The Impact of DOT's New Rule on DBEs and ACDBEs

On January 27, U.S. DOT Secretary Ray LaHood announced a final rule that would implement two major changes to the Disadvantaged Business Enterprise (DBE) certification requirements: 1) an increase in the personal net worth (PNW) standard from $750,000 to $1.32 million for principals with an interest of 51 percent or more in a DBE certified company; and 2) the concept of interstate reciprocity, which would allow for companies that are already certified in their home state to obtain certification in other states on an expedited basis.

At the time of the final ruling, DOT noted that a corresponding ruling would be forthcoming as applied to Airport Concessions Disadvantaged Business Enterprises (ACDBEs) under 49 C.F.R.; 23. To date, this ruling has not been released and has led to an inconsistency in application across the country. The FAA has advised that the net worth standard for ACDBEs is still $750,000, yet many certification personnel and consultants have been reviewing new applications consistent with the change to 49 C.F.R.; 26.67.

Net worth standard

For DBE and ACDBE purposes, the PNW standard is used to determine whether an applicant is considered a “socially and economically disadvantaged” individual. Even if an individual is a member of a group otherwise presumed to be disadvantaged, the individual may not be considered “socially and economically disadvantaged” if his or her PNW exceeds the statutory threshold. Since 1989, the PNW standard for both DBE and ACDBE purposes has not seen an increase from $750,000.

However, with the ruling, the threshold for DBEs has been increased to $1.32 million (which is based on the Department of Labor’s consumer price index calculator). The Department of Labor has determined that if you needed $750,000 in 1989 to purchase a certain amount of goods and services, you would need approximately $1.32 million in 2011 to purchase the same amount of goods and services.

It has been approximately 120 days since the ruling. Prospective ACDBE applicants that have “graduated” from the program due to an increased net worth have been waiting patiently for a corresponding ruling. Prior to submitting applications, operators have been contacting the various certifying bodies to determine which net worth standard is being applied. While FAA and DOT have been clear that under 49 C.F.R.; 23.35, the net worth standard for ACDBEs is $750,000, they acknowledge that certifying bodies in different jurisdictions have been inconsistently applying both the $1.32 million standard and the $750,000.00 standard.

Applicants have pointed to an inconsistency between 49 C.F.R.; 23.37 and 49 C.F.R.; 23.35, with the former stating that firms certified under 49 C.F.R. 26 are eligible to participate as ACDBEs: “You must presume that a firm that is certified as a DBE under Part 26 is eligible to participate as an ACDBE. By meeting the size, disadvantage (including personal net worth), ownership, and control standards of Part 26, the firm will have also met the eligibility standards for Part 23.”

Given the fact that the standard for DBEs has been raised to $1.32 million, operators are in need of a final ruling from DOT to clarify the expectation that this net worth standard be also applied to ACDBEs.

Reciprocity

With the revision of 49 CFR; 26.85, DOT will require all states to accept DBE certifications obtained in other states, unless the state finds “good cause” not to accept the prior state’s certification.

To illustrate, if a company is currently certified in its home state of State A and seeks to be certified in State B, State B may accept State A’s certification and certify the company without having the company submit any additional documentation. State B, however, may choose not to accept State A’s certification, provided that State B contacts State A within seven days and requests a copy of the site visit report and other evaluating documents. If State B determines that there is good cause to believe State A’s certification cannot apply to State B, State B may reject State A’s certification.

If good cause is shown, State B must send the company a detailed notice within 60 days from the date State B received the company’s application. Once this notice is received, the company may respond in writing or request to meet with State B’s reviewing agency. If such a meeting is requested, then the meeting must be scheduled to occur within 30 days of State B’s receipt of the request. The company bears the burden of showing by a preponderance of evidence that it meets all of the requirements of Part 26 with respect to the particular issues raised by State B’s notice. A final decision must be issued within 30 days of the company’s written response or meeting with the reviewing agency.

Compliance with the Ruling on reciprocity will not be made mandatory until January 1, 2012, in order to provide additional time for reviewing agencies to participate in training opportunities and implement any administrative procedures to carry out the ruling on reciprocity. Until then, this expedited form of interstate certification may not be available in all states.

ACDBE operators are hoping for a similar ruling whereby they are afforded reciprocity. This too is an area where, in the interim, certifying bodies are inconsistently adhering to a protocol that results in reciprocity.

There are some certifying bodies that have adopted this approach as it relates to ACDBEs and there are others that take the position that it does not yet apply, and that unless there is an additional ruling circulated, it will not apply on the effective date of January 1, 2012.

In conclusion, ACDBE operators are looking to DOT to quickly issue a corresponding ruling which addresses: 1) an increase in the personal net worth standard from $750,000 to $1.32 million for principals with an interest of 51 percent or more in an ACDBE certified company; and 2) the concept of interstate reciprocity, which would allow for ACDBE companies already certified in their home state to obtain certification in other states on an expedited basis.

A corresponding ruling would help effect a positive impact for ACDBE operators and be more closely aligned with DOT’s original intent in issuing its ruling amending the DBE regulations.

On May 27, DOT issued a notice of proposed rulemaking proposing conforming amendments to DOT’s ACDBE regulation. The comment period ends on July 26, 2011.

Loading