On March 31, 2022, the Small Business Administration issued several Final Rules, as part of the ongoing effort to update the Small Business Size Standards for many industries. 

The SBA size standards are important – businesses that qualify as “small” under these size standards can gain access to many additional opportunities set aside for small businesses.  The size standards are also important for businesses looking to qualify for Disadvantaged Business Enterprise (DBE) certification.  To be a DBE, you must meet the SBA size standards for your primary industry code (i.e. your NAICS code).

One of the more notable increases is for Engineering Services (NAICS 541330) which increased from $16.5 million to $22.5 million.  This is a welcome increase for engineering firms that look to benefit from the infrastructure spending.

Want to check to see if your NAICS code was one that had a change?  Refer to the links below, as the most up-to-date table of all NAICS codes (in the Code of Federal Regulations) does not yet include this new information. Please also keep in mind that the tables provided on the SBA’s website have not been updated since 2019 and do not have the most up-to-date information.

Links to the four Final Rules issued on March 31, 2022 and effective May 2, 2022:

If you or your company have questions about qualifying as a small business, please contact Danielle Dietrich at 412-227-0284 or ddietrich@smgglaw.com.

Most Disadvantaged Business Enterprise (DBE) certified businesses are generally aware that they have some sort of duty to report changes in their business at some point.  Some think that changes only need to be reported in the yearly affidavit. This is not the case. This blog will explain what, when, and how changes must be reported to your certifying agency.

What to Report:

Section 26.83(i) requires that a DBE report all changes that may change its eligibility for DBE status, including:

When to Report:

Section 28.83(i)(3) requires that a certified DBE report all changes within 30 days of the change.

How to Report:

Under Section 28.83(i)(3), the changes must be reported via a sworn affidavit (i.e. witnessed by a notary).  You must also provide supporting documentation evidencing the change.  For example, if the bylaws changed, you must submit a copy of the new bylaws.  If a new owner bought into the company, you must provide those documents.

What Happens if You Don’t Report?

If your business does not report these changes within 30 days, you will jeopardize your DBE certification.  The certifying agency may immediately suspend your DBE certification without the required notice and hearing process set forth in Section 26.87(d).  During the suspension, the DBE may not be considered to meet a contract goal, and any work it does on a contract received under the suspension may not be counted towards project goals.  These reporting requirements are taken very seriously.

If you or your company needs advice regarding DBE certifications, including reporting changes, please contact Danielle Dietrich at 412-227-0284 or ddietrich@smgglaw.com.

On January 27, 2022, the U.S. Attorney’s Office in the Southern District of Illinois announced a $440,000.00 settlement with United Ironworkers (“United”), D&K Welding Services (“D&K”), Kim Rasnick (United’s President), and Dorrie Wise- Harris (D&K’s President) to settle a civil False Claims Act investigation. United and D&K are steel construction companies working on highway and bridge companies.

The U.S. Attorney alleged that United (a non-Disadvantaged Business Enterprise (“DBE”)) conspired with D&K “to provide materially false representations and information regarding ownership and control of D&K for DBE certification and recertification purposes.”  

According to the U.S. Attorney, “the DBE program is designed to provide business opportunities to minority and women owned businesses. Funds designated for that purpose should not be misallocated to businesses masquerading as legitimate DBEs.”

You can read more details in the Department of Justice press release here: https://www.justice.gov/usao-sdil/pr/us-settles-dispute-over-disadvantaged-business-enterprise-fraud

Also of note, the owners of another steel construction firm brought the allegations to light, and will receive $79,200 from the settlement proceeds under the False Claims Act.

If your company needs advice regarding use and certification of DBE companies, please contact Danielle Dietrich at 412-227-0284 or ddietrich@smgglaw.com.

If you are an LGBT business owner, you may have considered becoming a certified LGBT-owned business through the National LGBT Chamber of Commerce’s LGBT Business Enterprise (LGBTBE) certification or another certifying organization.  These certifications are proof that your business is majority owned and controlled by one or more LGBT individuals.

You may think, how do I prove my LGBT status?  The National LGBT Chamber of Commerce provides a very detailed list of ways an individual may be able to prove LGBT status: https://www.nglcc.org/sites/default/files/LGBT%20Status%20Qualifiers.pdf .  

Just a few examples of potential evidence of LGBT status are: 

Of course, even if you meet the LGBT requirements of this certification, you must also show that the LGBT owner(s) actually own and control the business. This topic will be covered in a future blog.

If your company needs advice regarding diversity certifications, including LGBT certification, please contact Danielle Dietrich at 412-227-0284 or ddietrich@smgglaw.com.

The government is forcing the hand of healthcare providers who have dragged their feet on enacting COVID-19 vaccine requirements.  Today, November 4, 2021, the Centers for Medicare & Medicaid Services issued a Rule requiring healthcare providers that participate in Medicare and Medicaid require their workers to be fully vaccinated by January 4, 2022.  Providers must enact a vaccination policy for their workers by December 5, 2021.  Exemptions based on certain medical conditions or religious beliefs will be available. 

The interim final rule is excepted to be published in the Federal Register on November 5, 2021, but a PDF copy can be found here: https://public-inspection.federalregister.gov/2021-23831.pdf.

CMS will advise and train state surveyors on how to assess compliance with these new requirements.  This will include staff interviews, review of policies and procedures and how to cite for noncompliance.  Potential penalties could include civil money penalties, denial of payment for new admissions, or termination of the Medicare/Medicaid provider agreement.

If you are a medical provider looking for assistance implementing a COVID-19 vaccination policy, please contact Danielle Dietrich at 412-227-0284 or ddietrich@smgglaw.com.

On October 29, 2021, the U.S. Attorney’s Office in the Western District of Texas announced a $188,879.59 settlement with Muniz Concrete and Contracting, Inc. to resolve False Claims Act allegations arising out of false information being provided in accordance with the company’s Disadvantaged Business Enterprise (“DBE”) certification.  The DBE program is designed to encourage and increase the participation of women- and minority-owned businesses in federally funded projects.   

The U.S. Attorney alleged company owner, Jose Muniz, was no longer “economically disadvantaged” beginning in 2017 when his personal net worth exceeded the threshold to qualify as a DBE.  Muniz is alleged to have made several false certifications concerning his personal net worth after 2017 to continue receiving DBE contracts. 

You can read more details in the Department of Justice press release here: https://www.justice.gov/usao-wdtx/pr/austin-construction-company-and-owner-settle-false-claims-act-allegations.

If you are a DBE owner who would like to discuss concerns about your personal net worth statement, please contact Danielle Dietrich at 412-227-0284 or ddietrich@smgglaw.com.

There are many tax and estate planning reasons why a person may want to put their ownership interest in a business into a trust.  However, if that business is or wants to be certified as a Disadvantaged Business Enterprise (DBE), trusts must be used carefully.  

At the heart of the DBE certification process is an examination of whether the socially and economically disadvantaged owner actually owns and controls the business.  According to 49 C.F.R. §26.69(d), “[a]ll securities that constitute ownership of a firm shall be held directly by the disadvantaged person.” The direct ownership is where the trust comes into issue. Generally, an ownership held by a trust cannot qualify as disadvantaged, with two exceptions explained in 49 C.F.R. §26.69(d).

The first exception is when the beneficial owner of the trust holding the ownership is a disadvantaged individual who is also the trustee. So, if there is a single beneficial owner of the trust, and that owner is also the trustee of the trust, the business may be able to become DBE certified. 49 C.F.R. §26.69(d)(1).

The second exception is when the beneficial owner of the trust is disadvantaged and who actually exercises effective control (rather than the trustee) “over the management, policy-making, and daily operational activities of the firm.” 49 C.F.R. §26.69(d)(2). This would be a more complicated situation and require more work to prove.

Trusts can be complicated and must be entered into with a full understanding of the potential ramifications.  For instance, if there are other assets held in the trust other than the ownership interest in the applicant disadvantaged business, the value of those assets will count towards the personal net worth limit of the disadvantaged applicant. Further, the applicant owner must also be able to show that they have significant financial investment in the firm.  For more information on that subject, please visit my prior blog post on ownership investment in a DBE company: https://www.natlawreview.com/article/do-owners-have-to-buy-to-their-company-order-to-get-disadvantaged-business.

If you or your company needs advice regarding DBE certifications, please contact Danielle Dietrich at 412-227-0284 or ddietrich@smgglaw.com.

If your company is applying for Disadvantaged Business Enterprise (DBE), Women’s Business Enterprise (WBE) or Minority Business Enterprise (MBE) certification, you will need to provide your company’s NAICS code(s), also sometimes referred to as your primary industry classification.

NAICS stands for North American Industry Classification System and is a standard used by federal agencies to classify businesses. You can look up appropriate NAICS codes here: https://www.naics.com/search/.

For DBE certification, a company will only be certified under the NAICS codes where the disadvantaged owner(s) can show that they can control the firm. 49 C.F.R. §26.71(n).  For example, if the owner spent their entire career managing a retail store, then purchased a manufacturing company, they may have a difficult time showing that they have the knowledge and experience necessary to control a manufacturing company.  The company will only be certified in the NAICS codes where it can demonstrate the owner has that control and the company can perform that work, and those NAICS codes will appear on the certification certificate.

Similarly, applications for WBE and MBE certification must demonstrate the ability to control their business in the industries indicated by their NAICS codes.

If a business expands and wishes to become certified under additional NAICS codes, it must follow the process set forth by the certifying agency to demonstrate the ability to control the business in that area and perform that work.

Finally, if you are a WBE, you may want to see if becoming a Women Owned Small Business (WOSB) or Economically Disadvantaged Women Owned Small Business (EDWOSB). The federal program provide additional opportunities for businesses holding these certifications, and are specific to certain NAICS codes.

If your company needs advice regarding diversity certifications, please contact Danielle Dietrich at 412-227-0284 or ddietrich@smgglaw.com.

If your company is applying for Disadvantaged Business Enterprise (DBE) certification, a representative of the certifying agency will perform an on site visit to your company’s principal place of business.

The site visit is a required part of the application process under 49 C.F.R. § 26.83(c)(1)(i). During COVID times, site visits have taken place via Facetime, Skype, Zoom or other video chat methods. Pursuant to guidance issued on June 29, 2021 (https://www.transportation.gov/sites/dot.gov/files/2021-06/DOCR%20Guidance%20March%2024%20Extension%2006292021%20%28002%29.pdf  ), the USDOT has instructed that site visits continue via these methods through December 31, 2021. However, during normal times these visits are in person. The representative will visit your business at its main office- be that in a physical office space or your home (for business run from a private residence – as is becoming more common these days).

During the site visit, your principal officers will be interviewed. There will be questions regarding work history, resumes and experience with the company. The interviewer may also speak to other key personnel of the company. If your company is working at a local job site, expect the interviewer will want to visit that site. After the site visit, the interviewer will draft a report.

Please take these visits seriously. This visit is much more than a formality. Many companies have been denied certification due to their answers to questions during site visits.  Often, the interviewer determines that the applicant owner does not have the technical experience necessary to fully control the company based on discussions during the site visit. As “control” is one of the main requirements for DBE certification, this sinks the applicant’s application.

The disadvantaged owner(s) should take the time to prepare for the site visit. They should make sure that they are able to fully explain the technical side of their business and how things work. They should be able to demonstrate that they have the knowledge necessary to control the business.  Enlisting the help of an attorney familiar with the certification process can help you feel confident and prepared for the questions you may face.

The site visit remains important even beyond your initial application. If successful in the certification process, the site visit report will also be used by other states if you apply for interstate certification (a.k.a. DBE certification in a state other than your home state) under 49 C.F.R. §26.85.

If your company needs advice on preparing for a site visit, please contact Danielle Dietrich at 412-227-0284 or ddietrich@smgglaw.com.

On July 13, 2021, the U.S. Attorney’s Office in the Southern District of New York announced a $400,000.00 settlement with Spectrum Painting Corp. (“Spectrum”) to settle civil fraud claims. The U.S. Attorney alleged that Spectrum “fraudulently obtained payments on two federally funded construction projects by causing misrepresentations of compliance with Disadvantaged Business Enterprise (“DBE”) rules.” This program is designed to encourage and increase the participation of women- and minority-owned businesses in federally funded projects.

Spectrum is a New York-area painting contractor and is alleged to have caused the prime contractors on two projects to “misrepresent that Tower Maintenance Corp. (“Tower”), a certified DBE, was solely performing work on the two projects.” Spectrum, a non-DBE, performed much of that work, not Tower.

According to the press release, Manhattan U.S. Attorney, Audrey Straus stated, “This settlement reflects this Office’s commitment to root out DBE fraud in federally funded contracts so that legitimate DBEs can compete fairly for public construction projects.” The United States Department of Transportation Office of Inspector General Special Agent-in-Charge Brian Gallagher vowed, “We will hold accountable those who conspire to misrepresent their compliance with program requirements to obtain taxpayer supported contracts, thereby undermining the DBE program’s goal of expanding opportunities for small business.”

You can read more details in the Department of Justice press release here: https://www.justice.gov/usao-sdny/pr/manhattan-us-attorney-settles-fraud-suit-against-spectrum-painting-false-statements.

If your company needs advice regarding use of DBE companies in your projects, please contact Danielle Dietrich at 412-227-0284 or ddietrich@smgglaw.com.