NORTH CENTRAL TEXAS REGIONAL CERTIFICATION AGENCY

DISADVANTAGED, MINORITY AND WOMAN-OWNED BUSINESS ENTERPRISES CERTIFICATION STANDARDS AND PROCEDURES MANUAL (Revised March 1999)

1.	MISSION STATEMENT
2.	APPLICABILITY
3.	RESPONSIBILITIES
4.	PROPRIETARY DISCLOSURE
5.	DEFINITIONS
6.	DBE ELIGIBILITY STANDARDS
7.	CERTIFICATION STANDARDS
8.	CERTIFICATION PROCEDURES
9.	SUMMARY

I. MISSION STATEMENT

It is the policy of the public entities that are participants of the North Central Texas Regional Certification Agency (Agency) that Disadvantaged Business Enterprises (DBEs), Minority Business Enterprises (MBEs), and Women-Owned Business Enterprises (WBEs) have the maximum practicable opportunity to participate in their procurement activities. The procedures outlined in this document describe the Agency’s certification process. The certification process provides DBEs, MBEs, and WBEs to the member governmental entities. These procedures are consistent with the standards of 49 CFR Part 26, and other regulations and guidelines of the U. S. Department of Transportation (DOT), the Federal Transportation Administration (FTA), the Federal Aviation Administration ( FFA) and the Federal Highway Administration (FHWA).

It should be noted that failure to be certified as a DBE, MBE, or WBE by the Agency DOES NOT PRECLUDE a firm from participating directly in any of the member entities’ purchasing and contracting opportunities.

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II. APPLICABILITY

The standards and procedures established in this manual are applicable to any request from a business entity seeking certification.

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III. RESPONSIBILITIES

The Agency’s Board of Directors is ultimately responsible for ensuring that the Agency’s policies and applicable federal, state and local regulations are implemented and enforced. The Agency’s director is the operational manager responsible for the overall implementation, monitoring and reporting of the Agency’s certification process. The Agency’s staff is assigned the responsibilities for the day-to-day implementation of the Agency’s certification process.

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IV. PROPRIETARY DISCLOSURE

The Agency will safeguard from disclosure, information that is covered by federal, state and local laws and regulations, and that reasonably may be regarded as confidential personal and business information. Disclosure of information applicable to and provided as a results of the certification process will only be with the owner advice and/or consent.

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V. DEFINITIONS

Affidavit - An application for certification.

Affiliate - To associate oneself as a subordinate, subsidiary or member with another.

Affiliation - As defined in the Small Business Administration (SBA) regulations, 13 CFR Part 121.

(1) Business concerns are affiliates of each other when, either directly or indirectly:

One concern controls or has the power to control the other; or
A third party or parties controls or has the power to control both; or
An identity of interest between or among parties exists such that affiliation may be found.

(2) In determining whether affiliation exists, it is necessary to consider all appropriate factors, including common ownership, common management, and contractual relationships. Affiliates must be considered together in determining whether a concern meets small business size criteria and the statutory cap on the participation of firms in the DBE program.

Agency - The North Central Texas Regional Certification Agency

Alaska Native - A citizen of the United States who is a person of one-fourth degree or more Alaskan Indian (including Tsimshian Indians not enrolled in the Metlaktla Indian Community), Eskimo, or Aleut blood, or a combination of those bloodlines. The term includes, in the absence of proof of a minimum blood quantum, any citizen who a Native village or Native group regards as an Alaska Native, if their father or mother is/was regarded as an Alaska Native.

Alaska Native Corporation (ANC) - Any Regional Corporation, Village Corporation, Urban Corporation, or Group Corporation organized under the laws of the State of Alaska in accordance with the Alaska Native Claims Settlement Act, as amended in 43 U.S.C. 1601, et seq.

Applicant - A business entity which requests the Agency to recognize it as a DBE, MBE, or WBE by submission of an affidavit or application for certification.

Board - The Agency’s Board of Directors composed of representatives from each of the member entities.

Certification - The process by which a business enterprise is initially determined by the Agency to be a bona-fide minority or woman owned business.

Challenge - A formal filing by a third party to rebut the presumption that a particular firm does not meet the standards for being classified as a DBE.

Control - The primary power to direct the management of a business enterprise.

Denial - The Agency’s action of denying DBE certification to a firm that does not meet the certification eligibility criteria as outlined in this manual and other regulations promulgated from time to time by DOT.

Disable / Disability - A person is considered disable if their disability is chronic, longstanding and can be recognized by the general public. To prove disability a person must present evidence that their disability has hinder them in doing business with the government. Generally, a person with a handicap that causes them to receive a status of at least 50% incapacitated and recognized by the federal or state government is acceptable.

Disadvantaged Business Enterprise (DBE) - An independent for-profit small business:

Which is at least 51 percent owned and controlled by one or more socially and economically disadvantaged individuals, or in the case of any publicly owned business, at least 51 percent of the stock of which is owned by one or more socially and economically disadvantaged individuals; and

Whose management and daily business operations are controlled as defined herein, by one or more of the socially and economically disadvantaged individuals who own it; and
Which receives certification by the Agency as meeting the requirements stated in this definition; and

Which meets the size standards of 13 CFR Part 121.2 and other relevant regulations.

Immediate family member - Any relative that can be considered a father, mother, husband, wife, son, daughter, brother, sister, grandmother, grandfather, grandson, granddaughter, mother-in-law, or father-in-law.

Indian tribe - Any tribe, band, nation, or other organized group or community of Indians, including any ANC, which is recognized as eligible for the special programs and services provided to Indians because of their status by the United States. Or, when such programs and services are recognized as such by the State in which the tribe, band, nation, group, or community resides. See definition of "tribally-owned concern".

Joint venture - An association of a DBE firm and one or more other firms to carry out a single, for-profit business enterprise, for which the parties combine their property, capital, efforts, skills and knowledge. Also, in which the DBE is responsible for a distinct, clearly defined portion of the work of the contract and whose share in the capital contribution, control, management, risks, and profits of the joint venture are commensurate with its ownership interest.

Native Hawaiian - Any individual whose ancestors were natives, prior to 1778, of the area, which now comprises the State of Hawaii.

Native Hawaiian Organization - Any community service organization serving Native Hawaiians in the State of Hawaii, which is a not-for-profit organization chartered by the State of Hawaii, is controlled by

Native Hawaiians, and whose business activities will principally benefit such Native Hawaiians.

Minority Business Enterprise (MBE) - A business concern:

Which is at least 51 percent owned and controlled by one or more minority persons, or in the case of any publicly owned business, at least 51 percent of the stock of which is owned by one or more minorities; and

Whose management and daily operations are controlled by one or more of the minority individuals who own it. Minority persons include Blacks, Hispanics, Asian Pacific Americans, Asian Indian Americans, and Native Americans.

Ownership - The business structure of the firm under the definitions for "sole proprietorship, partnership and corporation."

Partnership - A business concerns in which a socially and economically disadvantaged individual or a woman owns at least 51 percent of the partnership assets or interests.

Personal net worth - The net value of the assets of an individual remaining after total liabilities are deducted. An individual’s personal net worth does not includes the individual’s ownership interest in an applicant or participating DBE firm or the individual’s equity in his or her primary place of residence. An individual’s personal net worth includes only his or her owns share of assets held jointly or as community property with the individual’s spouse.

Primary industry classification - The four digit Standard Industrial Classification (SIC) code designation which best describes the primary business of a firm. The SIC code designations are described in the Standard Industry Classification Manual . As the North American Industrial Classification System (NAICS) replaces the SIC system, references to SIC codes and the SIC Manual are deemed to refer to the NAICS manual and applicable codes.

Principal place of business - The business location where the individuals who manage the firm’s day-to-day operations spend most working hours and where top management’s business records are kept. If the offices from which management is directed and where business records are kept are in different locations, the Agency will determine the principal place of business for DBE program purposes.

Small Business Administration or SBA - The United States Small Business Administration.

Socially and economically disadvantaged individual - Any individual who is a citizen or lawfully admitted permanent resident of the United States and who is:

(1) Any individual in the following groups, members of which are refutably presumed to be socially and economically disadvantaged:

"Women";
"Black Americans," which 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 other Spanish or Portuguese culture or origin, regardless of race;

"Native Americans," which includes persons who are

American Indians, Eskimos, Aleuts, or Native Hawaiians;

"Asian-Pacific Americans," which includes persons 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," which includes persons whose origins are from India, Pakistan, Bangladesh, Bhutan, the Maldives Islands, Nepal or Sri Lanka;

"Disabled"; or
Any additional groups whose members are designated as socially and economically disadvantaged by the SBA, at such time as the SBA designation becomes effective.

(2) Any individual who, on a case-by-case basis, is found to be a socially and economically disadvantaged individual.

Sole Proprietorship - A business concern that is owned by a socially and economically disadvantaged minority, woman or person.

Tribally owned concerns - Any concern at least 51 percent owned by a recognized Indian tribe.

Women-Owned Business Enterprise (WBE) - A business concern:

Which is at least 51 percent owned and controlled by one or more women, or in the case of any publicly owned business, at least 51 percent of the stock of which is owned by one or more women; and
Whose management and daily operations are controlled by one or more women who own it.

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VI. DBE ELIGIBILITY STANDARDS

At a minimum, the following standards will be used by the Agency as part of the certification process. The process will be used in determining whether a firm is a business concern, owned and controlled by one or more minorities, socially and economically disadvantaged individuals, handicapped individuals, and/or women. If eligible the firm will be certified as a DBE. A DBE can be either a minority owned business enterprise or a woman owned business enterprise that meets all certification eligibility standards.

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VII. CERTIFICATION STANDARDS

A. Allocation of burdens of proof.

(1) In determining whether to certify a firm as eligible to participate as a DBE, the firm seeking certification has the burden of demonstrating to the Agency, by a preponderance of the evidence, that it meets the requirements of the standards concerning group membership or individual disadvantage, business size, ownership, and control.

(2) The Agency must refutably presume that member of the designated groups are socially and economically disadvantaged. This means that they do not have the burden of proving to the Agency that they are socially and economically disadvantaged. However, applicants have the obligation to provide the Agency information concerning their economic disadvantage. Individuals who are not presumed to be socially and economically disadvantaged, and individuals that the presumption of disadvantage has been rebutted, have the burden of proving, by a preponderance of the evidence, that they are socially and economically disadvantaged. (See Appendix E.)

(3) The Agency must make determinations concerning whether individuals and firms have met their burden of demonstrating group membership, ownership, control, and social and economic disadvantage (where disadvantage must be demonstrated on an individual basis) by considering all the facts in the record, viewed as a whole.

B. Rules that governs group membership determinations.

(1) If the Agency has a reason to question whether an individual is a member of a group that is presumed to be socially and economically disadvantaged, it must require the individual to demonstrate, by a preponderance of the evidence, that he or she is a member of the group.

(2) In making such a determination, the Agency must consider whether the person has held himself out to be a member of the group over a long period of time prior to application for certification and whether the relevant community regards the person as a member of the group. The Agency may require the applicant to produce appropriate documentation of group membership.

(3) If the Agency determines that an individual claiming to be a member of a group presumed to be disadvantaged is not a member of a designated disadvantaged group, the individual must demonstrate social and economic disadvantage on an individual basis.

(4) The decisions concerning membership in a designated group is subject to the certification appeals procedures.

C. Rules governing business size determinations.

To be an eligible DBE, a firm, including its affiliates, must be an existing small business, as defined by the SBA. The Agency must apply the appropriate , current size standard to the type(s) of work the firm seeks to perform. Even if a firm meets the requirements of the size standards, the firm is not an eligible DBE in any federal fiscal year if the firm, including its affiliates, has had average annual gross receipts over the firm’s previous three fiscal years, in excess of $16.6 million. DOT may adjusts this amount for inflation from time to time.

D. Rules that determines social and economic disadvantage.

(1) Presumption of disadvantage.

The Agency must refutably presume that citizens of

the United States or lawfully admitted permanent residents who are women, Black Americans, Hispanic Americans, Native Americans, Asian-Pacific Americans, Subcontinent Asian Americans, or other minorities found to be disadvantaged by the SBA, are socially and economically disadvantaged individuals. It must require applicants to submit a signed, notarized affidavit certifying that each presumptively disadvantaged owner is, in fact, socially and economically disadvantaged.

(i) The Agency must require each individual 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.

In determining net worth, the Agency must

exclude an individual’s ownership interest in the applicant firm and the individual’s equity in his or her primary residence, except any portion of such equity that is attributable to excessive withdrawals from the applicant firm. A contingent liability does not reduce an individual’s net worth. The personal net worth of an individual claiming to be an Alaska Native will include assets and income from sources other than an Alaska Native Corporation. Exclude any of the following, which the individual receives from any Alaska Native Corporation –

o cash;

cash dividends on stock, to the extent that it does not,

in the aggregate, exceed $2,000 per individual per annum;

o stock, including stock issued or distributed by an ANC

as a dividend or distribution on stock;

o a partnership interest;

land or an interest in land, including land or an

interest in land received from an ANC as a dividend or distribution on stock; and

o an interest in a settlement trusts.

(2) Rebuttal of presumption of disadvantage.

(a)

If the statement of personal net worth that an

individual submits under paragraph (a)(2) of this section shows that the individual’s personal net worth exceeds $750,000, the individual’s presumption of economic disadvantage is rebutted. The Agency is not required to have a proceeding under paragraph (2)(b) of this section in order to rebut the presumption of economic disadvantage in this case.

(b)

If the Agency has a reasonable basis to believe that

an individual who is a member of one of the designated groups is not, in fact, socially and/or economically disadvantaged it may, at any time, start a proceeding to determine whether the presumption should be regarded as rebutted with respect to that individual.

(c) In such a proceeding, the Agency has the burden of demonstrating, by a preponderance of the evidence, that the individual is not socially and economically disadvantaged. The Agency may require the individual to produce information relevant to the determination of his or her disadvantage.

(d) When an individual’s presumption of social and/or

economic disadvantage has been rebutted, his or her ownership and control of the firm in question cannot be used for purposes of DBE eligibility, until he or she makes an individual showing of social and/or economic disadvantage. If the basis for rebutting the presumption is a determination that the individual’s personal net worth exceeds $750,000, the individual is no longer eligible for participation in the program and cannot regain eligibility by making an individual showing of disadvantage.

8(a) and Small Disadvantaged Business (SDB) Firms.

The Agency may accept a current, valid certification from a firm that has been certified by the SBA under its 8(a) or SDB program, except an SDB certification based on the firm’s self-certification in lieu of conducting its own certification process. Likewise, the Agency may accept the certification of another DOT recipient instead of conducting its own.

(4) Individual determinations of social and economic disadvantage. Firms owned and controlled by individuals who are not presumed to be socially and economically disadvantaged (including individuals whose presumed disadvantage has been rebutted) may apply for DBE certification. The Agency must make a case-by-case determination of whether each individual whose ownership and control are relied upon for DBE certification is socially and economically disadvantaged. In such a proceeding, the applicant firm has the burden of demonstrating, by a preponderance of the evidence, that the individual(s) who own and control the firm is (are) socially and economically disadvantaged. An individual whose personal net worth exceeds $750,000 shall not be deemed to be economically disadvantaged. In making these determinations, the Agency must use the guidance found in Appendix E. It must, also, require that applicants provide sufficient information to permit determinations under the guidance of Appendix E.

E. Rules that governs determinations of ownership.

(1) The Agency must consider all the facts in the record, viewed as a whole, in determining whether the socially and economically disadvantaged individual(s) in a firm own the firm.

(2) To be an eligible DBE, a firm must be at least 51 percent

owned by individual(s) who are socially and economically disadvantaged.

In the case of a corporation, such individual (s) must

own at least 51 percent of each class of voting stock outstanding and 51 percent of the aggregate of all stock outstanding.

In the case of a partnership, socially and

economically disadvantaged individual(s) must own 51 percent of each class of partnership interest. Such ownership must be reflected in the firm’s partnership agreement.

In the case of a limited liability company, socially and

economically disadvantaged individual(s) must own at least 51 percent of each class of member interest.

(3) The firm’s ownership by socially and economically disadvantaged individual(s) must be real, substantial, and continuing, going beyond pro forma ownership of the firm as reflected in ownership documents. The disadvantaged owner (s) must enjoy the customary incidents of ownership, and share in the risks and profits commensurate with their ownership interests, as demonstrated by the substance, not merely the form, of arrangements.

(4) All securities that constitute ownership of a firm shall be held directly by disadvantaged persons. Except as provided below, no securities or assets held in trust, or by any guardian for a minor, are considered as held by disadvantaged persons in determining the ownership of a firm. However, securities or assets held in trust are regarded as held by a disadvantaged individual for purposes of determining ownership of the firm, if:

The beneficial owner of securities or assets held in

trust is a disadvantaged individual, and the trustee is the same or another such individual; or

The beneficial owner of a trust is a disadvantaged

individual who, rather than the trustee, exercises effective control over the management, policy-making, and daily operational activities of the firm. Assets held in a revocable living trust may be counted only in the situation where the same disadvantaged individual is the sole grantor, beneficiary, and trustee.

(5) The contributions of capital or expertise by the socially and economically disadvantaged owners to acquire their ownership interests must be real and substantial. Examples of insufficient contributions include:

o A promise to contribute capital,

An unsecured note payable to the firm or an owner who is not a disadvantaged individual, or

A mere participation in a firm’s activities as an employee.

Debt instruments from financial institutions or other organizations that lend funds in the normal course of their business do not render a firm ineligible, even if the debtor’s ownership interest is security for the loan.

(6) The following requirements apply to situations in which expertise is relied upon as part of a disadvantaged owner’s contribution to acquire ownership.

(a) The owner’s expertise must be:

o In a specialized field;

Of outstanding quality;

o In areas critical to the firm’s operations;

Indispensable to the firm’s potential success;

Specific to the type of work the firm performs;

Documented in the records of the firm. These records must clearly show the contribution of expertise and its value to the firm.

(b) The individual whose expertise is relied upon must have a significant financial investment in the firm.

(7) The Agency must always deem as held by a socially and economically disadvantaged individual, for purposes of determining ownership, all interests in a business or other assets obtained by the individual as the result:

Of a final property settlement or court order in a

divorce or legal separation, provided that no term or condition of the agreement or divorce decree is inconsistent with this section; or

Through inheritance, or otherwise because of the

death of the former owner.

(8) (a) You must presume as not being held by a socially and economically disadvantaged individual, for purposes of determining ownership, all interests in a business or other assets obtained by the individual as the result of a gift, or transfer without adequate consideration, from any non-disadvantaged individual or non-DBE firm who is:

Involved in the same firm for which the individual is seeking

certification, or an affiliate of that firm;

Involved in the same or a similar line of business; or
Engaged in an ongoing business relationship with the firm,

or an affiliate of the firm, for which the individual is seeking certification.

(b) To overcome this presumption and permit the interests or assets to be counted, the disadvantaged individual must demonstrate to you, by clear and convincing evidence, that:

The gift or transfer to the disadvantaged individual was

made for reasons other than obtaining certification as a DBE; and

The disadvantaged individual actually controls the

management, policy, and operations of the firm, notwithstanding the continuing participation of a non-disadvantaged individual who provided the gift or transfer.

(9) The Agency must apply the following rules in situations in which marital assets form a basis for ownership of a firm:

(a) Marital assets (other than the assets of the business in question), that are held jointly or as community property by both spouses, are used to acquire the ownership interest asserted by one spouse, the Agency must deem the ownership interest in the firm to have been acquired by that spouse with his or her own individual resources, provided the other spouse irrevocably renounces and transfers all rights in the ownership interest in the manner sanctioned by the laws of the state in which either spouse or the firm is domiciled. The Agency will not count a greater portion of joint or community property assets toward ownership than state law would recognize as belonging to the socially and economically disadvantaged owner of the applicant firm.

(b) A copy of the document legally transferring and renouncing the other spouse’s rights in the jointly owned or community assets used to acquire an ownership interest in the firm must be included as part of the firm’s application for DBE certification.

(10) The Agency may consider the following factors in determining the ownership of a firm. However, you must not regard a contribution of capital as failing to be real and substantial, or find a firm ineligible, solely because:

(a) A socially and economically disadvantaged individual acquired his or her ownership interest as the result of a gift, or transfer without adequate consideration, other than the types set forth in paragraph (5) above;

(b) There is a provision for the co-signature of a spouse who is not a socially and economically disadvantaged individual on financing agreements, contracts for the purchase or sale of real or personal property, bank signature cards, or other documents; or

(c) Ownership of the firm in question or its assets is transferred for adequate consideration from a spouse who is not a socially and economically disadvantaged individual to a spouse who is such an individual. In this case, the Agency must give particularly close and careful scrutiny to the ownership and control of a firm to ensure that it is owned and controlled, in substance as well as in form, by a socially and economically disadvantaged individual.

F. Rules that govern determinations concerning control.

(1) In determining whether socially and economically disadvantaged owners control a firm, you must consider all the facts in the record, viewed as a whole.

(2) Only an independent business may be certified as a DBE. An independent business is one the viability of which does not depend on its relationship with another firm or firms.

In determining whether a potential DBE is an

independent business, the Agency must verify the relationships with non-DBE firms, in such areas as personnel, facilities, equipment, financial and/or bonding support, and other resources.

The Agency must consider whether present or recent

employer/employee relationships between the disadvantaged owner(s) of the potential DBE and non-DBE firms or persons associated with non-DBE firms’ compromise the independence of the potential DBE firm.

The Agency must examine the firm’s relationships

with prime contractors to determine whether a pattern of exclusive or primary dealings with a prime contractor compromises the independence of the potential DBE firm.

In considering factors related to the independence of

a potential DBE firm, the Agency must consider the consistency of relationships between the potential DBE and non-DBE firm (s) with normal industry practice.

(3) A DBE firm must not be subject to any formal or informal restrictions which limit the customary discretion of the socially and economically disadvantaged owners. There can be no restrictions:

through corporate charter provisions, by-law provisions,

contracts or any other formal or informal devices (e.g., cumulative voting rights, voting powers attached to different classes of stock;

employment contracts;
requirements for concurrence by non-disadvantaged

partners;

conditions precedent or subsequent;
executor agreements, voting trusts, restrictions on or

assignments of voting rights, that prevent the socially and economically disadvantaged owners, without the cooperation or vote of any non-disadvantaged individual, from making any business decision of the firm.

This paragraph does not preclude a spousal co-signature on documents as provided for in paragraph E above.

(4) The socially and economically disadvantaged owner (s) must possess the power to direct or cause the direction of the management and policies of the firm and to make day-to-day as well as long-term decisions on matters of management, policy and operations.

A disadvantaged owner must hold the highest officer

position in the company (e.g., chief executive officer or president).

In a corporation, disadvantaged owner (s) must

control the board of directors.

In a partnership, one or more disadvantaged owner (s)

must serve as general partners, with control over all partnership decisions.

(5) Individuals who are not socially and economically disadvantaged may be involved in a DBE firm as owners, managers, employees, stockholders, officers, and/or directors. Such individuals must not, however, possess or exercise the power to control the firm, or be disproportionately responsible for the operation of the firm.

(6) The socially and economically disadvantaged owners of the firm may delegate various areas of the management, policymaking, or daily operations of the firm to other participants in the firm, regardless of whether these participants are socially and economically disadvantaged individuals. Such delegations of authority must be revocable, and the socially and economically disadvantaged owners must retain the power to hire and fire any person to whom such authority is delegated. The managerial role of the socially and economically disadvantaged owners in the firm’s overall affairs must be such that the Agency can reasonably conclude that the socially and economically disadvantaged owners actually exercise control over the firm’s operations, management, and policy.

(7) The socially and economically disadvantaged owner(s) must have an overall understanding of, and managerial and technical competence and experience directly related to, the type of business in which the firm is engaged and the firm’s operations. The socially and economically disadvantaged owner (s) are not required to have experience or expertise in every critical area of the firm’s operations, or to have greater experience or expertise in a given field than managers or key employees. The socially and economically disadvantaged owner (s) must have the ability to intelligently and critically evaluate information presented by other participants in the firm’s activities and to use this information to make independent decisions concerning the firm’s daily operations, management, and policymaking. Generally, expertise limited to office management, administration, or bookkeeping functions unrelated to the principal business activities of the firm is insufficient to demonstrate control.

(8) If a state or local law requires the person (s) to have a particular license or other credential in order to own and/or control a certain type of firm. Then, the socially and economically disadvantaged person (s) who own and control a potential DBE firm of that type must possess the required license or credential. If a state or local law does not require such a person to have such a license or credential to own and/or control a firm, the Agency must not deny certification solely on the ground that the person lacks the license or credential. However, it may take into account the absence of the license or credential as one factor in determining whether the socially and economically disadvantaged owner(s) actually control the firm.

(9) (a) The Agency may consider differences in remuneration between the socially and economically disadvantaged owners and other participants in the firm in determining whether to certify a firm as a DBE. Such consideration shall be in the context of the duties of the persons involved, normal industry practices, the firm’s policy and practice concerning reinvestment of income, and any other explanations for the differences proffered by the firm. After a careful evaluation, the Agency may determine that the socially and economically disadvantaged owner controls a firm although that owner’s remuneration is lower than that of some other participants in the firm.

(b) In a case where a non-disadvantaged individual formerly controlled the firm, and a socially and economically disadvantaged individual now controls it, the Agency must consider a difference between the remuneration of the former and current controller of the firm as a factor in determining who controls the firm, particularly when the non-disadvantaged individual remains involved with the firm and continues to receive greater compensation than the disadvantaged individual.

(10) In order to be viewed as controlling a firm, a socially and economically disadvantaged owner cannot engage in outside employment or other business interests that conflict with the management of the firm. Nor prevent the individual from devoting sufficient time and attention to the affairs of the firm to control its activities. For example, absentee ownership of a business and part-time work in a full-time firm are not viewed as constituting control. However, an individual could be viewed as controlling a part-time business that operates only on evenings and/or weekends, if the individual controls it all the time it is operating.

(11) (a) A socially and economically disadvantaged individual may control a firm even though one or more of the individual’s immediate family members (who themselves are not socially and economically disadvantaged individuals) participate in the firm as a manager, employee, owner, or in another capacity. Except as otherwise provided in this paragraph, the Agency must make a judgment about the control, the socially and economically disadvantaged owner exercises vis-a-vis other persons involved in the business, without regard to whether or not the other persons are immediate family members.

(b) If the Agency cannot determine that the socially and economically disadvantaged owner (s), as distinct from the family as a whole, control the firm, then the socially and economically disadvantaged owner (s) have failed to carry their burden of proof concerning control, even though they may participate significantly in the firm’s activities.

(12) Where a firm was formerly owned and/or controlled by a non-disadvantaged individual (whether or not an immediate family member), ownership and/or control were transferred to a socially and economically disadvantaged individual, and the non-disadvantaged individual remains involved with the firm in any capacity, the disadvantaged individual now owning the firm must demonstrate to the Agency, by clear and convincing evidence, that:

(a) The transfer of ownership and/or control to the disadvantaged individual was made for reasons other than obtaining certification as a DBE; and

(b)

The disadvantaged individual actually controls the

management, policy, and operations of the firm, notwithstanding the continuing participation of a non-disadvantaged individual who formerly owned and/or controlled the firm.

(13) In determining whether its socially and economically disadvantaged owner(s) control a firm, the Agency may consider whether the firm owns equipment necessary to perform its work. However, the Agency cannot determine that a firm is not controlled by a socially and economically disadvantaged individual (s) solely because the firm leases, rather than owns, equipment. Especially, where leasing equipment is a normal industry practice and the lease does not involve a relationship with a prime contractor or other party that compromises the independence of the firm.

(14) The Agency must grant certification to a firm only for specific types of work in which the socially and economically disadvantaged owners have the ability to control the firm. To become certified in an additional type of work, the firm need demonstrate that its socially and economically disadvantaged owner (s) are able to control the firm with respect to that type of work. The Agency may not, in this situation, require that the firm be recertified or submit a new application for certification, however it must verify the disadvantaged owner’s control of the firm in the additional type of work.

(15) A business operating under a franchise or license agreement may be certified if it meets the standards and the franchiser or licenser is not affiliated with the franchisee or licensee. In determining whether affiliation exists, the Agency should generally not consider the restraints relating to standardized quality, advertising, accounting format, and other provisions imposed on the franchisee or licensee by the franchise agreement or license. That is providing the franchisee or licensee has the right to profit from its efforts and bears the risk of loss commensurate with ownership. Alternatively, even though a franchisee or licensee may not be controlled by virtue of such provisions in the franchise agreement or license, affiliation could arise through other means, such as common management or excessive restrictions on the sale or transfer of the franchise interest or license.

(16) In order for a partnership to be controlled by socially and economically disadvantaged individual (s), any non-disadvantaged partner (s) must not have the power, without the specific written concurrence of the socially and economically disadvantaged partner(s), to contractually bind the partnership or subject the partnership to contract or tort liability.

(17) The socially and economically disadvantaged individual(s) controlling a firm may use an employee leasing company. The use of such a company does not preclude the socially and economically disadvantaged individual(s) from controlling their firm if they continue to maintain an employer-employee relationship with the leased employees. This includes being responsible for hiring, firing, training, assigning, and otherwise controlling the on-the-job activities of the employees, as well as ultimate responsibility for wage and tax obligations related to the employees.

G. Other rules affecting certification.

(1) (a) Consideration of whether a firm performs a commercially useful function or is a regular dealer pertains solely to counting toward DBE goals the participation of firms that have already been certified as DBEs. Except as provided below, the Agency must not consider commercially useful function issues in any way in making decisions about whether to certify a firm as a DBE.

(b) The Agency may consider, in making certification decisions, whether a firm has exhibited a pattern of conduct indicating its involvement in attempts to evade or subvert the intent or requirements of the DBE program.

(2) The Agency must evaluate the eligibility of a firm on the basis of present circumstances. It must not refuse to certify a firm based solely on historical information indicating a lack of ownership or control of the firm by socially and economically disadvantaged individuals at some time in the past, if the firm currently meets the ownership and control standards of this part. Nor must it refuse to certify a firm solely on the basis that it is a newly formed firm.

(3) DBE firms and firms seeking DBE certification shall cooperate fully with the Agency’s requests (and DOT requests) for information relevant to the certification process. Failure or refusal to provide such information is a ground for a denial or removal of certification.

(4) Only firms organized for profit may be eligible DBEs. Not for-profit organizations, even though controlled by socially and economically disadvantaged individuals, are not eligible to be certified as DBEs, unless they are part of the presumptive group.

(5) An eligible DBE firm must be owned by individuals who are socially and economically disadvantaged. Except as provided in this paragraph, a firm that is not owned by such individuals, but instead is owned by another firm—even a DBE firm—cannot be an eligible DBE.

(a)

If socially and economically disadvantaged individuals

own and control a firm through a parent or holding company, established for tax, capitalization or other purposes consistent with industry practice, and the parent or holding company in turn owns and controls an operating subsidiary, you may certify the subsidiary if it otherwise meets all requirements of this subpart. In this situation, the individual owners and controllers of the parent or holding company are deemed to control the subsidiary through the parent or holding company.

(b) The Agency may certify such a subsidiary only if there is cumulatively 51 percent ownership of the subsidiary by socially and economically disadvantaged individual (s). The following examples illustrate how this cumulative ownership provision works:

EXAMPLE 1: Individual (s) who are socially and economically disadvantaged own 100 percent of a holding company, which has a wholly owned subsidiary. The subsidiary may be certified, if it meets all other requirements.

EXAMPLE 2: Disadvantaged individual (s) own 100 percent of the holding company, which owns 51 percent of a subsidiary. The subsidiary may be certified, if all other requirements are met.

EXAMPLE 3: Disadvantaged individual (s) own 80 percent of the holding company, which in turn owns 70 percent of a subsidiary. In this case, the cumulative ownership of the subsidiary by disadvantaged individual (s) is 56 percent (80 percent of the 70 percent). This is more than 51 percent, so the Agency may certify the subsidiary, if all other requirements are met.

EXAMPLE 4: Same as Example 2 or 3, but someone other than the socially and economically disadvantaged owner (s) of the parent or holding company controls the subsidiary. Even though the subsidiary is owned by disadvantaged individual (s), through the holding or parent company, the Agency cannot certify it because it fails to meet control requirements.

EXAMPLE 5: Disadvantaged individual (s) own 60 percent of the holding company, which in turn owns 51 percent of a subsidiary. In this case, the cumulative ownership of the subsidiary by disadvantaged individuals is about 31 percent. This is less than 51 percent, so the Agency cannot certify the subsidiary.

EXAMPLE 6: The holding company, in addition to the subsidiary seeking certification, owns several other companies. The combined gross receipts of the holding companies and its subsidiaries are greater than the size standard for the subsidiary seeking certification and/or the gross receipts cap of an average of $16.6 million. Under the rules concerning affiliation, the subsidiary fails to meet the size standard and cannot be certified.

(6) Recognition of a business as a separate entity for tax or corporate purposes is not necessarily sufficient to demonstrate that a firm is an independent business, owned and controlled by socially and economically disadvantaged individuals.

(7) The Agency must not require a DBE firm to be prequalified as a condition for certification z unless the member entities require firms that participate in its contracts and subcontracts to be prequalified.

(8) A firm that is owned by an Indian tribe, Alaska Native Corporation, or Native Hawaiian organization as an entity, rather than by Indians, Alaska Natives, or Native Hawaiians as individuals, may be eligible for certification. Such a firm must meet the size standards and be controlled by a socially and economically disadvantaged individual (s).

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VIII. CERTIFICATION PROCEDURES

A. Procedures to follow in making certification decisions.

(1) The Agency must ensure that only eligible firms are certified as DBEs.

(2) The Agency must determine the eligibility of firms as DBEs consistent with the standards of 49 CFR Part 26 and other applicable instructions and regulations.

(3) The Agency must take all the following steps in determining whether a DBE firm meets the standards:

(a) Perform an on-site visit to the offices of the firm. It must interview the principal officers of the firm and review their resumes and/or work histories. It must also perform an on-site visit to job sites if there are such sites on which the firm is working at the time of the eligibility investigation in the local area. It may, however, rely upon the site visit report from other certifying agencies if outside the local area;

(b) If the firm is a corporation, analyze the ownership of stock in the firm;

(c) Analyze the bonding and financial capacity of the firm;

(d) Determine the work history of the firm, including a A contract it has received and works it has completed;

(e) Obtain a statement from the firm of the type of work it prefers to perform as part of the DBE program and its preferred locations for performing the work, if any;

(f) Obtain or compile a list of the equipment owned by or available to the firm and the licenses the firm and its key personnel possess to perform the work it seeks to do as part of the DBE program;

[1] Require potential DBEs to complete and submit an appropriate application form.

[2] Ensure the applicant attests to the accuracy and truthfulness of the information on the application form. This shall be done either in the form of an affidavit sworn to by the applicant before a person who is authorized by state law to administer oaths or in the form of an unsworn declaration executed under penalty of perjury of the laws of the United States.

[3] Review all information on the form prior to making a decision about the eligibility of the firm.

(4) When another DOT recipient, in connection with its consideration of the eligibility of a firm, makes a written request for certification information the Agency has obtained about a firm. The Agency must promptly make the information available to the other DOT recipient. This includes application materials and the report of a site visit, if the Agency has made one to the firm.

(5) When another DOT recipient has certified a firm, the Agency has the discretion to take any of the following actions:

(a) Certify the firm in reliance on the certification decision of the other recipient;

(b) Make an independent certification decision based on documentation provided by the other recipient, augmented by any additional information you require the applicant to provide; or

(c) Require the applicant to go through its application process without regard to the action of the other recipient.

(6) The Agency may impose a reasonable application fee for certification. Fee waivers should be granted in appropriate cases.

(7) The Agency must safeguard from disclosure to unauthorized persons information gathered as part of the certification process that may reasonably be regarded as proprietary or other confidential business information, consistent with applicable federal, state, and local law.

(8) Once the Agency has certified a DBE, it shall remain certified for a period of at least three years unless and until its certification has been removed through the removal of certification procedures. The Agency may not require DBEs to reapply for certification as a condition of continuing to participate in the program during this three-year period, unless the factual basis on which the certification was made changes.

(9) All DBEs, MBEs, and WBEs must inform the Agency in writing of any change in circumstances affecting their ability to meet size, disadvantaged status, ownership, control requirements or any material change in the information provided in their application.

(a) Changes in management responsibility among members of a limited liability company are covered by this requirement.

(b) The firm must attach supporting documentation describing in detail the nature of any changes.

(c) The notice must take the form of an affidavit sworn to by the owner (s) of the firm before a person who is authorized by state law to administer oaths or of an unsworn declaration executed under penalty of perjury of the laws of the United States. The firm must provide the written notification within 30 days of the occurrence of the change. If the firm fails to make timely notification of such a change, it will be deemed to have failed to cooperate.

(10) All DBE, MBE and WBE firms must provide to the Agency, every year on the anniversary of the date of their certification, an affidavit affirming that there have been no changes in the firm’s circumstances. This affidavit must be sworn to by the firm’s owner (s) before a person who is authorized by state law to administer oaths or an unsworn declaration executed under penalty of perjury of the laws of the United States. The firm must identify if there is anything that may affect its ability to meet size, disadvantaged status, ownership, or control requirements or any material changes in the information provided in its application form. The affidavit shall specifically affirm that the firm continues to meet SBA business size criteria and the overall gross receipt cap. Documenting this affirmation with supporting documentation of the firm’s size and gross receipts. If the firm fails to provide this affidavit in a timely manner, it will be deemed to have failed to cooperate and shall be lapsed.

(11) The Agency must make a decision on an application for certification within 90 days of receiving an application from the applicant firm with all information required for certification. The Agency may extend this time period once, for no more than an additional 60 days, upon written notice to the firm, explaining fully and specifically the reasons for the extension. The Agency’s failure to make a decision by the applicable deadline under this paragraph is deemed a constructive denial of the application, on the basis of which the firm may appeal to DOT.

B. Rules that governs denials of initial requests for certification.

(1) When the Agency denies a request by a firm, which is not currently certified as a DBE, it must provide the firm a written explanation of the reasons for the denial, specifically referencing the evidence in the record that supports each reason for the denial. All documents and other information on which the denial is based must be made available to the applicant, on request.

(2) When a firm is denied certification, the Agency must establish a time period of no more than twelve months that must elapse before the firm may reapply to the Agency for certification. The time period for reapplication begins on the date the final denial letter is received by the firm.

(3) When the Agency makes an administratively final denial of certification concerning a firm, the firm may appeal the denial to DOT.

C. Procedures to remove a DBE’s eligibility.

(1) Ineligibility complaints.

(a) Any person may file with the Agency a written complaint alleging that a currently certified firm is ineligible and specifying the alleged reasons why the firm is ineligible. The Agency is not required to accept a general allegation that a firm is ineligible or an anonymous complaint. The complaint may include any information or arguments supporting the complainant’s assertion that the firm is ineligible and why the firm should not continue to be certified. Confidentiality of complainants’ identities must be protected.

(b) The Agency must review its records concerning the firm, any material provided by the firm and the complainant, and other available information. The Agency may request additional information from the firm or conduct any other investigation that it deems necessary.

(c) If the Agency determines, based on this review, that there is reasonable cause to believe that the firm is ineligible, it must provide written notice to the firm that it proposes to find the firm ineligible, setting forth the reasons for the proposed determination. If the Agency determines that such reasonable cause does not exist, it must notify the complainant and the firm in writing of this determination and the reasons for it. All statements of reasons for findings on the issue of reasonable cause must specifically reference the evidence in the record on which each reason is based.

(2) Agency initiated proceedings.

If a firm notifies the Agency of a change in its circumstances or other information and the Agency determines that there is reasonable cause to believe that a currently certified firm is ineligible, it must provide written notice to the firm that it proposes to find the firm ineligible. The notification must state the reasons for the proposed determination. The statement of reasons for the finding of reasonable cause must specifically reference the evidence in the record on which each reason is based.

(3) DOT directive to initiate proceeding.

(a) If DOT determines that information in the Agency ‘s certification records, or other information available to DOT, provide reasonable cause to believe that a certified firm does not meet the eligibility criteria, DOT may direct the Agency to initiate a proceeding to remove the firm’s certification.

(b) DOT must provide the Agency and the firm a notice setting forth the reasons for the directive, including any relevant documentation or other information. The Agency must immediately commence and prosecute a proceeding to remove eligibility.

(4) Hearing.

When the Agency notifies a firm that there is reasonable cause to remove its eligibility as provided in paragraph above, it must give the firm an opportunity for an informal hearing. The firm may respond to the reasons for the proposed removal of its eligibility in person, providing information and arguments concerning why it should remain certified.

(a) In such a proceeding, the Agency bears the burden of proving, by a preponderance of the evidence, that the firm does not meet the certification standards.

(b) The Agency must maintain a complete record of the hearing, by any means acceptable under state law for the retention of a verbatim record of an administrative hearing. If there is an appeal to DOT, the Agency must provide a transcript of the hearing to DOT and, on request, to the firm. It must retain the original record of the hearing. The Agency may only charge the firm cost of copying the record.

(c) The firm may elect to present information and arguments in writing, without going to a hearing. In such a situation, the Agency bears the same burden of proving, by a preponderance of the evidence, that the firm does not meet the certification standards, as it would during a hearing.

(5) Separation of functions.

The Agency must ensure that the decision in a proceeding to remove a firm’s eligibility is made by an office and personnel that did not take part in actions leading to or seeking to implement the proposal to remove the firm’s eligibility. Such office and personnel can not be subject to direction from the office or personnel who did take part in these actions.

The Agency ‘s method of implementing this requirement must be made a part of the appeal process.
The decision-makers must be individuals who are knowledgeable about the certification requirements of the DBE program.

(6) Grounds for Decision. The Agency must not base a decision to remove eligibility on a reinterpretation or changed opinion of information available to it at the time that it certified the firm. It may base such a decision only on one or more of the following:

Changes in the firm’s circumstances since the certification of the firm that render the firm unable to meet the eligibility standards;
Information or evidence not available to it at the time the firm was certified;
Information that was concealed or misrepresented by the firm in previous certification actions;
A change in the certification standards or requirements of the Department since the firm was certified; or
A documented finding that the determination to certify the firm was factually erroneous.

(7) Notice of decision. Following the Agency decision, it must provide the firm written notice of the decision and the reasons for it, including specific references to the evidence in the record that supports each reason for the decision. The notice must inform the firm of the consequences of the Agency decision and of the availability of an appeal to DOT. The Agency must send copies of the notice to the complainant in an ineligibility complaint or to DOT if it directed the proceeding.

(8) The status of firm during proceeding.