In early October 2014, the United States Department of Transportation (USDOT) issued amendments to the regulations governing its Disadvantaged Business Enterprise (DBE) program, 49 CFR Part 26, which become effective November 3, 2104. These amendments touch on a wide number of aspects of the DBE program. Some of the amendments of most immediate importance to companies seeking DBE status or looking to win or perform on contracts that have DBE participation goals include the following issues: Certification Standards; Certification Procedures; and Good Faith Efforts. But any company that is currently certified as a DBE or seeking DBE certification needs to thoroughly consider the changes to 49 CFR Part 26 and plan accordingly.
The DBE Certification Standards now have different size, personal net worth, economic disadvantage, ownership and control criteria. Now small businesses may participate in the program if their average annual gross receipts over the prior 3 years do not exceed $23.98 Million. That figure represents a $1.57 Million increase over the former statutory gross receipt cap. And individuals with a personal net worth not in excess of $1.32 Million may function as the owners of the company seeking DBE certification. But an individual owner who meets the criteria of "socially disadvantaged" may be disqualified when there is evidence showing that the owner has assets and resources indicating an ability to accumulate "substantial wealth," based on specific factors similar to the SBA's 8(a) Business Development Program. Similar to the measures undertaken by the U.S. Department of Veterans Affairs, DOT will focus its analysis of the ownership of a DBE applicant company on any agreements or practices that give non-disadvantaged individuals or firms a priority or superior right to the DBE's profits. And the ownership interests of the individual disadvantaged owners must be real, substantial, and continuing to satisfy DOT's amended certification requirements. certified DBE's ownership should reside in real, substantial, and continuing ways with those disadvantaged individual owners identified in its application. Control of a DBE applicant will be presumed to reside in a non-disadvantaged individual who is a former owner of the company that remains involved in the operation of the firm, unless substantive and temporal limitations are placed on the former owner's ability to control the day to day operations or the strategic direction of the company.
The DBE Certification Procedures have also been modified by the recent rules changes. State Departments of Transportation (State DOT) are no longer allowed to consider an applicant's pre-qualifications as a part of the DBE certification process. That means, that a DBE-status applicant need not check every box to do business with the State or in the State before seeking certification as a DBE from the State DOT. By disconnecting pre-qualifications from certification, USDOT has shortened the bureaucratic road to DBE certification. In some instances, that may facilitate companies doing work as a DBE in multiple states. The new rule now allows an applicant who is appealing the denial of its application for DBE status to the US DOT to reapply at the end of the waiting period even if its appeal has not been decided by the end of the waiting period. And the new rules provide for imposition of Summary Suspensions of DBE-certified companies without a hearing if the disadvantaged owners have died or been incarcerated. The Summary Suspension can be imposed without a hearing, but can only last for 30 days. At the end of that 30 Summary Suspension the company must have its DBE-status reinstated or proceedings must commence to remove the company from the ranks of the certified DBEs.
The new rule increases the burden on bidders/offerors to demonstrate that they have met their duty of using Good Faith Efforts to attain the DBE participation goal for the project. No bidders/offerors must submit DBE information for a USDOT-assisted contract containing a DBE participation goal to provide information supporting their Good Faith Efforts either at the time that they submit their bid/offer or not later than 7 days after bid opening. Starting on January 1, 2017, that 7 day window will shorten to 5 days. Bidders/Offerors must submit information including the NAICS code applicable to the specific kind of work the DBE will perform on the contract. They also must submit quotes from each DBE and non-DBE subcontractor when they choose a non-DBE subcontractor over a DBE subcontactor.
These are just a few of the highlights of the changes to 49 CFR Part 26. If your company is considering seeking DBE certification, or if it is time for your company to submit its Annual Affidavit of No Change, we highly recommend that build time into your schedule to understand how the USDOT's new rule may impact your DBE certification status or application. A DBE certification is to valuable to put into jeopardy by not paying attention when the rules change -- consult with experienced professionals and get it right the first time.