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].