COVID-19: A Business Law Update

In October the Firm published an article addressing various business implications resulting from the Covid 19 pandemic, including a “heads up” warning that most business interruption policies would NOT cover losses related to a biological pandemic due to an exclusionary clause now found in most ISO standard form insurance contracts.  Since that time, there have been several legal updates impacting this and other business aspects.

I. Business Interruption Insurance

August 2020 witnessed the first known legal decision permitting a Plaintiff’s insurance claim for Covid 19 related business interruption damages to proceed to trial.  In K.C. Hopps vs The Cincinnati Insurance Company, Judge Stephen Bough, federal judge for the Western District of Missouri, ruled against the insurer’s Motion to Dismiss by concluding sufficient allegations existed that COVID 19 had deprived K.C. Hopps of its property by making it unsafe and unsuitable for customers to use, allowing the dispute to proceed to trial for a final decision.  While policy and fact specific, this case represents one of the first cases in the nation to open a chink in insurers’ policy defenses against COVID 19 related claims and should be watched carefully for final resolution.

II. COVID 19 Impact on Standard Form Construction Contracts

The Firm’s August 2020 article additionally addressed the legal doctrine of “force majeure” under the pandemic factors.  As a reminder, “force majeure” contract clauses typically excuses a party’s performance where the event is :  (i) unforeseeable, and (2) outside a party’s control. As such, these clauses allocate risk of natural and unavoidable catastrophes that affect contract performance. In the commercial construction world, the term “force majeure” may not appear in standard AIA or Consensus Docs but instead appears through remedial clauses such as modification for delay and time extension relief. 

As always, the parties must start with review of their existing contract language.  If their force majeure or related remedial clause identifies “epidemic”, “pandemic”, “outbreak of disease”, or other similar terms, then the COVID 19 delays would be covered under that clause.  However, other contracts may limit relief to more generalized triggers such as nature (e.g. severe floods or earthquakes). Often the courts will strictly construe such remedial clauses to exclude events not specifically named in the contract, making COVID 19 delays less likely to be covered.  Also state by state case law may govern, where some states strictly identify “acts of nature” to exclude pandemics, while others permit it.  And even if the clause permits a remedy, most often that remedy is limited to a time extension versus both time and damage recovery.

A. AIA A201-2017 General Conditions

This document, used by many contractors in the industry, does not specifically address “force majeure” delays but in Section 8.3.1 Delays and Extensions of Time includes a broad catch-all terminology that permits excusable time extensions for various events “outside the Contractor’s control”. This standard contract form also permits a contractor to terminate a contract if that contractor is prevented from performance for a period of 30 consecutive days “through no fault of the Contractor for “an act of government, such as declaration of national emergency, that requires all Work to be stopped”. 

B. ConsensusDocs

ConsensusDocs is less ambiguous on COVID 19 delays, where Form 200-2017 Standard Agreement, Article 6.3 between a Contractor and Owner specifically identifies “epidemics” as an excusable delay and permits the contractor right to an equitable extension of time. 

C. DBIA

DBIA form which incorporates the Standard Form of General Conditions (DBIA 535, 2010 Version) specifically mentions force majeure and defines it as events beyond the contractor’s control, “including epidemics”.  Section 8.2 of the DBIA form (delays to work) carves out force majeure events, prohibiting price adjustments for these events but allowing a back door approach to time and cost recovery by characterizing the claim event as related to “differing site conditions” and “hazardous conditions”.

D. Federal, State, Local Construction Contracts

While federal contracts do not address “force majeure” claims, FAR 52.249-14 (Excusable Delays) lists specific examples of recoverable delays including:  “epidemics” and/or “quarantine restrictions”.  However, the contractor is not excused from meeting their burden of proof related to accuracy of delay impact documentation. 

State and local public contracts should be carefully reviewed to identify either force majeure clauses or treatment of other “excusable” delays.

III. Other Doctrines

Finally, if you discover your contract is silent as to either “force majeure” or the other related delay clauses above, the common law doctrine of “commercial impracticability” may apply to offer relief. While not recognized by all states, it is a concept included in the Uniform Commercial Code adopted by most states, as well as the Restatement  (Second) of Contracts which outlines various contract construction standards utilized by both courts and attorneys.

IV. Suggested Strategies 

As a review to the prior article, suggested strategies include the following:

1. Review your Forms

If you have not already done so, now is the time to review both your insurance policy for business interruption coverage (i.e. does it specifically exclude coverage for pandemics or related terms); and your standard form construction contracts (i.e. how does it address either “force majeure” or delays beyond a contractor’s control).

2. Record Impacts and Mitigate Damages 

If you’re experienced delays or interruptions related to COVID 19 events, it is important to immediately review your cost accounting mechanisms to isolate and track COVID 19 specific impacts, delays and extra costs.  The contractor then has a duty to identify modifications to means and methods sufficient to reduce or eliminate factors under the Contractor’s control.  This might include work at home orders, changes in scope sequence to permit certain safer scopes of work to be performed while completing other, more high risk exposure scopes at a later date. The contractor should also start an open communication line with all players to coordinate the response, while additionally watching and recording any governmental actions, orders or legislation and their applicable dates and impact on the project and the contractor’s performance. 

3. Submit timely written notices of delay

Again, as driven by the specific contract language, be sure to submit timely and accurate notices of delay as specified within the contract document.When drafting these notices, be mindful of whether it is precise and fact based versus emotional.  Consider how the wording will be received and how it might appear to a third party judge or jury at a later time.  The more fact specific and documented, the stronger its basis for a claim.

In summary, we are living in a brave new world where many standard clauses and methods of addressing business interruption have been flipped on their head.  Case law remains unsettled, but utilizing common sense in conjunction with the above principles and suggestions should pave the way for working through the COVID 19 pandemic. 

Link to Prior Article:  Contract Obligations And Defenses under Covid-19

© Denise E. Farris. (December 3, 2020). This article may not be reprinted or reproduced in any manner without the consent of the author. This article is not intended to be the provision of legal advice. For fact-specific questions, refer to an attorney licensed in your state. Contact: Denise Farris, Farris Legal Services, LLC. [email protected].

Contract Obligations and Defenses under COVID 19

In this Orwellian time of global pandemic, worldwide commercial interruption and governmental indecisiveness, business owners and employers are scrambling to implement emergency plans against an unknown and largely unforeseeable future. Given the emergency nature of this pandemic and its unprecedented impact on businesses worldwide, few owners have had the luxury of a focused look at how COVID 19 will impact previously settled areas of contract law. This article attempts to provide a brief outline of consideration points.

I. Force Majeure

A. Don’t Assume Force Majeure Is Applicable to Your Situation

A force majeure clause is a contract provision which excuses one (unilateral) or both (bilateral) parties’ performance when circumstances arise beyond the parties’ foreseeable control, thus making performance of the contract impractical or impossible. Its wording identifies the triggering events invoking the clause. Assuming your contracts contain a force majeure clause, contract performance may be excused based upon those events itemized in the clause, typically including acts of God, labor shortages, strikes, or governmental orders.

To effectively use a Force Majeure clause, it must:

a. Be included in the contract and interpreted according to its specific language
b. Identify specific applicable triggering events
c. Be narrowly applied by the courts and strictly construed against its specific contract language, 
d. Be supported by:

i. facts showing performance has become impossible, not merely more difficult or expensive, and
ii. facts establishing the triggering event directly caused the inability to perform. 

Thus a key issue in determining whether a party can successfully invoke its protection under the COVID19 scenario is whether your contract clause lists “epidemic”, “pandemic”, or “emergency actions” as a triggering event. In addition, listing “government acts” as a triggering event may also apply. However, where these clauses are narrowly construed by the courts, lacking such verbiage you may have a problem claiming a force majeure defense. 

Additionally, force majeure clauses typically require prompt and specific form of notice by you or your company to all other parties to the contract that a triggering event may have occurred, even before the total impact of the event is known. Failure to appropriately comply with the form and timing of your contract’s notice requirements may render your force majeure defense useless. 

Finally, even the best structured force majeure clause will not excuse you from your own negligence or failure to anticipate foreseeable risks and take appropriate measures to avoid same.

II. Uniform Commercial Code and Equity Defenses 

Lacking a force majeure defense, the business owner should also consult with legal counsel regarding the defensive impact of other statutory or common law defenses. These include the statutory defense of “impracticability of performance” under each state’s Uniform Commercial Code, and/or the common law doctrines of impossibility or impracticability of performance. 

A. Uniform Commercial Code (UCC)

Section 2-615 of the Uniform Commercial Code, adopted in some manner and form by most states, is a specific statutory code which applies to the sale of goods and some services, and which excuses a seller’s performance where “that performance has been made impracticable by the occurrence of a contingency, the non-occurrence of which was a basic assumption on which the contract was made”. While not a total defense to non-performance, the clause permits a reallocation of performance among customers “in any manner which is fair and reasonable”. 

B. Common Law Impossibility or Impracticability of Performance

The common law “impossibility of performance” defense applies where there is literally no possible way for a party to perform its contract duties. An example would be the delivery of alcohol at the time prohibition was implemented, where such delivery was made illegal by legislative authority. By analogy, certain manufacturing operations or other similarly situated businesses deemed “non-essential businesses” under the COVID19 situation could claim an “impossibility of performance” defense based upon government ordered shutdowns prohibiting employees from working.

In comparison, the common law defense of “impracticability” applies where performance is still possible, but would be extremely burdensome for the party whose performance is due. Therefore, “impossibility” of performance can be determined objectively, while “impracticability” is a subjective and fact detailed analysis requiring proof: 

  1. There was the occurrence of a condition, the nonoccurrence of which was a basic assumption of the contract, 
  2. The occurrence made contract performance extremely expensive or difficult
  3. The difficulty was not anticipated by the parties to the contract

III. Insurance Coverages 

Many business owners may be currently relying on the mistaken belief that their economic losses created by COVID19 impacts will be covered by their Business Interruption / Loss of Income insurance policies. While this analysis will be policy specific, such reliance is most like misplaced. 

Business interruption coverage is defined by the policy, and typically is “triggered” only after the occurrence of “a direct physical loss or damage” of some type. Only when that occurs is “actual loss of business income” covered during the suspension of operations while restoring the property. While state and fact specific, the “physical loss or damage” requirement” typically does NOT exist under the COVID 19 scenario, lacking arguments of product damage, spoilage or contamination which can be directly tied to COVID 19 delays or disruptions.

In addition, following the SARS and H1N1 flu outbreaks earlier in this decade, many insurers contractually limited their risk exposures by inserting “virus and bacteria” exclusion clauses to their policies, thus explicitly refusing to cover losses related to viral or bacterial causes.

Recognizing the potentially devastating impact of this exclusion under COVID 19, various members of the House Small Business Committee on March 18, 2020, asked the American Property Casualty Insurance Association, the National Association of Mutual Insurance Companies, the Independent Insurance Agents and Brokers of America, and the Council for Insurance Agents and Brokers to make financial losses related to COVID 19 and other infectious disease related losses covered under existing commercial business interruption policies. The Associations immediately replied by letter indicating that their commercial insurance policies, vetted and approved by state regulators, defined applicable exposures and thus “do not, and were not designed to provide coverage against communicable diseases such as COVID 19”.

IV. Risk Management Suggestions 

i. Review and Protect Any Force Majeure Defenses

a. Immediately review your contract clauses with legal counsel
b. Be sure to provide all applicable third parties with notice of force majeure triggering events, in the time and manner required by contract;
c. Keep written communication lines open with all third parties, including agreements as to mutually acceptable substituted performance terms and conditions, extended performance deadlines, contingencies, etc.
d. Keep detailed records in a centralized location related to non-performance, including but not limited to:

i. Timeline of events leading to non performance
ii. Relevant government orders and pronouncements
iii. Progression of Force Majeure events (dates and description)
iv. Efforts to avoid the event or to find alternative means for performance,
v. Negotiation efforts to find mutually acceptable solutions, and
vi. If applicable, detailed records of damages or losses incurred specifically related to the COVID 19 non-performance issues.

ii. Consider Impossibility or Impracticability of Performance Defenses

a. Consult with legal counsel regarding facts and documentation supporting this approach
b. Be sure to provide all applicable third parties with notice of potential triggering events making performance impossible or impracticable, in the time and manner required by contract;
c. Keep written communication lines open with all third parties, including agreements as to mutually acceptable substituted performance terms and conditions, extended performance deadlines, contingencies, etc.
d. Keep detailed records in a centralized location related to non-performance, including but not limited to:

i. Timeline of events leading to non performance
ii. Relevant government orders and pronouncements
iii. Progression of Force Majeure events (dates and description)
iv. Efforts to avoid the event or to find alternative means for performance, 
v. Negotiation efforts to find mutually acceptable solutions, and
vi. If applicable, detailed records of damages or losses incurred specifically related to the COVID 19 non-performance issues.

iii. Consult with your insurance agent or broker about existing coverages

iv. For immediate concerns, consider submission of any contract issue to mediation for a stipulated contract modification solutions, or alternatively file for a declaratory judgment action in court

V. Other Legal Issues

Other legal issues currently discussed under the COVID 19 scenario is the interference with real and personal property owners’ access to property under the current governmental restrictions and social distancing orders. In particular, those establishments offering bailment services (i.e. storage facilities, animal and equine training and boarding stables) have been subject to government restrictions to access, public gathering limits or, in some circumstances, orders to completely bar access by owners to their personal property for the duration of government ordered closures. Thus we find many players in a fundamental conflict between: (1) owners’ rights to real and personal property, versus (2) governmental exercise of police power. How does this shake out?

A. Conversion

Owners prevented from access to their property may argue that the facility barring their access has committed “conversion” of their property. Conversion is defined as an intentional tort involving the “taking with the intent of exercising over the chattel [property] an ownership inconsistent with the real owner’s right of possession”. A civil court cause of action, “conversion” is similar to larceny or theft in criminal law. Negligence or mistaken belief is not an excuse, and conversion is subject to both actual and punitive damages.

However, a defense to conversion is any interference with property which arises under the “authority of law”. In the COVID 19 situation, the bailor (that person controlling the property) may argue that the exercise of police power in governmental restriction orders provides a total defense to their actions. While all situations will be fact specific, it’s likely this defense will hold.

B. Exercise of Police Powers

Under the U.S. Constitution, “police power” is defined as the capacity of states, and derivatively local governments, to regulate behavior and enforce order within their territory for the betterment of the health, safety, morals and general welfare of their constituents. These powers are defined in each jurisdiction by the legislative body, which determines the public purposes that need to be served by legislation.

Governmental entities thus have the power to compel obedience to these laws through whatever measures they see fit, provided these measures do not infringe upon any of the rights protected by the federal or state constitutions AND those laws are not unreasonably arbitrary or oppressive. Methods of enforcement can include restrictions, legal sanctions, and other physical means.

In the vast majority of cases addressing police power conflicts with individual rights and freedoms, the courts typically honor the existence and exercise of police power more frequently than attempting to mark boundaries or prescribe limits to its exercise. Typically, if the government can identify a legitimate legislative purpose with regulations applied equally to all under like circumstances, the exercise of that power will withstand judicial challenge.

While fact specific, property access restrictions arising under government ordered COVID 19 limits will most likely be legally supported given the extremely contagious nature of the coronavirus and the various orders restricting, limiting or barring the activities of citizens to minimize and contain exposure.

© Denise E. Farris. (April, 2020). This article may not be reprinted or reproduced in any manner without the consent of the author. This article is not intended to be the provision of legal advice. For fact-specific questions, refer to an attorney licensed in your state. Contact: Denise Farris, Farris Legal Services, LLC. [email protected].

Charitable Contributions Under the 2018 Tax Code

Many equine businesses and their supporting equine associations traditionally rely heavily on tax benefits for charitable contributions. The quickly enacted revisions to the existing tax code in late 2017 left donors and their respective charities scrambling to take advantage of last minute itemized deduction credits for fiscal 2017, with resulting head-scratching over how those same donations would be treated in 2018.

The following addresses the most prevalent questions concerning charitable donations under the new tax code.

1. When do the new tax laws kick in?

The new code applies to ALL charitable donations given after January 1, 2018.

2. Does the new tax law increase or decrease charitable donations?

The answer depends on who you ask. A July 2017 study from the Indiana University Lilly Family School of Philanthropy estimated the code’s higher standard deductions in 2018 would equate to a 4.6% decrease in charitable giving in 2018. In a similar report, the Brookings Institute Tax Policy Center estimated this decline might be as high as 6.5%, equating to a reduction of $10 to $20 billion in 2018.

On the other hand, an article by financial law professor James Russell addresses how the 2018 tax law actually increases charitable giving deductions depending on the sophistication of the donor and the manner in which the donations are treated. In summary, if handled correctly, donation benefits for high wealth, high income individuals is higher. The average family taxpayer, on the other hand, may find it difficult to generate donations exceeding the $24,000 standard deduction and therefore eliminate charitable gifts as part of their tax strategy, while still electing to donate solely from a social support basis.

3. How does the new tax code treat charitable giving?

First, the new code does NOT eliminate deductions for charitable giving. Instead, it nearly doubles the amount of the standard deduction, leaving taxpayers with a decision whether to: (a) take the standard deduction, or (b) itemize their deductions, including those for charitable donations. Under the prior law, the standard deduction was $6500 for single taxpayers and $13,000 for married taxpayers filing jointly. The 2018 code raises this to $12,000 single taxpayer and $24,000 married filing jointly. Thus for many average to lower wealth taxpayers, it will be more advantageous to take the standard deduction and forego itemized deductions including charitable contributions. 

Proponents of the change argue charitable giving will NOT be negatively impacted where taxpayers, receiving double the deduction previously given, will use some of that extra income to support their charities. They additionally argue that the new law creates various new benefits for higher wealth supporters that INCREASE incentives to donate as follows:

  1. Incentives to gift appreciated investments, such as stock shares. This allows the donor to deduct the investments’ full market value, subject to certain limitations, without having to pay capital gains tax on any appreciation. For example, if a donor does not wish to change her current investment portfolio, she simply takes the cash she would have donated and uses it to immediately buy stocks, bonds or other assets as a replacement of the ones donated. The portfolio doesn’t change, but the new assets now have a 100% basis which – in normal speak – means no capital gains taxes will be paid on any past appreciation. This creates a donation incentive which goes towards “big bucket” donations rather than smaller donations funded from monthly disposable income. (See Professor James Randall article above, “How the 2018 Tax Law Increases Charitable Giving).
  2. Contributing directly through Individual Retirement Accounts (IRA’s): For donors age 70.5 years or older, direct asset contributions of up to $100,000 can be counted toward their required yearly IRA distributions and would not be treated as “taxable income”. This would NOT apply to Roth IRA’s and is subject again to regulatory restrictions.
    Here’s another example. Your wealthy supporter under the old tax law received a charitable deduction benefit of 50% of income. They own a $1 million home, a $1 million dollar IRA, and a $1 million stock brokerage account invested in growth stocks. All assets increase by 10% in value in that tax year, growing from $3 million to $3.3 million, but how much income do those assets generate? None, unless they are sold. But now your wealthy supporter spends $100,000 which he’s taken from a fully taxable ordinary income distribution from his IRA. His regular donations previously amounted to 1.5% of his wealth, or $50,000, and he’s considering making an additional $10,000 gift. Under the old tax code, he would receive no charitable giving benefit for the additional $10,000 (i.e., tax benefits were maxed out at 50% of income). The new tax law raises the limit to 60%, and permits unused deductions to be carried over year to year up to five years. The higher wealth the donor, the more advantageous treatment this change brings to high dollar contributions.
    Here’s another example. You have a married couple who has supported your organization for several years. That couple has $23,500 of itemized expenses, including a $2,000 donation to your qualified charity. If the couple donated an additional $1,000 to your group, they now surpass the $24,000 standard deduction and may claim the itemized charitable deductions. This serves as an incentive to those on the bubble of the standard deduction to give more.
  3. Create and Donate thru a Donor Advised Fund. Charitable giving can also be handled through a donor advised fund. This method allows you to create, and then contribute cash, appreciated assets or investments that have been held for a year or more to this Donor Advised Fund without paying capital gains taxes. You can then take one large deduction in the year you make the contribution, and then spread out distributions to the charities of your choice over multiple future years or when it makes sense to you. 
  4. Making numerous substantial gifts. For donors whose total contributions in a year exceed $24,000, it makes sense to bypass the standard deduction and instead itemize your deductions. Some tax strategists recommend alternating years – taking the standard deduction in one year while planning to maximize contributions and itemizing in the following. 

4. How can my organization effectively plan for charitable giving with the new laws in place?

While change is always uncomfortable, it can also be the basis for positive growth. The law is in place, so organizations must deal with it. This could be an excellent opportunity to examine your current practices on soliciting donor support with your board and your tax accountant or advisor. What old practices still work and will benefit your group, and what new approaches should be considered and implemented?

This also presents an outreach opportunity unique to your high wealth donors. Organize a special event just for them, including a summary of your organization’s history, growth and charitable support, and their important role in the organizations future. Include a presentation from a tax advisor on how these supporters can utilize the new Code to benefit both themselves and their favorite charities. 

Most importantly, don’t despair. In many instances, supporters who have traditionally supported an organization with goods or money gifts strongly believe in that organization. That support doesn’t disappear with the code change, and many supporters will continue their support. But at the same time, many organizations have higher wealth supporters who may or may not truly understand the tax benefits of higher giving. The organizations who become proactive in education and outreach will be the organizations most benefitting under the new law.

So study this article, and then pull out your pencil and schedule a meeting with your accountant and membership chairs to plan this important Member Support Outreach event! You may be pleasantly surprised at the results.

© Denise E. Farris. (August, 2018). This article may not be reprinted or reproduced in any manner without the consent of the author. This article is not intended to be the provision of legal advice. For fact-specific questions, refer to an attorney licensed in your state. Contact: Denise Farris, Farris Legal Services, LLC. [email protected].

Is MBE/WBE/DBE Certification Worth the Hassle?

The certification process for minority, woman or disadvantaged business enterprise status is detailed and time-consuming. To ensure against potential program abuse, the process requires an applicant to submit detailed information concerning company ownership, bylaws, financing arrangements, purchase agreements, customer lists, and other confidential information. If an applicant has a non-minority or non-woman partner or relative involved in the business, the interview process evaluating “ownership and control” can be offensive. In addition, being classified a “disadvantaged business” makes the business owner appear – well – disadvantaged. These factors make many small business owners wonder: Is Certification Worth The Hassle? The answer is – YES!

  1. Government Clients are Large and Consistent Clients.
    In times of economic boom or bust, the government client, whether from a federal or state and local level, is one of the largest purchasers of goods and services, cumulatively representing purchasing power in the multi-billion dollar range.
  2. Higher MBE/WBE/DBE certification numbers create additional opportunities for ALL small businesses.
    Recognizing small business is an important element to a strong economy, government procurement tracks and then attempts to create special opportunities for small business. As most minority and women-owned businesses are “small business”, the recognized increased growth of these businesses justify higher budgets for overall small business development. Higher budgets in turn mean more government programs and/or incentives providing ALL small business owners with greater loan, investment and training programs.
  3. Certification Provides Constitutionally Required Proof.
    To withstand legal challenge, any affirmative action program must show:
    1. A compelling government interest (ie the remediation of past discrimination against specific groups), and
    2. A program “narrowly tailored” to address that compelling government interest (ie that it defeats discrimination against that identified group without being overbroad or under-inclusive in its application).
      The certification process provides data to show that these two tests are being met.
  4. Certification Provides Statistical Data.
    The certification application performs many functions necessary to sustaining not only affirmative action programs but small business programs in general. The certification application:
    1. Identifies a specific company as either minority, woman owned, or disadvantaged.
      The application first requires you to establish your status as either a minority, woman-owned, and/or disadvantaged business. Standard registration with the Secretary of State’s office does not accomplish this same task. Proof of status is often vital in producing the statistical information necessary to justify the program. The application also educates the applicant concerning the distinction between minority and woman-owned business from a “disadvantaged business”. Specifically, the application explains that MBE/WBE certification is based only upon proof that an MBE/WBE owns and controls 51% of the business. In contrast, the disadvantaged business enterprise must ADDITIONALLY prove that it is under a certain size threshold as measured either by its number of employees or its gross annual receipts based upon its industry; AND also that its 51% owner has a personal net worth below an established range.
    2. Identifies MBE/WBE/DBE “availability” to provide a certain product or work scope.
      Following recent U.S. Supreme Court decisions, a governmental procurement may not identify a goal for certain MBE/WBE/DBE products or services unless it can prove availability of companies capable of providing that good or service. Thus if a municipality is wishing to create a goal for MBE/WBE/DBE participation in building a nuclear power plant, it must identify scopes of work in which two or more companies are capable of performing. Thus certification is ESPECIALLY important in those areas in which few minority or woman owned businesses operate! In many instances, a city, county or state’s directory of registered MBE/WBE/DBE companies per product or scope of work performed is available on-line, enabling companies to immediately see and identify areas where additional certification is required.
    3. Creates visibility and places your company in the information pipeline.
      Once you’ve been certified, your company is entered into a government database which enables prompt communication regarding procurement opportunities. In addition, your company is typically listed on a government on-line directory which enables other companies and contractors seeking certified MBE/WBE/DBE companies to identify you, according either to your company’s name or the product or scope of work you provide. This advertising element of certification can often be invaluable.
    4. Enables the government to identify and regularly update vital statistics.
      The statistical underpinnings of any affirmative action program is its most vital defense against legal challenges. If you have not certified, how can a government justify programs aimed at assisting small minority or women owned businesses? How can it determine how many of those businesses exist within its jurisdiction? How can it determine what percent of government businesses those MBE/WBE/DBE companies are securing? Certification provides an efficient method enabling the government to answer these important questions on a quarterly and annual basis.

For all of these reasons, MBE/WBE/DBE certification is certainly worth the hassle. And, when you look at it in terms of justifying additional funding for small business development programs, you might even say it should be viewed as a small business owner’s civic duty. And – well – it’s just good business!

© Denise E. Farris. (October 19, 2020). This article may not be reprinted or reproduced in any manner without the consent of the author. This article is not intended to be the provision of legal advice. For fact-specific questions, refer to an attorney licensed in your state. Contact: Denise Farris, Farris Legal Services, LLC. [email protected]