In a significant move, Governor Henry McMaster has signed Executive Order 2025-40, effectively ending race-based quotas and set-asides in state government contracting within South Carolina. This decision aims to overhaul existing practices that mandated certain percentages of contracts be awarded to minority-owned businesses.

Previously, state law required agencies like the Department of Transportation to allocate a minimum of 5% of specific contracts to minority-owned firms. Other agencies operated under goals for 10% minority-business participation. The new order directs these agencies to halt such requirements for all future contracts, though it preserves any agreements already established.

Governor McMaster justifies this shift as an alignment of state contracting procedures with the U.S. Constitution. He asserts that contracts funded by taxpayers should be awarded on the basis of merit, not race. McMaster references recent guidance from the U.S. Supreme Court, which indicates that race-based programs need to undergo “strict scrutiny” and ultimately be phased out.

The executive order has sparked a range of reactions. Senate Minority Leader Brad Hutto, a Democrat from Orangeburg, expressed concerns that this change may introduce new obstacles for small and minority-owned businesses. These enterprises have historically depended on the set-aside system to remain competitive against larger firms.

Senate Minority Leader Brad Hutto (D-Orangeburg) warned the change could create new barriers for small and minority-owned businesses that have relied on the set-aside system to compete with larger firms.

“We were asked over and over again to pass legislation that will help big businesses locate in South Carolina,” he said. “I want to make sure that we maintain small businesses in South Carolina.”

In response, McMaster defended the order.

“Now that the Trump administration has made it clear that they’re not going to tolerate such programs, we would be losing federal funds if we did not follow the Constitution,” the governor said.

Legislative leaders, including Senate President Thomas Alexander and House Speaker Murrell Smith, plan to prefile bills when lawmakers return in January to formally repeal the race-based contracting statutes.

They face pressure to act quickly, with the governor warning he does not want agencies signing contracts amid what he calls a legal “purgatory.”

Until the legislature acts, state agencies have been instructed not to move forward with any contracts that rely on these race-based statutes.