While the required use of disadvantaged business enterprises (DBEs) in federal and state contracting appears to be on thin ice in the current political environment, contractors should still be cautious about compliance with applicable legal requirements. As the U.S. Supreme Court’s recent decision in Kousisis v. U.S., 145 S.Ct. 1382 (2025) shows, the government retains powerful tools to prosecute procurement fraud cases related to the use of DBEs, even if the government accepts the work and the defendant did not seek to cause the victim economic loss.

Background

State and federal DBE programs are designed to ensure that certain small businesses are utilized in government contracting.[1] To qualify as a DBE, a firm must be majority-owned and controlled by socially and economically disadvantaged individuals.[2] Prime contractors are often required to utilize DBEs as subcontractors on government contracts, and, if selected for contract award, the prime must ensure that the DBE performs an active role in completing the contract.

Case Facts

Kousisis involved a Pennsylvania Department of Transportation (PennDOT) contract for the restoration of the Girard Point Bridge and the 30th Street Station in Philadelphia, which was federally funded and required bidders to propose DBE participation as part of the project.[3] Stamatios Kousisis, on behalf of the industrial-painting company he helped manage, submitted a bid for the project, stating that materials would be acquired from a DBE.[4] In reality, the DBE that Kousisis used was nothing more than a “pass-through” entity.  In Kousisis, that DBE was owned and operated by Kousisis himself, who merely marked up the supplies without performing a commercially useful function.[5]

The Supreme Court’s Holding

The Supreme Court upheld the finding that Kousisis committed wire fraud through fraudulent inducement – even though PennDOT received the economic benefit of the bargain.  As the Supreme Court held, a “defendant commits federal fraud whenever he uses a material misstatement to trick a victim into a contract that requires handing over her money or property – regardless of whether the fraudster, who often provides something in return, seeks to cause the victim net pecuniary loss.”[6] This means that an economic loss is not required to be guilty of wire fraud – the government can pursue procurement fraud cases, regardless of whether the work was satisfactorily completed.[7]

What it Means for Contractors

Kousisis comes against the backdrop of potential changes to state and federal DBE programs.  After the issuance of Executive Order 14151, which directed federal agencies to terminate all “‘equity action plans,’ ‘equity’ actions, initiatives, or programs [and] ‘equity-related’ grants of contracts,” there have been repeated calls to minimize the use of all contract “set aside” programs that prioritize firms owned by certain socially disadvantaged individuals.

E.O. 14151 directly affects the DBE program, as the purpose of the program is to enable entities owned by a socially or economically disadvantaged person to be awarded government contracts.  It seems likely that the federal government will deemphasize DBE programs and/or revise program qualification requirements.  On-going federal litigation – including Mid-America Milling Company et. al. v. U.S. Dep’t of Transportation[8] – could lead to a larger overhaul of the U.S. DOT’s DBE contracting program.

Notwithstanding these potential changes to the DBE program, however, state and federal contractors must still closely comply with current DBE requirements.  As Kousisis demonstrates, contractors can still face penalties – including criminal liability – for failing to follow the letter of the law, even if the government does not suffer any economic harm as a result.

Kenya Kaldunski is an attorney with the Dempsey Law Firm LLP, Oshkosh. The author wishes to thank Attorney Samuel Jack for his review of this blog post. 

Endnotes

[1] See, e.g., Wisconsin Department of Transportation, Disadvantaged Business Program.

[2] See e.g., 49 U.S.C. § 26.5

[3] Kousisis v. U.S., 145 S.Ct. 1382, 1388 (2025).

[4] Id. at 1389.

[5] Id.

[6] Id.

[7] Id. at 1392.

[8] In this case, Plaintiffs did not receive the rebuttable presumption (provided to women or certain racial group owned businesses) of being a DBE; rather they had to prove by a preponderance of the evidence that they qualified for the DBE program. Plaintiffs filed suit on the basis that the DBE program violated the equal protection component of the Due Process Clause of the Fifth Amendment. In May 2025, the parties submitted a joint consent order that, if approved, would require state-certifying agencies to recertify all existing DBE contractors without application of any “race- or sex-based presumption.”  See proposed consent order available at: https://clearinghouse.net/doc/160567/.