Many government agencies set goals for their construction projects to be awarded to disadvantaged business enterprises (DBE). The U.S. Department of Transportation (DOT) DBE certification program sets antidiscrimination regulations that states can implement for federal funding. The Certification Office for Business Inclusion and Diversity (COBID) is the certifying authority of DBEs (on behalf of the DOT) in Oregon.The DBE program is intended to help small, disadvantaged businesses owned by minorities and women obtain more of these government contracts, which in turn is intended to strengthen communities, make the economy more resilient, and improve the quality of life for everyone. COBID’s purpose is to promote existing certified businesses and the entry of new businesses into the marketplace.To qualify as a DBE, a contractor must be at least 51 percent owned and managed, and controlled, by an economically and socially disadvantaged individual (a minority or woman). The socially disadvantaged individual is presumed to be economically disadvantaged if their personal net worth is below $1.32 million.But what does COBID look at (under the regulations) to determine personal net worth? Typically, personal net worth is a basic calculation of assets less liabilities. COBID’s personal net worth calculation is different, which is based on a worksheet mandated by the DOT. Here is a quick summary of the assets that COBID is supposed to consider as part of determining the disadvantaged individual’s personal net worth calculation:

  • any transferred assets to family members, including family trusts or the applicant business (if transferred for less than market value within two years of an application);
  • the present value of a pension or retirement plan, or other similar kinds of accounts; and
  • other familiar assets (rental properties, stocks, etc.), except the equity in a home and an ownership interest in the business.

While calculating even COBID’s version of personal net worth is fairly straightforward, many people are unaware that the $1.32 million personal net worth threshold for determining whether an individual is economically disadvantaged is a rebuttable presumption. In other words, even if an individual has a personal net worth of less than $1.32 million, COBID can still deny a disadvantaged individual’s application if the agency determines they make too much money, their collective assets are too luxurious, or the agency otherwise believes the individual could “accumulate substantial wealth.” In determining whether the presumption is rebutted, COBID may consider several factors including, but not limited to:

  • whether the average adjusted gross income of the economically disadvantaged individual over the most recent three-year period exceeds $350,000;
  • whether this income was unusual or is unlikely to occur in the future;
  • whether the earnings were offset by losses;
  • whether the income was reinvested in the firm or used to pay taxes arising in the normal course of operations by the firm;
  • other evidence that the person is not economically disadvantaged (expensive boat, flashy car, etc.); and
  • whether the total fair market value of the person’s assets exceeds $6 million.

The federal regulations provide an example of what it might mean for an individual to no longer be deemed economically disadvantaged but still fall under the $1.32 million threshold. This example is in 49 CFR 26.67: “An individual with very high assets and significant liabilities may, in accounting terms, have a personal net worth of less than $1.32 million. However, the person’s assets collectively (e.g., high-income level, a very expensive house, a yacht, extensive real or personal property holdings) may lead a reasonable person to conclude that he or she is not economically disadvantaged. The recipient may rebut the individual’s presumption of economic disadvantage under these circumstances, as provided in this section, even though the individual’s personal net worth is less than $1.32 million.”

The rebuttable presumption gives COBID discretion to evaluate how a disadvantaged individual lives or chooses to spend their money. Thus, even if a socially disadvantaged individual has a personal net worth (as calculated by COBID) of far less than $1.32 million, they could still be deemed not actually economically disadvantaged if they own a flashy car, a nice home, a fancy boat, or other material items that COBID believes rebuts the presumption. So, the rebuttable presumption creates an unknown standard in an individual’s application or renewal application regarding personal net worth that may preclude certification, depending on who at COBID is reviewing the application. In essence, the rebuttable presumption adds a significant layer of subjectivity to the certification process.

The presumption that a socially disadvantaged individual is also economically disadvantaged because they have a personal net worth of less than $1.32 million is (as one can imagine) a fairly objective standard in determining whether that individual is actually economically disadvantaged. COBID’s ability to rebut that presumption inserts significant subjective discretion into the determination as to whether an individual is actually economically disadvantaged, by observing how that individual chooses to spend their money. It is important to consider this in an application. Suppose an individual is planning to apply for this certification or needs to recertify. The individual may want to reconsider buying that boat, upgrading that car, or installing that fancy new hardwood floor, because it may cause COBID to rethink whether they are economically disadvantaged!

Editor’s note: Rosalyn DiLillo contributed to this article. She recently served Schwabe, Williamson & Wyatt as a summer associate.

This column is intended to provide readers with general information and not legal advice. Consult professional counsel for help regarding specific situations.

Column first appeared in the Oregon Daily Journal of Commerce on January 13, 2023.


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