Disadvantaged Business Enterprises Participation in the District of Columbia

The District of Columbia has a very active and aggressive disadvantaged local small business enterprise preference system, with extra protections for local businesses.

Qualified local businesses are referred to as a “Certified Business Enterprise” [1] (CBE) under the D.C. Code.  There are several different types of CBEs, including;

  1. Small business enterprise[2]
  2. Local business enterprise[3]
  3. Disadvantaged business enterprise[4]

The rules generally provide preferences in City procurement to individual and corporate residents of the City, that are subject to City tax and licensure requirements.[5] The Department establishes rules for: (1) A bid preference mechanism for certified business enterprises; (2) A set-aside program for small business enterprises; and (3) A set-aside program for certified business enterprises.[6] Each City agency has the goal of procuring and contracting 50% of its expendable budget to qualified small business enterprises. However, if the agency determines in writing that there are not at least 2 qualified small business enterprises, the agency may use any qualified certified business enterprises to fulfill those requirements.[7]

Each agency must set also aside contracts of $250,000 or less for qualified small business enterprises.[8]  However, if an agency determines in writing that there are not at least 2 qualified small business enterprises that can provide the services or goods for the contract, the agency may use any qualified certified business enterprise. Also, an agency can issue the contract in the open market, if the agency determines in writing that the bids set aside for a small or certified business enterprise are believed to be 12% or more above the likely price on the open market.[9]

A joint venture is eligible for certification as a certified joint venture only for a specific solicitation.[10] In other words, there are no “standing” certified joint ventures in the City. A certified joint venture should receive preference points or price reductions in solicitations only if a certified business enterprise owns a majority interest in the joint venture.  If the certified joint venture is formed to serve as a general contractor on a project (A) any bond for the project must be provided by the certified business enterprise, and the certified business enterprise participant shall be solely and individually liable as the principal to the surety for at least 51% of each claim asserted under the bond; (B) The individual primarily responsible for project decisions, such as the project executive, must be provided by the certified business enterprise; and (C) At least 50% of the staff that the joint venture will devote to the project will be provided by the certified business enterprise.[11]

Each government-assisted construction and non-construction contract in which a certified business enterprise is selected and is granted points or a price reduction or is selected through a set-aside program shall include a requirement that the CBE perform at least 35% of the contracting effort with its own organization and resources.  If the CBE subcontracts, 35% of the subcontracted effort shall be with CBEs.[12] If the project is $ 1 million or less, the CBE must perform at least 50% of the contracting effort with its own organization and resources.[13] If a certified joint venture is selected and is granted points or a price reduction or is selected through a set-aside program, the CBE must perform at least 50% of the contracting effort with its own organization and resources.  If the joint venture subcontracts, 35% of the subcontracted effort must be with certified business enterprises.[14]

“Government-assisted” is fairly broadly defined as a contract executed on behalf of the City that involves City funds or that the City administers in accordance with a federal grant or otherwise; a project that receives a loan or grant from a City agency; a project that receives bonds or notes issued by a City agency, including tax increment financing or industrial revenue bonds; a project that receives City tax exemptions or abatements; or a development project that involves property sold or leased by the City.[15]                

Whether or not a certified CBE is the successful bidder on a City contract, all construction contracts for government-assisted projects in excess of $ 250,000 have CBE subcontracting requirements.[16]

  • 2-218.46.  Performance and subcontracting requirements for construction and non-construction contracts; subcontracting plans.

    (a)  (1) All . . . contracts for government-assisted projects in excess of $ 250,000 shall include the following requirements unless a waiver has been approved in accordance with § 2-218.51:
             (A) At least 35% of the dollar volume of the contract shall be subcontracted to small business enterprises; or
             (B) If there are insufficient qualified small business enterprises to completely fulfill the requirement of subparagraph (A) of this paragraph, then the subcontracting requirement may be satisfied by subcontracting 35% of the dollar volume to any qualified certified business enterprises; provided, that all reasonable efforts shall be made to ensure that qualified small business enterprises are significant participants in the overall subcontracting work.

If a certified business enterprise is utilized to meet these subcontracting requirements, then that CBE subcontractor must perform at least 35% of the contracting effort with its own organization and resources.[17]

Bids or proposals responding to any City solicitation must include a subcontracting plan that includes the name and address of each subcontractor; a current certification number of the small or certified business enterprise; the scope of work to be performed by each subcontractor; and the price to be paid to each subcontractor. This subcontracting plan must be provided before the City accepts the submission of the bid or proposal.[18]

The D.C. Code does define commercially useful function, borrowing from the federal DOT terminology:


For the purposes of this subchapter, the term:
"Commercially useful function" means work performed by a certified business enterprise in a particular transaction that, consistent with industry practices and other relevant considerations, has a necessary and useful role in the transaction. The certified business enterprise shall be responsible for the execution of the work of the contract and carry out its responsibility by actually performing, managing, and supervising the work involved. The certified business enterprise shall be responsible, with respect to materials and supplies used on the contract, for negotiating price, determining quality and quantity, ordering the materials and installing (where applicable) and paying for the material itself.[19]

However, the CUF term is used only one other place in the D.C. Code:

The Department, in coordination with the agency contracting officer, shall have the authority, in reviewing participation by certified business enterprises, to disregard participation by a certified business enterprise when that certified business enterprise serves no commercially useful function in the performance of a contract.[20]

This seems to create a discretionary standard for the Department,[21] which has the authority, but not the duty to disregard DBE participation if the DBE serves no commercially useful function in the performance of a contract. The D.C. definition of CUF is from the DOT regulations, requiring actual performance and the four pillars.  However, the operation of the statute seems to be discretionary in the Department and may be subject to politics.

 

[1] DC Code § 2-218.02(1D) Definitions.

[2] DC Code § 2-218.02(16) Definitions & DC Code § 2-218.32. A business enterprise shall be eligible for certification as a small business enterprise if the business enterprise: (1) Is a local business enterprise; (2) Is independently owned, operated, and controlled; and (3)  (A) Is certified by the United States Small Business Administration as a small business concern or meets the definition of a small business concern under the Small Business Act . . . or (B) Has had averaged annualized gross receipts for the 3 years preceding certification not exceeding [certain limits].

[3] DC Code § 2-218.02(12) Definitions & DC Code § 2-218.31. A business enterprise shall be eligible for certification as a local business enterprise if the business enterprise: (1) Has its principal office located physically in the District of Columbia; (2) Requires that its chief executive officer and the highest level managerial employees of the business enterprise perform their managerial functions in their principal office located in the District; (2A) Can demonstrate one of the following: (A) More than 50% of the employees of the business enterprise are residents of the District; (B) The owners of more than 50% of the business enterprise are residents of the District; or (C)  (i) More than 50% of the assets of the business enterprise, excluding bank accounts, are located in the District; and (ii) More than 50% of the business enterprise's gross receipts are District gross receipts; and (3) Can demonstrate [that the business enterprise is licensed or taxed pursuant to the D.C. Code].

[4] DC Code § 2-218.02(5) Definitions & DC Code § 2-218.33. A business enterprise shall be eligible for certification as a disadvantaged business enterprise if the business enterprise is: (1) Owned, operated, and controlled by economically disadvantaged individuals; and (2) Is a local business enterprise.

[5] There are also preferential designations for local business enterprises with principal offices located in an enterprise zone in DC Code § 2-218.37 [principal offices are located in an enterprise zone as defined by DC Code § 2-218.02]; Veteran-owned business enterprises in DC Code § 2-218.38 [a local business enterprise not less than 51% owned and operated by one or more veterans]; and Local manufacturing business enterprises in DC Code § 2-218.39 [a local manufacturing business enterprise makes a product through a process involving raw materials, components, or assemblies, usually on a large scale, with different operations divided among different workers; and manufactures only in the District of Columbia].

[6] DC Code § 2-218.42. See the point system for bid and proposal preferences in DC Code § 2-218.43.

[7] DC Code § 2-218.41(a) &  (a-1).

[8] DC Code § 2-218.44 & 45.

[9] DC Code § 2-218.44 & 45.

[10] DC Code § 2-218.39a(a) (2015).  

[11] DC Code § 2-218.39a(h) (2015).  

[12] DC Code § 2-218.46(b)(1)(A).

[13] DC Code § 2-218.46(c).

[14] DC Code § 2-218.46(b)(2)(A).

[15] DC Code § 2-218.02(9A) Definitions.

[16] DC Code § 2-218.46.  Under DC Code § 2-218.51 these subcontracting requirements may be waived only  in writing by the Director if there is insufficient market capacity for the goods or services that comprise the project and such lack of capacity leaves the contractor commercially incapable of achieving the subcontracting requirements at a project level.

[17] DC Code § 2-218.46(b-1).  Under DC Code § 2-218.64, no bidder may identify a small or certified business enterprise in a bid or proposal unless it has obtained authorization from the small or certified business enterprise to identify the small or certified business enterprise in its bid or proposal; has notified the small or certified business enterprise before execution of the contract of its inclusion in the bid or proposal; and uses the small or certified business enterprise in the performance of the contract.

[18] DC Code § 2-218.46(d)(1)-(3).  Under DC Code § 2-218.46(d-1)  a design-build project is not be required to identify specific subcontractors before performing preconstruction services, but a detailed subcontracting plan must be submitted before entering into a guaranteed maximum price or authorization to commence construction.

[19] DC Code § 2-218.02(1G) Definitions.

[20] DC Code § 2-218.13(e)  Functions of the Department.

[21] Department of Small and Local Business Development, established by DC Code § 2-218.11.