Opinion ID: 163083
Heading Depth: 1
Heading Rank: 4

Heading: denver's evidence supporting its compelling interest and its important governmental interest

Text: 24 At trial, Denver introduced evidence detailing its construction contracting practices before the 1990 Ordinance. In 1973, the City Council enacted an ordinance creating an Affirmative Action Office (AAO) within its Department of Public Works (DPW). 4 According to testimony from the City's first Affirmative Action Officer, Wesley Martin, the AAO sought to ensure that minority contractors were hired to participate in City construction projects. Martin further testified that minority contractors were available but the City's rules, guidelines, and biases operated to effectively bar them from participating in City contracting. In 1977, the City Council passed a resolution establishing a voluntary program aimed at increasing minority participation in City contracting. Martin testified that the resolution had very little impact on how City projects were bid, mainly because the program had no enforcement mechanism. 25 In 1977, the Department of Housing and Urban Development (HUD) commenced an investigation into a grievance filed by the Minority Association of Contractors. The grievance alleged that minority contractors were not being utilized on Denver-based, federally funded projects in violation of applicable federal statutes. HUD provided the City with a preliminary investigative report dated September 30, 1977 in which HUD concluded, 26 The [C]ity failed to take those reasonable actions to overcome the effects of conditions which resulted in limited participation in the benefits of the [Community Development Block Grant] Program, and failed to make reasonable efforts to meet the special needs of the minority contractors which in effect resulted in minority contractors not taking full advantage of the [Community Development Block Grant] Program. Martin testified that this HUD report was significant because it was the first time the City was actually told that they were in apparent non-compliance with affirmative action requirements. 27 Martin also testified that the HUD report led Congresswoman Patricia Schroeder to request an investigation by the General Accounting Office (GAO). The GAO evaluated, inter alia, the DPW's compliance with federal affirmative action requirements for minority construction contractors. In a report released on September 25, 1978 (the GAO Report), the GAO concluded that certain DPW contracting practices appeared to have a significant negative effect on minority and other categorical groups of contractors covered by [federal] affirmative action requirements. These practices included requiring contractor prequalification, advertising for most bids only on a limited basis, and providing inadequate time to submit a bid proposal. See Concrete Works II, 36 F.3d at 1524 n. 11. Appended to the GAO Report was a chart detailing the DPW's utilization of minority contractors on federally funded City projects. That chart indicates that a total of $55,477,000 was awarded for such contracts between July 1, 1975 and December 31, 1977. Of that total, $2,476,000, or 4.46% was awarded to minority firms. 28 In 1979, the United States Department of Transportation (DOT) threatened to withdraw federal financial assistance for contracting projects at Denver's Stapleton International Airport unless the City took measures to facilitate minority participation on Stapleton projects. In a letter to the City's mayor, the DOT asserted that the DPW's prequalification requirement, while neutral on its face, was unjustified and operated to bar minority contractors from obtaining DPW contracts. The letter directed the City to eliminate or modify the prequalification requirement and to develop and authorize an affirmative action plan and procedure. In 1980, the City Council adopted an affirmative action program which applied to all contracts funded by the DOT. The plan contained percentage participation goals for both MBEs and WBEs. 29 A report on the utilization by the DPW of minority and women contracting firms prepared by the AAO and dated April 2, 1983, indicates that 9.4% of all DPW contract dollars were awarded to MBEs in 1977, 5.6% in 1978, 4.3% in 1979, 17.2% in 1980, 14.7% in 1981, and 24.1% in 1982. With respect to WBEs, 1.1% of all DPW contract dollars were awarded to WBEs in 1980, 5 0.34% in 1981, and 1.9% in 1982. Martin testified that the information on MBE and WBE project participation was provided by the contractors and that the AAO had no procedure by which it could monitor actual participation. He characterized the utilization numbers as overstated. Although the AAO report estimated the total number of MBEs and WBEs in the Denver MSA, it did not estimate their availability as a percentage of all construction firms. 30 In 1983, the City began to consider expanding its affirmative action program to include all DPW construction projects, not just those receiving federal funding. The City held a public hearing at which the City Council heard testimony from minority contractors and other individuals regarding utilization of MBEs and WBEs on local construction projects. The testimony included specific examples of discrimination encountered in the Denver construction industry. Many minority contractors testified that they worked on projects that had federal requirements for minority participation but were almost completely excluded from City projects without federal affirmative action requirements. Additionally, the Director of Governmental Affairs for the Associated General Contractors of Colorado stipulated at the hearing that there was discrimination in the industry against minorities and women. The City Council subsequently enacted Ordinance 246, Series of 1983, which set goals for MBE and WBE participation in all City construction projects managed by the DPW. The annual goal for MBE participation was 20% of dollars spent. For WBE participation, the goal was 5% of dollars spent. 31 In 1984, the year after Ordinance 246 was passed, the AAO reported that MBE participation on all DPW construction contracts was 28%; WBE participation was 6%. In 1985, MBE participation was 21% and WBE participation was 7%. In 1986, the AAO reported MBE participation on all DPW projects at 20% and WBE participation at 7%. In 1987, MBE participation was 26% and WBE participation was 9%. 32 Ordinance 246 was set to expire in 1988. In that year, the DPW surveyed local contractors by soliciting written responses to questionnaires. The City Council also conducted public hearings on the utilization of MBEs and WBEs on DPW projects. The stated objective of the hearings was [t]o determine the current MBE and WBE utilization levels on [DPW] projects and to assess their overall capabilities; also, to investigate the extent and impact of any past discriminatory practices or barriers to MBE and WBE participation on [DPW] projects; and to identify any special problems affecting MBEs and WBEs in specific areas of the construction industry. Based on the responses to the questionnaires and the extensive testimony presented at the hearings, the City Council determined that Ordinance 246 should be extended with modification. It, therefore, enacted Ordinance No. 424, Series of 1988, which, inter alia, set higher annual participation goals for MBEs and WBEs. 33
34 In 1989, Denver hired, inter alia, Browne, Bortz & Coddington, Inc. and Harding & Ogborn (collectively BBC) to assess the propriety of the DPW goals program in light of the Supreme Court's decision in Croson. BBC issued a final report on June 2, 1990 (the 1990 Study). It determined that data showing MBE and WBE participation on most DPW construction projects was tainted by federal and City affirmative action programs that had been in place for more than a decade. Consequently, the 1990 Study analyzed the availability and utilization of MBE and WBE construction and design firms on City bond projects from the 1970's and 1980's. These projects were not subject to the goals program. Denver argues that this data provides a true measure of MBE and WBE utilization on public contracts. 35 The conclusions reached by BBC were expressed, in part, in the form of disparity indices. A disparity index is calculated by dividing the percentage of MBE and WBE participation in City contracts by the percentage of MBEs and WBEs in the relevant population of local construction firms. A disparity index of 1 demonstrates full MBE and WBE participation, whereas the closer the index is to zero, the greater the MBE and WBE underutilization. Concrete Works II, 36 F.3d at 1524 n. 10. Data from eight City bond projects undertaken between 1972 and 1976 showed disparity indices of less than 0.63 for MBEs and less than 0.29 for WBEs. On a bond project for a renovation of the Museum of Natural History, the disparity indices were 0.48 for MBEs and 0.40 for WBEs. Finally, for 1985 housing bond projects, the disparity indices were 0.43 for MBEs and 0.09 for WBEs. 36 The 1990 Study also examined MBE and WBE utilization in the overall Denver MSA construction market, both public and private. Because DPW construction contracts represented only 2% of all construction in the Denver MSA, BBC believed that the data would not be skewed by the DPW goals program and would reflect the utilization of MBEs and WBEs in the market in which Denver obtained its construction and professional design services. Disparity indices for 1977, calculated by using Census Bureau data, were 0.44 for MBEs and 0.46 for WBEs. For 1982, the disparity indices were 0.46 for MBEs and 0.30 for WBEs. Additional disparity indices for 1989 were calculated using data obtained from telephone surveys conducted by a private telemarketing firm retained by BBC. The disparity indices calculated from this data were 0.43 for MBEs and 0.42 for WBEs. 37 Finally, BBC interviewed representatives of MBEs, WBEs, majority-owned construction firms, and government officials. They also reviewed testimony given at hearings held in 1988 by the DPW and the Denver City Council. Based on this information, the 1990 Study concluded that, despite Denver's efforts to increase MBE and WBE participation in DPW projects, some Denver employees and private contractors engaged in conduct designed to circumvent the goals program. In an effort to ensure that projects were awarded to certain contractors, Denver employees avoided the goals program by using change orders to existing contracts rather than putting new work out to bid. Employees also characterized some major construction projects as remodeling because remodeling projects fell under the auspices of the Department of General Services (DGS) which had no goals program. Other responses indicated that prime contractors continued to call WBEs they knew were no longer in business and counted those calls as good-faith efforts to meet the goals program. Others bid shopped in an effort to prevent MBEs and WBEs from submitting the lowest bid, or characterized subcontractors as suppliers and then contended the goals program did not apply because not enough work was subcontracted. After reviewing the statistical and anecdotal evidence contained in the 1990 Study, the City Council enacted the 1990 Ordinance. 38 In 1991, BBC prepared an additional study analyzing the utilization of MBEs and WBEs in the goods, services, and remodeling industries (the DGS Study). BBC analyzed, inter alia, data for construction and remodeling contracts issued by the DGS. During the relevant period, these contracts were not subject to a goals program but were most likely subject to bonding and prevailing wage requirements. The disparity indices calculated for 1989 DGS remodeling projects were 0.14 for MBEs and 0.47 for WBEs. For 1990 remodeling projects, the disparity indices were 0.19 for MBEs and 1.36 for WBEs. 39 After this court decided Concrete Works II, Denver commissioned another study by BBC (the 1995 Study). Using 1987 Census Bureau data, the 1995 Study again examined utilization of MBEs and WBEs in the construction and professional design industries within the Denver MSA. The census data included information on employment and revenues for proprietorships, partnerships, and Subchapter S corporations with ten or fewer stockholders. Information on C corporations was unavailable. According to the 1995 Study, firms were classified as minority or women-owned if the sole owner or at least half of the partners or shareholders were minorities or women. The 1995 Study acknowledged that the Census Bureau data on Hispanic, Asian, and Native American firms were generated from sampling and underrepresented total marketplace utilization and total availability of those firms. The 1995 Study, however, also noted that Census information indicates that the same relationships between utilization and availability presented in [the] report would also be found if the entire population of Hispanic, Asian and Native American-owned firms were represented. 40 The 1995 Study also concluded that MBEs and WBEs were more likely to be one-person or family-run businesses. The study concluded that Hispanic-owned firms were less likely to have paid employees than White-owned firms but that Asian/Native American-owned firms were more likely to have paid employees than White or other minority-owed firms. To determine whether these factors explained overall market disparities, the 1995 Study used the census data to calculate disparity indices for all firms in the Denver MSA construction industry 6 and separately calculated disparity indices for firms with paid employees and firms with no paid employees. 41 Asian/Native All Black Hispanic American MBEs Women All Firms 0.50 0.53 0.21 0.50 1.61 Firms with Paid Employees N/A 0.67 0.16 0.62 1.42 Firms with No Paid Employees N/A 0.36 0.42 0.36 0.83 42 The Census Bureau information was also used to examine average revenues per employee for Denver MSA construction firms with paid employees. Hispanic, Asian, Native American, and women-owned firms with paid employees all reported lower revenues per employee than majority-owned firms. A comparison of revenues per employee for Black-owned firms was not included in the 1995 Study because of the small number of Black-owned constructions firms with paid employees. 43 The 1995 Study also used 1990 census data to calculate rates of self-employment within the Denver MSA construction industry. The data indicated that 5.8% of Blacks and 6.2% of Hispanics working in the construction industry were self-employed compared with 14.8% of Whites working in the construction industry. For women, 4.8% were self-employed compared to 12.6% of men. Data from the professional design industry demonstrated that 3.3% of women in that industry were self-employed compared to 13.0% of men. The study concluded that the disparities in the rates of self-employment for Blacks, Hispanics, and women persisted even after controlling for education and length of work experience. The 1995 Study controlled for these variables but reported that Blacks and Hispanics working in the Denver MSA construction industry were less than half as likely to own their own businesses as were Whites of comparable education and experience. White women in the construction industry owned businesses at 38% of the rate expected given their education and experience. Additionally, women working in the Denver professional design industry owned businesses at 30% of the expected rate. BBC was unable to perform an analysis of business-ownership rates for Blacks, Hispanics, Asians, and Native Americans working in the professional design industry because the necessary data was unavailable. 44 In late 1994 and early 1995, BBC also conducted a telephone survey of 2920 construction firms doing business in the Denver MSA. The survey collected information on firm revenue; length of time in business; ethnic, racial, and gender status of business ownership; work history with the City; qualifications; interest in future work with the City; and other characteristics. Information was obtained for all construction and professional design firms, including C corporations. Based on information obtained from the survey, BBC calculated percentage utilization and percentage availability of MBEs and WBEs. Percentage utilization was calculated from revenue information provided by the responding firms. Percentage availability was calculated based on the number of MBEs and WBEs that responded to the survey question regarding revenues. Using these utilization and availability percentages, the 1995 Study showed disparity indices of 0.64 for MBEs and 0.70 for WBEs in the construction industry. In the professional design industry, disparity indices were 0.67 for MBEs and 0.69 for WBEs. The 1995 Study concluded that the disparity indices obtained from the telephone survey data were more accurate than those obtained from the 1987 census data because the data obtained from the telephone survey was more recent, had a narrower focus, and included data on C corporations. 7 Additionally, it was possible to calculate disparity indices for professional design firms from the survey data. 45 The 1995 Study also contained a summary of a disparity study conducted in 1993 for the Denver Housing Authority (the DHA Study) and a 1992 disparity study conducted for the Regional Transportation District (the RTD Study). Because the RTD had an affirmative action program in place, the RTD Study examined the utilization of minority- and women-owned firms by the private sector in the Denver area marketplace. The RTD Study, inter alia, examined both prime contracting and subcontracting in the Denver MSA construction industry. The disparity indices shown in the RTD Study are summarized below. 8 46 African-American Hispanic Asian Women Prime Contracting 0.01 0.07 0.03 0.22 Subcontracting 0.01 0.12 0.05 0.53 Total 0.01 0.09 0.04 0.32 47 The DHA Study examined the utilization of M/WBEs by the Denver Housing Authority for the years 1986, 1987, 1988, and 1992. Both census data and information from the DHA's vendor file were used to measure availability. The DHA Study found disparities between the utilization and availability of M/WBEs in some areas in some years, including years that DHA had an affirmative action program in place. 48 After it was presented with the 1995 Study, the City enacted the 1996 Ordinance. The 1996 Ordinance made several changes to the 1990 Ordinance. See Concrete Works III, 86 F.Supp.2d at 1049; supra § II.A. 49 In 1997, the City retained National Economic Research Associates, Inc. (NERA) to conduct a study to estimate the availability of MBEs and WBEs and to examine, inter alia, whether race and gender discrimination limited the participation of MBEs and WBEs in construction projects of the type typically undertaken by the City (the NERA Study). The NERA Study used a more sophisticated method to calculate availability than the earlier studies conducted by BBC. The study first identified the construction specialities and geographic areas in which the City spent the bulk of its construction funds. The MOCC provided NERA with information for the years 1991-1996 relating to the City's construction contracts. That information included the name of the project, the name and address of each contractor and subcontractor, the task performed, the contract type, the amount paid to each contractor, and the total value of each project. NERA excluded projects funded by the federal government and projects relating to the construction of Denver International Airport because they were not representative of the typical City construction project. Public library projects funded by the 1990 Library Bond Program were prorated because their large size was atypical. NERA used the firms' postal zip codes to determine their location. 50 Each construction contract or task performed was then assigned a four-digit Standard Industrial Classification (SIC) code. SIC codes catagorize businesses by specialization and are used by the Census Bureau to report economic statistics. NERA then used this data to summarize the City's construction expenditures by project type and geographic area. The study showed that more than 84% of the City's construction dollars were paid to firms located in Adams, Arapahoe, Boulder, Denver, Douglas, and Jefferson counties. Further, forty SIC codes accounted for 95% of all City construction expenditures. 51 NERA used the geographic and specialization information to calculate M/WBE availability. Availability was defined as the ratio of M/WBE firms to the total number of firms in the four-digit SIC codes and geographic market area relevant to the City's contracts. The total number of firms was obtained from Dun & Bradstreet's Marketplace database. The number of M/WBE firms was obtained from a directory compiled by BBC from twenty-nine different sources. NERA then successfully located 1002 of the 1283 M/WBEs in the directory. The information it obtained from these firms was used to adjust for the possibility of overcounting M/WBEs. NERA also sampled firms in the Dun & Bradstreet Marketplace database to make an undercount adjustment. The final result was a weighted average of availability for each racial group and for women. Availability was calculated for both prime contractors and subcontractors in each group. 52 The NERA Study then compared M/WBE availability and utilization in the Colorado construction industry. The statewide market was used because necessary information was unavailable for the Denver MSA. NERA believed the statewide data was relevant because the Denver MSA accounted for nearly 60% of the total value of construction work done in Colorado. Additionally, data collected in 1987 by the Census Bureau was used because more current data was unavailable. The NERA Study calculated disparity indices 9 for the statewide construction market in Colorado as follows: 0.41 for African-American firms, 0.40 for Hispanic firms, 0.14 for Asian and other minorities, and 0.74 for women-owned firms. NERA considered a disparity to be substantially significant if it was less than 0.80 because the Equal Employment Opportunity Commission considers a selection rate for any group that is 80% or less of the selection rate for the group with the highest rate to be evidence of adverse impact. Cf. 29 C.F.R. § 1607.4(D). 53 The NERA Study also contained an analysis of whether African Americans, Hispanics, or Asian Americans working in the construction industry are less likely to be self-employed than similarly situated Whites. Using data from the Public Use Microdata Samples (PUMS) of the 1990 Census of Population and Housing, NERA obtained a sample of 3075 individuals working in the construction industry, of whom 1874 resided in the Denver MSA. NERA was able to obtain the following information for each individual: race; whether the individual was self-employed or worked for someone else; sex; marital status; age; education; access to capital including dividend and interest income, spouse's income, and home ownership; number of children living at home; and personal handicaps. NERA considered these factors possible determinants of self-employment. Using this information, NERA conducted two probit regressions: one for Colorado and one for the Denver MSA. The study concluded that in both Colorado and the Denver MSA, African Americans, Hispanics, and Native Americans working in the construction industry have lower self-employment rates than Whites. Asian Americans had higher self-employment rates than Whites. NERA concluded that the high rate of self-employment for Asian Americans was consistent with studies showing that immigrants are more likely to be self-employed than individuals born in the United States. Close to 60% of the Asian Americans in the PUMS data used by NERA were immigrants. 54 Using the availability figures calculated earlier in the study, the NERA Study then compared the actual availability of M/WBEs in the Denver MSA with the potential availability of M/WBEs if they formed businesses at the same rate as Whites with the same characteristics. 55 Actual Availability Potential Availability Prime Contracting: African American 2.12% 8.89% Asian 0.48% 0.48% Hispanic 6.32% 14.68% Native American 0.20% 0.60% MBE 9.51% 24.65% WBE 10.45% not calculated Subcontracting: African American 1.93% 8.09% Asian 0.89% 0.89% 56 Hispanic 6.35% 14.75% Native American 0.46% 1.38% MBE 10.11% 25.11% WBE 9.97% not calculated 57 Finally, the NERA Study examined whether self-employed minorities and women in the construction industry have lower earnings than white males with similar characteristics. Using linear regression analysis, NERA was able to compare business owners with similar years of education, of similar age, doing business in the same geographic area, and having other similar demographic characteristics. Even after controlling for several factors, the results showed that self-employed African Americans, Hispanics, Native Americans, and women had lower earnings than white males. In the Denver MSA, the earnings of self-employed women in the construction industry were 59% of the earnings of similarly-situated white men. The earnings disparity for African Americans was 51%, for Hispanics it was 75%, and for Native Americans it was 26%. No disparity was shown for Asian Americans. 58 NERA also conducted a mail survey of both M/WBEs and non-M/WBEs to obtain anecdotal evidence on their experiences in the construction industry. Approximately 17% of the M/WBEs who received the questionnaire responded. Of the M/WBEs who responded, 35% indicated that they had experienced at least one incident of disparate treatment within the last five years while engaged in business activities. These business activities included, inter alia : (1) applying for a commercial loan, (2) applying for a bond, (3) obtaining quotes from suppliers, (4) bidding or working on private and public sector prime contracts, (5) bidding or working on private and public sector subcontracts, (6) receiving payments for subcontracting work, (7) being required to do inappropriate or extra work on a project, and (8) having to meet unnecessarily strict quality or performance standards. The survey also posed the following question: How often do prime contractors who use your firm as a subcontractor on public sector projects with [M/WBE] goals or requirements... also use your firm on public sector or private sector projects without [M/WBE] goals or requirements? Fifty-eight percent of minorities and 41% of white women who responded to this question indicated they were seldom or never used on non-goals projects. 59 M/WBEs were also asked whether the following aspects of procurement made it more difficult or impossible to obtain construction contracts: (1) bonding requirements, (2) insurance requirements, (3) large project size, (4) cost of completing proposals, (5) obtaining working capital, (6) length of notification for bid deadlines, (7) prequalification requirements, and (8) previous dealings with an agency. This question was also asked of non-M/WBEs in a separate survey. With one exception, 10 M/WBEs considered each aspect of procurement more problematic than non-M/WBEs. To determine whether a firm's size or experience explained the different responses, NERA conducted a regression analysis that controlled for age of the firm, number of employees, and level of revenues. The results again showed that with the same, single exception, M/WBEs had more difficulties than non-M/WBEs with the same characteristics. Additionally, the results of a follow-up telephone survey of M/WBE and non-M/WBE firms not responding to the mail survey led NERA to conclude that it is likely the disparities are greater than indicated. The telephone survey indicated that non-M/WBE firms were more likely to have responded to the mail survey than M/WBEs if they had actually experienced the difficulties delineated in the survey question. 60 After the NERA Study was completed, the City enacted the 1998 Ordinance. The 1998 Ordinance reduced the annual goals to 10% for both MBEs and WBEs and eliminated a provision which previously allowed M/WBEs to count their own work toward project goals. See Concrete Works III, 86 F.Supp.2d at 1050.
61 The district court's memorandum and order contains a comprehensive synopsis of the anecdotal evidence presented by Denver at trial. See id. at 1071-74. That evidence was extensive and included the testimony of the senior vice-president of a large, majority-owned construction firm who stated that when he worked in Denver, he received credible complaints from minority and women-owned construction firms that they were subject to different work rules than majority-owned firms. He also testified that he frequently observed graffiti containing racial or gender epithets written on job sites in the Denver metropolitan area. Further, he stated that he believed, based on his personal experiences, that many majority-owned firms refused to hire minority or women-owned subcontractors because they believed those firms were not competent. 62 Several M/WBE witnesses testified that they experienced difficulty prequalifying for private sector projects and projects with the City and other governmental entities in Colorado. See id. at 1071-72. One individual testified that her company was required to prequalify for a private sector project while no similar requirement was imposed on majority-owned firms. Several others testified that they attempted to prequalify for projects but their applications were denied even though they met the prequalification requirements. 63 Other M/WBEs testified that their bids were rejected even when they were the lowest bidder; that they believed they were paid more slowly than majority-owned firms on both City projects and private sector projects; that they were charged more for supplies and materials; that they were required to do additional work not part of the subcontracting arrangement; and that they found it difficult to join unions and trade associations. See id. at 1072-73. There was extensive testimony detailing the difficulties M/WBEs experienced in obtaining lines of credit. One WBE testified that she was given a false explanation of why her loan was declined; another testified that the lending institution required the co-signature of her husband even though her husband, who also owned a construction firm, was not required to obtain her co-signature; a third testified that the bank required her father to be involved in the lending negotiations. 64 The most poignant anecdotal testimony involved recitations of racially and gender-motived harassment experienced by M/WBEs at work sites. Women were called bitches and Blacks were called nigger or dumb nigger. One seventy-three year old truck driver was called a dumb, f-ing Mexican. Even more disturbing was the testimony that minority and female employees working on construction projects were physically assaulted and fondled, spat upon with chewing tobacco, and pelted with two-inch bolts thrown by males from a height of eighty feet. 65