Important Updates on DBE, SBA, and M/WBE Programs

Important Updates on DBE, SBA, AND M/WBE Programs

By Colette Holt, J.D. and Joanne Lubart, J.D., Colette Holt & Associates

In recent months, there has been a flurry of activity related to DBE and/or M/WBE programs. This article discusses amendments and guidance as well as three recent lawsuits that need to be closely watched.

U.S. Department of Transportation Disadvantaged Business Enterprise Program

Inflation Adjustment to the Size Limits for Certified DBEs

Effective January 13, 2021, two changes were made to the U.S. Department of Transportation’s DBE Program size standards.

• The statutory gross receipts cap for certified DBEs mandated in 49 C.F.R. §26.65 is adjusted for inflation from $23.98M to $26.29M. If a firm’s gross receipts averaged over the firm’s prior three fiscal years exceed $26.29M, then it exceeds the small business size limit for participation in work funded by the Federal Highway Administration and the Federal Transit Administration. The DBE Program requires that the cap be adjusted on an inflationary basis, and future adjusted amounts will be published on the DOT website. A DBE must still meet the size standard appropriate to the type(s) of work it seeks to perform on DOT assisted contracts. The rule is not applicable to airport concession DBEs under 49 C.F.R. Part 23.

• The statutory gross receipts cap no longer applies to eligibility determinations for projects funded by the Federal Aviation Administration. DBE firms working on these projects must only meet the size standard(s) appropriate to the type(s) of work based solely on the applicable NAICS code(s) size standard(s).

Official DOT Guidance On limiting DBEs and ACDBE certification for non-transportation industry businesses

On September 1, 2020, the DOT issued new guidance in the form of an official Question and-Answer concerning DBE and ACDBE certification for non-transportation industry businesses. DBE and ACDBE certification should be limited to firms that intend to seek construction and non-construction work on DOT assisted contracts (including suppliers to airport concessionaires). DOT funding recipients are directed to emphasize this information to applicant firms as well as to state and local agencies and are authorized to make inquiries into the nature of the work an applicant performs. Certifiers may recommend that a firm not pursue certification if it has no intention of participating in, or bidding on, DOT assisted contracts. Note, however, that many local agencies accept the DBE certification for their own programs, often because of scarce certification resources and to reduce the burdens on minority- and woman-owned firms to seek multiple certifications.

U.S. Small business administration 8(a) program

Small Business Administration Interim Final Rule

On January 13, 2021, the SBA issued an interim final rule amending the 8(a) Business Development (“BD”) program to carry out changes made by recent legislation. The BD program is designed to provide a level playing field for small businesses owned by socially and economically disadvantaged persons or entities. Under the program, the federal government limits competition for certain contracts to qualifying entities.

Under Section 330 of the Consolidated Appropriations Act, 2021 and Section 869 of the National Defense Authorization Act for Fiscal Year 2021, certain 8(a) participants are authorized to extend their 8(a) BD program term for one year from the end of their program term of 9 years. The extension is authorized regardless of whether the firm previously opted to voluntarily suspend its program participation as the result of Donald Trump’s nationwide coronavirus emergency disaster declaration on March 13, 2020.

The extension option is not afforded to firms that graduated or left the program prior to March 13, 2020, or were admitted to the program after September 9, 2020. The rule clarifies that the extension is not applicable to participants who were terminated, graduated early or voluntarily withdrew from the program in lieu of being terminated or graduating early between March 13, 2020, and September 9, 2020.

Comments on the interim final rule were due to the SBA no later than March 15, 2021. The SBA will post all comments on https:// www.regulations.gov.

Litigation updates

Confidentiality of Disparity Study Documents: Palm Beach County Commissioners v. Mason Tillman Associates, Ltd.

In a recent order arising out of the 15th Judicial Circuit in Palm Beach County, Florida, the court determined that transcripts of the anecdotal interviews conducted by Mason Tillman Associates, Ltd. (“MTA”) as part of the disparity study for Palm Beach County constituted trade secrets protected under the State of Florida’s trade secret law. The County sued MTA and requested that it turn over background documents developed as part of its disparity study contract. Initially, these documents were sought by the Associated General Contractors of America (“AGC”). The County filed suit after it was unsuccessful in its efforts to obtain documents from MTA based upon an AGC public records request. The County sued MTA for breach of contract and to compel MTA to provide the County with all study records, including the availability database information, underlying data, and anecdotal interview identities. In September of 2020, the court directed MTA to deliver the records to the court for a confidential inspection and to file its answer and defenses to Palm Beach County.

On November 17, 2020, the court found that certain documents generated by MTA constitute protected trade secrets and are therefore exempt from the public record requests under Florida’s Uniform Trade Secrets Act. In Florida, a trade secret is defined as information (including a process, device, or business method) that derives independent economic value by not being generally known to and not being readily discoverable by others who can obtain economic value from its disclosure or use.

Moving forward, this development may lead to AGC bringing suit against the County’s M/ WBE program. The trade secrets shield against the public records request may not be available under the rules governing civil procedure and the production of evidence in litigation.

This decision suggests disclosure protection actions should be considered by agencies and disparity study researchers to ensure that study documents and records be identified up front as protected trade secrets if that is permissible under state law.

COVID-19 Relief for Minority- Owned Businesses: Lawsuits in Colorado and Oregon

Colorado

The state of Colorado had appropriated $4M in COVID-19 relief payments for “minorityowned businesses.” Senate Bill 20B-001 (“SB1”) directs the Colorado Minority Business Office to use a portion of the funds to provide technical assistance and consulting support to minority-owned businesses across the state and to establish a process for them to apply for economic stimulus benefits.

Plaintiffs filed suit in December 2020, in the United States District Court for the District of Colorado. They argue that their business has been adversely impacted by the COVID-19 epidemic and would be a candidate for relief for SB1’s economic benefits but for the exclusion of Caucasian-owned businesses from receiving these payments. Plaintiffs argue that the racebased exclusion violates the Equal Protection Clause of the Fourteenth Amendment under the strict scrutiny analysis imposed by the Croson decision and its progeny. Strict scrutiny is the highest standard of constitutional judicial review because it classifies individuals based on race. Plaintiffs allege that Colorado could adopt race-neutral remedies such as stimulus payments based upon geographic areas or sectors of the economy most impacted by the COVID-19 epidemic. They seek to enjoin the defendants from disbursing relief payments, loans, grants, or other support due to racebased classifications and they request money damages. The case is pending.

Oregon

The state of Oregon recently settled a lawsuit challenging the Oregon Cares Fund. The state-funded program directs a portion of its Coronavirus Aid, Relief and Economic Security Act monies to address the disparate impacts of the global pandemic faced by Black Oregonians. Grants from the Fund are available only to individuals and business owners who “self-identify as Black.”

The plaintiff is a non-Black-owned small Oregon logging company that has endured financial reverses during the global pandemic. It alleged that the use of strict race-based criteria for distributing funds from the Oregon Cares Fund for Black Relief and Resiliency (“Fund”) is unconstitutional. The plaintiff contended that the Equal Protection Clause requires the government to identify discrimination with specificity; to provide actual evidence of discrimination demonstrating that race-based action is necessary; and to prove that the program is tailored to that discrimination. It argued that the Oregon legislative analysis relied upon a single draft report from the National Bureau of Economic Research based on national and state data showing that the Black community is experiencing a disproportionate share of negative economic and health effects due to COViD-19. The plaintiff argued that because Oregon did not link the grant program to specific “identified discrimination,” the defendants did not meet the requirement that the Fund further a compelling state interest. It also did not conduct a narrow tailoring analysis. Finally, the plaintiff also alleged that the Fund violated federal anti-discrimination law, including Title VI of the Civil Rights Act of 1964 and 42 U.S.C. § 1981, since “purposeful discrimination” that violates the Equal Protection Clause also violates Title VI and §1981.

If the settlement is approved by the Court, the state will immediately release $5.3M to Black-identifying and Black-owned applicants. The plaintiff will subsequently receive $45,000- $20,000 as a service award.5 Other non-Black applicants will receive the full amount their applications support. In lieu of spending taxpayer money on extensive litigation, the state has committed to focusing on increasing its collection of disaggregated data on race and ethnicity to develop the information to invest in communities that have faced ongoing systemic oppression and exclusion.