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CONSTRUCTORS ASSN. OF WESTERN PENNSYLVANIA v. KREP

October 13, 1977

CONSTRUCTORS ASSOCIATION OF WESTERN PENNSYLVANIA, Plaintiff
v.
JUANITA KREPS, Secretary of Commerce of the United States of America, MILTON J. SHAPP, Governor of the Commonwealth of Pennsylvania, and RICHARD CALIGUIRI, Mayor of the City of Pittsburgh, Defendants



The opinion of the court was delivered by: SNYDER

 The Constructors Association of Western Pennsylvania *fn1" (the Association) has brought an action for declaratory judgment and injunctive relief to prevent the Secretary of Commerce of the United States from conditioning the contracting of public works projects on 10% minority business enterprise participation, and for an injunction against the City of Pittsburgh (City) and the Commonwealth of Pennsylvania (Commonwealth), as recipients of public works financing to prevent their advertising, seeking of bids, or awarding of contracts based on such minority business enterprise participation (MBE). Presently before the Court is the Plaintiff's Motion for Preliminary Injunction.

 The Defendants move for judgment on the basis that the Plaintiff is premature in its action, lacks standing and is guilty of laches. This Motion will be denied.

 The Association contends that its members will be denied their Fifth Amendment equal protection rights *fn2" by virtue of the MBE provision of the Public Works Employment Act (PWE) in that (1) PWE cannot survive the tests of strict scrutiny of the suspect classification based upon racial origin, and (2) that under any standard of review, this quota system is invidiously violative of equal protection, for racial and ethnic quotas are constitutionally impermissible, and (3) crude racial and ethnic quotas may not be used in the allocation of scarce economic resources. In all these respects, we find against the contentions raised by the Association, and the preliminary injunction will be denied.

 I. THE LEGISLATIVE HISTORY.

 The Local Public Works Act (LPW) became law on July 22, 1976 and Congress appropriated two billion dollars for its implementation (Pub. L. 94-447). The program was to be administered by the Secretary of Commerce through the Economic Development Administration (EDA) which distributes funds under LPW to State and local governments for public works projects. Grantees are required to contract project construction work to the private sector through competitive bidding (Sections 102-106; 42 U.S.C. 6701-6705). From October 26, 1976, to February 9, 1977, EDA processed, approved and denied applications from State and local governments for assistance under LPW. This period, referred to as "Round I", resulted in the final approval of approximately two thousand projects.

 Before EDA had completed the processing of projects under Round I, bills were introduced in the U.S. House of Representatives (H.R. 11, January 11, 1977) and in the U.S. Senate (Senate No. 427, January 25, 1977) to provide additional funding under LPW. The Public Works Employment Act of 1977 (PWE) became law on May 13, 1977, authorizing an additional four billion dollar appropriation for a "Round II" program. By amendment to Section 103, it was provided:

 
"2. Except to the extent that the Secretary determines otherwise, no grant shall be made under this chapter for any local public works project unless the applicant gives satisfactory assurance to the Secretary that at least 10 per centum of the amount of each grant shall be expended for minority business enterprises. For purposes of this paragraph, the term 'minority business enterprise' means a business at least 50 per centum of which is owned by minority group members or, in case of publicly owned business, at least 51 per centum of the stock of which is owned by minority group members. For the purposes of the preceding sentence, minority group members are citizens of the United States who are Negroes, Spanish-speaking, Orientals, Indians, Eskimos and Aleuts."

 The Report of the Committee on Public Works and Transportation of the House of Representatives which accompanied the authorization for Round I (Report No. 94-1077, 94th Cong., 2nd Sess., at 2) states that LPW "has a two-fold purpose: (1) to alleviate the problem of nationwide unemployment, and (2) to stimulate the national economy by assisting State and local governments to build badly needed public facilities." Furthermore, Congress made explicit its intent to have the public facilities project funded and commenced quickly, saying:

 
"The bill is carefully and expressly designed to avoid the long lag time sometimes associated with public works programs. . . . To be eligible for a grant, the project must be started within 90 days of its approval if federal funds are available. The bill also provides that applications must be acted upon by the administrative agency within 60 days of the date of its receipt." (Id. at 3).

 Speedy action by EDA was assured under Section 107 (42 U.S.C. ยง 6706) which provided:

 
"Failure to make such final determination within such period (60 days) shall be deemed to mean approval by the Secretary of the grant requested."

 The Section further required that regulations to implement the Act be issued within 30 days of its enactment.

 On December 23, 1976, EDA published a list of 1988 projects which had been provisionally selected for funding under Round I (41 Fed. Reg. 56146). By February 9, 1977, final project processing had been completed, approximately 2,000 were approved, and 23,500 rejected applicants had requested, in the aggregate, approximately 21.8 billion dollars.

 The 1977 Amendments effectuated by PWE not only extended the program but were also designed to resolve problems encountered in Round I, see Report of the Committee on Public Works and Transportation, U.S. House of Representatives, House Report 95-20, 95th Cong., 1st Sess., at 3 (1977). The Senate version, Report of the Commission on Environment and Public Works, No. 95-38, 95th Cong., 1st Sess., at 2-3 (1977), included changes "in order to target federal assistance more accurately and in the areas of greatest need", stating:

 
". . . (there was) need for the public works program and for increased Federal funding. There was unanimous agreement that the program, properly directed, would be a significant factor in the attack on unemployment. Furthermore, they (the witnesses) noted the lasting contribution that would be made to the economic stability and well-being of communities all over America through their public works projects." (at 2).

 The House Report justified the LPW program as follows:

 PWE was enacted May 13, 1977, and EDA was required to establish and issue regulations and procedures to process (approve or deny) thousands of applications by September 30, 1977, the deadline on the expenditure of the 4 billion dollars appropriated for Round II. Further, to insure speedy implementation of Round II, Section 108(h)(1) (42 U.S.C. 6707(h)(1)) stated that unless otherwise provided, the Secretary was not to consider, or approve, or make a grant for any project on which the application had not been submitted on or before December 23, 1976. Finally, under Section 106(d), grantees were required to commence construction within 90 days of project approval.

 The MBE requirement, added to the legislation during the floor debate in the House on February 24, 1977 (123 Cong. Rec. daily ed. at 1441) and later set forth in the Senate (123 Cong. Rec. daily ed. 3910, March 10, 1977), was intended to remedy a deficiency in the 1976 Act whereby "minority business received only one per cent of the federal contract dollar despite repeated legislation, executive order and regulations mandating affirmative efforts to include minority contractors in the federal contracts pool." 123 Cong. Rec. S., supra, at 3910. Thus, the amendment was designed to serve a remedial purpose additional to and separate from the primary purpose of reducing unemployment. It was to boost the participation of minority businesses in the grant funds.

 The Secretary of Commerce has, in accordance with the authority granted in Section 107, promulgated Regulations (13 C.F.R. 317.19(b)); 42 F. Reg. 27434-27435 (May 27, 1977) under this MBE provision, providing:

 
"(b) . . . (1) No grant shall be made under this part for any project unless at least 10 per cent of the amount of such grant will be expended for contracts with and/or supplies from minority business enterprises.
 
(2) The restriction contained in paragraph 1 of this subsection will not apply to any grant for which the Assistant Secretary makes a determination that the ten per cent set-aside cannot be filled by minority businesses located within a reasonable trade area determined in relation to the nature of the services or the supplies intended to be procured."

 In addition, on June 6, 1977, the Commerce Department issued Guidelines for Round II (Department Guidelines) in which, in addition to calling for 10% MBE participation, also provided:

 
"(b) The applicant/grantee will have the right to request a partial or total waiver of this requirement. This waiver request may be made either at the time of resubmission of the project or subsequent to project approval. The applicant must provide a statement of justification in support of its request for waiver. This statement must consider the following:
 
The size of the minority population in the project area;
 
The availability of minority enterprise in the reasonable trade area from which contractors, subcontractors, and suppliers will be drawn for the project;
 
The efforts of the grantee and prime contractors have exerted to enlist minority firms; and
 
Any other relevant facts.
 
The Regional Director will make the final determination as to whether the waiver will be granted."

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