The U.S. Department of Transportation (DOT) issued an interim final rule (IFR) today that ends the use of race- and sex-based presumptions of disadvantage for establishing eligibility under the Disadvantaged Business Enterprise (DBE) and Airport Concessions DBE (ACDBE) Programs.
Congress first enacted the DBE program in 1983. Its primary goal is to remedy ongoing discrimination by directing at least 10 percent of federal transportation infrastructure funding to contracting firms that are owned and controlled by “socially and economically disadvantaged individuals.” Under the law, while any individual can qualify as socially and economically disadvantaged regardless of race or gender, certain racial groups and women are presumed to be disadvantaged, while other individuals must prove that they are socially and economically disadvantaged. The program is administered at the state and local level by transportation agencies who receive federal transportation dollars and contract directly with companies, including CRM firms.
As reported earlier this year in ACRASphere, in a case brought by two Indiana non-DBE contractors, the U.S. District Court for the Eastern District of Kentucky issued a preliminary injunction last year that prohibited DOT from requiring the use of the DBE program’s race- and gender-based presumptions of disadvantage on contracts on which two plaintiff companies bid for work. In May, the U.S. Department of Justice (DOJ) filed a motion with the Court agreeing with the plaintiffs’ contention that the program violates the Constitution’s equal protection clause and proposing a consent order that would prohibit using race or gender as a consideration in the approval of a DBE contract.
In its IFR, DOT states that it and DOJ have, “consistent with the ruling of the District Court, have determined that the race- and sex-based presumptions of social and economic disadvantage in DOT’s DBE programs are unconstitutional.” Therefore, it is replacing the race- and sex-based presumptions with a requirement that DBE/ACDBE applicants make “individualized demonstrations of social and economic disadvantage.”
Removing Race and Sex-Based Presumptions of Disadvantage
The IFR revises the definition of “socially and economically disadvantaged individual” to mean “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. A determination that an individual is socially and economically disadvantaged must not be based in whole or in part on race or sex.”
Under the IFR, in order to prove social and economic disadvantage, firm owners must:
- Provide a Personal Narrative (PN) that “establishes 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;”
- State in the PN “how and to what extent the impediments caused the owner economic harm, including a full description of type and magnitude, and must establish the owner is economically disadvantaged in fact relative to similarly situated non-disadvantaged individuals;” and
- Attach to the PN a current personal net worth statement and any other financial information they consider relevant.
Current DBE/ACDBE Firms Must be Re-evaluated
The IFR requires all current DBE/ACDBE firms to undergo reevaluation to prove their eligibility under the new standards. According to the IFR, each state or territorial Unified Certification Program (UCP) must identify all currently certified DBE/ACDBEs, provide them with the opportunity to submit documentation demonstrating its eligibility under the new standards, and issue a written decision to each firm indicating that it has either been recertified or is decertified.
New Rules Automatically Go into Effect
Because DOT issued an interim final rule, the new policies go into effect automatically. Although the Administrative Procedure Act (APA) generally requires agencies to provide the public with the chance to comment prior to publication of a substantive rule, agencies are allowed to publish a final rule without first seeking public comment on a proposed rule “when the agency for good cause . . . that notice and public procedure thereon are impracticable, unnecessary, or contrary to the public interest.”
In the IFR, DOT argues that “providing advance notice and an opportunity to comment on these regulatory changes pertaining to the DBE and ACDBE programs would be impracticable, unnecessary, and contrary to the public interest” because DOJ and DOT have determined that the race- and sex-based presumptions of the DBE and ACDBE programs are unconstitutional.
That said, DOT is accepting comments from the public on the IRF until November 3, 2025. Firms and others can comment online here.
As a number of CRM firms that compete for transportation contracts are eligible as DBEs, ACRA is actively monitoring these developments and reviewing next steps. If you have questions, please contact us at info@acra-crm.org.