In an effort to counteract the economic damage wrought by the COVID-19 Pandemic, Congress passed the Infrastructure Investment and Jobs Act in November of 2021. Part of that bill set aside $370 billion to improve and expand transportation, and further earmarked 10% of those funds for socially and economically disadvantaged government contractors. Incorporating the terms of the Small Business Act, the Infrastructure Investment and Jobs Act defines such socially and economically disadvantaged individuals as those who have suffered racial, ethnic, or gender bias within American society based on their membership in a particular group, including federally recognized Indian Tribes and Alaskan Native corporations (“ANC”). A new lawsuit filed in the United States District Court of the Middle District of Florida on July 13, 2022 alleges that this 10% earmark unconstitutionally discriminates based on race and sex, violating the right to equal protection under the Fifth Amendment’s Due Process clause.
According to his complaint, the Plaintiff, Christian Bruckner, is a white immigrant and disabled business owner. Without alleging that he has actually bid on any government contracts within the Infrastructure Investment and Jobs Act’s 10% earmark, he claims that he cannot compete for them on an even playing field because he is not a socially and economically disadvantaged individual within the Act’s definition. In particular he points to the Small Business Act’s implementing regulations at 13 C.F.R. 124.03(b)(1), which establishes a rebuttable presumption that members of five specified racial or ethnic groups, and Indian Tribes, are “socially disadvantaged.”
His complaint asks the Florida federal district court to “remov[e] all unconstitutional race and gender-based classification in . . . the Infrastructure Act” and to enjoin the federal government from applying such classifications in enforcing the Act. In support, he argues that these classifications cannot survive strict scrutiny.
Mr. Bruckner’s lawsuit is similar to prior challenges to the Small Business Act’s preference for socially and disadvantaged government contractors. In 2016, in Rothe Development, Inc. v. Department of Defense, the United States Court of Appeals for the D.C. Circuit upheld the constitutionality of the Small Business Administration (“SBA”) 8(a) program against challenges that it violated equal protection based on race. The plaintiff in that case was a small defense contractor. Like Mr. Bruckner, it argued that it could not fairly compete with minority-owned businesses and contended that the Small Business Act failed strict scrutiny because the government lacked evidence to show past discrimination against minority businesses.
The D.C. Circuit disagreed, both that strict scrutiny applied and that the Small Business Act discriminated based on race. Rather than preferring members of any particular race, the D.C. Circuit found that the Small Business Act defined socially and economically disadvantaged individuals as those who had personally suffered racial discrimination based on their membership in a group, without presuming that any individual would qualify based on their racial identity alone. Such a nuanced definition, the Court held, was race-neutral. Applying the less stringent “rational basis” test, the D.C. Circuit upheld the Small Business Act’s classification because it rationally related to the legitimate goal of remedying the effect of past prejudice on government contracting. Nonetheless, the Court noted in dicta that the Small Business Act’s implementing regulations might not survive the same analysis.
Unlike the claims in Rothe, which only addressed on the SBA’s text itself, Mr. Bruckner specifically attacks the SBA’s implementing regulations and their presumption that members of five specified racial groups are socially and economically disadvantaged. As such, there is a possibility that the reviewing courts will apply a strict scrutiny analysis to the SBA regulations. Given the composition of the federal bench after the Trump Administration, it is unclear whether Mr. Bruckner will meet the same defeat that faced the Plaintiff in the Rothe case.
Alongside other historically marginalized government contractors, Indian Tribes and Alaskan Native Corporations may wish to track Mr. Bruckner’s case as it proceeds. An adverse decision in the Bruckner case, while technically applying only to the set asides under the Infrastructure Investment and Jobs Act, could collaterally impact the SBA’s small business program regulations, including the SBA’s 8(a) program and 8(a) contract set-aside procurement opportunities.
Under current United States Supreme Court precedent, preference for tribal members and businesses rests on a political rather than racial classification. Likewise, Alaskan Native Corporations are a special creation of the Alaska Native Claims Settlement Act, and that Act rather than the SBA regulations define ANCs as “minority and economically disadvantaged business enterprise[s]” for purposes of 8(a) contracting. As such, the courts considering Mr. Bruckner’s case may reject any attempt to enjoin preferences for tribes and Alaskan Native Corporations. But should his case reach the United States Supreme Court, which has shown a ready willingness to unsettle past prejudice, the result may differ and could significantly impact the 8(a) program and the SBA’s small business regulations.
This article summarizes aspects of the law and does not constitute legal advice. For legal advice for your situation, you should contact an attorney.
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