Local Business Preferences Race-Neutral Affirmative Action After Proposition 209?
By Mara E. Resales
I.
INTRODUCTION
In the late 1980's state and local business participation programs were prevalent in the State of
California, although they typically took the form of minority and women business participation programs.
(See e.g. Associated General Contractors of California, Inc. v. City and County of San Francisco (9th Cir.
1987) 813 F. 2nd 922; Domar Electric Inc. v. City of Los Angeles (1994) 9 Cal. 4* 161,165-166.) By 1989,
in light of the United States Supreme Court decision in Croson v. City of Richmond (1989) 488 U.S. 469,
state and local minority/women business programs began to change (to include other business concerns)
to avoid being struck down by the courts as unconstitutional. (Domar. supra at 166.)
Within two years of the adoption of Proposition 209 in 1996 (codified as California Constitution,
Article I, Section 31 )1 government agencies were compelled to dismantle race and gender conscious
affirmative action programs and policies not required by federal law or federal funding requirements.
A recent study by Chinese for Affirmative Action titled, "Losing Ground: The Impact of Proposition 209 on
Minority and Women-Owned Businesses in California" (Oct. 2003)2, suggests that a well-crafted and
implemented small, local business program may serve some of the policy objectives underlying race and
gender conscious affirmative action legislative efforts.
The purpose of this paper is to identify the likely legal issues government attorneys will face when
or if their public sector clients ask about race-neutral affirmative action, a local business preference
program or a local business program that references race and gender.
II.
THE FATE OF RACE/GENDER CONSCIOUS AFFIRMATIVE ACTION UNDER PROPOSITION 209
Before discussing race-neutral affirmative action it is important to pause and address race and
gender conscious affirmative action: Is it dead after Proposition 209?
The proponents of Proposition 209 would say that any state or local legislative or governmental
classification of persons by race and gender is prohibited by the express terms of Proposition 209. Thus,
they would argue the only affirmative action policy that survives under Prop. 209 is one that is race and
gender neutral, such as one which focuses on disadvantage or local status. The opponents of Prop. 209
would argue otherwise - that not all race and gender specific affirmative action efforts are barred. Both
sides would point to the language of Prop. 209, ballot arguments in support of the initiative and the
1
2
Text of Proposition 209 is attached as Exhibit 1.
Attached as Exhibit 2.
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California Supreme Court's decision in Hi-Voltage Wire Works, Inc. v. City of San Jose (2000) 24 Cal. 4th
537. The opponents of Prop. 209 have the better of the argument, although the safe harbor for
race/gender affirmative action is quite limited.
Proposition 209, codified as Article 1, Section 31 of the California Constitution, provides that state
and local government "shall not discriminate against, or grant preferential treatment to, any individual or
group on the basis of race, sex, color, ethnicity or national origin in the operation of...public contracting."
In Hi-Voltage Wire Works, Inc. v. City of San Jose, supra, 24 CaU^1 at 559-560, the California Supreme
Court defined the key terms of Proposition 209 as follows: '"[Discriminate1 means to make distinctions in
treatment; show partiality (in favor of) or prejudice (against)"...; 'preferential1 means giving "preference"
which is 'a giving of priority or advantage to one person...over others." Applying these definitions to San
Jose's MBE/WBE program, the Court concluded the program was unconstitutional. (Ibid.) However, a
close read of Hi-Voltage reveals not all MBE/WBE policies are unlawful.
A.
BACKGROUND
In 1990, the City of San Jose adopted a MBE/WBE program in response to a disparity study
showing a statistically significant variance in the number and dollar value of contracts and subcontracts
awarded to MBEs and WBEs. The legislative purpose of the program was to encourage nondiscriminatory
subcontracting. (Hi-Voltage, at 542.) After Proposition 209 was passed, San Jose modified its policy and
adopted a "Nondiscrimination/Nonpreferential Treatment Program Applicable to Construction Contracts in
Excess of $50,000 program." The purpose of this program was to "clarify the City's policy of
nondiscrimination and nonpreference in the subcontracting of its construction projects to 'ensure that the
historical discrimination does not continue.1" (Id. at 543) The Supreme Court rejected the City's defense of
its well-intentioned affirmative action efforts, stating at page 560 of its decision:
[San Jose's] Program is unconstitutional because the outreach option
affords preferential treatment to MBE/WBE subcontractors on the basis of
race or sex, and the participation option discriminates on the same basis
against non-MBE/WBE subcontractors as well as general contractors that
fail to fulfill either of the options when submitting their bids.
Although the Court found San Jose's program to be constitutionally prohibited, the Court was
careful not to send the message that all affirmative action policies were unacceptable. As Justice Brown
notes in her majority opinion:
Although we find [San Jose's] outreach option unconstitutional under
section 31, we acknowledge that outreach may assume many forms, not
all of which would be unlawful. (Id. 24 Cal.4th at 565.)
Chief Justice George makes the point most clearly: "[Proposition 209] was not intended to
preclude all governmental affirmative action programs..., but rather was intended to prohibit only those
affirmative action programs that discriminate against or grant preferential treatment to any individual or
group on the basis of race or gender." (Id. at 587.)
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Accordingly, what kinds of race and gender conscious affirmative action policies are permitted?
B.
PERMITTED AFFIRMATIVE ACTION
While the exact parameters of permissible affirmative action are unclear after Hi-Voltage, two types
of programs appear to be within the realm of acceptability.
First, the majority opinion3 suggests Los Angeles' outreach program, addressed in Domar Electric
Inc. v. City of Los Angeles, supra. 9 Cat. 4th.161, is one example of a permissible affirmative race and
gender conscious program (Hi-Voltage at 565.) Although the court does not opine as to the legality of such
a policy it describes Domar as a "pre-Proposition 209 decision upholding city requirement 'mandating
reasonable good faith outreach to all types of subcontractor enterprises,' not just MBEs and WBEs..." (HJ:
Voltage at 565.) Chief Justice George concurring and dissenting, joined by Justice Werdegar, cite the Los
Angeles MBE/WBE/Other Business program as "a good example of a general, nontargeted outreach
program that ordinarily would be considered an affirmative action program." (Id. at 595.)
Second, the California Supreme Court suggests in Hi-Voltage that remedial programs that target
deliberate exclusion of minorities and women may not be prohibited by Proposition 209's language and
intent. (Id. at 568 ["Where the state or a political subdivision has intentionally discriminated, use of a raceconscious or race-specific remedy necessarily follows as the only, or at least most likely, means of
rectifying the resulting injury."].) In a case where MBE/WBE policies are adopted as a remedy for the
deliberate exclusion of MBE/WBEs in public contracting the remedy would not constitute "discrimination
against" or "preferential treatment" as those terms are defined in Hi-Voltage. These types of affirmative
action efforts ensure equal opportunity and fairness to all competitors. (See Hi-Voltage, supra, 24 Cal.4th at
587 [proponents of Prop. 209 state "[programs designed to ensure that all persons - regardless of race or
gender - are informed of opportunities and treated with equal dignity and respect will continue as before".].)
(George, C.J., concur, and dissent opn.)
1.
Government's Constitutional Duty May Require Affirmative Action Efforts.
Even if it were concluded that Prop. 209 prohibits all race and gender conscious public contracting
programs, there are exceptions to Prop. 209 which may allow some of these programs to survive.
Article 1, Section 31, subsection (h) provides:
If any part or parts of this section are found to be in conflict with federal
law or the United States Constitution, the section shall be implemented to
the maximum extent that federal law and the United States Constitution
permit.
What does this provision mean? In Hi-Voltage Wire Works, Inc. v, City of San Jose, the Supreme
Court addressed this provision by considering whether San Jose's MBE/WBE outreach program was
constitutionally necessary under federal law. (24 Cal.4th at 568-569.) The Court made two points relevant
here. First, the Court made reference to government's constitutional duty not to discriminate against
3
The Hi-Voltage majority is: Justices Brown, Mosk, Baxter and Chen.
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MBE/WBEs. (Id. at 568.) The Hi-Voltage Court cited a MBE/WBE ordinance case, Associated General
Contractors of California v. City and County of San Francisco, supra, 813 F.2d 922,929, where the Ninth
Circuit held:
Like the federal government, a state or political subdivision has the authority
- indeed the "constitutional duty" [citations, emphasis in original] - to
ascertain whether it is denying its citizens equal protection of the laws, and if
so, to take corrective steps.
It is well established that where federal law imposes a duty on a local government entity, that duty
trumps any conflicting state law. For example, in North Carolina State Board of Education v. Swann (1971)
402 U.S. 43, (also cited in Hi-Voltage at p. 568) the Supreme Court invalidated a statute that banned racebased student assignments because the ban conflicted with school officials' constitutional duty:
Just as the race of students must be considered in determining whether a
constitutional violation has occurred, so also must race be considered in
formulating a remedy. To forbid, at this stage, all assignments made on the
basis of race would deprive school authorities of the one tool absolutely
essential to the fulfillment of their constitutional obligation to eliminate existing
dual school systems. (Swann at p. 46 [emphasis added].)
The second relevant point made by the Hi-Voltage Court is at page 569 of its decision:
[l]f it were determined the City had violated federal constitutional or statutory
law, the supremacy clause as well as the express terms of Proposition 209
would dictate federal law prevails..." (Id. at 24 Cal.4th 569.)
In light of these statements, it appears that any political subdivision of the state who ascertains that
it is denying its citizens equal protection of the law in its public contracting practices must take corrective
steps to remedy that inequality, consistent with federal constitutional standards set forth in Croson v. City of
Richmond, supra, 488 U.S. 469. In these limited situations, Prop. 209 appears not to apply.
To my knowledge, the City and County of San Francisco is the only public entity in the state which
has based its affirmative action program on findings and evidence of intentional discrimination against
MBE/WBEs. Thus, for most governmental bodies wishing to embark on affirmative action, a race neutral or
local business program is the path to take.
LOCAL BUSINESS PREFERENCE PROGRAMS •• ISSUES TO WATCH FOR
A.
What is a Race-Neutral Local Business Concern?
General Definition: Local business participation programs take different forms. The most
common types have a defined geographical scope (e.g. within the city or county boundaries) and
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have size limitations based on gross annual receipts of the business and/or number of employees.
Some require, in addition, that the business owner be economically and/or socially disadvantaged.
Still others allow that the business be a new entrant or have few years in its trade, industry or
profession. To be considered race and gender neutral, it is preferable that the race and gender of
the business owner not be referenced. However, it is noteworthy (as stated earlier) that the Chief
Justice in Hi-Voltage Wire Works. Inc. v. City of San Jose, supra, 24 Cal. 4th at 594 (George, C. J.
cone, and dissent opn.) has indicated that Los Angeles' Minority/Women/Other Business outreach
program "provides a good example of a general, non-targeted outreach program that ordinarily
would be considered an affirmative action program."
B.
What are the Pros/Cons of a Local Business Policy or Race-Neutral Affirmative Action?
PROS:
> Good for local economy and relationship with local business community.
> If well drafted and implemented, can be a substitute for race/gender conscious
affirmative action.
> Easier for attorneys to draft.
> Easier for attorneys to defend in court.
> Depending on the extent of regulations, not administratively burdensome for local
government or contractors.
CONS:
> Can be viewed as favoritism for local business and thus discrimination for non-local
business, prompting protests and possibly lawsuits.
> Depending on the program requirements, contractors may object by declining to bid on
contracts, reducing competition for contract awards.
C.
What do Local Business Enterprise (LBE) Programs Look Like?
A local business participation program can take many forms. Some examples are:
• a bidding preference in the contract award process for LBEs competing as prime or
subcontractor. (This is more common for contracts which are competitively bid.)
• a rating preference or extra points for LBEs. (This is more common for contracts
which are competitively processed, e.g. professional services contracts.)
• a participation goal, expressed as a percentage of the contract's value, for LBEs.
• a set aside of contracts for competition exclusively among LBEs.
D.
Legal Issues/Authorities
1.
Legal Authority to Adopt Local Business Enterprise Policies and
Requirements: Does the public agency have the legal authority to adopt the LBE
program?
•
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If the agency is a charter city the decision to adopt the program is a "municipal
affair." (R & A Vending Services. Inc. v. City of Los Angeles (1985) 172 Cal.
•
2.
App. 3d 1188,1191-1192; see also Domar Electric. Inc. v. City of Los Angeles
(1995) 41 Cal.App. 4*810,820.)
General law cities may need express statutory authority to adopt a local
business program.
Competitive Process Requirements: Will the adoption of a LBE policy violate
competitive bidding/process requirements?
Statutory requirements that a contract be subject to a competitive bid process may
prevent the adoption of a LBE policy. (See Associated General Contractors of
California v. City and County of San Francisco, supra 813 F. 2nd 922,924-927
("AGC I"). [Ordinance granting LBE bid preference inconsistent with charter
requirement that construction contracts over $50,000 be let to the lowest, reliable
and responsible bidder}; see also Associated General Contractors v. Coalition for
Economic Equity (9th Cir. 1991) 950 F. 2nd 1401,1410 [change in charter language
allows for LBE program].)
3.
Equal Protection Clause: Does a LBE program trigger Equal Protection Clause
concerns?
•
4.
A LBE program, because it is race and gender neutral, is subject to scrutiny
under the "rational basis" test. That is, the program has to be supported by a
legitimate government purpose (e.g. encourage business to move into the
jurisdiction) and the means employed (LBE preference or requirement) has to
be rationally related to the legitimate government purpose. (AGC 1,813 F. 2nd
at 942-944.)
Privileges & Immunities Clause/Commerce Clause Concerns
•
Although less likely to be raised, attorneys should be aware of the privileges
and immunities clause/commerce clause issues that may be implicated by
LBE programs. (See J. F. Shear Co., Inc. v. City of Chicago (7*1 Cir. 1993)
992 F. 2d 745.)
CONCLUSION
While easier to defend in the courts, local business programs can be successfully challenged on
several legal grounds - lack of governmental authority to adopt the program, state or local competitive
bidding requirements and constitutional provisions. Local business participation programs are generally
good for the local economy and for government's relationship with the business community. These
programs, if well drafted to focus on smaller, disadvantaged contractors, may serve as a good substitute for
race and gender affirmative action prohibited by Proposition 209.
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Exhibit 1
§ 31.
Discrimination based on race, sex, color, ethnicity, or national origin;
gender-based qualifications in public employment, education, or
contracting
Sec. 31. (a) The state shall not discriminate against, or grant preferential
treatment to, any individual or group on the basis of race, sex, color, ethnicity,
or national origin in the operation of public employment, public education, or
public contracting.
(b) This section shall apply only to action taken after the section's effective
date.
(c) Nothing in this section shall be interpreted as prohibiting bona fide
qualifications based on sex which are reasonably necessary to the normal
operation of public employment, public education, or public contracting.
(d) Nothing in this section shall be interpreted as invalidating any court
order or consent decree which is in force as of the effective date of this section.
(e) Nothing in this section shall be interpreted as prohibiting action which
must be taken to establish or maintain eligibility for any federal program,
where ineligibility would result in a loss of federal funds to the state.
(f) For the purposes of this section, "state" shall include, but not necessarily
be limited to, the state itself, any city, county, city and county, public university
system, including the University of California, community college district,
school district, special district, or any other political subdivision or governmental instrumentality of or within the state.
(g) The remedies available for violations of this section shall be the same,
regardless of the injured party's race, sex, color, ethnicity, or national origin, as
are otherwise available for violations of then-existing California antidiscrimination law.
(h) This section shall be self-executing. If any part or parts of this section
are found to be in conflict with federal law or the United States Constitution,
the section shall be implemented to the maximum extent that federal law and
the United States Constitution permit. Any provision held invalid shall be
severable from the remaining portions of this section.
(Added by Initiative Measure (Prop. 209, approved Nov. 5, 1996).)
418
Exhibit 2
LOSING GROUND:
THE IMPACT OF PROPOSITION 209 ON MINORITY AND
WOMEN-OWNED BUSINESSES IN CALIFORNIA
Chinese for Affirmative Action
17 Walter ULum Place
San Francisco, CA 94108
www.caasf.org
October 2003
This report was made possible by generous grants provided by
the Akonadi Foundation and
the VanLobelSels/RemebeRock Foundation
Executive Summary
This study evaluates the impact of Proposition 209 and University of California Regents
resolution SP-2 on the ability of minority and women business enterprises to compete for public
contracts. Both measures prohibit public agencies in California from providing affirmative
action to minorities or women in contracting.
Chinese for Affirmative Action compiled a list of public agencies that had repealed or
significantly changed their affirmative action policies in response to anti-affirmative action
measures. For each agency, we requested copies of their (1) current public contracting policies,
(2) contracting policies prior to the passage of Proposition 209 or the UC Regent resolution, and
(3) contract awards by race and gender for a minimum of three years prior and after they
repealed or changed the race- and gender-conscious elements of their affirmative action policies.
The following eight agencies responded: University of California, City of Oakland, Port of
Oakland, East Bay Municipal District, Contra Costa County, City of Sacramento, City of San
Jose, and City of Fresno.
With the exception of Fresno, which stopped collecting race and gender data after it discontinued
its affirmative action policy, the other seven agencies provided contract award information for
limited periods before and after they changed their policies. An analysis of the data found that
these anti-affirmative action initiatives have severely limited contracting opportunities to
minorities and women.
*
Contract dollars awarded to businesses owned by minorities and women fell by 22%
following the repeal of affirmative action programs. This reduction resulted in a loss of
at least $94.5 million per year to these businesses in the period covered by this study.
*
The anti-affirmative action measures appear to have been more harmful to minority
businesses than to women-owned businesses. Of the five agencies that reported
separate numbers for minorities and women, contract awards fell 26% for minorities but
only 7% for women.
*
Agencies can take steps to mitigate the harms of repealing affirmative action policies.
Those which developed small business programs or maintained outreach requirements
experienced the least decline in participation by minority- and women business
enterprises. Of the agencies studied in this report, Proposition 209 had the least effect
on the Port of Oakland and East Bay Municipal Utility District (EBMUD). The Port saw
a small rise in the percentage of contract dollars awarded to minorities and women after
suspending its race- and gender-conscious policy, while EBMUD experienced a similar
increase for women. Both agencies attributed their performance to the adoption of
programs designed to increase participation by small and local businesses as well as
aggressive outreach requirements.
The following report provides a detailed analysis of the impact of Proposition 209 and the UC
Regent resolution on individual agencies and discusses how other agencies can learn from the
successful programs at the Port of Oakland and EBMUD.
INTRODUCTION
In November 1996, California voters passed Proposition 2091 to amend the California
Constitution to prohibit preferences based on race, ethnicity, or gender in public sector
education, employment and contracting. Initially enjoined from implementation by court order,
the initiative did not go into effect until August 1997.
Although proponents of Proposition 209 originally claimed that this initiative would not
eliminate affirmative action, most government agencies in California responded by dismantling
such policies. In November 1998, Chinese for Affirmative Action and Equal Rights Advocates
released a study entitled, Opportunities Lost, analyzing Proposition 209's impact during its first
year of implementation.2 The study surveyed 68 government agencies across California,
including state agencies, local governments, higher education institutions, and school districts, to
find out how they were responding to the new law and the impact of these changes on people of
color and women. We found that most government agencies were in the process of repealing
affirmative action programs not required by federal laws or funding requirements. The study
concluded that Proposition 209, combined with court actions and policy changes, had "begun to
seriously erode the gains made by minorities and women in California."3 As a follow up to the
Opportunities Lost report, CAA began to conduct this study in 2001 to focus specifically on
Proposition 209's effects on public contracting. The following is a report of that study and also
includes analyses on quantitative data that were not available in 1998.
PUBLIC CONTRACTING
Every day, state and local agencies contract with private businesses to carry out
government's work. The state may hire a construction company to build a highway or an
architect to design a new office building. Governments regularly purchase office supplies and
equipment, and they also hire consultants of all sorts. With California's changing demographics,
an increasing number of privates businesses are operated by minorities and women. The Census
Bureau reported that as of 1997, minorities and women combined to operate 1,219,158
businesses in California, approximately 48% of the state's privately-owned firms.4 Yet, these
firms have received only a small portion of government contracts. For example, in 1996, the
California community colleges awarded approximate 4.8% of contracts to minority business
enterprises (MBEs) and 4.6% to women business enterprises (WBEs). A similar report from the
California Department of Transportation in the mid-1990s indicated MBEs and WBEs received
11% and 5% respectively of the total contract dollars. Unfortunately, more recent data from
state agencies is unavailable. In 1995, former Governor Pete Wilson ordered state agencies to
stop compiling contract awards by race and gender. A recently passed bill, AB 1084, restores
data collection of state contract awards but has yet to be fully implemented.
There are many reasons for the low contract award rates to MBEs and WBEs, but a
primary cause is the difficulties these firms face in gaining equal access to government contracts.
Studies have found that minorities and women often face discriminatory barriers in competing
for government contracts. These barriers include access to information about bid opportunities,
prime contractors who reject low bids from MBE or WBE subcontractors, and government
officials who manipulate the contracting process to by-pass competitive bidding requirements or
favor contractors who have political or social connections with the agency.5 Although
government contracts are supposed to be awarded based on competitive bids, there are a number
of loopholes in these laws that provide government officials with a great deal of discretion. The
controversy arising from the $95 million software contract awarded by the State of California to
Oracle in 2001 illustrates how even very large government contracts can be awarded without
going through a competitive bidding process.6
Most public contracting affirmative action programs try to respond to these inequities.
Under a 1989 United States Supreme Court decision,7 local and state governments can adopt
race-conscious public contracting programs only in response to documented discrimination.
Typically, government agencies spend years studying their procurement systems before
developing affirmative action policies. Even if these policies are crafted in response to
discrimination, they must be narrowly tailored to address only specific conditions. Agencies are
prohibited from using any forms of quotas, and affirmative action programs are only available to
qualified contractors. At the time Proposition 209 took effect, most affirmative action public
contracting programs simply required that prime contractors make good faith efforts to meet
MBE and WBE participation goals. Prime contractors could either meet the participation goals
or demonstrate they had made outreach efforts in compliance with state law.8 Approximately
twenty local governments were using some version of a "good faith efforts" program prior to the
passage of Proposition 209, and state agencies were also implementing similar programs.9
Because most public contracting programs were enacted in response to documented
discriminatory conditions, many minority and women contractors and civil rights advocates
feared that Proposition 209 would result in reduced and unequal access to public contracting
system throughout California. In Opportunities Lost, we describe a number of anecdotal
observations by contract compliance officers and MBEs and WBEs on the chilling effects of the
new law. Even in the first year after Proposition 209 took effect, these firms were receiving less
opportunities to bid, and contract compliance officers reported resistance by prime contractors to
conduct outreach.
For instance, Carolyn Garrety, president of Continental Building Specialty Co. in San
Francisco reported the number of bid requests that she received from prime contractors went
from 50 down to 2-3 requests per day. Similarly, Lisa Campbell, a Southern California
environmental cleanup contractor, reported that prime contractors were no longer even sending
her information on business opportunities. After Proposition 209, explains Campbell, "I'm lucky
to get two [bid requests per week]. Maybe, on a good week, five, and that's it. And there are
weeks that go by when we get nothing. And it's not that the work's not out there. There's plenty
of work."10
This current study goes beyond personal anecdotes to evaluate how Proposition 209 and
related anti-affirmative action policies in California have affected public contract awards to
MBEs and WBEs. We sought contract award data from public agencies that changed their
programs in response to these measures. In addition, we tried to identify innovative practices or
new strategies that have helped MBEs and WBEs maintain access to public contracting systems
despite the rollback of affirmative action.
METHODOLOGY
We initially compiled a list of California state and local government agencies that
operated affirmative action contracting programs prior to the passage of Proposition 209 and a
similar resolution, SP-2, adopted by the University of California Regents in 1995." We then
sent public records requests to those agencies that significantly changed or repealed race- and
gender-conscious elements of their programs. For each agency, we requested copies of their (1)
current public contracting policies, (2) contracting policies prior to the passage of Proposition
209 and UC Regent resolution, and (3) contract awards by race and gender for a minimum of
three years prior and after they repealed or changed the race- and gender-conscious elements of
their affirmative action policies. After a number of follow-up letters and phone calls, the
following eight agencies responded to our request:
•
•
•
»
•
•
•
•
University of California
City of Oakland
Port of Oakland
East Bay Municipal District (EBMUD)
Contra Costa County
City of Sacramento
City of San Jose
City of Fresno
Of these agencies, the City of Fresno did not provide any data because it had stopped
tracking contract awards by race and gender after it eliminated its affirmative action program.
The responses of other agencies varied. The University of California and EBMUD provided the
most complete data describing the participation of MBEs and WBEs across different types of
contracts. A growing number of agencies, including Contra Costa, San Jose, and City of
Oakland, compiled this information only for construction contracts. Despite the limited response
to our public records requests, the aggregate contract dollars awarded by the agencies analyzed
in our study totaled over $9.4 billion, providing a relatively robust sample size.
To evaluate the impact of Proposition 209, we compared contract award rates for MBEs
and WBEs in the years in which these public agencies operated affirmative action programs to
those years after the race- and gender-conscious elements had been suspended or were
significantly modified. The timing of when these changes occurred differs by agency. For
example, the University of California was the first to eliminate its affirmative action contracting
program in 1995. But many of the other agencies did not change to their policies until 1998 or
later. We will discuss the general findings of this evaluation followed by a more detailed
analysis by agency.
GENERAL FINDINGS
•
Contract dollars awarded to MBEs and WBEsfell by 22% after government agencies
repealed or changed their affirmative action programs. This reduction resulted in a
loss of at least $94.5 million per year to MBEs and WBEs in the period covered by this
study. Combining data from the seven studied agencies, the dollar amounts awarded to
MBEs and WBEs dropped sharply after these agencies eliminated race- and genderconscious elements from their public contracting programs. MBEs and WBEs were
awarded 17.6% of the contract dollars in the pre-Proposition 209 period compared to
13.7% after the initiative took effect, a drop of 22%. Assuming that contract award rates
for MBEs and WBEs would have remained at the same level as in the pre-Proposition
209 period, this decline resulted in an annual loss of approximately $94.5 million to firms
owned by minorities and women who contract with these seven agencies. Since the
agencies studied in this report represent only a small segment of the total public
contracting dollars available through state and local governments, the real loss caused by
Proposition 209 is probably much greater.
•
Proposition 209 appears to have been more harmful to minority businesses than to
women-owned businesses. Of the five agencies that reported separate numbers for
minorities and women, contract awards fell 26% for MBEs but only 7% for WBEs. The
primary source of this difference appears to be in construction, where WBEs did not
experience a significant drop off in contract awards. As discussed below, it is unclear
why Proposition 209's impact on WBEs was different relative to MBEs.
•
Agencies that developed successful small business programs or maintained outreach
requirements experienced the least decline in participation by minority- and women
business enterprises, and in some situations actually experienced increases. Of the
agencies studied in this report, Proposition 209 had the least effect on the Port of Oakland
and EBMUD. The Port saw a small rise in the percentage of contract dollars awarded to
MBEs and WBEs after suspending its race- and gender-conscious policy policy, while
EBMUD experienced a similar increase for WBEs. Both agencies attributed their
performance to the adoption of programs designed to increase participation by small and
local businesses as well as aggressive outreach requirements.
•
A number of government agencies have either stopped or limited the collection of race
and gender data on contract awards after Proposition 209 took effect. Proposition 209
does not require government agencies to change the manner in which it collects race and
gender data,12 yet some agencies either stopped or curtailed their data collection efforts at
the same time that they cut back their affirmative action programs. These changes have
made it increasingly difficult to assess the ability of minorities and women to compete for
public contracts, and whether the discriminatory conditions that were supposed to be
addressed by the pre-Proposition 209 affirmative action programs still exist. Below is a
description of some of the ways in which government agencies have limited their
reporting of MBE and WBE information:
> The City of Fresno stopped compiling race and gender data after it eliminated its
affirmative action program.
> Only two agencies, EBMUD and the City of Oakland, provided us with ethnic- or
race-specific data (i.e., data broken down by the contract dollars awarded to African
American, Asian Americans, Latino, etc.). Because data from these two agencies
represented a relatively small sample size, this study is unable to assess the effects of
Proposition 209 on any specific racial group or whether there are differences across
groups.
> The City of Oakland, San Jose, and Contra Costa County only provided race and
gender data for construction contracts and not for services or supplies contracts.
> Two agencies (Sacramento, and San Jose) reported only combined MBE and WBE
contract awards, making it impossible to assess whether the impact of Proposition
209 differs between minorities and women at these agencies.
AGENCY SPECIFIC FINDINGS
University of California
The University of California (UC) provided four years of contract award data, including
one year before the UC Regents' anti-affirmative action resolution, SP-2, took effect in 1996 and
three years thereafter. Prior to 1996, UC's procurement staff had the discretion to set
participation goals for minority- and women-owned firms on large contracts and to require prime
contractors to make good faith efforts to utilize them.
Businesses owned and controlled by racial minorities which meet the small business
thresholds in the regulations promulgated by the Small Business Administration are categorized
by UC as "Disadvantaged Business Enterprises" or DBEs. Although non-minority owned firms
can theoretically qualify for DBE status if they demonstrate compelling reasons for being treated
as a disadvantaged business, interviews with UC contract compliance staff confirmed that there
were very few non-minority firms in this category. Accordingly, we treated firms within UC's
DBE category as the equivalent to minority-owned businesses.
UC receives a number of federal contracts, some of which require that the university
implement affirmative action in its purchases and procurement of services. To minimize the
impact of any federal affirmative action requirements, we excluded from our study all of the
contracts awarded by UC national laboratories (e.g., Los Alamos, Lawrence Livermore, etc.)
because much of their funding is from federal sources. To the extent that we were unable to
exclude other federally funded contracts, our study probably understates the negative impact of
UC's affirmative action ban on MBEs and WBEs since a number of UC's federal contracts may
require that the university continue to conduct outreach to minorities and women.
Table I: University of California Average Annual Aggregate Contract Awards
and Amounts Awarded to Minority and Women Business Enterprises
DEE
(Before SP2
FY95J
After SP2
(FY97-00)
% Change in
Contract Awards
$1,715,956,706
10.2%
,234
$1,964,517,614
6.5%
WBE
$99^040^651^
5.8%
$108,354,439
5.5%
-36%
-7%
7l67
Table II: University of California Average Annual Construction Contract Awards and
Amounts Awarded to Minority and Women Business Enterprises
Total $
Before SP2
(FY95)
After SP2
(FY97-00)
% Change in
Contract Awards
$418,220,323
$392,977,419
DBE
$54,258,354
13,0%
$29,289,698
7.5%
WBE
$19,856,519
4.7%
$23,253,660
5.9%
-42%
+26%
Table III: University of California Average Annual Design Contract Awards and
Amounts Awarded to Minority and Women Business Enterprises
Total $
[Before SP2
FY95)
After SP2
(FY97:pQ)
% Change in
Contract Awards
$73,430,692
31.9%
WBE
$8,329,321
11.3%
$3,789,970
$88,188,178
-87%
-62%
Table IV: University of California Average Annual Purchasing Contract Awards and
Amounts Awarded to Minority and Women Business Enterprises
* ' ?'
Before SP2
(FY95)
After SP2
(FY97.00)
% Change in
Contract Awards
Total $
$1,224,305,691
$1,483,352,017
DBE
.*<&< •
$97,495,365"
8.0%
;
$91384,838"""""
6.5%
-19%
WBE
$70,854,811
5.8%
$81,310,810
5.5%
-7%
Tables I - IV summarize the impact of UC's affirmative action ban on public contracting.
Table I shows the aggregate contract dollars awarded in the last year that UC was allowed to use
affirmative action compared with the years following its ban. Total contract dollars awarded to
DBEs fell by 36%. Contract dollars awarded to WBEs also fell but by only 7%.
Tables II to IV show contract awards to DBEs and WBEs by three categories:
construction, architectural/engineering design, and purchasing. DBEs experienced contract
losses on all categories, but the declines were most severe in the construction-related industries.
Contract awards to DBEs went down by an astounding 87% in the design category and 42% in
construction. WBEs also experienced a large decrease in design contracts (-62%), but relatively
little change in purchasing and a surprising increase of 26% in construction contract awards.
The declines in contract awards to MBEs in construction and design contracts were not
surprising given the well-documented history of discrimination against minorities in these
industries.13 However, the magnitudes of the change were extremely large and appear to
corroborate the experiences of MBEs who described in our earlier Opportunities Lost report of
how they were receiving little or no information about bidding opportunities from prime
contractors. Because UC awards relatively large contracts, most DBEs and WBEs participate in
construction projects through subcontracts. In public works projects, prime contractors often
subcontract up to 50% of their total work to smaller firms. Since UC no longer requires prime
contracts to conduct outreach to DBEs to inform them of subcontracting opportunities, these
firms have little chance of working on university projects.
The most surprising finding was that contract awards to WBEs increased by 26% after
affirmative action was prohibited by the UC Regents. We were puzzled by this finding and
interviewed UC contract compliance staff to try to understand why participation by women
actually went up in the construction industry. Although several possible explanations were
suggested, we were unable to confirm any of them. For instance, contract compliance staff
members pointed out that in recent years, a growing number of construction firms are owned by
married couples in which the woman owns a 51% share of the business, thereby allowing these
firms to identify as a WBE. Without questioning the legitimacy of these business arrangements,
some staff suggested that the WBE increase in construction contracts between 1997 and 2000
may have been due to changes in the legal status of businesses rather than an actual increase in
contract awards to firms that are exclusively owned by women. Because UC uses a "selfcertification" system, whereby the university accepts information about the racial or gender
identify of businesses without any corroborating information, it is difficult to evaluate the
validity of this observation without conducting an extensive investigation of the firms that have
self-identified as WBEs. Ultimately, we were unable to obtain data from UC to confirm or
disprove this theory.
East Bay Municipal Utility District
Prior to Proposition 209, EBMUD had a policy that required contractors to make good
faith efforts to meet MBE and WBE goals for large contracts. Under this program, prime
contractors were required to either meet specific goals for a contract or demonstrate that they had
made good faith efforts to recruit and utilize MBEs and WBEs as subcontractors.
Table V: EBMUD Average Annual Aggregate Contract Awards
and Amounts Awarded to Minority and Women Business Enterprises
fl/WBE Program
(FY96-98)
IE Program
(FY99-01>
|% Change in
Contract Awards
.
$23329^74-
$128,025,304
$128,762,000
WBE
$8,516,916
18.1%
$17>88,684
14.0%
$9,330,074
7.2%
-23%
+7%
6.7%
Table VI: EBMUD Average Annual Construction Contract Awards and
Amounts Awarded to Minority and Women Business Enterprises
MBE
WBE
$10,107*977
$2,140,622
Total $
M/WBE Program
(FY96-98)
CE Program
(FY99-01)
% Change in
Contract Awards
$48,483,338
20.8% !
4.4%
$7,4087850
$48,916,654
$2,950,009
15.1%
.
-27%
6.0%
+36%
Table VII: EBMUD Average Annual Purchasing Contract Awards and
Amounts Awarded to Minority and Women Business Enterprises
Total $
M/WBEiProg ram
(FVflffJ)
CE'1?rogram
(FY99r01f 3
%c)i|55f?in^"" "
ContrletlAwards
a:^
'
-7( ',"' ''t'irV-t. K " '
, Msec/-
'""'$5,0897742'
ii.i%
$42,006,271
WBE
""i:r
$3>69,44«;"*~""
aS.lW1" "
$43,785,143
:
i -25%
$3PJ05~7 eg
7.4%
$27932,513
6.7%
-10%
Table VIII: EBMUD Average Annual Professional Service Contract Awards and
Amounts Awarded to Minority and Women Business Enterprises
;
ifl/WBE Prd'gram
(f Yjle^SJ
2E Program
FY99-01;)
% Change in
Contract Awards
. -!?*§!-!_
$37,811,325
$36,060,202
.
MBE ^
$7,977,565
21.1%
$6,610,211
18.3%
-13%
WBE
$3,305,726
8.7%
$3,473,686
9.6%^_
+3%
EBMUD's affirmative action policy remained in effect until mid-1998. On August 1,
1998, EBMUD adopted a new "Contract Equity" program, which requires prime contractors to
conduct outreach to women, minorities, and white contractors to inform them of bidding
opportunities. Under the policy, EBMUD staff can set race and gender participation goals for
large contracts. However, a firm cannot be denied a contract for failing to meet these goals so as
along as it conducts the required outreach to all potential groups.
As part of its new program, EBMUD also adopted a policy to increase small businesses
in its contracting. Under the policy, small businesses are eligible for a 5% bid preference when
competing against a non-small business. In addition, EBMUD staff can set aside up to 25% of
the contracts below $500,000 for bidding by only small businesses.
Table V summarizes the impact of the new program on MBEs and WBEs. While
contract dollar awards to MBEs fell by 23%, WBEs actually experienced an increase of 7%.
Tables VI-VII shows that MBE participation declined across all contract categories, with the
largest drop occurring in construction. In contrast, WBE participation increased by 36% in
construction and by a small amount in professional services contracts. WBE received fewer
purchasing contracts after the program was modified but the decline was again smaller than that
experienced by MBEs.
EBMUD believes that the relatively good performance by WBEs under its new Contract
Equity program can be attributed to its aggressive outreach and small business requirements.
While the agency's performance in this area is impressive, the new program has not worked
nearly as well for MBEs. The EBMUD results, combined with the findings from UC, suggest
that the removal of affirmative action policies from public contracting may have had a more
severe impact on minorities than women.
Port of Oakland
Prior to the passage of Proposition 209, the Port of Oakland also required prime
contractors to meet MBE and WBE goals or demonstrate good faith efforts. On October 7, 1997,
the Port repealed the race- and gender-conscious goals program and instead adopted a Small
Local Business Utilization Policy with the following key elements:
1.
2.
Construction Preference Points: The Port allots preference points based on the percentage
of work being performed by small construction contractors (regardless of race or gender)
located in either the Local Business Area (Alameda and Contra Costa County) or the
Local Impact Area (Oakland, San Leandro, Emeryville and Alameda) for a maximum
total of 10% points. These points are then translated into a bid discount, to be applied
when determining the lowest responsible bidder.
Consultant Preference Points: The Port allots preference points for the percentage of
work being performed by small business consultants located in either the Local Business
Area (Alameda and Contra Costa County) or the Local Impact Area (Oakland, San
Leandro, Emeryville and Alameda) and for community involvement for a maximum total
of 15 points. These points are added to a maximum of 85 technical points for a composite
maximum of 100 points in evaluating consultant proposals.
10
3.
Small Business Projects: Smaller construction contracts can be set aside for bidding by
small businesses. These projects are selected by the Port's staff and are approved by the
Board of Port Commissioners.
In addition, the Port also had a strong outreach program, requiring prime contractors to
inform firms owned by minorities, women, and white males about bidding opportunities.14
Table IX: Port of Oakland Average Annual Aggregate Contract Awards
and Amounts Awarded to Minority and Women Business Enterprises
*-• f > ^Ip^fl ' *v ^ " ^ "
?"
^| :i£
t
MBE
Total $
WBE
$8,130,509
$1,107,633
;iefom<F!r$3<&) - |
$36,758,067
3%
22.1%
$34,981,065
AfterN[FtM-Of|*
,
$4,654,817
$140,246,050
24.9%
3.3%
••I:
1
% ,Cr|attge j|v
Contract Awards
+13%
+10%
Table X: Port of Oakland Average Annual Public Works Contract Awards and
Amounts Awarded to Minority and Women Business Enterprises
"f ••'' • s.^ * -^
s
y^-
^
Total $
«efo|6£(Fir|a|97)
$23,573,063
:
MBlf3tlv's
$18,356,997
'19.7%-'
WBE
$113,590
0.5%
$489,709
0.5%
: -11%
0%
- <$5,i9,8lirtv:
' '""' 22:<i3G •---„
After (FY98-01K
93,129,803
% Change in
Contract AWards
Table XI: Port of Oakland Average Annual Consulting Contract Awards and
Amounts Awarded to Minority and Women Business Enterprises
Total $
' - • ' • ' ->Sv.![|BBv;
Before (FY93-97)
$13,185,004
After (FYS8-99f 99*
0000-01)*
% Change in
Contract Awards
$47,116,247
:
$2,l3l|830
22*2%
$16,624,068
35.3%
WBE
$994,043
7.5%
$4,165,108
8.8%
+59%
+17
*No data were available for consulting for FYOO
Tables IX to XI summarize the impact of the Port's new policies in the areas of
construction and consulting contracts. Overall, the policies appeared to be very effective in
maintaining access by MBEs and WBEs during a period of strong economic growth for the
agency. The amount of contracts let by the Port increased over fourfold over the course of the
1990s, as Oakland's Port and Airport expanded and required extensive construction-related
11
services. The data indicates that MBEs and WBEs were able to benefit from the Port's
expansion activities. The proportion of contracts awarded to MBEs increased by 13% and
WBEs by 10% under the Port's new race- and gender-neutral policies. MBEs and WBEs saw
most of this increase in professional service contracts, where their participation increased by
59% and 17% respectively. The performance in construction was less impressive. MBEs
experienced a slight decline in construction contract awards. While WBE participation rates
remained at the same level, women-owned construction firms received less than 1% of all
construction contracts in both periods.
City of Oakland
The City of Oakland provided data only for construction contracts. Prior to Proposition
209, the City also had a policy of requiring construction prime contractors to either meet race
and gender participation goals or to make good faith efforts to utilize MBEs and WBEs. This
policy was suspended in 1997, when the City adopted a small business program that provides
local, small businesses with a bid preference of 5 percent.
Table XII: City of Oakland Average Annual Construction Awards and
Amounts Awarded to Minority and Women Business Enterprises
Total $
Before
(FY94-96)
After""""""
(FY98)
% Change in
Contract Awards
^47^280,671
$64,795,211
; :^|/|Bi:I*
"T^ajJaStSTiF'""
'^-v ?43.4% f x ;
'
: $!ij547,(fl4'
_,iw&jyi_
* -30%
WBE
$2,282,615
4.8%
$1,430,142
_2.2%
-54%
Table XII shows that both MBEs and WBEs experienced relatively large declines in
construction contract awards after the City eliminated its affirmative action policy. However, it
should be noted that MBE participation rates in construction were very high both in the pre- and
post- periods. Even under the new race-neutral contracting policies, MBEs won almost one-third
of the City's construction contracts, a rate that is higher than any other agencies evaluated in this
study.
Contra Costa County
Contra Costa suspended its goals and good faith efforts program shortly after Proposition
209 took effect in 1997. At the time of our research, the county's public contracting programs
have been completely race- and gender-neutral, and the county has not adopted any additional
outreach or small business requirements.
In response to our public records request, Contra Costa County provided data for
contracts awarded in construction, purchasing and services categories for the period before it
repealing its affirmative action policy. Since repealing its affirmative action policy, the county
has stopped collecting data on contract awards outside of construction. Therefore, the only data
available for comparing performance before and after the suspension of the county's affirmative
action policy is in construction.
12
Table XIII:
Contra Costa County Average Annual Contracts by
Contract Type, Race & Gender
(in $millions)
Before (94-96)
After (97-98*)
% Change in
Contract Awards
Construction
Total MBE WBE
7.5
1.8
0.7
25%
9%
3.7
0,7
0.2
18%
-28%
Purchasing
Total MBE WBE
20.9
0.02 0.004
0.1%
0%
rt/a
n/a
n/a
Prof./Personal Services
Total
MBE
WBE
40.9
0.05
0.11
0.1%
0.3%
n/a
n/a
n/a
5%
-44%
Table XIII summarizes the county's performance over a three-year period. Even with an
affirmative action policy in place, the county awarded only a handful of purchasing and servicerelated contracts to MBEs and WBEs during the two years leading up to Proposition 209.
Participation rates for MBEs and WBEs were close to zero across these categories.
The county's performance was considerably better in construction in the pre-Proposition
209 period, with MBEs and WBEs receiving approximately 25% and 9% of the total contract
awards. Since suspending its affirmative action policy, the county has experienced a 28%
contract award drop for MBEs and 44% for WBEs.
City of San Jose
San Jose provided only construction data for this study. Like the other agencies, prior to
Proposition 209, San Jose required construction prime contractors to either, meet race and gender
participation goals, or to make good faith efforts to utilize MBEs and WBEs. Shortly after
Proposition 209 was adopted in November 1996, San Jose modified its policy to require that
prime contractors need only demonstrate they had contacted MBEs and WBEs and provided
them with information about bidding opportunities. After this policy was struck down by a court
decision in 1997 for violating Proposition 209, San Jose's contracting practices have been
completely race and gender neutral. At the time of our research, it did not operate any programs
requiring targeted outreach or provide preferences for small businesses.
Table XIV shows that Proposition 209 has had a severe impact on the ability of MBEs
and WBEs to obtain construction contracts. Contract awards to MBEs and WBEs fell by 86% in
the period after San Jose eliminated its affirmative action policy. Minorities and women won
only 2.5% of all construction contract dollars awarded by the city in the three years after it
adopted its new policy.
Unlike most of the agencies in this study, San Jose does not track the participation rates
of MBEs and WBEs separately. Instead, the city only reports the combined contract awards to
minorities and women as one figure. As we have discovered in analyzing the results of the other
agencies, the impact Proposition 209 can differ between MBEs and WBEs. Unfortunately, given
13
limitation of San Jose's data, it is impossible to evaluate whether such differences exist within
the city's contracting system.
Table XIV: City of San Jose Average Annual Construction Awards and
Amounts Awarded to Minority and Women Business Enterprises
Before (FY94-97)
Total $
$63,483,722
After (FY98-01)
$76,056,616
% Change in Contract
Awards
r -86%
City of Sacramento
The City of Sacramento had established a comprehensive affirmative action policy in
1994 that both provided bid preferences to MBE and WBE prime contractors and required other
prime contractors to make good faith efforts to utilize MBEs and WBEs as subcontractors. In
1997, Sacramento amended the program to eliminate the bid preferences. In March 1999,
Sacramento repealed the remaining race- and gender-conscious elements of its program and
established an "Emerging and Small Business Development Program." The new program
provides a 5% bid preference to small businesses and allows procurement officials to set aside
contracts for exclusive bidding by small businesses.
We had a great deal of difficulty obtaining data from Sacramento. Numerous public
records requests were made both in writing and by telephone. We eventually received useable
data in the areas of purchasing and services contracts. However, we were unable to obtain MBE
and WBE contract data for construction in the period after the city suspended its affirmative
action policy.
Table XV: City of Sacramento
Average Annual Purchasing and Services Contract Awards and
Amounts Awarded to Minority and Women Business Enterprises
M/WBE Program (FY94*
98) ,
, •><>
I
E/S8EProgram (FYQO-
Total $
18,981,281
J,tl|847
37,804,588
ijN 9,541
% Change Ji Contract
Awards
-41%
Table XV summarizes the impact of Proposition 209 on purchasing and services contracts.
These categories were combined in the data provided by the city, making it impossible to
determine whether there are differences in participation rates between different types of
contracts. In addition, Sacramento also combined the data for MBE and WBE into one figure so
14
that we were unable to evaluate any differences between minorities and women. These data
limitations prevent us from conducting any in-depth analysis of Sacramento's contracting
practices. However, consistent with the overall trend, Sacramento also experienced a large
decline in contract awards provided to MBEs and WBEs after it repealed its affirmative action
policy.
DISCUSSION OF FINDINGS AND POLICY RECOMMENDATIONS
Our study evaluating the impact of Proposition 209 and related policies on public
contracting found several disturbing trends.
First, contract awards to MBEs and WBEs have declined significantly since Proposition
209 took effect. These contract awards decreased by an average of 22% in the period after a
public agency dismantled its affirmative action policy. Assuming that contract award rates for
MBEs and WBEs had remained at the same level as in the pre-Proposition 209 period, this
decline translates into a loss of almost $100 million annually to MBEs and WBEs in the seven
agencies analyzed in this study. However, our study also suggests that there are steps public
agencies can take to limit the harmful impact of Proposition 209. The results of the Port of
Oakland and EBMUD programs demonstrate that the combination of extensive outreach and the
development of small business programs can help maintain access for minorities and women.
Second, the decline in contract awards to MBEs was significantly higher than for WBEs.
Contract awards to MBEs fell by an average of 26% compared to 7% for WBEs.
Third, a number of government agencies have stopped or limited their collection of
contract award data, making it difficult to evaluate the impact of various anti-affirmative action
policies and to develop policy recommendations for addressing possible barriers faced by
minorities or women. The City of Fresno stopped collecting race and gender related data
altogether after it suspended its affirmative action policy. Similarly, Contra Costa County
stopped collecting the data on its non-construction contracts. In addition, several agencies only
report combined information about MBEs and WBEs making it impossible to evaluate the
effects of Proposition 209 on any specific racial group or whether the effects differ by gender.
These findings lead us to make the following recommendations:
Government agencies should consider adopting outreach, small business programs and
other policies consistent with Proposition 209 to ensure that MBEs and WBEs have equal
access to public contracts. After Proposition 209 passed, a number of government agencies
simply dismantled their affirmative action policies without adopting other measures to ensure
equity in their public contracting systems. Our study shows that the decline in contract awards to
MBEs and WBEs was particularly severe at these agencies. Even with Proposition 209 in effect,
all public agencies still have a duty to ensure that their contracting systems are open, fair and do
not discriminate based on race or gender.
15
The experiences of the Port of Oakland and EBMUD demonstrate that there are effective
methods of opening up public contracting systems to minorities and women in a manner
consistent with Proposition 209. In particular, the combination of requiring prime contractors to
conduct broad and extensive outreach and developing programs to increase small business
participation were particularly effective. While the outreach and small business development
policies are race and gender neutral, they help inform qualified MBEs and WBEs of contracting
opportunities and allow smaller firms to gain access to public contracts. Programs that target
small businesses are also effective in reaching MBEs and WBEs because the vast majority of
them small in size.
In the past, some public agencies were reluctant to adopt such program because of
concerns that providing small businesses with bid preferences would violate competitive bidding
laws. However, recent changes in state law make it clear that state and local agencies have
authority to enact programs aimed at increasing small business participation in public
contracting. AB 1084, authored by Assembly Speaker Herb Wesson and signed into law in
2001, specifically allows local agencies to use bid preferences and set aside contracts for small
businesses. Given the effectiveness of these programs and the clear legal authority, state and
local agencies should develop effective outreach and other policies that encourage greater
participation in public contracting.
Government agencies should continue to monitor and collect data on MBE and WEE
participation in public contracting. State and local agencies should continue to collect data on
their utilization of MBEs and WBEs and publish this information on a yearly basis. This data is
essential to monitoring discrimination in public contracting and measuring the effects of recent
policy shifts. Responsible policymaking depends on the availability of data to assess existing
policies and to evaluate whether policy goals are achieved. As a California appellate court stated
in a recent decision upholding the state's contracting data collection requirements, "Accurate and
up-to-date information is the sine qua non of intelligent, appropriate legislative and
administrative action."15 For this to occur in public contracting, government agencies need to
collect relatively detailed information about contract awards. At a minimum, contract award
data should be collected and maintained in a manner so that they can be analyzed by specific
ethnicity, gender, and contract categories.
More research needs to be conducted on whether Proposition 209 has had different
effects on MBEs and WBEs. Our study suggests that Proposition 209 has been less harmful to
WBEs than to MBEs, although we were unable to identify the reasons for this difference. More
research needs to conducted to determine if this finding occurs in other agencies, and if so,
possible reasons behind such differences. If indeed WBEs have been able to more effectively
adapt to the elimination of affirmative action policies, learning how they have succeeded could
offer lessons for MBEs and others who have historically faced discriminatory barriers in public
contracting.
16
CONCLUSION
Our 1998 Opportunities Lost report found that the passage of Proposition 209 combined
with court actions, executive orders, and resolutions had begun to seriously erode the gains made
by minorities and women since affirmative action was first used in the 1970s. This study,
through an analysis of quantitative data, confirms that the dismantling of affirmative action
policies has severely limited the ability of minorities and women to compete for public contracts.
In many situations, these affirmative action policies were designed to remedy discrimination by
reaching out to those who had been historically excluded and giving them an opportunity to
compete. Unfortunately, with Proposition 209 in place, most agencies have simply reverted back
to previous policies that limit access to contracting for MBEs and WBEs.
Our study suggests that government agencies need to be proactive in ensuring that their
procurement systems are open and fair to people regardless of their race or gender. The
successful programs highlighted in this report show that Proposition 209 does not necessarily
have to result in the exclusion of minorities and women if agencies develop equitable contracting
practices. Increased outreach and providing small businesses with contracting opportunity help
open up procurement systems to people who have historically not had equal access. It also
ensures that our public funds are spent in fair and equitable manner.
Footnotes
1
Proposition 209 has been codified in the Article I, Section 31 of the California Constitution as follows:
SEC. 31. (a) The state shall not discriminate against, or grant preferential treatment to, any individual or
group on the basis of race, sex, color, ethnicity, or national origin in the operation of public employment,
public education, or public contracting.
(b) This section shall apply only to action taken after the section's effective date.
(c) Nothing in this section shall be interpreted as prohibiting bonafide qualifications based on sex
which are reasonably necessary to the normal operation of public employment, public education, or
public contracting.
(d) Nothing in this section shall be interpreted as invalidating any court order or consent decree which
is in force as of the effective date of this section.
(e) Nothing in this section shall be interpreted as prohibiting action which must be taken to establish or
maintain eligibility for any federal program, where ineligibility would result in a loss of federal funds to
the state.
(j) For the purposes of this section, "state " shall include, but not necessarily be limited to, the state
itself, any city, county, city and county, public university system, including the University of California,
community college district, school district, special district, or any other political subdivision or
governmental instrumentality of or within the state.
(g) The remedies available for violations of this section shall be the same, regardless of the injured
party's race, sex, color, ethnicity, or national origin, as are otherwise available for violations of thenexisting California antidiscrimination law.
(h) This section shall be self-executing. If any part or parts of this section are found to be in conflict
with federal law or the United States Constitution, the section shall be implemented to the maximum
extent that federal law and the United States Constitution permit. Any provision held invalid shall be
sever able from the remaining portions of this section.
17
2
Opportunities Lost: The State of Public Sector Affirmative Action in Post Proposition 209 California
(Nov. 1998), available at http://www.equalrights.org/affirm/index.htm.
3
Opportunities Lost, at 1.
4
The U.S. Census Bureau's 1997 Economic Census reports a total of 2,565,734 privately held businesses
in California. 738,000 were identified as minority-owned, and 700,513 are women-owned. We arrived at
the 1,219,158 figure by taking into account that 219,355 firms which are owned by minority women.
This Census information can be found at http://www.census.gov/csd/mwb/.
5
See, e.g., National Economic Research Associates, Inc., THE UTILIZATION OF MINORITY AND WOMENOWNED BUSINESS ENTERPRISES BY MEMBER AGENCIES OF THE REGIONAL TRANSIT ASSOCIATION
(1993) (finding that MBEs and WBEs faced discrimination in the procurement systems of seven local
California agencies); San Francisco, Cal. Adm. Code Section 12D.2(10) (1995) (concludes based on
study of its procurement system that "some City departments continue to operated under the 'old boy
network'" when awarding contracts).
6
See, e.g., Todd Wallack, California Spends Billions on No-Bid Deals: Contracts Cover Everything
From Technology to Prison Nurses, San Francisco Chronicle, May 31, 2002; Todd Wallack, How State
Dodged Its No Bid Policies: Dividing Contracts Keep Contracts Under Price Cap, San Francisco
Chronicle, Jun. 12, 2002; Bill Wallace, State Skirts Bid Process in PR Deals: $70 Million Awarded
During Past 3 Years, San Francisco Chronicle, Jun. 8, 2002.
7
City of Richmond v. J.A. Croson, 488 U.S. 469 (1989).
8
Cal. Public Contract Code Section 2000 (describing specific actions that prime contractors must
undertake to demonstrate "good faith efforts").
9
California Senate Office of Research, The STATE OF AFFIRMATIVE ACTION IN CALIFORNIA at 44-5
(1995) (providing a list of agencies that had affirmative action public contracting programs in place prior
to Proposition 209); Cal. Public Contract Code Section 10115 (state agency contracts); Cal.Gov. Code
Section 14132 (transportation projects); Cal.Gov. Code Section 16850(bond services); Cal.Educ. Code
Section 71028 (community colleges); Cal. Public Contract Code Section 10108 (Department of
Corrections).
10
Ms. Garrety's and Ms. Campbell's situations are described in detail in Peter Y. Sussman, Reaching for
the Dream: Profiles in Affirmative Action, the Programs and the People Whose Lives They Change
(1998) (available at http://wwAV.equalrights.org/aabook/index.htm).
11
The University of California Regents passed the Policy Ensuring Equal Treatment in Employment and
Contracting (SP-2) on July 20, 1995. SP-2 effectively ended the University's public contracting
affirmative action program by forbidding campuses and prime contractors from considering race or
gender as factors in contract awards.
12
Connerly v. State Personnel Board, 92 Cal.App.4th 16 (2001).
13
See, supra, footnote 5.
According to staff, the outreach policy was rescinded in 2001 in response to a lawsuit.
15
Connerly v. State Personnel Board, 92 Cal.App.4th 16 (2001).
14
18
ISSUES RELATED TO DEBARMENT OF PUBLIC CONTRACTORS
BY: GEOFFREY SPELLBERG
DEBARMENT OF CONTRACTORS
A.
A.
The Public Contracting Law and Abuses by Contractors.
1.
1.
The California Public Contract Code requires that on a public
work where the cost is in excess of $100,000, the public agency administering the
contract must award the contract to the lowest responsible, responsive bidder. Public
Contract Code section 22032. (Each public entity may set its own regulations regarding
the amount above which it must institute competitive bidding procedures.) As a result,
the public agency often has little control over which contractor it must select to perform
the work required. (In contrast, a private owner can simply hire whoever it wishes
regardless of whether it employs a competitive bidding situation or simply awards the job
to a favored contractor.)
Because of the competitive nature of public contracting and the absolute
requirement that the lowest responsible, responsive bidder be selected, there have been
numerous occasions where contractors have intentionally or unintentionally underbid
public works projects.
Where there is as an unintentional underbid, the contractor can attempt to
argue mistake and withdraw the bid. However, if that effort is unsuccessful, it must go
forward with the project or forfeit its bid bond. An intentional underbidding situation
involves a contractor "desperate" for work who submits a bid that it knows is too low,
and then attempts to make up that deficiency through requests for changes during the
course of the contract and for an equitable adjustment at the conclusion of the project.
Failing that the contractor files a claim or lawsuit to recover additional amounts.
In both situations, the intentional and unintentional underbid, the concern
is the same-will the contractor attempt to make up the deficiency through false and or
exaggerated claims.
Generally speaking, in most construction contracts, there will always be
changes in the project scope, unforeseen conditions, delay attributable to a number of
factors, etc. All those circumstances are fertile ground for a contractor to claim "extras"
such as unanticipated overtime, additional compensation, additional overhead expense,
additional material and subcontractor expenses, etc. Many claims for extras are fair and
the claims are resolved to the mutual satisfaction of the owner and the contractor.
However, it is unfortunately not uncommon for a contractor to fabricate or exaggerate its
extras. Although it is difficult to identify how wide spread the practice is, there are
numerous situations where contractors intentionally underbid a public contract job to
obtain the work, and then make up the difference by submitting false and inflated claims,
request for change orders, etc.
2.
2.
Remedies Available to the Public Entity.
Where the contractor has acted dishonestly in attempting to obtain extra
compensation on a public contract, there are several remedies available to the public
entity.
The first and most obvious is to bring a lawsuit seeking either declaratory
relief or seeking a return of monies improperly paid to the contractor. Standard breach of
contract claims would be asserted in those situations. One of the claims that is available
in this situation is a violation of the California False Claims Act which is set forth at
Government Code §12650, et seq.1[1] The decision of Stacy Witbeck v. City and County
of San Francisco 47 Cal. App. 4th 1 (1996) ("Stacy 2") affirms the public entity's right to
pursue remedies set forth under the False Claims Act. In Stacy 2, the contractor
contended that its claim, which was outrageously exaggerated, was a privileged
communication under C.C. §47(b). The trial judge agreed, dismissing the claim, but the
appellate court reversed thereby preserving the remedy for public entities.
A more draconian remedy and of most concern to the contractor is
administrative debarment. Under a debarment, the contractor is prevented from bidding
on or working for the public entity for a number a years, or potentially forever. This
sanction, is severe and not only halts the contractor from working for that particular
public entity, but is very damaging to the contractor's ability to obtain work with other
public entities. A debarred contractor is not a "responsible" contractor and therefore
cannot qualify as a responsible, responsive bidder on a public works contract. A number
of appellate decisions have addressed the debarment issue. There is now a well
established procedure that a public entity can follow in a situation where a public
contractor has acted dishonestly and the public entity seeks debarment.
B.
B.
1.
Rules and Procedures Controlling the Debarment Procedure
1.
The right to bid is a Liberty Interest
A debarment prevents a contractor from submitting future bids for public
work. Because that future work is only potential, there is not a property interest at issue.
However, because the ability to bid on work impacts the contractor's livelihood, the
appellate courts have concluded that there is a liberty interest possessed by each
contractor to seek work from a public entity. See Stacy & Wickbeck v. City and County
1[1]
The California False Claims Act is patterned after the Federal False
Claims Act and it provides various mechanisms for a defrauded public entity to seek
recovery and damages from a contractor who has intentionally submitted false claims to
the public entity. Those sections provide for litigation by the district attorney, the public
entity itself, and by qui tam citizens who believe that public contractors have defrauded
the public entity. Remedies include monetary penalties, treble damages and recovery of
amounts actually paid out in response to the false claims.
of San Francisco 36 Cal.App 4th 1074, 1087 (1995). ("Stacy 1") Since there is a liberty
right, the contractor is entitled to due process before that right is abridged.
2.
The administrative underpinning.
The first thing that the public entity must possess is the administrative
ability to conduct the debarment proceeding. In other words, debarment cannot be used
as a remedy unless there is a "fair warning" to the contractor that the remedy can possibly
be imposed upon the improper conduct by the contractor.
In Stacy 1, the contractor fell behind and incurred significant additional
costs on a straight-forward public works construction project. The contractor submitted a
request for an equitable adjustment in which he sought loss productivity time in amounts
that were physically impossible, e.g. seeking 28 hours per day in lost work crew
productivity when there are obviously only 24 hours in a day, and when the job records
showed that no crew was idled for more than an hour or two at a time. In that case, City
of San Francisco's Administrative Code did not specifically identify the procedures that
would be followed on a debarment proceeding. Although San Francisco promptly
amended its administrative code as it brought the debarment proceedings, the contractor,
argued that San Francisco lacked the administrative authority to conduct the proceeding.
The appellate court held that a broad interpretation of San Francisco's then existing
Administrative Code permitted the debarment proceeding. However, the appellate Court
cautioned that without some form of publicly ascertainable administrative sanction, a
contractor could not have its liberty interests abridged through a debarment proceeding.
Every public entity should set forth in its governing administrative code a
section addressing debarment.
3. 3. The Due Process Required.
Several decisions have followed Stacy 1, and all have discussed the requisite due process.
In Stacy 1, the matter was heard by the City Public Utilities Commission and the
contractor was given advance notice of the charges, advance presentation of the evidence,
the opportunity to present witnesses and documents in its defense, the right to be
represented by counsel and to have counsel argue on its behalf. The contractor
complained that the PUC was not a neutral body, and further that it was denied the right
of cross examination, and that such denial constituted a denial of due process. The Stacy
1 court addressed all of the issues and concluded that Stacy had received all process that
was due, but relied heavily on the fact that Stacy failed to establish an appropriate record
at the administrative hearing.
Two subsequent cases have addressed the issue of what constitutes due
process. Those are Golden Days School, Inc. v. State Department of Education 83
Cal.App 4th 695 (2000) and Southern California Underground Contractors v. San Diego
108 Cal.App 4th 533 (2003).
The Golden Day decision involved the debarment of a non-profit child
care provider based upon audits which reflected potential financial improprieties. In that
case, the contractor objected that one of the debarment hearing members was the
individual who had reviewed the audits and had recommended that debarment
proceedings be initiated. Further, one of the other debarment panel members at the
hearing was the deputy general counsel who was representing the public entity in
litigation against the contractor. The appellate court reversed the debarment decision and
held that the contractor had not received a fair hearing because of the conflict of interest
of the panel members.
In Southern California Underground, the contractor was a public works
underground contractor who had allegedly engaged in a number of dishonest and corrupt
practices. The administrative hearing body ordered debarment and that was affirmed by
the trial court. The issue on appeal was whether the contractor had received due process
at the hearing. Although it made numerous claims, the issue boiled down to whether the
refusal of the debarment panel to allow the live cross examination of adverse witnesses
constituted a violation of due process. The appellate court concluded that it did not, and
so upheld the debarment.
4.
Summary of Required Due Process
The due process which must be provided based upon the distillation of the
various decisions which have addressed the issue are:
•
• Any possible bias or conflict of intent must be eliminated so
that there is an impartial panel hearing the debarment proceeding.
For example, in Stacy 1, the City of San Francisco was engaged in
litigation with the contractor over the same issues raised in the
debarment proceeding. The contractor sought to disqualify the
PUC from hearing the matter, but the PUC stated on the record that
it was only considering only the evidence offered at the debarment
proceeding, and was not considering any of the litigation issues.
The appellate court held that that statement, coupled with the
absence of the contractor showing any actual bias, was sufficient to
establish the appropriate neutrality.
•
• There cannot be a conflict of interest among any member of
the debarment panel. The debarment panel can consist of a city
agency, such as the San Francisco PUC, but the panel members
could not have been involved in the investigation or decision to
charge the contractor with the dishonest conduct.
•
• The contractor must be given adequate notice and sufficient
time to prepare a defense. In other words, the charges, the
evidence, etc. must be provided in advance to the contractor in
sufficient time so that the contractor is able to prepare a defense.
Any reasonable request for a continuance by the contractor must be
granted.
•
• Not only is the contractor permitted to present live testimony
at the hearing, the contractor is entitled to take depositions of
adverse witnesses and present that deposition testimony at the
hearing. In fact, in Stacy 1 and in Southern California
Underground, the contractor submitted deposition testimony of its
cross examination of adverse witnesses. The debarment panel is
not required to hold an evidentiary hearing where live cross
examination of witnesses is permitted. For example, in Stacy 1,
the City presented live witnesses, the contractor presented live
witnesses, but no cross examination was permitted.
•
• The contractor should be given the opportunity to be
represented by legal counsel who then would be permitted to fully
present written and oral arguments.
•
• It is also critical that the public entity fully document the
hearing with a court reporter and the filing of all evidence
submitted.
5. 5. PENALTIES
In a debarment proceeding, the public entity makes a decision as to how
long a contractor is barred from bidding on public works contract. In Stacy 1, the
contractor was barred for 5 years, but was permitted to reapply after 2 years. In actuality,
after 1 year and intense lobbying, the contractor was permitted to again bid on City
projects. In Golden Days School, the contractor was barred from bidding for 3 years. In
Southern California Underground, the debarment was lifetime.
It is up to the public entity to make its decision as to what penalty it is
seeking. It is important however for the public entity to ensure that its governing
administrative code or charter permits for such penalty, and the public entity must be
cognizant of the fact that a debarment removes one competitor from bidding on public
contracts. Multiple competitors help assure a competitive price. If a key competitor is
disbarred, the potential cost of public works contracts could potentially rise. With that in
mind, a short limited debarment may ultimately be preferable to a permanent bar.
687008_1
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