DOT Q&A on DBE Program--9Dec2011

§26.55(d)(3)-(5) 12/9/2011

QUESTION:

WHAT OPTIONS DO RECIPIENTS HAVE FOR COUNTING THE

PARTICIPATION OF DBE TRUCKING COMPANIES?

ANSWER:

The first option is to count only the value of transportation services provided by a

DBE trucking company itself, using trucks it owns, insures and operates, and using

drivers it employs. As part of this first option, the DBE trucking firm can count the

participation of other trucks leased from another certified DBE firm.

In this option, if the DBE firm leases trucks from a non-DBE firm, it can count only

fees or commissions it receives for arranging the participation of the non-DBE firm.

No DBE credit can be awarded for the actual transportation services provided by

the non-DBE firm and its trucks.

The second option permits limited DBE credit to be obtained for the use of trucks

leased from non-DBE sources. This option permits counting of credit for the use of

non-DBE trucks not to exceed the value of transportation services on the contract

provided by DBE trucks.

The following example, from section 26.55(d)(5) of the DBE rule, illustrates how

this second option works:

DBE Firm X uses two of its own trucks on a contract. It leases two trucks

from DBE Firm Y and six trucks from non-DBE Firm Z. DBE credit would

be awarded for the total value of transportation services provided by Firm X

and Firm Y, and may also be awarded for the total value of transportation

services provided by four of the six trucks provided by Firm Z. In all, full

credit would be allowed for the participation of eight trucks. With respect to

the other two trucks provided by Firm Z, DBE credit could be awarded only

for the fees or commissions pertaining to those trucks Firm X receives as a

result of the lease with Firm Z.

A recipient can choose either of these options. If it chooses the second option, the

recipient must obtain the written consent of the appropriate DOT operating

administration (e.g., the Federal Highway Administration for a state highway

agency) before implementing that option. Whatever option a recipient chooses

should be clearly stated in its DBE program

.

§§26.73(c), 26.83(i); 26.87(b); 26.109(c) 12/9/2011

QUESTION:

IF THERE IS A CHANGE IN THE OWNERSHIP OF A DBE-CERTIFIED

FIRM, IS THE FIRM AUTOMATICALLY DECERTIFIED?

ANSWER:

No. A certified DBE firm remains certified until and unless it is decertified. A

recipient or UCP can decertify a firm only by using the procedures set forth in

section 26.87.

Under section 26.83(i), a certified DBE firm is required to notify the recipient or

UCP in writing within 30 days of any material change in circumstances that could

affect its ability to meet certification requirements, or any material change in the

information provided in the firm’s application form, including those pertaining to

ownership and contact information (see 5

th paragraph of Affidavit of Certification,

in Appendix F of 49 CFR Part 26).

The DBE must send this notice to all recipients or UCPs with which it is certified.

If the firm fails to provide this written notice within 30 days of the occurrence of

the change, the firm is subject to dcertification for failure to cooperate as provided

in sections §26.73(c) and 26.109(c).

Along with the notice of change, the DBE must attach supporting documentation

describing the change in detail, including documentation that supports the

disadvantaged status of any new owner(s) and their ownership and control of the

firm.

The recipient or UCP may require the firm to provide additional documentation if

necessary to determine whether the new owner meets disadvantage, ownership, and

control requirements, and it may conduct a new on-site review of the firm.

If the firm’s notice and documentation concerning a change in ownership or other

material change leads a recipient or UCP to determine that the firm has become

ineligible (e.g., because the new owner is not a disadvantaged individual or does not

control the business), the recipient or UCP should initiate a section 26.87

decertification proceeding. The firm remains certified pending the outcome of the

proceeding.

We urge recipients and UCPs to give priority to the review of the eligibility of firms

whose circumstances have materially changed and, where appropriate, to conduct

decertification proceedings expeditiously.

§26.53(b)(2)(vi); Appendix A 12/9/2011

QUESTION:

SHOULD RECIPIENTS TREAT AS EVIDENCE OF GOOD FAITH

EFFORTS TO MEET CONTRACT GOALS THE PROPOSED USE OF

POTENTIAL DBE FIRMS THAT ARE NOT CERTIFIED IN THE

RECIPIENT’S STATE?

ANSWER:

No. As background, bidders or offerors on prime contracts may, on some

occasions, propose the use on a contract of minority- or women-owned firms that

are not currently certified in the recipient’s state. In some cases, such firms might

be certified as DBEs in other states.

Good faith efforts are efforts to obtain participation by certified DBEs on the

contract. Efforts to include firms not certified as DBEs in the state where the

contract is being let are consequently not good faith efforts to meet a DBE contract

goal. This is true even if a non-certified firm is owned by minorities or women or is

certified in another state.

We would point out, however, that it is appropriate for recipients to take potential

DBEs into account when calculating overall goals.

§§26.55(e)(2)-(3); 26.71(n); 26.73(a) 12/9/2011

QUESTION:

SHOULD FIRMS BE CERTIFIED AS “REGULAR DEALERS?” IS A FIRM

THAT ACTS AS A REGULAR DEALER ON ONE CONTRACT

NECESSARILY TREATED AS A REGULAR DEALER ON ALL

CONTRACTS?

ANSWER:

No to both questions.

Certification and counting are separate concepts in the DBE rule. Certification and

counting matters should not be conflated or confused with one another.

Firms are certified as DBEs if they are small business concerns owned and

controlled by socially and economically disadvantaged individuals. DBE firms

must be certified in the most specific NAICS code(s) for the type of work they

perform. While a firm may be certified in a NAICS code related to performing

supplier functions, it is not appropriate to certify any firm as a “regular dealer.” In

fact, there is no NAICS code for a “regular dealer.” The only appropriate use of the

term “regular dealer” concerns counting participation by DBE firms that have

already been certified.

If a certified firm acts as a “regular dealer” in a given transaction, it is awarded

DBE credit equivalent to 60 percent of the value of the items it supplies on that

contract. This credit is awarded in recognition of the value the DBE adds to

transaction and the risks that it takes. The rules provide that a firm the role of

which is that of a broker or transaction expediter cannot receive DBE credit beyond

the fee or commission it receives for its services. Such a firm adds less value and

takes fewer risks than a regular dealer.

Whether a DBE firm meets the criteria of §26.55(e)(2) for being treated as a regular

dealer is a contract-by-contract determination to be made by the recipient. In

evaluating whether a DBE firm should receive 60 percent credit for items it supplies

on a particular contract, a recipient should answer two questions. If the answer to

either question is “no,” then the firm should not receive 60 percent credit.

First, does the firm “regularly” engage in the purchase and sale or lease, to the

general public in the usual course of its business, of products of the general

character involved in the contract and for which DBE credit is sought? Answering

this question involves attention to the activities of the business over time, both

within and outside the context of the DBE program. The distinction to be drawn is

between the regular sale or lease of the products in question and merely occasional

or

ad hoc involvement with them.

In answering this question, recipients should not insist that every single item the

DBE firm supplies be physically present in the firm’s store, warehouse, etc. before

it is sold to a contractor. However, the establishment in which the firm keeps items

it sells to the general public should be more than a token location. For example, a

mere showroom, the existence of a hard-copy or on-line catalog, or the presence of

small amounts of material that make questionable the ability of the firm to

effectively supply quantities typically needed on a contract, are generally not

sufficient to demonstrate that a firm regularly deals in the items.

Second, is the role the firm plays on the specific contract in question consistent with

the regular sale or lease of the products in question, as distinct from a role better

understood as that of a broker, packager, manufacturer’s representative, or other

person who arranges or expedites a transaction? For example, a firm that regularly

stocks and sells Product X may, on a particular contract, simply communicate a

prime contractor’s order for Product Y to the manufacturer, acting in a transaction

expediter capacity.

This means that a firm that acts as a regular dealer on one contract does not

necessarily act as a regular dealer on other contracts. For example, a firm that acts

as a regular dealer on Contract #1 may act simply as a “transaction expediter” or

“broker” on Contract #2. It would receive DBE credit for 60 percent of the value of

the goods supplied on Contract #1 while only receiving DBE credit for its fee or

commission on Contract #2.

In some circumstances, items are “drop-shipped” directly from a manufacturer’s

facility to a job site, never being in the physical possession of or transported by a

supplier. In many such cases, the supplier’s role may involve nothing more than

contacting the manufacturer and placing a job-specific order for an item that the

manufacturer then causes to be transported to the job site.

In such a situation, the supplier’s role may often be better described as that of a

“broker” or “transaction expediter” (see 26.55(e)(2)(ii)(C)) than as a “regular

dealer.” In such a case, DBE credit is limited to the fee or commission the firm

receives for its services. If the firm does not provide any commercially useful

function (i.e., it is simply inserted as an extra participant in a transaction), then no

DBE credit can be counted.

§26.83(i)-(j) 12/9/2011

QUESTION:

ARE DBE AND ACDBE FIRMS REQUIRED TO TRANSMIT NOTICES OF

CHANGE AND AFFIDAVITS OF NO CHANGE TO ALL

RECIPIENTS/UCPS WITH WHICH THEY ARE CERTIFIED?

ANSWER:

Yes. A DBE or ACDBE, including one that is certified in more than one state, must

always send an annual affidavit of no change or, as needed, a notice of change, to

every recipient/UCP with which it is certified. For firms certified in more than one

state, sending such documents only to the firm’s home state is not sufficient.

This requirement applies to ACDBEs under 49 CFR Part 23 as well as DBEs under

49 CFR Part 26.

The fact that ACDBEs and DBEs remain certified until or unless decertified does

not affect the requirement to provide annual affidavits of no change and notices of

change.

Failure to provide these documents subjects a firm to decertification proceedings for

failure to cooperate (see 49 CFR 26.109(c)).

When providing an affidavit of no change, the firm must attach documentation

showing that it continues to meet applicable small business size standards.

Recipients/UCPs may request additional information (e.g., concerning personal net

worth or the firm’s independence) where there is reason to believe that additional

verification is necessary.

§265.83(h); 00226.87; 12/9/2011

QUESTION:

CAN A CERTIFIED DBE FIRM VOLUNTARILY WITHDRAW FROM

THE DBE PROGRAM?

ANSWER:

Yes. Generally, a certified DBE firm remains certified until and unless it is

decertified, using the procedures set forth in section 26.87.

However, a DBE firm can voluntarily withdraw from the DBE program. It can do

so by sending a notarized letter to the certifying agency and saying that it wants to

cease participating in the program.

When it receives such a letter, the recipient or UCP should send an

acknowledgement letter to the firm saying that, unless the recipient or UCP hears to

the contrary from the firm within a given number of days, the firm’s DBE

certification will be terminated.

The recipient/UCP can then remove the firm from its Directory, and the firm would

not, in the future, be eligible to participate as a DBE unless it later applied for

certification through an initial application.

If a firm takes other action conclusively demonstrating that it does not intend to

continue to compete for contracts, such as filing paperwork with a state’s Secretary

of State or other regulatory agency terminating its ability to do business in the state,

the firm has taken action equivalent to voluntarily withdrawing from the DBE

program. In such a case, the recipient/UCP may remove the firm from the DBE

Directory without pursuing a decertification proceeding under section 26.87.

This is also true if the recipient/UCP has other conclusive evidence that the firm is

no longer a going concern (e.g., there is documentation that the firm has been

liquidated in bankruptcy).

§26.29(d)(-(e) 12/9/2011

QUESTION:

IS RELYING ONLY ON COMPLAINTS AN APPROPRIATE MEANS OF

ENFORCING THE PROMPT PAYMENT AND RETAINAGE

REQUIREMENTS OF THE RULE?

ANSWER:

No. Relying only on complaints or notifications from subcontractors about a prime

contractor’s failure to comply with prompt payment and retainage requirements is

not a sufficient mechanism to enforce the requirements of this section.

Subcontractors are often reluctant to complain about prime contractors for fear that

doing so will make it more difficult to get work in the future. This means that

recipients may not receive complaints that would alert them to noncompliance by

prime contractors.

While this section does not mandate that a recipient employ a specific type of

mechanism, recipients are expected to take affirmative steps to monitor and enforce

prompt payment and retainage requirements of section 26.29.

§26.71(n)(1) 12/9/2011

QUESTION:

IF A FIRM HAS EXCEEDED THE SIZE STANDARD FOR THE MOST

SPECIFIC AVAILABLE NAICS CODE FOR THE TYPE OF WORK IT

DOES, IS IT APPROPRIATE FOR THE FIRM TO CONTINUE WORKING

IN THAT TYPE OF WORK IN A BROADER NAICS CODE?

ANSWER:

Generally not. Section 26.71(n)(1) provides that the types of work a firm can

perform as a DBE “must be described in terms of the most specific available

NAICS code for that type of work.”

Suppose a firm’s work is in Specialty Subcontracting Field X. The most specific

available NAICS code is one that describes only Field X and does not include other

types of work. That is the only NAICS code that should be assigned to the firm.

If the firm exceeds the size standard for the specific NAICS code relating to Field

X, then it is no longer eligible to work as a DBE. If there is a broader NAICS code

that includes not only Field X, but also Fields A, B, C, and D, and which has a

higher size standard, the firm should not be assigned that broader code.

The only exception to this principle would be in a situation where the firm actually

performs all or some of the types of work in Fields A, B, C, and D and

demonstrates to the certifying entity that the disadvantaged owners can control the

activities of the firm in those areas.

§26.53(f) 12/9/2011

QUESTION:

CAN A PRIME CONTRACTOR REDUCE THE AMOUNT OF WORK

COMMITTED TO A DBE FIRM AT CONTRACT AWARD WITHOUT

GOOD CAUSE?

ANSWER:

No. The Department views such a reduction as a partial termination of the DBE’s

contract with the prime contractor. Recipients should dissuade contractors from

reducing amounts of work committed to DBEs.

Reducing the amount of work committed to a DBE at contract award, where this

commitment was part of the prime contractor’s good faith efforts to meet a contract

goal, is subject to the requirements of section 26.53(f). This means that the prime

contractor can reduce the amount of work committed to the DBE only for good

cause and only with the written concurrence of the recipient.

This is true even if the contractor continues to meet its contract goal through other

means.

For example, suppose a prime contractor commits $500,000 to each of two DBE

subcontractors, thereby meeting a 10 percent goal on a $10 million prime contract.

Part way through the performance of the contract, the prime contractor finds it

necessary to expend an additional $100,000 in the work being performed by DBE

subcontractor #1. The contractor then wishes to reduce the work assigned to DBE

subcontractor #2 by $100,000, reasoning that the 10 percent goal will still be met.

In such a situation, the prime contractor cannot act on its own to reduce the work

assigned DBE subcontractor #2. It would have to comply with section 26.53(f).

§26.83(f) 12/9/2011

QUESTION:

CAN RECIPIENTS AND UCPs CHARGE APPLICATION FEES TO FIRMS

SEEKING DBE CERTIFICTION?

ANSWER:

No, unless the relevant DOT operating administration approves the fee.

An application fee may be charged only “subject to the approval of the concerned

operating administration as part of your DBE program.” This means that a

certifying entity is prohibited from charging such a fee unless the concerned

operating administration has approved it.

This approval concerns not only the concept of charging a fee, but the specific

dollar amount of a fee.

If a certifying entity is currently charging an application fee in the absence of the

concerned operating administration’s approval, the certifying entity should

immediately stop charging it.

To be approved, a fee must be “reasonable.” In keeping with the objective of

encouraging firms to apply for DBE certification, rather than deterring them from

doing so, any application fee should be modest.

Recipients are reminded that fee waivers should be made in appropriate cases.

§26.81(a)(4) 12/9/2011

QUESTION:

WHAT PROCEDURES SHOULD A UNIFIED CERTIFICATION

PROGRAM (UCP) USE TO REMOVE OR REPLACE THE

CERTIFICATION FUNCTIONS OF ONE OR MORE OF ITS MEMBERS?

ANSWER:

If a UCP member wants to stop performing certification functions, or if a UCP

wants to remove or replace the certification functions of a member, the UCP must,

submit to USDOT an amendment to its UCP plan for prior approval.

The proposed amendment should do the following things: (1) describe how the

certification functions of the UCP member will be delegated to other UCP partners;

(2) provide details of how the UCP will ensure that DBE firms certified by the

withdrawing UCP member will remain certified; (3) describe how one or more UCP

members will divide the certification workload, for both currently certified firms

and pending applications; (4) designate which UCP member or members will

review annual affidavits of no change for firms certified by the withdrawing

member3ew; and (5) provide assurances that the UCP will inform all firms that

their certification, annual affidavits, and applications will now be processed by

another UCP member.

The Department may disapprove the proposed UCP amendment if proper

protections for certified DBE firms and applicants are not adequately described.

If the proposed amendment is not approved, disapproved, or remanded to the UCP

for revisions within 180 days of its submission, it is deemed to be accepted.

§§26.81 – 26.83 12/9/2011

QUESTION:

CAN UCPs TREAT CERTIFIED DBE FIRMS AS NEW APPLICANTS IF

THE UCP MEMBER THAT ORIGINALLY CERTIFIED THE FIRM NO

LONGER CERTIFIES FIRMS ON BEHALF OF THE UCP?

ANSWER

No. Once a DBE firm is certified, it remains certified unless and until decertified

by the UCP under section 26.87

A firm does not lose its certification because the UCP member that originally

certified it ceases to perform certification functions for the UCP.

In the event that a UCP member that formerly had certification duties no longer

performs certifications for the UCP, all DBE certifications issued by that member

remain in effect until and unless the decertification procedures set forth in 26.87

have been completed.

Certified firms are not considered new applicants just because a new certifying

entity now has their file.

§23.37 12/9/2011

QUESTION:

MAY A RECIPIENT OR UCP REQUIRE A FIRM CERTIFIED AS A DBE

UNDER PART 26 TO COMPLETE AN ENTIRE NEW APPLICATION TO

BE CERTIFIED AS AN ACDBE UNDER PART 23?

ANSWER:

No. Section 23.37 provides that as a recipient or UCP, you are required to presume

that a firm certified in your State as a DBE under Part 26 meets size, disadvantage,

ownership, and control requirements for certification as an ACDBE under Part 23.

As of the date on which this Q&A is being issued, the personal net worth (PNW)

cap for Part 26 ($1.32 million) and Part 23 ($750,000) are different. Consequently,

a recipient or UCP must check to make sure a Part 23 applicant meets the Part 23

PNW cap. However, if the Part 23 PNW cap is changed to be the same as the Part

26 PNW cap, then certification under Part 26 will also mean that the firm meets the

Part 23 PNW cap.

There is only one additional determination that you need to make in order to certify

such a firm as an ACDBE: whether the disadvantaged owners of the Part 26-

certified firm can control the activities of the firm with respect to its participation in

the ACDBE program.

You are not required to certify a DBE firm as an ACDBE if the firm does not do

work relevant to the airport concessions program (e.g., operating a concession or

providing goods and services to concessions).

In summary, when you receive an ACDBE application that has a current Part 26

DBE certification in your State, you should only seek information on two subjects:

the firm owner’s PNW (pending a change to Part 23 to use the same PNW cap as is

used in Part 26) and the disadvantaged owner’s ability to control the firm with

respect to airport concession activities. You may not require the firm to file a

complete new application.