WASHINGTON — A three-judge panel of the U.S. Court of Appeals for the Federal Circuit has struck down as unconstitutional the 5% racial set-aside in defense contracts for small businesses owned by “socially and economically” disadvantaged individuals.
The panel held that Section 1207 of the National Defense Authorization Act violates the equal protection component of the Fifth Amendment right to due process.
“Because the statute authorizes DOD [the Department of Defense] to afford preferential treatment on the basis of race, we must apply strict scrutiny,” wrote Chief Judge Paul Michel.
“And because Congress did not have a ‘strong basis in evidence’ upon which to conclude that DOD was a passive participant in pervasive, nationwide racial discrimination — at least not on the evidence produced by DOD and relied on by the district court in this case — the statute fails strict scrutiny.” Rothe Development Corp. v. Department of Defense, No. 2008-1017.
Under the National Defense Authorization Act, Congress has set a goal of awarding 5% of the total dollar amount of defense contracts to small businesses owned — and controlled by — “socially and economically” disadvantaged individuals.
The act incorporates the Small Business Act’s presumption that African-Americans, Hispanic-Americans, Native Americans and Asian-Americans are socially and economically disadvantaged.
The act requires DOD to provide specific forms of assistance to those individuals, and, when necessary to reach the 5% goal, to adjust bids submitted by firms that are not socially and economically disadvantaged upward by 10%.
Section 1207 was challenged by the Rothe Corp. of San Antonio, owned by a Caucasian woman. Rothe, which had contracted with the Air Force since 1987 to maintain computer systems at a Mississippi Air Force base, was the low bidder in 1997 for that contract but its bid was bumped up by 10% because of the Section 1207 program, and the contract was awarded to a Korean-owned business.
The district court had held that the statute was constitutional on its face, concluding that Congress sought to further a compelling interest supported by a “strong basis in evidence,” and that the statute was narrowly tailored to that interest.
But the Federal Circuit panel disagreed after examining statistical and anecdotal evidence offered by DOD to justify the racial preference in Section 1207.
DOD may seek review by the full appellate court or by the U.S. Supreme Court.
This article originally appeared online Nov. 5.
