8(a) Program Survives Court Challenge–But Battle Could Continue

The 8(a) Program has survived a major challenge to its constitutionality–but the legal battle over the 8(a) Program’s future may well continue.

On Friday, a two-judge majority of the U.S. Court of Appeals for the D.C. Circuit held that the statute that creates the 8(a) Program is not unconstitutional. While the D.C. Circuit’s decision is a big win for proponents of the 8(a) Program, the limited scope of the ruling–and a sharp dissent from that ruling–signal that the fight over the future of the 8(a) Program may not be over.

Rothe Development, Inc. v. U.S. Department of Defense, No. 1:12-cv-00744 (D.C. Cir. Sept. 9, 2016), involved the question of whether the Department of Defense could set aside certain procurements exclusively for 8(a) Program participants. Rothe Development, Inc., which is not an 8(a) participant, brought suit against the DoD, arguing that it had been improperly precluded from competing for these contracts.

Rothe challenged the constitutionality of the 8(a) Program itself. Rothe attacked the statutory provisions establishing the 8(a) Program, claiming that the underlying 8(a) Program statute “contains a racial classification that presumes that certain racial minorities are eligible for the program,” while denying such a presumption to those who are not members of those groups. Rothe argued that this classification system violated its right to equal protection under the Due Process Clause of the Fifth Amendment.

When a court reviews an equal protection challenge, the court will apply a certain “standard of review.”  The standard of review sets forth the burden that the government must meet in order to demonstrate that the challenged law is constitutional. For equal protection purposes, the Supreme Court has established three standards of review: rational basis, intermediate scrutiny and strict scrutiny. Think of these as low, medium, and high scrutiny (or tall, grande, and venti, if you prefer Starbucks terminology).

Rational basis is the lowest threshold, and applies to the review of most laws. To survive a rational basis review, a statute merely must be bear some reasonable relation to some legitimate government interest.

Strict scrutiny, on the other hand, is the highest level of review. A court must apply strict scrutiny in certain circumstances, such as where a statute, on its face, is not race-neutral. To pass strict scrutiny, the government must show the statute is narrowly tailored to meet a compelling government interest. That, of course, can be a very difficult burden for the government to meet; when strict scrutiny is applied, the court often rules against the government.

Turning back to the case at hand, the two-judge majority, after closely reviewing the 8(a) Program’s underlying statute, determined that “the provisions of the Small Business Act that Rothe challenges do not on their face classify individuals by race.” The majority continued:

Section 8(a) uses facially race-neutral terms of eligibility to identify individual victims of discrimination, prejudice, or bias, without presuming that members of certain racial, ethnic, or cultural groups qualify as such. That makes it different from other statutes that either expressly limit participation in contracting programs to racial or ethnic minorities or specifically direct third parties to presume that members of certain racial or ethnic groups, or minorities generally, are eligible. Congress intentionally took a different tack with section 8(a), opting for inclusive terms of eligibility that focus on an individual’s experience of bias and aim to promote equal opportunity for entrepreneurs of all racial backgrounds.

The majority noted that “[i]n contrast to the statute, the SBA’s regulation implementing the 8(a) program does contain a racial classification in the form of a presumption that an individual who is a member of one of five designated racial groups (and within them, 37 subgroups, is socially disadvantaged.” Importantly, however, Rothe “elected to challenge only the statute,” not the regulation. Therefore, the court determined, “[t]his case does not permit us to decide whether the race-based regulatory presumption is constitutionally sound.”

Having determined that the statute was race-neutral on its face, the D.C. Circuit majority applied the rational basis test, not strict scrutiny. The majority found that “[c]ounteracting discrimination is a legitimate interest,” and that “the statutory scheme is rationally related to that end.” The D.C. Circuit held that the 8(a) Program’s statutory provisions did not violate the Fifth Amendment.

Judge Karen Lecraft Henderson dissented in part from the majority’s ruling. Judge Henderson pointed out that just about everyone who had looked at the issue previously–Rothe, the government’s counsel, and the lower court–had concluded that the statute did, in fact, contain a racial classification.

Judge Henderson wrote that that “section 8(a) contains a paradigmatic racial classification,” and that the court “should apply strict scrutiny in determining whether the section 8(a) program violates Rothe’s right to equal protection of the laws.” Judge Henderson did not say, however, whether she would find the 8(a) Program to be unconstitutional under a strict scrutiny test.

There is no doubt that the D.C. Circuit’s decision is a big win for proponents of the 8(a) Program. Not only was the 8(a) program found to pass constitutional muster, the applicable standard of review was determined to be rational basis—the easiest test for a statute to pass.

But some of the coverage I’ve seen of the D.C. Circuit’s decision makes it sound like the issue of the 8(a) Program’s constitutionality has been fully and finally resolved. I’m not so sure.

As the majority noted, Rothe specifically disclaimed any challenge to 13 C.F.R. 124.103, the SBA regulation establishing who is–and is not–deemed “socially disadvantaged” for 8(a) Program purposes. The majority was very clear that it believes that the regulations themselves are not race-neutral, meaning that any future challenge to the regulations would likely be decided under the much-higher strict scrutiny standard.

Additionally, there is no guarantee that the Rothe case itself is over and done. While the Supreme Court doesn’t take many government contracting cases, the recent Kingdomware decision demonstrates that the Court is willing to take on an important contracting case. And in Rothe, the D.C. Circuit’s internal disagreement over what level of scrutiny to apply, coupled with the Court’s willingness to tackle cases involving alleged race-based classifications, might mean that Rothe ends up on the Supreme Court’s docket.

For 8(a) Program proponents, there is good reason to cheer the D.C. Circuit’s Rothe decision, but don’t break out the champagne just yet.