Disadvantaged Business Enterprise: Program Improvements, 5083-5101 [2011-1531]

Agencies

• DEPARTMENT OF TRANSPORTATION
• Office of the Secretary

[Federal Register Volume 76, Number 19 (Friday, January 28, 2011)]
[Rules and Regulations]
[Pages 5083-5101]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-1531]


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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: Final rule.

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SUMMARY: This rule improves the administration of the Disadvantaged 
Business Enterprise (DBE) program by increasing accountability for 
recipients with respect to meeting 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, improving post-award oversight, and addressing other 
issues.

DATES: Effective Dates: This rule is effective February 28, 2011.

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, bob.ashby@dot.gov.

SUPPLEMENTARY INFORMATION: The Department of Transportation issued an 
advance notice of proposed rulemaking (ANPRM) concerning several DBE 
program issues on April 8, 2009 (74 FR 15904). The first issue raised 
in the ANPRM 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) form. 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 regarding these issues.
    On May 10, 2010, the Department issued a notice of proposed 
rulemaking (NPRM) seeking further comment on proposals based on the 
ANPRM and proposing new provisions (75 FR 25815). The NPRM proposed an 
inflationary adjustment of the PNW cap to $1.31 million, the figure 
that would result from proposed Federal Aviation Administration (FAA) 
reauthorization legislation then pending in both Houses of Congress. 
The Department proposed additional measures to hold recipients 
accountable for their performance in achieving DBE overall goals.
    The NPRM also proposed amendments to the certification-related 
provisions of the DBE regulation. Those proposals resulted from the 
Department's experience dealing with certification issues and 
certification appeal cases during the years since the last major 
revision of the DBE rule in 1999. The proposed amendments were intended 
to clarify issues that have arisen and avoid problems with which

[[Page 5084]]

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.
    The Department received approximately 160 comments on the NPRM from 
a variety of interested parties, including DBE and non-DBE firms, 
associations representing them, and recipients of DOT financial 
assistance. A summary of comments on the major issues in the 
rulemaking, and the Department's responses to those comments, follows.

Counting Purchases From Prime Contractors

    Under current counting rules, a DBE subcontractor and its prime 
contractor may count for DBE credit the entire cost of a construction 
contract, including items that the DBE subcontractor purchases or 
leases from a third party (e.g., in a so-called ``furnish and install'' 
contract). There is an exception to this general rule: A DBE and its 
prime contractor may not count toward goals items that the DBE 
purchases or leases from its own prime contractor. The reason for this 
provision is that doing so would allow the prime contractor to count 
for DBE credit items that it produced itself.
    As noted in the ANPRM, one DBE subcontractor and a number of prime 
contractors objected to this approach, saying that it unfairly denies a 
DBE in this situation the opportunity to count credit for items it has 
obtained from its prime contractor rather than from other sources. 
Especially in situations in which a commodity might only be available 
from a single source--a prime contractor or its affiliate--the rule 
would create a hardship, according to proponents of this view. The 
ANPRM proposed four options (1) keeping the rule as is; (2) keeping the 
basic rule as is, but allowing recipients to make exceptions in some 
cases; (3) allowing DBEs to count items purchased from any third party 
source, including the DBE's prime contractor; and (4) not allowing any 
items obtained from any non-DBE third party to be counted for DBE 
credit. Comment was divided among the four alternatives, which each 
garnering some support. For purposes of the NPRM, the Department 
decided not to propose any change from the current rule.
    Comment on the issue was again divided. Seven commenters favored 
allowing items obtained from any source to be counted for credit, 
including the firm that was the original proponent of the idea and 
another DBE, two prime contractors' associations, a prime contractor, 
and two State Departments of Transportation (DOTs). These commenters 
generally made the same arguments as had proponents of this view at the 
ANPRM stage. Thirteen commenters, among which were several recipients, 
a DBE contractors' association, and DBE contractors, favored the NPRM's 
proposed approach of not making any change to the existing rule, and 
they endorsed the NPRM's rationale. Sixteen commenters, including a 
recipient association and a number of DBE companies, supported 
disallowing credit for any items purchased or leased from a non-DBE 
source. They believed that this approach supported the general 
principle of awarding DBE credit only for contributions that DBEs 
themselves make on a contract.

DOT Response

    The Department remains unconvinced that it is appropriate for a 
prime contractor to produce an item (e.g., asphalt), provide it to its 
own DBE subcontractor, and then count the value of the item toward its 
good faith efforts to meet DBE goals. The item--asphalt, in this 
example--is a contribution to the project made by the prime contractor 
itself and simply passed through the DBE. That is, the prime 
contractor, on paper, sells the item to the DBE, who then charges the 
cost of the item it just bought from the prime contractor as part of 
its subcontract price, which the prime then reports as DBE 
participation. In the Department's view, this pass-through relationship 
is inconsistent with the most important principle of counting DBE 
participation, which is that credit should only be counted for value 
that is added to the transaction by the DBE itself.
    As mentioned in the ANPRM and NPRM, the current rule treats 
counting of items purchased by DBEs from non-DBE sources differently, 
depending on whether the items are obtained from the DBE's prime 
contractor or from a third-party source. The Department's current 
approach is a reasonable compromise between the commonly accepted 
practice of obtaining items from non-DBE sources as part of the 
contracting process and maintaining the principle of counting only the 
DBE's own contributions for credit toward goals, which is most 
seriously violated when the prime contractor itself is the source of 
the items. This compromise respects the dual, somewhat divergent, goals 
of accommodating a common way of doing business and avoiding a too-
close relationship between a prime contractor and a DBE subcontractor 
that distorts the counting of credit toward DBE goals. This compromise 
has been part of the regulation since 1999 and, with the exception of 
the proponent of changing the regulation and its prime contractor 
partners, has never been raised by program participants as a widespread 
problem requiring regulatory change. For these reasons, the Department 
will leave the existing regulatory language intact.

Terminations of DBE Firms

    The NPRM proposed that a prime contractor who, in the course of 
meeting its good faith efforts requirements on a procurement involving 
a contract goal, had submitted the names of one or more DBEs to work on 
the project, could not terminate a DBE firm without the written consent 
of the recipient. The firm could be terminated only for good cause. The 
NPRM proposed a list of what constituted good cause for this purpose.
    Over 40 comments addressed this subject, a significant majority of 
which supported the proposal. Two recipients said the proposal was 
unnecessary and a third expressed concern about workload implications. 
Several recipients said that they already followed this practice.
    However, commenters made a variety of suggestions with respect to 
the details of the proposal. A DBE firm questioned a good cause element 
that would allow a firm to be terminated for not meeting reasonable 
bonding requirements, noting that lack of access to bonding is a 
serious problem for many DBEs. A DBE contractors' association said that 
a DBE's action to halt performance should not necessarily be a ground 
for termination, because in some cases such an action could be a 
justified response to an action beyond its control (e.g., the prime 
failing to make timely payments). A DBE requested clarification of what 
being ``not responsible'' meant in this context. A number of 
commenters, including recipients and DBEs, suggested that a prime could 
terminate a DBE only if the DBE ``unreasonably'' failed to perform or 
follow instructions from the prime.
    A prime contractors' association suggested additional grounds for 
good cause to terminate, including not performing to schedule or not 
performing a commercially useful function. Another such association 
said the rule should be consistent with normal business practices and 
not impede a prime contractor's ability to remove a poorly performing 
subcontractor for good cause. A recipient wanted a public safety 
exception to the time frame for a DBE's reply to a prime contractor's 
notice

[[Page 5085]]

proposing termination, and another recipient wanted to shorten that 
period from five to two days. A State unified certification program 
(UCP) suggested adopting its State's list of good cause reasons, and a 
consultant suggested that contracting officers, not just the DBE 
Liaison Officer (DBELO), should be involved in the decision about 
whether to concur in a prime contractor's desire to terminate a DBE. A 
recipient wanted to add language concerning the prime contractor's 
obligation to make good faith efforts to replace a terminated DBE with 
another DBE.

DOT Response

    The Department, like the majority of commenters on this issue, 
believes that the proposed amendment will help to prevent situations in 
which a DBE subcontractor, to which a prime contractor has committed 
work, is arbitrarily dismissed from the project by the prime 
contractor. Comments to the docket and in the earlier stakeholder 
sessions have underlined that this has been a persistent problem. By 
specifying that a DBE can be terminated only for good cause--not simply 
for the convenience of the prime contractor--and with the written 
consent of the recipient, this amendment should help to end this abuse.
    With respect to the kinds of situations in which ``good cause'' for 
termination can exist, the Department has modified the language of the 
rule to say that good cause includes a situation where the DBE 
subcontractor has failed or refused to perform the work of its 
subcontract in accordance with normal industry standards. We note that 
industry standards may vary among projects, and could be higher for 
some projects than others, a matter the recipient could take into 
account in determining whether to consent to a prime contractor's 
proposal to terminate a DBE firm. However, good cause does not exist if 
the failure or refusal of the DBE subcontractor to perform its work on 
the subcontract results from the bad faith or discriminatory action of 
the prime contractor (e.g., the failure of the prime contractor to make 
timely payments or the unnecessary placing of obstacles in the path of 
the DBE's work).
    Good cause also does not exist if the prime contractor seeks to 
terminate a DBE it relied upon to obtain the contract so that it can 
self-perform the work in question or substitute another DBE or non-DBE 
firm. This approach responds to commenters who were concerned about 
prime contractors imposing unreasonable demands on DBE subcontractors 
while offering recipients a more definite standard than simple 
reasonableness in deciding whether to approve a prime contractor's 
proposal to terminate a DBE firm. We have also adopted a recipient's 
suggestion to permit the time frame for the process to be shortened in 
a case where public necessity (e.g., safety) requires a shorter period 
of time before the recipient's decision.
    In addition to the enumerated grounds, a recipient may permit a 
prime contractor to terminate a DBE for ``other documented good cause 
that the recipient determines compels the termination of the DBE 
subcontractor.'' This means that the recipient must document the basis 
for any such determination, and the prime contractor's reasons for 
terminating the DBE subcontractor make the termination essential, not 
merely discretionary or advantageous. While the recipient need not 
obtain DOT operating administration concurrence for such a decision, 
FHWA, FTA, and FAA retain the right to oversee such determinations by 
recipients.

Personal Net Worth

    The NPRM proposed to make an inflationary adjustment in the 
personal net worth (PMW) cap from its present $750,000 to $1.31 
million, based on the consumer price index (CPI) and relating back to 
1989, as proposed in FAA authorization bills pending in Congress. The 
NPRM noted that such an adjustment had long been sought by DBE groups 
and that it maintained the status quo in real dollar terms. The 
Department also asked for comment on the issue of whether assets 
counted toward the PNW calculation should continue to include 
retirement savings products. The rule currently does include them, but 
the pending FAA legislation would move in the direction of excluding 
them from the calculation.
    Of the 95 commenters who addressed the basic issue of whether the 
Department should make the proposed inflationary adjustment, 71--
representing all categories of commenters--favored doing so. Many said 
that such an adjustment was long overdue and that it would mitigate the 
problem of a ``glass ceiling'' limiting the growth and development of 
DBE firms. A few commenters said that such adjustments should be done 
regionally or locally rather than nationally, to reflect economic 
differences among areas of the country. A number of the commenters 
wanted to make sure the Department made similar adjustments annually in 
the future. A member of Congress suggested that the PNW should be 
increased to $2.5 million, while a few recipients favored a smaller 
increase (e.g., to $1 million). A few commenters also suggested that 
the Department explore some method of adjusting PNW other than the CPI, 
but they generally did not spell out what the alternative approaches 
might be.
    The opponents of making the adjustment, mostly recipients and DBEs, 
made several arguments. The first was that $1.31 million was too high 
and would include businesses owners who were not truly disadvantaged. 
The second was that raising the PNW number would favor larger, 
established, richer DBEs at the expense of smaller, start-up firms. 
These larger companies could then stay in the program longer, to the 
detriment of the program's aims. Some commenters said that the 
experience in their states was that very few firms were becoming 
ineligible for PNW reasons, suggesting that a change in the current 
standard was unnecessary.
    With respect to the issue of retirement assets, about 28 comments, 
primarily from DBE groups and recipients, favored excluding some 
retirement assets from the PNW calculation, often asserting that this 
was appropriate because such funds are illiquid and not readily 
available to contribute toward the owners' businesses. Following this 
logic, some of the comments said that Federally-regulated illiquid 
retirement plans (e.g., 401k, Roth IRA, Keough, and Deferred 
Compensation plans, as well as 529 college savings plans) be excluded 
while other assets that are more liquid (CDs, savings accounts) be 
counted, even if said to be for retirement purposes. A number of these 
commenters said that a monetary cap on the amount that could be 
excluded (e.g., $500,000) would be acceptable.
    The 17 comments opposing excluding retirement accounts from the PNW 
calculation generally supported the rationale of the existing 
regulation, which is that assets of this kind, even if illiquid, should 
be regarded as part of an individual's wealth for PNW purposes. A few 
commenters also said that, since it is most likely wealthier DBE owners 
who have such retirement accounts, excluding them would help these more 
established DBEs at the expense of smaller DBEs who are less likely to 
be able to afford significant retirement savings products. Again, 
commenters said that this provision, by effectively raising the PNW 
cap, would inappropriately allow larger firms to stay in the program 
longer. Some of the commenters would accept exclusion of retirement 
accounts if an appropriate cap were put in place, however.
    Finally, several commenters asked for a revised and improved PNW 
form with

[[Page 5086]]

additional guidance and instructions on how to make PNW calculations 
(e.g., with respect to determining the value of a house or business).

DOT Response

    To understand the purpose and effect of the Department's proposal 
to change the PNW threshold from the long-standing $750,000 figure, it 
is important to keep in mind what an inflationary adjustment does. 
(Because of the passage of time from the issuance of the NPRM to the 
present time, the amount of the inflationary adjustment has changed 
slightly, from $1.31 million to $1.32 million.) The final rule's 
adjustment is based on the Department of Labor's consumer price index 
(CPI) calculator. This calculator was used because, of various readily 
available means of indexing for inflation, CPI appears to be the one 
that is most nearly relevant to an individual's personal wealth. Such 
an adjustment simply keeps things as they were originally in real 
dollar terms.
    That is, in 1989, $750,000 bought a certain amount of goods and 
services. In 2010, given the effects of inflation over 21 years, it 
would take $1.32 million in today's dollars to buy the same amount of 
goods and services. The buying power of assets totaling $750,000 in 
1989 is the same as the buying power of assets totaling $1.32 million 
in 2010. Notwithstanding the fact that $1.32 million, on its face, is a 
higher number than $750,000, the wealth of someone with $1.32 million 
in assets today is the same, in real dollar or buying power terms, as 
that of someone with $750,000 in 1989.
    Put another way, if the Department did not adjust the $750,000 
number for inflation, our inaction would have the effect of 
establishing a significantly lower PNW cap in real dollar terms. A PNW 
cap of $750,000 in 2010 dollars is equivalent to a PNW cap of 
approximately $425,700 in 1989 dollars. This means that a DBE applicant 
today would be allowed to have $325,000 less in real dollar assets than 
his or her counterpart in 1989.
    The Department believes, in light of this understanding of an 
inflationary adjustment, that making the proposed adjustment at this 
time is appropriate. This is a judgment that is shared by the majority 
of commenters and both Houses of Congress. We do not believe that any 
important policy interest is served by continuing to lower the real 
dollar PNW threshold, which we believe would have the effect of further 
limiting the pool of eligible DBE owners beyond what is intended by the 
Department in adopting the PNW standard.
    The Department is using 1989 as the base year for its inflationary 
adjustment for two reasons. First, doing so is consistent with what 
both the House and Senate determined was appropriate in the context of 
FAA authorization bills that both chambers passed. Second, while the 
Department adopted a PNW standard in 1999, the standard itself, which 
was adopted by the Small Business Administration (SBA) before 1989, has 
never been adjusted for inflation at any time. By 1999, the real dollar 
value of the original $750,000 standard had already been eroded by 
inflation, and the Department believes that it is reasonable to take 
into account the effect of inflation on the standard that occurred 
before as well as after the Department adopted it.
    We appreciate the concerns of commenters who opposed the proposed 
inflationary adjustment. Some of these commenters, it appears, may not 
have fully understood that an inflationary adjustment simply maintains 
the status quo in real dollar terms. The concern that making the 
adjustment would favor larger, established DBEs over smaller, start-up 
companies has some basis, and reflects the longstanding tension in the 
program between its role as an incubator for new firms and its purpose 
of allowing DBE firms to grow and develop to the point where they may 
be in a better position to compete for work outside the DBE program. 
Allowing persons with larger facial amounts of assets may seem to 
permit participation of people who are less disadvantaged than formerly 
in the program, but disadvantage in the DBE program has always properly 
been understood as relative disadvantage (i.e., relative to owners and 
businesses in the economy generally), not absolute deprivation. People 
who own successful businesses are more affluent, by and large, than 
many people who participate in the economy only as employees, but this 
does not negate the fact that socially disadvantaged persons who own 
businesses may well, because of the effects of discrimination, 
accumulate less wealth than their non-socially disadvantaged 
counterparts. Consequently, the concerns of opponents of this change 
are not sufficient to persuade us to avoid making the proposed 
inflationary adjustment.
    We do not believe that it is practical, in terms of program 
administration, to have standards that vary with recipient or region. 
We acknowledge that one size may not fit all to perfection, but the 
complexity of administering a national program with a key eligibility 
standard that varies, perhaps significantly, among jurisdictions would 
be, in our view, an even greater problem. Nor do we see a strong policy 
rationale for a change to some fixed figure (e.g., $1 million, $2.5 
million) that is not tied to inflation. We do agree, however, that an 
improved PNW form would be an asset to the program, and we will propose 
such a form for comment in the next stage NPRM on the DBE program, 
which we hope to issue in 2011. This NPRM may also continue to examine 
other PNW issues.
    Whenever there is a change in a rule of this sort, the issue of how 
to handle the transition between the former rule and the new rule 
inevitably arises. We provide the following guidance for recipients and 
firms applying for DBE certification.
     For applications or decertification actions pending on the 
date this amendment is published, but before its effective date, 
recipients should make decisions based on the new standards, though 
these decisions should not take effect until the amendment's effective 
date.
     Beginning on the effective date of this amendment, all new 
certification decisions must be based on the revised PNW standard, even 
if the application was filed or a decertification action pertaining to 
PNW began before this date.
     If a denial of an application or decertification occurred 
before the publication date of this amendment, because the owner's PNW 
was above $750,000 but not above $1.32 million, and the matter is now 
being appealed within the recipient's or unified certification 
program's (UCP's) process, then the recipient or UCP should resolve the 
appeal using the new standard. Recipients and UCPs may request updated 
information where relevant. In the case of an appeal pending before the 
Departmental Office of Civil Rights (DOCR) under section 26.89, DOCR 
will take the same approach or remand the matter, as appropriate.
     If a firm was decertified or its application denied within 
a year before the effective date of this amendment, because the owner's 
PNW was above $750,000 but not above $1.32 million, the recipient or 
UCP should permit the firm to resubmit PNW information without any 
further waiting period, and the firm should be recertified if the 
owner's PNW is not over $1.32 million and the firm is otherwise 
eligible.
     We view any individual who has misrepresented his or her 
PNW information, whether before or after the inflationary adjustment 
takes effect, as having failed to cooperate with the DBE

[[Page 5087]]

program, in violation of 49 CFR 26.109(c). In addition to other 
remedies that may apply to such conduct, recipients should not certify 
a firm that has misrepresented this information.
    The Department is not ready, at this time, to make a decision on 
the issue of retirement assets. The comments suggested a number of 
detailed issues the Department should consider before proposing any 
specific provisions on this subject. We will further consider 
commenters' thoughts on this issue at a future time.

Interstate Certification

    In response to longstanding concerns of DBEs and their groups, the 
NPRM proposed a mechanism to make interstate certification easier. The 
proposed mechanism did not involve pure national reciprocity (i.e., in 
which each state would give full faith and credit to other states' 
certification decisions, with the result that a certification by any 
state would be honored nationwide). Rather, it created a rebuttable 
presumption that a firm certified in its home state would be certified 
in other states. A firm certified in home state A could take its 
application materials to State B. Within 30 days, State B would decide 
either to accept State A's certification or object to it. If it did not 
object, the firm would be certified in State B. If State B did object, 
the firm would be entitled to a proceeding in which State B bore the 
burden of proof to demonstrate that the firm should not be certified in 
State B. The NPRM also proposed that the DOT Departmental Office of 
Civil Rights (DOCR) would create a database that would be populated 
with denials and decertifications, which the various State UCPs would 
check with respect to applicants and currently certified firms.
    This issue was one of the most frequently commented-upon subjects 
in the rulemaking. Over 30 comments, from a variety of sources 
including DBEs, DBE organizations, and a prime contractors' 
association. Members of Congress and others supported the proposed 
approach. They emphasized that the necessity for repeated certification 
applications to various UCPs, and the very real possibility of 
inconsistent results on the same facts, were time-consuming, 
burdensome, and costly for DBEs. In a national program, they said, 
there should be national criteria, uniformity of forms and 
interpretations, and more consistent training of certification 
personnel. The proposed approach, they said, while not ideal, would be 
a useful step toward those goals.
    An approximately equal number of commenters, predominantly 
recipients but also including some DBEs and associations, opposed the 
proposal, preferring to keep the existing rules (under which recipients 
can, but are not required to, accept certifications made by other 
recipients) in place. Many of these commenters said that their 
certification programs frequently had to reject out-of-state firms that 
had been certified by their home states because the home states had not 
done a good job of vetting the qualifications of the firms for 
certification. They asserted that there was too much variation among 
states concerning applicable laws and regulations (e.g., with respect 
to business licensing or marital property laws), interpretations of the 
DBE rule, forms and procedures, and the training of certifying agency 
personnel for something like the NPRM proposal to work well. Before 
going to something like the NPRM proposal, some of these commenters 
said, DOT should do more to ensure uniform national training, 
interpretations, forms etc.
    Commenters opposed to the NPRM proposal were concerned that the 
integrity of the program would be compromised, as questionable firms 
certified by one state would slip into the directories of other states 
without adequate vetting. Moreover, the number of certification actions 
each state had to consider, and the number of certified firms that each 
state would have to manage, could increase significantly, straining 
already scarce resources.
    A smaller number of commenters addressed the idea of national 
reciprocity. Some of these commenters said that, at least for the 
future, national reciprocity was a valuable goal to work toward. Some 
of these commenters, including an association that performs 
certification reviews nationally for MBE and WBE suppliers (albeit 
without on-site reviews) and a Member of Congress, supported using such 
a model now. On the other hand, other commenters believed national 
reciprocity was an idea whose time had not come, for many of the same 
reasons stated by commenters opposed to the NPRM proposal. Some of the 
commenters on the NPRM proposal said that the proposal would result in 
de facto national reciprocity, which they believed was bad for the 
program.
    Two features of the NPRM proposal attracted considerable adverse 
comment. Thirty-one of the 34 comments addressing the proposed 30-day 
window for ``State B'' to decide whether to object to a home state 
certification of a firm said that the proposed time was too short. 
These commenters, mostly recipients, suggested time frames ranging from 
45-90 days. They said that the 30-day time frame would be very 
difficult to meet, given their resources, and would cause States to 
accept questionable certifications from other States simply because 
there was insufficient time to review the documentation they had been 
given. Moreover, the 30-day window would mean that out-of-state firms 
would jump to the front of the line for consideration over in-state 
firms, concerning which the rule allows 90 days for certification. This 
would be unfair to in-state firms, they said.
    In addition, 22 of 28 commenters on the issue of the burden of 
proof for interstate certification--again, predominantly recipients--
said that it was the out-of-state applicant firm, rather than State B, 
that should have the burden of proof once State B objected to a home 
state certification of the firm. These commenters also said that is was 
more sensible to put the out-of-state firm in the same position as any 
other applicant for certification by having to demonstrate to the 
certifying agency that it was eligible, rather than placing the 
certification agency in the position of the proponent in a 
decertification action for a firm that it had previously certified. 
Again, commenters said, the NPRM proposal would favor out-of-state over 
in-state applicants.
    A few comments suggested trying reciprocal certification on a 
regional basis (e.g., in the 10 Federal regions) before moving to a 
more national approach. Others suggested that only recent information 
(e.g., applications and on-site reports less than three years old) be 
acceptable for interstate certification purposes. Some states pointed 
to state laws requiring local licenses or registration before a firm 
could do business in the State: Some commenters favored limiting out-
of-state applications to those firms that had obtained the necessary 
permits, while one commenter suggested prohibiting States from imposing 
such requirements prior to DBE certification. Some comments suggested 
limiting the grounds on which State B could object to the home state 
certification of a firm (i.e., ``good cause'' rather than 
``interpretive differences,'' differences in state law, evidence of 
fraud in obtaining home state certification).
    There was a variety of other comments relevant to the issue of 
interstate certification. Most commenters who addressed the idea of the 
DOCR database supported it, though some said that denial/
decertification data should be available only to certification 
agencies, not the general

[[Page 5088]]

public. Some also said that having to input and repeatedly check the 
data base would be burdensome. One commenter suggested including a 
firm's Federal Taxpayer ID number in the database entry. One commenter 
suggested a larger role for the database: Applicants should 
electronically input their application materials to the database, which 
would then be available to all certifying agencies, making individual 
submissions of application information to the States unnecessary. Some 
commenters wanted DOT to create or lead a national training and/or 
accreditation effort for certifier personnel.

DOT Response

    Commenters on interstate were almost evenly divided on the best 
course of action for the Department to take. Most DBEs favored making 
interstate certification less difficult for firms that wanted to work 
outside their home states; most recipients took the opposite point of 
view. This disagreement reflects, we believe, a tension between two 
fundamental objectives of the program. On one hand, it is important to 
facilitate the entry of DBE firms into this national program, so that 
they can compete for DOT-assisted contracting wherever those 
opportunities exist, while reducing administrative burdens and costs on 
the small businesses that seek to participate. On the other hand, it is 
important to maintain the integrity of the program, so that only 
eligible firms participate and ineligible firms do not take unfair 
advantage of the program.
    The main concern of proponents of the NPRM proposal was that 
failing to make changes to facilitate interstate certification would 
leave in place unnecessary and unreasonable barriers to the 
participation of firms outside of their home states. The main concern 
of opponents of the NPRM proposal was that making the proposed changes 
would negatively affect program integrity. Their comments suggest that 
there is considerable mistrust among certification agencies and 
programs. Many commenters appear to believe that, while their own 
certification programs do a good job, other states' certification 
programs do not. Much of the opposition to facilitating interstate 
certification appears to have arisen from this mistrust, as 
certification agencies seek to prevent questionable firms certified by 
what they perceive as weak certification programs in other states from 
infiltrating their domains.
    The Department does not believe that it is constructive to take the 
position that certification programs nationwide are so hopelessly 
inadequate that the best response is to leave interstate barriers in 
place to contain the perceived contagion of poorly qualified, albeit 
certified, firms within the boundaries of their own states. To the 
contrary, we believe that, under a system like that proposed in the 
NPRM, if firms certified by State A are regularly rebuffed by States B, 
C, D, etc., State A firms will have an incentive to bring pressure on 
their certification agency to improve its performance.
    The Department also believes that suggestions made by commenters, 
such as improving training and standardizing forms and interpretations, 
can improve the performance of certification agencies generally. In the 
follow-on NPRM the Department hopes to issue in 2011, one of the 
subjects we will address is improvements in the certification 
application and PNW forms, which certification agencies then would be 
required to use without alteration. DOT already provides many training 
opportunities to certification personnel, such as the National 
Transportation Institute courses provided by the Federal Transit 
Administration, presentations by knowledgeable DOT DBE staff at 
meetings of transportation organizations, and webinars and other 
training opportunities provided by Departmental Office of Civil Rights 
personnel. The Department will consider further ways of fostering 
training and education for certifiers (e.g., a DOT-provided web-based 
training course for certifiers). The Department also produces guidance 
on certification-related issues to assist certifiers in making 
decisions that are consistent with this regulation, and we will 
continue that practice.
    While we will continue to work with our state and local partners to 
improve the certification process, we do not believe that steps to 
facilitate interstate certification should be taken only after all 
recipients achieve an optimal level of performance. The DBE program is 
a national program; administrative barriers to participation impair the 
important program objective of encouraging DBE firms to compete for 
business opportunities; provisions to facilitate interstate 
certification can be drafted in a way that permits ``State B'' to 
screen out firms that are not eligible in accordance with this 
regulation. Consequently, the Department has decided to proceed with a 
modified form of the NPRM proposal. However, the final rule will not 
make compliance with the new section 26.85 mandatory until January 1, 
2012, in order to provide additional time for recipients and UCPs to 
take advantage of training opportunities and to establish any needed 
administrative mechanisms to carry out the new provision. This will 
also provide time for DOCR to make its database for denials and 
decertifications operational.
    As under the NPRM, a firm certified in its home state would present 
its certification application package to State B. In response to 
commenters' concerns about the time available, State B would have 60 
days, rather than 30 as in the NPRM, to determine whether it had 
specific objections to the firm's eligibility and to communicate those 
objections to the firm. If State B believed that the firm was 
ineligible, State B would state, with particularity, the specific 
reasons or objections to the firm's eligibility. The firm would then 
have the opportunity to respond and to present information and 
arguments to State B concerning the specific objections that State B 
had made. This could be done in writing, at an in-person meeting with 
State B's decision maker, or both. Again in response to commenters' 
concerns, the firm, rather than State B, would have the burden of proof 
with respect, and only with respect, to the specific issues raised by 
State B's objections. We believe that these changes will enhance the 
ability of certification agencies to protect the integrity of the 
program while also enhancing firms' ability to pursue business 
opportunities outside their home states.
    We emphasize that State B's objections must be specific, so that 
the firm can respond with information and arguments focused clearly on 
the particular issues State B has identified, rather than having to 
make an unnecessarily broad presentation. It is not enough for State B 
to say ``the firm is not controlled by its disadvantaged owner'' or 
``the owner exceeds the PNW cap.'' These are conclusions, not specific, 
fact-based objections. Rather, State B might say ``the disadvantaged 
owner has a full-time job with another organization and has not shown 
that he has sufficient time to exercise control over the day-to-day 
operations of the firm'' or ``the owner's property interests in assets 
X, Y, and Z were improperly valued and cause his PNW to exceed $1.32 
million.'' This degree of specificity is mandatory regardless of the 
regulatory ground (e.g., new information, factual errors in State A's 
certification: See section 26.85(d)(2)) on which State B makes an 
objection. For example, if State B objected to the firm's State A 
certification on the basis that State B's law required a different 
result, State B would say something like ``State B Revised Statutes 
Section xx.yyyy

[[Page 5089]]

provides only that a registered engineer has the power to control an 
engineering firm in State B, and the disadvantaged owner of the firm is 
not a registered engineer, who is therefore by law precluded from 
controlling the firm in State B.''
    On receiving this specific objection, the owner of the firm would 
have the burden of proof that he or she does meet the applicable 
requirements of Part 26. In the first example above, the owner would 
have to show that either he or she does not now have a full-time job 
elsewhere or that, despite the demands of the other job, he or she can 
and does control the day-to-day operations of the firm seeking 
certification. This burden would be to make the required demonstration 
by a preponderance of the evidence, the same standard used for initial 
certification actions generally. This owner would not bear any burden 
of proof with respect to size, disadvantage, ownership, or other 
aspects of control, none of which would be at issue in the proceeding. 
The proceeding, and the firm's burden of proof, would concern only 
matters about which State B had made a particularized, specific 
objection. This narrowing of the issues should save time and resources 
for firms and certification agencies alike.
    The firm's response to State B's particularized objections could be 
in writing and/or in the form of an in-person meeting with State B's 
decision maker to discuss State B's objections to the firm's 
eligibility. The decision maker would have to be someone who is 
knowledgeable about the eligibility provisions of the DBE rule.
    We recognize that, in unusual circumstances, the information the 
firm provided to State B in response to State B's specific objections 
could contain new information, not part of the original record, that 
could form the basis for an additional objection to the firm's 
certification. In such a case, State B would immediately notify the 
firm of the new objection and offer the firm a prompt opportunity to 
respond.
    Section 26.85(d)(2) of the final rule lists the grounds a State B 
can rely upon to object to a State A certification of a firm. These are 
largely the same as in the NPRM. In response to a comment, the 
Department cautions that by saying that a ground for objection is that 
State A's certification is inconsistent with this regulation, we do not 
intend for mere interpretive disagreements about the meaning of a 
regulatory provision to form a ground for objection. Rather, State B 
would have to cite something in State A's certification that 
contradicted a provision in the regulatory text of Part 26.
    The final rule also gives, as a ground for objecting to a State A 
certification, that a State B law ``requires'' a result different from 
the law of State (see the engineering example above). To form the basis 
for an objection on this ground, a difference between state laws must 
be outcome-determinative with respect to a certification. For example, 
State A may treat marital property as jointly held property, while 
State B is a community property state. The laws are different, but 
both, in a given case, may well result in each spouse having a 50 
percent share of marital assets. This would not form the basis for a 
State B objection.
    With respect to state requirements for business licenses, the 
Department believes that states should not erect a ``Catch 22'' to 
prevent DBE firms from other states from becoming certified. That is, 
if a firm from State A wants to do business in State B as a DBE, it is 
unlikely to want to pay a fee to State B for a business license before 
it knows whether it will be certified. Making the firm get the business 
license and pay the fee before the certification process takes place 
would be an unnecessary barrier to the firm's participation that would 
be contrary to this regulation.
    The Department believes that regional certification consortia, or 
reciprocity agreements among states in a region, are a very good idea, 
and we anticipate working with UCPs in the future to help create such 
arrangements. Among other things, the experience of actually working 
together could help to mitigate the current mistrust among 
certification agencies. However, we do not believe it would be 
appropriate to mandate such arrangements at this time.
    The Department believes that the DOCR database of decertification 
and denial actions would be of great use in the certification process. 
However, the system is not yet up and running. Consequently, the final 
rule includes a one-year delay in the implementation date of 
requirements for use of the database.

Other Certification-Related Issues

    The NPRM asked for comment on whether there should be a requirement 
for periodic certification reviews and/or updates of on-site reviews 
concerning certified firms. The interval most frequently mentioned by 
commenters on this subject was five years, though there was also some 
support for three-, six-, and seven-year intervals. A number of 
commenters suggested that such reviews should include an on-site update 
only when the firm's circumstances had changed materially, in order to 
avoid burdening the limited resources of certifying agencies. Having a 
standardized on-site review form would reduce burdens, some commenters 
suggested. Other commenters suggested that the timing of reviews should 
be left to certifying agencies' discretion, or that on-site updates 
should be done on a random basis of a smaller number of firms.
    The NPRM also asked about the handling of situations where an 
applicant withdraws its application before the certifying agency makes 
a decision. Should certifying agencies be able to apply the waiting 
period (e.g., six or 12 months) used for reapplications after denials 
in this situation? Comments on this issue, mostly from recipients but 
also from some DBEs and their associations, were divided. Some 
commenters said that there were often good reasons for a firm to 
withdraw and correct an application (e.g., a new firm unaccustomed to 
the certification process) and that their experience did not suggest 
that a lot of firms tried to game the system through repeated 
withdrawals. On the other hand, some commenters said that having to 
repeatedly process withdrawn and resubmitted applications was a burden 
on their resources that they would want to mitigate through applying a 
reapplication waiting period. One recipient said that, even in the 
absence of a waiting period, the resubmitted application should go to 
the back of the line for processing. Still others wanted to be able to 
apply case-by-case discretion concerning whether to impose a waiting 
period on a particular firm. A few commenters suggested middle-ground 
positions, such as imposing a shorter waiting period (e.g., 90 days) 
than that imposed on firms who are denied or applying a waiting period 
only for a second or subsequent withdrawal and reapplication by the 
same firm.
    Generally, commenters were supportive of the various detail-level 
certification provision changes proposed in the NPRM (e.g., basing 
certification decisions on current circumstances of a firm). Commenters 
did speak to a wide variety of certification issues, however. One 
commenter said that in its state, the UCP arbitrarily limited the 
number of NAICS codes in which a firm could be certified, a practice 
the commenter said the regulation should forbid. In addition, this 
commenter said, the UCP inappropriately limited certification of 
professional services firms owned by someone who was not a licensed 
professional in a field, even in the

[[Page 5090]]

absence of a state law requiring such licensure. A number of commenters 
said that recipients should not have to automatically certify SBA-
certified 8(a) firms, while another commenter recommended reviving the 
now-lapsed DOT-SBA memorandum of understanding (MOU) on certification 
issues. A DBE association said that certifying agencies should not 
count against firms seeking certification (e.g., with respect to 
independence determinations) investments from or relationships with 
larger firms that are permitted under other Federal programs (e.g., 
HubZone or other SBA programs). One commenter favored, and another 
opposed, allowing States to use their own business specialty 
classifications in addition to or in lieu of NAICS codes.
    One recipient recommended a provision to prevent owners from 
transferring personal assets to their companies to avoid counting them 
in the PNW calculation. Another said the certification for the PNW 
statement should specifically say that the information is ``complete'' 
as well as true. Yet another suggested that a prime contractor who owns 
a high percentage (e.g., 49 percent) of a DBE should not be able to use 
that DBE for credit. There were a number of suggestions that more of 
the certification process be done electronically, rather than on paper. 
A few comments said that getting back to an applicant within 20 days, 
as proposed in the NPRM, concerning whether the application was 
complete was too difficult for some recipients who have small staffs.

DOT Response

    The Department believes that regularly updated on-site reviews are 
an extremely important tool in helping avoid fraudulent firms or firms 
that no longer meet eligibility requirements from participating in the 
DBE program. Ensuring that only eligible firms participate is a key 
part of maintaining the integrity of the program. We also realize that 
on-site reviews can be time- and resource-intensive. Consequently, 
while we believe that it is advisable for recipients and UCPs to 
conduct updated on-site reviews of certified companies on regular and 
reasonably frequent basis, and we strongly encourage such undated 
reviews, we have decided not to mandate a particular schedule, though 
we urge recipients to regard on-site reviews as a critical part of 
their compliance activities. When recipients or UCPs become aware of a 
change in circumstances or concerns that a firm may be ineligible or 
engaging in misconduct (e.g., from notifications of changes by the firm 
itself, complaints, information in the media, etc.), the recipient or 
UCP should review the firm's eligibility, including doing an on-site 
review.
    When recipients in other states (see discussion of interstate 
certification above) obtain the home state's certification information, 
they must rely on the on-site report that the home state has in its 
files plus the affidavits of no change, etc. that the firm has filed 
with the home state. It is not appropriate for State B to object to an 
out-of-state firm's certification because the home state's on-site 
review is older than State B thinks desirable, since that would 
unfairly punish a firm for State A's failure to update the firm's on-
site review. However, if an on-site report is more than three years 
old, State B could require that the firm provide an affidavit to the 
effect that all the facts in the report remain true and correct.
    While we recognize that reports that have not been updated, or 
which do not appear to contain sufficient analysis of a firm's 
eligibility, make certification tasks more difficult, our expectation 
is that the Department's enhanced interstate certification process will 
result in improved quality in on-site reviews so that recipients in 
various states have a clear picture of the structure and operation of 
firms and the qualifications of their owners. To this end, we encourage 
recipients and UCPs to establish and maintain communication in ways 
that enable information collected in one state to be shared readily 
with certification agencies in other states. This information sharing 
can be done electronically to reduce costs.
    Firms may withdraw pending applications for certification for a 
variety of reasons, many of them legitimate. A withdrawal of an 
application is not the equivalent of a denial of that application. 
Consequently, we believe that it is inappropriate for recipients and 
UCPs to penalize firms that withdraw pending applications by applying 
the up-to-12 month waiting period of section 26.86(c) to such 
withdrawals, thereby preventing the firm from resubmitting the 
application before that time elapses. We believe that permitting 
recipients to place resubmitted applications at the end of the line for 
consideration sufficiently protects the recipients' workloads from 
being overwhelmed by repeated resubmissions. For example, suppose that 
Firm X withdraws its application in August. It resubmits the 
application in October. Meanwhile, 20 other firms have submitted 
applications. The recipient must accept Firm X's resubmission in 
October, but is not required to consider it before the 20 applications 
that arrived in the meantime. Recipients should also closely examine 
changes made to the firm since the time of its first application.
    We agree with commenters that it is not appropriate for recipients 
to limit NAICS codes in which a firm is certified to a certain number. 
Firms may be certified in NAICS codes for however many types of 
business they demonstrate that they perform and concerning which their 
disadvantaged owners can demonstrate that they control. We have added 
language to the regulation making this point. We also agree that it is 
not appropriate for a recipient or UCP to insist on professional 
certification as a per se condition for controlling a firm where state 
law does not impose such a requirement. We have no objection to a 
recipient or UCP voluntarily using its own business classification 
system in addition to using NAICS codes, but it is necessary to use 
NAICS codes.
    SBA has now gone to a self-certification approach for small 
disadvantaged business, the SBA 8(a) program differs from the DBE 
program in important respects, and the SBA-DOT memorandum of 
understanding (MOU) on certification matters lapsed over five years 
ago. Under these circumstances, we have decided to delete former 
sections 26.84 and 26.85, relating to provisions of that MOU.
    DBE firms in the DBE program must be fully independent, as provided 
in Part 26. If a firm has become dependent on a non-DBE firm through 
participation in another program, then it may be found ineligible for 
DBE program purposes. To say otherwise would create inconsistent 
standards that would enable firms already participating in other 
programs to meet a lower standard than other firms for DBE 
participation.
    We believe that adding a regulatory provision prohibiting owners 
from transferring personal assets to their companies to avoid counting 
them in the PNW calculation would be difficult to implement, since 
owners of businesses often invest assets in the companies for 
legitimate reasons. However, as an interpretive matter, recipients are 
authorized to examine such transfers and, if they conclude that the 
transfer is a ruse to avoid counting personal assets toward the PNW 
calculation rather than a legitimate investment in the company and its 
growth, recipients or UCPs may continue to count the assets toward PNW.
    We agree that the certification for the PNW statement should 
specifically say

[[Page 5091]]

that the information is ``complete'' as well as true and that a 
somewhat longer time period would be appropriate for recipients and 
UCPs to get back to applicants with information on whether their 
applications were complete. We have added a regulatory text statement 
on the former point and extended the time period on the latter point to 
30 days.
    If a prime contractor who owns a high percentage of a DBE that it 
wishes to use on a contract, issues concerning independence, 
affiliation, and commercially useful function can easily arise. For 
this reason, recipients should closely scrutinize such relationships. 
This scrutiny may well result, in some cases, in denying DBE credit or 
initiating decertification action.
    We encourage the use of electronic methods in the application and 
certification process. As in other areas, electronic methods can reduce 
administrative burdens and speed up the process.

Accountability and Goal Submissions

    The NPRM proposed that if a recipient failed to meet its overall 
goal, it would, within 60 days, have to analyze the shortfall, explain 
the reasons for it, and come up with corrective actions for the future. 
All State DOTs and the largest transit authorities and airports would 
have to send their analyses and corrective action plans to DOT 
operating administrations; smaller transit authorities and airports 
would retain them on file. While there would not be any requirement to 
meet a goal--to ``hit the number''--failure to comply with these 
requirements could be regarded as a failure to implement a recipient's 
program in good faith, which could lead to a finding of noncompliance 
with the regulation.
    In a related provision, the Department asked questions in the NPRM 
concerning the recent final provision concerning submitting overall 
goals on a three-year, rather than an annual, basis. In particular, the 
NPRM asked whether it should be acceptable for a recipient to submit 
year-to-year projections of goals within the structure of a three-year 
goal and how implementation of the accountability proposal would work 
in the context of a three-year goal, whether or not year-to-year 
projections were made.
    About two-thirds of the 64 comments addressing the accountability 
provision supported it. These commenters included DBEs, recipients, and 
some associations and other commenters. Some of these commenters, in 
fact, thought the proposal should be made stronger. For example, a 
commenter suggested that a violation ``will'' rather than ``could'' be 
found for failure to provide the requested information. Another 
suggested that, beyond looking at goal attainment numbers, the 
accountability provisions should be broadened to include the 
recipient's success with respect to a number of program elements (e.g., 
good faith efforts on contracts, outreach, DBE liaison officer's role, 
training and education of staff).
    Commenters also presented various ideas for modifying the proposal. 
These included suggestions that the Department should add a public 
input component, provide more guidance on the shortfall analysis and 
how to do it, delay its effective date to allow recipients to find 
resources to comply, ensure ongoing measurement of achievements rather 
than just measuring at the end of a year or three-year period, ensure 
that there is enough flexibility in explaining the reasons for a 
shortfall, or lengthen the time recipients have to submit the materials 
(e.g., 90 days, or 60 days after the recipient's report of commitments 
and achievements is due). One commenter suggested that an explanation 
should be required only when there is a pattern of goal shortfalls, not 
in individual instances. There could be a provision for excusing 
recipients who fell short of their goal by very small amount, or even 
if the recipient made 80 percent of its goal.
    Opponents of the proposal--mostly recipients plus a few 
associations--said that the proposal would be too administratively 
burdensome. In addition, they feared that making recipients explain a 
shortfall and propose corrective measures would turn the program into a 
prohibited set-aside or quota program, a concern that was particularly 
troublesome in states affected by the Western States decision. 
Moreover, a number of commenters said, the inability of recipients to 
meet overall goals was often the result of factors beyond their 
control. In addition, recipients might unrealistically reduce goals in 
order to avoid having to explain missing a more ambitious target.
    With respect to the reporting intervals for goals, 28 of the 39 
commenters who addressed the issue favored some form of at least 
optional yearly reporting of goals, either in the form of annual goal 
submissions or, more frequently, of year-to-year projections of goals 
within the framework of a three-year overall goal. The main reason 
given for this preference was a concern that projects and the 
availability of Federal funding for them were sufficiently volatile 
that making a projection that was valid for a three-year period was 
problematic. This point of view was advanced especially by airports. 
Some other commenters favored giving recipients discretion whether to 
report annually or triennially. Commenters who took the point of view 
that the three-year interval was preferable agreed with original 
rationale of reducing repeated paperwork burdens on recipients. One 
commenter asked that the rule specify that, especially in a three-year 
interval schedule of goal submission, a recipient ``must'' submit 
revisions if circumstances change.
    There was discussion in the NPRM of the relationship between the 
goal submission interval and the accountability provision. For example, 
if a recipient submitted overall goals on a three-year basis, would the 
accountability provision be triggered annually, based on the 
recipient's annual report (as the NPRM suggested) or only on the basis 
of the recipient's performance over the three-year period? If there 
were year-to-year projections within a three-year goal, would the 
accountability provision relate to accountability for the annual 
projection or the cumulative three-year goal? Commenters who favored 
year-to-year projections appeared to believe that accountability would 
best relate to each year's projection, though the discussion of this 
issue in the comments was often not explicit. Some comments, including 
one from a Member of Congress, did favor holding recipients accountable 
for each year's separate performance.
    There was a variety of other comments on goal-related issues. Some 
commenters asked that the three DOT operating administrations 
coordinate submitting goals so that a State DOT submitting goals every 
three years would be able to submit its FHWA, FAA, and FTA goals in the 
same year. A DBE group wanted the Department to strengthen requirements 
pertaining to the race-neutral portion of a recipient's overall goal. A 
commenter who works with transit vehicle manufacturers requested better 
monitoring of transit vehicle manufacturers by FTA. A group 
representing DBEs wanted recipients to focus on potential, and not just 
certified, DBEs for purposes of goal setting. The same group also urged 
consideration of separate goals for minority- and women-owned firms.

DOT Response

    Under Part 26, the Department has always made unmistakably clear 
that the DBE program does not impose quotas. No one ever has been, or 
ever will be, sanctioned for failing to ``hit the number.'' However, 
goals must be

[[Page 5092]]

implemented in a meaningful way. A recipient's overall goal represents 
its estimate of the DBE participation it would achieve in the absence 
of discrimination and its effects. Failing to meet an overall goal 
means that the recipient has not completely remedied discrimination and 
its effects in its DOT-assisted contracting. In the Department's view, 
good faith implementation of a DBE program by a recipient necessarily 
includes understanding why the recipient has not completely remedied 
discrimination and its effects, as measured by falling short of its 
``level playing field'' estimate of DBE participation embodied in its 
overall goal. Good faith implementation further means that, having 
considered the reasons for such a shortfall, the recipient will devise 
program actions to help minimize