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NORTHERN CONTRACTING, INC. v. STATE OF ILLINOIS

March 3, 2004.

NORTHERN CONTRACTING, INC., Plaintiff,
v.
THE STATE OF ILLINOIS, ILLINOIS DEPARTMENT OF TRANSPORTATION, KIRK BROWN, as Illinois Secretary of Transportation, GORDON SMITH, in his capacity as Bureau Chief of the BUREAU OF SMALL BUSINESS ENTERPRISES, UNITED STATES DEPARTMENT OF TRANSPORTATION, and NORMAN Y. MINETA, in his capacity as the United States Secretary of Transportation, Defendants



The opinion of the court was delivered by: REBECCA PALLMEYER, District Judge

MEMORANDUM OPINION AND ORDER

Plaintiff Northern Contracting, Inc. ("Northern"), an Illinois highway contractor, challenges the constitutionality of provisions of federal and state laws designed to guarantee the award of a portion of highway subcontracts to disadvantaged business enterprises ("DBEs"). Northern brought this action against Defendants the State of Illinois, the Illinois Department of Transportation ("IDOT"), Kirk Brown (in his capacity as the Secretary of Transportation for the State of Illinois), Gordon Smith (in his capacity as Chief of IDOT's Bureau of Small Business Enterprises), the United States Department of Transportation ("USDOT"), and Norman Mineta (in his capacity as the United States Secretary of Transportation). Northern seeks a declaration that the federal statutory provisions, federal implementing regulations, and state statute authorizing the Illinois DBE program, as well as the Illinois program itself, are unlawful and unconstitutional. In addition, Northern asks the court to enjoin enforcement of the relevant statutory provisions and regulations and operation of the Illinois DBE program. Northern, which is 100 percent owned by a white male, specializes in fencing, guardrail, and handrail construction, and regularly bids on subcontracts for federal-aid Page 2 highway prime contracts awarded by IDOT. Northern claims that several contracts for which it submitted the lowest bid were awarded to subcontractors owned by racial minorities and/or women. After the court denied the Defendants' motion to dismiss, Northern Contracting, Inc. v. Illinois, No. 00 C 4515, 2001 WL 987730 (N.D. III. Aug. 28, 2001), the parties engaged in lengthy discovery. Now all parties seek summary judgment. For the reasons stated below, the Federal Defendants' motion for summary judgment is granted, the State Defendants' motion for summary judgment is denied, and the Plaintiff's motion for summary judgment is denied.

FACTUAL BACKGROUND

 I. Parties

  Defendant IDOT is the Illinois state agency responsible for planning, construction, and maintenance of Illinois's extensive transportation network, including highways and bridges, airports, public transit, rail freight, and rail passenger systems. See http://www.dot.state.il.us/org.html. IDOT, which operates with an annual budget of approximately $5 billion, administers all state-funded and federal-aid highway construction contracts in the State of Illinois, subject to USDOT regulations and Act 575, Business Enterprise for Minorities, Females, and Persons with Disabilities Act, 30 ILCS 575/1, et seq. (West 1996) (hereinafter, the "Business Act"). (Id.; State Defendants' Statement of Material Facts (hereinafter, "State Defs.' 56.1") ¶ 1.)

  Defendant Kirk Brown was Illinois Secretary of Transportation-the head of IDOT-until December 2002. (State Defs.' 56.1 ¶ 2.) Timothy Martin now holds that position. See http://www.dot.state.il.us/directory.html. Defendant Gordon Smith was Chief of the Bureau of Small Business Enterprises and the Liaison Officer for the IDOT DBE program from June 16, 2002 until April 30, 2003. (State Defs.' 56.1 ¶ 3, 52; Ex. 2 to State Defs.' 56.1.) In his official capacity, Smith was responsible for developing and implementing all aspects of IDOT's DBE program and for promoting the utilization of women and minorities consistent with federal regulations. (Id. ¶ 3.) The Page 3 position of Chief of the Bureau of Small Business Enterprises is currently vacant. See http://www.dot.state.il.us/directory.html. Defendant USDOT is a federal executive branch agency responsible for administering and enforcing statutes or portions of statutes relating to national transportation policy and programs. (Federal Defendants' Statement of Material Facts ("Fed. Defs.' 56.1") ¶ 1.) Norman Mineta, the current United States Secretary of Transportation, is the head of USDOT, and as such is responsible for the administration of USDOT's programs and the promulgation and enforcement of USDOT regulations. (Id. ¶ 2.)

  In his deposition, Richard Roesch, Plaintiff's sole owner, testified that Plaintiff "does state, government and commercial work." (Deposition of Richard Roesch (hereinafter, "Roesch Dep."), Ex. 19 to Plaintiffs Statement of Material Facts (hereinafter, "Pl.'s 56.1"), at 22, 36). He stated that Plaintiff bids as a subcontractor on approximately 200 to 250 IDOT and county projects per year, but bids only five or six times per year as a prime contractor for IDOT work. (Id. at 36-37.)*fn1 According to Roesch, Northern competes for guardrail and fencing work against approximately seven other firms, three of which-Access Control Co., Inc., Clevenger Contractors, Inc., and Harris Fence-are DBEs. (Id. at 113-16.)*fn2 Roesch testified that "our biggest complaint is [that] we lose work in our immediate area to minority contractors. . . . It's more profitable . . . to be within our geographic vicinity closer to base than . . . getting jobs that are two hours away and having to send people and supplies to that location just to stay in business." (Id. at 118.) Plaintiff obtains approximately 35 percent of its revenues from federal-aid highway construction contracts administered by IDOT (hereinafter, "federal-aid IDOT contracts"), and the remainder from state, Page 4 local, and privately-funded contracts without federal funding. (State Defs.' 56.1 ¶ 119; Plaintiff's Response to Illinois State Defendants' Statement of Material Facts (hereinafter, "Pl's Resp. to State Defs.' 56.1") ¶ 121.) In 2002, Plaintiff was awarded more than 60 contracts, and its gross revenues were approximately $3 million. (State Defs.' 56.1 ¶ 121; Pl.'s Resp. to State Defs.' 56.1 ¶ 123; Roesch Dep., at 53.)*fn3 Plaintiff does not claim status as a DBE and has never applied for certification as a DBE. (State Defendants' Response to Plaintiff's Statement of Material Facts in Support of Plaintiff's Motion for Summary Judgment (hereinafter, "State Defs.' Resp. 56.1") ¶ 3.)

 II. Complaint

  On February 14, 2003, Plaintiff filed its four-count Third Amended Complaint (hereinafter, "TAG"),*fn4 which challenges the constitutional validity of a federal statute, a state statute, and certain implementing regulations. Specifically, Plaintiff challenges (1) § 1101(b) of the Transportation Equity Act for the 21st Century, Pub.L. 105-178, 112 Stat. 107 (1998) (hereinafter, "TEA-21"), which was enacted on June 9, 1998; (2) 49 C.F.R. Part 26 (the "Regulations"), which became effective on March 4, 1999; (3) the Business Act, which became effective on September 6, 1984; and (4) IDOT's DBE Program, which was first submitted to USDOT for approval pursuant to the Regulations on September 1, 1999.

  Plaintiff brings Counts I through III of the TAC only against USDOT and Mineta (collectively, the "Federal Defendants"). In Count I, Plaintiff claims that TEA-21 and the Regulations deprive Plaintiff of "an equal opportunity to compete for federal-aid highway contracts because of the race and gender of its owners and management" and therefore "violate Northern's rights under 42 U.S.C. § 2000(d) and the equal protection element of the Fifth Amendment to the United States Constitution." (TAC ¶¶ 76-78.) In Count II, Plaintiff claims that, to the extent TEA-21 and the Page 5 Regulations require IDOT "to utilize goals for the participation of DBEs selected on the basis of race and gender on federal-aid highway contracts, they invidiously discriminate against white male-owned and controlled contractors, such as Northern." (TAC ¶ 79-82.) In Count III, Plaintiff claims that "[t]he relevant provisions of TEA-21 exceed Congress's legislative powers under the United States Constitution." (TAC ¶ 83-86.)

  In Count IV, which is brought only against IDOT, Brown and Smith (collectively, the "State Defendants"), Plaintiff claims that as a "direct and proximate result of the race and gender-conscious measures set forth in . . . State Defendants' DBE Program and the [Business] Act and as applied by . . . State Defendants, Northern has been, and will continue to be, denied an equal opportunity to compete for federal-aid and State highway contracts in Illinois." Accordingly, Plaintiff alleges, Illinois's DBE Program, the Business Act, and the acts of State Defendants "violate Northern's rights to equal protection of the laws guaranteed by the Fourteenth Amendment to the United States Constitution and Article 1 of the Illinois Constitution, and 42 U.S.C. § 1981, 1983 and 2000(d)." (TAG ¶¶ 87-89.)

 III. Relevant Statutes

  A. TEA-21 and Implementing Regulations

  Since 1982, the federal highway statutes have required that recipients of federal highway funds set aside ten percent of federal highway construction funds for small businesses owned and controlled by "socially and economically disadvantaged individuals," as that term was defined in the Small Business Act. See Surface Transportation Assistance Act of 1982, Pub.L. No. 97-424 § 105(f), 96 Stat. 2097, 2100. On June 9, 1998, the President signed into law TEA-21, which authorized USDOT to expend funds for federal surface transportation programs for highways, Page 6 highway safety, and transit for fiscal years 1998-2003.*fn5 Under TEA-21, as under previous federal highway statutes, at least ten percent of federal highway construction funds must be paid to DBEs "except to the extent that the Secretary [of Transportation] determines otherwise." TEA-21 § 1101(b)(1). The provisions of TEA-21 were set to expire on September 30, 2003; however, on the eve of TEA-21's expiration, the President signed into law the Surface Transportation Extension Act of 2003, Pub.L. 108-88, 117 Stat. 1110, which extended the provisions of TEA-21 for an additional five months, through February 29, 2004.

  Effective March 4, 1999, USDOT issued the Regulations, which were titled "Participation by Disadvantaged Business Enterprises in Department of Transportation Financial Assistance Programs." 64 Fed. Reg. 5096 (Feb. 2, 1999) (codified in 49 C.F.R. pt. 26). The Regulations define "recipient" as "any entity, public or private, to which DOT financial assistance is extended, whether directly or through another recipient, through the programs of the FAA, FHWA, or FTA, or who has applied for such assistance" (hereinafter, "Recipient"). 49 C.F.R. § 26.5.*fn6 The parties implicitly agree that Illinois and IDOT are Recipients as defined by the Regulations. The Regulations forbid a Recipient from discriminating against anyone "in connection with the award and performance of any contract covered by this part on the basis of race, color, sex, or national origin." 49 C.F.R. § 26.7(a). In administering its DBE program, a Recipient "must not, directly or through contractual or other arrangements, use criteria or methods of administration that have the effect of defeating or substantially impairing accomplishment of the objectives of the program with respect to individuals of a particular race, color, sex, or national origin." 49 C.F.R. § 26.7(b). Page 7

  As a condition of receiving federal highway funds, a Recipient must have a DBE program, 49 C.F.R. § 26.21, must set an overall goal for DBE participation in USDOT-assisted contracts, 49 C.F.R. § 26.45(a), and, if it sets overall goals on a fiscal year basis, must submit them to USDOT for review and approval. 49 C.F.R. § 26.45(f)(1). If a Recipient determines that DBE firms are so "overconcentrated" in a particular occupational area as to "unduly burden" the opportunity of non-DBE firms to participate in that type of work, it must devise appropriate measures to address this overconcentration. 49 C.F.R. § 26.33. The provision in TEA-21 requiring that at least ten percent of federal highway construction funds be paid to DBEs "is an aspirational goal at the national level." 49 C.F.R. § 26.41 (b). This national goal "does not authorize or require recipients to set overall or contract goals at the 10 percent level, or any other particular level, or to take any special administrative steps if their goals are above or below 10 percent." 49 C.F.R. § 26.41 (c). USDOT may grant an exemption or waiver from nearly all aspects of the program, including any provision relating to administrative requirements, overall goals, contract goals, and good faith efforts. 49 C.F.R. § 26.15(b).

  1. The Goal-Setting Process

  The Regulations outline the process for setting the Recipient's overall DBE participation goal. As the Regulations explain, that goal "must be based on demonstrable evidence of the availability of ready, willing and able DBEs relative to all businesses ready, willing and able to participate" on its USDOT-assisted contracts (hereinafter, the "relative availability of DBEs"). 49 C.F.R. § 26.45(b). The goal must also reflect the Recipient's determination of the level of DBE participation it "would expect absent the effects of discrimination." Id.*fn7 Under the first of two steps mandated by the Regulations, the Recipient is directed to determine "a base figure for the relative Page 8 availability of DBEs." 49 C.F.R. § 26.45(c). Examples of approaches that the Recipient may employ in determining a base figure include: (1) use of DBE directories and Census Bureau data; (2) use of a bidders list; (3) use of data from a disparity study; (4) use of the goal of another Recipient in the same, or a substantially similar, market, adjusted for differences in the Recipient's local market and contracting program, as a base figure for the Recipient's goal; or (5) other methods to determine a base figure, as long as such methods are based on demonstrable evidence of local market conditions and are designed ultimately to attain a goal that is rationally related to the relative availability of DBEs in the relevant market. Id.

  Once the Recipient has calculated its base figure, step two of the goal-setting process requires the Recipient to examine all evidence available in the jurisdiction and adjust the base figure accordingly to arrive at the overall goal. 49 C.F.R. § 26.45(d). The "many types of evidence that must be considered" when adjusting the base figure include (i) the current capacity of DBEs to perform work in the DOT-assisted contracting program, as measured by the volume of work DBEs have performed in recent years, and (ii) evidence from "disparity studies" conducted anywhere within the jurisdiction, to the extent such evidence is not already accounted for in the base figure. Id. If available, the Recipient must consider evidence from related fields that affect the opportunities for DBEs to form, grow and compete, including (i) statistical disparities in the ability of DBEs to obtain the financing, bonding, and insurance required to perform work in the program; and (ii) data on employment, self-employment, education, training, and union apprenticeship programs, to the extent they relate to the opportunities for DBEs to participate in the Recipient's program. Id. If the Recipient attempts to make an adjustment to the base figure "to account for the continuing effects of past discrimination (often called the `but for factor') or the effects of an ongoing DBE program, the adjustment must be based on demonstrable evidence that is logically and directly related to the effect for which the adjustment is sought." Id. In setting the Page 9 overall goal, the Recipient must provide for public participation, including consultation with minority, women's, and general contractor groups and community organizations which "could be expected to have information concerning the availability of disadvantaged and non-disadvantaged businesses, the effects of discrimination on opportunities for DBEs, and [the Recipient's] efforts to establish a level playing field for the participation of DBEs." 49 C.F.R. § 26.45(g)(1). if a Recipient does not have an approved DBE program or overall goal, or if it fails to implement its program in good faith, it is "in noncompliance with" the Regulations. 49 C.F.R. § 26.47(b). A Recipient cannot, however, be penalized, or treated by USDOT as being in noncompliance with the Regulations, because its DBE participation falls short of its overall goal, unless it has failed to administer its program in good faith. 49 C.F.R. § 26.47(a).

  When submitting its DBE goal to USDOT, a Recipient must include a description of the methodology used to establish the goal, including the base figure and the evidence with which it was calculated, as well as the adjustments made to the base figure and the evidence relied on for such adjustments. 49 C.F.R. § 26.45(f)(3). The Recipient should also include a summary listing of the relevant available evidence in the jurisdiction and, where applicable, an explanation of why the Recipient did not use that evidence to adjust the base figure. Id. Further, the Recipient must include its projection of the portions of the overall goal it expects to meet through race-neutral and race-conscious measures, respectively. Id.; 49 C.F.R. § 26.51(c).

  2. Preference for Race-Neutral Measures over Contract Goals

  The Regulations direct a Recipient to meet the "maximum feasible portion" of its overall goal through race-neutral means.*fn8 49 C.F.R. § 26.51 (a). Race-neutral DBE participation includes a DBE's being awarded (1) a prime contract through customary competitive procurement procedures, Page 10 (2) a subcontract on a prime contract that does not carry a DBE goal, and (3) a subcontract on a prime contract that does carry a DBE goal but where the prime contractor did not consider its DBE status in making the award (e.g., where a prime contractor uses a strict low bid system to award subcontracts). Id. Race-neutral means include providing assistance in overcoming limitations such as inability to obtain bonding or financing by simplifying the bonding process, reducing bonding requirements, eliminating the impact of surety costs from bids, and providing services to help DBEs and other small businesses obtain bonding and financing. 49 C.F.R. § 26.51(b). Contract goals are considered race-conscious measures. 64 Fed. Reg. at 5112.

  If a Recipient projects it will not be able to meet its overall goal using only race-neutral means, it must establish contract goals to the extent that such goals will achieve the overall goal. 49 C.F.R. § 26.51 (d), (f)(1). A Recipient may use contract goals only on those USDOT-assisted contracts that have subcontracting possibilities. 49 C.F.R. § 26.51 (e)(1). Further, a Recipient must adjust its use of race-neutral and/or race-conscious measures if it determines during the course of the year that it will exceed or fall short of its overall goal. 49 C.F.R. § 26.51 (f)(2). If the Recipient has succeeded in meeting or exceeding its overall goals through race-neutral means alone for two consecutive years, it need not make a projection of the amount of its goal it can meet using race-neutral means in the next year. 49 C.F.R. § 26.51(f)(3). If the Recipient obtains DBE participation that exceeds its overall goal in two consecutive years through the use of contract goals (i.e., not through the use of race-neutral means alone), it must reduce its use of contract goals proportionately in the following year. 49 C.F.R. § 26.51(f)(4).*fn9 The Regulations provide, further, that a Recipient may not use quotas for DBEs on USDOT-assisted contracts and may not set aside contracts for DBEs on USDOT-assisted contracts except in limited circumstances "when no other Page 11 method could be reasonably expected to redress egregious instances of discrimination." 49 C.F.R. § 26.43.

  Once it has set a DBE goal, a Recipient may only award a prime contract to a bidder/offeror that documents that it has either (1) obtained enough DBE participation to meet the goal, or (2) made adequate good faith efforts to meet that goal, even if it did not succeed in obtaining enough DBE participation to do so. 49 C.F.R. § 26.53(a). Examples of the types of actions a Recipient should consider as part of the bidder's good faith efforts to obtain DBE participation include soliciting interest of DBEs at pre-bid meetings; advertising and/or written notices; breaking out contract work items into economically feasible units to facilitate DBE participation, even when the prime contractor might otherwise prefer to perform these work items with its own forces; providing interested DBEs with adequate information about the plans, specifications, and requirements of the contract; negotiating in good faith with interested DBEs; not rejecting DBEs as being unqualified without sound reasons based on a thorough investigation of their capabilities; making efforts to assist interested DBEs in obtaining bonding, lines of credit, or insurance as required by the Recipient or contractor; making efforts to assist interested DBEs in obtaining necessary equipment, supplies, materials, or related assistance or services; and effectively using the services of available minority/women community organizations, contractors' groups, and government business assistance offices. 49 C.F.R. pt. 26, Appendix A § IV. A higher bid from a DBE than from a non-DBE is not a sufficient reason for a prime contractor's failure to meet the DBE goal on a contract, unless the difference is "excessive or unreasonable." 49 C.F.R. pt. 26, Appendix A § IV(D)(2). A Recipient must apply the requirements of this section to DBE bidders/offerors for prime contracts. 49 C.F.R. § 26.53(g). In determining whether a DBE bidder/offeror for a prime contract has met a contract goal, the Recipient is directed to count the work the DBE has committed to performing Page 12 with its own forces as well as the work that it has committed to be performed by DBE subcontractors and DBE suppliers. Id.

  3. Qualifications for DBE Status

  To qualify as a DBE, a contractor must be independently owned and operated, not dominant in its field of operation, and at least 51 percent owned-and controlled by-one or more socially and economically disadvantaged individuals. TEA-21 § 1101(b)(2); 15 U.S.C. § 632(a)(1), 637(a)(6)(A), 637(d).*fn10 Recipients "must rebuttably presume" that women and members of certain racial minority groups*fn11 are socially and economically disadvantaged individuals and must require each presumptively disadvantaged business owner to submit a signed, notarized certification that he or she is, in fact, socially and economically disadvantaged. 49 C.F.R. § 26.67(a)(1).*fn12 A firm does not qualify for DBE status, however, if its average annual gross receipts over the preceding three fiscal years exceed $16.6 million, as adjusted by USDOT for inflation. TEA-21 § 1101(b)(2)(A). Further, any individual whose personal net worth exceeds $750,000 is not economically disadvantaged, 49 C.F.R. § 26.67(b)(1); on the other hand, a firm owned by an individual who is not presumptively disadvantaged may qualify as a DBE if it can demonstrate that "the individuals Page 13 who own and control" the firm are in fact socially and economically disadvantaged. 49 C.F.R. § 26.67(d).

  Recipients have the responsibility to ensure that DBEs attest to the accuracy of the information provided to the Recipient and continue to meet the requirements for that status. 49 C.F.R. § 26.83(c)(7)(ii), (j). Recipients must require each individual owner of a firm applying to participate as a DBE to certify that he or she has a personal net worth that does not exceed $750,000. 49 C.F.R. § 26.67(a)(2). Any person may file with the Recipient a written complaint alleging that a DBE-certified firm is ineligible for specific reasons. 49 C.F.R. § 26.87(a). When such a complaint is made, the Recipient must review all available information concerning the firm and, if it determines that there is reasonable cause to believe the firm is ineligible, provide written notice to that firm setting forth the reasons for the proposed determination and give the firm an opportunity for an informal hearing on the matter. 49 C.F.R. § 26.87(a), (d)-(k).

  USDOT may refer to the Department of Justice for prosecution any person who makes a false or fraudulent statement in connection with participation of a DBE in any USDOT-assisted program. 49 C.F.R. § 26.107(e). On its web site, at the request of a number of Recipients, USDOT posted a document providing guidance beyond what is set forth in the Regulations on goal-setting and on how to determine what portion of goal should be race/gender-neutral and race/gender-conscious. See http://osdbuweb.dot.gov/business/dbe/tips.html.

  B. Illinois Business Act

  The Business Act requires any Illinois state agency that administers a construction program governed by federal law or regulations relating to utilization of minority, disadvantaged, and female-owned businesses to implement a DBE program "using the federal standards and procedures for the establishment of goals and utilization procedures for the State-funded, as well as the federally assisted, portions of the program." 30 ILCS575/6(d). The Business Act will be repealed by its own Page 14 terms on September 6, 2004. 30 ILCS 575/9. The court notes that Plaintiff has not offered any evidence to support its assertion that the Business Act is unconstitutional.

 IV. Illinois DBE Program

  I DOT operated a DBE program prior to implementation of the Regulations, although, except as discussed below, the record is devoid of information regarding this program. On a date not specified in the record, I DOT formed a committee to create the DBE program challenged in this suit, for the administration of federally-funded highway construction projects in Illinois. (State Defs.' 56.1 ¶ 48; Pl.'s Resp. to State Defs.' 56.1 ¶ 50.) The record indicates that six IDOT officials participated in the development of IDOT's FY 2000, FY 2002, and FY 2003 DBE goals: Rob Newbold ("Newbold"), then-Deputy Secretary of IDOT, (Deposition of Rob Newbold (hereinafter, "Newbold Dep."), Ex. 9 to State Defs.' 56.1, at 45-46); Edward Gower, then-Chief Counsel for IDOT, (Deposition of Edward Gower (hereinafter, "Gower Dep."), Ex. 7 to State Defs.' 56.1, at 5, 8, 10-11); Randy Vereen, then-Director of I DOT's Office of Finance and Administration, (Deposition of Randy Vereen (hereinafter, "Vereen Dep."), Ex. 6 to State Defs.' 56.1, at 8); Beverly Peters, who was until January 2000 Chief of the Bureau of Small Business Enterprises, (Deposition of Beverly Peters (hereinafter, "Peters Dep."), Ex. 11 to State Defs.' 56.1, at 8); Ana Velasco, who followed Peters as Chief of the Bureau of Small Business Enterprises, (Deposition of Ana Velasco. (hereinafter, "Velasco. Dep."), Ex. 10 to State Defs.' 56.1, at 21)*fn13; and Gary Gould ("Could"), former Page 15 Chief of the Bureau of Construction in IDOT's Division of Highways.*fn14 (Deposition of Gary Gould (hereinafter, "Gould Dep."), Ex. 13 to State Defs.' 56.1, at 6-7.)

  According to Gould, IDOT is required by law to award prime contracts to the lowest bidder, without regard to DBE status. (Gould Dep., at 35, 44, 74.) Although DBE status is purportedly irrelevant to the choice of prime contractors for Illinois highway projects, there is evidence that where IDOT does select a DBE prime contractor, IDOT accounts that project toward its DBE goal. (See Ex. 15 to State Defs.' 56.1 ¶¶ III, VII(A).) As discussed above, such accounting is permitted by the Regulations. For example, race-neutral DBE participation includes a DBE's being awarded a prime contract through customary competitive procurement procedures. 49 C.F.R. § 26.51 (a). In determining whether a DBE bidder/offeror for a prime contract has met a contract goal, the Recipient is directed to count the work the DBE has committed to performing with its own forces. 49 C.F.R. § 26.53(g). Although the Regulations do not explicitly bar consideration of DBE status in the award of prime contracts, the Regulations do state that a Recipient may use contract goals only on those USDOT-assisted contracts that have subcontracting possibilities. 49 C.F.R. § 26.51 (e)(1). State Defendants have not addressed, and Gould did not identify, the statutory provision or regulation that imposes the requirement that prime contracts be awarded to the lowest bidder. The court therefore is puzzled by Gould's assertion that IDOT never considers-and indeed cannot consider-DBE status in awarding prime contracts. As discussed below, such information is significant in evaluating IDOT's DBE program.

  A. Goal Development Process

  IDOT officials held several public hearings in which both DBEs and prime contractors*fn15 discussed the needs and experiences of DBEs as well as barriers to their success, such as the fact Page 16 that many DBE owners "didn't grow up in the industry . . .[or] inherit the business from their parents." (Vereen Dep., at 133, 144.) Vereen testified that he personally met with owners of small businesses, DBEs, and prime contractors in the I DOT construction industry to discuss and identify barriers and discrimination that might be affecting participation levels of DBEs. (Id. at 15-17.) It is clear, however, that I DOT officials never attempted to determine whether the goal reflected I DOT'S determination of the level of DBE participation it "would expect absent the effects of discrimination," as required by 49 C.F.R. § 26.45(b). (See Newbold Dep., at 35-38, 46-47; Vereen Dep., at 106-07, 113-14, 138-39, 146, 156, 167; Peters Dep., at 97-98, 101-02, 117; Gould Dep., at 49-51; Gower Dep., at 105.) Vereen stated that I DOT never performed "a numerical analysis of discrimination" because "[w]e did not have the time, and we moved forward to try to implement a program." (Vereen Dep., at 138-39.)

  B. FY 2000 DBE Program

  IDOT officials drafted and submitted IDOT's FY 2000 Program Document to USDOT on September 1, 1999. (Ex. 3 to State Defs.'56.1, at 1.) The document stated that the Department's "overall goal was based on evidence of the availability of ready, willing, and able DBEs relative to all businesses ready, willing, and able to participate in DOT-assisted contracts." (Id. at 9.) To determine the number of "ready, willing, and able" DBEs, IDOT first calculated the number of DBE construction firms and engineering consulting firms-both prime contractors and subcontractors-to which it had awarded contracts as a percentage of total contracts awarded in FY 1997 and 1998, during the course of IDOT's pre-Regulations DBE program. It then calculated the value of contracts awarded to DBE construction firms and engineering consulting firms as a percentage of the total value of contracts awarded in FY 1997 and 1998. The average of these two percentages became the base figure for the FY 2000 program goal. Page 17

  Although some 15.72 percent of the highway construction firms were DBEs, only 13.67 percent of the total dollar value of construction contracts had been awarded to DBEs over those years. The ratio for engineering consulting contracts was worse: although 17.09 percent of the active highway engineering consulting firms were DBEs, they accounted for only 9.2 percent of the contract dollars awarded for engineering consulting. Similarly, while the "weighted average" of the number of DBE construction and engineering consulting firms was 15.76 percent, DBEs garnered a weighted average of only 13.39 percent of total contract dollars. The average of these two figures, 14.6 percent, constituted the "base figure" for IDOT's FY 2000 program goal. (Id. at ID-16.)

  I DOT then adjusted this base figure of 14.6 percent "to reflect changes in the regulation and other program dynamics." (Id.) Specifically, the Department removed the 16 former DBE firms rendered ineligible by the $750,000 personal net worth cap, removed DBE trucking firms, and reduced the percentage to account for the change in status of the three largest of the 16 former DBE firms, yielding a final DBE goal of 12.5 percent. (Id. at 13-15.)

  The document stated that I DOT sought to "meet the maximum feasible portion" of this overall goal by using the following race-neutral means: (1) awarding a number of smaller projects-40 to 50 projects of $500,000 or less-in urban areas of the state to increase the opportunities for DBEs to function as prime contractors; (2) creating a more accessible website marketplace to help match DBE subcontractors with prime contractors on IDOT projects; and (3) providing an additional $500,000 to expand its contractor training programs in such areas as estimating, unit pricing, and work scheduling. (Id. at 15.) The document also stated that "IDOT evaluated current [race-neutral] accomplishments to determine what portion of the overall goal could be met through [race-neutral] means." (Id.) This evaluation was accomplished by comparing the volume of business awarded in FY 1997 and 1998 to DBE prime contractors and Page 18 subcontractors on non-set-aside highway construction contracts with total IDOT highway construction awards, during the course of IDOT's pre-Regulations DBE program. (Id.) After evaluating the race-neutral measures it had already implemented, IDOT anticipated meeting 3.5 percent of its DBE goal through race-and gender-neutral means, with the remaining nine percent presumably to be met through race-and gender-conscious contract goals. (Id. at 15-17.)

  Under the FY 2000 program, consistent with the Regulations, a prime contractor could seek a waiver or modification of a highway construction project's DBE participation goal by documenting its good faith efforts to achieve the project goal. The program document refers the bidder to 49 C.F.R. Part 26 Appendix A for examples of good faith efforts. (Id. at 20-21.)

  A document authored by IDOT titled "Special Provision for Disadvantaged Business Enterprise Participation"*fn16 states that "the fact that there may be some additional costs involved in finding and using DBE companies is not in itself sufficient reason for a bidder's failure to meet the contract DBE goal, as long as such costs are reasonable." (Ex. 15 to State Defs.' 56.1 ¶ VIII(A)(4)(b).) The document confirms, further, that prime contractors are not "required to accept higher quotes from DBE companies if the price difference is excessive or unreasonable." (Id.) Newbold, Gower, and Velasco. all testified that a prime contractor was not expected to accept a DBE's bid that was more than five percent higher than the lowest responsible bid. (Newbold Dep., at 22; Gower Dep., at 62; Velasco. Dep., at 53-54.) The "Special Provision" document, however, does not make reference to this "five percent" rule of thumb.*fn17 Velasco. testified that it was her Page 19 understanding that a prime contractor was also excused from accepting a DBE's bid if the prime contractor presented evidence, based on actual experience with the DBE, that there was a problem with the quality of the DBE's work or competency. (Velasco. Dep., at 56-57.) The document merely states, "A bidder using good business judgment . . . would take a firm's price and capabilities as well as contract goals into consideration," and states that a prime contractor may not reject DBEs "as being unqualified without sound reasons based on a thorough investigation of their capabilities." (Ex. 15 to State Defs.' 56.1 ¶¶ VIII(A)(4)(b), (5).)

  In his deposition, Robert Ashby, USDOT Deputy Assistant General Counsel for Regulations and Enforcement, testified that he and other USDOT officials reviewed the methodology employed by (DOT in setting its FY 2000 DBE program plan and overall goal. (Deposition of Robert Ashby, Ex. 12 to Federal Defendants' Renewed Motion for Summary Judgment (hereinafter, "Fed. Defs.' Motion"), at 38-39, 102-04, 182.) On May 1, 2000, USDOT approved IDOT's FY 2000 DBE plan based on the program's "compliance and consistency with" the Regulations. (Ex. 17 to State Defs.' 56.1, at 1.) USDOT found that IDOT's program was "similar to [USDOT's] Sample DBE Program," (id. at 8), and that IDOT'S certification process met the size, group, membership, ownership, and control standards set forth in the Regulations. (State Defs.' 56.1 ¶ 73; Pl's Resp. to State Defs.' 56.1 ¶ 75.) With the approval of USDOT, IDOT did not submit a proposed DBE goal to USDOT for FY 2001 but continued to use the FY 2000 goal and race-neutral component in FY 2001. (State Defs.' 56.1 ¶ 81; Pl.'s Resp. to State Defs.' 56.1 ¶ 83.)

  C. FY 2002 DBE Program

  In its FY 2002 Program Document, which IDOT submitted to USDOT on August 1, 2001, the Department reiterated many of the same goals and information set forth in the FY 2000 Page 20 Program Document. (Ex. 4 to State Defs.' 56.1, at 1-8.) IDOT officials held public meetings on June 28, 2001 and July 10, 2001 with representatives of highway construction industry associations and community organizations to discuss the Department's goal-setting methodology, including the availability of DBEs and non-DBEs, the effects of discrimination on opportunities for DBEs, and the Department's efforts to establish a level playing field for DBF participation. (Id. at 8.) The document stated that IDOT sought to "meet the maximum feasible portion" of its overall goal by using race-neutral means of achieving DBE participation, including awarding smaller contracts and providing training and internet services. (Ex. 4 to State Defs.'56.1, at 9, 16.) It indicated that I DOT made several race-neutral efforts to increase DBE participation in the Department's highway construction program, including "an extensive outreach program," a technology assistance program that provided services in computerization and internet utilization, and development of a website that includes a "Contractor's Market Place" for prime contractors, subcontractors, and suppliers wishing to do business with IDOT. (Id. at 9.) Other race-neutral measures IDOT pointed to were the creation of the Small Business Advisory Committee ("SBAC") to advise the Department on DBE-related matters,*fn18 the establishment of networking sessions throughout Illinois, and the decision to "unbundle" between $20 and $25 million per year in contract expenditures in packages of $500,000 or less to provide opportunities for DBEs and other small businesses to bid as prime contractors. (Id.)

  IDOT employed the same methodology it had used in setting its FY 2000 goal, but with FY 1997 through FY 2000 data, to arrive at a DBE goal of 12.29 percent participation in IDOT contracting. (Id. at12-15.) After evaluating the race-neutral measures it had already implemented, Page 21

  IDOT anticipated meeting 2.5 percent of this DBE goal through race-and gender-neutral means, leaving the remaining 9.79 percent to be met through race-and gender-conscious contract goals. (Id. at 16.) USDOT approved IDOT's FY2002 Program Document on November 26, 2002. (Pl's 56.1 ¶ 40; State Defs.' Resp. 56.1 ¶ 40.) Prior to that date, IDOT continued to operate under its FY 2000 goal. (Vereen Dep., at 76-77.)

  D. FY 2003 DBE Program

  USDOT approved IDOT's FY 2003 Program Document on November 26, 2002, the same day it had approved IDOT's FY 2002 Program Document. (Pl.'s 56.1 ¶ 41; State Defs.' Resp. 56.1 ¶ 41; Ex. 20 to State Defs.' 56.1, at 1.)*fn19 In a document prepared to describe the methodology used to establish the FY 2003 overall goal, IDOT stated that it had held two public meetings to solicit information from interested organizations or individuals. (Ex. 8 to State Defs.' 56.1, at 1.)*fn20 Employing the same methodology used for the FY 2000 and 2002 goals, but with data from FY 1997 through 2001, IDOT calculated a DBE goal of 12.14 percent. (Id. at 4-8.) The document reiterated race-neutral efforts the Department had implemented in FY 2002, discussed above, including "an extensive outreach program," networking sessions throughout Illinois, an expanded website that included the Contractor's Market Place, and the creation of the SBAC. (Id. at 9.) IDOT anticipated meeting 2.25 percent of its DBE goal through these race-and gender-neutral means, leaving the remaining 9.89 percent of its goal to be met through race-and gender-conscious contract goals. (Id. at 10.) Page 22

  E. IDOT "Zero-Goal" Program

  At the request of non-DBE prime contractors, and as a response to suggestions by Plaintiffs counsel, "IDOT engaged in an experimental program whereby it set 0% participation goals on approximately 5% of IDOT's highway and aeronautic construction projects." (State Defs.' 56.1 ¶¶ 55, 75.) Although the record does not provide the dates during which IDOT conducted this program, Gould testified that the program took place for one year in either calendar year or fiscal year 2001. (Gould Dep., at 78.) The parties agree that prime contracts awarded to DBEs were excluded from the study. (State Defs.' 56.1 ¶ 76.) The Department's objective in undertaking this program was "to confirm the accuracy of its annual goal and its race-neutral efforts." (Id. ¶ 55.) DBE participation on these projects dropped to about 1.5 percent.*fn21 Gower testified that "we didn't get much participation, which suggested we could not replace contract goals with no goals and achieve our overall goal for DBE participation for a given year." (Gower Dep., at 105.) He acknowledged, however, that no one "examine[d] whether the reason that more DBE subcontractors were not selected was due to discriminatory reasons." (Id.)

  F. Effectiveness of Race-Neutral Measures

  The parties dispute whether IDOT could have met its DBE goals using only race-neutral measures, i.e., without employing race-conscious contract goals. (State Defs.' 56.1 ¶¶ 54, 66, 67; Pl's Resp. to State Defs.' 56.1 ¶¶ 56, 68, 69.) According to State Defendants, [DOT had no evidence that it could meet its overall goals through exclusively race-neutral means. (State Defs.' 56.1 ¶ 54.) In Randy Vereen's words, a race-conscious goal was necessary "because we had no evidence that we would achieve the kinds of participation that the analysis suggested we should have without one based on prior history." (Vereen Dep., at 135-36.) State Defendants assert that Page 23

  I DOT used "the best available data" both "to analyze its past and future race neutral achievements" and to identify "ready, willing and able" DBEs. (State Defs.' 56.1 ¶¶ 54, 66.) Traci Baker, a civil rights specialist with the Federal Highway Administration who reviewed the I DOT FY 2000 DBE program submission, testified that it was her understanding that I DOT did not possess information as to the availability of DBE subcontractors separate from the availability of DBE prime contractors and that I DOT "analyzed what information they had available to them to the best of their ability." (Deposition of Traci Baker (hereinafter, "Baker Dep."), Ex. 12 to State Defs.' 56.1, at 55-56, 59.) A USDOT document concluded that, "at the time IDOT submitted its program, this was the best data that IDOT possessed." (Ex. 16 to State Defs.' 56.1, at 13.)*fn22

  Plaintiff contends that IDOT ignored evidence that IDOT could have achieved its DBE goal solely through race-neutral means. (Pl's Resp. 56.1 ¶¶ 56, 68-69.) Plaintiff particularly emphasizes certain testimony of Gary Gould based on a number of IDOT records, many of which Gould saw for the first time during his deposition. Some of the documents were handwritten, and Gould stated that he could not confirm whether the figures in the documents were "final numbers." In fact, Gould believed the data consisted of "quick compilation[s]" that may have been based on incomplete data and incomplete reporting, or could have resulted from duplications of subcontractors in multiple districts>. Gould acknowledged that, from these documents, it appeared that DBEs constituted between 21 and 22 percent of the subcontracting community in FY 1998, 1999, and 2000,*fn23 but received approximately 31 percent of total subcontracting dollars during the Page 24 periods July 1, 1998 through January 31, 1999, and July 1, 1999 through January 31, 2000.*fn24 Gould believed that IDOT possessed this data when it set its goals for FY 2000. (Gould Dep., at 86, 101-07, 119, 126-27.)

  As noted earlier, to determine its DBE goals, IDOT first calculated the number of DBEs-both prime contractors and subcontractors-to which it had awarded contracts as a percentage of total contracts awarded in previous fiscal years, then calculated the value of contracts awarded to DBEs as a percentage of the total value of contracts awarded in those years, and averaged these two percentages to determine the "base figure." (See, e.g., Ex. 3 to State Defs.' 56.1, at 10-16.) Plaintiff claims that State Defendants had available separate data for DBE prime contractors and subcontractors and non-DBE primes and subs; Defendants deny this assertion. (State Defs.' 56.1 ¶ 67; Pl.'s 56.1 ¶ 69.) Newbold and Gould testified that, for purposes of FY 2000 goal-setting, they thought IDOT "could have" determined the availability of, and volume of business obtained by, non-DBE subcontractors separately from DBE subcontractors, and subcontractors separately from prime contractors, on awarded contracts. (Newbold Dep., at 51-52, 107-08; Gould Dep., at 39-41.) Ana Velasco. testified that, on a quarterly basis, the Department calculated separately the percentage of IDOT contract dollars that DBE subcontractors and non-DBE subcontractors obtained, although she did not state what this percentage was. (Velasco. Dep., at 24.) Thus, it appears that IDOT may have had separate data regarding prime contractors and subcontractors.

  G. Evidence of Private Discrimination Against DBEs

  1. Oral Allegations of Discrimination

  Randy Vereen testified that he was aware of numerous general and specific verbal allegations of discrimination against women and ...


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