by Stephen J. McBrady, Associate

In 1995, the United States Supreme Court decided Adarand Constructors, Inc. v. Pena, 515 U.S. 200 (1995), in which a subcontractor had challenged the constitutionality of a federal program aimed at providing highway contracts to disadvantaged business enterprises (“DBE’s”).  Adarand, a Colorado highway subcontractor, lost a bid to perform the guardrail portion of a federally-funded highway project, in spite of being the low bidder, to a competitor deemed to be a DBE.  Adarand argued that the Government’s offering incentives to prime contractors for hiring DBE’s to perform subcontracting work on federal highway projects violated Adarand’s right to equal protection.  Adarand, 515 U.S. at 210.  The United States District Court for the District of Colorado rejected Adarand’s claims, granting summary judgment in favor of the Government, and the Tenth Circuit Court of Appeals affirmed that decision.

The Supreme Court granted certiorari and vacated and remanded the Tenth Circuit’s decision.  (After being remanded, Adarand came before the Supreme Court again in 2000, and again in 2001, and was dispensed with on procedural grounds in both instances, without disturbing the Court’s 1995 holding.  See Adarand Constructors, Inc. v. Mineta, 534 U.S. 103 (2001)).  In its decision, the Supreme Court held that Adarand had standing to seek forward-looking declaratory and injunctive relief against the challenged statute, and that race-based classifications imposed by any federal, state, or local government would be reviewed under strict scrutiny, the highest level of scrutiny applied by the courts.  Specifically, the Court held that:

1) To determine whether Adarand had standing to seek declaratory and injunctive relief, the Court would “ask whether Adarand has made an adequate showing that sometime in the relatively near future it will bid on another Government contract that offers financial incentives to a prime contractor for hiring disadvantaged subcontractors;” and

2) That all racial classifications imposed by any federal, state, or local government would be reviewed under strict scrutiny and upheld “only if they are narrowly tailored measures that further compelling government interests.”

Id. at 212 and 227.  Thus, in order to challenge a federal, state, or local statute granting incentives for the use of minority contractors, a challenger must be able to demonstrate that in the “relatively near future” it will bid on such a contract and thereby be placed at a disadvantage.  If the challenger can demonstrate sufficient standing, a court will review the statute to determine whether it is narrowly tailored to further a compelling government interest.

Applying Adarand Now in California

In the wake of the Supreme Court’s landmark decision in Adarand, a number of lower courts have considered statutes and ordinances involving incentives for the utilization of contractors and subcontractors designated as “disadvantaged.” In California, two construction cases have been decided based on the rules set forth in Adarand: Monterey Mech. Co. v. Wilson, 125 F.3d 702, 704 (1997) and Coral Constr., Inc. v. City and County of San Francisco, 116 Cal.App.4th 6 (2004).  The impact of those cases is discussed below.

The “Narrowly Tailored” Requirement

In 1997, the Ninth Circuit Court of Appeals heard an action brought by an unsuccessful bidder for a construction project at California Polytechnic State University, San Luis Obispo.  Monterey Mech. Co. v. Wilson, 125 F.3d 702, 704 (1997). In that case, Monterey Mechanical submitted a bid to perform considerable work on the University’s central air conditioning and electrical distribution systems.  The company’s bid was disqualified, however, because Monterey Mechanical failed to comply with a state statute mandating that general contractors subcontract certain percentages of their work to “disadvantaged” business enterprises, including minority-owned business enterprises.  Monterey Mechanical challenged the state statute, alleging that its rights under the Equal Protection clause were violated by the statute’s race-based classifications.

The Ninth Circuit Court of Appeals held that under Adarand, Monterey Mechanical had “the right to demand that any governmental actor subject to the Constitution justify any racial classification . . . under the strictest judicial scrutiny,” and therefore had standing to challenge the state statute on Equal Protection grounds.  Id. at 712.  Once Monterey Mechanical made such a demand, the burden of demonstrating that the statute was “narrowly tailored” to further a “compelling state interest” fell upon the state.  Specifically, California Polytechnic State University, San Luis Obispo or the state of California would need to demonstrate that they had actively or passively discriminated against the award of construction contracts to the minority groups enumerated in the statute.  In order to justify a narrowly tailored statute to further a competing state’s interest, the California statute, however, broadly defined “minority” to include groups – such as the Aleuts, natives of the Alaska peninsula and the Aleutian islands, but not California – that the Court of Appeals declared “highly unlikely to have been discriminated against in the California construction industry.” Because of the statute’s broad classification of minorities, and the state’s failure to adduce any evidence justifying the group classifications at issue, the Court of Appeals held that the statute was not narrowly tailored.  The court therefore declared that the California statute violated the Equal Protection Clause by unfairly discriminating on the basis of race.

The Standing Requirement

In 2004, the California Court of Appeal heard Coral Constr., Inc. v. City and County of San Francisco, 116 Cal.App.4th 6 (2004).  In Coral, a contractor challenged a City of San Francisco ordinance granting financial incentives for the use of “disadvantaged” minority-owned, female-owned, or local businesses in bids for city contracts.  Coral Construction, an Oregonbased contractor who performed a large percentage of its work in California, bid on a project to perform work on the San Francisco International Airport.  Despite being the low bidder by roughly 22%, Coral Construction’s bid was rejected because it proposed to perform all of the typically subcontracted work itself, rather than comply with the ordinance’s goal of utilizing disadvantaged businesses.

Coral Construction filed an action seeking declaratory and injunctive relief and challenging the city ordinance as unconstitutional.  In response, the City of San Francisco filed for summary judgment, alleging that Coral Construction lacked standing to challenge the ordinance because it could not allege a sufficient harm – specifically, that Coral Construction could not claim that it would suffer a specific future harm as a result of the ordinance.  The City contended that once it demonstrated that Coral had no plans to put out to bid any contracts subject to the ordinance, for the type of work Coral Construction regularly performed, the burden shifted to Coral Construction to identify a specific contract it would bid on, in the near future, where it would suffer harm due to the statute.

The California Court of Appeal, relying on Adarand, rejected the City’s argument.  Quoting the Adarand decision, the Court of Appeal stated that the appropriate question was whether “sometime in the relatively near future [plaintiff] will bid on another government contract that offers financial incentives to a prime contractor for hiring disadvantaged subcontractors.”  Id. at 21.  The court would not grant standing if the challenge hinged on a “single never-to-be-repeated event,” but so long as Coral Construction could demonstrate that it stood to suffer future harm from continued application of the ordinance, it possessed sufficient standing to challenge it.  As the court put it, if the contractor could show that it has bid in the past, and will continue to bid in the future, on projects subject to the ordinance granting financial incentives for the use of disadvantaged businesses in bids for city contracts, it could demonstrate a sufficient future harm to support its challenge.

Conclusion

Coral and Monterey are California construction cases decided under the principles set forth by the Supreme Court in Adarand.  Significantly, these cases provide insight into how California courts will likely apply Adarand in the future in the construction industry context.  To possess adequate standing to challenge a statute granting incentives for the use of minority contractors, a contractor must demonstrate that it will bid on a contract governed by that statute in the “relatively near future.” Once a contractor raises a challenge to a statute employing race-based classifications, courts will review the statute under strict scrutiny.  As applied by courts in California, Adarand grants contractors significant recourse to challenge statutes they believe unfairly discriminate on the basis of race-based classifications.


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