The most basic requirements to qualify as a DBE remain unchanged: the enterprise must be 51% owned and controlled by a socially and economically disadvantaged individual or group of individuals. Certain groups are “presumed” to be disadvantaged based on historical discrimination, such as women and Native Americans. A disadvantaged individual must control the enterprise, and the enterprise cannot be tied to another entity in a way that would compromise its independence.

However, many related requirements (among others) have been updated by the new rule.

Personal Net Worth

DBE regulations place a limitation on the personal net worth of the 51% disadvantaged owner(s). The cap has been $1.32 million since 2011, subject to inflation adjustments, but the  new rule increased the personal net worth cap to $2.047 million, an increase of $727,000. Notably, the new rule specifically excludes retirement assets in full from the personal net worth calculation. The DOT also determined that it will revisit the personal net worth cap every three years.

Business Size Limitation

DBEs must be small businesses according to the size standards defined by the Small Business Administration (SBA). One measure of business size is annual gross receipts. The new rule mandates that (with some exceptions) the annual gross receipts cannot exceed $30.72 million, based on an average over the previous five fiscal years, an expansion from the prior requirement of averaging only three years. (Note that some applicants will have lower caps based on the type of work they perform.)

Ownership Requirements

The new rule clarifies that a person’s ownership in a DBE can include purchases, capital infusions, gifts, and investments made after initial ownership. The new rule also contains updated requirements for gifted investments and debt-financed investments. For instance, a gift may only qualify as an investment for certification purposes if the giver is or becomes completely uninvolved in the company or any company that contracts with it. In addition, an investment may be financed, but the company will only become eligible when at least 15% of the total investment has been paid over to the firm from the proceeds of the loan.

Operations Requirement

Companies seeking certification must now show that they have “operations” in the type of business in which they seek certification. The DOT stated this change was in an attempt to avoid wasting resources on what amounts to “certifying a business plan.”

Onsite Visits

The prior rule made in-person, onsite visits a crucial component of the certification process. Because many site visits were conducted remotely during the COVID-19 pandemic, the new rule softens this requirement and gives more leeway to the certifier to determine if an onsite visit would be beneficial. However, the new rule does require that all interviews, whether virtual or in-person, be recorded via audio.

Curative Measures

The new rule gives applicants increased ability to correct certain disqualifying parts of their applications. For instance, the firm can “enter into legitimate transactions, alter the terms of ownership, make additional investments, or bolster underlying documentation” in a good faith effort to become DBE-eligible, even while their application is still pending. Certifiers are empowered to notify an applicant of eligibility concerns and provide an opportunity to cure, in accordance with the regulations, before making a final decision.

The rule becomes effective May 9, 2024. If you are interested in becoming a certified DBE, please contact Lori Wisniewski Azzara or Sydney Pierce, who frequently assist Cohen Seglias clients with DBE applications (both federal and state) and related issues.