Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-92-01242/USCOURTS-ca10-92-01242-0/pdf.json

Nature of Suit Code: 440
Nature of Suit: Other Civil Rights
Cause of Action: 

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PUBLISH 

F'ILED 

trnited States Court of Appeals Tenth Circuit 

FEB 1 6 1994 

UNITED STATES COURT OF APPEALS _ 

TENTH CIRCUIT 

ADARAND CONSTRUCTORS, INC., a Colorado ) 

corporation, ) 

) 

Plaintiff-Appellant ) 

) 

v. ) 

) 

) 

FEDERICO PENA, Secretary of Department ) 

of Transportation; THOMAS D. LARSON, ) 

Administrator of the Federal Highway ) 

Administration; LOUIS N. MACDONALD, ) 

Administrator of Region VIII of the ) 

Federal Highway Administration; and ) 

JERRY BUDWIG, Division Engineer of ) 

the Central Federal Lands Highway ) 

Division, ) 

) 

Defendants-Appellees ) 

ROBERT L. HOECKER 

Cle!'k 

No. 92-1242 

Appeal from the United States District Court 

for the District of Colorado 

(D.C. No. 90-C-1413) 

William Perry Pendley, Mountain States Legal Foundation (Todd s. 

Welch, John G. Nelson, with him on the brief), Denver, Colorado, 

for Plaintiff-Appellant. 

Lisa J. Stark, Attorney, Civil Rights Division, United States 

Department of Justice (James P. Turner, Acting Assistant Attorney 

General, David K. Flynn, Lisa C. Wilson, Attorneys, Civil Rights 

Division, United States Department of Justice, on the brief), 

Washington, D.C., for Defendants-Appellees. 

Appellate Case: 92-1242 Document: 01019287333 Date Filed: 07/21/1995 Page: 1 
Before HOLLOUAY, GARTH* and McKAY, Circuit Judges. 

GARTH, Circuit Judge. 

This appeal involving a reverse discrimination 

challenge requires us to review the constitutionality of a 

federal program designed to provide contract awards for 

disadvant~ged business enterprises. 

Appellant Adarand Constructors, Inc. ("Adarand") 

appeals an order of the district court granting summary judgment 

in favor of the Government appellees [hereinafter "Government"]. 

790 F. Supp. 240. On appeal, Adarand raises three arguments. 

First, it argues that the district court erred in holding that 

the proper standard to be applied is found in Fullilove v. 

Klutznick, 448 U.S. 448 (1980), rather than in City of Richmond 

v. J.A. Croson, Co., 488 U.S. 469 (1989). 

Second, relying on Croson, Adarand asserts that the 

Central Federal Lands Highway Division (CFLHD) must make specific 

findings of past discrimination in order to justify its reliance 

on the disadvantaged business enterprise (DBE) program which 

furnishes the necessary criteria for the federal agency's 

implementation of a race-conscious subcontracting compensation 

clause ("the sec program") . 

* The Honorable Leonard I. Garth, Senior United States Circuit 

Judge, United States Court of Appeals for the Third Circuit, 

sitting by designation. 

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Third, Adarand contends that section 502 of the Small 

Business Act, 15 u.s.c. § 644(g), which provides the statutory 

authorization for the challenged sec program, is unconstitutional 

as applied because it impermissibly delegates to federal agencies 

the authority to develop minority-participation goals and the 

means for achieving those goals. 

Our jurisdiction is invoked under 28 u.s.c. § 1291, and 

we affirm the district court's judgment of April 21, 1992 for the 

Government. We do so, however, on grounds different from those 

relied upon by the district court. 1 

I. 

Adarand, a highway construction company run by a white 

male, sought declaratory and permanent injunctive relief against 

officials of the federal Department of Transportation (DOT) and 

other DOT officials on the grounds that the sec program utilized 

by the CFLHD violates the equal protection guarantees of the 

Fifth and Fourteenth Amendments and the privileges and immunities 

guaranteed by 42 u.s.c. § 1983 and 42 u.s.c. § 2000d (Title 

VI). 2 Adarand's complaint erroneously alleged that the 

1. Helvering v. Gowran, 302 u.s. 238, 245 (1937) ("[T]he rule 

is settled that if the decision below is correct, it must be 

affirmed, although the district court relied upon a wrong ground 

or gave a wrong reason"). 

2. For ease in reading the. various references to acts and 

agencies referred to within this opinion, we list the following 

acronyms: 

Central Federal Lands Highway Division 

Federal Lands Highway Program 

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= CFLHD 

=FLHP 

Appellate Case: 92-1242 Document: 01019287333 Date Filed: 07/21/1995 Page: 3 
statutory authorization for the sec program was provided by two 

transportation assistance acts: the surface Transportation 

Assistance Act of 1982, Pub. L. No. 97-424, § 105(f), 96 Stat. 

2097, 2100 (STAA), and its successor, the Surface Transportation 

and Uniform Relocation Assistance Act of 1987, Pub. L. No. 100-

17, § 106(c), 101 Stat. 132, 145 (STURAA). Both Adarand and the 

Government filed cross motions for summary judgment with the 

district court. The district court also mistakenly determined 

that the challenged program was authorized by STAA and STURAA. 

For purposes of this appeal, both parties stipulate that the sec 

program is authorized by section 502 of the Small Business Act, 

15 u.s.c. § 644(g), and that the constitutionality of STAA and 

STURAA are not at issue. 

A. 

The Small Business Act provides the statutory authority 

for agencies to establish specific utilization goals for 

disadvantaged small businesses. 15 u.s.c. § 644(g). In 

compliance with section 502 of the small Business Act, the heads 

of the various federal agencies, including the DOT, must 

establish annual goals for small business participation in 

Federal Highway Administration 

Federal Department of Transportation 

Disadvantaged Business Enterprise 

Subcontracting Compensation Clause 

surface Transportation Assistance 

Act of 1982 

surface Transportation and Uniform 

Relocation Act of 1987 

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= 

= 

= 

= 

= 

= 

F~A 

DOT 

DBE 

sec 

STAA 

STURAA 

Appellate Case: 92-1242 Document: 01019287333 Date Filed: 07/21/1995 Page: 4 
federal procurement contracts. 3 Id. § 644(g) (2). These goals 

3. Section 502 of the Small Business Act provides: 

The President shall annually establish Governmentwide goals for procurement contracts awarded to small 

business concerns and small business concerns owned and 

controlled by socially and economically disadvantaged 

individuals. The Government-wide goal for 

participation by small business contracts shall be 

established at not less than 20 percent of the total 

value of all prime contract awards for each fiscal 

year. The Government-wide goal for participation by 

small business concerns owned and controlled by 

socially and economically disadvantaged individuals 

shall be established at not less than 5 percent of the 

total value of all prime contract and subcontract 

awards. Notwithstanding the Government-wide goal. each 

agency shall have an annual goal that presents, for 

that agency. the maximum practicable opportunity for 

small business concerns and small business concerns 

owned and controlled by socially and economically 

disadvantaged individuals to participate in the 

performance of contracts let by such agency. The 

Administration and the Administrator of the Office of 

Federal Procurement Policy shall, when exercising their 

authority pursuant to paragraph (2) , insure that the 

cumulative annual prime contract goals for all agencies 

meet or exceed the annual Government-wide prime 

contract goal established by the President pursuant to 

this paragraph. 

15 u.s.c. § 644(g) (1) (emphasis added). These obligations were 

first codified in 1978 as an amendment to the Small Business Act. 

See Pub. L. No. 95-507, 92 Stat. 1770. 

Pursuant to 15 u.s.c. 644(g) (2): 

The head of each Federal agency shall, after 

consultation with the Administration establish goals 

for the participation by small business concerns, and 

by small business concerns owned and controlled by 

socially and economically disadvantaged individuals, in 

procurement contracts of such agency. Goals 

established under this subsection shall be jointly 

established by the Administration and the head of each 

Federal agency and shall realistically reflect the 

potential of small. business concerns and small business 

concerns owned and controlled by socially and 

economically disadvantaged individuals to perform such 

contracts and to perform subcontracts under such 

contracts. * * * 

Id. (emphasis added). 

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must present the "maximum practicable opportunity" for small 

business concerns, including those "owned and controlled by 

socially and economically disadvantaged individuals." Id. § 

644(g)(l). 

The SCC program was implemented in 1979 by the Federal 

Lands Highway Program (FLHP) of the Federal Highway 

Administration (FHWA), an agency within the DOT, to satisfy the 

agency goals requirement of the Small Business Act. CFLHD and 

the other two regional offices of FLHP utilize the sec program as 

a means of meeting their respective apportioned shares of the DOT 

goal for disadvantaged small business participation. Under the 

SCC program, a Subcontracting Compensation Clause is included in 

small-value contracts or where the prime contractor is a small 

business. Prime contractors whose DBE subcontracts exceed 10% of 

the overall contract amount are eligible for incentive payments 

of up to 1.5% of the original contract amount for utilization of 

one DBE, or up to 2% for hiring two or more DBEs. Small business 

prime contractors are not required to hire DBEs as a contractual 

condition of eligibility· for.award of the pri'me contract. 

Rather, the SCC program provides prime contractors with the 

option of either hiring DBE subcontractors and receiving 

commensurate incentive payments, or ignoring the option entirely. 

To qualify for eligibility under the sec program, small 

businesses must demonstrate .through an annual certification 

process that they are indeed socially and economically 

disadvantaged. The Subcontracting Compensation Clause and the 

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eligibility criteria comport with section 502 of the Small 

Business Act. The eligibility criteria, however, are derived 

from the DBE regulatory program implemented pursuant to two 

transportation funding authority acts: STAA and its renewal act, 

STURAA. 4 A subcontractor thus qualifies for the sec program if 

it qualifies for DBE status under STURAA regulations. 

As an agency within the federal DOT, CFLHD is not 

itself subject to STURAA implementing regulations. See 54 Fed. 

Reg. 43835-01; 45 Fed. Reg. 21172 (1980); 49 C.P.R. 23.2. 

Consequently, small business prime contractors awarded contracts 

let directly by the CFLHD do not have to satisfy the 10% DBE setaside required of states and localities who receive STURAA funds 

for federally-assisted highway contracts. 

STURAA, and previously STAA, define "socially and 

economically disadvantaged individuals" with reference to the 

Small Business Act. 15 u.s.c. § 637(d). 5 Under the Small 

4. The regulations promulgated by the DOT following enactment 

of STAA in 1983 created the DBE regulatory program. Both STAA 

and STURAA were intended to achieve minority business 

participation goals primarily through the use of set-asides for 

qualified subcontractors. s. Rep. No. 4, lOOth Cong., 1st Sess~ 

11-12 (1987), reprinted in 1987 u.s.c.c.A.N. 66, 76. STURAA 

allocates $55 million annually for forest highway construction 

projects undertaken by federal agencies. The bulk of funds 

appropriated under STURAA, however, is granted to state and 

localities for federally-assisted highway programs. 

5. Under the Act, "[s]ocially disadvantaged individuals are 

those that have been subject to racial or ethnic prejudice or 

cultural bias because of the.ir identity as a member of a group 

without regard to their individual qualities." 15 u.s.c. § 

637(a) (5). "Economically disadvantaged individuals are those 

socially disadvantaged individuals whose ability to compete in 

the free enterprise system has been impaired due to diminished 

capital and credit opportunities as compared to others in the 

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Appellate Case: 92-1242 Document: 01019287333 Date Filed: 07/21/1995 Page: 7 
Business Act, a small business must be at least 51% owned and 

controlled by individuals who are socially and economically 

disadvantaged. Id. Members of certain minority racial and 

ethnic groups and women are presumed socially and economically 

disadvantaged. 6 Id. That presumption is rebuttable under the 

DBE criteria incorporated into CFLHD's SCC program. Both 

minority-owned small disadvantaged business enterprises (DBEs) 

and women-owned small business enterprises (WBEs) may be 

decertified if it can be established that they are not socially . . 

and economically disadvantaged. Non-minority-owned small 

businesses also are eligible for DBE certification by the Small 

Business Administration, provided that they satisfy the same 

eligibility criteria as minority-owned small businesses. See 15 

u.s.c. § 637(a). 

B. 

On September 15, 1989, the CFLHD awarded a $1-millionplus prime contract to a small business contractor, Mountain 

Gravel & Construction Company, for a federal highway project in 

same business area who are not socially disadvantaged." Id. § 

637(a) (6) (A). These definitions also are incorporated into STAA 

and STURAA. 

6. These racial minority groups are: "Black Americans, Hispanic 

Americans, Native Americans, Asian Pacific Americans, and other 

minorities * * *·" 15 u.s.c. § 637(d) (3) (C). Both STURAA and 

the Small Business Act also extends federal procurement 

opportunities to women-owned small businesses. 

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Appellate Case: 92-1242 Document: 01019287333 Date Filed: 07/21/1995 Page: 8 
Colorado known as the West Dolores project. 7 Funding for the 

West Dolores project was allocated to CFLHD under STURAA. 

Because the contract was let by an agency within the DOT, 

Mountain Gravel was not required to hire DBEs as part of its 

contractual obligation for the West Dolores project. However, 

anticipating that Mountain Gravel would use DBEs as 

subcontractors, CFLHD followed its usual practice and added 1% of 

the bid as a contingent sum to the prime contractor's bottom-line 

bid. This contingent amount would be paid to the prime 

contractor only if 10% of the subcontracts on the West Dolores 

Project was with DBEs. The Subcontracting Compensation Clause 

included in the contract read: 

Monetary compensation is offered for awarding 

subcontracts to small business concerns owned and 

controlled by socially and economically disadvantaged 

individuals * * * * Compensation is provided to the 

Contractor to locate, train, utilize, assist, and 

develop DBEs to become fully qualified contractors in 

the transportation facilities construction field. The 

Contractor shall also provide direct assistance to 

disadvantaged subcontractors in acquiring the necessary 

bonding, obtaining price quotations, analyzing plans 

and specifications, and planning and management of the 

work. * * * The Contractor will become eligible to 

receive payment under this provision when the dollar 

7. CFLHD includes within its jurisdiction the following states: 

Arizona, California, Colorado, Hawaii, Kansas, Nebraska, Nevada, 

New Mexico, North Dakota, South Dakota, Texas, Utah and Wyoming. 

At the time of the contract award for the West Dolores Project, 

CFLHD's apportioned goal was between 12% and 15% DBE 

participation in all contracts let by the agency. The percentage 

goal represents the portion of dollars of CFLHD's total 

procurement program. Neither CFLHD nor any other federal agency 

is subject to sanctions for failing to satisfy its annual goal. 

The head of each federal agency, however, is required to justify 

any such failure in an annual report to the Small Business 

Administration. 15 u.s.c. § 644(h). 

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Appellate Case: 92-1242 Document: 01019287333 Date Filed: 07/21/1995 Page: 9 
amount * * * of the DBE subcontract(s) awarded exceeds 

[10% for Colorado] of the original [prime] contract 

award. 

Shortly thereafter, Adarand submitted a subcontract bid 

to Mountain Gravel seeking to construct the guardrail portion of 

the West Dolores project. Adarand is not a certified DBE. 8 

Although Adarand was the lowest bidder, Mountain Gravel exercised 

the option provided by the sec program and awarded the 

subcontract for the guardrail systems to a certified DBE who had 

submitted a higher bid than Adarand's. By subcontracting with 

the DBE, Mountain Gravel thereby became entitled to a bonus 

payment of approximately $10,000. 

Adarand challenged the constitutionality of the sec 

program in a lawsuit filed August 10, 1990. The complaint, inter 

alia, sought an injunction prohibiting further use of the sec 

program. Believing that the SCC program was instituted pursuant 

to STAA and STURAA, Adarand's complaint attacked the 

constitutional validity, both facially and as applied, of those 

two transportation assistance acts. The complaint alleged that 

the use of race and gender as factors in awarding federal 

procurement contracts in Colorado, without any findings of past 

discrimination in the state, violated the equal protection 

guarantees of the Fifth and Fourteenth Amendments and the 

8. The record gives no indication of the racial composition of 

Adarand's ownership, although its general manager is a white male 

and its stockholders include the general manager's wife and two 

other women. 

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Appellate Case: 92-1242 Document: 01019287333 Date Filed: 07/21/1995 Page: 10 
privileges and immunities guaranteed by 42 u.s.c. § 1983 and 42 

U.S.C. § 2000d (Title VI). 

In its brief in support of its cross motion for summary 

judgment, Adarand argued that CFLHD's use of the sec program to 

facilitate federal contracting opportunities for DBEs could not 

withstand strict scrutiny under Croson. The Government countered 

in its brief that Fullilove (involving federal remedial 

programs), and not Croson (involving state and local entities), 

provided the controlling standard. The Government also argued 

that Adarand did not have standing, in any event, to challenge 

the regulatory program by which STURAA is implemented, because 

the sec program was instituted pursuant to section 502 of the 

Small Business Act, 15 u.s.c. § 644(g), and not STURAA. In its 

reply brief, Adarand acknowledged that the sec program was 

implemented in response to the agency goals requirement of the 

Small Business Act. 

Relying on the parties' briefs, the district court 

granted summary judgment in favor of the Government and denied 

Adarand's summary judgment motion. 790 F. Supp. at 245. The 

district court assumed, without explanation, that the case 

presented a challenge to the constitutionality of the DBE 

regulatory program promulgated under provisions of STAA and 

STURAA. Id. at 242. Its opinion did not address the standing 

issue urged upon us by the Government, and made no reference to 

the sec program. The existence of the small Business Act and the 

Act's mandate of agency goals for socially and economically 

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disadvantaged small business participation were virtually ignored 

by the district court. Rather, the district court concluded, 

erroneously, that CFLHD "was required by the federal regulations 

under which CFLHD operates" to adopt STAA's and STURAA's 10% setaside.9 Id. at 244. 

Based on its finding that "the challenged regulations 

and actions involve only federal actors acting pursuant to 

congressional mandate," the district court determined that the 

relaxed standard of Fullilove -- and not the strict scrutiny test 

of Croson governed this case. 790 F. Supp. at 244. Applying 

Fullilove to the facts of this case, the district court found 

that congressional policies related to remedying discrimination 

supported the Government's position. Because "the challenged 

programs are narrowly tailored to achieve their legitimate 

purpose," the district court concluded that the challenged 

program satisfies the requirements of the Fifth and Fourteenth 

Amendments. Id. at 245. 

II. 

As a threshold matter, we reject the Government's 

argument that Adarand does not have standing to challenge section 

502 of the Small Business Act, 15 u.s.c. § 644(g), because 

9. The 10% (7% for Wyoming) threshold of CFLHD's subcontracting 

compensation clause, although modeled on STURAA's set-aside, is 

an optional goal, not a set-aside. As discussed supra in text, 

it is entirely at the discretion of the prime contractor whether 

to exercise its option under the Subcontracting Compensation 

Clause, or to ignore it and forego the monetary reward CFLHD 

offers for hiring DBEs as subcontractors. 

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Adarand had not charged in its complaint that section 502 was 

unconstitutional. We are satisfied that Adarand is entitled to 

attack the constitutional validity of the legislation authorizing 

the very program which was challenged in its complaint, even 

though Adarand did not identify section 502. 

Adarand and the Government, in their briefs to the 

district court, both identified section 502 as the statutory 

basis for the sec program. As the Government itself points out, 

the analysis of the constitutionality of the sec program under 

the authority of the Small Business Act is the same as that 

applied by the district court to STAA and STURAA. Furthermore, 

because we conclude that the district court reached the correct 

conclusion, its order denying Adarand's motion for summary 

judgment and granting summary judgment in favor of the Government 

can be affirmed, even though premised on an analysis different 

from the analysis we employ. Helvering v. Gowran, 302 U.S. 238, 

245 (1937), reh'g denied, 302 u.s. 781 (1938); Robert-Gay Energy 

Enters .. Inc. v. State Corp. Comm'n of Kansas, 753 F.2d 857, 862 

n.5 (lOth Cir. 1985). 

The Government is on firmer footing when it attacks 

Adarand's standing to challenge the provisions of the sec program 

pertaining to women-owned business enterprises (WBE) . The issue 

of whether a congressional mandate exists for WBEs as 

disadvantaged businesses under the sec program also was raised in 

Adarand's complaint. Both parties, however, proceeded before the 

district court on the apparently shared assumption that the 

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instant controversy concerned only the racial preference aspect 

of the sec program. Because Adarand never argued the point in 

its motion for summary judgment, the district court was never 

afforded an opportunity to evaluate the merits of the WBE claim. 

Moreover, Adarand did not press this point during arguments 

before us. 

More significantly, Adarand has made no showing that it 

has a personal stake in the WBE provisions. It offers no 

evidence whatsoever that it has been denied a federal subcontract 

because of a WBE, or that the gender preference of the sec 

program prevents it from now bidding on an equal basis for 

federal subcontracts. For these reasons, we limit our review 

only to the constitutionality of the sec program's racial 

preference. See Northeastern Florida Chapter of the Associated 

Gen. Contractors of America v. City of Jacksonville, 113 s. ct. 

2297, 2303 (1993). 

III. 

A. 

We turn now to the merits of the appeal. Once again we 

are asked to determine the proper constitutional test for a raceconscious program implemented pursuant to a congressional 

command. As in Ellis v. Skinner, 961 F.2d 912 (lOth cir.), cert. 

denied sub nom. Ellis v. card, 113 s. ct. 374 (1992), resolution 

of this appeal turns on the question of whether the district 

court erred in applying the Fullilove standard, rather than the 

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Croson test, to the facts of this case. Our decision in Ellis 

provides the answer: Fullilove controls. 

In Fullilove, 448 u.s. 448 (1980), the Supreme Court 

approved the use of a 10% minority business enterprise (MBE) setaside mandated by Congress. In rejecting a facial challenge to 

the constitutionality of the statute authorizing the MBE program, 

the Court found that Congress acts within its unique and broad 

powers under the Commerce Clause and section 5 of the Fourteenth 

Amendment when it imposes an affirmative action program to remedy 

nationwide discrimination in the construction industry. Under 

Fullilove, if Congress has expressly mandated a race-conscious 

program, a court must apply a lenient standard, resembling 

intermediate scrutiny, in assessing the program's 

constitutionality. 10 

In Ellis, we applied the Fullilove test in upholding 

the constitutionality of the DBE program, as applied by the Utah 

Department of Transportation as a prerequisite to the receipt of 

10. The test of Chief Justice Burger's opinion for the Court 

is: (1) whether "the objectives of this legislation are within 

the power of Congress"; and (2) whether "the limited use of 

racial and ethnic criteria, in the context presented, is a 

constitutionally permissible means for achieving the 

congressional objectives and does not violate the equal 

protection component of the Due Process Clause of the Fifth 

Amendment." Fullilove, 448 u.s. at 473 (Opinion of Burger, 

C.J.). Three other members of the Fullilove Court believed that 

an intermediate scrutiny analysis should be used to determine 

whether a congressionally-mandated program passes constitutional 

muster under the Fifth and Fourteenth Amendments. Id. at 519 

(Marshall, J., concurring in judgment). A majority of the 

Fullilove Court therefore agreed that strict scrutiny is not the 

proper test for evaluating a race-conscious remedial program 

authorized by an act of Congress. 

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federal funds. 961 F.2d at 916. In Ellis, we were called upon 

to decide "whether Utah's failure to seek a waiver is equivalent 

to a local government enacting its own set-aside program, thus 

implementing the fact-finding requirements of Croson." Id. at 

915. We held that it was not. 

Although our analysis in Ellis focused on the waiver 

provisions of the DBE program established by STAA and renewed by 

STURAA, our opinion made clear that Fullilove provides the proper 

test for determining the constitutionality of a race-conscious 

measure authorized by Congress. Because the white contractor in 

Ellis stipulated that both STAA and STURAA and their implementing· 

regulations were facially constitutional, we necessarily 

concluded that Utah was simply obeying a valid congressional 

command. Holding that Utah had complied with federal law, we 

stated that, under such circumstances, "'[W]e do not see how the 

state can be thought to have violated the Constitution.'" 961 

F.2d at 916 (quoting Milwaukee County Pavers Ass'n v. Fiedler, 

922 F.2d 419 (7th Cir.), cert. denied, 111 s. ct. 2261 (1992)): 

accord Tennessee Asphalt Co. v. Farris, 942 F.2d 969, 975 (6th 

Cir. 1991). 

In the instant case, Adarand acknowledges that if the 

CFLHD is merely doing what Congress ordered it to do, the 

agency's action is constitutional unless the underlying 

legislation is unconstitutional. For purposes of this appeal, 

Adarand has stipulated that section 502 of the Small Business Act 

(15 u.s.c. § 644(g)) provides the statutory authority for the sec 

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program, and that section 502 satisfies the evidentiary 

requirements of Fullilove. Adarand also concedes that the 

CFLHD's utilization of the sec program is not beyond the agency's 

delegated power under section 502. The gravamen of Adarand's 

argument is that the CFLHD must make particularized findings of 

past discrimination to justify its race-conscious sec program 

under Croson because the precise goals of the challenged SCC 

program were fashioned and specified by an agency and not by 

Congress. 

We disagree with Adarand's argument that Croson 

prevents the CFLHD from playing the role envisaged for it by the 

Small Business Act. The question of congressional action was not 

before the Court in Croson. In Croson, the Supreme Court held 

that a strict level of scrutiny must be applied to state or local 

public minority preference programs. Justice O'Connor's opinion, 

joined by Chief Justice Rehnquist and Justice White, explicitly 

distinguished Fullilove on the grounds that state and local 

governments have no constitutional mandate similar to or equal to 

Congress's specific constitutional mandate under section 5 to 

enforce the Fourteenth Amendment. Rather, section 1 of the 

Fourteenth Amendment took power away from the states and gave it 

to Congress. 488 u.s. at 490 (Opinion of O'Connor, J.). 

B. 

Adarand cites no authority, nor do we know of any, to 

support the proposition that a federal agency must make 

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Appellate Case: 92-1242 Document: 01019287333 Date Filed: 07/21/1995 Page: 17 
independent findings to justify the use of a benign raceconscious program implemented in accordance with federal 

requirements. 11 In contrast to the situation in Croson, no 

state procurement or minority business policy is implicated by 

Adarand's claims. If particularized findings to justify 

implementation of a federal remedial program are not required of 

a state, Ellis, 961 F.2d at 916, they clearly are not required of 

a federal agency, such as CFLHD, which Adarand concedes is 

obligated to administer the remedial program. 

The lesson that we glean from Fullilove and Croson is 

that the federal government, acting under congressional 

authority, can engage more freely in affirmative action than 

states and localities. Ellis, 961 F.2d at 915-16. The validity 

of that proposition was reaffirmed in Metro Broadcasting. Inc. v. 

FCC, 497 u.s. 547, reh'g denied, 497 U.S. 1050 (1990), where the 

Court put to rest any lingering doubts about the continuing 

vitality of Fullilove: 

Croson cannot be read to undermine our decision in 

Fullilove. In fact, much of the language and reasoning 

in Croson reaffirmed the lesson of Fullilove that raceconscious classifications adopted by Congress to 

address racial and ethnic discrimination are subject to 

a different standard than such classifications 

prescribed by state and local governments." 

11. The principal circuit op1n1on upon which Adarand relies -- H.K. Porter Co. v. Metropolitan Dade County, 975 F.2d 762 (11th 

Cir. 1992) -- was recently vacated on the joint motion of the 

parties and remanded for dismissal of the action by the district 

court. 998 F.2d 892 (11th Cir. 1993). That case, in any event, 

was inapposite; it dealt with a local set-aside program and never 

addressed the issue of a federal agency's implementation of a 

statutory directive. 

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Id. at 565. Indeed, the Metro Broadcasting majority held that 

even non-remedial race-conscious measures mandated by Congress 

are constitutionally permissible if they satisfy intermediate 

scrutiny. 12 

c. 

By its enactment of section 502, Congress accorded 

broad discretion to agencies to implement the remedial goals of 

the Small Business Act. Although Congress did not dictate 

specific percentage goals for agencies to meet, the language of 

section 502 clearly contemplates that agencies will exceed the 

government-wide DBE participation goal of "not less than 5 

percent." 15 u.s.c. § 644(g) (1) (emphasis added). The 

legislative history also evidences Congress's intention that each 

agency establish DBE goals above the 5% government-wide goal 

established by the President. H.R. Rep. No. 100-1070, 100th 

Cong., 2d Sess. 73 (1988), reprinted in 1988 u.s.c.c.A.N. 5401, 

5507. The SCC program is promulgated pursuant to this specific 

congressional delegation. In implementing the sec program, CFLHD 

thus did exactly what Congress explicitly directed it to do: 

12. Metro Broadcasting concerned two programs through which the 

Federal Communications Commission chooses the owner of a 

broadcast station partly on the basis of an applicant's race, 

ethnicity, or surname. In sustaining the program against an 

equal-protection attack, the supreme Court first considered the 

stated aim of the government.' s program ("enhancing broadcast 

diversity") and held that this interest qualifies as a 

sufficiently important governmental goal. 110 s. ct. at 3008-09. 

Because the program was substantially related to achievement of 

that objective, it satisfied equal protection requirements. 

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provide a means to ensure "the maximum practicable opportunity" 

for disadvantaged small business participation in federal 

procurement. 15 u.s.c. § 644(g) (emphasis added). 

Adarand's argument that the racial preference of the 

sec program is a discretionary agency action ignores the entity 

which created the presumption of minority disadvantage. The 

challenged sec program derives its eligibility criteria from STAA 

and STURAA, which in turn incorporated the presumption of section 

S(d) of the Small Business Act, 15 u.s.c. § 637(d)). Under 

section S(d), a small "socially and economically disadvantaged" 

business is one that is at least 51% "owned by one or more 

socially and economically disadvantaged individuals," and "whose 

management and daily business operations are controlled by one or 

more of such individuals." Id. § 637(d) (3) (C). Section S{d) 

presumes "that socially and economically disadvantaged 

individuals include Black Americans, Hispanic Americans, Native 

Americans, Asian Pacific Americans, and other minorities * * *·" 

Id. By incorporating that presumption into STAA and STURAA, 

Congress ·reaffirmed its mandate that federal procurement 

opportunities be made more readily available to qualified 

minority-owned business enterprises. That rebuttable presumption 

also is found in the challenged SCC program. The SCC program 

thus provides subcontracting opportunities for the very type of 

small businesses that Congress had in mind when it enacted 

section 502 of the Small Business Act. 

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The conclusion that the CFLHD is acting within the 

bounds of the statutory authority of the Small Business Act is 

impelled by Adarand's own concession that the CFLHD's 

implementation of the sec program was not beyond the agency's 

delegated power under section 502. Because the sec program 

comports with the legislative design of the Small Business Act to 

increase subcontracting opportunities for minority-owned small 

businesses, it is reasonably related to the purposes of the 

enabling legislation. Cf. Hecla Mining Co. v. United States, 

909 F.2d 1371, 1375-76 (lOth Cir. 1990) ("[W)hen Congress 

explicitly or implicitly delegates to agencies the power to 

elucidate a specific provision of a statute, the resulting agency 

action is entitled to deference") (citing Chevron U.S.A., Inc. v. 

Natural Resources Defense Council, Inc., 467 u.s. 837, 843-44 

(1984)). 

We also disagree with Adarand's argument that Congress 

must mandate precise percentage goals for minority small business 

participation. Such a position ignores the principal lesson of 

Fullilove. The splintered Fullilove Court did not uphold the 

challenged federal program because a specific percentage setaside was mandated by Congress, but rather because the program, 

in spite of the racial and ethnic preference, satisfied equal 

protection requirements. 448 U.S. at 480 (Opinion of Burger, 

C.J.). In reaffirming Fullilove as the proper standard for 

assessing the constitutionality of benign race-conscious 

measures, the Court in Metro Broadcasting noted that, 

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notwithstanding the "'great weight'" given to decisions of 

Congress, even congressionally-mandated benign race-conscious 

measures must satisfy equal protection requirements. 110 s. ct. 

at 3011 (citation omitted). 

D. 

Because Adarand stipulates that section 502 satisfies 

the evidentiary requirements of Fullilove, the only question to 

be resolved is whether the sec program implemented by the CFLHD . . 

is narrowly tailored to achieve the remedial purpose of section 

502. we hold that it is. 

The program upheld in Fullilove was the model for the 

DBE program implemented by the DOT pursuant to STAA and STURAA, 

and utilized in the sec program challenged by Adarand. Although 

the district court mistakenly treated the challenged program as 

being authorized by STAA and STURAA, its analysis is equally 

applicable in assessing the constitutionality of the sec program 

under the authority of section 502 of the Small Business Act. 

The district court found that the challenged 

program satisfied Fullilove because it serves important 

governmental objectives and is substantially related to . 

achievement of those objectives. 790 F. Supp. at 244. The 

district court concluded that the challenged program was narrowly 

tailored to achieve its statutory objectives because it does not 

mandate its provisions in an inflexible manner. It ensures 

minimum impact on non-DBEs because 

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Id. 

[t)o qualify for DBE status a business must 

demonstrate, via the annual certification process, that 

it is a bona fide DBE, eligible to participate in the 

program. This annual certification mechanism is 

reasonably calculated to insure legitimate, qualified 

participants, so that the program does not become 

overinclusive in the sense of tolerating abuse of the 

program by non-DBE's. Likewise the program is not 

underinclusive since it provides that businesses not 

entitled to the presumption of DBE status may apply for 

certification and establish their qualifications to 

participate. 

We hold that the sec program is constitutional because 

it is narrowly tailored to achieve its significant governmental 

purpose of providing subcontracting opportunities for small 

disadvantaged business enterprises, as required under section 502 

of the Small Business Act. The qualifying criteria of the sec 

program is not limited to members of racial minority groups. 

Because eligibility is based on economic disadvantage, nonminority-owned businesses also are eligible to participate. The 

sec program is not overinclusive since minority businesses that 

do not satisfy the economic criteria cannot qualify for DBE 

status. Furthermore, the SCC program is "appropriately limited 

in extent and duration" because federal procurement and 

construction contracting practices are subject to regular 

"reassessment and reevaluation by Congress." See Fullilove, 448 

u.s. at 489 (Opinion of Burger, C.J.). 

Significantly, the sec program does not require small 

business prime contractors to submit and adhere to a 

subcontracting plan with specific DBE goals. The prime 

contractor in this case had the option, not the obligation, of 

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subcontracting with a DBE: it exercised its own judgment (albeit 

attracted by CFLHD's monetary inducement) in rejecting Adarand's 

bid for the subcontract. Because the sec program induces, ratQer 

than compels, prime contractors to hire DBE subcontractors, it 

cannot be said to violate equal protection requirements. As 

Fullilove teaches, "[i]t is not a constitutional defect in this 

program that it may disappoint the expectations of nonminority 

firms." 448 u.s. at 484. 

IV. 

Having rejected Adarand's arguments, and having held 

that the district court did not err in relying on Fullilove 

rather than Croson, that accordingly, no Croson findings were 

necessary, and that the Small Business Act which authorized the 

sec program meets constitutional requirements, we will affirm the 

district court's order of April 21, 1992 in favor of the 

Government. 

AFFIRMED. 

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