Battling To Save a Battered Program

Attorney General Peter Harvey is trying to preserve New Jersey’s state contract set-aside program – one he’s already conceded is unconstitutional

With $12 billion in Abbott v. Burke school construction contracts in play, contractors and subcontractors are eager to share the pie. But a federal consent decree that killed New Jersey’s set-aside program on constitutional grounds is heating up competition along racial lines.

Although the state’s Disparity Study Commission, ordered in 2000 by Gov. Christine Todd Whitman to see if there is indeed discrimination in who gets state work, is moving ahead with hearings, that’s not enough for two of its members.

Last Monday State Sen. Ronald Rice, D-Essex, and New Jersey NAACP President Keith Jones announced that four black groups would run their own ad hoc hearing – for minorities only – and give the testimony to the commission for its final report and recommendation. That hearing was conducted last Wednesday at a black church in Newark.

Railing against "the state’s predominantly white power structure," blasting both their own commission and Attorney General Peter Harvey for backing off the set-aside program, the leaders said more must be done to ensure that minorities and woman heading small firms get their fair share.

At stake are hundreds of millions of dollars of contracts that by law must go to small businesses, usually by subcontracts. New Jersey spends some $2.4 billion on all contracts annually, for construction and for procurement of goods and services.

A call to Peter Suzuki, a Summit solo who chairs the commission, was not returned Friday. But the panel’s director -Jeanne Victor of the Secretary of State’s office – says the information will be incorporated into the data being gathered officially. The commission held three public hearings in February and added a fourth in March, which some black leaders said was needed because few minority business owners showed up. Three more hearings, to take testimony regarding contracts for goods and services rather than construction, are set for next month.

Victor said it was not stacking the deck to use data from a hearing run by advocates "because it’s not the anecdotal evidence that will drive the final recommendation but the statistics" of how much work minority- and women-owned firms are getting relative to their numbers.

The study is crucial because Harvey has made it clear that his strategy is to bring its results to the Legislature to write a new set-aside program that can be justified by specific evidence and can therefore pass constitutional muster.

Last July, following a federal court challenge to the program by a white-owned subcontractor, the state conceded that the set-asides were unconstitutional. Harvey says that had he not settled the case by consenting to permanently enjoin the state set-aside program, "We would have lost, and lost at the [U.S.] Third Circuit [Court of Appeals], because we did not have a study to justify the program. … Bad facts make bad law."

The controversy over such set-aside programs has been brewing since 1989, when the U.S. Supreme Court decided, in City of Richmond v. J.A. Crosson Co., 488 U.S. 469, that set-aside programs must be able to withstand a strict scrutiny analysis, the key being that any remedy to racial discrimination must be narrowly tailored to achieve an intended result. To narrowly tailor a program, a public entity must have specific evidence of discrimination.

Crosson’s second prong requires showing a "compelling government interest" to justify the program.

Following that ruling, Gov. Thomas Kean suspended the state’s set-aside program, created in 1985 by carving out – from an existing program for small business – seven percent for minority-owned firms and three percent for women-owned companies. Kean appointed his own disparity study commission. It labored three-and-a-half years, finally producing a February 1993 report showing wide disparity between white small businesses and those owned by blacks, Hispanics, Asian-Americans and women. That study, done by the Afro-American Studies Department of the University of Maryland, relied on historical and societal evidence, some going back a century.

In 1996 the U.S. Supreme Court revisited the issue in Shaw v. Hunt, No. 94-923, a North Carolina gerrymandering case that threw out a redistricting plan, in part because it was not a narrowly tailored remedy to discrimination. In particular, the Legislature had no study showing actual discrimination to justify the redistricting map, but rather relied upon historical or societal evidence. That violates the equal protection clause of the 14th Amendment, the court concluded.

Gov. Whitman anticipated challenges when she ordered a new disparity study in April 2000. Kean’s study came eight years after the Legislature created the set-aside program and so could not justify it.

But in June 2000, a white-owned contractor – GEOD Consulting of Rockaway Township – sued the state in federal court for violating its equal-protection rights. GEOD, a 43-year-old firm that performs primarily aerial photography surveys for engineering contractors, said it had been complaining to state officials since 1996 that it was not being used by contractors who were using mostly minority and women competitors to comply with the set-aside program.

GEOD and its lawyer, Robert Rosen of Randolph’s Rosen & Avigliano, are assisted by the Atlantic Legal Foundation, a conservative nonprofit law firm in New York that has filed similar suits nationally.

After two years of discovery that saw the state turn over 33,000 pages, and after depositions in which a state official conceded the 10 percent set-aside was not based on evidence but rather mirrored federal programs, Harvey agreed to settle.

Harvey says that settling was the only reasonable option, knowing that the state’s existing 1993 study "is after the fact" of the 1985 legislation.

"I wasn’t going to risk the possibility of losing on the grounds of the ‘compelling interest’ issue before the Third Circuit," he says, adding that he consulted with NAACP Legal Defense & Educational Fund lawyers who have battled this issue nationwide.

Martin Kaufman, general counsel for the Atlantic Legal Foundation, had produced a 105-page expert report by John Lunn of Hope College in Holland, Mich., that debunked the state’s 1993 study. Lunn’s own study emphasized not only that the study is 19 years old and based on societal evidence, but he derided the set-aside program for not taking into account a host of other factors, including qualifications, financing or the breakdown of which minorities are actually getting the work.

Lunn reported that in one category of contracts over 10 years ending in 2001, minority- and women-owned firms got $41.6 million in work, but fully two-thirds of that went to just four firms, three of which were Asian-owned and the fourth Hispanic-owned. In theory, if not in reality, Lunn claims, a few firms can grab most of the work from the set-aside pool.

But the state, which under the consent decree is running its small business set-aside program on a race- and gender-neutral basis, did salvage a key program. U.S. District Judge Stanley Chesler, who signed the decree, dismissed GEOD’s challenge to the state Department of Transportation’s set-aside program for federally funded construction jobs. That program, running some $400 million annually, may still use race and gender for a small portion of the subcontracts.

There is debate over how well minority- and women-owned firms are doing under the new rules. The DOT’s ability to continue using set-asides for federally funded jobs, which is most of the work, has no doubt softened the blow. Last month, Gregory Adkins of the state’s Commerce and Economic Growth Commission told The Star-Ledger that "initial indications are that more minority and women-owned businesses are getting more work from the state under the current program then they were under the previous race and gender set-asides."

Adkins said he believed that was so because of the "attention focused on the issue by the court case … [which] has created much more awareness, and the state is reaching out to the minority and women-owned business community much more than in the past."

Attorney General Harvey agrees, but says if minority- and women-owned entities are fairing better, it’s because they were starting from such a low point to begin with. To that end, his office held a Small Business Procurement Conference in East Windsor on April 7, geared specifically to minority- and women-owned firms. All state agencies that let contracts attended and prime contractors were on hand to sign up subcontractors.

But all that has not impressed Sen. Rice, who is also a deputy mayor of Newark and the head of the Black and Latino Legislative Caucus, or NAACP state president Jones. They criticized the disparity commission, saying it did not do enough to notify minorities, and claiming that some minorities were too busy to take off from work to attend, even though some of the hearings were at night.

Also at last Monday’s Newark City Hall press conference was East Orange Mayor Robert Bowser, who said his brother, Hamilton Bowser, is not getting work for his firm, Evanbow Construction.

The trio said the commission was not pushing hard enough to get minorities to participate, even though all nine public members now sitting are minorities. The commission includes a Hispanic who owns a construction company in Elizabeth; the past and current NAACP state presidents and the head of the state’s Hispanic Chamber of Commerce.

Attorney General Harvey declines to respond to criticism by Jones and Rice regarding his strategy to settle the case and fight another day, except to reiterate that "we were not prepared to take the risk of losing our ability to have a set-aside program, based on a loss at the Third Circuit on compelling interest grounds. We’d have lost on summary judgment."

Harvey says he is not making any predeterminations about the level of discrimination in state contract work but does say that "preliminary information that we’ve seen shows there is discrimination continuing." He adds that in part minorities are not getting more subcontracts because of the procurement process. He says he believes too many state agencies bundle work into large contracts rather than let several smaller contracts that would stimulate more opportunities for minority- and women-owned businesses to participate.

Tim O’Brien

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