The Department of Transportation (DOT) recently published a notice in the Federal Register of proposed rulemaking (NPRM) to amend the Disadvantaged Business Enterprise (DBE) and the Airport Concession Disadvantaged Business Enterprise (ACDBE) regulations.  87 Fed. Reg. 43620 (July 21, 2022). This proposal is the first NPRM update since 2014.  While the DOT was originally scheduled to close the comment period on September 19, 2022, it agreed to extend the comment period until October 31, 2022, to provide sufficient time to prepare and submit comments to the docket. 

The proposed revisions to the regulations were drafted by the DOT’s Office of Civil Rights, together with the Federal Aviation Administration (FAA), the Federal Highway Administration and the Federal Transit Administration, in an effort to help small businesses better compete for contracts on aviation, highway, and transit projects with federal funding.  While some of the NPRM changes were minor, others would significantly expand program eligibility and modify airport sponsors’ regulatory duties.  The bulk of the NPRM addresses the DBE program, which is regulated under Part 26 of Title 49 of the Code of Federal Regulations (CFR) and contains approximately 20 changes (found here.)  Highlights of some significant changes are summarized below.

Personal Net Worth – Perhaps the most significant change is the proposal to increase the Personal Net Worth (PNW) cap for owners of both DBEs and ACDBEs from $1.32 million (last adjusted in 2011) to $1.6 million and exclude retirement assets from the calculation.  Additionally, community property rules are excluded and while “household contents” of the primary residence are still divided equally, the NPRM is modified to clarify that motor vehicles of any type belong to the person who holds the title. Finally, the DOT may make future adjustments to this amount without the need for rulemaking by using Federal Reserve data.  Such modifications should allow more owners to qualify as DBEs and permit existing DBEs to stay in the program longer.   

Ownership Requirements – The NPRM replaces the “real, substantial, and continuing” capital contribution standard with a less-rigid standard of “reasonable economic sense.”  Further, the NPRM clarifies that ownership investment includes purchases, capital infusions, gifts, and additional investments after initial ownership.  Additionally, the marital property provision has been removed.  These modifications that are no longer so narrowly construed provide owners with more flexibility for demonstrating contributions toward ownership.

Limits Total DBE supplier Goals –  The NPRM reduces the allowable credit for a prime contractor’s expenditures with DBE suppliers (manufacturers, regular dealers, distributors, and transaction facilitators) from 60 percent to 50percent of the contract goal.  However, exceptions may be granted by the DOT on a one-off basis, if prior approval is sought and obtained.  This modification is intended to limit a contractor’s ability to receive substantial DBE credit for using DBEs that provide only a gratuitous, pass-through function.  However, this modification may present difficulties for contractors in certain market areas where material resources and DBE participation are limited.

Reciprocity of DBE Certification – The NPRM proposes to establish interstate certification for DBEs.  DBEs certified in one state (State A) will no longer have to resubmit entire applications to other states.  Rather, a DBE seeking certification in State B need only provide evidence of certification and submit a declaration of eligibility.  State B then has 10 business days to certify the firm. However, after certifying the firm, State B may conduct its own certification review and initiate decertification procedures if it finds “reasonable cause” for determining that the DBE is ineligible for certification in State B.  Note that the standard for review has been heightened from the previous “good cause” grounds to “reasonable cause.”  This modification is intended to reduce the administrative burden on the DBEs that must now file comprehensive applications in each state (or city) and which then must be approved by all entities.  While this modification serves to streamline the approval process, if a DBE is decertified and if the DOT upholds the decision upon appeal, the DBE is automatically decertified in all states. Thus, the new modifications may allow for greater business opportunities in more states; however, they also place a DBE at risk of losing all DBE business nationwide should it be decertified.

Decertification Procedural Protections – The NPRM would require the authorizing agency to “meaningfully explain” the basis for any recommendation to decertify a DBE, modify the requirements for decertification hearings, and provide additional procedures for certification appeals.

Annual Reporting – The NPRM proposes to enhance the available information of DBE directories and create a centralized database for a DBE Bidders List through the DOT.   In addition to serving as a reporting system for DBEs to identify available bids and winning bids, data are also proposed to be used for program evaluation and goal setting.

Formalizing COVID-19 Guidance – The NPRM provides for continuation of virtual on-site interviews, virtual certification and decertification hearings, and alternative notarization methods.  These modifications are intended to conserve certification agency resources.

Appeals to DOT – The NPRM reduces the time for a DBE to appeal an in-state certification denial from 90 days to 45 days and permits the DOT to summarily dismiss an appeal, at its discretion.  This modification cuts in half the DBE’s time to file an appeal, a decision which affects the DBE’s ability to become certified or maintain its certification nationwide.

Clarifies Counting after Decertification – The NPRM proposes that prime contractors would only be permitted to add work or extend a completed subcontract with a decertified DBE (that received notice of decertification after the subcontract was executed) if it obtains prior, written consent from the recipient.  This modification was proposed to address the concern that contractors in design-build contracts only commit to work with specific DBEs once they have been awarded a subcontract and then add work to an existing contract with decertified firms.  

Prompt Payment Requirements   The NPRM requires that recipients affirmatively monitor the contractor’s compliance with subcontractor prompt payment and return-of-retainage requirements.  While this section does not mandate the specific monitoring mechanism, recipients are expected to enforce prompt payment and retainage compliance.  These requirements also flow down to all lower-tier subcontractors.   This modification was intended to address the barriers DBEs face to compete due to lack of prompt payment by taking steps to meet this challenge. 

ACDBE Modifications – The NPRM (1) adds, clarifies, and aligns the ACDBE program definitions with DBE program definitions; (2) replicates the DBE program’s small business element requirements;  (3) establishes procedures for counting ACDBE participation for firms that are decertified during the contract performance period due to exceeding the business size standard or the disadvantaged owner PNW limits; (4) clarifies goals setting and reporting requirements; and (5) seeks comment on whether to increase long-term lease agreements. 

This significant set of proposed rules offers an opportunity for many programming changes.  The comments posted to date range from supportive to critical and suggest that there still remain many questions and recommendations for improvement.  Following the close of the comment period, the DOT will consider modifications to the proposed rules.

Photo of Lisa Andrzejewski Lisa Andrzejewski

Lisa Andrzejewski represents clients throughout the construction industry, including owners, contractors, subcontractors, design professionals, sureties, and high net-worth homeowners. As a member of the firm’s Construction Group, she manages complex construction matters through litigation mediation and arbitration. Lisa also provides transactional services to…

Lisa Andrzejewski represents clients throughout the construction industry, including owners, contractors, subcontractors, design professionals, sureties, and high net-worth homeowners. As a member of the firm’s Construction Group, she manages complex construction matters through litigation mediation and arbitration. Lisa also provides transactional services to her clientele. Read her full bio here.