ORDERS:
FINAL ORDER AND DECISION
I. Introduction
Since Martin Engineering Consultants, Inc. (Martin Engineering) has a disadvantaged individual,
Jerald Martin (Martin), as its President and sole owner, Martin Engineering seeks certification as a
Disadvantaged Business Enterprise (DBE) under S.C. Code Ann. § 12-28-2930 (2002) and 25A S.C.
Code Ann. Regs. 63-700 (Supp. 2002), et seq. A review of the application by the South Carolina
Department of Transportation (DOT) resulted in a denial of the requested certification. The denial
led Martin Engineering to file its request for a contested case with the Administrative Law Judge
Division (ALJD). Jurisdiction over this case rests with the ALJD under S.C. Code Ann. § 1-23-
600(B) (Supp. 2002) and 23A S.C. Code Ann. Regs. 63-704(K) (Supp. 2002).
II. Issue
The issue here is fairly straight forward. Does Martin hold and exercise the requisite degree of
control over Martin Engineering so as to entitle that firm to certification as a DBE?
Martin Engineering argues that Jerald Martin has the required control since he handles all of the
management decisions, sets all policies, and makes the day-to-day decisions required to operate the
business. On the other hand, DOT believes Martin lacks the power of control for two reasons. First,
Martin Engineering does not have the degree of independence needed for DBE status. Second, Jerald
Martin is not a licensed professional engineer and thus he lacks the critical technical expertise
necessary to control the firm.
III. Analysis
After determining the facts of this case and applying the appropriate law, I find and conclude that
Martin has the requisite degree of control and that certification must be granted.
A. Findings of Fact
I find by a preponderance of the evidence the following facts:
Martin Engineering provides services consisting of construction material testing and inspection. In
providing those services, Martin Engineering utilizes its own personnel. While Jerald Martin,
President of Martin Engineering, is not a licensed engineer, the firm employs an engineer, William D.
Adams, who is a licensed engineer in South Carolina.
Adams, who holds the position of Vice-President of Martin Engineering, is also employed by the
engineering firm of William D. Adams & Associates. While performing duties for Martin, Adams is
a paid employee of Martin with compensation at the rate of $50 per hour, and, when acting for
Martin, Adams does not act in any capacity for William D. Adams & Associates. Indeed, Adams’
employment by Martin is limited to providing engineering services. Those services consist of
reviewing field reports, reviewing engineering proposals, and reviewing project specifications for
specific project requirements.
While Adams is the currently employed engineer, from its inception Martin Engineering has used at
least three engineers to obtain engineering services. In all cases, Jerald Martin as President has
retained the authority to dismiss an engineer for cause or for no reason at all.
Jerald Martin’s role with the company is extensive. His duties and authority as an inspector include
conducting construction site inspections as well as site testing at the job sites of the firm’s clients.
As President, he makes all financial decisions for the firm, conducts the firm’s marketing, hires and
fires employees, presents estimates and bids to potential clients, negotiates contracts, secures
insurance coverage, maintains the firm’s accounting system, secures all purchases, and produces the
firm’s reports which are ultimately submitted to clients after review by an engineer.
Jerald Martin has over 20 years of experience in the areas of materials construction testing and site
inspections and he performs as the senior inspector for the firm. As such, he has the ability to
evaluate information presented to him by other individuals in the firm including engineers, and he is
able to use that information to make independent decisions in the firm's daily operations, management,
and policymaking. Martin’s expertise and experience gives him the ability to act upon information
to perform more tests, alter the testing methods, or make any other changes needed to meet
engineering observations or reservations.
Martin Engineering owns and controls all of the equipment needed to provide the services of the firm.
Further, the financial support for Martin Engineering is derived from services rendered to its clients,
and no funding is provided by William D. Adams & Associates.
B. Conclusions of Law
Based on the foregoing Findings of Fact, I conclude the following as a matter of law:
1. General Background
Both the General Assembly and Congress have determined that past discrimination in the contracting
business has produced a need to provide opportunities for businesses that historically have been
unable to obtain contracts because of discrimination against their owners. See 23 USC Section 101,
specifically Public Law 105-108; 49 C.F.R. Part 26; S.C. Code Ann. Section 12-28-2930 (2002); 25A
S.C. Code Ann. Regs. 63-700, et seq. (Supp. 2002). To meet the need to provide opportunities for
these disadvantaged businesses, Congress and the General Assembly have required DOT to spend a
portion of its funds with firms qualifying as disadvantaged businesses or DBE's.
Before a firm may participate in the DBE program, DOT must certify that the firm qualifies for DBE
treatment. S.C. Code Ann. § 12-28-2930(B)(2002). To accomplish the certification task, DOT must
establish a certification program that complies with the applicable federal regulations promulgated
by the U. S. Department of Transportation. See 49 C.F.R. Part 26.
In meeting its duty to establish a proper DBE certification program, DOT promulgated regulations.
See 25A S.C. Code Ann. Regs. 63-700 et seq. (Supp. 2002). Under those regulations, applicants for
South Carolina DBE certification must comply with the DBE standards set forth in the federal
regulations. See 25A S.C. Code Ann. Regs. §§ 63-702(A) and 63-703(A) (Supp. 2002).
2. DBE General Requirements
A "DBE" is "a small business concern owned and controlled by a socially and economically
disadvantaged individual." See 49 C.F.R., Subpart A, § 26.5. Here, no dispute exists that Jerald
Martin is within the targeted group.
The regulations also impose specific rules for determining whether a socially and economically
disadvantaged individual "owns" and "controls" the firm as required by the eligibility standards. See
49 C.F.R. §§ 26.69 and 26.71. In meeting those specific rules, the applicant must establish by a
preponderance of the evidence that the criteria for DBE certification have been satisfied. See 49
C.F.R. § 26.61. In this case, no dispute exists that Jerald Martin owns the firm here under review.
Rather, the only issue is whether Jerald Martin controls the firm for which DBE status is sought.
3. DBE Control Requirements
DOT asserts that Jerald Martin does not have the required control for two reasons.
First, the firm is not independent. See 49 C.F.R. § 26.71(b) (“Only an independent business may be
certified as a DBE.”). More particularly, DOT asserts Martin is dependent upon William D. Adams
& Associates. Prehearing Statement p. 2 (“firm is not independent of William D. Adams &
Associates, a non-DBE firm.”).
In addition to the dependence argument, DOT makes a second somewhat related argument. It argues
that Martin does not satisfy the requirements of 49 C.F.R. § 26.71(g) and (h) since he does not have
the critical technical expertise necessary to control the firm.
After weighing the evidence and applying the law, I must disagree with DOT’s conclusions.
a. Independence
To determine whether independence is present, 49 C.F.R. § 26.71(b) looks to four relationships.
First, consideration should be given to the firm’s relationships with non-DBE firms as to personnel,
facilities, equipment, financial support, and other resources. Here, the personnel providing the
company’s services are all employees of Martin Engineering. It is true that one employee, William
D. Adams, is also employed by William D. Adams & Associates. However, such dual employment
does not by itself make Martin dependent upon a non-DBE firm. Rather, Adams’ employment by
Martin is limited to providing engineering services and on those occasions Adams is paid by Martin
at a rate of $50 per hour.
Moreover, perhaps Adams’ dual employment status would be of more significance if other
connections were present. However, here Martin Engineering owns and controls all of the equipment
needed to provide the services of the firm. Likewise, the financial support for Martin Engineering
is derived from services rendered to its clients with no evidence showing loans or funding from any
non-DBE entity including William D. Adams & Associates.
Second, a relevant relationship factor is whether a pattern of exclusive or primary dealings with a
prime contractor compromises the independence of the potential DBE firm. No pattern of exclusive
or primary dealings with William D. Adams & Associates is present here. Rather, over its history,
Martin Engineering has used at least three engineers to obtain engineering services. Further, Jerald
Martin has the operating authority to dismiss William Adams for cause or for no reason at all.
The third factor is whether any employee relationship between Martin Engineering and a person
associated with a non-DBE firm compromises the independence of Martin Engineering. DOT relies
heavily upon this factor since the crux of the controversy is that Martin cannot provide his
construction testing and inspection services without a licensed engineer and that engineering function
is performed by Adams, not Jerald Martin.
Without more, I do not find that reliance upon another individual for engineering certification
amounts to compromising the independence of Martin Engineering. Rather, in the facts of this case,
Martin obtains virtually nothing from the firm of William D. Adams & Associates. Indeed, Adams
performs his duties as a paid employee of Martin Engineering and does not act in any capacity for
William D. Adams & Associates. For example, Adams & Associates does not obtain the client, does
not perform the testing, and does not prepare the report. Rather, Adams’ task is to review the data
and evaluate the conclusions generated by Martin.
In fact, the lack of any compromise of independence becomes plain when viewed in the light of the
extensive control exercised by Jerald Martin. His roles with the company are virtually all
encompassing. As the senior inspector, he performs construction site inspections as well as site
testing at the job sites of the firm’s clients. As the President, he makes all financial decisions for the
firm, conducts the firm’s marketing, hires and fires employees, presents estimates and bids to potential
clients, negotiates contracts, secures insurance coverage, maintains the firm’s accounting system,
secures all purchases, and produces the firm’s reports which are ultimately submitted to clients after
a review by an engineer.
In short, Martin has hired an engineer to evaluate the data gathered with the engineer currently hired
simply being an employee of two firms. However, the employee’s “other firm” has no control over
the actions or operations of Martin Engineering.
The fourth inquiry is whether the firm’s relationships with non-DBE firms is within normal industry
practice. The facts of this case do not establish what the normal industry practice is for interaction
with non-DBE firms engaged in the construction material testing and inspection business. Thus, no
negative conclusion can be reached that Martin Engineering runs afoul of the normal industry
practice. Therefore, the fourth relationship factor does not establish that Martin Engineering is
dependent upon William D. Adams & Associates.
b. Expertise
Somewhat related to the first argument of lack of independence, DOT also argues that Martin does
not satisfy the requirements of 49 C.F.R. § 26.71(g) and (h) since he does not have the critical
technical expertise necessary to control the firm. I disagree.
A range of factors are important under § 26.71(g) and (h). For example, Martin must have an overall
understanding of the type of business in which his firm is engaged as well as an overall understanding
of the firm's operations. Here, the evidence establishes that Martin has over 20 years of experience
in the materials construction testing and inspections. Indeed, he is essentially the sole individual
performing the site testing and producing the reports provided to the entity’s clients.
It is true that the reports to the firm’s clients require the certification of a professional engineer and
that Martin does not hold such a certification. However, Martin is not required to have competence
in every area of the business and he need not have greater experience or expertise than any or all of
his employees. Rather, what he must have is the ability to evaluate the information presented to him
by other individuals in the firm and he must be able to use that information to make independent
decisions in the firm's daily operations, management, and policymaking. Martin meets that
requirement.
For example, after completing the testing at a construction site, Martin presents his test data and
conclusions to one of the firm’s employees, a professional engineer. Should the engineer express a
belief that Martin’s tests and data produce a result different from that which Martin has concluded,
Martin has the expertise and experience to utilize the engineer’s information to perform more tests,
alter the testing methods, or make any other changes needed to meet the engineering reservations.
Finally, a more objective requirement for DBE status is found in the requirement of § 26.71(h). That
provision explains that no DBE designation can be given if state law requires Martin “to have a
particular license or other credential in order to own and/or control a certain type of firm.” Here,
DOT does not seek to deny the DBE designation on the ground that South Carolina statutes or
regulations require Martin as the owner of the firm to hold a license from the state as a professional
engineer. See Resp. Ex. 1, p. 2 (there DOT states “you are not required to have a particular license
in order to own or control” Martin Engineering.”).
Rather, DOT argues that a lack of such license
is a proper factor bearing on a lack of control. See 49 C.F.R. § 26.71(h).
While such a factor is a consideration, all agree that the DBE rules do not impose a mandatory duty
that the disadvantaged owner hold a certificate or license for the field of expertise in which the
business is engaged. Indeed, case law regards "as wholly illogical the notion that technical expertise
can be the sole factor in determining who 'controls' a business enterprise." Jack Wood Construction
Co., Inc. v. U.S. Department of Transportation, 12 F.Supp.2d 25 (D.D.C.1998). Therefore, the
absence of a license is not dispositive of the control issue but is only a factor in the analysis of control.
In summary, Jerald Martin controls Martin Engineering. The firm is an independent business whose
viability does not depend on its relationship with another firm. 49 C.F.R. § 26.71(b). Further, Jerald
Martin has the critical technical expertise necessary to control the firm. 49 C.F.R. § 26.71(g) and (h).
IV. Order
Martin Engineering is entitled to certification as a Disadvantaged Business Enterprise in the areas of
construction material testing and construction inspection services.
AND IT IS SO ORDERED
______________________
RAY N. STEVENS
Administrative Law Judge
Dated: October 1, 2003
Columbia, South Carolina |
