The Washington State Department of Transportation (“WSDOT”) is moving forward with its proposal to exclude non-minority women-owned businesses from Washington’s Disadvantaged Business Enterprise (“DBE”) program goals for federally-funded contracts.  In early March 2014, WSDOT submitted its proposal to the U.S. Department of Transportation’s Federal Highway Administration (“FHWA”).  If approved by FHWA, this significant change will go into effect in Washington for the rest of federal fiscal year (FFY) 2014 and remain in place through FFY 2017.  WSDOT’s proposal was originally reported on the Ahlers & Cressman blog on January 9, 2014.  Read our original article here.

WSDOT’s proposal will be a de facto exclusion of women-owned businesses from the DBE program. It is an extreme and unsupported measure that could have long-lasting detrimental impacts on our state, joblessness, and the economy.  Most importantly, however, by moving to exclude women-owned businesses from the DBE program goals, WSDOT is itself discriminating against women.  If challenged in a court of law, WSDOT’s actions may not withstand constitutional scrutiny.

In the current economic climate, our state agencies should be taking measures to increase women-owned business participation and opportunities in the marketplace-not to decrease them, as WSODT is doing.  Its significant change to the DBE program-that will likely be implemented in Fall of 2014-is largely occurring under the radar, without major attention in the industry or mainstream media.  Perhaps for this reason, as of yet, there is no unified effort to oppose WSDOT.

General Background on the DBE Program

The DBE program was created by Congress with the goal of increasing women and minority-owned business participation in federally-funded transportation contracting.[i]  Under the program, small businesses that are owned and controlled by “socially and economically disadvantaged” individuals can become DBE certified; once certified, those businesses qualify for a percentage of certain work funded by U.S. Department of Transportation (“USDOT”) transportation funds.[ii]  Women and a number of racial and ethnic minorities are presumed to be socially and economically disadvantaged under the DBE regulations.[iii]

The DBE program does not guarantee contracts to any business; rather, it aims to ensure that DBEs are provided an equal opportunity to complete for USDOT-assisted contracts.[iv]

Despite numerous challenges, the Courts have consistently upheld the validity and constitutionality of the DBE program.[v]  For example, in the Western States case, the Ninth Circuit applied the “strict scrutiny” test to evaluate the constitutionality of the DBE program.  It concluded that the evidence before Congress demonstrated a nationwide compelling interest in remedying the effects of past and present discrimination that limit the opportunities for DBEs to compete on a level playing field in transportation contracting.[vi]  For this reason, the Ninth Circuit held that the DBE program was constitutional.[vii]

Although it ruled that the DBE program itself was constitutional, the Ninth Circuit concurrently ruled that Washington’s implementation of the DBE program (by WSDOT) was flawed and unconstitutional.  The Court found that the statistical analysis upon which WSDOT had used to administer the DBE program was wholly inadequate.  The Court held that-while the federal DBE program withheld constitutional scrutiny-WSDOT’s implementation of it was unconstitutional.[viii]

Goal Setting and WSDOT’s Proposed Changes to Washington’s DBE Program

Since the Court’s decision in Western States, it has been made abundantly clear that-to withstand constitutional scrutiny-each state must tailor its implementation of the DBE program to the specific discrimination found to exist in that state.  Every three years, therefore, each state must revisit its overall goal for DBE participation and ensure that it reflects the level of DBE participation that would be expected in that state, absent the effects of discrimination.[ix] 

Each state must follow a specific process in evaluating its DBE goal-often called “goal setting.”  The required goal setting process is specifically articulated in the DBE program rules.  It involves three steps: first, the state must determine the “availability” of DBEs in its jurisdiction-this “availability” measure is critical.[x] 

Second, each state may adjust the “availability” to account for numerous real-world factors: the capacity of DBEs to perform work on USDOT-related contracts; discriminatory barriers in accessing bonding, financing, and insurance; and “demonstrable evidence” of other “continuing effects of past discrimination.”[xi] 

Third, the state must compare its “availability” to the actual use of those businesses within the state (often termed “utilization”) and, using this comparison, establish an overall goal aimed to address any significant disparities that are found to exist between “availability” and “utilization.”[xii] 

After engaging in this goal setting process for Fiscal Year 2014, WSDOT has proposed two significant changes to the DBE program in Washington:

First, WSDOT plans to reduce Washington’s overall DBE participation goal from 15.17% to 11.6%. 

Second, and most alarmingly, WSDOT is seeking a “waiver” for women-owned business participation in federally-funded contracting.  Under the waiver, WSDOT will exclude women-owned businesses from participation in the DBE program goals for federally-funded contracts.  In other words, general contractors in Washington that hire women-owned DBEs to perform work on federally-funded jobs will not be able to count those contract dollars toward meeting their DBE percentage goal.

WSDOT Hired BBC Research & Consulting to Assist in its “Goal Setting”

WSDOT’s proposed changes are based upon a statistical study done by BBC Research & Consulting of Denver, Colorado.  WSDOT hired BBC to analyze “whether there were any disparities” between the “availability” and “utilization” of minority- and women-owned businesses (MBE/WBEs) on its transportation contracts. 

Through its statistical study, BBC concluded that women-owned firms do not face “substantial disparities,” or discrimination, in the federally-funded transportation contracting market in Washington.

To reach this sweeping conclusion, BBC interviewed just a small handful of Washington businesses.  Many businesses were not included in BBC’s analysis.  In fact, during WSDOT’s January 9, 2014 public meeting on the changes to Washington’s DBE program, most, if not all, of the women-owned businesses in attendance stated they had never been contacted by BBC.  This is striking and very concerning. 

BCC attempted to carry out a “custom census” of all businesses within certain relevant work specialization codes (NACIS codes).  Unfortunately, however, BBC only interviewed a small portion of those relevant businesses.

BBC’s process was as follows:

(1)   using Dun & Bradstreet (D&B) listings, BBC identified 14,528 business listings in certain, relevant NACIS codes;

(2)   BBC reported that only 10,560 of the 14,528 had valid working phone numbers.  BBC apparently attempted to contact each of the 10,560 but, for reasons not identified, was able to only successfully contact 4,784 (or 32%);

(3)   Of the 4,784 contacted by BBC, only 3,335 (or 22%) agreed to complete BBC’s “availability telephone survey”; and

(4)   Based on the results of the telephone survey, BBC decided which businesses could be considered “ready, willing, and able” for WSDOT work for purposes of WSDOT’s goal setting process.  BBC determined that only 988 (or 6.8%) were potentially “available” and based its analysis only upon these 988 potentially “available” firms.

In summary, BBC’s analysis and findings were based on just 6.8% of the 14,528 businesses identified by D&B listings.  Based on this small sample, BBC posited that women-owned DBEs have not “actually suffered discrimination” in federally-funded transportation contracting and should, therefore, be excluded from participation in DBE program goals for federally-funded transportation contracts.

BBC Ignored a Large Percentage of Businesses in its “Availability” Analysis for Washington

BBC provides no statistical basis for ignoring the large proportion of firms-93.2%-that were not interviewed or included in their study.  This is very concerning since BBC excluded some firms for not being able to provide detailed information on their contracting history in their telephone interviews. 

Since businesses owned by women are often smaller and with fewer resources, they are less likely to have the staff and/or time to answer BBC’s questions and, hence, would be more inclined to be excluded from BBC’s survey results.  This effect will bias downward BBC’s “availability” analysis of women-owned businesses and significantly skew BBC’s analysis upon which WSDOT relies.

In statistics, this downward bias effect is often called “self-selection bias.”  Self-selection bias arises in any situation in which individuals select themselves into-or out of-a group, causing a biased statistical result.  It is commonly used to describe situations where the characteristics of the people which cause them to select themselves in-or out of-the group create abnormal or undesirable conditions in the group. 

BBC’s found that the “availability” of women-owned businesses decreased by more than 60% between 2010 and 2011.  BBC itself noted that, in this one year, its figures were driven by inclusion of a large contract awarded to a single (minority-owned, but not certified) firm.  The large fluctuations in BBC’s “availability” index from year to year suggest that BBC’s analysis and methodology are unreliable.

BBC’s “Custom Census” Approach Has Not Been Approved by the Courts

When challenged with the insufficiencies of BBC’s “custom census” approach, WSDOT and BBC have both argued that BBC’s “custom census” methodology has been specifically approved by the Courts, citing the Ninth Circuit’s opinion in Associated Gen. Contractors of Am., San Diego Chapter, Inc. v. California Dep’t of Transp.[xiii]

Contrary to their arguments otherwise, the Ninth Circuit in Associated Gen. Contractors did not so rule.  In that case, the Associated General Contractors of America (“AGC”) challenged the California Department of Transportation’s (“Caltrans'”) implementation of the DBE program, arguing that the program was unconstitutional. 

AGC did not challenge the methodology or approach used by Caltrans in its goal setting process-instead, AGC argued that the DBE program, as applied in California, unconstitutionally provided race- and gender-based preferences on certain transportation contracts.  The Ninth Circuit never once addressed, and certainly did not sanction, BBC’s “custom census” approach to calculating “availability” in Associated Gen. Contractors of Am

The Potential Impact of WSDOT’s Proposal

The impact of WSDOT’s proposal to exclude women-owned businesses from Washington’s federal contracting goals will be significant.  This is an important issue that will impact not just those businesses that are excluded, but also general contractors and the construction industry as a whole.

WSDOT published its intent to seek the exclusion of women-owned businesses from federally-funded contracting in late 2013.  It sought public comment and testimony-as it is required to do under the Federal Regulations-through February 3, 2014. 

As the next step toward implementing its proposal, WSDOT submitted its proposal to the U.S. Department of Transportation’s Federal Highway Administration (“FHWA”) for approval in early March 2014.  FHWA has up to six months to review the BBC study, WSDOT’s proposal, and the public comment WSDOT received in reaction. 

A decision either approving or rejecting WSDOT’s proposal is anticipated from FHWA in October 2014.  Until then, the DBE program in Washington remains unchanged and women-owned businesses remain eligible for inclusion in the DBE program goals for federally-funded contracts.

If WSDOT’s proposed “waiver” is accepted in the Fall of 2014, women-owned DBEs will still be eligible for DBE certification and may participate in the “race- and gender-neutral program measures” of the DBE program-for example, one-on-one mentoring, technical assistance, and WSDOT’s small business program.  They will, however, be excluded from DBE program goals for federally-funded contracts.

Moving Forward

In recognition of the importance of women-owned business participation in our state, Governor Jay Inslee and Seattle Mayor Ed Murray have both recently issued written orders in support of WBEs. 

On December 31, 2013 Governor Inslee signed a Proclamation acknowledging the “vital role” that women-owned businesses have in Washington’s economy and daily lives.  He agreed that “women-owned businesses are often under-utilized in government contracting and procurement” and deemed January 20 – 24 as “Minority and Women-owned Business Week.” Read the full Proclamation here

On April 8, 2014, Seattle Mayor Ed Murray issued Executive Order 2014-03, affirming the Mayor’s commitment to promoting race and gender equity in contracting.  He acknowledged that “it is a priority for the City to affirmatively expand its efforts to include WMBE participation in City contracts and ensure that WMBEs are afforded fair and equitable opportunity to complete for City contracts and do not face unfair barriers when seeking and performing on City contracts.”  Read the full Executive Order here

Governor Inslee’s Proclamation and the Mayor’s Order are in striking contrast to WSDOT’s plan and conclusion that women-owned DBEs have not “actually suffered discrimination” in federally-funded transportation contracting.  The messages are not consistent. 

The simple fact is that WSDOT’s analysis is incorrect and BBC’s statistics are skewed; women-owned businesses do presently suffer discrimination in federally-funded transportation contracting and their inclusion in the DBE program goal is vital. 

In order to withstand constitutional scrutiny-WSDOT (and all states) must implement the DBE program based upon solid and reliable data that accurately reflects true marketplace conditions.  WSDOT’s current proposal would not meet this test in a Court.  In 2005, the Ninth Circuit court struck down WSDOT’s implementation of the DBE program as unconstitutional because WSDOT’s statistical data and analysis was inadequate.[xiv]  A Court could similarly strike down this current proposal.

If challenged, the Ninth Circuit Court has the authority to once again strike down WSDOT’s changes to Washington’s DBE program.  To make this change happen, however, businesses impacted by WSDOT’s changes must first lodge a challenge in Court.  As of yet, no group has come forward to take this action. 

WSDOT’s plan is an extreme measure that will have long-lasting detrimental impacts on our state, joblessness, and the economy.  In the current economic climate, as recognized by Governor Inslee and Mayor Murray, our state should be taking measures to increase women-owned business participation and opportunities in the marketplace, not reducing them.

[i] Western States Paving Co., Inc. v. Washington State Dep’t of Transp., 407 F.3d 983, 988 fn. 3 (9th Cir. 2005). 

[ii] Id.

[iii] 49 C.F.R. 26.67(a).

[iv] 49 C.F.R. 26.1(b). 

[v] See e.g., Western States, 407 F.3d at 988. 

[vi] Id. at 990-993. 

[vii] Id.

[viii] Id. at 1002.

[ix] 49 C.F.R. 26.45(b). 

[x] 49 C.F.R. 26.45(c).

[xi] 49 C.F.R. 26.45(d). 

[xii] 49 C.F.R. 26.45(e).

[xiii] 713 F.3d 1187 (9th Cir. 2013). 

[xiv] See Western States, 407 F.3d at 988.  

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