DOT requires DBE narrative for social and economic disadvantage
Program for disadvantaged state-level contractors follows SBA's example, halts inclusion of contract goals until participants are evaluated
Update: The new DOT requirements became effective October 3, 2025, with publication in the Federal Register. Comments are due November 3, 2025.
Roughly mirroring the process instituted by the Small Business Administration after the Supreme Court’s 2023 affirmative-action ruling, the Department of Transportation published guidance yesterday requiring the agency’s grant recipients to collect and review narratives to qualify disadvantaged small businesses for state-level contracting preferences. DOT sets policy for the Disadvantaged Business Enterprise program, which is being challenged in a Kentucky Federal court for the use of race- and gender-based preferences. The guidance coincides with the agency’s interim final rule that requires, effective on the date of publication in the Federal Register, that the DBE participants demonstrate social and economic disadvantage based on their own experiences. Unlike the prior SBA process, the DOT guidance specifies that the disadvantage determination is “not based in whole or in part on race or sex.”
The guidance and final rule follow a years-long legal battle filed against DOT shortly after the Supreme Court’s decision striking down race-based affirmative action in college admissions as unconstitutional. Just months after the Supreme Court’s ruling, the SBA responded to a lower court’s injunction by requiring all firms in that agency’s 8(a) business development program to submit narratives of social disadvantage to continue their participation. In the DOT’s case, the Justice Department had recently filed a request for a consent order with the Kentucky court to resolve the constitutional challenge to the DBE program. This narrative requirement follows a filing with Congress by the Justice Department, stating that it would not defend the DOT’s use of race-based presumptions.
Prior to these changes, both SBA and DOT used a presumption of social disadvantage that allowed business owners who identified as members of specific race or ethnicity groups—and, in the case of the DOT program, women—to be qualified without regard to individual attributes.
“Unfortunately, not all individuals have been treated equally under this program,” DOT stated in its guidance. “[T]wo similarly situated small business owners may face different standards for entering the program, based solely on their race, ethnicity, or sex.”
The DOT interim final rule—which was published in the Federal Register on October 3has not yet been published in the Federal Register because of the lapse in Federal appropriations—estimates that about 41,000 small businesses will submit narratives. This amount is lower than the current number of businesses in the DBE program and a similar airport-concession program because DOT estimates that about 10% of businesses will not submit narratives. The narratives will be reviewed by Unified Certification Programs, or UCPs, of which there are 53 nationwide. A UCP must complete its evaluation of narratives for its small businesses before a recipient covered by the UCP can set contract goals.
When SBA began requiring narratives in 2023, the agency halted applications to the 8(a) program for over two months while reviewing narratives from over 4,000 participants. The DOT review process may take longer because of the much larger number of participants, the use of the 53 different certifying entities, and the fact that some participants are certified in multiple states. The interim final rule estimated that 4,100 small businesses would need to provide evidence to more than one state.
Related to the interim final rule, DOT announced that it had halted the disbursement of $300 million in funding for transportation projects in New York City pending an “administrative review to determine whether any unconstitutional practices are occurring,” according to an agency release.
The DOT guidance differs from the process that SBA instituted in 2023 by explicitly providing that a certifier’s disadvantage determination “must not be based in whole or in part on race or sex.” SBA’s narrative allows applications to identify a “distinguishing feature,” which may be race, gender, physical handicap, sexual orientation, ethnic origin, isolation from mainstream American society, or something else. The DOT program already evaluated economic disadvantage differently from SBA, which relies on three objective thresholds for that analysis.
Once certifying entities complete their evaluations of narratives, DOT grant recipients likely will face challenges implementing new guidance on how to set DBE goals. The interim final rule states, “The goal must reflect your determination of the level of DBE participation you would expect absent the effects of social and economic disadvantage.” Prior language referred to “discrimination,” but that was struck in the revision.
This is a developing story and may be corrected, updated, or expanded on the web version.
With 20 years of Federal legal experience, Sam Le counsels small businesses through government contracting matters, including bid protests, contract compliance, small business certifications, and procurement disputes. His website is www.samlelaw.com.
As expected…