Lawsuits Challenge Constitutionality Of Workforce Goals In Federal Construction Contracts

Following the Supreme Court's landmark decision in June that ended affirmative action, lawsuits have begun to emerge within the construction industry alleging reverse discrimination. 

Pushback to diversity, equity and inclusion programs in commercial real estate in the wake of the ruling has included lawsuits questioning the constitutionality of race-based affirmative action in federal construction and arguing such programs, which increase the proportion of contracts to minority-owned businesses, might make it harder for underrepresented groups to find jobs in the future.

Some in CRE are worried the affirmative action ruling could lead to lawsuits based on reverse discrimination and effectively halt diversity and inclusion practices across the industry, Bisnow previously reported.

A lower court has already used the SCOTUS decision to rule the Small Business Administration's 8(a) program, created to help businesses run by socially and economically disadvantaged demographics participate in federal contracts, is unconstitutional because it specifies disadvantaged groups in the same way affirmative action's policies are specific to Black students applying for college, contracting attorney Chris Slottee told Construction Dive.

In a separate case, a district court in Texas issued an injunction last year against the Minority Business Development Agency, which helps minority-owned businesses grow and become more competitive, ruling that some of its programs are racially discriminatory. 

Another suit making its way through the courts is against the Department of Transportation’s Disadvantaged Business Enterprise Program, which was reauthorized under the Infrastructure Investment and Jobs Act in 2021. The law sets a goal of awarding 10% of federally contracted project funds to disadvantaged businesses. 

The changes were hinged upon the concept of a "rebuttable presumption" over who qualified for the programs, Slottee said. Now, groups that apply to these laws must detail to the agency why they qualify.

In the SBA case, the U.S. District Court for the Eastern District of Tennessee agreed that a white woman business owner's Fifth Amendment rights to equal protection were violated because she was excluded from the groups the SBA was designed to help.

Before the lawsuit, SBA's 8(a) program presumed that certain groups were economically disadvantaged based on race, making those in these groups automatically qualify. 

“They’re requiring certain social disadvantaged narratives to be submitted,” Slottee told Construction Dive. “I think it will definitely make it harder in that there will be an extra step that people have to go through in terms of proving social disadvantage.”

A different suit was filed for road contractors Mid-American Milling Co. and Bagshaw Trucking in Kentucky. The suit argues that the DOT's Disadvantaged Business Enterprise program, which specifically includes women, violates the Fifth Amendment's equal protection clause. The companies claim that, though they were the lowest bidder for contracts, the program's goals prevent them from competing for contracts with firms owned by women and racial minorities.

Without programs specifically targeting minority representation in government contracts, the percentage awarded to women-owned and racial minority-owned enterprises has been vanishingly small. This can be partially attributed to a lack of capital limiting the number of minority-owned businesses that can take on large projects. 

CRE has work to do when it comes to diversity and inclusion among industries, but the outcomes of some of these lawsuits might determine future progress. In 2023, Bisnow found that people of color accounted for only 12.8% of the C-suite at 89 of CRE’s largest firms, while women made up 26.2%.

Both of those numbers are slightly up from last year, but CRE executives told Bisnow the shifting political winds and legal landscape could hinder continued diversification.

“Some of the passion, enthusiasm and focus has been lost,” CRE Recruiting founder Allison Weiss told Bisnow after the affirmative action ruling. “And people are so afraid of stepping on a land mine, they’re thinking of other ways of pursuing this that aren’t as risk averse.”