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August 2, 1990


The opinion of the court was delivered by: McCURN, Chief Judge.


I. Introduction

This is an action pursuant to 42 U.S.C. § 1983 in which the plaintiffs are challenging the constitutionality of two affirmative action programs administered by the State of New York with respect to certain highway construction projects. The plaintiff in the present motion for a preliminary injunction is Harrison and Burrowes Bridge Constructors, Inc. ("Harrison") — a corporation engaged almost entirely in the business of constructing and renovating bridges on New York State highway projects. Harrison seeks a preliminary injunction barring the State Department of Transportation ("State DOT") from enforcing these state and federal programs which act to pressure prime contractors to employ subcontractors that are owned and controlled by minorities and women.

The plaintiff has raised both a facial and as applied equal protection challenge to the State DOT's enforcement of the state and federal set-aside programs. The constitutionality of government-sponsored affirmative action programs has been hotly debated within the Supreme Court in four cases which have produced twenty-three separate opinions. See Regents of the University of California v. Bakke, 438 U.S. 265, 98 S.Ct. 2733, 57 L.Ed.2d 750 (1978); Fullilove v. Klutznick, 448 U.S. 448, 100 S.Ct. 2758, 65 L.Ed.2d 902 (1980); Wygant v. Jackson Board of Education, 476 U.S. 267, 106 S.Ct. 1842, 90 L.Ed.2d 260 (1986); City of Richmond v. J.A. Croson Co., 488 U.S. 469, 109 S.Ct. 706, 102 L.Ed.2d 854 (1989). On this issue the Court has spoken as a majority only in certain portions of Justice O'Connor's opinion in the Croson decision. These divergent and lengthy opinions make the task of lower federal courts faced with constitutional challenges to affirmative action programs all the more difficult.

This court held a hearing on May 9, 1989, at which time the parties engaged in oral argument — neither party desiring to present witnesses. The court denied the plaintiff's request for a temporary restraining order and held the preliminary injunction motion in abeyance pending the submission of further legal briefing and affidavits. Both parties to this motion have been permitted to make numerous post-hearing submissions.

The State of New York is to be lauded for its efforts to increase the opportunities of minority and women-owned businesses to participate in state funded contracts. However, as will be discussed below, the state has not put forward the evidentiary showing which is now required to find the state's affirmative action program constitutional. On the other hand, the court is not satisfied that the federal affirmative action program, as administered by the State DOT, is constitutionally suspect in a manner which would permit this court to issue a preliminary injunction barring the State DOT from administering the federal program. The following constitutes the court's findings of facts and conclusions of law pursuant to Rule 52(a) of the Federal Rules of Civil Procedure.

II. The Challenged Programs and Conduct

The State DOT administers two programs which are aimed at increasing the level of participation of businesses which are owned and operated by women, minorities, and disadvantaged individuals on state and federally funded transportation construction contracts. Though styled as a § 1983 action, the plaintiff has challenged both programs — requiring this court to undertake a review of the federal legislation and regulations as they are administered by the State DOT.

A. The Program Applicable to State Funded Projects

(i) The Statute. The New York State Legislature has enacted a comprehensive program designed to increase the participation of minority and women-owned business enterprises (termed "MBE's" and "WBE's") in contracts awarded by the State and its agencies; included within the scope of this program are state-funded construction contracts awarded by the Department of Transportation. See generally, Article 15-A of New York Executive Law, §§ 310-18; 1988 Session Laws, Ch. 261 § 63 ("Article 15-A"). The program, entitled "Participation by Minority Group Members and Women With Respect to State Contracts," became effective on July 19, 1988.*fn1 The provisions of Article 15-A supersede any prior enacted state law which was developed to increase the participation of women and minority-owned businesses in state contracts. N.Y.Exec.Law § 317. The state legislation does not apply to contracts on which a federal law concerning the participation of W/MBE's is applicable. Id. at § 313(3).

The centerpiece of Article 15-A is the establishment of the Governor's Office of Minority and Women's Business Development. N.Y.Exec.Law § 311. The director of this office, among other things, is required to "encourage and assist contracting [state] agencies in their efforts to increase participation by Minority and women-owned business enterprises on state contracts and subcontracts so as to facilitate the award of a fair share of such contracts to them." Id. at § 311(3)(a) (emphasis added).*fn2 One of the duties of the director is to develop a directory of "certified minority and women-owned business enterprises" which are available to be solicited for state contract and subcontract work by either state agencies or general contractors. See id. at §§ 311(3)(f), 310(1), 314.*fn3 The director is required to issue rules and regulations which:

  [P]rovide measures and procedures to ensure that
  certified businesses shall be given the
  opportunity for meaningful participation in the
  performance of state contracts and to identify
  those state contracts for which certified
  businesses may best bid to actively and
  affirmatively promote and assist their
  participation in the performance of state
  contracts so as to facilitate the award of a fair
  share of state contracts to such businesses. . . .

Id. at § 313(1). At no point does Article 15-A specify a quota or percentage set-aside of work on state contracts for M/WBE's. Rather, the statute employs less precise phrases such as "participation requirements," id at § 313(5), or "fair share," id. at § 313(1), to designate those portions of a particular state contract which are targeted for W/MBE's.

Article 15-A attempts to "encourage" contractors with state agencies to reach the designated W/MBE participation requirements by requiring contractors to submit a minority and women-owned business "utilization plan"*fn4 prior to the award of a state contract. Id. at § 313(4)(a).*fn5 The contracting agency must review the utilization plan, notify the contractor in writing of any deficiencies, and require that any deficiencies be remedied. Id. at § 313(4)(a). Failure on the part of a contractor to cure deficiencies may result in the revocation of the contract. However, the contractor has a right to notification of the specific grounds for the revocation, an administrative appeal, and an appeal to the New York State Supreme Court, Appellate Division. Id. at §§ 313(4)(c).

The state statute also contains a provision whereby a contractor can apply for a complete or partial waiver of the W/MBE participation requirements on a state contract. The waiver may be granted if the contractor can show that it cannot, after making "good faith efforts," comply with the W/MBE participation goal. Id. at § 313(5). When deciding whether to grant the requested waiver the contracting agency must consider such things as: the number and type of MBE's and WBE's available to work in the region of the state where the contract is to be performed; the dollar value and scope of the contract; the ability of W/MBE's from outside the region to perform the work; the contractor's solicitation of WBE's and MBE's individually and through appropriate media; whether a WBE or MBE has responded to a bid solicitation in a timely and competitive manner; and whether the contractor has attempted to reorganize the contract work so as to increase the likelihood of W/MBE participation. Id. at § 313(5) and (6).

In the event that a waiver is denied for failure to comply with the participation requirements, both the contractor and contracting agency may file a complaint with the Director of the Governor's Office of Minority and Women's Business Development. Id. at § 313(7) and (8). Thereafter, the director is to attempt to resolve the problem and, if not resolved, refer the matter to arbitration for a report and recommendation. The statute permits the imposition of unspecified "sanctions, fines or penalties" against the contractor or a decision that no sanctions are appropriate. Id. at § 316. However, the assessment of any penalty against a contractor is subject to appeal pursuant to Article 78 of the New York Civil Practice Laws and Rules. Id. (ii) The Regulations. Pursuant to Article 15-A, the Director of the Governor's Office of Minority and Women's Business Development has filed "emergency" regulations with the New York Secretary of State. The present regulations, which apply to the DOT, are codified at N.Y.Comp.Codes R. & Regs. tit. 9 §§ 540-544 (1990). These regulations generally expand upon the language contained in Article 15-A.

State agencies, such as the State DOT, which are covered by the regulations are required to submit to the Director of the Governor's Office of Minority and Women's Business Development an "agency goal plan" which sets the goal for the percentage of participation of MBE's and WBE's on contracts issued by the agency along with a justification for the goal. Id. at § 541.2(a). The director may accept, reject or modify the proposed agency goal plan. Id. at § 541.3. The contracting agencies must also establish a W/MBE participation goal for each individual contract. When setting the individual contract goals the agency is to take into account: (1) the scope of the work; (2) the number, type, and availability of WBE's and MBE's in the region of the state where the contract is to be performed; (3) the dollar value of the contract; (4) the percentage of minority group members and women in the population of the region where the contract will be performed; (5) the possible effects of past discrimination in reducing the participation of WBE's and MBE's in state contracts; and (6) the ability of other state agencies to meet their participation goals in a particular region of the state. Id. at § 543.2.

Prime contractors selected as the low bidder must submit a "utilization plan" specifying the WBE's and MBE's which the contractor intends to employ as subcontractors, the amount of money to be paid to the W/MBE's, and a description of the work that these subcontractors will perform. Id. at § 543.3. If the contractor is unable to meet the WBE/MBE participation requirements specified by the agency for the contract, the contractor must submit a request for a waiver. Id. at § 543.3(d). Should the contracting agency find the utilization plan insufficient it must provide the potential contractor with a notice of the deficiency within 20 calendar days from the date the plan was received; the contractor must respond within seven business days. Id. at § 543.4.

Partial or total waivers from the W/MBE participation requirements may be granted by the contracting agency only upon the submission by the contractor of a written request which documents the "good faith efforts" made toward the achievement of the "goal requirements." Id. at § 543.7(a). The regulations do not specify exactly what constitutes a good faith effort on the part of a potential contractor. Instead, a non-exhaustive list of factors to be considered is set out in section 543.8 of the regulations. These factors, among other things, include: (1) whether a completed utilization plan was submitted; (2) whether bid solicitations were placed in general circulation, trade, and minority- and women-orientated publications; (3) whether appropriate WBE's and MBE's listed in the directory of certified businesses received written bid solicitations; (4) the extent to which WBE's and MBE's were available and responded to the bid solicitations in a timely and competitive manner; (5) efforts undertaken by the contractor to restructure the work to increase the likelihood of participation by minority- and women-owned businesses; and (6) whether information was provided to potential WBE's and MBE's which was sufficient to permit them to submit an informed and timely bid. Id.

When the contracting agency determines that the contractor has not documented good-faith efforts toward meeting the W/MBE participation goals the "contracting agency in its discretion may award the contract to the next lower responsible bidder, or to the next most technically qualified or otherwise acceptable proposer, notwithstanding that the disqualified bidder or proposer pursues any [available] remedies. . . ." Id. at § 543.9(a). A disqualified contractor is entitled to an administrative hearing to review the agency's decision. Id. at § 543.9(b). Should the hearing officer find that the agency's decision was arbitrary or capricious then the officer must direct a refund of the bid deposit. Id. at § 543.9(d). However, the hearing officer has no authority to direct the state agency to actually award the contract to the wrongfully disqualified contractor. Id. at § 543.9(e).*fn6 The hearing officer's decision may be appealed to the New York State Supreme Court, Appellate Division. Id. at § 543.9(g). The contracting agency also has the option of imposing a variety of lesser sanctions against a contractor who fails to meet the goal requirements. Id. at § 543.10.

The regulations also provide an opportunity for both the contractor and the contracting state agency to file complaints with the Director of the Governor's Office of Minority and Women's Business Development. Id. at § 543.12. It is not precisely clear what matters may be brought to the director's attention, but it appears that a contractor may request relief from an agency determination to deny a waiver from W/MBE goal requirements or to impose sanctions. Id. at § 543.12(e). Should the director be unable to resolve the complaint the matter may be referred to an arbitrator. The arbitrator makes a report to the director who may accept, reject, or modify the report but only to the extent that no sanction is increased. Id. at § 543.12(f). There is no language in the regulations which permits the director to require the agency to award a contract to a wrongfully disqualified contractor or allows for any sanctions to be awarded against the contracting agency. The director's decision may be appealed in accordance with Article 78 of the New York Civil Practice Law and Rules. Id.

B. The Federal Program

In 1983, Congress enacted a five-year transportation authorization act entitled the Surface Transportation Assistance Act of 1982, Pub.L. No. 97-424, 96 Stat. 2097 ("STAA"). Section 105(f) of STAA states:

To implement the set-aside provisions of STAA, the United States Department of Transportation ("Federal DOT") promulgated extensive regulations codified at 49 C.F.R. part 23, subpart D. New York Highway Law § 85 requires the State Commissioner of Transportation to comply with the Federal Aid Highway and Transportation Acts and regulations promulgated thereunder.

The current transportation authorization act, entitled the Surface Transportation and Uniform Relocation Assistance Act of 1987 ("STURAA"), also contains a provision which targets a portion of the federal funds for "disadvantaged business enterprises" ("DBE's"). Pub.L. No. 100-17, 101 Stat. 132. Section 106(c) of STURAA requires "not less than 10 percent of the amounts" appropriated under the Act to be "expended with small business concerns owned and controlled by socially and economically disadvantaged individuals." Section 106(c) continues to employ the definition of "socially and economically disadvantaged individuals" contained in the Small Business Act, with the exception that women are included as persons presumed to be disadvantaged individuals.

Section 106(c) of STURAA is modeled upon the DBE set-aside program contained in section 105(f) of STAA. The provisions of STAA were, in turn, modeled after section 103(f)(2) of the Public Works Employment Act of 1977 ("PWEA"), 42 U.S.C. § 6705(f)(2). See Senate Report (Environment and Public Works Committee) No. 100-4, 100th Cong., 1st Sess. (1987), U.S. Code Cong. & Admin. News Vol. 2 (1987) (Legislative History) page 76. The minority set-aside provision of PWEA, along with regulations promulgated thereunder, survived a facial equal protection challenge in Fullilove v. Klutznick, 448 U.S. 448, 100 S.Ct. 2758, 65 L.Ed.2d 902 (1980).*fn7

Disadvantaged businesses are small business concerns which are at least 51 percent owned by socially and economically disadvantaged individuals and whose management and daily business operations are controlled by one or more such individuals. Women and designated minority group members (e.g. Black Americans, Hispanic Americans, Native Americans, Asian-Pacific Americans, or Asian-Indian Americans) are rebuttably presumed to be socially and economically disadvantaged. See 15 U.S.C. § 637(d)(3)(C) (Definitional section of Small Business Act incorporated into STURAA); see also 49 C.F.R. § 23.62 (regulation promulgated by Department of Transportation which implements section 106(c) of STURAA). However, other individuals who are not listed as presumptively disadvantaged may also be designated as disadvantaged on a case-by-case basis. Socially disadvantaged individuals are those who have been subjected to racial or ethnic prejudice or cultural bias because of their identity as a member of a group without regard to their individual qualities. Economically disadvantaged individuals are those socially disadvantaged individuals whose ability to compete in the free enterprise system has been impaired due to diminished capital and credit opportunities as compared to others in the same business area who are not socially disadvantaged. See 49 C.F.R. § 23.62 (incorporating definitional language found in 15 U.S.C. § 637(a)(5), (6)).

Recipients of federal highway funds under STURAA, such as the New York State Department of Transportation, are required to establish overall goals for the use of disadvantaged businesses on construction contracts funded with federal monies. 49 C.F.R. §§ 23.64(a), 23.45(g). Unless the recipient receives a waiver from the Secretary, it must expend at least 10% of these funds with small businesses which are owned and controlled by disadvantaged individuals. Id. at § 23.66(a). The recipients and the Federal Highway Administration may, however, set a higher goal. Id. at § 23.64(d); see H.Conf.Rep. No 100-17 100th Cong., 1st Sess. (Joint Explanatory Statement of the Committee of Conference) (1987), reprinted in U.S.Code Cong. & Admin. News Vol. 2 (1987) (Legislative History) page 132. The regulations also require recipients to set goals for the participation of disadvantaged businesses on each individual prime contract funded by STURAA. Id. at § 23.45(g)(2)(ii). These participation goals are to be "practical and related to the potential availability of [disadvantaged businesses] in desired areas of expertise." Id. at § 23.45(g)(1).

Individual contractors must satisfy the disadvantaged business participation requirements or show "good faith efforts" toward meeting the goals in order to be awarded the STURAA-funded contract. Id. at § 23.45(h).*fn8 A recipient may be found to be in noncompliance with STURAA should it fail to obtain approval of its overall goal by the Department of Transportation or fail to meet an approved goal without providing appropriate justification. Id. at § 23.68(a), (b), (c), and (d). A recipient who fails to meet its overall goal, due to the failure of prime contractors to meet their individual goals, is not excused unless the contractor made good faith efforts to comply. 49 C.F.R. Part 23, Appendix A (discussion of section 23.68). Failure to comply with the regulations may result in the withholding of STURAA funds from the recipient in whole or in part. See 49 C.F.R. § 23.68(e)(1); 23 C.F.R. § 1.36.

C.  The New York DOT's Contract Letting Process

The New York State Department of Transportation administers the federal DBE program and the state W/MBE program in a similar fashion. According to the defendants, the State DOT abides by all applicable laws and regulations when administering these programs. See May 3, 1989, Affid. of Flowers par. 5; May 3, 1989, Affid. of Harp passim.

Pursuant to 49 C.F.R. § 23.64(d) (incorporating the requirements of § 23.45(g)) the New York DOT submitted, and the Federal Highway Administration approved, a disadvantaged business participation goal of 17% for fiscal year 1989. May 3, 1989, Affid. of Harp, at par. 15; May 3, 1989, Affid. of Flowers, Exhibit A. According to the defendants, the current overall DBE goal was calculated after considering the availability of DBE's, the level of DBE participation achieved in the previous year, and the type of work to be performed in the coming fiscal year. May 3, 1989, Affid. of Flowers par. 8 and Exhibit A.

The DBE participation goals for individual contracts with subcontracting possibilities are generally set by reference to a DOT-developed table which designates goals depending on the dollar amount of the contract, the location within the state of the work to be performed, and the type of work to be performed. See Plaintiffs' Supporting Exhibits, Exhibit G. Defendants contend that the table is based upon considerations of the availability of DBE's and the recent success or failure or efforts to obtain DBE participation in a particular area of the state. May 3, 1989, Affid. of Flowers par. 9. An identical overall participation goal of 17% has been set by the State DOT for state-funded construction contracts. The same table is used to set individual contract goals on both state and federal projects.*fn9 Defendants assert that D/W/MBE participation goals for both the state and federal programs are re-examined annually. May 3, 1989, Affid. of Flowers par. 10; see 49 C.F.R. § 23.45(g); N.Y.Exec.Law § 313; N.Y.Comp.Codes R. & Regs. tit. 9 § 541.3. The Contract Review Unit ("CRU") of the State DOT is initially responsible for determining whether a low bidder on a contract is "responsible" and therefore entitled to be awarded the contract.*fn10 The low bidder's compliance with federal DBE and state W/MBE participation goals is one factor which the Contract Review Unit takes into account when deciding whether the low bidder is the lowest responsible bidder. See May 3, 1988, Affid. of Harp pars. 25-28. When the CRU finds that a low bidder has not complied with the participation requirements, it notifies the low bidder of the perceived deficiencies, provides some information on how the low bidder can be brought into compliance, and permits the low bidder to appear before it, with counsel, to discuss the relevant issues. This "discussion" effectively serves as an informal hearing. In the notice, the low bidder is also warned that failure to comply with the D/W/MBE requirements without making a showing of good faith will likely result in the contract being awarded to the next low bidder found to be responsible. See May 3, 1989, Affid. of Flowers, par. 21 and Exhibit E; Plaintiffs' Supporting Affidavits, Exhibit F. On State contracts the DOT is also required to cause the forfeiture of the low bidder's bid bond when a showing of good faith is not made. Highway Law § 38(2).*fn11 Defendants assert that the flexibility of the program is demonstrated by the fact that of the $755 million in contracts let by the DOT from April 1, 1988, to March 31, 1989, nearly $255 million were on contracts where the contractor failed to achieve the D/W/MBE participation requirements, yet made a satisfactory showing of good faith efforts.

D. Facts Specific to Plaintiff Harrison

The plaintiff is a New York corporation which is engaged almost exclusively in the business of constructing and rehabilitating bridges as a prime contractor on projects let by the New York Department of Transportation. The plaintiff corporation is owned and operated by white males. It is not disputed that the plaintiff is ineligible to be certified as a minority- or women-owned business under New York's W/MBE program or as a DBE under the federal set-aside program. Plaintiff has consistently bid on State DOT construction contracts and intends to do so in the future.

At the time this motion was originally filed, plaintiff Harrison claimed that it had submitted the low bid on six DOT construction contracts since January 1, 1989. At that time, plaintiff had been awarded two of the contracts while the DOT had yet to make a final determination on the award of the four remaining contracts. April 18, 1989, Affid. of DiStefano pars. 3-4. Plaintiff maintained that awards had not been made on the four outstanding contracts because it had failed to comply with the applicable D/W/MBE participation goals. Plaintiff was the low bidder on the following projects:

SOURCE D252654 1-12-89 $524,680.24
State D252655 1-12-89 739,739.39
State D252678 2-23-89 434,434.43
State D252729 3-23-89 249,249.49
State D500812 3-30-89 1,173,117.31
Federal D252753 4-13-89 306,306.36

See April 17, 1989, Affid. of DiStefano par. 3 and Exhibit M. Since this motion was originally filed the State DOT has made final determinations on all six contracts. The D/W/MBE goal and final disposition of each contract was:

PROJECT       DBE/MBE GOAL       WBE GOAL Disposition
D252654            8%               2%           H & B Awarded
D252655            8%               2%           H & B Awarded
D252678            6%               2%           H & B Awarded
D252729            6%               2%           All Bids
Rejected D500812 12% 2% Denied/Other
Awarded D252753 6% 2% H & B

See May 3, 1989, Affid. of Harp, pars. 36-38; July 6, 1989, Affid. of Harp; August 22, 1989, Affid. of Harp; December 12, 1989, Affid. of Harp, par 1.

There are no state-funded contracts on which plaintiff was ultimately denied the award due to its failure to comply with the State W/MBE participation requirements. Plaintiff was awarded four of the state-funded contracts. A fifth project, D252729, was withdrawn by the State DOT — all bids being rejected. The plaintiff's low bid on the federally funded contract, project D500812, was rejected by the Contract Review Unit on the basis that plaintiff neither met the federal DBE participation requirements nor demonstrated good faith efforts toward achieving those goals. See July 6, 1989, Affid. of Harp, par. 6 and Exhibit C.

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