OFFICE OF MINORITY AND
WOMEN'S BUSINESS ENTERPRISES
[Filed April 3, 2019, 8:25 a.m.]
Preproposal statement of inquiry was filed as WSR 19-03-163.
Title of Rule and Other Identifying Information: WAC 326-02-030 Definitions and chapter 326-20 WAC, Certification.
Hearing Location(s): On May 16, 2019, at 9:30 a.m., at Capitol Court, 1110 Capitol Way South, Room #135, Olympia, WA 98501. Live webinar: https://global.gotomeeting.com/join/785035237.
TO USE YOUR COMPUTER'S AUDIO: When the webinar begins, you will be connected to audio using your computer's microphone and speakers (VoIP). A headset is recommended.
TO USE YOUR TELEPHONE FOR AUDIO: If you prefer to use your phone, you must select "Use Telephone" after joining the webinar and call in using the numbers below:
United States: +1-515-603-4911, Access Code: #165924, Audio PIN: Shown after joining the webinar.
Date of Intended Adoption: May 31, 2019.
Submit Written Comments to: Mynor Lopez, P.O. Box 41160, Olympia, WA 98504, email email@example.com, fax 360-407-0955, by May 9, 2019.
Assistance for Persons with Disabilities: Contact Mynor Lopez, phone 360-664-9754, fax 360-586-7079, email MynorL@omwbe.wa.gov, by May 2, 2019.
Purpose of the Proposal and Its Anticipated Effects, Including Any Changes in Existing Rules: The agency is proposing the following new rules: WAC 325-20-035 Presumptive group membership, 326-20-055 Subsidiaries, 326-20-086 Native Americans—Native Hawaiians—Alaska native corporations, and 326-30-099 Small business concern requirement and size standards.
The agency is proposing to amend the following rules: WAC 326-02-030 Definitions, 326-02-045 Factors considered in determining performance of commercially useful function, 326-20-048 Presumption of disadvantage, 326-20-050 Proof of ownership of business, 326-20-060 Community ownership, 326-20-080 Factors considered in determining control, 326-20-081 Intertwinement, and 326-20-094 Assignment of North American Industrial Classification System (NAICS) code.
The agency is proposing to repeal the following rules: WAC 326-20-030 Proof of minority status, 326-20-040 Proof of woman's status, 326-20-092 Small business concern requirement, 326-20-095 Determination of firm size, 326-20-096 Size standard, and 326-20-155 Signatures of applicant business owners.
The agency is proposing to recodify the following amended rule: WAC 326-02-045 Factors considered in determining performance of commercially useful function.
Summary of proposed changes: The office of minority and women's business enterprises (OMWBE) is proposing the following changes regarding state certification in order to provide clarification, eliminate unnecessary barriers and restrictions to certification for small businesses, and clarify language and grammar to reflect modern and respectful wording. These rule changes will bring OMWBE into alignment with state and federal laws, rules and policies such as the Governor's Executive Order 17-01.
|•||Allow for the additional evidence of ownership over a business, including: Contributions of expertise under certain circumstances, ownership based on a final property settlement or court order in a divorce, legal separation, or inheritance, and gifts or transfers without consideration in certain circumstances.|
|•||Modify the presumption of social disadvantage by replacing language requiring an individual be "visibly identifiable" as a presumptively disadvantaged person with the requirement a person sign a sworn declaration, and that the agency may rebut their presumption of disadvantage for a well-founded reason.|
|•||Eliminate the requirement that applicants for state certification must be citizens or permanent legal residents of the United States. This requirement is not based in state law and is not a requirement for other business-related state licenses.|
|•||Add clarifying language that a firm may be owned by an Indian tribe, Native Hawaiian organization, or Alaska native corporation.|
|•||Add language that OMWBE may certify subsidiaries if there is fifty-one percent cumulative ownership of the subsidiary by a socially and economically disadvantaged individual(s).|
|•||Eliminate references to a former program: Corporate sponsored dealerships.|
|•||Allow for additional evidence of control, including factors considered in determining control; such as local and state laws licensing and credentialing requirements, owner(s) demonstrable ability to make independent and daily operating business decisions, delegations of authority, remunerations, and business affiliation.|
|•||Update the language defining the performance of a commercially useful function for a modern business environment and remove WAC 326-02-045 from chapter 326-02 WAC and add it to chapter 326-20 WAC.|
|•||Eliminate the need for business owner(s) to sign an application under oath as OMWBE uses sworn affidavits.|
|•||Provide more guidance to applicants and the office regarding the acquisition and removal of NAICS codes. The proposed updates will also allow businesses to provide the office a clear, specific, and detailed narrative of the type of work they perform if they believe an existing code does not fully or clearly describe the work in which the business is certified.|
|•||Clarify that a nonapplicant spouse or registered domestic partner may cosign on loans and other documents. Clarify that OMWBE will look carefully at the application when ownership transfers occur between spouses and domestic partners.|
|•||Include new language regarding the examination of past relationships between certified and noncertified firms to ensure independence.|
|•||Eliminate WAC 326-20-092, 326-20-095 and 326-20-096 and combine the contents of these rules under proposed WAC 326-20-099, as these rules all interrelate to firm size and accompanying standards.|
|•||Update rules for grammar and to reflect modern language and terminology.|
Reasons Supporting Proposal: The agency is proposing the above described changes regarding state certification to provide clarification, eliminate barriers to certification, including unnecessary restrictions, remove barriers for persons who apply for both state and federal certification, and update wording throughout grammar and to reflect modern and respectful wording.
Rule is not necessitated by federal law, federal or state court decision.
Name of Proponent: OMWBE, governmental.
Name of Agency Personnel Responsible for Drafting: Amal Joury, 1110 Capitol Way South, #150, Olympia, WA 98501, 360-664-9576; Implementation: Mynor Lopez, 1110 Capitol Way South, #150, Olympia, WA 98501, 360-664-9764; and Enforcement: Sarah Erdmann, 1110 Capitol Way South, #150, Olympia, WA 98501, 360-664-9771.
A school district fiscal impact statement is not required under RCW 28A.305.135
A cost-benefit analysis is not required under RCW 34.05.328
. The rule changes do not impose more stringent performance requirements for businesses and are not significant rules as defined by RCW 34.05.328
This rule proposal, or portions of the proposal, is exempt from requirements of the Regulatory Fairness Act because the proposal:
Is exempt under RCW 19.85.025
(3) as the rules relate only to internal governmental operations that are not subject to violation by a nongovernment party; and rules only correct typographical errors, make address or name changes, or clarify language of a rule without changing its effect.
April 3, 2019
of Legislative Affairs
AMENDATORY SECTION(Amending WSR 04-08-093, filed 4/6/04, effective 5/7/04)
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
(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:
(a) One concern controls or has the power to control the other;
(b) A third party or parties controls or has the power to control both; or
(c) An identity of interest between or among parties exists such that affiliation may be found.
(3) "Alaska native corporation" means any regional corporation, village corporation, urban corporation, or group corporation organized under the laws of the state of Alaska in accordance with the Alaska Native Claims Settlement Act, as amended (43 U.S.C. 1601, et seq.).
(4) "Assets" means all the property of a person available for paying debts or for distribution, including the person's respective share of jointly held assets. This includes, but is not limited to, cash on hand and in banks, savings accounts, IRA or other retirement accounts, accounts receivable, life insurance, stocks and bonds, real estate, and personal property.
(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.
(10) "Contract by contract basis" means a single contract within a specific class of contracts.
(11) "Contractor" means a party who enters into a contract directly with a state agency or educational institution.
(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.
(12) "Days" means calendar days. In computing any period of time described in this chapter, the day from which the period begins to run is not counted. When the last day of the period is a Saturday, Sunday, or a legal holiday, the period extends to the next day that is not a Saturday, Sunday, or legal holiday. Similarly, in circumstances where the agency is closed for all or part of the last day, the period extends to the next day on which the agency is open.
(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.
(21) "Legitimately owned and controlled" means that minorities, women, socially and economically disadvantaged individuals, or a combination thereof, own at least fifty-one percent interest in the business (unless the business qualifies as a corporate sponsored dealership under the provisions of subsection (12) of this section and WAC 326-20-050(4)); and the minorities, women, socially and economically disadvantaged individuals, or combination thereof, possess and exercise sufficient expertise specifically in the firm's field of operation to make decisions governing the long-term direction and the day-to-day operations of the firm.
(22) "Manufacturer" means a business which owns, operates, or maintains a factory or establishment that produces or creates goods from raw materials or substantially alters goods before reselling them.
(23) "Minority" means a person who is a citizen or lawful permanent resident of the United States and who is:
(a) Black: Having origins in any of the black racial groups of Africa;
(b) Hispanic: Of Mexican, Puerto Rican, Cuban, Central or South American, or other Spanish or Portuguese culture or origin, regardless of race;
(c) Asian American: Having origins in any of the original peoples of the Far East, Southeast Asia, the Indian subcontinent, or the Pacific Islands; or
(d) American Indian or Alaskan native: Having origins in any of the original peoples of North America.
(24) "Minority business enterprise," "minority-owned business enterprise," or "MBE" means a small business concern, organized for profit, performing a commercially useful function, which is legitimately owned and controlled by one or more minority individuals or minority business enterprises certified by the office. The minority owners must be United States citizens or lawful permanent residents.
(25) "Minority women's business enterprise" or "MWBE" means a small-business concern, organized for profit, performing a commercially useful function, which is legitimately owned and controlled by one or more minority women and is certified by the office. The owners must be United States citizens or lawful permanent residents.
(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.
(19) "Liabilities" means financial obligations including, but not limited to, accounts payable, notes payable to a bank or others, installment accounts, mortgages on real estate, and unpaid taxes.
(20) "Native Hawaiian organization" means any community service organization serving native Hawaiians in the state of Hawaii which is a not-for-profit organization chartered by the state of Hawaii, is controlled by native Hawaiians, and whose business activities will principally benefit such native Hawaiians.
(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.
(30) "Procurement" means the purchase, lease, or rental of any goods or services.
(31) "Public works" means all work, including construction, highway and ferry construction, alteration, repair, or improvement other than ordinary maintenance, which a state agency or educational institution is authorized or required by law to undertake.
(32) "Regular dealer" means a certified business that owns, operates, or maintains a store, warehouse or other establishment in which the materials or supplies required for the performance of the contract are bought, kept in stock, and regularly sold to the public in the usual course of business.
(33) "Services" in the context of "goods and/or services," means all services including, but not limited to, client services, personal services, and purchased services as defined in RCW 39.29.006.
(34) "Socially disadvantaged individuals" means those individuals who have been subjected to racial or ethnic prejudice or cultural bias, gender, disability, long-term residence in an isolated environment, or other similar causes negatively impacting entry into or advancement in the business world within American society because of their identities as members of groups and without regard to their individual qualities. Social disadvantage must stem from circumstances beyond their control.
(35) "Socially and economically disadvantaged business enterprise" or "SEDBE" means a small-business concern, organized for profit, performing a commercially useful function, which is legitimately owned and controlled by one or more socially and economically disadvantaged individuals or socially and economically disadvantaged business enterprises certified by the office. The socially and economically disadvantaged owners must be United States citizens or lawful permanent residents.
(36) "Socially and economically disadvantaged individual" means a person who is a citizen or lawful permanent resident of the United States and who is:
(a) Found to be a socially and economically disadvantaged individual on a case-by-case basis by OMWBE; or
(b) A member of one of the following groups that are presumed to be socially and economically disadvantaged:
(iii) Any additional groups whose members are designated as socially and economically disadvantaged by the U.S. Small Business Administration (SBA), at such time as the SBA designation becomes effective.
(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.
(24) "Small Business Administration" or "SBA" means the United States Small Business Administration.
(25) "Small business concern" means a small business concern as defined under section 3 of the Small Business Act and 13 C.F.R. Part 121 that also does not exceed the cap on average annual gross receipts specified in WAC 326-20-092.
(26) "Socially disadvantaged individual" means the following for the purposes of certification, consistent with 49 C.F.R. Sec. 26.5:
(a) A person who has been subjected to racial or ethnic prejudice or cultural bias within American society because of his or her identity as a member of groups and without regard to his or her individual qualities. The social disadvantage must stem from circumstances beyond the individual's control.
(b) Any individual who the agency finds to be a socially disadvantaged individual on a case-by-case basis, per chapter 326-20 WAC.
(c) Any individual in the following groups, members of whom are rebuttably presumed to be socially disadvantaged for the purposes of certification, consistent with 49 C.F.R. Sec. 26.5:
(i) Persons who are Asian or Pacific islander: Person whose origins are from Japan, China, Taiwan, Korea, Burma (Myanmar), Vietnam, Laos, Cambodia (Kampuchea), Thailand, Malaysia, Indonesia, the Philippines, Brunei, Guam, the Republic of Palau, the Federated States of Micronesia, and the Republic of Marshall Islands, Commonwealth of the Northern Mariana Islands, Samoa, Macao, Fiji, Tonga, Kirbati, Tuvalu, Nauru, Hong Kong, India, Pakistan, Bangladesh, Bhutan, the Maldives Islands, Nepal or Sri Lanka;
(ii) Persons who are black/African American: Persons having origins in any of the black racial groups of Africa;
(iii) Persons who are Hispanic/Latino: Persons of Mexican, Puerto Rican, Cuban, Central or South American, or other Spanish or Portuguese culture or origin, regardless of race;
(iv) Persons who are Native American or Alaska native: Persons who are members or descendants of a federal or state recognized Indian tribe or Alaska native corporation;
(v) Persons who are native Hawaiian: Persons whose ancestors were natives, prior to 1778, of the area which now comprises the state of Hawaii;
(vi) Women; and
(vii) Any additional groups whose members are designated as socially and economically disadvantaged by the U.S. Small Business Administration (SBA), at such time as the SBA designation becomes effective.
(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.
(39) "Supplier" means a manufacturer or regular dealer that:
(a) Provides or furnishes goods or materials;
(b) Performs a commercially useful function; and
(c) Is not considered a conduit, front, pass-through or broker.
(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.
AMENDATORY SECTION(Amending WSR 04-08-093, filed 4/6/04, effective 5/7/04)
WAC 326-02-045Factors considered in determining performance of commercially useful function.
(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.
(b) Whether the business could be considered a conduit, front, or pass-through;
(c) Whether the minority and/or woman and/or socially and economically disadvantaged individual owner(s) has the skill and expertise to perform the work for which the business is being or has been certified;
(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;
(2) In addition, a business that functions as a supplier shall:
(a) Be the manufacturer of the goods or materials or assume the actual and contractual responsibility for furnishing the goods or materials and execute material changes in the configuration of those goods or materials; or
(b) Prior to submitting an application for certification, secure a contract or distributor agreement with a manufacturer to act as an independent authorized representative capable of passing on product warranties to the purchaser.
(3) Factors which may indicate that a supplier is not performing))involved; and
(c) The business is responsible, with respect to materials and supplies used on the contract, for negotiating price, determining quality and quantity, ordering the material, and installing (when applicable) and paying for the material itself.
(2) A business does not perform a commercially useful function ((include, but are not limited to, the following:
(a) A minimum amount of inventory is not maintained.
(b) Billing and shipping arrangements are performed by nonowners or staff of nonowners.
(c) A significant amount of deliveries are shipped directly from the producer or manufacturer to the end user.
(d) The firm does not take ownership of the product.))when:
(a) Its role is limited to that of an extra participant in a transaction, contract, or project through which funds are passed in order to obtain the appearance of participation. The agency will consider similar transactions in which certified firms do not participate to evaluate standard industry practice.
(b) It does not exercise responsibility for at least thirty percent of the total cost of its contract with its own workforce, or it subcontracts a greater portion of the work of a contract than would be expected on the basis of normal industry practice for the type of work involved.
The following section of the Washington Administrative Code is decodified and recodified as follows:
Old WAC Number
New WAC Number
WAC 326-20-035Presumptive group membership.
(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.
AMENDATORY SECTION(Amending WSR 17-13-020, filed 6/12/17, effective 8/1/17)
WAC 326-20-048Presumption of disadvantage.
(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.
AMENDATORY SECTION(Amending WSR 04-08-093, filed 4/6/04, effective 5/7/04)
WAC 326-20-050Proof of ownership of business.
(((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.
(2) In cases of sole proprietorships or other cases where documentary proof of ownership is not available, the minority, women, or socially and economically disadvantaged owners shall so advise the office, which may undertake further investigation. The office may also require documents showing how and when the minority, women, or socially and economically disadvantaged owners' interest in the business was acquired.
(3) The office may, for any reason, require any minority, women, or socially and economically disadvantaged owners to provide additional proof of, or information concerning, ownership. The office may request additional information regarding separate ownership of a business including, but not limited to, a separate property agreement.
(4) Ownership of a corporate-sponsored dealership shall be evaluated by using the following standards:
(a) The minority, women, or socially and economically disadvantaged owner(s) have entered into a written agreement, contract, or arrangement with a national or regional corporation and has been granted a license to offer, sell, or distribute goods or services at wholesale or retail, leasing, or otherwise use the name, service mark, trademark, or related characteristics of the sponsoring corporation.
(b) The capital investment for the dealership or business is jointly contributed by the minority, women, or socially and economically disadvantaged owner(s) and the sponsoring corporation.
(c) The original investment contributed by the minority, women, or socially and economically disadvantaged owner(s) may be less than fifty-one percent, but must constitute at least twenty-five percent of the capitalization investment (total required equity capital) in the dealership corporation.
(d) A specified time limit of not more than ten years must be established, binding between the minority, women, or socially and economically disadvantaged owner(s) and the sponsoring corporation, within which the buy-out of the corporate sponsor's interest shall be complete.
(e) The sponsoring corporation must have specifically developed a national or regional corporate sponsored dealership program which includes such features as capitalization assistance from the sponsoring corporation, on-going business operations training, technical assistance to the dealership owner, and a corporate sponsored minority, women, and socially and economically disadvantaged individual's business program.
(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.
(2) To be an eligible for certification, a firm must be at least fifty-one percent owned by a socially and economically disadvantaged individual(s).
(a) In the case of a sole proprietorship or other cases where documentary proof of ownership is not available, the agency may undertake further investigation and may require documents showing how and when the socially and economically disadvantaged owner(s) interest in the business was acquired.
(b) In the case of a corporation, a socially and economically disadvantaged individual(s) must own at least fifty-one percent of each class of voting stock outstanding and fifty-one percent of the aggregate of all stock outstanding.
(c) In the case of a partnership, a socially and economically disadvantaged individual(s) must own at least fifty-one percent of each class of partnership interest.
(d) In the case of a limited liability company, a socially and economically disadvantaged individual(s) must own at least fifty-one percent of each class of member interest.
(3) The socially and economically disadvantaged individual(s) ownership, including the individual's contribution of capital or expertise to acquire ownership interests, must be real, substantial, and continuing, going beyond pro forma ownership of the firm. It may include ownership interest acquired:
(a) As the result of a final property settlement or court order in a divorce or legal separation, provided no term or condition of the agreement or divorce decree is inconsistent with this section;
(b) Through inheritance or because of the death of the former owner; and
(c) Through debt instruments from financial institutions or other organizations lending funds in the normal course of business, even when the debtor's ownership interest is security for the loan.
(4) The disadvantaged owner(s) must enjoy the customary incidents of ownership, share in the risks, and be entitled to the profits and loss commensurate with their ownership interests, as demonstrated by the substance, not merely the form of arrangements.
(5) When expertise is relied upon as part of a disadvantaged owner's contribution to acquire ownership, the applicant must have a significant financial investment in the firm, and the applicant's expertise must be:
(a) In a specialized field;
(b) In areas critical to the firm's operations;
(c) Indispensable to the firm's potential success;
(d) Specific to the type of work the firm performs; and
(e) Documented in the records of the firm, which must show the contribution of expertise and value to the firm.
(6) The following are insufficient to be considered ownership in a firm by a socially and economically disadvantaged individual for the purposes of certification:
(a) A promise to contribute capital; an unsecured note payable to the firm or an owner who is not a disadvantaged individual; mere participation in a firm's activities as an employee; capitalization not commensurate with the value for the firm; and any terms or practices giving a nondisadvantaged individual or firm a priority or superior right to a firm's profits, compared to the disadvantaged owner(s).
(b) Except as allowed by this section, interests or assets obtained by an applicant in the form of a gift or transfer without adequate consideration from any nondisadvantaged individual or firm who is: Involved in the same firm or affiliate where the individual is seeking certification; involved in the same or a similar line of business; or engaged in an ongoing business relationship with the firm or an affiliate where the individual is seeking certification. To overcome this presumption and permit the interests or assets, the disadvantaged individual must demonstrate by clear and convincing evidence that: The gift or transfer to the disadvantaged individual was made for reasons other than obtaining certification; and the disadvantaged individual controls the management, policy, and operations of the firm, notwithstanding the continuing participation of a nondisadvantaged individual who provided the gift or transfer.
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.
AMENDATORY SECTION(Amending WSR 92-11-007, filed 5/11/92, effective 6/11/92)
WAC 326-20-060Community ownership.
(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.
(2) When an ownership interest arising in a nonapplicant spouse or registered domestic partner solely because of community property laws, the agency will not disqualify the applicant because of a provision for the nonapplicant spouse or domestic partner to cosign a financing agreement, contract for the purchase or sale of real or personal property, bank signature card, or other document.
(3) The agency must give particular scrutiny to the ownership and control of a firm to ensure it is owned and controlled, in substance as well as in form, by a socially and economically disadvantaged individual, when the ownership of the firm or its assets is transferred from a spouse or registered domestic partner who is not a socially and economically disadvantaged individual.
AMENDATORY SECTION(Amending WSR 04-08-093, filed 4/6/04, effective 5/7/04)
WAC 326-20-080Factors considered in determining control.
(((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.
(a) Managerial control. The minority, woman, or socially and economically disadvantaged owner(s) has the demonstrable ability to make independent and unilateral business decisions needed to guide the future and direction of the firm.
(b) Operational control. The minority, woman, or socially and economically disadvantaged owner(s) has the demonstrable ability to independently make basic decisions pertaining to the daily operations of the business.
(2) Whether a minority, woman, or socially and economically disadvantaged owner meets the control requirement is determined on an application-by-application basis. Office management, clerical, or other experience unrelated to the firm's field of operations, is insufficient to establish that the business is legitimately owned and controlled.
(3) Factors which may be considered in determining whether the minority, woman, or socially and economically disadvantaged owner meets the control requirement include, but are not limited to, the following:
(a) Authority and restrictions as indicated in the articles of incorporation, bylaws, partnership agreements and/or other business agreements and documents;
(b) The financial interest and/or participation in any other business by any owner or key personnel;
(c) Past and current employment history of minority and women owners involved in the business;
(d) Members of the board of directors and corporate officers;
(e) Experience, training, and expertise of any owners and key personnel;
(f) Recent changes in ownership and/or control of the business;
(g) Financial obligation to and capital contributions from owners and nonowners of the business; and
(h) Documentation indicating who has ultimate authority to make policy and management decisions and to legally obligate the business.
(4) If persons who are not minorities, women, or socially and economically disadvantaged are disproportionately responsible for the operation of the business, then the business is not eligible for certification.
(5) The requirements of this section shall not apply, if the business qualifies as a corporate-sponsored dealership under the provisions of WAC 326-20-050(4). Control of a corporate-sponsored dealership will be evaluated using the following standards:
(a) If the sponsoring corporation retains majority voting rights and control of the board of directors, then the minority, women, or socially and economically disadvantaged owner(s) must annually apply at least fifty percent of the net profit and bonuses toward the buy-out of the corporate sponsors' interest within the buy-out time limit established with the corporation.
(b) The minority, women, or socially and economically disadvantaged owner(s) must show active participation in the decision-making process on the board of directors of the dealership.
(c) The minority, women, or socially and economically disadvantaged owner(s) must have and exercise managerial and operational control over the day-to-day management of the dealership, with responsibility for sales, service volume, and profits.
(d) The minority, women, or socially and economically disadvantaged owner(s) must have prior business or management experience relating to the business being entered into as an owner.
(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.
(2) The disadvantaged owner(s) must demonstrate the ability to make independent and unilateral business decisions needed to guide the future and direction of the business.
(3) The certifiable business must not be subject to any formal or informal restrictions limiting the customary discretion of the disadvantaged owner(s). Restrictions through corporate charter provisions, bylaw requirements, contracts or any other formal or informal devices, such as cumulative voting rights, voting powers attached to different classes of stock, employment contracts, requirements for concurrence by nondisadvantaged partners, conditions precedent or subsequent, executory agreements, voting trusts, limitations on or assignments of voting rights, preventing the disadvantaged owner(s), without the cooperation or vote of any nondisadvantaged individual, from making any business decision are prohibited. This subsection does not preclude a spouse or registered domestic partner cosignature on the office's spouse or domestic partner nonparticipation statement.
(4) Disadvantaged owner(s) must possess the power to direct or cause the direction of the management and policies of the business and make daily and long-term decisions on matters of management, policy, and operations.
(a) Disadvantaged owner(s) must hold the highest officer position in the company, such as chief executive officer or president.
(b) In a corporation, disadvantaged owners must control the board of directors.
(c) In a partnership, one or more disadvantaged owners must serve as general partners, with control over all partnership decisions. In order for a partnership to be controlled by disadvantaged individuals, any nondisadvantaged partners must not have the power, without the specific written concurrence of the socially and economically disadvantaged partner(s), to contractually bind the partnership or subject the partnership to contract or tort liability.
(d) Nondisadvantaged or immediate family members may be involved in a certified business as owners, managers, employees, stockholders, officers, or directors. They must not possess or exercise the power to control the business or be disproportionately responsible for the operation of the business.
(e) Disadvantaged owner(s) of the business may delegate various areas of the management, policymaking, or daily operations of the business to other participants in the business, regardless of whether these participants are disadvantaged individuals. Such delegations of authority must be revocable, and the disadvantaged owner(s) must retain the power to hire and fire any person to whom such authority is delegated. The disadvantaged owner(s) managerial role in the business's overall affairs must be such that the recipient can reasonably conclude the disadvantaged owners actually exercise control over the business's operations, management, and policy.
(f) Disadvantaged owner(s) must demonstrate the ability to make basic decisions pertaining to the daily operations of the business independently and have an overall understanding of, managerial and technical competence and experience directly related to, the type of business in which the business is engaged and operating. The owner(s) are not required to have experience or expertise in every critical area of operations or given field than managers or key employees. They must have the ability to intelligently and critically evaluate information presented by other participants in the business's activities and to use this information to make independent decisions concerning the business's daily operations, management, and policymaking. Generally, expertise limited to office management, administration, or bookkeeping functions unrelated to the principle business activities of the business is insufficient to demonstrate control.
(g) If state or local law requires the persons to have a particular license or other credential in order to own or control a certain type of business, then the disadvantaged person(s) who own and control a potential certifiable business of that type must possess the required license or credential. If state or local law does not require the applicant to possess such a license or credential to own or control a business, the office must not deny certification solely on the ground the person lacks the license or credential. However, the office may take into account the absence of the license or credential as one factor in determining whether the disadvantaged owner(s) actually control the business.
(h) The office may consider differences in remuneration between the disadvantaged owner(s) and other business participants in determining whether to certify a business. Such consideration must be in the context of the duties of the persons involved, normal industry practices, the business's policy and practice concerning reinvestment of income, and any other explanations for the differences proffered by the business. The office may determine a disadvantaged owner controls a business although that owner's remuneration is lower than that of some other participants in the business. In a case where a nondisadvantaged individual formerly controlled the business, and a disadvantaged individual now controls it, the office may consider a difference between the remuneration of the former and current controller of the business as a factor in determining who controls the business, particularly when the nondisadvantaged individual remains involved with the business and continues to receive greater compensation than the disadvantaged individual.
(i) In order to be viewed as controlling a business, a disadvantaged owner cannot engage in outside employment or other business interests that conflict with the management of the business or prevent the individual from devoting sufficient time and attention to the affairs of the business to control its activities. For example, absentee ownership of a business and part-time work in a full-time business are not viewed as constituting control. However, an individual could be viewed as controlling a part-time business that operates only on evenings or weekends, if the individual controls it all the time it is operating.
(j) A disadvantaged individual may control a business even though one or more of the individual's nondisadvantaged immediate family members, participate in the business as a manager, employee, owner, or in another capacity. Except as otherwise provided in this subsection, the office must make a judgment about the control the disadvantaged owner exercises vis-a-vis other persons involved in the business as the office does in other situations, without regard to whether or not the other persons are immediate family members. If the office cannot determine the disadvantaged owners, as distinct from the family as a whole, control the business, then the disadvantaged owners failed to carry their burden of proof concerning control, even though they may participate significantly in the business's activities.
(k) When a business was formerly owned or controlled by a nondisadvantaged individual, whether or not an immediate family member, and ownership or control was transferred to a disadvantaged individual, and the nondisadvantaged individual remains involved with the business in any capacity, there is a rebuttable presumption of control by the nondisadvantaged individual unless the disadvantaged individual now owning the business demonstrates to the office, by clear and convincing evidence, that:
(i) The transfer of ownership or control to the disadvantaged individual was made for reasons other than obtaining certification; and
(ii) The disadvantaged individual actually controls the management, policy, and operations of the business, notwithstanding the continuing participation of a nondisadvantaged individual who formerly owned or controlled the business.
(l) In determining whether its disadvantaged owner controls a business, the office may consider whether the business owns equipment necessary to perform its work. However, the office must not determine a business is not controlled by disadvantaged individuals solely because the business leases, rather than owns, such equipment, where leasing equipment is a normal industry practice and the lease does not involve a relationship with a prime contractor or other party that compromises the independence of the business.
(m) A business operating under a franchise or license agreement may be certified if it meets the standards in this paragraph and the franchiser or licenser is not affiliated with the franchisee or licensee. In determining whether affiliation exists, the office should generally not consider the restraints relating to standardized quality, advertising, accounting format, and other provisions imposed on the franchisee or licensee by the franchise agreement or license, provided the franchisee or licensee has the right to profit from its efforts and bears the risk of loss commensurate with ownership. Alternatively, even though a franchisee or licensee may not be controlled by virtue of such provisions in the franchise agreement or license, affiliation could arise through other means, such as common management or excessive restrictions on the sale or transfer of the franchise interest or license.
(n) The disadvantaged individual(s) controlling a business may use an employee leasing company. The use of such a company does not preclude the individual(s) from controlling their business if they continue to maintain an employer-employee relationship with the leased employees. This includes responsibility for hiring, firing, training, assigning, and otherwise controlling on-the-job activities of the employees, as well as ultimate responsibility for wage and tax obligations related to the employees.
AMENDATORY SECTION(Amending WSR 92-11-007, filed 5/11/92, effective 6/11/92)
((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:
(1) Shared ownership;
(2) Common directors or partners;
(3) Shared equipment, facilities, resources, or employees;
(4) Beneficial financial arrangements which indicate less than arms length transactions with a noncertified business;
(5) Overdependency on a noncertified business to obtain and perform work;
(6) Such an identity of interest exists between the business seeking certification and a noncertified business that an affiliation may be presumed; and
(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) In determining whether a potential certified business is an independent business, the office must scrutinize relationships with noncertified businesses in areas such as personnel, facilities, equipment, financial or bonding support, and other resources.
(2) The office must consider whether present or recent employer and employee relationships between the disadvantaged owner(s) of the potential certifiable business and noncertified business or persons associated with noncertified businesses compromise the independence of the potential certifiable business.
(3) The office must examine the business's relationships with prime contractors to determine whether a pattern of exclusive or primary dealings compromises the independence of the potential certifiable business.
(4) In considering factors relating to the independence of a potential certifiable business, the office must consider the consistency of relationships between the potential certifiable business and noncertifiable businesses with normal industry practice.
WAC 326-20-086Native Americans—Native Hawaiians—Alaska native corporations.
(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.
AMENDATORY SECTION(Amending WSR 04-08-075, filed 4/5/04, effective 5/6/04)
WAC 326-20-094Assignment of North American Industrial Classification System (NAICS) code.
(((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) The types of work a business can perform, whether at initial certification or when a new type is added, must be described in terms of the most specific available North American Industry Classification System (NAICS) code for that type of work. In addition to applying the appropriate NAICS code, the office may apply a descriptor from a classification scheme of equivalent detail and specificity. A correct NAICS code is one describing, as specifically as possible, the principle goods or services the business would provide to the state. Multiple NAICS codes may be assigned when appropriate. The office must rely on, and not depart from, the plain meaning of NAICS code descriptions in determining the scope of a business's certification.
(2) Businesses and recipients must check carefully to make sure the NAICS codes cited in a certification are current and accurately reflect work the office has determined the business owners can control. The business bears the burden of providing detailed company information the office needs to make an appropriate NAICS code designation.
(3) If a business believes there is not a NAICS code that fully or clearly describes the type(s) of work in which it is seeking to be certified, the business may request the office, in its certification documentation, supplement the assigned NAICS code(s) with a clear, specific, and detailed narrative description of the type of work in which the business is certified. A vague, general, or confusing description is not sufficient for this purpose, and recipients must not rely on such a description in determining whether a business's participation can be counted toward goals.
(4) The office is not precluded from changing a certification classification or description if there is a factual basis in the record. However, the office must not make after-the-fact statements about the scope of a certification, not supported by evidence in the record of the certification action.
WAC 326-20-099Small business concern requirement and size standards.
(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.
The following sections of the Washington Administrative Code are repealed:
Proof of minority status.
Proof of woman's status.
Small business concern requirement.
Determination of firm size.
Signatures of applicant business owners.