HomeMy WebLinkAboutR-2000-033 Disadvantaged Business Enterprise (DBE) Program and Annual Aspirational Goal (re: transportation funding requirement by DOT & FTA [Federal Transit Administration])RESOLUTION NO. R-2000- 33
A RESOLUTION approving and adopting a Disadvantaged Business Enterprise Program
and authorizing submittal of said Program with the United States
Department of Transportation, the Federal Transit Administration, and
all other appropriate federal and state agencies for review and approval.
WHEREAS, the City of Yakima receives funds from the United States Department of
Transportation ("DOT") for certain public works projects and from the Federal Transit
Administration ("FTA"), an agency of the DOT, regarding the operation of City Transit
Division; and
WHEREAS, federal DOT regulations require the City to adopt a Disadvantaged
Business Enterprise ("DBE") Program with regard to contracts/projects that are funded in
whole or part by DOT or FTA;
WHEREAS, attached hereto for City Council consideration and potential adoption is a
proposed DBE Program that was developed with the assistance of the Yakima Valley
Conference of Governments ("YVCOG") and is largely based upon a model DBE Program
provided by DOT; and
WHEREAS, the City Council deems it to be in the best interest of the City of Yakima to
approve and adopt the attached DBE Program and authorize submission of said Program to
DOT and FTA, now, therefore,
BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF YAKIMA:
The attached and incorporated Disadvantaged Business Enterprise Program is hereby
approved and adopted and City representatives are hereby authorized to submit said Program
with the United States Department of Transportation, the Federal Transit Administration, and
all other appropriate federal and state agencies for review and approval.
ADOPTED BY THE CITY COUNCIL this 4th day of April, 2000.
244
ry Place, Mayor
ATTEST:
City Clerk
(1.k1Puh6c \\ orks/DEE Program/2000/pm
TEA -21 - Fact Sheet: Disadvantaged Business Enterprise
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DISADVANTAGED BUSINESS ENTERPRISE
Program Purpose
The Disadvantaged Business Enterprise (DBE) program ensures equal opportunity in transportation
contracting markets, addresses the effects of discrimination in transportation contracting, and promotes
increased participation in Federally funded contracts by small, socially and economically disadvantaged
businesses, including minority and women owned enterprises. The statute provides that at least 10% of the
amounts made available for any Federal -aid highways, mass transit, and transportation research and
technology program be expended with certified DBEs.
Key Continuing Provisions
Sustains the applicability to the Federal Highway, Mass Transit, and Transportation Research programs (Titles
1,111, and V) [1101 (b)(1)]
Defines small business concerns and socially and economically disadvantaged individuals as in Sections 3 and
8(d) of the Small Business Act. [1101 (b)(2)(B)]
Preserves the inclusion of women in the presumptively disadvantaged category [1101 (b)(2)(B)]
Reaffirms the administratively determined business size limitation for qualifying as a small business at $16 6
million in annual gross receipts averaged over the preceeding 3 fiscal years [1101 (b)(2)(A)]
Maintains an annual survey and listing by State of the firms certified and their locations [1101 (b)(3)]
Requires a minimum uniform certification criteria for State Governments [1101 (b)(4)]
Key Modifications
Expands DBE program applicability to include the National Recreational Trails projects [1101 (b)(1)]
Ensures a State's continuing eligibility to receive federal funds if a Federal court issues a final order
rendering the application of the State's DBE Program to be unconstitutional [1101 (b)(5)]
Requires the General Accounting Office, within 3 years following enactment, to conduct a nationwide review
encompassing 11 specific subject areas. The study will include a comparison of DBE and non -DBE firms, and
will report findings and conclusions on the impact of the DBE program to the Congress [1101 (b)(6)]
September 14, 1998
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United States Department of Transportation
http.//wwv .fhwa.dot.gov/tea21/factsheets/dbe.htm 03/23/2000
Public Notice
The City of Yakima has established a Disadvantaged Business Enterprise (DBE)
program in accordance with regulations of the U.S. Department of Transportation
(DOT), 49 CFR Part 26. For the purpose of this DBE program, the City of Yakima
proposes to set its overall goal utilizing all information available to it, including
information provided by statistical evidence in the community and public comment.
The City of Yakima proposes that 10% of all DOT funds it will expend in DOT -
assisted contracts for fiscal year 2000 (October 1, 1999 to September 30, 2000) will
be let to certified DBE firms that are available, willing, and able.
The proposed goal and the basis for its rationale are available for public inspection
for 30 days during regular business hours, 8 A.M. to 5 P.M., Monday through Friday,
in the Purchasing Manager's Office located at City Hall, 129 North 2nd Street
Yakima, Washington 98901. The City of Yakima and DOT will accept public
comment on the goal for 45 days from the date of this notice. The fiscal year 2000
goal may be adjusted from comments or information received in the next 45 days.
Substantial written comments should be addressed to:
Purchasing Manager, DBELO
City of Yakima
129 North 2nd Street
Yakima, Washington 98901
FOR PUBLICATION: Thursday, January 20, 2000 (one day only)
Please read the following:
An Affidavit of Publication is required.
Please send an affidavit of publication to:
John A. Haddix - Phone # 575-6005
Transit Planner
2301 Fruitvale Boulevard
Yakima, WA 98902
Please bill Yakima Transit, the billing number is 10947
CITY of YAKIMA
DBE PROGRAM
Definition of Terms
The terms used in this program have the meanings defined in 49 CFR 26.5.
Objectives /Policy Statement (26.1, 26.23)
The City of Yakima, hereinafter referred to as the City, has established a
Disadvantaged Business Enterprise (DBE) program in accordance with regulations
of the U.S. Department of Transportation (DOT), 49 CFR Part 26. The City receives
Federal financial assistance from the Department of Transportation, and as a
condition of receiving this assistance, the City has signed an assurance that it will
comply with 49 CFR Part 26.
It is the policy of the City to ensure that DBEs, as defined in 49 CFR Part 26, have
an equal opportunity to receive and participate in DOT -assisted contracts. It is also
the City's policy:
• To ensure nondiscrimination in the award and administration of DOT
assisted contracts;
• To create a level playing field on which DBEs can compete fairly for DOT
assisted contracts;
• To ensure that the DBE Program is narrowly tailored in accordance with
applicable law;
• To ensure that only firms that fully meet 49 CFR Part 26 eligibility
standards are permitted to participate as DBEs;
• To help remove barriers to the participation of DBEs in DOT assisted
contracts; and
• To assist the development of firms that can compete successfully in the
market place outside the DBE Program.
The City's Purchasing Manager is designated the DBE Liaison Officer (DBELO). In
this capacity, the Purchasing Manager is responsible for implementing all aspects of
the DBE program. Implementation of the DBE program is accorded the same
priority as compliance with all other legal obligations incurred by the City in its
financial assistance agreements with the Department of Transportation.
The Yakima City Council adopted this policy statement which is disseminated to
City Departments, officers, and employees. The City also distributed this statement
to DBE and non -DBE business enterprises performing work as needed on DOT -
assisted contracts by publishing it in the Yakima Herald -Republic and on the City's
official web site.
Date:
Richard A. Zais, Jr., City Manager
Nondiscrimination. (26.7)
The City will never exclude any person from participation in, deny any person the
benefits of, or otherwise discriminate against anyone in connection with the award
and performance of any contract covered by 49 CFR Part 26 on the basis of race,
color, sex, or national origin.
In administering its DBE program, the City will not directly or through contractual
or other arrangements use criteria or methods of administration that have the effect
of defeating or substantially impairing accomplishment of the objectives of the DBE
program with respect to individuals of a particular race, color, sex, or national
origin.
DBE Program Updates (26.21)
The City will continue to carry out this program until all funds from DOT financial
assistance are expended. The City will provide to DOT updates representing
significant changes in the program.
Quotas (26.43)
In accordance with 49 CFR Part 26 and rulings of the U.S. Federal Courts, the City
does not use quotas in the administration of this DBE program.
DBE Liaison Officer (DBELO) (26.45)
The City believes it is the obligation of the entire city staff to see that the DBE
program is fully implemented and successful. To that end, every city staff member
involved with the administration of DOT -assisted projects is obligated to carry out
this policy. However, for the purpose of coordinating city staff, the City designates
the Purchasing Manager as the DBELO:
Sue Ownby, Purchasing Manager
129 North 2nd Street
Yakima, Washington 98901
Phone (509) 576-6695
FAX (509) 576-6394
E-mail sownby@ci.yakima.wa.us
In this capacity, the Purchasing Manager is responsible for implementing all
aspects of the DBE program and ensuring that the City complies with all provisions
of 49 CFR Part 26. The Purchasing Manager has direct, independent access to the
City Manager concerning DBE program matters. The DBELO has a staff of 2
professional employees assigned to the Purchasing Division on a full-time basis and
who devote a portion of their time to this program. An organization chart displaying
the DBELO's position in the organization is found in Attachment A to this program.
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The responsibility for developing, implementing, and monitoring the DBE program
shall be a coordinated effort with .other appropriate city staff members and officials.°
Some of the duties and responsibilities of the various city staff members may
include the following:
• Gathers and reports statistical data and other information as required by
DOT;
• Reviews third party contracts and purchase requisitions for compliance with
this program;
• Works with all city departments to set overall annual goals;
• Ensures that bid notices and requests for proposals are available to DBEs in
a timely manner;
• Identifies contracts and procurements so that DBE goals are included in
solicitations (both race -neutral methods and contract specific goals) and
monitors results;
• Analyzes City's progress toward goal attainment and identifies ways to
improve progress;
• Participates in pre-bid meetings;
• Advises the CEO/governing body on DBE matters and achievement;
• Participates with legal counsel and project managers to determine contractor
compliance with good faith efforts;
• Provides DBEs with information and assistance in preparing bids, obtaining
bonding and insurance; ,
• Plans and participates in DBE training seminars;
• Certifies DBEs according to the criteria set by DOT and acts as liaison to the
Uniform Certification Process in Washington State;
• Provides outreach to DBEs and community organizations to advise them of
opportunities; and
• Maintains the City's updated directory on certified DBEs.
Federal Financial Assistance Agreement Assurance (26.13)
The City has signed the following assurance, applicable to all DOT -assisted
contracts and their administration:
The City shall not discriminate on the basis of race, color, national origin, or
sex in the award and performance of any DOT assisted contract or in the
administration of its DBE Program or the requirements of 49 CFR part 26.
The recipient shall take all necessary and reasonable steps under 49 CFR
part 26 to ensure nondiscrimination in the award and administration of DOT
assisted contracts. The recipient's DBE Program, as required by 49 CFR part
26 and as approved by DOT, is incorporated by reference in this agreement.
Implementation of this program is a legal obligation and failure to carry out
its terms shall be treated as a violation of this agreement. Upon notification
to the City of its failure to carry out its approved program, the Department
may impose sanctions as provided for under part 26 and may, in appropriate
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cases, refer the matter for enforcement under 18 U.S.C. 1001 and/or the
Program Fraud Civil Remedies Act of 1986 (31 U.S.C. 3801 et seq.).
DBE Financial Institutions
It is the policy of the City to investigate the full extent of services offered by
financial institutions owned and controlled by socially and economically
disadvantaged individuals in the community, to make reasonable efforts to use
these institutions, and to encourage prime contractors on DOT -assisted contracts to
make use of these institutions. The City has surveyed banking, savings and loan,
mortgage organizations, the small business administration and the chamber of
commerce to determine their knowledge of any DBE institutions. The City has not
identified any DBE financial institutions in the community.
As information on the availability of DBE financial institutions becomes known, it
may be obtained from the DBELO.
Directory (26.25)
The City has never maintained an independent directory identifying all the firms
eligible to participate as DBEs but rather has relied on the State of Washington's
list of certified DBEs. The Washington State Office of Minority and Women's
Business Enterprises maintains the Directory. The Internet address for accessing
the State's Directory is http://www.wsdot.wa.gov/omwbe. As part of complying with
DOT policy guidelines, the City shall begin putting together a directory listing
DBEs working for the City.
The directory will list the firm's name, address, phone number, date of most recent
certification, and the type of work the firm has been certified to perform as a DBE.
The City shall revise the Directory annually (once each calendar year). The
Directory will be made available by contacting the Purchasing Manager at City
Hall, 129 North 2nd Street, Yakima, Washington 98901.
Overconcentration (26.33)
At this time, the City has not identified over concentrations of DBEs in any
particular area of contractors used by the City.
Business Development Programs (26.35)
At this time, the City does not have a business development or mentor -protege
program.
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Required Contract Clauses (26.13, 26.29)
Contract Assurance
The City shall ensure that the following clause is placed in every DOT -assisted
contract and subcontract:
The contractor or subcontractor shall not discriminate on the basis of race,
color, national origin, or sex in the performance of this contract. The
contractor shall carry out applicable requirements of 49 CFR part 26 in the
award and administration of DOT assisted contracts. Failure by the
contractor to carry out these requirements is a material breach of this
contract, which may result in the termination of this contract or such other
remedy, as the recipient deems appropriate.
Prompt Payment
The City shall include the following clause in each DOT -assisted prime contract:
The prime contractor agrees it is important to pay each subcontractor promptly
under this prime contract for satisfactory performance and failure to due so may
exclude DBE subcontractors from participating in City contracts.
Therefore, the contractor agrees to bill the City for each subcontractor's
satisfactory performance of work on at least a biweekly basis, and pay each
subcontractor under this prime contract for satisfactory performance of its
contract no later than fourteen days from the receipt and an approval of an
invoice from the prime contractor.
The prime contractor agrees further to return retainage payments to each
subcontractor within fourteen days after the subcontractor's work is
satisfactorily completed. Any delay or postponement of payment from the
above referenced time frame may occur only for good cause following written
approval of the City. This clause applies to both DBE and non -DBE
subcontractors.
Monitoring and Enforcement Mechanisms (26.37)
The City will bring to the attention of the Department of Transportation any false,
fraudulent, or dishonest conduct in connection with the program, so that DOT can
take the steps (e.g., referral to the Department of Justice for criminal prosecution,
referral to the DOT Inspector General, action under suspension and debarment or
Program Fraud and Civil Penalties rules) provided in 26.109. The City also will
consider similar action under our own legal authorities, including responsibility
determinations in future contracts in events of non-compliance with DBE regulation
by a participant in our procurement activities.
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Overall Goals (26.45)
Amount of Goal
The City established an overall goal of 10% for Federal FY 2000 for the Federal
financial assistance the City will expend in DOT -assisted contracts (exclusive of
FTA funds to be used for the purchase of transit vehicles, real estate procurement).
Given the amount of DOT -assisted contracts the City expects to let during this
federal fiscal year/project, which is $ , this means that City have set a goal of
expending $ with DBEs during this federal fiscal year/project.
Method
The following is a brief summary of the method the City used to calculate its goal:
[Note - This summary need not be as extensive as the actual overall goal submission,
which is a separate document.
It should address the following points:
• The method used to calculate the relative availability of DBEs ("base figure')
for "Step I" of the process (see 26.45(c)). The base figure is a percentage figure
calculated by dividing a number representing available DBEs by a number
representing all available firms. For example, theprogram would state which
of Examples 1-4 from 26.45 (or which variation or alternative approach) the
recipient is using.
• The data source(s) used to derive the numerator an<<. denominator in the
calculation (e.g., , for a recipient that used Example 1, there were X DBEs in
our Directory and Y total firms in the following SIC codes and following
Counties found in the Census Bureau's CBP database).
• The relative availability percentage.
• The data sources used in implementing "Step 2" (see 26.45(d)). This step is
intended to adjust the "base figure" percentage from Step 1 so that it reflects as
accurately as possible the DBE participation the recipient would expect in the
absence of discrimination. For example, this portion of the program could
"Our history of DBE achievements was %, our disparity study showed that
availability of DBEs was %, we have the following summarized
information about barriers to entry or competitiveness of DBEs in our
programs from the following sources").
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• From this data, we have adjusted our base percentage as follows: [Describe
reasoning process that led to your particular adjustment from the Step 2 data
you have]
Transit Vehicle Manufacturers (26.49)
The City requires transit vehicle manufacturers as a condition of being authorized
to bid or propose on FTA -assisted transit vehicle procurements to certify they have
complied with the requirements of this section. Alternatively, the City may, at its
discretion and with FTA approval, establish project -specific goals for DBE
participation in the procurement of transit vehicles in lieu of Transit Vehicle
Manufacturers complying with this program element.
Process
The City will begin the process of submitting its overall goal to DOT on or about
May 15 of each year. The actual goal will be submitted to the FTA on or about
August 1 of each year.
The City will consult each year with the State of Washington's Office of Minority
and Women's Business Enterprises and local community building and trades groups
to obtain information concerning the availability of disadvantaged and non -
disadvantaged businesses, the effects of discrimination on opportunities for DBEs,
and the City's efforts to establish a level playing field for the participation of DBEs
before establishing the City's overall goal.
Following consultation, the City will publish a notice of the proposed overall goal,
informing the public that the proposed goal and its rationale are available for
inspection at the Purchasing Manager's Office, Yakima City Hall, during normal
business hours for 30 days following the date of the notice. The notice shall inform
the public that the City and DOT will accept comments on the overall goal for 45
days from the date of issuing the notice.
The City will normally publish the notice of the proposed overall goal in the Yakima
Herald -Republic and on the City's Official Web Site on or about June 1 of each year.
The notice shall include the addresses to which comments may be sent and the
addresses (including office and web site) where the proposal may be reviewed.
The City's overall goal submission to DOT will include a summary of information
and any significant comments received during the public participation process and
any City's responses.
The City will begin using its overall goal on October 1 of each year, unless it has
received other instructions from DOT.
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Break-out of Estimated Race -Neutral and Race -Conscious Participation
The City will meet the maximum feasible portion of its overall goal by using race -
neutral means of facilitating DBE participation. The City will use the following
race -neutral means to increase DBE participation:
• Develop a DBE list as extensively as possible,
• Send notices of projects to contractors on the City's DBE list,
• Provide prime contractors a list of DBEs to partner with or provide
subcontract services, and
• Advertise using available minority media the projects that could
accommodate small business.
Note: Race -neutral means the City will outreach, technical assist, and revise the
procurement process to insure increased opportunities for all small businesses, not
just for DBEs.
The City will meet the maximum feasible portion of its overall goal by using race -
neutral means of facilitating DBE participation.
Race -neutral DBE participation includes:
• Any time a DBE wins a prime contract through customary competitive
procurement procedures,
• Any time a DBE is awarded a subcontract on a prime contract that does not
carry a DBE goal,
Or, even if there is a DBE goal,
• Any time a DBE wins a subcontract from a prime contractor that did not
consider its DBE status in making the award (e.g., a prime contractor that
uses a strict low bid system to award its subcontracts).
Race -neutral means include, but are not limited to, the following:
• Arranging solicitations, times for the presentation of bids, quantities,
specifications, and delivery schedules in ways that facilitate DBE and other
small businesses participation (e.g., unbundling large contracts to make them
more accessible to small businesses, requiring or encouraging prime
contractors to subcontract portions of work that they might otherwise
perform with their own forces);
• Providing assistance in overcoming limitations such as inability to obtain
bonding or financing (e.g., by such means as simplifying the bonding process,
reducing bonding requirements, eliminating the impact of surety costs from
bids, and providing services to help DBEs, and other small businesses, obtain
bonding and financing);
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• Providing technical assistance and other services;
• Carrying out information and communications programs on contracting'
procedures and specific contract opportunities (e.g., ensuring the inclusion of
DBEs, and other small businesses, on recipient mailing lists for bidders;
ensuring the dissemination to bidders on prime contracts of lists of potential
subcontractors; provision of information in languages other than English,
where appropriate);
• Implementing a supportive services program to develop and improve
immediate and long-term business management, record keeping, and
financial and accounting capability for DBEs and other small businesses;
• Providing services to help DBEs, and other small businesses, improve long-
term development, increase opportunities to participate in a variety of kinds
of work, handle increasingly significant projects, and achieve eventual self-
sufficiency;
• Assist in establishing a program to assist new, start-up firms, particularly in
fields in which DBE participation has historically been low;
• Ensuring distribution of our DBE directory, through print and electronic
means, to the broadest range of potential prime contractors; and
• Assisting DBEs, and other small businesses, to develop their capability to
utilize emerging technology and conduct business through electronic media
The City estimates that to meet its overall goal of 10%, it will obtain 5% from race -
neutral participation and 5% through race -conscious measures.
The City will adjust the estimated breakout of race -neutral and race -conscious
participation as needed to reflect actual DBE participation (see 26.51(f)) and track
and report race -neutral and race -conscious participation separately.
For reporting purposes, race -neutral DBE participation includes, but is not
necessarily limited to, the following:
• DBE participation through a prime contract a DBE obtains through
customary competitive procurement procedures;
• DBE participation through a subcontract on a prime contract that does not
carry a DBE goal;
• DBE participation on a prime contract exceeding a contract goal; and
• DBE participation through a subcontract from a prime contractor that did not
consider a firm's DBE status in making the award.
It is the City's goal to reduce the percentage of the overall goal obtained by race
conscious methods as the Program and the number of available DBEs further
develops.
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Contract Goals (26.51)
The City will use contract goals to meet any portion of the overall goal the City does
not project being able to meet using race -neutral means. Contract goals are
established so that, over the period to which the overall goal applies, they will
cumulatively result in meeting any portion of our overall goal that is not projected
to be met through the use of race -neutral means.
The City will establish contract goals only on those DOT -assisted contracts that
have subcontracting possibilities. The City need not establish a contract goal on
every such contract, and the size of contract goals will be adapted to the
circumstances of each such contract (e.g., type and location of work, availability of
DBEs to perform the particular type of work). The City will express its contract
goals as a percentage of the federal share of a DOT -assisted contract.
Good Faith Efforts (26.53)
Information to be submitted
The City treats bidder/offerors' compliance with good faith effort requirements as a
matter of responsibility.
Each solicitation for which a contract goal has been established will require the
bidders/offerors to submit the following information
• The names and addresses of DBE firms that will participate in the contract;
• A description of the work that each DBE will perform;
• The dollar amount of the participation of each DBE firm participation;
• Written and signed documentation of commitment to use a DBE
subcontractor whose participation it submits to meet a contract goal;
• Written and signed confirmation from the DBE that it is participating in the
contract as provided in the prime contractor's commitment; and
• If the contract goal is not met, evidence of good faith efforts.
Demonstration of good faith efforts
The obligation of the bidder/offeror is to make good faith efforts. The bidder/offeror
can demonstrate that it has done so either by meeting the contract goal or
documenting good faith efforts. Examples of good faith efforts are found in Appendix
A to 49 CFR Part 26.
The Purchasing Manager is responsible for determining whether a bidder/offeror
who has not met the contract goal has documented sufficient good faith efforts to be
regarded as responsible.
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The Purchasing Manager will ensure that all information is complete and accurate
and adequately documents the bidder/offeror's good faith efforts before committing.
to the performance of the contract by the bidder/offeror.
Administrative reconsideration
Within 15 days of being informed by the City that they (bidder/offeror) are not a
responsible bidder/offeror because they did not document sufficient good faith
efforts, a bidder/offeror may request administrative reconsideration.
Bidder/offerors should make their request in writing to the following
reconsideration official:
Glenn K. Rice
Assistant City Manager
129 North 2nd Street
Yakima, Washington, 98901.
The reconsideration official will not have played any role in the original
determination that the bidder/offeror did not document sufficient good faith efforts.
As part of this reconsideration, the bidder/offeror will have the opportunity to
provide written documentation or argument concerning the issue of whether it met
the goal or made adequate good faith efforts to doso.
The bidder/offeror will have the opportunity to meet in person with our
reconsideration official to discuss the issue of whether they met the goal or made
adequate good faith efforts to do.
The City will send the bidder/offeror a written decision on reconsideration,
explaining the basis for finding that the bidder did or did not meet the goal or make
adequate good faith efforts to do so. The result of the reconsideration process is not
administratively appealable to the Department of Transportation.
Good Faith Efforts when a DBE is replaced on a contract
The City requires that a contractor make good faith efforts to replace any DBE that
is terminated or has otherwise failed to complete its work on a contract with
another certified DBE, to the extent needed to meet the contract goal. The City
requires the prime contractor to immediately notify the DBELO of any DBE's
inability or unwillingness to perform the work and provide reasonable
documentation.
In this situation, the City shall require the prime contractor to obtain prior
approval of the substitute DBE and to provide copies of new or amended
subcontracts or documentation of good faith efforts. If the contractor fails or refuses
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to comply within the time specified, the City shall issue a stop order stopping all or
part of payment/work until satisfactory action is taken. If the contractor still fails to
comply, the City may issue a termination for default proceeding.
Counting DBE Participation (26.55)
The City will count DBE participation toward overall and contract goals as provided
in 49 CFR 26.55.
Certification (26.61 - 26.91)
The City will use the certification standards of Subpart D of part 26 and the
certification procedures of Subpart E of part 26 to determine the eligibility of firms
to participate as DBEs in DOT -assisted contracts. A firm must meet all certification
eligibility standards to be certified as a DBE. The City will make its certification
decisions decision based on the facts as a whole.
Process / Unified Certification Program
The State of Washington Office of Minority and Women's Business Enterprises has
a unified certification program. This agency also conducts certifications, re -
certifications, and decertification.
Certification Appeals
Any firm or complainant may appeal the City's decision in a certification matter to
DOT. Such appeals may be sent to:
Department of Transportation
Office of Civil Rights
Certification Appeals Branch
400 7th St., SW, Room 2104
Washington, DC 20590
The City will promptly implement any DOT certification appeal decisions affecting
the eligibility of DBEs for its DOT -assisted contracting (e.g., certify a firm if DOT
has determined that our denial of its application was erroneous).
"No Change" Affidavits and Notices of Change
The City requires all DBEs to inform the City by written affidavit of any change in
circumstances affecting a DBE's ability to meet size, disadvantaged status,
ownership or control criteria of 49 CFR part 26 or of any material changes in the
information provided with its application for certification.
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City also requires owners of all DBEs it has certified to submit on the anniversary
date of their certification a "no change" affidavit meeting the requirements of
26.83(j). The text of this affidavit is as follows:
I swear (or affirm) that there have been no changes in the circumstances of
[name of DBE firm] affecting its ability to meet the size, disadvantaged
status, ownership, or control requirements of 49 CFR part 26. There have
been no material changes in the information provided with [name of DBE]'s
application for certification, except for any changes about which you have
provided written notice to the [City] under 26.83(i). [Name of firm] meets
Small Business Administration (SBA) criteria for being a small business
concern and its average annual gross receipts (as defined by SBA rules) over
the firm's previous three fiscal years do not exceed $16.6 million.
The City requires DBEs to submit with this affidavit documentation of the firm's
size and gross receipts.
Personal Net Worth
The City will require all disadvantaged owners of applicants and of currently
certified DBEs whose eligibility under 49 CFR part 26 City review, to submit a
statement of personal net worth.
Information Collection and Reporting
Bidders List
The City will create a bidders list consisting of information about all DBE and non -
DBE firms that bid or quote on DOT -assisted contracts. The purpose of this
requirement is to allow use of the bidders list approach to calculating overall goals.
The Bidders List will include:
• The Bidders name
• Address
• DBE/non-DBE status
• Age, and
• Annual gross receipts of firms.
The City will collect this information by inserting a contract clause requiring prime
bidders to report name/addresses and other information of all firms that provide a
quote to them.
03/30/00 8.40 AM
13
Monitoring Payments to DBEs
The City will require prime contractors to maintain records and documents of
payments to DBEs for three years following the performance of their contract and to
make these records available for inspection upon request by any authorized
representative of the City or DOT. This reporting requirement also extends to any
certified DBE subcontractor.
The City will keep a running tally of actual payments to DBE firms for work
committed to them at the time of contract award and perform interim audits of
contract payments to DBEs. The audit will review payments to DBE subcontractors
to ensure that the actual amount paid to DBE subcontractors equals or exceeds the
dollar amounts stated in the schedule of DBE participation.
Reporting to DOT
DBE participation is reported to DOT as follows:
• The City will report DBE participation quarterly using DOT Form 4630.
• Reports will reflect payments actually made to DBEs on DOT assisted
contracts.
Confidentiality
The City will safeguard from disclosure to third parties information that may
reasonably be regarded as confidential business information consistent with federal,
state, and local law. Notwithstanding any contrary provisions of state or local law,
the City will not release personal financial information submitted in response to the
personal net worth requirement to a third party (other than DOT) without the
written consent of the submitter.
Attachments
Attachment A: City of Yakima Organizational Chart.
Attachment B: Actual Overall Goal Submission Developed by YVCOG
A copy of 49 CFR Parts 23 and 26; Final Rule
03/30/00 8 40 AM
14
Attachment A: Organizational Chart
Assistant
City Manager
Central Supply
Purchasing
Surplus Property
Attachment B: Overall Goal Submission
DOCUMENTATION
Methodology for Setting Goals for Participation
of Disadvantaged Business Enterprises (DBE) in
Federal Transit Administration Assisted Contracts
Review of Yakima Transit Contracts
The Yakima Valley Conference of Governments (YVCOG) staff contacted the City of
Yakima's Purchasing Office and requested copies of all contract bids or quotes where
Yakima Transit was a substantial recipient in the current federal fiscal year and in
the previous four federal fiscal years. For the purposes of this documentation,
substantial recipient is deemed to mean receiving at least 15 percent of the product or
benefit of the contract. The YVCOG received bid lists for contracts let between March
1994 to February 1999 and biyearly Disadvantaged Business Enterprise (DBE)
reports from January 1994 to September 1999. The City of Yakima also provided a
compiled list of minority vendors that contained 281 vendor firms.
A review of the City of Yakima's minority vendor's list revealed seven firms that were
certified by Washington State Office of Minority and Women's Business Enterprises
(OMWBE) as Minority Business Enterprise or Women's Business Enterprise
(MBE/WBE). Of these seven firms, five were further certified as DBE firms. A listing
of firms on the City's minority vendor's list that are certified as MBEs/WBEs or DBEs
in other states was not available.
A review of contracts let during Federal Fiscal Year (FFY) of 1999 showed three
contracts let for bid in which Yakima Transit was a substantial recipient. A total of
five bids or quotes were received on these contracts and, of the five firms bidding, one
bidder was listed by the City of Yakima and certified by the OMWBE as a DBE
contractor. One contract for $47,765 was awarded to a business owned by a DBE.
A review of biyearly DBE reports and bid tabulation and comparison sheets for FFY
1994 through FFY 1998 showed no participation by Yakima Transit in contracts
awarded in FFY 1994 and only marginal participation in contracts awarded in FFY
1995 and 1996. In FFY 1997 and 1998 Yakima Transit was a substantial recipient of
goods or services for five contracts awarded. A total of sixteen bids were received on
these contracts and of the 16 firms bidding, the City of Yakima listed two bidders as
DBE contractors. One contract for $11,216 was awarded to a DBE business.
Determination of Base Percentage Figure
Guidance for determination of goals for participation by DBEs in Department of
Transportation (DOT) programs (Chapter 49, Combined Federal Regulations, Part
26.45) suggests four methodologies for determining a base percentage goal for
participation of ready, willing and able DBEs in DOT -assisted contracts.
One methodology is to determine the; number ()treacly, willing, and able DBEs in the
local market from locally or regionally compiled lists of DBEs. The number of DBEs
can then be divided by the number of all ready, willing, and able businesses in the
local market listed in the Census Bureau's County Business Patterns to determine
the base percentage of DBEs in the local market. Another suggested methodology is
to use the results of a locally administered disparity study to determine a base
percentage goal for DBE participation in DOT -assisted contracts. A third suggested
methodology is to use the goal of another DOT recipient, adjusted for your market. A
fourth suggested methodology is to use a bidders list, taking the number of DBEs
which have bid or quoted on DOT -assisted contracts in the previous year and divide
that number by the number of all businesses which have bid or quoted on DOT -
assisted contracts in the same time period. Due to the small number of contracts
participated in by Yakima Transit in any year reviewed, it was determined by
YVCOG staff that this fourth methodology would be the most effective in periodic
updates of the DBE goals.
Disadvantage Business Enterprise Bids on Yakima Transit Contracts
Federal Fiscal Year 1995 to 1999
Year
Contracts
Bids
DBE
Bids
%DBE
Bidders
Total
Amount
Awarded
,., ,
Amount
Awarded
to DBEs
%
Amount
Awarded
to DBEs
1997 ; 1
3 0 i 0% i See $0 0%
Notes'
1998 4
13
2 1 15%
$31,839 $11,216
35%
1999
3
5
1
20%
$216,672
$47,766
22%
Total (2
8
21
3
12%
$248,511
$58,982
19%
Notes: None of the contracts awarded during Federal Fiscal Years 1995 and 1996
identified Yakima Transit as a significant participant.
(1) A contract was awarded for dial -a -ride paratransit services based on the
contractor being reimbursed on a per passenger rate for each passenger
transported.
(2) Averages are the average of the three Federal Fiscal Years when contracts
were awarded on behalf of Yakima Transit.
Taking the FFY 1998 and 1999 figures from the table above, YVCOG staff
determined that the percentage of DBEs which are interested in and willing to
participate in contracting opportunities in Yakima Transit's market is between 15
and 20 percent of all available businesses.
2
Adjustment of Base Figure
The ;:.iidance in 49 CFR, Part 26.45, paragraph (d) states: "Once you have calculated
a figure, you must examine all of the evidence available in your jurisdiction to
determine what adjustment, if' any, is needed to the base figure in order to arrive at
your overall goal." The guidance further states in paragraph (d), subsections (i), (ii),
and (iii) that the types of evidence that must be considered includes: "(i) The current
capacity of DBEs to perform work in DOT -assisted contracting programs, as
measured by the volume of work DBE's have performed in recent years; (ii) Evidence
from disparity studies conducted anywhere within your jurisdiction and not already
accounted for in your base figure; and, (iii) If your base figure is the goal of another,
you must adjust it for differences in your local market and your contracting program."
Only evidence of DBEs capacity to perform work on DOT -assisted contracts was used
because no disparity studies have been conducted in the City of Yakima and the goal
of another DOT recipient was not used. As noted in the review section of this
document, bid tabulation and comparison sheets from the City of Yakima Purchasing
Office to Yakima Transit show that of five contracts let between FFY 1997 and 1998
in which Yakima Transit was a significant participant, one DBE contractor was
awarded a contract for $11,216, or 35 percent of the total dollars awarded in contracts
let FFY 1998 in which Yakima Transit was a substantial recipient.
YVCOG Recommendation of Base Goal Adjustment
Noting the significant year-to-year fluctuation in the number and dollar amounts of
contracts let in which Yakima Transit is a participant, the limited availability of
DBEs, and the small amount of Federal Transit Administration funds being
contracted out, YVCOG staff recommends Yakima Transit adopt a three-year rolling
average goal of 10 percent DBE participation in DOT -assisted contracts. This
matches the FTA's national goal of 10 percent.
Overall Goal of Yakima Transit DBE Program
The guidance indicates once an overall goal has been determined, recipients of
Federal Transit Administration (FTA) funds should express their overall goal as a
percentage of all FTA funds (exclusive of FTA funds to be used for the purchase of
transit vehicles) that the recipients will expend in FTA -assisted contracts in the
forthcoming fiscal year. Therefore, Yakima Transit's overall goal for FFY 2000 is the
following: a three-year rolling average of 10 percent of the financial assistance
expended in FTA -assisted contracts (exclusive of FTA funds used for the purchase of
transit vehicles).
3
Basis of Goal Calculations and Adjustments,
YVCOG staff based these calculations on copies of bid documents, biyearly
participation reports, the City of Yakima's minority vendor's list, which were provide
to YVCOG staff by Sue Ownby, City Purchasing Manager and DBE Liaison Officer;
and on the directory of DBE certified firms maintained by the Washington State
Office of Minority and Women's Business Enterprises (OWMBE). The Internet
address for accessing the State's Directory is http://www.wsdot.wa.gov/omwbe.
4
Attachment C:
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Tuesday
February 2, 1999
Part 11
Department of
Transportation
Office of the Secretary
49 CFR Parts 23 and 26
Participation by Disadvantaged Business
Enterprises in Department of
Transportation Programs; Final Rule
5096 Federal Register /Vol. 64, No. 21 /Tuesday, February 2, 1999 / Rules and Regulations
DEPARTMENT OF TRANSPORTATION
Office of the Secretary
49 CFR Parts 23 and 26
[Docket OST -97-2550; Notice 97-5]
RIN 2105-AB92
Participation by Disadvantaged
Business Enterprises in Department of
Transportation Programs
AGENCY: Office of the Secretary, DOT.
ACTION: Final rule.
SUMMARY: This final rule revises the
Department of Transportation's
regulations for its disadvantaged
business enterprise (DBE) program. The
DBE program is intended to remedy past
and current discrimination against
disadvantaged business enterprises,
ensure a "level playing field" and foster
equal opportunity in DOT -assisted
contracts, improve the flexibility and
efficiency of the DBE program, and
reduce burdens on small businesses
This final rule replaces the former DBE
regulation. which now contains only the
rules for the separate DBE program for
airport concessions, with a new
regulation The new regulation reflects
President Clinton's policy to mend. not
end affirmative action programs It
modifies the Department's DBE program
in light of developments in case law
recuirir.a-narrow tailoring" of such
orograms and last year's Congressional
debate concernir., the continuation of
the DBE program It responds to
comments or. the Department's
December 1992 notice of proposed
rulemaking (NPRM) and its May 1997
supplemental notice of proposed
rulemaking (SNPRM)
DATES: This rule is effective March 4,
1999 Comments on Paperwork
Reduction Act matters should be
received by April 5, 1999: however, late -
filed comments will be considered to
the extent practicable.
ADDRESSES: Persons wishing to
comment on Paperwork Reduction Act
matters (see discussion at end of
preamble) should send comments to
Docket Clerk, Docket No OST -97-2550,
Department of Transportation, 400 7th
Street, SW . Room 4107, Washington,
DC 20590 We emphasize that the
docket is open only with respect to
Paperwork Reduction Act matters, and
the Department is not accepting
comments on other aspects of the
regulation We request that, in order to
minimize burdens on the docket clerk's
staff, commenters send three copies of
their comments to the docket.
Commenters wishing to have their
submissions acknowledged should
include a stamped, self-addressed
postcard with their comments. The
docket clerk will date stamp the
postcard and return it to the commenter.
Comments will be available for
inspection at the above address from 10
a.m. to 5:00 p.m.. Monday through
Friday.
FOR FURTHER INFORMATION CONTACT:
Robert C. Ashby, Deputy Assistant
General Counsel for Regulation and
Enforcement, Department of
Transportation, 400 7th Street, SW.,
Room 10424, Washington, DC 20590,
phone numbers (202) 366-9306 (voice),
(202) 366-9313 (fax), (202) 755-7687
(TDD), bob.ashby@ost.dot.gov (email):
or David J. Goldberg. Office of
Environmental, Civil Rights and General
Law, Department of Transportation, 400
7th Street, SW . Room 5432,
Washington, DC 20590, phone number
(202) 366-8023 (voice), (202) 366-8536
(fax)
SUPPLEMENTARY INFORMATION:
Background
The Department has the important
responsibility of ensuring that firms
competing for DOT -assisted contracts
are not disadvantaged by unlawful
discrimination For eighteen years, the
Department's most important tool for
meeting this responsibility has been its
Disadvantaged Business Enterprise
(DBE) program. This program began in
1980 Originall\ the program was a
minority/women s business enterprise
program established by regulation under
the authority of Title VI of the Civil
Rights Act of 1964 and other
nondiscrimination statutes that apply to
DOT financial assistance programs. See
49 CFR part 23
In 1983, Congress enacted, and
President Reagan signed, the first
statutory DBE provision. This statute
applied primarily to small firms owned
and controlled by minorities in the
Department's highway and transit
programs. Firms owned and controlled
by women, and the Department's airport
program, remained under the original
1980 regulatory provisions. In 1987,
Congress enacted. and President Reagan
signed. statutes expanding the program
to airports and to women -owned firms
In 1991 (for highway and transit
programs) and 1992 (for airport
programs), Congress enacted, and
President Bush signed, statutes
reauthorizing the expanded DBE
program.
After each statutory amendment, and
at other times to resolve program issues,
the Department amended part 23 The
result has been that part 23 has become
a patchwork quilt of a regulation. In
addition, years of interpretation by
various grantees and different DOT
offices has created confusion and
inconsistency in program -
administration. These problems,
particularly in the area of certification,
were criticized in General Accounting
Office reports. The Department's desire
to improve program administration and
make the rule a more unified whole led
to our publication of a December 1992
notice of proposed rulemaking (NPRM).
The Department received about 600
comments on this NPRM. The
Department carefully reviewed these
comments and. by early 1995, had
prepared a draft final rule responding to
them. However, in light of the Supreme
Court's June 1995 decision in Adarand
v. Pena and the Administration's review
of affirmative action programs, the
Department conducted further review of
the DBE program. As a result, rather
than issuing a final rule, we issued a
supplemental notice of proposed
rulemaking (SNPRM) in May 1997 This
SNPRM incorporated responses to the
comments on the 1992 NPRM and__
proposed further changes in the
program, primarily in response to the
"narrow tailoring" requirements of
Adarand. We received about 300
comments on the SNPRM The
Department has carefully considered
these comments, and the final rule
responds to them The final rule also
specifically complies with the
requirements that the courts ha'e
established for a narrowly tailored
affirmative action program.
At the same time that the Department
was working on this final rule. Congress
once again considered reauthorization
of the DBE program. In both the House
and the Senate, opponents of affirmative
action sponsored amendments that
would have effectively ended the
program. In both cases, bipartisan
majorities defeated the amendments
The final highway/transit authorization
legislation, known as the Transportation
Equity Act for the 21st Century (TEA -
21), retains the DBE program. In shaping
this final rule. the Department has
listened carefully to what both
supporters and opponents of the
program have said in Congressional
debates.
Key Points of the Final Rule
This discussion reviews and responds
to the SNPRM comments and the
Congressional debates on certain key
issues. Congressional debate references
are to the Congressional Record for
March 5 and 6, 1998, for the Senate
debate and April 1, 1998, for the House
debate, unless otherwise noted.
i1i:I;YS ' d
Federal Register /Vol. 64, No. 21 /Tuesday ,yebruary 2, 1999 / Rules and Regulations 5097
1. Quotas and Set -Asides
SNPRM Comments: Most comments
on this issue came from non -DBE
contractors, who argued that the
program was a de facto quota program.
Many of these contractors said that
recipients insisted that they meet
numerical goals regardless of other
considerations, and that the recipients
did not take showings of good faith
efforts seriously. Some non -DBE
contractor organizations argued, in
addition, that the program was a quota
program because it was based on a
statute that had a 10 percent target for
the use of businesses defined by a racial
classification.
Congressional Debate: Opponents of
the DBE program generally asserted that
it created quotas or set -asides. Senator
McConnell described the entire
program, particularly the provision that
"not less than 10 percent" of authorized
funds go to DBEs, as
' * * a $17.3 billion quota. In other
words, if the government decides that you are
the preferred race and gender, then you are
able to compete for $17 3 billion of taxpayer -
funded highway contracts But, if you are the
wrong race and gender, then—too bad—you
can't compete for that $17 billion pot.
(S1936)
The "not less than 10 percent" language
also led opponents. such as Sena:or
Asncroft, to label the program a "set-
aside " (S1405'), a terra also employed in
test,,--,onv pro\ ided 'ov a law professor
from Caiifor o'. ho said that the statute
"imposes a set-aside that's required
regardless of the availability of race -
neutral solutions " (S1407) Senator
Gorton said that the DBE statute
provides that "those not defined as
disadvantaged in our society are
absolutely barred and prohibited from
getting certain governmental contracts."
(S1415)
On the other hand, supporters of the
program were adamant that it was not
a quota program. Senator Baucus argued
that the program, as implemented by
DOT, allows substantial flexibility to
recipients and contractors. Recipients
could have an overall goal other than 10
percent under current rules, he pointed
out. Senator Kerry of Massachusetts
added that what the statute does is to
"set a national goal. And it is
appropriate in this country to set
national goals for what we will do to try
to break down the walls of
discrimination. * * *" (S1408) He also
alluded to the flexibility of the Secretary
to permit overall goals of less than 10
percent. Senator Robb stated.
I want to stress at the outset that this
program is not a "quota program," as some
have suggested There is a great difference
[between] an aspiratibitSl goal and a rigid
numerical requirement. Quotas utilize rigid
nurnerical requirements as a means of
implementing a program. The DBE program
uses aspiratiorial goals. (S1425)r.iw
With respect to individual contract
goals, Senator Baucus said. "once a goal
is established for a contract, each
contractor must make a good -faith effort
to meet the goal—not mathematically
required, not quota required. but a good
faith effort to meet it." (S1402). Senator
Baucus pointed to provisions of the
SNPRM concerning overall goals, means
of meeting them, and good -faith efforts
as further narrowly tailoring the
program. The SNPRM confirms, he said,
that "contract goals are not binding. If
a contractor makes good faith efforts to
find qualified women or minority-
owned subcontractors, but fails to meet
the goal. there is no penalty." (S1403).
Senator Robb added that "Contract goals
are not operated as quotas because they
require that the prime contractor make
'good faith efforts' to find DBEs If a
prime contractor cannot find qualified
and competitive DBEs. the goal can be
waived." (S1425)
One of the Senators who addressed
the quota/set-side issue in the most
detail was Senator Domenici He
concluded that ' 1 do not agree that this
minority business prograrn we have in
this ISTEA bill before us is a program
that mandates cuctas and mandates set -
asides (51-125) He made this
statement. in par:. on the basis of March
5 1998. iette- to n:m signed b%
Secretary of Transportation Rodney
Slater and Attorney General Janet Reno
In relevant part, this letter (which
Senator Domenici inserted into the
record) read as follows.
The 10 percent figure contained in the
statute is not a mandatory set aside or rigid
quota. First, the statute explicitly provides
that the Secretary of Transportation may
waive the goal for any reason * * * Second,
in no way is the 10 percent figure imposed
on any state or locality * * * Moreover, state
agencies are permitted to waive goals when
achievement on a particular contract or even
for a specific year is not possible. The DBE
program does not set aside a certain
percentage of contracts or dollars for a
specific set of contractors. Nor does the DBE
program require recipients to use set -asides.
The DBE program is a goals program which
encourages participation without imposing
rigid requirements of any type. Neither the
Department's current nor proposed
regulations permit the use of quotas. The
DBE program does not use any rigid
numerical requirements that would mandate
a fixed number of dollars or contracts for
DBEs. (S1427)
The debate in the House proceeded in
similar terms Opponents of the DBE
program, such as Representative
Roukema (H2000), Representative Cox
(H2004) and Speaker Gingrich (H2009)
said the legislation constituted a quota,
while proponents, such as
Representatives Tauscher (H2001),
Poshard (H2003). Bonior (H2004) and
Menendez (H2004) said the program did
not involve quotas or set -asides.
DOT Response: The DOT DBE
program is not a quota or set-aside
program, and it is not intended to
operate as one. To make this point
unmistakably clear, the Department has
added explicitly worded new or
amended provisions to the rule.
Section 26.41 makes clear that the 10
percent statutory goal contained in
ISTEA and TEA -21 is an aspirational
goal at the national level. It does not set
any funds aside for any person or group.
It does not require any recipient or
contractor to have 10 percent (or any
other percentage) DBE goals or
participation. Unlike former part 23, it
does not require recipients to take any
special administrative steps (e.g ,
providing a special justification to DOT)
if their annual overall goal is less than
10 percent. Recipients must set goals
consistent with their own circumstances
(see § 26 45) There is no direct link
between the national 10 percent
aspirational goal and the way a recipient
operates its program. The Department
will use the 10 percent goal as a means
of evaluating the overall performance of
the DBE program nationwide For
example, if nationwide DBE
participation were to drop
precipitously, the Department would
reevaluate its efforts to ensure
nondiscriminatory access to DOT -
assisted contracting opportunities.
Section 26 43 states flatly that
recipients are prohibited from using
quotas under any circumstances. The
section also prohibits set -asides except
in the most extreme circumstances
where no other approach could be
expected to redress egregious
discrimination. Section 26 45 makes
clear that in setting overall goals,
recipients aspire to achieving only the
amount of DBE participation that would
be obtained in a nondiscriminatory
market. Recipients are not to simply
pick a number representing a policy
objective or responding to any particular
constituency
Section 26 53 also outlines what
bidders must do to be responsive and
responsible on DOT -assisted contracts
having contract goals. They must make
good faith efforts to meet these goals.
Bidders can meet this requirement
either by having enough DBE
participation to meet the goal or by
documenting good faith efforts, even if
those efforts did not actually achieve the
5098 Federal Register /Vol. 64, No. 21 /Tuesday, February 2, 1999 / Rules and Regulations
goal. These means of meeting contract
goal requirements are fully equivalent.
Recipients are prohibited from denying
a contract to a bidder simply because it
did not obtain enough DBE participation
to meet the goal. Recipients must
seriously consider bidders'
documentation of good faith efforts. To
make certain that bidders' showings are
taken seriously, the rule requires
recipients to offer administrative
reconsideration to bidders whose good
faith efforts showings are initially
rejected.
These provisions leave no room for
doubt: there is no place for quotas in the
DOT DBE program. In the Department's
oversight, we will take care to ensure
that recipients implement the program
consistent with the intent of Congress
and these regulatory prohibitions.
2. Sanctions for Recipients Who Fail To
Meet Overall Goals
SNPRM Comments: The issue of
sanctions for recipients who fail to meet
overall goals was not a subject of
comments on the SNPRM. Since the
Department has never imposed such
sanctions, this absence of comment is
not surprising
Congressional Debate. DBE program
opponents asserted, in connection with
their argument that the DBE program is
a quota program, that the Department
could .moose sanctions for failure to
meet goals "The goals have
requirements and the real threat of
San.t_C Sena:Or McConnell said.
S1.1.88; Citing a provision of a Federal
High'.vav Administration (FHWA)
manual saying that if "a state has
violated or failed to comply with
Federal laws or * * * regulations,"
FHWA could withhold Federal funding,
Senator McConnell said,
In other words, there are sanctions. The
same threats appear in * * the Federal
transportation regulations * * * When the
Federal government is wielding that kind of
weapon from on high, it does not have to
punish them. A 10 percent quota is still a
quota, even if the States always comply and
no one is formally punished. (Id.)
Defenders of the DBE program
pointed out that the Department had
never punished a recipient for failing to
meet an overall goal (e g., Rep
Tauscher, H2001, Senator Boxer,
51433) Senator Domenici asked
Secretary Siater and Attorney General
Reno whether there are sanctions,
penalties, or fines that may be (or ever
have been) imposed on a recipient who
does not meet DBE program goals. He
entered the following reply in the
record.
No state has ever been sanctioned by DOT
for not meeting its goals Nothing in the
statute or regulations imposes sanctions on
any state recipient that has attempted in good
faith, but failed. to meet its self-imposed
goals. (S1427).
Senator Lieberman added that if states
fail to meet their own goals, "there is no
Federal sanction or enforcement
mechanism." (S1493).
DOT Response: The Department has
never sanctioned a recipient for failing
to meet an overall goal. We do not
intend to do so. -To eliminate any
confusion, we have added a new
provision (S 26 47) that explicitly states
that a recipient cannot be penalized, or
treated by the Department as being in
noncompliance with the rule, simply
because its DBE participation falls short
of its overall goal. For example, if a
recipient's overall goal is 12 percent.
and its participation is 8 percent, the
Department cannot and will not
penalize the recipient simply because
its actual DBE participation rate was
less than its goal.
Overall goals are not quotas. and the
Department does not sanction recipients
because their participation levels fall
short of their overall goals Of course, if
a recipient does not have a DBE
program, does not set a DBE goal, does
not implement its DBE program in good
faith, or discriminates in the way it
operates its program it can be found in
noncompliance Eut its noncompliance
would never ..e ha .rg failed to ' make
a number
3 Econcnic Disad'.'anrage
SNPRM Cornmenrs. Some
commenters favored eliminating the
presumption of economic disadvantage,
saying that applicants should have to
prove their economic disadvantage.
Other commenters favored obtaining
additional financial information from
applicants so that, even if the
presumption remained in force,
recipients would have a better idea of
whether applicants really were
disadvantaged. The question of the
standard for determining disadvantage
generated substantial comment, with
some commenters favoring, and others
objecting to, the proposed use of a
personal net worth standard to assist
recipients in determining whether an
applicant was economically
disadvantaged. There was also
disagreement among commenters
concerning the level at which such a
standard should be set (e g , $750,000,
or something higher or lower). These
comments, and the Department's
response to them, are further discussed
in the section -by -section analysis for
§ 26.67.
Congressional Debate The Congress
debated the topic of who is regarded as
economically disadvantaged under the
statute. DBE opponents. including
Senators Ashcroft (S1405) and
McConnell (S1418) and Representative
Cox (H2004), asserted that outrageously
rich people could be eligible to
participate as DBEs, frequently using the
Sultan of Brunei as an example. The
basic thrust of their argument was that
if the program does not exclude wealthy
members of the designated groups—
meaning those who are not. in fact,
disadvantaged—then it is
"overinclusive" and therefore not
narrowly tailored. Senator McConnell
added that, because the Department's
SNPRM did not include a specific dollar
amount for a cap on personal net worth,
it would not be effective. (S1486). On
the other hand. DBE program supporters
cited the SNPRM's proposed net worth
cap as an effective device to stop
wealthy people from participating in the
program. These included Minority
Leader Daschle (with a reference to a
letter from the Associate Attorney
General, S1413), Senator Baucus (S1414,
S1423), Senator Lieberman (S1493),
Senator Boxer (S1433), and Senator
Moseley -Braun, who responded to the
Sultan of Brunei example by noting that
the program was directed primarily at
U S citizens (S1420)
DOT Response. The final rule
(§26 67) specifically imposes a personal
net worth cap of S750,000 This means
that, regardless of race. gender or the
size of their business, any individual
whose personal net worth exceeds
S750,000 is not considered
economically disadvantaged and is not
eligible for the DBE program. The
provision also makes it much easier for
recipients to determine whether an
individual's net worth exceeds the cap
Applicants will have to submit a
statement of personal net worth and
supporting documentation to the
recipient with their applications. If the
information shows net worth above the
cap. the recipient would rebut the
presumption based on the information
in the application itself and the
individual would not be eligible for the
program In such a case, it would not be
necessary for a third party to challenge
the economic disadvantage of an
applicant in order to rebut the
presumption. While there have been
very few documented cases of wealthy
individuals seeking to take advantage of
the Department's program, the revised
provisions of part 26 virtually eliminate
even the possibility of this type of
abuse.
4. Social Disadvantage
SNPRM Comments. A few
commenters suggested that the
'Y"' ,. "1.ndt a-:'F'tS.'.
Federal Register / Vol. 64, No. 21 / Tuesday,; -February 2, 1999 / Rules and Regulations 5099
presumption of social disadvantage, as
well as that of economic disadvantage,
be eliminated, so that applicants would
have to demonstrate both elements of
disadvantage. Any presumption of
disadvantage tied to a racial
classification, in the view of some of
these commenters, undermined the
constitutionality of the program. Other
commenters noted that persons who are
not members of the presumptively
disadvantaged groups can be eligible
and, in some cases, suggested that the
criteria for evaluating such applications
be clarified.
Congressional Debate: The
presumption of social disadvantage
drew fire from DBE program opponents
because it was allegedly overinclusive.
For example, Senator McConnell
produced a map illustrating the over
100 countries of origin leading to
inclusion in one of the presumed
socially disadvantaged groups. pointing
out that people from some countries
(e:g , Pakistan) are presumed to be
socially disadvantaged while those from
other countries (e g , Poland) are not.
(S1418) Senator McConnell said that
there was no basis for selecting this
definition over any other. (Id.) Senator
Hatch also listed the countries from
which Asian -Pacific Americans and
Subcontinent Asian -Americans can
originate, suggesting that it was
inappropriate to create "all kinds of
specia: interest groups who are vying for
these programs " (5141 i)
DBE proponents responded that
discrimination against minorities and
women in general, and against specific
minorities in particular (e.g , African
Americans) was very real and formed a
basis for the presumption of social
disadvantage (see discussion below
concerning the existence of
discrimination) Senator Baucus also
noted that this presumption could be
overcome. (S1402).
Opponents also charged that the
presumption of social disadvantage was
underinclusive, that is, "you
underinclude people who have a right
to be included in the bid process "
(Senator McConnell, S1399) The people
who are not included who have a right
to be, in the view of opponents, are
white males (e.g., Senator Sessions'
reference to testimony from Adarand
Constructors' owner, S1400) Senator
Kennedy disagreed with this assertion,
saying
Of course, this program doesn't just help
women and minorities. It extends a helping
hand to firms owned by white males. as well.
They can be certified to [participate] if they
prove that they have been disadvantaged. Just
ask Randy Pech—owner of the Adarand
Construction Firm 'because he is currently
seeking certification. (S1482).
Senator Domenici was interested in the
same question,.and entered,into the
record the following response from
Secretary Slater and Attorney General
Reno.
Any individual owning a business may
demonstrate that he is socially and
economically disadvantaged, even If that
individual is not a woman or a minority.
Both the current and proposed regulations
provide detailed guidance to recipients to
assist them in making individual
determinations of disadvantaged status, And,
in fact, businesses owned by white males
have qualified for DBE status. (S1427).
DOT Response: By having passed the
DBE statutory provision. after lengthy
and specific debate, Congress has once
again determined that members of the
designated groups should be presumed
socially disadvantaged. All of these
groups are specifically incorporated by
reference in the legislation that Congress
debated and approved. This
presumption (i.e., a determination that
it is not necessary for group members to
prove individually that they have been
the subject of discrimination or
disadvantage) is based on the
understanding of Members of Congress
about the discrimination that members
of these groups have faced The
presumption is rebuttable in the DOT
program If a recipient or third'party
determines that there is a reasonable
basis for concluding that an individual
from one of the designated groups is not
socially disadvantaged it can pursue a
proceeding under § 26 87 to remove the
presumption. Likewise, a white male, or
anyone else who is not presumed to be
disadvantaged. can make an individual
showing of social and economic
disadvantage and participate in the
program on the same basis as any other
disadvantaged individual (see § 26 67).
5 The "Low -Bid System"
SNPRM Comments. Non -DBE
contractors expressed concern that a
variety of provisions under the program
and the SNPRlv1 adversely affected the
low -bid system, including contract
goals, evaluation credits, and good faith
efforts guidance concerning prime
contractors' handling of subcontractor
prices and consideration of other
'bidders' success in meeting goals.
Congressional Debate: Opponents of
the DBE program assert that the program
results in white male contractors not
receiving contracts they would
otherwise expect to receive. Senator
Sessions cited the statement of the
Adarand company to this effect.
(S1400) Senator Ashcroft said that "if
two bids come in from two
subcontractors, one owned by a white
male and the other by a racial minority,
and the bids are the same, or even close,
the job'will go to the minority-owned
company, not the low bidder." (S1405)
Senator Gorton inserted into the record
letters from a Spokane subcontractor
asserting that, in a number of cases, it
had lost subcontracts to DBE firms
despite having a lower quote. (SI415-
16). Representative Roukema also cited
examples of firms who made similar
assertions. (H2000).
In contrast. DBE program proponents
argued that the program was about
leveling the playing field for DBEs.
Senator Moseley -Braun cited letters
from her constituents for the point that
* ' ' the DBE program is not about taking
away contracts from qualified male -owned
businesses and handing them over to
unqualified female -owned firms. The
program is not about denying contracts to
Caucasian low bidders in favor of higher bids
that happen to have been submitted by
Hispanics or African Americans or Asians or
women. (S1420)
Without such a program, her
constituents' letters said, they would
lose the chance to compete. (Id.) Citing
testimony from a Judiciary Committee
hearing. Senator Kennedy noted that it
was the experience of some DBEs that
white male prime contractors had
accepted higher bids from other firms to
avoid working with DBEs (S1430)
tt by would a general contractor accept a
higher bid? it doesn't make sense unless you
remember that the traditional business
network doesn t include women or
minorities * * * [A woman business owner
testified] that some general contractors would
rather lose money than deal with female
contractors. (Id.)
DOT Response. For the most part,
statutory low -bid requirements exist
only at the prime contracting level. That
is, state and local governments, in
awarding prime contracts, must select
the low bidder in many procurements
(there may be exceptions in some types
of purchases) Nothing in this regulation
requires, under any circumstances, a
recipient to accept a higher bid for a
prime contract from a DBE when a non -
DBE has presented a lower bid. This
rule does not interfere with recipients'
implementation of state and local low -
bid legislation.
The selection of subcontractors by a
prime contractor is typically not subject
to any low -bid requirements under state
or local law Prime contractors have
unfettered discretion to select any
subcontractor they wish. Price is clearly
a key factor, but nothing legally compels
a prime contractor to hire the
subcontractor who makes the lowest
quote Other factors, such as the prime
5100 Federal Register /Vol. 64, No. 21 /Tuesday. February 2, 1999 /Rules and Regulations
contractor's familiarity and experience
with a subcontractor, the quality of a
subcontractor's work, the word-of-
mouth reputation of the subcontractor
in the prime contracting community, or
the prime's comfort or discomfort with
dealing with a particular subcontractor
can be as or more important than price
in some situations. It is in this context
that § 26.53 requires that prime
contractors make good faith efforts to
achieve DBE contract goals. The rule
does not require that recipients ignore
price or quality, let alone obtain a
certain amount of DBE participation
without regard to other considerations.
The good faith efforts requirements are
intended to ensure that prime
contractors cannot simply refuse to
consider qualified, competitive DBE
subcontractors. At the same time. the
good faith efforts waiver of contract
goals serves as a safeguard to ensure that
prime contractors will not be forced into
accepting an unreasonable or excessive
quote from a DBE subcontractor
6. Constitutionality
SItiPRM Comments. Non -DBE
contractors and their groups argued that
the SNPRM proposals, particularly with
respect to overall goals and the use of
race -conscious measures. failed to meet
the Adarand narrow tailoring test. Many
of these commenters said that the
o'-era:i goals were suspect because they
did not adequately consider the capacity
of DEEs to perform contracts and
4.darnnd requires that race -conscious
measures may be used only after a
recipient has demonstrated that race -
neutral means have failed. The use of
presumptions based on racial
classifications was viewed as
intrinsically unconstitutional by these
commenters, many of whom cited the
language of Judge Kane's decision in the
Adarand remand to this effect. Some
commenters also contended that, absent
recipient -specific findings of compelling
need, the program could not be
constitutional They said that existing
information alleging compelling
interest -such as various disparity
studies or information compiled by the
Department of Justice -was inadequate
to meet the compelling interest test.
DBEs and recipients who commented
defended the constitutionality of the
program, often citing experience with
discrimination in the marketplace and
contending that the SNPRM succeeded
in narrowly tailoring the program.
Congressional Debate: Proponents and
opponents of the DBE program
extensively debated the
constitutionality of the DBE statutory
provision and the entire DBE program.
Generally, opponents argued that the
Supreme Court and District Court
decisions in Adarand rendered the
program unconstitutional, while
proponents said that the decisions did
not have that effect.
Proponents and opponents of the DBE
program agreed that the Supreme
Court's Adarand decision established a
two-part test for the constitutionality of
a program that uses a racial
classification. The program must be
based on a compelling governmental
interest and be narrowly tailored to
further that interest (e.g., Senator
McConnell, S1396, Senator Baucus,
S1403). Opponents relied on the finding
of a Colorado district court on remand
that the program was not narrowly
tailored and was thus unconstitutional
(Senator McConnell, S 1396; Senator
Ashcroft, S1405). Proponents replied
that the remand decision represented
the views of only one district court
(Senator Baucus, S1403), that it failed to
properly apply the reasoning of the
Supreme Court decision with respect to
narrow tailoring (Senator Domenici,
51425), and that the Department's
forthcoming regulations would ensure
that the program was narrowly tailored
(see discussion below).
A. Compelling Interest
(1) Existence of Discrimination.
Proponents (and some opponents) of the
DBE provision said that discrimination
and/or disadvantage with respect to
minorities and/or women persists. In
the House, these included
Representative Roulema (H2000-01),
Representative Norton (H2003),
Representative Poshard (H2003),
Representative Menendez (H2004),
Representative Davis of Illinois (H2005),
Representative Boswell (H2005),
Representative Lampson (H2006),
Representative Kennedy (H2006),
Representative Jackson -Lee (H2006),
Representative Edwards (H2007),
Representative Andrews (H2007),
Representative Rodriguez (H2008),
Representative Towns (H2010),
Representative Dixon (H2010), and
Representative Millender-McDonald
(H2011). DBE opponents typically
remained silent on this point. neither
affirming nor denying the existence of
discrimination against women and
minorities.
There was a similar pattern in the
Senate debates Opponents typically did
not address the present existence of
discrimination or disadvantage with
respect to minorities and women or its
continuing effects, spoke of such
discrimination as something that existed
in the past (Senator.Sessions, S1399,
Senator Hatch, 51411), or asserted that
race -based disadvantage or
discrimination no longer exists (Senator
Ashcroft, S1406)
The Senators who said that such
discrimination persists included
Senator Baucus (S1403, S1413, S1496),
Senator Warner (S1403), Senator Kerry
(S1408), Senator Wellstone (S1410),
Senator Moseley -Braun (S1419-20),
Senator Robb (S1422); Senator
Brownback (S1423-24), Senator
Domenici (S1425-26), Senator Kennedy
(S1429-30, S1482), Senator Specter
(S1485), Senator McCain (S1489),
Senator Lautenberg (S1490), Senator
Durbin (S1491), Senator Daschle
(S1492), Senator Lieberman (S1493),
Senator Bingaman (S1494), Senator
Murray (S1495), and Senator Dorgan
(S1495).
(2) Evidence of discrimination or
disadvantage. In comments on the
passage of the TEA -21 conference
report in the Senate. Senator Chafee
noted a Colorado Department of
Transportation disparity study that
found a disproportionately small
number of women- and minority-owned
contractors participating in that state's
highway construction industry. More
than 99 percent of contracts went to
firms owned by white men.
(Congressional Record, May 22, 1998,
S5413) In the House discussion of the
conference report, Representative
Norton presented an extensive summary
of relevant evidence of discrimination
forming the basis for a compelling need
for the DBE program. (H3957)
Throughout the debate, the Members
who affirmed the existence of
discrimination and/or disadvantage
asserted a number of factual bases for
concluding that the DBE program was
necessary This information is Iargely
drawn from the Senate debate, the
briefer House debate contains less,
detail.
Senator Baucus cited disparities
between the earnings of women and
men and between the percentage of
small businesses women own and the
percentage of Federal procurement
dollars they receive. He also noted that
minorities make up 20 percent of the
population, own 9 percent of
construction businesses, and get only 4
percent of construction receipts.
(S1403) Finally, Senator Baucus, via a
letter from the Associate Attorney
General, cited to numerous
Congressional findings concerning the
effects of discrimination in the
construction industry and in DOT -
assisted programs. (S1413).
Senator Kerry added that women own
9 2 percent of the nation's construction
firms but their companies earn only
about half of what is earned by male -
owned firms (S1409) Senator Robb
Federal Register/ Vol. 64, No. 21 /Tuesday, -,February 2, 1999 / Rules and Regulations 5101
commented that the evidence of racially
based disadvantage is "compelling and
disturbing." He continued, stating that,
"White -owned construction firms
receive 50 times as many loan dollars as
African-American owned firms that
have identical equity." (S1422). Senator
Kennedy said that the playing field for
women and minorities and other
victims of discrimination was still not
level. Job discrimination against
minorities and the "glass ceiling" for
women still persisted, he said, adding
that "Nowhere is the deck stacked more
heavily against women and minorities
than in the construction industry "
(S1429) He cited a number of instances
in which minority or female contractors
encountered overt discrimination in
trying to get work. (51429-30).
Senator Lautenberg said that, for
transportation -related contracts,
minority-owned firms get only 61 cents
for every dollar of work that white male -
owned businesses receive The
comparable figure for women -owned
firms was 48 cents. He also mentioned
that "women -owned businesses have a
lower rate of loan delinquency, yet still
have far greater difficulty in obtaining
loans." (S1490) He then spoke of the
continuing effects of past
discrimination
Jim Crow laws were wiped off the books
over 3C years ago However, their pernicious
effects on :he construction industry remain.
Transportation construction has historically
relied on the old boy network which. u ,;_1
the last decade :as almost exclusively a
white, old boy network. ' ` ' This is an
tr.dustr' that relies heavily on business
friendships and relationships established
decades. sometimes generations, ago—years
before minority-owned firms were even
allowed to compete. (Id.)
Senator Durbin referred to recent
studies concerning job bias against
minorities and women. (S1491) Senator
Lieberman referred generally to
previous Congressional committee
findings and testimony concerning still -
existing barriers to full participation for
minorities and women. (S1493) He also
cited the May 1996 Department of
Justice survey of discrimination and its
effects in business and contracting He
referred to a recent study in Denver
showing that African Americans were 3
times, and Hispanics 1 5 times, more
likely than whites to be rejected for
business loans Senator Daschle
summed up by saying, "[tlhere is clearly
a compelling interest in addressing the
pervasive discrimination that has
characterized the highway construction
industry " (S1492)
Throughout the portion of the debate
described above, many of the Members
stressed that goal -based programs like
the DBE program were the only effective
way to combat the continuing effects of
discrimination.
Senator Baucus cited the experience
of Michigain;''in` which DBE'participation
in the state -funded portion of the
highway program fell to zero in a nine-
month period after the state terminated
its DBE program, while the Federal DBE
program in Michigan was able to
maintain 12.7 percent participation.
(S1404). Senator Kerry also raised the
Michigan example, and went on to cite
similar sharp decreases in DBE
participation when Louisiana,
Hillsborough County, Florida, and San
Jose, California, eliminated affirmative
action programs covering state- and
locally -funded programs. Senator Kerry
asked rhetorically:
* * * is that just the economy of our
country speaking, an economy at one
moment that is capable of having 12 percent
and at another moment, where they lose the
incentive to do so, to drop down to zero, to
drop down by 99 percent, to drop down by
80 percent. to have 4 at the State level while
at the Federal level there are 12 percent? You
could not have a more compelling interest if
you tried. * * * (S1409-10)
Senator Moseley -Braun added the
examples of Arizona, Arkansas, Rhode
Island, and Delaware to the jurisdictions
cited by other members where state -
funded projects without a DBE program
have significantly less DBE participation
than Federally funded projects subject
to the DBE program. She added, "Where
there are no DBE programs women- and
minority-owned small businesses are
shut out of highway construction."
(S1420-21) Senator Kennedy added
Nebraska, Missouri, Tampa and
Philadelphia to the list of jurisdictions
that experienced precipitous drops in
DBE participation after goals programs
ended. (S1429-30: S1482). He also cited
comments from DBE companies that
goal programs were needed to surmount
discrimination -related barriers. (S1482).
Senator Domenici repeated many of the
same points as previous DBE
proponents concerning the basis for
concluding that the program was
needed (S1426). as did Senator
Kempthorne. (51494)
Senator Robb emphasized that the
DBE program was essential to combating
discrimination and ensuring economic
opportunity, explicitly linking the fall-
off in DBE participation to continuing
discrimination.
Where DBE programs at the State level
have been eliminated, participation by
qualified women and qualified minorities in
government transportation contracts has
plummeted. There is no way to know
whether this discrimination is intentional or
subconscious, but the effect is the same. This
experience demonstrates the sad but
inescapable truth that. when it comes to
providing economic opportunities to women
and minorities, passivity equals inequality
(S1422).
3. Narrow tailoring.—DBE proponents
cited the Department's proposed DBE
rule as the vehicle that would ensure
that the DBE program would be
narrowly tailored. They cited features of
the SNPRM including a new mechanism
for calculation of overall goals, giving
priority to race -neutral measures in
meeting goals, a greater emphasis on
good faith efforts, DBE diversification,
added flexibility for recipients, net
worth provisions, ability to challenge
presumptions of social and economic
disadvantage, and flexibility in goal -
setting. In comments on the Senate
consideration of the TEA -21 conference
report, Senator Baucus concluded by
saying:
As I explained in my statements during the
debate cn the McConnell amendment ' * *
the program is narrowly tailored, both under
the current and the new regulations. which
emphasize flexible goals tied to the capacity
of firms in the local market, the use of race -
neutral measures. and the appropriate use of
waivers for good faith efforts. (Congressional
Record, May 22. 1998; S5414)
Following Senator Baucus' remarks,
Senator Chafee, Chairman of the
committee of jurisdiction, requested that
he be associated with Senator Baucus'
remarks on constitutionality (S5414)
DBE opponents denied that regulatory
change could result in a narrowly
tailored program. Senator Smith said
"The administration s attempt to
comply with the Court's decision by
fiddling around with the DOT
regulations does not meet the
constitutional litmus test." (S1398) The
most frequent argument against the
efficacy of regulatory change was that a
racial classification is inherently unable
to be narrowly tailored. (Senator
Sessions, 51399-1400: Senator Ashcroft,
S 1407)
DOT Response: The 1998 debate over
DBE legislation was the most thorough
in which Congress has engaged since
the beginning of the program The
record of this debate clearly supports
the Department's view that there is a
compelling governmental interest in
remedying discrimination and its effects
in DOT -assisted contracting Congress
clearly determined that real, pervasive,
and injurious discrimination exists.
Congress backed up that determination
with reference to a wide range of factual
material, including private and public
contracting. DOT -assisted and state -and
locally -funded programs and the
financing of the contracting industry By
retaining the DBE statutory provisions
5102 Federal Register /Vol. 64, No. 21 /Tuesday, February 2, 1999 /Rules and Regulations
against this factual background,
Congress clearly found that there was a
compelling governmental interest in
having the program.
The courts, including the court in the
Adarand Constructors Inc. v. Pena, 965
F.Supp. 1556 (D Colo., 1997) and the
court in In re: Sherbrooke Sodding, 6-
96—CV-41 (D. Minn. 1998), agree that
Congress has the power to legislate on
a nationwide basis to address
nationwide problems. Congress has a
unique role as the national legislature to
look at the whole of the United States
for the basis to find a compelling
governmental interest supporting the
use of race -based remedies. Congress is
not required to make particularized
findings of discrimination in individual
localities to which a nationwide
program may apply. Nor is Congress
required to find that the Federal
government itself has discriminated
before applying a race -conscious
remedy (Id. at 1573)
Having reviewed the extensive
evidence of discrimination and its
relationship to DOT -assisted
contracting, the District Court in
Adarand determined that current and
previous DBE provisions were a
"considered response by Congress to the
effects of discrimination on the ability
of minorities to participate in the
mainstream of federal contracting " (Id.
at 1576) The court stated that "Congress
has a strong basis in evidence for
enacting the challenged statutes, which
thus serve a compelling governmental
interest ' ' (Id. at 1577) The extensive
Congressional debate and information
supporting the enactment of the 1998
DBE provision significantly strengthens
the existing basis for declaring that this
program serves a compelling
governmental interest.
The basis for District Court's view that
the program at issue in Adarand is
unconstitutional is stated most clearly
in the following passage
Contrary to the [Supreme] Court's
pronouncement that strict scrutiny is not
fatal in fact,' I find it difficult to envisage a
race -based classification that is narrowly
tailored. By its very nature, such [a] program
is both underinclusive and overinclusive. (Id.
at 1580)
By underinclusive, the court said it
meant that caucasians and members of
non -designated minority groups are
excluded. By overinclusive, it said it
meant that all the members of the
designated groups are presumed to be
economically and/or socially
disadvantaged, without Congress having
inquired whether a particular entity
seeking a racial preference has suffered
from the effects of past discrimination
(citing the Supreme Court's Croson
decision, which concerned the powers
of state and local governments to use
race -based remedies). (Id.)
As Senator Domenici pointed out
(S1425), the key words in the District
Court's opinion are "Contrary to the
[Supreme] Court's pronouncement.
* * *" The District Court's analysis
departs markedly from the controlling
decision of the Supreme Court on this
issue (Adarand v. Pena, 515 U.S. 200
(1995)). The Supreme Court's language
with which the District Court disagreed
is the following:
Finally, we wish to dispel the notion that
strict scrutiny is "strict in theory. but fatal in
fact." [citation omitted} The unhappy
persistence of both the practice and the
lingering effects of racial discrimination
against minority groups in this country is an
unfortunate reality, and government is not
disqualified from acting in response to it
* * * When race -based action is necessary to
further a compelling interest. such action is
within constitutional constraints if it satisfies
the "narrow tailoring" test this Court has set
out in previous cases. (515 U.S. at 237)
The Supreme Court evidently considers
the "not fatal in fact" language to have
continuing vitality, having cited it in a
subsequent case (U S. v. Virginia, 518
U S. 515, note 6 (1996))
Under the District Court's analysis,
Congress could never use a race -based
classification, no matter how
compelling the need. because any such
classification would intrinsically fail to
be narrowly tailored. This approach
effectively moots the determination of
whether there is a compelling
governmental interest. The Supreme
Court's approach, by contrast, permits a
racial classification to be used, given the
existence of a compelling interest, if it
is narrowly tailored.
What is the test for narrow tailoring?
As set forth in United States v. Paradise,
480 U S 149, 171 (1987), the test
includes several factors: "the necessity
for relief and the efficacy of alternative
remedies; the flexibility and duration of
the relief, including the availability of
waiver provisions, the relationship of
the goals to the relevant labor market;
and the impact of the relief on the rights
of third parties." In Adarand, the
Supreme Court specifically invited
inquiry into whether there was any
consideration of the use of race -neutral
means to increase minority business
participation (related to the efficacy of
alternative remedies) and whether the
program was appropriately limited so
that it will not last longer than the
discrimination it is designed to
eliminate (related to the duration of
relief) (515 U.S at 238)
This final rule successfully addresses
each element of this test:
• The necessity of relief. Throughout
the debate on the compelling
governmental interest. the bipartisan
majority of both houses of Congress
repeatedly described the necessity of the
DBE program's goal -based approach to
remedying the effects of discrimination
in DOT -assisted contracting. The most
significant evidence demonstrating the
necessity of a goal -oriented program is
the evidence cited of the fall-off in DBE
participation in state contracting when
goal -oriented programs end, compared
to participation rates in the Federal DBE
program.
• Efficacy of alternative remedies.
This element of the narrow tailoring
standard is related to the Supreme
Court's inquiry concerning race -neutral
programs. Under § 26.51 of this rule,
recipients are required to meet the
maximum feasible portion of their
overall goals by using race -neutral
measures. Recipients are not required to
have contract goals on each contract.
Instead. they are instructed to use
contract goals only for any portion of
their overall goal they cannot meet
through race -neutral measures. Contract
goals are intended as a safety net to be
used when race -neutral means are not
effective to ensure that a recipient can
achieve "level playing field." Moreover,
the regulations provide that recipients
must reduce the use of contract goals
when other means are sufficient to meet
their overall goals This ensures that
race -conscious relief is used only to the
extent necessary and is rerlaced by
race -neutral as quickl\ .)ssible
• Flexibility of relies ..bility is
built into the program ariety of
ways. Recipients set ti^ x n goals,
based on local market _ __tions; their
goals are not imposed _ federal
government nor do rec.,_ .:pts have to tie
them to any uniform national
percentage. (§ 26 45) Recipients also
choose their own method for goal
setting and can choose to base the goal
on the evidence that they believe best
reflects their market conditions.
(§ 26.45) Recipients have broad
discretion to choose whether or not to
use a goal on any given contract, and if
they do choose to use a contract goal,
they are free to set it at any level they
believe is appropriate for the type and
location of the specific work involved.
626.51). The rule also ensures
flexibility for contractors by requiring
that any contract goal be waived entirely
for a prime contractor that demonstrates
that it made good faith efforts but was
still unable to meet the goal. (§ 26.53).
The rule also allows recipients that
believe they can achieve equal
opportunity for DBEs through different
approaches to get waivers releasing
Federal Register /Vol. 64, No. 21 / Tuesday, =February 2, 1999 / Rules and Regulations 5103
them from almost any of the specific
requirements of the rule. (§ 26.103).
Recipients can also get exemptions from
the rule if they have unique
circumstances that make complying
with the rule impractical. (§ 26.103).
• Duration of relief. The TEA -21 DBE
program will end in 2004 unless
reauthorized by the Congress. In each
successive reauthorization bill for the
surface transportation and airport .
programs. Congress will have the
opportunity to examine the current state
of transportation contracting and
determine whether the DBE program
statutes are still necessary to remedy the
continuing effects of discrimination. In
addition. the duration of relief for
individuals and firms are limited by the
personal net worth threshold and
business size caps. When an
individual's personal wealth grows
beyond the threshold, he or she will
lose the presumption of disadvantage.
(5 26 67) Similarly. when a firm's
receipts grows beyond the small
business size standards, it loses its
eligibility to participate in the program.
(5 26 65) Finally, to ensure that race -
conscious remedies are not used any
longer than absolutely necessary,
5 26 51 requires recipients to reduce the
use of contract goals and rely cn race -
neutral measures to the extent that they
are effective
• Re!auonshid of goais to the relevant
marker The overall goal setting
provisions of § 26 45 require that
recipient set overall goals based on
demonstrable evidence of the relative
availability of ready, willing and able
DBEs ir. the areas from which each
recipient obtains contractors. These
provisions ensure that there is as close
a fit as possible between the goals set by
each recipient and the realities of its
relevant market. When a recipient sets
contract goals, § 26.51 provides that
these goals are to be set realistically in
relation to the availability of DBEs for
the type and location of work involved.
• Impact of relief on the rights of
third parties. The legitimate interests of
third parties (e.g . prime contractors,
non -DBE subcontractors) are only
minimally impacted by the DBE
program, since the program is aimed at
replicating a market in which there are
no effects of discrimination and the
program affects only a relatively small
percentage of total federal -aid funds
The design of the overall and contract
goal provisions ensures that the use of
race -conscious remedies having the
potential to affect the interests of third
parties is limited to the extent necessary
to counter the effects of discrimination
Individual prime contractors are further
protected from suffering any undue
burdens by § 26.51, which prevents a
prime contractor from losing a contract
if it made good faith efforts but was still
unable to meet a goal. Non -DBE firms
are also protected by § 26.33, which
directs recipients to take appropriate
steps to address areas of
overconcentration of DBE firms in
certain types of work that could unduly
burden non -DBE firms seeking the same
type of work.
• Inclusion of appropriate
beneficiaries. The certification
provisions of Subparts D and E, and
particularly the social and economic
disadvantage provisions of § 26 67,
ensure that only firms owned and
controlled by individuals who are in
fact socially and economically
disadvantaged can participate in the
program. Eligibility provisions guard
against overinclusiveness by ensuring
that individuals with too great net worth
are not presumed disadvantaged and by
permitting the recipient—on its own
initiative or as the result of a
complaint—to follow procedures to
rebut the presumption of social and/or
economic disadvantage -They guard
against underinclusiveness by
permitting any business owner,
including a white male, to demonstrate
social and economic disadvantage on an
individual basis
Section -by -Section Analysis
Section 26 1 What Are the Obiecrives
of This Part'
There were relatively few comments
on this section of the SNPRNI, most of
which agreed with the proposed
language. We have adopted the
suggestion of some commenters that
specific reference be made to the role of
the DBE program in helping DBEs
overcome barriers (e.g , access to capital
and bonding) to equal participation. We
have also added a specific reference to
the role of the program in creating a
level playing field on which DBEs can
compete fairly for DOT -assisted
contracts. Some non -DBE contractors
urged that language be added to
explicitly oppose "reverse
discrimination " The rule clearly states
that nondiscrimination is the program's
first objective and the Department
reiterates here that it opposes unlawful
discrimination of any kind.
Section 26 3 To Whom Does This Part
Apply?
This provision is unchanged from the
SNPRIvI, except for references to the
new TEA -21 statutory provisions. A few
commenters wanted this provision to
apply to Federal Railroad
Administration (FRA) programs, as did
the original version of former part 23
However, FRA does not have specific
statutory authority for a DBE,program
parallel to the TEA -21 language. One
commenter asked if the language saying
that DBE requirements do not apply to
contracts without any DOT funding is
inconsistent with Federal Transit
Administration (FTA) guidance on
applicability While the structure of the
FTA program is such that FTA funds are
commingled with local funds in many
transit authority contracts (e.g.. any
contract involving FTA operating
assistance funds), to which DBE
requirements would apply. a contract
which is funded entirely with local
funds—and without any Federal
funds—would not be subject to
requirements under this rule.
Section 26.5 What Do The Terms Used
in This Part Mean?
There were relatively few comments
on the definitions proposed in the
SNPRM One commenter wanted to
substitute the term "historically
underutilized business" for DBE. Given
the continued use of the DBE term in
Congressional consideration of the
program. the continued use of the
"socially and economically
disadvantaged individuals" language in
the statute, and the familiarity of
concerned parties with the DBE term,
we do not believe changing the term
would be a good idea.
A few commenters asked for
additional definitions or elaboration of
existing definitions (e g . "form of
arrangement." "financial assistance
program," "commercially useful
function") These terms are either
already defined sufficiently or are best
understood in context of the operational
sections in which they are embedded,
and abstract definitions in this section
would not add much to anyone's ability
to make the program work well.
Consequently, we are not adding them.
Otherwise the final rule adopts the
SNPRM proposals for definitions with
only minor editorial changes
The Department has added, for the
sake of clarity and consistency with
other Federal programs. definitions of
the terms Alaskan native, Alaskan
native corporation (ANC), Indian tribe,
immediate family member, Native
Hawaiian, Native Hawaiian
organization, principal place of
business, primary industry
classification, and tribally -owned
concern. These definitions are taken
from the SBA's new small
disadvantaged business program
regulation (13 CFR § 124 3) The
definitions of the designated groups
included in the definition of "socially
5104 Federal Register /Vol. 64, No. 21 /Tuesday, February 2, 1999 / Rules and Regulations
and economically disadvantaged
individual" also derive from the SBA
regulations, as the Departments DBE
statutes require. We believe these will
be useful terms of art in implementing
the DBE program.
A few commenters requested
definitions for the terms "race -
conscious" and "race -neutral," and we
have provided definitions. A race -
conscious program is one that focuses
on. and provides benefits only for.
DBEs. The use of contract goals is the
primary example of a race -conscious
measure in the DBE program. A race -
neutral program is one that, while
benefiting DBEs, is not solely focused
on DBE firms. For example. small
business outreach programs, technical
assistance programs, and prompt
payment clauses can assist a wide
variety of small businesses, not just
DBEs.
Section 26 7 What Discriminatory
Actions Are Forbidden?
One commenter wanted to add
prohibitions of discrimination based on
age. disability and religion. The
Department is not doing so, because
discrimination on these grounds is
already prohibited by other statutes
(e g , the Americans with Disabilities
Act with respect to disability) .Also,
statutes which forrn the basis for this
f ule focus on race cc or, national origin,
and sex Congress determined that
remedial action focused on these areas
is necessarn•. These grounds for
discrimination are also most relevant to
problems in the DBE program that have
been alleged to exist (e g., disparate
treatment of DBE certification
applicants by race or sex) Some
opponents of the program said that the
DBE program discriminates against non -
DBEs. However, the Department
believes that the program is
constitutional and does not violate
equal protection requirements. A
reference to DOT Title VI regulations
has been deleted as unnecessary;
otherwise, this provision is the same as
in the SNPRvl.
Section 26 9 How Does the Department
Issue Guidance and Interpretations
Under This Parr?
Commenters, most of whom were
recipients, focused on two issues in this
section. First, a majority of the
comments favored the "coordination
:mechanism" concept for ensuring
consistent DOT guidance and
interpretations The few that disagreed
with this approach did so out of a
concern that the mechanism would add
delays to the process. These
commenters favored additional training
or an 800 number hot line to speed up
the process.
We believe that proper coordination
of interpretations and guidance is vital
to the successful implementation of this
rule. As the preambles to the 1992 and
1997 proposed rules mentioned,
inconsistent implementation of part 23
has been a continuing problem, which
has been criticized by a General
Accounting Office report and which has
created unnecessary difficulty for
recipients. contractors, and the
Department itself. A process for
ensuring that the Department speaks
with one voice on DBE implementation
matters, and for letting the public know
when DOT has spoken, will greatly
improve the service we give our
customers.
We do not believe this coordination
process will result in significant delays
in providing guidance. Nor will it
inhibit the ability of DOT staff and
customers to communicate with one
another For example, the process does
not apply to informal advice provided
by staff to recipients or contractors over
the phone or in a letter or e-mail. It does
maintain, however, the important
distinction between informal staff
assistance on one hand and a binding
institutional position on the other
For clarity in the process, we have
modified the language of the rule text to
make clear that .nterpretanons and
guidance are binding, official
Departmental positions if the Secretary
signs :hem or if the document includes
a statement that they have been
reviewed and approved by the General
Counsel The General Counsel will
consult fully with all concerned offices
as part of this review process.
We intend to post significant
guidance documents and interpretations
on the Department's web site to make
them widely and quickly available. As
some commenters suggested, we are also
continuing to consider forming an
advisory committee (or working group
of an existing committee) to facilitate
customer input into DBE program
matters. This is separate from the
coordination mechanism, however,
which is an internal DOT process.
The rule's provisions regarding
exemptions and waivers, previously
found in the SNPRM's § 26.9 (c) and (d),
are now included as a separate section
at §26.15
Section 26 11 What Records do
Recipients Keep and Report?
The Department asked, in the
SNPRM, whether it would be advisable
to have one standard reporting form for
information about the DBE program.
Currently, each operating
administration (OA) has its own
reporting form and requirements.
Virtually all the commenters that
addressed this issue favored a single.
DOT -wide reporting form. Commenters
also had a wide variety of suggestions
for what data should be reported.
formats, and retention periods.
The Department is adopting the
suggestion of having a single reporting
form. which we believe will reduce
administrative burdens for recipients,
particularly those who receive funds
from more than one OA. Because we do
not want to delay the issuance of this
rule while a form is being developed,
we are reserving the date on which this
single form requirement will go into
effect. We will take comments on the
specifics of reporting into account and
consult with interested parties as we
devise the form, which will be
published subsequently in Appendix B
to this rule. The Appendix will also
address the issues of reporting
frequency and record retention periods.
Meanwhile, recipients will continue to
report as directed by the concerned
OA(s), using existing reporting forms.
The rule is also adding a requirement
that recipients develop and maintain a
"bidders" list. The bidders list is
intended to be a count of all firms that
are participating, or attempting to
participate, on DOT -assisted contracts
The list must include all firms that bid
on prime contracts or bid or quote
subcontracts on DOT -assisted projects,
including both DBEs and non -DBEs
Bidders lists appear to be a promising
method for accurately determining the
availability of DBE and non -DBE firms
and the Department believes that
developing bidders data will be useful
for recipients. Creating and maintaining
a bidders list will give recipients
another valuable way to measure the
relative availability of ready, willing
and able DBEs when setting their overall
goals. (See § 26.45) We realize that
identifying subcontractors. particularly
non -DBEs and all subcontractors that
were unsuccessful in their attempts to
obtain contracts, may well be a difficult
task for many recipients. Mindful of that
potential burden, the rule will not
impose any procedural requirements for
how the data is collected. Recipients are
free to choose whether or not they wish
to gather this data through their existing
bidding and reporting processes.
Recipients are encouraged to make use
of all of the data already available to
them and all methods of reporting and
communication with their contracting
community that they already have in
place. In addition, the Department
suggests that recipients consider using a
widely publicized public notice or a
Federal Register/Vol. 64, No. 21 / Tuesday,,,,February 2, 1999 /Rules and Regulations 5105
widely disseminated survey to
encourage all firms that have bid or
quoted contracts to make themselves
known to recipients.
Once recipients have created the list
of bidders. they will have to supplement
that information with the age of each
firm (since establishment) and the
annual gross receipts of the firm (or an
average of its annual gross receipts)
Recipients can gather this additional
information by sending a questionnaire
to the firms on the list, or by any other
means that the recipient believes will
yield reliable information. The
recipient's plan for how to create and
maintain the list and gather the required
information must be included in its DBE
program.
Section 26.13 What Assurances Must
Recipients and Contractors Make?
There were few comments on this
section. Most of these supported the
proposal. One comment suggested
specific mention of prompt payment,
but in view of the substantive
requirements on this subject, we do not
believe such a mention is needed. Some
commenters favored requiring
additional public participation as part of
the assurance for recipients Again,
given substantive provisions of this rule
concerning public participation, we do
not believe that repetition here is
needed One commenter said that
incorporating the requirements of part
25 in the contract was confusing, since
many pr o\. sons of part 26 apply only
to recipients We have rewritten the
assurance for contractors in response to
this concern. specifying that contractors
are responsible only for carrying out the
requirements of part 26 that apply to
them.
Section 26 15 How Can Recipients
Apply for Exemptions or Waivers?
There has been some confusion as to
this rule's distinction between
exemption and waiver Put simply,
exemptions are for unique situations
that are most likely not to be either
generally applicable to all recipients or
to have been contemplated in the
rulemaking process. If such a situation
occurs and it makes it impractical for a
particular recipient to comply with a
provision of part 26, the recipient
should apply for an exemption from that
provision. The waiver provision, by
contrast, is not designed for
extraordinary circumstances where a
recipient may not be able to comply
with part 26 Waiver is for a situation
where a recipient believes that it can
better accomplish the objectives of the
DBE program through means other than
the specific provisions of part 26
There were a number of comments
about the proposed program waiver
provision. Most commenters on this
issue favored'the proposal; believing it
could add flexibility to the way
recipients implement the DBE program.
A few commenters were concerned that
too liberal use of the waiver provision
might undermine the goals of the rule.
The Department believes that the
waiver provision is an important aspect
of the DBE program. The provision
ensures that the Department and a
recipient can work together to respond
to any unique local circumstances.
Recipients are encouraged to carefully
review the circumstances in their own
jurisdictions to determine what
mechanisms are best suited to achieving
compliance with the overall objectives
of the DBE program. If a recipient
believes it is appropriate to operate its
program differently from the way that a
provision of Subpart B or C provides,
including, but not limited to, any
provisions regarding administrative
requirements, overall or contract goals,
good faith efforts or counting
provisions, it can apply for a waiver. For
example. waiver requests could pertain
to such subjects as the use of a race -
conscious measure other than a contract
goal, different ways of counting DBE
participation in certain industries, use
of separate overall or contract goals to
address demonstrated discrimination
against specific categories of socially
and economically disadvantaged
individuals, the use or \A ording of
assurances, differences in information
collection requirements and methods,
etc.
The Department will, of course,
carefully review any applications for
waivers to make sure that innovative
state or local programs are able to meet
the objectives of the statutes and
regulation. Decisions on waiver requests
are made by the Secretary This
authority has not been delegated to
other officials The waiver provision,
which the Department believes will
help assist recipients to "narrowly
tailor" the program to state and local
circumstances and ensure
nondiscrimination, remains in the final
rule.
Section 26 21 Who Must Have a DBE
Program?
The only substantive comment
concerning this provision asked that
Federal Railroad Administration (FRA)
programs be included. The Department
is not including FRA programs under
this rule because FRA does not have a
specific DBE program statute parallel to
those covering the Federal Aviation
Administration (FAA). FTA, and
FHWA. FRA could consider issuing a
rule similar to part 26 under its own,
separate statutory authority. The
Department shortened paragraph (b) (1)
to make it easier to understand. Within
180 days of the effective date of this
rule. all recipients with existing
programs must submit revised programs
to the relevant OA for approval. The
only changes from existing programs
that recipients would have to make are
changes needed to accommodate
differences between former part 23 and
part 26. Future new recipients would, of
course, submit a DBE program as part of
the approval process for financial
assistance.
Section 26.23 What is the Requirement
for a Policy Statement?
Section 26.25 What is the Requirement
for a Liaison Officer?
Section 26.27 What Efforts Must
Recipients Make Concerning DBE
Financial Institutions?
There were no substantive comments
concerning §526 23-26.27, and the
Department is adopting them as
proposed.
Section 26 29 What Prompt Payment
Mechanisms Must Recipients Have?
There was substantial comment on
the issue of prompt payment. A majority
of commenters supported the concept of
prompt payment provisions Some
recipients pointed out that they already
had prompt payment provisions on the
books DBEs generally supported
mandating prompt payment provisions
though they, as well as other
commenters, recognized that slow
payment is a problem affecting many
subcontractors, not just DBEs. Some of
these comments suggested making
prompt payment requirements
applicable to subcontracts in general,
not just DBE subcontracts. Some
recipients were concerned about getting
in the middle of disputes between prime
contractors and subcontractors. Some
commenters wanted the Department to
mandate prompt payment provisions,
while others preferred that their use by
recipients remain optional.
Having considered the variety of
views expressed on this subject, the
Department believes that prompt
payment provisions are an important
race -neutral mechanism that can benefit
DBEs and all other small businesses
Under part 26, all recipients must
include a provision in their contracts
requiring prime contractors to make
prompt payments to their
subcontractors, DBE and non -DBE alike.
It is clear that DBE subcontractors are
significantly—and, to the extent that
5106 Federal Register /Vol. 64, No. 21 /Tuesday, February 2, 1999 /Rules and Regulations
they tend to be smaller than non -DBEs,
disproportionately—affected by late
payments from prime contractors. Lack
of prompt payment constitutes a very
real barrier to the ability of DBEs to
compete in the marketplace. It is
appropriate for the Department to
require recipients to take reasonable
steps to deal with this barrier. We
recognize that delayed payments do not
affect only DBE contractors; a prompt
payment requirement applying to all
subcontracts is an excellent example of
a race -neutral measure that will assist
DBEs, and we are therefore requiring
that recipients' prompt payment
mechanisms apply to all subcontracts
on Federally -assisted contracts.
Paragraph (a) of this section requires
recipients to put into their DBE
programs a requirement for a prompt
payment contract clause. This clause
would appear in every prime contract
on which there are subcontracting
possibilities, and it would obligate the
prime contractor to pay subcontractors
within a given number of days from the
receipt of each payment the recipient
makes to the prime contractor. Payment
is required only for satisfactory
completion of the subcontractor's work
The clause would also apply to the
return of retainage from the prime to the
subcontractor Retainage ould have to
be returned within a given number of
days from the time the subcontractor's
work had been satisfactorily completed,
even if the prime contract had not yet
been completed. A majority of
commenters on the retainage issue
favored a requirement of this kind.
The number of days involved would
be selected by the recipient, subject to
OA approval as part of the recipient's
DBE program. In approving these time
frames, the OAs will consider whether
they are realistic and sufficiently brief to
ensure genuinely prompt payment.
Recipients who already operate under
prompt payment statutes may use their
existing authority in implementing this
requirement. It may be necessary to add
to existing contract clauses in some
cases (e g , if existing prompt payment
requirements do not cover retainage).
Paragraph (b) lists a series of
additional measures that the regulation
authorizes, but does not require,
recipients to use. These include
alternative dispute resolution, holding
of payments to primes until
subcontractors are paid, and other
mechanisms that the recipient may
devise All these mechanisms could be
made part of the recipient's DBE
programs
Section 26.31 What Requirements
Pertain to the DBE Directory?
Recipients maintain directories listing
certified DBEs. The issue most
discussed by commenters on this
section was whether the directory
should include material concerning the
qualifications of the firm to do various
sorts of work. For example, has the firm
been pre -qualified by the recipient? Can
it do creditable work? What kinds of
work does the firm prefer to do? Some
commenters also asked that the
directory should list the geographical
areas in which the firm is willing to
work. Other commenters opposed the
idea of including this kind of
information in the directory.
The Department believes that the
directory and the certification process
are closely intertwined. The primary
purpose of the directory is to show the
results of the certification process.
Consequently. the directory should list
all firms that the recipient has certified,
along with basic identifying information
for the firm. Since certification under
this rule pertains to the various kinds of
work a firm's disadvantaged owners can
control, it is important to list those
kinds of work in the directory For
example, if a firm seeks to work in fields
A, B. and C, but the recipient has
determined that its disadvantaged
owners can control its operations only
with respect to A and B, then the
directory would recite that the firm is
certified to perform work as a DBE in
fields A and B
The focus of the directory is intended
to be eligibility. A directory is a list of
firms that have been certified as eligible
DBEs, with sufficient identifying
information to permit interested firms to
contact the DBEs We do not intend to
turn a recipient's directory into a
comprehensive business resource
manual. For example, information about
firms' qualifications, geographical
preferences for work, performance track
record, capitalization. etc. are not
required to be part of the directory
Some commenters favored including
one or more of these elements, but we
are concerned that other business
information—however useful in its own
right—could clutter up the directory
and dilute its focus on certification.
Section 26 33 What Steps Must a
Recipient Take to Address
Overconcentration of DBEs in Certain
Types of Work?
For some time. the Department has
heard allegations that DBEs are
overconcentrated in certain fields of
highway construction work (e.g.,
guardrail, fencing, landscaping, traffic
control. striping). The concern
expressed is that there are so many
DBEs in these areas that non -DBEs are
frozen out of the opportunity to work.
In an attempt to respond to these
concerns, the SNPRM asked for
comment on a series of options for
"diversification" mechanisms, various
incentives and disincentives designed to
shift DBE participation to other types of
work.
The Department received a great deal
of comment on these proposals. almost
all of it negative. There were few
comments suggesting that
overconcentration was a serious
problem, and many comments said that
the alleged problem was not real. Some
FTA and FAA recipients said that if
there was a problem with
overconcentration, it was limited to the
highway construction program. As a
general matter, recipients said that the
proposed mechanisms were costly,
cumbersome. and too prescriptive.
Prime contractors opposed the
provisions because they would make it
more difficult for them to find DBEs
with which to meet their goals, while
DBEs opposed them because they felt
the provisions would penalize success
and force them out of areas of business
in which they were experienced Many
commenters suggested using outreach or
business development plans as ways of
assisting DBEs to move into additional
areas of work.
The Department does not have data
from commenters or other sources to
support a finding that
"overconcentration" is a serious,
nationwide problem. However, as part
of the narrow tailoring of the DBE
program, we believe it would be useful
to give recipients the authority to
address overconcentration problems
where they may occur In keeping with
the increased flexibility that this rule
provides recipients, we give recipients
discretion to identify situations where
overconcentration is unduly burdening
non -DBE firms. If a recipient finds an
area of overconcentration, it would have
to devise means of addressing the
problem that work in their local
situations Possible means of dealing
with the problem could include
assisting prime contractors to find DBEs
in non-traditional fields or varying the
use of contract goals to lessen any
burden on particular types of non -DBE
specialty contractors. While recipients
would have to obtain DOT approval of
determinations of overconcentration
and measures for dealing with them, the
Department is not prescribing any
specific mechanisms:for doing so.
Federal Register /Vol. 64, No 21 /Tuesday, February 2, 1999 / Rules and Regulations 5107
Section 26.35 What Role do Business
Development and Mentor -Protege
Programs Have in the DBE Program?
In the SNPRM, both mentor -protege
programs and business development
programs (BDPs) were cast as tools to
use for diversification. They still may be
used for that purpose, as noted in
§ 26.33. However, the Department
believes that they may have a broader
application, and their use in the final
rule is not limited to diversification
purposes. BDPs, in particular. are good
examples of race -neutral methods
recipients can use to promote the
participation of DBEs and other small
businesses in their contracting
programs.
There were few comments on these
provisions. Recipients wanted
flexibility, and suggested that these
kinds of programs should be optional.
Their comments said that such
programs were resource -intensive, and
that Federal financial assistance for
them would be welcome One
contractors' organization offered its own
mentor -protege plan as a model. A few
comments voiced suspicion of mentor -
protege plans, on the basis that they
allowed fronts and frauds into the
program.
The final rule makes the use of BDPs
and mentor-proteg , programs optional
for recipients operating,
administration can direct a particular
recipient to institute a BDP, but BDPs
are not mandatory across the board. The
operating administration would
negotiate with the recipient before
mandating a BDP
One feature added to this provision
allows recipients to establish a kind of
mini -graduation requirement for firms
that voluntarily participate in BDPs.
One of the purposes of a BDP is to equip
DBE firms to compete in the market
outside the DBE program. Therefore, a
recipient could ask BDP participants to
agree—as a condition of receiving BDP
assistance—to agree to leave the DBE
program after a certain number of years,
or after certain business development
objectives had been achieved.
Standing alone, mentor -protege
programs are not an adequate substitute
for the DBE program. While they can be
an important tool to help selected firms,
they cannot be counted on to level the
playing field for DBEs in general. An
effective mentor -protege program
requires close monitoring to guard
against abuse, which further limits the
number of DBEs they can assist. Even
with these limits, a mentor -protege
program that has safeguards to prevent
large non -DBE firms from circumventing
the DBE program can be a useful
component of a recipient's overall
strategy to ensure equal opportunities
for DBEs.
The final rule includes safeguards
intended to prevent the misuse of
mentor -protege programs. Only firms
that a recipient has already certified as
DBEs (necessarily including a
determination that they are independent
firms) can participate as proteges. This
is intended to preclude non -DBE firms
from creating captive DBE firms to serve
as proteges. A non -DBE mentor firm
cannot get credit for more than half its
goal on any contract by using its own
protege. Moreover, a non -DBE mentor
firm cannot get DBE credit for using its
own protege on more than every other
contract performed by the protege. That
is, if Mentor Firm X uses Protege Firm
Y to perform a subcontract, X cannot get
DBE credit for using Y on another
subcontract until Y had first worked on
an intervening prime contract or
subcontract with a different prime
contractor.
To make mentor -protege relationships
feasible, the rule provides that mentors
and proteges are not treated as affiliates
of one another for size determination
purposes. Mentor -protege programs and
BDPs must be approved by the
concerned operating administration
before they take effect. Recipients who
already have such programs in: place
would make them par: of their revised
DBE programs sent to the concerned OA
within 180 days of :he effective date of
par: 26
Section 26 37 What Are a Recipient's
Responsibilities for Monitoring rhe
Performance of Other Program
Participants?
The few comments on this section
asked for more detail and clarification
In the interest of flexibility, the
Department is reluctant to be
prescriptive in the matter of monitoring
and enforcement mechanisms What we
are looking for is a strong and effective
set of monitoring and compliance
provisions in each recipient's DBE
program. These mechanisms could be
most anything available to the recipient
under Federal, state, or local law (e.g .
liquidated damages provisions,
responsibility determinations,
suspension and debarment rules, etc.)
One of the main purposes of these
provisions is to make sure that DBEs
- actually perform work committed to
them at contract award. The results that
recipients must measure consist of
payments actually made to DBEs, not
just promises at the award stage. Credit
toward goals can be awarded only when
payments (including, for example. the
return of retainage payments) are
actually made to DBEs. Under the final
rule, recipients would keep a running
tally of the extent to which,on each
contract, performance had matched
promises. Prime contractors whose
performance fell short of original
commitments would be subject to the
compliance mechanisms the recipient
had made applicable.
Section 26.41 What 1s the Role of the
Statutory 10 Percent Goal in This
Program?
This is a new section, intended to
explain what role the 10 percent
statutory goal plays in the DBE program.
Under former part 23, the 10 percent
figure derived from the statute had a
role in the setting of overall goals by
recipients. For example. if recipients
had a goal of less than 10 percent, the
rule required them to make a special
justification.
This section makes clear that the 10
percent goal is an aspirational goal that
applies to the Department of
Transportation on a national level, not
to individual recipients. It is a goal that
the Department can use to evaluate its
overall national success in achieving the
objectives that Congress has established
for this program. However, the national
10 percent goal is not tied to recipients'
goal -setting decisions Recipients set
goals based on what will achieve a level
playing field for DBEs in their own
programs. without regard to the national
goal Recipients are not required to set
their overall or contract goals at 10
percent or any other particular level.
Recipients are no longer required to
make a special justification if their
overall goals are less than 10 percent.
As discussed in connection with the
Congressional debate on the TEA -21
DBE provision, Congress viewed
flexibility concerning the statutory 10
percent goal as an important feature of
narrow tailoring and made clear that it
was setting a national goal, not a goal for
any individual recipient. The
Department wants to ensure that state
and local programs have sufficient
flexibility to implement their programs
in a narrowly tailored way This section
is part of the Department's effort toward
that end
Section 26 43 Can Recipients Use
Quotas or Set -Asides as Parr of This
Program?
The DBE program has often been
labeled as a "quota" or "set-aside"
program, especially, though not
exclusively. by its opponents. This label
is, and always has been, incorrect.
Fifteen years ago, in the preamble to the
Department's first rule implementing a
DBE statute. the Department carefully
5108 Federal Register /Vol. 64, No. 21 /Tuesday, February 2, 1999 /Rules and Regulations
specified that neither quotas nor set -
asides were required (see 48 FR 33437-
38, July 21, 1983). This remains true
today. However, in light of Adarand and
this year's Congressional debates on the
DBE statutes, we believe this point
deserves additional emphasis. This
regulation prohibits quotas under any
circumstances and makes clear that set -
asides can only be used as a means of
last resort for redressing egregious
discrimination.
A number of non -DBE contractors and
their organizations continued to assert,
in comments on the SNPRM, that the
DBE program operates as a quota
program. This section makes clear that
recipients cannot use quotas on DOT -
assisted contracts under any
circumstances. A quota is a simple
numerical requirement that a recipient
or contractor must meet, without
consideration of other factors. For
example, if a recipient sets a 12 percent
goal on a particular contract and refuses
to award the contract to any bidder who
does not have 12 percent DBE
participation, either refusing to look at
showings of good faith .efforts or
arbitrarily disregarding them, then the
recipient has used a quota The
Department's regulations have never
endorsed this practice. The issue of
good faith efforts is discussed further
below in connection with ? 26 51
A set-aside is a ver' specific tool: A
contracting agents sets a contract aside
for DEEs if .t permits no one but DBEs
to compete for the contract Firrns other
than DBEs are not eligible to bid The
Department's DEE program has never
required the use of set -asides and has
allowed recipients to use set -asides only
under very limited circumstances.
Under the SNPRM, a recipient could
use a set-aside on a DOT -assisted
contract only if other methods of
meeting overall goals were
demonstrated to be unavailing and the
recipient had legal authority
independent of part 26 Comments were
divided concerning the use of set -asides
A number of non -DBE contractors
opposed the use of set -asides, some of
them saying that set -asides might be
something they could live with if their
use were balanced by the elimination of
DBE contract goals on other contracts in
the same field. Some recipients and
DBEs said, however, that set -asides were
a useful tool to achieve goals,
particularly for start-up contractors or
shall contracts.
The Department has carefully
reviewed these comments and continues
to believe that set -asides should not be
used in the DBE program unless they are
absolutely necessary to address a
specific problem when no other means
would suffice. If a recipient has been
unable to remedy the effects of
egregious discrimination through other
means, it may, as a last resort, make
limited use of set -asides to the extent
necessary to resolve the problem.
Section 26.45 How Do Recipients Sec
Overall Goals?
Since its inception, the recipient's
overall goal has been the heart of the
DBE program. Responding to Adarand,
DOT clarified the theory and purpose of
the overall goal in the SNPRM. In the
proposed rule, the Department made
clear that the purpose of the overall
goal—and, in fact, the DBE program as
a whole—is to achieve a "level playing
field" for DBEs seeking to participate in
federal -aid transportation contracting.
To reach a level playing field, recipients
need to examine their programs and
their markets and determine the amount
of participation they would expect DBEs
to achieve in the absence of
discrimination and the effects of past
discrimination. The focus of the goal
section of the SNPRM was to propose
ways to measure what a level playing
field would look like and to seek input
on the availability of data to make such
a measurement.
The Proposed Rule and Comments
The Department proposed several
options that recipients might use for
setting overall goals, including three
alternative formulas for measuring the
availability of ready sviiling and able
DBEs in local markets The specific
formulas will be discussed below, but
generally. they each called for setting a
goal that reflected the percentage of
locally available firms that were DBEs
(i.e dividing the number of DBEs by the
number of all businesses). On all of the
alternatives, the SNPRM sought
comments on both the feasibility and
practical value of the options, as well as
the prospects for combining any of the
approaches and the question of whether
to mandate a single approach or allow
each recipient to choose amongst the
options. We invited commenters to
propose changes to any of the details of
the options or to devise entirely new
ones. Finally, we asked commenters for
their input on the availability of reliable
data for use with each of the options.
Hundreds of commenters of all
types—including DBEs and non -DBEs,
prime and subcontractors, state and
local recipients, industry and interest
groups and private individuals—
responded with a wealth of feedback,
opinions and data. It is an
understatement to say that there was no
consensus among commenters as to the
best way to set overall goals Support for
the proposed options was almost evenly
spread over the choices presented, with
many commenters firmly against all of
the options. Still more suggested that
the current, non -formulaic method was
the best way to ensure the flexibility to
respond to local market conditions
Similarly, among those who expressed
an opinion, commenters were split
between the propriety of choosing a
single "best" method and imposing it on
all recipients and allowing recipients to
choose amongst all the options. One of
the few universal themes in the goal -
setting comments was the problem of
the availability of reliable data on the
number of DBE and non -DBE
contractors.
There were a few common threads
that different groups of commenters
tended to apply to all of the formulas.
Among recipients, many comments
focused on the lack of data about non -
DBE contractors, especially
subcontractors Recipients often noted
that they would not have the
information needed for the denominator
of any of the formulas (i.e. the total
number of available businesses). Non -
DBE contractors—and industry groups
representing them—generally believed
that there should be a capacity measure
built into any goal setting mechanism
Finally, DBEs—and their industry
associations—were concerned that all of
the formulas would create goals based
only on the current number of DBEs,
locking in the effects of past
discrimination In ignoring the fact that
the lack of opportunities in the past has
suppressed the number of DBE firms
available today
Under the proposed rule's Alternative
1, recipients would calculate the
percentage of DBE firms in their
directories among all firms available to
work on their DOT -assisted contracts
Under Alternative 2. recipients would -
calculate the percentage of all minority -
and women -owned firms in certain SIC
codes in their areas among all firms in
these SIC codes in the same areas.
Under Alternative 3, recipients would
calculate a percentage based on the
average number of DBE firms that had
worked on their DOT -assisted contracts
in recent years divided by the average
number of all firms that had worked on
their DOT -assisted contracts in the same
period. The SNPRM also proposed that
recipients could use other means, such
a disparity studies or goals developed
by other recipients serving the same
area, as a basis for their goals.
Each of the three proposed
alternatives received some support,
though this was often the rather tepid
endorsement of commenters who felt
that one or another alternative was the
Federal Register /Vol. 64, No. 21 /Tuesday, February 2, 1999 / Rules and Regulations 5109
best of a bad lot. Non -DBE contractors
often claimed that the alternatives
would unfairly increase goals, while
DBE contractors often claimed that the
same proposals would unfairly decrease
goals.
Commenters said that data for
determining the denominators of the
equations in Alternatives 1 and 2, as
well as the numerator in Alternative 2,
did not exist and that it would be a
major, time-consuming job to begin to
obtain the data. Adaptation of existing
information from other sources (e.g.,
Census data) was said to have
significant statistical difficulties. The
difficulty of getting data on out-of-state
firms was emphasized in some
comments
Commenters looked on the
alternatives as cumbersome, creating
unreasonable administrative burdens,
and as producing statistical results that
were skewed in various ways. The use
of DBE directories as the source of the
numerator in Alternative 1 was
criticized on the basis that directories
may contain firms that never actually
participate in DOT -assisted contracts. It
was suggested that the number of firms
bidding rather than the number of firms
certified would be a more reliable guide,
but it was also pointed out that, because
subcontractors seldom formallv bid for
work, this data would be hard to obtain
Some commenters proposed adding
overall population statistics to the mix.
A significant number of
commenters—primarily non -DEE
contractors but including some
recipients and other commenters as
well—emphasized the need to take
"capacity" into account. Most popular
among these comments was using a
capacity version of Alternative 3 These
comments did not propose a method of
determining the capacity of the firms
contracting with the recipient.
The Final Rule
In view of the complexity and
importance of the goal setting process
and the many issues raised by
commenters, the Department has
decided to adopt a two step process for
goal setting The process is intended to
provide the maximum flexibility for
recipients while ensuring that goals are
based on the availability of ready,
willing and able DBEs in each
recipient's relevant market. The
Department believes that this approach
is critical to meeting our constitutional
obligation to ensure that the program is
narrowly tailored to remedy the effects
of discrimination. The first step of the
process will be to create a baseline
figure for the relative availability of
ready, willing and able DBEs in each
recipient's market. The second step will
be to make adjustments from the base
figure, relying on an examination of
additional evidence, past experience,
local expertise and anticipated changes
in DOT -assisted contracting over the
coming year.
Step 1: Determining a Base Figure for
the Overall Goal
The base figure is intended to be a
measurement of the current percentage
of ready, willing and able businesses
that are DBEs. Ensuring that this figure
is based on demonstrable evidence of
each recipient's relevant market
conditions will help to ensure that the
program remains narrowly tailored. To
be explicit. recipients cannot simply use
the 10 percent national goal, their goal
from the previous year. or their DBE
participation level from the previous
year as their base figure. Instead, all
recipients must take an actual
measurement of their marketplace,
using the best evidence they have
available, and derive a base figure that
is as fair and accurate a representation
as possible of the percentage of available
businesses that are DBEs
There are many different ways to
measure the contracting market and
assess the relative availability of DBEs.
As discussed abo\ e the SNPRNI
proposed three ai:e-nate forrnulas,to
measure relative a\ailabil.ty, none of
which were par ticuiarl popular v ith
commenters in Cris final rule, the
Department is plac.--ig primary emphasis
on the principles underlying the
measurement. mandating only that a
measurement of the relative availability
of DBEs be made on the basis of
demonstrable evidence of relevant
market conditions, rather than requiring
that any particular procedure or formula
be used. The final rule contains a
number of examples of how to create a
base figure which recipients are free to
adopt in their entirety or to use as
guidelines for how to devise their own
measurement.
There are several reasons we have
taken this approach. First, the
Department is aware of the differences
in available data in various markets
across the nation. The flexibility
inherent in this approach will ensure
that all recipients can use the procedure
to set a reasonable goal and allow each
recipient to use the best data available
to it. As discussed in another section,
this rule will also provide for the
development of more standard data for
future goal setting Second, for many
recipients, setting goals in this way will
be a new exercise. By fixing only the
basic principle, but allowing the
methodology to change, recipients will
have the opportunity to fine tune the
process each year as their experience
grows and the data available to them
improve. Finally. the rule makes sure
that every recipient will have at least
one reasonable and practical goal setting
method available to them.
The first example for setting a base
figure relies on data sources that are
immediately available to all recipients.
their DBE directories. and a Census
Bureau database that DOT and the
Census Bureau will make available to all
recipients that wish to use it. This
example has its roots in the first two
goal setting formulas proposed in the
SNPRM. Recipients would first assess
the number of ready, willing and able
DBEs based on their own directories.
For some recipients this will be as
simple as counting the number of firms
in their directory. For others,
particularly those using directories
maintained by other agencies, the
directories will have to be "filtered" for
firms involved in transportation
contracting. The resulting number of
DBEs would become the numerator. The
denominator would then be derived
from the Census Bureau's County
Business Pattern (CBP) database. We
will provide user-friendly electronic
access to the database via the Internet to
allow recipients to input the geographic
area and SIC cedes in which they
contract and receive a number for the
availability of all businesses
There are several issues that must be
addressed when comparing numbers
derived from two different data sources,
some of which were raised in the
comments on the SNPRM Recipients
will need to ensure that the scope of
businesses included in the numerator is
as close as possible to the scope
included in the denominator Using as
close as possible to the same SIC codes
and geographic base is very important.
A recipient using its own DBE directory,
particularly one that contains only firms
in the fields in which it contracts, will
still need to determine what fields it
will use for the denominator when
sorting through the CBP database. The
best way to do this would be to examine
their contracting program and determine
the SIC codes in which they let the
substantial majority of their contracts
and subcontracts The geographic area
used for both the numerator and the
denominator should cover the area from
which the recipient draws the
substantial majority of its contractors.
While it may be sufficient for some state
recipients to use their state borders as
their contracting area, local transit and
airport recipients will rarely have such
an obvious choice. Those recipients will
need to more carefully examine the
5110 Federal Register/Vol. 64, No. 21/Tuesday, February 2, 1999/Rules and Regulations
geographic area from which they draw
contractors and base their calculation of
both the numerator and denominator of
the equation on the same area.
The Department and the Census
Bureau will make the CBP data available
in a format that gives recipients as much
flexibility as possible to tailor the data
to their contracting programs.
Recipients will be able to extract the
data in one block for all of the SIC codes
they expect to contract in, or by
individual SIC codes, allowing them to
weight the relative availability of DBEs
in various fields, giving more weight to
the fields in which they spend more
money. For example, let us assume a
recipient estimates that it will expend
10% of its federal aid funds within SIC
code 15, 40% in SIC code 16. 25% in
SIC code 17, and the remaining 25% on
contracting spread over SIC codes 07, 42
and 87. The recipient could separately
determine the relative availability of
DBEs for each of the three major
construction SIC codes (i.e., 15, 16 and
17) and the relative availability of DBEs
in the other three SIC codes grouped
together and weight each according to
the amount of money to be spent in each
area. In this example, the recipient
could calculate its weighted base figure
by first determining the number of DBEs
in its directory for each of the groups,
then extracting the availability of CBP
businesses for the same groups. It would
then perform the following calculation
to arrive at a base figure for step one of
the goal setting process:
Base _(DBEs in SIC 15) (DBEs in 16) (DBEs in 17) (DBEs in 07,42,87)1
Figure— •10 x 100
CBPs in SIC 15 CBPs in 16 CBPs in 17 CBPs in 07,42,87
As has been stated generally. this
formula is offered only as an example of
a way that a recipient could choose to
use the CBP database. Recipients using
the CBP data should choose whether to
weight their calculation. and whether to
do so by individual SIC codes or by
groups of SIC codes, based on their own
assessment of what method will best fit
their spending pattern 1
Finally, there is still the question of
the propriety of comparing data from
two sources as different as DBE
directories and the CEP As mentioned
aboN. e some commenters asserted that
the directories may contain firms that
do rot nor nail` perform DOT -assisted
contracts, This problem is greatest, of
course. for directories maintained by
ether agencies for purposes beyond
DOT -assisted contracting We believe
that the recipient s knowledge of its
contracting needs and the contents of its
DBE directory will allow it to solve this
problem by sorting the directories by
SIC code to extract only the firms likely
to be interested in DOT -assisted
contracting Any remaining effect from
DBEs that are certified in the relevant
SIC codes but still do not intend to
compete for DOT -assisted contracts will
be more than offset by the hurdles
involved in actually becoming a DBE. It
is important to note here that the
certification process itself, with its
paperwork, review and on-site
inspection, create a filter on the number
of existing firms that will be counted in
the numerator without there being any
equivalent filter culling firms out of the
denominator. Ultimately, the
Department chose these two data
sources for the example because; while
they may not be perfect. they represent
while it is not statistically necessary CO account
for _00% of program dollars when performing this
type of weighting, the greater the percentage
accounted for, the more accurate the resulting
calculation will be.
the best universally available current
data on both the presence of DBEs and
the presence of all businesses in local
markets. Any recipient that believes it
has available to it better sources of local
data from which to make a similar
calculation for its base figure is
encouraged to use them.
The second example for calculating a
base figure is using a bidders list to
determine the relative availability of
DBEs The concept is similar to the one
described above The recipient would
divide the number of available ready,
willing and able DEEs by the number for
all firms The d.ffere-'ce is that instead
of measuring availability. by DBE
certifications and Census data the
recipient would measure availability by
the nurrbe- cf firms that have directly
participated in, or attempted to
participate in, DOT -assisted contracting
in the recent past. This approach has its
roots in Alternative 3 from the SNPRM.
Of fundamental importance to this
approach is that the recipient would
need to include all firms that have
sought DOT -assisted contracts.
regardless of whether they did so by
bidding on a prime contract or quoting
a job as a subcontractor. Because most
DOT recipients derive the substantial
majority of their DBE participation
through subcontracting, it is absolutely
essential that all DBE and non -DBE
firms that quote subcontracts be
included in the bidders list.2 Bidders
lists are a very focussed measure of
ready, willing and able firms because
they filter the pool of available firms by
requiring a demonstration of their
ability to participate in the process
through tracking and identifying
2To prevent any confusion, it is important to note
that the DBE program does not use the so-called
"benchmarking system employed in direct Federal
procurement. The benchmarking system relies on a
unique database created specifically for use in the
federal procurement program.
contracting opportunities,
understanding the requirements of a
particular job and assembling a bid for
it. Another attractive feature of the
bidding "filter" is that it applies equally
to both DBEs and non -DBEs.
The third example included in the
final rule for setting a base figure is
using data derived from a disparity
study. As was discussed in the SNPRM,
the Department is not requiring
recipients to do a disparity study, but is
only making clear that use of disparity
study data by recipients that have them
or choose to conduct them is a valid
means of setting a goal. Disparity
studies generally contain a wide array of
statistical data. as well as anecdotal data
and analysis that can be particularly
useful in the goal setting process We
list disparity studies here, not because
they are needed to justify operating the
DBE program—Congress has already
established the compelling need for the
DBE program—but because the data a
good disparity study provides can be an
excellent guide for a recipient to use to
set a narrowly tailored goal.
The Department will not set out
specific requirements for what data or
analysis is required before a disparity
study can be used for setting a goal,
because we believe that the design and
conduct of the study is best left to the
Local officials and the professional
organizations with which they contract
to conduct the studies. Instead, we again
offer simple general principles that
should apply to all studies used for goal
setting. Any study data relied on in the
goal setting process should be as recent
as possible and be focussed on the
transportation contracting industry.
When setting the goal, first use the
study's statistical evidence to set a base
figure for the relative availability of
DBEs. Other study information, whether
it is anecdotal data, analysis or
statistical information about related
Federal Register /Vol. 64, No. 21 / Tuesday, February 2, 1999 /Rules and Regulations 5111
fields. should be included when making
adjustments to the base figure
(discussed in more detail below), but
not included in the base figure for the
relative availability of DBEs.
The last specific example included in
the rule is using the goal of another
recipient as the base figure for goal
setting. This option was also included
in the SNPRM. It is intended to avoid
duplicative work and to lighten the
burden the goal setting process might
put on smaller recipients. It is important
to note that a recipient could only use
another recipient's goal if it was set in
accordance with this rule and the other
recipient performed similar contracting
in a similar market area. Using another
recipient's approved goal would only
satisfy the first step of the goal setting
process. It would serve as the base
figure, and could not be used to skip
over step two of the process. The
recipient would need to examine the
same additional evidence it would
otherwise use to determine whether to
adjust its goal from the base figure, as
well as being required to make
adjustments to account for differences
in its local market or contracting
program.
The final rule also maintains the
option of devising an alternative method
of calculating a base figure for the goal
setting, process Explicitly listing this
option ser% es to emphasize the point
that the options in the rule are examples
mean: as guidelines intended to ensure
maximum flexibility for recipients
Recipients can use this option to take
advantage of their unique expertise or
any unique source of data that they have
that may not be available to other
recipients The concerned operating
administration will review and approve
the proposals of recipients that believe
they can calculate a base figure that will
better reflect their relevant market than
any of the examples provided in this
rule. Approval will be contingent on the
proposals following the same principles
that apply to any recipient: the
methodology must be based on
demonstrable data of relevant market
conditions and be designed to reach a
goal that the recipient would expect
DBEs to achieve in the absence of
discrimination
Step 2• Adjusting the Base Figure
As alluded to above, measuring the
relative availability of DBEs to derive a
base figure is only the first step of the
goal setting process. To ensure that they
arrive at goals that truly and accurately
reflect the participation they would
expect absent the effects of
discrimination. recipients must go
beyond the formulaic measurement of
current availability to account for other
evidence of conditions affecting DBEs.
To accomplish this second step,
recipients must first survey their:
jurisdiction to determine what types of
relevant evidence is available to them.
Then, relying on their own knowledge
of their contracting markets they must
review the evidence to determine
whether either an up or down
adjustment from the base figure is
needed.
One universally available form of
evidence that all recipients should
consider is the proven capacity of DBEs
to perform work on DOT -assisted
contracts. All recipients have been
tracking and reporting the dollar volume
of work that is contracted and
subcontracted to DBEs each year
Viewed in isolation, the past
achievements of DBEs do not reflect the
availability of DBEs relative to all
available businesses, but it is an
important and current measure of the
ability of DBEs to perform on DOT -
assisted contracts
Though not universally available,
there are hundreds of existing disparity
studies that contain a wealth of
statistical and anecdotal evidence on the
utilization cf disadvantaged businesses
In addition to being a possible source of
data for Step 1 of the goal setting
process, disparity studies should be -
considered during Step 2 of the process
The base figure from Step 1 is intended
to deter:rine the relative availability of
DBEs The data and analysis in a
disparity study can help a recipient
determine whether those existing
businesses are under- or over -utilized If
a recipient has a study with disparity
ratios showing that existing DBEs are
receiving significantly less work than
expected, an upward adjustment from
the base figure is called for Similarly,
if the disparity ratio shows
overutilization, a downward adjustment
to the base figure would be warranted.
The anecdotal evidence and analysis of
contracting requirements and conditions
that may have a discriminatory impact
on DBEs are also important sources that
should be examined when determining
what adjustment to make to the base
figure 3 Finally, disparity studies that
are conducted within a recipient's
jurisdiction should be examined even if
they were not done specifically for the
recipient. For example, a state highway
agency may find useful data and
3 It is important to note that adjusting the goal is
only part of the response a recipient should make
to evidence of discriminatory barriers for DBEs. All
recipients have a primary responsibility to ensure
non-discrimination in their proerms and should act
aggressively to remove any discriminatory barriers
in their programs.
analysis in either a statewide disparity
study covering other agencies or in a
disparity study examining contracting
in a county or city within the state.
If a recipient uses another recipient's
goal as its base figure under Step 1 of
the goal setting process, it will have to
make additional adjustments to ensure
that its final goal is narrowly tailored to
its market and contracting program. For
example, if a local transit or airport
authority adopts a statewide goal as its
base figure, it must determine the extent
that local relative availability of DBEs
differs from the relative availability of
DBEs in the contracting area relied on
by the state. The local recipient would
also need to examine the differences in
the type of contracting work in its
program and determine whether there
are significant differences in the relative
availability of DBEs in any fields that
are unique to its program—or unique to
the program of the other recipient.
Similarly, if one local recipient used the
goal of another local recipient in the
same market as its base figure, it would
also need to adjust for differences in the
contracting fields used by the two
programs
Finally, the rule contains a brief list
of other types of data a recipient could
consider when adjusting its base figure
to arrive at an overall goal The list is
by no means intended to be exhaustive
Instead, it is meant as a guide to the
types of information a recipient should
look for in Step 2 of the goal setting
process There is a wide array of
relevant local, regional and national
information about the utilization of
disadvantaged businesses Recipients
are encouraged to cast as wide a net as
they can to carefully examine their
contracting programs and the public and
private markets in which they operate.
Additional Goal Setting Issues
The Department proposed, in both the
1992 NPRM and the 1997 SNPRM. that
overall goals be calculated as a
percentage of DOT funds a recipient
expects to expend in DOT -assisted
contracts This is different from the
existing part 23 rule, which asked
recipients to set overall goals on the
basis of all funds, including state and
local funds, to be expended in DOT -
assisted contracts This change is for
accounting and administrative
convenience and is not intended to have
a substantive effect on the program.
While not the subject of many
comments, those who did comment on
the proposal favored the change The
final rule adopts this approach.
A few recipients commented that
public participation concerning goal
setting was bothersome Nevertheless,
5112 Federal Register /Vol. 64, No. 21 / Tuesday, February 2, 1999 / Rules and Regulations
we view it as an essential part of the
goal setting process. There are many
stakeholders involved in setting goals,
and it is reasonable that they should be
involved in the process and have an
opportunity for comment. The part 23
provision requiring getting a state
governor's approval of a goal of less
than 10 percent has been eliminated,
both because overall goals are no longer
tied to the national 10 percent goal and
to reduce administrative burdens.
The goal setting provision of the final
rule continues to direct recipients to set
one annual overall goal for DBEs, rather
than group -specific goals separating
minority and women -owned businesses.
Section 26.47 Can Recipients Be
Penalized for Failing To Meet Overall
Goals?
This is a new section of the
regulation, the purpose of which is to
clarify the Department's views on the
situations in which it is appropriate to
impose sanctions on recipients with
respect to goals The provision states
explicitly what has long been the
Department's policy no recipient is
sanctioned, or found in noncompliance.
simply because it fails to meet its
overall goal. In fact, through the history
of the DBE program, the Department
never has sanctioned a recipient for
failing to obtain a particular amount of
DEE participation
On the other hand, if a recipient fails
to set an overall goal which the
concerned operating administration
approves, or fails to operate its program
in good faith toward the objective of
meeting the goal, it is subject to a
finding of noncompliance and possible
sanctions. For example, if a recipient
refuses to establish a goal or, having
established one, does little or nothing to
work toward attaining it, it would be
reasonable for the Department to find
the recipient in noncompliance. Like all
compliance provisions of the rule, this
provision is subject to the "court order"
exception recently created by statute
(see §26 101(b))
Section 26 49 How Are Overall Goals
Established for Transit Vehicle
Manufacturers?
This provision basically continues in
effect the existing transit vehicle
manufacturer (TVM) provisions of the
rule The SNPRM proposed to change
the existing rule in two respects FHWA
or FAA recipients could avail
themselves of similar provisions. if they
chose The final rule retains this
flexibility Also, it was proposed that
FTA, rather than manufacturers, would
set TVM goals The few comments we
received on this section objected to the
latter change. Consequently, we will not
adopt the proposed change and will
continue to require the TVMs
themselves to set their own goals based
on the principles outlined in § 26.45 of
this rule.
Section 26.51 What Means Do
Recipients Use To Meet Overall Goals?
One of the key points of both the
SNPRM and this final rule is that, in
meeting overall goals, recipients have to
give priority to race -neutral means. By
race -neutral means (a term which, for
purposes of this rule. includes gender
neutrality), we mean outreach, technical
assistance, procurement process
modification, etc.—measures which can
be used to increase opportunities for all
small businesses, not just DBEs. and do
not involve setting specific goals for the
use of DBEs on individual contracts.
Contract goals, on the other hand, are
race -conscious measures
In the context of these definitions, it
is important to note that awards of
contracts to DBEs are not necessarily
race -conscious actions Whenever a DBE
receives a prime contract because it is
the lowest responsible bidder, the
resulting DBE participation was
achieved through race -neutral means.
Similarly, when a DBE receives a
subcontract on a project that does not
have a contract goal, its participation
was also achieved through race -neutral
means Finally. even on projects that do
carry contract goals, when a prime
awards a particular subcontract to a DBE
because it has proven in the past that it
does the best or quickest work, or
because it submitted the lowest quote,
the resulting DBE participation has, in
fact, been achieved through race -neutral
means. We also note that the use of race -
neutral measures (e g., outreach,
technical assistance) specifically to
increase the participation of DBEs does
not convert these measures into race -
conscious measures
A number of non -DBE contractors
commented that race -neutral measures
should not only be given priority, but
must be tried and fail before any use of
contract goals can occur. This, they
asserted, is essential for a program to be
narrowly tailored. The law on this point
is fairly clear, and does not support the
commenters' contention. The extent to
which race -neutral alternatives were
considered and deemed inadequate to
remedy the problem is the relevant
narrow tailoring question Both in past
legislation and when considering TEA -
21, Congress did consider race -neutral
alternatives In fact, as described above,
throughout the debate, Member after
Member gave examples of how state and
local race -neutral programs without
goals fail to overcome the
discriminatory barriers that face DBEs.
Congress' careful consideration and
conclusion that race -neutral means are
insufficient, buttressed by this rule's
emphasis on achieving as much of the
goal as possible through race -neutral
means, satisfies this part of the narrow
tailoring requirement.
No one opposed the use of race -
neutral means, though a number of
DBEs and recipients stressed that these
means, standing alone, were insufficient
to address discrimination and its effects.
Most recipients and non -DBE
contractors supported the use of race -
neutral measures, though some
recipients said that increased use of
these measures would require
additional resources.
The relationship between race -
conscious and race -neutral measures in
the final rule is very important. The
recipient establishes an overall goal.
The recipient estimates, in advance,
what part of that goal it can meet
through the use of race -neutral means
This projection. and the basis for it,
would be provided to the concerned
operating administration at the same
time as the overall goal, and is subject
to OA approval
The requirement of the rule is that the
recipient get the maximum feasible DBE
participation through race -neutral
means The recipient uses race -
conscious measures (e.g., sets contract
goals) to get the remainder of the DBE
participation it needs to meet the overall
goal If the recipient expects to be able
to meet its entire overall goal through
race -neutral means, it could, with OA
approval, implement its program
without any use of contract goals.
For example, suppose Recipient X
establishes an 11 percent overall goal for
Fiscal Year 2000 This is the amount of
DBE participation that X has determined
it would have if the playing field were
level. Recipient X projects that, using a
combination of race -neutral means, it
can achieve 5 percent DBE
participation. Recipient X then sets
contract goals on some of its contracts
throughout the year to bring in an
additional 6 percent DBE participation.
Recipients would keep data separately
on the DBE participation obtained
through those contracts that either did
or did not involve the use of contract
goals. Recipients would use this and
other data to adjust their use of race -
neutral means and contract goals during
the remainder of the year and in future
years For example, if Recipient X
projected being able to attain 5 percent
DBE participation through race -neutral
measures, but was only able to obtain 1
percent from the race -neutral measures
Federal Register /Vol. 64, No. 21 / Tuesday,,' February 2, 1999 /Rules and Regulations 5113
it used, Recipient X would increase its
future use of contract goals. On the
other hand, if Recipient X exceeded its
prediction that it would get 5 percent
DBE participation from race -neutral
measures and actually obtained 10
percent DBE participation from the
contracts on which there were no
contract goals, it would reduce its future
use of contract goals. A recipient that
was consistently able to meet its overall
goal using only race -neutral measures
would never need to use contract goals
Most recipients and non -DBE
contractors agreed with the SNPRM's
proposal that (contrary to the part 23
provision on this subject) contract goals
not be required on all contracts. This
provision is retained in the final rule.
We believe that this provision provides
recipients the ability to achieve the
objective of a narrowly tailored
program. The rule also reiterates that the
contract goal need not be set at the same
level as the overall goal. To express this
more clearly, let us return to the above
example of Recipient X. Just because
Recipient X has an overall goal of 11
percent, it does not have to set a
contract goal on each contract. Nor does
it have to establish an 11 percent goal
on each contract on which it does set a
contract goal Indeed, since X has
projected that it can achieve almost half
of its overall goal through race -neutral
means it most likely set contract
goals cn some contracts but not on
others On contracts with a contract
goal. the goal might be 4 percent one
time, 18 percent another time, 9 percent
another time, depending on the actual
work involved in each contract, the
location of the work and the
subcontracting opportunities available.
The idea is for X to set contract goals
that, cumulatively over the year, bring
in 6 percent DBE participation, which,
added to the 5 percent participation X
projects achieving from race -neutral
measures, ends up meeting the 11
percent overall goal.
The SNPRM asked for comment on
evaluation credits as an additional race -
conscious measure that recipients could
use to meet overall goals The vast
majority of the many comments on this
subject opposed the use of evaluation
credits, on both legal (e g., as contrary
to narrow tailoring) and policy (e.g., as
confusing and subjective) grounds. A
smaller number of commenters favored
at least giving recipients discretion to
use this tool. While the Department
does not agree with the contention that
evaluation credits are legally suspect,
we do agree with much of the sentiment
against using them in the DBE program,
particularly the practical difficulties
they might involve when applied to
subcontracting (which constitutes the
main source of DBE participation in the
program). As a result, the final rule does
not contain an evaluation credits
provision.
The SNPRM proposed certain
mechanisms for determining when it
was appropriate to ratchet back the use
of contract goals. Most commenters said
they found these particular mechanisms
complicated and confusing. The
Department believes that, as a matter of
narrow tailoring, it is important to have
concrete mechanisms in place to ensure
that race -conscious measures like
contract goals are used only to the
extent necessary to ensure a level
playing field. The final rule contains
examples of four such mechanisms.
The first mechanism applies to a
situation in which a recipient estimates
that it can meet its overall goal
exclusively through the use of race -
neutral goals. In this case. the recipient
simply does not set contract goals
during the year The second mechanism
takes this approach one step further. If
the recipient meets its overall goal two
years in a row using only race -neutral
measures, the recipient continues to use
only race -neutral measures in future
years, without having to project each
year how much of its overall goal it
anticipates meeting through race -neutral
and race -conscious means, respectively
However, if in any year the recipient
does not meet its overall goal, the
recipient must make the projection for
the following year, using race -conscious
means as needed to meet the goal
The third mechanism applies to
recipients who exceed their overall
goals for two years in a row while using
contract goals. In the third year, when
setting their overall goal and making
their projection of the amount of DBE
participation they will achieve through
race -neutral means, they would
determine the average percentage by
which they exceeded their overall goals
in the two previous years. They would
then use that percentage to reduce their
reliance on contract goals in the coming
year, as noted in the regulatory text
example. The rationale for this
reduction is that the recipient's overall
goal represents its best estimation of the
participation level expected for DBEs in
the absence of discrimination. By
exceeding that goal consistently, the
recipient may be relying too heavily on
race -conscious measures Scaling back
the use of contract goals—while keeping
careful track of DBE participation rates
on projects without contract goals—will
ensure that the recipient's DBE program
remains narrowly tailored to
overcoming the continuing effects of
discrimination
The fourth mechanism operates
within a given year If a recipient
determines part way through the year
that it will exceed (or fall short of) its
overall goal, and it is using contract
goals during that year, it would scale
back its use of contract goals (or
increase it use of race -neutral means
and/or contract goals) during the
remainder of the year to ensure that it
is using an appropriate balance of
means to meet its "level playing field"
objectives.
There were also a number of
comments on how contract goals should
be expressed. Most favored continuing
the existing practice of adding together
the Federal and local shares of a
contract and expressing the contract
goal as a percentage of the sum because
it works well and avoids confusion. A
few comments favored expressing
contract goals as a percentage of only
the Federal share of a contract.
Ultimately, we believe that it is not
necessary for the Department to dictate
which method to use Recipients may
continue to use whichever method they
feel works best and allows them to
accurately track the participation of
DBEs in their program. Recipients need
only ensure that they are consistent and
clearly express the method they are
using. and report to the Department the
total federal aid dollars spent and the
federal aid dollars spent with DBEs
As a last note on this topic. FAA
recipients are reminded that funds
derived from passenger facility charges
(PFCs) are not covered by this part and
should not be counted as part of the
Federal share in any goal calcuiation If
a recipient chooses to express its
contract goals as a percentage of the
combined Federal and local share, it
may include the PFC funds as part of
the local share.
Section 26 53 What Are the Good
Faith Efforts Procedures Recipients
Follow in Situations Where There Are
Contract Goals?
There was little disagreement about
the main point of this section. When a
recipient sets a contract goal, the basic
obligation of bidders is to make good
faith efforts (GFE) to meet it. They can
demonstrate these efforts in either of
two ways, which are equally valid. First,
they can meet the goal, by documenting
that they have obtained commitments
for enough DBE participation to meet
the goal. Second, even though they have
not met the goal, they can document
that they have made good faith efforts to
do so The Department emphasizes
strongly that this requirement is an
important and serious one A refusal by
a recipient to accept valid showings of
5114 Federal Register /Vol. 64, No. 21 /Tuesday, February 2, 1999 / Rules and Regulations
good faith is not acceptable under this
rule.
Appendix A discusses in greater
detail the kinds of good faith efforts
bidders are expected to make. There was
a good deal of comment concerning its
contents. Non -minority contractors
recited that good faith efforts standards
should be "objective, measurable,
realistically achievable, and
standardized." Not one of these
comments provided any examples or
suggestions of what "objective,
measurable, realistically achievable, and
standardized" standards would look
like, however. Certainly a one -size -fits -
all checklist is neither desirable nor
possible. What constitutes a showing of
adequate good faith efforts in a
particular procurement is an
intrinsically fact -specific judgment that
recipients must make Circumstances of
procurements vary widely, and GFE
determinations must fit each individual
situation as closely as possible.
The proposed good faith efforts
appendix suggested that one of the
factors recipients could take into
account is the behavior of bidders other
than the apparent successful bidder For
example, if the latter failed to meet the
contract goal, but other bidders did, that
could suggest that the apparent
successful bidder had not exerted
suffic_ent efforts to get DBE
parti:_paticn Recipients who
commented on this issue favored the
concept. non -DBE contractors opposed
1: The final rule s Appendix A makes
clear that recipients are not to use a
"conclusive presumption" approach, in
which the apparent successful bidder is
summarily found to have failed to make
good faith efforts simply because
another bidder was able to meet the
goal. However, the track record of other
bidders can be a relevant factor in a GFE
determination, in more than one way If
other bidders have met the goal, and the
apparent successful bidder has not, this
at least raises the question of whether
the apparent successful bidder's efforts
were adequate. It does not, by itself.
prove that the apparent successful
bidder did not make a good faith effort
to get DBE participation, however On
the other hand. if the apparent
successful bidder—even if it failed to
meet the goal—got as much or more
DBE participation than other bidders,
then this fact would support the
apparent successful bidder's showing of
GFE. The revised Appendix makes these
points
The proposed good faith efforts
appendix also expanded on language in
part 23 concerning price -based
decisions by prime contractors The
existing language provides that a
recipient can use, as evidence of a
bidder's failure to make good faith
efforts, the recipient's rejection of a DBE
subcontractor's "reasonableprice" offer.
The SNPRM added that a recipient
could set a price differential from 1-10
percent to evaluate bidders' efforts. If a
bidder did not meet the goal and
rejected a DBE offer within the range,
the recipient could view the bidder as
not making good faith efforts. This was
an attempt to provide additional,
quantified, guidance to recipients on
this issue.
Comment was mixed on this issue.
Non -DBE prime contractors generally
opposed the price differential idea,
saying that it encouraged deviations
from the traditional low bid system. It
should be noted, however, that
subcontracts are typically awarded
outside any formal low bid system.
Some recipients thought that it was a
bad idea to designate a range, because
it would limit their discretion, while
others liked the additional definiteness
of the range. Most recipients supported
the "reasonable price" concept in
general, even if they had their doubts
about the value of a range. Some DBE
organizations favored the range
approach.
Taking all the comments into
consideration. the Department has
decided to retain language similar to
that of part 23 without reference to anv
specific range Appendix A now
provides that the fact that some
additional costs may be invol\•ed in
finding and using DBEs is not in itself
sufficient reason for a bidder's failure to
meet a DEE contract goal, as long as
such costs are reasonable Along with
this emphasis on the reasonableness of
the cost necessarily comes the fact that
prime contractors are not expected to
bear unreasonable costs. The availability
of a good faith efforts waiver of the
contract goal helps to ensure that a
prime contractor will not be in a
position where it has to accept an
excessive or unreasonable bid from a
DBE subcontractor. At the same time,
any burden that a non -DBE
subcontractor might face is also limited
by the reasonableness of competing
bids. This approach retains flexibility
for recipients while avoiding the
concerns commenters expressed about a
particular range.
The SNPRM proposed that recipients
would have to provide for an
administrative review of decisions that
a bidder's GFE showing was inadequate.
The purpose of the provision was to
ensure that recipients did not arbitrarily
dismiss bidders' attempts to show that
they made good faith efforts. The
provision was meant to emphasize the
seriousness with which the Department
takes the GFE requirement and to help
respond to allegations that some
recipients administered the program in
a quota -like fashion. The SNPRM also
asked whether such a mechanism
should be operated entirely by the
recipient or whether a committee
including representatives of DBE and
non -DBE contractors should be
involved.
A number of recipients. and a few
contractors. opposed the idea on the
basis of concern about administrative
burdens on recipients and potential
delays in the procurement process. A
greater number of commenters, largely
non -DBE contractors but also including
recipients and DBEs, supported the
proposal as ensuring greater fairness in
the process. A significant majority of all
commenters said that the recipient
should operate the system on its own.
because a committee would make the
process more cumbersome and raise
conflict of interest issues.
The Department will adopt this
proposal, which should add to the
fairness of the system and make
allegations of de facto quota operations
less likely. The Department intends that
reconsideration be administered by
recipients. The regulation does not call
for a committee involving non -recipient
personnel. The Department intends that
the process be informal and timely The
recipient could ensure that the process
be completed within a brief period (e g ,
5-10 days) to minimize any potential
delay in procurements. The bidder
would have an opportunity to meet with
the reconsideration official, but a formal
hearing is not required. To ensure
fairness, the reconsideration official
must be someone who did not
participate in the original decision to
reject the bidder's showing. The
recipient would have to provide a
written decision on reconsideration, but
there would be no provision for
administrative appeals to DOT.
A point raised by several non -DBE
commenters was that DBEs should have
to make good faith efforts (even when
they were not acting as prime
contractors). The commenters suggested
things like providing capacity
statements and documenting that they
have bid on contracts. This point is
unrelated to the subject of this section,
which has to do with what efforts
bidders for prime contracts have to
make to show that they have made to
obtain DBE subcontractors. It is difficult
to see what purpose the additional
paperwork burdens these commenters'
requests would serve.
One of the most hotly debated issues
among commenters was whether DBE
5124 Federal Register /Vol. 64, No. 21 /Tuesday, February 2, 1999 /Rules and Regulations
commenters wanted a time limit for
DOT consideration of appeals. We have
added a provision saying that if DOT
takes longer than 180 days from the time
we receive a complete package, we will
write everyone concerned with an
explanation of the delay and a new
target date for completion. Some
commenters thought a different time
limit for appeals to the Department (e.g.,
180 days) would be beneficial. We
believe that 90 days is enough time for
someone to decide whether a decision
of a recipient or UCP should be
appealed and write a letter to DOT. This
time period starts to run from the date
of the final recipient decision on the
matter. DOT can accept late -filed
appeals on the basis of a showing of
good cause (e.g.. factors beyond the
control of the appellant). Some
recipients thought that more time might
be necessary to compile an
administrative record, so we have
permitted DOT to grant extensions for
good cause. Generally, however, the
Department will adhere to the 90 -day
time period in order to prevent delays
in the appeals process. As a
clarification, we have added a provision
that all recipients involved must
provide administrative record material
to DOT when there is an appeal. For
example. State A has relied on the
information gathered IDN, State B to
certify Firm X. A competitor files an
ineligibility complaint with State A,
which decertifies the firm. Firm X
appeals to the Department. Both State A
and State B mus: provide their
administrative record materials to DOT
for purposes of the appeal. (The material
would be provided to the Departmental
Office of Civil Rights.)
Section 26 91 What Actions Do
Recipients Take Following DOT
Certification Appeal Decisions?
There were few comments concerning
this section. Some comments suggested
DOT appeal decisions should have
mandatory nationwide effect. That is if
DOT upheld the decertification action of
Recipient A. Recipients B, C. D. E, etc.
should automatically decertify the firm.
This approach is inconsistent with the
administrative review of the record
approach this rule takes for appeals to
DOT
A DOT decision that A's
decertification was supported by
substantial evidence is not a DOT
decision that the firm is ineligible. It is
only a finding that A had enough
evidence to decertify the firm. Other
results might also be supported by
substantial evidence. Nevertheless,
when the Department takes action on an
appeal. other recipients would be well
advised to review their own decisions to
see if any new proceedings are
appropriate. One comment suggested
the Department should explain a:refusal
to accept a complaint. This is already
the Department's practice.
The SNPRM included a proposal to
permit direct third -party complaints to
the Department. There were few
comments on this proposal, which
would have continued an existing DOT
practice. Some of these comments
suggested dropping this provision.
saying it made more sense to have all
certification matters handled at the
recipient level in the first instance.
Others raised procedural issues (e.g., the
possibility of the Department holding de
novo hearings). The Department has
reconsidered this proposal, and we have
decided to delete it. We believe it will
avoid administrative confusion and
simplify procedures for everyone if all
certification actions begin at the
recipient level, with DOT appellate
review on the administrative record.
Subpart F—Compliance and
Enforcement
There were very few comments
concerning this subpart, which we are
adopting as proposed. One section has
been added to reflect language in TEA -
21 that prohibits sanctions against
recipients for noncompliance in'
situations %.here compliance is
precluded by a final Federal court order
finding the program unconstitutional
DBE Participation in Airport
Concessions
The Department proposed a number
of changes to its airport concessions
DBE program rule in the 1997 SNPRM.
We received a substantial number of
comments on these proposals The
Department is continuing to work on its
responses to these comments, as well as
on refinements of the rule to ensure that
it is narrowly tailored. This work is not
complete. Rather than postpone
issuance of the rest of the rule pending
completion of this work, we are not
issuing final concessions provisions at
this time. The existing concessions
provisions of 49 CFR part 23 will
remain in place pending completion of
the revised rule.
Regulatory Analyses and Notices
Executive Order 12866
This rule is a significant rule under
Executive Order 12866, because of the
substantial public interest concerning
and policy importance of programs to
ensure nondiscrimination in Federally -
assisted contracting It also affects a
wide variety of parties, including
recipients in three important DOT
financial assistance programs and the
DBE and non -DBE contractors that work
for them. It has been reviewed by the
Office of Management and Budget. It is
also a significant rule for purposes of
the Department's Regulatory Policies
and Procedures.
We do not believe that the rule will
have significant economic impacts.
however. In evaluating the potential
economic impact of this rule, we begin
by noting that it does not create a new
program. It simply revises the rule
governing an existing program. The
economic impacts of the DBE program
are created by the existing regulation
and the statutes that mandate it, not by
these revisions. The changes that we
propose in this program are likely to
have some positive economic impacts.
For example, "one-stop shopping" and
clearer standards in certification are
likely to reduce costs for small
businesses applying for DBE
certification. as well as reducing
administrative burdens on recipients
The rule's "narrow tailoring" changes
are likely to be neutral in terms of their
overall economic impact. These could
have some distributive impacts (e.g., if
the proposed goal -setting mechanism
results in changes in DBE goals, a
different mix of firms may work on
recipients' contracts), but there would
probably not be net gains or losses to the
econorm There could be some short-
term costs to recipients owing to
changes in program administration
resulting from "narrow tailoring,"
however
In any event, the economic impacts
are quite speculative and appear nearly
impossible to quantify Comments did
not provide. and the Department does
not have, any significant information
that would allow the Department to
estimate any such impacts.
Regulatory Flexibility Act Analysis
The DBE program is aimed at
improving contracting opportunities for
small businesses owned and controlled
by socially and economically
disadvantaged individuals. Virtually all
the businesses it affects are small
entities There is no doubt that a DBE
rule always affects a substantial number
of small entities.
This rule, while improving program
administration and facilitating DBE
participation (e g., by making the
certification process clearer) and
responding to legal developments,
appears essentially cost -neutral with
respect to small entities in general (as
noted above, the one-stop shopping
feature is intended to benefit small
entities seeking to participate) It does
Federal Register/Vol. 64, No. 21 /Tuesday, February 2, 1999 /Rules and Regulations 5125
not impose new burdens or costs on
small entities, compared to the existing
rule. It does not affect the total funds or
business opportunities available to
small businesses that seek to work in
DOT financial assistance programs. To
the extent that the proposals in this rule
(e.g., with respect to changes in the
methods used to set overall goals) lead
to different goals than the existing rule,
some small firms may gain, and others
lose. business
There is no data of which the
Department is aware that would permit
us, at this time, to measure the
distributive effects of the revisions on
various types of small entities. It is
likely that any attempt to gauge these
effects would be highly speculative. For
this reason, we are not able to make a
quantitative, or even a precise
qualitative, estimate of these effects.
Paperwork Reduction Act
A number of provisions of this rule
involve information collection
requirements subject to the Paperwork
Reduction Act of 1995 (PRA) One of
these provisions, concerning a report of
DBE achievements that recipients make
to the Department, is the subject of an
existing OMB approval under the PRA.
With one exception, the other
information collection requirements of
the rule continue existing part 23
requirements, major elements of the
DBE program that recipients and
contractors have been implementing
since 1980 cr 1983. While the final rule
modifies these recuiremencs in some
ways, the Department believes the
overall burden of these requirements
will remain the same or shrink. These
requirements are the following:
• Firms applying for DBE certification
must provide information to recipients
to allow them to make eligibility
decisions. Currently certified firms must
provide information to recipients to
allow them to review the firms'
continuing eligibility (After the UCP
requirements of the rule are
implemented, the burdens of the
certification provisions should be
substantially reduced.)
• When contractors bid on prime
contracts that have contract goals, they
must document their DBE participation
and/or the good faith efforts they have
made to meet the contract goals. (Given
the final rule's emphasis on race -neutral
measures, it is likely the burden in this
area will be reduced )
• Recipients must maintain a
directory of certified DBE firms (Once
UCPs are implemented, there will be 52
consolidated directories rather than the
hundreds new required, reducing
burdens substantially )
• Recipients must calculate overall
goals and transmit them to the
Department for approval. (The process
of setting overall goals is more flexible,
but may also be more complex, than
under part 23. As they make their
transition to the final rule's goal -setting
process during the first years of
implementation. recipients may
temporarily expend more hours than in
the past on information -related tasks.)
• Recipients must have a DBE
program approved by the Department.
(The final rule includes a one-time
requirement to submit a revised
program document making changes to
conform to the new regulation.)
The Department estimates that these
program elements will result in a total
of approximately 1.58 million burden
hours to recipients and contractors
combined during the first year of
implementation and approximately 1.47
million annual burden hours thereafter.
The final rule also includes one new
information collection element. It calls
for recipients to collect and maintain
data concerning both DBE and non -DBE
bidders on DOT -assisted contracts. This
information is intended to assist
recipients in making more precise
determinations of the availability of
DBEs and the shape of the "level
playing field" the maintenance of which
is a major objective of the rule The
Department estimates that this
requirement will add 254.595 burden
hours in the first year of
implementation This figure is projected
to decline to 193,261 hours in the
second year and to 161.218 hours in the
third and subsequent years.
Both as the result of comments and
what the Department learns as it
implements the DBE program under part
26, it is possible for the Department's
information needs and the way we meet
them to change. Sometimes the way we
collect information can be changed
informally (e.g , by guidance telling
recipients they need not repeat
information that does not change
significantly from year to year) In other
circumstances, a technical amendment
to the regulation may be needed. In any
case, the Department will remain
sensitive to situations in which
modifying information collection
requirements becomes appropriate.
As required by the PRA, the
Department has submitted an
information collection approval request
to OMB. Organizations and individuals
desiring to submit comments on
information collection requirements
should direct them to the Department's
docket for this rulemaking You may
also submit copies of your comments to
the Office of Information and Regulatory
Affairs (OIRA). OMB. Room 10235, New
Executive Office Building, Washington,
DC, 20503; Attention: Desk Officer for
U.S. Department of Transportation.
The Department considers comments
by the public on information collections
for several purposes:
• Evaluating the necessity of
information collections for the proper
performance of the Department's
functions, including whether the
information has practical utility.
• Evaluating the accuracy of the
Department's estimate of the burden of
the information collections, including
the validity of the methods and
assumptions used.
• Enhancing the quality, usefulness,
and clarity of the information to be
collected.
• Minimizing the burden of the
collection of information on
respondents. including through the use
of electronic and other methods.
The Department points out that, with
the exception of the bid data collection.
all the information collection elements
discussed in this section of the
preamble have not only been part of the
Department's DBE program for many
years, but have also been the subject of
extensive public comment following the
1992 NPRM and 1997 SNPRM. Among
the over 900 comments received in
response to these notices were a number
addressing administrative burden issues
surrounding these program elements In
this final rule. the Department has
responded to these comments.
OMB is required to make a decision
concerning information collections
within 30-60 days of the publication of
this notice. Therefore, for best effect,
comments should be received by DOT/
OMB within 30 days of publication.
Following receipt of OMB approval, the
Department will publish a Federal
Register notice containing the
applicable OMB approval numbers.
Federalism
The rule does not have sufficient
Federalism impacts to warrant the
preparation of a Federalism assessment.
While the rule concerns the activities of
state and local governments in DOT
financial assistance programs, the rule
does not significantly alter the role of
state and local governments vis-a-vis
DOT from the present part 23 The
availability of program waivers could
allow greater flexibility for state and
local participants. however.
List of Subjects
49 CFR Part 23
Administrative practice and
procedure, Airports, Civil rights,
gwtY
5126 Federal Register /Vol. 64, No. 21 / Tuesday,i February 2, 1999 /Rules and Regulations
Concessions, Government contracts.
Grant programs -transportation,
Minority businesses, Reporting and
recordkeeping requirements.
49 CFR Part 26
Administrative practice and
procedure, Airports, Civil rights,
Government contracts, Grant
programs -transportation, Highways
and roads, Mass transportation,
Minority businesses. Reporting and
recordkeeping requirements.
Issued this 8th day of January, 1999, at
Washington, DC.
Rodney E. Slater,,
Secretary of Transportation.
For the reasons set forth in the
1 preamble, the Department amends 49
CFR subtitle A as follows:
PART 23 -PARTICIPATION BY
DISADVANTAGED BUSINESS
ENTERPRISE IN AIRPORT
CONCESSIONS
1. Revise the heading of 49 CFR part
23 as set forth above
- 2. Revise the authority citation for 49
CFR part 23 to read as follows'
Authority 42 U.S C. 200d et seq., 49 U.S C
47107 and 47123, Executive Order 12138, 3
CFR. 1979 Como , p. 393
Subparts A, C, D, and E -[Removed
and Reserved]
3 Remove and reserve subparts A, C.
D, and E of part 23
§ 23.89 [Amended]
4 Amend § 23 89 as follows•
a. In the definition of "disadvantaged
business," remove the words "§ 23 61 of
subpart D of this part" and add the
words "49 CFR part 26", and remove
the words "§ 23 61" in the last line of
the definition and add the words "49
CFR part 26"
b In the definition of "small business
concern," paragraph (b), remove the
words "523 43(d)" and add the words
"5 23.43(d) in effect prior to March 4,
1999 (See 49 CFR Parts 1 to 99 revised
as of October 1, 1998 )"
c. In the definition of "socially and
economically disadvantaged
individuals," remove the words "5 23.61
of subpart D of this part" and add "49
CFR part 26-
§23.93
6"§23.93 (Amended]
5 Amend § 23 93(a) introductory text
by removing the words "5 23.7" and
adding the words "5 26 7".
§ 23.95 (Amended]
6 Amend § 23 95(a)(1) by removing
the words "based on the factors listed in
§23.45(g)(5)" and adding the words
"consistent with the process for setting
overall goals set forth in 49 CFR 26.45".
7. In addition, amend § 23.95 as
follows:
a. In paragraph (0(1), remove the.
words "523.51" and add the words "49
CFR part 26, subpart E";
b. In paragraph (f)(2), remove the
words "Except as provided in § 23.51(c) ,
each" and add "Each";
c. Remove paragraph (f)(5):
d. In paragraph (g)(1), remove the
words "523.53" and add the words "49
CFR part 26, subpart D".
§ 23.97 [Amended]
8. Amend § 23 97 by removing the
words "523.55" and adding the words
"49 CFR 26.89".
§23.11 [Removed]
9 Remove § 23 111.
10. Add a new 49 CFR part 26, to read
as follows.
PART 26 -PARTICIPATION BY
DISADVANTAGED BUSINESS
ENTERPRISES IN DEPARTMENT OF
TRANSPORTATION FINANCIAL
ASSISTANCE PROGRAMS
Subpart A -General
Sec.
26 1 What are the objectives of this,par:?
26 3 To whom does this part apply?
26 5 What do the terms used in this part
mean"
26 7 What discriminatory actions are
forbidden?
26 9 How does the Department issue
guidance and interpretations under this
part?
26.11 What records do recipients keep and
report?
26 13 What assurances must recipients and
contractors make?
26.15 How can recipients apply for
exemptions or waivers'
Subpart B -Administrative Requirements
for DBE Programs for Federally -Assisted
Contracting
26.21 Who must have a DBE program?
26.23 What is the requirement for a policy
statement'
26.25 What is the requirement for a liaison
officer?
26 27 What efforts must recipients make
concerning DBE financial institutions?
26.29 What prompt payment mechanisms
may recipients have?
26 31 What requirements pertain to the DBE
directory?
26 33 What steps must a recipient take to
address overconcentration of DBEs in
certain types of work?
26.35 What role do business development
and mentor -protege programs have in the
DBE program'
26.37 What are a recipient's responsibilities
for monitoring the performance of other
program participants?
Subpart C -Goals, Good Faith Efforts, and
Counting
26.41 What is the role of the statutory 10
percent goal in this program?
26.43 Can recipients use set -asides or
quotas as part of this program?
26.45 How do recipients set overall goals?
26.47 Can recipients be penalized for failing
to meet overall goals?
26.49 How are overall goals established for
transit vehicle manufacturers?
26.51 What means do recipients use to meet
overall goals?
26.53 What are the good faith efforts
procedures recipients follow in
situations where there are contract goals?
26.55 How is DBE participation counted
toward goals?
Subpart D --Certification Standards
26.61 How are burdens of proof allocated in
the certification process?
26.63 What rules govern group membership
determinations?
26.65 What rules govern business size
determinations?
26.67 What rules govern determinations of
social and economic disadvantage?
26.69 What rules govern determinations of
ownership?
26 71 What rules govern determinations
concerning control?
26.73 What are other ruies affecting
certification?
Subpart E -Certification Procedures
26 81 What are the requirements for Unified
Certification Programs?
26 83 What procedures do recipients folio \.%
in making certification decisions'
26 85 W'nat rules govern recipients' denials
of initial requests for certification?
26 87 What procedures does a recipient use
to remove a DBE's eligibility?
26 89 What is the process for certification
appeals to the Department of
Transportation?
26.91 What actions do recipients take
following DOT certification appeal
decisions?
Subpart F -Compliance and Enforcement
26.10I What compliance procedures apply to
recipients?
26.103 What enforcement actions apply in
FHWA and FTA programs?
26 105 What enforcement actions apply in
FAA Programs?
26 107 What enforcement actions apply to
firms participating in the DBE program?
26 109 What are the rules governing
information, confidentiality,
cooperation, and intimidation or
retaliation?
Appendix A to part 26 -Guidance
Concerning Good Faith Efforts
Appendix B to part 26 -Forms (Reserved[
Appendix C to part 26 -DBE Business
Development Program Guidelines
Appendix D to part 26 -Mentor -Protege
Program Guidelines
Appendix E to part 26 -Individual
Determinations of Social and Economic
Disadvantage
Authority: 23 U.5 C 324; 42 U.S.C. 2000d
et seq ): 49 U.S,C 1615, 47107, 47113. 47123..
Federal Register/Vol. 64, No. 21 /Tuesday. February 2, 1999 /Rules and Regulations 5127
Sec. 1101(b), Pub. L. 105-178, 112 Stat. 107,
113.
Subpart A—General
§ 26.1 What are the objectives of this part?
This part seeks to achieve several
objectives.
(a) To ensure nondiscrimination in
the award and administration of DOT -
assisted contracts in the Department's
highway. transit, and airport financial
assistance programs:
(b) To create a level playing field on
which DBEs can compete fairly for
DOT -assisted contracts;
(c) To ensure that the Department's
DBE program is narrowly tailored in
accordance with applicable law;
(d) To ensure that only firms that fully
meet this part's eligibility standards are
permitted to participate as DBEs;
(e) To help remove barriers to the
participation of DBEs in DOT -assisted
contracts;
(f) To assist the development of firms
that can compete successfully in the
marketplace outside the DBE program;
and
(g) To provide appropriate flexibility
to recipients of Federal financial
assistance in establishing and providing
opportunities for DBEs
§ 26.3 To whom does this part apply?
(ai If you are a recipient of any of the
follow. ing types of funds, this part
applies to you.
(1) Federal -aid highway funds
authorized under Titles I (other than
Part B) and V of the Intermodal Surface
Transportation Efficiency Act of 1991
(ISTEA), Pub L 102-240, 105 Stat.
1914, or Titles I, III, and V of the
Transportation Equity Act for the 21st
Century (TEA -21), Pub L. 105-178, 112
Stat. 107
(2) Federal transit funds authorized by
Tides I, III, V and VI of ISTEA, Pub. L.
102-240 or by Federal transit laws in
Tide 49, U.S. Code, or Titles I, III. and
V of the TEA -21, Pub. L. 105-178
(3) Airport funds authorized by 49
USC 47101, et seq.
(b) (Reserved'
(c) If you are letting a contract, and
that contract is to be performed entirely
outside the United States, its territories
and possessions, Puerto Rico. Guam, or
the Northern Marianas Islands, this part
does not apply to the contract.
(d) If you are letting a contract in
which DOT financial assistance does
not participate, this part does not apply
to the contract.
26.5 What do the terms used in this part
mean'?
Affiliation has the same meaning, the
term has in the Small Business
Administration (SBA) regulations, 13
CFR part 121.
(1) Except as otherwise provided in 13
CFR part 121, concerns are affiliates of
each other when, either directly or
indirectly:
(i) One concern controls or has the
power to control the other; or
(ii) A third party or parties controls or
has the power to control both; or
(iii) An identity of interest between or
among parties exists such that affiliation
may be found.
(2) In determining whether affiliation
exists, it is necessary to consider all
appropriate factors. including common
ownership, common management, and
contractual relationships. Affiliates
must be considered together in
determining whether a concern meets
small business size criteria and the
statutory cap on the participation of
firms in the DBE program.
Alaska Native means a citizen of the
United States who is a person of one-
fourth degree or more Alaskan Indian
(including Tsimshian Indians not
enrolled in the Metlaktla Indian
Community). Eskimo, or Aleut blood,,
-or
a combination of those bloodlines. The
term includes. in the absence of proof of
a minimum blood quantum, any citizen
whom a Native village or Native group
regards as an Alaska Native if their
father or mother is regarded as an
Alaska Native
Alaska Native Corporation (ANC)
means anv 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 )
Compliance means that a recipient
has correctly implemented the
requirements of this part.
Contract means a legally binding
relationship obligating a seller to
furnish supplies or services (including,
but not limited to, construction and
professional services) and the buyer to
pay for them.
Contractor means one who
participates, through a contract or
subcontract (at any tier), in a DOT -
assisted highway, transit, or airport
program.
Department or DOT means the U.S.
Department of Transportation, including
the Office of the Secretary, the Federal
Highway Administration (FHWA), the
Federal Transit Administration (FTA),
and the Federal Aviation
Administration (FAA).
Disadvantaged business enterprise or
DBE means a for-profit small business
concern—
(1) That 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) Whose management and daily
business operations are controlled by
one or more of the socially and
economically disadvantaged individuals
who own it.
DOT -assisted contract means any
contract between a recipient and a
contractor (at any tier) funded in whole
or in part with DOT financial assistance,
including letters of credit or loan
guarantees. except a contract solely for
the purchase of land.
Good faith efforts means efforts to
achieve a DBE goal or other requirement
of this part which, by their scope,
intensity. and appropriateness to the
objective, can reasonably be expected to
fulfill the program requirement.
Immediate family member means
father, mother, husband, wife, son,
daughter, brother, sister, grandmother,
grandfather, grandson, granddaughter.
mother-in-law, or father-in-law.
Indian tribe means any Indian tribe,
band. nation, or other organized group
or community of Indians, including any
ANC, \\ high is recognized as eligible for
the special programs and services
provided by the United States to Indians
because of their status as Indians, or is
recognized as such by the State in
which the tribe, band, nation, group, or
community resides. See definition of
"tribally -owned concern" in this
section
Joint venture means an association of
a DBE 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
DBE 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.
Native Hawaiian means any
individual whose ancestors were
natives, prior to 1778, of the area which
now comprises the State of Hawaii.
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.
5128 Federal Register/Vol. 64, No. 21/Tuesday.,~;February 2, 1999/Rules and Regulations
Noncompliance means that a
recipient has not correctly implemented
the requirements of this part.
Operating Administration or OA
means any of the following parts of
DOT. the Federal Aviation
Administration (FAA), Federal Highway
Administration (FHWA), and Federal
Transit Administration (FTA). The
"Administrator" of an operating
administration includes his or her
designees.
Personal net worth means the 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 DBE 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.
Primary industry classification means
the four digit Standard Industrial
Classification (SIC) code designation
which best describes the primary
business of a firm. The SIC code
designations are described in the
Standard Industry Classification
IvlanLial. As the North American
Industrial Classification System
(NAICS) replaces the SIC system,
references to SIC codes and the SIC
Manual are deemed to refer to the
NAICS manual and applicable codes
The SIC Manual and the NAICS Manual
are available through the National
Technical Information Service (NTIS) of
the U S Department of Commerce
(Springfield, VA. 22261). NTIS also
makes materials available through its
web site (www ntis.gov/naics)
Primary recipient means a recipient
which receives DOT financial assistance
and passes some or all of it on to
another recipient.
Principal place of business means the
business location where the individuals
who manage the firm's day-to-day
operations spend most working hours
and where top management's business
records are kept. If the offices from
which management is directed and
where business records are kept are in
different locations, the recipient will
determine the principal place of
business for DBE program purposes.
Program means any undertaking on a
recipient's part to use DOT financial
assistance, authorized by the laws to
which this part applies.
Race -conscious measure or program is
one that is focused specifically on
assisting only DBEs, including women -
owned DBEs.
Race -neutral measure or program is
one that is, or can be, used to assist all
small businesses. For the purposes of
this part, race' -neutral includes gender -
neutrality
Recipient is any entity, public or
private. to which DOT financial
assistance is extended, whether directly
or through another recipient, through
the programs of the FAA, FHWA, or
FTA, or who has applied for such
assistance.
Secretary means the Secretary of
Transportation or his/her designee.
Set-aside means a contracting practice
restricting eligibility for the competitive
award of a contract solely to DBE firms.
Small Business Administration or
SBA means the United States Small
Business Administration.
Small business concern means, with
respect to firms seeking to participate as
DBEs in DOT -assisted contracts. a small
business concern as defined pursuant to
section 3 of the Small Business Act and
Small Business Administration
regulations implementing it (13 CFR
part 121) that also does not exceed the
cap on average annu-al gross receipts
specified in § 26 65(b)
Socially and economically
disadvantaged individual means any
individual who is a citizen (or lawfully
admitted permanent resident) of the
United States and who is— .rS,
(1) Any individual v. ho a recipient
finds to be a socially and economically
disadvantaged individual on a case-by-
case basis
(2) Any individual in the following
groups, members of which are
rebuttably presumed to be socially and
economically disadvantaged.
(i) "Black Americans," which
includes persons having origins in any
of the Black racial groups of Africa;
(ii) "Hispanic Americans," which
includes persons of Mexican, Puerto
Rican, Cuban, Dominican, Central or
South American, or other Spanish or
Portuguese culture or origin, regardless
of race,
(iii) "Native Americans," which
includes persons who are American
Indians, Eskimos, Aleuts, or Native
Hawaiians,
(iv) "Asian -Pacific Americans,"
which includes persons whose origins
are from Japan., China, Taiwan, Korea,
Burma (Myanmar), Vietnam, Laos,
Cambodia (Kampuchea), Thailand,
Malaysia, Indonesia, the Philippines,
Brunei, Samoa, Guam, the U.S. Trust
Territories of the Pacific Islands
(Republic of Palau), the Commonwealth
of the Northern Marianas Islands,
Macao, Fiji, Tonga, Kirbati, Juvalu,
Nauru, Federated States of Micronesia,
or Hong Kong;
(v) "Subcontinent Asian Americans,"
which includes persons whose origins
are from India. Pakistan, Bangladesh,
Bhutan, the Maldives Islands. Nepal or
Sri Lanka;
(vi) Women;
(vii) Any additional groups whose
members are designated as socially and
economically disadvantaged by the
SBA. at such time as the SBA
designation becomes effective.
Tribally -owned concern means any
concern at least 51 percent owned by an
Indian tribe as defined in this section.
You refers to a recipient, unless a
statement in the text of this part or the
context requires otherwise (i.e., 'You
must do XYZ' means that recipients
must do XYZ).
§ 26.7 What discriminatory actions are
forbidden?
(a) You must never exclude any
person from participation in. deny any
person the benefits of, or otherwise
discriminate against anyone in
connection with the award and
performance of any contract covered by
this part on the basis of race, color, sex,
or national origin.
(b) In administering your DBE
program, you must not, directly or
through contractual or other
arrangements use criteria or methods of
administration that have the effect of
defeating or substantially impairing
accomplishment of the objectives of the
program with respect to individuals of
a particular race, color. sex, or national
origin
§ 26.9 How does the Department issue
guidance and interpretations under this
part?
(a) This part applies instead of
subparts A and C through E of 49 CFR
part 23 in effect prior to March 4, 1999.
(See 49 CFR Parts 1 to 99, revised as of
October 1, 1998.) Only guidance and
interpretations (including
interpretations set forth in certification
appeal decisions) consistent with this
part 26 and issued after March 4, 1999
have definitive, binding effect in
implementing the provisions of this part
and constitute the official position of
the Department of Transportation.
(b) The Secretary of Transportation,
Office of the Secretary of
Transportation, FHWA, FTA, and FAA
may issue written interpretations of or
written guidance concerning this part.
Written interpretations and guidance are
valid and binding, and constitute the
official position of the Department of
Transportation, only if they are issued
over the signature of the Secretary of
Transportation or if they contain the
following statement.
Federal Register /Vol. 64, No. 21 /Tuesday, February 2, 1999 / Rules and Regulations 5129
The General Counsel of the Department of
Transportation has reviewed this document
and approved it as consistent with the
language and intent of 49 CFR part 26.
§ 26.11 What records do recipients keep
and report?
(a) [Reserved]
(b) You must continue to provide data
about your DBE program to the
Department as directed by DOT
operating administrations.
(c) You must create and maintain a
bidders list, consisting of all firms
bidding on prime contracts and bidding
or quoting subcontracts on DOT -assisted
projects. For every firm, the following
information must be included:
(1) Firm name,
(2) Firm address:
(3) Firm's status as a DBE or non -DBE;
(4) The age of the firm; and
(5) The annual gross receipts of the
firm.
§ Section 26.13 What assurances must
recipients and contractors make?
(a) Each financial assistance
agreement you sign with a DOT
operating administration (or a primary
recipient) must include the following
assurance,
The recipient shall not discriminate on the
basis of race, color, national origin. or sex in
the av, and and performance of any DOT-
assis-ed contract or in the administration of
its DEE program or the requirements of 49
CFR part 26 The recipient shall take all
necessar. and reasonable steps under 49 CFR
part 25 to ensure nondiscrimination in the
award and administration of DOT -assisted
contracts. The recipient's DBE program, as
required by 49 CFR part 26 and as approved
by DOT, is incorporated by reference in this
agreement. Implementation of this program is
a legal obligation and failure to carry out its
terms shall be treated as a violation of this
agreement. Upon notification to the recipient
of its failure to carry out its approved
program; the Department may impose
sanctions as provided for under part 26 and
may, in appropriate cases, refer the matter for
enforcement under 18 U.S C 1001 and/or the
Program Fraud Civil Remedies Act of 1986
(31 U.S C 3801 et seq.)
(b) Each contract you sign with a
contractor (and each subcontract the
prime contractor signs with a
subcontractor) must include the
following assurance
The contractor, sub recipient or
subcontractor shall not discriminate on the
basis of race, color, national origin, or sex in
the performance of this contract. The
contractor shall carry out applicable
requirements of 49 CFR part 26 in the award
and administration of DOT -assisted
contracts Failure by the contractor to carry
out these requirements is a material breach
of this contract, which may result in the
termination of this contract or such other
remedy as the recipient deems appropriate.
§ 26.15 How can recipients apply for
exemptions or waivers?
(a) You can apply for an exemption
from any provision of this part. To
apply. you must request the exemption
in writing from the Office of the
Secretary of Transportation, FHWA,
FTA, or FAA. The Secretary will grant
the request only if it documents special
or exceptional circumstances, not likely
to be generally applicable, and not
contemplated in connection with the
rulemaking that established this part,
that make your compliance with a
specific provision of this part
impractical. You must agree to take any
steps that the Department specifies to
comply with the intent of the provision
from which an exemption is granted.
The Secretary will issue a written
response to all exemption requests.
(b) You can apply for a waiver of any
provision of Subpart B or C of this part
including, but not limited to, any
provisions regarding administrative
requirements, overall goals, contract
goals or good faith efforts. Program
waivers are for the purpose of
authorizing you to operate a DBE
program that achieves the objectives of
this part by means that may differ from
one or more of the requirements of
Subpart B or C of this part. To receive
a program waiver, you must follow
these procedures
(1) You must apply through the
concerned operating administration.
The application must include a specific
program proposal and address how you
will meet the criteria of paragraph (b) (2)
of this section. Before submitting your
application, you must have had public
participation in developing your
proposal, including consultation with
the DBE community and at least one
public hearing Your application must
include a summary of the public
participation process and the
information gathered through it.
(2) Your application must show that—
(i) There is a reasonable basis to
conclude that you could achieve a level
of DBE participation consistent with the
objectives of this part using different or
innovative means other than those that
are provided in subpart B or C of this
part;
(ii) Conditions in your jurisdiction are
appropriate for implementing the
proposal;
(iii) Your proposal would prevent
discrimination against any individual or
group in access to contracting
opportunities or other benefits of the
program; and
(iv) Your proposal is consistent with
applicable law and program
requirements of the concerned operating
administration's financial assistance
program.
(3) The Secretary has the authority to
approve your application. If the
Secretary grants your application, you
may administer your DBE program as
provided in your proposal, subject to
the following conditions:
(i) DBE eligibility is determined as
provided in subparts D and E of this
part, and DBE participation is counted
as provided in §26.49,
(ii) Your level of DBE participation
continues to be consistent with the
objectives of this part;
(iii) There is a reasonable limitation
on the duration of your modified
program; and
(iv) Any other conditions the
Secretary makes on the grant of the
waiver.
(4) The Secretary may end a program
waiver at any time and require you to
comply with this part's provisions. The
Secretary may also extend the waiver, if
he or she determines that all
requirements of paragraphs (b)(2) and
(3) of this section continue to be met.
Any such extension shall be for no
longer than period originally set for the
duration of the program.
Subpart B—Administrative
Requirements for DBE Programs for
Federally -Assisted Contracting
§26.21 Who must have a DBE program?
(a) If you are in one of these categories
and let DOT -assisted contracts, you
must have a DBE program meeting the
requirements of this part'
(1) All FHWA recipients receiving
funds authorized by a statute to which
this part applies.
(2) FTA recipients that receive
$250,000 or more in FTA planning,
capital. and/or operating assistance in a
Federal fiscal year;
(3) FAA recipients that receive a grant
of $250,000 or more for airport planning
or development.
(b) (1) You must submit a DBE
program conforming to this part by
August 31, 1999 to the concerned
operating administration (OA). Once the
OA has approved your program, the
approval counts for all of your DOT -
assisted programs (except that goals are
reviewed and approved by the
particular operating administration that
provides funding for your DOT -assisted
contracts)
(2) You do not have to submit regular
updates of your DBE programs, as long
as you remain in compliance. However,
you must submit significant changes in
the program for approval.
(c) You are not eligible to receive DOT
financial assistance unless DOT has
5130 Federal Register /Vol. 64, No. 21 1Tuesday, `February 2, 1999 / Rules and Regulations
approved your DBE program and you
are in compliance with it and this part.
You must continue to carry out your
program until all funds from DOT
financial assistance have been
expended.
§ 26.23 What is the requirement for a
policy statement?
You must issue a signed and dated
policy statement that expresses your
commitment to your DBE program,
states its objectives, and outlines
responsibilities for its implementation.
You must circulate the statement
throughout your organization and to the
DBE and non -DBE business
communities that perform work on your
DOT -assisted contracts.
§ 26.25 What is the requirement for a
liaison officer?
You must have a DBE liaison officer,
who shall have direct, independent
access to your Chief Executive Officer
concerning DBE program matters The
liaison officer shall be responsible for
implementing all aspects of your DBE
program. You must also have adequate
staff to administer the program in
compliance with this part.
26.27 What efforts must recipients make
concerning DBE financial institutions?
You must thcroughl„ investigate the
full extent of services offered by
financial institutions owned and
controlled b, soc:aiiv and economicall;
disadvanta,ed' individuals in your
community and make reasonable efforts
to use these institutions You must also
encourage prime contractors to use such
institutions
§ 26.29 What prompt payment
mechanisms must recipients have?
(a) You must establish, as part of your
DBE program. a contract clause to
require prime contractors to pay
subcontractors for satisfactory
performance of their contracts no later
than a specific number of days from
receipt of each payment you make to the
prime contractor This clause must also
require the prompt return of retainage
payments from the prime contractor to
the subcontractor within a specific
number of days after the subcontractor's
work is satisfactorily completed.
(1) This clause may provide for
appropriate penalties for failure to
comply, the terms and conditions of
which you set.
(2) This clause may also provide that
any delay or postponement of payment
among the parties may take place only
for good cause, with your prior written
approval
(b) You may also establish, as part of
your DBE program, any of the following
additional mechanisms to ensure
prompt payment:
(1) A contract clause that requires
prime contractors to include intheir
subcontracts language providing that
prime contractors and subcontractors
will use appropriate alternative dispute
resolution mechanisms to resolve
payment disputes. You may specify the
nature of such mechanisms.
(2) A contract clause providing that
the prime contractor will not be
reimbursed for work performed by
subcontractors unless and until the
prime contractor ensures that the
subcontractors are promptly paid for the
work they have performed.
(3) Other mechanisms. consistent
with this part and applicable state and
local law, to ensure that DBEs and other
contractors are fully and promptly paid.
§ 26.31 What requirements pertain to the
DBE directory?
You must maintain and make
available to interested persons a
directory identifying all firms eligible to
participate as DBEs in your program. In
the listing for each firm, you must
include its address, phone number, and
the types of work the firm has been
certified to perform as a DBE You must
revise vour director:, a: -east annually
and make updated inforrriatton available
to contractors and :he public on request.
§ 26.33 What steps must a recipient take to
address overconcentration of DBEs in
certain types of work?
(a) If you determine that DBE firms
are so overconcentr ated in a certain type
of work as to unduly burden the
opportunity of non -DBE firms to
participate in this type of work, you
must devise appropriate measures to
address this overconcentration.
(b) These measures may include the
use of incentives, technical assistance,
business development programs,
mentor -protege programs, and other
appropriate measures designed to assist
DBEs in performing work outside of the
specific field in which you have
determined that non -DBEs are unduly
burdened You may also consider
varying your use of contract goals, to the
extent consistent with § 26 51, to unsure
that non -DBEs are not unfairly
prevented from competing for
subcontracts.
(c) You must obtain the approval of
the concerned DOT operating
administration for your determination of
overconcentration and the measures you
devise to address it. Once approved. the
measures become part of your DBE
program
§ 26.35 What role do business
development and mentor -protege programs
have In the DBE program?
(a) You may or, if an operating
administration directs you to, you must
establish a DBE business development
program (BDP) to assist firms in gaining
the ability to compete successfully in
the marketplace outside the DBE
program. You may require a DBE firm,
as a condition of receiving assistance
through the BDP, to agree to terminate
its participation in the DBE program
after a certain time has passed or certain
objectives have been reached. See
Appendix C of this part for guidance on
administering BDP programs.
(b) As part of a BDP or separately, you
may establish a "mentor -protege"
program, in which another DBE or non -
DBE firm is the principal source of
business development assistance to a
DBE firm.
(1) Only firms you have certified as
DBEs before they are proposed for
participation in a mentor -protege
program are eligible to participate in the
mentor -protege program.
(2) During the course of the mentor -
protege relationship, you must:
(i) Not award DBE credit to a non -DBE
mentor firm for using its own protege
firm for more than one half of its goal
on anti contract let by the recipient. and
(ii) Not award DBE credit to a non -
DBE mentor firm for using its own
protege firm for more than every other
contract performed by the protege firm.
(3) For purposes of making
determinations of business size under
this part, you must not treat protege
firms as affiliates of mentor firms, when
both firms are participating under an
approved mentor -protege program. See
Appendix D of this part for guidance
concerning the operation of mentor -
protege programs.
(c) Your BDPs and mentor -protege
programs must be approved by the
concerned operating administration
before you implement them. Once
approved. they become part of your DBE
program.
§26.37 What are a recipient's
responsibilities for monitoring the
performance of other program participants?
(a) You must implement appropriate
mechanisms to ensure compliance with
the part's requirements by all program
participants (e.g., applying legal and
contract remedies available under
Federal, state and local law) You must
set forth these mechanisms in your DBE
program.
(b) Your DBE program must also
include a monitoring and enforcement
mechanism to verify that the work
committed to DBEs at contract award is
Federal Register /Vol. 64, No. 21 /Tuesday, February 2, 1999 /Rules and Regulations 5131
actually performed by the DBEs. This
mechanism must provide for a running
tally of actual DBE attainments (e.g.,
payments actually made to DBE firms)
and include a provision ensuring that
DBE participation is credited toward
overall or contract goals only when
payments are actually made to DBE
firms.
Subpart C—Goals, Good Faith Efforts,
and Counting
§26.41 What is the role of the statutory 10
percent goal in this program?
(a) The statutes authorizing this
program provide that, except to the
extent the Secretary determines
otherwise, not less than 10 percent of
the authorized funds are to be expended
with DBEs.
(b) This 10 percent goal is an
aspirational goal at the national level,
which the Department uses as a tool in
evaluating and monitoring DBEs'
opportunities to participate in DOT -
assisted contracts
(c) The national 10 percent goal does
not authorize or -require recipients to set
overall or contract goals at the 10
percent level, or any other particular
level, or to take any special
administrative steps if their goals are
above or below 10 percent.
§ 26.43 Can recipients use set -asides or
quotas as part of this program?
(a) `t cu are not permitted to use
quotas for DBEs on DOT -assisted
contracts subject to this part.
(b' You may not set-aside contracts for
DBEs on DOT -assisted contracts subject
to this part, except that. in limited and
extreme circumstances, you may use
set -asides when no other method could
be reasonably expected to redress
egregious instances of discrimination.
§ 26.45 How do recipients set overall
goals?
(a) You must set an overall goal for
DBE participation in your DOT -assisted
contracts
(b) Your overall goal must be based on
demonstrable evidence of the
availability of ready, willing and able
DBEs relative to all businesses ready,
willing and able to participate on your
DOT -assisted contracts (hereafter, the
"relative availability of DBEs") The
goal must reflect your determination of
the level of DBE participation you
would expect absent the effects of
discrimination. You cannot simply rely
on either the 10 percent national goal,
your previous overall goal or past DBE
participation rates in your program
without reference to the relative
availability of DBEs in your market.
(c) Step 1. You must begin your goal
setting process by determining a base
figure for the relative availability of
DBEs. The following are examples of
approaches that you may take toward
determining a base figure. These
examples are provided as a starting
point for your goal setting process. Any
percentage figure derived from one of
these examples should be considered a
basis from which you begin when
examining all evidence available in your
jurisdiction These examples are not
intended as an exhaustive list. Other
methods or combinations of methods to
determine a base figure may be used,
subject to approval by the concerned
operating administration.
(1) Use DBE Directories and Census
Bureau Data. Determine the number of
ready, willing and able DBEs in your
market from your DBE directory. Using
the Census Bureau's County Business
Pattern (CBP) data base, determine the
number of all ready, willing and able
businesses available in your market that
perform work in the same SIC codes.
(Information about the CBP data base
may be obtained from the Census
Bureau at their web site.
www.census gov/epcd/cbp/view/
cbpview html) Divide the number of
DBEs by the number of all businesses to
derive a base figure for the relative
availability of DEEB in _your market.
(2) Use a bidders list Determine the
number of DEEB :ha: r aye 'bid or quoted
on your DOT -assisted prime contracts or
subcontracts in the previous year
Determine the number of all businesses
that have bid or quoted on prime or
subcontracts in the same time period
Divide the number of DBE bidders and
quoters by the number for all businesses
to derive a base figure for the relative
availability of DBEs in your market.
(3) Use data from a disparity study
Use a percentage figure derived from
data in a valid, applicable disparity
study
(4) Use the goal of another DOT
recipient. If another DOT recipient in
the same, or substantially similar,
market has set an overall goal in
compliance with this rule, you may use
that goal as a base figure for your goal
(5) Alternative methods. Subject to the
approval of the DOT operating
administration. you may use other
methods to determine a base figure for
your overall goal. Any methodology you
choose must be based on demonstrable
evidence of local market conditions and
be designed to ultimately attain a goal
that is rationally related to the relative
availability of DBEs in your market.
(d) Step 2 Once you have calculated
a base figure, you must examine all of
the evidence available in your
jurisdiction to determine what
adjustment, if any. is needed to the base
figure in order to arrive at your overall
goal.
(1) There are many types of evidence
that must be considered when adjusting
the base figure. These include. '
(i) The current capacity of DBEs to
perform work in your DOT -assisted
contracting program, as measured by the
volume of work DBEs have performed in
recent years;
(ii) Evidence from disparity studies
conducted anywhere within your
jurisdiction, to the extent it is not
already accounted for in your base
figure; and
(iii) If your base figure is the goal of
another recipient, you must adjust it for
differences in your local market and
your contracting program.
(2) You may also consider available
evidence from related fields that affect
the opportunities for DBEs to form, grow
and compete. These include, but are not
limited to:
(i) Statistical disparities in the ability
of DBEs to get the financing, bonding
and insurance required to participate in
your program,
(ii) Data on employment, self-
employment, education, training and
union apprenticeship programs, to the
extent you can relate it to the
opportunities for DBEs to perform in
your program.
(3) If you attempt to make an
adjustment to your base figure to
account for the continuing effects of
past discrimination (often called the
"but for" factor) or the effects of an
ongoing DBE program, the adjustment
must be based on demonstrable
evidence that is logically and directly
related to the effect for which the
adjustment is sought.
(e) Once you have determined a
percentage figure in accordance with
paragraphs (c) and (d) of this section.
you should express your overall goal as
follows
(1) If you are an FHWA recipient, as
a percentage of all Federal -aid highway
funds you will expend in FHWA-
assisted contracts in the forthcoming
fiscal year;
(2) If you are an FTA or FAA
recipient. as a percentage of all FTA or
FAA funds (exclusive of FTA funds to
be used for the purchase of transit
vehicles) that you will expend in FTA
or FAA -assisted contracts in the
forthcoming fiscal year. In appropriate
cases, the FTA or FAA Administrator
may permit you to express your overall
goal as a percentage of funds for a
particular grant or project or group of
grants and/or projects
5132 Federal Register/Vol. 64, No. 21 / Tuesda}r "•February 2, 1999 /Rules and Regulations
(f) (1) If you set overall goals on a
fiscal year basis, you must submit them
to the applicable DOT operating
administration for review on August 1
of each year, unless the Administrator of
the concerned operating administration
establishes a different submission date.
(2) If you are an FTA or FAA recipient
and set your overall goal on a project or
grant basis, you must submit the goal for
review at a time determined by the FTA
or FAA Administrator.
(3) You must include with your
overall goal submission a description of
the methodology you used to establish
the goal. including your base figure and
the evidence with which it was
calculated, and the adjustments you
made to the base figure and the
evidence relied on for the adjustments.
You should also include a summary
listing of the relevant available evidence
in your jurisdiction and, where
applicable, an explanation of why you
did not use that evidence to adjust your
base figure. You must also include your
projection of the portions of the overall
goal you expect to meet through race -
neutral and race -conscious measures.
respectively (see § 26 51(c))
(4) You are not required to obtain
prior operating administration
concurrence with the your overall goal.
However, if the operating
administration s review suggests that
your overall goal has not been correctly
calculated, or that our method for
calculating goals is inadequate the
operating administration may after
consulting with you adjust your overall
goal or require that you do so The
adjusted overall goal is binding on you.
(5) If you need additional time to
collect data or take other steps to
develop an approach to setting overall
goals, you may request the approval of
the concerned operating administration
for an interim goal and/or goal -setting
mechanism. Such a mechanism must:
(i) Reflect the relative availability of
DBEs in your local market to the
maximum extent feasible given the data
available to you, and
(ii) Avoid imposing undue burdens on
non -DBEs.
(g) In establishing an overall goal, you
must provide for public participation.
This public participation must include
(1) Consultation with minority,
women's and general contractor groups,
community organizations, and other
officials or organizations which could
bt expected to have information
concerning the availability of
disadvantaged and non -disadvantaged
businesses. the effects of discrimination
on opportunities for DBEs, and your
efforts to establish a level playing field
for the participation of DBEs
(2) A published notice announcing
your proposed overall goal. informing
the public that the proposed goal and its
rationale are available for inspection
during normal business hours at your
principal office for 30 days following
the date of the notice. and informing the
public that you and the Department will
accept comments on the goals for 45
days from the date of the notice. The
notice must include addresses to which
comments may be sent. and you must
publish it in general circulation media
and available minority -focused media
and trade association publications.
(h) Your overall goals must provide
for participation by all certified DBEs
and must not be subdivided into group -
specific goals.
§26.47 Can recipients be penalized for
failing to meet overall goals?
(a) You cannot be penalized. or
treated by the Department as being in
noncompliance with this rule, because
your DBE participation falls short of
your overall goal. unless you have failed
to administer your program in good
faith.
(b) If you do not have an approved
DBE program or overall goal. or if you
fail to implement your program in good
faith, you are in noncompliance with
this part.
§26.49 How are overall goals established
for transit vehicle manufacturers?
(a) If you are an FTA recipient. you
must require in your DBE program that
each transit vehicle manufacturer, as a
condition of being authorized to bid or
propose on FTA -assisted transit vehicle
procurements. certify that it has
complied with the requirements of this
section You do not include FTA
assistance used in transit vehicle
procurements in the base amount from
which your overall goal is calculated.
(b) If you are a transit vehicle
manufacturer, you must establish and
submit for FTA's approval an annual
overall percentage goal. In setting your
overall goal, you should be guided, to
the extent applicable. by the principles
underlying § 26.45 The base from
which you calculate this goal is the
amount of FTA financial assistance
included in transit vehicle contracts you
will perform during the fiscal year in
question. You must exclude from this
base funds attributable to work
performed outside the United States and
its territories, possessions, and
commonwealths. The requirements and
procedures of this part with respect to
submission and approval of overall
goals apply to you as they do to
recipients
(c) As a transit vehicle manufacturer,
you may make the certification required
by this section if you have submitted the
goal this section requires and FTA has
approved it or not disapproved it.
(d) As a recipient, you may. with FTA
approval. establish project -specific goals
for DBE participation in the
procurement of transit vehicles in lieu
of complying through the procedures of
this section.
(e) If you are an FHWA or FAA
,recipient, you may, with FHWA or FAA
approval. use the procedures of this
section with respect to procurements of
vehicles or specialized equipment. If
you choose to do so, then the
manufacturers of this equipment must
meet the same requirements (including
goal approval by FHWA or FAA) as
transit vehicle manufacturers must meet
in FTA -assisted procurements
§ 26.51 What means do recipients use to
meet overall goals?
(a) You must meet the maximum
feasible portion of your overall goal by
using race -neutral means of facilitating
DBE participation. Race -neutral DBE
participation includes any time a DBE
wins a prime contract through
customary competitive procurement
procedures, is awarded a subcontract on
a prime contract that does not cam' a
DBE goal, or even if there is a DBE goal,
wins a subcontract from a prime
contractor that did not consider its DBE
status in making the award (e g. a prime
contractor that uses a strict low bid
system to award subcontracts)
(b) Race -neutral means include, but
are not limited to, the following:
(1) Arranging solicitations, times for
the presentation of bids, quantities,
specifications, and delivery schedules
in ways that facilitate DBE, and other
small businesses, participation (e g ,
unbundling large contracts to make
them more accessible to small
businesses. requiring or encouraging
prime contractors to subcontract
portions of work that they might
otherwise perform with their own
forces) .
(2) Providing assistance in
overcoming limitations such as inability
to obtain bonding or financing (e.g., by
such means as simplifying the bonding
process, reducing bonding
requirements, eliminating the impact of
surety costs from bids, and providing
services to help DBEs, and other small
businesses, obtain bonding and
financing),
(3) Providing technical assistance and
other services,
(4) Carrying out information and
communications programs on
contracting procedures and specific
Federal Register/Vol. 64, No. 21 /Tuesday, February 2, 1999 /Rules and Regulations 5133
contract opportunities (e.g., ensuring the
inclusion of DBEs, and other small
businesses, on recipient mailing lists for
bidders; ensuring the dissemination to
bidders on prime contracts of lists of
potential subcontractors; provision of
information in languages other than
English. where appropriate);
(5) Implementing a supportive
services program to develop and
improve immediate and long-term
business management, record keeping,
and financial and accounting capability
for DBEs and other small businesses;
(6) Providing services to help DBEs.
and other small businesses, improve
long-term development, increase
opportunities to participate in a variety
of kinds of work, handle increasingly
significant projects, and achieve
eventual self-sufficiency;
(7) Establishing a program to assist
new, start-up firms, particularly in
fields in which DBE participation has
historically been low;
(8) Ensuring distribution of your DBE
directory, through print and electronic
means, to the widest feasible universe of
potential prime contractors, and
(9) Assisting DBEs, and other small
businesses, to develop their capability
to utilize emerging technology and
conduct business through electronic
media.
(c) Each time you submit your overall
roall for review by the concerned
operating administration. you must alsc
submit "our projection of the portion of
the goal :hat you expect to meet through
race -neutral means and your basis for
that projection. This projection is
subject to approval by the concerned
operating administration, in conjunction
with its review of your overall goal.
(d) You must establish contract goals
to meet any portion of your overall goal
you do not project being able to meet
using race -neutral means.
(e) The following provisions apply to
the use of contract goals
(1) You may use contract goals only
on those DOT -assisted contracts that
have subcontracting possibilities
(2) You are not required to set a
contract goal on every DOT -assisted
contract. You are not required to set
each contract goal at the same
percentage level as the overall goal. The
goal for a specific contract may be
higher or lower than that percentage
level of the overall goal. depending on
such factors as the type of work
involved, the location of the work, and
the availability of DBEs for the work of
the particular contract. However, over
the period covered by your overall goal,
you must set contract goals so that they
will cumulatively result in meeting any
portion of your overall goal you do not
project being able to meet through the
use of race -neutral means.
(3) Operating administration approval
of each contract goal is not necessarily
required. However, operating
administrations may review and
approve or disapprove any contract goal
you establish.
(4) Your contract goals must provide
for participation by all certified DBEs
and must not be subdivided into group -
specific goals.
(1) To ensure that your DBE program
continues to be narrowly tailored to
overcome the effects of discrimination,
you must adjust your use of contract
goals as follows:
(1) If your approved projection under
paragraph (c) of this section estimates
that you can meet your entire overall
goal for a given year through race -
neutral means, you must implement
your program without setting contract
goals during that year.
Example to Paragraph (t)(1)• Your overall
goal for Year I is 12 percent. You estimate
that you can obtain 12 percent or more DBE
participation through the use of race -neutral
measures, without any use of contract goals.
In this case, you do not set any contract goals
for the contracts that will be performed in
Year I
(2) If, during the course of any year in
which you are using contract goals, you
determine that you will exceed your -
overall goal you must reduce or
eliminate the use of contract goals to the
extent necessary to ensure that the use
of contract goals does not result in
exceeding the overall goal If you
determine that you will fail short of
your overall goal, then you must make
appropriate modifications in your use of
race -neutral and/or race -conscious
measures to allow you to meet the
overall goal
Example to Paragraph (f)(2) In Year II,
your overall goal is 12 percent. You have
estimated that you can obtain 5 percent DBE
participation through use of race -neutral
measures. You therefore plan to obtain the
remaining 7 percent participation through
use of DBE goals. By Septernber, you have
already obtained 11 percent DBE
participation for the year For contracts let
during the remainder of the year, you use
contract goals only to the extent necessary to
obtain an additional one percent DBE
participation. However, if you determine in
September that your participation for the
year is likely to be oniv 8 percent total, then
you would increase your use of race -neutral
and/or race -conscious means during the
remainder of the year in order to achieve
your overall goal.
(3) If the DBE participation you have
obtained by race -neutral means alone
meets or exceeds your overall goals for
two consecutive years, you are not
required to make a projection of the
amount of your goal you can meet using
such means in the next year. You do not
set contract goals on any contracts in the
next year. You continue using only race -
neutral means to meet your overall goals
unless and until you do not meet your
overall goal for a year.
Example to Paragraph (1)(3): Your overall
goal for Years I and Year II is 10 percent. The
DBE participation you obtain through race -
neutral measures alone is 10 percent or more
in each year. (For this purpose, it does not
matter whether you obtained additional DBE
participation through using contract goals in
these years.) In Year III and following years,
you do not need to make a projection under
paragraph (c) of this section of the portion of
your overall goal you expect to meet using
race -neutral means. You simply use race -
neutral means to achieve your overall goals.
However, if in Year VI your DBE
participation falls short of your overall goal,
then you must make a paragraph (c)
projection for Year VII and, if necessary,
resume use of contract goals in that year
(4) If you obtain DBE participation
that exceeds your overall goal in two
consecutive years through the use of
contract goals (i.e., not through the use
of race -neutral means alone), you must
reduce your use of contract goals
proportionately in the following year.
Example to Paragraph (0(4) In Years I and
II, your overall goal is 12 percent, and you
obtain 14 and 16 percent DBE participation,
respectively You have exceeded your goals
over the two-year period by an average of 25
percent. In Year III, your overall goal is again
12 percent. and your paragraph (c) projection
estimates that you will obtain 4 percent DBE
participation through race -neutral means and
8 percent through contract goals. You then
reduce the contract goal projection by 25
percent (i.e., from 8 to 6 percent) and set
contract goals accordingly during the year If
in Year III you obtain I 1 percent
participation, you do not use this contract
goal adjustment mechanism for Year IV,
because there have not been two consecutive
years of exceeding overall goals.
(g) In any year in which you project
meeting part of your goal through race -
neutral means and the remainder
through contract goals, you must
maintain data separately on DBE
achievements in those contracts with
and without contract goals, respectively
You must report this data to the
concerned operating administration as
provided in § 26 11
§ 26.53 What are the good faith efforts
procedures recipients follow in situations
where there are contract goals?
(a) When you have established a DBE
contract goal, you must award the
contract only to a bidder/offeror who
makes good faith efforts to meet it. You
must determine that a bidder/offeror has
made good faith efforts if the bidder/
5134 Federal Register/Vol. 64, No. 21 /Tuesday,' February 2, 1999 / Rules and Regulations
offeror does either of the following
things:
(1) Documents that it has obtained
enough DBE participation to meet the
goal: or
(2) Documents that it made adequate
good faith efforts to meet the goal, even
though it did not succeed in obtaining'
enough DBE participation to do so. If
the bidder/offeror does document
adequate good faith efforts, you must
not deny award of the contract on the
basis that the bidder/offeror failed to
meet the goal. See Appendix A of this
part for guidance in determining the
adequacy of a bidder/offeror's good faith
efforts.
(b) In your solicitations for DOT -
assisted contracts for which a contract
goal has been established, you must
require the following:
(1) Award of the contract will be
conditioned on meeting the
requirements of this section,
(2) All bidders/offerors will be
required to submit the following
information to the recipient. at the time
provided in paragraph (b) (3) of this
section.
(i) The names and addresses of DBE
firms that will participate in the
contract;
(ii) A description of the work that
each DEE will perform,
(iii) The dollar amount of the
participation of each DBE firm
participatine
tA r it:en documentation of the
bidder/offeror's commitment to use a
DBE subcontractor whose participation
it submits to meet a contract goal,
(v) Written confirmation from the DBE
that it is participating in the contract as
provided in the prime contractor's
commitment; and
(vi) If the contract goal is not met,
evidence of good faith efforts (see
Appendix A of this part), and
(3) At your discretion, the bidder/
offeror must present the information
required by paragraph (b) (2) of this
section—
(i) Under sealed bid procedures, as a
matter of responsiveness, or with initial
proposals, under contract negotiation
procedures; or
(ii) At any time before you commit
yourself to the performance of the
contract by the bidder/offeror, as a
matter of responsibility.
(c) You must make sure all
information is complete and accurate
and adequately documents the bidder/
offeror's good faith efforts before
committing yourself to the performance
of the contract by the bidder/offeror.
(d) If you determine that the apparent
successful bidder/ offeror has failed to
meet the requirements of paragraph (a)
of this section, you must, before
awarding the contract, provide the
bidder/offeror an opportunity for
administrative reconsideration.
(1) As part of this reconsideration, the
bidder/offeror must have the
opportunity to provide written
documentation or argument concerning
the issue of whether it met the goal or
made adequate good faith efforts to do
so.
(2) Your decision on reconsideration
must be made by an official who did not
take part in the original determination
that the bidder/offeror failed to meet the
goal or make adequate good faith efforts
to do so.
(3) The bidder/offeror must have the
opportunity to meet in person with your
reconsideration official to discuss the
issue of whether it met the goal or made
adequate good faith efforts to do so.
(4) You must send the bidder/offeror
a written decision on reconsideration,
explaining the basis for finding that the
bidder did or did not meet the goal or
make adequate good faith efforts to do
so.
(5) The result of the reconsideration
process is not administratively
appealable to the Department of
Transportation.
(e) In a "design -build" or "turnkey"
contracting situation. in which the
recipient lets a master contract tb a
contractor, who in turn lets subsequent
subcontracts for ,'.ori. of the project,
a recipient may establish a goal for the
project. The master contractor then
establishes contract goals, as
appropriate, for the subcontracts it lets
Recipients must maintain oversight of
the master contractor's activities to
ensure that they are conducted
consistent with the requirements of this
part.
(f)(1) You must require that a prime
contractor not terminate for
convenience a DBE subcontractor listed
in response to paragraph (b)(2) of this
section (or an approved substitute DBE
firm) and then perform the work of the
terminated subcontract with its own
forces or those of an affiliate, without
your prior written consent.
(2) When a DBE subcontractor is
terminated, or fails to complete its work
on the contract for any reason, you must
require the prime contractor to make
good faith efforts to find another DBE
subcontractor to substitute for the
original DBE. These good faith efforts
shall be directed at finding another DBE
to perform at least the same amount of
work under the contract as the DBE that
was terminated, to the extent needed to
meet the contract'goal you established
for the procurement.
(3) You must include in each prime
contract a provision for appropriate
administrative remedies that you will
invoke if the prime contractor fails to
comply with the requirements of this
section.
(g) You must apply the requirements
of this section to DBE bidders/offerors
for prime contracts. In determining
whether a DBE bidder/offeror for a
prime contract has met a contract goal.
you count the work the DBE has
committed to performing with its own
forces as well as the work that it has
committed to be performed by DBE
subcontractors and DBE suppliers.
§26.55 How is DBE participation counted
toward goals?
(a) When a DBE participates in a
contract, you count only the value of the
work actually performed by the DBE
toward DBE goals.
(1) Count the entire amount of that
portion of a construction contract (or
other contract not covered by paragraph
(a) (2) of this section) that is performed
by the DBE's own forces. Include the
cost of supplies and materials obtained
by the DBE for the work of the contract.
including supplies purchased or
equipment leased by the DBE (except
supplies and equipment the DBE
subcontractor purchases or leases from
the prime contractor or its affiliate)
(21 Count the entire amount of fees or
commissions charged by a DBE firm for
providing a bona fide service, such as
professional. technical, consultant, or
managerial services, or for providing
bonds or insurance specifically required
for the performance of a DOT -assisted
contract. toward DBE goals. provided
you determine the fee to be reasonable
and not excessive as compared with fees
customarily allowed for similar services.
(3) When a DBE subcontracts part of
the work of its contract to another firm,
the value of the subcontracted work may
be counted toward DBE goals only if the
DBE's subcontractor is itself a DBE.
Work that a DBE subcontracts to a non -
DBE firm does not count toward DBE
goals.
(b) When a DBE performs as a
participant in a joint venture, count a
portion of the total dollar value of the
contract equal to the distinct, clearly
defined portion of the work of the
contract that the DBE performs with its
own forces toward DBE goals.
(c) Count expenditures to a DBE
contractor toward DBE goals only if the
DBE is performing a commercially
useful function on that contract.
" (1) A DBE performs a commercially
useful function when it is responsible
for execution of the work of the contract
and is carrying out its responsibilities
Federal Register /Vol. 64, No. 21 /Tuesday, February 2, 1999 / Rules and Regulations 5135
by actually performing, managing, and
supervising the work involved. To
perform a commercially useful function,
the DBE must also be responsible, with
respect to materials and supplies used
on the contract, for negotiating price,
determining quality and quantity,
ordering the material, and installing
(where applicable) and paying for the
material itself. To determine whether a
DBE is performing a commercially
useful function, you must evaluate the
amount of work subcontracted, industry
practices, whether the amount the firm
is to be paid under the contract is
commensurate with the work it is
actually performing and the DBE credit
claimed for its performance of the work,
and other relevant factors.
(2) A DBE does not perform a
commercially useful function if 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 DBE
participation. In determining whether a
DBE is such an extra participant, you
must examine similar transactions,
particularly those in which DBEs do not
participate.
(3) If a DBE does not perform or
exercise responsibility for at least 30
percent of the total cost of its contract
with its own work force, or the DBE
subcontracts a greater portion of the
work of a contract than evould be
expected on the basis of normal
industry practice for the type of work
involved, you must presume that it is
not performing a commercially useful
function.
(4) When a DBE is presumed not to be
performing a commercially useful
function as provided in paragraph (c) (3)
of this section, the DBE may present
evidence to rebut this presumption. You
may determine that the firm is
performing a commercially useful
function given the type of work
involved and normal industry practices.
(5) Your decisions on commercially
useful function matters are subject to
review by the concerned operating
administration, but are not
administratively appealable to DOT
(d) Use the following factors in
determining whether a DBE trucking
company is performing a commercially
useful function.
(1) The DBE must be responsible for
the management and supervision of the
entire trucking operation for which it is
responsible on a particular contract, and
there cannot be a contrived arrangement
for the purpose of meeting DBE goals.
(2) The DBE must itself own and
operate at least one fully licensed,
insured, and operational truck used on
the contract.
(3) The DBE receives credit for the
total value of the transportation services
it provides on the contract using trucks
it owns. insures, and operates using
drivers it employs.
(4) The DBE may lease trucks from
another DBE firm, including an owner -
operator who is certified as a DBE. The
DBE who leases trucks from another
DBE receives credit for the total value of
the transportation services the lessee
DBE provides on the contract.
(5) The DBE may also lease trucks
from a non -DBE firm, including an
owner -operator. The DBE who leases
trucks from a non -DBE is entitled to
credit only for the fee or commission it
receives as a result of the lease
arrangement. The DBE does not receive
credit for the total value of the
transportation services provided by the
lessee, since these services are not
provided by a DBE.
(6) For purposes of this paragraph (d),
a lease must indicate that the DBE has
exclusive use of and control over the
truck. This does not preclude the leased
truck from working for others during the
term of the lease with -the consent of the
DBE, so long as the lease gives the DBE
absolute priority for use of the leased
truck. Leased trucks must display the
name and identification number of the
DBE.
(e) Count expenditures with DBEs for
materials or supclies toward DBE goals
as provided in the following
(1) (i) If the materials or supplies are
obtained from a DBE manufacturer,
count 100 percent of the cost of the
materials or supplies toward DBE goals
(ii) For purposes of this paragraph
(e)(1), a manufacturer is a firm that
operates or maintains a factory or
establishment that produces. on the
premises. the materials, supplies,
articles, or equipment required under
the contract and of the general character
described by the specifications.
(2) (1) If the materials or supplies are
purchased from a DBE regular dealer,
count 60 percent of the cost of the
materials or supplies toward DBE goals.
(ii) For purposes of this section, a
regular dealer is a firm that owns,
operates, or maintains a store,
warehouse, or other establishment in
which the materials. supplies, articles or
equipment of the general character
described by the specifications and
required under the contract are bought.
kept in stock, and regularly sold or
leased to the public in the usual course
of business.
(A) To be a regular dealer, the firm
must be an established, regular business
that engages, as its principal business
and under its own name, in the
purchase and sale or lease of the
products in question.
(B) A person may be a regular dealer
in such bulk items as petroleum
products. steel, cement, gravel, stone, or
asphalt without owning, operating, or
maintaining a place of business as
provided in this paragraph (e)(2)(ii) if
the person both owns and operates
distribution equipment for the products.
Any supplementing of regular dealers'
own distribution equipment shall be by
a long-term lease agreement and not on
an ad hoc or contract -by -contract basis.
(C) Packagers, brokers, manufacturers'
representatives, or other persons who
arrange or expedite transactions are not
regular dealers within the meaning of
this paragraph (e)(2).
(3) With respect to materials or
supplies purchased from a DBE which
is neither a manufacturer nor a regular
dealer, count the entire amount of fees
or commissions charged for assistance
in the procurement of the materials and
supplies, or fees or transportation
charges for the delivery of materials or
supplies required on a job site, toward
DBE goals, provided you determine the
fees to be reasonable and not excessive
as compared with fees customarily
allowed for similar services. Do not
count any portion of the cost of the
materials and supplies themselves
toward DBE goals. however
(f) If a firm is not currently certified
as a DBE in accordance with the
standards of subpart D of this part at the
time of the execution of the contract, do
not count the firm's participation
toward any DBE goals. except as
provided for in § 26 87(i)).
(g) Do not count the dollar value of
work performed under a contract with a
firm after it has ceased to be certified
toward your overall goal.
(h) Do not count the participation of
a DBE subcontractor toward the prime
contractor's DBE achievements or your
overall goal until the amount being
counted toward the goal has been paid
to the DBE.
Subpart D—Certification Standards
§ 26.61 How are burdens of proof allocated
in the certification process?
(a) In determining whether to certify
a firm as eligible to participate as a DBE,
you must apply the standards of this
subpart.
(b) The firm seeking certification has
the burden of demonstrating to you, by
a preponderance of the evidence, that it
meets the requirements of this subpart
concerning group membership or
individual disadvantage, business size,
ownership, and control.
(c) You must rebuttably presume that
members of the designated groups
5136
Federal Register/Vol. 64, No. 21 /Tuesday;' February 2, 1999 /Rules and Regulations
identified in §26.67(a) are socially and
economically disadvantaged. This
means that they do not have the burden
of proving to you that they are socially
and economically disadvantaged.
However, applicants have the obligation
to provide you information concerning
their economic disadvantage (see
§ 26.67).
(d) Individuals who are not presumed
to be socially and economically
disadvantaged, and individuals
concerning whom the presumption of
disadvantage has been rebutted, have
the burden of proving to you. by a
preponderance of the evidence, that
they are socially and economically
disadvantaged. (See Appendix E of this
part.)
(e) You must make determinations
concerning whether individuals and
firms have met their burden of
demonstrating group membership,
ownership, control, and social and
economic disadvantage (where
disadvantage must be demonstrated on
an individual basis) by considering all
the facts in the record, viewed as a
whole.
§ 26.63 What rules govern group
membership determinations?
(a) If you have reason to question
whetner an individual is a member of a
group that is presumed to be socially
and economically disadvantaged. you
must require the individual to -
demonstrate. by a preponderance Of the
evidence, that he or she is a member of
the group
(b) In making such a determination.
you must consider whether the person
has held himself out to be a member of
the group over a long period of time
prior to application for certification and
whether the person is regarded as a
member of the group by the relevant
community You may require the
applicant to produce appropriate
documentation of group membership
(1) If you determine that an individual
claiming to be a member of a group
presumed to be disadvantaged is not a
member of a designated disadvantaged
group, the individual must demonstrate
social and economic disadvantage on an
individual basis
(2) Your decisions concerning
membership in a designated group are
subject to the certification appeals
procedure of §26.89.
§ 26.65 What rules govern business size
determinations?
(a) To be an eligible DBE, a firm
(including its affiliates) must be an
existing small business, as defined by
Small Business Administration (SBA)
standards You must apply current SBA
business size standard(s) found in 13
CFR part 121 appropriate to the type(s)
of work the firm seeks to perform in
DOT -assisted contracts. "f°4
(b) Even if it meets the requirements
of paragraph (a) of this section, a firm
is not an eligible DBE in any Federal
fiscal year if the firm (including its
affiliates) has had average annual gross
receipts, as defined by SBA regulations
(see 13 CFR 121.402), over the firm's
previous three fiscal years, in excess of
$16.6 million. The Secretary adjusts this
amount for inflation from time to time.
§ 26.67 What rules determine social and
economic disadvantage?
(a) Presumption of disadvantage. (1)
You must rebuttably presume that
citizens of the United States (or lawfully
admitted permanent residents) who are
women, Black Americans, Hispanic
Americans, Native Americans, Asian -
Pacific Americans. Subcontinent Asian
Americans, or other minorities found to
be disadvantaged by the SBA, are
socially and economically
disadvantaged individuals. You must
require applicants to submit a signed,
notarized certification that each
presumptively disadvantaged owner is,
in fact, socially and economically
disadvantaged
(2) (i) You must require each.; ..
individual owner of a firm applying to
participate as a DBE whose ownership
and control are relied upon for DBE
Ce`tiflcatiOn to subrn: a si_r.e'd
notarized statement of personal net
worth, with appropriate supporting
documentation.
(ii) In determining net worth, you
must exclude an individual's ownership
interest in the applicant firm and the
individual's equity in his or her primary
residence (except any portion of such
equity that is attributable to excessive
withdrawals from the applicant firm) A
contingent liability does not reduce an
individual's net worth. The personal net
worth of an individual claiming to be an
Alaska Native will include assets and
income from sources other than an
Alaska Native Corporation and exclude
any of the following which the
individual receives from any Alaska
Native Corporation. cash (including
cash dividends on stock received from
an ANC) to the extent that it does not,
in the aggregate, exceed S2,000 per
individual per annum, stock (including
stock issued or distributed by an ANC
as a dividend or distribution on stock),
a partnership interest: land or an
interest in land (including land or an
interest in land received from an ANC
as a dividend or distribution on stock);
and an interest in a settlement trust.
(b) Rebuttal of presumption of
disadvantage. (1) If the statement of
personal net worth that an individual
submits under paragraph (a)(2) of this
section shows that the individual's
personal net worth exceeds $750,000,
the individual's presumption of
economic disadvantage is rebutted. You
are not required to have a proceeding
under paragraph (b) (2) of this section in
order to rebut the presumption of
economic disadvantage in this case.
(2) If you have a reasonable basis to
believe that an individual who is a
member of one of the designated groups
is not, in fact, socially and/or
economically disadvantaged you may. at
any time, start a proceeding to
determine whether the presumption
should be regarded as rebutted with
respect to that individual. Your
proceeding must follow the procedures
of § 26.87.
(3) In such a proceeding, you have the
burden of demonstrating. by a
preponderance of the evidence. that the
individual is not socially and
economically disadvantaged. You may
require the individual to produce
information relevant to the
determination of his or her
disadvantage
(4) When an individual's presumption
of social and/or economic disadvantage
has been rebutted, his or her ownership
and control of the firm in question
cannot be used for purposes of DBE
eligibility under this subpart unless and
until he or she makes an individual
showing of social and/or economic
disadvantage. If the basis for rebutting
the presumption is a determination that
the individual's personal net worth
exceeds S750,000, the individual is no
longer eligible for participation in the
program and cannot regain eligibility by
making an individual showing of
disadvantage
(c) 8(a) and SDB Firms. If a firm
applying for certification has a current,
valid certification from or recognized by
the SBA under the 8(a) or small and
disadvantaged business (SDB) program
(except an SDB certification based on
the firm's self -certification as an SDB),
you may accept the firm's 8(a) or SDB
certification in lieu of conducting your
own certification proceeding, just as you
may accept the certification of another
DOT recipient for this purpose. You are
not required to do so, however
(d) Individual determinations of
social and economic disadvantage.
Firms owned and controlled by
individuals who are not presumed to be
socially and economically
disadvantaged (including individuals
whose presumed disadvantage has been
rebutted) may apply for DBE
Federal Register/Vol. 64, No. 21 /Tuesday, February 2. 1999 /Rules and Regulations 5137
certification. You must make a case-by-
case determination of whether each
individual whose ownership and
control are relied upon for DBE
certification is socially and
economically disadvantaged. In such a
proceeding, the applicant firm has the
burden of demonstrating to you, 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 $750,000
shall not be deemed to be economically
disadvantaged. In making these
determinations, use the guidance found
in Appendix E of this part. You must
require that applicants provide
sufficient information to permit
determinations under the guidance of
Appendix E of this part.
§ 26.69 What rules govern determinations
of ownership?
(a) In determining whether the
socially and economically
disadvantaged participants in a firm
own the firm, you must consider all the
facts in the record, viewed as a whole.
(b) To be an eligible DBE, a firm must
be at least 51 percent owned by socially
and economically disadvantaged
individuals.
(1) In the case of a corporation, such
individuals must own at least 51
percent of the each class of voting stock
outstanding. and 51 percent of the
aggregate of all stock outstanding
(2) In the case of a partnership, 51
percent of each class of partnership
interest must be owned by socially and
economically disadvantaged
individuals Such ownership must be
reflected in the firm's partnership
agreement.
(3) In the case of a limited liability
company, at least 51 percent of each
class of member interest must be owned
by socially and economically
disadvantaged individuals.
(c) The firm's ownership by socially
and economically disadvantaged
individuals must be real, substantial,
and continuing, going beyond pro forma
ownership of the firm as reflected in
ownership documents. The
disadvantaged owners must enjoy the
customary incidents of ownership, and
share in the risks and profits
commensurate with their ownership
interests, as demonstrated by the
substance, not merely the form, of
arrangements.
(d) All securities that constitute
ownership of a firm shall be held
directly by disadvantaged persons.
Except as provided in this paragraph
(d), no securities or assets held in trust.
or by any guardian for a minor, are
considered as held by disadvantaged
persons in determining the ownership
of a firm. However, securities or assets
held in trust are regarded as held by a
disadvantaged individual for purposes
of determining ownership of the firm,
if—
(1) The beneficial owner of securities
or assets held in trust is a disadvantaged
individual, and the trustee is the same
or another such individual; or
(2) The beneficial owner of a trust is
a disadvantaged individual who, rather
than the trustee, exercises effective
control over the management, policy-
making, and daily operational activities
of the firm. Assets held in a revocable
living trust may be counted only in the
situation where the same disadvantaged
individual is the sole grantor,
beneficiary, and trustee.
(e) The contributions of capital or
expertise by the socially and
economically disadvantaged owners to
acquire their ownership interests must
be real and substantial. Examples of
insufficient contributions include a
promise to contribute capital. an
unsecured note payable to the firm or an
owner who is not a disadvantaged
individual, or mere participation in a
firm's activities as an employee Debt
instruments from financial institutions
or other organizations that lend funds in
the normal course of their business do
not render a firm ineligible, even if the
debtor's ownership interest is security
for the loan
(f) The following requirements apply
to situations in which expertise is relied
upon as part of a disadvantaged owner's
contribution to acquire ownership
(1) The owner s expertise must be—
(i) In a specialized field:
(ii) Of outstanding quality;
(iii) In areas critical to the firm's
operations,
(iv) Indispensable to the firm's
potential success,
(v) Specific to the type of work the
firm performs: and
(vi) Documented in the records of the
firm. These records must clearly show
the contribution of expertise and its
value to the firm
(2) The individual whose expertise is
relied upon must have a significant
financial investment in the firm.
(g) You must always deem as held by
a socially and economically
disadvantaged individual, for purposes
of determining ownership, all interests
in a business or other assets obtained by
the individual—
(1) As the result of 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 this section,
or
(2) Through inheritance, or otherwise
because. of the death of the former
owner.
(h) (1) You must presume as not being
held by a socially and economically
disadvantaged individual, for purposes
of determining ownership. al' interests
in a business or other assets ootained by
the individual as the result of a gift, or
transfer without adequate consideration,
from any non -disadvantaged individual
or non -DBE firm who is—
(i) Involved in the same firm for
which the individual is seeking
certification, or an affiliate of that firm;
(ii) Involved in the same or a similar
line of business; or
(iii) Engaged in an ongoing business
relationship with the firm, or an affiliate
of the firm, for which the individual is
seeking certification.
(2) To overcome this presumption and
permit the interests or assets to be
counted, the disadvantaged individual
must demonstrate to you, by clear and
convincing evidence, that—
(i) The gift or transfer to the
disadvantaged individual was made for
reasons other than obtaining
certification as a DBE: and
(ii) The disadvantaged individual
actually controls the management,
policy, and operations of the firm,
notwithstanding the continuing
participation of a non -disadvantaged
individual who provided the gift or
transfer
(i) You must apply the following rules
in situations in which marital assets
form a basis for ownership of a firm.
(1) When marital assets (other than
the assets of the business in question),
held jointly or as community property
by both spouses, are used to acquire the
ownership interest asserted by one
spouse, you must deem the ownership
interest in the firm to have been
acquired by that spouse 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 in which either spouse
or the firm is domiciled. You do not
count a greater portion of joint or
community property assets toward
ownership than state law would
recognize as belonging to the socially
and economically disadvantaged owner
of the applicant firm
(2) A copy of the document legally
transferring and renouncing the other
spouse's rights in the jointly owned or
community assets used to acquire an
ownership interest in the firm must be
included as part of the firm's
application for DBE certification.
5138 Federal Register /Vol. 64, No. 21 /Tuesday;'3February 2, 1999 / Rules and Regulations
(j) You may consider the following
factors in determining the ownership of
a firm. However, you must not regard a
contribution of capital as failing to be
real and substantial. or find a firm
ineligible, solely because—
(1) A socially and economically
disadvantaged individual acquired his
or her ownership interest as the result
of a gift, or transfer without adequate
consideration, other than the types set
forth in paragraph (h) of this section,
(2) There is a provision for the co -
signature of a spouse who is not a
socially and economically
disadvantaged individual on financing
agreements, contracts for the purchase
or sale of real or personal property, bank
signature cards, or other documents, or
(3) Ownership of the firm in question
or its assets is transferred for adequate
consideration from a spouse who is not
a socially and economically
disadvantaged individual to a spouse
who is such an individual. In this case,
you must give particularly close and
careful scrutiny to the ownership and
control of a firm to ensure that it is
owned and controlled, in substance as
well as in form, by a socially and
economically disadvantaged individual.
§26.71 What rules govern determinations
concerning control?
(a) In determining whether socially
and economicaildisadvantaged owners
control a firm, you must consider all the
facts in the record, vie'.ved as a v hole
(b) Oni;. an independent business
may be certified as a DBE. An
independent business is one the
viability of which does not depend on
its relationship with another firm or
firms.
(1) In determining whether a potential
DBE is an independent business, you
must scrutinize relationships with non -
DBE firms, in such areas as personnel,
facilities, equipment, financial and/or
bonding support, and other resources.
(2) You must consider whether
present or recent employer/employee
relationships between the
disadvantaged owner(s) of the potential
DBE and non -DBE firms or persons
associated with non -DBE firms
compromise the independence of the
potential DBE firm.
(3) You must examine the firm's
relationships with prime contractors to
determine whether a pattern of
exclusive or primary dealings with a
prime contractor compromises the
independence of the potential DBE firm.
(4) In considering factors related to
the independence of a potential DBE
firm, you must consider the consistency
of relationships between the potential
DBE and non -DBE firms with normal
industry practice.
(c) A DBE, firm must not be subject to
any formal or''informal restrictions
which limit the customary discretion of
the socially and economically
disadvantaged owners. There can be no
restrictions through corporate charter
provisions, by-law provisions, 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 non -
disadvantaged partners, conditions
precedent or subsequent, executory
agreements, voting trusts, restrictions on
or assignments of voting rights) that
prevent the socially and economically
disadvantaged owners, without the
cooperation or vote of any non -
disadvantaged individual, from making
any business decision of the firm. This
paragraph does not preclude a spousal
co -signature on documents as provided
for in §26.69(j)(2)
(d) The socially and economically
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
(1) A disadvantaged owner must hold
the highest officer position in the
company (e g chief executive officer or
president)
(2) In a corporation. disadvantaged
owners must control the board of
directors
(3) In a partnership, one or more
disadvantaged owners must serve as
general partners. with control over all
partnership decisions
(e) Individuals who are not socially
and economically disadvantaged may be
involved in a DBE.firm as owners,
managers, employees, stockholders,
officers, and/or directors. Such
individuals must not, however, possess
or exercise the power to control the
firm, or be disproportionately
responsible for the operation of the firm.
(f) The socially and economically
disadvantaged owners of the firm may
delegate various areas of the
management, policymaking, or daily
operations of the firm to other
participants in the firm, regardless of
whether these participants are socially
and economically disadvantaged
individuals. Such delegations of
authority must be revocable, and the
socially and economically
disadvantaged owners must retain the
power to hire and fire any person to
whom such authority is delegated. The
managerial role of the socially and
economically disadvantaged owners in.
the firm's overall affairs must be such
that the recipient can reasonably
conclude that the socially and
economically disadvantaged owners
actually exercise control over the firm's
operations, management. and policy.
(g) The 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. The
socially and economically
disadvantaged 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 Generally, expertise
Limited to office management,
administration, or bookkeeping
functions unrelated to the principal
business activities of the firm is
insufficient to demonstrate control.
(h) If state or local law. requires the
persons to have a particular license or
other credential in order to own and/or
control a certain type of firm, then the
socially and economically
disadvantaged persons who own and
control a potential DBE firm of that type
must possess the required license or
credential. If state or local law does not
require such a person to have such a
license or credential to own and/or
control a firm, you must not deny
certification solely on the ground that
the person lacks the license or
credential. However, you may take into
account the absence of the license or
credential as one factor in determining
whether the socially and economically
disadvantaged owners actually control
the firm
(i) (1) You may consider differences in
remuneration between the socially and
economically disadvantaged owners and
other participants in the firm in
determining whether to certify a firm as
a DBE. Such consideration shall be in
the context of the duties of the persons
involved, normal industry practices, the
firm's policy and practice concerning
reinvestment of income, and any other
explanations for the differences
proffered by the firm. You may
determine that a firm is controlled by its
socially and economically
disadvantaged owner although that
Federal Register /Vol. 64, No. 21 /Tuesday, February 2, 1999 / Rules and Regulations 5139
owner's remuneration is lower than that
of some other participants in the firm.
(2) In a case where a non -
disadvantaged individual formerly
controlled the firm, and a socially and
economically disadvantaged individual
now controls it. you may consider a
difference between the remuneration of
the former and current controller of the
fine as a factor in determining who
controls the firm, particularly when the
non -disadvantaged individual remains
involved with the firm and continues to
receive greater compensation than the
disadvantaged individual.
(j) In order to be viewed as controlling
a firm, a socially and economically
disadvantaged owner cannot engage in
outside employment or other business
interests that conflict with the
management of' the firm or prevent the
individual from devoting sufficient time
and attention to the affairs of the firm
to control its activities. For example,
absentee ownership of a business and
part-time work in a full-time firm are
not viewed as constituting control.
However, an individual could be
viewed as controlling a part-time
business that operates only on evenings
and/or weekends, if the individual
controls it all the time it is operating
(k)(1) A socially and economically
disadvantaged individual may control a
firm even though one or more of the
individual s immediate family members
(who themselves are not socially and
economically disadvantaged
individuals) participate in the firm as a
manager. employee, owner, or in
another capacity Except as otherwise
provided in this paragraph, you must
make a judgment about the control the
socially and economically
disadvantaged owner exercises vis-a-vis
other persons involved in the business
as you do in other situations, without
regard to whether or not the other
persons are immediate family members.
(2) If you cannot determine that the
socially and economically
disadvantaged owners—as distinct from
the family as a whole—control the firm,
then the socially and economically
disadvantaged owners have failed to
carry their burden of proof concerning
control, even though they may
participate significantly in the firm's
activities.
(1) Where a firm was formerly owned
and/or controlled by a non -
disadvantaged individual (whether or
not an immediate family member),
ownership and/or control were
transferred to a socially and
economically disadvantaged individual,
and the non -disadvantaged individual
remains involved with the firm in any
capacity. the disadvantaged individual
now owning the firm must demonstrate
to you, by clear and convincing
evidence, that:
(1) The transfer of ownership and/or
control to the disadvantaged individual
was made for reasons other than
obtaining certification as a DBE; and
(2) The disadvantaged individual
actually controls the management,
policy, and operations of the firrn,
notwithstanding the continuing
participation of a non -disadvantaged
individual who formerly owned and/or
controlled the firm.
(m) In determining whether a firm is
controlled by its socially and
economically disadvantaged owners.
you may consider whether the firm
owns equipment necessary to perform
its work. However. you must not
determine that a firm is not controlled
by socially and economically
disadvantaged individuals solely
because the firm 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 firm.
(n) You must grant certification to a
firm only for specific types of work in
which the socially and economically
disadvantaged .owners have the ability
to control the firm. To become certified
in an additional type of w ork the firm
need demonstrate to you only that its
socially and economically
disadvantaged owners are able to
control the firm with respect to that type
of work. You may not, in this situation,
require that the firm be recertified or
submit a new application for
certification, but you must verify the
disadvantaged owner's control of the
firm in the additional type of work.
(o) A business operating under a
franchise or license agreement may be
certified if it meets the standards in this
subpart and the franchiser or licenser is
not affiliated with the franchisee or
licensee. In determining whether
affiliation exists, you 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 that 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.
(p) In order for a partnership to be
controlled by socially and economically
disadvantaged individuals, any non -
disadvantaged 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.
(q) The socially and economically
disadvantaged individuals controlling a
firm may use an employee leasing
company. The use of such a company
does not preclude the socially and
economically disadvantaged individuals
from controlling their firm if they
continue to maintain an employer-
employee relationship with the leased
employees. This includes being
responsible for hiring, firing. training,
assigning. and otherwise controlling the
on-the-job activities of the employees, as
well as ultimate responsibility for wage
and tax obligations related to the
employees
§ 26.73 What are other rules affecting
certification?
(a)(1) Consideration of whether a firm
performs a commercially useful
function or is a regular dealer pertains
solely to counting toward DBE goals the
participation of firms that have already
been certified as DBEs Except as
provided in paragraph (a) (2) of this
section, you must not consider
commercially useful function issues in
any way in making decisions about
whether to certify a firm as a DBE.
(2) You may consider, in making
certification decisions, whether a firm
has exhibited a pattern of conduct
indicating its involvement in attempts
to evade or subvert the intent or
requirements of the DBE program.
(b) You must evaluate the eligibility of
a firm on the basis of present
circumstances. You must not refuse to
certify a firm based solely on historical
information indicating a lack of
ownership or control of the firm by
socially and economically
disadvantaged individuals at some time
in the past, if the firm currently meets
the ownership and control standards of
this part. Nor must you refuse to certify
a firm solely on the basis that it is a
newly formed firm.
(c) DBE firms and firms seeking DBE
certification shall cooperate fully with
your requests (and DOT requests) for
information relevant to the certification
process. Failure or refusal to provide
such information is a ground for a
denial or removal of certification.
5140 Federal Register /Vol 64, No. 21 /Tuesday, February 2, 1999 / Rules and Regulations
(d) Only firms organized for profit
may be eligible DBEs. Not-for-profit
organizations. even though controlled
by socially and economically
disadvantaged individuals, are not
eligible to be certified as DBEs.
(e) An eligible DBE firm must be
owned by individuals who are socially
and economically disadvantaged.
Except as provided in this paragraph. a
firm that is not owned by such
individuals, but instead is owned by
another firm—even a DBE firm—cannot
be an eligible DBE.
(1) If socially and economically
disadvantaged individuals own and
control a firm through a parent or
holding company, established for tax,
capitalization or other purposes
consistent with industry practice, and
the parent or holding company in turn
owns and controls an operating
subsidiary, you may certify the
subsidiary if it otherwise meets all
requirements of this subpart. In this
situation, the individual owners and
controllers of the parent or holding
company are deemed to control the
subsidiary through the parent or holding
company
(2) You may certify such a subsidiary
only if there is cumulatively 51 percent
ownership of the subsidiary by socially
and economically disadvantaged
individuals The following examples
illustrate hov, this cumulative
ownership provision works
Example' Social, and econor icall:.
disadvantaged individuals own 100 percent
of a holding company • which has a wholly-
owned subsidiary The subsidiary may be
certified, if it meets all other requirements.
Example 2.' Disadvantaged individuals own
100 percent of the holding company, which
owns 51 percent of a subsidiary The
subsidiary may be certified, if all other
requirements are met.
Example 3. Disadvantaged individuals own
80 percent of the holding company. which in
turn owns 70 percent of a subsidiary In this
case, the cumulative ownership of the
subsidiary by disadvantaged individuals is
56 percent (80 percent of the 70 percent)
This is more than 51 percent, so you may
certify the subsidiary, if all other
requirements are met.
Example 4. Same as Example 2 or 3, but
someone other than the socially and
economically disadvantaged owners of the
parent or holding company controls the
subsidiary. Even though the subsidiary is
owned by disadvantaged individuals,
through the holding or parent company, you
cannot certify it because it fails to meet
control requirements.
Example 5 Disadvantaged individuals own
60 percent of the holding company, which in
tum owns 51 percent of a subsidiary In this
case, the cumulative ownership of the
subsidiary by disadvantaged individuals is
about 31 percent. This is less than 51
percent. so you cannot certify the subsidiary
Example 6. The holding company, in
addition to the subsidiary seeking
certification, owns several other. companies.
The combined'gross receipts df the"holding
companies and its subsidiaries are greater
than the size standard for the subsidiary
seeking certification and/or the gross receipts
cap of § 26.65(b). Under the rules concerning
affiliation, the subsidiary fails to meet the
size standard and cannot be certified.
(f) Recognition of, a business as a
separate entity for tax or corporate
purposes is not necessarily sufficient to
demonstrate that a firm is an
independent business, owned and
controlled by socially and economically
disadvantaged individuals.
(g) You must not require a DBE firm
to be prequalified as a condition for
certification unless the recipient
requires all firms that participate in its
contracts and subcontracts to be
prequalified.
(h) A firm that is owned by an Indian
tribe, Alaska Native Corporation, or
Native Hawaiian organization as an
entity, rather than by Indians, Alaska
Natives, or Native Hawaiians as
individuals, may be eligible for
certification. Such a firm must meet the
size standards of § 26 65 Such a firm
must be controlled by socially and
economically disadvantaged
individuals as provided in § 26 71
Subpart E—Certification Procedures
§ 26.81 What are the requirements for
Unified Certification Programs?
(a You and all other DOT recipients
in your state must participate in a
Unified Certification Program (UCP)
(1) Within three years of March 4,
1999, you and the other recipients in
your state must sign an agreement
establishing the UCP for that state and
submit the agreement to the Secretary
for approval. The Secretary may, on the
basis of extenuating circumstances
shown by the recipients in the state,
extend this deadline for no more than
one additional year
(2) The agreement must provide for
the establishment of a UCP meeting all
the requirements of this section The
agreement must specify that the UCP
will follow all certification procedures
and standards of this part, on the same
basis as recipients. that the UCP shall
cooperate fully with oversight, review,
and monitoring activities of DOT and its
operating administrations, and that the
UCP shall implement DOT directives
and guidance concerning certification
matters. The agreement shall also
commit recipients to ensuring that the
UCP has sufficient resources and
expertise to carry out the requirements
Of this part. The agreement shall include
an implementation schedule ensuring
that the UCP is fully operational no later
than 18 months following the approval
of the agreement by the Secretary.
(3) Subject to approval by the
Secretary. the UCP in each state may
take any form acceptable to the
recipients in that state.
(4) The Secretary shall review the
UCP and approve it, disapprove it. or
remand it to the recipients in the state
for revisions. A complete agreement
which is not disapproved or remanded
within 180 days of its receipt is deemed
to be accepted.
(5) If you and the other recipients in
your state fail to meet the deadlines set
forth in this paragraph (a), you shall
have the opportunity to make an
explanation to the Secretary why a
deadline could not be met and why
meeting the deadline was beyond your
control. If you fail to make such an
explanation, or the explanation does not
justify the failure to meet the deadline,
the Secretary shall direct you to
complete the required action by a date
certain. If you and the other recipients
fail to carry out this direction in a
timely mariner, you are collectively in
noncompliance with this part.
(b) The UCP shall make all
certification decisions on behalf of all
DOT recipients in the state with respect
to participation in the DOT DBE
Program.
(1) Certification decisions by the UCP
shall be binding on all DOT recipients
within the state.
(2) The UCP shall provide "one-stop
shopping" to applicants for
certification, such that an applicant is
required to apply only once for a DBE
certification that will be honored by all
recipients in the state.
(3) All obligations of recipients with
respect to certification and
nondiscrimination must be carried out
by UCPs, and recipients may use only
UCPs that comply with the certification
and nondiscrimination requirements of
this part.
(c) All certifications by UCPs shall be
pre -certifications, i.e., certifications that
have been made final before the due
date for bids or offers on a contract on
which a firm seeks to participate as a
DBE.
(d) A UCP is not required to process
an application for certification from a
firm having its principal place of
business outside the state if the firm is
not certified by the UCP in the state in
which it maintains its principal place of
business. The "home state" UCP shall
share its information and documents
concerning the firm with other UCPs
that are considering the firm's
application
Federal Register /Vol. 64, No. 21 /Tuesday, February 2, 1999 /Rules and Regulations 5141
(e) Subject to DOT approval as
provided in this section. the recipients
in two or more states may form a
regional UCP. UCPs may also enter into
written reciprocity agreements with
other UCPs. Such an agreement shall
outline the specific responsibilities of
each participant. A UCP may accept the
certification of any other UCP or DOT
recipient.
(f) Pending the establishment of UCPs
meeting the requirements of this
section, you may enter into agreements
with other recipients, on a regional or
inter jurisdictional basis, to perform
certification functions required by this
part. You may also grant reciprocity to
other recipient's certification decisions.
(g) Each UCP shall maintain a unified
DBE directory containing, for all firms
certified by the UCP (including those
from other states certified under the
provisions of this section), the
information required by § 26.31. The
UCP shall make the directory available
to the public electronically, on the
internet, as well as in print. The UCP
shall update the electronic version of
the directory by including additions,
deletions, and other changes as soon as
they are made.
(h) Except as otherwise specified in
this section, all provisions of this
subpart and subpart D of this part
pertaining to recipients also apply to
UCPs
§ 25.83 What procedures do recipients
follow in making certification decisions?
(a) You must ensure that only firms
certified as eligible DBEs under this
section participate as DBEs in your
program.
(b) You must determine the eligibility
of firms as DBEs consistent with the
standards of Subpart D of this part.
When a UCP is formed, the UCP must
meet all the requirements of subpart D
of this part and this subpart that
recipients are required to meet.
(c) You must take all the following
steps in determining whether a DBE
firm meets the standards of subpart D of
this part:
(1) Perform an on-site visit to the
offices of the firm. You must interview
the principal officers of the firm and
review their resumes and/or work
histories You must also perform an on-
site visit to job sites if there are such
sites on which the firm is working at the
time of the eligibility investigation in
your jurisdiction or local area. You may
rely upon the site visit report of any
other recipient with respect to a firm
applying for certification.
(2) If the firm is a corporation, analyze
the ownership of stock in the firm,
(3) Analyze the bonding and financial
capacity of the firm;
(4) Determine the work history of the
firm, including contracts it has received
and work it has completed,
(5) Obtain a statement from the firm
of the type of work it prefers to perform
as part of the DBE program and its
preferred locations for performing the
work, if any;
(6) Obtain or compile a list of the
equipment owned by or available to the
firm and the licenses the firm and its
key personnel possess to perform the
work it seeks to do as part of the DBE
program;
(7) Require potential DBEs to
complete and submit an appropriate
application form.
(i) Uniform form. [Reserved]
(ii) You must make sure that the
applicant attests to the accuracy and
truthfulness of the information on the
application form. This shall be done
either in the form of an affidavit sworn
to by the applicant before a person who
is authorized by state law to administer
oaths or in the form of an unsworn
declaration executed under penalty of
perjury of the laws of the United States.
(iii) You must review all information
on the form prior to making a decision
about the eligibility of the firm.
(d) When another recipient, in
connection with its consideration of the
of a firm makes a written
request for certification information you
have obtained about that firm (e g
including appiication materials or the
report of a site visit. if you have made
one to the firm), you must promptly
make the information available to the
other recipient.
(e) When another DOT recipient has
certified a firm, you have discretion to
take any of the following actions.
(1) Certify the firm in reliance on the
certification decision of the other
recipient:
(2) Make an independent certification
decision based on documentation
provided by the other recipient,
augmented by any additional
information you require the applicant to
provide, or
(3) Require the applicant to go
through your application process
without regard to the action of the other
recipient.
(f) Subject to the approval of the
concerned operating administration as
part of your DBE program, you may
impose a reasonable application fee for
certification. Fee waivers shall be made
in appropriate cases.
(g) You must safeguard from
disclosure to unauthorized persons
information gathered as part of the
certification process that may
reasonably be regarded as proprietary or
other confidential business information,
consistent with applicable Federal.
state, and local law.
(h) Once you have certified a DBE, it
shall remain certified for a period of at
least three years unless and until its
certification has been removed through
the procedures of § 26.87. You may not
require DBEs to reapply for certification
as a condition of continuing to
participate in the program during this
three-year period, unless the factual
basis on which the certification was
made changes.
(i) If you are a DBE, you must inform
the recipient or UCP in writing of any
change in circumstances affecting your
ability to meet size, disadvantaged
status, ownership, or control
requirements of this part or any material
change in the information provided in
your application form.
(1) Changes in management
responsibility among members of a
limited liability company are covered by
this requirement.
(2) You must attach supporting
documentation describing in detail the
nature of such changes.
(3) The notice must take the form of
an affidavit sworn to by the applicant
before a person who is authorized by
state law to administer oaths or of an
unsworn declaration executed under
penalty of perjury of the laws of the
United States You must provide the
written notification within 30 days of
the occurrence of the change If you fail
to make timely notification of such a
change, you will be deemed to have
failed to cooperate under § 26.109(c)
0) If you are a DBE, you must provide
to the recipient, every year on the
anniversary of the date of your
certification, an affidavit sworn to by
the firm's owners before a person who
is authorized by state law to administer
oaths or an unsv. orn declaration
executed under penalty of perjury of the
laws of the United States. This affidavit
must affirm that there have been no
changes in the firm's circumstances
affecting its ability to meet size,
disadvantaged status, ownership, or
control requirements of this part or any
material changes in the information
provided in its application form, except
for changes about which you have
notified the recipient under paragraph
(i) of this section. The affidavit shall
specifically affirm that your firm
continues to meet SBA business size
criteria and the overall gross receipts
cap of this part, documenting this
affirmation with supporting
documentation of your firm's size and
gross receipts. If you fail to provide this
affidavit in a timely manner, you will be
5142 Federal Register /Vol. 64, No. 21 /Tuesday, February 2, 1999 /Rules and Regulations
deemed to have failed to cooperate
under §26.109(c).
(k) If you are a recipient, you must
make decisions on applications for
certification within 90 days of receiving
from the applicant firm all information
required under this part. You may
extend this time period once, for no
more than an additional 60 days, upon
written notice to the firm, explaining
fully and specifically the reasons for the
extension. You may establish a different
time frame in your DBE program, upon
a showing that this time frame is not
feasible. and subject to the approval of
the concerned operating administration.
Your failure to make a decision by the
applicable deadline under this
paragraph is deemed a constructive
denial of the application, on the basis of
which the firm may appeal to DOT
under § 26 89
§ 26.85 What rules govern recipients'
denials of initial requests for certification?
(a) When you deny a request by a
firm, which is not currently certified
with you, to be certified as a DBE, you
must provide the firm a written
explanation of the reasons for the
denial. specifically referencing the
evidence in the record that supports
each reason for the denial. Ali
documents and other information on
v` hich the denial is based must be made
available to the applicant. on request.
(b) \\ hen a firm is denied
certification you roust establish a time
period of no more than twelve months
that must elapse before the firm may
reapply to the recipient for certification
You may provide. in your DBE program,
subject to approval by the concerned
operating administration, a shorter
waiting period for reapplication. The
time period for reapplication begins to
run on the date the explanation required
by paragraph (a) of this section is
received by the firm.
(c) When you make an
administratively final denial of
certification concerning a firm, the firm
may appeal the denial to the
Department under ,§26 89.
§ 26.87 What procedures does a recipient
use to remove a DBE's eligibility?
(a) Ineligibility complaints. (1) Any
person may file with you a written
complaint alleging that a currently -
certified firm is ineligible and
specifying the alleged reasons why the
firm is ineligible You are not required
to accept a general allegation that a firm
is ineligible or an anonymous
complaint. The complaint may include
any information or arguments
supporting the complainant's assertion
that the firm is ineligible and should not
continue to be certified. Confidentiality
of complainants' identities must be
protected as,provided in §26.109(b).
(2) You must review your records
concerning the firm, any material
provided by the firm and the
complainant, and other available
information. You may request
additional information from the firm or
conduct any other investigation that you
deem necessary.
(3) If you determine, based on this
review, that there is reasonable cause to
believe that the firm is ineligible, you
must provide written notice to the firm
that you propose to find the firm
ineligible, setting forth the reasons for
the proposed determination. If you
determine that such reasonable cause
does not exist, you must notify the
complainant and the firm in writing of
this determination and the reasons for
it. All statements of reasons for findings
on the issue of reasonable cause must
specifically reference the evidence in
the record on which each reason is
based.
(b) Recipient -initiated proceedings. If,
based on notification by the firm of a
change in its circumstances or other
information that comes to your
attention, you determine that there is
reasonable cause to believe that a
currently certified firm is ineligible you
must provide written notice to the firm
that you propose to find the firm
ineligible, setting forth the reasons for
the proposed determination The
statement of reasons for the finding of
reasonable cause must specifically
reference the evidence in the record on
which each reason is based
(c) DOT directive to initiate
proceeding (1) If the concerned
operating administration determines
that information in your certification
records, or other information available
to the concerned operating
administration, provides reasonable
cause to believe that a firm you certified
does not meet the eligibility criteria of
this part, the concerned operating
administration may direct you to initiate
a proceeding to remove the firm's
certification.
(2) The concerned operating
administration must provide you and
the firm a notice setting forth the
reasons for the directive, including any
relevant documentation or other
information
(3) You must immediately commence
and prosecute a proceeding to remove
eligibility as provided by paragraph (b)
of this section
(d) Hearing When you notify a firm
that there is reasonable cause to remove
its eligibility, as provided in paragraph
(a), (b), or (d) of this section, you must
give the firm an opportunity for an
informal hearing. at which the firm may
respond to the reasons for the proposal
to remove its eligibility in person and
provide information and arguments
concerning why it should remain
certified.
(1) In such a proceeding, you bear the
burden of proving, by a preponderance
of the evidence, that the firm does not
meet the certification standards of this
part.
(2) You must maintain a complete
record of the hearing, by any means
acceptable under state law for the
retention of a verbatim record of an
administrative hearing If there is an
appeal to DOT under § 26.89, you must
provide a transcript of the hearing to
DOT and, on request. to the firm. You
must retain the original record of the
hearing. You may charge the firm only
for the cost of copying the record.
(3) The firm may elect to present
information and arguments in writing,
without going to a hearing In such a
situation. you bear the same burden of
proving by a preponderance of the
evidence, that the firm does not meet
the certification standards. as you
would during a hearing
(e) Separation of functions. You must
ensure that the decision in a proceeding
to remove a firm's eligibility is made by
an office and personnel that did not take
part in actions leading to or seeking to
implement the proposal to remove the
firm's eligibility and are not subject.
\vith respect to the matter, to direction
from the office or personnel who did
take part in these actions.
(1) Your method of implementing this
requirement must be made part of your
DBE program.
(2) The decisionmaker must be an
individual who is knowledgeable about
the certification requirements of your
DBE program and this part.
(3) Before a UCP is operational in its
state, a small airport or small transit
authority (i e , an airport or transit
authority serving an area with less than
250,000 population) is required to meet
this requirement only to the extent
feasible.
(f) Grounds for decision. You must not
base a decision to remove eligibility on
a reinterpretation or changed opinion of
information available to the recipient at
the time of its certification of the firm.
You may base such a decision only on
one or more of the following:
(1) Changes in the firm's
circumstances since the certification of
the firm by the recipient that render the
firm unable to meet the eligibility
standards of this part:
Federal Register/Vol. 64, No. 21/Tuesday, February 2, 1999/Rules and Regulations 5143
(2) Information or evidence not
available to you at the time the firm was
certified;
(3) Information that was concealed or
misrepresented by the firm in previous
certification actions by a recipient;
(4) A change in the certification
standards or requirements of the
Department since you certified the firm;
or
(5) A documented finding that your
determination to certify the firm was
factually erroneous.
(g) Notice of decision. Following your
decision. you must provide the firm
written notice of the decision and the
reasons for it. including specific
references to the evidence in the record
that supports each reason for the
decision. The notice must inform the
firm of the consequences of your
decision and of the availability of an
appeal to the Department of
Transportation under § 26 89. You must
send copies of the notice to the
complainant in an ineligibility
complaint or the concerned operating
administration that had directed you to
initiate the proceeding.
(h) Status of firm during proceeding.
(1) A firm remains an eligible DBE
during the pendancy of your proceeding
to remove its eligibility
(2) The firrn does not become
ineligible until the issuance of the
notice provided for in paragraph (g) of
this section.
(i) Effects of removal of eligibility
When you remove a firm's eligibility,
you must take the following action
(1) When a prime contractor has made
a commitment to using the ineligible
firm, or you have made a commitment
to using a DBE prime contractor. but a
subcontract or contract has not been
executed before you issue the
decertification notice provided for in
paragraph (g) of this section. the
ineligible firm does not count toward
the contract goal or overall goal. You
must direct the prime contractor to meet
the contract goal with an eligible DBE
firm or demonstrate to you that it has
made a good faith effort to do so
(2) If a prime contractor has executed
a subcontract with the firm before you
have notified the firm of its ineligibility,
the prime contractor may continue to
use the firm on the contract and may
continue to receive credit toward its
DBE goal for the firm's work. In this
case, or in a case where you have let a
prime contract to the DBE that was later
ruled ineligible, the portion of the
ineligible firm's performance of the
contract remaining after you issued the
notice of its ineligibility shall not count
toward your overall goal, but may count
toward the contract goal
(3) Exception: If the DBE's
ineligibility is caused solely by its
having exceeded the size standard
during the performance of the contract,
you may continue to count its
participation on that contract toward
overall and contract goals.
(j) Availability of appeal. When you
make an administratively final removal
of a firm's eligibility under this section,
the firm may appeal the removal to the
Department under § 26.89.
§ 26.89 What is the process for
certification appeals to the Department of
Transportation?
(a) (1) If you are a firm which is denied
certification or whose eligibility is
removed by a recipient, you may make
an administrative appeal to the
Department.
(22) If you are a complainant in an
ineligibility complaint to a recipient
(including the concerned operating
administration in the circumstances
provided in § 26.87(c)), you may appeal
to the Department if the recipient does
not find reasonable cause to propose
removing the firm's eligibility or,
following a rernoval of eligibility
proceeding, determines that the firm is
eligible.
(3) Send appeals to the following
address Department of Transportation,
Office of Civil Rights 400 7th Street,
SW, Room 2401 '\,`. ash,neton. DC 20590
(b) Pending the Department's decision
in the :natter, the recipient's decision
remains in effect The Department does
not stay the effect of the recipient's
decision while it is considering an
appeal.
(c) If you want to file an appeal, you
must send a letter to the Department
within 90 days of the date of the
recipient's final decision, including
information and arguments concerning
why the recipient's decision should be
reversed. The Department may accept
an appeal filed later than 90 days after
the date of the decision if the
Department determines that there was
good cause for the late filing of the
appeal.
(1) If you are an appellant who is a
firm which has been denied
certification, whose certification has
been removed, whose owner is
determined not to be a member of a
designated disadvantaged group, or
concerning whose owner the
presumption of disadvantage has been
rebutted. your letter must state the name
and address of any other recipient
which currently certifies the firm,
which has rejected an application for
certification from the firm or removed
the firm's eligibility within one year
prior to the date of the appeal, or before
which an application for certification or
a removal of eligibility is pending.
Failure to provide this information may
be deemed a failure to cooperate under
§26 109(c).
(2) If you are an appellant other than
one described in paragraph (c) (1) of this
section, the Department will request,
and the firm whose certification has
been questioned shall promptly provide,
the information called for in paragraph
(c)(1) of this section. Failure to provide
this information may be deemed a
failure to cooperate under § 26.109(c).
(d) When it receives an appeal, the
Department requests a copy of the
recipient's complete administrative
record in the matter. If you are the
recipient, you must provide the
administrative record, including a
hearing transcript, within 20 days of the
Department's request. The Department
may extend this time period on the basis
of a recipient's showing of good cause.
To facilitate the Department's review of
a recipient's decision, you must ensure
that such administrative records are
well organized, indexed, and paginated.
Records that do not comport with these
requirements are not acceptable and
will be returned to you to be corrected
immediately. If an appeal is brought
concerning one recipient's certification
decision concerning a firm, and that
recipient relied on the decision and/or
administrative record of another
recipient. this requirement applies to
both recipients involved
(e) The Department makes its decision
based solely on the entire administrative
record. The Department does not make
a de novo review of the matter and does
not conduct a hearing The Department
may supplement the administrative
record by adding relevant information
made available by the DOT Office of
Inspector General, Federal, state, or
local law enforcement authorities;
officials of a DOT operating
administration or other appropriate
DOT office; a recipient; or a firm or
other private party.
(f) As a recipient, when you provide
supplementary information to the
Department, you shall also make this
information available to the firm and
any third -party complainant involved,
consistent with Federal or applicable
state laws concerning freedom of
information and privacy. The
Department makes available, on request
by the firm and any third -party
complainant involved, any
supplementary information it receives
from any source.
(1) The Department affirms your
decision unless it determines, based on
the entire administrative record, that
your decision is unsupported by
ey
5144 Federal Register /Vol. 64, No. 21 /Tuesday, February 2, 1999 / Rules and Regulations
substantial evidence or inconsistent
with the substantive or procedural
provisions of this part concerning
certification.
(2) If the Department determines, after
reviewing the entire administrative
record, that your decision was
unsupported by substantial evidence or
inconsistent with the substantive or
procedural provisions of this part
concerning certification, the Department
reverses your decision and directs you
to certify the firm or remove its
eligibility, as appropriate. You must
take the action directed by the
Department's decision immediately
upon receiving written notice of it.
(3) The Department is not required to
reverse your decision if the Department
determines that a procedural error did
not result in fundamental unfairness to
the appellant or substantially prejudice
the opportunity of the appellant to
present its case.
(4) If it appears that the record is
incomplete or unclear with respect to
matters likely to have a significant
impact on the outcome of the case, the
Department may remand the record to
you with instructions seeking
clarification or augmentation of the
record before making a finding. The
Department may also remand a case to
you for further proceedings consistent
with Deppartrnent instructions
concerning the proper application of the
provisions of this part
The Department does no: Lphcld
Your decision based on grounds no:
specified in your decision
(6) The Department s decisicn is
based on the status and circumstances
of the firm as of the date of the decision
being appealed.
(7) The Department provides written
notice of its decision to you, the firm,
and the complainant in an ineligibility
complaint. A copy of the notice is also
sent to any other recipient whose
administrative record or decision has
been involved in the proceeding (see
paragraph (d) of this section). The notice
includes the reasons for the
Department s decision, including
specific references to the evidence in
the record that supports each reason for
the decision.
(8) The Department's policy is to
make its decision within 180 days of
receiving the complete administrative
record. If the Department does not make
its decision within this period. the
Department provides written notice to
concerned parties, including a statement
of the reason for the delay and a date by
which the appeal decision will be made
(g) All decisions under this section
are administratively final, and are not
subject to petitions for reconsideration.
§ 26.91 What actions do recipients take
following DOT certification appeal
decisions? .
(a) If you are the recipient'from whose
action an appeal under § 26.89 is taken,
the decision is binding. It is not binding
on other recipients.
(b) If you are a recipient to which a
DOT determination under § 26.89 is
applicable, you must take the following
action:
(1) If the Department determines that
you erroneously certified a firm, you ,
must remove the firm's eligibility on
receipt of the determination. without
further proceedings on your part.
Effective on the date of your receipt of
the Department's determination, the
consequences of a removal of eligibility
set forth in § 26.87(i) take effect.
(2) If the Department determines that
you erroneously failed to find
reasonable cause to remove the firm's
eligibility, you must expeditiously
commence a proceeding to determine
whether the firm's eligibility should be
removed, as provided in § 26 87
(3) If the Department determines that
you erroneously declined to certify or
removed the eligibility of the firm, you
must certify the firm, effective on the
date of your receipt of the written notice
of Department's determination.
(4) If the Department determines that
you erroneously determined that the
presumption of social and economic
disadvantaee either should or should
not be deemec rebutted you must take
appropriate corrective action as
determined b' the Department.
(5) if the Department affirms your
determination, no further action is
necessary
(c) Where DOT has upheld your
denial of certification to or removal of
eligibility from a firm, or directed the
removal of a firm's eligibility, other
recipients with whom the firm is
certified may commence a proceeding to
remove the firm's eligibility under
§ 26 87 Such recipients must not
remove the firm's eligibility absent such
a proceeding Where DOT has reversed
your denial of certification to or removal
of eligibility from a firm, other
recipients must take the DOT action into
account in any certification action
involving the firm. However, other
recipients are norrequired to certify the
firm based on the DOT decision.
Subpart F—Compliance and
Enforcement
§ 26.101 What compliance procedures
apply to recipients?
(a) If you fail to comply with any
requirement of this part, you may be
subject to formal enforcement action
under § 26.103 or § 26.105 or
appropriate program sanctions by the
concerned operating administration,
such as the suspension or termination of
Federal funds. or refusal to approve
projects, grants or contracts until
deficiencies are remedied. Program
sanctions may include, in the case of the
FHWA program, actions provided for
under 23 CFR 1.36; in the case of the
FAA program, actions consistent with
49 U.S C. 47106(d). 47111(d), and
47122; and in the case of the FTA
program, any actions permitted under
49 U.S.C. chapter 53 or applicable FTA
program requirements.
(b) As provided in statute, you will
not be subject to compliance actions or
sanctions for failing to carry out any
requirement of this part because you
have been prevented from complying
because a Federal court has issued a
final order in which the court found that
the requirement is unconstitutional.
§ 26.103 What enforcement actions apply
in FHWA and FTA programs?
The provisions of this section apply to
enforcement actions under FHWA and
FTA programs.
(a) Noncompliance complaints. Any
person who believes that a recipient has
failed to comply with its obligations
under this part may file a written
complaint v ith the concerned operating
administration s Office of Civil Rights If
you want to file a complaint, you must
do so no later than 180 days after the
date cf the alleged violation or the date
on which you learned of a continuing
course of conduct in violation of this
part. In response to your written
request, the Office of Civil Rights may
extend the time for filing in the interest
of justice, specifying in writing the
reason for so doing The Office of Civil
Rights may protect the confidentiality of
your identity as provided in § 26 109(b)
Complaints under this part are limited
to allegations of violation of the
provisions of this part.
(b) Compliance reviews. The
concerned operating administration may
review the recipient's compliance with
this part at any time, including reviews
of paperwork and on-site reviews, as
appropriate The Office of Civil Rights
may direct the operating administration
to initiate a compliance review based on
complaints received.
(c) Reasonable cause notice If it
appears, from the investigation of a
complaint or the results of a compliance
review, that you, as a recipient, are in
noncompliance with this part, the
appropriate DOT office promptly sends
you, return receipt requested, a written
notice advising you that there is
reasonable cause to find you in
Federal Register /Vol. 64, No. 21 /Tuesday, February 2, 1999 / Rules and Regulations 5145
noncompliance. The notice states the
reasons for this finding and directs you
to reply within 30 days concerning
whether you wish to begin conciliation.
(d) Conciliation. (1) If you request
conciliation, the appropriate DOT office
shall pursue conciliation for at least 30,
but not more than 120, days from the
date of your request. The appropriate
DOT office may extend the conciliation
period for up to 30 days for good cause,
consistent with applicable statutes.
(2) If you and the appropriate DOT
office sign a conciliation agreement,
then the matter is regarded as closed
and you are regarded as being in
compliance. The conciliation agreement
sets forth the measures you have taken
or will take to ensure compliance. While
a conciliation agreement is in effect, you
remain eligible for FHWA or FTA
financial assistance.
(3) The concerned operating
administration shall monitor your
implementation of the conciliation
agreement and ensure that its terms are
complied with If you fail to carry out
the terms of a conciliation agreement,
you are in noncompliance.
(4) If you do not request conciliation,
or a conciliation agreement is not signed
within the time provided in paragraph
(d) (1) of this section, then enforcement
proceedings begin
(e) Enforcement actions. (1)
Enforcement actions are taken as
provided in this subpart.
(2) Applicable findings in
enforcement proceedings are binding on
all DOT offices
§ 26.105 What enforcement actions apply
in FAA Programs?
(a) Compliance with all requirements
of this part by airport sponsors and
other recipients of FAA financial
assistance is enforced through the
procedures of Title 49 of the United
States Code. including 49 U.S C
47106(d), 47111(d), and 47122, and
regulations implementing them.
(b) The provisions of § 26.103(b) and
this section apply to enforcement
actions in FAA programs.
(c) Any person who knows of a
violation of this part by a recipient of
FAA funds may file a complaint under
14 CFR part 16 with the Federal
Aviation Administration Office of Chief
Counsel.
§ 26.107 What enforcement actions apply
to firms participating in the DBE program?
(a) If you are a firm that does not meet
the eligibility criteria of subpart D of
this part and that attempts to participate
in a DOT -assisted program as a DBE on
the basis of false, fraudulent, or
deceitful statements or representations
or under circumstances indicating a
serious lack of business integrity or
honesty, the Department may initiate
suspension or debarment proceedings
against you under 49 CFR part 29.
(b) If you are a firm that, in order to
meet DBE contract goals or other DBE
program requirements. uses or attempts
to use, on the basis of false, fraudulent
or deceitful statements or
representations or under circumstances
indicating a serious lack of business
integrity or honesty, another firm that
does not meet the eligibility criteria of
subpart D of this part. the Department
may initiate suspension or debarment
proceedings against you under 49 CFR
part 29.
(c) In a suspension or debarment
proceeding brought under paragraph (a)
or (b) of this section, the concerned
operating administration may consider
the fact that a purported DBE has been
certified by a recipient. Such
certification does not preclude the
Department from determining that the
purported DBE, or another firm that has
used or attempted to use it to meet DBE
goals, should be suspended or debarred.
(d) The Department may take
enforcement action under 49 CFR Part
31, Program Fraud and Civil Remedies.
against any participant in the DBE
program v: hose conduct is subject to
such action under 49 CFR part 31
(el The Department may refer to the
Department of Justice, for prosecution
under 18 U S C 1001 or other
applicable provisions of law, any person
who makes a false or fraudulent
statement in connection with
participation of a DBE in any DOT -
assisted program or otherwise violates
applicable Federal statutes
§ 26.109 What are the rules governing
information, confidentiality, cooperation,
and intimidation or retaliation?
(a) Availability of records. (1) In
responding to requests for information
concerning any aspect of the DBE
program, the Department complies with
provisions of the Federal Freedom of
Information and Privacy Acts (5 U S C
552 and 552a) The Department may
make available to the public any
information concerning the DBE
program release of which is not
prohibited by Federal law
(2) If you are a recipient, you shall
safeguard from disclosure to
unauthorized persons information that
may reasonably be considered as
confidential business information,
consistent with Federal, state, and local
law
(b) Confidentiality of information on
complainants. Notwithstanding the
provisions of paragraph (a) of this
section, the identity of complainants
shall be kept confidential, at.their
election. If such confidentiality will
hinder the investigation, proceeding or
hearing, or result in a denial of
appropriate administrative due process
to other parties, the complainant must
be advised for the purpose of waiving
the privilege. Complainants are advised
that, in some circumstances, failure to
waive the privilege may result in the
closure of the investigation or dismissal
of the proceeding or hearing. FAA
follows the procedures of 14 CFR part
16 with respect to confidentiality of
information in complaints.
(c) Cooperation. All participants in
the Department's DBE program
(including, but not limited to,
recipients. DBE firms and applicants for
DBE certification, complainants and
appellants, and contractors using DBE
firms to meet contract goals) are
required to cooperate fully and
promptly with DOT and recipient
compliance reviews, certification
reviews, investigations, and other
requests for information. Failure to do
so shall be a ground for appropriate
action against the party involved (e g.,
with respect to recipients, a finding of
noncompliance, with respect to DBE
firms denial of certification or removal
of eligibility and/or suspension and
debarment: with respect to a
complainant or appellant, dismissal of
the complaint or appeal, with respect to
a contractor which uses DBE firms to
meet goals, findings of non -
responsibility for future contracts and/
or suspension and debarment).
(d) Intimidation and retaliation. If you
are a recipient. contractor. or any other
participant in the program, you must
not intimidate, threaten, coerce, or
discriminate against any individual or
firm for the purpose of interfering with
any right or privilege secured by this
part or because the individual or firm
has made a complaint, testified,
assisted, or participated in any manner
in an investigation, proceeding, or
hearing under this part. If you violate
this prohibition, you are in
noncompliance with this part.
Appendix A to Part 26—Guidance
Concerning Good Faith Efforts
I. When. as a recipient, you establish a
contract goal on a DOT -assisted contract, a
bidder must, in order to be responsible and/
or responsive, make good faith efforts to meet
the goal. The bidder can meet this
requirement in either of two ways. First, the
bidder can meet the goal, documenting
commitments for participation by DBE firms
sufficient for this purpose. Second, even if it
doesn't meet the goal, the bidder can
document adequate good faith efforts. This
means that the bidder must show that it took
5146 Federal Register/Vol. 64, No. 21 /Tuesday, February 2, 1999 /Rules and Regulations
all necessary and reasonable steps to achieve
a DBE goal or other requirement of this part
which, by their scope, intensity, and
appropriateness to the objective. could
reasonably be expected to obtain sufficient
DBE participation, even if they were not fully
successful.
II. In any situation in which you have
established a contract goal, part 26 requires
you to use the good faith efforts mechanism
of this part. As a recipient. it is up to you
to make a fair and reasonable judgment
whether a bidder that did not meet the goal
made adequate good faith efforts. It is
important for you to consider the quality,
quantity, and intensity of the different kinds
of efforts that the bidder has made. The
efforts employed by the bidder should be
those that one could reasonably expect a
bidder to take if the bidder were actively and
aggressively trying to obtain DBE
participation sufficient to meet the DBE
contract goal. Mere pro forma efforts are not
good faith efforts to meet the DBE contract
requirements. We emphasize, however, that
your determination concerning the
sufficiency of the firm's good faith efforts is
a judgment call. meeting quantitative
formulas is not required.
III. The Department also strongly cautions
you against requiring that a bidder meet a
contract goal (i.e., obtain a specified amount
of DBE participation) in order to be awarded
a contract, even though the bidder makes an
adequate good faith efforts showing. This
rule specifically prohibits you from ignoring
bona fide good faith effects
It The fol:ow:ng is a list of :vpes of
actions which you should consider as part of
the bidder s good faith efforts to obtain DBE
parac.pat:on it is not intended to be a
mandator checklist. nor is it intended tc be
exciusi•'e or exhaustive Other factors cr
types of efforts ma:. be relevant in
appropriate cases.
A. Soliciting through all reasonable and
available means (e.g. attendance at pre-bid
meetings, advertising and/or written notices)
the interest of all certified DBEs who have
the capability to perform the work of the
contract. The bidder must solicit this interest
within sufficient time to allow the DBEs to
respond to the solicitation. The bidder must
determine with certainty if the DBEs are
interested by taking appropriate steps to
follow up initial solicitations.
B Selecting portions of the work to be
performed by DBEs in order to increase the
likelihood that the DBE goals will be
achieved. This includes, where appropriate,
breaking out contract work items into
economically feasible units to facilitate DBE
participation, even when the prime
contractor might otherwise prefer to perform
these work items with its own forces.
C. Providing interested DBEs with
adequate information about the plans,
specifications, and requirements of the
contract in a timely manner to assist them in
responding to a solicitation.
D. (1) Negotiating in good faith with
interested DBEs. It is the bidder's
responsibility to make a portion of the work
available to DBE subcontractors and
suppliers and to select those portions of the
work or material needs consistent with the
available DBE subcontractors and suppliers,
so as to facilitate DBE participation. Evidence
of such negotiation includes the names,
addresses. and telephone numbers of DBEs
that were considered: a description of the
information provided regarding the plans and
specifications for the work selected for
subcontracting; and evidence as to why
additional agreements could not be reached
for DBEs to perforrn the work.
(2) A bidder using good business judgment
would consider a number of factors in
negotiating with subcontractors. including
DBE subcontractors, and would take a firm's
price and capabilities as well as contract
goals into consideration. However, the fact
that there may be some additional costs
involved in finding and using DBEs is not in
itself sufficient reason for a bidder's failure
to meet the contract DBE goal, as long as such
costs are reasonable. Also. the ability or
desire of a prime contractor to perforrn the
work of a contract with its own organization
does not relieve the bidder of the
responsibility to make good faith efforts.
Prime contractors are not, however, required
to accept higher quotes from DBEs if the
price difference is excessive or unreasonable.
E. Not rejecting DBEs as being unqualified
without sound reasons based on a thorough
investigation of their capabilities. The
contractor's standing within its industry,
membership in specific groups,
organizations, or associations and political or
social affiliations (for example union.vs non-
union employee status) are not legitimate
causes for :he rejection or non -solicitation of
bids in the contractor s efforts to meet the
project goal
'laking efforts to assist interested DBEs
in obtaining bonding, lines of credit. or
insurance as required by the recipient or
contractor
G Making efforts to assist interested DBEs
in obtaining necessary equipment, supplies,
materials, or related assistance or services.
H. Effectively using the services of
available minority/women community
organizations, minority/women contractors'
groups. local, state, and Federal minority/
women business assistance offices, and other
organizations as allowed on a case-bv-case
basis to provide assistance in the recruitment
and placement of DBEs
V In determining whether a bidder has
made good faith efforts, you may take into
account the performance of other bidders in
meeting the contract. For example, when the
apparent successful bidder fails to meet the
contract goal, but others meet it, you may
reasonably raise the question of whether,
with additional reasonable efforts, the
apparent successful bidder could have met
the goal. If the apparent successful bidder
fails to meet the goal, but meets or exceeds
the average DBE participation obtained by
other bidders, you may view this, in
conjunction with other factors, as evidence of
the apparent successfui bidder having made
good faith efforts
Appendix B to Part 26—Forms
[Reserved]
Appendix C to Part 26—DBE Business
Development Program Guidelines
The purpose of this program element is to
further the development of DBEs, including
but not limited to assisting them to move into
non-traditional areas of work and/or compete
in the marketplace outside the DBE program,
via the provision of training and assistance
from the recipient.
(A) Each firm that participates in a
recipient's business development program
(BDP) program is subject to a program term
determined by the recipient. The term should
consist of two stages: a developmental stage
and a transitional stage.
(B) In order for a firm to remain eligible for
program participation. it must continue to
meet all eligibility criteria contained in part
26.
(C) By no later than 6 months of program
entry. the participant should develop and
submit to the recipient a comprehensive
business plan setting forth the participant's
business targets. objectives and goals. The
participant will not be eligible for program
benefits until such business plan is
submitted and approved by the recipient.
The approved business plan will constitute
the participant's short and long term goals
and the strategy for developmental growth to
the point of economic viability in non-
traditional areas of work and/or work outside
the DBE program.
(D) The business pian should contain at
least the following --
(1) an analysis of market potential.
competitive environment and other business
analyses estimating the program participant s
prospects for profitable operation during the
tern; of program participation and after
graduation from the program.
(2) An analysis of the firm s strengths and
weaknesses, with particular attention paid to
the means of correcting any financial,
managerial, technical, or labor conditions
which could impede the participant from
receiving contracts other than those in
traditional areas of DBE participation.
(3) Specific targets, objectives. and goals
for the business development of the
participant during the next two years.
utilizing the results of the analysis conducted
pursuant to paragraphs (C) and (D)(1) of this
appendix:
(4) Estimates of contract awards from the
DBE program and from other sources which
are needed to meet the objectives and goals
for the years covered by the business plan;
and
(5) Such other information as the recipient
may require.
(E) Each participant should annually
review its currently approved business plan
with the recipient and modify the plan as
may be appropriate to account for any
changes in the firm's structure and redefined
needs The currently approved plan should
be considered the applicable plan for all
program purposes until the recipient
approves in writing a modified plan. The
recipient should establish an anniversary
date for review of the participant's business
plan and contract forecasts.
Federal Register /Vol, 64, No. 21 /Tuesday, February 2, 1999 /Rules and Regulations 5147
(F) Each participant should annually
forecast in writing its need for contract
awards for the next program year and the
succeeding program year during the review
of its business plan conducted under
paragraph (E) of this appendix. Such forecast
should be included in the participant's _
business plan. The forecast should include:
(1) The aggregate dollar value of contracts
to be sought under the DBE program,
reflecting compliance with the business plan,
(2) The aggregate dollar value of contracts
to be sought in areas other than traditional
areas of DBE participation;
(3) The types of contract opportunities
being sought. based on the firm's primary
line of business: and
(4) Such other information as may be
requested by the recipient to aid in providing
effective business development assistance to
the participant.
(G) Program participation is divided into
two stages; (1) a developmental stage and (2)
a transitional stage. The developmental stage
is designed to assist participants to overcome
their social and economic disadvantage by
providing such assistance as may be
necessary and appropriate to enable them to
access relevant markets and strengthen their
financial and managerial skills. The
transitional stage of program participation
follows the developmental stage and is
designed to assist participants to overcome,
insofar as practical. their social and
economic disadvantage and to prepare the
participant for leaving the program.
(H) The length of service in the program
tern should nct be a pre-set time frame for
either the developmental or transitional
stages but should be figured on the number
cf years considered necessary in normal
progression cf achieving the firm s
established goals and objectives. The setting
of such time could be factored on such items
as, but not limited to, the number of
contracts, aggregate amount of the contract
received. years in business, growth potential,
etc.
(I) Beginning in the first year of the
transitional stage of program participation.
each participant should annually submit for
inclusion in its business plan a transition
management plan outlining specific steps to
promote profitable business operations in
areas other than traditional areas of DBE
participation after graduation from the
program. The transition management plan
should be submitted to the recipient at the
same time other modifications are submitted
pursuant to the annual review under
paragraph (E) of this section. The plan should
set forth the same information as required
under paragraph (F) of steps the participant
will take to continue its business
development after the expiration of its
program term.
(1) When a participant is recognized as
successfully completing the program by
substantially achieving the targets, objectives
and goals set forth in its program term, and
has demonstrated the ability to compete in
the marketplace, its further participation
within the program may be determined by
the recipient.
(K) In determining whether a concern has
substantially achieved the goals and
objectives of its business plan, the following
factors, among others, should be considered
by the recipient:
(I) Profitability;
(2) Sales, including improved ratio of non-
traditional contracts to traditional -type
contracts;
(3) Net worth, financial ratios, working
capital, capitalization, access to credit and
capital;
(4) Ability to obtain bonding;
(5) A positive comparison of the DBE's
business and financial profile with profiles of
non -DBE businesses in the same area or
similar business category; and
(6) Good management capacity and
capability
(L) Upon determination by the recipient
that the participant should be graduated from
the developmental program, the recipient
should notify the participant in writing of its
intent to graduate the firm in a letter of
notification. The letter of notification should
set forth findings, based on the facts, for
every material issue relating to the basis of
the program graduation with specific reasons
for each finding. The letter of notification
should also provide the participant 45 days
from the date of service of the letter to submit
in writing information that would explain
why the proposed basis of graduation is not
warranted.
(M) Participation of a DBE firm in the
program may be discontinued by the
recipient prior to expiration of the firm's
program term far good cause due to the
failure of the firm to engage in business
practices that will promote its
competitiveness within a reasonable period
of tirne as evidenced b., among other
indicators, a pattern of inadequate
performance or unjustified delinquent
performance. Also, the recipient can
discontinue the participation of a firm that
does not actively pursue and bid on
contracts. and a firm that, without
justification, regularly fails to respond to
solicitations in the type of work it is qualified
for and in the geographical areas where it has
indicated availability under its approved
business plan. The recipient should take
such action if over a 2 -year period a DBE firm
exhibits such a pattern.
Appendix D to Part 26—Mentor-Protege
Program Guidelines
(A) The purpose of this program element
is to further the development of DBEs,
including but not limited to assisting them to
move into non-traditional areas of work and/
or compete in the marketplace outside the
DBE program, via the provision of training
and assistance from other firms. To operate
a mentor -protege program. a recipient must
obtain the approval of the concerned
operating administration.
(B)(1) Any mentor -protege relationship
shall be based on a written development
plan, approved by the recipient, which
clearly sets forth the objectives of the parties
and their respective roles, the duration of the
arrangement and the services and resources
to be provided by the mentor to the protege.
The formal mentor -protege agreement may
set a fee schedule to cover the direct and
indirect cost for such services rendered by
the mentor for specific training and
assistance to the protege through the life of
the agreement. Services provided by the
mentor may be reimbursable under the FTA,
FHWA, andFAA programs.
(2) To be eligible for reimbursement, the
mentor's services provided and associated
costs must be directly attributable and
properly allowable to specific individual
contracts. The recipient may establish a line
item for die mentor to quote the portion of
the fee schedule expected to be provided
during the life of the contract. The amount
claimed shall be verified by the recipient and
paid on an incremental basis representing the
tirne the protege is working on the contract.
The total individual contract figures
accumulated over the life of the agreement
shall not exceed the amount stipulated in the
original mentor/protege agreement.
(C) DBEs involved in a mentor -protege
agreement must be independent business
entities which meet the requirements for
certification as defined in subpart D of this
part. A protege firm must be certified before
it begins participation in a mentor -protege
arrangement. If the recipient chooses to
recognize mentor/protege agreements, it
should establish formal general program
guidelines. These guidelines must be
submitted to the operating administration for
approval prior to the recipient executing an
individual contractor/ subcontractor mentor -
protege agreement.
Appendix E to Part 26—Individual
Determinations of Social and Economic
Disadvantage
The following guidance is adapted, with
minor modifications, from SBA regulations
concerning social and economic
disadvantage determinations (see 13 CFR
124 I03(c) and 124 104)
Social Disadvantage
I. Socially disadvantaged individuals are
those who have been subjected to racial or
ethnic prejudice or cultural bias 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. Evidence of individual
social disadvantage must include the
following elements:
(A) At least one objective distinguishing
feature that has contributed to social
disadvantage, such as race, ethnic origin,
gender, disability, long-term residence in an
environment isolated from the mainstream of
American society, or other similar causes not
common to individuals who are not socially
disadvantaged,
(B) Personal experiences of substantial and
chronic social disadvantage in American
society. not in other countries; and
(C) Negative impact on entry into or
advancement in the business world because
of the disadvantage. Recipients will consider
any relevant evidence in assessing this
element. In every case, however, recipients
will consider education, employment and
business history, where applicable, to see if
the totality of circumstances shows
disadvantage in entering into or advancing in
the business world.
5148 Federal Register/Vol. 64, No. 21 /Tuesday, February 2, 1999 /Rules and Regulations
(1) Education. Recipients will consider
such factors as denial of equal access to
institutions of higher education and
vocational training, exclusion from social
and professional association with students or
teachers, denial of educational honors
rightfully earned, and social patterns or
pressures which discouraged the individual
from pursuing a professional or business
education.
(2) Employment. Recipients will consider
such factors as unequal treatment in hiring,
promotions and other aspects of professional
advancement. pay and fringe benefits, and
other terms and conditions of employment;
retaliatory or discriminatory behavior by an
employer or labor union; and social patterns
or pressures which have channeled the
individual into non-professional or non-
business fields.
(3) Business history The recipient will
consider such factors as unequal access to
credit or capital, acquisition of credit or
capital under commercially unfavorable
circumstances, unequal treatment in
opportunities for government contracts or
other work, unequal treatment by potential
customers and business associates, and
exclusion from business or professional
organizations.
II. With respect to paragraph I.(A) of this
appendix, the Department notes that people
with disabilities have disproportionately low
incomes and high rates of unemployment.
Many physical and attitudinal barriers
remain to their full participation in
education, employment. and business
opportunities available to the genera! public
The .americans with Disabilities Act (ADA)
was passed in recognition of the
discrimination faced by people 'r.ith
disabilities. It is plausible that many
individuals with disabilities—especially
persons with severe disabilities (e.g ,
significant mobility, vision, or hearing,
impairments)—may be socially and
economically disadvantaged.
III. Linder the laws concerning social and
economic disadvantage, people with
disabilities are not a group presumed to be
disadvantaged: Nevertheless, recipients
should look carefully at individual showings
of disadvantage by individuals with
disabilities, making a case-by-case judgment
about whether such an individual meets the
criteria of this appendix. As public entities
subject to Title II of the ADA. recipients must
also ensure their DBE programs are accessible
to individuals with disabilities. For example.
physical barriers or the lack of application
and information materials in accessible
formats cannot be permitted CO thwart the
access of potential applicants to the
certification process or other services made
available to DBEs and applicants.
Economic Disadvantage
(A) General. Economically disadvantaged
individuals are 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.
(B) Submission of narrative and financial
information.
(1) Each individual claiming economic
disadvantage must describe the conditions
which are the basis for the claim in a
narrative statement, and must submit
personal financial information.
(2) When married, an individual claiming
economic disadvantage also must submit
separate financial information for his or her
spouse. unless the individual and the spouse
are legaliv separated
(C) Factors ro be ccnsidered. In considering
diminished capital and credit opportunities,
recipients will examine factors relating to the
personal financial condition of any
individual claiming disadvantaged status,
including personal income for the past two
years (including bonuses and the value of
company stock given in lieu of cash),
personal net worth, and the fair market value
of all assets, whether encumbered or not.
Recipients will also consider the financial
condition of the applicant compared to the
financial profiles of small businesses in the
same primary industry classification, or. if
not available, in similar lines of business,
which are not owned and controlled by
socially and economically disadvantaged
individuals in evaluating the individual's
access to credit and capital. The financial
profiles that recipients will compare include
total assets, net sales. pre-tax profit. sales/
working capital ratio. and net worth.
(D) Transfers within two years.
(1) Except as set forth in paragraph (D)(2)
of this appendix, recipients will attribute to
an individual claiming disadvantaged status
any assets which that individual has
transferred to an immediate family member,
or to a trust, a beneficiary of which is an
immediate family member, for less than fair
market value. within two years prior to a
concern's application for participation in the
DBE program, unless the individual claiming
disadvantaged status can demonstrate that
the transfer is to or on behalf of an immediate
family member for that individual's
education, medical expenses. or some other
form of essential support.
(2) Recipients will not attribute to an
individual claiming disadvantaged status any
assets transferred by that individual to an
immediate family member that are consistent
with the customary recognition of special
occasions, such as birthdays, graduations,
anniversaries, and retirements.
(3) in determining an individual's access to
capital and credit, recipients may consider
any assets that :he individual transferred
within such two-year period described by
paragraph (D) (1) of this appendix that are not
considered in evaluating the individual's
assets and net worth (e g., transfers to
charities)
[FR Doc. 99-1033 Filed 1-29-99: 11.00 arn]
BILLING CODE 4910-62-P
Federal Register /Vol. 64, No. 123 / Monday, June 28, 1999 /Rules and Regulations 34569
procedure for processing "9-1-1" calls.
Such procedure must recognize when a
"9-1-1" call is made and, at such time,
must override any programming in the
mobile unit that determines the
handling of a non -911 call and permit
the call to be handled by other analog
carriers. This special procedure must
incorporate any one or more of the 9-
1-1 call system selection processes
endorsed or approved by the
Commission.
[FR Doc. 99-16484 Filed 6-25-99; 8:45 am]
BILUNG CODE 6712-01-P
DEPARTMENT OF TRANSPORTATION
Office of the Secretary
49 CFR Parts 23 and 26
[Docket OST -97-2550]
RIN 2105-AB92
Participation by Disadvantaged
Business Enterprises in Department of
Transportation Programs
AGENCY: Office of the Secretary, DOT.
ACTION: Final rule; correction.
SUMMARY: In its final disadvantaged
business enterprise (DBE) rule, the
Department intended to ensure the
confidentiality of personal financial
information submitted to recipients by
owners of DBE firms. The Department
inadvertently omitted the regulatory text
language on this point. This correction
document remedies this omission. In
addition, this document corrects minor
omissions concerning the threshold for
Federal Transit Administration
recipients to establish DBE programs
and a requirement for transit vehicle
manufacturers to have DBE programs,
removes a potentially confusing word
from the rule's provisions concerning
DOT review of recipients' overall goals,
clarifies language concerning the
certification and personal net worth of
airport concessionaires and others, and
clarifies that a lease is viewed as a
contract for purposes of the rule.
DATES: This rule is effective June 28,
1999
FOR FURTHER INFORMATION CONTACT:
Robert C Ashby, Deputy Assistant
General Counsel for Regulation and
Enforcement, Department of
Transportation, 400 7th Street. SW.,
Room 10424, Washington, DC 20590,
phone numbers (202) 366-9306 (voice),
(202) 366-9313 (fax), (202) 755-7687
(TDD), bob.ashby@ost.dot.gov (email)
SUPPLEMENTARY INFORMATION:
Privacy
In discussing the requirement of the
DBE final rule that owners of DBE firms
submit a statement of personal net
worth, with supporting documentation,
the Department addressed commenters'
concerns about the confidentiality of the
information. The preamble to the rule
said the following:
One of the primary concerns of DBE firms
commenting about submitting personal
financial information is ensuring that the
information remains confidential. In
response to this concern. the rule explicitly
requires that this material be kept
confidential. It may be provided to a third
party only with the written consent of the
individual to whom the information pertains.
This provision is specifically intended to pre-
empt any contrary application of state or
local law (e.g., a state freedom of information
act that might be interpreted to require a state
transportation agency to provide to a
requesting party the personal income tax
retum of a DBE applicant who had provided
the return as supporting documentation for
his PNW statement) There is one exception
to this confidentiality requirement. If there is
a certification appeal in which the economic
disadvantage of an individual is at issue (e.g.,
the recipient has determined that he or she
is not economically disadvantaged and the
individual seeks DOT review of the
decision), the personal financial information
would have to be provided to DOT as part
of the administrative record. The Department
would treat the information as confidential.
(64 FR 5117, Februar, 2. 1999)
Unfortunately. through editorial error
on the Department s part. the regulatory
text provision referred to was omitted
from the final rule. We regret any
confusion that this omission may have
caused. and we are correcting the error
by inserting the language in a new
paragraph (a) (2) (iii) of § 26.67 of the
rule.
FTA Requirements for DBE Programs
In §26.21(a)(2) of the rule, the
Department states that FTA recipients
who receive more than $250,000 in
various forms of FTA assistance must
have a DBE program. The phrase
"exclusive of transit vehicle purchases"
was inadvertently omitted from this
paragraph This omission has raised
questions from some recipients, and we
are reinserting the omitted language to
avoid confusion. In addition, this
provision did not make explicit that
transit vehicle manufacturers must have
DBE programs. so we are adding
language to make this clear
Review of Overall Goals
While operating administrations
review recipients' overall goal
submissions, recipients are not required
to obtain prior concurrence by operating
administrations with their overall goals
(see § 26.45(f)(4))
However, as the result of an editorial
oversight. § 26.21(b) (1) of the rule makes
a reference to overall goals being
"approved" by operating
administrations. Because prior
concurrence is not required, this
reference is incorrect and could be
misleading. Therefore, we are removing
it.
Concessionaires
In the February 2, 1999, final DBE
rule, the Department removed all of
former part 23 except the portion
concerning airport concessionaires. The
airport concession provisions were
modified for consistency with the new
49 CFR part 26. In one respect, however,
the amendment of the airport
concessions provision failed to delete
language concerning certification
procedures that referred to the (now
deleted) certification provisions of
former part 23. While we have provided
guidance to airports that they should
follow part 26 procedures, we believe it
would be useful to delete the language
referring to former part 23's procedures.
Therefore, this rule eliminates two
paragraphs in § 23.95 Recipients should
follow part 26 certification procedures
for concessionaires as well as for other
contractors.
Airports have expressed concern that
the rule is unclear concerning the
application to concessionaires of the
5750.000 personal net worth (PNW) cap
and PNW statement requirements of
§ 26 67. The Department is currently
working to complete a final rule
concerning airport concessions. The
PNW cap applicable to concessionaires
is one of the matters being considered
in this rulemaking. The PNW cap
amount that the Department applies to
concessionaires may or may not be
S750,000. Pending completion of the
final rule on airport concessions, the
Department believes it best to resolve
the current uncertainty by making the
$750.000 cap amount and PNW
statement requirement of § 26.67
inapplicable to airport concessionaires.
We are amending § 26.67(a)(2)(i) to
specify that disadvantaged owners of
airport concessionaires are not required
to submit PNW statements.
Consequently. the rebuttal of the
presumption of economic disadvantage
based on a PNW statement an
individual is required to submit (see
§ 26.67(b)(1)) also does not apply to
airport concessionaires.
Definition of "Contract"
The 49 CFR part 23 definition of
"contract" specified that a lease was
34570 Federal Register /Vol. 64, No. 123 / Monday, June 28, 1999 / Rules and Regulations
viewed as a contract. The part 26
definition inadvertently omitted this
sentence. To avoid any potential
confusion on this point, this correction
document adds a sentence on leases.
Clarification Concerning Personal Net
Worth Documentation
The Department has received a
number of questions and expressions of
concern about the documentation it is
appropriate for recipients to require in
ascertaining the personal net worth of
owners of DBE firms. The Department
believes that it is important to clarify
the rule to state that this documentation,
and the PNW statement itself, should
not be unduly lengthy, burdensome or
intrusive.
The Department uses the Small
Business Administration's
implementation of its PNW
requirements as a model for recipients'
practices. SBA requires a two-page form,
supported by two years' of personal and
business tax returns With respect to the
information routinely collected from
applicants or owners of currently
certified DBEs for purposes of
ascertaining PNW, the Department
believes that recipients should not
exceed the information sought by SBA
in its programs Consequently, while
recipients are not required to use the
SBA, form verbatim, they should use a
form of similar length and content.
Recipients may appropriately collect
and retain copies of two .ears' of the
individuals personal and business tax
returns
On the other hand, the Department
regards as unduly lengthy, burdensome,
or intrusive such practices as using a
form significantly longer or more
complex than the SBA form (e.g., a
multipage PNW form), requiring
inventories of personal property or
appraisals of real property Such
practices are contrary to part 26
Regulatory Analyses and Notices
This set of amendments correcting
part 26 is not a significant rule under
Executive Order 12866 or the
Department's Regulatory Policies and
Procedures. The Department certifies
that the amendments will not have
significant economic impacts on a
substantial number of small entities.
This is because the amendments are
technical corrections that will not
impose costs on entities, regardless of
their size. They do not have Federalism
impacts sufficient to warrant the
preparation of a Federalism impact
statement. They do not impose
information collection requirements
These amendments relate to
regulatory provisions that have already
been the subject of notice and comment
(as part of the Department's May 1997
supplemental notice of proposed
rulemaking concerning the DBE
program) .
Because the amendments merely
correct accidental omissions from the
regulatory text or remove a potentially
confusing reference, we do not believe
that additional notice and comment
would be productive. Therefore, the
Department has determined that further
notice and comment would be
impracticable, unnecessary, and
contrary to the public interest. The
Department has good cause to make the
corrections effective immediately in
order to avoid confusion and any
adverse effects on DBEs or recipients
from the absence of the omitted
language.
List of Subjects
49 CFR Part 23
Administrative practice and
procedure, Airports, Civil rights,
Concessions, Government contracts,
Grant programs—transportation,
Minority businesses. Reporting and
recordkeeping requirements.
49 CFR Part 26
Administrative practice and
procedure Airports. Civil rights,
Government contracts, Grant ^'
programs—transportation, Highways
and roads, Mass transportation,
Minot -in, businesses. Reporting and
recordlceeping requirements
Issued this 1 lth day of June, 1999, at
Washington, D C
Rodney E. Slater,
Secretary of Transportation.
For the reasons set forth in the
preamble, the Department amends 49
CFR parts 23 and 26 as follows.
PART 23—[AMENDED]
1 The authority citation for part 23
continues to read as follows.
Authority: 42 U.S C. 200d et seq., 49 U.S C
47107 and 47123. Executive Order 12138. 3
CFR. 1979 Comp , p. 393
§ 23.95 [Amended]
2 In § 23.95. remove and reserve
paragraphs (f) (2) and (f)(3).
PART 26—[AMENDED]
3 The authority citation for part 26 is
revised to read as follows
Authority: 23 U.S.C. 324. 42 U.S.C. 2000d,
et seq.; 49 U.S C 1615, 47107, 47113, 47123,
Sec. 1101(b), Pub L. 105-178, 112 Stat. 107,
113.
4 In the definition of the term
"Contract" in § 26 5, add a sentence at
the end of the definition, to read as
follows.
§26.5 What do the terms used in this part
mean?
* * * * *
Contract * * * For purposes of this
part, a lease is considered to be a
contract.
* * * *
5. In § 26.21, revise paragraph (a)(2) to
read as follows.
§26.21 Who must have a DBE program?
(a) * * *
(2) FTA recipients that receive
$250,000 in FTA planning, capital, and/
or operating assistance in a Federal
fiscal year, exclusive of transit vehicle
purchases. and transit vehicle
manufacturers who must submit an
overall goal under § 26 49.
* * * * *
§ 26.21 [Amended]
5. In § 26 21(b)(1), in the parenthetical
phrase, remove the words "and
approved" following the word
"reviewed".
§ 26.45 [Amended]
6 In § 26.45(c) (5), remove the words
"Subject to the approval of the DOT
operating administration, you" and add
"You" in its place
7 Amend § 26 67 as follows
a. Revise paragraph (a) (2) (i) , and
b Redesignate paragraph (a) (21(ii) as
paragraph (a) (21(iia and add a new
paragraph (a) (2)(ii), to read as follows
§ 26.67 What rules determine social and
economic disadvantage?
(a) . * *
(2) (i) You must require each
individual owner of a firm applying to
participate as a DBE (except a firm
applying to participate as a DBE airport
concessionaire) whose ownership and
control are relied upon for DBE
certification to submit a signed,
notarized statement of personal net
worth, with appropriate supporting
documentation. This statement and
documentation must not be unduly
lengthy, burdensome, or intrusive
(ii) Notwithstanding any provision of
state law, you must not release an
individual's personal net worth
statement nor any documentation
supporting it to any third party without
the written consent of the submitter.
Provided, that you must transmit this
information to DOT in any certification
appeal proceeding under § 26.89 in
which the disadvantaged status of the
individual is in question.
* * * * *
(FR Doc. 99-15866 Filed 6-24-99: 8.45 am]
BILLING CODE 491D -62-P
ITEM TITLE:
SUBMITTED BY:
BUSINESS OF THE CITY COUNCIL
YAKIMA, WASHINGTON
AGENDA STATEMENT
Item No.
1p
For Meetmg Of 4/04/00
Adoption of Disadvantaged Business Enterprise Program and Annual
Aspirational Goal
Chris Waarvick, Director of Public Works
John A. Haddix, Acting Transit Manager
CONTACT PERSON/TELEPHONE: John A. Haddix / 575-6005
SUMMARY EXPLANATION:
Submitted for Council approval is the Disadvantaged Business Enterprise (DBE) program with
documented methodology to establish a 10% aspirational goal. Originally estimated at 12%, a
lower 10% goal is recommended for adoption by the Council Transit Committee. This
recommendation is based on what is believed Transit can realistically achieve and the fact that
Council already has an adopted citywide policy setting 10% as a reasonable goal. This is also the
national goal set by the Federal Transit Administration.
Under the new federal rule, the City must "narrowly tailor" its DBE program by annually setting
an overall goal representing a "level playing field" in the amount of DBE participation the City can
realistically expect in the absence of discrimination This goal must be based on demonstrable
evidence of the availability of ready, willing, and able DBE's to participate in awarded United
States Department of Transportation (DOT) -assisted contracts The proof the City shall use for
determining if a DBE is ready, willing, and able is whether or not the DBE is State certified
Yakima Transit requested Yakima Valley Conference of Governments (COG) assistance in
developing a realistic goal. The law gives DOT funding recipients substantial flexibility in choosing
a method for goal setting. The COG staff reviewed the new DOT guidance documents and Transit
contract opportunities over the past three years. The methodology used and the justification for
establishing a 10% goal for Transit is provided as Attachment B: Overall Goal Submission in the
City of Yakima DBE Program.
Resolution X Ordinance Other (Specify) Pubhc Notice, DBE Program, Federal Register
Contract Mail to (name and address)•
Phone:
Funding Source
APPROVED FOR SUBMITTAL.
City Manager
STAFF RECOMMENDATION: Approve Resolution adopting DBE program and aspirational
goal.
BOARD/COMMISSION RECOMMENDATION. Approve Resolution adopting DBE program and
aspirational goal.
COUNCIL ACTION.
OFFICE OF THE CITY MANAGER
129 North Second Street
CITY HALL, Yakima, Washington 98901
Phone (509) 575-6040
March 31, 2000
Mr. Phil Pleasant
Pleasant's Contracting Service
1202 S. Fair Avenue
Yakima, Washington 98901
Re: Proposed City of Yakima DBE Program
Dear Phil:
Thank you for your March 2, 2000 letter regarding the City's proposed Disadvantaged
Business Enterprise ("DBE") Program. The City appreciates your input in the development of a
DBE Program. A number of the points made in your letter warrant a response and clarification.
The following information is provided for your consideration.
Your letter states that the City of Yakima has "a meager history of success when working with
minority and disadvantaged businesses," that City "leadership does not fully support the DBE
Program," and that City "administration is resistant to implementing a good sound DBE
Program." These statements are incorrect and unfair. City Management is committed to
continuous improvement in working with minority and disadvantaged business and attaining a
successful DBE program. The number one priority of the City is economic development. The
City does not knowingly or illegally discriminate against anyone in promoting this overriding
goal, nor would we tolerate such behavior. City representatives have worked diligently through
the years to involve DBEs to help achieve this priority. This has been accomplished by utilizing
certified DBEs in City projects and in hiring minority candidates as City employees. The facts
reflect that our efforts have resulted in the City generally meeting or exceeding both its DBE
goal of 10% and similar affirmative action employment goals during the last several years.
I would invite you to compare our record against other public employees in the area. I believe
you will find that given our workforce composition, the City has performed well, maintained
accurate statistics and records and been very responsive to this issue in comparison to other
public entities. Still, we are willing to acknowledge that even more can and should be done
within the legal constraints the City faces.
As to maintenance of a DBE directory and outreach efforts, the City Purchasing Division
subscribes to OMWBE's Directory of Certified Minority, Women and Disadvantaged Business
Enterprises, which is published on a quarterly basis, and also has access to OMWBE's web
page (which lists certified firms).' Additionally, the Purchasing Division maintains a
computerized vendor listing, which also identifies entities that are DBEs. Your firm is on this
vendor listing. Every time the Purchasing Division issues a request for bids on a project, the
The City does not recognize WAME as a certified DBE because WAME is not currently a
certified DBE.
Yakima
Iry an
994
Phil Pleasant
March 31, 2000
Page - 2
Washington Association of Minority Entrepreneurs ("WAME") is also faxed a copy of the
announcement so that WAME may also contact DBEs who may be interested in the project.
With regard to the methodology used to arrive at a proposed 10% aspirational goal, the United
States Department of Transportation suggests several ways of calculating this aspirational
goal in 49 CFR § 26.45(a). One recommended method is a review of the number of DBEs that
have participated in previous DOT -assisted prime contracts or subcontracts. This method is
described in 49 CFR § 26.45(a)(2). City representatives and the Yakima Valley Conference of
Governments ("YVCOG") felt that use of the data regarding prior DBE participation based upon
prior Transit Division contracts was in accordance with this DOT -suggested methodology and
was an appropriate method of determining the proposed DBE goal. Based upon the available
data, City staff and YVCOG recommended an aspirational DBE goal of 12% to the City Transit
Committee. The Council Transit Committee reviewed the matter and, based in part upon prior
practice and history, suggested a 10% DBE participation goal. However, the City Council will
be considering this matter next Tuesday.
This DBE Program development involves setting an aspirational goal, and not a quota, for
participation of DBEs in DOT and FTA -assisted contracts of the City. The City cannot legally
mandate a set aside or impose a quota requiring that a certain percentage of contracts be
awarded to minority businesses or any special ethnic group to remedy alleged past
discrimination. Such action would expose the City to significant liability in light of the United
States Supreme Court decisions of City of Richmond v. J.A. Croson Co., 109 S. Ct. 706 (1989)
and Adarand Constructors, Inc. v. Pena, 115 S. Ct. 2097 (1995), and would not be
enforceable. The new DOT regulations are largely a response to these Supreme Court
decisions. In particular, DOT recognized the liability exposure presented by quotas and set -
asides in DBE programs. Accordingly, in 49 CFR § 26.43, DOT expressly prohibited the use of
quotas and severely limited the use of set -asides. The City must comply with the federal DOT
regulations in this matter.
As to the 1998 bus bench contract, Glenn Rice previously responded to your concerns by way
of a written letter on July 30, 1999. A copy of that letter is attached hereto for your reference.
Again, the City thanks you for your timely completion of the required work. However, please
be aware that the City always has the right to reject any and all bids on any particular project.
The City could have exercised that right on the 1998 bus bench project when it became
apparent that there was not enough funds available to complete the full scope of the project.
Instead, the City chose to work with you to reach a mutually acceptable situation. As part of
that solution, you were not required to provide a performance or payment bond for that
project.2
The 1999 bus bench project represented a new and separate contract with an expected cost in
excess of $25,000. In accordance with Article VI, Section 6 of the City Charter and Section
1.80.040 of the Yakima Municipal Code, the City was required to bid out that project and acted
appropriately by doing so. In your letter you state that the City did not notify you of this project.
However, in Mr. Rice's July 30th letter you were clearly notified of the project and invited to
2 With regard to the performance bond issue, RCW 39 08.010 generally requires performance and
payment bonds on public works projects. There does not appear to be anything in the DOT regulations
that preempts these bond requirements. Accordingly, the City generally requires performance and
payment bonds on projects that are publicly bid. At the same time, the City has exercised some
flexibility regarding bond requirements when the cost of a project is below the $25,000 bid limit.
Phil Pleasant
March 31, 2000
Page - 3
submit a bid. Additionally, your business is on the City's list of vendors that is maintained by
the Purchasing Division. As such, it is my understanding that a bid package was mailed to you
for the 1999 bus bench project. Finally, as with all public bid projects of the City, the bid
announcement was published in the Yakima Herald Republic. And, in fact, you submitted a
successful bid on the project.
We believe that the City's public bid process follows legal requirements, provides a level
playing field and is a fair process for all interested parties. We do not agree that the
requirement to bid on any particular project, including the 1999 bus bench contract, is an
obstacle to minority businesses or that it discriminates against minorities who seek to do
business with the City of Yakima. This is evidenced by the fact that you bid on the 1999 bus
bench project and were awarded the contract as the lowest responsible bidder. Like the 1998
bus bench contract, you were not required to provide a performance or payment bond for that
project.
The City thanks you for input and suggestions. We would welcome any additional
recommendations as to other ways that the City may legally promote the development of
minority and disadvantaged business enterprises.
Very truly yours,
Dick Zais
City Manager
cc: City Council Members
Glenn Rice, Asst. City Manager
Chris Waarvick, Public Works Director
Sue Ownby, Manager, Purchasing Division
John Haddix, Acting Manager, Transit Division
OFFICE OF THE CITY MANAGER
129 North Second Street
CITY HALL, Yakima, Washington 98901
Phone (509) 575-6040
July 30, 1999
Phillip L. Pleasant
701 South 7th Avenue
Yakima, Washington 98901
On May 19, 1998, the City executed a contract with you regarding installation of bus
benches. Specifically, the contract required that you install 50 bus benches at specified
locations for a total sum of $15,000.00. The contract required that you complete
installation of the 50 bus benches within 45 working days after_ receiving the notice to
proceed. You have now completed the work within the required time and have been paid
$15,000 in compensation. The contract has been completed. Thank you for your work
and efforts.
The City now has an additional 100 bus benches that need to be installed. This installation
is a new and separate contract and is expected to cost in excess of $25,000 for placement.
According to our legal counsel, Article VI, Section 6 of the City Charter and Section
1.80.040 of the Yakima Municipal Code require that purchase of installation services in
excess of $25,000 must be made through a call for bids. I anticipate that the City will
publish a call for bids regarding this new bus bench installation project in the near future.
Of course, you are welcome and invited to submit a bid on this project after the call for
bids is published.
Thank you for your attention to this matter.
Sin
e
Assistant City Manager
c: Dick Zais, City Manager
Chris Waarvick, Public Works Director
Bill Schultz, Manager, Transit Division
Sue Ownby, Manager, Purchasing Division
Ray Paolella, City Attorney
Yakima
March 2, 2000
Mr. Dick Zais, City Manager
Yakima City Council
Purchasing Manager, DBELO
City of Yakima
129 North 2nd Street
Yakima, WA 98901
Dear Mr. Zais,
Speaking from years of personal experience working in the construction industry, and
experience as a general contractor bidding on City of Yakima jobs, I submit the following on
the Department of Transportation (USDOT), Disadvantaged Business Enterprises (DBE)
Program proposed by the City of Yakima for the year 2000.
The Eastem Washington region and the City of Yakima have a meager history of success
when working with minority and disadvantaged businesses. The administration of the
programs has been seen, at best, as a minimal attempt to be in compliance.
The DBE program was designed by the Federal Govemment to provide stability to minority
communities, not only in terms of employment, but also in terms of minority business
utilization. As a Black general contractor, I want the DBE program to be administered in a
way that makes it an effective economic development tool for me, and the minority
community of the City of Yakima. I do not want it to be a program that just gives lip service
to compliance with the Federal requirements in order to continue to receive Federal funds. I
would like to see the City of Yakima promote the development of minority and
disadvantaged businesses.
A thorough review of the documentation available for public inspection at the Purchasing
Manager's Office confirms that the City of Yakima has little to show in terms of maintenance
of a directory, or in outreach efforts to firms eligible to participate as DBE's. The same is true
regarding creation of Business Development Programs or any other supportive services to
develop DBE's ability to grow successfully or to be involved in Federally funded projects.
Further review finds that the process of establishing the published goals is very disturbing.
The City of Yakima requested the Yakima Valley Conference of Govemments (YVCOG) to
assist in developing the USDOT DBE Goal for the Federal Transit Administration. The
YVCOG Memorandum indicates that, "Yakima Transit staff requested YVCOG assistance in
developing a goal for DBE's as required by USDOT, Federal Transit Administration." And,
although YVCOG's work is remarkable, the City should have taken advantage of the very
commendable work already being done and available, by such minority organizations as
OMWBE (Office of Minority and Women's Business Enterprises), a State agency, and WAME
(Washington Association of Minority Entrepreneurs), a local agency. The City has failed to
recognize WAME, a minority financial institute, who they fund.
Mr. Dick Zais
March 2, 2000
Page Two
Sue Ownby, City of Yakima Purchasing Manager, provided documentation to YVCOG from
May 1994 through September 1999 on contracts let out by the City of Yakima on behalf of the
Yakima Transit Department. YVCOG's Memorandum specifically states that their
calculations and their recommendations are for the Federal Transit Administration DBE
Program. Yet the City of Yakima uses YVOC's Memorandum to arrive at their DBE goal for
the overall USDOT DBE Program, of which FTA expenditures represents a minimal portion.
And even so, YVCOG recommends a DBE goal of 12% which the City of Yakima reduces to
10% without any documentation to substantiate the rationale for the 2% reduction.
In the analysis of the FTA -assisted contracts for 1998, my firm contracted for $15,000 not the
$11,216 indicated. That contract was negotiated, not bid, so rightfully it should not be
included in the analysis calculations.
To make the type of analysis required by the DOT programs (Chapter 49, Combined Federal
Regulations, Part 26.45), all of the DOT -assisted contracts let by the City of Yakima, over the
same five year period, should be included in the calculations for the USDOT DBE Program
goal that the City of Yakima proposes for the year 2000.
This analysis will show that the same companies, year in and year out, are awarded
contracts with minimal actual participation given to other DBE's. This analysis will also show
that the over -concentration of use of the same DBE's year after year results in a measurably
negative impact upon DBE's that could have been participating, or been given assistance in
their development toward active participation.
I am also addressing several points of contention that I have with the City of Yakima as
they've dealt with my firm when I've bid FTA contracts.
• My experience is that the City of Yakima administration is resistant to implementing a
good sound DBE Program.
• Little has been accomplished in terms of economic development, especially in the
Black community.
• The economic development for the minority community that has been done has only
been done with resistance on the part of the City,
• The City imposes additional conditions that serve to create greater obstacles to
aspiring minority businesses, including my own.
In 1998, I was the lowest bidder on an FTA project to set up street benches. The City
representative informed me that money was not available for completion of the entire
contract. I was asked, "How many will you do for $15,000?" This was approximately % the
contact amount , so I contracted to set up / of the benches.
The question then presents itself, can the City legally publicize a project for bids when they
do not have the money available? It would be easy to conclude from this exercise that the
City didn't want to give my firm the contract. Furthermore, I was asked not only to put up a
bid bond, but also a performance bond. Neither of these bonds are required by the Federal
govemment for bids of this size. These additional, unnecessary demands create very real
financial obstacles to a small business.
The bench installation contract stated that the successful bidder, at option of the City of
Yakima, had the opportunity to perform for two additional years on the same contract.
Mr. Dick Zais
March 2, 2000
Page Three
However, in 1999, the contract was again put out for bids. I was not notified, nor was there
any discussion with me, whatsoever. When I asked for clarification, the rationale given was
that the scope of work had changed, thus designating it as a new contract that required a
new bidding process. The change in the scope of work was the additional anchoring of the
street benches. Realistically, the scope of work had not changed to such a degree that it
called for a new contract. This is another kind of obstacle laid down in the path of minority
businesses. And, it has the appearance of discrimination against Black and other minorities
who attempt to do business with the City of Yakima.
It becomes apparent that the City of Yakima and its leadership do not fully support the DBE
Program, nor do they seem to have the will to undertake the enforcement and monitoring of
this program. The program itself is essential to the minority community, as it is to the
majority community.
The DBE Program has been issued as a Final Rule and is the law of the land and should be
enforced - to the strictest letter of the law. The City of Yakima is not demonstrating that it
can, and will, do so.
Further, based on the City of Yakima's record, I disagree that race -neutral goal of 5% should
be used. At present, it would be appropriate for these contracts to be awarded to DBE's in
an attempt to remedy past discrimination. In the future, after the City of Yakima develops
business assistance programs for Black and other minority businesses, and develops a
history of utilization with a minimum participation of, at least, 12%, then and only then,
should the City attempt to use race neutral goals. Good faith efforts by the City of Yakima or
Non -DBE contractors should not be allowed when there is at least one eligible DBE seeking
to participate.
The City of Yakima should immediately begin to take concrete, positive steps to develop
these relationships. The criteria they use should be based upon the opportunities identified
within the contract that could be "subbed" out to minority businesses. Optimally, the City
should set a minimum acceptable goal of 12% over all contacts that involve Federal dollars
mandated for utilization of protected businesses.
I appreciate your attention to my comments and your serious consideration of the concerns
I've voiced here.
Sincerely,
Phillip L. Pleasant
General Contractor
cc: DOT w/ enclosures