Date of Submission: Tuesday, September 18, 2007

Date of Revision: Thursday, January 22, 2015

Title: Disadvantaged Business Enterprise Policy Analysis by Phanel Petit

CERTIFICATION OF AUTHORSHIP: I certify that I am the author of this paper and that any
assistance I received in its preparation is fully acknowledged and disclosed in the paper. I have
also cited any sources from which I used data, ideas or words, either quoted directly or
paraphrased. I also certify that this paper was prepared by me specifically for this course.
Author's Signature:

Phanel Petit

*****************************************************************

Disadvantaged Business Enterprise Policy Analysis by Phanel Petit

Abstract
In an effort to foster equal opportunity in highway, transit and airport contracting, President
Reagan signed the first Disadvantaged Business Enterprise (DBE) legislation in 1983.
Throughout its course of 24 years, the program has been challenged in court several times. Some
argue that the DBE program is unconstitutional and it is not narrowly tailored to prevent
discrimination, but rather encourages reversed discrimination. Others question the fairness of the
program and whether it is needed or not. As a result, Congress reevaluated the program a number
of times over the years and implemented Code of Federal Regulation (49 CFR Part 26) to
improve it. While several attempts have been made to resolve some the past issues, they have
also opened doors for other continuous challenges.

History
The government created the National Plan of Integrated Airport Systems (NPIAS) to identify
airports that are important nationally and contribute to the US economy. Once these airports
were identified, the government appropriate funds to help them improve through the Airport
Improvement Program (AIP). AIP provides grants to airports that are included in the NPIAS.
As a condition for receiving these funding, the airports agree to accept conditions and obligations
as grant assurances. DBE is one the obligations, all airports that receive funds from the AIP are
required to have a DBE program.
(http://www.faa.gov/airports_airtraffic/airports/planning_capacity/npias/)

Disadvantaged Business Enterprise Policy Analysis by Phanel Petit

Objectives
The overall objective of the DBE policy is to allow minority businesses the opportunity to
participate in Department of Transportation (DOT) assisted contract. The airports do so by
implementing a DBE program based on the DBE policy. Through the DBE program, the policy
seeks to achieve the following objectives:
(a) To ensure nondiscrimination in the award and administration of DOT-assisted contracts in
the Department's highway, transit, and airport financial assistance programs;
(b) To create a level playing field on which DBEs can compete fairly for DOT-assisted
contracts;
(c) To ensure that the Department's DBE program is narrowly tailored in accordance with
applicable law;
(d) To ensure that only firms that fully meet the requirements of this policy and
eligibility standards are permitted to participate as DBEs;
(e) To help remove barriers to the participation of DBEs in DOT- assisted contracts;
(f) To assist the development of firms that can compete successfully
in the marketplace outside the DBE program; and
(g) To provide appropriate flexibility to recipients of Federal
financial assistance in establishing and providing opportunities for
DBEs. (49 CFR Part 26 section 1)

DBE Certification Requirements

In order for a firm to participate in the program, they must become DBE certified. For a firm to
become DBE certified, they must meet the following criteria:
1. The owner must be a member of a socially and economically disadvantaged group. This

Disadvantaged Business Enterprise Policy Analysis by Phanel Petit

means owners who are citizens of the United States, or who are lawfully admitted permanent
residents, and are: Black, Hispanic, Native Americans, Asian-Pacific Islanders, Subcontinent
Asians, or women regardless of race.
2. The business must be owned, at least 51%, by one or more individuals who are considered
members of a socially and economically disadvantaged group.
3. The owner must control the company's management and daily operations.
4. An owner's personal net worth cannot exceed $750,000 (excluding ownership interest in the
firm and the equity in his/her primary residence).
5. The company must meet the Small Business Administration's Size Standard requirements.

Social and Economic Disadvantage Determination

Under section 26.26 of the DBE policy, a presumption is made that that citizens of the United
States (or lawfully admitted permanent residents) who are women, Black Americans, Hispanic
Americans, Native Americans, Asian-Pacific Americans, Subcontinent Asian Americans, or
other minorities found to be disadvantaged by the Small Business Administration (SBA), are
socially and economically disadvantaged individuals.
In determining net worth, an individual's ownership interest in the applicant firm and the
individual's equity in his or her primary residence (except any portion of such equity that is
attributable to excessive withdrawals from the applicant firm) does not count. A contingent
liability does not reduce an individual's net worth. The personal net worth of an individual
claiming to be an Alaska Native will include assets and income from sources other than an
Alaska Native Corporation (ANC) and exclude any of the following which the individual
receives from any Alaska Native Corporation: cash (including cash dividends on stock received
from an ANC) to the extent that it does not, in the aggregate, exceed $2,000 per individual per

Disadvantaged Business Enterprise Policy Analysis by Phanel Petit

annum; stock (including stock issued or distributed by an ANC as a dividend or distribution on

stock); a partnership interest; land or an interest in land (including land or an interest in land
received from an ANC as a dividend or distribution on stock); and an interest in a settlement
trust. (49 CFR Part 26.6)
Disadvantaged
The word "disadvantaged" is a generic term for individuals or groups of people who:

Face special problems such as physical or mental disability

Lack money or economic support.

Are without power or other means of influence

Lacking the normal or usual necessities and comforts of life, as proper housing, educational
opportunities, job security, adequate medical care, etc.: The government extends help to
disadvantaged minorities. (http://dictionary.reference.com/browse/disadvantaged)
The US government emphasis of classifying poor and underprivileged as disadvantaged may
have changed the true meaning of the word. It became a government or political term such as the
disadvantaged children, disadvantaged businesses and so on. Calling the program disadvantaged
brings into question its fairness. The groups classified as disadvantaged are the minorities while
a poor white male could also be disadvantaged. The program is designed for minorities, it should
be called a minority program such as Minority Business Enterprise (MBE), instead of its current
name: Disadvantaged Business Enterprise. There are number of programs in the country that are
designed by local governments and non-profit organizations, specifically for minority businesses
under the MBE umbrella. The Federal Government through the Department of Commerce added
its own spin to MBE with the Minority Business Development Agency (MBDA). The agency

Disadvantaged Business Enterprise Policy Analysis by Phanel Petit

has been around for 45 (forty-five) years and has a network of more than 40 (forty) locations
throughout the United States.

Constraints
If you have more than $750,000 in personal net worth, the program does not qualify you as
disadvantaged. A number of businesses argue that the net worth cap is minimal; it does not allow
small businesses the flexibility to compete financially. Others believe the net worth cap has made
way for much smaller businesses to participate and compete with businesses in the same size
category. Increasing the net worth cap will not only broaden the competition, it will take away
the opportunities available to the smaller businesses for which the program was designed for.
The forces of the majority (white male small business owners and others) continue to challenge
the program. On July 5th 2007, the Pacific Legal Foundation (PLF) filed a complaint in the
Superior court of California, county of Alameda against the Port of Oaklands airport DBE
program. The complaint was filed on behalf of the American Civil Right Protection. They want
the court to declare a judgment against the airport DBE program for violating California
proposition 209. They are using Proposition 209 as the basis for their case.

Proposition 209
The California Constitution was amended by Proposition 209 which started with the opposition
of California Universities affirmative action program. The California institution now includes a
new section (Section 31 of Article I), which reads:

Disadvantaged Business Enterprise Policy Analysis by Phanel Petit

(a) The state shall not discriminate against, or grant preferential treatment to, any individual or
group on the basis of race, sex, color, ethnicity, or national origin in the operation of public
employment, public education, or public contracting.
(b) This section shall apply only to action taken after the section's effective date.
(c) Nothing in this section shall be interpreted as prohibiting bona fide qualifications based on
sex which are reasonably necessary to the normal operation of public employment, public
education, or public contracting.
(d) Nothing in this section shall be interpreted as invalidating any court order or consent decree
which is in force as of the effective date of this section.
(e) Nothing in this section shall be interpreted as prohibiting action which must be taken to
establish or maintain eligibility for any federal program, where ineligibility would result in a loss
of federal funds to the state.
(f) For the purposes of this section, "state" shall include, but not necessarily be limited to, the
state itself, any city, county, city and county, public university system, including the University
of California, community college district, school district, special district, or any other political
subdivision or governmental instrumentality of or within the state.
(g) The remedies available for violations of this section shall be the same, regardless of the
injured party's race, sex, color, ethnicity, or national origin, as are otherwise available for
violations of then-existing California antidiscrimination law.
(h) This section shall be self-executing. If any part or parts of this section are found to be in
conflict with federal law or the United States Constitution, the section shall be implemented to
the maximum extent that federal law and the United States Constitution permit. Any provision
held invalid shall be severable from the remaining portions of this section. (Proposition 209,

Disadvantaged Business Enterprise Policy Analysis by Phanel Petit

Article 1 section 31). Politicians continue to sponsor the program because it offers opportunity
to minority businesses in their home state.

Other constraints:

Forces of the majority The majority rule

Ignoring other disadvantaged businesses of White male descendants.

Inconsistency

Greed and politics

Lawsuits

Weaknesses

Lack of disparity studies

Reverse Discrimination

Lawsuits

No penalty (punishment or consequences for not meeting the goal)

Too many loopholes

Bias

Frauds

Race Neutral vs. Race Conscious

Strengths

Support small disadvantaged / minority businesses

Level the playing field

Disadvantaged Business Enterprise Policy Analysis by Phanel Petit

Graduates (<$750,000 net worth)

Congress supports the program

Continuous discriminations

Reluctant to changes

In the end all parties benefit from DBE (both black and white)

Minority Organizations

Improvements

More disparity studies

Provisions for White males owned Disadvantaged Business Enterprises (a fine line)?

Removal of inconsistencies

Discrimination

Academia (studies to include evaluation, surveys etc)

Inconsistency between agencies

Bigger picture: Why not include all disadvantaged businesses or change the name of the
program from to simply include minority (i.e. MBE).

Disadvantaged Business Enterprise Policy Analysis by Phanel Petit

References

Federal Aviation Administration (2006) National Airport Intergrated System.

http://www.faa.gov/airports_airtraffic/airports/planning_capacity/npias/
Disadvantaged Business Enterprise Regulations. Title 49Transportation Part 26
http://www.dotcr.ost.dot.gov/asp/dbe.asp
Proposition 209. Prohibition Against Discrimination or Preferential Treatment by State and
Other Public Entities. Initiative Constitutional Amendment.
http://vote96.sos.ca.gov/BP/209.htm
Minority Business Development Agency. About MDA
http://www.mbda.gov/main/who-mbda/about-minority-business-development-agency