Justia Federal District Court Opinions

Following the Supreme Court's vacation of our dismissal on mootness grounds, we address the merits of this appeal, namely, the federal government's challenge to the district court's grant of summary judgment to plaintiff-appellee Adarand Constructors, Inc. In so doing, we must resolve the constitutionality of the use in federal subcontracting procurement of the Subcontractor Compensation Clause ("SCC"), which employs race-conscious presumptions designed to favor minority enterprises and other "disadvantaged business enterprises" ("DBEs"). Our evaluation of the SCC program utilizes the "strict scrutiny" standard of constitutional review enunciated by the Supreme Court in an earlier decision in this case, Adarand Constructors, Inc. v. Pena, 515 U.S. 200 (1995) ("Adarand III").

In his concurring opinion in Adarand III, Justice Scalia succinctly articulated this Nation's guiding aspiration: "In the eyes of government, we are just one race here. It is American." Id. at 239 (Scalia, J., concurring in part and concurring in the judgment). Until that future day when national aspiration and national reality converge, the Court has made clear that under certain circumstances the federal government may use race-conscious means to remedy the effects of historical and present-day racial discrimination. Inherently, we resolve whether the two branches of the government--the Legislative and the Executive--that have chosen to hasten that future day have met the constitutional standards enunciated by the third branch. Since the district court last considered this case, and after lengthy congressional hearings in response to the Adarand III decision, the federal government has significantly changed the way in which it implements the challenged race-conscious programs in highway construction contracting. It is ultimately our considered judgment that the SCC program and the DBE certification programs as currently structured, though not as they were structured in 1997 when the district court last rendered judgment, pass constitutional muster: They are narrowly tailored to serve a compelling governmental interest. Thus, exercising jurisdiction pursuant to 28 U.S.C. § 1291, we reverse the judgment of the district court below.

* The Supreme Court has characterized the facts of this case as "fairly straightforward," Adarand III, 515 U.S. at 206, summarizing the relevant facts as follows:

In 1989, the Central Federal Lands Highway Division (CFLHD), which is part of the United States Department of Transportation (DOT), awarded the prime contract for a highway construction project in Colorado to Mountain Gravel & Construction Company. Mountain Gravel then solicited bids from subcontractors for the guardrail portion of the contract. Adarand, a Colorado-based highway construction company specializing in guardrail work, submitted the low bid. Gonzales Construction Company also submitted a bid.

Id. at 205. At the time, Gonzales was certified as a small business owned and controlled by socially and economically disadvantaged individuals, while Adarand was not. See id. This litigation centers around the SCC, a clause which was included in CFLHD's prime contract with Mountain Gravel. The SCC provided "that Mountain Gravel would receive additional compensation if it hired subcontractors certified as small businesses controlled by 'socially and economically disadvantaged individuals.'" Id. (citation omitted).

Adarand submitted an affidavit stating that but for the additional compensation Mountain Gravel obtained by hiring Gonzales, a certified business, it would have hired Adarand for the guardrail work. See id. Adarand sued, arguing that the use of a race-conscious presumption in determining who is a socially and economically disadvantaged individual for purposes of the SCC violated its Fifth Amendment equal protection rights. See id. at 205-06.

In Adarand Constructors, Inc. v. Skinner, 790 F. Supp. 240 (D. Colo. 1992) ("Adarand I"), the district court addressed Adarand's challenge to "the DBE program as administered by the CFLHD within Colorado." Id. at 241 (footnote omitted). Without focusing specifically on the SCC and its operation, the court in Adarand I upheld as constitutional, under intermediate scrutiny, statutory provisions defining DBEs and setting goals for DBE participation in government contracting. See id. at 241, 244-45 (relying on Fullilove v. Klutznick, 448 U.S. 448, 480 (1980); Metro Broadcasting, Inc. v. FCC, 497 U.S. 547, 598-601 (1990)).

In Adarand Constructors, Inc. v. Pena, 16 F.3d 1537, 1539 (10th Cir. 1994) ("Adarand II"), this Court affirmed the district court's judgment on different grounds. We concluded that Adarand had standing to challenge the SCC program as it pertains to minority business enterprises but not women-owned business enterprises and addressed our inquiry to the SCC as a program implemented pursuant to § 502 of the Small Business Act of 1958 ("SBA"), Pub. L. No. 85-536, 72 Stat. 384 (codified as amended, 15 U.S.C. § 631 et seq.). See Adarand II, 16 F.3d at 1543 (citing 15 U.S.C. § 644(g)). Like the district court, we relied on Metro Broadcasting, 497 U.S. at 565, applying intermediate scrutiny to the SCC and holding "the SCC program . . . constitutional because it is narrowly tailored to achieve its significant governmental purpose of providing subcontracting opportunities for small [DBEs], as required under section 502 of the [SBA]." Adarand II, 16 F.3d at 1547.

The Supreme Court reversed. It overruled Metro Broadcasting and cast doubt on Fullilove insofar as that case might be read to apply less than strict scrutiny to federal programs involving racial classifications. See Adarand III, 515 U.S. at 227, 235.¹

On remand, the district court held the SCC program unconstitutional, finding it insufficiently narrowly tailored to further a compelling interest because the program was both over- and under-inclusive, including minority individuals who were not in fact disadvantaged and excluding non-minority individuals who were disadvantaged. See Adarand Constructors, Inc. v. Pena, 965 F. Supp. 1556 (D. Colo. 1997) ("Adarand IV"). With regard to the Court's pronouncement in Adarand III that strict scrutiny is not "fatal in fact," the district court found it "difficult to envisage a race-based classification" that would ever be narrowly tailored, thereby effectively pronouncing strict scrutiny fatal in fact. Id. at 1580. The district court granted summary judgment to Adarand.

Following Adarand IV, we considered the government's contention that subsequent events had rendered the case moot. See Adarand Constructors, Inc. v. Slater, 169 F.3d 1292 (10th Cir. 1999) ("Adarand V"). Specifically, because Adarand applied for and was granted DBE certification by the Colorado Department of Transportation ("CDOT"), we concluded that Adarand could no longer demonstrate an injury stemming from the SCC sufficient to confer standing. See id. at 1296-97. Hence, the case was moot. See id.

The Supreme Court disagreed. See Adarand Constructors, Inc. v. Slater, 120 S. Ct. 722 (2000) ("Adarand VI"). Relying on its decision in Friends of the Earth, Inc. v. Laidlaw Environmental Services (TOC), Inc., 120 S. Ct. 693 (2000), handed down on the same day as its Adarand VI remand, the Court stated it had "recently noted" that a possibility of a defendant "engag[ing] in (or resum[ing]) harmful conduct" might be too speculative to confer standing but not too speculative to overcome mootness. Adarand VI, 120 S. Ct. at 726 (quoting Friends of the Earth, 120 S. Ct. at 699). The Court held it was "far from clear" that DOT would not initiate proceedings to revoke Adarand's status and because "it is impossible to conclude that respondents have borne their burden of establishing that it is 'absolutely clear that the allegedly wrongful behavior could not reasonably be expected to recur,' petitioner's cause of action remains alive." Id. at 726-27 (quoting Friends of the Earth, Inc., 120 S. Ct. at 708). With the reversal of our judgment in Adarand V, this appeal was remanded to us for consideration on the merits. See id. at 726-27.

In the discussion that follows, we first dispose of three threshold concerns: (1) a determination of the appropriate versions of the statutes and regulations at issue in this case; (2) the scope of our review of the SCC program; and (3) a brief overview of the relevant statutory framework and of the SCC program. Then, in Part III we subject the SCC program to strict scrutiny, examining the compelling interest underlying the program as well as its narrow tailoring, and addressing specific issues that the Supreme Court in Adarand III directed that we consider. Finally, in Part IV, we briefly discuss the government's request that we consolidate with the instant action a pending, potentially related case, originally filed under the name Adarand Constructors, Inc. v. Romer, No. CIV. A. 97-K-1351 (D. Colo. June 26, 1997).

II

We begin by addressing the scope of our inquiry in this appeal. It is essential that we decide which versions of the statutes and regulations at issue are properly before us, as well as which portions of those statutes and regulations are relevant to this appeal.

Several statutes are implicated in this case, notably §§ 8(a), 8(d) and 502 of the SBA (codified as amended at 15 U.S.C. §§ 637(a), (d), and 644(g)), § 106(c) of the Surface Transportation and Uniform Relocation Assistance Act of 1987 ("STURAA"), Pub. L. No. 100-17, 101 Stat. 132, 145 (1987), § 1003(b) of the Intermodal Surface Transportation Efficiency Act of 1991 ("ISTEA"), Pub. L. No. 102-240, 105 Stat. 1914, 1919-21 (1991), § 1101(b) of the Transportation Equity Act for the 21st Century of 1998 ("TEA-21"), Pub. L. No. 105-178, 112 Stat. 107, 113-15 (1998), as well as their accompanying administrative regulations.

With regard to the foregoing statutes, regulations, and SCC, the parties disagree as to whether we may properly consider intervening changes in the law between 1992 when Adarand I was handed down and the present.² Our resolution of that dispute is ultimately compelled by the logic of the well-settled precedent of both the Supreme Court and this Circuit. Adarand seeks only prospective declaratory and injunctive relief. See Adarand III, 515 U.S. at 210.³ Application of the intervening statutory and regulatory changes to this type of claim does not implicate any presumption against the retroactive application of statutes. See Landgraf v. USI Film Prods., 511 U.S. 244, 273 (1994) ("Even absent specific legislative authorization, application of new statutes passed after the events in suit is unquestionably proper in many situations. When the intervening statute . . . affects the propriety of prospective relief, application of the new provision is not retroactive."); Jurado-Gutierrez v. Greene, 190 F.3d 1135, 1149 (10th Cir. 1999) (applying Landgraf), cert. denied sub nom. Palaganas-Suarez v. Greene, 120 S. Ct. 1539 (2000); see also Jones v. Hess, 681 F.2d 688, 695 n.9 (10th Cir. 1982) ("Generally an appellate court must apply the law in effect at the time it renders its decision where a change in law occurs while a case is on direct appeal, although there may well be an exception to this rule to prevent manifest injustice." (citations omitted)); McMahan v. Hunter, 179 F.2d 661, 663 (10th Cir. 1950) ("[W]here a rule of law was changed after the decision in the trial court but before the decision in the Appellate Court, the decision in the Appellate Court must be according to the new law."); 13A Charles Alan Wright et al., Federal Practice & Procedure, Jurisdiction 2d § 3533.6 (1984) ("Ordinarily, courts . . . apply[] the law in force at the time of decision, unless a good reason appears for ignoring the change."); cf. Kaiser Aluminum & Chem. Corp. v. Bonjorno, 494 U.S. 827, 836-37 (1990). To ignore intervening changes in the statutory and regulatory framework underlying this litigation would be to shirk our responsibility to strictly scrutinize the real-world legal regime against which Adarand seeks prospective relief. The changes in the law are squarely before us today, and we discern no reason to leave their scrutiny to future litigation, in effect prolonging the instant litigation and fostering "both a wasteful expenditure of resources by courts and litigating parties and the gradual undermining of public confidence in the judiciary--in short, Dickens's Jarndyce v. Jarndyce syndrome." McIlravy v. Kerr-McGee Coal Corp., 204 F.3d 1031, 1035 (10th Cir. 2000).

However, considering that we are reviewing a decision of the district court below that relied on older versions of the statutes, regulations, and SCC, and because we are mindful that future statutory and regulatory changes may cause the government to "engage in (or resume) [the] harmful conduct" in question earlier in this litigation so as to militate against a finding of mootness, Adarand VI, 120 S. Ct. at 726 (quoting Friends of the Earth, 120 S. Ct. at 699), we consider the statutory and regulatory framework in its prior stages as well.⁴ See also Northeastern Fla. Chapter of Associated Gen. Contractors of Am. v. City of Jacksonville, 508 U.S. 656, 662 (1993) ("[A] defendant's voluntary cessation of a challenged practice does not deprive a federal court of its power to determine the legality of the practice." (quoting City of Mesquite v. Aladdin's Castle, Inc., 455 U.S. 283, 289 (1982))). It is not fanciful to suggest that the government may retreat to prior practice, but if the government did so, this opinion expressly holds that such an action would be unconstitutional for the reasons discussed below.

B. The Scope of the SCC Program Under Scrutiny

We next clarify the scope of the SCC program under review. In that regard, we are bound by the Supreme Court's ruling on Adarand's standing in Adarand III as law of the case. Based on its conclusion that "CFLHD is likely to let contracts involving guardrail work that contain a[n] [SCC] at least once per year in Colorado, that Adarand is very likely to bid on each such contract, and that Adarand often must compete for such contracts against small disadvantaged businesses," the Court held Adarand has standing to challenge "the race-based rebuttable presumption used in some certifications under the Subcontracting Compensation Clause." Adarand III, 515 U.S. at 212-13 (citation omitted).

We recognize, however, that there are programs that the Supreme Court did not hold Adarand has standing to challenge. First is the § 8(a) program, discussed below. See 15 U.S.C. § 637(a). Subsection 8(a) does not involve the use of SCCs, nor has Adarand made any showing that it has been injured by non-inclusion in the § 8(a) program. Second, we specifically held in Adarand II that Adarand has not shown standing to challenge "the provisions of the SCC program pertaining to women-owned business enterprises (WBE)." 16 F.3d at 1543. This conclusion was left undisturbed by the Supreme Court, see Adarand III, 515 U.S. at 210-12, and remains law of the case, and we discern no clear error in that prior decision or manifest injustice sufficient to warrant overriding the law of the case doctrine, see Agostini v. Felton, 521 U.S. 203, 236 (1997); McIlravy, 204 F.3d at 1034-35. Furthermore, our decision in Adarand II, as well as the Supreme Court's remand in Adarand III, was limited to the question of the constitutionality of the use of a race-conscious presumption in the SCC program. See Adarand III, 515 U.S. at 237-38. This case does not involve, nor has Adarand ever demonstrated standing to bring, a generalized challenge to the policy of maximizing contracting opportunities for small disadvantaged businesses set forth in 15 U.S.C. §§ 637 and 644(g), or to the various goals for fostering the participation of small minority-owned businesses promulgated pursuant to 15 U.S.C. § 644(g), also discussed below. Nor are we presented with any indication that Adarand has standing to challenge paragraphs (4)-(6) of 15 U.S.C. § 637(d). Finally, we agree with the government that throughout the course of this litigation, Adarand's challenge has been to the use of the SCC in direct federal highway procurement contracts entered into by the CFLHD with funds appropriated under STURAA, ISTEA, and TEA-21. In the discussion that follows, we therefore address the constitutionality of the relevant statutory provisions as applied in the SCC program, as well as their facial constitutionality. To the extent the district court's judgment can be construed as having reached statutes, programs, and issues beyond the scope of Adarand's standing and the Supreme Court's remand in Adarand III, we reverse that judgment.

C. Overview of the Statutory Framework and the SCC

We are now in a position to offer a brief overview of the statutory framework and the SCC underlying this litigation.

The [SBA] . . . declares it to be "the policy of the United States that small business concerns, [and] small business concerns owned and controlled by socially and economically disadvantaged individuals, . . . shall have the maximum practicable opportunity to participate in the performance of contracts let by any Federal agency." § 8(d)(1), 15 U.S.C. § 637(d)(1). The [SBA] defines "socially disadvantaged individuals" as "those who have been subjected to racial or ethnic prejudice or cultural bias because of their identity as a member of a group without regard to their individual qualities," § 8(a)(5), 15 U.S.C. § 637(a)(5), and it defines "economically disadvantaged individuals" as "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 same business area who are not socially disadvantaged." § 8(a)(6)(A), 15 U.S.C. § 637(a)(6)(A).

In furtherance of the policy stated in § 8(d)(1), the Act establishes "[t]he Government-wide goal for participation by small business concerns owned and controlled by socially and economically disadvantaged individuals" at "not less than 5 percent of the total value of all prime contract and subcontract awards for each fiscal year." 15 U.S.C. § 644(g)(1). It also requires the head of each federal agency to set agency-specific goals for participation by businesses controlled by socially and economically disadvantaged individuals. Id.

Adarand III, 515 U.S. at 206. These goals must "realistically reflect the potential" of small disadvantaged businesses to perform subcontracts. See 15 U.S.C. § 644(g)(2), (h)(1). Under both § 8(a) and § 8(d), subcontractors can be certified as DBEs, qualifying them for the SCC program at issue in this litigation.

STURAA, ISTEA, and TEA-21, the transportation appropriations statutes at issue in this case, incorporate the presumption of disadvantage from SBA § 8(d). See STURAA § 106(c)(2)(B), ISTEA § 1003(b)(2)(B); TEA-21 § 1101(b)(2)(B) (providing that the term "socially and economically disadvantaged individuals" has the meaning of such term under SBA § 8(d) "and relevant subcontracting regulations promulgated pursuant thereto."). STURAA, ISTEA, and TEA-21 all set forth aspirational goals of 10% DBE participation in federal subcontracting. See STURAA § 106(c)(1); ISTEA § 1003(b)(1); TEA-21 § 1101(b)(1).⁵

The SCC is a means of implementing the various statutory goals and directives at issue in this litigation. This clause provides a financial bonus of up to 10% of an approved subcontract (no more than 1.5% or 2% of the original contract, depending on how many DBEs are employed) to a prime contractor for employing a DBE. (See Appellants' App. at 55-56.) Subcontractors must be certified as DBEs by "the SBA, a state highway agency, or some other certifying authority acceptable to the contracting officer" pursuant to the "[§] 8(a) or [§] 8(d) program, or certification by a State under the DOT regulations." Adarand III, 515 U.S. at 209-10. In November of 1997, the SCC at issue in Adarand IV was revised, leaving the basic framework in place. At present, the government maintains, and Adarand does not dispute, that SCCs are no longer in use. (See Appellants' Supp. Br. Attach. 1.)

A discussion of the complex, cumbersome, and changing regulations promulgated pursuant to the foregoing statutes, as well as a more thorough summary both of the statutory framework itself and of the SCC, is incorporated as an Appendix to this opinion. Otherwise, changes in the relevant portions of the regulations and SCC are discussed in our application of the strict scrutiny standard that follows.

III

In reviewing the district court's grant of summary judgment to Adarand, we employ our customary standard of review:

We review a grant of a motion for summary judgment de novo, applying the same legal standard used by the district court. See Byers v. City of Albuquerque, 150 F.3d 1271, 1274 (10th Cir. 1998). Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c). We view the evidence, and all reasonable inferences drawn therefrom, in the light most favorable to the nonmoving party. See Byers, 150 F.3d at 1274.

McGarry v. Board of County Comm'rs, 175 F.3d 1193, 1198 (10th Cir. 1999). At the very outset, before immersing ourselves in the intricacies of the issues before us, we emphasize our substantial agreement with much of the district court's judgment as it pertains to the versions of the statutes and regulations in place in 1996. Insofar as the court's judgment does not exceed the proper scope of its review and with the significant caveat that we disagree both with the court's conclusion regarding the fatality in fact of strict scrutiny and with its ultimate result in light of the current version of the relevant regulations, we take the district court's view of the matter. And we share wholeheartedly its sentiment that the time has come for this litigation to come to an end. See Adarand IV, 965 F. Supp. at 1558.

The Supreme Court's declarations in the affirmative action area are characterized by plurality and split opinions and by the overruling of precedent. This fractured prism complicates the task of lower courts in both identifying and applying an appropriate form of equal protection review. We therefore begin our analysis with a brief review of what we understand to be the current state of the law in this area.

Twenty years ago, the Supreme Court addressed a direct precursor of the statutes at issue today in Fullilove, 448 U.S. at 448. Although Fullilove failed to produce a majority opinion, six Justices voted to affirm the program at issue--the "minority business enterprise" ("MBE") provision of the Public Works Employment Act of 1977, Pub. L. 95-28, 91 Stat. 116, § 103(f)(2). See Fullilove, 448 U.S. at 453. The MBE provision required that, subject to waiver by the Secretary of Commerce, "no grant shall be made under this Act for any local public works project unless the applicant gives satisfactory assurance to the Secretary [of Commerce] that at least 10 per centum of the amount of each grant shall be expended for minority business enterprises." Id. at 454 (quoting 42 U.S.C. § 6705(f)(2) (1976 ed., Supp. II)). For purposes of the MBE set-aside, MBEs were defined as businesses owned and controlled by individuals who could be classified as "Negroes, Spanish-speaking, Oriental, Indians, Eskimos, and Aleuts." Id. (quoting 42 U.S.C. § 6705(f)(2)). The MBE program was a mandatory set-aside; under the relevant regulations, a request for waiver could be granted, among other circumstances, if a minority business enterprise quoted an "unreasonable" price. Id. at 470-71 (internal quotation and citation omitted).

Chief Justice Burger, joined by Justices White and Powell, applied what appears to be a more deferential standard than what the Court often terms "strict scrutiny":

A program that employs racial or ethnic criteria, even in a remedial context, calls for close examination; yet we are bound to approach our task with appropriate deference to the Congress, a co-equal branch charged by the Constitution with the power to "provide for the . . . general Welfare of the United States' and 'to enforce, by appropriate legislation," the equal protection guarantees of the Fourteenth Amendment.

Id. at 472 (quoting U.S. Const., art. I, § 8, cl. 1); see also City of Richmond v. J.A. Croson Co., 488 U.S. 469, 487 (1989) (Op. of O'Connor, J.) ("The principal opinion in Fullilove, written by Chief Justice Burger, did not employ 'strict scrutiny' or any other traditional standard of equal protection review.").

Adarand III, 515 U.S. at 235, cast doubt on Fullilove. "[T]o the extent (if any) that Fullilove held federal racial classifications to be subject to a less rigorous standard, it is no longer controlling. But we need not decide today whether the program upheld in Fullilove would survive strict scrutiny as our more recent cases have defined it." Id. We interpret that statement in Adarand III as precluding reliance on Fullilove for either the standard of review or the result in this case. Otherwise, the programs at issue here would almost certainly pass muster under the Fullilove standard because, in furtherance of substantially similar goals, the programs before us impose a significantly more flexible and less intrusive remedy--a voluntary subsidy as opposed to a fixed set-aside subject to waiver.⁶

In 1989 the Court produced a majority for a portion of an affirmative action opinion. See Croson, 488 U.S. at 469. In Croson, the Court struck down under strict scrutiny a municipal plan requiring "prime contractors to whom the city awarded construction contracts to subcontract at least 30% of the dollar amount of the contract to one or more [MBEs]." Id. at 477. In so doing, Justice O'Connor, joined by Chief Justice Rehnquist and Justice White, rejected the competing arguments that a state's power to remedy racial discrimination is equal to that of Congress under § 5 of the Fourteenth Amendment and that the Fourteenth Amendment effectively preempts state action in matters of race. See id. at 489-93 (Op. of O'Connor, J.).⁷ A plurality of the Court then proceeded to reject the proposition that the level of scrutiny varies in cases of "benign" and invidious racial classifications, noting that black Americans constituted a controlling political majority in the city of Richmond, a fact militating against the application of a more deferential standard of review. Id. at 495-96 (Op. of O'Connor, J.).

What did produce a clear majority in Croson was the proposition that "the factual predicate offered in support of the Richmond Plan suffers from the two defects identified as fatal in Wygant [v. Jackson Board of Education, 476 U.S. 267 (1986)]," Croson, 488 U.S. at 498, namely, failure to make findings specific to the market to be addressed by the remedy and to provide limits to the scope of that remedy due to only generalized findings of discrimination.⁸ The Court stated that "[w]hile there is no doubt that the sorry history of both private and public discrimination in this country has contributed to a lack of opportunities for black entrepreneurs, this observation, standing alone, cannot justify a rigid racial quota in the awarding of public contracts in Richmond, Virginia." Id. at 499. In particular, the majority noted it was "sheer speculation" to simply guess how many firms there would be absent past discrimination and "[t]he 30% quota cannot in any realistic sense be tied to any injury suffered by anyone." Id.

After noting the City of Richmond's failure to link its remedial program to specifically identified past discrimination, the Croson majority made two additional observations explaining why the City's program was not narrowly tailored. See id. at 507. First, the Court noted "there does not appear to have been any consideration of the use of race-neutral means to increase minority business participation in city contracting." Id. (citing United States v. Paradise, 480 U.S. 149, 171 (1987)). The Court suggested that race-neutral programs of municipal financing for small firms might increase minority participation without the use of a direct racial preference. See id.

Second, the Court declared "[t]he 30% quota cannot be said to be narrowly tailored to any goal, except perhaps outright racial balancing. It rests upon the 'completely unrealistic' assumption that minorities will choose a particular trade in lockstep proportion to their representation in the local population." Id. (quoting Sheet Metal Workers v. EEOC, 478 U.S. 421, 494 (1986) (O'Connor, J., concurring in part and dissenting in part)).

Adarand III, 515 U.S. at 235 (citing Fullilove, 448 U.S. at 496 (Powell, J., concurring)), followed and held that "[f]ederal racial classifications, like those of a State, must serve a compelling governmental interest, and must be narrowly tailored to further that interest." Now, informed by the Supreme Court's directives pertaining to remand, and its multifaceted jurisprudence on affirmative action programs, we turn to the task of assessing the application of racial presumptions in the SCC program under a strict scrutiny standard.

We "decide the question [of] whether the interests served by the use of [SCCs] are properly described as 'compelling.'" Adarand III, 515 U.S. at 237. In so doing, our inquiry necessarily consists of four parts: First, we must determine whether the government's articulated goal in enacting the race-based measures at issue in this case is appropriately considered a "compelling interest" under the governing case law; if so, we must then set forth the standards under which to evaluate the government's evidence of compelling interest; third, we must decide whether the evidence presented by the government is sufficiently strong to meet its initial burden of demonstrating the compelling interest it has articulated; and finally, we must examine wether the challenging party has met its ultimate burden of rebutting the government's evidence such that the granting of summary judgment to either party is proper. We begin, as we must, with an inquiry into the meaning of "compelling interest."

1. "Compelling Interest" in Race-Conscious Measures Defined

We know from Adarand III that, as a general proposition, there may be a compelling interest that supports the enactment of race-conscious measures. Justice O'Connor explicitly states: "The unhappy persistence of both the practice and the lingering effects of racial discrimination against minority groups in this country is an unfortunate reality, and government is not disqualified from acting in response to it." Adarand III, 515 U.S. at 237; see also Shaw v. Hunt, 517 U.S. 899, 909 (1996) (stating that "remedying the effects of past or present racial discrimination may in the proper case justify a government's use of racial distinctions" (citing Croson, 488 U.S. at 498-506)). Interpreting Croson, we have recognized that "the Fourteenth Amendment permits race-conscious programs that seek both to eradicate discrimination by the governmental entity itself and to prevent the public entity from acting as a '"passive participant" in a system of racial exclusion practiced by elements of the local construction industry' by allowing tax dollars 'to finance the evil of private prejudice.'" Concrete Works of Colo., Inc. v. City & County of Denver, 36 F.3d 1513, 1519 (10th Cir. 1994) (quoting Croson, 488 U.S. at 492).

The government identifies the compelling interest at stake in the use of racial presumptions in the SCC program as "remedying the effects of racial discrimination and opening up federal contracting opportunities to members of previously excluded minority groups." (Appellants' Br. at 21.) The district court in Adarand IV, 965 F. Supp. at 1572, held this interest is properly described as compelling, reasoning that "it appears that Justice O'Connor's assertion in Croson, that Congress has the ability under Section 5 [of the Fourteenth Amendment] to recognize and address racial discrimination, has been left undisturbed." Although we decline to address the precise relationship between § 5 of the Fourteenth Amendment and the power of Congress, acting through the Executive branch, to address racial discrimination by the states, we readily conclude that the federal government has a compelling interest in not perpetuating the effects of racial discrimination in its own distribution of federal funds and in remediating the effects of past discrimination in the government contracting markets created by its disbursements. See Croson, 488 U.S. at 492 (Op. of O'Connor, J.) ("It is beyond dispute that any public entity, state or federal, has a compelling interest in assuring that public dollars, drawn from the tax contributions of all citizens, do not serve to finance the evil of private prejudice." (citing Norwood v. Harrison, 413 U.S. 455, 465 (1973))); Norwood, 413 U.S. at 463 ("That the Constitution may compel toleration of private discrimination in some circumstances does not mean that it requires state support for such discrimination.").

In its brief, Adarand cites general language from Adarand III in an attempt to limit the permissible scope of Congress's power to redress the effects of racial discrimination, ignoring the substantial differences between the scope of problems to be addressed by Congress and those to be addressed by a city council such as that in Croson. The fact that Congress's enactments must serve a compelling interest does not necessitate the conclusion that the scope of that interest must be as geographically limited as that of a local government. See Croson, 488 U.S. at 489 (Op. of O'Connor, J.).⁹ Although there is not a clear majority on the Court for the proposition that § 5 of the Fourteenth Amendment grants Congress broad remedial powers in the area of discrimination, in Section II of Justice O'Connor's opinion in Croson, Justice O'Connor and Chief Justice Rehnquist endorsed that proposition. See Croson, 488 U.S. at 490 ("That Congress may identify and redress the effects of society-wide discrimination does not mean that, a fortiori, the States and their political subdivisions are free to decide that such remedies are appropriate."). The geographic scope of Congress's reach in this regard is "society-wide" and therefore nationwide. See id.¹⁰

2. Evidence Required to Show Compelling Interest

While the government's articulated interest is compelling as a theoretical matter, we must yet determine whether the actual evidence proffered by the government supports the existence of past and present discrimination in the publicly-funded highway construction subcontracting market. Generally,

[a]bsent searching judicial inquiry into the justification for . . . race-based measures, there is simply no way of determining what classifications are . . . in fact motivated by illegitimate notions of racial inferiority or simple racial politics. Indeed, the purpose of strict scrutiny is to 'smoke out' illegitimate uses of race by assuring that the legislative body is pursuing a goal important enough to warrant the use of a highly suspect tool.

Id. at 493 (Op. of O'Connor, J.); see also Shaw v. Reno, 509 U.S. 630, 643-44 (1993) ("A racial classification, regardless of purported motivation, is presumptively invalid and can be upheld only upon an extraordinary justification." (quoting Personnel Administrator of Mass. v. Feeney, 442 U.S. 256, 272 (1979)) (further citations omitted)).

Our "benchmark for judging the adequacy of the government's factual predicate for affirmative action legislation [i]s whether there exists a 'strong basis in evidence for [the government's] conclusion that remedial action was necessary.'" Concrete Works, 36 F.3d at 1521 (quoting Croson, 488 U.S. at 500 (quoting Wygant, 476 U.S. at 277 (plurality))) (emphasis in Concrete Works). Both statistical and anecdotal evidence are appropriate in the strict scrutiny calculus, although anecdotal evidence by itself is not. See Concrete Works, 36 F.3d at 1520-21.

Although Croson places the burden of production on the [government] to demonstrate a "strong basis in evidence" that its race- and gender-conscious contract program aims to remedy specifically identified past or present discrimination, the Fourteenth Amendment does not require a court to make an ultimate judicial finding of discrimination before [the government] may take affirmative steps to eradicate discrimination.

Id. at 1522 (citing Wygant, 476 U.S. at 292 (O'Connor, J., concurring)). After the government's initial showing, the burden shifts to Adarand to rebut that showing: "Notwithstanding the burden of initial production that rests" with the government, "[t]he ultimate burden [of proof] remains with [the challenging party] to demonstrate the unconstitutionality of an affirmative-action program." Id. (quoting Wygant, 476 U.S. at 277-78 (plurality)). "[T]he nonminority [challengers] . . . continue to bear the ultimate burden of persuading the court that [the government entity's] evidence did not support an inference of prior discrimination and thus a remedial purpose." Id. at 1522-23 (quoting Wygant, 476 U.S. at 293 (O'Connor, J., concurring)).

In addressing the question of what evidence of discrimination supports a compelling interest in providing a remedy, we consider both direct and circumstantial evidence, including post-enactment evidence introduced by defendants as well as the evidence in the legislative history itself. See Concrete Works, 36 F.3d at 1521, 1529 n.23 (considering post-enactment evidence).¹¹ Furthermore, we may consider public and private discrimination not only in the specific area of government procurement contracts but also in the construction industry generally; thus, any findings Congress has made as to the entire construction industry are relevant. See id. at 1523, 1529; see also Croson, 488 U.S. at 492 (Op. of O'Connor, J.).

It is with the foregoing principles in mind that we turn to an examination of the evidentiary basis on which Congress relied to support its finding of discrimination and continuing effects of past discrimination against minorities in the publicly-funded and private construction industry.

There can be no doubt that Congress repeatedly has considered the issue of discrimination in government construction procurement contracts, finding that racial discrimination and its continuing effects have distorted the market for public contracts--especially construction contracts--necessitating a race-conscious remedy. See, e.g., Appendix--The Compelling Interest for Affirmative Action in Federal Procurement, 61 Fed. Reg. 26,050, 26,051-52 & nn.12-21 (1996) ("The Compelling Interest") (citing approximately thirty congressional hearings since 1980 concerning minority-owned businesses). But the question is not merely whether the government has considered evidence, but rather the nature and extent of the evidence it has considered.

Of course, statements made with regard to discrimination in the subcontracting industry by congressional reports and by members of Congress are insufficient in themselves to support a finding of compelling interest. We must probe more deeply into the legislative history of the enactments at issue. We cannot merely recite statements made by members of Congress alleging a finding of discriminatory effects and the need to address those effects, such as the following:

Where there are no DBE programs, women and minority-owned small businesses are shut out of the highway construction. The Federal DBE program serves to redress the inequality and redress the unfortunate fact that all across the country women and minorities would not otherwise have access to construction contracts.

144 Cong. Rec. S1421 (March 5, 1998) (statement of Sen. Moseley-Braun). Such findings are not enough to satisfy strict scrutiny standards. See Croson, 488 U.S. at 500 ("[W]hen a legislative body chooses to employ a suspect classification, it cannot rest upon a generalized assertion as to the classification's relevance to its goals." (citing McLaughlin v. Florida, 379 U.S. 184, 190-92 (1964))). The question that Croson requires us to ask is whether there is a strong basis in evidence to support the legislature's conclusion.

In Concrete Works, we noted that Neither Croson nor its progeny clearly state whether private discrimination that is in no way funded with public tax dollars can, by itself, provide the requisite strong basis in evidence necessary to justify a municipality's affirmative action program. A plurality in Croson simply suggested that remedial measures could be justified upon a municipality's showing that "it had essentially become a 'passive participant' in a system of racial exclusion practiced by elements of the local construction industry." Croson, 488 U.S. at 492. Although we do not read Croson as requiring the municipality to identify an exact linkage between its award of public contracts and private discrimination, such evidence would at least enhance the municipality's factual predicate for a race- and gender-conscious program.

Concrete Works, 36 F.3d at 1529. Unlike Concrete Works, the evidence presented by the government in the present case demonstrates the existence of two kinds of discriminatory barriers to minority subcontracting enterprises, both of which show a strong link between racial disparities in the federal government's disbursements of public funds for construction contracts and the channeling of those funds due to private discrimination. The first discriminatory barriers are to the formation of qualified minority subcontracting enterprises due to private discrimination, precluding from the outset competition for public construction contracts by minority enterprises. The second discriminatory barriers are to fair competition between minority and non-minority subcontracting enterprises, again due to private discrimination, precluding existing minority firms from effectively competing for public construction contracts. The government also presents further evidence in the form of local disparity studies of minority subcontracting and studies of local subcontracting markets after the removal of affirmative action programs. Discussion of each of those bodies of evidence follows.¹²

a. Barriers to Minority Business Formation in Construction Subcontracting

As to the first kind of barrier, the government's evidence consists of numerous congressional investigations and hearings as well as outside studies of statistical and anecdotal evidence--cited and discussed in The Compelling Interest, 61 Fed. Reg. 26,054-58--and demonstrates that discrimination by prime contractors, unions, and lenders has woefully impeded the formation of qualified minority business enterprises in the subcontracting market nationwide.

The evidence demonstrates that prime contractors in the construction industry often refuse to employ minority subcontractors due to "old boy" networks--based on a familial history of participation in the subcontracting market--from which minority firms have traditionally been excluded. See H.R. Rep. 103-870 15 n.36 (1994) ("[T]he construction industry is . . . family dominated. Many firms are in their second or third generation operating structures. Minorities and women, unless they are part of construction families, have been and will continue to be excluded whenever possible."); The Meaning and Significance for Minority Business of the Supreme Court Decision in the City of Richmond v. J.A. Croson: Hearing Before the Legislative & Nat'l Sec. Subcomm. of the House Comm. on Gov't Operations, 100th Cong. 111 (1990) ("The Significance of Croson") (statement of Manuel Rodriguez, President, R&D Development, Inc., specializing in mechanical construction, and past president and founder of the National Hispanic Association of Construction Enterprises) ("[F]ew [minorities] today have families from whom they can inherit a construction business."); see also Minority Business Development Program Reform Act of 1987: Hearings on S. 1993 & H.R. 1807 Before the Senate Comm. on Small Bus., 100th Cong. 127 (1988) (statement of Parren Mitchell, Chairman, Minority Business Enterprise Legal Defense and Education Fund) (noting the "harsh reality" of the "old-boy network" that prevents minority-owned firms from breaking into the private sector); H.R. Rep. No. 103-870 15 & n.36 (1994) (discussing evidence of the discriminatory exclusion of minority firms from business networks); The Compelling Interest, 61 Fed. Reg. at 26,057 & nn.82-83 (citing studies explaining minorities' exclusion from the construction trades as a result of the lack of familial connections).

Furthermore, subcontractors' unions place before minority firms a plethora of barriers to membership, thereby effectively blocking them from participation in a subcontracting market in which union membership is an important condition for success. See Minority Business Participation in Department of Transportation Project: Hearing Before a Subcomm. of the House Comm. on Gov't Operations, 99th Cong. 203 (1985) (testimony of James Haughton, President, Fight Back) (minority contractors continue to "suffer[] very heavily because they have been victims to that discrimination as practiced by the unions"); The Significance of Croson at 117-19 (statement of Manuel Rodriguez) (describing the way in which union discrimination prevents access to skills and experience needed to form a business); The Compelling Interest, 61 Fed. Reg. at 26,055-56 & nn.53 & 62 (citing studies of statistical and anecdotal evidence finding racism by construction trade unions in several cities and states and concluding that racism is a major cause of the lack of minority business formation in the construction industry).

The government's evidence is particularly striking in the area of the race-based denial of access to capital, without which the formation of minority subcontracting enterprises is stymied. See, e.g., Availability of Credit to Minority-Owned Small Businesses: Hearing Before the Subcomm. on Fin. Insts. Supervision, Regulation & Deposit Ins. of the House Comm. on Banking, Fin. & Urb. Affs., 103d Cong. 19-20 (1994) (statement of Toni Hawkins, Executive Director, National Black Business Counsel) (noting the existence and examples of discrimination in business lending); id. at 27 (statement of Wayne Smith, Chairperson, Black Urban Alliance: African American Chamber of Commerce of Newark, NJ) (stating that while perhaps more subtle than discrimination in mortgage lending, discrimination in business lending exists); id. at 209 (statement of M. Harrison Boyd, President/CEO, HBA Management Services Group, Inc.) (White bank employees "have been, and are continually, programmed to perceive minority business loans as bad business, and/or at a minimum, risky and less desirable."); H.R. Rep. No. 103-870 7 (1994) ("There is a widespread reluctance on the part of the commercial banking, venture capital, . . . and capital markets to take the same risk with a [minority] entrepreneur that they would readily do with a white one." (quoting testimony of Sherman Copelin, President of the National Business League)); Disadvantaged Business Set-Asides in Transportation Construction Projects: Hearing Before the Subcomm. on Procurement, Innovation, and Minority Enter. Dev. of the House Comm. on Small Bus., 100th Cong. 26 (1988) (statement of Joann Payne, President, PSM Consultants) ("[B]ecause of the ethnic and sex discrimination practiced by lending institutions, it was very difficult for minorities and women to secure bank loans. . . ."); The Disadvantaged Business Enterprise Program of the Federal-Aid Highway Act: Hearing Before the Subcomm. on Transp. of the Senate Comm. on Env't & Pub. Works, 99th Cong. 363 (1985) (statement of James K. Laducer, Director, North Dakota Minority Business Enterprise Programs, United Tribes Educational Technical Center) (North Dakota banks "refuse to lend monies to minority businesses from nearby Indian communities."); Fiscal Economic & Social Crises Confronting American Cities: Hearings Before the Senate Comm. on Banking, Housing, & Urb. Affs., 102d Cong. 431 (1992) (statement of Anthony Robinson, President, Minority Business Enterprise Legal Defense and Education Fund) ("[T]he legitimate capital needs of the minority business community are ignored or held to such a higher underwriting standard and systematically denied venture capital."); Federal Minority Business Programs: Hearing Before the House Comm. on Small Bus., 102d Cong. 89 (1991) (statement of Joshua I. Smith, Chairman, U.S. Commission on Minority Business Development) (attaching Interim Report 1990 of the United States Commission of Minority Business Development, which states minority business owners' "access to credit ha[s] been historically limited"); Minority Construction Contracting: Hearing Before the Subcomm. on SBA, the Gen. Econ. & Minority Enter. Dev. of the House Comm. on Small Bus., 101 Cong. 26 (1989) (statement of Cleveland M. Chapman, President, Midwest Contractors For Progress) (citing statistics demonstrating discrimination in lending in Chicago). For example, "[t]he average loan to a black-owned construction firm is $49,000 less than the average loan to an equally matched nonminority construction firm." The Compelling Interest, 61 Fed. Reg. at 26,058 & n.91 (citing Grown & Bates, Commercial Bank Lending Practices & the Development of Black-Owned Construction Companies., 14 J. Urb. Aff. at 34 (1992)). "All other factors being equal, a black business owner is approximately 15 percent less likely to receive a business loan than a white owner." Id. at 26,058 & n.90 (citing Faith Ando, Capital Issues and the Minority-Owned Business, 16 Rev. Black Pol. Econ. at 97 (1988)). Another study

surveyed 407 business owners in the Denver area. It found that African Americans were 3 times more likely to be rejected for business loans than whites. The denial rate for Hispanic owners was 1.5 times as high as white owners. Disparities in the denial rate remained significant even after controlling for other factors that may affect the lending rate, such as the size and net worth of the business. The study concluded that "despite the fact that loan applicants of three different racial/ethnic backgrounds in this sample (Black, Hispanic and Anglo) were not appreciably different as businesspeople, they were ultimately treated differently by the lenders on the crucial issue of loan approval or denial."

Id. at 26,058 (footnotes omitted) (citing The Colorado Center for Community Development, University of Colorado at Denver, Survey of Small Business Lending in Denver v (1996)). Such findings strongly support an initial showing of discrimination in lending; and we take judicial notice of the obvious causal connection between access to capital and ability to implement public works construction projects.¹³

b. Barriers to Competition by Existing Minority Enterprises

With regard to barriers faced by existing minority enterprises, the government presents evidence tending to show that discrimination by prime contractors, private sector customers, business networks, suppliers, and bonding companies fosters a decidedly uneven playing field for minority subcontracting enterprises seeking to compete in the area of federal construction subcontracts.

The government presents powerful evidence that

[a]ll too often, contracting remains a closed network, with prime contractors maintaining long-standing relationships with subcontractors with whom they prefer to work. Because minority owned firms are new entrants to most markets, the existence and proliferation of these relationships locks them out of subcontracting opportunities. As a result, minority-owned firms are seldom or never invited to bid for subcontracts on projects that do not contain affirmative action requirements.

The Compelling Interest, 61 Fed. Reg. 26,058 & nn.98-99 (footnotes omitted) (citing studies of statistical and anecdotal evidence of minority business participation in state and local construction industries). The government has also presented sobering evidence that

when minority firms are permitted to bid on subcontracts, prime contractors often resist working with them. This sort of exclusion is often achieved by white firms refusing to accept low minority bids or by sharing low minority bids with another subcontractor in order to allow that business to beat the bid (a practice known as "bid shopping").

Id. at 26,058-59 (citing studies of statistical and anecdotal evidence detailing bid shopping in several localities).

It is clear to us that Congress has devoted considerable energy to investigating and considering this systematic exclusion of existing minority enterprises from opportunities to bid on construction projects resulting from the insularity and sometimes outright racism of the non-minority firms in the construction industry. See, e.g., How State and Local Governments Will Meet the Croson Standard (Minority Set-Asides): Hearing Before the Subcomm. on Civ. & Const. Rights of the House Comm. on the Judiciary, 100th Cong. 53-54 (1989) (statement of Marc Bendick, Bendick & Egan Economic Consultants, Inc.) ("[W]e must not for a moment underestimate the role of continuing pervasive blunt discrimination by the private market. . . . The same prime contractor who will use a minority subcontractor on a city contract and will be terribly satisfied with the firm's performance, will simply not use that minority subcontractor on a private contract where the prime contractor is not forced to use a minority firm."); The Significance of Croson at 121-22 (statement of Manuel Rodriguez); id. at 104-06 (statement of E.R. Mitchell, Jr., President of E.R. Mitchell Construction Company and President of the Atlanta Chapter of the National Association of Minority Contractors) (identifying racially discriminatory actions by federal and state government agencies in the bidding process on construction contracts).

The government's evidence strongly supports the thesis that informal, racially exclusionary business networks dominate the subcontracting construction industry, shutting out competition from minority firms. See, e.g., The Significance of Croson at 107 (statement of E.R. Mitchell, Jr.) ("[Q]ualified black firms are outside the business network of established white firms. By virtue of being outsiders to their communications loop, it is impossible to successfully bid because we remain forever strangers to white owners and developers."); The Compelling Interest, 61 Fed. Reg. at 26,059-60 & nn.107, 109-110 (citing studies and articles on statistical and anecdotal evidence demonstrating discriminatory treatment in the bidding process).

Minority subcontracting enterprises in the construction industry find themselves unable to compete with non-minority firms on an equal playing field due to racial discrimination by bonding companies, without whom those minority enterprises cannot obtain subcontracting opportunities. The government presents evidence both that bonding is an essential requirement of participation in federal subcontracting procurement, see The Compelling Interest, 61 Fed. Reg. at 26,060 (citing 40 U.S.C. §§ 270a-270e), and a "vicious circle" whereby minority subcontractors cannot obtain bonding due to lack of experience, and "since they cannot get bonding, they cannot get experience," The Compelling Interest, 61 Fed. Reg. at 26,060 (footnote omitted). Minority Business Participation in Department of Transportation Project: Hearing Before a Subcomm. of the House Comm. on Gov't Operations, 99th Cong., 1st Sess. 159 (1985) (statement of Sherman Brown, President, MCAP, Inc.) ("Virtually everyone connected with the minority contracting industry . . . apparently agrees that surety bonding is one of the biggest obstacles in the development of minority firms."). The government additionally presents evidence of an insular "old-boy" network in bonding that excludes minority firms. See, e.g., H.R. Rep. No. 103-870 at 15 & n.36. There is also strong evidence of overt racial discrimination in the bonding market. See, e.g., Discrimination in Surety Bonding: Hearing Before the Subcomm. on Minority Enter., Fin. & Urb. Dev. of the House Comm. on Small Bus., 103d Cong. 2 (1993) (statement of John B. Cruz, III, President, John B. Cruz Construction Co.) (describing racial discrimination his company suffered in its efforts to obtain bonding); City of Richmond v. J.A. Croson: Impact and Response: Hearing Before the Subcomm. on Urb. & Minority-Owned Bus. Dev. of the Senate Comm. on Small Bus., 101st Cong. 40-41, 43 (1990) (statement of Andrew Brimmer, President, Brimmer and Company, Inc., Economic and Financial Consultants) (presenting the results of a study showing discrimination in bonding faced by African-American, Hispanic, and Pacific-Islander-owned firms in the Atlanta area); id. at 165-66 (statement of Edward W. Bowen, Project Administrator, Prentiss Properties, Ltd.) (noting that unclear bonding standards permit denials of bonding that are arbitrary and capricious and racially-biased); Disadvantaged Business Set-Asides in Transportation Construction Projects, supra, at 107 (statement of Marjorie L. Herter, National President, Women Construction Owners & Executives, USA; President, Vee See Construction Co.) ("Discrimination against women and minorities in the bonding market is quite prevalent."); The Compelling Interest, 61 Fed. Reg. at 26060 & n.118 (citing studies of statistical and anecdotal evidence of widespread racial discrimination in bonding). For example, the government cites a Louisiana study according to which "minority firms were nearly twice as likely to be rejected for bonding, three times more likely to be rejected for bonding for over $1 million, and on average were charged higher rates for the same bonding policies than white firms with the same experience level," The Compelling Interest, 61 Fed. Reg. at 26,060 & n.119 (citing D.J. Miller & Associates, 2 State of Louisiana Disparity Study at 35-57 (1991)), while an Atlanta study found similarly glaring disparities in the ability of minority versus non-minority construction firms to obtain bonding generally and "unlimited bonding" in particular, Andrew F. Brimmer & Ray Marshall, Public Policy and Promotion of Minority Economic Development: City of Atlanta and Fulton County, Georgia at 19-20 (1990) (cited in City of Richmond v. J.A. Croson: Impact and Response: Hearing Before the Subcomm. on Urb. & Minority-owned Bus. Dev. of the Sen. Comm. on Small Bus., 101st Cong. 193-94 (1990)).

Finally, the government presents evidence of discrimination by suppliers, the result of which is that nonminority subcontractors receive special prices and discounts from suppliers not available to minority subcontractors, driving up "anticipated costs, and therefore the bid, for minority-owned businesses." Id. at 26,061; see also id. at n.123 (citing studies detailing discrimination by suppliers); The Significance of Croson at 106 (statement of E.R. Mitchell, Jr.) ("[C]ommon suppliers working on projects routinely give white subs better prices for materials than they do black subs.").

Contrary to Adarand's contentions, on the basis of the foregoing survey of evidence regarding minority business formation and competition in the subcontracting industry, the government's evidence as to the kinds of obstacles minority subcontracting businesses face constitutes a strong basis for the conclusion that those obstacles are not "the same problems faced by any new business, regardless of the race of the owners." (Appellee's Br. at 28.)

c. Local Disparity Studies

Following the Supreme Court's decision in Croson, numerous state and local governments have undertaken statistical studies to assess the disparity, if any, between availability and utilization of minority-owned businesses in government contracting. See The Compelling Interest, 61 Fed. Reg. at 26,061-62 (presenting the Urban Institute's analysis of thirty-nine disparity studies); see also 144 Cong. Rec. S5413-14 (May 22, 1998) (statement of Senator Chafee) (discussing a disparity study conducted for CDOT that found "a disproportionately small number of . . . minority-owned contractors participating in Colorado's transportation construction industry . . . . Hispanic firms received less than one-half of one percent (.26%). . . . The vast majority of contracts--more than 99 percent--went to firms owned by white men."). The government's review of those studies reveals that although such disparity was least glaring in the category of construction subcontracting, even in that area "minority firms still receive only 87 cents for every dollar they would be expected to receive" based on their availability. The Compelling Interest, 61 Fed. Reg. at 26,062. In that regard, the Croson majority stated that "[w]here there is a significant statistical disparity between the number of qualified minority contractors willing and able to perform a particular service and the number of such contractors actually engaged by the [government] or the [government's] prime contractors, an inference of discriminatory exclusion could arise." 488 U.S. at 509 (Op. of O'Connor, J.) (citations omitted). We are certainly mindful that "where special qualifications are necessary, the relevant statistical pool for purposes of demonstrating discriminatory exclusion must be the number of minorities qualified to undertake the particular task." Id. at 501-02. But here, we are unaware of such "special qualifications" aside from the general qualifications necessary to operate a construction subcontracting business. At a minimum, the disparity indicates that there has been under-utilization of the existing pool of minority subcontractors; and there is no evidence either in the record on appeal or in the legislative history before us that those minority subcontractors who have been utilized have performed inadequately or otherwise demonstrated a lack of necessary qualifications.

The disparity between minority DBE availability and market utilization in the subcontracting industry raises an inference that the various discriminatory factors the government cites have created that disparity. In Concrete Works, we stated that "[w]e agree with the other circuits which have interpreted Croson impliedly to permit a municipality to rely . . . on general data reflecting the number of MBEs and WBEs in the marketplace to defeat the challenger's summary judgment motion," and we do not see Adarand III as requiring any different standard in the case of an analogous suit against the federal government. 36 F.3d at 1528.¹⁴ Although the government's aggregate figure of a 13% disparity between minority enterprise availability and utilization is not overwhelming evidence, it is significant. It is made more significant yet by the evidence showing that discriminatory factors discourage both enterprise formation of minority businesses and utilization of existing minority enterprises in public contracting. Of course, it would be "sheer speculation" to even attempt to attach a particular figure to the hypothetical number of minority enterprises that would exist without discriminatory barriers to minority DBE formation. Croson, 488 U.S. at 499. However, the existence of evidence indicating that the number of minority DBEs would be significantly (but unquantifiably) higher but for such barriers is nevertheless relevant to the assessment of whether a disparity is sufficiently significant to give rise to an inference of discriminatory exclusion.¹⁵

d. Results of Removing Affirmative Action Programs

We take notice of an additional source of evidence of the link between compelling interest and remedy. There is ample evidence that when race-conscious public contracting programs are struck down or discontinued, minority business participation in the relevant market drops sharply or even disappears. See, e.g., 144 Cong. Rec. S1421 (March 5, 1998) (statement of Sen. Moseley-Braun) (citing statistics); The Compelling Interest, 61 Fed. Reg. 26,062 & nn.130-134 (citing studies). Although that evidence standing alone is not dispositive, it strongly supports the government's claim that there are significant barriers to minority competition in the public subcontracting market, raising the specter of racial discrimination. "Where there is a significant statistical disparity between the number of qualified minority contractors willing and able to perform a particular service and the number of such contractors actually engaged by the locality or the locality's prime contractors, an inference of discriminatory exclusion could arise." Croson, 488 U.S. at 509 (Op. of O'Connor, J.) (citations omitted).

In sum, on the basis of the foregoing body of evidence, we conclude that the government has met its initial burden of presenting a "strong basis in evidence" sufficient to support its articulated, constitutionally valid, compelling interest. Croson, 488 U.S. at 500 (quoting Wygant, 476 U.S. at 277).

Adarand and the amici curiae supporting it have utterly failed to meet their "ultimate burden" of introducing credible, particularized evidence to rebut the government's initial showing of the existence of a compelling interest in remedying the nationwide effects of past and present discrimination in the federal construction procurement subcontracting market.¹⁶ Concrete Works, 36 F.3d at 1522 (quoting Wygant, 476 U.S. at 277). Its assertions as to the general impermissibility of a race-conscious remedy regardless of the compelling interest identified by Congress are not in accordance with equal protection jurisprudence. It is simply an untenable interpretation of Equal Protection Doctrine to insist that the Constitution requires Congress to acquiesce in the workings of an ostensibly free market that would direct the profits to be gleaned from disbursements of public funds to non-minorities alone. See Concrete Works, 36 F.3d at 1519 ("[T]he Fourteenth Amendment permits race-conscious programs that seek . . . to prevent the public entity from acting as a '"passive participant" in a system of racial exclusion . . .' by allowing tax dollars 'to finance the evil of private prejudice.'" (quoting Croson, 488 U.S. at 492)); see also Adarand III, 515 U.S. at 237 ("The unhappy persistence of both the practice and the lingering effects of racial discrimination against minority groups in this country is an unfortunate reality, and government is not disqualified from acting in response to it.").

We reject Adarand's characterization of various congressional reports and findings as conclusory and its highly general criticism of the methodology of numerous "disparity studies" cited by the government and its amici curiae as supplemental evidence of discrimination.¹⁷ The evidence cited by the government and its amici curiae and examined in this opinion only reinforces the conclusion that "racial discrimination and its effects continue to impair the ability of minority-owned businesses to compete in the nation's contracting markets." The Compelling Interest, 62 Fed. Reg. at 26,062. In Concrete Works, 36 F.3d at 1530-31, the plaintiff "specifically identified" and "put forth evidence" showing "flaws" in the data justifying the City of Denver's affirmative action program, thus precluding summary judgment on the issue of compelling interest. Here, by contrast, the government's evidence permits a finding that as a matter of law Congress has the requisite strong basis in evidence to take action to remedy racial discrimination and its lingering effects in the construction industry. This evidence demonstrates that both the race-based barriers to entry and the ongoing race-based impediments to success faced by minority subcontracting enterprises--both discussed above--are caused either by continuing discrimination or the lingering effects of past discrimination on the relevant market. Furthermore, Congress is not limited to simply proscribing federal discrimination against minority contractors, as it has obviously already done. The Constitution does not obligate Congress to stand by idly and continue to pour money into an industry so shaped by the effects of discrimination that the profits to be derived from congressional appropriations accrue exclusively to the beneficiaries, however personally innocent, of the effects of racial prejudice.¹⁸

We do not intend to suggest that the evidence cited by the government is unrebuttable. We merely point out that under our precedent it is for Adarand to rebut that evidence, and it has not done so to the extent required to raise a genuine issue of material fact as to whether the government has met its evidentiary burden. We reiterate that "[t]he ultimate burden [of proof] remains with [the challenging party] to demonstrate the unconstitutionality of an affirmative-action program." Id. at 1522 (quoting Wygant, 476 U.S. at 277-78 (plurality)). "[T]he nonminority [challengers] . . . continue to bear the ultimate burden of persuading the court that [the government entity's] evidence did not support an inference of prior discrimination and thus a remedial purpose." Id. (quoting Wygant, 476 U.S. at 293 (O'Connor, J., concurring)). Because Adarand has failed utterly to meet its burden, the government's initial showing stands.

In sum, guided by Concrete Works, we conclude that the evidence cited by the government and its amici, particularly that contained in The Compelling Interest, 61 Fed. Reg. 26,050, more than satisfies the government's burden of production regarding the compelling interest for a race-conscious remedy. Congress has a compelling interest in eradicating the economic roots of racial discrimination in highway transportation programs funded by federal monies. We therefore affirm the district court's finding of a compelling interest.

We turn now to the question of narrow tailoring. Here, again, we must first define "narrow tailoring" for purposes of strict scrutiny and then determine whether the SCC program in the present case falls within that definition.

1. "Narrow Tailoring" in Race-conscious Programs Defined

We are guided in our inquiry by the handful of Supreme Court cases that have applied the narrow-tailoring analysis to government affirmative action programs. In applying strict scrutiny to a court-ordered program remedying the failure to promote black police officers, a plurality of the Court stated that

[i]n determining whether race-conscious remedies are appropriate, we look to several factors, including the necessity for the relief and the efficacy of alternative remedies; the flexibility and duration of the relief, including the availability of waiver provisions; the relationship of the numerical goals to the relevant labor market; and the impact of the relief on the rights of third parties.

Paradise, 480 U.S. at 171 (1986) (plurality op. of Brennan, J.) (citations omitted). Regarding flexibility, "the availability of waiver" is of particular importance. Id. As for numerical proportionality, Croson admonishes us to beware of the "completely unrealistic assumption that minorities will choose a particular trade in lockstep proportion to their representation in the local population." 488 U.S. at 507 (quoting Sheet Metal Workers, 478 U.S. at 494 (O'Connor, J., concurring in part and dissenting in part)). In that context, a "rigid numerical quota" particularly disserves the cause of narrow tailoring. Id. at 508.¹⁹ Finally, as for burdens imposed on third parties, a plurality of the Court in Wygant stated:

As part of this Nation's dedication to eradicating racial discrimination, innocent persons may be called upon to bear some of the burden of the remedy. "When effectuating a limited and properly tailored remedy to cure the effects of prior discrimination, such a 'sharing of the burden' by innocent parties is not impermissible."

476 U.S. at 280-81 (Op. of Powell, J.) (quoting Fullilove, 448 U.S. at 484 (plurality)) (further quotations and footnote omitted). We are guided by that benchmark.

Justice O'Connor's majority opinion in Croson adds a further factor to our analysis: under- or over-inclusiveness of the DBE classification. In Croson, the Supreme Court struck down an affirmative action program as insufficiently narrowly tailored in part because "there is no inquiry into whether or not the particular MBE seeking a racial preference has suffered from the effects of past discrimination . . . . [T]he interest in avoiding the bureaucratic effort necessary to tailor remedial relief to those who truly have suffered from the effects of prior discrimination cannot justify a rigid line drawn on the basis of a suspect classification." Croson, 488 U.S. at 508 (citation omitted). Thus, we must be especially careful to inquire into whether there has been an effort to identify worthy participants in DBE programs or whether the programs in question paint with too broad--or too narrow--a brush.

More specific guidance is found in Adarand III. In remanding for strict scrutiny, the Court identified two questions apparently of particular importance in the instant case: (1) "[c]onsideration of the use of race-neutral means;" and (2) "whether the program [is] appropriately limited [so as] not to last longer than the discriminatory effects it is designed to eliminate." Adarand III, 515 U.S. at 237-38 (internal quotations and citations omitted). We thus direct our attention to an analysis of the program in light of Adarand III's specific questions on remand, and the foregoing narrow-tailoring factors, in the following order: (1) the availability of race-neutral alternative remedies; (2) limits on the duration of the SCC and DBE certification programs; (3) flexibility; (4) numerical proportionality; (5) the burden on third parties; and (6) over- or under-inclusiveness.

The first factor to be considered is that of the availability of alternative remedies to the race-conscious measures at issue. The district court in Adarand IV found, and Adarand does not challenge its finding, that Congress over a period of decades attempted to correct by race-neutral means the problem of too few minority subcontractors for government construction contracts, and only after it continued to find discriminatory effects did it first implement a race-conscious remedy. See Adarand IV, 965 F. Supp. at 1582-83; see also Croson, 488 U.S. at 507 (noting the finding in Fullilove that "Congress . . . carefully examined and rejected race-neutral alternatives before enacting the MBE set-aside").²⁰ That finding is law of the case and is not clearly erroneous. See Agostini, 521 U.S. at 236; McIlravy, 204 F.3d at 1034-35. The long history of discrimination in, and affecting, the public construction procurement market--despite the efforts dating back at least to the enactment in 1958 of the SBA to employ race-neutral measures--places a formidable burden on both existing and would-be minority participants and thus justifies race-conscious action to address a decidedly racial disparity.

A separate question, however, is whether the FLHP considered other more narrowly tailored measures before deciding to implement 15 U.S.C. § 644(g) by means of the SCC, with its race-based presumptions of disadvantage. The government's argument focuses on Congress's consideration of race-neutral measures prior to enacting its policy of maximizing opportunity for minority-owned and controlled businesses and setting aspirational goals for the participation of such businesses in federal contracting. Although Congress considered the futility of race-neutral measures prior to incorporating the aspirational goals into the SBA and the relevant appropriations measures, the government fails to address whether the FLHP considered either measures short of a race-conscious subsidy to prime contractors or a more refined means of assessing subcontractors' eligibility for race-conscious programs prior to promulgating the regulations implementing the SCC. The record persuades us that under the high degree of solicitude for individual rather than race-based consideration mandated by the Court's strict scrutiny standard, the government has not shown that the FLHP adequately considered such alternative measures in the 1996 SCC program.

Again, the situation has since changed dramatically.²¹ A comparison of that previous SCC program with the new federal regulations under TEA-21 is particularly instructive. The current, revised regulations instruct recipients that "[y]ou must meet the maximum feasible portion of your overall goal by using race-neutral means of facilitating DBE participation," 49 C.F.R. § 26.51(a) (2000); see also 49 C.F.R. § 26.51(f) (2000) (if a recipient can meet its overall goal through race-neutral means, it must implement its program without the use of race-conscious contracting measures), and enumerate a list of race-neutral measures, see 49 C.F.R. § 26.51(b) (2000). The current regulations also outline several race-neutral means available to program recipients including helping overcome bonding and financing obstacles, providing technical assistance, establishing programs to assist start-up firms, and other methods. See 49 C.F.R. § 26.51(b). We therefore are dealing here with revisions that emphasize the continuing need to employ non-race-conscious methods even as the need for race-conscious remedies is recognized. The record before us does not indicate whether or not FLHP considered race-neutral measures prior to resorting to the SCC. This absence weighs strongly against any finding of narrow tailoring. See Adarand III, 515 U.S. at 237-38; Croson, 488 U.S. at 507. The district court was therefore correct, given the information before it at the time, that the SCC program was not narrowly tailored, and should the government reinstitute the revised program without considering race-neutral measures similar to those outlined in 49 C.F.R. § 25.51(a) and (b) (2000), that program too would be insufficiently narrowly tailored.

A second important factor in any narrow-tailoring analysis is a limit on the duration of the race-conscious measures at issue. The district court declined to address this aspect of the Supreme Court's inquiry on remand because of the court's finding that the 1996 SCC program was not narrowly tailored for other reasons. See Adarand IV, 965 F. Supp. at 1584. Although we agree for different reasons that the 1996 program the district court considered was insufficiently narrowly tailored to pass constitutional muster, the factor of limited duration is mentioned in Adarand III, 515 U.S. at 238, and we accept the Court's invitation to consider this factor now.

The duration of a particular company's DBE status is limited by statute and regulation to approximately ten-and-one-half years under the § 8(a) certification program. See 15 U.S.C. §§ 634(b)(6), 636(j)(10)(C)(i), 637(a), (d); 13 C.F.R. § 124.110 (1996); 13 C.F.R. § 124.2 (2000). Moreover, each participant in the § 8(a) program is required to annually submit financial and other information, on the basis of which the SBA reevaluates and may "graduate" a small disadvantaged business from the program as no longer qualified (e.g., because the criteria of economic disadvantage are no longer met). See 15 U.S.C. §§ 636(j)(10)(G), 637(a)(6)(B), (C). The § 8(a) program's inherent time limit and graduation provisions ensure that it, like the program upheld in Paradise, is carefully designed to "endure[] only until . . . the discriminatory impact" has been eliminated; once a DBE loses its