On September 30, the U.S. Department of Transportation (DOT) announced a new interim final rule (IFR) that now eliminates all race and gender presumptions of social and economic disadvantage for those seeking disadvantaged business enterprise (DBE) eligibility under the DOT’s DBE Program or the Airport Concession Disadvantaged Business Enterprise Program. The DBE Program was established by Congress in 1983 to assist with business formation and growth, and only small, independent businesses owned and controlled by socially and economically disadvantaged individuals may participate. The DOT regulations on DBEs have been adopted and followed by many state and local government programs for their respective DBE participation programs, such as Pennsylvania’s Unified Certification Program. A legal challenge to the DOT’s DBE Program has been pending in the U.S. District Court for the Eastern District of Kentucky in a matter filed during the Biden administration, Mid-America Milling Co. et al. v. U.S. Department of Transportation, and although a final ruling has not been issued by that court, the DOT has now concluded these prior presumptions are unconstitutional and decided to issue this new IFR without waiting for a ruling in that case.
All applicants seeking DBE certification must now provide a narrative and evidence of individualized social and economic disadvantage “based on their own experiences and circumstances within American society, and without regard to race or sex.” But this new IFR does not simply apply to new applicants; importantly, it directs every Unified Certification Program to reevaluate every currently certified DBE and issue a written decision to each firm indicating that it has been either recertified or decertified under the new standards. Any firm unable to prove its specific disadvantage by a preponderance of the evidence — without regard to race or sex — will be denied certification or decertified. The IFR also dictates that the normal decertification procedures will not apply to any decertification decision made during this reevaluation process. After submitting their evidence, current firms will not be entitled to an opportunity to respond or to a hearing prior to being decertified. Lastly, until the reevaluation process is completed, agencies covered by a Unified Certification Program may not set any contract goals and may not count any DBE participation toward DBE goals. However, the IFR does not discuss existing contracts or how this rule might change any current contractual obligations.
This action by the DOT will likely be challenged for failure to comply with the Administrative Procedure Act. In the meantime, this new rule becomes effective immediately upon publication in the Federal Register. However, given the current government shutdown, it is not clear when the Federal Register publication will occur.
