Are you a small disadvantaged business that can provide products or services to the transportation industry? If so, you should seriously be looking into the Disadvantaged Business Enterprise Program (DBE) to give you an edge over the competition. This federal program is operated under the U.S. Department of Transportation (DOT) in an effort to increase the participation of socially and economically disadvantaged small businesses in state and local transportation projects.

The DBE program can be confusing. While it is federally mandated, certification is actually managed by each state’s Department of Transportation. However certain local agencies within a State may also be able to certify DBEs. Once certified your business is able to bid as a DBE anywhere within the certifying state. However if you want to bid as a DBE in a separate State you will need to recertify there.

You can find information about certification on individual State websites. State and local transportation agencies work to ensure that only bona fide, small businesses that are owned and controlled by socially and economically disadvantaged individuals are certified.

Why obtain a Disadvantaged Business Enterprise Certification?

The DOT requires that at least 10% of the funds authorized for the highway and transit financial assistance programs be expended with DBEs. What does that mean?  Basically, when the DOT funds a state or local transportation project they require that agency to make sure small, disadvantaged firms that are certified get part of the action.  Many state transportation projects also have mandatory DBE contracting goals that allocate an even higher percentage of prime contracting dollars to certified firms.

Becoming certified gives socially and economically disadvantaged businesses an advantage over larger firms when competing for these types of contracts. The bottom line is this is a great way to get into government contracting. Additionally, large firms are often given contract incentives to use DBEs as subcontractors. The DBE program also assists small businesses outside the DBE program with business development and other government contracts.

Eligibility Requirements

As of July 2009 to qualify as a DBE:

• Your business must be owned and operated by one or more socially and economically disadvantaged individuals. The DOT presumes certain groups are disadvantaged, including women, African-Americans, Hispanics, Native Americans and Asian-Pacific Americans. Individuals who are not members of one of these groups may be eligible if they establish their “social” and “economic” disadvantage. For example, an individual who is disabled might have a disproportionately low income or experience unemployment. A determination of whether an individual with a disability meets DBE eligibility criteria is made on a case-by-case basis. More information on how social and economic disadvantage is determined can be found in Appendix E to 49 CFR Part 26. Non-minority males and tribal owners might also meet this requirement if they can prove that they have been socially and economically disadvantaged.

• Your business must meet SBA size standards and must not have gross annual revenue over $22,410,000 in the past three fiscal years.

• Your personal net worth (and that of each eligible owner applicant) must be less than $750,000, excluding the values of your ownership interest in the business and your primary residence. See 49 CFR Part 23 for more details.

• Your business must retain 51% ownership by socially and economically disadvantaged individuals.

• You must have expertise in the relevant business or industry.

• You must have control of the daily management and operations of the business.

Additional information on DBE program requirements can be found in the Department of Transportation’s regulation 49 CFR Parts 23 and 26.

How to Obtain Certification as a DBE

To obtain specific instructions on how to apply to become a DBE contact your state department of transportation for which you wish to participate in contracts. A comprehensive list can be found here. Also, when applying for the DBE certification be prepared to provide documentary evidence substantiating your company’s size, your Personal Net Worth, independence, and ownership and control. The local or state transportation agency you apply to will also conduct an on-site visit to your company’s offices and job sites.

If you are a small business considering or actively seeking to bid on federal contracts it is crucial that you look into what small business certifications are available to you.

This year federal spending is expected to reach its highest levels since World War II and account for nearly $1 out of every $4 in the US economy.  If there was ever a time to be thinking about government as a customer it is now.

Under the Small Business Reauthorization Act of 1997, the federal government has a goal of awarding at least 23% of contracting dollars to small businesses each fiscal year.  In addition, Federal Acquisition Regulation (FAR) 19.502-2(a) states that a purchase with “an anticipated dollar value exceeding $3,000, but not over $100,000, is automatically reserved exclusively for small business concerns and shall be set aside for small business unless the contracting officer determines there is not a reasonable expectation of obtaining offers from two or more responsible small business concerns that are competitive in terms of market prices, quality, and delivery.”

As a result the Federal government will award contracts with an aggregate value of over $85 billion this year to small businesses.  There are very few other customers that are predisposed to small business in this way.

Within the 23% goal there are several smaller goals focused on different types of businesses as follows:

• Small Disadvantaged Businesses – 5%
• Women-Owned Businesses – 5%
• Disabled Veteran-Owned Businesses – 5%
• HUBZone Businesses – 3%

In order to be able to take advantage of contracts that are “set-aside” for these types of businesses you need to be qualified.  It is up to the company itself to self-certify as to whether it qualifies as a small, small disadvantaged, women-owned, veteran or disabled-veteran owned business. I covered what the definition of a small business is here.

The Small Business Administration administers 2 programs which it provides formal certifications for:

• HUBZone
• 8(a) Business Development Program

The benefits of being qualified in these programs are considerable and warrant their own posts which I will do later this week.

As a footnote, until October 2008, the SBA formally certified Small Disadvantaged Businesses (or “SDB”) but this program was suspended as it was deemed too cumbersome and costly.  Any business that has 8(a) status is also considered an SDB.

Finally, please note that this post only relates to federal contracting.  At the local level there will be other qualifications and certifications for small businesses that I will separately cover another time.