In an effort to increase participation by disadvantaged business enterprises in projects funded by federal transportation grants, received by certain state departments of transportation (DOT), Congress enacted the U.S. Department of Transportation’s Disadvantaged Business Enterprise (“DBE”) Program in 1983. The DBE Program requires state DOTs to award a certain percentage of federally funded projects to disadvantaged business enterprises. The DBE Program participants are selected, in part, based on a rebuttable presumption of social and economic disadvantage attributable to membership in certain designated groups.
On Sept. 23, the U.S. District Court for the Eastern District of Kentucky in Mid-America Milling Company, LLC et al. v. United States Department of Transportation found that the Program’s presumptions of disadvantage violate the Fifth Amendment’s guarantee of equal protection under the law and issued a preliminary injunction blocking further use of the DBE Program. The Court, however, limited the injunction to those states in which the plaintiffs operate or bid.
The plaintiffs in Mid-America Milling challenged the DBE Program’s rebuttable presumption as improperly denying them from being able to fairly compete for federally funded State DOT contracts. The Court agreed, finding that the race and gender classifications violate the equal protection clause of the U.S. Constitution. The reasoning in the Mid-America decision is consistent with recent successful challenges to other federal small business set-aside programs. As we’ve previously analyzed, the District Court for the Eastern District of Tennessee last year found in Ultima Servs. Corp. v. U.S. Dep’t of Agric. that the U.S. Small Business Administration 8(a) Program’s use of the rebuttable presumption to be unconstitutional. Similarly, in Nuziard v. Minority Business Development Agency, the District Court for the Northern District of Texas struck down the U.S. Commerce Department’s Minority Business Development Agency’s rebuttable presumption of eligibility for federally-sponsored racial preference in providing access to capital and government contracts.
Other federal and state programs are being challenged on similar constitutional grounds. We expect agencies and legislatures to look for workarounds to address these concerns. As warranted, we will provide further updates.
