[Federal Register: April 8, 2009 (Volume 74, Number 66)]
[Proposed Rules]
[Page 15904-15910]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr08ap09-24]
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DEPARTMENT OF TRANSPORTATION
Office of the Secretary
49 CFR Part 26
[Docket No. OST-2009]
RIN 2105-AD75
Disadvantaged Business Enterprise Program; Potential Program
Improvements
AGENCY: Office of the Secretary (OST), DOT.
ACTION: Advance notice of proposed rulemaking (ANPRM).
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SUMMARY: This advance notice of proposed rulemaking (ANPRM) provides
interested parties with the opportunity to comment on five matters of
interest to participants in the Department of Transportation's
disadvantaged business enterprise (DBE) program. The first concerns
counting of items obtained by a DBE subcontractor from its prime
contractor. The second concerns ways of encouraging ``unbundling'' of
contracts to facilitate participation by small businesses, including
DBEs. The third is a request for comments on potential improvements to
the DBE application form, and the fourth asks for suggestions related
to program oversight. The fifth concerns potential regulatory action to
facilitate certification for firms seeking to work as DBEs in more than
one state. The sixth concerns additional limitations on the discretion
of prime contractors to terminate DBEs for convenience, once the prime
contractor had committed to using the DBE as part of its showing of
good faith efforts.
DATES: Comments on this proposed rule must be received by July 7, 2009.
ADDRESSES: You may submit comments (identified by the agency name and
DOT Docket ID Number OST-2009) by any of the following methods:
Federal eRulemaking Portal: Go to http://
www.regulations.gov and follow the online instructions for submitting
comments.
Mail: Docket Management Facility: U.S. Department of
Transportation, 1200 New Jersey Avenue SE., West Building Ground Floor,
Room W12-140, Washington, DC 20590-0001.
Hand Delivery or Courier: West Building Ground Floor, Room
W12-140, 1200 New Jersey Avenue, SE., between 9 a.m. and 5 p.m. ET,
Monday through Friday, except Federal holidays.
Fax: 202-493-2251.
Instructions: You must include the agency name (Office of the
Secretary, DOT) and Docket number (OST-2009) for this notice at the
beginning of your comments. You should submit two copies of your
comments if you submit them by mail or courier. Note that all comments
received will be posted without change to http://www.regulations.gov
including any personal information provided and will be available to
internet users. You may review DOT's complete Privacy Act Statement in
the Federal Register published on April 11, 2000 (65 FR 19477) or you
may visit http://DocketsInfo.dot.gov.
Docket: For internet access to the docket to read background
documents and comments received, go to http://www.regulations.gov.
Background documents and comments received may also be viewed at the
U.S. Department of Transportation, 1200 New Jersey Ave., SE., Docket
Operations, M-30, West Building Ground Floor, Room W12-140, Washington,
DC 20590-0001, between 9 a.m. and 5 p.m., Monday through Friday, except
Federal holidays.
FOR FURTHER INFORMATION CONTACT: Robert C. Ashby, Deputy Assistant
General Counsel for Regulation and Enforcement, U.S. Department of
Transportation, 1200 New Jersey Avenue, SE., Washington, DC 20590-0001,
Room W94-302, 202-366-9310, bob.ashby@dot.gov.
SUPPLEMENTARY INFORMATION: The Department is holding a series of
stakeholder meetings to bring together prime contractors, DBEs, and
state and local government representatives to discuss ways of improving
administration of the DBE program. As a result of these discussions,
the Department has issued, and will continue to consider, guidance
Questions and Answers to help participants better understand and carry
out their responsibilities. Addressing other issues raised in the
discussions, however, may require changes to the DBE rules themselves
(49 CFR Parts 23 and 26). This ANPRM concerns five such issues: (1)
Counting of DBE credit for items obtained by DBE subcontractors from
other sources, particularly the prime contractor for whom they are
working on a given contract; (2) ways of encouraging recipients to
break up contracts into smaller pieces that can more easily be
performed by small businesses like DBEs, known as ``unbundling;'' (3)
potential ways of improving the DBE application and personal net worth
(PNW) forms; (4) potential ways of improving program oversight, and (5)
potential ways of reducing burdens on firms seeking certification as
DBEs in more than one state.
[[Page 15905]]
Counting Credit for Items Obtained by DBEs From Non-DBE Sources
Section 26.55(a)(1) of the Department's DBE rule provides as
follows:
(a) When a DBE participates in a contract, you [i.e., the
recipient] count only the value of the work actually performed by
the DBE toward DBE goals.
(1) Count the entire amount of that portion of a construction
contract that is performed by the DBE's own forces. Include the cost
of supplies and materials obtained by the DBE for the work of the
contract, including supplies purchased or equipment leased by the
DBE (except supplies and equipment the DBE subcontractor purchases
or leases from the prime contractor or its affiliate).
The preamble discussion of this provision said the following:
The value of work performed by DBEs themselves is deemed to
include the cost of materials and supplies purchased, and equipment
leased, by the DBE from non-DBE sources. For example, if a DBE steel
erection firm buys steel from a non-DBE manufacturer, or leases a
crane from a non-DBE construction firm, these costs count toward DBE
goals. There is one exception: if a DBE buys supplies or leases
equipment from the prime contractor on its contract, these costs do
not count toward DBE goals. Several comments from prime contractors
suggested these costs should count, but this situation is too
problematic, in our view, from an independence and commercially
useful function (CUF) point of view to permit DBE credit. 64 FR5115-
16, February 2, 1999.
This provision creates an intentional inconsistency between the
treatment of purchases or leases of items by DBEs from non-DBE sources.
If a DBE contractor buys or rents items from a non-DBE source other
than the prime contractor, the recipient counts those items for DBE
credit on the contract. If a DBE subcontractor buys or rents the same
items from the prime contractor for the DBE's subcontract, the
recipient does not award DBE credit for the items.
The policy rationale for this provision, as the preamble quotation
notes, is that permitting the prime contractor to provide an item to
its own DBE subcontractor, and then claim DBE credit for the value of
that item, raises issues concerning whether the DBE is actually
independent and performing a CUF. Suppose Prime Contractor A owns an
asphalt plant and sells asphalt for a highway construction project to
DBE X. Prime Contractor A then claims the value of the asphalt, which
its own plant manufactured, for DBE credit. In the Department's view at
the time the final rule was adopted, the asphalt represented a
contribution to the project by Prime Contractor A, not DBE X. The rule
treats the asphalt as material provided by the prime contractor to the
project and, consequently, not part of the ``work actually performed by
the DBE.'' Therefore, the rule does not permit it to be counted for DBE
credit.
In 2007, the Department received a request from the Ohio Department
of Transportation for a program waiver of this provision. The
Department's response stated the following reason for denying the
request:
In reviewing a waiver request, the key point the Department
considers is whether granting the request would, in fact, achieve
the objectives of the DBE regulation. In this case, the Department
believes that it would be contrary to the rule's objectives for the
prime contractor to claim DBE credit for the value of its own
asphalt, just because the asphalt has passed through the hands of
the DBE subcontractor. The asphalt, in this situation, would not
represent a contribution to the project by the DBE, but rather part
of the prime contractor's work on the project.
Such a result would be contrary to a primary purpose of 49 CFR
26.55, which is to ensure that DBE credit is given only for the
contribution to a project that the DBE itself makes. While granting
the waiver might permit DBE subcontractors, prime contractors, and
ODOT to report higher DBE participation numbers than would otherwise
be the case, the reported participation would represent value added
by the prime contractor/asphalt manufacturer, not the DBE
subcontractor. Doing so would have the effect of permitting prime
contractors to meet DBE goals while minimizing the actual
contributions they need to obtain from DBEs.
Some prime contractors and DBE contractors have objected to this
provision, both in correspondence with the Department and in the
stakeholder meeting discussions. They assert that 26.55(a)(1) prevents
DBE firms from successfully competing for projects involving the
purchase of commodities like asphalt, concrete, or quarried rock, since
the DBE credit they could bring to the project would be limited to the
installation and labor costs of the job (likely a relatively small
percentage of the overall contract). This is particularly true, they
say, when there are only one or two suppliers of the commodity within a
reasonable distance of the DBE, and those suppliers are owned by or
affiliated with a prime contractor. Given that there is a growing
perception that independent suppliers of commodities of this kind are
being acquired by larger companies, many of whom are prime contractors,
many stakeholders believe that this scenario is becoming more
widespread.
Participants in the stakeholder meeting discussions also suggested
that the current rule could also lead to competitive inequities between
prime contractors. For example, suppose Prime Contractor A has an
asphalt plant--the only one in the area--and Prime Contractor B does
not. Both are bidding on a highway construction contract on which there
is a DBE goal. Prime Contractor A cannot count for DBE credit the
asphalt that a DBE paving contractor buys, while Prime Contractor B
can. This makes it easier for B to meet the DBE goal on the contract.
In thinking about this issue, we have a question about normal
industry practices on which we invite comment. Suppose, on a project in
which counting DBE participation is not at issue (e.g., a Federal-aid
highway contract that has no DBE contract goal, a state-funded project
to which the DBE program does not apply, a purely private-sector
contract), a prime contractor has a subcontractor who will be doing
installation work (e.g., paving, concrete work). If the prime
contractor has a manufacturing or distribution facility for the
commodity involved, does the prime contractor commonly sell the
commodity to the subcontractor, who then is reimbursed by the prime
contractor for the sale price as part of the subcontract price?
Alternatively, does the prime contractor typically simply make the
commodity available on the job site, hiring the subcontractor just to
do the installation work? What considerations may affect a decision on
this matter?
In response to the concerns that have been expressed at the
stakeholder meetings and elsewhere, the Department is seeking comment
on four options. All these options focus on the language of the
regulation. We do not believe that it is possible to make a reasonable
interpretation of the existing regulation that would change the
situation about which some DBEs and prime contractors have expressed
concern. For example, we do not believe that drawing a distinction
between ``supplies'' and ``materials,'' as some have suggested, is
viable. In the absence of ``term of art'' definitions of these words in
the regulation, we rely on their common meanings, which do not differ
significantly. Moreover, the policy rationale of section 26.55(a)(1)
referred to above applies equally well to asphalt and other bulk
commodities, construction equipment, and other items used on a project.
Option 1: No change. Leave the language of section 26.55(a)(1) as
it is.
Option 2: Leave the basic structure of section 26.55(a)(1) intact,
maintaining the intentional inconsistency between items provided to a
DBE by the prime contractor on a given project and items provided by
another non-DBE source. However, permit recipients to make exceptions
based on criteria stated in an
[[Page 15906]]
amendment to the rule. The exceptions would allow counting of items
provided by a prime contractor to its DBE subcontractor under limited
circumstances. For example, one criterion for granting an exception
might be the absence of sources for an item in a given geographic area
other than a prime contractor bidding on a project. Another might be a
determination by the recipient that allowing items provided by a prime
contractor to count for DBE credit is necessary to ensure fair
competition among prime contractors. The Department seeks comment on
what criteria the Department should propose if we pursue this option,
as well as what procedures an amended rule should provide for
recipients' exception processes.
Option 3: Amend the rule to permit items obtained by DBEs for a
contract to be counted for DBE credit regardless of their non-DBE
source. This option would eliminate the current intentional
inconsistency by permitting items obtained by a DBE from its prime
contractor to count for DBE credit in the same manner as items obtained
from other non-DBE sources. This approach would satisfy the objections
of some DBEs and prime contractors to the existing counting provision.
It would result in a level competitive playing field among prime
contractors and among DBEs. It would probably lead to higher reported
DBE participation but it would, to some extent, undermine the principle
that only the portion of a contract actually attributable to a DBE's
own work should be counted for DBE credit.
Option 4: Amend the rule to prohibit items obtained by a DBE from
any non-DBE source to be counted for DBE credit. This option would
eliminate the current intentional inconsistency by saying that if a DBE
obtains items from any non-DBE source, whether the prime contractor or
a third party, those items cannot be counted for DBE credit. This
approach would result in counting DBE credit in all situations in a way
such that only work actually performed by DBEs would result in credit.
It would result in a level competitive playing field among prime
contractors and among DBEs, but it would probably result in recipients
having to set lower DBE goals on some kinds of contracts and to report
lower DBE participation numbers.
One concern mentioned in the stakeholder meeting discussion of this
issue is that being able to report higher total contract dollars--even
if based, in part, on items provided by prime contractors or other non-
DBE sources--could be beneficial to DBEs. This was said to be the case
because, in effect, it looked good on the resume of a DBE to say that
it had completed a relatively large project. Doing so could make it
easier for the DBE to grow and build capacity by being able to bid on
larger contracts in the future, get larger bonds, etc. The Department
seeks comment on how real and important this factor may be, and whether
it is a consideration the Department should treat as significant in
determining which option to pursue on this issue.
In responding to this ANPRM, we invite interested persons to
comment on these four options, how the Department could best structure
whichever option it chooses, as well as any other options that
commenters think may have merit.
Contract Unbundling
For as long as there have been programs designed to assist small or
disadvantaged businesses in obtaining government contracts,
``unbundling'' has been mentioned as a desirable way of enhancing
business opportunities for these businesses. The Small Business
Reauthorization Act of 1997 defines contract bundling as ''
consolidating two or more procurement requirements for goods or
services previously provided or performed under separate, smaller
contracts into a solicitation of offers for a single contract that is
unlikely to be suitable for award to a small business concern.'' By
``unbundling,'' we mean breaking up large contracts into smaller pieces
that small businesses will find it easier to compete for and perform,
as well as structuring contracting requirements to ease competition for
small firms. Unbundling contracts is cited in the DOT DBE regulation
(section 26.51(b)(1)) as one of the race-neutral measures that
recipients can take to help meet overall DBE goals.
In the DBE program, as in direct Federal procurement, unbundling
historically has been easier to praise than to implement. The reasons
why are not hard to understand. Contracting agencies often believe,
with some justification, that it is more economically efficient to
issue one large contract than to issue a series of smaller contracts.
Doing so may also reduce the administrative burdens of the procurement
process. In this ANPRM, the Department is seeking comment on what
steps--beyond using its bully pulpit to advocate greater use of the
technique--the Department might take to foster unbundling.
For example, would it be useful to add to Part 26 a requirement
that recipients' DBE programs include specific policies and procedures
to unbundle contracts of a certain size that are subject to DBE program
requirements? In all design-build contracts, or other types of large
contracts involving a master or central prime contractor, should there
be requirements that the prime contractor ensure that some subcontracts
are structured to facilitate small business participation? When a
recipient is letting a race-neutral contract (that is, one without a
DBE contract goal), should the terms of the solicitation call on the
prime contractor to provide for enough small subcontracts to make it
possible for small businesses, including DBEs, to participate more
readily? When a recipient has a significant race-neutral component of
its overall goal, should the recipient be required to ensure that some
portion of the contracts that it issues are sized to facilitate small
business participation? Should recipients include, as an element in
their DBE programs, procedures to facilitate cooperation among small
and disadvantaged businesses to enable them to better compete for
larger contracts (e.g., formation of joint ventures among DBEs)?
The Federal Acquisition Regulations (FARs) have procedures and
criteria related to unbundling in direct Federal procurement. Do any of
the FAR provisions suggest useful ways of approaching unbundling issues
in the DBE program?
The Department seeks comment on whether any of these ideas have
merit, as well as any other suggestions that interested persons may
have to make contracts more accessible to small and disadvantaged
businesses. It would be useful for the Department to receive
information on ``best practices'' that recipients have successfully
implemented to make contracts more accessible to small businesses.
Revised DBE Certification Application and Personal Net Worth Statement
Under Sec. 26.83(c)(7) of the Regulation, firms applying for DBE
certification must use the uniform certification application form
provided in Appendix F without change or revision. The application is
intended to provide sufficient details concerning a firm so that
recipients can determine whether the applicant firm is eligible for the
program. Entries are provided to capture details concerning the firm's
origination; control by the disadvantaged owners; involvement by
directors, employees, and other companies in the firm's affairs; and
financial/equipment arrangements. Recipients are permitted (with
approval from the concerned Operating
[[Page 15907]]
Administration) to supplement the form by requesting additional
information.
The Department takes the uniformity requirement seriously. We have
heard numerous complaints from DBEs that application materials may
differ widely from state to state. We emphasize that all UCPs must use
the same, identical DOT form, without change or addition except as
specifically approved by an Operating Administration.
We seek comment on what changes to the current application form
(Appendix F) could be made to provide a more comprehensive
understanding of the business structure and operation of the applicant
firm. In particular, what items could be added, revised or eliminated
so that recipients can obtain the information they need to adequately
assess an applicant's eligibility? We note that several pieces of new
information placed on the application could be potentially useful for
determining owners' economic disadvantage and their ability to control
their business. For example, an applicant's date of birth would assist
in determining a proper value for retirement assets under Sec.
26.67(a)(2)(iii)(D), which accounts for assets that cannot be
distributed to an individual without significant adverse tax
consequences. Under Internal Revenue Service guidelines, a person's age
is relevant when making such a calculation; yet the application and tax
material submitted in connection with a DBE certification application
does not contain the applicant's date of birth.
Questions 11 and 12 (found in Section 4 ``Control'') request
information on the firm's management personnel who may perform a
management or supervisory function for another business, or own or work
for any other firms that have a relationship with the applicant firm.
As written, these questions may not capture other types of employment
or activities that persons may be commonly engaged in outside their
role with the applicant firm. We believe that the outside activities of
a firm's owner(s) and key personnel are highly relevant in determining
who at the firm controls each activity for which the firm is seeking
certification. If an owner is absent from the firm and performs work
(paid or unpaid) elsewhere, this could have an impact on the firm's
eligibility. While such information is commonly placed on
r[eacute]sum[eacute]s submitted with the application or obtained during
an on-site visit, this is not always the case. Also, not every key
person submits his or her r[eacute]sum[eacute] and it may be difficult
to determine the number of hours devoted to firm activities. Should the
application include more details concerning owners' outside employment
or other business dealings to include a description of the time spent
at these operations and an explanation of how these activities do not
conflict with their ability to manage the applicant firm?
A related omission is found in Section 3, Part B, Question 4, which
asks for owner's ``familial relationship to other owners.'' This entry
does not include an owner's familial relationship to other employees at
the firm, any one of whom may have financed the operation or control
key aspects of the firm's work. This type of information would not be
obtained without probing further during an on-site visit. What items
could be added to the certification application that would clarify the
roles of the firm's owners and key individuals? What items are missing
from the form that are routinely asked during the on-site visit? On
such item is the firm's NAICS Code. While an entry exists in Section 2
for a description of the firm's primary activities, it seems necessary
for certification purposes for the firm and a recipient to determine
which NAICS Codes are applicable. We invite interested persons to
comment on these issues and provide suggestions for changes to the
certification application form.
The foregoing paragraphs have asked for comment on clarifications
or additions to the existing application form. The Department has also
heard concerns that the form, as currently structured, is too long and
complex, to the point of deterring firms from applying for DBE
certification. The Department seeks comment on whether there are ways
of significantly shortening or simplifying the form that would continue
to give UCPs sufficient information to make informed decisions about
firms' eligibility. If commenters have a model of an alternative form
in mind, it would be helpful if they would provide a draft copy with
their comments.
We also invite comments on an appropriate personal net worth form
to be used by each applicant owner claiming to be socially and
economically disadvantaged. The current certification application
allows applicants to submit their own version of a personal net worth
statement, and the Small Business Administration's ``personal financial
statement'' (Form 413) is most commonly used. SBA's form is tailored to
its program and the form's headnote asks for completion of the
statement by each proprietor, or limited partner with 20 percent or
more interest and each general partner; or each stockholder holding 20
percent or more of voting stock; or any person or entity providing a
guaranty on the loan. This varies significantly from the DBE program
and has caused confusion, as Part 26 requires that only disadvantaged
owners claiming ownership of 51 percent of the firm (or a combination
of disadvantaged owners holding a majority interest) submit a personal
net worth statement. Confusion also stems from the nature of the
entries to be completed by the applicant, which are missing information
that recipients find useful in verifying the calculation of assets and
liabilities. This is particularly the case in the listing of ``real
estate owned,'' as the form does not allow easy entry of multiple
owners, their relative share of any mortgages, any home equity/
secondary loan amounts, and other items.
Should Part 26 specify in greater detail what types of information
should be included on an applicant's personal net worth statement and
what attachments should accompany the statement? What instructions can
be placed on the application to alert owners (and recipients) that all
assets are relevant to determining a person's overall net worth?
Instructions could specify that items often overlooked or
mischaracterized as a joint asset (such as individual retirement
accounts, which are never jointly held, or Medical Savings Accounts)
should be included on the statement. In addition, how can owners
adequately explain whether new assets were purchased with dividends or
capital gains that are reported in a tax return, but not reflected on
the personal net worth statement? What transactional details such as
these should we require applicants to report? Are there financial
documents not necessarily related to a person's net worth that are
missing but could be relevant to other aspects of the rule, such as W-2
``Wage and Tax'' statements showing remuneration of owners and
personnel?
We are aware that an expanded form may have the unintended
consequence of adding to the paperwork performed by firms and the
length of the overall information gathering process, two issues that we
hope commenters will also address. As with the application form, the
Department seeks comment on whether there are ways of significantly
shortening or simplifying the form that would continue to give UCPs
sufficient information to make informed decisions about applicants'
PNW. If commenters have a model of an alternative form in mind, it
would be helpful if they would provide a draft copy with their
comments.
The Department also believes strongly that PNW is not the only
factor that recipients should consider in
[[Page 15908]]
determining whether an applicant is economically disadvantaged. As the
Department has said in guidance, there may be situations in which the
overall financial situation of an applicant can reasonably suggest that
the applicant is not economically disadvantaged, even when his or her
PNW falls under the $750,000 cap. For example, if an individual owns a
$15 million house with a $14.5 million mortgage, or has numerous
vacation properties, or an expensive yacht or horse breeding farm, or
lives with family members whose evident wealth is quite high, a UCP
might reasonably conclude that he or she is not economically
disadvantaged even though he or she may meet the PNW requirements of
the rule. The Department seeks comment on how best to apply and
describe the economic disadvantage concept in its rules.
Program Oversight
Two stated objectives of the DBE program are to create a level
playing field on which DBEs can compete fairly for DOT-assisted
contracts and to ensure that only firms that fully meet the eligibility
standards are permitted to participate as DBEs. Unfortunately, these
objectives have at times been thwarted by DBE program fraud, fronts/
pass-throughs, and other nefarious schemes, which have been subjects of
great concern to the Department. In 2004, the Secretary of
Transportation established a senior-level working group to develop and
implement strategies for enhanced compliance, enforcement, and
oversight of the DBE program. Combating DBE fraud has become a major
emphasis area for the Department's Office of the Inspector General.
While effort at the Federal level is very important, fraud
prevention begins at the state and local level. We seek comment on
amending the regulation to require recipients to take a more hands-on
approach to overseeing the program. The precise nature of what this
entails is the subject of this portion of our request for information
and we seek input on what revisions could increase the integrity of the
program and what best practices exist that recipients could emulate.
This includes specific language that could be added to address (1)
conflicts of interest within a recipient's certification unit or UCP,
(2) general standards and guidance for reviewing their DBE program, (3)
the independence and competence of certifiers in the process, and (4)
objective and impartial judgment on all issues associated with the DBE
program. If additional language would be too cumbersome, are there
different measures that would achieve this same result?
Facilitating Interstate Certification
The DBE program is a national program, and many firms are
interested in working in more than one state. However, certification
proceeds on a state-by-state basis, with each state's UCP operating
independently. In the stakeholder meetings and other forums, DBEs and
prime contractors have frequently expressed frustration at what they
view as unnecessary obstacles to certification by one state of firms
located in other states. They complain of unnecessarily repetitive,
duplicative, and burdensome administrative processes and what they see
as the inconsistent interpretation of the DOT rules by various UCPs.
There have been a number of requests for nationwide reciprocity or some
other system in which one certification was sufficient throughout the
country.
The Department believes that more should be done to facilitate
interstate certification. Interstate reciprocity has always been
authorized under Part 26 (see section 26.81(e) and (f)), and in 1999 we
issued a Q&A encouraging this approach. To further encourage such
efforts, the Department issued a Q&A in 2008, providing the following
guidance:
WHAT STEPS SHOULD RECIPIENTS AND UCPs TAKE TO REDUCE CERTIFICATION
BURDENS ON APPLICANTS WHO ARE CERTIFIED IN OTHER STATES OR CERTIFIED BY
SBA? (Posted--6/18/08)
* It is the policy of the Department of Transportation that
unified certification programs (UCPs) should, to the maximum extent
feasible, reduce burdens on firms which are certified as DBEs in
their home state and which seek certification in other states.
Unnecessary barriers to certification across the country are
contrary to the purpose of a national program like the DBE/ACDBE
program.
* In particular, recipients and UCPs should not unnecessarily
require the preparation of duplicative certification application
packages.
* We remind recipients and UCPs that the Uniform Certification
Application Form in Appendix F to part 26 MUST be used for all
certifications. The rules do not permit anyone to alter this form or
to use a different form for DBE certification purposes.
* The Department strongly encourages the formation of regional
certification consortia, in which UCPs in one state provide
reciprocal certification to firms certified by other members of the
consortium. Consortium members should meet and/or speak with each
other frequently to discuss eligibility concerns and approaches to
common issues, to conduct training, and for other purposes.
Generally, these consortia should be established among states that
are located in proximity to one another.
* The Department will closely monitor the efforts of UCPs to
reduce burdens on firms applying for certification outside their
home states. The Department will determine at a later time whether
additional regulatory action is appropriate to prevent unnecessary
certification burdens.
Certifications From Other States
* For situations in which a firm certified in State A applies
for certification in State B, we suggest the following model. Other
approaches are also possible, but the Department believes strongly
that all states should put into place procedures to avoid having
firms certified in one state start the application process from
scratch in another state.
+ Request that the applicant provide a copy of the full and
complete application package on the basis of which State A certified
the firm. State B should require an affidavit from the firm stating,
under penalty of perjury, that the documentation is identical to
that provided to State A. It is important that all this material be
legible, so that State B can review the package as if it were the
original.
+ To ensure that information is reasonably contemporary, State B
could have a provision limiting this expedited process to
application packages filed with State A within three years of the
application to State B.
+ State B should instruct the applicant to provide any updates
needed to make the application material current (e.g., changes in
personal net worth of the owner, more recent tax returns, changes
affecting ownership and control).
+ State B should request State A's on-site review report and any
accompanying memoranda or evaluations. State A should promptly
provide this material.
+ State B should certify the firm unless changes in
circumstances or facts not available to State A justify a different
result, or unless State B can articulate a strong reason for coming
to a different result from State A on the same facts.
The Department is aware that in one case, Virginia, Maryland, and
the District of Columbia have created a ``reciprocity'' agreement with
respect to DBE certification, though it does not have the ``rebuttable
presumption of eligbility'' feature suggested in the Department's Q&A.
That is a feature we regard as a key part of an effective interstate
certification system. Otherwise, we are not aware of much activity to
facilitate interstate certifications and thereby mitigate the problems
of which DBEs have spoken. UCP representatives have been very candid in
saying that a lack of trust among various state UCPs and a concern
about the perceived uneven quality of certifications are obstacles to
such action.
Another obstacle to effective interstate certification, and to
effective oversight of certified firms generally, is the apparent age
of many on-site review reports. A firm may be certified in State
[[Page 15909]]
A in Year 1, with no update of the on-site review for many years
thereafter. When the firm applies to State B eight years later, State B
does not have a reasonably recent on-site review report to use in
determining whether the firm is eligible. Even State A does not have
recent information to rely upon in determining whether the firm remains
eligible. The Department seeks comment on whether it would make sense
to require an update of each on-site review report at certain
intervals, such as every three or five years. The Department also seeks
comment on the impact of such a requirement on UCP resources.
The Department seeks comment on whether we should propose a
regulatory requirement along the lines of the idea suggested in the Q&A
to begin to surmount the obstacles to facilitating interstate
certification. We also welcome ideas about other potential approaches
to the issue.
Over the years, interested persons have raised the idea of either
nationwide certification reciprocity or Federalizing the certification
process. Nationwide reciprocity raises concerns about firms engaging in
forum shopping to find the ``easy graders'' among certifying agencies.
Federalizing certification, such as having a unitary certification
system operated by DOT, may raise significant resource issues. Such an
approach could also result in less local ``on the ground'' knowledge of
the circumstances of applicant firms, which can be a valuable part of
the certification process. The Department seeks comment on how, if at
all, these issues could be addressed, and whether there is merit in one
or another nationwide approach to certification.
Terminations for Convenience and Substitution
Currently, section 26.53(f)(1) tells recipients to
* * * 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.
Under section 26.53(f)(2),
When a DBE subcontractor is terminated, or fails to complete its
work on the contract for any reason, you [the recipient] must
require the prime contractor to make good faith efforts to
substitute for the original DBE. These good faith efforts shall be
directed at finding another DBE to perform at least the same amount
of work under the contract as the DBE that was terminated, to the
extent needed to meet the contract goal you established for the
procurement.
In recent years, participants in the DBE program have informally
told the Department of what they, and DOT staff, regard as a growing
problem. For example, a prime contractor accepts DBE Firm A and lists
it as the firm that will meet its DBE contract goal. Firm A expends
time, effort, and money to prepare to perform the contract, after
signing a letter of intent with the prime contractor. Then, after
contract award or execution, the prime terminates Firm A for
convenience and substitutes DBE Firm B, whose participation is
sufficient to meet the goal.
There could be various reasons for such an action. For example, the
prime may have been able to negotiate a lower price with Firm B, or the
prime has an established relationship with Firm B, and Firm B has just
become available to perform the work. In any case, Firm A is left out
in the cold. Because the prime contractor did not terminate Firm A for
convenience and then perform the work itself, the recipient did not,
under section 26.53(f)(1), have to sign off on the substitution.
Because the substitute firm is itself a DBE, the prime contractor met
its good faith efforts obligation under section 26.53(f)(2).
We are also aware of another concern. Suppose DBE Firm C is
performing a subcontract (e.g., in paving). The recipient issues a
change order, resulting in a significant increment in the paving work
to be done on the contract. The prime contractor, rather than assigning
this additional work to Firm C, either does the work itself or assigns
it to another DBE or non-DBE subcontractor. In this situation, Firm C,
which is already on the job, and on which the prime contractor relied
for its original DBE goal achievement, is denied the opportunity for
additional work and profit.
The Department is seeking comment on whether we should modify
section 26.53 to provide greater involvement by recipients in these
situations. For example, we could propose that, when a prime contractor
has relied on a commitment to a DBE firm to meet all or part of a
contract goal, the prime contractor could not terminate the DBE firm
for convenience without the recipient's written approval, based upon a
finding of good cause for the termination. This would be true whether
the prime contractor proposed to replace the DBE's participation with
another DBE subcontractor, a non-DBE subcontractor, or with the prime
contractor's own forces. Likewise, we might propose amending section
26.53 to require the recipient to approve a decision by a prime
contractor to give a significant increment in the work (e.g., as the
result of a change order) assigned to a DBE subcontractor on which the
prime contractor had relied to meet all or part of its contract goal to
any party other than that DBE subcontractor. The purpose of these ideas
would be to make more meaningful the commitment to a particular DBE
firm that the prime contractor made as part of the contract award
process. We also seek comment on adding a similar requirement for pre-
award substitutions in the case of negotiated procurements.
The concept on which we are seeking comment would concern
situations where there is a contract goal in a solicitation for the
contract. We do not now contemplate proposing such a provision with
respect to race-neutral contracts, in which there was not a contract
goal. However, we do seek comments on whether a concept of this kind
should apply to race-neutral contracts. We also seek comment on whether
we should propose any criteria for recipients to apply in deciding
whether to approve a substitution, and on what such criteria might be.
Regulatory Analyses and Notices
This ANPRM is a nonsignificant rule under Executive order 12886,
because any notice of proposed rulemaking resulting from it will not
impose significant costs or burdens on regulated parties. Nor will an
NPRM that may follow this ANPRM have significant economic effects on a
substantial number of small entities. While the DBE program focuses on
small entities, the ANPRM seeks comment on measures that would have the
effect of reducing administrative burdens on small entities. At the
time of the NPRM, the Department will determine whether it is necessary
to conduct a Regulatory Flexibility Analysis.
This ANPRM does not include information collection requirements
subject to the Paperwork Reduction Act. The Department does not
anticipate effects on state and local governments sufficient to invoke
requirements under the Federalism Executive Order. Because it is based
on civil rights statutes, this rulemaking is not subject to the
Unfunded Mandates Act.
The Department seeks comment on any issues related to the
application of these or other cross-cutting regulatory process
requirements to rulemaking on the aspects of the DBE program covered by
this ANPRM.
[[Page 15910]]
Issued this 25th day of March 2009, at Washington, DC.
Ray LaHood,
Secretary of Transportation.
[FR Doc. E9-7903 Filed 4-7-09; 8:45 am]
BILLING CODE 4910-9X-P