Disadvantaged Business Enterprise Certification Can Grow Your Business

Certification as a business owned by a socially and/or economically disadvantaged individual or group of individuals can provide a company with a competitive edge when bidding on contracts with government agencies, Fortune 500 corporations, and many other businesses that have certain set-asides.

Common certification programs include: woman-owned businesses (WBE), minority-owned businesses (MBE); veteran-owned businesses (VBE or VOSB); businesses owned by LGBT individuals (LGBTBE); and businesses owned by economically disadvantaged individuals (DBE).  There are also certification programs geared specifically to the size of a business (SBE, for small business enterprise) without regard for the qualifying status of the business owners.

One key to certification success on the first attempt is to conduct a thorough review of the structure of the company and the responses on the application prior to submitting the application.  A denial of certification may be avoided if certain relatively minor changes are made to the company’s structure or application prior to submission.  Once a denial letter is received, some agencies will not allow a company to reapply for one year, which delays the company’s ability to bid for those contract set-asides.

The following are some significant areas that an examiner will review in the application:

Actual Ownership and Proof of Disadvantaged Status.

To qualify as any type of disadvantaged business enterprise, the majority ownership of the business (at least 51% as defined by most certifying entities) must be held unconditionally by the disadvantaged individual or group of individuals.  In addition, the qualifying disadvantaged individual will have to provide proof of eligibility for the certification.  For example, when applying for certification as a DBE, there are specific rules and regulations limiting the value of assets that can be held by the qualifying individual.  Similarly, many MBE certification programs require the qualifying individual to be able to prove he or she is at least 25% Asian, Black, Hispanic, or Native American.  For SBE applications, there are limits to the amount of annual revenue of the business or the number of employees, depending on the certifying agency.

Evidence of Payment for Ownership Interest.

The purchase price or contribution of capital by the disadvantaged individual to acquire his or her interest in the applicant company must be real and substantial.  Certifying agencies will require copies of deposit slips or cancelled checks showing that the disadvantaged owner actually paid for his or her interest in the company.  

Management and Control.

In addition to being at least 51% owned by the qualifying individual or group of individuals, the management and daily operations of the business must also be controlled by one or more of those individuals.  For example, the qualifying individual:

• Must hold the highest office and control the board of directors;
• Should hold the requisite license or certification necessary to operate the business (i.e. for construction companies, he or she should be the Responsible Managing Officer (RMO) on the business’ contractor license);
• Should not hold outside employment or business interests that conflict with the management of the business; and
• Must have the experience necessary to make day-to-day as well as major decisions in the management of the business.   

The control must be real, substantial, and continuing, and must not be reliant upon non-disadvantaged individuals or entities for significant financial, management, or technical assistance.  Providing unclear titles for the company’s officers can result in confusion about each officer’s duties and is a red flag to examiners. 

Complete Application including All Required Documentation.

While some certifying entity allow an applicant to correct errors up until a decision is issued, it is important to review an application before submission to ensure all the information is accurate and the application is complete.  In addition, it can be detrimental to fail to include all applicable required supporting documents listed on the application checklist.  Even if the errors or omissions do not result in a denial, the follow-up requests from an examiner to an applicant to obtain correct information or missing documents delays the application process, which may result in lost contract opportunities.

A business may find that a seemingly simple error on the application or a small omission from the supporting documents has caused a denial of certification.  If the business wishes to appeal the denial, the appeal must demonstrate that, based on the information contained in the application and based on the facts as they existed at the time the application was submitted, the business should have been granted certification.  The certifying entity will generally not allow new information to be presented during the appeal.

We can help with all the steps to certification: from the initial review of the business structure, to determining which certification is a right fit for your business, to completing and submitting the application, to applying for re-certification in subsequent years.  If you would like assistance or have any questions, please contact us.