Manufacturers, Regular Dealers, and Distributors: Changes on How DBE Participation is Counted Under Revised Regulations

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.

Some of the many changes made to the rules governing the federal Disadvantaged Business Enterprise (“DBE”) Program is how DBE participation with regards to materials and supplies is counted towards DBE goals under Section 26.55 of the regulations.

One of those changes was the clarify the definition of “manufacturing.” As the purchase of materials and supplies from a DBE manufacturer results in counting 100 percent of the cost of those materials or supplies towards the DBE goal, this is an important designation.

The new regulations define a manufacturer as a company that:

• Owns (or leases) and operates a factory or establishment;
• That houses the production of the materials, supplies, articles, or equipment required under the contract and of the general charactering described by the specifications; and
• Manufacturing includes blending or modifying raw materials or assembling components to create the product to meet contract specifications.

The regulations also make explicit what is not a manufacturer:

• Making minor modifications to the materials, supplies, articles, or equipment; and
• Minor modifications are additional changes to an already manufactured product that are small in scope and add minimal value to the final product.

The regulations also clarify what is required to be a “regular dealer” of a material, supply, article, or piece of equipment. Regular dealers count 60 percent of the cost of the materials and supplies (including transportation costs) towards the goal. A regular dealer is:

• An established business;
• Engaging as principal business (in its own name) in the purchase and sale or lease of the products in question; and
• At least 51 percent of the items under a purchase order or subcontract are provided from the DBE’s inventory; and
• When necessary, any minor quantities delivered from and by other sources are of the general character as those provided from the DBE’s inventory.

The new regulations also create a new category called “DBE distributor” and allows 40 percent of the cost of those materials or supplies (including transportation costs) to count. A DBE distributor is:

• An established business;
• Engaging in the regular sale or lease of the items specified by the contract;
• Must demonstrate ownership of the items in question and assume all risk for loss or damage during transportation, evidenced by the terms of the purchase order or a bill of lading (BOL) from a third party, indicating Free on Board (FOB) at the point of origin or similar terms that transfer responsibility of the items in question to the DBE distributor; and
• Terms that transfer liability to the distributor at the delivery destination (e.g., FOB destination), or deliveries made or arranged by the manufacturer or another seller do not satisfy this requirement.

These new definitions go a long way towards clarifying former murky areas, but still may result in confusion during the certification and project process.

If your company has questions about how these 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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