Are We Living in the Moment of the DBE?

Schoonover & Moriarty LLC

For many years, when clients would ask what is the federal Disadvantaged Business Enterprise program, I would say something along the lines of “It’s kinda like the 8(a) program but it’s not because it’s sort of a state thing, but each state has its own program and other certifications besides. Does that help?”

It rarely did.

The thing is, in the federal government contracting world, the programs that tend to take up the most space are the ones that come with set asides. Your 8(a), HUBZone, Service-Disabled Veteran-Owned Small Business, and Women-Owned Small Business (sometimes with Economically Disadvantaged added on). But with the Infrastructure Act and the Inflation Reduction Act both seeking to leverage the DBE program, we may be living in the era of the DBE.

What is the DBE Program?

The federal DBE program dates back to the early 1980s and is run by the U.S. Department of Transportation. It applies when federal-aid highway dollars are used by other recipients (individual state departments of transportation, cities, other eligible development groups). The purpose of the program is to ensure nondiscrimination in the award of federally funded highway projects.

To qualify as a DBE, according to the federal government (we’ll discuss shortly why that distinction is important), step one is be a small business, as defined by the Small Business Act with one important caveat: there is a $26.29 million average three-year annual gross receipts cap.

Step two is be socially and economically disadvantaged. That means 51 percent unconditionally owned by one or more socially and economically disadvantaged individuals. Social disadvantage is being subject to racial or ethnic prejudice or culture bias because of their membership in a certain group (there’s an extensive list). Women are presumed to be socially disadvantaged. Economic disadvantage is someone whose ability to compete in the free enterprise system has been impaired. Indian tribes and native Hawaiian organizations can be economically disadvantaged.

Now, because of the Constitution (oh, that old canard again), states get to control their own DBE programs. Most states mirror the federal program, but there could be key differences. For example, most states—but not all—require a cite visit to certify a company as a DBE.

In Kansas, where our firm is located (right outside of Kansas City if you want to stop by) the state recognizes businesses as DBE, Airport Concession DBE (ACDBE), Minority-owned Business Enterprises (MBE), and Woman-owned Business Enterprise (WBE). (This is not the place to discuss ACDBEs, but they are fascinating. I mean, a bank can be an ACDBE if it has less than $1 billion in assets.) Because of the nature of MBEs and WBEs, there’s a ton of overlap between them and DBE status.

Kansas’ regulations incorporate by reference the federal DBE regulations to make things easy, but still the Kansas definition of DBE is more expansive than the federal definition. It requires the firm to be owned and controlled by a disadvantaged person. The owner must be a U.S. citizen or lawful permanent resident. Ownership must be real, substantial and continuing, “going beyond pro forma ownership of the firm”. Control, meanwhile, means the power to direct or cause the direction of the management and policies of the firm in both the day-to-day and long term.

How are DBE’s Important to the $1.2 Trillion Infrastructure Act?

One of the reason’s that being DBE has been a hot topic lately is, as is often the case, money.

The Infrastructure Investment and Jobs Act—better known as the $1.2 Trillion Infrastructure Act includes a whooping 10 percent DBE goal for any surface transportation program (with the exception of some tribal transportation funds), any transit program, and any highway safety research and development project.

Obviously that’s not 10 percent of the whole $1.2 trillion, but even if it was just half, I’m no math expert but I think that leaves about $60 billion for DBEs.

So, that’s a lofty goal. But what happens if it’s not met? Well, the infrastructure bill requires each state to list all the DBEs in the state, notify the transportation secretary of the percentage controlled by women, socially and economically disadvantaged people who are not women, and others. It also calls for the creation of minimum reporting requirements including DBE awards, commitments, achievements, and “[a]nything else that helps the Secretary of Transportation monitor the disadvantaged business enterprise program.”

It’s not like states are going to get in trouble, but at least they have to explain themselves to the principal’s office.

How are DBEs Important to the Inflation Reduction Act?

The subject of Subtitle E to the Inflation Reduction Act of 2022—which is expected to pass and become law—is transportation and infrastructure.

Section 60501, which starts on page 704(!), amends the Neighborhood Access and Equity Grant Program to explain that over $3 billion must remain appropriated until 2026 to provide to disadvantaged or underserved communities competitive grants to improve walkability, safety, affordable transportation access, and more.

That may not be a huge amount compared to the $60 billion of the Infrastructure Act, but it’s nothing to sneeze at—and yet more reason for eligible companies to consider DBE status.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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