Some businesses fear for future of federal program in wake of partial blockage

Some businesses led by women and minorities are sounding the alarm after a federal court last fall temporarily blocked a program meant to prevent discrimination in government-funded transportation contracts from applying to two southern Indiana contractors.

Those concerned about the action say the narrow ruling nonetheless sets a dangerous precedent that they fear will dismantle the Disadvantaged Business Enterprise program altogether.

In the lawsuit filed by the Indiana contractors, a Kentucky judge issued a temporary injunction that prohibits the U.S. Department of Transportation from applying the DBE program to any contracts that the companies bid on in any state.

The plaintiffs, Mid-America Milling Co. of Jeffersonville and Bagshaw Trucking Inc. of Memphis, claim in their suit that the program has resulted in reverse discrimination against them.

Enacted by Congress in 1983, the DBE program requires state and local transportation agencies that receive federal Department of Transportation funds, including the Indiana Department of Transportation, to award a certain percentage of their contracts to businesses certified as disadvantaged business enterprises.

To be certified as a DBE, a business must be small, independent and owned by someone who is part of a group designated as socially and economically disadvantaged. Disadvantaged groups include women, Blacks, Hispanics, Native American and Asian-Pacific Americans.

Some local business owners say the court’s injunction could jeopardize the entire DBE program, a revenue stream they count on.

But the lawsuit alleges that the Department of Transportation’s goal for set-asides in contract awards for companies it considers disadvantaged is discrimination based on race and gender. U.S. District Court for the Eastern District of Kentucky Judge Gregory F. Van Tatenhove agreed with the plaintiffs in the injunction he issued in September and clarified in October.

Local fight

Since then, a coalition of diverse business owners has come together to strategize next steps. DBEs of America leader Stephanie Allen, the Mooresville-based owner of Crossroads Highway Products, said the new organization has raised $10,000 so far for the legal fight it anticipates. An educational video call that Allen and other organizers hosted in February drew 600 participants.

Allen said the DBE program gives women and racial minorities a seat at the table. If it is eliminated, she said, the industry is “going to end up being a good-old-boys club again.”

Nonprofit conservative law firm Wisconsin Institute for Law & Liberty represents the plaintiffs in the DBE lawsuit. In a statement, associate counsel Cara Tolliver told IBJ the injunction “was a first step toward the vindication of the most fundamental guarantee to equal treatment” and that the DBE program instituted a “nearly 50-year national race war based on the assumption that a business owner’s skin pigmentation (or sex) informs whether or not the owner and its business should be accorded a benefit.”

“The government is required to treat all persons as individuals under the law and is prohibited from picking winners and losers based broadly on race or otherwise segregating opportunities on the basis of race,” Tolliver wrote in an email. “Our clients continue to stand by the principle that eliminating racial discrimination means eliminating all of it.”

The law firm touted the injunction in an online video titled “How Two Small Businesses from Flyover Country Beat the Federal Government in Court.” In that video, Greg Bagshaw of Bagshaw Trucking says he has received calls from contractors “from out of town” asking Bagshaw to bid on specific contracts in order to have the DBE requirement eliminated from that contract.

Wisconsin Institute for Law & Liberty regularly files lawsuits against race-based economic development and diversity, equity and inclusion programs, which it highlights on a page dedicated to court victories.

The federal court’s injunction is in place as both President Donald Trump and Gov. Mike Braun issue orders to eliminate government DEI programs, creating even more uncertainty about what’s next for the DBE program. Both sides in the lawsuit have asked for a pause, citing Trump’s executive order.

Natalie Garrett, a spokeswoman for the Indiana Department of Transportation, told IBJ in an email that INDOT is following all guidance from the U.S. Department of Transportation and the Federal Highway Administration regarding the preliminary injunction. When asked what guidance federal officials are providing to states regarding the injunction, an FHA spokesperson told IBJ it does not comment on pending litigation.

The state’s Minority and Women Business Enterprises Program is not affected by the ruling.

Holding their breath

At Crossroads Highway Products, Allen has a one-woman operation selling expansion joint materials for bridge projects.

She estimated that bids through the federal DBE program make up 80% of her company’s revenue. In her last 36 projects, only four where she was used as a standard supplier didn’t fulfill a DBE requirement.

“I am going to go out of business if this happens—if this [injunction] stays in place,” Allen said. She’s working to fight against the injunction by seeking a stay.

Organizers seeking to protect the DBE program fear that, under Trump’s administration, the Transportation Department will no longer seek to protect its existing policy as it did when the lawsuit was filed last year.

That’s why the National Association of Minority Contractors, Women First National Legislative Committee, Airport Minority Advisory Council, Women Construction Owners & Executives, Illinois Chapter, and minority-owned businesses Atlantic Meridian Contracting Corp. and Upstate Steel Inc. have filed to intervene by becoming defendants in the lawsuit instead of the federal department.

The intervenors are represented by attorneys from the Minority Business Enterprise Legal Defense and Education Fund Inc., Move Democracy Forward Foundation, and a Lexington-based attorney. The motion was filed Jan. 24.

While they wait on a response, many owners of local companies have remained in limbo.

Diana Brenner founded B&B Contracting in Indianapolis in 2002. It’s grown from just two employees to about 30.

B&B Contracting and Supply provides and installs the bright orange signs, cones and barrels that are familiar sights at construction zones. Brenner said about half of her company’s business comes from DBE projects, which means a substantial part of her income could be impacted by the injunction and changing policies.

Brenner is now joining the call to organize around the issue.

“The whole [DBE] program is an economic development tool, and that’s why they started it,” Brenner said. “It gives the opportunity to smaller companies who couldn’t originally get into the game.”

Rajiv Huria, president and CEO of Indianapolis-based SJCA Inc., has also joined the effort to preserve the DBE program. The company does roadway design, construction inspection, surveying, environmental permitting, and cultural work like archaeology and historical research. SJCA bids on projects across several states and has offices in six locations, including two in Indianapolis.

Huria, a longtime civil engineer focused on bridges, said the company is less directly impacted by the DBE program. Although about 40% of SJCA’s work is as a DBE, he said the company often acts as a prime contractor and secures projects through qualification-based selection. A standard bidding process often leads governments to choose the lowest bid, but qualification-based selection is based on a scoring system that doesn’t take price into consideration.

But he’s not confident the qualification-based processes will be unaffected long term.

“I don’t know if there is an impact yet, but we’re bracing for it,” Huria told IBJ.

For several years, SJCA has worked to reduce its dependence on DBE projects. The company has about 100 employees and has grown to a point where, as a prime contractor, it is bringing in smaller, DBE-certified businesses to fulfill state and federal requirements.

“The impact is much bigger than you think,” Huria said. “We’re just a very small component of it.”•