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Municipal Technical Advisory Service (MTAS)

Original Author: Ashburn, Melissa
Date of Material: 03/05/2002

Contracts--Laws and regulations
Personnel--Equal opportunity
Purchasing--Bids, proposals and specifications
Purchasing--Laws and regulations

Legality of Creating Minority Set-Asides Between Developer and City

Reviewed Date: 07/29/2021
MTAS was asked whether an agreement between a city and a developer of a large construction project may specify a percentage of subcontracts on the project to be awarded, or set aside, for minority contractors.

March 5, 2002

Re: Minority Set Asides

Dear Sir,

You have asked whether an agreement between your city and a developer of a large construction project may specify a percentage of subcontracts on the project to be awarded, or set aside, for minority contractors. I believe such an agreement would be subjected to the same scrutiny as an ordinance or practice by the city itself in setting aside contracts for award to minority owned businesses, and caselaw reveals that it is very difficult, if not impossible, for such practices to pass constitutional muster.

In all of the cases in which minority set asides have been examined by the United States Supreme Court and the Sixth Circuit Court of Appeals, city actions in setting aside a portion of public contracts for award to minority owned businesses, or to contractors which employ a minimum percentage of minority workers, the court has either found such practices to be unconstitutional, or has remanded cases to lower courts with instructions to apply tougher standards in evaluating the issues, leading the lower courts to reach the same conclusion.

The courts have not stated that such practices are per se unconstitutional, but have established a very tough test to be applied to when set aside programs or practices are challenged in court, under which all have been found unconstitutional. Such programs are reviewed applying the following:
1. “Skepticism: Any preference based on racial or ethnic criteria must necessarily receive a most searching examination.”

2. The standard of review does not depend upon the race of those burdened or benefitted; and

3. “Congruence”- that is, strict scrutiny applies whether the claim concerns a state, federal or local program.

Applying such standard of review, the program must meet two basic requirements:
1. The government must make a legitimate and supportable findings of fact that it is guilty of past racial discrimination in the awarding of contracts to minorities.

2. The minority set-aside program must be “narrowly tailored” to achieve a compelling government interest (the ending of past or present discrimination).

Adarand Constructors, Inc. v. Pena, 115 S.Ct. 2097, 2111 (1995); City of Richmond v. Croson Co., 109 S.Ct. 706 (1989).

In Associated General Contractors of Ohio, Inc. v. Drabnik, 214 F.3d 730 (6th Cir. 2000), the Sixth Circuit Court of Appeals struck down Ohio’s Minority Business Enterprise Act, in language which indicates that any minority set-asides in Tennessee would have to meet the tough constitutional standards announced in Croson and Adarand above.

Although it is possible to provide for minority set-asides, it is a very difficult and complex task to establish a program or practice which will be upheld in court. The City of Knoxville has established an “Equal Business Opportunity Program” setting up a committee of city employees and citizens to develop a program to achieve the goal of increasing the participation of minority and women-owned businesses to provide services and products to local government. Although the committee has a stated goal of increasing the percentage of contracts awarded to minorities and women, I am not aware of any ordinance or resolution adopting a program outlined by the committee to achieve the goal. It appears that Knoxville is focusing on recruitment and education of minority contractors, and encouraging participation in the bidding process.

I hope this information is helpful. Please let me know if you need any further research or analysis of this issue.

Thank you for consulting with MTAS.


Melissa A. Ashburn
Legal Consultant