          Constitutionality of Federal Government Efforts in
            Contracting With Women-Owned Businesses
This statement presents the Justice Department’s views on the federal government’s efforts to contract
  with women-owned businesses in a manner consistent with the Constitution and federal statutes.
  Because the Justice Department’s position on federal contracting programs that employ gender
  preferences is based on constitutional and legal standards that are not specific to the program
  addressed by the recently published Small Business Administration rule, the statement focuses on
  the legal standards that govern the Department’s approach to such programs generally.

                                                                                   January 16, 2008

          TESTIMONY BEFORE THE HOUSE COMMITTEE ON SMALL BUSINESS

    Thank you Chairwoman Velazquez, Ranking Member Chabot, and Members of
the Committee for the opportunity to appear here today to discuss the Justice
Department’s views on the federal government’s efforts to contract with women-
owned businesses in a manner consistent with the Constitution and federal
statutes.
    One of the most recent developments in this area is the Small Business `Admin-
istration’s (“SBA’s”) publication of a proposed rule implementing the Women-
Owned Small Business (“WOSB”) Federal Contracting Program authorized by
Public Law 106-554. That particular rule is addressed in SBA Administrator
Preston’s testimony before the Committee. For that reason, and because the Justice
Department’s position on federal contracting programs that employ gender
preferences is based on constitutional and legal standards that are not specific to
the program addressed by the recently published SBA rule, I will focus on the
legal standards that govern the Department’s approach to such programs generally.
    As Administrator Preston testified and the Committee is aware, the federal
government has taken a number of measures to increase the participation of
women-owned small businesses in federal government contracting. Most of these
efforts assist women-owned small businesses by improving their ability to
compete with other small businesses for federal contracts, not by shielding them
from such competition through gender-based restrictions on bidding opportunities.
That said, one form of agency assistance that is authorized, though not required,
by federal statute is the reservation, or set-aside, of certain contracts for competi-
tion only by “small business concerns owned and controlled by women.” 15
U.S.C. § 637(m)(2). Federal agencies that employ such set-asides in their contract-
ing programs must engage in gender discrimination among potential contract
recipients because the set-asides require the contracting agencies to exclude
otherwise qualified businesses from competing for certain contracts based solely
on the degree to which those businesses are owned or controlled by men.
    To be constitutional, federal programs that discriminate on the basis of gender
in awarding government contracts must pass muster under the equal protection



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                 Opinions of the Office of Legal Counsel in Volume 32


component of the Due Process Clause of the Fifth Amendment. See United States
v. Virginia, 518 U.S. 515 (1996) (“VMI”); Miss. Univ. for Women v. Hogan, 458
U.S. 718, 723–24 (1982). The Justice Department’s position on gender-based
contracting programs necessarily reflects this constitutional requirement because
the Department, like the rest of the Executive Branch, must construe and imple-
ment federal laws in a constitutional manner. The Department’s position on
gender-based contracting programs also reflects Supreme Court opinions and other
federal cases applying the Constitution’s equal protection requirements to such
programs, because these are the cases that courts will consider in deciding whether
specific agency WOSB programs are constitutional. The Department’s general
position on these matters serves as the basis for the Department’s administration of
its own programs, as well as for any guidance the Department may provide to
other agencies.
    The level of scrutiny that a government contracting program must satisfy in
order to comply with equal protection depends on the type of preference at issue.
Preferences, such as veterans’ preferences, that do not depend on a recipient’s race
or gender are subject to rational basis scrutiny, which means courts will generally
uphold them as constitutional if the government can demonstrate a rational basis
for adopting them. Preferences that are based on a recipient’s race or gender are
subject to higher levels of constitutional scrutiny. Race-based preferences must
satisfy “strict scrutiny,” which means that the government must prove that the
specific preference at issue is “narrowly tailored” to serve a “compelling govern-
ment interest.” Gender-based preferences must satisfy “intermediate” or “height-
ened” scrutiny, which the Supreme Court has identified as considerably more
demanding than rational basis scrutiny, but distinct from the strict scrutiny the
Court applies to government preferences based on race.
    In VMI, the 1996 case in which the Supreme Court considered the constitution-
ality of a government program that discriminated on the basis of gender, the Court
emphasized that its decision to apply intermediate scrutiny did not excuse the
government from establishing an “exceedingly persuasive” justification for the
program. Noting the “strong presumption that gender classifications are invalid,”
Justice Ginsburg’s opinion for the Court explained that “skeptical scrutiny of
official action denying rights or opportunities based on” a person’s gender is
necessary to ensure that government programs, no matter how well-intentioned, do
not violate the hard-fought line of equal protection precedents rejecting the notion
that an individual’s opportunity to “participate in and contribute to” a particular
field should depend on that individual’s gender. Accordingly, the Court held that
to justify a gender-based preference program under intermediate scrutiny, the
government bears the burden of showing, through evidence that is “genuine” and
“not hypothesized or invented post hoc,” “at least that the [program] serves
‘important governmental objectives and that the discriminatory means employed’
are ‘substantially related to the achievement of those objectives.’” 518 U.S. at
532–33.



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       Federal Government Efforts in Contracting With Women-Owned Businesses


    It bears mention that at least one court—the Seventh Circuit in an opinion by
Judge Posner—has questioned whether there is any meaningful practical differ-
ence between the exacting intermediate scrutiny standard the Supreme Court
articulated in VMI and the strict scrutiny the Court applies to racial preferences.
See Builders Ass’n of Greater Chi. v. Cnty. of Cook, 256 F.3d 642, 644 (7th Cir.
2001). Whether or not this opinion raises a valid practical question, the Justice
Department, like the majority of federal courts, adheres to the Supreme Court’s
determination in VMI that there is a distinction between intermediate and strict
scrutiny.
    Federal courts applying this distinction to government programs for women-
owned businesses have construed the “important governmental interest” aspect of
intermediate scrutiny to mean that some degree of discrimination must have
occurred in the economic sphere in which the program is administered in order for
the government to justify the program’s constitutionality. The cases upholding
gender-based preference programs under this standard emphasize the importance
of the government’s proof of such discrimination. Similarly, the cases invalidating
programs as unconstitutional under this standard emphasize the government’s
failure to present evidence of discrimination in the economic sphere to which the
preference program is directed.
    Although strict scrutiny also requires the government to prove discrimination in
justifying racial preference programs, the federal courts’ focus on the govern-
ment’s ability to prove discrimination in gender cases does not erase the distinc-
tion between strict and intermediate scrutiny. The Eleventh Circuit has explained
this distinction as follows: “While there is a difference between the evidentiary
foundation necessary to support a race-conscious affirmative action program and
the evidentiary foundation necessary to support a gender preference, that differ-
ence is one of degree, not of kind. In both circumstances, the test of the program is
the adequacy of evidence of discrimination, but in the gender context less evidence
is required.” Eng’g Contractors Ass’n v. Metro. Dade Cnty., 122 F.3d 895, 901
(11th Cir. 1997).
    Determining exactly how much evidence of discrimination is needed to support
a gender-based, as opposed to race-based, preference program is, in the Eleventh
Circuit’s words, a “difficulty” that all government entities face in considering
whether gender-based preference programs are constitutional. Federal cases
upholding such programs do not generally distinguish between the evidence
required to satisfy strict versus intermediate scrutiny in a way that readily allows
the government to determine that a particular study or other evidence of discrimi-
nation clearly goes far enough to justify a program under intermediate scrutiny,
but does not go so far as to satisfy unnecessarily the requirements of strict
scrutiny. What is clear from the cases is that mere findings of disparity or under-
representation are generally not sufficient to establish the constitutionality of a
gender-based preference program, and that courts are likely to strike down such




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                 Opinions of the Office of Legal Counsel in Volume 32


programs if the government cannot show genuine and non-hypothetical evidence
of discrimination in the economic sphere in which the program will operate.
   The Justice Department’s position on gender-based set-aside programs reflects
these cases and the simple lesson they offer federal entities considering such
programs: if those entities, which must establish and administer gender-based set-
asides in a constitutional manner, wish to maximize the chances that a particular
program will survive constitutional scrutiny, it is both legally appropriate and
legally prudent to require evidence of discrimination before implementing the
program. This position accords with the requirement that the federal government
administer all federal programs, including those benefiting women, in a constitu-
tional manner, consistent with Supreme Court and other federal judicial precedents
evaluating gender-based preference programs under intermediate scrutiny.

                                              ELIZABETH P. PAPEZ
                                          Deputy Assistant Attorney General
                                              Office of Legal Counsel




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