Last week, as a result of the federal government shutdown, news outlets reported on a pause in processing project reimbursements for the massive bi-state Hudson Tunnel Gateway Program and New York City’s Second Avenue Subway line. Beyond the political finger-pointing and investigation into the pause’s impact (the billions of dollars already appropriated remain untouched) is the federal Department of Transportation’s publication, also last week, of its interim final rule (“IFR”) Docket No. DOT–OST–2025–0897. Effective October 3, 2025, this IFR removes from its regulations at 49 C.F.R. Parts 23 and 26 race and gender-based presumptions of social and economic disadvantage from DOT’s regulations governing its Disadvantaged Business Enterprise (DBE) and Airport Concession Disadvantaged Business Enterprise (ACDBE) programs. In doing so, it replaces terms like “race-neutral/race-conscious” with “DBE-neutral/DBE-conscious” frameworks, and adds new sections (§§ 23.81 and 26.111) that require each Unified Certification Program (UCP), i.e., each state’s agency that sets the criteria for firms seeking DBE/ACDBE certification, to reevaluate any currently certified DBE, to recertify any DBE that meets the new certification standards, and to decertify any DBE that does not meet the new certification standards or fails to provide additional information required for submission under the new certification standards.
There have been strong reactions to not just the substance of DOT’s rule, but to the agency’s issuance of a rule without first seeking public comment. Although the federal Administrative Procedure Act does generally require agencies to provide the public with notice of proposed rulemaking and an opportunity to comment prior to publication of a substantive rule, it contains exceptions. For example, 5 U.S.C. § 553(b)(B) authorizes agencies to publish a final rule without first seeking public comment on a proposed rule “when the agency for good cause finds (and incorporates the finding and a brief statement of reasons therefor in the rules issued) that notice and public procedure thereon are impracticable, unnecessary, or contrary to the public interest.”
In its IFR, DOT explains that it was constrained to determine that race- and sex-based presumptions of the DBE and ACDBE programs violate the U.S. Constitution in light of:
- The September 23, 2024, decision of the U.S. District Court for the Eastern District of Kentucky (Mid-America Milling Co., LLC v. U.S. Department of Transportation, et al., No. 3:23-cv-72-GFVT) determining that the DBE program’s statutory race- and sex-based presumptions likely do not comply with the Constitution’s promise of equal protection under the law, and issuing a preliminary injunction that prohibits DOT from mandating the use of presumptions with respect to its contracts;
- The President’s three Executive Orders: Executive Order 14151, Ending Radical and Wasteful Government DEI Programs and Preferencing, January 20, 2025; Executive Order 14173, Ending Illegal Discrimination and Restoring Merit-Based Opportunity, January 21, 2025; and Executive Order 14219, Ensuring Lawful Governance and Implementing the President’s “Department of Government Efficiency” Deregulatory Initiative, February 19, 2025; and
- The U.S. Attorney General’s March 21, 2025, memorandum directing all Federal agencies to implement these Executive Orders.
Without this IFR, DOT explained, its own regulations would continue to require funding recipients to apply those very same presumptions, thus rendering “impracticable and contrary to the public interest a confusing and contradictory situation to continue during a notice-and-comment process.” Further, DOT added, notice-and-comment is unnecessary where a regulatory action is required as a matter of law to ensure consistency with rulings of the United States Supreme Court, which in this instance include Students for Fair Admissions, Inc. v. Harvard, 600 U.S. 181 (2023) (previously discussed).
As for eliminating the presumption that individuals from certain racial or gender groups are “socially disadvantaged,” DOT explained that its small business initiatives were always “intended to level the playing field for businesses seeking to participate in federally assisted contracts and in airport concessions,” and yet:
Although the Programs aim to assist small businesses owned and controlled by “socially and economically disadvantaged individuals,” Congress has mandated by statute that DOT treat certain individuals—women and members of certain racial and ethnic groups—as “presumed” to be disadvantaged. Other individuals do not benefit from that statutory presumption. This means that two similarly situated small business owners may face different standards for entering the program, based solely on their race, ethnicity, or sex.
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[T]here is not a strong basis in evidence that the race- and sex-based presumptions used by the DBE and ACDBE programs are necessary to support a compelling governmental interest, and the presumptions are not narrowly tailored (both of which are necessary to comply with the Constitution). The government has no compelling justification for engaging in overt race or sex discrimination in the awarding of contracts in the absence of clear and individualized evidence that the award is needed to redress the economic effects of actual previous discrimination suffered by the awardee.
Thus, through the IFR, DOT is implementing amendments that “center the DBE program’s purpose of leveling the playing field for businesses owned and controlled by socially and economically disadvantaged individuals while providing excellent service to the American people.”
DOT’s new standard for qualifying as a DBE or ACDBE will be determined on a case-by-case basis: in addition to the already-required personal net worth statement, applicants (and existing certified firms) must now submit a Personal Narrative (PN) that details specific instances of hardship, systemic barriers, or denied opportunities, and explain how those impediments caused economic harm relative to similarly situated non-disadvantaged individuals. The states’ UCPs shall use this standard in reevaluating all currently certified DBE/ACDBE firms and must suspend goals and “counting” DBE/ACDBE participation toward overall goals until re-certification is complete.
There are number of practical consequences not addressed by the IFR. In the midst of the frenzy of currently qualifying firms assembling supporting evidence to accompany their PNs, states’ UCPs will need, first, an objective set of criteria by which to determine “socially and economically disadvantaged,” and second, the staffing to sort through the submissions in what will necessarily be a more rigorous review. Government agencies using DOT funds may be halted in their public procurement pending their establishment of new goals and certification of qualifying firms. General contractors completing projects using DOT funds and dependent on currently qualifying subcontractors to meet their DBE/ACDBE goals may be unable to close out that portion of their compliance, slowing down payment. And it is almost a foregone conclusion that the pending uncertainty will engender a wave of bid protests and appeals regarding DOT-funded projects that, it seems, presently cannot be resolved.
The IFR does acknowledge that “[s]everal provisions may lead to increased or decreased burdens for applicants, certifying agencies, and recipients related to transitional documentation requirements, the degree of technical rigor in disparity studies, and changes in program reporting.” It does not deny that there will be quantified costs as well, projected to be $95 million, although noting they will be “transitional and one-time, … with recurring annualized burdens of about $1.8 million.”
The UCPs, directly affected firms, and prospective new applicants will likely need DOT to offer guidance, training, and resources for administering the new rules and attainment of the new evidentiary standard. This is a big ask even in times where there is no government shutdown. In the meantime, small firms should consider specific historic, personal examples of disadvantageous environments and perceived deprivation of opportunities when formulating their PNs. The burden of proof may not ultimately be that high, especially where there are UCPs inclined to award certifications. Plus, there may be more open doors to newly qualifying firms, creating more options for general contractors in their bidding and project progression, perhaps lowering overall bids, with reverberating benefits to the general public.