DOT Removes Racial + Ethnic ‘Social Disadvantage’ Presumption from Disadvantaged Business and Airport Concession Disadvantaged Business Enterprise Programs

Takeaways

• Department of Transportation issues interim final rule removing presumption of social and economic disadvantage for women and designated minorities from two federal programs.
• The new rule is immediately effective, without a notice and comment period.
• Recipients of federal funds must not include DBE or ACDBE contract goals or count any participation toward existing goals until they reevaluate the eligibility of existing DBEs and ACDBEs.

Related links

• DOT Announcement of Interim Final Rule
• Federal Register: Interim Final Rule - Disadvantaged Business Enterprise and Airport Concessions Disadvantaged Business Enterprise Programs

Article

The Department of Transportation (DOT) issued an interim final rule (IFR) modifying the regulation implementing the Disadvantaged Business Enterprise (DBE) and Airport Concessions Disadvantaged Business Enterprise (ACDBE) programs to eliminate a presumption that women and members of designated racial and ethnic groups are socially disadvantaged. Although the presumption is statutory, most recently reauthorized in the Infrastructure Investment and Jobs Act in 2021, in 2024, a federal district court issued a preliminary injunction prohibiting DOT from applying the presumption because it violates the Constitution’s Equal Protection Clause. Because the ACDBE presumptions are functionally equivalent to the enjoined DBE presumptions, DOT is changing both programs.

This comes on the heels of a preliminary injunction issued in Mid-America Milling, et al. v. U.S. Dep’t of Transportation, et al., No. 3:23-cv-00072 (E.D. Ky. Sept. 23, 2024), which remains in effect. In that case, DOT filed a joint motion with the plaintiffs asking the court to enter a consent order resolving the lawsuit with a stipulation that the presumption violates the Constitution and an order prohibiting DOT from approving any federally funded projects that include DBEs whose certification was based on the presumption. The motion for the consent order is pending; the motion is opposed by intervenor minority business associations that seek to continue defense of the presumption. The motion is supported by amici curiae such as a group of Democratic state attorneys general, a group of local governments, minority and veteran-owned business trade associations, and an association of certified DBE companies.

In addition, Solicitor General D. John Sauer formally notified Congress that the Department of Justice (DOJ) has determined the presumption is unconstitutional with respect to the DBE program and thus, DOJ will no longer defend it.

Changes to the Regulations

The IFR modifies the regulations to remove references to the presumption and provides that the owner of a DBE or ACDBE applicant must demonstrate on a case-by-case basis that they meet the criteria for social and economic disadvantage without the presumption. The IFR implements changes to the DBE program such as:

• Elimination of the presumption that individuals in the following groups are socially and economically disadvantaged: women, Black or African Americans, Hispanic or Latino, American Indian or Alaska Native, Asian, Native Hawaiian or other Pacific Islander.
   
• Replacing the terms “race-neutral” and “race-conscious” with “DBE-neutral” and DBE-conscious,” respectively.
   
• Making clear that all decisions of social and economic disadvantage must be made on a case-by-case basis for each applicant.
   
• Requiring recertification under the new regulations of all currently certified DBEs.
   
• Requiring recipients of covered federal funds to ensure that the disparity studies used to set DBE goals provide a detailed capacity analysis, including the methodology used, based on the revised criteria.
   
• Prohibiting use of DBE contracting goals unless and until recipients of covered federal funds complete the recertification process.

Until a recipient of federal funds completes the recertification and reevaluation processes, the recipient is not required to update their DBE goals and is not subject to the compliance provisions of the regulations.

Certification Process

Under the revised regulations, all applicants for DBE certification must follow the same process and meet the same criteria, regardless of gender or race. An applicant must submit:

• A personal narrative that establishes social and economic disadvantage by a preponderance of the evidence based on individualized proof citing specific instances of economic hardship, systemic barriers, or denied opportunities.
   
• A statement of how and to what extent the impediments cause the DBE applicant economic harm.
   
• A current personal net worth statement and any other financial information the applicant deems relevant.

The IFR does not change the requirements that the socially and economically disadvantaged individual, or individuals, must own at least 51% equity interest in the enterprise and control business operations.

Immediate Effect

The IFR has immediate effect. DOT determined that providing advance notice and an opportunity for public comment on the proposed rule would be impracticable, unnecessary, and contrary to the public interest. According to the IFR, DOT determined, consistent with the solicitor general’s notice to Congress, that the sex and race-based presumptions violate the Constitution and that lack of immediate effect would require DOT to continue to fund recipients that were applying unconstitutional presumptions.

Next Steps

• Currently certified DBE and ACDBE firms seeking to maintain the certification, or firms seeking the certifications, should apprise themselves of the new regulations, including new processes established by federal fund recipients with which they contract, and submit the required certification documents as promptly as possible.
   
• Recipients of covered federal funds must revise their certification processes to conform to the new regulations. This may not require changes to the certification process, since there should already be a process to review applications from applicants who do not benefit from the presumption.
   
• Recipients of covered federal funds should review their existing disparity studies to determine whether those studies meet the new requirements. If the existing studies do not meet the new standards, the recipient should commission an updated, compliant study.

Jackson Lewis attorneys can assist with any aspect of compliance and answer questions regarding the law’s provisions or applicability to your business. For assistance, please contact your Jackson Lewis attorney.