Judge partially blocks business equity program

A federal judge in Kentucky partially blocked the Disadvantaged Business Enterprise program, a decades-old Department of Transportation program that aims to grant women- and minority-owned businesses equal footing when bidding on government contracts.

In 1983, Congress enacted the Disadvantaged Business Enterprise (DBE) program to help businesses owned by socially and economically disadvantaged individuals compete for federal contracts. Under the provision, at least 10% of funds for highway and transit federal assistance programs must go towards contracting DBEs.

The preliminary injunction comes from a lawsuit filed by two transportation contractors operating in Kentucky and Indiana who claimed they suffered from discrimination because their firms did not qualify for these programs. Currently, the ruling only applies to the two plaintiffs in Kentucky and Indiana, but it could lead to future challenges to the program. In his opinion, issued September 23, U.S. District Judge Gregory F. Van Tatenhove wrote that the plaintiffs’ claims that the program violates the constitution have merit.

“Although the DBE program was enacted at the federal level, some state, county and city projects also have DBE requirements as well,” said Chris Ring of Secured Transaction Services (STS). “The ruling is saying that it’s unconstitutional to require the contractor to be a DBE contractor to be listed and used on this contract.”

Why it matters: While the ruling has a very limited scope at this moment, it opens the door for future challenges, especially in light of recent pushes against affirmative action. Credit managers working at any of the nearly 50,000 DBEs in the United States registered through state or federal programs should heed this recent ruling.

“First and foremost, that’s going to send a shockwave through the DBE community because the program empowered them to compete and win contracts that they otherwise may not have had an opportunity with,” Ring said. In the last five years, DBEs have earned $34 billion in federal transportation contracts, according to the Washington Post.

Sheryl A. Rasmusson, CCE, president of Kilgore TEC Products Inc., (Spokane, WA), whose company is in the process of becoming a certified DBE, finds that DBE programs afford underrepresented organizations an equal chance to bid and work on federal contracts.

“The program provides KTP opportunities to become a partner to companies within our region by providing the best products and skilled labor within our bid scopes,” Rasmusson said. “…KTP has a long history of products and installation services of the highest quality and should be given the same consideration [as non-DBEs]. This program grants and equal chance to under-represented organizations.”

While the scope is very limiting at the moment, if the program were to be blocked on a larger level, it would significantly impact thousands of women- and minority-owned businesses.

“If an Minority, Women, and Disadvantaged Business Enterprise (MWDBE) Certified Company isn’t provided the same opportunities as a non-certified company and there was a financial impact, it could make paying outstanding bills an issue, it would eliminate jobs and be a step backwards for equal construction opportunities,” Rasmusson said.

Go deeper: It’s difficult to gauge the extent that credit managers working for non-DBE certified companies would feel the impact of this change. For George Demakis, corporate credit and accounts manager at Scafco Corporation, (Spokane, WA), working with DBEs means looking into their background to ensure that they are a certified DBE.

“When they come to us to apply for credit, [we] make sure that they are a legitimate DBE, that they’re not just a pass-through or a shell company set up by our customer, or by somebody else,” Demakis said.

This process includes determining the business’s location, what customers they’ve served and other hallmarks of an independent company. According to Demakis, it is important as a credit manager to ensure that these businesses are legitimate DBEs because of the rise of shell organizations fraudulently claiming benefits designated for women- and minority- owned businesses.

“We have a 10-question survey that we send out to the DBE when they apply for them to fill out,” Demakis said. “Also, the states all have registration programs, and you can actually go to that registration program and confirm that they’ve actually applied for and been granted DBE status.”

The bottom line: While the recent ruling’s scope is very small, it opens the door for future challenges that could have a more widespread impact.