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.
When a recipient determines that an owner of a certified DBE firm exceeds the $750,000 personal net worth cap, what happens? Must the firm be decertified? If so, must the recipient use the procedures of 26.87 to decertify the firm? (Section 26.67(a)(2) and (b)(1); 26.87)
- The PNW cap concerns the issue of whether a particular individual owner of a DBE firm is a socially and economically disadvantaged individual.
- Under 26.67(b) (1), when an individual’s PNW shows that his or her PNW exceeds $1.32 million, it is not necessary to have a proceeding under 26.87 to conclusively rebut his or her presumption of economic disadvantage. No other hearing or proceeding is called for (see 64 FR 5118, February 2, 1999).
- Therefore, when the owner does not dispute that his or her owner’s net worth, as shown in the PNW statement, exceeds $1.32 million, the recipient need not hold further proceedings under 26.87 before determining that the owner is not a disadvantaged individual.
- However, if there is dispute about the facts of a case (e.g., the individual owner challenges the recipient’s determination that his or her PNW exceeds $1.32 million), then a 26.87 proceeding is necessary to remove the disadvantaged status of the individual.
- In any case in which the recipient determines that a DBE firm’s owner is not a disadvantaged individual because his or her net worth exceeds $1.32 million, the recipient must then determine whether the individual’s loss of disadvantaged status causes the firm’s ownership by disadvantaged individuals to fall below 51 percent.
- For example, suppose that a DBE firm is owned by presumptively disadvantaged individuals X, Y, and Z, who respectively own 40 percent, 15 percent, and 20 percent of the company.
- If either Y or Z exceeds the PNW cap, but the other two owners do not, the firm can still be certified, assuming that control and other requirements continue to be met, because the ownership interest of the other two disadvantaged owners combined is more than 51 percent.
- On the other hand, if either X or both Y and Z exceed the $1.32 million cap, then the firm cannot remain certified, because ownership by disadvantaged individuals will fall below 51 percent.
- When the disadvantaged ownership of a DBE falls below 51 percent as the result of an owner losing his or her status as a disadvantaged individual, the recipient should decertify the firm. If the firm does not dispute that its disadvantaged ownership has fallen below 51 percent, the recipient should decertify the firm without a 26.87 proceeding. If the firm contends that its disadvantaged ownership is still at or above 51 percent, then the recipient would conduct a 26.87 proceeding.
- If there were disputes both as to the PNW of an owner and the percentage of ownership remaining in the hands of disadvantaged owners, these issues could be decided in the same 26.87 proceeding. Two separate proceedings would not be necessary.
Can a certified DBE firm voluntarily withdraw from the DBE program? Section 26.87
- Generally, a certified DBE firm remains certified until and unless it is decertified, using the procedures set forth in section 26.87.
- However, a DBE firm can voluntarily withdraw from the DBE program. It can do so by sending a notarized letter to the certifying agency and saying that it wants to cease participating in the program.
- When it receives such a letter, the recipient or UCP should send an acknowledgement letter to the firm saying that, unless the recipient or UCP hears to the contrary from the firm within a given number of days, the firm’s DBE certification will be terminated.
- The recipient/UCP can then remove the firm from its Directory, and the firm would not, in the future, be eligible to participate as a DBE unless it later applied for certification through an initial application.
- If a firm takes other action conclusively demonstrating that it does not intend to continue to compete for contracts, such as filing paperwork with a state’s Secretary of State or other regulatory agency terminating its ability to do business in the state, the firm has taken action equivalent to voluntarily withdrawing from the DBE program. In such a case, the recipient/UCP may remove the firm from the DBE Directory without pursuing a decertification proceeding under section 26.87.
- This is also true if the recipient/UCP has other conclusive evidence that the firm is no longer a going concern (e.g., there is documentation that the firm has been liquidated in bankruptcy).
Can a recipient remove the eligibility of a currently certified firm through any means other than those of 26.87?
- The exception involves a situation in which there is no dispute that the firm’s owners have exceeded the personal net worth limit. (See Q&A entitled “When a recipient determines that an owner of a certified DBE firm exceeds the owner’s $1,320,000 personal net worth cap, what happens? Must the firm be decertified? If so, must the recipient use the procedures of 26.87 to decertify the firm?”).
- In all other cases in which a recipient questions a currently-certified firm’s eligibility, 26.87 applies. This is the case whether the firm was originally certified under Part 26 or former Part 23.
- Firms certified under former Part 23 did not automatically lose their eligibility when Part 26 went into effect. When a recipient seeks information from a firm to ensure that it continues to meet Part 26 eligibility criteria or asks it to reapply for certification, the firm does not automatically lose its eligibility even if it fails to make a timely response. In all these cases, firms continue to be eligible unless and until their eligibility is removed through a 26.87 proceeding (e.g., on the ground of noncooperation), unless the firm states in writing that it no longer chooses to participate in the DBE program.