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.
What, and how much, assistance is it appropriate for a prime contractor to provide a DBE? Section 26.81(b); Appendix F; 26.35
- A DBE must be independent to be eligible for certification. In thinking about the assistance that prime contractors may properly provide to DBEs, recipients should determine whether there is a pattern of close, pervasive ties between a DBE and the prime contractor. If it appears that, absent its ties to a prime contractor, a DBE firm is not viable; it should not be regarded as independent. A firm must be independent to be eligible for DBE certification.
- In Appendix A, the Department mentions that it is appropriate for prime contractors to provide assistance to DBEs in a variety of areas, such as bonding, credit, insurance, equipment, materials and supplies.
- In providing such assistance, a prime contractor should be careful not to provide so much assistance to a particular DBE in so many areas that a reasonable recipient or UCP would conclude that the DBE is not viable without the relationship to the prime contractor. It makes sense for a prime contractor to pick and choose ways of assisting a DBE that do not become so pervasive as to create independence issues. This assistance should be transparent and arms-length.
- As part of their contract performance oversight functions, recipients should continue to scrutinize the independence of DBEs as they work on projects. Recipients may require prime and subcontractors to report any contract performance issues that could call a DBE’s independence into question.
- One situation that has been brought to the Department’s attention concerns the use of cranes. Often, according to stakeholders, a crane provided by a prime contractor may be used jointly on a project by the prime contractor and subcontractors, including DBEs, as it is not practical or economically feasible for each contractor to have its own crane.
- In this situation, the Department believes that, as long as such arrangements are consistent with normal industry practice in a given jurisdiction, the joint use of a prime contractor’s crane by a DBE should not cause the DBE to be regarded as failing to meet independence requirements for certification.
- We note, however, that as provided in 26.55(a) (1), the cost of equipment purchased or leased by a DBE from a prime contractor does not count for DBE credit. Consequently, if a charge for the use of a prime contractor’s crane (as distinct from the DBE’s labor in operating the crane) is part of the cost OF THE DBE’s contract, it would be subtracted from the DBE credit allowed for the contract.
- There may be occasional short-term or emergency circumstances in which a DBE uses a prime contractor’s equipment, supplies, etc. to a limited degree (e.g., the DBE’s backhoe breaks down, and the DBE uses the prime contractor’s backhoe for the rest of the day). Such short-term, limited use, as distinct from a pattern or practice of such use, would not usually result in a DBE being regarded as having lost the independence needed for certification and would not result in a subtraction from the DBE credit allowed for the DBE’s work on the contract.
- It is possible that a group of prime contractors, or a state or local prime contractors association, could join efforts to provide various kinds of assistance to a considerable number of DBEs in the jurisdiction in a way that would not create a dependent relationship between any given DBE and a particular prime contractor.
- Prime contractors with questions about the appropriateness of their assistance relationships with DBEs should consult in advance with recipients or the state’s UCP, who should be prepared to provide advice about whether the relationship or some aspects of it may be problematic. If a recipient provides an opinion about the appropriateness of a relationship, the recipient should make clear that, even if the relationship appears appropriate on its face, dealings between the prime contractor and the DBE during the implementation of the contract could still run contrary to the independence requirements of the DBE rule.
- Mentor-protégé programs meeting the requirements of 26.35, which contain safeguards for the independence of DBE protégés, are another method through which prime contractors can assist DBEs without creating independence issues. Note that only a firm that the recipient has already certified as a DBE (necessarily including a determination that the firm is independent) can participate as a protégé.
When should recipients require owners of a DBE firm to submit a statement of disadvantage (Section 26.67(a) (1))
- A “statement of disadvantage” is a signed, notarized certification by each presumptively disadvantaged owner of a firm that he or she meets part 26 standards for social and economic disadvantage.
- This certification of disadvantage is a separate requirement from the requirement of 26.67(a) (2) for a statement of personal net worth.
- When a recipient certifies the eligibility of a DBE firm, 27.67(a) (1) requires recipients to obtain a certification of disadvantage from each disadvantaged owner of the firm.
- By signing such a statement, the owner certifies that his or her net worth does not exceed $750,000.
- Unlike the separate personal net worth statement, part 26 does not require owners to submit any supporting documentation with the statement of disadvantage. Therefore, it would be contrary to the rule for a recipient to require DBE owners to submit a narrative supporting their certification as it applies to social disadvantage.
How does the “home state first” provision of the DBE rule work when a firm seeks or has obtained certification in more than one state? (Section 26.81(d), 26.83(i))
- Under §26.81(d), a UCP “is not required to process an application for certification from a firm having its principal place of business outside the state if the firm is not certified by the UCP in the state in which it maintains its principal place of business.”
- This provision is intended to prevent undue administrative burdens on certifying agencies. Given resource limitations, it could be very difficult for certifying agency personnel to travel to other parts of the country to conduct on-site reviews of applicant firms based in other states.
- Suppose that Firm X has its principal place of business in State A. It has never been certified there. It applies for certification in State B. State B’s UCP is permitted to decline to consider its initial application.
- If Firm X has been certified in Home State A and then applies for initial certification in State B, State B’s UCP must process its application. State A would transmit a copy of its on-site review report to State B for State B’s consideration.
- If Firm X was originally certified in Home State A, was decertified there, and subsequently submitted an initial application for certification to State C, State C’s UCP would be permitted to decline to consider its application, since the firm was not certified in its home state at the time it applied to State C.
- If Firm X was originally certified in Home State A, then became certified in State B, and was subsequently decertified in State A, the firm remains certified in State B until and unless State B decertifies the firm through a §26.87 proceeding conducted by State B. Firm X does not lose its certification in State B automatically because it was decertified in Home State A.
- Certified DBEs have an obligation, under §26,83(i), to inform recipients in writing of any material change in their circumstances. This includes a loss of eligibility in any state in which the firm has been certified. Consequently, if Firm X is certified in its Home State A and in State B, and then is decertified in State A, it must notify State B of the decertification.
- In such a situation, State B should seriously consider whether to commence a §26.87 decertification action against the firm. Once State B learns of State A’s action, State B should contact State A for information about the decertification. State B’s UCP should use this and other available information in deciding whether to initiate a §26.87 decertification action.
If a firm is certified as a DBE or ACDBE in one type of business, under what circumstances can it be certified for another type of business? Section 26.71(e), (f), (n); 49 CFR 23.31, 23.37 (h)
- When a firm is certified for one type of business, it cannot work as a DBE or ACDBE in another type of business – whether individually or as part of a joint venture – unless it becomes certified for the additional type of concession.
- Section 26.71(n) provides as follows: (n) You must grant certification to a firm only for specific types of work in which the socially and economically disadvantaged owners have the ability to control the firm. To become certified in an additional type of work, the firm need demonstrate to you only that it’s socially and economically disadvantaged owners are able to control the firm with respect to that type of work. You may not, in this situation, require that the firm be recertified or submit a new application for certification, but you must verify the disadvantaged owner’s control of the firm in the additional type of work.
- These requirements apply to ACDBEs under Part 23 (see 23.31) as well as to DBEs under Part 26.
- The disadvantaged owners of a DBE or ACDBE can delegate some management and other functions to other persons. However, this does not eliminate the need of the disadvantaged owners to possess the requisite experience and expertise to control the overall business decisions and daily operations of the business seeking certification. See
71(e) and (f).
- For example, suppose an ACDBE is certified as the operator of a news/gift store. The firm wants to become part of a joint venture that will operate a restaurant. The ACDBE would first have tobe certified as a restaurant operator, in accordance with 26.71(n) (which applies to certifications of ACDBEs under Part 23 as well as to those of DBEs under Part 26) before any ACDBE credit could be counted for its work with the restaurant joint venture.
- To certify the ACDBE as a restaurant operator in this example, the certifying agency would have to conclude that the firm carried its burden of proof that its disadvantaged owners can control the firm’s operations in the restaurant business.
- In making its decision, the certifying agency should consider the general management experience of the disadvantaged owners in other types of business as a factor in determining whether the firm meets its burden of proof under 26.71(n). There is no presumption that management experience in another business necessarily provides everything that the owner must demonstrate in order to meet this burden, however.
- In considering what constitutes a “specific type of work” for purposes of 26.71(n), certifying agencies should look beyond the NAICS code applicable to the business. Some NAICS codes may be too broad for certification purposes.
- For example, the NAICS code for engineering services can encompass all types of engineering firms. An electrical engineer may not necessarily have the knowledge and experience to control the day-to- day operations of a firm engaged in civil engineering.
- There may be situations in which moving into an additional type of work does not require significantly different expertise. A firm may be able to move from one type of
construction to another (e.g., sewer construction to demolition) simply by obtaining additional equipment. On the other hand, there can also be types of construction that it is more difficult to move into (e.g., sewer construction to asphalt paving) without significant additional expertise. Certifying agencies should try to distinguish between these types of situations and make certification judgments accordingly. In the certification actions, how should certifying agencies describe the types of work a firm is certified to perform as a DBE? Section 26.71(n)
- Recipients and UCPs must certify firms as DBEs only with respect to specific types of work in which the certifying agency has determined that the socially and disadvantaged owners control the operations of the firm. Appendix F to Part 26 is a sample Uniform Certification Application Form. A DBE firm is asked to provide “the primary business and professional activities the firm is engaged in.”49 CFR Part 26, Appendix F, Section 2(B) (1). In certifying a firm, a recipient or UCP “must grant certification only for the specific types of work in which the socially and economically disadvantaged owners have the ability to control the firm” (sec. 26.71(n)). Consequently, there is no such thing as a “generic” certification of a firm as a DBE.
- The types of work a firm can perform (whether on initial certification or when a new type of work is added) should be described in terms of five-digit NAICS codes. Firms and recipients should check carefully to make sure that the NAICS codes cited in a certification are kept up-to-date and accurately reflect work which the UCP has determined the firm’s owners can control.
- A correct NAICS code is one that describes, as specifically as possible, the principal goods or services which the firm would provide to DOT recipients. Multiple NAICS codes should be assigned, where appropriate. The Bureau of Census web site (census.gov/naics) provides additional information about the details of NAICS codes. The firm has the primary responsibility to provide the detailed company information the certifying agency needs to make an appropriate NAICS code designation.
- Program participants should rely on, and not depart from, the plain meaning of the NAICS code descriptions in determining the scope of a firm’s certification. However, in situations in which a program participant believes that the NAICS codes on record for the firm do not adequately describe the scope of the work the firm’s owner can control, program participants should use the guidance in the next two paragraphs of this Q&A.
- If a firm believes that there is not a NAICS code that fully or clearly describes the type(s) of work in which it is seeking to be certified as a DBE, the firm may request that the certifying agency, in its certification documentation, supplement the assigned NAICS code(s) with a clear, specific, and detailed narrative description of the type of work in which the firm is certified. A vague, general, or confusing description is not sufficient for this purpose, and recipients should not rely on such a description in determining whether a firm’s participation can be counted toward DBE goals.
- A certifier is not precluded from changing a certification classification or description if there is a factual basis in the record. However, certifiers should not make after-the-fact statements about the scope of a certification, not supported by evidence in the record of the certification action.
- EXAMPLE: The Sagebrush State UCP certifies the W.E. Coyote Company (WEC) to do traffic control work in August. In November, WEC is proposed as a DBE subcontractor on a Sagebrush State Highway Administration (SSHA) highway project to do bird impact mitigation. Wildlife impact mitigation is not included within the NAICS code for traffic control.
- During its review of the bid/offer, SSHA asks the UCP to review its record of the WEC certification. The UCP determines that it had evidence at the time of the WEC’s certification that the disadvantaged owner of WEC could control the operations of the firm with respect to wildlife impact mitigation. The UCP sends a letter to SSHA indicating that, based on the cited evidence, the scope of its certification should be amended to include this type of work. The UCP modifies WEC’s entry in the UCP’s directory accordingly. SSHA can consider UCP’s letter in determining whether WEC can count toward the DBE goal on the project for its bird impact mitigation work.
- (2) During its review of the bid/offer, SSHA asks the UCP to review its record of the WEC certification. There is no evidence in the UCP’s record, contemporaneous with the UCP’s certification of the firm, that the disadvantaged owner of WEC could control the operations of the firm with respect to wildlife impact mitigation. Under these circumstances, if the UCP sends a letter to SSHA stating its opinion that WEC is certified for wildlife impact mitigation, SSHA should not consider the UCP’s letter in determining whether WEC can count toward the DBE goal on the project.
How do recipients determine the eligibility of firms owned by an Indian Tribe or an Alaska Native Corporation? (Section 26.73 (h) (i))
- Any Indian Tribe may own a DBE firm as an entity. It is not necessary, in these cases, that disadvantaged individuals (i.e., natural persons) own the firm.
- However, the firm must be controlled by socially and economically disadvantaged individuals (see §26.71). For example, suppose the CEO of a firm owned by an Indian Tribe is a non- disadvantaged white male, or that such persons effectively control the day-to-day business operations of the firm. The firm would not be an eligible DBE, because it is not controlled by socially and economically disadvantaged individuals.
- The disadvantaged individuals who control the firm need not necessarily be members of the Tribe that owns the business. For example, the CEO of a tribally-owned business could be Hispanic.
- One implication of the control requirement is that disadvantaged individuals involved in controlling the firm must meet personal net worth (PNW) standards (see §26.67(a)(2); (b)). Not every member of the Indian Tribe has to meet these standards or complete a PNW statement. Only the disadvantaged officers, board members, CEO, etc. who actually control the firm must do so. These individuals would also be responsible for submitting the certification of disadvantage required by §26.67(a) (1).
- Recipients would look to these same disadvantaged individuals who must submit PNW statements to determine whether the persons claiming to control the firm meet other requirements of §26.71 (e.g., with respect to expertise).
- The firm must also meet the regulation’s size standards (see §26.65). These standards provide that the firm – including its affiliates — must meet SBA size standards and the statutory DBE size cap.
- Affiliation is an important concept in the DBE program. It does apply to firms owned by Indian Tribes. If it did not, then these firms could enjoy a significant competitive advantage over other DBE firms, because they could have access to the sometimes plentiful resources of their affiliates. At the same time, the Department recognizes that Indian Tribes often own a variety of businesses that could be considered affiliates because of common ownership by the entity. Literal application of the affiliation rule might therefore result in precluding firms owned by Indian Tribes from participating in the DBE program.
- Consequently, the Department interprets its rule to treat firms owned by Indian Tribes as entities as not being affiliated with other businesses owned by the entities if there is a firewall (i.e., a legally binding mechanism) in place to prevent the firms from accessing the resources of the entities’ other businesses. For example, suppose an Indian Tribe owns a small construction company that is seeking DBE certification. The Tribe also owns several non-transportation related businesses. To avoid being considered an affiliate of the other businesses, the construction company would have to be subject to a legally binding provision precluding it from receiving any funds or other resources, directly or indirectly, from the other businesses.
- Alaska Native Corporations (ANCs) are treated differently from Indian tribes, as the result of a legislative mandate.
- An ANC-owned firm, if it has been certified by SBA under the 8(a) or Small Disadvantaged Business program, is an eligible DBE.
- Such a firm is not required to meet size, ownership, or control requirements applicable to other DBEs.
Are service-connected disabled veteran businesses eligible to participate in the DBE program? Section 26.5
- Executive order 13360 requires Federal agencies to set goals for and otherwise give special consideration to service-connected disabled veteran businesses in direct Federal contracting. This Executive Order concerns only direct Federal procurement by Federal agencies themselves.
- The Department’s DBE program concerns only contracts let by state and local agencies in which DOT financial assistance participates. The Executive Order does not have the effect of creating a presumption that service-connected disabled veterans are socially and economically disadvantaged for purposes of the DBE program or establishing a goal for the use of firms owned by such veterans in state and local contracts receiving DOT financial assistance.
- The Department of Transportation encourages service-connected disabled veterans, as well as other individuals with disabilities, to apply for participation in the DBE program.
- A service connected disabled veteran who is a member of one of the groups presumed in the DBE program to be socially and economically disadvantaged can apply for DBE certification.
- Individuals with disabilities, including service-connected disabled veterans, can also apply for DBE certification on an individual basis, even if they are not members of groups presumed to be socially and economically disadvantaged for purposes of DBE program.
- Appendix E to Part 26 explains how an individual who is not a member of one of the groups presumed to be disadvantaged can show that he is disadvantaged on an individual basis. The discussion in this Appendix specifically provides that individuals with disabilities are among those who can use this approach to enter the DBE program.
Can a not-for-profit firm be certified as a DBE?
- Only a for-profit firm may be certified as a DBE.
- However, a firm owned by an Indian tribe or Alaska Native Corporation as an entity may be certified as a DBE.