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Public Contracts; Competitive Buidding; Minority Business Participation Provisions

Subject:

Public Contracts; Competitive Bidding; Minority Business Participation Provisions; United States Constitution

Requested by:

Representative Thomas C. Hardaway, Co-Chairman Senator Ralph Hunt, Co-Chairman Legislative Research Commission Committee on Minority Business Contracts and Small Business Assistance

Question:

In view of the principles recited by the United States Supreme Court in City of Richmond v. J. A. Croson Company, are the minority participation provisions in G.S. 143-128, G.S. 136-28.4, G.S. 160A-17.1, Chapter 8, Section 3(b) of the 1989 Session Laws (Senate Bill 38), and Executive Order 77 constitutional?

Conclusion:

The referenced provisions appear to be facially constitutional under the principles established in Croson.

In City of Richmond v. J. A. Croson, Co., 109 S.Ct. 706 (1989), the United States Supreme Court addressed the issue of whether Richmond, Virginia’s Minority Business Utilization Plan (the "Plan"), violated the Equal Protection Clause of the Fourteenth Amendment. In 1983, the Richmond City Council adopted the Plan which required non-minority prime contractors awarded construction contracts by the city to subcontract at least 30% of the dollar amount of the contract to one or more Minority Business Enterprises ("MBE"). Under the Plan an MBE was defined as a business at least 51% owned and controlled by minority group members. "Minority Group Members" were defined as "Blacks, Spanish-speaking, Orientals, Indians, Eskimos or Aleuts". The Plan’s rules provided that waivers would only be granted under "exceptional circumstances".

The challenge by J. A. Croson Company, a mechanical, plumbing and heating contractor, resulted from Croson’s attempts to obtain a contract for the installation of plumbing fixtures at the city jail. Due to problems encountered in hiring a minority subcontractor, as required under the Plan, Croson requested a waiver of the MBE requirements. In the alternative, Croson requested a price increase to cover the additional cost of hiring the only available MBE subcontractor. The City denied both requests and Croson subsequently responded by bringing an action under Title 42, Section 1983, of the United States Code, challenging the constitutionality of the Plan.

In Croson, the United States Supreme Court held that the Plan violated the right of all persons to the equal protection of the laws guaranteed by the Fourteenth Amendment to the United States Constitution. Under the Court’s analysis, the program enacted by the City constituted a clear racial preference whereby non-minority contractors were excluded from the right to compete for Under the first prong of strict scrutiny analysis the City was required to demonstrate a compelling governmental interest in creating the racial preference. While recognizing the broad remedial powers of Congress to use certain racial and ethnic criteria with the objective of curing the effects of past discriminatory practices, the Court held that the City was required to have a strong factual basis for its conclusion that remedial action was necessary. Upon reviewing the evidence, the Court concluded that none of the factors relied on by the City proved that identifiable discrimination existed in the Richmond construction industry. The City therefore failed to demonstrate a compelling interest in apportioning public contracting opportunities on the basis of race.

The Court also considered the second prong of the strict scrutiny test and determined that it was essentially impossible to determine whether the Plan was "narrowly tailored" to address a specific problem inasmuch as there was no evidence that the 30% quota was linked to race in any way. Observations were made that the City Council appeared to have made no attempts to use benign, race-neutral methods of increasing participation by minority businesses in public contracting and that the 30% quota had no rational relationship to any identifiable goal. Therefore, due to the City’s failure to identify prior discrimination requiring remedial action, the disparate treatment of citizens on a racial basis was held to violate the Equal Protection Clause.

As a result of the Croson decision, numerous State and local minority participation programs have been challenged. In most instances, the basis for the challenge is that the state or local body has failed to develop a sufficient factual history of past discrimination prior to enacting set-aside programs based on racial preferences. The issue posed here is the question of the constitutionality of four North Carolina statutes and one Executive Order establishing minority participation programs, in light of the Croson opinion.

The first provision inquired about is G.S. 143-128, as amended by Chapter 480 of the 1989 Session Laws (Senate Bill 308). This amendment added an alternative procedure for the award of public construction contracts whereby public bodies may now elect to award a single prime contract as opposed to the separate prime contracts previously required. Under the amendment the State is also required to have a ". . . verifiable ten percent (10%) goal for participation by minority businesses . . ." in State construction projects. Cities, counties, and other public bodies are required to adopt ". . . appropriate verifiable percentage goal(s) for participation by minority businesses . . ." in their construction projects. The term "minority business" is defined as a business which is at least 51% owned by one or more minority persons and which is managed by one or more minority persons who own the business. The term "minority person" is defined to include citizens and lawful permanent residents of the United States who are Black, Hispanic, Asian-American, American-Indian, Alaskan Native or female.

A key factor which distinguishes this provision from the Richmond Plan is that the verifiable 10% goal for participation by minority businesses does not mandate that a specific portion of the project funds be actually awarded as a racial preference. G.S. 143-128(c)(3) states:

"The term ‘verifiable goal’ means for purposes of the separate contract system, that the awarding
authority has adopted written guidelines specifying the actions that will be taken to ensure a good
faith effort in the recruitment and selection of minority businesses for participation in contracts
awarded under this section . . .".

In regard to contracts awarded under the new single-prime alternative, G.S. 143-128(c)(4) states:

"The term ‘verifiable goal’ means for purposes of the single-prime contract system, that the
awarding authority has adopted written guidelines specifying the actions that the prime contractor
must take to insure a good faith effort in the recruitment and selection of minority businesses for
participation in contracts awarded under this section; the required actions must be documented in
writing by the contractor to the appropriate awarding authority.”

The program mandated under this provision therefore only requires the creation of written
guidelines designed to insure that efforts will be made to increase the amount of participation in
public construction contract work by minority businesses. Absent a mandatory racial preference,
North Carolina’s program is not required to satisfy the strict standards imposed on the City of Richmond.

The program contemplated by the Legislature in amending G.S. 143-128 is essentially a benign
attempt to break down artificial barriers which may have precluded participation in public
contracting by many otherwise qualified businesses owned by members of various minority
groups and women. Unlike the rigid 30% set-aside requirement under the Richmond Plan,
however, the requirements of G.S. 143-128 do not mandate that any public contract or
subcontract be awarded strictly on the basis of race. Crucial to this analysis is the following
statement in G.S. 143-128(d):

"The State and its political subdivisions shall award public contracts pursuant to this section
without regard to race, religion, color, creed, national origin, sex, age, or handicapping condition
as defined in G.S. 168A-3. Nothing in this section shall be construed to require contractors or
awarding authorities to award contracts or subcontracts or to make purchases of materials or
equipment from minority-business contractors or minority-business subcontractors who do not
submit the lowest responsible bid or bids.”

The statute therefore mandates that the actual contract award be made on a race-neutral basis to
the lowest responsible bidder.

The Supreme Court in Croson sanctioned the use of race-neutral means of increasing minority
participation in public contracting, stating:

"Even in the absence of evidence of discrimination, the city has at its disposal a whole array of
race-neutral devices to increase the accessibility of city contracting opportunities to small
entrepreneurs of all races. Simplification of bidding procedures, relaxation of bonding
requirements, and training and financial aid for disadvantaged entrepreneurs of all races would
open the public contracting market to all those whose have suffered the effects of past societal

There is no suggestion by the Court that all programs designed to increase minority participation in public contracting, even if they disproportionately benefit certain minority groups, necessarily violate the dictates of the Equal Protection Clause. It is only where certain citizens are denied the opportunity to compete for a fixed percentage of public contracts based solely on their race that the constitutional right of each person to be treated with equal dignity and respect demands that a program be strictly scrutinized, as was the case with the Richmond Plan.

Our analysis of G.S. 143-128 does not lend to a conclusion that any person would be denied the opportunity to compete for a public contract solely on the basis of race. As noted, the previously referenced language of G.S. 143-128(d) specifically precludes an award on a preferential basis. It is therefore our opinion that G.S. 143-128 does not, on its face, create an impermissable racial classification in violation of the Equal Protection Clause.

The second provision in question is G.S. 136-28.4, as amended by Chapter 692 of the 1989 Session Laws (House Bill 399). This provision of the Highway Trust Fund Bill establishes a 10% "goal" for participation by minority businesses in highway and bridge construction and maintenance. G.S. 136-28.4(b) states:

"A ten percent (10%) goal for participation by minority businesses in road and bridge construction, alteration, or maintenance projects is established. The Department of Transportation shall endeavor to award to minority businesses at least ten percent (10%), by value, of the contracts that it lets for the construction, alteration or maintenance of roads and bridges. The Department shall adopt written procedures specifying the steps it will take to achieve this goal, provided that the Department shall give equal opportunity for contracts it lets without regard to race, religion, color, creed, national origin, sex, age or handicapping condition, as defined in G.S. 168A-3, to all contractors and businesses otherwise qualified."

Here again the legislative intent appears to have been the encouragement of minority participation in contracts awarded by the Department of Transportation, without the necessity of creating racially based quotas or set-asides. The statute is clear, however, that the actual contract awards must be made on a race-neutral basis.

Under a Croson analysis, this provision does not establish a fixed percentage of public contracts or public contract funds for which certain groups of persons may not compete. Without such a deprivation of personal rights it is our opinion that the provisions of G.S. 136-28.4 do not violate the Equal Protection Clause.

G.S. 160A-17.1 allows cities and counties to agree to and comply with minority business enterprise participation requirements established by the federal government as a precondition to receipt of federal funds. The purpose of this provision was to allow local governments to comply with federally mandated minority set-aside requirements without being in direct violation of state bid laws requiring award to the lowest responsible bidder without regard to race. In many cases, a precondition to federal funding is a requirement that 10% of the grant amount be awarded to In Fullilove v. Klutznick, 448 U.S. 448 (1980), the Supreme Court upheld the minority set-aside program required under the Public Works Employment Act of 1977. The Act required state and local governments to expend at least 10% of the amount of each grant on minority business enterprises. In addressing the validity of this requirement, the Court stressed the broad remedial powers of Congress under Section 5 of the Fourteenth Amendment to enforce constitutional equal protection guarantees. Based upon this power, the Court held that Congress could mandate state and local government compliance with a federal set-aside program.

In Croson the City attempted to rely on Fullilove for its position that the City of Richmond enjoyed broad legislative power to cure the effects of discrimination in the construction industry. This reliance was rejected by the Court, emphasizing the distinction between the broad powers of Congress in carrying out its responsibility for enforcement of the Fourteenth Amendment as opposed to the narrow authority of state and local governments. In addressing this distinction, the Court affirmed the power of Congress, as discussed in Fullilove, to impose minority set-aside requirements on state and local governments which themselves may not be able to establish the requisite compelling need to establish such programs in non-federally funded projects. It is therefore our opinion that both Fullilove and Croson support the validity of G.S. 160A-17.1.

The fourth provision in question was included in Chapter 8, Section 3(b) of the 1989 Session Laws (Senate Bill 38). This Act, making emergency appropriations for improvement to the prison system, includes the following provision in Subsection 3(b):

"Of the funds appropriated in Subsection (a) of this section for the purpose of construction of prison facilities, the Office of State Budget and Management shall have a verifiable ten percent (10%) goal for participation by minority business . . .".

The provision provides no direct guidance as to the nature of the minority participation program contemplated other than the use of the phrase "verifiable ten percent (10%) goal", which is the same language adopted in the previously referenced 1989 amendments to G.S. 143-128.

We are aware, however, that both Chapter 8 (Senate Bill 38) and Chapter 480 (Senate Bill 308) were enacted by the 1989 Session of the 1989 General Assembly. As an established principle of statutory construction, all acts of the same session of the legislature upon the same subject matter are considered as one act and must be construed together under the doctrine of "in pari materia". See Wilson v. Jordan, 124 N.C. 683 (1899). It is therefore appropriate to consider the phrase "verifiable ten percent (10%) goal" used in Chapter 8, dealing with prison construction, in the context of the identical phrase used in Chapter 480 in regard to other building projects. As such, the phrase "verifiable ten percent (10%) goal" included in Chapter 8 may be interpreted to require written guidelines to insure a good faith effort to recruit minority business participation as specifically defined by G.S. 143-128(c)(3)(4). It may also be assumed that, based upon the prohibition against contract awards on the basis of race in general public building projects, the legislature intended that contracts for prison construction awarded under Chapter 8 be made on a race-neutral basis. We therefore find no constitutional impediment to the minority participation The final inquiry is in regard to Executive Order No. 77, issued September 14, 1988, establishing the "Governor’s Program to Encourage Business Enterprises Owned by Minority, Women and Handicapped Persons". This Order established a program for the purpose of increasing the participation of businesses owned and controlled by minorities, women and handicapped persons in State purchasing, State construction projects, and the acquisition of real property by the State. Specifically in regard to purchasing, the Order established a "program objective" for fiscal year 1988-1989 to purchase a minimum of four percent of the State’s purchases of goods and services from businesses owned and controlled by minorities, women and handicapped persons. No percentage goals were established in regard to State construction contracts, although the Division of State Construction was directed to accumulate data to support the future establishment of percentage goals. In regard to the acquisition of real estate, the State Property Office was given a general directive to establish acquisition policies which would further the purposes of the Order.

Under the Order neither the Division of State Construction nor the State Property Office is required to attempt to meet a percentage goal for minority participation. It is only the Purchase and Contract Division of the Department of Administration that is directed to attempt to meet the goal of four percent minority participation.

In regard to this objective, the Order includes among the program purposes an intent to increase the amount of goods and services acquired from businesses owned by minorities, women and handicapped persons; the reduction of barriers that reduce the participation of minorities, women and handicapped persons; the identification of prospective minorities, women and handicapped vendors and service providers, and; the general promotion of awareness among minorities, women and handicapped persons of opportunities to do business with state government. We find these to be the type of race-neutral devices sanctioned in Croson for the purpose of attempting to increase the accessibility of public contracting opportunities by minorities and other entrepreneurs of all races. We find no directive in the Order to actually reserve a specific percentage of contracting opportunities for minorities to the exclusion of other persons. We therefore are of the opinion that Executive Order No. 77 is a valid exercise of the executive powers of the Governor.

In conclusion, none of the provisions in question mandate a racial preference which would result in a deprivation of personal rights guaranteed to all persons by the Equal Protection Clause of the Fourteenth Amendment. Absent such a preference, the "strict scrutiny" test applied to the Richmond Plan by the Supreme Court in Croson is not required to be passed by state and local entities in North Carolina attempting to achieve the goals referenced in the provisions discussed above. You have not requested, and we express no opinion, on the constitutionality of these provisions as applied under any individual program. It is our opinion, however, that the provisions referenced facially meet the constitutional standards established in Croson.

LACY H. THORNBURG, Attorney General