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O'DONNELL CONSTR. CO. v. DISTRICT OF COLUMBIA

March 14, 1991

O'DONNELL CONSTRUCTION CO., Plaintiff,
v.
DISTRICT OF COLUMBIA, et al., Defendants



The opinion of the court was delivered by: PENN

 JOHN GARRETT PENN, UNITED STATES DISTRICT JUDGE

 Plaintiff O'Donnell Construction Company ("O'Donnell") has filed the instant lawsuit seeking declaratory and injunctive relief declaring as unconstitutional two set-aside programs, namely the District of Columbia Minority Contracting Act (hereinafter the "Act"), D.C. Code section 1-1141 et seq. (1981), and the Department of Public Works' ("DPW") Disadvantaged Business Enterprise ("DBE") Program, *fn1" that govern defendant District of Columbia's procedures for awarding construction contracts. O'Donnell also claims that these programs violate its civil rights under 42 U.S.C. section 1981 *fn2" and 42 U.S.C. section 1983. *fn3"

 This case is presently before the Court on O'Donnell's Motion for a Preliminary Injunction. O'Donnell seeks an order enjoining the District from using or enforcing race-based quotas and set-asides in the awarding of road construction contracts and subcontracts. After careful consideration of the motion, the opposition thereto and the entire record in this case, the Court concludes that O'Donnell's motion for a preliminary injunction should be denied for the reasons set forth below.

 I. Background

 O'Donnell is a Virginia corporation with its principal place of business in the District of Columbia. Arnold J. and John O'Donnell each own 50% of the company's stock. They are white males. The company, which was founded in 1985, is engaged in the road construction business in the Washington metropolitan area. According to Arnold J. O'Donnell, the majority of the firm's work is performed for government agencies, rather than the private sector. See Affidavit of Arnold J. O'Donnell, paras. 2-5. The company, however, has bid on only one DPW road construction contract in the last four fiscal years. See Affidavit of Jerry M. Carter dated February 7, 1991 at para. 7.

 II. The Statutory and Regulatory Scheme

 A. District of Columbia Minority Contracting Act

 1. Set-Aside Program

 The District of Columbia Minority Contracting Act was enacted in March, 1977. The Act establishes goals for the participation of minority business enterprises (hereinafter "MBE") in the awarding of public construction contracts. As stated in the Act's findings, one of its goals is "to achieve the goal of equal opportunity, to overcome the effects of past discrimination in the allocation of contracts, and the financing and bonding of minority business enterprises." D.C. Code section 1-1141(6). Among the stated reasons for the Act is the fact that "[a] persistent pattern of racial discrimination in our society has prevented minority business enterprises from gaining a fair share of contracts and subcontracts for construction, supplies, and materials in both the public and private sector . . . ." Section 1-1141(1). Additionally, the Act states that "the inability of [MBEs] to prosper and participate fully is particulary unacceptable in the District of Columbia, where there is a great disparity between the number of [MBEs] operating in the community and the number of such enterprises participating in public contracting . . . ." Section 1-1141(2).

 The Act provides that each agency, department, office, or instrumentality of the District of Columbia government shall "allocate its construction contracts in order to reach the goal of 35 percent . . . of the dollar volume of all construction contracts to be let to local [MBEs] . . . ." Id. at sections 1-1142(6), 1-1146(a)(1). *fn4" The Act defines MBE as "a business enterprise of which more than 50 percent of the ownership and control is held by individuals who are members of a minority, and of which more than 50 percent of the net profit or loss accrues to members of a minority." Id. at section 1-1142(2). Further, under the Act, "the term 'minority' means Black Americans, Native Americans, Asian Americans, Pacific Islander Americans, and Hispanic Americans, who by virtue of being members of the foregoing groups, are economically and socially disadvantaged because of historical discrimination practiced against these groups by institutions within the United States of America." Id. at section 1-1142(1). Additionally, a "local" MBE is defined as a MBE "with its principal office physically located in the District of Columbia, and which is licensed pursuant to [section] 47-2801 et seq. or subject to the tax levied under [section] 47-1810.1 et seq." Section 1-1142(3). Finally, section 1-1148(a) of the Act requires that all firms participating in the program be issued a certificate of registration.

 The Act also created a Minority Business Opportunity Commission ("Commission") to help implement, monitor and enforce its goals. Among other things, the Commission is responsible for determining whether firms desiring to take advantage of the Act are bona fide MBEs or joint ventures and are eligible for certification; determining, pursuant to applicable regulations, whether a MBE without a principal office physically located in the District of Columbia is nevertheless a local business enterprise; reviewing agency procurement plans; considering agency requests for adjustment of goals in particular instances; and authorizing agencies to refuse to let a contract where it determines that the bids are excessive. Sections 1-1149(2), (4), (8), 1-1149(13). In order to achieve the purposes of the Act, the Commission may also recommend that an agency waive bonding in excess of the standard waiver, make advance payments to a certified contractor, or subdivide a contract into smaller parts. Section 1-1149(6), (7). Finally, the Commission is required to submit a report to the Mayor and the Council every 6 months reviewing the performance of agencies in meeting the established goals. Section 1-1145.

 The Commission is also required under the Act to design programs to assist local minority contractors. Among these programs is the "sheltered market", defined as a "process whereby contracts or subcontracts are designated, before solicitation of bids, for limited competition from [MBEs] on either a negotiated or competitive bid process." Sections 1-1142(7), 1-1147(b). Further, all prime contractors who subcontract are required to award at least 50% of their subcontracts to certified MBEs. Section 1-1147(c), (d). This requirement, however, may be waived by the contracting official, with the Commission's approval and consent. Id.

 2. Legislative History

 As Law 1-95, the Act was first introduced in the District of Columbia City Council and assigned Bill No. 1-323, which was referred to the Committee on Employment and Economic Development (hereinafter the "Committee"). The Bill was adopted on first and second readings on September 15, 1976 and on October 12, 1976 respectively. It was signed by the Mayor on November 12, 1976 after which it was assigned Act No. 1-174 and transmitted to both Houses of Congress for its review. After the 30 day review period, it became law. See D.C. Code section 1-1141 (reference to legislative history of Law 1-95).

 The Committee, chaired by Councilmember James E. Coates, held joint public hearings on May 28-29, 1975 with the Committee on Government Operations and the Committee on Public Services and Consumer Affairs. During the hearings, the Committee received detailed testimony and voluminous data from governmental and industrial representatives, including Committee members and staff, federal agencies, finance and bonding industries, minority organizations, minority contractors, and non-minority and large contracting firm representatives. *fn5" In 1976, the Committee prepared a 53-page report which discussed all aspects of the proposed legislation and recommended its enactment (hereinafter the "Report"). See Defendants' Motion to Dismiss the Complaint or, in the Alternative, for Summary Judgment, Exhibit 1. The Committee's legislative findings of racial discrimination in the construction industry are summarized below.

 First, the Committee relied on several varieties of statistical evidence. It noted a wide disparity between the District's minority population of seventy-six percent and the percentage of minority participation in public contracting with the District. See Report at 8. Moreover, statistical comparisons were made by the Committee between minority capability and minority participation in the local construction industry. The Report points out that in 1974, 82 Washington, D.C. area MBEs had generated revenues of $ 52 million and thus were capable of performing 34% of the District's construction work, which totalled $ 153 million. The Report further demonstrates, in reliance on surety bond rating procedures, that MBEs possessed a capability to perform $ 102 million worth of construction work, or 68.3% of the construction contracts let. On the other hand, only 3.4% of the District's construction work had actually been awarded to minority firms. Id. at 8-10. Similar statistics were provided with respect to service, supply, and architectural contracts. Id. at 11-12.

 Second, the Committee cited a Congressional report in support of the MBE program. Specifically, in House Report 94-468, the chairman of the Subcommittee on SBA Oversight and Minority Enterprise expressed the view that effective remedial action was needed to guarantee equal economic opportunity for those who have traditionally encountered impediments to their business development because of discrimination. Id. at 36.

 Third, at the legislative hearings a number of minority contractors offered testimony concerning discrimination in the local construction industry. Among the issues brought to the attention of the Committee were discriminatory practices by non-minority firms in the award of subcontracts to minority firms, discriminatory practices by lending institutions towards minorities, the discriminatory effects of bonding requirements and attempts by non-minority firms to evade existing affirmative action programs. The witnesses provided numerous specific examples to the Committee of these facts.

 For example, Milton G. Carey, president of Mars General Corporation, a minority general contracting firm, testified at the hearings concerning specific incidents he had personally experienced in which major white contractors had been able to avoid their obligations under existing affirmative action programs by imposing unreasonable demands on minority subcontractors such as him, and then obtaining waivers of the affirmative action requirements. These companies could then obtain lower bids from non-minority subcontractors, only later to raise the price through change orders. See Def.'s Opp., Ex. 1, pp. 16-18.

 Discrimination by lending institutions against minority firms was reported by Joe Willis of Alpha Omega Construction Company, a minority firm. Id. at 25-28. Mr. Douglas Edwards, of E & S Hauling, Inc., also spoke about the disparate treatment he received from non-minority firms in the bidding process. According to Mr. Edwards, non-minority general contractors usually required that his firm submit a written quotation and, subsequently, he is not allowed an opportunity to negotiate the price. By contrast, these same general contractors permit non-minority subcontractors to phone in their bid and allow them to negotiate the price afterward. Id. at 40-41.

 The special problems minority firms face with respect to bonding requirements were described at some length by Mitchell Hairston, of District Builders Incorporated. Mr. Hairston pointed out that he had been told by bond companies that black contractors are a high risk. See Def.'s Opp., Ex. 1, p. 59. Similar problems facing a minority street paving company were testified to by Carl Jones of Jones & Artis Construction Co. See Def.'s Opp., Ex. 3, p. 20. Finally, Charles Cassell, Executive Director of the D.C. Council of Black Architects, articulated with great specificity the ...


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