The Adarand Constructors, Inc. v. Pena case involved a highway construction project in Colorado where a subcontract was awarded to Gonzales Construction Company, a certified small business owned by socially and economically disadvantaged individuals, despite Adarand's lower bid. Adarand claimed that the Federal Government's practice of giving financial incentives to contractors who hire "socially and economically disadvantaged individuals" violates the equal protection component of the Fifth Amendment's Due Process Clause. The Supreme Court concluded that a different standard of review should be applied and remanded the case for further proceedings. The Small Business Act defines socially and economically disadvantaged individuals and sets a government-wide goal of at least 5% participation by small businesses owned and controlled by socially and economically disadvantaged individuals in federal contracts and subcontracts. The Small Business Act's 8(a) program provides benefits to small businesses owned by socially and economically disadvantaged individuals. The 8(d) subcontracting program has race-based presumptions of social and economic disadvantage for members of minority groups. The contract in this case includes a provision for subcontracting to small businesses owned and controlled by socially and economically disadvantaged individuals, with monetary compensation offered for such subcontracts. Adarand filed a lawsuit against federal officials claiming that race-based presumptions in subcontracting compensation clauses violate their right to equal protection. The District Court and the Court of Appeals for the Tenth Circuit upheld the use of subcontractor compensation clauses, applying a lenient standard resembling intermediate scrutiny. The Supreme Court remanded the case for further proceedings, concluding that a different standard of review should be applied.

Adarand can sue if they can prove harm to a legally protected interest due to subcontractor compensation clauses. Racial classifications are subject to strict scrutiny, and any person can demand justification for unequal treatment. The Court overturns the Court of Appeals' decision and lower courts must determine if the government's use of subcontractor compensation clauses can pass strict scrutiny. The Court upholds the constitutionality of the current DBE program, which targets social and economic disadvantages associated with racial characteristics and seeks to overcome barriers of prejudice between general contractors and subcontractors. The Court must give deference to Congress' policy choices.

Race-based remedies for past discrimination are constitutional if they are narrowly tailored and temporary. Strict scrutiny is used to distinguish legitimate from illegitimate uses of race in governmental decision-making. Justice Ginsburg dissents. The passage emphasizes the need to evaluate catchup mechanisms to ensure they do not harm historically privileged racial groups. Courts must review these mechanisms to prevent negative impacts on other groups' opportunities. Political branches can improve these programs over time without disrupting them, as allowed by this ruling.