On April 24, 2025, the U.S. Department of Transportation (DOT) Secretary, Sean P. Duffy, issued a guidance letter to all grant recipients of DOT funding, notifying them of:
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The DOT’s new interpretations of non-discrimination laws and their interrelationship with Diversity Equity and Inclusion (DEI) policies of the Trump administration,
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Potential consequences for failure to comply with those laws and policies, and
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Potential consequences for failure to cooperate with the federal administration’s efforts related to illegal immigration.
The interpretations and policies set forth in the letter track the Trump administration’s broader policy goals to reduce illegal immigration and eliminate programs that discriminate on the basis of prohibited classes (e.g., DEI programs).
NON-DISCRIMINATION
Pursuant to the notice, DOT funding recipients (e.g., state departments of transportation and highway administrations (SHAs)) are prohibited from engaging in discriminatory actions through their own policies, programs, and activities, including the administration of contracts and their employment practices. The notice clarifies that any policies, programs, or activities that discriminate on the basis of race, color, national origin, sex, or religion, whether or not described in neutral terms (including DEI programs), presumptively violate federal law and violate the terms of the DOT grant agreements. The notice clarifies that personnel practices (including hiring, promotions, and terminations) within recipients’ organizations must be merit-based and cannot discriminate based on prohibited categories. In support, the DOT cites to the “Equal Protection principles of the Constitution,” Students for Fair Admission, Inc. v. Harvard (SFFA), 600 U.S. 181, 206 (2023) (the 2023 Supreme Court opinion ruling affirmative action unconstitutional), and the Civil Rights Act of 1964, among other sources of federal law and precedent.
An issue with this guidance is that most state Disadvantaged Business Enterprises, Minority Business Enterprises, Women Business Enterprises programs, and other like programs (DBE Programs), which are administered through state SHAs, are the result of federal DOT regulations that mandate the use of such programs. Part 26 of Title 49 of the Code of Federal Regulations mandates the use and participation of DBE Programs in DOT-financially assisted projects. These existing regulations now conflict with this new guidance and other similar policies articulated by the Trump administration through various Executive Orders. Most, if not all, grant agreements entered into between the DOT and SHAs prior to the Trump administration’s recent DEI decisions likely have explicit DBE Programs participation goals and requirements in order to qualify for, and expend, the grant proceeds.
It appears that the DOT is taking the position that grant recipients (and their lower tier sub-recipients, contractors and subcontractors, must ignore the preexisting regulations, end those DBE Programs, and terminate those subcontractors and suppliers who were hired because of DBE Programs. How this effectuated and the implications thereof are not yet clear. One possible result is that DBE Program subcontractors might be terminated for convenience, and the SHA may have to pay those termination costs. As we have discussed in prior alerts, this also appears to be the first domino to fall in removing, or significantly restructuring, the various DBE Programs that relate to DEI, including Small Business Enterprise programs.
IMMIGRATION
Additionally, the guidance letter warns recipients to cooperate with the federal government’s efforts related to illegal immigration. The DOT reminds recipients of their duties to cooperate with and not impede U.S. Immigration and Customs Enforcement (ICE) and other Federal offices and components of the Department of Homeland Security in enforcing Federal immigration law. The letter notes instances of efforts to hinder the federal administration’s efforts, and states that “where Federal and State legal requirements conflict, States and State entities must follow Federal law.” Further, the guidance states that the DOT expects its recipients to ensure that the federal financial assistance they receive is provided only to subrecipients, businesses, or service providers that are U.S. Citizens or U.S. Nationals and Lawful Permanent Residents or legal entities allowed to do business in the U.S. and which do not employ illegal aliens.
ENFORCEMENT
On both fronts, the guidance letter advises that DOT will vigorously enforce the law on equal terms to all of its recipients and intends to take appropriate measures to assess recipients’ compliance. It further warns of potential consequences for failure to comply with anti-discrimination or immigration laws and efforts: the DOT retains authority to initiate enforcement actions, such as comprehensive audits and possible recovery of funds expended in a manner contrary to the terms of funding agreements. DOT may also terminate funding in response to substantiated breaches of the terms of grant agreements, or if DOT determines that continued funding is no longer in the public interest.
CONCLUSION AND RECOMMENDATIONS
To avoid enforcement actions, government contractors performing work on projects that receive DOT funding (or any federal funding) should review and revise their contracts, policies, programs, and activities to ensure they comply with federal guidance. As discussed above, this guidance will directly affect DBE Programs and will likely affect Small Business Enterprises in the future. This space is quickly evolving, and other agencies are issuing similar guidance. Contractors who are grant subrecipients should also act quickly to seek guidance from their SHA-related owner contracting parties to obtain direction and guidance, place those owners on notice of any impacts (to cost or time), and closely track costs and schedule impacts.
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