Disadvantaged Business Enterprise: Program Implementation Modifications, 54951-55025 [2012-21231]

Agencies

• DEPARTMENT OF TRANSPORTATION
• Office of the Secretary

[Federal Register Volume 77, Number 173 (Thursday, September 6, 2012)]
[Proposed Rules]
[Pages 54951-55025]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-21231]



[[Page 54951]]

Vol. 77

Thursday,

No. 173

September 6, 2012

Part II





 Department of Transportation





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49 CFR Part 26





 Disadvantaged Business Enterprise: Program Implementation 
Modifications; Proposed Rule

Federal Register / Vol. 77 , No. 173 / Thursday, September 6, 2012 / 
Proposed Rules

[[Page 54952]]


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DEPARTMENT OF TRANSPORTATION

Office of the Secretary

49 CFR Part 26

[Docket No. OST-2012-0147]
RIN 2105-AE08


Disadvantaged Business Enterprise: Program Implementation 
Modifications

AGENCY: Office of the Secretary (OST), DOT.

ACTION: Notice of Proposed Rulemaking (NPRM).

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SUMMARY: This notice of proposed rulemaking (NPRM) proposes three 
categories of changes to improve implementation of the Department of 
Transportation's disadvantaged business enterprise (DBE) rule. First, 
the NPRM proposes revisions to personal net worth, application, and 
reporting forms. Second, the NPRM proposes modifications to 
certification-related provisions of the rule. Third, the NPRM would 
modify several other provisions of the rule, concerning such subjects 
as good faith efforts, transit vehicle manufacturers and counting of 
trucking companies.

DATES: Comments on this proposed rule must be received by November 5, 
2012.

ADDRESSES: You may submit comments (identified by the agency name and 
DOT Docket ID Number OST-2012-0147) by any of the following methods:
     Federal Rulemaking Portal: Go to 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.
    Note that all comments received will become part of the docket and 
will be posted without change to www.regulations.gov including any 
personal information provided and will be available to internet users. 
You may review DOT's complete Privacy Act Statement in the Federal 
Register published on April 11, 2000 (65 FR 19477) or you may visit 
https://www.gpo.gov/fdsys/pkg/FR2010-29/pdf/2010-32876.pdfDocket. For 
internet access to the docket to read background documents and comments 
received, go to 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: Jo Anne Robinson, Office of General 
Law, U.S. Department of Transportation, 1200 New Jersey Avenue SE., 
Washington, DC 20590, 202-366-9154, joanne.robinson@dot.gov.

SUPPLEMENTARY INFORMATION: In January 2011, the Department published a 
final rule making a number of important policy changes to the DBE 
program. These included requiring greater accountability for recipients 
with respect to meeting overall goals, adjusting the Part 26 personal 
net worth cap applicable to owners of DBE firms for inflation to $1.32 
million, requiring greater monitoring of contracts by recipients, 
adding a small business element to recipients' DBE programs, and 
facilitating interstate certification. In order not to delay these 
policy initiatives, the rulemaking did not include other, more 
technical, program improvements. These include modifications to the 
forms involved with the program, changes to certification-related 
provisions in response to eligibility concerns that have come to the 
Department's attention, and modifications to a variety of other program 
provisions. This NPRM addresses this series of issues. The Department 
notes that the DBE program was recently reauthorized in the Moving 
Ahead for Progress in the 21st Century Act (`MAP-21'), Public Law 112-
141 (enacted July 6, 2012). The Department believes that this 
reauthorization is intended to maintain the status quo of the DBE 
program and does not include any significant substantive changes to the 
program.

Forms

Personal Net Worth (PNW) Form and Related Requirements of 49 CFR 26.67

    In an advance notice of proposed rulemaking (74 FR 15904; April 8, 
2009), the Department asked for comments on potential improvements to 
the rule's PNW form. Some comments sought to simplify the forms, and 
other comments recommended additions. A number of commenters provided 
detailed suggestions about how the form should be configured. Based on 
the comments, as well as on the Department's experience with reviewing 
certification appeals and other issues that have come to the 
Department's attention, the Department is proposing a revised PNW form.
    With respect to the PNW form, we mentioned in a June 2003 revision 
to Part 26 that we had not found anything more appropriate to capture a 
snapshot of a person's net worth than a Small Business administration 
(SBA) Form 413, and we included it in the Appendix. Some commenters 
recommended use of this form, with some modifications.
    We have learned of several concerns regarding SBA Form 413. First, 
the instructions require each partner or stockholder with 20% ownership 
or more of voting stock to complete the form. This is not required by 
Part 26 and has caused some confusion. Second, in order to determine 
whether an applicant's net worth is below the threshold, more detailed 
information is needed by recipients than the SBA form provides. Third, 
an applicant has limited space for entering information, and it appears 
they are often supplementing their entries with separate documents. To 
correct these problems and help alleviate these concerns, the 
Department is proposing, in section 26.67 (a)(2)(i), the use of a newly 
designed PNW statement along with the accompanying instruction sheet 
(see the proposed Appendix B of the regulation) for use by all 
applicants to the program and those submitting annual affidavits. The 
Department would encourage recipients to post the new form 
electronically in a screen-fillable format on their Web site to allow 
users to complete and print the form on-line.
    One commenter suggested that the Department mandate that the form 
be used without modification and that regulatory provisions be added to 
address violations by Uniform Certification Programs (UCPs) that modify 
the forms. We agree that the standard personal net worth form contained 
in Appendix G should be used in all cases and have stated so in this 
proposed revision. We understand, however, that individual situations 
and unique financial arrangements within certain industries may make it 
necessary for recipients to seek additional information beyond what is 
provided on the form.
    For instance, if an applicant reports other business interests in 
section 5 of the new form, recipients should ascertain the value of 
these entities by obtaining financial statements, balance sheets, and 
federal/state tax returns. With this information, recipients will be 
able to verify the applicant's valuation of their ownership interests 
in these other firms. Similarly, an applicant

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reporting stock and bond holdings should be asked to provide quarterly 
account statements. Also, directly written on the form in section 2 
(Real Estate Owner) is the requirement that applicants submit copies of 
real estate deeds, mortgage notes, and instruments of conveyance. In 
short, recipients are encouraged, during their review of the firm's 
eligibility, to look behind the statement and these submissions, and 
request additional information if necessary. Firms must cooperate with 
these requests pursuant to Sec.  26.73(c) and Sec.  26.109(c), and a 
failure or refusal to provide such information is a ground for a denial 
or removal of certification.
    We propose to amend paragraphs (a)(2)(ii) and (iii) to stress that 
the PNW statement must include all assets owned by the individual, 
including any ownership interests in the applicant firm, personal 
assets, and the value of his or her personal residence excluding the 
equity. Item iii(B) clarifies that the equity in an owner's primary 
residence is the market value of the residence less any mortgages and 
home equity loan balances. It also states the basic consideration that 
recipients are to ensure that home equity loan balances are included in 
the equity calculation and not as a separate liability on the 
individual's personal net worth form.
    Paragraph (b) of Sec.  26.67 currently states that if an 
individual's statement of personal net worth shows that he or she 
exceeds the limitation of $1.32 million the individual's presumption of 
disadvantage is rebutted.
    We propose adding a second component to this statement taken from 
the Department's long-standing guidance on personal net worth--if the 
person demonstrates an ability to accumulate substantial wealth, has 
unlimited growth potential, or has not experienced or has not had to 
overcome impediments to obtaining access to financing, markets, and 
resources, the individual's presumption of economic disadvantage is 
rebutted, even if the individual's PNW is less than $1.32 million. As 
stated in this new section and demonstrated in an example contained in 
the regulation text, it is appropriate for recipients to review the 
total fair market value of the individual's assets and determine if 
that level appears to be substantial and indicates an ability to 
accumulate substantial wealth. If a recipient makes this determination 
this may lead to a conclusion that the individual is not economically 
disadvantaged. The purpose of this proposed amendment is to give 
recipients a tool to exclude from the program someone who, in overall 
assets terms, is what a reasonable person would consider to be a 
wealthy individual, even if one with liabilities sufficient to bring 
his or her PNW under $1.32 million. The Department also seeks comment 
on whether a more bright-line approach would be preferable, such as 
saying that someone whose Adjusted Gross Income on his or her Federal 
income tax return was over $1 million for two or three years in a row 
would lose the presumption of economic disadvantage, regardless of PNW.
    In certain instances, assets that individuals have transferred two 
years prior to filing their certification application may be counted 
when calculating their PNW. These circumstances are currently described 
in Appendix E, which attributes to an individual claiming disadvantaged 
status any assets which that individual has transferred to an immediate 
family member, or to a trust a beneficiary of which is an immediate 
family member, for less than fair market value, within two years prior 
to a concern's application for participation in the DBE program or 
within two years of a participant's annual program review. The 
Department proposes to add this same language directly to the 
regulation text at Sec.  26.67 in a new paragraph (e).
    We are also proposing to add a provision concerning transfers from 
the DBE owner to the applicant firm. This is necessary for two reasons. 
First, the placement of the added language within the current section 
better emphasizes the importance of considering transfers of funds from 
the DBE owner to the applicant firm when assessing a person's economic 
disadvantage. Second, we have learned of situations in which DBE owner/
applicants are shielding a portion of their personal assets by 
transferring them to the applicant firm that he/she owns and controls. 
The Department recognizes that such financial transactions may be an 
acceptable business practice; however, we also recognize that asset 
transfers can be used to artificially depress their PNW in order to 
qualify for the program. Because the regulation excludes the ownership 
interest in the applicant firm in calculating its owner's PNW, the 
ability to transfer one's personal assets to this entity would defeat 
the purpose of ensuring that only economically disadvantaged 
individuals participate in the DBE program.
    Additional portions of this section taken from Appendix E would be 
retained. These provisions state that transfers will be included in a 
person's net worth unless the individual claiming disadvantaged status 
can demonstrate that the transfer is to, or on behalf of, an immediate 
family member for that individual's education, medical expenses, or 
some other form of essential support. In addition, recipients are not 
to attribute to an individual claiming disadvantaged status any assets 
transferred by that individual to an immediate family member that are 
consistent with the customary recognition of special occasions, such as 
birthdays, graduations, anniversaries, and retirements. The Department 
seeks comment on whether these exceptions to the inclusions of 
transfers in someone's PNW would open an overly wide opportunity for 
people to artificially understate their assets. If so, how should such 
transfers be handled?
    The Department also seeks comment on whether the spouse of an 
applicant owner should have to file a PNW statement, even if the spouse 
is not involved in the business in question. In this connection, we 
note that SBA requires the submission of a separate form from a non-
applicant spouse if the applicant is married and not legally separated. 
Currently, recipients in the DOT program can request relevant 
information from spouses on a case-by-case basis. The complexities of 
jointly owned assets and liabilities and the ability of married couples 
to transfer assets in order to participate in the program could make it 
useful to certifying agencies to have PNW information about spouses. 
Recipients could use the net worth statement submitted by a non-
applicant spouse as a way check to see whether applicants have 
transferred assets and as a basis to inquire further as to the 
circumstances. While this information could improve recipients' ability 
to protect the integrity of the program, requiring detailed information 
from spouses not involved with a company could also prove intrusive and 
add considerably to the information burden of the program for 
applicants and the volume of materials that recipients would have to 
review and evaluate. We also seek comment on whether the treatment of 
assets held by married couples should extend to couples who are part of 
domestic partnerships or civil unions where these relationships are 
formally recognized under state law.
    In addition, we seek comment on whether the Department should adopt 
a provision similar to SBA language which considers a spouse's 
financial situation in determining an individual's access to credit and 
capital where the spouse has a role in the business (e.g. an officer, 
employee, director) or has lent money to, provided credit support to, 
or guaranteed a loan of the business. Although the Department does not 
use

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``access to credit and capital'' as criteria for certification, should 
the involvement of a spouse in the firm trigger further consideration 
of their net worth and should the recipient collect the personal 
financial statement from this person? Are there other circumstances 
that would warrant this?

Application Form

    Under the current DBE rule, certification occurs on a statewide 
basis through the Unified Certification Program (UCP) in each state. 
The ``one-stop shopping'' for DBE applicants within a state has 
simplified certification by making it unnecessary for recipients to 
apply multiple times for certification by various transit authorities, 
airports, and highway departments.
    In the May 10, 2010 NPRM, we proposed several enhancements to the 
program to facilitate interstate certification and interstate 
reciprocity, many of which appear in the revised rule issued by the 
Department on January 27, 2011. In order to reach the goal of a 
simplified administrative process for certification, it is necessary to 
revisit the DBE/ACDBE Certification Application form used by firms 
applying for certification. The current form, adopted in the June 16, 
2003, regulation revision (68 FR 35542), was designed to be more 
streamlined and user-friendly, yet comprehensive enough to supply 
recipients with the necessary information to form their initial line of 
questioning prior to and during an on-site visit and to further assist 
them in making determinations as to applicants' qualifications for the 
DBE Program. At the time, the Department sought to keep the form 
manageable, easy to read, and easy to follow for applicants who must 
fill out the form, while simultaneously being accessible and practical 
for many recipients that distribute the form.
    It is important to bear 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, particularly when information 
collection can be viewed as burdensome to applicants but also viewed as 
necessary to recipients' efforts to maintain program integrity.
    Certainly, an application form that remains accessible and usable 
by firms is a priority, and the Department encourages the continued 
efforts by recipients to post the form on the Internet in a screen-
fillable format. Some commenters on the ANPRM sought ways to simplify 
the forms, while others recommended additions. A number of commenters 
provided detailed suggestions about how the forms should be configured. 
Based on the comments, as well as on the Department's experience with 
reviewing certification appeals and other issues that have come to the 
Department's attention, the Department is proposing a revised 
application form.
    The proposed DBE/ACDBE Certification Application form and 
accompanying instructions would be used for both the DBE and ACDBE 
programs. Applicants will be requested to provide such items as: (1) A 
list of dates of any site visits conducted by the firm's home state and 
any other UCP members; (2) details concerning denial or 
decertification, withdrawals, suspension/debarment actions; (3) a 
business profile seeking a concise description of the firm's primary 
activities, products, or services the company provides; (4) a written 
description of the applicant's relationships and dealings with other 
businesses, including the sharing of equipment, storage space, 
inventory, and staff; (5) an assessment of the amount of time the 
majority owner and key officers, directors, managers, and key personnel 
devote to firm activities such as bidding and estimating, supervising 
field operations, and managing staff or crew, and (6) 
r[eacute]sum[eacute]s and salaries of owners, directors, managers and 
key personnel. The proposed form would also remove obsolete material 
(e.g., relating to a now-expired SBA-DOT memorandum of understanding). 
The proposed form revisions include commonly requested items as well as 
items already mentioned in the existing regulation at Sec.  26.83. 
ACDBE applications would be requested to provide details concerning 
their concession leases at airports.

DBE Commitments/Awards and Payment Reporting Form

    The Department has identified several concerns regarding the format 
of Uniform Report of DBE Commitments/Awards and Payments form found in 
Appendix B of 49 CFR part 26. These include the inability to break out 
woman-owned DBE participation by race; inadequate, confusing or unclear 
instructions; inability of the form to meet differing needs of the 
various types of organizations/businesses participating in the DBE 
program; and difficulties in collecting information regarding payments 
to DBE on an ongoing/``real time'' basis. The Department believes the 
proposed form responds to these concerns by: Creating separate forms 
for routine DBE reporting and for transit vehicle manufacturers (TVMs) 
and mega projects; amending and clarifying the report's instructions to 
better explain how to fill out the forms; and changing the forms to 
better capture the desired DBE data on a more continuous basis, which 
should also assist with recipients' post-award oversight 
responsibilities.
    A 2011 Government Accountability Office (GAO) report criticized the 
existing form because it did not permit DOT to match recipients' DBE 
commitments in a given year with actual payments made to DBEs on the 
contracts to which the commitments pertained. The form provides 
information on the funds that are committed to DBEs in contracts let 
each year. However, the ``achievements'' block on the form refers to 
DBE payments that took place during the current year, including 
payments relating to contracts let in previous years, but could not 
include payments relating to contracts let in the current year that 
will not be made until future years.
    The form in the NPRM, while attempting to clarify various parts of 
the reporting process, does not directly address this issue. However, 
it would be possible for the Department, by looking at data in 3-5 year 
groupings, to assemble a surrogate for the comparison that GAO 
recommended. For example, if the Department looked at data from 2009-
2011, we could calculate an average annual amount of commitments over 
that period and an average amount of DBE payments over that period. 
While there would still not be a year-to-year correspondence between 
commitments and payments, this approach could smooth out statistical 
anomalies (e.g., years with unusually high or unusually low commitments 
or payments), providing a reasonable approximation of the success of 
recipients in ensuring that commitments are realized in terms of actual 
payments.
    The Department could also modify the form to reach more directly 
the result that GAO recommended. The modification of the achievements 
portion of the form could look something like this:

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                                 Actual Payments to DBEs for Completed Contracts
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                                     Number of
                                     contracts     Total $ value        DBE                        Total % of $
      Year contract awarded       completed that   of contracts    participation   Total $ paid   committed paid
                                    were let in      completed    needed to meet      to DBEs         to DBEs
                                     each year                     $  committed
----------------------------------------------------------------------------------------------------------------
2012............................  ..............  ..............  ..............  ..............  ..............
2011............................  ..............  ..............  ..............  ..............  ..............
2010............................               4            $10m             $1m           $900k             90%
2009............................  ..............  ..............  ..............  ..............  ..............
2008............................  ..............  ..............  ..............  ..............  ..............
2007............................  ..............  ..............  ..............  ..............  ..............
----------------------------------------------------------------------------------------------------------------

    In each row, data would be entered pertaining to payments from 
contracts let in a given year that were completed during the reporting 
year. By the time all contracts let in that year had been completed, 
DOT could compile the data to compare the recipient's payments to DBEs 
for payments in a given year to commitments and to goals.
    In the example above, a recipient sends in the form in 2012. It 
shows four contracts let in 2010 were completed in 2012, with a total 
value of $10 million. The commitments on those contracts, made in 2010, 
were $1 million. However, actual payments were $900,000, meaning that 
the DBEs realized only 90 percent of the dollars committed to them in 
2010 on commitments made during 2010. Of course, it would be necessary 
to accumulate these forms for another few years to account for 
contracts that were not completed until 2013, 2014, etc. Consequently, 
while use of this form would allow the calculation of more precise data 
on how well a recipient had performed in terms of ensuring that 
commitments resulted in payments (and consequently how it had performed 
in terms of meeting its goals in payment as well as in commitment 
terms), this calculation would take several years to accomplish and 
would involve greater use of resources by recipients and the 
Department. It may also be questioned whether getting this information 
3-5 years after the year in which contracts are let would limit too 
greatly the use of the resulting numbers for program administration and 
oversight purposes.
    The Department seeks comment on how this latter alternative might 
be improved, and also on which of the alternatives discussed here, or 
other ideas, would best serve the accountability and program 
administration objectives of the Department.

Certification Provisions

Sec.  26.65 What rules govern business size determinations?

    In this NPRM, the Department proposes to adjust the statutory gross 
receipts cap for inflation to $23.98 million. The inflation rate on 
purchases by state and local governments for the current year is 
calculated by dividing the price deflator for the first quarter of 2012 
(124.668) by 2008's fourth quarter price deflator (116.524). The result 
of the calculation is 1.0699, which represents an inflation rate of 
1.070% from the fourth quarter of 2008. Multiplying the $22,410,000 
figure for disadvantaged business enterprises in Department of 
Transportation financial assistance programs by 1.0699 equals 
$23,976,459, which will be rounded off to the nearest $10,000, or 
$23,980,000.
    In addition, we propose to add language to the section clarifying 
that the size standard that applies to a particular firm is the one 
appropriate to its primary industry classification.

Sec.  26.69 What rules govern determinations of ownership?

    Most firms, particularly those owned and controlled by socially and 
economically disadvantaged individuals, begin as small operations. 
Their owners often contribute their own funds or assets to equip the 
firm (referred to as equity financing) and/or borrow or pledge their 
own assets as collateral in order to receive needed funds from lending 
institutions or venture capitalists, friends, relatives, or industry 
colleagues (referred as debt financing). While each financing 
transaction has its own unique set of circumstances and requirements, 
it is fair to say that lenders often require some form of the 
borrower's personal guarantee.
    The DBE rule reflects this reality in two of its stated objectives: 
(1) Create a level playing field for firms to compete for DOT-assisted 
contracts, and (2) assist the development of firms that can compete 
successfully outside the program. To achieve these objectives, it is 
necessary to ensure that firms are truly owned and controlled by 
persons who are socially and economically disadvantaged. The Department 
incorporated the concept of ``ownership'' in the regulation by 
requiring the socially and economically disadvantaged owner to 
demonstrate his or her personal stake in their firm. Specifically, 
under Sec.  26.61 and Sec.  26.69, socially and economically 
disadvantaged individuals who seek to participate in the program bear 
the burden of demonstrating that it is they who have made a 
contribution of capital to acquire their ownership in the firm. This 
contribution must be ``real, substantial, and continuing, going beyond 
pro forma ownership of the firm.'' The regulation does not define these 
terms, but Sec.  26.69(e) does provide some examples of what the 
Department considers to be an insufficient contribution, including a 
promise to contribute capital, and an unsecured note payable to the 
firm or an owner who is not a disadvantaged individual.
    Throughout the course of the program, Unified Certification 
Programs (UCPs) evaluating a firm's eligibility have properly denied 
certification to DBE and ACDBE applicants when an owner's contribution 
was either not real (suggesting the owner did not actually make the 
contribution), insubstantial (not enough of a contribution was provided 
for what was received), not continuing (no subsequent contribution to 
the firm or rapid withdrawal of a contribution that was made), or 
simply a pro forma arrangement (conveying the concept of a firm created 
on paper but without actual evidence of a personal contribution). For 
example:
     A capital contribution by the disadvantaged owner of $100 
is not considered substantial to acquire a majority interest in a firm 
worth $1 million.
     A situation in which 51% disadvantaged owner and a 49% 
non-disadvantaged owner who contribute $100 and $10,000, respectively, 
to

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acquire a firm grossing $1 million, may be indicative of a pro forma 
arrangement.
     A recipient can properly question the continuing nature of 
an owner's contribution when it finds that the sole owner of a DBE 
applicant firm spends $250 to file articles of incorporation and 
obtains a $100,000 loan, making only nominal or sporadic payments to 
repay the loan.
    In each of these examples, the DBE firm is could appropriately be 
denied certification on the grounds that the owner's contribution of 
capital does not meet the requirements of Sec.  26.69. In other 
arrangements, non-disadvantaged individuals and non-disadvantaged firms 
may have contributed or loaned funds to the disadvantaged owners at the 
inception of the firm and/or provided ongoing monetary support to the 
business. These arrangements and the source of the funds are 
appropriately questioned by recipients, based on provisions contained 
in the existing Sec.  26.69(h). This section currently prescribes a 
higher ``clear and convincing'' standard in situations where non-
disadvantaged individuals or non-DBE firms that remain involved in the 
firm provide interests in a business or gift other assets to the 
disadvantaged owner applying for DBE certification. It requires the 
disadvantaged owner to demonstrate that the gift or transfer they 
received was made for reasons other than obtaining DBE certification 
and that the disadvantaged owner(s) actually control the management, 
policy, and operations of the firm, notwithstanding the continuing 
participation of the non-disadvantaged individual providing the gift or 
transfer. This safeguard is necessary to reduce the potential for front 
companies and fraud. We stated that as long as there are safeguards 
such as Sec.  26.69(h) in place to protect against fronts, the origin 
of the assets, whether from one's own contribution, a bank loan, gift, 
inheritance, or other means, is unimportant.
    In proposed section 26.69(c)(2), we propose to add language 
prohibiting situations in which a non-disadvantaged party (e.g., an 
individual, a company) has a prior or superior right to a DBE firm's 
profits, compared to that of disadvantaged owners of the DBE. 
Arrangements in which non-disadvantaged owners get paid a percentage 
the firm's net profits, before any calculation of residual profit 
available for other firm purposes, defeats ``ownership'' by the 
disadvantaged owners. For example, in the context of certification 
appeals, the Departmental Office of Civil Rights (DOCR) has seen profit 
sharing and other arrangements through which the disadvantaged owner is 
paid after another owner holding less of an interest. This is 
particularly prevalent in ACDBE situations in which the prime is paid 
first from firm profits despite the fact that the socially/economically 
disadvantaged owner holds the majority interest on paper.
    When a non-disadvantaged individual remains involved in a firm, 
Sec.  26.69(h) adequately provides recipients with the tools to make an 
appropriate evaluation of the applicant firm's eligibility. We are 
learning, however, that recipients are encountering cases in which a 
non-disadvantaged individual or non-DBE firm provided some form of 
financing at the firm's inception, enabling a disadvantaged owner to 
acquire an interest in the firm, in exchange for an ownership interest. 
These types of arrangements call into question whether a disadvantaged 
owner's ownership is ``real, substantial, and continuing'' and what 
considerations should be used in evaluating the timing of transactions.
    While the Department remains committed to the principle that firms 
are evaluated based on present circumstances (see section 26.73(b)(1)), 
it is also important to pay attention to the commercial and arms-length 
practices involving collateral, as well as the nature, origination, and 
timing of firm acquisition or establishment (i.e., the real and 
continuing requirement). This concern applies to situations in which 
non-disadvantaged individuals and firms remain involved in the firm and 
in situations where they do not. We are also concerned that the 
substantiality of ownership interests be considered in the entire 
context of the arrangement and in comparison to the overall value of 
the firm. We believe that greater clarity and specificity in DOT rules 
would be useful in helping recipients deal with situations of this 
kind.
    This was most evident in The Grove, Inc. v. U.S. Department of 
Transportation, (578 F.Supp. 2d 37, D.D.C., 2008), a case that upheld 
the DOCR certification appeal decision that The Grove, Inc., an ACDBE, 
lacked independence from a non-DBE entity that was intertwined in The 
Grove's finances. However, the Court overturned a portion of the DOCR's 
determination that the disadvantaged owner failed to make a real and 
substantial contribution of capital to acquire her ownership interest 
in the firm. At issue in the case were the current provisions in Sec.  
26.69 regarding the use of unsecured loans from non-disadvantaged 
individuals and how to treat personal and marital assets used as 
collateral to acquire an ownership interest asserted by one spouse. The 
case also presented issues relating to the timing of a transfer of 
funds from a non-disadvantaged individual and the disadvantaged owner's 
subsequent deposit of these funds into a joint/marital account. The 
Court ruled that that regulation clearly contemplates the use of funds 
derived from a non-disadvantaged individual or entity as a means to 
acquire an ownership interest. It also addressed what would be 
considered a reasonable amount of contribution given the size of the 
firm at the time the disadvantaged owner acquired her majority 
interest. It ruled that the Department did not provide a rationale why 
a gross profit measure is the appropriate measure to value a company as 
opposed to another method, such as operating margin or net income when 
making this determination.
    To avoid problems of this kind, the Department believes it 
necessary for applicants to submit additional proof to substantiate 
both the sufficiency of their contribution and the circumstances of any 
funding streams to the firm since its inception. This includes 
documentation of how items used as collateral (whether jointly held or 
otherwise) are valued, and proof of ownership in these items 
(particularly high valued assets), and more stringent guidelines for 
deposits of funds used to acquire the ownership interest in a firm. 
These additions are reflected in proposed revisions to Sec.  26.69(a) 
and (c)(1). The revision to (c)(3) concerning dividends and 
distributions proposes to mandate that one or more disadvantaged owners 
must be entitled to receive at least 51% of the annual distributions of 
dividends paid on the stock of a corporate concern; 100% of the value 
of each share of stock owned by them in the event that the stock is 
sold; and at least 51% of the retained earnings of the concern and 100% 
of the unencumbered value of each share of stock owned in the event of 
dissolution of the corporation. Of course, consistent with section 
26.71(i)(1), recipients should also be aware of issues concerning 
differences in remuneration that could affect the disadvantaged owner's 
control of a firm.
    A revision to Sec.  26.69(i) would add a new requirement concerning 
marital assets that form the basis for ownership in the firm. Under 
this proposed provision, recipients would have discretion in cases 
where marital assets are used to require information concerning the 
spouse's assets and liabilities. The recipient would then make a case-
by-case determination of whether the asset transfer was made for

[[Page 54957]]

reasons other than obtaining certification as a DBE.
    In paragraph (i), concerning joint or community property, we seek 
comment on whether greater protections are needed to prevent what are 
effectively a non-disadvantaged husband's assets from being treated as 
the capital contribution made by his wife. At present, the wife's share 
or joint or community property is countable toward ownership 
requirements if the husband renounces his ownership interest in the 
property. We propose to strengthen this provision by adding a sentence 
to paragraph (i)(2) saying that such a renunciation must be 
contemporaneous with the transfer itself, to avoid after-the-fact 
gamesmanship.
    A new paragraph (k) would incorporate language similar to Sec.  
26.69(j)(3), which requires recipients to give ``particularly close and 
careful scrutiny to the ownership of the firm to ensure that it is 
owned and controlled in substance as well as in form, by a socially and 
economically disadvantaged individual.'' The wording of this section is 
one way to guard against an artificial arrangement or accounting 
mechanism that gives the appearance that a firm was derived from the 
disadvantaged owners' own assets, when in reality it was not. In the 
ANPRM, we invited comments on what additional safeguards could be 
incorporated to meet this goal without placing undue burden on the 
applicant firm. The NPRM's draft paragraph (k) answers this question by 
telling recipients to give ``particularly close and careful scrutiny to 
all interests in a business or other assets obtained by a socially and 
economically disadvantaged owner that resulted from a seller-financed 
sale of the firm or in cases where a loan or proceeds from a non-
financial institution were used by the owner to purchase the 
interest.''
    The following proposed conditions would apply to such a 
transaction: (1) Terms and conditions must be comparable to prevailing 
market conditions offered by commercial lenders for similar type of 
projects (e.g., in terms of such factors as duration, rate, and fees); 
(2) there must be evidence provided by the applicant firm and 
disadvantaged business owner of the promissory note or loan agreement 
clearly stating the terms and conditions of the loan, including due 
date and payment method, interest rate, prepayment, defaults, and 
collateral; (3) the note would be a full-recourse note and be 
personally guaranteed by the socially and economically disadvantaged 
owner and/or secured by assets outside of the ownership interest or 
future profits of the applicant firm; (4) the contributions of capital 
by the socially and economically disadvantaged owner and any use of 
collateral by the disadvantaged owner must be clearly evident from the 
firm's and/or individual's records and supported by appropriate 
documentation and appraisals; and (5) other than normal loan provisions 
designed to preserve property pledged as collateral, there are no 
conditions, provisions, or practices that have the effect of limiting 
the socially and economically disadvantaged owner's ability to control 
the applicant firm. As in all certification matters, the applicant 
would bear the burden of proving that the transaction meets these 
criteria.

Sec.  26.71 What rules govern determinations concerning control?

    This section is intended to ensure that recipients analyze the 
extent to which socially and economically disadvantaged individuals 
control their firm in both substance and form. Along with ownership, 
control of an applicant or participating firm is a central concept to 
the DBE and ACDBE programs and the Department seeks to guard against 
control of the firm's ownership structure, its operations, and policy 
decisions by non-disadvantaged individuals. Currently, the involvement 
of non-disadvantaged individuals in the firm's affairs is addressed in 
several parts of this section, including 26.71(e), (f), and (l). In the 
Department's view, the disadvantaged owners' talent and expertise and 
that of non-disadvantaged participants must be judged concurrently. In 
situations where the disadvantaged owner of an applicant or 
participating DBE firm meets the requirements of 26.71(g), the 
involvement of non-disadvantaged individuals is one of support rather 
than control, with a clear line of authority and decision making 
ability passed from the owner to the non-disadvantaged employee. 
Alternatively, where the disadvantaged owner possesses little or no 
experience or expertise, non-disadvantaged individuals can be seen as 
more involved in the firm's affairs such as controlling field 
operations, making major firm decisions, or supervising other employees 
in the critical areas of the firm's work. They are frequently 
compensated at a higher rate, and all indications point to their 
disproportionate role at the firm above and beyond that deemed 
acceptable in the DBE program. To explicitly address these scenarios, 
the Department is placing more stringent control requirements in 
paragraph (e). We are proposing to add a new section regarding non-
disadvantaged individuals who once served as an employer or a principal 
of a former employer of any disadvantaged owner of the applicant or DBE 
firm. Under the proposal, this would form a basis for denying 
certification unless it is determined by the recipient that the 
relationship between the former employer or principal and the 
disadvantaged individual or applicant concern does not give the former 
employer actual control or the potential to control the applicant or 
DBE firm. To illustrate the potential scenarios wherein non-
disadvantaged individuals may be found to control the firm, the 
proposed paragraph (e)(2) provides examples of unacceptable 
arrangements that negatively affect a disadvantaged owners' control of 
the firm.
    The current Sec.  26.71(l) requires a higher evidentiary standard 
to be met in situations where a firm was formerly owned and/or 
controlled by a non-disadvantaged individual and such ownership and/or 
control is transferred to a socially and economically disadvantaged 
individual, where the non-disadvantaged individual remains involved in 
the firm. In such a situation, Sec.  26.71(l) requires that the 
disadvantaged individual now owning the firm demonstrate by ``clear and 
convincing evidence'' that: (1) The transfer of ownership and/or 
control to the disadvantaged individual was made for reasons other than 
obtaining certification as a DBE; and (2) the disadvantaged individual 
actually controls the management, policy, and operations of the firm, 
notwithstanding the continuing participation of a non-disadvantaged 
individual who formerly owned and/or controlled the firm. The 
Department seeks comment on whether this provision should be 
strengthened by presuming, that non-disadvantaged individuals who make 
such transfers and remain involved in the firm continue to control the 
business, rather than the disadvantaged transferee.

Sec.  26.73 What are other rules affecting certification?

    Under the current 26.73(g), a recipient must not require an 
applicant firm to be prequalified as a condition for certification 
``unless the recipient requires all firms that participate in its 
contracts and subcontracts to be prequalified.'' We propose to delete 
this part of this statement, with the result that prequalification 
could no longer be used as a criterion for certification in any case. 
While the Department believes that prequalification requirements may be 
an unnecessary barrier to DBE

[[Page 54958]]

participation, this provision would not prohibit prequalification as a 
condition for receiving certain sorts of contracts. However, whether a 
firm is prequalified is irrelevant to certification concerns such as 
size, disadvantage, ownership and control. It is important for 
certifiers to analyze only the factors relevant to DBE eligibility and 
not incorporate other recipient business requirements in decisions 
pertaining to an applicant's qualification for the program. Further, 
while prequalification may be a requirement for doing business in one 
mode (e.g., highway) it may not be a requirement for doing business in 
other modes (e.g., transit).

Sec.  26.83 What procedures do recipients follow in making 
certification decisions?

    Under the current rule, recipients must take several steps in 
determining whether a firm meets all eligibility criteria for 
participation in the DBE program. The on-site visit to the firm's place 
of business and job sites is a crucial component of this review and the 
Department seeks to strengthen the information collection process. 
Since the issuance of the 1999 rule, the Department has received 
numerous appeals filed by firms denied certification on the basis of 
control, specifically the involvement of non-disadvantaged individuals 
in the firm's critical activities. Recipients base their decision after 
performing an on-site review of the firm and the responses owners give 
to their questions during the visit.
    Interviewing the principal officers of the firm is required under 
Sec.  26.83(c). Some recipients, however, also interview key personnel 
of the firm as a means to verify or cross-check the answers they 
receive from the owners. We believe this is an important practice 
recipients should perform before determining the firm's eligibility. In 
addition, interviewing employees reveal how they fit in the firm's 
overall daily operations and management vis-[agrave]-vis the owners. By 
speaking with these individuals as well, recipients gain a clearer view 
of how owners oversee a project, whether from behind a desk or at the 
field. An owner who is primarily in the office handling paperwork may 
have delegated too much authority to employees in the field, a factor 
that negatively affects their control of the firm. Therefore, the 
Department proposes adding a requirement that recipients interview the 
key personnel of the firm. In addition, the on-site visit should be 
performed at the firm's principal place of business, which may or may 
not be the same as the firm's offices. Both revisions appear in the 
first two sentences of Sec.  26.83(c)(1).
    Paragraph (c)(2) requires a recipient to analyze the stock 
ownership in a firm. Here, the Department proposes adding clarifying 
language that would require an analysis of documentation related to the 
legal structure, ownership, and control of the applicant firm. This 
includes, but is not limited to Articles of Incorporation/Organization; 
corporate by-laws or operating agreements; organizational, annual and 
board/member meeting records; and stock ledgers and certificates. 
Similarly, a revised section (c)(3) and (c)(4) would add the 
requirement that recipients also analyze any lease and loan agreements, 
bank signature cards, and payroll records.
    Where a firm is applying to be certified in more than one North 
American Industrial Classification System (NAICS) code, the NPRM (Sec.  
26.83(c)(5)) would call on recipients to obtain information about the 
amount of work the firm has performed in the various NAICS codes 
involved. This will help recipients determine the socially and 
economically disadvantaged owners' level of knowledge in each category 
of work and whether they can control the firm's operations in these 
areas in accordance with Sec.  26.71. The proposed Uniform 
Certification Application contains added space for firms to enter their 
NAICS Codes directly on the form, which in turn will help recipients 
with this determination. Particularly for start-up firms or for firms 
moving into new areas of work, we do not intend that recipients 
establish any sort of minimum ``track record'' as a prerequisite to 
certification. This proposed amendment is simply intended to provide 
what can be additional useful information in some cases.
    Recipients also determine whether a firm meets the applicable size 
standards and if the applicant owner is economically disadvantaged. Tax 
returns are important information for this task. The proposed (c)(7) 
clarifies that applicants need to provide completed income tax returns 
or requests for extensions filed by the firm, its affiliates, and the 
socially and economically disadvantaged owners for the last three 
years. (We recognize that, for start-up or other new firms, three 
years' worth of tax returns may not yet exist.) As stated in the new 
paragraph, a complete return is one that includes all forms, schedules, 
and statements filed with the Internal Revenue Service, and state 
taxing authority. The proposed DBE/ACDBE application form has been 
amended to specifically require this information.
    At various times during the application review process, recipients 
may seek more information from an applicant. In (c)(8)(iii), we propose 
to add language making explicit the discretion of certifying agencies 
to request clarification of information contained in the application, 
or to request additional information, at any time in the application 
process. This will help alleviate confusion by firms that believe their 
application is complete once it is submitted and that the UCP must make 
a decision solely on the information the firm has initially provided. 
At the same time, we caution certifying agencies against prolonging the 
certification process unnecessarily through repeated requests for 
additional information, once enough data to make an informed decision 
possible has been submitted.
Sec.  26.83(h) and (j)
    Paragraph (h) emphasizes that once a firm is certified, it remains 
certified unless and until it voluntarily withdraws from the program or 
is decertified (with the exception of circumstances spelled out in 
section 27.67, when an owner's PNW statement shows that the owner is no 
longer a disadvantaged individual). There can be partial as well as 
total decertifications (i.e., when a NAICS code in which a firm is 
currently certified is taken away). Partial and total decertifications 
both require use of the section 26.87 process. Recipients are reminded 
that certifications do not lapse; they are not like driving licenses, 
which expire after a given number of years if not renewed. There is no 
such thing as a ``recertification'' process, after three years or any 
other period, and recipients cannot require currently certified firms 
to reapply for certification. Any recipient who does so is acting 
contrary to the express requirements of this rule. However, if, at any 
time, information comes to a recipient's attention that would cause it 
to question a firm's continued eligibility, the recipient can, and 
should, review the firm's certification status, in the course of which 
it can conduct a new on-site review, announced or unannounced. Because 
firms' circumstances can change over time, we urge recipients, as a 
matter of good practice, to conduct reviews of firms' eligibility, 
including updated on-site reviews, from time to time.
    The Department is not changing the long-standing practice of annual 
affidavits of no change, and we believe that this requirement is 
crucial to keep

[[Page 54959]]

recipients current on the status of certified firms. The NPRM would 
strengthen this process by directing certified firms to submit 
additional items with their affidavits. The additional information 
would include updated PNW statements and a record from each individual 
claiming disadvantaged status regarding the transfer of assets for less 
than fair market value to any immediate family member, or to a trust 
any beneficiary of which is an immediate family member, within two 
years of the date of the annual review. In addition, the firm would 
have to submit a record of all payments, compensation, and 
distributions (including loans, advances, salaries and dividends) made 
by the DBE firm to each of its owners, officers or directors, as well 
as the firm's (and its affiliates') and owners' most recent completed 
IRS tax returns, IRS Form 4506 (Request for Copy or Transcript of Tax 
Return). Recipients would also have the discretion, on a case-by-case 
basis, to obtain other information relevant to determinations about the 
firm's size and its ownership and control by disadvantaged individuals.

Sec.  26.86 What rules govern recipients' denials of initial requests 
for certification?

    Under paragraph (c) of this section, when a firm is denied 
certification, the recipient must establish a time period of no more 
than twelve months that must elapse before the firm may reapply for 
certification. This waiting period can be shorter, but, as stated in 
the rule, the time period for reapplication begins to run on the date 
the recipient's action is received by the firm. The NPRM would add a 
sentence clarifying that an applicant's appeal of a recipient's 
decision to the Department pursuant to Sec.  26.89 does not extend this 
period. For example, suppose a firm is denied certification on 
September 1, 2012. If the recipient has six-month waiting period, the 
firm could reapply on March 1, 2013. If, in the meantime, the firm 
appealed the decision to the Department, it could still reapply on 
March 1, 2013, even if its appeal to the Department was still pending 
on that date.

Sec.  26.87 What procedures does a recipient use to remove a DBE's 
eligibility?

    The Department is proposing to revise and expand the grounds on 
which recipients can, in the interest of program integrity, decertify 
DBE firms. First, the Department would delete the first sentence of 
26.87(f), which says that a recipient cannot remove a DBE's eligibility 
on the basis of a reinterpretation or changed opinion of information 
available to the recipient at the time of the firm's certification. 
This language was intended to create a degree of finality in 
certifications. There can be certification decisions about which 
reasonable people can differ, and we believe, as a matter of policy, 
that it is useful to limit situations in which, for example, a new 
certification official reviews the same facts that his or her 
predecessor reviewed but simply forms a different opinion. That said, 
certifying agencies have expressed concerns that this language is too 
limiting, particularly for situations in which it appears that a bad 
mistake led to a firm's certification.
    In an attempt to better accommodate both objectives, we are 
proposing a revised paragraph (f)(5) that would permit a recipient to 
decertify a firm on the basis that its certification was clearly 
erroneous. This standard means that the basis for the decertification 
would be a definite and firm conviction on the recipient's part that a 
mistake was committed, in the absence of which the firm would not have 
been certified. This is more than a simple difference of opinion or 
different judgment call about the evidence in the matter. To decertify 
a firm based on this paragraph, the recipient would have to show, by 
the usual preponderance of the evidence standard it must meet in 
decertification cases, that the original certification was clearly 
wrong.
    We also propose to add two additional grounds for decertification, 
both of which refer to other provisions in the regulations. Consistent 
with section 26.73(a)(2), a firm can be decertified for exhibiting a 
pattern of conduct indicating its involvement in attempts to subvert 
the intent or requirements of the DBE program by, for example, 
repeatedly seeking DBE credit for activities that fail to involve a 
commercially useful function and thereby raise questions about the 
firm's eligibility. Likewise, a firm can be decertified for a failure 
to cooperate, under 26.109(c). A failure to cooperate can include such 
things as failure to timely file affidavits of no change or notices of 
change, PNW statements, and various required supporting documents.
    We also note that the current provisions of paragraph (f) cover a 
number of situations that can arise. For example, paragraph (f)(3), 
concerning concealed or misrepresented information, covers submission 
of false information in applications, PNW statements, affidavits of no 
change, etc. Paragraph (f)(1) covers situations where changes in 
ownership, death or incarceration of a disadvantaged owner, changes in 
the disadvantaged owner's involvement with management of the firm, 
changes in the firm's relationship with other firms, etc. may make a 
previously eligible firm no longer eligible. The provisions relating to 
failure to cooperate covers such things as failing to send in 
affidavits of no change or notices of change, and accompanying 
documents, when needed.
    We also seek comment on the relationship between decertification 
and suspension and debarment proceedings. If a firm is suspended or 
debarred (e.g., as the result of a criminal indictment or conviction), 
either as a matter of state or Federal action, should the firm also be 
decertified? On one hand, since the firm is suspended or debarred, it 
will not be performing any contracts, so its being or not being on a 
state's certified list seems somewhat moot. Moreover, certification 
concerns size, disadvantage, ownership and control, and the misconduct 
of the firm may not relate to these criteria. On the other hand, 
especially if the misconduct that led to the suspension and debarment 
concerned participation in the DBE program, the firm's conduct may 
constitute a pattern of conduct indicating its involvement in attempts 
to subvert the intent or requirements of the DBE program. Should 
suspension and debarment result in an automatic decertification, should 
it be a trigger causing recipients to evaluate the firm for 
decertification, or is there another approach that would make more 
sense?
    In paragraph (g), we would add a sentence clarifying that when a 
notice concerning a recipient's response to an ineligibility complaint 
is sent to the complainant (other than to a DOT operating 
administration), confidential business information concerning the DBE 
in question would be redacted, absent written consent from the DBE 
firm. This is consistent with the existing confidentiality provisions 
of section 26.109.

Sec.  26.88 Summary Suspension of Certification

    As noted above, a certified firm remains certified until and unless 
it is decertified. But what happens if there is a significant change in 
the business, such as the death of its owner or the sale of the firm? 
Current guidance properly tells recipients to look at the changed firm 
and determine whether the firm should be decertified and initiate a 
section 26.87 proceeding if appropriate. In this situation, the 
recipient has the burden of proof to demonstrate that the firm should 
lose its eligibility.

[[Page 54960]]

Meanwhile, the firm continues to be certified and can obtain new 
contracts as a DBE. Many people in the certification community have 
urged, to the contrary, that the firm should lose its eligibility when 
a dramatic change of this kind occurs, and should have to reapply for 
certification as if it were a new firm. Meanwhile, it would not be 
eligible for new contracts as a DBE.
    The proposed section 26.88 seeks a middle ground between these 
approaches, providing that a firm's certification would be suspended in 
some situations (i.e., death or incarceration of an owner whose 
participation is needed to meet ownership and control requirements) and 
could be suspended in other situations (e.g., sale of the firm to a new 
owner), while a recipient determines whether the firm's certification 
should be continued. When a firm's certification is suspended, it 
cannot receive new contracts as a DBE. However, its participation on a 
contract it has already received would continue to count toward DBE 
goals.
    Under the proposal, if an owner necessary to the firm's eligibility 
dies or is incarcerated, the recipient must suspend the firm's 
eligibility. By necessary to the firm's eligibility, we mean that 
without that owner's participation, the firm would not meet the 
requirement of 51 percent ownership by disadvantaged individuals or the 
requirement that disadvantaged owners control the firm. If a single 
disadvantaged individual is the 51 percent owner, then it is obvious 
that the suspension would take effect. However, if there were three 
disadvantaged owners who each owned 30 percent of the business, and one 
of them died, then the other two, between them, would still own more 
than 51 percent of the business, and the recipient would not be 
required to suspend the firm's certification. Of course, if the owner 
who died was essential to control of the business by disadvantaged 
individuals, it would be appropriate to suspend the firm.
    In other situations, recipients would have the discretion to 
suspend a firm's eligibility. For example, if a firm was sold, and 
there was a significant question about whether the new disadvantaged 
owners controlled the firm, or if the firm failed to file the required 
notice following a material change in its circumstances, or an 
affidavit of no change, the recipient could choose to suspend the 
firm's eligibility. (This could prove a useful incentive for firms to 
file these documents in a timely fashion). After a suspension, the firm 
would provide information relevant to its eligibility to the recipient. 
Within 30 days of getting that information, the recipient would have to 
lift the suspension or commence a decertification proceeding under 
section 26.87. The suspension would continue in effect during the 
proceeding. If the firm is not decertified as the result of the 
proceeding, the suspension is lifted and the firm returned to active 
status as a DBE.

Sec.  26.89 What is the process for certification appeals to the 
Department of Transportation?

    The Department is not proposing to change the process for firms 
wishing to appeal a recipient's determination concerning its 
eligibility. However, we propose amending this section to clarify what 
type of information should be contained in the appeal filed with DOCR. 
Specifically, we propose in Sec.  26.89(c) that the appellant provide a 
``full and specific statement as to why the decision is erroneous, what 
significant fact that the recipient failed to consider, or what 
provisions of this part the recipient did not properly apply.'' This 
addition will aid the Department in reviewing the recipient's actions. 
Another change we propose that will also aid both recipients and the 
Department in the appeal process is clarification of how the regulation 
defines ``days.'' Under the proposed definition in section 26.5, days 
would mean calendar days; and in computing any period of time described 
in the regulation, the day from which the period begins to run is not 
counted, and when the last day of the period is a Saturday, Sunday, or 
Federal Holiday, the period extends to the next day that is not a 
Saturday, Sunday, or Federal Holiday.

Other Provisions

Sec.  26.1 What are the objectives of this part?

    The NPRM would add a new paragraph to this section, saying that a 
purpose of the rule is to promote the use of all types of DBEs. This 
language is intended to emphasize that the DBE program is not just 
about construction. Other types of work, including, but not limited to, 
professional services, supplies etc., are also appropriate for DBE 
participation.

Sec.  26.5 Definitions

    In the Department's experience, recipients need clarity on terms 
already used in this provision, and we propose adding eight new 
definitions in this section for the following words or phrases: 
``Assets;'' ``business, business concern, or business enterprise;'' 
``contingent liability;'' ``days;'' ``immediate family member;'' 
``liabilities;'' ``non-disadvantaged individual;'' ``principal place of 
business;'' and ``transit vehicle manufacturer (TVM).'' With respect to 
the TVM definition, the Department seeks comment on whether producers 
of vehicles that receive post-production alterations or retrofitting to 
be used for public transportation purposes (e.g., so-called ``cutaway'' 
vehicles, vans customized for service to people with disabilities) 
should be defined as TVMs for DBE program purposes.
    Additionally, we propose to modify the existing definition of a 
``socially and economically disadvantaged individual'' to align with 
SBA principles. Most importantly, the definition specifically states 
that being born in a country does not, by itself, suffice to make the 
birth country and individual's country of origin for purposes of being 
included within a designated group. For example, a child born of 
Norwegian parents in Chile would not, based on that fact alone, be 
regarded as ``Hispanic'' under the definition. Minor technical changes 
to references within the existing definitions are also proposed.
    We also note that the proposed definition of ``immediate family 
member'' would include a wider group of relatives, and we seek comment 
on the scope of that proposed change (e.g., Is it appropriate to 
include grandparents? Should grandchildren also be included?). The 
effect of the change is to broaden the impact of provisions of the rule 
that call for a higher burden of proof concerning ownership and control 
when transfers of interests in a company are made to family members.
    The NPRM would amend the definition of ``Native Americans'' to be 
consistent with a February 2011 change in SBA's definition of the term. 
The term ``Alaska native'' would replace ``Eskimos and Aleuts,'' and 
the phrase ``enrolled members of a federally or state-recognized Indian 
tribe'' would replace ``American Indians.''

Sec.  26.11 What records do recipients keep and report?

    The NPRM proposes two new provisions, both related to 
certification. The first is a record retention requirement for 
certification-related records. These are the kind of records that 
recipients and UCPs normally keep, but we have heard concerns that some 
recipients may be discarding records that may still be relevant for 
certification review purposes.

[[Page 54961]]

    Second, to implement a longstanding provision in the DBE 
authorization legislation, the Department proposes adding a new 
reporting requirement. Under section 1101(b)(4)9B) of MAP-21, states 
are required to notify the Secretary, in writing, of the percentage of 
the small business concerns that are controlled by (i) Women; (ii) 
socially and economically disadvantaged individuals (other than women); 
and (iii) individuals who are women and are otherwise socially and 
economically disadvantaged individuals. To carry out this requirement, 
UCPs would go through their statewide Directories and count the number 
of firms controlled, respectively, by white women, minority or other 
men, and minority women. They would then convert the numbers to 
percentages and send the result to the Departmental Office of Civil 
Rights, with which they already have a working relationship in 
certification appeals matters. We realize that some firms may be 
controlled by persons in more than one of these three categories. In 
this case, we propose that UCPs include a firm in the category 
applicable to the owner with the largest stake in the firm who is also 
involved in controlling the firm.
    We note that the commitments and achievements reporting form 
already captures information broken down by gender and ethnicity 
concerning contracts and contracting dollars going to DBEs. This is not 
the same thing as the report on the percentages of certified firms, but 
we seek comment on whether it would be easier to include the percentage 
information on this reporting form in some fashion rather than having a 
separate report submitted.

Sec.  26.21 Who must have a DBE program?

    It appears that there is some confusion in the recipient community 
as to precisely who must have a DBE program with the FTA and FAA. For 
example, section 26.21 requires all entities that receive FTA federally 
assisted funds over $250,000 used in contracts (except for transit 
vehicle purchases) in a federal fiscal year for planning, capital, and/
or operating assistance purposes to have a DBE program. However, 
despite this clear mandate, many of FTA's recipients still mistakenly 
believe only individual prime contracts valued above $250,000 are 
eligible for the DBE program, and thus improperly exclude prime 
contracts valued below $250,000 from both their determination as to 
whether they are required to submit a goal and from actual goals 
submitted to FTA. The Department has long maintained the $250,000 
threshold applies to contracts in the aggregate, meaning all DBE 
program-eligible contracts, regardless of value, must be considered for 
both threshold and goal setting purposes. For example, if a recipient 
were to receive several small grants within a fiscal year (e.g. $1000 
to $200,000) for planning, capital, or operating assistance) their 
combined value, if over $250,000, would trigger the requirement that 
the entity have a DBE program. The same point applies with respect to 
FAA-assisted contracts. The proposed amendment modifies the language to 
reflect this long held position, and should resolve any lingering 
misconceptions with regard to the issue.
    Section 26.21(a)(1), as currently written, requires all FHWA 
recipients receiving funds authorized by a statute to which this part 
applies to have a DBE program. ``Recipient,'' as defined in section 
26.5, is ``any entity, public or private, to which DOT financial 
assistance is extended, whether directly or through another recipient. 
* * *'' FHWA, however, expects that each subrecipient will operate 
under its direct recipient's approved DBE program. Therefore, FHWA will 
not allow subrecipients to operate under their own DBE programs, 
separate from the program of the direct recipient. If an entity that is 
an FHWA subrecipient is also a direct recipient of FAA or FTA funds, 
then the entity would have its own DBE program and goal for its FAA- or 
FTA-assisted contracts, while operating under the State DOT's goal for 
FHWA-assisted contracts. Where funds are comingled, recipients should 
consult with the DOT agencies involved to determine how to proceed.

Sec.  26.45 How do recipients set overall goals?

    Establishing the overall goal is a critical component of 
administering the DBE program. We propose several changes to the rules 
governing overall goal setting to ensure that recipients employ sound 
goal setting practices consistent with the remedial purpose of the 
program.
    There are two analytical steps to establishing an overall goal. The 
first step is to determine the relative availability of DBEs in the 
recipient's transportation contracting market. We propose to codify the 
elements of a bidders list that must be documented and supported when 
this approach is used to establish DBE availability. Those elements 
include capturing data on successful and unsuccessful firms (DBEs and 
non-DBEs, prime contractors and subcontractors) that have bid on 
federally assisted contracts during the past three-year period. We also 
propose to disallow the use of prequalified contractors lists to 
establish availability and seek your views on whether this prohibition 
should be extended to the use of bidders list and other such lists 
(registered subcontractors lists, plan holders list, etc.) relied upon 
exclusively as a source to identify ready, willing, and able firms.
    We know from numerous disparity studies that have been conducted 
across the nation that discriminatory practices affecting minority and 
women owned small businesses continue to create barriers to accessing 
capital and bonding that in turn affect their ability to form, grow, 
and compete with other firms for contracting opportunities. Looking 
only to bidders lists, lists of prequalified contractors, or similar 
lists to determine availability may serve only to perpetuate the 
effects of discrimination rather than attempt to remedy those effects. 
Given this concern about the use of bidders lists in goal-setting, and 
what we understand to be difficulties that recipients have had in 
collecting all the bidders list information called for in section 
26.11, we also seek comment on whether the bidders list approach to 
goal-setting should be deleted from the rule.
    The focus of the second step in the overall goal setting process is 
to consider other available evidence of discrimination or its effects 
that may impact availability, and based on that evidence consider 
making an appropriate adjustment to set an overall goal that reflects 
the level of participation one would expect in the absence of 
discrimination. We have seen many recipients routinely adjust downward 
the step one availability figure based on past DBE utilization, without 
regard to whether an adjustment is warranted by the evidence. Under the 
rules, past DBE utilization is defined as a proxy for DBE capacity. 
However, we know that in many instances, low levels of past DBE 
utilization does not represent DBE capacity in a given contracting 
market and may simply reflect the continuing effects of discrimination, 
the failure of a recipient to implement a robust program, or the 
existence of circumstances similar to those mentioned in Departmental 
guidance (e.g., the effect of past or current noncompliance with DBE 
program requirements). Adjusting availability downward under these or 
similar circumstances would not be appropriate or required. 
Consequently, we propose to expressly state in the rule that step two 
adjustments are not appropriate

[[Page 54962]]

unless clearly warranted by the evidence.
    In reviewing overall goal submissions made by recipients, operating 
administrations currently are authorized to adjust the overall goal or 
require the recipient to do so if in the opinion of the operating 
administration the overall goal has not been correctly calculated or 
the method for calculating the goal is inadequate. In making that 
assessment, we propose to clarify that the operating administrations 
are to be guided by the goal setting principles and best practices 
announced by the Department pursuant to section 26.9. While the ``Tips 
on Goal Setting'' posted on the OSDBU Web site offer recipients a lot 
of flexibility in developing a methodology, the Tips also represent the 
Department's view of practices recipients should follow to produce a 
sound methodology that in turn will likely produce a sound overall goal 
that is required by the rules. Recipients are not at liberty to employ 
practices that serve no purpose other than to drive down the overall 
goal without risking disapproval by the appropriate operating 
administration.
    We are also proposing a clarifying change to 26.45(e)(3) concerning 
project goals. The language would note that a project goal may be a 
percentage of the value of the entire project as determined by the 
recipient or a percentage of the federal share.
    We propose to modify the public participation requirements for goal 
setting to strengthen the consultation component, to eliminate the 
public comment period associated with publication of the proposed goal, 
and to require posting proposed goals on recipient Web sites--a less 
costly alternative to the current requirement for publication in 
general circulation and other media. These changes are designed to 
reduce the administrative burden and expense associated with 
requirements that have added little, if any, value to the goal setting 
process. We recognize the importance of affording those who are likely 
to be affected by the proposed goal (i.e., stakeholders) an opportunity 
to present their views, data, or analysis to recipients in the 
development of an appropriate goal setting methodology. For that 
reason, we believe consultation, to be meaningful, should involve a 
dialogue between a recipient and stakeholders in its contracting 
market. Based on our experience, the most meaningful participation by 
the public in goal setting occurs during the consultation phase when 
genuine efforts are made to engage interested individuals or groups in 
the process. Few comments are received from the public during the 45 
day comment periods that have not been provided during consultation. 
This change also would be consistent with the requirement for 
stakeholder involvement currently applicable to the DBE concessions 
program in Part 23.

Sec.  26.49 How are overall goals established for transit vehicle 
manufacturers?

    The Department has been concerned for some time about confusion 
among program participants concerning the implementation of the transit 
vehicle manufacturer (TVM) provisions of Part 26. Because a large 
portion of FTA's federal financial assistance is used by its recipients 
for transit vehicle purchases, the Department's intent was to require 
similar DBE goal setting provisions to their operations, and under the 
current rule, such entities were required to submit their goal setting 
methodologies to FTA and report to FTA their awards to women and 
minority owned firms. In practice, however, the Department has seen 
irregularities in how TVMs perform in submitting goal setting 
methodologies, and how TVMs report DBE awards and achievements. As a 
result, the Department believes additional clarification is needed to 
ensure meaningful application of the DBE rule's requirements within the 
transit vehicle manufacturing industry. The proposed rule changes are 
intended to clarify TVM requirements by providing additional 
information as to how the Department expects TVMs to determine their 
DBE goals, when and in what instances TVMs must report DBE awards and 
achievements data, and by specifying which portions of the DBE 
regulations apply to TVMs.
    With respect to goal setting, the proposed rule seeks to clarify 
what must--and what must not--be included in a transit vehicle 
manufacturer's goal methodology submission. Specifically, it codifies 
the Department's long-held position that for goal setting purposes, 
transit vehicle manufacturers may not selectively choose which 
contracting opportunities will and will not be included. Rather, when 
setting a DBE goal, all contracting opportunities made available to 
non-DBEs must also be made available to DBEs, and thus must be included 
in the submitted methodology. It is important to note that this 
requirement is not intended to ``solicit'' DBE participation for any 
specific contracting opportunity or task, nor is it intended to dictate 
contractual relationships between transit vehicle manufacturers and any 
specific type of firm. Instead, the sole purpose is to ``level the 
playing field'' and ensure DBE firms have the opportunity to fairly 
compete for all contracts non-DBEs have access to. To provide 
appropriate flexibility in the implementation of this provision, we 
believe that this clarification must also be accompanied by a strong 
statement, to FTA recipients in particular, that overly prescriptive 
contract specifications on transit vehicle procurements that in effect 
eliminate opportunities for DBEs in the manufacture of transit vehicles 
is counter to the intent of the DBE Program and unduly restricts 
competition which is prohibited by 49 U.S.C. 5325(h). Violation of 
rules that support competition in the marketplace may result in the 
loss of FTA financial assistance.
    In addition to clarifying which opportunities must be included, the 
proposed rule also contemplates which opportunities must not be 
included in the goal setting methodology. While the provision 
pertaining to work and materials performed outside the jurisdiction of 
the United States remains intact, the Department proposes the current 
practice of including the entire Federal share of any given vehicle 
procurement be amended to include only the portion of the Federal share 
available via contracts to outside firms. Because such a large portion 
of work required when manufacturing and assembling a transit vehicle is 
performed ``in house,'' the Department does not believe it is 
appropriate to use the entire Federal share of a transit vehicle 
contract as the base figure for the DBE goal, as it skews the final 
goal relative to the contracting opportunities actually available. 
Instead, the Department proposes that the base figure be derived from 
the total value of contracts available to firms outside of the 
manufacturer itself. For example, if a particular transit vehicle 
manufacturer is awarded a $10 million contract to manufacture buses, 
and the transit vehicle manufacturer performs 70% of the work with its 
own forces while contracting out the remaining 30%, then the amount 
from which the base figure and goal should be derived would be $3 
million. Since work performed ``in house'' is not truly a contracting 
opportunity available to either DBEs or non-DBEs, the Department 
believes this approach will lead to more accurate and responsible 
overall DBE goals, improved overall implementation of the DBE program 
by transit vehicle manufacturers and simpler, better targeted oversight 
by FTA. While proposing this approach, however, the Department also 
seeks comment on whether there should be regulatory

[[Page 54963]]

provisions designed to encourage TVMs to make more parts of their 
manufacturing processes available to DBEs and other small businesses. 
If so, what should they be?
    The proposed rule also clarifies the Department's stance on when 
transit vehicle manufacturers must report DBE information to FTA. 
Because submission of a DBE goal to FTA does not guarantee a transit 
vehicle manufacturer will be awarded a contract, confusion exists as to 
when DBE reports should be submitted. The Department believes the best 
approach is to require transit vehicle manufacturers to continuously 
report their contracting activity in the Uniform Report of DBE Awards/
Commitments and Payments, since the administrative burden to submit 
reports with no activity is negligible in comparison to making a yearly 
assessment of those transit vehicle manufacturers who are still 
performing on contracts underway.
    Finally, the proposed rule seeks to reiterate and clarify the 
existing requirement that TVMs are subject to all of the applicable 
provisions of the DBE regulation and responsible for their 
implementation. It has been the Department's experience that in many 
cases, compliance with the DBE regulation has been reduced to the 
submission of a DBE goal and both of the semi-annual DBE reports each 
year. This was never the Department's intention, and the proposed rule 
seeks to correct this issue by reaffirming that transit vehicle 
manufacturers are equally as responsible for implementing the other 
areas of the regulation as other DOT recipients. However, recognizing 
that transit vehicle manufacturers do not participate in the DBE 
certification process, the Department has exempted them from those 
portions of the rule, with one notable exception: In order to obtain 
credit for DBE participation, the manufacturer must still ensure that 
the DBE firm is certified in the state where it performs the work. In 
addition the Department also proposes that the other post-award 
requirements of the DBE regulation need not be followed or reported on 
in those years where a transit vehicle manufacturer is not either 
awarded or performing on a transit vehicle procurement. The Department 
believes these proposed changes will both strengthen the oversight 
functions for those portions of the rule applicable to transit vehicle 
manufacturers, while exempting manufacturers from those portions of the 
regulation that do not specifically apply to their businesses.

Sec.  26.51 What means do recipients use to meet overall goals?

    The current regulation 26.51(a) states that race-neutral DBE 
participation can include when a DBE wins a subcontract from a prime 
contractor that did not consider DBE status in making the award (e.g., 
a prime contractor that uses a strict low bid system to award sub-
contracts). We propose removing this as an example of race-neutral DBE 
participation since it is impossible for recipients to determine if a 
prime uses a strict low bid system, and, more importantly, it conflicts 
with Appendix A, which states prime should not reject a DBE quote over 
a non-DBE quote if the price difference is not unreasonable.

Sec.  26.53 What are the good faith efforts procedures recipients 
follow in situations where there are contract goals?

    When a recipient sets a goal for DBE participation on a DOT-
assisted contract, it must award the contract only to a bidder/offeror 
that makes good faith efforts to meet it. Bidders can meet the goal in 
one of two ways. They can obtain commitments for enough DBE 
participation to meet the goal. If they do not meet the goal, they can 
also document that they have made good faith efforts to do so. The 
existing provisions of Sec.  26.53 and Appendix A discuss the kinds of 
good faith efforts bidders are expected to make, with the Department 
taking the approach that a showing of adequate good faith efforts in a 
particular procurement is necessarily a fact-specific judgment 
recipients must make. The unique circumstances of procurements vary 
widely and the Appendix spells out factors recipients should take into 
account when assessing the behavior of bidders in making a good faith 
effort showing. We do not believe that a template or checklist 
approach, or some quantitative formula, could ever adequately respond 
to the circumstances that recipients have to evaluate in determining 
whether a bidder has made good faith efforts to meet a goal.
    The current rule requires bidders/offerors to submit: The names and 
addresses of DBE firms that will participate on the contract; a 
description of the work that each DBE will perform; the proposed dollar 
amount for each DBE firm; written documentation of the bidder's 
commitment to use the DBE; and the DBE's confirmation that it is 
participating. We believe the information reporting requirements can be 
strengthened by requiring that bidders, in addition to these 
submissions, provide the recipient with information showing that each 
DBE signed up by the bidder is certified in the NAICS code(s) for the 
work it will be performing. This provision will help to reduce the 
possibility that bidders, in trying to obtain a contract, could list 
firms that cannot qualify for DBE credit in the work area involved in 
the contract. This information would have to be submitted with the 
bidder's initial good faith effort submission. To help implement the 
NAICS code provision, we recommend that recipients make available 
(e.g., on their Web sites) the most important and frequently-used NAICS 
codes relevant to the recipients' operations.
    The current rule distinguishes between situations in which 
contracts are let on the basis of ``responsiveness'' or 
``responsibility.'' In the former case, all DBE participation 
information must be submitted at the time of bid submission. In the 
latter case, as long as a bidder promised to meet the goal, the bidder 
could identify DBEs after the bid submission but before the recipient 
commits itself to using a particular contractor. The Department has 
noticed an unfortunate trend in which, in procurements that otherwise 
use a traditional low-bid procurement mechanism, recipients sometimes 
give the apparent successful bidder a period of several days or weeks 
after bid opening to submit DBE information, sometimes justifying the 
practice by labeling the action as a ``responsibility'' procurement. 
This has the potential to facilitate bid-shopping or other questionable 
activities by prime contractors. The section's ``responsibility/
responsiveness'' terminology has also caused some degree of confusion.
    To clarify this situation, the NPRM proposes eliminating the 
``responsiveness/responsibility'' distinction. The proposed language 
would simply say that, with one exception, competitors for a contract 
having a DBE contract goal would have to submit all information about 
DBEs that have been engaged for the project with their original 
submission. There could be no additional grace period after this point 
during which competitors could subsequently submit this information. 
The exception to this requirement would be in a negotiated procurement, 
where the initial submission would contain a binding commitment to meet 
the goal or document good faith efforts, and specific DBE information 
could be submitted in the same time frame as price and other terms of 
the negotiated contract were made final.

[[Page 54964]]

    If a bidder/offeror does not meet the contract goal on a contract, 
it must, in order to remain eligible for contract award, submit 
documentation showing that it made sufficient good faith efforts to 
meet the contract goal. As noted above, Appendix A describes the kind 
of information that recipients would use to determine whether a bidder/
offeror has made sufficient good faith efforts. In addition, this NPRM 
proposes that, as part of a good faith efforts showing, a bidder/
offeror would have to provide copies of each DBE and non-DBE 
subcontractor quote it had received, in situations where it picked a 
non-DBE firm to do work that a DBE had sought. This information will 
help the recipient determine whether there is validity to any claims by 
a bidder/offer that a DBE was rejected because its quote was 
unreasonably high.
    The NPRM would give recipients two options with respect to the 
timing of the provision of good faith efforts documentation from 
bidders/offers who do not meet the contract goal. First, recipients 
could require that all bidders/offerors who do not meet the contract 
goal submit good faith efforts documentation with their original bids/
offers. Bidders/offerors have to amass a great deal of information to 
compete for a contract (e.g., with respect to price, materials, 
schedules, etc.). DBE-related information is no different and no less 
an integral part of the bidding process. DBE information is not some 
separate, foreign intrusion into the procurement process that needs to 
be handled at a different time from anything else that determines who 
wins a contract. Consequently, we believe that recipients can 
justifiably seek good faith efforts information at the same time they 
receive everything else concerning the competition for a contract.
    However, we recognize that some recipients may wish to reduce 
administrative burdens on unsuccessful bidders/offerors. Consequently, 
the second option the proposed rule offers is for recipients to require 
good faith efforts documentation only from an apparent successful 
bidder/offeror that does not meet the contract goal. In this option, no 
one would be required to submit good faith efforts documentation with 
their original submissions. The apparent successful bidder/offer would 
have one day after the recipient notified it to submit the 
documentation. The documentation would have to relate to pre-bid/offer 
submission efforts; no post-bid/offer submission efforts would be 
acceptable. The Department seeks comment on whether, in this option, 
one day is an appropriate time frame, or whether a longer period (e.g., 
three days) would be acceptable.
    A related provision, added to Appendix A, seeks to remedy a 
practice involving the awarding of contracts to offerors who pledge to 
name DBEs after they are awarded the contract, but do not actually 
provide specific DBE information at the time required. This language 
explicitly states that a promise by the prime contractor bidder to 
include DBEs after the award is not to be considered as part of a good 
faith efforts evaluation.
    We also propose to add a new paragraph (f)(1)(ii) that would create 
additional safeguards for DBEs. It requires a recipient to include in 
each prime contract a provision stating that, as a condition of the 
award, the contractor must use those DBEs listed to perform the 
specific work items or supply the materials as committed and that the 
contractor is not entitled to any payment for work or materials 
performed by its own or any other forces if the work or supplies were 
committed to a DBE, unless it receives prior written consent of the 
recipient for a replacement of the DBE for good cause.
    In the event that it is necessary to replace a listed DBE, proposed 
paragraph (g) specifies good faith efforts that a prime contractor 
would have to make to find DBE participation in place of the original 
DBE. These include such things as (1) A statement of efforts made to 
negotiate with DBEs for specific work or supplies, including the names, 
addresses, telephone numbers, and emails of those DBEs that were 
contacted; (2) the time and date each DBE was contacted; (3) a 
description of the information provided to DBEs regarding the plans and 
specifications for portions of the work to be performed or the 
materials supplied; and (4) an explanation of why an agreement between 
the prime contractor and a DBE was not reached. The Department would 
expect prime contractors to look throughout the contract or project to 
find opportunities for DBE participation in this situation. This effort 
would not be limited to the same type of work the original DBE would 
have performed, but would extend to other types of work as well, 
including work the prime contractor may originally have planned to 
self-perform. The prime contractor would have to submit the 
documentation within 7 days of the recipient's agreement to permit the 
original DBE to be replaced, and the recipient would provide a written 
determination to the contractor stating whether or not good faith 
efforts have been demonstrated.
    Under a new paragraph (h), recipients would be required to include 
in each prime contract a provision stating that failure by the 
contractor to carry out the requirements of this regulation, or meet 
its corrective plan as described above, is a material breach of the 
contract, and may result in the termination of the contract, use of the 
remedies set forth in proposed paragraph (i), and other remedies 
available to the recipient under law. The proposed remedies include 
provisions regarding (i) The withholding of monthly progress payments; 
(ii) declaring the contractor in default and terminating the contract; 
(iii) assessing sanctions in the amount of the difference in the DBE 
contract committal and the actual payments made to each certified DBEs; 
(iv) liquidated damages; and/or (v) disqualifying the contractor from 
future bidding as non-responsible.
    In an effort to enhance the recipient's ability to review prime and 
subcontractor participation on DOT-assisted contracts, we are proposing 
in a new paragraph (k) to require the prime contractor to provide all 
subcontracts for all DBEs participating on a contract (including first 
and lower tier subcontractors). Lastly, the good faith efforts 
provisions of the current rule apply when a procurement involves a 
race-conscious DBE contract goal. However, DBEs also participate, as a 
race-neutral matter, on contracts that do not have DBE contract goals. 
The Department seeks comment on whether some of the provisions of this 
rule (e.g., concerning termination of DBEs and good faith efforts to 
replace DBEs that are dropped from a project) should apply to DBEs on 
contracts that did not have a contract goal.

Sec.  26.55 How is DBE participation counted toward goals?

    We propose to modify the factors in determining whether a DBE 
trucking company is performing a commercially useful function to 
include the ability to count 100% of a DBE's trucking services when it 
uses its own employees as drivers, but leases trucks from a non-DBE 
truck leasing company. This change would allow DBE haulers to lease 
trucks from non-DBE leasing companies in instances in which they employ 
sufficient drivers yet lack sufficient trucks to fulfill their 
contractual obligations. This change is designed to allow DBEs the same 
ability as non-DBEs to use their own drivers and supplement their 
fleets with leased trucks without sacrificing any loss of DBE credit 
due to the fact that the trucks may be leased from a non-DBE leasing 
company. Credit would not be given,

[[Page 54965]]

however, in instances in which the DBE leases trucks from the prime 
contractor. The regulations pertaining to counting DBE trucking in 
which a DBE subcontracts with a non-DBE owner-operator or leases trucks 
and drivers from a non-DBE would remain unchanged. We also note that 
there could be situations in which close relationships between DBEs and 
non-DBE companies from which they lease trucks (e.g., a non-DBE mentor 
company) or difficulties in documentation of arms-length lease 
relationships (e.g., no proof of payment, assertions of payment in 
kind) could raise certification or fraud issues. The proposed amendment 
would change only counting rules; it would not immunize companies 
involved from scrutiny of potentially improper relationships.
    The NPRM would also add language emphasizing that counting 
decisions concerning whether a firm's participation is best understood 
as a regular dealer or as a transaction expediter must be made on a 
contract-by-contract basis, not on a generic basis.
    On December 9, 2011, the Department issued a new guidance Question 
and Answer (Q&A) to clarify the counting rules with respect to credit 
for suppliers, discussing the application of the ``regular dealer'' and 
``transaction expediter/broker'' concepts. The Department seeks comment 
on whether any provisions of the Q&A should be made part of the rule 
itself. More broadly, the Department wants to open a discussion of the 
regular dealer concept itself. As defined in the rule, a ``regular 
dealer'' occupies something like the traditional ``middleman'' role in 
commerce. Conversations with a variety of firms and state and local 
agencies have raised the question of whether changes in the way 
business is conducted has made the middleman role itself somewhat 
obsolete in the kinds of work (e.g., construction, professional 
services) most frequently involved in the DBE program. We seek comment 
on this question and on how, if at all, changes in the way business is 
conducted should result in changes in the way DBE credit is counted in 
supply situations.
    The Department's key principle in counting DBE participation in any 
situation is to ensure that only work the DBE does itself, only the 
value that the DBE adds to the transaction, should count. When a DBE is 
involved in supplying goods manufactured by a non-DBE, and the DBE does 
not play a traditional regular dealer/middleman role, what is the 
appropriate measure of the value it adds to the transaction? Is it ever 
more than the fees or commissions the DBE gets? If so, what is the 
rationale for counting more than this (e.g., some percentage of the 
product that is provided to the ultimate user)?
    One policy consideration that has influenced the Department's 
thinking over the years is that allowing too-generous credit for 
supplies provided by a DBE middleman or transaction expediter would 
work to the disadvantage of DBEs who are contractors in construction or 
other fields. That is, if a prime contractor can get all or most of the 
DBE credit it needs to meet a goal from buying steel or petroleum 
products or other items through a DBE middleman, then the prime 
contractor's incentive to use other DBE contractors on a project is 
diminished. The Department seeks comment on how this policy 
consideration interacts with the way the counting provisions of the 
rule work in practice.

Sec.  26.109 What are the rules governing information, confidentiality, 
cooperation, and intimidation or retaliation?

    One of the concerns the Department has with the implementation of 
the program is that certifiers and other state and local program 
officials can be subject to pressures to take actions inconsistent with 
the intent and language of the Department's rules. It is crucial that 
recipients' personnel objectively discharge their professional 
responsibilities under this part. Objectivity includes being 
independent in fact and appearance when making certification decisions, 
maintaining an attitude of impartiality, and being free of conflicts of 
interest. We believe that the ethical administration of the program 
means that no public official at any level of state or local government 
should make, participate in making or in any way attempt to use their 
official position to influence a certification or other program 
decision. No employee, officer or agent of the recipient should 
participate in selection, or in the award or administration of a 
contract supported by Federal funds if a conflict of interest, real or 
apparent, would be involved.
    Recipients and their staffs are, of course, obligated to follow 
their jurisdiction's written codes of ethics. Beyond that, the 
Department seeks comment on whether Part 26 should be amended (or 
guidance issued) to add provisions concerning ethics and conflicts of 
interest that could perhaps play a constructive role in empowering DBE 
officials to resist inappropriate pressures. Would such provisions be 
effectual? Could the Department effectively develop provisions that 
provided appropriate guidance but did not become overly detailed? The 
Department welcomes suggestions about this subject.

Appendix A--Good Faith Efforts

    Appendix A provides guidance for recipients that establish a 
contract goal for DBE participation on a DOT-assisted contract. The 
Appendix is mentioned in the regulation text Sec.  26.53, which the 
Department is proposing (as described above) to revise. The Appendix 
lists the specific types of actions recipients should consider as part 
of bidders' good faith efforts to obtain DBE participation. This list 
was never intended to be a mandatory checklist nor to be exclusive or 
exhaustive. We clearly indicate that other factors or types of efforts 
may be relevant in appropriate cases. There has been no revision to the 
stated good faith efforts examples specified in the Appendix since the 
original issuance of the rule, but over time we have learned of several 
possible improvements that we hope to make now. These significant 
examples we propose to add are in the areas of market research (item A) 
and establishing flexible timeframes for performance and delivery 
schedules in a manner that encourages and facilitates DBE participation 
(item B). We further propose adding language specifying that the 
rejection of the DBE simply because its quotation for the work was not 
the lowest received is not a practice considered to be good faith 
effort. We propose to add language saying that ``determinations should 
not be made using quantitative formulas.'' There is an understandable 
desire to permit good faith efforts decisions to be made on a neat, 
bright-line basis (e.g., if a prime contractor has contacted a given 
number or given percentage of DBEs, it has made sufficient good faith 
efforts). To accomplish their purpose, however, good faith efforts 
decisions must be a judgment based on the entire set of factors 
concerning a particular contracting action, and cannot be reduced to a 
formula or checklist without distorting the process.
    When a DBE must be replaced on a contract, the prime contractor's 
inability to find a replacement DBE at the original price is not alone 
sufficient to support a finding that good faith efforts have been made 
to replace the original DBE. The fact that the bidder has the ability 
and/or desire to perform the contract work with its own forces is not a 
sound basis for rejecting a prospective replacement DBE's reasonable 
quote. Section V of the Appendix addresses

[[Page 54966]]

various techniques recipients employ in determining whether a bidder 
has made good faith efforts. We propose adding language that recommends 
that recipients scrutinize the documented efforts and at a minimum, 
review the performance of other bidders in meeting the contract goal 
(e.g., to see if the success of other bidders in meeting a goal 
suggests that good faith efforts could have resulted in the bidder 
meeting the goal). We propose mirroring language we have added in Sec.  
26.53 revisions that recipients require contractors to submit all 
subcontractor quotes in order to review whether DBE prices were 
substantially higher. Recipients would also contact the DBEs listed on 
a contractor's solicitation to inquire as to whether they were, in 
fact, contacted by the prime. The added language also states that pro 
forma mailings to DBEs requesting bids are not alone sufficient to 
satisfy good faith efforts under the rule.

Regulatory Analyses and Notices

Executive Orders 12866 and 13563 (Regulatory Planning and Review)

    This proposed rule is not a ``significant regulatory action'' under 
section 3(f) of Executive Order 12866, Regulatory Planning and Review, 
and does not require an assessment of potential costs and benefits 
under section 6(a)(3) of the Order. It does not create significant cost 
burdens, does not affect the economy adversely, does not interfere or 
cause a serious inconsistency with any action or plan of another 
agency, does not materially alter the impact of entitlements, grants, 
user fees or loan programs; and does not raise novel legal or policy 
issues. The rule is essentially a streamlining of the provisions for 
implementing an existing program, clarifying existing provisions and 
improving existing forms. To the extent that clearer certification 
requirements and improved documentation can forestall DBE fraud, the 
rule will result in significant savings to state and local governments. 
This NPRM does not contain significant policy-level initiatives, but 
rather focuses on administrative changes to improve program 
implementation.

Executive Order 12372 (Intergovernmental Review)

    The NPRM is a product of a process, going back to 2007, of 
stakeholder meetings and written comment that generated significant 
input from state and local officials and agencies involved with the DBE 
program in transit, highway, and airport programs.

 Regulatory Flexibility Act

    The underlying DBE rule does deal with small entities: all DBEs 
are, by definition, small businesses. Also, some FAA and FTA recipients 
that implement the program are small entities. However, the changes 
proposed to the rule are primarily technical modifications to existing 
requirements (e.g., improved forms, refinements of certification 
provisions) that will have little to no economic impact on program 
participants. Therefore, the proposed changes will not create 
significant economic effects on anyone. In compliance with the 
Regulatory Flexibility Act (5 U.S.C. 601-612), I certify that this rule 
will not have a significant economic impact on a substantial number of 
small entities.

Executive Order 13132 (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. As noted above, there is no 
substantial compliance cost imposed on state and local agencies, who 
will continue to implement the underlying program with administrative 
improvements proposed in the rule. The proposed rule does not involve 
preemption of state law. Consequently, we have analyzed this proposed 
rule under the Order and have determined that it does not have 
implications for federalism.

Paperwork Reduction Act

    As required by the Paperwork Reduction Act of 1995, DOT is 
submitting 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 an opportunity 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, and should also send a copy their comments to the 
docket for this rulemaking at regulations.gov. Given the time frames 
for DOT and OMB consideration of comments, a comment is best assured of 
having its full effect if OMB receives it within 30 days of 
publication.
    We will respond to any OMB or public comments on the information 
collection requirements contained in this rule. OST may not impose a 
penalty on persons for violating information collection requirements 
which do not display a current OMB control number, if required. OST 
intends to obtain current OMB control numbers for the new information 
collection requirements resulting from this rulemaking action. The OMB 
control number, when assigned, will be announced either in the final 
rule or by separate notice in the Federal Register.
    The Department invited interested persons to submit comments on any 
aspect of these ICRs, including: (1) Whether the proposed collection is 
necessary for OST's performance; (2) the accuracy of the estimated 
burdens; (3) ways for OST to enhance the quality, usefulness, and 
clarity of the collected information; and (4) ways that the burden 
could be minimized without reducing the quality of the collected 
information.
    For each of these information collections, the title, a description 
of the entity to which it applies, and an estimate of the annual 
recordkeeping and periodic reporting burden are set forth below.
1. Application Form
    Based on discussions with DBEs, it is estimated that the total 
burden hours per applicant to complete its DBE or ACDBE certification 
application with supporting documentation to be approximately 8 hours. 
In addition, new applicants will have to submit a personal net worth 
(PNW) statement (see below).
    The number of new applications received each year by Unified 
Certification Program members is difficult to estimate. There is no 
central repository for DBE certification applications and we predict 
that the frequency of submissions at times vary according to 
construction season (high applications when the season is over), the 
contracting opportunities available in the marketplace, and the number 
of new transportation related business formations or expansions. To get 
some estimate however, the Department contacted recipients in during 
the process of this NPRM. The agencies we contacted reported receiving 
between 1-2 per month, 5-10 per month, or on the high end 80-100. There 
are likely several reasons for the variance. Jurisdictions that are 
geographically contiguous to other states (such as Maryland) and/or 
have a high DBE applicant pool may receive a higher number whereas 
jurisdictions in remote areas of the country with smaller numbers of 
firms may have lower

[[Page 54967]]

applicant requests for DBE certification. These rough numbers likely do 
not include requests for expansion of work categories from existing 
firms that are already certified.
    Frequency: Once during initial DBE or ACDBE certification.
    Estimated Average Burden per Response: 8 hours.
    Estimated Total Annual Burden Hours: 72-76 thousand hours per year.
2. PNW Form
    A small business seeking to participate in the DBE and ACDBE 
programs must be owned and controlled by a socially and economically 
disadvantaged individual. When a recipient determines that an 
individual's net worth exceeds $1.32 million, the individual's 
presumption of economic disadvantage is said to have been conclusively 
rebutted. In order to make this determination, the current rule 
requires recipients to obtain a signed and notarized statement of 
personal net worth from all persons who claim to own and control a firm 
applying for DBE or ACDBE certification and whose ownership and control 
are relied upon for the certification. These personal net worth 
statements must be accompanied by appropriate supporting documentation 
(e.g., tax returns). The form proposed in this rule would replace use 
of an SBA form suggested in current regulations.
    Based on discussion with DBE firms, we estimate that compiling 
information for and filling out this form would take approximately 10 
hours.
    The number of respondents is significantly higher than the number 
of applications received due to annual submissions of the form by 
owners of DBE or ACDBE certified firms.
    Frequency: Once during initial DBE certification and each year 
thereafter during annual update process. For the DBE/ACDBE programs, 
information regarding the assets and liabilities of individual owners 
is necessary for recipients of Federal Transit Administration, Federal 
Aviation Administration, and Federal Highway Administration, to make 
responsible decisions concerning an applicant's economic disadvantage 
under the rule. All persons who claim to own and control a firm 
applying for DBE or ACDBE certification and whose ownership and control 
are relied upon for the certification will complete the form. Once a 
firm is certified as a DBE or ACDBE, these same owners will complete 
the form each year.
    Estimated Average Burden per Response: 8 hours for the initial 
statement; 4 hours for future updates.
    Number of Respondents: 9000-9500 applicants each year. Assuming 
approximately 30,000 certified firms nationally, there would be that 
number of updates annually.
    Estimated Burden: 72-76 thousand hours per year for applications; 
120,000 hours for annual updates. Total estimated burden would be 192-
196 thousand hours per year.
3. Material With Annual Affidavits of No Change
    Each year, a certified firm must submit an affidavit of no change. 
In addition to an updated PNW statement (see above), the affidavit must 
be accompanied by (1) A record from each individual claiming 
disadvantaged status regarding the transfer of assets for less than 
fair market value to any immediate family member, or to a trust any 
beneficiary of which is an immediate family member, within two years of 
the date of the annual review; (2) a record of all payments, 
compensation, and distributions (including loans, advances, salaries 
and dividends) made by the DBE firm to each of its owners, officers or 
directors, or to any person or entity affiliated with such individuals; 
and (3) the owner and the firm's (including affiliates) most recent 
completed IRS tax return, IRS Form 4506 (Request for Copy or Transcript 
of Tax Return). Collection and submission of these items during the 
annual affidavit is estimated to take approximately 1.5 hours 
(realizing that not all firms will have to submit items (1) and (2), 
and that item 3 will already have been prepared for IRS purposes.
    Respondents: The approximately 30,000 certified DBE firms.
    Burden: Approximately 45, 000 hours per year.
4. Reporting Requirement for Percentages of DBEs in Various Categories
    The NPRM would implement a statutory requirement calling on UCPs to 
report the percentages of white women, minority men, and minority women 
who control DBE firms. To carry out this requirement, the 52 UCPs would 
read their existing Directories, noting which firms fell into each of 
these three categories. The UCPs would then calculate the percentages 
and email the results off to the Departmental Office of Civil Rights. 
It would take each UCP an estimated three hours to comb through their 
Directories, and another three minutes to operate their calculators to 
do the percentages and send an email.
    Respondents: 52.
    Burden: Approximately 158.5 hours.

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 22nd day of August 2012, at Washington, DC.
Robert S. Rivkin,
General Counsel.
    For the reasons set forth in the preamble, the Department of 
Transportation proposes to amend 49 CFR part 26 as follows:

PART 26--[AMENDED]

    1. The authority citation for 49 CFR part 26 continues to read as 
follows:

    Authority:  23 U.S.C. 304 and 324; 42 U.S.C. 2000d, et seq. ; 49 
U.S.C. 47107, 47113, 47123; Sec. 1101(b), Pub. L. 105-178, 112 Stat. 
107, 113.
    2. In Sec.  26.1, redesignate paragraphs (f) and (g) as paragraphs 
(g) and (h), and add new paragraph (f),to read as follows:


Sec.  26.1  What are the objectives of this part?

* * * * *
    (f) To promote the use of DBEs in all types of Federally-assisted 
contracts and procurement activities conducted by recipients.
* * * * *
    3. Amend Sec.  26.5 by removing the definition ``DOT/SBA Memorandum 
of Understanding or MOU'' and by adding the following definitions 
``Assets'', ``Business, business concern or business enterprise'', 
``Contingent Liability'', ``Days'', ``Immediate family member'', 
``Liabilities'', ``Principal place of business'', ``Transit vehicle 
manufacturer (TVM)'', in the proper alphabetical order to read as 
follows:


Sec.  26.5  What do the terms used in this part mean?

    Assets mean all the property of a person available for paying debts 
or for distribution, including one's respective share of jointly held 
assets. This includes, but is not limited to, cash on hand and in 
banks, savings accounts, IRA or other retirement accounts, accounts 
receivable, life insurance, stocks and bonds, real estate, and personal 
property.
    Business, business concern or business enterprise means an entity 
organized for profit with a place of business located in the United 
States, and which operates primarily within the United States or which 
makes a significant contribution to the United States economy through 
payment of

[[Page 54968]]

taxes or use of American products, materials, or labor.
    Contingent Liability means a liability that depends on the 
occurrence of a future and uncertain event. This includes, but is not 
limited to, guaranty for debts owed by the applicant concern, legal 
claims and judgments, and provisions for federal income tax.
    Days mean calendar days. In computing any period of time described 
in this part, the day from which the period begins to run is not 
counted, and when the last day of the period is a Saturday, Sunday, or 
Federal holiday, the period extends to the next day that is not a 
Saturday, Sunday, or Federal holiday. Similarly, in circumstances where 
the recipient's offices are closed for all or part of the last day, the 
period extends to the next day on which the agency is open.
    Immediate family member means father, mother, husband, wife, son, 
daughter, brother, sister, grandfather, grandmother, father-in-law, and 
mother-in-law.
    Liabilities mean financial or pecuniary obligations. This includes, 
but is not limited to, accounts payable, notes payable to bank or 
others, installment accounts, mortgages on real estate, and unpaid 
taxes.
    Principal place of business means the business location where the 
individuals who manage the applicant's day-to-day operations spend most 
working hours. If the offices from which management is directed and 
where the business records are kept are in different locations, the 
recipient will determine the principal place of business.
    Transit vehicle manufacturer (TVM) means any manufacturer whose 
primary business purpose is to manufacture vehicles specifically built 
for public mass transportation. Such vehicles include, but are not 
limited to: buses, rail cars, trolleys, ferries, and vehicles 
manufactured specifically for paratransit purposes. Businesses that 
manufacture, mass-produce, or distribute vehicles solely for personal 
use and for sale ``off the lot'' are not considered transit vehicle 
manufacturers.
    4. In Sec.  26.5, revise the definitions of ``Primary industry 
classification'' and ``Socially and economically disadvantaged 
individual'' to read as follows:


Sec.  26.5  What do the terms used in this part mean?

* * * * *
    Primary industry classification means the most current North 
American Industrial Classification System (NAICS) designation which 
best describes the primary business of a firm. The NAICS is described 
in the North American Industry Classification Manual--United States, 
which is available from the National Technical Information Service, 
5301 Shawnee Road, Alexandria, VA, 22312 by calling 1-800-553-6847; 
TDD: (703) 487-4639, on the Internet at: https://www.ntis.gov/products/naics.aspx. or through the U.S. Census Bureau https://www.census.gov/eos/www/naics/.
* * * * *
    Socially and economically disadvantaged individual means any 
individual who is a citizen (or lawfully admitted permanent resident) 
of the United States and who has been subjected to racial or ethnic 
prejudice or cultural bias within American society because of his or 
her identity as a members of groups and without regard to his or her 
individual qualities. The social disadvantage must stem from 
circumstances beyond the individual's control.
    (1) Any individual who a recipient finds to be a socially and 
economically disadvantaged individual on a case-by-case basis. An 
individual must demonstrate that he or she has held himself or herself 
out, as a member of a designated group if you require it.
    (2) Any individual in the following groups, members of which are 
rebuttably presumed to be socially and economically disadvantaged:
    (i) ``Black Americans,'' which includes persons having origins in 
any of the Black racial groups of Africa;
    (ii) ``Hispanic Americans,'' which includes persons of Mexican, 
Puerto Rican, Cuban, Dominican, Central or South American, or other 
Spanish or Portuguese culture or origin, regardless of race;
    (iii) ``Native Americans,'' which includes persons who are enrolled 
members of a federally or state recognized Indian tribe, Alaska 
Natives, or Native Hawaiians;
    (iv) ``Asian-Pacific Americans,'' which includes persons whose 
origins are from Japan, China, Taiwan, Korea, Burma (Myanmar), Vietnam, 
Laos, Cambodia (Kampuchea), Thailand, Malaysia, Indonesia, the 
Philippines, Brunei, Samoa, Guam, the U.S. Trust Territories of the 
Pacific Islands (Republic of Palau), Republic of the Northern Marianas 
Islands, Samoa, Macao, Fiji, Tonga, Kirbati, Tuvalu, Nauru, Federated 
States of Micronesia, or Hong Kong;
    (v) ``Subcontinent Asian Americans,'' which includes persons whose 
origins are from India, Pakistan, Bangladesh, Bhutan, the Maldives 
Islands, Nepal or Sri Lanka;
    (vi) Women;
    (vii) Any additional groups whose members are designated as 
socially and economically disadvantaged by the SBA, at such time as the 
SBA designation becomes effective.

Being born in a particular country does not, standing alone, mean that 
a person is necessarily a member of one of the groups listed in this 
definition.
* * * * *
    5. In Sec.  26.11, add new paragraphs (d) and (e), to read as 
follows:


Sec.  26.11  What records do recipients keep and report?

* * * * *
    (d) You must maintain all records documenting a firm's compliance 
with the requirements of this part. At a minimum, you should keep a 
complete application package for each certified firm and all affidavits 
of no-change, change notices, and on-site reviews. Such records must be 
retained in accordance with applicable record retention requirements 
for the recipient's financial assistance agreement.
    (e) Each UCP established pursuant to section 26.81 of this Part 
must report to the Department of Transportation's Departmental Office 
of Civil Rights, by May 31 of each year, the percentage of certified 
DBE firms in its Directory controlled by the following:
    (1) women;
    (2) socially and economically disadvantaged individuals (other than 
women); and
    (3) individuals who are women and are otherwise socially and 
economically disadvantaged individuals


Sec.  26.21  [Amended]

    6. In Sec.  26.21 paragraph (a)(1) add the word ``primary'' before 
FHWA, in paragraph (a)(2) and (a)(3) remove the word ``exceeding'' and 
add in its place the words ``the cumulative total value of which 
exceeds.''
    7. In Sec.  26.45 revise paragraphs (c) (2), (c) (5); 
(d)(introductory paragraph), (e)(3), (f)(4) and (g) to read as follows:


Sec.  26.45.  How Do Recipients Set Overall Goals?

* * * * *
    (c) * * *
    (2) Use a bidders list. Determine the number of DBEs that have bid 
or quoted on your DOT-assisted prime contracts or subcontracts in the 
past three years. Determine the number of all businesses (successful 
and unsuccessful) that have bid or quoted on prime or subcontracts in 
the same time period. Divide the number of DBE bidders and quoters by 
the number of all businesses to derive

[[Page 54969]]

a base figure for the relative availability of DBEs in your market. 
When using this approach, you must establish a mechanism to directly 
capture data on DBE and non-DBE subcontractors that submitted bids or 
quotes on your DOT-assisted contracts. * * *
    (5) Alternative methods. Except as otherwise provided in this 
paragraph, you may use other methods to determine a base figure for 
your overall goal. Any methodology you choose must be based on 
demonstrable evidence of local market conditions and be designed to 
ultimately attain a goal that is rationally related to the relative 
availability of DBEs in your market. Use of a list of prequalified 
contractors or plan holders is not an acceptable alternative means of 
determining the availability of DBEs.
    (d) Step 2. Once you have calculated a base figure, you must 
examine all of the evidence available in your jurisdiction to determine 
what adjustment, if any, is needed to the base figure to arrive at your 
overall goal. If the evidence does not suggest an adjustment is 
necessary, then no adjustment shall be made.
* * * * *
    (e) * * *
    (3) In appropriate cases, the FHWA, FTA or FAA Administrator may 
permit or require you to express your overall goal as a percentage of 
funds for a particular grant or project or group of grants and/or 
projects, including entire 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) * * *
    (4) You are not required to obtain prior operating administration 
concurrence with your overall goal. However, if the operating 
administration's review suggests that your overall goal has not been 
correctly calculated or that your method for calculating goals is 
inadequate, the operating administration may, after consulting with 
you, adjust your overall goal or require that you do so. The adjusted 
overall goal is binding on you. In evaluating the adequacy or soundness 
of the methodology used to derive the overall goal, the operating 
administration will be guided by goal setting principles and best 
practices identified by the Department in guidance issued pursuant to 
section 26.9.
* * * * *
    (g) In establishing an overall goal, you must provide for 
consultation and publication. This includes:
    (1) Consultation with minority, women's and general contractor 
groups, community organizations, and other officials or organizations 
which could be expected to have information concerning the availability 
of disadvantaged and non-disadvantaged businesses, the effects of 
discrimination on opportunities for DBEs, and your efforts to establish 
a level playing field for the participation of DBEs. The consultation 
must include a scheduled, direct, interactive exchange (e.g., a face-
to-face meeting, video conference, teleconference) with as many 
interested stakeholders as possible focused on obtaining information 
relevant to the goal setting process, and it must occur before you are 
required to submit your methodology to the operating administration for 
review pursuant to section 26.45(f). You must document in your goal 
submission the consultation process you engaged in. Notwithstanding 
section 25.45 (f)(4), you may not implement your proposed goal until 
you have complied with this requirement.
    (2) A published notice announcing your proposed overall goal before 
submission to the operating administration on August 1st. The notice 
must be posted on your Internet Web site any other sources (e.g., 
minority-focused media, trade association publications). If the 
proposed goal changes following review by the operating administration, 
the revised goal must be posted on your Internet Web site.
* * * * *
    8. Revise Sec.  26.49 to read as follows:


Sec.  26.49  How are overall goals established for vehicle 
manufacturers?

    (a) If you are an FTA recipient, you must require in your DBE 
program that each transit vehicle manufacturer, as a condition of being 
authorized to bid or propose on FTA-assisted transit vehicle 
procurements, certify that it has complied with the requirements of 
this section. You do not include FTA assistance used in transit vehicle 
procurements in the base amount from which your overall goal is 
calculated.
    (1) Only those transit vehicle manufacturers listed on FTA's 
certified list of Transit Vehicle Manufacturers at the time of 
solicitation are eligible to bid.
    (2) Failure to implement the DBE Program in the manner as 
prescribed in this section and throughout 49 CFR Part 26 will be deemed 
as non-compliance, which will result in removal from FTA's certified 
TVMs list, resulting in that manufacturer becoming ineligible to bid.
    (3) FTA recipients must have a mechanism in place to document that 
only certified manufacturers were allowed to bid.
    (4) FTA recipients are required to submit within 30 days of making 
an award, the name of the successful bidder, and the total dollar value 
of the contract in the manner prescribed in the grant agreement.
    (b) If you are a transit vehicle manufacturer, you must establish 
and submit for FTA's approval an annual overall percentage goal.
    (1) In setting your overall goal, you should be guided, to the 
extent applicable, by the principles underlying Sec.  26.45. The base 
from which you calculate this goal is the amount of FTA financial 
assistance included in transit vehicle contracts you will bid on during 
the fiscal year in question, less the portion(s) attributable to the 
manufacturing process performed entirely by the transit vehicle 
manufacturer's own forces.
    (i) You must consider and include in your base figure all 
contracting opportunities made available to non-DBE firms; and
    (ii) You must exclude from this base figure funds attributable to 
work performed outside the United States and its territories, 
possessions, and commonwealths.
    (iii) In establishing an overall goal, the transit vehicle 
manufacturer must provide for public participation. This includes 
consultation with interested parties consistent with Sec.  26.45(g) as 
well as publication of contracting opportunities within a Central 
Repository of Contracting Opportunities.
    (2) The requirements of this part with respect to submission and 
approval of overall goals apply to you as they do to recipients.
    (c) Transit vehicle manufacturers awarded must comply with the 
reporting requirements of Sec.  26.11 of this part including the 
requirement to submit the Uniform Report of Awards/

[[Page 54970]]

Commitments and Payments, in order to remain eligible to bid on FTA 
assisted transit vehicle procurements
    (d) Transit vehicle manufacturers must implement all other 
applicable requirements of this part, except those relating to UCPs and 
DBE certification procedures.
    (e) If you are an FHWA or FAA recipient, you may, with FHWA or FAA 
approval, use the procedures of this section with respect to 
procurements of vehicles or specialized equipment. If you choose to do 
so, then the manufacturers of this equipment must meet the same 
requirements (including goal approval by FHWA or FAA) as transit 
vehicle manufacturers must meet in FTA-assisted procurements.
    (f) As a recipient you may, with FTA approval, establish project-
specific goals for DBE participation in the procurement of transit 
vehicles in lieu of complying through the procedures of this section.
    9. Revise Sec.  26.51 paragraph (a) to read as follows:


Sec.  26.51  What means do recipients use to meet overall goals?

    (a) You must meet the maximum feasible portion of your overall goal 
by using race-neutral means of facilitating race-neutral DBE 
participation. Race-neutral DBE participation includes any time a DBE 
wins a prime contract through customary competitive procurement 
procedures or is awarded a subcontract on a prime contract that does 
not carry a DBE contract goal.
* * * * *
    10. In Sec.  26.53, revise paragraph (b), redesignate paragraph 
(f)(1) as (f)(1)(i), and add a new paragraph (f)(1)(ii) to read as 
follows:


Sec.  26.53  What are the good faith efforts procedures recipients 
follow in situations where there are contract goals?

* * * * *
    (b) In your solicitations for DOT-assisted contracts for which a 
contract goal has been established, you must require the following:
    (1) Award of the contract will be conditioned on meeting the 
requirements of this section;
    (2) All bidders/offerors will be required to submit the following 
information to the recipient, at the time provided in paragraph (b)(3) 
of this section:
    (i) The names and addresses of DBE firms that will participate in 
the contract;
    (ii) A description of the work that each DBE will perform. To count 
toward meeting a goal, each DBE firm must be certified in a NAICS code 
applicable to the kind of work the firm would perform on the contract;
    (iii) The dollar amount of the participation of each DBE firm 
participating;
    (iv) Written documentation of the bidder/offeror's commitment to 
use a DBE subcontractor whose participation it submits to meet a 
contract goal; and
    (v) Written confirmation from each listed DBE firm that it is 
participating in the contract in the kind and amount of work provided 
in the prime contractor's commitment.
    (3) You must require that the each bidder/offeror present all 
information required by paragraph (b)(2) of this section at the time 
its bid/offer is presented (e.g., the time of bid opening, the time of 
presentation of initial proposals). Provided that, in a negotiated 
procurement, the offeror may make a contractually binding commitment to 
meet the goal at the time of the presentation of initial proposals but 
provide the information required by paragraph (b)(2) of this section 
before the final selection for the contract is made by the recipient.
    (4) If the apparent successful bidder/offeror has not met the 
contract goal, it must submit documentation of the good faith efforts 
it made to meet the goal in order to be eligible for contract award. 
The documentation of good faith efforts must include copies of each DBE 
and non-DBE subcontractor quote submitted to the bidder when a non-DBE 
subcontractor was selected over a DBE for work on the contract.
    (i) You may require all bidders/offerors who do not meet the 
contract goal to submit this documentation with their original 
submission; or
    (ii) You may allow an apparent successful bidder/offeror who does 
not meet the contract goal to submit this documentation within one day 
of your notification that it is the apparent successful bidder/offeror. 
If you use this approach, you must require that the apparent successful 
bidder/offeror certify that all evidence of good faith efforts was 
created or generated before the time of the original bid/offer 
submission. Efforts to obtain additional DBE participation made after 
the time of the original submission will not be accepted as evidence of 
good faith efforts.
* * * * *
    (f)(1)(i) * * *
    (ii) You must include in each prime contract a provision stating 
(A) that the contractor shall utilize the specific DBEs listed to 
perform the work and supply the materials for which each is listed 
unless the contractor obtains your written consent as provided in this 
paragraph (f); and (B) that, unless your consent is provided under this 
paragraph (f), the contractor shall not be entitled to any payment for 
work or material unless it is performed or supplied by the listed DBE.
* * * * *
    11. In Sec.  26.53, revise paragraphs (g) and (h), resdesignate 
paragraph (i) as paragraph (j), and add new paragraphs (i), and (k) to 
read as follows:


Sec.  26.53  What are the good faith efforts procedures recipients 
follow in situations where there are contract goals?

* * * * *
    (g) When a DBE subcontractor is terminated as provided in paragraph 
(f) of this section, or fails to complete its work on the contract for 
any reason, you must require the prime contractor to make good faith 
efforts to find another DBE subcontractor to substitute for the 
original DBE. These good faith efforts shall be directed at finding 
another DBE to perform at least the same amount of work under the 
contract as the DBE that was terminated, to the extent needed to meet 
the contract goal you established for the procurement. These good faith 
efforts shall be documented by the contractor and at your discretion, 
you must direct the contractor to provide--
    (i) written notification to certified DBEs that their interest is 
solicited in subcontracting work defaulted by the previous DBE or in 
subcontracting other items of work in the contract;
    (ii) a statement of efforts to negotiate with certified DBEs for 
specific sub-bids including the names, addresses, and telephone numbers 
of certified DBEs who were contacted; a description of the information 
provided to certified DBEs regarding the plans and specifications for 
portions of the work to be performed; and a statement of why additional 
agreements with certified DBEs were not reached; and
    (iii) documentation demonstrating its attempts to contact the 
recipient for assistance in locating certified DBEs willing to assume 
the portion of work or do other work on the contract. If the recipient 
requests documentation under this provision, the contractor shall 
submit the documentation within 7 days and the recipient shall provide 
a written determination to the contractor stating whether or not good 
faith efforts have been demonstrated.
    (h) You must include in each prime contract a provision stating 
that failure by the contractor to carry out the requirements of this 
Part is a material breach of the contract, and may result in the 
termination of the contract, the remedies set forth in paragraph (i) of

[[Page 54971]]

this section, or other remedies you deem appropriate.
    (i) You must include in each prime contract a provision for 
appropriate administrative remedies that you will invoke if the prime 
contractor fails to comply with the requirements of this section in 
making good faith efforts to meet DBE contract goals and commitments. 
The remedies shall include provisions regarding (i) the withholding of 
monthly progress payments; (ii) declaring the contractor in default and 
terminating the contract; (iii) assessing sanctions in the amount of 
the difference in the DBE contract committal and the actual payments 
made to each certified DBEs; (iv) liquidated damages; and/or (v) 
disqualifying the contractor from future bidding as non-responsible.
    (j) You must apply the requirements of this section to DBE bidders/
offerors for prime contracts. In determining whether a DBE bidder/
offeror for a prime contract has met a contract goal, you count the 
work the DBE has committed to performing with its own forces as well as 
the work that it has committed to be performed by DBE subcontractors 
and DBE suppliers.
    (k) You must require the contractor to provide a copy of all DBE 
subcontracts. The subcontractor shall ensure that all subcontracts or 
an agreement with DBEs to supply labor or materials require that the 
subcontract and all lower tier subcontractors be performed in 
accordance with this part's provisions.
    12. In Sec.  26.55, revise paragraph (d)(5) and the example to 
paragraph (d)(5); redesignate paragraph (d)(6) as (d)(7); and add new 
paragraph (d)(6) and example to paragraph (d)(6); and add a new 
paragraph (e)(4) to read as follows:


Sec.  26.55  How is DBE participation counted toward goals?

* * * * *
    (d) * * *
    (5) The DBE may also lease trucks from a non-DBE firm, including 
from an owner-operator. The DBE that leases trucks equipped with 
drivers from a non-DBE is entitled to credit for the total value of 
transportation services provided by non-DBE leased trucks equipped with 
drivers not to exceed the value of transportation services on the 
contract provided by DBE-owned trucks or leased trucks with DBE 
employee drivers. Additional participation by non-DBE owned trucks 
equipped with drivers receives credit only for the fee or commission it 
receives as a result of the lease arrangement. If a recipient chooses 
this approach, it must obtain written consent from the appropriate DOT 
Operating Administration.

    Example to this paragraph (d)(5): DBE Firm X uses two of its own 
trucks on a contract. It leases two trucks from DBE Firm Y and six 
trucks equipped with drivers from non-DBE Firm Z. DBE credit would 
be awarded for the total value of transportation services provided 
by Firm X and Firm Y, and may also be awarded for the total value of 
transportation services provided by four of the six trucks provided 
by Firm Z. In all, full credit would be allowed for the 
participation of eight trucks. DBE credit could be awarded only for 
the fees or commissions pertaining to the remaining trucks Firm X 
receives as a result of the lease with Firm Z.

    (6) The DBE may lease trucks without drivers from a non-DBE truck 
leasing company. If the DBE leases trucks from a non-DBE truck leasing 
company and uses its own employees as drivers, it is entitled to credit 
for the total value of these hauling services.

    Example to paragraph (d)(6): DBE Firm X uses two of its own 
trucks on a contract. It leases two additional trucks from non-DBE 
Firm Z. Firm X uses its own employees to drive the trucks leased 
from Firm Z. DBE credit would be awarded for the total value of the 
transportation services provided by all four trucks.

* * * * *
    (e) * * *
    (4) You must determine the amount of credit awarded to a firm for 
the provisions of materials and supplies (e.g., whether a firm is 
acting as a regular dealer or a transaction expediter) on a contract-
by-contract basis.
* * * * *
    13. In Sec.  26.65, revise paragraph (a), and in paragraph (b), 
remove ``in excess of $22.41 million'' and add in its place ``in excess 
of ``$23.98 million'' to read as follows:


Sec.  26.65  What rules govern business size determinations?

    (a) To be an eligible DBE, a firm (including its affiliates) must 
be an existing small business, as defined by Small Business 
Administration (SBA) standards. As a recipient, you must apply current 
SBA business size standard(s) found in 13 CFR part 121 appropriate to 
primary industry classification of the applicant.
* * * * *
    14. Revise Sec.  26.67 to read as follows:


Sec.  26.67  What rules determine social and economic disadvantage?

    (a) Presumption of disadvantage. (1) You must rebuttably presume 
that citizens of the United States (or lawfully admitted permanent 
residents) who are women, Black Americans, Hispanic Americans, Native 
Americans, Asian-Pacific Americans, Subcontinent Asian Americans, or 
other minorities found to be disadvantaged by the SBA, are socially and 
economically disadvantaged individuals. You must require applicants to 
submit a signed, notarized certification that each presumptively 
disadvantaged owner is, in fact, socially and economically 
disadvantaged.
    (2)(i) You must require each individual owner of a firm applying to 
participate as a DBE, whose ownership and control are relied upon for 
DBE certification, to certify that he or she has a personal net worth 
that does not exceed $1.32 million.
    (ii) You must require each individual who makes this certification 
to support it with a signed, notarized statement of personal net worth, 
with appropriate supporting documentation. To meet this requirement, 
you must use the application form provided in Appendix G to this part 
without change or revision. Where necessary to accurately determine an 
individual's PNW, you may, on a case-by-case basis, require additional 
financial information from the owner of an applicant firm (e.g., 
information concerning the assets of the owner's spouse, where needed 
to clarify whether assets have been transferred to the spouse).
    (iii) The PNW statement must include all assets owned by the 
individual, including any ownership interests in the applicant firm, 
personal assets, and the value of his or her personal residence. 
However, when computing an individual's net worth to determine economic 
disadvantage, you must make the adjustments in paragraph (iv) of this 
paragraph.
    (iv) In determining an individual's net worth, you must observe the 
following requirements:
    (A) Exclude an individual's ownership interest in the applicant 
firm;
    (B) Exclude the individual's equity in his or her primary residence 
(except any portion of such equity that is attributable to excessive 
withdrawals from the applicant firm). The equity is the market value of 
the residence less any mortgages and home equity loan balances. 
Recipients must ensure that home equity loan balances are included in 
the equity calculation and not as a separate liability on the 
individual's personal net worth form. Exclusions for net worth purposes 
are not exclusions for asset valuation or access to capital and credit 
purposes.
    (C) Do not use a contingent liability to reduce an individual's net 
worth.
    (D) With respect to assets held in vested pension plans, Individual 
Retirement Accounts, 401(k) accounts, or other retirement savings or 
investment programs in which the assets cannot be distributed to the

[[Page 54972]]

individual at the present time without significant adverse tax or 
interest consequences, include only the present value of such assets, 
less the tax and interest penalties that would accrue if the asset were 
distributed at the present time.
    (v) Notwithstanding any provision of Federal or state law, you must 
not release an individual's personal net worth statement nor any 
documents pertaining to it to any third party without the written 
consent of the submitter. Provided, that you must transmit this 
information to DOT in any certification appeal proceeding under section 
26.89 of this part or to any other state to which the individual's firm 
has applied for certification under Sec.  26.85 of this part.
    (b) Rebuttal of presumption of disadvantage. (1) If the statement 
of personal net worth and supporting documentation that an individual 
submits under paragraph (a)(2) of this section shows that the 
individual's personal net worth exceeds $1.32 million or demonstrates 
that the individual is (i) able to accumulate substantial wealth; (ii) 
has unlimited growth potential; or (iii) has not experienced or had to 
overcome impediments to obtaining access to financing, markets, and 
resources, the individual's presumption of economic disadvantage is 
rebutted. As a certifying agency, you should review the total fair 
market value of the individual's assets and determine if that level 
appears to be substantial and indicates an ability to accumulate 
substantial wealth.

    Example to paragraph (b)(1): An individual with very high assets 
and significant liabilities may, in accounting terms, have a PNW of 
less than $1.32 million. However, the person's assets (e.g., a very 
expensive house, a yacht, extensive real or personal property 
holdings) may lead to a conclusion that he or she is not 
economically disadvantaged. The recipient can rebut the individual's 
presumption of economic disadvantage under these circumstances, as 
provided in this section, even though the individual's PNW is less 
than $1.32 million.
    (2) In the case of an individual whose economic disadvantage is 
rebutted because his or her PNW shows a PNW exceeding $1.32 million, 
you are not required to have a proceeding under paragraph (b)(2) of 
this section in order to rebut the presumption of economic 
disadvantage in this case.
    (3) If you have a reasonable basis to believe that an individual 
who is a member of one of the designated groups is not, in fact, 
socially and/or economically disadvantaged you may, at any time, 
start a proceeding to determine whether the presumption should be 
regarded as rebutted with respect to that individual. Your 
proceeding must follow the procedures of Sec. 26.87.
    (4) In such a proceeding, you have the burden of demonstrating, 
by a preponderance of the evidence, that the individual is not 
socially and economically disadvantaged. You may require the 
individual to produce information relevant to the determination of 
his or her disadvantage.
    (5) When an individual's presumption of social and/or economic 
disadvantage has been rebutted, his or her ownership and control of 
the firm in question cannot be used for purposes of DBE eligibility 
under this subpart unless and until he or she makes an individual 
showing of social and/or economic disadvantage. If the basis for 
rebutting the presumption is a determination that the individual's 
personal net worth exceeds $1.32 million, the individual is no 
longer eligible for participation in the program and cannot regain 
eligibility by making an individual showing of disadvantage, so long 
as his or her PNW remains above that amount.

    (c) Transfers within two years.
    (1) Except as set forth in paragraph (e)(2) of this section, 
recipients must attribute to an individual claiming disadvantaged 
status any assets which that individual has transferred to an immediate 
family member, to a trust a beneficiary of which is an immediate family 
member, or to the applicant firm for less than fair market value, 
within two years prior to a concern's application for participation in 
the DBE program or within two years of recipient's review of the firm's 
eligibility, unless the individual claiming disadvantaged status can 
demonstrate that the transfer is to or on behalf of an immediate family 
member for that individual's education, medical expenses, or some other 
form of essential support.
    (2) Recipients must not attribute to an individual claiming 
disadvantaged status any assets transferred by that individual to an 
immediate family member that are consistent with the customary 
recognition of special occasions, such as birthdays, graduations, 
anniversaries, and retirements.
    (d) Firms owned and controlled by individuals who are not presumed 
to be socially and economically disadvantaged (including individuals 
whose presumed disadvantage has been rebutted) may apply for DBE 
certification. You must make a case-by-case determination of whether 
each individual whose ownership and control are relied upon for DBE 
certification is socially and economically disadvantaged. In such a 
proceeding, the applicant firm has the burden of demonstrating to you, 
by a preponderance of the evidence, that the individuals who own and 
control it are socially and economically disadvantaged. In making these 
determinations, use the guidance found in Appendix E of this part. You 
must require that applicants provide sufficient information to permit 
determinations under the guidance of Appendix E of this part.
    15. In Sec.  26.69, revise paragraphs (a), (c)(1), and (i), add new 
paragraph (k), to read as follows:


Sec.  26.69  What rules govern determinations of ownership?

    (a) In determining whether the socially and economically 
disadvantaged participants in a firm own the firm, you must consider 
all the facts in the record viewed as a whole, including the origin of 
all assets and how and when they were used in obtaining the firm. All 
transactions for the establishment and ownership (or transfer of 
ownership) must be in the normal course of business, reflecting 
commercial and arms-length practices.
* * * * *
    (c)(1) The firm's ownership by socially and economically 
disadvantaged individuals, including their contribution of capital or 
expertise to acquire their ownership interests, must be real, 
substantial, and continuing, going beyond pro forma ownership of the 
firm as reflected in ownership documents. Proof of contribution of 
capital should be submitted at the time of the application. When the 
contribution of capital is through a loan, there must be documentation 
of the value of assets used as collateral for the loan.
    (2) Insufficient contributions include a promise to contribute 
capital, an unsecured note payable to the firm or an owner who is not a 
disadvantaged individual, mere participation in a firm's activities as 
an employee, or capitalization not commensurate with the value for the 
firm.

    Examples to paragraph (c): 
    1. An individual pays $100 to acquire a majority interest in a 
firm worth $1 million. The individual's contribution to capital 
would not be viewed as substantial.
    2. A 51% disadvantaged owner and a non-disadvantaged 49% owner 
contribute $100 and $10,000, respectively, to acquire a firm 
grossing $1 million. This may be indicative of a pro forma 
arrangement that does not meet the requirements of (c)(1).
    3. The disadvantaged owner of a DBE applicant firm spends $250 
to file articles of incorporation and obtains a $100,000 loan, but 
makes only nominal or sporadic payments to repay the loan. This type 
of contribution is not of a continuing nature.

    (3) The disadvantaged owners must enjoy the customary incidents of 
ownership, and share in the risks and profits commensurate with their 
ownership interests, as demonstrated by the substance, not merely the 
form, of arrangements. Risks include financial,

[[Page 54973]]

legal, and operational obligations. Any terms or practices which give a 
non-disadvantaged individual or firm a priority or superior right a 
firm's profits, compared to the disadvantaged owner(s),
    (4) Dividends and distributions. The disadvantaged owners must be 
entitled to receive:
    (i) At least 51 percent of the annual distribution of dividends 
paid on the stock of a corporate applicant concern;
    (ii) 100 percent of the value of each share of stock owned by them 
in the event that the stock is sold; and
    (iii) At least 51 percent of the retained earnings of the concern 
and 100 percent of the unencumbered value of each share of stock they 
own in the event of dissolution of the corporation.
    (5) Debt instruments from financial institutions or other 
organizations that lend funds in the normal course of their business do 
not render a firm ineligible, even if the debtor's ownership interest 
is security for the loan.
* * * * *
    (i) You must apply the following rules in situations in which 
marital assets form a basis for ownership of a firm:
    (1) When marital assets (other than the assets of the business in 
question), held jointly or as community property by both spouses, are 
used to acquire the ownership interest asserted by one spouse, you must 
deem the ownership interest in the firm to have been acquired by that 
spouse with his or her own individual resources, provided that the 
other spouse irrevocably renounces and transfers all rights in the 
ownership interest in the manner sanctioned by the laws of the state in 
which either spouse or the firm is domiciled.
    (2) A copy of the document legally transferring and renouncing the 
other spouse's rights in the jointly owned or community assets used to 
acquire an ownership interest in the firm must be included as part of 
the firm's application for DBE certification. The document must have 
been signed contemporaneously with the transfer.
    (3) You have discretion in cases where marital assets are used to 
require information concerning the spouse's assets and liabilities. You 
must make a case-by-case determination of whether the asset transfer 
was made for reasons other than obtaining certification as a DBE.
* * * * *
    (k) You must give particularly close and careful scrutiny to all 
interests in a business or other assets obtained by a socially and 
economically disadvantaged owner that resulted from a seller-financed 
sale of the firm or in cases where a loan or proceeds from a non-
financial institution were used by the owner to purchase the interest. 
The following conditions apply to such a transaction:
    (1) Terms and conditions must be comparable to prevailing market 
conditions offered by commercial lenders for similar type of projects 
(e.g., in terms of such factors as duration, rate, and fees);
    (2) The applicant firm and disadvantaged business owner of the 
promissory note or loan agreement must provide evidence clearly stating 
the terms and conditions of the loan, including due date and payment 
method, interest rate, prepayment, defaults, and collateral;
    (3) The note must be a full-recourse note and be personally 
guaranteed by the socially and economically disadvantaged owner and/or 
secured by assets outside of the ownership interest or future profits 
of the applicant firm;
    (4) The contributions of capital by the socially and economically 
disadvantaged owner and any use of collateral by them must be clearly 
evident from the firm's records and supported by adequate 
documentation; and
    (5) Other than normal loan provisions designed to preserve property 
pledged as collateral, there must be no conditions, provisions, or 
practices that have the effect of limiting the socially and 
economically disadvantaged owner's ability to control the applicant 
firm.


The firm bears the burden of proving by clear and convincing evidence 
the transaction meets these criteria.
    16. Revise Sec.  26.71 paragraph (e) to read as follows:


Sec.  26.71  What rules govern determinations concerning control?

* * * * *
    (e)(1) Individuals who are not socially and economically 
disadvantaged or immediate family members may be involved in a DBE firm 
as owners, managers, employees, stockholders, officers, and/or 
directors. Such individuals must not, however:
    (i) Possess or exercise the power to control the firm, or be 
disproportionately responsible for the operation of the firm; or
    (ii) Be a former employer or a principal of a former employer of 
any disadvantaged owner of the applicant or DBE firm, unless it is 
determined by the recipient that the relationship between the former 
employer or principal and the disadvantaged individual or applicant 
concern does not give the former employer actual control or the 
potential to control the applicant or DBE firm.
    (2) The following are examples of situations in which non-
disadvantaged individuals or entities may be found to control or have 
the power to control the applicant or participant firm:
    (i) Non-disadvantaged individuals control the Board of Directors of 
the applicant or Participant, either directly through majority voting 
membership, or indirectly, where the by-laws allow non-disadvantaged 
individuals effectively to prevent a quorum or block actions proposed 
by the disadvantaged individuals.
    (ii) A non-disadvantaged individual or entity, having an equity 
interest in the applicant or participant, provides critical financial 
or bonding support or a critical license to the applicant or DBE firm 
which directly or indirectly allows the non-disadvantaged individual 
significantly to influence business decisions of the DBE firm.
    (iii) A non-disadvantaged individual or entity controls the 
applicant or DBE firm or an individual disadvantaged owner through loan 
arrangements. Providing a loan guaranty on commercially reasonable 
terms does not, by itself, give a non-disadvantaged individual or 
entity the power to control a firm.
    (iv) Business relationships exist with non-disadvantaged 
individuals or entities that cause such dependence that the applicant 
or DBE firm cannot exercise independent business judgment without great 
economic risk.
* * * * *


Sec.  26.73  [Amended]

    17. In Sec.  26.73 paragraph (g), remove the words ``unless the 
recipient requires all firms that participate in its contracts and 
subcontracts to be prequalified.''
    18. In Sec.  26.73 paragraph (h), delete ``26.35'' and add in its 
place ``26.65.''
    19. In Sec.  26.83, revise paragraphs (c), (h), and (j), to read as 
follows:


Sec.  26.83  What procedures do recipients follow in making 
certification decisions?

* * * * *
    (c)(1) You must take all the following steps in determining whether 
a DBE firm meets the standards of subpart D of this part:
    (i) Perform an on-site visit to the firm's principal place of 
business. You must interview the principal officers and key personnel 
of the firm and review their r[eacute]sum[eacute]s and/or work 
histories. You must also perform an on-site visit to job sites if there 
are such sites on which the firm is working at the time of the 
eligibility investigation in your jurisdiction or local area. You may

[[Page 54974]]

rely upon the site visit report of any other recipient with respect to 
a firm applying for certification;
    (ii) Analyze documentation related to the legal structure, 
ownership, and control of the applicant firm. This includes, but is not 
limited to, Articles of Incorporation/Organization; corporate by-laws 
or operating agreements; organizational, annual and board/member 
meeting records; stock ledgers and certificates; and State-issued 
Certificates of Good Standing
    (iii) Analyze the bonding and financial capacity of the firm; lease 
and loan agreements; bank account signature cards;
    (iv) Determine the work history of the firm, including contracts it 
has received, work it has completed; and payroll records;
    (v) Obtain a statement from the firm of the type of work it prefers 
to perform as part of the DBE program and its preferred locations for 
performing the work, if any. Where a firm is applying to be certified 
in more than one NAICS code, obtain information about the amount of 
work the firm has performed in the various NAICS codes requested by the 
firm.
    (vi) Obtain or compile a list of the equipment owned by or 
available to the firm and the licenses the firm and its key personnel 
possess to perform the work it seeks to do as part of the DBE program;
    (vii) Obtain complete Federal and State income tax returns (or 
requests for extensions) filed by the firm, its affiliates, and the 
socially and economically disadvantaged owners for the last 3 years. A 
complete return includes all forms, schedules, and statements filed 
with the Internal Revenue Service and the applicable state taxing 
authority.
    (viii) Require potential DBEs to complete and submit an appropriate 
application form, except as otherwise provided in sections 26.84 and 
26.85 of this part.
    (2) You must use the application form provided in Appendix F to 
this part without change or revision. However, you may provide in your 
DBE program, with the written approval of the concerned operating 
administration, for supplementing the form by requesting specified 
additional information not inconsistent with this part.
    (3) You must make sure that the applicant attests to the accuracy 
and truthfulness of the information on the application form. This shall 
be done either in the form of an affidavit sworn to by the applicant 
before a person who is authorized by state law to administer oaths or 
in the form of an unsworn declaration executed under penalty of perjury 
of the laws of the United States.
    (4) You must review all information on the form prior to making a 
decision about the eligibility of the firm. You have the discretion to 
request clarification of information contained in the application at 
any time in the application process.
* * * * *
    (h)(1) 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 section 26.87. Provided that, this 
requirement does not apply to decertification under the circumstances 
specified in section 26.67(b)(1) of this Part.
    (2) You may not require DBEs to reapply for certification or 
undergo a recertification process. However, you may conduct a 
certification review of a certified DBE firm, including a new on-site 
review, if appropriate in light of changed circumstances (e.g., of the 
kind requiring notice under paragraph (i) of this section or relating 
to suspension of certification under section 26.88), 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 job sites.
* * * * *
    (j) Submissions supporting continued eligibility. If you are a DBE, 
you must provide to the recipient annually the following items. If you 
fail to provide this information in a timely manner, you will be deemed 
to have failed to cooperate under Sec.  26.109(c).
    (1) An affidavit sworn to by the firm's owners before a person who 
is authorized by state law to administer oaths or an unsworn 
declaration executed under penalty of perjury of the laws of the United 
States. This affidavit must affirm that there have been no changes in 
the firm's circumstances affecting its ability to meet size, 
disadvantaged status, ownership, or control requirements of this part 
or any material changes in the information provided in its application 
form, except for changes about which you have notified the recipient 
under paragraph (i) of this section. The affidavit shall specifically 
affirm that your firm continues to meet SBA business size criteria and 
the overall gross receipts cap of this part, documenting this 
affirmation with supporting documentation of your firm's size and gross 
receipts.
    (2) A current personal net worth statement for each disadvantaged 
owner;
    (3) A record from each individual claiming disadvantaged status 
regarding the transfer of assets for less than fair market value to any 
immediate family member, or to a trust any beneficiary of which is an 
immediate family member, within two years of the application or a 
subsequent certification review by the recipient. The record must 
provide the name of the recipient(s) and family relationship, and the 
difference between the fair market value of the asset transferred and 
the value received by the disadvantaged individual.
    (4) A record of all payments, compensation, and distributions 
(including loans, advances, salaries and dividends) made by the DBE 
firm to each of its owners, officers or directors; and
    (5) The firm's most recent completed IRS tax return, IRS Form 4506, 
Request for Copy or Transcript of Tax Form.
* * * * *


Sec.  26.86  [Amended]

    20. In Sec.  26.86, remove and reserve paragraph (b) and add the 
following sentence to the end of paragraph (c): ``An applicant's appeal 
of your decision to the Department pursuant to Sec.  26.89 does not 
extend this period.''
    21. Revise Sec.  26.87 paragraphs (f) and (g) to read as follows:


Sec.  26.87  What procedures does a recipient use to remove a DBE's 
eligibility?

* * * * *
    (f) Grounds for decision. You may base a decision to remove a 
firm's eligibility only on one or more of the following grounds:
    (1) Changes in the firm's circumstances since the certification of 
the firm by the recipient that render the firm unable to meet the 
eligibility standards of this part;
    (2) Information or evidence not available to you at the time the 
firm was certified;
    (3) Information relevant to eligibility that has been concealed or 
misrepresented by the firm;
    (4) A change in the certification standards or requirements of the 
Department since you certified the firm;
    (5) Your decision to certify the firm was clearly erroneous;
    (6) The firm has failed to cooperate with you (see section 
26.109(c)); or
    (7) The firm has exhibited a pattern of conduct indicating its 
involvement in attempts to subvert the intent or requirements of the 
DBE program (see section 26.73(a)(2)).
    (g) Notice of decision. Following your decision, you must provide 
the firm

[[Page 54975]]

written notice of the decision and the reasons for it, including 
specific references to the evidence in the record that supports each 
reason for the decision. The notice must inform the firm of the 
consequences of your decision and of the availability of an appeal to 
the Department of Transportation under Sec.  26.89. You must send 
copies of the notice to the complainant in an ineligibility complaint 
or the concerned operating administration that had directed you to 
initiate the proceeding. Provided that, when sending such a notice to a 
complainant other than a DOT operating administration, you must not 
include information reasonably construed as confidential business 
information without the written consent of the firm that submitted the 
information.
* * * * *
    22. Add a new Sec.  26.88 to read as follows:


Sec.  26.88  Summary Suspension of Certification.

    (a) A recipient shall immediately suspend a DBE's certification 
without adhering to the requirements in section 26.87(d) when an 
individual owner whose ownership and control of the firm are necessary 
to the firm's certification dies or is incarcerated.
    (b)(1) A recipient may immediately suspend a DBE's certification 
without adhering to the requirements in section 26.87(d) when (i) there 
is adequate evidence to believe that there has been a material change 
in circumstances that may affect the eligibility of the DBE firm to 
remain certified, or (ii) when the DBE fails to notify the recipient or 
UCP in writing of any material change in circumstances as required by 
section 26.83(i) or fails to timely file an affidavit of no change 
under section 26.83(j).
    (2) In determining the adequacy of the evidence to issue a 
suspension under paragraph (b)(1) of this paragraph, the recipient 
shall consider all relevant factors, including how much information is 
available, the credibility of the information and allegations given the 
circumstances, whether or not important allegations are corroborated, 
and what inferences can reasonably be drawn as a result.
    (c) The concerned operating administration may direct the recipient 
to take action pursuant to paragraph (a) or (b) this section if it 
determines that information available to it is sufficient to warrant 
immediate suspension.
    (d) When a firm is suspended pursuant to paragraph (a) or (b) of 
this section, the recipient shall immediately notify the DBE of the 
suspension by certified mail, return receipt requested, to the last 
known address of the owner(s) of the DBE.
    (e) Suspension is a temporary status of ineligibility pending an 
expedited show cause hearing/proceeding under section 26.87 to 
determine whether the DBE is eligible to participate in the program and 
consequently should be removed. The suspension takes effect when the 
DBE receives, or is deemed to have received, the Notice of Suspension.
    (f) While suspended, the DBE may not be considered to meet a 
contract goal on a new contract, and any work it does on a contract 
received during the suspension shall not be counted toward a 
recipient's overall goal. The DBE may continue to perform under an 
existing contract executed before the DBE received a Notice of 
Suspension and may be counted toward the contract goal during the 
period of suspension as long as the DBE is performing a commercially 
useful function under the existing contract.
    (g) Following receipt of the Notice of Suspension, if the DBE 
believes it is no longer eligible, it may voluntarily withdraw from the 
program, in which case no further action is required. If the DBE 
believes that its eligibility should be reinstated, it must provide to 
the recipient information demonstrating that the firm is eligible 
notwithstanding its changed circumstances. Within 30 days of receiving 
this information, the recipient must either lift the suspension and 
reinstate the firm's certification or commence a decertification action 
under section 26.87. If the recipient commences a decertification 
proceeding, the suspension remains in effect during the proceeding.
    (h) The decision to immediately suspend a DBE under paragraph 
(a)(or (b) of this section is not appealable to the US Department of 
Transportation. The failure of a recipient to either lift the 
suspension and reinstate the firm or commence a decertification 
proceeding, as required by paragraph (g) of this section, is appealable 
to the U.S. Department of Transportation under section 26.89 of this 
Part, as a constructive decertification.
    23. In Sec.  26.89, revise paragraphs (a)(3), (c), and (e) to read 
as follows:


Sec.  26.89  What is the process for certification appeals to the 
Department of Transportation?

    (a) * * *
    (1) * * *
    (3) Send appeals to the following address: Department of 
Transportation, Departmental Office of Civil Rights, 1200 New Jersey 
Avenue SE., Washington, DC 20590.
* * * * *
    (c) If you want to file an appeal, you must send a letter to the 
Department within 90 days of the date of the recipient's final 
decision, including information and setting forth a full and specific 
statement as to why the decision is erroneous, what significant fact 
that the recipient failed to consider, or what provisions of this Part 
the recipient did not properly apply. The Department may accept an 
appeal filed later than 90 days after the date of the decision if the 
Department determines that there was good cause for the late filing of 
the appeal or in the interest of justice.
    * * *
    (e) The Department makes its decision based solely on the entire 
administrative record as supplemented by the appeal. The Department 
does not make a de novo review of the matter and does not conduct a 
hearing. The Department may also supplement the administrative record 
by adding relevant information made available by the DOT Office of 
Inspector General; Federal, state, or local law enforcement 
authorities; officials of a DOT operating administration or other 
appropriate DOT office; a recipient; or a firm or other private party.
* * * * *
    24. Revise Appendix A to 49 CFR part 26 to read as follows:

Appendix A to Part 26--Guidance Concerning Good Faith Efforts

    I. When, as a recipient, you establish a contract goal on a DOT-
assisted contract for procuring construction, equipment, services, 
or any other purpose, a bidder must, in order to be responsible and/
or responsive, make sufficient good faith efforts to meet the goal. 
The bidder can meet this requirement in either of two ways. First, 
the bidder can meet the goal, documenting commitments for 
participation by DBE firms sufficient for this purpose. Second, even 
if it doesn't meet the goal, the bidder can document adequate good 
faith efforts. This means that the bidder must show that it took all 
necessary and reasonable steps to achieve a DBE goal or other 
requirement of this part which, by their scope, intensity, and 
appropriateness to the objective, could reasonably be expected to 
obtain sufficient DBE participation, even if they were not fully 
successful.
    II. In any situation in which you have established a contract 
goal, Part 26 requires you to use the good faith efforts mechanism 
of this part. As a recipient, you have the responsibility to make a 
fair and reasonable judgment whether a bidder that did not meet the 
goal made adequate good faith efforts, subject to this rule and DOT 
guidance implementing it. It is important for you to consider the 
quality, quantity, and intensity of the different kinds of efforts 
that the bidder has made, based on the regulations and the guidance 
in this Appendix. DOT

[[Page 54976]]

Operating Administrations have the discretion to and, if necessary, 
change recipients' good faith efforts decisions.
    The efforts employed by the bidder should be those that one 
could reasonably expect a bidder to take if the bidder were actively 
and aggressively trying to obtain DBE participation sufficient to 
meet the DBE contract goal. Mere pro forma efforts are not good 
faith efforts to meet the DBE contract requirements. We emphasize, 
however, that your determination concerning the sufficiency of the 
firm's good faith efforts is a judgment call. Determinations should 
not be made using quantitative formulas.
    III. The Department also strongly cautions you against requiring 
that a bidder meet a contract goal (i.e., obtain a specified amount 
of DBE participation) in order to be awarded a contract, even though 
the bidder makes an adequate good faith efforts showing. This rule 
specifically prohibits you from ignoring bona fide good faith 
efforts.
    IV. The following is a list of types of actions which you should 
consider as part of the bidder's good faith efforts to obtain DBE 
participation. It is not intended to be a mandatory checklist, nor 
is it intended to be exclusive or exhaustive. Other factors or types 
of efforts may be relevant in appropriate cases.
    A. Conducing market research to identify small business 
contractors and suppliers and soliciting through all reasonable and 
available means the interest of all certified DBEs that have the 
capability to perform the work of the contract. This may include 
attendance at pre-bid and business matchmaking meetings and events, 
advertising and/or written notices, posting of Notices of Sources 
Sought and/or Requests for Proposals, written notices or emails to 
all DBEs listed in the state's directory of transportation firms 
that specialize in the areas of work desired (as noted in the DBE 
directory) and which are located in the area or surrounding areas of 
the project.
    The bidder must solicit this interest as early in the 
acquisition process as practicable to allow the DBEs to respond to 
the solicitation and submit a timely offer for the subcontract. The 
bidder must determine with certainty if the DBEs are interested by 
taking appropriate steps to follow up initial solicitations.
    B. Selecting portions of the work to be performed by DBEs in 
order to increase the likelihood that the DBE goals will be 
achieved. This includes, where appropriate, breaking out contract 
work items into economically feasible units (for example, smaller 
tasks or quantities) to facilitate DBE participation, even when the 
prime contractor might otherwise prefer to perform these work items 
with its own forces. This may include, where possible, establishing 
flexible timeframes for performance and delivery schedules in a 
manner that encourages and facilitates DBE participation.
    C. Providing interested DBEs with adequate information about the 
plans, specifications, and requirements of the contract in a timely 
manner to assist them in responding to a solicitation with their 
offer for the subcontract.
    D. (1) Negotiating in good faith with interested DBEs. It is the 
bidder's responsibility to make a portion of the work available to 
DBE subcontractors and suppliers and to select those portions of the 
work or material needs consistent with the available DBE 
subcontractors and suppliers, so as to facilitate DBE participation. 
Evidence of such negotiation includes the names, addresses, and 
telephone numbers of DBEs that were considered; a description of the 
information provided regarding the plans and specifications for the 
work selected for subcontracting; and evidence as to why additional 
Agreements could not be reached for DBEs to perform the work.
    (2) A bidder using good business judgment would consider a 
number of factors in negotiating with subcontractors, including DBE 
subcontractors, and would take a firm's price and capabilities as 
well as contract goals into consideration. However, the fact that 
there may be some additional costs involved in finding and using 
DBEs is not in itself sufficient reason for a bidder's failure to 
meet the contract DBE goal, as long as such costs are reasonable. 
Also, the ability or desire of a prime contractor to perform the 
work of a contract with its own organization does not relieve the 
bidder of the responsibility to make good faith efforts. Prime 
contractors are not, however, required to accept higher quotes from 
DBEs if the price difference is excessive or unreasonable.
    E. Not rejecting DBEs as being unqualified without sound reasons 
based on a thorough investigation of their capabilities. The 
contractor's standing within its industry, membership in specific 
groups, organizations, or associations and political or social 
affiliations (for example union vs. non-union status) are not 
legitimate causes for the rejection or non-solicitation of bids in 
the contractor's efforts to meet the project goal. Another practice 
considered an insufficient good faith effort is the rejection of the 
DBE because its quotation for the work was not the lowest received. 
However, nothing in this paragraph shall be construed to require the 
bidder or prime contractor to accept unreasonable quotes in order to 
satisfy contract goals.
    A prime contractor's inability to find a replacement DBE at the 
original price is not alone sufficient to support a finding that 
good faith efforts have been made to replace the original DBE. The 
fact that the bidder has the ability and/or desire to perform the 
contract work with its own forces is not a sound basis for rejecting 
a prospective replacement DBE's reasonable quote.
    F. Making efforts to assist interested DBEs in obtaining 
bonding, lines of credit, or insurance as required by the recipient 
or contractor.
    G. Making efforts to assist interested DBEs in obtaining 
necessary equipment, supplies, materials, or related assistance or 
services.
    H. Effectively using the services of available minority/women 
community organizations; minority/women contractors' groups; local, 
state, and Federal minority/women business assistance offices; and 
other organizations as allowed on a case-by-case basis to provide 
assistance in the recruitment and placement of DBEs.
    V. In determining whether a bidder has made good faith efforts, 
it is essential to scrutinize its documented efforts. At a minimum, 
you must review the performance of other bidders in meeting the 
contract goal. For example, when the apparent successful bidder 
fails to meet the contract goal, but others meet it, you may 
reasonably raise the question of whether, with additional efforts, 
the apparent successful bidder could have met the goal. If the 
apparent successful bidder fails to meet the goal, but meets or 
exceeds the average DBE participation obtained by other bidders, you 
may view this, in conjunction with other factors, as evidence of the 
apparent successful bidder having made good faith efforts. As 
provided in section 26.53(b)(2)((vi), you must also require the 
contractor to submit all subcontractor quotes (from DBEs and non-
DBEs, successful and unsuccessful quotes) in order to review whether 
DBE prices were substantially higher; and contact the DBEs listed on 
a contractor's solicitation to inquire as to whether they were 
contacted by the prime. Pro forma mailings to DBEs requesting bids 
are not alone sufficient to satisfy good faith efforts under the 
rule.
    VI. A promise to use DBEs after contract award is not considered 
to be responsive to the contract solicitation or to constitute good 
faith efforts.

    25. Revise Appendix B to Part 26 to read as follows:

Appendix B to 49 CFR Part 26: Uniform Report of DBE Awards and 
Commitments/Payments Form

INSTRUCTIONS FOR COMPLETING THE UNIFORM REPORT OF DBE AWARDS/
COMMITMENTS AND PAYMENTS

    Recipients of Department of Transportation (DOT) funds are 
expected to keep accurate data regarding the contracting 
opportunities available to firms paid for with DOT dollars. Failure 
to submit contracting data relative to the DBE program will result 
in noncompliance with Part 26.
    1. Indicate the DOT Operating Administration (OA) that provides 
your Federal financial assistance. If assistance comes from more 
than one OA, use separate reporting forms for each OA. If you are an 
FTA recipient, indicate your Vendor Number in the space provided.
    2. If you are an FAA recipient, indicate the relevant AIP 
Numbers covered by this report. If you are an FTA recipient, 
indicate the Grant/Project numbers covered by this report. If more 
than ten attach a separate sheet.
    3. Specify the Federal fiscal year (i.e., October 1-September 
30) in which the covered reporting period falls.
    4. State the date of submission of this report.
    5. Check the appropriate box that indicates the reporting period 
that the data provided in this report covers. If this report is due 
June 1, data should cover October 1-March 31. If this report is due 
December 1, data should cover April 1-September 30.
    6. Provide the name and address of the recipient.
    7. State your overall DBE goal(s) established for the Federal 
fiscal year of the report. Your Overall Goal is to be reported as

[[Page 54977]]

well as the breakdown for specific Race Conscious and Race Neutral 
projections. The Race Conscious portion of the overall goal should 
be based on programs that focus on and provide benefits only for 
DBEs. The use of contract goals is a primary example of a race 
conscious measure. The Race Neutral Goal portion should include 
programs that, while benefiting DBEs, are not solely focused on DBE 
firms. For example, a small business outreach program, technical 
assistance, and prompt payment clauses can assist a wide variety of 
businesses in addition to helping DBE firms.

Section A: Awards and Commitments Made During This Period

    The amounts in items 8(A)-10(I) should include all types of 
prime contracts awarded and all types of subcontracts awarded, 
including: professional or consultant services, construction, 
purchase of materials or supplies, lease or purchase of equipment 
and any other types of services. All dollar amounts are to reflect 
only the Federal share of such contracts, and should be rounded to 
the nearest dollar.
    Line 8: Prime contracts awarded this period: The items on this 
line should correspond to the contracts directly between the 
reporting agency and a supply or service contractor, with no 
intermediaries between the two.
    8(A). Provide the total dollar amount for all prime contracts 
assisted with DOT funds and awarded during this reporting period. 
This value should include the entire Federal share of the contracts.
    8(B). Provide the total number of all prime contracts assisted 
with DOT funds and awarded during this reporting period.
    8(C). From the total dollar amount awarded in item 8(A), provide 
the dollar amount awarded in prime contracts to certified DBE firms 
during this reporting period. This amount should not include the 
amounts subcontracted to other firms.
    8(D). From the total number of prime contracts awarded in item 
8(B), specify the number of prime contracts awarded to certified DBE 
firms during this reporting period.
    8(E&F). This field is closed for date entry. Except for the very 
rare case of DBE-set asides permitted under 49 CFR part 26, all 
prime contracts are regarded as race-neutral.
    8(G). From the total dollar amount awarded in item 8(C), provide 
the dollar amount awarded to certified DBEs through the use of Race 
Neutral methods. See the definition of Race Neutral Goal in item 7 
and the explanation in item 8 of project types to include.
    8(H). From the total number of prime contracts awarded in 8(D), 
specify the number awarded to DBEs through Race Neutral methods.
    8(I). Of all prime contracts awarded this reporting period, 
calculate the percentage going to DBEs. Divide the dollar amount in 
item 8(C) by the dollar amount in item 8(A) to derive this 
percentage. Round this percentage to the nearest tenth.
    Line 9: Subcontracts awarded/committed this period: Items 9(A)-
9(I) are derived in the same way as items 8(A)-8(I), except that 
these calculations should be based on subcontracts rather than prime 
contracts. Unlike prime contracts, which may only be awarded, 
subcontracts may be either awarded or committed.
    9(A): If filling out the General Reporting form, provide the 
total dollar amount of subcontracts assisted with DOT funds awarded 
during this period. This value should be a subset of the total 
dollars awarded in prime contracts in 8(A), and therefore should 
never be greater than the amount awarded in prime contracts. If 
filling out the Project Reporting form, provide the total dollar 
amount of subcontracts assisted with DOT funds awarded during this 
period. This value should be a subset of the total dollars awarded 
previously in prime contracts in 8(A). The sum of all subcontract 
amounts in consecutive periods should never exceed the sum of all 
prime contract amounts awarded in those periods.
    9(B). Provide the total number of all subcontracts assisted with 
DOT funds that were awarded during this reporting period.
    9(C). From the total dollar amount of subcontracts awarded/
committed this period, provide the total dollar amount awarded in 
subcontracts to DBEs.
    9(D). From the total dollar amount of subcontracts awarded/
committed in item 8(B), specify the number of subcontracts awarded.
    9(E).From the total dollar amount of subcontracts awarded/
committed to DBEs this period, provide the amount in dollars to DBEs 
using Race Conscious measures.
    9(F). From the total number of subcontracts awarded/committed to 
DBEs this period, provide the number of subcontracts awarded to DBEs 
using Race Conscious measures.
    9(G). From the total dollar amount of subcontracts awarded/
committed to DBEs this period, provide the amount in dollars to DBEs 
using Race Neutral measures.
    9(H). From the total number of subcontracts awarded/committed to 
DBEs this period, provide the number of subcontracts awarded to DBEs 
using Race Neutral measures.
    9(I). Of all subcontracts awarded this reporting period, 
calculate the percentage going to DBEs. Divide the dollar amount in 
item 9(C) by the dollar amount in item 9(A) to derive this 
percentage. Round this percentage to the nearest tenth.
    10(A)-10(B). These fields are unavailable for data entry.
    10(A)-11(I). 10(C). Combine the total dollars awarded to DBEs on 
prime contracts in 8(C) with the total dollars awarded to DBEs on 
subcontracts in 9(C). The amount listed here should be equal to the 
sum of the total dollars awarded to DBEs through Race Conscious 
measures 10(E) and the total dollars awarded to DBEs through Race 
Neutral measures 10(G).
    10(D). Combine the total number of prime contracts awarded to 
DBEs in 8(D) with the total number of subcontracts awarded to DBEs 
in 9(D). The amount listed here should be equal to the sum of the 
total number of contracts awarded to DBEs through Race Conscious 
measures 10(F) and the total number of contracts awarded to DBEs 
through Race Neutral measures 10(H).
    10(E). Combine the total dollar of prime contracts awarded to 
DBEs Race Conscious 8(E) with total dollar of subcontracts awarded 
to DBEs Race Conscious 9(E).
    10(F). Combine the total number of prime contracts awarded to 
DBEs Race Conscious 8(F) with total number of subcontracts awarded 
to DBEs Race Conscious 9(F).
    10(G). Combine the total dollar of prime contracts awarded to 
DBEs Race Neutral 8(G) with total dollar of subcontracts awarded to 
DBEs Race Neutral 9(G).
    10(H). Combine the total number of prime contracts awarded to 
DBEs Race Neutral 8(H) with total number of subcontracts awarded to 
DBEs Race Neutral 9(H).
    10(I). If filling out the General Reporting form, of all 
contracts awarded this reporting period, calculate the percentage 
going to DBEs. Divide the total dollars awarded to DBEs in item 
10(C) by the dollar amount in item 8(A) to derive this percentage. 
Round percentage to the nearest tenth. In the Project Reporting 
form, this field is closed for data entry, since overall percentage 
of DBE participation is not a value that can be accurately reflected 
on a period by period basis, and must instead derive from looking at 
the project as a whole over the course of time.

Section B: Breakdown by Ethnicity & Gender of Contracts Awarded to 
DBEs This period

    11-18. Further breakdown the contracting activity with DBE 
involvement. The Total Dollar Amount to DBEs in 18(C) should equal 
the Total Dollar Amount to DBEs in 10(C). Likewise the total number 
of contracts to DBEs in 18(F) should equal the Total Number of 
Contracts to DBEs in 10(D). Column E should only be filled out if 
this report is due on December 1 by recipients required to make 
semiannual submissions.
    Line 17: The ``Other'' category is reserved for any firms whose 
owners are not members of the presumptively disadvantaged groups 
already listed, but who are eligible for the DBE program on an 
individual basis. All DBE firms must be certified by the Unified 
Certification Program to be counted in this report. ``Other'' should 
not be used for ``Unknown.''

Section C: Payments on Ongoing Contracts

    Line 19(A-E). Submit information on contracts that are currently 
being performed. All dollar amounts are to reflect only the Federal 
share of such contracts, and should be rounded to the nearest 
dollar.
    19(A). Provide the total dollar amount paid to all firms 
performing work on contracts.
    19(B). Provide the total number of contracts that are currently 
being performed.
    19(C). Provide the total number of DBE firms providing work on 
contracts assisted with federal funds.
    19(D). Provide the total dollar value paid to DBE firms 
currently performing work during this period.
    19(E) Of all payments made during this period, calculate the 
percentage going to DBEs. Divide the total dollar value to DBEs in 
item 19(C) by the total dollars of all payments in 19(A). Round 
percentage to the nearest tenth.

[[Page 54978]]

Section D: Actual Payments on Contracts Completed This Reporting 
Period

    This section should provide information only on contracts that 
are closed during this period. All dollar amounts are to reflect the 
entire Federal share of such contracts, and should be rounded to the 
nearest dollar.
    20(A). Provide the total number of contracts completed during 
this reporting period that used Race Conscious methods. Race 
Conscious contracts are those with contract goals or another race 
conscious measure.
    20(B). Provide the total dollar value of prime contracts 
completed this reporting period that had race conscious goals.
    20(C). Provide the total dollar amount of DBE participation on 
all Race Conscious contracts completed this reporting period that 
was necessary to meet the contract goals on them. This applies only 
to Race Conscious contracts.
    20(D). Provide the actual total DBE participation in dollars on 
the race conscious contracts completed this reporting period.
    20(E). Of all the contracts completed this reporting period 
using Race Conscious measures, calculate the percentage of DBE 
participation. Divide the total dollar amount to DBEs in item 20(D) 
by the total dollar value provided in 20(B) to derive this 
percentage. Round to the nearest tenth.
    21(A)-21(E). Items 21(A)-21(E) are derived in the same manner as 
items 20(A)-20(E), except these figures should be based on contracts 
completed using Race Neutral measures.
    21(C). This field is closed.
    22(A)-22(D). Calculate the totals for each column by adding the 
race conscious and neutral figures provided in each row above.
    22(C). This field is closed.
    22(E). Calculate the overall percentage of dollars to DBEs on 
completed contracts. Divide the Total DBE participation dollar value 
in 22(D) by the Total Dollar Value of Contracts Completed in 22(B) 
to derive this percentage. Round to the nearest tenth.
    23. Name of the Authorized Representative preparing this form.
    24. Signature of the Authorized Representative.
    25. Phone number of the Authorized Representative.
    ** Submit your completed report to your Regional or Division 
Office.
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    ?>26. Revise Appendix F to Part 26 to read as follows:

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    27. Add a new Appendix G to Part 26, to read as follows:

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[FR Doc. 2012-21231 Filed 9-5-12; 8:45 am]
BILLING CODE 4910-9X-P