INTERSTATE CERTIFICATION Bob Ashby TRB January 2015

WHY THE CONCERN? DBE program is a national program. Many DBEs want to grow their businesses by working in more than one state. Having to go through repeated, sort of the same but somewhat different, certification procedures in various states is an administrative and financial burden on small businesses. It is a barrier to meeting business development objective of program. States/UCPs have traditionally distrusted one another and have usually been unwilling to accept one another’s certifications.

SEEKING MIDDLE GROUND Many requests for full faith and credit reciprocity over the years. Problem: quality of certifications and resources of certifiers vary widely, raising fear of “race to the bottom” as iffy firms seek easy graders. Business development and program integrity objectives of DBE program somewhat at tension. In 2011 final rule, DOT tried to find middle ground that would balance these interests. DOT followed up with 2014 Q&A’s for additional guidance. As usual, questions remain.

THE BASIC SCHEME Firm is already certified in its home state (State A) Firm now wants to get certified in a new state (State B) Does firm have to complete a State B application to get certified in State B? EMPHATIC NO!!! Suppose, for some reason, firm wants to submit regular State B application instead of going through interstate certification procedure? Can they do that? o Rule/guidance do not say, but in my view doesn’t make sense to allow, as it avoids point of provision and could lead some states to try to circumvent interstate cert provisions

STATES’ CHOICE On getting an interstate cert application from firm, State B has two, and only two, choices. 1: Accept State A’s cert. State B just needs to see documentation of valid cert from State A. Firm dosen’t have to submit anything else. This works well when there is reciprocity agreement; can also be done by State B on case-by-case agreement. 2: State B can review State A’ cert before deciding on interstate cert application. Again, can be done on case-by-case basis.

CHOICE 2 INFO Firm submits to State B the application and all supporting documents it submitted to State A, plus A’s cert letter. No more. NO MEANS NO. State B is not allowed to ask for supplemental application material that firm did not submit to State A. BUT, firm also must submit affidavits of no change, notices of change, and cert-related notices and correspondence with State A and other states. State B requests on-site report from State A. A week to make the request, a week to respond. Attention States A and B: talk to each other, for pity’s sake.

DOES ALL MEAN ALL? Can a State B waive the requirement for a recipient to submit “all” material, including application, supporting docs, notices of change, affidavits of no change etc., to reduce paperwork burdens on forms? Notion is that State B could just get some of the information, enough to satisfy its inquiry. Rule does say “all,” and guidance does not address the issue. Unofficial idea: State could use option 1, but condition its use on submitting “some” information.

MISSING INFO? DOT guidance says that asking for updated information (like newer tax documents or a more recent PNW statement or on-site report) is not allowed. But suppose State A has not updated firm’s record on a key point (e.g., change of ownership) but State B is aware of change. Can B ask firm for information on the change? Or suppose State A has lost or disposed of supporting documents from original cert. What is State B to do?

MISSING INFO (2) In the case of a change of ownership unrecognized in State A records, my suggestion is that that it could trigger a “good cause” finding leading to a proposed rejection of the firm’s application for interstate cert. Firm would have to demonstrate that new owners qualify. But where State A has lost or disposed of original parts of cert file, I don’t see good cause to reject interstate cert application or require firm to dig up old records.

MISSING INFO (3) If State A does not provide State B with on-site report with two weeks after request, State B can put action on interstate cert application on hold. State B must notify firm of reason for delay within 30 days of receiving complete application. Rule and guidance don’t say what happens when State A is unresponsive or has lost on-site report. Is firm just out of luck because of State A’s problem? Suggest additional guidance from DOT on this point.

DOT DATABASE Recipients/UCPs must report denials/decertifications/rejections of applications for interstate certification to US DOT, Departmental Office of Civil Rights database. Recipients/UCPs must check database before acting on initial or interstate applications for certification. Database address is the following: business-enterprise/search-dbe-appeals-and- denials

I FEEL REJECTED Rule provides very narrow grounds for State B to reject State A’s certification of a firm. Reasonable people can and do disagree with one another in certification cases. DISAGREEMENT WITH STATE A’S JUDGMENT IS NOT ENOUGH TO REJECT APPLICATION. State B can propose to reject application only for “good cause.” Rule provides five types of good cause (exclusive grounds, not just examples). Good cause must be very specific and fact-driven, not just general discomfort with bona fides of firm.

GOOD CAUSE 1: Evidence that State A certification was obtained via fraud o Example: Results of an IG investigation show that firm lied about owner’s PNW or experience, or a key relationship with a non-DBE firm 2 : New information, not available to State A, showing firm is ineligible Example: Firm has changed ownership and State A has not yet responded; firm has been found to have engaged in pattern of front activity 3: B’s State law required a different result that State A’s law

GOOD CAUSE (2) o Example: State A’s law allows an engineering firm to be controlled by someone who does not have an engineering license. State B’s law says only a licensed engineer can legally control an engineering firm. So firm not controlled by a licensed engineer can be certified in A but not B. 4: Applicant’s information did not meet all regulatory requirements of 26.85(c). Example: Firm did not submit required copies of affidavits of no change. 5.State A’s certification was “factually erroneous” or “inconsistent with the requirements of [Part 26]” This is the trickiest one to work with.

GOOD CAUSE (3) “Factually erroneous” means that State A got a critical (e.g., outcome-determinative) fact wrong. We’re looking here for a major “oops.” o Examples: Math error in State A certification led to conclusion that owner had 51% interest in firm, when really it was 49%, or there was a clear miscalculation in PNW. State A docs say owner had extensive experience in a technical field when, in fact, a non-disadvantaged employee was the person who had the technical experience and owner had only done back office work. o Disagreement with interpretation of facts does not count. So if State A though degree of supervision by owner of daily business operations was sufficient for control, and State B thought this was insufficient, this is not a case for factual error for this purpose.

GOOD CAUSE (4) “Inconsistent with the requirements of [Part 26]” means that State A’s decision flatly and clearly contradicted a black letter provision of the rule. o Example: Rule says that a DBE must be a for-profit organization. State A certified a not-for-profit organization. Mere disagreement about interpretations of the rule do not trigger this provision.

REBUTTABLE PREUMPTION? DOT Q&A (not rule) says that interstate certification provision creates a “rebuttable presumption” that firm certified in State A is eligible in State B. This isn’t exactly right. What a rebuttable presumption would do is to shift the burden of proof from the applicant (as in an initial certification) to State B (who would have to prove that the firm certified in State A is ineligible, similar to a decertification action).

REBUTTABLE PRESMUPTION (2) Instead, rule says that once State B identifies a “good cause” reason to reject interstate cert application, burden shifts back to applicant to prove it is eligible, just as it would have to do on an initial application. OPINION: This is a mistake on the Department’s part, which undermines the basic purpose of the interstate certification provision. There should be a genuine rebuttable presumption system in which State B has to demonstrate that its allegation of “good cause” has merit.

TIME FRAMES 60 days after complete application, State B must either certify firm or give notice of objection Notice must be very specific about grounds for the “good cause” objection. If firm asks for meeting, must be held within 30 days of request (firm can also just respond in writing) Decision-maker should be familiar with rule but should not have been involved in original decision Written decision 30 days after response or meeting Decision appealable to DOT

NAICS CODES NAICS codes are part of a firm’s certification When State B accepts State A’s certification, it automatically accepts State A’s NAICS codes for the firm. State B can reject a NAICS code only if it finds good cause to do so (e.g., factual error – like plumber given a code for electricians) If firm wants a code in State B it doesn’t have in State A, then it must apply to State B for the new code.