PURPOSE: This rule establishes a program by which Minority Business Enterprises (MBEs) and Women’s Business Enterprises (WBEs) may be certified by the Office of Equal Opportunity (OEO).

1. (1) Any firm desiring to obtain certification as a Minority Business Enterprise (MBE) or Women’s Business Enterprise (WBE) shall submit an application and required documentation to Office of Equal Opportunity (OEO). There are three (3) methods of certification— initial/standard, rapid response, and out-ofstate.
2. (2) All applicants are required to submit documentation necessary to determine eligibility for certification. Such documentation may include, but is not limited to: shareholder meeting minutes, bylaws, board meeting minutes, partnership agreements, tax returns, and joint venture agreements.
3. (3) Every applicant seeking certification has the burden of demonstrating to OEO, by a preponderance of the evidence, that it meets the requirements of section 37.020, RSMo, and these regulations.
4. (4) Initial/standard certifications are effective for three (3) years. Rapid response and outof-state certifications are based on the certification from other certifying entities and are effective until the expiration date that appears on the certificate provided to OEO. Joint venture certifications are effective for either one
5. (1) year or the term of the joint venture.
6. (5) Out-of-State Certifications. OEO will not conduct on-site reviews outside the state of Missouri; certification determinations for out-of-state applicants will be made based upon a desk audit of the application and all submitted documentation. Out-of-state applicants may only be certified by OEO if their home state allows Missouri-based minorityand women-owned firms to certify there. All currently certified out-of-state firms who might be affected by this rule will be allowed to maintain certification unless upon expiration they do not complete the renewal process or fail to meet other standards of ownership and control required by these regulations.
7. (6) If an applicant is approved for certification, a letter of approval and a certificate will be mailed to the Minority and/or Women’s Business Enterprise (M/WBE).
8. (7) Firms certified by OEO must notify OEO of any changes that may affect their eligibility for continued certification under section 37.020, RSMo, and these regulations.
9. (8) Applicants denied certification will be notified in writing of the reasons for denial. Reasons may include but are not limited to: incomplete or inaccurate application, failure to provide requested information, failure to meet certification standards, or failure to cooperate during the certification process. If OEO denies certification, an applicant has twenty-one (21) calendar days from the date of the denial letter to appeal in writing to the commissioner. The appeal shall clearly state why the denial is alleged to be in error. Information that was requested but not provided before the denial will not be considered in an appeal. The commissioner’s decision shall be final. Applicants denied certification are ineligible to reapply for one hundred eighty (180) days from the date of the denial letter.

10. (9) Third parties who have reason to believe that an applicant has been wrongly denied or granted certification as an M/WBE or joint venture may file a third-party challenge with OEO. Challenges by third parties are not considered appeals.

    1. (A) The third-party challenge must be submitted in writing with supporting documentation in sufficient detail to support the allegations. OEO may require additional documentation from the challenger.
    2. (B) The third-party challenge must contain the name, address, telephone number, and signature of the challenger.
    3. (C) Third-party challenges will not be considered confidential.
    4. (D) The M/WBE or applicant will be notified in writing that a challenge has been filed.
    5. (E) OEO will investigate the challenge and issue a written decision.

11. (10) OEO will be guided by the following standards when evaluating applicants for certification:

    1. (A) In determining whether an applicant meets the requirements of section 37.020, RSMo, and these regulations, OEO will consider all information in its possession;
    2. (B) OEO will evaluate an applicant based on current circumstances and will not deny certification solely because an applicant was not owned or controlled by a minority or woman at some time in the past;
    3. (C) OEO may authorize a one (1)-year provisional certification in certain circumstances, such as to allow time for a minority or woman to transition from being an employee to a business owner or to review tax information that is not available for a new firm at the time of application;
    4. (D) An applicant will not be denied certification solely because it is a newly-formed firm; and
    5. (E) OEO may decline rather than deny certification when one (1) or more questions are identified during the preview for certification. Applicants declined certification will be notified in writing and may respond with additional documentation or clarification within the time frame stated in the notice.
12. (11) Each year, OEO will send an annual update form to each firm certified under this program. Each firm must complete and return the form to OEO. OEO may revoke the certification of a firm that fails to complete and return the form. Information provided in the annual update form helps ensure that OEO’s Directory of Certified M/WBEs remains accurate. It also provides verification that ownership and control have remained the same. If changes have taken place, the M/WBE must provide information and/or documentation to substantiate that it continues to meet the requirements of these regulations.
13. (12) OEO will send a Recertification Application to a certified firm one (1) month before the expiration date of the certification. This application must be completed and returned to OEO before the expiration date. Recertification will be determined by information submitted on the renewal form, tax returns, and any documented changes regarding ownership or control. Recertification is not guaranteed. If the recertification application is not submitted before the expiration date, the firm will be removed from the active list of certified M/WBE vendors. To become recertified after the expiration date of the original certification, the applicant must submit the renewal form with an explanation for the delay. If one (1) year or more has passed, a complete new application will be required.

14. (13) Revocation of Certification.

    1. (A) OEO may revoke a firm’s certification for reasons including, but not limited to, the following:

       1. 1. The firm does not meet the require-

ments of section 37.020, RSMo, and these regulations;

1. 2. The firm’s certification with OEO is

based on certification by another entity, and that entity has revoked the firm’s certification; or

1. 3. The firm has falsified or intentionally

misrepresented information to OEO.

1. (14) OEO will use the following standards in determining ownership:

   1. (A) The contribution of capital or expertise by the minorities or women shall be real and substantial. Examples of insufficient contributions include: a promise to contribute capital, participation as employee rather than a manager, or an unsecured note payable to the firm or an owner who is not a minority or woman. Debt instruments from financial institutions or other organizations that lend funds in the normal course of their business would not render a firm ineligible, even if the debtor’s ownership interest is security for the loan;

   2. (B) Securities held in trust, or by a guardian for a minor, shall not be considered as held by a minority or woman in determining the ownership or control of a corporation. However, securities or assets held in trust are considered as held by a minority or a woman for purposes of determining ownership of the firm if—

      1. 1. The beneficial owner of securities or

assets held in trust is a minority or a woman, and the trustee is the same or another such individual; or

1. 2. The beneficial owner of a trust is a

minority or a woman who, rather than the trustee, exercises effective control over the management, policy-making, and daily activities of the trust.

1. 3. Assets held in a revocable living trust

may be counted only if the same minority and/or woman is the sole grantor, beneficiary, and trustee;

1. (C) In determining ownership of a firm, assets or interests acquired in the following ways will be considered held by a minority or woman:

   1. 1. From a final property settlement or

court order in a divorce or legal separation, provided that no term or condition of the agreement or divorce decree is inconsistent with these regulations; or

1. 2. Through inheritance, or otherwise

because of the death of the former owner;

1. (D) Expertise of a minority or woman applicant may be regarded as a contribution toward ownership if the woman has a significant financial investment in the firm and if the expertise is—

   1. 1. In a specialized field;
   2. 2. In areas critical to the firm’s opera-

tions;

1. 3. Indispensable to the firm’s potential

success;

1. 4. Specific to the type of work the firm

performs; and

1. 5. Documented in the records of the

firm. These records must clearly show the contribution of expertise and its value to the firm;

1. (E) Ownership and control of the enterprise by the minorities or women must be real, substantial, and continuing. The minorities or women shall enjoy the customary incidents of ownership and shall share in the risks and profits commensurate with ownership;

2. (F) The applicant must show that ownership has not been acquired as a gift or by transfer without adequate consideration from a non-minority or male, within one (1) year before application. Thereafter, it is presumed that ownership is not held by the minority or woman if received from a non-minority or male who—

   1. 1. Continues to be involved in the same

firm for which the applicant is seeking certification or is an affiliate of that firm;

1. 2. Continues to be involved in the same

or similar line of business; or

1. 3. Is engaged in an ongoing business

relationship with the firm, or an affiliate of the firm, for which the individual is seeking certification;

1. (G) To overcome the presumption in subsection (14)(F), the minority or woman must clearly demonstrate to OEO that—

   1. 1. The gift or transfer to the minority or

woman was made for reasons other than obtaining certification; and

1. 2. The minority or woman actually con-

trols the management, policy, and daily operations of the firm, notwithstanding the continuing participation of a non-minority or male who provided the gift or transfer;

1. (H) When marital assets (other than the assets of the firm in question), held jointly or as community property by both spouses, are used to acquire the ownership interest asserted by a minority or woman spouse, OEO will deem the ownership interest in the firm to have been acquired by the minority or woman with his or her own individual resources, provided that the other spouse irrevocably renounces and transfers all rights in the ownership interest in the manner sanctioned by the laws of the state of Missouri. A copy of the document legally transferring and renouncing the non-minority or female spouse’s rights in the jointly-held or community assets used to acquire an ownership interest in the firm must be included with the firm’s application; and
2. (I) A contribution of capital may be real and substantial even though financing agreements, contracts for the purchase or sale of real estate or personal property, bank signature cards, and the like, require the co-signature of a spouse who is not a minority or a woman.

1. (15) OEO will use the following standards in determining control:

   1. (A) The minority or women owners must have 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. There can be no restrictions upon the minority or woman’s discretion;
   2. (B) Only independent firms are eligible for certification. A firm is independent if its viability does not depend on its relationship with another firm or firms. In determining whether a firm is independent, OEO will consider the firm’s relationships with non- M/WBEs in areas such as personnel, facilities, equipment, and financial and bonding support and other resources. OEO must consider whether a present or recent employer/employee relationship between minority or women owners of the applicant and any non-M/WBE firms or persons associated with those firms compromise the independence of the applicant;
   3. (C) There can be no restrictions through corporate charters, by-laws, contracts, or any other formal or informal devices (e.g., cumulative voting rights, voting powers attached to different classes of stock, employment contracts, requirements for concurrence by nonminority or non-female partners, conditions precedent or subsequent, executor agreements, voting trusts, restrictions on or assignments of voting rights) that prevent the minority or woman, without the cooperation or vote of any non-minority or male, from making any business decision of the firm. This does not preclude a spousal co-signature on documents;
   4. (D) A minority or woman must hold the highest official position in the firm (e.g., chief executive officer or president). Board meeting minutes must be provided to verify the results of the most recent officer election, if applicable;
   5. (E) In a corporation, the minority or women owners must control the board of directors. Shareholder meeting minutes and by-laws must be provided to verify who is elected to the board and establish who controls it. In a partnership, one or more of the minority or women owners must serve as general partners, with control over all part- 1 CSR 10-17

nership decisions. A written partnership agreement must be provided. In a limited liability corporation (LLC), the minority or women owners must be the managing members. The operating agreement must be provided to OEO;

1. (F) Certification will not be denied solely because non-minorities or males may be involved with a firm as owners, managers, employees, stockholders, officers, or directors. Non-minorities or males must not, however, have or exercise the power to control the firm, or be disproportionately responsible for the daily operations of the firm;
2. (G) The minority or women owners must have an overall understanding of, and managerial and technical competence or experience directly related to, the type of business in which the firm is engaged and the firm’s operations. The minority or women owners must have the ability to evaluate information presented by other participants in the firm’s activities and be able to use this information to make independent decisions concerning the firm’s daily operations, management, and policymaking. Generally, expertise limited to office management, administration, or bookkeeping functions unrelated to the principal business activities of the firm is insufficient to demonstrate competency of the business’s area of expertise and control over its daily operations;
3. (H) If state or local law requires the business to maintain a particular license or other credential in order to own or operate a certain type of firm, then the minority or women owners who exercise majority control of that type of business must possess the required license or credential. If state or local law does not require those persons to have such a license or credential in order to own or operate such a firm, OEO will not deny certification solely on the grounds that the minority or women owners lack such license or credential. However, OEO will consider the absence of the license or credential as one (1) factor in determining whether the minority or women owners actually exercise daily control over the firm;
4. (I) OEO will consider the difference in remuneration between the minority or women owners and other participants in the firm in determining whether to certify a firm. Such consideration shall be in the context of the duties of the persons involved, normal industry practices, the firm’s practices and policies concerning the reinvestment of income, and any other explanations for the difference offered by the firm. Based upon the evidence, OEO will make a determination about whether a firm is controlled by its minority or women owners, even though that owner’s remuneration may be lower than other participants in the firm. In a case where a nonminority or male owner has formerly controlled the firm, and a minority or a female owner now controls it, OEO may consider the difference between the remuneration of the former and current controller of the firm as a factor in determining who exercises true control over the firm, particularly when the nonminority or male owner remains involved with the firm and continues to receive greater compensation than the minority or female owner;
5. (J) In order to be viewed as controlling a firm, a minority or female owner cannot engage in outside employment or other business interests that could conflict with the management of the firm or prevent them from devoting sufficient time and attention to the affairs of the firm to control its daily activities. For example, absentee ownership of a firm and part-time work in a full-time firm are viewed as not exercising effective daily control over the firm;
6. (K) Minority or women owners may control a firm even though one (1) or more of the individual’s immediate family members (who themselves are not minorities or women) participate in the firm as a manager, employee, owner, or in some other capacity. OEO will consider how much control the minority or women owners exercise as compared to other persons involved in the business, without regard to whether those other persons are immediate family members;
7. (L) If OEO cannot determine that the minority or woman owner versus the family as a whole actually controls the firm, then the minority or female owners have failed to meet their burden of proof concerning control, even though they may participate significantly in the firm’s activities;

8. (M) If a firm was formerly owned and controlled by a non-minority or male who still remains involved in the firm, then the minority or women owners seeking certification must show that—

   1. 1. The transfer of ownership and/or con-

trol to the minority or women owners was not made solely to obtain certification; and

1. 2. The minority or women owners actu-

ally control the management, policy, and daily operations of the firm, notwithstanding the continuing participation of a non-minority or male who formerly owned and/or controlled the firm;

1. (N) In determining whether a firm is actually controlled by its minority or women owners, OEO will consider whether the firm owns equipment necessary to perform its work. Lack of control by a minority or woman owner will not be found solely because a firm leases, rather than owns such equipment, if leasing equipment is a normal industry practice, and the lease is not with a contractor or other party that compromises the independence of the firm;
2. (O) Lack of control by a minority or woman owner will not be found solely because a firm leases employees so long as the minority or women owners maintain an employer-employee relationship with the leased employees and are responsible for hiring, firing, training, assigning, and otherwise controlling the leased employees;
3. (P) A firm operating under a franchise or license agreement may be controlled by a minority or woman even though the franchise or license arrangement imposes restraints relating to standardized quality, advertising, accounting format, and the like, so long as the firm has the right to profit from its efforts, bears the risk of loss commensurate with ownership, and meets all other requirements of section 37.020, RSMo, and these regulations. Factors that indicate a lack of control by the minority or woman owner include common management or excessive restrictions on the sale or transfer of the franchise interest or license; and
4. (Q) In order for a partnership to be deemed controlled by a minority or a woman, any non-minority or male partners must be incapable of, without the specific written authorization of the minority or female partners, contractually binding the partnership. A written partnership agreement is necessary to establish both ownership and control.

1. (16) An applicant that is not owned by minorities or women, but is instead owned by another firm, even though that firm is a certified M/WBE, is ineligible to be certified as an M/WBE except as provided below. If the minority or women owners own and control the applicant firm through a parent or holding company, established for tax, capitalization, or other purposes consistent with industry practices, and the parent or holding company, in turn, owns and controls an operating subsidiary, OEO may certify the subsidiary if it otherwise meets all requirements of these regulations. In this situation, the individual owners and operators of the parent or holding company are deemed to control the subsidiary through the parent or holding company. OEO may certify such a subsidiary as an M/WBE if and only if the subsidiary is fiftyone percent (51%) cumulatively owned by a minority or a woman. The following examples illustrate how the provision for cumulative ownership works: Example 1: A minority or a woman owns one hundred percent (100%) of a holding company which in turn has a wholly-owned subsidiary. The subsidiary may be certified as an M/WBE, if it meets all other requirements of these regulations. Example 2: A minority or woman owns one hundred percent (100%) of a holding company which, in turn, owns fifty-one percent (51%) of a subsidiary. The subsidiary may be certified, if it meets all other requirements of these regulations. Example 3: A minority or woman owns eighty percent (80%) of a holding company which in turn, owns seventy percent (70%) of a subsidiary. In this case, the cumulative ownership of the subsidiary by a minority or a woman is fifty-six percent (56%) (80% of 70%=56%). This is more than the fifty-one percent (51%) threshold, so it may be certified as an M/WBE, if it meets all other requirements of these regulations. Example 4: A minority or a woman owns sixty percent (60%) of the holding company, which, in turn, owns fifty-one percent (51%) of a subsidiary. In this case, the cumulative ownership would be thirty-one percent (31%) (60% of 51%=31%). This is less than the required fifty-one (51%) threshold, so it cannot be certified as an M/WBE. Example 5: Someone other than the minority or women owners of the parent or holding company controls the subsidiary. Even though the subsidiary is owned by minorities or women, through the holding or parent company, it cannot be certified as an M/WBE because it does not meet the control requirement.
2. (17) Joint Venture. As required by section 37.020.1(3)(b), RSMo, in order to qualify for joint venture certification, at least fiftyone percent (51%) of the ownership interest in the joint venture must be held by minorities, and the management and daily business operations of the joint venture must be controlled by one (1) or more of the minorities who own it. OEO may require a joint venture applicant to submit documentation including but not limited to a copy of the joint venture agreement and a copy of the certification issued to the M/WBE participant in the joint venture. Any changes proposed in the joint venture agreement must be filed with and approved by OEO prior to the implementation of the changes in order to maintain certification. Failure to comply may result in revocation of the joint venture certification.

AUTHORITY: section 37.023, RSMo 2000.* This rule originally filed as 1 CSR 40-1.080. Original rule filed Oct. 20, 1997, effective May 30, 1998. Amended: Filed March 24, 2000, effective Oct. 30, 2000. Amended: Filed June 1, 2011, effective Nov. 30, 2011. *Original authority: 37.023, RSMo 1995.