On April 9, 2024, the U.S. Department of Transportation published its Final Rule to the Disadvantaged Business Enterprise (DBE) and Airport Concession DBE (ACDBE) programs. The Final Rule is the most significant overhaul to the DBE Program in a decade, and it’s set to take effect on May 9.

The changes include a substantial raise to the Personal Net Worth cap for DBE owners from $1.32 million (established in 2011) to $2.047 million. The changes also exclude retirement assets from the PNW calculation. It further removes state marital laws or community property rules from the PNW calculations. It allows USDOT to make changes to the PNW cap without future rulemaking, as well.

The Final Rule modernizes the protocols for counting material suppliers; incorporating procedural flexibilities and eliminating procedural burdens; updating the rules to give certifying agencies less-prescriptive rules, and more flexibility, in determining eligibility; revising the process for interstate certification; and correcting technicalities for commonly misunderstood rules. The revisions are vast and they substantially change how the DBE program will be administered by certifying agencies.

The DOT did not make significant changes to its process for determining whether a DBE is owned by a socially disadvantaged individual. The department will continue to use a rebuttable presumption of social disadvantage for certain races and ethnicities. USDOT has maintained this approach even though other federal programs that have used a similar rebuttable presumption have been found to be unconstitutional, and the rebuttable presumption used in the DOT DBE’s program is currently being challenged.

Certifiers of DBEs can challenge an applicant’s claim of social disadvantage if they have a reasonable basis to do so. If such a challenge is made, the applicant has the burden of proving social disadvantage. However, the DOT explained that a challenge does not require proof of a complaint of discrimination or other tangible evidence:

Applicants have to submit a personal narrative detailing the experiences that demonstrate the social and economic disadvantages they have had to contend with. While applicants bear the burden of both production and persuasion with respect to all elements of certification, certifiers must holistically evaluate all presented evidence before making a determination.

We reiterate that an owner need not have filed a complaint of discrimination as a prerequisite for claiming social disadvantage. Nor must an owner produce corroborating evidence, as such evidence may not exist. The final rule merely levels the field by removing what amounts to a higher burden than “preponderance of the evidence.” The owner still must make his case, and the certifier may disregard a claim of social disadvantage where the individual presents evidence of discriminatory conduct but does not connect that conduct to negatively impact on his own entry into or advancement in the business world. On this point, the Department is following SBA’s guidance that individuals need to provide “a complete picture, or additional facts that would make an individual’s claim of bias or discriminatory conduct more likely than not.” Like SBA, certifiers should not intend as a matter of course, to disbelieve an applicant but should continue to rely on the affidavits and sworn statements, as long as those statements clearly establish an instance of social disadvantage.

The rule at § 26.67(a) aligns with the Department’s surface authorization requirement to follow SBA’s definition of members of groups deemed socially disadvantaged; and § 26.67(d) retains SBA’s regulatory requirements that a person who is not socially disadvantaged must make an individual showing of disadvantage. To do so, § 26.67(d) requires an owner to identify at least one objective distinguishing feature (ODF) that resulted in racial, ethnic, cultural, or other prejudice against him personally and describe with particularity how the ODF caused personal social disadvantage. The owner may provide evidence related to the owner’s education, employment, or any other evidence the owner considers relevant.

The following is a summary of the most significant changes to the DBE/ACDBE programs:

must include a commitment to meet the goal and provide details of the types of subcontracting work or services (with projected dollar amount) that the proposer will solicit DBEs to perform. The OEPP must include an estimated time frame in which actual DBE subcontracts would be executed. Once the design-build contract is awarded, the recipient must provide ongoing monitoring and oversight to evaluate whether the design-builder is using good faith efforts to comply with the OEPP and schedule.

Recipients are required to monitor the prime’s compliance with the OEPP and evaluate good-faith efforts.

adopting strong enforcement mechanisms is critical to making prompt payment and retainage return requirements work. For example, making failure to meet these requirements a material breach of contract, or an explicit cause for liquidated damages in the prime contract, are among many possible measures for this purpose. Letting failure to comply go unnoticed, or to be without consequences, is not an acceptable option.

The disadvantaged majority owner must also independently make major decisions that affect the firm’s prospects after receiving information from non-decision makers and critically analyzing it based on the owner’s knowledge.

The regulation does not prohibit relationships with other firms, including relationships that may create affiliation. Nor does the regulation prohibit a firm from providing services only to one business, or only a few businesses. That scenario might arise in a locale that has a limited number of potential customers. However, the DBE must not be used as a conduit or pass-through to obtain DBE credit. In any case, where an applicant has relationships with other firms, the applicant must demonstrate that it is independently viable, notwithstanding relationships with another DBE or non-DBE firm.

A pattern of regular dealings with a single or small number of firms does not necessarily compromise a firm’s independence. Importantly, the changes removed the control provisions relating to constraints on family businesses, licenses, and equipment, outside employment, and disadvantaged owner’s remuneration. Under the revised rules, the firm may still be certified if the license holder is someone other than the disadvantaged owner as long as they meet all the “running the show” requirements of § 26.71.

  • Replaces the six “ability to accumulate substantial wealth” factors with the “reasonable person standard” when a recipient is attempting to rebut the presumption of economic disadvantage. It requires recipients to make a “judgment call” about whether an owner can be reasonably considered economically disadvantaged. This is USDOT’s attempt to help certifying agencies make individualized determinations of social and economic disadvantage and allow applicants to have discretion about what evidence to provide. Under the prior rule, certifying agencies had treated the six factors as strict regulatory criteria and not as the guidelines they were intended to be. The DOT explained:

By giving certifiers the ability to make judgment calls, we believe that we place them in the best position to achieve this objective, without needing to engage with factors that, while intended as suggestions, were too often taken as strict regulatory criteria. Retaining and/or revising some or all of the existing factors, as some commenters suggested, will not solve the problem and might inadvertently create additional complexity. We understand commenters’ concern about decisions on this matter becoming too subjective. That is why, and consistent with prior final rules, certifiers must articulate, in writing, a detailed explanation and not simply make a conclusory statement.

(1) prime contractors may add work or extend a completed subcontract with a decertified firm only if it obtains prior, written consent from the recipient, and

(2) continued credit toward a contract goal is disallowed if the DBE’s ineligibility after the subcontract is signed is the result of a purchase by, or a merger with, a non-DBE firm (in which case the prime contractor would be required to use good faith efforts to replace the DBE if additional credit is needed to meet the contract goal).” https://www.transportation.gov/dbe-rulemaking/summarypage.

The DOT has published a summary of the final rule, a presentation on the revised regulations, and a list of the new deadlines and timelines, as well as implementation guidance.

For better or worse, the Final Rule will certainly affect any firms that are currently certified or are looking to become certified in the near future. Any company that has questions about these changes (especially if already certified) should consult with an attorney who has experience in handling certifications and decertification under the DBE Program.

This article summarizes aspects of the law and does not constitute legal advice. For legal advice for ‎your situation, you should contact an attorney.

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