[Federal Register Volume 75, Number 89 (Monday, May 10, 2010)]
[Proposed Rules]
[Pages 25815-25828]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-10968]
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DEPARTMENT OF TRANSPORTATION
Office of the Secretary
49 CFR Part 26
[Docket No. OST-2010-0118]
RIN 2105-AD75
Disadvantaged Business Enterprise: Program Improvements
AGENCY: Office of the Secretary (OST), DOT.
ACTION: Notice of proposed rulemaking (NPRM).
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SUMMARY: This notice of proposed rulemaking (NPRM) would propose to
improve the administration of the Disadvantaged Business Enterprise
(DBE) program by increasing accountability for recipients with respect
to good faith efforts to meet overall goals, modifying and updating
certification requirements, adjusting the personal net worth (PNW)
threshold for inflation, providing for expedited interstate
certification, adding provisions to foster small business participation
and improve post-award oversight, and addressing other issues.
DATES: Comments on this proposed rule must be received by July 9, 2010.
ADDRESSES: You may submit comments (identified by the agency name and
DOT Docket ID Number OST-2010-0118) 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-2010-0118) 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
[[Page 25816]]
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, 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,
Room W94-302, 202-366-9310, [email protected].
SUPPLEMENTARY INFORMATION: The Department of Transportation issued an
advance notice of proposed rulemaking (ANPRM) on April 8, 2009,
concerning several DBE program issues (74 FR 15904). The first
concerned counting of items obtained by a DBE subcontractor from its
prime contractor. The second concerned ways of encouraging the
``unbundling'' of contracts to facilitate participation by small
businesses, including DBEs. The third was a request for comments on
potential improvements to the DBE application form and personal net
worth (PNW), and the fourth asked for suggestions related to program
oversight. The fifth concerned potential regulatory action to
facilitate certification for firms seeking to work as DBEs in more than
one state. The sixth concerned 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. The Department received approximately 30 comment
letters concerning these issues. This NPRM makes regulatory proposals
concerning many of these issues.
In addition, since the ANPRM was published, both the House of
Representatives and the Senate have passed their versions of a Federal
Aviation Administration (FAA) reauthorization bill. These bills include
a provision requiring an inflationary adjustment to the current
$750,000 personal net worth (PNW) cap. Because the timing of the
enactment of an FAA reauthorization bill is not yet clear, and the
provisions of the bill do not apply to the Department's highway and
transit programs in any case, the Department has decided to propose an
inflationary adjustment of the PNW cap to $1.3 million, the figure that
would result from the House and Senate bills.
Finally, the Department is proposing amendments to the
certification-related provisions of the DBE regulation. These proposals
result from the Department's experience in dealing with certification
issues and certification appeal cases during the years since the last
major revision of the DBE rule in 1999. The amendments are intended to
clarify issues that have arisen and avoid problems with which
recipients (i.e., state highway agencies, transit authorities, and
airport sponsors who receive DOT grant financial assistance) and the
Department have had to grapple over the last 11 years.
Accountability for Recipients With Respect to Overall Goals
Section 26.47 of the rule states that a recipient cannot be
penalized for failing to meet overall goals. To penalize a recipient
simply for failing to ``hit a number'' could create an impermissible
quota system. Nonetheless, recipients are required to implement their
DBE programs in good faith in order to remain in compliance with Part
26.
The Department takes this ``good faith implementation'' requirement
very seriously. Accountability is the key to ensuring effective program
implementation, and the Department believes that it is useful to add a
new provision to increase the accountability of recipients with respect
to overall goals and their attainment.
An overall goal is the recipient's estimate of the ``level playing
field'' amount of DBE participation that it would expect to achieve in
the absence of discrimination or its effects. Failing to meet the
overall goal means that the measures the recipient has employed in
carrying out its DBE program have not fully created that level playing
field, and that discrimination or its effects have not fully been
remedied. In order to implement its program in good faith, a recipient
should make strong efforts to understand the reasons why it has not met
its overall goal and to figure out what it can do to correct the
situation.
For this reason, the Department is proposing to add a new paragraph
(c) to Sec. 26.47. If at the end of a fiscal year (FY) 1, (e.g.,
September 30), a recipient has failed to meet its overall goal for that
FY, the recipient must do two things: (1) Thoroughly analyze why it
fell short of meeting its overall goal for FY1 and (2) establish
specific steps and milestones for correcting identified problems so
that the recipient will meet its overall goal in FY2 and subsequent
years. State highway agencies, the largest 50 transit authorities as
designated by FTA, and Operational Evaluation Airports and other
airports designated by FAA would have to submit this material to FHWA,
FTA, or FAA, as applicable. The NPRM proposes a period of 60 days to
submit this material. The Department seeks comment on this process.
Other FTA and FAA recipients would retain the information, so that DOT
officials conducting program or compliance reviews could review it.
This section also proposes that, if a recipient fails to take
actions required under the new provisions, the recipient could be
regarded as in noncompliance with Sec. 26.47 and hence subject to the
remedies stated in Sec. Sec. 26.101 through 26.105 or other
applicable regulations. These remedies include suspension or
termination of Federal assistance, refusal to approve projects,
payments, grants, or contracts, or other action at the discretion of
the operating administration involved.
Goal Submission
On February 2010, the Department amended Sec. 26.45 to allow
recipients to submit overall goals every three years, rather than
annually (75 FR 5535). This change was intended to reduce
administrative burdens for recipients, as well as to permit DOT staff
to give greater scrutiny to recipients' submissions. In this NPRM, we
propose a clarification of this amendment. While the recipient need
only submit a new goal every three years, it is still responsible for
good faith implementation of that goal in each year.
In carrying out the accountability provision discussed above, the
Department would hold recipients responsible for each year's
implementation activity. For example, suppose that a recipient has a 12
percent goal for FY 1-3. If the recipient fell short of 12 percent in
FY 1, the Sec. 26.47 requirements for analysis of the shortfall and
steps to remedy the problems in FY 2 would apply. The recipient would
not be able to say, in effect, ``We don't need to worry about our FY 1
shortfall because we'll catch up in FY 3.''
It is possible, however, that a recipient might anticipate a
funding stream for projects that would in fact differ from one year to
the next. For example, an airport with a 12 percent goal might expect,
given the projects, FAA assistance, and DBE availability that it
anticipates, that it would have 6 percent DBE participation in FY 1, 18
percent in FY 2, and 12 percent in FY 3. The Department seeks comment
on whether a recipient could, if it wished,
[[Page 25817]]
provide a year-to-year projection of its likely DBE participation
within the framework of a goal and methodology submitted only every
three years, with the result that in applying the accountability
provision of proposed Sec. 26.47, those year-to-year projections,
rather than the three-year overall goal number, would be the benchmark
for determining whether the analysis/corrective action requirements
would be triggered. This could increase flexibility, but could
undercut, to an extent, the purpose of the three-year goal submission
interval. We anticipate that this approach would be relevant primarily,
or perhaps only, in FAA programs, where Federal funding is more likely
to change from year to year than in the FHWA and FTA programs.
Improving Oversight
The ANPRM asked for suggestions on how to improve program
oversight. The Department received 17 comments. Several recipients
commented to the effect that additional resources, including Federal
assistance, would be necessary if they were to conduct additional
oversight. Other commenters suggested that additional training and
information in areas like contract compliance and close-out enforcement
could be useful. A DBE organization noted that training for recipient
executive-level officials, as well as operating-level staff, would be
helpful. This commenter also wanted to emphasize the need for a direct
DBE Liaison Officer connection to the top official of the organization.
Other comments simply supported the concept of better oversight,
without specifying how this could best be accomplished.
Program oversight is not a new concept in the DBE program. Existing
Sec. 26.37 requires monitoring and enforcement mechanisms. To
strengthen these existing provisions, the Department is proposing to
add a sentence to Sec. 26.37(b), calling on recipients to make a
written certification that they have reviewed contracting records and
monitored the work on-site to ensure that DBEs have actually performed
the work in question on each contract involving DBE participation
counted toward contract or overall goals. To comply with this
requirement, the recipient would have to make one such certification
for every contract on any contract with DBE participation. This
sentence would simply make more explicit a requirement that the
Department believes is implicit in the existing regulatory language.
Existing Sec. 26.25 already requires that the DBE liaison officer
(DBELO) must have direct, independent access to the Chief Executive
Officer (CEO) of the recipient's organization concerning DBE program
matters. This means that the DEBLO must not be required to get anyone's
consent or sign-off, or ``go through channels,'' to talk and write
personally to the CEO about DBE program matters. The Department does
not believe that additional regulatory language is needed on this
point: the existing provision is already explicit.
We also call attention to the last section of Sec. 26.25, which
requires that the recipient have adequate staff to administer the DBE
program. In times of budget stringency, it may be tempting to cut back
on staff and other resources needed for certification, program
oversight, and other key DBE program functions. This sentence
emphasizes that it is a requirement of Federal law that the DBE program
be adequately staffed to ensure compliance with Part 26.
Personal Net Worth
The personal net worth (PNW) criterion has been a perennially
controversial subject in the DBE rule. It is intended to ensure that
only economically disadvantaged individuals participate in the DBE
program, lest the program become overinclusive. The $750,000 PNW
``cap,'' taken from SBA materials dating to 1989 or earlier, has been
criticized by DBEs as penalizing success and imposing a glass ceiling
on the growth and competitiveness of DBE firms. At the same time, the
PNW cap has been a part of the package of narrow tailoring features
that has helped the Department to defend the DBE program successfully
against court challenges.
As noted above, the House and Senate versions of the currently
pending FAA reauthorization bills both call for an inflationary
adjustment in the PNW cap, relating back to 1989. Based on these
provisions, the Department did a straight-line inflationary adjustment
using the Consumer Price Index (CPI), which suggests a 73 percent
inflation since 1989. This results in an adjusted PNW cap of $1.31
million. It is very important to understand that this does not
represent an increase in the actual personal net worth which DBE owners
may have, viewed in real dollar terms. Rather, $1.31 million today has
the same value, in real dollar terms, as $750,000 in 1989. The
inflationary adjustment simply maintains the economic status quo.
The Department is aware that there are a number of methodologies
and approaches to making inflationary adjustments. The Department seeks
comment on whether the straight-line CPI approach used in the NPRM is
appropriate, or whether there are other approaches or techniques that
would be better or more accurate. Also, it would not make sense for the
Department to have one PNW number for FAA programs and another for FTA
and FHWA programs. Therefore, the Department's proposal would apply the
$1.31 million PNW cap to all programs covered by Part 26.
The pending FAA bills address another issue related to PNW,
concerning the handling of retirement savings. Under the Department's
current regulation, assets in retirement savings plans are regarded as
part of an individual's wealth, and hence are counted as assets for PNW
purposes. Some DBEs have long objected to this approach, saying that it
is inappropriate to count these assets, which are not liquid and
therefore not readily available for purposes of an owner's business.
While giving the Department a degree of regulatory discretion, the
pending FAA reauthorization bills direct the Department not to count
such assets toward the PNW cap.
If these provisions are enacted, the Department will need to devise
implementing rules. We seek comment on how best to do so. What sort of
retirement savings should be covered by a new provision (e.g., 401(k)s,
IRAs, Roth IRAs, Keough Plans, stocks and bonds, certificates of
deposit or savings plans, life insurance, etc.)? Should there be any
limitation on the amount of money that could be eliminated from
counting toward the PNW cap by being in a retirement savings product?
Is there a potential problem of abuse, in which DBE owners could
shelter assets from PNW consideration in inappropriate ways? If so, how
would the Department attempt to deal with such a problem? Would the
eliminating consideration of these assets have unintended distributive
consequences across the breadth of the DBE program (e.g., helping more
affluent firms at the expense of smaller DBEs without such assets,
having a racially disparate impact)? We seek comment on how we should
shape the details of a future rule implementing the pending statutory
provisions.
Interstate Certification and Related Issues
Under the current DBE rule, certification occurs on a statewide
basis. The Unified Certification Program (UCP) in each state ensures
``one-stop shopping'' for DBE applicants within that state. The UCP
requirement, which came into effect in 1999, has simplified
certification by making it unnecessary
[[Page 25818]]
for recipients to apply multiple times for certification by various
transit authorities, airports, and highway departments within a given
state.
The present structure, however, does not address problems that
occur when DBEs certified in their home state attempt to become
certified in other states. As we mentioned in the ANPRM, 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 Sec. 26.81 (e) and (f)), and in 1999 we
issued a Q&A encouraging this approach. To further encourage such
efforts, the Department issued another Q&A in 2008, suggesting an
approach to facilitating interstate certifications. In the ANPRM, we
asked for comment on proposing a regulatory provision based on this
guidance, or, in the alternative, whether some version of the
nationwide certification reciprocity or Federalizing the certification
process would be desirable. We pointed out that nationwide reciprocity
could raise 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, would
likely 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 asked for comment on how, if at all, these
issues could be addressed, and whether there is merit in one or another
nationwide approach to certification.
There were about 30 comments on this subject. Most of them favored
taking steps to make interstate certification easier. Thirteen
commenters favored one variety or another of national reciprocity, with
eight of these suggesting that, where a UCP had qualms about an out-of-
state firm's bona fides, the UCP could remove the firm's certification
after the fact. That is, a firm certified in its home state, State A,
would send its certification to State B. State B would immediately put
the firm on its list of certified firms, and the firm would become
eligible immediately to participate as a DBE. However, State B could
subsequently decertify the firm if it appeared that the certification
in State A was obtained by fraud or was otherwise invalid. One comment
endorsed the rebuttable presumption approach suggested in the
Department's Q&A. Three favored one version or another of Federalizing
certification, either by having the Department maintain a centralized
certification database or having the Department make certification
decisions other than, perhaps, the initial decision in each case.
Other commenters expressed some concerns about reciprocity. Three
commenters favored using paperwork submitted to other states to reduce
administrative burdens, but reserving to each state the right to make
its own decision. Another four commenters opposed or had serious doubts
about reciprocity, expressing concerns such as the possibility of forum
shopping or variations in state laws that might affect the validity of
State A's certification in State B. Three commenters emphasized the
necessity for better and more uniform training, without which, some
thought, reciprocity would be unlikely to work.
As the Department stated in the ANPRM, we favor making interstate
certification easier and reducing burdens on small businesses seeking
to work in more than one state. Before 1999, businesses had to make
multiple applications in each state if they wanted to work as a DBE for
more than one DOT recipient. The Department dealt successfully with
that problem by creating the UCP system in the 1999 revision to the DBE
regulation. National reciprocity or one-stop shopping for a single
nationwide certification system are worthwhile goals to discuss, but
the Department believes that an incremental approach is more likely to
be practicable.
It is important to keep in mind that certification has two
purposes. One is to foster and facilitate DBE participation by as many
firms as can be determined to be eligible. The other is to preserve the
integrity of the program, a strong certification system being the first
line of defense against program fraud. To some extent, these goals can
be in tension with one another. We believe that the concerns expressed
by commenters about issues like forum shopping, training, and
variations in state laws have validity. Recipients' concerns about
having the integrity of their programs damaged by having to accept what
they view as poorly-considered certification decisions made elsewhere
are also important. The Department's task is to balance, as best we
can, the desire to make interstate certification less onerous for small
businesses with the imperative of maintaining the integrity of the
program.
A seamless, nationwide, one-stop-shopping eligibility process for
all firms is, in a sense, the ``holy grail'' of certification. The
Department does not believe we are currently in a position to make this
objective a reality. As commenters pointed out, better nationwide
uniform training (which has been proposed in Congress as a requirement
in pending FAA reauthorization legislation) and considerable additional
resources at the Federal level (e.g., for the database and staff that
would likely be necessary to make a more centralized certification
system practical) are not yet in place. Given what the Department views
as the very real concerns about forum shopping and variations in the
quality of certifications that commenters and participants in DOT
stakeholder meetings have expressed, we believe that moving at this
time to a nationwide reciprocity approach would be premature and could
endanger the integrity of the program.
As noted above, several commenters favored a slightly modified
national reciprocity approach in which a firm certified in its home
state would automatically be certified in ``State B,'' immediately
eligible to participate as a DBE in State B's contracts. However, if
State B determined that the firm had obtained its home state
certification by fraud, or other information questioning its
eligibility came to State B's attention, State B could remove the
firm's certification. In our view, this approach does not differ
significantly from a straight national reciprocity approach, in that
the ability to decertify a certified firm already exists. Moreover, the
``certify first and ask questions later'' tenor of this approach does
not inspire confidence: by the time the questions got asked, and a
dubious firm removed from the eligible list, it could have received
contracts in place of genuinely eligible firms. As a practical matter,
it is hard to imagine how a certification agency in, say, Utah, would
learn in a timely fashion about fraud or other problems with a firm
originally certified in, for example, Florida.
Having considered the comments, the Department believes the best
course is to propose a ``rebuttable presumption'' approach akin to the
Department's recent guidance Q&A. Proposed
[[Page 25819]]
regulatory language to carry out this approach is found in Sec. Sec.
26.84 through 26.85 of the NPRM. Under this approach, a firm certified
in its home state would not have to create a second application
package. It would send its home state application package, together
with other existing documentation (e.g., its affidavits of no change
submitted to the home state since the time of the firm's original
certification), to State B. State B would obtain a copy of the on-site
review report from the home state. State B would be required to certify
the firm within 30 days from the date it received this information
unless State B had good cause to object to the home state's
certification. If it objected, State B would hold a proceeding similar
to a decertification proceeding in this case, in which State B would
bear the burden of proof to show that the firm should not be certified
in State B, notwithstanding its certification in State A. The
Department seeks comment on the burden of proof in such a proceeding:
Should the firm, rather than State B, bear this burden? This latter
approach would be more consistent with the usual rule that the
applicant carries the burden of proof with respect to eligibility
matters, but it could limit the extent to which the new procedures
would actually facilitate interstate certification.
This approach is a significant incremental step toward nationwide
reciprocity, which would significantly reduce burdens and obstacles in
the path of firms seeking certification outside their home states.
Within 30 days of providing copies of existing documentation to State B
and receiving a copy of State A's on-site review report, the firm would
either be certified in State B or be on notice of specific problems
with its eligibility that State B had found. The opportunity for a
hearing would have to take place within the next 30 days, with a
decision issued 30 days after that. The Department expects that,
because providing notice and a hearing and issuing a decision on this
``fast track'' basis is not something that UCPs would do lightly, UCPs
would not overuse their authority to delay certification pending this
process. Of course, as is now the case, UCPs could accept the home
state's certification without further review.
The Department seeks comment on whether the 30-day period for
initial review of an out-of-state certification, and a decision on
whether to accept it, is an appropriate time period. Would this period
place unwarranted pressure on State B to accept State A's
certification, even if it were not warranted? On the other hand, would
a longer period defeat the purpose of the proposed interstate
certification process? Again, the question goes to achieving the best
balance between the two purposes of the proposed process.
The Department seeks comment on one potential technical problem in
this proposed system. When it is asked by State B to send an on-site
review of a firm certified in State A, State A is supposed to send a
copy of the report to State B within seven days. In this era of e-mail
and pdf documents, doing so should be quick and easy. However, what
happens if State A does not provide a timely response? Proposed Sec.
26.84(e) would say that if State B has not received the report by 14
days after State B's request, State B may hold action on the firm's
application in abeyance pending receipt of State A's report. State B
would need to inform the firm of the situation. The Department seeks
comment on what, if anything, the Department should do in a final rule
to address situations in which a State A's response to a request for an
on-site report is delayed.
In proposing these new provisions to the DBE rule, the Department
is also proposing to make certain changes to existing rules. We would
remove Sec. 26.83(e), which is no longer needed in light of the
proposed new Sec. 26.84 interstate certification procedures. We would
also amend Sec. 26.83(h) to put to rest a misunderstanding that has
continued to exist, despite the Department's efforts to clarify it.
Once a firm is certified as a DBE, it stays certified unless and until
it is decertified using the procedures of Sec. 26.87, the rule's
decertification procedure. There is no periodic ``recertification'' or
``reapplication'' procedure required or even authorized. Certifications
do not lapse after a given number of years. However, UCPs can, and, in
our view, should, review each existing certified firm's eligibility,
including a new on-site review, from time to time. The Department seeks
comment on the most appropriate interval for such reviews (comments to
the ANPRM suggested periods of between three and six years).
One phenomenon the Department's staff has noticed in recent years
is the withdrawal by applicants of their applications before a UCP has
made a decision in the matter. In some cases, this may reflect ``games-
playing'' by applicants of dubious merit, as they seek repeatedly to
revise their organizations to avoid problems that come up in the UCP's
review of the application, without triggering the waiting period for
reapplication that follows a denial of the application. However, in
other cases, there can be innocent explanations for a withdrawal. The
Department seeks comment on whether the rule should be amended to
authorize recipients to apply to firms withdrawing an application the
same reapplication waiting period that they can apply after a denial.
This would reduce administrative burdens on certifying agencies.
However, doing so might also penalize firms with legitimate reasons for
withdrawing and resubmitting an application or create the perception or
reality that recipients might act inconsistently, seeming to favor some
firms over others with respect to applying the reapplication period.
Current Sec. Sec. 26.84 and 26.85 relate to a 1999 memorandum of
understanding (MOU) between DOT and SBA concerning DBE certification of
SBA 8(a) and 8(d) firms and 8(a) and 8(d) certifications of certified
DBEs. This MOU lapsed in 2004 and has not been renewed. Consequently,
much of the existing material in these sections has become outdated.
Proposed Sec. 26.85 would continue a portion of the current
provisions. If an 8(a) firm applies to a DOT UCP, the 8(a) firm could
submit its SBA application package in lieu of a new DBE application
package. The UCP would have to do the statutorily-mandated on-site
review of the firm, since on-site reviews are not normally part of the
8(a) application process. The UCP could also request additional
information from the applicant to ensure that all Part 26 requirements
are met and that all information has been updated. The UCP would have
to certify the firm unless information from the on-site review and
other information received by the UCP demonstrates that the firm does
not meet Part 26 eligibility criteria. If the 8(a) firm is not from the
UCP's state, the UCP would not have to process the application in the
absence of the home state's on-site review report, which it would
obtain in the same way as it obtains such reports under the
``rebuttable presumption'' system of proposed Sec. 26.84(d)(1).
The proposed Sec. 26.84 contains the proposed rebuttable
presumption reciprocity system. When this section refers to State A (a
firm's home state) or State B, it means the UCP of that state. As under
the current rule, a UCP always has the option of accepting, without
further ado, a certification by another state's UCP. The only new
element this provision would add is a basic requirement for the UCP to
verify that the out-of-state certification presented by the applicant
is genuine.
The main obligation of a firm seeking to get certified outside its
home state is
[[Page 25820]]
to provide ``State B'' with a full package of all relevant existing
documentation, including its home state application, affidavits of no
change, reports of changes, decisions or correspondence relating to
certification matters from other states, certification appeal
decisions, etc. Any prudent company would keep photocopies or
electronic versions of all this documentation, and firms would send in
copies of this documentation, rather than generating new documents.
There would have to be an affidavit, under penalty of perjury, that the
documents were full, complete, and unaltered.
When State B receives this full package of information, it contacts
the home state and requests the on-site review report. It is crucial to
the operation of this system that the home state respond promptly;
otherwise, the certification of the firm can be delayed (see proposed
paragraph 26.84(e)). State B must certify the firm within 30 days,
unless it finds good cause to believe that the firm should not be
certified. If State B fails to respond within 30 days, the Department
would regard the firm as having been certified.
Good cause to object to a reciprocal certification could arise from
a number of sources: evidence that the home state certification had
been obtained fraudulently or if there was new evidence not available
to the home state; differences in state law (e.g., home state does not
require a professional license for the person controlling a given type
of company; State B law does impose such a requirement); or the
information the applicant provided was inadequate or insufficient or
otherwise not meet the rule's requirements (e.g., the applicant failed
to disclose a denial or decertification in another state).
One of the proposed bases to find good cause bears a bit more
discussion. The proposed language would permit State B to find good
cause if the home state's certification was factually erroneous or
inconsistent with Part 26. For example, suppose State B reviews the
documentation used by the home state to certify Firm Y and finds an
outcome-determinative fact about Firm Y that the home state overlooked,
or State B notices that the home state had based its decision on what
is clearly a misreading or misinterpretation by the home state of Part
26 or DOT guidance. In these cases, under the proposal, State B could
find good cause to begin a proceeding to deny reciprocal certification.
On the other hand, it is often the case that reasonable people can
differ in their conclusions about whether the facts surrounding a
firm's application demonstrate that the firm meets Part 26 criteria. We
would not want this provision simply to become a way for what amounts
to no more than differences of opinion to obstruct interstate
certification. We seek comment on how, if at all, the language of this
provision should be refined to avoid that result.
Where the UCP finds good cause, it must so notify the firm, and
provide the reasons for its finding. The firm must have the
opportunity, within 30 days, for a proceeding--including a hearing, if
the firm wants it--that is essentially the same as a decertification
hearing. Importantly, as in a decertification proceeding, the burden of
proof is on the UCP to demonstrate that the firm is ineligible. The UCP
must render its decision within another 30 days. The Department
proposes these short time frames in the belief that reciprocal
certification actions should be on a fast track, lest the ability of a
firm to become certified outside its home state becomes overly subject
to bureaucratic delay.
One of the issues that arises in discussions of reciprocity of
certifications is how to handle denials of certification and
decertifications. If firm X is certified in its home state,
reciprocally certified in State B, and then decertified in his home
state, what is State B supposed to do? If, in the ``rebuttable
presumption'' process described above, the home state certifies Firm X,
but State B rejects the firm's certification after the hearing process,
what is State C supposed to do when Firm X applies for certification
there?
In this NPRM, we are proposing to have UCPs send to the
Departmental Office of Civil Rights (DOCR) online database information
about firms whose applications have been denied, which have been
decertified, or which have been rejected for reciprocal certification
after the rebuttable presumption process described above, as well as
the date of the action and a very brief summary of the reason for the
action. UCPs would be responsible for checking the DOCR Web site to see
if any applicant for certification or currently certified firm appears
on the list. For example, if State D's UCP saw Firm X (which State D
had certified) on the list as having been decertified by State F's UCP,
State D's UCP would request from the State F's UCP a copy of State F's
decertification decision. State F's UCP would promptly provide the
copy. State D's UCP would take the information in State F's decision
into account in determining what action, if any, to take with respect
to Firm X. The Department seeks comment not only on the merits of this
proposal but also on any other measures that would address this overall
issue.
The Department intends that this interstate certification process
apply to airport concessions DBEs as well as those DBEs who seek work
on Federally-assisted contracts. Consequently, we will subsequently
propose a conforming amendment to 49 CFR Part 23.
Fostering Small Business Participation
One of the matters discussed in the ANPRM was the issue of
``unbundling,'' as well as other ways of reducing barriers to the
participation of small businesses, including DBEs, on DOT-assisted
contracts. The relatively small number of comments on this subject
generally suggested that while unbundling was a good thing, it was
difficult to achieve, and recipients should have discretion concerning
whether and how to implement initiatives in this area.
The Department believes that fostering small business participation
in a race-neutral way is an important component of a successful DBE
program. For that reason, we are proposing to require recipients to
create a small business element of their DBE programs, that could
include a number of different approaches. The NPRM, in Sec. 26.39,
proposes a menu of strategies that are neither exhaustive nor mandatory
to include in this program element. The Department seeks comment on
this overall approach, as well as on the individual menu items
proposed. Are there additional strategies that should be considered?
How much time should recipients be given to amend their DBE program
plans to include a small business element?
As noted in a March 2010 DBE conference held by the Department's
Office of Small and Disadvantaged Business Utilization, some states
(e.g., Missouri, Wisconsin) have devised innovative approaches to
increasing small business and DBE participation. The Department seeks
comment on the extent to which this experience can be generalized and
on whether any elements of these approaches should be included as
recommended or required practices in the DBE regulation.
The pending FAA reauthorization legislation mentioned above would
direct the Department to issue rules to prohibit discriminatory or
excessive bonding practices. The Department seeks comment on whether
there are such practices, what they are, and how DOT rules could best
be crafted to implement such a statutory requirement, if it is enacted.
For example, we have heard in stakeholder meetings that prime
contractors sometimes require subcontractors to be
[[Page 25821]]
bonded at a level well above the amount of the subcontract or in a way
that duplicates bonding that has already been provided to the project
owner. Do such practices exist, and, if so, are they common?
Terminations and Substitutions of DBE Subcontractors
The Department had noted some concerns about termination and
substitution practices by prime contractors that negatively impacted
DBE subcontractors committed during the contract award process and
sought comment on whether Sec. 26.53(f)(1) should be modified. There
was overwhelming support to revise the section by recipients and DBE
trade groups in their response to this inquiry. They supported
requiring recipients to concur in terminations and substitutions of DBE
subcontractors who are being used for DBE credit on a contract, with
concurrence to be provided only if the action was for good cause. Prime
contractors and their respective trade groups took a contrary view and
wanted to retain their independent authority. These commenters
suggested that recipients should have no say regarding a change or
termination of a DBE subcontractor in instances where the change does
not impact DBE goal achievement.
Many recipients commented that they currently do require prime
contractors to receive written approval from the recipient prior to the
prime substituting DBE subcontractors. In addition, some comments
recommended that the Department adopt a regulation containing a
standard similar to that required under California Law PCC 4107, which
requires notice prior to termination.
The Department is cognizant of the prime contractors' position that
primes should have the ability to remove a nonperforming or poorly
performing subcontractor. However, the Department does not believe a
revision to this section of the rule requiring a recipient's approval
prior to termination of a DBE subcontractor for other than good cause
would undermine this authority or insert an onerous burden on prime
contractors. Moreover, based on the comments from recipients, this
change would formalize a practice already undertaken by many
recipients. Accordingly, the Department is proceeding with the proposed
revision, proposed to be located in Sec. 26.53(f), in order to
maintain program integrity and ensure a more meaningful commitment to a
particular DBE firm that the prime contractor listed as part of the
contract award process. The proposed section includes a list of actions
that would constitute good cause for this purpose. We seek comment on
whether there should be any additions or changes to this list.
Counting Issue
The ANPRM discussed the background of this issue in some detail
(see 74 FR 15905). For convenience of readers, we are summarizing that
discussion here. Section 26.55(a)(1) of the Department's DBE rule
provides as follows:
(a) When a DBE participates in a contract, you count only the value
of the work actually performed by the DBE toward DBE goals.
(a)(1) Count the entire amount of that portion of a construction
contract (or other contract not covered by paragraph (a)(2) of this
section) that is performed by the DBE's own forces. Include the cost of
supplies and materials obtained by the DBE for the work of the
contract, including supplies purchased or equipment leased by the DBE
(except supplies and equipment the DBE subcontractor purchases or
leases from the prime contractor or its affiliate.
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. The rule regards the item as having
been provided by the prime contractor to the project and, consequently,
not as part of the ``work actually performed by the DBE.'' Therefore,
the rule does not permit it to be counted for DBE credit.
Some prime contractors and DBE contractors have objected to this
provision, both in correspondence with the Department and in
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.
Participants in the stakeholder meeting discussions also suggested
that the current rule could 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.
The ANPRM asked for comments on four alternatives: (1) No change;
(2) keep current rule in place, but allow recipients to make exceptions
in limited circumstances; (3) permit items obtained by DBEs for a
contract to be counted for DBE credit regardless of their non-DBE
source; or (4) prohibit items obtained by a DBE from any non-DBE source
to be counted for DBE credit. Twenty-eight comments addressed this
issue, and each of the options attracted support (11 favored option 1,
6 favored option 2, 7 favored option 3, and 4 favored option 4).
The Department believes that the basic policy objective of the
current regulation--preventing items actually supplied by prime
contractors from counting for DBE credit by being passed through their
DBE subcontractors--is a sound one. Simply allowing such items to count
toward DBE goals in all
[[Page 25822]]
situations, as option 3 would provide, is too contrary to this
objective for the Department to consider further. Option 2's
authorization of exceptions to this general rule could lead to very
inconsistent, and arguably arbitrary, results within and among states.
Option 4 establishes consistency in how items obtained by DBEs are
treated, but would likely result in reduced dollar amounts overall DBE
participation. Option 1, which received at least plurality support
among commenters and prevents prime contractors from counting as DBE
participation items that they themselves contribute to a project,
appears the best approach. Consequently, the Department is not
proposing to change this section. We will continue to consider comments
on the issue, however.
Application and PNW Forms
The ANPRM asked for comments on potential improvements to the
rule's application and personal net worth (PNW) forms. This is an
important matter, and one requiring detailed attention as well as
thorough analysis of the information collection burdens involved. For
this reason, while the Department is currently working on revised
forms, we are deferring proposing new forms to a subsequent NPRM.
Certification-Related Provisions
This NPRM also proposes a number of modifications to the
certification provisions of the rule, based primarily on the
Department's experience in certification appeals cases and other issues
that have come to the Department's attention. The Department is
continuing to review and update certification provisions, and we
anticipate proposing several additional modifications in the subsequent
NPRM that will also propose revised PNW and application forms. Minor
technical changes to references within the existing definitions are
also proposed.
Section 26.71 What rules govern determinations concerning control?
``Generic'' certification of a firm as a DBE is not proper in the
program. Under Sec. 26.71(n), DBEs are certified by recipients and
UCPs only with respect to specific types of work in which the
certifying agency has determined that the socially and economically
disadvantaged owners control. When applying for certification, an
applicant is asked to describe the ``primary business and professional
activities the firm is engaged in.'' The types of work a firm can
perform (whether on initial certification or when a new type of work is
added) should be described in terms of six-digit North American
Industry Classification System (NAICS) codes, or another classification
scheme of equivalent detail and specificity. In order to meet its
burden of proof, a firm must provide detailed information the
certifying agency needs and/or requests so that the certifying agency
may make an appropriate NAICS code designation. Firms are also
responsible for ensuring that the NAICS codes cited in a certification
are up-to-date and accurately reflect work which the UCP has determined
the firm's owners can control. To assist recipients and firms address
these issues, the Department is proposing an amendment to Sec.
26.71(n), which would codify the substance of a guidance Q & A the
Department issued in 2009.
Section 26.73 What are other rules affecting certification?
The Department has learned, through the Department's certification
appeal process and from oversight of recipients' DBE programs, that
some recipients may deny certification to firms on the basis that they
do not appear prepared to perform a particular project, are newly
formed, or lack employees or specific pieces of equipment. We have
learned that recipients are taking this action after perceiving the
firm incapable of success later down the road. This is somewhat of a
premature determination and akin to a finding that a firm's work would
not be counted for DBE credit sometime in the future. We have
consistently held that counting issues are separate from certification;
and we continue to hold that firms should be evaluated based on their
present circumstances. The Department therefore, is restating Sec.
26.73(b), which prohibits a recipient from refusing to certify a firm
solely on the basis that it is a newly formed firm; and adding a
section (b)(2) to emphasize also that recipients should not refuse to
certify a firm that has not completed contracts or projects at the time
of its application, has not yet realized profits from its activities,
or has not demonstrated a potential for success. We stress that if the
firm meets the size, ownership, and control requirements of this part,
the firm is eligible for certification.
A firm must be a going concern in order to be certified. It is not
realistic to expect a recipient, for example, to conduct an on-site
review of a business plan that exists only on paper. Nevertheless,
given that one of the primary purposes of the DBE program is to serve
as an incubator for start-up businesses, recipients should not create
unauthorized or unnecessary barriers to the participation of newer
firms. For example, it would be contrary to this section for a
certifying agency to insist on two years of business tax returns from a
firm that had only been in business six months.
Section 26.83 What procedures do recipients follow in making
certification decisions?
The Department wants to reemphasize, in Sec. 26.83(h), that once a
firm is certified, is stays certified unless and until its
certification is removed under Sec. 26.87. Certifications do not
expire or lapse, whether after three years or any particular number of
years. Firms cannot be required to reapply for certification. However,
recipients may properly conduct certification reviews of certified
firms, including a new on-site review, three years from the date of the
most recent certification of the firm or sooner if changed
circumstances relating to the firm's ownership, control, size or
disadvantaged status warrant. In addition, recipients may conduct on-
site visits on an unannounced basis at the firm's offices and job sites
if information comes to a recipients' attention regarding the firm's
eligibility. The Department seeks comment on whether periodic new on-
site reviews should be conducted (e.g., every three or five years) to
ensure that information about certified firms is up-to-date and that
firms have not changed in ways that adversely impact their eligibility?
Would such a requirement make the interstate certification process work
better? What would the resource implications be?
One of the problems that the Department has seen is that on-site
reviews, once conducted, are not periodically updated by some
certifying agencies. The result may be that the information in an on-
site review report may be stale. This is a particular concern given the
interstate certification provisions of proposed Sec. 26.84, in which a
``State B' must rely on the on-site report of the applicant firm's home
state. If the on-site report is 5 or 10 years old, can other states
safely rely on the information? If not, should we require updated on-
site reviews to be conducted by firms' home states at a given interval
(e.g., every three years)? Should states be permitted to charge user
fees to firms for updated on-site reviews? Are there ways of reducing
burdens of on-site reviews (e.g., by use of videoconferencing or other
technologies)? Could the need for updated on-site reviews be mitigated
if firms had to submit additional annual update information (e.g., PNW
statements, tax returns, data about the
[[Page 25823]]
firm's finances and transactions)? The Department seeks comment on this
topic.
The Department has learned, through the Department's certification
appeal process and oversight of recipients' DBE programs, of instances
in which applicants may have been unaware that their application lacked
the necessary information, through either a misunderstanding of the
process and/or submitting some, but not all, of the information a
recipient needs to make a decision. It is therefore useful for
recipients to inform each applicant within 20 business days after
receiving an application, whether the application is complete and ready
for evaluation, and if not, what additional information or action is
required. Many recipients engage in this practice and promptly notify
firms, either by e-mail or certified mail of their need for additional
information. The addition of a requirement to this effect, therefore,
does not seem onerous and we added a new lead sentence in paragraph (l)
to reflect this addition.
Other Provisions
The Uniform Report of DBE Awards or Commitments and Payments, found
in Appendix B of Part 26, has long been required to be submitted by DOT
recipients. The form itself states that FHWA and FTA recipients submit
the form twice a year, while FAA recipients submit it annually. It was
called to our attention, however, that body of the regulation does not
specifically reference the form. To remedy this situation, we propose
adding such a reference to Sec. 26.11. There is no change to the
existing requirement for submission of the form and no additional
information collection burden involved.
In Sec. 26.45, the NPRM would clarify requirements concerning
project overall goals and the implementation of the recent amendment
calling for submission of overall goals on a triennial, rather than
annual, basis. In Sec. 26.51, the NPRM would clarify that, if a
recipient had an all race-neutral overall goal, it nevertheless would
use race-conscious contract goals if, part way through the year, it
became necessary to do so in order to have a reasonable opportunity to
meet the overall goal. This proposed amendment is related to the
proposed ``accountability'' mechanism in proposed Sec. 26.47. Finally,
an obsolete citation to suspension and debarment rules would be
replaced by the current citation in Sec. 26.107.
Regulatory Analyses and Notices
Executive Order 12866 and DOT Regulatory Policies and Procedures
This is a nonsignificant regulation for purposes of Executive Order
12866 and the Department of Transportation's Regulatory Policies and
Procedures. The proposals involve administrative modifications to
several provisions of a long-existing and well-established program,
designed to improve the program's implementation. The proposals, if
made final, would not alter the direction of the program, make major
policy changes, or impose significant new costs or burdens.
Regulatory Flexibility Act
A number of provisions of the NPRM would reduce small business
burdens or increase opportunities for small business, notably the
interstate certification process and the small business DBE program
element proposals. Small recipients would not be required to prepare or
transmit reports concerning the reasons for overall goal shortfalls and
corrective action steps to be taken. Only State DOTs, the 50 largest
transit authorities, and the 30-50 airports receiving the greatest
amount of FAA financial assistance would have to file these reports.
The task of sending copies of on-site review reports to other
certification entities fall on UCPS, which are not small entities, and
in any case can be handled electronically by e-mailing PDF copies of
the documents. While all recipients would have to input information
about decertifications and denials into a DOT database, this would be a
quick electronic process that would not be costly or burdensome. The
NPRM would not make major policy changes that would cause recipients to
expend significant resources on program modifications. For these
reasons, the Department certifies that the NPRM, if made final, would
not have a significant economic effect on a substantial number of small
entities.
Federalism
A rule has implications for federalism under Executive Order 13132,
Federalism, if it has a substantial direct effect on State or local
governments and would either preempt State law or impose a substantial
direct cost of compliance on them. We have analyzed this proposed rule
under the Order and have determined that it does not have implications
for federalism, since it merely makes administrative modifications to
an existing program. It does not change the relationship between the
Department and State or local governments, pre-empt State law, or
impose substantial direct compliance costs on those governments.
Paperwork Reduction Act
As required by the Paperwork Reduction Act of 1995, DOT will submit
Information Collection Requests (ICRs) to the Office of Management and
Budget (OMB). Before OMB decides whether to approve these proposed
collections of information and issue a control number, the public must
be provided 30 days to comment. Organizations and individuals desiring
to submit comments on the collection of information should direct them
to the Office of Management and Budget, Attention: Desk Officer for the
Office of the Secretary of Transportation, Office of Information and
Regulatory Affairs, Washington, DC 20503. We also request that a copy
of such comments be sent to the docket for this NPRM. OMB is required
to make a decision concerning the collection of information
requirements contained in this rule between 30 and 60 days after
publication of this document in the Federal Register. Therefore, a
comment is best assured of having its full effect if OMB receives it
within 30 days of publication.
The items in this NPRM for which DOT intends to seek Paperwork
Reduction Act approvals are the following:
Proposed Sec. 23.39(b): Submission of small business program element.
Proposed Sec. 26.47 (c): Submission of analysis of reasons for falling
short of overall goal corrective actions.
Proposed Sec. 26.84(c)(4): Affidavit concerning information of
certification information.
Proposed Sec. 26.84(f): Submission of certification information to DOT
database.
List of Subjects in 49 CFR Part 26
Administrative practice and procedure, Airports, Civil rights,
Government contracts, Grant-programs--transportation, Mass
transportation, Minority businesses, Reporting and record keeping
requirements.
Issued This Day of May, 2010, at Washington DC.
Ray Lahood,
Secretary of Transportation.
For the reasons set forth in the preamble, the Department of
Transportation proposes to amend 49 CFR part 26 as follows:
[[Page 25824]]
PART 26--PARTICIPATION BY DISADVANTAGED BUSINESS ENTERPRISES IN
DEPARTMENT OF TRANSPORTATION FINANCIAL ASSISTANCE PROGRAMS
1. The authority citation for part 26 continues to read as follows:
Authority: 23 U.S.C. 324; 42 U.S.C. 2000d, et seq. ; 49 U.S.C
1615, 47107, 47113, 47123; Sec. 1101(b), Pub. L. 105-178, 112 Stat.
107, 113.
2. Add Sec. 26.11(a) to read as follows:
Sec. 26.11 What records do recipients keep and report?
(a) You must transmit the Uniform Report of DBE Awards or
Commitments and Payments, found in Appendix B to this part, at the
intervals stated on the form.
* * * * *
3. Revise Sec. 26.31 to read as follows:
Sec. 26.31 What information must you include in your DBE directory?
You must maintain and make available to interested persons a
directory identifying all firms eligible to participate as DBEs in your
program. In the listing for each firm, you must include its address,
phone number, and the types of work the firm has been certified to
perform as a DBE.
4. Revise Sec. 26.37 (b) to read as follows:
Sec. 26.37 What are a recipient's responsibilities for monitoring the
performance of other program participants?
* * * * *
(b) Your DBE program must also include a monitoring and enforcement
mechanism to ensure that work committed to DBEs at contract award or
subsequently (e.g., as the result of modification to the contract) is
actually performed by the DBEs to which the work was committed, where
the DBEs' work is intended to count toward DBE goals. This mechanism
must include a written certification for each such contract that you
have reviewed contracting records for and monitored the work on-site
for the contract to ensure that DBEs have actually performed the work
in question.
* * * * *
5. Add a new Sec. 26.39 to subpart B, to read as follows:
Sec. 26.39 Fostering small business participation.
(a) Your DBE program must include an element to structure
contracting requirements to facilitate competition by small business
concerns, taking all reasonable steps to eliminate obstacles to their
participation, including unnecessary and unjustified bundling of
contract requirements that may preclude small business participation in
procurements as prime contractors.
(b) This element must be submitted to the appropriate DOT operating
administration for approval as a part of your DBE program. As part of
this program element you may include, but are not limited to, the
following strategies:
(1) Establishing a race-neutral small business set-aside for prime
contracts under a stated amount (e.g., $1 million).
(2) In multi-year design-build contracts or other large contracts
(e.g., for ``meagprojects'') requiring bidders on the prime contract to
specify elements of the contract or specific subcontracts that are of a
size that small businesses, including DBEs, can reasonably perform.
(3) On prime contracts not having DBE contract goals, requiring the
prime contractor to provide subcontracting opportunities of a size that
small businesses, including DBEs, can reasonably perform, rather than
self-performing all the work involved.
(4) Identifying alternative acquisition strategies and structuring
procurements to facilitate the ability of consortia or joint ventures
consisting of small businesses, including DBEs, to compete for and
perform prime contracts.
(5) If you are implementing your overall goal wholly through race-
neutral measures,, ensuring that a reasonable number of prime contracts
are of a size that small businesses, including DBEs, can reasonably
perform.
6. Revise Sec. 26.45(e)(2), (e)(3), (f)(1), and (f)(2) to read as
follows:
Sec. 26.45 How do recipients set overall goals?
* * * * *
(e) * * *
(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 three forthcoming fiscal years.
(3) In appropriate cases, the FHWA, 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. Like
other overall goals, a project goal may be adjusted to reflect changed
circumstances, with the concurrence of the appropriate operating
administration.
(i) A project goal is an overall goal, and must meet all the
substantive and procedural requirements of this section pertaining to
overall goals.
(ii) A project goal covers the entire length of the project to
which it applies.
(iii) The project goal should include a projection of the DBE
participation anticipated to be obtained during each fiscal year
covered by the project goal.
(iv) The funds for the project to which the project goal pertains
are separated from the base from which your regular overall goal,
applicable to contracts not part of the project covered by a project
goal, is calculated.
(f)(1)(i) If you set your overall goal on a fiscal year basis, you
must submit it to the applicable DOT operating administration by August
1 at three-year intervals, based on a schedule established by the FHWA,
FTA, or FAA, as applicable, and posted on that agency's Web site.
(ii) You must submit to the operating administration for approval
any significant adjustment you make to your goal during the three-year
period based on changed circumstances. The operating administration may
direct you to undertake a review of your goal if necessary to ensure
that the goal continues to fit your circumstances appropriately.
(iii) While you are required to submit an overall goal to FHWA,
FTA, or FAA only every three years, the overall goal and the provisions
of Sec. 26.47(c) apply to each year during that three-year period.
(2) If you are a recipient and set your overall goal on a project
or grant basis as provided in paragraph (e)(3) of this section, you
must submit the goal for review at a time determined by the FHWA, FTA
or FAA Administrator, as applicable.
* * * * *
7. Add new paragraph (c) and (d) to Sec. 26.47, to read as
follows:
Sec. 26.47 Can recipients be penalized for failing to meet overall
goals?
* * * * *
(c) If the awards and commitments shown on your Uniform Report of
Awards or Commitments and Payments at the end of any fiscal year are
less than the overall goal applicable to that fiscal year, you must do
the following in order to be regarded by the Department as implementing
your DBE program in good faith:
(1) Analyze in detail the reasons for the difference between the
overall goal and your awards and commitments in that fiscal year;
(2) Establish specific steps and milestones to correct the problems
you have identified in your analysis and to enable you to meet fully
your goal for the new fiscal year;
(3) (i) If you are a State highway agency; one of the 50 largest
transit
[[Page 25825]]
authorities as determined by the FTA; or an Operational Evolution
Partnership Plan airport or other airport designated by the FAA, you
must submit, within 60 days of the end of the fiscal year, the analysis
and corrective actions developed under paragraphs (c)(1) and (2) of
this section to the appropriate operating administration for approval.
If the operating administration approves the report, you will be
regarded as complying with the requirements of this section for the
remainder of the fiscal year.
(ii) As a transit authority or airport not meeting the criteria of
paragraph (c)(3)(i) of this section, you must retain analysis and
corrective actions in your records for three years and make it
available to FTA or FAA on request for their review.
(4) FHWA, FTA, or FAA may impose conditions on the recipient as
part of its approval of the recipient's analysis and corrective actions
including, but not limited to, modifications to your overall goal
methodology, changes in your race conscious/race neutral split, or the
introduction of additional race-neutral or race-conscious measures.
(5) You may be regarded as being in noncompliance with this Part,
and therefore subject to the remedies in Sec. Sec. 26.103 or 26.105 of
this part and other applicable regulations,for failing to implement
your DBE program in good faith if any of the following things occur:
(i) You do not submit your analysis and corrective actions to FHWA,
FTA, or FAA in a timely manner as required under paragraph (c)(3) of
this section;
(ii) FHWA, FTA, or FAA disapproves your analysis or corrective
actions; or
(iii) You do not fully implement the corrective actions to which
you have committed or conditions that FHWA, FTA, or FAA has imposed
following review of your analysis and corrective actions.
(d) If, as recipient, your 6-month Uniform Report of DBE Awards or
Commitments and Payments (for FHWA and FTA recipients) or other
information coming to the attention of FTA, FHWA, or FAA, demonstrates
that you are falling short of the DBE awards and commitments that would
be necessary to allow you to meet your overall goal at the end of the
fiscal year, FHWA, FTA, or FAA, as applicable, may require you to make
further good faith efforts, such as by modifying your race-conscious/
race neutral split or introducing additional race-neutral or race-
conscious measures for the remainder of the fiscal year.
8. Revise Sec. 26.51(b)(1), (f)(1), and the example to paragraph
(f)(1), to read as follows:
Sec. 26.51 What means do recipients use to meet overall goals?
* * * * *
(b) Race-neutral means include, but are not limited to, the
following:
(1) Arranging solicitations; times for the presentation of bids,
quantities, specifications, and delivery schedules in ways that
facilitate participation by DBEs and other small businesses and by
making contracts more accessible to small businesses, by means such as
those provided under Sec. 26.39 of this part.
* * * * *
(f) * * *
(1) If your approved projection under paragraph (c) of this section
estimates that you can meet your entire overall goal for a given year
through race-neutral means, you must implement your program without
setting contract goals during that year, unless it becomes necessary to
do so to avoid falling short of our overall goal.
Example to Paragraph (f)(1): Your overall goal for Year 1 is 12
percent. You estimate that you can obtain 12 percent or more DBE
participation through the use of race-neutral measures, without any
use of contract goals. In this case, you do not set any contract
goals for the contracts that will be performed in Year 1. However,
if part way through Year 1, your DBE awards or commitments are not
at a level that would permit you to achieve your overall goal for
Year 1, you would begin setting race-conscious DBE contract goals
during the remainder of the year as part of your obligation to
implement your program in good faith.
* * * * *
9. In Sec. 26.53, redesignate paragraph (g) as paragraph (i),
redesignate paragraphs (f)(2) and (3) as paragraphs (g) and (h)
respectively, revise paragraph (f)(1), and add new paragraphs (f)(2)
through (5) to read as follows:
Sec. 26.53 What are the good faith efforts procedures recipients
follow in situations where there are contract goals?
* * * * *
(f)(1) You must require that a prime contractor not terminate a DBE
subcontractor listed in response to paragraph (b)(2) of this section
(or an approved substitute DBE firm) without your written concurrence
This includes, but is not limited to, instances in which a prime
contractor seeks to perform work originally designated for a DBE
subcontractor with its own forces or those of an affiliate, a non-DBE
firm, or with a substitute DBE firm.
(2) You may provide such written consent only if you agree, for
reasons stated in your concurrence document, that the prime contractor
has good cause to terminate the DBE firm.
(3) For purposes of this paragraph, good cause includes the
following circumstances:
(i) The listed DBE subcontractor fails or refuses to execute a
written contract;
(iii) The listed DBE subcontractor fails or refuses to perform its
subcontract;
(iv) The listed DBE subcontractor fails to perform its work on the
subcontract in a way that is acceptable to you;
(v) The listed DBE subcontractor fails or refuses to meet the prime
contractor's reasonable bond requirements;
(vi) The listed DBE subcontractor becomes bankrupt, insolvent, or
exhibits credit unworthiness;
(vii) The listed DBE subcontractor is ineligible to work on public
works projects because of suspension and debarment proceedings pursuant
2 CFR Parts 180, 215 and 1200 or applicable state law;
(viii) You have determined that the listed DBE subcontractor is not
a responsible contractor;
(ix) The listed DBE subcontractor voluntarily withdraws from the
project and provides to you written notice of its withdrawal;
(x) The listed DBE is ineligible to receive DBE credit for the type
of work required;
(xi) A DBE owner dies or becomes disabled with the result that the
listed DBE contractor is unable to complete its work on the contract.
(xii) Other good cause that you determine compels the termination
of the DBE subcontractor, with the concurrence of FHWA, FTA, or FAA, as
applicable.
(3) Before transmitting to you its request to terminate and/or
substitute a DBE subcontractor, the prime contractor must give notice
in writing to the DBE subcontractor, with a copy to you, of its intent
to request to terminate and/or substitute, and the reason for the
request.
(4) The prime contractor must give the DBE 5 days to respond to the
prime contractor's notice and advise you and the contractor of the
reasons, if any, why it objects to the proposed termination of its
subcontract and why you should not approve the prime contractor's
action.
(5) In addition to post-award terminations, the provisions of this
section apply to preaward deletions of or substitutions for DBE firms
put forward by offerors in negotiated procurements.
* * * * *
10. Revise Sec. 26.67 (a)(2)(i) to read as follows:
[[Page 25826]]
Sec. 26.67 What rules determine social and economic disadvantage?
(a) * * *
(2)(i) You must require each individual owner of a firm applying to
participate as a DBE (except a firm applying to participate as a DBE
airport concessionaire under 49 CFR part 23) whose ownership and
control are relied upon for DBE certification to certify that he or she
has a personal net worth that does not exceed $1.3 million.
* * * * *
11. Revise Sec. 26.71(n) to read as follows:
Sec. 26.71 What rules govern determinations concerning control?
* * * * *
(n) You must grant certification to a firm only for specific types
of work in which the socially and economically disadvantaged owners
have the ability to control the firm. To become certified in an
additional type of 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, but you must verify the disadvantaged owner's control of
the firm in the additional type of work.
(1) The types of work a firm can perform (whether on initial
certification or when a new type of work is added) must be described in
terms of NAICS codes or a classification scheme of equivalent detail
and specificity. A correct NAICS code is one that describes, as
specifically as possible, the principal goods or services which the
firm would provide to DOT recipients. Multiple NAICS codes may be
assigned, where appropriate. Program participants must rely on, and not
depart from, the plain meaning of NAICS code descriptions in
determining the scope of a firm's certification.
(2) Firms and recipients must check carefully to make sure that the
NAICS codes cited in a certification are kept up-to-date and accurately
reflect work which the UCP has determined the firm's owners can
control. The firm bears the burden of providing detailed company
information the certifying agency needs to make an appropriate NAICS
code designation.
(3) If a firm believes that there is not a NAICS code that fully or
clearly describes the type(s) of work in which it is seeking to be
certified as a DBE, the firm may request that the certifying agency, in
its certification documentation, supplement the assigned NAICS code(s)
with a clear, specific, and detailed narrative description of the type
of work in which the firm is certified. A vague, general, or confusing
description is not sufficient for this purpose, and recipients should
not rely on such a description in determining whether a firm's
participation can be counted toward DBE goals.
(4) A certifier is not precluded from changing a certification
classification or description if there is a factual basis in the
record. However, certifiers should not make after-the-fact statements
about the scope of a certification, not supported by evidence in the
record of the certification action.
* * * * *
12. Revise Sec. 26.73(b) to read as follows:
Sec. 26.73 What are other rules affecting certification?
* * * * *
(b)(1)You must evaluate the eligibility of a firm on the basis of
present circumstances. You must not refuse to certify a firm based
solely on historical information indicating a lack of ownership or
control of the firm by socially and economically disadvantaged
individuals at some time in the past, if the firm currently meets the
ownership and control standards of this part.
(2) You must not refuse to certify a firm solely on the basis that
it is a newly formed firm, has not completed projects or contracts at
the time of its application, has not yet realized profits from its
activities, or has not demonstrated a potential for success. If the
firm meets disadvantaged, size, ownership, and control requirements of
this Part, the firm is eligible for certification.
* * * * *
Sec. 26.81 [Amended]
13. Amend Sec. 26.81(g) by removing the period at the end of the
last sentence and adding the words ``and shall revise the print version
of the Directory at least once a year.''
14. In Sec. 26.83, remove and reserve paragraph (e), revise
paragraph (h), and add a new paragraph (l) to read as follows:
Sec. 26.83 What procedures do recipients follow in making
certification decisions?
* * * * *
(h) Once you have certified a DBE, it shall remain certified until
and unless you have removed its certification, in whole or in part,
through the procedures of Sec. 26.87. You may not require DBEs to
reapply for certification. However, you may conduct a certification
review of a certified DBE firm, including a new on-site review, three
years from the date of the firm's most recent certification, or sooner
if appropriate in light of changed circumstances (e.g., of the kind
requiring notice under paragraph (i) of this section), a complaint, or
other information concerning the firm's eligibility. If information
comes to your attention that leads you to question the firm's
eligibility, you may conduct an on-site review on an unannounced basis,
at the firm's offices and jobsites.
* * * * *
(l) As a recipient or UCP, you must advise each applicant within 20
business days from your receipt of the application whether the
application is complete and suitable for evaluation and, if not, what
additional information or action is required.
15. Revise Sec. 26.84 to read as follows
Sec. 26.84 Interstate certification.
(a) This section applies with respect to any firm that is currently
certified in its home State.
(b) When a firm currently certified in its home State (``State A'')
applies to another State (``State B'') for DBE certification, State B
may, at its discretion, accept State A's certification and certify the
firm,. without further procedures.
(1) To obtain certification in this manner, the firm must provide
to State B a copy of its certification notice from State A.
(2) Before certifying the firm, State B must confirm that the firm
has a current valid certification from State A. State B can do so by
reviewing State A's electronic directory or getting written
confirmation from the home State.
(c) In any situation in which State B chooses not to accept State
A's certification of a firm as provided in paragraph (b) of this
section, as the applicant firm you must provide the following
information in paragraphs (c)(1) through (4) of this section to State
B.
(1) You must provide to State B a complete copy of the application
form, all supporting documents, and any other information you have
submitted to State A related to your firm's certification. This
includes affidavits of no change (see Sec. 26.83(j) and any notices of
changes (see Sec. 26.83(i) that you have submitted to State A, as well
as any correspondence you have had with State A's UCP or any recipient
concerning your application or status as a DBE firm.
(2) You must also provide to State B any notices or correspondence
from states other than State A relating to your status as an applicant
or certified DBE
[[Page 25827]]
in those states. For example, if you have been denied certification or
decertified in State C, or subject to a decertification action there,
you must inform State B of this fact and provide all documentation
concerning this action to State B.
(3) If you have filed a certification appeal with DOT (see Sec.
26.89), you must inform State B of the fact and provide your letter of
appeal and DOT's response to State B.
(4) You must submit 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 you have submitted
all the information required by 49 CFR 26.84(c) and the information is
complete and, in the case of the information required by Sec.
26.84(c)(1), an identical copy of the information submitted to State A.
(d) As State B, when you receive from an applicant firm all the
information required by paragraph (c) of this section, you must take
the following actions:
(1) Immediately contact State A and request a copy of the site
visit review report for the firm (see Sec. 26.83(c)(1)), any updates
to the site visit review, and any evaluation of the firm based on the
site visit. As State A, you must transmit this information to State B
within seven days of receiving the request.
(2) Determine, within 30 days, whether there is good cause to
believe that State A's certification of the firm is erroneous or should
not apply in your State. Reasons for making such a determination may
include, but are not limited to, the following:
(i) Evidence that State A's certification was obtained by fraud;
(ii) New information, not available to State A at the time of its
certification, indicating that the firm does not meet all eligibility
criteria;
(iii) State A's certification was factually erroneous or was
inconsistent with the requirements of this part;
(iv) The State law of State B leads to a result different from that
of the State law of State A.
(v) The information provided by the applicant firm did not meet the
requirements of paragraph (c) of this section.
(3) If, as State B, unless you have determined that there is good
cause to believe that State A's certification is erroneous or should
not apply in your State, you must, no later than 30 days from the date
on which you received from the applicant firm all the information
required by paragraph (c) of this section, send to the applicant firm a
notice that it is certified and place the firm on your directory of
certified firms.
(4) If, as State B, you have determined that there is good cause to
believe that State A's certification is erroneous or should not apply
in your State, you must, no later than 30 days from the date on which
you received from the applicant firm all the information required by
paragraph (c) of this section, send to the applicant firm a notice
stating the reasons for your determination.
(i) This notice must meet the requirements of Sec. 26.87(b) of
this part and offer the firm the opportunity for a hearing meeting the
requirements of Sec. 26.87(d), (e)(2), and (g) of this part.
(ii) If the firm elects to have a hearing, you must ensure that it
takes place within 30 days, and your decision must be issued within 30
days after the date of the hearing.
(iii) Consistent with the provisions of Sec. 26.87(d)(1) and (3)
of this part, you bear the burden of proving, by a preponderance of the
evidence, that the firm does not meet the certification standards of
this part.
(iv) The firm's application for certification is stayed pending the
outcome of this proceeding.
(v) The firm may appeal the outcome of this proceeding to DOT as
provided in Sec. 26.89 of this part.
(e) As State B, if you have not received from State A a copy of the
site visit review report by a date 14 days after you have made a timely
request for it, you may hold action required by paragraphs (d)(2)
through (4) of this section in abeyance pending receipt of the site
visit review report. In this event, you must, no later than 30 days
from the date on which you received from an applicant firm all the
information required by paragraph (c) of this section, notify the firm
in writing of the delay in the process and the reason for it.
(f)(1) As a UCP, when you deny a firm's application, reject the
application of a firm certified in State A or any other State in which
the firm is certified, through the procedures of paragraph (d)(4) of
this section, or decertify a firm, in whole or in part, you must make
an entry to the Department of Transportation Office of Civil Rights'
(DOCR's) Ineligibility Determination online database. You must enter
the following information:
(i) The name of the firm;
(ii) The name(s) of the firm's owner(s);
(iii) The type and date of the action;
(iv) The reason for the action.
(2) As a UCP, you must check the DOCR Web site at least once every
month to determine whether any firm that is applying to you for
certification or that you have already certified is on the list.
(3) For any such firm that is on the list, you must promptly
request a copy of the listed decision from the UCP that made it. As the
UCP receiving such a request, you must provide a copy of the decision
to the requesting UCP within 7 days of receiving the request. As the
UCP receiving the decision, you must then consider the information in
the decision in determining what, if any, action to take with respect
to the certified DBE firm or applicant.
16. Revise Sec. 26.85 to read as follows:
Sec. 26.85 Certification of SBA 8(a)-certified firms.
(a) As a recipient or UCP, if a firm certified by SBA under its
8(a) program applies to you for certification as a DBE, you must follow
the procedures of this section.
(b) When an SBA 8(a)-certified firm applies for certification, you
must accept the certification applications, forms and packages
submitted by a firm to the SBA for 8(a) program certification, in lieu
of requiring the applicant firm to complete your own application forms
and packages. The applicant may submit the package directly, or may
request that the SBA forward the package to you.
(c) Before certifying a firm based on its SBA 8(a) certification,
you must conduct an on-site review of the firm (see Sec. 26.83(c)(1)).
You may also request additional relevant information from the firm to
ensure that the requirements of this Part for DBE certification have
been met. If the SBA application package presented by the firm is more
than two years old, you must obtain updated information from the
applicant.
(d) Unless you determine, based on the on-site review and other
information obtained in connection with the firm's application that the
firm does not meet the eligibility requirements of subpart D of this
part, you must certify the firm.
(e) For an SBA 8(a) firm that you certify under this section, you
must determine, based on the on-site and other information you have
gathered, the NAICS codes in which the firm may participate in your
contracts as a DBE.
(f) You are not required to process an application for
certification from an SBA-certified firm having its principal place of
business outside the State(s) in which you operate unless there is a
report of a ``home State'' on-site review on which you may rely.
(g) If the SBA 8(a) firm applying to you is already certified as a
DBE by another State's UCP, you must use the procedures of Sec. 26.84
of this part, rather
[[Page 25828]]
than those of this section, for considering its eligibility.
Sec. 26.81 [Amended]
17. In Sec. 26.107 (a) and (b), remove ``49 CFR part 29'' and add
in its place, ``2 CFR parts 180 and 1200.''
[FR Doc. 2010-10968 Filed 5-6-10; 3:00 pm]
BILLING CODE 4910-9X-P