Safeco Insurance Company of America v City of White House Brief for US EPA

    Nos. 97-6094, 97-6105

IN THE UNITED STATES COURT OF APPEALS 
FOR THE SIXTH CIRCUIT

SAFECO INSURANCE COMPANY OF AMERICA;
EATHERLY CONSTRUCTION COMPANY,

Plaintiffs-Appellants
v .

CITY OF WHITE HOUSE, TENNESSEE, A Municipal Corporation,
Defendant-Appellee-Cross Appellant 

UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
Intervenor-Appellee

APPEAL FROM THE UNITED STATES DISTRICT COURT 
MIDDLE DISTRICT OF TENNESSEE

BRIEF FOR THE UNITED STATES ENVIRONMENTAL PROTECTION AGENCY

JONATHAN Z. CANNON 
General Counsel

BILL LANN LEE
Acting Assistant Attorney General

HOWARD F. CORCORAN 
MARK D. GORDON 
KENNETH A. REDDEN 
Attorneys
Office of the General 

Counsel
U . S. Environmental 
Protection Agency 

Washington, D.C. 20430

MARK L. GROSS 
LISA WILSON EDWARDS 
Attorneys
Department of Justice 
P.O. Box 66078
Washington, D.C. 20035-6078



STATEMENT CONCERNING ORAL ARGUMENT
We think that oral argument would be helpful to the Court in

resolving the issues raised in this appeal.



TABLE OF CONTENTS
PAGE

STATEMENT CONCERNING ORAL ARGUMENT
STATEMENT OF SUBJECT MATTER AND APPELLATE JURISDICTION . . . . 1
STATEMENT OF THE ISSUES........................................2
STATEMENT OF THE C A S E ..........................................2

A. Procedural History ................................  .2

B. F a c t s ................................................4
C. District Court Decisions ..........................  14

STANDARDS OF REVIEW....................................... 16
SUMMARY OF THE ARGUMENT.................................... 16
ARGUMENT:

I. THE EPA REGULATION IS AN OUTREACH PROVISION THAT 
DOES NOT REQUIRE THAT ANY CONTRACTING DECISION BE 
MADE ON THE BASIS OF RACE, AND THEREFORE SHOULD 
NOT BE SUBJECT TO STRICT SCRUTINY............... 20
A. The EPA Regulation Requires Only Outreach . . .  20
B. Programs That Require Only Outreach Are Not

Subject To Strict Scrutiny ....................  21
C. The EPA Did Not Require Eatherly To Award A 

Subcontract Based On Race, And Therefore The 
Application Of The Regulation To Eatherly Is
Not Subject To Strict Scrutiny ................  30

II. THE EPA REGULATION SATISFIES STRICT SCRUTINY . . . .  36
A. The EPA Regulation Was Promulgated Pursuant

To An Express Delegation By Congress . . . . . . .  36
B. Congress's Ample Findings of Discrimination 

Against Minority Businesses Establish A 
Compelling Interest For Mandating Executive 
Branch Agencies To Promulgate Remedial
Measures...................................... 3 8

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TABLE OF CONTENTS (continued): PAGE
C. Congress Has Authority Under The Constitution 

To Mandate Remedies That Are National In Scope,
And Neither It Nor The Agency Administering A 
Federal Program Are Required To Make Localized 
Findings Of Discrimination Prior To Implementing 
The Remedy...................................... 42

D. The EPA Regulation Satisfies The Requirements
Of Narrow Tailoring ..........................  45

CONCLUSION.................................................. 49

TABLE OF AUTHORITIES
CASES:
Adarand Constructors. Inc, v. £ena, 965 F. Supp. 1556

(D. Colo. 1997) ..................................  42, 44
Adarand Constructors. Inc, v. Pena,

515 U.S. 200 (1995)  passim
Anderson v. City of Bessemer City. 470 U.S. 564 (1985) . . .  31
Billish v. City of Chicago. 962 F.2d 1269 (7th Cir. 1992), 

on reh'g, 989 F.2d 890 (7th Cir.Men banc),
cert, denied, 510 U.S. 908 (1993)   30

Chrysler Corp. v. Brown. 441 U.S. 281 (1979)   36
City of Richmond v. J.A. Croson Co..

488 U.S. 469 (1989)  passim
Coal Resources, Inc, v. Gulf & Western Indus.. Inc.,

865 F . 2d 761 (6th Cir. 1989) ........................... 31
Concrete Works Qf-Colo., .Inc.̂  v. city & County of Denver.

36 F.3d 1513 (10th Cir. 1994), cert, denied,
514 U.S. 1004 (1995)................................  24-25

Contractors. Ass1n v. City of Philadelphia, 6 F.3d 990
(3d Cir. 1993)........................................  25

Cortez III Service Corp. v. NASA. 950 F. Supp. 357
(D.D.C. 1996)   42

Cunico v. Pueblo Sch. Dist. No. 60. 917 F.2d 431
(10th Cir. 1990)......................................  23

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CASES (continued): PAGE
Domar Electric. Inc, v. City of Los Angeles.

885 P. 2d 934 (Cal. 1995)..............................  26
Ensley Branch. NAACP v. Seibels. 31 F.3d 1548

(11th Cir. 1994)......................................  30
Ex Parte Virginia. 100 U.S. 339 (1880) ....................  44
F. Buddie Contracting Co. v. City of Elyria.

773 F. Supp. 1018 (N.D. Ohio 1991).................... 25
Fullilove V. Klutznick. 448 U.S. 448 (1980)........ 38, 39, 45
Gilday v. Mecosta County. 124 F.3d 760 (6th Cir. 1997) . . .  16
Katzenbach v. Morgan. 384 U.S. 641 (1966)..................  44
Kline v. Tennessee Valley Auth.. 128 F.3d 337

(6th Cir. 1997)   31
M.C. West. Inc, v. Lewis. 522 F. Supp. 338

(M.D. Term. 1981)  25
Miami Tele-Communications. Inc, v. City of Miami.

743 F. Supp. 1573 (S.D. Fla. 1990)....................  25
Monterey Mechanical Co. v. Wilson. 125 F.3d 702

(9th Cir. 1997)   26
Oregon v. Mitchell. 400 U.S. 112 (1970)....................  44
Peightal v .  Metropolitan Dade County, 26 F.3d 1545

(llth Cir. 1994)..................................  29, 30
Podberesky v. Kirwan. 956 F.2d 52 (4th Cir. 1992)..........  23
Raso v. Lago. 1998 WL 21849 (1st Cir. Jan 27, 1998) . . . 27, 28
Safeco Ins. Co. v. City of White House. 36 F.3d 540 

(6th Cir.), reh'g denied, 42 F.3d 319
(6th Cir. 1994) ................................  3, 4, 14

S.J. Groves & Sons Co. v. Fulton County.
696 F. Supp. 1480 (N.D. Ga. 1987) ....................  25

United States v. Martin. 25 F.3d 293 (6th Cir. 1994) . . . .  16
Wheeler v. McKinley Enters.. 937 F.2d 1158 (6th Cir. 1991) . 31

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Fourteenth Amendment,
Section 5 ...................................................44

Federal Property and Administrative Services Act of 1949,
Section 205(a), 40 U.S.C. 486(a)   36

Housing and Urban Development Act, Pub. L. 91-609,
84 Stat. 1813, 15 U.S.C. 694(a), (b) .................... 45

Small Business A c t , .................................... passim
Section 3, 15 U.S.C. 632 ................................ 7
15 U.S.C. 632(a)   7
15 U.S.C. 632 (a) ( 2 ) ..........................................7
1978 Amendments to the Small Business Act, Pub. L. 95-507,

92 Stat. 1767, Section 211, 15 U.S.C. 637 .......... passim
Section 8(a), 15 U.S.C. 637(a)   40

28 U.S.C. 1 2 9 1 ................................................1
28 U.S.C. 1 3 3 1 ................................................1
28 U.S.C. 1332  1
42 U.S.C. 1983   28
REGULATIONS:

13 C.F.R. Pt. 1 2 1 ..............................................7
40 C.F.R. 31.36(e)   7
40 C.F.R. Part 3 3 ..............................................7

40 C.F.R. 33.005 ...................................... 6, 7
40 C.F.R. 33.240   passim
40 C.F.R. 33.240(a) ..................................... 20
40 C.F.R. 33.240 (a) (1)  20
40 C.F.R. 33.240 (a) (2)   20
40 C.F.R. 33.240 (a) (3)  21
40 C.F.R. 33.240(a)(4)   21
40 C.F.R. 33.240 (a) (5)  21
40 C.F.R. 33.240(a)(6)   6

CONSTITUTION AND STATUTES: PAGE

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LEGISLATIVE HISTORY: PAGE
To Amend the Small Business Act to Extend the Current SBA 

8(a) Pilot Program: Hearings on H.R. 5612 Before the 
Senate Select Committee on Small Business, 96th Cong.,
2d Sess. (1980)..........................................  40

Small and Minority Business in the Decade of the 1980's,
Pt. 1, House Committee on Small Business, 97th Cong.,
1st Sess. (1981) ........................................ 40

Small Business and the Federal Procurement System, Hearings 
Before the Subcommittee on General Oversight, House 
Committee on Small Business, 97th Cong., 1st Sess.
(1981)  41

Hearings on Minority Business and its Contributions to the 
U.S. Economy, Senate Committee on Small Business, 97th 
Cong., 2d Sess. (1982)   40

Hearings on Federal Contracting Opportunities for Minority 
and Women-owned Businesses: An Examination of the 8(d) 
Subcontracting Program Before the Senate Committee on 
Small Business, 98th Cong., 1st Sess. (1983)   41

Hearings on Women Entrepreneurs: Their Success and Problems 
Before the Senate Committee on Small Business, 98th Cong.,
2d Sess. (1984)..........................................  41

Hearings on the State of Hispanic Small Business in America 
Before the Subcommittee on SBA and SBIC Authority, Minority 
Enterprise and General Small Business Problems of the House 
Committee on Small Business, 99th Cong., 1st Sess. (1985) . 41

Hearings on Minority Enterprise and General Small Business 
Problems Before the Subcommittee on SBA and SBIC Authority, 
Minority Enterprise and General Small Business Problems of
the Committee on Small Business, 99th Cong., 2d Sess.
(1986) ..................................................  41

Small Business Problems, House Committee on Small Business,
100th Cong., 1st Sess. (1987) ............................  41

Surety Bonds and Minority Contractors, House Committee
on Energy and Commerce, 100th Cong., 2d Sess. (1988) . . .  41

Barriers to Full Minority Participation in Federally Funded 
Highway Construction Projects, House Committee on Government 
Operations, 100th Cong., 2d Sess. (1988) ................  41

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Minority Construction Contracting, House Committee on Small
Business, 101st Cong., 1st Sess. (1989) ..................  4 1

Small Disadvantaged Business Issues, House Committee on Armed 
Services, 102d Cong., 2d Sess. (1991).................... 41

Problems Facing Minority and Women-owned Small Businesses 
in Procuring U.S. Government Contracts, House Committee on 
Gov't Operations, 103d Cong., 1st Sess. (1993) ..........  41

Discrimination in Surety Bonding, House Committee on Small
Business, 103d Cong., 1st Sess. (1993) ..................  41

H.R. Rep. No. 94-468 (1975)................................  39
124 Cong. Rec. 29,641 (1978) .............................  39
124 Cong. Rec. 29,644 (1978) .............................  40
124 Cong. Rec. 34,097 (1978) .............................  39
124 Cong. Rec. 35,304 (1978) .............................  39
48 Fed. Reg. 12,922 (Mar. 28, 1983)......................  5, 36
61 Fed. Reg. 6,066 (Feb. 15, 1996) .......................... 7

Executive Order 11,458 (Mar. 5, 1969)   38
Executive Order 11,625 (Oct. 13, 1971) ' .....................  38
Executive Order 12,138 (May 18, 1979)   38
Executive Order 12,432 (July 14, 1983) ............  18, 36, 37
MISCELLANEOUS:
EPA Guidance for Utilization of Small, Minority and Women's 
Business Enterprises in Procurement Under Assistance 
Agreements (1986)....................................  47, 48

Library of Congress, Congressional Research Service,
Minority Enterprise and Public Policy 53 (1977) ..........  46

Office of Legal Counsel, Department of Justice, Memorandum 
to General Counsels. Daily Labor Rept. (BNA) 125 
(June 28, 1995)..........................................  29

LEGISLATIVE HISTORY (continued): PAGE

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IN THE UNITED STATES COURT OF APPEALS 
FOR THE SIXTH CIRCUIT

Nos. 97-6094, 97-6105
SAFECO INSURANCE COMPANY OF AMERICA;

EATHERLY CONSTRUCTION COMPANY,
Plaintiffs-Appellants 
v.

CITY OF WHITE HOUSE, TENNESSEE, A Municipal Corporation,
Defendant-Appellee-Cross Appellant 

UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
Intervenor-Appellee

APPEAL FROM THE UNITED STATES DISTRICT COURT 
MIDDLE DISTRICT OF TENNESSEE

BRIEF FOR THE UNITED STATES ENVIRONMENTAL PROTECTION AGENCY

STATEMENT OF SUBJECT MATTER AND APPELLATE JURISDICTION 
The district court had subject matter jurisdiction under 28 

U.S.C. 1331 because the case involved the constitutionality of 
federal regulations promulgated by the U.S. Environmental 
Protection Agency. The district court also had original 
jurisdiction over this case pursuant to 28 U.S.C. 1332. Timely 
notices of appeal from the district court's orders of August 5, 
1997 were filed by Safeco Insurance Company of America, Eatherly 
Construction Company, and City of White House, Tennessee. This 
Court has jurisdiction of these appeals pursuant to 28 U.S.C.
1291.



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STATEMENT OF THE ISSUES

1. Whether an EPA regulation that requires prime 
contractors to ensure that small, minority-, and women-owned 
businesses are solicited to compete for subcontracts, but does 
not require competitive advantages for these firms, is subject to 
strict scrutiny.

2. Whether the EPA regulation satisfies strict scrutiny.
STATEMENT OF THE CASE

A. Procedural History
This case arises from a declaratory judgment action filed in 

November 1987 by plaintiff Safeco Insurance Company of America 
(Safeco). Safeco alleged that it was not liable as surety for 
damages incurred by the City of White House, Tennessee (City), 
resulting from an alleged breach of a construction contract by 
Safeco's insured, Eatherly Construction Company (Eatherly). The 
bid specification required Eatherly's compliance with an EPA 
regulation, 40 C.F.R. 33.240, that requires prime contractors to 
make good faith efforts to ensure that small, minority-, and 
women-owned businesses are solicited as potential sources for 
supplies, construction and services. Following cross-motions for 
summary judgment, the district court adopted the recommendation 
of the magistrate judge that while there was a valid contract 
between the City and Eatherly, there were disputed factual issues 
as to whether Eatherly had complied with its obligations under 
the contract.

The City later moved for summary judgment on the grounds



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that: (1) the district court concluded that Eatherly and the City 
had a contract; (2) there was no factual issue regarding breach 
because Eatherly withdrew its bid after it had been accepted; and
(3) damages could be ascertained by stipulation. On May 14,
1993, the district court granted the motion and entered judgment 
against Safeco in the amount of $352,847.08 for substitute 
performance, plus $207,358.03 in prejudgment interest. On 
October 3, 1994, this Court affirmed the district court's holding 
that a binding contract existed between the City and Eatherly, 
but held that there was a genuine issue of material fact as to 
whether Eatherly breached the contract by failing to comply with 
the EPA regulation, and vacated the grant of summary judgment. 
Safeco Ins. Co. v. City of White House. 36 F.3d 540 (6th Cir.), 
reh'g denied, 42 F.3d 319 (6th Cir. 1994). The Court remanded 
for further proceedings. 36 F.3d at 548.

In June 1995, Safeco moved for summary judgment, arguing 
that the EPA regulation was unenforceable against Eatherly 
because it did not satisfy strict scrutiny as required by the 
Supreme Court's recent decision in Adarand Constructors. Inc, v. 
Pena. 515 U.S. 200 (1995), and was therefore unconstitutional.
The EPA intervened as defendant to defend the regulation. EPA 
and the City also filed cross-motions for summary judgment.

On March 20, 1996, the district court granted EPA's motion 
for partial summary judgment and the City's motion for summary 
judgment, and held that the EPA regulation was facially 
constitutional. After trial, the jury returned a verdict that



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Eatherly did not satisfy the EPA regulation. On August 5, 1997, 
the district court entered a decision denying Eatherly's 
complaint for declaratory judgment, and entered judgment in favor 
of EPA and the City.
B. Facts

i. The Contract.
Nearly eleven years ago the City entered into a contract 

with Eatherly to expand the City's sanitary sewer system (TR I 
18-20).A/ The construction project was partially funded by a 
grant from the EPA (TR I 11, 22; Exh. 1 at Inf.-4). Eatherly 
submitted the lowest bid at $2,643,749.10. Safeco, 36 F.3d at 
542. Moore Construction Company submitted the second lowest bid 
at $2,989,029.56 (id. at 543), $345,280.46 higher than Eatherly's 
bid.

Pursuant to the terms of the contract, Eatherly furnished 
the City with a bid bond, and Safeco signed as Eatherly's surety 
on the bond (TR I 19). As stated in the bid specifications, 
Eatherly was required to secure EPA approval of the contract 
prior to the City issuing its notice to proceed (TR I 22; Exh. 2; 
TR II 11). As a part of that responsibility, Eatherly had to 
document compliance with the requirements of 40 C.F.R. 33.240 
within ten days after the bid opening (Exh. 3). EPA approval was

y “R. __" refers to items listed in the district court's
docket sheet. “TR I  " refers to pages in the trial transcript
dated April 15, 1997. “TR II  ” refers to pages in the trial
transcript dated April 16, 1997. “TR III __" refers to pages in
the trial transcript dated April 17, 1997. “Safeco Br.
refers to pages in the brief filed by appellant Safeco/Eatherly.
“Exh. " refers to the trial exhibits.



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required prior to the City's issuance of the notice to proceed. 
The City had 90 days, or until July 15, 1987, to issue the 
notice, and Eatherly was prohibited from withdrawing its bid 
during that period (TR I 34-36; City Exh. 2, 74; TR II 21-22; TR 
III 22)

2. The EPA regulation.
EPA regulation 40 C.F.R. 33.240 was promulgated on March 28, 

1983, pursuant to a directive from the Office of Management and 
Budget (OMB) that established government policy for clarifying 
and simplifying existing regulations governing procurement under 
federal assistance programs. 48 Fed. Reg. 12,922-12,923 (March 
28, 1983). OMB Circular A-102, entitled “Grants and Cooperative 
Agreements with State and Local Governments", sets forth federal 
standards and guidelines for the procurement of supplies, 
equipment, construction and services for federal assistance 
programs. The EPA regulation, incorporating language from 
Attachment 0 of the Circular, states that it is EPA policy to 
encourage contractors under EPA grants and cooperative agreements 
to “award a fair share of subagreements to small, minority, and 
women's businesses” when they award subcontracts. 40 C.F.R. 
33.240; see also OMB Circular A-102, Attachment O (attached as 
Addendum B). The regulation established that as a condition to 
receipt of federal funds, recipients of grants and cooperative 
agreements must take “affirmative steps" to assure that “small, 
minority, and women's businesses are used when possible as 
sources of supplies, construction and services." Ibid. The



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regulation describes “affirmative steps" as:

(1) Including qualified small, minority and women's 
businesses on solicitation lists;
(2) Assuring that small, minority, and women's businesses 
are solicited whenever they are potential sources;
(3) Dividing total requirements, when economically feasible, 
into small tasks or quantities to permit maximum 
participation of small, minority, and women's businesses;
(4) Establishing delivery schedules, where the requirements 
of the work permit, which will encourage participation by 
small, minority, and women's businesses;
(5) Using the services and assistance of the Small Business 
Administration and the Office of Minority Business 
Enterprise of the U.S. Department of Commerce, as 
appropriate.

The regulation requires that these affirmative steps be taken by 
a recipient's prime contractor when awarding subcontracts on EPA- 
funded projects. 40 C.F.R. 33.240(a)(6).

EPA defines a minority business enterprise (MBE) as a 
business that is “(1) [c]ertified as socially and economically 
disadvantaged by the Small Business Administration, (2) certified 
as a minority business enterprise by a State or Federal agency, 
or (3) an independent business concern which is at least 51 
percent owned and controlled by minority group member(s)." 40
C.F.R. 33.005. The regulation describes a minority group member 
as an individual who is a citizen of the United States and either 
a Black American, Hispanic American, Native American, or Asian- 
Pacific American. 40 C.F.R. 33.005. A women's business 
enterprise (WBE) is a business that is certified as such by a 
state or federal agency, or an independent business concern at 
least 51 percent owned by a woman or women who also control and



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operate it. 40 C.F.R. 33.005. In defining “small business," the 
regulation adopts the definition provided by Section 3 of the 
Small Business Act (15 U.S.C. 632). 40 C.F.R. 33.005. This
statutory provision defines a small business as one that “is not 
dominant in its field of operation." 15 U.S.C. 632(a). The 
statute also permits the Small Business Administration (SBA) to 
specify detailed definitions for determining a small business 
based on, for example, number of employees, dollar volume of 
business, net worth, and net income. 15 U.S.C. 632(a)(2); see 
also 13 C.F.R. Pt. 121 (small business size regulations).^

3. Eatherly1s actions taken to satisfy the EPA regulation.
Eatherly Construction Company was managed by its owner, 

Robert Eatherly (TR III 173). Robert Eatherly started his 
business in 1952, and has worked on other EPA-funded projects 
prior to being awarded the City's contract to construct the 
sanitary sewer system (TR III 6, 50). Mr. Eatherly stated that 
he has secured MBE participation on some EPA-funded projects (TR 
III 52). He also stated that he has had EPA-funded contracts 
where he has had nc MBE participation, and EPA approved the 
contract (TR III 52-53). Eatherly's estimator, James Stacey, 
prepared the company's bid for the City's sanitary sewer system 
project (TR I 72). When Eatherly's bid was accepted, Stacey was *

v On February 15, 1996, the EPA issued a final rule 
deleting the entire Part 33, including 40 C.F.R. 33.240 and 
33.005, from its regulations. See 61 Fed. Reg. 6,066 (Feb. 15, 
1996). The affirmative steps set forth in 40 C.F.R. 33.240 
continue to apply to assistance agreements with states and local 
governments pursuant to 40 C.F.R. 31.36(e).



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assigned the responsibility of soliciting small, minority-, and 
women-owned firms to compete for subcontracts on the project in 
order to satisfy the EPA requirements (TR I 84). Stacey had 
never before been involved with soliciting MBE or WBE 
participation on construction projects (TR II 13-14, 52).
Pursuant to the bid specifications, Eatherly was required to 
satisfy the six steps for soliciting small, minority-, and women- 
owned businesses to bid on subcontracts (Exh. 2, 3). There was 
no numerical goal, either in the contract or region-wide, that 
either the City or Eatherly, as prime contractor, was expected to 
meet to satisfy EPA requirements (R. 233: Attachment I at 6 
(declaration of Nancy Barron)).

Stacey met with the City's engineer, Ed Walker, to talk 
about the items that had to be submitted pursuant to the 
contract, including documentation of Eatherly's compliance with 
40 C.F.R. 33.240 (TR III 68-69). Walker told Stacey that Nancy 
Barron, who worked at the EPA's Atlanta office, could assist him 
in locating MBE and WBE subcontractors (TR I 87). Stacey had a 
list of small, minority-, and women-owned firms compiled by the 
Tennessee Department of Economic and Community Development (TR I 
87; Exh. 5). He told Barron that he was sending bid invitations 
by certified mail to ten local contractors inviting bids for work 
on pavement, sidewalk and curb replacement, road boring, and 
gravity sewer lines (TR I 90; TR II 5-6). Stacey later sent 
Barron a copy of the invitations for bids, and a list of the ten 
businesses to which he sent the invitation (TR I 91; Exhs. 6, 7).



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Barron told Stacey to call her when he got responses to the 
letters (TR I 89).

Stacey did not receive any responses (TR I 95). Three of 
the letters were returned by the Post Office (TR II 56, 59; Exh. 
8), and one letter was sent to a contractor who was dead, and no 
one was operating the business (TR III 117). Another letter was 
sent to an electrical firm, although the invitation for bids did 
not solicit for electrical work (Exh. 5 at 36; Exh. 6 at 3). 
Despite Barron's request, Stacey did not send her certified 
receipts from the mailings or return receipt cards showing that 
the letters were received by the recipients (TR II 107-108). 
Barron considered Stacey's list of ten firms incomplete because 
the addresses lacked zip codes, telephone numbers, and there was 
no indication that Stacey followed through with phone calls to 
these businesses (TR II 114; TR III 116). Despite the lack of 
responses, Stacey told Barron that he would be able to comply 
with the regulation (R. 233: Attachment I at 4 (declaration of 
Nancy Barron)).

Stacey testified that he called one firm on the list, but 
the owner informed him that he was too busy to perform the work 
(TR I 97-98). Barron informed Stacey that his submission was 
inadequate (TR III 115), and advised him to contact Cecil Conley, 
who worked for the Office of Business Enterprise in the Tennessee 
Department of Economic and Community Development (TR I 105; TR 
III 116). Conley specializes in certifying small, minority-, and 
women-owned firms as “disadvantaged businesses” and works with



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federal and local government agencies, as well as large 
construction companies, helping them to identify small, 
minority-, and women-owned firms for contracting opportunities 
(TR III 85). Although Stacey testified that he tried 
unsuccessfully to reach Conley (TR I 105), Conley testified that 
he did not receive any telephone calls, messages, or letters from 
Robert Eatherly or James Stacey during the spring of 1987, and 
never met with either (TR III 87-88). Conley further testified 
that the secretary's telephone log did not reflect any such 
calls, and that if there were multiple messages, the secretary 
would have informed a supervisor (TR III 88-89). Conley stated 
that had Stacey or Eatherly contacted him, he would have provided 
the names of numerous minority- and women-owned businesses 
throughout the State that could perform the work that they wanted 
to subcontract (TR III 90-93). During the trial, Conley named 
several potential minority-owned businesses that Stacey could 
have contacted (TR III 90-93). Conley testified that during his 
15 years working with the State and coordinating efforts with 
EPA, he was not aware of any instance where a contractor failed 
to secure EPA compliance with the good faith efforts provision of 
40 C.F.R. 33.240 (TR III 95; see also TR III 74 (testimony of Ed 
Walker)).

In June 1987, the City's attorney, David Amonette, sent a 
letter to Robert Eatherly informing him that the City wanted to 
announce a starting date for constructing the sanitary sewer 
system, and asked Eatherly to give the EPA compliance matter his



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“closest attention" (Exh. 27). During a conference call on June 
10, Stacey told Barron that he had talked to HMC Contractors, a 
minority-owned business (TR II 131, 147-148), about the 
possibility of doing paving work for the sewer system project (TR 
I 99-100; TR III 123-124) and that it was his intention to use 
that company (TR III 149). Barron told Stacey that she needed 
him to confirm that in writing so that she would have proper 
documentation (TR III 124). David Amonette told Stacey to send 
the letter to Barron by Federal Express (TR II 27; TR III 125, 
147). Barron and Amonette understood Stacey to say that he would 
do that (TR II 27; TR III 141, 149), and Amonette sent a letter 
to Stacey confirming their understanding that Stacey would send 
the letter to Barron (Exh. 11). Barron said during the 
conference call that she would give approval for the project once 
she received that information from Stacey (TR III 124).

Stacey never sent the letter to Barron (TR III 125). After 
the June 10 conference call, neither Stacey nor Eatherly made any 
further efforts to solicit small, minority-, or women-owned firms 
for subcontracting on the project (TR II 29-30). During this 
time, Eatherly was informed by his pipe supplier that he could 
not hold the price of the pipes for Eatherly, and that the price 
would increase by $26,000 (TR III 26).

When Barron then called Stacey about the letter, he told her 
that he did not send it because he felt that he could not commit 
to using HMC since he did not have a formal written agreement 
from that company (TR III 125-126). Barron testified that she



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understood that there was no formal agreement between Eatherly 
and HMC (TR III 128), but said that she needed only written 
confirmation that Stacey intended to subcontract with HMC if the 
firm was available at the appropriate time (TR III 124, 127). 
Barron testified that had Eatherly not utilized HMC, it would be 
required only to inform EPA and try to solicit another firm for 
the work at a comparable price (TR III 127-130, 136). Charlie 
Batemen, the secretary/treasurer of HMC, testified that he was 
already working on many projects, but that when it was time for 
the paving work to be done he would have considered taking the 
job depending on his firm's availability (TR I 100; TR II 136, 
140) .

Barron testified that the regulation required prime 
contractors only to make a good faith effort to solicit and 
utilize small, minority-, and women-owned subcontractors (TR II 
105-106, 110-111). She said a good faith effort meant contacting 
these businesses by mail or advertising in newspapers to let them 
know of subcontracting opportunities, and giving them sufficient 
time to bid (TR III 112). Barron stated that she never required 
Eatherly to subcontract with a minority firm on the project (TR 
III 133). She testified that she would have approved Eatherly's 
contract had it made a good faith effort to solicit MBEs, even if 
it had not successfully employed an MBE on a subcontract (TR III 
133-135). Barron testified that she asked Stacey to put any 
intent to use an MBE in writing, because documentation is 
required for EPA approval and explained that requirement to



-13-
Stacey (TR III 124-125). When a contractor makes a commitment to 
use a specific subcontractor but is unable to abide by the 
commitment because of changed circumstances, the EPA requires the 
contractor to notify the agency and make a good faith effort to 
solicit another MBE to compete for the subcontract (TR III 129- 
130) .

Barron stated that where a prime contractor receives bids 
from MBEs or WBEs that are not competitive with those submitted 
by non-minority or non-women-owned firms, there is no expectation 
that the contractor will utilize the MBE or WBE, and there is no 
administrative penalty for failing to use those firms (R. 233: 
Attachment I at 6 (declaration of Nancy Barron)). Barron stated 
that EPA has approved contractors who in good faith satisfy the 
affirmative steps, and document their compliance, but who are 
unable to obtain any MBE or WBE participation on a project (R.
233: Attachment I at 6-7 (declaration of Nancy Barron)). She 
stated that the failure to subcontract with an MBE or WBE does 
not result in noncompliance with the EPA regulation (R. 233: 
Attachment I at 7).

The period for Eatherly to satisfy EPA's regulation so that 
the City could issue its notice to proceed was to expire on July 
15, 1987 (TR I 36). On June 17, 1987, Robert Eatherly met with 
City officials (TR III 153) and announced that he was withdrawing 
his bid on the sewer system project (TR III 29, 153). He told 
the City that he had not secured EPA approval (TR III 28) and 
that the cost of the pipes that he would need to do the work had



-14-
increased significantly (TR III 28).

The City awarded the contract to Moore Construction Company, 
the second lowest bidder. Safeco, 36 F.3d at 543. Moore 
obtained EPA approval and completed the construction for its bid 
of $2,998,029.56, plus $20,000 for the increase in the price of 
materials between the bid date and the contract date. Ibid.
C. District Court Decisions

1. On March 20, 1996, the district court entered an order 
and opinion holding that the EPA regulation is facially 
constitutional, and does not trigger strict scrutiny analysis 
because it “merely seek[s] to ensure that minority firms are 
fairly notified of and considered for subcontracting 
opportunities" (R. 2 60 at 6) . The court stated that the 
regulation does not require prime contractors to subcontract with 
minority firms, and does not establish set-asides, numerical 
goals, penalties or financial incentives giving minority firms 
any competitive advantage (R. 260 at 6). Rather, the regulation 
requires prime contractors only to make “good faith efforts" to 
take certain steps to ensure that small, minority-, and women- 
owned firms are aware of and considered for subcontracting 
opportunities (R. 260 at 6).

The district court found further that the regulation is not 
unconstitutionally vague, since the steps required of prime 
contractors are set out in the contract and the “Notice of 
Bidders” (R. 260 at 6-7). The district court concluded that 
there were genuine issues of material fact as to whether the 
regulation was applied in an unconstitutional manner to Eatherly,



-15-
and denied summary judgment with respect to that issue (R. 260 at 
7) .

2. During April 15-17, 1997, the district court held an 
evidentiary hearing on whether the EPA regulation was applied to 
Eatherly in a constitutional manner. A jury was empaneled to 
determine the factual question whether Eatherly undertook good 
faith efforts to comply with the regulation. On April 18, 1997, 
the jury returned a verdict that: (1) Eatherly did not comply
with EPA regulations which required it to make good faith efforts 
to solicit small, minority-, and women-owned business 
participation, and to document its efforts to do so; and (2) it 
would not have been futile for Eatherly, acting with reasonable 
diligence, to obtain EPA approval during the 28-day period 
following withdrawal of its bid.

On August 5, the district court entered an order holding 
that EPA applied the regulation to Eatherly in a constitutional 
manner (R. 308, 309). The district court denied Eatherly's 
complaint for declaratory judgment, and entered judgment in favor 
of EPA on this issue (R. 308, 309). The district court found 
that “Eatherly did not document and submit to the approving 
officials in good faith its efforts to comply with the 
requirements of 40 C.F.R. 33.240, to solicit and consider 
minority and women's businesses for subcontracting" (R. 308 at 
11). The district court further found that it would not have

been futile for Eatherly to try to show that it complied with the



-16-
regulation (R. 308 at 11). The court held that the regulation 
did not require Eatherly to subcontract any specific portion of 
the project to a small, minority-, or woman-owned firm in order 
for EPA to authorize the contract (R. 308 at 3); nor did the 
regulation “require or induce Eatherly to award contracts on the 
basis of race" (R. 308 at 11) . The district court concluded that 
Eatherly's decision to withdraw its bid “was voluntary and not 
due to any unlawful acts or omissions on the part of the United 
States or the EPA” and that EPA acted “in a constitutional and 
lawful manner with regard to the contract at issue" (R. 308 at 
11) .

Based on these findings, the district court entered monetary 
judgment against Safeco, and ordered it to pay the City the 
principal amount of $352,847.08, plus costs and attorneys' fees 
(R. 310) .

STANDARDS OF REVIEW
The district court's grant of a summery judgment motion 

should be reviewed si£ novo. Gilday v. Mecosta County, 124 F.3d 
760, 762 (6th Cir. 1997). The district court's factual findings 
should be reviewed for clear error, and the court's conclusions 
of law should be reviewed si£ novo. United States v. Martinf 25 
F.3d 293, 296 (6th Cir. 1994).

SUMMARY OF THE ARGUMENT
The EPA regulation does not require race-conscious decision­

making affecting any individual, and therefore is not subject to 
strict scrutiny. The regulation is merely an outreach provision



-17-
designed to ensure that a wide variety of firms, including 
small, minority-, and women-owned firms, are aware of 
opportunities for subcontracts on EPA-funded projects. As the 
district court found, the regulation does not establish numerical 
goals, set-asides, financial incentives, or other competitive 
advantages to encourage the use of minority-owned firms, and does 
not create any competitive barriers that make it more difficult 
for non-minority firms to be awarded subcontracts. The 
regulation is designed only to enhance equal opportunity, and 
does not discriminate against any person because of race. Strict 
scrutiny is not required.

Moreover, the record shows that the regulation was not 
applied to Eatherly in a manner that required the consideration 
of race in the issuance of any contract or subcontract. The 
agency never required Eatherly to retain a minority firm in order 
to secure EPA approval of the construction contract. Nancy 
Barron, the EPA staff person overseeing the project, asked 
Eatherly's employee, James Stacey, only to use good faith efforts 
to inform minority businesses of opportunities to compete for 
subcontracts and provide documentation of those efforts.
Eatherly failed to satisfy that obligation. Stacey's mailing 
proved ineffective and failed to produce any responses —  five of 
the ten mailings were either returned, sent to a deceased 
contractor, or directed to a company that did not do the type of 
work being subcontracted. Stacey failed to follow through on 
Barron's advice to contact a state official who specializes in



-18-
identifying small, minority-, and women-owned firms for 
subcontracting opportunities. Stacey also refused to document 
any discussions with a potential minority-owned firm which 
Eatherly indicated it might use to perform the paving work on the 
project. Eatherly's bid was over $345,000 lower than the second 
lowest bidder. Prior to any final action taken by EPA, and upon 
receiving a report that the cost of pipes had increased 
significantly, Eatherly withdrew its bid. EPA never informed 
Eatherly that it must contract with a minority firm to satisfy 
EPA's regulatory requirements. Strict scrutiny is clearly 
inappropriate.

Should this Court nonetheless decide that strict scrutiny 
applies here, the regulation satisfies that level of review. The 
regulation is a valid exercise of authority delegated to the 
Executive Branch by Congress under Section 211 of the 1978 
Amendments to the Small Business Act. Section 211 of the Act 
sets forth Congress's mandate that small businesses, including 
minority-owned firms, be given the “maximum practicable 
opportunity to participate in the performance of contracts let by 
any Federal agency." Pursuant to that mandate, Executive Order 
12,432 directs federal agencies to develop ways to encourage 
greater minority business subcontracting by federal prime 
contractors, and by recipients of federal grants and cooperative 
agreements. In response to the Executive Order, EPA promulgated 
40 C.F.R. 33.240, which encourages recipients of EPA funds and 
their prime contractors to solicit minority firms for



-19-
subcontracts, without requiring that such firms be retained.

Under strict scrutiny, the use of racial criteria affecting 
decision-making must be supported by a compelling governmental 
interest, and be narrowly tailored to serve that interest.
Because Congress reviewed and considered significant findings 
that discrimination against minority firms in public and private 
contracting and in the construction industry has hindered the 
opportunity of minority firms to secure federal contracts and 
subcontracts, the government has a compelling interest supporting 
measures to ensure that minority firms are included in the 
federal contracting process. Prior to the passage of Section 211 
of the Small Business Act in 1978, Congress had observed the 
continuing problems experienced by minority firms in securing 
business opportunities. Since passage of Section 211, Congress 
has engaged in ongoing review of the status of minority business 
participation in contracting, both in the private and public 
sectors and in federal procurement and construction. The 
overwhelming evidence showing the continuing existence of 
problems faced by minority businesses establishes a compelling 
interest for remedial measures. Because the EPA regulation is 
merely an outreach provision, and does not create any barriers to 
non-minority firms seeking subcontracts, it easily satisfies the 
narrow tailoring requirements of strict scrutiny.



-20-
ARGUMENT

I
THE EPA REGULATION IS AN OUTREACH PROVISION THAT 

DOES NOT REQUIRE THAT ANY CONTRACTING DECISION BE MADE ON THE 
BASIS OF RACE, AND THEREFORE SHOULD NOT BE 

SUBJECT TO STRICT SCRUTINY
A. The EPA Regulation Requires Only Outreach

Safeco argues (Br. 26-27) that the EPA regulation is a
“racial preference" and that strict scrutiny must apply in
evaluating its constitutionality. But, as the district court
properly determined, the regulation is not subject to strict
scrutiny because the affirmative steps set forth in 40 C.F.R.
33.240 do not require a contractor to engage in race-conscious
decision-making. The regulation requires prime contractors under
EPA grants and cooperative agreements, when awarding
subcontracts, to “assure that small, minority, and women's
businesses are used when possible as sources of supplies,
construction and services." 40 C.F.R. 33.240(a). To fulfill
that objective, the EPA requires such contractors to “[i]nclud[e]
qualified small, minority, and women's businesses on solicitation
lists[,] [and] [a]ssur[e] that [these] businesses are solicited
whenever they are potential sources." 40 C.F.R. 33.240(a)(1),
(2). The regulation also directs such contractors to divide
supply, construction and service needs into “small tasks or
quantities to permit maximum participation" by these businesses,
“[e]stablish delivery schedules" that encourage their
participation, and use the “services and assistance of the Small
Business Administration and the Office of Minority Business



-21-
Enterprise of the U.S. Department of Commerce" when seeking 
potential subcontractors for EPA-funded projects. 40 C.F.R. 
33.240(a)(3), (4), (5).

None of these provisions grant minority firms competitive 
advantages, or require prime contractors to hire minority firms 
as subcontractors. Rather, the EPA regulation seeks only to 
“ensure that minority firms are fairly notified of and considered 
for subcontracting opportunities” (R. 260 at 6) , by requiring 
prime contractors to take certain steps that will enhance the 
pool from which subcontractors competitively bid for contracting 
opportunities on EPA-funded projects. The regulation establishes 
no numerical goals, set-asides, quotas, or financial incentives 
to encourage the use of minority-owned firms, and therefore does 
not create any barriers that make it more difficult for non­
minorities to be awarded a subcontract. The regulation is 
designed to maximize participation by small, minority-, and 
women-owned firms in the bidding process, not to give these 
businesses an advantage over non-minority firms.
B. Programs That Require Only Outreach Are Not Subject To

Strict Scrutiny
Regulatory or statutory provisions that do not utilize race 

for purposes of decision-making are not subject to strict 
scrutiny. In Adarand Constructors. Inc. v. Pena. 515 U.S. 200 
(1995), the Supreme Court held that strict scrutiny applies to a 
governmentally imposed racial classification that may deny an 
individual a benefit or otherwise detrimentally affect an 
individual based on that individual's race. The racial



-22-
classification under challenge in Adarand was incorporated into a 
subcontracting compensation clause included in bidding contracts 
for federal highway projects. Under the subcontracting 
compensation clause, prime contractors were compensated for the 
additional cost associated with awarding subcontracts to small 
businesses owned and operated by socially and economically 
disadvantaged individuals. Under the program, small businesses 
owned and operated by minorities were presumed socially and 
economically disadvantaged. 515 U.S. at 205. The Department of 
Transportation awarded a prime contract for a highway 
construction project to Mountain Gravel and Construction Co.
When Mountain Gravel solicited bids for subcontractors, Adarand 
submitted the lowest bid. Ibid. Gonzales Construction Co., a 
minority-owned business, also submitted a bid. Despite Adarand's 
low bid, Mountain Gravel awarded the subcontract to Gonzales to 
take advantage of the bonus authorized by the subcontracting 
compensation clause. The race of Gonzales' owner thereby was a 
factor in its receipt of the contract, and the prime contractor's 
decision not to give it to Adarand. Ibid.

While the Supreme Court did not rule on the 
constitutionality of the racial classification challenged in 
Adarand, it did find that this kind of race-based decision­
making, even when congressionally imposed, required analysis 
under strict scrutiny. The Court stated, “whenever the 
government treats any person unequally because of his or her 
race, that person has suffered an injury that falls squarely



-23-
within the language and spirit of the Constitution's guarantee of 
equal protection," idj. at 229-230, and held that strict scrutiny 
applies to federal racial classifications. Id. at 224, 227.

This kind of racial classification presented in Adarand is 
similar to the state-sponsored program that was subjected to 
strict scrutiny in City of Richmond v. J.A. Croson Co.. 488 U.S. 
469, 495-496 (1989). In Croson, the Supreme Court subjected the 
City of Richmond's Minority Business Utilization Plan to strict 
scrutiny because it required prime contractors awarded city 
construction contracts to subcontract at least 30% of the dollar 
amount of each contract to minority-owned businesses. Id. at 
477. Other racial classifications that require decision-making 
based on race and therefore have been subjected to strict 
scrutiny include a state university's decision to create a 
minority-only scholarship program (Podberesky v. Kirwan. 956 F.2d 
52, 54-55 (4th Cir. 1992)), and a school board's decision to 
retain a less-senior black social worker over a white social 
wotker during a reduction-in-force (Cunico v. Pueblo Sch. Dist. 
No. 60. 917 F.2d 431, 437-438 (10th Cir. 1990)).

Unlike those cases, the EPA regulation does not require any 
contractor to give an advantage to minority subcontractors over 
non-minority subcontractors. While Eatherly was required to 
carry out the affirmative outreach steps set forth in 40 C.F.R. 
33.240, it was not required to award a subcontract to an MBE as a 
condition of performing the contract. The EPA simply required 
Eatherly to take steps to ensure that MBEs were aware of and had



-24-
an opportunity to compete for subcontracts. Moreover, under the 
regulation, MBEs compete for available subcontracts on the same 
terms as all other firms. Minority firms are not given any 
competitive advantage; there is no regulatory requirement that an 
MBE be awarded a subcontract where that firm is not the lowest 
bidder (see supra p. 13). Rather, the regulation helps 
facilitate participation by MBEs by requiring prime contractors 
to actively solicit and include MBEs in the bidding process, as 
well as small businesses and WBEs. Under the EPA regulation, 
prime contractors under EPA grants and cooperative agreements are 
merely required to include qualified small, minority-, and women- 
owned businesses when soliciting subcontracting opportunities for 
EPA-funded projects. A contractor is not required to enlist an 
MBE or WBE.

Safeco argues (Br. 27-28) that, even though the regulation 
contains no numerical goals, set-asides, quotas or financial 
incentives for minority firms, the EPA's outreach provision is 
subject to strict scrutiny. Safeco cites various cases in 
support of its claim. However, Safeco's reliance on these cases 
is misplaced. Each of the cases cited by Safeco involves a 
constitutional challenge to a local ordinance or federal 
regulation that included specific numerical goals or quotas for 
hiring minority- or women-owned firms. The courts in those cases 
determined that since the ordinance or regulation mandated 
specific numerical hiring goals, they were each subject to 
heightened scrutiny. See Concrete Works of Colo.. Inc, v. City &



-25-
Cnnntv of nenver. 36 F.3d 1513, 1516 (10th Cir. 1994) (city 
ordinance required the establishment of numerical goals on a 
project-by-project basis for the participation of MBEs and WBEs 
in city projects), cert, denied, 514 U.S. 1004 (1995);
Contractors Ass'n v. City of Philadelphia. 6 F.3d 990, 994 (3d 
Cir. 1993) (city ordinance set goals for participation of 
disadvantaged businesses in city contracts: 15% for MBEs, 10% for 
WBEs, and 2% for businesses owned by handicapped persons); Zj. 
Buddie Contracting Co. v. City of Elyria. 773 F. Supp. 1018, 1023 
(N.D. Ohio 1991) (city ordinance set MBE goal at 14% and WBE goal 
at 3% for construction, repair or maintenance contracts, and an 
MBE goal of 5% and WBE goal of 3% for supplies, services and 
professional contracts); Miami Tele-Communications. Inc, v. City 
of Miami. 743 F. Supp. 1573, 1579 (S.D. Fla. 1990) (city 
ordinance required cable TV licensees to employ MBEs for 20% of 
its contracted expenditures); M.C. West. Inc, v. Lewis, 522 F. 
Supp. 338, 340, 343 (M.D. Tenn. 1981) (district court 
characterized as a “preference" a federal regulation that, as 
administered, adopted contract goals for highway projects in 
Tennessee at 2-1/2% for MBEs and 1% for WBEs); S.J. Groves & Sons 
Co. v. Fulton County. 696 F. Supp. 1480, 1482 (N.D. Ga. 1987)
(DOT regulation required the establishment of annual percentage 
goals for the dollar value of work expected to be awarded to 
MBEs, and, where appropriate, goals on each specific prime 
contract).

The EPA regulation at issue here, however, does not impose



-26-
any numerical goals, set-asides, quotas, or financial incentives 
for contracting with minority firms. There is no requirement 
that a number or percentage of contracts or subcontracts be 
awarded to minority firms.

The EPA regulation is also fundamentally different from the 
“good faith efforts" provision ruled unconstitutional in Monterey 
Mechanical Co. v. Wilson, 125 F.3d 702, 704 (9th Cir. 1997). The 
contracting provision adopted by the State of California required 
prime contractors to subcontract 15% of the contract to MBEs, 5% 
to WBEs, and 3% to firms owned by disabled veterans, for a total 
subcontracting goal of 23%. Ibid. While prime contractors who 
were minority-, female-, or disabled-veteran-owned could satisfy 
this percentage goal by retaining a percentage of the work for 
themselves, contractors not within these protected classes were 
required to subcontract out 23% of the work on a public contract, 
or at minimum engage in good faith efforts to achieve this 
numerical goal. The court held that this dichotomy placed those 
preferred firms at a competitive advantage by exempting them from 
subcontracting requirements. Id. at 709. Again, the EPA's 
regulation does not impose any such requirements, and does not 
place non-minority- or non-female-owned firms at a competitive 
disadvantage. See, e.q.. Domar Electric. Inc, v. City Pf LOS 
Angeles. 885 P.2d 934, 941 (Cal. 1995) (city outreach program 
that requires prime contractors to document good faith efforts to 
seek out MBEs and WBEs to compete for subcontracting 
opportunities “does not compel them to set aside * * *



-27
contract[s] [for] MBEs or WBEs" and “provides no incentive to a 
bidder to use MBEs or WBEs if they are inferior in cost or 
ability") .

Recently, the First Circuit held in Raso v. Lago. __ F.3d
1998 WL 21849 (1st Cir. Jan. 27, 1998), that an affirmative 

fair marketing plan for a newly constructed, government- 
subsidized residential complex that was designed to further a 
federal objective of making housing available to a broad pool of 
city residents did not trigger strict scrutiny. The fair 
marketing plan challenged in Base gave a 55% tenancy preference 
to former residents of the community where the complex was 
located, and a 45% preference to all other applicants for 
occupancy in the complex located in the Old West End section of 
Boston. The former residents, mostly white, were forced to 
relocate when their homes were taken 30 years ago by eminent 
domain. State law required that the former residents be given a 
“preference in the selection of tenants for dwelling units built 
in the project area." 1998 WL 21849 at *1.

The U.S. Department of Housing and Urban Development (HUD) 
granted funds for construction and subsidies for low income units 
in the new complex. Pursuant to HUD policy, and a 1991 consent 
decree, HUD required that some percentage of units be made openly 
available to all persons to further HUD's obligations under the 
consent decree that federally assisted housing located in 
predominantly white neighborhoods achieve a racial composition 
that reflects the city as a whole. While minorities made up 41%



-28-
of Boston's population, only 2% of former West End residents were 
minorities. 1998 WL 21849 at *2.

The former West End residents brought suit under 42 U.S.C. 
1983, challenging the tenant selection process and the plan.
The former residents alleged that the plan was a prohibited 
racial classification that violated equal protection. The court 
of appeals held that the plan did not violate equal protection, 
and indeed was not subject to strict scrutiny, because it did not 
give a preference to one race over another. The court stated 
that “the apartments freed from the statutory [residential] 
preference are made available to all applicants regardless of 
race." 1998 WL 21849 at *5. The court held that HUD's decision 
to condition the receipt of federal funds by requiring that “some 
of the apartments —  which otherwise would have almost 
automatically been occupied by whites —  be made available to all 
applicants on a race-blind basis * * * cannot [be] viewfed] * * * 
as a 'racial classification' reserving benefits for a favored 
race." Ibid. Similar to the tenant selection plan upheld in 
Rasof the EPA regulation does not seek to give a preference to 
one race over another. Because it seeks only to ensure that a 
wide variety of firms are sought out and considered for 
subcontracting opportunities, the regulatory provision, like the 
fair housing marketing plan in Rasof should not be subject to 
strict scrutiny.

The Justice Department, in its review of the Adarand 
decision that was disseminated to all federal agencies, concluded



-29-
that outreach and recruitment aimed at minorities or women of the 
sort set out in the EPA regulation at issue, generally did not 
fall within strict scrutiny because race or sex is not a factor 
in any contracting or hiring decision. See Office of Legal 
Counsel, Department of Justice, Memorandum to General Counsels at 
E—3, Daily Labor Rept. (BNA) No. 125 (June 29, 1995) d33. Courts 
that have addressed outreach have characterized such practices as 
race-neutral. In Peightal v. Metropolitan Dade County, 26 F.3d 
1545 (11th Cir. 1994), the court of appeals evaluated the 
constitutionality of an affirmative action plan that sought to 
redress prior discrimination against minorities and women in a 
county fire department. Plaintiff, a white male, applied to 
become a firefighter when the department was hiring pursuant to a 
program that called for the selection of black, Hispanic, and 
female applicants in accordance with certain goals. Despite 
plaintiff's high score on the firefighter examination, black, 
Hispanic and female applicants were hired over plaintiff in order 
to satisfy the terms of the affirmative action plan. Id. at 
1548-1549.

In evaluating the affirmative action plan under the narrow 
tailoring prong of strict scrutiny, the court of appeals observed 
that the county had engaged in “race-neutral measures" for 
remedying the discrimination against women and minorities. The 
race-neutral measures were: (1) “initiat[ing] high school and 
college recruiting programs to provide information and to solicit 
applications from young minorities and women for firefighting



-30-
positions”; (2) engaging in “outreach programs"; and (3) 
designating a “recruitment specialist to organize and implement a 
special recruitment program." Id. at 1557-1558; see also Billish 
V. City of Chicago. 962 F.2d 1269, 1290 (7th Cir. 1992) 
(“aggressive recruiting" considered a race-neutral measure), on 
reh'g, 989 F.2d 890 (7th Cir.) (en banc), cert, denied, 510 U.S. 
908 (1993); Ensley Branch. NAACP v. SeibelS, 31 F.3d 1548, 1571 
(11th Cir. 1994) (actively encouraging minorities to apply for 
positions deemed race-neutral).

Because the EPA regulation requires prime contractors under 
EPA grants and cooperative agreements only to solicit minority 
businesses to compete for subcontracts, and does not impose any 
numerical goals, set-asides, quotas, or financial incentives to 
ensure that these minority firms are awarded subcontracts, the 
regulation does not require any race-conscious decision-making 
that would warrant strict scrutiny review.
C. The EPA Did Not Require Eatherlv To Award A Subcontract

Based On Race. And Therefore The Application Qf The
Regulation To Eatherlv Is Not Subject To Strict Scrutiny
Safeco argues (Br. 29-30) that Nancy Barron, the EPA staff 

person assigned to oversee Eatherly's compliance with the 
agency's regulations, denied approval because Eatherly failed to 
employ a minority-owned business. This claim conflicts with the 
facts established at trial and found by the jury. At the outset, 
EPA never formally or finally denied approval of Eatherly's 
contract because Eatherly withdrew its bid prior to EPA taking 
any final action. There was, quite simply, no final action taken



-31-
by EPA against which the court could apply strict scrutiny.

The trial court's factual findings may only be set aside if 
clearly erroneous. Anderson v. City of Bessemer Cityf 470 U.S. 
564, 574-575 (1985); Kline v. Tennessee Valley Auth.. 128 F.3d 
337, 341* (6th Cir. 1997). A finding is clearly erroneous “when 
although there is evidence to support it, the reviewing court on 
the entire evidence is left with the definite and firm conviction 
that a mistake has been committed." Anderson. 470 U.S. at 573. 
“This standard plainly does not entitle a reviewing court to 
reverse the finding of the trier of fact simply because it is 
convinced that it would have decided the case differently.”
Ibid. Similarly, in reviewing civil jury verdicts to determine 
whether the evidence is sufficient to support the judgment, this 
Court reviews the evidence in the light most favorable to the 
prevailing party. Coal Resources. Inc, v. Gulf & Western Indus.. 
Inc.f 865 F.2d 761 (6th Cir. 1989) (per curiam). When presented 
with conflicting evidence, credibility determinations are 
properly made by the jury. Wheeler v. McKinley Enters., 937 F.2d 
1158 (6th Cir. 1991).

In the present case, there is more than sufficient evidence 
to support the district court's finding, and the jury's verdict, 
that Eatherly failed to satisfy its obligation adequately to 
solicit minority businesses, and then withdrew its bid prior to 
the EPA granting or denying approval of its bid proposal. There 
is also ample evidence to support the district court's 
determination that Nancy Barron properly applied the regulation



-32-
by requiring Eatherly only to make a good faith effort to solicit 
minority-owned businesses to compete for subcontracts on the City 
construction project, and that she never preconditioned EPA 
approval on the award of a contract to a minority business.

James Stacey, the estimator for Eatherly, was assigned by 
owner Robert Eatherly the responsibility of securing EPA approval 
on the City of White House sewer construction contract (see supra 
p. 7-8). The only written documentation of Eatherly's efforts to 
comply with the EPA regulation is a handwritten list of ten 
minority subcontractors to whom Eatherly allegedly sent 
invitations to bid (supra p. 8). Stacey sent the list to Barron, 
who expressed concern that the information was incomplete since 
some of the contractor listings lacked zip codes, telephone 
numbers, and there was no indication that Stacey followed through 
with phone calls to the firms (supra p. 8-9). Indeed, the record 
shows that three letters were returned by the Post Office, a 
fourth letter was sent to a contractor who was dead, and a fifth 
letter was sent to an electrical contractor, even though the 
invitation for bids did not announce the need for electrical work 
(supra p. 9). Stacey testified that he received no responses 
from the mailing. Despite Barron's concerns over the adequacy of 
Stacey's mailing, Stacey assured her that he would complete the 
solicitation and documentation requirements (siiEra p. 9) .

In an effort to assist Stacey, Barron told him to call Cecil 
Conley, a state official who specialized in assisting companies 
in identifying small, minority-, and women-owned firms for



-33-
subcontracting opportunities (supra p. 9). But Stacey did not 
follow through on Barron's advice. Conley testified that he did 
not receive any telephone calls or messages from Stacey or anyone 
else at Eatherly. Conley testified that had Stacey called him, 
he would have been able to contact numerous minority-owned firms 
qualified to bid for the kind of work that Eatherly sought to 
subcontract out (supra p. 10). Conley testified that during the 
15 years that he has worked with EPA, he was not aware of any 
instance where a contractor failed to secure compliance with the 
good faith efforts provision set forth in 40 C.F.R. 33.240 (supra
p. 10).

During a telephone conference call in June 1987, Stacey told 
Barron that he had talked to HMC, a minority-owned firm, about 
doing paving work for the sewer system project, and that it was 
his intent to use that company. Barron told Stacey that he 
should record his discussions with the minority subcontractor in 
writing, and send it to her to satisfy EPA requirements that such 
contacts be in writing (supra p. 11). Stacey never sent the 
letter to Barron, and after the conference call that day, he did 
nothing further to solicit small, minority-, or women-owned firms 
for subcontracting on the project. Around this time, Robert 
Eatherly was informed by his pipe supplier that the cost of pipes 
would increase by $26,000 (silfira p. 11) .

Barron later called Stacey to find out why he had not sent 
the letter. He told her that he did not write the letter because 
he did not have a formal written agreement with HMC (supra p. 11-



-34-
12). Barron testified that she understood that there was no 
formal agreement between Eatherly and HMC, but that Barron asked 
only for written confirmation from Stacey that his company 
intended to subcontract with HMC at the appropriate time (supra 
p. 12). Barron never told Eatherly that it was required to 
utilize HMC (TR II at 129-130). Barron testified that had 
Eatherly not utilized HMC, it would have merely been required to 
inform EPA and then try to use good faith efforts to solicit 
other small, minority-, or woman-owned firms to compete for the 
subcontract (supra p. 13). Barron testified that she would have 
approved Eatherly's contract had it made a good faith effort to 
solicit small, minority-, or women-owned firms to compete for 
subcontracting opportunities on the sewer project. She stated 
that EPA contracts are approved without MBE or WBE participation, 
where prime contractors show good faith in soliciting 
participation and document those efforts (supra p. 13). Eatherly 
has even worked on numerous EPA-funded projects, prior to the 
City of White House project, some of which have been approved by 
EPA without any MBE or WBE participation (supra p. 7). Eatherly 
withdrew its bid on June 17, 1987, one month before the 
expiration of the 90-day period during which Eatherly was 
prohibited by contract from withdrawing its bid.

These facts, established at trial and found by the jury, 
demonstrate that the EPA did nothing more than request 
documentation of Eatherly's efforts to solicit minority-owned 
businesses, as required by the regulation. Safeco's claim (Br.



-35-
29-30) that EPA forced Eatherly to award a subcontract to a 
minority business is baseless. At the outset, there was no 
contractual or region-wide numerical goal, quota, set-aside or 
financial incentive that required MBE or WBE participation. 
Moreover, neither the EPA regulation nor Ms. Barron required 
Eatherly to subcontract with any minority business. As required 
by the regulation, Barron only asked Eatherly effectively to 
inform MBEs and WBEs of opportunities to compete for subcontracts 
on the project and provide documentation of those efforts to her. 
Eatherly was never required to award a contract to an MBE or WBE. 
This fact is underscored given that in past contracts on EPA- 
funded projects Eatherly has secured EPA approval without any MBE 
participation (supra p. 7), so Eatherly had to understand that 
such participation was not required in the sanitary sewer system 
contract with the City of White House. In this case, because 
Eatherly failed to document adequate good faith efforts to make 
such solicitations, EPA withheld approval until Eatherly 
complied. Moreover, Eatherly's bid was almost $345,000 lower 
than the second lowest bidder, and upon being informed that the 
cost of pipes had increased significantly, Eatherly withdrew its 
bid prior to any final action taken by EPA. Contrary to Safeco's 
claims, Eatherly's withdrawal of its bid on the contract could 
not have been motivated by any disapproval by EPA since the 
agency had not taken any action on the contract prior to 
Eatherly's announcement that it would withdraw its bid, and the 
record quite clearly establishes that EPA did not require race­
conscious contracting.



-36-
In sum, neither EPA's regulation, nor its conduct enforcing 

that regulation, is subject to strict scrutiny.
II

THE EPA REGULATION SATISFIES STRICT SCRUTINY
Even if this Court determines that EPA's regulation or 

conduct requires race-conscious decision-making and is subject to 
strict scrutiny, the government's action satisfies that standard 
of review.
A. The EPA Regulation Was Promulgated Pursuant To An Express

Delegation Bv Congress
EPA regulation 40 C.F.R. 33.240 was implemented pursuant to 

Executive Order 12,432. Regulations that are promulgated by 
executive order will have the effect of law where the order is 
“rooted in a grant of such power by the Congress." Chrysler 
Corp. v. Brown. 441 U.S. 281, 302 (1979). The explanatory text 
that precedes the regulation (at 48 Fed. Reg. 12922 (March 28, 
1983)), states that EPA's authority to promulgate 40 C.F.R.
33.240 is based upon Executive Order 12,432, which outlines the 
minority business development responsibilities of federal 
agencies. See Executive Order 12,432 (July 14, 1983) .

Executive Order 12,432 states that it is grounded in 
Congress's express delegation pursuant to Section 211 of the 1978 
Amendments to the Small Business Act, Pub. L. No. 95-507.11 That

11 The Executive Order also relied on Congress's delegation 
provided by Section 205(a) of the Federal Property and 
Administrative Services Act of 1949 (40 U.S.C. 486(a)), which 
authorizes federal agencies to promulgate rules for the 
economical and efficient system of procuring government supplies 
and services.



-37-
section directed executive agencies to “develop and implement 
incentive techniques to encourage greater minority business 
subcontracting by federal prime contractors," and “encourage 
recipients of federal grants and cooperative agreements to 
achieve a reasonable minority business participation in contracts 
let as a result of its grants and agreements."

The 1978 Amendments to the Small Business Act, 92 Stat. 1767 
(15 U.S.C. 637), set forth Congress's mandate that small 
businesses, and small businesses owned and operated by socially 
and economically disadvantaged persons, be given “the maximum 
practicable opportunity to participate in the performance of 
contracts let by any Federal agency." 92 Stat. 1767. The 
statute defines a “small business concern owned and controlled by 
socially and economically disadvantaged individuals" as a small 
business that is at least “51 percent owned and controlled by 
socially and economically disadvantaged persons." 92 Stat. 1767. 
The statute presumes that such individuals include Black 
Americans, Hispanic Americans, Native Americans, and other 
minorities or individuals found to be disadvantaged by the SBA.
92 Stat. 1767. In order to satisfy the legislation's objectives, 
Congress authorized federal agencies to “provide such incentives 
as * * * appropriate in order to encourage such subcontracting 
opportunities as may be commensurate with the efficient and 
economical performance of the contract." 92 Stat. 1768. Other 
orders preceding Executive Order 12,432 directed federal agencies 
to undertake efforts to ensure that minority businesses had fair



-38-
opportunity to compete for federal contracts. See Executive 
Order 11,458 (March 5, 1969); Executive Order 11,625 (October 13, 
1971); Executive Order 12,138 (May 18, 1979) (created a national 
initiative for promoting women's businesses).
B. Congress's Ample Findings Of Discrimination Against Minority

Businesses Establish A Compelling Interest For Mandating
Executive Branch Agencies To Promulgate Remedial Measures
Under strict scrutiny, the use of racial criteria that 

affects decision-making must be shown to satisfy a compelling 
governmental interest and be narrowly tailored to serve that 
interest. Adarand, 515 U.S. at 235-237; Crosonf 488 U.S. at 493, 
507. In determining whether Congress had a compelling interest 
in enacting Section 211 of the Small Business Act, and 
correspondingly whether there is a compelling interest for the 
EPA regulation promulgated in response to Congress's directive, 
this Court should consider the wide variety of evidence before 
and available to Congress, including legislative reports, 
hearings, and studies regarding nationwide discrimination in 
contracting in the federal, state, local and private sectors, as 
well as other congressional measures undertaken to remedy 
discrimination. As Justice Powell explained in Fullilove v. 
Klutznick. 448 U.S. 448 (1980): “[w]e are not confined in this
case to an examination of the legislative history [of the 
challenged program] alone[;] [rjather, we properly may examine 
the total contemporary record of congressional action dealing 
with the problems of racial discrimination against minority 
business enterprises." 448 U.S. at 503.



-39-
When Congress enacted Section 211 of the 1978 Amendments to 

the Small Business Act, it was well aware of the continuing 
problem that minority businesses were experiencing in securing 
business opportunities. A 1975 report of the Subcommittee on SBA 
Oversight and Minority Enterprise of the House Committee on Small 
Business concluded that:

The 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 [showing that 
minorities comprise 16% of the U.S. population, but only 3% 
of U.S. businesses] 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.

Fullilove. 448 U.S. at 465-466, citing H.R. Rep. No. 94-468, 1-2 
(1975). Representative Addabo, the floor manager of the bill 
amending the Small Business Act, stated in 1978 that Congress's 
“findings clearly state that 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. 34,097 (1978); see also 
124 Cong. Rec. 35,304 (remarks of Senator Nunn). Other 
congressmen supporting the 1978 Amendments to the Small Business 
Act pointed out that minority businesses were only 4% of the 
nation's total number of businesses and accounted for less than 
1% of total receipts. 124 Cong. Rec. 29,641 (testimony of



-40-
Senator Glenn); 124 Cong. Rec. 29,644 (statement by Senator 
Heinz).

In 1980, the Senate Select Committee on Small Business held 
hearings on legislation to amend provisions of the Small Business 
Act that pertain to the Section 8(a) program.A/ Evidence was 
presented there regarding the small percentage of construction 
dollars going to minority-owned firms. Hearings on 8(a) Pilot 
Program, n. 21, at 16-17. The hearing also described the 
continuing effects of discrimination faced by minority firms in 
getting subcontracts, even on Section 8(a) projects. Id. at 19- 
23. The House Committee on Small Business held hearings in 
1981,5/ where the Committee heard evidence concerning 
disadvantage experienced by small and minority firms due to 
difficulties getting bonding for construction projects (Hearing 
on “Decade of the 80's," at 10), securing adequate financing and 
credit terms (id. at 33-34, 220), getting prompt payment by prime 
contractors for work completed (id̂ . at 65), and criticism that 
federal agencies were not fully promoting the utilization of DBEs 
by prime contractors (id. at 114, 118, 120, 241), which resulted 
in preventing minority and small firms from becoming viable, 
competitive businesses. In addition, the Committee conducted a

4/ To Amend the Small Business Act to Extend the Current SBA 
8(a) Pilot Program: Hearings on H.R. 5612 Before the Senate 
Select Committee on Small Business, 96th Cong., 2d Sess. (1980).

5/ Small and Minority Business in the Decade of the 1980's 
Pt. 1, House Committee on Small Business, 97th Cong., 1st Sess. 
(1981); see also Hearings on Minority Business and its 
Contributions to the U.S. Economy, Senate Committee on Small 
Business, 97th Cong., 2d Sess. (1982).



-41-
hearing on the role of small businesses in federal procurement. 
The Committee heard evidence from federal procurement workers and 
small business owners about such matters as agency tactics that 
unfairly screen small businesses out of consideration for 
government contracts (Hearing on Federal Procurement System, at 
22-23), and limited the use of small businesses on federal 
subcontracts (id. at 51). Later hearings similarly evidenced the 
continuing difficulty of establishing small, minority-, and 
women-owned firms after years of discrimination.-7

£/ Small Business and the Federal Procurement System, 
Hearings Before the Subcommittee on General Oversight, House 
Committee on Small Business, 97th Cong., 1st Sess. (1981).

2/ See, e.a.. Hearings on Federal Contracting Opportunities 
for Minority and Women-owned Businesses: An Examination of the 
8(d) Subcontracting Program Before the Senate Committee on Small 
Business, 98th Cong., 1st Sess. (1983); Hearings on Women 
Entrepreneurs: Their Success and Problems Before the Senate 
Committee on Small Business, 98th Cong., 2d Sess. (1984); 
Hearings on the State of Hispanic Small Business in America 
Before the Subcommittee on SBA and SBIC Authority, Minority 
Enterprise and General Small Business Problems of the House 
Committee on Small Business, 99th Cong., 1st Sess. (1985); 
Hearings on Minority Enterprise and General Small Business 
Problems Before the Subcommittee on SBA and SBIC Authority, 
Minority Enterprise and General Small Business Problems of the 
Committee on Small Business, 99th Cong., 2d Sess. (1986); Small 
Business Problems, House Committee on Small Business, 100th 
Cong., 1st Sess. (1987); Surety Bonds and Minority Contractors, 
House Committee on Energy and Commerce, 100th Cong., 2d Sess. 
(1988) ; Barriers to Full Minority Participation in Federally 
Funded Highway Construction Projects, House Committee on 
Government Operations, 100th Cong., 2d Sess. (1988); Minority 
Construction Contracting, House Committee on Small Business,
101st Cong. 1st Sess (1989); Small Disadvantaged Business Issues, 
House Committee on Armed Services, 102d Cong., 2d Sess. (1991); 
Problems Facing Minority and Women-owned Small Businesses in 
Procuring U.S. Government Contracts, House Committee on Gov't 
Operations, 103d Cong., 1st Sess. (1993); Discrimination in 
Surety Bonding, House Committee on Small Business, 103d Cong.,
1st Sess. (1993).



-42-
Indeed, Congress had, over a long period of time, carefully

scrutinized conditions in public contracting and the construction
industry to determine whether continued use of programs for
minority and disadvantaged businesses is necessary. In view of
the overwhelming evidence of discrimination and problems facing
minority- and women-owned businesses in government procurement,
and public and private construction contracting, Congress had a
more than sufficient factual predicate for directing federal
agencies to adopt measures for increasing contracting
opportunities for these businesses. Indeed, at least two
district courts that have examined the compelling interest for
federal affirmative action programs since Adarand was decided by
the Supreme Court have held that Congress had a compelling
interest supporting those programs. See Adarand Constructors.
Inc, v. Penar 965 F. Supp. 1556 (D. Colo. 1997); Cortez III
Service Corp. v. NASA. 950 F. Supp. 357 (D.D.C. 1996).
C. Congress Has Authority Under The Constitution To Mandate

Remedies That Are National In Scope. And Neither It Nor The 
Agency Administering A Federal Program Are Required To Make 
Localized Findings Of Discrimination Prior To Implementing 
The Remedy
Safeco claims (Br. 26) that prior to adopting a remedial 

measure in the Nashville area, EPA was required to establish the 
existence of past discriminatory practices in the local 
construction market. This view is contrary to Congress's broad 
remedial authority.

While Adarand made strict scrutiny applicable to racial 
classifications requiring race-based decision-making promulgated



43-
at the federal level, the Court did not question Congress's 
authority under the Constitution to impose broad measures for 
remedying discrimination that impacts victims nationwide. 515 
U.S.'at 252-253 (Stevens, J., dissenting, joined by Ginsburg, J.) 
(the majority's “silence" in explaining its “departure from the 
reasoning in past cases * * * cannot erase the difference between 
Congress' institutional competence and constitutional authority 
to overcome historic racial subjugation and the States' lesser 
power to do so"); id. at 268 (Souter, J., dissenting, joined by 
Ginsburg, J. and Breyer, J.) (“[N]othing in today's opinion 
implies any view of Congress's S 5 power and the deference due 
its exercise that differs from the views expressed by the 
Fullilove plurality")

In Croson. supra. where the Court applied strict scrutiny
analysis in a constitutional challenge to a minority set-aside
program adopted by the City of Richmond, Justice O'Connor
recognized the importance of the distinction between Congress's
authority to remedy acts of discrimination and that of states and
local bodies. In her plurality opinion, Justice O'Connor stated:

Congress, unlike any State or political subdivision, has a 
specific constitutional mandate to enforce the dictates of 
the Fourteenth Amendment. The power to 'enforce' may at 
times also include the power to define situations which 
Congress determines threaten principles of equality and to 
adopt prophylactic rules to deal with those situations. The 
Civil War Amendments themselves worked a dramatic change in 
the balance between congressional and state power over 
matters of race.

488 U.S. at 490 (plurality opinion of O'Connor, J., joined by 
Rehnquist, C.J., and White, J.) (citations omitted); see also 
Adarand. 515 U.S. at 252 (Stevens, J., dissenting, joined by



-44-
Ginsburg, J.). Section 5 of the Fourteenth Amendment is a 
“positive grant of legislative power authorizing Congress to 
exercise its discretion in determining whether and what 
legislation is needed to secure the guarantees of the Fourteenth 
Amendment." Crosgn, 488 U.S. at 490, quoting Katzenbach v. 
Morgan/ 384 U.S. 641, 651 (1966). “[T]he Thirteenth and 
Fourteenth Amendments * * * 'were intended [as] 1imitations of 
the powers of the States and enlargements of the power of 
Congress.'" Croson. 488 U.S. at 490, quoting Ex parte Virginiar 
100 U.S. 339, 345 (1880) (emphasis added).

Unlike states or localities, Congress need not make specific 
findings that each locality that participates in a federally 
mandated affirmative action program must rely on local findings 
of discrimination. Once Congress has found a national problem of 
discrimination, local participation does not require local 
findings of discrimination. See Oregon v. Mitchell, 400 U.S. 112 
(1970) (Court affirmed the power of Congress to pass a nationwide 
ban on literacy requirements to vote, without making state-by­
state findings of discrimination); Katzenbach v. Morgan, 384 U.S. 
641 (1966) (Supreme Court held that it was within Congress's 
Fourteenth Amendment power to prohibit all states from limiting 
the franchise to English speakers even if the specific state law 
at issue had not been passed for discriminatory reasons); see 
also Adarand Constructors. Inc.. 965 F. Supp. at 1572-1573.
Thus, neither the Congress, nor the administering agency (here, 
the EPA), need to find discrimination in the construction 
industry in the city of Nashville prior to implementing the



-45-
congressionally authorized remedial measure there.
D. The EPA Regulation Satisfies The Requirements Of Narrow

Tailoring.
The EPA regulation is sufficiently tailored to satisfy 

strict scrutiny. Factors for determining whether a federal 
program utilizing racial elements is narrowly tailored include: 
(1) the efficacy of alternative remedies; (2) the duration of the 
remedy and whether it is subject to periodic review; (3) program 
flexibility and the availability of waiver provisions; (4) the 
manner in which race is used; and (5) the effect of the program 
on nonbeneficiaries. Fullilove. 448 U.S. at 510-516 (Powell, J., 
concurring); Croson. 488 U.S. at 507-510.

1. Prior to amending the Small Business Act in 1978, 
Congress explored race-neutral measures, and was aware of other 
governmental efforts to increase minority contracting in federal 
programs. Congress utilized race-neutral measures for at least 
25 years prior to the 1978 amendments. When Congress passed the 
Small Business Act in 1953, it allowed the SBA to enter into 
contracts with the federal government and subcontract them out to 
small businesses. In the 15 years that followed, however, 
minority-owned businesses continued to be disproportionately 
excluded from government procurement. In 1970, to help small 
businesses obtain surety bonds, the SBA was authorized by the 
Housing and Urban Development Act, Pub. L. 91-609, 84 Stat. 1813, 
codified at 15 U.S.C. 694(a), (b), to establish the Surety Bond 
Guarantee Program. This program covered surety companies for up 
to 90% of their losses on bonds. By 1975, however, the General



-46-
Accounting Office reported that the SBA's “success in helping 
disadvantaged firms to become self-sufficient and competitive 
ha[d] been minimal. "fi/ Thus, Congress's 1978 reform of the Small 
Business Act was based on the ineffectiveness of race-neutral 
measures in helping minority-owned firms overcome the 
discriminatory barriers in federal procurement.

While the EPA regulation encourages the use of minority- 
owned businesses, the regulation also encompasses race-neutral 
provisions since the affirmative steps are not directed only to 
minority-owned businesses, but also to small and women-owned 
businesses, regardless of the race of the owners. The regulation 
defines “women-owned business" as a business that is 51% owned 
and operated by women, without regard to race (supra p. 6-7).
The regulation describes a small business as that defined by the 
Small Business Act (see supra p. 7). The statutory definition of 
small business concern is a firm that is “not dominant in its 
field of operation" (supra p. 7) . That definition also makes no 
reference to racial criteria in qualifying companies or firms as 
small businesses. The EPA thus uses race-neutral measures in 
implementing its outreach program since it encourages recipients 
of EPA grants and cooperative agreements and their prime 
contractors to solicit bids from small and women-owned 
businesses, regardless of the race of the owners, as well as from 
minority-owned businesses.

fl/ Library of Congress, Congressional Research Service, 
Minority Enterprise and Public Policy 53 (1977).



-47-
Further, Congress regularly reviews the state of small, 

minority-, and women-owned businesses through continued hearings 
and oversight review of the programs administered by the SBA.
See supra p. 38-41. Moreover, the EPA reviews its regulation 
administering Congress's mandate. In 1986, EPA issued a 
substantive guidance on issues related to the regulatory program. 
See EPA Guidance for Utilization of Small, Minority and Women's 
Business Enterprises in Procurement Under Assistance Agreements 
(1986) (R. 233 at Attachment 2: 1986 Guidance). This document
instructs EPA staff administering the program as to definitions 
and policy objectives, guidance on evaluating whether a grantee 
has complied with the affirmative steps, certification of 
minority-, and women-owned businesses, grantee reporting 
obligations, bid protests, and program operating
responsibilities. A supplemental memorandum to the 1986 guidance 
was issued a year later, and sets forth various questions and 
answers concerning the 1986 Guidance.

The EPA regulation is also inherently flexible in that it 
does not require that minority firms be hired. Rather, it merely 
seeks to ensure that these firms are effectively solicited when 
contracting or subcontracting opportunities on EPA-funded 
construction projects become available. Moreover, the EPA 
regulation does not contain any numerical goals for retaining 
minority firms, nor does it direct prime contractors under EPA 
grants and cooperative agreements to award subcontracts to these 
firms should their bids be higher than that of a non-minority



-48-
firm. The only requirement of the EPA regulation is that prime 
contractors engage in efforts to ensure a broad pool of 
subcontractors from which to choose in awarding subcontracts on 
EPA-funded projects.

Finally, the EPA regulation has virtually no effect on non­
minorities. It has no direct racial effect on non-minority 
subcontractors since the regulation is designed to increase the 
pool of firms competing for subcontracts. Because the regulation 
does not contain any numerical goals, set-asides, quotas, 
timetables, or financial incentive, there was no contractual or 
region-wide goal tied to the contract itself, and the regulation 
does not give minority firms a preference in the competitive 
bidding process, non-minority firms are not disadvantaged at all 
because of their race. This fact is underscored since the 
regulation permits prime contractors to award subcontracts on a 
nonracial, competitive basis.

2. Safeco claims (Safeco Br. 32), that the regulation's 
reference to “fair share" implies a racial quota. However, the 
EPA's 1986 Guidance, prepared for agency personnel, State and 
local governments, and businesses interested in participating in 
EPA financial assistance programs, states that “fair share" does 
not constitute an absolute goal, but rather, a commitment on the 
part of the recipient to solicit bids by minority and women's 
businesses by carrying out the six affirmative steps set out in 
the regulation (R. 233 at Attachment 2: 1986 Guidance at 3-1). 
Moreover, the EPA regulation adopted verbatim the language of



-49-
Attachment O to OMB Circular A-102, and was put into effect by 
EPA pursuant to the directives of the executive orders that 
required agencies to undertake measures for encouraging minority 
business participation, while cautioning agencies against the use 
of set-asides or quotas. Thus, once the recipient and its prime 
contractor have complied with these affirmative stpes, including
providing the necessary documentation of compliance, they have no 
further obligation under the regulation.

CONCLUSION
The district court's orders should be affirmed

Respectfully submitted,
JONATHAN Z. CANNON 
General Counsel

BILL LANN LEE 
Acting Assistant Attorney 
General

HOWARD F. CORCORAN 
MARK D. GORDON 
KENNETH A. REDDEN 
Attorneys
Office of the General Counsel 
U.S. Environmental 
Protection Agency 

Washington, D.C. 20430

MARK L. GROSS 
LISA WILSON EDWARDS 
Attorneys
Department of Justice 
Civil Rights Division 
P.0. Box 66078
Washington, D.C. 20035-6078





IN THE UNITED STATES COURT OF APPEALS 
FOR THE SIXTH CIRCUIT

Nos. 97-6094, 97-6105
SAFECO INSURANCE COMPANY OF AMERICA;

EATHERLY CONSTRUCTION COMPANY,
Plaintiffs-Appellants
v.

CITY OF WHITE HOUSE, TENNESSEE, A Municipal Corporation,
Defendant-Appellee-Cross Appellant 

UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
Intervenor-Appellee

APPEAL FROM THE UNITED STATES DISTRICT COURT 
MIDDLE DISTRICT OF TENNESSEE

INTERVENOR-APPELLEE'S DESIGNATION OF APPENDIX CONTENTS

The United States Environmental Protection Agency, pursuant 
to Sixth Circuit Rule 11(b), hereby designates the following 
filings in the district court's record as items to be included in 
the joint appendix.
Document Data Entry No.
EPA's Memorandum of November 14, 1995 233
Partial Summary Judgment,
Attachment I (declaration 
of Nancy Barron)

Testimony of 
James Stacey:

TR I 91, Exh. 6 
TR II 56, Exh. 8

April 15, 1997 
April 16, 1997



2

Testimony of
Nancy Barron 

TR II 114 
TR III 112-119

April 16, 1997 
April 17, 1997

TR III 124-126 
TR III 133-134 
TR III 141
Testimony of 

Cecil Conley:
TR III 87-89 April 17, 1997
Testimony of

David Amonette:
TR III 149-151 April 17, 1997
Testimony of

Robert Eatherly 
TR III 52-53

Respectfully submitted
JONATHAN Z. CANNON 
General Counsel

BILL LANN LEE 
Acting Assistant Attorney 
General

HOWARD F. CORCORAN 
MARK D. GORDON 
KENNETH A. REDDEN 
Attorneys
Office of the General Counsel 
U.S. Environmental 
Protection Agency 
Washington, D.C. 20430

MARK L. GROSS 
LISA WILSON EDWARDS 
Attorneys
Department of Justice 
Civil Rights Division 
P.O. Box 66078
Washington, D.C. 20035-6078



i



ATTACHMENT O* 
Circular No. A-102

PROCUREMENT STANDARDS

1. Applicability
a. This Attachment establishes standards and guidelines for 

the procurement of supplies, equipment, construction and services 
for Federal assistance programs. These standards are furnished 
to ensure that such materials and services are obtained efficiently and economically and in compliance with the provisions of applicable Federal law and executive orders.

b. No additional procurement requirements or subordinate 
regulations shall be imposed upon grantees by executive agencies 
unless specifically required by Federal law or executive orders 
or authorized by the Administrator for Federal Procurement 
Policy. This prohibition is not applicable to payment conditions 
issued in accordance with Treasury Circular 1075, individual 
grantee requirements pursuant to Section 10 of the basic circular or the provisions of this or other OMB circulars.

c. Provisions of current subordinate requirments not 
conforming to this Attachment shall be rescinded by grantor 
agencies unless approved by the Office of Federal Procurement 
Policy (OFPP).
2. Grantee/Grantor Responsibility

a. These standards do not relieve the grantee of any 
contractual responsibilities under its contracts. The grantee is 
responsible, in accordance with good administrative practice and 
sound business judgment, for the settlement of all contractual 
and administrative issues arising out of procurements entered in 
support of a grant. These include but are not limited to source evaluation, protests, disputes, and claims. Executive agencies 
shall not substitute their judgment for that of the grantee 
unless the matter is primarily a Federal concern. Violations of 
law are to be referred to the local, State, or Federal authority 
having proper jurisdiction.

b. Grantees shall use their ownprocurement procedures 
which reflect applicable State and local laws and regulations, 
provided that procurements for Federal Assistance Programs

(No.  A-102)



conform to the standards set forth in this Attachment and 
applicable Federal law.
3. Grantee Procurement Improvement

Executive agencies- awarding Federal grants or other 
assistance which require or allow for procurfement by the
recipients are encouraged to assist recipients in improving their 
procurement capabilities by providng them with technical assistance training, publications, and other aid.
4, Procurement System Reviews

a. Executive agencies are encouraged to perform reviews of 
their grantees’ procurement systems Lf a continuing relationship with the grantee is anticipated or a substantial amount of the 
Federal assistance is to be used for procurement and review of 
individual contracts is anticipated. The purpose of the review 
shall be to determine: (1) whether a grantee's procurement system 
meets the standards prescribed by this Attachment or other 
criteria acceptable to the OFPP, such provisions of the Model 
Procurement Code for State and local government; and (2) whether 
the grantee’s procurement system should be certified by the 
reviewing agency. Such a review will also give an agency an 
opportunity to give, technical assistance to a grantee to remedy its procurement system if it does not fully comply. In addition, 
such a review may provide a basis for deciding whether the 
grantee's contracts and related procurement documents should be 
subject to the grantor's prior approval, as provided by Section

b. In conducting procurement system review, grantor 
agencies will evaluate a grantee's procurement system in terms of 
whether it complies with the standards prescribed by this 
Attachment and represents a fair, efficient and effective 
procurement system. To the maximum extent feasible, reviewers 
will rely upon State or local evaluations and analyses performed 
by agencies or organizations independent of the grantee 
contracting activity.

* Federal grantor agency completes a procurement 
it shall furnish a report to the grantee, with a copy to

All agencies should normally rely upon the resultant 
findings or certification for a period of 24 months before 
another review is performed.

c .review,
OFPP.

d.

(No.  A - 102)



3

e. Reviews shall be conducted in accordance with standards 
and guidelines approved or issued by OFPP.

f. The reviews authorized by Section 6 are waived if 
grantee's procurement aystem is certified.
5. Protest Procedures

a. Grantor agencies may develop an administrative procedure 
to handle complaints or protests regarding grantee contractor 
selection actions. The procedure shall be limited as follows:

a. No protest shall be accepted by the grantor agency until 
all administrative remedies at the grantee level have been 
exhausted.

b. Review is limited to:
•

(i) Violations of Federal law or regulations. Violations of 
State or local law shall be under the jurisdiction of State or 
local authorities.

(ii) Violations of grantee's protest procedures or failure to 
review a complaint or protest.
6. Grantor Review of Proposed Contracts

Federal grantor pre-award review and approval of the
grantee's proposed contracts and related procurement documents, 
such as requests for proposal and invitations for bids. is 
permitted only under the following circumstances:

\ a. The procurement is expected to exceed $ 10.000 and is to
be awarded without competition or only one bid or offer is 
received in response to solicitation.

b. The procurement expected to exceed $10,000 specifies a brand name" product; or
c. The grantee'8 procurement procedvu^Ps or operation fails 

to comply vith one or more significant aspects of this 
Attachment. The grantor agency shall notify the grantee in 
vi'iting, with a copy of such notification to the OFPP. 7
7. Code o f Conduct

(No. A-102)



4

^*"a^ t e e s  * h a l l  m a in ta in  a • w r i t t e n  *«v« 
c o n d u c t  w h ich  s h a l l  g o v e r n  t h e  o e ^ L  «d * ° r  * t a n d * r d 3 o f  
e m p lo y e e s  o r  . g e n t ,  e n g a g e d ” n Si Sllrt IS* °A ! * ? i r  o££i'*r*. 
c o n t r a c t s  s u p p o r te d  b y  F e d e r a l  fu n d *  •d Join i s t r a t i  on o f
• g e n t  o f  t h e  g r a n t e e  s h a l l  p a r t i c l e ! ? !  in  if «nP f° y * « *  o f f i c e r  o r  
* « r d  o r  . < t o t n i . t r . t i o n  otlccnlr.il "  i n  th e
“ * of int*««t. re.i or .pp«?2£ voul£y fundsSuch a conflict would arise when: PP nz' would b« involved.

a.
b.
c.

The employee, officer or agent;
Any member of his immediate family; 
His or her partner; or

\i any dof tt.C^ “ S r . i ^ S i l0y*' °f 11 t. employN. selected for award! 1 1  or other interest in thePfira

•oliSt gnIrtBrcceptflIrItuiti«°yef!vorr *9ents aha11 neither Va^ue from contractors, potential contrirt anything of monetary subagreements. P ial contractors, or parties to

f« n o t ^ a n ^ i  o T t h r hcr? the interestintrinsic value. 9 an ^solicited item of nominal

such standards*of ellduet^hall^JlJiSI f°Cal la? °r regulati°ns, 
°C other disciplinary actions for viol*r<°r Penalties, sanctions, the grantee’s offi£e r s elllfvL!olations of such standards by 
or their agents. ' P y .or agents, or by contractors
8 . Procurement Procedurei

provide 9thate*proposid Procure">«nt procedures which 
sr.ntee offici?l.P ^  . 5 ^  Sh*U  bo «vieve5 by 
duplicative items V P h,se o£ unnecessary or 
consolidation o r b r e a K i ^ be 9iv6" ro 
purchase. Where appropriate an an i°btainL * more economical 
versus purchas.- altlfnative. aid III1??!* U  b* made of lease 
J® d«termine which approach volld be^h approPriat« analysis foster greater economy and efficient b the moot economical. To 
enter into State and local inr» ^rantees are encouraged to 
procurement or Use of common goods al^sl^vills1 a<?reements f°*

(No.  A - 102)



s

9. Contracting with Small and Minority Firms, Women* a Business Enterprise and Labor Surplus Area Firms --------
a. It is national policy to award a fair share of contracts 

to small and minority business firms. Accordingly, affirmative 
steps must be taken to assure that small and minority businesses 
are utilized when possible as sources of suppliers, equipment 
construction and services. Affirmative steps shall include thl following:

(1) Including qualified small and minority businesses onsolicitation lists.
• «

(2) Assuring that small and minority businesses aresolicited whenever they are potential sources.
(3) When economically feasible, dividing total requirements 

into smaller tasks or quantities so as to permit maximum small and minority business participation.
(4) Where the requirement permits, establishing deliveryschedules which- will encourage participation by small andminority business.
(5) Using the services and assistance of the Small Business

Administration, the Office of Minority Business. Enterprise of the 
the Department of Commerce and the Community ServicesAdministration as required.

(6) If any subcontracts are to be let, requiring the prime 
contractor to take the affirmative steps in 1 through 5 above.

b. Grantees shall take similar appropriate affirmative action in support of women's business enterprises.
c. Grantees are encouraged to procure goods and services from labor surplus areas.
d. Grantor agencies may impose additional regulations and 

requirements in the foregoing areas only to the extent specifically mandated by statute or presidential direction.
10. Selection Procedures

a. All procurement transactions, regardless of whether by sealed bids or by negotiation and without regard to dollar value, 
shall be conducted in a manner that provides maximum open and

(N~ A-102)



6

^ree competition consistent with this Attachment. Procurement procedures ahall not restrict or eliminate competition 
of what is considered to be restrictive of competition’ i S ^ S i  
but are not limited to: (1) placing unreasonable requirements on 
firms, in order for them to qualify to do business- (?) 
noncompetitive practices between firms; (3) orcanizit-t«i«i
re££iTOe£tsf interest; and (4) ^«cessary experience and bonding

• ** .v1?? grantee shall have written selection procedures
«^irementJ: P ' “  a following procedure

Solicitations of offers, whether by competitive sealed bids or competitive negotiation shall: P sealed
- . (a) Incorporate a clear and accurate description of thetechnical requirements for the material, product, or service to 
be procured. Such description shall not, ik com^tHive 
procurements, contain features which unduly restrict comSe^itiin 
The description may include a statement o f ^  q ^ a U t a ^ e  n^ure of the material, product or service to be S e c u r e d I n d Z h l l

„ 'et £°rth those minimum 'essentia? r1S*JC*- and standards *o which it must conform if it is S?jiS£y lt8 lnt«nded use. Detailed product specification* should be avoided if at all possible. When it is impractical or 
uneconomical to make a clear and accurate description of thf technical requirements, a "brand name or equal" description mav be used as a means to define the performance or o^er salient 
requirements of a procurement. The specific features of

nd WhiCh must be - *  b* °««ror3 shafl be clf.r?y

fulfill fidari n * U  " “niregents which offerors must 
proposals*nd 0ther £lctors“  be ■“*«* in evaluating bids or

(2) Awards shall be made __  4 w
S e“  ? : ~ r s  &  p o ' : s  ; ^ r o s s f u U y  u n d e rConsideration shall be given to -such Procurement.
integrity, compliance with public policy record co^tractor 
performance, and financial and technical resources * PaSt
11. Method Procurement

only to responsible contractors

(No. A-102)
(



7

Procurement * under grants shall be made by one of the following methods, as described herein: (a) small purchaseprocedures; (b) competitive sealed bids (formal advertising); (c) competitive negotiation; (d) noncompetitive negotiation.
a. Small purchase procedures are those relatively simple 

and informal procurement methods that are sound and appropriate 
for a procurement of services, supplies or other property, 
costing • in the aggregate not more than $10,000. Crantees shall 
comply with State or local small purchase dollat limits under 
$10,000. If small purchase procedures are used for a procurement under a grant, price or rate quotations shall be obtained from an adequate number of qualified sources.

b. In competitive sealed bids (formal advertising), sealed 
bids are publicly solicited and a firm-fixed-price contract (lump 
sum or unit price) is awarded to the responsible bidder whose 
bid, conforming vith all the material terms and conditions of the 
invitation for bids, is lowest in price.

(1) In order -for formal advertising to be feasible,
appropriate conditions must be present, including, as a minimum, the following:

(a) A complete, adequate and realistic specification or purchase description is available.
(b) Two or more responsible suppliers are willing and able 

to compete effectively for the grantee's business.
(c) The procurement lends itself to a firm-fixed-pricecontract, and selection of the successful bidder can appropriately be made principally on the basis of price.
(2) If formal advertising is used for a procurement under a grant the following requirements shall apply:
(a) A sufficient time prior to the date set for opening of 

bids, bids shall be solicited from an adequate number of known 
suppliers. In addition, the invitation shall be publicly advertised.

(b) The invitation for bids, including specifications and
pertinent attachments, shall clearly define the items or services 
needed in order for the bidders to properly respond to the 
invitation.

(No. A - 102)



e
(c) All bids shall be opened publicly at the time and stated in the invitation for bids. *** Place
<d) A firm-fix-price contract award shall be made bv 

notice to that responsible bidder whose bid, conforming to 
invitation for bids, is lowest. Where specified in the biddf!?* 
documents factors such as discounts, transportation ^ostj iSd 
life cycle costs shall be considered in determining which bid ±« lowest. Payment discounts may only be uied to determini l o w b i d
when prior experience of the grantee indicates that such discounts are generally taken. v  *uch

(e) Any or all bids may be rejected when there are sound 
documented business reasons in the best interest of the program.

c * competitive negotiation, proposals are reguested froma number of sources and the Reguest for Proposal is publicized 
negotiations are normally conducted with more than one of th» .cure., submitting off.rs, and .ith.r a fixI2-p?ie. 
cost-reimbursable type contract is awarded, as appropriate Competitive negotiation may be used if condition^ are not 
*PProPriate for the use of formal advertising. If competitive negotiation is used for a procurement undlr a gr^t ^  following requirements shall apply: 9 ‘ XXim

«hall be solicited from an adequate number of 
*ource* to Permit reasonable competition consistent with the nature and requirements of the procurement The 

for Proposal shall b. publicized and r * » « n S ”  r S ^ e s S  by
p * h*U  b* honored to «*. £ximum

(2) The Request for Proposal shall identify all sionificant

evaluation^* “h*U  Pf°Vide mechanisms for technical
responsible Sff.rSj w S K ?
discussions, and selection for contract award. ttCn °r °ral

proposal J ? U dbeaL i ;  ^  t0 thc re£P°"sible otferor whose proposal will be most adavantageous to the procuring party price
£2«f!vdeprompuy”  cor'=ld'r'd ' "»«*c«— ?»l * tt.?o£ r2 L K lS

c

( No .  A - 102)



9

O

for (S) Grantees may utilize competitive negotiation procedures procurement of architectural/engineering professionaltors' Qualifications in __>

l

wa wij. w»i/tngiaieriag professionalservices, whereby competitors’ qualifications are .evaluated and the most qualified competitors' is selected, sublect to negotiation of fair and reasonable compensation, -
d. Noncompetitive negotiation is procurement through solicitation of a proposal from only one source, or after eoliciation of a number of sources, competition is determined inadequate. Noncompetitive .negotiation may be used when the .award of a contract is infeasible under small purchase competitive bidding (formal advertising) or competitivi negotiation procedures. Circumstances under which a contract mav be awarded by noncompetitive negotiation are limited to the following:|
(1) The item is available only from a single source;
(2) Public exigency or emergency when the urgency for the

Solicitation-Wil1 Permit * eUl4y iac*dent to competitive
(3) The Federal grantor agency authorises noncompetitive negotiation; or

. . After soliciation of a number of sources, competition isdetermined inadequate.
e. Additional innovative procurement methods may be used bv grantees with the approval of the grantor agency. A Lpy of such approval shall be sent to the OFPP. ^  n

12.. Contract Pricing
p 1* plu* * percentage of cost and percentage ofconstruction cost method of contracting shall not be used Grantees shall perform some form of cost or price analysis in 

“ “ “ «•» »ith .very p r o c u r e  action in=ljdl“  c*n?r,c?Coat* prices based on estimated costs for contracts under grants shall be allowed *oly to the extent that costs incurred or cost estimates included in negotiated prices are consistent with Federal cost principles. negoT::Lar«a Prices
13. Grantee Procurement Records

“̂ all m*int*ia records sufficient to detail the significant hiitory of a procurement. These records shall
(No. A-102)



include, but ere not necessarily limited to information pertinent 
to the following: rationale for the method of procurement, 
selection of contract type, contractor selection or rejection,* and the basis for the cost or price.
14. Contract Provision

In addition to provisions defining a sound and complete 
procurement contract, any recipient of Federal grant funds shall 
include the following contract provisions or conditions in all 
procurement contracts and subcontracts as required by the provision. Federal law or the grantor agency.

a. Contracts other than small purchases shall contain 
provisions or conditions which will allow for administrative, 
contractual, or legal remedies in instances where contractors 
violate or breach contract terms, and provide for such sanctions and penalties as may be appropriate.

b. All contracts in excess of 510,000 shall contain 
suitable provisions for termination by the grantee including the 
manner by which it will be effected and the basis for settlement. 
In addition, such contracts shall describe conditions under which the contract may be terminated for default as well as conditions 
where the contract may be terminated because of circumstances beyond the control of the contractor.

c. All contracts awarded in excess of 510,000 by grantees 
and their contractors or subgrantees shall contain a provision 
requiring compliance with Executive Order 11246, entitled "Equal 
Employment Opportunity," as amended by Executive Order 11375, and 
as supplemented in Department of Labor regulations (41 CFR Part 60) .

d. All contracts and subgrants for construction or repair shall include a provision for compliance with the Copeland "Anti- 
Kickback" Act (18 \JSC 874) as supplemented in Department of Labor 
regulations (29 CFR, Part 3). This Act provides that each 
contractor or subgrantee shall be prohibited from inducing, by 
any means, any person employed in the construction, completion, 
or repair of public work, to give up any part of the compensation 
to which he is otherwise entitled. The grantee shall report all 
suspected or reported violations*to the granlfer agency.

e. When required by the Federal grant program legislation, all construction contracts in excess of 52,000 awarded by 
grantees and subgrantees shall include a provision for compliance



11

with the Davis-Bacon Act (40 USC 276a to a-7) as supplemented by 
Department of Labor regulations (29 CFR, Part 5). Under this Act 
contractors shall be required to pay wages to laborers and 
mechanics at a rate not less than the minimum wages specified in 
a wage determination made by the Secretary of Labor. In 
addition, contractors shall be required to pay wages not less 
often than once a week. The grantee shall place a copy of the 
current prevailing wage determination issued by the Department of 
Labor in each solicitation and the award of a contract shall be 
conditioned upon the acceptance of the wage determination. The 
grantee shall report all suspected or reported violations to the 
grantor agency.

f. Where applicable, all' contracts awarded by grantees and 
subgrantees in excess of $2,000 for construction contracts and in 
excess of $2,500 for other contracts which involve the employment 
of mechanics or laborers shall include a provision for compliance with Sections 103 and 107 of the Contract Work Hours and Safety 
Standards Act (40 USC, 327-330) as supplemented by Department of 
Labor regulations (29 CFR, Part 5). Under Section 103 of the 
Act, each contractor shall be required to compute the wages of 
every mechanic and laborer o"n the basis of standard workday of 8 
hours and a standard workweek of 40 hours. Work in excess of the 
standard workday or workweek is permissible provided that ' the 
worker is compensated at a rate of not less than 1-1/2 times the basic rate of pay for all hours worked in excess of 8 hours in 
any calendar day or 40 hours in the work week. Section 107 of 
the Act is applicable to construction work and provides that no 
laborer or mechanic shall be required to work in surroundings or under working conditions which are unsanitary, hazardous, or 
dangerous to his health and safety as determined under 
construction, safety and health standards promulgated by the 
Secretary of Labor. These requirements do not apply to the 
purchases of supplies or materials or articles ordinarily 
available on the open market, or contracts for transportation or transmission of intelligence.

g. The contract shall include notice of grantor agency 
requirements and regulations pertaining to reporting and patent rights under any contract involving research, developmental, experimental or demonstration work with<5respect to any discovery or invention which arises or is developed in the course of or 
under such contract, and of grantor agency requirements and regulations pertaining to copyrights and rights in data.

h. All negotiated contracts (except those awarded by small purchase procedures) awarded by grantees shall include a
(No. A - 102)



12

provision to the effect that the grantee, the Federal grantor 
agency, the Comptroller General of the United States/ or any of 
their duly authorized representatives, shall have access to any 
books, documents, papers, and records of the contractor which are 
directly pertinent to that specific contract, for the purpose of 
making audit, examination, excerpts, and transcriptions.

Grantees shall require contractors to maintain all 
required records for three years after grantees make final 
payments and all other pending matters are closed.

i. Contracts, subcontracts, and subgrants of amounts in 
excess of $100,000 shall contain a provision which requires 
compliance with all applicable standards, orders, or requirements 
issued under Section 306 of the Clean-Air Act (42 USC 1857(h)), 
Section 508 of the Clean Water Act (33 USC 1368), Executive Order 
11738, and Environmental Protection Agency regulations (40 CFR, 
Part 15), which prohibit the use under non-exempt Federal 
contracts, grants or loans of facilities included on the EFA List 
of Violating Facilities. The provision shall require reporting of violations to the grantor agency and to the USEPA Assistant 
Administrator for Enforcement (EN-329).

J. Contracts shall recognize mandatory standards and 
policies relating to energy efficiency which are contained in the 
State energy conservation plan issued in compliance with the 
Energy Policy and Conservation Act (P.L. 94-163).

Grantor agencies are permitted to require changes, 
remedies, changed conditions, access and record retention and 
suspension of work clauses approved by the Office of Federal 
Procurement Policy.
15. Contract Administration

Grantees shall maintain a contract administration system 
ensuring that contractors perform in accordance with the terms, 
conditions, and specifications of their contracts or purchase 
orders.

«*

(No.  A - 102)



CERTIFICATE OF SERVICE
I hereby certify that on February 17, 1998, one copy of the 

Brief For The United States Environmental Protection Agency was 
served by first-class mail, postage prepaid, on the following 
counsel:

Peter Curry
Rob S. Harvey
Tuke, Yopp & Sweeney
Nations Bank Plaza, Suite 1100
414 Union Street
Nashville, Tennessee 37219
Alfred H. Knight
Alan D. Johnson
Willis & Knight
215 Second Avenue, North
Nashville, Tennessee 37201

Lisa Wilson Edwards 
Attorney