Thomas Curran and Robert Bell are attorneys at Duane Morris. Opinions are the authors’ own.
On July 28, a federal court in Texas declared unconstitutional the race-conscious aspects of the City of Houston’s and the Midtown Management District’s minority and small business contracting programs. The ruling permanently enjoined the city and Midtown, a separate taxing agency, from administering those race-conscious policy components.
The federal case hinged on whether the U.S. Supreme Court’s 2023 decision restricting use of race in higher education admissions also applies to municipal public contracting programs.
In striking down and enjoining the city’s program, the court concluded it does.
President Donald Trump’s administration has already been dismantling the long-standing federal Disadvantaged Business Enterprise program. State minority- and women-owned business enterprise programs, however, have continued to expand in some states.
With more anticipated constitutional challenges to state and local programs on similar grounds to the Houston case, construction companies engaged in public contracting, particularly on projects with a mix of federal, state and local funding, now face significant and potentially conflicting compliance challenges.
Curtailment of the federal DBE program
On Oct. 3, 2025, the U.S. Department of Transportation published an Interim Final Rule removing race- and sex-based presumptions from the federal DBE program, concluding that those presumptions violate the U.S. Constitution.
Under the Interim Final Rule, applicants seeking to demonstrate that they are a “socially and economically disadvantaged individual” must make an “individualized showing of disadvantage, regardless of the [applicant’s] race or sex.”
All DBEs that were previously certified must be reevaluated under the new standards, with a personal narrative that establishes disadvantage “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.”
These changes followed a federal lawsuit, Mid-America Milling Co. v. U.S. Dept. of Transportation, which challenged the DOT’s race- and gender-based rebuttable presumptions in its DBE program.
In March, the federal district court dismissed the case as moot because of the issuance of the Interim Final Rule without resolving any of the constitutional issues on the merits.
In the Houston case, the federal court in Texas took the step that DOT had wanted in the Mid-America Milling case: it issued a permanent injunction against a local, not federal, contracting program.
The court held that a public entity relying on race to remedy past discrimination must identify specific instances of past discrimination that violated the Constitution or a statute, not simply point to generalized disparity evidence or unspecified themes of societal discrimination.
Applying that standard, the court found that Houston and Midtown lacked a compelling interest because neither had identified the specific constitutional or statutory violations their programs were designed to remedy.
States are not following the federal lead
State MWBE programs, which exist in nearly all states and D.C., are typically different from and independent of DBE programs operating under federal standards. Instead, there are separate state authorizing statutes that are based on their respective state constitutions. Indeed, many states would reject the notion that these programs somehow constitute improper discrimination.
For example, New York has continued to expand and highlight its MWBE program, as was evident in recent press regarding the completion of the $2.1 billion Highmark Stadium in Buffalo, which delivered more than $490 million in payments to certified MWBEs firms, surpassing the project’s 30% MWBE participation goal.
Other states, including Illinois, Georgia and Massachusetts, continue to maintain their state laws providing consideration for minority- and women-owned business programs. California already uses race-neutral considerations in its small business enterprise program because its Constitution prohibits racial preferences in contracting, and through that program, California directed over $4 billion in state contracts to small-business- and disabled-veteran-business-enterprises in 2024.
Private plaintiffs and public officials may seek to challenge state- and local-level programs designed to remove historic barriers to entry into construction under the same reasoning as adopted by the federal district court in the most recent Houston case. In its wake, the courts around the country are likely to receive challenges to state- and local-level MWBE programs.
States and localities should anticipate the need to meet these challenges. Under the administration’s policies directed at private DEI programs, private businesses likely will need to prepare internal programs based upon their private values and judgments as well.
What this means for contractors
This environment presents challenges as well as opportunities for construction companies seeking to do business with public entities. Managing compliance obligations will be key. Certain practices can help:
- Confirm any obligations for each project in the bidding process. Requirements can vary depending on whether federal and/or state (or even city/local) funds are involved.
- Monitor state-level developments and update training. As the environment continues to change rapidly, so too must your employee training to keep up with developments.
- Continue to document good faith efforts. Documentation regarding outreach, solicitation and decisions for subcontractors pursuant to internal corporate programs or state level MWBE programs provides the best defense to avoid allegations of “racially discriminatory” practices from a federal perspective.
- Consider reviews/audits under privilege. Engaging legal counsel to conduct a review of your subcontractor and vendor compliance programs under attorney-client privilege can help ensure state and federal compliance while protecting those conversations.
The apparent federal DBE pullback is not the end of the discussion when it comes to public contracting. States and localities continue to emphasize the importance of diversity in contracting, matching that public policy priority with substantial contracting dollars. This makes it an enduring and important consideration — as well as opportunity — for construction companies navigating this changing regulatory environment.
