Compliance & Capital

July 3, 2024

The Supreme Court just killed Chevron, so what’s next for USDOT’s Civil Rights Programs?

The Supreme Court of the United States (SCOTUS) ruled 6-3 in favor of a group of fishing companies and against the Biden administration in a 35-page opinion published on June 28, 2024 (Loper Bright Enterprises et al. v. Raimondo, Secretary of Commerce, et al. or “Loper”). This decision will have massive implications on the federal regulatory regime that has ruled for the past 40 years. The US Department of Transportation (USDOT) has three primary civil rights programs, and they were all developed during the Chevron era that SCOTUS just ended. But this does not mean these programs will suffer a similar fate, that depends much more on politics.

A quick overview of USDOT’s three main civil rights programs:

The Americans with Disabilities Act (ADA) ensures accessible facilities, systems, vehicles, and policies. The ADA is not contingent on federal funding, it applies to everyone all the time. USDOT has authority over transportation-related entities.
Title VI of the Civil Rights Acts of 1964 (Title 6) prohibits discrimination on the basis of race, national origin, and color (but not sex/gender) in federally-funded services and programs. USDOT has a range of regulations (well, sort of) that implement this law.
The Disadvanatged Business Enterprise (DBE) program ensures nondiscrimination in the award and administration of USDOT-funded contracts (but not all). USDOT has a body of regulations and guidance that implement the program.

EK’s Bottom Line: The ADA statute is detailed and USDOT’s regulations are not that different from the statute, so the ADA rules are probably safe; the political environment is favorable to the ADA, but politics could derail any future rulemaking efforts by USDOT. The Title 6 program is likely to be put in a politically induced coma for the foreseeable future, and may never recover. The DBE program will likely suffer some cosmetic damage in the near-term, and the current political environment suggests that it will be reshaped entirely.

The ADA

The SCOTUS decision killed Chevron because agencies were coming up with rules that did not track closely enough to the actual law passed by Congress (i.e., the statute). Up until now, as long as the agency could come up with a half-decent reason for why the regulation is needed to carry out the law, the agency could write pretty much whatever regulation it wanted. Now, agencies will need a much stronger statutory basis for the regulations they develop and implement. Fortunately for proponents of accessible transportation, USDOT’s ADA implementing regulations track very closely to the law passed by Congress in 1990 (and a couple updates).

The ADA as passed by Congress is conveniently located at www.ada.gov (specifically, here). The ADA statute contains many details, and in most provisions there is not much room for interpretation on what Congress intended the law to do (and there are detailed committee reports). The USDOT regulations that carry out the ADA are found at 49 CFR parts 27, 37, 38, and 39 (note that this does not include air travel, which is covered by the Air Carrier Access Act). No, USDOT did not simply copy and paste Congress’s work, but they are similar enough to qualify as plagiaristic. Paratransit in Part 37 is probably the most dissimilar, but only because this is an area where Congress mostly deferred to USDOT to set the rules.

So, the current USDOT ADA regulations would probably survive most challenges. And unlike many civil rights programs, the ADA is philosophically supported by Republicans and Democrats alike, so the risk of a meaningful challenge is relatively low. If there is a serious challenge to the ADA, it will likely focus on paratransit regulations in Part 37 and the Federal Transit Administration’s (FTA) ADA Circular.

But what about future regulations? USDOT has shared that it is working on new ADA regulations. Surely, USDOT is not oblivious to recent legal developments and is aware of the politics. So, we can expect that USDOT’s proposed regulations will avoid making new policy. On the other hand, the ADA would be a smart way for Chevron supporters (mourners?) to test the Loper decision, given the political support for the ADA. Thus, politics will likely decide how far USDOT goes in its ADA rulemaking activities, but the ADA seems the safest of all civil rights programs.

Title 6

Unlike the ADA, Congress did not spend much time explaining the “how” of Title 6, and essentially just instructs USDOT to develop regulations that will prevent discrimination in federally-funded transportation activities. You can find Title VI of the Civil Rights Act of 1964 on the Department of Justice’s website (https://www.justice.gov/crt/fcs/TitleVI). USDOT’s Title 6 regulatory framework is more than just regulations, and is comprised of guidance and executive orders, the primary regulations are found at 49 CFR part 21. But the regulations do not do much, most of the “requirements” are found in guidance documents that are not as enforceable. For example, FTA’s Title 6 Circular functions as the implementing requirements for Title 6 compliance by transit agencies. Though SCOTUS does not directly address agency guidance materials in Loper, we can be sure that this SCOTUS would apply at least as high a standard for guidance as it does for regulations.

This is bad news for supporters of USDOT’s Title 6 rules. Of course, discrimination will still be illegal. But without regulations and guidance it will be difficult for USDOT to exercise its oversight authority, meaning that those who choose to illegally discriminate will be less likely to get caught. Politics is the other big problem for USDOT’s Title 6 rules – diversity, equity, and inclusion (DEI) programs are facing aggressive backlash from the political right and the left seems more focused on other issues. Given the current judicial landscape, razor-thin margins in Congress, and competitive presidential race, we cannot expect USDOT to make any moves to expand Title 6, or even aggressively enforce it. And if the current anti-DEI movement is resilient, it may be successful in rolling back what is required, or prohibited, under USDOT’s Title 6 regulations.

DBE

USDOT’s DBE program can be viewed as two separate programs: DBE Certification and DBE Program Operation. The DBE program requires each state to have an entity that certifies small businesses as DBEs, and each state and local agency receiving funds from FTA, the Federal Aviation Administration (FAA), or the Federal Highway Administration (FHWA), has to operate a program that ensures DBEs have access to federally-funded contracts. You can find the DBE regulations at 49 CFR part 26. Unlike the ADA and Title 6, the DBE program is created by authorizing legislation for surface transportation programs, most recently the Bipartisan Infrastructure Law ((BIL) or Infrastructure Investment and Jobs Act (IIJA)). With respect to DBE certification, USDOT’s regulations are relatively close to the language in BIL/IIJA, and represent a fairly obvious means of carrying out Congressional intent. Regarding DBE program operations, though, BIL does not say much about what the regulations should do. Considering that Congress was drafting BIL around the same time USDOT was drafting updates to the DBE program, and assuming Congress was coordinating with USDOT during these efforts, we can be relatively confident that the regulations are at least tolerated by Congress if not directly supported. Still, there are certain aspects of the DBE program, such as “contract goals,” that many view as a step too far and may offer an opportunity for opponents of the program to challenge USDOT’s regulations.

DBE contract goals are not quotas, but they sound like it and you need a few sentences to explain the difference. Worse for USDOT, the regulations and guidance USDOT has on this topic represent a policy decision on how to achieve Congressional intent, and sometimes contradict each other. So, contract goals represent a vulnerability in this post-Chevron environment. Contract goals are just one part of the DBE program, though, and savvy agencies that prefer using contract goals will likely find ways to effectively maintain the practice even if USDOT’s regulations are struck down by the courts (assuming the overall DBE program survives).

Yet again, politics has the greater potential to end the DBE program. The DBE program is always popular with the political left, and the right ranges from lukewarm to hostile depending on the broader political environment. The current environment is rather hostile. USDOT recently updated the DBE program regulations, making them ripe for challenge. It is worth noting that there is current litigation against the DBE program involving the certification criteria, but this focuses more on legal issues unrelated to USDOT’s interpretation of the statute. The bigger political risk is that the DBE program is either not reauthorized in the next surface transportation legislation or the universe of DBE firms is dramatically expanded on contracted (for example, opening the program to all small businesses or limiting it to women-owned only), and we know equity programs will be targets.

Conclusion

As we leave the Chevron regime and enter the Loper era, USDOT needs to adapt its civil rights programs and expect challenges to its regulations. The ADA regulations are well-positioned to withstand any attacks because they are similar to what Congress provided in the ADA statute. The Title 6 program is at the greatest risk because USDOT’s regulations and guidance are predominantly agency-made and only tacitly approved by Congress. The DBE program regulations are at risk for targeted attacks, and their recent update makes attacks more likely but the overall program more resilient. Proponents of USDOT’s civil rights programs should be more concerned about what Chevron’s demise means in the current political environment – the bar has been raised on what agencies can require and prohibit in a political battlefront.

March 3, 2025

What should MWOBs expect for the next two years of government contracting?

Introduction

The government contracting landscape is changing. The Trump Administration, through the Department of Government Efficiency, is looking for waste in both internal government operations and government contracts. The Administration is evaluating grants and other federal funds that often flow to government contractors through locally administered projects and programs. Further, the Administration has aggressively rolled back Diversity, Equity, and Inclusion programs and policies. Combined, the Administration’s actions may worry government contractors, especially those with (or seeking) certifications related to the business owners’ demographics. These disruptions are substantial for many, but government contractors who adapt to the new Administration can still thrive. Contractors will need to evaluate whether their industry needs a government payer and, if not, have a plan to attain private clients. For better or worse, most minority and women-owned businesses (MWOBs) will face these same challenges with their peers, but a few subgroups may feel the Administration’s and DOGE’s policies more dramatically.

This blog aims to provide government contractors with some considerations for the next two years so they can make predictions, and decisions, about their business. The blog focuses on contractors who work on direct federal procurement and state/local procurement using federal funds. Any business seeking to understand the Trump Administration’s impact may find this useful. Please send us a message if you would like to discuss this blog.

The Landscape

There are several programs for small businesses and MWOBs seeking to work on direct federal procurement. The most well-known is the Small Business Administration’s 8(a) program, and under the Trump Administration, the HUBZone program is seeing more attention than ever. State and local programs vary widely; each state has its own programs, and many cities have their own programs. Depending on the program, a business may need to go through a formal certification process, and there may be different tiers. Many programs are open to all products and services, but some limit the scope to just products or services, and some are even more restrictive.

Most contractors participating in these programs know that the only way to win contracts is to perform well – the programs merely open doors. More importantly, participation in a government-sponsored program adds legitimacy, especially if there is a formal and verifiable certification. At least that has been the case for the entirety of these programs’ histories.

All contractors should expect shifts in demand and customer profile

The good news is that demand for the products and services funded by federal dollars and provided to third parties, especially individuals, is unlikely to decline. This represents the bulk of government contracting. The bad news is that the federal government will reduce its demand for goods and services, at least temporarily. Many contracts have already been canceled. Savvy contractors will take advantage of these changes and fill in the gaps that form when the government exits a market with high demand.

Education is a useful example. The Trump Administration has expressed a desire to eliminate the Department of Education. We can split DoE’s budget into 3 categories:

(1) Internal costs that are not directly related to any specific program
Things like office supplies for federal facilities, the IT systems supporting the federal employees, and other goods and services procured by government agencies, regardless of what specific issues that agency deals with.
(2) Grants to local educational authorities (including states)
Probably what most people think of when they think of the DoE – the money the federal government gives to states and other local education authorities to subsidize local educational programs.
(3) Procurements directly related to specific programs.
This includes things like financial analytical tools for the student loan program and consultants for setting standards.

This split is typical of many grant-making and standard-setting agencies; it is not perfect and is far from precise, but it is useful.

For contractors specializing in (1), the next few years will require adaptation, which will likely mean finding new customers. The Trump Administration wants to reduce federal spending across the board. This reduction in spending includes procurements and employment. The DoE will have fewer employees; managers will prioritize mission delivery over the remaining employees’ benefits or comfort (more so than they currently do). The expected result is less federal consumption. Unless and until the DoE is actually eliminated, demand will not drop to zero, but it will trend in that direction. Contractors in this space need to start looking for new customers now. Fortunately, contracts for these sorts of goods and services would be similar, and often simpler, in the private sector or with state and local governments. Unfortunately, there is unlikely to be a direct shift from government demand to some identifiable private party, meaning that DoE contractors will need to invest time and resources in finding new clients. One strategy is to look at businesses and nonprofits hiring former federal employees, as these potential customers are more likely to recognize the value of government contracting experience.

In the medium- to long-term, contractors working in category (2) should not experience a significant reduction in demand. Even if the DoE is completely eliminated there will still be consumer demand for education and the infrastructure and operations that entails. For the next two years, though, many of these contractors will experience stress as the Administration “reviews” grants and contracts. The Administration should realize that much of these funds must be spent. Ideally, the Administration’s review will be quick and accurate with minimal court intervention necessary. Contractors should plan for the worst – even in the most optimistic scenario the remainder of federal fiscal year 2025 will be disruptive. Of course, some programming will be cut and will not be saved by local or private payers, particularly anything related to DEI in more conservative areas. As always, it is imperative for contractors to monitor the trends in their industry and make adjustments.

Voucher programs provide another useful example. The Trump Administration is looking to expand voucher programs, which could be structured in various ways but generally involve the government giving tax dollars directly to parents to spend on the educational resources of their choice. This could mean homeschooling for some families, but most will opt for institutional schooling. Most of these schools have (or will have) the same consumer demands as classic public schools. So, expanding vouchers, by definition, would result in less procurement by the government for educational goods and services but not necessarily less spending of government dollars on education. Contractors should expect at least some changes to their customer base, but the demand for their goods and services is unlikely to experience a significant decline. Again, smart government contractors will look for the private entities that benefit from a shift in their industry’s government-payer models to subsidized private-payer models.

Category (3), procurements related to specific programs, should be evaluated at the program level. The Administration will prioritize programs that align with its policy goals and will cut those that do not. This is not unique to the Trump Administration. Unfortunately, it is not as easy to predict what aligns with this Administration’s goals as it may seem. For example, the National School Lunch Program (a program of the Department of Agriculture, not DoE) provides free and reduced lunch to students who meet certain income requirements. This is an extremely popular program among families, and the demographic that makes up the greatest share of recipients is low-income whites who overwhelmingly voted for President Trump in 2024. Yet, prominent conservative organizations have expressed an interest in limiting or eliminating the program. Adding to the confusion, the first Trump administration expanded the program.

Contractors supporting specific programs need to perform several layers of analysis:

(a) Does the program reflect DEI policies?
(b) Did the program start under the Biden or Obama administrations?
(c) Is the program referenced in media as indicative of wasteful or social equity policies?
(d) Is the program referenced in Project 2025? And
(e) Is the program, or similar programs, addressed in any executive orders?

This is not an exhaustive list; answering these questions honestly and objectively can help give you an idea of the program's future.

MWOBs should no longer expect to use that status as a marketing tool

Most MWOBs are in the same situation as any other government contractor in the same industry and of similar size and experience. Despite the anti-DEI rhetoric, there will not be any serious efforts to “punish” contractors recognized for their owners’ demographics or economic status. Sadly, people who already viewed MWOBs with skepticism will feel vindicated. Even in the most misinformed communities, though, the people making contract award decisions usually understand that only qualified contractors are selected. So, MWOBs should focus on marketing their qualifications and not their demographics.

As discussed in the DEI Executive Order linked above, the Trump Administration believes that policies and programs that consider race and gender result in waste and, generally, are unconstitutional. The Administration believes “merit” should be the only consideration in government contract award decisions. Those who work in the federal procurement space know that these views align with current law and that awarding a contract based on race or gender alone is illegal. In the same vein, it is also clearly illegal for the government to target and harm contractors based on the race or gender of the owners. So, generally, contractors with certifications related to race or gender should not expect any formal or direct targeting. We are more likely to see sensationalized and exaggerated coverage of relatively common instances of fraud, waste, and abuse when the contractor is minority or women-owned. For example, if a firm with an SBA 8(a) certification is found to be a pass-through that provides inferior products at a premium price, the Administration would likely spotlight that contractor as evidence of the 8(a) program failing, even though it has nothing to do with the 8(a) certification. This does not mean contractors should not apply for certifications or let their certifications expire. Contractors should be aware that, at least informally, they may be subject to more public scrutiny than in the past.

Firms that shift away from marketing their demographic status certifications and designations to focus on qualifications may find a competitive advantage. These contractors should also pursue other types of certifications. Governments and independent third parties provide certifications or recognition in most fields. Right now, contractors should not be as concerned about whether going through the process of attaining the certification will add technical value to the firm. Instead, they should focus on whether it is from a reputable organization and whether competitors have the same or similar. For example, a small cybersecurity firm may want to require its 10 employees to attain a national nonprofit’s certification by completing a 3-week $5,000 boot camp, despite all possessing advanced degrees from top schools with decades of experience, because the other firms in the state all have that certification. Smart firms will look beyond their state’s borders to see what certifications government contractors in neighboring states have.

Not all contractors will make it

Some groups of MWOBs will face more substantial barriers than others. For example, contractors just starting out and those working on DEI. For a new firm, a certification can serve as a valuable symbol of legitimacy as the firm develops work experience, and demographic-related certifications and recognitions may be the only ones a new firm qualifies for in the startup phase. Local conditions will affect the degree, but new contractors should not expect their demographic-related certifications to carry the same weight as before. With respect to contractors working on DEI, the reason the Trump Administration’s anti-DEI policies will prove disproportionately impactful on MWOBs is that the businesses working in this space are predominantly MWOBs. The road ahead will be extremely difficult for these businesses, and some may find it necessary to avoid government contracting for at least the next two years.

The laws of macroeconomics still apply, and we should expect a reduction in aggregate demand. At least in the short term, the effects of cancelling contracts and firing employees will mean a reduction in aggregate demand. Consumers will have less money to spend, so they will spend less money. Unfortunately, that means some businesses, including government contractors, will fail due to external factors despite their best efforts. The owners of these firms will likely need to seek employment with other businesses until demand recovers.

Conclusion

The Trump Administration is serious about reducing the size and scope of the federal government and ultimately spending less money. For the next two years, the Administration has the support of Congress, the body that decides how to spend government money. Understandably, government contractors are concerned about the chaotic means the Administration is employing to achieve its goals. In many ways, the Trump Administration’s actions are unique, but the effects may be somewhat familiar. The Administration will spend less where it can. Where the public still demands the goods or services the government cuts, there will be opportunities for contractors in the private sector and state and local government. MWOBs will experience these challenges and opportunities like any other business and will need to adjust their marketing to reflect qualifications and performance. EK Compliance can help identify those challenges and opportunities and develop strategies for success. Contact us if you need assistance in this changing environment.