A new lawsuit challenges the constitutionality of a federal Disadvantaged Business Enterprise (“DBE”) program. One can’t help but wonder if this is a dry run for an 8(a) Program challenge.
The ripple effects of the U.S. Supreme Court’s affirmative action decision in Students for Fair Admissions, Inc. v. President & Fellows of Harvard College (“SFFA”) continue to take effect in the small business contracting world. In a recent complaint filed with the Eastern District of Kentucky, Mid-America Milling Company, LLC has challenged DOT’s DBE program. Mid-America alleged that DOT’s presumption of a social disadvantage based on gender and/or race constitutes unconstitutional discrimination.
Specifically, Mid-America argued that the DBE program violates the Constitution’s “promise of equal treatment.” It also alleged that DOT’s program prevents it from competing on government contracts on an equal footing with firms owned by women and certain racial minorities. However, unlike the recent decision in Ultima which dismantled the SBA 8(a) program’s presumption of discrimination, Mid-America asks the court to go a step further—it seeks an end to the DBE program “once and for all.”
8(a) businesses beware
As we have covered previously, the Ultima decision enjoined SBA from making eligibility determinations based solely on the rebuttable presumption that certain racial groups were socially disadvantaged. At the time, the repercussions of the Ultima decision were unprecedented. SBA halted 8(a) applications for several months and required all active 8(a) participants to submit a social disadvantage narrative. Such narratives require business owners to disclose unjust and potentially traumatic experiences in an attempt to persuade SBA of discrimination.
But if the relief sought in Mid–America is granted, the fallout from Ultima would seem trivial.
Under DOT’s DBE program and SBA’s Small Disadvantaged Business(“SDB”) program, a DBE must be “at least 51 percent owned [and controlled] by one or more individuals who are both socially and economically disadvantaged.” Similarly, the SBA’s 8(a) program requires a business to be “at least 51 percent unconditionally and directly owned by one or more socially and economically disadvantaged individuals.” So, if DOT’s program is dismantled for being discriminatory, why wouldn’t the same be true for SBA’s programs?
Bigger than Ultima?
Currently, many 8(a) businesses also self-certify as DBE businesses. In the event that Mid-America scraps DOT’s DBE program entirely, many of the 8(a) participants who suffered through the negative impacts of the Ultima decision will, again, suffer additional, negative impacts from Mid-America—a double whammy of sorts.
There would be even greater repercussions however. As implied above, if the DOT DBE program is proven unconstitutional, some will undoubtedly argue that the same rationale must apply to the SBA’s Small Disadvantaged Enterprise program and 8(a) program. Thus, such a decision would likely result in challenges to these programs as well.
This threat isn’t immediate, but it is certainly looming. In fact, these threats were made prevalent when the Supreme Court handed down the SFFA decision. Businesses may want to begin thinking about how to adjust to the potential domino effect that Mid-America may bring.
We’ll be keeping a close eye on this case and provide any updates to you as we receive them. If you have any questions about how this case could potentially impact your business, please give us a call.