Court strikes down DOD's minority contractor rule

WASHINGTON - A federal appeals court has ruled that a law calling for minority-owned companies to receive 5 percent of defense contracting dollars is unconstitutional because there wasn't enough proof the Pentagon discriminates against those firms in awarding contracts.

The decision, issued by a three-judge panel of the U.S. Court of Appeals for the Federal Circuit, also blocked further use of the law meant to give minority-owned firms a slice of the hundreds of billions of dollars in contracts handed out annually by the Pentagon.

The court ruled that since Congress did not have strong enough evidence of discrimination against minority contractors by the Defense Department, the law violates the Constitution's equal rights protection.

"Because Congress did not have a 'strong basis in evidence' upon which to conclude that DOD was a passive participant in pervasive, nationwide racial discrimination ... the statute fails strict scrutiny," Chief Judge Paul R. Michel wrote in Tuesday's decision.

Pentagon spokeswoman Cheryl Irwin said Thursday that the Defense Department is aware of the decision and is reviewing it along with the Justice Department.

Congress first passed the law in 1986 after some lawmakers said the Pentagon was not moving quickly enough to include minority-owned firms in contract awards, a field dominated by giant multinational defense companies. The law directed the Pentagon to set a goal of awarding 5 percent of contract money each fiscal year to firms owned or operated by minorities.

Most defense spending still goes to large multinationals such as Lockheed Martin Corp., Boeing Co., General Dynamics Corp. and Northrop Grumman Corp., but the Pentagon has largely met the minority contracting goal. Minority-owned firms last year received $15 billion in defense contracts, or about 5.6 percent of the $269 billion in awards that were subject to the law.

Congress has reauthorized the law several times, last voting on it in 2006. It is set to expire again next year.

Rothe Development Corp., a Texas company owned by a white woman, in 1988 filed a lawsuit against the Defense Department after the Air Force awarded a contract for computer work at a Mississippi base to a competitor run by a Korean-American couple. Rothe had bid $5.57 million for the work, but the Air Force took the higher bid of $5.75 million by International Computer Telecommunications Inc.

A federal court in Texas last year ruled in favor of the Defense Department, but Rothe appealed the decision.

The lower court relied partly on six studies that purportedly showed evidence of a nationwide pattern of discrimination against minority firms in public and private contracting. But the appeals court said the studies suffered from defects. For example, the studies pointed out shortfalls in contracts awarded to minority companies but failed to assess whether the firms were big enough and capable of doing the work.

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