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ADVANCED DBE CERTIFICATION FAA/AMAC 2008 Conference Presenters: Joseph Austin Marc Pentino Group Membership • The Regulation defines who are members of presumptively disadvantaged groups. • If not a member – still can be eligible under Appendix E. • Must meet both social and economic disadvantage criteria. Appendix E • The following guidance is adapted, with minor modifications, from SBA regulations concerning social and economic disadvantage determinations (see 13 CFR 124.103(c) and 124.104). Social Disadvantage • I. Socially disadvantaged individuals are those who have been subjected to racial or ethnic prejudice or cultural bias within American society because of their identities as members of groups and without regard to their individual qualities. Social disadvantage must stem from circumstances beyond their control. Evidence of individual social disadvantage must include the following elements: Continued • (A) At least one objective distinguishing feature that has contributed to social disadvantage, such as race, ethnic origin, gender, disability, long-term residence in an environment isolated from the mainstream of American society, or other similar causes not common to individuals who are not socially disadvantaged; • (B) Personal experiences of substantial and chronic social disadvantage in American society, not in other countries; and • (C) Negative impact on entry into or advancement in the business world because of the disadvantage. Recipients will consider any relevant evidence in assessing this element. In every case, however, recipients will consider education, employment and business history, where applicable, to see if the totality of circumstances shows disadvantage in entering into or advancing in the business world. Continued • (1) Education. Recipients will consider such factors as denial of equal access to institutions of higher education and vocational training, exclusion from social and professional association with students or teachers, denial of educational honors rightfully earned, and social patterns or pressures which discouraged the individual from pursuing a professional or business education. • (2) Employment. Recipients will consider such factors as unequal treatment in hiring, promotions and other aspects of professional advancement, pay and fringe benefits, and other terms and conditions of employment; retaliatory or discriminatory behavior by an employer or labor union; and social patterns or pressures which have channeled the individual into non-professional or non-business fields. Continued • (3) Business history. The recipient will consider such factors as unequal access to credit or capital, acquisition of credit or capital under commercially unfavorable circumstances, unequal treatment in opportunities for government contracts or other work, unequal treatment by potential customers and business associates, and exclusion from business or professional organizations. • II. With respect to paragraph I.(A) of this appendix, the Department notes that people with disabilities have disproportionately low incomes and high rates of unemployment. Many physical and attitudinal barriers remain to their full participation in education, employment, and business opportunities available to the general public. The Americans with Disabilities Act (ADA) was passed in recognition of the discrimination faced by people with disabilities. It is plausible that many individuals with disabilities—especially persons with severe disabilities (e.g., significant mobility, vision, or hearing impairments)—may be socially and economically disadvantaged. Continued III. Under the laws concerning social and economic disadvantage, people with disabilities are not a group presumed to be disadvantaged. Nevertheless, recipients should look carefully at individual showings of disadvantage by individuals with disabilities, making a case-by-case judgment about whether such an individual meets the criteria of this appendix. As public entities subject to Title II of the ADA, recipients must also ensure their DBE programs are accessible to individuals with disabilities. For example, physical barriers or the lack of application and information materials in accessible formats cannot be permitted to thwart the access of potential applicants to the certification process or other services made available to DBEs and applicants. Continued • Economic Disadvantage (A) General. Economically disadvantaged individuals are socially disadvantaged individuals whose ability to compete in the free enterprise system has been impaired due to diminished capital and credit opportunities as compared to others in the same or similar line of business who are not socially disadvantaged. Continued • (1) Each individual claiming economic disadvantage must describe the conditions which are the basis for the claim in a narrative statement, and must submit personal financial information. • (B) Submission of narrative and financial information. • (C) Factors to be considered. In considering diminished capital and credit opportunities, recipients will examine factors relating to the personal financial condition of any individual claiming disadvantaged status, including personal income for the past two years (including bonuses and the value of company stock given in lieu of cash), personal net worth, and the fair market value of all assets, whether encumbered or not. Recipients will also consider the financial condition of the applicant compared to the financial Continued profiles of small businesses in the same primary industry classification, or, if not available, in similar lines of business, which are not owned and controlled by socially and economically disadvantaged individuals in evaluating the individual's access to credit and capital. The financial profiles that recipients will compare include total assets, net sales, pre-tax profit, sales/working capital ratio, and net worth. • (D) Transfers within two years Indian Tribes and PNW • Who is required to submit a PNW statement? • Special PNW rules for ANCs Requirements • One implication of the control requirement is that disadvantaged individuals involved in controlling the firm must meet personal net worth (PNW) standards (see sec. 26.67(a)(2); (b)). Not every member of the Indian Tribe has to meet these standards or complete a PNW statement. Only the disadvantaged officers, board members, CEO, etc. who actually control the firm must do so. These individuals would also be responsible for submitting the certification of disadvantage required by 26.67(a)(1). Hypothetical • Firm is organized in Alaska and registered as an LLC in State A. It is also certified as a 8(a) firm and SDB. The firm is a 100 percent subsidiary of a holding company that is owned by an ANC. • Articles of incorporation and operating agreement state the firm’s principal place of business is in Alaska, but the primary business office is in State A. • 3-year gross receipt of the ANC that owns the holding company is over $1 billion. Would you certify this firm? $3 Million Exclusion • PNW standard is $750,000 but can exclude finances applicant demonstrates are necessary to obtain financing to enter or expand a concessions business (up to $3 million), or • Assets that have in fact been encumbered to support existing financing for the business. • $3 million exclusion extends only to “recourse assets” (those that were encumbered or to be encumbered in order to obtain financing, as is a case where an asset is used as collateral for a loan). Continued • DOT’s Q&A on this issue emphasizes that the applicant bears the burden of proof in demonstrating its eligibility. • Recipients should request all supporting documentation for each financial obligation claimed: – Loan agreements, – Supporting lien and/or letter of credit documents, – Specification of assets used to secure a loan or line of credit. ** Pay close attention to the terms – determine the extent to which the individual owner, as distinct from a corporation or other party, is obligated to repay, or is repaying. ** Find all other additional borrowers or other factors that may affect the size or duration of the individual owner’s debt. Tips • Tax returns can reveal whether an applicant transferred assets. • Example: If a 2000 tax return lists a rental property or stock, but in 2001 it is missing – the asset may have been transferred. Look deeper and find the information about the sale. • Assets that generate income should be on the tax returns. Look also for IRAs, Medical Savings Accounts, etc. These affect a person’s net worth and frequently aren’t included. • Look carefully if there are large dividends/capital gains or other gains (lines 9/13/14). Where did these funds go? To purchase other assets? If so, are they listed? Continued • Assets can be jointly owned but check!!! • Match assets and liabilities • High Value Residence/Low Value Personal Property Contribution of Capital • Under §26.73(b) a firm’s eligibility is evaluated based on present circumstances. Certification Appeals Decisions Issues: • Ownership • Contribution of Capital • Control • Affiliation • Independence • PNW Certification Issues • Business Size • Mentor Protégé • Challenges in the form of Appeals (filed by competitors) – PNW (Many issues) – Ownership and Control • Failure to Cooperate • UCP members are reporting that the number of DBEs is decreasing. Reapplication waiting periods Certification Issues • More Asset Purchase Agreements with promissory notes and former DBE owner working for the firm • Firms improperly certified • Recipients not following Due Process Procedures • Firms improperly denied DBE certification Case Study • Handout Cooperation Among Recipients • New Q&A due out soon…. Key Points: – Each UCP member is to follow the procedures listed in the UCP agreement, including the division of tasks assigned to particular members. – All certification decisions by the UCP shall be binding on all DOT recipients within the state. – It is not appropriate for one UCP member, or the staff of a UCP member, to file a certification appeal with DOT because of disagreement with the UCP’s decision. The Department’s Office of Civil Rights will not consider such a complaint. Certification Issues • Firms selling a portion of their ownership interest and expecting to remain ACDBE/DBE certified • DBE Liaison Officer—Discard your personal opinions regarding ACDBE certifications if it is not supported by the record. Certification Issues • • • • • Work not being performed by the DBE Ownership changes not being reported to recipients Owners concealing assets Property values being under reported Owners claiming all real estate property taxes even though they only own 25% 3rd Party Complaints • Number and complexity increasing, particularly for PNW • External factors to consider: – change in property value – asset evaluations Fraud Awareness Video on False Statements and Claims Released in March 2008!! Covers fraud schemes, collaborative efforts, and prevention and detection of fraud involving transportation programs and activities. Presents examples of investigations that resulted in criminal and civil penalties for business and individuals who, while working on contracts funded in part by Federal transportation funds, engaged in fraud which cheats American taxpayers. Provides legal perspectives on false statements and claims and fraud, as well as red flag fraud indicators to help the transportation community, government employees, and contractors know what to look for. Describes how to report possible fraud, waste, abuse, and irregularities in DOT programs to OIG’s Hotline. Free copy of DVD video: Submit your name and business address to [email protected]. DOT/OIG Fraud Awareness Initiative Questions U.S. Department of Transportation Departmental Office of Civil Rights External Civil Rights Programs Division 1200 New Jersey Ave., SE Room W76-401 Washington, DC 20590 Joseph Austin (202) 366-5992 [email protected] Marc Pentino (202) 366-6968 [email protected]