In 1983, Congress enacted the Disadvantaged Business Enterprise Program, which requires that the Department of Transportation spend ten percent of federal highway construction funding with small businesses owned and controlled by “socially and economically disadvantaged individuals.”

What is the DBE program?

“Socially disadvantaged individuals” is defined as “those who have been subjected to racial or ethnic prejudice or cultural bias within American society.”

“Economically disadvantaged individuals” is defined as “socially disadvantaged individuals whose ability to compete in the free enterprise system has been impaired . . . as compared to others in the same . . . line of business who are not socially disadvantaged.” 

Anyone can qualify as a “socially and economically disadvantaged individual” regardless of race or sex, but women and certain racial groups (Blacks, Hispanics, Native Americans, Asian Pacific Americans, and Subcontinent Asian Americans) are presumed to qualify. It is this presumption of eligibility based on race or sex that was challenged.

State and local recipients of federal DOT funds must have a DBE program and DBE participation goals. If DBE participation goals cannot be achieved with race- and sex-neutral means, the funding recipient must set and achieve specific DBE contract goals or have documentation of the good faith efforts to meet the goals.

Congress created the DBE program to combat and remedy the effects of past discrimination in the transportation industry. According to the Department of Transportation, the DBE program objectives include:

• Removing barriers to the participation of DBEs in DOT-assisted contracts;
• Promoting the use of DBEs in all types of federally assisted contracts and procurement activities conducted by the Department’s recipients;
• Ensuring that only firms fully meeting the eligibility standards are permitted to participate;
• Assisting the development of firms that can compete successfully in the marketplace outside the program; and
• Providing appropriate flexibilities to recipients of federal financial assistance in establishing and providing opportunities to DBEs.

Challenge to legality of DBE program

Two DOT contractors, Mid-American Milling Company and Bagshaw Trucking, Inc., sued the Department of Transportation in October 2023, challenging the constitutionality of the DBE program. The contractors claim that the Department awarded contracts to DBE-qualifying bidders, even when the contractors’ bid amounts were lower. The contractors argue that the race- and sex-based presumptions of “social and economic disadvantage” for determining eligibility for the DBE program violates the Constitution’s guarantee of equal protection without regard to race and sex.

A federal judge in Kentucky agreed with the contractors. On September 23, 2024, U.S. District Judge Gregory F. Van Tatenhove (George W. Bush appointee) preliminarily enjoined the Department of Transportation from mandating the use of race- and sex-based presumptions for contracts impacted by DBE goals upon which the contractors bid. The parties continued the litigation, with the contractors seeking a permanent injunction against the Department. 

Fast-forward to 2025 and the Trump administration. 

DOT capitulates and agrees to end presumptions in DBE program

Now, instead of continuing to oppose the contractors’ challenge to the DBE program, the Department of Transportation stipulates that the use of race- and sex-based presumptions is unconstitutional. The parties submitted a proposed Consent Order to Judge Van Tatenhove that would prohibit the Department from approving funding for projects in any jurisdiction with DBE contract goals where DBE eligibility was based on a race- or sex-based presumption. 

This maneuver by the government is not surprising. The Trump administration opposes race- or sex-based preferences and diversity, equity, and inclusion initiatives, and the Department of Justice is intent on eliminating the same. When President Trump rescinded Executive Order 11246 based on the argument that it resulted in illegal discrimination by contractors, it seemed like only a matter of time until contracting initiatives like the Department of Transportation’s DBE program would be questioned or eliminated. 

What does this mean for DOT contractors?

If Judge Van Tatenhove signs the proposed Consent Order, the Department of Transportation will no longer require recipients of its funding to set goals for DBEs or explain why DBE goals are not met where DBE eligibility is presumed based on race or sex. Existing DBE-qualified contractors may have to provide justification for inclusion in the program that does not relate to race or sex. 

We will wait for guidance from the Department of Transportation to see exactly how the existing DBE program will be modified. 

In addition, other parties intervened in the litigation on behalf of DBE businesses, seeking to defend the DBE program. The intervenors did not join in the proposed Consent Order, which could affect the outcome of the matter.

What does this mean for contractors with other federal and state agencies that offer similar programs?

Other government programs that provide benefits to individuals based on race or sex are likely to be scrutinized. For example, the Small Business Administration operates the Small Disadvantaged Business program. To qualify, individuals must be socially and economically disadvantaged (as defined above). The government awards ten percent of its annual contracting funds to SDBs.

Similarly, the Women-Owned Small Business Federal Contracting program is limited to entities with majority women ownership.

Many state and local governments offer similar types of incentives or preferences to minority- and women-owned businesses.

Private interest groups and companies could initiate lawsuits seeking to invalidate these programs, or the Trump administration may dismantle the federal programs from within. It may ultimately be up to the Supreme Court to decide whether these types of programs are constitutional.