DBE Gross Receipts Cap Adjusted for Inflation

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In December 2020, the United States Department of Transportation (DOT) amended the small business size limit under the Disadvantaged Business Enterprise (DBE) program (section 1101(b) of the Fixing America’s Surface Transportation (FAST) Act (Pub. L. 114-94, Dec. 4, 2015).  The rule, which goes into effect on January 13, 2021, increases the DBE gross receipts cap (averaged over the firm’s previous three fiscal years) to $26,290,000 for Federal Highway Administration (FHWA) and Federal Transit Administration (FTA) related work. This inflationary-based adjustment is an increase over the prior gross receipts cap of $23,980,000 enacted in 2015. The effect of this rule, which is “not considered a significant economic impact on a substantial number of size entities”, is to allow “some small businesses to continue to participate in the DBE programs by adjusting for inflation.” This adjustment should provide relief for some DBEs that were close to exceeding the limits from 2018-2020.

The DOT’s rule expressly states that the firm size limit does not apply to eligibility for DBE work related to the Federal Aviation Administration (FAA).  The FAA Reauthorization Act of 2018 (Pub. L. 115-254) removed the gross receipts cap as defined under the DBE program and the Airport Concession Disadvantaged Business Enterprises (ACDBE) program in favor of the size standards set forth in the North American Industry Classification System Code (NAICS).  Thus, the NAICS Standards Code 237310 for the “Highway, Street and Bridge Construction” industry, which sets the DBE limit at $39.5 million, is now the limit for DBEs providing construction services for the FAA. This means that a company, including its affiliates, are to be considered a “small business” if their average earnings did not exceed $39.5 million for each of the pay periods for the preceding 12 calendar months. Updates to the 2017 NAICS codes are scheduled for 2022, leaving open the possibility for further increases to this limit.

With President Elect-Biden’s stated emphasis on transportation and infrastructure development, any changes to the DOT or FAA DBE limits will likely be of significant interest to the construction industry.

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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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