As discussed in a previous post on November 3, 2014, revisions to the Disadvantaged Business Enterprise (DBE) regulations in the works for over two years went into effect. In addition to the revisions to the application forms and size standard discussed, there were also changes focusing on ownership, control, appeals, and good faith efforts. These changes include the following:
With the revisions, United States Department of Transportation (“USDOT”) strengthened the rule ensuring that disadvantaged owners receive appropriate and proportionate compensation. Although there were already requirements that an owner’s compensation can be used to determine who is the controlling owner (e.g., it may be odd for the minority owners to be making more than the controlling, disadvantaged owner), the revisions direct certifiers to examine whether there are any agreements or practices in place to give a non-disadvantaged owner priority or superior right to the DBE firm’s profits. The revisions also include examples of what constitutes real, substantial, and continuing contributions necessary to demonstrate ownership by the disadvantaged owner. For example, insufficient contributions could include if “the disadvantaged owners of a DBE applicant firm … obtains a $100,000 loan, but makes only nominal or sporadic payments to repay the loan. This type of contribution is not continuing in nature.”
Prior to the revisions, the DBE rules included provisions that certifiers could apply additional scrutiny when non-disadvantaged owners remain owners of a firm recently purchased by or transferred to a disadvantaged individual. With the revisions, USDOT formalized this principle, asserting that there is a presumption of control by non-disadvantaged owners who remain involved in the company after a transfer. USDOT, however, emphasizes that this is a rebuttable presumption, meaning that if the firm can demonstrate that there was another reason for the non-disadvantaged owners to remain with the company, the firm can still demonstrate control. For example, remaining with the firm to maintain contacts with previous customers, remaining temporarily to assist with the transfer, or maintain a small ownership interest or minimal participation in the firm with no control of the company may rebut the presumption.
The previous rule was very vague as to whether a firm could reapply during its appeal to USDOT of a decision denying its application at the state level. With the revisions, USDOT clarified that an applicant who appeals does not have to wait until the appeal has been decided to submit a new application. The applicant must only wait until the state-determined waiting period has ended to submit the appeal.
Good Faith Efforts
USDOT provided additional guidance on examples of kinds of actions taken by bidders / offerors that constitute “good faith efforts” to meet the DBE goal. For example, a general contractor will not be able to demonstrate good faith efforts if it rejects a DBE simply because the DBE firm was not the low bidder for the DBE’s scope of work or if the general contractor is unable to find a replacement DBE firm at the original price. Further, prime contractors are now mandated to submit DBE information to the transportation agency demonstrating either the prime contractor’s ability to meet the DBE goal or, in the alternative, demonstrating its good faith efforts to meet the goal:
(i) as directed in the solicitation (should the documentation be required as a matter of responsiveness) or
(ii) within seven (7) days after bid opening as a matter of responsibility. Note, after January 1, 2017, this deadline will be reduced to five (5) days.
Failure to submit this information within the specified time period may result in the bid being rejected as non-responsive or the bidder being rejected as non-responsible.
Fortunately, with respect to this revision, consistent with strong objections by prime contractors and trade associations (including AGC), USDOT left the decision whether to use a responsiveness or responsibility approach to the state transportation entity and did not adopt a proposal to require prime contractors to always submit the supporting documentation related to meeting or exceeding the DBE goal at the time of bidding. Such a decision would have resulted in significant administrative burden on prime contractors and would likely result in an increased number of bid protests.
Finally, the revisions include some substantial revisions to overall DBE goal setting. As these revisions are pertinent to Washington State Department of Transportation’s current waiver request that would exclude Caucasian woman-owned businesses (“WBE”) from DBE program goals for federally-funded contracts (a matter which this firm is following very closely), these revisions will be discussed in more detail in a subsequent post.
If you have any questions about how your firm is impacted by these changes or whether you are eligible for the DBE program, please do not hesitate to contact Lindsay Taft at 206-529-3017.
 The two terms “responsiveness” and “responsibility” are routinely confused, but it is important to note that they mean two entirely different things. “Responsiveness” refers to whether the bid is responsive-i.e., whether the bid is compliant with the documentation and directives requested in the bid documents. In contrast, “responsibility” does not refer to the bid, but the bidder and whether the bidder is capable and qualified to perform the project.