New Rules on Rebutting the Presumption of Economic Disadvantage for DBEs: Goodbye AASW, Hello “Reasonable Person”

Preliminary Note: On Tuesday, April 9, 2024, the United States Department of Transportation issued a final rule that modernized the Disadvantaged Business Enterprise (DBE) program and the Airport Concessions DBE (ACDBE) program regulations. Review a copy of the final rule. The changes will go into effect on May 9, 2024. This blog is one in a series highlighting the changes and updates found in this final rule.

One of the most anticipated updates to the USDOT’s DBE regulations was whether the ability to accumulate substantial wealth (AASW) analysis would be changed in §26.87. In the prior version of the rule, AASW was an analysis by which a certifier could rebut the presumption of economic disadvantage of an owner (even if they fell below the personal net worth limits). In that analysis, there were six factors suggested (but not required) for consideration. This included the $350K adjusted gross income (AGI) number that was used by some certifiers as a bright line rule.

In the Notice of Proposed Rulemaking, the USDOT had suggested a “reasonable person” standard- that the certifier “must prove that a reasonable person would not consider the individual economically disadvantaged.” In the comments to the proposed rule, commenters nearly universally gave this change a thumbs down, noting that it was now entirely subjective. This could lead to arbitrary results, leaving too much discretion to the personal opinion of certifier staff that may be influenced by unconscious bias or the certifier’s personal dislike of a particular firm (both things that I have seen my clients face during the process).

Unfortunately, the comments did not sway the USDOT, and they kept the proposed rule.

It is important to note that EVERYTHING is fair game for consideration under the new rule. In fact, it specifically notes that “[t]he certifier may consider assets and income, free use of them or ready access to their benefits, and any other trappings of the wealth that the certifier considers relevant. There are no assets (including retirement assets), income, equity or other exclusions and no limitations on inclusions.”

During the USDOT’s April 29, 2024, training on the new rule, I submitted a question as to whether the “reasonable person” standard was any average person on the street, or a non-SEDO business owner (as has been use elsewhere, such as in arriving in the new personal net worth limits). The USDOT did not answer my question.

This new analysis gives certifiers a lot of power and discretion. Like under the former AASW analysis, certifiers do have to give a detailed explanation, in writing, of the findings to rebut the presumption of economic disadvantage and give the owner the opportunity to respond. I anticipate this being a significant problem for many DBE owners, especially considering the new PNW cap.

If your company has questions about the new regulations, or about DBE or ACDBE certification generally, please contact Danielle Dietrich, Esq. at ddietrich@potomaclaw.com or 412-449-9141.

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