Overview
As we have written about in prior client alerts, the federal government, under the current administration, is undergoing and experiencing major changes. This includes how it administers diversity, equity, and inclusion (DEI) programs for small businesses across various agencies. This alert highlights major updates to the Department of Transportation's (DOT) Disadvantaged Business Enterprise (DBE) and Airport Concession Disadvantaged Business Enterprise (ACDBE) programs (found in CFR Part 49), which will affect how small businesses qualify for these programs. It also outlines recent revisions to Federal Acquisition Regulation (FAR) Part 19 made as part of the broader FAR overhaul (FAR 2.0), impacting certain small business programs. Finally, the alert discusses the implications of these changes for contractors and small businesses and offers guidance on how they should respond.
Background
The shift in thinking about race and sex-based advantage programs comes both from various political perspectives on race-based preferences and the Supreme Court's decision in Students for Fair Admission (SFFA) v. Harvard.1 In that case, the Supreme Court struck down affirmative action programs and preferences used in college admissions, ruling that any use of race in decision-making must satisfy the strict scrutiny test—the most rigorous standard of constitutional review. Strict scrutiny review requires the government to prove that the policy serves a compelling interest and is narrowly tailored to achieve that interest. The Court concluded that the presumption that an individual of a certain race or ethnic group is underrepresented and marginalized is a stereotype, and as such, violates the Constitution's Equal Protection Clause. By criticizing race-based admission policies as "arbitrary" and "overbroad," the Court opened a Pandora's box that allows challenges to any program that relies on presumptions in disadvantaged programs.
Executive orders have also played a significant role in shaping the current legal framework. First, the January 20, 2025, Executive Order (E.O.) 14151 "Ending Radical and Wasteful Government DEI Programs and Preferencing," directed agencies to recommend actions to align their programs with the termination of activities relating to "diversity, equity, inclusion, and accessibility" (DEIA), including affirmative action in federal departments and subcontracts (we wrote more about it here). Likewise, E.O. 14173, titled "Ending Illegal Discrimination and Restoring Merit-Based Opportunity," directed all executive agencies to eliminate any discriminatory or unlawful preferences and to enforce civil rights laws, including by addressing "illegal DEI-related" practices in the private sector.
Relying on this changing legal framework, various race preferences, including those relating to the US Small Business Administration's 8(a) and other programs, have been successfully challenged in federal courts (discussed further below).
As a combined result of these decisions and executive orders, the U.S. Department of Transportation issued a Notice of Interim Final Rulemaking on October 3, 2025, found here. This rulemaking amends DOT's existing MBE/DBE program extensively and makes substantial changes to the program, removing the ability to rely upon diversity (gender or race) as a basis for being granted entrée to the given program. It also mandates that the state agencies administering the relevant MBE/DBE programs require that those businesses that it has previously certified as an MBE/DBE/WBE submit a narrative that is not based on gender or race but describes objectively why a business is disadvantaged, in order to allow that entity to remain so certified. The following section discusses these changes in depth.
DOT DBE Program Revision
Overview
The DOT issued an interim final rule that changes how the Department governs its DBE and ACDBE programs. The rule eliminates race- and gender/sex-based presumptions of social and economic disadvantages, which the DOT concluded are violations of the Constitution. Interested parties can submit comments by November 3, 2025.
The DBE and ACDBE programs are specialized initiatives that the Department of Transportation established to support small businesses, particularly those owned by "socially and economically disadvantaged individuals," in accessing opportunities in federal airport concession contracting. For over 40 years, the program relied on a Congressionally mandated "presumption" that women and members of certain racial and ethnic groups were inherently disadvantaged, a presumption the new rule eliminates.
The change is inspired by a court decision.
Most importantly—and perhaps most directly inspired by—the new rule was prompted by a court ruling that identified significant legal concerns with the DOT's long-existing DBE program. As a consequence of the Supreme Court's SFFA decision, on September 23, 2024, the U.S. District Court for the Eastern District of Kentucky found that the DBE program's statutory presumption of race- and sex-based disadvantage does not comply with the Equal Protection Clause of the Constitution. The judge held that although there is a compelling state interest in "remedying ... identified instance[s] of past discrimination," there was no evidence to support a finding of such discrimination by DOT against each of the groups described in the DBE program. The court further held that the presumption under the MBE program was not narrowly tailored to serve the government's interest, criticizing Congress's 'scattershot' method of identifying covered groups and the program's lack of a defined endpoint. As a result, the court issued a preliminary injunction mandating that the DOT remove DBE contract goals from any contract on which the plaintiff was going to bid.2
The DOT's rule also references other recent legal developments, including cases, consent orders, and memorandums, that have supported removing race- and sex-based presumptions from the programs. The rule notes cases inspired by the Students for Fair Admissions that also struck down presumptions similar to the DBE and ACDBE programs.3 The Consent Order, jointly requested by the DOT and plaintiffs in response to the Eastern District of Kentucky case, includes the DOT's acknowledgment that the DBE program's race- and sex-based presumptions violate the equal protection guarantee of the Fifth Amendment. Finally, an Attorney General memorandum directing federal agencies to implement the executive orders by ending race- or sex-based quotas and removing any policies that encourage discriminatory practices also supported the rule. Ironically, the Consent Orders in question were entered into under the current administration, which stated it was going to seek to remove the presumptions in question. In effect, these Consent Orders relied upon by the courts are, by their nature, admissions by the government of the claimed impropriety of these presumptions.
DOT and DOJ Conclusion
DOT and the US Department of Justice, consistent with the rulings of these courts, determined that the race and gender-based presumption of disadvantage set forth in the DOT's DBE programs is unconstitutional.
Mirroring the formulation in the SFFA decision and other district court decisions, the DOT concluded in the interim final rule that there 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." And that "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." As a result of this analysis, the DOT concluded that the DBE and ACDBE race and sex presumptions must be disregarded.
The New Rule's Details
According to the interim final rule, the purpose of these new changes is to ensure that the DBE program "operates in a nondiscriminatory manner and without regard to race or sex."
The rule provides three significant updates: definitional changes, updated certification requirements, and reporting requirements.
First, the new rule requires an update to the definition of "socially and economically disadvantaged individual." Previously, the program included a presumption that women and individuals from certain racial and ethnic groups qualified as socially and economically disadvantaged, without providing any additional proof. Now, the rule requires an individualized showing of disadvantage, eliminates the prior reliance on presumptions, and mandates a determination that an individual is socially and economically disadvantaged, not based in "whole or in part on race or sex." The certifier now holds the burden of proof, via a preponderance of evidence, to demonstrate their disadvantages. In practice, this translates into submitting a Personal Narrative, a document that describes individualized experiences of economic harm caused by specific barriers (which in many circumstances was required by some state agencies that administered their MBE/DBE program, but with less information), but the narrative cannot be based on gender or race.
Second, the rule mandates a process to ensure compliance with the new requirement. Starting on October 3, 2025, each Unified Certification Program (UCP) (the state-run MBE programs regulated by the DOT regulations) is required to reevaluate all currently certified DBEs and ACDBEs, recertify those that meet the updated standards, and decertify those that do not, with interim requirements applying during the reevaluation process. The relevant UCP must issue a written decision indicating whether a firm was certified or decertified. The firms must have the opportunity to submit documentation showing their DBE eligibility.
We are already assisting clients who are existing MBEs/DBEs, including those in Virginia, who have recently received requests for submission of these new narratives, and we know that other jurisdictions will be following suit in short order.
Third, the rule eliminates the requirement for recipients to collect race and sex-based statistical data on the majority owners of all DBE and non-DBE bidders for federally-assisted contracts.
Implications
The rule acknowledges that the new requirement poses additional procedural burdens by requiring applicants to shift to a narrative application format, which would increase complexity and potentially even deter some applicants. The process of putting together application materials can be intensive and time-consuming, drawing resources away from frequently already-stretched-thin small businesses. If a recipient's data suggests they are unlikely to meet their DBE goal by year-end, the relevant federal agency may require additional good-faith efforts, including adjustments to DBE-conscious or DBE-neutral measures.
Changes to FAR 19, Small Businesses
Overview
Nearly simultaneously, the Federal Acquisition Regulatory Council released new model deviation text to Part 19 of the FAR as part of the Administration's Revolutionary FAR Overhaul Initiative, initiated by President Trump's executive order entitled "Restoring Common Sense to Federal Procurement" (which we have covered in this alert). Part 19, which applies to small business programs and preferences and ties to the SBA regulations in Part 13 of the CFR, will be open for informal feedback/comments until November 3, 2025. The revision aims to make the FAR more concise, understandable, and focused on core procurement requirements.
Key Takeaways
We review some key takeaways below:
Rule of Two
The deviated text retains the rule of two with some revisions. In effect, the "rule of two" requires, with certain exceptions, that contracts be set aside for various small business preference programs, including the SBA 8(a), Woman Owned Small Business (WOSB), Service-Disabled Veteran-Owned Small Business (SDVOSBC) and other like programs, if the contracting officer has a reasonable expectation that the government would receive at least two bids/proposals (1) from two or more responsible small business concerns, (2) that are competitive in terms of fair market prices, quality, and delivery. While the rule of two is required by statute between the Micro-Purchase Threshold (MPT) and the Simplified Acquisition Threshold (SAT), the FAR Council retained the rule above the SAT, which is not statutorily required, as essential to sound procurement. The updated FAR also makes clear that a contracting officer retains the discretion whether to set aside an order placed under a multiple-award contract, and noted that this decision cannot form the basis of a protest.
Streamlined Structure
The new FAR 19 incorporates a revised structure to better align with the acquisition lifecycle. The updated text is now organized into three subparts: Presolicitation, Evaluation and Award, and Postaward. "Presolicitation" consolidates all policies and procedures applicable before issuance of a solicitation. "Evaluation and Award" centralizes all policies and procedures applicable after offers are received, but before a contract is awarded. "Postaward" consolidates all policies and procedures applicable after a contract has been awarded.
8(a) Reforms: Competition Over Sole-Sourcing
The updated FAR 19 breathes competition into the 8(a) process. The deviated text requires that when an acquisition is below the competitive threshold, contracting officers must first try conducting the acquisition as a competitive 8(a) order using SBA-approved government-wide contracts before proceeding with a sole source 8(a) award. The deviated text allows for a requirement to be automatically released from the 8(a) program if the follow-on is set aside under the HUBzone, SDVOSB, or WOSB programs. Release does not have to be formally requested in this situation.
Programs for Disadvantaged and Women-Owned Small Businesses Here to Stay for Now
The DOT's elimination of the statutory presumption of race- and sex-based disadvantage in its DBE program brings the program in alignment with the changes made to SBA's 8(a) program announced in April 2024. See our client alert here. In light of the Ultima Servs. ruling, the SBA announced that it would start requiring all 8(a) participants who originally relied upon the presumption of social disadvantage in their application to re-establish their 8(a) program eligibility by completing a social disadvantage narrative. It remains to be seen what changes, if any, the SBA will make to the WOSB program given DOT's elimination of sex-based presumptions. For example, the administration could announce that the WOSB program requirement that a small business be at least 51% owned and controlled by a woman is also unconstitutional. So, if current trends hold, it may only be a matter of time before the WOSB program is reformed as well.
While the 8(a) and DBE programs have effectively eliminated the rebuttable presumption of social disadvantage for members of certain enumerated racial and ethnic groups, it is worth noting that, as of now, the Code of Federal Regulations continues to retain the rebuttable presumption and places the burden of refuting the presumption on the person challenging the presumed social disadvantage. This updated FAR 19 references the CFR several times. Critically, we are now left to operate in this area with clear inconsistencies between the SBA, DOT, and FAR provisions relating to small businesses and associated ethical and racially disadvantaged programs. These inconsistencies can (and likely will) cause confusion. The administration will have to harmonize the various regulations to decrease the likelihood of non-compliance.
Client Recommendations
Working with the federal government as a small business is becoming more difficult. The same applies to those of you who work on MBE/DBE programs with state agencies. Contractors should anticipate that the wide sweeping changes in the DOT DBE, ACDBE, and SBA 8(a) programs, making material and new changes, requiring more effort to become included in the program, and with a different standard that excludes gender and race-based preferences, will continue to change. Contractors should remain prepared for similar changes in other small business disadvantage programs across the government, as this seems to be the trend inspired by the SFFA. Some of the potential pitfalls in the application process for the DOT's programs can be not emphasizing the individual impact of disadvantageous circumstances on the individual.
This is a new direction for small and disadvantaged program contractors and appears to be an area of the law and regulation that will continue to evolve and change. Keeping up with these changes, while difficult, is critical to one's success. Should you have questions, please feel free to contact the authors. We will keep you apprised of further developments.
Footnotes
1. Students for Fair Admission, Inc. v. Harvard (SFFA), 600 U.S. 181, 206 (2023).
2. Similar findings have been found in other contexts, such as the SBA's 8(a) program, as discussed in our client alert. See Ultima Servs. Corp. v. U.S. Dep't. of Agric., Case No. 2:20-CV-00041-DCLC-CRW, 2023 WL 463348 (E.D. Tenn. July 19, 2023). See also, infra Note 3.
3. See Ultima Servs. Corp. v. U.S. Dep't of Agric., 683 F. Supp. 3d 745 (E.D. Tenn. 2023) (holding that the Small Business Act's 8(a) program violated the equal protection component of the Fifth Amendment's Due Process Clause by relying on the same type of race-based presumptions used in the DBE and ACDBE programs); see also Nuziard v. Minority Bus. Dev. Agency, 721 F. Supp. 3d 431 (N.D. Tex. 2024) (holding race-based presumption of disadvantage and its application by the Department of Commerce violated the Fifth Amendment's equal protection guarantee).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
