On September 30, 2025, the Department of Transportation (DOT) announced a major change to the eligibility criteria for its Disadvantaged Business Enterprise (DBE) and Airport Concessions DBE (ACDBE) Programs. Through an interim final rule (IFR) taking effect on October 3, 2025, DOT is removing the use of the race- and sex-based presumptions of social and economic disadvantage for establishing DBE and ACDBE eligibility. The IFR will have an immediate impact on all current DBE/ACDBE firms and future applicants as all firms will be required to demonstrate disadvantage on an individual basis. Current DBE/ACDBE firms will be reevaluated, and those that do not demonstrate social and economic disadvantage will be decertified. This client alert provides key changes in the IFR and important takeaways for DBE/ACDBE firms.
Background
Under the current DBE and ACDBE Program rules, women and certain minority groups are entitled to a presumption that they are socially and economically disadvantaged for purposes of determining DBE and ACDBE eligibility. As we previously reported, those rules were challenged as unconstitutional in litigation filed in federal court in October 2023. In September 2024, the court issued a preliminary injunction, finding plaintiffs were likely to succeed in their claims and prohibiting DOT from enforcing DBE contract goals on federally funded projects where the plaintiffs intended to bid. Under the Trump Administration, DOT decided it would no longer defend against the case, and on May 28, 2025, DOT and the plaintiffs filed a joint motion requesting to resolve the case via issuance of a permanent injunction effectively prohibiting the use of race- and gender-based preferences in the DBE program. The court has not yet ruled on that motion.
Notwithstanding the ongoing litigation, DOT is issuing the IFR immediately pursuant to legal determinations by DOT and DOJ that the race- and sex-based presumptions are unconstitutional. While agencies generally are required to provide the public with notice of proposed rulemaking and an opportunity to comment prior to publication of a substantive rule, DOT found that an exception applied because continuing to enforce requirements it found unconstitutional would be contrary to the public interest. As such, the IFR is effective upon publication on October 3, though the IFR invites public comments within 30 days of publication.
Key Changes in the IFR
- Removal of Race- and Sex-Based Presumptions of Disadvantage: As PilieroMazza anticipated based on the litigation, DOT is revising the DBE and ACDBE Programs to replace the race- and sex-based presumptions with a requirement for individualized demonstrations of social and economic disadvantage. The Programs already allow for applications to be based on individual demonstrations of disadvantage rather than reliance on the presumptions, so DOT is now requiring this process for all applicants and current DBE/ACDBE firms.
The IFR revises the definition of “socially and economically disadvantaged individual” to mean “any individual who is a citizen (or lawfully admitted permanent resident) of the United States and who a certifier finds to be socially and economically disadvantaged on a case-by-case basis. A determination that an individual is socially and economically disadvantaged must not be based in whole or in part on race or sex. For that reason, all applicants shall qualify as socially and economically disadvantaged if they can meet the relevant criteria described in § 26.67. Being born in a particular country does not, standing alone, mean that a person is necessarily socially and economically disadvantaged.”
The IFR’s revised requirements for proving social and economic disadvantage are as follows:
- The owner must provide the certifier a Personal Narrative (PN) that establishes the existence of disadvantage by a preponderance of the evidence based on individualized proof regarding specific instances of economic hardship, systemic barriers, and denied opportunities that impeded the owner’s progress or success in education, employment, or business, including obtaining financing on terms available to similarly situated persons who did not face barriers in obtaining terms.
- The PN must state how and to what extent the impediments caused the owner economic harm, including a full description of type and magnitude, and must establish the owner is economically disadvantaged in fact relative to similarly situated non-disadvantaged individuals.
- The owner must attach to the PN a current personal net worth statement and any other financial information the owner considers relevant.
- Reevaluation of existing DBEs and ACDBEs: The IFR requires all current DBE/ACDBE firms to undergo reevaluation to prove their eligibility under the new standards. According to the IFR, each Unified Certification Program (UCP) must:
- Identify each currently certified DBE/ACDBE;
- Provide current DBE/ACDBE firms with the opportunity to submit documentation demonstrating its eligibility under the new standards;
- Determine whether each firm meets the new eligibility standards; and
- Issue a written decision to each firm indicating that it has either been recertified or is decertified.
Notably, the IFR provides that the normal decertification procedures do not apply to any decertification decisions under the reevaluation process. The IFR requires each UCP to complete the reevaluation process as quickly as practicable following issuance of the IFR.
- Rules governing transition to the new requirements: The IFR provides that, until a UCP completes the reevaluation process, a recipient (i.e., an entity that receives DOT financial assistance) covered by that UCP may not (1) set any contract goals or (2) count any DBE/ACDBE participation toward DBE/ACDBE goals.
Takeaways
The immediate impact of the IFR on current DBE/ACDBE firms and future applicants is that individuals from groups previously granted a rebuttable presumption of social and economic disadvantage will now need to affirmatively establish the existence of individual disadvantage under the criteria set forth above. They will also need to provide a detailed narrative showing that they are, indeed, socially and economically disadvantaged, which may not be an easy task.
Any firm unable to prove disadvantage by a preponderance of the evidence will be denied certification or decertified. Current firms will not be entitled to an opportunity to respond or a hearing prior to being decertified. As such, DBE/ACDBE owners upon whom eligibility is based should think carefully about their individual circumstances to identify specific instances of disadvantage and prepare the strongest possible PN in the first instance.
Due to the significant impact of this case on the DBE community, PilieroMazza is monitoring and reporting on new developments. Additionally, our attorneys have experience assisting firms with their personal narratives for both SBA’s 8(a) Program and DOT’s DBE eligibility purposes and stands by ready to help. If you have questions or need assistance drafting your personal narrative, please contact Jackie Unger or another member of the Firm’s Government Contracts Group.
