A Challenge to Maryland's Minority Contracting Laws

Maryland is currently undergoing a significant challenge to the constitutionality of its Disadvantaged Business Enterprise (DBE) contracting laws, which may very well impact the future of Maryland MBE/WBE set aside contracts, particularly those awarded under and in connection with BRAC. The case, Kline v. Porcari, case number 1:08-cv-03197-RDB, is currently pending in the US District Court for the District of Maryland, Baltimore Division.

In the case, Kline was bidding as a prime contractor on a $10 million Maryland Department of Transportation (MDOT) construction project. The solicitation initially contained a 10% goal for DBE participation, but the goal was increased to 30%. Kline used good faith efforts to meet the goal, but selected bids from subcontractors offering the lowest prices to the State, rather than merely basing his choice on DBE qualifications. As a result, Kline’s price was lower by over a million dollars, but Kline was able to achieve only 10.8% DBE participation. After bid opening, but before award, Kline was asked to submit a DBE waiver request – which he did. After nine months, the State denied the waiver request. After some additional administrative proceedings, Kline filed an action in federal court challenging the constitutionality of Maryland’s DBE laws as written and as applied.

The Kline case is worth watching because it will undoubtedly have an impact on future MDOT projects to build the additional transportation infrastructure necessary to support BRAC in Maryland, and whether local minority and woman-owned contractors will benefit from MDOT contracts set aside to increase minority and female participation in Maryland BRAC contracting opportunities.

Maryland is not the only regional jurisdiction facing a challenging to state minority/female contracting statutes, however. The Fourth Circuit Court of Appeals just yesterday issued a ruling partially overturning North Carolina’s H.B. Rowe Co., Inc. v. Tippett, 4th Circuit No. 09-1050 (July 22, 2010).

North Carolina, like Maryland and many other states, has enacted non-mandatory regulations to promote minority and women representation in state construction projects. Specifically, North Carolina encourages state-funded road construction projects to meet Minority Business Enterprise and Woman Business Enterprise (MWBE) program goals of 10% minority-owned and 5% woman-owned subcontractor participation (or, in the absence of MWBE goal attainment, at least demonstrable evidence of good faith efforts towards achieving those goals). In 2002, the appellant, H.B. Rowe Co., Inc. (Rowe), submitted the low bid on a State road construction project. The State rejected Rowe’s bid because it failed to at least demonstrate good faith efforts to achieve the MWBE subcontracting goals. Rowe challenged the State MWBE contracting requirements under the 14th Amendment Equal Protection clause of the U.S. Constitution, among other grounds.

The District Court ruled for the State on all points. On appeal, the Fourth Circuit affirmed, under strict scrutiny standards, the statutory provisions for African American and Native American subcontractors. However, the Court partially reversed the District Court ruling, finding that the State has failed to justify its application of the statutory scheme to women, Asian American, and Hispanic American subcontractors. Rowe won and now the constitutionality of the North Carolina MWBE program, at least with respect to female, Asian American and Hispanic American small business owners, is in doubt. One of the many interesting aspects of this case is that the court refused to accept the presumption, without strict evidence to support it, that woman-owned construction firms face discrimination in the construction industry, of all places.

Cases challenging contracting programs for minority-owned and other small disadvantaged businesses are not limited to the state minority contracting regulations, either. In late 2008, the Department of Defense (DoD) lost its Small Disadvantaged Business (SDB) program, after a disappointed bidder launched a successful constitutional challenge to the program. In Rothe Development Corporation v. Department of Defense, 545 F.3d 1023 (Fed. Cir. 2008), the U.S. Court of Appeals for the Federal Circuit ruled that the DoD SDB program was unconstitutional because Congress failed to adequately justify the program when enacting the legislation authorizing it. To briefly summarize, the DoD has a policy goal to award 5% of its total contracting dollars to small businesses owned and operated by socially and economically disadvantaged individuals. The DoD SDB program permitted DoD to apply a pricing preference to the bids or offers of minority-owned businesses, and other small businesses whose owners that could demonstrate historical social and economic disadvantage. The appellant, Rothe Development Corporation challenged the constitutionality of the SDB program after losing a contract to a Korean-American-owned business, which received the benefit of the 10% price evaluation preference under the SDB program. The Federal Circuit found that DoD’s SDB program was unconstitutional because, when it re-enacted the SDB program in 2006, Congress lacked a “strong basis in evidence” for concluding that race-conscious contracting was necessary to remedy discrimination in the defense industry. The DoD SDB program is still suspended, and will remain so until Congress decides to collect sufficient evidence of historical discrimination the defense contracting industry and re-enact the SDB program.

Do these cases signal the end of federal and state minority contracting programs?

- Heather James

WaPo's Look at the U.S. Intelligence Community

Check out Part 1 of this Washington Post story.

Federal Funding for Ft. Meade and APG Passes a Critical Hurdle

A House subcommittee has approved significant funding for Ft. Meade and APG.

- Brad Aaron

Pax River and the Enhanced Use Lease (EUL) Process

Last month over 100 people, including representatives from the Naval Air Station Patuxent River Naval Facilities Engineering Command, the St. Mary’s County community, and local, regional and national developers, assembled to learn about the Enhanced Use Lease (EUL) being pursued by the Navy for the Naval Air Station Patuxent River. This event -- known as an Industry Forum -- is only one of series of critical steps in the EUL process by which underutilized military land and/or facilities are improved cooperatively with a non-federal entity to develop a project meeting the requirements of the military, its contractors, and the local community. This article will outline the steps in the EUL process with the NAS Patuxent River as an example.

The first step in the EUL process is the identification of the military installation as “underutilized”, meaning that all or a portion of the land or the buildings at the base are not functioning at the highest level. This is in contrast to “excess” property which is not required by the military and may be targeted for disposal. Following identification of a base as containing underutilized property, an analysis is conducted to determine how to obtain the best use and highest value from the facility. In the case of NAS Patuxent River, the study found that EUL would allow for a modern work campus to meet the future expected growth of its work force which is currently housed in substandard space.

After issuance of the preliminary RFQ (Request for Qualifications) describing the required level of experience of the private developer and the general goals of the EUL project, an Industry Forum is scheduled to gauge the extent of interest by private developers. The Industry Forum involves a tour of the site under consideration for the EUL which in the case of NAS Patuxent River includes more than 45 acres on seven parcels throughout the 6,000 acre base. EUL projects may encounter opposition by the local community if the proposed facilities could compete with existing office space in the surrounding community that may be experiencing high vacancy rates. This has become an issue at NAS Patuxent River where local investors, who constructed office space the past 15 years in response to BRAC, could suffer financially as a result of competition from the availability of new office space on-base. Should the local investors decide to mount a challenge to the EUL, they will likely be unsuccessful. Courts have held that, because the EUL statute (10 U.S.C. 2667) grants authority to the military to lease property to private developers, any action taken pursuant to the EUL statute is entirely committed to military discretion. Judicial review of a EUL project based on a challenge to the judgment of the military is, therefore, precluded; although challenges premised upon a violation of the EUL statute or other regulatory law would be subject to review.

Following the Industry Forum, a deadline is set for the submission of developer proposals followed by evaluation and selection. For NAS Patuxent River the deadline for developer proposals is August 30, 2010, and it is anticipated that a selection could occur by year-end. Negotiation of a business and leasing plan with the developer selected ensues concluding with the execution of a lease agreement. Throughout the process, the EUL project undergoes strict review for environmental impact and compliance with the National Environmental Policy Act as well as review by the Office of Management and Budget for budgetary implications. A strict timeline for any EUL project is difficult to ascertain given the unknown factors of the time needed to negotiate with the private developer, assess environmental impact, and provide opportunities for the public to weigh in.

-- Tami Daniel