Today, the United States Department of Transportation (U.S. DOT) issued an Interim Final Rule (IFR) entitled "Disadvantaged Business Enterprise Program and Disadvantaged Business Enterprise in Airports Concessions Program Implementation Modifications," updating the requirements for its Disadvantaged Business Enterprise (DBE) Program as set forth in 49 C.F.R. Part 26. In addition, today the U.S. DOT's Office of Civil Rights issued guidance regarding the IFR.
The impetus for the changes to the U.S. DOT's DBE Program are many, including the following:
- The progression of the Mid-America Milling Co., LLC, et al., v. U.S. Department of Transportation, et. al.1 lawsuit ("Mid-America");
- The issuance on January 20, 2025, of Executive Order 14151 ("Ending Radical and Wasteful Government DEI Programs and Preferencing"), issuance on January 21, 2025, of Executive Order 14173 ("Ending Illegal Discrimination and Restoring Merit-Based Opportunity"), and issuance on February 19, 2025, of Executive Order 14219 ("Ensuring Lawful Governance and Implementing the President's 'Department of Government Efficiency' Deregulatory Initiative"); and
- Secretary Duffy's issuance of an order (DOT Order 2100.7, "Ensuring Reliance Upon Sound Economic Analysis in Department of Transportation Policies, Programs, and Activities") and memorandum ("Implementation of Executive Orders Addressing Energy, Climate Change, Diversity, and Gender") on January 29, 2025.
In implementing the foregoing, the United States Attorney General issued on March 21, 2025, a memorandum to all federal agencies ("Implementation of Executive Orders 14151 and 14173: Eliminating Unlawful DEI Programs in Federal Operations") and the President issued on April 9, 2025, a memorandum to the heads of executive departments and agencies ("Directing the Repeal of Unlawful Regulations").
Relevantly, the IFR implements the following major changes to the DBE Program:
- Elimination of the "rebuttable presumption" that women, Black Americans, Hispanic Americans, Native Americans, Asian Pacific Americans, and Subcontinent Asian Americans are socially and economically disadvantaged.
- Elimination of the terms "race-neutral" and "race-conscious" and replacing them with "DBE-neutral" and "DBE-conscious."
- Redefinition of social and economic disadvantage as "any individual who is a citizen (or lawfully admitted permanent resident) of the United States and who a certifier finds to be socially and economically disadvantaged on a case-by-case basis."
- Re-evaluation of all currently certified DBEs under Unified Certification Programs (UCP) that are refocused to the new definition of social and economic disadvantage and new process set forth in the IFR.
- Resetting of an agency's overall DBE goal based on the refocused UCP and determination of whether an agency can meet its overall goal using solely DBE-neutral means, or if the agency must use DBE-conscious contract goals on DOT-assisted contracts to meet its overall goal.
To demonstrate social and economic disadvantage under the IFR, an applicant for DBE certification is now required to submit a personal narrative including the following information:
- A narrative establishing the existence of the DBE applicant's disadvantage by a preponderance of the evidence based on individualized proof regarding specific instances of economic hardship, systemic barriers, and denied opportunities that impeded the applicant's progress or success in education, employment, or business, including obtaining financing on terms available to similarly situated, non-disadvantaged individuals.
- A statement of how and to what extent the impediments caused the DBE applicant economic harm, including a full description of type and magnitude, and establishing that the applicant is in fact economically disadvantaged relative to similarly situated non-disadvantaged individuals.
- A current personal net worth (PNW) statement and any other financial information the DBE applicant considers relevant.
The IFR does not provide additional clarity or guidance around the subjective nature of the narrative establishing the existence of the DBE applicant's disadvantage and, while this provides some latitude for an agency to make a determination regarding what evidence is required to demonstrate social and economic disadvantage, agencies should remain mindful that these determinations must be made in the context of the DBE applicant's "own experiences and circumstances within American society, and without regard to race or sex."
Notably, the IFR does not change the requirement that a socially and economically disadvantaged individual must own at least 51% interest in a firm and control management and daily business operations to qualify as a DBE. In addition, the objective measure of economic disadvantage will continue to be measured by the firm owners' PNW, which cannot exceed $2.047 million.
Until a UCP refocuses its certification program and completes re-evaluation of DBE applicants, no agency covered by that UCP will be subject to the compliance provisions of 49 C.F.R. § 26.47, nor will that agency be required to update its overall goal. Similarly, an agency may not include DBE contract goals or count any participation toward overall DBE goals until the UCP completes its re-evaluation process.
Finally, Mid-America remains outstanding. As a reminder, on September 23, 2024, the United States District Court for the Eastern District of Kentucky (the "Court") issued an Opinion and Order2 granting a preliminary injunction on the basis that the race- and gender-based rebuttable presumptions used in the U.S. DOT DBE Program violate the United States Constitution's guarantee of equal protection under the Fourteenth Amendment. The Court limits the scope of the preliminary injunction to the plaintiffs, Mid-America Milling Co., LLC, and Bagshaw Trucking Inc. (together, the "Plaintiffs"), in the states in which they are bidding on work.
Currently before the Court is a proposed consent order, jointly filed by the parties on May 28, 2025. The Plaintiffs and the U. S. DOT request that the Court declare that the U. S. DOT's DBE Program's use of race - and gender-based presumptions is unconstitutional and enter a permanent injunction. If the Court approves the consent order, the outcome would be that the DBE Program would have to eliminate the use of the rebuttable presumption of social and economic disadvantage.
On June 5, 2025, the Court granted a joint motion to stay filed by the Plaintiffs and the U.S. DOT. The Court is taking the proposed consent order under advisement during the stay, and extended all pending deadlines by 90 days. Following the 90-day stay period, the Court will consider a motion to return the case to the active docket. As of October 2, 2025, the Court has not rendered a decision on the proposed consent order; however, the IFR is substantially in line with the consent order.
The IFR is effective as of October 3, 2025. There is no apparent grandfathering of existing contracts or procurements-in-progress. Any comments on the IFR are due to the U.S. DOT by November 3, 2025.
Footnotes
1. Mid-America Milling Co., LLC, et al., v. U.S. Department of Transportation, et. al., No. 3:23-CV-00072-GFVT (E.D. Ky. Sept. 23, 2024).
2. Ibid.
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