On September 6, 2012, the US Department of Transportation (DOT) proposed significant changes to the disadvantaged business enterprise (DBE) program. The proposed rules can be found here. These changes will impact contractors working on Federal-aid highway, Federal Transit Administration, and Federal Aviation Administration funded projects. Associated General Contractors opposes the proposed rules and its comments can be found here.
Below are a few of the proposed changes:
Personal Net Worth
A newly designed personal net worth statement requires applicants to include all assets owned, including ownership interest in the applicant firm, personal assets, and the value of the personal residence. The proposed rules also make it more difficult to establish disadvantaged status. The new rules incorporate the DOT’s long standing guidance on personal net worth –if an applicant 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 the individual’s PNW is less than $1.32 million. This could make it substantially more difficult for a contractor to qualify for DBE status.
Spouse’s Net Worth
The DOT is also considering whether a spouse’s net worth should be considered when reviewing applicants for the DBE program. The DOT asserts that the complexities of jointly owned assets and liability and the ability of married couples to transfer assets in order to participate in the program could make it useful to certifying agencies to have PNW information about spouses.
DBE applicants will have to submit additional information relating to the owner’s contribution and funding sources since the company’s inception. This could include a valuation of collateral, proof of ownership of highly-valued assets, and the source of funds to acquire company ownership interests.
Funding recipients will also scrutinize transactions involving financing obtained by a DBE owner’s sale of interest in the company. And, recipients will be required to interview a DBE firm’s key personnel, in addition to its principal officers, and must perform on-site visits at the firms’ principal place of business.
The comment period on these proposed rules has been extended to December 24.