Appeals Court Voids State Contracting Law

SACRAMENTO —  A new federal court decision may accomplish what Proposition 209 has thus far failed to do--abolish a California law that shares billions of dollars in state contracts annually among women- and minority-owned businesses.

The ruling Wednesday by the U.S. 9th Circuit Court of Appeals in San Francisco stemmed from the case of a contractor whose low bid on a state university construction project was rejected because he had not properly sought to share 23% of his job with female, minority or disabled veteran subcontractors.

A three-judge panel of the appellate court--the same group that ordered Proposition 209 into effect last week--found the contracting law to be unconstitutional even though it is stated as a goal, not a requirement.

If the order is not challenged within the next two weeks, state officials said, it will go into effect Sept. 24.

“Ultimately, this will not only save state taxpayers millions of dollars by enabling contracts to be awarded to the lowest bidder, but will also reduce the administrative burden imposed on contractors bidding for state business,” said Gov. Pete Wilson.

“Most importantly, this decision begins to dismantle the unfairness of preferences which violate our fundamental values of equal rights for all Californians without regard to color, race or gender.”

The immediate impact of the court’s ruling is limited to contracts issued by California’s state government, officials said.

They added, however, that the decision will probably trigger a series of rapid challenges to similar provisions in local government laws throughout California as well as the nine other Western states within the jurisdiction of the San Francisco circuit court.

Even in California state government, though, the potential impact on minority- and women-owned businesses is substantial.

At the Department of Transportation there were $1.3 billion in contracts last year, of which $236 million went to minority- or women-owned businesses. California State University officials said each of their 22 campuses issues about 200 contracts a year worth a combined $800 million.

“I think the [court’s] decision is wrong,” said Dan Tokaji, an attorney for the American Civil Liberties Union who is challenging Proposition 209. “I’m hopeful that it will be reversed. All [the law] does is say that you have to try and reach out to minorities.”

The court said its decision in the case of Monterey Mechanical Co. vs. Wilson was unaffected by Proposition 209, although the ballot measure is proceeding through the courts simultaneously and it would target the same statute.

Even before Proposition 209 passed, the governor challenged the same statute in a lawsuit that has been stalled in the courts awaiting a decision on the legality of the ballot measure.

At a news conference Thursday, the governor said there is now “a distinct possibility and perhaps a probability” that the Monterey Mechanical case will eliminate affirmative action in state contracts before Proposition 209.

Opponents of the ballot measure are seeking a review of Proposition 209 in the U.S. Supreme Court. On Thursday, the court declined to stay the implementation of the measure pending a possible review.

Even after a final ruling is issued on Proposition 209, the state Constitution requires subsequent court decisions on each specific statute and program that will be eliminated. That process could significantly stall the measure’s impact.

In contrast, state attorneys said the Monterey Mechanical case could be effective this month.

The decision on an appeal in the case is fraught with politics and legal dilemmas.

For example, Wilson is listed as a defendant in the case. But he hired an independent counsel and chose to participate as a co-litigant with the plaintiffs.

The 18-member California State University Board of Trustees, all of whom are appointed by the governor, handled the defense of the case. Wilson, who is a trustee, has appointed all but two members of the current board. Karen Robinson, its legal counsel, said Thursday that no decision on an appeal has been made.

Robinson said there were factual misstatements in the appellate court decision that might warrant a rehearing before the same panel. But she said no decisions had been made about the next step.

Other than his vote as a trustee, Wilson has no direct authority over the board’s decision. But in his comments Thursday, the governor urged the board to let the order stand.

“My advice would be not to [appeal],” he said. “I think they are free to do that if they choose. But I think it is pretty clear they will not prevail on appeal.”

The disputed statute in the California Public Contract Code requires that bidders on public works projects make an attempt to share 15% of their “contract dollar value” with minority-owned businesses, 5% with female-owned companies and 3% with disabled veteran subcontractors.

The court’s ruling did not address the provision for disabled veterans.

If those goals cannot be achieved, the statute requires a bidder to make a “good-faith effort” by soliciting such companies directly and advertising the jobs in trade newspapers.

Monterey Mechanical Co. argued that it made a good-faith effort when it offered a low bid of $21.7 million for a two-year project to install heating and air conditioning equipment at Cal Poly San Luis Obispo. University officials, however, said the good-faith effort was not properly documented.

The bid was awarded to a company that also did not meet the goals for participation of minority- and women-owned companies. But the university said the bid winner made a good-faith effort. The contract award was $318,000 higher than the Monterey Mechanical bid.

The appellate court found that the state statute violates the U.S. Constitution’s equal protection clause, which requires states to justify differential treatment of similarly situated individuals.

The court said the attempt to avoid a mandatory quota system by offering a good-faith effort as an alternative was still invalid. “The relevant question is not whether a statute requires the use of such measures, but whether it authorizes or encourages them,” it said.

The judges noted that minority or women set-aside programs are allowed if they are narrowly tailored to address a specific finding of discrimination.

“We are compelled by firmly established law to conclude that the statute violates the equal protection clause,” the judges wrote.

* PROP. 209 STANDS: The U.S. Supreme Court refuses to block Prop. 209. A3