DBE ISSUES OF NOTE TRB – January 11, 2016

ACCUMULATION OF SUBSTANTIAL WEALTH Not everyone who meets the PNW cap automatically is economically disadvantaged Long-standing guidance said that if someone is too wealthy to be reasonable thought economically disadvantaged (e.g., a very expensive house, a yacht, extensive personal or real property holdings), UCPs may rebut their presumption of economic disadvantage. In a 2014 final rule, DOT added additional, sometimes quantitative, factors that a certifying agency “may consider” (e.g., 3-year average AGI over $350k, total assets over $6m fair market value)

Substantial Wealth (2) Preamble made clear that these additional factors are a discretionary “tool,” not a “checklist.” Certifiers not required to consider these factors in every certification action, and decisions are to be made on the totality of the circumstances. So…anyone who tells you UCPs must look at AGI or total assets for this purpose in every case, or that any applicant who exceeds these numbers is ineligible, is simply flat wrong. Preamble is explicit in saying that these factors are guidance to help certifiers who have a reasonable basis to believe a particular owner isn’t disadvantaged, despite meeting PNW standard. Judgment call.

Substantial Wealth (3) Key point is that where there is such a reasonable basis, certifiers have explicit authority to look beyond the PNW – and the financial information gathered for PNW purposes – to determine whether to try to rebut an applicant’s economic disadvantage. An important procedural difference: if applicant exceeds PNW, their presumption of disadvantage is rebutted without further process. If certifier wants to rebut presumption based on accumulation of substantial wealth, it most offer hearing in which it bears burden of proof.

Updated Information In connection with annual affidavits of no change, preamble to 2014 rule explicitly states that certifiers can obtain updated Federal tax information DBE firms remain required to submit notices of change when a change occurs that could affect eligibility. Failure to do so is a ground for decertification. If certifier gets information that raises reasonable doubt about the continued eligibility of a firm, certifier can do a certification review, including a new on-site and getting updated financials.

Reciprocity If firm is certified in State A, then gets out-of-state certification in State B, then is decertified in State A, what happens to its eligibility in State B? State B certification does not automatically disappear. However, State B can start its own decertification proceeding based in information and proceedings from State A. If firm certified in State A wants additional NAICS code only in State B, where it’s also certified, it is not required for State A to make the decision. It’s State B’s job, since the new code would depend on firm’s resources and capabilities in State B. State A should cooperate/consult with State B, of course.

Certification Time Frames 90-day certification action timetable intended to ensure that applicants do not suffer undue delays. Other tasks given to certifiers by others (e.g., state requirement to certify state MBE/WBE firms) don’t obviate this requirement. There can be a 60-day extension in a specific case by certifier where warranted and with notice to firm – not as a usual practice, though. 60-day deadline for State B interstate certifications recognizes that State A has already done basic spadework. State B is not starting from scratch, and purpose of interstate provision is to reduce delays and burdens for firms.

New Firms For start-up, NAICS codes would be determined based on resources and capabilities of firm and owners, as well as projected areas in which firm wants to work. In my view, nothing wrong with checking back later to see if anticipated type of work is what they’re actually doing. While we don’t certify a business plan, firm does not have to have a track record of work to get certified. (This can be an issue especially for ACDBEs.)

Veterans Veterans are not a presumtively eligible group. It would be a really bad idea to add veterans, as a group, to the DBE program. DBE program, redressing effects of discrimination on the basis of race or gender, is conceptually very different from a veterans’ benefit, like the GI bill or VA housing loans, which aim to provide after-the-fact compensation to people who have served in the military They don’t fit together. Realistically, do you want me (I’m a veteran) to be DBE-eligible, so that prime contractor can hire me instead of a woman- or minority-owned firm?

Veterans (2) Even a separate goal for veterans on DOT-assisted contracts is problematic. This would add administrative complexity, plus potentially trip over DBE program. If I hire a white male veteran-owned firm to meet a veterans’ goal instead of a DBE firm doing the same kind of work, have I made a good faith effort to meet the DBE goal? Don’t forget, veterans with serious service-connected disabilities can already apply for disadvantaged status as individuals.

Firms who would never work on DOT- assisted contracts Sometimes firms apply for certification that appear not to do work that would ever be called for on a DOT-assisted contract. Does a UCP have to process the application? In my view, the right answer is “no.” There is no explicit regulatory requirement to do so, nor any guidance recommending doing so. More importantly, there are several regulatory provisions that support this interpretation.

Firms who would never work…(2) As the purpose statement of the rule (26.1(b) and (e)) says, it is to create a level playing field for firms to compete for DOT-assisted contracts and to remove barriers to the participation of DBEs in DOT-assisted contracts. (There are parallel provisions in 23.1 (a), (b), and (e) re opportunities for concessions at DOT-assisted airports.) if a firm is not going to be competing for, or need barrier removal to access the opportunity to compete for, DOT-assisted contracts, for the reason that the firm does not do work for which recipients will let DOT-assisted contracts, then certifying the firm is outside the scope of the purposes of the DBE program.

Firms who would never work…(3) We tell applicants to tell the UCP what sort of work they would do "as part of the DBE program" (26.83(c)(v)). If the answer is that the firm does not do any sort of work that would be part of the DBE program, because there aren't DOT-assisted contracts related to the kinds of work the firm does do, then it makes sense to me to not process the firm's certification, because doing so would be. Under (b), UCPs are supposed to carry out their functions with respect to "participation in the DBE program." A UCP does not do that if a firm that applies is unable, by nature of the kind of work it does, to participate in the DBE program.

Firms who would never work…(4) The DBE regulations also intend to avoid unnecessary administrative burdens. Forcing a UCP to process an application from a firm that would never work on a DOT-assisted contract is by definition an unnecessary – not to mention, useless, administrative burden. There can be differences between the DBE and ACDBE programs for this purpose. A florist may never work on DOT-assisted contracts but could be an airport concession, while a paving contractor would never be an airport concessionaire but can work on DOT-assisted contract.

Some further ideas Useful for DOT or TRB to do a survey to determine certification times across the country and identify ways of dealing with delays/backlogs? For veterans with significant service-connected disabilities, how about DOT or TRB working with veterans’ groups (e.g., DAV, PVA, Wounded Wqrriors’ Project) or, for that matter, the VA, on information/training/education efforts to make disabled vets aware of DBE certification and work opportunities? Part of the effort might be to educate certifiers as well, since people with disabilities seeking individual disadvantage determinations is something they don’t see that often.