Due Process Protections In Due Process Protections In DBE Decertification Proceedings DBE Decertification Proceedings Thomas A. Reed Thomas A. Reed Preston Gates Ellis Preston Gates Ellis & Rouvelas Meeds LLP & Rouvelas Meeds LLP May 10, 2006 May 10, 2006
Introduction The purpose of this presentation is to briefly summarize the rights and responsibilities of disadvantaged business enterprises and DBE program operators (or recipients) in 49 CFR §26.87 decertification proceedings.
The Regulatory Approach to “Narrow Tailoring” DOT is tasked with ensuring that DBE programs do not become over inclusive. Decertifying firms that no longer meet DBE eligibility standards is just one way of ensuring that DBE programs are “narrowly tailored” to further a compelling governmental interest, i.e., remedying past discrimination.
Who’s covered by 49 CFR Part 26? � Part 26 certification and decertification procedures are intended to apply to Airport Concession Disadvantaged Business Enterprises (“ACDBEs”) as well as other disadvantaged minority and women owned businesses (“DBEs”) except where Part 26 expressly refers ACDBEs to Part 23. � The Department of Transportation (“DOT”) retained a separate regulatory scheme for ACDBEs in deference to the differences in the airport concessions business as compared to DBEs under Part 26, especially with respect to business size standards, so in some cases the reporting requirements for ACDBEs may slightly differ from the requirements that govern DBEs.
DBE Eligibility Status Does not “Expire”! � This is probably the most important point to take away from this presentation! � Once a recipient of federal-aid highway funds, federal transit funds, or airport funds has certified a DBE, it shall remain certified for a period of at least three years unless and until its certification has been removed in a formal §26.87 decertification proceeding. � Decertification proceedings must be “triggered” by information suggesting that the firm’s eligibility status may have changed.
DBE Eligibility Status Does not “Expire”! � Recipients may not require DBEs to reapply for certification as a condition of continuing to participate in the program during the three-year period specified above, unless the factual basis on which the certification was made changes. � Recipients are not required to certify firms every three years. In fact, recipients are prohibited from requiring that firms go through a recertification review process more frequently than once every three years, unless the recipient has obtained information indicating a change in the firm’s eligibility for DBE status. � DBE “no change” affidavits and notices of change are intended to keep recipients current on the status of DBE firms. Recipients cannot use recertification as a means to keep DBEs current.
Denial Of Certification Is Not Permanent When a firm is decertified or its initial certification application is denied, the recipient must establish a waiting period of 12 months or less for reapplication. Firms may reapply regardless of the reasons for denial or decertification.
When Can Certification Be Removed Without A §26.87 Procedure? � There is only one situation in which a recipient may remove the eligibility of a certified DBE firm without a §26.87 decertification proceeding. Removal is allowed without a proceeding when the DBE firm does not dispute that the personal net worth of an owner necessary to its certification exceeds $750,000. � In ALL other cases, without exception, a recipient is not permitted to remove the eligibility of a certified firm without a §26.87 decertification proceeding.
Decertification Procedures What triggers a decertification proceeding? A. Third Party Ineligibility Complaints B. Recipient Initiated Proceedings C. DOT Directive To Initiate Proceedings D. Notice Of Change Submitted By DBE Firm
Triggers A. Third Party Ineligibility Complaints Any person may file a complaint with the recipient challenging the eligibility of a DBE firm. However, the recipient is not required to accept general allegations of ineligibility or anonymous, unsubstantiated complaints. Moreover, it is not in the recipient’s interest to rely on such complaints since the recipient must submit a detailed record of its decertification decision to DOT.
Triggers B. Recipient Initiated Proceedings Based On Review Of Records. Recipients must review their records on the DBE (material obtained from the firm, the complainant, the recipient’s independent investigation, or received pursuant to a request for information, etc). If the facts on which certification was based change, the recipient can take action to remove eligibility. The recipient also has discretion to investigate a firm if there is reason to believe that information on the firm is incorrect or outdated.
Triggers C. DOT Directive to Initiate Proceedings. If a concerned operating administration determines that information in a recipient’s certification records “provides reasonable cause to believe” that a DBE certified by a recipient does not meet eligibility criteria, the concerned operating administration may direct the recipient to initiate a decertification proceeding. The concerned operating administration must notify the recipient and the DBE concerning its reasons for the directive and provide relevant documentation.
Triggers D. Notice of Change submitted by DBE Firm. DBE firms have a number of reporting responsibilities: 1. General Statement Of Compliance; 2. Personal Net Worth Statement; 3. Notice of Change; and 4. No Change Affidavit .
DBE Reporting Requirements 1. General Statement of Compliance or Affirmation That DBE Is Disadvantaged DBEs must submit a signed and notarized certification that each presumptively disadvantaged owner of the firm meets part 26 standards for social and economic disadvantage. This statement does not require supporting documentation.
DBE Reporting Requirements 2. Personal Net Worth (PNW) Statement The PNW of an individual owner cannot exceed $750K. ACDBEs are now subject to the same PNW standard. However, acknowledging the “different business context of concessions”, DOT allows ACDBEs to exclude from the PNW calculation assets of up to $3M that the owner/applicant can demonstrate are necessary to obtain financing to enter or expand an airport concessions business or assets that have in fact been encumbered to support existing financing for the applicant’s business.
DBE Reporting Requirements 2. Personal Net Worth (PNW) Statement (continued) DBE applicants must also submit a signed, notarized statement of personal net worth, with appropriate supporting documentation. The reporting requirements for DBE airport concessionaires (“ACDBEs”) do not include a formal PNW statement, but as noted above, ACDBEs are held to the same PNW standard subject to the exclusion for assets necessary to obtain financing.
DBE Reporting Requirements 2. Personal Net Worth (PNW) Statement (continued) DOT recipients have discretion to “look behind” the PNW statement if obvious mistakes, errors or omissions are apparent, i.e., the recipient can seek further information or investigate. DOT recipient may not use requests for further information as means to harass, target, punish or discriminate against DBEs.
DBE Reporting Requirements 3. “Notice Of Change” DBE firms must provide a written affidavit to the recipient within 30 days of any change in their circumstances affecting their DBE eligibility. The notification must include documentation of the change in detail.
DBE Reporting Requirements 4. “No Change” Affidavit Each DBE firm must submit an affidavit annually on the anniversary date of the firm’s certification. The affidavit affirms that there have been no changes in the firm’s ability to meet DBE eligibility standards (i.e., size, disadvantage, ownership and control). Submission of this affidavit confirms that an individual owner’s PNW does not exceed $750K.
Recipient’s Notification Requirements The recipient must notify the DBE firm of its recommendation to remove the DBE’s eligibility. The notification must provide the reasons for the decision, including specific references to the evidence in the record supporting the recipient’s reasons for the decision. The notice must advise the firm of the consequences of the decision and the availability of an appeal to the DOT.
Decertification Hearing A. Standard of Proof When a recipient seeks to decertify a DBE, the burden is on the recipient to show by a “preponderance of the evidence” (51% of the evidence favoring decertification) that the DBE does not meet the eligibility requirements. The burden is reversed in a certification hearing, i.e., when a firm is seeking DBE status. In a hearing addressing a firm’s initial certification, the firm must prove by a preponderance that it meets the eligibility requirements for a DBE.
Decertification Hearing B. Eligibility Criteria 1. Membership in Socially/Economically Disadvantaged Group 2. Individual Disadvantage 3. Business Size (must be small by SBA standards) 4. Minority/Women Ownership (51% owned by socially and economically disadvantaged individuals) 5. Minority/Women Control (DBE must be “independent”)
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