The Court noted that the strict scrutiny test included two questions: (1) whether the interest cited by the government for a racial classification is sufficiently compelling to overcome the suspicion that racial characteristics ought to be irrelevant so far as treatment by the government is concerned and (2) whether the government has narrowly tailored its use of race so that raced-based classifications are applied only to the extent absolutely required to reach the proffered interest.

Compelling Interest

Although the Court said that "compelling interest" is the linchpin of constitutionality under strict scrutiny, the Court pointed out that the Supreme Court did not give any meaning to the phrase "compelling interest" in Adarand III. 

After reviewing the evidence, the Court concluded that "Congress may recognize a nation-wide evil, and act accordingly."  The Court also said that Congress did not need to make a state-to-state nor city-to-city finding of discrimination and concluded that Congress had a "strong basis in evidence" for enacting the challenged laws.  

Narrow Tailoring

Next, the Court determined whether the remedy was narrowly tailored to suit the compelling interest.  Although the Court said that Congress did not need to show state-to-state nor city-to-city discrimination, it added that the lack of such specific findings required the Congress to exercise particular care to ensure that its programs were narrowly tailored.  The Court concluded that the program was not narrowly tailored.  The Court said

• "To the extent an SCC payment acts as a gratuity for a prime contractor who engages a DBE, it cannot be said to be narrowly tailored to the government's interest of eliminating discriminatory barriers."
  
  
• "Congress' national jurisdiction allows it, where appropriate, to determine that discriminatory barriers exist with reference to specific groups.  However, before making such determination, the requirement of narrow tailoring mandates that Congress 'inquir[e] into whether or not the particular [entity] seeking a racial preference has suffered from the effects of past discrimination . . . .'"
  
  
• "Contrary to the Court's pronouncement that strict scrutiny is not 'fatal in fact,' I find it difficult to envisage a race-based classification that is narrowly tailored.  By its very nature, such program is both underinclusive and overinclusive."
  
  
• "The statutes and regulations governing the SCC program are overinclusive in that they presume that all those in the named minority groups are economically and, in some acts and regulations, socially disadvantaged.  This presumption is flawed, as its corollary, namely that the majority (caucasians) as well as members of other (unlisted) minority groups are not socially and/or economically disadvantaged.  By excluding certain minority groups whose members are economically and socially disadvantaged due to past and present discrimination, the SCC program is underinclusive." 
  
  
• "Both the race-centered forms actually used in Gonzales' DBE certification, and the later more inquiring forms . . . sufficed for certification purposes under the STURAA regulations and the relevant SBA, STURAA, and ISTEA percentage goal provisions.  This supports a conclusion that the presumptions of disadvantage set out in federal statutes and regulations are not narrowly tailored to those who have suffered the effects of prior discrimination in that they allow implementation in such a way as to permit an absolute preference to certain business entities based solely on their race."
  
  
• "I conclude the statutes and regulations implicated in the SCC program, with respect to the races included as presumptively disadvantaged, do not provide a reasonable assurance that the application of racial criteria will be limited to accomplishing the remedial objectives of Congress.  See Fullilove, 448 U.S. at 487, 100 S.Ct. at 2779-80.  As such, they are not narrowly tailored to serve the interest of eliminating discrimination in the construction industry."

The Court then looked at the language of the various laws and noted that the 8(d) program required an individual inquiry into each participant's economic disadvantage.  However, the STURAA regulations did not require the certifying authorities to make such individualized inquiries.  The Court also noted that similar inconsistencies existed in the regulations for the 8(d) program.  Additionally, inconsistencies existed between the definitions of which socially disadvantaged individuals qualified as economically disadvantaged for the 8(a) and 8(d) programs.  For example, under the 8(a) program an individual's ability to compete for contracts must have been impaired "as compared to others in the same or similar line of business who are not socially disadvantaged" and under the 8(d) program a participant needed to show impairment only "as compared to others in the same or similar line of business."  The Court concluded that 

"The inconsistencies between these statutes and regulations and the resultant uncertainty as to who may or may not participate in the race-based SCC program preclude a finding of narrow tailoring.  As discussed in relation to the different forms which have been used in the certifying process, without a well defined set of consistent definitions, the SCC  program cannot provide the 'reasonable assurance that the application of racial or ethnic criteria will be limited to accomplishing the remedial objectives of Congress and that misapplication of the program will be promptly and adequately remedied administratively."