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Court of Appeals Preserves North Carolina’s Program to Remedy Discrimination against African-American and Native American Businesses

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Thursday, July 22, 2010

In a July 2010 opinion, the U.S. Court of Appeals for the Fourth Circuit upheld some key aspects of North Carolina’s program to remedy discrimination in the construction industry. 

“This ruling upholds critical parts of the state's Minority and Women Owned Business Program, which was designed to promote fair competition for public contracts in response to persistent exclusionary practices,” said John Payton, LDF’s President and Director-Counsel.  “Nevertheless, LDF is disappointed that the Court imposed limits on North Carolina’s extremely modest efforts to overcome persistent discrimination against businesses owned by minorities and women.”

In 2006, the North Carolina General Assembly reauthorized its Minority and Women Business Enterprise (M/WBE) Program for state-funded road construction projects.  Based on its considered judgment that historical and ongoing discrimination continued to impede access to contracting opportunities in the state’s construction industry, North Carolina required prime contractors to make good-faith efforts to satisfy participation goals for minority and women subcontractors on state-funded projects.  H.B. Rowe Company filed a lawsuit against North Carolina’s M/WBE Program after its bid for a road relocation project was rejected because it failed even to satisfy the state’s lenient standard for demonstrating good-faith efforts to recruit minority subcontractors.  A federal district court upheld the constitutionality of the M/WBE Program, and H.B. Rowe appealed to the Fourth Circuit. 

LDF filed a friend-of-the-court brief defending the constitutionality of the M/WBE Program.  LDF highlighted severe obstacles to fair competition that have made it more difficult to eradicate racial discrimination in the construction industry than in many other sectors of the economy.  In North Carolina and throughout the country, the primary method of filling jobs and awarding contracts in the construction industry has been word-of-mouth dissemination of information through racially exclusive social networks.  As a result, minority entrepreneurs have had substantially limited opportunities to start up and develop successful construction firms.

The three-judge panel of the Fourth Circuit unanimously held that the state produced strong evidence that its narrowly-tailored program was necessary to remedy discrimination against African-American and Native American subcontractors.  The Court found “[p]articularly compelling” North Carolina’s statistical and anecdotal evidence that African-American and Native American businesses were “grossly underutilized” by prime contractors and “disadvantaged by a racially exclusive ‘old boys network.’”

Although the Court also acknowledged evidence of discrimination against businesses owned by women, Hispanics, and Asian Americans, it ruled that the state had not sufficiently justified its efforts to assist these groups.  But the Court did leave open the possibility that North Carolina could in the future come forth with evidence warranting broader application of its program.  It bears emphasis that the Fourth Circuit focused narrowly on the specific evidence presented to support North Carolina’s program.  Nevertheless, the decision reinforces the importance of carefully designed disparity studies as a means to substantiate the constitutionality of government programs that seek to ensure fair opportunities for all businesses to compete on a level playing field for public contracts.