Cynthia Cooper, a staunch advocate for small business, minority and disadvantage business enterprises resigned her position as head of the Office of Minority & Women’s Business Enterprises last month. No reason for her resignation was provided, small and disadvantaged businesses have lost a strong ally and her departure will be missed. It is rumored that Cathy Canorro, a long time widely respected OMWBE administrator will be appointed the acting head of the agency. Ms. Canorro brings many years of experience and a strong legal background to her new position.

Promotion of small businesses has been targeted by the Governor and the President as one of the key ingredients needed to pull this economy out of its present slump. Ms. Canorro faces many challenges, not the least of which is unnecessary meddling by other agencies in OMWBE’s affairs and business.

The United States is experiencing one of the worst economic crises since the Great Depression. To jump start the economy, a number of federal and state laws have been passed. To further the goal of creating new jobs and spurring the economic activity, state and public agencies are encouraged to award public works projects using transparent, merit based selection criteria to guide their decision making. State agencies are encouraged to stimulate the state’s economy by awarding public works infrastructure projects.

Regrettably, federal government agencies have inserted themselves in this state procurement process and are interpreting the disadvantage business enterprise (DBE) requirements in a byzantine manner to the point that now many projects are now stymied or bogged down in unnecessary protests based on the interpretation of DBE project requirements.

OMWBE by statute and administrative code assigns each and every DBE various NAICS (North American Industrial Classification System) codes based on the activities performed by the particular DBE. The DBE’s work activity determines the appropriate NAICS code. In addition, every DBE performing public work must fulfill a “commercially useful function” (CUF) which ensures that indeed the DBE is performing the work and simply not serving as a front or stand-in for a non-DBE contractor. In other words, the CUF requirement ensures that indeed the DBE is carrying out the responsibilities by actually performing, managing and supervising its work.

Federal agencies (in particular FHWA) presently are relying on the designation of a DBE’s NAICS code as the single determinant factor whether a DBE is qualified to perform work. This “form over substance” criteria ignores the DBE’s qualifications and simply establishes a “pass/fail” type criterion for the determination as to whether a DBE is qualified to perform on a particular federally funded project.

The weakness of that wooden application of NAICS codes is that it does not specifically describe all of the various construction activities that the particular DBE contractor may perform. Therefore, agencies such as the OMWBE do their best to extrapolate and surmise what NAICS code a particular DBE should be categorized in. The NAICS code was not created to classify DBE contractors, but instead was created to classify all contractors in North America as part of the North America Free Trade Association (NAFTA) treaty. FHWA undaunted by inherent NAICS shortcomings is strictly applying the NAICS system in a manner it was never designed for. Inappropriate application is depriving DBE’s valuable opportunities and Washington taxpayers of substantial savings when FHWA rejects low bidders based on a wooden adherence to the NAICS code classification

OMWBE recognizes that the NAICS code classification system is not the primary touchstone as to whether a DBE performs a CUF, but instead, is simply one factor in considering whether the DBE performs a CUF in the work it undertakes. OMWBE recognizes that the NAICS code is not talismanic determinant of whether a DBE can perform or is qualified to perform, but is simply one of many factors to be considered in that process. Regrettably, FHWA has been employing this wooden pass/fail criterion to NAICS codes to the detriment of the taxpaying public and DBEs. To restart our economic engine and steal another day from this recession, these artificial hurdles to putting small businesses to work must be eliminated.

Ms. Canorro faces significant challenges in her new position, but indications are she has the support of the small business and DBE community behind her.

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