Maryland Increases Minority Business and Women Business Enterprise Goals

Date: December 28, 2001

Effective July 1, 2001, Maryland has increased, by statute, its goals for minority business enterprise and women business enterprise participation in state contracts. The overall participation has been increased to 25% of all state contracts. Individual goals have also been set of seven percent of all state contracts to be awarded to African-American owned businesses and ten percent of all state contracts to women business enterprises.

While increasing the goal for minority and women participation in state contracts, the Legislature also tightened the requirements for qualifying as a woman- or minority-owned business. More specifically, the requirements for qualifying as a minority business enterprise now include not only majority ownership by a woman, minority or physically or mentally disabled person, but also that the business be "managed by, and the daily business operations of which are controlled by, one or more of the socially and economically disadvantaged individuals who own it."

By definition, an economically disadvantaged individual means a socially disadvantaged individual whose ability to compete in free enterprise has been impaired due to diminished capital and credit opportunities as compared to others in the same or similar line of business who are not socially disadvantaged. African-Americans, American Indians/Native Americans, Asians, Hispanics, the physically or mentally disabled and women all have a presumption of social disadvantage.

Economic disadvantage, however, must be tested. One test of economic disadvantage is that the individual's net worth does not exceed $750,000. Personal net worth does not include either the individual's interest in the applicant or a certified minority business enterprise or the individual's equity in his or her primary place of residence. Although the statute appears to indicate that any individual's ownership in any minority business enterprise should be excluded from the calculation of his or her net worth, the current interpretation by the Maryland Department of Transportation is that only the business being tested qualifies for the exclusion. Thus, if an individual owns interest in more than one minority business enterprise, only the entity being reviewed at the time would be exempted from calculation into the owner's $750,000 net worth.

In order to become certified as a minority business enterprise, or a women-owned business enterprise, the best source of certification is the Maryland Department of Transportation ("MDOT"). MDOT has indicated that it will do everything possible to eliminate delays in applications. The change in state law leaves a gap between the goal and the number of qualified firms able to perform under the state certification guidelines. As a result, general contractors are seeking minority participation in their state and federal contracts at all levels. Opportunities abound for minority business owners and women owned businesses, if they are able to obtain the proper certification.

The certification process includes the completion of a detailed application, submission of significant documentation about the company and, ultimately, interviews of the participating business owners. MDOT has a reputation of being extremely studious in reviewing these applications and, unfortunately, because of traps for the unwary, which may be a part of standard corporate or business documents, some deserving companies are denied their certification on the first attempt. Careful and appropriate planning is essential to be able to successfully navigate through the application process. Preparation in advance is critical to a successful and timely application and approval.

The Minority Business Program does have a website at Click on the MBE Program box. This site contains initial applications as well as general information about the planning process. Once certified, the MBE or WBE is subject each year to recertification. In its review and recertification, MDOT auditors examine the continued ownership of the business as well as other operational factors. Any changes in ownership or control (for example: stockholders, officers and/or directors of a firm as well as changes in address and telephone numbers) must be immediately reported to the Office of Minority Business Enterprise.

In addition to changes that have occurred in the qualification standards for MBE's and WBE's, beginning on November 1, 2000, MDOT also implemented MBE and WBE program graduation standards. An MBE or WBE may be affected by graduation if it exceeds the small business size standards for the particular standard industrial classification ("SIC") codes under which its services are offered and it is certified. The business size standards for federally financed contracts will now apply to state contracts. Depending upon the type of business, the size standard is based upon a three-year average of annual gross revenue or an average number of employees during the preceding twelve-month period.

If MDOT auditors determine that a firm exceeds size standards in any or all SIC codes, the firm will not be able to participate in state MBE and WBE programs with respect to those particular SIC codes, but it will continue to be certified and MDOT will continue to collect annual recertification information for the next three years. If the firm size exceeds standards in some but not all SIC codes, it will continue to be certified in the SIC codes in which it does not exceed the size standards. Should that firm size fall below the size standards for a particular SIC code during these three years, the firm will be able to regain active participation in the MBE program in the SIC code previously disqualified. If the firm continues to exceed size standards in a particular SIC code or codes after the three-year review period, it will be fully graduated from the MBE/WBE program for those SIC codes. If the firm size decreases thereafter, it may again reapply for MDOT MBE or WBE certification.