On Oct. 3, 2025, the U.S. Department of Transportation (DOT) issued an Interim Final Rule (IFR) fundamentally restructuring its Disadvantaged Business Enterprise (DBE) and Airport Concessions DBE (ACDBE) programs by eliminating race- and sex-based presumptions of social and economic disadvantage and replacing them with a uniform, individualized showing that the award is needed to redress the economic effects of actual previous discrimination for all applicants.
The IFR also mandates a one-time, nationwide reevaluation of all existing certifications, temporarily suspends the setting of contract goals and the counting of DBE/ACDBE participation toward goals until reevaluations are complete, and updates multiple program definitions, as well as reporting and goal-setting provisions.
These changes follow DOT and the Department of Justice's (DOJ) determination that the statutory race and sex-based presumptions of disadvantage are unconstitutional. Existing and prospective DBE firms must now substantiate their social and economic disadvantage through a personal narrative and financial documentation. The Unified Certification Programs (UCP) performing certifications must promptly implement the new standards and recertify or decertify existing firms.
Background
On Sept. 23, 2024, the U.S. District Court for the Eastern District of Kentucky in Mid-America Milling Co. v. U.S. Dep't of Transp, No. 3:23–cv–00072, 2024 WL 4267183 (Sept. 23, 2024) granted a preliminary injunction on the grounds that the DBE program's reliance on race- and sex-based presumptions likely violates the Constitution's guarantee of equal protection. The court held that Congress's approach for identifying groups receiving a presumption of disadvantage was unexplained and had no logical endpoint; thus, the program was not narrowly tailored.
The IFR states that it is based on DOT and DOJ's evaluation of the DBE and ACDBE programs in light of Mid-America Milling Co. decision, as well as similar decisions in Ultima Servs. Corp. v. U.S. Dep't of Agric., 683 F. Supp. 3d 745 (E.D. Tenn. 2023) and Nuziard v. Minority Bus. Dev. Agency, 721 F. Supp. 3d 431 (N.D. Tex. 2024). The IFR states that effective Oct. 3, 2025, DOT is eliminating these presumptions from the DBE and ACDBE program regulations. On Oct. 24, 2025, following widespread confusion and varying interpretations of the IFR's requirements by UCPs, DOT also released FAQs clarifying the rule. This GT Alert summarizes the key changes to the DBE program and what currently certified DBE firms might expect.
Key Updates
Removal of Race-and-Gender Based Presumptions
Under the IFR, 49 C.F.R. Parts 23 and 26 now require a case-by-case finding of "socially and economically disadvantaged" (SED) status for every applicant, without reliance (in whole or in part) on race or sex. Where the burden was once on a certifier to prove that an individual in a group presumed to be disadvantaged was not disadvantaged, the burden is now on the applicant firm to prove their SED status.
All applicants must submit a personal narrative demonstrating disadvantage, by a preponderance of evidence, using specific instances of economic hardship, systemic barriers, and denied opportunities that impeded the owner's progress or success in education, employment, or business (including impediments in obtaining financing on terms available to similarly situated non-SED businesses). Applicants must state "how and to what extent the impediments caused the owner economic harm, including a full description of type and magnitude."
Mandatory Reevaluation of Certified DBEs
All currently certified DBEs and ACDBEs will be required to undergo recertification under the new eligibility standard. Certifiers must provide these firms with an opportunity to submit documentation under the new standards, determine eligibility, and issue written recertification or decertification decisions. Certain states, such as Virginia, released notices regarding the IFR and the requirement to submit a personal narrative. These notices stated that firms that fail to comply with recertification requirements would be decertified without the opportunity to have a hearing. However, DOT clarified in its Oct. 24, 2025, update that DBEs decertified under the reevaluation procedures are still entitled to appeal their decertification under 49 C.F.R. § 26.89.
Suspension of DBE Goals
In order to prevent existing DBEs and ACDBEs from continuing to receive benefits based on their certification under the old standard, contracting goals will be suspended until a DOT funding recipient's UCP completes all DBE and ACDBE recertifications. Until then, recipients of DOT funding cannot set contracting goals for DBEs or ACDBEs or count any participation toward overall goals.
Immediate Effects on Contracting and Compliance
DOT funding recipients and certified DBEs must take immediate steps to comply with DOT's recent changes. For contracts that have been advertised but not yet awarded (i.e., bids have not yet opened), recipients are required to amend advertisements to remove any DBE contract goals. If bids have been opened but contracts are not yet awarded, recipients must zero out the DBE goal. DOT has stated that it will allow recipients to amend said contracts without readvertising them, but that each recipient should make its own determination as to whether the contract needs to be recompeted under state law.
Contracts executed before Oct. 3, 2025, do not require any modification; however, DBE participation on such contracts may not be counted toward either the contract goal or the DOT funding recipient's overall DBE goal until the relevant UCP has fully completed the reevaluation process. During this period, recipients are not required to conduct commercially useful function reviews of DBE work.
Importantly, DOT's DBE termination provisions remain in effect: prime contractors may not terminate a DBE or reduce its scope without prior written consent from the recipient and a showing of good cause. For design-build projects, if DBE subcontracts were signed before Oct. 3, 2025, those agreements may proceed, and DBEs may not be terminated except under the same consent and good-cause rule.
Lastly, recipients must include the nondiscrimination and assurance clauses required by 49 CFR §§ 23.9 and 26.13 in all contracts awarded on or after Oct. 3, 2025, and continue to comply with the prompt payment requirements in 49 CFR § 26.29 throughout the UCP reevaluation period. Despite these changes to the DBE program, the IFR does not affect any joint venture or subcontracting agreements DBE firms may currently have in place. DBEs and government contractors partnering with DBEs may wish to consult with counsel for further guidance before unilaterally modifying performance under said agreements.
* Special thanks to Government Contracts Project Assistant Millie Koehler for contributing to this GT Alert.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
