South Carolina              
Administrative Law Court
Edgar A. Brown building 1205 Pendleton St., Suite 224 Columbia, SC 29201 Voice: (803) 734-0550

SC Administrative Law Court Decisions

CAPTION:
Wetherill Engineering, Inc. vs. SCDOT

AGENCY:
South Carolina Department of Transportation

PARTIES:
Petitioner:
Wetherill Engineering, Inc.

Respondent:
South Carolina Department of Transportation
 
DOCKET NUMBER:
04-ALJ-19-0235-CC

APPEARANCES:
Thomas C. Salane, Esquire
Shannon F. Bobertz, Esquire
For Petitioner

Deborah Brooks Durden, Esquire
For Respondent
 

ORDERS:

FINAL ORDER AND DECISION

STATEMENT OF THE CASE

This matter comes before this tribunal pursuant to 25A S.C. Code Ann. Regs. 63-704(K) (Supp. 2004) and S.C. Code Ann. 1-23-600(B) (Supp. 2004) upon the request of Petitioner Wetherill Engineering, Inc. (Wetherill Engineering) for a contested case hearing to review the decision of Respondent South Carolina Department of Transportation (Department or DOT) to deny Petitioner’s application for certification as a Disadvantaged Business Enterprise (DBE). The Department denied Petitioner’s application on the ground that Debora Wetherill, the president and majority owner of Wetherill Engineering, and the qualifying socially and economically disadvantaged individual for DBE purposes, cannot demonstrate operational control over Wetherill Engineering. Specifically, the Department contends that Ms. Wetherill fails to satisfy the DBE certification eligibility criteria for control of the firm because of her lack of technical expertise in the firm’s engineering work. Petitioner contends, however, that Ms. Wetherill does have sufficient expertise and competence to exercise genuine control over the operations of Wetherill Engineering so as to meet the criteria for certification as a DBE.

After timely notice to the parties, a contested case hearing on the merits of this matter was held on January 25, 2005, at the South Carolina Administrative Law Court in Columbia, South Carolina. Based upon the evidence and arguments presented at that hearing, and upon the applicable law, I find that Wetherill Engineering’s application for certification as a DBE should be denied because the firm is not controlled by a qualifying socially and economically disadvantaged individual.

FINDINGS OF FACT

Having carefully considered all testimony, exhibits, and arguments presented at the hearing of this matter, and taking into account the credibility and accuracy of the evidence, I make the following Findings of Fact by a preponderance of the evidence:

1.Wetherill Engineering, Inc., is a professional civil engineering firm based in Raleigh, North Carolina, specializing in transportation planning, roadway and bridge design and inspection, site design and layout, structural engineering, and geographic information systems. The firm’s clients include municipal, county, state, and federal governmental entities, as well as private industries, throughout the southeastern United States.

2.Wetherill Engineering was created in 1995 when Debora Wetherill, her husband, Edward Wetherill, and Norman Willey purchased a dormant engineering firm, Engineering for Industry, and merged it with the assets of Mr. Wetherill’s own engineering firm, Wetherill Associates. At the time Wetherill Engineering was established, Ms. Wetherill owned 52% of the firm, Mr. Willey owned 40% of the firm, and Mr. Wetherill owned the remaining 8% of the firm. Two years later, Mr. Willey’s daughter, Cathy Willey, joined the firm and, in 2001, she acquired half of Mr. Willey’s share of the firm, giving her 20% ownership of the firm and creating the current ownership structure of the firm. At its inception, Wetherill Engineering consisted only of Ms. Wetherill, who served as the firm’s president and was responsible for the business operations of the firm, and Mr. Wetherill and Mr. Willey, who served as vice presidents of the firm and were employed as the firm’s only engineers. These three individuals also constituted the firm’s initial board of directors. Over the course of the past ten years, Wetherill Engineering has expanded to a staff of twenty-five employees, including over a dozen professional engineers, four apprentice engineers, and two construction inspectors. Throughout that time, Ms. Wetherill and Mr. Wetherill have retained their respective titles as president and vice-president of the firm and have kept their places on the firm’s board of directors. At times, both Mr. Willey and Ms. Willey were vice-presidents of the firm and served on the firm’s board of directors. However, both Mr. Willey and Ms. Willey were terminated from employment with the firm and from involvement in the management of the firm in 2004, although they have retained their ownership interests in the business. Currently, the board of directors of Wetherill Engineering consists of Ms. Wetherill, Mr. Wetherill, and another of the firm’s engineers, Frank Price.

3.Debora Wetherill is the primary business manager of Wetherill Engineering. She owns a majority of the firm’s shares, sits on its board of directors, and serves as its president and chief executive officer. In this capacity, Ms. Wetherill is generally responsible for all of the business aspects of the firm’s operations, including: marketing the firm’s services; preparing and submitting bids for engineering projects in consultation with the firm’s engineers; handling all of the firm’s financial affairs (including payroll, taxes, insurance, and other accounting matters); reviewing and executing the firm’s contracts and other business documents; preparing and implementing office policies and procedures; managing the firm’s human resources (including setting personnel policies and hiring and firing the firm’s employees); and generally overseeing the progress of the firm’s projects, through monthly reports, weekly meetings, and daily conversations about the projects.

However, Ms. Wetherill’s professional experience is limited to general business and financial matters, and her role at Wetherill Engineering is accordingly limited to these administrative, managerial responsibilities. See Resp’t Ex. #7, at 3 (listing, in a report of a site visit conducted by North Carolina in 1995, Ms. Wetherill’s position and responsibilities in the firm as “President, marketing, management & financial”). Ms. Wetherill does not have an educational background in engineering or a related field and does not have any direct work experience related to the technical aspects of engineering or related fields. Nor is Ms. Wetherill licensed as a professional engineer. Rather, as described in her application for DBE certification, Ms. Wetherill’s professional experience is in “marketing [and] business admin[istration].” Footnote Pet’r Ex. #1, at 3. And, her profile on the firm’s website describes her responsibilities primarily as being involved in “all general business decisions and financial activities regarding the firm” and serving as the firm’s “director of marketing” and “Director of Personnel.” Resp’t Ex. #3, at 1. Accordingly, Ms. Wetherill cannot produce, approve, or critically evaluate civil engineering plans, the principal product of Wetherill Engineering, and thus she cannot independently and intelligently evaluate the technical merits of the engineering work provided by her firm’s engineers. For example, she cannot recognize, evaluate, or solve technical engineering problems that may be presented in the engineering work produced by her firm. Further, because of this lack of technical expertise, Ms. Wetherill must rely heavily upon the firm’s engineers in assessing the technical aspects of a proposed project when preparing a bid for a project and in evaluating the technical merits of an engineer’s work when deciding whether to hire or fire an engineer. And, she lacks the technical competence to question the opinions of the engineers in such matters. Therefore, while Ms. Wetherill is clearly heavily involved in the business management and financial operations of Wetherill Engineering, she does not have the technical competence and experience directly related to civil engineering such that she can intelligently and critically evaluate the information presented by the firm’s engineers and make truly independent decisions regarding the firm’s engineering operations.

4.Wetherill Engineering is certified as a DBE by the North Carolina Department of Transportation; the City of Raleigh, North Carolina; the City of Charlotte, North Carolina; the Raleigh-Durham Airport Authority; the Triangle Transit Authority; and the Tennessee Department of Transportation. Several of these certifications date back to 1995 and have been renewed over the intervening ten years. However, the Virginia Department of Transportation and the West Virginia Department of Transportation have denied DBE certification to Wetherill Engineering, primarily because of Ms. Wetherill’s lack of technical engineering experience. See Pet’r Ex. #1, at 4 (listing Wetherill’s “DBE Certifications Received and Denied”).

5.On December 8, 2003, Debora Wetherill submitted an application to the South Carolina Department of Transportation for certification of Wetherill Engineering as a Disadvantaged Business Enterprise (DBE). After reviewing the firm’s application, an on-site evaluation conducted by the North Carolina Department of Transportation, and the firm’s website, the Department denied Wetherill Engineering’s certification request by a letter dated June 16, 2004. The Department denied DBE certification to Wetherill Engineering on the ground that Ms. Wetherill, the qualifying socially and economically disadvantaged individual for the firm, does not possess the requisite technical competence in civil engineering to have true operational control over the firm. In denying the certification, the Department recognized that Ms. Wetherill had significant administrative and managerial responsibilities with the firm and could intelligently discuss the business of the firm, but found these general managerial and business skills insufficient to demonstrate her genuine control over the technical operations of the firm’s engineering practice, as required by the applicable state and federal regulations.

CONCLUSIONS OF LAW

Based upon the foregoing Findings of Fact, I conclude the following as a matter of law:

Jurisdiction and General Background

1.This tribunal has jurisdiction over this matter pursuant to 25A S.C. Code Ann. Regs. 63-704(K) (Supp. 2004) and S.C. Code Ann. § 1-23-600(B) (Supp. 2004).

2.S.C. Code Ann. § 12-28-2930 (2000) establishes a program to set aside expenditures of state highway funds for contracts with disadvantaged business enterprises (DBEs). Under this program, the Department, in allocating state highway funds for road, bridge, and building contracts, is required to “ensure that not less than . . . five percent are expended through direct contracts with estimated values of two hundred fifty thousand dollars or less with firms owned and controlled by disadvantaged females (WBEs).” S.C. Code Ann. § 12-23-2930(A)(1)(b) (2000). Footnote In order to certify eligible firms under Section 12-28-2930(A), see S.C. Code Ann. § 12-28-2930(B) (2000), and to comply with the federal disadvantaged business enterprises program, the Department has promulgated regulations to implement the state and federal DBE programs. See 25A S.C. Code Ann. Regs. 63-700 et seq. (Supp. 2004). Under those regulations, applicants for DBE certification in South Carolina must comply with and satisfy the DBE standards set forth in the federal regulations at 49 C.F.R. Part 26 (2004). See 25A S.C. Code Ann. Regs. 63-702(A) and 63-703(A) (Supp. 2004).

3.A “disadvantaged business enterprise” is defined by regulation as a “for-profit small business concern–(1) [t]hat is at least 51 percent owned by one or more individuals who are both socially and economically disadvantaged or, in the case of a corporation, in which 51 percent of the stock is owned by one or more such individuals; and (2) [w]hose management and daily business operations are controlled by one or more of the socially and economically disadvantaged individuals who own it.” 49 C.F.R. § 26.5 (2004).

Burden of Proof

4.In order to be certified as a DBE, an applicant has the burden of demonstrating, by a preponderance of the evidence, that it meets the regulatory criteria for DBE status, including the requirements regarding group membership or individual disadvantage, business size, ownership, and control. 49 C.F.R. § 26.61(b) (2004); see also Leventis v. S.C. Dep’t of Health & Envtl. Control, 340 S.C. 118, 132-33, 530 S.E.2d 643, 651 (Ct. App. 2000) (holding that the burden of proof in administrative proceedings generally rests upon the party asserting the affirmative of an issue); 73A C.J.S. Public Administrative Law and Procedure § 128, at 35 (1983) (“In administrative proceedings, the general rule is that an applicant for relief, benefits, or a privilege has the burden of proof, and the burden of proof rests upon one who files a claim with an administrative agency to establish that required conditions of eligibility have been met.”). Therefore, Wetherill Engineering has the burden of establishing, by a preponderance of the evidence, that it meets the regulatory criteria of 49 C.F.R. Part 26 such that it should be certified as a DBE in South Carolina.

5.In the instant matter, Wetherill Engineering contends that it meets all of the relevant DBE certification criteria. The Department does not contest that Ms. Wetherill, as a woman, is a socially and economically disadvantaged individual pursuant to 49 C.F.R. § 26.67(a) (2004) (creating a presumption that women are socially and economically disadvantaged individuals for DBE purposes), that Wetherill Engineering qualifies as a small business pursuant to 49 C.F.R. § 26.65 (2004), or that Ms. Wetherill is the majority owner of Wetherill Engineering as defined in 49 C.F.R. § 26.69 (2004). Rather, the Department contends that Ms. Wetherill, the qualifying disadvantaged individual, does not sufficiently control Wetherill Engineering, as required under 49 C.F.R. § 26.71 (2004), so as to be eligible for DBE certification.

Control

6.49 C.F.R. § 26.71 (2004) lays out the rules governing the determination of whether socially and economically disadvantaged owners control a firm seeking DBE certification. In order to be considered in control of a firm, the disadvantaged owners “must possess the power to direct or cause the direction of the management and policies of the firm and to make day-to-day as well as long-term decisions on matters of management, policy, and operations.” Id. § 26.71(d). Consequently, a disadvantaged owner “must hold the highest officer position in the company” and “must control the board of directors,” if the firm is a corporation. Id. § 26.71(d)(1), (2). Beyond these incidents of formal control over the firm, the regulations require that “[t]he socially and economically disadvantaged owners must have an overall understanding of, and managerial and technical competence and experience directly related to, the type of business in which the firm is engaged and the firm’s operations.” Id. § 26.71(g) (emphasis added). While these owners “are not required to have experience or expertise in every critical area of the firm’s operations, or to have greater experience or expertise in a given field than managers or key employees,” the socially and economically disadvantaged owners “must have the ability to intelligently and critically evaluate information presented by other participants in the firm’s activities and to use this information to make independent decisions concerning the firm’s daily operations, management, and policymaking.” Id. (emphasis added). Consequently, experience and expertise “limited to office management, administration, or bookkeeping functions unrelated to the principal business activities of the firm is insufficient to demonstrate control.” Id.

7.Further, where the field involved is subject to professional licensure or certification by state or local authorities, a business may not be denied certification as a DBE solely because the its qualifying socially and economically disadvantaged owner does not have such licensure or certification, unless state or local law affirmatively requires such licensure or certification in order to own or control the business in question. Id. § 26.71(h). However, the absence of such a license or credential may be considered as “one factor in determining whether the socially and economically disadvantaged owners actually control the firm.” Id.

8.Therefore, in technical fields, and particularly technical fields subject to professional licensure requirements, the lack of technical expertise and professional licensure on the part of a socially and economically disadvantaged business owner may preclude that owner from exercising true control over the firm’s operations, as defined in 49 C.F.R. § 26.71, so as to satisfy the DBE certification requirements. As a number of courts have recognized, the requirement that an owner of a firm seeking DBE certification have technical competence in the field in which his business operates is “reasonable and reflects a common sense approach to the control and management of firms operating in technical fields. . . . [;] [it] reflects the realistic assessment that, in a technical field, a qualified manager will necessarily possess certain specialized knowledge of the field.” Lane & Clark Mech. Contractors, Inc. v. Burnley, No. 88-4524, 1990 WL 50509, at *6 (E.D. Pa. Apr. 19, 1990); see also Car-Mar Constr. Corp. v. Skinner, 777 F. Supp. 50, 54 (D.D.C. 1991) (holding that it is reasonable “for an owner who would like to benefit from [DBE] status to be required to know about the technical nature of [the field in question], or at the least, to be able to question the results reached by experts”); Air Design Sys., Inc. v. Card, No. 92-C-4061, 1992 WL 373142, at *4 (N.D. Ill. Dec. 10, 1992) (noting that case law “unanimously hold[s] that it is reasonable to interpret the [DBE] regulations to require that the minority owner possess technical expertise in the core area of the business seeking certification”). Footnote And, based upon this requirement of technical competence, courts have routinely held that, in technical fields, it is proper to deny DBE certification to a firm when the socially and economically disadvantaged owner does not possess the technical experience and expertise necessary to control the firm’s core, technical operations, but rather only manages the business and administrative aspects of the firm’s activities and defers to non-disadvantaged individuals for the technical work. See, e.g., Air Design Sys., 1992 WL 373142, at *4-5 (sheet-metal fabricating and heating, ventilation, and air conditioning (HVAC) business); Car-Mar Constr., 777 F. Supp. at 54-56 (structural steel erection and general construction); Lane & Clark Mech. Contractors, 1990 WL 50509, at *5-7 (HVAC business); Whitworth-Borta, Inc. v. Burnley, No. G87-176 CAS, 1988 WL 242625, at *2-4 (W.D. Mich. June 28, 1988) (engineering consulting firm); cf. Shearin Constr., Inc. v. Mineta, 232 F. Supp. 2d 608, 613-15 (E.D. Va. 2002) (finding that, “although the question is a close one,” a disadvantaged individual did possess the technical competence to exercise operational control over an excavation business where the individual had completed a six-month apprenticeship in the excavation business and had secured a Class A contractor’s license for the business).

9.In the instant case, Ms. Wetherill does not possess the requisite technical competence and experience necessary to exercise genuine control over Wetherill Engineering. As noted above, Ms. Wetherill is extensively involved in the business, financial, and administrative aspects of Wetherill Engineering’s operations, and has the ability to competently manage such purely administrative affairs. And, she may have acquired enough familiarity with the field of engineering to be able to discuss certain basic engineering matters with the firm’s engineers. Nevertheless, Ms. Wetherill has no technical experience or expertise in the field of civil engineering, or any related technical field, and, consequently, she cannot intelligently and critically evaluate the engineering work produced, and technical decisions made, by the firm’s engineers. She simply lacks the technical background necessary for her to make independent evaluations of the engineering work produced by her firm, and thus make independent decisions regarding the core of Wetherill Engineering’s business. Therefore, because Ms. Wetherill does not have technical experience and expertise in civil engineering or related disciplines, this tribunal cannot find that she controls the highly technical engineering operations of Wetherill Engineering pursuant to 49 C.F.R. § 26.71.

10.Because the socially and economically disadvantaged owner of Wetherill Engineering does not control its core operations, the Department’s decision to deny DBE certification to Wetherill Engineering must be sustained. Footnote

ORDER

Based upon the Findings of Fact and Conclusions of Law stated above,

IT IS HEREBY ORDERED that the Department’s decision to deny the application of Petitioner Wetherill Engineering, Inc., for certification as a Disadvantaged Business Enterprise pursuant to S.C. Code Ann. § 12-23-2930 (2000) and 25A S.C. Code Ann Regs. 63-700 et seq. (Supp. 2004) is SUSTAINED.

AND IT IS SO ORDERED.

______________________________

JOHN D. GEATHERS

Administrative Law Judge

Post Office Box 11667

Columbia, South Carolina 29211-1667

March 17, 2005

Columbia, South Carolina


Brown Bldg.

 

 

 

 

 

Copyright © 2022 South Carolina Administrative Law Court