DBE Program Regulations: Certification Procedures

DOT has released Official FAQs on DBE Program Regulations. These questions and answers provide guidance and information for compliance with the provisions under 49 CFR part 26. Like all guidance material, these questions and answers are not, in themselves, legally binding or mandatory, and do not constitute regulations.

Can recipients and UCPS charge application fees to firms seeking DBE certification? Section 26.83(f)

No, unless the relevant DOT operating administration approves the fee. An application fee may be charged only “subject to the approval of the concerned operating administration as part of your DBE program.” This means that a certifying entity is prohibited from charging such a fee unless the concerned operating administration has approved it.
This approval concerns not only the concept of charging a fee, but the specific dollar amount of a fee.
If a certifying entity is currently charging an application fee in the absence of the concerned operating administration’s approval, the certifying entity should immediately stop charging it.
To be approved, a fee must be “reasonable.” In keeping with the objective of encouraging firms to apply for DBE certification, rather than deterring them from doing so, any application fee should be modest.
Recipients are reminded that fee waivers should be made in appropriate cases.

What procedures should a Unified Certification Program (UCP) use to remove or replace the certification functions of one or more of its members? Section 26.81(a)(4)

If a UCP member wants to stop performing certification functions, or if a UCP wants to remove or replace the certification functions of a member, the UCP must, submit to USDOT an amendment to its UCP plan for prior approval.
The proposed amendment should do the following things: (1) describe how the certification functions of the UCP member will be delegated to other UCP partners; (2) provide details of how the UCP will ensure that DBE firms certified by the withdrawing UCP member will remain certified; (3) describe how one or more UCP members will divide the certification workload, for both currently certified firms and pending applications; (4) designate which UCP member or members will review annual affidavits of no change for firms certified by the withdrawing member3ew; and (5) provide assurances that the UCP will inform all firms that their certification, annual affidavits, and applications will now be processed by another UCP member.
The Department may disapprove the proposed UCP amendment if proper protections for certified DBE firms and applicants are not adequately described.
If the proposed amendment is not approved, disapproved, or remanded to the UCP for revisions within 180 days of its submission, it is deemed to be accepted.

How do recipients respond to applicants for certification who are certified by another UCP? (Section 26.83)

You have the discretion to handle this situation in any of the following ways.
You can certify the firm in reliance on the certification decision of the other UCP.
You can make your own certification decision based on documentation provided by the other UCP.
You can require the applicant to go through your own certification process, without regard to the actions of the other UCP.

Can UCPS treat certified DBE firms as new applicants if the UCP member that originally certified the firm no longer certifies firms on behalf of the UCP? (Sections 26.81 – 26.83)

Once a DBE firm is certified, it remains certified unless and until decertified by the UCP under section 26.87.
A firm does not lose its certification because the UCP member that originally certified it ceases to perform certification functions for the UCP.
In the event that a UCP member that formerly had certification duties no longer performs certifications for the UCP, all DBE certifications issued by that member remain in effect until and unless the decertification procedures set forth in 26.87 have been completed.
Certified firms are not considered new applicants just because a new certifying entity now has their file.

Is it appropriate for UCP’s to require out-of-state applicants to appear in person for an interview? (Section 26.83(c) (1))

UCPs may appropriately rely on reports of on-site reviews conducted by the home state of an out-of-state applicant to meet the on-site review requirements of Part 26.
UCPs should not routinely require all out-of-state applicants for certification to appear in person for an interview. Such a requirement may impose unnecessary financial hardships on the applicant and his or her small business.
The information necessary for the UCP to make a certification decision should normally appear in the on-site review report of the applicant’s home state. This information typically includes the results of the home state’s interview with the applicant.
However, there may be individual cases in which the UCP has reason to believe that the home state’s on-site review report does not sufficiently address important substantive questions necessary for the UCP’s consideration of the firm’s application.
In such cases, the UCP has discretion to require the applicant to appear in person for an interview. Before imposing such a requirement, the UCP should determine if other, less onerous, means can be used to obtain the needed information (e.g., sending documents, participating in a teleconference or videoconference).
When the UCP determines that the applicant must appear in person for an interview, the UCP should send a letter to the applicant explaining the reason for the requirement, including the information the UCP is seeking and the reasons why other means of obtaining it are impracticable.

Would it be acceptable for a unified certification program (UCP) to be formed by all recipients in a state or region agreeing to one form, process, and procedure that all recipients would use, and DBE firms would only need to apply to one of the recipients involved? (Section 26.81)

The DOT DBE rule does not prescribe the particular form a UCP must take.
If all recipients in a state or region agreed to use the same form, process, and procedure, and a firm certified by one recipient was accepted by all, that would satisfy the “one-stop shopping” requirement of part 26. There could also be other ways of meeting this requirement.
The Department will work with recipients in each state to facilitate their consideration of the best form of UCP for them.

Must recipients “recertify” firms every three years? (Section 26.83(h))

The rule does not say that recipients must recertify firms every three years. It says that recipients cannot require a firm to go through a recertification review process more frequently than once every three years.
Once recipients have determined that a firm is an eligible DBE, it remains certified unless and until its eligibility has been removed through 26.87 procedures.
Certifications do not “expire” after three years. Once certified, a firm remains an eligible DBE unless and until its eligibility has been removed under section 26.87.
DBEs’ “no change” affidavits and notices of change are intended to keep recipients current on the status of certified firms. If the facts on which the firm’s certification was based change, the recipient can take action under 26.87 to remove eligibility.
Of course, a recipient can investigate a firm if there is reason to believe that its current information is incorrect or outdated, or that there are problems with the firm’s status as an eligible DBE.

What points should UCP members emphasize in working together to make certifications decisions?

Recipients of DOT financial assistance are required to establish a unified certification program (UCP) to provide a one-stop shopping service to DBE program applicants and participants. Most recipients have formed or joined a UCP as required. All UCP participants operate under a “UCP agreement” and must comply with all provisions of the regulation concerning certification and non-discrimination.
Each UCP member is to follow the procedures listed in the UCP agreement, including the division of tasks assigned to particular members. According to §26.81(b) (1), all certification decisions by the UCP shall be binding on all DOT recipients within the state.
In the event of a disagreement— (e.g., one or more UCP members believe a firm should not be certified and others believe the firm is eligible) UCP members should work through their differences. UCP agreements should always include a dispute-resolution mechanism.
One possible way of resolving a disagreement is to use another certification officer from a neighboring UCP to serve as an arbitrator, and all parties agree to the decision made by the arbitrator.
Another solution may be to request that another certification officer from a nearby state’s UCP offer an opinion after conducting a site visit to the firm or after reviewing the administrative record used by the UCP in making its decision.
UCP members should be treated as co-equals in the decision-making process. That is, a larger recipient (e.g., a State DOT) should not be presumed to have a stronger voice in making decisions than a smaller recipient (e.g., a city transit authority or airport).
To achieve the goal of one-stop shopping, UCP members should coordinate their actions closely. For example, it is inconsistent with the purpose and structure of a UCP for one member to take action (e.g., certifying a firm) contrary to the action of another member or on its own, without following the UCP process.
UCPs should evaluate a firm once it is notified of changes in the ownership of a DBE or ACDBE firm and advise the firm of its decision within ninety (90) days of the notification.
UCPs are encouraged to update on-site reviews. Any on-site review over 3 years old should be updated to reflect current status.
UCPs should promptly respond to requests from other UCPs for information needed for the certification process (e.g., a request from another state for an on-site review report).
The decision of the UCP about a firm’s eligibility is binding on all UCP members and staff. It is not appropriate for one UCP member, or the staff of a UCP member, to file a certification appeal with DOT because of disagreement with the UCP’s decision. The Department’s Office of Civil Rights will not consider such a complaint.
UCPs should ensure that any state-level appeal process from certification decisions available to firms calls for appeals to be heard and decided by experienced, professional employees very familiar with DOT DBE program certification standards and procedures. The individuals making decisions on appeal should, to the maximum extent possible, be insulated from political pressure (e.g., by firewalls prohibiting contact with them by state or local elected or appointed officials concerning the merits or outcome of a case). In DOT’s experience, a flawed state appeal process can be worse than none at all.

Do all recipients have to participate in Unified Certification Programs (UCPs)? Section 26.81

Section 26.81(a) of the DBE regulation says to recipients that “you and all other recipients in your state must enter into in a Unified Certification Program (UCP)” (emphasis added).
The purpose of this provision is to ensure that DBEs and applicants (including airport concessionaires) will have “one stop shopping” on certification matters with respect to every recipient in the state. This is not possible unless all recipients with certification responsibilities are part of the UCP.
Recipients who are not required to have DBE programs do not have certification responsibilities. Therefore, they do not need to participate in a UCP.
All state DOTs must participate in the UCP. However, subrecipients of state DOTs do not have to be involved in the UCP formation process or sign the UCP agreement on their own. The state DOT is responsible for ensuring (e.g., through subgrant agreements) that its subrecipients comply with all provisions of the UCP (e.g., that they accept as DBEs firms that the UCP has certified).
Airports and transit properties that receive funds directly from FAA or FTA must also participate in the UCP. Since these recipients must participate in the UCP, it is vital that they have the opportunity to be involved in the discussions leading up to its formation (e.g., that they get notice of meetings and working drafts of documents). No direct recipient who wishes to be involved in the work of developing the UCP may be excluded.
All parties who must participate in a UCP (i.e., state DOTs and airports and transit properties that receive funds directly from FAA or FTA) must commit in writing to participate.
We recognize that UCP negotiations involving a large number of recipients may be complex and difficult. That is why the Department allowed three years from the effective date of the rule for recipients to agree on a UCP.
The Department supports efforts by recipients to make this process as simple as possible. Here are a few ideas that we have heard:
A steering committee of recipients in the state, representing all three modes, could take the lead on accomplishing the substantive work of drafting a UCP agreement. Other recipients would then receive and comment on drafts. The steering committee would respond to comments before obtaining written commitments from the other recipients.
An organization (e.g., a state transit association) could negotiate on behalf of small grantees with individual larger grantees from its own and other modes.
Where a single state agency or steering committee is taking the lead on developing the UCP, it could create a web site that permits recipients from around the state to view and participate in the ongoing work of drafting the UCP agreement.
Creating a UCP is a “One DOT” project at the state level. We urge staffs from all highway, transit, and airport agencies to work cooperatively to make this effort succeed. The Department stands ready to assist the parties to UCP negotiations in achieving their objective.

How do recipients respond to applicants for certification who are certified for SBA programs? (Section 26.67(c))

Recipients may sometimes receive applications from firms who have already been certified by the U.S. Small Business Administration (SBA) under the 8(a) or small and disadvantaged business (SBD) program.
The certification criteria for these programs, which concern only procurement by Federal agencies, are similar – though not identical – to the certification standards for the DOT DBE program.
Recipients have discretion concerning how they treat SBA-certified firms. This discretion is similar to the discretion recipients can exercise with respect to firms certified by another DOT recipient (see 26.83(e)).
Recipients can accept an SBA certification for a firm, just as they can accept a certification by another DOT recipient.
The recipient must ensure that an SBA-certified firm meets the DOT $17.4 million annual average gross receipts cap.
If the SBA firm has not been the subject of an on-site review, the DOT recipient must perform and evaluate the results of such a review before completing the certification. The recipient may also obtain additional information from the firm for administrative purposes.
On the other hand, the recipient can require the firm to follow the recipient’s normal application process, even though SBA (or another DOT recipient) has already certified it.

Can recipients and UCPS charge application fees to firms seeking DBE certification? (Section 26.83(f))

No, unless the relevant DOT operating administration approves the fee.
An application fee may be charged only “subject to the approval of the concerned operating administration as part of your DBE program.” This means that a certifying entity is prohibited from charging such a fee unless the concerned operating administration has approved it.
This approval concerns not only the concept of charging a fee, but the specific dollar amount of a fee
If a certifying entity is currently charging an application fee in the absence of the concerned operating administration’s approval, the certifying entity should immediately stop charging it
To be approved, a fee must be “reasonable.” In keeping with the objective of encouraging firms to apply for DBE certification, rather than deterring them from doing so, any application fee should be modest
Recipients are reminded that fee waivers should be made in appropriate cases.

What is a “notice of change” and when should recipients require DBE firms to submit one? (Section 26.83(i))

A “notice of change” is a written affidavit that DBE firms must provide to the recipient within 30 days of any change in their circumstances affecting their ability to meet part 26 eligibility standards regarding size, disadvantage, ownership and control.
A notice of change must include documentation describing the change in detail.
The notice of change requirement became effective March 4, 1999.
Recipients should ensure that all currently certified DBEs are aware of their obligation to submit notices of change.
For purposes of this notice requirement, a “change” in the firm’s circumstances includes a change in the regulation (e.g., from former part 23 to part 26) that affects the firm’s eligibility. For example, part 26 includes a $1,320,000 personal net worth cap that was not included in former part 23. A disadvantaged owner whose net worth exceeds this amount is obligated to file a notice of change.

What is a “no change” affidavit and when should recipients require DBE firms to submit one? (Section 26.83(j))

A “no change” affidavit is an affidavit each DBE firm must provide to the recipient annually on the anniversary date of the firm’s certification. The affidavit affirms that there have been no changes in the firm’s circumstances affecting its ability to meet part 26 size, disadvantage, ownership, and control standards (except for changes about which the firm has submitted a “notice of change” to the recipient).
With a “no change” affidavit, the rule requires a firm to submit supporting documentation concerning its size and gross receipts.
The “no change” affidavit requirement became effective March 4, 1999, for all DBE firms.
All firms certified under former part 23 will have a certification anniversary date no later than March 3, 2000. Therefore, recipients should ensure that all such firms have submitted their initial “no change” affidavits in that time, each by its own certification anniversary date, and each year thereafter.
For purposes of this notice requirement, “no change” in the firm’s circumstances means, among other things, that changes in the regulation (e.g., from former part 23 to part 26) have not affected the firm’s eligibility. For example, part 26 includes a $1,320,000 personal net worth cap that was not included in former part 23. By submitting a “no change” affidavit, the owner of a DBE firm is affirming that his or her personal net worth does not exceed $1,320,000. Recipients should ensure that currently certified DBEs are aware of this obligation.

Are DBE and ACDBE firms required to transmit notices of change and affidavits of no change to all recipients/UCPS with which they are certified? (Section 26.83(i)-(j))

A DBE or ACDBE, including one that is certified in more than one state, must always send an annual affidavit of no change or, as needed, a notice of change, to every recipient/UCP with which it is certified. For firms certified in more than one state, sending such documents only to the firm’s home state is not sufficient.
This requirement applies to ACDBEs under 49 CFR Part 23 as well as DBEs under 49 CFR Part 26.
The fact that ACDBEs and DBEs remain certified until or unless decertified does not affect the requirement to provide annual affidavits of no change and notices of change.
Failure to provide these documents subjects a firm to decertification proceedings for failure to cooperate (see 49 CFR 26.109(c)).
When providing an affidavit of no change, the firm must attach documentation showing that it continues to meet applicable small business size standards. Recipients/UCPs may request additional information (e.g., concerning personal net worth or the firm’s independence) where there is reason to believe that additional verification is necessary.

Is an on-site review of a firm necessary to certify a firm? To deny certification to the firm? Section (26.83(c)1))

As a recipient, you are not permitted to certify a firm as an eligible DBE unless there has been an on-site review of its eligibility that you take into account in making your decision. There are no exceptions to this requirement, which is crucial to preventing DBE fraud and ensuring the integrity of the DBE program.
However, there are some situations in which you may deny certification to a firm without an on-site review.
Generally, these situations are ones in which the information contained in the firm’s application, viewed in the light most favorable to the firm, precludes it from being certified. Here are examples of these situations:
o The personal net worth statement of the sole owner of a firm exceeds the $750,000 limit
The firm exceeds the $17.42 million cap on gross annual receipts, averaged over three years, or exceeds the applicable SBA business size standard
The applicant fails to cooperate with the recipient’s information requests (e.g., an owner refuses to supply necessary personal net worth information)
o It is clear from the application that disadvantaged individuals do not own or control the firm (e.g., that non-disadvantaged individuals own 60 percent of the stock, or that white males make all day-to-day business decisions of the company)
In other situations, there must be an on-site review before you deny a firm’s application for certification.

Would it be acceptable for a multi-state unified certification program (UCP) to be formed by states in a region, so that DBE firms would only need to apply to one of the UCP’s involved? (Section 26.81)

If all UCPs in a region agreed to use the same form, process, and procedure, and a firm certified by one recipient was accepted by all, that would satisfy the “one-stop shopping” requirement of part 26.
The Department encourages recipients and UCPs to work together to form regional UCPs or to have other reciprocity agreements. Doing so will further reduce burdens on small businesses.

What happens if a state fails to respond to DOT comments on its draft UCP? (Section 26.81)

The DBE rule requires all recipients in a state to participate in a UCP. DOT must approve the UCP before the recipients in the state are regarded as complying with this requirement.
If a state has submitted a draft UCP, on which the Department has commented, the state has an obligation to respond promptly with a revised UCP draft that accommodates the comments.
If the state has not responded in a timely manner, DOT will send a letter directing the state to furnish the response within 60 days. If the state does not respond as directed, then the recipients responsible for participating in the UCP will be regarded as being in noncompliance with the DBE regulation.

What actions does a recipient take after it requests a currently certified firm to undergo a recertification review?

When a recipient requires a currently certified firm to undergo a recertification review, the recipient should not treat the firm as though it were a new applicant.
While the firm must provide all requested information, the firm does not bear the burden of proving its eligibility, as it would upon initial application.
If the recipient determines, based on the information in the reapplication for certification, that there is reasonable cause to believe that the firm is no longer an eligible DBE, the recipient would begin a 26.87 proceeding to remove the firm’s eligibility.
If the firm does not provide the requested information in a timely manner, the recipient could begin a 26.87 proceeding to remove the firm’s eligibility on the ground of failure to cooperate (see 26.109(c)).

Are there any circumstances in which a recipient may remove the eligibility of certified DBE firms without going through the procedures of §26.87? (Section 26.87)

There is only one situation in which a recipient may remove the eligibility of a certified DBE firm without a §26.87 decertification proceeding. That is when the DBE firm does not dispute that the personal net worth of an owner necessary to its certification exceeds $750,000.
In ALL other cases, without exception, a recipient is not permitted to remove the eligibility of a certified firm without a §26.87 decertification proceeding.
In particular, a recipient is not permitted to automatically remove the eligibility of a firm without a §26.87 decertification proceeding because the firm has not responded to the recipient’s request for recertification information or has failed to submit an affidavit of no change in a timely manner.
In such cases, the recipient would begin a §26.87 decertification proceeding on the ground that the firm has failed to cooperate (see §26.109(c)). This could be an administrative “default judgment” process in which, if the firm also did not respond to the notice initiating the §26.87 action, the recipient could issue a notice decertifying the firm without further proceedings.
If a recipient has mistakenly removed the eligibility of a firm without a §26.87 decertification proceeding, the recipient must immediately restore the firm to the list of certified DBEs and then, if appropriate, pursue a §26.87 proceeding. A recipient who fails to do so is in noncompliance with Part 26.
While there are numerous reasons for which a firm’s certification can be lost or its DBE eligibility terminated, it is important to note that there is no such thing in the DBE program as the “expiration” of a certification (i.e., a “term limit” of a certain number of years on the firm’s eligibility). Once certified, a firm remains certified until and unless it is decertified.

When a state makes a significant change to its UCP plan, is it required to resubmit the plan to DOT for approval? (Section 26.81)

It is similar to the requirement for a significant change to a DBE program.
Under § 26.21(b) (2), the recipient is not required to submit updates to its program, but any significant change must be submitted and approved by DOT.
Similarly, recipients must submit significant changes to their UCP plans to DOT for approval. The following are examples of a significant change to a UCP plan:
In a state’s original plan, one agency was responsible for performing certifications. In a time of state budget constraint, the legislature eliminates funding for the agency. This would force the state to develop a new system for certification.
Different agencies within a state have different functions regarding certification. For some reason, they believe it necessary to restructure and realign those agencies and their functions with regards to certification.
An important player in a UCP plan (e.g., an airport authority) wants to cease participating in the UCP.

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