluded that if it were to accept the position that "the mere loss of a contract constitutes a violation of the Equal Protection Clause - no race-based remedial program would survive strict scrutiny [and] such a result contravenes the clear language of [Adarand III]." 49 F. Supp. 2d at 953.

Furthermore, there is no evidence in the record that the DBE program challenged here unduly disadvantages Plaintiff. Even when given the opportunity to testify at trial, the owner of the Plaintiff company, John Gross, was unable to demonstrate that the DBE program challenged here unduly disadvantages Gross Seed Company. Plaintiff alleges the loss of a single contract due to the DBE goals at issue in this case, Compl. ï½¶ 50, and seeks no monetary damages from this lawsuit. (John Gross Dep. at 225, l. 23 - 226, l. 3) [Ex. 599]. According to its president, Plaintiff has continued to win contracts since NDOR began implementing DOT's current regulations through its DBE program. (John Gross Dep. at 34, ll. 8-22; 36, ll. 10-11) [Ex. 599]. Plaintiff's financial statements indicate that its revenue has increased since the current DOT regulations took effect. See Gross Seed Co. Financial Reports, dated June 30, 1999 and June 30, 2000 (filed under seal) [Ex. 603 and 695]. In fact, during approximately the past year, the Plaintiff company has grown from a firm operating solely as a subcontractor to one operating also as a prime contractor. In fact, Gross Seed has been awarded six prime contracts in approximately the last year. (John Gross Dep. at 204, ll. 11-19) [Ex. 599]. Moreover, at least one of the contracts awarded to Plaintiff in the last year, worth $225,000, contained a DBE goal. (Id. at 187, l. 19- 188, l. 7.) In addition, NDOR DBE goals generally make up only a very small proportion of the total contract dollars for an individual prime contract, according to Randy Deans, an estimator employed by a non-DBE contractor who has regularly bid on NDOR prime contracts during the past ten years. See (Randy Deans Testimony, Trial Tr. at 1358, l. 13- 1360, l. 19) (noting that race-conscious project goals rarely result in more than a one or two percent increase in the prime contractors bid on a particular project).⁽²⁹⁾ Thus, the current DBE program does not unduly disadvantage Plaintiff or other innocent third parties.

V. NDOR's DBE Program Complies with 49 C.F.R. Part 26 and is Narrowly Tailored

The NDOR retained a consultant, MGT of America, Inc. ("MGT"), to assist in setting its current goal for overall DBE achievement, as well as the race-conscious and race-neutral portions of the goal. Deirdre Kyle, a partner with MGT, reviewed data concerning bidding activity in Nebraska for the period from 1995 though December 2000. In completing this project, Ms. Kyle and her team met with NDOR officials in Nebraska to gather facts about the NDOR's bid letting process, including the NDOR's requirements for certification of prime contractors, as well the NDOR's requirements for qualifying DBEs. At the same time, the MGT team familiarized itself with the NDOR's TRANS*PORT database which contains data from NDOR's past construction and contracting experience.⁽³⁰⁾ See (Dierdre Kyle Testimony, Trial Tr. at 1153, l. 4- 1154, l. 5). With the assistance of a statistician associated with MGT, and others on MGT's staff, Ms. Kyle prepared a study estimating DBE availability based on the most recent five years of bidding activity and proposing NDOR's fiscal year 2001 goal. (Dierdre Kyle Testimony, Tr. Trans. at 1130, ll. 3-11; 1133, ll. 7-15; 1136, ll. 22-25; 1172, l. 20-1173, l. 11.) See MGT Study [Ex. 202]. NDOR based its goals on the results of the MGT Study. (Claude Oie Testimony, Trial Tr. at 957, l. 22-958, l. 3; 972, l. 21-973, l. 2.)

NDOR's methodology for setting the fiscal year 2001 DBE goals fully comports with DOT's DBE regulations.⁽³¹⁾ The federal regulations require NDOR to begin the goal setting process by determining the relative availability of DBEs in the relevant market. 49 C.F.R. ï½§ 26.45(c). After examining NDOR contract awards during the period from 1995 to 1999, MGT determined that the relevant market was the State of Nebraska, since during that period more than 75% of all NDOR contract dollars were awarded to firms located in Nebraska. MGT Study at 2-6. [Ex. 202]. MGT used a form of bidders' list to establish the base figure for its overall DBE achievement goal. To calculate the base figure for DBE availability in the relevant market, MGT determined the number of DBE firms relative to all firms in the NDOR marketplace through NDOR's TRANS*PORT database.⁽³²⁾ MGT concluded that the availability of DBEs is 9.95%, while non-DBEs are 90.05% of the firms available to do business with NDOR.⁽³³⁾ MGT Study at 3-12 [Ex. 202].

In fact, MGT's assumption that only DBE firms registered with NDOR from 1995-1999 are ready, willing and able, if anything, likely caused it to underestimate DBE availability relative to non-DBE availability, since there may be firms that (1) will register and bid as DBEs during the upcoming year that have not done so in the past, and (2) it may overlook firms that have been prevented from registering as DBEs because of discrimination. See Blanchflower Report at 9-10 [Ex. 520]. As required under 49 C.F.R. ï½§ 26.45(d), after estimating DBEs' relative availability in NDOR's market, MGT considered other evidence from the market area to determine whether the base figure for DBE availability should be adjusted before setting the final overall goal.

NDOR has adopted several types of race-neutral measures to assist small businesses in implementing its federally-mandated DBE program. For instance, it maintains an internet website that provides information on upcoming bid lettings and project specifications. This reduces the risk that small businesses without access to networking relationships between larger or more established firms will be disadvantaged in the bidding process for NDOR contracts. NDOR arranges its solicitations, specifications, and delivery schedules to facilitate small business participation, and provides technical assistance and other services to small business-owners. (Claude Oie Testimony, Trial Tr. at 880, l. 20-881, l. 12; 926, l. 13-927, l. 11.) NDOR has held electronic bidding classes to assist small business owners in learning to submit bids through NDOR's electronic bidding system. (Claude Oie Testimony, Trial Tr. at 1018, ll. 4-9.) In addition, NDOR has provided construction plans to a program which teaches small businesses how to read plans and bid on construction work. (Id. at 1017, ll. 6-16.) Furthermore, NDOR has implemented retainage and prompt payment clauses to assist all small subcontractors. (Claude Oie Testimony, Trial Tr. at 929, ll. 2-10.)

In recommending the appropriate level for NDOR's fiscal year 2001 race-conscious goal, MGT considered for the period from 1995-1999: (1) the percentage of participation DBE primes had historically achieved on federally aided projects (.36%);⁽³⁴⁾ (2) the participation of DBE prime contractors and subcontractors on NDOR's non-federally funded projects which have no DBE goals (2.4%); and (3) achievements by DBE subcontractors on non-federally aided projects in excess of the 10% federal goal formerly applied under TEA-21's predecessor statute, ISTEA (2.37%). See MGT Study at 4-7, 4-10 [Ex. 202]. 49 C.F.R. 26.51(a). The total of these three forms of race-neutral DBE achievement is NDOR's fiscal year 2001 race-neutral goal. MGT study at 4-7 [Ex. 202]. The difference between NDOR's overall DBE goal, 9.95%, and this race-neutral achievement, 5.13%, is the race-conscious portion of the overall DBE goal, 4.82%. MGT study at 4-8; 4-9 to 4-10 [Ex. 202]. This means that DBE goals do not apply to 95.18% of NDOR contracting dollars despite fact that DBE's makeup 9.95% of available contractors. NDOR's approach to determining its race-neutral goal is reasonable and consistent with the requirements of DOT's DBE regulations.

Importantly, NDOR's race-conscious goal is not woodenly applied to every construction project awarded during the course of the fiscal year. Rather, in deciding which federally-aided contracts should include contract goals, NDOR reviews each project to determine DBE subcontracting possibilities and considers, among other factors, the type of work and the availability of DBEs to perform it. (Claude Oie Testimony, Trial Tr. at 1000, ll.12-15.) Through this process, NDOR takes steps to distribute individual contract goals among subcontracts in different work areas, so that the program does not disproportionately disadvantage non-DBE contractors in any particular work group. Thus, there is no danger that the effects of the DBE program will weigh more heavily on any particular group of non-DBEs. See Sherbrooke I, 17 F. Supp. 2d 1026 (D. Minn. 1998) (challenging the DBE provisions of TEA-21's predecessor statute, ISTEA).

In August 2001, pursuant to federal regulations, NDOR will reevaluate its current DBE goal and submit its fiscal year 2002 DBE goal to FHWA for approval. However, NDOR also monitors DBE participation throughout the fiscal year to determine whether there is a continued need for race-conscious contract goals. See (Claude Oie Testimony, Trial Tr. at 974, ll. 19-21) (NDOR "keep[s] a running tally of [its] goal . . . to determine when . . . to put goals on projects."). If NDOR finds that the overall goal is met earlier than anticipated, the regulations require that NDOR discontinue the use of contract goals before the end of fiscal year 2001. (Id. at 1000, ll. 9-11.) Thus, when NDOR achieved its overall goal earlier than expected in fiscal year 2000, it ceased use of race-conscious contract goals before the end of the fiscal year. (Id. at 974, ll. 10-12) (noting that NDOR did not use goals on projects let in August 2000). NDOR complies with the federal requirements that recipients reevaluate DBE goals each year and monitor DBE goal achievement periodically throughout the fiscal year, which provide important checks on the use of race-conscious measures. (Id. at 1000, ll. 1-6.)

The Evidence of Record Demonstrates that the Effects of Discrimination Against DBEs Exist in the Nebraska Contracting Market

As the United States argued to the Supreme Court in its recently filed brief in Adarand VIII: "the statutory and regulatory provisions are designed to limit race-conscious remedies to only those jurisdictions where discrimination or its effects are a problem, and race-neutral relief is insufficient." U.S. Br. in Adarand VIII at 37 (emphasis in original). "[I]n the context of DOT's [DBE] program, recipients are not authorized to use race-conscious remedies unless (among other things) localized analyses show underutilization of DBEs and the inadequacy of race-neutral relief suggesting the persistence of discrimination or its effects." Id. See also 49 C.F.R. ï½§ï½§ 26.45, 26.51.⁽³⁵⁾ Beyond doubt, that standard has been met here.

The defendants in this case produced ample evidence-in the form of the MGT study, and the trial testimony and deposition testimony of DBEs located in Nebraska-suggesting that the effects of discrimination in Nebraska exist. On the other hand, Plaintiff argues that without the DBE program, all subcontracts on federally-aided projects administered by NDOR would be awarded by prime contractors to subcontractors who submit the lowest quotes without regard to race. The evidence presented at trial indicates otherwise.

On construction projects without DBE goals, prime contractors solicit quotes only from those subcontractors who they know, from their personal and business experience and networks, might be interested in doing the work. See (Randy Deans Testimony, Trial Tr. at 1350, l. 25- 1351, l. 4). This has the effect of often excluding minorities from the opportunity to submit quotes on projects without DBE's goals. See (Stanford Madlock Testimony, Trial Tr. at 634, ll. 15-20). Moreover, prime contractors who will be bidding on NDOR projects traditionally take rooms at a hotel the night before each NDOR bidletting, drink and socialize with subcontractors, and then go to their individual rooms to receive quotes from those subcontractors. See (Claude Oie Testimony, Trial Tr. at 881, l. 21- 882, l. 8; 899, ll. 3-4). Attempts by contractors to shop quotes at these bidlettings with those they know are rampant. See (Larry Paulsen Dep. at 50, ll. 11-15) [Ex. 601]; (Randy Deans Testimony, Trial Tr. at 1356, ll. 11-14). Very few minorities are present at these bidlettings, and, therefore, do not reap, or even know about, the benefits that personally interfacing with prime contractors at the bidlettings may offer. See (Stanford Madlock Testimony, Trial Tr. at 643, ll. 3-22).

Furthermore, Plaintiff admits that the DBE program helps to give small businesses a fair chance, and that it helped Plaintiff's officer and co-owner, Mrs. Peggy Gross, who herself owns and operates a DBE in Nebraska, to overcome difficulties getting started in the contracting business, which were caused by other contractors' gender stereotypes. (Peggy Gross Dep. at 106, 108, ll. 9-19, 112, l. 23- 113, l. 9, 113, ll. 15-21, 159, ll. 16-19, 160, l. 8- 161, l. 13) [Ex. 600]. Mrs. Gross also admits that men in the industry do not view women as being capable of doing construction work or operating heavy machinery. (Id. at 162, ll.12-19) (noting that men do not believe women are able to operate a tractor). She further implies that women would not be selected by primes as subcontractors, even if a women-owned subcontractor submitted the lowest quote on a project.

Other DBEs also testified that they have faced overt discrimination while working in the industry. For instance, as the only female subcontractor on a large project in Omaha, a female DBE owner was subjected to harassment by male contractors over the course of six months, including whistles and comments such as "[W]hat's the chick doing here?" and "What's she trying to prove . . . ?" (Herta Bouvia Testimony, Trial Tr. at 356, ll. 20-25.) An African-American contractor, Mr. Stanford Madlock, has also testified regarding the effects of discrimination on his trucking business in Nebraska. Mr. Madlock testified that he was told by a quarry owner that he could not purchase a particular product because it was out of stock, only to discover that the quarry was selling the same supply to white truckers. (Stanford Madlock Testimony, Trial Tr. at 637, l. 22-638, l. 20.) Mr. Madlock also testified that he has been subjected to discriminatory comments. (Id. at 639, ll. 3-25.)

This testimony is consistent with MGT's findings, and MGT's findings are fully consistent with the presence of discrimination in Nebraska. MGT found, for instance, that DBEs won 12.67% of the total contract dollars on NDOR's federally-assisted projects between 1995 and 1999, but only 2.4% of the total contract dollars NDOR awarded on solely state-funded projects, to which the DBE program does not apply. See MGT Study at 4-9, 4-10 [Ex. 202]. Because DBEs have been successful in obtaining work in Nebraska where the DBE program has ensured them an opportunity to compete, the significantly lower percentages of contract dollars awarded to DBEs when the DBE program does not apply cannot be explained away in terms of a lack of DBE availability. There also is no evidence in the record that DBEs bid more often on federally-assisted contracts than on state contracts. Nor are state-funded contracts let by NDOR less lucrative or otherwise less desirable to DBEs than federally-assisted contracts. (Claude Oie Testimony, Trial Tr. at 1103, ll. 1-4.) In short, Plaintiff did not present any evidence of a nondiscriminatory reason for the disparity in awards to DBEs on federally-assisted and state-funded contracts let by NDOR. Thus, Plaintiff has utterly failed to show that Nebraska's highway construction industry somehow differs from that of the rest of the nation. Instead, this Court should be guided by the evidence and testimony outlined above in reaching its conclusion that the DBE program passes constitutional muster.⁽³⁶⁾

CONCLUSION

For the reasons set forth above, Federal Defendants request that this Court uphold the constitutionality of the DBE program authorized by TEA-21, 49 C.F.R. pt. 26, and NDOR's program plan.

Respectfully submitted,

Washington, D.C. RALPH F. BOYD, JR.
August 17, 2001 Assistant Attorney General Civil Rights Division

______________________

ROSALIND A. KNAPP
Acting General Counsel
PAUL M. GEIER
Assistant General Counsel for Litigation
PETER S. SMITH
Trial Attorney

EDWARD V. A. KUSSY
Acting Chief Counsel
Federal Highway Administration

U.S. Department of Transportation
400 Seventh Street, S.W.
Washington, D.C. 20590
(202) 366-4731

RICHARD S. UGELOW
CHARLOTTE BURROWS
Member, New York Bar
SONYA A. RAO
MA Bar No. 647170
SARA R. LEWENBERG
MA Bar No. 634257
Department of Justice
Civil Rights Division
Employment Litigation Section
P.O. Box 65968
Washington, D.C. 20035-5968
(202) 514-3862
(202) 514-1005 (telefacsimile)

THOMAS J. MONAGHAN, JR.
United States Attorney
District of Nebraska
1620 Dodge Street
Suite 1400
Omaha, Nebraska 68102
(402) 221-4774

^1. Thus, a facial challenge is "the most difficult challenge to mount successfully, since the challenger must establish that no set of circumstances exist under which the [law] would be valid. The fact that the [law] might operate unconstitutionally under some conceivable set of circumstances is insufficient to render it wholly invalid." United States v. Salerno, 481 U.S. 739, 745 (1987).

^2. On July 18, 2001, this Court allowed the Federal Defendants an extension of time to file this brief so that we could do so after filing our brief with the Supreme Court in the case of Adarand Constructors, Inc. v. Slater, 228 F.3d 1147 (10th Cir. 2000) ("Adarand VII"), cert. granted sub nom., Adarand Constructors, Inc. v. Mineta, 121 S. Ct. 1401, 149 L. Ed. 2d 344, (Mar. 26), cert. modified, 121 S. Ct. 1598, (Apr. 13, 2001) ("Adarand VIII"), currently pending in the Supreme Court. As a matter of courtesy, a copy of that brief is attached hereto.

³ As noted in the United States' brief in Adarand VIII at 38 ("Here, Congress and DOT struck a balance that allows Congress to address the national problem of discrimination, while prohibiting the use of race-conscious remedies on federally aided projects in jurisdictions where their necessity is not manifest."); id. at 43 ("DOT's regulations require recipients to consider the efficacy of the 'array of race-neutral devices to increase the accessibility of contracting opportunities to small entrepreneurs of all races,' and permit use of race-conscious mechanisms only as a last resort. In light of those limitations, petitioner cannot show that the regulations are incapable of constitutional application.") (citation omitted); id. at 46 ("Because DOT regulations limit the use of race-conscious or DBE-specific remedies to those markets where they are necessary, the impact of the statute's race-based presumption on parties like petitioner is sharply limited and narrowly tailored.").

⁴See, e.g., Surface Transportation Assistance Act of 1982 ("STAA"), Pub. L. No. 97-424, ï½§ 105(f), 96 Stat. 2100; Surface Transportation and Uniform Relocation Assistance Act of 1987 ("STURAA"), Pub. L. No. 100-17, ï½§ 106(c)(2)(B), 101 Stat. 146; Intermodal Surface Transportation Efficiency Act of 1991 ("ISTEA"), Pub. L. No. 102-240, ï½§ 1003(b), 105 Stat. 1919-1921. To redress the effects of discrimination, the currently effective authorization, Section 1101(b) of the TEA-21, provides that, "[e]xcept to the extent the Secretary determines otherwise, not less than 10 percent of the amounts made available" under the Act "shall be expended with small business concerns owned and controlled by socially and economically disadvantaged individuals."

⁵ The sole exception is that NDOR certifies and enforces certain federally mandated requirements regarding firms that wish to submit quotes on federally funded highway projects as DBE subcontractors. These requirements are set forth in 49 C.F.R. pt. 26 and discussed in Part IV of this brief, infra.

⁶ Nebraska's Program closely follows the "Sample DBE Program" developed by DOT and provided to DOT fund recipients as an example of a legally sufficient DBE program under the regulations [Ex. 556]. DOT has authority to issue written interpretations or guidance on the DBE regulations, which are "valid and binding, and constitute the official position of the Department of Transportation" in circumstances where DOT's General Counsel has reviewed the document and "approved it as consistent with the language and intent of 49 CFR pt. 26." 49 C.F.R. ï½§ 26.9(b). The sample DBE program has been reviewed and approved by the General Counsel.

⁷ For example, unions, through which individuals often learn a trade and rise up through the ranks, have a history of excluding minorities and women (Ray Marshall Testimony, Trial Tr. at 76, ll. 6-16) and some unions were governed by constitutional provisions that explicitly restricted membership to white males. See (id. at 77, l. 16- 78, l. 4). Additionally, as Professor David Blanchflower, Professor of Economics and former chair of the Department of Economics at Dartmouth College, explained, minorities continue to be discriminated against in access to capital, which is of fundamental importance to starting and growing a small construction company. See (David BlanchflowerTestimony, Trial Tr. at 709, l. 6- 711, l. 15). Positive intervention is necessary to counteract institutionalized patterns of discrimination. See (Ray MarshallTestimony, Trial Tr. at 74, ll. 21-24).

⁸ The gender-conscious provisions of Section 1101(b) and its implementing regulations are subject to intermediate scrutiny and thus need only be substantially related to the achievement of an important government interest. Nguyen v. I.N.S., __ U.S. __, 121 S. Ct. 2053, 2059 (2001); United States v. Virginia, 518 U.S. 515, 524 (1996). Because the race-conscious provisions of TEA 21, its implementing regulations, and NDOR's application of the DBE program meet the more rigorous standard of strict scrutiny, it is unnecessary for this Court to analyze separately the gender-conscious portions of the program under the intermediate scrutiny standard. Accordingly, for the sake of simplicity, TEA-21's race- and gender-conscious provisions are both discussed herein under the strict scrutiny standard. While the Plaintiff has failed to show that he has been injured by the gender-conscious provisions of TEA-21, it is clear that those provisions easily satisfy intermediate scrutiny.

⁹ Similarly, this Court must uphold TEA-21's gender-conscious provisions on a showing that there was a strong basis in evidence to conclude that the effects of gender discrimination limited women's ability to compete in construction contracting.

¹⁰ While no one member's views are dispositive of Congress' conclusions, the views of the bill's floor managers are accorded particular weight in determining legislative intent. See generally, United Steelworkers of Am. v. Weber, 443 U.S. 193, 233-255 (1979) (Rehnquist, J., dissenting) (reaching conclusion about statutory interpretation of Title VII after extensively quoting the sponsors of the legislation); Monell v. Dep't of Soc. Servs., 436 U.S. 658, 686-87 (1978) (holding that municipal corporations are persons subject to suit under ï½§ 1983 based in part on statements made by the sponsor of the act to the effect that the statute would provide a remedy in cases of unlawful municipal actions). In the case of TEA-21, Senators Chafee and Baucus were both floor managers of the legislation in the Senate and were, respectively, the chairman and ranking member of the Senate Environment and Public Works Committee, the committee with jurisdiction for the legislation.

¹¹ It should be noted that Congress' consideration of the issue was by no means one-sided. Rather, both opponents and proponents of the DBE provision presented evidence on this topic. See, e.g., Unconstitutional Set-Asides: ISTEA's Race-Based Set-Asides After Adarand: Hearing Before the Subcomm. on the Constitution, Federalism, and Property Rights of the Senate Judiciary Comm., 105th Cong., 1st Sess. at 63 n.100 (1997) (the "September 30, 1997 Hearing")[Ex. 669].

¹² Section E of the Index to Federal Defendants' Trial Exhibits, which was submitted to the Court with Federal Defendants' Pre-Trial Brief on June 15, 2001, contains additional citations to evidence of bid shopping available to Congress in enacting TEA-21.

¹³ Section G of the Index to Federal Defendants' Trial Exhibits, which was submitted to the Court with Federal Defendants' Pre-Trial Brief on June 15, 2001, contains additional citations to evidence of the discrimination by state officials available to Congress in enacting TEA-21.

¹⁴ Section F of the Index to Federal Defendants' Trial Exhibits, which was submitted to the Court with Federal Defendants' Pre-Trial Brief on June 15, 2001, contains additional citations to evidence of discrimination by suppliers available to Congress in enacting TEA-21.

¹⁵ Section C of the Index to Federal Defendants' Trial Exhibits, which was submitted to the Court with Federal Defendants' Pre-Trial Brief on June 15, 2001, lists additional evidence of the effects of lending discrimination available to Congress when it passed TEA-21.

¹⁶ As Professor David Blanchflower explains in his expert report in this case, this evidence is confirmed by extensive national data showing that minority business owners were less likely than equally qualified white business owners to receive commercial loans. Report of Federal Defendants' Expert David Blanchflower ("Blanchflower Report"), Appendix A [Ex. 520].

¹⁷ Prior hearings before Congress provide additional examples. In one instance, a bank denied a minority-owned business a loan to purchase new vans to bid on a public contract worth $3 million, but offered a loan for the same purpose to a non-minority-owned firm even though that firm had an affiliate that was in bankruptcy. See Availability of Credit to Minority-Owned Small Businesses: Hearing Before the Subcomm. on Fin. Inst. Supervision, Regulation & Deposit Ins. of the House Comm. on Banking, Fin., and Urban Affairs, 103d Cong., 2d Sess. 20 (1994) (Toni Hawkins) [Ex. 633]. Another example of racial discrimination involved a Southeast Asian American business-owner who received an unsecured line of credit from an Asian loan officer at a bank, but his line of credit was revoked for no reason related to his financial record once a white loan officer took over his account and, subsequently, he obtained another line of credit from a minority-owned bank. See The Civil Rights Act of 1997: Hearing Before the Subcomm. on the Constitution of the House Judiciary Comm., 105th Cong., 1st Sess. 91 (1997) (Karen Narasaki) [Ex. 624 at US1-00004883]. These are just two of the countless examples of the difficulty experienced by minorities in obtaining bank loans that were presented to Congress. See also Affirmative Action, 142 Cong. Rec. H23600 (1996) (Rep. Jackson) [Ex. 630] ("In 1992, Manufacturers Hanover Trust rejected 18 percent of loan applications from high-income whites, yet rejected twice as many, 43 and 45 percent, from high-income African-Americans and Latinos."); The Small Bus. Admin.'s 8(a) Minority Bus. Dev. Program: Hearing Before the Senate Comm. on Small Bus., 104th Cong., 1st Sess. 103 (1995) (Steven Sims) [Ex. 632] ("Half of the minority business owners who have been turned down for credit by commercial banks believe that racism was one reason for the bank's decision."); Availability of Credit to Minority-Owned Small Businesses: Hearing Before the Subcomm. on Fin. Institutions Supervision, Regulation & Deposit Ins. of the House Comm. on Banking, Fin., & Urban Affairs, 103d Cong., 2d Sess. 20-21 (1994) (Toni Hawkins) [Ex. 633] (multiple examples of minority business owners' failure to secure bank loans); Federal Minority Bus. Issues: Hearing Before the House Comm. on Small Bus., 102 Cong., 1st Sess. 5 (1991) (Joshua Smith) [Ex. 618] (statement of U.S. Commission on Minority Business Development chairman that four out of every five witnesses who testified at U.S. Commission on Minority Business Development hearings "discuss[ed], primarily, their inability to achieve or obtain capital"); Disadvantaged Bus. Enter. Program of the Federal-Aid Highway Act: Hearing Before the Subcomm. on Transp. of the Senate Comm. on the Env't and Public Works, 99th Cong., 1st Sess. 56 (1985) (James Laducer) [Ex. 618] ("Usually, private banking institutions are controlled by private business persons . . . who are in direct competition with our minority firms, again making it almost impossible to get the loans."); Establishment of a Minority Bus. Dev. Admin. in the Dep't of Commerce: Hearing Before the Subcomm. on Gen. Oversight and Minority Enter. of the House Comm. on Small Bus., 96th Cong., 2d Sess. 26 (1980) (Daniel Henson III) [Ex. 625] ("Conventional financial sources are more or less inaccessible to minority business enterprises . . . [and] credit financing for minority business enterprises is generally unavailable.").

¹⁸ Section H of the Index to Federal Defendants' Trial Exhibits, which was submitted to the Court with Federal Defendants' Pre-Trial Brief on June 15, 2001, lists additional evidence of the effects of discrimination in the bonding market that was available to Congress when it passed TEA-21.

¹⁹ For example, the House Committee on Government Operations' report contained a statement by the president of the National Black League, an organization representing African American businesses, testifying about a black contractor in Louisiana who had to go out of state to secure a bond rating after his white competitors told the bond underwriters in his market not to underwrite him because he was competing in their market. Id. at 16-17 (Sherman Copelin). According to that witness, "negative perception of black business is at the very core of . . . areas where their constituents have witnessed problems." Id. at 9; see also Sur. Bonds and Minority Contractors, 100th Cong. at 16, 18 [Ex. 650] (David Morales & Manuel del Campo) (examples of racial discrimination by surety companies); State of Louisiana Disparity Study, at 91 (1991) [Ex. 506] (significant number of minority-owned businesses interviewed for the disparity study stated that they had difficulty obtaining bonding, including bid performance and payment bonds) (cited by Sen. Kennedy, 144 Cong. Rec. S1482 [Ex. 615]).

²⁰ In Tampa, after the city discontinued its DBE plan in 1989, the number of contracts awarded to Latinos was suddenly cut in half, while the number of contracts awarded to blacks fell by 99%. In Richmond, the monies awarded to minority business construction firms dropped from almost 40% of total contract dollars before its minority business assistance plan was terminated in 1987, to less than 3% of contract dollars in the first half of 1988, after the program's suspension. The Meaning and Significance for Minority Businesses of the Supreme Court Decision in the City of Richmond v. J.A. Croson Co.: Hearing Before the Legislation and Nat'l Sec. Subcomm. of the House Comm. on Gov't Operations, 101^st Cong., 2d Sess. 57, 62-90 (1990) [Ex. 654].

²¹ This is the case in Nebraska, where DBE firms receive only 2.6% of state-funded contracts- to which the DBE program does not apply-compared with their traditional achievement of between 9 and 11% on federally-funded contracts. See MGT Study [Ex. 202]; Chart [Ex. 535].

²² Section I of the Index to Federal Defendants' Trial Exhibits, which was submitted to the Court with Federal Defendants' Pre-Trial Brief on June 15, 2001, lists additional evidence of overt discrimination available to Congress when it passed TEA-21.

²³ While the current DOT DBE program fulfills each of the narrow tailoring factors set forth in Paradise and Adarand III, narrow tailoring does not require that government action satisfy each and every factor in order to pass constitutional muster.

²⁴ Claude Oie, the Division Head for NDOR's Construction Division, also testified that Nebraska conformed with the federal regulations when it first determined the portion of its overall goal that it could meet through race-neutral means before it turned to race-conscious measures. (Claude Oie Testimony, Trial Tr. at 966, l. 17- 967, l. 12.)

²⁵ These retainage and prompt payment provisions, which are race- and gender-neutral because they apply to all small subcontracting businesses, assist subcontractors in obtaining prompt payment from prime contractors in order to avoid cash flow problems. See (Robert Ashby Testimony, Trial Tr. at 440, l. 7-443, l. 7); (Claude Oie Testimony, Trial Tr. at 929, ll. 2-10).

²⁶ In fact, Mr. Ashby testified at trial that TEA-21's implementing regulations contain a flat-out prohibition of the use of quotas in the states' goal-setting process. (Robert Ashby Testimony, Trial Tr. at 391, l. 7- 392, l. 1.) See 49 C.F.R. ï½§ 26.43.

²⁷ However, because Plaintiff brings a facial challenge, any speculation about undetected fraud or errors in implementation are irrelevant; the program must be upheld unless it is incapable of constitutional implementation.

²⁸ As a result, the current DBE program makes it possible for every state recipient to create a completely race-neutral program, provided that recipient has evidence to support the conclusion that its actual level of DBE participation equals that which would be expected absent discrimintion. Indeed, there are currently 8 jurisdictions that currently operate completely race-neutral programs. See Answers to Plaintiff's First Set of Interrogatories, Answer 6 [Ex. 595].

²⁹ Since Mr. Deans testified on behalf of the Plaintiff, and because his employer, Paulsen, Inc., has helped to fund the Plaintiff's lawsuit ((Paulsen Dep. Tr. at 26, l. 25- 27, l. 2) [Ex. 601], (Randy Deans Testimony, Trial Tr. at 1356, ll. 23-25)) there is no reason to believe that Mr. Deans would minimize any impact of the DBE program on third parties.

³⁰ MGT used NDOR's TRANS*PORT database, which manages project data and information. MGT Study at 3-10. [Ex. 202].

³¹ NDOR set its goal by following the process articulated in 49 C.F.R. ï½§ 26.45(c-d).

³² All of the firms in that database were registered with NDOR as a subcontractor, prequalified as a prime contractor, or certified by the state as a DBE firm. MGT Study at 3-10 [Ex. 202]. Firms not listed in the database were considered unwilling to do business with NDOR.

³³

Dr. La Noue argues that MGT erred in estimating DBE availability because he believes that MGT should have analyzed DBE availability by assuming that only firms that bid during the eighteen month period from June 1999 through December 2000 - the period Dr. La Noue chose to examine (La Noue Testimony, Trial Tr. at 1259, ll. 1-2) - would be available to bid on the upcoming year's contracts. Yet, Dr. La Noue offers no explanation for why this time frame might be more relevant than the period examined by MGT, and he does not know whether bidding activity during the eighteen-month period he chose to study was in any way typical of NDOR's contracting experience. (La Noue Testimony, Trial Tr. at 1285, ll. 3-9.) More importantly, as explained in Professor Blanchflower's expert report, Dr. La Noue's method of estimating DBE availability is reliable only if one assumes the absence of discrimination. Blanchflower Report at 9-10 [Ex. 520]. In other words, if discriminatory factors somehow prevent DBEs from bidding on particular contracts, then Dr. La Noue's use of an eighteen-month bidder's list is of no assistance in estimating what DBE availability might be absent discrimination. The evidence gathered by MGT and NDOR indicates that Dr. La Noue's method would have been an overly restrictive manner of goal-setting.

³⁴ DBE achievements at the prime contracting level were considered race-neutral, since NDOR applies DBE race-conscious contract goals solely at the subcontracting level.

³⁵ Under these regulations, the DOT must approve each recipient's program plan as being consistent with the DOT's DBE regulations. In order to ensure that remedies for the effects of discrimination are tailored to local conditions, the DBE regulations require that recipients receiving federal aid, such as NDOR, establish numerical measurements, based on local DBE availability and other evidence, to assess discrimination or its effects in their own jurisdictions. Further, they must determine whether adjustments should be made to their calculations so that they reflect the level of DBE participation that would be expected absent the effects of discrimination. Race-conscious measures, such as DBE goals on individual contracts, may be used only if race-neutral means prove insufficient.

³⁶ The Department of Commerce's benchmark study provides no evidence to the contrary. See Blanchflower Report at 11-12. [Ex. 520]; Report of NDOR's Expert Dr. J. Vincent Eagan at 8 & n.13 ("Eagan Report") [Ex. 207].

Updated June 14, 2023