Words and terms used in this title ((shall)) have the same meaning as each has under chapter ((120, Laws of 1983)) 43.19 RCW, unless otherwise specifically provided in this title, or the context in which they are used clearly indicates ((that they should be given some other))another meaning.

(1) "Advisory committee" means the advisory committee ((on minority, women, and socially and economically disadvantaged individual's))for the office of minority and women's business enterprises.

(2) "Affiliation" has the same meaning as the Small Business Administration (SBA) regulations, 13 C.F.R. Part 121. Except as otherwise provided in 13 C.F.R. Part 121, concerns are affiliates of each other when, either directly or indirectly:

(5) "Broker" means a person ((that))who provides a bona fide service, such as professional, technical, consultant, brokerage, or managerial services and assistance in the procurement of essential personnel, facilities, equipment, materials, or supplies required for performance of a contract.

(((3)))(6) "Certified business" ((or "certified")) means a for profit business ((or the status of a business that has been examined))that has been approved for certification by the Washington state office of minority and women's business enterprises ((and deemed to be)). Businesses certified through the agency's state program include: A minority business enterprise (MBE), a women's business enterprise (WBE), a minority woman's business enterprise (MWBE), a combination business enterprise (CBE), ((or))and a socially and economically disadvantaged business enterprise (SEDBE).

(((4)))(7) "Class of contract basis" means an entire group of contracts having a common characteristic. Examples include, but are not limited to, personal service contracts, public works contracts, leases, purchasing contracts, and contracts for specific types of goods and/or services.

(((5) "Combination business enterprise" or "CBE" means a small business concern organized for profit, performing a commercially useful function, that is fifty percent owned and controlled by one or more minority men or MBEs certified by the office and fifty percent owned and controlled by one or more nonminority women or WBEs certified by the office. The owners must be United States citizens or lawful permanent residents.

(6)))(8) "Commercially useful function" means the performance of real and actual services ((which))that are integral and necessary in the discharge of any contractual endeavor, and not solely for the purpose of obtaining certification or obtaining credit for participation goal attainment.

(((7)))(9) "Common industry practices" means those usages, customs, or practices which are ordinary, normal, or prevalent among businesses, trades, or industries of similar types engaged in similar work in similar situations in the community.

(((8)))(10) "Conduit" means a certified business which agrees to be named as a subcontractor on a contract in which such certified business does not perform the work but, rather, the work is performed by the prime contractor, prime consultant, material supplier, purchasing contractor, or any other noncertified business.

(((9) "Contract" means a mutually binding legal relationship (including a purchase order, lease, or any modification thereof), which obligates the seller to furnish goods or services (including construction), and the buyer to pay for them.

(12) "Corporate-sponsored dealership" means a business that does not meet the requirements for certification but is participating in a program specifically developed by a national or regional corporation to address the present-day issue of lack of opportunities for minorities or women in the dealership industry.))(11) "Contingent liability" means a liability that depends on the occurrence of a future and uncertain event. This includes, but is not limited to, guaranty for debts owed by the applicant concern, legal claims and judgments, and provisions for federal income tax.

(13) "Director" means the director of the office of minority and women's business enterprises.

(14) (("Economically disadvantaged individuals" means socially disadvantaged individuals whose ability to compete in the free enterprise system 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.

(15))) "Educational institutions" means the state universities, the regional universities, The Evergreen State College, and the community colleges.

(((16)))(15) "Front" means a business which purports to be eligible for certification but is not in fact legitimately owned and controlled by minorities, women, socially and economically disadvantaged individuals, or a combination thereof.

(((17) "Goods and/or services" means all goods and services, including professional services.

(18)))(16) "Graduation" means the business is no longer certified because it is no longer a small business concern.

(((19) "Heavy construction" means construction other than building construction; e.g., highway or street, sewer and pipeline, railroad, communication and power line, flood control, irrigation, marine, etc.

(20)))(17) "Immediate family member" means father, mother, son, daughter, brother, sister, grandfather, grandmother, father-in-law, mother-in-law, sister-in-law, brother-in-law, spouse, and registered domestic partner.

(18) "Joint venture" means ((a partnership of two or more persons or businesses created to carry out a single business enterprise for profit, for which purpose they combine their capital, efforts, skills, knowledge or property and in which they exercise control and share in profits and losses in proportion to their contribution to the enterprise.

(26)))an association of a certified firm and one or more other firms to carry out a single, for-profit business enterprise, for which the parties combine their property, capital, efforts, skills and knowledge, and in which the certified firm is responsible for a distinct, clearly defined portion of the work of the contract and whose share in the capital contribution, control, management, risks, and profits of the joint venture are commensurate with its ownership interest.

(21) "Office" means the Washington state office of minority and women's business enterprises ((of the state of Washington)).

(((27)))(22) "Pass-through" means a certified business ((which))that buys goods from a noncertified business and simply resells those goods to the state, state contractors, or other persons doing business with the state for the purpose of allowing those goods to be counted towards fulfillment of ((WBE or MBE)) goals for participation of certified firms.

(((28) "Person" means one or more individuals, partnerships, associations, organizations, corporations, cooperatives, legal representatives, trustees and receivers, or any group of persons.

(29)))(23) "Personal net worth" means the ((socially and economically disadvantaged individual's net personal assets and liabilities, excluding an individual's ownership interest in the applicant firm and the individual's equity in his or her primary residence. If the statement of personal net worth that an individual submits shows that the individual's personal net worth exceeds seven hundred fifty thousand dollars, the individual's economic disadvantage is rebutted.

(37)))net value of the assets of an individual remaining after total liabilities are deducted. An individual's personal net worth does not include: The individual's ownership interest in an applicant or participating firm; or the individual's equity in his or her primary place of residence. An individual's personal net worth includes only his or her own share of assets held jointly or as community property with the individual's spouse/domestic partner.

(27) "State agency" includes the state of Washington and all agencies, departments, offices, divisions, boards, commissions, and correctional and other types of institutions. "State agency" does not include the judicial or legislative branches of government except to the extent that procurement or public works for these branches is performed by a state agency.

(((38) "Subcontractor" means a party that indirectly provides goods or services, including but not limited to construction, to a state agency or educational institution through a contractor.

(40)))(28) "Switch business" means a business ((which))that was previously owned and controlled by ((a man, men or nonminorities, or individuals who are))an individual(s) who is not socially and economically disadvantaged, ((which))that has made technical changes to its business structure so that it is now purportedly owned and controlled by a ((woman or women or by a minority person or persons, or by a))person(s) who is socially and economically disadvantaged ((individual or individuals)), but continues to operate in substantially the same manner as it did prior to the written revisions of the business structure.

(((41) "Women's business enterprise," "women-owned business enterprise," or "WBE" means a small business concern, organized for profit, performing a commercially useful function, which is legitimately owned and controlled by one or more women or women's business enterprises certified by the office. The women owners must be United States citizens or lawful permanent residents.))(29) "Tribally owned concern" means any small business concern at least fifty-one percent owned by an Indian tribe as defined in this section.

(1) ((In determining the performance of a commercially useful function, factors which may be considered include, but are not limited to, the following:))A business performs a commercially useful function when:

(a) ((Whether))The work to be performed by the business is within the scope of work included in the ((Standard))North American Industrial Classification System code(s) ((under which))that the business is ((listed in the directory of certified businesses published by the office or in the records of the office.

(d) Whether))certified under or applying to be certified under.

(b) The business is or will be responsible for executing a distinct element of work in the performance of a contract((;)) and ((the principals or employees of the business))is carrying out its responsibilities by actually ((perform, manage, and supervise))performing, managing, and supervising the work ((for which the business is or will be responsible;

(3) Factors which may indicate that a supplier is not performing))involved; and

(2) A business does not perform a commercially useful function ((include, but are not limited to, the following:

(d) The firm does not take ownership of the product.))when:

(1) After reviewing an applicant's sworn declaration of membership in a presumptively disadvantaged group, the agency may ask the applicant to present additional evidence that the person is a member of the identified group, if the agency has a well-founded reason to question the applicant's claim of group membership.

(2) The agency will provide the applicant an explanation of the reason(s) for questioning the applicant's group membership. The agency will consider whether the person has held themselves out as a member of the group for an extended period of time prior to application for certification, and whether the relevant community regards the person as a member of that group. The agency may require the applicant to produce appropriate documentation of group membership.

(3) The agency will not impose a disproportionate burden on members of any particular designated group in violation of Title VI of the Civil Rights Act of 1964.

(4) If the agency determines an individual claiming membership of a presumed disadvantaged group is not a member, the individual must demonstrate social and economic disadvantage on an individual basis under WAC 326-20-045.

(5) The decisions concerning membership in a designated group are subject to the certification appeals process outlined in WAC 326-20-171.

(1) ((The office presumes that citizens of the United States or lawfully admitted permanent residents who are women, African Americans, Hispanic Americans, Native Americans, Asian-Pacific Americans, Subcontinent Asian Americans, or other minorities found to be disadvantaged by the program, are socially and economically disadvantaged individuals. Applicants are required to))Social disadvantage. The agency rebuttably presumes the following persons are socially disadvantaged individuals for the purposes of certification, consistent with 49 C.F.R. Part 26.67: Women; persons who are black/African American, Hispanic/Latino, Native American, Asian, Pacific Islander, native Hawaiian, and Alaska native; and other minorities found disadvantaged by the small business association.

(2) Each presumptively socially disadvantaged applicant must submit a signed declaration that ((each disadvantaged owner is, in fact,))she or he is socially and economically disadvantaged.

(((2)))(3)(a) Economic disadvantage. Each owner of a firm applying for state certification must sign a declaration that he or she has a personal net worth that does not exceed 1.32 million dollars, per WAC 326-20-049.

(b) Rebuttal of economic disadvantage. If the statement of personal net worth that an individual submits under this section shows that the individual's personal net worth exceeds 1.32 million dollars or shows that a person has been able to accumulate substantial wealth, the individual's economic disadvantage is rebutted, and the individual is not deemed to be economically disadvantaged. Such an individual is no longer eligible to participate in the program and cannot regain eligibility by making an individual showing of disadvantage. The office is not required to have a proceeding under this section in order to rebut the presumption of economic disadvantage in this case.

(((3)))(4) Individual determinations of social and economic disadvantage. Firms owned and controlled by individuals who are not presumed to be socially and economically disadvantaged may apply for SEDBE certification. The office makes a case-by-case determination of whether each individual whose ownership and control are relied upon for SEDBE certification is socially and economically disadvantaged. In such a proceeding, the applicant firm has the burden of demonstrating to the office, by a preponderance of the evidence, that the individuals who own and control it are socially and economically disadvantaged. An individual whose personal net worth exceeds 1.32 million dollars shall not be deemed to be economically disadvantaged. In making these determinations, the office uses ((the guidance found in 49 C.F.R. Part 26, Appendix E))WAC 326-20-046 and 326-20-047. The office requires that applicants provide sufficient information to permit determinations under ((the guidance of 49 C.F.R. Part 26, Appendix E))WAC 326-20-046 and 326-20-047.

(((1) All minority, women, or socially and economically disadvantaged owners shall submit to the office proof of their ownership of the requisite percentage of the business at the time the application is submitted. Such proof shall consist of stock certificates, a notarized affidavit of stock ownership from the corporate treasurer, a partnership agreement, canceled check used to purchase ownership, or other recognized proof of ownership. The ownership shall be real, substantial, and continuing, shall go beyond the pro forma ownership of the business reflected in the ownership documents, and shall be based on the owner's capital contribution. The minority, and/or women, and/or socially and economically disadvantaged owner(s) shall enjoy the customary incidents of ownership and shall share in the risks and profits commensurate with their ownership interests, as demonstrated by an examination of the substance and the form of the arrangements.

(f) The minority, women, or socially and economically disadvantaged owner(s) must demonstrate that the relationship between the corporate sponsor and the minority, women, or socially and economically disadvantaged individual's business was not formed for the primary purpose of achieving certification under chapter 39.19 RCW, or any similar provision of any ordinance, regulation, rule, or law.))(1) In determining whether a socially and economically disadvantaged participant(s) in a firm owns the business, the agency considers all facts in the record viewed as a whole, including the origin of all assets and how and when they were used in obtaining the firm. All transactions for the establishment and ownership, or transfer of ownership, must be in the normal course of business.

An eligible firm must be owned by an individual(s) who is socially and economically disadvantaged, rather than owned by another firm, except as provided below:

(1) If a socially and economically disadvantaged individual(s) owns and controls a firm through a parent or holding company that is established for tax, capitalization, or other purposes consistent with industry practice; and the parent or holding company owns and controls the subsidiary.

(2) The agency may certify such a subsidiary if there is cumulatively fifty-one percent ownership of the subsidiary by a socially and economically disadvantaged individual(s). Examples of such subsidiaries include, but are not limited to:

(a) A socially and economically disadvantaged individual(s) owns one hundred percent of a holding company and has a wholly owned subsidiary. The subsidiary may be certified, if it meets all other requirements.

(b) A socially and economically disadvantaged individual(s) owns one hundred percent of the holding company and owns fifty-one percent of a subsidiary. The subsidiary may be certified, if all other requirements are met.

(c) A socially and economically disadvantaged individual(s) owns eighty percent of the holding company and the holding company in turn owns seventy percent of a subsidiary. In this case, the cumulative ownership of the subsidiary by disadvantaged individuals is fifty-six percent (eighty percent of the seventy percent). This is more than fifty-one percent, so the agency may certify the subsidiary, if all other requirements are met.

(d) Same as the examples in (b) and (c) of this subsection, but someone other than the socially and economically disadvantaged owner(s) of the parent or holding company control the subsidiary. Even though the subsidiary is owned by disadvantaged individuals, through the holding or parent company, the agency cannot certify it because it fails to meet control requirements.

(e) A socially and economically disadvantaged individual(s) owns sixty percent of the holding company and fifty-one percent of a subsidiary. In this case, the cumulative ownership of the subsidiary by disadvantaged individuals is approximately thirty-one percent. This is less than fifty-one percent, so the agency cannot certify the subsidiary.

(f) The holding company, in addition to the subsidiary seeking certification, owns several other companies. The combined gross receipts of the holding companies and its subsidiaries are greater than the size standard for the subsidiary seeking certification or the gross receipts cap of WAC 326-20-096. Under the rules concerning affiliation, the subsidiary fails to meet the size standard and cannot be certified.

(1) When an ownership interest ((arising))arises in a nonapplicant spouse or registered domestic partner solely because ((of the operation)) of community property laws, the agency will not disqualify the applicant ((spouse from certification. Both spouses shall))if both parties certify that:

(a) Only ((one))the applicant spouse or registered domestic partner participates in the management of the business((.)); and

(b) The nonparticipating spouse or registered domestic partner relinquishes control over his/her community interest in the ((subject)) business.

(((1) The minority, woman, or socially and economically disadvantaged owner(s) must possess and exercise managerial and operational control over the day-to-day affairs of the business.

(e) The minority, women, or socially and economically disadvantaged owner(s) must be president of any corporation formed by the business.))(1) In determining whether disadvantaged owner(s) control a business, the office must consider all of the facts in the record, viewed as a whole.

((To be eligible for certification, a business must be independent. Intertwinement with a noncertified business may be grounds for denial or decertification of a business. The office will determine whether a business is intertwined with a noncertified business by looking for factors which include, but are not limited to, the following:

(7) The degree to which financial, equipment, leasing, business and other relationships with noncertified businesses vary from normal industry practice.))Only an independent business may be certified. An independent business is one the viability of which does not depend on its relationship with another business or businesses.

(1) A firm owned by a Native American tribe, native Hawaiian organization, or Alaska native corporation, rather than by individuals, may be eligible for certification. Such a firm must meet the size standards of WAC 326-20-096 and be controlled by a socially and economically disadvantaged individual(s) per WAC 326-20-080.

(2) A firm owned by a Native American tribe, native Hawaiian organization, or Alaska native corporation will not be considered affiliated with other businesses owned by the tribe, organization, or corporation if there is a firewall, such as a legally binding mechanism, in place to prevent firms from accessing the resources of the tribe's, organization's, or corporation's other businesses.

(((1) The office will determine which NAICS code an applicant falls under based on information submitted by the business. The office will prepare conversion tables showing the department of general administration's commodity code designations, the codes developed by the Construction Specifications Institute, and the corresponding NAICS codes listed in the directory of certified businesses as described in WAC 326-20-190.

(2) In the event the business plans to expand the areas in which it operates, it must notify the office in writing at least thirty calendar days before the effective date of such expansion.))The office must grant certification to a business only for specific types of work the disadvantaged owner(s) have the ability to control. To become certified in an additional type of work, the business needs to demonstrate its owner(s) are able to control the business with respect to that type of work. The office must not require the business to recertify or submit a new certification application but verify the disadvantaged owner(s) control of the business in the additional type of work.

(1) In addition to meeting the ownership and control requirements of chapter 39.19 RCW, a business must qualify as a small business concern for certification eligibility or recertification.

(a) A small business concern is a business that is independently owned and operated, is not dominant in its field of operations, and does not exceed the size limitations as set forth in the current table of North American Industrial Classification System (NAICS) codes or corresponding industry size standards as set forth in 49 C.F.R. Part 26 and amendments or inflationary adjustments thereof.

(b) The number of employees or amount of annual receipts listed as the size standard for each NAICS code indicates the maximum allowed for a business, including its affiliates, to qualify as a small business concern.

(c) The office's determination of whether a business qualifies as a small business concern must be, whenever possible, based on criteria consistent with the small business requirements defined under section 3 of the Small Business Act, 15 U.S.C. 632, and its implementing regulations, taking into consideration statewide markets.

(2) A business exceeding the small business size limits after certification by the office must be subject to graduation.

(3) At the time of application for certification and recertification, a business must demonstrate to the office that it is a small business concern. The office may verify the business is still a small business concern at any time after certification. In verifying the business's size, the office will review such financial documentation made available to the office, such as annual financial statements, federal income tax returns, state and local excise tax reports, and other relevant information.

(4) Except as otherwise provided in this chapter, affiliation occurs when either directly or indirectly:

(a) One business controls or has power to control the other;

(b) A third party or parties controls or has power to control both; or

(c) An "identity of interest" exists among them so the presumption of affiliation exists.

(5) When reference sets the maximum size standard to "annual receipts," a business exceeding the monetary figure in the standard is not eligible for certification. Annual receipts includes all revenue received or accrued from sources, such as sales of products or services, interest, dividends, rents, royalties, fees, or commissions, reduced by returns and allowances. The term "receipts" excludes proceeds from any of the following:

(a) Sales of capital assets and investments;

(b) Proceeds from transactions between a concern and its domestic and foreign affiliates;

(c) Proceeds from payments of notes receivable, accounts receivable, and amounts collected as an agent for another, such as gross bookings when a commission is earned, in which case only the commission earned constitutes revenue, and taxes collected for remittance to a taxing authority.

(6) The measurement period must comply with the following:

(a) The size of a business with three or more completed fiscal years will be determined by averaging the annual receipts of the business for the most recent three years;

(b) The size of a business with less than three fiscal years will be determined by computing the average of the annual receipts from the time the business formed, calculating total revenues compiled over the period divided by the number of weeks, including fractions of a week, multiplied by fifty-two;

(c) Method of determining annual receipts. Revenue may be taken from the regular books of account of the concern. If the office so elects or the business has not kept regular books of account or the Internal Revenue Service has found such records to be inadequate and has reconstructed income of the concern, then revenue as shown on the federal income tax return of the concern may be used in determining annual receipts along with other information the office deems relevant.

(7) Where the size standard is "number of employees," size eligibility requires the concern may not exceed the number of employees in that standard.

(a) "Number of employees" means that average employment of the concern, including domestic and foreign affiliate employees, based upon employment during each of the pay periods for the preceding completed twelve calendar months.

(b) In computing average employment, part-time and temporary employees count as full-time employees for each applicable pay period.

(c) If a concern has not been in business for twelve months, "number of employees" means the average employment of the concern, including its affiliates, during each of the pay periods during which it has been in business.

(8) No business, regardless of its primary NAICS code, is eligible for certification if it exceeds the largest annual revenue limit contained in 49 C.F.R. Part 26 and any amendments or inflationary adjustments thereof.

(9) In determining the business's primary industry, including its affiliates, the office must consider the distribution of receipts, employees, and costs in the differing industry areas the business operated during its most recently completed fiscal year. Other factors, such as patents, contract awards, and assets, may be considered.

(10) If the activities of the business encompass two or more NAICS codes, the first NAICS code listed in the directory is the primary industry classification of the business.

(11) A business exceeding the small business size limits after certification by the office must be subject to graduation.

(12) For purposes of utilization on projects funded by any operating modal of the U.S. Department of Transportation the maximum dollar size standard in 49 C.F.R. Part 26 as may be amended or adjusted for inflation, must apply, even if the size standard would otherwise be set by reference to number of employees. This standard is a maximum. Certified businesses are still subject to applicable lower limits on business size as established by the United States Small Business Administration and these regulations.