AFFIRMATIVE ACTION : Unfinished Business: Government Contracts : Courts: Clinton has endorsed fairness. But that doesn’t erase a strict Supreme Court ruling that undercuts affirmative action in awarding funds.

A Minnesota construction company which has paved roads at the White Sands Missile Base in New Mexico raises a problem that President Clinton largely glossed over Wednesday in his impassioned endorsement of federal affirmative action.

When most Americans think of “affirmative action,” they think of jobs and college admissions. But at the federal level, the biggest battles have been fought over government contracts. And those federal efforts--a key to survival for many minority businesses--remain in jeopardy, despite the President’s commitment to stay the course on them.

As one government lawyer said Wednesday, there is “clearly a tension” between the President’s speech staunchly supporting affirmative action and a separate presidential directive that tells federal agencies to implement a strict Supreme Court ruling that undercuts affirmative action.

The recent ruling, in Adarand Constructors vs. Pena, says that the government may not use “racial classifications” to award any funds, except to remedy proven, past discrimination by an agency or its contractors.

In 1993, federal agencies awarded $13 billion in contracts to firms owned by blacks, Latinos, Asians and Native Americans under a variety of special “set-aside” programs. But none of those programs was begun to remedy racial discrimination practiced by the Defense Department, the Transportation Department or Labor Department, for example.

In the immediate wake of the high court ruling, several Administration lawyers agreed that they would have to revise or repeal programs that reserve some contracts for minorities only. As an alternative, Justice Sandra Day O’Connor urged the government to use “race-neutral means to increase minority business participation” by, for example, offering special assistance to “disadvantaged” firms when they apply for contracts.

But in the end, the President rejected that option and instead pledged his support for the continued use of “race-conscious” measures in employment, education and government contracting.

The President’s strong support of affirmative action--the bully pulpit effect--is likely to ensure that employers will continue to consider race, gender and ethnic background in hiring. Decisions about whether to use racial preference in college admissions will be left largely to the states. In California, the University of California Board of Regents--and even the state’s voters--will decide.

But in government contracting, the final word likely will be spoken in the federal courts. And the legal complaint filed by the Minnesota firm illustrates the dilemma facing the Clinton Administration.

In the past, the McCrossan Construction Co. had submitted a low bid and won contracts for roughly $30 million in roadwork at the White Sands base. But last year, the chief contracting officer at the base announced that only minority-owned firms could submit bids for future road contracts.

Under a little-known federal regulation dubbed “the Rule of 2,” departments are permitted to close off bids to white-owned firms if at least two qualified minority-owned businesses are available to do the work. Officials described the “Rule of 2” as one of several means of achieving the Defense Department’s goal of steering at least 5% of its contract funds to minority-owned firms.

In 1994, the Pentagon awarded $5.8 billion in contracts to companies owned by minorities, according to the President’s Affirmative Action Review.

“They basically put up a sign that says, ‘No Whites Need Apply,’ ” said Jim Reeves, a Las Cruces, N.M., lawyer representing the company.

For months, the company had complained to the Pentagon without success that it was being unfairly excluded from applying for the work. But the high court’s ruling of June 12 changed the rules of the debate.

“It came at just the right time for us,” Reeves said.

In late June, the company filed a suit in federal court against base contracting officer Dennis Sutton and Defense Secretary William J. Perry contending that it was being “unlawfully excluded” from seeking a contract solely because of race.

Clinton’s Justice Department has yet to reply to the suit but must do so by the end of this month. Administration lawyers will have to explain how their decision to close off contracts to white-owned firms is a “narrowly tailored” remedy for clear past discrimination by the government.

Still, the battle in the courts will likely take years to resolve.

Attorneys for the Associated General Contractors of America predicted that the lawsuit in McCrossan Construction vs. Sutton will be the first of many.

“We were disappointed but not surprised” by the President’s speech, said Mike Kennedy, a special counsel for Associated General Contractors. “I saw no recognition of the problem faced by contractors,” he said.

“In my own view, most government programs in which race, gender or similar status are dominant factors will not survive the Supreme Court’s new Adarand test,” Sen. Joseph I. Lieberman (D-Conn.), a former state attorney general, said on the Senate floor.