The integrity and credibility of the Disadvantaged Business Enterprise Program depends upon the establishment of systematic procedures to ensure that only bonafide firms owned and controlled by socially economically disadvantaged individuals participate in the DOT's DBE program. Therefore, ascertaining the eligibility of prospective DBE's is a critically important component of a State's DBE program. Those procedures established to fulfill this aspect of the DBE program are what is known as the Certification Process. This process consists of three sequential steps to certify that the prospective DBE is eligible to participate in the program.

The three steps are:

1. Collecting the specified and necessary information from the prospective DBE
2. Applying the criteria for eligibility set forth in the State's program
3. Certifying (or denying) that the prospective DBE is eligible to participate in the State DBE program.

Since its inception, the DOT's DBE program has required each State to establish a certification process. It was not until the passage of the 1987 STURAA and the promulgation of the October 21, 1987, regulations that DOT established a uniform certification process. The 1987 STURAA also requires the use of on site reviews and personal interviews as an integral part of the certification effort by the States. The State's certification procedures incorporated into its DBE program document reflects the certification criteria set forth in 49 CFR 26.

A. DBE Program Objective

1. To ensure that disadvantaged business firms have the maximum opportunity to participate in DOT assisted contracts.

B. DBE Certification Objective

1. To ensure nondiscrimination in the award and administration of USDOT assisted contracts;
2. To create a level playing field on which DBE's can compete fairly for USDOT assisted contracts;
3. To ensure that the DBE program is narrowly tailored in accordance with applicable law;
4. To ensure that only firms that fully meet the requirement of 49 CFR Part 26 eligibility standards are permitted to participate as DBE's;
5. To help remove barriers to the participation of DBE's in USDOT assisted contracts; and
6. To assist the development of firms that can compete successfully in the market place outside the DBE program.

State Role

49 CFR 26 places the primary responsibility for certifying DBE's upon the Alabama Department of Transportation agencies (ALDOT). There are instances, however, in which another State or local agency or authority other than the ALDOT has been assigned this responsibility by State law. Nonetheless, the ALDOT will take the lead role in ensuring that only certifiable DBE's are to participate in federally assisted projects. Knowledge and understanding of the State's DBE program need to permeate other sections within the ALDOT, especially those who are responsible for the administration or the State's construction program.

Federal Highway Administration Role

The FHWA through its Regional and Divisional offices maintains a close liaison with the States in their implementation of the certification process. The FHWA is available to provide technical assistance to the States for clarification and direction necessary to meet the Federal regulatory and administrative directives issued on certification. The FHWA is also required to carry out the oversight and monitoring responsibilities described below:

• Ensure that the State's certification process and actions meet the requirements of 49 CFR 26 and are effectively being implemented through reviews and on site evaluations;
• Ensure that questionable certifications are appropriately handled. There may be times when a question arises as to the eligibility of a certified DBE, either through FHWA's review of a State's program or through other means such as third party complaints. FHWA has the responsibility to investigate in such instances. If there is evidence that a State's approved certification process has not been followed or the evidence on file clearly does not support a decision to certify a firm as eligible, the FHWA shall notify the certifying State in writing of the deficiencies found in the certification action and request a reevaluation of the firm's eligibility.

DBE Application

It is the responsibility of the applicant to provide the information deemed necessary by the certifying agency to ascertain eligibility. The burden to prove eligibility is upon the applicant, not upon the State. The following guidelines will help clarify the application process:

1. The State's process shall secure all necessary information from applicants through a well defined application procedure and review process. The State's certification process provides that whenever an out of state firm applies for certification the Alabama Department of Transportation Agency in the applicant firm's resident State will be contacted and asked to provide certification information on the applicant firm. It is emphasized that one State's certification decision is not binding on another State. This information should be considered but the State's decision must stand on its own merit. All out of state firms must be certified in their home state before the ALDOT reviews the firm.
2. The applicant is required to provide evidence in support of fulfilling all of the DBE eligibility standards set forth under 49 CFR 26, and the State's files shall contain all appropriate documentation in support of the certification of the firm. The following is a list of those materials that should be part or a DBE's application filed by a firm seeking inclusion into the program:
   
   (See Example Copy on Following Two Pages)
3. The prospective DBE applicant shall submit all pertinent data necessary for the State to render an informed decision on the eligibility of the firm. The application shall be self contained on a standardized form supplied by the State similar to or a reproduction of the Schedule A or B forms attached to 49 CFR 26. The application is in the form of a Sworn Affidavit. Firms applying for certification must verify their status by making available for review the appropriate books, records, and other documents pertaining to the financial and operational aspects of the firm and its principals. The Department of Transportation's DBE regulations at 49 CFR 26.53(e) provide that, "A business wishing to be certified as a DBE or joint venture DBE by a DOT recipient shall cooperate with the recipient in supplying additional information which may be requested in order to make a determination." Applicant firms that refuse to provide the requested information will not be certified. The applicant can be notified that verification of information they provide on Schedule A or B may require additional documentation.
   
   

On Site Reviews

The STURAA of 1987 requires the State to conduct interviews and on site reviews of all firms as part of the uniform certification process. Appendix A provides a suggested on site certification review guide. The frequency of on site visits and the need for personal interviews of out of state applicants are of paramount concern because of the time and expense required to do the work. On site visits at the home office(s) need to be conducted only once unless a specific concern arises (such as a third party challenge) which would require additional reviews. No home office review is necessary as part of the recertification process unless a previous certification review had not been done or a specific concern arises to warrant a revisit. An acceptable approach for out of state applicants is to require the applicant to possess a currently valid certification from the firm's home State. The non resident State could request from the home State the documentation of the home State's on site visit necessary to assure the validity of the written application. The reality of limited resources in some States may delay on site reviews until after the firm is certified. Recognizing this, on site reviews should be prioritized as follows:

1. DBEs with the largest contract volumes
2. Firms whose eligibility has come into question (eligibility questions may come from (variety of sources) and
3. All other firms.

Documentation

A case file shall be maintained on all firms whether confirmed or denied as eligible to participate. Case files on each individual firm should contain:

1. Documentation of all contracts made with firm, verbal or written
2. Documents submitted by firm, including all applicants for certification
3. On site review reports
4. Decision letters and
5. Documentation of any hearings, formal or informal.

The certification process established by the States should function to ensure that only small business firms independently owned and controlled in both substance and form by one or more socially and economically disadvantaged persons are certified. To accomplish this objective and to ensure uniformity and consistency in its application, a set of standards have been established under the State's program documents in accordance with the eligibility criteria set forth under 49 CFR Part 26. The data submitted by the prospective DBE should be sufficient to enable the State to ascertain whether the DBE qualifications meet each of the described standards are:

Business Status 49 CFR 26.69, 13 CFR 121.403(a)

1. A firm must be in existence, operational and in business for a profit
2. The disadvantaged owners of the firm must possess the resources or the expertise to operate in the firm's field of work.
3. Firms must provide more than prima facie evidence that they do not exist just on paper and that they were not organized in an attempt to take advantage of project goals.

Small Business Size 49 CFR 26.69, Appendix B, 13 CFR 121.401‑407 and 601

1. Annual Gross Receipts
The average annual gross receipts for a firm and its affiliates for the previous three fiscal years must not exceed the amounts shown in the SBA's standard industry classification code size standards established under SBA's regulations, 13 CFR 121.601 shall apply. The firm's classification is based on the firm's primary areas of work experience and not just on the type of license the firm may hold.

Annual receipts for a firm in business less than three complete fiscal years is computed by:

Total Receipts X 52 = Average Annual Weeks in Business Receipts

2. Affiliates
In determining average annual gross receipts, the revenues of "affiliates" of the firm are included as well as those of the applicant firm itself. (49 CFR, Subpart D, Appendix A, as amended by Paragraph 14 on page 39261 of Federal Register, Volume 52, No. 203, dated October 21, 1987)

The definition of "affiliates" is given in 13 CFR 121.401: "Concerns are affiliates of each other when either directly or indirectly (1) one concern controls or has the power to control he other, (2) a third party (or parties) controls or has the power to control both, or (3) an identity of interest between or among parties exist such that affiliation may be found." In determining whether affiliation exists, consideration shall be given to such factors as:

1. Common Ownership
2. Common Management
3. Contractual Relationships

Social and Economic Disadvantage Status 49 CFR Appendix E to part 26

1. Criteria
The intent of the DBE program as prescribed by 49 CFR 26 is to maximize the opportunity of bona fide disadvantaged business firms to participate in federally‑assisted programs. A disadvantaged business firm is a small business independently owned and controlled by socially and economically disadvantaged persons.

Upon a firm qualifying as a small business concern, a determination must be made as to the status of the individuals who own and control the business. To qualify as a disadvantaged business, the concern must be under the management and control of socially and economically disadvantaged individuals. By definitions, socially and economically disadvantaged individuals are those U.S. citizens, or lawfully admitted permanent residents, who fall into one of the following categories.

1. Member(s) of one of the presumptive minority groups designated in 49 CFR 26.62 including Women, Black Americans, Hispanic Americans, Native American, Asian Pacific Americana, and Asian Indian Americans and is regarded by the particular minority community.
   
   There is a rebuttable Presumption that an individual who falls within one of these designated categories is socially and economically disadvantaged under 49 CFR 26.62. This means that an individual is presumed to have social and economic disadvantage status unless there is clear credible evidence that indicates otherwise. Therefore each applicant or owner of a firm applying to participate as a DBE whose ownership and control are relied upon for DBE certification to submit a signed, notarized statement of personal net worth, with appropriate supporting documentation. This information will be reviewed and analyzed on a case by case basis of whether each individual whose ownership and control are relied upon for DBE certification is socially and economically disadvantaged. The applicant or owner has the burden of demonstrating by a preponderance of evidence, that they are socially and economically disadvantaged. An individual whose personal net worth (PNW) exceed $750,000.00 shall not be deemed to be economically disadvantaged.
2. Individuals(s) found to be socially and economically disadvantaged under the 8(a) program of the Small Business Administration (SBA) and granted an 8(a) certification.
   
   Individuals found to be disadvantaged by the SBA pursuant to Section 8(a) are conclusively presumed to be socially and economically disadvantaged since 49 CFR 26 does not permit the State to revoke the SBA=s action; or
3. Individuals who, although not a member of a presumptive minority group as designated in 49 CFR 26, establishes social and economic disadvantaged based on identification with another group.

2. Minority Group Membership
The States certification process requires members of the presumptively rebuttable minority groups to prove their disadvantaged status if reasonable evidence is available to question their minority group membership. The three key factors to be considered when making an evaluation of the applicant's standing in the minority community are:

• Identification
• Association
• Recognition

1. 49 CFR 26.53 (a) (1) provides that, A Bonafide minority group membership shall be established on the basis of the individual's claim that he or she is a member of a minority group and is so regarded by that particular minority community.
2. In cases where the racial/ethnic origin is in question, a minority community recognition test should be applied to determine if the applicant has held him or herself out to be a member of the minority community and is so recognized by that community.
3. In cases where the appropriate minority community does not exist or is not readily identifiable and the applicant=s minority status is in question, the applicant will be required to prove his or her disadvantaged status. This process may include documentary evidence from disinterested persons whose ethnic/racial origin is not in question. An example would be consultations with individual members of the minority community in which the applicant claims membership such as community organization leaders, bank officials, and local business development organizations. Other documentary evidence may include birth certificates, naturalization papers, Federal Indian tribal role registration, notarized and sworn statements from disinterested parties, and proof of membership and interaction in recognized minority organizations.
4. If the minority community exists outside the borders of the United States, the minority group membership status is dependent on ‑the following: It is insufficient to be born in or be a citizen of a country with the specified characteristics, but without family ancestry derived from the culture.
5. Proof of Native American ancestry alone is not conclusive evidence of membership in the Native American category if an individual has not held himself or herself out to be a member of one of the above groups, has not acted as a member of a community of such disadvantaged persons, or has not been identified by persons in the population at large as belonging to this disadvantaged group. In such cases, the individual will not be presumed to be socially and economically disadvantaged and shall be required to demonstrate disadvantaged status on an individual basis.

3. 8(a) Certification
The 8(a) certification program is under the direct authority of the Small Business Administration. A certified 8(a) firm can be required to apply for and receive DBE certification by the State for participation in the DBE program. The limits of the State's authority in their certification of such fires are as follows:

1. a. A State may:
   Challenge an 8(a) firm's status to SBA;
   
   Deny certification to the firm in cases where the State has evidence that an 8(a) certified firm does not meet the small business size standards;
   
   Deny certification to an 8(a) firm that refuses or fails to produce evidence that would enable the State to make a determination regarding small business size; and
   
   Impose sanctions on ala) firms certified by the State for violating the requirements of the DBE program (fronts, false statements or other fraudulent activities j. These sanctions may include denial of credit to DBE goals, suspension, debarment and removal from the State's DBE directory.
   
   The State should present all pertinent information to the SBA's Associate Administrator for Minority Small Business and Capital Ownership Development when it believes the Section 8(a) status is questionable or when an 8(a) firm is denied certification.
2. b. The State may not:
   Request of an 8(a) firm information that is not relevant to the issue of whether the firm meets the business size standard;
   
   Deny certification to an 8(a) firm which fails to produce documents that are not relevant to the issue of the firm's size; and
   
   Take any action (other than referral to SBA) against an 8(a) firm or any other reason with respect to the firm's certification status in the DOT DBE program.
   
   In order for the work to be certified toward goal accomplishment, 8(a) firms certified under 49 CFR 26 are expected to perform the work under contract in accordance with 49 CFR 26. Otherwise, the State is allowed to impose sanctions as discussed above.
   

4. Non‑Presumptive Individuals
To accommodate those individuals who do not qualify under the 8(a) category or minority group membership, the State's certification program provides the opportunity to establish a claim of social and economical disadvantage. Such claims, to be handled on a case‑by‑case basis, must demonstrate that the applicant: 1) has been subjected to racial or ethnic prejudice or cultural bias because of his/her individual qualities and, 2) can prove that hither ability to compete in the free enterprise market has been impaired due to diminished capital and credit opportunities. The various factors to be considered are as follows:

1. Social Disadvantage
   First, the State makes determination of the individual's social disadvantage by comparing the applicant with members of the non‑presumptive class using factors such as:

   (1) Color
   (2) National origin
   (3) Gender
   (4) Physical handicap
   (5) Long‑term residence in isolated environment
   (6) Specific instances or discrimination in:

   Education
   Employment
   Credit
   Contracting
   Membership in business organizations

   The disadvantage must have been personally suffered by the applicant and must be chronic, longstanding, and substantial, not fleeting or insignificant. If the applicant does not meet the social disadvantage test, it is not necessary to make the economic disadvantage determination.

2. Economic Disadvantage
   The label "economic disadvantage" refers to one's inability to compete in the free enterprise system due to diminished capital and credit opportunities as compared to others in the same or a similar line of business who are not socially disadvantaged. Consideration is given to both the individual claiming disadvantage and the applicant firm.
   
   A basic judgement is made to determine if the applicant firm is in a more difficult economic situation than most firms who are not socially disadvantaged.
3. Disabled/Handicapped Individuals
   Persons with disabilities are not presumed to be disadvantaged, as are other groups listed in 49 CFR 26. A handicapped person who does not belong to one of the presumptive groups and who applies for certification as a DBE would have to prove his or her social and economic disadvantage status based on his or her handicap on an individual case‑by‑case basis. The disability must be shown to have been chronic, longstanding and substantial, not fleeting or insignificant and to have negatively affected the person's entry in‑to and/or advancement in the business world.

5. Rebuttal of Disadvantaged Status 49 CYR 26.67
The presumptive of social and economic disadvantage operating in favor of the designated minority groups and women may be rebutted at any time before or after certification. The regulations at 49 Cop 26.67 provide for a challenge procedure by third parties. This is not, however, the only way the disadvantaged status may be challenged. If the State possess credible evidence that would lead a reasonable person to believe that the applicant is not socially or economically disadvantaged, the presumption is no longer operative and the burden of proof shifts back to the applicant. The existence of the presumption does not mean that the certifying agency must ignore evidence that any applicant for certification is not socially or economically disadvantaged unless a third party brings a challenge. It means that in the absence of such evidence, the State must presume that the applicant is socially and economically disadvantaged.

Practically speaking, the existence of credible evidence that an otherwise qualified applicant is not disadvantaged puts such applicant in a position similar to a challenged minority or woman or an individual claiming disadvantage who is not a member of a designated group. If the State tentatively determines, on its own initiative based on such evidence, that the applicant is not socially and economically disadvantaged, the State should ensure that the applicants) is afforded procedural safeguards to that provided in the case of third party challenges under Section 26.69.

Ownership 49 CAR 26.69 (a)(2), (5), & (6)

The State should look beyond what is reflected in the ownership documents. Verification can be achieved by conducting on‑site reviews, which includes interviews and research of the individual(s) and company financial and personnel records. Ownership by a represented disadvantaged individual or individuals can be established if:

1. At least 51 percent of the business (or stock if publicly held) was acquired; and
2. Ownership was acquired through real and substantial contributions of expertise, capital or other tangible personal assets.

Source of contributions must fall into one of the following categories:

1. Assets derived from independently‑owned holdings without benefit of a transfer of assets or gift from non‑disadvantaged person by inheritance or other means; or
2. Award of assets made in a judgement of dissolution of marriage determined on the basis that the property is marital property; or
3. Interest acquired intended to be exercised by the person as an individual, notwithstanding any passive statutory property interest of another. Such contribution must be derived from capital or other means that is individually distinct from other ownership interest.

The source of the contributions must be verified. Such verification should include stock certificates, bank receipts, corporate minutes, and other documents which establish that the contributions are derived from the assets of the individual.

Contribution must be commensurate with the ownership interest:

1. Where stock ownership is involved, the disadvantaged owner(s) must own at least 51% of each class of voting stock and at least 51% of the aggregate of all classes of stock.
2. Where expertise is used as the contribution to acquire ownership interest, the expertise should be in the applicant firm=s critical operations including estimating, bidding, field supervision, etc. The expertise in order to be credited must be:

a. Specifically identified and a monetary value (hourly/daily or monthly) attached;

b. Proffered for the specific purpose of acquiring stock in the business. Such proffer should not be based on prior service to the firm for which the individual has already been compensated; and

c. Documented in the corporate records of the firm. The records must clearly show the contribution of such expertise and its value to the firm.

Control 49 CFR 26.69 (a) (3) and (4)

To establish control the disadvantaged owner(s) must demonstrate sufficient expertise specifically in the firm's field of operation to control the overall destiny and the day‑to‑day operations of the firm. Office management, clerical or other experience unrelated to the firm's field of operations is insufficient to establish control. This control is comprised of two parts; Managerial and Operational.

1. To have managerial control the disadvantaged owner must demonstrate responsibility for the critical areas of the firm's operations and must be able to make independent and unilateral business decisions which guide the future and destiny of the business. Examples:

   a. Negotiations and execution of contracts; and

   b. Execution (signature) of financial (credit, banking, bonding) transactions and agreements.

2. To have operational control the disadvantaged owner must demonstrate that he/she independently makes basic decisions in daily operations. Absentee or titular ownership by disadvantaged owners who do not take an active role in controlling the business is not consistent with the DBE eligibility standards.

Control can be demonstrated in various ways:

1. Disadvantaged owners have complete control of Board of Directors
2. No formal or informal restrictions exist to limit voting power or control of the disadvantaged owners
3. No third party agreements restrict control of disadvantaged owners
4. Disadvantaged owners possess the requisite experience in the firm's field of operations
5. Salary/profits of disadvantaged owners are commensurate with their ownership interest
6. Disadvantaged owners receive at least 51% of any dividends paid by the firm including distribution upon liquidation; and
7. Disadvantaged owners are entitled to 100% of the value of each share of stock they hold if sold.

The disadvantaged owner should possess sufficient assets/resources to control the operation of the firm in the following areas:

1. Financial
2. Bonding
3. Supervision
4. Workforce
5. Equipment
6. Materials
7. Facilities (office / yard)

Independence 49 CFR 26.69 (a) (2)

Key factors in assessing the independence of a firm include:

1. Date business was established
2. Degree to which financial, equipment leasing, business and other relationships with non-disadvantaged firms vary from normal industry practice; and
3. Adequacy of resources of firm and disadvantaged owner to perform specified work. The determination of adequacy of resources demonstrates that the disadvantaged owner has sufficient expertise in the firm's field of operation to operate the firm independently.

In addition, the firm should possess adequate assets/resources to operate / function self-sufficiently in the areas identified on the previous page.

A history of consistent contractual ties would be a leading indicator of a relationship between two firms that should warrant further review. A firm must not be inextricably associated with another firm through common ownership, affiliation, sharing of employees, facilities, profits and losses. Such ties form an "umbilical cord'' between it and a non‑disadvantaged firm.

Other Certification Issues

1. Family Run Business
   Family run businesses are not automatically ineligible when the disadvantaged owners demonstrate that they meet all the eligibility standards under 49 CFR 26. However, the following situations could suggest that a firm would be ineligible:
   
   a. When the non‑disadvantaged family members share with the disadvantaged owner the management and control responsibilities and the non‑disadvantaged family members possess experience in the firm's field of operations superior to the disadvantaged owners; and
   
   b.Applicant firms jointly owned by husband and wife even in those States with community property laws. Such cases should be treated the same in all States regardless of whether the State has a community property law unless there is some reason to believe that a clearly intended State objective is frustrated by such a position.
   
2. Franchises
   Franchises are ineligible because the franchiser‑franchisee arrangement, by its nature, gives the franchiser some degree of control over the management, daily business operations, and business development of the franchise.

A thorough, detailed, and complete analysis of the application file with the supporting documents will be conducted on each firm. The applicant is entitled to prompt action on its application and duly informed when any part of the application is deficient and/or incomplete with an acknowledgment that the application will be held pending further action by the applicant. Following complete analysis of the information provided and possible further field review, a formal report is prepared setting forth a recommendation to either approve or deny the application.

To assure that the certification process has been effectively concluded, all available evidence is documented, reviewed and becomes a part of the case file documentation supporting the decision.