Legal Challenges to Federal DBE Program

Legal Challenges to Federal DBE Program

ACEC/MA is grateful to ACEC's Matt Reiffer for updating ACEC's 51 Member Organizations across the nation on this important issue. 

(This page is updated as of 12/11/2024)

Summary of Issue: 
In September 2024, a federal district court in Kentucky ruled that the race- and gender-based contracting preferences used in the U.S. Department of Transportation (U.S. DOT) Disadvantaged Business Enterprise (DBE) program violate the United States Constitution’s guarantee of equal protection under the Fourteenth Amendment. The judge ruled that the rebuttable presumption of economic or social disadvantage for certain classifications of individuals under the DBE program failed to pass the scrutiny required by courts following the Supreme Court’s decision in the Harvard affirmative action case, and that the solutions pursued in the DBE program are not narrowly tailored to desired outcomes. 

The court’s decision is the latest in a series of challenges to race and gender classifications in government programs at the federal and state level. The ultimate outcomes of these cases may disrupt longstanding procurement frameworks and force public agencies and the contracting community to significantly modify their approaches.

On November 1, 2024, the federal judge in the case granted the plaintiff’s motion to clarify/expand the preliminary injunction to include any state where the two contractors (Mid-America Milling and Bagshaw Trucking) bid on work, not just Indiana and Kentucky.

General guidance on how the Federal Highway Administration (FHWA) is responding to the lawsuit in Kentucky challenging the U.S. Department of Transportation’s (USDOT) Disadvantaged Business Enterprise (DBE) Program here.  

Background:

ACEC national has been tracking at the federal level legal challenges to Disadvantaged Business Enterprise (DBE) contracting programs.  In the wake of the June 2023 Supreme Court decision in the Harvard admissions case in 2023, in which the Court found that race-conscious affirmative action policies violated the Equal Protection clause of the 14^th Amendment, many experts predicted that similar challenges will be made to race-based and gender-based government contracting preferences.

One such lawsuit was filed in federal court in Kentucky in late October 2023, challenging the U.S. DOT DBE program. Here is the complaint, where you can see the legal arguments citing the Harvard decision.

In August 2023, another court in Tennessee ruled against the SBA 8(a) program, which is designed to improve contracting opportunities for socially and economically disadvantaged individuals. Citing the Harvard case, the court forced SBA to make changes to the automatic presumption of economic disadvantage. Here is a news story on this case: https://www.cnbc.com/2023/10/25/in-post-affirmative-action-era-billions-in-federal-contracts-targeted.html

• As a result of the court’s ruling in August 2023, the SBA temporarily suspended new applications into the 8(a) program. They recently offered guidance, which can be found here, as well as instructions on how to write a compelling narrative for a successful application, which is here. It’s ACEC’s understanding that there are not many A/E firms that participate in this program, but it’s important to understand these developments because of the similarities to other DBE programs.

On September 24, 2024, a federal judge in Kentucky ruled in favor of two construction contractors (Mid-America Milling and Bagshaw Trucking) that filed a lawsuit challenging the constitutionality of U.S. DOT DBE contracting preferences. The judge granted a temporary injunction against the implementation of the program, but only for the two plaintiff companies and in the two states where they conduct business, Indiana, and Kentucky. It was not a nationwide injunction.

• The court’s ruling was that race-based and gender-based government contracting preferences violate the Equal Protection Clause of the Constitution and are not narrowly tailored enough to pass constitutional muster. The judge’s decision closely tracks the Supreme Court’s ruling in the Harvard affirmative action case from last year.
• According to the judge’s decision, the Supreme Court has said that the government may remedy past discrimination only through a policy that targets a specific episode of past discrimination, where the discrimination was intentional, and the government had a hand in the discrimination to be remedied. “The Court in no way doubts that racial barriers still persist when it comes to the success of minority-owned businesses. But the Government’s evidence here is too broad. It points to societal discrimination against minority-owned businesses generally, but does not offer much evidence of past discrimination against the many groups to whom it grants a preference via the DOT’s DBE program.” In other words, the statistical disparity studies are not enough, and the program is not narrowly tailored to specific individuals or groups or with any outcome-based resolution or end point.
• The ruling is here.
• U.S. DOT has said they will comply with the judge’s decision for these two specific companies in those two states while they continue to defend the program in the courts. The final disposition of this particular case and the subsequent appeals process, including the implications for a nationwide ban or restriction on DBE programs, will take quite some time to play out. As we noted earlier, the judge’s ruling in this case is consistent with outcomes we’ve seen in other cases challenging other government procurement and contracting programs, including the SBA 8(a) program and the Minority Business Development Agency.

On November 1, 2024,  the federal judge in the case granted the plaintiff’s motion to clarify/expand the preliminary junction to include any state where the two contractors (Mid-America Milling and Bagshaw Trucking) bid on work, not just Indiana and Kentucky.

• Specifically, the court order says that the U.S. DOT and FHWA are “enjoined from mandating the use of race- and gender-based rebuttable presumptions for United States Department of Transportation contracts impacted by DBE goals upon which the Plaintiffs bid, to be effective in any state in which Plaintiffs operate or bid on such contracts.”
• The plaintiff’s motion cited the intent to bid on work in Arkansas, Illinois, Iowa, Mississippi, Missouri, New Jersey, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia, and West Virginia.

ACEC expects that the U.S DOT will be working with the potentially impacted states on how to respond and comply. Firms may see notices from particular DOTs on that soon. Other challenges may be filed by other contractors in other states.

ACEC has talked with the senior advisor in the DOT Office of Civil Rights and asked her to keep ACEC in the loop as this situation develops. She clarified that at this point the lawsuit still does not directly impact A/E services because it is limited to the contractors in the case, at least for now. ACEC will continue to engage U.S. DOT on this issue, particularly in how the agency may restructure existing programs going forward to comply with the parameters set out by the Supreme Court in the Harvard case. ACEC will provide more information and analysis as it becomes available.

General guidance on how the Federal Highway Administration (“FHWA”) is responding to the lawsuit in Kentucky challenging the U.S. Department of Transportation’s (“USDOT”) Disadvantaged Business Enterprise (DBE) Program. https://highways.dot.gov/sites/fhwa.dot.gov/files/2024_dbe_preliminary_injunction_implementation_memo_all_states_11-18-2024.pdf