- in United States
Bottom Line Up Front
Consistent with the Trump administration's focus on eliminating programs that confer preferential treatment based on historical disadvantage, the Department of Transportation (DOT) issued an interim final rule (IFR) on September 30, 2025, which removed race- and sex-based presumptions from the definition of "socially and economically disadvantaged individuals" under its Disadvantaged Business Enterprise (DBE) and Airport Concession Disadvantaged Business Enterprise (ACDBE) programs. Effective October 3, 2025, DBE and ACDBE business owners and applicants must demonstrate on a case-by-case basis that they satisfy the race- and sex-neutral criteria described in the newly revised 49 Code of Federal Regulations (CFR) parts 23 and 26. Importantly, the IFR requires current certified DBEs and ACDBEs to be reevaluated and recertified under the new certification standards. To the extent that current DBEs and ACDBEs do not meet the new certification standards, the IFR contemplates that these entities will be decertified.
Background
To assist small business formation and growth, Congress enacted the DOT's DBE program in 1983 and reauthorized it in each subsequent surface and aviation authorization. The DBE program's objectives include but are not limited to:
- 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 of the program
- Providing appropriate flexibilities to recipients of federal financial assistance in establishing and providing opportunities to DBEs
Pursuant to the DBE program, the DOT provides federal funding to recipient state departments of transportation, public transit agencies, and airports for transportation-related projects. This funding is subject to the requirements of the federal DBE program, under which recipients must set participation goals for small businesses owned and controlled by "socially and economically disadvantaged" individuals.
The ACDBE program is similar to the DBE program in that it is also implemented by recipients of DOT federal financial assistance. It was established in 1987 through regulations issued under the authority of the Airport and Airway Improvement Act of 1982. Specifically, recipients of airport funding are subject to ACDBE program criteria, which require them to set participation goals for small businesses owned and controlled by "socially and economically disadvantaged" individuals that receive contracts supporting airport concessionaries. The goal of the ACDBE program is to ensure nondiscrimination in the award and administration of concession contracts at airports that receive DOT funding.
Notably, under the DBE and ACDBE regulations prior to the IFR, women and certain racial groups were presumed "socially and economically disadvantaged" when determining program eligibility. Therefore, when applying for certification as a DBE or an ACDBE, minority-owned and women-owned businesses did not have to make an individualized showing of social or economic disadvantage. Additionally, upon the award of DOT funding to a minority-owned or women-owned business, recipients would receive credit toward meeting their goals for small, economically disadvantaged business participation. This presumption of race- and sex-based eligibility has come under increased scrutiny in recent years.
Program-Focused Litigation
The DBE and ACDBE programs and their "socially and economically disadvantaged" presumptions based on race and gender have been under attack since October 26, 2023. On that date, two companies that participate in federally financed road construction projects sought declaratory judgment and the permanent enjoinment of the DOT- and state-level recipients of federal funding from applying race- and gender-based classifications in the DBE program (Mid-America Milling Company LLC v. United States Department of Transportation, E.D. Ky. Case No. 3:2023-cv-00072). The plaintiffs alleged that despite having a long-standing record of successfully participating in federally funded road construction projects and possessing the qualifications and capacity to successfully pursue federal highway and surface transportation contracts, they were unable to compete on equal terms with women- and minority-owned businesses due to the structure and implementation of the DBE program. The plaintiffs also sought a preliminary injunction pending the final resolution of the matter by the court.
Less than a year later, on September 23, 2024, the U.S. District Court for the Eastern District of Kentucky ruled that the DBE program's use of race- and sex-based presumptions likely did not comply with the Constitution's promise of equal protection under the law. The court issued a preliminary injunction prohibiting the DOT from mandating the use of race- and sex-based presumptions for contracts impacted by DBE goals as well as the two contracts the plaintiffs were submitting bids for. The court's decision was significant because it called into question the constitutionality of a long-standing framework that allowed race- and gender-based preferences in government contracting.
The DOT initially opposed the court's order but, following the change in administration, on May 28, 2025, the DOT and the plaintiffs filed a joint motion requesting the court to enter a consent order to resolve the case by prohibiting the use of race- and gender-based preferences in the DBE and ACDBE programs. The motion is currently pending with the court. However, now that the DOT has issued the IFR, it is likely that the court's ruling on the motion will be moot.
How the Programs Will Work Under the New Regulations
Concurrently with the IFR's publication, the DOT's Office of Civil Rights published guidance on September 30, 2025, explaining the changes to its DBE and ACDBE programs. Under the IFR and guidance, existing DBEs and ACDBEs will be required to:
(1) "demonstrate that the owner is socially and
economically disadvantaged based on his or her own experiences and
circumstances that occurred within American society, and without
regard to race or sex;
(2) "submit to the certifier a Personal Narrative establishing
the existence of 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 owner's progress or success in education,
employment, or business, including obtaining financing on terms
available to similarly situated, non-disadvantaged persons;
(3) "state how and to what extent the impediments caused the
owner economic harm, including a full description of type and
magnitude, and establish the owner is economically disadvantaged in
fact relative to similarly situated non-disadvantaged
individuals;
(4) "state how and to what extent the impediments caused the
owner economic harm, including a full description of type and
magnitude; and
(5) "attach to the Personal Narrative a current personal net
worth statement and any other financial information the owner
considers relevant."
State or regional offices under the Unified Certification Program (UCP)1 must then reevaluate all existing DBEs and ACDBEs based upon the new criteria. (See 49 CFR § 26.67, as revised.) If the UCP certifier reevaluates the owner of a company and determines that the individual does not demonstrate social and economic disadvantage, the company will be decertified from the DBE or ACDBE program.
The IFR also instructs recipients to pause implementation and enforcement of goals under the DBE and ACDBE programs until UCPs complete the reevaluation process. Moving forward, the DOT will not require recipients to set or update new goals until the transition to the new process (including reevaluations) is complete. It will likely take considerable time for UCPs to develop and implement processes to reevaluate existing DBEs and ACDBEs and admit new DBEs and ACDBEs into their programs.
Key Takeaways
For certified DBE and ACDBE companies currently participating in the DBE and ACDBE programs:
- The DOT is accepting comments from the public on the IFR until November 3, 2025.
- Communicate with UCP(s) early regarding its/their plan to recertify the business.
- Begin preparing a thoughtful, well-documented narrative and collect supporting evidence to show social or economic disadvantage (i.e., how the company has faced barriers, discrimination, or denial of opportunities relative to similarly situated businesses of nondisadvantaged individuals).
For companies considering applying to the DBE program and/or ACDBE program, the IFR provides a wider range of businesses that could potentially meet the new criteria to be considered socially and economically disadvantaged. If the owner of the business seems to meet the new eligibility criteria, begin the process of drafting the personal narrative and collecting supporting documentation regarding social or economic disadvantage.
For those contemplating the acquisition of or investment in a DBE and/or an ACDBE, confirm whether recertification has occurred or is ongoing, and ensure that due diligence efforts explore whether the target will remain eligible for certification in light of the IFR.
Goodwin's Government Contracts & Grants team has significant experience counseling clients on matters involving small business qualifications, the drafting of social and economic disadvantage statements and personal narratives, and compliance with applicable changing rules and regulations at both the federal and state levels that impact contractors. We are monitoring changes driven by the Trump administration's priorities and can assist businesses navigating this rapidly evolving landscape. If you have questions, please contact the authors of this alert or any Goodwin lawyer whom you regularly work with.
Footnote
. The UCP allows applicants for the DBE program to apply only once for a DBE certification that will be honored by all recipients in the state. Because the DOT does not review DBE applications, applicants must contact the transportation agency in the state where they want to apply for information about that state's UCP point of contact.
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.
