As outlined in our October 2025 MWBE Services Alert, the U.S. Department of Transportation (“DOT”) issued an Interim Final Rule (“IFR”), effective October 3, 2025, making substantial changes to the Disadvantaged Business Enterprise (“DBE”) regulations under 49 C.F.R. Part 26. On October 24, the DOT released a set of Frequently Asked Questions (“FAQs”) providing additional information regarding how these changes affect both recipients of DOT funding and DBE firms.
The IFR states that every currently certified DBE must be reevaluated for eligibility in light of the DOT’s elimination of the presumption of social and economic disadvantage based on race or gender. Under the revised regulations, all applicants, regardless of race, ethnicity, or sex, must now make an individualized showing of social and economic disadvantage to obtain or maintain DBE certification. This reevaluation will be conducted by each state’s Unified Certification Program (“UCP”).
Early rollout of the reevaluation process has been inconsistent. Some UCPs have already begun soliciting updated information from certified firms, while others are still developing their internal procedures or awaiting further guidance from the federal government. The FAQs provide additional context about the process, but also raise important questions regarding the treatment of active DOT contracts during and after the reevaluation process.
Contract Implications and Termination Procedures
The DOT guidance clarifies that contracts executed before the rule’s effective date do not need to be modified immediately. However, once a firm’s certification status is reevaluated, DOT fund recipients must ensure that only firms meeting the new eligibility standards continue to be treated as DBEs. If a firm is found ineligible, recipients are expected to take “appropriate action” to address that change, and the DOT may withhold payments if they do not.
Most critically, the FAQ indicates that if a DBE is not recertified through the reevaluation process, then it is no longer eligible for DBE utilization on existing contracts and, more striking, such decertification may provide grounds for termination of that DBE’s in-progress contracts. Under 49 C.F.R. § 26.53(f), a prime contractor cannot terminate or reduce a DBE subcontractor’s work without first obtaining written consent from the recipient, and that consent may be granted only for good cause. One recognized ground for good cause, set out in § 26.53(f)(3)(viii), is that the listed DBE has become ineligible to receive DBE credit for the type of work involved. The FAQ expressly connects these concepts, stating:
Good cause for termination exists if a DBE loses its DBE certification after the reevaluation process described in § 26.111 is completed because it is ineligible to receive DBE credit for the type of work required.
Importantly, termination under this provision is not automatic. The regulation requires that the DBE receive written notice of the proposed termination and be given an opportunity to object before the recipient makes its determination. While the regulations also state that a recipient may itself “cause the termination” of a DBE subcontract, they do not prescribe a specific process for doing so. In practice, most such actions are likely to occur only after a firm’s ineligibility has been confirmed through the reevaluation process.
Administrative Appeals
The possibility of contract termination underscores the importance of the reevaluation and administrative appeal process. A DBE that is decertified through reevaluation has the right to appeal that decision under 49 C.F.R. § 26.89. The appeal must be filed with the DOT within 45 days of receiving the decertification notice. If the DOT affirms the decertification, the firm may then seek judicial review in federal court.
As a substantive matter, significant uncertainty remains about how UCPs will apply the new individualized social and economic disadvantage criteria. Although the regulations provide general parameters, the inherently case-by-case nature of the review could lead to inconsistent results not only among states, but even among applicants within a single UCP.
DBE firms should keep in mind that the appeal process offers a meaningful opportunity to challenge an adverse determination, and that termination from a contract based on decertification is unlikely to occur before that process concludes. While the DOT’s new guidance introduces a complex transition period, DBEs can best position themselves by staying engaged with their certifying agencies, responding promptly to reevaluation requests and being prepared to pursue their appeal rights if needed.
