Race cases: minority businesses fight back over ruling barring their competitive advantages.

LONG Beach engineer and architect Domingo DeLeon used to make a nice living by accessing minority contracting programs to win bids to design elements of subways, roads and bridges.

Ten years ago, DeLeon was dealt a body blow when California voters passed Proposition 209 banning race-based contracting in most state agencies. As contract opportunities withered, DeLeon was forced to cut two-thirds of his workforce at DeLeon Consulting Engineering, leaving him with just a dozen employees. Since then, he's laid off six more employees and has barely managed to hang on.

Now DeLeon fears he will have to close his doors, due to a federal appellate ruling last year that could end the remaining minority contracting requirements in California and other Western states. The Ninth Circuit Court of Appeals ruling bars transportation agencies that receive federal funds from setting up specific contracting goals for disadvantaged businesses unless they can prove widespread discrimination.

"They say discrimination doesn't exist. That's not true. It's very difficult for me to get contracts. They don't listen to you if you have an accent, ff this goes through, it will be nearly impossible to compete with the white guys. I'm probably going to have to close my business," said DeLeon, a Peruvian native who immigrated to L.A. in 1985 and started his business two years later.

DeLeon's firm is one of 1,300 in Los Angeles County and 3,300 statewide that participate in the California Department of Transportation's Disadvantaged Business Enterprise (DBE) program.

As a result of the court ruling, Caltrans is now holding hearings as it re-evaluates its 26-year-old program. Unless the agency is able to prove to the standards set forth in the court ruling that large numbers of firms are discriminated against in the awarding of contracts, the DBE program will be forced to go "race neutral," meaning race can no longer be a factor in awarding contracts. That decision could come as soon as May.

Ending discrimination

The DBE ruling comes at a time when Caltrans and other transportation agencies could be receiving billions of dollars as California embarks on a massive infrastructure spending program.

"If they stop programs designed for small minority- and women-owned firms, we're going to have a very difficult time competing with the large corporations," said Rod Garcia, who founded Century Diversified Inc., a Pasadena-based engineering and construction management firm in 1991. "The bureaucrats handing out the contracts are comfortable dealing with the name brands, the well-known companies."

Garcia was born in Los Angeles but his father is from Mexico and 95 percent of his work comes from public agencies.

Caltrans and other public agencies set up their DBE programs in the 1970s and 1980s to combat a tilt to large corporations and end decades of discrimination against minority-owned companies.

In essence, these programs make the awarding of major public works projects to prime contractors contingent upon those contractors committing to distribute a certain percentage of the money to economically disadvantaged businesses. The exact percentage depends on the industry and the locale; it typically ranges from 5 percent to 20 percent.

Disadvantaged businesses don't have to be minority- or women-owned, but the overwhelming majority are, according to Olivia Fonseca, deputy director of the Office of Civil Rights at Caltrans.

DBE programs were controversial from the start, with many contractors not eligible for them saying they gave an unfair advantage to their competitors. Other critics say DBE programs drive up taxpayer costs by distorting the lowest bid process.

"Contracts should always go to the lowest responsible bidder," said Sharon Browne, principal attorney in the individual rights practice of the Pacific Legal Foundation, which opposes DBE programs.

In 1996, then-University of California Regent Ward Connerly championed the effort to overturn race preferences, placing on the ballot Proposition 209 to ban state agencies from using race-based criteria in doling out contracts. Following a highly-charged campaign, voters approved the initiative.

But Proposition 209 had a major exception: it did not apply to projects that receive federal funds, since that would have violated federal law. With so many transportation projects receiving federal funds, DBE programs at Caltrans and local transportation agencies remained largely intact.

All that is now in play with the federal circuit court ruling. The case originated in Washington state, where white-owned Western States Paving filed suit against the city of Vancouver and Clark County because the prime contractor only selected minority-owned firms. The Ninth U.S. Circuit Court sided with Western States, saying that the studies provided by the local government agencies had not proved a history of discrimination against minority-owned firms that merited continuing the DBE program.

Raising the bar

After the May ruling, no one filed an appeal to the U.S. Supreme Court within the appeal window, meaning the ruling stands.

In essence, the Ninth Circuit Court raised the bar for proving discrimination. As a result, Caltrans and other public agencies must now revamp their disparity studies that they submit to the federal government to continue their DBE programs. As it prepares to redo its disparity study, Caltrans is holding hearings around the state, including one on Feb. 27 in Los Angeles.

"We believe that in the hearings, we've heard proof of discrimination," Caltrans' Fonseca said. "But we may not have enough to meet U.S. Department of Transportation standards. You need to show a long history of discrimination--at least 10 years--and the evidence must be statistically sound, meaning it must be more than anecdotal."

Caltrans will present its findings to the Federal Highway Administration in late April or early May. The FHA then has 10 days to accept or reject the findings. If the agency determines there is not enough evidence to prove discrimination, Caltrans must immediately eliminate the percentage targets that are the essence of the DBE program.

To try to head that off, a grassroots coalition called DBE Goodfaith has formed.

"The key is to get company after company out to these hearings to testify so that the case proving discrimination is solid. And fight now, a lot of companies are still unaware of what's going on and are not going public with their experiences," said Todd Christner, executive director of DBE Goodfaith.

Meanwhile, other agencies, including the Los Angeles County Metropolitan Transportation Authority, are awaiting the outcome of the Caltrans case before proceeding with their own revamps of disparity studies.