Is DBE Contracting the Next to Fall After Affirmative Action?

In a significant ruling that could reshape federal contracting, a federal district court in the Eastern District of Kentucky has granted a preliminary injunction against key aspects of the United States Department of Transportation's (USDOT) Disadvantaged Business Enterprise (DBE) program. The court found that the program's longstanding race and gender-based presumptions likely violate the Constitution's equal protection guarantees.

The case, brought by Mid-America Milling and Bagshaw Trucking, challenges the DBE program's practice of automatically presuming that certain minority-owned and women-owned businesses are "disadvantaged," while requiring other businesses to prove their disadvantaged status. This presumption, in place since the 1980s, helps determine which businesses get preferential access to federal transportation contracts.

Key Takeaways:

1. Strict Scrutiny Analysis – The court applied strict scrutiny to the race-based preferences, finding that the government failed to demonstrate both a compelling interest and narrow tailoring. Notably, the court found the government's evidence of past discrimination too broad and imprecise, citing the Sixth Circuit's requirement that remedial policies must "operate with a scalpel." General assertions and statistical analysis of past discrimination in an entire industry are insufficient to justify the DBE program. Instead, specific instances of USDOT discrimination are needed to pass strict scrutiny analysis.
2. Over or underinclusive – The court held that USDOT did not show how each of the preferred groups suffered discrimination, nor why the DBE program left out other groups. As illustration, the Court expressed frustration as to why a Pakistani enterprise would receive the rebuttable presumption but an Afghani enterprise would not. The court said “unclear connection” amounts to a “scattershot approach.” Thus, it was not narrowly tailored.
3. No Logical Endpoint – Following the Supreme Court's recent Students for Fair Admissions decision, the court emphasized that race-conscious programs must have a "logical endpoint." The DBE program's four-decade duration without a clear termination point weighed against its constitutionality.
4. Gender-Based Classifications – The court also rejected the program's gender-based preferences, finding that the government failed to provide an "exceedingly persuasive justification" as required by intermediate scrutiny precedent. The Court deemed the statistical evidence of disparities between male and female-owned businesses alone was insufficient to prove intentional discrimination.
5. Limited Injunction Scope – While the plaintiffs sought nationwide relief, the court limited its injunction to the states where the plaintiff companies bid. This reflects growing judicial skepticism of nationwide injunctions and follows recent Sixth Circuit precedent to narrow the injunction to the issue at hand. However, it presents an issue for the USDOT—how can it prescriptively know which states the Plaintiff plan to bid in?

Practical Implications: This ruling could signal increased scrutiny of similar federal contracting programs. While the injunction is preliminary and geographically limited, it provides a roadmap for future challenges to race and gender-conscious contracting programs. The government will likely appeal, setting up an important test case for the Sixth Circuit.

The decision highlights the ongoing tension between remedying historical discrimination and adhering to constitutional equal protection principles. As the court noted, while the government's intentions in addressing past discrimination may be laudable, such efforts must go beyond statistics to meet constitutional requirements. Essentially, the court says that correlation does not prove causation.

This ruling also requires a government entity implementing a race-based program to provide evidence of intentional discrimination in the past by that governmental unit; which requires the USDOT and other government units to put forth evidence that those units have historically discriminated.

This case bears watching as it moves through the appeals process, potentially reshaping how federal agencies approach diversity in government contracting.

 

Contact: 

Will Stout  |  615.949.2363  |  wstout@winstead.com

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