                    UNITED STATES DISTRICT COURT
                    FOR THE DISTRICT OF COLUMBIA


                                  )
DYNALANTIC CORPORATION,           )
                                  )
               Plaintiff,         )
                                  ) Civil Action No. 95-2301 (EGS)
               v.                 )
                                  )
UNITED STATES DEPARTMENT          )
OF DEFENSE, et al.,               )
                                  )
               Defendants.        )
                                  )


                          MEMORANDUM OPINION

     Plaintiff, the DynaLantic Corporation (“DynaLantic”), is a

small business that designs and manufactures aircraft, submarine,

ship, and other simulators and training equipment.   Plaintiff has

brought this suit against Defendants – the Department of Defense

(“DoD”), the Department of the Navy (“the Navy”), and the Small

Business Administration (“SBA”) – to challenge the

constitutionality of Section 8(a) of the Small Business Act (the

“Section 8(a) program”), which permits the federal government to

limit the issuance of certain contracts to socially and

economically disadvantaged businesses.    DynaLantic claims the

Section 8(a) program is unconstitutional both on its face and as

applied by Defendants in DynaLantic’s industry, the military

simulation and training industry.    Plaintiff claims that DoD’s

use of the Section 8(a) program, which is reserved for “socially

and economically disadvantaged individuals,” 15 U.S.C.
§ 637(a)(4)(A), constitutes an illegal racial preference which

violates its right to equal protection under the Due Process

Clause of the Fifth Amendment to the Constitution, in addition to

its rights under 42 U.S.C. § 1981 and Title VI of the Civil

Rights Act of 1964, 42 U.S.C. § 2000d et seq.    Plaintiff also

initially challenged DoD’s separate statutory program, 10 U.S.C.

§ 2323 (“the DoD program”), which, among other things, imposed an

independent obligation on the Agency to participate in Section

8(a); however, as explained herein, this challenge is moot

because the DoD Program no longer exists.

     The initial summary judgment briefing in this case,

including the submissions of amici, was completed in 2005.

However, as a result of subsequent events relating to the DoD

Program, the Court has reopened the record twice since that time.

First, after the DoD Program was reauthorized by Congress in

2006, the Court denied without prejudice the parties’ cross-

motions for summary judgment to enable the parties to supplement

the record to include the evidence before Congress at the time of

the reauthorization.    The parties submitted supplemental briefing

and evidence in 2007.   The reauthorization was short-lived,

however; in 2008, the Federal Circuit held that the 2006

reauthorization of the DoD Program was facially unconstitutional

and enjoined its enforcement.    Rothe Dev. Corp. v. Dep’t of Def.

(“Rothe VII”), 545 F.3d 1023 (Fed. Cir. 2008).    After receiving


                                  2
additional briefing on the impact of Rothe VII in 2009, the Court

again re-opened the record to examine evidence considered by

Congress regarding Section 8(a) subsequent to the reauthorization

of the DoD Program in 2006.     The parties have submitted further

supplemental briefing and evidence, and the Court is now in a

position to reconsider the cross-motions.        After careful

consideration of the cross-motions, the oppositions and replies

thereto, the amicus briefs, supplemental briefing by the parties,

the entire record, and the applicable law, the Court concludes

that the Section 8(a) program is constitutional on its face.

However, the Court further concludes that the SBA’s and DoD’s

application of the program to issue contracts in the military

simulation and training industry does not survive strict

scrutiny, and therefore DynaLantic prevails on its as-applied

challenge.    Accordingly, for the reasons set forth below,

Defendants’ motion for summary judgment is GRANTED IN PART AND

DENIED IN PART and Plaintiff’s cross-motion for summary judgment

is GRANTED IN PART AND DENIED IN PART.

I.   BACKGROUND

      A.   Statutory and Regulatory Framework

             1.   The Section 8(a) Program

      The Section 8(a) program is a business development program

for small businesses owned by individuals who are both socially

and economically disadvantaged.         See 15 U.S.C. § 637(a); 13

                                    3
C.F.R. § 124.1.     Small businesses owned and controlled by such

individuals may apply to the SBA and, if admitted into the

program, are eligible to receive technological, financial, and

practical assistance, as well as support through preferential

awards of government contracts.     The parties agree that DoD

presently participates in the Section 8(a) program.      See Defs.’

Status Report and Mot. for Order Directing Supplemental Briefing

at 2, Doc. No. 235; Pl.’s Opp’n to Mot. for Order to Meet and

Confer   at 3-4, Doc. No. 236.

     In order for a firm to participate in the Section 8(a)

program, the SBA must certify that the firm is a small

disadvantaged business (“SDB”) under specific criteria.1     See 15

U.S.C. §§ 636(j)(11)(E) & (F); 13 C.F.R. § 124.101.     A business

qualifies as “small” if it meets the standards set forth in 13

C.F.R. Part 121.     See 13 C.F.R. § 124.102; see also 15 U.S.C.

§ 632(a)(1)-(3).    A small business is “disadvantaged” if at least

fifty one percent of the firm is unconditionally owned and

controlled by one or more individuals who are both socially and

economically disadvantaged.      See 15 U.S.C. § 637(a)(4)(A)-(B); 13

C.F.R. § 124.105.    “Socially disadvantaged” individuals are

persons who have been “subjected to racial or ethnic prejudice or


     1
        A number of acronyms referring to minority-owned and/or
disadvantaged firms are used throughout. “MBE” means minority
business enterprise, “WBE” means women’s business enterprise,
“DBE” means disadvantaged business enterprise. “SDB” means small
(socially and economically) disadvantaged business.

                                    4
cultural bias within American society because of their identities

as members of groups without regard to their individual

qualities.   The social disadvantage must stem from circumstances

beyond their control.”   13 C.F.R. § 124.103(a); see also 15

U.S.C. § 637(a)(5).   “Economically disadvantaged” individuals are

those socially disadvantaged individuals “whose ability to

compete in the free enterprise system has been impaired due to

diminished capital and credit opportunities as compared to others

in the same or similar line of business who are not socially

disadvantaged.”   13 C.F.R. § 124.104(a); see also 15 U.S.C.

§ 637(a)(6)(A).

     Individuals who are members of certain racial and ethnic

groups are presumptively socially disadvantaged.   13 C.F.R. §

124.103(b)(1);2 see also 15 U.S.C. § 631(f)(1)(B)-(c) (finding


     2
        The regulation, 13 C.F.R. § 124.103(b)(1), lists five
broad groups and thirty-seven subgroups:
     There is a rebuttable presumption that the following
     individuals are socially disadvantaged: Black
     Americans; Hispanic Americans; Native Americans (Alaska
     Natives, Native Hawaiians, or enrolled members of a
     Federally or State-recognized Indian tribe); Asian
     Pacific Americans (persons with origins from Burma,
     Thailand, Malaysia, Indonesia, Singapore, Brunei,
     Japan, China (including Hong Kong), Taiwan, Laos,
     Cambodia (Kampuchea), Vietnam, Korea, The Philippines,
     U.S. Trust Territory of the Pacific Islands (Republic
     of Palau), Republic of the Marshall Islands, Federated
     States of Micronesia, the Commonwealth of the Northern
     Mariana Islands, Guam, Samoa, Macao, Fiji, Tonga,
     Kiribati, Tuvalu, or Nauru); Subcontinent Asian
     Americans (persons with origins from India, Pakistan,
     Bangladesh, Sri Lanka, Bhutan, the Maldives Islands or
     Nepal).

                                 5
that socially disadvantaged persons include “members of certain

groups that have suffered the effects of discriminatory practices

or similar invidious circumstances over which they have no

control,” and that “such groups include, but are not limited to,

Black Americans, Hispanic Americans, Native Americans, Indian

tribes, Asian Pacific Americans, Native Hawaiian Organizations,

and other minorities”).   This presumption is rebuttable, however,

and may be overcome by credible evidence to the contrary.      See 13

C.F.R. § 124.103(b)(3).   In addition, an individual who is not a

member of one of the groups presumed to be socially disadvantaged

may gain admission to the Section 8(a) program by establishing by

a preponderance of the evidence that the individual is socially

disadvantaged under the criteria set forth in 13 C.F.R.

§ 124.103(c).

     Social disadvantage is defined in terms of “bias” and

“prejudice” and not in terms of other types of “disadvantage.”

See 13 C.F.R. § 124.103(a).   Accordingly, the statutory and

regulatory definition of “social disadvantage” in 15 U.S.C.

§ 637(a)(6)(A) and 13 C.F.R. § 124.103(a) includes those who have

been disadvantaged by racial or ethnic prejudice but not those

who have been disadvantaged solely by, for example, below average

educational opportunities.

     All prospective program participants must show that they are

economically disadvantaged.   To qualify as economically


                                 6
disadvantaged, an individual must have a net worth of less than

$250,000 upon entering the program, excluding the individual’s

ownership in the applicant business and equity in the

individual’s primary personal residence.        See 13 C.F.R.

§ 124.104(c)(2).   In addition to personal net worth, the SBA

examines the individual’s income for the three years prior to the

application and the fair market value of all assets, whether

encumbered or not.   See 13 C.F.R. § 124.104(c).      The SBA also

compares the financial condition of those claiming disadvantaged

status to others in the same or similar line of business who are

not socially and economically disadvantaged.        Id.; see also 15

U.S.C. § 637(a)(6)(E).

     The Section 8(a) program is one of a number of government-

wide programs designed to encourage the issuance of procurement

contracts to, inter alia, small businesses, service disabled

veterans, socially and economically disadvantaged individuals,

and women.   See 15 U.S.C. § 644.       Congress has established an

“aspirational goal” for procurement from socially and

economically disadvantaged individuals, which includes but is not

limited to the Section 8(a) program, of five percent of

procurement dollars government wide.        See id. § 644(g)(1).   It

has not, however, established a numerical goal for procurement

from the Section 8(a) program specifically.        See id.

Additionally, each federal agency establishes its own goals by


                                    7
agreement between the agency head and the SBA.       Id.    DoD has

established a goal of awarding approximately two percent of prime

contract dollars through the Section 8(a) program.         Pl.’s Mem. of

P.& A. in Supp. of its Mot. for Summ. J. (“Pl.’s MSJ”) at 70.3

None of the goals established by Congress or DoD are rigid

numerical quotas, and there is no penalty for failure to meet the

goals.

     The Section 8(a) program does not mandate the use of set-

aside contracts, ever.    Rather, Section 8(a) allows the SBA,

“whenever it determines such action is necessary and

appropriate,” to enter into contracts with other government

agencies and then subcontract with qualified program

participants.     15 U.S.C. § 637(a)(1).    As stated above, there are

no quotas for issuance of Section 8(a) contracts, and no

penalties for failing to award them.       Admission to the Section

8(a) program does not guarantee that a participant will receive

8(a) contracts.    13 C.F.R. § 124.501(c).

     Section 8(a) contracts can be awarded on a “sole source”

basis (i.e., reserved to one firm) or on a “competitive” basis

(i.e., between two or more Section 8(a) firms).       13 C.F.R.

§ 124.501(b).   Sole source 8(a) awards generally are limited in




     3
        For ease of reference, the cross-motions for summary
judgement will be referred to as “MSJs” throughout.

                                   8
value to $6.5 million or below for manufacturing contracts and $4

million for all other contracts.       See 13 C.F.R. § 124.506.

     SBA regulations prescribe circumstances under which SBA will

not accept a procurement for award as an 8(a) contract.      One such

circumstance arises where SBA has made a written determination

that acceptance of the procurement would have an adverse impact

on other small businesses.   This adverse impact concept is

designed to protect small businesses which are performing

government contracts located outside the Section 8(a) program.

13 C.F.R. § 124.504(c).

     Section 8(a) program participants are required to have a

comprehensive business plan which SBA is required to review

annually.   13 C.F.R. §§ 124.402, 124.403.     Participants are also

required to submit an annual certification that they meet program

eligibility requirements along with financial and other

information to enable the SBA to verify their continued

eligibility and monitor their performance and progress in

business development.   13 C.F.R. §§ 124.112(b), 124.509(c),

124.601, 124.602; see 15 U.S.C. §§ 637(a)(4)(c), 637(a)(6)(B),

637(a)(12)(A), 637(a)(20).   Program participants are eligible to

receive management and technical assistance provided through

SBA’s private sector service providers, including (i) counseling

and training in the operation of small business and business

development; (ii) assistance in developing comprehensive business


                                   9
plans; and (iii) assistance obtaining equity and debt financing.

13 C.F.R. §§ 124.701-124.704; see 15 U.S.C. § 636(j)(13) & (14).

     A firm may remain in the Section 8(a) program for a maximum

of nine years, but only if it continues to meet all of the

eligibility requirements throughout that period.     See 13 C.F.R.

§ 124.2; 15 U.S.C. §§ 636(j)(10)(E), 636(j)(10)(H), 636(j)(15).

In contrast, a participant must leave the Section 8(a) program

early if (1) it has attained its business objectives as set forth

in its business plan on file with the SBA, and (2) it has

demonstrated the ability to compete in the marketplace without

further assistance under the program.     See 13 C.F.R.

§ 124.302(a)(1).   A participant who fails to maintain eligibility

will be terminated from the program.     See 13 C.F.R.

§ 124.303(a)(2).   In addition, a participant must leave the

program if the net worth of any of the owners on whom its

eligibility is based exceeds $750,000.     See 13 C.F.R.

§§ 124.104(c)(2), 124.302(a)(2).

     An individual or firm may participate in the Section 8(a)

program only once.   After exiting the Section 8(a) program for

any reason, a firm is no longer eligible to reapply, and any

individual who has been counted toward the ownership requirement

for that firm may never again be counted toward the ownership

requirement for another firm.   See 13 C.F.R. § 124.108(b); 15

U.S.C. § 636(j)(11)(B) & (c).


                                10
     The Small Business Act requires the President to submit an

annual report to Congress on both the performance of small

businesses generally and of small businesses owned by socially

and economically disadvantaged individuals in particular.      The

report must include a discussion of the current role of small

businesses in the economy on an industry-by-industry basis and

include recommendations for revising the Act.    15 U.S.C. § 631b.

The SBA is also required to submit to Congress an annual

assessment of the Section 8(a) program.   15 U.S.C. §

636(j)(16)(B).

          2.     Plaintiff’s Business

     DynaLantic, a small business as defined by the SBA, bids on,

competes for, operates in, and performs contracts and

subcontracts in the simulation and training industry.    The

simulation and training industry is composed of those

organizations that develop, manufacture, and acquire equipment

used to train personnel in any activity where there is a

human-machine interface.    Pl.’s MSJ at 4.   Firms that manufacture

simulation and training equipment and that operate in the

simulation and training industry must have specialized skills,

qualifications, and knowledge.     Id.

     Plaintiff designs, fabricates, tests, installs, and supports

sophisticated, high technology training devices for the U.S.

military, foreign military services, and other customers.      Pl.’s


                                  11
MSJ, Ex. A, Decl. of Jeffery Weinstock ¶ 6.       Since its inception,

over 68 percent of DynaLantic’s total revenues have been

generated from prime contracts with the U.S. military, and all of

those contracts have derived from contracts for simulators,

related training equipment, and services.        Id. ¶ 5.   Plaintiff

typically bids on, or competes for, contracts and subcontracts of

up to $15 million, with most of those contracts and subcontracts

being under $5 million in value.        Pl.’s MSJ at 4.   Generally

speaking, Plaintiff’s main competitors are not large businesses

but rather are other small businesses, including SDBs such as

Section 8(a) firms.     Id.   Plaintiff has never been a participant

in the Section 8(a) program and has never been certified as a

SDB.    Id. at 4-5.

       B.   Procedural History

       In 1995, the Navy determined it would award a contract for

the development of a UH-1N Aircrew Procedures Trainer (“APT”), a

mobile flight simulator for the “Huey” helicopter, exclusively

through the Section 8(a) program.       Plaintiff, which had

previously designed and manufactured flight simulators for the

military, claims it would have competed for this procurement but

for the fact that it was not a participant in the Section 8(a)

program.    Plaintiff filed an administrative protest with the

government’s contracting officer, contesting the decision to

procure the contract through the Section 8(a) program.         After


                                   12
Plaintiff’s administrative claim and subsequent administrative

appeal were denied, it filed suit in this Court, claiming that

the Navy’s decision to procure the APT contract through the

Section 8(a) program was unconstitutional.     Plaintiff sought

declaratory and injunctive relief.

     On May 20, 1996, this Court issued a Memorandum Opinion and

Order denying DynaLantic’s motion for a preliminary injunction,

concluding that it lacked standing to bring its action and had

otherwise failed to establish a sufficient factual and legal

basis for the issuance of a preliminary injunction.     See

DynaLantic Corp. v. Dep’t of Def., 937 F. Supp. 1 (D.D.C. 1996).

Subsequently, on August 9, 1996, this Court dismissed the case on

standing grounds.   See Order, Aug. 9, 1996.

     Plaintiff appealed from both the denial of its motion for

preliminary injunction and the dismissal order.    The D.C. Circuit

dismissed the appeal from the denial of the motion for

preliminary injunction as moot in light of the dismissal of the

entire action, but granted DynaLantic’s motion to enjoin the APT

procurement during the pendency of the appeal from the dismissal

order.   DynaLantic Corp. v. Dep’t of Def., 115 F.3d 1012, 1018

(D.C. Cir. 1997).   A few weeks later, while briefing for that

appeal was still underway, the Navy canceled the proposed

solicitation for the APT procurement.




                                13
     The D.C. Circuit held that DynaLantic had standing to

challenge the constitutionality of the Section 8(a) program,

because Plaintiff was unable to compete for DoD contracts that

are reserved for Section 8(a) program participants.    DynaLantic

Corp., 115 F.3d at 1014.   The Court of Appeals noted that

DynaLantic had not challenged Section 8(a) on its face in its

original or first amended complaint.   Nevertheless, the Court of

Appeals permitted DynaLantic to amend its pleadings upon remand

in order to raise a facial challenge to the Section 8(a) program.

     We allow [Dynalantic] to amend its pleadings to raise a
     general challenge to the 8(a) program as administered by the
     SBA and participated in by the Defense Department. . . .
     [A]s amended, the case is clearly not moot. The government
     apparently intends to continue to award contracts under the
     8(a) program, and DynaLantic’s challenge to the program is
     not mooted merely because the challenge to one particular
     application of it may be.

Id. at 1015.

     Following the remand to this Court, Plaintiff filed a second

amended complaint (the operative complaint for this litigation),

which challenges the constitutional validity of the Section 8(a)

and DoD programs.   See Second Am. Compl. ¶¶ 1, 13.   In Count I,

the sole count of its complaint, DynaLantic claims that the set-

aside components of Section 8(a) and the DoD programs deprive

DynaLantic from competing for federal procurements in the

simulation and training industry on the basis of race, thereby

“violat[ing] DynaLantic’s rights under 42 U.S.C. §§ 1981 and

2000d and the equal protection component of the Due Process

                                14
Clause of the Fifth Amendment of the Constitution.”     Id. ¶ 23.

DynaLantic seeks an injunction and declaratory judgment

“prohibiting Defendants . . . from awarding any contract for

military simulators based on the race of the contractors,” a

declaratory judgment that the “set-aside scheme” is

unconstitutional on its face and as applied to the “military

simulator and training equipment industry,” costs and attorneys’

fees.     Id. at 8-9 (Prayer for Relief).

        After extensive discovery and a stay in the case, the

parties filed cross-motions for summary judgment, oppositions,

and replies.    Following the filing of the parties’ cross-motions,

the Court invited amici, who had first shared their views in the

case in 1995, to file additional submissions.    The NAACP Legal

Defense & Education Fund, Inc., the Pacific Legal Foundation, the

Mountain States Legal Foundation, and Rothe Development

Corporation filed amicus briefs.

        On August 23, 2007, this Court issued a Memorandum Opinion

and Order denying the parties’ cross-motions for summary judgment

without prejudice.    The Court noted that DynaLantic challenged

not only the Section 8(a) program, but also DoD’s policy of

awarding contracts to socially and economically disadvantaged

businesses pursuant to the DoD Program, 10 U.S.C. § 2323.       The

Court also noted that the DoD Program had been reauthorized in

2006, but the record contained no information on the evidence


                                  15
before Congress regarding that reauthorization.    The Court found,

therefore, that it could not resolve the fundamental issues

raised by the parties’ motions without considering the evidence

before Congress in 2006.   Accordingly, the Court ordered the

parties to file supplemental briefs on the effect of the

reauthorization of 10 U.S.C. § 2323.   In November 2007, the

parties filed supplemental briefs and replies on the impact of

the 2006 reauthorization of the Section 8(a) and the DoD programs

on this case.   The parties also supplemented the record with

legislative materials before Congress during the 2006

reauthorization.

     In November 2008, the Federal Circuit held that Congress did

not have a strong basis in evidence for implementing race-

conscious measures when it reauthorized the DoD Program in 2006;

thus, the Federal Circuit invalidated the DoD Program as facially

unconstitutional.    Rothe VII, 545 F.3d 1023.   The parties in this

case agreed that Rothe VII did not moot this case in its entirety

“because DoD continues to participate in [the 8(a)] program under

the statutory authority of the Small Business Act, independent of

[the DoD Program].   Therefore, this case continues to present a

live controversy about DoD’s use of the Section 8(a) program.”

Defs.’ Status Report at 2, Doc. No. 235; see also Pl.’s Opp’n to

Defs.’ Mot. for Order to Meet and Confer at 3-4, Doc. No. 236.

Defendants requested that the record be supplemented to include


                                 16
additional information that Congress had amassed since the 2006

reauthorization.   Defendants argued “that the Court should

consider” the more recent evidence “in connection with the

compelling interest underlying the Section 8(a) program and the

continuing need for that program’s race-conscious features.”

Defs.’ Status Report at 2, Doc. 235.    The Court agreed, and on

October 23, 2009, ordered that “the record in this action shall

be supplemented to include pertinent materials considered by

Congress subsequent to the reauthorization” of the DoD Program.

Minute Order, Oct. 23, 2009.   The parties submitted a joint

report containing a proposed list of additional Congressional

materials to be considered, and thereafter submitted supplemental

briefing addressing the effect of those additional Congressional

materials on the issues in this case.   The cross-motions for

summary judgment, as supplemented by the additional record

evidence and additional briefing, are now ripe for resolution by

the Court.

II.   STANDARD OF REVIEW AND BURDEN OF PROOF

      A.   Summary Judgment

      Pursuant to Federal Rule of Civil Procedure 56, summary

judgment should be granted if the moving party has shown that

there are no genuine issues of material fact and that the moving

party is entitled to judgment as a matter of law.    See Fed. R.

Civ. P. 56; Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986);


                                17
Waterhouse v. Dist. of Columbia, 298 F.3d 989, 991 (D.C. Cir.

2002).     In ruling on cross-motions for summary judgment, the

court shall grant summary judgment only if one of the moving

parties is entitled to judgment as a matter of law upon material

facts that are not genuinely disputed.     See Citizens for

Responsibility & Ethics in Wash. v. Dep’t of Justice, 658 F.

Supp. 2d 217, 224 (D.D.C. 2009) (citing Rhoads v. McFerran, 517

F.2d 66, 67 (2d Cir. 1975)).

      B.    Permanent Injunction & Declaratory Judgment

      Plaintiff seeks a permanent injunction preventing Defendants

from using Section 8(a) to award contracts, both generally and in

the simulation industry.    The standard for granting a permanent

injunction is much like the standard for a preliminary

injunction, and the Court is required to consider four factors:

(1) success on the merits; (2) whether the movant will suffer

irreparable injury absent an injunction; (3) the balance of

hardships between the parties; and (4) whether the public

interest supports granting the requested injunction.      Winter v.

Natural Res. Def. Council, Inc., 555 U.S. 7, 32 (2008) (citations

omitted). Unlike a preliminary injunction, actual success on the

merits is a prerequisite to obtain permanent injunctive relief.

Id.

      In addition to injunctive relief, Plaintiff also requests a

declaratory judgment.     See 28 U.S.C. § 2201(a) (“In a case of


                                  18
actual controversy within its jurisdiction, . . . any court of

the United States . . . may declare the rights and other legal

relations of any interested party seeking such declaration,

whether or not further relief is or could be sought.”); Fed. R.

Civ. P. 57.

     C.      Facial Challenge

     The parties dispute the correct standard for a facial

challenge.    Defendants argue that this Court must apply the test

articulated by the Supreme Court in United States v. Salerno,

that “[a] facial challenge to a legislative Act is, of course,

the most difficult challenge to mount successfully, since the

challenger must establish that no set of circumstances exists

under which the Act would be valid.”     481 U.S. 739, 745 (1987).

Plaintiff responds that the Salerno test was questioned as

possibly dictum by a plurality in City of Chicago v. Morales, 527

U.S. 41, 55 n.22 (1999) (plurality op., Stevens, J.) and urges

the Court not to apply it.      DynaLantic also relies on Rothe VII,

a case which bears directly on the history of this case because

it found the DoD Program’s race-based measures unconstitutional.

In Rothe VII, the Federal Circuit followed its own circuit

precedent and declined to apply Salerno to a facial challenge to

the DoD Program’s race-conscious measures.     545 F.3d at 1032.

Plaintiff urges this Court to do the same.




                                   19
     Plaintiff fails to recognize, however, that the Salerno test

has been adopted by this Circuit and cited with approval

following Morales.   Although the Circuit acknowledged the views

expressed by Justice Stevens, it expressly stated that, “[f]or

our part, we have invoked Salerno’s no-set-of-circumstances test

to reject facial constitutional challenges.”   AmFac Resorts v.

Dep’t of Interior, 282 F.3d 818, 826 (D.C. Cir. 2002) (citing

authorities), vacated in part on other grounds sub nom. Nat’l

Park Hospitality Ass’n v. Dep’t of Interior, 538 U.S. 803 (2003);

see also Shelby County v. Holder, 679 F.3d 848, 883 (D.C. Cir.

2012).4   This Court is bound by Circuit precedent; accordingly,

the Salerno test applies.

     D.   Strict Scrutiny

     The parties agree that Section 8(a) employs a race-based

rebuttable presumption to define the class of “socially

disadvantaged” individuals who may, if they also establish

economic disadvantage, participate in the program.   The parties

further agree that Section 8(a) authorizes the use of race-

conscious remedial measures.   Accordingly, to the extent that the

Section 8(a) program relies on race-conscious criteria, it is

     4
      As Plaintiff points out, the Federal Circuit has
questioned the applicability of Salerno to equal protection
cases. Pl.’s MSJ at 43-44. At least two other circuits,
however, have applied Salerno to equal protection challenges.
See W. States Paving Co. v. Wash. State Dep’t of Transp., 407
F.3d 983, 991 (9th Cir. 2005); Sherbrooke Turf v. Minn. Dep’t of
Transp., 345 F.3d 964, 971 (8th Cir. 2003).

                                20
subject to strict scrutiny.    “[R]acial classifications . . . are

constitutional only if they are narrowly tailored measures that

further compelling governmental interests.”          Adarand

Constructors, Inc. v. Peña (“Adarand III”), 515 U.S. 200, 227

(1995); accord City of Richmond v. J.A. Croson Co., 488 U.S. 469,

493 (1989) (plurality opinion); Winter Park Commc’ns, Inc. v.

FCC, 873 F.2d 347, 357 (D.C. Cir. 1989).

       Although the test for strict scrutiny is rigorous, the

Supreme Court has cautioned that it should not be interpreted as

“strict in theory, but fatal in fact.”          Adarand III, 515 U.S. at

237 (internal citation omitted).          “The unhappy persistence of

both the practice and the lingering effects of racial

discrimination against minority groups in this country is an

unfortunate reality, and government is not disqualified from

acting in response to it.”     Id.

III.   DISCUSSION

       A.   Legal Standard to Establish a Compelling Interest

       The government must make two showings to articulate a

compelling interest served by the legislative enactment.         First,

the government must “articulate a legislative goal that is

properly considered a compelling government interest.”

Sherbrooke, 345 F.3d at 969.     The Supreme Court has held that the

government has a compelling interest in “remedying the effects of

past or present racial discrimination[.]”          Shaw v. Hunt, 517 U.S.


                                     21
899, 909 (1996).    Second, “[i]n addition to identifying a

compelling government interest, the government must demonstrate

‘a strong basis in evidence’ supporting its conclusion that race-

based remedial action was necessary to further that interest.”

Sherbrooke, 345 F.3d at 969 (quoting Croson, 488 U.S. at 500).

Strict scrutiny demands such review because:

     Absent searching judicial inquiry into the justification for
     race-based measures, there is simply no way of determining
     what classifications are . . . in fact motivated by
     illegitimate notions of racial inferiority or simple racial
     politics. Indeed, the purpose of strict scrutiny is to
     “smoke out” illegitimate uses of race by assuring that the
     legislative body is pursuing a goal important enough to
     warrant the use of a highly suspect tool.

Croson, 488 U.S. at 493.

     The government can meet its burden without conclusively

proving the existence of racial discrimination in the past or

present.   See Wygant v. Jackson Bd. of Educ., 476 U.S. 267, 292

(1986) (O’Connor, J., concurring); Concrete Works of Colo., Inc.

v. City and Cnty. of Denver (“Concrete Works IV”), 321 F.3d 950,

958 (10th Cir. 2003).   The government may rely on both

statistical and anecdotal evidence, although anecdotal evidence

alone cannot establish a strong basis in evidence for the

purposes of strict scrutiny.    Id. at 977.   In order to determine

whether the government has demonstrated a strong basis in

evidence, the court must make “factual determinations about the

accuracy and validity of [the government’s] evidentiary showing

for its program.”    Concrete Works of Colo., Inc. v. City and

                                 22
Cnty. of Denver (“Concrete Works II”), 36 F.3d 1513, 1522 (10th

Cir. 1994).

     After the government makes an initial showing, the burden

shifts to DynaLantic to present “credible, particularized

evidence” to rebut the government’s “initial showing of a

compelling interest.”    Concrete Works IV, 321 F.3d at 959

(citations omitted).    “Notwithstanding the initial burden of

initial production that rests with the [government], ‘[t]he

ultimate burden of proof remains with [the challenging party] to

demonstrate the unconstitutionality of an affirmative-action

program.’”    Concrete Works IV, 36 F.3d at 1522 (quoting Wygant,

476 U.S. at 277-78).    Furthermore, although Congress is entitled

to no deference in its ultimate conclusion that race-conscious

action is warranted, its fact-finding process is generally

entitled to a presumption of regularity and deferential review.

Rothe Dev. Corp. v. U.S. Dep’t of Def. (“Rothe III”), 262 F.3d

1306, 1321 n.14 (Fed. Cir. 2001) (“That Congress is entitled to

no deference in its ultimate conclusion that race-based relief is

necessary does not mean that Congress is entitled to no deference

in its factfinding.” (citing Croson, 488 U.S. at 500)); cf. Am.

Fed’n of Gov’t Employees v. United States, 330 F.3d 513, 522

(D.C. Cir. 2003) (“Incident to its lawmaking authority, Congress

has the authority to decide whether to conduct investigations and

hold hearings to gather information.”).


                                 23
     B.   The Purpose of Section 8(a)

     As set forth above, in order to meet the first prong of the

compelling interest test, the government must identify a purpose

for the use of race-conscious criteria that is properly

identified as a compelling interest.     In this case, the

government has identified the compelling interest for the Section

8(a) program as “breaking down barriers to minority business

development created by discrimination and its lingering effects,”

including exclusion from contracting with the federal government.

Defs.’ Mem. of P.& A. in Supp. of Defs.’ Mot. For Summ. J.

(“Defs.’ MSJ”) at 27, 29.    DynaLantic argues that the government

cannot identify a compelling interest unless it can show race

discrimination in contracting by federal, state or local

governments, or at the very least, that private industries

directly used federal funds to discriminate.    Pl.’s MSJ at 33-37.

DynaLantic also argues that the race-based presumption of social

disadvantage shows that the law’s purpose was not remedial, but

was instead “to favor virtually all minority groups, in general,

over the larger pool of citizens (including those with lower

economic opportunity).”     Id. at 40.

     The Court rejects DynaLantic’s argument that Defendants may

only seek to remedy discrimination by a governmental entity, or

discrimination by private individuals directly using government

funds to discriminate.    It is well established that “[t]he


                                  24
federal government has a compelling interest in ensuring that its

funding is not distributed in a manner that perpetuates the

effect of either public or private discrimination” within an

industry in which it provides funding.     Western States, 407 F.3d

at 991 (“It is beyond dispute that any public entity, state or

federal, has a compelling interest in assuring that public

dollars, drawn from the tax dollars of all citizens, do not serve

to finance the evils of private prejudice.” (quoting Croson, 488

U.S. at 492 (plurality op. of O’Connor, J.))).    As the Tenth

Circuit has explained, such private prejudice may take the form

of discriminatory barriers to the formation of qualified minority

businesses, “precluding from the outset competition for public .

. . contracts by minority enterprises.”     Adarand VII, 228 F.3d at

1167-68.   Private prejudice may also take the form of

“discriminatory barriers” to “fair competition between minority

and non-minority enterprises . . . precluding existing minority

firms from effectively competing for public construction

contracts.”   Id. at 1168.   In both cases, these barriers would

“show a strong link between racial disparities in the federal

government’s disbursement of public funds” for federal contracts

“and the channeling of those funds due to private

discrimination.”   Id. at 1167-68.    Accordingly, under the

Fourteenth Amendment the government may implement race-conscious

programs not only for the purpose of correcting its own


                                 25
discrimination, but also “to prevent itself from acting as a

‘passive participant’” in private discrimination in the relevant

industries or markets.   Concrete Works IV, 321 F.3d at 958

(quoting Croson, 488 U.S. at 492).   The Court concludes,

therefore, that the Defendants state a compelling purpose in

seeking to remediate either public discrimination or private

discrimination in which the government has been a “passive

participant.”   Croson 488 U.S. at 492.5

     The Court also rejects DynaLantic’s claim that Section

8(a)’s purpose is not truly remedial, but instead is “to favor

virtually all minority groups, in general, over the larger pool

of citizens (including those with lower economic opportunity).”

Pl.’s MSJ at 40.   As the government points out, the Section 8(a)

program is designed “to identify individual businesses that are

[economically] disadvantaged” by requiring an individualized

showing of economic disadvantage by each successful applicant.

Defs.’ Opp’n to Pl.’s MSJ (“Defs.’ Opp’n”) at 13.   The statute,

in turn, defines “economically disadvantaged individuals” as

socially disadvantaged individuals “whose ability to compete in

the free enterprise system has been impaired due to diminished



     5
       This section of the Memorandum Opinion only addresses
whether “passive participation” in private discrimination is an
appropriate purpose for race-based legislation. It does not
address whether the government has presented strong evidence of
its passive participation in private discrimination. See infra
Section III.D.

                                26
capital and credit opportunities as compared to others in the

same or similar line of business who are not socially

disadvantaged.”    13 C.F.R. § 124.104(a); see also 15 U.S.C.

§ 637(a)(6)(A).    Individuals whose net worth exceeds $250,000

cannot establish economic disadvantage for purposes of entering

the Section 8(a) program.    13 C.F.R. § 124.104(c)(2).     Moreover,

the 8(a) program is open to socially and economically

disadvantaged non-minority individuals.     Id. § 124.103(c).    In

short, the program is directed at individual firms that can show

economic disadvantage, and is not limited to minorities.      The

Court agrees with the government that the Section 8(a) program’s

structure convincingly confirms its remedial purpose.       Defs.’

Opp’n at 14.

     C.    Evidence Before Congress6

           1.     Legislative History of the Section 8(a)
                      Program

     The Small Business Act of 1953 created the Small Business

Administration (“SBA”).     See Pub. L. No. 83-163, 67 Stat. 232

(1953).   Section 8(a) of the Act delegates to the SBA the

authority and an obligation, “whenever it determines such action



     6
       This section draws, in substantial part, from the
Defendants’ submissions to the Court, which the Plaintiff, with
few exceptions, does not challenge as a matter of historical
record. Of course, Plaintiff challenges the sufficiency of the
evidence before Congress to demonstrate compelling interest, but
the sufficiency of the evidence is not at issue in this section
of the Court’s Memorandum Opinion.

                                  27
is necessary,” to enter into contracts with any procurement

agency of the federal government to furnish goods and services.

Id. at § 8(a).       The SBA can also enter into subcontracts with

small businesses for the performance of such contracts.      The

Section 8(a) authority was dormant for a decade after the Small

Business Act was enacted.      The Section 8(a) program as it

operates today evolved from Executive Orders issued by Presidents

Lyndon B. Johnson and Richard M. Nixon in response to the Kerner

Commission.7      The Kerner Commission investigated incidents of

civil disorder in the inner cities following urban unrest in

1967.       Having found that disadvantaged individuals enjoyed no

appreciable ownership of small businesses and did not share in

the community redevelopment process, the Kerner Commission

recommended that steps be taken to increase the level of business

ownership by minorities so that they would have a better

opportunity to materially share in the competitive free

enterprise system.       See H.R. Rep. No. 956, at 2 (1982); S. Rep.

No. 1070, at 14 (1978).

        Following the Kerner Commission’s report, President Johnson

ordered the SBA to use its Section 8(a) authority to direct

contracts to businesses located in distressed urban communities

in order to create jobs.      Later, in 1969, pursuant to President



        7
        See Exec. Order No. 11375, 3 C.F.R. 684 (1966-1970);
Exec. Order No. 11518, 3 C.F.R. 907 (1966-1970).

                                    28
Nixon’s order, the SBA changed the emphasis of the Section 8(a)

program from hiring the unemployed in the inner city to

developing successful small businesses owned by disadvantaged

persons.   As a result of the Executive Orders, the SBA’s Section

8(a) authority was used, by administrative regulation, to channel

federal purchase requirements to socially or economically

disadvantaged individuals.

     Prior to the enactment of Pub. L. No. 95-507 in 1978,

Congress did not exert any legislative control over the Section

8(a) program other than indirectly through appropriations.     See

S. Rep. 29, at 4 (1987); H.R. Rep. No. 460, at 19 (1987); H.R.

Rep. No. 956, at 2 (1982); H.R. Rep. No. 949, at 3 (1978).    In

1972, however, the House Select Committee on Small Business

issued a report that included a lengthy description of the

problems confronting minority entrepreneurs.   The report

recognized that although minority and non-minority small business

owners had much in common, racial and ethnic prejudice posed a

“unique dilemma” for minority business owners which “presented

almost insurmountable obstacles to business development.”     See

H.R. Rep. No. 1615, at 18-19 (1972).   The specific problems cited

in the report included lack of business experience and capital.

In addition, the report cited census statistics showing that

minorities comprised about 17 percent of the total U.S.

population but owned about 4.3 percent of United States


                                29
businesses, and that the receipts of those minority-owned

businesses amounted to 0.7 percent of the total receipts reported

for all firms. Id.

     Similar statistical disparities were cited in a 1975 report

on hearings conducted by the Subcommittee on Small Business

Administration Oversight and Minority Enterprise of the House

Committee on Small Business (the “1975 Report”).   The report

stated that minorities comprised about 16 percent of the nation’s

population while 3 percent of businesses were minority-owned, and

those businesses realized about 0.65 percent of the gross

receipts of all businesses in the country.   The Subcommittee

found that:

     [T]he effects of past inequities stemming from racial
     prejudice have not remained in the past. The Congress
     has recognized the reality that past discriminatory
     practices have, to some degree, adversely affected our
     present economic system. . . . These statistics are
     not the result of random chance. The presumption must
     be made that past discriminatory systems have resulted
     in present economic inequities. In order to right this
     situation the Congress has formulated certain remedial
     programs designed to uplift those socially or
     economically disadvantaged persons to a level where
     they may effectively participate in the business
     mainstream of our economy.

H.R. Rep. No. 468, at 1-2 (1975).   The Subcommittee specifically

expressed its “hope[] that some day remedial programs will be

unnecessary and that all people will have the same economic

opportunities,” but concluded that, “until that time remedial

action must be considered as a necessary and proper accommodation


                               30
for our Nation’s socially or economically disadvantaged persons.”

Id. (footnote omitted).

     The Subcommittee that prepared the 1975 Report took “full

notice as evidence for its consideration” of reports submitted to

Congress by the General Accounting Office (“GAO”) and by the U.S.

Commission on Civil Rights.   Id. at 11.   The latter report, based

on statistical data compilation as well as interviews and other

qualitative data gathered from a broad swath of federal and state

government agencies, discussed the barriers encountered by

minority businesses in gaining access to government contracting

opportunities at the federal, state, and local levels.    Among the

major difficulties confronting minority businesses were

deficiencies in working capital, inability to meet bonding

requirements, disabilities caused by an inadequate “track

record,” lack of awareness of bidding opportunities,

unfamiliarity with bidding procedures, preselection before the

formal advertising process, and the exercise of discretion by

government procurement officers to disfavor minority-owned

businesses.   See U.S. Comm’n on Civil Rights, Minorities and

Women as Government Contractors, at 16-28, 86-88 (1975) (“CCR

Report”).   More specifically, the CCR Report stated:

     Minority and female-owned firms . . . received less than
     seven-tenths of one percent of the contracting dollars of
     state and local governments which were able to provide data
     to the Commission. Unlike federal procurement, a
     substantial portion of State and local purchases is for
     items bought in relatively small quantities from wholesalers

                                31
     and retailers. State and local governments also spend
     proportionately more than the Federal Government for
     construction. Since a large percentage of minority firms
     are retail and small construction companies . . . both the
     volume and nature of State and local contracting should
     provide extensive contracting opportunities for minority
     [firms].

CCR Report at 122.   However, the percentage of contracting

dollars awarded to women and minority firms at the state and

local level - less than seven tenths of one percent - did not

reflect these “extensive contracting opportunities.”     Id.     The

CCR Report found one reason for the disparity was discrimination.

     The unwillingness of many contracting officers [in state and
     local governments] to abandon long-established practices not
     directed toward minorities or women is an obstacle to
     effective implementation of special contracting programs.
     Efforts to increase the number of minority and female-owned
     firms on bidders’ lists have been thwarted by contracting
     practices, such as requiring minority and female-owned firms
     to comply with stringent pre-qualification standards.

     [T]he Commission found . . . negative and even hostile
     attitudes among State and local procurement officers toward
     minority and female firms.

Id. at 125, 127.

     In 1977, the House Committee on Small Business issued a

report (the “1977 Report”) summarizing its activities during the

preceding two years, one chapter of which summarized the 1975

Report.   See H.R. Rep. No. 1791, at 124-49 (1977).    Another

chapter of the 1977 Report summarized a review of the SBA’s

Surety Bond Guarantee Program, as a result of which the following

finding was made:



                                32
     The very basic problem disclosed by the testimony is
     that, over the years, there has developed a business
     system which has traditionally excluded measurable
     minority participation. In the past more than the
     present, this system of conducting business
     transactions overtly precluded minority input.
     Currently, we more often encounter a business system
     which is racially neutral on its face, but because of
     past overt social and economic discrimination is
     presently operating, in effect, to perpetuate these
     past inequities.

Id. at 182.

     Congress codified the Section 8(a) program in 1978.     See

Pub. L. No. 95-507, 92 Stat. 1760 (1978).   Reports prepared by

the GAO and investigations conducted by both the executive and

legislative branches prior to the 1978 codification showed that

the Section 8(a) program had fallen far short of its goal to

develop businesses owned by disadvantaged individuals, and that

one reason for this failure was that the program had no

legislative basis.   See S. Rep. No. 1070, at 14 (1978) (the “1978

Report”).   The 1978 Report explained that the bill’s purpose was

to provide a statutory basis for the program and establish the

policy goal of developing businesses owned by socially and

economically disadvantaged persons, “rather than the mere

awarding of 8(a) contracts.”   Id. at 2-3, 14.   The 1978 report

also recognized that “the pattern of social and economic

discrimination continues to deprive racial and ethnic minorities,

and others, of the opportunity to participate fully in the free




                                33
enterprise system.”   Id.   For this reason, the 1978 Report

explained that:

     [T]he bill is designed to foster business ownership by
     socially and economically disadvantaged persons and to
     promote the viability of businesses run by such persons
     by providing contract, financial, technical and
     management assistance. . . . Although it is expected
     that, as under the present 8(a) program, the majority
     of qualifying firms will be those owned and operated by
     racial and ethnic minorities, the program will be open
     to any business owned by persons who meet the socially
     and economically disadvantaged test.

Id. at 14-15.

     The final version of Pub. L. No. 95-507 made the following

findings:

     [M]any . . . persons are socially disadvantaged because
     of their identification as members of certain groups
     that have suffered the effects of discriminatory
     practices or similar invidious circumstances over which
     they have no control; that such groups include, but are
     not limited to, Black Americans, Hispanic Americans,
     Native Americans and other minorities.

Pub. L. No. 95-507, § 201, 92 Stat. 1757, 1760 (1978).   The

Conference Report explained that these findings:

     [E]stablish the premise that many individuals are
     socially and economically disadvantaged as a result of
     being identified as members of certain groups. . . .
     In other words, in many, but not all, cases status as a
     minority can be directly and unequivocally correlated
     with social disadvantagement and this condition exists
     regardless of the individual, personal qualities of
     that minority person.

H.R. Rep. No. 1714, at 20-21 (1978).

     Representative Joseph P. Addabbo, the floor manager of the

House bill, pointed out that “[o]ur findings clearly state that


                                 34
groups such as Black Americans, Hispanic Americans, and Native

Americans, have been and continue to be discriminated against and

that this discrimination has led to the social disadvantage of

persons identified by society as members of those groups.”   124

Cong. Rec. 34097 (1978).   Senator Sam Nunn, who managed the bill

in the Senate, also emphasized that “[b]ecause of present and

past discrimination many minorities have suffered social

disadvantagement.”   Id. at 35408 (1978).

     The Conference Report expressed the conferees’ intention

that the authority given to the SBA under Section 8(a) “will be

used solely for economic and business development and not merely

to channel contracts at a random pace to a preconceived group of

eligibles for the sake of social or political goals.”   H.R. Rep.

No. 1714, at 22-23 (1978); see also S. Rep. No. 1070, at 2 (1978)

(“The purpose of this chapter is to provide a legislative design

for the business development services of SBA’s 8(a) program so as

to insure that the emphasis is placed on business development

rather than mere awarding of 8(a) contracts.”).   In addition,

although the conferees intended that the “primary beneficiaries

of [the Section 8(a)] program will be minorities,” they also

recognized “that other Americans may also suffer from social

disadvantagement because of cultural bias,” and so could

participate in the program.   H.R. Rep. No. 1714, at 22 (1978).




                                35
     In 1988, Congress passed substantial revisions to the

Section 8(a) program.   See Pub. L. No. 100-656, 102 Stat. 3853

(1988).   The House report on that bill described the Section 8(a)

program as “the Federal government’s most significant effort to

redress the effects of discrimination on entrepreneurial

endeavors,” and stated that the program is intended to “help a

broad class of socially and economically disadvantaged

individuals to compete in the mainstream of the American

economy.”   H.R. Rep. No. 460, at 16 (1987).   In addition, the

report stated that “[t]he purpose of 8(a) . . . is to create

on-going small businesses that can compete on their own once they

leave the program. . . .   The 8(a) program is designed to promote

the development of firms so that set-asides will not be necessary

in the future.”   Id.

     The Senate report on the 1988 amendments stated that the

Section 8(a) program:

     [H]as historically been the primary vehicle for guiding
     federal procurement decisions toward economically
     disadvantaged minority-owned businesses. The program
     has served two critical and complimentary purposes:
     first, lending an element of fairness to distribution
     of taxpayer-financed federal procurement contracts, and
     second, creating opportunities for minority-owned
     businesses to overcome their historic disadvantage and
     compete successfully in our bountiful free enterprise
     economy.

S. Rep. No. 394, at 1 (1988).   Congress continued to express

concern about statistical disparities indicating that there may



                                36
be discriminatory barriers to minority business formation,

development, and success.

     [M]inorities are still less likely to own a small
     business. Some 1.8% of the minority population owned a
     business in 1982 compared with 6.4% of all business
     owners. Moreover, minority-owned firms are smaller
     than nonminority businesses with lower sales and fewer
     employees. . . . These hearings and the Chairman’s
     legislative proposal . . . are an effort to get the
     8(a) program to focus on its original statutory
     objective. That objective is simple enough – to boost
     minority ownership of small businesses that can compete
     in a competitive market.

Minority Business Development Program Reform Act of 1987,

Hearings Before the Senate Comm. on Small Business, 100th Cong.,

16-18 (1988) (Statement of Senator Sasser).     The House report

noted:

     [O]nly six percent of all firms are owned by
     minorities; less than two percent of minorities own
     businesses while the comparable percent for
     nonminorities is over six percent; and the average
     receipts per minority firm are less than ten percent
     the average receipts of all businesses.

H.R. Rep. No. 460, at 18 (1987).      Federal procurement data

revealed a similar pattern.   In 1986, total prime contracts

approached $185 billion, while minority-owned businesses received

$5 billion in prime contracts, or about 2.7 percent of the prime

contract dollars.   Id.   Echoing the observations of a decade

earlier, the House Report concluded that the disparities between

minority and non-minority business development and success in the

economy and in federal procurement were:



                                 37
      [N]ot the result of random chance. The presumption has been
      made by past Congresses, and now reaffirmed by this
      Committee, that discrimination and the present effects of
      past discrimination have hurt socially and economically
      disadvantaged individuals in their entrepreneurial
      endeavors. It is a legitimate purpose of government to
      correct the imbalance caused by discrimination[.]

Id.

            2.    Subsequent Evidence Before Congress

      The parties disagree whether the Court should consider post-

enactment evidence of discrimination to find a compelling

interest.   DynaLantic argues the Court is limited to the evidence

before Congress when it enacted Section 8(a) in 1978 and revised

it in 1988, particularly when considering the facial challenge.

See, e.g., Pl.’s MSJ at 38-9; Pl.’s Reply at 5; Pl.’s Opp’n to

Mot. for Order to Meet and Confer at 5, Doc. 236.       Defendants,

for their part, argue that the Court should consider both earlier

and more recent evidence before Congress, the earlier evidence to

show that the Section 8(a) program was “appropriately remedial in

[its] inception,” and the more recent evidence to show a

continuing compelling need for the program.     Defs.’ MSJ at 15-23;

Defs.’ Reply Mem. in Supp. of Mot. for Supplemental Briefing at

2, 5, Doc. 237.    The Court agrees with Defendants, and

accordingly will consider both direct and circumstantial

evidence, including post-enactment evidence introduced by

Defendants.




                                  38
     The Supreme Court has held that “the institution that makes

the racial distinction must have had a strong basis in evidence

to conclude the remedial action was necessary before it embarks

on an affirmative action program.”    Shaw, 517 U.S. at 910

(citations omitted).   However, nearly every circuit to consider

this question has held that reviewing courts may also consider

post-enactment evidence.   See Eng’ Contractors v. Metro Dade

Cnty., 122 F.3d 895, 911 (11th Cir. 1997) (holding that post-

enactment evidence may be considered because “a violation of

federal statutory or constitutional requirements does not arise

with the making of a finding; it arises when the wrong is

committed” (quoting Wygant, 476 U.S. at 289 (O’Connor, J.,

concurring))); see also Adarand VII, 228 F.3d at 1166; Concrete

Works II, 36 F.3d at 1521; Contractors Ass’n of E. Pa., Inc. v.

City of Philadelphia, 6 F.3d 990, 1003-04 (3d Cir. 1993).     Post-

enactment evidence is particularly relevant when, as here, the

statute is over thirty years old and the evidence used to justify

Section 8(a) is stale for purposes of determining a compelling

interest in the present.   Moreover, the Small Business Act

requires that both the President and the SBA report annually to

Congress on the status of small disadvantaged businesses

generally and the Section 8(a) program in particular; thus, the

statute itself contemplates that Congress will review the 8(a)

program on a continuing basis.   15 U.S.C. §§ 631b, 636(j)(16)(B).


                                 39
     Following the Tenth Circuit’s approach in Adarand VII, the

Court reviews the post-enactment evidence in three broad

categories: (1) evidence of barriers to the formation of

qualified minority contractors due to discrimination, (2)

evidence of discriminatory barriers to fair competition between

minority and non-minority contractors, and (3) evidence of

discrimination in state and local disparity studies.8

               a)   Barriers to Minority Business Formation

     The government has presented evidence in the form of

Congressional investigations, Congressional hearings, and outside

studies of statistical and anecdotal evidence regarding obstacles

to the formation of minority-owned enterprises.

     Most notably, the government has presented significant

evidence on race-based denial of access to capital and credit,


     8
        The Adarand VII court explained that consideration of
these three categories were highly relevant to the government’s
theory – which it also asserts in this case - that “it had
essentially become a ‘passive participant’ in a system of racial
exclusion” in the private sector. 228 F.3d at 1167 (citing
Concrete Works II, 36 F.3d at 1529; Croson, 488 U.S. at 492).
The court explained that evidence of discriminatory barriers to
minority contracting “show a strong link between racial
disparities in the federal government’s disbursements of public
funds for construction contracts and the channeling of those
funds due to private discrimination. The first discriminatory
barriers are to the formation of qualified minority
subcontracting enterprises due to private discrimination,
precluding from the outset competition for public construction
contracts by minority enterprises. The second discriminatory
barriers are to fair competition between minority and non-
minority [] enterprises, again due to private discrimination,
precluding existing minority firms from effectively competing for
public construction contracts.” Id. at 1167-68.

                               40
which has been described as “[o]ne of the most formidable

stumbling blocks to the formation and development of minority

business.”   U.S. Comm’n on Minority Business Development, Final

Report at 12 (1992).   Moreover, the government has presented

evidence which shows disparate treatment of similarly situated

minority and non-minority loan applicants.   See Small Business

Administration’s 8(a) Minority Business Development Program,

Hearing Before the Senate Comm. on Small Business, 104th Cong.

178 (1995) (testimony of Fernando V. Galaviz) (independent

studies have found that minorities have a higher probability of

being rejected for loans than non-minority persons with the same

qualifications); Unconstitutional Set-Asides: ISTEA’s Race-Based

Set-Asides After Adarand, Hearing Before the Subcomm. on the

Constitution, Federalism, and Property Rights of the Senate Comm.

on the Judiciary, 105th Cong. 112 (1997) (testimony of Nancy

McFadden) (non-minority business owners in the construction

industry receive over 50 times more loan dollars than African-

American business owners with identical borrowing

characteristics).

     More recent evidence before Congress has shown that racial

discrimination in access to capital has not diminished.   Social

scientists conducted statistical analyses of lending patterns

nationally as well as in nine local jurisdictions between 1999

and 2007, including regression analyses to control for a large


                                41
number of financial and other characteristics of the firms,

including creditworthiness.   All of the studies have found that

“African-American-owned firms, Hispanic-owned firms, and to a

lesser extent other minority-owned firms are substantially and

statistically significantly more likely to be denied credit than

are White-owned firms,” even after controlling for factors other

than race.   Moreover, when minority owned firms did receive a

loan, they were obligated to pay higher interest rates on the

loans than comparable non-minority firms.   See Business Start-Up

Hurdles in Underserved Communities: Access to Venture Capital and

Entrepreneurship Training, Hearing Before the Senate Comm. on

Small Business and Entrepreneurship, 110th Cong. 2-30 (2008)

(hereinafter “Start-Up Hurdles”) (testimony of Jon Wainwright,

Ph.D., social scientist and principal investigator of almost 30

studies on business discrimination since 2000); How Information

Policy Affects the Competitive Viability of Small and

Disadvantaged Business in Federal Contracting, Hearing before the

Subcomm. on Information Policy, Census, and Nat’l Archives of the

House Comm. on Oversight and Gov’t Reform, 110th Cong. 27-28, 66-

67 (2008) (hereinafter “Information Policy”); The Department of

Transportation’s Disadvantaged Business Enterprise Program,

Hearing Before the House Comm. on Transportation and

Infrastructure, 111th Cong. 291-92, 329-31 (2009) (hereinafter

“DOT’s DBE Program”).


                                42
     In addition to quantitative analysis of lending

discrimination, Congress has heard significant qualitative

testimony regarding lending discrimination.   See, e.g.,

Encouraging the Growth of Minority-Owned Small Businesses and

Minority Entrepreneurship, Hearing Before the House Comm. on

Small Business, 107th Cong. at 20 (2001) (testimony of Don

Furtivo); id. at 45-47 (submission by U.S. Hispanic Chamber of

Commerce) (stating that banks believe that loans to minorities

involve high risk); Availability of Credit to Minority-Owned

Small Businesses, Hearing Before the Subcomm. on Financial

Institutions Supervision, Regulation, and Deposit Insurance of

the House Comm. on Banking, Finance, and Urban Affairs, 103d

Cong. 22 (1994) (testimony of Harrison Boyd) (hereinafter

“Availability of Credit”); Problems Facing Minority and

Women-Owned Small Businesses in Procuring U.S. Government

Contracts, Hearing Before the Subcomm. on Commerce, Consumer, and

Monetary Affairs of the House Comm. on Government Operations,

103d Cong. 45-49 (1993) (testimony of Sherman N. Copelin, Jr.)

(opining that most problems faced by African-American businesses

stem from a pervasive and extremely negative perception that

African-American businesses and their owners are not good

financial risks, that African-American businesses are “second

rate,” and that African-American business owners will not pay

their debts and are incapable of operating profitably in a


                               43
competitive mainstream business environment); Federal Minority

Business Programs, Hearing Before the House Committee on Small

Business, 102d Cong. 8-9 (1991) (testimony of Joshua I. Smith)

(observing that “tremendously negative” perception of minorities’

business skills has impeded their ability to obtain capital and

credit); Availability of Credit, at 1 (Opening Statement of

Representative Richard Neal); Small Business Development, Hearing

Before the Subcomm. on Procurement, Tourism, and Rural

Development of the House Comm. on Small Business, 102d Cong. 9,

60 (1992) (testimony of Doris Jefferies Ford, Ph.D.); Summary of

Activities: A Report by the House Comm. on Small Business, H.R.

Rep. No. 108-800, at 150-53 (2004);   Availability of Capital and

Federal Procurement Opportunities to Minority-owned Small

Businesses, Hearing before the House Small Business Committee,

108th Cong. 3, 48 (2004) (statements of Honorable Danny Davis,

noting that in Illinois, less than two percent of federal

contracts went to minorities in 2002 and that traditional lending

institutions are less likely to provide capital to minority-owned

businesses).

     Evidence has also been presented to Congress that minorities

are routinely excluded from critical business relationships,

particularly through closed or “old boy” business networks that

make it especially difficult for minority-owned businesses to

obtain work.   See, e.g., Problems Facing Minority and Women-Owned


                                44
Small Businesses in Procuring U.S. Government Contracts, Hearing

Before the Subcomm. on Commerce, Consumer, and Monetary Affairs

of the House Comm. on Government Operations, 103d Cong. 97 (1993)

(testimony of Joseph A. Williams) (explaining that minorities and

women are often left out of the design or planning phase for

public contracts);   Meaning and Significance for Minority

Businesses of the Supreme Court Decision in the City of Richmond

v. J.A. Croson Co., Hearing Before the Subcomm. on Legislation

and National Security of the House Committee on Government

Operations, 101st Cong. 129-31 (1990) (testimony of James M.

Bond, Jr.) (stating that “pervasive” discrimination in selection

of architects for important buildings and professional

advancement limits African-American and Hispanic architects’

access to capital and work in the non-minority community)

(hereinafter “The Significance of Croson”); To Amend The Civil

Rights Act of 1964: Permitting Minority Set-Asides, Hearing

Before the Senate Comm. on Governmental Affairs, 101st Cong.

14-15 (1990) (testimony of William Bowen) (noting that closed

business networks deprive minority-owned firms of business

opportunities).

     On November 10, 2005, Senator Edward M. Kennedy spoke before

the Senate concerning DoD’s use of race-conscious measures,

including the Section 8(a) program.    151 Cong. Rec. S12668-01,

2005 WL 3018127 (Nov. 10, 2005).     He observed that federal


                                45
government contracting “has long been dominated by ‘old-boy’

networks that make it very difficult for African Americans,

Latinos, Asians, and Native Americans to participate fairly,” and

that “[y]ears of Congressional hearings have shown that

minorities historically have been excluded from both public and

private construction contracts in general, and from Federal

defense contracts in particular.”     Id.   Recent evidence before

Congress establishes that minorities continue to experience

barriers to business networks.   See, e.g., DOT’s DBE Program, at

16, 207-208, 223, 310-12 (testimony from Joel Szabat, Deputy

Assistant Secretary for Transportation Policy at DOT, and others

discussing evidence of discriminatory exclusion of minority firms

from business networks, and the difficulty of trying to break

into those networks); Information Policy, at 59, 62, 67, 69

(same).

     In addition to the lending discrimination studies discussed

above, discriminatory barriers to minority business formation

have been quantified in a number of recent statistical studies

before Congress.   Since 2006, over fifty state and local

disparity studies, conducted in twenty eight states and the

District of Columbia, have been introduced or discussed at

Congressional hearings.   See, e.g., The Minority Business

Development Agency: Enhancing the Prospects for Success, Hearing

Before the Subcomm. on Commerce, Trade and Consumer Protection of


                                 46
the House Comm. on Energy and Commerce, 111th Cong. 5-6 (2009)

(testimony of David Hinson) & App. B; DOT’s DBE Program, 8-9, 312

(testimony of Joel Szabat); The Federal Aviation Administration

Reauthorization Act of 2009, Hearing Before the House Comm. on

Transportation and Infrastructure, 111th Cong. 483 (2009)

(testimony of Gene Roth); Infrastructure Investment: Ensuring an

Effective Economic Recovery Program, Hearing before the House

Comm. on Transportation and Infrastructure, 111th Cong. 353-54

(2009) (testimony of Gene Roth); Information Policy, at 19-22

(testimony of Jon Wainwright); id. at 55, 59-60 (testimony of

Anthony Brown); Start-Up Hurdles, at 1 (testimony of Rodney

Strong); id. at 3 (testimony of Dan O’Bannon); Minority

Entrepreneurship: Assessing the Effectiveness of SBA’s Programs

for the Minority Business Community, Hearing Before the Senate

Comm. on Small Business and Entrepreneurship, 110th Cong. 26

(2007) (hereinafter “Minority Entrepreneurship”) (testimony of

Jon Wainwright).

     Disparity studies are statistical studies performed for

state and local governments, generally by outside consultants.

They are designed to measure the availability and utilization of

minority and women-owned firms on public contracts.   The studies

address a variety of industries in a variety of state and local

markets.   In addition, some of the studies examine the

availability and utilization of minority and women-owned firms in


                                47
the private contracting market.    Many of these disparity studies

include statistical analysis of minority business formation.    The

studies are not uniform in nature, methodology, or results.     On

balance, however, they reveal large, statistically significant

barriers to business formation among minority groups that cannot

be explained by factors other than race.   The following four

studies are examples.

     A 2009 Arizona study considered the likelihood of self-

employment among minorities as compared to non-minorities,

applying the methodology employed by a Denver disparity study

that was approved by the Tenth Circuit in Concrete Works IV.     The

study controlled for factors including marital status, age,

health, household property value, mortgage payments, unearned

income, and level of education.    The study found white males were

roughly twice as likely to be self-employed as African Americans

and Hispanic Americans in all industries in the state of Arizona.

Over seventy percent of the disparity in self employment rates

among African Americans, Hispanic Americans, and Native Americans

was attributable to race differences.    See Availability Analysis

and Disparity Study for the Arizona Dep’t of Transp.: Final

Report, MGT of America, Inc., § 7.7 (March 16, 2009) (hereinafter

“Arizona Study”).

     Likewise, a 2006 study in Atlanta, Georgia, found that after

controlling for age, wealth, and other variables, minorities


                                  48
continue to show disparities in entry into self-employment.    In

the construction and service industries, non-minority men were

between two and three times as likely to be self-employed as

African Americans and Asian Americans.    City of Atlanta Disparity

Study and Legal Analysis, The Executive Summary, Griffin &

Strong, P.C., at 16 (October 11, 2006) (hereinafter “Atlanta

Study”).

     A 2006 Maryland study conducted a regression analysis to

analyze race disparities in business formation between similarly

situated minorities and White males.   The study found that in the

construction industry in Maryland, the business formation rate–-

as compared to White males--is 29-62 percent lower for African

Americans, 35-51 percent lower for Hispanic Americans, 45-50

percent lower for Native Americans, and between 12 percent higher

and 42 percent lower for Asian Americans.   The study concluded

that “observed [minority business] availability levels in the

State of Maryland are substantially and statistically lower than

those that would be expected . . . if commercial markets operated

in a race- . . . neutral manner.    This suggests that minorities .

. . are substantially and significantly less likely to own their

own businesses as a result of discrimination than would be

expected based upon their observable characteristics including

age, education, geographic location, and industry.”    See Race,

Sex, and Business Enterprise: Evidence from the State of Maryland


                               49
(Final Report), NERA Economic Consulting, at 120 (March 8,

2006)(hereinafter “Maryland Study”).

     A 2007 study conducted in Nevada examined the rates of

business ownership in the construction and engineering

industries.   The study employed a multivariate regression

analysis to control for factors including personal financial

resources, creditworthiness, age, education, family

characteristics, and ability to speak English.   After accounting

for neutral factors, the study showed identifiable negative

disparities in business ownership rates for Asian Americans and

Native Americans, and significant negative disparities in

business ownership rates for Hispanic Americans and African

Americans.    Specifically, the study found that there were “only

18 percent as many African American-owned construction businesses

in Nevada as one would anticipate if African Americans working in

the industry owned businesses at the same rate as similarly

situated non-Hispanic white males,” and only 48 percent as many

Hispanic-owned construction businesses.    Availability and

Disparity Study, Nevada Dep’t of Transp., BBC Research &

Consulting, Appendix H pp. 4-6 (June 15, 2007) (hereinafter

“Nevada Study”).



                 b)   Barriers to Minority Business Development




                                 50
     In addition to barriers to minority business formation, the

government has presented significant evidence of barriers to

development by existing minority businesses.   Specifically, the

government presents evidence of discrimination by prime

contractors, private sector customers, suppliers, and bonding

companies.

     For example, Andrew F. Brimmer and F. Ray Marshall, the

authors of a study on minority businesses, testified about the

barriers that confront existing minority-owned businesses.

Brimmer identified discriminatory practices including denial of

opportunities to bid, discrimination in bonding, customer

end-user discrimination, closed business networks, discrimination

in subcontracting, bid shopping, bid manipulation, price

discrimination by suppliers, discrimination in financing, and

discrimination in employment opportunities.    See City of Richmond

v. J.A. Croson: Impact and Response, Hearing Before the Subcomm.

on Urban and Minority-Owned Business Development of the Senate

Committee on Small Business, 101st Cong. 33-35 (1990) (testimony

of Andrew F. Brimmer).

     Marshall testified that minority-owned businesses are often

not invited to bid for private sector contracts because of

negative perceptions about minorities in business.   Therefore,

minority-owned businesses have little opportunity to obtain work

in the private sector.   Marshall reported that public-sector


                                51
contracts account for ninety-three percent of minority-owned

contractors’ business in Atlanta while private sector contracts

make up eighty percent of non-minority contractors’ business.

Moreover, the size of the public contracts obtained by

minority-owned contractors is much smaller than the size of the

contracts obtained by non-minority-owned contractors, making it

harder for the minority-owned contractors to develop their

businesses.   Id. at 45-48 (testimony of F. Ray Marshall).

     Marshall also testified that minorities are more

disadvantaged in business than they are in any other area, and

that the Atlanta study’s findings are not unique to that city,

but are typical of most major U.S. cities.    Id. at 46, 128.

Additional Congressional hearings confirm that such

discrimination occurs around the country.    See, e.g., Encouraging

the Growth of Minority-Owned Small Businesses and Minority

Entrepreneurship, Hearing Before the House Comm. on Small

Business, 107th Cong. (2001) (field hearing in Albuquerque, New

Mexico); Small Business Administration’s 8(a) Minority Business

Development Program, Hearing Before the Senate Comm. on Small

Business Administration’s 8(a) Minority Business Development

Program, Hearing Before the Senate Comm. On Small Business, 104th

Cong. 164 (1995) (testimony of Nancy E. Archuleta) (disparity

study conducted for the State of Texas found widespread

marketplace discrimination against women and minorities,


                                52
especially African-Americans and Hispanic Americans); Problems

Facing Minority and Women-Owned Small Businesses in Procuring

U.S. Government Contracts, Hearing Before the Subcomm. on

Commerce, Consumer, and Monetary Affairs of the House Comm. on

Gov’t Operations, 103d Cong. 42-51 (1993) (field hearing in

Chicago); The Significance of Croson (testimony of Gloria Molina)

(Hispanic American community continues to suffer from the long

history of discrimination in Los Angeles).

     More recent evidence before Congress is consistent with the

earlier evidence, demonstrating that discrimination by prime

contractors, private sector customers, suppliers and bonding

companies continues to limit minority business development.    Some

of this evidence is quantitative, set forth in some of the state

and local disparity studies presented to Congress between 2006

and 2009.   While the studies are not uniform in nature,

methodology, or results, they contain powerful evidence that

discrimination “fosters a decidedly uneven playing field” for

minority business entities seeking to compete in federal

contracting.   See Adarand VII, 228 F.3d at 1170.   The following

studies are presented as a sample of the quantitative evidence

before Congress.

     A 2006 Maryland study explained that discrimination by

commercial customers and suppliers can be statistically shown by

disparities between minority and non-minority business owner


                                53
earnings.   Maryland Study, at 117.    Controlling for age, time,

education, labor market experience, geography and industry, the

study found that, in the economy as a whole and for industries in

Maryland in particular, there exist “negative and statistically

significant and large business owner earnings disparities for

Blacks, Hispanics, Asians, [and] Native Americans. . . .        The

measured difference for Blacks ranges between 28 and 59 percent

[less than similarly situated non-minority owners]; for

Hispanics, from 19 percent to 39 percent; for Asians, from 4

percent to 22 percent; and for Native Americans, from 38 percent

to 51 percent.”   Maryland Study, at 111, 115-16.     Similar

findings were reported in Arizona.      See Arizona Study, § 7.7

(controlling for factors including marital status, age, health,

household property value, mortgage payments, unearned income, and

level of education, all self-employed minorities in Arizona

reported significantly lower earnings than their majority

counterparts in all industries).      An Atlanta study likewise found

that when minorities in Atlanta are self-employed, “they earn

significantly less than non-minority males.     Across all

industries, after controlling for other factors, African

Americans earned 30 percent less . . . than non-minority males

from self-employment. . . .   More than half the disparity in

self-employment income between non-minority males and African

Americans was attributable to race.”      Atlanta Study, at 7.


                                54
Finally, a 2009 study on a wide variety of industries in San

Antonio, Texas, found statistically significant differences in

earnings from self-employment for Hispanic Americans and African

Americans as compared to white males, even after controlling for

education, age, and other variables.     San Antonio Regional

Business Disparity Causation Analysis Study: City of San Antonio,

Texas, MGT of America, Inc. § 9-7 (April 7, 2009) (“San Antonio

Study”).     In addition, the study controlled for company age,

capacity, ownership level of education and experience, and number

of employees, and found that even after controlling for all of

those factors, minority status “had a negative effect on company

earnings of all minority groups except for Hispanic Americans.”

Id. § 9-9.

     In addition to the quantitative data, Congress heard

qualitative testimony that these problems are “strikingly similar

across the country” and in a variety of industries.    Minority

business owners consistently report that they “encounter

significant barriers to doing business in the public and private

sector marketplaces, as both prime contractors and

subcontractors,” that they “often suffer from stereotypes about

their suspected lack of competence and are subject to higher

performance standards than similar nonminority men,” and that

they “encounter discrimination in obtaining loans and surety

bonds; receiving price quotes from suppliers; working with trade


                                  55
unions; obtaining public and private sector prime contracts and

subcontracts; and being paid promptly.”   DOT’s DBE Program at 331

(testimony of Jon Wainwright); See also Information Policy at 20-

28 (testimony of Jon Wainwright); Minority Entrepreneurship at

27, 33-34 (testimony of Jon Wainwright that, based on his

statistical studies as well as hundreds of questionnaires and

interviews with minority and non-minority business owners,

“without the use of affirmative remedies such as subcontracting

goals, minorities and women would receive few if any

opportunities on government contracts. . . . Prime contractors

who solicit M/WBEs on goals projects rarely do so in the absence

of goals”).

     Congress has also amassed evidence that discrimination and

entrenched patterns resulting from years of exclusion prevent

minority business owners from obtaining surety bonds, which are

generally required by federal and state procurement rules.   See

Adarand VII, 228 F.3d at 1171-72 (“Minority subcontracting

enterprises in the construction industry find themselves unable

to compete with non-minority firms on an equal playing field due

to racial discrimination by bonding companies.”).   In its 1994

report about the problems facing minority and women-owned small

businesses, the House Committee on Government Operations found

that an “[i]nability to obtain bonding is one of the top three

reasons that new minority small businesses have difficulty


                               56
procuring U.S. Government contracts.”    H.R. Rep. No. 103-870

(1994).   Witnesses also testified that prime contractors

sometimes set bonding requirements at an unnecessarily high

level, which then effectively excludes a large percentage of

minority owned businesses who are unable to secure the required

level of bonding.    Information Policy at 62, 67 (testimony of

Anthony Robinson); id. at 92 (testimony of Anthony Brown); see

also DOT’s DBE Program at 311 (testimony of Joel Szabat).

                c)   State and Local Disparity Studies

                      (1)   History of Disparity Studies in this
                            Case

     Following the Supreme Court’s decision in Croson, there have

been hundreds of disparity studies placed before Congress.    These

statistical studies have undertaken “to assess the disparity, if

any, between availability and utilization of minority owned

businesses in government contracting.”     Adarand VII, 228 F.3d at

1172 (citing Appendix – The Compelling Interest for Affirmative

Action in Federal Procurement, 61 Fed. Reg. 26,042, 26,061-62

(1996) (presenting the Urban Institute’s analysis of thirty nine

disparity studies)); see also Defs.’ Supplemental Br. on the

Effect of the 2006 Reauthorization of DoD Program at 13 n.7, Doc.

No. 230 (discussing introduction of new evidence from fifteen

state and local disparity studies); Joint Report and Notice of

Filing, Dec. 24, 2009, Doc. No. 238 (identifying approximately



                                  57
fifty additional state and local disparity studies).   Since

Croson and Adarand, courts have examined these studies and

subjected them to varying degrees of analysis.   Compare Concrete

Works IV, 321 F.3d at 962-69 (analyzing studies in minute

detail), with Adarand VII, 228 F.3d at 1172-74 and Sherbrooke,

345 F.3d at 969-71 (looking at studies’ conclusions more

generally).9

     As a threshold matter in this case, as DynaLantic points

out, although Defendants have placed significant evidence

regarding disparity studies into the record, they have not relied

heavily on those studies.   Pl.’s Mem. on Evidence Presented to

Congress After Jan. 4, 2006 at 7-8, Doc. No. 240.   Indeed, in the

last round of briefing in this case, Defendants placed

approximately 50 disparity studies into the record with little or

no analysis.   See generally Defs.’ Supplemental Br. on Evidence

Presented to Congress After Jan. 4, 2006, Doc. No. 239.

Likewise, while DynaLantic attacked a few of the older disparity

studies presented by the government in earlier briefing, it did

not attempt to do so with regard to the fifty most recent studies


     9
       As the Tenth Circuit noted, “the conclusions of virtually
all social scientific studies may be cast into question by
criticism of their choices and methodologies. The very need to
make assumptions and to select data sets and relevant variables
precludes perfection in empirical social science.” Adarand VII,
228 F.3d at 1173 n.14. Accordingly, “[a]n analysis is not devoid
of probative value simply b]ecause it may theoretically be
possible to adopt a more refined approach[.]” Contractors Ass’n
of E. Pa., 91 F.3d at 603.

                                58
before Congress.     See generally Pl.’s Mem. on Evidence Presented

to Congress After Jan. 4, 2006.

     Given the nature of the claims at issue in this case, the

Court agrees with the parties that it is unnecessary to examine

the vast amount of statistical evidence before it in the level of

detail that, for example, the Tenth Circuit examined the evidence

in Concrete Works IV.        See 321 F.3d at 960-70, 974-90.   The first

claim is DynaLantic’s facial challenge to the statute.         As set

forth above, DynaLantic cannot win on its facial challenge unless

it persuades the Court that the evidence before Congress is so

poor that “no set of circumstances exists under which the Act

would be valid.”     Salerno, 481 U.S. at 745.     The second claim is

DynaLantic’s challenge to the Section 8(a) program as applied to

the military simulation and training industry.        However, the

parties agree that Defendants have no evidence of discrimination,

either in the public or private sector, in the simulation and

training industry.     See Pl.’s Statement of Undisputed Material

Facts at ¶¶ 140-50.

                       (2)    Legal Standard for Strong Basis in
                              Evidence Under Croson

     Although this case does not require meticulous analysis of

the tens of thousands of pages of data in the record, the

principles articulated by the Supreme Court in Croson and this

Circuit in O’Donnell still apply.         In Croson, the Supreme Court

rejected a 30 percent minority set aside for city construction

                                     59
contracts in Richmond.    The city presented evidence of the small

number of minority businesses relative to the general population,

the small number of minority city contracts relative to the

number of minority businesses, and the low minority participation

in training programs and unions.          Croson, 488 U.S. 498-99.    The

Supreme Court rejected the evidence as insufficient to justify

the race-conscious measures in the ordinance because the measures

“could not in any realistic sense be tied to any injury suffered

by anyone.”     Id. at 499.

      While there is no doubt the sorry history of both private
      and public discrimination in this country has contributed to
      a lack of opportunities for black entrepreneurs, this
      observation, standing alone, cannot justify a rigid racial
      quota in the awarding of public contracts in Richmond,
      Virginia. . . . [A]n amorphous claim that there has been
      past discrimination in a particular industry cannot justify
      the use of an unyielding racial quota.

Id.   Put another way, the Court found that the low level of

minority entry into, and participation in, the construction

industry did not justify race-based remedial measures absent

evidence from which an “inference of discriminatory exclusion

could arise.”     Id. at 503, 508.

      The Croson Court then explained that the government could

meet its burden by demonstrating that there were eligible

minorities in the relevant market - in that case, the Richmond

construction industry - that were denied entry or access

notwithstanding their abilities.          Id. at 502-03 (city could

demonstrate discrimination in skilled industry such as

                                     60
construction by showing there was a pool of minorities “qualified

to undertake the particular task” of construction contracting who

were nevertheless excluded from that type of work; city could

present evidence of discriminatory exclusion from training

programs or professional associations by showing a statistical

disparity between minorities eligible for membership and actual

minority membership).

     Following Croson, this Circuit’s decision in O’Donnell

likewise instructs that data comparing raw numbers of minorities

and contract dollars is, without more, “constitutionally

meaningless.”   963 F.2d at 426.    In order to be compelling, data

must test the hypothesis that “discrimination caused the low

percentage” of minorities in the relevant market.     Id.

(“[m]inority firms may not have bid on . . . construction

contracts because they were generally small companies incapable

of taking on large projects; or they may have been fully occupied

on other projects; or the District’s contracts may not have been

as lucrative as others available in the Washington metropolitan

area; or they may not have had the expertise needed to perform

the contracts; or they may have bid but were rejected because

others came in with a lower price.”).    With these principles in

mind, the Court turns to the disparity studies.



                     (3)   The Post-2006 Disparity Studies


                                   61
     As noted above, Defendants submitted over 50 disparity

studies, encompassing evidence from 28 states and the District of

Columbia, which have been before Congress since 2006.     See

generally Joint Report and Notice of Filing, Doc. No. 238; Defs.’

Supplemental Br. on Post-2006 Evidence, at 8, Doc. No. 239.

Nearly all of the studies included the construction industry and

construction related services, and approximately seventeen of the

studies are limited to that industry.    The remaining studies

addressed a variety of industries in addition to construction:

professional services (generally including accounting, legal,

consulting, medical, and educational), architecture and

engineering, general commodities/goods, and “other services” such

as janitorial and maintenance services and security guards.

     As might be expected from such a broad variety of studies,

they varied in method, depth, breadth, and rigor.    The Court

found some of the studies without value and accordingly did not

rely upon them.   See, e.g., City of Bridgeport Disparity Study

Regarding Minority Participation in Contracting, Mason Tillman

Assocs. (Aug. 2005) (portion of study provided contains no

analysis or explanation); Race, Sex & Business Enterprise:

Evidence from the State of Illinois and the Chicago Metropolitan

Area, NERA, (June 20, 2006) (same).     One of the studies found no

discrimination.   See Consortium Disparity Update Prepared for

City of Albany, Georgia, BBC Research & Consulting (Aug. 20,


                                62
2008).    Most of the studies showed varying amounts of disparities

and discrimination among industries and different minority

groups.   Some of the studies were unable to meaningfully analyze

certain minority groups because of the small sample size of

contractors from these groups.    Many of the studies did not

distinguish between Asian Pacific Americans and Subcontinent

Asian Americans, as the Section 8(a) program does.     See 13 C.F.R.

§ 124.103(b)(1).

     The Court reviewed the studies with a focus on two

indicators which other courts have found relevant in analyzing

disparity studies.    First, the Court considered the disparity

indices calculated.    A disparity index is generally calculated by

dividing the percentage of MBE, WBE, and/or DBE firms utilized in

the contracting market by the percentage of M/W/DBE firms

available in the same market.    Normally, a disparity index of 100

demonstrates full M/W/DBE participation; the closer the index is

to zero, the greater the M/W/DBE disparity due to

underutilization.     See, e.g., Concrete Works IV, 321 F.3d at 962.

Second, the Court reviewed the method by which the studies

calculated the availability and capacity of minority firms.       Some

courts have looked closely at these factors to evaluate the

reliability of the disparity indices, reasoning that the indices

are not probative unless they are restricted to firms of

significant size and with significant government contracting


                                  63
experience.10   See, e.g., Rothe VII, 545 F.3d at 1040-46; Eng’g

Contractors Ass’n of S. Fla., Inc., 122 F.3d at 914, 917.    While

not all of the studies addressed these factors, a significant

portion did so, and most (although not all) found significant

disparities between availability and utilization of minority

contractors.    These studies demonstrate that qualified, eligible

minority-owned firms are excluded from contracting markets, and

accordingly provide powerful evidence from which an “inference of

discriminatory exclusion could arise.”    Croson, 488 U.S. at 503,

508.    The following studies, among others, used relatively narrow

measurements of availability and/or conducted relatively detailed

capacity analyses.

       A 2008 study in Alaska examined disparities in public sector

minority contracting across a wide range of industries, including

architecture and engineering, commodities, construction, design-

build, manufacturing, and professional services.    Alaska


       10
        Other studies have disputed the value of capacity
analysis, explaining that “M/WBEs may be smaller, newer, and
otherwise less competitive than non-M/WBEs because of the very
discrimination sought to be remedied by race-conscious
contracting programs. Racial and gender differences in these
‘capacity’ factors are the outcomes of discrimination and it is
therefore inappropriate as a matter of economics and statistics
to use them as control variables in a disparity study.” Race,
Sex & Business Enterprise: Evidence from Memphis, Tennessee, NERA
55 (2008). The Court agrees that discriminatory barriers to
formation and development, discussed above, would impact
capacity. However, as discussed above, Croson and O’Donnell
require the additional showing that eligible minority firms
experience disparities, notwithstanding their abilities, in order
to give rise to an inference of discrimination.

                                 64
Disadvantaged Business Enterprise Study, D. Wilson Consulting

Group, LLC at 4-6 (June 8, 2008) (hereinafter “Alaska Study”).

The study examined availability by creating a master database

from, e.g., census figures, city and state vendor data, and

member lists from minority professional associations, then

“filtered the data to extract a subset of qualified, willing and

able firms.”    Specifically, the study accounted for the firms’

reported revenue generation, the past procurement history of the

agency, and businesses licences and other specialty

qualifications.     Alaska Study, at 4-3 - 4-5.   The study also

measured firm capacity by considering the size of each firm’s

past bids, past revenue generated, and revenue generation

capacity.    Based on these factors, the study divided the firms

into two categories for purposes of measuring availability: prime

contractor availability and subcontractor availability.      Id. at

4-8.   The study found significant disparities between utilization

and availability of minority-owned DBEs, in all industries, by

the Alaska Department of Transportation and the Municipality of

Anchorage.     Id. at vi; see also, e.g., 5-73 (between 2002 and

2006, in all industry categories combined and where a disparity

index of under 80 is significant, disparity indices were as

follows -- African-American: 4.88, Native American: 28.99, Asian

American: 5.14; Hispanic American: 44.29).




                                  65
     A 2006 study of the New Jersey construction services

industry narrowly measured minority contractor availability.          The

pool of available minority contractors was comprised almost

entirely – over 97.5 percent - of contractors who had been

precertified/prequalified to perform the relevant work by the

state, had bid on the work, or had actually been awarded public

contracts in the past.     State of New Jersey Construction Services

Disparity Study 2003-2004, Mason Tillman Assoc., Ltd. at 5-6

(June 2006).    The study also controlled for capacity by

considering the size of the State’s awarded prime contracts and

the largest contracts awarded to various MBE businesses.        The

study concluded that MBEs in the state did not have the capacity

to bid on the larger contracts; accordingly, the disparity study

was restricted to an examination of contract awards of $500,000

and under.     Id. at 5-9, 5-16.   The study found significant

disparities between utilization and availability, in almost all

respects, for minority contractors contracting with State

Agencies, Authorities and Commissions, as well as State Colleges

and Universities.     See id. at 1-2 - 1-5.   The study found

significant disparities in all forms of contracting: informal

contracting, sub-contracting and prime-contracting.     Disparities

were statistically significant for African Americans, Hispanic

Americans, Asian Americans and, to a lesser extent, Native

Americans.     Id.


                                   66
     A 2008 study encompassing construction, architecture and

engineering, professional services, other services, and goods and

supplies in Dayton, Ohio narrowly measured availability for prime

contracts by including only firms that had bid on or performed

work for the city, or had registered with the city to be

considered for such work.     A Second-Generation Disparity Study

for the City of Dayton, Ohio, MGT of America, Inc. at 4-6 (Aug.

8, 2008).    The study considered both public contracting and

private sector construction contracting.11    In public

contracting, the study revealed significant disparities between

availability and utilization of all minority contractors among

all industries, with the exception of the public prime

construction contracts, in which Asian-Americans were

overutilized.    See Id. at 5-3 - 5-14.   In the private market, the

disparities were even more significant, at both the prime and

subcontracting level, for all minorities including Asian-

Americans.    Id. at 7-7.   The study observed:

     Due to exclusionary laws and years of discrimination,
     MBEs/WBEs have entered the marketplace only recently, from a
     historical perspective, when compared with nonminority
     firms. They thus tend to be smaller than more established
     and older nonminority male-owned firms, which, in turn,
     limit their capacity not only to undertake large-scale


     11
        In many of the disparity studies, even the ones that
analyzed public contracting across a wide range of industries,
private sector analysis seemed to be limited to the construction
industry. It appears that this is because significant public
data - such as building permits - is available for private sector
construction projects.

                                  67
     construction projects but also to access capital and other
     advantages in bonding and insurance.

Id. at 7-24.     The study further concluded, however, that capacity

alone did not account for the disparities between availability

and utilization, particularly in the private sector, and

concluded that the disparities were so large that they could be

credibly ascribed to discrimination.     Id.

     The Nevada study narrowly measured the availability of

minority firms in the state’s transportation construction and

engineering industries, looking only at firms which had a past

history of performing the relevant work in the public sector or

had bid on such work, were qualified to perform the tasks, and

had the capacity to perform prime contracts (or alternatively,

subcontracts).     Nevada Study, § II at 10.     The study also

specifically controlled for capacity (by looking at the size of

contracts firms had bid on and been awarded in the past) to see

if minority-owned firms had higher or lower bid capacity than

similarly situated majority contractors.       Id., App. H. at 13-16.

The study found that capacity was unlikely to be a deterrent to

obtaining work for many minority contractors, because “African

American, Asian-Pacific American, and Subcontinent Asian

Americans are more likely to have above median bid capacity than

majority-owned firms.”     Id., App. H. at 15.    Nevertheless, the

study found evidence of significant disparities for each

racial/ethnic group in the federally-funded construction and

                                  68
engineering contract awards.    Specifically, where a disparity

index under 80 is considered significant, the disparity indices

were as follows: African Americans: 32, Asian-Pacific Americans:

3, Subcontinent Asian Americans: 28, Hispanic Americans: 57,

Native Americans: 25.   In state-funded contracts, the disparity

indices were as follows: African Americans: 36; Asian Pacific

Americans: 5, Subcontinent Asian Americans: 304 (indicating

overutilization), and Hispanic Americans: 26.     Id., § IV, at 14-

15.

      The San Antonio study examined disparities in public sector

contracting in several industries: (1) construction, (2)

architecture and engineering, (3) professional services such as

financial, legal, and educational, (4) other services such as

security guards, computer technology, and janitorial/maintenance

services, and (5) goods contracts.     The study also examined

disparities in the private sector in construction.    The study

found substantial disparity for African Americans, Asian

Americans, and Native Americans in all industries for public

sector prime contracting as well as subcontracting, and

substantial disparities for Hispanic Americans in architecture

and engineering, professional services, and goods contracting.

San Antonio Study at I-ii.     Minority utilization in private

sector construction was, by a significant margin, lower still.

Utilization of minority and women-owned businesses “was low in


                                  69
absolute terms (close to 1 percent), in comparison to M/WBE

subcontractor utilization on [City] projects (about 24.5

percent)[.]”   Id. at iv.    The study considered minority owned

firms’ capacity to perform the work as a possible explanation for

the disparities, but ultimately rejected that possibility.

     Capacity alone is not a sufficient explanation for these
     differences, especially at the subcontractor level in the
     construction industry, where capacity is a lesser
     consideration and availability far exceeds the record of
     utilization, especially in the private sector. When private
     sector M/WBE utilization at the subcontractor level for
     commercial building projects is only a fraction of public
     sector M/WBE utilization, there is evidence, supported by
     anecdotal [evidence], that a number of non-M/WBE firms
     utilized for public sector construction projects employ
     M/WBE subcontractors primarily because the municipality
     encourages them to do so[.]

San Antonio Study at § 6-8.

     The Atlanta study undertook a similar analysis in the

construction and professional services industries and reached

similar conclusions.   “[M]inority firms won less than 1 percent

of private sector commercial subcontracts . . . in the Atlanta .

. . area,” a small fraction of the percentage of subcontractors

used on City projects.      Atlanta Study, at 8.   “There is evidence

that lack of business capacity and experience is not a sufficient

explanation for the low levels of utilization in the private

sector.   Low levels of utilization were found not only in

subcontracting, but also on small contracts.       Moreover, a private

sector regression analysis, after controlling for the effects of

variables related to company capacity, years in the business and

                                   70
education of the owner, determined that race and gender were

significant factors in explaining the significantly lower

earnings of minority and female firms.”     Id., at 9.

     D.     Analysis: Strong Basis in Evidence

     For the reasons discussed in Section III.B. above, the Court

concludes that the government has articulated a compelling

interest for the Section 8(a) program: “breaking down barriers to

minority business development created by discrimination and its

lingering effects,” including exclusion from contracting with the

federal government.    Defs.’ MSJ at 27, 29.     As a matter of law,

the government may implement race-conscious programs that seek

“to remedy its own discrimination or even to prevent itself from

acting as a ‘passive participant’” in private discrimination in

the relevant industries or markets.     Concrete Works IV, 321 F.3d

at 958 (quoting Croson, 488 U.S. at 492).        The Court must now

determine whether the government has demonstrated “‘a strong

basis in the evidence’ supporting its conclusion that race-based

remedial action was necessary to further that interest.”

Sherbrooke, 345 F.3d at 969 (quoting Croson, 488 U.S. at 500).

     DynaLantic has challenged the Section 8(a) program both on

its face and as applied to the military simulation and training

industry.    The Court considers each in turn.




                                  71
           1.    Facial Challenge

     The Court turns first to DynaLantic’s facial challenge.     “A

facial challenge to a legislative Act is, of course, the most

difficult challenge to mount successfully, since the challenger

must establish that no set of circumstances exists under which

the Act would be valid.”    Salerno, 481 U.S. at 745.

     The text of the Section 8(a) statute does not mandate set-

asides in all government contracting.    Rather, it provides “[i]t

shall be the duty of the [Small Business] Administration and it

is hereby empowered, whenever it determines such action is

necessary or appropriate” to enter into contracts with federal

agencies, and to arrange for performance of those contracts by

socially and economically disadvantaged businesses.     15 U.S.C. §§

637(a)(1)(A), (a)(1)(B) (emphasis added).    In order to find the

statute facially constitutional under Salerno, therefore, the

Court must determine whether Congress had a strong basis in

evidence to conclude that, under any set of circumstances, it

would be necessary and appropriate for the SBA to exercise its

power.   Put another way, in order for DynaLantic to prevail on

its facial challenge, it must show that Congress did not have a

strong basis in evidence for permitting race-conscious measures

to be used under any circumstances, in any sector or industry in

the economy.    For the reasons set forth below, the Court

concludes that DynaLantic cannot meet its “heavy burden” to


                                    72
establish that the 8(a) program is unconstitutional on its face.

Salerno, 481 U.S. at 745.

          a)   The Government’s Initial Burden

     As discussed in Section III.A supra, the Court must first

determine whether the government has met its initial burden to

present a “strong basis in evidence” sufficient to support its

compelling interest.    At that point, the burden shifts to

DynaLantic to introduce “credible, particularized evidence to

rebut the government’s initial showing of the existence of a

compelling interest.”    Adarand VII, 228 F.3d at 1175.   “The

ultimate burden remains with the [plaintiff] to demonstrate the

unconstitutionality of an affirmative action program.”     Wygant,

476 U.S. at 277-78 (plurality op.).

     Upon careful consideration of the evidence presented by the

government, the Court concludes that the government has met its

initial burden of presenting a strong basis in evidence that

remedial action was - and remains - necessary to remedy

nationwide discrimination in the construction industry, at the

very least, and likely in other industries as well.

     Before enacting Section 8(a) in 1978, Congress had before it

not only all of the evidence in the legislative history of

Section 8(a), but also all of the evidence in the legislative

history of another race-conscious measure it had enacted the

previous year, the Public Works Employment Act of 1977.    The


                                 73
evidence regarding the Public Works Act is relevant because,

“[a]fter Congress has legislated repeatedly in an area of

national concern, its Members gain experience that may reduce the

need for fresh hearings or prolonged debate when Congress again

considers action in that area.”    Fullilove v. Klutznick, 448 U.S.

448, 502 (1980) (Powell, J., concurring).   The Public Works Act

of 1977 included an MBE program which required that ten percent

of federal funding for any state or local public works project be

awarded to minority business enterprises.   Non-minority

contractors raised an equal protection challenge to the MBE

program, and the Supreme Court considered its constitutionality

in Fullilove v. Klutznick.    As the Fullilove Court explained, the

legislative history of the Public Works Act overlapped

significantly with the legislative history of Section 8(a).

Fullilove, 448 U.S. at 460.   The Supreme Court examined the

legislative history of Section 8(a) in detail, as well as similar

history concerning the construction industry.    Id. at 463-67.

The Court found:

     Congress had abundant evidence from which it could conclude
     that minority businesses have been denied effective
     participation in public contracting opportunities by
     procurement practices that perpetuated the effects of
     private discrimination. . . . Congress had before it, among
     other data, evidence of a long history of a marked disparity
     in the percentage of public contracts awarded to minority
     business enterprises. This disparity was considered to
     result not from any lack of capable and qualified minority
     businesses, but from the existence and maintenance of
     barriers to competitive access which had their roots in
     racial and ethnic discrimination and continue today, even

                                  74
     absent any intentional discrimination or other unlawful
     conduct. Although much of this history related to the
     experience of minority businesses in the areas of federal
     procurement, there was direct evidence before the Congress
     that this pattern of disadvantage and discrimination existed
     with respect to state and local construction contracting as
     well. In relation to the MBE provision, Congress acted
     within its competence to determine that the problem was
     national in scope.

Fullilove, 448 U.S. at 477-78.12

     More recently, in 2005, the Ninth Circuit reviewed the

legislative history of the Transportation Equity Act for the 21st

Century (“TEA-21”), which was enacted in 1998.   W. States, 407

F.3d at 991-93.   The Western States court listed evidence before

Congress in 1998 which was extremely similar, in kind, to the

evidence before Congress when Section 8(a) was enacted in 1978.

Specifically, the court considered statistical and anecdotal

disparities between (1) minority population and minority business

ownership in the United States; (2) majority and minority

business receipts nationwide; and (3) minority business share and

minority percentage of federal contracting dollars throughout the


     12
        Fullilove did not fully articulate the standard of review
it had used, leaving some uncertainty as to whether strict or
intermediate scrutiny applied to remedial race-conscious
legislation. In Adarand III, the Supreme Court announced the
strict scrutiny standard of review, casting doubt on the analysis
and result in Fullilove to the extent that it rested on
intermediate scrutiny. Fullilove’s factual findings regarding
discrimination in minority contracting, however, have not been
disturbed. See Adarand VII, 228 F.3d at 1175, n.17; see also
Croson, 488 U.S. at 488 (focusing on Fullilove’s factual
findings); Rothe III, 262 F.3d at 1321 n.14 (Congress’s fact
finding process is generally entitled to a presumption of
regularity and deferential review).

                                   75
economy.   Id. at 992.   The Western States court also considered

nationwide barriers to minority entry and minority business

development, such as lending discrimination and discrimination by

prime contractors, customers, and suppliers.     Id.   The court

found that this evidence, “considered at the time of TEA-21’s

enactment,” was sufficient to show that “Congress had a strong

basis in evidence” for enacting the nationwide race-conscious

provisions of the statute.    Id. 993.

     As discussed above, Congress examined extensive evidence

before enacting Section 8(a) through hearings, reports, raw data,

statistical studies, and witness testimony.    The evidence before

Congress includes extensive statistical analysis, qualitative and

quantitative consideration of the unique challenges facing

minority small businesses (as distinguished from the challenges

facing all small businesses), and examination of the race-neutral

measures that had been enacted by previous Congresses but had

failed to reach minority owned firms.    This evidence was

described in Fullilove as an “abundant” basis on which to find

discriminatory barriers to market entry and fair competition

existed, and, moreover, impacted federal contracting in the

construction industry and beyond.     It is also very similar in

kind to the evidence presented in Western States, which the Ninth

Circuit found to be a “strong basis in evidence” sufficient to

establish a compelling interest in nationwide race-conscious


                                 76
legislation.    The Court finds that the evidence before Congress

when it enacted Section 8(a) satisfies the government’s initial

burden to demonstrate a compelling interest.    Specifically, the

Court finds that Congress had a strong basis in evidence to

conclude that action was necessary to remediate discrimination

against minority business enterprises when it enacted Section

8(a).   The Court therefore turns to the evidence before Congress

since that time to determine whether the government has met its

burden to show a continuing compelling need for the program.

        Based on the record in this case, the Court concludes that

Congress has “spent decades compiling evidence of race

discrimination” in a variety of industries, including but not

limited to construction.     Sherbrooke, 345 F.3d at 970.   The

record contains extensive statistical and anecdotal evidence of

specific discriminatory barriers to market entry and fair

competition, evidence that discrimination and its lingering

effects (1) raised barriers to minority business formation and

development that precluded minority-owned businesses at the

outset from competing for government contracts, and (2) impeded

existing minority-owned businesses’ ability to obtain government

contracts.     Additionally, the record contains substantial

quantitative evidence of broad gaps between minority and non-

minority contract awards in both public and private sector

contracting.    These studies reveal wide disparities, around the


                                  77
country, in the construction industry and others, even when

controlling for other factors such as capacity and eligibility.13

Croson and Adarand III hold that significant disparities between

the availability and utilization of eligible, qualified minority

businesses is sufficient for “an inference of discriminatory

exclusion” to arise, which provides the necessary basis for the

government to use race-conscious measures in response.        Croson,

488 U.S. at 509.       The government has presented this evidence

here.        While the government’s evidence is most copious in the

construction industry, it has also produced significant evidence

in professional services, architecture and engineering, and other

industries.       The government has therefore established that there

are at least some circumstances where it would be “necessary or

appropriate” for the SBA to award contracts to businesses under

the Section 8(a) program.       15 U.S.C. § 637(a)(1); see also

Salerno, 481 U.S. at 745.        Accordingly, the Court concludes that,



        13
        The Court finds that the evidence from around the country
is sufficient for Congress to authorize a nationwide remedy.
Defendants point out, and DynaLantic does not dispute, that “in
contrast to race-conscious municipal programs, ‘[t]he geographic
scope of Congress’s reach . . . is ‘society-wide’ and therefore
nationwide.’” Defs.’ MSJ at 12 (quoting Adarand VII, 228 F.3d at
1147). “Congress [has] a ‘broader brush’ than municipalities for
remedying discrimination. . . . [W]e do not think that Congress
needs to have evidence before it of discrimination in all fifty
states in order to justify [a nationwide program]. . . .
Contrarily, evidence of a few isolated instances of
discrimination would be insufficient to uphold the nationwide
program.” Rothe III, 262 F.3d at 1329-30.


                                     78
in response to Plaintiff’s facial challenge, the government has

met its initial burden to present “a ‘strong basis in evidence’

sufficient to support its articulated, constitutionally valid,

compelling interest.”    Adarand VII, 228 F.3d 1174-75.

                 b)   Plaintiff’s Rebuttal

     Because Defendants have made their initial showing of a

compelling interest, the burden shifts to the Plaintiff to show

why the evidence relied on by Defendants fails to demonstrate a

compelling governmental interest.     See Concrete Works IV, 321

F.3d at 959.   In order to prevail on its facial challenge,

Plaintiff must show that Congress does not have a strong basis in

evidence to conclude that the SBA would find it “necessary or

appropriate” to award Section 8(a) contracts under any

circumstances.   DynaLantic attempts to rebut Defendants’ showing

of a compelling interest in a number of ways.    Broadly speaking,

these challenges are that (1) the legislative history is

insufficient, (2) there is no evidence of discrimination by the

federal government, therefore the Section 8(a) program improperly

attempts to remedy societal discrimination, (3) the evidence is

flawed, (4) evidence of fraud in race-conscious programs renders

the challenged programs invalid, and (5) there is insufficient

evidence of discrimination as to each minority group.




                                 79
                       (1)   Sufficiency of Legislative History

        First, DynaLantic argues that the legislative history of the

Section 8(a) program does not support a finding of a compelling

interest.    DynaLantic claims “there was little serious debate

surrounding the use of set-asides,” and the evidence Congress

considered was inadequate as a matter of fact to support a

compelling interest under Croson and Adarand.       Pl.’s Opp’n to

Defs.’ MSJ at 38.

        The Court disagrees that Congress had insufficient evidence

to adopt Section 8(a) in 1978.     As set forth above, when Congress

considered Section 8(a) it had before it not only the legislative

history of that statute, but also the legislative history of the

MBE set-aside provision in the Public Works Employment Act of

1977.     Fullilove, 448 U.S. at 502 (“After Congress has legislated

repeatedly in an area of national concern, its Members gain

experience that may reduce the need for fresh hearings or

prolonged debate when Congress again considers action in that

area.”) (Powell, J., concurring).       As explained above, the

Supreme Court considered the legislative history of Section 8(a)

and the Public Works Employment Act, and found it contained

“abundant evidence” to justify remedial race-conscious measures

in the construction industry and indeed in federal contracting as

a whole.     Fullilove, 502 U.S. at 477-78.    Significantly,

Plaintiff acknowledges the additional legislative history in


                                   80
Fullilove, but argues that case should be “limited to its facts,”

i.e., the construction industry.      Pl.’s Opp’n to Defs.’ MSJ at

41-42.   However, in order to succeed on its facial challenge,

DynaLantic must prove there is no set of circumstances under

which Section 8(a) would be constitutional.        Therefore, the facts

in the legislative history at issue in Fullilove are precisely

what is relevant in the instant case.     Based on the evidence

before Congress with respect to both the Public Works Employment

Act of 1977, and, a year later, the heavily overlapping

legislative history of Section 8(a), the Court concludes that

Congress had a strong basis in evidence to conclude the use of

race-conscious measures was necessary in, at least, some

circumstances.

     The Court also rejects Plaintiff’s argument that the type of

legislative history compiled by Congress when it enacted Section

8(a) is legally insufficient in a post-Croson, post-Adarand

world.   Pl.’s MSJ at 40.   As discussed above, in a 2005 case, the

Ninth Circuit catalogued the legislative history of TEA-21, which

appears very similar to the legislative history of Section 8(a)

in terms of the type of evidence produced.         See W. States, 407

F.3d at 991-93.   Western States considered the legislative

history in light of Croson and Adarand III and found it

constituted a strong basis in evidence.      Id.




                                 81
                     (2)   Evidence of Government Discrimination

     Second, DynaLantic argues in rebuttal that the record

contains no evidence of discrimination by the federal government,

and therefore the Section 8(a) program improperly attempts to

remedy societal discrimination.    Plaintiff claims that there is

no allegation that the government discriminated with regard to

any barriers to minority business formation or development such

as bonding or lending discrimination.    Pl.’s Opp’n to Defs.’ MSJ

at 42-49.   Plaintiff further maintains that Defendants have not

identified any nexus between the federal government and race

discrimination in contracting itself.    According to DynaLantic,

to show a compelling interest, the government must provide

evidence of direct race discrimination in contracting by federal,

state or local governments, or at the very least, evidence that

private industries directly used federal funds to discriminate.

See, e.g., Pl.’s Reply in Supp. of its MSJ at 11-14.    Plaintiff

acknowledges that the government’s theory for implementing race-

conscious measures is based on its passive participation in

discrimination in the private sector.    However, Plaintiff claims

that without evidence of government discrimination, or at least

evidence that the government has intentionally collaborated with

private entities which it knows engaged in discrimination, it

cannot show passive participation.     Id.




                                  82
     DynaLantic’s definition of passive participation is wrong as

a matter of law.   While the Supreme Court did, at one time,

appear to condition race-conscious measures upon a showing of

prior discrimination by the government itself, see Wygant, 476

U.S. at 274, that requirement was rejected in Croson.    The

Supreme Court explained that a governmental entity:

     [H]as legislative authority over its procurement policies,
     and can use its spending powers to remedy private
     discrimination . . . . Thus, if the City could show that it
     has essentially become a “passive participant” in a system
     of racial exclusion practiced by elements of the local
     construction industry, we think it clear that the city could
     take affirmative steps to dismantle such a system. It is
     beyond dispute that any public entity, state or federal, has
     a compelling interest in assuring that public dollars, drawn
     from the tax contributions of all citizens, do not serve to
     finance the evil of private prejudice.

488 U.S. at 492.   This Circuit has adopted the same test.     See

O’Donnell, 963 F.2d at 425 (governmental entities “may take

remedial action when they possess evidence [that] their own

spending practices are exacerbating a pattern of prior

discrimination, . . . public or private” (quoting Croson, 488

U.S. at 504))(emphasis added).

     Subsequent to Croson, the Tenth Circuit, after considering

extensive evidence of private discrimination, held that those

materials were not merely evidence of generalized societal

discrimination, but instead constituted evidence of specific

discriminatory barriers to market entry and fair competition

facing potential and actual minority entrepreneurs.     Adarand VII,


                                 83
228 F.3d at 1167-75.   The court then concluded that such evidence

establishes a “strong link” between the government’s disbursement

of funds for public contracts and the channeling of those funds

due to private discrimination.   See id. at 1167-68 (explaining

that barriers to formation preclude “from the outset” competition

for public contracts by minority enterprises, explaining further

that barriers to development preclude “existing minority firms

from effectively competing” for public contracts); accord

Sherbrooke, 345 F.3d at 970; Concrete Works IV, 321 F.3d at

977.14

     This Court agrees with Croson and its progeny that the

government may properly be deemed a “passive participant” when it

fails to adjust its procurement practices to account for the

effects of identified private discrimination on the availability

and utilization of minority-owned businesses in government

contracting.   See Adarand VII, 228 F.3d at 1165 (“[W]e readily

conclude that the federal government has a compelling interest in

not perpetuating the effects of racial discrimination in its own

distribution of federal funds and in remediating the effects of



     14
        So far as this Court is aware, the Seventh Circuit is the
only circuit to adopt a more rigid standard. See Builders Ass’n
v. County of Cook, 256 F.3d 642, 645 (7th Cir. 2001) (indicating
that the concept of “passive participation” should be limited to
situations where a government unit might be deemed “a kind of
joint tortfeasor, coconspirator, or aider and abettor”). This
standard has not been adopted by either this Circuit or the
Supreme Court.

                                 84
past discrimination in the government contracting markets created

by its disbursements.”); Sherbrooke, 345 F.3d at 969.     Moreover,

as discussed above, the Court concludes that Congress did

identify discriminatory disparities in government contracting.

Specifically, the government compiled substantial evidence of

identified private racial discrimination which affected minority

utilization in specific industries of government contracting,

both before and after the enactment of the Section 8(a) program.

Accordingly, DynaLantic’s argument fails.

                    (3)   Flaws in the Evidence

     DynaLantic raises several related arguments with respect to

the quality of the evidence before Congress.    First, Plaintiff

complains that Defendants have not conducted an independent

investigation into the truthfulness or accuracy of the documents

identified as providing their strong basis in evidence.    Second,

Plaintiff points out that all of the evidence does not

necessarily support findings of discrimination.    Finally,

Plaintiff alleges the disparity studies are flawed.    Upon

consideration, the Court finds that any flaws DynaLantic has

identified in the data do not rise to the level of “credible,

particularized evidence” necessary “to rebut the government’s

initial showing of a compelling interest.”     Adarand VII, 228 F.3d

at 1175.




                               85
     The proponent of a race-conscious remedial program is “not

required to unequivocally establish the existence of

discrimination[,] nor [is] it required to negate all evidence of

non-discrimination.”    Concrete Works IV, 321 F.3d at 991

(internal quotation marks omitted).   Rather, a “strong basis in

evidence” exists when there is evidence “‘approaching a prima

facie case of a constitutional or statutory violation,’ not

irrefutable or definitive proof of discrimination.”     Id. at 971

(quoting Croson, 488 U.S. at 500); see also O’Donnell, 963 F.2d

at 424 (race-conscious “legislation must rest on evidence at

least approaching a prima facie case of racial discrimination in

the relevant industry”).   Accordingly, DynaLantic’s claim that

the government must independently verify the evidence presented

to it is unavailing.    Likewise, the government may act to remedy

discrimination when there is a “strong basis” in evidence from

which an inference of discrimination could arise.     Croson, 488

U.S. at 510.   The complete absence of evidence suggesting a

contrary result is not required.

     Plaintiff also argues that the disparity studies before the

Court are inadequate.   In earlier briefing before the Court,

DynaLantic examined several of the studies relied upon by

Defendants.    Plaintiff did not, however, undertake this task in

the parties’ most recent submissions to the Court.    In 2009,

Defendants placed into the record approximately 50 disparity


                                 86
studies which had been introduced or discussed in Congressional

hearings since 2006.    DynaLantic did not rebut or even discuss

any of those studies individually.    See generally Pl.’s Mem. on

Evidence Presented to Congress After Jan. 4, 2006; Pl.’s Reply

Br. on Evidence Presented to Congress After Jan. 4, 2006.

Rather, DynaLantic asserted generally that the studies did not

control for the capacity of the firms at issue, and were

therefore unreliable.    See Pl.’s Mem. on Evidence Presented to

Congress After Jan. 4, 2006 at 3-7.15

     As set forth in Section III.C.2.c above, DynaLantic’s

arguments are incorrect as a matter of fact.   While not all of

the disparity studies accounted for the capacity of the firms,

many of them did control for capacity and still found significant

disparities between minority and non-minority owned firms.

DynaLantic disputes the methodology of Jon Wainwright, a social

scientist identified by Defendants, who authored some of the

studies submitted to Congress.   Dr. Wainwright argues that

capacity measurements are unreliable because “most, if not all,

identifiable indicators of capacity are themselves impacted by


     15
        DynaLantic also asserted that the studies are
“irrelevant” because they “are not nationwide in scope[.]” Id. at
9. However, as discussed above in Section III.D.1.a, Congress
need not have evidence of discrimination in all 50 states to
demonstrate a compelling interest. Rothe III, 262 F.3d at 1329.
In this case, Defendants have presented recent evidence of
discrimination in a significant number of states and localities
which, taken together, represent a broad cross-section of the
nation.

                                 87
discrimination.”   Defs.’ Supplemental Br. on Evidence Presented

to Congress After Jan. 4, 2006 at 10; see also Pl.’s Mem. on

Evidence Presented to Congress After Jan. 4, 2006 at 5-7.

However, while Plaintiff disputes the validity of Dr.

Wainwright’s methods, it does not discuss his more recent

studies, nor does it demonstrate the disparities shown in those

studies are eliminated when there is a control for firm capacity.

See Concrete Works IV, 321 F.3d at 983 (finding criticism of

Denver’s disparity studies insufficient for same reason).   In

short, DynaLantic’s “general criticism” of the multitude of

disparity studies introduced by the Defendants after 2006 does

not constitute “particular evidence undermining the reliability

of the particular disparity studies” and, therefore, “is of

little persuasive value.”   Adarand III, 228 F.3d at 1173 n.14;

see also Sherbrooke, 345 F.3d at 970 (“In rebuttal, [plaintiffs]

presented evidence that the data was susceptible to multiple

interpretations, but they failed to present affirmative evidence

that no remedial action was necessary because minority-owned

small businesses enjoy non-discriminatory access to and

participation in highway contracts.   Thus, they failed to meet

their ultimate burden to prove that the DBE program is

unconstitutional on this ground.”).




                                88
                    (4)    Fraud in the Administration of Race-
                           Conscious Programs

     Plaintiff claims that Defendants’ evidence is flawed and

unreliable because, Plaintiff alleges, fraud pervades

race-conscious programs.   Regardless of the program at issue,

Plaintiff argues, “[a]ll major set-aside efforts have been

tainted significantly by fraud.”      Pl.’s Opp’n to Defs.’ MSJ at 25

(internal citation omitted).   Plaintiff asserts that the

existence of fraud demonstrates that the data Defendants cite to

defend their use of race is fatally flawed, cannot be used to

establish any discrimination, and undermines their evidence of

the alleged compelling interest.      Id. at 24-32.    Defendants, for

their part, argue that while the Section 8(a) program may have

had problems with fraud in the past, those problems have been

largely corrected since the late 1990s.      See Defs.’ Reply in

Supp. of its MSJ at 15-17.   More fundamentally, Defendants argue

that a prior misapplication of the program is not grounds for

declaring the program unconstitutional.     If Plaintiff has any

evidence that undeserving individuals are improperly benefitting

from the Section 8(a) program today, its recourse is to bring

those facts to the attention of the appropriate government

officials so that corrective action can be taken.        See 13 C.F.R.

§ 124.103(b)(3).

     Defendants have the better argument here.        Although the

history of abuse of federal programs is alarming, DynaLantic has

                                 89
cited no authority in support of its claim that such abuse is

sufficient to invalidate a statute on its face.   Moreover, the

vast majority of evidence relied upon by Defendants to show a

compelling interest is not based on data from Section 8(a)

program participants.   The statistical and anecdotal evidence

regarding discriminatory barriers to minority business formation

and development, and the resulting disparities in government

contracting, is largely drawn from state and local governments

and from the private sector.   The identity of Section 8(a)

participants, and their status as bona fide socially and

economically disadvantaged individuals – or not - does not

undermine the reliability of those studies.

                    (5)   Evidence of Discrimination Against Each
                          Minority Group

     DynaLantic argues that the government did not have a

compelling interest to find that “each of the preferred groups”

had suffered discrimination and therefore should be included in

the rebuttable presumption of social disadvantage.   Pl.’s MSJ at

44-46; see also Pl.’s Reply at 20.16   DynaLantic maintains that

the government must show it had evidence of discrimination

against not only all of the five broad groups racial groups



     16
        As discussed below in Section III.E, DynaLantic raises a
similar claim in arguing that the 8(a) program is not narrowly
tailored; specifically, it claims the program is overinclusive
because it includes groups which have not suffered
discrimination.

                                90
identified in the statute and accompanying regulation, but the

thirty-seven racial subgroups as well.     Pl.’s MSJ at 48-50; see

also 15 U.S.C. § 631(f)(1); 13 C.F.R. § 124.103.      Defendants

respond that Congress need not reach this level of specificity;

evidence of racial discrimination among the five broad groups is

sufficient.   Defs.’ Opp’n at 27-29.    The Court agrees with

Defendants, as well as at least two circuits which have

considered the identical issue, that Congress has a strong basis

in evidence if it finds “evidence of discrimination is

sufficiently pervasive across racial lines to justify granting a

preference to all five purportedly disadvantaged groups included”

in Section 8(a).   Rothe III, 262 F.3d at 1330; see also Adarand

VII, 228 F.3d at 1176 n.18; see also id. at 1185-86 (“‘Race’ is

often a classification of dubious validity - scientifically,

legally, and morally.   We do not impart excess legitimacy to

racial classifications by taking note of the harsh fact that

racial discrimination commonly occurs along the lines of the

broad categories identified: Black Americans, Hispanic Americans,

Native Americans, Asian Pacific Americans and other minorities.”

(internal quotations omitted)).        Based on the evidence

discussed at length above, the Court finds that Congress had

strong evidence “that the discrimination is sufficiently

pervasive across racial lines to justify granting a preference to

all five” groups included in Section 8(a).      Rothe III, 262 F.3d


                                  91
at 1329.    Specifically, the Court concludes that the record

reveals specific, persuasive evidence from which a reasonable

inference of discrimination could be made against each of the

minority groups at issue.   Equally persuasive to the Court, the

evidence reveals that across the nation, public and private

contracting markets are “overwhelmingly composed of non-

minorities due to the effects of racial discrimination.”      Adarand

VII, 228 F.3d at 1176 n. 18.    In light of the evidence of

“pervasive discrimination across racial lines,” the fact that

specific evidence varies, to some extent, within and between

minority groups, is not a basis to declare the statute facially

invalid.    Id.; see also Concrete Works IV, 321 F.3d at 971.   This

case is therefore distinguishable from Croson, where the

legislation at issue contained “random inclusion of racial

groups” for whom there was no evidence of residency in the

jurisdiction, let alone of discrimination in the relevant

industry.   488 U.S. at 506.

                 c)   Facial Challenge: Conclusion

     For the foregoing reasons, the Court concludes that Congress

has a compelling interest in eliminating the roots of racial

discrimination in federal contracting, funded by federal money.

The Court further concludes that the government has established a

strong basis in evidence to support its conclusion that remedial

action was necessary to remedy that discrimination by providing


                                 92
significant evidence in three different areas.     First, it

provided extensive evidence of discriminatory barriers to

minority business formation, which stifles, from the outset,

minority competition for federal contracts.     Second, it provided

forceful evidence of discriminatory barriers to minority business

development, which also impairs minority competition for federal

contracts.   Third, it provided significant evidence that, even

when minority businesses are qualified and eligible to perform

contracts in both the public and private sectors, they are

awarded these contracts far less often than their similarly

situated non-minority counterparts.     The evidence considered by

this Court is particularly strong, nationwide, in the

construction industry; however, the government has provided

substantial evidence of widespread disparities in other

industries such as architecture and engineering, and professional

services as well.

     In order to rebut the government’s showing, DynaLantic had

to present credible, particularized evidence that undermined the

government’s compelling interest and demonstrated that the

government’s evidence “did not support an inference of prior

discrimination and thus a remedial purpose.”      Wygant, 476 U.S. at

293 (O’Connor, J., concurring).    It failed to do so.

     As discussed throughout, Section 8(a) does not mandate race-

conscious set-asides at any time.      Rather, the statute instructs


                                  93
the SBA to enter into contracts with socially and economically

disadvantaged business only when the SBA finds it “necessary or

appropriate.”   15 U.S.C. § 637(a)(1).   To prevail on its facial

challenge, Plaintiff had to show that Congress lacked a strong

basis in evidence to conclude that there is any set of

circumstances in which it would be necessary or appropriate for

the SBA to enter into such contracts.    DynaLantic did not meet

its burden under either strict scrutiny or under Salerno.

Accordingly, DynaLantic’s facial challenge to Section 8(a) fails.

          2.    As-Applied Challenge

     As set forth above, Section 8(a) provides Congressional

authorization for the SBA to enter into procurement contracts

using race-conscious measures when “it determines such action is

necessary or appropriate.”   15 U.S.C. § 637(a)(1).   In addition

to its facial challenge, DynaLantic challenges SBA and DOD’s use

of the Section 8(a) program as applied: namely, the agencies’

determination that it is necessary or appropriate to set aside

contracts in the military simulation and training industry.     See

Second Am. Compl. ¶¶ 13-16, 25, Prayer for Relief.

     As noted above, Defendants concede that they do not have

evidence of discrimination in this industry.   Indeed,

DynaLantic’s statement of undisputed facts contains the following

statements, which Defendants have admitted:




                                94
     140. There is no Congressional report, hearing or finding
          that references, discusses or mentions the simulation
          and training industry.

     141. Defendants are unaware of any discrimination in the
          simulation and training industry.

     142. None of the documents that Defendants have cited as
          justification for the race-conscious mechanisms in the
          Section 8(a) . . . Program[] . . . mentions or
          identifies instances of past or present discrimination
          in the simulation and training industry[.]

     [. . .]

     144. DoD is unaware of any disparity study, by anyone, with
          regard to the simulation and training industry.

Pl.’s Statement of Undisputed Material Facts ¶¶ 140-44 (internal

citations omitted); see also Defs.’ Resp. to Pl.’s Statement of

Undisputed Material Facts at 17.       Defendants do not view this

lack of evidence as a problem.    Instead, they maintain that as a

matter of law, the government need not tie evidence of

discriminatory barriers to minority business formation and

development to evidence of discrimination in any particular

industry.     See, e.g., Defs.’ Opp’n at 4, 17-19.    Defendants argue

as follows:

     [T]he Section 8(a) program makes no claim to be directed at
     discrimination within a single industry or location, nor
     does it seek to achieve a pre-determined level of minority
     representation in any particular industry category.
     Instead, the Section 8(a) program takes aim at problems that
     cut across industries – i.e., discrimination that inhibits
     the development of certain minority-owned businesses and
     frustrates their ability to participate on an equal
     opportunity basis in contracting with the federal
     government. Whatever sorts of findings might be needed at
     the industry level to uphold a Congressional measure
     designed to attain a certain level of minority-owned

                                  95
     business participation in one industry, the Constitution
     does not require findings of that sort to find a compelling
     governmental interest for the Section 8(a) Program.

Defs.’ Opp’n at 18.   Upon careful consideration, the Court

concludes that Defendants’ position is irreconcilable with

binding authority upon this Court, specifically, the Supreme

Court’s decision in Croson, as well as this Circuit’s decision in

O’Donnell Construction Company, which adopted Croson’s reasoning.

As discussed in Section III.C.2.c above, Croson made clear that

the government must provide evidence demonstrating there were

eligible minorities in the relevant market - in that case, the

Richmond construction industry - that were denied entry or access

notwithstanding their eligibility.   See 488 U.S. at 502; see also

O’Donnell, 963 F.2d at 427.   Croson and O’Donnell held that

absent such evidence, the government is left with unexplained

disparities, which are insufficient to create an “inference of

discriminatory exclusion,” and therefore insufficient to

demonstrate a compelling interest.   Croson, 488 U.S. at 498-508;

see also O’Donnell, 950 F.2d at 424-27.

     The government attempts to distinguish Croson on a number of

grounds, none of which is persuasive.   First, the government

points to the existence of a “rigid quota” in Richmond as opposed

to Section 8(a)’s “reasonable aspirational goal.”   Defs.’ Opp’n

at 14.   Defendants fail to recognize, however, that the Supreme

Court explicitly adopted the Croson standards in Adarand III, a


                                96
case involving race-based “goals” as opposed to “quotas.”     515

U.S. at 205, 223-27.   Second, Defendants claim Croson is

inapplicable because the Richmond ordinance mandated “reflexive

or stereotypical reliance on race” alone, while the Section 8(a)

program requires individual consideration of economic

disadvantage in addition to race.    Defs.’ Opp’n at 13-14.   Again,

Defendants do not acknowledge that, at least so far as this Court

is aware, every court to consider the issue has applied Croson’s

reasoning to programs which, like the 8(a) program, require both

social and economic disadvantage to qualify.    See, e.g., Adarand

VII, 228 F.3d at 1163-66; Sherbrooke, 345 F.3d at 969; Western

States, 407 F.3d at 991-93; N. Contracting, Inc. v. Illinois,

Case No. 00-C-4515, 2004 U.S. Dist. LEXIS 3226, *89-101 (N.D.

Ill. Mar. 3, 2004).

     Finally, the government attempts to distinguish Croson by

claiming that its purpose in the Section 8(a) program is

different.   Specifically, the government argues that its interest

is “not to channel disadvantaged businesses into particular

industries at particular locations, but instead to enable

disadvantaged individuals to overcome racial discrimination in

business development and equal opportunity in whatever industry

they choose to enter.”   Defs.’ Opp’n at 19.   This is not,

however, a difference in the fundamental nature of the 8(a)

program; it is a difference in the scope of the 8(a) program.


                                97
Essentially, the government maintains that discrimination in

business formation and growth exist throughout the economy.     The

government may well be correct.    However, absent an evidentiary

showing that, in a highly skilled industry such as the military

simulation and training industry, there are eligible minorities

who are “qualified to undertake [] particular task[s]” and are

nevertheless denied the opportunity to thrive there, the

government cannot comply with Croson’s evidentiary requirement to

show an inference of discrimination.    See Croson, 488 U.S. at

501.   As this Circuit has held, the government “cannot simply

rely on broad expressions of purpose or general allegations of

historical or societal racism.    Rather, its legislation must rest

on evidence at least approaching a prima facie case of

discrimination in the relevant industr[ies].”    O’Donnell, 963

F.2d at 424.   Excusing the federal government from this

requirement would permit the federal government to implement

race-conscious preferences using a different standard of proof

than state and local governments, a result which has been

squarely rejected by the Supreme Court in Adarand III.     515 U.S.

at 224, 226-27.

       The government states that it does not have to make an

industry-based showing in order to show strong evidence of

discrimination.   However, Defendants have not explained how else

they would meet Croson’s requirement to show that minority


                                  98
businesses are ready, able and willing to perform in the relevant

marketplace, however that is defined.17    Of utmost importance,

the government has not identified legal authority to support its

theory.   To the contrary, as another judge on this court has

observed, the same Department of Justice that represents

Defendants has recognized that the federal government must take

an industry-based approach to demonstrating compelling interest.

In Cortez III Service Corp. v. National Aeronautics & Space

Administration, the Honorable Stanley Sporkin found the Section

8(a) program constitutional on its face because there was

evidence before Congress of racial discrimination impacting

government contracting and “there is a compelling government

interest in combating such discrimination where it exists.”     950

F. Supp. 357, 361 (D.D.C. 1996).     However, he found the program

unconstitutional as applied to the NASA contract at issue because

the government had provided no evidence of discrimination in the

industry in which the NASA contract would be performed.     Judge

Sporkin held:


     17
        The Court recognizes that the pieces of legislation
considered in Croson, Adarand III, and O’Donnell were all
explicitly restricted to one industry. This case presents a
different factual scenario, because Section 8(a) is not industry-
specific. However, the government has not proposed an
alternative framework to Croson within which the Court can
analyze the evidence. In fact, a significant portion of the
evidence the government presents in this case is industry
specific. See supra Section III.C.2.c. This Court therefore is
constrained to follow the binding precedent of Croson, Adarand
III, and O’Donnell.

                                99
     The fact that Section 8(a) is constitutional on its face,
     however, does not give the SBA, NASA, or any other
     government agency carte blanche to apply it without
     reference to the limits of strict scrutiny. Rather,
     agencies have a responsibility to decide if there has been a
     history of discrimination in the particular industry at
     issue. . . . [I]t is not inconsistent with Congress’s
     mandate to the SBA, to require the SBA to ensure that in
     each context where an 8(a) set-aside is proposed, such a
     set-aside is actually required.

Id. at 361.   Judge Sporkin noted that the Department of Justice

had advised federal agencies to make industry-specific

determinations before offering set-aside contracts and

specifically cautioned them that without such particularized

evidence, set-aside programs may not survive Croson and Adarand.

Id. at 361-62 (citing Proposed Reforms to Affirmative Action in

Federal Procurement, 61 Fed. Reg. 26042 (1996); Walter Dellinger,

Office of Legal Counsel, U.S. Department of Justice, Memorandum

to General Counsels (June 28, 1995) (hereinafter, “DOJ

Memorandum”).18   The government has not meaningfully

distinguished Cortez III from this case.

     A reviewing court need not take a party’s definition of

“industry” at face value, and may determine the appropriate


     18
        Specifically, DoJ advised that to survive Adarand III,
evidence supporting the use of set asides needed to be grounded
in “statistics” that are “sophisticated and focused.” DOJ
Memorandum, App. A (“a statistical underrepresentation of
minorities in a sector or industry . . . without more, [is] an
impermissible bas[i]s for affirmative action.”) It advised
agencies to seek evidence that “attempt[s] to identify the number
of qualified minorities in the sector or industry or seek[s] to
explain what that number would look like ‘but for’ the
exclusionary effects of discrimination.” Id.

                                100
industry to consider is broader or narrower than that proposed by

the parties.   See Rothe III, 262 F.3d at 1330 (district court may

define the relevant industry more broadly as “business services”

instead of the narrower “computer maintenance and repair services

in the defense industry,” as urged by plaintiff).    However, in

this case, the government did not argue with Plaintiff’s industry

definition - military simulation and training - and did not

propose another.   More significantly, it provided no evidence

whatsoever from which an inference of discrimination in that

industry could be made.

     “Without question, there is a compelling government interest

in combating [] discrimination where it exists.”     Cortez III, 950

F. Supp. at 361.   On this record, however, the Court is unable to

conclude that Defendants have produced evidence of discrimination

in the military simulation and training industry.    Accordingly,

because the government has not met its burden to show a

compelling interest in remedying discrimination in the military

simulation and training industry, DynaLantic prevails on its as-

applied challenge.

     Having concluded that DynaLantic prevails on its as-applied

challenge, the Court need not consider whether the Section 8(a)

program is narrowly tailored, as applied to the military

simulation and training industry.     However, having concluded

above that Section 8(a) has a strong basis in evidence to further


                                101
its compelling interest on its face, the Court must still

determine whether it is narrowly tailored to survive a facial

challenge.

     E.      Narrow Tailoring

     In addition to showing strong evidence that a race-conscious

program serves a compelling interest, the government must show

that “the means chosen to accomplish the government’s asserted

purpose [are] specifically and narrowly framed to accomplish that

purpose.”     Grutter v. Bollinger, 539 U.S. 306, 333 (2003)

(citations omitted).    “An affirmative action plan is narrowly

tailored if, as a practical matter it discriminates against

whites as little as possible consistent with effective

remediation.”     Majeske v. City of Chicago, 218 F.3d 816, 820 (7th

Cir. 2000) (citation omitted).     The Court considers several

factors in this analysis: (1) the efficacy of alternative, race-

neutral remedies, (2) flexibility, (3) over- or under-

inclusiveness of the program, (4) duration, (5) the relationship

between numerical goals and the relevant labor market, and (6)

the impact of the remedy on third parties.     United States v.

Paradise, 480 U.S. 149, 171, 187 (1987) (plurality and concurring

opinions); see also Croson, 488 U.S. at 508 (plurality opinion).

DynaLantic’s facial challenge to the Section 8(a) program

requires the Court to look carefully at the regulations “to

determine whether they may be constitutionally applied under any


                                  102
set of factual circumstances.”      Sherbrooke, 345 F.3d at 971

(citing Salerno, 481 U.S. at 746); accord N. Contracting, Inc. v.

Illinois, 2004 U.S. Dist. LEXIS 3226, *123.

          1.   Race-Neutral Means

     After a compelling interest has been identified and properly

documented, and before the government undertakes race-conscious

efforts, it first must consider the use of race-neutral means.

See Adarand III, 515 U.S. at 237-38 (remanding action to

determine “whether there was ‘any consideration of the use of

race-neutral means to increase minority business participation’

in government contracting” (quoting Croson, 488 U.S. at 507)).

“Narrow tailoring does not require exhaustion of every

conceivable race-neutral alternative” before implementing race-

conscious measures.   Grutter, 539 U.S. at 339.    Rather, narrow

tailoring requires “serious, good faith consideration of workable

race neutral alternatives.”   Id.

     As Defendants point out, Congress attempted to use race-

neutral measures to foster and assist minority owned business for

at least twenty-five years prior to incorporating a race-

conscious component in Section 8(a), and these race-neutral

measures failed to remedy the effects of discrimination on

minority small business owners.     Beginning with the Small

Business Act of 1953, Congress authorized various programs to

“aid, counsel, assist, and protect . . . the interests of


                                  103
small-business concerns” and to “insure that a fair proportion of

the total purchases and contracts for supplies and services for

the government be placed with small-business enterprises . . . .”

Pub. L. No. 83-163, § 202, 67 Stat. 232 (1953).    The race-neutral

measures employed by Congress between 1953 and 1978 included

creation of a surety bond guarantee program, creation of a new

class of small business investment companies to provide debt and

equity capital, improvement of disaster assistance, loans to

small businesses, small business development centers, and,

notably, race-neutral small business set-asides.    See, e.g.,

Defs.’ MSJ at 31-33.   Accordingly, Defendants argue that when

Congress considered the race-conscious provisions of Section

8(a), it had before it evidence of continuing discriminatory

barriers to minority businesses notwithstanding all of the race-

neutral measures it had already enacted.   See Adarand VII, 228

F.3d at 1178 (“The long history of discrimination in, and

affecting the public construction procurement market - despite

efforts dating back at least to the enactment in 1958 [sic] of

the SBA to employ race-neutral measures . . . justifies

race-conscious action . . . .”).

     DynaLantic’s claims that no race-neutral alternatives were

considered are based on Defendants’ admission, during discovery,

that (1) no other alternative to race has ever been used in the

Section 8(a) program; (2) neither Congress nor the SBA considered


                                104
the operation of non-race-conscious alternatives, such as

anti-discrimination laws, before establishing the race-conscious

requirements in the Section 8(a) program; and (3) the SBA also

has not used other, race-neutral means to address alleged

discrimination against minority contractors (or similar problems

for non-minorities), such as any different standards regarding

start-up costs, bonding costs, or other criteria for emerging

businesses.   Pl.’s MSJ at 51-52.   As Defendants correctly point

out, however, these admissions are taken out of context and do

not undermine their evidence that the government considered race-

neutral means.   See Defs.’ Opp’n at 33-35.   Accordingly, the

Court concludes that Defendants’ admissions do not support

DynaLantic’s claims.

     The admissions at issue arise from Defendants’ answers

during discovery about a document prepared by the SBA to provide

information about the Section 8(a) program following the Supreme

Court’s 1995 decision in Adarand III.    See Pl.’s MSJ, Ex. B49,

U.S. Small Business Administration Management of the 8(a)

Program: Narrow Tailoring (hereinafter “8(a) Document”).     The

8(a) Document uses a question-and-answer format.   In response to

the question “[d]id Congress or the agency consider the operation

of non-race-conscious alternatives . . . before establishing the

race-conscious requirement,” the SBA answered “No.”    Id. at 4.

Defendants assert that this answer is only correct insofar as the


                                105
Section 8(a) program itself is concerned.    In other words, they

explain that the answer means simply that the Section 8(a)

program, as codified by Congress and implemented by the SBA, has

always contained a race-conscious element.    See Defs.’ Opp’n, Ex.

1, First Declaration of Darryl K. Hairston (“Hairston Decl. 1”)

¶ 4.

       As Defendants note, the portion of the 8(a) Document on

which Plaintiff’s argument depends was not intended to address

the race-neutral alternatives which were utilized prior to the

codification of the Section 8(a) program.    To the contrary, the

8(a) Document itself, on the two pages immediately following the

question and answer on which Plaintiff relies, references some of

those race-neutral alternatives, including surety bond

guarantees, loan guarantees, and counseling and training.     See

Pl.’s MSJ, Ex. B49 at 5-6; see also, e.g., Pub. L. No. 91-609, 84

Stat. 1813 (1970) (surety bond guarantee program); Pub. L. No.

83-163, §§ 207(a) & (e), 67 Stat. 235-36 (1953) (loans and loan

guarantees; counseling and training).

       The Court agrees with Defendants that the 8(a) Document,

when read in context, does not support Plaintiff’s claims.

Congress adopted a race-conscious contracting preference for the

Section 8(a) program only after long experience showed that

race-neutral alternatives were inadequate to combat the effects

of racial discrimination against minority-owned businesses.      As


                                 106
discussed at length in Sections III.C and III.D above, the Court

further concludes that recent evidence indicates minority

business developments remain hampered by the same kinds of

discriminatory barriers that prompted the enactment of the

Section 8(a) program.    Specifically, many of the recent disparity

studies before Congress indicate that in the absence of race-

conscious measures, discrimination against qualified minority

contractors in a variety of industries is far more pronounced.

See supra Section III.C; see also Adarand VII, 228 F.3d at 1174

(“There is ample evidence that when race-conscious public

contracting programs are struck down or discontinued, minority

participation in the relevant market drops sharply or even

disappears.”).

             2.   Flexibility

        The Court next considers whether the Section 8(a) program is

sufficiently flexible in granting race-conscious relief.     A rigid

racial quota system such as the one invalidated in Croson or

O’Donnell “is the hallmark of an inflexible affirmative action

program.”     W. States, 407 F.3d at 994.   The Section 8(a) program,

by contrast, contains no quotas at all; it provides for

aspirational goals and imposes no penalties for failing to meet

them.    Nevertheless, DynaLantic claims that the Section 8(a)

program is inflexible for two principal reasons: first, it

contains a presumption that minorities are socially


                                  107
disadvantaged, and second, it lacks sufficiently effective waiver

mechanisms.    Pl.’s MSJ at 54-58.

     DynaLantic’s claim that the race-based presumption renders

the statute inflexible is unpersuasive in light of several

decisions which have held similar race-based presumptions pass

constitutional muster.     The Eighth and Ninth Circuits, as well as

the Northern District of Illinois, have all considered facial

challenges to statutes containing a presumption that minorities

are socially disadvantaged.     The courts found the statutes

narrowly tailored: (1) because the presumption was rebuttable,

and (2) because it contained an individualized economic component

as well.    See W. States, 407 F.3d at 995; Sherbrooke, 345 F.3d at

973; N. Contractors, 2004 U.S. Dist. LEXIS 3226, at *130.       The

Section 8(a) program is similarly flexible.     The presumption that

a minority applicant is socially disadvantaged may be rebutted if

SBA is presented with credible evidence to the contrary.       13

C.F.R. § 124.103(c).     Likewise, an individual who is not

presumptively disadvantaged may qualify for such status if s/he

can demonstrate social disadvantage by a preponderance of the

evidence.     Id.   Finally, the 8(a) program requires an

individualized determination of economic disadvantage.        Id. §

124.104.    Each applicant must establish economic disadvantage

under the standards contained in the regulations, including the

submission of a narrative statement describing his or her


                                   108
economic disadvantage and personal financial information.     Id. §

124.104(b).   Individuals whose net worth exceeds $250,000 are not

considered economically disadvantaged for the purposes of entry

into the Section 8(a) program.    Id. § 124.104(c)(2).   Because

“race is made relevant in the program, but [] is not a

determinative factor,” the Court finds the program is flexible.

Sherbrooke, 345 F.3d at 973.

     DynaLantic also argues that the Section 8(a) program is not

sufficiently flexible because it does not contain industry based

waivers and waivers for specific minority groups.   Pl.’s MSJ at

55-57.    While the Court agrees that Plaintiff’s concerns about

the scope of Section 8(a) warrant careful consideration by the

Court, it finds these arguments misplaced here.   As set forth

above, the Court has carefully considered - and accepted -

Plaintiff’s arguments regarding industry in the context of

compelling interest.   And the Court considers Plaintiff’s

arguments regarding the scope of minorities included in Section

8(a) twice - above, in the compelling interest analysis, and

below, in considering whether the program is over- or under-

inclusive.    Accordingly, it is unnecessary to consider these

points again here.19


     19
        Plaintiff raises the same industry based argument as a
sign that the 8(a) program is impermissibly over-inclusive and
therefore not narrowly tailored. Again, because the Court found
this issue more appropriately considered and resolved under the
rubric of compelling interest, the Court does not address it

                                 109
     Finally, it is noteworthy that the Section 8(a) program

contains a waiver provision “despite the already non-mandatory

nature of the [] program[].”        Adarand VII, 228 F.3d at 1181.   SBA

will not accept a procurement for award as an 8(a) contract if it

determines that acceptance of the procurement would have an

adverse impact on small businesses operating outside the Section

8(a) program.       13 C.F.R. § 124.504.   The waiver is an additional

element of flexibility in the 8(a) program.          See Paradise, 480

U.S. at 171.

             3.      Over- and Under-Inclusiveness

     DynaLantic argues that the program is both over- and under-

inclusive.        See, e.g., Pl.’s MSJ at 46-51; Pl.’s Reply at 20-21.

Plaintiff claims the program is over-inclusive because “virtually

every minority group is presumed to be disadvantaged,” Pl.’s MSJ

at 49, and under-inclusive because it fails to include groups

such as women and Hasidic Jews, see id. at 50-51.

     Plaintiff’s over-inclusiveness argument fails for two

reasons.    First, as discussed in Section III.D above, the

government had strong “evidence of discrimination [which] is

sufficiently pervasive across racial lines to justify granting a

preference to all five purportedly disadvantaged groups” at

issue.     Rothe III, 262 F.3d at 1330.     Second, unlike the program

found unconstitutional in Croson, Section 8(a) does not provide


again here.

                                     110
that every member of a minority group is disadvantaged.    See 488

U.S. at 508 (plurality opinion).   Admittance to the Section 8(a)

program is narrowly tailored because it is based not only on

social disadvantage, but also on an individualized inquiry into

economic disadvantage.   See Adarand VII, 228 F.3d at 1184.

Specifically, it is limited to small businesses whose owners have

a personal net worth of less than $250,000.   Any person may

present “credible evidence” challenging an individual’s status as

socially or economically disadvantaged.   13 C.F.R. §§

124.103(b)(3), 124.112(c).   Finally, a firm owned by a non-

minority may qualify as socially and economically disadvantaged.

Id. § 124.103(d); see also N. Contractors, 2004 U.S. Dist. LEXIS

3226, at *137-38 (rejecting over-inclusiveness challenge on

substantially the same grounds).

     The Court is puzzled by Plaintiff’s under-inclusiveness

challenge.   Section 8(a) is designed, in relevant part, to remedy

identifiable “racial or ethnic prejudice or cultural bias,” not

gender or religious discrimination.   13 C.F.R. § 124.103(a);   15

U.S.C. § 637(a)(5).   Again, however, a firm owned by an

individual in either of these groups may qualify as socially and

economically disadvantaged and thus participate in the Section

8(a) program.




                                111
           4.   Duration

     The Supreme Court has explained that race-conscious remedies

should “not last longer than the discriminatory effects [they

are] designed to eliminate.”      Adarand III, 515 U.S. at 238

(citations omitted).    Although the Section 8(a) program does not

incorporate a specific “sunset” provision applicable to the

entire program, it does impose temporal limits on every

individual’s participation that fulfill the temporal aspect of

narrow tailoring.    The Tenth Circuit has held that Section 8(a)’s

temporal limits survive strict scrutiny in light of the program’s

focus on the specific social and economic circumstances of

individual firms and their owners, not merely their minority

status.   Adarand VII, 228 F.3d at 1179.     This Court agrees.

     The Section 8(a) program places a number of strict

durational limits on a particular firm’s participation in the

Section 8(a) program.      First, participation is limited by statute

and regulation to a maximum term of nine years.      See 13 C.F.R.

§ 124.2; 15 U.S.C. §§ 636(j)(10)(c), 636(j)(10)(E),

636(j)(10)(H), 636(j)(15).     Furthermore, once a business or

disadvantaged individual has participated in the Section 8(a)

program, neither the business nor that individual will be

eligible again.     See 13 C.F.R. § 124.108(b); 15 U.S.C.

§§ 636(j)(11)(B) & (c).




                                   112
     In addition to these temporal limits, a Section 8(a) program

participant’s eligibility is continually reassessed and must be

maintained throughout its program term.      A participant must

annually submit a certification that it meets program eligibility

requirements, along with financial and other information to

permit the SBA to verify its continuing eligibility for the

program and to enable the SBA to monitor its performance and

progress in business development.       See 13 C.F.R. §§ 124.112(b),

124.509(c), 124.601, 124.602; 15 U.S.C. §§ 637(a)(4)(c),

637(a)(6)(B), 637(a)(12)(A), 637(a)(20).      Morever, a participant

must leave the program early if the firm has substantially

achieved the targets, objectives, and goals set forth in its

business plan and has demonstrated the ability to compete in the

marketplace without assistance.    13 C.F.R. § 124.302(a).     A

participant may also be terminated early for failing to maintain

its eligibility.   Id. § 124.303(a)(2).

     The SBA must conduct an evaluation of a Section 8(a) program

participant’s eligibility for continued participation whenever it

receives specific and credible information alleging that the

participant no longer meets the requirements for continued

program eligibility.   See 13 C.F.R. § 124.112(c); 15 U.S.C.

§§ 636(j)(10)(J)(I), 637(a)(6)(c).      Thus, once a program

participant overcomes its disadvantaged status, or has been




                                  113
afforded a reasonable opportunity to do so, its participation in

the Section 8(a) program ends.

     In short, Section 8(a)’s “inherent time limit and graduation

provisions ensure that it . . . is carefully designed to

‘endure[] only until . . . the discriminatory impact’ has been

eliminated; once a DBE loses its economic disadvantage, it loses

its certification.”    Adarand VII, 228 F.3d at 1179 (quoting

Paradise, 480 U.S. at 178).   Accordingly, with regard to

appropriate limits on duration, the Section 8(a) program is

narrowly tailored.

          5.   Numerical Proportionality

     Plaintiff claims that the Section 8(a) program, as

administered by SBA and utilized by DoD, lacks numerical

proportionality, i.e., that the aspirational goals established by

the government are not reasonably tied to the pool of available

minority businesses.   Plaintiff argues that the contract goals

for Section 8(a) firms or SDBs - socially and economically

disadvantaged businesses - are unrelated to the discrimination

suffered by minority groups and, therefore, the program is not

narrowly tailored.    Pl.’s MSJ at 53-54; see also Pl.’s Opp’n to

Defs.’ MSJ at 65-69.   Upon consideration of the three

aspirational goals at issue in this case, all of which set goals

that less than five percent of contract dollars be awarded to

firms in the Section 8(a) program, the Court cannot agree.


                                 114
     In Croson, the Court struck down a 30 percent quota for

minority firm contracts in the construction industry as not

“narrowly tailored to any goal, except perhaps outright racial

balancing.    It rests upon the ‘completely unrealistic’ assumption

that minorities will choose a particular trade in lockstep

proportion to their representation in the local population.”        488

U.S. at 507 (plurality opinion).    The three contracting goals at

issue in this case are significantly different from the quota in

Croson.    First, the Small Business Act establishes government-

wide aspirational goals for procurement contracts awarded to,

inter alia, small businesses, small business concerns owned by

women, and small business concerns controlled by socially and

economically disadvantaged individuals.    15 U.S.C. § 644(g)(1).

The government-wide goal for small businesses owned by socially

and economically disadvantaged individuals is five percent of the

value of all prime and subcontract awards annually.     Id.   The

Section 8(a) program, however, contains only a subset of socially

and economically disadvantaged businesses; the term “socially and

economically disadvantaged” includes individuals, programs and

contract awards apart from, and in addition to, the Section 8(a)

program.     See Pl.’s MSJ at 12-13; see also, e.g., 15 U.S.C. §§

637(d)(1), (d)(3)(c) (program to increase subcontracting among

socially and economically disadvantaged individuals not limited

to those who qualify for the Section 8(a) program).    Therefore,


                                  115
the government-wide goal contemplates that only a portion of the

five percent goal will be met through the 8(a) program.

     Second, the statute requires each federal agency to

establish goals for the same groups.    Id. § 644(g)(2).

Accordingly, DoD established a five percent aspirational goal for

socially and economically disadvantaged businesses, which

includes but is not limited to Section 8(a) firms.    See Pl.’s MSJ

at 8-9.20    Third, beginning in 2002, DoD established a separate

Section 8(a) goal, of approximately two percent of the value of

prime and subcontract awards.    See Pl.’s MSJ, Ex. B33, Deposition

of Timothy J. Foreman at 29-30 (“Foreman Dep.”); see also Pl.’s

MSJ at 70 (stating that, in 2003, the DoD goal for 8(a) contracts

rose to 2.1 percent).    DoD’s Section 8(a) goal is a subset of the

goal for socially and economically disadvantaged businesses.     See

Pl.’s MSJ at 9-10; see also, e.g., 15 U.S.C. §§ 637(d)(1),

(d)(3)(c).    Accordingly, the Court examines three goals, all of

which are purely aspirational and all of which provide for less

than five percent of contracts to be awarded under the Section

8(a) program.




     20
        DoD’s five percent goal was contained in the DoD Program,
10 U.S.C. § 2323, which the Federal Circuit invalidated in 2008.
Rothe VII, 545 F.3d 1023. However, DoD’s goal also originates in
15 U.S.C. § 644(g)(2), which remains in effect. Neither party
has asserted that DoD’s goals have changed as a result of the
Federal Circuit’s decision in Rothe.

                                 116
     In light of the government’s evidence discussed at length in

Section III.C. above, the Court concludes that these goals are

facially constitutional.   The evidence presented established that

minority firms are ready, willing, and able to perform work equal

to two to five percent of government contracts in industries

including but not limited to construction.    The evidence further

demonstrated that the effects of past discrimination have

excluded minorities from forming and growing businesses, and the

number of available minority contractors reflects that

discrimination.   Accordingly, “the existing percentage of

[eligible] minority-owned businesses is not necessarily an

absolute cap on the percentage that a remedial program” and in

particular, an aspirational goal, “might legitimately seek to

achieve.”   Adarand VII, 228 F.3d at 1181.    “It is reasonable to

conclude that allocating more than 95 percent of all federal

contracts to non-minority persons, is in and of itself a form of

passive participation in discrimination that Congress is entitled

to seek to avoid.”   Id. (quoting Croson, 488 U.S. at 492).

     Plaintiff notes that Defendants do not maintain separate

statistics for the simulation and training industry, nor do they

have any disparity study for this industry.    Pl.’s MSJ at 53-54.

The Court agrees that these facts may be relevant in an as-

applied challenge; however, the Court does not reach the issue

because DynaLantic has already prevailed, on the threshold


                                117
question of compelling interest, in its as-applied challenge.

See Rothe VII, 545 F.3d at 1049-50 (finding that without a strong

basis in evidence, it was “impossible to evaluate” the numerical

proportionality factor because the government had nothing to

compare it to – it did not know the “share of contracts

minorities would receive in the absence of discrimination”).     To

survive a facial challenge, however, the government need not

provide evidence that the goals are numerically proportionate in

each and every industry.

          6.   Burden on Third Parties

      As Plaintiff points out, by their nature “[s]et-asides

impose a burden upon those not necessarily guilty of

discrimination.”   Pl.’s Opp’n at 71.    The Supreme Court in

Wygant, however, held that “[a]s part of this Nation’s dedication

to eradicating racial discrimination, innocent persons may be

called upon to bear some of the burden of the remedy.    ‘When

effectuating a limited and properly tailored remedy to cure the

effects of prior discrimination, such a “sharing of the burden”

by innocent parties is not impermissible.’”     Wygant, 476 U.S. at

280-81 (plurality opinion) (quoting Fullilove, 448 U.S. at 484);

see also W. States, 407 F.3d at 995 (“[A]lthough [race-conscious

measures] place[] a very real burden on non-DBE firms, this fact

along does not invalidate [the statute].    If it did, all

affirmative action programs would be unconstitutional because of


                                118
the burden upon non-minorities.” (citing Adarand III, 515 U.S. at

237)).   Accordingly, remedial race-conscious harms must “work the

least harm possible to other innocent persons competing for the

benefit.”   Grutter, 539 U.S. at 341 (internal quotation omitted).

“The proper focus is on whether the burden on third parties is

‘too intrusive’ or ‘unacceptable.’”     Concrete Works IV, 321 F.3d

973 (citing Wygant, 476 U.S. at 283).

     The parties focus most of their arguments regarding undue

burden on Plaintiff’s as-applied challenge, i.e., DoD’s use of

the 8(a) program in the military simulation and training industry

and the alleged undue burden on DynaLantic as a result.     See

Pl.’s MSJ at 61-66, 72-73; Defs.’ Opp’n at 40-44; Pl.’s Opp’n to

Defs.’ MSJ at 71-77.   As explained throughout, the Court need not

reach, and indeed is unable to reach, DynaLantic’s as-applied

challenge on narrow tailoring grounds.     See Rothe VII, 545 F.3d

at 1049-50 (noting that the absence of a strong basis in evidence

renders it impossible to consider certain of the narrow tailoring

factors; without an understanding of the scope of discrimination

at issue, a reviewing court cannot determine whether remedial

measures are narrowly tailored to that discrimination).

Accordingly, the Court limits its consideration of undue burden

to Plaintiff’s facial challenge.   While it is undoubtedly true

that third parties bear the burden of the remedy in Section 8(a),

as with any remedial scheme, the Court concludes that the use of


                                119
the Section 8(a) program to set aside certain contracts does not,

on its face, create an impermissible burden on non-participating

firms.

     The Section 8(a) program includes a number of provisions

designed to minimize the burden on non-minority firms.    As

discussed above, the presumption that a minority applicant is

socially disadvantaged may be rebutted if SBA is presented with

credible evidence to the contrary.   13 C.F.R. § 124.103(c).    An

individual who is not presumptively disadvantaged may qualify for

such status if s/he can demonstrate social disadvantage by a

preponderance of the evidence.21   Id.   And the 8(a) program

requires an individualized determination of economic

disadvantage, and is not open to individuals whose net worth

exceeds $250,000 regardless of race.     Id. §§ 124.104(a),


     21
        Since Section 8(a)’s inception, the burden on non-
minorities to show that they are socially disadvantaged has been
reduced from a “clear and convincing” standard to a
“preponderance of the evidence” standard. Compare 13 C.F.R. §
124.103(c)(1) (current version), with 13 C.F.R. § 124.105(c)(1)
(1997 version); see also 63 Fed. Reg. 35726, 35727-28 (June 30,
1998). This change was expressly adopted to more narrowly tailor
the Section 8(a) program, and has had the effect of making the
program’s benefits more widely available. As of September 3,
1999, there were approximately 5,830 firms participating in the
Section 8(a) program, of which about 105 (approximately 1.8
percent) were owned and controlled by individuals who had proven
individual social disadvantage. See Defs.’ MSJ at 60 (citing
Resp. to Pl.’s Second Set of Interrogs. to Defs., No. 4 (Nov. 4,
1999)). By February 20, 2003, however, the percentage of program
participants owned and controlled by individuals who had proven
individual social disadvantage had risen to approximately 7.18
percent. See Defs.’ MSJ at 60 (citing Am. Resp. to Pl.’s Second
Set of Interrogs. to Defs. (Apr. 17, 2003)).

                               120
124.104(b), 124.104(c)(2).    Other courts considering similar

provisions in race-conscious statutes have found that they

“minimize the race-based nature of the [] program,” thereby also

minimizing the adverse impact on third parties, and accordingly

are narrowly tailored.   Sherbrooke, 345 F.3d at 972 (statute

creates no undue burden where the presumption that minority

applicants are socially disadvantaged is rebuttable, statute

contains $750,000 net worth limitation on DBE status, thus

excluding wealthy individuals of all races, and statute permits

firms owned by non-minorities to qualify for DBE program if they

can demonstrate social and economic disadvantage); see also W.

States, 407 F.3d at 995 (same); N. Contractors, 2004 U.S. Dist.

LEXIS 3226, at *133 (same).

     In addition to the applicant-based criteria designed to

minimize the burden on non-whites who seek to join the program,

Section 8(a) regulations also contain provisions to mitigate the

adverse impact on firms remaining outside the program.   The

regulations prohibit the SBA from accepting a procurement for

award as an 8(a) contract if it makes a determination that the

award would have an adverse impact on an individual small

business, a group of small businesses located in a specific

geographical location, or other small business programs.    This

adverse-impact concept is designed to protect small businesses

which are performing non-Section 8(a) contracts, and this feature


                                 121
helps narrowly tailor the program.        See 13 C.F.R. § 124.504.

Plaintiff argues that the impact analysis regulation does not

offer sufficient protection to non-participants.       Pl.’s Opp’n at

71-72.    However, the government is not required to eliminate the

burden on non-minorities in order to survive strict scrutiny; a

limited and properly tailored remedy to cure the effects of prior

discrimination is permissible even when it burdens third parties.

See Wygant, 476 U.S. at 280-81 (plurality opinion).       The Court

finds that the Section 8(a) program takes appropriate steps to

minimize the burden on third parties, and accordingly finds that

the Section 8(a) program is narrowly tailored on its face.

     F.     Civil Rights Claims

            1.    Section 1981

     Plaintiff argues that the Defendants’ actions violate not

only its constitutional rights, but also its rights under 42

U.S.C. § 1981.     Section 1981 gives all citizens of the United

States “the same right in every State and Territory to make and

enforce contracts . . . as is enjoyed by white citizens.”       42

U.S.C. § 1981.     Section 1981(c), which was added to Section       1981

by the Civil Rights Act of 1991, further provides that “[t]he

rights protected by this section are protected against impairment

by nongovernmental discrimination and impairment under color of

State law.”      Id. § 1981(c).   Defendants, federal agencies, are

operating under the color of federal law.       Section 1981 does not


                                    122
apply to actions taken under the color of federal law, nor does

it permit suit against instrumentalities of the federal

government.    See, e.g., Sindram v. Fox, 374 Fed. App’x 302, 304

(3d Cir. 2010); Dotson v. Griesa, 398 F.3d 156, 162 (2d Cir.

2005); Davis-Warren Auctioneers v. FDIC, 215 F.3d 1159, 1161

(10th Cir. 2000); Davis v. Dep’t of Justice, 204 F.3d 723, 725

(7th Cir. 2000); Lee v. Hughes, 145 F.3d 1272, 1277 (11th Cir.

1998); Prince v. Rice, 453 F. Supp. 2d 14, 25-26 (D.D.C. 2006).

Accordingly, Plaintiff’s Section 1981 claim must be dismissed.

          2.    Section 2000d

     Plaintiff has asserted a claim against Defendants pursuant

to 42 U.S.C. § 2000d, et seq. (Title VI of the Civil Rights Act

of 1964) for declaratory and injunctive relief.   Title VI’s

operative section provides that “[n]o person in the United States

shall, on the ground of race, color, or national origin, be

excluded from participation in, be denied benefits of, or be

subjected to discrimination under any program or activity

receiving Federal financial assistance.”   42 U.S.C. § 2000d.   The

statute defines “program or activity” as the operations of

departments, agencies, instrumentalities, and other sectors of

state or local governments; colleges and certain public systems

of education; local educational agencies and school systems;

certain corporations and other private organizations; and other

entities established by a combination of two or more of the


                                 123
mentioned entities.    42 U.S.C. § 2000d-4a.   As a former Judge on

this Court has noted, “this comprehensive definition does not

include the operations of the federal government and its

agencies, and, indeed, the caselaw recognizes that a Plaintiff

may not bring suit under Title VI for programs maintained

directly by federal agencies.”     Wise v. Glickman, 257 F. Supp. 2d

123, 132 (D.D.C. 2003) (collecting cases).

     In response, Plaintiff cites Fordice Construction Company v.

Marsh, a 1990 decision from the Southern District of Mississippi

which held, without analysis or citation to authority, that the

SBA’s use of the Section 8(a) program violated Plaintiff’s rights

under Section 2000d.    773 F. Supp. 867, 882 (S.D. Miss. 1990).

As far as the Court is aware, no case has followed Fordice for

this proposition.     In light of the weight of contrary authority,

including case law from this court, the Court finds Fordice

unpersuasive.   See Soberal-Perez v. Heckler, 717 F.2d 36, 38 (2d

Cir. 1983); Wise, 257 F. Supp. 2d 123; Marsaw v. Trailblazer

Health Enters., LLC, 192 F. Supp. 2d 737, 750 (S.D. Tex. 2002);

Williams v. Glickman, 936 F. Supp. 1, 5 (D.D.C. 1996).     Because

Plaintiff may not bring suit under Title VI for programs

administered directly by the federal government, its claim under

Title VI must be dismissed.




                                  124
     G.    Relief

     For the reasons set forth above, the Court finds Section

8(a) is constitutional on its face.   Accordingly, Plaintiff’s

requests for relief regarding its facial challenge are denied.

Plaintiff has, however, prevailed on its challenge to Section

8(a) as applied to the military simulation and training industry.

Plaintiff requests a permanent injunction prohibiting Defendants

“from awarding contracts for military simulators based on the

race of the contractors (including, but not limited to, pursuant

to the set-aside scheme).”   Second Am. Compl. at 8.   Because the

only set-aside program before the Court is that contained in the

Section 8(a) program, the Court is not empowered to grant relief

beyond that program, and accordingly considers the request for a

permanent injunction solely as it relates to Section 8(a).

     For the reasons set forth above, the Court finds that

DynaLantic succeeds on the merits of its as-applied

constitutional challenge to the Section 8(a) program,

specifically, SBA and DoD’s award of contracts for military

simulators under the Section 8(a) program.   The second prong of

the permanent injunction test requires a finding that Plaintiff

will suffer irreparable injury in the absence of injunctive

relief.   “It has long been established that the loss of

constitutional freedoms . . . unquestionably constitutes

irreparable injury.”   Mills v. Dist. of Columbia, 571 F.3d 1304,


                                125
1312 (D.C. Cir. 2009) (citation omitted); see also Simms v. Dist.

of Columbia, Case No. 12-cv-701, 2012 U.S. Dist. LEXIS 93052, at

*41-42 (D.D.C. July 6, 2012).   Because DynaLantic succeeds on the

merits of its as-applied constitutional equal protection claim,

the Court finds this deprivation of Plaintiff’s constitutional

rights constitutes irreparable harm.    Turning to the third prong,

the balance of harms, the Court finds the balance tips in favor

of Plaintiff, as Defendants may continue to award contracts for

military simulators under all other federal programs.    Moreover,

nothing prevents the government from invoking Section 8(a),

provided it complies with the equal protection requirements.

Finally, the Court considers the fourth factor, public interest.

As this Circuit held in O’Donnell, the issuance of an injunction

“would serve the public’s interest in maintaining a system of

laws free of unconstitutional racial classifications.”    963 F.2d

at 429.   “Without question, the public has an interest in

ensuring that Defendants do not implement a set-aside plan in

violation of the Constitution.”     Cortez III, 950 F. Supp. at 363.

     Plaintiff also requests that the Court issue a declaratory

judgment that the Section 8(a) program as applied by Defendants

to set aside contracts for military simulators is

unconstitutional and violates DynaLantic’s rights to equal

protection.   In light of the Court’s issuance of a permanent

injunction in DynaLantic’s favor on the identical issue, the


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Court concludes that the requested declaratory relief is “both

duplicative and unwarranted” and therefore will deny Plaintiff’s

request for a declaratory judgment.   Serv. Employees Int’l Indus.

Pension Fund v. Aliquippa Cmty. Hosp., 628 F. Supp. 2d 166, 172

n.2 (D.D.C. 2009); see also Gibson v. Liberty Mut. Group, Inc.,

778 F. Supp. 2d 75, 79 (D.D.C. 2011) (dismissing claim for

declaratory relief because it would neither clarify the rights of

the parties nor terminate the dispute between them).

IV.   CONCLUSION

      For the foregoing reasons, the Court concludes that the

Section 8(a) program, 15 U.S.C. § 637(a)(1), is constitutional on

its face.   However, based on the record before it, the Court is

unable to conclude that Defendants have produced evidence of

discrimination in the military simulation and training industry

sufficient to demonstrate a compelling interest.   Therefore,

DynaLantic prevails on its as-applied challenge.

      Accordingly, Defendants’ Motion for Summary Judgment is

GRANTED IN PART and DENIED IN PART; Plaintiff’s Motion for

Summary Judgment is GRANTED IN PART and DENIED IN PART.   The

Small Business Administration and the Department of Defense are

hereby enjoined from awarding procurements for military

simulators under the Section 8(a) program without first

articulating a strong basis in evidence for doing so.

Plaintiff’s remaining requests for declaratory and injunctive

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relief are DENIED.   A separate Order accompanies this Memorandum

Opinion.

Signed:    Emmet G. Sullivan
           United States District Judge
           August 15, 2012




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