On September 24, 2024, U.S. District Court Judge Gregory Van Tatenhove issued a limited preliminary injunction against USDOT’s Disadvantaged Business Enterprise program. That injunction seeks to set aside DBE goals as potentially unconstitutional under the equal protection clause.
The judge then clarified the scope of his ruling in a follow-up order published October 31, 2024, stating that his previous ruling, that applied to his oversight of a case brought before him by two highway contractors in Indiana should apply to “all states in which the Plaintiffs operate and bid on DOT contracts impacted by DBE goals.”
That moves the scope of the case from two contractors and the state of Indiana, to potentially 23 states in which the contractors have sought, or may seek to, do business.
This clarification greatly expands the scope of the order, according to industry specialist and attorney at Schwabe, Williamson & Wyatt, Chris Slottee. He told Construction Dive that, “This could cause the DOT to hesitate to use the DBE program going forward, given that the DOT will not know what projects the plaintiffs are, or are not, going to bid upon.”
The Department of Transportation, however, said the agency has no plans to dismantle the DBE program. “As the case moves forward, we will continue to defend the program. In the meantime, we will comply with the court’s ruling, and the program otherwise remains in effect,” A DOT spokesperson shared with Construction Dive.
Background on DBE Programs Nationally
The U.S. Department of Transportation has a helpful whiteboard video explaining the DBE program on its website.
The program, first enacted some 40 years ago, and recertified repeatedly by Congress is “designed to remedy ongoing discrimination and the continuing effects of past discrimination in federally assisted highway, transit, airport, and highway safety financial assistance transportation contracting markets nationwide.” It seeks to level the playing field by providing small businesses owned by those who have been historically socially and economically disadvantaged a chance to compete in the infrastructure construction marketplace.
There are eight objectives of the federal DBE program. They are listed below:
(a) To ensure nondiscrimination in the award and administration of DOT-assisted contracts in the Department's highway, transit, and airport financial assistance programs
(b) To create a level playing field on which DBEs can compete fairly for DOT-assisted contracts
(c) To ensure that the Department's DBE program is narrowly tailored in accordance with applicable law
(d) To ensure that only firms that fully meet this part's eligibility standards are permitted to participate as DBEs
(e) To help remove barriers to the participation of DBEs in DOT-assisted contracts
(f) To promote the use of DBEs in all types of federally assisted contracts and procurement activities conducted by recipients
(g) To assist the development of firms that can compete successfully in the marketplace outside the DBE program
(h) To provide appropriate flexibility to recipients of Federal financial assistance in establishing and providing opportunities for DBEs
Similar programs exist at virtually all federal agencies including the Environmental Protection Agency, among others, and states have been enacting their own DBE goals in their bidding processes for federally funded projects for many years.
Why Do DBEs Matter in Construction?
In short, the DBE program requires that at least 10% of all dollars allocated in federal contracts be awarded to women and minority-owned firms, which are “presumed to be disadvantaged” within the program. This has led states across the nation to set up individualized DBE benchmarks that must be met for any program receiving federal dollars.
One of the most high-profile examples in recent years is the contract to rebuild the Francis Scott Key Bridge, which according the Maryland Transportation Authority, could require 31.5% DBE contract awards for the project, although a specific number is not explicitly stated for the bridge. Maryland’s overall DBE target is 31.5% for federally funded projects.
On April 9, 2024, the Federal Transit Administration and the US Department of Transportation published the DBE Final Rule in the Federal Register. The rule is designed to “modernize and streamline” the regulations for administration of the Disadvantaged Business Enterprise (DBE) program and Airport Concessions DBE (ACDBE) program.
This Final Rule seeks to address “many of the challenges DBEs have faced.” The rule changes include:
• Streamlining the DBE certification and eligibility process
• Adjusting the personal net worth cap for inflation for small business owners, including excluding retirement assets from the calculation
• Formalizing guidance establishing successful COVID-19 flexibilities, such as virtual on-site visits, to conserve certification and firm resources
• Modernizing the rules for counting participation by DBE material suppliers expediting interstate reciprocity
• Expanding reporting requirements to DOT
A new tiered system was also developed for FTA grant recipients to allow for greater data collection and clarify prohibited discriminatory practices. You can learn more about the Final Rule and the FTA tiers here.
The DBE Program is Not New
“These Congressionally mandated programs were created over 40 years ago to address and remedy the continuing effects of past discrimination against small businesses owned and controlled by minorities, women, and other socially and economically disadvantaged individuals and continue today to prevent and address ongoing discrimination,” says USDOT.
“Nationwide, the program is implemented by 53 departments of transportation (including the District of Columbia, Puerto Rico, and U.S. Virgin Islands), over 500 transit agencies, and 3,200 eligible airport sponsors.”
So, the clarified limited injunction in October 2024 by Judge Van Tatenhove could reverberate across state DBE programs nationally.
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