Harvard Decision Extended to Government Contracting

A federal court held that certain racial preferences in government contracting are unlawful, in the first court decision to apply the recent Harvard decision to government contracting. The decision has no direct legal bearing on affirmative action in federal contracting, but signals that a similar result in that context could be on the horizon.

Background: The case, Ultima Servs. Corp. v. Dep’t. of Agriculture, involved contracts awarded by the Small Business Administration (SBA). The SBA had adopted a regulation under a statute giving preference to businesses owned by “socially disadvantaged individuals” – “those who have been subjected to racial or ethnic prejudice” – in awarding contracts. The SBA’s regulation created a rebuttable presumption that “Black Americans; Hispanic Americans; Native Americans … Asian Pacific Americans .. [and] Subcontinent Asian Americans” are socially disadvantaged. A company owned by a white woman – Ultima – filed a lawsuit claiming that the company was willing and able to perform SBA contracts but was disqualified because of the owner’s race. 

Decision: A federal district court held that the SBA’s program violated the Fifth Amendment of the Constitution because it did not present specific goals – such as remedying past specific discrimination or mirroring representation in the relevant industry – that would support the racial preferences in the program, nor was the program sufficiently narrowly tailored. Like the Harvard decision, the court pointed to the fact that the program did not have a set end date, and to the fact that it used “imprecise” racial categories to determine who gained preferential treatment. 

The decision does not change existing law for employers’ use of racial preferences in awarding contracts. The decision is under a different section of the law than that which applies to private employers. Employers seeking to diversify their supply chains may continue to do so; however, the decision signals that future cases may target such practices in the private sector, and courts’ increased willingness to carefully scrutinize – and invalidate – affirmative action programs in general post-Harvard. 

Outlook: The decision could change on appeal, and its current impact is limited in scope. Nevertheless, government contracting appears to be the next frontier of the affirmative action backlash, with private employer DEI programs also under increased legal scrutiny.