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In October 1986, landscape contractor Stephen Ellis submitted the low bid for a Utah highway project but lost the job to an out-of-state, minority-owned firm whose bid was 41 percent higher.

His competitor was awarded the contract through a program that reserves 10 percent of Utah's highway construction jobs for minorities, a practice Ellis challenged in federal court Friday."It is an impermissible quota system," said attorney William Perry Pendley during final arguments before U.S. District Court Judge J. Thomas Greene. He said the state's policy is unnecessary, discriminatory and unconstitutional.

Only 7.6 percent of Utah's population is minority, and only 1.7 percent of the highway construction firms qualify as "disadvantaged business enterprises" under the set-aside program, Pendley said.

The net effect is that minorities are getting 50- to 100-percent of the subcontracting work, Pendley said. And since there are so few minority contractors in the state, two-thirds of the contracts are going to out-of-state companies, he added.

"Congress can legislate to remedy societal discrimination, and it can do so on a nationwide basis," responded Richard S. Ugelow, the government's lawyer. Utah becomes an agent of Congress when it accepts federal highway funds, he said.

He also told Greene that Utah's policy has all the safeguards required by the U.S. Supreme Court in a number of rulings issued during the 1980s. "This program under any measure of review meets that scrutiny."

The constitutional clash has potentially far-reaching ramifications, both sides said following the 90-minute debate in court. If Ellis prevails, Utah's set-aside program will be nullified, and similar programs throughout the country could be challenged. If the government wins, it could reinforce federal and state anti-discrimination policies that have been eroded elsewhere.

One indication of the broad interest in the case is that Ellis is being represented by the Mountain States Legal Foundation, which Pendley, its president, described as "a non-profit, public interest legal center that stands for individual liberty, free enterprise and limited government."

Ellis, a 74-year-old Utah County resident, once dominated the highway landscape business in Utah. He was named subcontractor of the year in 1982, at a time when he was getting 90 percent of Utah's road landscape work.

His fortunes changed with the adoption of the minority set-aside program, according to Pendley, who says Ellis has found it difficult to win government contracts even when he submits the lowest bid. "He lost another one in February."> Pendley argued in court that Utah's policy is legally deficient because it isn't based on a finding of prior state-sponsored discrimination or a compelling public interest, and it isn't narrowly tailored.

Ugelow said the government has a compelling interest in ensuring that its money is not spent in the furtherance of discrimination, and he noted that Utah could have requested a waiver if it couldn't meet the 10-percent requirement.

According to UDOT Civil Rights Coordinator Mario Blanca, the state not only has no trouble meeting the requirement, but actually exceeds it. "In some cases, 15 to 18 percent of the contracts have gone to minorities," he said.

He and other UDOT officials at Friday's hearing called the program "politically charged" and conceded that it is not widely accepted or endorsed by the construction industry or the public. "Yes, we get a lot of complaints," Blanca said.

Charles Larson, who administers the program for UDOT, said people sometimes look only at the cost of anti-discrimination efforts and forget the cost of discrimination.

Greene did not indicate when he might rule on the issue.