Disadvantaged Business Enterprise

1. What is the Disadvantaged Business Enterprise Program?
2. What is a Disadvantaged Business Enterprise (DBE)?
3. How does a firm become certified as a DBE?
4. What are the advantages of becoming certified as a DBE?

Getting a Better Understanding of the Federal Highway Administration (FHWA)
Disadvantaged Business Enterprise (DBE) Program

1. What is the Disadvantaged Business Enterprise Program?

   When Congress enacted the Surface Transportation Assistance Act (STAA) of 1982, it also directed that, to the extent possible, at least 10 percent of Federal-aid highway and transit funds be expended with small disadvantaged business firms. Accordingly, the U.S. Department of Transportation (DOT) has issued new regulations for recipients of Federal transportation funds. These regulations expand upon the Minority Business Enterprise (MBE) program, which has been in effect since 1972.

   The new DBE regulations require State and other transportation agencies (called "Recipients"), which receive Federal funds to adopt specific annual goals for participation by certified DBE firms in highway and transit contracts. The goal is expressed as a percentage and reflects the expected dollar value of DBE participation relative to the expected total Federal-aid dollars expended in contracts by the Recipients. Recipients are required to establish the goals prior to the start of each fiscal year (October 1). The DBE regulation establishes a uniform procedure whereby each Recipient must establish its annual goal and submit that goal to the respective Federal transportation agency for approval. The regulation also specifies remedial actions, which might be taken by the Federal transportation agency if a Recipient fails to achieve the specified goal at the end of the year.

   On January 6, 1983, Section 105(f) of the STAA of 1982 became law. This section of the Act imposed the following requirement on Federally - assisted highway and transit projects. Except to the extent the Secretary determines otherwise, not less than 10 per centum of the amounts authorized to be appropriated under this Act shall be expended with small business concerns owned and controlled by socially and economically disadvantaged individuals as defined by Section 8(d) of the Small Business Act and relevant subcontracting regulations promulgated pursuant thereto.

   Section 105(f) made three substantial changes to the DOT's DBE program as conceived in the 1970's. This Act for the first time provided clear statutory authority for DOT's MBE program. It also established a set goal (10 percent) for program participation. Finally, the definition of eligible individuals and/or groups was adopted from section 8(d) of the Small Business Act. This definition did not, however, include women as eligible participants in the program. By defining participation under this Act, the eligibility criteria shifted from "minority" status to "disadvantaged" status; thereby, the term "disadvantaged business enterprise" (DBE) became the accepted descriptor for the FHWA program.

   The Federal Aviation Administration, Federal Railroad Administration, National Highway Traffic Safety Administration, and Maritime Administration retained the MBE definition because Section 105 (f) of the STAA did not apply to them. As a result, each of the terms, MBE, DBE, and Women Business Enterprise (WBE) continued to be used in the various DOT programs. Even though the 1983 Act did not require including women in the program, women remained eligible for participation under the voluntary language of the 1980 DOT regulations.

   On April 2, 1987, the Surface Transportation and Uniform Relocation Assistance Act (STURAA) of 1987 was enacted into law. Section 106(c) of the STURAA replaced Section 105(f) as statutory authority for the DBE program. The key provisions of Section 106(c) are:

   1. Ten percent of the funds authorized in the Act must be expended with small business concerns and controlled by socially and economically disadvantaged individuals;
   2. Woman are included in the presumptively disadvantaged category. Women are, therefore, presumed to be socially and economically disadvantaged and as such come under the 10 percent participation requirement;
   3. The Small Business Administration definition of eligibility is retained, but the size standard limitation is set at $14 million of the average annual gross receipts over the 3 previous fiscal years;
   4. Each State must annually survey and list the firms certified in that State including their locations;
   5. Certification of DBE's by State governments according to minimum uniform criteria established by the Secretary is required. Such minimum uniform criteria include, but are not limited to, on-site visits, personal interviews, licenses, analysis of stock ownership, listing of equipment, analysis of bonding capacity, listing of work completed, resume of principal owners, financial capacity, and type of work preferred.
      
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2. What is a Disadvantaged Business Enterprise (DBE)?

   A DBE is a for-profit, small business concern - that is at least 51 percent owned by one or more individuals who are both socially and economically disadvantaged or, in the case of a corporation, in which 51 percent of the stock is owned by one or more such individuals; and whose management and daily business operations are controlled by one or more of the socially and economically disadvantaged individuals who own it.

   Small Business Concern - Means, with respect to firms seeking to participate as DBEs in U.S. DOT- assisted contracts, a small business concern as defined pursuant to section 3 of the Small Business Act and Small Business Administration (SBA) regulations implementing it, (13 CFR Part 121) that also does not exceed the cap on average annual gross receipts specified in 49 CFR Section 26.65(b).

   Socially and Economically Disadvantaged Individuals - Any individual who is a citizen (or lawfully admitted permanent resident) of the United States. Any individual who recipient finds to be socially and economically disadvantaged individual on a case-by-case basis. Any individual in the following groups members rebuttably presumed to be socially and economically disadvantaged:

   • Black Americans - includes persons having origins in any of the Black racial groups of Africa
   • Hispanic Americans - which includes persons of Mexican, Puerto Rican, Cuban, Dominican, Central or South American, or others Spanish or Portuguese culture or origin, regardless of race
   • Native Americans - includes persons who are American Indians, Eskimos, Aleuts, or Native Hawaiians
   • Asian-Pacific Americans - includes persons of whose origins are from Japan, China, Taiwan, Korea, Burma (Myanmar), Vietnam, Laos, Cambodia (Kampuchea), Thailand, Malaysia, Indonesia, the Philippines, Brunei, Samoa, Guam the U.S. Trust Territories of the Pacific Islands (Republic of Palau) the Commonwealth of the Northern Marianas Islands, Macao, Fiji, Tonga, Kirbati, Juvalu, Nauru, Federated States of Micronesia, or Hong Kong
   • "Subcontinent Asian Americans" - includes persons whose origins are from India, Pakistan, Bangladesh, Bhutan, the Maldives Islands, Nepal or Sri Lanka
   • Women
   • Any additional groups - whose members are designated as socially and economically disadvantaged by the Small Business Administration (SBA), at such time as the SBA designation becomes effective
     
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3. How does a firm become certified as a DBE?

   The 49 CFR 23 places the primary responsibility for certifying DBE's upon the State Department of Transportation Agencies (State DOT). There are instances, however, in which another State or local agency or authority other than the State DOT has been assigned this responsibility by State law. Nonetheless, the State DOT will take the lead role in ensuring that only certifiable DBE's are to participate in Federally-assisted highway projects. The State's process for handling the application by prospective DBEs for entrance into the program (including a full disclosure of the rights, privileges, and responsibilities connected thereto) should be explicitly detailed in the State's program document. It is the responsibility of the applicant to provide the information deemed necessary by the certifying agency to ascertain eligibility. The burden to prove eligibility is upon the applicant, not upon the State. The following guidelines will help to clarify the application process:

   1. The State's process shall secure all necessary information from applicants through a well-defined application procedure and review process. The State's certification process should provide that whenever an out-of-State firm applies for certification, the State Transportation/Highway Agency in the applicant firm's resident State will be contacted and asked to provide certification information on the applicant firm. It is emphasized that one State's certification decision is not binding on another State. This information should be considered but the State's decision must stand on its own merit.
   2. The applicant is required to provide evidence in support of fulfilling all of the DBE eligibility standards set forth under 49 CFR 23, and the State's files shall contain all appropriate documentation in support of the certification of the firm. The following is a list of those materials which should be part of a DBEs' application filed by a firm seeking inclusion into the program:
      • Firm's gross receipts for at least three previous years
      • Income tax returns for firm and each owner
      • Birth certificates
      • Naturalization papers
      • Indian tribal roll registration
      • Tribal voter registration certificate
      • Driver's license
      • School records
      • Medical records
      • Service records
      • Sworn and notarized affidavits from recognized heads of community organizations or other community institutions attesting to the individual's social/economic status (identification, association, recognition)
      • Interviews with applicant and others with whom applicant interacts
      • Loan agreements (past and present)
      • Executed contracts
      • Executed bond agreements
      • Executed purchase orders
      • Ownership titles to vehicles and equipment
      • Equipment leases
      • Canceled checks
      • Bank signature cards
      • Documented evidence of discrimination in credit, bonding, employment, education and contracting opportunities
      • Partnership agreements
      • Articles of incorporation and by-laws
      • Minutes of Board of Directors' and stockholders' meetings
      • Contributions of capital or expertise
      • Resumes for each principal
      • Stock certificates
      • Stock transfer ledgers
      • Work history of the firm (contracts completed and underway)
      • Insurance policies (Life, Health, Workman's compensation)
      • Record of interviews with applicants, employees and other persons
      • Record of on-site visit
      • Appearance
      • Culture
      • Language
   3. The prospective DBE applicant shall submit all pertinent data necessary for the State to render an informed decision on the eligibility of the firm. The application shall be self-contained on a standardized form supplied by the State similar to or a reproduction of the Schedule A or B forms attached to 49 CFR 23. The application is in the form of a Sworn Affidavit. Firms applying for certification must verify their status by making available for review the appropriate books, records, and other documents pertaining to the financial and operational aspects of the firm and its principals. The Department of Transportation's DBE regulations at 49 CFR 23.53(e) provide that, "A business wishing to be certified as a DBE or joint venture DBE by a DOT recipient shall cooperate with the recipient in supplying additional information which may be requested in order to make a determination." Applicant firms that refuse to provide the requested information should not be certified. The applicant can be notified that verification of information they provide on Schedule A or B may require additional documentation.
      
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4. What are the advantages of becoming certified as a DBE?

   Becoming certified as a DBE will provide great exposure for work opportunities on State projects. The names of all certified DBEs appear in the DBE directory. The directory is widely disseminated to State departments, local governments, contractors, and the public. Contractors use the DBE directory as a basic resource for soliciting participation on projects. If a firm is not certified, a contractor cannot receive credit toward achievement of the DBE participation goal by using that firm. DBE firms are often eligible for special assistance from Recipients through support services programs. Many Recipients offer direct help to DBEs in accounting practices, office management, bid preparation techniques, contract negotiation, and other needed skills. The DBE program is intended to remedy past and current discrimination against disadvantaged business enterprises, ensure a "level playing field" and foster equal opportunity in DOT-assisted contracts, improve the flexibility and efficiency of the DBE program, and reduce burdens on small businesses.

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