- posted: Mar. 15, 2016
Federal, state and local governments offer numerous benefits to a disadvantaged business enterprise or a “DBE.” Government projects sometimes set aside a portion of the contract value with a view toward that work being performed by a DBE. A contract awarded to a prime contractor may require a portion of the work to be subcontracted to DBEs. The federal government created these benefits to “level the playing field” and minimize the effects of competitive advantage that may have arisen when unfair discrimination was more prevalent.
A small for-profit business can become certified as a DBE when one or more socially and economically disadvantaged people own at least a majority interest in the company and control management and business operations. Obtaining DBE certification is valuable because it increases your chances of getting selected by a prime contractor. The prime contractor has an incentive to hire your company because your participation will count toward the achievement of the prime’s contract goals. Moreover, getting one opportunity may assist the new DBE in expanding or diversifying to earn more or different work in the future. If you want to pursue DBE work in another state, you typically must be first certified in the state where you have your principal office.
The certification process is administered on behalf of the federal government by your state’s department of transportation. The process begins with a detailed application that asserts why you believe your company is eligible for DBE certification.
The applicant must own at least 51 percent of the company. African Americans, Hispanics, Native Americans, Asian-Pacific and Subcontinent Asian Americans, and women are presumed to be socially and economically disadvantaged. Other individuals can also qualify as socially and economically disadvantaged on a case-by-case basis. To be regarded as economically disadvantaged, an individual must have a personal net worth that does not exceed $1.32 million. The applicant’s ownership of a residence and equity in the company are excluded from the determination of whether the personal net worth ceiling has been broken.
To be seen as a small business, a firm must meet the size criteria of the Small Business Administration. The size of the applying organization will be evaluated on the basis of gross receipts or the number of employees, judged from an industry specific standard. Typically, the company must have average annual gross receipts less than $22 million. In addition, the company must not be affiliated with, or dependent on, another firm. The applicant company must have the ability to stand on its own without external support. Officials reviewing the application will scrutinize areas such as personnel, facilities, equipment, financial assistance, and bonding support to evaluate whether the business is truly independent.
The state transportation officials will examine the application and ensure all the requirements are met. The application will be reviewed to ensure the individuals on whom the DBE is based are qualified to run the business and not mere placeholders for others who run the operation. The majority DBE owner must possess the power to direct the management and set the policies of the company, as well as make day-to-day and long-term business decisions. If the state requires the owner to have a particular license or other credential to own a certain kind of business, the applicant must possess that license or credential to obtain DBE certification.
In addition to reviewing your application and supporting paperwork, the state Department of Transportation is required by regulations to visit your company and further evaluate the application. The DOT official will interview the principal officers of the company, review the resumes of key employees, visit job sites, and generally investigate the accuracy and completeness of the information provided in your application. The official may also ask to see evidence of stock ownership, equipment, bonding information, etc.
The time from application to certification will vary from business to business. Some states, including Ohio, are contracting out the heavy lifting in the certification process to expedite decisions. If an application is denied, the state’s decision can be appealed to the U.S. Department of Transportation. That process can be time-consuming and expensive so it’s preferable to make the initial application as compelling as possible.
Once you obtain your DBE certification, you must update the information you provided every year. You give the Department of Transportation an affidavit representing that there have been no changes in the company’s ability to meet the DBE criteria. In the fifth year update, you may be asked to provide additional information showing you still are under the personal net worth cap.
If you would like more information about these issues, please contact Scott Thomas. Scott has helped firm clients secure DBE certification to give their business a competitive edge. He welcomes the opportunity to help you level your playing field. His direct line is 859.578.3862. You can email him at [email protected]. If there is a particular topic you would like to see addressed in a blog, please send Scott an email with your ideas.