[Federal Register Volume 62, Number 104 (Friday, May 30, 1997)]
[Proposed Rules]
[Pages 29548-29621]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-13961]
[[Page 29547]]
_______________________________________________________________________
Part IV
Department of Transportation
_______________________________________________________________________
Office of the Secretary
_______________________________________________________________________
49 CFR Parts 23 and 26
Participation by Disadvantaged Business Enterprise in Department of
Transportation Programs; Proposed Rule
Federal Register / Vol. 62, No. 104 / Friday, May 30, 1997 / Proposed
Rules
[[Page 29548]]
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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 Enterprise in Department
of Transportation Programs
AGENCY: Office of the Secretary, DOT.
ACTION: Supplemental notice of proposed rulemaking.
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SUMMARY: This document proposes revisions of the Department of
Transportation's regulations for its disadvantaged business enterprise
(DBE) program. The notice responds to comments on notices of proposed
rulemaking issued December 1992 and October 1993 and also proposes
responses to the Supreme Court's decision in Adarand v. Pena. It would
replace the current DBE rule (49 CFR Part 23) with a new rule (49 CFR
Part 26). The proposed changes in the latter category would modify the
overall goal, contract goal, and good-faith efforts provisions of the
rule, as well as add provisions concerning diversification in the DBE
program and provide greater flexibility to recipients. A final rule
based on this SNPRM would replace the existing DBE rule in its
entirety.
DATES: Comments should be received no later than July 29, 1997. Late-
filed comments will be considered to the extent practicable.
ADDRESSES: Interested persons should send comments to Docket Clerk,
Docket No. OST-97-2550, Department of Transportation, 400 7th Street,
SW., Room 4107, Washington, DC 20590. 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 p.m., Monday through
Friday.
FOR FURTHER INFORMATION CONTACT: For questions concerning Subpart G
(airport concessions), David Micklin , FAA Office of Civil Rights, 800
Independence Avenue, SW., 20591, Room 1030, (202) 267-3270; or Kathleen
Connon, FAA Office of Chief Counsel, same street address, Room 922-C,
(202) 267-3473. For questions on other portions of the SNPRM, 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).
SUPPLEMENTARY INFORMATION:
Background
The Department first published 49 CFR Part 23 in 1980. The
regulation required goals to be set for businesses owned or controlled
by members of minority groups and women (MBEs/WBEs). This regulation
has been amended several times. Many of these amendments responded to
statutory changes. In 1983, Congress enacted the first statutory
disadvantaged business enterprise (DBE) provision. This provision
required the Department to ensure, except as the Secretary determined
otherwise, that not less than 10% of the funds authorized for the
highway and transit financial assistance programs be expended with
DBEs. Under the 1983 statute, members of several minority groups were
presumed to be socially and economically disadvantaged; women were not.
In 1987, Congress re authorized and amended the statutory DBE
program. In this legislation, Congress added women to the groups
presumed to be disadvantaged. In separate legislation, Congress added
an identical provision applying to the FAA's airport grant program. The
Department's 1987 amendments to Part 23 added FAA programs to the DBE
portion of the rule and established a single DBE goal for firms owned
by women and minority group members. In 1992, the Department added
Subpart F, which implements a statutory requirement for DBE programs in
airport concessions.
As a result of these changes, Part 23 became something of a
patchwork. To clarify the rule, reflect program changes since 1980,
incorporate updated interpretations of rule provisions, correct
problems in implementation, and reduce burdens on state and local
governments and small businesses, the Department issued a notice of
proposed rulemaking (NPRM) on December 9, 1992 (57 FR. 58288). The
December 1992 NPRM was intended to create a clearer regulation that
deals explicitly with known implementation problems in the program. The
Department received 601 comments in response. The Department has
thoroughly considered these comments, and much of this SNPRM consists
of the Department's responses to these comments. In October 1993, the
Department issued a separate NPRM to amend Subpart F. This SNPRM's
provisions concerning airport concessions are based on the October 1993
NPRM and the comments received in response to it.
In June 1995, the Supreme Court issued its decision in Adarand v.
Pena (115 S. Ct. 2097). In this case, the Court determined that race-
conscious affirmative action programs are subject to strict judicial
scrutiny. To meet this heightened level of scrutiny, such a program
must be based on a compelling government interest (e.g., remedying the
effects of discrimination) and must be narrowly tailored to meeting its
objective. In response to this decision, the Department has included in
this SNPRM a wide range of ideas for revising the rule, particularly in
the areas of overall and contract goals, good faith efforts, and other
means of ``narrowly tailoring'' the provisions of the rule.
Following its review of the comments received in response to this
SNPRM, the Department intends to publish a final rule that will
constitute a comprehensive revision of the entire DBE rule. The SNPRM
and the final rule will refer to 49 CFR Part 26, for clarity and to
emphasize that Part 23 and guidance and interpretations pertaining to
it are being replaced in their entirety by Part 26.
Summary of Adarand-Related Proposals
In commenting on the Administration's review of affirmative action
programs, President Clinton said his objective was to ``mend it, not
end it.'' This is the approach the Department is taking concerning the
DBE program. We have submitted to Congress, as part of our highway/
transit program reauthorization bill (``NEXTEA''), a proposal to
reauthorize, without change, the statute underlying the DBE program. We
believe that this statute is Constitutional and that it is based on the
continuing compelling need for the government to remedy the effects of
discrimination in DOT-assisted contracting. The material gathered by
the Department of Justice (DOJ) in connection with review of Federal
procurement affirmative action programs also supports our view that
this compelling need exists.
The Department of Transportation's SNPRM is one part of the
Administration's overall effort to revise affirmative action programs
in light of Adarand. On May 9, 1996, the Department of Justice (DOJ)
published proposed regulations concerning the use
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of race-conscious remedies for the effects of discrimination in direct
Federal contracting programs. Other agencies with significant Federal
procurement responsibilities (the Department of Defense, General
Services Administration, and National Aeronautics and Space
Administration) expect soon to propose changes to the Federal
Acquisition Regulation (FAR) concerning small disadvantaged businesses.
These proposed changes would amend the FAR to be consistent with the
proposed rules. The Small Business Administration is planning to issue
a proposal to change the rules for its 8(a) and 8(d) programs, which
are intended to foster the participation of small disadvantaged
businesses in Federal agency procurement. These proposals will affect
direct procurements by the Department of Transportation.
This SNPRM affects only the airport, transit and highway financial
assistance programs of the Department. While the thinking behind this
SNPRM is intended to be consistent with the proposals other agencies
are making, the specific proposals are different because this SNPRM
concerns state and local, rather than Federal, procurement actions.
This SNPRM is the Department's primary vehicle for ``mending'' the
details of the DBE program, tailoring program implementation more
precisely to the objective of remedying the effects of discrimination.
Here is a summary of the most important proposals we are making toward
this end. The section-by-section analysis discusses these provisions in
greater detail.
1. Overall Goals
We propose to change the method for calculating overall goals.
Under the existing rule, recipients determine the maximum amount of
work they can obtain from DBEs available to them. They must also take
into account their past performance in meeting their overall goals.
This system is well-understood and accepted in the recipient and DBE
communities. However, we believe the system can be tuned more precisely
to obtain the amount of DBE participation needed to remedy the effects
of discrimination.
In a world in which discrimination did not affect business
opportunities for DBEs--a world, in other words, in which market forces
operated on a level playing field--how much would DBEs participate in
DOT-assisted contracts? The answer to this question would lead us to
the level of DBE participation that recipients should expect for DBEs.
This level is the appropriate DBE goal to remedy the effects of
discrimination.
The SNPRM asks for comment on three alternative ways of estimating
a goal consistent with this concept. Each of the proposed methods has
strengths and weaknesses, and each raises question about the kind of
data that is available to help recipients set goals. We ask commenters
to participate fully in helping us determine how best to establish what
the ``level playing field'' result for DBE participation would be,
including whether recipients should be able to choose from a variety of
methods.
The approach we propose is conceptually consistent with that
developed by the Department of Justice (DOJ) in its Federal procurement
affirmative action reform effort (see May 23, 1996 DOJ Federal Register
notice). However, we are not proposing to require recipients to follow
the ``benchmarks'' established by the Department of Commerce (DOC) as
part of the procurement reform initiative. The proposal describes,
however, some circumstances under which recipients may be able to use
DOC benchmarks, goals established by other recipients, or other
information (e.g., local disparity studies) in place of the goal-
setting mechanism in this rule.
2. Means of Meeting Overall Goals
The SNPRM emphasizes that race/gender-neutral mechanisms (e.g.,
outreach, technical assistance) are the means of first resort for
recipients to use in seeking to meet overall goals. Only to the extent
that these means are insufficient to meet overall goals would
recipients use race/gender-conscious mechanisms, such as contract goals
or evaluation credits. Unlike the existing rule, contract goals would
not be required on every DOT-assisted contract, regardless of whether
they were needed to meet overall goals. More intrusive mechanisms
(e.g., set-asides) could be used only if the recipient had legal
authority independent of the Department's DBE rule and made a finding
that other methods to reach overall goals had not worked. When it
became apparent that the effects of discrimination were being addressed
successfully (e.g., when the recipient had exceeded its overall goals
over a significant period of time), the recipient would reassess its
use of race/gender-conscious measures and would rely more on race/
gender-neutral measures and less on race/gender-conscious measures to
meet its overall goals.
3. Good Faith Efforts
The SNPRM emphasizes that when they use contract goals, recipients
must take seriously their obligation to award a contract to a bidder
who makes good faith efforts, even if the bidder does not meet the
goal. To do otherwise would result in a de facto quota. Recipients must
provide a reconsideration mechanism to a bidder who is denied a
contract on the basis of a failure to make good faith efforts.
4. DBE Diversification
The SNPRM asks for comment on alternatives to reduce concentration
of DBE firms in certain types of work in which, at least in highway
construction, they are said to cluster. The aim is to diversify the
types of work in which DBEs participate, as well as to reduce what is
perceived as unfair competitive pressure on non-DBE firms attempting to
work in certain fields.
5. Added Flexibility for Recipients
The SNPRM proposes that, with the Secretary's concurrence,
recipients could obtain a waiver of provisions of DBE program
requirements if they devised an alternative that would effectively
redress the effects of discrimination in their DOT-assisted
contracting. This added flexibility could allow states and localities
to deal creatively with their specific circumstances. The SNPRM also
would give recipients flexibility in choosing the mix of measures
(race-neutral and race-conscious) they use to meet overall goals.
Section-by-Section Analysis
This portion of the preamble describes the Department's responses
to comments on the December 1992 and October 1993 NPRMs and the
rationales for the proposals in this SNPRM. Because the Department has
already extensively considered comments on many of the provisions of
this SNPRM, we request that commenters focus their comments on the
Adarand-related provisions highlighted above and issues about which the
preamble specifically asks for additional comment.
A Style Note
We are making one general stylistic change to the regulatory text.
The text (except for Subpart G) is being organized in a question/answer
format in the interest of greater clarity. This format directly
addresses recipients (and other parties identified in the text),
saying, for example, ``You must * * *.'' in place of ``The recipient
shall * * *.'' We believe that this approach will make the regulation
easier to read and use.
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Section 26.1 What are the Purposes of This Rule?
Seventeen comments to the December 1992 NPRM addressed the purpose
section. Ten of these comments favored retention of the purpose
language in the existing rule, particularly its reference to providing
the ``fullest possible participation'' to DBEs. Other comments included
a suggested reference to the desirability of DBEs being able to compete
on their own, outside the DBE program and a request to include language
on the ``equitable distribution'' of DBE awards among various groups.
The SNPRM makes a few additions to the NPRM language. One addition
states that a purpose of the program is to ensure, consistent with
Federal law, significant opportunities for DBEs to participate in DOT-
assisted contracts. In addition, we have added a paragraph emphasizing
the importance to the program of keeping ``fronts'' and other
ineligible firms out of the program. We also added a sentence stating
the aim of the program as developing businesses that can compete
independently.
We did not adopt the suggestion of including ``equitable
distribution'' language, which appears to refer to a concept of
ensuring that various groups (e.g., blacks, Hispanics, Asians, women)
receive what is viewed, under a given concept of equity, as a fair
market share of DBE contract awards. This concept would be difficult to
implement, and mechanisms to carry it out appear to exceed the
Department's discretion under the statutes authorizing the DBE program.
The Department has adequate authority, under Title VI of the Civil
Rights of 1964, to address any alleged discriminatory effects of its
DBE program.
Section 26.3 To Whom Does This Rule Apply?
There was only one comment on this section of the December 1992
NPRM, from a DBE firm that objected to deleting the Federal Railroad
Administration (FRA) from this rule. The Department continues to
believe that it makes sense to drop FRA from the rule, since FRA--
unlike FTA, FHWA, and FAA--does not have a statute establishing a DBE
program. We have added a paragraph clarifying that Part 26 requirements
would not apply to the non-Federally-assisted contracts of recipients
of DOT funds.
It should be pointed out that Part 26 would be authorized not only
by the specific DBE statutes Congress has enacted, but also by
longstanding nondiscrimination statutes such as Title VI of the Civil
Rights Act of 1964 and nondiscrimination provisions in the FHWA, FTA,
and FAA program statutes. The original 1980 49 CFR Part 23 was based on
these statutes, and the courts upheld that regulation even though
specific DBE legislation had not yet been enacted.
Section 26.5 What Do the Terms Used in This Rule Mean?
Many of the comments to this section of the December 1992 NPRM
recommended adding definitions to the Department's proposed list.
Twelve comments, all from recipients and DBEs, suggested a definition
of ``affirmative action.'' Eight comments, mostly from recipients,
asked for a definition of ``commercially useful function.'' Other
comments sought definitions of a variety of terms, including applicant,
good faith efforts, graduation, real and substantial contribution,
expertise, good cause, subsidiary, broker, complainant,
precertification, business opportunity, normal industry practices, pro
forma ownership, equitable distribution, regulated party, exemptions,
exceptions, discrimination, dollar value, debarment, origin, and social
and economic disadvantage, to name a few.
Several comments sought amplification of certain terms, such as
joint venture and affiliate. Twenty-one comments, mostly from DBEs and
recipients, concerned the key term ``disadvantaged business
enterprise.'' Most of these comments were not about the content of the
definition but rather about the words of the term itself. A few
preferred MBE/WBE terminology to DBE terminology. Others suggested
terms having what they viewed as having more positive connotations,
such as ``emerging business enterprises'' (EBEs) or ``historically
underutilized businesses'' (HUBs).
Four comments recommended deleting persons of European Spanish or
Portuguese origin from the definition of ``Hispanic Americans,'' saying
that the regulation should focus on persons whose origins were from
Latin America (one of these comments preferred the term ``Latino'').
Four other comments suggested that Asian-Americans (e.g., persons of
Japanese or Chinese descent) should be deleted from the definition and
the program, because the comments perceived these persons as not being
disadvantaged. Other comments requested clarification of the stock
ownership requirement (i.e., does the regulation mean 51 percent of all
stock combined, 51 percent of each class of stock, or both?).
In response to the comments, the SNPRM is not adding a definition
of ``affirmative action.'' The main point of a definitions section in a
rule is to describe the meaning of terms of art that are used in the
regulation. The rest of the regulation does not use the term
``affirmative action.'' Nor does the SNPRM add a definition of
``commercially useful function.'' This is an important term, which is
given its operational meaning in the context of the counting section of
the rule. In our view, an abstract definition of the term outside of
that context would add little to users' understanding of the rule.
``Disadvantaged business enterprise'' is a term that derives
directly from the statutes authorizing this program, which by now is
well known and understood among recipients and contractors. It is
difficult to imagine a more apt term to use for businesses that, by
statute, must be owned and controlled by socially and economically
disadvantaged individuals. The suggested alternatives are not as
suitable. Minority and women's business enterprise terminology suggests
a program in which status as a minority group member or woman, standing
alone, makes one an eligible business owner. EBE and HUB do not relate
conceptually to the operation of the program. Part 26 would remain a
DBE regulation. The stock ownership requirement--that 51 percent all
stock be owned by disadvantaged individuals--would remain as part of
the ownership criteria, and is discussed in more detail in the SNPRM.
The DBE statutes direct DOT to use the definitions of the
``presumptive groups'' found in SBA's rules implementing section 8(d)
of the Small Business Act. The definitions of Hispanic Americans and
Asian-Americans in the December 1992 NPRM are taken directly from SBA
materials. We recognize that the inclusion of persons of European
Spanish and Portuguese origin is controversial, but, absent legislative
direction to the contrary, we believe it is necessary to leave the
definition unchanged. Congress has determined that Asian-Americans are
presumptively disadvantaged (a judgment that can be supported by a
substantial history of discrimination against many Asian groups in this
country), and the Department could not exclude them even if it wanted
to.
It is not good regulatory drafting practice to place a great deal
of the substance of the rule into the definitions section. Abstract
descriptions of a word or term are often of little help in making
decisions about how to apply a regulation to real-world situations.
Regulatory concepts are best understood
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in the context of the rule's operational provisions. For this reason,
the SNPRM does not add definitions of the many terms suggested by
various comments. However, the SNPRM does incorporate the text of SBA's
definition of ``affiliate'' rather than merely cross-referencing SBA
regulations, as some comments requested. The counting section in the
SNPRM includes additional guidance concerning counting the
participation of joint ventures.
Section 26.7 What Discriminatory Actions Are Forbidden?
There were few comments on this section of the December 1992 NPRM.
One comment suggested that age, disability, and religion be added as
prohibited grounds for discrimination. These grounds are not mentioned
in the authorizing statutes for the program. To the extent that other
statutes apply nondiscrimination requirements to actions of DOT
recipients (e.g., the ADA re disability), these statutes can stand on
their own. One comment said that the rule should clarify that someone
need not discriminate in order to violate the rule. This is true:
noncompliance can arise from a violation of a variety of provisions,
but this does not need to be reiterated in regulatory text.
The provision would be left as proposed, with the exception of
adding a paragraph clarifying that discrimination in the administration
of a DBE program is prohibited. This clarification is proposed in order
to avoid a potential loophole concerning actions by recipients (e.g.,
in the administration of their certification programs) that allegedly
have the effect of discriminating against persons on one of the
forbidden grounds, even if the award and performance of a contract is
not directly involved.
This paragraph prohibits not only intentional discrimination but
also actions that have the effect of discriminating against individuals
on one of the forbidden grounds (e.g., that have a disparate adverse
impact on members of a particular group). The language of paragraph (b)
is similar to that in the Department's long-standing Title VI
regulation (49 CFRSec. 21.5(b)(2)) and is consistent with court
interpretations of nondiscrimination statutes in other contexts. See,
e.g., Alexander v. Choate, 469 U.S. 287 (1985); Elston v. Talladega
Board of Education, 997 F.2d 1394 (11th Cir., 1993).
Section 26.9 How Does the Department Issue Guidance, Interpretations,
Exemptions and Program Waivers Under this Rule?
The SNPRM would add paragraph (a) of this section to avoid
confusion over the status of guidance and interpretations issued by DOT
in the past concerning the current version of this DBE regulation (49
CFR Part 23). Language in this paragraph is intended to emphasize that
it is interpretations of Part 26, not interpretations of Part 23, that
definitively would set forth the meaning of the Department's DBE
requirements.
As noted in the preamble to the December 1992 NPRM, a General
Accounting Office (GAO) study criticized the Department's
administration of the DBE program because guidance was uncoordinated,
inconsistent and confusing. As part of our response to this problem,
the December 1992 NPRM proposed creating a DBE Program Council to
coordinate guidance and interpretations. Thirty-eight comments favored
this idea, as a means of dealing with inconsistency, though some
expressed reservations about potential bureaucratic delays. A number of
the comments that supported the Council suggested that it be expanded
into an Advisory Committee, with participation from outside the
Department. Five comments opposed the Council, mostly on the grounds of
potentially adding to bureaucratic delay.
The SNPRM references a DBE Coordination Mechanism, which is
intended to be established within the Department by the time the rule
becomes final. It would include representatives of all the DOT
organizations--FHWA, FTA, FAA, the Office of General Counsel, the
Office of Civil Rights, and the Office of Small and Disadvantaged
Business Utilization--that are regular players in the DBE program.
Because these offices are very familiar with the regulation, we do not
anticipate that the review of guidance and interpretations through this
mechanism would create undue delay. On the other hand, the presence of
the mechanism would make it much more likely that guidance will be
consistent and correct, which will result in much more reliable and
useful customer service.
Because the kind of work we intend the mechanism to do is
intrinsically a government task, it would not be appropriate to include
non-DOT parties in its deliberations. However, the Department does
believe that receiving input from interested parties on a regular basis
is very useful, and we are exploring the creation of an advisory
committee that would provide continuing input to the Department on the
implementation of this program.
The Department proposes to maintain its existing exemptions
mechanism, which is consistent with the way that all exemptions are
handled in Office of the Secretary rules. The Department seeks comment
on how participants view this process as working, and on any
improvements commenters might want to suggest.
In addition, paragraph (d) proposes a new provision, not included
in previous NPRMs. It permits recipients to apply for a program waiver,
allowing them to construct a DBE program different from that called for
in Subparts B, C or G (airport concessions), of the SNPRM (the general
provisions of Subpart A and the certification standards and procedures
of Subparts D and E would not be subject to waiver). Public
participation would be required, and the Secretary could impose
conditions on the grant of a waiver. The Department seeks comment on
this concept, which is designed to provide recipients greater
flexibility, as well as on the details of the proposed provision.
Section 26.11 What Records do Recipients Keep and Report?
The December 1992 NPRM proposed that recipients report DBE program
data to the concerned operating administration (OA) quarterly, unless
that OA determined a different frequency for the data. The preamble to
the December 1992 NPRM included a draft Office of Small and
Disadvantaged Business Utilization reporting form and asked whether
this form, or a modification of it, should be required Department-wide.
Twenty-four comments generally favored the idea of a single,
Department-wide reporting form, though some of these suggested allowing
recipients to modify the form. Two comments favored annual, rather than
quarterly, reporting. When it came to what the form should include,
there was a wide divergence of views. Several comments each supported
detailed breakouts of awards (i.e., by awards to DBEs owned by various
minority groups and women) and tracking actual payouts to DBEs as well
as commitments to DBE participation. Other comments suggested detailed
changes in the data elements (e.g., distinguishing between awards to
prime and subcontractors, counting of overhead, tracking areas of
work), and two favored electronic reporting of data.
[[Page 29552]]
The Department believes, in view of these comments, that it needs
to consider further the best way of obtaining program evaluation data
for the DBE program. Specifically, the Department asks whether there
are modifications the Department should make in order to adequately
capture DBE participation through race/gender neutral means and
mechanisms other than contract goals. Meanwhile, the SNPRM would
maintain the status quo for reporting. We ask, however, for comment
specifically on whether the frequency of reporting should be reduced
(e.g., to twice a year) and, if so, whether this would continue to
allow sufficient program oversight and evaluation. The SNPRM would add,
as an aid to DOT oversight of recipients' programs, a three-year record
retention requirement for basic program data. Again, recipients should
rely on DOT guidance concerning the content of this material. As a
general matter, the Department intends that recipients retain only
basic data needed to allow DOT personnel to review and evaluate
recipients' program compliance.
Section 26.13 Assurances
As under the old version of the rule, recipients and contractors
have to subscribe to assurances of compliance with Part 26
requirements. There were few comments on the December 1992 NPRM
assurances section. One comment preferred the lengthier language of the
old rule's assurances section, another suggested adding more
enforcement language, a third asked that contractors who fail to
promptly pay DBEs should be told in the assurance that this will be in
breach of contract, and a fourth asked how states will enforce the
requirement for assurances in contracts.
In the assurance for recipients, the SNPRM would add references to
additional remedies available to the Department, namely the Federal
false statements statute (18 U.S.C. 1001) and the Program Fraud Civil
Remedies Act of 1986 (31 U.S.C. 3801 et seq.). We believe that the
issue of prompt payment is better handled under the provision of the
SNPRM dealing with that subject. Consistent with the language added
toSec. 26.7, the SNPRM would add a statement to the assurance
concerning nondiscrimination in the administration of DBE programs.
States can enforce the requirement for assurances in contracts by
the same means that they enforce other requirements for the inclusion
of contract clauses: a prospective contractor who fails to include
Federally-required contract clauses in a Federally-assisted contract is
not, presumably, a responsive bidder. We believe the shorter, more
compact language of the new version of the assurances is clearer, less
verbose, and more easily understood than the old version. In addition,
an operating administration is permitted to prescribe a briefer
assurance or certification of compliance in its grant agreements.
Subpart B--Administrative Requirements for DBE Programs for Federally-
Assisted Contracts
Section 26.13 What Assurances Must Recipients and Contractors Make?
This section details which recipients have to establish DBE
programs. There were several comments to the December 1992 NPRM about
it. One comment said that FRA and port authorities should have to have
DBE programs. The issue about including FRA under Part 26 was discussed
above. With respect to port authorities, if a port authority receives
FHWA, FTA, or FAA funds, it would be subject to the requirements of
Part 26 like any other recipient. One comment asked whether the
thresholds apply to prime recipients or subrecipients, while another
disliked the change from the two-tier threshold system of the old
regulation to the proposed one-tier system, saying it would involve
duplicate work by prime recipients and subrecipients. If any
recipient--prime or sub--receives the requisite amount of DOT financial
assistance and lets DOT-assisted contracts, it must have a program. If
the prime recipient is a pure pass-through agency that does not let any
DOT-assisted contracts, it would not have to have a program.
A comment asked that the threshold level for airports be raised to
$1 million, which would have the effect of exempting some airports
(smaller ones, in most cases) from the DBE program requirement. The
Department believes that airports, and other recipients that receive
the proposed $200,000 in financial assistance, are likely to have
adequate resources for establishing a DBE program and may let contracts
of sufficient size to make DBE participation a realistic possibility.
For this reason, we are leaving this portion of the proposal unchanged.
One comment asked that annual program updates not be required, and
two others asked for updates at three-year rather than one-year
intervals. Recipients would have to revise their programs to conform to
Part 26, submit overall goals each year, and request the consent of the
applicable DOT office for any significant program change. For these
reasons, we do not believe it is necessary to require a formal update
at any particular interval, so this proposed requirement is not
included in the SNPRM. This would have the effect of reducing paperwork
burdens.
The Department seeks comment on whether additional public
participation mechanisms are desirable for recipients as they prepare
DBE programs for submission to DOT. For example, do their need to be
more explicit requirements for input from DBEs, non-DBEs, the public
etc.?
Sections 26.23-26.27 and 26.37 Other DBE Program Provisions
This subpart contains a number of provisions incorporated from Part
23, concerning a DBE policy statement, a DBE liaison officer with
direct access to the CEO of the organization, use of DBE financial
institutions, and monitoring, compliance and enforcement mechanisms.
There were few comments on these items, and we are incorporating them
in the SNPRM with only minor changes. All these items are components of
a recipient's DBE program that would have to be approved by the
concerned operating administration.
Section 26.29 Prompt Payment Mechanism
The December 1992 NPRM proposed that recipients would establish a
prompt payment mechanism, containing one or more of five options listed
in the proposed provision. This provision, and its components, drew
substantial interest from commenters.
Sixty-nine comments favored requiring a prompt payment clause in
contracts, saying that it addressed a serious problem that had adverse
consequences on subcontractors. Among ideas suggested by these comments
were that contract goal attainment should not be counted until DBEs are
paid and that subcontractors should be paid within a given period of
time (e.g., 10 days) of the time the prime is paid by the recipient.
Some of these comments suggested that sanctions be imposed for failure
to comply with prompt payment clauses. On the other hand, 29 comments
opposed prompt payment clauses and mechanisms in general, saying that
they involved too great intrusion into the contract process and added
cost to the system. All the suggested options were impractical, many of
these comments said.
One of the five options listed was direct payment of DBE
subcontractors by the recipient, who could ensure that the DBE was paid
on time. Fifteen comments, mostly DBEs, supported this idea, while 44
comments, mostly prime contractors and some recipients,
[[Page 29553]]
opposed it. Proponents said that this approach would end the waiting
game that they perceive prime contractors as playing, while
subcontractors go dry awaiting payment. Opponents complained that prime
contractors would lose control over subcontractors' performance and
that delays in paying subcontractors are as often caused by delays in
state payments to prime contractors as anything else.
Nine comments supported, and five opposed, mandatory alternative
dispute resolution between prime and subcontractors as a way of
addressing payment delay disagreements. There were smaller numbers of
comments on other proposals, with scattered support for and opposition
to them.
The Department, having reviewed the extensive comment on this
issue, remains convinced that delays in payment to DBE subcontractors
are a significant problem in the DBE program, which we should take
steps to correct. The SNPRM would specifically authorize two such
steps. Given the concerns expressed, particularly by recipients, about
the problems that could arise in some cases from mandating prompt
payment mechanisms, the Department is seeking further comment on
whether these steps should be mandatory. (Under the SNPRM, recipients
who use prompt payment mechanisms would do so under the legal authority
of this rule, but using them would be optional.)
The first specifically authorized step would be a prompt payment
clause that would be inserted in all contracts between recipients and
prime contracts, obligating the prime contractor to pay DBE subs for
work satisfactorily completed within a specific number of days (e.g.,
10 days) of each payment by the recipient to the prime contractor. The
contract would include appropriate penalties, chosen by the recipient,
for failure to comply. In addition, the recipient could require prime
contractors to get the written consent of the recipient, based on good
cause, for any delay.
The second specifically authorized step would be a clause in both
prime and DBE subcontracts committing the parties to participate in
alternative dispute resolution (ADR) to resolve payment disputes.
Recipients could specify the nature of these mechanisms in contract
documents. In addition, recipients could take additional steps, such as
withholding payments from primes until subcontractors are paid, or
other steps devised by the recipient, to ensure prompt payment of DBE
subcontractors. All prompt payment mechanisms would be incorporated in
the recipient's DBE program, and would be subject to DOT approval.
Because they frequently lack working capital, access to credit, and
a strong cash flow, DBEs are particularly vulnerable to delays in
payment. However, we recognize that prompt payment is an issue for all
subcontractors, and we therefore recommend that recipients apply prompt
payment provisions to all subcontractors, not just DBEs.
One prompt payment-related issue of which we are aware concerns
retainage payments. DBEs have complained that prime contractors often
do not return retainage payments to DBE subcontractors until the
recipient returns the prime contractor's retainage payment at the end
of the entire project. This is true, DBEs have said, even in a large
project in which a subcontractor's work has been inspected and approved
long before the overall project has been completed. This can result in
a lengthy delay in the subcontractor getting its money back. The
Department seeks comment on whether prompt payment provisions should
address this issue.
Section 26.31 What Requirements Pertain to the DBE Directory?
The statutes mandate that recipients have a DBE directory. Sixteen
comments explicitly favored the December 1992 NPRM proposal on this
subject. There was a good deal of debate among commenters on the issue
of whether, as the December 1992 NPRM proposed, the directory should
list the types of work DBEs preferred to do or whether recipients
should limit (and reflect in the directory) DBEs' types of work to
those in which the firm was qualified.
Twenty-six comments favored the latter approach, taking two
different basic rationales. Some said that recipients should prequalify
DBEs, certifying only those, and only in those types of work, that the
recipient viewed as being qualified to perform the work. Others said
that the ``qualifications'' of DBE firms were relevant only insofar as
they affected control. The comments that favored the NPRM approach
argued against both rationales, saying that prequalification
overstepped the bounds of appropriate recipient discretion in the
certification process and that certifying firms only in certain fields
(as opposed to simply certifying them as DBEs) would ``pigeon-hole''
firms into a few areas and thwart their efforts at diversification.
The Department believes that a good case can be made that a firm
should be certified only in those areas of work in which its
disadvantaged owners are able to control its management and operations.
It is reasonable, then, to reflect the recipient's determinations on
this point in the directory, and we have modified this provision
accordingly. The Department believes, however, that a firm wishing to
move into a new area of work should not have to go through an entire
new certification process. Also, the Department does not believe that
``prequalification,'' as such, is an appropriate part of the
certification process. In fact, the Department believes that requiring
prequalification for DBE firms would be a discriminatory practice under
Part 26, unless the recipient also requires prequalification of all
other firms.
The directory would have to be republished at least annually.
Updated information (e.g., who's in and who's out) would have to be
made available, on request, in the meantime. This would ensure that,
for example, prime contractors would be able to find information on new
DBEs that had been certified between publications of the directory.
Section 26.33 What Steps Must a Recipient Take To Foster DBE
Diversification?
This is a substantially new section proposed as part of the
Department's efforts to narrowly tailor the DBE program. Paragraph (a)
of this section proposes for comment four alternatives designed to
foster diversification in the kinds of work DBEs perform in DOT-
assisted contracts. Taking steps to reduce adverse impacts on non-
disadvantaged parties is one of the ways in which it is appropriate to
narrowly tailor an affirmative action program.
Over many years, the Department has received anecdotal information
suggesting that DBE subcontractors in highway construction have been
concentrated in a few specialty areas that require relatively modest
capitalization (e.g., guardrail, landscaping, traffic control). Non-DBE
contractors in these areas have complained that they are denied
contracting opportunities because of the number of DBE firms obtaining
subcontracts, a point also addressed in a 1994 GAO report. At the same
time, some DBE firms have expressed the concern that it is difficult
for them to expand and diversify.
The December 1992 NPRM asked for comment on a variety of ideas
related to this issue, ranging from ceilings on DBE participation in
certain areas to ``extra credit'' for the use of DBEs in ``non-
traditional'' fields to financial or other incentives for prime
contractors to involve DBEs in such fields. Generally, commenters had a
negative reaction to
[[Page 29554]]
these suggestions. For example, only seven comments favored caps or
ceilings on DBE participation in areas in which DBEs were heavily
represented, while 49 comments opposed this idea. Opponents said that
the problem may be over-hyped and that implementing a cap would be an
administrative nightmare. One commenter preferred that recipients be
encouraged to come up with their own innovative approaches.
Concerning incentive programs, 17 comments favored the idea and 28
opposed it. Among the opponents, one noted that it didn't make sense to
pay people to obey the law, while another said that it had tried the
idea for six years and it hadn't worked. Supporters mentioned a state
incentive program that had worked, and others said that the incentives
should be permitted, though not required.
The suggestion that comments received most favorably was for
``extra credit.'' For example, if a contractor used a DBE outside
certain traditional fields, it could receive $1.15 or $1.25 worth of
credit toward its contract goal for every dollar it expended with the
DBE. Twenty-one comments favored this approach, while four opposed it.
Commenters pointed out that DOT or recipients would have to determine
what constituted a ``traditional'' field to make this idea work.
This SNPRM asks for comment on a series of ideas for addressing the
concentration issue. The first alternative focuses on types of work in
which DBE firms receive a given percentage (e.g., 50%, 75%) or more of
the contracts in Year 1. If this is the case, prime contractors and
recipients in Year 2 could count only half the actual DBE participation
in that field toward goals. The intent of the provision is that this
shift in the incentives would reduce the concentration.
Example: Recipient X's highway construction contracts give rise
to 100 subcontracts for landscaping in Year 1. Of these, 80 go to
DBEs. In Year 2, any DBE firm's landscaping subcontract leads only
to 50 percent credit toward the prime contractor's contract goal and
the recipient's overall goal (e.g., a $50,000 subcontract counts for
$25,000 toward these goals).
The Department seeks comment both on the concept and on what the
percentage standard should be. We ask the same question about the level
of DBE participation that would be allowed in the second year. In
addition, we ask whether it would make more sense to tie the criterion
to an average over a number of years rather than to a particular year.
We also ask whether a provision of this type could have the unintended
consequence of increasing concentration in these fields (e.g., because
recipients might use more DBE contractors to meet a goal if credit for
using a DBE is reduced).
The second alternative looks at the issue in terms of
proportionality between the recipient's overall goal for all work and
the DBE participation in a particular field of work. If DBE
participation in a particular field far exceeds the overall DBE goal
percentage, then the recipient would not credit toward DBE goals
further work in that field during the year.
Example: Recipient X's overall goal for the year is 10 percent.
The recipient estimates that it will spend $10 million for widget
wrangling in all its contracts that year. By September 15, DBE
widget wranglers have received contracts worth $4.1 million (i.e.,
more than four times 10 percent of the recipient's projection for
widget wrangling expenses for the year). For contracts let after
that date, the recipient would not count DBE participation for this
worthy activity toward goals.
In addition to the concept itself, the Department asks commenters
whether the multiple (four times the overall goal) is a reasonable one,
whether the consequence should be no credit after the threshold is
reached (as distinct from some other percentage), and whether it makes
more sense to implement such a provision on a year-to-year basis than
on a part-year basis.
The third alternative would focus on fields in which there is a
concentration of DBEs, again defined as one in which DBEs in general
get a given percentage of the contracts. Unlike the first alternative,
however, the limitation on receiving credit for contracts would fall
not on all DBEs in a field but only those that had received several
recent contracts. The intention is to address situations in which the
same DBE firms repeatedly receive contracts, to the exclusion of
others.
Example: Recipient X's highway construction contracts give rise
to 100 subcontracts for guardrail in Year 1. Of these, 80 go to
DBEs. DBE Q has received four guardrail subcontracts during Year 1
and the preceding three years. In Year 2, no credit toward goals can
be counted for a guardrail subcontract awarded to DBE Q.
The questions asked about the appropriate percentage level for
determining concentration under Alternative 1 apply here as well. In
this alternative, in a field in which there is a DBE concentration, in
Year 2 the recipient would not count toward goals participation from
any particular DBE firm that had received four or more contracts in
that field over the previous four years. The Department seeks comment
on the concept and on the number of contracts over the number of years
that would be most appropriate.
The fourth alternative would again focus on fields in which there
was DBE concentration at a given percentage level (the same questions
apply). This alternative would direct the recipient to establish
contract goals that gave special emphasis to DBE participation in other
fields.
Example: Recipient X's highway construction contracts give rise
to 100 subcontracts for fencing in Year 1. Of these, 80 go to DBEs.
In Year 2, Recipient X sets contract goals to emphasize steel
erection, widget wrangling, barrier placement etc. (i.e., fields in
which there is not a concentration of DBEs).
The Department seeks comment on whether this concept would be
practical to administer (e.g., it would require setting somewhat more
complex contract goals than is now the case).
These alternatives are not necessarily mutually exclusive, and it
might be possible to combine some of them. It might also be possible to
offer recipients a menu of such alternatives from which they could
choose. The Department also seeks comment on any other ideas for
encouraging DBE participation in particular fields, including those
mentioned in the December 1992 NPRM and the comments on it. We note
that these alternatives focus on situations in which contract goals are
used, and we seek other ideas that may work in situations where
contract goals are not used.
Paragraphs (b) and (c) focus on the other side of the coin, fields
in which DBEs are poorly represented. The proposed definition of such a
field is one in which DBEs receive 25 percent or fewer of the
contracts. The Department seeks comment on whether 25 percent is an
appropriate level for this purpose and whether the standard ought to
refer to a specific period of time, such as the previous year or an
average over a number of previous years.
Paragraph (b) would direct recipients to give priority to
``underrepresented'' fields in operating their outreach and technical
assistance programs. The recipients' focus would be on assisting firms
to enter such fields. The Department seeks comment on whether any
greater degree of specificity in terms of what recipients are to do in
this respect is advisable.
Paragraph (c) is based on a proposal for business development
programs (BDPs) in the December 1992 NPRM. Thirty-two comments, mostly
from recipients, thought this was a bad idea, primarily because it
would result in costly, administratively burdensome,
[[Page 29555]]
new requirements for them. Some also said it would be burdensome for
firms and would duplicate other government programs. The 21 comments
supporting the idea, including recipients and some DBE and non-DBE
contractors, thought that providing additional training for DBEs would
be beneficial. They differed on whether the program should be voluntary
or mandatory for DBEs and on other details, and several mentioned that
additional funding would be needed to make the idea work.
The SNPRM continues to propose the BDP concept, which gains added
importance as a means of helping to meet the narrow tailoring
requirements of current law. Having a BDP would be mandatory for a
recipient, however, only if an operating administration decided it must
have such a program. Recipients would also have the option to create
such a program on their own, subject to DOT program approval.
The Department recognizes that BDPs can be costly and burdensome.
Consequently, the size and scope of a recipient's BDP could vary with
the recipient's resources. The SNPRM does not propose a given level of
resources or activity for a BDP, even where an operating administration
mandates the creation of BDPs. The Department also intends that
recipients would have considerable flexibility in the creation of BDPs,
which can be adapted, within the regulatory framework, to each
recipient's circumstances. The NPRM's safeguards for the integrity of
the BDP process, on which there was little comment, have also been
retained in the SNPRM.
Like the December 1992 NPRM, the SNPRM permits recipients, as part
of their BDPs, to create a mentor-protege program. Sixteen comments
favored this NPRM proposal, which was a modification of an existing
non-regulatory FHWA initiative. These comments generally favored the
limitations on the use of protege firms incorporated in the proposal,
which were designed to avoid the abuse of mentor programs. A few
thought that the restrictions would make it too hard to attract
participants, however. Three comments opposed the proposal, out of
concern that such programs make it too easy for fronts to participate.
As a discretionary, limited program, the Department believes that a
mentor-protege program can be useful as part of a strategy to help DBEs
diversify, and so we are retaining this provision in the SNPRM. It
should be noted that this is the only context in which a mentor-protege
program would be authorized.
The SNPRM includes appendices setting out guidelines for the
operation of BDPs and mentor-protege programs. The Department seeks
comments on this guidance material.
One suggestion that has been made would tie together the idea of
quality inspections of DBEs' work and mentor-protege programs. Under
this suggestion, recipients would inspect the work performed by DBE
firms. Those that were not performing at an appropriate level would be
referred to a mentor-protege program for additional training, with
incentives provided to the mentor firms. The Department seeks comment
on the merits of this suggestion.
One of the key issues affecting virtually all parts of this section
is how to define a ``field'' in which DBEs may be either over- or
underrepresented. The SNPRM proposes a two-pronged approach. First, a
field could be viewed as an industry defined by a SIC code in the SBA
small business regulations. (Should this be a four-digit SIC code in
all cases, or are there circumstances in which other levels of SIC
codes would work?) Second, a ``field'' could mean a readily
identifiable field of work designated by the recipient (e.g.,
landscaping or guardrail in highway construction). The Department seeks
comment on whether it would be desirable and feasible for the
Department to devise at least a partial list of ``fields'' in the
second sense and, if so, what should be included on such a list.
Duration
One of the elements the courts have identified as part of narrow
tailoring is that affirmative action programs should not be established
in perpetuity. The duration of DBE program, as currently structured by
statute, is narrowly tailored in this respect. That is, Congress
reauthorizes the program from time to time. If Congress determines that
the effects of discrimination have been eliminated, Congress would have
a justification for ending the program.
The issue of duration is also sometimes discussed in terms of
limits on the participation of individual firms in the program. In the
December 1992 NPRM, the Department raised this issue under the heading
of ``graduation.'' There were 110 comments opposed to the idea of
graduation. The point of many of these comments, particularly those
from DBEs, was that it takes more than several years for a firm to be
able to overcome disadvantage and survive in the open market. Being
thrown into the open market could prove fatal to many DBE firms,
comments said, given that discrimination has not disappeared from the
marketplace.
Some prime contractors said that it was hard enough to find
qualified DBEs as it is, without adding to the problem by graduating
firms. Other comments pointed out that there are significant
differences between the DBE program and the 8(a) program, which ties a
very complex graduation formula to the success of the 8(a) program's
systematic business development efforts.
On the other hand, 61 comments favored a graduation requirement or
suggested an approach to graduation. Some of these comments favored
``term limits'' for firms (e.g., 5-10 years) in order to clear the way
for other, newer firms in the DBE program. Others suggested approaches
based on such factors as success in business development, gross
receipts, number of projects or contracts in which a firm participated,
a sunset provision for unsuccessful firms, etc. Graduation, comments
suggested, could provide an incentive to DBE firms to become more
competitive.
In one sense, the structure of the DBE program already provides for
a limit on the participation of individual DBE firms. If a DBE firm
grows to the point where it no longer meets SBA small business size
standards or the statutory DBE size cap, it becomes ineligible. But as
long as a firm remains a small business, and as long as there is a
compelling need to remedy the effects of discrimination on small
businesses owned and controlled by socially and economically
disadvantaged individuals, it is difficult to find a sound rationale
for excluding an otherwise eligible DBE from the program just because
it has participated for a certain number of years or has had a degree
of success in the program.
Arguments by opponents of graduation programs have considerable
force. Unlike the 8(a) program, the DBE program does not provide for an
encompassing business development program, with substantial agency
assistance. The DBE program does not provide a comparable program for
DBEs to graduate from. Experience has shown that, when firms leave the
8(a) program, or when state or local MBE/WBE programs are eliminated
(e.g., in response to the Supreme Court's decision in Croson), the
firm's success or the state or local government's MBE/WBE participation
is imperiled. To force otherwise eligible DBEs out of the program
would, given a marketplace in which the effects of discrimination
persist, set up those firms to fail.
Therefore, while the Department will consider comments concerning
how best to address the duration element of narrow tailoring, we are
not proposing
[[Page 29556]]
any ``graduation'' mechanisms in the SNPRM.
Subpart C--Goals, Good Faith Efforts, and Counting
Section 26.41 Overall Goals
The statutes underlying this program direct the Department to
ensure, unless the Secretary determines otherwise, that 10 percent of
the funds authorized by the statutes be expended with DBEs. This
statutory formulation is important for two reasons. First, it
constitutes a determination by Congress (in the context of the highway,
transit, airport, and airport concessions programs) that discrimination
in contracting opportunities has existed, that the problem is
nationwide in scope, and that remedial efforts are needed to address
this problem. Second, it constitutes a determination by Congress that,
unless the Secretary determines otherwise, expending 10 percent of
authorized funds with DBEs is a reasonable nationwide level of effort
to achieve the remedial objective of the statutes.
These actions by Congress form an important part of the
Department's basis for concluding that there is a compelling government
interest in maintaining the DBE program, meeting the first part of the
strict scrutiny test articulated in Adarand. We note that Department of
Justice proposals for modifying affirmative action programs in Federal
procurement are backed by an appendix citing substantial evidence of
the compelling need for programs of this kind. The Department also
relies on this appendix and similar evidence.
Strict scrutiny also requires that the program be narrowly tailored
to address the compelling government interest. In our view, some
aspects of narrow tailoring are best addressed at the recipient level.
Under Part 23, recipients set overall goals, and we believe that
recipients should continue to perform this function. The SNPRM proposes
to modify how recipients set overall goals, with the aim of improving
and strengthening the process from a narrow tailoring point of view.
These proposals are, in the Department's view, consistent with
Congressional action establishing the nationwide ten percent level of
effort, which the Department anticipates continuing to use as a guide
for evaluating the overall success of the DBE program.
Under the current overall goal requirements (49 CFR
Sec. 23.45(g)(5)), recipients set overall goals based on two factors:
(1) a projection of the number and types of contracts the recipient
will award and a projection of the number of DBEs likely to be
available to compete for the contracts; and (2) past results of the
recipient's DBE efforts. These factors are used to implement the DBE
program goal of supporting ``the fullest possible participation of [DBE
firms]'' Sec. 23.1). Recipients must make a special showing to obtain
DOT approval for an overall goal of less than 10 percent (this showing
has been made on a few occasions). As a practical matter, recipients
have often implemented these provisions by looking at their potential
contracting opportunities, estimating how much DBE participation could
be obtained from existing DBEs, and setting a goal to maximize this
potential participation. The recipient's past performance often has
operated as an informal ``maintenance of effort'' provision with
respect to the level of overall goals.
In the context of narrow tailoring, a recipient's goal would remedy
the effects of discrimination if it led to the results we could expect
if the playing field for all businesses were level. The Department
seeks comment on three conceptually similar, but mechanically
different, means of setting a goal to approximate the results of a
level playing field.
The first alternative would compare DBEs with all businesses. If we
know the percentage that DBEs make up of all businesses that are
available to work for the recipient, then the results of a level
playing field will be DBE participation in the same proportion. The
calculation looks like this:
[GRAPHIC] [TIFF OMITTED] TP30MY97.000
By all businesses in this context, we mean all businesses in types
of work relevant to the recipient's DOT-assisted contracting. We seek
comment on the use of SIC codes or other information to identify the
relevant business types. Also, would it make better sense to compare
DBEs to only small businesses?
This option parallels the way we calculate DBE achievements, which
looks like this:
[GRAPHIC] [TIFF OMITTED] TP30MY97.001
Under the second alternative, the recipient would estimate the
number of minority-and women-owned businesses in the state or locality
in which it operates. This estimate could be made on the basis of U.S.
Department of Commerce data. The data are broken down by 2-digit SIC
codes. The recipient would make the estimate using only those SIC codes
that represent a major portion of its DOT-assisted contracting work
(e.g., for a state highway agency, those SIC codes encompassing
construction, architects and engineers, etc.) The Department seeks
comments on whether the Department should standardize the SIC codes
used for this purpose by various categories of DOT recipients, and, if
so, what those SIC codes should be (e.g., for state highway agencies,
airports, transit authorities).
Second, the recipient would determine the total number of all
businesses in these SIC codes within the state or locality. There is
U.S. Census data available that provides this number. The recipient
would then determine what percentage minority-and women-owned
businesses were of the total. This percentage, absent adjustments (see
discussion below), would become the recipient's overall goal. The goal
would be expressed in terms of a percentage of the recipient's DOT-
assisted contracting dollars. This is the result we would expect from a
level playing field. The calculation would look like this:
[[Page 29557]]
[GRAPHIC] [TIFF OMITTED] TP30MY97.002
It may be possible for the Department to calculate these goals, saving
recipients the time and effort required. The Department will consider
doing so, and we invite comment on whether this would be a good idea.
We note that there are limitations to the data currently available.
The 2-digit SIC code data on which the numerator of this equation would
be based could have significant error rates for some states, leading to
a degree of statistical uncertainty. At the present time, however, this
appears to be the best state-by-state data available on a nationwide
basis.
Data are available by single-digit SIC codes for construction.
However, this code tends to aggregate data for a greater number of
businesses than those usually found in highway or transit construction.
On the other hand, the state-by-state one-digit SIC data is likely to
have a lower error rate than two-digit state-by-state data. We invite
comment on whether this alternative should use one-digit rather than
two-digit SIC data.
We also recognize that there may be differences between localities
and states concerning the relative availability of minority-and women-
owned businesses. Federal data is not currently available, however, in
a useful form to make the calculation needed for the numerator for
localities. Where there is not better local data, however, we may have
to rely on statewide data, for lack of a practicable alternative.
The third alternative differs from the others in that it focuses on
actual participation by both DBEs and other firms. The approach would
determine the percentage that DBEs make up of all firms that actually
work for the recipient, in any capacity, on DOT-assisted contracts. To
avoid having short-term trends skewing the calculation, we propose to
use a five-year average as the basis for the calculation. (We seek
comment on whether this is an appropriate time period for this
purpose.) The calculation looks like this:
[GRAPHIC] [TIFF OMITTED] TP30MY97.003
This approach uses data that are readily available to the
recipient. Since it is based on actual experience, it does not rely on
projections about potential participation.
Each of these alternatives describes the shape of a level playing
field in a somewhat different way. Each may have its advantages and
disadvantages. We seek comment on the relative merits and problems of
each approach, or other approaches that commenters may suggest.
In considering how to analyze capacity for Federal procurement, the
Departments of Justice and Commerce are considering whether it is
possible to include information on whether firms are ready, willing,
and able to work on Federal contracts. Is this a relevant consideration
for calculating DBE capacity in this program, and is data available
that would make it possible?
As a means of reducing potential burdens on recipients,
Sec. 26.41(c) would permit recipients to use a DBE capacity figure
calculated by another agency in certain circumstances. First, as part
of the Federal government's proposed direct procurement rules, the DOC
will calculate ``benchmarks'' for various industries. These benchmarks,
which are likely to be established on a national or regional basis
(e.g., a regional basis for construction), could form a basis for a
recipient's DBE capacity calculation.
To use the benchmark for this purpose, however, the recipient would
have to determine that the area from which it obtained contractors was
generally similar to the area for which DOC prepared the benchmark.
That is, if DOC calculates a benchmark for construction in a particular
region, a recipient could use the benchmark (and not calculate its own
DBE capacity figure) if it obtained construction contractors from the
same general region. (Since DOT does not permit its grantees to use
geographic preferences in contracting, such comparisons may be readily
demonstrable.) In some fields, of course, there might be a national
market that everyone uses (e.g., transit vehicle purchases). One of the
issues in using DOC figures is that DOC benchmarks, because of
differences between Federal procurement and the DBE program, will not
include women-owned firms. Consequently, recipients would have to
adjust DOC benchmarks to account for women-owned DBEs. We seek comment
on whether data are available for this purpose.
Closer to home, recipients may find that other recipients have
established overall goals. For example, all state DOTs will establish
such goals. A transit authority in a particular state could use the
state DOT's goal, assuming the transit authority did its procurement in
the same general area. Likewise, recipients (e.g., airports and transit
authorities) in a metropolitan area might use one another's goals, or
work together on a combined goal, again assuming that their procurement
areas are generally similar. The objective is for recipients to use the
best possible data to arrive at DBE capacity, while not unnecessarily
duplicating the relevant work that others may have done.
As noted in proposed Sec. 26.41(d), recipients may also use other
means to establish goals (e.g., a local disparity study). In the
interest of promoting flexibility in the program, these could include
methods a recipient has devised that are not mentioned anywhere in Part
26. Under Sec. 26.41(d), the recipient would need the operating
administration's approval to use alternative goal-setting methods, to
ensure that its tailoring was appropriately narrow to meet Adarand
standards.
The SNPRM (Sec. 26.41(e))asks for comment on one additional
consideration in goal setting. The goal-setting analysis is based
primarily on present DBE capacity. But it is very possible that the
effects of discrimination have suppressed the formation of DBE firms
(e.g., by having made capital more difficult to obtain over a long
period, by having deterred potential DBE owners from entering
businesses relevant to DOT-assisted
[[Page 29558]]
contracting). To account for this suppression of DBE business
formation, the proposed rule would require the recipient to increase
the goal, if the recipient had evidence to support a finding that DBE
business formation had been suppressed. DOJ has proposed a similar
mechanism in its NPRM on Federal procurement affirmative action issues.
We seek comment on what data sources would be relevant and
available, or would need to be created, to complete this so-called
``but for'' analysis. Other relevant information might include evidence
of discrimination in the public and private sectors in such areas as
obtaining credit, bonding, and licenses. It could include evidence of
discrimination in pricing and contract awards. If, through analysis of
such information, the recipient could make a quantitative estimate of
DBE suppression, the recipient would increase its overall goal
proportionately.
The SNPRM would require recipients to seek information relevant to
DBE suppression as part of their public participation process, but it
would not require recipients to calculate a suppression factor where
data was unavailable. At the same time, where recipients have some
information (e.g., anecdotal information that cannot readily be
quantified) that the capacity analysis understates the appropriate
goal, recipients could take appropriate action in administering their
programs to attempt to account for this factor. The Department seeks
comment on the issue of how recipients would best obtain data and how
they would best proceed in the absence of quantifiable data.
The Department is also aware that, under Adarand, programs for
women-owned firms may be subject to different legal standards than
minority-owned firms. Nonetheless, because the Department's statutes
call for operating a unified DBE program, including both minority-and
women-owned firms, this SNPRM proposes to use the same administrative
mechanisms for all DBEs. We invite comments on alternative ways of
viewing the overall goal process, in the post-Adarand legal climate, as
well as alternative mechanisms. We would also be interested in seeing
data that might illustrate the effects on DBE goals of making the
calculation this way, as well as through alternative means commenters
might suggest.
The Department wants very much to work with recipients and other
commenters to flesh out the mechanics of the new goal-setting process.
(The costs of making changes in the goal-setting process are eligible
for reimbursement from Federal funds on the same basis as the funds are
available for other program administration costs.) Since this proposal
is intended, in large part, to conform to the legal requirements
enunciated in Adarand, the Department also seeks comment on the extent
to which it succeeds in doing so. The Department also seeks any other
suggestions commenters may have on ways of adjusting the overall goal
provisions of the rule in light of Adarand.
Comments to the December 1992 NPRM raised only a few issues
concerning overall goals. Sixteen commenters, mostly recipients,
favored dropping the current rule's requirement for a public notice and
comment procedure prior to the adoption of each annual overall goal.
They said it was an administrative requirement that did not result in
the receipt of useful comments. Some of these comments said the
requirement should be retained in cases where a goal of less than 10
percent was requested. Three commenters, also recipients, favored its
retention. As noted above, we believe that there are values in public
participation, and the SNPRM includes such a requirement.
A few comments requested the deletion of the existing requirement
that the Governor or other politically responsible official at the head
of a governmental jurisdiction sign a request for a goal of less than
10 percent. We believe that this change would be beneficial, in that it
would remove an administrative step that can delay goal submissions, so
the SNPRM does not include it. We believe that, by this time, the
process of goal-setting is likely to be well institutionalized in most
recipients' organizations, making a political official's sign-off less
important than when we began the program in 1980.
One issue related to goal-setting that was the subject of
considerable comment to the December 1992 NPRM is that of group-
specific goals. The Department received 32 comments to the December
1992 NPRM, principally from minority-owned DBE firms and their
organizations, as well as some recipients, urging the adoption of
either separate goals for minority-owned and women-owned DBEs or of
multiple goals for different designated groups. Twelve comments,
principally from recipients and women-owned DBEs, opposed changing the
program to permit separate DBE goals.
The reason most often advanced for adopting separate ``MBE/WBE'' or
group-specific goals was a concern on the part of minority firms that
they were losing market share to firms owned by white women. Since
Congress included women in the DBE program in 1987, comments said, the
proportion of contracts going to women-owned DBEs has increased while
the proportion of contracts going to minority-owned DBEs has decreased
(FHWA statistics appear to support this observation in a number of
states). Many of these comments suggested that firms owned by white
women are, in effect, less disadvantaged than those owned by
minorities. They perceive women-owned firms as having better access to
capital, credit, and business opportunities than minority-owned firms.
Many women-owned firms are simply fronts, in the view of some of these
comments. Even if they are not fronts, strictly speaking, they still
can ride on the coat-tails of spouses, relatives, or established
businesses.
Women-owned firms countered by asserting that bias against their
firms by recipients in the certification process made it more difficult
for them to get certified. The main reason these comments suggested for
the perceived bias was a desire by some certifying officials to ensure
that minority-owned firms retained the lion's share of contracting
opportunities under the program.
The Department understands the views of commenters favoring group-
specific goals, recognizing that many minority participants in the
program have a genuine concern with the market share of DBE work that
is available to them. We also note that some of the comments
(particularly one from the Mexican-American Legal Defense and Education
Fund) made interesting arguments that such goals are constitutionally
permissible. However, the use of group-specific goals could raise a
variety of policy and administrative problems, and we believe for legal
reasons that we cannot propose making group-specific goals part of the
Department's program.
The problem that we believe precludes the Department from
permitting group-specific goals in the DBE program is a statutory one.
The Surface Transportation and Uniform Relocation Assistance Act of
1987 (STURAA) added women as a ``presumptive group'' within the
definition of disadvantaged business enterprises. The legislative
history of STURAA was quite explicit about the intent of this change.
The Senate report on the bill said the following:
This provision extends the [DBE] program through 1990 and adds
women (WBEs) to the rebuttable presumption of being disadvantaged. *
* * It is the intention of this language that prime contractors
performing Federal-aid highway construction
[[Page 29559]]
contracts and State transportation departments will now be able to
use WBEs to meet their DBE contract goals. It is not intended that
the overall DBE requirement set by this section be increased as a
result of the inclusion of WBEs as a presumptive group. (S. Rept.
100-4 (1987) at 11-13).
The STURAA Conference Report directly addressed the issue of
separate goals. It said the following:
It is the intention of the conferees that firms owned and
controlled by women (WBEs) be included, as a presumptive group,
within the definition of Disadvantaged Business Enterprise (DBE).
The conferees intend that contractors bidding on Federal-aid highway
projects will now be able to make best efforts to meet DBE contract
goals using DBEs (as they were defined prior to this Act),WBEs, or
combinations thereof. Additionally, the conferees intend that the
Department of Transportation and the States no longer should require
contractors . . . to meet separate goals for DBEs (as defined prior
to this Act) and WBEs. (H. Rept. 100-27 (1987) at 148, emphasis
added).
In the 1987 amendment to Part 23, the Department's contemporaneous
construction of this statutory change was that Congress mandates a
single goal encompassing both minority and women-owned DBEs.
Congress extended the DBE program in section 1003(b) of the
Intermodal Surface Transportation Efficiency Act of 1991 (ISTEA).
Congress made clear that ``[t]his section provides for an ongoing
Disadvantaged Business Enterprise (DBE) program. This section is a
continuation of section 106(c) of the STURAA of 1987* * *.'' (H. Rept.
102-404 (1991) at 307). Twice, during the House Public Works and
Transportation Committee's consideration of ISTEA and in a subsequent
floor vote, the House rejected amendments that would have authorized or
required separate MBE/WBE goals.
The present DBE program statute, then, is a continuation of section
106(c) of STURAA, concerning which Congress expressed its explicit
intent that contractors should not have to meet separate goals for
minority-owned and women-owned businesses. Congress had opportunities
to change that direction in 1991 and did not do so. In these
circumstances, it is difficult to see how the Department could,
consistent with the language and legislative history of the statute,
require or authorize separate, let alone group-specific, goals. (This
same point applies to DBE airport concessions under Subpart G, since
the airport program DBE legislation--49 U.S.C. 47102 and 47113--
incorporates the same DBE definition).
Section 26.43 How Are Overall Goals Established for Transit Vehicle
Manufacturers?
There were few comments on the December 1992 NPRM section on
transit vehicle manufacturers (TVMs), which proposed to continue the
existing Part 23 TVM section. Two comments supported the section, one
asked for greater clarity, and another said it would be useful if
acquisition of specialized equipment obtained by non-transit recipients
(e.g., airport fire trucks) could benefit from the same approach.
Another comment said that recipients, rather than TVMs themselves,
should be responsible for certifying DBEs who work for TVMs.
The Department has adopted one of these comments, and the SNPRM
would permit an FAA or FHWA recipient to use the procedures of this
section with respect to meeting DBE requirements in the acquisition of
specialized equipment, subject to the approval of the concerned
operating administration. The Department would make one additional
change, intended to provide greater flexibility to recipients,
particularly when dealing with a large vehicle procurement. In such a
case, the recipient may, with the approval of the concerned operating
administration, establish a project-specific goal instead of relying on
this section.
Transit vehicle production is clearly a national market, in which
it does not make sense for individual transit authorities to set goals
for DBE participation individually. Consequently, under the SNPRM, FTA
would set a goal for manufacturers. The goal would be set by a means
similar to the means the Department chooses for establishing overall
goals under Sec. 26.41.
Section 26.45 What Means Do Recipients Use To Meet Overall Goals?
In narrowly tailoring a nondiscrimination regulation, one of the
important steps the Department can take is to place greater emphasis on
race-neutral approaches such as outreach and technical assistance to
meet program objectives. Consequently, the Department is proposing that
recipients' first resort in meeting overall goals be to use these
means. The proposed, non-exclusive, list of steps that recipients can
take include several measures mentioned in the existing Part 23 and the
December 1992 NPRM.
The recipient would use means like those listed in paragraph (a) to
meet its overall goal to the extent it was able to do so. In many
cases, however, it will probably be necessary to use race-conscious
means to overcome the effects of discrimination. The Department does
not intend, in this section, to say that race-neutral means must be
used ``before'' race-conscious measures in any crude chronological
sense. We anticipate that a variety of measures will be used in
combination to provide appropriate flexibility to recipients.
The basic means to be used when a recipient cannot meet its overall
goal wholly through race-neutral methods is contract goals. Because the
recipient may meet at least a portion of overall goals using other
means, this proposed rule differs from the existing rule and the
December 1992 NPRM by not necessarily requiring a contract goal on
every contract that has subcontracting possibilities. It would be up to
the recipient to determine when use of contract goals is needed to meet
the overall goal. For example, if a recipient had met its overall goal
for a given year by the end of September, it might use paragraph (a)
techniques rather than contract goals the rest of the year.
The proposed regulatory text does not change the existing rule's
provision that contract goals are calculated on the basis of the entire
amount of the contract (i.e., Federal plus non-Federal shares). We
solicit comments, however, on whether there should be any change in
this provision, particularly in situations where there is only a small
percentage of Federal funds in the contract.
The SNPRM also seeks comment on including an ``evaluation credit''
approach. Under this approach, if a DBE's bid or offer on a prime
contract falls within a price differential designated by the recipient
(from one to ten percent of the lowest non-DBE offer), the DBE would
get the contract. Alternatively, as among non-DBE bidders on prime
contracts, a bidder who had a designated level of DBE participation
(set by the recipient in a way equivalent to the way contract goals are
set) would receive the contract if its bid fell within a given
percentage differential of the lowest bid by a bidder who did not
achieve that level of DBE participation.
We emphasize that, as proposed, this mechanism would apply only to
bidding on prime contracts (though we seek comment on whether there is
any feasible way of using it or a similar mechanism on subcontracts).
For example, suppose a recipient established a price credit of 7
percent for bidders who had at least 10 percent DBE participation.
Bidder A bids $105,000 on a contract, and has 10 percent DBE
participation. Bidder B bids $100,000 for the same contract, but has
only 5 percent DBE participation.
[[Page 29560]]
Bidder A would receive the contract, since it achieved the targeted DBE
participation and was within the 7 percent evaluation credit range
established by the recipient.
If race-neutral means are the first resort under this proposed
section, then set-asides and other more intrusive means, such as a
``conclusive presumption,'' are the last resort. By a set-aside, we
mean a procurement practice that permits no one but DBEs to compete for
a given contract. Only if the recipient documents that there are no
other, less intrusive, ways to meet DBE goals, and only if the
recipient has state or local authority independent of Part 26, should
the recipient use means of this kind on a DOT-assisted contract.
When a recipient uses race-conscious measures, and these measures
appear to have significant success in combating the effects of
discrimination, what happens next? Given that, under Adarand, measures
must be narrowly tailored to achieve nondiscrimination, we believe that
recipients must consider changing their use of race-conscious measures
when it appears that DBEs are closer to competing on a level playing
field.
For example, suppose a recipient significantly exceeds its overall
goals over a number of years. This suggests to us that the recipient
should rethink its use of race-conscious measures to achieve overall
goals (e.g., to rely more on race-neutral measures). Note that we are
not suggesting shutting down the program or getting rid of overall
goals in this situation, just changing the mix of measures used to
achieve overall goals.
Another way of looking at the slope of the playing field shifts the
focus to the broader economy. It is likely that, in many places, DBE
participation is better in DOT-assisted contracting than in many other
sectors of the economy, simply because of the existence of this program
over the last 17 years. Were it not for the DBE program, it is likely
that the picture of DBE participation in DOT-assisted contracting would
resemble that in similar sectors of the broader economy.
Suppose that, in a given state, minority-and women-owned
contractors account for 20 percent of the contractors, but only 10
percent of the business volume. Whatever DBE participation achievements
may be in DOT recipient contracting, this suggests that the playing
field is not altogether level in the state. If we took away the use of
race-conscious measures in the DOT program, its achievements would
probably fall to a level approximating that of the broader economy.
This is a rationale for maintaining the use of race-conscious measures.
If this rationale disappears in the broader economy, then the recipient
should rethink its use of race-conscious measures to achieve overall
goals (e.g., rely more on race-neutral measures). The Department asks
for comments on the data that would be needed to make this approach
work.
One concern that disadvantaged businesses have expressed is that
recipient sometimes do not apply measures to obtain DBE participation
evenly through their various contracting opportunities. For example,
DBEs have said that some recipients meet their goals entirely through
construction contracting, largely ignoring other types of businesses
(e.g., suppliers, architects and engineers, other professional
services). The Department's intention is that recipients explore all
opportunities for DBE participation, in all fields in which DOT-
assisted contracting occurs. We seek comment on whether any regulatory
provisions are needed on this subject and, if so, what they should say.
Section 26.47 What Are the Good Faith Efforts Procedures Recipients
Follow in Situations Where There Are Contract Goals?
The concept of good-faith efforts is a very broad one, applicable
in some senses in a variety of contexts under the rule. Section 23.47,
however, applies only in the case where a recipient uses contract
goals, one of the intermediate level of mechanisms available to meet
overall goals. When the recipient has set a contract goal, the
recipient would award the contract to the apparent successful bidder if
either of two things happen: the bidder meets the contract goal by
providing sufficient DBE participation or the contractor documents
adequate good faith efforts (GFE) , despite not meeting the contract
goal with DBE participation. This section emphasizes that either
showing is acceptable. It would not be consistent with the rule for the
recipient to insist on a bidder meeting the goal, disregarding its
showing of GFE. To do so would establish a de facto quota system. At
the same time, it is not consistent with the rule for a recipient to
award a contract based on merely pro forma or perfunctory efforts by a
bidder. This is equally inconsistent with the rule.
In order to reinforce the point that the good faith efforts
provision is meant to be taken seriously, the SNPRM proposes that
recipients would implement an administrative reconsideration process
when the apparent successful bidder had been denied the contract for
failing to make adequate good faith efforts. This process is intended
to be informal and minimally burdensome, but it is also intended to
cause recipients to make sure that their decisions on GFE are well-
founded.
One suggestion made by DBEs was that, rather than the recipient
itself, a committee made up of recipient, DBE, prime contractor, etc.
representatives should make GFE decisions. Is this a good idea, either
at the initial decision or review level? Should the Department include
such a provision in the final rule?
One issue related to GFE that was the subject of a good deal of
comment on the December 1992 NPRM was whether DBE prime contractors
should have to meet contract goals. It is clear that the existing Part
23 does not permit recipients to require DBE prime contractors to do
so, as pointed out in the preamble to the December 1992 NPRM. (Any
recipient programs to the contrary are inconsistent with the
Department's rule; FHWA has provided guidance to its recipients
emphasizing that any programs containing inconsistent provisions on
this point need to be changed.) Under the existing rule, a DBE prime
contractor meets a contract goal by virtue of being a DBE. Since the
entire amount of a contract to a DBE is counted toward the contract
goal, a DBE prime contractor's goal attainment is 100 percent.
Thirty-six comments to the December 1992 NPRM favored changing this
provision, so that a DBE prime contractor would have to meet
subcontracting goals just like any other prime contractor. Commenters
taking this position said that requiring DBE primes to meet goals would
help to maximize DBE participation and that it was fair to impose the
same requirements on all prime contractors. In some cases, these
comments said that DBE primes should only meet goals when they would
otherwise subcontract work, or should only have goals applying to that
part of the work of a contract they did not plan to perform with their
own forces.
Twenty-four comments opposed adding a regulatory requirement for
DBE prime goals. Some of these agreed with the rationale of the
existing rule, saying that there was already, in effect, 100 percent
participation. Others said that requiring DBE primes to meet goals
would hinder their growth and productivity, or that recipients should
have discretion on this matter. Some comments said that DBE primes
should have to meet goals only if they subcontracted work.
The Department seeks additional comment on this issue. We note that
there are two competing notions of
[[Page 29561]]
equity involved in the debate. On one hand, requiring DBE primes to
meet subcontracting goals imposes the same requirements on all prime
contractors. On the other hand, since DBE primes are implicitly viewed
as not enjoying a level playing field with non-DBE primes, requiring
both to meet the same subcontracting requirement can be viewed as
simply maintaining the inequity.
With respect to subcontracting, the SNPRM, with certain exceptions,
would not count toward DBE goals work performed by non-DBE second tier
subcontractors. This approach for subcontractors is more consistent
conceptually with a requirement for DBE primes to meet subcontracting
goals. On the other hand, it can be argued that to make a DBE prime
meet subcontracting goals in effect requires over 100 percent DBE
participation on DBEs' prime contracts.
The SNPRM proposes the two approaches in the alternative. We also
seek comment on a third alternative, specifying that a DBE prime has to
use its own forces for a sufficient percentage of the contract to meet
the contract goal. If the DBE prime were subcontracting out so much of
its work that it would not cover the goal amount with work performed by
its own forces, then the DBE would have to make up the difference with
other DBE participation.
The most commented-upon issue in the December 1992 NPRM section on
GFE concerned whether compliance with the requirement to supply
information about goal attainment or GFE should be a matter of
responsiveness or responsibility. If a matter of responsiveness, the
bidder must submit all the required information with its bid. Failure
to do so results in the bid being non-responsive. If a matter of
responsibility, the apparent successful bidder is given a certain
amount of time to submit the information following the opening of bids.
Under Part 23, recipients had the option of whether to use the
responsiveness or the responsibility approach. The December 1992 NPRM
proposed that the responsiveness approach be used in all cases, in
order to mitigate the problem of ``bid-shopping,'' in which the
apparent successful bidder uses the compliance time after bid opening
to conduct a sort of reverse auction among prices of DBEs interested in
the job.
Thirty-eight comments, mostly recipients and DBEs, supported the
NPRM proposal. Many of these comments said that it would be an
effective means of limiting prime contractors' opportunity to bid-shop.
Others pointed to specific recipients' programs that successfully used
the responsiveness approach. A few comments suggested modifications to
this approach, such as allowing 5-7 days for contractors who did not
meet the goal to show GFE. We have also received a suggestion that,
given what some DBEs perceive as abuses of the ``letter of intent'' or
``commitment'' process by prime contractors, that the Department should
establish a firm policy of requiring the use of the DBEs that a prime
contractor originally names.
Sixty-five comments, mostly prime contractors but including a few
recipients, opposed the December 1992 NPRM proposal. These comments
said that bid shopping was not that big a problem, or that some degree
of bid shopping was appropriate. Their main objection was that the
proposal was too burdensome for prime contractors. They painted a
picture of contractors submitting multiple bids after a hectic whirl of
last-minute negotiations involving quotes from a variety of
subcontractors. The time frame for finalizing bids is too short to make
the responsiveness approach practical, they said. Some recipients said
that they had tried this approach and found it didn't work. Other
comments suggested variations on the responsibility approach, such as
limiting the time after bid opening in which a contractor could submit
the required information or considering as evidence of GFE only those
actions a contractor had taken prior to bid opening.
Both sides of this debate make some valid points. Based on DOT's
experience with the contracting process, bid shopping appears to be a
significant problem that negatively affects the ability of DBE
subcontractors to succeed in performing contracts for a profit.
Requiring information to be submitted as a matter of responsiveness, in
our view and that of a number of comments, appears to be a reasonable
means of mitigating that problem. On the other hand, the responsiveness
approach would probably be more difficult administratively for prime
contractors, though it is being used successfully in some places.
Given that there are valid points to be made in favor of both
responsibility and responsiveness, and that the circumstances of
different recipients may well differ concerning the desirability of one
approach or the other, the significance of a bid-shopping problem in a
particular jurisdiction, etc., the SNPRM would continue the existing
practice of allowing recipients to choose which approach to follow. The
Department seeks additional comment on this issue. In particular, the
Department would be interested in receiving examples of how one system
works, or fails to work, in current practice.
Sixteen comments to the December 1992 NPRM asked for clarification
or greater guidance concerning what constitutes GFE. Some of these
comments asked for more ``objective'' GFE criteria, though they did not
suggest what the objective criteria should be. Others suggested
tightening up informational requirements. For example, some agreed with
a proposal in the December 1992 NPRM that the prime should actually
have a contract with the DBE in hand to present to the recipient.
The Department is responding to these comments in two ways. First,
the Department has rewritten and expanded the rule's GFE guidance (see
Appendix B) to provide greater assistance to recipients and
contractors. There would also be a new definition in Sec. 26.5 which
says that GFE are ``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.'' Second, while it may not be necessary to have a written
contract between the DBE and the prime contractor presented to the
recipient, the SNPRM would require that the prime contractor present a
letter from each DBE submitted to meet the goal confirming that the DBE
is going to perform the contract as represented in the prime
contractor's submission.
One of the features of the existing guidance concerning GFE is that
a contractor is not viewed as making GFE if it rejects a quote from a
DBE in favor of a quote from a non-DBE when the former is higher than
the latter, but the DBE has still offered a ``reasonable'' price.
Seventeen comments asked for clarification of what a reasonable price
is, four supported the existing guidance, while 14 opposed the concept.
Opponents said the requirement makes the system more expensive, since
it does not allow prime contractors to get the lowest price they can
for subcontracts. Some of these comments also said they did not want to
have specific ``reasonable price'' requirements (e.g., a percentage) in
their bid documents.
The Department believes it would be difficult to mandate a
``reasonable price'' differential that would make sense across the
board for DOT-assisted contracts. However, the Department does believe
that recipients should have the discretion to do so. Appendix B would
specifically provide this
[[Page 29562]]
discretion to recipients. The Department notes that in Federal
procurement, a range of 1-10 percent is suggested. The Department seeks
comment on whether this is a reasonable range, and whether Appendix B
should include a specific numerical range of this kind. The Department
seeks comment on whether it would be desirable and feasible to
establish a national standard concerning award of a subcontract to a
DBE which quoted a higher price than another subcontractor, consistent
with the narrow tailoring standard of Adarand.
The GFE guidance would provide that in determining whether a bidder
has made good faith efforts, a recipient may take into account the
success of other bidders in meeting goals. That is, if Bidder A has met
the goal, but lower Bidder B has not, it is fair for a recipient to
inquire if Bidder B's efforts were sufficient. We also seek comment on
whether additional provisions would be useful. For example, should
there be additional language concerning good faith efforts in
subcontracting initiated by a prime contractor after award of the
initial prime contract, particularly when the prime contractor may not
have met its original commitments to DBE participation?
The December 1992 NPRM proposed that a prime contractor could
terminate a DBE only for breach of contract. This proposal would have
prohibited terminations for convenience of DBEs. Sixteen comments,
primarily from recipients and some DBEs, favored the NPRM proposal,
while 19 comments, mostly from prime contractors, opposed it. The
opponents said that terminations for convenience were an often-
necessary part of doing business and that prohibiting them would add to
expense, delay, and litigation. The Department takes a middle ground in
the SNPRM. As a general matter, the rule would not prohibit
terminations for convenience. However, a contractor could not terminate
a DBE for convenience and then turn around and perform the work with
its own forces or subcontract to a non-DBE subcontractor, absent the
prior written consent of the recipient. We believe that this approach
will stop a potential source of abusive conduct by primes while not
denying primes needed flexibility.
The December 1992 NPRM also proposed that when a DBE was dropped
from a contract, the prime contractor would have to make GFE to find a
substitute DBE, even if the prime was meeting its goal by using other
DBEs. Twenty comments, principally prime contractors, opposed this
proposal. They did not think that requiring substitution even when a
prime contractor was already meeting its goal from other sources was a
good idea. It would, they said, be a disincentive to prime contractors
oversubscribing their goals. Four comments supported the proposal.
The Department has decided not to adopt this proposal in its
entirety. As under the existing rule, recipients would still have to
make good faith efforts to find a DBE substitute for a DBE that has
been unable to complete its planned participation. However, a
requirement to replace DBE participation, even when doing so is not
needed to meet a contract goal, departs too far from the objective of
race-conscious remedies, which is to remedy the effects of
discrimination. Consequently, the SNPRM would propose requiring
substitution only as needed to meet a contract goal. The Department
seeks comments, however, on whether there is a supportable rationale
for requiring substitution of DBEs simply on the basis of contract law
(i.e., meeting the original commitment to the recipient).
The December 1992 NPRM proposed that recipients have a liquidated
damages or penalty provision in their contracts to sanction
noncompliance by recipients with the termination and substitution
provisions of this section. Two comments favored this idea, while 20
opposed it, saying that liquidated damages or penalty clauses were
contrary to state procurement laws in many cases. The SNPRM adopts the
suggestion made by one of these comments that recipients be required to
have appropriate administrative remedies available to deal with
noncompliance, without prescribing what they should be.
Section 26.49 How Is DBE Participation Counted Toward Goals?
One of the issues most commented upon in response to the December
1992 was that of whether the cost of materials obtained from non-DBE
sources, but used by DBE contractors, should be counted toward goals.
The December 1992 NPRM solicited comment on this issue because the
present regulation (49 CFR 23.47(a)) results in an inconsistency in the
way credit is counted for materials, providing that the entire value of
a contract with a DBE is counted toward goals. This has been
interpreted, since the beginning of Part 23 in 1980, to include the
cost of materials the DBE contractor obtains, from whatever source, for
performance of the contract.
For example, suppose a DBE steel erection firm buys structural
steel from a major steel company, which is not a DBE. The steel
accounts for 75 percent of the cost of the contract, the rest being
accounted for by labor, overhead, profit, etc. Under the present rules,
the entire cost of the contract, including 100 percent of the cost of
the steel, would be counted toward DBE goals.
The inconsistency arises because of the way that supplies and
materials are counted in other situations. If a non-DBE steel erection
company bought the same steel from the same steel manufacturer at the
same price, none of the value of the steel would count toward DBE
goals. If the non-DBE steel erection company bought the steel through a
DBE regular dealer, 60 percent of the cost of the steel would count
toward DBE goals. The inconsistency could be removed if all materials
and supplies were counted the same way: that is, if only materials and
supplies produced by a DBE manufacturer or purchased through a DBE
regular dealer could count toward DBE goals, regardless of whether the
contractor was a DBE or not. This approach would result in the DBE
steel erection company, in the example above, being able to count only
25 percent of the value of its contract toward DBE goals.
The great majority of comments on this point (83) opposed resolving
the inconsistency in this way, saying that the entire amount of DBE
contracts--including materials obtained from non-DBE sources--should
continue to count toward DBE goals. Recipients, DBEs, and non-DBE
contractors were all represented in this group. They said that
materials are always included in the cost of any contract, and so it
was meaningless to talk about counting the value of a contract and yet
not counting the cost of materials. DBEs, like other contractors, take
a financial risk in obtaining materials, and this should be taken into
account. Also, since materials often make up a significant portion of
the value of a contract, not counting materials would mean a
significant reduction in goal attainment, and goals would have to be
lowered accordingly. Some comments said that DBE supplies or
manufacturers were not available in their areas, making reliance on
other sources inevitable.
Fourteen comments, including some recipients and DBEs, favored
limiting the counting of materials from non-DBE sources. Some of these
suggested treating DBE and non-DBE contractors alike with respect to
the counting of materials. In this scenario, only the work actually
performed by the DBE would count toward goals. Others suggested
limiting to 60 percent the amount of credit for non-DBE source supplies
that could be counted toward
[[Page 29563]]
goals (placing a DBE contractor in an analogous position to that of a
DBE regular dealer).
The Department has decided not to propose changing this provision.
There are advantages, from the point of view of consistency and logic,
in counting supplies and materials the same way in all cases. These
advantages are outweighed, in our view, by the potential disruption
that would be caused to the program by changing this basic counting
policy. Making the change would have significant effects on goal
attainment and would cause recipients and contractors to reorient the
way that they do business. We also believe that comments have a good
point when they say that since a DBE contractor takes a risk in
acquiring materials, and must manage their acquisition and use, it
should receive credit for using them in the context of the contract. We
do agree with a comment saying that credit should be allowed only for
materials that the DBE contractor actually obtains and uses for the
contract, and we have added language to this effect.
Another issue of interest to commenters was an NPRM proposal that,
for the value of a DBE contract to be counted toward goals, at least 30
percent of the work of the contract must be performed with its own
forces. The idea behind this proposal was that such a requirement would
limit the possibility of ``pass-throughs.'' Twenty-six comments favored
a requirement of this type set at a level of at least 30 percent (a
number of these comments favored higher levels, such as 60-75 percent,
or supported recipient discretion to establish such a limit). Seventeen
comments opposed such a provision, most saying that it would hurt
contractors whose work is material-intensive.
The Department believes that a mechanism of this kind would be
useful in preventing pass-throughs and in making sure that DBEs really
have a sufficient role in performing contracts for which they obtain
credit. The SNPRM therefore would provide that a DBE contractor that
does not perform at least 30 percent of the contract is rebuttably
presumed not to be performing a commercially useful function. The
comments opposing this proposal may have misunderstood its implications
for material-intensive contracts. This provision (and the existing FHWA
practice for prime contractors on which it is based) does not interfere
with such contracts: if the contractor is responsible for the materials
(i.e., as the comment referred to above suggested, if the DBE
negotiates price, determines quantities, orders the material, and
installs and pays for the material itself), the portion of the contract
represented by the materials is viewed as being performed by the
contractor. Language referring to this concept has been included in the
SNPRM.
Another issue raised by the December 1992 NPRM is so-called ``back-
subbing.'' A non-DBE prime contractor subcontracts a portion of the
work of the contract to a DBE. The DBE, in turn, subcontracts a portion
of its work back to the prime contractor. Forty-eight comments agreed
that work subcontracted back to the prime contractor by a DBE
subcontractor should not be counted toward the goals, since it is work
performed by the prime contractor, not by the DBE. A number of these
comments suggested that the prohibition on counting work subcontracted
out by DBEs should apply to work subcontracted to any non-DBE, not just
a prime contractor. Some of these comments would make exceptions for
what they viewed as customary practices such as equipment rental in
certain industries. Ten comments opposed this proposal, saying that
such practices as backcharging from the prime to the subcontractor or
equipment rental from non-DBEs are normal, constructive industry
practices.
Work performed by non-DBE contractors (primes or others) on the
basis of subcontracts from DBE subcontractors may well be legitimate in
various contexts, as distinct from an attempt to circumvent the DBE
program. Whatever else it is, however, it is not work performed by a
DBE. The Department believes it makes sense to count toward DBE goals
only work that is actually performed by DBEs, and the SNPRM proposes
that work performed by a non-DBE subcontractor on the basis of a
subcontract from a DBE subcontractor would not count toward DBE goals.
In response to the comments concerned about equipment rentals, the
SNPRM provision includes an exception for such rentals, as long as the
equipment is rented from someone other than the prime contractor or its
affiliate. Supplies would be treated in the same way. This approach
recognizes the legitimacy of the DBE's need to acquire equipment and
supplies from outside sources in some instances, while guarding against
attempts by prime contractors to claim DBE credit for the use of their
own materials and equipment.
One issue that comments addressed here, as well as under other
provisions of the rule, concerns what happens to DBE credit from a firm
that a recipient decertifies while a contract is underway. Six comments
favored continuing DBE credit for a contract begun in good faith with a
then-certified DBE. One recipient suggested that the credit could
continue to be counted toward the prime contractor's goal, but not
toward the recipient's overall goal. The SNPRM adopts the recipient's
suggestion, which seems a good balance between fairness to contractors
and the point that credit to non-DBE firms should not be reflected as
DBE goal achievements.
There were a variety of comments on other matters. Eight comments
favored, and eight opposed, not crediting DBE participation to prime
contractors until the DBE is paid. For purposes of awarding contracts,
of course, recipients must operate on the basis of commitments to DBE
participation. However, it is administratively feasible not to credit
DBE participation to a contractor's goal attainment until the DBE has
been paid for the work in question, and the SNPRM proposes such a
provision.
Other comments asked for clarification of the commercially useful
function, regular dealer, and normal industry practices concepts. A few
comments asked for clarification on awarding DBE credit for DBE
trucking companies, a particular concern being companies that lease all
or most of their trucks from non-DBEs. The SNPRM would presume that a
DBE trucking company that does not own at least 50 percent of the
trucks it uses for a particular contract does not perform a
commercially useful function on that contract. This presumption could
be overcome by a determination by the recipient that the firm is
performing a commercially useful function in light of normal industry
practices.
Finally, a few comments supported the notion of the ``carry-
forward'' of DBE credit. That is, if a prime contractor gets 15 percent
DBE participation on a contract with a 10 percent goal, then the
``extra'' 5 percent credit could be applied to meeting its goal on its
next prime contract with the recipient, allowing it to obtain only five
percent ``new'' DBE participation on the second contract. The
Department has not adopted this idea, because we believe it would lead
to an inappropriate focus on merely meeting minimum requirements.
Only the work of DBEs, of course, may be counted toward DBE goals.
If a formerly certified firm does not have a certification that is
current at the time a contract is executed (e.g., it has been
decertified, it has allowed its certification to lapse), then it cannot
satisfy DBE requirements. For example,
[[Page 29564]]
suppose a DBE prime contractor is identified as the apparent successful
bidder for a contract in July. The contract is to be executed in
September. In August, however, the firm loses its certification. The
recipient cannot use the contract to meet DBE goals, and the firm would
have to meet a DBE contract goal (assuming there was one on the
contract) the same way any other non-DBE prime contractor would.
Subpart D--Cerftification Standards
The clarification of certification standards is one of the most
important purposes of this SNPRM. Recipients and contractors should be
aware that the certification standards in this subpart, while not yet
formally in effect, represent the Department's interpretations of
current Part 23 standards. Recipients should use this material as
guidance in applying existing standards to the facts of certification
cases.
The SBA is proposing new certification standards and procedures for
the 8(a) and 8(d) program, which concern Federal procurement. These
standards and procedures are similar in some ways, and differ in other
ways, from the proposed Part 26 standards and procedures. The
Department seeks comment on whether, in various specific respects, DOT
should alter any of its proposed standards to more closely resemble the
proposed SBA standards. During and after the comment period, DOT
anticipates working with SBA to explore areas where greater convergence
between the standards and procedures of the two agencies may be useful.
Section 26.51 How are Burdens of Proof Allocated in the Certification
Process?
The purpose of this section is to state clearly who must prove what
in certification matters. The December 1992 NPRM proposed that the
applicant must bear the burden of proof that it meets eligibility
criteria. Forty two comments agreed with this proposal, 36 of them
supporting the ``preponderance of the evidence'' standard, which the
SNPRM proposes to adopt. This standard means, in essence, that on
balance, the recipient must be able to determine that the applicant
more likely than not meets each of the basic certification standards:
group membership, business size, ownership, and control. The applicant
is responsible for demonstrating to the recipient that it meets each of
these standards by a preponderance of the evidence. If the applicant
fails to carry this burden, then the recipient would not certify it.
Six comments favored the higher ``clear and convincing evidence''
standard, which the Department believes is too stringent for this
purpose.
There is a major exception to the general rule that the applicant
bears the burden of proof on the elements of certification. Because the
statutes authorizing this program provide that members of the
designated groups are presumed to be socially and economically
disadvantaged, applicants who are members of these groups do not have
the burden of proving to the recipient that they are disadvantaged. (As
noted above, these individuals do have a burden of proof with respect
to group membership, however.) Other individuals, as well as designated
group members whose presumption of disadvantage has been rebutted,
would have the burden of proving, by a preponderance of the evidence,
that they are disadvantaged. How the presumption is rebutted is
discussed below in the section on social and economic disadvantage.
The December 1992 NPRM said that recipients should avoid ``single
factor'' determinations about certification and should make
determinations based on all the facts. Eleven comments supported this
position, while 13 others opposed it or asked for clarification. Most
of the latter noted that there could be a single large factor (e.g.,
the disadvantaged individual didn't own the company) that outweighed
everything else. To avoid the confusion that some commenters noted, we
have not incorporated the ``single factor'' language in the SNPRM, but
it clearly states that the recipient would have to consider all the
facts in the record, viewed as a whole, in deciding whether an
applicant has met its burden of proof. A single fact or problem would
prevent certification only where it prevented the applicant from making
its case by a preponderance of the evidence.
Section 26.53 What Rules Govern Group Membership Determinations?
Group membership is important in making certification decisions
because only members of the designated groups enjoy the presumption of
disadvantage. Individuals outside these groups must make individual
showings of disadvantage in order to be eligible. In many cases,
membership in a designated group will be obvious (e.g., women, many
Black Americans). The SNPRM does not require recipients to make any
special inquiry in these cases. Rather, the recipient would simply
accept the obvious. In other cases (e.g., some American Indians,
Hispanics, or Asian-Americans) there may be individuals whose
membership in a designated group is not obvious to the recipient. When
the recipient has reason to question the claimed group membership of an
individual, the recipient would require the individual to demonstrate,
by a preponderance of the evidence, that he is a member of the group.
There were few comments on this section. Most of them concerned
American Indians, a category which a number of comments thought was
subject to abuse by persons with little Indian ancestry and little
connection with Indian communities. These comments proposed that
guidance concerning group membership of Indians be clarified and that
recipients be authorized to require documentation of group membership.
The Department agrees, and we intend to provide additional guidance
concerning group membership when the final rule is issued. The SNPRM
would specifically authorize recipients to require applicants to
produce appropriate documentation of group membership.
Section 26.55 What Rules Govern Business Size Determinations?
The Department's business size criteria are established by statute.
There are two criteria, both of which a firm must meet in order to be
eligible. First, a firm must meet SBA small business size criteria,
which are found in 13 CFR Part 121. Second, a firm must not exceed an
average annual receipts cap required by statute. The proposed section
reflects the Department's contemplated adjustment of the current cap
($16.6 million) to $17.77 million. The Department anticipates
publishing a Federal Register notice in the near future making this
adjustment.
Many of the comments on size standards asked for changes that could
be accomplished only by legislative amendments. Eight comments thought
the gross receipts cap was too high (e.g., one comment said that even
non-DBE prime contractors in its jurisdiction fell under the cap) while
four (e.g., a petroleum products distributor) thought it was too low.
Commenters in both camps, plus a few additional comments, thought that
recipients should have discretion to adjust the cap to fit local
conditions better. Four commenters thought that we should use only the
cap, without involving the SBA size standards. Six other comments
thought that DOT should develop its own size standards to replace
reliance on SBA standards.
Six comments said that the SBA size standard for architectural and
engineering (A & E) firms was too low
[[Page 29565]]
and had not changed in many years. We suggest that, if members of a
particular industry believe that their SBA size standard is
inappropriate, they work with SBA to see if SBA will alter the
standard. Such firms are in a better position than DOT to advocate the
merits of such a change to SBA.
One comment said that there needed to be different size standards
for airport concessionaires. Subpart G contains FAA-developed size
standards for airport concessionaires that differ from the size
standards of this section, and which control for airport concession
purposes. Finally, three comments asked for guidance on how to deal
with situations in which a firm may work in more than one area. The
size standard for each area may differ. The Department plans to issue
guidance on this subject when the final rule is issued.
Section 26.57 What Rule Determine Determinations of Social and
Economic Disadvantage?
The presumption of social and economic disadvantage for members of
the designated groups has always been rebuttable in the Department's
DBE program. The problem has been how to determine when the presumption
has been rebutted. There has been substantial uncertainty on
recipients' parts on what is necessary to rebut the presumption, with
the result that there have been few proceedings under current
Sec. 23.69 to remove the presumption from members of the designated
groups.
The December 1992 NPRM proposed to address this problem by
directing each presumptively disadvantaged owner of an applicant firm
to submit a statement of personal net worth (PNW) with the application.
If the statement showed that the individual's net worth was over
$750,000, then the presumption of that individual's social and economic
disadvantage would be rebutted, and the individual would have to
demonstrate his or her disadvantage on a case-by-case basis. (The
$750,000 number was suggested by SBA's PNW standard for owners of 8(d)
program firms. See 13 CFR 124.106(b)). This relatively simple, bright
line, across-the-board approach was also intended to prevent the
possibility of abuses in which recipients might target a particular
firm or class of firms for inquiry into social and economic
disadvantage.
This proposal was the subject of extensive comment. Forty comments
supported the NPRM approach, or something like it, basically for the
reasons stated in the December 1992 NPRM. A few of these comments
supported a more draconian approach, in which an applicant with a PNW
of over $750,000 would be barred from participating in the program,
with no possibility of an individual showing of disadvantage. Another
24 comments disagreed with the $750,000 number. Exactly half of this
group thought the number should be lower (e.g., $250,000-$500,000)
while the other half thought it should be higher (e.g., $1-$2.75
million). Those who wanted it lower generally thought that the program
should not include persons who were affluent enough to have PNW in the
mid-six figures range, while those who wanted it higher said that a low
figure would limit the borrowing power and ability to expand of DBE
firms. A few comments also supported recipients having discretion to
set their own threshold.
Fifty-six comments opposed using a PNW threshold at all. They said
that the bias that creates disadvantage for minority and women owners
has little to do with personal net worth, and that until that bias is
eradicated, a PNW threshold was inappropriate. They said it penalizes
success. Some of these comments said that PNW was based on a paper
accounting of assets, including many that had little to do with the
ability of someone to succeed in business. It would be difficult to
administer, particularly where firms have multiple owners. It would
limit the ability of businesses to expand (i.e., banks and bonding
companies often demand that the personal assets of a small business
owner guarantee the loan or bond, and if personal assets are limited by
this rule, then financing or bonding becomes more difficult). Many
comments expressed strong concern about the adverse impact on personal
financial privacy of being required to submit personal financial
statements to the recipient with all applications. Requiring this
information with the application is inconsistent with the statutory
presumption, other comments asserted, as well as being a substantial
additional paperwork burden on applicants. Many also disagreed with
using a number derived from SBA programs, which they saw as very
different from the DBE program.
Among other miscellaneous comments were suggestions that spouse's
assets, the owner's house, and/or business assets be counted in
calculating PNW. Some comments suggested that owners should certify
that their PNW was within the threshold or only send PNW information to
the recipient as part of a due process proceeding that was challenging
the firm's disadvantage.
The Department believes that its original purposes for the $750,000
threshold proposal were valid: establishing a clearly understandable
standard for rebuttal of the presumption of disadvantage and preventing
potential abuses that single out certain DBEs or classes of DBEs for
unfavorable treatment. At the same time, the Department is persuaded
that some of the flaws noted by comments that opposed the NPRM
proposal--adverse effect on privacy, inconsistency with the statutory
presumption, administrative difficulties, additional paperwork burden,
etc.--should be considered.
For these reasons, the Department is proposing to adopt a modified
version of its NPRM proposal. Recipients would be prohibited from
requiring owners to prove their social and economic disadvantage as
part of the application process. However, in order to have relevant
information to enable them to make determinations about whether there
should be inquiry into the disadvantage of applicants, the applicants
would have to submit a signed certification that they are socially and
economically disadvantaged and a brief summary statement of their
personal net worth, which the recipient would have to keep
confidential. The applicant would not be required to submit actual
personal financial data (e.g., personal income tax returns or a
detailed financial statement) documenting the information in the
summary statement, however. These provisions are intended to balance
applicants' interest in protecting the privacy of financial data and in
avoiding unnecessary paperwork with recipients' interest in having
sufficient information to determine when further investigation of
disadvantage is needed.
Under the SNPRM, if a recipient has a reasonable basis to believe
that an owner may not be disadvantaged (e.g., from summary statement of
PNW, information provided by third parties, or other information
available to the recipient), the recipient could commence a proceeding
to determine whether the presumption of disadvantage should be removed
from the individual. This proceeding would use the same due process
procedures that the recipient uses in a decertification proceeding. The
recipient would bear the burden of proving that the individual was not
disadvantaged, by a preponderance of the evidence standard. In order to
ensure that the statutory presumption is given proper effect, the
recipient would not begin such a proceeding until it had
[[Page 29566]]
determined that the individual(s) in question owned and controlled the
firm. However, to prevent contracts from being awarded to a firm that
might not ultimately be owned and controlled by disadvantaged
individuals, the recipient could hold the firm's certification in
abeyance until the conclusion of the proceeding concerning the owner's
disadvantage.
The SNPRM leaves open for further comment the issue of the amount
of the threshold. There was considerable disagreement about the proper
amount, and the Department asks commenters to provide, if possible,
data or even anecdotal information about the potential effects of
different thresholds. In doing so, commenters should be aware that this
issue concerns the wealth of the owner, not the size of the business.
How wealthy can an individual be before he or she ceases to be
reasonably regarded as disadvantaged? This is not an abstract inquiry.
The legitimacy of the DBE program rests, in part, on being perceived by
the public and the courts as fair and as helping the people it is
intended to help. Participation in the program by someone who is a
strong candidate for air time on ``Lifestyles of the Rich and Famous''
can only undermine the program's credibility.
The Department seeks comment on whether it would be feasible to
have recipients, unified certification process entities, or regional
consortiums establish variations on the net worth of persons
participating in the program. Doing so could increase flexibility in
the program, but could also lead to a variety of inconsistent
standards. The Department also seeks comment on whether there are other
indices of individual social and/or economic disadvantage--other than
personal net worth--that the rule should focus on to assist recipients
in making disadvantage determinations.
The Department does not agree with those comments that favored
using a PNW standard as an absolute cutoff for program eligibility,
without the possibility of an individual being able to demonstrate
eligibility on a case-by-case basis. Under the DBE program, all persons
who are not entitled to the presumption of eligibility may make an
individual demonstration of eligibility, and we believe that this
should remain the case for persons who lose the presumption by virtue
of a PNW over the applicable threshold as well as those who are not
members of one of the designated groups.
Another issue concerned what standards recipients should use to
make individual determinations of social and economic disadvantage. The
December 1992 NPRM proposed using standards based on SBA 8(a) standards
(13 CFR Sec. 124.106(a)). Nine comments favored, and 10 opposed, this
approach. The opponents pointed to differences between SBA programs and
the DOT DBE program that could lead to confusion; proponents believed
the standards were appropriate. The Department will retain SBA
standards as the basis for guidance on making individual determinations
of social and economic disadvantage, there being no other or better
standards of which the Department is aware. However, as one comment
pointed out, there are some inconsistencies between SBA standards and
requirements of the DOT DBE program. Rather than simply incorporate or
copy the SBA standards, therefore, Appendix F would modify the
standards to ensure a good fit with the DOT program.
At times, firms certified under the SBA 8(a) program seek to
participate in the DBE program. Under Part 23, the Department had said
that, since these firms had been determined by another Federal agency
to be owned and controlled by socially and economically disadvantaged
individuals, recipients were required to accept their 8(a)
certifications as valid for DBE program purposes. Recipients could not
look behind the 8(a) certification to deny certification to such a firm
based on the recipients' own evaluation of its ownership and control.
Over the years, the Department had heard from recipients that this
requirement resulted in their having to use 8(a) firms they believed to
be ineligible under DBE program criteria. Therefore, the December 1992
NPRM proposed to allow recipients to look behind 8(a) certifications in
some circumstances.
Nine commenters supported the NPRM provision, saying that too many
questionable firms have 8(a) status, that size and other criteria
differed between the programs, and that they had difficulty in securing
assistance from SBA in reviewing the eligibility of 8(a) firms whose
eligibility they questioned. Four commenters supported the existing
rule's approach, one of them suggesting that there should a memorandum
of understanding between DOT and SBA on the subject.
The Department believes, with the latter group of commenters, that
deference to the eligibility determinations of SBA is warranted. At the
same time, when a recipient has a reasonable belief that a firm is not
eligible, we believe that it is contrary to the goals of the program to
preclude inquiry. To balance both these concerns, the SNPRM would
establish a presumption that an 8(a) firm is owned and controlled by
socially and economically disadvantaged individuals. (The firm would
have to demonstrate that it meets the DOT gross receipts cap and SBA
size criteria for the type of work it was to perform as a DBE.)
However, if the recipient had a reasonable basis to believe that the
firm or its owner fails to meet Part 26 ownership, control, or
disadvantaged status criteria, the recipient would request a response
to these concerns from SBA. Taking into account SBA's response (or
after 60 days, if SBA had not responded), the recipient could, on the
basis of these concerns, initiate an eligibility removal proceeding
under Sec. 26.77.
Section 26.59 What Rules Govern Determinations of Ownership?
This section and the control section respond to the need to
reinvent the certification standards in the existing Part 23. These
sections have provided insufficient guidance to recipients and other
participants, resulting in inconsistent and burdensome interpretations
and decisions concerning certification. This situation has resulted in
DBEs unfairly being denied certification and permitted the
certification of firms who should not participate. To ensure that
ineligible firms are screened out properly, and that applicants are not
treated unfairly, the Department is proposing to provide clearer and
more precise standards.
The December 1992 NPRM, like Part 23, said that contributions of
capital or expertise can count toward ownership. The December 1992 NPRM
proposed to clarify the circumstances under which expertise may be
counted as the contribution to acquire ownership. The December 1992
NPRM said that the expertise must be in areas critical to the firm's
operation, specific to the type of work the firm performs, and
documented in the records of the firm. These records would have to show
clearly the contributions of expertise and their value to the firm.
There were 23 comments on this issue, 19 of which supported the
proposal. A few of these comments suggested minor modifications. One
suggested that the rule should allow contributions of expertise in
areas related to the firm's operations, another that under most
circumstances business administration skills (e.g., bookkeeping,
accounting, office supervision) should not be counted, a third that
contributions of expertise should be limited (i.e., to 60 percent of
the 51 percent of the firm needed to establish
[[Page 29567]]
ownership), and a fourth that the contribution should be entered into
corporate documents at the time it arises.
The Department has decided to adopt the NPRM proposal unchanged.
The SNPRM would therefore allow business owners who bring a special
expertise, but relatively little capital, to a company to establish
their ownership. At the same time, the provision provides standards to
recipients on how to evaluate these situations. One requirement is that
the expertise be specific to the type of work the firm performs. This
would exclude, in most instances, general business administration
experience from counting. The requirement that the expertise be in
areas critical to the firm's operations has sufficient flexibility to
allow for expertise in areas closely related to its operations. The
Department does not see a rational basis for a specific percentage
limitation on the amount of expertise that can be contributed, and it
is probably asking too much of a firm to enter details about the
contribution of expertise in its records at the time the issue arises,
since the firm may not know at that time that it is planning to seek
DBE participation.
Part 23 said that no assets held in trust could be counted toward
DBE ownership. Early in the implementation of Part 23, the Department
interpreted this provision liberally, to allow assets held in trust to
be counted in some situations. The December 1992 NPRM proposed to
codify this interpretation, allowing trusts to be counted where the
trustee and the beneficial owner were disadvantaged individuals or the
disadvantaged beneficial owner clearly controlled the company. Seven
comments supported the NPRM provision and 11 opposed it. Two comments
on each side of the issue raised the question of whether living trusts
should be counted.
The SNPRM will adopt the NPRM provision, with the addition that
assets held in a revocable living trust may not be counted toward
ownership in any circumstances. Since such a trust can be revoked,
there is continuing uncertainty about the beneficial owner's possession
of the assets. Irrevocable living trusts can be counted if they meet
other requirements of the section. Otherwise, the provision meets the
original purpose of the ``no trusts'' provision, which was to ensure
that titular ownership of assets did not count when the power to
control the assets lay with a non-disadvantaged person or organization.
If the disadvantaged beneficial owner is also the trustee, or the
trustee is also a disadvantaged individual, then this problem does not
arise. Also, if it is clear that the disadvantaged beneficial owner
controls the firm, and the non-disadvantaged trustee does not, the
problem does not arise.
Part 23 said nothing specific about assets acquired through such
means as gifts, divorce settlements, and inheritances. Recipients have
taken a variety of positions on whether assets acquired through these
means constitute a ``real and substantial'' contribution of capital
that can count toward ownership. The December 1992 NPRM provided that,
while the recipient could take such circumstances into account,
recipients could not disregard assets solely because they were acquired
by these means.
Six comments favored the NPRM provision, though two of these
requested greater specificity. Thirty-one comments opposed one or more
provisions of the December 1992 NPRM. The general concern of these
commenters is that allowing ownership based on assets acquired through
these means would make it easier for fronts to get into the program. It
was gifts--particularly interspousal gifts--that commenters were most
concerned about. Several of these commenters thought transfers
resulting from death or divorce were less troublesome, though others
thought where the assets in these cases had been generated through
efforts of non-disadvantaged persons, even the irrevocable turnover of
the assets to disadvantaged persons in these cases should not result in
the assets being counted.
The Department is responding to the comments by introducing more
specificity into this portion of the rule. First, the Department
believes that assets transferred as the result of death or divorce
should always be counted toward ownership. Assets or ownership
interests passed through inheritance become the property of the
beneficiary, and the decedent, absent supernatural intervention beyond
the Department's regulatory jurisdiction, will play no further role in
the affairs of the company. Likewise, when assets pass from one spouse
to another via a property settlement or other formal resolution of a
divorce or legal separation, the assets or ownership interest becomes
the property of the party in question, and the former spouse--unless
there is some term or condition of the settlement or decree to the
contrary--loses all control over the assets. It is very difficult to
argue that assets so wholly belonging to an individual, with the former
owner out of the picture, should not be counted toward ownership.
On the other hand, the Department is persuaded that many gifts
(including transfers not based on adequate consideration) are
problematical. The limitation we propose to place on gifts in the SNPRM
relates to the identity of the donor and the donor's relationship to
the firm seeking certification. If a non-disadvantaged individual who
is involved in (1) the firm seeking certification, (2) any affiliate of
the firm, (3) a firm in the same or a similar line of business, or (4)
a firm having an ongoing business relationship with the firm seeking
certification gives assets or an interest in the business to the
applicant, then those assets are presumed not to count toward
ownership. To overcome this presumption, the applicant must show clear
and convincing evidence--a high standard--that the transfer was made
for reasons other than DBE certification and that the applicant really
does own and control the firm.
The Department believes these limitations will cover the great
majority of situations in which gifts can be used to circumvent the
intent of the ownership requirements. In other situations, such as a
gift from one disadvantaged individual to another, while the recipient
may review the situation, the recipient could not rule out counting the
assets involved toward ownership just because they result from a gift.
One subject about which the Department has often received requests
for clarification is the role of marital assets. This was also a topic
on which Part 23 did not provide explicit guidance. The December 1992
NPRM proposed that when joint or community property assets are used to
acquire the disadvantaged spouse's ownership interest in the applicant
firm, the recipient would count these assets as belonging to the
disadvantaged owner if the other spouse formally renounced all rights
of ownership in the assets. The December 1992 NPRM proposed that
spousal co-signature on documents involved with ownership of the firm
would not constitute a ground for finding the firm ineligible on
ownership grounds. The December 1992 NPRM also said that a higher level
of scrutiny should be given to situations where one spouse's assets are
transferred to the other.
There were relatively few comments on these subjects, which were
fairly evenly divided. Five comments supported the marital assets
provision, while four others supported simply relying on a 50/50 split
in such assets
[[Page 29568]]
and one opposed counting marital assets that had not been segregated
prior to the firm's application. Five comments supported the spousal
co-signature provision, while six opposed it. Some comments on both
sides of this issue said that co-signature should be a ``red flag'' for
recipients. The Department would retain both provisions. Recipients
could consider spousal co-signature, but could not determine that a
firm is ineligible on this ground alone. The provision concerning
interspousal transfers of assets (transfers for adequate consideration,
since gifts are treated elsewhere) would be made more specific. The
SNPRM would give recipients direction to give particularly close and
careful scrutiny in this situation to make sure that the firm is owned
and controlled by a disadvantaged individual.
The NPRM preamble asked whether there should be additional
limitations on ownership by non-disadvantaged persons in DBE firms.
That is, should non-disadvantaged participants be limited to less than
the 49 percent stake in a firm possible under Part 23? Again, comments
were divided. Twenty-five comments supported more stringent limits,
ranging from 10-40 percent. These comments generally said that such a
provision would make it less likely that fronts or marginal DBE firms
could participate. Twenty-six comments opposed change, mostly on the
ground that such a limit would limit the availability of needed capital
to DBEs, especially to start-up companies. The Department has decided
not to make a change, for the reason suggested by the commenters and
because a change (especially a stringent limit like 10 percent) could
have very disruptive effects on many currently-certified DBEs and on
recipients' programs.
A few comments asked for more specificity on the meaning of the 51
percent stock ownership requirement for corporations. This issue has
arisen in some cases where corporations are organized with two or more
classes of stock. Should the 51 percent requirement apply to the total
of all stock, to the voting stock, or to each class of stock
independently? The Department believes the most reasonable answer to
this question is that the disadvantaged owner(s) must own 51 percent of
all stock (i.e., the combined total) in order to meet ownership
requirements. (Of course, a disadvantaged owner who did not own 51
percent of voting stock could not control a firm.) The SNPRM would add
a parallel requirement for businesses organized as partnerships, based
on SBA regulatory provisions.
Section 26.61 What Rules Govern Determinations Concerning Control?
The December 1992 NPRM proposed that a DBE must be an independent
firm, whose disadvantaged owners control its day-to-day operations as
well as its overall management. It proposed clarifications of the
details of making control determinations at a number of points, which
often codified existing DOT interpretations of the rule.
One of these clarifications concerned the role of occupational or
professional licenses. Some recipients had taken the position that a
disadvantaged owner must personally possess such a license in order to
control a firm. The December 1992 NPRM proposed that personal holding
of the license be essential for certification only where state law
mandated that the person controlling such a firm possess the license.
Otherwise, holding a license would be only one of the various factors
taken into account by the recipient. Seven comments supported and five
opposed this proposal. Some of the latter said that the individual
should be required to hold the license for certification purposes even
if state law did not require it for other purposes. Comments on the
other side of the issue said that it was unfair to require more of DBE
firms than others, that it was common business practice in some places
for a firm to hire the licensee as an employee, and that experience in
the type of work could confer enough ability to control a firm even in
the absence of a license.
We believe that the December 1992 proposal makes good sense. Except
where expressly mandated by state law as a condition of controlling a
firm, we believe it best, in a program intended to facilitate the entry
of new businesses into the market, to de-emphasize formal barriers to
entry. It is better to make control decisions on the basis of the
individual reality of each firm than to rely on a surrogate for
determining whether an individual in fact controls the firm.
The Department has interpreted its regulation, since the mid-1980s,
as permitting the delegation of functions by disadvantaged business
owners. A certification appeal and ensuing litigation in the 1980s
established that disadvantaged owners can delegate authority and
functions to non-disadvantaged participants, as long as they retain
actual control over the firm. This interpretation also states that the
disadvantaged owners are not required to have expertise or experience
superior to that of other participants in the firm, but must have the
ability to intelligently and critically evaluate information provided
by others and make their own decisions based on that information. This
interpretation provided the basis for the NPRM provision on the
delegation/expertise issue.
Comments were evenly divided on this issue. The 18 comments that
opposed or expressed serious concern about the proposal (some of which
appeared not to be aware that it had been DOT's interpretation of Part
23 for several years) thought that this approach could make it too easy
for fronts to enter the program. They stressed the importance of
disadvantaged owners having personal expertise in their firms' field of
work. Two of the comments thought the proposal was ill-advised because
it would increase the market share of white female owned firms at the
expense of minority-owned firms. One thought an owner should be able to
perform all the tasks his or her company performs, even if not
regularly performing them. Two commenters said that owners should be
required to have experience or expertise in every critical area of the
firm's operations. Others thought that owners should never have less
expertise than employees. One suggested that general business
administration experience should never, standing alone, be viewed as
providing enough expertise to control a company.
An equal number of comments supported the NPRM provision, generally
saying that it accurately reflected the reality of business practice.
Some of these commenters also said that business administration
experience should be counted for control experience. As one commenter
noted, being able to keep the financial and administrative sides of a
business afloat can be just as critical as experience in driving a
truck or operating a grader.
The Department has decided to retain the NPRM provision with a few
modifications. In our view, once a firm grows beyond the one-person
shop stage, delegation is essential. The more successful or complex a
firm becomes, the more inevitable delegation becomes. It is fanciful to
imagine that one or a few owners can or should do, or be prepared to
do, everything that a firm does. As long as the owners can take back
authority they have delegated, retain hiring and firing authority, and
continue to ``run the show'' for the company, they control it,
notwithstanding delegation of some authority and functions.
With respect to expertise, the disadvantaged owners must, in our
view, generally understand and be competent with respect to the
substance of the firm's business. We agree with commenters who say that
generally (aside, perhaps, from a firm whose
[[Page 29569]]
substantive business is providing business administration services)
generic business administration experience is insufficient, by itself,
to meet this standard. However, the disadvantaged owners need not have
extensive experience or expertise in everything the company does, even
in all critical areas, or have more experience or expertise than some
employees or managers, so long as the owners are able to intelligently
and critically evaluate information their subordinates provide and use
the information to make independent decisions. We find it difficult to
accept the proposition that an individual who exercises this ability is
not controlling his or her firm or is acting as a front for some other
party.
The December 1992 NPRM addressed the issue of the relative pay
levels of owners and other participants. It proposed that the fact that
the disadvantaged owner took a lower salary than a non-disadvantaged
key employee did not necessarily mean that the owner did not control
the firm, even though the recipient could consider this disparity as
one factor in reviewing control. Nine comments supported this proposal,
one cautioning that the firm should be able to show a good reason for
the disparity. Five comments cautioned that recipients needed to
continue to look at relative salary levels, since a lower salary for
the owner could indicate a ``front'' situation. One of these suggested
that no non-disadvantaged participant should have a higher salary than
a disadvantaged owner.
The SNPRM follows the NPRM provision, affirming that it is
appropriate for recipients to scrutinize relative salary levels in a
firm. In doing so, recipients should take into account the duties of
the persons involved, normal industry practices, the firm's policy
concerning reinvestment of income, and other reasons provided. Because
there are common circumstances in which an owner may choose to take a
lower salary than he or she may have to pay to certain key employees, a
difference of this kind does not necessarily mean that the owner does
not control the firm. We are adding a sentence specifying that where a
firm used to be owned by a non-disadvantaged person and is now owned by
a disadvantaged person, a difference in remuneration between the former
and present owner can be taken into account by recipients.
The December 1992 NPRM proposed that recipients treat non-
disadvantaged family members the same as other non-disadvantaged
participants in DBE firms. The participation of family members in a
firm should not be viewed as meaning that a disadvantaged individual
fails to control a firm, the December 1992 NPRM said. Seven comments
supported the NPRM proposal, one mentioning concern that some
recipients appeared to apply a per se rule against firms that employ
family members. Fourteen other comments expressed various concerns
about the proposal. One said that the NPRM statement was true but too
obvious to include in the rule. Two expressed concern about businesses
that appear to be run by an entire family as a unit. Two others
expressed concern about firms that used to be run by a male relative or
still do a lot of work with businesses run by male relatives. One
wanted to make sure that family member involvement could be reviewed by
recipients, while another favored banning participation by non-
disadvantaged family members. The underlying concern of these comments
appeared to be that family-run businesses were subject to being used to
circumvent requirements of the rule.
The Department believes that its basic statement in the December
1992 NPRM is the most sensible way of looking at the participation of
non-disadvantaged family members in a firm. The rule recognizes only
two kinds of people in the world: socially and economically
disadvantaged individuals and others. Generally, there seems little
basis for treating ``others'' who are family members differently from
``others'' who are unrelated, and non-disadvantaged family members may
participate in a DBE firm on the same basis as any other non-
disadvantaged persons. Except as otherwise provided in the rule, the
recipient could not apply a more stringent standard to situations in
which family members participate.
However, in response to comments as well as the Department's
experience in working with the DBE program, the SNPRM would provide
that where the recipient cannot discern that the disadvantaged owners
themselves, as distinct from the family unit as a whole, independently
control the firm, the applicant has not demonstrated control. In
addition, given concerns about firms owned and controlled by white
males being transferred to their wives or female relatives and
allegedly continuing to operate as before, the SNPRM would add a
provision designed to deter this practice. Where the white male or
other non-disadvantaged owner continues to be involved with the firm,
the current disadvantaged owner would have to meet a higher burden of
proof--clear and convincing evidence--concerning ownership and control.
The owner must also demonstrate by this higher burden of proof that the
transfer of ownership and control was made for reasons other than
gaining certification in the DBE program. The Department believes that
the combination of provisions on ``family businesses'' should avoid
unfairness to businesses that legitimately employ family members while
preventing abuses.
Two comments asked that the regulation specify that a firm could be
controlled by disadvantaged persons even though it leased, rather than
owned, equipment. The SNPRM responds by stating that the recipient
could consider this factor, but could not find a firm to be not
controlled by its disadvantaged owners solely because it leases or
rents equipment, where doing so 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.
In the context of its discussion of the DBE directory, the December
1992 NPRM said that recipients should certify and reflect DBEs simply
as DBEs, not as a particular sort of firm. Twenty-six comments, mostly
from recipients, objected, their basic argument being that recipients
should certify firms to perform only those types of work in which the
expertise and experience of the owners allowed them to control. Many of
these comments preferred certification by SIC code, while some went
further and wished to prequalify DBE firms. Some other comments
suggested that the Department should avoid authorizing recipients to
take steps that could pigeonhole DBE firms in a particular type of work
and inhibit their ability to diversify.
In response to these comments, the Department proposes adding a
provision that tells recipients to grant certification to firms only
for specific types of work in which the owners have the ability to
control the firms. However, to become certified in an additional area,
the firm need only demonstrate that its owners have the ability to
control the firm in this type of work as well. A complete
recertification or new application would not be needed.
Because the Department has received a number of questions about how
partnerships and franchises should be handled under the rule, the SNPRM
would add paragraphs on these subjects. The provision concerning
franchises has been adopted from the Department's regulation concerning
the DBE program for airport concessions (see Subpart G). The provision
generally permits franchises to participate in the program,
[[Page 29570]]
notwithstanding the requirements that franchisers place on them with
respect to some aspects of the business. As a policy matter, we do not
wish to exclude all franchises, which may be an important route for
disadvantaged individuals to enter the market. However, if the ties
between franchiser and franchisee are so close as to constitute
affiliation, then the franchisee could not participate as a DBE.
With respect to partnerships, the basic requirement would be that,
in addition to other control criteria, the non-disadvantaged partners
cannot have the power, without the concurrence of the disadvantaged
partners, to commit the partnership in a contract or to take actions
that subject the partnership to contract or tort liability. On another
subject, a sentence would be added to this section to clarify that, for
control purposes, the socially and economically disadvantaged owners
must own and control 51 percent of the voting stock. Finally, in
response to issues that have been raised in certification appeals and
in questions to DOT staff, the SNPRM adds a paragraph saying that to be
viewed as controlling a firm, a disadvantaged owner cannot engage in
outside employment or business interests that prevent the individual
from devoting enough time and attention to his duties with the firm.
For example, it is unlikely that an individual could control a full-
time firm while he spent only part of his or her time working with the
business.
Section 26.63 What Are Other Rules Affecting Certification?
This section includes several miscellaneous provisions concerning
certification. One of them concerns the role of not-for-profit
organizations in the DBE program. The December 1992 NPRM proposed to
maintain the Department's long-standing policy of excluding such
organizations. Thirty-three commenters agreed, citing such reasons as
that the program was designed for entrepreneurs and that the not-for-
profit sector has a different, generally more favorable, tax status.
Four commenters favored allowing not-for-profits to participate,
because they often included useful community organizations, could help
individuals with disabilities enter the program, and because some may
specialize in technical assistance to DBEs. The Department will retain
its existing policy. The basic purpose of this program is to assist
firms in entering into and succeeding within the competitive business
marketplace. Not-for-profit organizations are often very worthy and
useful, but assisting them does not achieve this purpose. The different
tax and legal status of not-for-profit organizations in most
jurisdictions also weights against permitting them to be certified as
DBEs in competition with for-profit businesses.
The December 1992 NPRM proposed to specify that certification
decisions be made on the basis of the present, not the past, status of
the firm. Eleven comments supported this proposal, while five said that
recipients should be able to take the firm's history into account in
making certification decisions. We agree with one of the former group
that said that this provision should not be construed to preclude a
recipient taking action against a DBE for previous fraudulent or
deceptive conduct that has come to light. We disagree with a comment in
the latter group that suggested that if a firm applies for
certification in Year 1, is turned down for lack of expertise on the
part of the disadvantaged owner, and reapplies in Year 3 after the
owner has acquired the needed expertise, the recipient should have
discretion to refuse certification again based on the owner's lack of
expertise in Year 1. If the owner now has enough expertise to control
the firm, it is illogical to say that he or she is ineligible today
because of a three-year-old expertise deficit that has since been
corrected. Certainly no one would argue that a firm that was eligible
three years ago must be retained as a certified DBE when its
circumstances change so that it presently fails to meet ownership and
control criteria. The same rationale applies in both directions.
A few comments suggested that recipients should be able to use
``commercially useful function'' as a certification or recertification
criterion. The Department disagrees. ``Commercially useful function''
is a concept that concerns solely how credit is counted toward goals
for a DBE that has already been certified. It is a contract-specific
concept: a DBE may perform a commercially useful function on one
contract but not on another. It has nothing to do with determining
group membership, disadvantage, size, ownership, or control, which are
the factors involved in certification. We agree with those comments
that said that a pattern of conduct designed to evade program
requirements, which can include such things as repeated instances of
operating as a ``pass-through'' for prime contractors, can be taken
into account in certification decisions, however.
A few other commenters suggested that there should be, in effect, a
prequalification standard for businesses seeking certification, so that
only ``viable'' businesses entered the program. The Department believes
that it is appropriate to require prequalification for DBEs only if
prequalification is required for all contractors. To require more of
DBEs than of other participants would, in our view, be discriminatory.
Policy on prequalification is at the recipient's discretion, but the
policy cannot single out DBEs. That is, it would be consistent with
nondiscrimination requirements to require prequalification of DBE
subcontractors only if all subcontractors are required to be
prequalified. One suggestion that we received would, in fact, call for
all subcontractors to be prequalified, DBEs as well as non-DBEs. The
intent of the suggestion is to ensure, in advance, that all
subcontractors are fully qualified, and to counter assertions that
primes cannot find qualified DBEs. The Department seeks comment on this
suggestion.
The SNPRM continues to include provisions of the December 1992 NPRM
that are derived either from uncontroversial Part 23 language or long-
standing DOT policy, concerning Indian tribal firms, cooperation with
recipients' information requests, and the limited effect of legal or
tax status of firms on determinations concerning independence. Except
for one comment agreeing with the Indian tribal firms provision, there
were no comments on these provisions. The SNPRM would change one NPRM
provision, on which there was also no comment. The December 1992 NPRM
proposed to allow certification of a subsidiary of a DBE firm. That is,
if Company Q is a small business 51 percent owned and controlled by one
or more certified DBE firms, then Company Q could be certified. On
further reflection, we have decided that this proposal is inconsistent
with the statutes underlying Part 26, which require DBEs to be owned
and controlled by socially and economically disadvantaged individuals.
If Company Q is owned by other business organizations, rather than by
disadvantaged individuals, as such, then it would not be certified.
Subpart E--Certification Procedures
Section 26.71 What Are the Requirements for Unified Certification
Programs?
By better than a 4-1 margin, commenters endorsed the December 1992
NPRM's proposal to establish unified certification programs (UCPs) in
each state that would provide ``one-stop shopping'' to firms seeking
DBE
[[Page 29571]]
certification. Eighty-two comments favored the proposal, 12 opposed it,
and 9 either said UCPs should be optional or expressed concern that it
would be difficult to obtain resources for this purpose.
Among the comments favoring the proposal, most agreed that the
present system's administrative burden on small businesses seeking
multiple certifications was unduly heavy and that it led to a waste of
recipient resources. Many of these comments favored regional
certification as well, most on a voluntary but some on a mandatory
basis. Some of the comments said that more time was needed to establish
UCPs than the three years proposed in the December 1992 NPRM, though
equal numbers of comments approved the three-year phase-in period or
advocated quicker implementation (e.g., one or two years). Some
comments asked questions concerning whether individual recipients could
``veto'' UCP decisions with which they disagreed, whether there could
be several regional mini-UCPs in a state as distinct from a single
state agency, and whether the agencies would be required to follow DOT
certification standards.
Comments opposing or expressing concern about the concept said that
a UCP would be too difficult to administer, would lessen local autonomy
in certification decisions, lead to a ``lowest common denominator''
approach to certification, or would require funding and agency
resources that comments said was probably unavailable.
A related issue discussed by a substantial number of comments was
mandatory reciprocity. Currently, and under the December 1992 NPRM,
recipients have the discretion to accept certification decisions made
by other recipients if they choose. Under mandatory reciprocity, a
recipient would be required to accept other recipients' decisions.
Twenty-six comments favored adopting mandatory reciprocity, at least
within a state or region or particular industry, while 33 opposed the
idea.
Proponents cited mandatory reciprocity as a way of reducing the
impact of multiple certification requirements on applicants, while
opponents were concerned that mandatory reciprocity would lead to
``least common denominator'' certification practices, where applicants
would ``forum shop'' for recipients with less stringent certification
processes, obtain certification, and then force these certifications on
recipients who would otherwise not certify them.
The SNPRM would adopt the UCP proposal with certain modifications
that respond to commenters' concerns. Restructuring government programs
to provide better and more economical services to customers, while
making more efficient use of scarce resources, is consistent with the
purpose of the Clinton Administration's Regulatory Reform Initiative.
Introducing the UCP in DOT Federally-assisted programs is a step
similar to many reforms adopted for the Federal government itself as a
result of the National Performance Review.
By providing one-stop shopping to small businesses seeking
certification, this reform would reduce significant burdens on DBEs.
Some comments estimated that going through the certification process
one time can cost a business as much as $5000. Avoiding repetitions of
this process within a state can save substantial money for these
businesses. Moreover, if several recipients within a state have to
review an application from the same firm, there is an obviously
inefficient use of the recipients' collective resources. UCPs will
avoid this costly duplication of effort. Given appropriate cooperation
and sharing among the recipients in the state, operation of a UCP
should save resources, not increase costs.
The proposed UCP requirement takes fully into account the needs of
recipients for flexibility and adequate time for negotiation and
implementation of UCP agreements. Recipients within each state would
have three years to form an agreement creating a UCP, with the
possibility of a one-year extension if granted by the Secretary. The
UCPs will have an additional 18 months after DOT approval of the
agreement to become fully operational. The Department seeks comment on
whether it is desirable and feasible to shorten these time periods
(e.g., to two years for forming an agreement and a year for
implementation).
Moreover, the recipients in a state would have discretion to devise
a type of UCP that best fits their needs. This SNPRM would not
prescribe any particular administrative structure. Recipients could
choose from among a number of types of UCPs listed in the regulation or
construct a different structure of their choosing, which can be
responsive to recipient concerns about resources, the role of local
recipients, etc. Whatever structure is constructed would have to follow
Part 26 certification standards and all other certification
requirements applying to recipients, in whose shoes the UCP stands. It
would also have to ensure genuine one-stop shopping, which means that
individual recipients would have to accept UCP certification decisions.
While mandatory reciprocity within recipients in a state is one
optional way to structure a UCP, the SNPRM does not propose mandatory
reciprocity among recipients or among UCPs, primarily because of
concern about the ``least common denominator'' problem. (Nevertheless,
the Department is interested in commenters views on whether nationwide
mandatory reciprocity would be, on balance, a good idea.) The SNPRM
would authorize, and DOT encourages, multistate UCPs and other regional
cooperation ventures. DOT will work with recipients both to assist in
setting up UCPs and in fostering regional arrangements.
Commenters also addressed some implementation issues. Twenty-four
comments favored, and seven opposed, a system that would require a firm
to be certified in its ``home state'' before it could be certified in
other states. Proponents believed this could reduce resource needs for
out-of-state site visits and place basic certification responsibility
on the recipients that are closest to the applicant and know the most
about it. Opponents said this could lead to hardship for a firm who for
some reason was on the wrong side of its local recipient, or which
simply found it most expedient, for business reasons, to seek most of
its work in a state other than the one in which it was domiciled. The
SNPRM takes a middle ground on this issue, permitting UCPs (but not
recipients prior to the establishment of UCPs) to decline to accept an
application from a firm that had not first been certified by the UCP in
the state in which it maintained its principal place of business. Home-
state certification would be much harder to implement before UCPs are
in place (i.e., would it mean certification by any transit authority,
airport, or state highway agency in the state? What if some home state
recipients certified the firm and others did not?). Giving UCPs
flexibility with respect to accepting out-of-state applicants not
having home-state UCP certifications also is preferable to requiring
home-state certification in all cases.
The December 1992 NPRM had proposed that UCP certifications be
``precertifications'' (i.e., certifications decided in advance of the
proposed use of a firm to meet DBE goals on a particular contract).
Commenters' opinion was split on this issue, with seven comments
favoring and six opposing the proposal. The SNPRM would adopt this
proposal for two reasons. First, certification under
[[Page 29572]]
pressure of a procurement deadline is more likely than precertification
to lead to hurried, less adequate, certification decisions. Second,
UCPs' resources and priorities are likely to be more effectively
allocated in the absence of pressures from recipients to give
precedence to processing an application involved in a pending
procurement.
Finally, it makes sense, once UCPs are in place, for the UCP,
rather than individual recipients, to maintain the DBE directory. This
directory would cover all firms certified by the UCP. Since so many
agencies and businesses are now equipped with computer communications
capability, this unified directory would be made available
electronically as well as on paper.
Section 26.73 What Procedures Do Recipients Follow in Making
Certification Decisions?
The December 1992 NPRM listed a series of actions that recipients
would be required to perform in each certification. They are
essentially the same as those in the existing regulation. The only one
of these to inspire significant comment was the requirement for a site
visit. Fourteen commenters opposed mandatory site visits, while six
favored mandatory site visits by each recipient (i.e., they opposed a
provision in the December 1992 NPRM that would allow one recipient to
rely on another recipient's site visit report). The opponents of
mandatory site visits generally cited the cost and burden of carrying
out this requirement, particularly when the firm seeking certification
was located elsewhere. The Department cannot eliminate the requirement
for site visits, because it is statutory. A recipient that fails to
make site visits is out of compliance with the rule. On the other hand,
allowing a recipient to make use of a site visit report compiled
recently by another recipient can be a useful way of conserving
resources, and the SNPRM would permit it.
The December 1992 NPRM proposed to require recertification reviews
of certified DBEs every two years; that a DBE would remain certified
unless it were decertified through a decertification proceeding; and
that a DBE had to notify the recipient of any changes in its
circumstances that would affect its certification and submit a sworn
statement at the time of the recertification review concerning any
changes in the firm that could affect its eligibility. Eleven comments
favored this general approach, three of which said that the process
should be abbreviated (e.g., through the use of a short form or
certification instead of a full-fledged review). Another comment said
that recipients should not be permitted to force already-certified
firms to reapply for certification on an annual or other periodic basis
on the rationale that a certification had expired, allowing firms to be
effectively decertified without due process. Most of these comments
said that two years was an appropriate interval, though two said that
annual recertification was preferable. Thirteen commenters supported
the specific proposal that DBEs be required to report changes as they
occur, a few of which asked for greater specificity in terms of what
changes had to be reported and a few others of which suggested that the
requirement would be difficult to enforce.
The Department has decided, in response to comments, to modify the
NPRM proposal in the SNPRM. First, the Department would retain the
requirement for DBEs to submit an affidavit when there is a change in
their circumstances that can affect certification. The rule would
specify that the recipient must report changes affecting size,
disadvantaged status, ownership, control, or any material changes to
the information presented on the certification form. Second, in
response to comments about simplifying the recertification process, and
in order to reduce administrative burdens on DBEs and workload
requirements on recipients, the SNPRM would drop the proposed
requirement for a recertification review to be conducted by the
recipient. (Recipients would remain free to conduct reviews of the
status of firms at their discretion, however.) The SNPRM does include
the requirement that the DBE would submit an annual affidavit that
nothing in its circumstances has changed beyond what it has told the
recipient and that it continues to meet size criteria (with supporting
documentation).
The December 1992 NPRM proposed that firms would remain certified
unless the recipient decertifies them through a decertification
proceeding. The proposal was based on the view that requiring frequent
reapplications, besides imposing unnecessary paperwork burdens on DBEs
that have already been through a certification process, tends to divert
recipients' resources from new certifications and decertifications.
These resources can better be used for reducing or avoiding
certification backlogs. The Department continues to believe that this
view has merit. However, we also believe that is inappropriate to
require that DBEs remain certified indefinitely. As a means of
accommodating both these concerns, the SNPRM would require that a
recipient permit a firm to remain certified for three years without any
``recertification'' or ``reapplication'' process, absent cause for
decertifying the firm. The Department seeks comment on whether this
period should be longer (e.g., five years).
The December 1992 NPRM said that UCPs would have to make
certification decisions within 60 days of receiving a complete
application. Commenters were divided on this issue. Ten comments said a
60-day period was not enough, suggesting that 90 days or a period of
the recipient's discretion was more reasonable. Nine comments supported
the 60-day period, saying that it was useful in preventing recipients
from unduly delaying responses to applications. One of these said there
could be a DOT waiver of the deadline. Three comments supported a
shorter period, such as 15 or 30 days, suggesting that such a period
was useful in preventing bureaucratic stalling. Many of the commenters
on all sides of this issue discussed the deadline in terms of
certifications in general, not just those to be performed by UCPs.
The Department has decided, in response to these comments, to
propose extending the deadline to 90 days, with a possibility of a 60-
day extension of this period if the recipient sends a specific written
explanation to the applicant. The Department is persuaded that a 60-day
deadline is unrealistic in light of the certification workloads facing
many recipients. However, a deadline remains necessary to give firms
the assurance of reasonably timely handling of their applications. With
the approval of the concerned operating administration, the recipient
could alter the deadline involved, but the appropriate DOT office would
be very careful to grant only what relief is necessary to recipients.
One issue that has arisen since the publication of the December
1992 NPRM is whether recipients should be able to impose user fees or
other charges on applicants for certification. Recipients have taken
different positions on this issue, and the Department's rule provides
no guidance on the issue. The Department has decided to propose that
recipients may impose a modest, reasonable application processing fee,
not to exceed the actual cost of processing the application. Such a fee
would have to be approved by the concerned operating administration as
part of the DBE program approval process. The Department seeks comment
on whether there should be a cap on such fees.
[[Page 29573]]
Under Part 23, the Department published a model certification form
(Schedule A). Recipients had discretion to modify this form. This led
to a proliferation of somewhat similar forms that often differed
significantly in their details, leading to confusion and difficulty for
those applicants who sought certification in more than one
jurisdiction. Based in part on the Department's experience in our drug
testing program, where a similar approach created similar problems for
participants, the December 1992 NPRM proposed requiring the use of a
standard, uniform, form by all recipients. Commenters were divided on
this proposal. Twenty-four comments favored the idea of a single
nationwide form. Two additional comments advocated allowing recipients
to add material to the standard form. Twenty commenters preferred the
approach of the existing rule, with a model form that recipients could
modify. A number of commenters suggested specific modifications to the
form published with the December 1992 NPRM.
The Department believes that requiring a single, uniform,
nationwide form that all recipients must use without modification is
the best approach to take. Many firms seek certification with more than
one recipient. Having them have to fill out somewhat different forms
providing the same basic substance to different recipients (as distinct
from photocopying a standard form they have already filled out) is a
waste of their time and money. The same Part 26 standards apply to all
these certifications. Each recipient needs the same information to make
determinations according to these standards. When UCPs become
operational, each UCP (particularly those UCPs that rely on centralized
or relatively centralized structures) will presumably need to have a
standard form. Under these circumstances, we do not believe that
allowing different recipient forms is productive. However, as a few
comments suggested, we will allow recipients to supplement (not alter)
the standard form to capture additional information that is consistent
with Part 26 requirements and reasonably necessary for program
administration. Such supplements will have to be approved by the
concerned operating administration as part of the recipient's DBE
program.
The SNPRM incorporates this policy decision. We are also requesting
renewed comment on the content and format of the standard form,
including examples of existing forms that commenters would recommend
and suggestions about how to make the form both complete and user-
friendly. We are also seeking comment on whether, at least when UCPs
are operational, we should require that they have a capability of
accepting application forms electronically. To assist commenters in
formulating responses, we are publishing in Appendix C to the SNPRM a
proposed form, but the Department is not committed to adopting the
specifics of this form.
Section 26.75 What Rules Govern Recipients' Denials of Initial
Requests for Certification?
The December 1992 NPRM proposed that, within 30 days of a
recipient's denial of an application, the applicant could fix problems
that had led to the denial, and resubmit a revised application to the
recipient for consideration at that time. Two comments favored this
proposal, while 18 opposed it, mostly out of concern that repeated
resubmissions within a short period of time would waste agency
resources. Some commenters were also concerned that it would lead to
successful resubmissions based on little more than rearranging
paperwork. The Department believes that the opponents of this proposal
have the better of this argument, and we are not adopting this
proposal. However, recipients should allow applicants to correct minor
paperwork errors or non-material mistakes or omissions in applications
before rejecting the application.
The December 1992 NPRM proposed that after an application was
denied, the recipient could set a waiting period of 6-12 months before
the firm could reapply. Eighteen comments supported a 12-month waiting
period, 12 supported a shorter period (generally 3-6 months), two
supported a longer period (12-18 months), five supported letting
recipients have discretion in establishing a waiting period, and two
advocated having no waiting period. The Department believes that 12
months is long enough to meet recipients' concerns about avoiding
wasting their resources on rapidly repeating reapplications and is also
consistent with the reported practices of most recipients who
commented. A longer period would have too harsh an impact on potential
reapplicants. Therefore, the SNPRM proposes a waiting period of no more
than 12 months. If a recipient wants to establish a shorter waiting
period (e.g., 3, 6 or 9 months), it can seek approval from the relevant
DOT administration as part of its DBE program.
The December 1992 NPRM also proposed that the recipient must notify
a firm of the denial of its application in writing, with a written
explanation of the reasons for the denial. The explanation would have
to specifically reference the evidence in the record supporting each
reason for the denial. Six comments supported this proposal, while
another five wanted additional due process protections (e.g.,
equivalent to those required in decertification proceedings). The
Department has decided to retain the NPRM provision, which we believe
provides sufficient protection to applicants in initial denial
circumstances. We do not believe that the additional due process
protections needed in decertifications (where a recipient is proposing
to take away from a firm an existing status, which takes on some of the
character of a property interest) are essential here.
Section 26.77 What Procedures Does a Recipient Use To Remove a DBE's
Eligibility?
The December 1992 NPRM proposed a set of procedures to govern
recipient's decertification proceedings. Comments focused on a
relatively small number of the procedural points proposed in the
December 1992 NPRM. The subject of the most comments was the proposal
that decertification actions must provide administrative due process
protections to DBEs, particularly that separation of functions be
incorporated into the procedure.
By separation of functions, we mean the principle that, to preserve
the fairness of a proceeding, the proponent of an action should not
also be the decisionmaker. A prosecuting attorney, for example, is not
permitted to serve as the judge or jury. Likewise, the December 1992
NPRM said, a recipient official who proposes that a firm be decertified
should not be the same official who decides whether or not the proposal
has merit. Fourteen comments supported the separation of functions
proposal, a few of whom said that a requirement for administrative law
judges (ALJs) or other officials completely separate from the
recipient's DBE certification office would be even better. Eight
commenters opposed the proposal, many in the apparent belief that it
would require the use of ALJs, the hiring of extra personnel.
With respect to the more general issue of administrative due
process (e.g., requirements for notice, the opportunity for a hearing,
written statement of reasons for a decision, etc.), 21 comments
supported the proposal to require these protections. Five comments
opposed the proposal, generally saying that it was too burdensome.
[[Page 29574]]
The Department believes that it is essential to provide
administrative due process to DBEs when recipients propose to decertify
them. Basic requirements like notice, the opportunity for a hearing on
the record, separation of functions, and a written statement of reasons
for a decision are necessary to avoid the appearance, and sometimes the
reality, of arbitrary decisions. Through the Department's certification
appeals process, we have become aware of situations in which these
protections have not been provided. For the sake of fairness to
participants, and to uphold the legitimacy of the program, this must
change. In addition, DBE certification may take on, to a degree, the
character of a property interest. Taking away an interest in property
without appropriate due process raises issues under the 5th and 14th
Amendments to the Constitution.
Separation of functions is one of the most important features of
administrative due process, since it avoids a major potential source of
unfairness. Clearly, if a DBE owner walks into a proceeding and sees,
in the role of the decisionmaker, the same official who proposed to
decertify the firm, the owner may well have a justified perception that
the deck is stacked against the company. We would emphasize that
separation of functions can be provided in a number of ways, and it
does not require hiring ALJs or other ``outside'' personnel. For these
reasons, the SNPRM adopts, with minor modifications (e.g., a
simplification of the notice procedure, a change requested by several
comments), the administrative due process proposals of the December
1992 NPRM.
There were eight comments on the issue of the burden of proof in a
decertification proceeding, equally divided between those who agreed
with the December 1992 NPRM that the recipient should have the burden
of proving the firm should not be certified (including one that said
the recipient should have to carry its case by a ``clear and convincing
evidence'' standard) and those who said that the firm should have the
burden of proving it should remain certified. The SNPRM would continue
to require the recipient to carry the burden of proof. In virtually all
proceedings in the U.S. legal system, the proponent (e.g., the state in
a criminal proceeding, the plaintiff in a civil suit, the agency in a
regulatory enforcement proceeding) bears the burden of proof. We do not
think that adopting a system contrary to this NPRM would be fair or
appropriate. Moreover, the DBE, to become certified in the first place,
has had to carry a burden of proof. It is reasonable to ask the
recipient to carry the burden to remove the certification. We believe
that it is appropriate to apply the preponderance of the evidence
standard--the same standard that the DBE must meet to be certified--to
attempts by the recipient to decertify the firm.
A few commenters said that recipients should be able to accept
anonymous complaints, which the December 1992 NPRM proposed to
prohibit. The SNPRM would change this provision so that recipients are
not required to accept such complaints, though they may. The December
1992 NPRM also proposed that DOT could act to suspend a firm's
certification and direct a recipient to start a decertification
proceeding. Three comments objected to this proposal. The SNPRM would
modify this provision. Concerned operating administrations would have
the discretion to direct a recipient to initiate a proceeding when the
Department reasonably believes that a certified DBE is ineligible.
However, DOT would not assert the authority to suspend the firm's
certification pending the outcome of the recipient's proceeding.
One of the grounds for decertification in the December 1992 NPRM
was a documented finding that the recipient's previous decision to
certify a firm was clearly erroneous. The intent of this provision was
to prevent a recipient from decertifying a firm on the basis of nothing
more substantial than a change of mind about an unchanged set of facts.
Three commenters questioned this proposal, saying that a recipient
should be able to reopen a certification, at least if there were an
error. One suggested modifying the language to refer to a ``substantial
evidence'' rather than ``clearly erroneous'' standard. Another
supported the NPRM language. The standard applying to all
decertifications is that the recipient demonstrate by a preponderance
of the evidence that the firm does not meet eligibility standards. It
would be confusing to introduce another standard here, so we are
removing reference to the ``clearly erroneous'' standard. While we are
not adopting the ``substantial evidence'' standard here (it is more
appropriate as a standard in reviews of administrative proceedings, as
distinct from de novo proceedings like this), we do think that the
emphasis of this standard on factual backing for determinations is
appropriate.
The point of this provision is to allow recipients to correct
factual mistakes that resulted in certifications, not to reverse
judgment calls. For this reason, this SNPRM refers to situations when a
previous certification was factually erroneous.
The December 1992 NPRM proposed that if a firm was decertified in
the midst of a contract, the remainder of its performance would not
count toward contract or overall goals, since it was no longer a DBE. A
few comments suggested allowing the remainder of the contract to count
at least toward contract goals, assuming that the prime contractor had
used the firm in good faith. We have decided to adopt this comment. The
remainder of the contract would not count toward the recipient's
overall goal, however.
As a general matter, it is not appropriate to remove a firm's
eligibility until the recipient has determined that the firm is
ineligible. However, there may be situations in which the case against
a firm looks very strong, but the process will not conclude before the
firm is awarded a contract. In this case, the SNPRM proposes that the
recipient can suspend the firm's eligibility to receive new contracts,
pending the outcome of the proceeding. This would be a sort of
administrative preliminary injunction designed to protect the program
from harm.
There was not significant comment on the remainder of the proposed
section, and the SNPRM would adopt it with minor modifications (e.g., a
cross-reference to SBA regulations has been dropped, given that
Appendix F, which is adapted from SBA rules, provides guidance
concerning social and economic disadvantage issues).
Section 26.79 What is the Process for Certification Appeals to the
Department of Transportation?
Part 23 lacked specific procedures for certification appeals. The
Department's procedures for handling appeals evolved as a matter of
informal practice. The December 1992 NPRM proposed filling in this gap.
Commenters focused on a few points of the proposed procedures.
The December 1992 NPRM proposed that DOT would decide appeals
within 60 days of receiving a complete administrative record. Six
comments suggested a shorter period (e.g., 30 days) or a longer period
(e.g., 90 days); others favored no stated period at all, lest there be
reversals or affirmances through inaction; and 12 comments favored the
NPRM proposal, some of which supported affirmances or reversals when
the time frame was not met. The SNPRM notes that, while we would
administratively set a goal of 90 days for finishing appeal decisions
once a complete administrative record is acquired, a regulatory time
frame would
[[Page 29575]]
not be advisable, particularly given the often heavy workload of
certification appeals. In short, we do not want to promise what we
cannot ensure delivering. We think that affirmances or reversals
resulting from failure to meet a self-imposed deadline, rather than on
the merits of the appeals, would be inconsistent with the purposes of
the appeals system.
Currently, firms have 180 days after a denial or decertification to
make a certification appeal. The NPRM proposed reducing that number--
which was based on the amount of time used for Title VI complaints--to
90 days, since firms always would have specific notice of the
recipient's action on which to base an appeal. Four of the five
comments on this issue supported the change, which the SNPRM
incorporates for the reason stated above. This change would help the
system run reasonably quickly, and provide closure for recipient
decisions that are not appealed promptly.
The December 1992 NPRM proposed that, as under Part 23, the effects
of a recipient's decision would remain in force pending the DOT appeal.
For instance, a firm that the recipient had decertified would stay
decertified unless and until DOT reversed the recipient's decision.
Sixteen comments supported this position, while two said that DOT
should grant stays of recipients' actions in appropriate cases. The
SNPRM adopts the NPRM provision.
In the December 1992 NPRM, the Department proposed that we would
reverse a recipient's decision if we found that it was unsupported by
substantial evidence or inconsistent with this regulation. Nine
comments supported the proposal, while six preferred a different
standard, such as ``arbitrary and capricious.'' Both the ``substantial
evidence'' and ``arbitrary and capricious'' standards are used for the
judicial review of administrative action, a function which is analogous
to the role of the Department in the certification appeals process. The
standards are closely linked, and there is no ``bright line'' between
them in most administrative law cases. For example, courts will
sometimes say that an agency decision is arbitrary and capricious
because it is not supported by substantial evidence.
Generally, the ``arbitrary and capricious'' standard is viewed as
slightly narrower, with courts considering whether the agency's
decision was based on a consideration of the relevant factors and
whether there has been a clear error in judgment. If there was a
rational basis for the agency's decision, court decisions say that
courts should not substitute their judgment for that of the agency. The
``substantial evidence'' test is said to go to the reasonableness of
what the agency did on the basis of the evidence before it.
``Substantial evidence'' must do more than create a suspicion of the
fact to be established, requires objective evidence affording a
rational basis for the agency's conclusions, and must be capable of
convincing an unprejudiced ``reasonable person'' of the truth or
validity of the agency's findings. It is less than a preponderance of
the evidence, however. There can be ``substantial evidence'' supporting
the agency's conclusion even though the record would also support a
different conclusion. Use of the ``substantial evidence'' standard
implies a somewhat more intensive inquiry into the facts of the case by
the reviewing body than the ``arbitrary and capricious.'' Under either
standard, inconsistency with governing law is a ground for invalidating
an agency's finding.
The SNPRM uses ``substantial evidence'' as the standard for review
of agency certification decisions. The Administrative Procedure Act
(APA) uses this standard for cases ``reviewed on the record of an
agency hearing provided by statute'' (5 U.S.C. 706(2)(E)). In this
process, DOT is acting in a role analogous to that of a court reviewing
agency action. DOT is reviewing cases on the record of a recipient
hearing provided by, in this case, Part 26. The same considerations
that support using this standard in court review of agency action, such
as the desirability of authorizing a reasonably limited inquiry into
the factual basis of the agency's decision, apply in the case of
certification appeals. Under the APA, the ``arbitrary and capricious''
standard applies not to adjudications by agencies but to their more
purely administrative actions, such as issuing regulations and adopting
environmental impact statements. We believe the APA model is an
appropriate one for DOT to use in responding to certification appeals.
Two comments said that DOT should hold hearings in certification
appeal cases. Such hearings are not appropriate to a review of an
administrative record. Two other comments said that a firm should have
to pay for a transcript when it appeals. To make possible the
administrative review of the record, a recipient who does not already
have a transcript of the hearing will have to prepare it to send to
DOT. The only appropriate charge to the company, in our view, is for
the cost of photocopying the transcript, not for its preparation.
Twenty-five commenters supported the Department having an improved
indexing/retrieval system for certification appeal decisions. The
Department agrees that this is desirable, and we will work to establish
such a system for decisions rendered under Part 26. We hope to utilize
existing or planned computer bulletin boards in the Department to make
certification appeal decisions, as well as guidance, interpretations,
etc. of Part 26 available to the public electronically.
Section 26.81 What Actions do Recipients Take Following DOT
Certification Appeal Decisions?
This section concerns what happens to recipients' certification
actions concerning a firm--including those of recipients other than the
one whose decision was appealed to DOT--following a DOT certification
appeal decision. The December 1992 NPRM proposed that certification
appeal decisions would be binding only on the recipient from whom the
appeal was taken. Most of the comment on this section concerned the
effects on other recipients.
Twenty-four comments said that other recipients should be able to
adopt the Department's certification appeal decisions as their own,
without the necessity of conducting further proceedings of their own.
That is, if State A decertified Company X, and DOT upheld the
decertification, then States B, C, etc. should be able to decertify
Company X without being required to go through a Sec. 26.77
decertification proceeding. Most of these comments did not discuss
automatically certifying firms when DOT overturned a recipient's
denial. Nine comments said that other recipients should have to go
through their own due process procedure, rather than automatically
taking action to follow a DOT decision.
As a legal matter, it would be inappropriate for recipients, other
than the recipient directly involved in the appeal, to automatically
take action to certify or decertify firms based on the outcome of a DOT
certification appeal. This is because the nature of a DOT certification
appeal proceeding. DOT is not, as such, determining whether a firm
meets Part 26 eligibility criteria. All DOT is determining is whether a
particular recipient's decision about a firm's eligibility is supported
by substantial evidence and consistent with Part 26 standards. Under
the substantial evidence standard, the Department can uphold a
recipient's decision as supported by substantial evidence even though
an alternative decision could also be supported by
[[Page 29576]]
substantial evidence. The Department could reverse a recipient's
decision as unsupported by substantial evidence even though another
recipient could have substantial evidence to come to the same result.
The Department's decision is necessarily specific to the administrative
record of the particular recipient involved and is not a legally
definitive statement about the eligibility of the firm. The Department
recognizes that it would be possible for the Department to uphold
different decisions on the eligibility of a firm by different
recipients, if both met the substantial evidence test.
Consequently, when a DOT certification appeal decision upholds or
directs a denial of eligibility to a firm, this would provide a basis
for other recipients to initiate a decertification proceeding, but they
must go through such a proceeding to decertify the firm. Where DOT's
action results in a firm being certified, this fact would be taken into
account by other recipients to whom the firm is applying, but it would
not result in automatic certifications elsewhere. The Department's
decision, and its reasoning, would be taken into consideration by other
recipients in their proceedings.
Other parts of the NPRM proposal for this section were not the
subject of comment, and the SNPRM adopts them without substantive
modification.
Section 26.83 What Procedures Govern Direct Ineligibility Complaints
to DOT?
Under the existing Part 23, the Office of Civil Rights has accepted
so-called ``third party complaints,'' in which a party complains that a
recipient has erroneously certified a firm. The NPRM did not include
such a mechanism, on the basis that DOT's most useful role was the
administrative review of the record of proceedings held at the
recipient level. Nevertheless, there may be situations in which it is
important for the Department to take a direct hand in responding to an
ineligibility complaint.
To handle these situations, the SNPRM proposes that any person may
file a direct ineligibility complaint. The Office of Civil Rights would
have complete discretion concerning the disposal of the complaint. It
could accept the complaint, decline to accept it, or refer it to the
appropriate recipient for action. In no case would the Department be
required to accept such a complaint; nor would it have to offer
explanation for not accepting it.
If the Office of Civil Rights accepted the complaint, it would
follow essentially the same procedure as a recipient would in a
Sec. 26.79 ineligibility complaint. As in the case of a recipient, the
Department could invoke the ``administrative preliminary injunction''
procedure in an appropriate case.
Subpart F--Compliance and Enforcement
Sections 26.91-26.99 concern compliance and enforcement procedures
under the rule. They were the subject of little comment. One comment
favored leaving them as they were in the December 1992 NPRM. Five
comments supported including additional measures, such as requirements
for liquidated damages or making more use of the Program Fraud Civil
Remedies Act of 1986 (PFCRA). Five comments supported the use of
suspension and debarment remedies for program abuses, while six others
said that this remedy should be limited to cases of indictment or
conviction for criminal offenses (some of these said suspension should
only be used where there has been a conviction).
The SNPRM retains the enforcement provisions of the December 1992
NPRM with little change. We are adding a specific reference to PFCRA.
We are also deleting paragraphs discussing decertification in cases of
criminal conduct, since we believe suspension and debarment remedies
are adequate to deal with DBEs involved in criminal offenses.
Recipients would retain discretion to begin decertification proceedings
concerning DBEs involved in criminal activity, however. Under normal
suspension and debarment practice relating to criminal offenses, a firm
may be suspended when it is indicted but is only debarred following
conviction. The Department will follow this practice in suspension and
debarment actions related to criminal activity in the DBE program.
Subpart G--DBE Participation in Airport Concessions
On October 3, 1993, the Department published an NPRM in the Federal
Register, proposing to revise its DBE program requirements applicable
to airport concessions. (58 F.R. 52050) The NPRM proposed to implement
statutory provisions which would allow airport sponsors to count new
forms of DBE participation toward the overall goals of a DBE concession
plan. These new forms include purchases from DBEs of goods and services
used in the operation of a concession, as well as management contracts
and subcontracts with DBEs. To make these and other changes, the
Department proposed to amend Subpart F of 49 CFR Part 23, DOT's
existing DBE rule.
The statutory provisions authorizing these changes were cited in
the NPRM as Sections 511(a)(17) and 511(h) of the Airport and Airway
Improvement Act (AAIA) of 1982, as amended by Section 117 of the
Airport and Airway Safety, Capacity, Noise Improvement, and Intermodal
Transportation Act of 1992 (Pub. L. 102-581). The AAIA and other
transportation statutes were repealed effective July 5, 1994, by Public
Law 103-272 and have been recodified in title 49 of the United States
Code (U.S.C.). The recodification does not change substantively the
legal authority of the DOT or the Federal Aviation Administration (FAA)
or any prior interpretations of that authority, but is merely a
restatement of the authority granted under prior statutes using
different language and a reordering of provisions.
In accordance with this change, the Department will cite title 49
of the U.S.C., rather than the AAIA or any act which amended it, as
authority for administering the DBE program. References to the Airport
Improvement Program (AIP) will continue to be made, however.
49 U.S.C. 47107(e) (formerly Sections 511(a)(17) and (h) of the
AAIA) provides as follows:
(e) Written Assurances of Opportunities for Small Business
Concerns.--
(1) The Secretary of Transportation may approve a project
application under this subchapter for an airport development project
only if the Secretary receives written assurances, satisfactory to
the Secretary, that the airport owner or operator will take
necessary action to ensure, to the maximum extent practicable, that
at least 10 percent of all businesses at the airport selling
consumer products or providing consumer services to the public are
small business concerns (as defined by regulations of the Secretary)
owned and controlled by a socially and economically disadvantaged
individual (as defined in section 47113(a) of this title).
(2) An airport owner or operator may meet the percentage goal of
paragraph (1) of this subsection by including any business operated
through a management contract or subcontract. The dollar amount of a
management contract or subcontract with a disadvantaged business
enterprise shall be added to the total participation by
disadvantaged business enterprises in airport concessions and to the
base from which the airport's percentage goal is calculated. The
dollar amount of a management contract or subcontract with a non-
disadvantaged business enterprise and the gross receipts of business
activities to which the management contract or subcontract pertains
may not be added to this base.
(3) Except as provided in paragraph (4) of this section, an
airport owner or operator may meet the percentage goal of paragraph
(1) of this subsection by including the purchase from disadvantaged
business enterprises of goods and services used in businesses
conducted at the airport, but the
[[Page 29577]]
owner or operator and the businesses conducted at the airport shall
make good faith efforts to explore all available options to achieve,
to the maximum extent practicable, compliance with the goal through
direct ownership arrangements, including joint ventures and
franchises.
(4)(A) In complying with paragraph (1) of this subsection, an
airport owner or operator shall include the revenues of car rental
firms at the airport in the base from which the percentage goal in
paragraph (1) is calculated.
(B) An airport owner or operator may require a car rental firm
to meet a requirement under paragraph (1) of this subsection by
purchasing or leasing goods or services from a disadvantaged
business enterprise. If an owner or operator requires such a
purchase or lease, a car rental firm shall be permitted to meet the
requirement by including purchases or leases of vehicles from any
vendor that qualifies as a small business concern owned and
controlled by a socially and economically disadvantaged individual.
(C) This subsection does not require a car rental firm to change
its corporate structure to provide for direct ownership arrangements
to meet the requirements of this subsection.
(5) This subsection does not preempt--
(A) a State or local law, regulation, or policy enacted by the
governing body of an airport owner or operator; or
(B) the authority or a State or local government or airport
owner or operator to adopt or enforce a law, regulation, or policy
related to disadvantaged business enterprises.
(6) An airport owner or operator may provide opportunities for a
small business concern owned and controlled by a socially and
economically disadvantaged individual to participate through direct
contractual agreement with that concern.
(7) An air carrier that provides passenger or property-carrying
services or another business that conducts aeronautical activities
at an airport may not be included in the percentage goal of
paragraph (1) of this subsection for participation of small business
concerns at the airport.
The NPRM was drafted based on the language in the AAIA, and
redrafting the rule to reflect the recodification would be cumbersome.
Thus, when appropriate, the SNPRM (as well as this preamble) uses the
language in the AAIA. Final rule language will be modified, as needed,
to conform to the recodified version of the statute.
Of the entities that submitted comments to the October 1993 NPRM,
16 are minority or female owners of car dealerships. Of these, 13
submitted comments in advance of publication of the NPRM. Five industry
associations commented. These include the Airport Minority Advisory
Council (AMAC); American Bar Association (ABA); American Car Rental
Association (ACRA); Airports Council International--North American
Region (ACI-NA); and National Automobile Dealers Association (NADA).
Representatives of ten airport operators or owners (sponsors) commented
individually. Representatives of 5 car rental agencies also commented
individually, including Alamo Rent a Car, Inc.; Avis Rent a Car System,
Inc.; Dollar Systems, Inc.; the Hertz Corporation; Thrifty Rent-a-Car
System. Thrifty and Dollar submitted comments jointly, while Avis and
Hertz each filed several comments. Hertz filed its major papers jointly
with ACRA. The remaining comments (9) came from Congresswomen Eleanor
Holmes Norton and Cardiss Collins; the Small Business Administration
(SBA); two DBEs that are not car dealers; Host Marriott Corporation;
Tie Rack, Plc; Smarte Carte, Inc., and one consulting firm.
Much of proposed Subpart G in this SNPRM reflects the Department's
response to comments on the October 1993 NPRM. Subpart G also includes
proposals for revising overall goals and contract goals based on
Adarand and proposed implementing guidance issued by the Department of
Justice. Generally, the Department intends to employ the same
methodology in revising the concession program as the DOT-assisted
contracting program. Following the close of the comment period, the
Department expects to publish a final rule setting forth the concession
provisions in Subpart G to 49 CFR Part 26. This subpart will respond to
comments to this SNPRM and the comments to the October 1993 NPRM.
The following analysis includes a discussion of the Department's
response to comments on the October 1993 NPRM. As with the other
portions of this rule, we request that commenters focus on those
matters responsive to Adarand and issues on which the Department
specifically requests comment.
Section 26.101 Definitions
In one of several matters unrelated to the grant legislation or to
Adarand, the October 1993 NPRM proposed to modify the definition of
``affiliation.'' Subpart F of 49 CFR Part 23, as issued in 1992,
incorporated the definition of the term from Sec. 121.401 of the SBA's
regulation, 13 CFR Part 121. The Department chose to adopt the SBA
definition but was not required by the statute to do so. 49 U.S.C.
Sec. 47107(e) delegates authority to the Secretary to designate size
standards for the concession program.
As set forth in 13 CFR Sec. 121.401(l), affiliation may arise
through a joint venture agreement, requiring the parties thereto to
combine their gross receipts in making a determination of business
size. The NPRM proposed to delete Sec. 121.401(l) from the definition
employed in the concession program.
Based on a review of the comments, the SNPRM retains this provision
as proposed. Of five comments submitted to the docket which address the
matter, four are generally supportive, while one is opposed. Two
commenters are concerned that DBEs qualifying under the SBA's existing
definition may have trouble competing against joint ventures involving
a very large firm and a DBE. Another commenter, writing in support of
the change, opposes any restrictions on a DBE owning an interest in
another firm. This commenter points out that in the concession area,
operations often are organized under separate businesses at individual
airports, and separate partnerships often are established.
The Department does not believe that this provision would adversely
affect a significant number of DBEs meeting SBA's definition of
affiliation. The SNPRM does not require modification or abrogation of
existing concession agreements during their term. Thus, if a DBE
meeting SBA's affiliation standards currently operates a concession,
its concession agreement could not be disturbed during the remainder of
the term. Further, any DBE could compete for the award of future
concession contracts by forming joint ventures or other eligible
arrangements under the revised standard. The Department believes that
joint ventures can offer DBEs a viable means of participating in a
direct ownership arrangement when a lease, sublease, or other
arrangement is not feasible.
The Department does not concur that all affiliation requirements
should be suspended, and the NPRM did not propose this. Only Section
121.401(l) of 13 CFR Part 121, pertaining to joint ventures, has been
deleted from the definition of ``affiliation'' used in the concession
program. All other provisions of Section 121.401 would be retained.
Under the remaining provisions, affiliation can arise through a variety
of other arrangements, such as through an identity of interest, through
stock ownership, or through common management. We also point out that
the affiliation standards set forth in 13 CFR Part 121 apply regardless
of the location of the businesses. To illustrate: if the same socially
and economically disadvantaged individual owns 100 percent and clearly
exercises management control over a retail concession at an airport and
two other businesses located off-airport, the firms are affiliated. The
gross receipts earned by all three would be summed in
[[Page 29578]]
determining the size of the airport concession.
The SNPRM also would amend the definition of ``concession'' to
exclude long distance telephone service. The proposed change is
intended to formalize 1993 administrative guidance issued by the FAA.
The FAA concluded that facilities operated by long distance carriers
generally are not ``located at an airport'' as provided in the
definition of a concession and thus, should be excluded from the
program. Local pay telephone service, by contrast, generally qualifies
as a concession and hence, would be subject to the requirements of the
rule.
In further regard to the term ``concession,'' one commenter
apparently advocates inclusion of car rentals in the definition if the
firm holds a license or permit to pick up or deliver customers to
airport terminals. Another organization comments to the contrary,
stating that there is no evidence that Congress envisaged such an
extension to the program. The Department concurs with the latter
position and, to date, the rule has been administered using this latter
approach. Since this matter has been the source of some confusion, the
SNPRM proposes to clarify it.
As proposed, the SNPRM states that a car rental firm servicing the
public from an on-airport facility is deemed ``at the airport,'' while
one that only picks up and/or delivers customers to the airport is not
so regarded. The same principle would apply to taxicabs, limousines,
hotels, and other businesses. In a related matter, an off-airport hotel
that maintains a direct telephone in a terminal building would not be
considered ``at the airport,'' while a hotel doing business anywhere on
airport property would be so regarded.
The SNPRM would further clarify that any firm meeting the
definition of ``concession'' is covered by the program, regardless of
the name given to its legal agreement with the sponsor or other
organization.
The SNPRM proposes to add a definition of ``direct ownership
arrangement.'' The term appears in the legislation at 49 U.S.C.
Sections 47107(e) (3) and (4). Section 47107(e)(3) names ``joint
ventures'' and ``franchises'' as examples of direct ownership
arrangements. Under the proposed definition in the SNPRM, such
arrangement is one in which a firm owns and controls a concession.
``Subleases'' and ``partnerships'' are other examples of direct
ownership arrangements that the SNPRM proposes to reference.
Four commenters favor expanding the definition of ``management
contract or subcontract'' to include firms hired by concessionaires.
The October 1993 NPRM limited the scope of the term to only those firms
hired by sponsors. Although the statute does not define the term, 49
U.S.C. Section 47107(e)(2) explicitly provides for counting DBE
management contracts and subcontracts toward a sponsor's overall goal.
However, the legislation is devoid of any reference to counting such
contracts toward a goal imposed on a concessionaire.
Furthermore, as set forth in Section 47107(e)(2), when a sponsor
counts a management contract or subcontract with a DBE toward its
overall goal, the gross receipts earned by the business activity to
which the management contract applies must be excluded from the base.
Section 47107(e)(2) also explicitly requires exclusion of the dollar
value of management contracts or subcontracts with non-DBEs from the
base.
Thus, if the definition of a management contract is expanded as
these commenters request, the gross receipts accrued by a non-DBE
concessionaire that hires a DBE management contractor or subcontractor
would presumably be excluded from the base. In such case, the only
expenditures from the concession added to the base would be the value
of the DBE management contracts and/or subcontracts, as well as any
goods or services purchased or leased from DBEs, if such provisions
apply. DBE participation in the concession would necessarily equal 100
percent, even though the concessionaire is a non-DBE. To take another
example, if a non-DBE concessionaire hires a non-DBE management
contractor and purchases no goods or services from DBEs, no
expenditures or gross receipts from the concession would be added to
the base.
The Department concludes that expanding the scope of the term
management contract could result in calculating overall DBE goals from
a base which is not inclusive of all concession gross receipts. This,
in our view, would conflict with 49 U.S.C. Section 47107(e)(1), which
requires overall goals to be calculated as a percentage of the gross
receipts from all concessions (in the case of a sponsor that uses gross
receipts, rather than number of concession agreements, as the base.)
Further, adopting an expanded definition of management contract could
allow an airport to achieve a high percentage of DBE participation,
while not reporting substantial gross receipts accrued by non-DBE
concessions.
Since we have no indication that Congress intended such results, we
do not propose to expand the scope of the term beyond those agreements
with airport sponsors. However, under the SNPRM, managerial services
procured by concessionaires, like other services used to operate a
concession, can count toward the goals pursuant to the procedures of 49
U.S.C. Section 47107(e) (3) or (4).
In response to another comment, the wording in the definition of
``management contract or subcontract'' would be changed from ``operates
a business activity'' to ``operates or directs one or more business
activities.'' As this comment points out, in some management contracts,
the contractor directs the activities of other entities rather than
conducting operations directly. In addition, the Department concurs
with the comment that the words ``the assets of which are owned by the
sponsor'' should be changed to ``the assets of which are owned, leased
or otherwise controlled by the sponsor.'' This makes clear that the
sponsor's interest in the business activity is not limited strictly to
an ownership interest. One other comment recommends a slight variation-
inserting the words ``or in which the airport sponsor has a significant
interest or over which the airport sponsor exercises control'' after
``the assets of which are owned.'' However, this version makes no
reference to ``leased'' assets and would require a further definition
of ``significant interest.''
To further distinguish between a ``concessionaire'' and
``management contractor,'' the SNPRM proposes to modify the former to
mean a firm that owns and controls a concession, as opposed to one that
simply operates one.
We propose to amend the definition of ``small business concern'' to
specify that the appropriate size standard is the one which best
describes the type of business a firm seeks to operate under the DBE
concession program. The sole exception would be the size standard for
car dealerships. This matter is discussed below under ``Appendix G--
Size Standards for the Airport Concession Program.'' The SNPRM would
also clarify that a small business concern must be an ``existing''
firm.
Under provisions of the SNPRM for DOT-assisted contractors
(including FAA-assisted contractors), the presumption of social and
economic disadvantage is deemed to be rebutted when an individual's
personal net worth exceeds $750,000. The October 1993 NPRM proposed to
not apply the
[[Page 29579]]
$750,000 personal net worth limit to the concession program.
All five comments to the October 1993 NPRM that address this matter
supported the Department's proposal to not apply the $750,000 standard
to the concession program. The rationale for not applying this standard
to airport concessions is that, given the larger businesses that may
participate in the concessions DBE program, the $750,000 figure would
be unreasonably low. excluding businesses that the Department intends
to be able to participate.
Nevertheless, there are grounds for having some disadvantage
threshold or other in this part of the rule. Even though larger
businesses are intended to be eligible to participate in airport
concessions, the concept of program eligibility based on economic
disadvantage appears to call for a criterion to determine when someone
is no longer disadvantaged. The Department is seeking comment on the
appropriate dollar level for the economic disadvantage threshold in the
financial assistance part of the SNPRM. We will ask the same question
in the context of airport concessions. In this context, is it
reasonable to have a higher threshold than in the case of the financial
assistance program and, if so, what should it be?
Section 26.103 Applicability
As modified, this section would state that the subpart applies to
any sponsor that received a grant for airport development after January
1988.
Section 26.105 Requirements for Airport Sponsors
In response to one comment, we propose to modify this section to
require insertion of the nondiscrimination clause in management
contracts. The NPRM required inclusion of the provisions only in
concession agreements executed by the sponsor. The clause also would
also be required as part of any subsequent contract or subcontract
covered by the rule, including contracts for the provision of goods or
services. The Department also concurs with a recommendation to include
recordkeeping requirements in the rule that will enable sponsors to
monitor contract awards and payments by concessionaires to DBEs which
provide goods or services. A section would be added pertaining to all
recordkeeping and reporting requirements; it would apply to both
primary and non-primary airports.
We have not adopted a recommendation to allow small primary
airports to submit their DBE concession plans to the FAA for review
less frequently than annually, as currently required. We point out
that, as administered by the FAA, the concession plan covers a three
year period, which requires sponsors to do long-range planning. One
purpose of an annual review and update is to include any information in
the plan not previously available to the sponsor. Submission of an
entirely new document is not required. Additionally, since the rule
requires overall annual goals, accomplishments in meeting them must be
reported yearly. Thus, the Department believes that the current
requirements are appropriate.
Another comment opposes a quarterly reporting requirement, which
the Department proposed for the DOT-assisted contracting program.
Currently, the FAA requires an annual report of accomplishments in the
concession program and does not propose to increase the frequency.
The SNPRM would retain a provision established in 1992 with the
issuance of Subpart F of 49 CFR Part 23. Under the proposal, only
primary airport sponsors would be required to implement a DBE
concession plan. Other airports would not be subject to goal-setting
and other components of a plan. Rather, these sponsors would be
required to take appropriate outreach steps to encourage available DBEs
to participate as concessionaires whenever there is a concession
opportunity. This approach is consistent with the narrow tailoring
principle of applying race-neutral mechanisms whenever possible to
accomplish program objectives.
Section 26.107 Elements of a DBE Concession Plan
1. Overall Goals
This section has been modified for consistency with the
Department's approach to overall goals in the DOT-assisted contracting
portion of the SNPRM. A discussion of Sec. 26.41 is found above. In it,
we note that provisions of the SNPRM concerned with data collection and
analysis could be burdensome to recipients. Realizing that the market
for airport concessionaires is different from the market for many kinds
of contractors for DOT-assisted contracting, we seek comment on how
these concepts can best be adapted to the concessions industry and what
data sources are available or should be developed to assist this
process.
DBE program costs incurred in connection with an approved project
are eligible for reimbursement with Federal funds. However, it should
be noted that costs incurred in administering the airport concession
program are not eligible for AIP funds. The Department therefore
invites additional comments on resources available to sponsors to
collect and analyze concession program data as required by the SNPRM.
A new requirement has been added to the SNPRM. It would require
sponsors to provide for public participation in establishing overall
annual goals. This provision is intended to assist sponsors in arriving
at appropriate goals.
Several comments to the October 1993 NPRM concern calculation of
overall goals. One favors the use of net payment to the airport in lieu
of gross receipts as the base from which overall goals are calculated.
This commenter opposes using a combination of net payment and gross
receipts, as currently required when the gross receipts from a
particular concession are not known to the sponsor. This matter was
fully considered when Subpart F of Part 23 was published in 1992 and
was not raised as an issue under the current rulemaking. (See
discussion in preamble to Subpart F at 57 FR 18400, April 30, 1992.) We
also do not propose to adopt a comment to allow DBEs that perform an
aeronautical business to count toward concession goals. 49 U.S.C.
Sec. 47107(e)(7) provides that air carriers and other businesses
conducting aeronautical activities are not included in the ``overall
percentage goal.''
Another comment favors calculating goals based on ``committed''
dollar values derived from agreed-to contracts or contingent purchase
orders, rather than estimated dollars. This commenter also disagrees
with the proposal to exclude from the base from which the overall goal
is calculated, the value of non-DBE management contracts and the gross
revenues from the activity to which the management contract pertains.
It advocates establishing a base annually to reflect all eligible DBE
program activity.
Regarding the latter comment, as discussed above, the statute
explicitly requires exclusion of these figures referenced from the
base. Further, the goal of ``at least 10 percent'' is expressed in 49
U.S.C. Sec. 47107(e)(1) as a percentage of ``all businesses at the
airport selling consumer products or services to the public,'' language
that the Department interprets to mean ``concessions.'' The statute
permits a sponsor to count management contracts with DBEs or goods or
services purchased or leased from DBEs toward meeting the goal. Thus,
Section 47107(e)(2) provides that a sponsor ``may meet the percentage
goal of paragraph (1) of this subsection by
[[Page 29580]]
including any business operated through a management contract or
subcontract.'' Section 47107(e)(3) provides that a sponsor ``may meet
the percentage goal of paragraph (1) of this subsection by including
the purchase from [DBEs] of goods and services used in businesses
conducted at the airport * * *'' The Department believes that expanding
the base to include all management contract fees or all purchases or
leases of goods or services would be inconsistent with these statutory
provisions.
Concerning the use of ``estimated'' versus ``committed'' dollars
when setting overall goals, we note that overall annual goals are
required as part of a three year plan. Some projections must be made a
year or two in advance. Thus, sponsors would not ordinarily have
sufficient information to base overall goals on committed dollars. To
the extent that they do, however, such information should be reflected
in the goals.
The SNPRM states that all overall goals must provide for
participation by all certified DBEs and that goals may not be
subdivided by specific groups. The Department's rationale for applying
this provision to DOT-assisted contracting is discussed above in
connection with 49 CFR Sec. 26.41. Since the concession program
authorized by 49 U.S.C. Sec. 47107(e) incorporates the definition of
``socially and economically disadvantaged individuals'' from the
contracting provisions of 49 U.S.C. Sec. 47113, the Department's
rationale applies equally to concessions.
In response to two comments, a provision has been added stating
that in setting overall goals, a sponsor is permitted to include only
those projected expenditures/gross receipts or number of agreements, as
applicable, as the rule allows to be counted toward meeting such goals.
2. Counting DBE Participation Toward Meeting Goals
Several comments point out that the October 1993 NPRM does not
clearly state whether the requirement to perform a commercially useful
function applies to all expenditures that can be counted toward DBE
goals. One commenter favors doing so, and we concur. The SNPRM
clarifies this provision. In the preamble to the NPRM, the Department
indicated that this was its intention from the outset. It states,
``While the requirement to perform a commercially useful function would
be made applicable to any DBE eligible under subpart F, it would be
particularly useful in evaluating firms which provide services or
supplies, and which subsequently enter into subcontracts.'' (58 FR
52050 at 52053)
Although the NPRM incorporated the provisions of Sec. 23.47(d), it
did not include guidance on other counting provisions, such as the
definition of ``regular dealer,'' ``manufacturer,'' and others. One
commenter believes that it would be useful to add a definition of
``providers of goods or services,'' while another believes that the
NPRM is too broad in allowing credit for procurement of goods and
services which may be ``pass-throughs'', such as with distributors and
brokers. Other comments, discussed below, express the same concerns.
The Department concurs that additional guidance is needed. The
SNPRM proposes to adopt many of the counting provisions proposed for
DOT-assisted contracting. Although ``providers of goods or services''
would not be defined as such, the SNPRM lists all types of transactions
in which a DBE may participate, including as a regular dealer,
manufacturer, or provider of a professional, technical, consultant or
other service.
a. Counting purchases or leases of vehicles by car rental firms.
The NPRM proposed to count the total dollar value of purchases or
leases of vehicles toward DBE goals. Of 10 comments which address this
proposal, 6 favor it, 3 oppose it, while one recommends additional
review. Of those opposed, two suggest that the profit earned by the DBE
is the appropriate amount to be counted.
The comments indicate that car rentals generally acquire their
vehicles through fleet purchases. The Department was unaware of this
practice at the time the NPRM was developed, and indeed, there is no
reference to fleet purchases in the NPRM. According to the comments,
most states have franchise laws requiring that fleet purchases be made
through a car dealership. Commenters also state that the major
automobile manufacturers have franchise agreements with their dealers,
which require all car sales to be made through the dealers.
Fleet purchase transactions vary from one car rental firm to
another and from one new car dealer to another. The dealer and car
rental firm often agree to have the cars delivered directly from the
manufacturer to the car rental firm, a practice known as ``drop
shipment,'' in which the dealer neither sees nor touches the cars. The
profit margin in a fleet purchase is generally lower than a single car
acquired in a retail sale. According to one comment, in a recent year,
a minority dealer made a gross profit of approximately $8 per unit on
fleet sales of 15,737 cars. The same dealer made $1,090 per unit on 770
cars through retail sales. This dealer comments that car dealers buy
and resell these vehicles all in one transaction for which they
generally receive a fee of between $10 and $20. Another comment refers
to a dealer that made $44 per car or less.
Commenters point out that in a fleet purchase, car rental firms
generally adhere to one of two scenarios in processing a new vehicle's
ownership documents. In many cases, the new vehicle is delivered to the
car rental company and its ownership documents are sent to the new car
dealer. In these instances, the dealer handles the titling and
registering of the vehicle. In other cases, a new vehicle's ownership
documents are sent to the car rental company's regional office or its
national headquarters. At these locations, employees of the car rental
company, acting as agents for the dealer, perform the various
procedures necessary to title and register these new vehicles.
Based on the comments, the Department has concluded that a fleet
purchase is a separate function from retail sales of vehicles, and that
car dealerships handle the transactions differently. Indeed, a dealer
may use a separate account for its fleet purchases. In our view, the
statute does not require that 100 percent of the cost of vehicles
acquired in a fleet purchase count toward meeting DBE goals. Section
511(h)(3)(B) of the AAIA provided in part, ``In the event that an
airport owner or operator requires the purchase or lease of goods or
services from DBEs, a car rental firm shall be permitted to meet such
requirement by including purchases or leases of vehicles from any
vendor that qualifies as a small business concern * * *''
Moreover, we do not interpret the statute to preclude application
of ``commercially useful function'' principles to purchases or leases
of vehicles. As referenced above, the additional counting provisions
included in the SNPRM represent a logical outgrowth in response to
comments to the NPRM. Hence, we do not concur with one comment which
contends that the Department must issue a new NPRM and obtain
additional comments on this matter. Also, we are unable to concur with
the rationale provided by commenters who state that the total dollar
value of vehicles acquired in fleet purchases must be counted so that a
car rental can achieve the goals imposed by a sponsor. Under the SNPRM,
a concessionaire that fails to meet a DBE contract goal would be
permitted to
[[Page 29581]]
demonstrate that it made good faith efforts.
The Department believes that the car dealer's role in a fleet
purchase best fits the description in 49 CFR Section 26.107(2)(iii)(E),
which provides for counting the fee or commission charged by a DBE that
is neither a manufacturer nor a regular dealer. Under paragraph (1) of
this section, the entire amount of the fee or commission charged by a
DBE for assistance in the procurement of goods would be counted toward
the goals, provided that it is determined by the sponsor to be
reasonable and not excessive as compared with fees customarily allowed
for similar services. However, no portion of the goods themselves (in
this case, vehicles) would be counted toward the goals.
While a car dealership may qualify as a ``regular dealer'' in other
types of transactions, the Department does not believe that it
functions as such in arranging a fleet purchase of vehicles. ``Regular
dealer'' is defined in the SNPRM at Section 26.49(f)(2)(ii), applicable
to DOT-assisted contracting, and is incorporated into the concession
program. It reads in part as follows:``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. 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 * * * ''
Part 23 contained a similar definition at Section 23.47(e)(3). We
point out that the vehicles acquired in a fleet purchase are not
``bought, kept in stock, and regularly sold or leased to the public in
the usual course of business.'' Rather, they are always acquired from a
manufacturer and often shipped directly to the car rental agency.
The fee or commission earned by a car dealer in a fleet purchase
generally will equal the gross profit-the difference between the amount
charged by the manufacturer and the amount charged by the car dealer.
To facilitate compliance with the rule, a definition of ``fleet
purchase'' is proposed, as follows: ``a purchase of vehicles in volume
from a manufacturer at a discounted price, which is made through a car
dealer. While the process may vary by manufacturer and by car dealer,
the vehicles are frequently `drop-shipped' directly to the car rental
firm. A car dealer may handle fleet purchases through a separate
account. The minimum number of vehicles in a fleet may vary, but as few
as 10 have been used.''
Under the SNPRM, a car dealer may qualify as a regular dealer in
retail sales of vehicles (other than fleet sales) or when it leases
vehicles or sells supplies or new parts. As proposed, 100 percent of
the cost of goods purchased or leased from a DBE regular dealer would
be counted toward DBE goals.
b. Other counting issues pertaining to car rentals. Two commenters
make reference to car repair services performed under a manufacturer's
warranty. In some instances, the car rental that purchased the vehicle
can select the company to perform the warranty work. The manufacturer,
rather than the car rental, pays for the service. One commenter
requests that the cost of such warranty services performed by a DBE be
counted toward the goals.
Reference is made to 49 U.S.C. 47107(e)(4)(B), which provides that
a sponsor ``may require a car rental firm to meet a requirement under
paragraph (1) of this subsection by purchasing or leasing goods or
services from a [DBE] * * *'' Since the manufacturer, not the car
rental, pays for the work performed under a warranty agreement, we
conclude that such purchases do not meet the standard in the
legislation. As such, they would not count toward DBE goals.
The SNPRM proposes to incorporate a recommendation by a sponsor to
credit toward the goals, the amount paid by a car rental franchise to a
DBE hired to manage its leased facilities. This provision relates to
the discussion of ``management contracts and subcontracts'' set forth
above.
3. Counting Purchases of Goods and Services by Concessionaires (Other
Than Car Rentals)
Seven comments address the proposal in the NPRM to count the total
dollar value of purchases of goods and services by non-DBE
concessionaires. As proposed, counting such expenditures would be
subject to a requirement that the sponsor and non-DBE make good faith
efforts to explore all available options to attain, to the maximum
extent practical, a direct ownership arrangement with a DBE. This good
faith efforts ``test'' would apply to concessionaires other than car
rentals. Three commenters favor the proposal, while four are opposed.
Of those opposed, three prefer use of a ``discount factor'' similar
to DOT-assisted contracting procedures, in which 60 percent of supplies
obtained from a DBE regular dealer can be counted. Another comment
wishes to minimize ``pass-throughs'' such as with distributors and
brokers, while one other believes that all concessionaires should be
given the same latitude as car rentals, by being exempted from the good
faith efforts test.
The SNPRM proposes to apply the same principles of commercially
useful function to these transactions as to the ones involving car
rentals. Thus, 100 percent of the cost of goods purchased from a DBE
acting as a regular dealer or manufacturer would count toward the
goals.
If a concessionaire purchases goods from a DBE which is acting
neither as a regular dealer nor a manufacturer, only the fee or the
commission charged for assistance in the transaction or the cost of the
transportation provided would count toward goals, provided that it is
determined by the sponsor to be reasonable and not excessive as
compared with fees customarily allowed for similar services. However,
no portion of the cost of the goods themselves would be counted.
Further, the entire amount of fees or commissions charged by a DBE firm
that provides a bona fide service to a non-DBE concessionaire would be
counted toward goals. Counting any of these expenditures would be
predicated on a good-faith efforts test, a condition that is not
imposed on car rentals.
The SNPRM makes clear that such purchases of goods and/or services
would count even if a non-DBE concessionaire meets a goal for a direct
ownership arrangement with a DBE. In response to one comment, we point
out that any qualifying DBE participation could count toward goals. The
commenter notes that only a limited number of manufacturers of
equipment used in baggage cart concessions exist throughout the
country. While the rule does not impose restrictions on the
geographical location of firms, 49 CFR Section 26.123 does allow a
sponsor to employ a geographical preference under the conditions stated
in that section.
One comment inquires about warehousing and distribution systems,
which have acquired their inventories from DBEs. The commenter proposes
that concessionaires be given credit for purchases from such
warehousing and distribution systems in proportion to the DBE product
mix as a part of the total inventory. Based on a review of the
legislation, we do not propose to adopt this comment. 49 U.S.C. Section
47107(e)(3) authorizes sponsors to count purchases from DBEs of goods
and services used in ``businesses conducted at the airport,'' words
which we
[[Page 29582]]
interpret to mean ``concessions.'' Thus, only those goods actually
purchased by a concessionaire from a DBE and used in operating a
concession would be counted toward meeting DBE goals under this SNPRM.
In response to several comments, the SNPRM incorporates a provision
stating that packagers, brokers, manufacturers' representatives, or
other persons who arrange or expedite transactions are not regular
dealers.
4. Other Counting Provisions
One commenter recommends that a DBE should not be required to
perform at least 30 percent of the work of a contract with its own
forces in order to be considered to perform a commercially useful
function. The commenter notes that for management contacts, the 30
percent requirement, which appeared in the December 1992 NPRM, may
impose an unrealistically high standard, particularly if it is applied
to any work of a concession or activities associated with a management
contract. The Department concurs. Thus, while the 30 percent standard
and other provisions of 49 CFR Section 26.49(e)(3) would be
incorporated into the concession program, management contracts and
subcontracts would be exempt. Concession agreements would also be
exempt based on our observation that DBEs frequently make up less than
30 percent of a joint venture or sublease less than 30 percent from a
prime concessionaire. Other participants in the DBE concession program
would be covered by Section 26.49(e)(3), however, in order to be
consistent with DOT-assisted contracting provisions.
In response to another comment, the Department could not find a
basis in the statute to count purchases of goods or services from DBEs
made by non-DBE management contractors. 49 U.S.C. 47107(e)(2) makes no
reference to such a procedure, while we interpret Section 47107(e)(3)
to apply only to concessions. Under the SNPRM, however, a sponsor may
impose a contract goal on a management contractor to attain DBE
participation through a management subcontract. (See 49 CFR 26.115(d).)
Section 26.107(g) Certification Procedures
The SNPRM gives sponsors the discretion of participating in the
Unified Certification Process (UCP) with regard to certifying DBEs
under the concession program. (All sponsors would be required to
participate in the UCP with regard to certifying DOT-assisted
contractors.) A sponsor that elects not to participate in the UCP would
need to independently certify firms that will count toward overall and
contract goals set under the concession program. These sponsors could
choose to adopt precertification or certify only firms to be counted
toward DBE goals.
Section 26.107(h) Certification Process
A sponsor that does not participate in the UCP would not be subject
to the timeframes set forth in 49 CFR 26.73(i) in which to make an
eligibility determination. These sponsors would be required to
determine that a firm is eligible before it could count toward the
overall goal or to a firm's contract goal.
Nine comments responded to the Department's proposal for
considering the feasibility of adopting a self-certification procedure
in limited circumstances, such as for providers of goods and services
holding contracts of less than a designated dollar value. Six favor
such a procedure, while three are opposed. One proponent recommends
using procedures similar to SBA's under which a contracting officer may
accept a self-certification in the absence of a written protest by
competitors or other credible information. A second proponent suggests
imposing penalties for fraud or willful misrepresentation, such as
fines or debarment, and also recommends that the Department conduct
random samplings of self-certified firms. Those opposed are concerned
that self-certification will allow ineligible firms to participate in
the program to the detriment of legitimate DBEs.
Significantly, a state department of transportation estimates that
25 percent of applications for DBE certification it receives do not
meet eligibility standards and are denied. We concur with the comment
that since these applicants believe their firms to be eligible, there
may be an inherent problem with a self-certification process. Self-
certification may also offer greater opportunity for fraud and abuse.
We believe that these potential difficulties would offset any
advantages gained by streamlining the process.
Concerning the proposal to allow sponsors to give ``full faith and
credit'' to certifications of other DOT recipients, all 10 comments on
the subject favor it. Two organizations recommend that both the
certifying and accepting agency be held harmless if a defect is
discovered in the certification, while another recommends that the
certifying agency be held harmless. While the SNPRM would allow UCPs to
form reciprocal agreements, it does not propose giving ``full faith and
credit'' to certifications of DOT-assisted contractors made by other
UCPs or recipients. In view of this, allowing such a practice in the
concession program could cause confusion. The Department also believes
that the sponsor that counts a firm toward its goals should be the
entity responsible for the validity of the certification. If full faith
and credit is allowed, a sponsor could knowingly and with impunity
accept a defective certification.
Two comments address the feasibility of accepting certifications by
local or state agencies that are not DOT recipients, but which use the
same eligibility criteria as DOT. Both commenters support such a
provision. The Department believes, however, that such agencies would
not be proficient in applying the new eligibility standards proposed in
this SNPRM, even if their local procedures incorporate them. Also,
these agencies would not have the same interest as a recipient in
ensuring that their certifications are valid.
For the reasons cited, the SNPRM does not include provisions for
self-certification, giving ``full faith and credit,'' or accepting
certifications of agencies that are not DOT recipients. We have
attempted, however, to minimize administrative requirements associated
with certification, whenever feasible. For example, the SNPRM retains
the provision in Subpart F of Part 23 that on-site visits are not
mandatory in all instances. The establishment of the UCPs and other
provisions pertaining to DOT-assisted contracting would also result in
a reduction of administrative costs. The following proposed provisions
address many concerns raised by commenters.
A UCP would make all certification decisions on behalf of all DOT
recipients in the state, except for sponsors that elect not to
participate in regard to their concession programs. If a sponsor does
elect to participate, the certification decisions made by the UCP would
be binding on it. Subject to the Department's approval, recipients in
two or more states could form a regional UCP. UCPs could also enter
into reciprocity agreements with other UCPs. A UCP would be permitted
but not required to accept the certifications of another UCP. A UCP
would not be 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.
Concerning a comment that sponsors be permitted to contract out
certification, the FAA issued guidance to sponsors in 1993 on the
eligibility of such costs under the AIP. In response to comments
recommending that the
[[Page 29583]]
Federal government or other agencies be responsible for certification,
the Department is proposing recipients retain that responsibility.
Regarding certification schedules, Subpart G would incorporate
provisions of section 26.73(c), which requires potential DBEs to
complete and submit an appropriate application form. Sponsors would be
required to use the form provided in Appendix C without change or
revision, except that subject to approval by FAA, additional
information not inconsistent with the rule could be requested.
Section 26.107(j) Certification Standards
We received 7 comments concerning automobile dealer development
programs operated and financed by major car manufacturers. All 7
commenters would support a provision to allow these firms to
participate as DBEs. They suggest that the Department grant a limited
exception to the ownership requirements in the rule. The comments
explain that firms seeking to become car dealerships do not have access
to the $700,000 to $1 million in start-up costs necessary to place a
new car dealership in business. The commenters state that since
commercial banks have not been interested in lending money to these
unestablished dealers, the automobile manufacturers have provided
start-up financing as a component of their dealer development programs.
Comments indicate that under the program, a candidate must provide
a minimum of 15 percent of the start-up capital for the dealership, in
return for which the candidate receives 100 percent of the common stock
of the new dealership. The manufacturer loans the candidate the
remainder of the start-up capital, taking back what is in effect a
security interest in the new dealership. This security interest takes
the form of a controlling interest in the preferred stock of the
corporation. The dealership contract is structured so that as long as
the preferred stock is outstanding, the common stockholders in the
corporation will not have voting control over the corporation.
This dealership contract is often for a period of ten years, after
which the contract will lapse if certain performance and profit
conditions have not been met. The intent of the arrangement is that the
candidate/dealer will redeem, on an annual basis, a portion of the
preferred stock held by the manufacturer out of the profits of the
dealership. The dealer gradually redeems all of the preferred stock and
gains full control of the dealership within ten years of inception.
During the early years of their contracts, dealers in development will
not be able to participate in the DBE concession program because they
do not own 51 percent of the their dealerships. These commenters do not
advocate waiving any other eligibility criteria. They state that the
industry recognizes the importance of assuring that disadvantaged
owners are actively involved in the daily management of the dealership
and meet appropriate size standards.
In considering this matter, we make reference to the definition of
a ``DBE'' as follows: ``a for-profit small business concern--(a) which
is at least 51 percent owned by one or more socially and economically
disadvantaged individuals or, in the case of a corporation, in which 51
percent of the stock is owned by one or more such individuals; and (b)
whose management and daily business operations are controlled by one or
more of the socially and economically disadvantaged individuals who own
it.'' (49 CFR Sections 26.5 and 26.101)
The comments request that we waive the requirements in paragraph
(a) concerning ownership. As paragraph (b) makes clear, to qualify as a
DBE, the management and daily operations of the firm must be controlled
by one or more disadvantaged individuals who are the 51 percent owners.
In the case of some dealers in development, however, disadvantaged
individuals own less than 51 percent of the business. Thus, control of
such a firm cannot rest with disadvantaged individuals, as specified in
paragraph (b), if the manufacturer is a non-DBE. Additionally, the
comments indicate that the manufacturer and developing firm are in a
franchisor/franchisee relationship. If this is the case, and the
franchisor controls the franchisee, the firms would be affiliated.
Under 49 CFR Section 26.107(j)(4), a business operating under a
franchise agreement is eligible for certification only if it qualifies
as a DBE and the franchise is not affiliated with the franchisee. Firms
are affiliated if one firm controls or has the power to control the
other or they meet other criteria stated in the definition of
``affiliation'' found in 49 CFR Section 26.101.
Inasmuch as both ownership and control criteria would need to be
waived, the SNPRM would not grant an exemption for dealers in
development. However, in the event that the Department adopts a
developmental program or a mentor-protege program for concessions at a
future date, we would reexamine our position to determine if dealers in
development could qualify.
A commenter notes that while the Department's program encourages
the formation and growth of new firms, it may be difficult to make an
eligibility determination of a newly formed firm that intends to
perform a concession. A provision has been added which would address
such situations. The SNPRM states that while a new firm applying for
certification as a concessionaire must meet all eligibility standards,
a sponsor cannot deny certification solely because it is new, without
applying the eligibility standards.
The rule would also clarify that a limited partnership is not
eligible for DBE certification if a non-DBE or a non-disadvantaged
individual is the general partner.
Section 26.107(k) Good Faith Efforts
This section would require sponsors to use race neutral means, such
as outreach and technical assistance, in an effort to meet overall
goals, prior to applying the race-conscious technique of contract
goals. In many cases, we anticipate that sponsors will need to apply
race-conscious means in order to overcome the effects of past
discrimination.
This section includes a list of good faith efforts, which is not
exhaustive, that a sponsor would consider making to meet its overall
annual goals. The efforts would also apply, as appropriate, to firms
subject to a DBE contract goal, as well as to a sponsor and firm
required to make good faith efforts to attain a direct ownership
arrangement with a DBE. To assist sponsors and businesses, a definition
of ``good faith efforts'' has been added.
One commenter to the October 1993 NPRM requests that a method be
developed for obtaining nationwide information about the availability
of certified DBE providers of goods and services. The FAA will provide
such information or sources of information that it has. Another
commenter requests additional guidance to clarify the meaning of
suggested good faith efforts for attaining a direct ownership
arrangement with a DBE. The Department suggests, as one example, that
the firm conduct a pre-bid meeting concerned with the DBE portion of
the contract to explain the solicitation and proposal process.
Another comment observes that the statute requires concessionaires
to enter into joint venture agreements with DBEs only if ``practical''
and urges the Department to clarify that concessionaires cannot be
required to offer DBEs financial assistance, management training, or
other support as a means of making a joint venture
[[Page 29584]]
arrangement practical. The Department concurs, and an appropriate
provision would be added at 49 CFR Section 26.115(g).
The Department believes, however, that it is within the authority
of the legislation to require sponsors and concessionaires to provide
technical assistance to DBEs in overcoming limitations, such as the
inability to obtain bonding or financing. This assistance may include
providing DBEs with information on lending institutions. A provision to
this effect now appears in the SNPRM. A sponsor and/or concessionaire
may also work with banks in their community in an effort to encourage
loans to DBE program participants. A regulation of the Board of
Governors of the Federal Reserve System, implementing the Community
Reinvestment Act, imposes a continuing and affirmative obligation on
financial institutions to help meet the credit needs of their local
communities. (See 12 CFR Part 228.)
Section 26.107(l) Monitoring and Compliance Procedures
One commenter recommends establishing a requirement to ensure that
non-DBE concessionaires actually fulfill their promised levels of DBE
participation. We concur. A new provision would direct sponsors to
implement appropriate mechanisms to ensure that all program
participants comply with the requirements established pursuant to this
subpart. The sponsor would utilize its own local authority to enforce
these contractual conditions.
Section 26.115 Obligations of Concessionaires, Contractors, and
Competitors
The Department concurs with a comment to the NPRM stating that a
sponsor is authorized to impose a DBE contract goal on competitors for
concession agreements. This provision is included in the SNPRM. It
would also permit a sponsor to impose a contract goal on a management
contractor to attain DBE participation through a management
subcontract.
Like the current rule, the SNPRM does not require a DBE contract on
each concession; rather, the sponsor has discretion to select
agreements to be covered by this requirement.
Three commenters to the NPRM support the provision that requires
sponsors to seek DBE participation in all types of concessions to the
extent practical. They believe that the overall percentage of DBE
participation should be distributed equitably among concessionaires.
Another commenter requests that the rule expressly prohibit sponsors
from levying disproportionate requirements on small concessions. It
believes such a provision is a corollary to the statement in the
current rule that sponsors ``not concentrate participation in one
category or a few categories to the exclusion of others.''
The SNPRM retains the provision in the existing rule requiring
sponsors, to the maximum extent practical, to seek DBE participation in
all types of concession activities and not concentrate participation in
any one or few categories to the exclusion of others. However, we do
not propose to adopt a recommendation to require all contract goals to
be set at the same percentage level. The SNPRM proposes that a contract
goal may be higher or lower than the overall goal, depending on such
factors as the type of work involved, its location, and the
availability of DBEs for the work of the contract or concession.
Unreasonably high contract goals, unrelated to the availability of
DBEs, would not be authorized.
The SNPRM proposes that when a contract goal is set, the sponsor
would be required to notify competitors that as a condition of
receiving the award, the firm must submit information indicating that
it will meet the goal by using named DBEs or that it made good faith
efforts. Sponsors would be prohibited from using more stringent
mechanisms than good faith efforts, such as a set-aside or conclusive
presumption, except under specific conditions. A similar approach is
proposed under 26.45 for DOT-assisted contracting.
Like overall goals, all contract goals would provide for
participation by all certified DBEs and could not be divided into
group-specific goals. We concur with one comment that opposes demands
by sponsors to give preferential treatment to one group of DBEs over
another.
Under the SNPRM, a sponsor may impose either of two requirements on
a non-DBE concessionaire or firm competing for the award of a
concession agreement, other than a car rental. A contract goal may be
set to attain DBE participation solely through a direct ownership
arrangement. Alternatively, a contract goal may be set for the purchase
of goods or services. In the latter case, the sponsor would be subject
to the procedures in 49 CFR 26.117, pertaining to making good faith
efforts to attain a direct ownership arrangement.
The Department concurs with a comment that sponsors should not be
required to allow car rental firms to meet DBE goals through purchase
or lease of goods and services. Accordingly, the SNPRM proposes that a
sponsor may levy one or both of the following requirements on such
firms. First, it may set a contract goal for purchases or leases of
goods or services, in which case, the car rental would be permitted to
meet the goal by including costs associated with purchases or leases of
vehicles from any firm that qualifies as a DBE.
A sponsor could also require a car rental to state in writing
whether a change to its corporate structure is needed in order to form
a direct ownership arrangement with a DBE; and to identify any such
arrangements. If the car rental can provide for a direct ownership
arrangement with a DBE without altering its corporate structure, the
sponsor could require it to make good faith efforts to achieve a
contract goal through such arrangement. If, however, the car rental
cannot form a direct ownership arrangement with a DBE without altering
its corporate structure, the sponsor must deem the firm to be
responsive to any requirement pertaining to direct ownership
arrangements.
The SNPRM proposes that DBEs may participate as prime
concessionaires or management contractors through direct contractual
agreements with the sponsor. Although the NPRM made reference only to
DBEs as prime concessionaires, the legislation does not limit the
provision in this way.
Since several comments address the matter of calculating DBE
contract goals, we have included a new section on this matter. If a
goal applies to a direct ownership arrangement, it would be calculated
as a percentage of the total estimated annual gross receipts from the
concession. If the goal applies to purchases and/or leases of goods and
services, it would be calculated by dividing the estimated dollar value
of such purchases/leases from DBEs by the sum of that amount and the
estimated annual gross receipts from the concession. The latter is
expressed in the following formula, which is designed to parallel the
statutory direction for calculating overall goals:
[[Page 29585]]
[GRAPHIC] [TIFF OMITTED] TP30MY97.005
To illustrate: A concession is expected to generate $1 million in gross
receipts, and the sponsor wishes to set a DBE contract goal of 10
percent. To meet the goal, the concessionaire must purchase/lease
$111,111 in goods or services from DBEs.
[GRAPHIC] [TIFF OMITTED] TP30MY97.006
While the rule would not include a formula for calculating a DBE
contract goal imposed on a management contractor, it may be calculated
as a percentage of the amount of the prime contract. The Department
seeks comment on whether this approach is a sensible one for contract
goals, or whether there are other approaches the Department should
consider.
Several comments address the proposal under which car rentals are
not required to make good faith efforts to form a direct ownership
arrangement with a DBE as a condition of counting the purchase or lease
of goods and services from DBEs. All representatives of the car rental
industry agree with the proposal. Another comment states that the
statute does not relieve sponsors or any business operating at airports
from making good faith efforts to achieve direct DBE participation.
This commenter states that alternative methods of compliance through
purchase of goods and services from DBEs is permitted only when direct
participation is not practical. Yet another comment states that the
statute does not preclude car rental firms from entering into a joint
venture, partnership, sublease, or other direct ownership arrangement
with a DBE, where such an arrangement is practical or desirable. This
comment states that the statute does not relieve car rental firms of
the ``good faith'' requirement applicable to every other non-DBE
business operating at the airport.
Still another commenter, contending that the good faith efforts
test should be applied to car rentals, strongly disagrees with the
NPRM. It points out that much of the intent of Congress was stated
between the time of the 1987 amendments to the AAIA and the subsequent
1992 Act. This commenter notes that several members of Congress made
very key and explicit statements in their remarks on the good faith
efforts issue.
Based on its review, the Department has concluded that the
Congressional statements cited by this last commenter either do not
support its position or are largely irrelevant because they refer to an
early version of Section 117 of the 1992 Act which is substantially
different than the language of Section 117 that was enacted into law.
The position advocated by the commenter was thoroughly considered by
Congress during its early deliberations on the 1992 Act but was
discarded by Congress in drafting the final statutory language.
Moreover, the Department believes that the plain language of the
statute does not impose a good faith efforts test on car rental firms
before they are permitted to engage in vendor purchases. 49 U.S.C.
Section 47107(e)(3) of 49 U.S.C. (formerly Section 511(h)(2) of the
AAIA), which covers all concessionaires except car rental companies,
contains the good faith efforts test. Section 47104(e)(4)(B) (formerly
Section 511(h)(3)(B) of the AAIA), which covers car rental
concessionaires only, contains no such language. Standard rules of
statutory construction require that the words of a statute must be
given their plain meaning, and the absence of the good faith efforts
test from the provision covering car rental concessionaires shows that
the test is not mandated for these concessionaires. In Russello v.
United States, 464 U.S. 16.23 (1983), the U.S. Supreme Court held that
where Congress includes particular language in one section of a statute
but omits it in another section of the same act, it is generally
presumed that Congress acts intentionally and purposely in the
disparate inclusion or exclusion.
The Department concurs with other comments on this matter to the
extent that a sponsor may, within the constraints imposed by the
statute, levy certain requirements on car rentals pertaining to direct
ownership arrangements. These requirements are discussed above.
The NPRM proposed that a car rental firm would not be required to
change its corporate structure in order to provide for a direct
ownership arrangement with a DBE. A change in corporate structure was
defined to include a ``transfer of corporate assets, or execution of a
joint venture, partnership, or sublease agreement.'' One commenter
disagrees with the proposal, while several others agree. The one
opposed comments that it does not see a ``coming-together'' of two
businesses such as in a joint venture, partnership, or a specific
sublease as a change in corporate structure, and the rule should not
define it as such. The Department believes, however, that a firm that
does not generally conduct its operations through such arrangements may
need to alter its corporate structure to provide for doing so. Although
the statute does not define ``change to corporate structure,'' Senator
Wendell Ford addressed this point as follows:
Section 511(h)(3) of the AAIA, as amended provides that nothing
in the law on DBE assurance `shall require a car rental firm to
change its corporate structure to provide for direct ownership
arrangements.' For example, a car rental firm is not required, but
is permitted, by the DBE assurance sections 511(a)(17) and 511(h) of
the AAIA, as amended, to transfer corporate assets or engage in
joint ventures, partnerships, or subleases. I would like to repeat
that this language has been agreed to by both the car rental
industry and the airports. 138 Cong. Rec. S17843 (October 8, 1992)
(statement of Sen. Ford).
In an extension of his remarks on the floor of the House of
Representatives on October 2, 1992, Representative James L. Oberstar
submitted a similar statement for the Congressional Record on October
8, 1992 (138 Cong. Rec. E 3501). Representative William F. Clinger
submitted the same statement to the Congressional Record, as an
extension of his remarks. (138 Cong. Rec. D 3257.) The SNPRM retains
the definition of ``change to corporate structure'' consistent with the
sense of Congress described above.
One commenter requests clarification of whether an airport can
express a preference for a car rental that can
[[Page 29586]]
achieve a DBE goal through a direct ownership arrangement without
changing its corporate structure, for instance, a firm that
traditionally franchises. The SNPRM would prohibit sponsors from
granting such a preference. The Department believes that if adopted,
the practice could have the effect of imposing a de facto requirement
on some firms to change their corporate structure in order to enter
direct ownership arrangements. The prohibition in the rule applies to
the selection by sponsors of car rental concessionaires and to the
terms and conditions of concession agreements.
Section 26.117 Conditions Precedent to Counting Purchases of Goods and
Services by Concessionaires (Other Than Car Rentals) Toward DBE Goals
The rule would include this separate section on the good faith
efforts test, which lists the conditions precedent to counting
purchases of goods and services toward DBE goals by concessionaires
(other than car rentals). For each covered concession, the sponsor
would be obligated to either (1) set a DBE contract goal for a direct
ownership arrangement and require the non-DBE firm to make good faith
efforts; or (2) submit information to the FAA demonstrating that the
sponsor and firm made appropriate good faith efforts to attain DBE
participation through a direct ownership arrangement.
In the latter case, the sponsor would be permitted, if appropriate,
to submit an explanation as to why the nature of a particular
concession makes a direct ownership arrangement not economically
feasible or otherwise impractical. Any contract goals established under
this section would be subject to FAA approval. The Department
interprets 49 U.S.C. 47107(e)(3) as authority to require a contract
goal for a direct ownership arrangement, whenever practicable. The
statute requires the sponsor and concessionaire to ``make good faith
efforts to explore all available options to achieve, to the maximum
extent through practicable, compliance with the [overall DBE] goal
through direct ownership arrangements, including joint ventures and
franchises.''
Purchases of goods and services covered by this section would be
counted toward DBE goals throughout the duration of the concession
agreement, as long as the requirements of this section and subpart are
met. For example, if a concessionaire meets a contract goal for a
direct ownership arrangement, the purchases of goods and services can
also count toward the goals.
Section 26.121 Prohibition on Long-Term, Exclusive Concession
Agreements
Under the SNPRM, a sponsor would be permitted to enter into a long-
term, exclusive agreement only if one or more DBEs participate
throughout the term of the agreement. These DBEs must account for a
percentage of the gross receipts equal to a level set in accordance
with the goaling process of Sec. 26.107. The SNPRM would specify that
such DBE involvement must be in the form of a concession.
However, purchases of goods and services from DBEs would also count
toward the goals, as provided in Sec. 26.117. The SNPRM also proposes
that if a DBE concessionaire cannot perform successfully, the non-DBE
concessionaire must replace the firm with another DBE, if the remaining
term of the agreement makes this feasible. Under a newly proposed
provision, if such a replacement would not be feasible, the non-DBE
would be required to make good faith efforts during the remaining term
of the agreement to encourage DBEs to compete for the purchase and/or
leases of goods and services that it procures.
Section 26.123 Compliance Procedures
One commenter recommends that the final rule include relatively
short deadlines for completing the various stages of investigating a
complaint, and that in any case, the FAA be required to resolve a
complaint within six months. Two commenters believe that unless the
areas relating to car rental concessions are more specific in terms of
what a sponsor is permitted to require, many complaints will be
generated. One of these commenters recommends that this section be
modified accordingly.
The FAA considered matters pertaining to complaint processing in
connection with the development of 14 CFR Part 16 (61 FR 53998; October
16, 1996). In the NPRM leading to this rule (59 FR 29889; June 9,
1994), the Department invited comments on specific procedures that
would apply to complaints filed under the DBE program. Prior to
issuance of Part 16, the procedures in 14 CFR Part 13 governed.
The obligations that would be imposed on concessionaires, including
car rentals, are set forth in other sections of the rule, including 49
CFR Section 26.115. 49 CFR Section 26.123 would provide for processing
complaints and taking enforcement actions in the event of
noncompliance. Complaints would be processed in accordance with the
procedures of FAA regulation 14 CFR Part 16, while Title 49 of the
United States Code (U.S.C.), including Sections 47106(d), 47111(d), and
47122, would govern the enforcement actions the Administrator is
empowered to take in the event of noncompliance. We would like to point
out that these procedures would apply to any noncompliance matter,
regardless of whether it involves a car rental or other covered
organization. We note that other procedures (e.g., DOT Title VI
procedures) may apply concurrently in some cases.
Section 26.125 Effect of Subpart
The SNPRM retains the provision in the NPRM concerning
nonpreemption of State or local requirements. A new paragraph is
proposed concerning local geographical preference, which formalizes FAA
guidance on the matter. This section would also incorporate certain
miscellaneous requirements from 49 CFR Section 26.99, concerning the
availability of records, confidentiality of information on
complainants, cooperation, and the prohibition on intimidation and
retaliation. These provisions would apply equally to the concession
program.
Appendix G--Size Standards for the Airport Concession Program
The NPRM focused on two issues relating to size standards. It
solicited comments on an appropriate size standard for car dealerships,
and proposed use of SBA size standards for other off-airport firms and
for management contractors.
Regarding car dealerships, the NPRM incorrectly stated that the SBA
size standard was $11.5 million. The actual standard at the time was
$18 million. The standard has since been raised to $21 million, due to
an inflationary adjustment to the receipts-based size standards in 13
CFR Part 121, not otherwise prohibited by statute from change. SBA
announced this change April 7, 1994. (See 59 F.R. 16513.)
All car rental agencies that commented and four other commenters
strongly support basing the size standard for car dealers on number of
employees. The number recommended by these organizations ranges from
100 (unaggregated where a DBE owns more than one dealership) to 500 (if
aggregated). The SBA believes that its size standard is reasonable for
car dealerships, although it comments that a moderately higher standard
would also be acceptable. Two commenters suggest basing the standard on
annual net profits, while five commenters recommend that the Department
conduct additional research prior to
[[Page 29587]]
setting a standard. Two of these latter propose that no size limit be
imposed during the initial implementation of the rule, while one favors
use of an interim standard. Those recommending additional research
believe that a number of factors should be studied, including average
annual gross receipts earned by dealerships; impact of fleet purchases
on gross receipts; number and location of minority dealerships;
recognition that not all dealers are given the same line of credit, and
that a small dealer may be unable to obtain the credit needed for a
fleet inventory.
One sponsor observes that in processing applications for
certification, DBE car dealers who own less than 51 percent of a
dealership are more likely to meet SBA's size standard, while DBEs who
own more that 51 percent of a dealership often exceed this cap. Of the
comments favoring the use of gross receipts, one recommends a standard
of $58 million, another in excess of $200 million, while another
recommends setting the standard based on non-fleet sales, together with
other revenues earned from service, parts, and body shop work. Ten car
dealerships comment that fleet sales result in very low profits even
though dollar volume is high. All car dealers that commented voice the
concern that a low gross receipts cap such as $17 million would make
them ineligible immediately.
Most dealers provided information on their own gross receipts and
number of employees. Only one dealer reports yearly revenues of less
than $5 million; five range between $17 and $29 million; three between
$45 and $62 million; and three between $100 and $150 million. Two have
multiple dealerships (four and five), with aggregated revenues of
approximately $424 million and approximately $250 million respectively.
The number of employees ranged from 38 to 150 per dealership. Most
employment levels range from 38 to 70, with only one dealer reporting
more than 600 at four dealerships.
As suggested by one commenter, we obtained the SBA's study,
``Review of Auto Dealer Size Standard March 1991,'' prepared by Robert
N. Ray. The study, which has been included in the docket, was
undertaken to determine what assistance the SBA could provide to new
and used automobile dealers. The industry was in distress at the time
of the study due to a downturn in the business cycle. The study
recommended an increase in the size limit to $13.5 million or $14.5
million.
The Department concurs with commenters who believe that a size
standard based on gross receipts is inappropriate to the extent that
revenues from fleet purchases are included, as only a small profit is
made by the dealer in these transactions.
The Department has concluded that car dealers meeting the SBA's
size standard, in general, are not large enough to handle fleet
purchases or are participating in a dealer development program and may
own less than 51 percent of the dealership. As noted above, such
dealers in development cannot qualify as DBEs. Thus, adopting the
current SBA standard of $21 million may leave only a small pool of DBEs
to perform the type of work eligible to be counted toward DBE goals.
This approach could also eliminate many firms soon after ``graduating''
from a dealer development program and which could benefit significantly
from the DOT's DBE program. Selection of a size standard must also
consider the substantial capital investment that a new car dealer
makes. Setting the standard too low may not provide sufficient time for
the firm to develop and grow.
Extensive research may be required in order for the Department to
determine an appropriate receipts-based standard that excludes revenues
from fleet purchases. A commenter observes that SBA regulations include
an employee-based size standard of 500 employees for Division G,
``Retail Trade,'' non-manufacturers engaged in government procurement,
and 100 employees for wholesale dealers for Division F, ``Automobiles
and Other Motor Vehicles.'' The Department is proposing to use a
maximum of 500 employees as the standard. It would apply to any firm
that meets the definition of SIC 5511, ``Motor Vehicle Dealers (New and
Used),'' found in 49 CFR Section 26.101 under ``small business
concern.'' Given the nature of the comments, we do not believe that
this standard would result in a very few DBEs dominating the market, to
the detriment of smaller DBEs.
If the proposal is adopted, the FAA would notify sponsors in the
event of a change to the definition of SIC 5511. The size standard of
500 employees would apply to any firm meeting this definition,
regardless of the type of goods and/or services it seeks to provide
under the concession program. Thus, if a DBE dealer arranges for a
fleet purchase and provides vehicle repair services to a
concessionaire, a maximum of 500 employees would be used as the
standard for both transactions (whereas, the SBA standard for many
types of automobile repair and services is $5.0 million, as in Major
Group 75). We believe that this approach would simplify administration
of the program and is proposed based on many of the same factors as
discussed above.
One comment addresses the matter of the size standard for
management contractors. This commenter believes that SBA's size
standard of $3.5 million for parking lot contractors may be low, given
the experience necessary to manage a parking lot. It suggests a survey
of DBE firms currently in this business and of the minimum
qualification criteria set by airports.
In proposing to use SBA's size standards, the Department commented
that management contractors, unlike concessionaires, generally are not
required to make a substantial capital investment in a leasehold
facility. Thus, they would not encounter the hardships associated with
``graduating'' from the DBE program after exceeding the size standard,
that ordinarily would befall concessionaires. Indeed, the turnover of
DBEs would allow more firms to enter and benefit from the program.
The SBA's April 7, 1994, final rule increased the size standard for
parking lot operators to a maximum of $5.0 million. (See SIC 7521,
``Automobile Parking.'') The Department points out that rulemaking
procedures do not require a survey of organizations having an interest
in the matter. Further, at least some of the information that would be
obtained in a survey could have been addressed by commenters.
Significantly, no firms and only one sponsor commented. In view of this
and the recent increase in the standard, the Department proposes to use
$5.0 million as the size standard for parking lot operators.
The rule would also incorporate the SBA's size standards for all
other providers of goods or services. With regard to leasing of
vehicles, if a firm does not fall under SIC 5511, ``Motor Vehicle
Dealers (New and Used),'' the appropriate size standard would generally
be SIC 7515, ``Passenger Car Leasing,'' which is set at $18.5 million.
The SNPRM would make an inflationary adjustment to the size
standards for concessionaires, pursuant to the Secretary's authority
under 49 CFR Section 26.101. The Department of Commerce, Bureau of
Economic Analysis, prepares estimates of personal consumption
expenditures using suitable price indices. These indices include
purchases of goods and services, many of which are sold to the public
by airport concessionaires. The implicit price deflator for personal
consumption expenditures was 10.9 from June 1992 to March 1996. Since
size standards for concessionaires were originally established and
became effective June 1, 1992, the second
[[Page 29588]]
quarter of 1992 is used as the base period. 10.9 percent represents the
rate of increase since that time. By multiplying the appropriate size
standard by 1.109 we are able to adjust dollar figures for inflation.
Thus, $40,000,000 multiplied by 1.109 yields $44,360,000 as the
proposed new size standard for auto rental concessionaires.
$30,000,000, when multiplied by 1.109, yields $33,270,000 as the
proposed new size standard for many other categories of
concessionaires. These standards would apply to concessions as listed
in Appendix G, until such time as they are amended. The standards will
be further adjusted upon issuance of a final rule.
Miscellaneous Comments to the NPRM
The SNPRM does not incorporate a recommendation by one commenter to
require prompt payment to DBE contractors. The Department has no
experience in administering a concession program involving providers of
goods or services and does not know whether prompt payment to DBEs is
an issue under such contracts. This matter can be reconsidered at a
later point if problems are brought to our attention.
Two commenters believe that the proposed revisions are not in the
best interest of minorities. One is concerned that the resources
required to monitor purchases of goods and services and management
contractors will make it more difficult to facilitate DBE involvement
in direct ownership arrangements. The Department does not concur that
such monitoring will impose an unreasonable burden. Additionally, the
Department is required by statute to issue a regulation implementing
the provisions relating to goods and services.
Another commenter supports the idea of implementing a ``managed
growth'' program in which DBEs move from threshold to threshold in
terms of development. Upon attaining the level of progress that enables
the firm to compete in the free marketplace, the DBE program will have
accomplished its goal. The comment does not indicate whether such
``thresholds'' are size standards or other types of developmental
stages. Another commenter believes that the proposed development
program presents major problems and should not be included without
research and testing. We point out that the October 3, 1993, NPRM did
not propose a developmental program for DBEs. Such a program was
proposed for DOT-assisted contractors and is addressed in that section
of the SNPRM.
Other Matters Pertaining to Adarand
The SNPRM does not include a proposal for diversifying DBEs in
concessions similar to the one proposed under Sec. 26.33 for DOT-
assisted contractors. There are several reasons for this. First,
available data does not indicate that DBEs are concentrated in
particular types of concessions. Further, when all primary airports are
included, DBEs have accounted for less than 10 percent of total gross
receipts earned during each of the past three years. Many individual
airports are also below this level. Additionally, in contrast to
highway construction, very few non-DBEs have complained to the
Department of being excluded from particular types of concessions due
to a concentration of DBEs.
Like the current rule, the SNPRM would require a DBE to leave the
program once it exceeds a specified size standard. As in the other
portions of the SNPRM, Subpart G does not propose additional
``graduation'' provisions. However, the Department seeks comment on
whether additional provisions affecting the duration element of narrow
tailoring should be added to this portion of the rule.
Regulatory Analyses and Notices
Executive Order 12866
This is a significant NPRM under Executive Order 12886. We view it
as significant because it has substantial policy and public interest
and affects a broad variety of parties across three DOT modes. As noted
earlier in the preamble, this SNPRM is one part of the Clinton
Administration's overall reform of affirmative action programs. For the
same reasons, it is also significant under the Department's Regulatory
Policies and Procedures.
We do not believe that the SNPRM would have significant economic
impacts, however. In evaluating the potential economic impact of this
SNPRM, we begin by noting that this proposal would not create a new
program. It would revise 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. 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.
``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 DBE
contracts), but there would probably not be net gains or losses to the
economy. 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. We do not now have any data that would
allow us to quantify these impacts. The Department is working with
other agencies to see if data on DBE participation and potential
effects of the proposal can be obtained. We also seek comments and
information on the issue of economic impacts or costs to participants.
We will conduct further analysis if information or comments we receive
make it possible.
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.
The SNPRM, 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 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 who seek
to work in DOT financial assistance programs. To the extent that the
proposals in this SNPRM (e.g., with respect to changes in the methods
used to set overall goals) lead to a 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 proposed
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.
Nevertheless, the Department seeks any information that commenters
may
[[Page 29589]]
have on potential small entity impacts of the SNPRM, particularly the
provisions concerning goal-setting and DBE diversification. In addition
to reviewing information we receive in comments, DOT anticipates
working with other agencies involved in the Administration's
affirmative action reform effort to benefit from research and analysis
they have performed. Based on the information we have obtained (or
program data after a final rule is implemented), the Department may be
in a position to do a more detailed analysis of small entity impacts in
the future.
Paperwork Reduction Act
At the present time, under 49 CFR Part 23, the Department has one
information collection item approved under the Paperwork Reduction Act.
This is for a quarterly DBE data report from recipients to DOT (OMB No.
2105-0510). This approval expires July 31, 1997. Under the SNPRM, the
frequency of reporting would change from four times a year to twice a
year, which would reduce the burden involved.
Under Part 23, there are other regulatory requirements that may
have Paperwork Reduction Act implications. These include the
requirement for applicants for DBE participation to submit eligibility
information to recipients (Appendix C of the SNPRM contains a proposed
certification form that applicants would use) and for recipients to
submit DBE programs and overall goals to DOT for approval. Similar
requirements apply in the airport concessions portion of the rule.
These provisions, for the most part, originated before the current
version of the Paperwork Reduction Act, and the Department did not, at
the time, submit Paperwork Reduction Act approval requests concerning
them. These activities would continue under the SNPRM, which would also
add a one-time requirement for the submission of a unified
certification program plan to the Department for approval.
The Department intends to analyze information collection
requirements in the DBE program in greater detail before the issuance
of a final rule, and we seek comments on information collection issues.
The Department intends, based on its own analysis and information we
receive in comments, to submit a formal information collection approval
request to OMB in connection with paperwork contained in Part 26.
Organizations and individuals wishing to submit comments on these
proposed requirements should direct comments to OMB's Office of
Information and Regulatory Affairs, Room 10235, New Executive Office
Building, Washington, DC 20503: Attention: Desk Officer for U.S.
Department of Transportation. OMB is required to make a decision
concerning the collection of information proposed in this SNPRM between
30 and 60 days after its publication. Therefore, a comment to OMB is
best assured of having its full effect if OMB receives it within 30
days of publication. This does not affect the Department's comment
closing date.
Regulatory Reform Initiative
This proposal is intended to help the Department achieve the goals
of the Clinton Administration's Regulatory Reform Initiative. It does
so in several ways. It proposes to reduce the frequency of reports. It
proposes to reduce the burden on small businesses by creating a one-
stop shopping certification system in each state and by ensuring that
recipient certification processes treat all applicants fairly and
consistently.
One of the most burdensome aspects of the current administration of
the program is the vagueness of certification standards and the
multiplicity of interpretations and varying guidance and policies that
have implemented these standards at the Federal, state, and local
levels. To address this problem, the SNPRM reinvents the certification
standards and provides clear, specific, uniform, nationwide standards
for certification. This will provide greater certainty to all
participants and reduce the time, difficulty, and cost involved in the
certification process. It will also substantially improve the fairness
of the process to applicants.
One aspect of regulatory reinvention is enhancing partnership with
state and local governments, providing greater opportunities for state
and local innovation and responsibility in carrying out programs. The
SNPRM seeks to do so in a number of ways, such as the program waiver
provision and the flexibility provided to establish the unified
certification process in each state. The Department seeks comment on
additional ways the DBE program can accomplish this objective.
The Department also seeks comment on additional ways in which the
Department's regulation can be reinvented, simplified, clarified, or
made easier for participants to work with, consistent with the goals of
the Administration's Regulatory Reform Initiative.
Federalism
The SNPRM 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 proposal would not significantly alter the role of state
and local governments vis-a-vis DOT from the present Part 23. The
proposal to permit program waivers could allow greater flexibility for
state and local participants, however.
Issued this 21st day of May, 1997, at Washington, DC.
Rodney E. Slater,
Secretary of Transportation.
For the reasons set forth in the preamble, and under the authority
of 49 U.S.C. 322, the Department proposes to amend Title 49, Subtitle
A, by removing Part 23 and adding 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 purposes of this rule?
26.3 To whom does this rule apply?
26.5 What do the terms used in this rule mean?
26.7 What discriminatory actions are forbidden?
26.9 How does the Department issue guidance, interpretations,
exemptions and program waivers under this rule?
26.11 What records do recipients keep and report?
26.13 What assurances must recipients and contractors make?
26.15-26.19 [Reserved]
Subpart B--Administrative Requirements for DBE Programs for Federally-
Assisted Contracting
26.13 What assurances must recipients and contractors make?
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 foster DBE
diversification?
26.35 What are a recipient's responsibilities for monitoring the
performance of other program participants?
26.37-39 [Reserved]
Subpart C--Goals, Good Faith Efforts, and Counting
26.41 How do recipients set overall goals?
26.43 How are overall goals established for transit vehicle
manufacturers?
26.45 What means do recipients use to meet overall goals?
[[Page 29590]]
26.47 What are the good faith efforts procedures recipients follow
in situations where there are contract goals?
26.49 How is DBE participation counted toward goals?
Subpart D--Certification Standards
26.51 How are burdens of proof allocated in the certification
process?
26.53 What rules govern group membership determinations?
26.55 What rules govern business size determinations?
26.57 What rule determine determinations of social and economic
disadvantage?
26.59 What rules govern determinations of ownership?
26.61 What rules govern determinations concerning control?
26.63 What are other rules affecting certification?
26.65-26.69 [Reserved]
Subpart E--Certification Procedures
26.71 What are the requirements for Unified Certification Programs?
26.73 What procedures do recipients follow in making certification
decisions?
26.75 What rules govern recipients' denials of initial requests for
certification?.
26.77 What procedures does a recipient use to remove a DBE's
eligibility?
26.79 What is the process for certification appeals to the
Department of Transportation?
26.81 What actions do recipients take following DOT certification
appeal decisions?
26.83 What procedures govern direct ineligibility complaints to
DOT?
6.85-26.89 [Reserved]
Subpart F--Compliance and Enforcement
26.91 What compliance procedures apply to recipients?
26.93 What enforcement actions apply in FHWA and FTA programs?
26.95 What enforcement actions apply in FAA Programs?
26.97 What enforcement actions apply to firms participating in the
DBE program?
26.99 What are the rules governing information, confidentiality,
cooperation, and intimidation or retaliation?
Subpart G--DBE Participation in Airport Concessions
26.101 Definitions.
26.103 Applicability.
26.105 Requirements for airport sponsors.
26.107 Elements of Disadvantaged Business Enterprise (DBE)
concession plan.
26.109 Rationale for basing overall goals on the number of
concession agreements.
26.111 Obligations of concessionaires, contractors, and
competitors.
26.113 Conditions precedent to counting purchases of goods and
services (other than car rentals) toward DBE goals.
26.115 Privately-owned terminal buildings.
26.117 Prohibition on exclusive, long-term concession agreements.
26.119 Compliance procedures.
26.121 Effect of subpart.
Appendix A--Explanation and Construction of Provisions of 49 CFR
Part 26
Appendix B--Good Faith Efforts
Appendix C--DBE Certification Form
Appendix D--DBE Developmental Program Guidelines
Appendix E--Mentor-Protege Program Guidelines
Appendix F--Guidance for Making Individual Determinations of Social
and Economic Disadvantage
Appendix G--Size Standards for Airport Concessionaires
Authority: Section 1003(b) of the Intermodal Surface
Transportation Efficiency Act of 1991; 49 U.S.C. 47113, 47107,
47123; 49 U.S.C. 1615; 23 U.S.C. 324; and 42 U.S.C. 2000d, et seq.
Subpart A--General
Sec. 26.1 What are the purposes of this part?
In this part, the Department 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 result in programs that, consistent with Federal law, create
significant opportunities for DBEs to participate, on a
nondiscriminatory basis, in the DOT-assisted contracts
(c) To carry out the statutory requirement concerning DBE
participation in concessions at airports receiving Federal grant funds;
(d) To assist the development of firms that can compete
successfully in the marketplace outside the DBE program;
(e) To ensure that only firms that fully meet this part's
eligibility standards are permitted to participate as DBEs; and
(f) To provide appropriate flexibility to recipients of Federal
financial assistance in establishing and providing opportunities for
DBEs.
Sec. 26.3 To whom does this part apply?
(a) If you are a recipient of any of the following types of funds,
this part applies to you:
(1) Federal-aid highway funds authorized Titles I (other than Part
B) and V of the Intermodal Surface Transportation Efficiency Act of
1991 (ISTEA), Pub. L. 102-240.
(2) Federal transit funds authorized by Titles I, III, V and VI of
Pub. L. 102-240 or by Federal transit laws in Title 49, U.S. Code.
(3) Airport funds authorized by the Airport and Airway Improvement
Act of 1982 (AAIA), as amended.
(b) If you are an airport sponsor that has received a grant for
airport development after January 1988 authorized by the AAIA, as
amended, Subpart G of this part applies to you.
(c) If you are letting a contract, and that contract is to be
performed entirely outside the United States, its 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.
Sec. 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, you must consider
all appropriate factors, including common ownership, common management,
and contractual relationships. You must consider affiliates together
when you determine if a concern meets small business size criteria and
the statutory cap on the participation of firms in the DBE program.
Compliance means that you have 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 and FHWA, FTA, and FAA.
DOT-assisted contract means any contract between a you and a
contractor 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.
Disadvantaged business enterprise or DBE means a for-profit small
business concern--
(1) Which is at least 51 percent owned by one or more socially and
economically disadvantaged individuals or, in the case of a
corporation, in which
[[Page 29591]]
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.
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.
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 shares in the control,
management, risks, and profits of the joint venture to a degree
commensurate with its ownership interest.
Noncompliance means that you have not correctly implemented the
requirements of this rule.
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
(1) The individual's ownership interest in an applicant or
participating DBE firm or
(2) 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.
You are a Primary recipient if you receive DOT financial assistance
and pass some or all of it on to another recipient.
Program means any undertaking on your part to use DOT financial
assistance.
You are a Recipient if you are 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 if
you have 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 annual gross receipts
specified in Sec. 26.55(b).
Socially and economically disadvantaged individuals means
individuals who are citizens (or lawfully admitted permanent residents)
of the United States and who are:
(1) Individuals in the following groups, who 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, 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.
(2) Any individual, not a member of one of these groups, who a
recipient finds to be a socially and economically disadvantaged
individual on a case-by-case basis.
You refers to recipients, unless the context requires otherwise.
Sec. 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 rule 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
(see the Department's rules implementing Title VI of the Civil Rights
Act of 1964, 49 CFR part 21).
Sec. 26.9 How does the Department issue guidance, interpretations,
exemptions and program waivers under this part?
(a) This part supersedes the former 49 CFR part 23 contained in the
49 CFR, parts 1 to 99, edition revised as of October 1, [19--]. Only
guidance and interpretations (including interpretations set forth in
certification appeal decisions) consistent with and issued after [the
effective date of the final rule] have definitive, binding, or
precedential effect in implementing the provisions of this part.
(b) The Office of the Secretary of Transportation and FHWA, FTA,
and FAA may issue written interpretations of or written guidance
concerning this part. Interpretations are valid and binding only if
they contain the following statement:
This interpretation of 49 CFR Part 26 has been reviewed and
approved through the Department of Transportation DBE Coordination
Mechanism for consistency with the language and intent of Part 26.
(c) If you want an exemption from any provision of this part, you
must request it in writing from the Office of the Secretary of
Transportation, FHWA, FTA, or FAA. We will grant the request only if it
meets these criteria:
(1) The request documents special or exceptional circumstances, not
likely to be generally applicable, and not contemplated in connection
with the rulemaking that established this part effective [effective
date of final rule], that make your compliance with a specific
provision of this part impracticable. You must agree to take steps we
specify to comply with the intent of the provision from which an
exemption is granted.
(2) We will issue written responses to all exemption requests.
Grants or
[[Page 29592]]
denials of exemption requests are valid and binding only if they
contain the following statement:
This response to a request for an exemption from 49 CFR Part 26
has been reviewed and approved through the Department of
Transportation DBE Coordination Mechanism for consistency with the
language and intent of Part 26.
(d) If you want a program waiver authorizing you to operate a DBE
program that achieves the objectives of this part by means that differ
from one or more of the requirements of subparts B, C or G of this
part, 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 (d)(2) of this section.
Before submitting its 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
rule using different, innovative, or less prescriptive means than are
provided in subparts B , C or G.
(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 legal and program
requirements of the concerned operating administration's financial
assistance program.
(3) The Secretary decides whether to grant 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
Sec. 26.49 of this part or Subpart G, as applicable;
(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 the
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 (d) (2) and (3) of this section continue to be met. Any such
extension shall be for no longer than the period originally set for the
duration of the program.
(5) The Secretary and Administrators of the concerned operating
administrations may establish a limit on the number of recipients'
programs operating under a waiver provided under this paragraph.
Sec. 26.11 What records do recipients keep and report?
(a) You must retain sufficient basic information about its program
implementation, its certification of DBEs, and the award and
performance of contracts and subcontracts to enable the concerned
operating administration to monitor your compliance with this part.
Keep this data for at least three years after the completion of the
contract or project.
(b) You must report data to the concerned operating administration
concerning DBE participation in DOT-assisted contracts twice a year, in
a format and on dates determined by the appropriate DOT office.
(c) You must follow the requirements in this section whether or not
you have to have a DBE program under Sec. 26.21 of this part.
Sec. 26.13 What assurances must recipients and contractors make?
(a) Except as provided in paragraph (b) of this section, 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 award and performance of any
DOT-assisted contract or in the administration of its DBE program or
the requirements of this Part. 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, if 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) An operating administration may, in place of the assurance in
paragraph (a) of this section, prescribe other language you must agree
to in grant agreements or certifications of compliance.
(c) Each contract you sign with a contractor (and each subcontract
the prime contract signs with a subcontractor) must include the
assurance in this paragraph.
The contractor, subrecipient or subcontractor shall not
discriminate on the basis of race, color, national origin, or sex in
the performance of this contract. The requirements of 49 CFR Part 26
and the recipient's DOT-approved DBE program (where required) are
incorporated in this contract by reference. The contractor shall
take all necessary and reasonable steps in accordance with Part 26
to ensure nondiscri-mination 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.
Subpart B--Administrative Requirements for DBE Programs for
Federally-Assisted Contracting
Sec. 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
subparts B, C, D, and E of this part:
(1) All FHWA recipients;
(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 your program for approval to the concerned
operating administration. You must submit revised programs conforming
to this part by [a date 180 days from the effective date of the final
rule]. Once we approve your program, the approval counts for all DOT
programs.
(2) You don't 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 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.
[[Page 29593]]
Sec. 26.23 What is the requirement for a policy statement?
You must issue a signed and dated policy statement which 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.
Sec. 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.
Sec. 26.27 What efforts must recipients make concerning DBE financial
institutions?
You must thoroughly investigate the full extent of services offered
by financial institutions owned and controlled by socially and
economically disadvantaged individuals in its community and make
reasonable efforts to use these institutions. You must also encourage
prime contractors to use such institutions.
Sec. 26.29 What prompt payment mechanisms may recipients have?
You may establish, as part of your DBE program, one or more
mechanisms to ensure that DBE subcontractors are promptly and fully
paid.
(a) You may include a contract clause to require prime contractors
to pay DBE subcontractors for satisfactory performance of their
contracts no later than a specific number of days (e.g., 10 days) from
receipt of each payment you make to the prime contractor. This prompt
payment clause may also provide for appropriate penalties for failure
to comply, the terms and conditions of which you set.
(b) Prompt payment clauses 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.
(c) You may also use a contract clause that requires prime
contractors to include in their DBE subcontracts language providing
that prime contractors and DBE subcontractors will use appropriate
alternative dispute resolution mechanisms to resolve payment disputes.
You may specify the nature of such mechanisms.
(d) You may include a contract clause providing that the prime
contractor will not be reimbursed for work performed by DBE
subcontractors unless and until the prime contractor ensures that the
DBE subcontractors are promptly paid for the work they have performed.
(e) You may establish other mechanisms, consistent with this part
and applicable state and local law, to ensure that DBEs are fully and
promptly paid, including the prompt return of retainage payments
following the satisfactory completion of the DBE's portion of the work.
Sec. 26.31 What requirements pertain to the DBE directory?
You must maintain and make available to interested persons a
directory identifying all eligible DBEs. 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. The listing may include
additional relevant information. You must revise your directory at
least annually and make updated information available to contractors
and the public on request.
Sec. 26.33 What steps must a recipient take to foster DBE
diversification?
(a) You must include in your DBE program a diversification
mechanism to discourage the concentration of DBEs in certain fields.
The mechanism shall provide that--
Alternative 1
If DBE firms receive [50, 75] percent or more of the contracts in a
particular field in a given year, you will count toward overall and
contract goals in the next year 50 percent of the DBE participation in
that field that is normally countable under Sec. 26.49.
Alternative 2
If the cumulative DBE participation in a particular field during
any year exceeds four times your overall goal percentage as applied to
the work projected to be available in that field over the entire year,
you will not count any DBE credit for participation in that field for
contracts awarded during the remainder of the year.
Alternative 3
If all DBEs receive [50, 75] percent or more of the contracts in a
particular field in a given year, you will not, in the following year,
count toward overall and contract goals any participation in that field
of a particular DBE firm (or its affiliate) that has received four or
more contracts in that field over the preceding four years.
Alternative 4
If DBEs receive [50, 75] percent or more of the contracts in a
particular field in a given year, you will, in the following year,
tailors its contract goals to specify participation in other fields.
(b) In operating outreach and technical assistance programs under
Sec. 26.45(a), you must give priority to assisting firms to enter
fields in which DBEs receive [10, 25, 50] percent or fewer of the
contracts.
(c) You may, or, if an operating administration directs you to,
must establish a DBE business development program (BDP) to assist
selected DBE firms in becoming able to compete in fields in which DBEs
receive [10, 25, 50] percent or fewer of the contracts awarded. You may
include in this program only firms that meet these criteria:
(1) A DBE firm must have been certified by you for at least two
years and must have participated in at least one of your DOT-assisted
contracts during that time.
(2) You must have made the following determinations about the firm:
(i) It has as its primary area of operation a field in which DBEs
have received at least [50, 75] percent of your DOT-assisted contracts
in at least one of the previous three years, and
(ii) It is capable, with business development assistance, of
competing successfully in one or more fields in which DBEs have
received [10, 25, 50] percent or fewer of your DOT-assisted contracts
in at least one of the previous three years.
(3) In providing business development assistance to DBE firms, you
must be guided by the provisions of appendix D of this part.
(d) As part of a BDP established under paragraph (c) of this
section, you may establish a ``mentor-protege'' program, in which
another DBE or non-DBE firm is a principal source of business
development assistance. To participate in such a program, a DBE firm
must meet these criteria:
(1) It must meet the criteria of paragraphs (c) (1) and (2) of this
section.
(2) It must have participated, during the preceding two years, in
at least one contract you let in which the mentor firm did not
participate.
(e) In operating a mentor-protege program, you must follow these
additional requirements:
(1) During the course of the mentor-protege relationship, you must
not award DBE credit to the mentor firm for using the protege firm for
more than one half of its goal on any contract let by the recipient.
[[Page 29594]]
(2) 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.
(3) You must operate your mentor-protege program consistent with
the guidelines of appendix E to this part.
(f) For purposes of this section, a ``field'' means an industry as
defined by a four-digit SIC code in 13 CFR part 121 or a readily
identifiable category of work in your DOT-assisted contracting, as
designated in your DBE program with the approval of the concerned
operating administration.
Sec. 26.35 What are a recipient's responsibilities for monitoring the
performance of other program participants?
You must implement appropriate mechanisms to ensure compliance with
this part's requirements by all program participants. You must include
in your DBE program the contract provisions, enforcement mechanisms, or
other means you use to ensure compliance. These must include a
monitoring and enforcement mechanism to verify that the work committed
to DBEs at contract award is actually performed by the DBEs.
Secs. 26.37-39 [Reserved]
Subpart C--Goals, Good Faith Efforts, and Counting
Sec. 26.41 How do Recipients Set Overall Goals?
(a) You must have an overall goal and calculate it 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.
(b) Except as provided in paragraphs (c) through (e) of this
section, you must calculate its overall goal in the following way:
Alternative 1
(1) Calculate the number of DBE firms available to work on your
DOT-assisted contracts. This is the number of certified DBE firms in
your DBE directory.
(2) Calculate the total number of firms available to work on your
DOT-assisted contracts. This number includes both the DBE firms in your
DBE directory and non-DBE firms available to work on your DOT-assisted
contracts.
(3) Calculate the percentage of DBEs among the total number of
firms available to work on the recipient's DBE contracts. The result
represents DBE capacity and becomes your overall goal.
Example to paragraph (b): You have 10 DBE firms in your
Directory. There are 100 firms, including the 10 DBEs and 90 non-
DBEs, available to work on your DOT-assisted contracts. Your overall
goal is 10 percent.
Alternative 2
(1) Calculate the number of minority and women-owned firms in your
jurisdiction, using 2-digit SIC codes covering the principal types of
work in your DOT-assisted contracts.
(2) Calculate the total number of firms in your jurisdiction in the
same SIC codes.
(3) Calculate the percentage that minority- and women-owned firms
make up of all firms. This percentage becomes your DBE goal.
Example to paragraph (b): You determine that there are 10
minority-and women-owned firms (not just DBE firms) in your
jurisdiction in the three two-digit SIC codes in which you do the
bulk of your DOT-assisted contracting. In these same SIC codes,
there are a total of 100 firms in your jurisdiction. Your overall
goal is 10 percent.
Alternative 3
(1) Calculate the average number of DBE firms that have worked on
your DOT-assisted contracts in any capacity (e.g., as prime
contractors, subcontractors, suppliers) in the preceding five years.
(2) Calculate the average number of all firms that have worked on
your DOT-assisted contracts in any capacity in the preceding five
years.
(3) Using the average numbers calculated in paragraphs (b) (1) and
(2), determine the percentage that DBE firms make up of all firms that
have worked for you in the preceding five years. This percentage
becomes your overall goal.
Example to paragraph (b): Over the five years preceding this
year, the following numbers of firms have worked for you:
------------------------------------------------------------------------
DBEs All firms
------------------------------------------------------------------------
Year 1............................................ 4 45
Year 2............................................ 5 49
Year 3............................................ 6 42
Year 4............................................ 4 38
Year 5............................................ 6 41
---------------------
Total........................................... 25 215
Average......................................... 5 43
Percentage--11.6%--becomes the overall goal...........................
------------------------------------------------------------------------
(c) Under the following circumstances, you may use an overall goal
developed by another agency:
(1) You may use a ``benchmark'' developed by the U.S. Department of
Commerce (DOC) for purposes of Federal procurement if--
(i) The geographic scope of your market with respect to the type of
business involved is generally similar to the geographic scope of the
market studied by DOC; and
(ii) You make an appropriate adjustment to the ``benchmark'' to
account for the participation of women-owned DBEs (which are not
included in the DOC numbers).
(2) You may use an overall goal developed under paragraph (b) of
this section by another DOT recipient if the other recipient's goal
pertains to an area generally similar to the area from which you obtain
contractors for DOT-assisted contracts.
Example to paragraph (c)(2): City X is located within State Y.
The city transit authority could use the State DOT's overall goal,
assuming that it procures from the same general area. It could also
use the local airport's overall goal, assuming that the airport and
transit authority typically obtained contractors for DOT-assisted
projects from the same general area.
(3) When you use the overall goal of another agency, you may adjust
that goal upward or downward based on information about differences
between your market and that of the other agency.
Example to paragraph (c)(3): City X uses the overall goal
developed by State Y's DOT. However, there is a heavier
concentration of minority-owned businesses in City X than there is
statewide. City X could adjust its goal upward to take this
demographic difference into account.
(d) With the approval of the concerned operating administration,
you could use another means (e.g., a disparity study) of calculating
your overall goal, provided that this means is narrowly tailored to
redress the effects of discrimination.
(e) On the basis of evidence that discrimination has suppressed
business development by DBEs, you must increase the overall goal by a
percentage representing the degree to which DBE capacity has been
suppressed.
Example to paragraph (e): You determine that discrimination has
suppressed DBE business development by 20 percent. DBE capacity is
10 percent. The overall goal
[[Page 29595]]
becomes 12 percent (i.e., the 10 percent capacity number plus 20
percent of that number).
(f)(1) If you set overall goals on a fiscal year basis, you must
submit them to the applicable DOT operating administration for review
60 days before the beginning of the Federal fiscal year to which the
goal applies, or at another time determined by the Administrator of the
concerned operating administration.
(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 and the
basis for selecting the particular goal submitted.
(4) You are not required to obtain prior operating administration
concurrence with your overall goal. However, if the operating
administration's review suggests that your overall goal has not been
correctly calculated, or that its justification is inadequate, the
operating administration may, after consulting with you, adjust your
overall goal. The adjusted overall goal is binding on you.
(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 be expected to have information concerning the availability
of disadvantaged businesses, the effects of discrimination on
opportunities for DBEs, and your efforts to increase 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-focus media and trade
association publications.
(h) If you don't establish and implement an overall goal as
provided in this section, you are in noncompliance with this part and
you are not eligible to receive FHWA, FTA, or FAA financial assistance.
(i) If you don't meet your overall goal, you will have an
opportunity to explain to the concerned operating administration why
you could not do so and why meeting the goal was beyond your control.
If you do not make such an explanation, or the explanation is
inadequate, the operating administration may direct you to take
remedial action. If you don't take this remedial action, you are in
noncompliance with this part.
(j) Your overall goals must provide for participation by all
certified DBEs and must not be subdivided into group-specific goals.
Sec. 26.43 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 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 use an
overall goal determined by FTA on a national basis for the industry.
The base from which the goal shall be calculated is the amount of FTA
financial assistance participating in transit vehicle contracts you
will perform during the fiscal year in question. FTA will not include
funds attributable to work performed outside the United States and its
territories, possessions, and commonwealths in this base.
(c) If you are an FTA recipient, you may, with FTA approval,
establish project-specific goals under Sec. 26.41 for DBE participation
in the procurement of transit vehicles in place of complying with this
section.
(d) If you are an FHWA or FAA recipient, you may, with FHWA or FAA
approval, in a case where FHWA or FAA has established a national goal,
use the procedures of this section with respect to procurements of
vehicles or specialized equipment.
Sec. 26.45 What means do recipients use to meet overall goals?
(a) You must meet as much of your overall goal as you can by using
outreach, technical assistance, and other methods to facilitate DBE
participation, including but not limited to the following:
(1) Arranging solicitations, times for the presentation of bids,
quantities, specifications, and delivery schedules in ways to
facilitate DBE participation (e.g., unbundling large contracts to make
them more accessible to DBEs);
(2) Providing assistance to DBEs 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 obtain bonding and financing);
(3) Providing technical assistance and other services;
(4) Carrying out information and communications programs on
contracting procedures and specific contract opportunities (e.g.,
ensuring the inclusion of DBEs on recipient mailing lists for bidders;
ensuring the dissemination to bidders on prime contracts of lists of
potential DBE 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, recordkeeping, and
financial and accounting capability for DBEs;
(6) Providing services to help DBEs 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 race/gender-neutral program to assist new,
start-up firms, particularly in fields in which DBE participation has
not been traditionally significant;
(8) Ensuring distribution of its DBE directory, through print and
electronic means, to the widest feasible universe of potential prime
contractors.
(b) To meet any portion of your overall goal you cannot meet using
the means provided in paragraph (a) of this section, you must use the
means provided in paragraphs (c) and/or (d) of this section.
(c) 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 must calculate contract goals on the basis of the entire
amount of the prime contract (i.e., both the state/local and Federal
share of the contract).
(3) 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 its overall goal, you
must set contract goals so that they will cumulatively result in the
meeting any portion of your overall
[[Page 29596]]
goal not met through use of the mechanisms in paragraph (a) of this
section.
(4) 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.
(5) Your overall goals must provide for participation by all
certified DBEs and must not be subdivided into group-specific goals.
(d) The following provisions apply to the use of evaluation
credits:
(1) You may use evaluation credits only to the award of prime
contracts.
(2) You may provide that a responsible and responsive DBE firm
competing for the prime contract will receive the contract if the price
it offers is a stated percentage, between one and 10 percent, higher
than the lowest price offered by any responsible and responsive non-DBE
firm.
(3) You may also provide that a responsible and responsive non-DBE
firm competing for the prime contract that provides a stated level of
DBE participation will receive the contract if the price it offers is a
stated percentage, between one and 10 percent of the amount that is
subcontracted, higher than the lowest price offered by any responsible
and responsive non-DBE firm that does not provide this level of DBE
participation.
(4) In establishing the level of DBE participation used in this
mechanism, you must use the factors set forth in paragraphs (c) (2)
through (5) of this section. You must require competitors for the prime
contract to submit DBE participation information as provided in
Sec. 26.47(b)(2) (i) through (v) and (b)(3) of this part.
(5) Your evaluation credit procedures must provide for
participation by all certified DBEs and must not be subdivided into
group-specific goals.
(e) You must not use more stringent mechanisms (including, but not
limited to, set-asides or a conclusive presumption) on DOT-assisted
contracts unless--
(1) You have legal authority independent of this part to use such
mechanisms; and
(2) You have a continuing, substantial inability to meet your
overall goal using the mechanisms provided for in this section. In such
a case, you must document in its file for the contract the basis for
the determination that other available methods have proven unable to
meet DBE goals.
(f) You must review, at appropriate intervals, the methods and
procedures used to comply with this section to ensure that they
continue to be needed to overcome the effects of discrimination,
modifying them as needed for this purpose.
(1) If your actual DBE participation significantly exceeds your
overall goals over a substantial period of time, you must consider
appropriate reductions in your use of race/gender-conscious means of
meeting overall goals.
(2)(i) You must calculate--
(A) The percentage that minority- and women-owned businesses in
your state (not just DBEs) in types of work relevant to DOT-assisted
contracting make up of all such businesses; and
(B) The percentage of all business receipts in these types of work
attributable to minority- and/or women-owned businesses.
Example to paragraph (b)(2): In State Z, minority- and women-
owned firms account for 20 percent of all businesses. These same
firms account for 10 percent of business volume (i.e., as measured
by receipts).
(ii) Where the percentage calculated in paragraph (b)(2)(i)(B) is
greater than that calculated in paragraph (b)(2)(i)(A), you must
consider appropriate reductions in its use of race/gender-conscious
means of meeting overall goals.
Example to paragraph (b)(2)(ii): In State Z, minority- and
women-owned firms continue to account for 20 percent of all
businesses, but now account for 27 percent of business volume.
Particularly where this pattern persists over a significant period
of time, you would rely more on race/gender-neutral methods of
achieving goals in construction contracts and less on race/gender-
conscious means.
Sec. 26.47 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 contractor who either meets the contract goal
requirement or demonstrates that it has made adequate good faith
efforts to do so. If the contractor does document adequate good faith
efforts, you must not deny award of the contract on the basis that the
contractor failed to meet the goal.
(b) In your solicitations for DOT-assisted contracts for which a
contract goal has been established, you must require the following of
competitors:
(1) Award of the contract will be conditioned on meeting the
requirements of this section; and
(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 DBE will perform;
(iii) The dollar amount of the participation of each DBE firm
participating;
(iv) Written 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.
(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) If the DBE participation submitted by the bidder/offeror does
not meet the contract goal, you must determine whether the bidder/
offeror's good faith efforts are adequate. In making this
determination, use the guidance provided in appendix B to this part. If
the bidder/offeror makes a showing of adequate good faith efforts, you
must award the contract to the bidder/offeror, even if the bidder/
offeror did not meet the contract goal.
(d) You must make sure all information is complete and accurate and
adequately documents the bidder/offeror's good faith efforts committing
yourself to the performance of the contract by the bidder/offeror.
(e) When the apparent successful bidder/offeror for a contract
fails to meet the DBE contract goal, and you determine that the bidder/
offeror has failed to make adequate good faith efforts, 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 made adequate good faith efforts to meet the
contract goal.
(2) The bidder/offeror must also have the opportunity to meet in
person with your officials to discuss the issue of whether it made
adequate good faith efforts to meet the contract goal.
[[Page 29597]]
(3) 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 make adequate good faith efforts.
(4) Your must send the bidder/offeror a written decision on
reconsideration, explaining the basis for finding that the bidder did
or did not make adequate good faith efforts.
(5) The result of the reconsideration process is not
administratively appealable to the Department of Transportation.
(f) A DBE prime contractor--
Alternative 1--is required to meet DBE contract goals on the same
basis as other prime contractors.
Alternative 2--is not required to meet DBE contract goals.
Alternative 3--that will perform, with its own forces, a sufficient
percentage of the work on the contract to meet the contract goal is not
required to obtain other DBE participation to meet the goal. If a DBE
prime contractor will not perform such a percentage of the work with
its own forces, it must obtain other DBE participation sufficient to
meet the remainder of the goal, or demonstrate that it made adequate
good faith efforts to do so.
(g)(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.
(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.
Sec. 26.49 How is DBE participation counted toward goals?
(a) Except as otherwise provided in this section, count the total
dollar value of a contract with a DBE toward DBE goals.
(b)(1) Count the entire amount of a construction contract toward
DBE goals, including the cost of supplies and materials obtained by the
DBE for the work of the contract.
(2) 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.
(c) 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 toward DBE goals.
(d) Do not count any portion of the value of a contract that a DBE
subcontractor subcontracts to any non-DBE firm (including a non-DBE
prime contractor or its affiliate) toward DBE goals. Provided, however,
that you may count value of supplies purchased or equipment leased by a
DBE subcontractor from a non-DBE firm (other than the prime contractor
or its affiliate) and used by the DBE in the performance of the
subcontract toward DBE goals.
(e) 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 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 would 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) You must presume that a DBE engaged in transporting materials
is not performing a commercially useful function if the DBE does not
own at least 50 percent of the vehicles used for the contract.
(5) When a DBE is presumed not to be performing a commercially
useful function as provided in paragraph (e) (3) or (4) 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.
(6) Your decisions on commercially useful function matters are
subject to review by the concerned operating administration.
(f) Count expenditures with DBEs for materials or supplies toward
DBE goals as provided in this paragraph:
(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, 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)(i) 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.
[[Page 29598]]
(B) A regular dealer in such bulk items as petroleum products,
steel, cement, gravel, stone, or asphalt may be a person who owns and
operates distribution equipment for the products and/or owns, operates,
or maintains a store, warehouse, or other place of business in which
products of the general character described by the specifications and
required under the contract are bought for the account of such person
and sold to the public in the usual course of business. 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.
(3) With respect to materials or supplies are 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.
(g) If a firm is not currently certified as a DBE in accordance
with standards of subpart D of this part at the time of the execution
of the contract, do not count the firm's participation toward DBE
goals.
(h) Do not count the dollar value of work performed under a
contract with a firm after it has ceased to be certified toward the
your overall goal.
(i) Do not count the participation of a DBE subcontractor toward
the prime contractor's goal attainment until the amount being counted
toward the goal has been paid to the DBE.
Subpart D--Certification Standards
Sec. 26.51 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, business
size, ownership, and control.
(c) You must rebuttably presume that members of the designated
groups identified in Sec. 26.57(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.
(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.
(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.
Sec. 26.53 What rules govern group membership determinations?
(a) If you have reason to question whether 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 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 minority
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 the 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 Sec. 26.79.
Sec. 26.55 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.
(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 $17.77 million. The
Secretary adjusts this amount for inflation from time to time.
Sec. 26.57 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 not require an
individual who are members of a designated group to demonstrate, in
connection with his or her firm's application for certification, that
he or she is , in fact, socially and economically disadvantaged.
(2) Except as provided in paragraph (a)(3) of this section, you
must not collect information related to the social and economic
disadvantage of individuals who are members of the designated groups
(including, but not limited to, information concerning personal net
worth, personal income tax returns, or other personal financial data)
as part of the certification process, except information essential to
ascertain the individuals' ownership and control of a business that is
unavailable from any other source. When you require an applicant to
submit personal financial information, you must provide a written
statement to the applicant stating with specificity what information is
required, why the information is essential to a determination of
ownership and control, and why the information is unavailable from any
other source.
(3) You must require applicants for certification to submit a
signed, notarized certification that each socially and disadvantaged
owner is, in fact, a socially and economically disadvantaged
individual, as provided in this part. You must also require applicants
for certification to submit a brief summary statement of the personal
net worth of each socially and economically disadvantaged owner.
(b) Rebuttal of presumption of disadvantage. (1) If you have a
reasonable basis to believe that an individual who is a member of one
of the designated groups is, in fact, not socially and/or economically
disadvantaged, you may start a
[[Page 29599]]
proceeding to determine whether the presumption should be regarded as
rebutted with respect to that individual.
(2) In the case of a firm that is applying for initial
certification, do not start such a proceeding unless and until you have
determined that the individual owns and controls the firm and that the
firm meets business size criteria. In this case, you may hold the
issuance of a certification in abeyance pending the outcome of the
proceeding.
(3) Your proceeding must follow the procedures of Sec. 26.77.
(4) 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.
(5) If you demonstrate that the personal net worth of the
individual exceeds [an amount to be inserted in the final rule], you
have met this burden, and the presumption of social and economic
disadvantage is rebutted for that individual. In this case, the
individual must, in order for his or her firm to be certified,
demonstrate on an individual basis that he or she is socially and
economically disadvantaged.
(6) For purposes of such a proceeding, you may require the
individual whose disadvantage is being questioned to provide
information about his or her personal net worth. You may require only
such information as is necessary to establish whether the individual's
personal worth exceeds [the amount inserted in the final rule].
(c) 8(a) firms. (1) If a firm applying for certification has a
current, valid certification from the SBA under the 8(a) program, you
must presume it to be eligible for the DBE program, subject to
demonstrating that it meets the average annual gross receipts limit
referenced in Sec. 26.55(b) and that it meets SBA business size
criteria for the type(s) of work it seeks to perform in your DBE
program. If the firm does not meet these requirements, it is not an
eligible DBE, even though it has a valid 8(a) certification from SBA.
(2) Consistent with this presumption, you must not, in connection
with the firm's application for certification, require an 8(a) firm to
provide information related to ownership, control, or social and
economic disadvantage. You may require the firm to provide information
to demonstrate that it meets the average annual gross receipts limit
and that it meets SBA small business size criteria for any type of
contracting it expects to perform in your DBE program. You may also
require the firm to provide information that will appear in your DBE
directory.
(3) If you have a reasonable basis to believe that the ownership,
control, or disadvantaged status of an 8(a) firm is not consistent with
its participation in the DBE program, bring your concerns to the
attention of, and request a response from, the SBA. Following the
receipt of the response from SBA, or after 60 days if no response from
SBA has been received, you may initiate a proceeding under Sec. 26.77
of this part, including in the record and taking into account any
response received from SBA. If the 8(a) firm is making its initial
application for certification, you may hold the firm's certification in
abeyance pending the outcome of this proceeding.
(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
certification. You must make a case-by-case determination of whether
such an individual 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. In making
these determinations, use the guidance in appendix F to this part.
Sec. 26.59 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. In the case of
a corporation, such individuals must own unconditionally at least 51%
of the stock. In the case of an applicant firm which is a partnership,
51% of the partnership interest must be unconditionally owned by
socially and economically disadvantaged individuals. Such unconditional
ownership must be reflected in the firm's partnership agreement.
(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, 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 (other than in a revocable living 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 is a disadvantaged individual who, rather
than the trustee, exercises effective control over the management,
policy-making, and daily operational activities of the firm.
(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 which 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) In situations in which expertise is relied upon as the
contribution to acquire ownership, the expertise must be in areas
critical to the firm's operations, specific to the type of work the
firm performs, and documented in the records of the firm. The records
must clearly show the contribution of expertise and its value to 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 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.
[[Page 29600]]
(h)(1) You must presume as not being 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 as the result of a gift, or transfer without adequate
consideration, from any non-disadvantaged individual or non-DBE firm
that 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 firm 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.
(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.
(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.
Sec. 26.61 What rules govern determinations concerning control?
(a) In determining whether socially and economically disadvantaged
owners control a firm, you must consider all the facts in the record,
viewed as a whole.
(b) Only 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. In the case of a corporation, the
socially and economically disadvantaged owners must own and control at
least 51 percent of voting stock. 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) 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 Sec. 26.59(i)(2)
of this part.
(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.
(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 or 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
[[Page 29601]]
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, the 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) 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 owner's remuneration is lower than that of some other
participants in the firm. 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 firm 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.
(k) A socially and economically disadvantaged individual may
control a firm even though one or more members of the individual's
family 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 it does in other situations, without regard to whether or
not the other persons are family members.
(1) 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.
(2) Where a firm was formerly owned and/or controlled by a non-
disadvantaged individual, 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
(i) The transfer of ownership and/or control 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 formerly owned and/
or controlled the firm.
(l) 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.
(m) 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 work, 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.
(n) 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.
(o) In order for a partnership to be controlled by socially and
economically disadvantaged individuals, any non-disadvantaged partners
shall 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.
Sec. 26.63 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
[[Page 29602]]
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.
(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) Except as provided in paragraph (f) of this section, an
eligible DBE firm shall be owned by individuals who are socially and
economically disadvantaged. A firm that is owned not by such
individuals, but by another firm, is not an eligible DBE, even if the
other firm is itself an eligible DBE.
(f) A firm owned by an Indian tribe recognized by the Department of
the Interior or an Alaskan Native Corporation may be regarded as owned
by socially and economically disadvantaged individuals, notwithstanding
the fact that ownership may formally reside in the tribe or corporation
as an entity, rather than in individual members of the tribe. Such a
firm must meet the control and business size criteria of this section
in order to be an eligible DBE. In determining business size,
recipients shall apply the affiliation standards of 13 CFR part 121.
(g) 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.
(h) 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.
Secs. 26.65--26.69 [Reserved]
Subpart E--Certification Procedures
Sec. 26.71 What are the requirements for Unified Certification
Programs?
(a) Except as provided in paragraph (b) of this section, you and
all other DOT recipients in your state must participate in a Unified
Certification Program (UCP).
(1) Within three years of [the effective date of the final rule],
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 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 the you and the other recipients in your state fail to meet
the deadlines set forth in this paragraph, 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 within a time certain. If you and
the other recipients fail to carry out this direction in a timely
manner, you are collectively in noncompliance with this part.
(b) If you are an airport sponsor, you may, but are not required
to, participate in the UCP for your state with respect to firms seeking
certification as airport concessionaires. If you choose not to
participate in the UCP with respect to the concession program, you must
certify concessionaires and other concession program participants
independently. You must participate in the UCP for your state with
respect to contractors on FAA-assisted contracts.
(c) 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. Certification decisions by the UCP shall be binding on all
DOT recipients within the state. 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.
(d) All certifications by UCPs shall be pre-certifications; i.e.,
certifications that take place before the issuance of a solicitation
for a contract on which a firm seeks to participate as a DBE.
(e) 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.
(f) 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.
(g) 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.
(h) Each UCP shall maintain a unified DBE directory containing, for
all firms certified by the UCP, the information required by Sec. 26.31
of this part. The UCP shall make the directory available to the public
electronically as well as in print.
(i) Except as otherwise specified in this section, all provisions
of this subpart and subpart D pertaining to recipients also apply to
UCPs.
Sec. 26.73 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 their programs.
(b) You must determine the eligibility of firms as DBEs consistent
with the standards of subpart D of this part.
(c) You must take all the following steps in determining whether a
DBE firm meets the standards of subpart D:
[[Page 29603]]
(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. If you have made a site
visit to a firm, you must promptly make available the report of that
visit to any other recipient that makes a written request for it.
(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) You must use the application form provided in Appendix B to
this part without change or revision. However, you may provide in your
DBE program, with the approval of the concerned operating
administration, for supplementing the form by requesting additional
information not inconsistent with this part.
(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) Subject to the approval of the concerned operating
administration as part of your DBE program, you may impose a reasonable
fee for processing a firm's application for certification, which in no
case shall exceed the actual cost of the administrative processing of
the application. Fee waivers shall be made in appropriate cases.
(e) 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.
(f) 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 Sec. 26.77. You must not require
DBEs to reapply for certification as a condition of continuing to
participate in the program during this three-year period.
(g) If you are a DBE, you must inform the recipient or UCP in
writing of any change in its circumstances affecting its ability to
meet size, disadvantaged status, ownership, or control requirements of
this part or any material change in the information provided in its
application form. You must attach supporting documentation describing
in detail the nature of such changes. 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 21 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
Sec. 26.99(c) of this part.
(h) If you are a DBE, you must provide to the recipient, every year
on the anniversary of the date of its certification, an affidavit sworn
to by the firm's owners before a person who is authorized by state law
to administer oaths or an unsworn 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 (g) 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 deemed to have failed to
cooperate under Sec. 26.99(c) of this part.
(i) If you are a recipient, you must shall 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
its 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 Sec. 26.79.
Sec. 26.75 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. All documents and other information on which the denial is
based must be made available to the applicant, on request.
(b) When a firm is denied certification, you must 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 its
DBE program, and 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 Sec. 26.79.
Sec. 26.77 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 may be
[[Page 29604]]
protected as provided in Sec. 26.99(b) of this part.
(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 concerned 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, under paragraph, (a), (b) or (c) 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
Sec. 26.79, 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 making a
photocopy for the firm.
(3) The firm may elect to present information and arguments in
writing, without going to a hearing. In such a situation, a decision
you make to remove the firm's eligibility must be based on a
preponderance of the evidence that the firm does not meet the
eligibility standards of this part.
(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, with respect to the matter, to direction from the office or
personnel who did take part in these actions.
(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;
(2) Information or evidence not available to you at the time of its
certification of the firm;
(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 Sec. 26.79. You must
send copies of the notice to the complainant in an ineligibility
complaint or the concerned operating administration that had directed
the recipient to initiate the proceeding.
(h) Status of firm during proceeding. (1) Except as provided in
paragraph (h)(3) of this section, a firm remains an eligible DBE during
the pendancy of your proceeding to remove its eligibility.
(2) The firm does not become ineligible until the issuance of the
notice provided for in paragraph (g) of this section.
(3) If you determine that there is a strong likelihood that the
firm will be determined to be ineligible, and it appears that the firm
will be awarded a contract or subcontract before the conclusion of the
proceeding, you may suspend the eligibility of the firm to receive any
new contracts or subcontracts as a DBE, pending the conclusion of the
proceeding.
(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 good faith
efforts to the recipient.
(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 firm,
the portion of ineligible firm's performance of the contract remaining
after you issued the notice of its ineligibility shall not count toward
the overall goal.
(3) When a firm is found to be ineligible, the effects of its
ineligibilty (e.g., its participation not counting toward overall
goals) are retroactive to the date you received the complaint of
[[Page 29605]]
ineligibility or other event initiating the ineligibility proceeding.
(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 Sec. 26.79.
Sec. 26.79 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.
(2) If you are a complainant in an ineligibility complaint to a
recipient (including the concerned operating administration in the
circumstances provided in Sec. 26.77(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 removal 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 Washington, DC 20590
(b) Pending the Department's decision in the matter, 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 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, beyond the control of the
appellant, 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 Sec. 26.99(c).
(2) If you are an appellant other than one described in paragraph
(c)(1), the Department will request, and the firm whose certification
has been questioned shall promptly provide, the information called for
in paragraph (c)(1). Failure to provide this information may be deemed
a failure to cooperate under Sec. 26.99(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. 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.
(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 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 Department instructions concerning
the proper application of the provisions of this part.
(5) The Department does not uphold your decision based on grounds
not specified in the your decision.
(6) The Department's decision is based on the status and
circumstances of the firm as of the date of your decision that is being
appealed.
(7) The Department provides written notice of its decision to you,
the firm, and the complainant in an ineligibility complaint. 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.
(g) All decisions under this section are administratively final,
and are not subject to petitions for reconsideration.
Sec. 26.81 What actions do recipients take following DOT certification
appeal decisions?
(a) If you are the recipient from whose action an appeal under
Sec. 26.79 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
Sec. 26.79 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 Sec. 26.77(i)
take effect.
(2) If the Department determines that you erroneously failed to
find reasonable cause to propose removing the firm's eligibility, you
must
[[Page 29606]]
expeditiously commence a proceeding to determine whether the firm's
eligibility should be removed, as provided in Sec. 26.77.
(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 disadvantage either should
or should not be deemed rebutted, you must take appropriate corrective
action as determined by 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
Sec. 26.77. 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 not required
to certify the firm based on the DOT decision.
Sec. 26.83 What procedures govern direct ineligibility complaints to
DOT?
(a) Any person who believes that a recipient has erroneously
certified a firm as a DBE may file a written complaint with the DOT
Office of Civil Rights. The complaint should be sent to the address in
Sec. 26.79(a)(3).
(b) The Office of Civil Rights may, at its discretion, accept the
complaint, decline the complaint, or refer the complaint for action by
a recipient under Sec. 26.77.
(c) If the Office of Civil Rights accepts the complaint, it
investigates the facts of the matter and determines if there is
reasonable cause to believe that the firm is ineligible. The Office of
Civil Rights notifies the firm of its determination, in the same way as
provided in Sec. 26.77(a)(3).
(d) If the Office of Civil Rights determines there is reasonable
cause to believe that the firm is ineligible, it provides an
opportunity for a hearing and makes a decision in the same way as
provided in Sec. 26.77 (d) through (g) (except that there is no further
administrative appeal to the Department under Sec. 26.79). The effects
of a Departmental decision to remove a firm's eligibility is the same
as provided in Sec. 26.77(i).
(e) Except as provided in this paragraph, a firm remains eligible
during the pendancy of a proceeding under this section. However, if the
Office of Civil Rights determines that there is a strong likelihood
that the firm will be determined to be ineligible, and it appears that
the firm will be awarded a contract or subcontract before the
conclusion of the proceeding, the Office of Civil Rights may direct the
recipient to suspend, pending the conclusion of the proceeding, the
eligibility of the firm to receive any new contracts or subcontracts as
a DBE.
Secs. 26.85-26.89 [Reserved]
Subpart F--Compliance and Enforcement
Sec. 26.91 What compliance procedures apply to recipients?
If you fail to comply with any requirement of this part, you may be
subject to formal enforcement action under Sec. 26.93 or Sec. 26.95 of
this subpart 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 section 519 of the
Airport and Airway Improvement Act of 1982, as amended; and in the case
of the FTA program, any actions permitted under the Federal Transit Act
of 1964, as amended, or applicable FTA program requirements.
Sec. 26.93 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 with Office of Civil Rights. If you want to
file a complaint, you must do so no later than 180 days after the date
of the alleged violation or the date on which you learned of a
continuing course of conduct in violation of this part. 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
Sec. 26.99(b) of this part. 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.
(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
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 its 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.
Sec. 26.95 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 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 Sec. 26.93(b) and Sec. 26.97 apply to
enforcement actions in FAA programs.
[[Page 29607]]
(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.
Sec. 26.97 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 which 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 which, 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, 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, implementing the Program Fraud Civil Remedies Act of 1986, against
any participant in the DBE program whose conduct is subject to such
action under part 31.
(e) 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.
Sec. 26.99 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. 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 13 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; 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 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.
Subpart G--DBE Participation in Airport Concessions
Sec. 26.101 Definitions.
Affiliation has the same meaning the term has in regulations of the
Small Business Administration, 13 CFR part 121, except that the
provisions of Sec. 121.401(l), ``Affiliation under joint venture
agreements,'' shall not apply to the definition used in this subpart.
Except as otherwise provided in 13 CFR part 121 and in this section,
concerns are affiliates of each other when either directly or
indirectly--
(1) One concern controls or has the power to control the other, or
(2) A third party or parties controls or has the power to control
both, or
(3) An identity of interest between or among parties exists such
that affiliation may be found. In determining whether affiliation
exists, consideration shall be given to all appropriate factors,
including common ownership, common management, and contractual
relationships. Affiliates are considered together for purposes of
determining whether either concern meets the applicable small business
size standard.
Concession means a for-profit business enterprise, located on an
airport subject to this subpart, that is engaged in the sale of
consumer goods or services to the public under an agreement with the
sponsor, another concessionaire, or the owner of a terminal, if other
than the sponsor. Businesses which conduct an aeronautical activity are
not considered concessionaires for purposes of this subpart.
Aeronautical activities include scheduled and non-scheduled air
carriers, air taxis, air charters, and air couriers, in their normal
passenger or freightcarrying capacities; fixed base operators; flight
schools; and sky-diving, parachute-jumping, flying guide services, and
helicopter or other air tours.
(1) Appendix G to this part contains a listing of the types of
businesses that are frequently operated as concessions.
(2) Examples of entities that do not meet the definition of a
concession include flight kitchens and inflight caterers servicing air
carriers, government agencies, industrial plants, farm leases,
individuals leasing hangar space, custodial and security contracts,
telephone and electric utilities, long distance telephone service, and
skycap services under contract with an air carrier.
(3) For purposes of this subpart, a business is not considered to
be ``located on the airport'' solely because it picks up and/or
delivers customers under a permit, license, or other
[[Page 29608]]
agreement. This provision applies to, but is not limited to, taxicabs,
limousines, hotels, and car rentals. A business is considered to be
``located on the airport,'' however, if it has an on-airport facility
which services the public. On-airport facilities include in the case of
a taxi-cab, a dispatcher; in the case of a limousine, a booth selling
tickets to the public; in the case of a car rental, a counter at which
its services are sold to the public; and in the case of a hotel
operator, a hotel located anywhere on airport property.
(4) Any business meeting the definition of concession is covered by
this subpart, regardless of the name given to the agreement with the
sponsor, concessionaire, or airport terminal owner. A concession may be
operated under various types of agreements, including:
(i) Leases.
(ii) Subleases.
(iii) Permits.
(iv) Contracts.
(v) Other instruments or arrangements.
Concessionaire means a firm that owns and controls a concession.
Direct ownership arrangement means a joint venture, partnership,
sublease, franchise, or other arrangement in which a firm owns and
controls a concession.
Disadvantaged business enterprise or DBE has the same meaning the
term has in Sec. 26.5 of this part, except that for purposes of this
subpart--
(1) The firm must qualify as a small business concern, as defined
in this subpart; and
(2) The definition of ``socially and economically disadvantaged
individuals'' set forth in this subpart shall apply.
Management contract or subcontract means an agreement with a
sponsor or a derivative subagreement under which a firm directs or
operates one or more business activities, the assets of which are
owned, leased, or otherwise controlled by the sponsor.
(1) The managing agent generally receives, as compensation, a flat
fee or a percentage of the gross receipts or profit from the business
activity. For purposes of this subpart, the business activity operated
or directed by the managing agent must be other than an aeronautical
activity, be located at an airport subject to this subpart, and be
engaged in the sale of consumer goods or services to the public.
(2) As used in this subpart, the term management contract or
subcontract shall not include an agreement between a concessionaire and
a managing agent. (In the event such managing agent qualifies as a DBE
and meets other appropriate criteria in this subpart, it can be counted
toward DBE goals as provided in paragraph (c)(2)(iii) or (c)(2)(iv) of
Sec. 26.107.)
Material amendment means a substantial change to the basic rights
or obligations of the parties to a concession agreement. Examples of
material amendments include an extension to the term not provided for
in the original agreement or a substantial increase in the scope of the
concession privilege. Examples of nonmaterial amendments include a
change in the name of the concessionaire or a change to the payment due
dates.
Primary airport means a commercial service airport which is
determined by the Secretary to have more than 10,000 passengers
enplaned annually.
Small business concern means an existing firm, including all its
domestic and foreign affiliates, that qualifies under the appropriate
size standard referenced in Appendix G to this part. Except as provided
in paragraph (4) of this definition, the appropriate standard is the
one which best describes the type of concession the firm seeks to
operate, or type of goods or services the firm seeks to provide under
the DBE concession program.
(1) A concessionaire qualifying under this definition that exceeds
the size standard after entering a concession agreement, but which
otherwise remains eligible, may continue to be counted as DBE
participation toward the overall goals and any contract goals set under
this subpart, until the current agreement, including the exercise of
options, expires.
(2) The Secretary may periodically adjust the size standards in
Appendix G to this part for inflation.
(3) If a concessionaire was certified as a minority/woman/or
disadvantaged business enterprise (MBE/WBE/DBE) prior to [the effective
date of the final rule], pursuant to a requirement in Sec. 23.43(d) or
subpart F of 49 CFR part 23, and the firm has exceeded the size
standard, it may be counted as DBE participation until the current
agreement, including the exercise of options, expires, provided that
the firm remains otherwise eligible.
(4) Any firm falling under ``Standard Industrial Classification
(SIC)'' code 5511 shall be considered a small business concern for
purposes of this subpart, if it has no more than 500 employees,
regardless of the nature of the goods and/or services it seeks to
provide under the DBE concession program. SIC 5511, ``Motor Vehicle
Dealers (New and Used),'' hereinafter ``car dealerships,'' means:
Establishments primarily engaged in the retail sale of new automobiles
or new and used automobiles. These establishments frequently maintain
repair departments and carry stocks of replacement parts, tires,
batteries, and automotive accessories. Such establishments also
frequently sell pickups and vans at retail.
Socially and economically disadvantaged individuals has the same
meaning the term has in Sec. 26.5 and as further defined in Sec. 26.57
and Appendix F to this part.
Sponsor means the recipient of an FAA grant.
Sec. 26.103 Applicability.
This subpart applies to any sponsor that received a grant for
airport development after January 1988 which was authorized under Title
49 of the United States Code.
Sec. 26.105 Requirements for airport sponsors.
(a) General requirements. (1) Each sponsor shall abide by the non-
discrimination requirements of Sec. 26.7 with respect to the award and
performance of any concession agreement, management contract or
subcontract, purchase or lease agreement, or other agreement covered by
this subpart.
(2) Each sponsor shall take all necessary and reasonable steps to
ensure nondiscrimination in the award and administration of contracts
and agreements covered by this subpart.
(3) The following statements shall be included in all concession
agreements and management contracts executed between the sponsor and
any firm after [the effective date of the final rule].
(i) ``This agreement is subject to the requirements of the U.S.
Department of Transportation's regulations, 49 CFR Part 26, subpart G.
The concessionaire or contractor agrees that it will not discriminate
against any business owner because of the owner's race, color, national
origin, or sex in connection with the award or performance of any
concession agreement, management contract, or subcontract, purchase or
lease agreement, or other agreement covered by 49 CFR Part 26, subpart
G.''
(ii) ``The concessionaire or contractor agrees to include the above
statements in any subsequent concession agreement or contract covered
by 49 CFR Part 26, subpart G, that it enters and cause those businesses
to similarly include the statements in further agreements.''
(4)(i) Each sponsor shall retain sufficient basic information about
its program implementation, its certification of DBEs, and the award
and
[[Page 29609]]
performance of agreements and contracts to enable the FAA to monitor
the sponsor's compliance with this subpart. Data shall be retained for
a minimum of three years following the completion of the concession
agreement or other covered contract.
(ii) Sponsors shall report data to the appropriate FAA Regional
Office concerning DBE participation in concession activities. The
reports shall be made in a format, and with a frequency, as determined
by the FAA Administrator.
(iii) The requirements of this paragraph apply to all obligated
sponsors, whether or not it is required to establish a DBE concession
plan under paragraph (b) of this section.
(b) Additional requirements for primary airports. (1) Sponsors of
primary airports shall implement a disadvantaged business enterprise
(DBE) concession plan containing the elements listed in Sec. 26.107.
Sponsors of more than one primary airport shall implement a separate
plan for each location that has received assistance for airport
development. The plan shall be submitted to the appropriate FAA
Regional Office for approval.
(2) The sponsor shall review and update the plan at least annually.
The updated plan shall include any information required under
Sec. 26.107 that was not available to the sponsor when the previous
submission was made. Updated plans shall be submitted to the
appropriate FAA Regional Office for approval.
(c) Additional requirements for nonprimary airports. Sponsors of
commercial service airports (except primary), general aviation and
reliever airports are not required to implement a DBE concession plan
but shall take appropriate outreach steps to encourage available DBEs
to participate as concessionaires whenever there is a concession
opportunity.
Sec. 26.107 Elements of a Disadvantaged Business Enterprise (DBE)
concession plan.
(a) Overall annual DBE goals.
(1) The sponsor shall establish an overall goal for the
participation of DBEs in concession activities for each 12-month period
covered by the plan.
(2) Sponsors shall calculate the overall DBE goal as a percentage
of one of the following bases:
(i) The estimated gross receipts that will be earned by all
concessions operating at the airport during the goal period.
(ii) The total number of concession agreements operating at the
airport during the goal period.
(3) The plan shall indicate which base the sponsor proposes to use
for calculating the overall goals.
(4) Sponsors that employ the procedures of paragraph (a)(2)(i) of
this section may add the following amounts to the total DBE
participation and to the base from which the overall percentage goal is
calculated:
(i) The estimated dollar value of a management contract or
subcontract with a DBE. (The dollar value of management contracts and
subcontracts with non-DBE firms are not added to the base from which
the overall percentage goal is calculated.)
(ii) Subject to the conditions set forth in Sec. 26.117 of this
subpart, the estimated dollar value of goods and services that a non-
DBE concessionaire (except a car rental) will purchase from DBEs and
use in operating the concession.
(iii) The estimated dollar value of goods and services that a non-
DBE car rental firm will purchase or lease from DBEs and use in
operating the concession.
(5) Sponsors that employ the procedures of paragraph (a)(2)(i) of
this section shall also:
(i) Use the net payment to the airport for banks and banking
services, including automated teller machines (ATM) and foreign
currency exchanges, in calculating the overall goals.
(ii) Exclude from the overall goal calculation any portion of a
firm's estimated gross receipts that will not be generated from a
concession activity.
Example to paragraph (a)(5). A firm operates a restaurant in the
airport terminal which services the traveling public and under the
same lease agreement, provides in-flight catering service to the air
carriers. The projected gross receipts from the restaurant are
included in the overall goal calculation, while the gross receipts
to be earned by the in-flight catering services are excluded.
(iii) State in the plan which concession agreements, if any, do not
provide for the sponsor to know the value of the gross receipts earned.
For such agreements, the sponsor shall use the net payment to the
airport and combine these figures with the estimated gross receipts
from other agreements, for purposes of calculating overall goals.
(6)(i) Sponsors that will employ the procedures of paragraph
(a)(2)(ii) of this section shall submit a rationale as required by
Sec. 26.111.
(ii) In calculating overall goals, these sponsors may add the
number of management contracts and subcontracts with DBEs to the total
of DBE participation and to the base from which the overall percentage
goal is calculated. Management contracts and subcontracts with non-DBEs
shall not be included in this base.
(7) All overall goals established under this subpart shall provide
for participation by all certified DBEs and may not be subdivided into
group specific goals.
(8) In setting overall goals, sponsors shall include only those
projected expenditures/gross receipts or number of agreements, as
applicable, as Sec. 26.107(c) allows to be counted toward meeting such
goals.
(9) In establishing the overall annual goals of the concession
plan, the sponsor shall provide for public participation by taking at
least the steps listed in paragraphs (a)(9)(i) and (ii) of this
section. If the FAA approves the overall annual goals of the concession
plan, the sponsor is not required to repeat the steps in subsequent
years covered by the plan.
(i) Consult with minority, women's and general contractor groups,
community organizations, and other officials or organizations which
could be expected to have information concerning the availability of
disadvantaged businesses, the effects of discrimination on
opportunities for DBEs, and the sponsor's efforts to increase
participation of DBEs.
(ii) Publish a notice announcing the sponsor's proposed overall
goals, informing the public that the goals and a description of how
they were selected are available for inspection during normal business
hours at the principal office of the sponsor for 30 days following the
date of the notice, and informing the public that the Department and
the sponsor will accept comments on the goals for 45 days from the date
of the notice. The notice shall include addresses to which comments may
be sent, and shall be published in general circulation media and
available minority-focus media and trade association publications, and
shall state that the comments are for informational purposes only.
(10) Failure to establish and implement overall annual goals as
provided in this section constitutes noncompliance with this subpart. A
sponsor that fails to comply with this requirement is not eligible to
receive Federal financial assistance from the FAA.
(11) In setting overall DBE goals, the sponsor shall follow the
procedures set forth in Sec. 26.41 (b) through (e), as applied to
contractors who are available for airport concession leases or
contracts.
(12) To the extent practicable, sponsors shall seek to obtain DBE
participation in all types of concession
[[Page 29610]]
activities and not concentrate participation in one category or a few
categories to the exclusion of others.
(13) Approval by the appropriate FAA Regional Office of the
sponsor's overall annual goals is required prior to implementation. If
the FAA determines that the overall goals have not been correctly
calculated or the justification is inadequate, the FAA may, after
consulting with the sponsor, establish one or more adjusted overall
annual goals. The adjusted overall goal(s) represents the FAA's
determination of an appropriate overall goal for DBE participation in
the sponsor's concession program, based on relevant data and analysis.
The adjusted overall goal(s) shall be binding on the sponsor.
(b) Goal methodology. (1) The plan shall contain a description of
the methodology used to calculate each overall DBE goal. The
methodology shall include information on the concessions that will
operate at the airport during the period covered by the plan. For each
concession agreement, the sponsor shall provide the following
information, together with any additional information requested by the
Regional Civil Rights Officer:
(i) Name of firm (if known).
(ii) Type of business (e.g. bookstore, car rental, baggage carts).
(iii) Beginning and expiration dates of agreement, including
options to renew.
(iv) For new agreements, method of solicitation proposed by sponsor
(e.g. request for proposals, invitation for bids).
(v) Dates that material amendments will be made to the agreement
(if known).
(vi) Except for sponsors covered by paragraph (a)(2)(ii) of this
section, the estimated gross receipts for each goal period established
in the plan.
(vii) Identification of those concessionaires that have been
certified under this subpart as DBEs.
(viii) An indication of those concessions having potential for
participation by DBEs.
(2) The plan shall provide information on other projected
expenditures with DBE firms that the sponsor proposes to count toward
meeting overall goals, including
(i) Name of each DBE firm (if known).
(ii) Type of business arrangement (e.g. management contract,
vehicle leasing, building cleaning and maintenance service).
(iii) Estimated value of funds to be counted toward meeting the
overall goals.
(iv) Identification of entity purchasing or leasing the goods or
services from the DBE (e.g., the sponsor or name of non-DBE
concessionaire).
(3) Sponsors that will levy a DBE contact goal or other
requirements on competitors or concessionaires in accordance with
Sec. 26.115 of this subpart shall state those requirements in the plan.
(4) The plan shall include a narrative description of the types of
efforts the sponsor intends to make in good faith to achieve the
overall annual goals, in accordance with paragraph (k) of this section.
(c) Counting DBE participation toward meeting the goals. (1) A
sponsor or concessionaire may count toward DBE goals expenditures with
DBEs as referenced in this section, provided that the DBE performs a
commercially useful function in the work of the contract. For purposes
of this subpart, the term commercially useful function has the same
meaning as in Sec. 26.49(e) of this part, except that the requirements
of Sec. 26.49(e)(3) shall not apply to a concession agreement or
management contract or subcontract.
(2) If a sponsor is covered by paragraph (a)(2)(i) of this section,
DBE participation is counted toward meeting goals as follows.
(i) The total dollar value of a management contract or subcontract
with a DBE is counted toward the goals (but the value of the gross
receipts of the business activity to which the management contract or
subcontract pertains is not counted toward the goals.)
(ii)(A) The total dollar value of gross receipts a DBE earns under
a concession agreement is counted toward the goals, provided, however,
that if the DBE enters into a subconcession agreement with a non-DBE,
no portion of the gross receipts earned by the non-DBE is counted.
(B) When a DBE performs as a subconcessionaire to a non-DBE, only
the portion of the gross receipts earned by the DBE under its
subagreement is counted toward the goals.
(C) When a concession is performed by a joint venture involving a
DBE, a portion of the gross receipts equal to the percentage of the
ownership and control by the DBE partner in the joint venture is
counted toward the goals.
(iii) A non-DBE car rental firm may count toward a contract goal
set under Sec. 26.115, the expenditures with DBEs for goods and
services listed in paragraphs (c)(2)(iii) (A) through (C), (D)(1), and
(E) of this section, which are used in operation of the concession. A
sponsor may count these same expenditures toward its overall goal.
Counting such expenditures toward DBE goals is subject to the
additional condition stated in Sec. 26.49(d) of this part.
(A) Costs incurred in connection with the renovation, repair, or
construction of a concession facility (sometimes referred to as the
``build-out'') are counted toward DBE goals in accordance with
Sec. 26.49 of this part, except that 100 percent of the cost of any
materials or supplies purchased from a DBE regular dealer and used in
the project are counted toward the goals. For purposes of this subpart,
the term regular dealer has the same meaning as in
Sec. 26.49(f)(2)(iii).
(B) The entire amount of fees or commissions charged by a DBE firm
for a bona fide service is counted toward DBE goals, provided that it
is determined by the sponsor to be reasonable and not excessive as
compared with fees customarily allowed for similar services. Such
services may include, but are not limited to, professional, technical,
consultant, legal, security systems, advertising, building cleaning and
maintenance, computer programming, or managerial.
(C) 100 percent of the cost of goods obtained from a DBE
manufacturer is counted toward the goal. For purposes of this subpart,
the term manufacturer has the same meaning as in Sec. 26.49(f)(1)(ii)
of this part.
(D)(1) 100 percent of the cost of goods purchased or leased from a
DBE regular dealer is counted toward the goals.
(2) 100 percent of the goods purchased from a DBE regular dealer is
counted toward goals.
(E) If goods are purchased from a DBE which is neither a
manufacturer nor a regular dealer, credit toward DBE goals may be
counted as follows:
(1) The entire amount of fees or commissions charged for assistance
in the procurement of the goods is counted toward the goals, provided
that it is determined by the sponsor to be reasonable and not excessive
as compared with fees customarily allowed for similar services. No
portion of the cost of the goods themselves may be counted toward DBE
goals, however.
(2) The entire amount of fees or transportation charges for the
delivery of goods required in a concession is counted toward DBE goals,
provided that it is determined by the sponsor to be reasonable and not
excessive as compared with fees customarily allowed for similar
services. No portion of the cost of goods themselves may be counted
toward the goals, however.
(iv) A non-DBE concessionaire (other than a car rental) may count
toward a contract goal set under Sec. 26.115, the expenditures listed
in paragraphs
[[Page 29611]]
(c)(2)(iii)(A) through (C), (D)(2) and (E) of this section that are
used in the operation of a concession. A sponsor may count these same
expenditures towards its overall goal. Counting such expenditures
toward DBE goals is subject to meeting the additional conditions set
forth in Sec. 26.117 of this subpart and Sec. 26.49(d) of this part.
(3) The following guidelines apply the counting provisions of
paragraph (c)(2) of this section to various transactions involving car
rental firms.
(i) For purposes of this subpart, a fleet purchase means a purchase
of vehicles in volume from a manufacturer at a discounted price, which
is made through a car dealer. While the process used varies by
manufacturer and by car dealer, the vehicles in a fleet purchase are
frequently ``dropped-shipped'' directly to the car rental firm. A car
dealer may use a separate account to handle fleet purchases. The
minimum number of vehicles in a fleet purchase may vary, but as few as
10 have been used.
(ii) A car dealership shall not be regarded as a regular dealer in
a transaction in which it assists a car rental firm to make a fleet
purchase from a manufacturer. The entire amount of the fee or
commission charged by a DBE car dealership for arranging a fleet
purchase is counted toward DBE goals, provided that it is determined by
the sponsor to be reasonable and not excessive as compared to fees
customarily allowed for similar services. No portion of the cost of the
vehicles themselves is counted toward DBE goals, however.
(iii) A DBE car dealership may be regarded as a regular dealer with
respect to other transactions, including but not limited to, retail
sales or leasing of vehicles other than through a fleet purchase and
selling motor vehicle supplies or new parts, provided that the
operation meets appropriate criteria in this section. In these
instances, 100 percent of the cost charged by the DBE car dealer for
such goods is counted toward DBE goals.
(iv) The entire amount of the cost charged by a DBE for repairing
vehicles is counted toward DBE goals, provided that it is determined by
the sponsor to be reasonable and not excessive as compared with fees
customarily allowed for similar services.
(v) The entire amount of the fee or commission charged by a DBE to
manage a car rental concession under an agreement with the
concessionaire is counted toward DBE goals, provided that it is
determined by the sponsor to be reasonable and not excessive as
compared with fees customarily allowed for similar services.
(vi) No portion of a fee paid by a manufacturer to a car dealership
for reimbursement of work performed under the manufacturer's warranty
shall be counted toward DBE goals.
(4) If the sponsor is covered by paragraph (a)(2)(ii) of this
section, DBE participation is counted toward meeting overall goals and
any contract goals set under this subpart as follows:
(i) A sponsor or concessionaire shall count each concession
agreement with a DBE toward its goal.
(ii) A sponsor shall count each management contract or subcontract
with a DBE toward its goal.
(5) If a firm has not been certified as a DBE in accordance with
the standards in this part, the firm's participation may not count
toward DBE goals.
(6) Except in the case of a concessionaire that exceeds the small
business size standard, as referenced under the definition of a ``small
business concern,'' the work performed or gross receipts earned by a
firm after its eligibility has been removed may not be counted toward
DBE goals.
(d) [Reserved]
(e) Accomplishments in achieving DBE goals. The plan shall contain
an annual analysis of the accomplishments made by the sponsor toward
achieving the previous year's goals. The plan shall show the effect of
those results on the overall level of DBE participation in the
sponsor's concession program.
(f) Explanation for not achieving a goal. (1) If the analysis
required under paragraph (e) of this section indicates that the sponsor
failed to meet the previous year's overall goal, the plan shall include
a statement of the reasons demonstrating why failure to meet the goal
was beyond the sponsor's control.
(2) If the FAA determines that the reasons given by the sponsor are
not sufficient justification, or if the sponsor fails to state any
reasons, the FAA may require the sponsor to implement appropriate
remedial measures. Such measures may include an adjustment to the
overall goals of the concession plan.
(g) Certification procedures. (1) The procedures in Sec. 26.71
apply to this subpart. The DBE concession plan shall state whether the
sponsor participates in the unified certification program (UCP) for its
state.
(i) A sponsor that participates in a UCP shall be subject to all
certification procedures applicable to the UCP.
(ii) A sponsor that elects not to participate in the UCP shall
independently certify concessionaires and other program participants
counted toward DBE contract goals and overall goals under this subpart.
Such a sponsor:
(A) Is not authorized to accept the certifications made by another
sponsor or by a UCP;
(B) May, at its own discretion, use the pre-certification
procedures in Sec. 26.71(d).
(2) Pending the establishment of a UCP meeting the requirements of
this part, any sponsor is authorized to take the actions set forth in
Sec. 26.71(g). A sponsor that does not participate in the UCP in its
state is not authorized to take such actions, however, after the UCP
has become operational.
(h) Certification process. (1) Except for paragraphs (c) (1)
through (6) of this section, the requirements of Sec. 26.73 of this
part apply to all certifications made under this subpart.
(2) In determining whether a firm is an eligible DBE, a sponsor or
UCP shall take all steps listed in paragraphs (h)(2) (i) through (vi)
of this section.
(i) Obtain the resumes or work histories of the principal owners of
the firm and personally interview these individuals;
(ii) Analyze the ownership of stock of the firm, if it is a
corporation;
(iii) Analyze the bonding and financial capacity of the firm;
(iv) Determine the work history of the firm, including any
concession contracts or other contracts it may have received;
(v) Obtain or compile a list of the licenses of the firm and its
key personnel to perform the concession contracts or other contracts it
wishes to receive;
(vi) Obtain a statement from the firm of the type(s) of
concession(s) it prefers to operate or the type(s) of other contract(s)
it prefers to perform.
(3) When determined by the sponsor or UCP to be necessary to
validate the certification information submitted by the firm, the
sponsor or UCP shall perform an on-site visit to the offices of the
firm and to any facilities within the sponsor's jurisdiction or local
area prior to making an eligibility determination.
(4) Each certified DBE shall provide the affidavit required by
Sec. 26.73(h) of this part, except that, for certifications made under
this subpart, the affidavit shall affirm that the firm meets the
appropriate size standard in Appendix G to this part.
(5) A sponsor described in paragraph (g)(1)(ii) of this section
that does not adopt pre-certification procedures, is required to
certify only those firms which will count toward DBE contract goals and
overall goals set under this subpart. The provisions of Sec. 26.73(i)
shall not apply to such a sponsor if the application for certification
is submitted
[[Page 29612]]
by a firm that will not count toward such goals.
(i) Other certification procedures. (1) Except as provided in
paragraph (i)(2) of this section, the procedures in Secs. 26.75, 26.77,
26.79, and 26.81 apply to this subpart. For purposes of this subpart,
the term ``prime contractor'' in Sec. 26.77(i) shall include:
(i) A firm holding a prime contract with an airport concessionaire
to provide goods or services to the concessionaire; and
(ii) A firm holding a prime concession agreement with a sponsor.
(2) The procedures of Sec. 26.77(i)(2) shall apply to this subpart,
except when a sponsor removes a concessionaire's eligibility because
the firm exceeded the size standard after entering a concession
agreement. In such instances, the procedures set forth under the
definition of a ``small business concern'' in Sec. 26.101 shall apply.
(j) Certification standards. (1) Except as provided in paragraphs
(j)(1) (i) and (ii) of this section, sponsors shall use the same
standards as contained in Secs. 26.51, 26.53, 26.57, 26.59, 26.61, and
26.63 of this part to determine whether a firm may be certified as a
DBE under this subpart.
(i) The personal net worth threshold used in rebutting the
presumption of disadvantage, referenced in Secs. 26.57(b)(5) and (b)(6)
and in appendix F of this part, shall be [a number to be inserted in
the final rule] under this subpart;
(ii) The provisions of Sec. 26.61(n) of this part shall not apply
to this subpart.
(2) A newly formed firm applying for DBE certification as a
concessionaire must meet all applicable eligibility standards in this
part. A sponsor shall not deny certification solely because such firm
was newly formed, without applying the standards in this part.
(3) Businesses operating under the following structures may be
eligible for certification as DBEs under this subpart:
(i) Sole proprietorships meeting the standards in this part.
(ii) Corporations described in Sec. 26.59(b).
(iii) Partnerships described in Sec. 26.59(b).
(iv) Other structures that provide for ownership and control by the
socially and economically disadvantaged owners.
(4) 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 as defined in Sec. 26.101
exists, the restraints relating to standardizing quality, advertising,
accounting format, and other provisions imposed on a franchisee or
licensee by its franchise or license agreement generally shall not be
considered, 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 the franchiser or licenser by virtue of such
provisions in the franchise agreement or license, affiliation could
arise through other means, such as common management or excessive
restrictions upon the sale or transfer of the franchise interest or
license.
(5) An association of a DBE firm and one or more other firms
meeting the definition of a joint venture in Sec. 26.5 of this part is
eligible for certification under this subpart.
(6) Businesses operating under the following arrangements are not
eligible for certification as DBEs under this subpart:
(i) A limited partnership, in which a non-DBE firm or a non-
disadvantaged individual is the general partner.
(ii) Other arrangements that do not provide for ownership and
control by the socially and economically disadvantaged owners.
(k) Good faith efforts. (1)(i) A sponsor shall make good faith
efforts in accordance with this section to achieve the overall goals of
an approved concession plan.
(ii) For purposes of this subpart, good faith efforts means efforts
which, by their scope, intensity, and appropriateness to the objective,
can reasonably be expected to achieve a DBE goal or fulfill another
program requirement.
(2) To the maximum extent feasible, sponsors shall meet overall
goals by using outreach, technical assistance, and other methods to
facilitate DBE participation, including, but not limited to the steps
listed in paragraphs (k)(4) (i) through (iv) of this section.
(3)(i) To the extent that a sponsor has determined that it cannot
meet its overall goals by using the means referenced in paragraph
(k)(2) of this section, the sponsor shall use the additional steps
listed in paragraphs (k)(4) (v) and (vi) of this section and the
procedures in Sec. 26.115.
(ii) Sponsors shall review at appropriate intervals the methods and
procedures used to comply with this section to ensure that they
continue to be needed to meet overall goals, modifying them as needed
for this purpose. If the sponsor's actual DBE participation
significantly exceeds its overall goals over a substantial period of
time, the sponsor shall appropriately reduce the use of DBE contract
goals as a means of meeting overall goals.
(4) Good faith efforts include the following:
(i) Locating and identifying DBEs who may be interested in
participating as concessionaires or contractors under this subpart;
(ii) Notifying DBEs and other organizations of concession/
contracting opportunities and encouraging them to compete, when
appropriate;
(iii) When practical, structuring contracting activities so as to
encourage and facilitate the participation of DBEs; and
(iv) Providing technical assistance to DBEs in overcoming
limitations, such as inability to obtain bonding or financing.
(v) Informing competitors for concession/contracting opportunities
of any DBE requirements during pre-solicitation meetings;
(vi) Providing information concerning the availability of DBE firms
to competitors to assist them in meeting DBE requirements;
(5) A firm subject to a DBE contract goal set under Sec. 26.115 of
this subpart shall make good faith efforts to meet the goal. The firm
shall consider implementing at least the steps listed in paragraph
(k)(4) of this section.
(6) A sponsor and firm covered by Sec. 26.117(b)(2) of this subpart
shall make good faith efforts to meet the requirements of that section.
The sponsor and firm shall consider implementing at least the steps
listed in paragraph (k)(4) of this section.
(l) Monitoring and compliance procedures. The sponsor shall
implement appropriate mechanisms to ensure compliance with the
requirements of this subpart by all participants in the program. The
sponsor shall include in its DBE concession plan the specific
provisions to be inserted into concession agreements and management
contracts, the enforcement mechanisms, and other means it uses to
ensure compliance. These provisions shall include a monitoring and
enforcement mechanism to verify that the work committed to DBEs as a
condition of receiving the award of a covered contract is actually
performed by the DBEs.
Sec. 26.109 [Reserved]
Sec. 26.111 Rationale for basing overall goals on the number of
concession agreements.
(a) A sponsor that proposes to calculate the overall DBE goals as a
percentage of the number of concession agreements shall submit
information with the DBE plan to demonstrate that
[[Page 29613]]
one of the following applies to the airport:
(1) In order to achieve the overall DBE goals of the plan on the
basis of gross receipts, the airport would need to award a
disproportionate percentage of concession agreements to DBEs. This
rationale may address a time period that extends beyond that covered by
the current plan; or
(2) Other circumstances at the airport exist that do not make it
feasible to use gross receipts as the basis for calculating the goals.
(b) If the FAA approves the request, the sponsor shall not be
required to provide further justification during subsequent years of
the plan, unless requested by the FAA to do so.
(c) If the FAA determines that the information submitted by the
sponsor fails to justify the requested goal-setting procedure, the
sponsor shall resubmit the plan. The goals in the revised plan shall be
calculated as a percentage of gross receipts, as outlined in
Sec. 26.107(a)(2)(i) of this subpart.
Sec. 26.113 [Reserved]
Sec. 26.115 Obligations of concessionaires, contractors, and
competitors.
(a)(1) Nothing in this subpart shall require any sponsor to modify
or abrogate an existing concession agreement (one executed prior to the
date the sponsor became subject to this subpart G) during its term.
When an option to renew such an agreement is exercised or when a
material amendment is made, the sponsor shall assess potential for DBE
participation and may, if permitted by the agreement, set a DBE
contract goal in accordance with this section.
(2) Sponsors may impose DBE contract goals on competitors for
concession agreements or management contracts. If a contract goal is
established, the solicitation shall notify competitors that as a
condition of receiving the award of the agreement/contract, the
competitor shall be required to submit information indicating that the
competitor--
(i) Will meet the contract goal through utilization of one or more
named DBEs; or
(ii) Made good faith efforts in accordance with Sec. 26.107(k) of
this subpart.
(3) The sponsor shall award an agreement or contract for which a
contract goal has been established only to a firm that is responsive to
the requirements of this section.
(4) All DBE contract goals established under this subpart shall
provide for participation by all certified DBEs and may not be
subdivided into group-specific goals.
(5) Sponsors 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 the 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 or concession.
(6) DBE contract goals shall be calculated as follows:
(i) If the goal is to attain a direct ownership arrangement with a
DBE, the goal is calculated as a percentage of the total estimated
annual gross receipts from the concession.
(ii) If the goal applies to purchases and/or leases of goods and
services, the goal is calculated by dividing the estimated dollar value
of such purchases and/or leases from DBEs by the sum of this amount and
the estimated annual gross receipts to be earned by the concession.
(b) A sponsor may impose the requirements of paragraphs (b)(1) and/
or (b)(2) of this section on a non-DBE car rental firm.
(1) The sponsor may set a DBE contract goal for the purchase or
lease of goods or services, provided, that a car rental firm shall be
permitted to meet such goal by including costs associated with
purchases or leases of vehicles from any firm that qualifies as a DBE,
as defined in this subpart.
(2)(i) The sponsor may require a car rental firm to state in
writing--
(A) Whether a change in its corporate structure is needed in order
to provide for a direct ownership arrangement with a DBE; and
(B) To identify the particular arrangements it can utilize for such
purpose, if any.
(ii) For purposes of this subpart, a change in corporate structure
shall include a transfer of corporate assets or execution of a joint
venture, partnership, or sublease agreement.
(iii) If a car rental firm identifies one or more direct ownership
arrangements pursuant to paragraph (b)(2)(i)(B) of this section, the
sponsor may require the firm to make good faith efforts to achieve a
DBE contract goal through such arrangement.
(iv) If a car rental firm cannot provide for a direct ownership
arrangement with a DBE without changing its corporate structure, the
firm shall be considered responsive to any requirement established by
the sponsor under this paragraph (b)(2).
(3)(i) Nothing in this subpart shall require a car rental firm to
change its corporate structure to provide for a direct ownership
arrangement with a DBE in order to meet the requirements of this
subpart.
(ii) In evaluating bids or proposals for a car rental concession, a
sponsor shall not give preference or more favorable consideration
solely because a firm can provide for a direct ownership arrangement
with a DBE without changing its corporate structure.
(iii) A sponsor shall not grant more favorable terms or conditions
in a car rental concession agreement solely because a firm can provide
for a direct ownership arrangement with a DBE without changing its
corporate structure.
(c) A sponsor may impose the requirements of paragraphs (b)(1) and/
or (b)(2) of this section on a non-DBE concessionaire or competitor
(except a car rental firm):
(1) Subject to complying with the conditions in Sec. 26.117, the
sponsor may set a DBE contract goal for the purchase of goods or
services.
(2) The sponsor may set a contract goal to attain DBE participation
solely through a direct ownership arrangement.
(d) A sponsor may impose a contract goal on a management contractor
to attain DBE participation through a management subcontract.
(e) A sponsor is permitted to afford DBE firms opportunities to
participate as prime concessionaires or management contractors through
direct contractual agreements with the sponsor.
(f) When a contract goal has been established in accordance with
this section, sponsors are prohibited from using more stringent
mechanisms than good faith efforts (including, but not limited to, set-
asides and a conclusive presumption) unless--
(1) The sponsor has legal authority independent of this part to use
such mechanisms; and
(2) Where the sponsor has a continuing, substantial inability to
meet its overall goal using the mechanisms provided for in this
section. In such a case, the sponsor shall document in its file for the
contract the basis for the determination that other available methods
have proven unable to meet DBE goals.
(g) The concession plan shall include a description, together with
a citation of state or local law, regulation, or policy, to support any
requirement that a sponsor will levy on a firm which is in addition to
the requirements of this subpart, such as a requirement to provide
financial assistance to a DBE.
[[Page 29614]]
This subpart does not provide authority to establish such a
requirement.
Sec. 26.117 Conditions precedent to counting purchases of goods and
services by concessionaires (other than car rentals) toward DBE goals.
(a) A sponsor that proposes to count expenditures referenced in
Sec. 26.107(c)(1)(iv) of this subpart toward a DBE goal, shall include
information in the concession plan on how it will comply with the
requirements set forth in this section.
(b)(1) Except as provided in paragraph (d) of this section, the
sponsor shall, with respect to each concession agreement covered by
this section, implement the procedures of paragraph (b)(1) (i) or (ii)
as follows:
(i) Set a DBE contract goal for a direct ownership arrangement and
require the non-DBE firm to make good faith efforts as provided in
Sec. 26.115 of this subpart.
(ii) Submit information demonstrating that the sponsor and non-DBE
firm made good faith efforts, in accordance with Sec. 26.107(k) of this
subpart, to explore all available options to attain, to the maximum
extent practical, DBE participation through a direct ownership
arrangement. If appropriate, the submission may include an explanation
why the nature of a particular concession makes DBE participation
through a direct ownership arrangement not economically feasible or
otherwise impractical.
(2) [Reserved]
(c)(1) The FAA shall approve or disapprove a DBE contract goal
submitted by the sponsor pursuant to paragraph (b)(2)(1) of this
section.
(2)(i) If a sponsor submits information meeting the standards in
paragraph (b)(1)(ii) of this section, the FAA Regional Office shall
approve the submission, and if appropriate, require the sponsor to
reassess the feasibility of setting a DBE contract goal prior to
exercising each option to renew the concession agreement, when a
material amendment is made to the agreement, or at another appropriate
time.
(ii) If a sponsor submits information that does not meet the
standards in paragraph (b)(1)(ii) of this section, the FAA Regional
Office may;
(A) Require that additional efforts be made by the sponsor and
concessionaire;
(B) Direct the sponsor to set a DBE contract goal for a direct
ownership arrangement; or
(C) Take other appropriate action in accordance with this subpart.
(d) If the FAA approved a plan referenced in Sec. 26.121(b)(2) of
this subpart, the sponsor is not required to submit additional
information pursuant to this section unless requested by the FAA to do
so.
(e)(1) Purchases of goods and services covered by this section may
be counted toward DBE goals throughout the duration of a concession
agreement, provided, that all requirements of this section and subpart
are being met.
(2) In the event the FAA determines that the sponsor and non-DBE
firm did not comply with all requirements of this subpart, the FAA may
direct that the purchases of goods and services affected by such
determination shall not be counted toward DBE goals.
Sec. 26.119 Privately-owned terminal buildings.
(a) The requirements of this subpart apply to concession activities
conducted by a private owner of an airport terminal building. The
sponsor shall levy the applicable requirements on the terminal owner
through the agreement with the owner or by other means, except that
certification shall, in the case of a primary airport, remain the
responsibility of the sponsor. The sponsor shall ensure that the
terminal owner complies with the requirements imposed pursuant to this
subpart.
(b) If a terminal building is at a primary airport, the sponsor
shall obtain from the terminal owner the overall goals and other
elements of the DBE concession plan required under Sec. 26.107. This
information shall be incorporated into the concession plan and goals
established by the sponsor and submitted to the FAA in accordance with
this subpart.
(c) If the terminal building is at a commercial service airport
(except primary), general aviation, or reliever airport, the sponsor
shall ensure that the owner complies with the requirements in
Sec. 26.105(c).
Sec. 26.121 Prohibition on long-term, exclusive concession agreements.
(a) Except as provided in paragraph (b) of this section, sponsors
shall not enter into long-term, exclusive agreements for the operation
of concessions. For purposes of this section, a long-term agreement is
one having a term in excess of five years. Guidelines for determining
whether an agreement is exclusive, as used in this section, shall be
issued by the FAA and be made available through any FAA Regional Civil
Rights Officer or from the FAA Office of Civil Rights, 800 Independence
Avenue, SW., Washington, DC 20591, Attention, ACR-4.
(b) A long-term, exclusive agreement is permitted under this
subpart, provided that:
(1) Special local circumstances exist that make it important to
enter such agreement, and
(2) The responsible FAA regional civil rights officer approves of a
plan for ensuring adequate DBE participation throughout the term of the
agreement.
(c) Sponsors shall submit the following information with the plan
referenced in paragraph (b)(2) of this section:
(1) A description of the special local circumstances that warrant a
long-term, exclusive agreement, e.g., a requirement to make certain
capital improvements to a leasehold facility.
(2) A copy of the draft and final leasing and subleasing or other
agreements. The long-term, exclusive agreement shall provide that:
(i) One or more DBEs will participate as concessionaires throughout
the term of the agreement and account for at a percentage of the
estimated annual gross receipts equivalent to a level set in accordance
with Sec. 26.107(a)(11) of this subpart.
(ii) The extent of DBE participation will be reviewed prior to the
exercise of each renewal option to consider whether an increase is
warranted. (In some instances, a decrease may be warranted.)
(iii) A DBE concessionaire that is unable to perform successfully
will be replaced by another DBE concessionaire, if the remaining term
of the agreement makes this feasible. In the event that such action is
not feasible, the sponsor shall require the concessionaire to make good
faith efforts during the remaining term of the agreement encourage DBEs
to compete for the purchase and/or lease of goods and services that it
procures.
(3) Assurances that a DBE concessionaire will be in an acceptable
form, such as a sublease, joint venture, or partnership.
(4) Documents used by the sponsor in certifying the DBEs.
(5) A description of the type of business or businesses to be
operated, location, storage and delivery space, ``back-of-the-house
facilities'' such as kitchens, window display space, advertising space,
and other amenities that will increase the DBE's chance to succeed.
(6) Information on the investment required on the part of the DBE
and any unusual management or financial arrangements between the prime
concessionaire and DBE.
[[Page 29615]]
(7) Information on the estimated gross receipts and net profit to
be earned by the DBE.
Sec. 26.123 Compliance procedures.
(a) Complaints. Any person who believes that there has been a
violation of this subpart may personally, or through a representative,
file a written complaint in accordance with FAA regulations (14 CFR
part 16). The complaint must be submitted to the Federal Aviation
Administration, Office of the Chief Counsel, Attention: FAA Part 16
Airport Proceedings Docket (AGC-610), 800 Independence Avenue, SW.,
Washington, DC 20591. Complaints which meet the requirements of 14 CFR
part 16 shall be docketed and processed as formal complaints.
(b) Compliance procedures. In the event of noncompliance with this
subpart by a sponsor, the FAA Administrator may take such action as
provided in Title 49 of the United States Code (U.S.C.), including
sections 47106(d), 47111(d), and 47122.
Sec. 26.125 Effect of subpart.
(a) Local requirements not preempted. Nothing in this subpart shall
preempt any State or local law, regulation, or policy enacted by the
governing body of a sponsor, or the authority of any State or local
government or sponsor to adopt or enforce any law, regulation, or
policy relating to DBEs. In the event that a State or local law,
regulation, or policy conflicts with the requirements of this subpart,
the sponsor shall, as a condition of remaining eligible to receive
Federal financial assistance from the DOT, take such steps as may be
necessary to comply with the requirements of this subpart.
(b) Local geographical preference. Nothing in this subpart shall
prohibit a sponsor from employing a local geographical preference in
evaluating bids or proposals for a concession agreement or other
contract covered by this subpart, provided that the procedure does not
conflict with any provision in this part or have the effect of
defeating or substantially impairing accomplishment of the objectives
of the program. An example of a prohibited practice is a local
geographical preference that has the effect of discriminating against a
business owner on the grounds of race, color, sex, or national origin,
in violation of Sec. 26.7 of this part.
(c) The miscellaneous provisions set forth in Sec. 26.99 of this
part apply to this subpart.
Appendix A to Part 26--Explanation of Provisions
The text of this appendix is not included in this SNPRM, since
it is intended to reflect the Department's understanding of the
meaning and proper interpretation of the provisions of the final
version of Part 26. The Department, as an alternative or addition to
publishing this Appendix in the final rule, may publish this
material as part of a compliance guide responding to the
requirements of the Small Business Regulatory Enforcement Fairness
Act of 1996.
Appendix B to Part 26--Guidance Concerning Good Faith Efforts
When, as a recipient, you establish a contract goal on a DOT-
assisted contract, any bidder which does not meet this goal must
show you that it made good faith efforts to do so. This means that
the bidder must show that it took 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, can
reasonably be expected to fulfill the program requirement.
It is important for you to look at not only the different kinds
of efforts that the contractor has made, but also the quantity and
intensity of these efforts. 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. The extent to which other bidders obtained DBE
participation, and the kind and quality of steps they took in
attempting to do so, can be considered by the recipient in the
course of evaluating a bidder's good faith efforts.
The following is a list of types of actions which you should
consider as part of the bidder's good faith efforts to obtain DBE
participation. It is not intended to be a mandatory checklist, nor
is it intended to be exclusive or exhaustive. Other factors or types
of efforts may 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.
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. 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 perform the work.
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 extra cost
involved in finding and utilizing 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. As a recipient, you may establish, as
part of the solicitation, a reasonable range of additional cost that
you will consider in making a good faith efforts determination. The
range set forth in solicitation documents, or your finding of
reasonableness in the absence of a predetermined range should be
determined on a case-by-case basis appropriate to the circumstances
of the contract involved.
We also note that the ability or desire of a prime contractor to
perform the work of a contract with its own organization does not
relieve the bidder of the responsibility to either meet the contract
goal or demonstrate that it made adequate, but unsuccessful, good
faith efforts.
E. Noting whether other bidders have met the contract goal. 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.
F. Not rejecting DBEs as being unqualified without sound reasons
based on a thorough investigation of their capabilities. The
contractor's standing within the highway construction 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 the rejection or non-
solicitation of bids in the contractor's efforts to meet the project
goal.
G. Making efforts to assist interested DBEs in obtaining
bonding, lines of credit, or insurance as required by the recipient
or contractor.
H. Making efforts to assist interested DBEs in obtaining
necessary equipment, supplies, materials, or related assistance or
services.
I. 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-by-case basis to provide
assistance in the recruitment and placement of DBEs.
In any situation in which you have established a contract goal,
Part 26 requires you to use the good faith efforts mechanism
[[Page 29616]]
of this part in determining whether bidders/offerors have met
program requirements. You must make a fair and reasonable judgment
concerning the good faith efforts made by competitors for contracts,
and must not accept a showing of efforts that are inadequate or
merely pro forma.
You are also cautioned against requiring that a bidder meet a
contract goal in order to be awarded a contract, even though the
bidder makes an adequate good faith efforts showing. If you impose
such a requirement, or reject reasonable showings of good faith
efforts by bidders, you may create a de facto quota system. Except
in the limited circumstances noted in Sec. 26.45(e), you are
prohibited from using quotas, a conclusive presumption, or set-
asides in the award of DOT-assisted contracts. Such actions may also
expose you to lawsuits from contractors.
Appendix C--DBE Certification Application Form
Application is hereby made by the Individual (organization)
identified below for certification as a disadvantaged business
enterprise (DBE) under the U.S. Department of Transportation DBE
program pursuant to 49 CFR part 26. Socially and Economically
Disadvantaged (SED) Individuals are presumed to be members of the
following groups: Black Americans, Hispanic Americans, Native
Americans, Asian Pacific Americans, Subcontinent Americans, Women
and any groups so designated by the Small Business Administration
(SBA). Applicants who are not one of the presumed groups must prove
social and economic disadvantage in accordance with the standards in
49 CFR Part 26, Appendix F.
Any person claiming SED status shall attach copies of a current
Financial Statement prepared by an independent CPA or accountant. In
addition a copy of one of the following documents must be submitted
to prove membership in the ethnic group claimed:
Membership letter or certificate of ethnic organization--Tribal
Certificate or Bureau of Indian Affairs Card--Birth Certificate/
Record (including those of natural parents)--U.S. Passport--Armed
Service Discharge Papers--Alien Registration Number--Any other
document that provides evidence of ethnicity.
Note: For purposes of this application the following SED codes
are to be used (B) Black Americans, (H) Hispanic Americans, (NA)
Native Americans, (AP) Asian-Pacific Americans, (AS) Subcontinent--
Asian Americans, (W) Women, (SBA) Other Groups Approved By SBA (O)
Other.
Answer all questions. Indicate ``N/A'' if question does not
pertain to your firm.
----------------------------------------------------------------------
1. Name and Address of Company
----------------------------------------------------------------------
2. Mailing Address (if Different)
----------------------------------------------------------------------
3. Contact Person and Title
----------------------------------------------------------------------
4. Telephone No.
----------------------------------------------------------------------
5. Federal Identification Number
----------------------------------------------------------------------
6. Other Identification Number Used
7. Has this firm been certified under Section 8(a) by the Small
Business Administration? Yes __ No __ If certified attach a copy of
the certification.
8. NATURE OF THE FIRM'S BUSINESS:
----------------------------------------------------------------------
9. Standard Industrial Classification (SIC) Code and applicable
size standard for which the firm qualifies to do business (Refer to
the small business size standard at 13 CFR part 121)
SIC--------------------------------------------------------------------
Size-------------------------------------------------------------------
SIC--------------------------------------------------------------------
Size-------------------------------------------------------------------
SIC--------------------------------------------------------------------
Size-------------------------------------------------------------------
SIC--------------------------------------------------------------------
Size-------------------------------------------------------------------
10. List States in which the firm is authorized to do business.
11. LICENSES REQUIRED TO CONDUCT BUSINESS. Attach copies of any
required local, county and state active business license(s) and
permit(s), i.e., contractors, PUC, A&E registration etc.
A. For each license/permit attached, indicate:
----------------------------------------------------------------------------------------------------------------
Name of qualifying
Name of licensee individual Type of licenses DBE code Exp. date
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
(If the qualifying individual is not one of the minority or women owners listed in the application, please
explain in Item 28.)
12. OWNERSHIP INFORMATION:
____Sole Proprietor ____Partnership ____Corporation ____Joint
Venture ____Other
Date established/incorporated ____________ State ____________
13. LIST OWNERS/INVESTORS WHO HAVE A 5% OR MORE INTEREST:
----------------------------------------------------------------------------------------------------------------
U.S. citizen or
Name DBE code Gender M/F Date of ownership No. of Voting % permanent
shares resident?
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Check here ____, if more space is needed and continue listing in Item 29.
14. List on an attachment to this form, any other companies in
which any of their individuals are employed, have been employed
within the past year, and also have more than a 5% ownership
interest.
15. BOARD OF DIRECTORS (in the last three years)
------------------------------------------------------------------------
Name Title DBE code M/F Expiration of
------------------------------------------------------------------------
------------------------------------------------------------------------
------------------------------------------------------------------------
------------------------------------------------------------------------
Check here ____, if more space is needed and continue listing in Item
29.
[[Page 29617]]
16. List the contributions of money, equipment, real estate, or
expertise of each of the owners/investor. Attach proof of the
initial investment in the firm (dollars, real estate, equipment,
etc.) on behalf of each of the owners. If more space is required
continue in Item 29.
17. MANAGEMENT: List individuals by name and title responsible
for the management areas indicated. Detailed resume showing work/
experience history and current responsibilities must be included for
each individual listed.
----------------------------------------------------------------------------------------------------------------
Individual
Duties responsible Reports to: DBE code
----------------------------------------------------------------------------------------------------------------
Preparation and presentation of estimates and bids:
----------------------------------------------------------------------------------------------------------------
Hiring and firing management personnel:
----------------------------------------------------------------------------------------------------------------
Final Determination of what jobs the company will undertake:
----------------------------------------------------------------------------------------------------------------
Day to Day Operations
----------------------------------------------------------------------------------------------------------------
Negotiations and approval of contracts:
----------------------------------------------------------------------------------------------------------------
Administration of company contracts:
----------------------------------------------------------------------------------------------------------------
Marketing and sales activities:
----------------------------------------------------------------------------------------------------------------
Negotiating and signing for surety bonds:
----------------------------------------------------------------------------------------------------------------
Supervision of field operations:
----------------------------------------------------------------------------------------------------------------
18. Identify any owner or management official of the firm who
is, or has been, an employee of another firm that has an ownership
interest in or a present business relationship with the named firm.
Provide details of the arrangement and relationship. Present
business relationships include shared space, equipment, financing or
employees, as well as both firms having the same owners. Be sure to
list those persons who are currently working for any other business
which has a relationship with this firm, whether on a full-time or
part-time basis as an owner, partner, shareholder, advisor,
consultant, or employee.
19. Company's experience: List the three largest projects
performed by the company in the last 3 years. If performed as a
subcontractor, indicate the name of the prime contractor and a
contact person for these projects.
----------------------------------------------------------------------------------------------------------------
Project Dollar amount Date completed Prime contractor/contact person
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
20. Indicate the firm's gross receipts for the last three tax
years:
--------------------------------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDING
--------------------------------------------------------------------------------------------------------------------------------------------------------
GROSS RECEIPTS $ $ $
--------------------------------------------------------------------------------------------------------------------------------------------------------
21. Name of Surety Company ______________ Bonding limit
______________
Agent ______________ Telephone Number ______________
22. Who signs for insurance and payroll? ______________. Provide
copy of the signed Corporate Bank Resolution(s) and bank account(s)
signature card(s)
23. List all sources and amounts of money loaned to the company,
when and by whom:
----------------------------------------------------------------------------------------------------------------
Source Amount Date Terms
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
24. NAME, COMPANY AND ADDRESS OF FIRM'S CPA OR ACCOUNTANT
25. NAME, COMPANY AND ADDRESS OF FIRM'S ATTORNEY
26. WORKFORCE INFORMATION:
Past calendar year: Highest Total __________ Lowest Total
__________ Average __________
A. Permanent Personnel Currently on Payroll
----------------------------------------------------------------------------------------------------------------
Administrative Clerical Supervisory Skilled Unskilled
----------------------------------------------------------------------------------------------------------------
Part-Time
----------------------------------------------------------------------------------------------------------------
Full-Time
----------------------------------------------------------------------------------------------------------------
[[Page 29618]]
TOTAL
----------------------------------------------------------------------------------------------------------------
B. Are any of the employees on another firm's payroll? Yes ____
No ____. If yes, please identify firm(s) and number of employees
______________
27. Provide a listing of owned and leased equipment. Do not
include leases. Copies of the state registration cards and titles
must be provided for all vehicles that require state registration/
licensing. Copies of documentation of ownership for all other
equipment owned or leases for leased equipment must be attached.
28. Indicate if the firm or other firms with any of the same
officers or owners has previously received or has been denied
certification of participation as a DBE, MBE or WBE and describe the
circumstances. Indicate the name of the certifying authority and the
date of such certification or denial or decertification.
29. Please use the space provided below to explain any of the
above items. You may attach additional sheets if necessary.
Affidavit
``The undersigned swears that the foregoing statements are true
and correct and include all material information necessary to
identify and explain the operations of the firm below as well as the
ownership thereof. Further, the undersigned agrees to permit an
onsite review of the company's operation as well as the audit and
examination of books, records and files of the named firm. Any
material misrepresentation will be grounds terminating eligibility
as well as any contract which may be awarded and for initiating
action under Federal and/or State laws concerning false
statements.''
Note: If additional information is required to determine
certification, the conditions stated in the affidavit are
applicable. If there are any significant changes in the information
provided above that would alter your status as a DBE inform the
certifying agency (See 49 CFR 26.73(g)).
----------------------------------------------------------------------
Name of Firm
----------------------------------------------------------------------
Name
----------------------------------------------------------------------
Title
----------------------------------------------------------------------
Signature
----------------------------------------------------------------------
Date
On this ________ day of ________________, 19____, before me
appeared
----------------------------------------------------------------------
who, being duly sworn, did execute the foregoing affidavit, and did
state that he or she was properly authorized by (Name of Firm)
----------------------------------------------------------------------
to execute the affidavit and did so as his or her free act and deed.
Notary Public----------------------------------------------------------
Commission expires-----------------------------------------------------
[Seal]
--Submit the following Documents (and any amendments thereto):
------------------------------------------------------------------------
------------------------------------------------------------------------
S P C 1. Equipment rental
and purchase
agreement.
S P C 2. Management service
agreements.
P ............... 3. Current Federal
Tax Form 1065 (plus
previous two (2)
years).
P ............... 4. Partnership
agreement.
P ............... 5. Buy-out rights
agreement.
P ............... 6. Profit-sharing
agreement.
S P C 7. Proof of capital
invested.
S P C 8. Current financial
statement prepared
by an independent
CPA or accountant.
............... C 9. Current Federal
Tax Form 1120S and
4562 (plus previous
two (2) years).
S P C 10. Resumes of
principals of your
company showing
education, training
and employment, with
dates.
............... C 11. Articles of
incorporation,
including date
approved by State.
............... C 12. Minutes of first
corporate
organizational
meeting.
............... C 13. Minutes of board
meetings for the
past two years.
............... C 14. Corporate bylaws.
............... C 15. Copy of stock
certificates issued
(not a specimen
copy)
............... C 16. Stock transfer
ledger.
............... C 17. Proof of stock
purchase.
S P C 18. Copies of third-
party agreements,
such as rental or
management service
agreements.
S P C 19. Applicable
license(s) and/or
permit(s).
S P C 20. Business card.
S P C 21. Birth certificate
or American passport
of qualifying
applicant.
S P C 22. Names of two
client references.
S P C 23. Lease/rental
agreement for
business site.
S P C 24. One canceled
check used for lease/
rental of business
site.
S P C 25. Bank signature
card.
S P C 26. Recent
contractual
agreement between
firm and client.
S P C 27. Brochure (or
descriptive
information on
firm).
------------------------------------------------------------------------
S--Sole Proprietorship P--Partnership C--Corporation.
[[Page 29619]]
Appendix D to Part 26--DBE Business Development Program Guidelines
(A) Each firm that participates in the developmental program is
subject to a program term determined by the recipient. The term will
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 Subpart G.
(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 beyond traditional areas of DBE program
participation.
(D) The business plan 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 term 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 shall annually review its currently
approved business plan with the recipient and shall modify such plan
as may be appropriate to account for any changes in the firm's
structure and redefined needs. The currently approved plan shall be
considered the applicable plan for all program purposes until the
recipient approves in writing a modified plan. The recipient shall
establish an anniversary date for review of the participant's
business plan and contract forecasts.
(F) Each participant shall 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 shall be included in
the participant's business plan. The forecast shall 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 term should not be a
pre-set time frame for either the developmental or transitional
stages but should be figured on the number of years considered
necessary in normal progression of 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 shall 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. Such plan shall 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.
(J) 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 in non-traditional areas, 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, shall be considered by the recipient:
(1) 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
shall notify the participant in writing of its intent to graduate
the firm in a letter of notification. The letter of notification
shall 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 shall also
provide the participant 45 days from the date of service of the
letter to submit in writing information which 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 for good cause due to the failure of the firm to engage
in business practices that will promote its competitiveness within a
reasonable period of time as evidenced by, 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 shall take such action if over
a 2-year period a DBE firm exhibits such a pattern.
Appendix E to Part 26--Mentor-Protege Program Guidelines
The purpose of this program element is to assist DBEs to move
into non-traditional areas of work, via the provision of training
and assistance from other firms. Any mentor-protege program shall be
evidenced by 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 resources
covered. 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. It is recognized that this type
of service provided by the mentor is considered fundable under the
applicable DOT federally assisted program.
To be eligible, 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 the 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 time the protege is working on
the contract. The total individual contract figures accumulated over
the life of the agreement shall not exceed the
[[Page 29620]]
amount stipulated in the original mentor/protege agreement.
DBEs involved in a mentor-protege agreement must be independent
business entities which meet the requirements for certification as
defined in Subpart D. If the recipient chooses to recognize mentor/
protege agreements, formal general program guidelines shall be
developed and submitted to the operating administration for approval
prior to the recipient executing an individual contractor/
subcontractor-mentor/protege plan.
Appendix F to Part 26--Individual Determinations of Social and Economic
Disadvantage
This appendix contains guidance for recipients as they make
individual determinations of social and economic disadvantage for
individuals who are not entitled to the statutory presumption of
social and economic disadvantage. Applicants not entitled to the
presumption must establish both social and economic disadvantage by
a preponderance of the evidence.
Social Disadvantage
Socially disadvantaged individuals are those who have been
subjected to racial or ethnic prejudice or cultural bias because of
their identities as members of groups without regard to their
individual qualities. The social disadvantage must stem from
circumstances beyond their control. Social disadvantage must include
the following elements:
(a) The individual's social disadvantage must stem from his or
her color, ethnic origin, gender, physical handicap, long-term
residence in an environment isolated from the mainstream of American
society, or other similar cause not common to small business persons
who are not socially disadvantaged.
(b) The individual must demonstrate that he or she has
personally suffered social disadvantage, not merely claim membership
in a nondesignated group which could be considered socially
disadvantaged.
(c) The individual's social disadvantage must be rooted in
treatment which he or she has experienced in American society, not
in other countries.
(d) The individual social disadvantage must be chronic and
substantial, not fleeting or insignificant.
(e) The individual's social disadvantage must have negatively
impacted on his or her entry into and/or advancement in the business
world. Recipients must entertain any relevant evidence in assessing
this element of an applicant's case, placing emphasis on the
following experiences of the individual, where relevant:
(1) Education. The recipient must consider, as evidence of an
individual's social disadvantage, denial of equal access to
institutions of higher education; exclusion from social and
professional association with students and teachers; denial of
educational honors; social patterns or pressures which have
discouraged the individual from pursuing a professional or business
education; and other similar factors.
(2) Employment. The recipient must consider, as evidence of an
individual's social disadvantage, discrimination in hiring;
discrimination in promotions and other aspects of professional
advancement; discrimination in pay and fringe benefits;
discrimination in other terms and conditions of employment;
retaliatory behavior by an employer; social patterns or pressures
which have channeled the individual into nonprofessional of non-
business fields; and other similar factors.
(3) Business history. The recipient must consider, as evidence
of an individual's social disadvantage, unequal access to credit or
capital; acquisition of credit or capital under unfavorable
circumstances; discrimination in receipt (award and/or bid) of
contracts; discrimination by potential clients; exclusion from
business of professional organizations; and other similar factors
which have impeded the individual's business development.
Economic Disadvantage
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, and such
diminished opportunities have precluded or are likely to preclude
such individuals from successfully competing in the open market
(i.e., the individuals are not in a position to compete on a ``level
playing field'' with non-disadvantaged businesses or business
owners). The DBE program is not intended to assist concerns owned
and controlled by socially disadvantaged individuals who have
accumulated substantial wealth, who have unlimited growth potential
or who have not experienced or have overcome impediments to
obtaining access to financing, markets and resources.
In determining the degree of diminished credit and capital
opportunities of a socially disadvantaged individual, the recipient
must consider factors relating both to the applicant and to the
individual(s) claiming disadvantaged status, including that
individual's access to credit and capital; the financial condition
of the applicant; and the applicant's access to credit, capital, and
markets. That is, the recipient must look at the situation of the
business as well as that of the owner personally. The recipient must
compare the applicant's business and financial profile with profiles
of businesses in the same or similar line of business which are not
owned and controlled by socially and economically disadvantaged
individuals.
The recipient must consider the following factors:
(a) Personal financial condition of the individuals claiming
disadvantaged status. This criterion is designed to assess the
relative degree of economic disadvantage of the individual, as well
as the individual's potential to capitalize or otherwise provide
financial support for the business. The specific factors to be
considered include, but are not limited to, the individual's
personal net worth, the individual's personal income for at least
the past two years, and the total fair market value of all assets.
Generally, an individual whose personal net worth exceeds [an amount
to be inserted in the final rule] is viewed as not being
economically disadvantaged, absent a showing by the individual that
other factors in his or her economic situation, the nature of the
markets in which his or her firm is competing, the business
financial condition of the firm, or its access to capital or credit,
make that individual and his or her business relatively
disadvantaged (i.e., not on a level playing field), compared to
competing firms.
(b) Business financial condition. This criterion will be used to
provide a financial picture of a firm at a specific point in time in
comparison to other concerns in the same or similar line of business
which are not owned and controlled by socially and economically
disadvantage individuals. In evaluating a concern's financial
condition, the recipient's consideration must include, but not be
limited to, the following factors: business assets, revenues, pre-
tax profits, working capital and net worth of the concern, including
the value of the investments in the concern held by the individual
claiming disadvantaged status.
(c) Access to credit and capital. This criterion will be used to
evaluate the ability of the applicant concern to obtain the external
support necessary to operate a competitive business enterprise. In
making the evaluation, the recipient must consider the concern's
access to credit and capital, including, but not limited to, the
following factors: Access to long-term financing; equipment trade
credit; access to raw materials and/or supplier to trade credit; and
bonding capability.
Claims of Disadvantage Based on Alleged Effects of DBE Program
Individuals cannot establish they are socially and economically
disadvantaged by relying on competitive disadvantages they allegedly
suffer because of the operation of the DBE program itself, or of
similar state and local programs. Over the years, there have been
allegations from some white male-owned firms that they have
difficulty getting contracts in certain fields or certain
jurisdictions because the DBE program results in a significant
portion of contracts going to DBEs. The Department is aware of
arguments having been made that this situation may make a given
white male-owned firm eligible for an individual finding of social
and economic disadvantage. The Department does not accept this
argument, which would have the effect of benefiting firms the DBE
program is not intending to assist because the program has been
successful in assisting the firms for which it is intended. Nothing
in this appendix provides that the effect of government-sponsored
affirmative action programs can be used as a basis for a finding of
disadvantage. Recipients are instructed not to make findings of
disadvantage on such a basis.
[[Page 29621]]
Appendix G to Part 26--Size Standards for the Airport Concession
Program
Maximum Average Annual Gross Receipts in Preceding 3 Years
[In millions of dollars]
------------------------------------------------------------------------
Concession Amount
------------------------------------------------------------------------
Food and beverage........................................... 33.270
Book stores................................................. 33.270
Auto rental................................................. 44.360
Banks....................................................... \1\ 100.00
Hotels and motels........................................... 33.270
Insurance machines and counters............................. 33.270
Gift, novelty, and souvenir shops........................... 33.270
Newsstands.................................................. 33.270
Shoe shine stands........................................... 33.270
Barber shops................................................ 33.270
Automobile parking.......................................... 33.270
Jewelry stores.............................................. 33.270
Liquor stores............................................... 33.270
Travel agencies............................................. 33.270
Drug stores................................................. 33.270
Pastries and baked goods.................................... 33.270
Luggage cart rental......................................... 33.270
Coin-operated T.V.'s........................................ 32.040
Game rooms.................................................. 33.270
Luggage and leather goods stores............................ 33.270
Candy, nut, and confectionery stores........................ 33.270
Toy stores.................................................. 33.270
Beauty shops................................................ 33.270
Vending machines............................................ 33.270
Coin-operated lockers....................................... 33.270
Florists.................................................... 33.270
Advertising................................................. 33.270
Taxicabs.................................................... 33.270
Limousines.................................................. 33.270
Duty free shops............................................. 33.270
Local pay telephone service................................. \2\ 1500
Gambling machines........................................... 33.270
Other concessions not shown above........................... 33.270
------------------------------------------------------------------------
\1\ As measured by total assets.
\2\ As measured by number of employees.
Other Participants
------------------------------------------------------------------------
------------------------------------------------------------------------
Management contractors:
Parking lots.......................... 5.0.
Other................................. As defined in 13 CFR Part
121.
Motor vehicle dealers (new and used)...... 500 employees.\3\
Other providers of goods or services...... As defined in 13 CFR Part
121.
------------------------------------------------------------------------
\3\ See definition of ``small business concern'' in Sec. 26.101 for
additional information regarding firms classified within this
industry.
[FR Doc. 97-13961 Filed 5-29-97; 8:45 am]
BILLING CODE 4910-62-P
