There is a federal Notice of Proposed Rulemaking (NPRM) pending that could spell major changes in the way the U.S. Department of Transportation administers its disadvantaged business enterprise (DBE) program.  DBE requirements are a part of all contracting performed by the nation’s airports, state highway departments, and transit systems.

Some predict that if the new rules go into effect as currently proposed, DBEs will see a decrease in contract opportunities and an increase in the burden on DBE-certified firms.

The deadline for comments to the USDOT proposed rule was originally November 5, 2012, but was extended to 11:59pm on December 24, 2012.  The NPRM can be found at http://www.regulations.gov/?sms_ss=gmail&at_xt=4d46cf13eca091f6,0#!docketDetail;D=DOT-OST-2012-0147;dct=FR%2BPR%2BN%2BO%2BSR.

DBE firms and businesses who could potentially benefit from DBE contracting are being urged by several advocacy groups to submit comments by the deadline.  Contractor trade associations already have been active in submitting comments, pro and con.

The following is a summary of the most significant proposed changes:

Rebuttal of Economic Disadvantage: The most noteworthy proposed revision is USDOT’s desire to broaden the areas which automatically rebut a presumption of disadvantage.  Currently, a Personal Net Worth (“PNW”) exceeding $1.32 million automatically rebuts the presumption of economic disadvantage, but a local Office of Minority and Women Business Enterprises (an OMWBE operated by an airport, highway department or transit system) may rebut the presumption if it has a “reasonable basis to believe the individual is not socially or economically disadvantaged.”  USDOT proposes including, as part of that rule, a second statement taken from USDOT’s guidance (which is currently not an official mandate):

• If the person demonstrates an ability to accumulate substantial wealth, has unlimited growth potential, or has not experienced or has not had to overcome impediments to obtaining access to financing, markets, and resources, the individual’s presumption of economic disadvantage is rebutted, even if it individual’s PNW is less than $1.32 million.

USDOT states that with this language, it is appropriate for recipients (certifying agencies such as OMWBE) to review the total fair market value of the individual’s assets and determine if that level appears to be “substantial” and indicates an ability to accumulate substantial wealth.  The purported purpose of this provision is to give recipients a tool to exclude an individual who, in overall asset terms, is what a reasonable person would consider to be a wealthy individual, even if their liabilities bring their PNW below the $1.32 million cap.  Notably, USDOT also seeks comment as to whether a more “bright-line” approach would be preferable, such as saying that someone whose Adjusted Gross Income on his or her Federal income tax return was over $1 million for two or three years in a row would lose the presumption of economic disadvantage, regardless of PNW.

New Personal Net Worth Form: USDOT proposes a newly designed PNW statement required of all applicants.  The new form would include all assets owned by the individual, including ownership interests, personal assets, and the value of the personal residence.    USDOT also seeks comment on whether the spouse of an applicant owner should have to file a PNW statement.

Transfers:  USDOT proposes to directly add a paragraph into the regulation restating the requirement that assets transferred to an immediate family member for less than fair market value within the last two years can be counted toward an individual’s PNW calculation.  USDOT also proposes that transfers from business owners to the companies be counted toward the owner’s PNW to avoid artificially depressing that owner’s PNW.

Certification Related Provisions:  USDOT also proposes several changes to how ownership and control are determined.  Specifically, the rule will require applicants to submit additional proof as to the sufficiency of their initial capital contribution and the circumstances of any funding streams to the firm since its inception, including collateral value, proof of asset ownership, and more stringent guidelines relating to deposits made by the applicant.

Good Faith Efforts:  USDOT adds some clarification for establishing Good Faith Efforts to meet the DBE goal.  USDOT states that prime contractor bidders whose bid includes a promise to include DBEs after the contract awarded is not to be considered as a good faith effort. USDOT proposes that bidders would have two options: (1) bidders may submit Good Faith Effort documentation along with original bids, or (2) Bidders may submit good faith documentation within one day of being notified of their winning bid.

Counting Trucking Operations:  USDOT proposes to revise the current requirements for how much of a DBE trucking company’s involvement can be counted towards a DBE goal. The proposal would give credit to a DBE that leases trucks from non-DBE entities but uses its own employees as drivers.  This change is already implemented in many states.

There are several ways to submit comments on these proposed rule changes.  The easiest way is to simply file comments online at the regulations.gov web site.   Go to www.regulations.gov and then type in docket number OST–2012–0147.   This will connect you to a web page where you can type-in and/or upload your comments. Be sure to include the docket number in any submission you make.

Please note that all comments, including any personal information you provide, will become part of the docket and will be publicly posted without change at www.regulations.gov.