Federal Government Removes Race- and Sex-Presumptions in Transportation Contracts
The new and immediately operative regulation changes the DBE landscape for transportation projects receiving federal grants.
An interim final rule ("IFR") by the Department of Transportation ("DOT") fundamentally changes the federal Disadvantaged Business Enterprises ("DBE") program, which applies to highway, transit (e.g., subway and rail), and airport projects that receive DOT funds. The new rule became immediately effective October 3, 2025, and DOT issued FAQs related to the rule on October 24.
Federal regulations require goals for the participation of DBEs in federally funded projects. The previous longstanding definition of DBE presumed racial and ethnic minorities and women to be "disadvantaged," thus automatically qualifying businesses owned by such persons as DBEs if other economic factors were met. The IFR eliminates race- and gender-based presumptions. Contractors must now make an individualized showing of specific "instances of economic hardship, systemic barriers, and denied opportunities" and must do so "without regard to race or sex." All previously certified DBEs must be recertified under the new standards.
Context
The IFR is in line with the administration's skepticism of race- and sex-based preferences. It arises against the backdrop of federal government investigations and funding cutoffs concerning the perceived unlawful use of DBE requirements and DEI practices.
As the primary justification for the new rule, the government cites a September 2024 preliminary injunction finding that the race- and sex-based presumptions in the prior DBE regulation violate the Constitution. The government and plaintiff are seeking a consent decree in that case to cement that preliminary ruling.
Practical Implementation
This new rule immediately impacts recipients of federal funds, prime contractors, and subcontractors. For example, contracts not yet bid must be amended to remove DBE goals, and DBE goal compliance for existing contracts is paused. Subcontractors that were DBEs, or that newly seek the designation, must apply under the new standards. DOT's FAQs also imply that the government may withhold grant payments related to existing contracts unless recipients take unspecified "appropriate action with respect to [existing] contract[s]."
The public comment period closed on November 3. Potential legal challenges by businesses, trade associations, or grant recipients may be framed by those comments. Grant recipients, contractors, and DBE subcontractors will need to stay abreast of these developments.
