We provide this alert for situational awareness and emphasize that there is no immediate action for federal grantees to take. We anticipate the United States Department of Transportation (USDOT) and its modal administrations will issue guidance to grantees and initiate rulemaking to establish criteria for procurements and grant administration. We will monitor and report on future developments.
USDOT, in a reversal of its decades-long policy, has sought court approval of a consent order that would declare its Disadvantaged Business Enterprise (DBE) program unconstitutional. If the consent order is approved, the order would impact DBE programs at the Federal Transit Administration (FTA), Federal Aviation Administration (FAA), and Federal Highway Administration (FHWA). Congress has not authorized FRA to establish a DBE program. Groups who intervened in the case who support the continuation of DBE programs plan to oppose the order if the Court grants it.
Background:
On May 28, the United States Department of Transportation (USDOT) reversed its previous stance and joined plaintiffs in seeking a consent order from the U.S. District Court of the Eastern District of Kentucky that would declare USDOT’s Congressionally-mandated DBE program unconstitutional. In their original 2023 complaint, the plaintiffs in Mid-America Milling v. DOT claimed the DBE program’s use of race- and gender-based presumptions created “discriminatory barriers, preventing many construction companies from competing for contracts on an equal footing with firms owned by women and certain racial minorities.” In September 2024, a federal judge granted a preliminary injunction limiting the program’s enforcement in Kentucky and Indiana.
For instance, FTA’s DBE regulations require recipients of planning, capital, and/or operating assistance to maintain a DBE program. Congress directed USDOT to establish its DBE program in 1983 and has consistently reauthorized the program—including with respect to federal highway and transit funding under the Infrastructure Investment and Jobs Act of 2021 (Pub. L. 117-58). In April 2024, USDOT issued a final rule expanding the DBE program. USDOT regulations presumptively include women and specific racial minorities in this category, though others may qualify by documenting that they meet the criteria to be deemed disadvantaged. USDOT’s DBE program sets a goal of allocating at least 10 percent of certain federal funding to DBEs, defined as businesses owned by “socially and economically disadvantaged individuals.”
Upon entering office, President Trump issued Executive Orders 14151 and 14173, which called for ending equity-related actions by federal agencies.
On May 28, the USDOT joined the Mid-America Milling plaintiffs in submitting a proposed consent order to the court, which would function like an enforceable settlement. The proposed order states “DBE eligibility using race- and sex-based presumptions, as reauthorized by the IIJA, and in the FAA Reauthorization Act of 2024, is not supported by the U.S. Constitution as currently interpreted under equal protection jurisprudence.” The proposed order cites to the U.S. Supreme Court’s decision in Students for Fair Admissions, Inc. v. President & Fellows of Harvard College, 600 U.S. 181 (2023), which held that the use of racial preference in university admissions programs violated the Constitution’s Equal Protection Clause. If approved, the proposed consent order would prohibit USDOT from approving “any federal, state or local [US]DOT-funded projects with DBE contract goals where any DBE in that jurisdiction was determined to be eligible based on a race- or sex-based presumption.”
Although FAA, FHWA, and FTA are not parties to the case, the proposed order, if approved, would apply across the entire USDOT. The result would be sweeping implications for federal programs aimed at disadvantaged business enterprises. In particular, USDOT would be prohibited from approving funding for projects with DBE contract goals in jurisdictions where any DBE’s eligibility was determined using race- or sex-based presumptions. It is not clear from the wording of the proposed order whether this prohibition would be applicable retroactively to existing USDOT funding agreements.
The U.S. District Court of the Eastern District of Kentucky has not yet ruled on the proposed consent order. Kaplan Kirsch will continue to monitor and report on further developments.
If you have any questions, please contact Ayelet Hirschkorn, Allison Ishihara Fultz, John Putnam, Chuck Spitulnik, Christian Alexander, or Grant Glovin.