Federal Lawsuit Challenges SBA's Race-Based Presumption in Contracting Programs

A federal lawsuit filed in the U.S. District Court for the Eastern District of Louisiana is challenging the Small Business Administration's long-standing practice of using a rebuttable presumption of “social disadvantage” for members of certain racial and ethnic groups to determine eligibility for federal programs. The suit, filed on November 17, 2025, by Revier Technologies, Inc. and the Young America’s Foundation, argues that the regulation violates the U.S. Constitution’s Equal Protection Clause by employing racial classifications that cannot withstand strict judicial scrutiny.

The wave of litigation against race-based contracting preferences is creating significant uncertainty for small and mid-sized businesses. For decades, the rules of engagement for government procurement have been complex; now, they are in flux. This legal turbulence directly impacts how companies plan their growth and compete for lucrative public sector work.

The lawsuit targets a specific SBA regulation, 13 C.F.R. § 124.103(b)(1), which is foundational to numerous federal supplier diversity initiatives. Under this rule, individuals who are members of designated groups—including Black Americans, Hispanic Americans, and Asian Pacific Americans—are presumed to be socially disadvantaged. This status is a key criterion for accessing certain federal contracts, loans, and business development programs. The complaint alleges this presumption effectively excludes many small business owners from competing on an equal footing based on their race.

Government procurement at federal, state, and local levels represents a multi-trillion-dollar sector of the U.S. economy. For decades, programs designed to assist minority- and women-owned business enterprises (MWBEs) have been a feature of public contracting. These initiatives were often created to remedy past and present discrimination. However, they have faced increasing legal challenges arguing that they create new forms of discrimination by granting preferential treatment.

In our experience, navigating this shifting regulatory landscape is a major operational challenge. Companies that have built their procurement strategies around existing diversity programs must now re-evaluate their entire approach. This isn't just a legal issue; it's a matter of fundamental business strategy. Proactive firms are engaging in business process reengineering to ensure their bidding and compliance systems are agile enough to adapt to new court rulings and potential legislative changes. For guidance on restructuring your procurement strategy, contact C&S Finance Group LLC at csfinancegroup.com.

The Revier Technologies case is part of a broader, coordinated legal effort to dismantle race-conscious policies in both the public and private sectors. The American Alliance for Equal Rights (AAER), a nonprofit legal organization, recently filed a separate lawsuit in Kansas against the National Minority Supplier Development Council (NMSDC). That suit challenges the NMSDC’s “Minority Business Enterprise” (MBE) certification program, arguing it violates the Civil Rights Act of 1866 by denying businesses the opportunity to contract on equal terms based on their owners' race. According to AAER, the program illegally limits its certification—and the access to corporate contracts it provides—to businesses majority-owned by individuals from specific racial groups.

“America’s civil rights laws promise equality, not a hierarchy of favored and disfavored races,” said Edward Blum, president of AAER. “When a private organization sells access to business opportunities but turns away applicants because of their race, it violates the plain text and purpose of federal law.”

These legal battles are also playing out at the state level, where interpretations of anti-preference laws vary. In Washington state, for instance, a 1998 voter initiative, I-200, prohibits the state from granting “preferential treatment” based on race or sex in public contracting. However, the Washington Supreme Court has interpreted this more narrowly than courts in California, holding that it only prohibits “reverse discrimination” where a less qualified applicant is chosen over a more qualified one. This has allowed some race-conscious outreach efforts to continue, a distinction that highlights the complex and inconsistent legal environment businesses face nationwide.

Legal precedent for these challenges dates back to the Supreme Court's 1989 decision in City of Richmond v. J.A. Croson Co., which ruled that such race-based procurement programs must satisfy the high legal standard of strict scrutiny. More recently, public interest law firms have secured victories in similar cases. The Pacific Legal Foundation (PLF) successfully challenged two race-based contracting programs in Alameda County, California, leading to their repeal. Another case, Ultima Services Corp. v. U.S. Department of Agriculture, successfully challenged the constitutionality of the SBA’s Section 8(a) program, which sets aside federal contracts for businesses owned by members of certain racial groups.

Parallel to the judicial push, a legislative effort is underway in Congress. The Ending Discrimination in Government Contracting Act, introduced in May 2026 by Senator Mike Lee and Representative Glenn Grothman, aims to prohibit the federal government from considering race, color, or national origin when awarding contracts.

Ultimately, our view is that clear, consistent, and merit-based criteria benefit the entire market. While the transition may be disruptive, the end goal should be a procurement environment where the best bid wins, regardless of the business owner's background. We advise clients to focus on strengthening their core proposals and operational efficiency to thrive in any regulatory environment.

As these cases proceed through the courts, business owners and government contractors will be watching closely. The outcome of the Revier Technologies lawsuit and others like it could fundamentally reshape the rules for competing for government contracts across the country. The progress of the proposed federal legislation will also be a key indicator of the future direction of supplier diversity programs in the United States.