DBE Program Regulations: Counting Regular Dealers

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.

Should firms be certified as “regular dealers?” is a firm that acts as a regular dealer on one contract necessarily treated as a regular dealer on all contracts? Section 26.55(e)(2)-(3); 26.71(n); 26.73(a)

  • No to both questions.
  • Certification and counting are separate concepts in the DBE rule. Certification and counting matters should not be conflated or confused with one another.
  • Firms are certified as DBEs if they are small business concerns owned and controlled by socially and economically disadvantaged individuals. DBE firms must be certified in the most specific NAICS code(s) for the type of work they perform. While a firm may be certified in a NAICS code related to performing supplier functions, it is not appropriate to certify any firm as a “regular dealer.” In fact, there is no NAICS code for a “regular dealer.” The only appropriate use of the term “regular dealer” concerns counting participation by DBE firms that have already been certified.
  • If a certified firm acts as a “regular dealer” in a given transaction, it is awarded DBE credit equivalent to 60 percent of the value of the items it supplies on that contract. This credit is awarded in recognition of the value the DBE adds to transaction and the risks that it takes. The rules provide that a firm the role of which is that of a broker or transaction expediter cannot receive DBE credit beyond the fee or commission it receives for its services. Such a firm adds less value and takes fewer risks than a regular dealer.
  • Whether a DBE firm meets the criteria of §26.55(e)(2) for being treated as a regular dealer is a contract-by-contract determination to be made by the recipient. In evaluating whether a DBE firm should receive 60 percent credit for items it supplies on a particular contract, a recipient should answer two questions. If the answer to either question is “no,” then the firm should not receive 60 percent credit.
  • First, does the firm “regularly” engage in the purchase and sale or lease, to the general public in the usual course of its business, of products of the general character involved in the contract and for which DBE credit is sought? Answering this question involves attention to the activities of the business over time, both within and outside the context of the DBE program. The distinction to be drawn is between the regular sale or lease of the products in question and merely occasional or ad hoc involvement with them.
  • In answering this question, recipients should not insist that every single item the DBE firm supplies be physically present in the firm’s store, warehouse, etc. before it is sold to a contractor. However, the establishment in which the firm keeps items it sells to the general public should be more than a token location. For example, a mere showroom, the existence of a hard-copy or on-line catalog, or the presence of small amounts of material that make questionable the ability of the firm to effectively supply quantities typically needed on a contract, are generally not sufficient to demonstrate that a firm regularly deals in the items.
  • Second, is the role the firm plays on the specific contract in question consistent with the regular sale or lease of the products in question, as distinct from a role better understood as that of a broker, packager, manufacturer’s representative, or other person who arranges or expedites a transaction? For example, a firm that regularly stocks and sells Product X may, on a particular contract, simply communicate a prime contractor’s order for Product Y to the manufacturer, acting in a transaction expediter capacity.
  • This means that a firm that acts as a regular dealer on one contract does not necessarily act as a regular dealer on other contracts. For example, a firm that acts as a regular dealer on Contract #1 may act simply as a “transaction expediter” or “broker” on Contract #2. It would receive DBE credit for 60 percent of the value of the goods supplied on Contract #1 while only receiving DBE credit for its fee or commission on Contract #2.
  • In some circumstances, items are “drop-shipped” directly from a manufacturer’s facility to a job site, never being in the physical possession of or transported by a supplier. In many such cases, the supplier’s role may involve nothing more than contacting the manufacturer and placing a job-specific order for an item that the manufacturer then causes to be transported to the job site.
  • In such a situation, the supplier’s role may often be better described as that of a “broker” or “transaction expediter” (see 26.55(e)(2)(ii)(C)) than as a “regular dealer.” In such a case, DBE credit is limited to the fee or commission the firm receives for its services. If the firm does not provide any commercially useful function (i.e., it is simply inserted as an extra participant in a transaction), then no DBE credit can be counted.

The counting rules say that to be a regular dealer, a supplier of bulk goods who supplements its own distribution equipment must do so by a long-term lease. how long is long-term? (Section 26.55(e)(2)(ii)(B))

  • The key point is that a lease for trucks or other distribution equipment cannot be an ad hoc deal specific to the particular contract or distribution task.
  • The leased equipment should be used over an extended period of time to serve a variety of customers and/or contracts.
  • There is not a specific number of months or years that the Department believes it is useful to rely on in all cases. The scrutiny that a recipient gives a lease arrangement should become stricter the shorter the period of the lease is.