AUSTIN — Texas has overhauled a state contracting program that helped thousands of minority- and woman-owned businesses compete for government work, replacing it with a narrower program for certain service-disabled veterans. The changes, adopted through emergency rules in December 2025, transformed the Historically Underutilized Business program into VetHUB. Eligibility is now limited to veteran-owned businesses whose owners are at least 20% service-disabled. The shift removed thousands of companies from a program that awarded more than $2 billion in state contracts during the first half of fiscal year 2025. At the time, more than 15,000 businesses were HUB certified, accounting for about 11% of all state expenditures during that period. By April, the comptroller’s office reported 1,513 VetHUB-certified businesses. The overhaul has triggered a lawsuit from minority-owned businesses and a political dispute over whether the comptroller’s office had authority to make such a major change without legislative action. For small companies, the HUB designation did not guarantee a contract. It gave them access to bidding opportunities and, in many large construction projects, a chance to compete as subcontractors. “Certification doesn’t guarantee that you’re going to get the job,” said Ruben Mercado Jr., owner of Ipsum General Contractors and one of the plaintiffs challenging the changes. “It just means that you are able to be at the table to submit your proposal.” Mercado said he had been HUB certified for a decade and that about 80% of his company’s revenue came from contracts secured through the program. He testified that he lost a subcontracting position on a project at MD Anderson shortly after the rules changed. The contract would have paid his company $2.2 million, according to records reviewed in the case, though there is no clear evidence that the loss was caused by the HUB overhaul. Mercado said he subsequently laid off 16 employees. Carol MacNeil, who owns Houston-area Genesis Cabling Solutions, said the certification helped her company win its first major University of Houston contract. That work helped establish a track record that led to additional projects, including telecommunications installation for Super Bowl 51 in Houston and a current job upgrading data networks at the University of Houston-Clear Lake. “It was really important to have those certifications to break open some doors to get in,” MacNeil said. Texas created the HUB program in the 1990s after studies found that minority- and woman-owned businesses faced barriers in state procurement. The program covered African American, Hispanic American, Asian Pacific American and Native American business owners, as well as women and service-disabled veterans, provided the businesses met size and ownership requirements. A 2007 disparity study produced participation goals for state agencies in several contracting categories, including heavy construction, building construction, professional services and commodities. Agencies were required to make a good-faith effort to include HUB businesses when soliciting bids. In construction, general contractors seeking state work were expected to identify HUB subcontracting opportunities and explain to an agency coordinator if they could not find eligible subcontractors. Supporters say the program addressed documented inequities in access to public dollars. Critics, including former interim Comptroller Kelly Hancock, argued that preferences based on race and gender were unconstitutional. Hancock said the overhaul was intended to eliminate discrimination and support veterans. “Our nation’s veterans have always stepped up for us,” Hancock said when the emergency rules were announced. “VetHUB is Texas’ way of stepping up for them.” State Sen. Royce West, D-Dallas, who was serving in the Legislature when the HUB program was created, said the comptroller’s office exceeded its authority by changing and renaming a program established by law. “This is not a DEI program,” West said. “It’s a good faith program to make sure that all businesses, female and male, get an opportunity to participate in the procurement process.” Rodney Ellis, now a Harris County commissioner and a former state senator involved in creating the program, also criticized the change. He said minority- and woman-owned businesses should not lose years of opportunity because of a decision by one state official. The dispute comes as Texas lacks current statewide data on contracting disparities. The most recent statewide disparity study was completed in 2016. Renee Watson, director of Bexar County’s Small Business and Entrepreneurship Department, said the state needs updated evidence to determine whether its procurement systems continue to disadvantage particular businesses. “They’re going to need some data-driven results, not just say it’s not working,” Watson said. Watson said a single statewide analysis could be difficult because business markets vary widely between places such as El Paso, Houston and Austin. She suggested that agencies examine their own contracting policies and procedures to identify and correct discriminatory practices. The state’s acting comptroller, Don Huffines, has said he supports continuing VetHUB and does not believe a new disparity study is necessary. Huffines said the state should not provide special favoritism to particular groups. State Sen. Sarah Eckhardt, D-Austin, who is challenging Huffines in November for the permanent comptroller position, has called for an updated study. She said a defensible HUB program would require regular analysis and noted that Texas has gone a decade without a statewide review. Lawmakers will face pressure to determine whether to restore some form of assistance for minority- and woman-owned companies, expand support for all small businesses or leave VetHUB in place. MacNeil said a small-business component, along with higher participation targets, could give more companies a meaningful opportunity to compete. “You better do the job, and you better do it well, but someone does need to help open the door,” MacNeil said.