Are More Constitutional Challenges to State DBE Contracting Programs On the Way?

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An Illinois construction company is petitioning the U.S. Supreme Court to decide whether it has standing to challenge as unconstitutional a state’s implementation of a disadvantaged business enterprise (DBE) participation goal in connection with a road project. If sustained, the company’s challenge would have far-reaching implications, including opening the door for other disappointed bidders to prosecute constitutional challenges to states’ implementation of mandatory disadvantaged business contracting programs.

In 2009, the Illinois Department of Transportation (IDOT) sought bids for a highway resurfacing project. As a condition of IDOT’s receipt of federal funds for the project, IDOT was required to develop a DBE participation program and to submit a written plan to the U.S. Department of Transportation demonstrating IDOT’s efforts to promote the use of minority- and women-owned businesses in the award of federally assisted state contracts. Among other requirements, federal regulations require state recipients of federal financial assistance to demonstrate that not less than 10% of the federal funds made available will be expended to small business concerns owned and controlled by socially and economically disadvantaged individuals, regardless of race or gender.

Dunnet Bay Construction Company was prequalified to bid for and work on IDOT projects and submitted a bid for the highway resurfacing project at issue. In the initial round of bidding, Dunnet Bay submitted the lowest bid, though it was unable to meet IDOT’s stated DBE participation goals. IDOT rebid the contract because Dunnet Bay’s low bid was 16% above the project estimate and because Dunnet Bay was inadvertently left off the Final For Bid List, which identifies all approved prequalified general contractors upon which DBEs rely for purposes of identifying potential subcontracting opportunities. On rebid, Dunnet Bay was the third-lowest out of five bidders, each of which submitted bids meeting or exceeding IDOT’s DBE participation goals.

After failing to obtain the contract, Dunnet Bay sued IDOT, arguing it lost the contract because IDOT arbitrarily imposed DBE participation levels, deviated from mandatory federal DBE program rules, and did not narrowly tailor its DBE program to achieve any compelling state interest. The company’s lawsuit sought monetary damages, a declaratory judgment that IDOT’s DBE program is unconstitutional, and injunctive relief against its enforcement.

The U.S. District Court for the Central District of Illinois denied the company’s requested relief, a decision which the company appealed to the Seventh Circuit Court of Appeals. The Seventh Circuit determined that Dunnet Bay had not suffered a particularized injury and, therefore, lacked standing to challenge the constitutionality of IDOT’s federally mandated DBE program, which created a split on the issue with at least three other circuit courts.

Dunnet Bay is petitioning for further appeal to the U.S. Supreme Court with hopes the Court will reverse the Seventh Circuit’s ruling. With the recent passing of Justice Scalia, the Court’s most vocal conservative, a vote for certiorari review on the questions presented is far from certain. (Supreme Court rules require that four of the nine Justices vote to grant a petition for certiorari review.) In the event the Court does hear the case, the Court’s ruling could open the door to more frequent constitutional challenges to a state’s implementation or administration of minority and disadvantaged business contracting programs, or even attacks on the federally mandated use of DBEs in federal contracting and other financial assistance programs.