The certification process established by the States should function to ensure that only small business firms independently owned and controlled in both substance and form by one or more socially and economically disadvantaged persons are certified. To accomplish this objective and to ensure uniformity and consistency in its application, a set of standards have been established under the State's program documents in accordance with the eligibility criteria set forth under 49 CFR Part 26. The data submitted by the prospective DBE should be sufficient to enable the State to ascertain whether the DBE qualifications meet each of the described standards are: 

A.      Business Status      49 CFR 26.69,      13 CFR 121.403(a)

 1.  A firm must be in existence, operational and in business for a profit. 

2.  The disadvantaged owners of the firm must possess the resources or the expertise to operate in the firm's field of work. 

3.  Firms must provide more than prima facie evidence that they do not exist just on paper and that they were not organized in an attempt to take advantage of project goals. 

B.       Small Business Size      49 CFR 26.69, Appendix B,   13 CFR 121.401‑407 and 601 

1.       Annual Gross Receipts

The average annual gross receipts for a firm and its affiliates for the previous three fiscal years must not exceed the amounts shown in the SBA's standard industry classification code size standards established under SBA's regulations, 13 CFR 121.601 shall apply. The firm's classification is based on the firm's primary areas of work experience and not just on the type of license the firm may hold. 

Annual receipts for a firm in business less than three complete fiscal years is computed by: 

Total Receipts        X    52        =          Average Annual

Weeks in Business                                            Receipts 

2.     Affiliates

 

In determining average annual gross receipts, the revenues of "affiliates" of the firm are included as well as those of the applicant firm itself. (49 CFR, Subpart D, Appendix A, as amended by Paragraph 14 on page 39261 of Federal Register, Volume 52, No. 203, dated October 21, 1987)

The definition of "affiliates" is given in 13 CFR 121.401: "Concerns are affiliates of each other when either directly or indirectly (1) one concern controls or has the power to control the other, (2) a third‑party (or parties) controls or has the power to control both, or (3) an identity of interest between or among parties exist such that affiliation may be found." In determining whether affiliation exists, consideration shall be given to such factors as: 

1. Common Ownership

2. Common Management

3. Contractual Relationships

C.     Social and Economic Disadvantage Status 49 CFR Appendix E to part 26 

1.     Criteria 

The intent of the DBE program as prescribed by 49 CFR 26 is to maximize the opportunity of bona fide disadvantaged business firms to participate in federally‑assisted programs. A disadvantaged business firm is a small business independently owned and controlled by socially and economically disadvantaged persons. 

Upon a firm qualifying as a small business concern, a determination must be made as to the status of the individuals who own and control the business. To qualify as a disadvantaged business, the concern must be under the management and control of socially and economically disadvantaged individuals. By definitions, socially and economically disadvantaged individuals are those U.S. citizens, or lawfully admitted permanent residents, who fall into one of the following categories. 

a.       Member(s) of one of the presumptive minority groups designated in 49 CFR  26.62 including Women, Black Americans, Hispanic Americans, Native American, Asian Pacific Americana, and Asian Indian Americans and is   regarded by the particular minority community. 

There is a rebuttable Presumption that an individual who falls within one of these designated categories is socially and economically disadvantaged under 49 CFR 26.62. This means that an individual is presumed to have social and economic disadvantage status unless there is clear credible evidence that indicates otherwise. Therefore each applicant or owner of a firm applying to participate as a DBE whose ownership and control are relied upon for DBE certification to submit a signed, notarized statement of personal net worth, with appropriate supporting documentation.  This information will be reviewed and analyzed on a case by case basis of whether each individual whose ownership and control are relied upon for DBE certification is socially and economically disadvantaged.  The applicant or owner has the burden of demonstrating by a preponderance of evidence, that they are socially and economically disadvantaged.  An individual whose personal net worth (PNW) exceed $750,000.00 shall not be deemed to be economically disadvantaged.

 

 b.        Individuals(s) found to be socially and economically disadvantaged under the 8(a) program of the Small Business Administration (SBA) and granted an 8(a) certification. 

Individuals found to be disadvantaged by the SBA pursuant to Section 8(a) are conclusively presumed to be socially and economically disadvantaged since 49 CFR 26 does not permit the State to revoke the SBA=s action; or  

c.         Individuals who, although not a member of a presumptive minority group as designated in 49 CFR 26, establishes social and economic disadvantaged based on identification with another group. 

2.      Minority Group Membership 

The State=s certification process requires members of the presumptively rebuttable minority groups to prove their disadvantaged status if reasonable evidence is available to question their minority group membership.  The three key factors to be considered when making an evaluation of the applicant's standing in the minority community are: 

• Identification

• Association

• Recognition

a.         49 CFR 26.53 (a) (1) provides that, ABona fide minority group membership shall be established on the basis of the individual=s claim that he or she is a member of a minority group and is so regarded by that particular minority community.@

 

b.         In cases where the racial/ethnic origin is in question, a minority community recognition test should be applied to determine if the applicant has held him or herself out to be a member of the minority community and is so recognized by that community.

 

c.         In cases where the appropriate minority community does not exist or is not readily identifiable and the applicant=s minority status is in question, the applicant will be required to prove his or her disadvantaged status.  This process may include documentary evidence from disinterested persons whose ethnic/racial origin is not in question.  An example would be consultations with individual members of the minority community in which the applicant claims membership such as community organization leaders, bank officials, and local business development organizations.  Other documentary evidence may include birth certificates, naturalization papers, Federal Indian tribal role registration, notarized and sworn statements from disinterested parties, and proof of membership and interaction in recognized minority organizations.

d.       If the minority community exists outside the borders of the United States, the minority group membership status is dependent on ‑the following: It is insufficient to be born in or be a citizen of a country with the specified characteristics, but without family ancestry derived from the culture. 

e.       Proof of Native American ancestry alone is not conclusive evidence of membership in the  Native American category if an individual has not held himself or herself out to be a  member of one of the above groups, has not acted as a member of a community of such disadvantaged persons, or has not been identified by persons in the population at large as belonging to this disadvantaged group. In such cases, the individual will not be presumed  to be socially and economically disadvantaged and shall be required to demonstrate disadvantaged status on an individual basis.

3.      8(a) Certification 

The 8(a) certification program is under the direct authority of the Small Business Administration.  A certified 8(a) firm can be required to apply for and receive DBE certification by the State for participation in the DBE program. The limits of the State's authority in their certification of such fires are as follows: 

a.         A State may: 

Challenge an 8(a) firm's status to SBA; 

Deny certification to the firm in cases where the State has evidence that an 8(a) certified firm does not meet the small business size standards;

 

Deny certification to an 8(a) firm that refuses or fails to produce evidence that would enable the State to make a determination regarding small business size; and

 

Impose sanctions on ala) firms certified by the State for violating the requirements of the DBE program (fronts, false statements or other fraudulent activities j. These sanctions may include denial of credit to DBE goals, suspension, debarment and removal from the State's DBE directory.           

The State should present all pertinent information to the SBA's Associate Administrator for Minority Small Business and Capital Ownership Development when it believes the Section 8(a) status is questionable or when an 8(a) firm is denied certification. 

b.         The State may not:

 

Request of an 8(a) firm information that is not relevant to the issue of whether the firm meets the business size standard;

 

Deny certification to an 8(a) firm which fails to produce documents that are not relevant to the issue of the firm's size; and

 

Take any action (other than referral to SBA) against an 8(a) firm or any other reason with respect to the firm's certification status in the DOT DBE program. 

In order for the work to be certified toward goal accomplishment, 8(a) firms certified under 49 CFR 26 are expected to perform the work under contract in accordance with 49 CFR 26. Otherwise, the State is allowed to impose sanctions as discussed above. 

4.        Non‑Presumptive Individuals 

To accommodate those individuals who do not qualify under the 8(a) category or minority group membership, the State's certification program provides the opportunity to establish a claim of social and economical disadvantage. Such claims, to be handled on a case‑by‑case basis, must demonstrate that the applicant: 1)  has been subjected to racial or ethnic prejudice or cultural bias because of his/her individual qualities and,   2)  can prove that hither ability to compete in the free enterprise market has been impaired due to diminished capital and credit opportunities. The various factors to be considered are as follows: 

a.     Social Disadvantage 

First, the State makes determination of the individual's social disadvantage by comparing the applicant with members of the non‑presumptive class using factors such as: 

(1)     Color;

(2)     National origin;

(3)     Gender;

(4)     Physical handicap;

(5)     Long‑term residence in isolated environment;

(6)     Specific instances or discrimination in: 

• Education; 

• Employment; 

• Credit;

• Contracting;

• Membership in business organizations 

The disadvantage must have been personally suffered by the applicant and must be chronic, longstanding, and substantial, not fleeting or insignificant. If the applicant does not meet the social disadvantage test, it is not necessary to make the economic disadvantage determination. 

b.           Economic Disadvantage    

The label "economic disadvantage" refers to one's inability to compete in the free enterprise system due to diminished capital and credit opportunities as compared to others in the same or a similar line of business who are not socially disadvantaged. Consideration is given to both the individual claiming disadvantage and the applicant firm. 

A basic judgement is made to determine if the applicant firm is in a more difficult economic situation than most firms who are not socially disadvantaged. 

c.         Disabled/Handicapped Individuals 

Persons with disabilities are not presumed to be disadvantaged, as are other groups listed in 49 CFR 26. A handicapped person who does not belong to one of the presumptive groups and who applies for certification as a DBE would have to prove his or her social and economic disadvantage status based on his or her handicap on an individual case‑by‑case basis. The disability must be shown to have been chronic, longstanding and substantial, not fleeting or insignificant and to have negatively affected the person's entry in‑to and/or advancement in the business world. 

5.         Rebuttal of Disadvantaged Status 49 CYR 26.67 

The presumptive of social and economic disadvantage operating in favor of the designated minority groups and women may be rebutted at any time before or after certification. The regulations at 49 Cop 26.67 provide for a challenge procedure by third parties. This is not, however, the only way the disadvantaged status may be challenged. If the State possess credible evidence that would lead a reasonable person to believe that the applicant is not socially or economically disadvantaged, the presumption is no longer operative and the burden of proof shifts back to the applicant. The existence of the presumption does not mean that the certifying agency must ignore evidence that any applicant for certification is not socially or economically disadvantaged unless a third party brings a challenge. It means that in the absence of such evidence, the State must presume that the applicant is socially and economically disadvantaged.

Practically speaking, the existence of credible evidence that an otherwise qualified applicant is not disadvantaged puts such applicant in a position similar to a challenged minority or woman or an individual claiming disadvantage who is not a member of a designated group. If the State tentatively determines, on its own initiative based on such evidence, that the applicant is not socially and economically disadvantaged, the State should ensure that the applicants) is afforded procedural safeguards to that provided in the case of third party challenges under Section 26.69. 

D.      Ownership 49 CAR 26.69 (a)(2), (5), & (6) 

The State should look beyond what is reflected in the ownership documents. Verification can be achieved by conducting on‑site reviews, which includes interviews and research of the individual(s) and company financial and personnel records. Ownership by a represented disadvantaged individual or individuals can be established if: 

1)         At least 51 percent of the business (or stock if publicly held) was acquired; and

2)         Ownership was acquired through real and substantial contributions of expertise, capital or other tangible personal assets. 

Source of contributions must fall into one of the following categories:

 1.       Assets derived from independently‑owned holdings without benefit of a transfer of assets or gift from non‑disadvantaged person by inheritance or other means; or 

2.       Award of assets made in a judgement of dissolution of marriage determined on the basis that the property is marital property; or

 

3.       Interest acquired intended to be exercised by the person as an individual, notwithstanding any passive statutory property interest of another. Such contribution must be derived from capital or other means that is individually distinct from other ownership interest.  

The source of the contributions must be verified. Such verification should include stock certificates, bank receipts, corporate minutes, and other documents which establish that the contributions are derived from the assets of the individual. 

Contribution must be commensurate with the ownership interest: 

1.       Where stock ownership is involved, the disadvantaged owner(s) must own at least 51% of each class of voting stock and at least 51% of the aggregate of all classes of stock.

 

2.       Where expertise is used as the contribution to acquire ownership interest, the expertise should be in the applicant firm=s critical operations including estimating, bidding, field supervision, etc.  The expertise in order to be credited must be:

 

a.           Specifically identified and a monetary value (hourly/daily or monthly) attached;

 

b.           Proffered for the specific purpose of acquiring stock in the business. Such proffer should not be based on prior service to the firm for which the individual has already been compensated; and

 

c.            Documented in the corporate records of the firm. The records must clearly show the contribution of such expertise and its value to the firm. 

E.          Control          49 CFR 26.69 (a) (3) and (4) 

To establish control the disadvantaged owner(s) must demonstrate sufficient expertise specifically in the firm's field of operation to control the overall destiny and the day‑to‑day operations of the firm. Office management, clerical or other experience unrelated to the firm's field of operations is insufficient to establish control. This control is comprised of two parts; Managerial and Operational. 

1.         To have managerial control the disadvantaged owner must demonstrate responsibility for the critical areas of the firm's operations and must be able to make independent and unilateral business decisions which guide the future and destiny of the business. Examples:

 

a.  Negotiations and execution of contracts; and

 

b.  Execution (signature) of financial (credit, banking, bonding) transactions and agreements.

 

2.         To have operational control the disadvantaged owner must demonstrate that he/she independently makes basic decisions in daily operations. Absentee or titular ownership by disadvantaged owners who do not take an active role in controlling the business is not consistent with the DBE eligibility standards.

 

Control can be demonstrated in various ways:

 

1.         Disadvantaged owners have complete control of Board of Directors;

 

2.         No formal or informal restrictions exist to limit voting power or control of the disadvantaged owners;

 

3.         No third party agreements restrict control of disadvantaged owners;

 

4.         Disadvantaged owners possess the requisite experience in the firm's field of operations;

 

5.         Salary/profits of disadvantaged owners are commensurate with their ownership interest;

 

6.         Disadvantaged owners receive at least 51% of any dividends paid by the firm including distribution upon liquidation; and

 

7.         Disadvantaged owners are entitled to 100% of the value of each share of stock they hold if sold. 

The disadvantaged owner should possess sufficient assets/resources to control the operation of the firm in the following areas: 

• Financial

• Bonding

• Supervision

• Workforce

• Equipment

• Materials

• Facilities (office / yard)

F.         Independence 49 CFR 26.69 (a) (2) 

Key factors in assessing the independence of a firm include: 

1.         Date business was established; 

2.         Degree to which financial, equipment leasing, business and other relationships with non‑disadvantaged firms vary from normal industry practice; and