Cache Valley Electric was the low bidder on two Utah highway lighting projects in 1995 but it didn't get the jobs.

Instead, the prime contractors picked the second lowest bids - which cost taxpayers an extra $47,000 - to satisfy a Utah Department of Transportation "quota" for minority-owned businesses."It was for that reason and for that reason alone," said company attorney George A. Hunt. "The contractors admitted on the record that they would have selected Cache Valley Electric but for the DBE (Disadvantaged Business Enterprise) program."

Hunt calls the "arbitrary allocation" of 10 percent of public construction jobs to minority-owned businesses a quota system in its purest form and a clear case of reverse discrimination.

Moreover, it's costing taxpayers a bundle, he said. "We made some rough calculations that show the DBE program has increased the cost of the I-15 reconstruction and light rail by as much as $70 million."

Armed with the discrimination and economic arguments, Cache Valley Electric filed a lawsuit in U.S. District Court last year challenging the constitutionality of racial and gender preferences in the awarding of construction contracts. Denied standing by Judge David K. Winder, the company appealed to a higher court.

On Tuesday, a divided panel of the U.S. 10th Circuit Court of Appeals also rejected the company's challenge, saying the DBE program was not based solely on racial and gender preferences.

In a 2-to-1 majority decision written by Judge Carlos F. Lucero, the court concluded that Congress intended the program to apply to small businesses owned and controlled by socially and economically disadvantaged individuals. The law also established a "presumption" that minorities are "socially and economically disadvantaged."

According to the two appeals judges, Cache Valley Electric's challenge of that presumption failed because the disputed preferences are "severable" from the rest of the DBE program. A congressional conference committee report shows the law was designed to increase tax revenues from DBE firms, reduce unemployment taxes, promote racial and gender diversity in highway construction and boost economic development in disadvantaged communities and other benefits.

"Although the allegedly impermissible goal of racial and gender diversity is included in this list, all of the other stated benefits are completely unrelated to racial or gender preference," the judges said.

"Consequently, there is no truth to (Cache Valley Electric's) claim that socially disadvantaged individuals - and, by extension, economically disadvantaged individuals - are necessarily minorities," Lucero wrote.

"It is clear that the legislative intent to foster development in small businesses whose owners have had to overcome social and economic hardship would remain even in the absence of the challenged presumption."

Hunt called the court's reasoning naive. "The only reason for (DBE's) existence is to provide an advantage to minorities."

Cache Valley Electric and other firms that have challenged the law throughout the nation consider it a "fundamental fairness issue," Hunt said. "It's a question of having a level playing field. Whenever a decision is based solely on race or gender, a red flag goes up."

Instead of addressing the constitutional question head-on, the court "danced around it" with the decision on standing, Hunt said.

"They are effectively saying that the only people who can challenge the program are those who benefit from it," he said.

Hunt said he will discuss the decision with Cache Valey Electric and decide whether to appeal it to the U.S. Supreme Court.

Chuck Larson, UDOT's civil rights manager and one of the defendants in the case, said the program is socially and economically valuable.

"Certain segments of society in the past have been excluded from participating in programs, especially in construction," Larson said. "If some weren't stimulated (by the DBE program), they would become burdens to society. This way they move toward a vital economic role in society."

He also argued that the DBE contracts don't necessarily drive up the cost of road projects. By providing more contractors through the DBE program, there is more competition, which leads to lower bids, he said.

As to who is eligible for DBE status, federal regulations have defined five minority groups and women. Applicants who aren't members of minority groups are evaluated on a case by case basis and must prove they have experienced social or economic discrimination.

In Salt Lake, Larson said, it has been years since he has had to determine a case where an applicant was not a minority.