Attorneys for the U.S. Dept. of Transportation called the agency’s disadvantaged business enterprise program “unconstitutional” and asked a judge to block it from setting DBE contract goals as part of a proposed settlement with two contractors suing over the program.

The move could dislodge a program that has given small firms owned by women and minorities a leg up in competing for work on some highway and other transportation projects for decades. But the proposal still requires a judge’s approval, and is facing opposition from a coalition that intervened in the case.

The case started in 2023, when Jeffersonville, Ind.-based Mid-America Milling Co. LLC and Memphis, Ind.-based Bagshaw Trucking Inc. filed a lawsuit against DOT in federal court in Kentucky over the DBE program. The contractors said they regularly bid on federally funded highway contracts in Kentucky and Indiana, but have lost out on jobs to DBE firms—in some cases, even when they had submitted lower bids.

“All we want is a level playing field,” said Kramer Koetter, president of Mid-America Milling, in a statement. “If my team can put forth the best product or service at a reasonable cost, then we should be rewarded for that.”

Congress first enacted DBE in 1983 with President Ronald Reagan’s signature with the goal of remedying discrimination against disadvantaged individuals’ businesses. Lawmakers have continued reauthorizing DBE for highway and transit projects through surface transportation bills, most recently in 2021’s Infrastructure Investment and Jobs Act, which set that tens of billions of dollars for transportation projects should be spent through DBE firms. 

In a motion filed jointly by attorneys for the government and the plaintiff firms May 28, DOT said it “determined that the program’s use of race- and sex-based presumptions is unconstitutional” under the Fifth Amendment’s due process clause. The attorneys asked U.S. District Judge Gregory Van Tatenhove to declare that DOT cannot approve any federally funded projects with DBE contract goals tied to race or sex for eligibility. 

Van Tatenhove previously blocked DOT from implementing DBE requirements on projects that Mid-America Milling and Bagshaw Trucking bid on.

Coalition Intervenes

After President Donald Trump took office in January, a coalition of the National Association of Minority Contractors (NAMC), Women First National Legislative Committee, Airport Minority Advisory Council, Illinois chapter of Women Construction Owners & Executives and contractors Atlantic Meridian Contracting Corp. and Ulstate Steel Inc. filed to intervene in the case, saying the change in administration brought “a dramatic shift” in DOT’s position that led to officials favoring ending the DBE program. 

DBE is important because anyone “should have an opportunity in the American procurement system to participate,” says Wendell Stemley, president of NAMC. “Some are going to succeed, some are going to do well and become bigger players. And then some of them may not, but at least they had the opportunity.”

Stemley said the benefits of DBE have varied over time and as different states have implemented their own programs. He noted that some registered DBE firms competing for the margin of contracts reserved under the program include companies owned by white men—the law allows other individuals who can provide evidence of being socially disadvantaged in a way that negatively impacted their entry or advancement in the business world to qualify.

“But the program at least builds a climate of inclusion, of the attempt to be inclusive,” he says. “I think in that way, it has value.”

Following the joint motion, the groups filed a notice indicating their intent to oppose it. Democracy Forward, a progressive nonprofit that is representing the coalition, wrote on social media that they intervened in the case because of what’s at stake for DBE firms and “for the longstanding principles of redressing past discrimination in our economy.”

“The Trump administration won’t stick up for minority- and women-owned businesses, so we will,” the group wrote.

Major Policy Shift

The move from DOT “represents the potential for a major shift in policy,” says Rich Juliano, general counsel at the American Road and Transportation Builders Association (ARTBA). 

“It’s going to be a pretty big change in all states because the DBE program has been ingrained in these federal aid projects for decades, and there are businesses—DBE firms—whose business plans and models have been based on the parameters of this program,” he says.

ARTBA’s position on DBE has focused on challenges in implementing it as the program’s regulations have expanded over the decades, Juliano says. Some of the rules are unclear or diverge from the most efficient industry practices. And some provisions in practice add more complications for DBE firms and their partners on projects. For example, if a subcontractor on a project needed to use a crane for a couple of days and the prime contractor already had one on site, it would be typical for the sub to just pay the prime for use of the crane so they don’t have to bring in additional equipment. But if the sub is a DBE firm, that could be considered improper assistance under rules intended to prevent fraud. 

“The rules and practices of some federal agencies have gotten to the point where they really do put DBEs at a disadvantage because they can’t avail themselves of assistance or knowledge from their project partners,” Juliano says.

If the judge does issue the requested order, it’s not clear how that will play out across various state DBE programs, some of which also include firms covered by other socially disadvantaged groups such as service-disabled veterans. Programs could shift to assisting small businesses without regard to the owners’ demographics. 

Juliano says he expects U.S. DOT’s agencies will issue guidance, but it’s best for firms to begin dialogues with state DOTs about what the future of their programs might look like and to ensure industry collaboration on how to approach the issues.