Disadvantaged Business Enterprise and Airport Concession Disadvantaged Business Enterprise Program Implementation Modifications, 24898-24979 [2024-05583]
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Federal Register / Vol. 89, No. 69 / Tuesday, April 9, 2024 / Rules and Regulations
DEPARTMENT OF TRANSPORTATION
Office of the Secretary
49 CFR Parts 23 and 26
[Docket No. DOT–OST–2022–0051]
RIN 2105–AE98
Disadvantaged Business Enterprise
and Airport Concession
Disadvantaged Business Enterprise
Program Implementation Modifications
Office of the Secretary (OST),
U.S. Department of Transportation (DOT
or the Department).
ACTION: Final rule.
AGENCY:
The U.S. Department of
Transportation (DOT or Department) is
amending its Disadvantaged Business
Enterprise (DBE) and Airport
Concession Disadvantaged Business
Enterprise (ACDBE) program
regulations. The DBE and ACDBE
programs are designed to allow small
businesses owned and controlled by
socially and economically
disadvantaged individuals to compete
fairly for DOT funded contracts let by
State and local transportation agencies
and in airport concession opportunities.
The final rule improves program
implementation in major areas,
including by updating the personal net
worth and program size thresholds for
inflation; modernizing rules for
counting of material suppliers;
incorporating procedural flexibilities
enacted during the coronavirus
(COVID–19) pandemic; adding elements
to foster greater usage of DBEs and
ACDBEs with concurrent, proactive
monitoring and oversight; updating
certification provisions with less
prescriptive rules that give certifiers
flexibility when determining eligibility;
revising the interstate certification
process to provide for reciprocity among
certifiers; and making technical
corrections to commonly misinterpreted
rules.
DATES: This rule is effective May 9,
2024.
FOR FURTHER INFORMATION CONTACT: For
questions related to the final rule or
general information about the DBE and
ACDBE Program regulations, please
contact Marc D. Pentino, Associate
Director, Disadvantaged Business
Enterprise Programs Division,
Departmental Office of Civil Rights,
Office of the Secretary, U.S. Department
of Transportation, 1200 New Jersey
Avenue SE, Room W78–302,
Washington, DC 20590, at 202–366–
6968/marc.pentino@dot.gov or
Lakwame Anyane-Yeboa, ACDBE and
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SUMMARY:
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DBE Compliance Lead, Disadvantaged
Business Enterprise Programs Division,
Departmental Office of Civil Rights,
Office of the Secretary, U.S. Department
of Transportation, 1200 New Jersey
Avenue SE, Room W78–103,
Washington, DC 20590, at 202–366–
9361/Lakwame.Anyane-Yeboa@dot.gov.
Questions concerning part 23
amendments should be directed to
Marcus England, Office of Civil Rights,
National Airport Civil Rights Policy and
Compliance (ACR–4C), Federal Aviation
Administration, 600 Independence Ave.
SW, Washington, DC 20591, at 202–
267–0487/marcus.england@faa.gov or
Nicholas Giles, Office of Civil Rights,
National Airport Civil Rights Policy and
Compliance (ACR–4C), Federal Aviation
Administration, 600 Independence Ave.
SW, Washington, DC 20591, at 202–
267–0201/nicholas.giles@faa.gov. Office
hours are from 8 a.m. to 4:30 p.m., E.T.,
Monday through Friday, except Federal
holidays.
Electronic Access and Filing
This document, the Notice of
Proposed Rulemaking (NPRM), all
comments received, and all background
material may be viewed online at
www.regulations.gov using the docket
number listed above. Electronic retrieval
help and guidelines are available on the
website. It is available 24 hours each
day, 365 days each year. An electronic
copy of this document may also be
downloaded from the Office of the
Federal Register’s website at
www.federalregister.gov and the
Government Publishing Office’s website
at www.GovInfo.gov.
SUPPLEMENTARY INFORMATION:
Table of Contents
Executive Summary
49 CFR Part 26
Subpart A—General
1. Bipartisan Infrastructure Law (BIL) and
Fixing America’s Surface Transportation
(FAST) Act (§ 26.3)
2. Definitions (§ 26.5)
3. Reporting Requirements (§ 26.11 and
Appendix B)
Subpart B—Administrative Requirements for
DBE Programs for Federally Assisted
Contracting
4. Threshold Program Requirement for FTA
Recipients (§ 26.21)
5. Unified Certification Program (UCP)
DBE/ACDBE Directories (§§ 26.31,
26.81(g))
6. Monitoring Requirements (§ 26.37)
Subpart C—Goals, Good Faith Efforts, and
Counting
7. Prompt Payment and Retainage (§ 26.29)
8. Transit Vehicle Manufacturers (TVMs)
(§ 26.49)
9. Good Faith Efforts Procedures for
Contracts With DBE Goals (§ 26.53)
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10. Terminations
11. DBE Supplier Credit (§ 26.55(e))
Subpart D—Certification Standards
12. General Certification Rules (§ 26.63)
13. Business Size (§§ 26.65, 23.33)
14. Personal Net Worth (PNW) Adjustment
(§ 26.68)
15. Presumption of Social and Economic
Disadvantage (SED) (§§ 26.5, 26.63, 26.67
16. Ownership (§ 26.69)
17. Control (§ 26.71)
Subpart E—Certification Procedures
18. Technical Corrections to UCP
Requirements (§ 26.81)
19. Virtual On-Site Visits (§§ 26.83(c)(1)
and (h)(1))
20, 23. Timely Processing of In-State
Certification Applications (§ 26.83(k))
21. Curative Measures (§ 26.83(m))
22. Interstate Certification (§ 26.85)
23. Denials of Initial Requests for
Certification
24. Decertification Procedures (§ 26.87)
25. Counting DBE Participation After
Decertification (§ 26.87(j))
26. Summary Suspension (§ 26.88)
27. Appeals to the Departmental Office of
Civil Rights (DOCR) (§ 26.89)
28. Updates to Appendices F and G
49 CFR Part 23
Subpart A—General
29. Miscellaneous Program Elements and
Conncerns
30. Aligning Part 23 With Part 26
Objectives (§ 23.1)
31. Definitions (§ 23.3)
Subpart B—ACDBE Programs
32. Socially and Economically
Disadvantaged Owned Financial
Institutions (§ 23.23)
33. Direct Ownership, Goal Setting, and
Good Faith Efforts Requirements
(§ 23.25)
34. Fostering ACDBE Small Business
Participation (§ 23.26)
35. Retaining and Reporting Information
About ACDBE Program Implementation
(§ 23.27)
Subpart C—Certification and Eligibility of
ACDBEs
36. Size Standards (§ 23.33)
37. Certifying Firms That Do Not Perform
Work Relevant to an Airport’s
Concessions (§ 23.39)
Subpart D—Goals, Good Faith Efforts, and
Counting
38. Removing Consultation Requirement
When No New Concession Opportunities
Exist (§ 23.43)
39. Non-Car Rental Concession Goal Base
(§ 23.47)
40. Counting ACDBE Participation After
Decertification (§ 23.55)
41. Shortfall Analysis Submittal Date
(§ 23.57)
Subpart E—Other Provisions
42. Long-Term Exclusive Agreements
(§ 23.75)
43. Local Geographic Preferences (§ 23.79)
44. Appendix A to Part 23: Uniform Report
of ACDBE Participation
45. Technical Corrections
46. Duration
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Regulatory Analyses and Notices
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Executive Summary
This final rule modernizes the DBE
and ACDBE program rules to provide
greater clarity and flexibility to DOT
recipients and enhance the ability of
DBEs to compete on a level playing field
for DOT-assisted 1 contract
opportunities. Spanning over 40 years,
the DBE and ACDBE programs are small
business initiatives intended to prevent
discrimination, and to remedy the
effects of past discrimination, in DOTassisted contracting markets and airport
concession opportunities. Since 1983,
Congress has authorized the DBE
program for highway and transit
projects, most recently in Section
11101(e) of the Bipartisan Infrastructure
Law (BIL), enacted as the Infrastructure
Investment and Jobs Act (IIJA) (Pub. L.
117–58) (November 15, 2021). Congress
codified the ACDBE program in 1987.
(See 49 U.S.C. 47107(e)). In
reauthorizing the DBE program in the
BIL, Congress received and reviewed
testimony and documentation from
numerous sources which show that
discrimination, its effects, and related
barriers continue to pose significant
obstacles for minority- and womenowned businesses seeking to do
business in federally assisted surface
transportation markets across the United
States. See BIL, section 11101(e)(1).
The current rules and the revisions
contained herein leave intact the goal
setting rules that have been in place
over many decades. These rules, then
and now, prohibit DBE contract quotas;
and they do not impose any penalties
for failing to meet DBE goals, unless a
recipient fails to administer its program
in good faith. Every court to have
considered the constitutionality of the
program, as implemented by these
regulations, has held that these
limitations and other flexibilities
embedded in the DBE program—such as
the ability of recipients to seek waivers
of or exemptions from certain
provisions, the requirement for
recipients to reexamine their programs
and program goals every three years,
and the authority to decertify firms that
do not continue to meet certification
standards—ensure that DOT’s DBE
regulations, on their face, are narrowly
tailored to achieve the compelling
interest that has been identified by
Congress, thus satisfying strict scrutiny.
1 DOT-assisted contract means any contract
between a recipient and a contractor (at any tier)
funded in whole or in part with DOT financial
assistance, including letters of credit or loan
guarantees, except a contract solely for the purchase
of land.
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On July 21, 2022, the Department
issued a notice of proposed rulemaking
(NPRM) in the Federal Register (87 FR
43620) setting forth the major categories
of revisions, the Department’s rationale,
and proposed rule text. In July and
August 2022, the Department held seven
virtual listening sessions to brief the
public and stakeholders on the
proposals and to solicit further input.
Recordings of the sessions are posted on
the Department’s DBE web page https://
www.transportation.gov/dberulemaking, and a transcript of all
comments received are available at
Regulations.gov (DOT–OST–2022–
0051). DOT extended the comment
period deadline from September 19
until October 31, 2022, through a notice
published in the Federal Register on
September 1, 2022 (87 FR 53708).
The Department received
approximately 400 written comments
from State departments of
transportation, transit authorities,
airports, DBEs, non-DBEs,
representatives of various stakeholder
organizations, and individuals. Many of
the comments were extensive and
covered numerous proposed changes.
Some commenters suggested changes
beyond the scope of what the
Department proposed in the NPRM. We
fully considered all written comments
we received.
Congress created the DBE and ACDBE
programs by statute and has continued
to reauthorize the program in successive
transportation reauthorization laws. The
purpose of this rulemaking is to make
technical improvements to the
Department’s DBE and ACDBE
programs, including modifications to
the forms used by program and
certification-related changes. While this
rule has implications for program
eligibility, it does not change the
underlying programs and projects being
carried out with DOT funds. However,
the Department recognizes that certain
provisions focus on discrete aspects of
the DBE and ACDBE programs.
Therefore, the Department finds that the
various provisions of this final rule are
severable and able to operate
functionally if severed from each other.
In the event a court were to invalidate
one or more of this final rule’s unique
provisions, the remaining provisions
should stand, thus allowing this
congressionally mandated program to
continue to operate.
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Part 26
Subpart A—General
1. Bipartisan Infrastructure Law (BIL)
and Fixing America’s Surface
Transportation Act (FAST Act) (§ 26.3)
The Department proposed adding
citations to applicable surface
authorization legislation. We received
no comments, and the final rule adopts
our proposal with minor technical
corrections to the text.
2. Definitions (§ 26.5)
NPRM
In addition to minor technical and
spelling changes, the NPRM proposed
new or altered definitions of
disadvantaged business enterprise,
principal place of business, transit
vehicle, transit vehicle dealer, transit
vehicle manufacturer, and unsworn
declaration. In addition, because ‘‘home
state’’ is no longer being used as a term
of art in the regulation, we are removing
that definition from the current rule.
Comments
Disadvantaged Business Enterprise
The majority of the comments
addressed the proposed addition of ‘‘be
engaged in transportation-related
industries’’ to the definition of
‘‘disadvantaged business enterprise.’’
We proposed the addition because
applicants that have no capability or
interest in working on DOT-assisted
contracts seek DBE certification for
other, unrelated reasons, resulting in an
unnecessary burden on certifiers’
workloads.
Ten of the 40 commenters (mostly
recipients and DBEs) supported the
proposed definition, though most
requested clarification because they
found it confusing. They stated that an
absence of clarification would cause
difficulty in determining which firms
were in transportation-related industries
and which were not, and the results
could easily be inconsistent and
arbitrary. Some commenters noted that
many DBEs do not have specific
mentions of transportation in their
North American Industry Classification
System (NAICS) codes. A few recipients
asked how they should handle DBEs
that might not be performing work in
transportation-related industries.
The majority of commenters who
sought clarification, as well as several
others who opposed the proposal
altogether, opined that the limitation
would constrain opportunities for small
businesses, especially those in the goods
and services sector or new or nontraditional types of work. One
commenter cited the example of firms
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supporting electric vehicles or related
infrastructure.
Very few of the commenters who
sought clarification proposed an
approach that would better clarify the
definition. One State DOT suggested
there could be a ‘‘stop here’’ entry on
the Uniform Certification Application,
analogous to the current check entry box
on which an applicant would check
whether it was a for-profit firm, on
which a company could affirm that it
intended to work on transportation
projects.
diverse, dynamic, or distinguished. A
commenter wished to exclude ‘‘micro
purchases,’’ as defined in Federal
procurement rules, from the definition
of ‘‘contract.’’ One commenter asked to
expand the definition of ‘‘DOT-assisted
contract’’ to include all contracts
relating to any phase of a DOT-assisted
project (e.g., State or locally funded preconstruction engineering or design of a
project that would ultimately gain DOT
funding).
Principal Place of Business
All three commenters supported the
proposal, though one asked for more
guidance.
Disadvantaged Business Enterprise
Transit Vehicles, Manufacturers, and
Dealerships
For comments and the Department’s
response related to the definitions of
transit vehicle, transit vehicle
manufacturer, and transit vehicle
dealership, please see the portion of the
preamble below concerning TVMs.
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Unsworn Declaration
With the exception of one State DOT,
which thought DOT’s proposal could
enable fraud, all of the more than 20
commenters on the concept and
definition of unsworn declaration, both
recipients and DBEs, supported the
proposal. The main reason was that it
reduced the burden on both firms and
certifiers. One State DOT suggested the
idea be extended to information
provided in on-site interviews as well as
applications. One transit agency
suggested having a witness sign the
declaration, the use of which it thought
should be limited to declarations of
eligibility (DOEs) or interstate
certification applications.
Miscellaneous Comments Received
Some commenters asked for the
addition of such groups as LGBTQ
individuals, disabled veterans,
individuals with disabilities, and
persons from North Africa and the
Middle East to the definition of
‘‘socially and economically
disadvantaged individual.’’ One
commenter found the definition of
‘‘affiliation’’ confusing but did not
suggest a clarification.
As has been the case during past
rulemakings, a few commenters disliked
the use of the term ‘‘disadvantaged
business enterprise,’’ finding its
connotation too negative. Those
commenters suggested alternatives like
‘‘historically underutilized business,’’
‘‘business inclusion program,’’ or
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DOT Response
With respect to comments on the
proviso in the definition of
‘‘disadvantaged business enterprise’’
that a DBE be one ‘‘engaged in
transportation-related industries,’’ we
considered two program concerns. On
one hand, some Unified Certification
Programs (UCPs) may have been
burdened by significant numbers of
applications from firms that appear not
to have interest in, or the ability to work
on, the DOT-assisted contracts of
recipients. For example, some firms may
seek certification from a UCP in order to
become eligible for State and local
programs in areas unrelated to
transportation. We believe it is useful to
limit such burdens on certifiers, which
themselves have limited resources.
On the other hand, it would be
counterproductive to use language that
could be interpreted as limiting DBE
program participation given the
diversity of the types of work that DOTassisted projects entail. Thus, we
exclude ‘‘engaged in transportationrelated industries’’ from the definition
of DBE.
Instead, the final rule requires
applicants to describe in detail in the
Uniform Certification Application
(UCA)—with examples wherever
possible—the type(s) of work they
envision performing on DOT-assisted
contracts. The UCA will not be
considered complete if the applicant
omits this information. During the
onsite visit, for example, certifiers
should ask applicants to describe the
nature of their work and what they seek
to achieve with certification. If the
applicant’s response reasonably suggests
to the certifier that the firm would likely
not have opportunities to participate in,
or has no intention of pursuing
participation in, DOT-assisted contracts,
the certifier should encourage the
applicant to withdraw its UCA in order
to avoid unnecessary expenditures of
time and effort by all parties. This
mechanism fulfills the intended
purpose of the now-deleted
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‘‘transportation-related industries’’
language.
Unsworn Declaration
Given commenters’ general support of
our proposal, and the likelihood that
permitting unsworn declarations will
reduce burdens and maintain program
integrity, the final rule adopts the
proposal without substantive change.
Principal Place of Business
We believe that the NPRM’s proposed
definition of ‘‘principal place of
business’’ is clear as written, and the
final rule incorporates it without
change.
Other Comments
The Department does not have legal
authority to add groups (e.g., LGBTQ
persons or disabled veterans) to the
current list of groups whose members
are rebuttably presumed socially and
economically disadvantaged. However,
persons who are not members of a
presumptive group may qualify as
socially and economically
disadvantaged through individual
determination procedures as detailed in
§ 26.67(d).
We recognize that some commenters
were uncomfortable with possibly
negative connotations of the term
‘‘disadvantaged business enterprise.’’
We leave the program name unchanged.
It is well-recognized and cited as such
in the statutes authorizing the program,
and changing the name of the program
may lead to confusion.
3. Reporting Requirements (§ 26.11 and
Appendix B)
NPRM
The NPRM proposed adding and
changing three reporting requirements.
First, the NPRM proposed adding ten
new data fields to the Uniform Report
of Awards, Commitments and Payments
(Uniform Report) that recipients submit
annually, such as work category/trade a
firm performed in a contract, federally
assisted contract number, and
terminations (for the complete list, see
87 FR 43624 (July 21, 2022)). We
believed this additional information
would help the Department evaluate
whether the DBE program is making
progress toward the objectives stated in
§ 26.1 of the regulation. Recipients
would submit the Uniform Report in a
manner acceptable to the relevant OA,
but the form itself, while on the DOT
website, would no longer be printed in
the regulation.
The NPRM also proposed to require
recipients to obtain and enter bidders
list data into a centralized, searchable
database that the Department would
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specify. The data points for this bidders
list would be expanded to include race
and gender information for a firm’s
socially and economically
disadvantaged owner (SEDO) and the
NAICS code applicable to each scope of
work the firm proposed to perform in its
bid. The NPRM asked for comment on
the estimated costs for developing and
maintaining such a database. The
Department said that since recipients
already collect most of the information
that would be reported on the bidders
list, reporting this data would be
beneficial to the Department in
evaluating program success with
anticipated minimal impact on
stakeholders.
Third, the NPRM asked for comments
on expanding the information collected
through what is referred to as the MAP–
21 data report. That report includes
information taken from each State’s UCP
directory and reporting on the
percentage and location of DBEs owned
and controlled by women, by
disadvantaged individuals who are not
women, and individuals who are
women and are also otherwise
disadvantaged. The NPRM proposed
collecting data on the following six
additional items: the number and
percentage of in-state and out-of-state
SEDOs by gender and ethnicity; the
number of applications received from
in-state and out-of-state firms and the
number of each found eligible or
ineligible; the number of in-state and
out-of-state firms decertified or
summarily suspended; the number of
in-state and out-of-state applications
involving a request for an individual
determination of social and economic
disadvantage; the number of in-state and
out-of-state firms certified based on
such a determination; and the number
of DBEs prequalified in their work type
by the Department. The Department
proposed creating a similar data
requirement for ACDBEs.
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Comments
This section was one of the most
frequently commented upon of any
subject in the NPRM, with some
commenters expressing general support
for the proposals, some expressing
general opposition, and others delving
into the details of one or more of the
reports.
General Comments on Proposed Reports
Of the nearly 60 commenters who
expressed a view (pro or con) about the
Uniform Report and MAP–21 report
proposals, a significant majority,
predominantly recipients, opposed the
proposals. Often, these comments did
not distinguish closely between the
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MAP–21 report and the Uniform Report
but talked about the NPRM’s reporting
requirements generally.
Opponents primarily expressed that
the proposals were too detailed and
created unnecessary burdens and costs,
particularly for local agencies and
subrecipients. The required information
would be difficult to collect, and create
a cumbersome, time-consuming process,
sometimes involving manual reporting
(e.g., concerning listing replaced firms),
keeping staff from doing more
substantive work. One recipient said it
would have to double its staff to handle
the requirements, for example. Another
said that handling the proposed
Uniform Report requirements would
double its staff time on that work by 16
hours per year. Programs are shortstaffed as it is, others said, especially for
small recipients and some saw the
expanded Uniform Report items as a
substantial change. Certification could
be slowed down.
While some commenters in this
category said the requested information
could be helpful, they did not think that
its potential use outweighed the
burdens involved. One commenter
questioned the use the Department
would make of the additional data;
something more specific than ‘‘program
evaluation’’ in general was needed to
justify new collections. Instead of
making reporting requirements more
complex, commenters said they should
be reduced and simplified (e.g., one
contractor suggested limiting fields to
firm name, disadvantaged group
membership, contracts, and DBE
commitment amount).
Some commenters also thought that
certain fields in the report were
duplicative or redundant. For example,
one commenter said that information
about decertifications had to be reported
in three different places. A few
commenters thought some fields, such
as those addressing decertifications and
terminations, did not fit well in the
Uniform Report. Another said the
proposed reports generally were not
relevant to ACDBEs. Rather than
sending one report to the OA and
another to DOCR, there should be a
single, streamlined form sent to only
one office at DOT.
Some commenters recommended that
DOT convene a recipients’ group to do
a feasibility study and figure out how to
make the reports work efficiently prior
to adopting the proposals. Commenters
suggested time frames from one to five
years to phase in the requirements.
Other commenters suggested that the
Department should also develop, test,
and make available a uniform,
centralized database before imposing
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requirements that all recipients,
vendors, and subcontractors could use
and delay implementation 3 to 5 years.
Commenters said that such a database
would allow data from different sources
to merge and that the database should
be made available to users through an
online portal. Other commenters said
DOT should provide funding for
recipients to comply with the expanded
requirements and provide more
guidance on the reporting forms and
process.
Supporters of the proposals included
some recipients but were predominantly
DBEs. Generally, they favored obtaining
the additional detailed data for program
evaluation purposes. Some cited
particular items they thought were
useful, such as race/ethnic/gender data,
explaining that those items could keep
better track of the use of Black-owned
firms. Some commenters suggested
collection of additional data points such
as dollar amount of contracts by NAICS
codes, and some commenters
recommended that recipients be
required to maintain copies of all prime
contracts and subcontracts.
Bidders Lists
A large majority of the over 40
comments concerning the NPRM’s
bidders list proposal opposed it. A few
comments, all but one of which were
from DBEs, supported the proposal for
the reasons stated in the preamble.
Some of these comments favored the
idea of a centralized database for
bidders list information. One asked for
more data on the actual use of
successful DBE bidders, to address the
issue of prime contractors listing DBEs
in their bid and then not using them.
Most of the comments opposing the
proposal were from recipients. Some of
these commenters said that the existing
bidders list requirements were
sufficient, and that there was no need to
make any changes. They asserted that
the proposed changes to the Uniform
and MAP–21 reports would be unduly
burdensome and create an unfunded
mandate. One airport trade organization
member noted it would take 25 hours to
complete the MAP–21 report of ACDBEs
in various categories rather than the 3.2
hours estimated.
Commenters said that the NPRM
underestimated the costs and burdens of
the proposal, particularly with
recipients for small staffs. One
commenter estimated that its staff
would have to take an extra 20 minutes
per project under the proposed system,
adding up to 13 hours per month, in
contrast to the eight hours forecast in
the NPRM. Another said it could take
weeks of staff time per year to comply.
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Another estimated that it would take
two hours of staff time to enter
information into the system for each
bidder.
A few commenters expressed concern
that prime contractors would be
disincentivized from hiring DBE
subcontractors, especially if they had to
input information at the time of
submitting a bid or offer. They also
stated that it would reduce the data
available to recipients. One commenter
explained that it would be better if a
bidder on a prime contract could submit
information within a short time after the
time the bid or offer was submitted,
such as five days. One recipient said it
typically allows prime contractors until
the end of the month in which a letting
takes place to submit bidders list data.
On the other hand, a comment said that
bidders list items should be submitted
at the time of bid or offer. Another
commenter suggested that to reduce
burdens on prime contractors, recipients
should collect information directly from
subcontractors. One commenter
recommended that firms submit to the
recipient the NAICS codes they have
worked on in the past year.
In addition to the general concern
about burdens, a number of commenters
focused on the centralized database that
the NPRM said the Department would
specify. Some thought having to
communicate with such a database
would be a source of administrative
burdens for their staff. Others, while
sympathetic to the concept of a
centralized database, pointed to the fact
that the Department had not yet
specified the database to be used.
Without such a system being in place,
including a standard format, they said,
the proposed changes would not work.
Two commenters said that rather than
creating a centralized database, DOT
should make software available to allow
interface with UCP directories and
create reports. Another was concerned
that, in the absence of an actual
centralized system, recipients would
develop their own electronic formats,
which were likely to be incompatible
with each other.
Some commenters questioned the
utility of bidders lists. One said that
such a list is an imperfect tool to gauge
DBE interest in the program, since some
DBEs do not submit bids because, in
their experience, prime contractors
typically use the same DBE firms that
they always use. Because of this,
another commenter said, firms
effectively drop out of the program
because they are not getting any work,
even if they maintain their certified
status. Others said that bidders lists
have proved not to be an accurate or
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reliable indicator of DBEs’ availability
or interest in seeking contracts.
One commenter suggested that DBEs
should not have to submit confidential
or proprietary business information,
another suggested that race/ethnic/
gender information should be part of
bidders list entries; while another
indicated that some firms may decline
to submit this information. Another
asked if there should be an exemption
to some requirements for publicly
traded firms. One commenter suggested
working with American Association of
State Highway and Transportation
Official’s Civil Rights and Labor
Committee on how best to handle
bidders list issues.
Detailed Comments on Reporting and
Bidders List Contents
Commenters had a wide variety of
comments on details of the documents
discussed in this portion of the NPRM.
A commenter wanted to clarify the
meaning of ‘‘awards,’’ ‘‘commitments,
and ‘‘payments.’’ It said the age of a firm
should be entered only for DBEs.
Another suggested that termination data
should be submitted as ‘‘known DBE
terminations during the reporting
period’’ to capture a lag in information
reaching the recipient from contractors.
One commenter suggested not using
‘‘dollar value of contract,’’ preferring the
use of ranges (e.g., less than $100,000 or
$100,000–500,000). On the other hand,
another commenter thought that the
dollar value of contracts and NAICS
codes involved were very important
information to capture. That same
commenter also thought that
information on firms that have exceeded
size standards was important, to see if
the program was creating sustainable
growth.
Another commenter wanted to make
sure that the reporting would include
professional services, even in States that
do not include professional services in
their DBE goals. One commenter said it
does not do prequalifications, and so
did not know how to respond to that
field. One commenter expressed
uncertainty about how reporting could
be uniform since different States have
different prequalification requirements.
The commenter was also unsure what
‘‘work type’’ meant, and how firms
prequalified in some, but not all, of the
areas in which they were certified could
be counted.
With respect to terminations and
replacements of DBEs, one commenter
thought reports should include the date
of contract award, the date of the
prime’s termination notice, the reasons
for the action, and the DBE’s response.
Another commenter agreed that the
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reason should be reported, adding that
any resulting revisions of the recipient’s
overall goal should be noted. One
commenter said that termination data
should be reported in the semi-annual
reporting timeframe, using a Google or
Excel spreadsheet, and that the
reporting should include the number of
terminations and NAICS codes of
terminated firms. Another commenter
also supported using Excel spreadsheets
or XML files for reporting this and other
information into the reports, rather than
relying on manual inputs of
information.
Two commenters addressed the
‘‘running tally’’ requirement, one saying
it did not currently have a running tally
provision and was unsure how to
develop one. Another asked how the
running tally provision differed from
the ‘‘open’’ and ‘‘completed’’ reporting
fields, suggesting that the information
requested was duplicative. Another
commenter suggested that information
about DBE’s that have been decertified
or graduated only be included in the
‘‘open’’ and ‘‘completed’’ fields, while a
different commenter suggested that, for
re-entering firms, the reports include the
date and basis of graduation, the date of
reapplication, and the basis for re-entry.
Some commenters expressed concern
about what data should be submitted
and by whom. One commenter said that
the DBE owner’s contact information
and the ZIP code of the firm’s principal
place of business need not be reported.
Another suggested that if multiple
contracts were awarded to a firm during
a reporting period, there should not
have to be multiple entries of the firm’s
information. Two others said that if
recipients submitted basic information
(e.g., a firm’s certification number and
NAICS code), the Operating
Administration (OA), rather than the
recipient, should enter other
information about the firm.
One commenter asked whether race
and gender were intended to be entered
for all firms or only DBEs, and how the
recipient would handle situations in
which a firm is certified in more than
one NAICS code. Another commenter
advocated expanding the information
reported, adding such items as the
number and percentage of in-state and
out-of-state firms by race and ethnicity,
looking at applications, decertifications,
and prequalifications information.
With respect to the bidders list, one
commenter raised several questions.
Would the centralized database be
available at all times to recipients, as
opposed to only during certain reporting
periods? Would the December 1 date for
submitting information apply to the bid
date or the contract award date, when
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one was before and the other was after
December 1? How would micro
purchases and single bidder or sole
source procurements be handled? How
should a recipient handle incomplete
forms submitted by bidders? Since the
commenter had a race-neutral program,
how would ‘‘subcontract approval’’ be
reported? This commenter, as well as
another, said that reporting a high
volume of bids would be very
burdensome and expensive.
A few commenters said that prime
contractors should have to submit most
or all of the data required for the bidders
list, while another said that recipients
should collect bidders list information
directly from bidders for subcontracts or
certification process records, rather than
indirectly through prime contractors.
One commenter said that, with
respect to engineering firms, the bidders
list should include the number of such
firms bidding on prime contracts or
subcontracts, the number of such firms
that were shortlisted or awarded, and
the total number of engineering
contracts with and without DBE goals.
DOT Response
As described in this preamble (see
discussion of § 26.11 and Appendix B),
the final rule adopts revisions to all
three reporting requirements, including
the creation of a centralized bidders list
system.
A recipient must provide its bidders
list collection information in a
standardized and centralized form.
Although recipients are already
obligated to gather most of this data, the
rule imposes the additional step of
reporting this information. However, the
burden of this reporting process is
expected to be minimal since recipients
are already required to collect most of
the information. One commenter stated
that it does not collect bidder
information on a per project basis. That
recipient maintained that the
compliance burden would be more than
minimal. We respond that the current
rule requires collection for all projects.
The bidders list data that needs to be
reported to DOT includes specific
details such as the race and gender
information for the owners of all firms
and the NAICS code that is applicable
to each scope of work proposed by the
firm in its bid.
To ensure usability and
standardization of the bidders list data,
the Department will build a
comprehensive and searchable database
to house this information, a feature
recommended by a commenter. The
final rule allows for a delay in the
requirement to allow ample time for the
Department to complete the
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development of the database and ensure
its readiness before recipients are
obligated to submit the necessary data.
Once the database is fully operational,
recipients will be able to seamlessly
enter the required information with
minimal additional burden. Recipients
may use the information to set their
overall goals.
With this data, the Department will
analyze the representation of DBEs
within the bidding process. This
assessment will enable a closer
examination of the specific types of
work that DBEs actively pursue and
competitively bid for. Ultimately, this
analysis will serve as a vital tool in
monitoring the effectiveness of the rule
and guiding future policy decisions. It
enables the Department to make
informed assessments regarding the
impact of the regulations and take
appropriate actions to address any
identified shortcomings, thereby
ensuring that DBEs can compete fairly
for DOT-assisted contracts.
For the Uniform Report, the
Department is requiring recipients to
submit names of DBEs, NAICS codes
performed in a contract, federally
assisted contract number(s), and the
dollar value of the contract. We disagree
with a commenter who stated entering
this information constitutes a
substantial expansion of what is
collected, because these data points
should already be tabulated by the
recipient in order for them to properly
upload the current report. We
inadvertently listed prequalification in
the uniform report draft rule and
deleted it from the final rule. We agree
with commenters’ concerns regarding
‘‘work categories’’ and exclude the
ambiguous category from the final rule.
Also, after careful consideration, the
Department believes that the proposed
data collection on terminations would
pose significant challenges for
recipients. Given the complexities and
challenges inherent in collecting and
reporting termination data, the
Department believes that it would be
unreasonable to mandate recipients to
undertake this task. We must strike a
balance between gathering valuable
information for analysis and avoiding
excessive administrative burden for
recipients. The Department will
continue to explore alternative
approaches and strategies that can
provide meaningful insights into
terminations without imposing
disproportionate burdens on recipients.
The additional uniform report
information will help the Department
evaluate whether the DBE program is
making progress toward the objectives
stated in § 26.1 of the regulation.
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24903
Recipients would submit the Uniform
Report Form online in a manner
acceptable to the relevant OA. The
Department will post a copy of the form,
which is no longer posted in the
regulation, to the DOT website.
Finally, the Department expands the
MAP–21 data report collection to cover
six items mentioned in the NPRM: the
number and percentage of in-state and
out-of-state SEDOs by gender and
ethnicity; the number of applications
received from in-state and out-of-state
firms and the number of each found
eligible or ineligible; the number of instate and out-of-state firms decertified or
summarily suspended; the number of
in-state and out-of-state applications
involving a request for an individual
determination of social and economic
disadvantage; and the number of in-state
and out-of-state firms certified based on
such a determination. Decertified DBEs
that exceed gross receipts and PNW
caps must be reported using MAP–21
data instead of the uniform report
proposed in the NPRM.
Subpart B—Administrative
Requirements for DBE Programs for
Federally Assisted Contracting
4. Tiered Program Requirements for
FTA Recipients (§ 26.21)
NPRM
Under the current rule, FTA
recipients who will award prime
contracts exceeding $250,000
(cumulatively) in a fiscal year must have
a DBE program meeting all requirements
of part 26. Based on changes in the
consumer price index (CPI) since 1983
(the year the $250,000 value was
established), the NPRM proposed to
increase this value to $670,000. FTA
recipients receiving planning, capital, or
operating assistance who will award
prime contracts (other than transit
vehicle purchases) that cumulatively
exceed $670,000 in a fiscal year would
be required to comply with every
requirement of part 26 and have a full
DBE program. Recipients awarding
prime contracts totaling $670,000 or less
would also have to maintain a program,
but compliance with only certain
provisions of part 26 would be required.
Specifically, these recipients would be
subject to the requirements for reporting
and recordkeeping, contract assurances,
a policy statement, fostering small
business participation, and transit
vehicle procurements.
The Department’s records show that
in most years there were about 80 FTA
recipients awarding between $250,000
and $670,000 per year. The Department
estimated that the change would
provide cost savings for such recipients
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from the reduction in administrative
burdens. Based on attainment data from
previous years, the Department found
that if there were any reductions in total
program-level DBE participation, the
reduction would be minimal.
ddrumheller on DSK120RN23PROD with RULES2
Comments
Commenters on this issue,
predominately transit operators and
DBEs, were almost evenly divided.
Supporters were attracted to the
reduction in administrative burdens for
some small transit providers. One
commenter suggested raising the value
further, to $750,000, while another
suggested that a similar threshold
should be established for airports. One
supporter of the proposal asked the
Department to define ‘‘significant
changes’’ to a DBE program that would
require OA approval (this provision, in
proposed § 26.21(b)(2), applies to all
OAs).
Opponents pointed to the estimated
80 transit operators that would not have
to maintain full DBE programs, saying
that this would reduce opportunities for
DBEs. All recipients should have DBE
programs, some comments said. One
commenter said a problem could arise
for a recipient who had been below the
threshold but then received a large grant
that put it above the threshold. The
recipient would have to quickly create
a full program, the commenter said.
Most of the commenters not in favor
of the proposals or who expressed
negative opinions were concerned that
DBEs seeking to work with smaller
recipients would not be afforded a level
playing field because the DBE programs
of such recipients would not be subject
to as stringent oversight by FTA. These
commenters were concerned that less
oversight would result in these
recipients taking the program less
seriously.
DOT Response
The final rule is adopting this
proposal substantively unchanged from
the NPRM. The Department recognizes
that the proposed regulatory text used a
structure and phrasing that may not
have been clear to some readers. Though
commenters did not address the clarity
of the drafting specifically, the
comments suggested there may be some
confusion as to what requirements
apply to which recipients. In response
to these comments, the final rule
includes definitions for FTA Tier I and
FTA Tier II recipients. Further, the final
rule adds paragraphs to § 26.21(a)(2) to
list the applicable requirements for Tier
II recipients more clearly. The
Department notes that under the new
requirement, all FTA recipients that
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receive planning, capital, or operating
assistance and award FTA funded
contracts must have a DBE program.
The Department takes seriously
commenters’ concerns that some
affected recipients might operate their
DBE programs less robustly under the
new rules. The Department expects that
the positive impacts of expanding DBE
program requirements to almost all FTA
recipients mitigates that risk. The intent
of reducing administrative burdens on
smaller recipients is to allow them to
direct a greater share of their resources
towards implementing the DBE program
elements that expand opportunities for
DBEs, and the Department expects that
they will do so. Under the final rule, all
FTA recipients with DBE programs will
be subject to enhanced reporting
requirements, which will allow FTA to
conduct more effective oversight.
As explained in the Regulatory Impact
Analysis of the NPRM, if every single
contract awarded annually to DBEs by
the approximately 80 recipients that
award between $250,001 and $670,000
annually (in prime contracts) went
instead to non-DBEs, 99.7 percent of
Federal funds awarded to DBEs on FTA
assisted contracts would still be
awarded to DBEs. In response to the
comments received, FTA reviewed
Uniform Report data for fiscal year 2021
to better understand the potential
impact of the proposed Tier II DBE
program on contract awards to DBEs.
The data shows that 195 recipients
reported awarding between $0 and
$250,000 in that fiscal year. Of those,
159 operated completely race-neutral
DBE programs. Of the remaining 36
recipients with race conscious goals,
five awarded race conscious contracts to
DBEs, resulting in $170,913 of
cumulative awards to DBEs through the
use of race-conscious means (or 0.02
percent of total dollars to DBEs that
year).
The Department expects that many
Tier II recipients will operate entirely
race-neutral programs, though they are
not prohibited from employing raceconscious means as necessary. The
Department does not anticipate any
reduction in awards to DBEs by Tier II
recipients under the new rules,
especially in light of increased funds
being awarded by FTA to transit
agencies. Further, FTA will be
conducting more oversight of recipients
currently awarding $250,000 or less.
FTA will remain responsible for
ensuring that all FTA recipients subject
to the DBE program are awarding and
administering their contracts in a
nondiscriminatory manner, and the
reporting requirements under the new
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rules will provide FTA the information
needed to ensure compliance.
Regarding the comment that discusses
the impact of receiving a large grant, as
compared to the current rule the final
rule would reduce the risk and mitigate
the negative impact of exceeding the
threshold due to a single grant. First,
and as a matter of clarification, whether
a recipient is tier I or II is determined
by the value of contracts it awards, not
the value of funds it receives from FTA.
Under the current rule, since the
contract value threshold is low
($250,000), there is a greater risk than
under the final rule that a recipient will
be required to implement all DBE
program requirements after receiving a
large grant. Further, since FTA Tier II
recipients will be operating DBE
programs, the additional administrative
burden of becoming an FTA Tier I
recipient is comparatively less than
under the current rule, since recipients
below the current threshold do not have
the experience and administrative
infrastructure to operate an effective
DBE program. Finally, the Department
expects recipients to budget and plan
accordingly, and if a large grant is
awarded then appropriate and
commensurate resources should be
devoted to compliance.
Regarding the comment that suggested
raising the contract value to $750,000,
the Department notes that $670,000
represents an inflationary adjustment,
and there is no evidence to support that
$750,000 would be more effective.
Regarding the comment asking the
Department to define ‘‘significant
changes’’ to program plans, the
Department notes that the final rule
does not change what qualifies as a
significant change.
5. Unified Certification Program (UCP)
DBE/ACDBE Directories (§§ 26.31 and
26.81(g))
NPRM
The NPRM proposed to expand
existing DBE and ACDBE directories to
allow certified firms to display
information about the firms’ ability,
availability, and capacity to perform
work. The Department thought that this
would provide a one-stop tool that
would enable DBEs to market their
services and help prime contractors seek
out potential DBE subcontractors.
Directories would include a standard set
of options for information that firms
could choose to make public, such as a
capability statement, State licenses held,
prequalifications, personnel and firm
qualifications, bonding coverage,
recently completed projects, equipment
capability, and a link to the firm’s
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website. UCPs would not have to vouch
for the accuracy of the information
provided.
The NPRM would also eliminate the
option for a hard copy directory since
online availability of the information is
sufficient. The NPRM said that the
Department anticipated that UCPs could
implement the proposed requirements
by January 1, 2024, or 180 days after the
final rule. However, the Department
sought comment on having a phase-in
period to allow necessary changes to be
made.
ddrumheller on DSK120RN23PROD with RULES2
Comments
This subject was among the most
heavily commented upon in the NPRM,
attracting over 70 comments. Of the
almost 50 comments that expressed an
opinion about the overall wisdom of the
proposal, a majority fully or partially
supported it. Many other comments
addressed details of the directory
process or had other ideas of how the
directory process could best work.
Comments from supporters said that
an expanded directory would help DBEs
market themselves to primes, especially
if DBEs could update information in an
efficient way. Such a directory would be
useful to primes searching for DBEs for
a contract and could help to avoid the
‘‘can’t find qualified DBEs’’ excuse for
failing to meet goals, one comment said.
More detail in the directory would also
save DBEs from being inundated with
solicitations from primes for work in
areas in which the DBEs are not
interested. DBEs, several comments
said, should be allowed to add data
about their operations, since NAICS
codes, by themselves, provide only
limited information about what a firm
does.
Some supporters of the proposal
nevertheless noted concerns about it.
For example, commenters believed that
the information in the expanded
directories would be helpful to DBEs
but acknowledged that costs and
administrative burdens could be a
problem, throwing the cost-effectiveness
of the expanded directories into
question. One asked whether there
would be any DOT funds to support the
expansion. Another supported the
proposed expansion only if DBEs were
not allowed to be certified in all 50
States under the interstate certification
proposal in the NPRM. Others were
concerned that, despite disclaimers to
the contrary, the public would think
that information about firms in the
directory had been vetted for accuracy
by certifiers. If certifiers were expected
to verify information submitted by
DBEs, another asked, how would
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certifiers determine the accuracy and
timeliness of the information?
One commenter wanted to make sure
that capability information about a firm
be specific; another, however, thought
that information about bonding and
equipment should not be included
because some of this information could
be proprietary and could change from
project to project. Other commenters
suggested that owners’ race and gender
information should be included or that
additional information categories
should be included.
One commenter expressed concern
that there would be large burdens on
certifiers if they, rather than DBEs
themselves, had to input data about the
firms. It estimated that it would take 30
minutes to two hours of staff time per
procurement for this process. Another
commenter wanted the rule to prohibit
recipients from using data from the
expanded directory to judge which
firms are ready, able, and willing to
work.
A small number of commenters
suggested that the Department go
beyond the proposed changes and create
a centralized, nationwide database, to
which DBEs could upload information
and which would be user-friendly and
readily searchable by such terms as
State and type of work. A variation on
this idea was that States’ UCP
directories should be merged together to
avoid duplication and inconsistency. A
comment said that such a directory
should specify which states a firm is
certified in and should be in an Excel
format and include the DBE’s email and
the SEDO’s presumptive group
membership. It could also include
information on a firm’s ability to
perform a commercially useful function
(CUF).
The principal objection of
commenters who opposed the proposal
is that it would add costs, take
additional staff time, and create
unnecessary administrative burdens.
New software and additional staff
would be needed, and staff would be
unable to keep up with the workload
they claimed.
Two commenters said that adding too
much detail about firms would be
counterproductive, and making sure
information was updated would be a
slow and difficult process. Another said
that most of the proposed fields were
available in commercial software, but
seldom used. Similarly, another
commenter questioned the usefulness of
the added fields.
Commenters were concerned that
there could be confusion about what a
prime contractor could get credit for,
based on representations in material
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DBEs added, since self-reported
capability statements could be
misleading. For this reason, one
commenter said, DBEs should not be
able to upload information themselves.
Another said that capacity, availability,
and other detailed information should
not be entered, as that could lead to
inaccuracy, discrimination, and lost
opportunities. Two commenters
suggested that it would be simpler and
less burdensome to limit additional
information to a link to the DBEs’
websites, making additional directory
fields unnecessary.
There was a wide variety of other
comments concerning directories and
the NPRM’s proposal. A commenter
expressed concern that, with many
firms potentially being added to a UCP’s
directory as the result of the interstate
certification proposal, the availability
numbers used for goal setting could be
distorted, even though many of the
newly added firms might not be
available to work in projects in the
State. On the other hand, another
commenter was concerned that
directories might undercount firms that
were potentially ready, willing, and able
to work in a State, affecting goals in the
other direction.
Some commenters were concerned
about computer security and privacy.
Two mentioned a concern about the
privacy implications of including home
addresses for businesses operated out of
the SEDO’s home, particularly in the
context of more widespread certification
under the interstate certification
proposal. Some commenters thought the
proposed implementation time frame for
the new requirements was too short, and
should be extended a year, or until
software development and vendors were
in place.
A commenter asked that more detail
about the specifics of directory format,
including using a spreadsheet and
having search functions based on such
factors as NAICS and ZIP codes.
Another commenter wanted more to
ensure that the dates when details
concerning such items as
prequalification, licensing, or bonding
would be displayed. A commenter
asked that all UCP directories use a
standard format. Another commenter
said the Department should give a
unique identifier for each DBE that
would be consistent across all UCP
directories. A commenter recommended
that directory entries have a notation
about whether a DBE firm was eligible
for FAA projects but not FTA or FHWA
projects, because of differences in
applicable size standards.
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DOT Response
The main purpose of the DBE
directory is to show DBEs, prime
contractors, and the public which firms
are certified as a DBE to do the various
kinds of work that take place in DOTassisted contracts. The directory is not
primarily about the resources,
equipment, bonding, experience, or
other qualifications of a firm to do
particular sorts of work. In performing
their due diligence in selecting DBE
contractors, considering those factors is
a task for prime contractors.
We understand that it is useful for
prime contractors to have such
information readily at hand. One
important means of making this
information available to prime
contractors would be for DBEs to
include such information on their
websites, which would then be linked to
their entries in UCP directories.
In the NPRM, we proposed including
fields for many of these types of
information in UCP directories.
However, we recognize, as commenters
pointed out, that mandating a large
expansion of the content of directories
could create additional administrative
burdens for certifiers. We are also
concerned about some pitfalls that we
recognize about open data fields for
firms to enter their own information
(e.g., accuracy, information that has not
been updated, unintended exclusion of
eligible firms, available information
being inconsistent from one firm to
another).
In light of these concerns, DOT has
limited the elements that must be
included. They are firm name, location,
NAICS code(s), and websites. The
directory, which we now clarify must be
an online platform, must permit the
public to search and/or filter for these
items in addition to the types of work
a firm is seeking to perform. We will
also mandate that the directory must
include a prominently displayed
disclaimer (e.g., large type, bold font)
that states the information within the
directory is not a guarantee of the DBE’s
capacity and ability to perform work.
Certifiers may, at their discretion,
include optional additional fields in
their directories, including those
proposed for inclusion in the NPRM.
UCPs with sufficient resources may
include such fields in their electronic
directories, while others may find it
more feasible to simply tell firms to
provide a link to their own company
websites, which would include the
information they wanted prime
contractors to access. UCPs have the
responsibility, under the final rule, to
ensure that mandatory items about firms
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are and remain accurate. UCPs
permitting permissive entry of other
information about firms’ capabilities
should also take steps to ensure that
what the firms enter is accurate and up
to date, including removal of inaccurate
or untimely information they learn of.
But the disclaimer mentioned above
must state, UCPs do not warrant the
accuracy of information provided by
firms, and users’ reliance upon it is at
their own risk. Prime contractors always
need to fact-check the claims made by
firms they are considering doing
business with.
6. Monitoring Requirements (§ 26.37)
NPRM
The NPRM would make a number of
changes concerning a recipient’s
monitoring responsibilities. Recipients
must monitor race-neutral participation
by DBEs as well as participation on
contracts that have DBE goals. The
recipient would have to verify that a
DBE was performing work on a contract,
the recipient would also have to verify
that it was performing a commercially
useful function (CUF). This dual
verification would have to occur on
every contract involving a DBE. The
NPRM emphasized the need for
recipients to keep a ‘‘running tally’’ of
its overall DBE attainment as well as
each prime contractor’s payments to
DBEs it is using to meet its goal, rather
than waiting until the end of the
contract.
Comments
Monitoring Proposal
Most of the over 30 commenters on
the NPRM supported the idea of more
intensive and consistent monitoring of
work in the DBE program, some saying
they were already effectively doing what
the NPRM proposed. Design/build
contracts were one place where more
monitoring was needed, a commenter
said. The focus should be on actual
dollars that DBEs receive, and payments
should be confirmed on a regular and
frequent basis, particularly to ensure
compliance with prompt payment
requirements.
Monitoring should continue
throughout the procurement process
and involve all elements of the
recipient’s organization, not just the
civil rights office. More resources for
monitoring are necessary, another
comment said, because often times
monitoring is not happening as it
should. A comment said that DOT
should verify commitment and
performance numbers as well as CUF
matters. One comment suggested that
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recipients use independent, third-party
monitors.
Some of the comments supported the
‘‘running tally’’ requirement, especially
the point that this applies to progress
throughout the contract, and not just at
the end of the project. One comment
said that there should be written
verification or a signed checklist
concerning progress. Similarly, another
said that there should be payment
reconciliation on all invoices issued by
DBEs.
Two comments questioned how and
whether the running tally provision
would apply to race-neutral contracts.
Two others said that for funding or
software reasons, implementation of the
running tally provision should be
phased in as funding, or software,
becomes available (which one of these
comments said would take 3–5 years).
Another commenter, a recipient, said
that more monitoring procedures are not
needed beyond what it was already
doing and that the OAs should provide
uniform forms for monitoring purposes.
One comment asked how often
monitoring would have to be done and
what the effect would be on staff
workload. Another asked whether ‘‘local
public agencies’’ that are part of
FHWA’s local public agency program
would have to follow the proposed
requirements applying to principal
recipients themselves.
Other Enforcement Comments
Several comments talked about
enforcement matters generally in the
DBE program, rather than the specifics
of the NPRM’s monitoring proposal.
One detailed a complaint about the
commenter’s perceived failure of a
major recipient to enforce the program
effectively. Another asked for stricter
enforcement by the Department, since
the commenter did not believe
recipients could be trusted. There
should be stiffer sanctions for
noncompliance, including debarment of
contractors, and DBEs who violate the
rules should be decertified, other
comments said. Another suggested that
the Department should set up a public
list of prime contractors’ performance in
meeting goals and getting DBE
‘‘waivers.’’ A commenter said that the
Department should crack down on
misuse of waivers and exemptions that
evaded DBE requirements. A commenter
asked for greater involvement by the
Office of Inspector General (OIG) and
the imposition of penalties for
noncompliance. On the other hand, a
commenter said that audits should focus
more on customer service, rather than
on negative matters.
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DOT Response
Bidders on contracts with DBE
contract goals can meet their obligations
in one of two ways, which are equally
acceptable under the regulation. First,
they can enlist sufficient DBE
participation to meet the goal. Second,
they can document sufficient good faith
efforts to meet the goal. Either route
results in compliance with the
requirements of the rule. The second
route is not a ‘‘waiver’’ of the
requirements of the regulation. This is
simply an alternative method of
compliance, one necessary to avoid the
DBE program becoming a quota-based
program that would not be narrowly
tailored, as is legally required.
We believe that the running tally
requirement is an important element of
the compliance monitoring that all
recipients are responsible for
completing. It ensures that, throughout
the course of a contract, the recipient
will know whether a DBE is doing the
work to which the prime contractor has
committed, whether payments to DBEs
are timely, and whether DBEs are
performing a commercially useful
function. If problems are found, then
they can be corrected at a time before it
becomes too late to do anything about
them as a practical matter. We believe
it is crucial to avoid situations where
issues are revealed only when a contract
is completed, and there are no available
measures to achieve the meaningful
DBE participation that was promised at
contract award.
The optimal frequency of running
tally inspections of a contract is likely
to vary with the length and complexity
of the contract. In a relatively simple,
60-day contract involving one DBE, for
example, a running tally check 30 days
after the beginning of the contract might
suffice. In a more complex, multi-year
contract, involving several DBEs, more
frequent checks focusing on the times
when the DBEs would be performing
their tasks would be appropriate. While
there is not a one-size-fits-all interval for
running tally checks, it is essential that
a recipient know at all times what is
going on with DBE participation on its
projects. ‘‘There was a problem we
didn’t know about until after the fact’’
is not an acceptable way for a recipient
to oversee a project.
The Department chose to clarify that
the ‘‘running tally’’ not only applies to
monitoring contract goal attainment but
also to monitoring the recipient’s
progress toward attaining its overall goal
each year. Recipients must meet the
maximum feasible portion of their
overall goal by using race-neutral means
(§ 26.51(a)), establishing contract goals
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to meet any portion of the overall goal
that the recipient does not project being
able to meet using race-neutral means
(§ 26.51 (d)). Accordingly, recipients
need a mechanism to keep a running
tally of progress toward annual goal
achievement that provides for a frequent
comparison of current DBE awards/
commitments to DOT-assisted prime
contract awards to determine whether
the use of contract goals is appropriate.
It is also important to emphasize who
provides information that goes into the
running tally. The DBE program is not
the exclusive province of a recipient’s
civil rights or business diversity office,
the staff of which are often small. The
DBE program is the responsibility of all
parts of the recipient’s program and of
all personnel who work with it.
On a highway construction project,
for example, it is inconceivable that
resident engineers, inspectors,
procurement officials, and others would
not be keeping track of the progress of
the work, whether the work met
schedules and specifications, whether
the work was meeting budget
projections, etc. The DBE program is an
element of the contract no less than
these routine matters that are regularly
overseen, and needs to be given the
same attention and, importantly, by the
same people. The same individuals who
inspect a project to see if, for example,
materials meet specifications and that a
project is on time and on budget can
and should be trained, and required, to
give the same attention to providing the
information informing the recipient’s
running tally. It is part of their job. This
is a point that the Department has
emphasized over many years, and we
wish to re-emphasize it here. When the
Department reviews a recipient’s
compliance, we will be paying special
attention to whether the recipient is
doing what needs to be done in this
respect.
Subpart C—Goals, Good Faith Efforts,
and Counting
7. Prompt Payment and Retainage
(§ 26.29)
NPRM
Responding to Congressional
mandates and OIG recommendations,
the Department in 2016 issued guidance
concerning prompt payment and
retainage. The guidance emphasized
that recipients had responsibility for
affirmatively monitoring contractors’
compliance with prompt payment and
retainage requirements, rather than
relying on complaints from
subcontractors. However, a 2020 FHWA
review of recipients’ practices showed
that many were not fulfilling this
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responsibility adequately. Therefore, the
NPRM proposed a specific provision
concerning mandating affirmative
monitoring and an enforcement
mechanism, including appropriate
penalties for noncompliance.
Requirements would flow down to
lower-tier subcontractors as well as
prime contractors.
Comments
DBE and recipient commenters
generally supported the NPRM
proposal, emphasizing the need for
affirmative monitoring and stressing the
need for prompt payment to avoid cash
flow problems for subcontractors.
Commenters who mentioned the flowdown of requirements to lower-tier
contractors also supported the proposal.
Several commenters asked for a
clarification of the rule that would
specifically authorize enforcement of
State laws mandating payment to
subcontractors with a shorter period of
the time than the 30 days provided for
in § 26.29(b).
Many of these commenters and others
emphasized the need for closer
oversight and stricter enforcement; a
few made suggestions about what this
would look like. Monitoring should be
conducted on a regular and frequent
basis (e.g., monthly). Other commenters
suggested mandating a 10- or 15-day
rather than 30-day payment period.
Some commenters advocated those
penalties (e.g., 3 percent of the
subcontractor’s invoice, interest on late
payments) be assessed against tardy
contractors.
Several comments proposed
alternative ideas to achieve the objective
of prompt payment. One was to provide
an incentive to prime contractors who
paid subcontractors on time or early,
such as a bonus or gaining points that
could be used in future procurements.
Another was to follow a model the
commenter said was used in the
Department of Defense and some SBA
programs, involving an automated
payment system and online
certifications that payments have been
made on time.
A comment suggested that recipients
could set up an escrow-like account to
pay subcontractors in the event prime
contractors were late. Some commenters
emphasized that primes should send
invoices to recipients on time or that
recipients could avoid problems by
making partial payments to primes
when a subcontractor’s portion of the
work was completed, as opposed to
waiting until the entire project had been
completed. A commenter suggested that
DOT should develop software for
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grantees to track payments by all parties
at all stages of the process.
Comments from some recipients,
especially in the transit industry,
expressed concern about affirmative
monitoring being burdensome,
especially for smaller recipients that
have limited staff. Other commenters
thought that applying prompt payment
requirements to all subcontractors,
rather than just DBEs, exceeded the
scope of the DBE program.
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DOT Response
We believe as a basic, upper limit,
standard for a national program, the
proposed 30-day period for payment
and for the return of retainage following
the satisfactory completion of a DBE’s
work on its portion of the overall
contract is appropriate. We agree with
commenters that when State law or a
recipient’s program calls for a quicker
turnaround time, that shorter
requirement prevails. For example, if
State M’s law calls for payment to be
made in 15 days, all recipients in that
State would have to observe the 15-day
rule. On the other hand, if State P’s law
allowed 45 days for payment or the
return of retainage, the regulation would
require the action to be taken in 30 days
on a DOT-assisted contract.
We strongly encourage recipients to
establish shorter time frames for lower
tier subcontractors, because these
smaller businesses have more acute cash
flow needs than their larger
counterparts. While we are not
adopting, as generally applicable
national requirements, the various ideas
that commenters suggested to make
prompt payment and retainage more
effective, we encourage recipients to
adopt measures that will work in their
circumstances, and we will work with
recipients to incorporate such measures
in their DBE programs. The idea of
providing special incentives for
contractors, merely for doing what they
are supposed to do, is not one that the
Department supports, however.
In any case, adopting strong
enforcement mechanisms is critical to
making prompt payment and retainage
return requirements work. For example,
making failure to meet these
requirements a material breach of
contract, or an explicit cause for
liquidated damages in the prime
contract, are among many possible
measures for this purpose. Letting
failure to comply go unnoticed, or to be
without consequences, is not an
acceptable option. As part of their
normal oversight of recipient
operations, as well as in compliance
reviews, the OAs will make prompt
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payment and return of retainage a point
of emphasis.
8. Transit Vehicle Manufacturers
(TVMs) (§§ 26.5 & 26.49)
NPRM
The Department proposed several
changes to provisions in 49 CFR part 26
related to requirements for FTA assisted
transit vehicle procurements. The
NPRM included revisions in § 26.5 to
the definition of TVM and proposed two
new definitions, transit vehicle and
transit vehicle dealership. Additionally,
the Department proposed several
revisions to § 26.49 to clarify reporting
requirements for FTA recipients and
TVMs.
The NPRM proposed terminology
changes to make § 26.49 more readerfriendly and clear, such as using ‘‘TVM’’
consistently to refer to transit vehicle
manufacturers and using the term
‘‘eligible’’ rather than ‘‘certified’’ when
referring to a TVM’s eligibility to bid.
The Department also sought to clarify
that a contract to procure vehicles from
a transit vehicle dealership (TVD) does
not qualify as a contract with a TVM,
even if the vehicle was originally
manufactured by a TVM.
Comments
Definitions
The proposed definitions of transit
vehicles, manufacturers, and dealers
drew only a small number of comments,
most of which supported the changes,
though a transit authority and a
consultant sought more clarity. As noted
above, a commenter said that a transit
vehicle dealer (TVD) should be more
simply defined as a firm that sells
transit vehicles (including modified
vehicles) made by a transit vehicle
manufacturer (TVM), whether or not the
dealer is ‘‘primarily engaged’’ in selling
such vehicles.
Terminology
The few comments addressing the
proposed change from ‘‘certified’’ to
‘‘eligible’’ in § 26.49(a)(1) and (2)
supported it.
Procuring Transit Vehicles
Two commenters agreed that a vehicle
purchased from a non-TVM should not
be treated in the TVM category for goal
and reporting purposes. Another
suggested that paratransit vehicles like
SUVs and vans be allowed to be
purchased from dealers rather than
manufacturers.
Two commenters expressed concerns
about the proposal that vehicles
purchased from TVDs are not treated
under the TVM provisions of the rule.
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Both said they procure ADA paratransit
vehicles from TVDs. One concern was
that because a TVD is not a TVM under
the proposal, FTA funding would not be
available for the paratransit vehicle
purchases. A related concern was that
since most TVDs are non-DBE firms,
there are no meaningful contacting
opportunities for DBEs in that field and
hence no point in setting contract goals
for TVDs. Moreover, a commenter noted
that the proposal could limit DBE
opportunities related to paratransit
vehicles that might exist through the
TVM program.
A commenter recommended that
neither modified nor unmodified transit
vehicles purchased through TVDs
should be included in a recipient’s goals
or uniform reports.
A State DOT said that it procured its
paratransit vehicles from TVDs, which
then would not count as TVMs under
the proposed language. It was concerned
that FTA therefore would not treat such
purchases as eligible for Federal funds
because, as TVDs rather than TVMs,
they could not participate in the TVM
program. The commenter was unsure
how a recipient would comply with the
rule under these definitions. Moreover,
it said, most TVDs are owned by
socially and economically
disadvantaged individuals (SEDs) and
have few if any DBE subcontracting
opportunities. It suggested that
recipients be able to report purchases of
such vehicles from TVDs in the same
manner as for TVMs.
TVM Goal Submissions
Four commenters recommended that
TVMs only have to submit goals every
three years, rather than annually. This
would reduce burdens, they said.
Ferries
The NPRM did not address ferries
specifically, but several commenters
noted the difficulty in applying the
TVM rules to ferry procurements. For
example, commenters suggested that the
proposed definition of transit vehicle
would likely result in additional
confusion as to how to treat
procurements of ferries because they are
vehicles that clearly should be regarded
as transit vehicles yet are manufactured
by entities that should not be
considered TVMs.
TVM Other Details
A commenter said that since TVMs
report directly to FTA, a TVM should
not have to report the same data to
recipients. Another commenter said that
TVMs should not have to provide
confidential bidders list information in
their DBE goal submission; FTA can
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audit their records for this information
if needed.
A commenter suggested amending
§ 26.49(a)(4) to say, ‘‘becoming
contractually required [as opposed to
the proposed ‘‘obligated’’] to procure a
transit vehicle.’’ Another commenter
said that it thought that NAICS codes do
not cover vehicle component
manufacturers adequately.
Another commenter supported the
proposed revision of § 26.49(c) that
clarified that TVMs would have to
submit reports only for years in which
they were eligible. It also suggested that
the ‘‘awards/commitments’’ line item in
section A of the Uniform Report form be
clarified to apply only to work
performed in the U.S., to be consistent
with the language in § 26.49(b) that
limits TVM goals to work performed in
the U.S. A transit advocacy organization
added that since many TVMs may be
small businesses with limited staff,
TVMs should be required to submit
their goal information in the same threeyear interval as recipients, thus further
reducing the paperwork burden.
Overall, this organization commented
that any additional administrative
burdens could result in fewer DBE
businesses participating, fewer bids, less
competition, and longer lead time for
new capital projects.
DOT Response
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§ 26.5
Definitions
The final rule will adopt the proposed
definition of TVM. In response to the
comments expressing concern over
applying the definition to ferry
manufacturers, the final rule further
clarifies how recipients may establish
project goals to procure transit vehicles
from entities that are not eligible TVMs.
See the discussion of § 26.49(f) below.
After considering the comments
received, the Department decided not to
adopt the proposed definition of transit
vehicle. As noted in the preamble to the
2022 NPRM, the Department recognizes
that there is some ambiguity as to what
qualifies as a ‘‘transit vehicle
procurement’’ and is therefore subject to
special rules. However, since these
situations are relatively rare and the
most appropriate course of action
depends on the unique facts and
circumstances, the Department expects
that providing training, guidance, and
technical assistance will be more
effective than issuing a one-size-fits-all
regulatory definition.
The final rule will not include a
definition for transit vehicle dealer.
Commenters explained that small transit
agencies routinely use dealers to
procure transit vehicles, and that
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paratransit vehicles are often procured
through dealers. As discussed elsewhere
in this notice, these comments
persuaded the Department to maintain
the status quo with respect to dealership
transactions in § 26.49. Since the
definition would only be relevant if the
Department retained the proposal in
§ 26.49, there is no need for a definition.
§ 26.49 Procuring Transit Vehicles
As noted above, the proposed
revisions to § 26.49 received mixed
comments. Generally, commenters
agreed that the proposals would clarify
the requirements. The Department
appreciates the comments in support of
the proposed change from ‘‘certified’’ to
‘‘eligible’’ in § 26.49(a)(1) and (2).
Accordingly, the final rule adopts this
change as proposed. The Department
agrees with the commenter who
suggested that the word ‘‘required,’’
instead of ‘‘obligated,’’ better conveys
the necessary action that triggers the 30day reporting requirement in § 26.49
(a)(4). The final rule therefore uses the
term ‘‘required.’’ Several commenters
opined that the proposed addition of
paragraph (a)(5) addressing awards to
dealerships could severely disrupt
vehicle acquisition practices by small
transit agencies and paratransit
providers. In response to these
comments, the final rule does not adopt
proposed paragraph (a)(5) or otherwise
address awards to dealerships. The final
rule substantively adopts all other
proposed changes in § 26.49 with only
minor additional revisions to paragraph
(a)(2) for clarity. Additionally, the final
rule incorporates changes to paragraph
(f) to address situations in which
recipients establish project goals.
§ 26.49 TVM Goal Submissions
The Department recognizes that TVMs
are required to set and submit goals
more frequently than recipients. The
timelines are different because TVMs
and direct recipients (often transit
agencies in the case of FTA funds)
fundamentally differ in their ability to
predict contracting opportunities.
Generally, transit agencies are able to
predict the projects they will undertake
over the next three years with a
relatively high degree of accuracy,
which allows transit agencies to
accurately predict the scale and scope of
contracts they will award. TVMs,
though, are often limited to the
information their potential clients (often
transit agencies) make available. Since
most transit agencies do not provide
extensive details on the vehicles that
they intend to procure prior to issuing
a public solicitation, which in many
cases is within months (at most) of the
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deadline to submit bids, TVMs cannot
accurately predict the federally funded
subcontracting opportunities they will
have available in several years. Thus,
the Department will retain the
requirement for TVMs to set DBE goals
on an annual basis and submit goal
methodologies annually. Without more
information from commenters, we are
unaware of how this administrative
burden can result in fewer DBEs
participating, fewer bids, etc.
Ferries
The Department understands that
large ships are manufactured by
shipyards, and that the shipyard
industry is different from bus and rail
manufacturing industries. Shipyards are
contracted by entities from various other
industries to build vessels specified to
the customer’s needs. Smaller vessels,
though, are typically manufactured by
well-known brands, and may be
specialized by the manufacturer or third
parties. Thus, there are aspects of ferry
manufacturing that are unique to the
shipbuilding industry. However, other
aspects are similar to the rest of the
transit vehicle manufacturing industry.
Such factors mean that ferry
procurements are often best addressed
through project goals pursuant to
§ 26.49(f). As discussed below, the final
rule clarifies how to apply project goals
to transit vehicle procurements from
specialized manufacturers when a TVM
cannot be identified.
Use of Project Goals
The final rule revises § 26.49(f) to
clarify how to use project goals to
procure transit vehicles. The revisions
codify and clarify current practices and
are in response to comments expressing
confusion over how to apply the TVM
rules to ferry procurements (project
goals may be used to acquire vehicles
other than ferries).
The final rule adds new paragraphs
(f)(1), (f)(2) and (f)(3) and simplifies
paragraph (f) to clarify that project goals
are used in cases when transit vehicles
are procured from specialized
manufacturers when a TVM cannot be
identified. Pursuant to paragraph (f)(1),
if a recipient establishes a project goal,
it must use the process prescribed in
§ 26.45 to do so. This effectively
requires recipients to use the same
methodology for project goals as overall
goals. Pursuant to paragraph (f)(2), FTA
must approve the recipient’s decision to
use a project goal before the recipient
issues a public solicitation for vehicles.
Paragraph (f)(3) requires recipients to
demonstrate that no TVMs are available
to manufacture the transit vehicle it
intends to procure.
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The Department established the
project goal option in paragraph (f) in
2014. This option has always been
intended to maintain the spirit of the
DBE program when compliance with the
general rule would be impracticable or
create more barriers for DBEs in the
transit vehicle manufacturing industry.
Often, this scenario occurs when a
transit agency intends to procure a
vehicle for transit purposes but the
entities that manufacture the vehicle do
not meet the TVM definition (and are
not excluded from the definition).
It has been FTA’s longstanding
practice that if a recipient can show that
it is procuring transit vehicles with FTA
funds and there are no entities that
qualify as TVMs that manufacture such
vehicles, the recipient may use a project
goal to procure the vehicles. If a
recipient intends to use a project goal,
the recipient must request FTA’s
approval of that decision, and must not
issue a public solicitation until FTA has
approved the decision. The request for
approval must demonstrate that the
recipient looked for and could not
identify a TVM that manufactures the
vehicles sought. To be clear, the project
goal does not have to be approved by
FTA prior to the recipient’s issuance of
a request for proposals. Generally,
recipients will be required to submit the
project goal methodology prior to
issuing a public solicitation, though
FTA may make case-by-case decisions
depending on the facts and
circumstances; only under extraordinary
circumstances will FTA permit
recipients to submit the goal
methodology after contract award. This
is similar to how FTA reviews and
approves all project and overall goals.
TVM Other Details
Regarding the comments on
duplicative reporting requirements
imposed by part 26 and locally by
recipients, the Department recognizes
that recipients have legitimate reasons
for collecting information from TVMs,
some of which may also be reported to
FTA. Thus, the Department does not
believe it would be prudent at this time
to limit recipients’ ability to collect such
information.
Regarding the comments on
confidential bidders lists submitted
with goal methodologies, part 26 only
requires submission of such information
if the TVM chooses to use a bidders list
when calculating its overall goal.
Otherwise, TVMs are merely required to
retain their bidders lists on file. Since it
would be impossible to verify the
validity of a goal based on a bidders list
without reviewing the bidders list, the
Department intends to continue to
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require TVMs to submit their bidders
lists when they choose to use a bidders
list in their goal methodology.
The final rule adopts the proposed
changes to § 26.49(c). Regarding the
comment about changing the Uniform
Report to clarify that only domestically
performed work is to be included in the
report, the Department does not believe
that this specific change is necessary.
We acknowledge that the final rule will
result in several changes to the Uniform
Report; FTA will issue guidance to
TVMs on how to fulfill their reporting
requirements under the new rules.
The Department appreciates the
comment that discussed the inadequacy
of NAICS codes to describe the sort of
work available in the vehicle
manufacturing industry. The
Department intends to use the data it
collects under the final rule to learn
more about the opportunities available
to small businesses and DBEs in the
vehicle manufacturing industry.
Finally, the Department intends to use
this notice to clarify longstanding policy
on how to count DBEs performing on
transit vehicle procurements. In
recognition of the complex supply chain
necessary to manufacture a transit
vehicle, the Department has always
permitted TVMs to count awards to any
certified DBE if the DBE is certified in
the State in which it performs the work,
regardless of whether the TVM is
present in the State. More recently,
particularly in the context of ferry
procurements, the Department has been
asked to allow recipients to count
awards to DBEs certified in States other
than the recipient’s home State if the
recipient is using a project goal. The
Department has found that such
practices can be an effective means of
ensuring DBEs are afforded
opportunities to compete on transit
vehicle procurements. Thus, the
Department may approve such practices
when sufficiently justified (here, the
Department reminds recipients and
TVMs that work performed outside of
the United States or its territories must
not be counted).
9. Procedures for Good Faith Efforts on
Design-Build Contracts With DBE Goals
(§ 26.53)
NPRM
The NPRM proposed that, in a
negotiated procurement (e.g., for
professional services), the bidder or
offeror may make a binding
commitment to meet the goal at the time
of bid submission or presentation of
initial proposals but provide the
detailed information about its DBE
participation later, before selection. This
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provision would not apply to design/
build contracts, however.
The NPRM proposed that for a designbuild contract, the bidder or offeror
would submit a DBE Performance Plan
(DPP) with its proposal. The DPP would
have to include a commitment to meet
the goals and provide details—including
dollar amounts and time frames—for the
type of subcontracting work or services
the proposer will solicit DBEs to
perform. The recipient would monitor
the design-builder’s good faith efforts
(GFE) to comply with the DPP and its
schedule. The recipient and designbuilder could agree to revisions of the
DPP over the course of the project.
Comments
DBE Performance Plans
Nearly 50 commenters, from all the
major interests, addressed the NPRM’s
DPP proposal. Of these, about 40
supported the proposed concept, though
many had suggestions for modifying the
proposal.
In addition to agreeing with the
NPRM’s rationale for DPPs, supporters
said that the DPP would help small
businesses seeking work on large
projects and would update the
regulation to be consistent with existing
best practices. Several comments said
that they already used something like a
DPP in their procurements. Other
advantages include, commenters said,
giving greater flexibility to prime
contractors while allowing for detailed
planning and monitoring to provide
better experiences for DBEs.
One suggestion made by numerous
commenters for modifying the proposal
was to have a ‘‘hybrid’’ or two-step
process in design/build procurements.
That is, for the design and preconstruction phases of a project,
recipients could use this flexibility to
set goals that the design-builder would
have to meet up front, as traditionally
done in the DBE program. For the longer
construction phase, recipients would
have a process like that described in the
NPRM.
A few commenters suggested that if,
as might happen in smaller design/build
projects, a contractor meets the goal
with sufficient DBE commitments before
the project started, the DPP might not be
required for the project. A comment
requested that prime contractors be
required to commit to DBEs as soon as
possible in the process.
Other suggestions included setting
specific time frames in which actual
DBE contracts would have to be
executed and making the DPP process
available to a broader scope of projects
than design/build projects per se (e.g.,
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public-private partnerships). To make
this point clearer, some comments said,
the regulation should use a term like
‘‘alternative delivery’’ rather than
‘‘design/build’’ for projects involving a
DPP.
Several commenters wanted to make
sure that there was active and frequent
monitoring of contractors’ performance
under the DPP. Commenters suggested
that DOT could assist this process by
providing monitoring software and
additional funding to deal with the costs
of additional resources for evaluating
and monitoring DPPs, and that DOT
should also provide more details about
what an adequate DPP looks like. Other
commenters suggested that DOT should
also provide guidance on how to deal
with issues that may arise in the course
of a project (e.g., change orders), several
commenters said, as well as on proper
use of DPPs to avoid bids nonresponsive
bids.
A few commenters asked how, if at
all, the DPP concept would apply to
contracts that have race-neutral goals
(e.g., as is commonly the case in
Florida). One comment suggested that
since many design/build projects are
large, DBE size standards should be
increased for firms participating in
them. Another commenter asked that
the regulation prohibit prime
contractors from making small,
incremental additions to their contracts
to avoid making firm commitments to
subcontractors for DBE work. Another
pointed to what it thought could be an
inconsistency between the DPP proposal
and present Appendix A, section VI,
which says that a promise to use DBEs
after contract award is not considered
responsive to the contract solicitation or
to constitute GFE.
If what a prime contractor promises in
a DPP does not happen, then what is a
recipient to do, some commenters
asked. In addition to monitoring, these
commenters said, the rule should take
enforcement action and impose
consequences on prime contractors who
are in noncompliance with their DPP
obligations. One commenter said,
however, that enforcement can be
difficult because contractors often do
not understand what is involved in a
DPP.
The smaller number of comments
opposed to the DPP proposal said that
moving away from the requirement to
have prime contractors commit to
specific DBEs in advance would
diminish opportunities for DBEs. A
comment suggested that a bidder on a
prime contract should have to always
meet a goal or show GFE before being
awarded a contract, no matter what the
structure of the contract may be. DBEs
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need time to get working capital,
employees, and equipment in order; and
advance notice at the start of a project
is important to enabling them to do so,
a commenter noted. Another commenter
asserted that the premise of the proposal
is mistaken, it is not that difficult to
identify subcontractors at the start of a
project, it said. In the absence of
requiring compliance before contract
award, DBE participation could become
an afterthought for the prime contractor
and recipient.
Others opposing the proposal said
that implementing the DPP proposal
could increase burdens and costs for
recipients, delay projects, or lead to
additional restrictions or conditions on
RFPs, potentially deterring some
bidders.
subcontracts. With agreement of the
parties, work types identified up front
could be altered to account for actual
work needed in real time; however as
long as there are subcontracting
opportunities, the recipient must
enforce the prime contractor’s
requirement to make ongoing good faith
efforts to meet the goal. We do
appreciate the comment that Appendix
A needs to be revised to provide an
exception for design-build contracts. We
are making that alteration. In addition,
we are re-naming the DBE Performance
Plan to DBE Open Ended Performance
Plan (OEPP) to align with the FHWA’s
EDC–7 initiative.2 Other than these
changes, we are adopting the proposal
as proposed in the NPRM without
substantive change.
DOT Response
Commenters generally approved of
the concept of a DBE performance plan
in design/build contracts, and we
continue to believe that this will be a
useful tool in managing DBE
participation in a type of contract in
which award of the contract occurs
before the design is complete and the
details of the work, quantities, and
scheduling are not yet known. We agree
with commenters that there may well be
circumstances in which DBE
subcontractors can be selected for the
design phase of a project at the outset,
in which case the DBE Performance
Plan would include commitments to
those firms while listing the work types
it plans to solicit DBEs to perform in the
remainder of the plan. While we
appreciate that many projects span over
the course of several years, at this time,
it is only those contract procurement
and delivery methods that lack the
details needed to make subcontracting
commitments prior to contract award to
which the Department approves of the
use of a DBE Performance Plan.
Since the beginning of the DBE
program in the 1980s, the Department
has heard complaints from prime
contractors that they cannot find
sufficiently qualified, capable DBEs to
meet goals on a project. This belief itself
appears to be one of the effects of
discrimination that the program is
designed to combat, and it can act as a
self-fulfilling prophecy preventing
prime contractors from exerting optimal
efforts to find DBEs to meet a goal,
whether on a traditional contract or a
design-build project. Making good faith
efforts to find DBEs is essential to
compliance with the regulation. Open
communication among the recipients
and prime contractors is essential to
ensure that the work commitments in
the performance plan result in actual
10. Terminations (§ 26.53(f))
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NPRM
The NPRM restated the prohibition on
terminating DBE subcontractors’ work
without the recipient’s written consent
(e.g., because the prime contractor
wanted to self-perform the work or use
a different firm for the work that had
been committed to the DBE). The NPRM
further clarified that ‘‘terminations’’
need not be terminations in full, but that
‘‘partial terminations,’’ e.g., removing a
work item or decreasing the amount of
work committed to a DBE would still
require prime contractors to follow the
process by providing a ‘‘good cause’’
reason it proposes to terminate, provide
the DBE with time to respond, and not
terminating before receiving prior
written consent from the recipient. The
NPRM also proposed to clarify that
termination, on the one hand, and
replacement or substitution, on the
other, are two separate and distinct
processes.
Comments
The majority of the nearly 20
commenters supported the proposal.
They agreed that a prime contractor may
not terminate a DBE’s contract without
the recipient’s written consent. Some of
these comments said that it made sense
2 In 2009, FHWA launched the Every Day Counts
(EDC) initiative in cooperation with state, local, and
industry partners to speed up the delivery of
highway projects and create a broad culture of
innovation within the highway community. Proven
innovations and enhanced business processes
promoted through EDC facilitate greater efficiency
at the state and local levels, saving time, money,
and resources that can be used to deliver more
projects. The EDC initiative is a state-based model
to identify and rapidly deploy proven, yet
underutilized innovations to shorten the project
delivery process, enhance roadway safety, reduce
traffic congestion, and improve environmental
sustainability. Rethinking DBE for design-build
projects is one of the innovations being promoted
in the seventh round of the EDC initiative.
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to fold the notion ‘‘substitution’’ into
the overall ‘‘termination’’ framework,
since a substitution had the effect of
terminating the original contractor. One
commenter wanted to make sure that
the five-day period for a recipient’s
consent had elapsed before the prime
contractor actually terminated the DBE.
Another said that, if there was
additional work to be done in the scope
of a DBE’s work, and the goal had been
met, the DBE should complete the
additional work, rather than the prime
contractor self-performing it.
Some commenters sought
clarifications of the proposal. Three
commenters said that a recipient’s
removal of work intended for a DBE to
perform should not be treated as a
termination by the prime contractor.
There could be circumstances, another
commenter said, in which a recipient
would need to make a determination in
less than five days; for example, there
may be an urgent need to ensure that
hauling supplies to the job site happens
on time. In such a case, the commenter
said, the recipient would have to
respond to the contractor’s written
notice in 24 hours, and a formal
termination process could follow.
The small number of opponents
preferred retaining the former
regulation’s provisions. Some thought
that the list of ‘‘good cause’’ reasons for
termination is too restrictive.
DOT Response
In the NPRM, the Department
underscored that any time a prime
contractor seeks to terminate a DBE to
which it had made a commitment in
response to a contract goal or approved
substitution, it must follow the process
set out in § 26.53(f). The Department
sought to clarify that this requirement
applies not only to a complete
termination but also to a ‘‘partial
termination,’’ i.e., eliminating a portion
of work committed to a DBE. For
example, a ‘‘partial termination’’ in
which a prime contractor wishes the
DBE to do $100,000 worth of work as
opposed to the originally committed
$200,000, is just as much subject to the
approval as an action to terminate the
DBE firm entirely. This would not apply
to change orders initiated by the
recipient that had the effect of
eliminating some or all of the work to
which a DBE was committed to perform.
The Department continues to believe
that it is important to separate the
termination requirements from the
substitution process. We have found
that some recipients will not allow the
prime contractor to terminate a DBE
until it has submitted a substitution.
Other recipients forgo the termination
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process and merely require the prime
contractor to submit a request for
substitution. The due process
requirements in § 26.53(f) are essential
to protect DBEs committed toward a
contract goal, or approved replacement,
from arbitrary elimination. This is true
whether or not a substitution of another
firm for the terminated DBE’s work is
intended. Again, after considering the
comments, we are adopting the
termination and substitution provisions
as proposed in the NPRM.
11. DBE Supplier Credit (§ 26.55(e))
NPRM
As noted in the 2022 NPRM preamble
(87 FR 43631–43632), the issue of how
to count DBE credit for suppliers has
long been a subject of debate and
extensive stakeholder input. Changes
over the years in the way that materials
are delivered for projects and the
importance of concepts like the ‘‘regular
dealer’’ to DBE suppliers and prime
contractors seeking to meet goals have
been among the frequent topics of
discussion.
Based on the Department’s
consideration of stakeholder input, the
NPRM proposed several changes to the
counting provisions of § 26.55(e). First,
a prime contractor could meet no more
than 50 percent of a goal on a given
contract through use of DBE suppliers
(including manufacturers, regular
dealers, distributors, or transaction
facilitators). A recipient could, with
prior OA approval, make exceptions to
this limit (e.g., for material-intensive
contracts). The purpose of this proposal
was to prevent the use of DBE suppliers
from crowding out opportunities for
other types of DBE contractors on a
project.
To avoid ad hoc, post-contract award
determinations of whether the
contributions of a supplier were those of
a ‘‘regular dealer’’ eligible for 60 percent
credit, the NPRM proposed that
recipients establish a system to
determine, before contract award,
whether a DBE supplier meets the basic
requirements for being a regular dealer.
That is, does the firm generally engage
in the sale or purchase of the items in
question or items having the general
character of those to be supplied under
the contract? As part of this pre-award
process, the recipient would look at
such questions as whether the items
would be provided from the supplier’s
inventory, whether the supplier would
have physical possession of the items,
or, in the case of bulk items, whether
the supplier would deliver the items
using its own distribution equipment.
Goal credit would ultimately be decided
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on a contract-by-contract basis based on
the recipient’s final evaluation of
whether the firm would provide a
commercially useful function (CUF)
deserving of 60 percent regular dealer
credit.
The recipient’s system for carrying
out this proposal would also evaluate
situations in which all or most of a
regular dealer’s supplies come from its
inventory, but other sources, such as a
manufacturer, would provide additional
minor quantities of items related to
those in the contract.
In addition, the recipient’s system
would consider situations in which a
DBE supplies items/goods that are not
typically stocked (e.g., specialty items).
A DBE that provides such items would
be eligible for 60 percent regular dealer
credit if, like a supplier of bulk items,
it used its own distribution equipment.
One of the issues that stakeholders
have discussed is the handling of ‘‘drop
shipping,’’ in which a DBE supplier
arranges to have a product sent from its
manufacturer to the job site, without
passing physically through the hands of
the DBE. On the one hand, this
arrangement appears similar to that of a
transaction facilitator, whose credit is
limited to its fees or commissions. On
the other, some stakeholders said that
dealers in bulk items with
distributorship agreements had a good
deal of control of a transaction, take
significant risks, and often use their
own delivery equipment, meaning that
their involvement went beyond being
simply a transaction facilitator.
To address these concerns, the NPRM
proposed that a ‘‘distributor’’ having a
valid distributorship agreement receive
40 percent credit for the items it
provides. Recipients would have to
review distributorship agreements, prior
to contract award, to determine their
validity with respect to each purchase
order/subcontract and the risk the DBE
assumes. Where a distributor ‘‘drop
ships’’ materials without assuming risk,
or does not operate according to its
distributorship agreement, its credit
would be limited to fees or
commissions.
The NPRM proposed to retain the
existing requirement that to receive
credit for supplying materials, a DBE
must negotiate the price of supplies,
determine quality and quantity, order
the materials, and pay for the materials
itself.
The NPRM would clarify the
definition of ‘‘manufacturer’’ by
proposing that manufacturing includes
blending or modifying raw materials or
assembling components to create the
finished product to meet contract
specifications. Minor modifications do
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not count as manufacturing eligible for
100 percent credit.
Comments
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The 50 Percent Limit on Credit Toward
Goals for Use of Suppliers
This provision of the NPRM attracted
over 60 comments, which, by roughly a
5–1 ratio, opposed the Department’s
proposal. DBEs, non-DBEs, and
recipients found reasons for objecting to
the proposed limit on the use of
suppliers to meet goals. Commenters
opposing the proposal did so on a
variety of grounds.
Several comments challenged the
factual basis for the proposal. A DBE
supplier said that there were no
statistics or other evidence supporting
the proposal, making the limit arbitrary,
a point other commenters made as well.
A non-DBE contractor said that there
were no studies showing that DBE
suppliers were favored over other kinds
of DBEs, or showing what percentage of
goals were being met by different
categories of DBE firms. Nor was there
evidence that suppliers or manufactures
were being used at a greater rate in the
DBE program than in the construction
industry generally, or that the
participation of non-supplier DBEs were
unduly limited under the present rule.
The comment added that the only
evidence in the NPRM preamble for the
proposal was a reference to a 2018
stakeholder meeting in which some DBE
participants had said that, on some
contracts, prime contractors were able to
meet all or most of DBE goals through
use of suppliers, especially of bulk
items, making use of other types of
DBEs unnecessary. It depends, one
commenter said: in some contracts in
which his company had been involved,
goals had been met mostly or entirely
with DBEs other than suppliers.
A State-level contractors’ association
said that it had been told by its State
DOT that it does not keep numbers on
the participation of DBE suppliers vs.
other DBEs, resulting in a lack of
evidence that could provide a basis for
a supplier limit. A national-level
contractors’ association said, referencing
the stakeholder meeting mentioned
above, that use of comments constituted
rulemaking by anecdote. Moreover, it
said, it had not been given the
opportunity to participate in the
meeting, the results of which had never
been published. Another commenter
noted it did not appear that the views
of prime contractors or recipients had
been solicited in the stakeholder
meeting cited in the NPRM preamble.
Commenters who are or who
represented recipients expressed
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concern that the proposal did not take
into account the realities of their
contracting activities, such as the
unique characteristics of contracts, the
needs associated with each contract,
and the availability of DBEs relevant to
the work of each contract. Two such
commenters said that in their
jurisdictions, there was not an excess of
suppliers, one of them noting that only
20 percent of the DBEs in its directory
were suppliers. Others said that the
provision would not work with respect
to contracts heavily involving bulk and
other materials (e.g., asphalt), therefore
harming businesses who focus on those
materials. One recipient said that there
were often few DBEs to work on
contracts in rural areas, making reliance
on suppliers more important there.
Recipients and contractors both said
that the proposal would adversely affect
the ability of prime contractors to meet
contract goals and of recipients to meet
overall goals. Recipients’ goals might
have to be lowered as a result,
especially when a contract did not
provide significant opportunities for
non-supplier DBEs. For example, one
State contractors’ association said that
materials made up 60–80 percent of
typical highway contracts in its State.
On a paving contract for example, a
commenter said, there might be only
two or three, usually small, scopes of
work that a DBE subcontractor could
perform. If a contractor could count
only suppliers to meet half of its goal,
it would make it impossible to meet
goals in many cases, commenters
asserted, given what they characterize as
the frequent unavailability of other
types of ready, willing and able nonsupplier firms. The effects of the
pandemic on small business could make
this problem worse, a prime contractor
suggested. All this would make more
good faith efforts ‘‘waivers’’ necessary,
commenters said.
A few recipients expressed the
concern that the proposal could increase
their workload and create confusion or
delays in their administration of their
contracting activities.
A frequent comment opposing the
proposal is that it would unfairly create
financial harm to DBE suppliers. These
firms have configured their businesses
to meet the requirements of the existing
rule, commenters said, making
considerable investments in facilities,
inventory, and employees. They would
have fewer opportunities to work under
the proposal, as the rule favors one
category of DBEs over another, with the
result that suppliers would lose income
and could even be forced out of
business. One DBE stated that it would
cut their business in half.
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A few comments also asked how the
exception process was supposed to
work. When would recipients have to go
to an OA to have an exception
approved, and what would be the OAs’
criteria for approving the request? A
commenter suggested there should be a
deadline for an OA’s response to a
request for an exception (e.g., five days).
One comment suggested that the matter
of exceptions should be delegated to
recipients, without needing approval
from an OA.
Some commenters also had
suggestions for modifying the proposal.
One would allow suppliers to count 50
percent of their gross sales for credit.
Another suggested giving recipients
flexibility to decide what level of credit
(e.g., 50, 60, or some other percentage)
applied to a particular contract. Another
suggestion was to calibrate credit
according to the percentage of supplies
on a contract. If supplies account for 80
percent of a contract, then the recipient
would allow DBE suppliers’
contribution to count for 80 percent of
the goal. Another variation would be to
apply the 50 percent limit with respect
to commitments in the pre-award
process, but then count the entire
amount of actual supplier participation
toward actual attainment at the end of
the project.
The smaller number of commenters
who supported the proposal, or at least
did not object to it, said they thought
the proposal fair and useful to keep
open opportunities for non-supplier
DBEs. Some supporters said there
should be exceptions for materialsheavy contracts (e.g., guardrails).
Another said it could support a 50
percent limit for large contracts but not
smaller contracts. A few recipients said
the issue did not much impact their
operations. One comment asked how
the provision would apply to situations
where there was no contract goal. A few
comments wanted stricter limits on
supplier participation (e.g., 25 percent).
Regular Dealer Issues
The largest number of comments on
regular dealer issues focused on the
proposal that recipients have a system
to make contract-by-contract pre-award
decisions about whether a supplier
deserved 60 percent credit as a regular
dealer.
More than 20 comments, mostly from
recipients, opposed the idea. Their
primary objection was that
implementing the proposal would be
confusing, difficult, and burdensome.
For example, there would be additional
work for contract administrators, which
could delay contact awards. Prime
contract bidders would face an undue
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burden, as they would have to do
additional due diligence to make sure
that the credit they were claiming for
DBE participation was consistent with
the recipient’s determination in each
case. These determinations could be
subjective and subject to challenge.
Most of the comments opposed to the
proposal stated that if there was to be a
determination about whether a supply
firm was a regular dealer, it should be
made by the UCP at the time of
certification, not on a pre-award basis
on each contract by the recipient. On
the other hand, a commenter objected to
UCPs performing this function, since it
would result in a de facto certification
of regular dealers.
A few comments supported the
proposal. One comment suggested that
the approval of a DBE as a regular dealer
could be done as part of a recipient’s
good faith efforts review. Another
suggested that firms could submit an
affidavit attesting to its meeting regular
requirements as part of the pre-award
process. Another recommended that a
CUF review for regular dealers consider
such factors as the firm’s ability to
secure the items, do their own takeoffs
and quantity planning, get quotes, and
have distribution agreements.
On other regular dealer matters, a few
commenters said that the credit
awarded to regular dealers should
remain at 60 percent. Some would
increase the percentage (e.g., to 75, 80,
or 100 percent). One commenter said
that regular dealers in specialized fields
for items such as bridges should be able
to count 100 percent. Another
commenter favored 100 percent credit if
the firm’s workforce was predominately
minority or female. One commenter said
the entire regular dealer concept was
outdated and should be taken out of the
regulation. The commenter urged that
the regulation talk about suppliers in
general in a simpler way.
Other commenters requested
clarification with respect to terms like
keeping a ‘‘sufficient quantity’’ of
materials in stock (which the
commenter said could vary among
different kinds of items), ‘‘drop
shipper,’’ or ‘‘specialty items.’’ Another
asked how a recipient could make
regular decisions with respect to out-ofstate firms that were certified via
interstate certification. Another
provided a detailed typology of regular
dealers, bulk suppliers, and brokers/
transaction expediters.
Commercially Useful Function
In addition to its role in determining
whether a firm was a regular dealer,
some comments addressed CUF
decisions more generally. Two
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supported doing CUF reviews on all
federally assisted contracts, while
another thought doing so would too
burdensome if applied to contracts
without a DBE goal. One of these asked
for more specific CUF criteria. One
wanted to streamline the process by
allowing a CUF review that would apply
to all jobs within a year, while another
commenter thought certifiers could
verify CUF at the time of certification.
Recipients, not prime contractors,
should make CUF determinations, one
commenter said. Another added that
recipients should not be able to request
CUF data from prime contractors; the
prime contractor should get DBE credit
unless there is documented evidence of
noncompliance. Another was concerned
that CUF reviews and the ‘‘running
tally’’ monitoring requirements could
become confused with one another.
A commenter thought that prime
contractors should be able to do several
things to assist DBEs without running
afoul of CUF requirements. These
included providing specialized training
through a shared superintendent or
foreman, access to contract management
software and back- office assistance,
sharing of equipment and workers, and
guarantees consistent with industry
practice.
Bulk Suppliers and Supplies of
Specialty Items
The 60 percent credit given to
suppliers of bulk materials and specialty
items is a subcategory of the treatment
of regular dealers under the rule. There
was a division of opinion among
commenters about whether, as the
NPRM proposed, these suppliers would
need to have their own distribution
equipment to count for 60 percent credit
towards a DBE goal.
Several comments said that leasing
equipment was a common industry
practice among suppliers, and that
suppliers should not be penalized for
doing so. Being unable to lease
distribution equipment would be
burdensome and could make DBE
suppliers uncompetitive, one comment
said. A distinction based on physical
delivery of products is unrealistic, a
DBE supplier said, as suppliers have to
do a lot of work that adds value no
matter how products are delivered.
One recipient suggested that an
equipment lease should be long term
(e.g., at least a year). Others would make
allowance for a situation in which a
supplier that had its own distribution
equipment used a short- or long-term
lease arrangement for items that are
infrequently needed (e.g., highway
signs) or to supplement their own
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equipment, as needed (e.g., through
engaging owner-operators).
Among other comments on the
subject, a few supported the proposal as
written. Another raised a problem
concerning what it said was a common
practice of manufacturers (e.g., of
structural steel) shipping their products
to the job site using their own trucking
company. The commenter wondered
whether there would be a CUF for a DBE
in such a situation.
Drop Shipping and Distributors
All but a few of over 40 comments
that addressed this issue opposed the
NPRM’s proposal, though not all for the
same reasons. A mix of recipients,
DBEs, and non-DBEs said that the
proposal was unclear, confusing, overly
complex, burdensome, and difficult to
administer. Recipients do not have
expertise in evaluating the validity of a
distributorship agreement, some said,
adding that the NPRM did not provide
guidance or criteria to aid this task. It
could be difficult for recipients to
distinguish between those transactions
counted at 40 and 60 percent, another
comment asserted. One comment
suggested that other factors aside, all
drop-shipped goods should be counted
at a fixed percentage (e.g., 30 or 50
percent) to simplify matters.
Two commenters thought that, as
comments had suggested about regular
dealer evaluations, decisions about the
validity of distributorship agreements
should be made in advance, through the
certification process. Monitoring would
be very hard to accomplish, requiring
intensive work. Recipients should have
the flexibility to determine how much
credit to permit for drop-shipped goods,
depending on the circumstances of
individual contracts, a comment said.
Some commenters were concerned that
the 40 percent number was arbitrary,
lacking a basis in evidence.
Another theme expressed by some
commenters was that drop shipping was
a normal industry practice for building
and construction materials, particularly
in this day of just-in-time logistics.
Firms that do business this way,
assuming that they insure the goods and
bear the risk of loss, should not be
penalized by the lower 40 percent level
for credit. If a firm delivers or insures
the material, commenters of this view
said, it should count at the 60 percent
level, even if drop shipped. The
proposal could make it difficult for
small firms to make a profit, another
said. This is particularly true, one
commenter said, for made-to-order
items that are not typically kept in
warehouses (e.g., rail ties and switches).
The proposal could place DBE shippers
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at a competitive disadvantage compared
to non-DBEs.
On the other hand, a few comments
opposed any credit for drop shipping
distributors, beyond fees and
commissions, saying that regular dealers
add more value and have more overhead
costs. Moreover, a comment said, the
proposal opens opportunities for fraud.
Others said that distributorship was not
a valid business model. In a similar
vein, a few commenters suggested that
a lower percentage (e.g., 20 or 30
percent) should count. Another said that
drop shipping credit should be
permitted only for large quantities or
oversized items that are difficult to store
in a warehouse.
A few comments did support the
proposal, though with the caveats that
more guidance from DOT would be
needed about what a valid
distributorship agreement should look
like, and that close scrutiny of such
agreements by recipients would be
necessary to make the concept work.
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Negotiating Price of Supplies
Relatively few comments addressed
the proposal to continue in effect the
current requirement that, to get credit, a
DBE supplier must negotiate the price of
supplies, determine quality and
quantity, order the materials, and pay
for the materials itself. Some said that
there are situations (e.g., airport
lighting) when the price of items cannot
be negotiated. An equal number of
comments supported the proposal. One
of them added that a DBE should have
to perform, and not outsource, all of the
four required functions; otherwise, there
would be opportunities for fraud and
abuse. In any case, another said,
recipients had to enforce these
requirements strictly.
Definition of Manufacturer
A majority of the 13 comments that
addressed this proposal supported it,
though some asked for clarification of
what constituted a ‘‘minor’’
modification of materials. Commenters
asked whether activities like adding
logos to uniforms, cement mixing
trucks, coating rebar, or cutting
materials to a specific size would count
as manufacturing or minor
modifications. Some comments also
suggested using SBA regulations in 13
CFR 121.406 to define what constitutes
a manufacturer. One comment asked
that manufacturers not be subject to the
proposed 50 percent limit on DBE credit
for supplies provided to a project.
Other Comments
One comment said that there should
be a special rule for counting disposal
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of hazardous materials, such as a
percentage of the disposal costs. Two
others said that DBE credit should be
allowed for at least some of the work
that a DBE subcontracts to a non-DBE,
at least as long as the non-DBE is not an
affiliate. Another said that brokers had
a legitimate role, asking that the rule
define their proper role.
DOT Response
50 Percent Limit on Credit Toward
Goals for Use of Suppliers
In proposing the 50 percent limit on
the counting of DBE participation by
suppliers toward goals, the Department
was responding to the perception of
many DBEs, as well the experience of
DOT staff, that prime contractors find it
easier to meet DBE contract goals
through obtaining supplies and
materials from DBE suppliers than
through using DBE subcontractors who
work on projects on the ground. For
example, on a highway project it can be
simpler for a prime contractor to buy
paving materials through a DBE supplier
than to engage a DBE to install the
materials. This has given rise to the
concern that DBE subcontractors can be
frozen out of opportunities, since goals
may be able to be met without them. By
limiting the portion of the goal that
could be met by using suppliers, the
Department hoped to keep open a
significant percentage of work that
would then be available for DBE
subcontractors.
Nevertheless, the Department has
been persuaded by the comments that
this provision should not be included in
the final rule. Comment periods on
proposed rules are not simply votes, and
in making this decision the Department
is not simply responding to the numbers
of comments opposing the proposal.
Rather, we believe that commenters
made reasonable points about the basis
and potential effects of the proposal.
We find plausible the concern that if
suppliers could not comprise more than
50 percent of a goal, many contract goals
might not be met, resulting in higher
numbers of goal attainment through
documented good faith efforts instead of
sufficient DBE subcontracting; this may
have possible implications for overall
goal attainment. This concern appears
particularly credible with respect to
contracts that emphasize bulk supplies
like asphalt or petroleum products, or
projects that may be located in parts of
States or work scopes in which few DBE
subcontractors may be available.
The proposed exception mechanism,
as well as some of the commenters’
suggestions for modifications that could
be added to a supplier limit regime to
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provide greater flexibility, are well
intended, but could easily lead to
greater complexity and inconsistency in
program administration. In any event,
because we are not adopting the 50
percent limit provision, they are
unnecessary.
Our underlying concern about
ensuring that the program does not have
inadvertent adverse effects on DBE
subcontractors is addressed through
other changes to the present rule that
are adopted in this final rule. The
definition of regular dealer is being
strengthened to emphasize the necessity
of regular dealers having facilities,
inventories, and/or distribution/delivery
equipment in order for 60 percent of the
value of their supplies to be counted
toward goals.
The new distributor definition limits
to 40 percent the credit that can be
obtained for many drop-shipped goods,
provided the DBE bears risk for loss or
damage of such items. The credit for
broker and expediter participation
continues to be limited to fees or
commissions. These provisions should
reduce the incentives and opportunities
for prime contractors to over-rely on
suppliers to meet goals to the detriment
of other DBEs. We expect recipients to
enforce these provisions rigorously and
to take care, at the pre-award stage, to
ensure that bidders on prime contractors
do not obtain credit beyond what the
provisions permit.
The Department also understands
commenters’ point that creating a
provision that would directly benefit
one category of DBEs at the expense of
another category does risk being
arbitrary. It is likewise the case that DBE
suppliers, particularly those that are
regular dealers, have a reliance interest
in retaining full access to the program,
and may often have made considerable
investments to establish their position
in the program. To limit their business
opportunities could well cause them
economic harm, as comments asserted,
based solely on the type of work they
do.
The risk of arbitrariness increases
absent quantitative information to
support an impression—even one based
on considerable anecdotal experience—
that there is a problem that such a
regulatory provision is needed to solve.
The Department recognizes that it does
not collect information from recipients
about the type of work DBEs perform on
contracts. The Department proposed in
the NPRM the ability to collect that
information as part of recipient’s
required submission of the Uniform
Report of DBE Awards, Commitments,
and Payments. It may be that reliable
data showing that DBE subcontractors
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are effectively shut out of opportunities
to work on projects by prime
contractors’ over-reliance on suppliers
to meet goals could make a ‘‘market
failure’’ case for imposing a provision
like that of the NPRM; however, without
that information at the present time, the
Department is declining to change the
rule at this time.
Going forward, the Department will
have recipient data from the updated
Uniform Report of DBE Awards,
Commitments and Payments regarding
not only the number and dollar amount
of DBEs that participated on federally
assisted contracts that we currently
collect, but information on the type of
work performed by those DBEs as well.
Depending on what such data shows,
the Department may reconsider whether
a limit on goal credit for DBE suppliers
is appropriate.
Commercially Useful Function and
Regular Dealer Issues
Finding a means of limiting potential
over-crediting of suppliers, while not
unreasonably limiting their
participation, is an important step
toward creating a well-balanced DBE
program.
We believe that we can achieve this
objective by having recipients pay close
attention, at the pre-award stage, to how
suppliers proposed to be used by a
prime contract bidder can go far to
avoiding over-crediting in a way wellsuited to the circumstances of a
particular contract.
Recipients are already required to
carefully examine, before contract
award, whether the bidder has
committed to a sufficient number of
DBEs in sufficient amounts to meet the
contract goal or has submitted adequate
documentation of good faith efforts.
Often, however, recipients assume that
DBEs committed as suppliers are
entitled to 60 percent of the cost of
supplies when evaluating pre-award
goal attainment. The final rule requires
recipients to look in detail at how a DBE
supplier would provide supplies and
materials to the contract to provide
more certainty whether the contractor
would be entitled to count 60 percent of
the cost of supplies toward goal
attainment during contract performance.
The recipient would do so through
asking a series of questions with respect
to the role of a proposed DBE supplier.
In so doing, it would not determine
whether a DBE was, in some intrinsic
sense, a ‘‘regular dealer.’’ The inquiry
would not focus on the nature of the
firm, but on what the firm proposed to
do on a particular contract and how it
proposed to carry out its
responsibilities.
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The Department determined that the
proposed change to § 26.55 with respect
to requiring bidders submitting
commitments to DBE suppliers to
include is better placed in § 26.53(c)(1).
Thus, § 26.53(c)(1) of the final rule
describes the nature of the questions
and affirmations a proposed DBE
supplier will provide, and the prime
bidder will include in the pre-award
process for each contract. This
information helps the recipient to
determine if the firm should be awarded
60 or 40 percent credit for supplies. For
example, the recipient would ask,
whether on a particular contract, the
DBE supplier will be using its own
distribution equipment, whether it
maintain a warehouse or other facility,
whether it engages in the sale of the sort
of goods involved in the contract to the
public on a regular basis, etc. We will
also make available a form tool on the
Departmental Office of Civil Rights’
website.
Drop Shipping and Distributorship
Issues
In an effort to address the fact that
drop-shipping is a common way of
doing business, we proposed that dropshipping by a DBE that has a
distributorship agreement with a
manufacturer would be able to count 40
percent of the value of materials toward
goals. The distributorship agreement
concept troubled many commenters,
both from the viewpoint of how
recipients would decide if an agreement
was legitimate and the fact that many,
especially smaller, DBE suppliers might
not have the resources to enter such an
agreement. Commenters said that if a
DBE supplier took enough risk, it
should be entitled to credit regardless of
whether it was part of a formal
relationship of this kind with a
manufacturer.
The Department will respond to these
comments by eliminating the
distributorship agreement proposal.
Instead, as part of the pre-award review
for firms proposing to drop-ship items,
the recipient would determine whether
the proposed supplier demonstrates
ownership of the items in question and
assumes all risk for loss or damage
during transportation, evidenced by the
terms of the purchase order or a bill of
lading (BOL) from a third party,
indicating Free on Board (FOB) at the
point of origin or similar terms that
transfer responsibility of the items in
question to the DBE distributor. Again,
the Department’s form tool will have
questions to help recipients make this
determination. If the proposed dropshipper met these criteria, it would
receive 40 percent credit for the cost of
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the items. We anticipate that many bulk
material items may well fall into this
category, if all the requirements are met.
The current rule’s provisions for 100
percent credit for materials provided by
a DBE manufacturer, and for credit
limited to the fees or commissions for
firms who did not meet the criteria for
60 or 40 percent credit, would remain
the same. The Department believes that
detailed enforcement of all the supplier
provisions discussed above would be
sufficient to prevent or limit overcrediting of suppliers, to the detriment
of other kinds of DBEs, to make the
proposed 50 percent cap on supplier
credit toward goals unnecessary, while
respecting the arrangements that may be
appropriate to the wide variety of
contracts in DOT-assisted programs. To
make this approach work, recipients
would have to ensure that bidders and
proposed DBE suppliers specify and
certify the details of the work that
would be performed and how it will be
performed, so that post-award
monitoring could ensure that
commitments were being met.
Other Matters
The Department adopts the NPRM
provisions concerning the definition of
manufacturers and the responsibility of
DBEs for negotiations concerning price
without change. In regard to a
commenter’s view that credit be allowed
for work performed by a non-DBE
subcontractor, such an approach is not
aligned with the intent of the program.
The comments regarding the disposal of
hazardous materials and brokers were
not proposed in the NPRM and are
therefore outside the scope of this final
rule. DOCR appreciates the commenters’
input and will consider any information
or recommendations the commenters
may have on these issues.
Subpart D—Certification Standards
12. General Certification Rules (§ 26.63)
NPRM
Proposed § 26.63 of the NPRM was
largely a redesignation of the material
previously found in § 26.73. The one
substantive change of note would be
that, in place of current § 26.73(e),
concerning DBEs owned by holding or
parent companies, the NPRM would
substitute a simpler provision saying
that there could be one level of
ownership above the company seeking
certification. That is, there could be a
subsidiary and its parent company, but
there could not be a ‘‘grandparent’’
company above both of them. Eligibility
in such a situation assumes cumulative
51 percent ownership of the subsidiary
company and that other eligibility
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requirements were met. The proposal
includes several examples of
arrangements that would or would not
be eligible under the revised rule.
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Comments
There were 10 comments on this
proposal; all but one favored it. The
unfavorable comment expressed
concern that the proposal could
compromise the independence of the
subsidiary firm.
Several commenters addressed the
regulation’s approach to certification in
general. For example, some commenters
asked the Department to simplify the
certification process, which they
characterized as a lengthy, costly, and
paperwork intensive process that was an
obstacle and deterrent to firms seeking
to enter the program.
Other comments said that the annual
submissions of a DOE and financial data
were unnecessarily burdensome on both
DBEs and certifiers. It would be better
to require this submission only every
two or three years. Moreover, in the
context of the interstate certification
proposal, the burden on firms would be
multiplied if they had to submit a DOE
to every State in which they had become
certified.
Two comments suggested having
independent third-party administrators
do certification reviews instead of
recipient personnel. Another
commenter suggested better education
and training about Federal and State
program rules (e.g., requirements for
continuing education). Another
commenter recommended and that the
Department develop a code of conduct
for certifiers.
DOT Response
The final rule adopts NPRM’s
proposal to limit DBEs to having one
level of ownership above an operating
DBE company. That is, there could be a
‘‘parent’’ company but not a
‘‘grandparent’’ company. The rule does
not specify the type of business entity
involved in the level above the
operating company, as long as it
permitted the operating company’s
ownership to meet certification
requirements.
The final rule also retains the
requirement for the annual DOE for all
companies. A firm that is certified in
multiple States must submit DOEs to all
States in which it was certified on the
anniversary date of its certification by
the jurisdiction of original certification
(JOC).
Given the frequent turnover of
certifier personnel, and the errors in the
certification process that too often come
to light in the certification appeal
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process, it is clear that training is key to
smooth operation of the certification
function. This is especially true when,
following the issuance of this final rule,
new and changed certification standards
go into effect. While we are not
mandating a specific number of
‘‘continuing certification hours’’ for
staff, or setting forth a standard
curriculum at this time, the Department
intends to make comprehensive training
opportunities available to certifiers,
which we expect all certifiers to take
advantage of.
13. Business Size (§§ 26.65, 23.33)
NPRM
Only small businesses may participate
in the DBE program. The business size
limit for applicant and certified DBEs
seeking to participate in FHWA and
FTA assisted contracts is adjusted for
inflation per the BIL. As of this final
rule, this statutory gross receipts cap is
$30.40 million. A DBE firm must still
meet the size standard(s) appropriate to
the type(s) of work the firm seeks to
perform in DOT-assisted contracts.
These standards vary by industry
according to the NAICS code(s) defined
by the Small Business Administration
(SBA).
The adjusted gross receipts cap does
not apply to determining a firm’s
eligibility for participation in FAA
assisted projects. This is due to a recent
statutory change that eliminated this
requirement for FAA assisted contracts.
This means that the Department does
not have the discretion to change these
size standards through administrative
action. DBE firms working on FAA
assisted projects must meet the size
standard(s) appropriate to the type(s) of
work based solely on the applicable
NAICS code(s) size standard(s). UCP
directories must clearly indicate which
firms are only eligible for counting on
FAA assisted work. (There are separate
size standards for the part 23 ACDBE
program that are not affected by recent
changes in SBA regulations pursuant to
the Small Business Runway Extension
Act of 2018 (Pub. L. 115–324).)
The NPRM proposed to conform the
Department’s rule so that a firm’s
compliance with NAICS code size
standards would be based on its average
annual gross receipts over the firm’s
previous five fiscal years. However,
under § 1101(e)(2)(A)(i) and (ii) of the
Bipartisan Infrastructure Law (BIL), only
the firm’s gross receipts for the most
recent three fiscal years may be
submitted to determine whether it meets
the small business statutory size cap.
The NPRM also addressed size
provisions in the ACDBE program.
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There would be minor changes to part
23 and a reference to pay telephone
operators would be removed. The
NPRM would also remove a requirement
for adjusting the ACDBE size standards
every two years; the preamble asked
whether any change was needed at this
time and, if so, what measure of
inflation the Department should use.
The preamble expressed concern that
raising the standards could harm the
chances of smaller firms trying to enter
the program. It also asked whether
industry-specific standards, like that for
car rentals, are still needed. Finally, the
NPRM added a clarification that an
ACDBE that is a party to a joint venture
must include in its gross receipts its
proportional share of receipts generated
by the joint venture.
Comments
Part 26 Standards
A significant number of commenters,
from both DBEs and recipients,
supported the proposal to go to a fiveyear calculation for NAICS code size
standard compliance, though a couple
of commenters would have preferred a
shorter (3-year) or longer (7-year)
calculation. A number of commenters,
however, said that the NAICS codes
limits and/or statutory size cap were
themselves too low, given inflation that
has particularly affected commodity
prices. Several commenters advocated
raising the part 26 limits to the level of
the part 23 standards, or to the $39.5
million level applicable to many types
of business under SBA regulations.
A few commenters recommended
regional variations in the size standards.
For example, in high-cost construction
areas, like New York or San Francisco,
size standards could be adjusted along
a scale tuned to the prevailing wage
rates in those areas. One commenter
suggested that proceeds from COVID–19
pandemic relief legislation, like the
Paycheck Protection Program, should
not be counted toward a firm’s gross
receipts calculation. A few comments
also suggested using net, rather than
gross, receipts to calculate whether a
firm meets size standards. One
commenter said pass-through payments
to subcontractors in particular should
not be part of the calculation.
A smaller number of commenters
stated that the regulation should
eliminate size standards because they
unfairly limit DBEs’ growth. Several
commenters recommended a
mechanism that would allow mid-size
DBEs to remain certified for a limited
time after exceeding the size standards
so that they should be able to continue
their growth and success. For example,
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DBE credit for using a firm could be
progressively reduced over a period of
three years (i.e., 75 percent in year 1, 50
percent in year 2, 25 percent in year 3)
after it first exceeded the size limits for
full DBE participation.
With respect to adjustments,
commenters generally agreed with the
proposal, though some pointed out that
adjustment dates had been missed in the
past, that stakeholders should be
consulted on the subject, that industryspecific data should be used, that
White-owned businesses should be
omitted from the calculation, or that
inflation should be used as the measure
for adjustments.
Part 23 Standards
Two commenters, both from the same
urban area, asked to retain a standard
for pay telephone operators, lest existing
contracts with such operators be
adversely affected. Those commenters,
who addressed the proposal that an
ACDBE that is a party to a joint venture
must include in its gross receipts its
proportional share of receipts generated
by the joint venture, approved it.
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DOT Response
The Department adopts the NPRM’s
proposals on these issues. While we
understand the objectives that
supporters of regional or local standards
seek to achieve, we believe that in a
national program—especially one in
which interstate certification reciprocity
will become a reality—a single national
standard is appropriate. We also do not
believe that a variety of different
standards would be consistent with the
program’s governing statutes. For
example, the Department is now
working under a statutory requirement
for five-year averaging for NAICS code
gross receipts size standard purposes,
such that a different period—three or
seven years—is not something we have
the statutory authority to authorize.
With respect to size calculations, the
final rule clarifies that certifiers should
count on a cash basis, regardless of a
firm’s choice of accounting method.
This is intended to level the accounting
playing field among firms.
For part 23, because there are still
some airports that have pay telephones,
the final rule retains the size standard
for existing pay telephone
concessionaires. Similarly, the final rule
retains the proposed provision that joint
venture receipts be included in the
ACDBE size calculation in proportion to
the ACDBE’s demonstrated ownership
interests in the joint venture, lest the
size of such firms be either overstated or
understated.
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14. Personal Net Worth (§ 26.68)
NPRM
The NPRM’s discussion of proposed
changes to the personal net worth
(PNW) standard was the most complex
portion of its preamble. The discussion
noted the reason for having a PNW
standard, namely that in its absence
persons who are members of
presumptively eligible groups but who
in fact are not economically
disadvantaged could benefit from the
DBE program, undermining both the
program’s ability to assist persons who
are truly disadvantaged and the narrow
tailoring that is vital to the program’s
continued legal validity.
The preamble also noted the
balancing act that the Department faces
in setting a PNW cap. If set too high,
persons who are not truly disadvantaged
can participate. If set too low, socially
and economically disadvantaged owners
(SEDOs) whose firms have grown
successful can be prematurely excluded.
PNW Cap
Since 2011, the PNW cap has been set
at $1.32 million, which had been
adjusted upward for inflation from the
$750,000 level in its 1989 base year. As
explained in the NPRM preamble, 87 FR
43636–38 (July 21, 2022), rather than
make a direct inflationary adjustment,
based on a measure like the Consumer
Price Index (CPI), the Department
employed a complex analysis based on
the Federal Reserve Board’s 2019
Survey of Consumer Finances (SCF), a
triennial cross-sectional survey of U.S.
families’ balance sheets, pensions,
income and demographic
characteristics. The methodology
accounts for differences among racial
and ethnic groups (e.g., White, nonHispanic households have net worth of
six to seven times that of Hispanic or
Black households).
Specifically, using SCF data on
household assets and liabilities allowed
the Department to construct a proxy
measure of PNW that is close to the how
PNW is currently defined by the
program but also allows consideration
of the impact of removing retirement
accounts from the definition of PNW
accounts for the relative wealth of
potential DBEs by comparing their
financial position to other selfemployed business owners, rather than
the general public. After constructing
the proxy measure of the revised PNW
definition that removes retirement
accounts using the 2019 SCF, the
Department constructed a distribution
of PNW across white, male, nonHispanic self-employed business
owners. See Table 2 of NPRM preamble.
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There is an apparent breakpoint
between the 80th and 90th percentiles.
As described in the discussion of Table
2 of the NPRM preamble, ‘‘[t]he 90th
percentile of PNW for male, White, NonHispanic self-employed business
owners is roughly $1.60 million, which
is $1.04 million higher than the 80th
percentile of $0.56 million, which is in
turn just $0.29 million greater than the
70th percentile.’’ 87 FR at 43638.
Therefore, there is a substantial jump in
PNW between the 80th and 90th
percentiles, making it an intuitive
breakpoint between wealth groups. A
90th percentile cutoff is commonly used
to describe the most wealthy group and
to compare the economic position of the
most wealthy group to the rest of the
population.3
Looking to the percentile distribution
of personal net worth for male, White,
non-Hispanic business owners, the
Department calculated that the 90th
percentile PNW for persons in this
category was approximately $1.60
million (in 2019 dollars). Based on this
calculation, the NPRM proposed that
$1.60 million be the new PNW cap for
SEDOs, meaning that they could
continue in the DBE program if their
PNW was at the same level as a 90th
percentile White, non-Hispanic, male
business owner. This would mean, the
preamble explained, that 92.6 percent of
self-employed business owners who are
women, Hispanic, or non-White would
fit under the revised cap.
The NPRM proposed using changes in
aggregate household net worth data
published by the Federal Reserve to
adjust the PNW amount in future years.
Details of this approach are found at 87
FR 43639. We would make the first
adjustment 180 days after the effective
date of the final rule and make further
adjustments at five-year intervals. The
NPRM proposed that we make only
upward adjustments.
3 See Smith, Zidar, and Zwick, ‘‘Top Wealth in
America: New Estimates under Heterogeneous
Returns,’’ 138 Quarterly Journal of Economics 515
(2023) available at https://
economics.princeton.edu/working-papers/topwealth-in-america-new-estimates-underheterogenous-returns/; Kuhn, Schularick, and
Steins, ‘‘Income and Wealth Inequality in
America,’’ Center for Economic and Policy Research
(Aug. 9, 2017) available at https://www.wiwi.huberlin.de/de/professuren/vwl/wtm2/seminarschumpeter/hscf_cepr.pdf; Bricker, Goodman,
Moore and Volz, ‘‘Wealth and Income
Concentration in the SCF: 1989–2019’’ in FEDS
Notes (Sept. 28, 2020) available at https://
www.federalreserve.gov/econres/notes/feds-notes/
wealth-and-income-concentration-in-the-scf20200928.htm; Kochar and Cilluffo, ‘‘Income
Inequality in the U.S. Is Rising Most Rapidly
Among Asians,’’ Pew Research Center (July 12,
2018) available at https://www.pewresearch.org/
social-trends/2018/07/12/income-inequality-in-theu-s-is-rising-most-rapidly-among-asians/.
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Reporting
The NPRM proposed several changes
affecting asset inclusion and valuation
in reporting PNW. Under the proposal:
• The SEDO reports asset values
without regard to community property,
equitable distribution, or similar State
laws. In general, title determines
ownership.
• The SEDO reports assets held in
qualified retirement accounts at full
value but excludes them in full from the
calculation of PNW.
• The SEDO may not report loans
taken against retirement assets as
liabilities, regardless of title.
• The SEDO continues to exclude her
share of the equity in the primary
residence although in some cases that
share may change.
• The SEDO reports 100 percent of
the value of household contents unless
she and a spouse or domestic partner
cohabit, in which case the SEDO reports
50 percent of total value. Total value is
deemed to be a least the amount for
which contents, including fixtures and
appurtenances, are insured,
• The SEDO reports motor vehicle
values in the proportion to which she
holds title. The Department requested
comments concerning how the SEDO
should report, if at all, the value of
leased vehicles.
• The SEDO reports at full value
assets she transferred to certain related
parties during the two years preceding
an application for certification and in
any single year following a declaration
of eligibility. The NPRM clarifies which
related-party transfers trigger the
inclusion and adds a de minimis
exception. It further clarifies which
‘‘personal expenditures’’ the SEDO may
exclude.
• A natural person’s signatory (not
guarantor) status on a debt instrument
generally determines ownership of the
liability. In cases in which another party
consistently makes payments on the
debt, however, the certifier may
determine, as it may under the current
rule, that for eligibility purposes the
debt does not belong to the formal
obligor.
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Comments
PNW Cap
Over 50 comments, not only from
DBEs but recipients and other non-DBE
commenters as well, supported the
proposed $1.60 million PNW limit. The
basic reason for their support was that
the adjustment would increase
opportunities for DBEs and avoid
penalizing SEDOs for success. One
comment suggested that, following
SBA’s practice, there should be separate
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entry and retention PNW limits for
firms.
Nearly as many comments (including
some of the above) said that $1.60
million was still too low a number. One
common reason for this view was that
the $1.60 million adjustment, based as
it was on 2019 dollars, failed to keep
pace with recent higher rates of
inflation. Even if the proposed
methodology were used, the final rule
should update the number to be
consistent with more recent data, they
said. A commenter argued that a higher
PNW number was needed to allow DBEs
to compete in markets dominated by
large corporations. Another noted that
data from the Federal Reserve Bank of
New York supported the proposition
that Black and Hispanic Americans took
a bigger hit from impacts on the
economy of the COVID–19 pandemic
and recent inflation than other persons,
suggesting that this be considered in
setting PNW numbers.
Other commenters’ suggestions
included $1.84 million (based on CPI
inflation since 1989), $2 million, $2.5 or
2.6 million, $3 million, $5 million, or
even $20 million. A few commenters
referred to New York State’s $15 million
cap for its State minority and women
business (M/WBE) programs. Several
DBE commenters went further,
advocating for the elimination of a PNW
cap altogether, saying that it was ‘‘antientrepreneurial’’ and too limiting on
firms’ growth.
Using the SCF as the basis for the
adjustment was problematic, a few
comments said (e.g., because it uses data
from the male in an opposite-sex
couple, the older person in a same-sex
couple, or an individual, making it
difficult to use the SCF to determine
PNW for DBEs).
A significant number of comments
advocated taking regional, or even local,
differences in the cost of living and the
cost of doing business into account in
setting PNW limits, rather than
establishing a one-size-fits-all national
number. For example, one comment
said, the cost of living in the New York
metropolitan area was 69 percent higher
than the national average. One of these
made an analogy to the ‘‘locality
adjustments’’ made in the salaries of
Federal employees. Differences in the
type of business involved (e.g., have
higher PNWs for types of firms, like
heavy construction companies or
ACDBEs) should also be taken into
account.
A small number of commenters
dissented from the concept of increasing
the PNW number. Some said that even
someone whose PNW was $1.32
million, let alone $1.60 million, should
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24919
not truly be regarded as economically
disadvantaged. The main reason
commenters opposed the increase is that
it allowed established DBEs who
already get significant amounts of work
to remain in the program, limiting
opportunities for smaller, newer firms,
especially those operated by Black or
Hispanic SEDOs.
Two recipients said that they knew of
few DBEs that became ineligible for
their SEDOs’ excess PNW, while a DBE
association said that increasing the limit
could risk narrow-tailoring challenges to
the program. A few comments
questioned the economic rationale for
the NPRM’s calculation or found it
confusing.
Commenters generally agreed with
our proposal to make future adjustments
without formal rule making. While some
commenters endorsed the proposed
five-year adjustment intervals, others
advocated more-frequent adjustments.
Several commenters questioned or
opposed the 90th percentile benchmark
for the adjustment. Some commenters
thought that this choice was arbitrary or
confusing, with no compelling rationale.
Other commenters said the 90 percent
level is unfair because DBEs must
compete with extremely wealthy and
powerful non-DBEs, and that using 95
percent might be better.
Taking the opposite point of view,
some commenters thought using the
90th percentile standard could be overinclusive, letting too-wealthy
individuals into the program,
undermining the concept of economic
disadvantage, and risking challenges to
the program based on a lack of narrow
tailoring. One commenter questioned
the point of having a PNW cap at all,
considering the commenter’s assertion
that more than 90 percent of small
business owners have a PNW below the
current cap, and the NPRM would
increase the cap and exclude retirement
assets.
Reporting
Retirement assets drew well over 50
comments, with a considerably wider
divergence of opinion than on the PNW
number itself. Supporters of the
proposal outnumbered opponents by
about two to one. Supporters were
primarily DBEs but included some
recipients and non-DBE groups as well.
Opponents were primarily recipients.
Comments supporting the proposal
generally did so for the reasons stated in
the NPRM. It would make SEDOs’ lives
fairer and the program easier to deal
with, one of them said.
The most significant reason for
opposition to the proposal was a
concern that it would be subject to
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manipulation and allow wealthier
SEDOs to shelter significant assets,
perhaps in the millions of dollars in
some cases, from the PNW calculation.
This would exacerbate inequality among
DBEs, disfavoring SEDOs of smaller,
newer DBEs and implicitly favoring
White females over minority SEDOs.
The proposal would likely benefit only
a few existing firms, mostly those who
already get a large portion of DBE
participation and open the door to firms
that are not truly disadvantaged,
resulting in an uneven playing field
among DBEs, one recipient said.
The proposal could have unintended
consequences, according to some
comments, such as incentivizing
transfers of assets to retirement
accounts, resulting in unrealistically
low PNW asset totals. In addition,
comments said, the proposal could
disfavor individuals who invested in
real property, as distinct from financial
instruments, as a means of retirement
planning. Retirement savings are a part
of someone’s wealth, after all, another
commenter noted, and should be treated
as such. Excluding them dilutes the
notion of economic disadvantage and
could facilitate the participation in the
program of people who are not
genuinely economically disadvantaged.
Being able to put significant sums into
retirement accounts itself suggests a
level of affluence that may indicate that
someone is not economically
disadvantaged.
Some of the opponents of the
proposal, and other commenters,
suggested modifications of the proposal
to deal with what they saw as its
problematic aspects. One suggested a
$500,000 reduction in excluded
retirement assets, with a 10 percent
reduction of the remainder. Other
comments recommended that only a
portion of retirement assets be excluded,
such as 10, 20, 50, or 75 percent.
Another comment wanted more
guidance on what constituted a
retirement asset for purposes of the
provision.
Commenters addressed several of the
NPRM’s proposed provisions regarding
the SEDO’s reporting of assets and
liabilities for PNW purposes.
The most contentious issue in this
PNW component was the proposal that
SEDOs report assets without regard to
State community property, equitable
distribution, or similar laws or
principles. The opinion among
commenters was evenly divided on the
subject. Supporters generally agreed
with the NPRM’s rationale for the
proposal, some specifically citing the
desirability of avoiding inconsistency
among States.
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A number of the opponents of the
proposal were concerned that removing
consideration of marital and community
property laws could disproportionately
favor wealthier SEDOs over less affluent
SEDOs, and White female SEDOs over
minority SEDOs. Opponents maintained
that the proposed rule would allow a
SEDO access to a spouse’s wealth while
artificially reducing her own reportable
assets. Excluding these laws from
consideration could cause problems for
some States in administering the
program, others said, and it would be
better to retain the current rule.
If household goods are divided
equally between spouses or domestic
partners, a number of others asked, why
should their house itself not be treated
the same way? One commenter asked
how the Department would treat a
house that was titled in a revocable trust
(which the commenter said was a
common estate planning technique).
The commenter suggested that it be
counted in the owner’s PNW calculation
if the SEDO was a beneficiary of the
trust for purposes of the house.
The commenters who addressed the
ownership of household goods
expressed a variety of concerns. Two
opposed counting goods at all because
doing so, or keeping the information up
to date, was too complex and
burdensome for applicants (e.g., figuring
in depreciation). Another idea was to
exclude personal property up to a
certain dollar limit (e.g., $250,000). One
said that insurance values tend to be
understated, and another stated that
insurance companies tend to value
household goods at a certain percentage
of the value of the home itself, a figure
which the homeowner should be able to
contest in the PNW process. Requiring
a copy of the insurance policy for
verification would be a good idea, two
comments suggested.
Several comments suggested that
leased vehicles should be treated
neither as a liability or an asset, though
a few other commenters thought they
should be one or the other. Other
comments expressed concern that
vehicles, including valuable ones, could
be hidden from the PNW calculation by
being placed in the name of an
applicant’s non-disadvantaged spouse.
One such comment suggested that a
vehicle in a spouse’s name should
always be counted as part of the SEDO’s
assets. Two others questioned why a
vehicle would be placed solely in the
name of its title holder, while other
personal property, like household
goods, would be divided 50/50 between
an applicant and a non-disadvantaged
spouse.
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One commenter expressed concern
that attributing a debt to the signatory
on a debt instrument could serve as a
way for a wealthy applicant to inflate
his liabilities for PNW purposes.
Another asked whether a business going
into default should be counted as a
liability if the owner had guaranteed the
loan personally, while a third asked for
clarification that a firm’s debt, as
opposed to a personal debt, should not
count as a liability for PNW purposes.
Another question concerned how the
rule would treat a debt entered into by
a SEDO in his or her personal capacity
but was being paid off by the firm. One
commenter suggested that in connection
with the proposal not to consider State
marital property laws, having the
signatory on the debt instrument
determine the ownership of the liability
would be a loophole that would favor
applicants with non-SED spouses.
Other Comments
A number of comments propose
alternative approaches. One commenter
advocated not counting any of a
spouse’s assets for PNW purposes;
another took the opposite view,
suggesting that all of a spouse’s assets be
counted. Another said that in addition
to excluding contingent liabilities,
contingent assets should not be counted.
Exclusions should include non-revenue
producing property (e.g., timeshares,
vacant land) and the cash surrender
value life of insurance policies should
not be counted as an asset, a commenter
asserted. Another comment suggested
excluding encumbered assets from
consideration.
One commenter suggested that the
rule define the time period in which
direct payments for health care,
education, or celebration of significant
family life events should be counted. A
DBE association said, with respect to the
proposed rule limiting transfers to
family members or related entities, there
should be an exception for transfers that
were irrevocable or were pursuant to a
bona fide tax planning, estate planning,
family support, or similar strategy,
perhaps involving a third-party
professional’s certification that the
transfer was part of such a plan.
DOT Response
The PNW cap is an important feature,
among the other eligibility criteria and
standards set for the program, that helps
ensure that the DBE program remains
narrowly tailored. The cap prevents
people who are too wealthy to be
reasonably considered economically
disadvantaged from participating in the
program.
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The PNW Cap
As explained in the NPRM, and in
this final rule, the Department
undertook a fresh, comprehensive
approach to tailor an original analysis of
wealth based on quantitative analysis.
The approach in this rulemaking uses
SCF data on household assets and
liabilities to allow us to construct a
proxy measure of PNW that is close to
the how PNW is currently defined by
the program and also allows us to
consider the impact of removing
retirement accounts from the definition
of PNW. Further, it allows us to allow
for the relative wealth of potential
DBEs—by comparing their financial
position to other self-employed business
owners, rather than the general public.
After constructing the proxy measure of
the revised PNW definition that
removes retirement accounts using the
2019 SCF, we then constructed a
distribution of PNW across white, male,
non-Hispanic self-employed business
owners. See Table 2 of NPRM preamble.
In arriving at the $1.60 million
proposal in the NPRM, the Department
used data from the Survey of Consumer
Finances (SCF), a survey conducted
every three years by the Federal Reserve
and U.S. Department of the Treasury.
This data was specifically analyzed for
business owners by race and gender to
reach the proposed $1.60 million PNW
threshold. The NPRM proposed to
adjust that figure subsequently based on
the growth in the Federal Reserve
measure of total household net worth
from ‘‘Financial Accounts of the United
States: Balance Sheet of Households and
Nonprofit Organizations Table Z.1’’
using 2019 as the base year.
Determining a threshold beyond
which an individual is considered to
have accumulated wealth too
substantial to need the program’s
assistance is an exercise in judgment.
Nonetheless, as explained in the NPRM
and in this final rule, using the 90th
percentile to identify a high level of
wealth or income is a common
convention used to describe economic
inequality. Choosing a substantially
lower threshold, such as the 80th
percentile, would result in a cap that is
lower than the current cap and would
act to remove businesses that are
currently participating in the DBE and
ACDBE programs which would be an
undesirable outcome for the DBE and
ACDBE programs. Choosing a
substantially higher threshold would
risk the possibility of that the program
would no longer be narrowly tailored.
However, we deem the 90th percentile
appropriate because based on a review
of the 2019 SCF data, the mean net
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worth of White, Non-Hispanic
households is roughly 6 to 7 times
higher than for Black, Non-Hispanic and
Hispanic households. Even at the
highest wealth levels, the disparity
exists: the wealth of the top 10 percent
of White households exceeds the wealth
of the top 10 percent of Black, NonHispanic and Hispanic households by a
factor of 5.
Data from the 2019 SCF suggests that
between 88.7 and 90.8 percent of selfemployed business owners who are
presumed to be socially and
economically disadvantaged (i.e.,
individuals who are women, Hispanic,
or non-White) have PNW lower than the
current PNW cap as PNW is currently
defined.4 Under the proposed cap of
$1.60 million, 92.6 percent of that group
would fall under the cap, an increase of
1.8 to 3.9 percentage points.
The final rule adopts a higher number
than that of the proposal, not only in
response to comments suggesting an
increase in the cap, but also because we
have modified the methodology used to
establish and later adjust the PNW cap.
These modifications take into account
the inflation that has affected the
financial situation of all Americans not
only since the publication of the NPRM,
but more importantly since the 2019
data on which the NPRM’s calculations
were based. These modifications also
rely on data more recent than the data
on which we based the NPRM proposal.
The data, as cited in the NPRM, are a
combination of households and
nonprofit organizations when really
only households should be considered.
Additionally, by using solely the growth
in net worth we are not accounting for
the normal population growth.
Accounting for population growth is
necessary to obtain a figure that
represents the average wealth per
household rather than an aggregate.
Consequently, for purposes of the final
rule, the Department has made two
adjustments. The first adjustment is a
change in the dataset to the ‘‘Financial
Accounts of the United States: Balance
Sheet of Households (Supplementary
Table B.101.h),’’ effectively removing
nonprofit organizations from the net
4 The range on this estimate is the result of lack
of information in the SCF on how to appropriately
adjust the current balances of retirement accounts
for early withdrawal penalties and taxes. The lower
end of the estimated range (88.7 percent) assumes
that the entire balance of retirement accounts is
counted toward the PNW cap while the upper end
(90.8 percent) assumes that no portion of retirement
account balances are counted toward the PNW cap.
The Department believes that the true value is
likely closer to 88.7 percent than 90.8 percent
because the deduction for early withdrawal
penalties and taxes is likely to be less than 50
percent, but a more precise estimate is not possible
with the available information.
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24921
worth calculation. The second
adjustment is to normalize household
net worth by the number of households
as calculated by the Census (Families
and Households, Total Households
[TTLHH].5)
With these adjustments and using
2022 data rounded to the nearest
thousand, we have set the current PNW
limit at $2,047,000. This takes inflation
into account and, as in the past,
includes in the calculation the most
common forms of wealth (e.g., an
owner’s personal and shared assets, real
estate and trust assets, cash and cash on
hand, the value of outside businesses,
life insurance policies). We have
determined that rounding to the nearest
thousand is more appropriate than
rounding to the nearest ten-thousand (as
we do for the statutory gross receipts
cap in § 26.65(b)) because of the relative
difference between these two caps (the
current gross receipts cap is $30.40
million, effective March 1, 2023). It also
takes into account the fact that the
population of business owners has
greater net worth than the overall
population. PNW is now, and always
has been, a relative concept: how does
the wealth of business owners in
presumptively economically
disadvantaged groups relate to that of
business owners generally? With this in
mind, we believe that this number
effectively meets the objectives of
allowing businesses to grow;
establishing a PNW limit based on
current and relevant data; and ensuring
that the program remains narrowly
tailored by not creating eligibility
criteria that are overbroad.
The Department will use the data
discussed above in connection with
establishing the current PNW to make
future adjustments to the PNW cap,
which will be made every three years.
We do not believe this will result in a
substantially higher amount based on
our assessment of the likelihood that the
datasets described above will produce
large jumps in net worth. An adjustment
on a more frequent basis, though
favored by some commenters, will not
be made because of the issues it may
cause in the certification and
decertification processes. The
Department will post the adjustments
on the Departmental Office of Civil
Rights’ web page. Each such adjustment
will become the currently applicable
PNW cap for purposes of this regulation.
Reporting
The Department adopts as final the
general rule that community property,
5 https://www.census.gov/topics/families/
families-and-households.html.
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equitable distribution, and similar laws
or principles have no effect on the
SEDO’s PNW reporting. In most cases,
the new provisions either produce the
same result or work in the firm’s favor.
The Program and its stakeholders will
benefit from burden reduction and
more-consistent, predictable, equitable
results.
The final rule adopts the NPRM’s
proposal to exclude retirement assets in
full. We believe that saving for
retirement is crucial to wealth creation.
We do not think it is appropriate to
make it harder for eligible firms to
become and remain certified, simply
because their SEDOs are planning for
their retirement.
We note this rationale mirrors SBA’s
8(a) program, which eliminated the
counting of these assets for PNW
purposes in 2020. (91 FR 27650 (May
11, 2020)). As SBA opined, this accords
with the valuable public policy of
incentivizing, rather than punishing,
saving for retirement; and expands the
pool of potential eligible participants
‘‘because retirement-age small business
owners will no longer be ineligible
solely due to their retirement savings.’’
(Id. at 27651).
We understand the concern some
commenters expressed that wealthier
SEDOs could stay in the program longer
by sequestering assets in retirement
accounts, to the detriment of smaller,
newer DBE firms. A certifier’s continued
ability to rebut an owner’s claim of
economic disadvantage will help
prevent this. That backstop, reworked in
revised provisions in § 26.67(c)(2), is an
important mechanism to prevent
wealthy individuals from gaming the
PNW calculation rules and ensures that
the program remains narrowly tailored.
As explained below, the rebuttal
provisions are meant for situations in
which a reasonable person would not
consider the individual to be
economically disadvantaged.
Under § 26.67(c)(2), certifiers may
consider assets and income, free use of
them or ready access to their benefits,
and any other indicators of nondisadvantage that the certifier considers
relevant. The provision states that there
are no asset (including retirement
assets), income, equity, or other
exclusions and no limitations on
inclusions. Several commenters seem to
have understood that the current and/or
proposed rules permit the SEDO to
exclude the entire value of the primary
residence. They do not. Under either
rule, the SEDO excludes only his share
of the equity in the home. Under the
proposed rule, transferring title to a
spouse reduces the SEDO’s PNW
exclusion to zero, and that result is
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consistent across all States, regardless of
the potential application of community
property rules in some States, under the
old rule. The Department adopts the
rule as proposed, with modifications to
clarify that the marital/community
property change applies to all PNW
reporting, not simply to the exclusion of
equity in the primary residence. The
new rule clarifies and refines but does
not change the general rule that actual
ownership, normally denoted by title,
determines PNW reporting. We disagree
with the commenters who opine that the
old rule, the effect of which varied by
jurisdiction, is preferable to the
proposed rule. Under either regime, the
SEDO may transfer title to avoid
reporting all or part of an asset’s value.
The final rule makes the result more
predictable, and it levels the playing
field nationwide. Anti-abuse rules
address transfers that have an evasive
effect.
Other, targeted NPRM provisions
attempt to resolve smaller, thornier
issues with bright-line solutions that
should ease administration and
compliance. We finalize the rule that
attributes 100 percent of personal
property in a SEDO’s primary residence
to the SEDO unless the SEDO shares the
residence with a spouse or domestic
partner. Determining aggregate value is
difficult enough; we do not believe it is
an effective use of certifiers’ or owners’
time to pick through property item by
item to determine individual ownership
and value. In most cases, the value of
personal property is not of sufficient
magnitude to pierce the PNW ceiling.
We adopt the 50 percent/100 percent
rule for ease of administration and to
curb some of the abuses that concerned
commenters.
PNW reporting for leased vehicles is
another case in point. We agree with the
plurality of commenters that opined that
a leased vehicle is neither an asset nor
a liability. Thus, the final rule states that
leased vehicles should not be reported
at all.
We retain the ‘‘two-year transfer’’ rule
and adopt as final the changes
proposed, again with clarifying edits in
response to comments. The broader
proposition, that substance trumps form
when the asserted transaction, fact, or
circumstance is unreal or abusive,
remains in effect. The final rule so
provides in, for example, sections
26.68(c), 26.69(c)(3)(ii), and 26.69(g)(1)
and (g)(2). All of these iterations are
anti-abuse rules that apply across the
entirety of subparts D and E. We
encourage certifiers to make use of them
when circumstances warrant.
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15. Social and Economic Disadvantage
(§ 26.67)
In this section, because the overall
topic contains several important
subtopics, we have organized the
material around the subtopics, with
discussions about the NPRM provision,
comments, and DOT response
pertaining to each individual subtopic.
As a general matter, the final rule
notes that Congress continues to
recognize present-day discrimination
and the ongoing effects of past
discrimination against members of
certain groups who seek to participate
in DOT-assisted contracting
opportunities. Under the DBE
regulation, members of those groups are
rebuttably presumed socially and
economically disadvantaged. A
certifier’s ability to rebut the
presumption is a key ‘‘narrow tailoring’’
feature because it prevents the DBE
program from being overinclusive. We
make clear that questioning the owner’s
claim of membership in one or more of
the groups whose members are
presumed disadvantaged is a separate
process from rebutting a presumption of
social and economic disadvantage. The
former requires the applicant to bear the
burden of proof to demonstrate that they
are a member of a presumed group. The
latter requires the certifier to bear the
burden of proof to demonstrate that
even though the owner is a member of
one or more of the presumed
disadvantaged groups, they are not, in
fact socially disadvantaged.
Group Membership (§§ 26.5, 26.63,
26.67)
NPRM
The general rule in the regulation is
that all an applicant needs to claim
membership in a group whose members
are presumed socially and economically
disadvantaged is to check the
appropriate box or boxes on the
Uniform Certification Application
(UCA) and submit a signed Declaration
of Eligibility (DOE). We reminded
certifiers that this is the only evidence
of membership owners must provide at
the time of submitting the UCA. An
exception is that owners claiming
Native American status must also
provide proof of enrollment in a
federally or State-recognized Indian
Tribe, or proof that the individual is an
Alaska Native or Native Hawaiian. We
explicitly stated that certifiers must not
question an owner’s claim of group
membership as a matter of course, as
doing so unduly burdens applicants and
contravenes the rule itself. The NPRM
retained the requirement that when
questioning an individual’s group
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membership, a certifier ‘‘must consider
whether the person has held himself out
to be a member of the group over a long
period of time prior to application for
certification . . . .’’ (italics added).
Without that requirement, a White male
(for example) could suddenly discover
he has Black genetic ancestry and apply
for DBE certification based on that
recent discovery—even though he has
never held himself out as Black, and he
would likely have no evidence that the
Black community regards him as a
member of the Black community.
Because of confusion expressed by
certifiers and applicants alike, the
Department proposed defining ‘‘a long
period of time’’ as a period of at least
five years, marking the first time the
Department ever proposed a specific
number.
The NPRM placed timelines/
deadlines in § 26.67 to ensure that
neither certifiers nor applicants unduly
delay the process of questioning group
membership. We also proposed
allowing a firm whose owner’s claim of
group membership has been rebutted to
submit a claim of the owner’s individual
social disadvantage at any time under
§ 26.67(d) (§ 26.67(e) in the final rule),
without regard to the waiting period in
§ 26.86(c). A certifier would not be able
to require the individual to file a new
application; the individual would be
permitted to simply amend the original
application.
Comments
The majority of comments addressed
evidence of Native American group
membership and the proposed
minimum 5-year time frame for
‘‘holding oneself out.’’
Given that the DOE is the only
evidence of group membership an
individual must submit with the UCA,
some commenters asked whether, and
how, certifiers could obtain proof of
enrollment in a federally or Staterecognized Tribe from an individual
claiming Native American group
membership. One commenter asked
about State-recognized Tribes in the
context of interstate certification, as not
all States recognize the same Tribes.
One commenter suggested that Native
American-owned and tribally owned
firms be afforded the same exceptions
from some certification requirements
provided to Alaska Native Corporations.
Of the 15 comments addressing the
‘‘holding out for a long period of time’’
proposal, 10 supported implementing a
minimum five-year requirement. One
commenter asked when the five-year
period started to run (e.g., from
someone’s first application, a current
application?). Some commenters asked
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for clarity on how to apply the ‘‘holding
out’’ provision and examples of
evidence. Opponents said that five years
is too short a period to meaningfully
demonstrate that an individual had held
themselves out to be a group member.
One commenter suggested 10 years.
Another suggested that ‘‘since
adulthood’’ would be a better criterion.
A few commenters sought
clarification about the definition of a
‘‘well-founded reason’’ for questioning
an individual’s claim of group
membership. Two commenters asked for
guidance on how to handle situations
involving a transgender person or one
whose gender identification is
inconsistent with that on her/his/their
birth certificate. One commenter noted
that looking into someone’s claim of
disadvantage could run up against the
shortened time frame for issuance of a
certifier’s decision on an application.
DOT Response
The regulation’s general rule is that
all an applicant needs to do to claim
membership in a group whose members
are presumed SED is to check the
appropriate box(es) on the UCA and
submit a signed DOE. However, an
individual claiming membership in the
Native American group must also
provide proof of enrollment in a
federally or State-recognized Indian
Tribe, or proof that the individual is an
Alaska Native or Native Hawaiian.
Examples of proof of Tribal enrollment
include, but are not limited to, a Tribal
identification card, or a letter from a
Tribal leader. We recognize that Alaska
Natives and Native Hawaiians do not
necessarily possess Tribal enrollment
documents. Certifiers must verify
government-recognized documentation
submitted by Alaska Natives or Native
Hawaiians, such as enrollment
documents from the U.S. Department of
the Interior or a State agency. The final
rule amends § 26.67(a)(2) to reflect that
requirement.
The Department continues to give
certifiers latitude in determining
whether there is a well-founded reason
to question someone’s claim of
presumptive group membership. We
also continue to emphasize our view
that a well-founded reason must not be
a mere suspicion or a bare expression of
a certifier’s opinion. Certifiers must
continue to fully explain the basis for
the well-founded reason and reference
specific evidence in the record. Without
that, an individual cannot meaningfully
respond.
People who are members of the
regulation’s designated groups are
presumed to be disadvantaged because
members of those groups have,
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historically and currently, suffered from
discrimination and its effects. If
someone has not identified as, or been
regarded as, a group member for long
enough to have suffered these effects,
they are not someone whose situation is
intended to be remedied by
participation in the program.
The final rule does not include a
definition of ‘‘long period of time’’ in
order for certifiers to consider the full
context of an individual’s claim of
group membership. Specifying a rigid
time period could be subject to
manipulation by an applicant who
continues to assert a clearly invalid
claim of group membership for many
years. Members of the regulation’s
designated groups are presumed to be
disadvantaged because members of
those groups have, historically and
currently, suffered from discrimination
and its effects. If someone has not
identified as, or been regarded as, a
group member for long enough to have
suffered these effects, they are not
someone who is intended to have the
presumption of disadvantage.6 By not
including a definition of ‘‘long period of
time,’’ we preserve the ability of
certifiers to consider a persons’ claim of
group membership and to demonstrate
such by a preponderance of the
evidence.
Lastly, the procedures for questioning
the membership of a transgender
individual, or one whose gender
identification is inconsistent with that
on the individual’s birth certificate, are
the same as questioning the group
membership of any other individual. If,
after a proper inquiry, a certifier rebuts
a transgender individual’s membership
in the ‘‘female’’ group, the certifier must
deny the application and inform the
individual of the right to apply under
§ 26.67(e) (individualized showing of
disadvantage) at any time and of the
right to appeal to the Department. This
scenario differs from an instance in
which a person does not check the box
for ‘‘female’’ and instead writes
‘‘transgender’’ after checking the
‘‘other’’ box. In that instance, a certifier
must inform the person that
‘‘transgender’’ is not a group whose
members are presumed SED and explain
the option of applying under § 26.67(e)
6 The Department has acknowledged, even as far
back as the 1999 final rule preamble, that
commenters have wanted further definition of what
‘‘a long period of time’’ means. As we stated then,
we believe ‘‘it would be counterproductive to
designate a number of years that would apply in all
cases, since circumstances are likely to differ. The
point is to avoid ‘‘certification conversions’’ in
which an individual suddenly discovers, not long
before the application process, ancestry or culture
with which he previously has had little
involvement.’’ 84 FR 5116 (Feb. 2, 1999).
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to demonstrate SED status on an
individualized basis.
Evidence and Rebuttal of Economic
Disadvantage
NPRM
The NPRM proposed eliminating the
six ‘‘ability to accumulate substantial
wealth’’ (AASW) factors by which a
certifier could rebut an owner’s
presumed economic disadvantage,
because the Department witnessed the
significant extent to which certifiers and
firms inappropriately treat the six
factors as a checklist of required criteria
and treat the examples’ numbers as
floors or ceilings.
We proposed bringing the ‘‘reasonable
person’’ standard from the preamble to
the 2014 regulation into the regulation
itself, just as we moved AASW from
guidance into the regulation in 2014.
Via a § 26.87 proceeding, a certifier
would bear the burden of proving, by a
preponderance of the evidence, that a
reasonable person would not consider
the individual to be economically
disadvantaged even though the
individual’s PNW did not exceed the
regulation’s limit. Among the evidence
that could be considered are ready
access to wealth, income or assets of a
type or magnitude inconsistent with
economic disadvantage, a lavish
lifestyle, or other circumstances that
economically disadvantaged people
typically do not enjoy. Liabilities and
the kind of asset exclusions used in
PNW calculations would not be taken
into account as part of this
determination.
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Comments
Most commenters opposed our
proposal to replace the AASW factors
with a ‘‘reasonable person’’ evaluation.
About 30 comments, primarily from
recipients but also including some DBE
and non-DBE firms, said that it was too
vague and subjective. It could lead to
inconsistent and arbitrary results and
could let in people who should not be
in the program. It left too much
discretion to the personal opinions of
certifiers, leading to conscious or
unconscious bias, or a certifier’s dislike
of a particular firm, being able to affect
decisions.
More than 20 commenters (there was
some overlap with the first group)
advocated retaining either the existing
six guidance factors or some other
factors more concrete than a reasonable
person standard. Many of these
comments suggested modifications to
make something like the existing
provisions work better, such as more
guidance. One subject suggested for
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guidance is how certifiers should look at
situations involving S-corporations or
LLCs, where business income is passed
on to an individual’s personal return,
enlarging the SEDO’s AGI. Some said,
given inflation, the AGI criterion should
be increased to $400,000–$500,000.
Others recommended stronger language
to prevent single-factor evaluations
using the criteria, or that more than one
factor should always be used.
A smaller number of commenters
supported the proposal, favoring the
‘‘big picture’’ approach of the NPRM.
One recipient said it already used a
holistic approach successfully. One of
the supporters commented favorably on
what it regarded as the NPRM’s simpler
approach to the issue. Another wanted
the certifier to have to prove its case
under the proposed approach by the
clear and convincing evidence standard.
One comment was concerned about the
proposal’s subjectivity but said the
current six factors were worse. It asked
that the Department not provide
guidance that made decisions on
rebutting disadvantage harder for
certifiers.
Two comments said that evaluations
under the section exclude spouses’
assets, while another thought those
assets should be included.
writing, a detailed explanation and not
simply make a conclusory statement.
DOT Response
The Department’s final rule about
rebutting economic disadvantage helps
ensure that the DBE program remains
narrowly tailored and strengthens
current safeguards that prevent firms
owned by individuals who cannot fairly
be viewed as economically
disadvantaged from participating in the
program. Rebutting an owner’s
presumed economic disadvantage
inevitably requires certifiers to make a
judgment call about whether an owner
can be reasonably considered
economically disadvantaged. We make
final our proposal to eliminate the
AASW framework and shift the analysis
from a list of specific criteria to a
‘‘reasonable person’’ evaluation.
By giving certifiers the ability to make
judgment calls, we believe that we place
them in the best position to achieve this
objective, without needing to engage
with factors that, while intended as
suggestions, were too often taken as
strict regulatory criteria. Retaining and/
or revising some or all of the existing
factors, as some commenters suggested,
will not solve the problem and might
inadvertently create additional
complexity. We understand
commenters’ concern about decisions
on this matter becoming too subjective.
That is why, and consistent with prior
final rules, certifiers must articulate, in
DOT Response
We adopt proposed § 26.67(d) with
modifications in response to the
comments. We believe that the changes
provide clearer guidance to certifiers
and business owners. The final rule
removes the lopsided and, in some
cases, insurmountable burdens that the
previous rule and guidance imposed
and curbs the excesses they enabled.
The rule simplifies, specifies, and
streamlines. It substantially levels a
skewed playing field for owners, which
should result in more accurate
determinations and the more efficient
administration of the certification
process.
The final rule reunites the social and
economic aspects of ‘‘disadvantage,’’
which are intrinsically linked, and
explicitly identifies the three elements
that the owner must demonstrate.
Although the substance deviates very
little from that of the superseded
guidance, the final rule concisely
identifies the ‘‘what’’ and the ‘‘how’’
and does it in plain language. The rule
clearly specifies the criteria that an
owner must satisfy, and the kind of
evidence that he must present, to show
that the negative effects of
discrimination (social disadvantage)
caused economic hardship.
The final rule, as did the previous
provision, requires a degree of
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Individual Determinations of Social
and Economic Disadvantage (§ 26.67(d))
NPRM
The Department proposed eliminating
its guidance in Appendix E and adding
flexible, less prescriptive requirements
into the regulation itself. An individual
seeking to demonstrate SED status on an
individual basis would still have to
prove, by a preponderance of the
evidence, that he experienced social and
economic disadvantage within
American society and without regard to
the individual’s personal characteristics.
Comments
Of the more than 20 comments that
addressed this issue, a majority opposed
the NPRM’s proposal, saying that it was
too subjective. It gave certifiers too
much discretion, left open the
possibility of inconsistency and bias,
and might help ineligible firms to obtain
certification. Most of these commenters
favored retaining the guidance or
something like it. A smaller number of
commenters favored the proposal for the
reasons stated in the NPRM preamble,
with two asking for more examples to
help certifiers.
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subjectivity because each owner
presents unique facts and personalized
experiences. The checklist approach of
the superseded appendix was ill-suited
to the evaluation. Although the final
rule is less rigid, it continues to require
robust proof of individual disadvantage.
We are confident that certifiers will
evaluate the evidence fully and
objectively, in accordance with the
restated, simplified criteria, and thereby
ensure that only eligible firms become
certified.
The reauthorization of the DBE
program in successive Congressional
reauthorizations, including the
Bipartisan Infrastructure Law,
demonstrates Congress’ intent to
facilitate the participation of social
groups that have experienced past, and
continuing, discrimination in federally
assisted contracting. The final rule
safeguards against certifiers imposing
undue requirements on individuals that
are not presumptive group members.
The rule focuses solely on essential
requirements, ensuring fairness and
clarity in the certification process. This
matches Congress’ and DOT’s objective
to remove barriers and facilitate
certification of eligible firms.
The Department’s final rule adopts in
full our NPRM proposal for the reasons
given there. As with evaluating the SED
status of an individual claiming
membership in one of the groups whose
members are presumed SED, evaluation
of an application under § 26.67(e)
inherently requires certifiers to make a
judgment call. In doing so, certifiers
must not simply rely on the quantity of
examples of disadvantage an owner
provides; rather, certifiers must focus on
the quality of the evidence presented.
Applicants have to submit a personal
narrative detailing the experiences that
demonstrate the social and economic
disadvantages they have had to contend
with. While applicants bear the burden
of both production and persuasion with
respect to all elements of certification,
certifiers must holistically evaluate all
presented evidence before making a
determination.
We reiterate that an owner need not
have filed a complaint of discrimination
as a prerequisite of claiming social
disadvantage. Nor must an owner
produce corroborating evidence, as such
evidence may not exist. The final rule
merely levels the field by removing
what amounts to a higher burden than
‘‘preponderance of the evidence.’’ 7 The
7 SBA uses the preponderance of the evidence
standard as well in its eligibility standards. In its
final rule, SBA addressed the Supreme Court’s
decision regarding the DBE program (Adarand
Constructors, Inc. v. Pen˜a, 515 U.S. 200 (1995),
which requires programs to provide a race-based
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owner still must make his case, and the
certifier may disregard a claim of social
disadvantage where the individual
presents evidence of discriminatory
conduct but does not connect that
conduct to negatively impact on his
own entry into or advancement in the
business world. On this point, the
Department is following SBA’s guidance
that individuals need to provide ‘‘a
complete picture, or additional facts
that would make an individual’s claim
of bias or discriminatory conduct more
likely than not.’’ 8 Like SBA, certifiers
should not intend as a matter of course,
to disbelieve an applicant but should
continue to rely on the affidavits and
sworn statements, as long as those
statements clearly establish an instance
of social disadvantage.
Appendix E is modeled after several,
but not all, SBA requirements. When it
was first introduced by the Department,
we modified our guidance to make it fit
our needs because of the differences
between the two programs. Appendix E
was intended by the Department to be
guidance only, yet recipients used it to
impose rigid, prescriptive requirements
that too often excluded meritorious
applicants who, by any reasonable
standard, proved their SED status.
Nonetheless, certifiers found them
ineligible because they did not produce
a specific type of evidence, in sufficient
volume, of each of the several
‘‘required’’ varieties. In some cases, the
evidence (e.g., corroboration of malign
intent) does not exist; in others, it
cannot be obtained. For example,
researching and compiling data about
other firms in the same or a similar line
of business with which to compare the
individual’s circumstances is well
beyond the means of an owner of a
small business seeking DBE
certification. Competitors tend not to
publish information concerning capital,
net worth, access to credit, etc. As stated
in the NPRM preamble, we believe that
this is inequitable. The rule at § 26.67(a)
aligns with the Department’s surface
authorization requirement to follow
SBA’s definition of members of groups
deemed socially disadvantaged; and
§ 26.67(d) retains SBA’s regulatory
requirements that a person who is not
socially disadvantaged must make an
individual showing of disadvantage. To
do so, § 26.67(d) requires an owner to
remedy to be ‘‘narrowly tailored.’’ SBA noted that
the Department of Justice recommended the
‘‘preponderance of the evidence’’ standard for
government-wide disadvantaged business programs;
and therefore, based its ‘‘preponderance of the
evidence’’ standard accordingly. See 63 FR 35728
(June 30, 1998). The Department follows this
standard.
8 81 FR 48569 (Jul. 25, 2016).
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identify at least one objective
distinguishing feature (ODF) that
resulted in racial, ethnic, cultural, or
other prejudice against him personally
and describe with particularity how the
ODF caused personal social
disadvantage. The owner may provide
evidence related to the owner’s
education, employment, or any other
evidence the owner considers relevant.
16. Ownership (§ 26.69)
The NPRM proposed changes that
would streamline the ownership rules
and make them easier to understand and
administer. The proposal retained the
essential substantive elements of the
2014 rule but recast them in simpler
language. It distilled from the multitude
of prescriptive ‘‘real, substantial, and
continuing’’ (RS&C) rules a few general
principles and set those out as the main
components of ownership. Sub-rules
fleshed out the framework. The
Department’s overall goal was to make
certification easier to obtain, maintain,
and monitor.
The proposed rule employed a new
term, Reasonable Economic Sense (RES)
as its rationalizing principle. RES, like
RS&C in the 2014 rule, was to be a
touchstone, shorthand, and umbrella for
the underlying concepts and operating
rules. We intended for the term to signal
flexibility, a common-sense focus, and
tighter alignment with small business
realities.
Reasonable Economic Sense (RES)
NPRM
The NPRM replaced the term RS&C
with RES in describing the rule’s
unifying principle or overarching
requirement. The proposal restated the
2014 rule’s essential requirements and
organized them more logically. At the
top analytical tier, the proposed
language simplified and clarified the
rule’s main components; it changed
nomenclature and emphasized more
than substance. For example,
‘‘proportionality’’ (broader, less rigid,
more clearly defined) replaced the 2014
rule’s ‘‘real,’’ ‘‘substantial,’’ and
‘‘commensurate with’’ language. The
changes gave certifiers more latitude
than they believed they had before, to
encourage them to consider firmspecific facts without undue regard for
technical disqualifications. Similarly,
the proposal gave owners more control
over how to structure their businesses’
ownership. Proportionality does not
require exactitude. Owners have
latitude up the point at which the
benefits and burdens of ownership are
‘‘clearly disproportionate’’ or ‘‘undue.’’
While the proposed rule described the
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ownership requirements in plainer,
more accessible language, the animating
theory remained: substance prevails
over form.
stand to lose the entire investment if the
business folds. In colloquial terms, the
SEDO must have real ‘‘skin in the
game.’’
‘‘Maintain’’ means both that the SEDO
not withdraw her investment and that
she keep her investment proportional to
those of other owners.
Comments
Commenters supported the NPRM’s
overall approach, including the rule’s
substantive provisions, by a wide
margin. Supporters often cited increased
flexibility and the likelihood of better
outcomes. However, a sizable majority
of all commenters specifically opposed
RES. They faulted the term for
vagueness, subjectivity, the potential for
inconsistent results (e.g., disfavoring
WBEs), and the possibility that front
companies could become certified more
easily. While some of the commenters
opposing RES wanted to retain the
existing rule, most requested more
definitions, guidance, and examples.
Rules for Acquisition, Proportionality,
and Maintenance
Section 26.69(b) retains the proposed
rules for acquiring and maintaining
ownership interests. In all cases, the
principle of proportionality applies. The
SEDO’s investment to acquire
ownership must be substantial, and it
must include a significant cash
component.
Example 1. SEDO contributes $51 to
acquire 51 percent of Newco. The cash
outlay is insubstantial, and the capital
contribution is therefore not an
investment. Newco is ineligible for
certification.
Example 2. SEDO contributes $5,100
in exchange for 51 percent of Newco,
which does not yet operate any
business. Regardless of whether $5,100
is a substantial outlay, Newco is
ineligible under § 26.71(a), which
requires that an applicant have business
operations.
Example 3. SEDO purchases 60
percent of Opco for $30,000 cash.
Assuming that the outlay is not clearly
disproportionate to value, and the SEDO
does not reap benefits or shoulder
burdens clearly disproportionate to
those of other owners, Opco is eligible
on ownership grounds.
Example 4. SEDO contributes a truck
worth $60,000 to Haulco in exchange for
100 percent ownership. Without a
significant cash contribution, Haulco is
ineligible.
Example 5. SEDO buys 80 percent of
Opco from Founder, who is retiring, for
$8,000. Opco has run at a small net loss
for the last 2 years but was profitable in
several preceding years. Opco has
generated over $3 million of revenue in
each of the last four years. Opco is
probably ineligible because $8,000 is
unlikely to be proportional to the value
of 80 percent of Opco.
Example 6. SEDO pays $55,000 to buy
60 percent of the stock of Oldco from
Founder, who was Oldco’s sole owner.
Oldco’s book (net asset) value is
$100,000. Since there are no other,
recent stock sales or other persuasive
evidence of fair value, Oldco is probably
eligible because $55,000 is not ‘‘clearly
disproportionate’’ to the value of the
shares purchased.
‘‘Proportionality’’ requires that the
SEDO not derive disproportionate
benefits or bear disproportionate
burdens of ownership. The SEDO may
not make a conditional or revocable
investment, and once made, the SEDO
must maintain the investment.
Purchases and Capital Contribution
A purchase is an investment when the
consideration is exclusively monetary
and not a trade of property or services.
A capital contribution is an investment
when the owner contributes cash,
tangible property, realty or a
combination of these assets.
Contributions of time, labor, and
services (i.e., called ‘‘sweat equity’’) are
never investments.
We exclude as unhelpful our proposal
concerning contributions of expertise,
even though we received no comments
about it.
ddrumheller on DSK120RN23PROD with RULES2
DOT Response
Our objectives in promulgating the
proposed and final rules are to simplify,
clarify, and modernize certification
standards; give firms and certifiers more
flexibility; and promote consistent, fair
results. We intended for RES to capture
in a single, overarching term the essence
of the DBE ownership standards, as
simplified and clarified. The comments,
however, persuade us that RES is
unhelpful, and on further reflection, we
see no need for an overarching term. We
therefore delete all references to RES.
The comments also prompt us to
explain key concepts and rules more
thoroughly and to add substantially
more situational guidance and
examples. We adopt proposed § 26.69,
with these additions and edited for
clarity.
We believe that the final rule reduces
burdens, increases understanding, and
promotes equity.
Investments
The regulation frames ownership in
terms of ‘‘investments’’ and provides
detailed guidance on which investments
in ownership make a firm eligible for
certification. Investments are the
mechanism through which the rule
applies. If the SED owner (SEDO) makes
no investment, an insignificant one, or
one that is disproportionately low, the
firm is ineligible.
Purchases, capital contributions, and
gifts are investments if they meet
specified standards, including
proportionality consistent with the
owners’ relationships and the business’s
circumstances. Investments must have
real economic effect. The SEDO must
have parted irrevocably with (her own)
cash or with a combination of cash and
tangible or real property. She must
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Gifts
NPRM
The NPRM provides that a gift is an
investment only if the transferor
becomes uninvolved with the applicant
or DBE in any capacity and in any other
business that performs similar work or
contracts with the firm other than as a
lessor or supplier of standard support
services. This language is a
condensation and simplification of
current regulation §§ 26.69 (h) and (j).
The NPRM removes the prohibition on
the transferor’s involvement with a nonDBE firm in a similar business; adds the
contracting restriction and a
documentation requirement; and
removes as unwieldy, unnecessary, and
unfair the paragraph (h) presumption of
non-ownership, two-pronged rebuttal
(one wholly unrelated to ownership),
and heightened burden of proof.
Comments
One commenter supported the
proposal, while another opposed
allowing gifts to be considered toward
ownership at all. A third opposed the
proposal that a non-SEDO providing a
gift to a SEDO would have to become
uninvolved with the company. It could
be a good thing for the business if the
non-SEDO could stay involved, the
comment asserted. Another expressed
the concern that, under the proposal,
someone could acquire ownership
solely on the basis of a gift.
DOT Response
Paragraph (e) of the final rule replaces
paragraph (h) of the 2014 rule. The new
rule eliminates the more complex twoprong test and heightened burden of
proof of the former paragraph (h), which
has proved confusing in practice. Under
the final rule, when a nondisadvantaged person gives an
ownership interest to a disadvantaged
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person, the gift is the donee’s
‘‘investment’’ for certification purposes
only if the donor becomes completely
uninvolved in the business or any that
contracts with it. Unless or until that
happens, the firm will not be eligible for
certification and will remain ineligible
until the donor severs all ties. Of course,
if other SEDOs own 51 percent of the
firm without the donee’s contribution,
the firm could be certified.
We acknowledge that there are often
good reasons for a former, nondisadvantaged owner and a new,
disadvantaged owner to work together
during a transition period, but we
remain concerned that permitting such
arrangements across the board presents
risks to program integrity. However, we
believe that the prohibition on the
donor’s involvement in similar
businesses is unwarranted. Although
removing that prohibition marginally
increases risk of program abuse, other
provisions of the regulation curb those
risks. As this restriction may discourage
transfers that benefit SEDOs and their
businesses, we adopt the proposed rule
but strike the ‘‘similar business’’
proviso.
Loans and Debt-Financed Investments
NPRM
Under the NPRM, a SEDO may
finance all or part of an investment in
the company, including a purchase from
a third-party owner. In that case, the
company is eligible only when the
SEDO has paid at least 15 percent of her
total investment from her own funds.
The firm may not be a party to the loan,
and its property may not serve as
collateral. The firm is eligible only if the
SEDO meets this requirement before the
firm applies for certification.
ddrumheller on DSK120RN23PROD with RULES2
Comments
One commenter proposed raising the
15 percent requirement to 35 percent,
since the higher floor would
demonstrate a greater stake in the
business. Another commenter opposed
the 15 percent requirement as
unwarranted because it could impair the
ability of younger owners to become
certified. Others suggested that, instead
of naming a percentage, the rule should
require a ‘‘commercially reasonable
portion of total investment’’ to come
from a SEDO’s own resources or that
repayment be consistent with the terms
of the loan agreement, if consistent with
industry standards. Another commenter
opposed prohibiting the use of a firm’s
property as collateral for a loan to the
SEDO claiming the investment.
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DOT Response
We adopt the debt financing rules as
proposed, move them into a new
§ 26.70, and respond to comments by
breaking the definitions into smaller
components, reordering the rules for
clarity, and adding multiple examples.
We do not raise the 15 percent selffunding requirement because we believe
that a higher percentage would be too
exclusionary.
We move these rules to emphasize a
crucial distinction that the 2014 rule did
not articulate effectively. While a SEDO
may make an investment using funds
from a debt, meeting the requirements of
this section, the loans themselves are
not investments. This rule applies
regardless of who the creditor and
debtor may be. The rule is that, subject
to the conditions specified in §§ 26.69
and 26.70, the owner ‘‘invests’’ only
when she contributes the loan proceeds
to the firm or uses them to purchase an
ownership interest.
To further explain the distinction and
the rationale for it, the SEDO’s
‘‘contribution’’ of her debt to the
company relieves her of the obligation
to repay. Such a transaction is the
opposite of an investment: the owner
has parted with nothing but a liability,
the firm receives no capital, and the
firm must pay out its own capital to
repay the owner’s debt. A loan from the
company is not an investment because
the firm cannot contribute capital to
itself or buy shares from itself for itself.
(Treasury stock is already treasury
stock; the asserted transaction is as
fictional as it is unnecessary.) Nor may
the SEDO use the company’s property to
secure her loan: a different rule would
effectively nullify the general rule that
a loan from the company is not an
investment. Given this treatment of the
owner’s debt, a mere guarantee is not an
investment.
Section 26.70 also requires regular,
level payments of principal and interest
over the term of the loan at least until
sufficient principal has been repaid to
make the owner’s out-of-pocket
expenditure at least 15 percent of the
total investment. Related rules ensure
the integrity of the rule’s limitations.
Curative Measures
NPRM
Proposed revisions to § 26.69 would
adopt by regulation the memorandum
that the Department issued on August 7,
2019. Applicants can take curative
measures to correct impediments to
eligibility, as long as they are legitimate,
accurately reflect relevant facts, are
made in good faith, and are not
prohibited in the regulation.
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Comments
A strong majority of comments
supported the NPRM proposal. Several
commenters said this was a practice
they already followed. Some of these
comments suggested that the use of
curative measures should be limited to
minor administrative matters rather
than serious issues concerning the
organization or structure of a business.
Opponents were concerned that the
provision would allow firms to
circumvent the rules or put certifiers in
the position of ‘‘coaching’’ applicants on
how to get certified.
DOT Response
The final rule adopts the proposal,
essentially for the reasons explained in
the NPRM preamble. It will encourage
recipients to catch problems that often
unwittingly lead particularly new,
inexperienced, but otherwise potentially
eligible firms into mistakes that result in
denials and the application of a waiting
period before the firm can try again. We
believe that certifiers can exercise sound
judgment concerning the kinds of
matters on which they can usefully
assist such firms. We do so with the
safeguard that, like all actions by
participants in the program, abusive or
sham actions are prohibited. When part
or all of a transaction or series of
transactions involved with the
certification or participation involving a
firm have no apparent purpose other
than camouflaging facts or
circumstances which more likely than
not render the firm ineligible, the final
rule’s § 26.69(g) calls for sanctions
against the offending parties.
Other Ownership Issues
There were a variety of comments
regarding aspects of ownership that the
NPRM did not address. One suggested
there should be more guidance on firms
that had more complex ownership
arrangements, like ‘‘simple agreements
for future equity.’’ Another would delete
the requirement that a SEDO own 51
percent of each class of ownership,
which it found too restrictive. This
commenter would instead say that a
SEDO should have enough shares of any
or all classes of ownership to control the
firm and receive 51 percent of its
profits.
Other comments requested
clarification on what information an
applicant is required to provide to show
ownership and on the status of trusts
under the proposal. Another comment
expressed concern that deleting
provisions concerning marital property
would make it easier for applicants to
circumvent the intent of the rules.
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17. Control (§ 26.71)
In this section, because the overall
topic contains several important
subtopics, we have organized the
material around the subsections, with
discussions about the NPRM proposals,
comments received, and DOT responses
pertaining to each subtopic.
The thrust of the Department’s final
rule is to shift the focus from the actions
and experience of non-disadvantaged
participants in the firm to those of the
SEDO, to reflect the original intent of
the regulation’s control requirements. A
SEDO must pass the three-part test of
managerial oversight, revocable
delegation of authority, and critical and
independent decision-making.
create a disincentive to
entrepreneurship in non-traditional
types of work. It should be enough,
commenters said, for the SEDO to have
experience in the type of work involved
with a new firm. For example, it should
suffice if an engineer had work
experience relevant to the field a new
engineering firm wanted to work in as
a DBE, even if a newly formed firm had
not yet obtained a contract.
Among commenters who either
supported or did not object to the
proposal, some said that it made sense
to prevent situations in which a certifier
would be asked, in effect, to certify a
business plan. The provision would
save staff time, in that staff would not
have to do certification workups on
firms that would not be able to perform
contracts. A commenter thought that an
applicant should have at least a year of
experience in its type of work.
Several commenters asked for
clarification of what constituted
‘‘operations’’ for purposes of the
proposed section, and what applicants
would have to show in order to meet the
requirement. Would they need to have
already performed work on a contract?
Others suggested that certifiers should
have discretion to decide the question,
given that more operational experience
may be needed in some fields than
others (e.g., heavy highway construction
vs. landscaping). A number of
commenters questioned or objected to
the exception to the proposed
requirement for ACDBEs, asking why
the same standards should not apply to
an ACDBE.
‘‘Operations’’ Requirement
DOT Response
Another opined that non-SEDOs should
not be able to be part owners of a DBE
firm if they were involved in non-DBE
firms in the same type of work, a
relationship that could enable passthroughs. A final commenter believed
that certifiers should take workforce
diversity as well as ownership into
account in certifying firms.
DOT Response
The final rule retains the joint
ownership provision as proposed, for
the reasons stated in the NPRM:
consistent results across jurisdictions,
federalism, and expertise. Fairness,
prudence, and practicability underlie
the final rule.
Any issues arising from the other
concerns noted by commenters can, if
needed, be addressed through future
guidance or on a case-by-case basis as a
matter of program administration.
ddrumheller on DSK120RN23PROD with RULES2
NPRM
The NPRM proposed several changes
to the current § 26.71. One proposal
stated that firms (except ACDBEs)
would have to have ‘‘operations’’ in the
type of business in which they seek
certification. The NPRM said that this
would allow certifiers to make decisions
based on actions the SEDO takes and
avoid wasting certifier resources on
firms that are not conducting business
and have no ability to perform DBE
contracts.
Comments
Of the nearly 40 comments that
addressed this issue, a majority opposed
the NPRM proposal. The principal
argument of opponents was that
requiring a business to have operations
before being certified would be a barrier
to new firms or those seeking to expand
into new areas of work. The program
should encourage, not discourage, firms
seeking their first contract. It would
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A DBE must have business operations.
Certifiers should not be involved in
what amounts to certifying a business
plan. It does not make sense for a
certifier to engage in the certification
process for a firm, which, if certified, is
not in a position to work on a DOTassisted contract. This is no less true for
new businesses than for long-existing
businesses. For this reason, the final
rule retains the proposed requirement.
This is not to say that an applicant
must have had previous contracts in
order to be certified. We expect
certifiers to make the necessary
judgment calls to determine when an
applicant firm is sufficiently ready to
participate in the program if certified.
The Department explains how to
apply these concepts in the context of
the ACDBE program in the preamble
discussion on § 26.71 regarding the
operations requirement for DBEs,
including ACDBEs.
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Control (SEDO as the Ultimate Decision
Maker) (§ 26.71)
NPRM
The NPRM would require a firm to
demonstrate that, beyond formalities of
business structure and governance
documents, the SEDO ‘‘runs the show,’’
having the final say on all matters,
regardless of the size or complexity of
the business. Governance continues to
matter, however, and provisions that
require non-SEDO concurrence or
consent for the SEDO to act, including
provisions related to board of directors,
quorums, and votes, would prevent the
SEDO from being determined to control
the firm (there would be an exception
allowing non-SEDO members to block
an extraordinary action, like sale or
merger of the company, that would
affect their ownership rights). The SEDO
must hold the highest officer position
and have voting authority over all other
participants.
As under the former rule, a SEDO
would have to understand and be
competent in the substance of the firm’s
business. The NPRM noted that the
degree of understanding the owner
should have can vary with the type and
complexity of the business. A SEDO
would have to actually make major
decisions, not just have the ability to do
so as under the former rule. Control
determinations would be based on a
three-part test: (1) the firm would have
to show that a SEDO gets pertinent
information from subordinates, (2) a
SEDO analyzes the information, and (3)
a SEDO makes independent decisions.
Tasks can be delegated, as long as the
SEDO can revoke the delegation.
Everyone in the company must
recognize and abide by the chain of
command, with a SEDO at the top.
Comments
By about a three-to-one majority,
commenters endorsed the new control
framework, saying that less prescriptive
requirements would simplify the
certification process. There were
supportive comments on a number of
the specific points in the proposal, such
as the SEDO being the ultimate decision
maker and having the top position in
the company and the three-part test
with respect to how and by whom
decisions are made. Commenters asked
for more guidance on what an applicant
would have to show in order to carry its
burden of proof on these matters.
Comments opposed to the proposal
said that the proposal would lower
standards and compromise program
integrity. Others thought the approach
too subjective. One said the three-part
test was not realistic for certifiers to
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apply; it boiled down to whether a
certifier thought what an applicant said
was credible.
One commenter supported the
NPRM’s proposal about boards of
directors, saying it would clarify
matters. Another opined that firms
should be able to set up their boards as
they wish because boards of directors
are generally not decision-making
bodies. Another said that non-SEDOs
should not be able to block
extraordinary actions of the company
and still have the SEDO regarded as
controlling the firm, while another
commenter supported the proposed
provision concerning extraordinary
actions.
One comment asked for a clarification
continuing the present rule’s allowance
of control by any SEDO, not only the
one having the largest stake in the
company. Another suggested that
§ 26.71 be made broader and more ‘‘big
picture’’ in nature. Another said that if
the certifier determined that the owner
does not control the firm, it should be
required to state who does control it.
A few commenters expressed concern
about certifiers’ ability to verify the
reality of decision-making power within
a company. One commenter noted that
anyone can be placed at the top of an
organizational chart. Another
commenter asked how a certifier would
know whether other participants
faithfully follow the SEDO’s directives.
Would the certifier have to interview all
key participants as part of an on-site
review? This commenter also was
concerned that what it saw as the
proposal’s emphasis on formal authority
could cause certifiers to overlook
situations in which someone other than
the SEDO had the bulk of expertise and
clout within the firm. Other commenters
thought the proposal’s bright line
approach to a company’s chain of
command, and the importance of the
SEDO’s ability to revoke delegations,
would add clarity to the certification
process. Commenters opposed to the
proposal said that the proposal would
lower standards and increase the
possibility of opening the program to
increased fraud. Others thought the
approach was too subjective. One said
the three-part test was not realistic for
certifiers to apply; it boiled down to
whether a certifier thought what an
applicant said was credible.
DOT Response
The Department believes that the
overall approach taken to control
matters in the NPRM is sound and will
meet the dual objective of removing
unnecessary obstacles from applicant
firms while ensuring that only those
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firms that are genuinely controlled by
SEDOs are certified. It comes down to
whether the SEDO in fact—not just in
theory or on paper—runs the show. The
SEDO must show that they possess not
only the authority to make decisions,
but in fact make those decisions.
With respect to control, certifiers
must necessarily make a judgment call:
does the SEDO, based on the complete
record, including the application and
the on-site interview, really ‘‘run the
show?’’ The NPRM clearly stated this
responsibility on the certifier’s part. One
of the best ways a certifier can do this
is to make in-depth inquiries, during the
on-site interview, to determine if SEDOs
critically analyze information provided
by others and make reasonable business
decisions based on independent
analysis. Do other key employees bring
issues or problems to the SEDO, who
asks good questions, and then makes the
decisions, which others carry out? Or do
others make decisions autonomously,
without involving the SEDO, or
disregarding direction from the SEDO?
Interviewing not only the SEDO, but
also other key employees where
relevant, to get a full picture of how
decisions are made is crucial to good
control decisions by the certifier. To the
extent possible, the certifier should ask
for examples about how real-life
decisions were made within the firm in
the past. The Department believes this
approach, as stated in the NPRM, makes
sense and is consistent with the intent
of the program and maintaining program
integrity, and we are adopting it as final.
The NPRM discussed, in § 26.71(c),
the point that governance provisions of
a company must ensure that the SEDO,
in addition to having the highest officer
position in the company (e.g., CEO),
must not be constrained from fully
controlling actions of the company by
quorum, by-law, or other provisions.
Non-SEDO consent for certain
extraordinary actions (e.g., sale or
dissolution of the company) would be
permitted. However, similar provisions
in the former rule often proved to be
problematic for small or inexperienced
companies, who in our certification
appeal practice we have found used
templates for governance documents
that limit SEDO actions without nonSEDO concurrence. This is a classic
example of where a certifier can
vindicate the intent of the program by
pointing out such problems to an
applicant and allowing the applicant to
take curative measures.
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Expertise and Delegation
NPRM
As under the current rule, the NPRM
proposed that SEDOs would have to
understand and be competent in the
substance of the firm’s business. The
NPRM noted that the degree of
understanding that the owner should
have can vary with the type and
complexity of the business. The SEDO
would have to actually make major
decisions, not just have the ability to do
so as under the present rule. Control
determinations would be based on a
three-part test: the firm would have to
show that the SEDO receives pertinent
information from subordinates, that the
SEDO analyzes the information, and
that the SEDO makes independent
decisions. Tasks can be delegated, as
long as the SEDO can revoke the
delegation. Everyone in the company
must recognize and abide by the chain
of command, with the SEDO at the top.
Comments
A few commenters were concerned
about how certifiers would verify the
reality of decision-making power within
a company. Anyone can be placed at the
top of an organization chart, after all,
one comment noted; and another asked
how a certifier would know whether
other participants faithfully follow
directives from the SEDO. Would the
certifier have to interview all key
participants as part of an on-site review?
This commenter also was concerned
that what it saw as the proposal’s
emphasis on formal authority could
overlook situations in which someone
other than the SEDO had the bulk of
expertise and clout within the firm.
Other commenters thought the
proposal’s bright-line approach to a
company’s chain of command, and the
importance of the SEDO’s ability to
revoke delegations, would add clarity to
the certification process.
Three commenters supported the
proposal as written. Another said that
there should be language telling
certifiers not to reject a firm because a
SEDO, even if clearly the decision
maker, has employees who have greater
experience or expertise than the SEDO.
On the other hand, one commenter said
that an unlicensed or non-expert person
should not be viewed as controlling a
firm (e.g., a non-electrician in charge of
an electrical services firm). One
commenter said the SEDO should be
qualified in the NAICS code(s) the firm
is seeking, while others asked for more
clarification and examples, especially in
professional services firms and for
ACDBEs, where the commenter
expressed concern that inexperienced
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people were getting certified as a part of
joint ventures.
although the relationship may raise a
business size issue.
specialized training to DBEs through a
shared foreman or superintendent.
DOT Response
Comments
DOT Response
The Department adopts the NPRM
proposal without change. It emphasizes
that the SEDO, while permitted to
delegate authority and functions, must
be able to revoke that authority. There
must be a recognized chain of command
within the company in reality, and not
just on an organizational chart, for
example. Making probing inquiries on
this point, and on the recognition and
acting upon this authority structure, is
something certifiers should, as
described above, ensure is part of the
on-site interview process.
The Department emphasizes, in the
final rule, that the proper focus for
certifiers is the role the SEDO plays and
the SEDO’s being the ultimate decision
maker. We have often seen that certifiers
go astray by determining that a SEDO
does not control a company simply
because other participants have
experience or expertise in a given aspect
of the firm’s operations. The
contribution of non-SEDOs to the
operation of a company is not a ground
for denying eligibility to a company, so
long as the SEDO runs the show in all
aspects of the business, including with
respect to areas of work that may be
delegated to others.
While we do not believe it is
necessary to include rule text language
on these points, we agree with
commenters that, as under the present
rule, in a situation where there is more
than one SEDO, control by any SEDO is
sufficient to meet § 26.71 requirements.
This is consistent with the definition of
a DBE under § 26.5. For example, if one
SEDO owns 45 percent of a company,
and the other owns 10 percent, the firm
can meet control requirements if the 10
percent owner runs the show.
While a few commenters supported
this proposal as written, others asked for
more clarification of what a certifier
needs to know in order to determine if
an applicant is independent. One
request for clarification asked whether
independence concerns relationships
with any firms, or only relationships
with non-DBEs. Another thought that
the reference to ‘‘commercially
reasonable terms’’ in the proposed
§ 26.71(g) was too vague, while another
comment asked how a certifier should
evaluate whether firms ‘‘shared
essential resources.’’ Another asked for
clarification in the context of leasing
trucks, suggesting that a DBE should
lease trucks from leasing companies that
lease trucks to the general public.
With respect to the proviso that
dealings with only one or a small
number of firms does not necessarily
compromise independence, one
commenter agreed while another asked
how a certifier would determine when
such a situation was problematic. Two
commenters expressed concern about a
situation in which, after a firm is
certified, it enters into an exclusive or
nearly exclusive relationship with a
prime contractor. One commenter
suggested that this should be prohibited.
Among other suggestions by
commenters were to retain the present
language because independence
determinations would be harder to make
under the proposed language; to
substitute language from the identity of
interest provision of the SBA regulation
(13 CFR 121.103(f)(2) and (i)). If the
Department modeled its provision after
§ 121.103(f)(2) the commenter argued,
certifiers could presume an identity of
interest based upon economic
dependence if the concern in question
derived 70 percent or more of its
receipts from another concern over the
previous three fiscal years. Likewise,
adopting a similar provision as SBA had
done, this presumption may be rebutted
by a showing that despite the
contractual relations with another
concern, the concern at issue is not
solely dependent on that other concern,
such as where the concern has been in
business for a short amount of time and
has only been able to secure a limited
number of contracts or where the
contractual relations do not restrict the
concern in question from selling the
same type of products or services to
another purchaser.
Another commenter suggested
allowing prime contractors to provide
As in the NPRM, the final rule
provides that a key element of meeting
the control requirements of the rule is
that a firm must be independent.
Independence in this context refers to
the relationship between the firm in
question and other firms, whether those
other firms be DBEs or non-DBEs. A
firm cannot be independent if, absent
such relationships, it would not be
viable. If a firm cuts the ties that bind
applicant Firm X to Firm Y—whether
those ties, be sharing of facilities,
resources, or personnel, common
ownership or management, exclusive or
nearly exclusive contracting or business
relationships—would Firm X continue
to be able to do business? If not, then
Firm X is not independent.
The regulation does not prohibit
relationships with other firms,
including relationships that may create
affiliation. Nor does the regulation
prohibit a firm from providing services
only to one business, or only a few
businesses. That scenario might arise in
a locale that has a limited number of
potential customers. However, the DBE
must not be used as a conduit or passthrough to obtain DBE credit. In any
case where an applicant has
relationships with other firms, the
applicant must demonstrate that it is
independently viable, notwithstanding
relationships with another DBE or nonDBE firm.
We disagree with the commenters
who suggested that the Department
should adopt the Small Business
Administration’s 8(a) or 8(d) program
rules about independence. The
Department’s final rule sufficiently
equips certifiers to make the necessary
judgment calls, without unnecessarily
leaning on another agency’s regulations.
It is likely that allowing a prime
contractor to share experienced
personnel with a DBE, especially if they
have a contractual relationship, has a
high probability of compromising the
DBE’s independence. Certifiers should
carefully investigate any such
relationships.
Independence
ddrumheller on DSK120RN23PROD with RULES2
NPRM
With respect to independence, the
proposed rule (redesignated as
§ 26.71(g)) clarifies that a firm must
prove that it is independently viable,
notwithstanding a relationship with
another firm from which it receives or
shares essential resources. A pattern of
regular dealings with a single or small
number of firms would not necessarily
render a firm ineligible as long as it was
not operating as a front or pass-through
for another firm or individual. The
proposed rule clarifies that relationships
and transactions between firms of which
the SEDO has 51 percent ownership and
control does not violate the rule,
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Licensing and Other Specific Sections
Proposed for Deletion
NPRM
The NPRM proposed removing
several control provisions from the
former rule, including § 26.71(h)
(licensing); § 26.71(i) (differences in
remuneration); § 26.71(j) (outside
employment); § 26.71(k) (family
relationships); § 26.71(l) (transfer of a
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firm to a SEDO when the non-SEDO
transferor remains involved); § 26.71(m)
(ownership and leasing of equipment);
§ 26.71(p) (ability of non-SEDOs to bind
the firm without SEDO’s consent); and
§ 26.71(q) (use of employee leasing
companies).
Comments
ddrumheller on DSK120RN23PROD with RULES2
Supporters of the licensing proposal
thought that deleting § 26.71(h) would
make the certification process less
onerous for applicants and less likely to
lead to decisions based on a
misunderstanding of the regulations.
Slightly more opponents recommended
retaining § 26.71(h) to prevent licensed
non-SEDO participants from having de
facto control of the firm. Others said
that, especially in specialized fields, the
SEDO should be the license holder. Two
commenters noted that in their States,
the majority owner must have a license
to operate certain kinds of professional
services firms. One commenter
advocated that the SEDO of a trucking
company should have a CDL.
Commenters also raised the question
of how, in the context of reciprocal
interstate certification, differing
licensing requirements of different
States would be handled. One recipient
suggested that an additional State could
deny certification to an out-of-state firm
in a NAICS code for which that State
required a license, but the jurisdiction
of original certification (JOC) did not,
while still certifying the firm in other
NAICS codes.
Several commenters asked that the
Department retain all or most of the
other specific existing provisions in
§ 26.71 that the NPRM proposed to
delete. Considering issues covered by
these provisions was an important
element of doing a good job of
certification, these commenters
suggested. The proposed rule would
shift the burden of proof from
applicants to certifiers, one commenter
said. Among specific provisions
mentioned by commenters were those
concerning family businesses, outside
employment, differences in
remuneration, and leasing of equipment.
In the absence of these provisions,
another commenter said, DOT would
need to provide more guidance on how
to make control determinations when
these issues arose.
DOT Response
Consistent with the NPRM, the final
rule deletes §§ 26.71(h), (i), (j), (k), (l),
(m), (p), and (q) as duplicative and
outdated. The overhaul of the control
provisions described in this final rule
are more than adequate for certifiers to
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properly evaluate whether a SEDO
controls a firm.
The proposed deletion receiving the
most comment concerned licensing
(§ 26.71(h) of the former rule). We wish
to remind certifiers that, in many cases,
it is the business as an entity, not the
SEDO as an individual, who is required
to have a license. For example, an
engineering firm must have someone
with an engineering license. The firm
may still be certified if the license
holder is someone other than the SEDO,
as long as the SEDO meets all the
‘‘running the show’’ requirements of
§ 26.71. We also note—this is an issue
that has frequently arisen in
certification appeal cases—that it is not
essential for the SEDO in a trucking or
transportation company to personally
hold a CDL (commercial driver’s
license); as long as the SEDO establishes
control of the company as this section
requires.
In the context of interstate
certification, if a firm is certified in its
JOC, it can obtain certification in any
other State. But suppose that the firm
lacks a professional license in an
additional State that is not needed in
the JOC or that the firm’s licenses the
JOC are not valid in another State? In
such a case, the firm would be certified
in the additional State—because it met
basic size, disadvantage, ownership
requirements via its certification in the
JOC—but would not yet be able to do
business in the additional State.
While § 26.71(l) of the existing
regulation, concerning firms where a
non-disadvantaged individual who
formerly owned and controlled a
company remains involved with the
company, we note that the ownership
requirements of the final rule require
the former owner to immediately
become uninvolved with the company
or other business that performs similar
work or contracts with the applicant
firm other than as a lessor or provider
of standard support services. We take
this action in the final rule because
parties have not understood how to
handle the rebuttal procedurally or
apply the stricter burden of proof. The
crux of the rule states that the new
owner needs to still show that he/she is
in control, notwithstanding the presence
of the old owner. The final rule
preserves and emphasizes this.
While the specific outside
employment provision of the existing
rule is being removed, certifiers may
still consider the effect on outside
employment as they determine whether
a SEDO is in a position to really run the
show for an applicant firm. For
example, when a SEDO has a full-time
job for another employer, how does the
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SEDO find the time to analyze
information and make independent
decisions for the applicant firm? How
does the SEDO communicate with
employers and customers if the SEDO
has duties for another employer that
conflict, in terms of time and place,
with the applicant firm’s work? The
applicant has the burden of proving to
the certifier that the SEDO can do
everything needed to control the firm,
notwithstanding the SEDO’s duties for
another employer. Delegations by a
SEDO with outside employment must
meet the same requirement as other
delegations; the SEDO must remain in
active control of those to whom the
SEDO has delegated duties.
North American Industry Classification
System (NAICS) Codes
NPRM
The NPRM proposed removing
material concerning NAICS codes from
the control requirements to a new
§ 26.73, making minor technical
corrections in the process.
Comments
While there were no comments on the
proposal to put NAICS code provisions
into a new section of the rule, as such,
there were comments on the general
subject of NAICS codes. A few
commenters said that the ability of firms
to expand into additional codes should
be expanded, for example by relaxing
the requirement that the narrowest
applicable code be used for a firm,
allowing expansion based on staff
capabilities, or allowing a SEDO to be
considered qualified to control a firm in
a related NAICS code to that one a firm
already has been assigned. One
commenter suggested that a firm should
be able to remain certified in a narrower
NAICS code even if it exceeded the size
standard for that code as long as it
continued to meet the size standard for
a broader NAICS code that encompassed
the subject matter of the narrower code.
A few comments also asked that
NAICS code assignments be made more
consistent among certifiers, though they
did not suggest how this would be done.
Another suggested updating NAICS
codes and making them more specific.
Another wanted firms to be certified in
State work codes, where applicable, as
well as NAICS codes. Two comments
said that existing NAICS codes do not
work well for TVMs, and that the
Department should find another way of
classifying especially subcomponent
manufacturers for transit vehicles.
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DOT Response
The Department is adopting the
NAICS code provisions of the NPRM—
which are substantively identical to the
those of the existing rule—without
change. We continue to believe that the
narrowest appropriate code should
control for purposes of certification;
doing otherwise would allow
circumvention of the intent of small
business size standards for firms. It is
important for certifiers to avoid overly
broad NAICS codes. For example,
NAICS code 237310, concerning
highway and bridge construction, has
sometimes been applied to specialty
contractors who perform only one or
two of the functions under that code’s
broad umbrella. We intend that
certifiers, in such a case, assign only the
narrower code applicable to the
specialty functions that the firm
performs.
As under the present rule, states may
employ State work codes or categories,
but they cannot supersede NAICS codes
for purposes of DBE eligibility or credit
toward goals. Certifiers cannot certify
firms as DBEs using State work codes,
or limit opportunities for DBE credit to
firms certified in a given NAICS code to
types of work named under a State code
that is in effect a subset of the work
encompassed by the NAICS code in
which the firm is certified.
Subpart E—Certification Procedures
18. Technical Corrections UCP
Requirements (§ 26.81)
We did not receive any comments on
our proposal to remove outdated
references in § 26.81 (a)—the original
due date for recipients to sign a UCP
agreement (March 4, 1999) and § 26.81
(g)—the requirement that UCP
directories be made available in print.
The rule is revised to reflect these
changes.
ddrumheller on DSK120RN23PROD with RULES2
19. Virtual On-Site Visits and Other OnSite Comments (§§ 26.83(c)(1) and
(h)(1))
NPRM
The Department proposed making an
option for virtual on-site visits a regular
part of the certification process based on
positive experiences with permitting onsite certification visits to be conducted
virtually as an accommodation to
conditions during the COVID–19
pandemic. This change would reduce
administrative burdens and costs for
certifiers and applicants. As stated in
the NPRM, the Department believed that
virtual on-site visits were equally as
effective as in-person visits and were a
more efficient means of achieving the
purpose of the visits. The software used
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for virtual visits would also permit
recording of the conversations between
applicants and certifiers, which would
permit certifiers to prepare more
accurate on-site visit reports and create
a fuller record for cases that resulted in
a certification appeal. The NPRM still
gave certifiers the discretion to conduct
on-site visits in person.
Comments
Almost all commenters, particularly
recipients, but DBE and non-DBE
contractors as well, supported the
Department’s proposal, citing the
reasons stated in the NPRM preamble.
Commenters also supported certifiers’
discretion to choose whether to conduct
on-site visits in person or virtually.
Only one commenter, a DBE association,
said that in-person on-site visits should
continue to be conducted for both initial
applications and subsequent
certification reviews. Another
commenter asked why the NPRM used
the term ‘‘on-site’’ at all, given that it
proposed having interviews conducted
remotely rather than actually on site.
Around 10 commenters suggested that
the use of virtual on-sites be somewhat
limited, for example, by using in-person
on-site visits for initial certification
applications, with virtual on-site visits
being reserved for post-certification
reviews. These same commenters
suggested that on-site visits for heavy
construction firms or other businesses
requiring specialized expertise or
equipment (e.g., a medical laboratory)
be conducted in person.
Other Comments About On-Site Visits
Comments also addressed other
subjects related to on-site visits. Several
commenters urged the Department to
develop a uniform on-site questionnaire
for all certifiers to use. One commenter
asked whether establishing a practice of
periodic on-site reviews (e.g., at 3, 5, or
7-year intervals) was allowed. Another
commenter suggested that follow-up onsite visits be required at three-year
intervals.
DOT Response
Under the current rule, recipients
must take several steps in determining
whether a firm meets all eligibility
criteria for DBE certification. An on-site
visit to a firm’s principal place of
business and job sites are a crucial
component of this review.
The Department’s experience after
authorizing virtual on-site interviews
during the early years of the COVID–19
pandemic has been overwhelmingly
positive. Virtual on-sites are more
efficient for certifiers, avoiding
sometimes lengthy time periods needed
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to travel to an applicant’s office. That
said, there may be situations where an
in-person visit to an applicant’s office or
job site will be beneficial. Particularly in
the case of construction firms or others
that have field operations, a job site visit
can be very useful, and in such cases (as
distinct, for example from the case of a
professional services firm, all of the
work of which is done in an office) the
final rule will direct certifiers to go to
the job site, if feasible. The decision
belongs to the certifier. Certifiers can
also set their own schedules for virtual
or in-person interviews to certified
DBEs in the context of periodic reviews.
There will continue to be no standard
form for on-site interviews, and we
strongly urge certifiers to avoid using
routine questionnaires or checklists
because they are not probative and ask
for information that duplicates what is
found in a UCA. They also miss the
point of an on-site interview, which is
to comprehensively investigate how the
SEDO acquired ownership, how the firm
actually operates, and whether the
SEDO has enough knowledge to
independently make daily and longterm decisions. Interviews should be a
conversation tailored specifically to the
circumstances of each firm. The
conversation must be with the SEDO, as
well as with other principals and key
employees.
For example, one of the common
situations we see is a firm where there
is a SEDO and co-owners or key
employees who work together to
accomplish the firm’s goals. In the
interview, it would be beneficial to ask
specifically how decisions are made.
When an issue comes up, does a
participant other than the SEDO bring
the matter to the SEDO’s attention, as
opposed to handling the matter
autonomously? Is the SEDO able to ask
knowledgeable questions about the
matter? Does the SEDO then decide
based on information or options
presented by the other participant, and
does the other participant then carry out
the SEDO’s decision? The certifier
should seek real-world examples of how
this decision-making process has
worked in practice.
The final rule will require certifiers to
make audio recordings of interviews. In
cases where certifiers have done so, the
Department has found them highly
useful in deciding certification appeals.
They tend to provide much more
thorough and nuanced information than
certifier staff summaries or paraphrases
of what has been said during an
interview. Making these recordings will
provide fuller context for the
information on which certification
decisions are based and will help to
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prevent misunderstandings or decisions
based on paraphrases of what an
interviewee says. Whether in a virtual or
in-person interview, current technology
readily permits recordings to be made
with negligible additional burden.
20 and 23. Timely Processing of InState Certification (§ 26.83(k))
Applications and Denials of Initial
Certification Applications
NPRM
Currently, when a certifier receives all
required information from an applicant,
it has 90 days to complete review and
issue a written decision. However, a
certifier may, upon written notice to the
applicant, extend this period for another
60 days. The NPRM proposed to reduce
the extension period to 30 days, though
a certifier could get approval for a
further extension from an OA. One
reason stated in the preamble was to
give a firm the chance to cure a defect
in its application. Failure by a certifier
to meet the deadline would be treated
as a constructive denial of the
application, and the certifier could
become subject for noncompliance
under §§ 26.103 and 26.105.
Under the present rule, when a
certifier denies an application, the
certifier must establish a waiting period
of no more than 12 months before the
firm can reapply. The NPRM would
remove a current requirement for OA
approval before a certifier could
establish a shorter waiting period. The
date on which the waiting period would
start to run would be the date of the
denial letter.
ddrumheller on DSK120RN23PROD with RULES2
Comments
Supporters of the proposed change to
shorten the extension time frame from
60 to 30 days, among them both
recipients and DBEs, outnumbered
opponents by a 3–1 ratio. The proposal
would encourage quicker and more
timely decisions, supporters said.
Opponents said that the shorter time
frame would impose an undue burden
on certifiers’ staff, particularly given
that staff are often small. Rushed
decisions could be poor decisions, one
said, suggesting that the 90-day deadline
should be a target to be met, if
practicable, rather than a mandate.
Some commenters suggested
modifications of the proposal. One said
that extensions should be for 45 days,
rather than for 30 or 60. Two comments
said that the process should
accommodate delays in the transmission
of information from the applicant to the
certifier. Another idea was that, if
applicant did not get complete materials
to the certifier within 90 days, the
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certifier could return the application
without deciding on the merits. Another
suggestion was that, during the time that
a firm was making curative changes in
its application, the clock for the
certifier’s deadline should pause. Two
commenters suggested adding specific
consequences for tardy certification
actions, such as being able to appeal
constructive denials to the Department.
One commenter supported the ability
of certifiers to have reapplication
waiting periods shorter than 12 months
without seeking permission from an OA.
DOT Response
Existing provisions are designed to
ensure that recipients afford adequate
procedural due process to DBE
applicants, standardize certification
practices, and develop an adequate
record of certification actions. The 2014
final rule explained the Department’s
rationale for setting 90 days as a
reasonable time for recipients to render
a certification decision. We believe 90
days remains sufficient and that
notifications to firms about a 60-day
extension beyond that point are rare.
The Department is keeping the proposal
to shorten this extension period to 30
days, because this is in the best interests
of firms that may be seeking contracting
opportunities as a DBE and the
recipient, who can assign sufficient staff
to perform the certification function in
an efficient manner. In our view, the
ability of all certifiers to email questions
and requests for information to firms
and their ability to conduct virtual onsite visits will mitigate the concerns of
the handful of commenters on this
issue. We believe that 90 days is more
than enough time.
The Department proposed adding
verbatim language that recipients must
include in all denial and decertification
letters, essentially directing firms what
to include in their appeal letter, how to
appeal to DOCR, and their right to
request information. This language was
communicated to recipients by DOCR,
and we have noticed its inclusion in
most of the adverse decision letters
processed since that time. This final
rule references that language, which
will be posted on the Departmental
Office of Civil Rights website.
The Department is also finalizing the
proposal to remove the current
requirement for OA approval before a
certifier could establish a shorter
waiting period for the firm to reapply
for certification to less than 12 months
from the date of denial. This change to
the new § 26.86(c) gives UCPs the
leeway to improve wait time to certify
firms without OA approval. The final
change clarifies that the date on which
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the waiting period would start to run
would be the date of the denial letter.
This information, per § 26.86(a), must be
included in all denial letters.
We want to call to participants
attention the provisions of § 26.83(h)(2),
which prohibit certifiers from requiring
a DBE to reapply for certification,
‘‘renew’’ a certification, or a similar
requirement. We are aware that
recipients sometimes use commercial
software that calls on recipients to
submit information associated with an
initial certification in order to complete
the annual DOE process. This is
contrary to the regulations, which limit
the material that must be submitted
with a DOE to documentation of a firm’s
size and gross receipts. For a recipient
to, in effect, require more because a
software program calls for it amounts to
noncompliance with the regulation. We
expect a recipient, in such a situation,
to work with the vendor to conform the
software to the requirements of the rule.
21. Curative Measures (§ 26.83(m))
NPRM
The NPRM proposed a new § 26.83(m)
that would permit, though not require,
certifiers to notify an applicant of
ineligibility concerns and allow the
applicant an opportunity to rectify the
deficiencies in a timely manner. The
NPRM cited two examples of matters
that might be subject to curative
measures: proof of a financial
contribution meeting § 26.69
requirements and revising an operating
agreement or bylaw provision to meet
control requirements of § 26.71.
Proposed § 26.69(f) would create a
parallel curative measures provision
concerning ownership. There was not a
parallel provision in § 26.71 concerning
curative measures for control, though
the second example in the discussion of
proposed § 26.83(m) applies that
provision to a control issue.
Comments
The comments below apply to the
proposed curative measures sections in
proposed §§ 26.83(m) and 26.69(f).
Of the over 20 comments on this
subject, about two thirds, from both
recipients and DBEs, supported the
concept. Many of the supporters,
however, asked for additional guidance
or examples concerning what kinds of
defects would be subject to curative
measures. How much help should
certifiers provide to applicants, and
what should that help concern (e.g.,
minor administrative matters,
governance issues like organization of
boards of directors, larger matters
affecting the structure of a company)?
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ddrumheller on DSK120RN23PROD with RULES2
Opponents, most of which were
recipients, expressed the concern that
the proposal would allow firms to
circumvent the rules and enable fraud.
Certifiers should not be cast in a
‘‘coaching’’ role in which they tell
applicants how to structure their firms.
Applicants should be responsible for
getting things right as they present
companies for certification.
DOT Response
The Department contemplated
curative measures as far back as 1992.
We do not agree with commenters who
felt that allowing a firm to take curative
measures increases the possibility of
fraud. Our view is that to be considered
non-fraudulent, curative measures must
be a legitimate effort to correct
impediments to certification made in
good faith. A firm bears the burden of
showing that it undertook curative
measures in good faith and not in an
attempt to circumvent the requirements
and intention of the DBE program.
The DBE program exists to facilitate
participation of small, disadvantaged
businesses in DOT-sponsored
contracting projects and airport
concession opportunities. The program
is not intended for certifiers to create
hurdles for firms that would be eligible
but for minor deficiencies that the firm
could easily rectify. As described in the
Department’s August 7, 2019,
memorandum and in the NPRM
preamble, startup firms created by
inexperienced SEDOs have been
particularly vulnerable to this, causing
them to endure a 12-month waiting
period for reapplying. Such situations
can be avoided if a certifier notifies the
firm of potential denial grounds and
offers the firm an opportunity to address
them before the certifier renders a final
decision. The August 7, 2019,
memorandum explicitly encourages
certifiers to do so and provide a
reasonable time for the issues to be
resolved before the certifier renders a
decision. This would result in lifting the
burden on a certifier to begin the
eligibility evaluation anew should the
firm reapply.
The Department codifies in § 26.83(m)
of today’s final rule the language of the
August 7, 2019, memorandum. We agree
with commenters that this provision is
not intended to make certifiers
‘‘coaches’’ for all aspects of the
certification process or require certifiers
to pause the evaluation process to allow
firms to make time-consuming changes,
such as major organizational
restructurings. We agree with
commenters who pointed out that firms
bear the burden of proving that they
fully meet the regulation’s certification
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requirements, while emphasizing that
we view the task of certifiers as
reasonably balancing the interest in
ensuring that only eligible firms
participate with the interest of the
program in providing opportunities for
small, disadvantaged businesses,
including those that may not be
sophisticated in the details of the
certification process.
Section § 26.83(m) amounts to ‘‘if you
see something, say something.’’ While it
is not a mandate, the Department
believes strongly that certifiers should
call situations potentially solvable
through curative measures to applicants’
attention, in order to better serve the
program’s objectives of improving
opportunities for DBEs.
Doing so does not impose an
unnecessary time crunch on certifiers
with respect to the final rule’s deadlines
for action on applications. If a certifier
notices a problem, notifies the applicant
about it in writing, and the applicant
takes, for example, 14 days to fix it, that
period would be added to the certifier’s
timeline for completing the decision.
The certifier could also set a realistic
deadline for the applicant to fix a
problem the certifier mentioned; if the
applicant did not respond in a timely
fashion, the certifier could then decide
on the basis of the original
documentation. In all cases, it will be
important for the certifier to
memorialize corrective measures,
notifications, dates, and responses in its
records.
The NPRM preamble mentioned two
types of problems that the Department
has seen frequently in certification
appeals. One involves proof of a
financial contribution. For example,
sometimes a SEDO who is married to a
non-disadvantaged individual will make
an initial capital contribution from a
joint bank account, not realizing that,
absent a renunciation of interest in the
funds by the spouse, only 50 percent of
the contribution will be counted toward
ownership, insufficient to support an
assertion of 51 percent or greater
ownership.
Similarly, a bylaw provision–often
one seemingly copied from an online
template–will say that a majority of the
members of the board of directors is
needed to form a quorum or act on
behalf of the board. In a two-person
company, this inadvertently can result
in the possibility of a deadlock on the
board, even though the SEDO clearly
owns 51 percent or more of the stock
and thus is able to control stockholder
votes. Mere paper changes, without
substantive changes, would not ‘‘cure’’
a defect.
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These are not the only problems to
which this provision could apply, but
they exemplify the scope of the sorts of
issues the Department has in mind in
adopting this provision.
22. Interstate Certification (§ 26.85)
NPRM
The NPRM proposed major changes to
the interstate certification provisions of
§ 26.85, which became effective on
January 1, 2012. For the first time in the
program’s history, there would be
nationwide reciprocity among UCPs.
The NPRM would also reform the way
that UCPs share information about firms
certified in more than one State.
The NPRM proposed to eliminate the
‘‘home State first’’ requirement of the
present rule, and instead allow a firm to
apply for its initial certification to any
UCP. Then, any other State would be
required to accept the original UCP’s
certification. All the firm would have to
submit to an additional State would be
a short cover letter, an image of its
Original State of Certification (OSC)
directory entry, and a Declaration of
Eligibility (DOE). Unlike under the
present rule, the firm would not have to
send an additional State its entire
certification package.
Following the interstate certification
by an additional State, that State and
others that have certified the firm, could
ask State A or other UCPs for
information on the firm, which would
need to be provided within 10 business
days, as part of all program participants’
obligation to cooperate. The Department
said that this should not be unduly
burdensome, given electronic file
sharing technology.
A firm would have to submit an
annual DOE to each State in which it is
certified. The NPRM asked whether it
would be helpful to create a centralized
database to reduce the burden on firms
certified in multiple States. The NPRM
also would allow States to participate in
oversight and enforcement activities
with other States about a firm, including
joint removal procedures that would be
voluntary among the UCPs involved.
A proposed provision would state that
if a firm certified in more than one State
were decertified (for any reason except
failure to cooperate with one State), the
firm then appealed the decision to DOT,
and DOT affirmed the decertification,
the firm would then automatically be
decertified in all States, without further
right of appeal. That is, if one State
decertifies a firm and DOCR upholds the
action, then the firm would be
automatically decertified in all States in
which the firm was certified without the
need for further process in those States.
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Comments
Interstate certification proposals have
long inspired input from a significant
number of commenters, and the
response to this NPRM was no
exception. About twice as many
commenters expressed general support
for the NPRM’s nationwide reciprocity
proposal as expressed opposition, but
there were also a wide variety of
nuances and suggestions among
commenters on the topic.
The largest number of supporters
were DBEs or their associations, who
cited the reduced burden on firms who
have often had to submit extensive
documentation to become certified in
more than one State. One DBE, for
example, mentioned having to submit
about 3,000 pages of paperwork to
become certified in another State, but
was unsuccessful because it did not
have its original application. Another
spoke of inconsistencies in acceptance
of NAICS codes from one State to
another, long delays by certifiers outside
of its home State, and differing
paperwork requirements and regulatory
interpretations among States. One DBE
owner related their difficulty with
tracking different deadlines for renewal
each year, citing a burden in preparing
and submitting materials for each State
in which it was certified in. The same
owner expressed that it takes some
UCPs a long time to process renewals or
notice of change, which results in their
view of an expiration date passing
without renewing paperwork. On these
points, we reiterate that there is no DBE
renewal process, nor does certification
expire.
A significant number of recipients
also supported the proposal, one citing
reduced staff time demands that would
allow its staff to focus on other program
tasks (e.g., compliance). It said that it
now takes them 38 staff days to process
an out-of-state certification and believed
the proposal would reduce this to 10
staff days. Other recipients also cited
reduced processing time or greater
flexibility as potential benefits. One
recipient noted that it had already been
doing a good deal of reciprocity and
found that it reduced their burdens.
Some of the supporters of the
reciprocity proposal and other
commenters, among them both DBEs
and recipients, suggested going to what
might be called national certification.
This would involve a single national
directory, with a Federal certification
database. A DBE firm, for example,
mentioned that it has to send annual
updates to 15 different States. Sending
one update to a centralized database
would be far less burdensome, it said.
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This group of commenters supported
the concept that once a firm was
certified in its original State of
certification usually its home State, the
firm’s status would be reflected in the
database, and it would automatically be
certified in all States, without having to
submit additional documentation
elsewhere. Annual update issues or
decertification actions could be handled
through the centralized database or by
the firm’s home State. If universal
certification of this kind were put into
place, there would be a greatly reduced
need for individual State systems and
the resources needed to run them.
Generally, commenters with a variety
of views on the overall question of
interstate certification supported the
idea of a centralized database and/or
national portal, though three recipients
warned that questions about control of
such a database and a variety of
implementation problems that could
beset it might create serious risks to the
program.
Recipients made up a large majority of
commenters opposing reciprocity. One
reason was the long-standing concern
that given what they saw as the varying
quality of other recipients’ certification
programs, unqualified firms could
become certified in its OSC and then
become certified in other States without
further review. The proposal puts too
much trust in other certifiers, one
recipient said, preventing recipients
from exercising due diligence for their
own programs. One large recipient
complained, for example, that another
large recipient never looked at the
personal net worth of firms following
initial certification and was concerned
about having to deal with other
certifiers’ out-of-date records.
Some certifiers wanted to vet each
firm that sought certification in their
jurisdictions, and doing the job right
would require seeing the firm’s
documentation before granting
eligibility. Absent that ability,
questionable firms could get contracts in
other States before they had adequate
time to review their bona fides, and
after-the-fact decertification was too
little and too late as a remedy for such
problems. Accordingly, some certifiers
claimed that reciprocity would
consequently undermine program
integrity. To mitigate this problem, one
recipient suggested that reciprocity be
limited to five UCPs in its region.
Moreover, the proposed system would
encourage DBEs to join the directories of
multiple States (a ‘‘land rush,’’ one
commenter called it), multiplying the
workloads of certifier staffs to oversee
the continued eligibility of firms (e.g.,
with respect to annual DOEs), some of
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whom might never work in their
jurisdictions. A DBE was concerned that
if there were different DOE due dates for
different States in which a firm was
certified, it would be all too easy for
small businesses to miss submission
deadlines, resulting in decertification.
DOEs should go only to the home State,
not other States, some commenters said.
A non-DBE contractors’ association said
that, in general, a home State should
bear the burden of oversight to prevent
increased burdens for other States. For
example, it said, its State already has
over 400 out-of-state firms in its
directory, and reciprocity could require
it to oversee many more.
One concern expressed by several
commenters pertained to State licenses.
For example, if the OSC does not
require the person running an
engineering company to personally have
a professional license, but another State
does, how is that other State to enforce
its licensing requirement in the
proposed reciprocity regime?
Commenters also expressed concern
about data security issues, as entries in
online directories multiplied without
regard to the cybersecurity protections
that would guard sensitive business data
and personal protected information.
A recipient association said that
interstate certification should not be
implemented until a robust oversight
system could be established
everywhere. Commenters doubting the
wisdom of the proposal also said that 10
days was too short a time to exchange
information among UCPs, especially
because all certification records are not
yet electronic. Sixty days would be
more realistic, one recipient said. A DBE
expressed concern that large out-of-state
prime contractors would travel with
their favorite DBE firms, crowding out
local DBEs in other States.
A recipient and a non-DBE
contractors association raised the issue
of how an influx of out-of-state
contractors would affect goal setting and
disparity studies. Would out-of-state
entries in a UCP’s directory be used as
a measure of the availability of ready,
willing and able contractors? If so, it
could distort the goal-setting process,
these commenters feared.
Commenters who either favored or
opposed the reciprocity proposal in
general, and other commenters as well,
suggested a variety of ideas that they
believed would improve the
certification system. One DBE suggested
that States should recognize other
States’ business and professional
licenses as well as certifications. A UCP
asked DOT to create a uniform interstate
application form. A non-DBE
association wanted to make sure that the
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rule did not allow other States to
second-guess State A without a ‘‘wellfounded’’ reason.
Three recipients favored creating a
‘‘challenge procedure’’ to allow an
additional State to prevent an out-ofstate firm from immediately becoming
certified immediately, if the additional
State had a good reason to believe that
OSC certification was based on faulty or
missing data. A non-DBE firm suggested
that if an OSC’s certification is more
than 10 years old, another State in
which the firm is certified should be
able to do a review of its eligibility.
A group of recipients suggested that
an additional State could choose to
require an out-of-state firm to provide a
statement that it intended to work in
that State before the firm would be
certified there. They and other
commenters also supported retaining
the ‘‘home State first’’ provision of the
existing rule, rather than the NPRM’s
idea that any State could become a
firm’s OSC. Another recipient suggested
that an interstate application firm
should include details about its licenses
to work in that State. Two recipients
suggested that, to minimize recipients’
burdens, requests from one UCP to
another about a firm be limited to the
original application, its supporting
documentation, and the most recent
four years of DOEs. A similar suggestion
was that it should be enough for the
OSC to submit its most recent on-site
report to another State.
The proposal to give nationwide effect
to DOCR certification appeals decisions
upholding a decertification action in
one State was discussed in several
comments. Two comments supported it,
and three opposed it. Opponents said
the proposal would deter firms from
appealing and raise due process and
federalism concerns for both firms and
certifiers. Another commenter said that
other States should be able to conduct
their own decertification process. A
third said that a firm should be
decertified only in those States that had
joined the decertification proceeding.
One commenter wanted the Department
to look at the other side of the coin, by
imposing retraining requirements or
other consequences on UCPs that had
had a decertification decision
overturned on appeal.
Two comments raised questions about
this proposal. One asked how and when
firms decertified in this manner could
reapply in the States in which they were
automatically decertified. A second
asked what would happen if a firm
decertified in one State declined to
appeal.
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DOT Response
In the original version of the DBE
program in the 1980s, each recipient
certified applicant firms independently.
If there were a State highway agency,
three airports, and four transit agencies
in a State, then a firm wanting to work
throughout the State might need to get
certified by eight different agencies,
each with its own certification process.
This proved inefficient and
burdensome. First proposed in 1992 and
added to the rule in the major 1999
revision, the creation of unified
certification programs (UCPs) ensured
that a firm would have to be certified
only once to work in any recipient’s
DBE program in the State.
The DBE program is a national
program, and the same kinds of
inefficiencies and burdens that
adversely affected DBEs within States in
the pre-UCP era continued to affect
firms that wanted to work in more than
one State. A firm certified in one State
would have to go through a new
certification process in another,
complete with the submission of
extensive documentation and having to
wait for the completion of the second
State’s administrative process. Because
certifiers’ views of a given firm’s bona
fides could differ among States, a firm
could be approved for participation in
one State while denied in another, all
based on the same facts.
The idea of nationwide reciprocity
among UCPs was raised, but rejected, in
the 1999 rulemaking, though the
Department at that time encouraged
cooperative arrangements among States
to reduce certification burdens.
Unfortunately, few certifiers chose to
enter into such agreements.
Consequently, in a 2010 NPRM, the
Department proposed an interstate
certification system that sought to
occupy a middle ground between fullfledged nationwide reciprocity and an
approach that allowed UCPs to
challenge and reject DBEs certified in
other States. This became the basis, in
2011, for what became § 26.85 of the
current regulation.
Under this current provision, a firm
certified in its home State (‘‘State A’’)
would submit its certification
credentials to ‘‘State B,’’ which could
either accept the firm or require the firm
to submit a much more extensive
document package. Within 60 days,
State B would either accept the firm’s
certification or determine that there was
‘‘good cause’’ of a kind specified in the
regulation for rejecting the firm. In the
latter case, the firm would then bear the
burden of proof of showing State B that
it was nonetheless eligible.
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As documented in the preamble of the
2022 NPRM, § 26.85 has not worked
well (see 87 FR 43647). Few UCPs have
accepted out-of-state firms without
requiring lengthy and burdensome
additional certification processes. Some
UCPs have effectively ignored interstate
certification procedures, treating all or
nearly all out-of-state applicants as if
they were applying for certification for
the first time. The ‘‘good cause’’ reasons
for questioning an out-of-state firm’s
eligibility have been widely
misunderstood or misapplied (e.g.,
‘‘factually erroneous or inconsistent
with the requirement of this part’’ being
used to mean a simple disagreement
about a judgment call). The result is that
a large majority of interstate certification
cases appealed to the Department have
been reversed.
As long ago as the 2010 NPRM, the
Department stated that true nationwide
reciprocity is a worthwhile objective,
and in the 2022 NPRM we proposed to
make it a reality, so that a firm in a
nationwide program under a single
national set of eligibility criteria could
expect to be eligible throughout the
country. As noted above, the comments
on the proposal followed the lines of the
long-term debate on the subject.
Generally speaking, most DBEs favored
this approach, for its value in reducing
burdens, while many certifiers opposed
it, out of concern about having to accept
firms whose qualifications they
questioned. Having found, over many
years, that approaches short of
nationwide reciprocity have been
unsatisfactory, the Department is
convinced that it is time to treat
certification on a meaningfully national
basis. For this reason, we are, with some
modifications in detail, adopting the
NPRM proposal, intending to reduce
burdens on all participants while
building trust, encouraging teamwork,
and improving the quality of
certifications. As with the adoption of
UCPs in 1999 within States, we believe
that the adoption of nationwide
reciprocity among States, while
necessitating some adjustments in
current practice, will result in a system
that works better for everyone
concerned.
Under the final rule, a firm would
initially be certified in the State in
which it maintains its principal place of
business. We no longer use the ‘‘home
State’’ or ‘‘State A’’ terminology, instead
speaking in terms of a firm’s
‘‘jurisdiction of original certification’’
(JOC). The JOC would normally be the
State in which the firm maintains its
principal place of business, though
there could be unusual cases that could
lead to the JOC being a different State
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(e.g., a situation in which a firm’s
principal place of business has moved
to another State after it has been
certified). However, the additional State
may not deny a DBE’s application based
on questions regarding the location of
the firm’s JOC.
Once a firm is certified in its JOC, all
it needs to submit to become certified in
any other State is a short cover letter
and a signed Declaration of Eligibility
(DOE). The cover letter must state that
the firm is applying for certification in
the additional State and all other States
in which the firm is certified. The cover
letter may also list any licenses (e.g.,
business or professional licenses) that
the firm has in the additional State. The
additional State could request the JOC’s
documentation concerning the firm,
which the JOC would be required to
provide within 30 days (modified from
the NPRM’s 10 business days to reduce
burdens on the JOC). Ten days, in the
view of a commenter that still retains
paper copies of certification materials, is
too short a period to scan and send
these materials manually. We agree and
modified the rule accordingly.
We acknowledge that implementing
the revised interstate rule will require
additional monitoring of businesses,
and we would like to remind recipients
that the current rule allows UCPs to
charge reasonable application fees.
These fees can help alleviate some of
the burden associated with managing
the increased number of businesses
under reciprocity. Application fees may
also deter firms that seek certification in
multiple jurisdictions without any
intentions of conducting significant
work within each jurisdiction. As noted
in the discussion of control provisions
above, an out-of-state firm and owner
that lack a necessary business or
professional license in an additional
State, while it would be certified and
listed in the directory, would not be
able to conduct business there until it
obtained the required license(s).
When a firm is certified in its JOC, it
becomes responsible for submitting a
DOE to that State each year on the
anniversary date of its certification.
When the firm then becomes certified in
other States, it also becomes responsible
for submitting annual DOEs to them. We
believe the most convenient way of
handling this requirement is to use the
JOC anniversary date as the date for
submission of DOEs to all States in
which the firm is certified. This will
likely result in firms initially submitting
a second DOE to an additional State
before a year has elapsed, but after that
will avoid the potential confusion of
multiple submission dates. This
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alleviates the burden on firms certified
in multiple jurisdictions.
For example, suppose a firm is
certified in its JOC on September 1, one
additional State on October 7, and a
second additional State on the following
January 8. The firm would submit its
first DOEs to all three States on the next
September 1, and then on every
September 1 thereafter. Doing so will
inform all the States involved that the
firm has a continuing interest in
working there. Having a single DOE
date, reduces the burden on firms, some
of which noted in their comments that
it can be burdensome to submit
paperwork to each State on different
timelines. With this change, the
Department also believes the annual
submission requirement is not onerous.
Some commenters asked that there be a
national, centralized database for DBE
certifications. While we understand the
attractiveness of the concept, we do not
believe that it is feasible at this time. In
addition to budgetary limitations,
concerns about ensuring that data are
updated and secure would need to be
addressed. Until it is possible to deal
successfully with the issues involved,
the program must continue to rely on
UCP directories, which are responsible
for treating out-of-state firms in the
same way as in-state firms for directory
and other program administration
purposes.
Some commenters expressed a
concern that having larger numbers of
out-of-state firms in their directories
could skew goal setting. Recipients
commonly use bidders lists as a primary
source of data for setting overall goals;
thus, only those out-of-state firms that
bid or quote on projects should be
included in the methodology’s base
figure. Recipients using other primary
data sources should review their UCP
database, including the NAICS codes
associated with each firm, and consider
whether out-of-state firms will likely
submit bids or quotes prior to including
them in their base figure.
A few commenters asked to have a
‘‘challenge procedure’’ available,
through which they could delay
certifying an out-of-state firm for a given
period (e.g., 30 days), giving them an
opportunity to raise issues concerning
the firm’s eligibility with the OSC. We
believe implementing such a procedure
would not facilitate the certification
process but would rather introduce an
additional bureaucratic step. Our goal is
to streamline the interstate certification
process. We view the ‘‘challenge
procedure’’ as a slight modification of
the old interstate rule, which was a
complex and burdensome certification
framework. Instead, we aim to adopt a
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more streamlined and transparent
process that eliminates unnecessary
barriers to certification. Given the
procedure described below, for
collective action to decertify a firm that
appeared not to be eligible, we do not
believe such a preemptive procedure is
needed.
One of the issues considered in the
NPRM was how, in the context of a firm
that is certified in multiple States, a
decertification process would work.
Proposed § 26.85(g)(4) said that any UCP
could join a decertification proceeding
initiated by another State, on the same
grounds and facts alleged by the
initiating State. The joining UCP could
present evidence at the hearing. The
result of the ensuing decision would
apply to all States that are parties to the
action. Under paragraph (g)(6) of the
proposed section, if a decertification by
any UCP in which the firm had been
certified is upheld on appeal by the
Department (except with respect to
actions concerning a failure to cooperate
or send a timely DOE to the decertifying
State), then the firm would lose its
eligibility in all States in which it was
certified.
As noted above, some commenters
said that UCPs should be able to
conduct their own certification
proceedings, that the effect of a
decertification should apply only to
States that have joined a decertification
proceeding in another State, and that
the nationwide effect of a DOT decision
upholding a decertification by one State
was unfair to the firm as well as the
other certifiers involved.
In considering these comments, the
Department believes that a modification
of the proposal would serve not only the
interest of fairness to certifiers and firms
but also further the Department’s policy
goal of encouraging cooperation and
interaction among certifiers. Therefore,
the final rule will establish procedures
that would apply to a scenario in which
a firm is certified in more than one State
and one of the States believes it has a
ground under proposed § 26.87(e) to
decertify.
The procedures are best illustrated by
an example. DBE X is certified in its JOC
and in five additional States via
reciprocity. One of the additional States
believes that it has reason to decertify
the firm. It notifies not only the firm,
but also the other States in which the
firm is certified, that it is considering
beginning a decertification proceeding,
as well as the grounds for doing so and
the evidence supporting such an action.
The other States have 30 days to
respond. They may comment on
proposed basis for its proposed actions,
concur or non-concur. A certifier would
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be deemed to concur in the proposed
action if it did not respond. If it had
grounds under § 26.88, the certifier
proposing decertification may impose a
summary suspension without affecting
the status of the firm in other States,
though we encourage the certifier to
notify the other States of its action so
that they could take similar action if
warranted.
If after considering the input from
other States, the State proposing
decertification decided to pursue the
matter, it would then issue its formal
NOI and proceed to a decision. Any of
the other States could decide to file a
brief or other arguments and evidence.
In its final decision, the State that
proposed decertification may address
arguments and evidence from other
States involved, as well as those made
by the respondent firm. This is in effect
a ‘‘speak now or forever hold your
peace’’ provision. We note that the
resolution of the matter is an
independent decision of the UCP
proposing the decertification, not
dependent on the ‘‘votes’’ or views of
other certifiers.
Because a decision by a UCP to
decertify the firm would only be issued
after soliciting views from the other
States involved, the decision would
represent the collective view of the
UCPs involved and would take effect in
all the States involved. If the firm
appealed, any certifier that did not agree
could submit its views to the
Department. The Department’s decision
to affirm or reverse the decision would
apply to all the States in question, since
all would have had the opportunity to
participate and make their views
known.
23. Denials of In-State Certification
Applications (§ 26.86)
See discussion above, item 20.
24. Decertification Procedures (§ 26.87)
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NPRM
The NPRM emphasized that certifiers
must strictly follow the regulation’s
procedural requirements concerning
decertification proceedings, putting the
certifier’s burden of proof up front in
the revised § 26.87 and clarifying what
must be included in certifiers notices of
intent (NOI) to remove the firm’s
certification.
If a DBE fails to submit the required
annual Declaration of Eligibility (DOE)
required under § 26.83(j) in a timely
manner, the NPRM proposed that a
certifier could initiate decertification
proceedings on that basis without
offering the opportunity for a hearing. If
within 15 days of the issuance of a
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certifier’s NOI to remove the firm’s
certification, the certifier could issue a
final notice of decertification.
The NPRM would say that, if a ground
for decertification is a change in DOT’s
certification standards or requirements,
the certifier would have to offer the
firm, in writing, the opportunity to cure
resulting eligibility defects within 30
days.
The Department proposed
authorizing, on a permanent basis,
virtual hearings (i.e., via video
conferencing) in decertification cases.
Virtual hearings are more efficient, can
be more easily scheduled and better
protect the health of participants. Other
requirements, like those for verbatim
transcripts, would remain intact. To
avoid dilatory tactics, the NPRM would
impose a 45-day deadline for
submission of written responses to an
NOI or a hearing. Once the hearing had
happened, or written responses
received, the certifier would have 30
days to issue a final decision.
When there is a hearing, the NPRM
would require that only the SEDO be
permitted to answer questions
concerning the firm’s control. While an
attorney or other representative could be
present and participate, and answer
questions concerning other aspects of a
firm’s eligibility, only the SEDO could
testify about control matters. An
attorney or other representative could
ask follow-up questions to the SEDO
concerning control, however.
Comments
Decertifications for Lack of a Timely
DOE
Almost all comments on the issue of
decertifications for lack of timely
submission of a DOE supported the idea
that there need not be a hearing in such
cases. However, several of these
commenters thought that the 15-day
window for response to a NOI
concerning a late DOE was too short. A
21-, 30-, 45-, or 60-day time period for
response before a final decertification
was issued would be fairer, some
commenters said, pointing to the
difficulty that especially small firms
may have keeping up with paperwork or
potential increases in certifier workload.
One comment cautioned that, because of
the uncertainties of email, the time
period prior to a decertification action
start to run only on confirmation that
the DBE received the certifier’s NOI.
To avoid confusion and potential
decertification actions, firms should
have to submit only one DOE per year,
the commenter said. Another
commenter said that it did not want lack
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of a timely DOE to be the sole ground
for removal of eligibility.
Deadlines
There were few comments about the
proposed deadline in the NPRM for
issuance of a final decertification
decision, all of which were from
recipients. One would prefer no
deadline at all, but if there is one,
believed 60 days for the issuance of a
final decision would be appropriate.
Another supported 60 days, saying that
30 days was too short a time to handle
complex cases, especially for high
volume certifiers. A third found the
proposed 30-day deadline acceptable
but wanted to allow a 15-day extension
on a case-by-case basis.
With respect to the proposed deadline
for conducting a hearing, a recipient
suggested that the hearing should be
scheduled 45 days from the firm’s
request for a hearing, rather than from
the issuance of the NOI by the recipient.
Hearing Procedures
Concerning representation at
hearings, a large majority of the
comments addressing the issue
supported the NPRM’s proposal that
only the SEDO should testify about
control issues. Attorneys and other
representatives should be able to speak
about other matters (e.g., PNW), several
added. The commenters who disagreed
thought that the requirement would
impinge on the due process owed to
DBEs in a proceeding that could remove
certification, a property right, from a
firm. A recipient thought that panel
members at a hearing should be able to
use their discretion with respect to who
is allowed to testify on issues being
discussed. One comment said that only
owners should be able to testify about
ownership and other issues, as well as
control.
All the comments that addressed the
proposal for allowing virtual
decertification hearings supported it.
One said that, however, a firm should be
able to have an in-person hearing if it
wanted one.
Among other comments, one thought
that an ‘‘informal hearing’’ should be
better defined, and that there should be
additional safeguards against abusive or
dilatory tactics by attorneys. This
comment also said that it was important
that hearing officers and decision
makers in decertification actions really
understood the rules well, suggesting
that additional training from DOT for
such persons would be useful. Another
commenter thought that hearings should
not be heard by staff from recipients in
the same State as the certifier proposing
certification, as this could lead to
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rubber-stamping of the proposed
removal. A comment said that firms
needed stronger protections in
decertification actions, as they can be
subject to burdensome information
requirements and harassment,
especially in cases involving rebuttal of
the SEDO’s presumption of economic
disadvantage.
ddrumheller on DSK120RN23PROD with RULES2
Other Comments
Once a firm has been decertified, a
few recipients said, the certifier should
notify all other States in which the firm
is certified. DOT should notify States if
a decertification is upheld on appeal,
another said.
DOT Response
Filing a timely DOE is an affirmative
obligation of certified firms. Given that
all DOEs to all States would now be due
on the same date—the anniversary date
of certification in the JOC—firms should
not be confused about the time they are
supposed to send DOEs to all the States
in which they are certified. We believe
that summary suspension is the most
efficient provision for enforcing failures
in filing § 26.83(j) material.
Nevertheless, the final rule allows the
certifier the discretion to choose either
§ 26.87 or § 26.88 as the most
appropriate course of action.
With respect to the date for a hearing
on other decertification actions, we
believe that it is prudent to require
certifiers to set a hearing date that is no
less than 30, but no more than 45, days
from the date of the NOI. This prevents
both undue delays in the process and
schedules that do not allow a firm to
prepare adequately. The firm must let
the certifier know within 10 days
whether it wants a hearing, and the
parties can negotiate an agreed-upon
date for the hearing. If the firm does not
want a hearing or does not notify the
certifier in a timely manner that it wants
one, the firm can still submit written
information and arguments.
In cases in which the firm elects not
to go to a hearing, and rather only
submits written materials, we believe
that the firm should have the same
amount of time to prepare as in the case
where it chose to appear at a hearing.
Therefore, the material would be due by
what would have been the hearing date.
If a firm does not show up for a hearing,
or does not submit written materials, the
certifier makes its decision on the basis
of the information it already has.
In the interest of simplifying the
procedure, we are not specifying by rule
who can speak to issues at the hearing.
We emphasize that, during a hearing, a
SEDO or other witnesses should have a
reasonable opportunity to consult with
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counsel, other witnesses, or experts. It is
appropriate neither for a certifier to
deny the firm such an opportunity, nor
for the firm to unduly delay or interfere
with the conduct of the proceeding.
Dilatory tactics are prohibited and may
be sanctioned by a certifier. It is up to
the hearing officer to make sure that
information presented is relevant and is
provided by the most knowledgeable
sources. For example, if an attorney or
other witness attempts to speak to a
matter affecting control, it could be
appropriate for the hearing officer to
say, in effect, ‘‘I want to hear directly
from the SEDO on this matter.’’
It is incumbent on certifiers to
conduct thorough on-site interviews—
including a review of a certified firm
prior to considering decertification—so
that information about the roles of other
key participants and the firm’s decisionmaking process can already be part of
the record before the hearing.
We agree with commenters that the
decisionmaker in a decertification
hearing must, in addition to complying
with separation of functions
requirements, have extensive familiarity
with the program regulation. We urge
certifiers to make sure that any officials
who may be tasked with this
responsibility have received thorough
training concerning the regulation, such
as the Department has made available.
We also note that, as under the previous
versions of the regulation, the deciding
official must also be an individual who
was not involved in the earlier stages of
the proceeding or who is not supervised
by anyone who was. This could be
someone in another part of the certifier’s
agency or someone who works for
another agency.
In administrative law, a ‘‘formal’’
hearing is one that involves a trial-type
hearing with administrative law judge
and detailed rules of evidence. At the
Federal Government level, sections 554–
557 of the Administrative Procedure Act
(5 U.S.C. 554–557) provide a model for
what such a proceeding looks like. One
example of such a proceeding within
the Department of Transportation is the
process for aviation enforcement
proceedings under 14 CFR part 300.
Anything other than that is an ‘‘informal
hearing.’’ The structure of informal
hearing in the DBE program can vary
among certifiers, but in all cases must
provide reasonable administrative due
process to the respondent and other
participants.
Commenters agreed with the proposal
to authorize virtual hearings in
decertifications proceedings. While inperson hearings are also permitted, we
note that in an interstate decertification
case in which staff from other States are
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24939
participating, a virtual component
would be essential. The requirement to
provide a transcript of any hearing,
virtual or in-person, to the Department
in the event the firm appeals remain in
place.
The NPRM proposed that once a
hearing had been held, or written
arguments received, a certifier would
have 30 days to issue a final decision.
Some commenters thought that time
period was too short, given certifiers’
workloads. A firm remains certified
until the NOD is issued, so the effect of
a certifier’s delay beyond that period
has the effect of keeping in effect a
certification that the certifier believes
should be removed. A certifier that often
fails to meet this deadline may be the
subject of DOT compliance and
enforcement action.
In the interest of simplifying the rule
and avoiding disputes over the basis for
a decertification, the proposed
§ 26.87(g), specifying the grounds on
which a decertification can take place,
is not included in the final rule. In our
experience, these provisions have often
led to confusion (e.g., concerning
whether a certifier’s previous decision
was ‘‘clearly erroneous’’ or simply
change of mind). The key question in
any decertification action is whether a
firm meets eligibility criteria at the time
of the action. If a certifier certifies a firm
in September, and the following April
comes to believe, on the same facts, that
the firm is not eligible, it is likely to
have a difficult time meeting its burden
of proof in a decertification proceeding.
25. Counting DBE Participation After
Decertification (§ 26.87(j))
NPRM
In addition to clarifying the effect of
the removal of a firm’s certification
prior to a DBE obtaining a prime
contract or subcontract, the NPRM
proposed changes to § 26.87(j)
concerning how DBE participation is
counted with respect to firms that lose
their certification partway through a
contract. The Department proposed that
a prime contractor would only be
permitted to add work or extend a
completed contract with a previously
certified firm with the prior written
consent of the recipient.
This proposal was responsive to the
concern that, especially in a long-term
project of the sort that is often done via
a design-build contract, prime
contractors had an incentive to give
work to decertified firms that were
already working for them, rather than
find new eligible DBEs to do the work
going forward. At the same time, the
proposal would give recipients
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flexibility to permit a brief amendment
to or continuation of a contract with a
decertified former DBE.
Under the current rule, when a DBE
is decertified in the midst of a contract,
after the subcontract is executed, the
prime contractor gets to count credit for
its use through the end of the contract.
The NPRM proposed to make an
exception to that rule, saying that if the
reason for the DBE’s ineligibility is that
it was acquired by, or merged with, a
non-DBE firm, the prime contractor
could no longer count the former DBE’s
participation for the remainder of its
contract. This means that, under these
circumstances, continuing to count the
former DBE’s work for credit would
deprive other DBEs of opportunities.
Comments
A narrow majority of commenters
opposed the NPRM’s proposals
concerning § 26.87(j). Opponents,
including non-DBE contractors and
recipients, but some DBEs as well, said
the proposal concerning merged or
purchased DBE firms would impose
burdens on prime contractors who, after
engaging a DBE in good faith, found that
the DBE had later merged with or been
purchased by a non-DBE. This would
unfairly penalize the prime since the
DBE’s relationship with the acquiring
firm was not the prime’s responsibility.
One of these comments suggested that
the proposed exception should apply
only if the non-DBE that bought or
merged with the DBE was the prime
contractor itself. One opponent of the
proposal said that it could place DBEs
in an unequal position compared to
non-DBEs, who can use mergers and
acquisitions for business growth
purposes.
Some comments opposed to the
proposals said that requiring recipients’
consent to count credit for added or
extended work for a decertified DBE
would be an extra burden on both
recipients and prime contractors. A
comment said that added tasks for the
DBE within its scope of work, including
via change orders, should be counted.
Denying DBE credit for added or
extended use of decertified DBEs could
disrupt projects, another comment said.
Recipients should make case-by-case
judgments on such matters, it added.
Proponents of the proposals, also from
a variety of stakeholder types, supported
them for the reasons stated in the NPRM
preamble. Some of these comments
specifically mentioned favoring prior
recipient consent for any extension of or
addition to the former DBE’s work,
wanting prime contractors to seek new
DBE participation in the absence of such
consent.
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One comment that supported the
proposal asked for clarification about its
application in situations where a DBE
had exceeded the size standard or had
withdrawn from the program. Another
did not want firms who had exceeded
the size standard during the contract to
lose credit. In the context of the ACDBE
program, a DBE commenter that
supported the proposal nevertheless
thought it should be waived if a
decertified ACDBE showed that it had
made good faith efforts to sell to another
ACDBE.
DOT Response
We continue to believe that in most
instances, if a DBE loses its eligibility
during contract performance but after
execution of the subcontract and
continues to perform a commercially
useful function, its participation should
continue to count toward contract goal
credit; prime contractors should not
bear the burden of finding a DBE
replacement if the firm was certified at
the time the subcontract was executed.
However, many have raised concerns
about a prime contractor’s ability to
continue to count toward goal credit the
performance of a DBE that was certified
at the time the subcontract was executed
but loses its eligibility during contract
performance because it merges with, or
is acquired by, a non-DBE (at times by
the prime itself). This may occur early
in the performance of a multi-year
contract and result in a non-DBE
receiving goal credit at the expense of
other ready, willing, and able, certified
DBEs.
We agree that the standard rule
should have an exception if a DBE loses
its certification eligibility after
execution of the subcontract because it
merges with or is acquired by a nonDBE. In that instance only, we believe
that the benefit to the DBE program of
directing the prime contractor to seek
DBE participation to make up the nowineligible firm’s contribution to the goal
outweighs the costs to the prime
contractor of doing so. Similarly,
seeking the recipient’s consent for a
prime contractor’s practice of adding
work or change orders, typically in the
context of a design-build project, to
extend the performance of a DBE that
has lost certification during project
performance, is a good check on actions
that could go counter to the interests of
the program. Recipients should reach
out to a prime contractor when it
becomes apparent that the prime is
repeatedly extending the work of a firm
after the firm becomes ineligible to
determine if the extensions are made for
the purpose of avoiding soliciting other
DBEs. If so, the program benefits when
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the recipient withholds consent to add
further work to an ineligible DBE to
allow room for certified DBEs to
participate.
26. Summary Suspension (§ 26.88)
NPRM
The existing summary suspension
rule permits or requires certifiers to
immediately suspend a DBE’s
certification in extraordinary situations
that could jeopardize program integrity
or when time is otherwise of the
essence. It is an extraordinary remedy
that certifiers should not use lightly and
to which a firm should have an
adequate opportunity to respond.
The changes proposed to § 26.88 in
the NPRM remedy problems in the
current language that in effect converts
what was intended as swift summary
suspension action into a slower § 26.87
process. Notice of the suspension would
be by email, rather than certified mail to
ensure that the firm received immediate
notice of the action and a time certain
when the parties would know requisite
timelines begin. Credible evidence of
the firm’s involvement in criminal or
fraudulent activity would be added as
mandatory grounds for suspension. The
death or incarceration of the SEDO, on
the other hand, would trigger a
discretionary elective summary
suspension only if there is ‘‘clear and
credible evidence’’ that the DBE’s
continued certification poses a
substantial threat to program integrity.
This bar allows for more certifier
discretion to determine if either event
demanded immediate action. Failure to
file a timely DOE, which is essential to
a firm’s continued eligibility, would
also be elective grounds for a
suspension. This change expands the
ability to remove ineligible firms
without invoking a § 26.87 proceeding.
Elective summary suspensions could
be based on only a single ground, while
mandatory suspensions could cite
multiple grounds. The NRPM also
provided procedural details for § 26.88
proceedings, designed to bring the
proceedings to conclusion within 30
days. A new elective suspension
occurring within 12 months of a
previous elective suspension would be
null and void, and subject to ‘‘injunctive
relief’’ from the Department.
Baked into the proposed rule are
balanced due process parameters
framing both certifier and firm actions.
This includes a certifier explaining with
specificity the reasons for the actions,
their consequences, and the evidence
replied upon. The firm may elect to
present information and arguments or
explanations but is required to
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affirmatively respond to the certifier’s
scheduled hearing—opting in or
responding in the timeline specified. If
the firm fails to cancel or appear at the
hearing, it forfeits its certification.
Boundaries on what evidence the
certifier may present are delineated in
the proposed rule as is the applicable
burdens of production and proof by
both parties. Lastly, the proposed
changes make suspensions immediately
appealable to DOT.
ddrumheller on DSK120RN23PROD with RULES2
Comments
The nearly 20 comments addressing
this section of the NPRM had a variety
of things to say about it. Several
supported the proposal as written. One
comment asked whether the ‘‘clear and
credible evidence’’ standard for an
elective suspension is the same as ‘‘clear
and convincing evidence,’’ while
another thought that the ‘‘clear and
credible evidence’’ standard placed an
undue burden on certifiers.
One commenter thought that the
proposed scheduling requirements
would be difficult for certifiers to meet.
Two commenters asked for more detail
on the timing and procedures for the
process, such as who could attend and
who the decision maker would be.
Others believed that a certifier should
be able to suspend a firm more than
once in a 12-month period, if
circumstances supported doing so (e.g.,
there are two separate events in such a
period that would justify a suspension).
One comment suggested adding
bankruptcy, especially under Chapter 7,
as a trigger for a suspension. Another
suggested that, after a bankruptcy, death
of a SEDO, or another basis for an
elective suspension, there should be a
90-day grace period to allow a firm to
deal with the issue before it could be
suspended. On the other hand, another
commenter thought there should be a
mandatory suspension whenever
ownership of a firm changes in a way
that could affect its eligibility. One
commenter said that certifiers should be
able to cite multiple grounds for a
discretionary suspension if such
grounds existed.
A number of commenters said that in
addition to or instead of sending an
email, a certified letter should be used
to provide notice of a suspension.
Emails were too uncertain, these
commenters thought, and a certified
letter would provide evidence of
receipt. Given the difficulties that small
firms often have keeping track of
paperwork, another commenter said,
imposing a suspension for a late DOE
seemed unduly harsh.
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DOT Response
Summary suspension is an important
tool for protecting the DBE program in
situations involving serious, often
rapidly developing situations that could
adversely affect its integrity. It is
intended to be used rarely, in situations
that present an obvious threat to
program integrity. It is not intended to
be used in situations where a certifier
merely has a suspicion or a hunch that
a firm may be ineligible, or where there
is uncertainty about whether the
suspension is justified. It is intended to
be used when the cause is certain, and
when the need for action to protect the
integrity of the program is time-sensitive
because delay in action could lead to
real harm to the program or participants
in it. It is not intended to be a shortcut
for removing the eligibility of firms
whose status is properly addressed
under the normal decertification
provisions of the regulation.
The NPRM used the term ‘‘clear and
credible evidence’’ to describe the
proper basis for a summary suspension
which, perhaps because of its seemingly
similarity to the ‘‘clear and convincing
evidence’’ term used in sections of the
current rule and in other proceedings,
raised questions for some commenters.
The Department is not creating a new
legal standard or a variation on an
existing standard. We are simply saying
that to serve as the basis for a summary
suspension, the certifier’s evidence
must be clear. It must be credible. If not,
then summary suspension is not an
appropriate remedy.
The credible, clear evidence must
pertain to specific types of facts. The
death of a SEDO, leaving the ownership
and/or control of a DBE in question, is
one situation that could lead to a
summary suspension. Likewise,
incarceration, a medical condition (e.g.,
a seriously disabling stroke), or a legal
disability (e.g., having one’s affairs
placed in a conservatorship) that
prevents a SEDO from controlling a firm
could be a basis for a summary
suspension. As a commenter suggested,
an event putting the viability of the firm
into serious question, like a Chapter 7
bankruptcy or a merger or acquisition
involving a non-DBE firm could also be
a basis for action by a certifier under
this section.
A DBE or its SEDO’s involvement in
fraud or other serious criminal activity
affecting business integrity or potential
to impact continued eligibility could be
another basis for suspending the firm.
This is not an exclusive or exhaustive
list of offenses that could form a basis
for a suspension; certifiers should use
good judgment to invoke the provisions
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24941
of this section when misconduct on the
part of SEDOs or DBE firms warrants
prompt action. We also note that not all
criminal offenses are necessarily
grounds for suspension. For example, a
conviction for driving under the
influence of alcohol or drug possession
would not provide a basis for a
suspension in most cases.
The Department is maintaining the
NPRM’s distinction between mandatory
and discretionary grounds for
suspension. If an OA directs a certifier
to take suspension action, or in a case
involving fraud or other serious
criminal activity, then taking
suspension action is mandatory.
Otherwise, including cases involving
the failure to file a timely DOE, the
action is discretionary.
Few commenters addressed the
timing and procedural provisions of the
proposed summary suspension section,
and we are adopting them without
change. We believe that the provisions
are clear and appropriate to what is
intended to be a summary procedure. In
a hearing under this section, we would
apply the same requirements (e.g., with
respect to representation by attorneys,
separation of functions) as applied to
decertification proceedings under
§ 26.87. To make sure that the firm has
received the notice initiating the
procedure, we recommend that certifiers
send emails having a ‘‘read receipt’’
feature.
We wish, however, to clarify that,
once a certifier issues a notice of
suspension, the firm has the burden of
production. This means coming forward
with evidence to argue that a
suspension should not be issued. Just as
in a decertification action, however, the
ultimate burden of persuasion rests with
the certifier that proposes the action. It
is the certifier that must show, by a
preponderance of the evidence, that the
suspension is appropriate, and that the
firm’s eligibility should be removed.
What kind of evidence might a firm
produce to show that a suspension
should not be issued? While this
evidence would necessarily vary from
case to case, some examples might be
that, even without the participation of a
deceased or incarcerated SEDO, other
SEDOs’ participation is sufficient to
meet ownership and control
requirements. In the case of a SEDO
whose affairs were placed in a
conservatorship, a firm might be able to
show that the conservator was a socially
and economically disadvantaged
individual who can maintain the
required degree of ownership and
control.
The NPRM proposed notifying DBEs
of a notice of suspension by email.
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Some commenters suggested that the
requirement for certified mail be
retained, in order to provide greater
certainty that the notice had been
received. We believe, however, that
email is more prompt, important in a
time-sensitive matter like a summary.
DBEs have to provide email addresses to
certifiers as part of the normal
certification process and are responsible
for updating the address as needed and
reading emails when they arrive.
Moreover, many email systems include
features that confirm receipt of a
message.
One result of a summary suspension
proceeding can be the decertification of
a firm. In a case where a firm is certified
in more than one State through
interstate certification, however, the
suspension and a resulting removal of
eligibility apply only in the State that
took action to suspend the firm. This is
unlike the regular interstate
decertification procedure included in
the final regulation, in which a
decertification action can apply to all
States in which the firm is certified.
We have noted that, with respect to
firms that fails to file a timely DOE and
documentation of gross receipts, the
summary suspension process of
§ 26.88(b)(2)(ii) enables more rapid
action than the decertification
procedures of § 26.87. The final rule
provides failure to file a timely DOE as
an optional ground for summary
suspension.
Where a certifier fails to follow the
procedures of this section properly, the
rule makes available to an affected firm
a petition for an enforcement order that
could vacate an improper second
elective suspension within a 12-month
period or require a certifier that did not
take final action on a suspension within
30 days to lift the suspension and
reinstate the firm’s certification.
firm’s ability to demonstrate that there
was good cause for a late filing and
explain to the Department why it would
be in the interest of justice to accept the
appeal.
The requirement that records be sent
from certifiers to DOCR in an indexed
and organized fashion would be
strengthened by allowing DOCR to reject
poorly organized records, resulting in a
directive to send a corrected record
within 7 days. Failure by the certifier to
do so would be a failure to cooperate
under § 26.109(c). The NPRM proposed
new language wherein DOCR could
summarily dismiss an appeal if
warranted, such as situations wherein
the firm does not set forth a full and
specific statement under § 26.89(c), if a
firm withdraws its appeal request, or if
a certifiers requests to reconsider its
decision. The rule would explicitly state
that DOCR does not issue advisory
opinions and that the 180-day target for
issuing an appeals decision would be
met ‘‘if practicable.’’
27. Appeals to the Departmental Office
of Civil Rights (DOCR) (§ 26.89)
The final rule incorporates all the
proposed changes. Forty-five days is
reasonable in our view for appellants to
state in their appeal the reasons why
they believe the certifier’s decision is
erroneous, what significant facts the
certifier failed to consider, or the
provisions of the rule the certifier did
not properly apply. On this point, we
reiterate language in our 2014 preamble,
that the appeal ‘‘is not an opportunity
to add new factual information that was
not before the certifying agency;
[H]owever, it is completely within the
discretion of the Department whether to
supplement the record with additional,
relevant information made available to
it by the appellant as provided in the
existing rule.’’ (79 FR 59579 (October 2,
2014).
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NPRM
The NPRM proposed reinserting
language from the 2014 rule that was
inadvertently omitted. This includes the
requirement that appellants notify
DOCR in its appeal decision of other
certifiers that have denied or decertified
the firm.
The Department proposed modifying
existing procedures for certification
appeals to the DOCR to improve
administrative efficiency. The time for
appellants to file appeals would be
reduced from 90 to 45 days. Our
proposals sought to streamline the
process and balance the needs of firms,
recipients, and DOCR. We left intact the
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Comments
Several comments from recipients
supported the NPRM’s time frames for
setting the time frame for appeals at 45
days rather than the current 90 days,
while a DBE organization suggested
using 60 days as a middle ground. Two
commenters said DOT should not have
more than 180 days to decide a case
once a complete record had been
received. One of these also suggested
that the effect of a UCP’s decertification
decision should be stayed until DOCR
had decided the appeal. A recipient
noted that, especially with respect to
voluminous records in large cases,
indexing and organizing the record can
be a major task that may not be able to
be accomplished in 45 days.
DOT Response
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To ensure that certifiers’ records sent
to the Department for certification
appeal purposes are as complete and
useful as possible, the final rule requires
that the records include video or audio
recordings, or written transcripts, of any
hearings in the case. In addition,
certifiers must make audio recordings of
on-site interviews. This information is
invaluable, particularly in cases hinging
on ownership and control issues.
The NPRM sought to streamline DBE
and ACDBE processes and balance the
needs of firms, recipients, and DOCR. In
the last several years, the number of
appeals has been low compared to the
number of adverse certification
decisions. Also, many UCPs have
transitioned to electronic application
processing. We think it is rare that a
UCP could not submit organized and
indexed records to DOCR, even those
that may be voluminous, within 45
days. This is reasonable in our view
particularly considering that effort it
takes for both program participants
(firms and certifiers) to submit/review
application material, participate in an
on-site interview, craft and review
denial or decertification letters, then
appeal.
The Department takes seriously the
appeal obligations of firms and
certifiers. DOCR will dismiss firms’ noncompliant appeals (as § 26.89(c)
specifies) and remand matters to
certifiers with instructions to augment
or fix its record within a specified time,
and the OAs will act upon noncompliance (e.g., by conducting
compliance reviews).
The Department has decided not to
include in the final rule the proposed
provision setting a 180-day time frame
for decisions in appeal cases. The
parallel provision in the current
regulation has often proved confusing. It
did not relate, as some have thought, to
a clock that starts when an appeal letter
arrives. Rather, it related to the time
when a complete record is available to
the Department, something that has
often occurred well after the Department
received an appeal letter and the precise
date for what is often an iterative
process can be uncertain. Moreover, the
‘‘if practicable’’ language of the proposal
made the timeframe essentially
aspirational. The proposal that the
Department send a letter when the
timeframe was exceeded would likely
occupy staff time that could otherwise
be more productively used in
completing appeals cases. Using its
resources, the Department will do its
best to respond to appeals promptly. If
there is a systematic delay in processing
appeals (e.g., because all available staff
are assigned to a major project for a
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time), the Department intends to place
a notice on its website informing the
public of the situation.
28. Updates to Appendices F and G
NPRM
The NPRM proposed to remove the
Uniform Certification Application and
personal net worth (PNW) forms from
Appendices F and G, respectively. In
addition, the NPRM proposed technical
and terminological changes within the
appendices, most notably renaming the
current affidavit of certification the
‘‘Declaration of Eligibility’’ (DOE). The
DOE would be used both in initial
applications and in the annual
submission to certifiers. Consistent with
the proposals concerning personal net
worth, the ‘‘retirement accounts’’ line
item would be deleted from the PNW
form.
Comments
There were few comments on these
proposals. One recipient supported
them. Another expressed concern about
how changes in the forms would be
communicated to certifiers if the forms
were no longer to be found in the
regulation itself. It was also concerned
about maintaining uniformity in the
absence of a regulatory requirement.
One commenter suggested changing the
submission requirement of a DOE to
every other year because, in their view,
there is not much change between years
and the change would lower the
paperwork burden on certification
agencies.
DOT Response
The final rule fully adopts the
Department’s proposed changes. The
annual submission by firms of a DOE is
made easier in our view by the
widespread use of electronic systems
that notify firms and recipients when
the DOE is due.
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29. Miscellaneous Program Elements
and Concerns
There were a wide variety of
comments that did not fit neatly within
the NPRM’s numbered areas of
proposed change.
Legal Defensibility of DBE Program
Commenters on this issue expressed
deep concern that, in the present legal
climate, the DBE program was
vulnerable to renewed legal challenges.
Consequently, commenters said, it was
important to have a discussion in the
preamble to the final rule of the
continuing compelling need for a raceconscious program, based on recent
disparity studies and material that has
been provided to Congress in the
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context of authorizing legislation. A
recent report from the Department of
Justice was mentioned as a possible
source of evidence supporting a
continuing compelling need.9 Given
some of the proposals in the NPRM,
another comment said, it was important
to demonstrate how revisions to the
program would remain consistent with
the narrow tailoring requirement for
race-conscious programs.
Paperwork Reduction Act
Two commenters said that the
Paperwork Reduction Act statement in
the NPRM underestimated the burdens
on airports in the ACDBE program. For
the small business ACDBE program, an
airport said it would take 120 staff hours
rather than the estimated 5.6. For the
active participants list, the commenters
believed that the staff hour commitment
would be 40 hours rather than the
projected 42. For other proposed
reporting requirements, the commenters
said that the burden would be 25 or 40
hours, rather than the projected 3.2
hours. Other commenters thought
proposed reporting, directory and
related requirements, would increase
costs beyond the Department’s
projections. Recipients would have to
make organizational changes, hire staff,
and acquire or modify software. The
Department should, commenters said,
retain existing flexibility and provide
funding for changes that a final rule
requires.
Advisory Committee
A commenter said that the
Department should create a standing
advisory committee under the Federal
Advisory Committee Act to provide
ongoing feedback and recommendations
to the Department concerning
implementation issues and to suggest
guidance that could be helpful in the
future. The committee would include
representatives of all the principal
interests involved in the program such
as DBEs and ACDBEs, non-DBEs,
recipients in various OA programs, and
organizations representing them.
Similarly, another commenter suggested
having a national roundtable of people
to share data and experiences.
Training
Several commenters suggested that
the Department provide additional
training to program participants,
9 U.S. Department of Justice, ‘‘The Compelling
Interest to Remedy the Effects of Discrimination in
Federal Contracting: A Survey of Recent Evidence,’’
(Jan. 31, 2022), See https://www.govinfo.gov/
content/pkg/FR-2022-01-31/pdf/2022-01478.pdf
and https://www.justice.gov/crt/page/file/1463921/
download.
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including DBEs, prospective applicants,
recipients, and certifiers. The program,
a commenter added, should encourage
technical guidance and instruction for
DBEs.
Incentives for Prime Contractors and
Recipients
Several commenters suggested giving
incentives to prime contractors who
meet or exceed goals, analogous to
incentives given for finishing a contract
ahead of schedule. There could be
incentives for prime contractors to form
joint ventures with DBEs. Recipients
could publicize good performance by
prime contractors. Stipends could be
provided to encourage prime contractors
to enter mentor-prote´ge´ programs.
Mentor-prote´ge´ programs could be made
more attractive by removing some of the
restrictions in the current mentorprote´ge´ provision of the regulation
(§ 26.35(b)(2)(i) and (ii)). There could be
‘‘extra credit’’ toward DBE goals on a
federally assisted contract for having
used DBEs on private sector work, or by
giving points on the next procurement
for a contractor who exceeded DBE
goals on a previous one. Prime
contractors could also be encouraged to
set up ‘‘one-stop shopping’’ hubs to
inform DBEs of opportunities.
Recipients could provide incentives to
prime contractors to use newer, smaller
DBEs rather than old standbys.
A commenter suggested that States
with excellent DBE programs receive
preferences in discretionary grant
programs.
Add Other Types of Firms to the
Program
A letter-writing campaign resulted in
numerous docket entries recommending
that there be a national MBE program
and goals, in addition to the DBE
program and goals. Other commenters
suggested allowing SBA-certified 8(a)
firms into the DBE program
automatically.
Term Limits
Two comments suggested either term
limits—like those in SBA programs—for
all DBEs/ACDBEs or ‘‘graduation’’ for
firms who had been in the program for
a lengthy period and received many
contracts.
Miscellaneous Program Suggestions
Among ideas suggested by
commenters to improve the program
were set-asides, sole-source contracts for
DBEs, providing surplus recipient or
DOT property to DBEs, simplifying
prequalification standards and
requirements for responding to
solicitations for small firms, making
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provisions like those concerning Alaska
Native Corporation firms or SBA
programs available to African-American
firms, assistance with bonding and
insurance requirements (e.g., by
reducing performance bonds for DBEs to
50 percent or having prime contractor
take out subcontractor default insurance
in place of requiring bonds for DBEs),
increasing overall goals to more than 10
percent, maintaining a national DBE
database at DOT, doing more to
encourage unbundling on all types of
contracts, giving DBEs the first
opportunity to get contracts under
$500,000, supporting greater use of
mentor-prote´ge´ programs, requiring
recipients to conduct updated disparity
studies, adding supplier outreach and
diversity programs, strengthening the
role of DBE liaison office and require
additional reporting from them, adding
an ‘‘ombudsman’’ function to help
newer firms get work, and channeling
funds to ‘‘subject matter experts’’ to
provide technical assistance to DBEs.
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Other Program Concerns
Some comments referenced the
longstanding concern that only a few
established DBE firms get most of the
work, limiting opportunities for the rest.
One commenter said that in their State,
10 DBEs got 46 percent of the work,
while 30 did 80 percent of the work. A
study from a non-DBE contractors group
said that DBEs had the most capacity in
the smallest areas of contracting
opportunity, but the lowest capacity in
the most significant contracting areas
(e.g., heavy highway and bridge work).
Commenters expressed continuing
concern about fraud in the program.
DOT Response
The DBE program ‘‘has the important
responsibility of ensuring that firms
competing for DBE contracts are not
disadvantaged by unlawful
discrimination.’’ This statement, in the
preamble to the Department’s 1999 final
DBE rule (64 FR 5096, 5096 (February
2, 1999)) encapsulates the program’s
longstanding purpose. That preamble
discussed, at length, how the program
and its regulation met the constitutional
‘‘strict scrutiny’’ requirement for
programs using racial classifications,
including how the part 26 provisions
met each of the elements of the ‘‘narrow
tailoring’’ prong of strict scrutiny
articulated by the courts. See id. at
5101–5103. The constitutionality of the
program has been challenged several
times in Federal court, but in each case,
the courts have upheld the program. See
Midwest Fence Corp. v. Dep’t of
Transp., 840 F.3d 932, 941, 935–36 (7th
Cir. 2016); W. States Paving Co. v.
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Wash. State Dep’t of Transp., 407 F.3d
983, 995 (9th Cir. 2005); Sherbrooke
Turf, Inc. v. Minn. Dep’t of Transp., 345
F.3d 964, 967–68 (8th Cir. 2003);
Adarand Constructors, Inc. v. Slater,
228 F.3d 1147, 1155 (10th Cir. 2000).
Courts have also relied upon these
decisions’ findings about the
constitutionality of the program when
‘‘as applied’’ challenges have been
brought. Here again, the program has
withstood these strict scrutiny
challenges, largely due to the fact that
recipients properly following program
mandates may rely upon the
Congressional findings of compelling
need. See Mountain West Holding Co. v.
Montana, 691 F. App’x 326 (9th Cir.
2017, memorandum opinion); Dunnet
Bay Construction Co. v. Borggren, 799 F.
3d 676 (7th Cir. 2015); Northern
Contracting, Inc. v. Illinois, 473 F.3d 71
(7th Cir. 2007); Associated General
Contractors of America, San Diego
Chapter, Inc. v. California Department
of Transportation, 713 F. 3d 1187 (9th
Cir. 2013); Geyer Signal, Inc. v.
Minnesota Department of
Transportation, No. 11–321 (JRT/LIB),
2014 WL 1309092 (D. Minn. Marc. 31,
2014; Geod Corporation v. New Jersey
Transit Corporation, 678 F. Supp. 2d
276 (D.N.J. 2009), and 746 F. Supp. 2d
642 (D.N.J. 2010).
Repeated reauthorizations of the
program by Congress (listed in § 26.3 (a)
of the rule), and extensive evidence
supporting it, underscore the continuing
compelling need for the program to
combat discrimination and its effects.10
These actions have been based on
statistical and anecdotal evidence of the
persistence of discrimination affecting
firms seeking work in DOT-assisted
contracts, often in the form of the
numerous disparity studies that have
been conducted on behalf of DOT
recipients and other parties. In this
important respect, the DBE program
differs significantly from other programs
that may use race-based classifications
in order to advance worthy, but
conceptually distinct, objectives such as
achieving diversity.
We emphasize that the present part 26
and the revisions this final rule makes
10 See BIL, Sec. 11101(e)(1) (‘‘. . . testimony and
documentation . . . provide a strong basis that
there is a compelling need for the continuation of
the disadvantaged business enterprise program to
address race and gender discrimination . . . .’’);
Congressional Record—Senate, S5898, S5899
(August 5, 2021); Congressional Record—House,
H3506, H3507 (June 30, 2021); ‘‘DRIVING EQUITY:
THE U.S. DEPARTMENT OF TRANSPORTATION’S
DISADVANTAGED BUSINESS ENTERPRISE
PROGRAM’’—Remote Hearing Before the
Committee on Transportation and Infrastructure,
116th Cong. 64 (Sept. 23, 2020), available at https://
www.govinfo.gov/content/pkg/CHRG116hhrg43413/pdf/CHRG-116hhrg43413.pdf.
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to modernize administrative provisions
of the program and leave intact the
mechanics of goal setting as has been
the case over many decades. Part 26
does not allow quotas nor impose any
penalties for failing to meet goals, and
it requires that recipients use race- and
gender-neutral means to the maximum
extent to achieve DBE participation
goals before resorting to race- and
gender-conscious means. The program
retains the basic narrow tailoring
building blocks which, as noted above,
have repeatedly been upheld by courts.
We believe there would be value in
establishing a standing Federal advisory
committee to provide input to the
Department on the continuing
implementation of the program and
suggestions for guidance on issues that
may arise in the future. However, this
and several other suggestions for
changes in the program (e.g., applying
term limits to firm’s participation) are
outside the scope of this rulemaking,
beyond the Department’s statutory
authority, or both.
Part 23
Subpart A—General
30. Aligning Part 23 Objectives With
Part 26 Objectives (§ 23.1)
NPRM
The NPRM proposed to add two new
program objectives to part 23 to align it
with the objectives in part 26. These
objectives, similar to those in §§ 26.1(f)
and (g), promote the use of ACDBEs in
all types of concessions activities at
airports and assist the development of
firms that can compete in the
marketplace outside the ACDBE
program. The proposal received support
from trade associations, consultants,
and airport recipients, with one trade
association cautioning against simply
adding similar objectives due to
differences in business activities
between the DBE and ACDBE programs.
Instead, the commenter suggested
adopting the following single objective:
‘‘To support the development of
ACDBEs that can compete
independently for concessions
opportunities at airports receiving DOT
financial assistance.’’
DOT Response
The change suggested by the one
commenter is not substantively different
from language proposed. In addition,
support for adding the two program
objectives is unanimous. Therefore, the
final rule retains both objectives as
proposed.
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31. Definitions (§ 23.3)
NPRM
For consistency and clarity, the
NPRM proposed that § 23.3 adopt
existing definitions in part 26 which are
also applicable to part 23. The
definitions for terms such as, ‘‘Alaska
Native,’’ ‘‘Assets,’’ ‘‘Contingent
liability,’’ ‘‘Days,’’ ‘‘Immediate Family
Member,’’ ‘‘Liabilities,’’ ‘‘Operating
Administration’’ or ‘‘OA,’’ and ‘‘Socially
and economically disadvantaged
individual’’ were proposed to be added
or amended to ensure that the
definitions and terms contained in both
parts aligned. Additional definitions for
‘‘Airport Concession Disadvantaged
Business Enterprise (ACDBE),’’ ‘‘Part
26,’’ ‘‘Personal Net Worth,’’
‘‘Affiliation,’’ ‘‘Concession,’’
‘‘Subconcession or subcontractor,’’ and
‘‘Sublease’’ were either proposed to be
added or amended to clarify existing
requirements in part 23 or to correct
errors and replace obsolete crossreferences within the regulation.
Comments and DOT Response
A majority of commenters in general
supported the addition or alteration of
the definitions at large.
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Assets
For the definition of ‘‘assets,’’ one
commenter suggested that the
Department clarify the requirements for
demonstrating ownership of sole and
separate property. For example, if
ownership of property or assets were to
be demonstrated by evaluating the title,
this should be clarified in the ‘‘assets’’
definition.
The Department adds the part 26
definition of ‘‘assets’’ to part 23 without
revision to ensure consistency in its
meaning across both parts. We added
other definitions from § 26.5 to § 23.3
for this same reason. The final rule does
not adopt the commenter’s proposed
‘‘asset’’ definition in part 23 because it
would otherwise make the definition
inconsistent with its counterpart in part
26.
Airport Concession Disadvantaged
Business Enterprise (ACDBE)
Commenters were evenly divided in
support and opposition of the NPRM’s
proposal to modify the definition of
‘‘ACDBE.’’ The proposed change is
intended to clarify that a firm does not
need to be operational or demonstrate
that it previously performed contracts at
the time of its application for
certification. Comments in favor of the
change indicated that the proposal
would increase the number of available
ACDBE firms and that previous
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experience of the firm was less
important in the concessionaire
industry, as long as airports are
permitted to consider experience of the
individual owner when selecting a firm.
The commenters opposing the change
expressed concern about how an
unqualified firm could become
competent in a particular line of work
in which the firm has no experience.
The final rule adopts the definition of
ACDBE as proposed. The Department
acknowledges the distinction between
the experience of a firm and SEDO and
believes that the experience of the
individual owner is more relevant for
purposes of certification in the
concession context. Moreover,
conditioning certification on a firm’s
experience would present significant
barriers for firms seeking ACDBE
certification status. See preamble
discussion on § 26.71 for discussion on
the operations requirement for DBEs.
Concession
The final rule incorporates the term
‘‘traveling public’’ into the ‘‘concession’’
definition to clarify that businesses that
do not primarily serve the traveling
public should not be considered
concessions. A majority of commenters
supported this change. However, the
comments in opposition expressed
concern that a revision restricting the
term ‘‘concession’’ to the traveling
public would negatively impact an
airport recipient’s ability to meet its
participation goals by limiting the
number of businesses that may be
considered an ACDBE concession. The
commenters said that without
additional guidance or clarity, this
change would result in confusion
within the industry because there is
significant subjectivity involved in
determining what businesses are
intended to serve the traveling public.
The final rule adopts the definition of
concession as proposed. The legislative
and regulatory history of the
concessions provision has always
focused on businesses that serve the
traveling public at the airport, which
supports the final rule’s revision. The
Department does not believe that
including the term ‘‘traveling public’’ in
the definition will cause confusion or
inhibit airport recipients’ from
achieving participation goals. Instead, it
merely reflects the Department’s
longstanding interpretation of the
regulation.
Personal Net Worth (PNW)
The Department received several
comments on changes to the PNW
definition in part 26, ranging from the
PNW cap adjustment to other aspects of
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24945
the PNW calculation (e.g., exclusion of
retirement assets, removal of
community property rules, etc.). These
areas are discussed at greater length in
the part 26 preamble. For part 23, we are
limiting the discussion of the definition
of PNW to what the NPRM’s preamble
referred to as the ‘‘third exemption.’’
That term refers to the exclusion from
the PNW calculation those assets that a
SEDO can demonstrate were necessary
to obtain financing for purposes of
entering or expanding a concessions
business subject to part 23 at an airport.
The final rule’s amendments to part
23 aligns the PNW definition with that
of part 26, effectively eliminating the
PNW’s ‘‘third exemption.’’ While one
trade association supported this change,
another requested that the Department
consider retaining the exclusion due to
significant cost increases associated
with doing business as an ACDBE.
The Department recognizes the
substantial cost increases associated
with concessions and addresses this
concern, in part, through proposed
increases to the PNW cap to $2,047,000.
and other changes to the PNW
calculation. However, the final rule
removes the ‘‘third exemption’’
language from the PNW definition in
part 23. In the 2005 final rule, the
Department under the third exemption
allowed the exclusion to a maximum of
$3 million. As noted in the current rule
§ 23.3, the Department suspended the
effectiveness of the provision with
respect to any application for ACDBE
certification made or any financing or
franchise agreement obtained after June
20, 2012. As proposed, the definition
removes this reference entirely, and the
definition of personal net worth in part
23 refers back to that found in part 26.
Sublease, Subconcession or
Subcontractor
For the proposed definitions of
sublease, subconcession or
subcontractor, all commenters were
unanimous in their support. However,
several commenters requested the
proposed definition of ‘‘sublease’’ be
expanded to clarify the requirements to
be considered a subtenant. Commenters
suggested that a definition of sublease
address whether a capital investment
from the ACDBE is required or whether
the facility development cost can be
paid monthly as a ‘‘lease cost.’’ They
also suggested that the definition
address if the terms of the primary lease
must be a direct pass-through and
whether a concessionaire must manage
a location with its own personnel.
This final rule adopts the term
sublease as proposed to clarify how
airport recipients should count direct
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ownership arrangement participation
generated by ACDBEs in subtenant
arrangements. Generally, airport
recipients may credit the entire amount
of gross receipts generated from a
sublease completely operated and
owned by an ACDBE. However, airport
recipients must look beyond the
agreement to evaluate the capacity the
ACDBE is performing and ensure that
the agreement does not improperly
restrict the ACDBE’s ownership and
control.
Under the sublease definition, all
requirements applicable to the
concession under the primary lease
passes on to the sublessee, including the
management of personnel. The ACDBE
must also be responsible for its
proportionate share of facility
development costs and capital
investment. Facility development cost
can be paid monthly as a ‘‘lease cost’’.
However, the total lease costs to be paid
must be proportionate to the ACDBE’s
responsible share of capital investment
required under the primary lease.
For the definition of subconcession or
subcontractor, the final rule removes the
term subcontractor from the definition
title and adopts the definition as
proposed by the NPRM. With this
change, the term subconcession is now
found in the definition section, as well
as in Appendix A of the regulation.
Other Definition Changes
Commenters proposed additional
amendments or changes to definitions
that were not addressed by the NPRM.
One commenter proposed revisions to
the definition of ‘‘joint venture.’’ The
commenter expressed that the current
definition in which the ACDBE is
‘‘responsible for a distinct, clearly
defined portion of the work of the
contract,’’ places restrictions on
minority joint venture partners’
financing, management, and operations
that would not be required of a majority
joint venture partner. The commenter
believed that the language unfairly
restricts ACDBE joint venture partners
in that it imposes conditions on their
participation that are not similarly
imposed on the non-ACDBE
participants. To address this, the
commenter proposed revising the
definition to balance the one-sided
conditions that the current language
imposes on ACDBE joint venture
partners.
The final rule retains the existing
definition of joint venture. Credit
toward ACDBE goals must be based on
a commercially useful function. Any
change to remove the requirement for an
ACDBE joint venture participant to
perform independently a distinct
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portion of the joint venture’s work
would adversely affect the integrity of
the program.
In addition to the definitions above,
another commenter suggested that the
Department add a definition for
‘‘contract award’’ to clarify the term’s
use in other sections in Parts 23 and 26.
The Department has opted not to
define contract award in the regulatory
text as commenters requested. Given the
wide array of contexts the term contract
award appears across Parts 23 and 26,
we decided against adding a definition
for the term to avoid confusion.
Subpart B—ACDBE Programs
32. Socially and Economically
Disadvantaged Owned Financial
Institutions (§ 23.23)
A commenter suggested that the
Department consider options to address
capital access issues that hinder small
businesses from competing for
concession opportunities. The
Department is sensitive to concerns
regarding access to capital. The FAA’s
2023 updated Best Practices for
Fostering Participation from New DBEs
and ACDBEs at Airports (April 11, 2023)
letter recommended evaluating the
availability of services offered by
financial institutions owned and
controlled by socially and economically
disadvantaged individuals in an airport
recipient’s community. See https://
www.faa.gov/about/office_org/
headquarters_offices/acr/bus_ent_
program. The letter recommends airport
recipients make reasonable efforts to use
such institutions and encourage prime
concessionaires to use them, as well.
Recognizing that capital access has
historically been, and continues to be, a
significant barrier to ACDBE
participation within the program, the
final rule seeks to reduce this barrier by
amending the administrative provisions
under § 23.23 to add a new paragraph
that applies the related requirement in
§ 26.27, to part 23. This change codifies
best practices in the letter by requiring
recipients, for their ACDBE programs, to
thoroughly investigate the full extent of
services offered by financial institutions
owned and controlled by socially and
economically disadvantaged individuals
in their communities and to make
reasonable efforts to use these
institutions. Recipients must also
encourage prime concessionaires to use
such institutions.
The term ‘‘financial institution’’
under this provision includes but is not
limited to traditional banking
institutions and Community
Development Financial Institutions
(CDFIs).
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33. Direct Ownership, Goal Setting, and
Good Faith Efforts Requirements
(§ 23.25)
NPRM
The NPRM proposed changes to
§ 23.25 clarifying that all businesses
must make good faith efforts to meet the
concession-specific goals as set by
recipients pursuant to this section
regardless of whether a concessionspecific goal is based on goods and
services or direct ownership
arrangements. Airport recipients may
set concession-specific goals on
purchases or leases of goods and
services only after performing an
analysis that shows there is de minimis
availability for ACDBE direct ownership
arrangement participation for that
opportunity.
Comments
The majority of comments, which
were received from trade associations,
consultants, ACDBEs, and recipients,
generally supported the NPRM’s
clarifying modifications to § 23.25.
However, one commenter noted
supplying evidence to support setting
concession-specific goals based on
goods and service purchases versus
direct ownership arrangements, in some
instances, would not be possible until a
successful proposer is selected. The
commenter explained that recipients are
not able to obtain a firm’s purchase
commitments at the time of award.
Moreover, purchase goals could be
impacted by purchase requirements if
the firm is a licensed or franchised
operation.
Another commenter suggested that
the Department add an appendix to part
23, similar to the detailed guidance in
part 26 Appendix A, to reflect the
differences in good faith effort
requirements for DBE and ACDBE
program bidders and offerors.
DOT Response
The Department adopts the changes to
§ 23.25 as proposed by the NPRM. The
timing of when evidence may become
available in order to perform the
analysis required under this section
should not present an issue to recipients
who are determining whether to set a
concession-specific goal based on goods
and services purchases. In addition,
airport recipients do not need a firm’s
actual purchase commitments at the
time of award to perform the analysis in
paragraph (e)(1)(i) of this section.
Recipients calculate their overall
ACDBE goals for concessions other than
car rental by evaluating the relative
availability of ACDBEs in the categories
of work that concession operations will
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likely entail. Because the rule at § 23.47
provides that the base of an airport’s
goal for concessions other than car
rental is the total gross receipts of
concessions, this approach is necessary
when setting overall goals. Recipients
may meet their overall goals through the
application of concession-specific goals,
as explained in § 23.25. Under the
revised § 23.25 (e)(1)(i), an analysis that
finds a particular concession
opportunity has only de minimis
availability of direct ownership
arrangement participation may be used
by recipients as evidence in support of
setting a concession-specific goal based
on goods and services for that
opportunity. Such analysis would
satisfy the good faith efforts requirement
that recipients must make to explore, to
the maximum extent practicable,
opportunities for participation via direct
ownership arrangements.
In response to comments, the
Department will not add a separate
appendix for guidance on good faith
efforts to part 23. Appendix A to part 26
provides guidance on good faith efforts
concerning DBE contract goals. This
guidance is referenced in
§ 26.53(b)(2)(vi), which is made
applicable to concession-specific goals
through § 23.25(e)(1)(iv).
Notwithstanding differences between
the ACDBE and DBE program, we do not
believe this issue is significant to
warrant creating a new appendix on
good faith efforts in part 23.
ddrumheller on DSK120RN23PROD with RULES2
34. Fostering Small Business
Participation (§ 23.26)
NPRM
The NPRM proposed to add a
provision that would closely mirror the
§ 26.39 requirement for recipients to
create an element for their ACDBE
Program specifically designed to foster
small business participation in
concession activities. As part of the
proposed element, recipients would be
required to actively implement their
programs through various strategies that
include race- and gender-neutral small
business set-asides, prime subleasing
opportunities and alternative
concession contracting approaches (e.g.,
direct leasing). One feature proposed for
part 23 that is distinct from part 26, is
the requirement for recipients to
periodically report on the
implementation of race-neutral
strategies under the small business
element for their ACDBE programs.
Comments
ACDBE Small Business Element
Support for the proposed ACDBE
small business element was expressed
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by several members of a trade
association, who commented that part
23 needed to make the small business
element (SBE) a requirement in order to
achieve small business participation for
airport concessions. An airport
consultant believed the proposed part
23 SBE requirement would foster
creativity among recipients when
structuring their small business
elements.
Comments opposing the proposal
were concerned that the new SBE
requirement would be overly
burdensome and that the Department
underestimated the time it would take.
However, commenters’ estimated range
of time to complete the task varied. One
airport authority estimated it would take
120 hours, not the 5.6 hours estimated
by the Department; a member of a trade
organization thought ‘‘at least 40.’’
Another commenter mentioned that
small hub and non-hub airports would
be particularly affected, as they have
limited concession opportunities and
revenue streams, making it difficult for
them to attract bidders.
Others opposing the new requirement
expressed that SBE would not work for
part 23 as it does for part 26 because the
industries involved in the DBE program
(federally assisted contracting) and the
ACDBE program (airport concession
opportunities) are different. They noted
that set-asides under the small business
element could unintentionally harm
both small businesses and other
concessionaires by forcing a choice
between them for feasible concession
locations. Others expressed doubt about
the feasibility of subleasing
opportunities for airport concessions, as
such opportunities are rare, and multiunit operations do not support
subleasing. If adopted, commenters
recommended that recipients should
conduct a small-business analysis on
opportunities without an ACDBE goal to
determine the viability of a small
business sublease.
Reporting on Small Business Element
The Department received some
comments, both from trade associations
and recipients, on the proposed
requirement for recipients to
periodically report on the
implementation of race-neutral
strategies under their small business
element. These commenters viewed the
requirement as unduly burdensome and
costly. However, if adopted in the final
rule, one commenter recommended that
the Department establish a
supplemental report to the Uniform
Report for reporting on a recipient’s
small business element in order to
minimize the administrative burdens.
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DOT Response
The Department believes that the
ACDBE SBE requirements will not
impose any significant burdens on
recipients because it mirrors the current
DBE SBE requirements that recipients
must currently implement under
§ 26.39. Instead, the ACDBE SBE
requirement should serve as a mere
extension to the SBE requirements that
recipients have currently in place for
their DBE programs.
Smaller hub airports may benefit from
statewide small business element
consortiums permitting them to pool
resources with other recipients who are
required to actively implement SBEs
under both DBE and ACDBE programs.
Upon request, FAA will engage
interested recipients on the mechanics
and steps needed to establish and
implement statewide consortiums for
SBEs.
Furthermore, distinctions may exist in
how certain small business strategies
apply across the DBE and ACDBE
programs. The list of strategies in the
proposed § 23.26 for the ACDBE
program is designed to give recipients
some ideas on how to accomplish the
objectives of the rule. It is not an
exhaustive list, nor is any strategy listed
in the regulation mandatory. Airport
recipients may choose one or more of
the listed strategies or may develop any
alternative strategy that can be effective
in creating airport concession
opportunities for small businesses.
In selecting SBE strategies, the
Department still expects airport
recipients to be forward-looking and
innovative in their approaches. This
means that recipients should not
completely foreclose the possibility of
using certain strategies (e.g., subleasing
opportunities for small businesses) over
others because they do not appear to be
viable options at the time. Rather, they
should continuously explore creative
ways on how to make those strategies
possible.
Section 23.26(c) mandates that airport
recipients incorporate certain
assurances within their SBEs. These
include the confirmation that their SBEs
are authorized under State law, and that
certified ACDBEs meeting the specified
size criteria are presumptively eligible
to participate. In addition, airport
recipients must assure that no
limitations are placed on the number of
contracts awarded to participating firms
and that every effort will be made to
avoid creating barriers to the use of new,
emerging, or untried businesses.
Reporting on Small Business Element
The ACDBE SBE requirement needs a
reporting feature for the Department to
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evaluate not only the effectiveness of
each recipients’ element, but also
whether recipients are actively
implementing their SBEs, as required by
23.26(g). In an effort to minimize
burdens, the Department will adopt the
recommendation that the part 23 SBE
reporting requirement be added as a
supplemental report to the part 23
Uniform Report. This will alleviate the
time burden noted by a commenter as
described above. However, as explained
in the supporting statement developed
by the Department in support of the
rulemaking and associated information
collection that has been submitted to
OMB for approval, we disagree with
their estimate of 120 hours. Recipients
are already required to implement SBEs
for DBE programs, and they also must
collect and report their race neutral
participation annually, so this minimal
supplemental information is not
burdensome. Therefore, we believe that
the Department’s estimate of 5.6 hours
is appropriate.
ddrumheller on DSK120RN23PROD with RULES2
35. Retaining and Reporting
Information About ACDBE Program
Implementation (§ 23.27) (Active
Participants List)
Comments
The Department received numerous
comments on the NPRM’s proposal to
add an active participants list
requirement to part 23, with the
majority opposing the proposal.
Supporters believed the change would
benefit the program administration and
assist car rental companies in locating
certified ACDBE vendors. However,
many opposed the change, finding it
unduly burdensome and costly, and
highlighting the logistical complexities
in acquiring all the data from every firm
that reaches out via email, phone, or fax
inquiring about concession
opportunities. One trade organization
member thought 60 hours was more
appropriate for this task than the 42
proposed by the Department.
Commenters also raised concerns
about the active participants list not
meeting its intended purpose of
providing accurate data on ACDBE and
non-ACDBE firms seeking concession
opportunities. They noted that the
NAICS codes used by various
concessionaires are inconsistent, and
the data from proposals and responses
to solicitations and negotiated
procurements would not provide
accurate information. Commenters
argued that this approach would result
in an undercount of actual active
participation and lead to incorrect
calculations of goals and participation.
A commenter suggested that the number
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of firms certified in concessionoperating trades would be a better
indicator of the number of ACDBE firms
wanting to participate.
One commenter recommended that
the Department provide a clarifying
definition for ‘‘active participants’’ at
the end of § 23.27(c) to include
individuals or firms that have submitted
proposals, attended outreach events, or
made inquiries about concession
opportunities from the recipient.
DOT Response
The final rule is adding a requirement
that recipients develop and maintain an
active participants list. The ‘‘active
participant’’ list adopted in this rule is
parallel to the bidders list requirement
in § 26.11. Similar to the bidders list
requirement in part 26, creating and
maintaining an ‘‘active participants’’ list
gives recipients another valuable way to
measure the relative availability of
ready, willing and able ACDBEs when
setting their overall goals. It also gives
the Department data to evaluate the
extent to which the objectives of § 23.1
are being achieved.
The Department has elected to adopt
the proposal and require recipients to
collect the data from all active
participants for concession
opportunities by requiring the
information under this section to be
submitted with their proposals, or with
initial responses to negotiated
procurements. The Department
acknowledges that the collection of
active participants data from only these
sources may not capture every firm that
seeks to perform work on concession
opportunities. However, in absence of
concession-specific NAICS codes, the
Department believes that narrowing the
source of this data collection to only
proposals and initial responses to
negotiated procurements would produce
the most accurate and consistent data on
firms who compete for and perform
work on concession opportunities. The
commenter’s estimate of 60 hours to
complete the task is slightly above our
estimate that it would take around 42
hours to complete. We believe 42 hours
would be a rough average, with small
airports taking much less time.
Recipients should not rely exclusively
on an active participants list that does
not reflect the relative availability of
ACDBEs in their local market area to the
maximum extent feasible. Such reliance
may result in skewed goal calculations
and potentially undercounting of
participation. This is not the intent, nor
should such a scenario occur under the
rule. The FAA will not approve a goalsetting methodology that is not
rationally related to the relative
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availability of ACDBEs in a recipient’s
market. If a recipient decides to use an
active participants list that is not
demonstrative of all ready, willing and
able ACDBEs relative to all businesses
that are ready, willing and able to
participate in a recipient’s ACDBE
program, then the active participants list
must be used in combination with other
data sources to ensure that it meets the
standard in the existing regulations that
apply to alternative methods used to
derive a base figure for the ACDBE
availability estimate. See § 23.51.
Subpart C—Certification and Eligibility
of ACDBEs
36. Size Standards (§ 23.33)
See discussion of requirements in
§ 26.65.
37. Certifying Firms That Do Not
Perform Work Relevant to the Airport’s
Concessions (§ 23.39)
NPRM
Section 23.55(k) prohibits recipients
from counting costs incurred in
connection with the renovation, repair,
or construction of a concession facility
(sometimes referred to as the ‘‘buildout’’) toward ACDBE goals. The NPRM
proposed to add a paragraph to § 23.39
clarifying that certifiers may not certify
applicant firms that intend to perform
activities exclusively related to ‘‘buildout’’ for which participation cannot be
counted.
Comments
The Department received comments
from recipients, prime concessionaires,
consultants and trade associations, all of
whom generally supported the NPRM’s
proposed change. Some commenters
requested that the Department ensure
the change does not exclude the
certification of firms that provide
services such as electrical, plumbing or
work to concessionaires as a
maintenance service, not related to
initial construction (e.g., car rental
offices, advertising displays). Other
commenters expressed concern that the
change would allow certifiers to make
discretionary decisions about businesses
they are unfamiliar with, unless that
business has an opportunity to appeal
the decision in the event they are
denied.
DOT Response
The Department is not adopting its
proposal to permit certifiers to refrain
from certifying applicant ACDBE firms
if they determine the firms intend to
perform only activities exclusively
related to the renovation, repair, or
construction of a concession facility
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(‘‘build-out’’). We agree with the
comments and seek to avoid a change
that could result in erroneous
certification denials based on subjective
determinations by certifiers on whether
the work an applicant firm intends to
perform is exclusively related to buildout.
Notwithstanding our position, the
Department shares similar concerns to
comments raised above for the
definition of disadvantaged business
enterprise for applicant firms that
cannot have their participation counted
toward ACDBE goals under § 23.55(k).
The Department strives to reduce
wasted time and effort that UCPs
encounter when processing applications
from firms that seek certification in
construction-related work that cannot be
credited toward ACDBE goals.
To address this, we adopt a similar
approach to that taken under part 26.
The Department will include an item in
the ACDBE portion of the Uniform
Certification Application (UCA) asking
applicants to detail the kinds of work
that they anticipate performing on
concession opportunities. Accordingly,
if the applicant’s response reasonably
suggested to the certifier that the work
it performs would be constructionrelated activities exclusively in
connection with build-out of concession
facilities that otherwise could not be
counted toward ACDBE goals under
§ 23.55(k), we would encourage the
certifier to recommend that the
applicant withdraw its application,
thereby avoiding certification of firms
that would not be able to utilize their
ACDBE status to obtain an airport
concession opportunity.
38. Removing Consultation
Requirement When No New Concession
Opportunities Exist (§ 23.43)
NPRM
The NPRM proposed to amend § 23.43
to require consultation only when the
recipient’s ACDBE goal methodology
includes opportunities for new
concession agreements.
ddrumheller on DSK120RN23PROD with RULES2
Comments
The majority of commenters,
predominantly recipients, endorsed the
NPRM’s proposal to remove the
requirement for recipients to perform
consultation when there are no
concession opportunities to evaluate or
promote. They cited that the proposal
would alleviate burdens on recipients
and preserve the resources of ACDBEs
who may attend a meeting only to learn
that there are no opportunities in which
they can participate.
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The Department received one
comment from a car rental
concessionaire that disagreed with the
proposed change to remove the
consultation requirement even when the
recipient wishes to change its ACDBE
goal requirement as long as there are no
new concession opportunities. They
were opposed to any change that would
remove the consultation requirement
when recipients propose to adjust their
ACDBE goal. Therefore, they
recommended the Department revise the
proposed amendment to § 23.43 to
remove the consultation requirement
only when there are no new concession
opportunities and when no adjustment
is being made, or is proposed to be
made, to the recipient’s ACDBE goal.
DOT Response
Section 23.43 requires consultation
only when the ACDBE goal
methodology includes opportunities for
new concession agreements. The
Department agrees that consultation
under § 23.43 is still necessary when an
adjustment is being made, or is
proposed to be made, to the base figure
of the recipient’s ACDBE goal. However,
we do not believe it is necessary to
make this explicit in the regulatory text
since adjustments usually arise only
when there are new concession
opportunities.
That aside, the Department is
concerned that the text of § 23.43
references only opportunities for new
concession agreements that become
available during the goal period. It is
silent on new goods and service
purchase opportunities. This omission
may be construed to mean that
consultation is required only when new
direct ownership opportunities become
available during the goal period. This is
not the case. The final rule intends for
the consultation requirement to apply
when there are new concession
opportunities for both direct ownership
arrangements and purchases of goods
and services.
For this reason, the Department makes
a minor revision to the § 23.43 to
account for new opportunities that may
arise in the form of both direct
ownership arrangements and goods and
service purchases. Depending on the
nature of the opportunities, this revision
in addition to the overall change will
allow recipients to focus their
consultation efforts on firms in the
position to take advantage of those
opportunities available.
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39. Non-Car Rental Concession Goal
Base (§ 23.47)
Comments
The NPRM would have amended
§ 23.47(a) to clarify that airport
recipients may use the alternative
method in § 23.51(c)(5) to supplement
with goods and service purchases those
portions of the base figure of their
overall non-car rental goals where there
is no feasible direct ownership
arrangement participation available. The
Department received several comments
from industry trade associations,
recipients, consultants, and non-ACDBE
firms, who generally supported the
clarifying changes to § 23.47(a) but felt
that additional clarification was
necessary.
One commenter sought clarification
on whether the proposed changes would
require setting purchasing goals for
every contract without a direct
ownership goal. Another commenter
suggested the final rule address
reporting of gross revenues for
concessions in the Uniform Report.
Finally, the Department received one
comment requesting clarification on the
term ‘‘substantial majority’’ in
§ 23.51(b)(3) and asked whether it
should be based on a count of the
number of interested concessionaires or
their size. The commenter also inquired
about how a recipient should account
for the relative availability of
concessionaires outside its putative
geographic area if the NPRM’s proposed
changes to interstate certification
expands the number of concessionaires
in a recipient’s geographic area.
Although not raised in the NPRM, one
commenter requested that the
Department adopt a national ACDBE
goal setting process for car rentals
similar to Transit Vehicle Manufacturers
(TVM). The commenter stated that
adopting a national goal would better
achieve the objectives of the ACDBE
program and increase participation in
the car rental industry.
DOT Response
The final rule will not adopt the
proposed changes to § 23.47. As
proposed, the revisions to this section
would have allowed recipients to
supplement with purchases and/or
leases of goods and services the portion
of their base where no feasible direct
ownership arrangement participation is
available. With few exceptions, § 23.47
is clear that the base of a recipient’s
overall goal for concessions other than
car rentals includes only the total gross
receipts of all concessions. The base
does not include the dollar value of
purchases and/or leases of goods and
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services. The Department does not
intend to change that. Instead, the
Department intends only to clarify when
goods and services concession goals can
or should be used in light of the
statutory requirement for recipients to
explore, to the maximum extent
practicable, direct ownership
arrangements.
We believe the final rule achieves this
objective with its revisions to
§ 23.25(e)(1)(i).
The boundaries of a recipient’s market
area should be determined by the
number of firms which seek to do
concession business with that airport
and their locations. The market area
may be different for different types of
concessions, so another factor is the area
in which the firms which receive the
substantial majority of concessionsrelated revenues are located.
We recognize that the changes to
interstate certification may increase the
number of interested concessionaires
located outside a recipient’s putative
geographic area. The Department’s Tips
for Goal-Setting in the Disadvantaged
Business Enterprise (DBE) Program
(https://www.transportation.gov/civilrights/disadvantaged-businessenterprise/tips-goal-settingdisadvantaged-business-enterprise; June
25, 2013), however, makes clear that a
recipient’s local market area is not
necessarily the same as the political
jurisdiction in which it is
geographically located. Therefore, the
changes to the interstate certification
provisions do not impact how airport
recipients determine the relative
availability of ACDBEs under § 23.51(c).
Recipients still must determine their
market area for goals in accordance with
§ 23.51(b).
The final rule will not adopt regional
and national car rental goals for the
ACDBE program. The recommendation
to establish these goals is outside of the
scope of the rule.
40. Counting ACDBE Participation After
Decertification (§ 23.55)
ddrumheller on DSK120RN23PROD with RULES2
NPRM
Sections 23.39(e) and 23.55(j) allow
for participation of ACDBE firms that
lost certification for exceeding size and
PNW limits to count towards ACDBE
goals for the remainder of a concession
agreement. However, this continued
participation depends on those
decertified firms maintaining their
eligibility in all other respects (e.g.,
control, ownership). The current
regulation does not contain any
provision that instructs airport
recipients on how they must monitor
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these decertified firms to ensure their
eligibility in this regard.
The NPRM proposed requiring
declarations from decertified firms to
track their eligibility for continued
counting purposes. Under the rule,
airport recipients would be responsible
for gathering declarations and
monitoring eligibility, not the certifying
entity. If a decertified firm becomes
ineligible due to ownership or control
changes, its participation will no longer
count. Failure to provide a ‘‘no-change
affidavit’’ also stops the continued
counting of participation of these firms.
Comments
Most comments were in favor of the
requirement for former ACDBE firms to
submit declarations to § 23.55. However,
many were opposed to making the
airport recipient, rather than the
certifying agency, responsible for
submission and monitoring. These
individuals and organizations argued
that this responsibility might be too
burdensome for airports and that the
State UCP, as the certifier, is better
equipped to monitor those firms. They
also pointed out that airports are not
certifiers and do not have the necessary
expertise to monitor submissions.
Finally, one commenter
recommended counting decertified firm
participation beyond the current
concession agreement term, as it is a
common industry practice to extend
concession agreements. They argued
that an ACDBE that has secured a
contract should be allowed to continue
to benefit from the agreement as long as
they maintain eligibility in all other
respects.
DOT Response
The Department believes that the
steps arising under proposed § 23.55(j)
should not be burdensome since they
are not significantly different or greater
than those recipient obligations
currently performed. Non-certifying
airport recipients are already required to
include the monitoring and compliance
measures that they will use in their
ACDBE programs, including levels of
effort and resources devoted to this task.
In implementing these measures, noncertifying recipients must, at a
minimum, conduct annual verifications
of the status of the ACDBE’s
certification eligibility and review
records. They must also perform on-site
reviews of concession workplaces to
determine whether ACDBEs are actually
performing the work for which credit is
being claimed and that participants are
not circumventing program
requirements.
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Section 23.55(j) does not expand these
monitoring obligations. Rather, it
provides non-certifying airport
recipients a framework and tools to
monitor former ACDBE firms that lost
certification for exceeding small
business size standard or PNW. This
monitoring is necessary for airport
recipients to determine if these firms’
participation can continue to be counted
towards ACDBE goals for the remainder
of a concession agreement. If the noncertifying recipient finds through its
monitoring efforts that the former
ACDBE has relinquished an element of
control or ownership during the
performance of an agreement, the
monitoring recipient would
immediately cease counting that firm’s
participation toward the goal.
Counting a decertified firm’s
participation beyond the current
concession agreement term deprives
eligible ACDBE firms of opportunities.
Therefore, the Department will not
change the status quo under paragraph
(e) of § 23.39, which prohibits a
recipient from counting a former
ACDBE’s participation toward goals
beyond the termination date for the
concession agreement in effect at the
time of the decertification. The
regulation will continue to require
recipients to ensure that prime
concessionaires make up any loss of
ACDBE participation with good faith
efforts.
41. Shortfall Analysis Submission Date
(§ 23.57)
NPRM
Section 23.57 requires recipients to
submit a shortfall analysis and
corrective action plan if they do not
meet their ACDBE participation goal.
The plan explains the reasons for the
differences between their overall goal
and the awards and commitments in
that fiscal year and the specific steps
and milestones they will take to remedy
the shortfall. The Department proposed
extending the due date for submitting a
shortfall analysis from within 90 days of
the end of the fiscal year to 30 days after
submitting the Uniform Report per 49
CFR 23.27(b).
Comments
Commenters unanimously supported
the proposed amendment noting the 30day extension would allow recipients to
perform a more thorough shortfall
analysis using current data from the
Uniform Report.
DOT Response
The final rule adopts the change to
the shortfall provisions in § 23.57 and
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sets the due date to April 1 for the
shortfall analysis, which is 30 days after
Uniform Report due date on March 1.
Subpart E—Other Provisions
42. Long-Term Exclusive Agreements
(§ 23.75)
Comments
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Five-Year Term for Long-Term
Agreements
The NPRM did not propose to
redefine ‘‘long-term’’ to a longer period
greater than five years because of
concerns that doing such would reduce
the degree of FAA’s oversight to ensure
that long-term concession agreements
include adequate ACDBE participation.
However, the NPRM did request
additional comment from stakeholders
on keeping the term at 5 years rather
than revising it to 10 years.
Several commenters agreed on
extending the term to 7 to 10 years or
more. The reasons for extending the
term included attracting a diverse pool
of bidders/proposers, allowing for
investment amortization, establishing
brand recognition, improving customer
service, and reducing the workload for
recipient staff during concession
solicitations. The Department received
one comment stating that the definition
of long-term agreement should be
revised to State that agreements are only
considered long-term if an agreement
contains options that result in a lease
period of more than ten years.
Options and Definition of an Exclusive
Agreement
The current regulation does not define
the term ‘‘exclusive,’’ nor does it
include ‘‘options’’ in its definition of
‘‘long-term’’ under § 23.75(a). To ensure
that these terms are addressed in the
rule, the NPRM proposed to revise the
definition of ‘‘long-term exclusive
agreement’’, under § 23.75(a) to include
the definition of ‘‘exclusive’’ and to
state an agreement is long-term if it
includes options that result in a lease
period of more than five years.
In response to the proposal to define
‘‘exclusive agreements’’ in § 23.75(a),
commenters asked why the proposal
still required FAA approval for an
exclusive agreement with an ACDBE.
They also suggested defining ‘‘exclusive
agreement’’ as a contract that does not
have ACDBE participation at the
airport’s approved goal levels for the
applicable trade. Another commenter
asked for clarification on the term ‘‘type
of business activity.’’
Long-Term Agreements and Holdovers
The NPRM raised concerns over
holdover tenancies that may cause an
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exclusive agreement to become longterm and preclude potential ACDBE
competitors from participating in
agreements in the same manner as other
agreements currently prohibited under
the rule. While the NPRM did not put
forth any specific proposals on how best
to address holdover tenancies in the
context of § 23.75, the Department
sought public comment on the matter.
The few comments received in
response to holdover tenancies in the
NPRM recommended the Department to
provide flexibility and allow holdovers
up to 12 months without triggering longterm exclusive agreement requirements.
Special Local Circumstances
One comment requested the
Department define the term ‘‘special
local circumstances.’’ The commenter
believed that without further
explanation, the evaluation of ‘‘special
local circumstances’’ is completely
subjective for each application and may
lead to unfair inconsistencies across the
country and, possibly, within a single
airport. Another commenter requested
clarification on whether the
amortization period required for
investment was sufficient to be
considered a ‘‘special local
circumstance.’’
Amending Document Requirements
In response to stakeholder concerns
about the documentation and
information that recipients must submit
to the FAA for approval of long-term
exclusive agreements, the NPRM
proposed several changes to § 23.75(c).
These changes aimed to address
unclear, unfeasible, or non-pertinent
documentation requirements. This
included removing or replacing
requirements under paragraph (c)(2)(ii)
to review the extent of ACDBE
participation before the exercise of each
renewal option and the assurances
under paragraph (c)(3) that require any
ACDBE participant to be in an
acceptable form. The proposal also
included changes that allow for certain
documentation and information
required for approval of long-term
exclusive (LTE) agreements to be
submitted prior to the release of the
solicitation or request for proposals and
others, prior to award of the contract.
The Department received a comment
stating that the proposed revisions to
the information and documentation
requirements would significantly
increase the time between when a
solicitation is prepared and when it can
be released, which could impair an
airport’s ability to obtain timely, marketrelevant proposals. The comment
explained that the timelines proposed
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would require airports to initiate a
solicitation process about 12 months in
advance of a contract’s expiration in
order to ensure that a new contract is in
place. They noted that this was of
particular concern because market
conditions can change significantly over
a 12-month period. They urged delaying
the implementation of the proposed
changes to the documentation
requirements to avoid disrupting
ongoing and planned procurement
processes.
The Department also received a
comment that recommended completely
overhauling the long-term exclusive
agreement approval process and
adopting a two-step process. This
process would require the airport
recipient to submit a goal analysis to the
FAA as a notification before solicitation.
After the solicitation process concluded,
the airport recipient would send FAA
information on the level of interest and
availability of ACDBEs and show that
the contract was awarded to a proposer
that met the goal or made good faith
efforts to meet the goal. Another
commenter suggested that the final rule
only require a recipient to perform a
goal analysis for the specific
opportunity, along with the type of
concession and term of the proposed
long-term exclusive agreement, which
would both be sent to the FAA for
approval.
DOT Response
Five-Year Term for Long-Term
Agreements
The Department recognizes that most
concession agreements extend beyond a
term of five years. Thus, the final rule
extends the definition of long term to
ten years to ease burdens that fall on
airports required to implement LTE
requirements under part 23. We note
that this aids smaller hub airports that
have fewer concession opportunities,
increasing the likelihood of long-term
exclusive agreements subject to FAA
approval under § 23.75(c). Extending the
definition to ten years also aims to
mitigate any additional burdens placed
on smaller hub airports by the new FAA
approval requirements of leases that
become long term as a result of
holdovers as discussed below. The
Department elected not to extend the
term beyond ten years in order to
maintain FAA oversight to ensure longterm exclusive concession agreements
maintain adequate ACDBE
participation.
Long-Term Agreements and Holdovers
Holdover provisions of an airport
lease, agreement, or contract may permit
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a recipient airport to extend the terms
of an existing airport lease, in the event
both the airport recipient and the tenant
desire to continue the relationship as it
exists, without executing a new lease.
The length of holdover periods is often
not defined in the lease and may
continue on a month-to-month basis
once the lease term ends.
Notwithstanding that holdovers may
bridge gaps to meet short-term needs,
the Department is starting to see longer
holdover periods following the end of
concession lease terms. These extended
holdover periods have a similar effect of
precluding potential ACDBE
competitors from participating in
opportunities as long-term exclusive
agreements that require approval by the
FAA pursuant to § 23.75. If not
addressed, the use of holdovers in these
cases, without FAA oversight,
circumvents the requirements under
§ 23.75. For this reason, the final rule
now makes clear that exclusive leases,
agreements, or contracts that become
long-term as a result a holdover, absent
an approved plan to release a
solicitation for that opportunity or
renegotiate the lease or contract, are
generally prohibited.
The final rule adds an oversight
mechanism in the new paragraph (e) for
FAA to monitor short-term leases that
become long-term as a result of
holdovers. Under the rule, airport
recipients must submit a ‘‘holdover
plan’’ to FAA for approval at least 60
days prior to the expiration of the
current contract, agreement, or lease.
Holdover plans include the same
information and documentation for LTE
agreements under the amended
paragraphs (c)(3), (c)(4), (c)(6) and (c)(7)
of § 23.75, in addition to a written
explanation for the holdover and the
method and date the airport recipient
will use to solicit or renegotiate the
concession contract, agreement, or lease
in holdover status.
The written explanation for a
holdover is similar to the existing
special local circumstance provision.
Airport recipients must articulate a need
for a holdover period that causes an
exclusive agreement to become a longterm lease or contract. Reasons that may
support a holdover are bridging
operational gaps that might occur due to
renegotiations and transitions of lessees
or expected delays in solicitation or rebidding processes. The requirement for
airport recipients to submit the
solicitation method that they intend to
apply, as well as a date it will
renegotiate or re-bid a concession
opportunity, provides a definitive
strategy and timeframe to afford an
opportunity for ACDBE participation.
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Under this provision, recipients are
also required to submit the information
and documentation required under
§ 23.75(c)(3), (c)(4), (c)(6) and (c)(7).
This includes an ACDBE contract goal
analysis, ACDBE certification
documentation and investment
information, and the final long-term
exclusive concession agreement. These
items are necessary for FAA to
determine the anticipated length of the
holdover period and the level of ACDBE
participation precluded by the holdover.
Airport recipients that are unable to
produce this information or
documentation must submit an
explanation as to why the item is not
available or cannot be submitted as part
of their holdover plan.
Definition of an Exclusive Agreement
The final rule adopts the definition of
‘‘exclusive’’ as proposed. Evaluating
whether an agreement is ‘‘exclusive’’
requires examining the agreement in
reference to the type of business covered
(e.g., management contract, advertising,
web-based or electronic businesses, food
and beverage, parking). A determination
on whether a certain business activity
under a contract, lease or agreement is
exclusive should be made based on the
totality of the circumstances. See
Principles for Evaluating Long-Term,
Exclusive Agreements in the ACDBE
Program, June 10, 2013, § 1.2, at pp. 5–
6.
In response to comments, the
Department will not adopt a definition
of ‘‘exclusive’’ that exempts LTE
agreements with ACDBE participation
from the requirements of § 23.75. Such
a change is inconsistent with the intent
of § 23.75, which is to provide for the
review of LTE agreements to ensure
adequate ACDBE participation
throughout the term of the agreement,
irrespective of whether an ACDBE or a
non-ACDBE enterprise is the prime
concessionaire being considered for
award of an exclusive, long-term
agreement. See 57 FR 18401 (Apr. 30,
1992). Not requiring the review of a
long-term concession agreement with
ACDBE participation would allow low
ACDBE goals set on contracts to remain
in place for extended lease periods
without justification, thereby precluding
those opportunities from generating
more meaningful ACDBE participation.
Special Local Circumstances
We are not defining ‘‘special local
circumstances’’ in this final rule. The
term is intended to be broad and flexible
to account for a wide range of scenarios
that may justify the use of a long-term
exclusive agreement. Contrary to the
comment’s concern that without further
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explanation, the evaluation of ‘‘special
local circumstances’’ may lead to unfair
inconsistencies, to date, FAA has not
disapproved any request for approval of
an LTE agreement based on an
inadequate special local circumstance.
In response to the comment seeking
clarification on whether the
amortization period required for
investment was sufficient to be
considered a ‘‘special local
circumstance,’’ the answer is no. The
LTE Guidance provides several
examples of special local circumstances,
which include the market size relative
to the number of available vendors,
reduced enplanements, an extreme act
of nature, new business concepts, and
severe economic factors (for instance, an
airline goes out of business). The LTE
Guidance makes clear that the
amortization of the initial investment
alone is not sufficient to justify approval
of a long-term exclusive agreement, but
may be a factor among others (e.g.,
marketplace concepts and full-kitchen
restaurants that require more costly
development) to support the special
local circumstances provision under the
rule.
Amending Document Requirements
The Department is electing to amend
the document requirements under
§ 23.75. First, paragraph (c)(2)(i) is
removed from § 23.75, eliminating the
requirement that an LTE agreement
provide the ‘‘number of ACDBEs that
reasonably reflects their availability in a
recipient’s market area, . . . and
account for a percentage of the
estimated annual gross receipts
equivalent to a level set in accordance
with § 23.47 through § 23.49.’’ This
provision is removed since the
agreement may not provide
opportunities for direct ownership and
is now included via the new
requirement to submit an ACDBE
contract goal analysis under paragraph
(c)(3).
Second, paragraph (c)(2)(ii) is
removed, eliminating the requirement
that airport recipients ‘‘review the
extent of ACDBE participation before
the exercise of each renewal option to
consider whether an increase or
decrease in ACDBE participation is
warranted.’’ Removing this provision is
necessary to prevent a prime
concessionaire from terminating an
ACDBE from an LTE agreement after it
made an investment simply because a
decrease in participation may be
warranted upon the exercise of an
option.
Third, paragraph (c)(2)(iii) is
removed, eliminating the requirement
that an LTE agreement include a
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provision that provides for the
termination of an ACDBE during the
term of the LTE agreement, without the
recipient’s consent. This provision is
redundant and unnecessary since
§ 26.53, which applies to part 23 by
reference, already establishes the
requirements for the replacement or
substitution of the ACDBEs, including
those that are party to an LTE agreement
or contract.
Fourth, the requirement in paragraph
(c)(3), which requires recipients to
submit assurances that any ACDBE
participant will be in an acceptable form
such as a sublease, joint venture, or
partnership is replaced. The new
provision now requires recipients
submit an ACDBE contract goal analysis
which captures goals set on both direct
ownership arrangements and goods and
service purchases.
Next, the requirement in paragraph
(c)(7) for recipients to provide
information on the estimated gross
receipts and net profit to be earned by
the ACDBE is removed. This financial
disclosure requirement applies only to
the ACDBE and may be a discriminatory
practice since the process does not
require the same from the non-ACDBE.
Section 23.75(c) is amended to now
require airport recipients to submit
items in paragraphs (c)(1) through (3) of
this section prior to releasing the
solicitation or request for proposals
(RFP) and items in paragraphs (c)(4)
through (7) prior to award of the
contract.
The Department agrees that the 90day period to submit those items before
the solicitation is released may be
shortened to mitigate impacts to some
airport recipients’ planned procurement
processes. The FAA does not anticipate
90 days will be required to review and
approve LTE agreements. Therefore, the
final rule shortens the 90-day period to
submit the items in paragraphs (c)(1)
through (3), to at least 60-days prior to
release of the solicitation. The 45-day
period to submit items in paragraphs
(c)(4) through (7) before contract award
will remain unchanged.
Next, the Department disagrees with
comments to simplify the information
and documentation requirements under
§ 23.75(c) to two items (e.g., contract
goal analysis, and evidence that goal
was met, or good faith efforts were
made, etc.). ACDBE participation is a
key part of the information needed for
approval and each item in paragraphs
(c)(1) through (c)(7) is valuable for FAA
to determine whether arrangements
have been made for adequate ACDBE
participation throughout the LTE
agreement. For this reason, the final rule
retains the information and
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documentation requirements in
§ 23.75(c) as proposed by the NPRM.
The final rule adds a new paragraph
(d) to § 23.75 that addresses the
requirements for agreements awarded
through direct negotiation. Because
there is no competition for awards made
through direct negotiation, this
provision omits the requirement under
paragraph (c)(2) for airport recipients to
submit a copy of the solicitation because
solicitations are not used for direct
negotiated procurements. Under the
rule, airport recipients are still required
to submit the items in paragraphs (c)(1)
and (c)(3) through (7) of the updated
§ 23.75.
43. Local Geographic Preferences
(§ 23.79)
NPRM
The current § 23.79 prohibits
recipients from using local geographic
preference, which is defined under the
rule as any requirement that gives an
ACDBE located in one place an
advantage over ACDBEs from other
places in obtaining business as, or with,
a concession at an airport. The proposed
revision to § 23.79 clarifies that
regardless of a concession’s certification
status, any local geographic preferences
that gives a concession located in a local
area an advantage over concessions from
other places is prohibited.
Comments
There was unanimous support for the
NPRM’s proposed revisions to § 23.79.
Commenters agreed with the revisions
to clarify that local geographic
preferences are not permitted regardless
of concession certification status but
that recipients may request concepts
that are local to a specific region when
soliciting proposals.
One commenter suggested that the
Department include within the
regulation examples of what
requirements could constitute
‘‘advantage’’ for local concessionaires
over other concessionaires from other
places.
DOT Response
The final rule adopts the changes to
§ 23.79. This clarifying change makes
clear that the provision prohibiting local
geographic preferences applies not just
to ACDBEs but all firms, regardless of
their concession certification status. The
final rule also leaves the existing
definition of local geographic preference
unchanged. Section 23.79 defines local
geographic preference as any
requirement that gives a concessionaire
located in one place (e.g., [recipient’s]
local area) an advantage over
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concessionaires from other places in
obtaining business as, or with, a
concession at [recipient’s] airport.
Under the definition of local
geographic preference, an example of
what may constitute an advantage is a
preference criteria used in the
evaluation of bids or proposals based on
a firm’s geographic location, or owner’s
residency. Another example of what
may constitute advantage is the
placement of unreasonable local
requirements on firms in order for them
to qualify to do business. Nothing in
this section should be construed as
preempting State licensing requirements
or prohibiting concepts that are local to
a specific region when soliciting
proposals. However, airport recipients
should still report to the FAA all other
State or local law, regulation, or policy
pertaining to minorities, women, or
disadvantaged business enterprises
concerning airport concessions that
adds to, goes beyond, or imposes more
stringent requirements than the
provisions of part 23. The FAA will
determine whether such a law,
regulation, or policy conflicts with this
part, in which case the requirements of
this part will govern. See § 23.77.
44. Appendix A to Part 23: Uniform
Report of ACDBE Participation Form
NPRM
Section 23.27(b) requires recipients to
submit an annual report on ACDBE
participation using the Uniform Report
found in Appendix A. The Department
proposed to remove the Uniform Report
of ACDBE Participation from Appendix
A to Part 23 and instead post the form
on DOT’s website. This is an
administrative action that does not
affect the public’s ability to comment on
any amendments to the information
collections in the form.
Comments
In the NPRM, the Department
estimated that it would take primary
airports 3.2 hours to comply with the
proposed ACDBE Annual Report of
Percentages of ACDBEs in Various
Categories in § 23.27(d). The commenter
objected to the Department’s estimate,
approximating that it would take at least
40 hours.
Block #5 Instructions of Appendix A,
Definition of Goods and Services
The NPRM proposed revising the
definition of ‘‘goods/services’’ in the
block #5 instructions to clarify that only
participation in the form of goods and
services purchased by concessionaires
and management contractors from
ACDBEs should be reported. The
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majority of commenters supported the
proposal to revise the definition of
‘‘goods/services.’’ However, concerns
were raised on the calculation of
Columns A and C in block #5 of
Appendix A. Some commenters
inquired about why purchases were not
included in the total line for Column A
but included in Column C, which could
lead to misrepresentation of data.
A few commenters focused on goods/
services and recommended that the
Department revisit the calculation, as
recipients are not clear on how to utilize
goods/services. One commenter noted
that goods/services were not sufficiently
addressed in the NPRM, and another
requested clarification on reporting
gross revenues if the goal is based on
purchases.
Block #5 New Joint Venture
Participation Category
No comments were received in
response to the NPRM’s proposal to
amend the instructions in all blocks of
the Uniform Report to include the
definition of ‘‘joint venture’’ as defined
in § 23.3 as a new participation
category. The purpose of the change was
to provide guidance to recipients on
how to count ACDBE participation
derived from joint ventures.
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Blocks #10 and #11 Reporting of
ACDBEs Owned by Members of
Different Socially Disadvantaged Groups
The Department received several
comments on the NPRM’s proposal to
amend the requirements under block
#11 in the Uniform Report to allow for
participation to be reported by ACDBEs
owned by multiple partners who are
from different groups and whose
members are presumed socially and
economically disadvantaged (SED).
Two stakeholders provided comments
regarding the proposed change to block
#11, expressing concerns about the
amount of time it would take to
complete the reporting and the lack of
detailed information that airports may
have regarding ownership
demographics. As a result, neither
commenter supported the proposed
change to Appendix A, blocks #10 and
#11. Instead, they recommended that
recipients report the ethnicity and
gender of the largest socially and
economically disadvantaged
shareholder, the owner with primary
control, or the owner who holds the
highest position within the business.
Additionally, commenters suggested
that certifying entities should make
detailed information on the owners and
their firms more easily accessible to
non-certifying airports.
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DOT Response
The final rule adopts the
Department’s proposal and will post the
Uniform Report of ACDBE Participation
on Department’s website as amended
below. A commenter’s estimate of 40
hours to complete this task is
unreasonable; based on the supporting
statement DOT developed in support of
this rulemaking and the information
collection that has been submitted to
OMB for approval, this task should take
¥4 hours, much less time on average.
Block #5 Instructions of Appendix A,
Definition of Goods and Services
For the goods and services to be
credited toward goals, goods and
services must be purchased by
concessionaires and management
contractors from firms that meet
definitions of ‘‘concession’’ and
‘‘ACDBE’’ under § 23.3. Purchases of
goods and services by the airport cannot
be credited toward goals. For this
reason, the final rule adopts the
definition of ‘‘goods/services’’ in the
block #5 instructions as proposed, with
the clarification that only participation
in the form of goods and services
purchased by concessionaires and
management contractors from ACDBEs
should be reported.
In response to comments, the existing
Block #5 instructions are clear that
recipients should enter in Column A,
purchases of goods and services
(ACDBE and non-ACDBE combined) at
the airport.
Block #5 New Joint Venture
Participation Category
The final rule will adopt the new
participation category for joint ventures
as proposed.
Blocks #10 and #11 Reporting of
ACDBEs Owned by Members of
Different Socially Disadvantaged Groups
The final rule adopts the proposed
amendment to the requirements under
block #11 in the Uniform Report to
allow for participation to be reported by
ACDBEs owned by multiple partners
who are from different groups and
whose members are presumed socially
and economically disadvantaged (SED).
The Department disagrees with
comments that information on
individual SEDOs would be difficult to
obtain and that implementation of this
new reporting requirement would be
burdensome. Demographic information
of individual SEDOs should be readily
available to non-certifying airports since
they are already obligated to collect
racial and ethnic data of lessees,
concessionaires and contractors under
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the existing Title VI nondiscrimination
requirements in 49 CFR part 21.
In addition, the final rule expands the
MAP–21 reporting requirements under
§ 26.11 to include ACDBEs and the
number and percentage of in-state and
out-of-state SEDOs by gender and
ethnicity. Non-certifying airports will be
able to more easily obtain information
on individual SEDOs and their firms
and report this information each year on
the Uniform Report.
45. Technical Corrections
Commenters unanimously supported
the Department’s proposal to make the
provisions in part 23 consistent with the
provisions of part 26, clarify existing
requirements, correct typographical
errors, and revise obsolete and/or
duplicative provisions, and make cross
references, as appropriate. The final rule
fully adopts the proposal.
46. Duration
The Department received a comment
on the length of time that a certification
remains in effect. The commenter
suggested the Department cap the
number of years that a firm may remain
certified for. In their view, the indefinite
nature of certification stifles outreach
and implicitly closes the door to other
small eligible firms. By adding a
maximum duration for certification, the
program could open opportunities for
new and developing firms to take
advantage of the program.
The final rule will not adopt the
above recommendation. The
authorizations and statutes governing
the airport improvement program do not
provide the Department flexibility to
place limitations or timeframes on
certification of firms.
Regulatory Analysis and Notices
A. Executive Order: 12866 (‘‘Regulatory
Planning and Review’’), Executive Order
13563 (‘‘Improving Regulation and
Regulatory Review’’), Executive Order
14094 (Modernizing Regulatory Review),
and 49 CFR Part 5 and DOT Order
2100.6A
This final rule has been deemed
significant under section 3(f) of
Executive Order 12866, ‘‘Regulatory
Planning and Review,’’ as amended by
Executive Order 14094 (‘‘Modernizing
Regulatory Review’’) and the
Department’s regulations and orders (49
CFR part 5 and DOT Order 2100.6A,
available at https://
www.transportation.gov/sites/dot.gov/
files/2021-06/DOT-2100.6ARulemaking-and-Guidance%28003%29.pdf), because of its interest
to the small business community and
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transportation industries. It has been
reviewed by the Office of Management
and Budget (OMB) under Executive
Order 12866.
The objective of the rule is to amend
reporting and eligibility requirements
for the Department’s Airport Concession
Disadvantaged Business Enterprises
(ACDBE) program and Disadvantaged
Business Enterprise (DBE) program.
These programs are implemented and
overseen by recipients of certain
Department funds. The changes in this
rule would affect businesses
participating in the programs, recipients
of Department funds who oversee the
programs, and the Department.
The Department conducted a
regulatory impact analysis, available in
the docket, to assess the effects of the
rule. Businesses, recipients, and the
Department would incur some costs due
to increased reporting requirements. At
the same time, they would experience
overall cost savings because the rule
simplifies provisions and would relax
requirements—for example, by allowing
recipients to conduct virtual on-site
visits.
Table 1 summarizes the estimated
costs and cost savings of the rule over
a ten-year analysis period (non-Federal
Government). The rule has annualized
net cost savings of $58.7 million at a 3
percent discount rate and $6.74 million
at a 7 percent discount rate.
Table 1—Summary of Costs and Cost
Savings of the Rule, 10-Year Period
[Rounded to Thousands]
TABLE 1—COSTS AND COST SAVINGS, 10-YEAR PERIOD
[Dollars, rounded to the nearest 1,000]
Undiscounted
Annualized 3%
Present value 7%
Annualized 7%
Total cost savings ..................................
Total cost ...............................................
203,668,000
134,030,000
178,773,000
120,073,000
20,957,000
14,075,000
152,727,000
105,400,000
21,744,000
15,005,000
Net cost savings .............................
69,638,000
58,700,000
6,882,000
47,327,000
6,739,000
The Department determined that
amending the rules is necessary because
many portions of the current rules seem
outdated for today’s DBE and ACDBE
marketplace. They might inhibit firm
growth and success, and limit recipient
and sponsors’ ability to effectively
monitor program compliance by all
participants in a post-pandemic
environment. The rule updates several
core provisions of the regulation to
maintain optimal program performance,
improve operational cohesiveness, and
provide contemporary solutions for
program deficiencies.
B. Regulatory Flexibility Act
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Present value 3%
The Regulatory Flexibility Act of
1980, as amended, (5 U.S.C. 601 et seq.)
and E.O. 13272 (67 FR 53461 (Aug. 16,
2002)) requires agencies to review
regulations to assess their impacts on
small entities. An agency must prepare
an Initial Regulatory Flexibility
Analysis (IRFA) unless it determines
and certifies that a rule, if issued, would
not have a significant economic impact
on a substantial number of small
entities. The Department prepared an
IRFA as part of the Department’s
regulatory impact analysis (Appendix C
of the regulatory impact analysis),
available in the docket DOT–OST–
2022–0051–008.
DOT invited all interested parties to
submit data and information regarding
the potential economic impact on small
entities that would come from
promulgating the NPRM. DOT
considered the comments received in
the public comment process when
preparing the Final Regulatory
Flexibility Analysis, and we received no
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comments on the preliminary finding of
non-significance.
C. Executive Order 13132
(‘‘Federalism’’)
This final rule has been analyzed in
accordance with the principles and
criteria contained in Executive Order
13132 (‘‘Federalism’’). It would not
include any provision that: (1) has
substantial direct effects on the States,
the relationship between the National
Government and the States, or the
distribution of power and the
responsibilities among the various
levels of government; (2) imposes
substantial direct compliance costs on
State and local governments; or (3)
preempts State law. The DBE and
ACDBE programs are governed by
Federal regulations 49 CFR parts 26 and
23. Therefore, the consultation and
funding requirements of Executive
Order 13132 do not apply.
D. Executive Order 13084 (‘‘Tribal
Consultation and Coordination’’)
This rulemaking has been analyzed in
accordance with the principles and
criteria contained in Executive Order
13084 (‘‘Consultation and Coordination
with Indian Tribal Governments’’).
Because this rulemaking does not
significantly or uniquely affect the
communities of the Indian Tribal
governments or impose substantial
direct compliance costs on them, the
funding and consultation requirements
of Executive Order 13084 do not apply.
E. Unfunded Mandates Reform Act
The Unfunded Mandates Reform Act
(UMRA) of 1995, 2 U.S.C. 1501, requires
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agencies to prepare a written assessment
of the costs, benefits, and other effects
of proposed or final rules that include
a Federal mandate likely to result in the
expenditures by State, local or Tribal
governments, or by the private sector, of
$100 million or more (adjusted annually
for inflation with base year of 1995) in
any one year. The 2021 threshold after
adjustment for inflation is $165 million,
using the Implicit Price Deflator for the
Gross Domestic Product. The
assessment may be included in
conjunction with other assessments, as
it is here. The final rule is unlikely to
result in expenditures by State, local, or
Tribal governments of more than $100
million annually.
F. Paperwork Reduction Act
This final rule adds 6 new collections
of information and 17 existing
collections being revised that require
approval by OMB under the Paperwork
Reduction Act of 1995 (Pub. L. 104–13,
44 U.S.C. 3501 et seq.). Under the
Paperwork Reduction Act, before an
agency submits a proposed collection of
information to OMB for approval, it
must first publish a document in the
Federal Register providing notice of the
proposed information collection and a
60-day comment period, and otherwise
consult with members of the public and
affected agencies concerning each
proposed collection of information. The
Department met these requirements
when it published a notice of the
proposed information in its July 21,
2022, NPRM and accompanying
submission to OIRA. Comments to these
collections are described above.
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G. National Environmental Policy Act
The Department has analyzed the
environmental impacts of this action
pursuant to the National Environmental
Policy Act of 1969 (NEPA) (42 U.S.C.
4321 et seq.) and has determined that it
is categorically excluded pursuant to
DOT Order 5610.1C, Procedures for
Considering Environmental Impacts (44
FR 56420, Oct. 1, 1979). Categorical
exclusions are actions identified in an
agency’s NEPA implementing
procedures that do not normally have a
significant impact on the environment
and therefore do not require either an
environmental assessment (EA) or
environmental impact statement (EIS).
The purpose of this rulemaking is to
amend the Department’s DBE and
ACDBE regulations. Paragraph 4(c)(5) of
DOT Order 5610.1C incorporates by
reference the categorical exclusions for
all DOT Operating Administrations.
This action is covered by the categorical
exclusion listed in the Federal Transit
Administration’s implementing
procedures, ‘‘[p]lanning and
administrative activities that do not
involve or lead directly to construction,
such as: . . . promulgation of rules,
regulations, directives . . .’’ 23 CFR
771.118(c)(4) and Federal Highway
Administration’s implementing
procedures, ‘‘[p]romulgation of rules,
regulations, and directives.’’ 23 CFR
771.117(c)(20). In analyzing the
applicability of a categorical exclusion,
the agency must also consider whether
extraordinary circumstances are present
that would warrant the preparation of
an EA or EIS.
The purpose of this rulemaking is to
make technical improvements to the
Department’s DBE program, including
modifications to the forms used by
program and certification-related
changes. While this rule has
implications for eligibility for the
program—and therefore may change
who is eligible for participation in the
DBE program—it does not change the
underlying programs and projects being
carried out with DOT funds. Those
programs and projects remain subject to
separate environmental review
requirements, including review under
NEPA. The Department does not
anticipate any environmental impacts,
and there are no extraordinary
circumstances present in connection
with this rulemaking.
List of Subjects in 49 CFR Part 23 and
26
Administrative practice and
procedure, Airports, Civil Rights,
Government contracts, Grant
programs—transportation; Mass
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transportation, Minority Businesses,
Reporting and recordkeeping
requirements.
Issued this 27 day of February, 2024, at
Washington, DC.
Peter Paul Montgomery Buttigieg,
Secretary of Transportation.
For the reasons set forth in the
preamble, the Department of
Transportation amends 49 CFR parts 23
and 26 as follows:
PART 23—PARTICIPATION OF
DISADVANTAGED BUSINESS
ENTERPRISE IN AIRPORT
CONCESSIONS
1. The authority citation for part 23 is
revised to read as follows:
■
Authority: 49 U.S.C. 47107; 42 U.S.C.
2000d; 49 U.S.C. 322; E.O. 12138, 44 FR
29637, 3 CFR, 1979 Comp., p. 393.
2. Amend § 23.1 by:
a. In paragraph (e), removing the word
‘‘and’’ at the end of the paragraph;
■ b. Redesignating paragraph (f) as
paragraph (h); and
■ c. Adding new paragraph (f) and
paragraph (g).
The additions read as follows:
■
■
§ 23.1
What are the objectives of this part?
*
*
*
*
*
(f) To promote the use of ACDBEs in
all types of concessions activities at
airports receiving DOT financial
assistance;
(g) To assist the development of firms
that can compete successfully in the
marketplace outside the ACDBE
program; and
*
*
*
*
*
■ 3. Revise § 23.3 to read as follows:
§ 23.3 What do the terms used in this part
mean?
Administrator means the
Administrator of the Federal Aviation
Administration (FAA).
Affiliation has the same meaning the
term has in the Small Business
Administration (SBA) regulations, 13
CFR part 121, except that the provisions
of SBA regulations concerning
affiliation in the context of joint
ventures (13 CFR 121.103(h)) do not
apply to this part.
(1) Except as otherwise provided in 13
CFR part 121, concerns are affiliates of
each other when, either directly or
indirectly:
(i) One concern controls or has the
power to control the other; or
(ii) A third party or parties controls or
has the power to control both; or
(iii) An identity of interest between or
among parties exists such that affiliation
may be found.
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(2) In determining whether affiliation
exists, it is necessary to consider all
appropriate factors, including common
ownership, common management, and
contractual relationships. Affiliates
must be considered together in
determining whether a concern meets
small business size criteria and the
statutory cap on the participation of
firms in the ACDBE program.
Airport Concession Disadvantaged
Business Enterprise (ACDBE) means a
firm seeking to operate as a concession
that is a for-profit small business
concern—
(1) That is at least 51 percent owned
by one or more individuals who are
both socially and economically
disadvantaged or, in the case of a
corporation, in which 51 percent of the
stock is owned by one or more such
individuals; and
(2) Whose management and daily
business operations are controlled by
one or more of the socially and
economically disadvantaged individuals
who own it.
Alaska Native means a citizen of the
United States who is a person of onefourth degree or more Alaskan Indian
(including Tsimshian Indians not
enrolled in the Metlakatla Indian
Community), Eskimo, or Aleut blood, or
a combination of those bloodlines. The
term includes, in the absence of proof of
a minimum blood quantum, any citizen
whom a Native village or Native group
regards as an Alaska Native if their
father or mother is regarded as an
Alaska Native.
Alaska Native Corporation (ANC)
means any Regional Corporation,
Village Corporation, Urban Corporation,
or Group Corporation organized under
the laws of the State of Alaska in
accordance with the Alaska Native
Claims Settlement Act (43 U.S.C. 1601
et seq.)
Assets has the same meaning the term
has in 49 CFR part 26.
Car dealership means an
establishment primarily engaged in the
retail sale of new and/or used
automobiles. Car dealerships frequently
maintain repair departments and carry
stocks of replacement parts, tires,
batteries, and automotive accessories.
Such establishments also frequently sell
pickup trucks and vans at retail. In the
standard industrial classification
system, car dealerships are categorized
in NAICS code 441110.
Concession means one or more of the
types of for-profit businesses that serve
the traveling public listed in paragraph
(1) or (2) of this definition:
(1) A business, located on an airport
subject to this part, that is engaged in
the sale of consumer goods or services
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to the traveling public under an
agreement with the recipient, another
concessionaire, or the owner or lessee of
a terminal, if other than the recipient.
(2) A business conducting one or
more of the following covered activities,
even if it does not maintain an office,
store, or other business location on an
airport subject to this part, as long as the
activities take place on the airport:
Management contracts and subcontracts,
a web-based or other electronic business
in a terminal or which passengers can
access at the terminal, an advertising
business that provides advertising
displays or messages to the public on
the airport, or a business that provides
goods and services to concessionaires.
Example 1 to paragraph (2): A
supplier of goods or a management
contractor maintains its office or
primary place of business off the airport.
However, the supplier provides goods to
a retail establishment in the airport; or
the management contractor operates the
parking facility on the airport. These
businesses are considered concessions
for purposes of this part.
(3) For purposes of this subpart, a
business is not considered to be
‘‘located on the airport’’ solely because
it picks up and/or delivers customers
under a permit, license, or other
agreement. For example, providers of
taxi, limousine, car rental, or hotel
services are not considered to be located
on the airport just because they send
shuttles onto airport grounds to pick up
passengers or drop them off. A business
is considered to be ‘‘located on the
airport,’’ however, if it has an on-airport
facility. Such facilities include in the
case of a taxi operator, a dispatcher; in
the case of a limousine, a booth selling
tickets to the public; in the case of a car
rental company, a counter at which its
services are sold to the public or a ready
return facility; and in the case of a hotel
operator, a hotel located anywhere on
airport property.
(4) Any business meeting the
definition of concession is covered by
this subpart, regardless of the name
given to the agreement with the
recipient, concessionaire, or airport
terminal owner or lessee. A concession
may be operated under various types of
agreements, including but not limited to
the following:
(i) Leases.
(ii) Subleases.
(iii) Permits.
(iv) Contracts or subcontracts.
(v) Other instruments or
arrangements.
(5) The conduct of an aeronautical
activity is not considered a concession
for purposes of this subpart.
Aeronautical activities include
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scheduled and non-scheduled air
carriers, air taxis, air charters, and air
couriers, in their normal passenger or
freight carrying capacities; fixed base
operators; flight schools; recreational
service providers (e.g., skydiving,
parachute-jumping, flying guides); and
air tour services.
(6) Other examples of entities that do
not meet the definition of a concession
include flight kitchens and in-flight
caterers servicing air carriers,
government agencies, industrial plants,
farm leases, individuals leasing hangar
space, custodial and security contracts,
telephone and electric service to the
airport facility, holding companies, and
skycap services under contract with an
air carrier or airport.
Concessionaire means a firm that
owns and controls a concession or a
portion of a concession.
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 firm,
legal claims and judgments, and
provisions for Federal income tax.
Days means 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.
Department or DOT means the U.S.
Department of Transportation, including
the Office of the Secretary.
Direct ownership arrangement means
a joint venture, partnership, sublease,
licensee, franchise, or other arrangement
in which a firm owns and controls a
concession.
Good faith efforts means efforts to
achieve an ACDBE goal or other
requirement of this part that, by their
scope, intensity, and appropriateness to
the objective, can reasonably be
expected to meet the program
requirement.
Immediate family member means
father, mother, husband, wife, son,
daughter, brother, sister, grandmother,
grandfather, grandson, granddaughter,
mother-in-law, father-in-law, brother-inlaw, sister-in-law, or registered domestic
partner.
Indian Tribe means any Indian Tribe,
band, nation, or other organized group
or community of Indians, including any
ANC, which is recognized as eligible for
the special programs and services
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24957
provided by the United States to Indians
because of their status as Indians, or is
recognized as such by the State in
which the Tribe, band, nation, group, or
community resides. See definition of
‘‘tribally-owned concern’’ in this
section.
Joint venture means an association of
an ACDBE firm and one or more other
firms to carry out a single, for-profit
business enterprise, for which the
parties combine their property, capital,
efforts, skills and knowledge, and in
which the ACDBE is responsible for a
distinct, clearly defined portion of the
work of the contract and whose shares
in the capital contribution, control,
management, risks, and profits of the
joint venture are commensurate with its
ownership interest. Joint venture
entities are not certified as ACDBEs.
Large hub primary airport means a
commercial service airport that has a
number of passenger boardings equal to
at least one percent of all passenger
boardings in the United States.
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.
Management contract or subcontract
means an agreement with a recipient or
another management contractor under
which a firm directs or operates one or
more business activities, the assets of
which are owned, leased, or otherwise
controlled by the recipient. The
managing agent generally receives, as
compensation, a flat fee or a percentage
of the gross receipts or profit from the
business activity. For purposes of this
subpart, the business activity operated
or directed by the managing agent must
be other than an aeronautical activity,
be located at an airport subject to this
subpart, and be engaged in the sale of
consumer goods or provision of services
to the public.
Material amendment means a
significant change to the basic rights or
obligations of the parties to a concession
agreement. Examples of material
amendments include an extension to the
term not provided for in the original
agreement or a substantial increase in
the scope of the concession privilege.
Examples of nonmaterial amendments
include a change in the name of the
concessionaire or a change to the
payment due dates.
Medium hub primary airport means a
commercial service airport that has a
number of passenger boardings equal to
at least 0.25 percent of all passenger
boardings in the United States but less
than one percent of such passenger
boardings.
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Native Hawaiian means any
individual whose ancestors were
natives, prior to 1778, of the area that
now comprises the State of Hawaii.
Native Hawaiian Organization means
any community service organization
serving Native Hawaiians in the State of
Hawaii that is a not-for-profit
organization chartered by the State of
Hawaii, and is controlled by Native
Hawaiians
Noncompliance means that a
recipient has not correctly implemented
the requirements of this part.
Nonhub primary airport means a
commercial service airport that has
more than 10,000 passenger boardings
each year but less than 0.05 percent of
all passenger boardings in the United
States.
Operating Administration or OA
means any of the following: Federal
Aviation Administration (FAA), Federal
Highway Administration (FHWA), and
Federal Transit Administration (FTA).
The ‘‘Administrator’’ of an OA includes
his or her designee(s).
Part 26 means 49 CFR part 26, DOT’s
Disadvantaged Business Enterprise
Program regulation.
Personal net worth or PNW has the
same meaning the term has in 49 CFR
part 26.
Primary airport means a commercial
service airport that the Secretary
determines to have more than 10,000
passengers enplaned annually.
Primary industry classification means
the North American Industrial
Classification System (NAICS) code
designation that best describes the
primary business of a firm. The NAICS
Manual is available through the U.S.
Census Bureau of the U.S. Department
of Commerce. The U.S. Census Bureau
also makes materials available through
its website (https://www.census.gov/
naics/).
Principal place of business means the
business location where the individuals
who manage the firm’s day-to-day
operations spend most working hours
and where top management’s business
records are kept. If the offices from
which management is directed and
where business records are kept are in
different locations, the recipient will
determine the principal place of
business for ACDBE program purposes.
Race-conscious means a measure or
program that is focused specifically on
assisting only ACDBEs, including
women-owned ACDBEs. For the
purposes of this part, race-conscious
measures include gender-conscious
measures.
Race-neutral means a measure or
program that is, or can be, used to assist
all small businesses, without making
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distinctions or classifications on the
basis of race or gender.
Recipient is any entity, public or
private, to which DOT financial
assistance is extended, whether directly
or through another recipient, through
the programs of the FAA, FHWA, or
FTA, or who has applied for such
assistance.
Secretary means the Secretary of
Transportation or his/her designee.
Set-aside means a contracting practice
restricting eligibility for the competitive
award of a contract solely to ACDBE
firms.
Small Business Administration or
SBA means the United States Small
Business Administration.
Small business concern means a for
profit business that does not exceed the
size standards of § 23.33.
Small hub airport means a publicly
owned commercial service airport that
has a number of passenger boardings
equal to at least 0.05 percent of all
passenger boardings in the United States
but less than 0.25 percent of such
passenger boardings.
Socially and economically
disadvantaged individual means any
individual who is a citizen (or lawfully
admitted permanent resident) of the
United States and has been subjected to
racial or ethnic prejudice or cultural
bias within American society because of
his or her identity as a member of a
certain group and without regard to his
or her individual qualities. The social
disadvantage must stem from
circumstances beyond the individual’s
control. Socially and economically
disadvantaged individuals include:
(1) Any individual determined by a
recipient 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 the certifier
requires 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 Staterecognized Indian Tribe, Alaska Natives,
or Native Hawaiians.
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(iv) ‘‘Asian-Pacific Americans,’’
which includes persons whose origins
are from Japan, China, Taiwan, Korea,
Burma (Myanmar), Vietnam, Laos,
Cambodia (Kampuchea), Thailand,
Malaysia, Indonesia, the Philippines,
Brunei, Samoa, Guam, the U.S. Trust
Territories of the Pacific Islands
(Republic of Palau), the Commonwealth
of the Northern Marianas Islands,
Macao, Fiji, Tonga, Kiribati, 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.
Subconcession means a firm that has
a sublease or other agreement with a
prime concessionaire rather than with
the airport itself, to operate a concession
at the airport.
Sublease means a lease by a lessee
(tenant) to a sublessee (subtenant).
Sublease is an example of a
subconcession in which the sublessee is
independently responsible for the full
financing and operation of the subleased
concession location(s) and activities. A
sublease passes on to the sublessee all
requirements applicable to the
concession under the primary lease,
including proportionate share of the
rent and capital expenditures.
Tribally-owned concern means any
concern at least 51 percent owned by an
Indian Tribe as defined in this section.
You refers to a recipient, unless a
statement in the text of this part or the
context requires otherwise (i.e., ‘‘You
must do XYZ’’ means that recipients
must do XYZ).
§ 23.13
[Amended]
4. Amend § 23.13 by:
a. In paragraph (b) introductory text,
in the first sentence, removing the word
‘‘of’’ appearing after the word
‘‘interpretations’’; and
■ b. In paragraph (d) introductory text,
removing the phrase ‘‘are for the
purpose of authorizing’’ and adding in
its place the word ‘‘authorize’’.
■ 5. Revise § 23.21 to read as follows:
■
■
§ 23.21 Who must submit an ACDBE
program to FAA, and when?
(a) If you are a primary airport and
receive FAA financial assistance, you
must submit an ACDBE program plan
meeting the requirements of this part to
the FAA for approval.
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(1) The recipient must submit this
program plan on the same schedule as
provided for in 23.45(a) of this part.
(2) Timely submission and FAA
approval of a recipient’s ACDBE
program plan is a condition of eligibility
for FAA financial assistance.
(b) If you are a primary airport that
does not have an ACDBE program, and
you apply for a grant of FAA funds for
airport planning and development
under 49 U.S.C. 47107 et seq., you must
submit an ACDBE program plan to the
FAA at the time of your application.
Timely submission and FAA approval
of your ACDBE program are conditions
of eligibility for FAA financial
assistance.
(c) If you are the owner of more than
one airport that is required to have an
ACDBE program, you may implement
one plan for all your locations.
However, you must establish a separate
ACDBE goal for each airport.
(d) If a recipient makes any significant
changes to their ACDBE program at any
time, the recipient must provide the
amended program to the FAA for
approval before implementing the
changes.
(e) If a recipient is a non-primary
airport, non-commercial service airport,
a general aviation airport, reliever
airport, or any other airport that does
not have scheduled commercial service,
it is not required to have an ACDBE
program. However, the recipient must
take appropriate outreach steps to
encourage available ACDBEs to
participate as concessionaires whenever
there is a concession opportunity.
■ 6. Amend § 23.23 by adding paragraph
(c) to read as follows:
§ 23.23 What administrative provisions
must be in a recipient’s ACDBE program?
*
*
*
*
(c) You must thoroughly investigate
the full extent of services offered by
financial institutions owned and
controlled by socially and economically
disadvantaged individuals in their
community and make reasonable efforts
to use these institutions. You must also
encourage prime concessionaires to use
such institutions.
■ 7. Amend § 23.25 by revising
paragraphs (d), (e), and (f) to read as
follows:
ddrumheller on DSK120RN23PROD with RULES2
*
§ 23.25 What measures must recipients
include in their ACDBE programs to ensure
nondiscriminatory participation of ACDBEs
in concessions?
*
*
*
*
*
(d) Your ACDBE program must
include race-neutral measures that you
will take. You must maximize the use of
race-neutral measures, obtaining as
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much as possible of the ACDBE
participation needed to meet overall
goals through such measures. These are
responsibilities that you directly
undertake as a recipient, in addition to
the efforts that concessionaires make, to
obtain ACDBE participation. The
following are examples of race-neutral
measures you can implement:
(1) Locating and identifying ACDBEs
and other small businesses who may be
interested in participating as
concessionaires under this part;
(2) Notifying ACDBEs of concession
opportunities and encouraging them to
compete, when appropriate;
(3) When practical, structuring
concession activities to encourage and
facilitate the participation of ACDBEs;
(4) Providing technical assistance to
ACDBEs in overcoming limitations,
such as inability to obtain bonding or
financing;
(5) Ensuring that competitors for
concession opportunities are informed
during pre-solicitation meetings about
how the recipient’s ACDBE program
will affect the procurement process;
(6) Providing information concerning
the availability of ACDBE firms to
competitors to assist them in obtaining
ACDBE participation; and
(7) Establishing a business
development program (see § 26.35 of
this chapter); technical assistance
program; or taking other steps to foster
ACDBE participation in concessions.
(e) Your ACDBE program must also
provide for the use of race-conscious
measures when race-neutral measures,
standing alone, are not projected to be
sufficient to meet an overall goal. The
following are examples of raceconscious measures you can implement:
(1) Establishing concession-specific
goals for particular concession
opportunities.
(i) In setting concession-specific goals
for concession opportunities other than
car rental, you are required to explore,
to the maximum extent practicable, all
available options to set goals that
concessionaires can meet through direct
ownership arrangements. A concessionspecific goal for any concession other
than car rental may be based on
purchases or leases of goods and
services only when the analysis of the
relative availability of ACDBEs and all
relevant evidence reasonably supports
that there is de minimis availability for
direct ownership arrangement
participation for that concession
opportunity.
(ii) In setting car rental concessionspecific goals, you cannot require a car
rental company to change its corporate
structure to provide for participation via
direct ownership arrangement. When
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24959
your overall goal for car rental
concessions is based on purchases or
leases of goods and services, you are not
required to explore options for direct
ownership arrangements prior to setting
a car rental concession-specific goal
based on purchases or leases of goods
and services.
(iii) If the objective of the concessionspecific goal is to obtain ACDBE
participation through a direct
ownership arrangement with an ACDBE,
calculate the goal as a percentage of the
total estimated annual gross receipts
from the concession.
(iv) If the goal applies to purchases or
leases of goods and services from
ACDBEs, calculate the goal as a
percentage of the total estimated dollar
value of all purchases to be made by the
concessionaire.
(v) To be eligible to be awarded the
concession, competitors must make
good faith efforts to meet this goal. A
competitor may do so either by
obtaining enough ACDBE participation
to meet the goal or by documenting that
it made sufficient good faith efforts to
do so.
(vi) The administrative procedures
applicable to contract goals in §§ 26.51
through 26.53 of this chapter apply with
respect to concession-specific goals.
(2) Negotiation with a potential
concessionaire to include ACDBE
participation, through direct ownership
arrangements or measures, in the
operation of the non-car rental
concession.
(3) With the prior approval of FAA,
other methods that take a competitor’s
ability to provide ACDBE participation
into account in awarding a concession.
(f) Your ACDBE program must require
businesses subject to car rental and noncar rental ACDBE goals at the airport to
make good faith efforts to meet goals
when set pursuant to paragraph (e) of
this section.
*
*
*
*
*
■ 8. Add § 23.26 to read as follows:
§ 23.26 Fostering small business
participation.
(a) Your ACDBE program must
include an element to provide for the
structuring of concession opportunities
to facilitate competition by small
business concerns, taking all reasonable
steps to eliminate obstacles to their
participation, including unnecessary
and unjustified bundling of concession
opportunities that may preclude small
business participation in solicitations.
(b) This element must be submitted to
the FAA for approval as a part of your
ACDBE program no later than October 7,
2024. As part of this program element
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you may include, but are not limited to
including, the following strategies:
(1) Establish a race-neutral small
business set-aside for certain concession
opportunities. Such a strategy would
include the rationale for selecting small
business set-aside concession
opportunities which may include
consideration of size and availability of
small businesses to operate the
concession.
(2) Consider the concession
opportunities available through all
concession models.
(3) On concession opportunities that
do not include ACDBE contract goals,
require all concession models to provide
subleasing opportunities of a size that
small businesses, including ACDBEs,
can reasonably operate.
(4) Identify alternative concession
contracting approaches to facilitate the
ability of small businesses, including
ACDBEs, to compete for and obtain
direct leasing opportunities.
(c) This element should include an
objective, definition of small business,
verification process, monitoring plan,
and implementation timeline.
(d) Your element must include the
following assurances:
(1) Your element is authorized under
State law;
(2) Certified ACDBEs that meet the
size criteria established under your
element are presumptively eligible to
participate in your element;
(3) There are no geographic
preferences or limitations imposed on
any concession opportunities included
in your element;
(4) There are no limits on the number
of concession opportunities awarded to
firms participating in your element but
that every effort will be made to avoid
creating barriers to the use of new,
emerging, or untried businesses;
(5) You will take aggressive steps to
encourage those minority and women
owned firms that are eligible for ACDBE
certification to become certified; and
(6) Your element is open to small
businesses regardless of their location
(i.e., that there is no local or other
geographic preference).
(e) A State, local, or other program, in
which eligibility requires satisfaction of
race/gender or other criteria in addition
to business size, may not be used to
comply with the requirements of this
part.
(f) This element must not include
local geographic preferences per § 23.79.
(g) You must submit an annual report
on small business participation obtained
through the use of your small business
element. This report must be submitted
in a format acceptable to the FAA based
on a schedule established and posted to
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20:02 Apr 08, 2024
Jkt 262001
the agency’s website, available at
https://www.faa.gov/about/office_org/
headquarters_offices/acr/bus_ent_
program.
(h) You must actively implement your
program elements to foster small
business participation. Doing so is a
requirement of good faith
implementation of your ACDBE
program.
■ 9. Amend § 23.27 by revising
paragraph (b) and adding paragraphs (c)
and (d) to read as follows:
§ 23.27 What information does a recipient
have to retain and report about
implementation of its ACDBE program?
*
*
*
*
*
(b) You must submit an annual report
on ACDBE participation to the FAA by
March 1 following the end of each fiscal
year. This report must be submitted in
the format acceptable to the FAA and
contain all of the information described
in the Uniform Report of ACDBE
Participation.
(c) You must create and maintain
active participants list information as
described in paragraph (c)(2) of this
section and enter it into a system
designated by the FAA.
(1) The purpose of this active
participants list is to ensure that you
have the most accurate data possible
about the universe of ACDBE and nonACDBEs who seek work in your airport
concessions program as a tool to help
you set your overall goals, and to
provide the Department with data for
evaluating the extent to which the
objectives of § 23.1 are being achieved.
(2) You must obtain the following
active participants list information
about ACDBE and non-ACDBEs who
seek to work on each of your concession
opportunities.
(i) Firm name;
(ii) Firm address including ZIP code;
(iii) Firm status as an ACDBE or nonACDBE;
(iv) Race and gender information for
the firm’s majority owner;
(v) NAICS code applicable to the
concession contract in which the firm is
seeking to perform;
(vi) Age of the firm; and
(vii) The annual gross receipts of the
firm. You may obtain this information
by asking each firm to indicate into
what gross receipts bracket they fit (e.g.,
less than $1 million; $1–3 million; $3–
6 million; $6–10 million, etc.) rather
than requesting an exact figure from the
firm.
(3) You must collect the data from all
active participants for your concession
opportunities by requiring the
information in paragraph (c)(2) of this
section to be submitted with their
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Fmt 4701
Sfmt 4700
proposals or initial responses to
negotiated procurements. You must
enter this data in FAA’s designated
system no later than March 1 following
the fiscal year in which the relevant
concession opportunity was awarded.
(d) The State department of
transportation in each Unified
Certification Program (UCP) established
pursuant to § 26.81 of this chapter must
report to DOT’s Departmental Office of
Civil Rights each year, the following
information:
(1) The number and percentage of instate and out-of-state ACDBE
certifications for socially and
economically disadvantaged by gender
and ethnicity (Black American, AsianPacific American, Native American,
Hispanic American, Subcontinent-Asian
Americans, and non-minority);
(2) The number of ACDBE
certification applications received from
in-state and out-of-state firms and the
number found eligible and ineligible;
(3) The number of decertified firms:
(i) Total in-state and out-of-state firms
decertified;
(ii) Names of in-state and out-of-state
firms decertified because SEDO
exceeded the personal net worth cap;
(iii) Names of in-state and out-of-state
firms decertified for excess gross
receipts beyond the relevant size
standard.
(4) Number of in-state and out-of-state
ACDBEs summarily suspended;
(5) Number of in-state and out-of-state
ACDBE applications received for an
individualized determination of social
and economic disadvantage status; and
(6) Number of in-state and out-of-state
ACDBEs whose owner(s) made an
individualized showing of social and
economic disadvantaged status.
§ 23.31
[Amended]
10. Amend § 23.31 by removing
paragraph (c).
■ 11. Revise § 23.33 to read as follows:
■
§ 23.33 What size standards do recipients
use to determine the eligibility of applicants
and ACDBEs?
(a) Except as provided in paragraph
(b) of this section, recipients must treat
a firm as a small business eligible to be
certified as an ACDBE if the gross
receipts of the applicant firm and its
affiliates, calculated in accordance with
13 CFR 121.104 averaged over the firm’s
previous five fiscal years, do not exceed
$56.42 million.
(b) The following types of businesses
have size standards that differ from the
standard set forth in paragraph (a) of
this section:
(1) Banks and financial institutions.
$1 billion in assets;
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(2) Passenger car rental companies.
$75.23 million average annual gross
receipts over the firm’s previous five
fiscal years;
(3) Pay telephones. 1,500 employees;
and
(4) New car dealers. 350 employees.
(c) For size purposes, gross receipts
(as defined in 13 CFR 121.104(a)), of
affiliates should be included in a
manner consistent with 13 CFR
121.104(d), except in the context of joint
ventures. For gross receipts attributable
to joint venture partners, a firm must
include in its gross receipts its
proportionate share of joint venture
receipts, unless the proportionate share
already is accounted for in receipts
reflecting transactions between the firm
§ 23.37
Ql-Q4 Average Household Net worth of2019 ($106,722,704 million/ Total
Households of2019 (128,579)
13. Amend § 23.37 in the second
sentence of paragraph (b) by removing
the phrase ‘‘does not do work relevant
to the airport’s concessions program’’
and adding the phrase ‘‘does not
perform work or provide services
relevant to the airport’s concessions
program’’ in its place.
■ 14. Revise § 23.39 to read as follows:
■
ddrumheller on DSK120RN23PROD with RULES2
§ 23.39 What are other ACDBE certification
requirements?
(a) The provisions of § 26.83(c)(1) of
this chapter do not apply to
certifications for purposes of this part.
Instead, in determining whether a firm
is an eligible ACDBE, you must take the
following steps:
(1) Visit the firm’s principal place of
business, virtually or in person, and
interview the SEDO, officers, and key
personnel. You must review those
persons’ re´sume´s and/or work histories.
You must maintain a complete audio
recording of the interviews. The certifier
must also visit one or more active job
sites (if there is one). These activities
comprise the ‘‘on-site review’’ (OSR), a
written report of which the certifier
must keep in its files.
(2) 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
20:02 Apr 08, 2024
(a) The Department will adjust the
PNW cap by May 9, 2024 by multiplying
$1,600,000 by the growth in total
household net worth since 2019 as
described by ‘‘Financial Accounts of the
United States: Balance Sheet of
Households (Supplementary Table
B.101.h)’’ produced by the Board of
Governors of the Federal Reserve
(https://www.federalreserve.gov/
releases/z1/), and normalized by the
Ql-Q4 Average Household Net Worth of Future Year/ Total Households of Future
Year
[Amended]
VerDate Sep<11>2014
§ 23.35 What is the personal net worth
(PNW) limit for disadvantaged owners of
ACDBEs?
total number of households as collected
by the Census in ‘‘Families and Living
Arrangements’’ (https://
www.census.gov/topics/families/
families-and-households.html) to
account for population growth. The
Department will adjust the PNW cap
every 3 years on the anniversary of the
initial adjustment date described in this
section. The Department will post the
adjustments on the Departmental Office
of Civil Rights’ web page, available at
https://www.Transportation.gov/
DBEPNW. Each such adjustment will
become the currently applicable PNW
limit for purposes of this regulation.
(b) The Department will use the
following formula to adjust the PNW
limit:
Jkt 262001
and certificates; and State-issued
certificates of good standing;
(3) Analyze the bonding and financial
capacity of the firm; lease and loan
agreements; and bank account signature
cards;
(4) Determine the work history of the
firm, including any concession contracts
or other contracts it may have received;
and payroll records;
(5) Obtain or compile a list of the
licenses of the firm and its key
personnel to perform the concession
contracts or other contracts it wishes to
receive;
(6) Obtain a statement from the firm
of the type(s) of concession(s) it prefers
to operate or the type(s) of other
contract(s) it prefers to perform;
(7) Obtain complete Federal income
tax returns (or requests for extensions)
filed by the firm, its affiliates, and the
socially and economically
disadvantaged owners for the last 5
years. A complete return includes all
forms, schedules, and statements filed
with the Internal Revenue Service; and
(8) Require applicants for ACDBE
certification to complete and submit an
appropriate application form, except as
otherwise provided in § 26.85 of this
chapter.
(b) In reviewing the Declaration of
Eligibility required by § 26.83(j) of this
chapter, you must ensure that the
ACDBE applicant provides
documentation that it meets the
applicable size standard in § 23.33.
(c) For purposes of this part, the term
prime contractor in § 26.87(j) of this
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chapter includes a firm holding a
contract with an airport concessionaire
to provide goods or services to the
concessionaire or a firm holding a prime
concession agreement with a recipient.
(d) With respect to firms owned by
Alaska Native Corporations (ANCs), the
provisions of § 26.63(c)(2) of this
chapter do not apply. The eligibility of
ANC-owned firms for purposes of this
part is governed by § 26.63(c)(1) of this
chapter.
(e) You must use the Uniform
Certification Application found in part
26 of this chapter without change.
However, you may provide in your
ACDBE program, with the written
approval of the concerned Operating
Administration, for supplementing the
form by requesting specified additional
information consistent with this part.
The applicant must state that it is
applying for certification as an ACDBE
and complete all of section 5.
(f) Car rental companies and private
terminal owners or lessees are not
authorized to certify firms as ACDBEs.
As a car rental company or private
terminal owner or lessee, you must
obtain ACDBE participation from firms
which a recipient or UCPs have certified
as ACDBEs.
15. Amend § 23.43 by adding
paragraph (c) as to read follows:
■
§ 23.43 What are the consultation
requirements in the development of
recipients’ overall goals?
*
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*
09APR2
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*
ER09AP24.000</GPH>
Future Year PNW Cap =
[$1,600,000] *
and its joint ventures (e.g., subcontracts
from a joint venture entity to joint
venture partners).
■ 12 Revise § 23.35 to read as follows:
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(c) The requirements of this section
do not apply if no new concession
opportunities will become available
during the goal period. However,
recipients must take appropriate
outreach steps to encourage available
ACDBEs to participate as
concessionaires whenever there is a
concession opportunity.
■ 16. Amend § 23.45 by revising
paragraphs (a), (b), and (h) to read as
follows:
§ 23.45 What are the requirements for
submitting overall goal information to the
FAA?
(a) You must submit your overall
goals to the appropriate FAA Regional
Civil Rights Office for approval. Your
overall goals meeting the requirements
of this subpart are due based on a
schedule established by the FAA and
posted on the FAA’s website.
(b) You must then submit goals every
three years based on the published
schedule.
*
*
*
*
*
(h) If the FAA determines that your
goals have not been correctly calculated
or the justification is inadequate, the
FAA may, after consulting with you,
adjust your overall goal or raceconscious/race-neutral ‘‘split.’’ The
adjusted goal represents the FAA’s
determination of an appropriate overall
goal for ACDBE participation in the
recipient’s concession program, based
on relevant data and analysis. The
adjusted goal is binding.
*
*
*
*
*
§ 23.51
[Amended]
17. Amend § 23.51 in paragraph (c)(1)
by removing ‘‘www.census.gov/epcd/
cbp/view/cbpview.html’’ and adding in
its place https://www.census.gov/
programs-surveys/cbp.html.’’
■
§ 23.53
[Amended]
18. Amend § 23.53 in paragraph (d)(2)
by removing ‘‘a ACDBE’’ and adding
‘‘an ACDBE’’ in its place.
■ 19. Amend § 23.55 by:
■ a. Revising paragraph (e);
■ b. In paragraph (g), removing ‘‘a
ACDBE’’ and adding ‘‘an ACDBE’’ in its
place; and
■ c. Revising paragraphs (h)(1) and (2)
and (j).
The revisions read as follows:
ddrumheller on DSK120RN23PROD with RULES2
■
§ 23.55 How do recipients count ACDBE
participation toward goals for items other
than car rentals?
*
*
*
*
*
(e) Count 100 percent of fees or
commissions charged by an ACDBE firm
for a bona fide service, provided that, as
the recipient, you determine this
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20:02 Apr 08, 2024
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amount to be reasonable and not
excessive as compared with fees
customarily allowed for similar services.
Such services may include, but are not
limited to, professional, technical,
consultant, legal, security systems,
advertising, building cleaning and
maintenance, computer programming,
or managerial.
*
*
*
*
*
(h) * * *
(1) Count 100 percent of fees or
commissions charged for assistance in
the procurement of the goods, provided
that this amount is reasonable and not
excessive as compared with fees
customarily allowed for similar services.
Do not count any portion of the cost of
the goods themselves.
(2) Count 100 percent of fees or
transportation charges for the delivery
of goods required for a concession,
provided that this amount is reasonable
and not excessive as compared with fees
customarily allowed for similar services.
Do not count any portion of the cost of
goods themselves.
*
*
*
*
*
(j) When an ACDBE is decertified
because one or more of its
disadvantaged owners exceed the PNW
cap or the firm exceeds the business size
standards of this part during the
performance of a contract or other
agreement, the firm’s participation may
continue to be counted toward ACDBE
goals for the remainder of the term of
the contract or other agreement.
However, you must verify that the firm
in all other respects remains an eligible
ACDBE and you must not count the
concessionaire’s participation toward
ACDBE goals beyond the termination
date for the concession agreement in
effect at the time of the decertification
(e.g., in a case where the agreement is
renewed or extended, or an option for
continued participation beyond the
current term of the agreement is
exercised).
(1) The firm must inform the recipient
in writing of any change in
circumstances affecting its ability to
meet ownership or control requirements
of subpart C of this part or any material
change. Reporting must be made as
provided in § 26.83(i) of this chapter.
(2) The firm must provide to the
recipient, annually on December 1, a
Declaration of Eligibility, affirming that
there have been no changes in the firm’s
circumstances affecting its ability to
meet ownership or control requirements
of subpart C of this part or any other
material changes, other than changes
regarding the firm’s business size or the
owner’s personal net worth.
*
*
*
*
*
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20. Amend § 23.57 by revising
paragraph (b)(3)(i) to read as follows:
■
§ 23.57 What happens if a recipient falls
short of meeting its overall goals?
*
*
*
*
*
(b) * * *
(3) * * *
(i) If you are a CORE 30 airport or
other airport designated by the FAA,
you must submit, by April 1, the
analysis and corrective actions
developed under paragraphs (b)(1) and
(2) of this section to the FAA for
approval.
*
*
*
*
*
§ 23.59
[Amended]
21. Amend § 23.59 in paragraph (b) by
removing ‘‘DBEs’ ’’ and adding
‘‘ACDBEs’ ’’ in its place.
■
§ 23.71
[Amended]
22. Amend § 23.71 by removing the
first sentence.
■ 23. Revise § 23.75 to read as follows:
■
§ 23.75 Can recipients enter into longterm, exclusive agreements with
concessionaires?
(a) Except as provided in paragraph
(b) of this section, you must not enter
into long-term, exclusive agreements for
concessions.
(1) For purposes of this section, a
long-term agreement is one having a
term of more than ten years, including
any combination of base term and
options or holdovers to extend the term
of the agreement, if the effect is a term
of more than ten years.
(2) For purposes of this section, an
exclusive agreement is one having a
type of business activity that is
conducted solely by a single business
entity on the entire airport, irrespective
of ACDBE participation.
(b) You may enter into a long-term,
exclusive concession agreement only
under the following conditions:
(1) Special local circumstances exist
that make it important to enter such
agreement; and
(2) The responsible FAA regional
office approves your plan for meeting
the standards of paragraph (c) of this
section.
(c) In order to obtain FAA approval of
a long-term exclusive concession
agreement, you must submit the
following information to the FAA
regional office, the items in paragraphs
(c)(1) through (3) of this section must be
submitted at least 60 days before the
solicitation is released and items in
paragraphs (c)(4) through (7) of this
section must be submitted at least 45
days before contract award:
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(1) A description of the special local
circumstances that warrant a long-term,
exclusive agreement.
(2) A copy of the solicitation.
(3) ACDBE contract goal analysis
developed in accordance with this part.
(4) Documentation that ACDBE
participants are certified in the
appropriate NAICS code in order for the
participation to count towards ACDBE
goals.
(5) A general description of the type
of business or businesses to be operated
by the ACDBE, including location and
concept of the ACDBE operation.
(6) Information on the investment
required on the part of the ACDBE and
any unusual management or financial
arrangements between the prime
concessionaire and ACDBE, if
applicable.
(7) Final long-term exclusive
concession agreement, subleasing or
other agreements.
(d) In order to obtain FAA approval of
a long-term exclusive concession
agreement that has been awarded
through direct negotiations, you must
submit the items in paragraphs (c)(1)
and (3) through (7) of this section at
least 45 days before contract award.
(e) In order to obtain FAA approval of
an exclusive concession agreement that
becomes long-term as a result of a
holdover tenancy, you must submit to
the responsible FAA regional office a
holdover plan for FAA approval at least
60 days prior to the expiration of the
current lease term. The holdover plan
shall include the following information:
(1) A description of the special local
circumstances that warrant the
holdover.
(2) Anticipated date for renewal or rebidding of the agreement.
(3) The method to be applied for
renewal or re-bidding of the agreement.
(4) Submission of all items required
under paragraphs (c)(3), (4), (6), and (7)
of this section for the agreement in
holdover status or an explanation as to
why the item is not available or cannot
be submitted.
§ 23.77
[Amended]
24. Amend § 23.77 in paragraph (b) by
removing the term ‘‘disadvantaged
business enterprise’’ and adding in its
place ‘‘Disadvantaged Business
Enterprise’’.
■ 25. Revise § 23.79 to read as follows:
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■
§ 23.79 Does this part permit recipients to
use local geographic preferences?
No. As a recipient you must not use
a local geographic preference. For
purposes of this section, a local
geographic preference is any
requirement that gives a concessionaire
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located in one place (e.g., your local
area) an advantage over concessionaires
from other places in obtaining business
as, or with, a concession at your airport.
Appendix A to Part 23 [Removed]
■
26. Remove appendix A to part 23.
PART 26—PARTICIPATION BY
DISADVANTAGED BUSINESS
ENTERPRISES IN DEPARTMENT OF
TRANSPORTATION FINANCIAL
ASSISTANCE PROGRAMS
28. The authority citation for part 26
is revised to read as follows:
■
Authority: 23 U.S.C. 304 and 324; 42
U.S.C. 2000d, et seq.; 49 U.S.C. 47113, 47123;
Sec. 1101(b), Pub. L. 114–94, 129 Stat. 1312,
1324 (23 U.S.C. 101 note); Sec. 150, Pub. L.
115–254, 132 Stat. 3215 (23 U.S.C. 101 note);
Pub. L. 117–58, 135 Stat. 429 (23 U.S.C. 101
note).
§ 26.1
[Amended]
29. Amend § 26.1 in paragraph (f) by
removing ‘‘federally-assisted’’ and add
in its place ‘‘federally assisted’’.
■ 30. Revise § 26.3 to read as follows:
■
§ 26.3
To whom does this part apply?
(a) If you are a recipient of any of the
following types of funds, this part
applies to you:
(1) Federal-aid highway funds
authorized under Titles I (other than
Part B) and V of the Intermodal Surface
Transportation Efficiency Act of 1991
(ISTEA), Public Law 102–240, 105 Stat.
1914, or Titles I, III, and V of the
Transportation Equity Act for the 21st
Century (TEA–21), Public Law 105–178,
112 Stat. 107. Titles I, III, and V of the
Safe, Accountable, Flexible, Efficient
Transportation Equity Act: A Legacy for
Users (SAFETEA–LU), Public Law 109–
59, 119 Stat. 1144; Divisions A and B of
the Moving Ahead for Progress in the
21st Century Act (MAP–21), Pub. L.
112–141, 126 Stat. 405; Titles I, II, III,
and VI of the Fixing America’s Surface
Transportation Act (FAST Act) Public
Law 114–94;, and Divisions A and C of
the Bipartisan Infrastructure Law (BIL),
enacted as the Infrastructure Investment
and Jobs Act (IIJA), Public Law 117–58.
(2) Federal transit funds authorized by
Titles I, III, V and VI of ISTEA, Public
Law 102–240 or by Federal transit laws
in Title 49, U.S. Code, or Titles I, III,
and V of the TEA–21, Public Law 105–
178. Titles I, III, and V of the Safe,
Accountable, Flexible, Efficient
Transportation Equity Act: A Legacy for
Users (SAFETEA–LU), Public Law 109–
59, 119 Stat. 1144; Divisions A and B of
the Moving Ahead for Progress in the
21st Century Act (MAP–21), Public Law
112–141, 126 Stat. 405; Titles I, II, III,
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and VI of the Fixing America’s Surface
Transportation Act (FAST Act) Public
Law 114–94; and Divisions A and C of
the Bipartisan Infrastructure Law (BIL),
enacted as the Infrastructure Investment
and Jobs Act (IIJA) (Pub. L. 117–58),
Public Law 117–58.
(3) Airport funds authorized by 49
U.S.C. 47101, et seq.
(b) [Reserved]
(c) If you are letting a contract, and
that contract is to be performed entirely
outside the United States, its territories
and possessions, Puerto Rico, Guam, or
the Northern Mariana Islands, this part
does not apply to the contract.
(d) If you are letting a contract in
which DOT financial assistance does
not participate, this part does not apply
to the contract.
■ 31. Amend § 26.5 by:
■ a. Revising the definitions of Alaska
Native and Department or DOT;
■ b. Removing the definition
Disadvantaged business enterprise or
DBE and adding the definition
Disadvantaged Business Enterprise or
DBE in its place;
■ c. Adding the definitions for FTA Tier
I recipient and FTA Tier II recipient in
alphabetical order;
■ d. Removing the definition of Home
state;
■ e. Removing the definition of Indian
tribe and adding the definition of Indian
Tribe or Native American Tribe in its
place;
■ f. Adding the definitions for Notice of
decision and Notice of intent in
alphabetical order;
■ g. Removing the definition Personal
net worth and adding the definition
Personal net worth or PNW in its place;
■ h. Revising the definitions of Primary
industry classification, Principal place
of business, Recipient, and Secretary;
■ i. In the definition of Socially and
economically disadvantaged individual:
■ i. In the introductory text, removing
the phrase ‘‘as a members of groups’’
and adding in its place the phrase ‘‘as
a member of a group’’;
■ ii. In paragraph (2)(iv), removing the
locations ‘‘Republic of the Northern
Marianas Islands’’ and ‘‘Kirbati’’ and
adding in their place the locations
‘‘Republic of the Northern Mariana
Islands’’ and ‘‘Kiribati’’, respectively;
■ iii. In paragraph (2)(v), removing the
location ‘‘the Maldives Islands’’ and
adding in its place the location
‘‘Maldives’’;
■ j. Removing the definition of Transit
vehicle manufacturer and adding in its
place the definition Transit vehicle
manufacturer (TVM); and
■ k. Adding the definition of Unsworn
declaration in alphabetical order.
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The revisions and additions read as
follows:
§ 26.5
Definitions
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*
*
*
*
*
Alaska Native means a citizen of the
United States who is a person of onefourth degree or more Alaskan Indian
(including Tsimshian Indians not
enrolled in the Metlakatla Indian
Community), Eskimo, or Aleut blood, or
a combination of those bloodlines. The
term includes, in the absence of proof of
a minimum blood quantum, any citizen
whom a Native village or Native group
regards as an Alaska Native if their
father or mother is regarded as an
Alaska Native.
*
*
*
*
*
Department or DOT means the U.S.
Department of Transportation, including
the Office of the Secretary, the
Departmental Office of Civil Rights, the
Federal Highway Administration
(FHWA), the Federal Transit
Administration (FTA), and the Federal
Aviation Administration (FAA).
Disadvantaged Business Enterprise or
DBE means a for-profit small business
concern—
(1) That is at least 51 percent owned
by one or more individuals who are
both socially and economically
disadvantaged; and
(2) Whose management and daily
business operations are controlled by
one or more of the socially and
economically disadvantaged individuals
who own it.
*
*
*
*
*
FTA Tier I recipient means an FTA
recipient to whom this part applies that
will award prime contracts (excluding
transit vehicle purchases) the
cumulative total value of which exceeds
$670,000 in FTA funds in a Federal
fiscal year.
FTA Tier II recipient means an FTA
recipient to whom this part applies who
will award prime contracts (excluding
transit vehicle purchases) the
cumulative total value of which does
not exceed $670,000 in FTA funds in a
Federal fiscal year.
*
*
*
*
*
Indian Tribe or Native American
Tribe means any federally or Staterecognized Tribe, band, nation, or other
organized group of Indians (Native
Americans), or an ANC.
*
*
*
*
*
Notice of intent or NOI means
recipients letter informing a DBE of a
suspension or proposed decertification.
Notice of decision or NOD means
determination that denies a firm’s
application or decertifies a DBE.
*
*
*
*
*
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Personal net worth or PNW means the
net value of an individual’s reportable
assets and liabilities, per the calculation
rules in § 26.68.
Primary industry classification means
the most current North American
Industry 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 online on the
U.S. Census Bureau website:
www.census.gov/naics/.
*
*
*
*
*
Principal place of business means the
business location where the individuals
who manage the firm’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. The term does not
include construction trailers or other
temporary construction sites.
*
*
*
*
*
Recipient means any entity, public or
private, to which DOT financial
assistance is extended, whether directly
or through another recipient, through
the programs of the FAA, FHWA, or
FTA, or that has applied for such
assistance.
Secretary means DOT’s Secretary of
Transportation or the Secretary’s
designee.
*
*
*
*
*
Transit vehicle manufacturer (TVM)
means any manufacturer whose primary
business purpose is to manufacture
vehicles built for mass transportation.
Such vehicles include, but are not
limited to buses, rail cars, trolleys,
ferries, and vehicles manufactured
specifically for paratransit purposes.
Businesses that perform retrofitting or
post-production alterations to vehicles
so that such vehicles may be used for
public transportation purposes are also
considered TVMs. Businesses that
manufacture, mass-produce, or
distribute vehicles primarily for
personal use are not considered TVMs.
*
*
*
*
*
Unsworn declaration means an
unsworn statement, dated and in
writing, subscribed as true under
penalty of perjury.
*
*
*
*
*
■ 32. Revise § 26.11 to read as follows:
§ 26.11 What records do recipients keep
and report?
(a) You must submit a report on DBE
participation to the concerned
Operating Administration containing all
the information described in the
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Uniform Report to this part. This report
must be submitted at the intervals
required by, and in the format
acceptable to, the concerned Operating
Administration.
(b) You must continue to provide data
about your DBE program to the
Department as directed by DOT
Operating Administrations.
(c) You must obtain bidders list
information as described in paragraph
(c)(2) of this section and enter it into a
system designated by the Department.
(1) The purpose of this bidders list
information is to compile as accurate
data as possible about the universe of
DBE and non-DBE contractors and
subcontractors who seek to work on
your federally assisted contracts for use
in helping you set your overall goals,
and to provide the Department with
data for evaluating the extent to which
the objectives of § 26.1 are being
achieved.
(2) You must obtain the following
bidders list information about all DBE
and non-DBEs who bid as prime
contractors and subcontractors on each
of your federally assisted contracts:
(i) Firm name;
(ii) Firm address including ZIP code;
(iii) Firm’s status as a DBE or nonDBE;
(iv) Race and gender information for
the firm’s majority owner;
(v) NAICS code applicable to each
scope of work the firm sought to
perform in its bid;
(vi) Age of the firm; and
(vii) The annual gross receipts of the
firm. You may obtain this information
by asking each firm to indicate into
what gross receipts bracket they fit (e.g.,
less than $1 million; $1–3 million; $3–
6 million; $6–10 million; etc.) rather
than requesting an exact figure from the
firm.
(3) You must collect the data from all
bidders for your federally assisted
contracts by requiring the information
in paragraph (c)(2) of this section to be
submitted with their bids or initial
responses to negotiated procurements.
You must enter this data in the
Department’s designated system no later
than December 1 following the fiscal
year in which the relevant contract was
awarded. In the case of a ‘‘design-build’’
contracting situation where subcontracts
will be solicited throughout the contract
period as defined in a DBE Performance
Plan pursuant to § 26.53(e), the data
must be entered no later than December
1 following the fiscal year in which the
design-build contractor awards the
relevant subcontract(s).
(d) You must maintain records
documenting a firm’s compliance with
the requirements of this part. At a
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minimum, you must keep a complete
application package for each certified
firm and all Declarations of Eligibility,
change notices, and on-site visit reports.
These records must be retained in
accordance with applicable record
retention requirements for the
recipient’s financial assistance
agreement. Other certification or
compliance related records must be
retained for a minimum of three (3)
years unless otherwise provided by
applicable record retention
requirements for the recipient’s
financial assistance agreement,
whichever is longer.
(e) The State department of
transportation in each Unified
Certification Program (UCP) established
pursuant to § 26.81 must report to
DOT’s Departmental Office of Civil
Rights each year, the following
information:
(1) The number and percentage of instate and out-of-state DBE certifications
by gender and ethnicity (Black
American, Asian-Pacific American,
Native American, Hispanic American,
Subcontinent-Asian Americans, and
non-minority);
(2) The number of DBE certification
applications received from in-state and
out-of-state firms and the number found
eligible and ineligible;
(3) The number of decertified firms:
(i) Total in-state and out-of-state firms
decertified;
(ii) Names of in-state and out-of-state
firms decertified because SEDO
exceeded the personal net worth cap;
(iii) Names of in-state and out-of-state
firms decertified for excess gross
receipts beyond the relevant size
standard.
(4) The number of in-state and out-ofstate firms summarily suspended;
(5) The number of in-state and out-ofstate applications received for an
individualized determination of social
and economic disadvantage status;
(6) The number of in-state and out-ofstate firms certified whose owner(s)
made an individualized showing of
social and economic disadvantaged
status.
■ 33. Revise the heading for subpart B
to read as follows:
(1) All FHWA primary recipients
receiving funds authorized by a statute
to which this part applies;
(2) All FTA recipients receiving
planning, capital and/or operating
assistance must maintain a DBE
program.
(i) FTA Tier I recipients must have a
DBE program meeting all the
requirements of this part.
(ii) Beginning 180 days after the
publication of the final rule, FTA Tier
II recipients must maintain a program
locally meeting the following
requirements of this part:
(A) Reporting and recordkeeping
under § 26.11;
(B) Contract assurances under § 26.13;
(C) Policy statement under § 26.23;
(D) Fostering small business
participation under § 26.39; and
(E) Transit vehicle procurements
under § 26.49.
(3) FAA recipients receiving grants for
airport planning or development that
will award prime contracts the
cumulative total value of which exceeds
$250,000 in FAA funds in a Federal
fiscal year.
(b)(1) You must submit a conforming
DBE program to the concerned
Operating Administration (OA). Once
the OA has approved your program, the
approval counts for all of your DOTassisted programs (except goals that are
reviewed by the relevant OA).
(2) You do not have to submit regular
updates of your DBE program plan if
you remain in compliance with this
part. However, you must submit
significant changes to the relevant OA
for approval.
(c) You are not eligible to receive DOT
financial assistance unless DOT has
approved your DBE program and you
are in compliance with it and this part.
You must continue to carry out your
DBE program until all funds from DOT
financial assistance have been
expended.
■ 35. Amend § 26.29 by:
■ a. Revising paragraph (d);
■ b. Redesignating paragraph (e) as
paragraph (g); and
■ c. Adding new paragraph (e) and
paragraph (f).
The revision and additions read as
follows:
Subpart B—Administrative
Requirements for DBE Programs for
Federally Assisted Contracting
§ 26.29 What prompt payment
mechanisms must recipients have?
■
*
34. Revise § 26.21 to read as follows:
§ 26.21
Who must have a DBE program?
(a) If you are in one of these categories
and let DOT-assisted contracts, you
must have a DBE program meeting the
requirements of this part:
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*
*
*
*
(d) Your DBE program must include
the mechanisms you will use for
proactive monitoring and oversight of a
prime contractor’s compliance with
subcontractor prompt payment and
return of retainage requirements in this
part. Reliance on complaints or
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24965
notifications from subcontractors about
a contractor’s failure to comply with
prompt payment and retainage
requirements is not a sufficient
monitoring and oversight mechanism.
(e) Your DBE program must provide
appropriate means to enforce the
requirements of this section. These
means must be described in your DBE
program and should include appropriate
penalties for failure to comply, the
terms and conditions of which you set.
Your program may also provide that any
delay or postponement of payment
among the parties may take place only
for good cause, with your prior written
approval.
(f) Prompt payment and return of
retainage requirements in this part also
apply to lower-tier subcontractors.
*
*
*
*
*
■ 36. Revise § 26.31 to read as follows:
§ 26.31 What information must a UCP
include in its DBE/ACDBE directory?
(a) In the directory required under
§ 26.81(g), you must list all firms
eligible to participate as a DBE and/or
ACDBE in your program. In the listing
for each firm, you must include its
business address, business phone
number, firm website(s), and the types
of work the firm has been certified to
perform as a DBE and/or ACDBE.
(b) You must list each type of work a
DBE and/or ACDBE is eligible to
perform by using the most specific
NAICS code available to describe each
type of work the firm performs.
Pursuant to § 26.81(n)(1) and (3), your
directory must allow for NAICS codes to
be supplemented with specific
descriptions of the type(s) of work the
firm performs.
(c) Your directory may include
additional data fields of other items
readily verifiable in State or locally
maintained databases, such as State
licenses held, Prequalifications, and
Bonding capacity.
(d) Your directory must be an online
system that permits the public to search
and/or filter for DBEs by:
(1) Physical location;
(2) NAICS code(s);
(3) Work descriptions; and
(4) All optional information added
pursuant to paragraph (c) of this section.
The directory must include a
prominently displayed disclaimer (e.g.,
large type, bold font) that states the
information within the directory is not
a guarantee of the DBE’s capacity and
ability to perform work.
(e) You must make any changes to
your current directory entries by
November 5, 2024.
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§ 26.35 What role do business
development and mentor-prote´ge´ programs
have in the DBE program?
whether the contractor is on track with
meeting its DBE commitment and
whether any projected shortfall exists
that requires the prime contractor’s good
faith efforts to address to meet the
contract goal pursuant to § 26.53(g).
*
§ 26.39
37. Amend § 26.35 by revising
paragraph (b)(2) introductory text to
read as follows:
■
*
*
*
*
(b) * * *
(2) In the mentor-prote´ge´ relationship,
you must:
*
*
*
*
*
■ 38. Revise § 26.37 to read as follows:
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§ 26.37 What are a recipient’s
responsibilities for monitoring?
(a) A recipient must implement
appropriate mechanisms to ensure
compliance with the requirements in
this part by all program participants
(e.g., applying legal and contract
remedies available under Federal, State,
and local law). The recipient must set
forth these mechanisms in its DBE
program.
(b) A recipient’s DBE program must
also include a monitoring and
enforcement mechanism to ensure that
work committed, or in the case of raceneutral participation, the work
subcontracted, to all DBEs at contract
award or subsequently is performed by
the DBEs to which the work was
committed or subcontracted to, and
such work is counted according to the
requirements of § 26.55. This
mechanism must include a written
verification that you have reviewed
contracting records and monitored the
work site to ensure the counting of each
DBE’s participation is consistent with
its function on the contract. The
monitoring to which this paragraph (b)
refers may be conducted in conjunction
with monitoring of contract
performance for other purposes such as
a commercially useful function review.
(c) You must effectively implement
the following running tally mechanisms:
(1) With respect to achieving your
overall goal, you must use a running
tally that provides for a frequent
comparison of cumulative DBE awards/
commitments to DOT-assisted prime
contract awards to determine whether
your current implementation of contract
goals is projected to be sufficient to
meet your annual goal. This mechanism
should inform your decisions to
implement goals on contracts to be
advertised according to your established
contract goal-setting process.
(2) With respect to each DBE
commitment, you must use a running
tally that provides for a frequent
comparison of payments made to each
listed DBE relative to the progress of
work, including payments for such work
to the prime contractor to determine
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[Amended]
39. Amend § 26.39 in paragraph (b)
introductory text by removing the
phrase ‘‘by February 28, 2012’’.
■ 40. Amend § 26.45 by:
■ a. Revising paragraph (a);
■ b. Removing in paragraph (c)(1)
‘‘www.census.gov/epcd/cbp/view/
cbpview.html’’ and adding in its place
https://www.census.gov/programssurveys/cbp.html;
■ c. Removing in paragraph (f)(1)(i) the
words ‘‘Website’’ and adding in their
place the word ‘‘website’’; and
■ d. Removing in paragraph (f)(3) the
text ‘‘incuding’’, ‘‘race-conscioous’’, and
‘‘26.51(c)’’ and adding in their places
the text ‘‘including’’, ‘‘race-conscious’’,
and ‘‘§ 26.51(c)’’, respectively.
The revision reads as follows:
■
§ 26.45
goals?
How do recipients set overall
(a) General rule. (1) Except as
provided in paragraph (a)(2) of this
section, you must set an overall goal for
DBE participation in your DOT-assisted
contracts.
(2) If you are an FTA Tier II recipient
or FAA recipient who reasonably
anticipates awarding (excluding transit
vehicle purchases) $670,000 or less in
FTA or $250,000 or less in FAA funds
in prime contracts in a Federal fiscal
year, you are not required to develop
overall goals for FTA or FAA
respectively for that fiscal year.
*
*
*
*
*
§ 26.47
[Amended]
41. Amend § 26.47 in paragraph
(c)(3)(i) by removing the words
‘‘Operational Evolution Partnership
Plan’’ and adding in their place the term
‘‘CORE 30’’.
■ 42. Revise § 26.49 to read as follows:
■
§ 26.49 What are the requirements for
transit vehicle manufactures (TVMs) and for
awarding DOT-assisted contracts to TVMs?
(a) If you are an FTA recipient, you
must require in your DBE program that
each TVM, 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.
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(1) Only those TVMs listed on FTA’s
list of eligible TVMs, or that have
submitted a goal methodology to FTA
that has been approved or has not been
disapproved at the time of solicitation
are eligible to bid.
(2) A TVM that fails to follow the
requirements of this section and this
part will be deemed as non-compliant,
which will result in removal from FTA’s
eligible TVMs list and ineligibility to
bid.
(3) An FTA recipient’s failure to
comply with the requirements set forth
in paragraph (a) of this section may
result in formal enforcement action or
appropriate sanction as determined by
FTA (e.g., FTA declining to participate
in the vehicle procurement).
(4) Within 30 days of becoming
contractually required to procure a
transit vehicle, an FTA recipient must
report to FTA:
(i) The name of the TVM that was the
successful bidder; and
(ii) The Federal share of the
contractual commitment at that time.
(b) If you are a TVM, you must
establish and submit to FTA an annual
overall percentage goal for DBE
participation.
(1) In setting your overall goal, you
should be guided, to the extent
applicable, by the principles underlying
§ 26.45. The base from which you
calculate this goal is the amount of FTA
financial assistance included in transit
vehicle contracts on which you will bid
on during the fiscal year in question,
less the portion(s) attributable to the
manufacturing process performed
entirely by your own forces.
(i) You must consider and include in
your base figure all domestic contracting
opportunities made available to nonDBEs.
(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,
you must provide for public
participation. This includes
consultation with interested parties
consistent with § 26.45(g).
(2) The requirements of this part with
respect to submission and approval of
overall goals apply to you as they do to
recipients, except that TVMs set and
submit their goals annually and not on
a triennial basis.
(c) TVMs must comply with the
reporting requirements of § 26.11,
including the requirement to submit the
Uniform Report of DBE Awards or
Commitments and Payments, in order to
remain eligible to bid on FTA assisted
transit vehicle procurements.
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(d) TVMs must implement all other
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 the equipment must
meet the same requirements (including
goal approval by FHWA or FAA) that
TVMs must meet in FTA assisted
procurements.
(f) Recipients may establish projectspecific goals for DBE participation in
the procurement of transit vehicles from
specialized manufacturers when a TVM
cannot be identified.
(1) Project-specific goals established
pursuant to this section are subject to
the same review and approval and must
be established as prescribed in the
project goal provisions of § 26.45.
(2) FTA must approve the decision to
use a project goal before the recipient
issues a public solicitation for the
vehicles in question.
(3) To support the request to develop
a project goal, recipients must
demonstrate that no TVMs are available
to manufacture the vehicle.
§ 26.51
[Amended]
43. Amend § 26.51 in paragraph (f)(4)
introductory text by removing the words
‘‘through the use of’’ and adding in their
place the word ‘‘using’’.
■ 44. Amend § 26.53 by:
■ a. Revising paragraphs (b)(2)(v) and
(b)(3)(ii);
■ b. Adding paragraph (c)(1) and a
reserved paragraph (c)(2); and
■ c. Revising paragraphs (e), (f), and (g).
The revisions and addition read as
follows:
■
§ 26.53 What are the good faith efforts
procedures recipients follow in situations
where there are contract goals?
ddrumheller on DSK120RN23PROD with RULES2
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*
*
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(b) * * *
(2) * * *
(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. Each DBE listed to
perform work as a regular dealer or
distributor must confirm its
participation according to the
requirements of paragraph (c)(1) of this
section.
(3) * * *
(ii) Provided that, in a negotiated
procurement, such as a procurement for
professional services, the bidder/offeror
may make a contractually binding
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commitment to meet the goal at the time
of bid submission or 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.
This paragraph (b)(3)(ii) does not apply
to a design-build procurement, which
must follow the provisions in paragraph
(e) of this section.
*
*
*
*
*
(c) * * *
(1) For each DBE listed as a regular
dealer or distributor you must make a
preliminary counting determination to
assess its eligibility for 60 or 40 percent
credit, respectively, of the cost of
materials and supplies based on its
demonstrated capacity and intent to
perform as a regular dealer or
distributor, as defined in
§ 26.55(e)(2)(iv)(A), (B), and (C) and
(e)(3) under the contract at issue. Your
preliminary determination shall be
made based on the DBE’s written
responses to relevant questions and its
affirmation that its subsequent
performance of a commercially useful
function will be consistent with the
preliminary counting of such
participation. Where the DBE supplier
does not affirm that its participation
will meet the specific requirements of
either a regular dealer or distributor,
you are required to make appropriate
adjustments in counting such
participation toward the bidder’s good
faith efforts to meet the contract goal.
The bidder is responsible for verifying
that the information provided by the
DBE supplier is consistent with the
counting of such participation toward
the contract goal.
(2) [Reserved]
*
*
*
*
*
(e) In a design-build contracting
situation, in which the recipient solicits
proposals to design and build a project
with minimal-project details at time of
letting, the recipient may set a DBE goal
that proposers must meet by submitting
a DBE Open-Ended DBE Performance
Plan (OEPP) with the proposal. The
OEPP replaces the requirement to
provide the information required in
paragraph (b) of this section that applies
to design-bid-build contracts. To be
considered responsive, the OEPP must
include a commitment to meet the goal
and provide details of the types of
subcontracting work or services (with
projected dollar amount) that the
proposer will solicit DBEs to perform.
The OEPP must include an estimated
time frame in which actual DBE
subcontracts would be executed. Once
the design-build contract is awarded,
the recipient must provide ongoing
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monitoring and oversight to evaluate
whether the design-builder is using
good faith efforts to comply with the
OEPP and schedule. The recipient and
the design-builder may agree to make
written revisions of the OEPP
throughout the life of the project, e.g.,
replacing the type of work items the
design-builder will solicit DBEs to
perform and/or adjusting the proposed
schedule, as long as the design-builder
continues to use good faith efforts to
meet the goal.
(f)(1)(i) You must require that a prime
contractor not terminate a DBE or any
portion of its work listed in response to
paragraph (b)(2) of this section (or an
approved substitute DBE firm per
paragraph (g) of this section) without
your prior written consent, unless you
cause the termination or reduction. A
termination includes any reduction or
underrun in work listed for a DBE not
caused by a material change to the
prime contract by the recipient. This
requirement applies to instances that
include, but are not limited to, when a
prime contractor seeks to perform work
originally designated for a DBE
subcontractor with its own forces or
those of an affiliate, a non-DBE firm, or
with another DBE firm.
(ii) You must include in each prime
contract a provision stating that:
(A) The contractor must 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) Unless your consent is provided
under this paragraph (f), the prime
contractor must not be entitled to any
payment for work or material unless it
is performed or supplied by the listed
DBE.
(2) You may provide such written
consent only if you agree, for reasons
stated in your concurrence document,
that the prime contractor has good cause
to terminate the listed DBE or any
portion of its work.
(3) Good cause does not exist if the
prime contractor seeks to terminate a
DBE or any portion of its work that it
relied upon to obtain the contract so
that the prime contractor can selfperform the work for which the DBE
contractor was engaged, or so that the
prime contractor can substitute another
DBE or non-DBE contractor after
contract award. For purposes of this
paragraph (f)(3), good cause includes the
following circumstances:
(i) The listed DBE subcontractor fails
or refuses to execute a written contract;
(ii) The listed DBE subcontractor fails
or refuses to perform the work of its
subcontract in a way consistent with
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normal industry standards. Provided,
however, that good cause does not exist
if the failure or refusal of the DBE
subcontractor to perform its work on the
subcontract results from the bad faith or
discriminatory action of the prime
contractor;
(iii) The listed DBE subcontractor fails
or refuses to meet the prime contractor’s
reasonable, nondiscriminatory bond
requirements;
(iv) The listed DBE subcontractor
becomes bankrupt, insolvent, or exhibits
credit unworthiness;
(v) The listed DBE subcontractor is
ineligible to work on public works
projects because of suspension and
debarment proceedings pursuant to 2
CFR parts 180, 215, and 1200 or
applicable State law;
(vi) You have determined that the
listed DBE subcontractor is not a
responsible contractor;
(vii) The listed DBE subcontractor
voluntarily withdraws from the project
and provides to you written notice of its
withdrawal;
(viii) The listed DBE is ineligible to
receive DBE credit for the type of work
required;
(ix) A DBE owner dies or becomes
disabled with the result that the listed
DBE contractor is unable to complete its
work on the contract; and
(x) Other documented good cause that
you determine compels the termination
of the DBE subcontractor.
(4) Before transmitting to you its
request to terminate a DBE
subcontractor or any portion of its work,
the prime contractor must give notice in
writing to the DBE subcontractor, with
a copy to you sent concurrently, of its
intent to request to terminate and the
reason for the proposed request.
(5) The prime contractor’s written
notice must give the DBE 5 days to
respond, advising you and the
contractor of the reasons, if any, why it
objects to the proposed termination of
its subcontract/or portion thereof and
why you should not approve the prime
contractor’s request. If required in a
particular case as a matter of public
necessity (e.g., safety), you may provide
a response period shorter than 5 days.
(6) In addition to post-award
terminations, the provisions of this
section apply to pre-award deletions or
changes to DBEs or their listed work put
forward by offerors in negotiated
procurements.
(g) When a DBE subcontractor or any
portion of its work is terminated by the
prime contractor as provided in
paragraph (f) of this section, or if work
committed to a DBE is reduced due to
overestimations made prior to award,
the prime contractor must use good faith
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efforts to include additional DBE
participation to the extent needed to
meet the contract goal. The good faith
efforts shall be documented by the
contractor. If the recipient requests
documentation under this provision, the
contractor shall submit the
documentation within 7 days, which
may be extended for an additional 7
days, if necessary, at the request of the
contractor, and the recipient shall
provide a written determination to the
contractor stating whether or not good
faith efforts have been demonstrated.
*
*
*
*
*
■ 45. Amend § 26.55 by:
■ a. Removing the word ‘‘actually’’ in
paragraph (a) introductory text and
twice in paragraph (c)(1);
■ b. In paragraph (c)(2), removing the
words ‘‘in order’’;
■ c. In paragraph (c)(3), removing the
words ‘‘on the basis of’’ and adding in
their place the word ‘‘within’’;
■ d. Revising paragraph (e);
■ e. In paragraph (f), removing the crossreference ‘‘§ 26.87(i)’’ and adding in its
place the cross-reference ‘‘§ 26.87(j)’’;
and
■ f. Revising paragraph (h).
The revisions read as follows:
§ 26.55 How is DBE participation counted
toward goals?
*
*
*
*
*
(e) Count expenditures with DBEs for
materials or supplies toward DBE goals
as provided in the following:
(1)(i) If the materials or supplies are
obtained from a DBE manufacturer,
count 100 percent of the cost of the
materials or supplies.
(ii) For purposes of this paragraph
(e)(1), a manufacturer is a firm that
owns (or leases) and operates a factory
or establishment that produces, on the
premises, the materials, supplies,
articles, or equipment required under
the contract and of the general character
described by the specifications.
Manufacturing includes blending or
modifying raw materials or assembling
components to create the product to
meet contract specifications. When a
DBE makes minor modifications to the
materials, supplies, articles, or
equipment, the DBE is not a
manufacturer. Minor modifications are
additional changes to a manufactured
product that are small in scope and add
minimal value to the final product.
(2)(i) If the materials or supplies are
purchased from a DBE regular dealer,
count 60 percent of the cost of the
materials or supplies (including
transportation costs).
(ii) For purposes of this section, a
regular dealer is a firm that owns (or
leases) and-operates, a store, warehouse,
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or other establishment in which the
materials, supplies, articles or
equipment of the general character
described by the specifications and
required under the contract are bought,
kept in sufficient quantities, and
regularly sold or leased to the public in
the usual course of business.
(iii) Items kept and regularly sold by
the DBE are of the ‘‘general character’’
when they share the same material
characteristics and application as the
items specified by the contract.
(iv) You must establish a system to
determine that a DBE regular dealer per
paragraph (e)(2)(iv)(A) of this section,
over a reasonable period of time, keeps
sufficient quantities and regularly sells
the items in question. This system must
also ensure that a regular dealer of bulk
items per (e)(2)(iv)(B) of this section
owns/leases and operates distribution
equipment for the products it sells. This
requirement may be administered
through questionnaires, inventory
records reviews, or other methods to
determine whether each DBE supplier
has the demonstrated capacity to
perform a commercially useful function
(CUF) as a regular dealer prior to its
participation. The system you
implement must be maintained and
used to identify all DBE suppliers with
capacity to be eligible for 60 percent
credit, contingent upon the performance
of a CUF. This requirement is a
programmatic safeguard apart from that
described in § 26.53(c)(1).
(A) To be a regular dealer, the firm
must be an established business that
engages, as its principal business and
under its own name, in the purchase
and sale or lease of the products in
question. A DBE supplier performs a
CUF as a regular dealer and receives
credit for 60 percent of the cost of
materials or supplies (including
transportation cost) when all, or at least
51 percent of, the items under a
purchase order or subcontract are
provided from the DBE’s inventory, and
when necessary, any minor quantities
delivered from and by other sources are
of the general character as those
provided from the DBE’s inventory.
(B) A DBE may be a regular dealer in
such bulk items as petroleum products,
steel, concrete or concrete products,
gravel, stone, or asphalt without
owning, operating, or maintaining a
place of business as provided in
paragraph (e)(2)(ii) of this section if the
firm both owns and operates
distribution equipment used to deliver
the products. Any supplementing of
regular dealers’ own distribution
equipment must be by a long-term
operating lease and not on an ad hoc or
contract-by-contract basis.
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(C) A DBE supplier of items that are
not typically stocked due to their
unique characteristics (e.g., limited shelf
life or items ordered to specification)
should be considered in the same
manner as a regular dealer of bulk items
per paragraph (e)(2)(iv)(B) of this
section. If the DBE supplier of these
items does not own or lease distribution
equipment, as descried above, it is not
a regular dealer.
(D) Packagers, brokers, manufacturers’
representatives, or other persons who
arrange, facilitate, or expedite
transactions are not regular dealers
within the meaning of paragraph (e)(2)
of this section.
(3) If the materials or supplies are
purchased from a DBE distributor that
neither maintains sufficient inventory
nor uses its own distribution equipment
for the products in question, count 40
percent of the cost of materials or
supplies (including transportation
costs). A DBE distributor is an
established business that engages in the
regular sale or lease of the items
specified by the contract. A DBE
distributor assumes responsibility for
the items it purchases once they leave
the point of origin (e.g., a
manufacturer’s facility), making it liable
for any loss or damage not covered by
the carrier’s insurance. A DBE
distributor performs a CUF when it
demonstrates ownership of the items in
question and assumes all risk for loss or
damage during transportation,
evidenced by the terms of the purchase
order or a bill of lading (BOL) from a
third party, indicating Free on Board
(FOB) at the point of origin or similar
terms that transfer responsibility of the
items in question to the DBE distributor.
If these conditions are met, DBE
distributors may receive 40 percent for
drop-shipped items. Terms that transfer
liability to the distributor at the delivery
destination (e.g., FOB destination), or
deliveries made or arranged by the
manufacturer or another seller do not
satisfy this requirement.
(4) With respect to materials or
supplies purchased from a DBE that is
neither a manufacturer, a regular dealer,
nor a distributor, count the entire
amount of fees or commissions charged
that you deem to be reasonable,
including transportation charges for the
delivery of materials or supplies. Do not
count any portion of the cost of the
materials and supplies themselves.
(5) 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, distributor, or a
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transaction facilitator) on a contract-bycontract basis.
*
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*
(h) Do not count the participation of
a DBE subcontractor toward a
contractor’s final compliance with its
DBE obligations on a contract until the
contractor has paid the DBE the amount
being counted.
■ 46. Revise § 26.61 to read as follows:
§ 26.61
Burden of proof
(a) In determining whether to certify
a firm, the certifier must apply the
standards of this subpart. Unless the
context indicates otherwise, singular
terms include their plural forms and
vice versa.
(b) The firm has the burden of
demonstrating, by a preponderance of
the evidence, i.e., more likely than not,
that it satisfies all of the requirements in
this subpart. In determining whether the
firm has met its burden, the certifier
must consider all the information in the
record, viewed as a whole.
(1) Exception 1. In a decertification
proceeding the certifier bears the burden
of proving, by a preponderance of the
evidence, that the firm is no longer
eligible for certification under the rules
of this part.
(2) Exception 2. If a certifier has a
reasonable basis to believe that an
individual who is a member of a group
in § 26.67(a) of this section is not, in
fact, socially and/or economically
disadvantaged, the certifier bears the
burden of proving, by a preponderance
of the evidence, that the individual is
not socially and/or economically
disadvantaged.
■ 47. Revise § 26.63 to read as follows:
§ 26.63
General certification rules.
(a) General rules. Except as otherwise
provided:
(1) The firm must be for-profit and
engaged in business activities.
(2) In making eligibility
determinations, a certifier may not
consider whether a firm performs a
commercially useful function (CUF), or
the potential effect on goals or counting.
(3) A certifier cannot condition
eligibility on State prequalification
requirements for bidding on contracts.
(4) Certification is not a warranty of
competence or suitability.
(5) A certifier determines eligibility
based on the evidence it has at the time
of its decision, not on the basis of
historical or outdated information,
giving full effect to the ‘‘curative
measures’’ provisions of this part.
(6) Entering into a fraudulent
transaction or presenting false
information to obtain or maintain DBE
certification is disqualifying.
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(b) Indirect ownership. A subsidiary
(i.e., S) that SEDOs own and control
indirectly is eligible, if it satisfies the
other requirements of this part and only
under the following circumstances.
(1) Look-through. SEDOs own at least
51 percent of S through their ownership
of P (i.e., the parent firm) as shown in
the examples following.
(2) Control. SEDOs control P, and P
controls S.
(3) One tier of separation. The SEDOs
indirectly own S through P and no other
intermediary. That is, no applicant or
DBE may be more than one entity (P)
removed from its individual SEDOs.
(4) Examples. The following examples
assume that S and its SEDOs satisfy all
other requirements in this part.
(i) Example 1 to paragraph (b)(4).
SEDOs own 100 percent of P, and P
owns 100 percent of S. S is eligible for
certification.
(ii) Example 2 to paragraph (b)(4).
Same facts as Example 1, except P owns
51 percent of S. S is eligible.
(iii) Example 3 to paragraph (b)(4).
SEDOs own 80 percent of P, and P owns
70 percent of S. S is eligible because
SEDOs indirectly own 56 percent of S.
The calculation is 80 percent of 70
percent or .8 × .7 = .56.
(iv) Example 4 to paragraph (b)(4).
SEDOs own and control P, and they
own 52 percent of S by operation of this
paragraph (b). However, a non-SEDO
controls S. S is ineligible.
(v) Example 5 to paragraph (b)(4).
SEDOs own 60 percent of P, and P owns
51 percent of S. S is ineligible because
SEDOs own just 31 percent of S.
(vi) Example 6 to paragraph (b)(4). P
indirectly owns and controls S and has
other affiliates. S is eligible only if its
gross receipts, plus those of all of its
affiliates, do not exceed the applicable
small business size cap of § 26.65. Note
that all of P’s affiliates are affiliates of
S by virtue of P’s ownership and/or
control of S.
(c) Indian Tribes, NHOs, and ANCs—
(1) Indian Tribes and NHOs. A firm that
is owned by an Indian Tribe or Native
Hawaiian organization (NHO), rather
than by Indians or Native Hawaiians as
individuals, is eligible if it meets all
other certification requirements in this
part.
(2) Alaska Native Corporations
(ANCs). (i) Notwithstanding any other
provisions of this subpart, a subsidiary
corporation, joint venture, or
partnership entity of an ANC is eligible
for certification if it meets all the
following requirements:
(A) The Settlement Common Stock of
the underlying ANC and other stock of
the ANC held by holders of the
Settlement Common Stock and by
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Natives and descendants of Natives
represents a majority of both the total
equity of the ANC and the total voting
power of the corporation for purposes of
electing directors;
(B) The shares of stock or other units
of common ownership interest in the
subsidiary, joint venture, or partnership
entity held by the ANC and by holders
of its Settlement Common Stock
represent a majority of both the total
equity of the entity and the total voting
power of the entity for the purpose of
electing directors, the general partner, or
principal officers; and
(C) The subsidiary, joint venture, or
partnership entity has been certified by
the Small Business Administration
under the 8(a) or small disadvantaged
business program.
(ii) As a certifier to whom an ANCrelated entity applies for certification, a
certifier must not use the Uniform
Certified Application. The certifier must
obtain from the firm documentation
sufficient to demonstrate that the entity
meets the requirements of paragraph
(c)(2)(i) of this section. The certifier
must also obtain sufficient information
about the firm to allow the certifier to
administer its program (e.g., information
that would appear in a UCP directory).
(iii) If an ANC-related firm does not
meet all the conditions of paragraph
(c)(2)(i) of this section, then it must
meet the requirements of paragraph
(c)(1) of this section in order to be
certified.
■ 48. Revise § 26.65 to read as follows:
ddrumheller on DSK120RN23PROD with RULES2
§ 26.65
Business Size Determinations.
(a) By NAICS Code. A firm (including
its affiliates) must be a small business,
as defined by the Small Business
Administration (SBA). The certifier
must apply the SBA business size limit
in 13 CFR part 121 which corresponds
to the applicable primary industry
classifications (NAICS codes). The firm
is ineligible when its affiliated
‘‘receipts’’ (computed on a cash basis),
as defined in 13 CFR 121.104(a) and
averaged over the firm’s preceding five
fiscal years, exceed the applicable SBA
size cap(s).
(b) Statutory Cap. Even if a firm is a
small business under paragraph (a) of
this section, it is ineligible to perform
DBE work on FHWA or FTA assisted
contracts if its affiliated annual gross
receipts, as defined in 13 CFR 121.104,
over the firm’s previous three fiscal
years exceed $30.40 million (as of
March 1, 2023). The Department will
adjust this amount annually and post
the adjusted amount on its website
available at https://
www.transportation.gov/
DBEsizestandards. 50.
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■
49. Revise § 26.67 to read as follows:
§ 26.67 Social and economic
disadvantage.
(a) Group membership—(1) General
rule. Citizens of the United States (or
lawfully admitted permanent residents)
who are women, Black American,
Hispanic American, Native American,
Asian Pacific American, Subcontinent
Asian American, or other minorities
found to be disadvantaged by the Small
Business Administration (SBA), are
rebuttably presumed to be socially and
economically disadvantaged. A firm
owner claiming the presumption must
specify of which groups in this
paragraph (a)(1) she or he is a member
on the Declaration of Eligibility (DOE).
(2) Native American group
membership. An owner claiming Native
American group membership must
submit a signed DOE as well as proof of
enrollment in a federally or Staterecognized Indian Tribe. An owner
claiming Native Hawaiian or Alaska
Native group membership must submit
documentation legally recognized under
State or Federal law attesting to the
individual’s status as a member of that
group.
(3) Questioning group membership.
(1) Certifiers may not question claims of
group membership as a matter of course.
Certifiers must not impose a
disproportionate burden on members of
any particular group. Imposing a
disproportionate burden on members of
a particular group could violate Title VI
of the Civil Rights Act of 1964,
paragraph (b) of this section, and/or 49
CFR part 21.
(i) If a certifier has a well-founded
reason(s) to question an owner’s claim
of membership in a group in paragraph
(a)(1) of this section, it must provide the
individual a written explanation of its
reason(s), using the most recent email
address provided. The firm bears the
burden of proving, by a preponderance
of the evidence, that the owner is a
member of the group in question.
(ii) A certifier’s written explanation
must instruct the individual to submit
evidence demonstrating that the
individual has held herself/himself/
themself out publicly as a member of
the group for a long period of time prior
to applying for DBE certification, and
that the relevant community considers
the individual a member. The certifier
may not require the individual to
provide evidence beyond that related to
group membership.
(iii) The owner must email the
certifier evidence described in
paragraph (a)(3)(ii) of this section no
later than 20 days after the written
explanation. The certifier must email
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the owner a decision no later than 30
days after receiving timely submitted
evidence.
(iv) If a certifier determines that an
individual has not demonstrated group
membership, the certifier’s decision
must specifically reference the evidence
in the record that formed the basis for
the conclusion and give a detailed
explanation of why the evidence
submitted was insufficient. It must also
inform the individual of the right to
appeal, as provided in § 26.89(a), and of
the right to reapply at any time under
paragraph (e) of this section.
(b) Rebuttal of social disadvantage. (1)
If a certifier has a reasonable basis to
believe that an individual who is a
member of a group in paragraph (a)(1)
of this section is not, in fact, socially
disadvantaged, the certifier must initiate
a § 26.87 proceeding, regardless of the
firm’s DBE status. As is the case in all
section § 26.87 proceedings, the certifier
must prove ineligibility.
(2) If the certifier finds that the owner
is not socially disadvantaged, its
decision letter must inform the firm of
its appeal rights.
(c) Rebuttal of economic
disadvantage—(1) Personal net worth. If
a certifier has a reasonable basis to
believe that an individual who submits
a PNW Statement that is below the
currently applicable PNW cap is not
economically disadvantaged, the
certifier may rebut the individual’s
presumption of economic disadvantage.
(i) The certifier must not attempt to
rebut presumed economic disadvantage
as a matter of course and it must avoid
imposing unnecessary burdens on
individual owners or disproportionately
impose them on members of a particular
group.
(ii) The certifier must proceed as
provided in § 26.87.
(2) Economic disadvantage in fact. (i)
To rebut the presumption, the certifier
must prove that a reasonable person
would not consider the individual
economically disadvantaged. The
certifier may consider assets and
income, free use of them or ready access
to their benefits, and any other
trappings of wealth that the certifier
considers relevant. There are no assets
(including retirement assets), income,
equity, or other exclusions and no
limitations on inclusions. A broad and
general analysis suffices in most cases:
the owner has, or enjoys the benefits of,
income of X; two homes worth
approximately Y; substantial interests in
outside businesses Q, R, and S; four
rental properties of aggregate value Z;
etc. The certifier need only demonstrate
‘‘ballpark’’ values based on available
evidence. The reasonable person is not
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party to detailed financial information.
S/he considers the owner’s overall
circumstances and lifestyle.
(ii) The certifier must proceed as
provided in § 26.87.
(d) Non-presumptive disadvantage.
An owner who is not presumed to be
SED under paragraph (a) of this section
may demonstrate that he is SED based
on his own experiences and
circumstances that occurred within
American society.
(1) To attempt to prove individual
SED, the owner provides the certifier a
Personal Narrative (PN) that describes in
detail specific acts or omissions by
others, which impeded his progress or
success in education, employment, and/
or business, including obtaining
financing on terms available to similarly
situated, non-disadvantaged persons.
(2) The PN must identify at least one
objective basis for the detrimental
discrimination. The basis may be any
identifiable status or condition. The PN
must describe this objective
distinguishing feature(s) (ODF) in
sufficient detail to justify the owner’s
conclusion that it prompted the
prejudicial acts or omissions.
(3) The PN must state how and to
what extent the discrimination caused
the owner harm, including a full
description of type and magnitude.
(4) The owner must establish that he
is economically disadvantaged in fact
and that he is economically
disadvantaged relative to similarly
situated non-disadvantaged individuals.
(5) The owner must attach to the PN
a current PNW statement and any other
financial information he considers
relevant.
(6) This rule does not prescribe how
the owner must satisfy his burden of
proving disadvantage. He need not, for
example, have filed any formal
complaint, or prove discrimination
under a particular statute.
Example 1 to paragraph (d). A White
male claiming to have experienced
employment discrimination must
provide evidence that his employment
status and/or limited opportunities to
earn income result from specific
prejudicial acts directed at him
personally because of an ODF, and not,
e.g., an economic recession that caused
widespread unemployment.
■ 50. Add § 26.68 to read as follows:
§ 26.68
Personal net worth.
(a) General. An owner whose PNW
exceeds the regulation’s currently
applicable PNW limit is not presumed
economically disadvantaged.
(b) Required documents. Each owner
on whom the firm relies for certification
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must submit a DOE and a corroborating
personal net worth (PNW) statement,
including required attachments. The
owner must report PNW on the form,
available at https://www.Transportation
.gov/DBEFORMS. A certifier may
require an owner to provide additional
information on a case-by-case basis to
verify the accuracy and completeness of
the PNW statement. The certifier must
have a legitimate and demonstrable
need for the additional information.
(c) Reporting. The following rules
apply without regard to State
community property, equitable
distribution, or similar rules. The owner
reports assets and liabilities that she
owns or is deemed to own. Ownership
tracks title to the asset or obligor status
on the liability except where otherwise
provided or when the transaction results
in evasion or abuse.
(1) The owner excludes her
ownership interest in the applicant or
DBE.
(2) The owner excludes her share of
the equity in her primary residence.
There is no exclusion when the SEDO
does not own the home.
Example 1 to paragraph (c)(2). The
owner and her spouse hold joint title to
their primary residence, for which they
paid $300,000 and are coequal debtors
on a bank mortgage and a home equity
line of credit with current combined
balances of $150,000. The owner may
exclude her $75,000 share of the
$150,000 of total equity.
(3) The owner includes the full value
of the contents of her primary residence
unless she cohabits with a spouse or
domestic partner, in which case she
excludes only 50 percent of those assets.
(4) The owner includes the value of
all motor vehicles, including watercraft
and ATVs, titled in her name or of
which she is the principal operator.
(5) The owner excludes the liabilities
of any other party and those contingent
on a future event or of undetermined
value as of the date of the PNW
Statement.
(6) The owner includes her
proportional share of the balance of a
debt on which she shares joint and
severable liability with other primary
debtors.
Example 2 to paragraph (c)(6). When
the owner co-signs a debt instrument
with two other individuals, the rule
considers her liable for one-third of the
current loan balance.
(7) The owner includes assets
transferred to relatives or related entities
within the two years preceding any
UCA or DOE, when the assets so
transferred during the period have an
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aggregate value of more than $20,000.
Relatives include the owner’s spouse or
domestic partner, children (whether
biological, adopted or stepchildren),
siblings (including stepsiblings and
those of the spouse or domestic partner),
and parents (including stepparents and
those of the spouse or domestic partner).
Related entities include for-profit
privately held companies of which any
relative is an owner, officer, director, or
equivalent; and family or other trusts of
which the owner or any relative is
grantor, trustee, or beneficiary, except
when the transfer is irrevocable.
(8) The owner excludes direct
payments, on behalf of immediate
family members or their children, to
unrelated providers of healthcare,
education, or legal services.
(9) The owner excludes direct
payments to providers of goods and
services directly related to a celebration
of an immediate family member’s or that
family member’s child’s significant,
normally non-recurring life event.
(10) The owner excludes from net
worth all assets in qualified retirement
accounts but must report those
accounts, the value of assets in them,
and any significant terms and
restrictions concerning the assets’ use,
to the certifier.
(d) Regulatory adjustments. (1) The
Department will adjust the PNW cap by
May 9, 2024 by multiplying $1,600,000
by the growth in total household net
worth since 2019 as described by
‘‘Financial Accounts of the United
States: Balance Sheet of Households
(Supplementary Table B.101.h)’’
produced by the Board of Governors of
the Federal Reserve (https://
www.federalreserve.gov/releases/z1/),
and normalized by the total number of
households as collected by the Census
in ‘‘Families and Living Arrangements’’
(https://www.census.gov/topics/
families/families-and-households.html)
to account for population growth. The
Department will adjust the PNW cap
every 3 years on the anniversary of the
initial adjustment date described in this
section. The Department will post the
adjustments on the Departmental Office
of Civil Rights’ web page, available at
https://www.Transportation.gov/
DBEPNW. Each such adjustment will
become the currently applicable PNW
limit for purposes of this regulation.
(2) The Department will use the
following formula to adjust the PNW
limit:
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Ql-Q4 Average Household Net worth of2019 ($106,722,704 million/ Total
Households of2019 (128,579)
(e) Confidentiality. Notwithstanding
any provision of Federal or State law, a
certifier must not release an individual’s
PNW 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
§ 26.89 or to any other State to which
the individual’s firm has applied for
certification under § 26.85.
■ 51. Revise § 26.69 to read as follows:
ddrumheller on DSK120RN23PROD with RULES2
§ 26.69
Ownership.
(a) General rule. A SEDO must own at
least 51 percent of each class of
ownership of the firm. Each SEDO
whose ownership is necessary to the
firm’s eligibility must demonstrate that
her ownership satisfies the requirements
of this section. If not, the firm is
ineligible.
(b) Overall Requirements. A SEDO’s
acquisition and maintenance of an
ownership interest meets the
requirements of this section only if the
SEDO demonstrates the following:
(1) Acquisition. The SEDO acquires
ownership at fair value and by one or
more ‘‘investments,’’ as defined in
paragraph (c) of this section.
(2) Proportion. No owner derives
benefits or bears burdens that are clearly
disproportionate to their ownership
shares.
(3) Maintenance. This section’s
requirements continue to apply after the
SEDO’s acquisition and the firm’s
certification. That is, the SEDO must
maintain her investment and its
proportion relative to those of other
owners.
(i) The SEDO may not withdraw or
revoke her investment.
(ii) When an existing co-owner
contributes significant, additional, postacquisition cash or property to the firm,
the SEDO must increase her own
investment to a level not clearly
disproportionate to the non-SEDO’s
investment.
(A) Example 1 to paragraph (b)(3)(ii).
SEDO and non-SEDO own DBE 60/40.
Their respective investments are
approximately $600,000 and $400,000.
The DBE has operated its business
under this ownership and with this
capitalization for 2 years. In Year 3, the
non-SEDO contributes a $2 million asset
to the business. The SEDO, as a result,
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owns 60 percent of a $2 million asset
without any additional outlay. Her
ownership interest, assuming no other
pertinent facts, is worth $1.2 million
more than it was before. Unless the
SEDO increases her investment
significantly, it is clearly
disproportionate to the non-SEDO’s
investment and to her nominal 60
percent ownership. She has not
maintained her investment.
(B) Example 2 to paragraph (b)(3)(ii).
Same facts except that the DBE
purchases the asset with a combination
of 30 percent operating income and 70
percent proceeds of a bank loan. The
SEDO maintains her investment because
it remains in proportion to the nonSEDO’s investment and to the value of
her 60 percent ownership interest.
(C) Example 3 to paragraph (b)(3)(ii).
Same facts except that the non-SEDO,
not a bank, is the DBE’s creditor. The
SEDO has not maintained her
investment because the benefits and
burdens of her ownership are clearly
disproportionate to those of the nonSEDO. The transaction may also raise
§ 26.71 concerns.
(iii) An organic increase in the value
of the business does not affect
maintenance because the value of the
owners’ investments remains
proportional. In Example 2 above, the
SEDO and the non-SEDO own the new
asset at 60 percent and 40 percent of its
net value of $60,000.
(c) Investments. A SEDO may acquire
ownership by purchase, capital
contribution, or gift. Subject to the other
requirements of this section, each is
considered an ‘‘investment’’ in the firm,
as are additional purchases,
contributions, and qualifying gifts.
(1) Investments are unconditional and
at full risk of loss.
(2) Investments include a significant
outlay of the SEDO’s own money.
(3) For purposes of this part, title
determines ownership of assets used for
investments and of ownership interests
themselves. This rule applies regardless
of contrary community property,
equitable distribution, banking,
contract, or similar laws, rules, or
principles.
(i) The person who has title to the
asset owns it in proportion to her share
of title.
(ii) However, the title rule is deemed
not to apply when it produces a
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certification result that is manifestly
unjust.
(4) If the SEDO jointly (50/50) owns
an investment of cash or property, the
SEDO may claim at least a 51 percent
ownership interest only if the other joint
owner formally transfers to the SEDO
enough of his ownership in the invested
asset(s) to bring the SEDO’s investment
to at least 51 percent of all investments
in the firm. Such transfers may be gifts
described in paragraph (e) of this
section.
(d) Purchases and capital
contributions. (1) A purchase of an
ownership interest is an investment
when the consideration is entirely
monetary and not a trade of property or
services.
(2) Capital that the SEDO contributes
directly to the company is an
investment when the contribution is all
cash or a combination of cash and
tangible property and/or realty.
(3) Contributions of time, labor,
services, and the like are not
investments or components of
investments.
(4) Loans are not investments. The
proceeds of loans may be investments to
the extent that they finance the SEDO’s
qualifying purchase or capital
contribution.
(5) Debt-financed purchases or capital
contributions are investments when
they comply with the rules in this
section and in § 26.70.
(6) Guarantees are not investments.
(7) The firm’s purchases or sales of
property, including ownership in itself
or other companies, are not the SEDO’s
investments.
(8) Other persons’ or entities’
purchases or capital contributions are
not the SEDO’s investments.
(e) Gifts. A gift to the SEDO is an
investment when it meets the
requirements of this section. The gift
rules apply to partial gifts, bequests,
inheritances, trust distributions, and
transfers for inadequate consideration.
They apply to gifts of ownership
interests and to gifts of cash or property
that the SEDO invests. The following
requirements apply to gifts on which the
SEDO relies for her investment.
(1) The transferor/donor is or
immediately becomes uninvolved with
the firm in any capacity and in any
other business that contracts with the
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firm other than as a lessor or provider
of standard support services;
(2) The transferor does not derive
undue benefit; and
(3) A writing documents the gift.
When the SEDO cannot reasonably
produce better evidence, a receipt,
cancelled check, or transfer
confirmation suffices, if the writing
identifies transferor, transferee, amount
or value, and date.
(f) Curative measures. The rules of
this section do not prohibit transactions
that further the objectives of, and
compliance with, the provisions of this
part. A SEDO or firm may enter into
legitimate transactions, alter the terms
of ownership, make additional
investments, or bolster underlying
documentation in a good faith effort to
remove, surmount, or correct defects in
eligibility, as long as the actions are
consistent with this part.
(1) The certifier may notify the firm of
eligibility concerns and give the firm
time, if the firm wishes, to attempt to
remedy impediments to certification.
(2) The firm may, of its own volition,
take curative action up to the time of the
certifier’s decision. However, it must
present evidence of curation before the
certifier’s decision.
(3) The certifier may provide general
assistance and guidance but not
professional (legal, accounting,
valuation, etc.) advice or opinions.
(4) While the certifier may not
affirmatively impede attempts to cure, it
may maintain its decision timeline and
make its decision based on available
evidence.
(5) The certifier must deny or remove
certification when the firm’s efforts or
submissions violate the rules in
paragraph (g) of this section.
(g) Anti-abuse rules. (1) The substance
and not the form of transactions drives
the eligibility determination.
(2) The certifier must deny
applications based on sham transactions
or false representations, and it must
decertify DBEs that engage in or make
them. Transactions or representations
designed to evade or materially mislead
subject the firm to the same
consequences.
(3) Fraud renders the firm ineligible
and subjects it to sanctions, suspension,
debarment, criminal prosecution, civil
litigation, and any other consequence or
recourse not proscribed in this part.
Example 1 to paragraph (g)(3). SEDO
claims an investment consisting of a
contribution of equipment and a
significant amount of her own cash. She
shows that she transferred title to the
equipment and wrote a check from an
account she alone owns. She does not
disclose that her brother-in-law lent her
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the money and she must repay him. The
firm is ineligible under paragraphs (g)(1)
and (2) of this section.
■ 52. Add § 26.70 to read as follows:
§ 26.70
Debt-financed investments.
(a) Subject to the other provisions of
this subpart, a SEDO may borrow money
to finance a § 26.69(c) investment
entirely or partially if the SEDO has
paid, on a net basis, at least 15 percent
of the total value of the investment by
the time the firm applies for
certification.
Example 1 to paragraph (a)
introductory text. A SEDO who borrows
$9,000 of her $10,000 cash investment
in Applicant, Inc., must have repaid,
from her own funds, at least $500 of the
loan’s principal by the time Applicant,
Inc. applies for certification.
Example 2 to paragraph (a)
introductory text. A SEDO who finances
$8,000 of a $10,000 investment in
Applicant may apply for Applicant’s
certification at any time.
Example 3 to paragraph (a)
introductory text. A SEDO who
contributes to the Applicant equipment
worth $40,000, which she purchased
with $10,000 of her own money and
$30,000 of seller financing may apply
for Applicant’s certification at any time.
(1) The SEDO pays the net 15 percent
portion of the investment to Seller or
Applicant (as the case may be) from her
own, not borrowed, money.
(2) Money that the SEDO receives as
a § 26.69(e) gift is her own money.
(3) The firm, whether Applicant or
DBE, does not finance any part of the
investment, directly or indirectly.
(b) The loan is real, enforceable, not
in default, not offset by another
agreement, and on standard commercial,
arm’s length terms. The following
conditions also apply.
(1) The SEDO is the sole debtor.
(2) The firm is not party to the loan
in any capacity, including as a
guarantor.
(3) The SEDO does not rely on the
company’s credit or other resources to
repay any part of the debt or otherwise
to finance any part of her investment.
(4) The loan agreement requires level,
regularly recurring payments of
principal and interest, according to a
standard amortization schedule, at least
until the SEDO satisfies requirements in
paragraph (a) of this section.
(5) The loan agreement permits
prepayments, including by refinancing.
(c) If the creditor forgives or cancels
all or part of the debt, or the SEDO
defaults, the entire debt-financed
portion of the SEDO’s purchase or
capital contribution is no longer an
investment.
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Example 4 to paragraph (c). SEDO
finances $40,000 of a $50,000
investment, and the firm becomes
certified. When the SEDO has repaid
half of the loan’s principal and
associated interest, the creditor forgives
the remaining $20,000 debt. The SEDO’s
investment is now $10,000.
(d) Paragraph (c) of the section does
not prohibit refinancing with debt that
meets the requirements of this section or
preclude prompt curation under
§ 26.69(f).
■ 53. Revise § 26.71 to read as follows:
§ 26.71
Control.
(a) General rules. (1) One or more
SEDOs of the firm must control it.
(2) Control determinations must
consider all pertinent facts, viewed
together and in context.
(3) A firm must have operations in the
business for which it seeks certification
at the time it applies. Certifiers do not
certify plans or intentions, or issue
contingent or conditional certifications.
(b) SEDO as final decision maker. A
SEDO must be the ultimate decision
maker in fact, regardless of operational,
policy, or delegation arrangements.
(c) Governance. Governance
provisions may not require that any
SEDO obtain concurrence or consent
from a non-SEDO to transact business
on behalf of the firm.
(1) Highest officer position. A SEDO
must hold the highest officer position in
the company (e.g., chief executive
officer or president).
(2) Board of directors. Except as
detailed in paragraph (c)(4) of this
section, a SEDO must have present
control of the firm’s board of directors,
or other governing body, through the
number of eligible votes.
(i) Quorum requirements. Provisions
for the establishment of a quorum must
not block the SEDO from calling a
meeting to vote and transact business on
behalf of the firm.
(ii) Shareholder actions. A SEDO’s
authority to change the firm’s
composition via shareholder action does
not prove control within the meaning of
paragraph (c) of this section.
(3) Partnerships. In a partnership, at
least one SEDO must serve as a general
partner, with control over all
partnership decisions.
(4) Exception. Bylaws or other
governing provisions that require nonSEDO consent for extraordinary actions
generally do not contravene the rules in
paragraph (c) of this section. Nonexclusive examples are a sale of the
company or substantially all of its
assets, mergers, and a sudden,
wholesale change of type of business.
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(d) Expertise. At least one SEDO must
have an overall understanding of the
business and its essential operations
sufficient to make sound managerial
decisions not primarily of an
administrative nature. The requirements
of this paragraph (d) vary with type of
business, degree of technological
complexity, and scale.
(e) SEDO decisions. The firm must
show that the SEDO critically analyzes
information provided by non-SEDOs
and uses that analysis to make
independent decisions.
(f) Delegation. A SEDO may delegate
administrative activities or operational
oversight to a non-SED individual as
long as at least one SEDO retains
unilateral power to fire the delegate(s),
and the chain of command is evident to
all participants in the company and to
all persons and entities with whom the
firm conducts business.
(1) No non-SED participant may have
power equal to or greater than that of a
SEDO, considering all the
circumstances. Aggregate magnitude
and significance govern; a numerical
tally does not.
(2) Non-SED participants may not
make non-routine purchases or
disbursements, enter into substantial
contracts, or make decisions that affect
company viability without the SEDO’s
consent.
(3) Written provisions or policies that
specify the terms under which non-SED
participants may sign or act on the
SEDO’s behalf with respect to recurring
matters generally do not violate this
paragraph (f), as long as they are
consistent with the SEDO having
ultimate responsibility for the action.
(g) Independent business. (1) If the
firm receives from or shares personnel,
facilities, equipment, financial support,
or other essential resources, with
another business (whether a DBE or
non-DBE firm) or individual on other
than commercially reasonable terms, the
firm must prove that it would be viable
as a going concern without the
arrangement.
(2) The firm must not regularly use
another firm’s business-critical vehicles,
equipment, machinery, or facilities to
provide a product or service under
contract to the same firm or one in a
substantially similar business.
(i) Exception 1. Paragraphs (g)(1) and
(2) of this section do not preclude the
firm from providing services to a single
customer or to a small number of them,
provided that the firm is not merely a
conduit, captive, or unnecessary third
party acting on behalf of another firm or
individual. Similarly, providing a
volume discount to such a customer
does not impair viability unless the firm
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repeatedly provides the service at a
significant and unsustainable loss.
(ii) Exception 2. A firm may share
essential resources and deal exclusively
with another firm that a SEDO controls
and of which the SEDO owns at least 51
percent ownership.
(h) Franchise and license agreements.
A business operating under a franchise
or license agreement may be certified if
it meets the standards in this subpart
and the franchiser or licenser is not
affiliated with the franchisee or
licensee. In determining whether
affiliation exists, the certifier should
generally not consider the restraints
relating to standardized quality,
advertising, accounting format, and
other provisions imposed on the
franchisee or licensee by the franchise
agreement or license, if the franchisee or
licensee has the right to profit from its
efforts and bears the risk of loss
commensurate with ownership.
Alternatively, even though a franchisee
or licensee may not be controlled by
virtue of such provisions in the
franchise agreement or license,
affiliation could arise through other
means, such as common management or
excessive restrictions on the sale or
transfer of the franchise interest or
license.
■ 54. Revise § 26.73 to read as follows:
(3) Firms and certifiers must check
carefully to make sure that the NAICS
codes cited in a certification are kept
up-to-date and accurately reflect work
which the UCP has determined the
firm’s owners can control. The firm
bears the burden of providing detailed
company information the certifying
agency needs to make an appropriate
NAICS code designation.
(4) A certifier may change a
certification classification or description
if there is a factual basis in the record,
in which case it must notify the firm 30
days before making the change.
Certifiers may not apply such changes
retroactively.
(5) In addition to applying the
appropriate NAICS code, the certifier
may apply a descriptor from a
classification scheme of equivalent
detail and specificity. Such a descriptor
(e.g., a ‘‘work code’’) does not supersede
or limit the types of work for which a
DBE is eligible under an appropriate
NAICS code.
(b) [Reserved]
■ 55. Amend § 26.81 by:
■ a. Revising paragraph (a)(1);
■ b. Removing paragraph (a)(5);
■ b. In paragraph (e), removing the word
‘‘the’’ from the first sentence; and
■ c. Revising paragraph (g).
The revisions read as follows:
§ 26.73
§ 26.81
NAICS Codes.
(a) A certifier must grant certification
to a firm only for specific types of work
that the SEDO controls. To become
certified in an additional type of work,
the firm must demonstrate to the
certifier only that its SEDO controls the
firm with respect to that type of work.
The certifier must not require that the
firm be recertified or submit a new
application for certification but must
verify the SEDO’s control of the firm in
the additional type of work.
(1) A correct NAICS code is the one
that describes, as specifically as
possible, the principal goods or services
which the firm would provide to DOT
recipients. Multiple NAICS codes may
be assigned where appropriate. Program
participants must rely on, and not
depart from, the plain meaning of
NAICS code descriptions in determining
the scope of a firm’s certification.
(2) If there is not a NAICS code that
fully, clearly, or sufficiently narrowly
describes the type(s) of work for which
the firm seeks certification, the certifier
must supplement or limit the assigned
NAICS code(s) with a clear, specific,
and concise narrative description of the
type of work in which the firm is
certified. A vague, general, or confusing
description is insufficient.
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Unified Certification Programs.
(a) * * *
(1) All recipients in the same
jurisdiction (normally a State) must sign
an agreement establishing a UCP and
submit the agreement to the Secretary
for approval.
*
*
*
*
*
(g) Each UCP must maintain a unified
DBE directory containing, for all firms
certified by the UCP (including those
from other States certified under the
provisions of this part), the information
required by § 26.31. The UCP must
make the directory available to the
public electronically, on the internet.
The UCP must update the electronic
version of the directory by including
additions, deletions, and other changes
as soon as they are made.
*
*
*
*
*
■ 56. Amend § 26.83 by revising the
section heading and paragraphs (c)(1)(i),
(c)(3), (h), (i)(3), (j), (k), (l), and (m) and
adding paragraph (n) to read as follows:
§ 26.83 What procedures do certifiers
follow in making certification decisions?
*
*
*
*
*
(c)(1) * * *
(i) A certifier must visit the firm’s
principal place of business, virtually or
in person, and interview the SEDO,
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officers, and key personnel. The certifier
must review those persons’ re´sume´s
and/or work histories. The certifier must
maintain a complete audio recording of
the interview. The certifier must also
visit one or more active job sites (if there
is one). These activities comprise the
‘‘on-site review’’ (OSR), a written report
of which the certifier must keep in its
files.
*
*
*
*
*
(3) The certifier must ensure that the
SEDO signs the Declaration of Eligibility
(DOE) at the end of the Uniform
Certification Application (UCA),
subscribed to as true under penalty of
perjury that all information provided is
current, accurate, and complete.
*
*
*
*
*
(h)(1) Once a certifier has certified a
firm, the firm remains certified unless
and/or until the certifier removes
certification, in whole or in part (i.e.,
NAICS code removal), through the
procedures of § 26.87.
(2) The certifier may not require a
DBE to reapply for certification, renew
its certification, undergo a
recertification, or impose any
functionally equivalent requirement.
The certifier may, however, conduct a
certification review at any reasonable
time and/or at regular intervals of at
least two years. The certification review
may, at the certifier’s discretion, include
a new OSR. The certifier may also make
an unannounced visit to the DBE’s
offices and/or job site. The certifier may
also rely on another certifier’s report of
its OSR of the DBE.
(i) * * *
(3) The DBE must notify the certifier
of a material change in its circumstances
that affects its continued eligibility
within 30 days of its occurrence,
explain the change fully, and include a
duly executed DOE with the notice. The
DBE’s non-compliance is a § 26.109(c)
failure to cooperate.
(j) A DBE must provide its certifier(s),
every year on the anniversary of its
original certification, a new DOE along
with the specified documentation in
§ 26.65(a), including gross receipts for
its most recently completed fiscal year,
calculated on a cash basis regardless of
the DBE’s overall accounting method.
The sufficiency of documentation (and
its probative value) may vary by
business type, size, history, resources,
and overall circumstances. However, the
following documents may generally be
considered ‘‘safe harbors,’’ provided
that they include all reportable receipts,
properly calculated, for the full
reporting period: audited financial
statements, a CPA’s signed attestation of
correctness and completeness, or all
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income-related portions of one or more
(when there are affiliates) signed
Federal income tax returns as filed.
Non-compliance, whether full or partial,
is a § 26.109(c) failure to cooperate.
(k) The certifier must advise each
applicant within 30 days of filing
whether the application is complete and
suitable for evaluation and, if not, what
additional information or action is
required.
(l) The certifier must render a final
eligibility decision within 90 days of
receiving all information required from
the applicant under this part. The
certifier may extend this time period
once, for no more than an additional 30
days, upon written notice to the firm,
explaining fully and specifically the
reasons for the extension. On a case-bycase basis, the concerned OA may give
the certifier one deadline extension if it
approves a written request explaining
why the certifier needs more time. The
certifier’s failure to issue a compliant
decision by the applicable deadline is a
constructive denial of the application,
appealable to DOT under § 26.89. In this
case, the certifier may be subject to
enforcement actions described in
§§ 26.103 and 26.105.
(2) The certifier must make an entry
in DOCR’s Online Portal within 5 days
of a denial. The certifier must enter the
name of the firm, names(s) of the firm’s
owner(s), date of decision, and the
reason(s) for its decision.
(m)(1) A certifier may notify the
applicant about ineligibility concerns
and allow the firm to rectify deficiencies
within the period in paragraph (l) of this
section.
(2) If a firm takes curative measures
before the certifier renders a decision,
the certifier must consider any evidence
it submits of having taken such
measures. The certifier must not
automatically construe curative
measures as successful or abusive.
(i) Example 1 to paragraph (m)(2).
The firm may obtain proof of an
investment, transaction, or other fact on
which its eligibility depends.
(ii) Example 2 to paragraph (m)(2).
An owner or related party may create a
legally enforceable document of
irrevocable transfer to the SEDO.
(iii) Example 3 to paragraph (m)(2).
The firm may amend an operating
agreement, bylaw provision, or other
governance document, provided that the
amendment accurately reflects the
parties’ relationships, powers,
responsibilities, and other pertinent
circumstances.
(n) Except as otherwise provided in
this paragraph (n), if an applicant for
DBE certification withdraws its
application before the certifier issues a
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decision, the applicant can resubmit the
application at any time. However, the
certifier may place the reapplication at
the ‘‘end of the line,’’ behind other
applications that have been made since
the firm’s previous application was
withdrawn. The certifier may apply the
§ 26.86(c) waiting period to a firm that
has established a pattern of withdrawing
applications before its decision.
■ 57. Revise § 26.85 to read as follows:
§ 26.85
Interstate certification.
(a) Applicability. This section applies
to a DBE certified in any UCP.
(b) General rule. When a DBE applies
to another UCP for certification, the new
UCP must accept the DBE’s certification
from its jurisdiction of original
certification (JOC). The JOC is the State
in which the firm maintains its
principal place of business at the time
of application unless and until the firm
loses certification in that jurisdiction.
(c) Application procedure. To obtain
certification by an additional UCP, the
DBE must provide:
(1) A cover letter with its application
that specifies that the DBE is applying
for interstate certification, identifies all
UCPs in which the DBE is certified
(including the UCP that originally
certified it)
(2) An electronic image of the UCP
directory of the original UCP that shows
the DBE certification; and
(3) A new DOE.
(d) Confirmation of eligibility. Within
10 business days of receiving the
documents required under paragraph (c)
of this section, the additional UCP must
confirm the certification of the DBE
preferably by reference to the UCP
directory of the JOC.
(e) Certification. If the DBE fulfills the
requirements of paragraph (c) of this
section and the UCP confirms the DBE’s
certification per paragraph (d) of this
section, the UCP must certify the DBE
immediately without undergoing further
procedures and provide the DBE with a
letter documenting its certification.
(f) Noncompliance. Failure of the
additional UCP to comply with
paragraphs (d) and (e) of this section is
considered non-compliance with this
part.
(g) Post-interstate certification
proceedings. (1) After the additional
UCP certifies the DBE, the UCP may
request a fully unredacted copy of all,
or a portion of, the DBE’s certification
file from any other UCP in which the
DBE is certified.
(2) A UCP must provide a complete
unredacted copy of the DBE’s
certification materials to the additional
UCP within 30 days of receiving the
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request. Confidentiality requirements of
§§ 26.83(d) and 26.109(b) do not apply.
(3) Once the new UCP certifies, then
it must treat the DBE as it treats other
DBEs, for all purposes.
(4) The DBE must provide an annual
DOE with documentation of gross
receipts, under § 26.83(j), to certifying
UCPs on the anniversary date of the
DBE’s original certification by its JOC.
(h) Decertifications. (1) If any UCP has
reasonable cause to remove a DBE’s
certification, in whole or in part (i.e.,
NAICS code removal), it must notify the
other UCPs in which the DBE is
certified (‘‘other jurisdictions’’) via
email. The notice must explain the
UCP’s reasons for believing the DBE’s
certification should be removed.
(2) Within 30 days of receiving the
notice, the other jurisdictions must
email the UCP contemplating
decertification a concurrence or nonconcurrence with the proposed action.
The other jurisdictions’ responses may
provide written arguments and evidence
and may propose additional reasons to
remove certification. A jurisdiction’s
failure to timely respond to the
reasonable cause notice will be deemed
to be a concurrence.
(3) After a UCP receives all timely
responses, it must make an independent
decision whether to issue a NOI and
what grounds to include.
(4) Other UCPs may, before the
hearing, submit written arguments and
evidence concerning whether the firms
should remain certified, but may not
participate in the hearing.
(5) If the UCP finds the firm ineligible
the firm immediately loses certification
in all jurisdictions in which it is
certified. The NOD must include appeal
instructions provided on the
Departmental Office of Civil Rights’ web
page, available at https://
www.transportation.gov/dbeappeal. The
UCP must email a copy of its decision
to the other jurisdictions within 3
business days.
(6) The rules of this paragraph (h)(6)
do not apply to attempts to decertify
based upon a DBE’s actions or inactions
pertaining to §§ 26.83(j) (Declaration of
Eligibility) and 26.87(e)(6) (failure to
cooperate).
(7) Decertifications under this
paragraph (h) must provide due process
to DBEs.
(i) If a UCP decides not to issue a
NOD removing the DBE’s certification,
no jurisdiction may initiate
decertification proceedings, within one
year, on the same or similar grounds
and underlying facts.
(ii) If a DBE believes a UCP unfairly
targets it with repeated decertification
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attempts, the DBE may file a complaint
to the appropriate OA.
(8) The Department’s appeal decisions
are binding on all UCPs unless stated
otherwise.
■ 58. Revise § 26.86 to read as follows:
§ 26.86
Decision letters.
(a) When a certifier denies a firm’s
request for certification or decertifies
the firm, the certifier must provide the
firm a NOD explaining the reasons for
the adverse decision, specifically
referencing the evidence in the record
that supports each reason. A certifier
must also include, verbatim, the
instructions found on the Departmental
Office of Civil Rights’ web page,
available at https://
www.transportation.gov/dbeappeal.
(b) The certifier must promptly
provide the applicant copies of all
documents and other information on
which it based the denial if the
applicant requests them.
(c) The certifier must establish a
waiting period for reapplication of no
more than 12 months. That period
begins to run the day after the date of
the decision letter is emailed. After the
waiting period expires, the denied firm
may reapply to any member of the UCP
that denied the application. The certifier
must inform the applicant of that right,
and specify the date the waiting period
ends, in its decision letter.
(d) An appeal does not extend the
waiting period.
■ 59. Revise § 26.87 to read as follows:
§ 26.87
Decertification.
(a) Burden of proof. To decertify a
DBE, the certifier bears the burden of
proving, by a preponderance of the
evidence, that the DBE does not meet
the certification standards of this part.
(b) Initiation of decertification
proceedings. (1) A certifier may
determine on its own that it has
reasonable cause to decertify a DBE.
(2) If an OA determines that there is
reasonable cause to believe that a DBE
does not meet the eligibility criteria of
this part, the OA may direct the certifier
to initiate a proceeding to remove the
DBE’s certification.
(i) The OA must provide the certifier
and the DBE written notice describing
the reasons for the directive, including
any relevant documentation or other
information.
(ii) The certifier must immediately
commence a proceeding to decertify as
provided by paragraph (e) of this
section.
(3) Any person may file a complaint
explaining, with specificity, why the
certifier should decertify a DBE. The
certifier need not act on a general
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allegation or an anonymous complaint.
The certifier must keep complainants’
identities confidential as provided in
§ 26.109(b).
(i) The certifier must review its
records concerning the DBE, any
material the DBE and/or complainant
provides, and any other available
information. The certifier may request
additional information from the DBE or
conduct any other investigation that it
deems necessary.
(ii) If the certifier determines that
there is reasonable cause to decertify the
DBE, it initiates a decertification
proceeding. If it determines that there is
not such reasonable cause, it notifies the
complainant and the DBE in writing of
its decisions and the reasons for it.
(c) Notice of intent (NOI). A certifier’s
first step in any decertification
proceeding must be to email a notice of
intent (NOI) to the DBE.
(1) The NOI must clearly and
succinctly state each reason for the
proposed action, and specifically
identify the supporting evidence for
each reason.
(2) The NOI must notify the DBE of
its right to respond in writing, at an
informal hearing, or both.
(3) The NOI must inform the DBE of
the hearing scheduled on a date no
fewer than 30 days and no more than 45
days from the date of the NOI.
(4) If the ground for decertification is
that the DBE has been suspended or
debarred for conduct related to the DBE
program, the certifier issues a NOD
decertifying the DBE. In this case, there
is no NOI or opportunity for a hearing
or written response.
(d) Response to NOI. (1) If the DBE
wants a hearing, it must email the
certifier saying so within 10 days of the
NOI. If the DBE does not do so, it loses
its opportunity for a hearing.
(2) The certifier and DBE may
negotiate a different hearing date from
that stated in the NOI. Parties must not
engage in dilatory tactics.
(3) If the DBE does not want a hearing,
or does not give timely notice to the
certifier that it wants one, the DBE may
still provide written information and
arguments to the certifier rebutting the
reasons for decertification stated in the
NOI.
(e) Hearings. (1) The purpose of the
hearing is for the certifier to present its
case and for the DBE to rebut the
certifier’s allegations.
(2) The hearing is an informal
proceeding with rules set by the hearing
officer. The SEDO’s attorney, a nonSEDO, or other individuals involved
with the DBE may attend the hearing
and answer questions related to their
own experience or more generally about
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the DBE’s ownership, structure and
operations.
(3) The certifier must maintain a
complete record of the hearing, either in
writing, video or audio. If the DBE
appeals to DOT under § 26.89, the
certifier must provide that record to
DOT and to the DBE.
(f) Separation of functions. The
certifier must ensure that the decision in
a decertification case is made by an
individual who did not take part in
actions leading to or seeking to
implement the proposal to decertify the
DBE and is not subject, with respect to
the matter, to direction from the office
or personnel who did take part in these
actions.
(1) The certifier’s method of
implementing this requirement must be
made part of its DBE program and
approved by the appropriate OA.
(2) The decisionmaker must be an
individual who is knowledgeable about
the certification requirements of this
part.
(g) Notice of decision. The certifier
must send the firm a NOD no later than
30 days of the informal hearing and/or
receiving written arguments/evidence
from the firm in response to the NOI.
(1) The NOD must describe with
particularity the reason(s) for the
certifier’s decision, including specific
references to the evidence in the record
that supports each reason. The NOD
must also inform the firm of the
consequences of the decision under
paragraph (i) of this section and of its
appeal rights under § 26.89.
(2) The certifier must send copies of
the NOD to the complainant in an
ineligibility complaint or to the OA that
directed the certifier to initiate the
proceeding.
(3) When sending a copy of an NOD
to a complainant other than an OA, the
certifier must not include information
reasonably construed as confidential
business information, unless the
certifier has the written consent of the
firm that submitted the information.
(4) The certifier must make an entry
in DOCR’s Online Portal within 5 days
of the action. The certifier must enter
the name of the firm, names(s) of the
firm’s owner(s), date of decision, and
the reason(s) for its decision.
(h) Status of firm during proceeding.
(1) A DBE remains certified until the
certifier issues a NOD.
(i) [Reserved]
(j) Consequences. Decertification has
the following effects on contract and
overall goals and DBE participation:
(1) When a prime contractor has made
a commitment to use the decertified
firm, but a subcontract has not been
executed before the certifier issues the
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NOD, the certified firm does not count
toward the contract goal. The recipient
must direct the prime contractor to meet
the contract goal with an eligible DBE or
demonstrate the certifier that it has
made good faith efforts to do so.
(2) When the recipient has made a
commitment to using a DBE prime
contractor, but a contract has not been
executed before a decertification notice
provided for in paragraph (g) of this
section is issued, the decertified firm
does not count toward the recipient’s
overall DBE goal.
(3) If a prime contractor has executed
a subcontract with the firm before the
certifier has notified the firm of its
decertification, the prime contractor
may continue to use the firm and may
continue to receive credit toward the
DBE goal for the firm’s work. In this
case, however, the prime contractor may
not extend or add work to the contract
after the firm was notified of its
decertification without prior written
consent from the recipient.
(4) If a prime contractor has executed
a subcontract with the firm before the
certifier has notified the firm of its
decertification, the prime contractor
may continue to use the firm as set forth
in paragraph (j)(3) of this section;
however, the portion of the decertified
firm’s continued performance of the
contract must not count toward the
recipient’s overall goal.
(5) If the recipient executed a prime
contract with a DBE that was later
decertified, the portion of the
decertified firm’s performance of the
contract remaining after the certifier
issued the notice of its decertification
must not count toward an overall goal,
but the DBE’s performance of the
contract may continue to count toward
satisfying the contract goal.
(6) The following exceptions apply to
this paragraph (j):
(i) If a certifier decertifies a firm solely
because it exceeds the business size
standard during the performance of the
contract, the recipient may continue to
count the portion of the decertified
firm’s performance of the contract
remaining after it issued the notice of its
decertification toward the recipient’s
overall goal as well as toward the
contract goals.
(ii) If the certifier decertifies the DBE
because it was acquired by or merged
with a non-DBE, the recipient may not
continue to count the portion of the
decertified firm’s performance on the
contract remaining after the certifier
decertified it toward either the contract
goal or the overall goal, even if a prime
contractor has executed a subcontract
with the firm or the recipient has
executed a prime contract with the DBE
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that was later decertified. In this case,
if eliminating the credit of the
decertified firm will affect the prime
contractor’s ability to meet the contract
goal, the recipient must direct the prime
contractor to subcontract to an eligible
DBE to the extent needed to meet the
contract goal or demonstrate to the
recipient that it has made good faith
efforts to do so.
■ 60. Revise § 26.88 to read as follows:
§ 26.88 Summary suspension of
certification.
(a) Definition. Summary suspension is
an extraordinary remedy for lapses in
compliance that cannot reasonably or
adequately be resolved in a timely
manner by other means.
(1) A firm’s certification is suspended
under this part as soon as the certifier
transmits electronic notice to its owner
at the last known email address.
(2) During the suspension period, the
DBE may not be considered to meet a
contract or participation goal on
contracts executed during the
suspension period.
(b) Mandatory and elective
suspensions—(1) Mandatory. The
certifier must summarily suspend a
DBE’s certification when:
(i) The certifier has clear and credible
evidence of the DBE’s or its SEDO’s
involvement in fraud or other serious
criminal activity.
(ii) The OA with oversight so directs.
(2) Elective. (i) The certifier has
discretion to suspend summarily if it
has clear and credible evidence that the
DBE’s continued certification poses a
substantial threat to program integrity.
(ii) An owner upon whom the firm
relies for eligibility does not timely file
the declaration and gross receipts
documentation that § 26.83(j) requires.
(c) Coordination with other remedies.
In most cases, a simple information
request or a § 26.87 NOI is a sufficient
response to events described in
paragraphs (b)(1) and (2) of this section.
The certifier should consider the burden
to the DBE and to itself in determining
whether summary suspension is a more
prudent and proportionate, effective
response. The certifier may elect to
suspend the same DBE just once in any
12-month period.
(d) Procedures—(1) Notice. The
certifier must notify the firm, by email,
of its summary suspension notice (SSN)
on a business day during regular
business hours. The SSN must explain
the action, the reason for it, the
consequences, and the evidence on
which the certifier relies.
(i) Elective SSNs may not cite more
than one reason for the action.
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(ii) Mandatory SSNs may state
multiple reasons.
(iii) The SSN, regardless of type, must
demand that the DBE show cause why
it should remain certified and provide
the time and date of a virtual showcause hearing at which the firm may
present information and arguments
concerning why the certifier should lift
the suspension. The SSN must also
advise that the DBE may provide written
information and arguments lieu of or in
addition to attending the hearing.
(2) Hearing. The hearing date must be
a business day that is at least 15 but not
more than 25 days after the date of the
notice. The DBE may respond in writing
in lieu of or in addition to attending the
hearing; however, it will have waived
its right to a hearing if it does not
confirm its attendance within 10 days of
the notice and will have forfeited its
certification if it does not acknowledge
the notice within 15 days. The showcause hearing must be conducted as a
video conference on a standard
commercial platform that the DBE may
readily access at no cost.
(3) Response. The DBE may provide
information and arguments concerning
its continuing eligibility until the 15th
day following the suspension notice or
the day of the hearing, if any, whichever
is later. The DBE must email any written
response it provides. Email submissions
correctly addressed are effective when
sent. The certifier may permit additional
submissions after the hearing, as long as
the extension ends on a business day
that is not more than 30 days after the
notice.
(4) Scope and burdens. (i) Suspension
proceedings are limited to the
suspension ground specified in the
notice.
(ii) The certifier may not amend its
reason(s) for summarily suspending
certification, nor may it electively
suspend the firm again during the 12month period following the notice.
(iii) The DBE has the burden of
producing information and/or making
arguments concerning its continued
eligibility, but it need only contest the
reason cited.
(iv) The certifier has the burden of
proving its case by a preponderance of
the evidence. It must issue an NOD
within 30 days of the suspension notice
or lift the suspension. Any NOD must
rely only on the reason given in the
summary suspension notice.
(v) The DBE’s failure to provide
information contesting the suspension
does not impair the certifier’s ability to
prove its case. That is, the uncontested
evidence upon which the certifier relies
in its notice, if substantial, will
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constitute a preponderance of the
evidence for purposes of the NOD.
(6) Duration. The DBE remains
suspended during the proceedings
described in this section but in no case
for more than 30 days. If the certifier has
not lifted the suspension or provided a
rule-compliant NOD by 4:30 p.m. on the
30th day, then it must lift the
suspension and amend applicable DBE
lists and databases by 12 p.m. the
following business day.
(e) Recourse—(1) Appeal. The DBE
may appeal a final decision under
paragraph (c)(5)(iv) of this section, as
provided in § 26.89(a), but may not
appeal the suspension itself, unless
paragraph (d)(2) of this section applies.
(2) Enforcement. (i) The DBE may
immediately petition the Department for
an order to vacate a certifier’s action if:
(A) The certifier sends a second
elective SSN within 12 months, or
(B) Cites multiple reasons in an
elective SSN contrary to paragraph
(d)(1)(i) of this section.
(ii) The DBE may also petition to the
Department for an order to compel if the
certifier fails to act within the time
specified in paragraph (c)(6) of this
section.
(3) In either case, the DBE must:
(i) Email the request under the subject
line, ‘‘REQUEST FOR ENFORCEMENT
ORDER’’ in all caps;
(ii) Limit the request to a one-page
explanation that includes:
(A) The certifier’s name and the
suspension dates;
(B) Contact information for the
certifier, the DBE, and the DBE’s
SEDO(s); and
(C) The general nature and date of the
firm’s response, if any, to the second
suspension notice; and
(D) The suspension notice(s).
■ 61. Revise § 26.89 to read as follows:
§ 26.89
Appeals to the Department.
(a)(1) Applicants and decertified firms
may appeal adverse NODs to the
Department.
(2) An ineligibility complainant or
applicable Operating Administration
(the latter by the terms of § 26.87(c))
may appeal to the Department if the
certifier does not find reasonable cause
to issue an NOI to decertify or
affirmatively determines that the DBE
remains eligible.
(3) Appellants must email appeals as
directed in the certifier’s decision letter
within 45 days of the date of the letter.
The appeal must at a minimum include
a narrative that explains fully and
specifically why the firm believes the
decision is in error, what outcomedeterminative facts the certifier did not
consider, and/or what part 26
provisions the certifier misapplied.
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Sfmt 4700
(4) The certifier’s decision remains in
effect until the Department resolves the
appeal or the certifier reverses itself.
(b) When it receives an appeal, the
Department requests a copy of the
certifier’s complete administrative
record including a video, audio, or
transcript of any hearing, which the
certifier must provide within 20 days of
the Department’s request. The
Department may extend this time period
when the certifier demonstrates good
cause. The certifier must ensure that the
administrative record is well organized,
indexed, and paginated and the certifier
must provide the appellant a copy of
any supplemental information it
provides to DOT.
(c)(1) The Department may accept an
untimely or incomplete appeal if it
determines, in its sole discretion, that
doing so is in the interest of justice.
(2) The Department may dismiss noncompliant or frivolous appeals without
further proceedings.
(d) The Department will avail itself of
whatever remedies for noncompliance it
considers appropriate.
(e) The Department decides only the
issue(s) presented on appeal. It does not
conduct a de novo review of the matter,
assess all eligibility requirements, or
hold hearings. It considers the
administrative record and any
additional information that it considers
relevant.
(f)(1) The Department affirms the
certifier’s decision if it determines that
the decision is consistent with
applicable rules and supported by
substantial evidence.
(2) The Department reverses decisions
that do not meet the standard in
paragraph (f)(1) of this section.
(3) The Department need not reverse
if an error or omission did not result in
fundamental unfairness or undue
prejudice.
(4) The Department may remand the
case with instructions for further action.
When the Department specifies further
actions, the certifier must take them
without delay.
(5) The Department generally does not
uphold the certifier’s decision based on
grounds not specified in its decision.
(6) The Department resolves appeals
on the basis of facts demonstrated, and
evidence presented, at the time of the
certifier’s decision.
(7) The Department may summarily
dismiss an appeal. Reasons for doing so
include, but are not limited to, noncompliance, abuse of process, appellant
or certifier request, and failure to state
a claim upon which relief can be
granted.
(g) The Department does not issue
advisory opinions.
E:\FR\FM\09APR2.SGM
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(h) All decisions described in
paragraph (f) of this section are
administratively final unless they say
otherwise.
(i) DOCR posts final decisions to its
website, available at https://
www.transportation.gov/DBEDecisions.
§ 26.91
[Amended]
62. Amend § 26.91 by:
■ a. Removing the words ‘‘recipients’’
and ‘‘recipient’’ wherever they appear
and adding in their places the words
‘‘certifiers’’ and ‘‘certifier’’, respectively;
and
ddrumheller on DSK120RN23PROD with RULES2
■
VerDate Sep<11>2014
20:02 Apr 08, 2024
Jkt 262001
b. In paragraph (b)(1), removing the
cross-reference ‘‘§ 26.87(i)’’ and adding
in its place the cross-reference
‘‘§ 26.87(j)’’.
■
§ 26.103
[Amended]
63. Amend § 26.103 in paragraph
(d)(2) by removing the words ‘‘being in
compliance’’ and adding in their place
the word ‘‘complying’’.
■
Appendix A to Part 26 [Amended]
64. Amend appendix A by:
a. Removing the word ‘‘Conducing’’ in
paragraph IV.A.(1) and adding in its
place the word ‘‘Conducting’’; and
■
■
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b. Adding at the end of paragraph VI
after the word ‘‘efforts’’ the phrase
‘‘except in design-build procurement’’.
■
Appendix B to Part 26 [Removed and
Reserved]
66. Remove and reserve appendix B to
part 26.
■
Appendices E Through G to Part 26
[Removed]
67. Remove appendices E through G to
part 26.
■
[FR Doc. 2024–05583 Filed 4–8–24; 8:45 am]
BILLING CODE 4910–9X–P
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]]>Agencies
[Federal Register Volume 89, Number 69 (Tuesday, April 9, 2024)]
[Rules and Regulations]
[Pages 24898-24979]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-05583]
[[Page 24897]]
Vol. 89
Tuesday,
No. 69
April 9, 2024
Part II
Department of Transportation
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49 CFR Parts 23 and 26
Disadvantaged Business Enterprise and Airport Concession Disadvantaged
Business Enterprise Program Implementation Modifications; Final Rule
Federal Register / Vol. 89 , No. 69 / Tuesday, April 9, 2024 / Rules
and Regulations
[[Page 24898]]
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DEPARTMENT OF TRANSPORTATION
Office of the Secretary
49 CFR Parts 23 and 26
[Docket No. DOT-OST-2022-0051]
RIN 2105-AE98
Disadvantaged Business Enterprise and Airport Concession
Disadvantaged Business Enterprise Program Implementation Modifications
AGENCY: Office of the Secretary (OST), U.S. Department of
Transportation (DOT or the Department).
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: The U.S. Department of Transportation (DOT or Department) is
amending its Disadvantaged Business Enterprise (DBE) and Airport
Concession Disadvantaged Business Enterprise (ACDBE) program
regulations. The DBE and ACDBE programs are designed to allow small
businesses owned and controlled by socially and economically
disadvantaged individuals to compete fairly for DOT funded contracts
let by State and local transportation agencies and in airport
concession opportunities. The final rule improves program
implementation in major areas, including by updating the personal net
worth and program size thresholds for inflation; modernizing rules for
counting of material suppliers; incorporating procedural flexibilities
enacted during the coronavirus (COVID-19) pandemic; adding elements to
foster greater usage of DBEs and ACDBEs with concurrent, proactive
monitoring and oversight; updating certification provisions with less
prescriptive rules that give certifiers flexibility when determining
eligibility; revising the interstate certification process to provide
for reciprocity among certifiers; and making technical corrections to
commonly misinterpreted rules.
DATES: This rule is effective May 9, 2024.
FOR FURTHER INFORMATION CONTACT: For questions related to the final
rule or general information about the DBE and ACDBE Program
regulations, please contact Marc D. Pentino, Associate Director,
Disadvantaged Business Enterprise Programs Division, Departmental
Office of Civil Rights, Office of the Secretary, U.S. Department of
Transportation, 1200 New Jersey Avenue SE, Room W78-302, Washington, DC
20590, at 202-366-6968/[email protected] or Lakwame Anyane-Yeboa,
ACDBE and DBE Compliance Lead, Disadvantaged Business Enterprise
Programs Division, Departmental Office of Civil Rights, Office of the
Secretary, U.S. Department of Transportation, 1200 New Jersey Avenue
SE, Room W78-103, Washington, DC 20590, at 202-366-9361/[email protected]. Questions concerning part 23 amendments should be
directed to Marcus England, Office of Civil Rights, National Airport
Civil Rights Policy and Compliance (ACR-4C), Federal Aviation
Administration, 600 Independence Ave. SW, Washington, DC 20591, at 202-267-0487/[email protected] or Nicholas Giles, Office of Civil
Rights, National Airport Civil Rights Policy and Compliance (ACR-4C),
Federal Aviation Administration, 600 Independence Ave. SW, Washington,
DC 20591, at 202-267-0201/[email protected]. Office hours are from
8 a.m. to 4:30 p.m., E.T., Monday through Friday, except Federal
holidays.
Electronic Access and Filing
This document, the Notice of Proposed Rulemaking (NPRM), all
comments received, and all background material may be viewed online at
www.regulations.gov using the docket number listed above. Electronic
retrieval help and guidelines are available on the website. It is
available 24 hours each day, 365 days each year. An electronic copy of
this document may also be downloaded from the Office of the Federal
Register's website at www.federalregister.gov and the Government
Publishing Office's website at www.GovInfo.gov.
SUPPLEMENTARY INFORMATION:
Table of Contents
Executive Summary
49 CFR Part 26
Subpart A--General
1. Bipartisan Infrastructure Law (BIL) and Fixing America's
Surface Transportation (FAST) Act (Sec. 26.3)
2. Definitions (Sec. 26.5)
3. Reporting Requirements (Sec. 26.11 and Appendix B)
Subpart B--Administrative Requirements for DBE Programs for
Federally Assisted Contracting
4. Threshold Program Requirement for FTA Recipients (Sec.
26.21)
5. Unified Certification Program (UCP) DBE/ACDBE Directories
(Sec. Sec. 26.31, 26.81(g))
6. Monitoring Requirements (Sec. 26.37)
Subpart C--Goals, Good Faith Efforts, and Counting
7. Prompt Payment and Retainage (Sec. 26.29)
8. Transit Vehicle Manufacturers (TVMs) (Sec. 26.49)
9. Good Faith Efforts Procedures for Contracts With DBE Goals
(Sec. 26.53)
10. Terminations
11. DBE Supplier Credit (Sec. 26.55(e))
Subpart D--Certification Standards
12. General Certification Rules (Sec. 26.63)
13. Business Size (Sec. Sec. 26.65, 23.33)
14. Personal Net Worth (PNW) Adjustment (Sec. 26.68)
15. Presumption of Social and Economic Disadvantage (SED)
(Sec. Sec. 26.5, 26.63, 26.67
16. Ownership (Sec. 26.69)
17. Control (Sec. 26.71)
Subpart E--Certification Procedures
18. Technical Corrections to UCP Requirements (Sec. 26.81)
19. Virtual On-Site Visits (Sec. Sec. 26.83(c)(1) and (h)(1))
20, 23. Timely Processing of In-State Certification Applications
(Sec. 26.83(k))
21. Curative Measures (Sec. 26.83(m))
22. Interstate Certification (Sec. 26.85)
23. Denials of Initial Requests for Certification
24. Decertification Procedures (Sec. 26.87)
25. Counting DBE Participation After Decertification (Sec.
26.87(j))
26. Summary Suspension (Sec. 26.88)
27. Appeals to the Departmental Office of Civil Rights (DOCR)
(Sec. 26.89)
28. Updates to Appendices F and G
49 CFR Part 23
Subpart A--General
29. Miscellaneous Program Elements and Conncerns
30. Aligning Part 23 With Part 26 Objectives (Sec. 23.1)
31. Definitions (Sec. 23.3)
Subpart B--ACDBE Programs
32. Socially and Economically Disadvantaged Owned Financial
Institutions (Sec. 23.23)
33. Direct Ownership, Goal Setting, and Good Faith Efforts
Requirements (Sec. 23.25)
34. Fostering ACDBE Small Business Participation (Sec. 23.26)
35. Retaining and Reporting Information About ACDBE Program
Implementation (Sec. 23.27)
Subpart C--Certification and Eligibility of ACDBEs
36. Size Standards (Sec. 23.33)
37. Certifying Firms That Do Not Perform Work Relevant to an
Airport's Concessions (Sec. 23.39)
Subpart D--Goals, Good Faith Efforts, and Counting
38. Removing Consultation Requirement When No New Concession
Opportunities Exist (Sec. 23.43)
39. Non-Car Rental Concession Goal Base (Sec. 23.47)
40. Counting ACDBE Participation After Decertification (Sec.
23.55)
41. Shortfall Analysis Submittal Date (Sec. 23.57)
Subpart E--Other Provisions
42. Long-Term Exclusive Agreements (Sec. 23.75)
43. Local Geographic Preferences (Sec. 23.79)
44. Appendix A to Part 23: Uniform Report of ACDBE Participation
45. Technical Corrections
46. Duration
[[Page 24899]]
Regulatory Analyses and Notices
Executive Summary
This final rule modernizes the DBE and ACDBE program rules to
provide greater clarity and flexibility to DOT recipients and enhance
the ability of DBEs to compete on a level playing field for DOT-
assisted \1\ contract opportunities. Spanning over 40 years, the DBE
and ACDBE programs are small business initiatives intended to prevent
discrimination, and to remedy the effects of past discrimination, in
DOT-assisted contracting markets and airport concession opportunities.
Since 1983, Congress has authorized the DBE program for highway and
transit projects, most recently in Section 11101(e) of the Bipartisan
Infrastructure Law (BIL), enacted as the Infrastructure Investment and
Jobs Act (IIJA) (Pub. L. 117-58) (November 15, 2021). Congress codified
the ACDBE program in 1987. (See 49 U.S.C. 47107(e)). In reauthorizing
the DBE program in the BIL, Congress received and reviewed testimony
and documentation from numerous sources which show that discrimination,
its effects, and related barriers continue to pose significant
obstacles for minority- and women-owned businesses seeking to do
business in federally assisted surface transportation markets across
the United States. See BIL, section 11101(e)(1).
---------------------------------------------------------------------------
\1\ DOT-assisted contract means any contract between a recipient
and a contractor (at any tier) funded in whole or in part with DOT
financial assistance, including letters of credit or loan
guarantees, except a contract solely for the purchase of land.
---------------------------------------------------------------------------
The current rules and the revisions contained herein leave intact
the goal setting rules that have been in place over many decades. These
rules, then and now, prohibit DBE contract quotas; and they do not
impose any penalties for failing to meet DBE goals, unless a recipient
fails to administer its program in good faith. Every court to have
considered the constitutionality of the program, as implemented by
these regulations, has held that these limitations and other
flexibilities embedded in the DBE program--such as the ability of
recipients to seek waivers of or exemptions from certain provisions,
the requirement for recipients to reexamine their programs and program
goals every three years, and the authority to decertify firms that do
not continue to meet certification standards--ensure that DOT's DBE
regulations, on their face, are narrowly tailored to achieve the
compelling interest that has been identified by Congress, thus
satisfying strict scrutiny.
On July 21, 2022, the Department issued a notice of proposed
rulemaking (NPRM) in the Federal Register (87 FR 43620) setting forth
the major categories of revisions, the Department's rationale, and
proposed rule text. In July and August 2022, the Department held seven
virtual listening sessions to brief the public and stakeholders on the
proposals and to solicit further input. Recordings of the sessions are
posted on the Department's DBE web page https://www.transportation.gov/dbe-rulemaking, and a transcript of all comments received are available
at Regulations.gov (DOT-OST-2022-0051). DOT extended the comment period
deadline from September 19 until October 31, 2022, through a notice
published in the Federal Register on September 1, 2022 (87 FR 53708).
The Department received approximately 400 written comments from
State departments of transportation, transit authorities, airports,
DBEs, non-DBEs, representatives of various stakeholder organizations,
and individuals. Many of the comments were extensive and covered
numerous proposed changes. Some commenters suggested changes beyond the
scope of what the Department proposed in the NPRM. We fully considered
all written comments we received.
Congress created the DBE and ACDBE programs by statute and has
continued to reauthorize the program in successive transportation
reauthorization laws. The purpose of this rulemaking is to make
technical improvements to the Department's DBE and ACDBE programs,
including modifications to the forms used by program and certification-
related changes. While this rule has implications for program
eligibility, it does not change the underlying programs and projects
being carried out with DOT funds. However, the Department recognizes
that certain provisions focus on discrete aspects of the DBE and ACDBE
programs. Therefore, the Department finds that the various provisions
of this final rule are severable and able to operate functionally if
severed from each other. In the event a court were to invalidate one or
more of this final rule's unique provisions, the remaining provisions
should stand, thus allowing this congressionally mandated program to
continue to operate.
Part 26
Subpart A--General
1. Bipartisan Infrastructure Law (BIL) and Fixing America's Surface
Transportation Act (FAST Act) (Sec. 26.3)
The Department proposed adding citations to applicable surface
authorization legislation. We received no comments, and the final rule
adopts our proposal with minor technical corrections to the text.
2. Definitions (Sec. 26.5)
NPRM
In addition to minor technical and spelling changes, the NPRM
proposed new or altered definitions of disadvantaged business
enterprise, principal place of business, transit vehicle, transit
vehicle dealer, transit vehicle manufacturer, and unsworn declaration.
In addition, because ``home state'' is no longer being used as a term
of art in the regulation, we are removing that definition from the
current rule.
Comments
Disadvantaged Business Enterprise
The majority of the comments addressed the proposed addition of
``be engaged in transportation-related industries'' to the definition
of ``disadvantaged business enterprise.'' We proposed the addition
because applicants that have no capability or interest in working on
DOT-assisted contracts seek DBE certification for other, unrelated
reasons, resulting in an unnecessary burden on certifiers' workloads.
Ten of the 40 commenters (mostly recipients and DBEs) supported the
proposed definition, though most requested clarification because they
found it confusing. They stated that an absence of clarification would
cause difficulty in determining which firms were in transportation-
related industries and which were not, and the results could easily be
inconsistent and arbitrary. Some commenters noted that many DBEs do not
have specific mentions of transportation in their North American
Industry Classification System (NAICS) codes. A few recipients asked
how they should handle DBEs that might not be performing work in
transportation-related industries.
The majority of commenters who sought clarification, as well as
several others who opposed the proposal altogether, opined that the
limitation would constrain opportunities for small businesses,
especially those in the goods and services sector or new or non-
traditional types of work. One commenter cited the example of firms
[[Page 24900]]
supporting electric vehicles or related infrastructure.
Very few of the commenters who sought clarification proposed an
approach that would better clarify the definition. One State DOT
suggested there could be a ``stop here'' entry on the Uniform
Certification Application, analogous to the current check entry box on
which an applicant would check whether it was a for-profit firm, on
which a company could affirm that it intended to work on transportation
projects.
Principal Place of Business
All three commenters supported the proposal, though one asked for
more guidance.
Transit Vehicles, Manufacturers, and Dealerships
For comments and the Department's response related to the
definitions of transit vehicle, transit vehicle manufacturer, and
transit vehicle dealership, please see the portion of the preamble
below concerning TVMs.
Unsworn Declaration
With the exception of one State DOT, which thought DOT's proposal
could enable fraud, all of the more than 20 commenters on the concept
and definition of unsworn declaration, both recipients and DBEs,
supported the proposal. The main reason was that it reduced the burden
on both firms and certifiers. One State DOT suggested the idea be
extended to information provided in on-site interviews as well as
applications. One transit agency suggested having a witness sign the
declaration, the use of which it thought should be limited to
declarations of eligibility (DOEs) or interstate certification
applications.
Miscellaneous Comments Received
Some commenters asked for the addition of such groups as LGBTQ
individuals, disabled veterans, individuals with disabilities, and
persons from North Africa and the Middle East to the definition of
``socially and economically disadvantaged individual.'' One commenter
found the definition of ``affiliation'' confusing but did not suggest a
clarification.
As has been the case during past rulemakings, a few commenters
disliked the use of the term ``disadvantaged business enterprise,''
finding its connotation too negative. Those commenters suggested
alternatives like ``historically underutilized business,'' ``business
inclusion program,'' or making the ``D'' in DBE stand for diverse,
dynamic, or distinguished. A commenter wished to exclude ``micro
purchases,'' as defined in Federal procurement rules, from the
definition of ``contract.'' One commenter asked to expand the
definition of ``DOT-assisted contract'' to include all contracts
relating to any phase of a DOT-assisted project (e.g., State or locally
funded pre-construction engineering or design of a project that would
ultimately gain DOT funding).
DOT Response
Disadvantaged Business Enterprise
With respect to comments on the proviso in the definition of
``disadvantaged business enterprise'' that a DBE be one ``engaged in
transportation-related industries,'' we considered two program
concerns. On one hand, some Unified Certification Programs (UCPs) may
have been burdened by significant numbers of applications from firms
that appear not to have interest in, or the ability to work on, the
DOT-assisted contracts of recipients. For example, some firms may seek
certification from a UCP in order to become eligible for State and
local programs in areas unrelated to transportation. We believe it is
useful to limit such burdens on certifiers, which themselves have
limited resources.
On the other hand, it would be counterproductive to use language
that could be interpreted as limiting DBE program participation given
the diversity of the types of work that DOT-assisted projects entail.
Thus, we exclude ``engaged in transportation-related industries'' from
the definition of DBE.
Instead, the final rule requires applicants to describe in detail
in the Uniform Certification Application (UCA)--with examples wherever
possible--the type(s) of work they envision performing on DOT-assisted
contracts. The UCA will not be considered complete if the applicant
omits this information. During the onsite visit, for example,
certifiers should ask applicants to describe the nature of their work
and what they seek to achieve with certification. If the applicant's
response reasonably suggests to the certifier that the firm would
likely not have opportunities to participate in, or has no intention of
pursuing participation in, DOT-assisted contracts, the certifier should
encourage the applicant to withdraw its UCA in order to avoid
unnecessary expenditures of time and effort by all parties. This
mechanism fulfills the intended purpose of the now-deleted
``transportation-related industries'' language.
Unsworn Declaration
Given commenters' general support of our proposal, and the
likelihood that permitting unsworn declarations will reduce burdens and
maintain program integrity, the final rule adopts the proposal without
substantive change.
Principal Place of Business
We believe that the NPRM's proposed definition of ``principal place
of business'' is clear as written, and the final rule incorporates it
without change.
Other Comments
The Department does not have legal authority to add groups (e.g.,
LGBTQ persons or disabled veterans) to the current list of groups whose
members are rebuttably presumed socially and economically
disadvantaged. However, persons who are not members of a presumptive
group may qualify as socially and economically disadvantaged through
individual determination procedures as detailed in Sec. 26.67(d).
We recognize that some commenters were uncomfortable with possibly
negative connotations of the term ``disadvantaged business
enterprise.'' We leave the program name unchanged. It is well-
recognized and cited as such in the statutes authorizing the program,
and changing the name of the program may lead to confusion.
3. Reporting Requirements (Sec. 26.11 and Appendix B)
NPRM
The NPRM proposed adding and changing three reporting requirements.
First, the NPRM proposed adding ten new data fields to the Uniform
Report of Awards, Commitments and Payments (Uniform Report) that
recipients submit annually, such as work category/trade a firm
performed in a contract, federally assisted contract number, and
terminations (for the complete list, see 87 FR 43624 (July 21, 2022)).
We believed this additional information would help the Department
evaluate whether the DBE program is making progress toward the
objectives stated in Sec. 26.1 of the regulation. Recipients would
submit the Uniform Report in a manner acceptable to the relevant OA,
but the form itself, while on the DOT website, would no longer be
printed in the regulation.
The NPRM also proposed to require recipients to obtain and enter
bidders list data into a centralized, searchable database that the
Department would
[[Page 24901]]
specify. The data points for this bidders list would be expanded to
include race and gender information for a firm's socially and
economically disadvantaged owner (SEDO) and the NAICS code applicable
to each scope of work the firm proposed to perform in its bid. The NPRM
asked for comment on the estimated costs for developing and maintaining
such a database. The Department said that since recipients already
collect most of the information that would be reported on the bidders
list, reporting this data would be beneficial to the Department in
evaluating program success with anticipated minimal impact on
stakeholders.
Third, the NPRM asked for comments on expanding the information
collected through what is referred to as the MAP-21 data report. That
report includes information taken from each State's UCP directory and
reporting on the percentage and location of DBEs owned and controlled
by women, by disadvantaged individuals who are not women, and
individuals who are women and are also otherwise disadvantaged. The
NPRM proposed collecting data on the following six additional items:
the number and percentage of in-state and out-of-state SEDOs by gender
and ethnicity; the number of applications received from in-state and
out-of-state firms and the number of each found eligible or ineligible;
the number of in-state and out-of-state firms decertified or summarily
suspended; the number of in-state and out-of-state applications
involving a request for an individual determination of social and
economic disadvantage; the number of in-state and out-of-state firms
certified based on such a determination; and the number of DBEs
prequalified in their work type by the Department. The Department
proposed creating a similar data requirement for ACDBEs.
Comments
This section was one of the most frequently commented upon of any
subject in the NPRM, with some commenters expressing general support
for the proposals, some expressing general opposition, and others
delving into the details of one or more of the reports.
General Comments on Proposed Reports
Of the nearly 60 commenters who expressed a view (pro or con) about
the Uniform Report and MAP-21 report proposals, a significant majority,
predominantly recipients, opposed the proposals. Often, these comments
did not distinguish closely between the MAP-21 report and the Uniform
Report but talked about the NPRM's reporting requirements generally.
Opponents primarily expressed that the proposals were too detailed
and created unnecessary burdens and costs, particularly for local
agencies and subrecipients. The required information would be difficult
to collect, and create a cumbersome, time-consuming process, sometimes
involving manual reporting (e.g., concerning listing replaced firms),
keeping staff from doing more substantive work. One recipient said it
would have to double its staff to handle the requirements, for example.
Another said that handling the proposed Uniform Report requirements
would double its staff time on that work by 16 hours per year. Programs
are short-staffed as it is, others said, especially for small
recipients and some saw the expanded Uniform Report items as a
substantial change. Certification could be slowed down.
While some commenters in this category said the requested
information could be helpful, they did not think that its potential use
outweighed the burdens involved. One commenter questioned the use the
Department would make of the additional data; something more specific
than ``program evaluation'' in general was needed to justify new
collections. Instead of making reporting requirements more complex,
commenters said they should be reduced and simplified (e.g., one
contractor suggested limiting fields to firm name, disadvantaged group
membership, contracts, and DBE commitment amount).
Some commenters also thought that certain fields in the report were
duplicative or redundant. For example, one commenter said that
information about decertifications had to be reported in three
different places. A few commenters thought some fields, such as those
addressing decertifications and terminations, did not fit well in the
Uniform Report. Another said the proposed reports generally were not
relevant to ACDBEs. Rather than sending one report to the OA and
another to DOCR, there should be a single, streamlined form sent to
only one office at DOT.
Some commenters recommended that DOT convene a recipients' group to
do a feasibility study and figure out how to make the reports work
efficiently prior to adopting the proposals. Commenters suggested time
frames from one to five years to phase in the requirements. Other
commenters suggested that the Department should also develop, test, and
make available a uniform, centralized database before imposing
requirements that all recipients, vendors, and subcontractors could use
and delay implementation 3 to 5 years.
Commenters said that such a database would allow data from
different sources to merge and that the database should be made
available to users through an online portal. Other commenters said DOT
should provide funding for recipients to comply with the expanded
requirements and provide more guidance on the reporting forms and
process.
Supporters of the proposals included some recipients but were
predominantly DBEs. Generally, they favored obtaining the additional
detailed data for program evaluation purposes. Some cited particular
items they thought were useful, such as race/ethnic/gender data,
explaining that those items could keep better track of the use of
Black-owned firms. Some commenters suggested collection of additional
data points such as dollar amount of contracts by NAICS codes, and some
commenters recommended that recipients be required to maintain copies
of all prime contracts and subcontracts.
Bidders Lists
A large majority of the over 40 comments concerning the NPRM's
bidders list proposal opposed it. A few comments, all but one of which
were from DBEs, supported the proposal for the reasons stated in the
preamble. Some of these comments favored the idea of a centralized
database for bidders list information. One asked for more data on the
actual use of successful DBE bidders, to address the issue of prime
contractors listing DBEs in their bid and then not using them.
Most of the comments opposing the proposal were from recipients.
Some of these commenters said that the existing bidders list
requirements were sufficient, and that there was no need to make any
changes. They asserted that the proposed changes to the Uniform and
MAP-21 reports would be unduly burdensome and create an unfunded
mandate. One airport trade organization member noted it would take 25
hours to complete the MAP-21 report of ACDBEs in various categories
rather than the 3.2 hours estimated.
Commenters said that the NPRM underestimated the costs and burdens
of the proposal, particularly with recipients for small staffs. One
commenter estimated that its staff would have to take an extra 20
minutes per project under the proposed system, adding up to 13 hours
per month, in contrast to the eight hours forecast in the NPRM. Another
said it could take weeks of staff time per year to comply.
[[Page 24902]]
Another estimated that it would take two hours of staff time to enter
information into the system for each bidder.
A few commenters expressed concern that prime contractors would be
disincentivized from hiring DBE subcontractors, especially if they had
to input information at the time of submitting a bid or offer. They
also stated that it would reduce the data available to recipients. One
commenter explained that it would be better if a bidder on a prime
contract could submit information within a short time after the time
the bid or offer was submitted, such as five days. One recipient said
it typically allows prime contractors until the end of the month in
which a letting takes place to submit bidders list data. On the other
hand, a comment said that bidders list items should be submitted at the
time of bid or offer. Another commenter suggested that to reduce
burdens on prime contractors, recipients should collect information
directly from subcontractors. One commenter recommended that firms
submit to the recipient the NAICS codes they have worked on in the past
year.
In addition to the general concern about burdens, a number of
commenters focused on the centralized database that the NPRM said the
Department would specify. Some thought having to communicate with such
a database would be a source of administrative burdens for their staff.
Others, while sympathetic to the concept of a centralized database,
pointed to the fact that the Department had not yet specified the
database to be used. Without such a system being in place, including a
standard format, they said, the proposed changes would not work. Two
commenters said that rather than creating a centralized database, DOT
should make software available to allow interface with UCP directories
and create reports. Another was concerned that, in the absence of an
actual centralized system, recipients would develop their own
electronic formats, which were likely to be incompatible with each
other.
Some commenters questioned the utility of bidders lists. One said
that such a list is an imperfect tool to gauge DBE interest in the
program, since some DBEs do not submit bids because, in their
experience, prime contractors typically use the same DBE firms that
they always use. Because of this, another commenter said, firms
effectively drop out of the program because they are not getting any
work, even if they maintain their certified status. Others said that
bidders lists have proved not to be an accurate or reliable indicator
of DBEs' availability or interest in seeking contracts.
One commenter suggested that DBEs should not have to submit
confidential or proprietary business information, another suggested
that race/ethnic/gender information should be part of bidders list
entries; while another indicated that some firms may decline to submit
this information. Another asked if there should be an exemption to some
requirements for publicly traded firms. One commenter suggested working
with American Association of State Highway and Transportation
Official's Civil Rights and Labor Committee on how best to handle
bidders list issues.
Detailed Comments on Reporting and Bidders List Contents
Commenters had a wide variety of comments on details of the
documents discussed in this portion of the NPRM. A commenter wanted to
clarify the meaning of ``awards,'' ``commitments, and ``payments.'' It
said the age of a firm should be entered only for DBEs. Another
suggested that termination data should be submitted as ``known DBE
terminations during the reporting period'' to capture a lag in
information reaching the recipient from contractors.
One commenter suggested not using ``dollar value of contract,''
preferring the use of ranges (e.g., less than $100,000 or $100,000-
500,000). On the other hand, another commenter thought that the dollar
value of contracts and NAICS codes involved were very important
information to capture. That same commenter also thought that
information on firms that have exceeded size standards was important,
to see if the program was creating sustainable growth.
Another commenter wanted to make sure that the reporting would
include professional services, even in States that do not include
professional services in their DBE goals. One commenter said it does
not do prequalifications, and so did not know how to respond to that
field. One commenter expressed uncertainty about how reporting could be
uniform since different States have different prequalification
requirements. The commenter was also unsure what ``work type'' meant,
and how firms prequalified in some, but not all, of the areas in which
they were certified could be counted.
With respect to terminations and replacements of DBEs, one
commenter thought reports should include the date of contract award,
the date of the prime's termination notice, the reasons for the action,
and the DBE's response. Another commenter agreed that the reason should
be reported, adding that any resulting revisions of the recipient's
overall goal should be noted. One commenter said that termination data
should be reported in the semi-annual reporting timeframe, using a
Google or Excel spreadsheet, and that the reporting should include the
number of terminations and NAICS codes of terminated firms. Another
commenter also supported using Excel spreadsheets or XML files for
reporting this and other information into the reports, rather than
relying on manual inputs of information.
Two commenters addressed the ``running tally'' requirement, one
saying it did not currently have a running tally provision and was
unsure how to develop one. Another asked how the running tally
provision differed from the ``open'' and ``completed'' reporting
fields, suggesting that the information requested was duplicative.
Another commenter suggested that information about DBE's that have been
decertified or graduated only be included in the ``open'' and
``completed'' fields, while a different commenter suggested that, for
re-entering firms, the reports include the date and basis of
graduation, the date of reapplication, and the basis for re-entry.
Some commenters expressed concern about what data should be
submitted and by whom. One commenter said that the DBE owner's contact
information and the ZIP code of the firm's principal place of business
need not be reported. Another suggested that if multiple contracts were
awarded to a firm during a reporting period, there should not have to
be multiple entries of the firm's information. Two others said that if
recipients submitted basic information (e.g., a firm's certification
number and NAICS code), the Operating Administration (OA), rather than
the recipient, should enter other information about the firm.
One commenter asked whether race and gender were intended to be
entered for all firms or only DBEs, and how the recipient would handle
situations in which a firm is certified in more than one NAICS code.
Another commenter advocated expanding the information reported, adding
such items as the number and percentage of in-state and out-of-state
firms by race and ethnicity, looking at applications, decertifications,
and prequalifications information.
With respect to the bidders list, one commenter raised several
questions. Would the centralized database be available at all times to
recipients, as opposed to only during certain reporting periods? Would
the December 1 date for submitting information apply to the bid date or
the contract award date, when
[[Page 24903]]
one was before and the other was after December 1? How would micro
purchases and single bidder or sole source procurements be handled? How
should a recipient handle incomplete forms submitted by bidders? Since
the commenter had a race-neutral program, how would ``subcontract
approval'' be reported? This commenter, as well as another, said that
reporting a high volume of bids would be very burdensome and expensive.
A few commenters said that prime contractors should have to submit
most or all of the data required for the bidders list, while another
said that recipients should collect bidders list information directly
from bidders for subcontracts or certification process records, rather
than indirectly through prime contractors.
One commenter said that, with respect to engineering firms, the
bidders list should include the number of such firms bidding on prime
contracts or subcontracts, the number of such firms that were
shortlisted or awarded, and the total number of engineering contracts
with and without DBE goals.
DOT Response
As described in this preamble (see discussion of Sec. 26.11 and
Appendix B), the final rule adopts revisions to all three reporting
requirements, including the creation of a centralized bidders list
system.
A recipient must provide its bidders list collection information in
a standardized and centralized form. Although recipients are already
obligated to gather most of this data, the rule imposes the additional
step of reporting this information. However, the burden of this
reporting process is expected to be minimal since recipients are
already required to collect most of the information. One commenter
stated that it does not collect bidder information on a per project
basis. That recipient maintained that the compliance burden would be
more than minimal. We respond that the current rule requires collection
for all projects. The bidders list data that needs to be reported to
DOT includes specific details such as the race and gender information
for the owners of all firms and the NAICS code that is applicable to
each scope of work proposed by the firm in its bid.
To ensure usability and standardization of the bidders list data,
the Department will build a comprehensive and searchable database to
house this information, a feature recommended by a commenter. The final
rule allows for a delay in the requirement to allow ample time for the
Department to complete the development of the database and ensure its
readiness before recipients are obligated to submit the necessary data.
Once the database is fully operational, recipients will be able to
seamlessly enter the required information with minimal additional
burden. Recipients may use the information to set their overall goals.
With this data, the Department will analyze the representation of
DBEs within the bidding process. This assessment will enable a closer
examination of the specific types of work that DBEs actively pursue and
competitively bid for. Ultimately, this analysis will serve as a vital
tool in monitoring the effectiveness of the rule and guiding future
policy decisions. It enables the Department to make informed
assessments regarding the impact of the regulations and take
appropriate actions to address any identified shortcomings, thereby
ensuring that DBEs can compete fairly for DOT-assisted contracts.
For the Uniform Report, the Department is requiring recipients to
submit names of DBEs, NAICS codes performed in a contract, federally
assisted contract number(s), and the dollar value of the contract. We
disagree with a commenter who stated entering this information
constitutes a substantial expansion of what is collected, because these
data points should already be tabulated by the recipient in order for
them to properly upload the current report. We inadvertently listed
prequalification in the uniform report draft rule and deleted it from
the final rule. We agree with commenters' concerns regarding ``work
categories'' and exclude the ambiguous category from the final rule.
Also, after careful consideration, the Department believes that the
proposed data collection on terminations would pose significant
challenges for recipients. Given the complexities and challenges
inherent in collecting and reporting termination data, the Department
believes that it would be unreasonable to mandate recipients to
undertake this task. We must strike a balance between gathering
valuable information for analysis and avoiding excessive administrative
burden for recipients. The Department will continue to explore
alternative approaches and strategies that can provide meaningful
insights into terminations without imposing disproportionate burdens on
recipients.
The additional uniform report information will help the Department
evaluate whether the DBE program is making progress toward the
objectives stated in Sec. 26.1 of the regulation. Recipients would
submit the Uniform Report Form online in a manner acceptable to the
relevant OA. The Department will post a copy of the form, which is no
longer posted in the regulation, to the DOT website.
Finally, the Department expands the MAP-21 data report collection
to cover six items mentioned in the NPRM: the number and percentage of
in-state and out-of-state SEDOs by gender and ethnicity; the number of
applications received from in-state and out-of-state firms and the
number of each found eligible or ineligible; the number of in-state and
out-of-state firms decertified or summarily suspended; the number of
in-state and out-of-state applications involving a request for an
individual determination of social and economic disadvantage; and the
number of in-state and out-of-state firms certified based on such a
determination. Decertified DBEs that exceed gross receipts and PNW caps
must be reported using MAP-21 data instead of the uniform report
proposed in the NPRM.
Subpart B--Administrative Requirements for DBE Programs for Federally
Assisted Contracting
4. Tiered Program Requirements for FTA Recipients (Sec. 26.21)
NPRM
Under the current rule, FTA recipients who will award prime
contracts exceeding $250,000 (cumulatively) in a fiscal year must have
a DBE program meeting all requirements of part 26. Based on changes in
the consumer price index (CPI) since 1983 (the year the $250,000 value
was established), the NPRM proposed to increase this value to $670,000.
FTA recipients receiving planning, capital, or operating assistance who
will award prime contracts (other than transit vehicle purchases) that
cumulatively exceed $670,000 in a fiscal year would be required to
comply with every requirement of part 26 and have a full DBE program.
Recipients awarding prime contracts totaling $670,000 or less would
also have to maintain a program, but compliance with only certain
provisions of part 26 would be required. Specifically, these recipients
would be subject to the requirements for reporting and recordkeeping,
contract assurances, a policy statement, fostering small business
participation, and transit vehicle procurements.
The Department's records show that in most years there were about
80 FTA recipients awarding between $250,000 and $670,000 per year. The
Department estimated that the change would provide cost savings for
such recipients
[[Page 24904]]
from the reduction in administrative burdens. Based on attainment data
from previous years, the Department found that if there were any
reductions in total program-level DBE participation, the reduction
would be minimal.
Comments
Commenters on this issue, predominately transit operators and DBEs,
were almost evenly divided. Supporters were attracted to the reduction
in administrative burdens for some small transit providers. One
commenter suggested raising the value further, to $750,000, while
another suggested that a similar threshold should be established for
airports. One supporter of the proposal asked the Department to define
``significant changes'' to a DBE program that would require OA approval
(this provision, in proposed Sec. 26.21(b)(2), applies to all OAs).
Opponents pointed to the estimated 80 transit operators that would
not have to maintain full DBE programs, saying that this would reduce
opportunities for DBEs. All recipients should have DBE programs, some
comments said. One commenter said a problem could arise for a recipient
who had been below the threshold but then received a large grant that
put it above the threshold. The recipient would have to quickly create
a full program, the commenter said.
Most of the commenters not in favor of the proposals or who
expressed negative opinions were concerned that DBEs seeking to work
with smaller recipients would not be afforded a level playing field
because the DBE programs of such recipients would not be subject to as
stringent oversight by FTA. These commenters were concerned that less
oversight would result in these recipients taking the program less
seriously.
DOT Response
The final rule is adopting this proposal substantively unchanged
from the NPRM. The Department recognizes that the proposed regulatory
text used a structure and phrasing that may not have been clear to some
readers. Though commenters did not address the clarity of the drafting
specifically, the comments suggested there may be some confusion as to
what requirements apply to which recipients. In response to these
comments, the final rule includes definitions for FTA Tier I and FTA
Tier II recipients. Further, the final rule adds paragraphs to Sec.
26.21(a)(2) to list the applicable requirements for Tier II recipients
more clearly. The Department notes that under the new requirement, all
FTA recipients that receive planning, capital, or operating assistance
and award FTA funded contracts must have a DBE program.
The Department takes seriously commenters' concerns that some
affected recipients might operate their DBE programs less robustly
under the new rules. The Department expects that the positive impacts
of expanding DBE program requirements to almost all FTA recipients
mitigates that risk. The intent of reducing administrative burdens on
smaller recipients is to allow them to direct a greater share of their
resources towards implementing the DBE program elements that expand
opportunities for DBEs, and the Department expects that they will do
so. Under the final rule, all FTA recipients with DBE programs will be
subject to enhanced reporting requirements, which will allow FTA to
conduct more effective oversight.
As explained in the Regulatory Impact Analysis of the NPRM, if
every single contract awarded annually to DBEs by the approximately 80
recipients that award between $250,001 and $670,000 annually (in prime
contracts) went instead to non-DBEs, 99.7 percent of Federal funds
awarded to DBEs on FTA assisted contracts would still be awarded to
DBEs. In response to the comments received, FTA reviewed Uniform Report
data for fiscal year 2021 to better understand the potential impact of
the proposed Tier II DBE program on contract awards to DBEs. The data
shows that 195 recipients reported awarding between $0 and $250,000 in
that fiscal year. Of those, 159 operated completely race-neutral DBE
programs. Of the remaining 36 recipients with race conscious goals,
five awarded race conscious contracts to DBEs, resulting in $170,913 of
cumulative awards to DBEs through the use of race-conscious means (or
0.02 percent of total dollars to DBEs that year).
The Department expects that many Tier II recipients will operate
entirely race-neutral programs, though they are not prohibited from
employing race-conscious means as necessary. The Department does not
anticipate any reduction in awards to DBEs by Tier II recipients under
the new rules, especially in light of increased funds being awarded by
FTA to transit agencies. Further, FTA will be conducting more oversight
of recipients currently awarding $250,000 or less. FTA will remain
responsible for ensuring that all FTA recipients subject to the DBE
program are awarding and administering their contracts in a
nondiscriminatory manner, and the reporting requirements under the new
rules will provide FTA the information needed to ensure compliance.
Regarding the comment that discusses the impact of receiving a
large grant, as compared to the current rule the final rule would
reduce the risk and mitigate the negative impact of exceeding the
threshold due to a single grant. First, and as a matter of
clarification, whether a recipient is tier I or II is determined by the
value of contracts it awards, not the value of funds it receives from
FTA. Under the current rule, since the contract value threshold is low
($250,000), there is a greater risk than under the final rule that a
recipient will be required to implement all DBE program requirements
after receiving a large grant. Further, since FTA Tier II recipients
will be operating DBE programs, the additional administrative burden of
becoming an FTA Tier I recipient is comparatively less than under the
current rule, since recipients below the current threshold do not have
the experience and administrative infrastructure to operate an
effective DBE program. Finally, the Department expects recipients to
budget and plan accordingly, and if a large grant is awarded then
appropriate and commensurate resources should be devoted to compliance.
Regarding the comment that suggested raising the contract value to
$750,000, the Department notes that $670,000 represents an inflationary
adjustment, and there is no evidence to support that $750,000 would be
more effective. Regarding the comment asking the Department to define
``significant changes'' to program plans, the Department notes that the
final rule does not change what qualifies as a significant change.
5. Unified Certification Program (UCP) DBE/ACDBE Directories
(Sec. Sec. 26.31 and 26.81(g))
NPRM
The NPRM proposed to expand existing DBE and ACDBE directories to
allow certified firms to display information about the firms' ability,
availability, and capacity to perform work. The Department thought that
this would provide a one-stop tool that would enable DBEs to market
their services and help prime contractors seek out potential DBE
subcontractors. Directories would include a standard set of options for
information that firms could choose to make public, such as a
capability statement, State licenses held, prequalifications, personnel
and firm qualifications, bonding coverage, recently completed projects,
equipment capability, and a link to the firm's
[[Page 24905]]
website. UCPs would not have to vouch for the accuracy of the
information provided.
The NPRM would also eliminate the option for a hard copy directory
since online availability of the information is sufficient. The NPRM
said that the Department anticipated that UCPs could implement the
proposed requirements by January 1, 2024, or 180 days after the final
rule. However, the Department sought comment on having a phase-in
period to allow necessary changes to be made.
Comments
This subject was among the most heavily commented upon in the NPRM,
attracting over 70 comments. Of the almost 50 comments that expressed
an opinion about the overall wisdom of the proposal, a majority fully
or partially supported it. Many other comments addressed details of the
directory process or had other ideas of how the directory process could
best work.
Comments from supporters said that an expanded directory would help
DBEs market themselves to primes, especially if DBEs could update
information in an efficient way. Such a directory would be useful to
primes searching for DBEs for a contract and could help to avoid the
``can't find qualified DBEs'' excuse for failing to meet goals, one
comment said. More detail in the directory would also save DBEs from
being inundated with solicitations from primes for work in areas in
which the DBEs are not interested. DBEs, several comments said, should
be allowed to add data about their operations, since NAICS codes, by
themselves, provide only limited information about what a firm does.
Some supporters of the proposal nevertheless noted concerns about
it. For example, commenters believed that the information in the
expanded directories would be helpful to DBEs but acknowledged that
costs and administrative burdens could be a problem, throwing the cost-
effectiveness of the expanded directories into question. One asked
whether there would be any DOT funds to support the expansion. Another
supported the proposed expansion only if DBEs were not allowed to be
certified in all 50 States under the interstate certification proposal
in the NPRM. Others were concerned that, despite disclaimers to the
contrary, the public would think that information about firms in the
directory had been vetted for accuracy by certifiers. If certifiers
were expected to verify information submitted by DBEs, another asked,
how would certifiers determine the accuracy and timeliness of the
information?
One commenter wanted to make sure that capability information about
a firm be specific; another, however, thought that information about
bonding and equipment should not be included because some of this
information could be proprietary and could change from project to
project. Other commenters suggested that owners' race and gender
information should be included or that additional information
categories should be included.
One commenter expressed concern that there would be large burdens
on certifiers if they, rather than DBEs themselves, had to input data
about the firms. It estimated that it would take 30 minutes to two
hours of staff time per procurement for this process. Another commenter
wanted the rule to prohibit recipients from using data from the
expanded directory to judge which firms are ready, able, and willing to
work.
A small number of commenters suggested that the Department go
beyond the proposed changes and create a centralized, nationwide
database, to which DBEs could upload information and which would be
user-friendly and readily searchable by such terms as State and type of
work. A variation on this idea was that States' UCP directories should
be merged together to avoid duplication and inconsistency. A comment
said that such a directory should specify which states a firm is
certified in and should be in an Excel format and include the DBE's
email and the SEDO's presumptive group membership. It could also
include information on a firm's ability to perform a commercially
useful function (CUF).
The principal objection of commenters who opposed the proposal is
that it would add costs, take additional staff time, and create
unnecessary administrative burdens. New software and additional staff
would be needed, and staff would be unable to keep up with the workload
they claimed.
Two commenters said that adding too much detail about firms would
be counterproductive, and making sure information was updated would be
a slow and difficult process. Another said that most of the proposed
fields were available in commercial software, but seldom used.
Similarly, another commenter questioned the usefulness of the added
fields.
Commenters were concerned that there could be confusion about what
a prime contractor could get credit for, based on representations in
material DBEs added, since self-reported capability statements could be
misleading. For this reason, one commenter said, DBEs should not be
able to upload information themselves. Another said that capacity,
availability, and other detailed information should not be entered, as
that could lead to inaccuracy, discrimination, and lost opportunities.
Two commenters suggested that it would be simpler and less burdensome
to limit additional information to a link to the DBEs' websites, making
additional directory fields unnecessary.
There was a wide variety of other comments concerning directories
and the NPRM's proposal. A commenter expressed concern that, with many
firms potentially being added to a UCP's directory as the result of the
interstate certification proposal, the availability numbers used for
goal setting could be distorted, even though many of the newly added
firms might not be available to work in projects in the State. On the
other hand, another commenter was concerned that directories might
undercount firms that were potentially ready, willing, and able to work
in a State, affecting goals in the other direction.
Some commenters were concerned about computer security and privacy.
Two mentioned a concern about the privacy implications of including
home addresses for businesses operated out of the SEDO's home,
particularly in the context of more widespread certification under the
interstate certification proposal. Some commenters thought the proposed
implementation time frame for the new requirements was too short, and
should be extended a year, or until software development and vendors
were in place.
A commenter asked that more detail about the specifics of directory
format, including using a spreadsheet and having search functions based
on such factors as NAICS and ZIP codes. Another commenter wanted more
to ensure that the dates when details concerning such items as
prequalification, licensing, or bonding would be displayed. A commenter
asked that all UCP directories use a standard format. Another commenter
said the Department should give a unique identifier for each DBE that
would be consistent across all UCP directories. A commenter recommended
that directory entries have a notation about whether a DBE firm was
eligible for FAA projects but not FTA or FHWA projects, because of
differences in applicable size standards.
[[Page 24906]]
DOT Response
The main purpose of the DBE directory is to show DBEs, prime
contractors, and the public which firms are certified as a DBE to do
the various kinds of work that take place in DOT-assisted contracts.
The directory is not primarily about the resources, equipment, bonding,
experience, or other qualifications of a firm to do particular sorts of
work. In performing their due diligence in selecting DBE contractors,
considering those factors is a task for prime contractors.
We understand that it is useful for prime contractors to have such
information readily at hand. One important means of making this
information available to prime contractors would be for DBEs to include
such information on their websites, which would then be linked to their
entries in UCP directories.
In the NPRM, we proposed including fields for many of these types
of information in UCP directories. However, we recognize, as commenters
pointed out, that mandating a large expansion of the content of
directories could create additional administrative burdens for
certifiers. We are also concerned about some pitfalls that we recognize
about open data fields for firms to enter their own information (e.g.,
accuracy, information that has not been updated, unintended exclusion
of eligible firms, available information being inconsistent from one
firm to another).
In light of these concerns, DOT has limited the elements that must
be included. They are firm name, location, NAICS code(s), and websites.
The directory, which we now clarify must be an online platform, must
permit the public to search and/or filter for these items in addition
to the types of work a firm is seeking to perform. We will also mandate
that the directory must include a prominently displayed disclaimer
(e.g., large type, bold font) that states the information within the
directory is not a guarantee of the DBE's capacity and ability to
perform work.
Certifiers may, at their discretion, include optional additional
fields in their directories, including those proposed for inclusion in
the NPRM. UCPs with sufficient resources may include such fields in
their electronic directories, while others may find it more feasible to
simply tell firms to provide a link to their own company websites,
which would include the information they wanted prime contractors to
access. UCPs have the responsibility, under the final rule, to ensure
that mandatory items about firms are and remain accurate. UCPs
permitting permissive entry of other information about firms'
capabilities should also take steps to ensure that what the firms enter
is accurate and up to date, including removal of inaccurate or untimely
information they learn of. But the disclaimer mentioned above must
state, UCPs do not warrant the accuracy of information provided by
firms, and users' reliance upon it is at their own risk. Prime
contractors always need to fact-check the claims made by firms they are
considering doing business with.
6. Monitoring Requirements (Sec. 26.37)
NPRM
The NPRM would make a number of changes concerning a recipient's
monitoring responsibilities. Recipients must monitor race-neutral
participation by DBEs as well as participation on contracts that have
DBE goals. The recipient would have to verify that a DBE was performing
work on a contract, the recipient would also have to verify that it was
performing a commercially useful function (CUF). This dual verification
would have to occur on every contract involving a DBE. The NPRM
emphasized the need for recipients to keep a ``running tally'' of its
overall DBE attainment as well as each prime contractor's payments to
DBEs it is using to meet its goal, rather than waiting until the end of
the contract.
Comments
Monitoring Proposal
Most of the over 30 commenters on the NPRM supported the idea of
more intensive and consistent monitoring of work in the DBE program,
some saying they were already effectively doing what the NPRM proposed.
Design/build contracts were one place where more monitoring was needed,
a commenter said. The focus should be on actual dollars that DBEs
receive, and payments should be confirmed on a regular and frequent
basis, particularly to ensure compliance with prompt payment
requirements.
Monitoring should continue throughout the procurement process and
involve all elements of the recipient's organization, not just the
civil rights office. More resources for monitoring are necessary,
another comment said, because often times monitoring is not happening
as it should. A comment said that DOT should verify commitment and
performance numbers as well as CUF matters. One comment suggested that
recipients use independent, third-party monitors.
Some of the comments supported the ``running tally'' requirement,
especially the point that this applies to progress throughout the
contract, and not just at the end of the project. One comment said that
there should be written verification or a signed checklist concerning
progress. Similarly, another said that there should be payment
reconciliation on all invoices issued by DBEs.
Two comments questioned how and whether the running tally provision
would apply to race-neutral contracts. Two others said that for funding
or software reasons, implementation of the running tally provision
should be phased in as funding, or software, becomes available (which
one of these comments said would take 3-5 years). Another commenter, a
recipient, said that more monitoring procedures are not needed beyond
what it was already doing and that the OAs should provide uniform forms
for monitoring purposes. One comment asked how often monitoring would
have to be done and what the effect would be on staff workload. Another
asked whether ``local public agencies'' that are part of FHWA's local
public agency program would have to follow the proposed requirements
applying to principal recipients themselves.
Other Enforcement Comments
Several comments talked about enforcement matters generally in the
DBE program, rather than the specifics of the NPRM's monitoring
proposal. One detailed a complaint about the commenter's perceived
failure of a major recipient to enforce the program effectively.
Another asked for stricter enforcement by the Department, since the
commenter did not believe recipients could be trusted. There should be
stiffer sanctions for noncompliance, including debarment of
contractors, and DBEs who violate the rules should be decertified,
other comments said. Another suggested that the Department should set
up a public list of prime contractors' performance in meeting goals and
getting DBE ``waivers.'' A commenter said that the Department should
crack down on misuse of waivers and exemptions that evaded DBE
requirements. A commenter asked for greater involvement by the Office
of Inspector General (OIG) and the imposition of penalties for
noncompliance. On the other hand, a commenter said that audits should
focus more on customer service, rather than on negative matters.
[[Page 24907]]
DOT Response
Bidders on contracts with DBE contract goals can meet their
obligations in one of two ways, which are equally acceptable under the
regulation. First, they can enlist sufficient DBE participation to meet
the goal. Second, they can document sufficient good faith efforts to
meet the goal. Either route results in compliance with the requirements
of the rule. The second route is not a ``waiver'' of the requirements
of the regulation. This is simply an alternative method of compliance,
one necessary to avoid the DBE program becoming a quota-based program
that would not be narrowly tailored, as is legally required.
We believe that the running tally requirement is an important
element of the compliance monitoring that all recipients are
responsible for completing. It ensures that, throughout the course of a
contract, the recipient will know whether a DBE is doing the work to
which the prime contractor has committed, whether payments to DBEs are
timely, and whether DBEs are performing a commercially useful function.
If problems are found, then they can be corrected at a time before it
becomes too late to do anything about them as a practical matter. We
believe it is crucial to avoid situations where issues are revealed
only when a contract is completed, and there are no available measures
to achieve the meaningful DBE participation that was promised at
contract award.
The optimal frequency of running tally inspections of a contract is
likely to vary with the length and complexity of the contract. In a
relatively simple, 60-day contract involving one DBE, for example, a
running tally check 30 days after the beginning of the contract might
suffice. In a more complex, multi-year contract, involving several
DBEs, more frequent checks focusing on the times when the DBEs would be
performing their tasks would be appropriate. While there is not a one-
size-fits-all interval for running tally checks, it is essential that a
recipient know at all times what is going on with DBE participation on
its projects. ``There was a problem we didn't know about until after
the fact'' is not an acceptable way for a recipient to oversee a
project.
The Department chose to clarify that the ``running tally'' not only
applies to monitoring contract goal attainment but also to monitoring
the recipient's progress toward attaining its overall goal each year.
Recipients must meet the maximum feasible portion of their overall goal
by using race-neutral means (Sec. 26.51(a)), establishing contract
goals to meet any portion of the overall goal that the recipient does
not project being able to meet using race-neutral means (Sec. 26.51
(d)). Accordingly, recipients need a mechanism to keep a running tally
of progress toward annual goal achievement that provides for a frequent
comparison of current DBE awards/commitments to DOT-assisted prime
contract awards to determine whether the use of contract goals is
appropriate.
It is also important to emphasize who provides information that
goes into the running tally. The DBE program is not the exclusive
province of a recipient's civil rights or business diversity office,
the staff of which are often small. The DBE program is the
responsibility of all parts of the recipient's program and of all
personnel who work with it.
On a highway construction project, for example, it is inconceivable
that resident engineers, inspectors, procurement officials, and others
would not be keeping track of the progress of the work, whether the
work met schedules and specifications, whether the work was meeting
budget projections, etc. The DBE program is an element of the contract
no less than these routine matters that are regularly overseen, and
needs to be given the same attention and, importantly, by the same
people. The same individuals who inspect a project to see if, for
example, materials meet specifications and that a project is on time
and on budget can and should be trained, and required, to give the same
attention to providing the information informing the recipient's
running tally. It is part of their job. This is a point that the
Department has emphasized over many years, and we wish to re-emphasize
it here. When the Department reviews a recipient's compliance, we will
be paying special attention to whether the recipient is doing what
needs to be done in this respect.
Subpart C--Goals, Good Faith Efforts, and Counting
7. Prompt Payment and Retainage (Sec. 26.29)
NPRM
Responding to Congressional mandates and OIG recommendations, the
Department in 2016 issued guidance concerning prompt payment and
retainage. The guidance emphasized that recipients had responsibility
for affirmatively monitoring contractors' compliance with prompt
payment and retainage requirements, rather than relying on complaints
from subcontractors. However, a 2020 FHWA review of recipients'
practices showed that many were not fulfilling this responsibility
adequately. Therefore, the NPRM proposed a specific provision
concerning mandating affirmative monitoring and an enforcement
mechanism, including appropriate penalties for noncompliance.
Requirements would flow down to lower-tier subcontractors as well as
prime contractors.
Comments
DBE and recipient commenters generally supported the NPRM proposal,
emphasizing the need for affirmative monitoring and stressing the need
for prompt payment to avoid cash flow problems for subcontractors.
Commenters who mentioned the flow-down of requirements to lower-tier
contractors also supported the proposal. Several commenters asked for a
clarification of the rule that would specifically authorize enforcement
of State laws mandating payment to subcontractors with a shorter period
of the time than the 30 days provided for in Sec. 26.29(b).
Many of these commenters and others emphasized the need for closer
oversight and stricter enforcement; a few made suggestions about what
this would look like. Monitoring should be conducted on a regular and
frequent basis (e.g., monthly). Other commenters suggested mandating a
10- or 15-day rather than 30-day payment period. Some commenters
advocated those penalties (e.g., 3 percent of the subcontractor's
invoice, interest on late payments) be assessed against tardy
contractors.
Several comments proposed alternative ideas to achieve the
objective of prompt payment. One was to provide an incentive to prime
contractors who paid subcontractors on time or early, such as a bonus
or gaining points that could be used in future procurements. Another
was to follow a model the commenter said was used in the Department of
Defense and some SBA programs, involving an automated payment system
and online certifications that payments have been made on time.
A comment suggested that recipients could set up an escrow-like
account to pay subcontractors in the event prime contractors were late.
Some commenters emphasized that primes should send invoices to
recipients on time or that recipients could avoid problems by making
partial payments to primes when a subcontractor's portion of the work
was completed, as opposed to waiting until the entire project had been
completed. A commenter suggested that DOT should develop software for
[[Page 24908]]
grantees to track payments by all parties at all stages of the process.
Comments from some recipients, especially in the transit industry,
expressed concern about affirmative monitoring being burdensome,
especially for smaller recipients that have limited staff. Other
commenters thought that applying prompt payment requirements to all
subcontractors, rather than just DBEs, exceeded the scope of the DBE
program.
DOT Response
We believe as a basic, upper limit, standard for a national
program, the proposed 30-day period for payment and for the return of
retainage following the satisfactory completion of a DBE's work on its
portion of the overall contract is appropriate. We agree with
commenters that when State law or a recipient's program calls for a
quicker turnaround time, that shorter requirement prevails. For
example, if State M's law calls for payment to be made in 15 days, all
recipients in that State would have to observe the 15-day rule. On the
other hand, if State P's law allowed 45 days for payment or the return
of retainage, the regulation would require the action to be taken in 30
days on a DOT-assisted contract.
We strongly encourage recipients to establish shorter time frames
for lower tier subcontractors, because these smaller businesses have
more acute cash flow needs than their larger counterparts. While we are
not adopting, as generally applicable national requirements, the
various ideas that commenters suggested to make prompt payment and
retainage more effective, we encourage recipients to adopt measures
that will work in their circumstances, and we will work with recipients
to incorporate such measures in their DBE programs. The idea of
providing special incentives for contractors, merely for doing what
they are supposed to do, is not one that the Department supports,
however.
In any case, adopting strong enforcement mechanisms is critical to
making prompt payment and retainage return requirements work. For
example, making failure to meet these requirements a material breach of
contract, or an explicit cause for liquidated damages in the prime
contract, are among many possible measures for this purpose. Letting
failure to comply go unnoticed, or to be without consequences, is not
an acceptable option. As part of their normal oversight of recipient
operations, as well as in compliance reviews, the OAs will make prompt
payment and return of retainage a point of emphasis.
8. Transit Vehicle Manufacturers (TVMs) (Sec. Sec. 26.5 & 26.49)
NPRM
The Department proposed several changes to provisions in 49 CFR
part 26 related to requirements for FTA assisted transit vehicle
procurements. The NPRM included revisions in Sec. 26.5 to the
definition of TVM and proposed two new definitions, transit vehicle and
transit vehicle dealership. Additionally, the Department proposed
several revisions to Sec. 26.49 to clarify reporting requirements for
FTA recipients and TVMs.
The NPRM proposed terminology changes to make Sec. 26.49 more
reader-friendly and clear, such as using ``TVM'' consistently to refer
to transit vehicle manufacturers and using the term ``eligible'' rather
than ``certified'' when referring to a TVM's eligibility to bid. The
Department also sought to clarify that a contract to procure vehicles
from a transit vehicle dealership (TVD) does not qualify as a contract
with a TVM, even if the vehicle was originally manufactured by a TVM.
Comments
Definitions
The proposed definitions of transit vehicles, manufacturers, and
dealers drew only a small number of comments, most of which supported
the changes, though a transit authority and a consultant sought more
clarity. As noted above, a commenter said that a transit vehicle dealer
(TVD) should be more simply defined as a firm that sells transit
vehicles (including modified vehicles) made by a transit vehicle
manufacturer (TVM), whether or not the dealer is ``primarily engaged''
in selling such vehicles.
Terminology
The few comments addressing the proposed change from ``certified''
to ``eligible'' in Sec. 26.49(a)(1) and (2) supported it.
Procuring Transit Vehicles
Two commenters agreed that a vehicle purchased from a non-TVM
should not be treated in the TVM category for goal and reporting
purposes. Another suggested that paratransit vehicles like SUVs and
vans be allowed to be purchased from dealers rather than manufacturers.
Two commenters expressed concerns about the proposal that vehicles
purchased from TVDs are not treated under the TVM provisions of the
rule. Both said they procure ADA paratransit vehicles from TVDs. One
concern was that because a TVD is not a TVM under the proposal, FTA
funding would not be available for the paratransit vehicle purchases. A
related concern was that since most TVDs are non-DBE firms, there are
no meaningful contacting opportunities for DBEs in that field and hence
no point in setting contract goals for TVDs. Moreover, a commenter
noted that the proposal could limit DBE opportunities related to
paratransit vehicles that might exist through the TVM program.
A commenter recommended that neither modified nor unmodified
transit vehicles purchased through TVDs should be included in a
recipient's goals or uniform reports.
A State DOT said that it procured its paratransit vehicles from
TVDs, which then would not count as TVMs under the proposed language.
It was concerned that FTA therefore would not treat such purchases as
eligible for Federal funds because, as TVDs rather than TVMs, they
could not participate in the TVM program. The commenter was unsure how
a recipient would comply with the rule under these definitions.
Moreover, it said, most TVDs are owned by socially and economically
disadvantaged individuals (SEDs) and have few if any DBE subcontracting
opportunities. It suggested that recipients be able to report purchases
of such vehicles from TVDs in the same manner as for TVMs.
TVM Goal Submissions
Four commenters recommended that TVMs only have to submit goals
every three years, rather than annually. This would reduce burdens,
they said.
Ferries
The NPRM did not address ferries specifically, but several
commenters noted the difficulty in applying the TVM rules to ferry
procurements. For example, commenters suggested that the proposed
definition of transit vehicle would likely result in additional
confusion as to how to treat procurements of ferries because they are
vehicles that clearly should be regarded as transit vehicles yet are
manufactured by entities that should not be considered TVMs.
TVM Other Details
A commenter said that since TVMs report directly to FTA, a TVM
should not have to report the same data to recipients. Another
commenter said that TVMs should not have to provide confidential
bidders list information in their DBE goal submission; FTA can
[[Page 24909]]
audit their records for this information if needed.
A commenter suggested amending Sec. 26.49(a)(4) to say, ``becoming
contractually required [as opposed to the proposed ``obligated''] to
procure a transit vehicle.'' Another commenter said that it thought
that NAICS codes do not cover vehicle component manufacturers
adequately.
Another commenter supported the proposed revision of Sec. 26.49(c)
that clarified that TVMs would have to submit reports only for years in
which they were eligible. It also suggested that the ``awards/
commitments'' line item in section A of the Uniform Report form be
clarified to apply only to work performed in the U.S., to be consistent
with the language in Sec. 26.49(b) that limits TVM goals to work
performed in the U.S. A transit advocacy organization added that since
many TVMs may be small businesses with limited staff, TVMs should be
required to submit their goal information in the same three-year
interval as recipients, thus further reducing the paperwork burden.
Overall, this organization commented that any additional administrative
burdens could result in fewer DBE businesses participating, fewer bids,
less competition, and longer lead time for new capital projects.
DOT Response
Sec. 26.5 Definitions
The final rule will adopt the proposed definition of TVM. In
response to the comments expressing concern over applying the
definition to ferry manufacturers, the final rule further clarifies how
recipients may establish project goals to procure transit vehicles from
entities that are not eligible TVMs. See the discussion of Sec.
26.49(f) below.
After considering the comments received, the Department decided not
to adopt the proposed definition of transit vehicle. As noted in the
preamble to the 2022 NPRM, the Department recognizes that there is some
ambiguity as to what qualifies as a ``transit vehicle procurement'' and
is therefore subject to special rules. However, since these situations
are relatively rare and the most appropriate course of action depends
on the unique facts and circumstances, the Department expects that
providing training, guidance, and technical assistance will be more
effective than issuing a one-size-fits-all regulatory definition.
The final rule will not include a definition for transit vehicle
dealer. Commenters explained that small transit agencies routinely use
dealers to procure transit vehicles, and that paratransit vehicles are
often procured through dealers. As discussed elsewhere in this notice,
these comments persuaded the Department to maintain the status quo with
respect to dealership transactions in Sec. 26.49. Since the definition
would only be relevant if the Department retained the proposal in Sec.
26.49, there is no need for a definition.
Sec. 26.49 Procuring Transit Vehicles
As noted above, the proposed revisions to Sec. 26.49 received
mixed comments. Generally, commenters agreed that the proposals would
clarify the requirements. The Department appreciates the comments in
support of the proposed change from ``certified'' to ``eligible'' in
Sec. 26.49(a)(1) and (2). Accordingly, the final rule adopts this
change as proposed. The Department agrees with the commenter who
suggested that the word ``required,'' instead of ``obligated,'' better
conveys the necessary action that triggers the 30-day reporting
requirement in Sec. 26.49 (a)(4). The final rule therefore uses the
term ``required.'' Several commenters opined that the proposed addition
of paragraph (a)(5) addressing awards to dealerships could severely
disrupt vehicle acquisition practices by small transit agencies and
paratransit providers. In response to these comments, the final rule
does not adopt proposed paragraph (a)(5) or otherwise address awards to
dealerships. The final rule substantively adopts all other proposed
changes in Sec. 26.49 with only minor additional revisions to
paragraph (a)(2) for clarity. Additionally, the final rule incorporates
changes to paragraph (f) to address situations in which recipients
establish project goals.
Sec. 26.49 TVM Goal Submissions
The Department recognizes that TVMs are required to set and submit
goals more frequently than recipients. The timelines are different
because TVMs and direct recipients (often transit agencies in the case
of FTA funds) fundamentally differ in their ability to predict
contracting opportunities. Generally, transit agencies are able to
predict the projects they will undertake over the next three years with
a relatively high degree of accuracy, which allows transit agencies to
accurately predict the scale and scope of contracts they will award.
TVMs, though, are often limited to the information their potential
clients (often transit agencies) make available. Since most transit
agencies do not provide extensive details on the vehicles that they
intend to procure prior to issuing a public solicitation, which in many
cases is within months (at most) of the deadline to submit bids, TVMs
cannot accurately predict the federally funded subcontracting
opportunities they will have available in several years. Thus, the
Department will retain the requirement for TVMs to set DBE goals on an
annual basis and submit goal methodologies annually. Without more
information from commenters, we are unaware of how this administrative
burden can result in fewer DBEs participating, fewer bids, etc.
Ferries
The Department understands that large ships are manufactured by
shipyards, and that the shipyard industry is different from bus and
rail manufacturing industries. Shipyards are contracted by entities
from various other industries to build vessels specified to the
customer's needs. Smaller vessels, though, are typically manufactured
by well-known brands, and may be specialized by the manufacturer or
third parties. Thus, there are aspects of ferry manufacturing that are
unique to the shipbuilding industry. However, other aspects are similar
to the rest of the transit vehicle manufacturing industry. Such factors
mean that ferry procurements are often best addressed through project
goals pursuant to Sec. 26.49(f). As discussed below, the final rule
clarifies how to apply project goals to transit vehicle procurements
from specialized manufacturers when a TVM cannot be identified.
Use of Project Goals
The final rule revises Sec. 26.49(f) to clarify how to use project
goals to procure transit vehicles. The revisions codify and clarify
current practices and are in response to comments expressing confusion
over how to apply the TVM rules to ferry procurements (project goals
may be used to acquire vehicles other than ferries).
The final rule adds new paragraphs (f)(1), (f)(2) and (f)(3) and
simplifies paragraph (f) to clarify that project goals are used in
cases when transit vehicles are procured from specialized manufacturers
when a TVM cannot be identified. Pursuant to paragraph (f)(1), if a
recipient establishes a project goal, it must use the process
prescribed in Sec. 26.45 to do so. This effectively requires
recipients to use the same methodology for project goals as overall
goals. Pursuant to paragraph (f)(2), FTA must approve the recipient's
decision to use a project goal before the recipient issues a public
solicitation for vehicles. Paragraph (f)(3) requires recipients to
demonstrate that no TVMs are available to manufacture the transit
vehicle it intends to procure.
[[Page 24910]]
The Department established the project goal option in paragraph (f)
in 2014. This option has always been intended to maintain the spirit of
the DBE program when compliance with the general rule would be
impracticable or create more barriers for DBEs in the transit vehicle
manufacturing industry. Often, this scenario occurs when a transit
agency intends to procure a vehicle for transit purposes but the
entities that manufacture the vehicle do not meet the TVM definition
(and are not excluded from the definition).
It has been FTA's longstanding practice that if a recipient can
show that it is procuring transit vehicles with FTA funds and there are
no entities that qualify as TVMs that manufacture such vehicles, the
recipient may use a project goal to procure the vehicles. If a
recipient intends to use a project goal, the recipient must request
FTA's approval of that decision, and must not issue a public
solicitation until FTA has approved the decision. The request for
approval must demonstrate that the recipient looked for and could not
identify a TVM that manufactures the vehicles sought. To be clear, the
project goal does not have to be approved by FTA prior to the
recipient's issuance of a request for proposals. Generally, recipients
will be required to submit the project goal methodology prior to
issuing a public solicitation, though FTA may make case-by-case
decisions depending on the facts and circumstances; only under
extraordinary circumstances will FTA permit recipients to submit the
goal methodology after contract award. This is similar to how FTA
reviews and approves all project and overall goals.
TVM Other Details
Regarding the comments on duplicative reporting requirements
imposed by part 26 and locally by recipients, the Department recognizes
that recipients have legitimate reasons for collecting information from
TVMs, some of which may also be reported to FTA. Thus, the Department
does not believe it would be prudent at this time to limit recipients'
ability to collect such information.
Regarding the comments on confidential bidders lists submitted with
goal methodologies, part 26 only requires submission of such
information if the TVM chooses to use a bidders list when calculating
its overall goal. Otherwise, TVMs are merely required to retain their
bidders lists on file. Since it would be impossible to verify the
validity of a goal based on a bidders list without reviewing the
bidders list, the Department intends to continue to require TVMs to
submit their bidders lists when they choose to use a bidders list in
their goal methodology.
The final rule adopts the proposed changes to Sec. 26.49(c).
Regarding the comment about changing the Uniform Report to clarify that
only domestically performed work is to be included in the report, the
Department does not believe that this specific change is necessary. We
acknowledge that the final rule will result in several changes to the
Uniform Report; FTA will issue guidance to TVMs on how to fulfill their
reporting requirements under the new rules.
The Department appreciates the comment that discussed the
inadequacy of NAICS codes to describe the sort of work available in the
vehicle manufacturing industry. The Department intends to use the data
it collects under the final rule to learn more about the opportunities
available to small businesses and DBEs in the vehicle manufacturing
industry.
Finally, the Department intends to use this notice to clarify
longstanding policy on how to count DBEs performing on transit vehicle
procurements. In recognition of the complex supply chain necessary to
manufacture a transit vehicle, the Department has always permitted TVMs
to count awards to any certified DBE if the DBE is certified in the
State in which it performs the work, regardless of whether the TVM is
present in the State. More recently, particularly in the context of
ferry procurements, the Department has been asked to allow recipients
to count awards to DBEs certified in States other than the recipient's
home State if the recipient is using a project goal. The Department has
found that such practices can be an effective means of ensuring DBEs
are afforded opportunities to compete on transit vehicle procurements.
Thus, the Department may approve such practices when sufficiently
justified (here, the Department reminds recipients and TVMs that work
performed outside of the United States or its territories must not be
counted).
9. Procedures for Good Faith Efforts on Design-Build Contracts With DBE
Goals (Sec. 26.53)
NPRM
The NPRM proposed that, in a negotiated procurement (e.g., for
professional services), the bidder or offeror may make a binding
commitment to meet the goal at the time of bid submission or
presentation of initial proposals but provide the detailed information
about its DBE participation later, before selection. This provision
would not apply to design/build contracts, however.
The NPRM proposed that for a design-build contract, the bidder or
offeror would submit a DBE Performance Plan (DPP) with its proposal.
The DPP would have to include a commitment to meet the goals and
provide details--including dollar amounts and time frames--for the type
of subcontracting work or services the proposer will solicit DBEs to
perform. The recipient would monitor the design-builder's good faith
efforts (GFE) to comply with the DPP and its schedule. The recipient
and design-builder could agree to revisions of the DPP over the course
of the project.
Comments
DBE Performance Plans
Nearly 50 commenters, from all the major interests, addressed the
NPRM's DPP proposal. Of these, about 40 supported the proposed concept,
though many had suggestions for modifying the proposal.
In addition to agreeing with the NPRM's rationale for DPPs,
supporters said that the DPP would help small businesses seeking work
on large projects and would update the regulation to be consistent with
existing best practices. Several comments said that they already used
something like a DPP in their procurements. Other advantages include,
commenters said, giving greater flexibility to prime contractors while
allowing for detailed planning and monitoring to provide better
experiences for DBEs.
One suggestion made by numerous commenters for modifying the
proposal was to have a ``hybrid'' or two-step process in design/build
procurements. That is, for the design and pre-construction phases of a
project, recipients could use this flexibility to set goals that the
design-builder would have to meet up front, as traditionally done in
the DBE program. For the longer construction phase, recipients would
have a process like that described in the NPRM.
A few commenters suggested that if, as might happen in smaller
design/build projects, a contractor meets the goal with sufficient DBE
commitments before the project started, the DPP might not be required
for the project. A comment requested that prime contractors be required
to commit to DBEs as soon as possible in the process.
Other suggestions included setting specific time frames in which
actual DBE contracts would have to be executed and making the DPP
process available to a broader scope of projects than design/build
projects per se (e.g.,
[[Page 24911]]
public-private partnerships). To make this point clearer, some comments
said, the regulation should use a term like ``alternative delivery''
rather than ``design/build'' for projects involving a DPP.
Several commenters wanted to make sure that there was active and
frequent monitoring of contractors' performance under the DPP.
Commenters suggested that DOT could assist this process by providing
monitoring software and additional funding to deal with the costs of
additional resources for evaluating and monitoring DPPs, and that DOT
should also provide more details about what an adequate DPP looks like.
Other commenters suggested that DOT should also provide guidance on how
to deal with issues that may arise in the course of a project (e.g.,
change orders), several commenters said, as well as on proper use of
DPPs to avoid bids nonresponsive bids.
A few commenters asked how, if at all, the DPP concept would apply
to contracts that have race-neutral goals (e.g., as is commonly the
case in Florida). One comment suggested that since many design/build
projects are large, DBE size standards should be increased for firms
participating in them. Another commenter asked that the regulation
prohibit prime contractors from making small, incremental additions to
their contracts to avoid making firm commitments to subcontractors for
DBE work. Another pointed to what it thought could be an inconsistency
between the DPP proposal and present Appendix A, section VI, which says
that a promise to use DBEs after contract award is not considered
responsive to the contract solicitation or to constitute GFE.
If what a prime contractor promises in a DPP does not happen, then
what is a recipient to do, some commenters asked. In addition to
monitoring, these commenters said, the rule should take enforcement
action and impose consequences on prime contractors who are in
noncompliance with their DPP obligations. One commenter said, however,
that enforcement can be difficult because contractors often do not
understand what is involved in a DPP.
The smaller number of comments opposed to the DPP proposal said
that moving away from the requirement to have prime contractors commit
to specific DBEs in advance would diminish opportunities for DBEs. A
comment suggested that a bidder on a prime contract should have to
always meet a goal or show GFE before being awarded a contract, no
matter what the structure of the contract may be. DBEs need time to get
working capital, employees, and equipment in order; and advance notice
at the start of a project is important to enabling them to do so, a
commenter noted. Another commenter asserted that the premise of the
proposal is mistaken, it is not that difficult to identify
subcontractors at the start of a project, it said. In the absence of
requiring compliance before contract award, DBE participation could
become an afterthought for the prime contractor and recipient.
Others opposing the proposal said that implementing the DPP
proposal could increase burdens and costs for recipients, delay
projects, or lead to additional restrictions or conditions on RFPs,
potentially deterring some bidders.
DOT Response
Commenters generally approved of the concept of a DBE performance
plan in design/build contracts, and we continue to believe that this
will be a useful tool in managing DBE participation in a type of
contract in which award of the contract occurs before the design is
complete and the details of the work, quantities, and scheduling are
not yet known. We agree with commenters that there may well be
circumstances in which DBE subcontractors can be selected for the
design phase of a project at the outset, in which case the DBE
Performance Plan would include commitments to those firms while listing
the work types it plans to solicit DBEs to perform in the remainder of
the plan. While we appreciate that many projects span over the course
of several years, at this time, it is only those contract procurement
and delivery methods that lack the details needed to make
subcontracting commitments prior to contract award to which the
Department approves of the use of a DBE Performance Plan.
Since the beginning of the DBE program in the 1980s, the Department
has heard complaints from prime contractors that they cannot find
sufficiently qualified, capable DBEs to meet goals on a project. This
belief itself appears to be one of the effects of discrimination that
the program is designed to combat, and it can act as a self-fulfilling
prophecy preventing prime contractors from exerting optimal efforts to
find DBEs to meet a goal, whether on a traditional contract or a
design-build project. Making good faith efforts to find DBEs is
essential to compliance with the regulation. Open communication among
the recipients and prime contractors is essential to ensure that the
work commitments in the performance plan result in actual subcontracts.
With agreement of the parties, work types identified up front could be
altered to account for actual work needed in real time; however as long
as there are subcontracting opportunities, the recipient must enforce
the prime contractor's requirement to make ongoing good faith efforts
to meet the goal. We do appreciate the comment that Appendix A needs to
be revised to provide an exception for design-build contracts. We are
making that alteration. In addition, we are re-naming the DBE
Performance Plan to DBE Open Ended Performance Plan (OEPP) to align
with the FHWA's EDC-7 initiative.\2\ Other than these changes, we are
adopting the proposal as proposed in the NPRM without substantive
change.
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\2\ In 2009, FHWA launched the Every Day Counts (EDC) initiative
in cooperation with state, local, and industry partners to speed up
the delivery of highway projects and create a broad culture of
innovation within the highway community. Proven innovations and
enhanced business processes promoted through EDC facilitate greater
efficiency at the state and local levels, saving time, money, and
resources that can be used to deliver more projects. The EDC
initiative is a state-based model to identify and rapidly deploy
proven, yet underutilized innovations to shorten the project
delivery process, enhance roadway safety, reduce traffic congestion,
and improve environmental sustainability. Rethinking DBE for design-
build projects is one of the innovations being promoted in the
seventh round of the EDC initiative.
---------------------------------------------------------------------------
10. Terminations (Sec. 26.53(f))
NPRM
The NPRM restated the prohibition on terminating DBE
subcontractors' work without the recipient's written consent (e.g.,
because the prime contractor wanted to self-perform the work or use a
different firm for the work that had been committed to the DBE). The
NPRM further clarified that ``terminations'' need not be terminations
in full, but that ``partial terminations,'' e.g., removing a work item
or decreasing the amount of work committed to a DBE would still require
prime contractors to follow the process by providing a ``good cause''
reason it proposes to terminate, provide the DBE with time to respond,
and not terminating before receiving prior written consent from the
recipient. The NPRM also proposed to clarify that termination, on the
one hand, and replacement or substitution, on the other, are two
separate and distinct processes.
Comments
The majority of the nearly 20 commenters supported the proposal.
They agreed that a prime contractor may not terminate a DBE's contract
without the recipient's written consent. Some of these comments said
that it made sense
[[Page 24912]]
to fold the notion ``substitution'' into the overall ``termination''
framework, since a substitution had the effect of terminating the
original contractor. One commenter wanted to make sure that the five-
day period for a recipient's consent had elapsed before the prime
contractor actually terminated the DBE. Another said that, if there was
additional work to be done in the scope of a DBE's work, and the goal
had been met, the DBE should complete the additional work, rather than
the prime contractor self-performing it.
Some commenters sought clarifications of the proposal. Three
commenters said that a recipient's removal of work intended for a DBE
to perform should not be treated as a termination by the prime
contractor. There could be circumstances, another commenter said, in
which a recipient would need to make a determination in less than five
days; for example, there may be an urgent need to ensure that hauling
supplies to the job site happens on time. In such a case, the commenter
said, the recipient would have to respond to the contractor's written
notice in 24 hours, and a formal termination process could follow.
The small number of opponents preferred retaining the former
regulation's provisions. Some thought that the list of ``good cause''
reasons for termination is too restrictive.
DOT Response
In the NPRM, the Department underscored that any time a prime
contractor seeks to terminate a DBE to which it had made a commitment
in response to a contract goal or approved substitution, it must follow
the process set out in Sec. 26.53(f). The Department sought to clarify
that this requirement applies not only to a complete termination but
also to a ``partial termination,'' i.e., eliminating a portion of work
committed to a DBE. For example, a ``partial termination'' in which a
prime contractor wishes the DBE to do $100,000 worth of work as opposed
to the originally committed $200,000, is just as much subject to the
approval as an action to terminate the DBE firm entirely. This would
not apply to change orders initiated by the recipient that had the
effect of eliminating some or all of the work to which a DBE was
committed to perform.
The Department continues to believe that it is important to
separate the termination requirements from the substitution process. We
have found that some recipients will not allow the prime contractor to
terminate a DBE until it has submitted a substitution. Other recipients
forgo the termination process and merely require the prime contractor
to submit a request for substitution. The due process requirements in
Sec. 26.53(f) are essential to protect DBEs committed toward a
contract goal, or approved replacement, from arbitrary elimination.
This is true whether or not a substitution of another firm for the
terminated DBE's work is intended. Again, after considering the
comments, we are adopting the termination and substitution provisions
as proposed in the NPRM.
11. DBE Supplier Credit (Sec. 26.55(e))
NPRM
As noted in the 2022 NPRM preamble (87 FR 43631-43632), the issue
of how to count DBE credit for suppliers has long been a subject of
debate and extensive stakeholder input. Changes over the years in the
way that materials are delivered for projects and the importance of
concepts like the ``regular dealer'' to DBE suppliers and prime
contractors seeking to meet goals have been among the frequent topics
of discussion.
Based on the Department's consideration of stakeholder input, the
NPRM proposed several changes to the counting provisions of Sec.
26.55(e). First, a prime contractor could meet no more than 50 percent
of a goal on a given contract through use of DBE suppliers (including
manufacturers, regular dealers, distributors, or transaction
facilitators). A recipient could, with prior OA approval, make
exceptions to this limit (e.g., for material-intensive contracts). The
purpose of this proposal was to prevent the use of DBE suppliers from
crowding out opportunities for other types of DBE contractors on a
project.
To avoid ad hoc, post-contract award determinations of whether the
contributions of a supplier were those of a ``regular dealer'' eligible
for 60 percent credit, the NPRM proposed that recipients establish a
system to determine, before contract award, whether a DBE supplier
meets the basic requirements for being a regular dealer. That is, does
the firm generally engage in the sale or purchase of the items in
question or items having the general character of those to be supplied
under the contract? As part of this pre-award process, the recipient
would look at such questions as whether the items would be provided
from the supplier's inventory, whether the supplier would have physical
possession of the items, or, in the case of bulk items, whether the
supplier would deliver the items using its own distribution equipment.
Goal credit would ultimately be decided on a contract-by-contract basis
based on the recipient's final evaluation of whether the firm would
provide a commercially useful function (CUF) deserving of 60 percent
regular dealer credit.
The recipient's system for carrying out this proposal would also
evaluate situations in which all or most of a regular dealer's supplies
come from its inventory, but other sources, such as a manufacturer,
would provide additional minor quantities of items related to those in
the contract.
In addition, the recipient's system would consider situations in
which a DBE supplies items/goods that are not typically stocked (e.g.,
specialty items). A DBE that provides such items would be eligible for
60 percent regular dealer credit if, like a supplier of bulk items, it
used its own distribution equipment.
One of the issues that stakeholders have discussed is the handling
of ``drop shipping,'' in which a DBE supplier arranges to have a
product sent from its manufacturer to the job site, without passing
physically through the hands of the DBE. On the one hand, this
arrangement appears similar to that of a transaction facilitator, whose
credit is limited to its fees or commissions. On the other, some
stakeholders said that dealers in bulk items with distributorship
agreements had a good deal of control of a transaction, take
significant risks, and often use their own delivery equipment, meaning
that their involvement went beyond being simply a transaction
facilitator.
To address these concerns, the NPRM proposed that a ``distributor''
having a valid distributorship agreement receive 40 percent credit for
the items it provides. Recipients would have to review distributorship
agreements, prior to contract award, to determine their validity with
respect to each purchase order/subcontract and the risk the DBE
assumes. Where a distributor ``drop ships'' materials without assuming
risk, or does not operate according to its distributorship agreement,
its credit would be limited to fees or commissions.
The NPRM proposed to retain the existing requirement that to
receive credit for supplying materials, a DBE must negotiate the price
of supplies, determine quality and quantity, order the materials, and
pay for the materials itself.
The NPRM would clarify the definition of ``manufacturer'' by
proposing that manufacturing includes blending or modifying raw
materials or assembling components to create the finished product to
meet contract specifications. Minor modifications do
[[Page 24913]]
not count as manufacturing eligible for 100 percent credit.
Comments
The 50 Percent Limit on Credit Toward Goals for Use of Suppliers
This provision of the NPRM attracted over 60 comments, which, by
roughly a 5-1 ratio, opposed the Department's proposal. DBEs, non-DBEs,
and recipients found reasons for objecting to the proposed limit on the
use of suppliers to meet goals. Commenters opposing the proposal did so
on a variety of grounds.
Several comments challenged the factual basis for the proposal. A
DBE supplier said that there were no statistics or other evidence
supporting the proposal, making the limit arbitrary, a point other
commenters made as well.
A non-DBE contractor said that there were no studies showing that
DBE suppliers were favored over other kinds of DBEs, or showing what
percentage of goals were being met by different categories of DBE
firms. Nor was there evidence that suppliers or manufactures were being
used at a greater rate in the DBE program than in the construction
industry generally, or that the participation of non-supplier DBEs were
unduly limited under the present rule. The comment added that the only
evidence in the NPRM preamble for the proposal was a reference to a
2018 stakeholder meeting in which some DBE participants had said that,
on some contracts, prime contractors were able to meet all or most of
DBE goals through use of suppliers, especially of bulk items, making
use of other types of DBEs unnecessary. It depends, one commenter said:
in some contracts in which his company had been involved, goals had
been met mostly or entirely with DBEs other than suppliers.
A State-level contractors' association said that it had been told
by its State DOT that it does not keep numbers on the participation of
DBE suppliers vs. other DBEs, resulting in a lack of evidence that
could provide a basis for a supplier limit. A national-level
contractors' association said, referencing the stakeholder meeting
mentioned above, that use of comments constituted rulemaking by
anecdote. Moreover, it said, it had not been given the opportunity to
participate in the meeting, the results of which had never been
published. Another commenter noted it did not appear that the views of
prime contractors or recipients had been solicited in the stakeholder
meeting cited in the NPRM preamble.
Commenters who are or who represented recipients expressed concern
that the proposal did not take into account the realities of their
contracting activities, such as the unique characteristics of
contracts, the needs associated with each contract, and the
availability of DBEs relevant to the work of each contract. Two such
commenters said that in their jurisdictions, there was not an excess of
suppliers, one of them noting that only 20 percent of the DBEs in its
directory were suppliers. Others said that the provision would not work
with respect to contracts heavily involving bulk and other materials
(e.g., asphalt), therefore harming businesses who focus on those
materials. One recipient said that there were often few DBEs to work on
contracts in rural areas, making reliance on suppliers more important
there.
Recipients and contractors both said that the proposal would
adversely affect the ability of prime contractors to meet contract
goals and of recipients to meet overall goals. Recipients' goals might
have to be lowered as a result, especially when a contract did not
provide significant opportunities for non-supplier DBEs. For example,
one State contractors' association said that materials made up 60-80
percent of typical highway contracts in its State. On a paving contract
for example, a commenter said, there might be only two or three,
usually small, scopes of work that a DBE subcontractor could perform.
If a contractor could count only suppliers to meet half of its goal, it
would make it impossible to meet goals in many cases, commenters
asserted, given what they characterize as the frequent unavailability
of other types of ready, willing and able non-supplier firms. The
effects of the pandemic on small business could make this problem
worse, a prime contractor suggested. All this would make more good
faith efforts ``waivers'' necessary, commenters said.
A few recipients expressed the concern that the proposal could
increase their workload and create confusion or delays in their
administration of their contracting activities.
A frequent comment opposing the proposal is that it would unfairly
create financial harm to DBE suppliers. These firms have configured
their businesses to meet the requirements of the existing rule,
commenters said, making considerable investments in facilities,
inventory, and employees. They would have fewer opportunities to work
under the proposal, as the rule favors one category of DBEs over
another, with the result that suppliers would lose income and could
even be forced out of business. One DBE stated that it would cut their
business in half.
A few comments also asked how the exception process was supposed to
work. When would recipients have to go to an OA to have an exception
approved, and what would be the OAs' criteria for approving the
request? A commenter suggested there should be a deadline for an OA's
response to a request for an exception (e.g., five days). One comment
suggested that the matter of exceptions should be delegated to
recipients, without needing approval from an OA.
Some commenters also had suggestions for modifying the proposal.
One would allow suppliers to count 50 percent of their gross sales for
credit. Another suggested giving recipients flexibility to decide what
level of credit (e.g., 50, 60, or some other percentage) applied to a
particular contract. Another suggestion was to calibrate credit
according to the percentage of supplies on a contract. If supplies
account for 80 percent of a contract, then the recipient would allow
DBE suppliers' contribution to count for 80 percent of the goal.
Another variation would be to apply the 50 percent limit with respect
to commitments in the pre-award process, but then count the entire
amount of actual supplier participation toward actual attainment at the
end of the project.
The smaller number of commenters who supported the proposal, or at
least did not object to it, said they thought the proposal fair and
useful to keep open opportunities for non-supplier DBEs. Some
supporters said there should be exceptions for materials-heavy
contracts (e.g., guardrails). Another said it could support a 50
percent limit for large contracts but not smaller contracts. A few
recipients said the issue did not much impact their operations. One
comment asked how the provision would apply to situations where there
was no contract goal. A few comments wanted stricter limits on supplier
participation (e.g., 25 percent).
Regular Dealer Issues
The largest number of comments on regular dealer issues focused on
the proposal that recipients have a system to make contract-by-contract
pre-award decisions about whether a supplier deserved 60 percent credit
as a regular dealer.
More than 20 comments, mostly from recipients, opposed the idea.
Their primary objection was that implementing the proposal would be
confusing, difficult, and burdensome. For example, there would be
additional work for contract administrators, which could delay contact
awards. Prime contract bidders would face an undue
[[Page 24914]]
burden, as they would have to do additional due diligence to make sure
that the credit they were claiming for DBE participation was consistent
with the recipient's determination in each case. These determinations
could be subjective and subject to challenge.
Most of the comments opposed to the proposal stated that if there
was to be a determination about whether a supply firm was a regular
dealer, it should be made by the UCP at the time of certification, not
on a pre-award basis on each contract by the recipient. On the other
hand, a commenter objected to UCPs performing this function, since it
would result in a de facto certification of regular dealers.
A few comments supported the proposal. One comment suggested that
the approval of a DBE as a regular dealer could be done as part of a
recipient's good faith efforts review. Another suggested that firms
could submit an affidavit attesting to its meeting regular requirements
as part of the pre-award process. Another recommended that a CUF review
for regular dealers consider such factors as the firm's ability to
secure the items, do their own takeoffs and quantity planning, get
quotes, and have distribution agreements.
On other regular dealer matters, a few commenters said that the
credit awarded to regular dealers should remain at 60 percent. Some
would increase the percentage (e.g., to 75, 80, or 100 percent). One
commenter said that regular dealers in specialized fields for items
such as bridges should be able to count 100 percent. Another commenter
favored 100 percent credit if the firm's workforce was predominately
minority or female. One commenter said the entire regular dealer
concept was outdated and should be taken out of the regulation. The
commenter urged that the regulation talk about suppliers in general in
a simpler way.
Other commenters requested clarification with respect to terms like
keeping a ``sufficient quantity'' of materials in stock (which the
commenter said could vary among different kinds of items), ``drop
shipper,'' or ``specialty items.'' Another asked how a recipient could
make regular decisions with respect to out-of-state firms that were
certified via interstate certification. Another provided a detailed
typology of regular dealers, bulk suppliers, and brokers/transaction
expediters.
Commercially Useful Function
In addition to its role in determining whether a firm was a regular
dealer, some comments addressed CUF decisions more generally. Two
supported doing CUF reviews on all federally assisted contracts, while
another thought doing so would too burdensome if applied to contracts
without a DBE goal. One of these asked for more specific CUF criteria.
One wanted to streamline the process by allowing a CUF review that
would apply to all jobs within a year, while another commenter thought
certifiers could verify CUF at the time of certification.
Recipients, not prime contractors, should make CUF determinations,
one commenter said. Another added that recipients should not be able to
request CUF data from prime contractors; the prime contractor should
get DBE credit unless there is documented evidence of noncompliance.
Another was concerned that CUF reviews and the ``running tally''
monitoring requirements could become confused with one another.
A commenter thought that prime contractors should be able to do
several things to assist DBEs without running afoul of CUF
requirements. These included providing specialized training through a
shared superintendent or foreman, access to contract management
software and back- office assistance, sharing of equipment and workers,
and guarantees consistent with industry practice.
Bulk Suppliers and Supplies of Specialty Items
The 60 percent credit given to suppliers of bulk materials and
specialty items is a subcategory of the treatment of regular dealers
under the rule. There was a division of opinion among commenters about
whether, as the NPRM proposed, these suppliers would need to have their
own distribution equipment to count for 60 percent credit towards a DBE
goal.
Several comments said that leasing equipment was a common industry
practice among suppliers, and that suppliers should not be penalized
for doing so. Being unable to lease distribution equipment would be
burdensome and could make DBE suppliers uncompetitive, one comment
said. A distinction based on physical delivery of products is
unrealistic, a DBE supplier said, as suppliers have to do a lot of work
that adds value no matter how products are delivered.
One recipient suggested that an equipment lease should be long term
(e.g., at least a year). Others would make allowance for a situation in
which a supplier that had its own distribution equipment used a short-
or long-term lease arrangement for items that are infrequently needed
(e.g., highway signs) or to supplement their own equipment, as needed
(e.g., through engaging owner-operators).
Among other comments on the subject, a few supported the proposal
as written. Another raised a problem concerning what it said was a
common practice of manufacturers (e.g., of structural steel) shipping
their products to the job site using their own trucking company. The
commenter wondered whether there would be a CUF for a DBE in such a
situation.
Drop Shipping and Distributors
All but a few of over 40 comments that addressed this issue opposed
the NPRM's proposal, though not all for the same reasons. A mix of
recipients, DBEs, and non-DBEs said that the proposal was unclear,
confusing, overly complex, burdensome, and difficult to administer.
Recipients do not have expertise in evaluating the validity of a
distributorship agreement, some said, adding that the NPRM did not
provide guidance or criteria to aid this task. It could be difficult
for recipients to distinguish between those transactions counted at 40
and 60 percent, another comment asserted. One comment suggested that
other factors aside, all drop-shipped goods should be counted at a
fixed percentage (e.g., 30 or 50 percent) to simplify matters.
Two commenters thought that, as comments had suggested about
regular dealer evaluations, decisions about the validity of
distributorship agreements should be made in advance, through the
certification process. Monitoring would be very hard to accomplish,
requiring intensive work. Recipients should have the flexibility to
determine how much credit to permit for drop-shipped goods, depending
on the circumstances of individual contracts, a comment said. Some
commenters were concerned that the 40 percent number was arbitrary,
lacking a basis in evidence.
Another theme expressed by some commenters was that drop shipping
was a normal industry practice for building and construction materials,
particularly in this day of just-in-time logistics. Firms that do
business this way, assuming that they insure the goods and bear the
risk of loss, should not be penalized by the lower 40 percent level for
credit. If a firm delivers or insures the material, commenters of this
view said, it should count at the 60 percent level, even if drop
shipped. The proposal could make it difficult for small firms to make a
profit, another said. This is particularly true, one commenter said,
for made-to-order items that are not typically kept in warehouses
(e.g., rail ties and switches). The proposal could place DBE shippers
[[Page 24915]]
at a competitive disadvantage compared to non-DBEs.
On the other hand, a few comments opposed any credit for drop
shipping distributors, beyond fees and commissions, saying that regular
dealers add more value and have more overhead costs. Moreover, a
comment said, the proposal opens opportunities for fraud. Others said
that distributorship was not a valid business model. In a similar vein,
a few commenters suggested that a lower percentage (e.g., 20 or 30
percent) should count. Another said that drop shipping credit should be
permitted only for large quantities or oversized items that are
difficult to store in a warehouse.
A few comments did support the proposal, though with the caveats
that more guidance from DOT would be needed about what a valid
distributorship agreement should look like, and that close scrutiny of
such agreements by recipients would be necessary to make the concept
work.
Negotiating Price of Supplies
Relatively few comments addressed the proposal to continue in
effect the current requirement that, to get credit, a DBE supplier must
negotiate the price of supplies, determine quality and quantity, order
the materials, and pay for the materials itself. Some said that there
are situations (e.g., airport lighting) when the price of items cannot
be negotiated. An equal number of comments supported the proposal. One
of them added that a DBE should have to perform, and not outsource, all
of the four required functions; otherwise, there would be opportunities
for fraud and abuse. In any case, another said, recipients had to
enforce these requirements strictly.
Definition of Manufacturer
A majority of the 13 comments that addressed this proposal
supported it, though some asked for clarification of what constituted a
``minor'' modification of materials. Commenters asked whether
activities like adding logos to uniforms, cement mixing trucks, coating
rebar, or cutting materials to a specific size would count as
manufacturing or minor modifications. Some comments also suggested
using SBA regulations in 13 CFR 121.406 to define what constitutes a
manufacturer. One comment asked that manufacturers not be subject to
the proposed 50 percent limit on DBE credit for supplies provided to a
project.
Other Comments
One comment said that there should be a special rule for counting
disposal of hazardous materials, such as a percentage of the disposal
costs. Two others said that DBE credit should be allowed for at least
some of the work that a DBE subcontracts to a non-DBE, at least as long
as the non-DBE is not an affiliate. Another said that brokers had a
legitimate role, asking that the rule define their proper role.
DOT Response
50 Percent Limit on Credit Toward Goals for Use of Suppliers
In proposing the 50 percent limit on the counting of DBE
participation by suppliers toward goals, the Department was responding
to the perception of many DBEs, as well the experience of DOT staff,
that prime contractors find it easier to meet DBE contract goals
through obtaining supplies and materials from DBE suppliers than
through using DBE subcontractors who work on projects on the ground.
For example, on a highway project it can be simpler for a prime
contractor to buy paving materials through a DBE supplier than to
engage a DBE to install the materials. This has given rise to the
concern that DBE subcontractors can be frozen out of opportunities,
since goals may be able to be met without them. By limiting the portion
of the goal that could be met by using suppliers, the Department hoped
to keep open a significant percentage of work that would then be
available for DBE subcontractors.
Nevertheless, the Department has been persuaded by the comments
that this provision should not be included in the final rule. Comment
periods on proposed rules are not simply votes, and in making this
decision the Department is not simply responding to the numbers of
comments opposing the proposal. Rather, we believe that commenters made
reasonable points about the basis and potential effects of the
proposal.
We find plausible the concern that if suppliers could not comprise
more than 50 percent of a goal, many contract goals might not be met,
resulting in higher numbers of goal attainment through documented good
faith efforts instead of sufficient DBE subcontracting; this may have
possible implications for overall goal attainment. This concern appears
particularly credible with respect to contracts that emphasize bulk
supplies like asphalt or petroleum products, or projects that may be
located in parts of States or work scopes in which few DBE
subcontractors may be available.
The proposed exception mechanism, as well as some of the
commenters' suggestions for modifications that could be added to a
supplier limit regime to provide greater flexibility, are well
intended, but could easily lead to greater complexity and inconsistency
in program administration. In any event, because we are not adopting
the 50 percent limit provision, they are unnecessary.
Our underlying concern about ensuring that the program does not
have inadvertent adverse effects on DBE subcontractors is addressed
through other changes to the present rule that are adopted in this
final rule. The definition of regular dealer is being strengthened to
emphasize the necessity of regular dealers having facilities,
inventories, and/or distribution/delivery equipment in order for 60
percent of the value of their supplies to be counted toward goals.
The new distributor definition limits to 40 percent the credit that
can be obtained for many drop-shipped goods, provided the DBE bears
risk for loss or damage of such items. The credit for broker and
expediter participation continues to be limited to fees or commissions.
These provisions should reduce the incentives and opportunities for
prime contractors to over-rely on suppliers to meet goals to the
detriment of other DBEs. We expect recipients to enforce these
provisions rigorously and to take care, at the pre-award stage, to
ensure that bidders on prime contractors do not obtain credit beyond
what the provisions permit.
The Department also understands commenters' point that creating a
provision that would directly benefit one category of DBEs at the
expense of another category does risk being arbitrary. It is likewise
the case that DBE suppliers, particularly those that are regular
dealers, have a reliance interest in retaining full access to the
program, and may often have made considerable investments to establish
their position in the program. To limit their business opportunities
could well cause them economic harm, as comments asserted, based solely
on the type of work they do.
The risk of arbitrariness increases absent quantitative information
to support an impression--even one based on considerable anecdotal
experience--that there is a problem that such a regulatory provision is
needed to solve. The Department recognizes that it does not collect
information from recipients about the type of work DBEs perform on
contracts. The Department proposed in the NPRM the ability to collect
that information as part of recipient's required submission of the
Uniform Report of DBE Awards, Commitments, and Payments. It may be that
reliable data showing that DBE subcontractors
[[Page 24916]]
are effectively shut out of opportunities to work on projects by prime
contractors' over-reliance on suppliers to meet goals could make a
``market failure'' case for imposing a provision like that of the NPRM;
however, without that information at the present time, the Department
is declining to change the rule at this time.
Going forward, the Department will have recipient data from the
updated Uniform Report of DBE Awards, Commitments and Payments
regarding not only the number and dollar amount of DBEs that
participated on federally assisted contracts that we currently collect,
but information on the type of work performed by those DBEs as well.
Depending on what such data shows, the Department may reconsider
whether a limit on goal credit for DBE suppliers is appropriate.
Commercially Useful Function and Regular Dealer Issues
Finding a means of limiting potential over-crediting of suppliers,
while not unreasonably limiting their participation, is an important
step toward creating a well-balanced DBE program.
We believe that we can achieve this objective by having recipients
pay close attention, at the pre-award stage, to how suppliers proposed
to be used by a prime contract bidder can go far to avoiding over-
crediting in a way well-suited to the circumstances of a particular
contract.
Recipients are already required to carefully examine, before
contract award, whether the bidder has committed to a sufficient number
of DBEs in sufficient amounts to meet the contract goal or has
submitted adequate documentation of good faith efforts. Often, however,
recipients assume that DBEs committed as suppliers are entitled to 60
percent of the cost of supplies when evaluating pre-award goal
attainment. The final rule requires recipients to look in detail at how
a DBE supplier would provide supplies and materials to the contract to
provide more certainty whether the contractor would be entitled to
count 60 percent of the cost of supplies toward goal attainment during
contract performance. The recipient would do so through asking a series
of questions with respect to the role of a proposed DBE supplier. In so
doing, it would not determine whether a DBE was, in some intrinsic
sense, a ``regular dealer.'' The inquiry would not focus on the nature
of the firm, but on what the firm proposed to do on a particular
contract and how it proposed to carry out its responsibilities.
The Department determined that the proposed change to Sec. 26.55
with respect to requiring bidders submitting commitments to DBE
suppliers to include is better placed in Sec. 26.53(c)(1). Thus, Sec.
26.53(c)(1) of the final rule describes the nature of the questions and
affirmations a proposed DBE supplier will provide, and the prime bidder
will include in the pre-award process for each contract. This
information helps the recipient to determine if the firm should be
awarded 60 or 40 percent credit for supplies. For example, the
recipient would ask, whether on a particular contract, the DBE supplier
will be using its own distribution equipment, whether it maintain a
warehouse or other facility, whether it engages in the sale of the sort
of goods involved in the contract to the public on a regular basis,
etc. We will also make available a form tool on the Departmental Office
of Civil Rights' website.
Drop Shipping and Distributorship Issues
In an effort to address the fact that drop-shipping is a common way
of doing business, we proposed that drop-shipping by a DBE that has a
distributorship agreement with a manufacturer would be able to count 40
percent of the value of materials toward goals. The distributorship
agreement concept troubled many commenters, both from the viewpoint of
how recipients would decide if an agreement was legitimate and the fact
that many, especially smaller, DBE suppliers might not have the
resources to enter such an agreement. Commenters said that if a DBE
supplier took enough risk, it should be entitled to credit regardless
of whether it was part of a formal relationship of this kind with a
manufacturer.
The Department will respond to these comments by eliminating the
distributorship agreement proposal. Instead, as part of the pre-award
review for firms proposing to drop-ship items, the recipient would
determine whether the proposed supplier demonstrates ownership of the
items in question and assumes all risk for loss or damage during
transportation, evidenced by the terms of the purchase order or a bill
of lading (BOL) from a third party, indicating Free on Board (FOB) at
the point of origin or similar terms that transfer responsibility of
the items in question to the DBE distributor. Again, the Department's
form tool will have questions to help recipients make this
determination. If the proposed drop-shipper met these criteria, it
would receive 40 percent credit for the cost of the items. We
anticipate that many bulk material items may well fall into this
category, if all the requirements are met.
The current rule's provisions for 100 percent credit for materials
provided by a DBE manufacturer, and for credit limited to the fees or
commissions for firms who did not meet the criteria for 60 or 40
percent credit, would remain the same. The Department believes that
detailed enforcement of all the supplier provisions discussed above
would be sufficient to prevent or limit over-crediting of suppliers, to
the detriment of other kinds of DBEs, to make the proposed 50 percent
cap on supplier credit toward goals unnecessary, while respecting the
arrangements that may be appropriate to the wide variety of contracts
in DOT-assisted programs. To make this approach work, recipients would
have to ensure that bidders and proposed DBE suppliers specify and
certify the details of the work that would be performed and how it will
be performed, so that post-award monitoring could ensure that
commitments were being met.
Other Matters
The Department adopts the NPRM provisions concerning the definition
of manufacturers and the responsibility of DBEs for negotiations
concerning price without change. In regard to a commenter's view that
credit be allowed for work performed by a non-DBE subcontractor, such
an approach is not aligned with the intent of the program. The comments
regarding the disposal of hazardous materials and brokers were not
proposed in the NPRM and are therefore outside the scope of this final
rule. DOCR appreciates the commenters' input and will consider any
information or recommendations the commenters may have on these issues.
Subpart D--Certification Standards
12. General Certification Rules (Sec. 26.63)
NPRM
Proposed Sec. 26.63 of the NPRM was largely a redesignation of the
material previously found in Sec. 26.73. The one substantive change of
note would be that, in place of current Sec. 26.73(e), concerning DBEs
owned by holding or parent companies, the NPRM would substitute a
simpler provision saying that there could be one level of ownership
above the company seeking certification. That is, there could be a
subsidiary and its parent company, but there could not be a
``grandparent'' company above both of them. Eligibility in such a
situation assumes cumulative 51 percent ownership of the subsidiary
company and that other eligibility
[[Page 24917]]
requirements were met. The proposal includes several examples of
arrangements that would or would not be eligible under the revised
rule.
Comments
There were 10 comments on this proposal; all but one favored it.
The unfavorable comment expressed concern that the proposal could
compromise the independence of the subsidiary firm.
Several commenters addressed the regulation's approach to
certification in general. For example, some commenters asked the
Department to simplify the certification process, which they
characterized as a lengthy, costly, and paperwork intensive process
that was an obstacle and deterrent to firms seeking to enter the
program.
Other comments said that the annual submissions of a DOE and
financial data were unnecessarily burdensome on both DBEs and
certifiers. It would be better to require this submission only every
two or three years. Moreover, in the context of the interstate
certification proposal, the burden on firms would be multiplied if they
had to submit a DOE to every State in which they had become certified.
Two comments suggested having independent third-party
administrators do certification reviews instead of recipient personnel.
Another commenter suggested better education and training about Federal
and State program rules (e.g., requirements for continuing education).
Another commenter recommended and that the Department develop a code of
conduct for certifiers.
DOT Response
The final rule adopts NPRM's proposal to limit DBEs to having one
level of ownership above an operating DBE company. That is, there could
be a ``parent'' company but not a ``grandparent'' company. The rule
does not specify the type of business entity involved in the level
above the operating company, as long as it permitted the operating
company's ownership to meet certification requirements.
The final rule also retains the requirement for the annual DOE for
all companies. A firm that is certified in multiple States must submit
DOEs to all States in which it was certified on the anniversary date of
its certification by the jurisdiction of original certification (JOC).
Given the frequent turnover of certifier personnel, and the errors
in the certification process that too often come to light in the
certification appeal process, it is clear that training is key to
smooth operation of the certification function. This is especially true
when, following the issuance of this final rule, new and changed
certification standards go into effect. While we are not mandating a
specific number of ``continuing certification hours'' for staff, or
setting forth a standard curriculum at this time, the Department
intends to make comprehensive training opportunities available to
certifiers, which we expect all certifiers to take advantage of.
13. Business Size (Sec. Sec. 26.65, 23.33)
NPRM
Only small businesses may participate in the DBE program. The
business size limit for applicant and certified DBEs seeking to
participate in FHWA and FTA assisted contracts is adjusted for
inflation per the BIL. As of this final rule, this statutory gross
receipts cap is $30.40 million. A DBE firm must still meet the size
standard(s) appropriate to the type(s) of work the firm seeks to
perform in DOT-assisted contracts. These standards vary by industry
according to the NAICS code(s) defined by the Small Business
Administration (SBA).
The adjusted gross receipts cap does not apply to determining a
firm's eligibility for participation in FAA assisted projects. This is
due to a recent statutory change that eliminated this requirement for
FAA assisted contracts. This means that the Department does not have
the discretion to change these size standards through administrative
action. DBE firms working on FAA assisted projects must meet the size
standard(s) appropriate to the type(s) of work based solely on the
applicable NAICS code(s) size standard(s). UCP directories must clearly
indicate which firms are only eligible for counting on FAA assisted
work. (There are separate size standards for the part 23 ACDBE program
that are not affected by recent changes in SBA regulations pursuant to
the Small Business Runway Extension Act of 2018 (Pub. L. 115-324).)
The NPRM proposed to conform the Department's rule so that a firm's
compliance with NAICS code size standards would be based on its average
annual gross receipts over the firm's previous five fiscal years.
However, under Sec. 1101(e)(2)(A)(i) and (ii) of the Bipartisan
Infrastructure Law (BIL), only the firm's gross receipts for the most
recent three fiscal years may be submitted to determine whether it
meets the small business statutory size cap.
The NPRM also addressed size provisions in the ACDBE program. There
would be minor changes to part 23 and a reference to pay telephone
operators would be removed. The NPRM would also remove a requirement
for adjusting the ACDBE size standards every two years; the preamble
asked whether any change was needed at this time and, if so, what
measure of inflation the Department should use. The preamble expressed
concern that raising the standards could harm the chances of smaller
firms trying to enter the program. It also asked whether industry-
specific standards, like that for car rentals, are still needed.
Finally, the NPRM added a clarification that an ACDBE that is a party
to a joint venture must include in its gross receipts its proportional
share of receipts generated by the joint venture.
Comments
Part 26 Standards
A significant number of commenters, from both DBEs and recipients,
supported the proposal to go to a five-year calculation for NAICS code
size standard compliance, though a couple of commenters would have
preferred a shorter (3-year) or longer (7-year) calculation. A number
of commenters, however, said that the NAICS codes limits and/or
statutory size cap were themselves too low, given inflation that has
particularly affected commodity prices. Several commenters advocated
raising the part 26 limits to the level of the part 23 standards, or to
the $39.5 million level applicable to many types of business under SBA
regulations.
A few commenters recommended regional variations in the size
standards. For example, in high-cost construction areas, like New York
or San Francisco, size standards could be adjusted along a scale tuned
to the prevailing wage rates in those areas. One commenter suggested
that proceeds from COVID-19 pandemic relief legislation, like the
Paycheck Protection Program, should not be counted toward a firm's
gross receipts calculation. A few comments also suggested using net,
rather than gross, receipts to calculate whether a firm meets size
standards. One commenter said pass-through payments to subcontractors
in particular should not be part of the calculation.
A smaller number of commenters stated that the regulation should
eliminate size standards because they unfairly limit DBEs' growth.
Several commenters recommended a mechanism that would allow mid-size
DBEs to remain certified for a limited time after exceeding the size
standards so that they should be able to continue their growth and
success. For example,
[[Page 24918]]
DBE credit for using a firm could be progressively reduced over a
period of three years (i.e., 75 percent in year 1, 50 percent in year
2, 25 percent in year 3) after it first exceeded the size limits for
full DBE participation.
With respect to adjustments, commenters generally agreed with the
proposal, though some pointed out that adjustment dates had been missed
in the past, that stakeholders should be consulted on the subject, that
industry-specific data should be used, that White-owned businesses
should be omitted from the calculation, or that inflation should be
used as the measure for adjustments.
Part 23 Standards
Two commenters, both from the same urban area, asked to retain a
standard for pay telephone operators, lest existing contracts with such
operators be adversely affected. Those commenters, who addressed the
proposal that an ACDBE that is a party to a joint venture must include
in its gross receipts its proportional share of receipts generated by
the joint venture, approved it.
DOT Response
The Department adopts the NPRM's proposals on these issues. While
we understand the objectives that supporters of regional or local
standards seek to achieve, we believe that in a national program--
especially one in which interstate certification reciprocity will
become a reality--a single national standard is appropriate. We also do
not believe that a variety of different standards would be consistent
with the program's governing statutes. For example, the Department is
now working under a statutory requirement for five-year averaging for
NAICS code gross receipts size standard purposes, such that a different
period--three or seven years--is not something we have the statutory
authority to authorize.
With respect to size calculations, the final rule clarifies that
certifiers should count on a cash basis, regardless of a firm's choice
of accounting method. This is intended to level the accounting playing
field among firms.
For part 23, because there are still some airports that have pay
telephones, the final rule retains the size standard for existing pay
telephone concessionaires. Similarly, the final rule retains the
proposed provision that joint venture receipts be included in the ACDBE
size calculation in proportion to the ACDBE's demonstrated ownership
interests in the joint venture, lest the size of such firms be either
overstated or understated.
14. Personal Net Worth (Sec. 26.68)
NPRM
The NPRM's discussion of proposed changes to the personal net worth
(PNW) standard was the most complex portion of its preamble. The
discussion noted the reason for having a PNW standard, namely that in
its absence persons who are members of presumptively eligible groups
but who in fact are not economically disadvantaged could benefit from
the DBE program, undermining both the program's ability to assist
persons who are truly disadvantaged and the narrow tailoring that is
vital to the program's continued legal validity.
The preamble also noted the balancing act that the Department faces
in setting a PNW cap. If set too high, persons who are not truly
disadvantaged can participate. If set too low, socially and
economically disadvantaged owners (SEDOs) whose firms have grown
successful can be prematurely excluded.
PNW Cap
Since 2011, the PNW cap has been set at $1.32 million, which had
been adjusted upward for inflation from the $750,000 level in its 1989
base year. As explained in the NPRM preamble, 87 FR 43636-38 (July 21,
2022), rather than make a direct inflationary adjustment, based on a
measure like the Consumer Price Index (CPI), the Department employed a
complex analysis based on the Federal Reserve Board's 2019 Survey of
Consumer Finances (SCF), a triennial cross-sectional survey of U.S.
families' balance sheets, pensions, income and demographic
characteristics. The methodology accounts for differences among racial
and ethnic groups (e.g., White, non-Hispanic households have net worth
of six to seven times that of Hispanic or Black households).
Specifically, using SCF data on household assets and liabilities
allowed the Department to construct a proxy measure of PNW that is
close to the how PNW is currently defined by the program but also
allows consideration of the impact of removing retirement accounts from
the definition of PNW accounts for the relative wealth of potential
DBEs by comparing their financial position to other self-employed
business owners, rather than the general public. After constructing the
proxy measure of the revised PNW definition that removes retirement
accounts using the 2019 SCF, the Department constructed a distribution
of PNW across white, male, non-Hispanic self-employed business owners.
See Table 2 of NPRM preamble. There is an apparent breakpoint between
the 80th and 90th percentiles. As described in the discussion of Table
2 of the NPRM preamble, ``[t]he 90th percentile of PNW for male, White,
Non-Hispanic self-employed business owners is roughly $1.60 million,
which is $1.04 million higher than the 80th percentile of $0.56
million, which is in turn just $0.29 million greater than the 70th
percentile.'' 87 FR at 43638. Therefore, there is a substantial jump in
PNW between the 80th and 90th percentiles, making it an intuitive
breakpoint between wealth groups. A 90th percentile cutoff is commonly
used to describe the most wealthy group and to compare the economic
position of the most wealthy group to the rest of the population.\3\
---------------------------------------------------------------------------
\3\ See Smith, Zidar, and Zwick, ``Top Wealth in America: New
Estimates under Heterogeneous Returns,'' 138 Quarterly Journal of
Economics 515 (2023) available at https://economics.princeton.edu/working-papers/top-wealth-in-america-new-estimates-under-heterogenous-returns/; Kuhn, Schularick, and Steins, ``Income and
Wealth Inequality in America,'' Center for Economic and Policy
Research (Aug. 9, 2017) available at https://www.wiwi.hu-berlin.de/de/professuren/vwl/wtm2/seminar-schumpeter/hscf_cepr.pdf; Bricker,
Goodman, Moore and Volz, ``Wealth and Income Concentration in the
SCF: 1989-2019'' in FEDS Notes (Sept. 28, 2020) available at https://www.federalreserve.gov/econres/notes/feds-notes/wealth-and-income-concentration-in-the-scf-20200928.htm; Kochar and Cilluffo, ``Income
Inequality in the U.S. Is Rising Most Rapidly Among Asians,'' Pew
Research Center (July 12, 2018) available at https://www.pewresearch.org/social-trends/2018/07/12/income-inequality-in-the-u-s-is-rising-most-rapidly-among-asians/.
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Looking to the percentile distribution of personal net worth for
male, White, non-Hispanic business owners, the Department calculated
that the 90th percentile PNW for persons in this category was
approximately $1.60 million (in 2019 dollars). Based on this
calculation, the NPRM proposed that $1.60 million be the new PNW cap
for SEDOs, meaning that they could continue in the DBE program if their
PNW was at the same level as a 90th percentile White, non-Hispanic,
male business owner. This would mean, the preamble explained, that 92.6
percent of self-employed business owners who are women, Hispanic, or
non-White would fit under the revised cap.
The NPRM proposed using changes in aggregate household net worth
data published by the Federal Reserve to adjust the PNW amount in
future years. Details of this approach are found at 87 FR 43639. We
would make the first adjustment 180 days after the effective date of
the final rule and make further adjustments at five-year intervals. The
NPRM proposed that we make only upward adjustments.
[[Page 24919]]
Reporting
The NPRM proposed several changes affecting asset inclusion and
valuation in reporting PNW. Under the proposal:
The SEDO reports asset values without regard to community
property, equitable distribution, or similar State laws. In general,
title determines ownership.
The SEDO reports assets held in qualified retirement
accounts at full value but excludes them in full from the calculation
of PNW.
The SEDO may not report loans taken against retirement
assets as liabilities, regardless of title.
The SEDO continues to exclude her share of the equity in
the primary residence although in some cases that share may change.
The SEDO reports 100 percent of the value of household
contents unless she and a spouse or domestic partner cohabit, in which
case the SEDO reports 50 percent of total value. Total value is deemed
to be a least the amount for which contents, including fixtures and
appurtenances, are insured,
The SEDO reports motor vehicle values in the proportion to
which she holds title. The Department requested comments concerning how
the SEDO should report, if at all, the value of leased vehicles.
The SEDO reports at full value assets she transferred to
certain related parties during the two years preceding an application
for certification and in any single year following a declaration of
eligibility. The NPRM clarifies which related-party transfers trigger
the inclusion and adds a de minimis exception. It further clarifies
which ``personal expenditures'' the SEDO may exclude.
A natural person's signatory (not guarantor) status on a
debt instrument generally determines ownership of the liability. In
cases in which another party consistently makes payments on the debt,
however, the certifier may determine, as it may under the current rule,
that for eligibility purposes the debt does not belong to the formal
obligor.
Comments
PNW Cap
Over 50 comments, not only from DBEs but recipients and other non-
DBE commenters as well, supported the proposed $1.60 million PNW limit.
The basic reason for their support was that the adjustment would
increase opportunities for DBEs and avoid penalizing SEDOs for success.
One comment suggested that, following SBA's practice, there should be
separate entry and retention PNW limits for firms.
Nearly as many comments (including some of the above) said that
$1.60 million was still too low a number. One common reason for this
view was that the $1.60 million adjustment, based as it was on 2019
dollars, failed to keep pace with recent higher rates of inflation.
Even if the proposed methodology were used, the final rule should
update the number to be consistent with more recent data, they said. A
commenter argued that a higher PNW number was needed to allow DBEs to
compete in markets dominated by large corporations. Another noted that
data from the Federal Reserve Bank of New York supported the
proposition that Black and Hispanic Americans took a bigger hit from
impacts on the economy of the COVID-19 pandemic and recent inflation
than other persons, suggesting that this be considered in setting PNW
numbers.
Other commenters' suggestions included $1.84 million (based on CPI
inflation since 1989), $2 million, $2.5 or 2.6 million, $3 million, $5
million, or even $20 million. A few commenters referred to New York
State's $15 million cap for its State minority and women business (M/
WBE) programs. Several DBE commenters went further, advocating for the
elimination of a PNW cap altogether, saying that it was ``anti-
entrepreneurial'' and too limiting on firms' growth.
Using the SCF as the basis for the adjustment was problematic, a
few comments said (e.g., because it uses data from the male in an
opposite-sex couple, the older person in a same-sex couple, or an
individual, making it difficult to use the SCF to determine PNW for
DBEs).
A significant number of comments advocated taking regional, or even
local, differences in the cost of living and the cost of doing business
into account in setting PNW limits, rather than establishing a one-
size-fits-all national number. For example, one comment said, the cost
of living in the New York metropolitan area was 69 percent higher than
the national average. One of these made an analogy to the ``locality
adjustments'' made in the salaries of Federal employees. Differences in
the type of business involved (e.g., have higher PNWs for types of
firms, like heavy construction companies or ACDBEs) should also be
taken into account.
A small number of commenters dissented from the concept of
increasing the PNW number. Some said that even someone whose PNW was
$1.32 million, let alone $1.60 million, should not truly be regarded as
economically disadvantaged. The main reason commenters opposed the
increase is that it allowed established DBEs who already get
significant amounts of work to remain in the program, limiting
opportunities for smaller, newer firms, especially those operated by
Black or Hispanic SEDOs.
Two recipients said that they knew of few DBEs that became
ineligible for their SEDOs' excess PNW, while a DBE association said
that increasing the limit could risk narrow-tailoring challenges to the
program. A few comments questioned the economic rationale for the
NPRM's calculation or found it confusing.
Commenters generally agreed with our proposal to make future
adjustments without formal rule making. While some commenters endorsed
the proposed five-year adjustment intervals, others advocated more-
frequent adjustments.
Several commenters questioned or opposed the 90th percentile
benchmark for the adjustment. Some commenters thought that this choice
was arbitrary or confusing, with no compelling rationale. Other
commenters said the 90 percent level is unfair because DBEs must
compete with extremely wealthy and powerful non-DBEs, and that using 95
percent might be better.
Taking the opposite point of view, some commenters thought using
the 90th percentile standard could be over-inclusive, letting too-
wealthy individuals into the program, undermining the concept of
economic disadvantage, and risking challenges to the program based on a
lack of narrow tailoring. One commenter questioned the point of having
a PNW cap at all, considering the commenter's assertion that more than
90 percent of small business owners have a PNW below the current cap,
and the NPRM would increase the cap and exclude retirement assets.
Reporting
Retirement assets drew well over 50 comments, with a considerably
wider divergence of opinion than on the PNW number itself. Supporters
of the proposal outnumbered opponents by about two to one. Supporters
were primarily DBEs but included some recipients and non-DBE groups as
well. Opponents were primarily recipients.
Comments supporting the proposal generally did so for the reasons
stated in the NPRM. It would make SEDOs' lives fairer and the program
easier to deal with, one of them said.
The most significant reason for opposition to the proposal was a
concern that it would be subject to
[[Page 24920]]
manipulation and allow wealthier SEDOs to shelter significant assets,
perhaps in the millions of dollars in some cases, from the PNW
calculation. This would exacerbate inequality among DBEs, disfavoring
SEDOs of smaller, newer DBEs and implicitly favoring White females over
minority SEDOs. The proposal would likely benefit only a few existing
firms, mostly those who already get a large portion of DBE
participation and open the door to firms that are not truly
disadvantaged, resulting in an uneven playing field among DBEs, one
recipient said.
The proposal could have unintended consequences, according to some
comments, such as incentivizing transfers of assets to retirement
accounts, resulting in unrealistically low PNW asset totals. In
addition, comments said, the proposal could disfavor individuals who
invested in real property, as distinct from financial instruments, as a
means of retirement planning. Retirement savings are a part of
someone's wealth, after all, another commenter noted, and should be
treated as such. Excluding them dilutes the notion of economic
disadvantage and could facilitate the participation in the program of
people who are not genuinely economically disadvantaged. Being able to
put significant sums into retirement accounts itself suggests a level
of affluence that may indicate that someone is not economically
disadvantaged.
Some of the opponents of the proposal, and other commenters,
suggested modifications of the proposal to deal with what they saw as
its problematic aspects. One suggested a $500,000 reduction in excluded
retirement assets, with a 10 percent reduction of the remainder. Other
comments recommended that only a portion of retirement assets be
excluded, such as 10, 20, 50, or 75 percent. Another comment wanted
more guidance on what constituted a retirement asset for purposes of
the provision.
Commenters addressed several of the NPRM's proposed provisions
regarding the SEDO's reporting of assets and liabilities for PNW
purposes.
The most contentious issue in this PNW component was the proposal
that SEDOs report assets without regard to State community property,
equitable distribution, or similar laws or principles. The opinion
among commenters was evenly divided on the subject. Supporters
generally agreed with the NPRM's rationale for the proposal, some
specifically citing the desirability of avoiding inconsistency among
States.
A number of the opponents of the proposal were concerned that
removing consideration of marital and community property laws could
disproportionately favor wealthier SEDOs over less affluent SEDOs, and
White female SEDOs over minority SEDOs. Opponents maintained that the
proposed rule would allow a SEDO access to a spouse's wealth while
artificially reducing her own reportable assets. Excluding these laws
from consideration could cause problems for some States in
administering the program, others said, and it would be better to
retain the current rule.
If household goods are divided equally between spouses or domestic
partners, a number of others asked, why should their house itself not
be treated the same way? One commenter asked how the Department would
treat a house that was titled in a revocable trust (which the commenter
said was a common estate planning technique). The commenter suggested
that it be counted in the owner's PNW calculation if the SEDO was a
beneficiary of the trust for purposes of the house.
The commenters who addressed the ownership of household goods
expressed a variety of concerns. Two opposed counting goods at all
because doing so, or keeping the information up to date, was too
complex and burdensome for applicants (e.g., figuring in depreciation).
Another idea was to exclude personal property up to a certain dollar
limit (e.g., $250,000). One said that insurance values tend to be
understated, and another stated that insurance companies tend to value
household goods at a certain percentage of the value of the home
itself, a figure which the homeowner should be able to contest in the
PNW process. Requiring a copy of the insurance policy for verification
would be a good idea, two comments suggested.
Several comments suggested that leased vehicles should be treated
neither as a liability or an asset, though a few other commenters
thought they should be one or the other. Other comments expressed
concern that vehicles, including valuable ones, could be hidden from
the PNW calculation by being placed in the name of an applicant's non-
disadvantaged spouse. One such comment suggested that a vehicle in a
spouse's name should always be counted as part of the SEDO's assets.
Two others questioned why a vehicle would be placed solely in the name
of its title holder, while other personal property, like household
goods, would be divided 50/50 between an applicant and a non-
disadvantaged spouse.
One commenter expressed concern that attributing a debt to the
signatory on a debt instrument could serve as a way for a wealthy
applicant to inflate his liabilities for PNW purposes. Another asked
whether a business going into default should be counted as a liability
if the owner had guaranteed the loan personally, while a third asked
for clarification that a firm's debt, as opposed to a personal debt,
should not count as a liability for PNW purposes. Another question
concerned how the rule would treat a debt entered into by a SEDO in his
or her personal capacity but was being paid off by the firm. One
commenter suggested that in connection with the proposal not to
consider State marital property laws, having the signatory on the debt
instrument determine the ownership of the liability would be a loophole
that would favor applicants with non-SED spouses.
Other Comments
A number of comments propose alternative approaches. One commenter
advocated not counting any of a spouse's assets for PNW purposes;
another took the opposite view, suggesting that all of a spouse's
assets be counted. Another said that in addition to excluding
contingent liabilities, contingent assets should not be counted.
Exclusions should include non-revenue producing property (e.g.,
timeshares, vacant land) and the cash surrender value life of insurance
policies should not be counted as an asset, a commenter asserted.
Another comment suggested excluding encumbered assets from
consideration.
One commenter suggested that the rule define the time period in
which direct payments for health care, education, or celebration of
significant family life events should be counted. A DBE association
said, with respect to the proposed rule limiting transfers to family
members or related entities, there should be an exception for transfers
that were irrevocable or were pursuant to a bona fide tax planning,
estate planning, family support, or similar strategy, perhaps involving
a third-party professional's certification that the transfer was part
of such a plan.
DOT Response
The PNW cap is an important feature, among the other eligibility
criteria and standards set for the program, that helps ensure that the
DBE program remains narrowly tailored. The cap prevents people who are
too wealthy to be reasonably considered economically disadvantaged from
participating in the program.
[[Page 24921]]
The PNW Cap
As explained in the NPRM, and in this final rule, the Department
undertook a fresh, comprehensive approach to tailor an original
analysis of wealth based on quantitative analysis. The approach in this
rulemaking uses SCF data on household assets and liabilities to allow
us to construct a proxy measure of PNW that is close to the how PNW is
currently defined by the program and also allows us to consider the
impact of removing retirement accounts from the definition of PNW.
Further, it allows us to allow for the relative wealth of potential
DBEs--by comparing their financial position to other self-employed
business owners, rather than the general public. After constructing the
proxy measure of the revised PNW definition that removes retirement
accounts using the 2019 SCF, we then constructed a distribution of PNW
across white, male, non-Hispanic self-employed business owners. See
Table 2 of NPRM preamble.
In arriving at the $1.60 million proposal in the NPRM, the
Department used data from the Survey of Consumer Finances (SCF), a
survey conducted every three years by the Federal Reserve and U.S.
Department of the Treasury. This data was specifically analyzed for
business owners by race and gender to reach the proposed $1.60 million
PNW threshold. The NPRM proposed to adjust that figure subsequently
based on the growth in the Federal Reserve measure of total household
net worth from ``Financial Accounts of the United States: Balance Sheet
of Households and Nonprofit Organizations Table Z.1'' using 2019 as the
base year.
Determining a threshold beyond which an individual is considered to
have accumulated wealth too substantial to need the program's
assistance is an exercise in judgment. Nonetheless, as explained in the
NPRM and in this final rule, using the 90th percentile to identify a
high level of wealth or income is a common convention used to describe
economic inequality. Choosing a substantially lower threshold, such as
the 80th percentile, would result in a cap that is lower than the
current cap and would act to remove businesses that are currently
participating in the DBE and ACDBE programs which would be an
undesirable outcome for the DBE and ACDBE programs. Choosing a
substantially higher threshold would risk the possibility of that the
program would no longer be narrowly tailored. However, we deem the 90th
percentile appropriate because based on a review of the 2019 SCF data,
the mean net worth of White, Non-Hispanic households is roughly 6 to 7
times higher than for Black, Non-Hispanic and Hispanic households. Even
at the highest wealth levels, the disparity exists: the wealth of the
top 10 percent of White households exceeds the wealth of the top 10
percent of Black, Non-Hispanic and Hispanic households by a factor of
5.
Data from the 2019 SCF suggests that between 88.7 and 90.8 percent
of self-employed business owners who are presumed to be socially and
economically disadvantaged (i.e., individuals who are women, Hispanic,
or non-White) have PNW lower than the current PNW cap as PNW is
currently defined.\4\ Under the proposed cap of $1.60 million, 92.6
percent of that group would fall under the cap, an increase of 1.8 to
3.9 percentage points.
---------------------------------------------------------------------------
\4\ The range on this estimate is the result of lack of
information in the SCF on how to appropriately adjust the current
balances of retirement accounts for early withdrawal penalties and
taxes. The lower end of the estimated range (88.7 percent) assumes
that the entire balance of retirement accounts is counted toward the
PNW cap while the upper end (90.8 percent) assumes that no portion
of retirement account balances are counted toward the PNW cap. The
Department believes that the true value is likely closer to 88.7
percent than 90.8 percent because the deduction for early withdrawal
penalties and taxes is likely to be less than 50 percent, but a more
precise estimate is not possible with the available information.
---------------------------------------------------------------------------
The final rule adopts a higher number than that of the proposal,
not only in response to comments suggesting an increase in the cap, but
also because we have modified the methodology used to establish and
later adjust the PNW cap. These modifications take into account the
inflation that has affected the financial situation of all Americans
not only since the publication of the NPRM, but more importantly since
the 2019 data on which the NPRM's calculations were based. These
modifications also rely on data more recent than the data on which we
based the NPRM proposal. The data, as cited in the NPRM, are a
combination of households and nonprofit organizations when really only
households should be considered. Additionally, by using solely the
growth in net worth we are not accounting for the normal population
growth. Accounting for population growth is necessary to obtain a
figure that represents the average wealth per household rather than an
aggregate. Consequently, for purposes of the final rule, the Department
has made two adjustments. The first adjustment is a change in the
dataset to the ``Financial Accounts of the United States: Balance Sheet
of Households (Supplementary Table B.101.h),'' effectively removing
nonprofit organizations from the net worth calculation. The second
adjustment is to normalize household net worth by the number of
households as calculated by the Census (Families and Households, Total
Households [TTLHH].\5\)
---------------------------------------------------------------------------
\5\ https://www.census.gov/topics/families/families-and-households.html.
---------------------------------------------------------------------------
With these adjustments and using 2022 data rounded to the nearest
thousand, we have set the current PNW limit at $2,047,000. This takes
inflation into account and, as in the past, includes in the calculation
the most common forms of wealth (e.g., an owner's personal and shared
assets, real estate and trust assets, cash and cash on hand, the value
of outside businesses, life insurance policies). We have determined
that rounding to the nearest thousand is more appropriate than rounding
to the nearest ten-thousand (as we do for the statutory gross receipts
cap in Sec. 26.65(b)) because of the relative difference between these
two caps (the current gross receipts cap is $30.40 million, effective
March 1, 2023). It also takes into account the fact that the population
of business owners has greater net worth than the overall population.
PNW is now, and always has been, a relative concept: how does the
wealth of business owners in presumptively economically disadvantaged
groups relate to that of business owners generally? With this in mind,
we believe that this number effectively meets the objectives of
allowing businesses to grow; establishing a PNW limit based on current
and relevant data; and ensuring that the program remains narrowly
tailored by not creating eligibility criteria that are overbroad.
The Department will use the data discussed above in connection with
establishing the current PNW to make future adjustments to the PNW cap,
which will be made every three years. We do not believe this will
result in a substantially higher amount based on our assessment of the
likelihood that the datasets described above will produce large jumps
in net worth. An adjustment on a more frequent basis, though favored by
some commenters, will not be made because of the issues it may cause in
the certification and decertification processes. The Department will
post the adjustments on the Departmental Office of Civil Rights' web
page. Each such adjustment will become the currently applicable PNW cap
for purposes of this regulation.
Reporting
The Department adopts as final the general rule that community
property,
[[Page 24922]]
equitable distribution, and similar laws or principles have no effect
on the SEDO's PNW reporting. In most cases, the new provisions either
produce the same result or work in the firm's favor. The Program and
its stakeholders will benefit from burden reduction and more-
consistent, predictable, equitable results.
The final rule adopts the NPRM's proposal to exclude retirement
assets in full. We believe that saving for retirement is crucial to
wealth creation. We do not think it is appropriate to make it harder
for eligible firms to become and remain certified, simply because their
SEDOs are planning for their retirement.
We note this rationale mirrors SBA's 8(a) program, which eliminated
the counting of these assets for PNW purposes in 2020. (91 FR 27650
(May 11, 2020)). As SBA opined, this accords with the valuable public
policy of incentivizing, rather than punishing, saving for retirement;
and expands the pool of potential eligible participants ``because
retirement-age small business owners will no longer be ineligible
solely due to their retirement savings.'' (Id. at 27651).
We understand the concern some commenters expressed that wealthier
SEDOs could stay in the program longer by sequestering assets in
retirement accounts, to the detriment of smaller, newer DBE firms. A
certifier's continued ability to rebut an owner's claim of economic
disadvantage will help prevent this. That backstop, reworked in revised
provisions in Sec. 26.67(c)(2), is an important mechanism to prevent
wealthy individuals from gaming the PNW calculation rules and ensures
that the program remains narrowly tailored. As explained below, the
rebuttal provisions are meant for situations in which a reasonable
person would not consider the individual to be economically
disadvantaged.
Under Sec. 26.67(c)(2), certifiers may consider assets and income,
free use of them or ready access to their benefits, and any other
indicators of non-disadvantage that the certifier considers relevant.
The provision states that there are no asset (including retirement
assets), income, equity, or other exclusions and no limitations on
inclusions. Several commenters seem to have understood that the current
and/or proposed rules permit the SEDO to exclude the entire value of
the primary residence. They do not. Under either rule, the SEDO
excludes only his share of the equity in the home. Under the proposed
rule, transferring title to a spouse reduces the SEDO's PNW exclusion
to zero, and that result is consistent across all States, regardless of
the potential application of community property rules in some States,
under the old rule. The Department adopts the rule as proposed, with
modifications to clarify that the marital/community property change
applies to all PNW reporting, not simply to the exclusion of equity in
the primary residence. The new rule clarifies and refines but does not
change the general rule that actual ownership, normally denoted by
title, determines PNW reporting. We disagree with the commenters who
opine that the old rule, the effect of which varied by jurisdiction, is
preferable to the proposed rule. Under either regime, the SEDO may
transfer title to avoid reporting all or part of an asset's value. The
final rule makes the result more predictable, and it levels the playing
field nationwide. Anti-abuse rules address transfers that have an
evasive effect.
Other, targeted NPRM provisions attempt to resolve smaller,
thornier issues with bright-line solutions that should ease
administration and compliance. We finalize the rule that attributes 100
percent of personal property in a SEDO's primary residence to the SEDO
unless the SEDO shares the residence with a spouse or domestic partner.
Determining aggregate value is difficult enough; we do not believe it
is an effective use of certifiers' or owners' time to pick through
property item by item to determine individual ownership and value. In
most cases, the value of personal property is not of sufficient
magnitude to pierce the PNW ceiling. We adopt the 50 percent/100
percent rule for ease of administration and to curb some of the abuses
that concerned commenters.
PNW reporting for leased vehicles is another case in point. We
agree with the plurality of commenters that opined that a leased
vehicle is neither an asset nor a liability. Thus, the final rule
states that leased vehicles should not be reported at all.
We retain the ``two-year transfer'' rule and adopt as final the
changes proposed, again with clarifying edits in response to comments.
The broader proposition, that substance trumps form when the asserted
transaction, fact, or circumstance is unreal or abusive, remains in
effect. The final rule so provides in, for example, sections 26.68(c),
26.69(c)(3)(ii), and 26.69(g)(1) and (g)(2). All of these iterations
are anti-abuse rules that apply across the entirety of subparts D and
E. We encourage certifiers to make use of them when circumstances
warrant.
15. Social and Economic Disadvantage (Sec. 26.67)
In this section, because the overall topic contains several
important subtopics, we have organized the material around the
subtopics, with discussions about the NPRM provision, comments, and DOT
response pertaining to each individual subtopic.
As a general matter, the final rule notes that Congress continues
to recognize present-day discrimination and the ongoing effects of past
discrimination against members of certain groups who seek to
participate in DOT-assisted contracting opportunities. Under the DBE
regulation, members of those groups are rebuttably presumed socially
and economically disadvantaged. A certifier's ability to rebut the
presumption is a key ``narrow tailoring'' feature because it prevents
the DBE program from being overinclusive. We make clear that
questioning the owner's claim of membership in one or more of the
groups whose members are presumed disadvantaged is a separate process
from rebutting a presumption of social and economic disadvantage. The
former requires the applicant to bear the burden of proof to
demonstrate that they are a member of a presumed group. The latter
requires the certifier to bear the burden of proof to demonstrate that
even though the owner is a member of one or more of the presumed
disadvantaged groups, they are not, in fact socially disadvantaged.
Group Membership (Sec. Sec. 26.5, 26.63, 26.67)
NPRM
The general rule in the regulation is that all an applicant needs
to claim membership in a group whose members are presumed socially and
economically disadvantaged is to check the appropriate box or boxes on
the Uniform Certification Application (UCA) and submit a signed
Declaration of Eligibility (DOE). We reminded certifiers that this is
the only evidence of membership owners must provide at the time of
submitting the UCA. An exception is that owners claiming Native
American status must also provide proof of enrollment in a federally or
State-recognized Indian Tribe, or proof that the individual is an
Alaska Native or Native Hawaiian. We explicitly stated that certifiers
must not question an owner's claim of group membership as a matter of
course, as doing so unduly burdens applicants and contravenes the rule
itself. The NPRM retained the requirement that when questioning an
individual's group
[[Page 24923]]
membership, a certifier ``must consider whether the person has held
himself out to be a member of the group over a long period of time
prior to application for certification . . . .'' (italics added).
Without that requirement, a White male (for example) could suddenly
discover he has Black genetic ancestry and apply for DBE certification
based on that recent discovery--even though he has never held himself
out as Black, and he would likely have no evidence that the Black
community regards him as a member of the Black community. Because of
confusion expressed by certifiers and applicants alike, the Department
proposed defining ``a long period of time'' as a period of at least
five years, marking the first time the Department ever proposed a
specific number.
The NPRM placed timelines/deadlines in Sec. 26.67 to ensure that
neither certifiers nor applicants unduly delay the process of
questioning group membership. We also proposed allowing a firm whose
owner's claim of group membership has been rebutted to submit a claim
of the owner's individual social disadvantage at any time under Sec.
26.67(d) (Sec. 26.67(e) in the final rule), without regard to the
waiting period in Sec. 26.86(c). A certifier would not be able to
require the individual to file a new application; the individual would
be permitted to simply amend the original application.
Comments
The majority of comments addressed evidence of Native American
group membership and the proposed minimum 5-year time frame for
``holding oneself out.''
Given that the DOE is the only evidence of group membership an
individual must submit with the UCA, some commenters asked whether, and
how, certifiers could obtain proof of enrollment in a federally or
State-recognized Tribe from an individual claiming Native American
group membership. One commenter asked about State-recognized Tribes in
the context of interstate certification, as not all States recognize
the same Tribes. One commenter suggested that Native American-owned and
tribally owned firms be afforded the same exceptions from some
certification requirements provided to Alaska Native Corporations.
Of the 15 comments addressing the ``holding out for a long period
of time'' proposal, 10 supported implementing a minimum five-year
requirement. One commenter asked when the five-year period started to
run (e.g., from someone's first application, a current application?).
Some commenters asked for clarity on how to apply the ``holding out''
provision and examples of evidence. Opponents said that five years is
too short a period to meaningfully demonstrate that an individual had
held themselves out to be a group member. One commenter suggested 10
years. Another suggested that ``since adulthood'' would be a better
criterion.
A few commenters sought clarification about the definition of a
``well-founded reason'' for questioning an individual's claim of group
membership. Two commenters asked for guidance on how to handle
situations involving a transgender person or one whose gender
identification is inconsistent with that on her/his/their birth
certificate. One commenter noted that looking into someone's claim of
disadvantage could run up against the shortened time frame for issuance
of a certifier's decision on an application.
DOT Response
The regulation's general rule is that all an applicant needs to do
to claim membership in a group whose members are presumed SED is to
check the appropriate box(es) on the UCA and submit a signed DOE.
However, an individual claiming membership in the Native American group
must also provide proof of enrollment in a federally or State-
recognized Indian Tribe, or proof that the individual is an Alaska
Native or Native Hawaiian. Examples of proof of Tribal enrollment
include, but are not limited to, a Tribal identification card, or a
letter from a Tribal leader. We recognize that Alaska Natives and
Native Hawaiians do not necessarily possess Tribal enrollment
documents. Certifiers must verify government-recognized documentation
submitted by Alaska Natives or Native Hawaiians, such as enrollment
documents from the U.S. Department of the Interior or a State agency.
The final rule amends Sec. 26.67(a)(2) to reflect that requirement.
The Department continues to give certifiers latitude in determining
whether there is a well-founded reason to question someone's claim of
presumptive group membership. We also continue to emphasize our view
that a well-founded reason must not be a mere suspicion or a bare
expression of a certifier's opinion. Certifiers must continue to fully
explain the basis for the well-founded reason and reference specific
evidence in the record. Without that, an individual cannot meaningfully
respond.
People who are members of the regulation's designated groups are
presumed to be disadvantaged because members of those groups have,
historically and currently, suffered from discrimination and its
effects. If someone has not identified as, or been regarded as, a group
member for long enough to have suffered these effects, they are not
someone whose situation is intended to be remedied by participation in
the program.
The final rule does not include a definition of ``long period of
time'' in order for certifiers to consider the full context of an
individual's claim of group membership. Specifying a rigid time period
could be subject to manipulation by an applicant who continues to
assert a clearly invalid claim of group membership for many years.
Members of the regulation's designated groups are presumed to be
disadvantaged because members of those groups have, historically and
currently, suffered from discrimination and its effects. If someone has
not identified as, or been regarded as, a group member for long enough
to have suffered these effects, they are not someone who is intended to
have the presumption of disadvantage.\6\ By not including a definition
of ``long period of time,'' we preserve the ability of certifiers to
consider a persons' claim of group membership and to demonstrate such
by a preponderance of the evidence.
---------------------------------------------------------------------------
\6\ The Department has acknowledged, even as far back as the
1999 final rule preamble, that commenters have wanted further
definition of what ``a long period of time'' means. As we stated
then, we believe ``it would be counterproductive to designate a
number of years that would apply in all cases, since circumstances
are likely to differ. The point is to avoid ``certification
conversions'' in which an individual suddenly discovers, not long
before the application process, ancestry or culture with which he
previously has had little involvement.'' 84 FR 5116 (Feb. 2, 1999).
---------------------------------------------------------------------------
Lastly, the procedures for questioning the membership of a
transgender individual, or one whose gender identification is
inconsistent with that on the individual's birth certificate, are the
same as questioning the group membership of any other individual. If,
after a proper inquiry, a certifier rebuts a transgender individual's
membership in the ``female'' group, the certifier must deny the
application and inform the individual of the right to apply under Sec.
26.67(e) (individualized showing of disadvantage) at any time and of
the right to appeal to the Department. This scenario differs from an
instance in which a person does not check the box for ``female'' and
instead writes ``transgender'' after checking the ``other'' box. In
that instance, a certifier must inform the person that ``transgender''
is not a group whose members are presumed SED and explain the option of
applying under Sec. 26.67(e)
[[Page 24924]]
to demonstrate SED status on an individualized basis.
Evidence and Rebuttal of Economic Disadvantage
NPRM
The NPRM proposed eliminating the six ``ability to accumulate
substantial wealth'' (AASW) factors by which a certifier could rebut an
owner's presumed economic disadvantage, because the Department
witnessed the significant extent to which certifiers and firms
inappropriately treat the six factors as a checklist of required
criteria and treat the examples' numbers as floors or ceilings.
We proposed bringing the ``reasonable person'' standard from the
preamble to the 2014 regulation into the regulation itself, just as we
moved AASW from guidance into the regulation in 2014. Via a Sec. 26.87
proceeding, a certifier would bear the burden of proving, by a
preponderance of the evidence, that a reasonable person would not
consider the individual to be economically disadvantaged even though
the individual's PNW did not exceed the regulation's limit. Among the
evidence that could be considered are ready access to wealth, income or
assets of a type or magnitude inconsistent with economic disadvantage,
a lavish lifestyle, or other circumstances that economically
disadvantaged people typically do not enjoy. Liabilities and the kind
of asset exclusions used in PNW calculations would not be taken into
account as part of this determination.
Comments
Most commenters opposed our proposal to replace the AASW factors
with a ``reasonable person'' evaluation. About 30 comments, primarily
from recipients but also including some DBE and non-DBE firms, said
that it was too vague and subjective. It could lead to inconsistent and
arbitrary results and could let in people who should not be in the
program. It left too much discretion to the personal opinions of
certifiers, leading to conscious or unconscious bias, or a certifier's
dislike of a particular firm, being able to affect decisions.
More than 20 commenters (there was some overlap with the first
group) advocated retaining either the existing six guidance factors or
some other factors more concrete than a reasonable person standard.
Many of these comments suggested modifications to make something like
the existing provisions work better, such as more guidance. One subject
suggested for guidance is how certifiers should look at situations
involving S-corporations or LLCs, where business income is passed on to
an individual's personal return, enlarging the SEDO's AGI. Some said,
given inflation, the AGI criterion should be increased to $400,000-
$500,000. Others recommended stronger language to prevent single-factor
evaluations using the criteria, or that more than one factor should
always be used.
A smaller number of commenters supported the proposal, favoring the
``big picture'' approach of the NPRM. One recipient said it already
used a holistic approach successfully. One of the supporters commented
favorably on what it regarded as the NPRM's simpler approach to the
issue. Another wanted the certifier to have to prove its case under the
proposed approach by the clear and convincing evidence standard. One
comment was concerned about the proposal's subjectivity but said the
current six factors were worse. It asked that the Department not
provide guidance that made decisions on rebutting disadvantage harder
for certifiers.
Two comments said that evaluations under the section exclude
spouses' assets, while another thought those assets should be included.
DOT Response
The Department's final rule about rebutting economic disadvantage
helps ensure that the DBE program remains narrowly tailored and
strengthens current safeguards that prevent firms owned by individuals
who cannot fairly be viewed as economically disadvantaged from
participating in the program. Rebutting an owner's presumed economic
disadvantage inevitably requires certifiers to make a judgment call
about whether an owner can be reasonably considered economically
disadvantaged. We make final our proposal to eliminate the AASW
framework and shift the analysis from a list of specific criteria to a
``reasonable person'' evaluation.
By giving certifiers the ability to make judgment calls, we believe
that we place them in the best position to achieve this objective,
without needing to engage with factors that, while intended as
suggestions, were too often taken as strict regulatory criteria.
Retaining and/or revising some or all of the existing factors, as some
commenters suggested, will not solve the problem and might
inadvertently create additional complexity. We understand commenters'
concern about decisions on this matter becoming too subjective. That is
why, and consistent with prior final rules, certifiers must articulate,
in writing, a detailed explanation and not simply make a conclusory
statement.
Individual Determinations of Social and Economic Disadvantage (Sec.
26.67(d))
NPRM
The Department proposed eliminating its guidance in Appendix E and
adding flexible, less prescriptive requirements into the regulation
itself. An individual seeking to demonstrate SED status on an
individual basis would still have to prove, by a preponderance of the
evidence, that he experienced social and economic disadvantage within
American society and without regard to the individual's personal
characteristics.
Comments
Of the more than 20 comments that addressed this issue, a majority
opposed the NPRM's proposal, saying that it was too subjective. It gave
certifiers too much discretion, left open the possibility of
inconsistency and bias, and might help ineligible firms to obtain
certification. Most of these commenters favored retaining the guidance
or something like it. A smaller number of commenters favored the
proposal for the reasons stated in the NPRM preamble, with two asking
for more examples to help certifiers.
DOT Response
We adopt proposed Sec. 26.67(d) with modifications in response to
the comments. We believe that the changes provide clearer guidance to
certifiers and business owners. The final rule removes the lopsided
and, in some cases, insurmountable burdens that the previous rule and
guidance imposed and curbs the excesses they enabled. The rule
simplifies, specifies, and streamlines. It substantially levels a
skewed playing field for owners, which should result in more accurate
determinations and the more efficient administration of the
certification process.
The final rule reunites the social and economic aspects of
``disadvantage,'' which are intrinsically linked, and explicitly
identifies the three elements that the owner must demonstrate. Although
the substance deviates very little from that of the superseded
guidance, the final rule concisely identifies the ``what'' and the
``how'' and does it in plain language. The rule clearly specifies the
criteria that an owner must satisfy, and the kind of evidence that he
must present, to show that the negative effects of discrimination
(social disadvantage) caused economic hardship.
The final rule, as did the previous provision, requires a degree of
[[Page 24925]]
subjectivity because each owner presents unique facts and personalized
experiences. The checklist approach of the superseded appendix was ill-
suited to the evaluation. Although the final rule is less rigid, it
continues to require robust proof of individual disadvantage. We are
confident that certifiers will evaluate the evidence fully and
objectively, in accordance with the restated, simplified criteria, and
thereby ensure that only eligible firms become certified.
The reauthorization of the DBE program in successive Congressional
reauthorizations, including the Bipartisan Infrastructure Law,
demonstrates Congress' intent to facilitate the participation of social
groups that have experienced past, and continuing, discrimination in
federally assisted contracting. The final rule safeguards against
certifiers imposing undue requirements on individuals that are not
presumptive group members. The rule focuses solely on essential
requirements, ensuring fairness and clarity in the certification
process. This matches Congress' and DOT's objective to remove barriers
and facilitate certification of eligible firms.
The Department's final rule adopts in full our NPRM proposal for
the reasons given there. As with evaluating the SED status of an
individual claiming membership in one of the groups whose members are
presumed SED, evaluation of an application under Sec. 26.67(e)
inherently requires certifiers to make a judgment call. In doing so,
certifiers must not simply rely on the quantity of examples of
disadvantage an owner provides; rather, certifiers must focus on the
quality of the evidence presented. Applicants have to submit a personal
narrative detailing the experiences that demonstrate the social and
economic disadvantages they have had to contend with. While applicants
bear the burden of both production and persuasion with respect to all
elements of certification, certifiers must holistically evaluate all
presented evidence before making a determination.
We reiterate that an owner need not have filed a complaint of
discrimination as a prerequisite of claiming social disadvantage. Nor
must an owner produce corroborating evidence, as such evidence may not
exist. The final rule merely levels the field by removing what amounts
to a higher burden than ``preponderance of the evidence.'' \7\ The
owner still must make his case, and the certifier may disregard a claim
of social disadvantage where the individual presents evidence of
discriminatory conduct but does not connect that conduct to negatively
impact on his own entry into or advancement in the business world. On
this point, the Department is following SBA's guidance that individuals
need to provide ``a complete picture, or additional facts that would
make an individual's claim of bias or discriminatory conduct more
likely than not.'' \8\ Like SBA, certifiers should not intend as a
matter of course, to disbelieve an applicant but should continue to
rely on the affidavits and sworn statements, as long as those
statements clearly establish an instance of social disadvantage.
---------------------------------------------------------------------------
\7\ SBA uses the preponderance of the evidence standard as well
in its eligibility standards. In its final rule, SBA addressed the
Supreme Court's decision regarding the DBE program (Adarand
Constructors, Inc. v. Pe[ntilde]a, 515 U.S. 200 (1995), which
requires programs to provide a race-based remedy to be ``narrowly
tailored.'' SBA noted that the Department of Justice recommended the
``preponderance of the evidence'' standard for government-wide
disadvantaged business programs; and therefore, based its
``preponderance of the evidence'' standard accordingly. See 63 FR
35728 (June 30, 1998). The Department follows this standard.
\8\ 81 FR 48569 (Jul. 25, 2016).
---------------------------------------------------------------------------
Appendix E is modeled after several, but not all, SBA requirements.
When it was first introduced by the Department, we modified our
guidance to make it fit our needs because of the differences between
the two programs. Appendix E was intended by the Department to be
guidance only, yet recipients used it to impose rigid, prescriptive
requirements that too often excluded meritorious applicants who, by any
reasonable standard, proved their SED status. Nonetheless, certifiers
found them ineligible because they did not produce a specific type of
evidence, in sufficient volume, of each of the several ``required''
varieties. In some cases, the evidence (e.g., corroboration of malign
intent) does not exist; in others, it cannot be obtained. For example,
researching and compiling data about other firms in the same or a
similar line of business with which to compare the individual's
circumstances is well beyond the means of an owner of a small business
seeking DBE certification. Competitors tend not to publish information
concerning capital, net worth, access to credit, etc. As stated in the
NPRM preamble, we believe that this is inequitable. The rule at Sec.
26.67(a) aligns with the Department's surface authorization requirement
to follow SBA's definition of members of groups deemed socially
disadvantaged; and Sec. 26.67(d) retains SBA's regulatory requirements
that a person who is not socially disadvantaged must make an individual
showing of disadvantage. To do so, Sec. 26.67(d) requires an owner to
identify at least one objective distinguishing feature (ODF) that
resulted in racial, ethnic, cultural, or other prejudice against him
personally and describe with particularity how the ODF caused personal
social disadvantage. The owner may provide evidence related to the
owner's education, employment, or any other evidence the owner
considers relevant.
16. Ownership (Sec. 26.69)
The NPRM proposed changes that would streamline the ownership rules
and make them easier to understand and administer. The proposal
retained the essential substantive elements of the 2014 rule but recast
them in simpler language. It distilled from the multitude of
prescriptive ``real, substantial, and continuing'' (RS&C) rules a few
general principles and set those out as the main components of
ownership. Sub-rules fleshed out the framework. The Department's
overall goal was to make certification easier to obtain, maintain, and
monitor.
The proposed rule employed a new term, Reasonable Economic Sense
(RES) as its rationalizing principle. RES, like RS&C in the 2014 rule,
was to be a touchstone, shorthand, and umbrella for the underlying
concepts and operating rules. We intended for the term to signal
flexibility, a common-sense focus, and tighter alignment with small
business realities.
Reasonable Economic Sense (RES)
NPRM
The NPRM replaced the term RS&C with RES in describing the rule's
unifying principle or overarching requirement. The proposal restated
the 2014 rule's essential requirements and organized them more
logically. At the top analytical tier, the proposed language simplified
and clarified the rule's main components; it changed nomenclature and
emphasized more than substance. For example, ``proportionality''
(broader, less rigid, more clearly defined) replaced the 2014 rule's
``real,'' ``substantial,'' and ``commensurate with'' language. The
changes gave certifiers more latitude than they believed they had
before, to encourage them to consider firm-specific facts without undue
regard for technical disqualifications. Similarly, the proposal gave
owners more control over how to structure their businesses' ownership.
Proportionality does not require exactitude. Owners have latitude up
the point at which the benefits and burdens of ownership are ``clearly
disproportionate'' or ``undue.'' While the proposed rule described the
[[Page 24926]]
ownership requirements in plainer, more accessible language, the
animating theory remained: substance prevails over form.
Comments
Commenters supported the NPRM's overall approach, including the
rule's substantive provisions, by a wide margin. Supporters often cited
increased flexibility and the likelihood of better outcomes. However, a
sizable majority of all commenters specifically opposed RES. They
faulted the term for vagueness, subjectivity, the potential for
inconsistent results (e.g., disfavoring WBEs), and the possibility that
front companies could become certified more easily. While some of the
commenters opposing RES wanted to retain the existing rule, most
requested more definitions, guidance, and examples.
DOT Response
Our objectives in promulgating the proposed and final rules are to
simplify, clarify, and modernize certification standards; give firms
and certifiers more flexibility; and promote consistent, fair results.
We intended for RES to capture in a single, overarching term the
essence of the DBE ownership standards, as simplified and clarified.
The comments, however, persuade us that RES is unhelpful, and on
further reflection, we see no need for an overarching term. We
therefore delete all references to RES.
The comments also prompt us to explain key concepts and rules more
thoroughly and to add substantially more situational guidance and
examples. We adopt proposed Sec. 26.69, with these additions and
edited for clarity.
We believe that the final rule reduces burdens, increases
understanding, and promotes equity.
Investments
The regulation frames ownership in terms of ``investments'' and
provides detailed guidance on which investments in ownership make a
firm eligible for certification. Investments are the mechanism through
which the rule applies. If the SED owner (SEDO) makes no investment, an
insignificant one, or one that is disproportionately low, the firm is
ineligible.
Purchases, capital contributions, and gifts are investments if they
meet specified standards, including proportionality consistent with the
owners' relationships and the business's circumstances. Investments
must have real economic effect. The SEDO must have parted irrevocably
with (her own) cash or with a combination of cash and tangible or real
property. She must stand to lose the entire investment if the business
folds. In colloquial terms, the SEDO must have real ``skin in the
game.''
Rules for Acquisition, Proportionality, and Maintenance
Section 26.69(b) retains the proposed rules for acquiring and
maintaining ownership interests. In all cases, the principle of
proportionality applies. The SEDO's investment to acquire ownership
must be substantial, and it must include a significant cash component.
Example 1. SEDO contributes $51 to acquire 51 percent of Newco. The
cash outlay is insubstantial, and the capital contribution is therefore
not an investment. Newco is ineligible for certification.
Example 2. SEDO contributes $5,100 in exchange for 51 percent of
Newco, which does not yet operate any business. Regardless of whether
$5,100 is a substantial outlay, Newco is ineligible under Sec.
26.71(a), which requires that an applicant have business operations.
Example 3. SEDO purchases 60 percent of Opco for $30,000 cash.
Assuming that the outlay is not clearly disproportionate to value, and
the SEDO does not reap benefits or shoulder burdens clearly
disproportionate to those of other owners, Opco is eligible on
ownership grounds.
Example 4. SEDO contributes a truck worth $60,000 to Haulco in
exchange for 100 percent ownership. Without a significant cash
contribution, Haulco is ineligible.
Example 5. SEDO buys 80 percent of Opco from Founder, who is
retiring, for $8,000. Opco has run at a small net loss for the last 2
years but was profitable in several preceding years. Opco has generated
over $3 million of revenue in each of the last four years. Opco is
probably ineligible because $8,000 is unlikely to be proportional to
the value of 80 percent of Opco.
Example 6. SEDO pays $55,000 to buy 60 percent of the stock of
Oldco from Founder, who was Oldco's sole owner. Oldco's book (net
asset) value is $100,000. Since there are no other, recent stock sales
or other persuasive evidence of fair value, Oldco is probably eligible
because $55,000 is not ``clearly disproportionate'' to the value of the
shares purchased.
``Proportionality'' requires that the SEDO not derive
disproportionate benefits or bear disproportionate burdens of
ownership. The SEDO may not make a conditional or revocable investment,
and once made, the SEDO must maintain the investment. ``Maintain''
means both that the SEDO not withdraw her investment and that she keep
her investment proportional to those of other owners.
Purchases and Capital Contribution
A purchase is an investment when the consideration is exclusively
monetary and not a trade of property or services. A capital
contribution is an investment when the owner contributes cash, tangible
property, realty or a combination of these assets. Contributions of
time, labor, and services (i.e., called ``sweat equity'') are never
investments.
We exclude as unhelpful our proposal concerning contributions of
expertise, even though we received no comments about it.
Gifts
NPRM
The NPRM provides that a gift is an investment only if the
transferor becomes uninvolved with the applicant or DBE in any capacity
and in any other business that performs similar work or contracts with
the firm other than as a lessor or supplier of standard support
services. This language is a condensation and simplification of current
regulation Sec. Sec. 26.69 (h) and (j). The NPRM removes the
prohibition on the transferor's involvement with a non-DBE firm in a
similar business; adds the contracting restriction and a documentation
requirement; and removes as unwieldy, unnecessary, and unfair the
paragraph (h) presumption of non-ownership, two-pronged rebuttal (one
wholly unrelated to ownership), and heightened burden of proof.
Comments
One commenter supported the proposal, while another opposed
allowing gifts to be considered toward ownership at all. A third
opposed the proposal that a non-SEDO providing a gift to a SEDO would
have to become uninvolved with the company. It could be a good thing
for the business if the non-SEDO could stay involved, the comment
asserted. Another expressed the concern that, under the proposal,
someone could acquire ownership solely on the basis of a gift.
DOT Response
Paragraph (e) of the final rule replaces paragraph (h) of the 2014
rule. The new rule eliminates the more complex two-prong test and
heightened burden of proof of the former paragraph (h), which has
proved confusing in practice. Under the final rule, when a non-
disadvantaged person gives an ownership interest to a disadvantaged
[[Page 24927]]
person, the gift is the donee's ``investment'' for certification
purposes only if the donor becomes completely uninvolved in the
business or any that contracts with it. Unless or until that happens,
the firm will not be eligible for certification and will remain
ineligible until the donor severs all ties. Of course, if other SEDOs
own 51 percent of the firm without the donee's contribution, the firm
could be certified.
We acknowledge that there are often good reasons for a former, non-
disadvantaged owner and a new, disadvantaged owner to work together
during a transition period, but we remain concerned that permitting
such arrangements across the board presents risks to program integrity.
However, we believe that the prohibition on the donor's involvement in
similar businesses is unwarranted. Although removing that prohibition
marginally increases risk of program abuse, other provisions of the
regulation curb those risks. As this restriction may discourage
transfers that benefit SEDOs and their businesses, we adopt the
proposed rule but strike the ``similar business'' proviso.
Loans and Debt-Financed Investments
NPRM
Under the NPRM, a SEDO may finance all or part of an investment in
the company, including a purchase from a third-party owner. In that
case, the company is eligible only when the SEDO has paid at least 15
percent of her total investment from her own funds. The firm may not be
a party to the loan, and its property may not serve as collateral. The
firm is eligible only if the SEDO meets this requirement before the
firm applies for certification.
Comments
One commenter proposed raising the 15 percent requirement to 35
percent, since the higher floor would demonstrate a greater stake in
the business. Another commenter opposed the 15 percent requirement as
unwarranted because it could impair the ability of younger owners to
become certified. Others suggested that, instead of naming a
percentage, the rule should require a ``commercially reasonable portion
of total investment'' to come from a SEDO's own resources or that
repayment be consistent with the terms of the loan agreement, if
consistent with industry standards. Another commenter opposed
prohibiting the use of a firm's property as collateral for a loan to
the SEDO claiming the investment.
DOT Response
We adopt the debt financing rules as proposed, move them into a new
Sec. 26.70, and respond to comments by breaking the definitions into
smaller components, reordering the rules for clarity, and adding
multiple examples. We do not raise the 15 percent self-funding
requirement because we believe that a higher percentage would be too
exclusionary.
We move these rules to emphasize a crucial distinction that the
2014 rule did not articulate effectively. While a SEDO may make an
investment using funds from a debt, meeting the requirements of this
section, the loans themselves are not investments. This rule applies
regardless of who the creditor and debtor may be. The rule is that,
subject to the conditions specified in Sec. Sec. 26.69 and 26.70, the
owner ``invests'' only when she contributes the loan proceeds to the
firm or uses them to purchase an ownership interest.
To further explain the distinction and the rationale for it, the
SEDO's ``contribution'' of her debt to the company relieves her of the
obligation to repay. Such a transaction is the opposite of an
investment: the owner has parted with nothing but a liability, the firm
receives no capital, and the firm must pay out its own capital to repay
the owner's debt. A loan from the company is not an investment because
the firm cannot contribute capital to itself or buy shares from itself
for itself. (Treasury stock is already treasury stock; the asserted
transaction is as fictional as it is unnecessary.) Nor may the SEDO use
the company's property to secure her loan: a different rule would
effectively nullify the general rule that a loan from the company is
not an investment. Given this treatment of the owner's debt, a mere
guarantee is not an investment.
Section 26.70 also requires regular, level payments of principal
and interest over the term of the loan at least until sufficient
principal has been repaid to make the owner's out-of-pocket expenditure
at least 15 percent of the total investment. Related rules ensure the
integrity of the rule's limitations.
Curative Measures
NPRM
Proposed revisions to Sec. 26.69 would adopt by regulation the
memorandum that the Department issued on August 7, 2019. Applicants can
take curative measures to correct impediments to eligibility, as long
as they are legitimate, accurately reflect relevant facts, are made in
good faith, and are not prohibited in the regulation.
Comments
A strong majority of comments supported the NPRM proposal. Several
commenters said this was a practice they already followed. Some of
these comments suggested that the use of curative measures should be
limited to minor administrative matters rather than serious issues
concerning the organization or structure of a business. Opponents were
concerned that the provision would allow firms to circumvent the rules
or put certifiers in the position of ``coaching'' applicants on how to
get certified.
DOT Response
The final rule adopts the proposal, essentially for the reasons
explained in the NPRM preamble. It will encourage recipients to catch
problems that often unwittingly lead particularly new, inexperienced,
but otherwise potentially eligible firms into mistakes that result in
denials and the application of a waiting period before the firm can try
again. We believe that certifiers can exercise sound judgment
concerning the kinds of matters on which they can usefully assist such
firms. We do so with the safeguard that, like all actions by
participants in the program, abusive or sham actions are prohibited.
When part or all of a transaction or series of transactions involved
with the certification or participation involving a firm have no
apparent purpose other than camouflaging facts or circumstances which
more likely than not render the firm ineligible, the final rule's Sec.
26.69(g) calls for sanctions against the offending parties.
Other Ownership Issues
There were a variety of comments regarding aspects of ownership
that the NPRM did not address. One suggested there should be more
guidance on firms that had more complex ownership arrangements, like
``simple agreements for future equity.'' Another would delete the
requirement that a SEDO own 51 percent of each class of ownership,
which it found too restrictive. This commenter would instead say that a
SEDO should have enough shares of any or all classes of ownership to
control the firm and receive 51 percent of its profits.
Other comments requested clarification on what information an
applicant is required to provide to show ownership and on the status of
trusts under the proposal. Another comment expressed concern that
deleting provisions concerning marital property would make it easier
for applicants to circumvent the intent of the rules.
[[Page 24928]]
Another opined that non-SEDOs should not be able to be part owners of a
DBE firm if they were involved in non-DBE firms in the same type of
work, a relationship that could enable pass-throughs. A final commenter
believed that certifiers should take workforce diversity as well as
ownership into account in certifying firms.
DOT Response
The final rule retains the joint ownership provision as proposed,
for the reasons stated in the NPRM: consistent results across
jurisdictions, federalism, and expertise. Fairness, prudence, and
practicability underlie the final rule.
Any issues arising from the other concerns noted by commenters can,
if needed, be addressed through future guidance or on a case-by-case
basis as a matter of program administration.
17. Control (Sec. 26.71)
In this section, because the overall topic contains several
important subtopics, we have organized the material around the
subsections, with discussions about the NPRM proposals, comments
received, and DOT responses pertaining to each subtopic.
The thrust of the Department's final rule is to shift the focus
from the actions and experience of non-disadvantaged participants in
the firm to those of the SEDO, to reflect the original intent of the
regulation's control requirements. A SEDO must pass the three-part test
of managerial oversight, revocable delegation of authority, and
critical and independent decision-making.
``Operations'' Requirement
NPRM
The NPRM proposed several changes to the current Sec. 26.71. One
proposal stated that firms (except ACDBEs) would have to have
``operations'' in the type of business in which they seek
certification. The NPRM said that this would allow certifiers to make
decisions based on actions the SEDO takes and avoid wasting certifier
resources on firms that are not conducting business and have no ability
to perform DBE contracts.
Comments
Of the nearly 40 comments that addressed this issue, a majority
opposed the NPRM proposal. The principal argument of opponents was that
requiring a business to have operations before being certified would be
a barrier to new firms or those seeking to expand into new areas of
work. The program should encourage, not discourage, firms seeking their
first contract. It would create a disincentive to entrepreneurship in
non-traditional types of work. It should be enough, commenters said,
for the SEDO to have experience in the type of work involved with a new
firm. For example, it should suffice if an engineer had work experience
relevant to the field a new engineering firm wanted to work in as a
DBE, even if a newly formed firm had not yet obtained a contract.
Among commenters who either supported or did not object to the
proposal, some said that it made sense to prevent situations in which a
certifier would be asked, in effect, to certify a business plan. The
provision would save staff time, in that staff would not have to do
certification workups on firms that would not be able to perform
contracts. A commenter thought that an applicant should have at least a
year of experience in its type of work.
Several commenters asked for clarification of what constituted
``operations'' for purposes of the proposed section, and what
applicants would have to show in order to meet the requirement. Would
they need to have already performed work on a contract? Others
suggested that certifiers should have discretion to decide the
question, given that more operational experience may be needed in some
fields than others (e.g., heavy highway construction vs. landscaping).
A number of commenters questioned or objected to the exception to the
proposed requirement for ACDBEs, asking why the same standards should
not apply to an ACDBE.
DOT Response
A DBE must have business operations. Certifiers should not be
involved in what amounts to certifying a business plan. It does not
make sense for a certifier to engage in the certification process for a
firm, which, if certified, is not in a position to work on a DOT-
assisted contract. This is no less true for new businesses than for
long-existing businesses. For this reason, the final rule retains the
proposed requirement.
This is not to say that an applicant must have had previous
contracts in order to be certified. We expect certifiers to make the
necessary judgment calls to determine when an applicant firm is
sufficiently ready to participate in the program if certified.
The Department explains how to apply these concepts in the context
of the ACDBE program in the preamble discussion on Sec. 26.71
regarding the operations requirement for DBEs, including ACDBEs.
Control (SEDO as the Ultimate Decision Maker) (Sec. 26.71)
NPRM
The NPRM would require a firm to demonstrate that, beyond
formalities of business structure and governance documents, the SEDO
``runs the show,'' having the final say on all matters, regardless of
the size or complexity of the business. Governance continues to matter,
however, and provisions that require non-SEDO concurrence or consent
for the SEDO to act, including provisions related to board of
directors, quorums, and votes, would prevent the SEDO from being
determined to control the firm (there would be an exception allowing
non-SEDO members to block an extraordinary action, like sale or merger
of the company, that would affect their ownership rights). The SEDO
must hold the highest officer position and have voting authority over
all other participants.
As under the former rule, a SEDO would have to understand and be
competent in the substance of the firm's business. The NPRM noted that
the degree of understanding the owner should have can vary with the
type and complexity of the business. A SEDO would have to actually make
major decisions, not just have the ability to do so as under the former
rule. Control determinations would be based on a three-part test: (1)
the firm would have to show that a SEDO gets pertinent information from
subordinates, (2) a SEDO analyzes the information, and (3) a SEDO makes
independent decisions. Tasks can be delegated, as long as the SEDO can
revoke the delegation. Everyone in the company must recognize and abide
by the chain of command, with a SEDO at the top.
Comments
By about a three-to-one majority, commenters endorsed the new
control framework, saying that less prescriptive requirements would
simplify the certification process. There were supportive comments on a
number of the specific points in the proposal, such as the SEDO being
the ultimate decision maker and having the top position in the company
and the three-part test with respect to how and by whom decisions are
made. Commenters asked for more guidance on what an applicant would
have to show in order to carry its burden of proof on these matters.
Comments opposed to the proposal said that the proposal would lower
standards and compromise program integrity. Others thought the approach
too subjective. One said the three-part test was not realistic for
certifiers to
[[Page 24929]]
apply; it boiled down to whether a certifier thought what an applicant
said was credible.
One commenter supported the NPRM's proposal about boards of
directors, saying it would clarify matters. Another opined that firms
should be able to set up their boards as they wish because boards of
directors are generally not decision-making bodies. Another said that
non-SEDOs should not be able to block extraordinary actions of the
company and still have the SEDO regarded as controlling the firm, while
another commenter supported the proposed provision concerning
extraordinary actions.
One comment asked for a clarification continuing the present rule's
allowance of control by any SEDO, not only the one having the largest
stake in the company. Another suggested that Sec. 26.71 be made
broader and more ``big picture'' in nature. Another said that if the
certifier determined that the owner does not control the firm, it
should be required to state who does control it.
A few commenters expressed concern about certifiers' ability to
verify the reality of decision-making power within a company. One
commenter noted that anyone can be placed at the top of an
organizational chart. Another commenter asked how a certifier would
know whether other participants faithfully follow the SEDO's
directives. Would the certifier have to interview all key participants
as part of an on-site review? This commenter also was concerned that
what it saw as the proposal's emphasis on formal authority could cause
certifiers to overlook situations in which someone other than the SEDO
had the bulk of expertise and clout within the firm. Other commenters
thought the proposal's bright line approach to a company's chain of
command, and the importance of the SEDO's ability to revoke
delegations, would add clarity to the certification process. Commenters
opposed to the proposal said that the proposal would lower standards
and increase the possibility of opening the program to increased fraud.
Others thought the approach was too subjective. One said the three-part
test was not realistic for certifiers to apply; it boiled down to
whether a certifier thought what an applicant said was credible.
DOT Response
The Department believes that the overall approach taken to control
matters in the NPRM is sound and will meet the dual objective of
removing unnecessary obstacles from applicant firms while ensuring that
only those firms that are genuinely controlled by SEDOs are certified.
It comes down to whether the SEDO in fact--not just in theory or on
paper--runs the show. The SEDO must show that they possess not only the
authority to make decisions, but in fact make those decisions.
With respect to control, certifiers must necessarily make a
judgment call: does the SEDO, based on the complete record, including
the application and the on-site interview, really ``run the show?'' The
NPRM clearly stated this responsibility on the certifier's part. One of
the best ways a certifier can do this is to make in-depth inquiries,
during the on-site interview, to determine if SEDOs critically analyze
information provided by others and make reasonable business decisions
based on independent analysis. Do other key employees bring issues or
problems to the SEDO, who asks good questions, and then makes the
decisions, which others carry out? Or do others make decisions
autonomously, without involving the SEDO, or disregarding direction
from the SEDO? Interviewing not only the SEDO, but also other key
employees where relevant, to get a full picture of how decisions are
made is crucial to good control decisions by the certifier. To the
extent possible, the certifier should ask for examples about how real-
life decisions were made within the firm in the past. The Department
believes this approach, as stated in the NPRM, makes sense and is
consistent with the intent of the program and maintaining program
integrity, and we are adopting it as final.
The NPRM discussed, in Sec. 26.71(c), the point that governance
provisions of a company must ensure that the SEDO, in addition to
having the highest officer position in the company (e.g., CEO), must
not be constrained from fully controlling actions of the company by
quorum, by-law, or other provisions. Non-SEDO consent for certain
extraordinary actions (e.g., sale or dissolution of the company) would
be permitted. However, similar provisions in the former rule often
proved to be problematic for small or inexperienced companies, who in
our certification appeal practice we have found used templates for
governance documents that limit SEDO actions without non-SEDO
concurrence. This is a classic example of where a certifier can
vindicate the intent of the program by pointing out such problems to an
applicant and allowing the applicant to take curative measures.
Expertise and Delegation
NPRM
As under the current rule, the NPRM proposed that SEDOs would have
to understand and be competent in the substance of the firm's business.
The NPRM noted that the degree of understanding that the owner should
have can vary with the type and complexity of the business. The SEDO
would have to actually make major decisions, not just have the ability
to do so as under the present rule. Control determinations would be
based on a three-part test: the firm would have to show that the SEDO
receives pertinent information from subordinates, that the SEDO
analyzes the information, and that the SEDO makes independent
decisions. Tasks can be delegated, as long as the SEDO can revoke the
delegation. Everyone in the company must recognize and abide by the
chain of command, with the SEDO at the top.
Comments
A few commenters were concerned about how certifiers would verify
the reality of decision-making power within a company. Anyone can be
placed at the top of an organization chart, after all, one comment
noted; and another asked how a certifier would know whether other
participants faithfully follow directives from the SEDO. Would the
certifier have to interview all key participants as part of an on-site
review? This commenter also was concerned that what it saw as the
proposal's emphasis on formal authority could overlook situations in
which someone other than the SEDO had the bulk of expertise and clout
within the firm. Other commenters thought the proposal's bright-line
approach to a company's chain of command, and the importance of the
SEDO's ability to revoke delegations, would add clarity to the
certification process.
Three commenters supported the proposal as written. Another said
that there should be language telling certifiers not to reject a firm
because a SEDO, even if clearly the decision maker, has employees who
have greater experience or expertise than the SEDO. On the other hand,
one commenter said that an unlicensed or non-expert person should not
be viewed as controlling a firm (e.g., a non-electrician in charge of
an electrical services firm). One commenter said the SEDO should be
qualified in the NAICS code(s) the firm is seeking, while others asked
for more clarification and examples, especially in professional
services firms and for ACDBEs, where the commenter expressed concern
that inexperienced
[[Page 24930]]
people were getting certified as a part of joint ventures.
DOT Response
The Department adopts the NPRM proposal without change. It
emphasizes that the SEDO, while permitted to delegate authority and
functions, must be able to revoke that authority. There must be a
recognized chain of command within the company in reality, and not just
on an organizational chart, for example. Making probing inquiries on
this point, and on the recognition and acting upon this authority
structure, is something certifiers should, as described above, ensure
is part of the on-site interview process.
The Department emphasizes, in the final rule, that the proper focus
for certifiers is the role the SEDO plays and the SEDO's being the
ultimate decision maker. We have often seen that certifiers go astray
by determining that a SEDO does not control a company simply because
other participants have experience or expertise in a given aspect of
the firm's operations. The contribution of non-SEDOs to the operation
of a company is not a ground for denying eligibility to a company, so
long as the SEDO runs the show in all aspects of the business,
including with respect to areas of work that may be delegated to
others.
While we do not believe it is necessary to include rule text
language on these points, we agree with commenters that, as under the
present rule, in a situation where there is more than one SEDO, control
by any SEDO is sufficient to meet Sec. 26.71 requirements. This is
consistent with the definition of a DBE under Sec. 26.5. For example,
if one SEDO owns 45 percent of a company, and the other owns 10
percent, the firm can meet control requirements if the 10 percent owner
runs the show.
Independence
NPRM
With respect to independence, the proposed rule (redesignated as
Sec. 26.71(g)) clarifies that a firm must prove that it is
independently viable, notwithstanding a relationship with another firm
from which it receives or shares essential resources. A pattern of
regular dealings with a single or small number of firms would not
necessarily render a firm ineligible as long as it was not operating as
a front or pass-through for another firm or individual. The proposed
rule clarifies that relationships and transactions between firms of
which the SEDO has 51 percent ownership and control does not violate
the rule, although the relationship may raise a business size issue.
Comments
While a few commenters supported this proposal as written, others
asked for more clarification of what a certifier needs to know in order
to determine if an applicant is independent. One request for
clarification asked whether independence concerns relationships with
any firms, or only relationships with non-DBEs. Another thought that
the reference to ``commercially reasonable terms'' in the proposed
Sec. 26.71(g) was too vague, while another comment asked how a
certifier should evaluate whether firms ``shared essential resources.''
Another asked for clarification in the context of leasing trucks,
suggesting that a DBE should lease trucks from leasing companies that
lease trucks to the general public.
With respect to the proviso that dealings with only one or a small
number of firms does not necessarily compromise independence, one
commenter agreed while another asked how a certifier would determine
when such a situation was problematic. Two commenters expressed concern
about a situation in which, after a firm is certified, it enters into
an exclusive or nearly exclusive relationship with a prime contractor.
One commenter suggested that this should be prohibited.
Among other suggestions by commenters were to retain the present
language because independence determinations would be harder to make
under the proposed language; to substitute language from the identity
of interest provision of the SBA regulation (13 CFR 121.103(f)(2) and
(i)). If the Department modeled its provision after Sec. 121.103(f)(2)
the commenter argued, certifiers could presume an identity of interest
based upon economic dependence if the concern in question derived 70
percent or more of its receipts from another concern over the previous
three fiscal years. Likewise, adopting a similar provision as SBA had
done, this presumption may be rebutted by a showing that despite the
contractual relations with another concern, the concern at issue is not
solely dependent on that other concern, such as where the concern has
been in business for a short amount of time and has only been able to
secure a limited number of contracts or where the contractual relations
do not restrict the concern in question from selling the same type of
products or services to another purchaser.
Another commenter suggested allowing prime contractors to provide
specialized training to DBEs through a shared foreman or
superintendent.
DOT Response
As in the NPRM, the final rule provides that a key element of
meeting the control requirements of the rule is that a firm must be
independent. Independence in this context refers to the relationship
between the firm in question and other firms, whether those other firms
be DBEs or non-DBEs. A firm cannot be independent if, absent such
relationships, it would not be viable. If a firm cuts the ties that
bind applicant Firm X to Firm Y--whether those ties, be sharing of
facilities, resources, or personnel, common ownership or management,
exclusive or nearly exclusive contracting or business relationships--
would Firm X continue to be able to do business? If not, then Firm X is
not independent.
The regulation does not prohibit relationships with other firms,
including relationships that may create affiliation. Nor does the
regulation prohibit a firm from providing services only to one
business, or only a few businesses. That scenario might arise in a
locale that has a limited number of potential customers. However, the
DBE must not be used as a conduit or pass-through to obtain DBE credit.
In any case where an applicant has relationships with other firms, the
applicant must demonstrate that it is independently viable,
notwithstanding relationships with another DBE or non-DBE firm.
We disagree with the commenters who suggested that the Department
should adopt the Small Business Administration's 8(a) or 8(d) program
rules about independence. The Department's final rule sufficiently
equips certifiers to make the necessary judgment calls, without
unnecessarily leaning on another agency's regulations.
It is likely that allowing a prime contractor to share experienced
personnel with a DBE, especially if they have a contractual
relationship, has a high probability of compromising the DBE's
independence. Certifiers should carefully investigate any such
relationships.
Licensing and Other Specific Sections Proposed for Deletion
NPRM
The NPRM proposed removing several control provisions from the
former rule, including Sec. 26.71(h) (licensing); Sec. 26.71(i)
(differences in remuneration); Sec. 26.71(j) (outside employment);
Sec. 26.71(k) (family relationships); Sec. 26.71(l) (transfer of a
[[Page 24931]]
firm to a SEDO when the non-SEDO transferor remains involved); Sec.
26.71(m) (ownership and leasing of equipment); Sec. 26.71(p) (ability
of non-SEDOs to bind the firm without SEDO's consent); and Sec.
26.71(q) (use of employee leasing companies).
Comments
Supporters of the licensing proposal thought that deleting Sec.
26.71(h) would make the certification process less onerous for
applicants and less likely to lead to decisions based on a
misunderstanding of the regulations. Slightly more opponents
recommended retaining Sec. 26.71(h) to prevent licensed non-SEDO
participants from having de facto control of the firm. Others said
that, especially in specialized fields, the SEDO should be the license
holder. Two commenters noted that in their States, the majority owner
must have a license to operate certain kinds of professional services
firms. One commenter advocated that the SEDO of a trucking company
should have a CDL.
Commenters also raised the question of how, in the context of
reciprocal interstate certification, differing licensing requirements
of different States would be handled. One recipient suggested that an
additional State could deny certification to an out-of-state firm in a
NAICS code for which that State required a license, but the
jurisdiction of original certification (JOC) did not, while still
certifying the firm in other NAICS codes.
Several commenters asked that the Department retain all or most of
the other specific existing provisions in Sec. 26.71 that the NPRM
proposed to delete. Considering issues covered by these provisions was
an important element of doing a good job of certification, these
commenters suggested. The proposed rule would shift the burden of proof
from applicants to certifiers, one commenter said. Among specific
provisions mentioned by commenters were those concerning family
businesses, outside employment, differences in remuneration, and
leasing of equipment. In the absence of these provisions, another
commenter said, DOT would need to provide more guidance on how to make
control determinations when these issues arose.
DOT Response
Consistent with the NPRM, the final rule deletes Sec. Sec.
26.71(h), (i), (j), (k), (l), (m), (p), and (q) as duplicative and
outdated. The overhaul of the control provisions described in this
final rule are more than adequate for certifiers to properly evaluate
whether a SEDO controls a firm.
The proposed deletion receiving the most comment concerned
licensing (Sec. 26.71(h) of the former rule). We wish to remind
certifiers that, in many cases, it is the business as an entity, not
the SEDO as an individual, who is required to have a license. For
example, an engineering firm must have someone with an engineering
license. The firm may still be certified if the license holder is
someone other than the SEDO, as long as the SEDO meets all the
``running the show'' requirements of Sec. 26.71. We also note--this is
an issue that has frequently arisen in certification appeal cases--that
it is not essential for the SEDO in a trucking or transportation
company to personally hold a CDL (commercial driver's license); as long
as the SEDO establishes control of the company as this section
requires.
In the context of interstate certification, if a firm is certified
in its JOC, it can obtain certification in any other State. But suppose
that the firm lacks a professional license in an additional State that
is not needed in the JOC or that the firm's licenses the JOC are not
valid in another State? In such a case, the firm would be certified in
the additional State--because it met basic size, disadvantage,
ownership requirements via its certification in the JOC--but would not
yet be able to do business in the additional State.
While Sec. 26.71(l) of the existing regulation, concerning firms
where a non-disadvantaged individual who formerly owned and controlled
a company remains involved with the company, we note that the ownership
requirements of the final rule require the former owner to immediately
become uninvolved with the company or other business that performs
similar work or contracts with the applicant firm other than as a
lessor or provider of standard support services. We take this action in
the final rule because parties have not understood how to handle the
rebuttal procedurally or apply the stricter burden of proof. The crux
of the rule states that the new owner needs to still show that he/she
is in control, notwithstanding the presence of the old owner. The final
rule preserves and emphasizes this.
While the specific outside employment provision of the existing
rule is being removed, certifiers may still consider the effect on
outside employment as they determine whether a SEDO is in a position to
really run the show for an applicant firm. For example, when a SEDO has
a full-time job for another employer, how does the SEDO find the time
to analyze information and make independent decisions for the applicant
firm? How does the SEDO communicate with employers and customers if the
SEDO has duties for another employer that conflict, in terms of time
and place, with the applicant firm's work? The applicant has the burden
of proving to the certifier that the SEDO can do everything needed to
control the firm, notwithstanding the SEDO's duties for another
employer. Delegations by a SEDO with outside employment must meet the
same requirement as other delegations; the SEDO must remain in active
control of those to whom the SEDO has delegated duties.
North American Industry Classification System (NAICS) Codes
NPRM
The NPRM proposed removing material concerning NAICS codes from the
control requirements to a new Sec. 26.73, making minor technical
corrections in the process.
Comments
While there were no comments on the proposal to put NAICS code
provisions into a new section of the rule, as such, there were comments
on the general subject of NAICS codes. A few commenters said that the
ability of firms to expand into additional codes should be expanded,
for example by relaxing the requirement that the narrowest applicable
code be used for a firm, allowing expansion based on staff
capabilities, or allowing a SEDO to be considered qualified to control
a firm in a related NAICS code to that one a firm already has been
assigned. One commenter suggested that a firm should be able to remain
certified in a narrower NAICS code even if it exceeded the size
standard for that code as long as it continued to meet the size
standard for a broader NAICS code that encompassed the subject matter
of the narrower code.
A few comments also asked that NAICS code assignments be made more
consistent among certifiers, though they did not suggest how this would
be done. Another suggested updating NAICS codes and making them more
specific. Another wanted firms to be certified in State work codes,
where applicable, as well as NAICS codes. Two comments said that
existing NAICS codes do not work well for TVMs, and that the Department
should find another way of classifying especially subcomponent
manufacturers for transit vehicles.
[[Page 24932]]
DOT Response
The Department is adopting the NAICS code provisions of the NPRM--
which are substantively identical to the those of the existing rule--
without change. We continue to believe that the narrowest appropriate
code should control for purposes of certification; doing otherwise
would allow circumvention of the intent of small business size
standards for firms. It is important for certifiers to avoid overly
broad NAICS codes. For example, NAICS code 237310, concerning highway
and bridge construction, has sometimes been applied to specialty
contractors who perform only one or two of the functions under that
code's broad umbrella. We intend that certifiers, in such a case,
assign only the narrower code applicable to the specialty functions
that the firm performs.
As under the present rule, states may employ State work codes or
categories, but they cannot supersede NAICS codes for purposes of DBE
eligibility or credit toward goals. Certifiers cannot certify firms as
DBEs using State work codes, or limit opportunities for DBE credit to
firms certified in a given NAICS code to types of work named under a
State code that is in effect a subset of the work encompassed by the
NAICS code in which the firm is certified.
Subpart E--Certification Procedures
18. Technical Corrections UCP Requirements (Sec. 26.81)
We did not receive any comments on our proposal to remove outdated
references in Sec. 26.81 (a)--the original due date for recipients to
sign a UCP agreement (March 4, 1999) and Sec. 26.81 (g)--the
requirement that UCP directories be made available in print. The rule
is revised to reflect these changes.
19. Virtual On-Site Visits and Other On-Site Comments (Sec. Sec.
26.83(c)(1) and (h)(1))
NPRM
The Department proposed making an option for virtual on-site visits
a regular part of the certification process based on positive
experiences with permitting on-site certification visits to be
conducted virtually as an accommodation to conditions during the COVID-
19 pandemic. This change would reduce administrative burdens and costs
for certifiers and applicants. As stated in the NPRM, the Department
believed that virtual on-site visits were equally as effective as in-
person visits and were a more efficient means of achieving the purpose
of the visits. The software used for virtual visits would also permit
recording of the conversations between applicants and certifiers, which
would permit certifiers to prepare more accurate on-site visit reports
and create a fuller record for cases that resulted in a certification
appeal. The NPRM still gave certifiers the discretion to conduct on-
site visits in person.
Comments
Almost all commenters, particularly recipients, but DBE and non-DBE
contractors as well, supported the Department's proposal, citing the
reasons stated in the NPRM preamble. Commenters also supported
certifiers' discretion to choose whether to conduct on-site visits in
person or virtually. Only one commenter, a DBE association, said that
in-person on-site visits should continue to be conducted for both
initial applications and subsequent certification reviews. Another
commenter asked why the NPRM used the term ``on-site'' at all, given
that it proposed having interviews conducted remotely rather than
actually on site.
Around 10 commenters suggested that the use of virtual on-sites be
somewhat limited, for example, by using in-person on-site visits for
initial certification applications, with virtual on-site visits being
reserved for post-certification reviews. These same commenters
suggested that on-site visits for heavy construction firms or other
businesses requiring specialized expertise or equipment (e.g., a
medical laboratory) be conducted in person.
Other Comments About On-Site Visits
Comments also addressed other subjects related to on-site visits.
Several commenters urged the Department to develop a uniform on-site
questionnaire for all certifiers to use. One commenter asked whether
establishing a practice of periodic on-site reviews (e.g., at 3, 5, or
7-year intervals) was allowed. Another commenter suggested that follow-
up on-site visits be required at three-year intervals.
DOT Response
Under the current rule, recipients must take several steps in
determining whether a firm meets all eligibility criteria for DBE
certification. An on-site visit to a firm's principal place of business
and job sites are a crucial component of this review.
The Department's experience after authorizing virtual on-site
interviews during the early years of the COVID-19 pandemic has been
overwhelmingly positive. Virtual on-sites are more efficient for
certifiers, avoiding sometimes lengthy time periods needed to travel to
an applicant's office. That said, there may be situations where an in-
person visit to an applicant's office or job site will be beneficial.
Particularly in the case of construction firms or others that have
field operations, a job site visit can be very useful, and in such
cases (as distinct, for example from the case of a professional
services firm, all of the work of which is done in an office) the final
rule will direct certifiers to go to the job site, if feasible. The
decision belongs to the certifier. Certifiers can also set their own
schedules for virtual or in-person interviews to certified DBEs in the
context of periodic reviews.
There will continue to be no standard form for on-site interviews,
and we strongly urge certifiers to avoid using routine questionnaires
or checklists because they are not probative and ask for information
that duplicates what is found in a UCA. They also miss the point of an
on-site interview, which is to comprehensively investigate how the SEDO
acquired ownership, how the firm actually operates, and whether the
SEDO has enough knowledge to independently make daily and long-term
decisions. Interviews should be a conversation tailored specifically to
the circumstances of each firm. The conversation must be with the SEDO,
as well as with other principals and key employees.
For example, one of the common situations we see is a firm where
there is a SEDO and co-owners or key employees who work together to
accomplish the firm's goals. In the interview, it would be beneficial
to ask specifically how decisions are made. When an issue comes up,
does a participant other than the SEDO bring the matter to the SEDO's
attention, as opposed to handling the matter autonomously? Is the SEDO
able to ask knowledgeable questions about the matter? Does the SEDO
then decide based on information or options presented by the other
participant, and does the other participant then carry out the SEDO's
decision? The certifier should seek real-world examples of how this
decision-making process has worked in practice.
The final rule will require certifiers to make audio recordings of
interviews. In cases where certifiers have done so, the Department has
found them highly useful in deciding certification appeals. They tend
to provide much more thorough and nuanced information than certifier
staff summaries or paraphrases of what has been said during an
interview. Making these recordings will provide fuller context for the
information on which certification decisions are based and will help to
[[Page 24933]]
prevent misunderstandings or decisions based on paraphrases of what an
interviewee says. Whether in a virtual or in-person interview, current
technology readily permits recordings to be made with negligible
additional burden.
20 and 23. Timely Processing of In-State Certification (Sec. 26.83(k))
Applications and Denials of Initial Certification Applications
NPRM
Currently, when a certifier receives all required information from
an applicant, it has 90 days to complete review and issue a written
decision. However, a certifier may, upon written notice to the
applicant, extend this period for another 60 days. The NPRM proposed to
reduce the extension period to 30 days, though a certifier could get
approval for a further extension from an OA. One reason stated in the
preamble was to give a firm the chance to cure a defect in its
application. Failure by a certifier to meet the deadline would be
treated as a constructive denial of the application, and the certifier
could become subject for noncompliance under Sec. Sec. 26.103 and
26.105.
Under the present rule, when a certifier denies an application, the
certifier must establish a waiting period of no more than 12 months
before the firm can reapply. The NPRM would remove a current
requirement for OA approval before a certifier could establish a
shorter waiting period. The date on which the waiting period would
start to run would be the date of the denial letter.
Comments
Supporters of the proposed change to shorten the extension time
frame from 60 to 30 days, among them both recipients and DBEs,
outnumbered opponents by a 3-1 ratio. The proposal would encourage
quicker and more timely decisions, supporters said. Opponents said that
the shorter time frame would impose an undue burden on certifiers'
staff, particularly given that staff are often small. Rushed decisions
could be poor decisions, one said, suggesting that the 90-day deadline
should be a target to be met, if practicable, rather than a mandate.
Some commenters suggested modifications of the proposal. One said
that extensions should be for 45 days, rather than for 30 or 60. Two
comments said that the process should accommodate delays in the
transmission of information from the applicant to the certifier.
Another idea was that, if applicant did not get complete materials to
the certifier within 90 days, the certifier could return the
application without deciding on the merits. Another suggestion was
that, during the time that a firm was making curative changes in its
application, the clock for the certifier's deadline should pause. Two
commenters suggested adding specific consequences for tardy
certification actions, such as being able to appeal constructive
denials to the Department.
One commenter supported the ability of certifiers to have
reapplication waiting periods shorter than 12 months without seeking
permission from an OA.
DOT Response
Existing provisions are designed to ensure that recipients afford
adequate procedural due process to DBE applicants, standardize
certification practices, and develop an adequate record of
certification actions. The 2014 final rule explained the Department's
rationale for setting 90 days as a reasonable time for recipients to
render a certification decision. We believe 90 days remains sufficient
and that notifications to firms about a 60-day extension beyond that
point are rare. The Department is keeping the proposal to shorten this
extension period to 30 days, because this is in the best interests of
firms that may be seeking contracting opportunities as a DBE and the
recipient, who can assign sufficient staff to perform the certification
function in an efficient manner. In our view, the ability of all
certifiers to email questions and requests for information to firms and
their ability to conduct virtual on-site visits will mitigate the
concerns of the handful of commenters on this issue. We believe that 90
days is more than enough time.
The Department proposed adding verbatim language that recipients
must include in all denial and decertification letters, essentially
directing firms what to include in their appeal letter, how to appeal
to DOCR, and their right to request information. This language was
communicated to recipients by DOCR, and we have noticed its inclusion
in most of the adverse decision letters processed since that time. This
final rule references that language, which will be posted on the
Departmental Office of Civil Rights website.
The Department is also finalizing the proposal to remove the
current requirement for OA approval before a certifier could establish
a shorter waiting period for the firm to reapply for certification to
less than 12 months from the date of denial. This change to the new
Sec. 26.86(c) gives UCPs the leeway to improve wait time to certify
firms without OA approval. The final change clarifies that the date on
which the waiting period would start to run would be the date of the
denial letter. This information, per Sec. 26.86(a), must be included
in all denial letters.
We want to call to participants attention the provisions of Sec.
26.83(h)(2), which prohibit certifiers from requiring a DBE to reapply
for certification, ``renew'' a certification, or a similar requirement.
We are aware that recipients sometimes use commercial software that
calls on recipients to submit information associated with an initial
certification in order to complete the annual DOE process. This is
contrary to the regulations, which limit the material that must be
submitted with a DOE to documentation of a firm's size and gross
receipts. For a recipient to, in effect, require more because a
software program calls for it amounts to noncompliance with the
regulation. We expect a recipient, in such a situation, to work with
the vendor to conform the software to the requirements of the rule.
21. Curative Measures (Sec. 26.83(m))
NPRM
The NPRM proposed a new Sec. 26.83(m) that would permit, though
not require, certifiers to notify an applicant of ineligibility
concerns and allow the applicant an opportunity to rectify the
deficiencies in a timely manner. The NPRM cited two examples of matters
that might be subject to curative measures: proof of a financial
contribution meeting Sec. 26.69 requirements and revising an operating
agreement or bylaw provision to meet control requirements of Sec.
26.71.
Proposed Sec. 26.69(f) would create a parallel curative measures
provision concerning ownership. There was not a parallel provision in
Sec. 26.71 concerning curative measures for control, though the second
example in the discussion of proposed Sec. 26.83(m) applies that
provision to a control issue.
Comments
The comments below apply to the proposed curative measures sections
in proposed Sec. Sec. 26.83(m) and 26.69(f).
Of the over 20 comments on this subject, about two thirds, from
both recipients and DBEs, supported the concept. Many of the
supporters, however, asked for additional guidance or examples
concerning what kinds of defects would be subject to curative measures.
How much help should certifiers provide to applicants, and what should
that help concern (e.g., minor administrative matters, governance
issues like organization of boards of directors, larger matters
affecting the structure of a company)?
[[Page 24934]]
Opponents, most of which were recipients, expressed the concern
that the proposal would allow firms to circumvent the rules and enable
fraud. Certifiers should not be cast in a ``coaching'' role in which
they tell applicants how to structure their firms. Applicants should be
responsible for getting things right as they present companies for
certification.
DOT Response
The Department contemplated curative measures as far back as 1992.
We do not agree with commenters who felt that allowing a firm to take
curative measures increases the possibility of fraud. Our view is that
to be considered non-fraudulent, curative measures must be a legitimate
effort to correct impediments to certification made in good faith. A
firm bears the burden of showing that it undertook curative measures in
good faith and not in an attempt to circumvent the requirements and
intention of the DBE program.
The DBE program exists to facilitate participation of small,
disadvantaged businesses in DOT-sponsored contracting projects and
airport concession opportunities. The program is not intended for
certifiers to create hurdles for firms that would be eligible but for
minor deficiencies that the firm could easily rectify. As described in
the Department's August 7, 2019, memorandum and in the NPRM preamble,
startup firms created by inexperienced SEDOs have been particularly
vulnerable to this, causing them to endure a 12-month waiting period
for reapplying. Such situations can be avoided if a certifier notifies
the firm of potential denial grounds and offers the firm an opportunity
to address them before the certifier renders a final decision. The
August 7, 2019, memorandum explicitly encourages certifiers to do so
and provide a reasonable time for the issues to be resolved before the
certifier renders a decision. This would result in lifting the burden
on a certifier to begin the eligibility evaluation anew should the firm
reapply.
The Department codifies in Sec. 26.83(m) of today's final rule the
language of the August 7, 2019, memorandum. We agree with commenters
that this provision is not intended to make certifiers ``coaches'' for
all aspects of the certification process or require certifiers to pause
the evaluation process to allow firms to make time-consuming changes,
such as major organizational restructurings. We agree with commenters
who pointed out that firms bear the burden of proving that they fully
meet the regulation's certification requirements, while emphasizing
that we view the task of certifiers as reasonably balancing the
interest in ensuring that only eligible firms participate with the
interest of the program in providing opportunities for small,
disadvantaged businesses, including those that may not be sophisticated
in the details of the certification process.
Section Sec. 26.83(m) amounts to ``if you see something, say
something.'' While it is not a mandate, the Department believes
strongly that certifiers should call situations potentially solvable
through curative measures to applicants' attention, in order to better
serve the program's objectives of improving opportunities for DBEs.
Doing so does not impose an unnecessary time crunch on certifiers
with respect to the final rule's deadlines for action on applications.
If a certifier notices a problem, notifies the applicant about it in
writing, and the applicant takes, for example, 14 days to fix it, that
period would be added to the certifier's timeline for completing the
decision. The certifier could also set a realistic deadline for the
applicant to fix a problem the certifier mentioned; if the applicant
did not respond in a timely fashion, the certifier could then decide on
the basis of the original documentation. In all cases, it will be
important for the certifier to memorialize corrective measures,
notifications, dates, and responses in its records.
The NPRM preamble mentioned two types of problems that the
Department has seen frequently in certification appeals. One involves
proof of a financial contribution. For example, sometimes a SEDO who is
married to a non-disadvantaged individual will make an initial capital
contribution from a joint bank account, not realizing that, absent a
renunciation of interest in the funds by the spouse, only 50 percent of
the contribution will be counted toward ownership, insufficient to
support an assertion of 51 percent or greater ownership.
Similarly, a bylaw provision-often one seemingly copied from an
online template-will say that a majority of the members of the board of
directors is needed to form a quorum or act on behalf of the board. In
a two-person company, this inadvertently can result in the possibility
of a deadlock on the board, even though the SEDO clearly owns 51
percent or more of the stock and thus is able to control stockholder
votes. Mere paper changes, without substantive changes, would not
``cure'' a defect.
These are not the only problems to which this provision could
apply, but they exemplify the scope of the sorts of issues the
Department has in mind in adopting this provision.
22. Interstate Certification (Sec. 26.85)
NPRM
The NPRM proposed major changes to the interstate certification
provisions of Sec. 26.85, which became effective on January 1, 2012.
For the first time in the program's history, there would be nationwide
reciprocity among UCPs. The NPRM would also reform the way that UCPs
share information about firms certified in more than one State.
The NPRM proposed to eliminate the ``home State first'' requirement
of the present rule, and instead allow a firm to apply for its initial
certification to any UCP. Then, any other State would be required to
accept the original UCP's certification. All the firm would have to
submit to an additional State would be a short cover letter, an image
of its Original State of Certification (OSC) directory entry, and a
Declaration of Eligibility (DOE). Unlike under the present rule, the
firm would not have to send an additional State its entire
certification package.
Following the interstate certification by an additional State, that
State and others that have certified the firm, could ask State A or
other UCPs for information on the firm, which would need to be provided
within 10 business days, as part of all program participants'
obligation to cooperate. The Department said that this should not be
unduly burdensome, given electronic file sharing technology.
A firm would have to submit an annual DOE to each State in which it
is certified. The NPRM asked whether it would be helpful to create a
centralized database to reduce the burden on firms certified in
multiple States. The NPRM also would allow States to participate in
oversight and enforcement activities with other States about a firm,
including joint removal procedures that would be voluntary among the
UCPs involved.
A proposed provision would state that if a firm certified in more
than one State were decertified (for any reason except failure to
cooperate with one State), the firm then appealed the decision to DOT,
and DOT affirmed the decertification, the firm would then automatically
be decertified in all States, without further right of appeal. That is,
if one State decertifies a firm and DOCR upholds the action, then the
firm would be automatically decertified in all States in which the firm
was certified without the need for further process in those States.
[[Page 24935]]
Comments
Interstate certification proposals have long inspired input from a
significant number of commenters, and the response to this NPRM was no
exception. About twice as many commenters expressed general support for
the NPRM's nationwide reciprocity proposal as expressed opposition, but
there were also a wide variety of nuances and suggestions among
commenters on the topic.
The largest number of supporters were DBEs or their associations,
who cited the reduced burden on firms who have often had to submit
extensive documentation to become certified in more than one State. One
DBE, for example, mentioned having to submit about 3,000 pages of
paperwork to become certified in another State, but was unsuccessful
because it did not have its original application. Another spoke of
inconsistencies in acceptance of NAICS codes from one State to another,
long delays by certifiers outside of its home State, and differing
paperwork requirements and regulatory interpretations among States. One
DBE owner related their difficulty with tracking different deadlines
for renewal each year, citing a burden in preparing and submitting
materials for each State in which it was certified in. The same owner
expressed that it takes some UCPs a long time to process renewals or
notice of change, which results in their view of an expiration date
passing without renewing paperwork. On these points, we reiterate that
there is no DBE renewal process, nor does certification expire.
A significant number of recipients also supported the proposal, one
citing reduced staff time demands that would allow its staff to focus
on other program tasks (e.g., compliance). It said that it now takes
them 38 staff days to process an out-of-state certification and
believed the proposal would reduce this to 10 staff days. Other
recipients also cited reduced processing time or greater flexibility as
potential benefits. One recipient noted that it had already been doing
a good deal of reciprocity and found that it reduced their burdens.
Some of the supporters of the reciprocity proposal and other
commenters, among them both DBEs and recipients, suggested going to
what might be called national certification. This would involve a
single national directory, with a Federal certification database. A DBE
firm, for example, mentioned that it has to send annual updates to 15
different States. Sending one update to a centralized database would be
far less burdensome, it said.
This group of commenters supported the concept that once a firm was
certified in its original State of certification usually its home
State, the firm's status would be reflected in the database, and it
would automatically be certified in all States, without having to
submit additional documentation elsewhere. Annual update issues or
decertification actions could be handled through the centralized
database or by the firm's home State. If universal certification of
this kind were put into place, there would be a greatly reduced need
for individual State systems and the resources needed to run them.
Generally, commenters with a variety of views on the overall
question of interstate certification supported the idea of a
centralized database and/or national portal, though three recipients
warned that questions about control of such a database and a variety of
implementation problems that could beset it might create serious risks
to the program.
Recipients made up a large majority of commenters opposing
reciprocity. One reason was the long-standing concern that given what
they saw as the varying quality of other recipients' certification
programs, unqualified firms could become certified in its OSC and then
become certified in other States without further review. The proposal
puts too much trust in other certifiers, one recipient said, preventing
recipients from exercising due diligence for their own programs. One
large recipient complained, for example, that another large recipient
never looked at the personal net worth of firms following initial
certification and was concerned about having to deal with other
certifiers' out-of-date records.
Some certifiers wanted to vet each firm that sought certification
in their jurisdictions, and doing the job right would require seeing
the firm's documentation before granting eligibility. Absent that
ability, questionable firms could get contracts in other States before
they had adequate time to review their bona fides, and after-the-fact
decertification was too little and too late as a remedy for such
problems. Accordingly, some certifiers claimed that reciprocity would
consequently undermine program integrity. To mitigate this problem, one
recipient suggested that reciprocity be limited to five UCPs in its
region.
Moreover, the proposed system would encourage DBEs to join the
directories of multiple States (a ``land rush,'' one commenter called
it), multiplying the workloads of certifier staffs to oversee the
continued eligibility of firms (e.g., with respect to annual DOEs),
some of whom might never work in their jurisdictions. A DBE was
concerned that if there were different DOE due dates for different
States in which a firm was certified, it would be all too easy for
small businesses to miss submission deadlines, resulting in
decertification. DOEs should go only to the home State, not other
States, some commenters said. A non-DBE contractors' association said
that, in general, a home State should bear the burden of oversight to
prevent increased burdens for other States. For example, it said, its
State already has over 400 out-of-state firms in its directory, and
reciprocity could require it to oversee many more.
One concern expressed by several commenters pertained to State
licenses. For example, if the OSC does not require the person running
an engineering company to personally have a professional license, but
another State does, how is that other State to enforce its licensing
requirement in the proposed reciprocity regime? Commenters also
expressed concern about data security issues, as entries in online
directories multiplied without regard to the cybersecurity protections
that would guard sensitive business data and personal protected
information.
A recipient association said that interstate certification should
not be implemented until a robust oversight system could be established
everywhere. Commenters doubting the wisdom of the proposal also said
that 10 days was too short a time to exchange information among UCPs,
especially because all certification records are not yet electronic.
Sixty days would be more realistic, one recipient said. A DBE expressed
concern that large out-of-state prime contractors would travel with
their favorite DBE firms, crowding out local DBEs in other States.
A recipient and a non-DBE contractors association raised the issue
of how an influx of out-of-state contractors would affect goal setting
and disparity studies. Would out-of-state entries in a UCP's directory
be used as a measure of the availability of ready, willing and able
contractors? If so, it could distort the goal-setting process, these
commenters feared.
Commenters who either favored or opposed the reciprocity proposal
in general, and other commenters as well, suggested a variety of ideas
that they believed would improve the certification system. One DBE
suggested that States should recognize other States' business and
professional licenses as well as certifications. A UCP asked DOT to
create a uniform interstate application form. A non-DBE association
wanted to make sure that the
[[Page 24936]]
rule did not allow other States to second-guess State A without a
``well-founded'' reason.
Three recipients favored creating a ``challenge procedure'' to
allow an additional State to prevent an out-of-state firm from
immediately becoming certified immediately, if the additional State had
a good reason to believe that OSC certification was based on faulty or
missing data. A non-DBE firm suggested that if an OSC's certification
is more than 10 years old, another State in which the firm is certified
should be able to do a review of its eligibility.
A group of recipients suggested that an additional State could
choose to require an out-of-state firm to provide a statement that it
intended to work in that State before the firm would be certified
there. They and other commenters also supported retaining the ``home
State first'' provision of the existing rule, rather than the NPRM's
idea that any State could become a firm's OSC. Another recipient
suggested that an interstate application firm should include details
about its licenses to work in that State. Two recipients suggested
that, to minimize recipients' burdens, requests from one UCP to another
about a firm be limited to the original application, its supporting
documentation, and the most recent four years of DOEs. A similar
suggestion was that it should be enough for the OSC to submit its most
recent on-site report to another State.
The proposal to give nationwide effect to DOCR certification
appeals decisions upholding a decertification action in one State was
discussed in several comments. Two comments supported it, and three
opposed it. Opponents said the proposal would deter firms from
appealing and raise due process and federalism concerns for both firms
and certifiers. Another commenter said that other States should be able
to conduct their own decertification process. A third said that a firm
should be decertified only in those States that had joined the
decertification proceeding. One commenter wanted the Department to look
at the other side of the coin, by imposing retraining requirements or
other consequences on UCPs that had had a decertification decision
overturned on appeal.
Two comments raised questions about this proposal. One asked how
and when firms decertified in this manner could reapply in the States
in which they were automatically decertified. A second asked what would
happen if a firm decertified in one State declined to appeal.
DOT Response
In the original version of the DBE program in the 1980s, each
recipient certified applicant firms independently. If there were a
State highway agency, three airports, and four transit agencies in a
State, then a firm wanting to work throughout the State might need to
get certified by eight different agencies, each with its own
certification process. This proved inefficient and burdensome. First
proposed in 1992 and added to the rule in the major 1999 revision, the
creation of unified certification programs (UCPs) ensured that a firm
would have to be certified only once to work in any recipient's DBE
program in the State.
The DBE program is a national program, and the same kinds of
inefficiencies and burdens that adversely affected DBEs within States
in the pre-UCP era continued to affect firms that wanted to work in
more than one State. A firm certified in one State would have to go
through a new certification process in another, complete with the
submission of extensive documentation and having to wait for the
completion of the second State's administrative process. Because
certifiers' views of a given firm's bona fides could differ among
States, a firm could be approved for participation in one State while
denied in another, all based on the same facts.
The idea of nationwide reciprocity among UCPs was raised, but
rejected, in the 1999 rulemaking, though the Department at that time
encouraged cooperative arrangements among States to reduce
certification burdens. Unfortunately, few certifiers chose to enter
into such agreements. Consequently, in a 2010 NPRM, the Department
proposed an interstate certification system that sought to occupy a
middle ground between full-fledged nationwide reciprocity and an
approach that allowed UCPs to challenge and reject DBEs certified in
other States. This became the basis, in 2011, for what became Sec.
26.85 of the current regulation.
Under this current provision, a firm certified in its home State
(``State A'') would submit its certification credentials to ``State
B,'' which could either accept the firm or require the firm to submit a
much more extensive document package. Within 60 days, State B would
either accept the firm's certification or determine that there was
``good cause'' of a kind specified in the regulation for rejecting the
firm. In the latter case, the firm would then bear the burden of proof
of showing State B that it was nonetheless eligible.
As documented in the preamble of the 2022 NPRM, Sec. 26.85 has not
worked well (see 87 FR 43647). Few UCPs have accepted out-of-state
firms without requiring lengthy and burdensome additional certification
processes. Some UCPs have effectively ignored interstate certification
procedures, treating all or nearly all out-of-state applicants as if
they were applying for certification for the first time. The ``good
cause'' reasons for questioning an out-of-state firm's eligibility have
been widely misunderstood or misapplied (e.g., ``factually erroneous or
inconsistent with the requirement of this part'' being used to mean a
simple disagreement about a judgment call). The result is that a large
majority of interstate certification cases appealed to the Department
have been reversed.
As long ago as the 2010 NPRM, the Department stated that true
nationwide reciprocity is a worthwhile objective, and in the 2022 NPRM
we proposed to make it a reality, so that a firm in a nationwide
program under a single national set of eligibility criteria could
expect to be eligible throughout the country. As noted above, the
comments on the proposal followed the lines of the long-term debate on
the subject. Generally speaking, most DBEs favored this approach, for
its value in reducing burdens, while many certifiers opposed it, out of
concern about having to accept firms whose qualifications they
questioned. Having found, over many years, that approaches short of
nationwide reciprocity have been unsatisfactory, the Department is
convinced that it is time to treat certification on a meaningfully
national basis. For this reason, we are, with some modifications in
detail, adopting the NPRM proposal, intending to reduce burdens on all
participants while building trust, encouraging teamwork, and improving
the quality of certifications. As with the adoption of UCPs in 1999
within States, we believe that the adoption of nationwide reciprocity
among States, while necessitating some adjustments in current practice,
will result in a system that works better for everyone concerned.
Under the final rule, a firm would initially be certified in the
State in which it maintains its principal place of business. We no
longer use the ``home State'' or ``State A'' terminology, instead
speaking in terms of a firm's ``jurisdiction of original
certification'' (JOC). The JOC would normally be the State in which the
firm maintains its principal place of business, though there could be
unusual cases that could lead to the JOC being a different State
[[Page 24937]]
(e.g., a situation in which a firm's principal place of business has
moved to another State after it has been certified). However, the
additional State may not deny a DBE's application based on questions
regarding the location of the firm's JOC.
Once a firm is certified in its JOC, all it needs to submit to
become certified in any other State is a short cover letter and a
signed Declaration of Eligibility (DOE). The cover letter must state
that the firm is applying for certification in the additional State and
all other States in which the firm is certified. The cover letter may
also list any licenses (e.g., business or professional licenses) that
the firm has in the additional State. The additional State could
request the JOC's documentation concerning the firm, which the JOC
would be required to provide within 30 days (modified from the NPRM's
10 business days to reduce burdens on the JOC). Ten days, in the view
of a commenter that still retains paper copies of certification
materials, is too short a period to scan and send these materials
manually. We agree and modified the rule accordingly.
We acknowledge that implementing the revised interstate rule will
require additional monitoring of businesses, and we would like to
remind recipients that the current rule allows UCPs to charge
reasonable application fees. These fees can help alleviate some of the
burden associated with managing the increased number of businesses
under reciprocity. Application fees may also deter firms that seek
certification in multiple jurisdictions without any intentions of
conducting significant work within each jurisdiction. As noted in the
discussion of control provisions above, an out-of-state firm and owner
that lack a necessary business or professional license in an additional
State, while it would be certified and listed in the directory, would
not be able to conduct business there until it obtained the required
license(s).
When a firm is certified in its JOC, it becomes responsible for
submitting a DOE to that State each year on the anniversary date of its
certification. When the firm then becomes certified in other States, it
also becomes responsible for submitting annual DOEs to them. We believe
the most convenient way of handling this requirement is to use the JOC
anniversary date as the date for submission of DOEs to all States in
which the firm is certified. This will likely result in firms initially
submitting a second DOE to an additional State before a year has
elapsed, but after that will avoid the potential confusion of multiple
submission dates. This alleviates the burden on firms certified in
multiple jurisdictions.
For example, suppose a firm is certified in its JOC on September 1,
one additional State on October 7, and a second additional State on the
following January 8. The firm would submit its first DOEs to all three
States on the next September 1, and then on every September 1
thereafter. Doing so will inform all the States involved that the firm
has a continuing interest in working there. Having a single DOE date,
reduces the burden on firms, some of which noted in their comments that
it can be burdensome to submit paperwork to each State on different
timelines. With this change, the Department also believes the annual
submission requirement is not onerous. Some commenters asked that there
be a national, centralized database for DBE certifications. While we
understand the attractiveness of the concept, we do not believe that it
is feasible at this time. In addition to budgetary limitations,
concerns about ensuring that data are updated and secure would need to
be addressed. Until it is possible to deal successfully with the issues
involved, the program must continue to rely on UCP directories, which
are responsible for treating out-of-state firms in the same way as in-
state firms for directory and other program administration purposes.
Some commenters expressed a concern that having larger numbers of
out-of-state firms in their directories could skew goal setting.
Recipients commonly use bidders lists as a primary source of data for
setting overall goals; thus, only those out-of-state firms that bid or
quote on projects should be included in the methodology's base figure.
Recipients using other primary data sources should review their UCP
database, including the NAICS codes associated with each firm, and
consider whether out-of-state firms will likely submit bids or quotes
prior to including them in their base figure.
A few commenters asked to have a ``challenge procedure'' available,
through which they could delay certifying an out-of-state firm for a
given period (e.g., 30 days), giving them an opportunity to raise
issues concerning the firm's eligibility with the OSC. We believe
implementing such a procedure would not facilitate the certification
process but would rather introduce an additional bureaucratic step. Our
goal is to streamline the interstate certification process. We view the
``challenge procedure'' as a slight modification of the old interstate
rule, which was a complex and burdensome certification framework.
Instead, we aim to adopt a more streamlined and transparent process
that eliminates unnecessary barriers to certification. Given the
procedure described below, for collective action to decertify a firm
that appeared not to be eligible, we do not believe such a preemptive
procedure is needed.
One of the issues considered in the NPRM was how, in the context of
a firm that is certified in multiple States, a decertification process
would work. Proposed Sec. 26.85(g)(4) said that any UCP could join a
decertification proceeding initiated by another State, on the same
grounds and facts alleged by the initiating State. The joining UCP
could present evidence at the hearing. The result of the ensuing
decision would apply to all States that are parties to the action.
Under paragraph (g)(6) of the proposed section, if a decertification by
any UCP in which the firm had been certified is upheld on appeal by the
Department (except with respect to actions concerning a failure to
cooperate or send a timely DOE to the decertifying State), then the
firm would lose its eligibility in all States in which it was
certified.
As noted above, some commenters said that UCPs should be able to
conduct their own certification proceedings, that the effect of a
decertification should apply only to States that have joined a
decertification proceeding in another State, and that the nationwide
effect of a DOT decision upholding a decertification by one State was
unfair to the firm as well as the other certifiers involved.
In considering these comments, the Department believes that a
modification of the proposal would serve not only the interest of
fairness to certifiers and firms but also further the Department's
policy goal of encouraging cooperation and interaction among
certifiers. Therefore, the final rule will establish procedures that
would apply to a scenario in which a firm is certified in more than one
State and one of the States believes it has a ground under proposed
Sec. 26.87(e) to decertify.
The procedures are best illustrated by an example. DBE X is
certified in its JOC and in five additional States via reciprocity. One
of the additional States believes that it has reason to decertify the
firm. It notifies not only the firm, but also the other States in which
the firm is certified, that it is considering beginning a
decertification proceeding, as well as the grounds for doing so and the
evidence supporting such an action. The other States have 30 days to
respond. They may comment on proposed basis for its proposed actions,
concur or non-concur. A certifier would
[[Page 24938]]
be deemed to concur in the proposed action if it did not respond. If it
had grounds under Sec. 26.88, the certifier proposing decertification
may impose a summary suspension without affecting the status of the
firm in other States, though we encourage the certifier to notify the
other States of its action so that they could take similar action if
warranted.
If after considering the input from other States, the State
proposing decertification decided to pursue the matter, it would then
issue its formal NOI and proceed to a decision. Any of the other States
could decide to file a brief or other arguments and evidence. In its
final decision, the State that proposed decertification may address
arguments and evidence from other States involved, as well as those
made by the respondent firm. This is in effect a ``speak now or forever
hold your peace'' provision. We note that the resolution of the matter
is an independent decision of the UCP proposing the decertification,
not dependent on the ``votes'' or views of other certifiers.
Because a decision by a UCP to decertify the firm would only be
issued after soliciting views from the other States involved, the
decision would represent the collective view of the UCPs involved and
would take effect in all the States involved. If the firm appealed, any
certifier that did not agree could submit its views to the Department.
The Department's decision to affirm or reverse the decision would apply
to all the States in question, since all would have had the opportunity
to participate and make their views known.
23. Denials of In-State Certification Applications (Sec. 26.86)
See discussion above, item 20.
24. Decertification Procedures (Sec. 26.87)
NPRM
The NPRM emphasized that certifiers must strictly follow the
regulation's procedural requirements concerning decertification
proceedings, putting the certifier's burden of proof up front in the
revised Sec. 26.87 and clarifying what must be included in certifiers
notices of intent (NOI) to remove the firm's certification.
If a DBE fails to submit the required annual Declaration of
Eligibility (DOE) required under Sec. 26.83(j) in a timely manner, the
NPRM proposed that a certifier could initiate decertification
proceedings on that basis without offering the opportunity for a
hearing. If within 15 days of the issuance of a certifier's NOI to
remove the firm's certification, the certifier could issue a final
notice of decertification.
The NPRM would say that, if a ground for decertification is a
change in DOT's certification standards or requirements, the certifier
would have to offer the firm, in writing, the opportunity to cure
resulting eligibility defects within 30 days.
The Department proposed authorizing, on a permanent basis, virtual
hearings (i.e., via video conferencing) in decertification cases.
Virtual hearings are more efficient, can be more easily scheduled and
better protect the health of participants. Other requirements, like
those for verbatim transcripts, would remain intact. To avoid dilatory
tactics, the NPRM would impose a 45-day deadline for submission of
written responses to an NOI or a hearing. Once the hearing had
happened, or written responses received, the certifier would have 30
days to issue a final decision.
When there is a hearing, the NPRM would require that only the SEDO
be permitted to answer questions concerning the firm's control. While
an attorney or other representative could be present and participate,
and answer questions concerning other aspects of a firm's eligibility,
only the SEDO could testify about control matters. An attorney or other
representative could ask follow-up questions to the SEDO concerning
control, however.
Comments
Decertifications for Lack of a Timely DOE
Almost all comments on the issue of decertifications for lack of
timely submission of a DOE supported the idea that there need not be a
hearing in such cases. However, several of these commenters thought
that the 15-day window for response to a NOI concerning a late DOE was
too short. A 21-, 30-, 45-, or 60-day time period for response before a
final decertification was issued would be fairer, some commenters said,
pointing to the difficulty that especially small firms may have keeping
up with paperwork or potential increases in certifier workload. One
comment cautioned that, because of the uncertainties of email, the time
period prior to a decertification action start to run only on
confirmation that the DBE received the certifier's NOI.
To avoid confusion and potential decertification actions, firms
should have to submit only one DOE per year, the commenter said.
Another commenter said that it did not want lack of a timely DOE to be
the sole ground for removal of eligibility.
Deadlines
There were few comments about the proposed deadline in the NPRM for
issuance of a final decertification decision, all of which were from
recipients. One would prefer no deadline at all, but if there is one,
believed 60 days for the issuance of a final decision would be
appropriate. Another supported 60 days, saying that 30 days was too
short a time to handle complex cases, especially for high volume
certifiers. A third found the proposed 30-day deadline acceptable but
wanted to allow a 15-day extension on a case-by-case basis.
With respect to the proposed deadline for conducting a hearing, a
recipient suggested that the hearing should be scheduled 45 days from
the firm's request for a hearing, rather than from the issuance of the
NOI by the recipient.
Hearing Procedures
Concerning representation at hearings, a large majority of the
comments addressing the issue supported the NPRM's proposal that only
the SEDO should testify about control issues. Attorneys and other
representatives should be able to speak about other matters (e.g.,
PNW), several added. The commenters who disagreed thought that the
requirement would impinge on the due process owed to DBEs in a
proceeding that could remove certification, a property right, from a
firm. A recipient thought that panel members at a hearing should be
able to use their discretion with respect to who is allowed to testify
on issues being discussed. One comment said that only owners should be
able to testify about ownership and other issues, as well as control.
All the comments that addressed the proposal for allowing virtual
decertification hearings supported it. One said that, however, a firm
should be able to have an in-person hearing if it wanted one.
Among other comments, one thought that an ``informal hearing''
should be better defined, and that there should be additional
safeguards against abusive or dilatory tactics by attorneys. This
comment also said that it was important that hearing officers and
decision makers in decertification actions really understood the rules
well, suggesting that additional training from DOT for such persons
would be useful. Another commenter thought that hearings should not be
heard by staff from recipients in the same State as the certifier
proposing certification, as this could lead to
[[Page 24939]]
rubber-stamping of the proposed removal. A comment said that firms
needed stronger protections in decertification actions, as they can be
subject to burdensome information requirements and harassment,
especially in cases involving rebuttal of the SEDO's presumption of
economic disadvantage.
Other Comments
Once a firm has been decertified, a few recipients said, the
certifier should notify all other States in which the firm is
certified. DOT should notify States if a decertification is upheld on
appeal, another said.
DOT Response
Filing a timely DOE is an affirmative obligation of certified
firms. Given that all DOEs to all States would now be due on the same
date--the anniversary date of certification in the JOC--firms should
not be confused about the time they are supposed to send DOEs to all
the States in which they are certified. We believe that summary
suspension is the most efficient provision for enforcing failures in
filing Sec. 26.83(j) material. Nevertheless, the final rule allows the
certifier the discretion to choose either Sec. 26.87 or Sec. 26.88 as
the most appropriate course of action.
With respect to the date for a hearing on other decertification
actions, we believe that it is prudent to require certifiers to set a
hearing date that is no less than 30, but no more than 45, days from
the date of the NOI. This prevents both undue delays in the process and
schedules that do not allow a firm to prepare adequately. The firm must
let the certifier know within 10 days whether it wants a hearing, and
the parties can negotiate an agreed-upon date for the hearing. If the
firm does not want a hearing or does not notify the certifier in a
timely manner that it wants one, the firm can still submit written
information and arguments.
In cases in which the firm elects not to go to a hearing, and
rather only submits written materials, we believe that the firm should
have the same amount of time to prepare as in the case where it chose
to appear at a hearing. Therefore, the material would be due by what
would have been the hearing date. If a firm does not show up for a
hearing, or does not submit written materials, the certifier makes its
decision on the basis of the information it already has.
In the interest of simplifying the procedure, we are not specifying
by rule who can speak to issues at the hearing. We emphasize that,
during a hearing, a SEDO or other witnesses should have a reasonable
opportunity to consult with counsel, other witnesses, or experts. It is
appropriate neither for a certifier to deny the firm such an
opportunity, nor for the firm to unduly delay or interfere with the
conduct of the proceeding. Dilatory tactics are prohibited and may be
sanctioned by a certifier. It is up to the hearing officer to make sure
that information presented is relevant and is provided by the most
knowledgeable sources. For example, if an attorney or other witness
attempts to speak to a matter affecting control, it could be
appropriate for the hearing officer to say, in effect, ``I want to hear
directly from the SEDO on this matter.''
It is incumbent on certifiers to conduct thorough on-site
interviews--including a review of a certified firm prior to considering
decertification--so that information about the roles of other key
participants and the firm's decision-making process can already be part
of the record before the hearing.
We agree with commenters that the decisionmaker in a
decertification hearing must, in addition to complying with separation
of functions requirements, have extensive familiarity with the program
regulation. We urge certifiers to make sure that any officials who may
be tasked with this responsibility have received thorough training
concerning the regulation, such as the Department has made available.
We also note that, as under the previous versions of the regulation,
the deciding official must also be an individual who was not involved
in the earlier stages of the proceeding or who is not supervised by
anyone who was. This could be someone in another part of the
certifier's agency or someone who works for another agency.
In administrative law, a ``formal'' hearing is one that involves a
trial-type hearing with administrative law judge and detailed rules of
evidence. At the Federal Government level, sections 554-557 of the
Administrative Procedure Act (5 U.S.C. 554-557) provide a model for
what such a proceeding looks like. One example of such a proceeding
within the Department of Transportation is the process for aviation
enforcement proceedings under 14 CFR part 300. Anything other than that
is an ``informal hearing.'' The structure of informal hearing in the
DBE program can vary among certifiers, but in all cases must provide
reasonable administrative due process to the respondent and other
participants.
Commenters agreed with the proposal to authorize virtual hearings
in decertifications proceedings. While in-person hearings are also
permitted, we note that in an interstate decertification case in which
staff from other States are participating, a virtual component would be
essential. The requirement to provide a transcript of any hearing,
virtual or in-person, to the Department in the event the firm appeals
remain in place.
The NPRM proposed that once a hearing had been held, or written
arguments received, a certifier would have 30 days to issue a final
decision. Some commenters thought that time period was too short, given
certifiers' workloads. A firm remains certified until the NOD is
issued, so the effect of a certifier's delay beyond that period has the
effect of keeping in effect a certification that the certifier believes
should be removed. A certifier that often fails to meet this deadline
may be the subject of DOT compliance and enforcement action.
In the interest of simplifying the rule and avoiding disputes over
the basis for a decertification, the proposed Sec. 26.87(g),
specifying the grounds on which a decertification can take place, is
not included in the final rule. In our experience, these provisions
have often led to confusion (e.g., concerning whether a certifier's
previous decision was ``clearly erroneous'' or simply change of mind).
The key question in any decertification action is whether a firm meets
eligibility criteria at the time of the action. If a certifier
certifies a firm in September, and the following April comes to
believe, on the same facts, that the firm is not eligible, it is likely
to have a difficult time meeting its burden of proof in a
decertification proceeding.
25. Counting DBE Participation After Decertification (Sec. 26.87(j))
NPRM
In addition to clarifying the effect of the removal of a firm's
certification prior to a DBE obtaining a prime contract or subcontract,
the NPRM proposed changes to Sec. 26.87(j) concerning how DBE
participation is counted with respect to firms that lose their
certification partway through a contract. The Department proposed that
a prime contractor would only be permitted to add work or extend a
completed contract with a previously certified firm with the prior
written consent of the recipient.
This proposal was responsive to the concern that, especially in a
long-term project of the sort that is often done via a design-build
contract, prime contractors had an incentive to give work to
decertified firms that were already working for them, rather than find
new eligible DBEs to do the work going forward. At the same time, the
proposal would give recipients
[[Page 24940]]
flexibility to permit a brief amendment to or continuation of a
contract with a decertified former DBE.
Under the current rule, when a DBE is decertified in the midst of a
contract, after the subcontract is executed, the prime contractor gets
to count credit for its use through the end of the contract. The NPRM
proposed to make an exception to that rule, saying that if the reason
for the DBE's ineligibility is that it was acquired by, or merged with,
a non-DBE firm, the prime contractor could no longer count the former
DBE's participation for the remainder of its contract. This means that,
under these circumstances, continuing to count the former DBE's work
for credit would deprive other DBEs of opportunities.
Comments
A narrow majority of commenters opposed the NPRM's proposals
concerning Sec. 26.87(j). Opponents, including non-DBE contractors and
recipients, but some DBEs as well, said the proposal concerning merged
or purchased DBE firms would impose burdens on prime contractors who,
after engaging a DBE in good faith, found that the DBE had later merged
with or been purchased by a non-DBE. This would unfairly penalize the
prime since the DBE's relationship with the acquiring firm was not the
prime's responsibility. One of these comments suggested that the
proposed exception should apply only if the non-DBE that bought or
merged with the DBE was the prime contractor itself. One opponent of
the proposal said that it could place DBEs in an unequal position
compared to non-DBEs, who can use mergers and acquisitions for business
growth purposes.
Some comments opposed to the proposals said that requiring
recipients' consent to count credit for added or extended work for a
decertified DBE would be an extra burden on both recipients and prime
contractors. A comment said that added tasks for the DBE within its
scope of work, including via change orders, should be counted. Denying
DBE credit for added or extended use of decertified DBEs could disrupt
projects, another comment said. Recipients should make case-by-case
judgments on such matters, it added.
Proponents of the proposals, also from a variety of stakeholder
types, supported them for the reasons stated in the NPRM preamble. Some
of these comments specifically mentioned favoring prior recipient
consent for any extension of or addition to the former DBE's work,
wanting prime contractors to seek new DBE participation in the absence
of such consent.
One comment that supported the proposal asked for clarification
about its application in situations where a DBE had exceeded the size
standard or had withdrawn from the program. Another did not want firms
who had exceeded the size standard during the contract to lose credit.
In the context of the ACDBE program, a DBE commenter that supported the
proposal nevertheless thought it should be waived if a decertified
ACDBE showed that it had made good faith efforts to sell to another
ACDBE.
DOT Response
We continue to believe that in most instances, if a DBE loses its
eligibility during contract performance but after execution of the
subcontract and continues to perform a commercially useful function,
its participation should continue to count toward contract goal credit;
prime contractors should not bear the burden of finding a DBE
replacement if the firm was certified at the time the subcontract was
executed. However, many have raised concerns about a prime contractor's
ability to continue to count toward goal credit the performance of a
DBE that was certified at the time the subcontract was executed but
loses its eligibility during contract performance because it merges
with, or is acquired by, a non-DBE (at times by the prime itself). This
may occur early in the performance of a multi-year contract and result
in a non-DBE receiving goal credit at the expense of other ready,
willing, and able, certified DBEs.
We agree that the standard rule should have an exception if a DBE
loses its certification eligibility after execution of the subcontract
because it merges with or is acquired by a non-DBE. In that instance
only, we believe that the benefit to the DBE program of directing the
prime contractor to seek DBE participation to make up the now-
ineligible firm's contribution to the goal outweighs the costs to the
prime contractor of doing so. Similarly, seeking the recipient's
consent for a prime contractor's practice of adding work or change
orders, typically in the context of a design-build project, to extend
the performance of a DBE that has lost certification during project
performance, is a good check on actions that could go counter to the
interests of the program. Recipients should reach out to a prime
contractor when it becomes apparent that the prime is repeatedly
extending the work of a firm after the firm becomes ineligible to
determine if the extensions are made for the purpose of avoiding
soliciting other DBEs. If so, the program benefits when the recipient
withholds consent to add further work to an ineligible DBE to allow
room for certified DBEs to participate.
26. Summary Suspension (Sec. 26.88)
NPRM
The existing summary suspension rule permits or requires certifiers
to immediately suspend a DBE's certification in extraordinary
situations that could jeopardize program integrity or when time is
otherwise of the essence. It is an extraordinary remedy that certifiers
should not use lightly and to which a firm should have an adequate
opportunity to respond.
The changes proposed to Sec. 26.88 in the NPRM remedy problems in
the current language that in effect converts what was intended as swift
summary suspension action into a slower Sec. 26.87 process. Notice of
the suspension would be by email, rather than certified mail to ensure
that the firm received immediate notice of the action and a time
certain when the parties would know requisite timelines begin. Credible
evidence of the firm's involvement in criminal or fraudulent activity
would be added as mandatory grounds for suspension. The death or
incarceration of the SEDO, on the other hand, would trigger a
discretionary elective summary suspension only if there is ``clear and
credible evidence'' that the DBE's continued certification poses a
substantial threat to program integrity. This bar allows for more
certifier discretion to determine if either event demanded immediate
action. Failure to file a timely DOE, which is essential to a firm's
continued eligibility, would also be elective grounds for a suspension.
This change expands the ability to remove ineligible firms without
invoking a Sec. 26.87 proceeding.
Elective summary suspensions could be based on only a single
ground, while mandatory suspensions could cite multiple grounds. The
NRPM also provided procedural details for Sec. 26.88 proceedings,
designed to bring the proceedings to conclusion within 30 days. A new
elective suspension occurring within 12 months of a previous elective
suspension would be null and void, and subject to ``injunctive relief''
from the Department.
Baked into the proposed rule are balanced due process parameters
framing both certifier and firm actions. This includes a certifier
explaining with specificity the reasons for the actions, their
consequences, and the evidence replied upon. The firm may elect to
present information and arguments or explanations but is required to
[[Page 24941]]
affirmatively respond to the certifier's scheduled hearing--opting in
or responding in the timeline specified. If the firm fails to cancel or
appear at the hearing, it forfeits its certification. Boundaries on
what evidence the certifier may present are delineated in the proposed
rule as is the applicable burdens of production and proof by both
parties. Lastly, the proposed changes make suspensions immediately
appealable to DOT.
Comments
The nearly 20 comments addressing this section of the NPRM had a
variety of things to say about it. Several supported the proposal as
written. One comment asked whether the ``clear and credible evidence''
standard for an elective suspension is the same as ``clear and
convincing evidence,'' while another thought that the ``clear and
credible evidence'' standard placed an undue burden on certifiers.
One commenter thought that the proposed scheduling requirements
would be difficult for certifiers to meet. Two commenters asked for
more detail on the timing and procedures for the process, such as who
could attend and who the decision maker would be. Others believed that
a certifier should be able to suspend a firm more than once in a 12-
month period, if circumstances supported doing so (e.g., there are two
separate events in such a period that would justify a suspension).
One comment suggested adding bankruptcy, especially under Chapter
7, as a trigger for a suspension. Another suggested that, after a
bankruptcy, death of a SEDO, or another basis for an elective
suspension, there should be a 90-day grace period to allow a firm to
deal with the issue before it could be suspended. On the other hand,
another commenter thought there should be a mandatory suspension
whenever ownership of a firm changes in a way that could affect its
eligibility. One commenter said that certifiers should be able to cite
multiple grounds for a discretionary suspension if such grounds
existed.
A number of commenters said that in addition to or instead of
sending an email, a certified letter should be used to provide notice
of a suspension. Emails were too uncertain, these commenters thought,
and a certified letter would provide evidence of receipt. Given the
difficulties that small firms often have keeping track of paperwork,
another commenter said, imposing a suspension for a late DOE seemed
unduly harsh.
DOT Response
Summary suspension is an important tool for protecting the DBE
program in situations involving serious, often rapidly developing
situations that could adversely affect its integrity. It is intended to
be used rarely, in situations that present an obvious threat to program
integrity. It is not intended to be used in situations where a
certifier merely has a suspicion or a hunch that a firm may be
ineligible, or where there is uncertainty about whether the suspension
is justified. It is intended to be used when the cause is certain, and
when the need for action to protect the integrity of the program is
time-sensitive because delay in action could lead to real harm to the
program or participants in it. It is not intended to be a shortcut for
removing the eligibility of firms whose status is properly addressed
under the normal decertification provisions of the regulation.
The NPRM used the term ``clear and credible evidence'' to describe
the proper basis for a summary suspension which, perhaps because of its
seemingly similarity to the ``clear and convincing evidence'' term used
in sections of the current rule and in other proceedings, raised
questions for some commenters. The Department is not creating a new
legal standard or a variation on an existing standard. We are simply
saying that to serve as the basis for a summary suspension, the
certifier's evidence must be clear. It must be credible. If not, then
summary suspension is not an appropriate remedy.
The credible, clear evidence must pertain to specific types of
facts. The death of a SEDO, leaving the ownership and/or control of a
DBE in question, is one situation that could lead to a summary
suspension. Likewise, incarceration, a medical condition (e.g., a
seriously disabling stroke), or a legal disability (e.g., having one's
affairs placed in a conservatorship) that prevents a SEDO from
controlling a firm could be a basis for a summary suspension. As a
commenter suggested, an event putting the viability of the firm into
serious question, like a Chapter 7 bankruptcy or a merger or
acquisition involving a non-DBE firm could also be a basis for action
by a certifier under this section.
A DBE or its SEDO's involvement in fraud or other serious criminal
activity affecting business integrity or potential to impact continued
eligibility could be another basis for suspending the firm. This is not
an exclusive or exhaustive list of offenses that could form a basis for
a suspension; certifiers should use good judgment to invoke the
provisions of this section when misconduct on the part of SEDOs or DBE
firms warrants prompt action. We also note that not all criminal
offenses are necessarily grounds for suspension. For example, a
conviction for driving under the influence of alcohol or drug
possession would not provide a basis for a suspension in most cases.
The Department is maintaining the NPRM's distinction between
mandatory and discretionary grounds for suspension. If an OA directs a
certifier to take suspension action, or in a case involving fraud or
other serious criminal activity, then taking suspension action is
mandatory. Otherwise, including cases involving the failure to file a
timely DOE, the action is discretionary.
Few commenters addressed the timing and procedural provisions of
the proposed summary suspension section, and we are adopting them
without change. We believe that the provisions are clear and
appropriate to what is intended to be a summary procedure. In a hearing
under this section, we would apply the same requirements (e.g., with
respect to representation by attorneys, separation of functions) as
applied to decertification proceedings under Sec. 26.87. To make sure
that the firm has received the notice initiating the procedure, we
recommend that certifiers send emails having a ``read receipt''
feature.
We wish, however, to clarify that, once a certifier issues a notice
of suspension, the firm has the burden of production. This means coming
forward with evidence to argue that a suspension should not be issued.
Just as in a decertification action, however, the ultimate burden of
persuasion rests with the certifier that proposes the action. It is the
certifier that must show, by a preponderance of the evidence, that the
suspension is appropriate, and that the firm's eligibility should be
removed.
What kind of evidence might a firm produce to show that a
suspension should not be issued? While this evidence would necessarily
vary from case to case, some examples might be that, even without the
participation of a deceased or incarcerated SEDO, other SEDOs'
participation is sufficient to meet ownership and control requirements.
In the case of a SEDO whose affairs were placed in a conservatorship, a
firm might be able to show that the conservator was a socially and
economically disadvantaged individual who can maintain the required
degree of ownership and control.
The NPRM proposed notifying DBEs of a notice of suspension by
email.
[[Page 24942]]
Some commenters suggested that the requirement for certified mail be
retained, in order to provide greater certainty that the notice had
been received. We believe, however, that email is more prompt,
important in a time-sensitive matter like a summary. DBEs have to
provide email addresses to certifiers as part of the normal
certification process and are responsible for updating the address as
needed and reading emails when they arrive. Moreover, many email
systems include features that confirm receipt of a message.
One result of a summary suspension proceeding can be the
decertification of a firm. In a case where a firm is certified in more
than one State through interstate certification, however, the
suspension and a resulting removal of eligibility apply only in the
State that took action to suspend the firm. This is unlike the regular
interstate decertification procedure included in the final regulation,
in which a decertification action can apply to all States in which the
firm is certified.
We have noted that, with respect to firms that fails to file a
timely DOE and documentation of gross receipts, the summary suspension
process of Sec. 26.88(b)(2)(ii) enables more rapid action than the
decertification procedures of Sec. 26.87. The final rule provides
failure to file a timely DOE as an optional ground for summary
suspension.
Where a certifier fails to follow the procedures of this section
properly, the rule makes available to an affected firm a petition for
an enforcement order that could vacate an improper second elective
suspension within a 12-month period or require a certifier that did not
take final action on a suspension within 30 days to lift the suspension
and reinstate the firm's certification.
27. Appeals to the Departmental Office of Civil Rights (DOCR) (Sec.
26.89)
NPRM
The NPRM proposed reinserting language from the 2014 rule that was
inadvertently omitted. This includes the requirement that appellants
notify DOCR in its appeal decision of other certifiers that have denied
or decertified the firm.
The Department proposed modifying existing procedures for
certification appeals to the DOCR to improve administrative efficiency.
The time for appellants to file appeals would be reduced from 90 to 45
days. Our proposals sought to streamline the process and balance the
needs of firms, recipients, and DOCR. We left intact the firm's ability
to demonstrate that there was good cause for a late filing and explain
to the Department why it would be in the interest of justice to accept
the appeal.
The requirement that records be sent from certifiers to DOCR in an
indexed and organized fashion would be strengthened by allowing DOCR to
reject poorly organized records, resulting in a directive to send a
corrected record within 7 days. Failure by the certifier to do so would
be a failure to cooperate under Sec. 26.109(c). The NPRM proposed new
language wherein DOCR could summarily dismiss an appeal if warranted,
such as situations wherein the firm does not set forth a full and
specific statement under Sec. 26.89(c), if a firm withdraws its appeal
request, or if a certifiers requests to reconsider its decision. The
rule would explicitly state that DOCR does not issue advisory opinions
and that the 180-day target for issuing an appeals decision would be
met ``if practicable.''
Comments
Several comments from recipients supported the NPRM's time frames
for setting the time frame for appeals at 45 days rather than the
current 90 days, while a DBE organization suggested using 60 days as a
middle ground. Two commenters said DOT should not have more than 180
days to decide a case once a complete record had been received. One of
these also suggested that the effect of a UCP's decertification
decision should be stayed until DOCR had decided the appeal. A
recipient noted that, especially with respect to voluminous records in
large cases, indexing and organizing the record can be a major task
that may not be able to be accomplished in 45 days.
DOT Response
The final rule incorporates all the proposed changes. Forty-five
days is reasonable in our view for appellants to state in their appeal
the reasons why they believe the certifier's decision is erroneous,
what significant facts the certifier failed to consider, or the
provisions of the rule the certifier did not properly apply. On this
point, we reiterate language in our 2014 preamble, that the appeal ``is
not an opportunity to add new factual information that was not before
the certifying agency; [H]owever, it is completely within the
discretion of the Department whether to supplement the record with
additional, relevant information made available to it by the appellant
as provided in the existing rule.'' (79 FR 59579 (October 2, 2014).
To ensure that certifiers' records sent to the Department for
certification appeal purposes are as complete and useful as possible,
the final rule requires that the records include video or audio
recordings, or written transcripts, of any hearings in the case. In
addition, certifiers must make audio recordings of on-site interviews.
This information is invaluable, particularly in cases hinging on
ownership and control issues.
The NPRM sought to streamline DBE and ACDBE processes and balance
the needs of firms, recipients, and DOCR. In the last several years,
the number of appeals has been low compared to the number of adverse
certification decisions. Also, many UCPs have transitioned to
electronic application processing. We think it is rare that a UCP could
not submit organized and indexed records to DOCR, even those that may
be voluminous, within 45 days. This is reasonable in our view
particularly considering that effort it takes for both program
participants (firms and certifiers) to submit/review application
material, participate in an on-site interview, craft and review denial
or decertification letters, then appeal.
The Department takes seriously the appeal obligations of firms and
certifiers. DOCR will dismiss firms' non-compliant appeals (as Sec.
26.89(c) specifies) and remand matters to certifiers with instructions
to augment or fix its record within a specified time, and the OAs will
act upon non-compliance (e.g., by conducting compliance reviews).
The Department has decided not to include in the final rule the
proposed provision setting a 180-day time frame for decisions in appeal
cases. The parallel provision in the current regulation has often
proved confusing. It did not relate, as some have thought, to a clock
that starts when an appeal letter arrives. Rather, it related to the
time when a complete record is available to the Department, something
that has often occurred well after the Department received an appeal
letter and the precise date for what is often an iterative process can
be uncertain. Moreover, the ``if practicable'' language of the proposal
made the timeframe essentially aspirational. The proposal that the
Department send a letter when the timeframe was exceeded would likely
occupy staff time that could otherwise be more productively used in
completing appeals cases. Using its resources, the Department will do
its best to respond to appeals promptly. If there is a systematic delay
in processing appeals (e.g., because all available staff are assigned
to a major project for a
[[Page 24943]]
time), the Department intends to place a notice on its website
informing the public of the situation.
28. Updates to Appendices F and G
NPRM
The NPRM proposed to remove the Uniform Certification Application
and personal net worth (PNW) forms from Appendices F and G,
respectively. In addition, the NPRM proposed technical and
terminological changes within the appendices, most notably renaming the
current affidavit of certification the ``Declaration of Eligibility''
(DOE). The DOE would be used both in initial applications and in the
annual submission to certifiers. Consistent with the proposals
concerning personal net worth, the ``retirement accounts'' line item
would be deleted from the PNW form.
Comments
There were few comments on these proposals. One recipient supported
them. Another expressed concern about how changes in the forms would be
communicated to certifiers if the forms were no longer to be found in
the regulation itself. It was also concerned about maintaining
uniformity in the absence of a regulatory requirement. One commenter
suggested changing the submission requirement of a DOE to every other
year because, in their view, there is not much change between years and
the change would lower the paperwork burden on certification agencies.
DOT Response
The final rule fully adopts the Department's proposed changes. The
annual submission by firms of a DOE is made easier in our view by the
widespread use of electronic systems that notify firms and recipients
when the DOE is due.
29. Miscellaneous Program Elements and Concerns
There were a wide variety of comments that did not fit neatly
within the NPRM's numbered areas of proposed change.
Legal Defensibility of DBE Program
Commenters on this issue expressed deep concern that, in the
present legal climate, the DBE program was vulnerable to renewed legal
challenges. Consequently, commenters said, it was important to have a
discussion in the preamble to the final rule of the continuing
compelling need for a race-conscious program, based on recent disparity
studies and material that has been provided to Congress in the context
of authorizing legislation. A recent report from the Department of
Justice was mentioned as a possible source of evidence supporting a
continuing compelling need.\9\ Given some of the proposals in the NPRM,
another comment said, it was important to demonstrate how revisions to
the program would remain consistent with the narrow tailoring
requirement for race-conscious programs.
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\9\ U.S. Department of Justice, ``The Compelling Interest to
Remedy the Effects of Discrimination in Federal Contracting: A
Survey of Recent Evidence,'' (Jan. 31, 2022), See https://www.govinfo.gov/content/pkg/FR-2022-01-31/pdf/2022-01478.pdf and
https://www.justice.gov/crt/page/file/1463921/download.
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Paperwork Reduction Act
Two commenters said that the Paperwork Reduction Act statement in
the NPRM underestimated the burdens on airports in the ACDBE program.
For the small business ACDBE program, an airport said it would take 120
staff hours rather than the estimated 5.6. For the active participants
list, the commenters believed that the staff hour commitment would be
40 hours rather than the projected 42. For other proposed reporting
requirements, the commenters said that the burden would be 25 or 40
hours, rather than the projected 3.2 hours. Other commenters thought
proposed reporting, directory and related requirements, would increase
costs beyond the Department's projections. Recipients would have to
make organizational changes, hire staff, and acquire or modify
software. The Department should, commenters said, retain existing
flexibility and provide funding for changes that a final rule requires.
Advisory Committee
A commenter said that the Department should create a standing
advisory committee under the Federal Advisory Committee Act to provide
ongoing feedback and recommendations to the Department concerning
implementation issues and to suggest guidance that could be helpful in
the future. The committee would include representatives of all the
principal interests involved in the program such as DBEs and ACDBEs,
non-DBEs, recipients in various OA programs, and organizations
representing them. Similarly, another commenter suggested having a
national roundtable of people to share data and experiences.
Training
Several commenters suggested that the Department provide additional
training to program participants, including DBEs, prospective
applicants, recipients, and certifiers. The program, a commenter added,
should encourage technical guidance and instruction for DBEs.
Incentives for Prime Contractors and Recipients
Several commenters suggested giving incentives to prime contractors
who meet or exceed goals, analogous to incentives given for finishing a
contract ahead of schedule. There could be incentives for prime
contractors to form joint ventures with DBEs. Recipients could
publicize good performance by prime contractors. Stipends could be
provided to encourage prime contractors to enter mentor-
prot[eacute]g[eacute] programs. Mentor-prot[eacute]g[eacute] programs
could be made more attractive by removing some of the restrictions in
the current mentor-prot[eacute]g[eacute] provision of the regulation
(Sec. 26.35(b)(2)(i) and (ii)). There could be ``extra credit'' toward
DBE goals on a federally assisted contract for having used DBEs on
private sector work, or by giving points on the next procurement for a
contractor who exceeded DBE goals on a previous one. Prime contractors
could also be encouraged to set up ``one-stop shopping'' hubs to inform
DBEs of opportunities. Recipients could provide incentives to prime
contractors to use newer, smaller DBEs rather than old standbys.
A commenter suggested that States with excellent DBE programs
receive preferences in discretionary grant programs.
Add Other Types of Firms to the Program
A letter-writing campaign resulted in numerous docket entries
recommending that there be a national MBE program and goals, in
addition to the DBE program and goals. Other commenters suggested
allowing SBA-certified 8(a) firms into the DBE program automatically.
Term Limits
Two comments suggested either term limits--like those in SBA
programs--for all DBEs/ACDBEs or ``graduation'' for firms who had been
in the program for a lengthy period and received many contracts.
Miscellaneous Program Suggestions
Among ideas suggested by commenters to improve the program were
set-asides, sole-source contracts for DBEs, providing surplus recipient
or DOT property to DBEs, simplifying prequalification standards and
requirements for responding to solicitations for small firms, making
[[Page 24944]]
provisions like those concerning Alaska Native Corporation firms or SBA
programs available to African-American firms, assistance with bonding
and insurance requirements (e.g., by reducing performance bonds for
DBEs to 50 percent or having prime contractor take out subcontractor
default insurance in place of requiring bonds for DBEs), increasing
overall goals to more than 10 percent, maintaining a national DBE
database at DOT, doing more to encourage unbundling on all types of
contracts, giving DBEs the first opportunity to get contracts under
$500,000, supporting greater use of mentor-prot[eacute]g[eacute]
programs, requiring recipients to conduct updated disparity studies,
adding supplier outreach and diversity programs, strengthening the role
of DBE liaison office and require additional reporting from them,
adding an ``ombudsman'' function to help newer firms get work, and
channeling funds to ``subject matter experts'' to provide technical
assistance to DBEs.
Other Program Concerns
Some comments referenced the longstanding concern that only a few
established DBE firms get most of the work, limiting opportunities for
the rest. One commenter said that in their State, 10 DBEs got 46
percent of the work, while 30 did 80 percent of the work. A study from
a non-DBE contractors group said that DBEs had the most capacity in the
smallest areas of contracting opportunity, but the lowest capacity in
the most significant contracting areas (e.g., heavy highway and bridge
work). Commenters expressed continuing concern about fraud in the
program.
DOT Response
The DBE program ``has the important responsibility of ensuring that
firms competing for DBE contracts are not disadvantaged by unlawful
discrimination.'' This statement, in the preamble to the Department's
1999 final DBE rule (64 FR 5096, 5096 (February 2, 1999)) encapsulates
the program's longstanding purpose. That preamble discussed, at length,
how the program and its regulation met the constitutional ``strict
scrutiny'' requirement for programs using racial classifications,
including how the part 26 provisions met each of the elements of the
``narrow tailoring'' prong of strict scrutiny articulated by the
courts. See id. at 5101-5103. The constitutionality of the program has
been challenged several times in Federal court, but in each case, the
courts have upheld the program. See Midwest Fence Corp. v. Dep't of
Transp., 840 F.3d 932, 941, 935-36 (7th Cir. 2016); W. States Paving
Co. v. Wash. State Dep't of Transp., 407 F.3d 983, 995 (9th Cir. 2005);
Sherbrooke Turf, Inc. v. Minn. Dep't of Transp., 345 F.3d 964, 967-68
(8th Cir. 2003); Adarand Constructors, Inc. v. Slater, 228 F.3d 1147,
1155 (10th Cir. 2000). Courts have also relied upon these decisions'
findings about the constitutionality of the program when ``as applied''
challenges have been brought. Here again, the program has withstood
these strict scrutiny challenges, largely due to the fact that
recipients properly following program mandates may rely upon the
Congressional findings of compelling need. See Mountain West Holding
Co. v. Montana, 691 F. App'x 326 (9th Cir. 2017, memorandum opinion);
Dunnet Bay Construction Co. v. Borggren, 799 F. 3d 676 (7th Cir. 2015);
Northern Contracting, Inc. v. Illinois, 473 F.3d 71 (7th Cir. 2007);
Associated General Contractors of America, San Diego Chapter, Inc. v.
California Department of Transportation, 713 F. 3d 1187 (9th Cir.
2013); Geyer Signal, Inc. v. Minnesota Department of Transportation,
No. 11-321 (JRT/LIB), 2014 WL 1309092 (D. Minn. Marc. 31, 2014; Geod
Corporation v. New Jersey Transit Corporation, 678 F. Supp. 2d 276
(D.N.J. 2009), and 746 F. Supp. 2d 642 (D.N.J. 2010).
Repeated reauthorizations of the program by Congress (listed in
Sec. 26.3 (a) of the rule), and extensive evidence supporting it,
underscore the continuing compelling need for the program to combat
discrimination and its effects.\10\ These actions have been based on
statistical and anecdotal evidence of the persistence of discrimination
affecting firms seeking work in DOT-assisted contracts, often in the
form of the numerous disparity studies that have been conducted on
behalf of DOT recipients and other parties. In this important respect,
the DBE program differs significantly from other programs that may use
race-based classifications in order to advance worthy, but conceptually
distinct, objectives such as achieving diversity.
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\10\ See BIL, Sec. 11101(e)(1) (``. . . testimony and
documentation . . . provide a strong basis that there is a
compelling need for the continuation of the disadvantaged business
enterprise program to address race and gender discrimination . . .
.''); Congressional Record--Senate, S5898, S5899 (August 5, 2021);
Congressional Record--House, H3506, H3507 (June 30, 2021); ``DRIVING
EQUITY: THE U.S. DEPARTMENT OF TRANSPORTATION'S DISADVANTAGED
BUSINESS ENTERPRISE PROGRAM''--Remote Hearing Before the Committee
on Transportation and Infrastructure, 116th Cong. 64 (Sept. 23,
2020), available at https://www.govinfo.gov/content/pkg/CHRG-116hhrg43413/pdf/CHRG-116hhrg43413.pdf.
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We emphasize that the present part 26 and the revisions this final
rule makes to modernize administrative provisions of the program and
leave intact the mechanics of goal setting as has been the case over
many decades. Part 26 does not allow quotas nor impose any penalties
for failing to meet goals, and it requires that recipients use race-
and gender-neutral means to the maximum extent to achieve DBE
participation goals before resorting to race- and gender-conscious
means. The program retains the basic narrow tailoring building blocks
which, as noted above, have repeatedly been upheld by courts.
We believe there would be value in establishing a standing Federal
advisory committee to provide input to the Department on the continuing
implementation of the program and suggestions for guidance on issues
that may arise in the future. However, this and several other
suggestions for changes in the program (e.g., applying term limits to
firm's participation) are outside the scope of this rulemaking, beyond
the Department's statutory authority, or both.
Part 23
Subpart A--General
30. Aligning Part 23 Objectives With Part 26 Objectives (Sec. 23.1)
NPRM
The NPRM proposed to add two new program objectives to part 23 to
align it with the objectives in part 26. These objectives, similar to
those in Sec. Sec. 26.1(f) and (g), promote the use of ACDBEs in all
types of concessions activities at airports and assist the development
of firms that can compete in the marketplace outside the ACDBE program.
The proposal received support from trade associations, consultants, and
airport recipients, with one trade association cautioning against
simply adding similar objectives due to differences in business
activities between the DBE and ACDBE programs. Instead, the commenter
suggested adopting the following single objective: ``To support the
development of ACDBEs that can compete independently for concessions
opportunities at airports receiving DOT financial assistance.''
DOT Response
The change suggested by the one commenter is not substantively
different from language proposed. In addition, support for adding the
two program objectives is unanimous. Therefore, the final rule retains
both objectives as proposed.
[[Page 24945]]
31. Definitions (Sec. 23.3)
NPRM
For consistency and clarity, the NPRM proposed that Sec. 23.3
adopt existing definitions in part 26 which are also applicable to part
23. The definitions for terms such as, ``Alaska Native,'' ``Assets,''
``Contingent liability,'' ``Days,'' ``Immediate Family Member,''
``Liabilities,'' ``Operating Administration'' or ``OA,'' and ``Socially
and economically disadvantaged individual'' were proposed to be added
or amended to ensure that the definitions and terms contained in both
parts aligned. Additional definitions for ``Airport Concession
Disadvantaged Business Enterprise (ACDBE),'' ``Part 26,'' ``Personal
Net Worth,'' ``Affiliation,'' ``Concession,'' ``Subconcession or
subcontractor,'' and ``Sublease'' were either proposed to be added or
amended to clarify existing requirements in part 23 or to correct
errors and replace obsolete cross-references within the regulation.
Comments and DOT Response
A majority of commenters in general supported the addition or
alteration of the definitions at large.
Assets
For the definition of ``assets,'' one commenter suggested that the
Department clarify the requirements for demonstrating ownership of sole
and separate property. For example, if ownership of property or assets
were to be demonstrated by evaluating the title, this should be
clarified in the ``assets'' definition.
The Department adds the part 26 definition of ``assets'' to part 23
without revision to ensure consistency in its meaning across both
parts. We added other definitions from Sec. 26.5 to Sec. 23.3 for
this same reason. The final rule does not adopt the commenter's
proposed ``asset'' definition in part 23 because it would otherwise
make the definition inconsistent with its counterpart in part 26.
Airport Concession Disadvantaged Business Enterprise (ACDBE)
Commenters were evenly divided in support and opposition of the
NPRM's proposal to modify the definition of ``ACDBE.'' The proposed
change is intended to clarify that a firm does not need to be
operational or demonstrate that it previously performed contracts at
the time of its application for certification. Comments in favor of the
change indicated that the proposal would increase the number of
available ACDBE firms and that previous experience of the firm was less
important in the concessionaire industry, as long as airports are
permitted to consider experience of the individual owner when selecting
a firm. The commenters opposing the change expressed concern about how
an unqualified firm could become competent in a particular line of work
in which the firm has no experience.
The final rule adopts the definition of ACDBE as proposed. The
Department acknowledges the distinction between the experience of a
firm and SEDO and believes that the experience of the individual owner
is more relevant for purposes of certification in the concession
context. Moreover, conditioning certification on a firm's experience
would present significant barriers for firms seeking ACDBE
certification status. See preamble discussion on Sec. 26.71 for
discussion on the operations requirement for DBEs.
Concession
The final rule incorporates the term ``traveling public'' into the
``concession'' definition to clarify that businesses that do not
primarily serve the traveling public should not be considered
concessions. A majority of commenters supported this change. However,
the comments in opposition expressed concern that a revision
restricting the term ``concession'' to the traveling public would
negatively impact an airport recipient's ability to meet its
participation goals by limiting the number of businesses that may be
considered an ACDBE concession. The commenters said that without
additional guidance or clarity, this change would result in confusion
within the industry because there is significant subjectivity involved
in determining what businesses are intended to serve the traveling
public.
The final rule adopts the definition of concession as proposed. The
legislative and regulatory history of the concessions provision has
always focused on businesses that serve the traveling public at the
airport, which supports the final rule's revision. The Department does
not believe that including the term ``traveling public'' in the
definition will cause confusion or inhibit airport recipients' from
achieving participation goals. Instead, it merely reflects the
Department's longstanding interpretation of the regulation.
Personal Net Worth (PNW)
The Department received several comments on changes to the PNW
definition in part 26, ranging from the PNW cap adjustment to other
aspects of the PNW calculation (e.g., exclusion of retirement assets,
removal of community property rules, etc.). These areas are discussed
at greater length in the part 26 preamble. For part 23, we are limiting
the discussion of the definition of PNW to what the NPRM's preamble
referred to as the ``third exemption.'' That term refers to the
exclusion from the PNW calculation those assets that a SEDO can
demonstrate were necessary to obtain financing for purposes of entering
or expanding a concessions business subject to part 23 at an airport.
The final rule's amendments to part 23 aligns the PNW definition
with that of part 26, effectively eliminating the PNW's ``third
exemption.'' While one trade association supported this change, another
requested that the Department consider retaining the exclusion due to
significant cost increases associated with doing business as an ACDBE.
The Department recognizes the substantial cost increases associated
with concessions and addresses this concern, in part, through proposed
increases to the PNW cap to $2,047,000. and other changes to the PNW
calculation. However, the final rule removes the ``third exemption''
language from the PNW definition in part 23. In the 2005 final rule,
the Department under the third exemption allowed the exclusion to a
maximum of $3 million. As noted in the current rule Sec. 23.3, the
Department suspended the effectiveness of the provision with respect to
any application for ACDBE certification made or any financing or
franchise agreement obtained after June 20, 2012. As proposed, the
definition removes this reference entirely, and the definition of
personal net worth in part 23 refers back to that found in part 26.
Sublease, Subconcession or Subcontractor
For the proposed definitions of sublease, subconcession or
subcontractor, all commenters were unanimous in their support. However,
several commenters requested the proposed definition of ``sublease'' be
expanded to clarify the requirements to be considered a subtenant.
Commenters suggested that a definition of sublease address whether a
capital investment from the ACDBE is required or whether the facility
development cost can be paid monthly as a ``lease cost.'' They also
suggested that the definition address if the terms of the primary lease
must be a direct pass-through and whether a concessionaire must manage
a location with its own personnel.
This final rule adopts the term sublease as proposed to clarify how
airport recipients should count direct
[[Page 24946]]
ownership arrangement participation generated by ACDBEs in subtenant
arrangements. Generally, airport recipients may credit the entire
amount of gross receipts generated from a sublease completely operated
and owned by an ACDBE. However, airport recipients must look beyond the
agreement to evaluate the capacity the ACDBE is performing and ensure
that the agreement does not improperly restrict the ACDBE's ownership
and control.
Under the sublease definition, all requirements applicable to the
concession under the primary lease passes on to the sublessee,
including the management of personnel. The ACDBE must also be
responsible for its proportionate share of facility development costs
and capital investment. Facility development cost can be paid monthly
as a ``lease cost''. However, the total lease costs to be paid must be
proportionate to the ACDBE's responsible share of capital investment
required under the primary lease.
For the definition of subconcession or subcontractor, the final
rule removes the term subcontractor from the definition title and
adopts the definition as proposed by the NPRM. With this change, the
term subconcession is now found in the definition section, as well as
in Appendix A of the regulation.
Other Definition Changes
Commenters proposed additional amendments or changes to definitions
that were not addressed by the NPRM.
One commenter proposed revisions to the definition of ``joint
venture.'' The commenter expressed that the current definition in which
the ACDBE is ``responsible for a distinct, clearly defined portion of
the work of the contract,'' places restrictions on minority joint
venture partners' financing, management, and operations that would not
be required of a majority joint venture partner. The commenter believed
that the language unfairly restricts ACDBE joint venture partners in
that it imposes conditions on their participation that are not
similarly imposed on the non-ACDBE participants. To address this, the
commenter proposed revising the definition to balance the one-sided
conditions that the current language imposes on ACDBE joint venture
partners.
The final rule retains the existing definition of joint venture.
Credit toward ACDBE goals must be based on a commercially useful
function. Any change to remove the requirement for an ACDBE joint
venture participant to perform independently a distinct portion of the
joint venture's work would adversely affect the integrity of the
program.
In addition to the definitions above, another commenter suggested
that the Department add a definition for ``contract award'' to clarify
the term's use in other sections in Parts 23 and 26.
The Department has opted not to define contract award in the
regulatory text as commenters requested. Given the wide array of
contexts the term contract award appears across Parts 23 and 26, we
decided against adding a definition for the term to avoid confusion.
Subpart B--ACDBE Programs
32. Socially and Economically Disadvantaged Owned Financial
Institutions (Sec. 23.23)
A commenter suggested that the Department consider options to
address capital access issues that hinder small businesses from
competing for concession opportunities. The Department is sensitive to
concerns regarding access to capital. The FAA's 2023 updated Best
Practices for Fostering Participation from New DBEs and ACDBEs at
Airports (April 11, 2023) letter recommended evaluating the
availability of services offered by financial institutions owned and
controlled by socially and economically disadvantaged individuals in an
airport recipient's community. See https://www.faa.gov/about/office_org/headquarters_offices/acr/bus_ent_program. The letter
recommends airport recipients make reasonable efforts to use such
institutions and encourage prime concessionaires to use them, as well.
Recognizing that capital access has historically been, and
continues to be, a significant barrier to ACDBE participation within
the program, the final rule seeks to reduce this barrier by amending
the administrative provisions under Sec. 23.23 to add a new paragraph
that applies the related requirement in Sec. 26.27, to part 23. This
change codifies best practices in the letter by requiring recipients,
for their ACDBE programs, to thoroughly investigate the full extent of
services offered by financial institutions owned and controlled by
socially and economically disadvantaged individuals in their
communities and to make reasonable efforts to use these institutions.
Recipients must also encourage prime concessionaires to use such
institutions.
The term ``financial institution'' under this provision includes
but is not limited to traditional banking institutions and Community
Development Financial Institutions (CDFIs).
33. Direct Ownership, Goal Setting, and Good Faith Efforts Requirements
(Sec. 23.25)
NPRM
The NPRM proposed changes to Sec. 23.25 clarifying that all
businesses must make good faith efforts to meet the concession-specific
goals as set by recipients pursuant to this section regardless of
whether a concession-specific goal is based on goods and services or
direct ownership arrangements. Airport recipients may set concession-
specific goals on purchases or leases of goods and services only after
performing an analysis that shows there is de minimis availability for
ACDBE direct ownership arrangement participation for that opportunity.
Comments
The majority of comments, which were received from trade
associations, consultants, ACDBEs, and recipients, generally supported
the NPRM's clarifying modifications to Sec. 23.25. However, one
commenter noted supplying evidence to support setting concession-
specific goals based on goods and service purchases versus direct
ownership arrangements, in some instances, would not be possible until
a successful proposer is selected. The commenter explained that
recipients are not able to obtain a firm's purchase commitments at the
time of award. Moreover, purchase goals could be impacted by purchase
requirements if the firm is a licensed or franchised operation.
Another commenter suggested that the Department add an appendix to
part 23, similar to the detailed guidance in part 26 Appendix A, to
reflect the differences in good faith effort requirements for DBE and
ACDBE program bidders and offerors.
DOT Response
The Department adopts the changes to Sec. 23.25 as proposed by the
NPRM. The timing of when evidence may become available in order to
perform the analysis required under this section should not present an
issue to recipients who are determining whether to set a concession-
specific goal based on goods and services purchases. In addition,
airport recipients do not need a firm's actual purchase commitments at
the time of award to perform the analysis in paragraph (e)(1)(i) of
this section.
Recipients calculate their overall ACDBE goals for concessions
other than car rental by evaluating the relative availability of ACDBEs
in the categories of work that concession operations will
[[Page 24947]]
likely entail. Because the rule at Sec. 23.47 provides that the base
of an airport's goal for concessions other than car rental is the total
gross receipts of concessions, this approach is necessary when setting
overall goals. Recipients may meet their overall goals through the
application of concession-specific goals, as explained in Sec. 23.25.
Under the revised Sec. 23.25 (e)(1)(i), an analysis that finds a
particular concession opportunity has only de minimis availability of
direct ownership arrangement participation may be used by recipients as
evidence in support of setting a concession-specific goal based on
goods and services for that opportunity. Such analysis would satisfy
the good faith efforts requirement that recipients must make to
explore, to the maximum extent practicable, opportunities for
participation via direct ownership arrangements.
In response to comments, the Department will not add a separate
appendix for guidance on good faith efforts to part 23. Appendix A to
part 26 provides guidance on good faith efforts concerning DBE contract
goals. This guidance is referenced in Sec. 26.53(b)(2)(vi), which is
made applicable to concession-specific goals through Sec.
23.25(e)(1)(iv). Notwithstanding differences between the ACDBE and DBE
program, we do not believe this issue is significant to warrant
creating a new appendix on good faith efforts in part 23.
34. Fostering Small Business Participation (Sec. 23.26)
NPRM
The NPRM proposed to add a provision that would closely mirror the
Sec. 26.39 requirement for recipients to create an element for their
ACDBE Program specifically designed to foster small business
participation in concession activities. As part of the proposed
element, recipients would be required to actively implement their
programs through various strategies that include race- and gender-
neutral small business set-asides, prime subleasing opportunities and
alternative concession contracting approaches (e.g., direct leasing).
One feature proposed for part 23 that is distinct from part 26, is the
requirement for recipients to periodically report on the implementation
of race-neutral strategies under the small business element for their
ACDBE programs.
Comments
ACDBE Small Business Element
Support for the proposed ACDBE small business element was expressed
by several members of a trade association, who commented that part 23
needed to make the small business element (SBE) a requirement in order
to achieve small business participation for airport concessions. An
airport consultant believed the proposed part 23 SBE requirement would
foster creativity among recipients when structuring their small
business elements.
Comments opposing the proposal were concerned that the new SBE
requirement would be overly burdensome and that the Department
underestimated the time it would take. However, commenters' estimated
range of time to complete the task varied. One airport authority
estimated it would take 120 hours, not the 5.6 hours estimated by the
Department; a member of a trade organization thought ``at least 40.''
Another commenter mentioned that small hub and non-hub airports would
be particularly affected, as they have limited concession opportunities
and revenue streams, making it difficult for them to attract bidders.
Others opposing the new requirement expressed that SBE would not
work for part 23 as it does for part 26 because the industries involved
in the DBE program (federally assisted contracting) and the ACDBE
program (airport concession opportunities) are different. They noted
that set-asides under the small business element could unintentionally
harm both small businesses and other concessionaires by forcing a
choice between them for feasible concession locations. Others expressed
doubt about the feasibility of subleasing opportunities for airport
concessions, as such opportunities are rare, and multi-unit operations
do not support subleasing. If adopted, commenters recommended that
recipients should conduct a small-business analysis on opportunities
without an ACDBE goal to determine the viability of a small business
sublease.
Reporting on Small Business Element
The Department received some comments, both from trade associations
and recipients, on the proposed requirement for recipients to
periodically report on the implementation of race-neutral strategies
under their small business element. These commenters viewed the
requirement as unduly burdensome and costly. However, if adopted in the
final rule, one commenter recommended that the Department establish a
supplemental report to the Uniform Report for reporting on a
recipient's small business element in order to minimize the
administrative burdens.
DOT Response
The Department believes that the ACDBE SBE requirements will not
impose any significant burdens on recipients because it mirrors the
current DBE SBE requirements that recipients must currently implement
under Sec. 26.39. Instead, the ACDBE SBE requirement should serve as a
mere extension to the SBE requirements that recipients have currently
in place for their DBE programs.
Smaller hub airports may benefit from statewide small business
element consortiums permitting them to pool resources with other
recipients who are required to actively implement SBEs under both DBE
and ACDBE programs. Upon request, FAA will engage interested recipients
on the mechanics and steps needed to establish and implement statewide
consortiums for SBEs.
Furthermore, distinctions may exist in how certain small business
strategies apply across the DBE and ACDBE programs. The list of
strategies in the proposed Sec. 23.26 for the ACDBE program is
designed to give recipients some ideas on how to accomplish the
objectives of the rule. It is not an exhaustive list, nor is any
strategy listed in the regulation mandatory. Airport recipients may
choose one or more of the listed strategies or may develop any
alternative strategy that can be effective in creating airport
concession opportunities for small businesses.
In selecting SBE strategies, the Department still expects airport
recipients to be forward-looking and innovative in their approaches.
This means that recipients should not completely foreclose the
possibility of using certain strategies (e.g., subleasing opportunities
for small businesses) over others because they do not appear to be
viable options at the time. Rather, they should continuously explore
creative ways on how to make those strategies possible.
Section 23.26(c) mandates that airport recipients incorporate
certain assurances within their SBEs. These include the confirmation
that their SBEs are authorized under State law, and that certified
ACDBEs meeting the specified size criteria are presumptively eligible
to participate. In addition, airport recipients must assure that no
limitations are placed on the number of contracts awarded to
participating firms and that every effort will be made to avoid
creating barriers to the use of new, emerging, or untried businesses.
Reporting on Small Business Element
The ACDBE SBE requirement needs a reporting feature for the
Department to
[[Page 24948]]
evaluate not only the effectiveness of each recipients' element, but
also whether recipients are actively implementing their SBEs, as
required by 23.26(g). In an effort to minimize burdens, the Department
will adopt the recommendation that the part 23 SBE reporting
requirement be added as a supplemental report to the part 23 Uniform
Report. This will alleviate the time burden noted by a commenter as
described above. However, as explained in the supporting statement
developed by the Department in support of the rulemaking and associated
information collection that has been submitted to OMB for approval, we
disagree with their estimate of 120 hours. Recipients are already
required to implement SBEs for DBE programs, and they also must collect
and report their race neutral participation annually, so this minimal
supplemental information is not burdensome. Therefore, we believe that
the Department's estimate of 5.6 hours is appropriate.
35. Retaining and Reporting Information About ACDBE Program
Implementation (Sec. 23.27) (Active Participants List)
Comments
The Department received numerous comments on the NPRM's proposal to
add an active participants list requirement to part 23, with the
majority opposing the proposal. Supporters believed the change would
benefit the program administration and assist car rental companies in
locating certified ACDBE vendors. However, many opposed the change,
finding it unduly burdensome and costly, and highlighting the
logistical complexities in acquiring all the data from every firm that
reaches out via email, phone, or fax inquiring about concession
opportunities. One trade organization member thought 60 hours was more
appropriate for this task than the 42 proposed by the Department.
Commenters also raised concerns about the active participants list
not meeting its intended purpose of providing accurate data on ACDBE
and non-ACDBE firms seeking concession opportunities. They noted that
the NAICS codes used by various concessionaires are inconsistent, and
the data from proposals and responses to solicitations and negotiated
procurements would not provide accurate information. Commenters argued
that this approach would result in an undercount of actual active
participation and lead to incorrect calculations of goals and
participation. A commenter suggested that the number of firms certified
in concession-operating trades would be a better indicator of the
number of ACDBE firms wanting to participate.
One commenter recommended that the Department provide a clarifying
definition for ``active participants'' at the end of Sec. 23.27(c) to
include individuals or firms that have submitted proposals, attended
outreach events, or made inquiries about concession opportunities from
the recipient.
DOT Response
The final rule is adding a requirement that recipients develop and
maintain an active participants list. The ``active participant'' list
adopted in this rule is parallel to the bidders list requirement in
Sec. 26.11. Similar to the bidders list requirement in part 26,
creating and maintaining an ``active participants'' list gives
recipients another valuable way to measure the relative availability of
ready, willing and able ACDBEs when setting their overall goals. It
also gives the Department data to evaluate the extent to which the
objectives of Sec. 23.1 are being achieved.
The Department has elected to adopt the proposal and require
recipients to collect the data from all active participants for
concession opportunities by requiring the information under this
section to be submitted with their proposals, or with initial responses
to negotiated procurements. The Department acknowledges that the
collection of active participants data from only these sources may not
capture every firm that seeks to perform work on concession
opportunities. However, in absence of concession-specific NAICS codes,
the Department believes that narrowing the source of this data
collection to only proposals and initial responses to negotiated
procurements would produce the most accurate and consistent data on
firms who compete for and perform work on concession opportunities. The
commenter's estimate of 60 hours to complete the task is slightly above
our estimate that it would take around 42 hours to complete. We believe
42 hours would be a rough average, with small airports taking much less
time.
Recipients should not rely exclusively on an active participants
list that does not reflect the relative availability of ACDBEs in their
local market area to the maximum extent feasible. Such reliance may
result in skewed goal calculations and potentially undercounting of
participation. This is not the intent, nor should such a scenario occur
under the rule. The FAA will not approve a goal-setting methodology
that is not rationally related to the relative availability of ACDBEs
in a recipient's market. If a recipient decides to use an active
participants list that is not demonstrative of all ready, willing and
able ACDBEs relative to all businesses that are ready, willing and able
to participate in a recipient's ACDBE program, then the active
participants list must be used in combination with other data sources
to ensure that it meets the standard in the existing regulations that
apply to alternative methods used to derive a base figure for the ACDBE
availability estimate. See Sec. 23.51.
Subpart C--Certification and Eligibility of ACDBEs
36. Size Standards (Sec. 23.33)
See discussion of requirements in Sec. 26.65.
37. Certifying Firms That Do Not Perform Work Relevant to the Airport's
Concessions (Sec. 23.39)
NPRM
Section 23.55(k) prohibits recipients from counting costs incurred
in connection with the renovation, repair, or construction of a
concession facility (sometimes referred to as the ``build-out'') toward
ACDBE goals. The NPRM proposed to add a paragraph to Sec. 23.39
clarifying that certifiers may not certify applicant firms that intend
to perform activities exclusively related to ``build-out'' for which
participation cannot be counted.
Comments
The Department received comments from recipients, prime
concessionaires, consultants and trade associations, all of whom
generally supported the NPRM's proposed change. Some commenters
requested that the Department ensure the change does not exclude the
certification of firms that provide services such as electrical,
plumbing or work to concessionaires as a maintenance service, not
related to initial construction (e.g., car rental offices, advertising
displays). Other commenters expressed concern that the change would
allow certifiers to make discretionary decisions about businesses they
are unfamiliar with, unless that business has an opportunity to appeal
the decision in the event they are denied.
DOT Response
The Department is not adopting its proposal to permit certifiers to
refrain from certifying applicant ACDBE firms if they determine the
firms intend to perform only activities exclusively related to the
renovation, repair, or construction of a concession facility
[[Page 24949]]
(``build-out''). We agree with the comments and seek to avoid a change
that could result in erroneous certification denials based on
subjective determinations by certifiers on whether the work an
applicant firm intends to perform is exclusively related to build-out.
Notwithstanding our position, the Department shares similar
concerns to comments raised above for the definition of disadvantaged
business enterprise for applicant firms that cannot have their
participation counted toward ACDBE goals under Sec. 23.55(k). The
Department strives to reduce wasted time and effort that UCPs encounter
when processing applications from firms that seek certification in
construction-related work that cannot be credited toward ACDBE goals.
To address this, we adopt a similar approach to that taken under
part 26. The Department will include an item in the ACDBE portion of
the Uniform Certification Application (UCA) asking applicants to detail
the kinds of work that they anticipate performing on concession
opportunities. Accordingly, if the applicant's response reasonably
suggested to the certifier that the work it performs would be
construction-related activities exclusively in connection with build-
out of concession facilities that otherwise could not be counted toward
ACDBE goals under Sec. 23.55(k), we would encourage the certifier to
recommend that the applicant withdraw its application, thereby avoiding
certification of firms that would not be able to utilize their ACDBE
status to obtain an airport concession opportunity.
38. Removing Consultation Requirement When No New Concession
Opportunities Exist (Sec. 23.43)
NPRM
The NPRM proposed to amend Sec. 23.43 to require consultation only
when the recipient's ACDBE goal methodology includes opportunities for
new concession agreements.
Comments
The majority of commenters, predominantly recipients, endorsed the
NPRM's proposal to remove the requirement for recipients to perform
consultation when there are no concession opportunities to evaluate or
promote. They cited that the proposal would alleviate burdens on
recipients and preserve the resources of ACDBEs who may attend a
meeting only to learn that there are no opportunities in which they can
participate.
The Department received one comment from a car rental
concessionaire that disagreed with the proposed change to remove the
consultation requirement even when the recipient wishes to change its
ACDBE goal requirement as long as there are no new concession
opportunities. They were opposed to any change that would remove the
consultation requirement when recipients propose to adjust their ACDBE
goal. Therefore, they recommended the Department revise the proposed
amendment to Sec. 23.43 to remove the consultation requirement only
when there are no new concession opportunities and when no adjustment
is being made, or is proposed to be made, to the recipient's ACDBE
goal.
DOT Response
Section 23.43 requires consultation only when the ACDBE goal
methodology includes opportunities for new concession agreements. The
Department agrees that consultation under Sec. 23.43 is still
necessary when an adjustment is being made, or is proposed to be made,
to the base figure of the recipient's ACDBE goal. However, we do not
believe it is necessary to make this explicit in the regulatory text
since adjustments usually arise only when there are new concession
opportunities.
That aside, the Department is concerned that the text of Sec.
23.43 references only opportunities for new concession agreements that
become available during the goal period. It is silent on new goods and
service purchase opportunities. This omission may be construed to mean
that consultation is required only when new direct ownership
opportunities become available during the goal period. This is not the
case. The final rule intends for the consultation requirement to apply
when there are new concession opportunities for both direct ownership
arrangements and purchases of goods and services.
For this reason, the Department makes a minor revision to the Sec.
23.43 to account for new opportunities that may arise in the form of
both direct ownership arrangements and goods and service purchases.
Depending on the nature of the opportunities, this revision in addition
to the overall change will allow recipients to focus their consultation
efforts on firms in the position to take advantage of those
opportunities available.
39. Non-Car Rental Concession Goal Base (Sec. 23.47)
Comments
The NPRM would have amended Sec. 23.47(a) to clarify that airport
recipients may use the alternative method in Sec. 23.51(c)(5) to
supplement with goods and service purchases those portions of the base
figure of their overall non-car rental goals where there is no feasible
direct ownership arrangement participation available. The Department
received several comments from industry trade associations, recipients,
consultants, and non-ACDBE firms, who generally supported the
clarifying changes to Sec. 23.47(a) but felt that additional
clarification was necessary.
One commenter sought clarification on whether the proposed changes
would require setting purchasing goals for every contract without a
direct ownership goal. Another commenter suggested the final rule
address reporting of gross revenues for concessions in the Uniform
Report.
Finally, the Department received one comment requesting
clarification on the term ``substantial majority'' in Sec. 23.51(b)(3)
and asked whether it should be based on a count of the number of
interested concessionaires or their size. The commenter also inquired
about how a recipient should account for the relative availability of
concessionaires outside its putative geographic area if the NPRM's
proposed changes to interstate certification expands the number of
concessionaires in a recipient's geographic area.
Although not raised in the NPRM, one commenter requested that the
Department adopt a national ACDBE goal setting process for car rentals
similar to Transit Vehicle Manufacturers (TVM). The commenter stated
that adopting a national goal would better achieve the objectives of
the ACDBE program and increase participation in the car rental
industry.
DOT Response
The final rule will not adopt the proposed changes to Sec. 23.47.
As proposed, the revisions to this section would have allowed
recipients to supplement with purchases and/or leases of goods and
services the portion of their base where no feasible direct ownership
arrangement participation is available. With few exceptions, Sec.
23.47 is clear that the base of a recipient's overall goal for
concessions other than car rentals includes only the total gross
receipts of all concessions. The base does not include the dollar value
of purchases and/or leases of goods and
[[Page 24950]]
services. The Department does not intend to change that. Instead, the
Department intends only to clarify when goods and services concession
goals can or should be used in light of the statutory requirement for
recipients to explore, to the maximum extent practicable, direct
ownership arrangements.
We believe the final rule achieves this objective with its
revisions to Sec. 23.25(e)(1)(i).
The boundaries of a recipient's market area should be determined by
the number of firms which seek to do concession business with that
airport and their locations. The market area may be different for
different types of concessions, so another factor is the area in which
the firms which receive the substantial majority of concessions-related
revenues are located.
We recognize that the changes to interstate certification may
increase the number of interested concessionaires located outside a
recipient's putative geographic area. The Department's Tips for Goal-
Setting in the Disadvantaged Business Enterprise (DBE) Program (https://www.transportation.gov/civil-rights/disadvantaged-business-enterprise/tips-goal-setting-disadvantaged-business-enterprise; June 25, 2013),
however, makes clear that a recipient's local market area is not
necessarily the same as the political jurisdiction in which it is
geographically located. Therefore, the changes to the interstate
certification provisions do not impact how airport recipients determine
the relative availability of ACDBEs under Sec. 23.51(c). Recipients
still must determine their market area for goals in accordance with
Sec. 23.51(b).
The final rule will not adopt regional and national car rental
goals for the ACDBE program. The recommendation to establish these
goals is outside of the scope of the rule.
40. Counting ACDBE Participation After Decertification (Sec. 23.55)
NPRM
Sections 23.39(e) and 23.55(j) allow for participation of ACDBE
firms that lost certification for exceeding size and PNW limits to
count towards ACDBE goals for the remainder of a concession agreement.
However, this continued participation depends on those decertified
firms maintaining their eligibility in all other respects (e.g.,
control, ownership). The current regulation does not contain any
provision that instructs airport recipients on how they must monitor
these decertified firms to ensure their eligibility in this regard.
The NPRM proposed requiring declarations from decertified firms to
track their eligibility for continued counting purposes. Under the
rule, airport recipients would be responsible for gathering
declarations and monitoring eligibility, not the certifying entity. If
a decertified firm becomes ineligible due to ownership or control
changes, its participation will no longer count. Failure to provide a
``no-change affidavit'' also stops the continued counting of
participation of these firms.
Comments
Most comments were in favor of the requirement for former ACDBE
firms to submit declarations to Sec. 23.55. However, many were opposed
to making the airport recipient, rather than the certifying agency,
responsible for submission and monitoring. These individuals and
organizations argued that this responsibility might be too burdensome
for airports and that the State UCP, as the certifier, is better
equipped to monitor those firms. They also pointed out that airports
are not certifiers and do not have the necessary expertise to monitor
submissions.
Finally, one commenter recommended counting decertified firm
participation beyond the current concession agreement term, as it is a
common industry practice to extend concession agreements. They argued
that an ACDBE that has secured a contract should be allowed to continue
to benefit from the agreement as long as they maintain eligibility in
all other respects.
DOT Response
The Department believes that the steps arising under proposed Sec.
23.55(j) should not be burdensome since they are not significantly
different or greater than those recipient obligations currently
performed. Non-certifying airport recipients are already required to
include the monitoring and compliance measures that they will use in
their ACDBE programs, including levels of effort and resources devoted
to this task. In implementing these measures, non-certifying recipients
must, at a minimum, conduct annual verifications of the status of the
ACDBE's certification eligibility and review records. They must also
perform on-site reviews of concession workplaces to determine whether
ACDBEs are actually performing the work for which credit is being
claimed and that participants are not circumventing program
requirements.
Section 23.55(j) does not expand these monitoring obligations.
Rather, it provides non-certifying airport recipients a framework and
tools to monitor former ACDBE firms that lost certification for
exceeding small business size standard or PNW. This monitoring is
necessary for airport recipients to determine if these firms'
participation can continue to be counted towards ACDBE goals for the
remainder of a concession agreement. If the non-certifying recipient
finds through its monitoring efforts that the former ACDBE has
relinquished an element of control or ownership during the performance
of an agreement, the monitoring recipient would immediately cease
counting that firm's participation toward the goal.
Counting a decertified firm's participation beyond the current
concession agreement term deprives eligible ACDBE firms of
opportunities. Therefore, the Department will not change the status quo
under paragraph (e) of Sec. 23.39, which prohibits a recipient from
counting a former ACDBE's participation toward goals beyond the
termination date for the concession agreement in effect at the time of
the decertification. The regulation will continue to require recipients
to ensure that prime concessionaires make up any loss of ACDBE
participation with good faith efforts.
41. Shortfall Analysis Submission Date (Sec. 23.57)
NPRM
Section 23.57 requires recipients to submit a shortfall analysis
and corrective action plan if they do not meet their ACDBE
participation goal. The plan explains the reasons for the differences
between their overall goal and the awards and commitments in that
fiscal year and the specific steps and milestones they will take to
remedy the shortfall. The Department proposed extending the due date
for submitting a shortfall analysis from within 90 days of the end of
the fiscal year to 30 days after submitting the Uniform Report per 49
CFR 23.27(b).
Comments
Commenters unanimously supported the proposed amendment noting the
30-day extension would allow recipients to perform a more thorough
shortfall analysis using current data from the Uniform Report.
DOT Response
The final rule adopts the change to the shortfall provisions in
Sec. 23.57 and
[[Page 24951]]
sets the due date to April 1 for the shortfall analysis, which is 30
days after Uniform Report due date on March 1.
Subpart E--Other Provisions
42. Long-Term Exclusive Agreements (Sec. 23.75)
Comments
Five-Year Term for Long-Term Agreements
The NPRM did not propose to redefine ``long-term'' to a longer
period greater than five years because of concerns that doing such
would reduce the degree of FAA's oversight to ensure that long-term
concession agreements include adequate ACDBE participation. However,
the NPRM did request additional comment from stakeholders on keeping
the term at 5 years rather than revising it to 10 years.
Several commenters agreed on extending the term to 7 to 10 years or
more. The reasons for extending the term included attracting a diverse
pool of bidders/proposers, allowing for investment amortization,
establishing brand recognition, improving customer service, and
reducing the workload for recipient staff during concession
solicitations. The Department received one comment stating that the
definition of long-term agreement should be revised to State that
agreements are only considered long-term if an agreement contains
options that result in a lease period of more than ten years.
Options and Definition of an Exclusive Agreement
The current regulation does not define the term ``exclusive,'' nor
does it include ``options'' in its definition of ``long-term'' under
Sec. 23.75(a). To ensure that these terms are addressed in the rule,
the NPRM proposed to revise the definition of ``long-term exclusive
agreement'', under Sec. 23.75(a) to include the definition of
``exclusive'' and to state an agreement is long-term if it includes
options that result in a lease period of more than five years.
In response to the proposal to define ``exclusive agreements'' in
Sec. 23.75(a), commenters asked why the proposal still required FAA
approval for an exclusive agreement with an ACDBE. They also suggested
defining ``exclusive agreement'' as a contract that does not have ACDBE
participation at the airport's approved goal levels for the applicable
trade. Another commenter asked for clarification on the term ``type of
business activity.''
Long-Term Agreements and Holdovers
The NPRM raised concerns over holdover tenancies that may cause an
exclusive agreement to become long-term and preclude potential ACDBE
competitors from participating in agreements in the same manner as
other agreements currently prohibited under the rule. While the NPRM
did not put forth any specific proposals on how best to address
holdover tenancies in the context of Sec. 23.75, the Department sought
public comment on the matter.
The few comments received in response to holdover tenancies in the
NPRM recommended the Department to provide flexibility and allow
holdovers up to 12 months without triggering long-term exclusive
agreement requirements.
Special Local Circumstances
One comment requested the Department define the term ``special
local circumstances.'' The commenter believed that without further
explanation, the evaluation of ``special local circumstances'' is
completely subjective for each application and may lead to unfair
inconsistencies across the country and, possibly, within a single
airport. Another commenter requested clarification on whether the
amortization period required for investment was sufficient to be
considered a ``special local circumstance.''
Amending Document Requirements
In response to stakeholder concerns about the documentation and
information that recipients must submit to the FAA for approval of
long-term exclusive agreements, the NPRM proposed several changes to
Sec. 23.75(c). These changes aimed to address unclear, unfeasible, or
non-pertinent documentation requirements. This included removing or
replacing requirements under paragraph (c)(2)(ii) to review the extent
of ACDBE participation before the exercise of each renewal option and
the assurances under paragraph (c)(3) that require any ACDBE
participant to be in an acceptable form. The proposal also included
changes that allow for certain documentation and information required
for approval of long-term exclusive (LTE) agreements to be submitted
prior to the release of the solicitation or request for proposals and
others, prior to award of the contract.
The Department received a comment stating that the proposed
revisions to the information and documentation requirements would
significantly increase the time between when a solicitation is prepared
and when it can be released, which could impair an airport's ability to
obtain timely, market-relevant proposals. The comment explained that
the timelines proposed would require airports to initiate a
solicitation process about 12 months in advance of a contract's
expiration in order to ensure that a new contract is in place. They
noted that this was of particular concern because market conditions can
change significantly over a 12-month period. They urged delaying the
implementation of the proposed changes to the documentation
requirements to avoid disrupting ongoing and planned procurement
processes.
The Department also received a comment that recommended completely
overhauling the long-term exclusive agreement approval process and
adopting a two-step process. This process would require the airport
recipient to submit a goal analysis to the FAA as a notification before
solicitation. After the solicitation process concluded, the airport
recipient would send FAA information on the level of interest and
availability of ACDBEs and show that the contract was awarded to a
proposer that met the goal or made good faith efforts to meet the goal.
Another commenter suggested that the final rule only require a
recipient to perform a goal analysis for the specific opportunity,
along with the type of concession and term of the proposed long-term
exclusive agreement, which would both be sent to the FAA for approval.
DOT Response
Five-Year Term for Long-Term Agreements
The Department recognizes that most concession agreements extend
beyond a term of five years. Thus, the final rule extends the
definition of long term to ten years to ease burdens that fall on
airports required to implement LTE requirements under part 23. We note
that this aids smaller hub airports that have fewer concession
opportunities, increasing the likelihood of long-term exclusive
agreements subject to FAA approval under Sec. 23.75(c). Extending the
definition to ten years also aims to mitigate any additional burdens
placed on smaller hub airports by the new FAA approval requirements of
leases that become long term as a result of holdovers as discussed
below. The Department elected not to extend the term beyond ten years
in order to maintain FAA oversight to ensure long-term exclusive
concession agreements maintain adequate ACDBE participation.
Long-Term Agreements and Holdovers
Holdover provisions of an airport lease, agreement, or contract may
permit
[[Page 24952]]
a recipient airport to extend the terms of an existing airport lease,
in the event both the airport recipient and the tenant desire to
continue the relationship as it exists, without executing a new lease.
The length of holdover periods is often not defined in the lease and
may continue on a month-to-month basis once the lease term ends.
Notwithstanding that holdovers may bridge gaps to meet short-term
needs, the Department is starting to see longer holdover periods
following the end of concession lease terms. These extended holdover
periods have a similar effect of precluding potential ACDBE competitors
from participating in opportunities as long-term exclusive agreements
that require approval by the FAA pursuant to Sec. 23.75. If not
addressed, the use of holdovers in these cases, without FAA oversight,
circumvents the requirements under Sec. 23.75. For this reason, the
final rule now makes clear that exclusive leases, agreements, or
contracts that become long-term as a result a holdover, absent an
approved plan to release a solicitation for that opportunity or
renegotiate the lease or contract, are generally prohibited.
The final rule adds an oversight mechanism in the new paragraph (e)
for FAA to monitor short-term leases that become long-term as a result
of holdovers. Under the rule, airport recipients must submit a
``holdover plan'' to FAA for approval at least 60 days prior to the
expiration of the current contract, agreement, or lease. Holdover plans
include the same information and documentation for LTE agreements under
the amended paragraphs (c)(3), (c)(4), (c)(6) and (c)(7) of Sec.
23.75, in addition to a written explanation for the holdover and the
method and date the airport recipient will use to solicit or
renegotiate the concession contract, agreement, or lease in holdover
status.
The written explanation for a holdover is similar to the existing
special local circumstance provision. Airport recipients must
articulate a need for a holdover period that causes an exclusive
agreement to become a long-term lease or contract. Reasons that may
support a holdover are bridging operational gaps that might occur due
to renegotiations and transitions of lessees or expected delays in
solicitation or re-bidding processes. The requirement for airport
recipients to submit the solicitation method that they intend to apply,
as well as a date it will renegotiate or re-bid a concession
opportunity, provides a definitive strategy and timeframe to afford an
opportunity for ACDBE participation.
Under this provision, recipients are also required to submit the
information and documentation required under Sec. 23.75(c)(3), (c)(4),
(c)(6) and (c)(7). This includes an ACDBE contract goal analysis, ACDBE
certification documentation and investment information, and the final
long-term exclusive concession agreement. These items are necessary for
FAA to determine the anticipated length of the holdover period and the
level of ACDBE participation precluded by the holdover. Airport
recipients that are unable to produce this information or documentation
must submit an explanation as to why the item is not available or
cannot be submitted as part of their holdover plan.
Definition of an Exclusive Agreement
The final rule adopts the definition of ``exclusive'' as proposed.
Evaluating whether an agreement is ``exclusive'' requires examining the
agreement in reference to the type of business covered (e.g.,
management contract, advertising, web-based or electronic businesses,
food and beverage, parking). A determination on whether a certain
business activity under a contract, lease or agreement is exclusive
should be made based on the totality of the circumstances. See
Principles for Evaluating Long-Term, Exclusive Agreements in the ACDBE
Program, June 10, 2013, Sec. 1.2, at pp. 5-6.
In response to comments, the Department will not adopt a definition
of ``exclusive'' that exempts LTE agreements with ACDBE participation
from the requirements of Sec. 23.75. Such a change is inconsistent
with the intent of Sec. 23.75, which is to provide for the review of
LTE agreements to ensure adequate ACDBE participation throughout the
term of the agreement, irrespective of whether an ACDBE or a non-ACDBE
enterprise is the prime concessionaire being considered for award of an
exclusive, long-term agreement. See 57 FR 18401 (Apr. 30, 1992). Not
requiring the review of a long-term concession agreement with ACDBE
participation would allow low ACDBE goals set on contracts to remain in
place for extended lease periods without justification, thereby
precluding those opportunities from generating more meaningful ACDBE
participation.
Special Local Circumstances
We are not defining ``special local circumstances'' in this final
rule. The term is intended to be broad and flexible to account for a
wide range of scenarios that may justify the use of a long-term
exclusive agreement. Contrary to the comment's concern that without
further explanation, the evaluation of ``special local circumstances''
may lead to unfair inconsistencies, to date, FAA has not disapproved
any request for approval of an LTE agreement based on an inadequate
special local circumstance.
In response to the comment seeking clarification on whether the
amortization period required for investment was sufficient to be
considered a ``special local circumstance,'' the answer is no. The LTE
Guidance provides several examples of special local circumstances,
which include the market size relative to the number of available
vendors, reduced enplanements, an extreme act of nature, new business
concepts, and severe economic factors (for instance, an airline goes
out of business). The LTE Guidance makes clear that the amortization of
the initial investment alone is not sufficient to justify approval of a
long-term exclusive agreement, but may be a factor among others (e.g.,
marketplace concepts and full-kitchen restaurants that require more
costly development) to support the special local circumstances
provision under the rule.
Amending Document Requirements
The Department is electing to amend the document requirements under
Sec. 23.75. First, paragraph (c)(2)(i) is removed from Sec. 23.75,
eliminating the requirement that an LTE agreement provide the ``number
of ACDBEs that reasonably reflects their availability in a recipient's
market area, . . . and account for a percentage of the estimated annual
gross receipts equivalent to a level set in accordance with Sec. 23.47
through Sec. 23.49.'' This provision is removed since the agreement
may not provide opportunities for direct ownership and is now included
via the new requirement to submit an ACDBE contract goal analysis under
paragraph (c)(3).
Second, paragraph (c)(2)(ii) is removed, eliminating the
requirement that airport recipients ``review the extent of ACDBE
participation before the exercise of each renewal option to consider
whether an increase or decrease in ACDBE participation is warranted.''
Removing this provision is necessary to prevent a prime concessionaire
from terminating an ACDBE from an LTE agreement after it made an
investment simply because a decrease in participation may be warranted
upon the exercise of an option.
Third, paragraph (c)(2)(iii) is removed, eliminating the
requirement that an LTE agreement include a
[[Page 24953]]
provision that provides for the termination of an ACDBE during the term
of the LTE agreement, without the recipient's consent. This provision
is redundant and unnecessary since Sec. 26.53, which applies to part
23 by reference, already establishes the requirements for the
replacement or substitution of the ACDBEs, including those that are
party to an LTE agreement or contract.
Fourth, the requirement in paragraph (c)(3), which requires
recipients to submit assurances that any ACDBE participant will be in
an acceptable form such as a sublease, joint venture, or partnership is
replaced. The new provision now requires recipients submit an ACDBE
contract goal analysis which captures goals set on both direct
ownership arrangements and goods and service purchases.
Next, the requirement in paragraph (c)(7) for recipients to provide
information on the estimated gross receipts and net profit to be earned
by the ACDBE is removed. This financial disclosure requirement applies
only to the ACDBE and may be a discriminatory practice since the
process does not require the same from the non-ACDBE.
Section 23.75(c) is amended to now require airport recipients to
submit items in paragraphs (c)(1) through (3) of this section prior to
releasing the solicitation or request for proposals (RFP) and items in
paragraphs (c)(4) through (7) prior to award of the contract.
The Department agrees that the 90-day period to submit those items
before the solicitation is released may be shortened to mitigate
impacts to some airport recipients' planned procurement processes. The
FAA does not anticipate 90 days will be required to review and approve
LTE agreements. Therefore, the final rule shortens the 90-day period to
submit the items in paragraphs (c)(1) through (3), to at least 60-days
prior to release of the solicitation. The 45-day period to submit items
in paragraphs (c)(4) through (7) before contract award will remain
unchanged.
Next, the Department disagrees with comments to simplify the
information and documentation requirements under Sec. 23.75(c) to two
items (e.g., contract goal analysis, and evidence that goal was met, or
good faith efforts were made, etc.). ACDBE participation is a key part
of the information needed for approval and each item in paragraphs
(c)(1) through (c)(7) is valuable for FAA to determine whether
arrangements have been made for adequate ACDBE participation throughout
the LTE agreement. For this reason, the final rule retains the
information and documentation requirements in Sec. 23.75(c) as
proposed by the NPRM.
The final rule adds a new paragraph (d) to Sec. 23.75 that
addresses the requirements for agreements awarded through direct
negotiation. Because there is no competition for awards made through
direct negotiation, this provision omits the requirement under
paragraph (c)(2) for airport recipients to submit a copy of the
solicitation because solicitations are not used for direct negotiated
procurements. Under the rule, airport recipients are still required to
submit the items in paragraphs (c)(1) and (c)(3) through (7) of the
updated Sec. 23.75.
43. Local Geographic Preferences (Sec. 23.79)
NPRM
The current Sec. 23.79 prohibits recipients from using local
geographic preference, which is defined under the rule as any
requirement that gives an ACDBE located in one place an advantage over
ACDBEs from other places in obtaining business as, or with, a
concession at an airport. The proposed revision to Sec. 23.79
clarifies that regardless of a concession's certification status, any
local geographic preferences that gives a concession located in a local
area an advantage over concessions from other places is prohibited.
Comments
There was unanimous support for the NPRM's proposed revisions to
Sec. 23.79. Commenters agreed with the revisions to clarify that local
geographic preferences are not permitted regardless of concession
certification status but that recipients may request concepts that are
local to a specific region when soliciting proposals.
One commenter suggested that the Department include within the
regulation examples of what requirements could constitute ``advantage''
for local concessionaires over other concessionaires from other places.
DOT Response
The final rule adopts the changes to Sec. 23.79. This clarifying
change makes clear that the provision prohibiting local geographic
preferences applies not just to ACDBEs but all firms, regardless of
their concession certification status. The final rule also leaves the
existing definition of local geographic preference unchanged. Section
23.79 defines local geographic preference as any requirement that gives
a concessionaire located in one place (e.g., [recipient's] local area)
an advantage over concessionaires from other places in obtaining
business as, or with, a concession at [recipient's] airport.
Under the definition of local geographic preference, an example of
what may constitute an advantage is a preference criteria used in the
evaluation of bids or proposals based on a firm's geographic location,
or owner's residency. Another example of what may constitute advantage
is the placement of unreasonable local requirements on firms in order
for them to qualify to do business. Nothing in this section should be
construed as preempting State licensing requirements or prohibiting
concepts that are local to a specific region when soliciting proposals.
However, airport recipients should still report to the FAA all other
State or local law, regulation, or policy pertaining to minorities,
women, or disadvantaged business enterprises concerning airport
concessions that adds to, goes beyond, or imposes more stringent
requirements than the provisions of part 23. The FAA will determine
whether such a law, regulation, or policy conflicts with this part, in
which case the requirements of this part will govern. See Sec. 23.77.
44. Appendix A to Part 23: Uniform Report of ACDBE Participation Form
NPRM
Section 23.27(b) requires recipients to submit an annual report on
ACDBE participation using the Uniform Report found in Appendix A. The
Department proposed to remove the Uniform Report of ACDBE Participation
from Appendix A to Part 23 and instead post the form on DOT's website.
This is an administrative action that does not affect the public's
ability to comment on any amendments to the information collections in
the form.
Comments
In the NPRM, the Department estimated that it would take primary
airports 3.2 hours to comply with the proposed ACDBE Annual Report of
Percentages of ACDBEs in Various Categories in Sec. 23.27(d). The
commenter objected to the Department's estimate, approximating that it
would take at least 40 hours.
Block #5 Instructions of Appendix A, Definition of Goods and Services
The NPRM proposed revising the definition of ``goods/services'' in
the block #5 instructions to clarify that only participation in the
form of goods and services purchased by concessionaires and management
contractors from ACDBEs should be reported. The
[[Page 24954]]
majority of commenters supported the proposal to revise the definition
of ``goods/services.'' However, concerns were raised on the calculation
of Columns A and C in block #5 of Appendix A. Some commenters inquired
about why purchases were not included in the total line for Column A
but included in Column C, which could lead to misrepresentation of
data.
A few commenters focused on goods/services and recommended that the
Department revisit the calculation, as recipients are not clear on how
to utilize goods/services. One commenter noted that goods/services were
not sufficiently addressed in the NPRM, and another requested
clarification on reporting gross revenues if the goal is based on
purchases.
Block #5 New Joint Venture Participation Category
No comments were received in response to the NPRM's proposal to
amend the instructions in all blocks of the Uniform Report to include
the definition of ``joint venture'' as defined in Sec. 23.3 as a new
participation category. The purpose of the change was to provide
guidance to recipients on how to count ACDBE participation derived from
joint ventures.
Blocks #10 and #11 Reporting of ACDBEs Owned by Members of Different
Socially Disadvantaged Groups
The Department received several comments on the NPRM's proposal to
amend the requirements under block #11 in the Uniform Report to allow
for participation to be reported by ACDBEs owned by multiple partners
who are from different groups and whose members are presumed socially
and economically disadvantaged (SED).
Two stakeholders provided comments regarding the proposed change to
block #11, expressing concerns about the amount of time it would take
to complete the reporting and the lack of detailed information that
airports may have regarding ownership demographics. As a result,
neither commenter supported the proposed change to Appendix A, blocks
#10 and #11. Instead, they recommended that recipients report the
ethnicity and gender of the largest socially and economically
disadvantaged shareholder, the owner with primary control, or the owner
who holds the highest position within the business. Additionally,
commenters suggested that certifying entities should make detailed
information on the owners and their firms more easily accessible to
non-certifying airports.
DOT Response
The final rule adopts the Department's proposal and will post the
Uniform Report of ACDBE Participation on Department's website as
amended below. A commenter's estimate of 40 hours to complete this task
is unreasonable; based on the supporting statement DOT developed in
support of this rulemaking and the information collection that has been
submitted to OMB for approval, this task should take -4 hours, much
less time on average.
Block #5 Instructions of Appendix A, Definition of Goods and Services
For the goods and services to be credited toward goals, goods and
services must be purchased by concessionaires and management
contractors from firms that meet definitions of ``concession'' and
``ACDBE'' under Sec. 23.3. Purchases of goods and services by the
airport cannot be credited toward goals. For this reason, the final
rule adopts the definition of ``goods/services'' in the block #5
instructions as proposed, with the clarification that only
participation in the form of goods and services purchased by
concessionaires and management contractors from ACDBEs should be
reported.
In response to comments, the existing Block #5 instructions are
clear that recipients should enter in Column A, purchases of goods and
services (ACDBE and non-ACDBE combined) at the airport.
Block #5 New Joint Venture Participation Category
The final rule will adopt the new participation category for joint
ventures as proposed.
Blocks #10 and #11 Reporting of ACDBEs Owned by Members of Different
Socially Disadvantaged Groups
The final rule adopts the proposed amendment to the requirements
under block #11 in the Uniform Report to allow for participation to be
reported by ACDBEs owned by multiple partners who are from different
groups and whose members are presumed socially and economically
disadvantaged (SED). The Department disagrees with comments that
information on individual SEDOs would be difficult to obtain and that
implementation of this new reporting requirement would be burdensome.
Demographic information of individual SEDOs should be readily available
to non-certifying airports since they are already obligated to collect
racial and ethnic data of lessees, concessionaires and contractors
under the existing Title VI nondiscrimination requirements in 49 CFR
part 21.
In addition, the final rule expands the MAP-21 reporting
requirements under Sec. 26.11 to include ACDBEs and the number and
percentage of in-state and out-of-state SEDOs by gender and ethnicity.
Non-certifying airports will be able to more easily obtain information
on individual SEDOs and their firms and report this information each
year on the Uniform Report.
45. Technical Corrections
Commenters unanimously supported the Department's proposal to make
the provisions in part 23 consistent with the provisions of part 26,
clarify existing requirements, correct typographical errors, and revise
obsolete and/or duplicative provisions, and make cross references, as
appropriate. The final rule fully adopts the proposal.
46. Duration
The Department received a comment on the length of time that a
certification remains in effect. The commenter suggested the Department
cap the number of years that a firm may remain certified for. In their
view, the indefinite nature of certification stifles outreach and
implicitly closes the door to other small eligible firms. By adding a
maximum duration for certification, the program could open
opportunities for new and developing firms to take advantage of the
program.
The final rule will not adopt the above recommendation. The
authorizations and statutes governing the airport improvement program
do not provide the Department flexibility to place limitations or
timeframes on certification of firms.
Regulatory Analysis and Notices
A. Executive Order: 12866 (``Regulatory Planning and Review''),
Executive Order 13563 (``Improving Regulation and Regulatory Review''),
Executive Order 14094 (Modernizing Regulatory Review), and 49 CFR Part
5 and DOT Order 2100.6A
This final rule has been deemed significant under section 3(f) of
Executive Order 12866, ``Regulatory Planning and Review,'' as amended
by Executive Order 14094 (``Modernizing Regulatory Review'') and the
Department's regulations and orders (49 CFR part 5 and DOT Order
2100.6A, available at https://www.transportation.gov/sites/dot.gov/files/2021-06/DOT-2100.6A-Rulemaking-and-Guidance-%28003%29.pdf),
because of its interest to the small business community and
[[Page 24955]]
transportation industries. It has been reviewed by the Office of
Management and Budget (OMB) under Executive Order 12866.
The objective of the rule is to amend reporting and eligibility
requirements for the Department's Airport Concession Disadvantaged
Business Enterprises (ACDBE) program and Disadvantaged Business
Enterprise (DBE) program. These programs are implemented and overseen
by recipients of certain Department funds. The changes in this rule
would affect businesses participating in the programs, recipients of
Department funds who oversee the programs, and the Department.
The Department conducted a regulatory impact analysis, available in
the docket, to assess the effects of the rule. Businesses, recipients,
and the Department would incur some costs due to increased reporting
requirements. At the same time, they would experience overall cost
savings because the rule simplifies provisions and would relax
requirements--for example, by allowing recipients to conduct virtual
on-site visits.
Table 1 summarizes the estimated costs and cost savings of the rule
over a ten-year analysis period (non-Federal Government). The rule has
annualized net cost savings of $58.7 million at a 3 percent discount
rate and $6.74 million at a 7 percent discount rate.
Table 1--Summary of Costs and Cost Savings of the Rule, 10-Year Period
[Rounded to Thousands]
Table 1--Costs and Cost Savings, 10-Year Period
[Dollars, rounded to the nearest 1,000]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Undiscounted Present value 3% Annualized 3% Present value 7% Annualized 7%
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total cost savings....................................... 203,668,000 178,773,000 20,957,000 152,727,000 21,744,000
Total cost............................................... 134,030,000 120,073,000 14,075,000 105,400,000 15,005,000
----------------------------------------------------------------------------------------------
Net cost savings..................................... 69,638,000 58,700,000 6,882,000 47,327,000 6,739,000
--------------------------------------------------------------------------------------------------------------------------------------------------------
The Department determined that amending the rules is necessary
because many portions of the current rules seem outdated for today's
DBE and ACDBE marketplace. They might inhibit firm growth and success,
and limit recipient and sponsors' ability to effectively monitor
program compliance by all participants in a post-pandemic environment.
The rule updates several core provisions of the regulation to maintain
optimal program performance, improve operational cohesiveness, and
provide contemporary solutions for program deficiencies.
B. Regulatory Flexibility Act
The Regulatory Flexibility Act of 1980, as amended, (5 U.S.C. 601
et seq.) and E.O. 13272 (67 FR 53461 (Aug. 16, 2002)) requires agencies
to review regulations to assess their impacts on small entities. An
agency must prepare an Initial Regulatory Flexibility Analysis (IRFA)
unless it determines and certifies that a rule, if issued, would not
have a significant economic impact on a substantial number of small
entities. The Department prepared an IRFA as part of the Department's
regulatory impact analysis (Appendix C of the regulatory impact
analysis), available in the docket DOT-OST-2022-0051-008.
DOT invited all interested parties to submit data and information
regarding the potential economic impact on small entities that would
come from promulgating the NPRM. DOT considered the comments received
in the public comment process when preparing the Final Regulatory
Flexibility Analysis, and we received no comments on the preliminary
finding of non-significance.
C. Executive Order 13132 (``Federalism'')
This final rule has been analyzed in accordance with the principles
and criteria contained in Executive Order 13132 (``Federalism''). It
would not include any provision that: (1) has substantial direct
effects on the States, the relationship between the National Government
and the States, or the distribution of power and the responsibilities
among the various levels of government; (2) imposes substantial direct
compliance costs on State and local governments; or (3) preempts State
law. The DBE and ACDBE programs are governed by Federal regulations 49
CFR parts 26 and 23. Therefore, the consultation and funding
requirements of Executive Order 13132 do not apply.
D. Executive Order 13084 (``Tribal Consultation and Coordination'')
This rulemaking has been analyzed in accordance with the principles
and criteria contained in Executive Order 13084 (``Consultation and
Coordination with Indian Tribal Governments''). Because this rulemaking
does not significantly or uniquely affect the communities of the Indian
Tribal governments or impose substantial direct compliance costs on
them, the funding and consultation requirements of Executive Order
13084 do not apply.
E. Unfunded Mandates Reform Act
The Unfunded Mandates Reform Act (UMRA) of 1995, 2 U.S.C. 1501,
requires agencies to prepare a written assessment of the costs,
benefits, and other effects of proposed or final rules that include a
Federal mandate likely to result in the expenditures by State, local or
Tribal governments, or by the private sector, of $100 million or more
(adjusted annually for inflation with base year of 1995) in any one
year. The 2021 threshold after adjustment for inflation is $165
million, using the Implicit Price Deflator for the Gross Domestic
Product. The assessment may be included in conjunction with other
assessments, as it is here. The final rule is unlikely to result in
expenditures by State, local, or Tribal governments of more than $100
million annually.
F. Paperwork Reduction Act
This final rule adds 6 new collections of information and 17
existing collections being revised that require approval by OMB under
the Paperwork Reduction Act of 1995 (Pub. L. 104-13, 44 U.S.C. 3501 et
seq.). Under the Paperwork Reduction Act, before an agency submits a
proposed collection of information to OMB for approval, it must first
publish a document in the Federal Register providing notice of the
proposed information collection and a 60-day comment period, and
otherwise consult with members of the public and affected agencies
concerning each proposed collection of information. The Department met
these requirements when it published a notice of the proposed
information in its July 21, 2022, NPRM and accompanying submission to
OIRA. Comments to these collections are described above.
[[Page 24956]]
G. National Environmental Policy Act
The Department has analyzed the environmental impacts of this
action pursuant to the National Environmental Policy Act of 1969 (NEPA)
(42 U.S.C. 4321 et seq.) and has determined that it is categorically
excluded pursuant to DOT Order 5610.1C, Procedures for Considering
Environmental Impacts (44 FR 56420, Oct. 1, 1979). Categorical
exclusions are actions identified in an agency's NEPA implementing
procedures that do not normally have a significant impact on the
environment and therefore do not require either an environmental
assessment (EA) or environmental impact statement (EIS). The purpose of
this rulemaking is to amend the Department's DBE and ACDBE regulations.
Paragraph 4(c)(5) of DOT Order 5610.1C incorporates by reference the
categorical exclusions for all DOT Operating Administrations. This
action is covered by the categorical exclusion listed in the Federal
Transit Administration's implementing procedures, ``[p]lanning and
administrative activities that do not involve or lead directly to
construction, such as: . . . promulgation of rules, regulations,
directives . . .'' 23 CFR 771.118(c)(4) and Federal Highway
Administration's implementing procedures, ``[p]romulgation of rules,
regulations, and directives.'' 23 CFR 771.117(c)(20). In analyzing the
applicability of a categorical exclusion, the agency must also consider
whether extraordinary circumstances are present that would warrant the
preparation of an EA or EIS.
The purpose of this rulemaking is to make technical improvements to
the Department's DBE program, including modifications to the forms used
by program and certification-related changes. While this rule has
implications for eligibility for the program--and therefore may change
who is eligible for participation in the DBE program--it does not
change the underlying programs and projects being carried out with DOT
funds. Those programs and projects remain subject to separate
environmental review requirements, including review under NEPA. The
Department does not anticipate any environmental impacts, and there are
no extraordinary circumstances present in connection with this
rulemaking.
List of Subjects in 49 CFR Part 23 and 26
Administrative practice and procedure, Airports, Civil Rights,
Government contracts, Grant programs--transportation; Mass
transportation, Minority Businesses, Reporting and recordkeeping
requirements.
Issued this 27 day of February, 2024, at Washington, DC.
Peter Paul Montgomery Buttigieg,
Secretary of Transportation.
For the reasons set forth in the preamble, the Department of
Transportation amends 49 CFR parts 23 and 26 as follows:
PART 23--PARTICIPATION OF DISADVANTAGED BUSINESS ENTERPRISE IN
AIRPORT CONCESSIONS
0
1. The authority citation for part 23 is revised to read as follows:
Authority: 49 U.S.C. 47107; 42 U.S.C. 2000d; 49 U.S.C. 322; E.O.
12138, 44 FR 29637, 3 CFR, 1979 Comp., p. 393.
0
2. Amend Sec. 23.1 by:
0
a. In paragraph (e), removing the word ``and'' at the end of the
paragraph;
0
b. Redesignating paragraph (f) as paragraph (h); and
0
c. Adding new paragraph (f) and paragraph (g).
The additions read as follows:
Sec. 23.1 What are the objectives of this part?
* * * * *
(f) To promote the use of ACDBEs in all types of concessions
activities at airports receiving DOT financial assistance;
(g) To assist the development of firms that can compete
successfully in the marketplace outside the ACDBE program; and
* * * * *
0
3. Revise Sec. 23.3 to read as follows:
Sec. 23.3 What do the terms used in this part mean?
Administrator means the Administrator of the Federal Aviation
Administration (FAA).
Affiliation has the same meaning the term has in the Small Business
Administration (SBA) regulations, 13 CFR part 121, except that the
provisions of SBA regulations concerning affiliation in the context of
joint ventures (13 CFR 121.103(h)) do not apply to this part.
(1) Except as otherwise provided in 13 CFR part 121, concerns are
affiliates of each other when, either directly or indirectly:
(i) One concern controls or has the power to control the other; or
(ii) A third party or parties controls or has the power to control
both; or
(iii) An identity of interest between or among parties exists such
that affiliation may be found.
(2) In determining whether affiliation exists, it is necessary to
consider all appropriate factors, including common ownership, common
management, and contractual relationships. Affiliates must be
considered together in determining whether a concern meets small
business size criteria and the statutory cap on the participation of
firms in the ACDBE program.
Airport Concession Disadvantaged Business Enterprise (ACDBE) means
a firm seeking to operate as a concession that is a for-profit small
business concern--
(1) That is at least 51 percent owned by one or more individuals
who are both socially and economically disadvantaged or, in the case of
a corporation, in which 51 percent of the stock is owned by one or more
such individuals; and
(2) Whose management and daily business operations are controlled
by one or more of the socially and economically disadvantaged
individuals who own it.
Alaska Native means a citizen of the United States who is a person
of one-fourth degree or more Alaskan Indian (including Tsimshian
Indians not enrolled in the Metlakatla Indian Community), Eskimo, or
Aleut blood, or a combination of those bloodlines. The term includes,
in the absence of proof of a minimum blood quantum, any citizen whom a
Native village or Native group regards as an Alaska Native if their
father or mother is regarded as an Alaska Native.
Alaska Native Corporation (ANC) means any Regional Corporation,
Village Corporation, Urban Corporation, or Group Corporation organized
under the laws of the State of Alaska in accordance with the Alaska
Native Claims Settlement Act (43 U.S.C. 1601 et seq.)
Assets has the same meaning the term has in 49 CFR part 26.
Car dealership means an establishment primarily engaged in the
retail sale of new and/or used automobiles. Car dealerships frequently
maintain repair departments and carry stocks of replacement parts,
tires, batteries, and automotive accessories. Such establishments also
frequently sell pickup trucks and vans at retail. In the standard
industrial classification system, car dealerships are categorized in
NAICS code 441110.
Concession means one or more of the types of for-profit businesses
that serve the traveling public listed in paragraph (1) or (2) of this
definition:
(1) A business, located on an airport subject to this part, that is
engaged in the sale of consumer goods or services
[[Page 24957]]
to the traveling public under an agreement with the recipient, another
concessionaire, or the owner or lessee of a terminal, if other than the
recipient.
(2) A business conducting one or more of the following covered
activities, even if it does not maintain an office, store, or other
business location on an airport subject to this part, as long as the
activities take place on the airport: Management contracts and
subcontracts, a web-based or other electronic business in a terminal or
which passengers can access at the terminal, an advertising business
that provides advertising displays or messages to the public on the
airport, or a business that provides goods and services to
concessionaires.
Example 1 to paragraph (2): A supplier of goods or a management
contractor maintains its office or primary place of business off the
airport. However, the supplier provides goods to a retail establishment
in the airport; or the management contractor operates the parking
facility on the airport. These businesses are considered concessions
for purposes of this part.
(3) For purposes of this subpart, a business is not considered to
be ``located on the airport'' solely because it picks up and/or
delivers customers under a permit, license, or other agreement. For
example, providers of taxi, limousine, car rental, or hotel services
are not considered to be located on the airport just because they send
shuttles onto airport grounds to pick up passengers or drop them off. A
business is considered to be ``located on the airport,'' however, if it
has an on-airport facility. Such facilities include in the case of a
taxi operator, a dispatcher; in the case of a limousine, a booth
selling tickets to the public; in the case of a car rental company, a
counter at which its services are sold to the public or a ready return
facility; and in the case of a hotel operator, a hotel located anywhere
on airport property.
(4) Any business meeting the definition of concession is covered by
this subpart, regardless of the name given to the agreement with the
recipient, concessionaire, or airport terminal owner or lessee. A
concession may be operated under various types of agreements, including
but not limited to the following:
(i) Leases.
(ii) Subleases.
(iii) Permits.
(iv) Contracts or subcontracts.
(v) Other instruments or arrangements.
(5) The conduct of an aeronautical activity is not considered a
concession for purposes of this subpart. Aeronautical activities
include scheduled and non-scheduled air carriers, air taxis, air
charters, and air couriers, in their normal passenger or freight
carrying capacities; fixed base operators; flight schools; recreational
service providers (e.g., skydiving, parachute-jumping, flying guides);
and air tour services.
(6) Other examples of entities that do not meet the definition of a
concession include flight kitchens and in-flight caterers servicing air
carriers, government agencies, industrial plants, farm leases,
individuals leasing hangar space, custodial and security contracts,
telephone and electric service to the airport facility, holding
companies, and skycap services under contract with an air carrier or
airport.
Concessionaire means a firm that owns and controls a concession or
a portion of a concession.
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 firm, legal claims
and judgments, and provisions for Federal income tax.
Days means 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.
Department or DOT means the U.S. Department of Transportation,
including the Office of the Secretary.
Direct ownership arrangement means a joint venture, partnership,
sublease, licensee, franchise, or other arrangement in which a firm
owns and controls a concession.
Good faith efforts means efforts to achieve an ACDBE goal or other
requirement of this part that, by their scope, intensity, and
appropriateness to the objective, can reasonably be expected to meet
the program requirement.
Immediate family member means father, mother, husband, wife, son,
daughter, brother, sister, grandmother, grandfather, grandson,
granddaughter, mother-in-law, father-in-law, brother-in-law, sister-in-
law, or registered domestic partner.
Indian Tribe means any Indian Tribe, band, nation, or other
organized group or community of Indians, including any ANC, which is
recognized as eligible for the special programs and services provided
by the United States to Indians because of their status as Indians, or
is recognized as such by the State in which the Tribe, band, nation,
group, or community resides. See definition of ``tribally-owned
concern'' in this section.
Joint venture means an association of an ACDBE firm and one or more
other firms to carry out a single, for-profit business enterprise, for
which the parties combine their property, capital, efforts, skills and
knowledge, and in which the ACDBE is responsible for a distinct,
clearly defined portion of the work of the contract and whose shares in
the capital contribution, control, management, risks, and profits of
the joint venture are commensurate with its ownership interest. Joint
venture entities are not certified as ACDBEs.
Large hub primary airport means a commercial service airport that
has a number of passenger boardings equal to at least one percent of
all passenger boardings in the United States.
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.
Management contract or subcontract means an agreement with a
recipient or another management contractor under which a firm directs
or operates one or more business activities, the assets of which are
owned, leased, or otherwise controlled by the recipient. The managing
agent generally receives, as compensation, a flat fee or a percentage
of the gross receipts or profit from the business activity. For
purposes of this subpart, the business activity operated or directed by
the managing agent must be other than an aeronautical activity, be
located at an airport subject to this subpart, and be engaged in the
sale of consumer goods or provision of services to the public.
Material amendment means a significant change to the basic rights
or obligations of the parties to a concession agreement. Examples of
material amendments include an extension to the term not provided for
in the original agreement or a substantial increase in the scope of the
concession privilege. Examples of nonmaterial amendments include a
change in the name of the concessionaire or a change to the payment due
dates.
Medium hub primary airport means a commercial service airport that
has a number of passenger boardings equal to at least 0.25 percent of
all passenger boardings in the United States but less than one percent
of such passenger boardings.
[[Page 24958]]
Native Hawaiian means any individual whose ancestors were natives,
prior to 1778, of the area that now comprises the State of Hawaii.
Native Hawaiian Organization means any community service
organization serving Native Hawaiians in the State of Hawaii that is a
not-for-profit organization chartered by the State of Hawaii, and is
controlled by Native Hawaiians
Noncompliance means that a recipient has not correctly implemented
the requirements of this part.
Nonhub primary airport means a commercial service airport that has
more than 10,000 passenger boardings each year but less than 0.05
percent of all passenger boardings in the United States.
Operating Administration or OA means any of the following: Federal
Aviation Administration (FAA), Federal Highway Administration (FHWA),
and Federal Transit Administration (FTA). The ``Administrator'' of an
OA includes his or her designee(s).
Part 26 means 49 CFR part 26, DOT's Disadvantaged Business
Enterprise Program regulation.
Personal net worth or PNW has the same meaning the term has in 49
CFR part 26.
Primary airport means a commercial service airport that the
Secretary determines to have more than 10,000 passengers enplaned
annually.
Primary industry classification means the North American Industrial
Classification System (NAICS) code designation that best describes the
primary business of a firm. The NAICS Manual is available through the
U.S. Census Bureau of the U.S. Department of Commerce. The U.S. Census
Bureau also makes materials available through its website (https://www.census.gov/naics/).
Principal place of business means the business location where the
individuals who manage the firm's day-to-day operations spend most
working hours and where top management's business records are kept. If
the offices from which management is directed and where business
records are kept are in different locations, the recipient will
determine the principal place of business for ACDBE program purposes.
Race-conscious means a measure or program that is focused
specifically on assisting only ACDBEs, including women-owned ACDBEs.
For the purposes of this part, race-conscious measures include gender-
conscious measures.
Race-neutral means a measure or program that is, or can be, used to
assist all small businesses, without making distinctions or
classifications on the basis of race or gender.
Recipient is any entity, public or private, to which DOT financial
assistance is extended, whether directly or through another recipient,
through the programs of the FAA, FHWA, or FTA, or who has applied for
such assistance.
Secretary means the Secretary of Transportation or his/her
designee.
Set-aside means a contracting practice restricting eligibility for
the competitive award of a contract solely to ACDBE firms.
Small Business Administration or SBA means the United States Small
Business Administration.
Small business concern means a for profit business that does not
exceed the size standards of Sec. 23.33.
Small hub airport means a publicly owned commercial service airport
that has a number of passenger boardings equal to at least 0.05 percent
of all passenger boardings in the United States but less than 0.25
percent of such passenger boardings.
Socially and economically disadvantaged individual means any
individual who is a citizen (or lawfully admitted permanent resident)
of the United States and has been subjected to racial or ethnic
prejudice or cultural bias within American society because of his or
her identity as a member of a certain group and without regard to his
or her individual qualities. The social disadvantage must stem from
circumstances beyond the individual's control. Socially and
economically disadvantaged individuals include:
(1) Any individual determined by a recipient 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 the certifier requires 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), the Commonwealth of the Northern
Marianas Islands, Macao, Fiji, Tonga, Kiribati, 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.
Subconcession means a firm that has a sublease or other agreement
with a prime concessionaire rather than with the airport itself, to
operate a concession at the airport.
Sublease means a lease by a lessee (tenant) to a sublessee
(subtenant). Sublease is an example of a subconcession in which the
sublessee is independently responsible for the full financing and
operation of the subleased concession location(s) and activities. A
sublease passes on to the sublessee all requirements applicable to the
concession under the primary lease, including proportionate share of
the rent and capital expenditures.
Tribally-owned concern means any concern at least 51 percent owned
by an Indian Tribe as defined in this section.
You refers to a recipient, unless a statement in the text of this
part or the context requires otherwise (i.e., ``You must do XYZ'' means
that recipients must do XYZ).
Sec. 23.13 [Amended]
0
4. Amend Sec. 23.13 by:
0
a. In paragraph (b) introductory text, in the first sentence, removing
the word ``of'' appearing after the word ``interpretations''; and
0
b. In paragraph (d) introductory text, removing the phrase ``are for
the purpose of authorizing'' and adding in its place the word
``authorize''.
0
5. Revise Sec. 23.21 to read as follows:
Sec. 23.21 Who must submit an ACDBE program to FAA, and when?
(a) If you are a primary airport and receive FAA financial
assistance, you must submit an ACDBE program plan meeting the
requirements of this part to the FAA for approval.
[[Page 24959]]
(1) The recipient must submit this program plan on the same
schedule as provided for in 23.45(a) of this part.
(2) Timely submission and FAA approval of a recipient's ACDBE
program plan is a condition of eligibility for FAA financial
assistance.
(b) If you are a primary airport that does not have an ACDBE
program, and you apply for a grant of FAA funds for airport planning
and development under 49 U.S.C. 47107 et seq., you must submit an ACDBE
program plan to the FAA at the time of your application. Timely
submission and FAA approval of your ACDBE program are conditions of
eligibility for FAA financial assistance.
(c) If you are the owner of more than one airport that is required
to have an ACDBE program, you may implement one plan for all your
locations. However, you must establish a separate ACDBE goal for each
airport.
(d) If a recipient makes any significant changes to their ACDBE
program at any time, the recipient must provide the amended program to
the FAA for approval before implementing the changes.
(e) If a recipient is a non-primary airport, non-commercial service
airport, a general aviation airport, reliever airport, or any other
airport that does not have scheduled commercial service, it is not
required to have an ACDBE program. However, the recipient must take
appropriate outreach steps to encourage available ACDBEs to participate
as concessionaires whenever there is a concession opportunity.
0
6. Amend Sec. 23.23 by adding paragraph (c) to read as follows:
Sec. 23.23 What administrative provisions must be in a recipient's
ACDBE program?
* * * * *
(c) You must thoroughly investigate the full extent of services
offered by financial institutions owned and controlled by socially and
economically disadvantaged individuals in their community and make
reasonable efforts to use these institutions. You must also encourage
prime concessionaires to use such institutions.
0
7. Amend Sec. 23.25 by revising paragraphs (d), (e), and (f) to read
as follows:
Sec. 23.25 What measures must recipients include in their ACDBE
programs to ensure nondiscriminatory participation of ACDBEs in
concessions?
* * * * *
(d) Your ACDBE program must include race-neutral measures that you
will take. You must maximize the use of race-neutral measures,
obtaining as much as possible of the ACDBE participation needed to meet
overall goals through such measures. These are responsibilities that
you directly undertake as a recipient, in addition to the efforts that
concessionaires make, to obtain ACDBE participation. The following are
examples of race-neutral measures you can implement:
(1) Locating and identifying ACDBEs and other small businesses who
may be interested in participating as concessionaires under this part;
(2) Notifying ACDBEs of concession opportunities and encouraging
them to compete, when appropriate;
(3) When practical, structuring concession activities to encourage
and facilitate the participation of ACDBEs;
(4) Providing technical assistance to ACDBEs in overcoming
limitations, such as inability to obtain bonding or financing;
(5) Ensuring that competitors for concession opportunities are
informed during pre-solicitation meetings about how the recipient's
ACDBE program will affect the procurement process;
(6) Providing information concerning the availability of ACDBE
firms to competitors to assist them in obtaining ACDBE participation;
and
(7) Establishing a business development program (see Sec. 26.35 of
this chapter); technical assistance program; or taking other steps to
foster ACDBE participation in concessions.
(e) Your ACDBE program must also provide for the use of race-
conscious measures when race-neutral measures, standing alone, are not
projected to be sufficient to meet an overall goal. The following are
examples of race-conscious measures you can implement:
(1) Establishing concession-specific goals for particular
concession opportunities.
(i) In setting concession-specific goals for concession
opportunities other than car rental, you are required to explore, to
the maximum extent practicable, all available options to set goals that
concessionaires can meet through direct ownership arrangements. A
concession-specific goal for any concession other than car rental may
be based on purchases or leases of goods and services only when the
analysis of the relative availability of ACDBEs and all relevant
evidence reasonably supports that there is de minimis availability for
direct ownership arrangement participation for that concession
opportunity.
(ii) In setting car rental concession-specific goals, you cannot
require a car rental company to change its corporate structure to
provide for participation via direct ownership arrangement. When your
overall goal for car rental concessions is based on purchases or leases
of goods and services, you are not required to explore options for
direct ownership arrangements prior to setting a car rental concession-
specific goal based on purchases or leases of goods and services.
(iii) If the objective of the concession-specific goal is to obtain
ACDBE participation through a direct ownership arrangement with an
ACDBE, calculate the goal as a percentage of the total estimated annual
gross receipts from the concession.
(iv) If the goal applies to purchases or leases of goods and
services from ACDBEs, calculate the goal as a percentage of the total
estimated dollar value of all purchases to be made by the
concessionaire.
(v) To be eligible to be awarded the concession, competitors must
make good faith efforts to meet this goal. A competitor may do so
either by obtaining enough ACDBE participation to meet the goal or by
documenting that it made sufficient good faith efforts to do so.
(vi) The administrative procedures applicable to contract goals in
Sec. Sec. 26.51 through 26.53 of this chapter apply with respect to
concession-specific goals.
(2) Negotiation with a potential concessionaire to include ACDBE
participation, through direct ownership arrangements or measures, in
the operation of the non-car rental concession.
(3) With the prior approval of FAA, other methods that take a
competitor's ability to provide ACDBE participation into account in
awarding a concession.
(f) Your ACDBE program must require businesses subject to car
rental and non-car rental ACDBE goals at the airport to make good faith
efforts to meet goals when set pursuant to paragraph (e) of this
section.
* * * * *
0
8. Add Sec. 23.26 to read as follows:
Sec. 23.26 Fostering small business participation.
(a) Your ACDBE program must include an element to provide for the
structuring of concession opportunities to facilitate competition by
small business concerns, taking all reasonable steps to eliminate
obstacles to their participation, including unnecessary and unjustified
bundling of concession opportunities that may preclude small business
participation in solicitations.
(b) This element must be submitted to the FAA for approval as a
part of your ACDBE program no later than October 7, 2024. As part of
this program element
[[Page 24960]]
you may include, but are not limited to including, the following
strategies:
(1) Establish a race-neutral small business set-aside for certain
concession opportunities. Such a strategy would include the rationale
for selecting small business set-aside concession opportunities which
may include consideration of size and availability of small businesses
to operate the concession.
(2) Consider the concession opportunities available through all
concession models.
(3) On concession opportunities that do not include ACDBE contract
goals, require all concession models to provide subleasing
opportunities of a size that small businesses, including ACDBEs, can
reasonably operate.
(4) Identify alternative concession contracting approaches to
facilitate the ability of small businesses, including ACDBEs, to
compete for and obtain direct leasing opportunities.
(c) This element should include an objective, definition of small
business, verification process, monitoring plan, and implementation
timeline.
(d) Your element must include the following assurances:
(1) Your element is authorized under State law;
(2) Certified ACDBEs that meet the size criteria established under
your element are presumptively eligible to participate in your element;
(3) There are no geographic preferences or limitations imposed on
any concession opportunities included in your element;
(4) There are no limits on the number of concession opportunities
awarded to firms participating in your element but that every effort
will be made to avoid creating barriers to the use of new, emerging, or
untried businesses;
(5) You will take aggressive steps to encourage those minority and
women owned firms that are eligible for ACDBE certification to become
certified; and
(6) Your element is open to small businesses regardless of their
location (i.e., that there is no local or other geographic preference).
(e) A State, local, or other program, in which eligibility requires
satisfaction of race/gender or other criteria in addition to business
size, may not be used to comply with the requirements of this part.
(f) This element must not include local geographic preferences per
Sec. 23.79.
(g) You must submit an annual report on small business
participation obtained through the use of your small business element.
This report must be submitted in a format acceptable to the FAA based
on a schedule established and posted to the agency's website, available
at https://www.faa.gov/about/office_org/headquarters_offices/acr/bus_ent_program.
(h) You must actively implement your program elements to foster
small business participation. Doing so is a requirement of good faith
implementation of your ACDBE program.
0
9. Amend Sec. 23.27 by revising paragraph (b) and adding paragraphs
(c) and (d) to read as follows:
Sec. 23.27 What information does a recipient have to retain and
report about implementation of its ACDBE program?
* * * * *
(b) You must submit an annual report on ACDBE participation to the
FAA by March 1 following the end of each fiscal year. This report must
be submitted in the format acceptable to the FAA and contain all of the
information described in the Uniform Report of ACDBE Participation.
(c) You must create and maintain active participants list
information as described in paragraph (c)(2) of this section and enter
it into a system designated by the FAA.
(1) The purpose of this active participants list is to ensure that
you have the most accurate data possible about the universe of ACDBE
and non-ACDBEs who seek work in your airport concessions program as a
tool to help you set your overall goals, and to provide the Department
with data for evaluating the extent to which the objectives of Sec.
23.1 are being achieved.
(2) You must obtain the following active participants list
information about ACDBE and non-ACDBEs who seek to work on each of your
concession opportunities.
(i) Firm name;
(ii) Firm address including ZIP code;
(iii) Firm status as an ACDBE or non-ACDBE;
(iv) Race and gender information for the firm's majority owner;
(v) NAICS code applicable to the concession contract in which the
firm is seeking to perform;
(vi) Age of the firm; and
(vii) The annual gross receipts of the firm. You may obtain this
information by asking each firm to indicate into what gross receipts
bracket they fit (e.g., less than $1 million; $1-3 million; $3-6
million; $6-10 million, etc.) rather than requesting an exact figure
from the firm.
(3) You must collect the data from all active participants for your
concession opportunities by requiring the information in paragraph
(c)(2) of this section to be submitted with their proposals or initial
responses to negotiated procurements. You must enter this data in FAA's
designated system no later than March 1 following the fiscal year in
which the relevant concession opportunity was awarded.
(d) The State department of transportation in each Unified
Certification Program (UCP) established pursuant to Sec. 26.81 of this
chapter must report to DOT's Departmental Office of Civil Rights each
year, the following information:
(1) The number and percentage of in-state and out-of-state ACDBE
certifications for socially and economically disadvantaged by gender
and ethnicity (Black American, Asian-Pacific American, Native American,
Hispanic American, Subcontinent-Asian Americans, and non-minority);
(2) The number of ACDBE certification applications received from
in-state and out-of-state firms and the number found eligible and
ineligible;
(3) The number of decertified firms:
(i) Total in-state and out-of-state firms decertified;
(ii) Names of in-state and out-of-state firms decertified because
SEDO exceeded the personal net worth cap;
(iii) Names of in-state and out-of-state firms decertified for
excess gross receipts beyond the relevant size standard.
(4) Number of in-state and out-of-state ACDBEs summarily suspended;
(5) Number of in-state and out-of-state ACDBE applications received
for an individualized determination of social and economic disadvantage
status; and
(6) Number of in-state and out-of-state ACDBEs whose owner(s) made
an individualized showing of social and economic disadvantaged status.
Sec. 23.31 [Amended]
0
10. Amend Sec. 23.31 by removing paragraph (c).
0
11. Revise Sec. 23.33 to read as follows:
Sec. 23.33 What size standards do recipients use to determine the
eligibility of applicants and ACDBEs?
(a) Except as provided in paragraph (b) of this section, recipients
must treat a firm as a small business eligible to be certified as an
ACDBE if the gross receipts of the applicant firm and its affiliates,
calculated in accordance with 13 CFR 121.104 averaged over the firm's
previous five fiscal years, do not exceed $56.42 million.
(b) The following types of businesses have size standards that
differ from the standard set forth in paragraph (a) of this section:
(1) Banks and financial institutions. $1 billion in assets;
[[Page 24961]]
(2) Passenger car rental companies. $75.23 million average annual
gross receipts over the firm's previous five fiscal years;
(3) Pay telephones. 1,500 employees; and
(4) New car dealers. 350 employees.
(c) For size purposes, gross receipts (as defined in 13 CFR
121.104(a)), of affiliates should be included in a manner consistent
with 13 CFR 121.104(d), except in the context of joint ventures. For
gross receipts attributable to joint venture partners, a firm must
include in its gross receipts its proportionate share of joint venture
receipts, unless the proportionate share already is accounted for in
receipts reflecting transactions between the firm and its joint
ventures (e.g., subcontracts from a joint venture entity to joint
venture partners).
0
12 Revise Sec. 23.35 to read as follows:
Sec. 23.35 What is the personal net worth (PNW) limit for
disadvantaged owners of ACDBEs?
(a) The Department will adjust the PNW cap by May 9, 2024 by
multiplying $1,600,000 by the growth in total household net worth since
2019 as described by ``Financial Accounts of the United States: Balance
Sheet of Households (Supplementary Table B.101.h)'' produced by the
Board of Governors of the Federal Reserve (https://www.federalreserve.gov/releases/z1/), and normalized by the total
number of households as collected by the Census in ``Families and
Living Arrangements'' (https://www.census.gov/topics/families/families-and-households.html) to account for population growth. The Department
will adjust the PNW cap every 3 years on the anniversary of the initial
adjustment date described in this section. The Department will post the
adjustments on the Departmental Office of Civil Rights' web page,
available at https://www.Transportation.gov/DBEPNW. Each such
adjustment will become the currently applicable PNW limit for purposes
of this regulation.
(b) The Department will use the following formula to adjust the PNW
limit:
[GRAPHIC] [TIFF OMITTED] TR09AP24.000
Sec. 23.37 [Amended]
0
13. Amend Sec. 23.37 in the second sentence of paragraph (b) by
removing the phrase ``does not do work relevant to the airport's
concessions program'' and adding the phrase ``does not perform work or
provide services relevant to the airport's concessions program'' in its
place.
0
14. Revise Sec. 23.39 to read as follows:
Sec. 23.39 What are other ACDBE certification requirements?
(a) The provisions of Sec. 26.83(c)(1) of this chapter do not
apply to certifications for purposes of this part. Instead, in
determining whether a firm is an eligible ACDBE, you must take the
following steps:
(1) Visit the firm's principal place of business, virtually or in
person, and interview the SEDO, officers, and key personnel. You must
review those persons' r[eacute]sum[eacute]s and/or work histories. You
must maintain a complete audio recording of the interviews. The
certifier must also visit one or more active job sites (if there is
one). These activities comprise the ``on-site review'' (OSR), a written
report of which the certifier must keep in its files.
(2) 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;
(3) Analyze the bonding and financial capacity of the firm; lease
and loan agreements; and bank account signature cards;
(4) Determine the work history of the firm, including any
concession contracts or other contracts it may have received; and
payroll records;
(5) Obtain or compile a list of the licenses of the firm and its
key personnel to perform the concession contracts or other contracts it
wishes to receive;
(6) Obtain a statement from the firm of the type(s) of
concession(s) it prefers to operate or the type(s) of other contract(s)
it prefers to perform;
(7) Obtain complete Federal income tax returns (or requests for
extensions) filed by the firm, its affiliates, and the socially and
economically disadvantaged owners for the last 5 years. A complete
return includes all forms, schedules, and statements filed with the
Internal Revenue Service; and
(8) Require applicants for ACDBE certification to complete and
submit an appropriate application form, except as otherwise provided in
Sec. 26.85 of this chapter.
(b) In reviewing the Declaration of Eligibility required by Sec.
26.83(j) of this chapter, you must ensure that the ACDBE applicant
provides documentation that it meets the applicable size standard in
Sec. 23.33.
(c) For purposes of this part, the term prime contractor in Sec.
26.87(j) of this chapter includes a firm holding a contract with an
airport concessionaire to provide goods or services to the
concessionaire or a firm holding a prime concession agreement with a
recipient.
(d) With respect to firms owned by Alaska Native Corporations
(ANCs), the provisions of Sec. 26.63(c)(2) of this chapter do not
apply. The eligibility of ANC-owned firms for purposes of this part is
governed by Sec. 26.63(c)(1) of this chapter.
(e) You must use the Uniform Certification Application found in
part 26 of this chapter without change. However, you may provide in
your ACDBE program, with the written approval of the concerned
Operating Administration, for supplementing the form by requesting
specified additional information consistent with this part. The
applicant must state that it is applying for certification as an ACDBE
and complete all of section 5.
(f) Car rental companies and private terminal owners or lessees are
not authorized to certify firms as ACDBEs. As a car rental company or
private terminal owner or lessee, you must obtain ACDBE participation
from firms which a recipient or UCPs have certified as ACDBEs.
0
15. Amend Sec. 23.43 by adding paragraph (c) as to read follows:
Sec. 23.43 What are the consultation requirements in the development
of recipients' overall goals?
* * * * *
[[Page 24962]]
(c) The requirements of this section do not apply if no new
concession opportunities will become available during the goal period.
However, recipients must take appropriate outreach steps to encourage
available ACDBEs to participate as concessionaires whenever there is a
concession opportunity.
0
16. Amend Sec. 23.45 by revising paragraphs (a), (b), and (h) to read
as follows:
Sec. 23.45 What are the requirements for submitting overall goal
information to the FAA?
(a) You must submit your overall goals to the appropriate FAA
Regional Civil Rights Office for approval. Your overall goals meeting
the requirements of this subpart are due based on a schedule
established by the FAA and posted on the FAA's website.
(b) You must then submit goals every three years based on the
published schedule.
* * * * *
(h) If the FAA determines that your goals have not been correctly
calculated or the justification is inadequate, the FAA may, after
consulting with you, adjust your overall goal or race-conscious/race-
neutral ``split.'' The adjusted goal represents the FAA's determination
of an appropriate overall goal for ACDBE participation in the
recipient's concession program, based on relevant data and analysis.
The adjusted goal is binding.
* * * * *
Sec. 23.51 [Amended]
0
17. Amend Sec. 23.51 in paragraph (c)(1) by removing ``www.census.gov/epcd/cbp/view/cbpview.html'' and adding in its place https://www.census.gov/programs-surveys/cbp.html.''
Sec. 23.53 [Amended]
0
18. Amend Sec. 23.53 in paragraph (d)(2) by removing ``a ACDBE'' and
adding ``an ACDBE'' in its place.
0
19. Amend Sec. 23.55 by:
0
a. Revising paragraph (e);
0
b. In paragraph (g), removing ``a ACDBE'' and adding ``an ACDBE'' in
its place; and
0
c. Revising paragraphs (h)(1) and (2) and (j).
The revisions read as follows:
Sec. 23.55 How do recipients count ACDBE participation toward goals
for items other than car rentals?
* * * * *
(e) Count 100 percent of fees or commissions charged by an ACDBE
firm for a bona fide service, provided that, as the recipient, you
determine this amount to be reasonable and not excessive as compared
with fees customarily allowed for similar services. Such services may
include, but are not limited to, professional, technical, consultant,
legal, security systems, advertising, building cleaning and
maintenance, computer programming, or managerial.
* * * * *
(h) * * *
(1) Count 100 percent of fees or commissions charged for assistance
in the procurement of the goods, provided that this amount is
reasonable and not excessive as compared with fees customarily allowed
for similar services. Do not count any portion of the cost of the goods
themselves.
(2) Count 100 percent of fees or transportation charges for the
delivery of goods required for a concession, provided that this amount
is reasonable and not excessive as compared with fees customarily
allowed for similar services. Do not count any portion of the cost of
goods themselves.
* * * * *
(j) When an ACDBE is decertified because one or more of its
disadvantaged owners exceed the PNW cap or the firm exceeds the
business size standards of this part during the performance of a
contract or other agreement, the firm's participation may continue to
be counted toward ACDBE goals for the remainder of the term of the
contract or other agreement. However, you must verify that the firm in
all other respects remains an eligible ACDBE and you must not count the
concessionaire's participation toward ACDBE goals beyond the
termination date for the concession agreement in effect at the time of
the decertification (e.g., in a case where the agreement is renewed or
extended, or an option for continued participation beyond the current
term of the agreement is exercised).
(1) The firm must inform the recipient in writing of any change in
circumstances affecting its ability to meet ownership or control
requirements of subpart C of this part or any material change.
Reporting must be made as provided in Sec. 26.83(i) of this chapter.
(2) The firm must provide to the recipient, annually on December 1,
a Declaration of Eligibility, affirming that there have been no changes
in the firm's circumstances affecting its ability to meet ownership or
control requirements of subpart C of this part or any other material
changes, other than changes regarding the firm's business size or the
owner's personal net worth.
* * * * *
0
20. Amend Sec. 23.57 by revising paragraph (b)(3)(i) to read as
follows:
Sec. 23.57 What happens if a recipient falls short of meeting its
overall goals?
* * * * *
(b) * * *
(3) * * *
(i) If you are a CORE 30 airport or other airport designated by the
FAA, you must submit, by April 1, the analysis and corrective actions
developed under paragraphs (b)(1) and (2) of this section to the FAA
for approval.
* * * * *
Sec. 23.59 [Amended]
0
21. Amend Sec. 23.59 in paragraph (b) by removing ``DBEs' '' and
adding ``ACDBEs' '' in its place.
Sec. 23.71 [Amended]
0
22. Amend Sec. 23.71 by removing the first sentence.
0
23. Revise Sec. 23.75 to read as follows:
Sec. 23.75 Can recipients enter into long-term, exclusive agreements
with concessionaires?
(a) Except as provided in paragraph (b) of this section, you must
not enter into long-term, exclusive agreements for concessions.
(1) For purposes of this section, a long-term agreement is one
having a term of more than ten years, including any combination of base
term and options or holdovers to extend the term of the agreement, if
the effect is a term of more than ten years.
(2) For purposes of this section, an exclusive agreement is one
having a type of business activity that is conducted solely by a single
business entity on the entire airport, irrespective of ACDBE
participation.
(b) You may enter into a long-term, exclusive concession agreement
only under the following conditions:
(1) Special local circumstances exist that make it important to
enter such agreement; and
(2) The responsible FAA regional office approves your plan for
meeting the standards of paragraph (c) of this section.
(c) In order to obtain FAA approval of a long-term exclusive
concession agreement, you must submit the following information to the
FAA regional office, the items in paragraphs (c)(1) through (3) of this
section must be submitted at least 60 days before the solicitation is
released and items in paragraphs (c)(4) through (7) of this section
must be submitted at least 45 days before contract award:
[[Page 24963]]
(1) A description of the special local circumstances that warrant a
long-term, exclusive agreement.
(2) A copy of the solicitation.
(3) ACDBE contract goal analysis developed in accordance with this
part.
(4) Documentation that ACDBE participants are certified in the
appropriate NAICS code in order for the participation to count towards
ACDBE goals.
(5) A general description of the type of business or businesses to
be operated by the ACDBE, including location and concept of the ACDBE
operation.
(6) Information on the investment required on the part of the ACDBE
and any unusual management or financial arrangements between the prime
concessionaire and ACDBE, if applicable.
(7) Final long-term exclusive concession agreement, subleasing or
other agreements.
(d) In order to obtain FAA approval of a long-term exclusive
concession agreement that has been awarded through direct negotiations,
you must submit the items in paragraphs (c)(1) and (3) through (7) of
this section at least 45 days before contract award.
(e) In order to obtain FAA approval of an exclusive concession
agreement that becomes long-term as a result of a holdover tenancy, you
must submit to the responsible FAA regional office a holdover plan for
FAA approval at least 60 days prior to the expiration of the current
lease term. The holdover plan shall include the following information:
(1) A description of the special local circumstances that warrant
the holdover.
(2) Anticipated date for renewal or re-bidding of the agreement.
(3) The method to be applied for renewal or re-bidding of the
agreement.
(4) Submission of all items required under paragraphs (c)(3), (4),
(6), and (7) of this section for the agreement in holdover status or an
explanation as to why the item is not available or cannot be submitted.
Sec. 23.77 [Amended]
0
24. Amend Sec. 23.77 in paragraph (b) by removing the term
``disadvantaged business enterprise'' and adding in its place
``Disadvantaged Business Enterprise''.
0
25. Revise Sec. 23.79 to read as follows:
Sec. 23.79 Does this part permit recipients to use local geographic
preferences?
No. As a recipient you must not use a local geographic preference.
For purposes of this section, a local geographic preference is any
requirement that gives a concessionaire located in one place (e.g.,
your local area) an advantage over concessionaires from other places in
obtaining business as, or with, a concession at your airport.
Appendix A to Part 23 [Removed]
0
26. Remove appendix A to part 23.
PART 26--PARTICIPATION BY DISADVANTAGED BUSINESS ENTERPRISES IN
DEPARTMENT OF TRANSPORTATION FINANCIAL ASSISTANCE PROGRAMS
0
28. The authority citation for part 26 is revised to read as follows:
Authority: 23 U.S.C. 304 and 324; 42 U.S.C. 2000d, et seq.; 49
U.S.C. 47113, 47123; Sec. 1101(b), Pub. L. 114-94, 129 Stat. 1312,
1324 (23 U.S.C. 101 note); Sec. 150, Pub. L. 115-254, 132 Stat. 3215
(23 U.S.C. 101 note); Pub. L. 117-58, 135 Stat. 429 (23 U.S.C. 101
note).
Sec. 26.1 [Amended]
0
29. Amend Sec. 26.1 in paragraph (f) by removing ``federally-
assisted'' and add in its place ``federally assisted''.
0
30. Revise Sec. 26.3 to read as follows:
Sec. 26.3 To whom does this part apply?
(a) If you are a recipient of any of the following types of funds,
this part applies to you:
(1) Federal-aid highway funds authorized under Titles I (other than
Part B) and V of the Intermodal Surface Transportation Efficiency Act
of 1991 (ISTEA), Public Law 102-240, 105 Stat. 1914, or Titles I, III,
and V of the Transportation Equity Act for the 21st Century (TEA-21),
Public Law 105-178, 112 Stat. 107. Titles I, III, and V of the Safe,
Accountable, Flexible, Efficient Transportation Equity Act: A Legacy
for Users (SAFETEA-LU), Public Law 109-59, 119 Stat. 1144; Divisions A
and B of the Moving Ahead for Progress in the 21st Century Act (MAP-
21), Pub. L. 112-141, 126 Stat. 405; Titles I, II, III, and VI of the
Fixing America's Surface Transportation Act (FAST Act) Public Law 114-
94;, and Divisions A and C of the Bipartisan Infrastructure Law (BIL),
enacted as the Infrastructure Investment and Jobs Act (IIJA), Public
Law 117-58.
(2) Federal transit funds authorized by Titles I, III, V and VI of
ISTEA, Public Law 102-240 or by Federal transit laws in Title 49, U.S.
Code, or Titles I, III, and V of the TEA-21, Public Law 105-178. Titles
I, III, and V of the Safe, Accountable, Flexible, Efficient
Transportation Equity Act: A Legacy for Users (SAFETEA-LU), Public Law
109-59, 119 Stat. 1144; Divisions A and B of the Moving Ahead for
Progress in the 21st Century Act (MAP-21), Public Law 112-141, 126
Stat. 405; Titles I, II, III, and VI of the Fixing America's Surface
Transportation Act (FAST Act) Public Law 114-94; and Divisions A and C
of the Bipartisan Infrastructure Law (BIL), enacted as the
Infrastructure Investment and Jobs Act (IIJA) (Pub. L. 117-58), Public
Law 117-58.
(3) Airport funds authorized by 49 U.S.C. 47101, et seq.
(b) [Reserved]
(c) If you are letting a contract, and that contract is to be
performed entirely outside the United States, its territories and
possessions, Puerto Rico, Guam, or the Northern Mariana Islands, this
part does not apply to the contract.
(d) If you are letting a contract in which DOT financial assistance
does not participate, this part does not apply to the contract.
0
31. Amend Sec. 26.5 by:
0
a. Revising the definitions of Alaska Native and Department or DOT;
0
b. Removing the definition Disadvantaged business enterprise or DBE and
adding the definition Disadvantaged Business Enterprise or DBE in its
place;
0
c. Adding the definitions for FTA Tier I recipient and FTA Tier II
recipient in alphabetical order;
0
d. Removing the definition of Home state;
0
e. Removing the definition of Indian tribe and adding the definition of
Indian Tribe or Native American Tribe in its place;
0
f. Adding the definitions for Notice of decision and Notice of intent
in alphabetical order;
0
g. Removing the definition Personal net worth and adding the definition
Personal net worth or PNW in its place;
0
h. Revising the definitions of Primary industry classification,
Principal place of business, Recipient, and Secretary;
0
i. In the definition of Socially and economically disadvantaged
individual:
0
i. In the introductory text, removing the phrase ``as a members of
groups'' and adding in its place the phrase ``as a member of a group'';
0
ii. In paragraph (2)(iv), removing the locations ``Republic of the
Northern Marianas Islands'' and ``Kirbati'' and adding in their place
the locations ``Republic of the Northern Mariana Islands'' and
``Kiribati'', respectively;
0
iii. In paragraph (2)(v), removing the location ``the Maldives
Islands'' and adding in its place the location ``Maldives'';
0
j. Removing the definition of Transit vehicle manufacturer and adding
in its place the definition Transit vehicle manufacturer (TVM); and
0
k. Adding the definition of Unsworn declaration in alphabetical order.
[[Page 24964]]
The revisions and additions read as follows:
Sec. 26.5 Definitions
* * * * *
Alaska Native means a citizen of the United States who is a person
of one-fourth degree or more Alaskan Indian (including Tsimshian
Indians not enrolled in the Metlakatla Indian Community), Eskimo, or
Aleut blood, or a combination of those bloodlines. The term includes,
in the absence of proof of a minimum blood quantum, any citizen whom a
Native village or Native group regards as an Alaska Native if their
father or mother is regarded as an Alaska Native.
* * * * *
Department or DOT means the U.S. Department of Transportation,
including the Office of the Secretary, the Departmental Office of Civil
Rights, the Federal Highway Administration (FHWA), the Federal Transit
Administration (FTA), and the Federal Aviation Administration (FAA).
Disadvantaged Business Enterprise or DBE means a for-profit small
business concern--
(1) That is at least 51 percent owned by one or more individuals
who are both socially and economically disadvantaged; and
(2) Whose management and daily business operations are controlled
by one or more of the socially and economically disadvantaged
individuals who own it.
* * * * *
FTA Tier I recipient means an FTA recipient to whom this part
applies that will award prime contracts (excluding transit vehicle
purchases) the cumulative total value of which exceeds $670,000 in FTA
funds in a Federal fiscal year.
FTA Tier II recipient means an FTA recipient to whom this part
applies who will award prime contracts (excluding transit vehicle
purchases) the cumulative total value of which does not exceed $670,000
in FTA funds in a Federal fiscal year.
* * * * *
Indian Tribe or Native American Tribe means any federally or State-
recognized Tribe, band, nation, or other organized group of Indians
(Native Americans), or an ANC.
* * * * *
Notice of intent or NOI means recipients letter informing a DBE of
a suspension or proposed decertification.
Notice of decision or NOD means determination that denies a firm's
application or decertifies a DBE.
* * * * *
Personal net worth or PNW means the net value of an individual's
reportable assets and liabilities, per the calculation rules in Sec.
26.68.
Primary industry classification means the most current North
American Industry 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 online on the U.S. Census Bureau website: www.census.gov/naics/.
* * * * *
Principal place of business means the business location where the
individuals who manage the firm'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. The term does
not include construction trailers or other temporary construction
sites.
* * * * *
Recipient means any entity, public or private, to which DOT
financial assistance is extended, whether directly or through another
recipient, through the programs of the FAA, FHWA, or FTA, or that has
applied for such assistance.
Secretary means DOT's Secretary of Transportation or the
Secretary's designee.
* * * * *
Transit vehicle manufacturer (TVM) means any manufacturer whose
primary business purpose is to manufacture vehicles built for mass
transportation. Such vehicles include, but are not limited to buses,
rail cars, trolleys, ferries, and vehicles manufactured specifically
for paratransit purposes. Businesses that perform retrofitting or post-
production alterations to vehicles so that such vehicles may be used
for public transportation purposes are also considered TVMs. Businesses
that manufacture, mass-produce, or distribute vehicles primarily for
personal use are not considered TVMs.
* * * * *
Unsworn declaration means an unsworn statement, dated and in
writing, subscribed as true under penalty of perjury.
* * * * *
0
32. Revise Sec. 26.11 to read as follows:
Sec. 26.11 What records do recipients keep and report?
(a) You must submit a report on DBE participation to the concerned
Operating Administration containing all the information described in
the Uniform Report to this part. This report must be submitted at the
intervals required by, and in the format acceptable to, the concerned
Operating Administration.
(b) You must continue to provide data about your DBE program to the
Department as directed by DOT Operating Administrations.
(c) You must obtain bidders list information as described in
paragraph (c)(2) of this section and enter it into a system designated
by the Department.
(1) The purpose of this bidders list information is to compile as
accurate data as possible about the universe of DBE and non-DBE
contractors and subcontractors who seek to work on your federally
assisted contracts for use in helping you set your overall goals, and
to provide the Department with data for evaluating the extent to which
the objectives of Sec. 26.1 are being achieved.
(2) You must obtain the following bidders list information about
all DBE and non-DBEs who bid as prime contractors and subcontractors on
each of your federally assisted contracts:
(i) Firm name;
(ii) Firm address including ZIP code;
(iii) Firm's status as a DBE or non-DBE;
(iv) Race and gender information for the firm's majority owner;
(v) NAICS code applicable to each scope of work the firm sought to
perform in its bid;
(vi) Age of the firm; and
(vii) The annual gross receipts of the firm. You may obtain this
information by asking each firm to indicate into what gross receipts
bracket they fit (e.g., less than $1 million; $1-3 million; $3-6
million; $6-10 million; etc.) rather than requesting an exact figure
from the firm.
(3) You must collect the data from all bidders for your federally
assisted contracts by requiring the information in paragraph (c)(2) of
this section to be submitted with their bids or initial responses to
negotiated procurements. You must enter this data in the Department's
designated system no later than December 1 following the fiscal year in
which the relevant contract was awarded. In the case of a ``design-
build'' contracting situation where subcontracts will be solicited
throughout the contract period as defined in a DBE Performance Plan
pursuant to Sec. 26.53(e), the data must be entered no later than
December 1 following the fiscal year in which the design-build
contractor awards the relevant subcontract(s).
(d) You must maintain records documenting a firm's compliance with
the requirements of this part. At a
[[Page 24965]]
minimum, you must keep a complete application package for each
certified firm and all Declarations of Eligibility, change notices, and
on-site visit reports. These records must be retained in accordance
with applicable record retention requirements for the recipient's
financial assistance agreement. Other certification or compliance
related records must be retained for a minimum of three (3) years
unless otherwise provided by applicable record retention requirements
for the recipient's financial assistance agreement, whichever is
longer.
(e) The State department of transportation in each Unified
Certification Program (UCP) established pursuant to Sec. 26.81 must
report to DOT's Departmental Office of Civil Rights each year, the
following information:
(1) The number and percentage of in-state and out-of-state DBE
certifications by gender and ethnicity (Black American, Asian-Pacific
American, Native American, Hispanic American, Subcontinent-Asian
Americans, and non-minority);
(2) The number of DBE certification applications received from in-
state and out-of-state firms and the number found eligible and
ineligible;
(3) The number of decertified firms:
(i) Total in-state and out-of-state firms decertified;
(ii) Names of in-state and out-of-state firms decertified because
SEDO exceeded the personal net worth cap;
(iii) Names of in-state and out-of-state firms decertified for
excess gross receipts beyond the relevant size standard.
(4) The number of in-state and out-of-state firms summarily
suspended;
(5) The number of in-state and out-of-state applications received
for an individualized determination of social and economic disadvantage
status;
(6) The number of in-state and out-of-state firms certified whose
owner(s) made an individualized showing of social and economic
disadvantaged status.
0
33. Revise the heading for subpart B to read as follows:
Subpart B--Administrative Requirements for DBE Programs for
Federally Assisted Contracting
0
34. Revise Sec. 26.21 to read as follows:
Sec. 26.21 Who must have a DBE program?
(a) If you are in one of these categories and let DOT-assisted
contracts, you must have a DBE program meeting the requirements of this
part:
(1) All FHWA primary recipients receiving funds authorized by a
statute to which this part applies;
(2) All FTA recipients receiving planning, capital and/or operating
assistance must maintain a DBE program.
(i) FTA Tier I recipients must have a DBE program meeting all the
requirements of this part.
(ii) Beginning 180 days after the publication of the final rule,
FTA Tier II recipients must maintain a program locally meeting the
following requirements of this part:
(A) Reporting and recordkeeping under Sec. 26.11;
(B) Contract assurances under Sec. 26.13;
(C) Policy statement under Sec. 26.23;
(D) Fostering small business participation under Sec. 26.39; and
(E) Transit vehicle procurements under Sec. 26.49.
(3) FAA recipients receiving grants for airport planning or
development that will award prime contracts the cumulative total value
of which exceeds $250,000 in FAA funds in a Federal fiscal year.
(b)(1) You must submit a conforming DBE program to the concerned
Operating Administration (OA). Once the OA has approved your program,
the approval counts for all of your DOT-assisted programs (except goals
that are reviewed by the relevant OA).
(2) You do not have to submit regular updates of your DBE program
plan if you remain in compliance with this part. However, you must
submit significant changes to the relevant OA for approval.
(c) You are not eligible to receive DOT financial assistance unless
DOT has approved your DBE program and you are in compliance with it and
this part. You must continue to carry out your DBE program until all
funds from DOT financial assistance have been expended.
0
35. Amend Sec. 26.29 by:
0
a. Revising paragraph (d);
0
b. Redesignating paragraph (e) as paragraph (g); and
0
c. Adding new paragraph (e) and paragraph (f).
The revision and additions read as follows:
Sec. 26.29 What prompt payment mechanisms must recipients have?
* * * * *
(d) Your DBE program must include the mechanisms you will use for
proactive monitoring and oversight of a prime contractor's compliance
with subcontractor prompt payment and return of retainage requirements
in this part. Reliance on complaints or notifications from
subcontractors about a contractor's failure to comply with prompt
payment and retainage requirements is not a sufficient monitoring and
oversight mechanism.
(e) Your DBE program must provide appropriate means to enforce the
requirements of this section. These means must be described in your DBE
program and should include appropriate penalties for failure to comply,
the terms and conditions of which you set. Your program may also
provide that any delay or postponement of payment among the parties may
take place only for good cause, with your prior written approval.
(f) Prompt payment and return of retainage requirements in this
part also apply to lower-tier subcontractors.
* * * * *
0
36. Revise Sec. 26.31 to read as follows:
Sec. 26.31 What information must a UCP include in its DBE/ACDBE
directory?
(a) In the directory required under Sec. 26.81(g), you must list
all firms eligible to participate as a DBE and/or ACDBE in your
program. In the listing for each firm, you must include its business
address, business phone number, firm website(s), and the types of work
the firm has been certified to perform as a DBE and/or ACDBE.
(b) You must list each type of work a DBE and/or ACDBE is eligible
to perform by using the most specific NAICS code available to describe
each type of work the firm performs. Pursuant to Sec. 26.81(n)(1) and
(3), your directory must allow for NAICS codes to be supplemented with
specific descriptions of the type(s) of work the firm performs.
(c) Your directory may include additional data fields of other
items readily verifiable in State or locally maintained databases, such
as State licenses held, Prequalifications, and Bonding capacity.
(d) Your directory must be an online system that permits the public
to search and/or filter for DBEs by:
(1) Physical location;
(2) NAICS code(s);
(3) Work descriptions; and
(4) All optional information added pursuant to paragraph (c) of
this section. The directory must include a prominently displayed
disclaimer (e.g., large type, bold font) that states the information
within the directory is not a guarantee of the DBE's capacity and
ability to perform work.
(e) You must make any changes to your current directory entries by
November 5, 2024.
[[Page 24966]]
0
37. Amend Sec. 26.35 by revising paragraph (b)(2) introductory text to
read as follows:
Sec. 26.35 What role do business development and mentor-
prot[eacute]g[eacute] programs have in the DBE program?
* * * * *
(b) * * *
(2) In the mentor-prot[eacute]g[eacute] relationship, you must:
* * * * *
0
38. Revise Sec. 26.37 to read as follows:
Sec. 26.37 What are a recipient's responsibilities for monitoring?
(a) A recipient must implement appropriate mechanisms to ensure
compliance with the requirements in this part by all program
participants (e.g., applying legal and contract remedies available
under Federal, State, and local law). The recipient must set forth
these mechanisms in its DBE program.
(b) A recipient's DBE program must also include a monitoring and
enforcement mechanism to ensure that work committed, or in the case of
race-neutral participation, the work subcontracted, to all DBEs at
contract award or subsequently is performed by the DBEs to which the
work was committed or subcontracted to, and such work is counted
according to the requirements of Sec. 26.55. This mechanism must
include a written verification that you have reviewed contracting
records and monitored the work site to ensure the counting of each
DBE's participation is consistent with its function on the contract.
The monitoring to which this paragraph (b) refers may be conducted in
conjunction with monitoring of contract performance for other purposes
such as a commercially useful function review.
(c) You must effectively implement the following running tally
mechanisms:
(1) With respect to achieving your overall goal, you must use a
running tally that provides for a frequent comparison of cumulative DBE
awards/commitments to DOT-assisted prime contract awards to determine
whether your current implementation of contract goals is projected to
be sufficient to meet your annual goal. This mechanism should inform
your decisions to implement goals on contracts to be advertised
according to your established contract goal-setting process.
(2) With respect to each DBE commitment, you must use a running
tally that provides for a frequent comparison of payments made to each
listed DBE relative to the progress of work, including payments for
such work to the prime contractor to determine whether the contractor
is on track with meeting its DBE commitment and whether any projected
shortfall exists that requires the prime contractor's good faith
efforts to address to meet the contract goal pursuant to Sec.
26.53(g).
Sec. 26.39 [Amended]
0
39. Amend Sec. 26.39 in paragraph (b) introductory text by removing
the phrase ``by February 28, 2012''.
0
40. Amend Sec. 26.45 by:
0
a. Revising paragraph (a);
0
b. Removing in paragraph (c)(1) ``www.census.gov/epcd/cbp/view/cbpview.html'' and adding in its place https://www.census.gov/programs-surveys/cbp.html;
0
c. Removing in paragraph (f)(1)(i) the words ``Website'' and adding in
their place the word ``website''; and
0
d. Removing in paragraph (f)(3) the text ``incuding'', ``race-
conscioous'', and ``26.51(c)'' and adding in their places the text
``including'', ``race-conscious'', and ``Sec. 26.51(c)'',
respectively.
The revision reads as follows:
Sec. 26.45 How do recipients set overall goals?
(a) General rule. (1) Except as provided in paragraph (a)(2) of
this section, you must set an overall goal for DBE participation in
your DOT-assisted contracts.
(2) If you are an FTA Tier II recipient or FAA recipient who
reasonably anticipates awarding (excluding transit vehicle purchases)
$670,000 or less in FTA or $250,000 or less in FAA funds in prime
contracts in a Federal fiscal year, you are not required to develop
overall goals for FTA or FAA respectively for that fiscal year.
* * * * *
Sec. 26.47 [Amended]
0
41. Amend Sec. 26.47 in paragraph (c)(3)(i) by removing the words
``Operational Evolution Partnership Plan'' and adding in their place
the term ``CORE 30''.
0
42. Revise Sec. 26.49 to read as follows:
Sec. 26.49 What are the requirements for transit vehicle manufactures
(TVMs) and for awarding DOT-assisted contracts to TVMs?
(a) If you are an FTA recipient, you must require in your DBE
program that each TVM, 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 TVMs listed on FTA's list of eligible TVMs, or that
have submitted a goal methodology to FTA that has been approved or has
not been disapproved at the time of solicitation are eligible to bid.
(2) A TVM that fails to follow the requirements of this section and
this part will be deemed as non-compliant, which will result in removal
from FTA's eligible TVMs list and ineligibility to bid.
(3) An FTA recipient's failure to comply with the requirements set
forth in paragraph (a) of this section may result in formal enforcement
action or appropriate sanction as determined by FTA (e.g., FTA
declining to participate in the vehicle procurement).
(4) Within 30 days of becoming contractually required to procure a
transit vehicle, an FTA recipient must report to FTA:
(i) The name of the TVM that was the successful bidder; and
(ii) The Federal share of the contractual commitment at that time.
(b) If you are a TVM, you must establish and submit to FTA an
annual overall percentage goal for DBE participation.
(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 on which you will bid
on during the fiscal year in question, less the portion(s) attributable
to the manufacturing process performed entirely by your own forces.
(i) You must consider and include in your base figure all domestic
contracting opportunities made available to non-DBEs.
(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, you must provide for public
participation. This includes consultation with interested parties
consistent with Sec. 26.45(g).
(2) The requirements of this part with respect to submission and
approval of overall goals apply to you as they do to recipients, except
that TVMs set and submit their goals annually and not on a triennial
basis.
(c) TVMs must comply with the reporting requirements of Sec.
26.11, including the requirement to submit the Uniform Report of DBE
Awards or Commitments and Payments, in order to remain eligible to bid
on FTA assisted transit vehicle procurements.
[[Page 24967]]
(d) TVMs must implement all other 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 the equipment must meet the same
requirements (including goal approval by FHWA or FAA) that TVMs must
meet in FTA assisted procurements.
(f) Recipients may establish project-specific goals for DBE
participation in the procurement of transit vehicles from specialized
manufacturers when a TVM cannot be identified.
(1) Project-specific goals established pursuant to this section are
subject to the same review and approval and must be established as
prescribed in the project goal provisions of Sec. 26.45.
(2) FTA must approve the decision to use a project goal before the
recipient issues a public solicitation for the vehicles in question.
(3) To support the request to develop a project goal, recipients
must demonstrate that no TVMs are available to manufacture the vehicle.
Sec. 26.51 [Amended]
0
43. Amend Sec. 26.51 in paragraph (f)(4) introductory text by removing
the words ``through the use of'' and adding in their place the word
``using''.
0
44. Amend Sec. 26.53 by:
0
a. Revising paragraphs (b)(2)(v) and (b)(3)(ii);
0
b. Adding paragraph (c)(1) and a reserved paragraph (c)(2); and
0
c. Revising paragraphs (e), (f), and (g).
The revisions and addition read as follows:
Sec. 26.53 What are the good faith efforts procedures recipients
follow in situations where there are contract goals?
* * * * *
(b) * * *
(2) * * *
(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. Each DBE listed to perform work
as a regular dealer or distributor must confirm its participation
according to the requirements of paragraph (c)(1) of this section.
(3) * * *
(ii) Provided that, in a negotiated procurement, such as a
procurement for professional services, the bidder/offeror may make a
contractually binding commitment to meet the goal at the time of bid
submission or 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. This
paragraph (b)(3)(ii) does not apply to a design-build procurement,
which must follow the provisions in paragraph (e) of this section.
* * * * *
(c) * * *
(1) For each DBE listed as a regular dealer or distributor you must
make a preliminary counting determination to assess its eligibility for
60 or 40 percent credit, respectively, of the cost of materials and
supplies based on its demonstrated capacity and intent to perform as a
regular dealer or distributor, as defined in Sec. 26.55(e)(2)(iv)(A),
(B), and (C) and (e)(3) under the contract at issue. Your preliminary
determination shall be made based on the DBE's written responses to
relevant questions and its affirmation that its subsequent performance
of a commercially useful function will be consistent with the
preliminary counting of such participation. Where the DBE supplier does
not affirm that its participation will meet the specific requirements
of either a regular dealer or distributor, you are required to make
appropriate adjustments in counting such participation toward the
bidder's good faith efforts to meet the contract goal. The bidder is
responsible for verifying that the information provided by the DBE
supplier is consistent with the counting of such participation toward
the contract goal.
(2) [Reserved]
* * * * *
(e) In a design-build contracting situation, in which the recipient
solicits proposals to design and build a project with minimal-project
details at time of letting, the recipient may set a DBE goal that
proposers must meet by submitting a DBE Open-Ended DBE Performance Plan
(OEPP) with the proposal. The OEPP replaces the requirement to provide
the information required in paragraph (b) of this section that applies
to design-bid-build contracts. To be considered responsive, the OEPP
must include a commitment to meet the goal and provide details of the
types of subcontracting work or services (with projected dollar amount)
that the proposer will solicit DBEs to perform. The OEPP must include
an estimated time frame in which actual DBE subcontracts would be
executed. Once the design-build contract is awarded, the recipient must
provide ongoing monitoring and oversight to evaluate whether the
design-builder is using good faith efforts to comply with the OEPP and
schedule. The recipient and the design-builder may agree to make
written revisions of the OEPP throughout the life of the project, e.g.,
replacing the type of work items the design-builder will solicit DBEs
to perform and/or adjusting the proposed schedule, as long as the
design-builder continues to use good faith efforts to meet the goal.
(f)(1)(i) You must require that a prime contractor not terminate a
DBE or any portion of its work listed in response to paragraph (b)(2)
of this section (or an approved substitute DBE firm per paragraph (g)
of this section) without your prior written consent, unless you cause
the termination or reduction. A termination includes any reduction or
underrun in work listed for a DBE not caused by a material change to
the prime contract by the recipient. This requirement applies to
instances that include, but are not limited to, when a prime contractor
seeks to perform work originally designated for a DBE subcontractor
with its own forces or those of an affiliate, a non-DBE firm, or with
another DBE firm.
(ii) You must include in each prime contract a provision stating
that:
(A) The contractor must 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) Unless your consent is provided under this paragraph (f), the
prime contractor must not be entitled to any payment for work or
material unless it is performed or supplied by the listed DBE.
(2) You may provide such written consent only if you agree, for
reasons stated in your concurrence document, that the prime contractor
has good cause to terminate the listed DBE or any portion of its work.
(3) Good cause does not exist if the prime contractor seeks to
terminate a DBE or any portion of its work that it relied upon to
obtain the contract so that the prime contractor can self-perform the
work for which the DBE contractor was engaged, or so that the prime
contractor can substitute another DBE or non-DBE contractor after
contract award. For purposes of this paragraph (f)(3), good cause
includes the following circumstances:
(i) The listed DBE subcontractor fails or refuses to execute a
written contract;
(ii) The listed DBE subcontractor fails or refuses to perform the
work of its subcontract in a way consistent with
[[Page 24968]]
normal industry standards. Provided, however, that good cause does not
exist if the failure or refusal of the DBE subcontractor to perform its
work on the subcontract results from the bad faith or discriminatory
action of the prime contractor;
(iii) The listed DBE subcontractor fails or refuses to meet the
prime contractor's reasonable, nondiscriminatory bond requirements;
(iv) The listed DBE subcontractor becomes bankrupt, insolvent, or
exhibits credit unworthiness;
(v) The listed DBE subcontractor is ineligible to work on public
works projects because of suspension and debarment proceedings pursuant
to 2 CFR parts 180, 215, and 1200 or applicable State law;
(vi) You have determined that the listed DBE subcontractor is not a
responsible contractor;
(vii) The listed DBE subcontractor voluntarily withdraws from the
project and provides to you written notice of its withdrawal;
(viii) The listed DBE is ineligible to receive DBE credit for the
type of work required;
(ix) A DBE owner dies or becomes disabled with the result that the
listed DBE contractor is unable to complete its work on the contract;
and
(x) Other documented good cause that you determine compels the
termination of the DBE subcontractor.
(4) Before transmitting to you its request to terminate a DBE
subcontractor or any portion of its work, the prime contractor must
give notice in writing to the DBE subcontractor, with a copy to you
sent concurrently, of its intent to request to terminate and the reason
for the proposed request.
(5) The prime contractor's written notice must give the DBE 5 days
to respond, advising you and the contractor of the reasons, if any, why
it objects to the proposed termination of its subcontract/or portion
thereof and why you should not approve the prime contractor's request.
If required in a particular case as a matter of public necessity (e.g.,
safety), you may provide a response period shorter than 5 days.
(6) In addition to post-award terminations, the provisions of this
section apply to pre-award deletions or changes to DBEs or their listed
work put forward by offerors in negotiated procurements.
(g) When a DBE subcontractor or any portion of its work is
terminated by the prime contractor as provided in paragraph (f) of this
section, or if work committed to a DBE is reduced due to
overestimations made prior to award, the prime contractor must use good
faith efforts to include additional DBE participation to the extent
needed to meet the contract goal. The good faith efforts shall be
documented by the contractor. If the recipient requests documentation
under this provision, the contractor shall submit the documentation
within 7 days, which may be extended for an additional 7 days, if
necessary, at the request of the contractor, and the recipient shall
provide a written determination to the contractor stating whether or
not good faith efforts have been demonstrated.
* * * * *
0
45. Amend Sec. 26.55 by:
0
a. Removing the word ``actually'' in paragraph (a) introductory text
and twice in paragraph (c)(1);
0
b. In paragraph (c)(2), removing the words ``in order'';
0
c. In paragraph (c)(3), removing the words ``on the basis of'' and
adding in their place the word ``within'';
0
d. Revising paragraph (e);
0
e. In paragraph (f), removing the cross-reference ``Sec. 26.87(i)''
and adding in its place the cross-reference ``Sec. 26.87(j)''; and
0
f. Revising paragraph (h).
The revisions read as follows:
Sec. 26.55 How is DBE participation counted toward goals?
* * * * *
(e) Count expenditures with DBEs for materials or supplies toward
DBE goals as provided in the following:
(1)(i) If the materials or supplies are obtained from a DBE
manufacturer, count 100 percent of the cost of the materials or
supplies.
(ii) For purposes of this paragraph (e)(1), a manufacturer is a
firm that owns (or leases) and operates a factory or establishment that
produces, on the premises, the materials, supplies, articles, or
equipment required under the contract and of the general character
described by the specifications. Manufacturing includes blending or
modifying raw materials or assembling components to create the product
to meet contract specifications. When a DBE makes minor modifications
to the materials, supplies, articles, or equipment, the DBE is not a
manufacturer. Minor modifications are additional changes to a
manufactured product that are small in scope and add minimal value to
the final product.
(2)(i) If the materials or supplies are purchased from a DBE
regular dealer, count 60 percent of the cost of the materials or
supplies (including transportation costs).
(ii) For purposes of this section, a regular dealer is a firm that
owns (or leases) and-operates, a store, warehouse, or other
establishment in which the materials, supplies, articles or equipment
of the general character described by the specifications and required
under the contract are bought, kept in sufficient quantities, and
regularly sold or leased to the public in the usual course of business.
(iii) Items kept and regularly sold by the DBE are of the ``general
character'' when they share the same material characteristics and
application as the items specified by the contract.
(iv) You must establish a system to determine that a DBE regular
dealer per paragraph (e)(2)(iv)(A) of this section, over a reasonable
period of time, keeps sufficient quantities and regularly sells the
items in question. This system must also ensure that a regular dealer
of bulk items per (e)(2)(iv)(B) of this section owns/leases and
operates distribution equipment for the products it sells. This
requirement may be administered through questionnaires, inventory
records reviews, or other methods to determine whether each DBE
supplier has the demonstrated capacity to perform a commercially useful
function (CUF) as a regular dealer prior to its participation. The
system you implement must be maintained and used to identify all DBE
suppliers with capacity to be eligible for 60 percent credit,
contingent upon the performance of a CUF. This requirement is a
programmatic safeguard apart from that described in Sec. 26.53(c)(1).
(A) To be a regular dealer, the firm must be an established
business that engages, as its principal business and under its own
name, in the purchase and sale or lease of the products in question. A
DBE supplier performs a CUF as a regular dealer and receives credit for
60 percent of the cost of materials or supplies (including
transportation cost) when all, or at least 51 percent of, the items
under a purchase order or subcontract are provided from the DBE's
inventory, and when necessary, any minor quantities delivered from and
by other sources are of the general character as those provided from
the DBE's inventory.
(B) A DBE may be a regular dealer in such bulk items as petroleum
products, steel, concrete or concrete products, gravel, stone, or
asphalt without owning, operating, or maintaining a place of business
as provided in paragraph (e)(2)(ii) of this section if the firm both
owns and operates distribution equipment used to deliver the products.
Any supplementing of regular dealers' own distribution equipment must
be by a long-term operating lease and not on an ad hoc or contract-by-
contract basis.
[[Page 24969]]
(C) A DBE supplier of items that are not typically stocked due to
their unique characteristics (e.g., limited shelf life or items ordered
to specification) should be considered in the same manner as a regular
dealer of bulk items per paragraph (e)(2)(iv)(B) of this section. If
the DBE supplier of these items does not own or lease distribution
equipment, as descried above, it is not a regular dealer.
(D) Packagers, brokers, manufacturers' representatives, or other
persons who arrange, facilitate, or expedite transactions are not
regular dealers within the meaning of paragraph (e)(2) of this section.
(3) If the materials or supplies are purchased from a DBE
distributor that neither maintains sufficient inventory nor uses its
own distribution equipment for the products in question, count 40
percent of the cost of materials or supplies (including transportation
costs). A DBE distributor is an established business that engages in
the regular sale or lease of the items specified by the contract. A DBE
distributor assumes responsibility for the items it purchases once they
leave the point of origin (e.g., a manufacturer's facility), making it
liable for any loss or damage not covered by the carrier's insurance. A
DBE distributor performs a CUF when it demonstrates ownership of the
items in question and assumes all risk for loss or damage during
transportation, evidenced by the terms of the purchase order or a bill
of lading (BOL) from a third party, indicating Free on Board (FOB) at
the point of origin or similar terms that transfer responsibility of
the items in question to the DBE distributor. If these conditions are
met, DBE distributors may receive 40 percent for drop-shipped items.
Terms that transfer liability to the distributor at the delivery
destination (e.g., FOB destination), or deliveries made or arranged by
the manufacturer or another seller do not satisfy this requirement.
(4) With respect to materials or supplies purchased from a DBE that
is neither a manufacturer, a regular dealer, nor a distributor, count
the entire amount of fees or commissions charged that you deem to be
reasonable, including transportation charges for the delivery of
materials or supplies. Do not count any portion of the cost of the
materials and supplies themselves.
(5) 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, distributor, or a transaction facilitator)
on a contract-by-contract basis.
* * * * *
(h) Do not count the participation of a DBE subcontractor toward a
contractor's final compliance with its DBE obligations on a contract
until the contractor has paid the DBE the amount being counted.
0
46. Revise Sec. 26.61 to read as follows:
Sec. 26.61 Burden of proof
(a) In determining whether to certify a firm, the certifier must
apply the standards of this subpart. Unless the context indicates
otherwise, singular terms include their plural forms and vice versa.
(b) The firm has the burden of demonstrating, by a preponderance of
the evidence, i.e., more likely than not, that it satisfies all of the
requirements in this subpart. In determining whether the firm has met
its burden, the certifier must consider all the information in the
record, viewed as a whole.
(1) Exception 1. In a decertification proceeding the certifier
bears the burden of proving, by a preponderance of the evidence, that
the firm is no longer eligible for certification under the rules of
this part.
(2) Exception 2. If a certifier has a reasonable basis to believe
that an individual who is a member of a group in Sec. 26.67(a) of this
section is not, in fact, socially and/or economically disadvantaged,
the certifier bears the burden of proving, by a preponderance of the
evidence, that the individual is not socially and/or economically
disadvantaged.
0
47. Revise Sec. 26.63 to read as follows:
Sec. 26.63 General certification rules.
(a) General rules. Except as otherwise provided:
(1) The firm must be for-profit and engaged in business activities.
(2) In making eligibility determinations, a certifier may not
consider whether a firm performs a commercially useful function (CUF),
or the potential effect on goals or counting.
(3) A certifier cannot condition eligibility on State
prequalification requirements for bidding on contracts.
(4) Certification is not a warranty of competence or suitability.
(5) A certifier determines eligibility based on the evidence it has
at the time of its decision, not on the basis of historical or outdated
information, giving full effect to the ``curative measures'' provisions
of this part.
(6) Entering into a fraudulent transaction or presenting false
information to obtain or maintain DBE certification is disqualifying.
(b) Indirect ownership. A subsidiary (i.e., S) that SEDOs own and
control indirectly is eligible, if it satisfies the other requirements
of this part and only under the following circumstances.
(1) Look-through. SEDOs own at least 51 percent of S through their
ownership of P (i.e., the parent firm) as shown in the examples
following.
(2) Control. SEDOs control P, and P controls S.
(3) One tier of separation. The SEDOs indirectly own S through P
and no other intermediary. That is, no applicant or DBE may be more
than one entity (P) removed from its individual SEDOs.
(4) Examples. The following examples assume that S and its SEDOs
satisfy all other requirements in this part.
(i) Example 1 to paragraph (b)(4). SEDOs own 100 percent of P, and
P owns 100 percent of S. S is eligible for certification.
(ii) Example 2 to paragraph (b)(4). Same facts as Example 1, except
P owns 51 percent of S. S is eligible.
(iii) Example 3 to paragraph (b)(4). SEDOs own 80 percent of P, and
P owns 70 percent of S. S is eligible because SEDOs indirectly own 56
percent of S. The calculation is 80 percent of 70 percent or .8 x .7 =
.56.
(iv) Example 4 to paragraph (b)(4). SEDOs own and control P, and
they own 52 percent of S by operation of this paragraph (b). However, a
non-SEDO controls S. S is ineligible.
(v) Example 5 to paragraph (b)(4). SEDOs own 60 percent of P, and P
owns 51 percent of S. S is ineligible because SEDOs own just 31 percent
of S.
(vi) Example 6 to paragraph (b)(4). P indirectly owns and controls
S and has other affiliates. S is eligible only if its gross receipts,
plus those of all of its affiliates, do not exceed the applicable small
business size cap of Sec. 26.65. Note that all of P's affiliates are
affiliates of S by virtue of P's ownership and/or control of S.
(c) Indian Tribes, NHOs, and ANCs--(1) Indian Tribes and NHOs. A
firm that is owned by an Indian Tribe or Native Hawaiian organization
(NHO), rather than by Indians or Native Hawaiians as individuals, is
eligible if it meets all other certification requirements in this part.
(2) Alaska Native Corporations (ANCs). (i) Notwithstanding any
other provisions of this subpart, a subsidiary corporation, joint
venture, or partnership entity of an ANC is eligible for certification
if it meets all the following requirements:
(A) The Settlement Common Stock of the underlying ANC and other
stock of the ANC held by holders of the Settlement Common Stock and by
[[Page 24970]]
Natives and descendants of Natives represents a majority of both the
total equity of the ANC and the total voting power of the corporation
for purposes of electing directors;
(B) The shares of stock or other units of common ownership interest
in the subsidiary, joint venture, or partnership entity held by the ANC
and by holders of its Settlement Common Stock represent a majority of
both the total equity of the entity and the total voting power of the
entity for the purpose of electing directors, the general partner, or
principal officers; and
(C) The subsidiary, joint venture, or partnership entity has been
certified by the Small Business Administration under the 8(a) or small
disadvantaged business program.
(ii) As a certifier to whom an ANC-related entity applies for
certification, a certifier must not use the Uniform Certified
Application. The certifier must obtain from the firm documentation
sufficient to demonstrate that the entity meets the requirements of
paragraph (c)(2)(i) of this section. The certifier must also obtain
sufficient information about the firm to allow the certifier to
administer its program (e.g., information that would appear in a UCP
directory).
(iii) If an ANC-related firm does not meet all the conditions of
paragraph (c)(2)(i) of this section, then it must meet the requirements
of paragraph (c)(1) of this section in order to be certified.
0
48. Revise Sec. 26.65 to read as follows:
Sec. 26.65 Business Size Determinations.
(a) By NAICS Code. A firm (including its affiliates) must be a
small business, as defined by the Small Business Administration (SBA).
The certifier must apply the SBA business size limit in 13 CFR part 121
which corresponds to the applicable primary industry classifications
(NAICS codes). The firm is ineligible when its affiliated ``receipts''
(computed on a cash basis), as defined in 13 CFR 121.104(a) and
averaged over the firm's preceding five fiscal years, exceed the
applicable SBA size cap(s).
(b) Statutory Cap. Even if a firm is a small business under
paragraph (a) of this section, it is ineligible to perform DBE work on
FHWA or FTA assisted contracts if its affiliated annual gross receipts,
as defined in 13 CFR 121.104, over the firm's previous three fiscal
years exceed $30.40 million (as of March 1, 2023). The Department will
adjust this amount annually and post the adjusted amount on its website
available at https://www.transportation.gov/DBEsizestandards. 50.
0
49. Revise Sec. 26.67 to read as follows:
Sec. 26.67 Social and economic disadvantage.
(a) Group membership--(1) General rule. Citizens of the United
States (or lawfully admitted permanent residents) who are women, Black
American, Hispanic American, Native American, Asian Pacific American,
Subcontinent Asian American, or other minorities found to be
disadvantaged by the Small Business Administration (SBA), are
rebuttably presumed to be socially and economically disadvantaged. A
firm owner claiming the presumption must specify of which groups in
this paragraph (a)(1) she or he is a member on the Declaration of
Eligibility (DOE).
(2) Native American group membership. An owner claiming Native
American group membership must submit a signed DOE as well as proof of
enrollment in a federally or State-recognized Indian Tribe. An owner
claiming Native Hawaiian or Alaska Native group membership must submit
documentation legally recognized under State or Federal law attesting
to the individual's status as a member of that group.
(3) Questioning group membership. (1) Certifiers may not question
claims of group membership as a matter of course. Certifiers must not
impose a disproportionate burden on members of any particular group.
Imposing a disproportionate burden on members of a particular group
could violate Title VI of the Civil Rights Act of 1964, paragraph (b)
of this section, and/or 49 CFR part 21.
(i) If a certifier has a well-founded reason(s) to question an
owner's claim of membership in a group in paragraph (a)(1) of this
section, it must provide the individual a written explanation of its
reason(s), using the most recent email address provided. The firm bears
the burden of proving, by a preponderance of the evidence, that the
owner is a member of the group in question.
(ii) A certifier's written explanation must instruct the individual
to submit evidence demonstrating that the individual has held herself/
himself/themself out publicly as a member of the group for a long
period of time prior to applying for DBE certification, and that the
relevant community considers the individual a member. The certifier may
not require the individual to provide evidence beyond that related to
group membership.
(iii) The owner must email the certifier evidence described in
paragraph (a)(3)(ii) of this section no later than 20 days after the
written explanation. The certifier must email the owner a decision no
later than 30 days after receiving timely submitted evidence.
(iv) If a certifier determines that an individual has not
demonstrated group membership, the certifier's decision must
specifically reference the evidence in the record that formed the basis
for the conclusion and give a detailed explanation of why the evidence
submitted was insufficient. It must also inform the individual of the
right to appeal, as provided in Sec. 26.89(a), and of the right to
reapply at any time under paragraph (e) of this section.
(b) Rebuttal of social disadvantage. (1) If a certifier has a
reasonable basis to believe that an individual who is a member of a
group in paragraph (a)(1) of this section is not, in fact, socially
disadvantaged, the certifier must initiate a Sec. 26.87 proceeding,
regardless of the firm's DBE status. As is the case in all section
Sec. 26.87 proceedings, the certifier must prove ineligibility.
(2) If the certifier finds that the owner is not socially
disadvantaged, its decision letter must inform the firm of its appeal
rights.
(c) Rebuttal of economic disadvantage--(1) Personal net worth. If a
certifier has a reasonable basis to believe that an individual who
submits a PNW Statement that is below the currently applicable PNW cap
is not economically disadvantaged, the certifier may rebut the
individual's presumption of economic disadvantage.
(i) The certifier must not attempt to rebut presumed economic
disadvantage as a matter of course and it must avoid imposing
unnecessary burdens on individual owners or disproportionately impose
them on members of a particular group.
(ii) The certifier must proceed as provided in Sec. 26.87.
(2) Economic disadvantage in fact. (i) To rebut the presumption,
the certifier must prove that a reasonable person would not consider
the individual economically disadvantaged. The certifier may consider
assets and income, free use of them or ready access to their benefits,
and any other trappings of wealth that the certifier considers
relevant. There are no assets (including retirement assets), income,
equity, or other exclusions and no limitations on inclusions. A broad
and general analysis suffices in most cases: the owner has, or enjoys
the benefits of, income of X; two homes worth approximately Y;
substantial interests in outside businesses Q, R, and S; four rental
properties of aggregate value Z; etc. The certifier need only
demonstrate ``ballpark'' values based on available evidence. The
reasonable person is not
[[Page 24971]]
party to detailed financial information. S/he considers the owner's
overall circumstances and lifestyle.
(ii) The certifier must proceed as provided in Sec. 26.87.
(d) Non-presumptive disadvantage. An owner who is not presumed to
be SED under paragraph (a) of this section may demonstrate that he is
SED based on his own experiences and circumstances that occurred within
American society.
(1) To attempt to prove individual SED, the owner provides the
certifier a Personal Narrative (PN) that describes in detail specific
acts or omissions by others, which impeded his progress or success in
education, employment, and/or business, including obtaining financing
on terms available to similarly situated, non-disadvantaged persons.
(2) The PN must identify at least one objective basis for the
detrimental discrimination. The basis may be any identifiable status or
condition. The PN must describe this objective distinguishing
feature(s) (ODF) in sufficient detail to justify the owner's conclusion
that it prompted the prejudicial acts or omissions.
(3) The PN must state how and to what extent the discrimination
caused the owner harm, including a full description of type and
magnitude.
(4) The owner must establish that he is economically disadvantaged
in fact and that he is economically disadvantaged relative to similarly
situated non-disadvantaged individuals.
(5) The owner must attach to the PN a current PNW statement and any
other financial information he considers relevant.
(6) This rule does not prescribe how the owner must satisfy his
burden of proving disadvantage. He need not, for example, have filed
any formal complaint, or prove discrimination under a particular
statute.
Example 1 to paragraph (d). A White male claiming to have
experienced employment discrimination must provide evidence that his
employment status and/or limited opportunities to earn income result
from specific prejudicial acts directed at him personally because of an
ODF, and not, e.g., an economic recession that caused widespread
unemployment.
0
50. Add Sec. 26.68 to read as follows:
Sec. 26.68 Personal net worth.
(a) General. An owner whose PNW exceeds the regulation's currently
applicable PNW limit is not presumed economically disadvantaged.
(b) Required documents. Each owner on whom the firm relies for
certification must submit a DOE and a corroborating personal net worth
(PNW) statement, including required attachments. The owner must report
PNW on the form, available at https://www.Transportation.gov/DBEFORMS.
A certifier may require an owner to provide additional information on a
case-by-case basis to verify the accuracy and completeness of the PNW
statement. The certifier must have a legitimate and demonstrable need
for the additional information.
(c) Reporting. The following rules apply without regard to State
community property, equitable distribution, or similar rules. The owner
reports assets and liabilities that she owns or is deemed to own.
Ownership tracks title to the asset or obligor status on the liability
except where otherwise provided or when the transaction results in
evasion or abuse.
(1) The owner excludes her ownership interest in the applicant or
DBE.
(2) The owner excludes her share of the equity in her primary
residence. There is no exclusion when the SEDO does not own the home.
Example 1 to paragraph (c)(2). The owner and her spouse hold joint
title to their primary residence, for which they paid $300,000 and are
coequal debtors on a bank mortgage and a home equity line of credit
with current combined balances of $150,000. The owner may exclude her
$75,000 share of the $150,000 of total equity.
(3) The owner includes the full value of the contents of her
primary residence unless she cohabits with a spouse or domestic
partner, in which case she excludes only 50 percent of those assets.
(4) The owner includes the value of all motor vehicles, including
watercraft and ATVs, titled in her name or of which she is the
principal operator.
(5) The owner excludes the liabilities of any other party and those
contingent on a future event or of undetermined value as of the date of
the PNW Statement.
(6) The owner includes her proportional share of the balance of a
debt on which she shares joint and severable liability with other
primary debtors.
Example 2 to paragraph (c)(6). When the owner co-signs a debt
instrument with two other individuals, the rule considers her liable
for one-third of the current loan balance.
(7) The owner includes assets transferred to relatives or related
entities within the two years preceding any UCA or DOE, when the assets
so transferred during the period have an aggregate value of more than
$20,000. Relatives include the owner's spouse or domestic partner,
children (whether biological, adopted or stepchildren), siblings
(including stepsiblings and those of the spouse or domestic partner),
and parents (including stepparents and those of the spouse or domestic
partner). Related entities include for-profit privately held companies
of which any relative is an owner, officer, director, or equivalent;
and family or other trusts of which the owner or any relative is
grantor, trustee, or beneficiary, except when the transfer is
irrevocable.
(8) The owner excludes direct payments, on behalf of immediate
family members or their children, to unrelated providers of healthcare,
education, or legal services.
(9) The owner excludes direct payments to providers of goods and
services directly related to a celebration of an immediate family
member's or that family member's child's significant, normally non-
recurring life event.
(10) The owner excludes from net worth all assets in qualified
retirement accounts but must report those accounts, the value of assets
in them, and any significant terms and restrictions concerning the
assets' use, to the certifier.
(d) Regulatory adjustments. (1) The Department will adjust the PNW
cap by May 9, 2024 by multiplying $1,600,000 by the growth in total
household net worth since 2019 as described by ``Financial Accounts of
the United States: Balance Sheet of Households (Supplementary Table
B.101.h)'' produced by the Board of Governors of the Federal Reserve
(https://www.federalreserve.gov/releases/z1/), and normalized by the
total number of households as collected by the Census in ``Families and
Living Arrangements'' (https://www.census.gov/topics/families/families-and-households.html) to account for population growth. The Department
will adjust the PNW cap every 3 years on the anniversary of the initial
adjustment date described in this section. The Department will post the
adjustments on the Departmental Office of Civil Rights' web page,
available at https://www.Transportation.gov/DBEPNW. Each such
adjustment will become the currently applicable PNW limit for purposes
of this regulation.
(2) The Department will use the following formula to adjust the PNW
limit:
[[Page 24972]]
[GRAPHIC] [TIFF OMITTED] TR09AP24.001
(e) Confidentiality. Notwithstanding any provision of Federal or
State law, a certifier must not release an individual's PNW 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 Sec.
26.89 or to any other State to which the individual's firm has applied
for certification under Sec. 26.85.
0
51. Revise Sec. 26.69 to read as follows:
Sec. 26.69 Ownership.
(a) General rule. A SEDO must own at least 51 percent of each class
of ownership of the firm. Each SEDO whose ownership is necessary to the
firm's eligibility must demonstrate that her ownership satisfies the
requirements of this section. If not, the firm is ineligible.
(b) Overall Requirements. A SEDO's acquisition and maintenance of
an ownership interest meets the requirements of this section only if
the SEDO demonstrates the following:
(1) Acquisition. The SEDO acquires ownership at fair value and by
one or more ``investments,'' as defined in paragraph (c) of this
section.
(2) Proportion. No owner derives benefits or bears burdens that are
clearly disproportionate to their ownership shares.
(3) Maintenance. This section's requirements continue to apply
after the SEDO's acquisition and the firm's certification. That is, the
SEDO must maintain her investment and its proportion relative to those
of other owners.
(i) The SEDO may not withdraw or revoke her investment.
(ii) When an existing co-owner contributes significant, additional,
post-acquisition cash or property to the firm, the SEDO must increase
her own investment to a level not clearly disproportionate to the non-
SEDO's investment.
(A) Example 1 to paragraph (b)(3)(ii). SEDO and non-SEDO own DBE
60/40. Their respective investments are approximately $600,000 and
$400,000. The DBE has operated its business under this ownership and
with this capitalization for 2 years. In Year 3, the non-SEDO
contributes a $2 million asset to the business. The SEDO, as a result,
owns 60 percent of a $2 million asset without any additional outlay.
Her ownership interest, assuming no other pertinent facts, is worth
$1.2 million more than it was before. Unless the SEDO increases her
investment significantly, it is clearly disproportionate to the non-
SEDO's investment and to her nominal 60 percent ownership. She has not
maintained her investment.
(B) Example 2 to paragraph (b)(3)(ii). Same facts except that the
DBE purchases the asset with a combination of 30 percent operating
income and 70 percent proceeds of a bank loan. The SEDO maintains her
investment because it remains in proportion to the non-SEDO's
investment and to the value of her 60 percent ownership interest.
(C) Example 3 to paragraph (b)(3)(ii). Same facts except that the
non-SEDO, not a bank, is the DBE's creditor. The SEDO has not
maintained her investment because the benefits and burdens of her
ownership are clearly disproportionate to those of the non-SEDO. The
transaction may also raise Sec. 26.71 concerns.
(iii) An organic increase in the value of the business does not
affect maintenance because the value of the owners' investments remains
proportional. In Example 2 above, the SEDO and the non-SEDO own the new
asset at 60 percent and 40 percent of its net value of $60,000.
(c) Investments. A SEDO may acquire ownership by purchase, capital
contribution, or gift. Subject to the other requirements of this
section, each is considered an ``investment'' in the firm, as are
additional purchases, contributions, and qualifying gifts.
(1) Investments are unconditional and at full risk of loss.
(2) Investments include a significant outlay of the SEDO's own
money.
(3) For purposes of this part, title determines ownership of assets
used for investments and of ownership interests themselves. This rule
applies regardless of contrary community property, equitable
distribution, banking, contract, or similar laws, rules, or principles.
(i) The person who has title to the asset owns it in proportion to
her share of title.
(ii) However, the title rule is deemed not to apply when it
produces a certification result that is manifestly unjust.
(4) If the SEDO jointly (50/50) owns an investment of cash or
property, the SEDO may claim at least a 51 percent ownership interest
only if the other joint owner formally transfers to the SEDO enough of
his ownership in the invested asset(s) to bring the SEDO's investment
to at least 51 percent of all investments in the firm. Such transfers
may be gifts described in paragraph (e) of this section.
(d) Purchases and capital contributions. (1) A purchase of an
ownership interest is an investment when the consideration is entirely
monetary and not a trade of property or services.
(2) Capital that the SEDO contributes directly to the company is an
investment when the contribution is all cash or a combination of cash
and tangible property and/or realty.
(3) Contributions of time, labor, services, and the like are not
investments or components of investments.
(4) Loans are not investments. The proceeds of loans may be
investments to the extent that they finance the SEDO's qualifying
purchase or capital contribution.
(5) Debt-financed purchases or capital contributions are
investments when they comply with the rules in this section and in
Sec. 26.70.
(6) Guarantees are not investments.
(7) The firm's purchases or sales of property, including ownership
in itself or other companies, are not the SEDO's investments.
(8) Other persons' or entities' purchases or capital contributions
are not the SEDO's investments.
(e) Gifts. A gift to the SEDO is an investment when it meets the
requirements of this section. The gift rules apply to partial gifts,
bequests, inheritances, trust distributions, and transfers for
inadequate consideration. They apply to gifts of ownership interests
and to gifts of cash or property that the SEDO invests. The following
requirements apply to gifts on which the SEDO relies for her
investment.
(1) The transferor/donor is or immediately becomes uninvolved with
the firm in any capacity and in any other business that contracts with
the
[[Page 24973]]
firm other than as a lessor or provider of standard support services;
(2) The transferor does not derive undue benefit; and
(3) A writing documents the gift. When the SEDO cannot reasonably
produce better evidence, a receipt, cancelled check, or transfer
confirmation suffices, if the writing identifies transferor,
transferee, amount or value, and date.
(f) Curative measures. The rules of this section do not prohibit
transactions that further the objectives of, and compliance with, the
provisions of this part. A SEDO or firm may enter into legitimate
transactions, alter the terms of ownership, make additional
investments, or bolster underlying documentation in a good faith effort
to remove, surmount, or correct defects in eligibility, as long as the
actions are consistent with this part.
(1) The certifier may notify the firm of eligibility concerns and
give the firm time, if the firm wishes, to attempt to remedy
impediments to certification.
(2) The firm may, of its own volition, take curative action up to
the time of the certifier's decision. However, it must present evidence
of curation before the certifier's decision.
(3) The certifier may provide general assistance and guidance but
not professional (legal, accounting, valuation, etc.) advice or
opinions.
(4) While the certifier may not affirmatively impede attempts to
cure, it may maintain its decision timeline and make its decision based
on available evidence.
(5) The certifier must deny or remove certification when the firm's
efforts or submissions violate the rules in paragraph (g) of this
section.
(g) Anti-abuse rules. (1) The substance and not the form of
transactions drives the eligibility determination.
(2) The certifier must deny applications based on sham transactions
or false representations, and it must decertify DBEs that engage in or
make them. Transactions or representations designed to evade or
materially mislead subject the firm to the same consequences.
(3) Fraud renders the firm ineligible and subjects it to sanctions,
suspension, debarment, criminal prosecution, civil litigation, and any
other consequence or recourse not proscribed in this part.
Example 1 to paragraph (g)(3). SEDO claims an investment consisting
of a contribution of equipment and a significant amount of her own
cash. She shows that she transferred title to the equipment and wrote a
check from an account she alone owns. She does not disclose that her
brother-in-law lent her the money and she must repay him. The firm is
ineligible under paragraphs (g)(1) and (2) of this section.
0
52. Add Sec. 26.70 to read as follows:
Sec. 26.70 Debt-financed investments.
(a) Subject to the other provisions of this subpart, a SEDO may
borrow money to finance a Sec. 26.69(c) investment entirely or
partially if the SEDO has paid, on a net basis, at least 15 percent of
the total value of the investment by the time the firm applies for
certification.
Example 1 to paragraph (a) introductory text. A SEDO who borrows
$9,000 of her $10,000 cash investment in Applicant, Inc., must have
repaid, from her own funds, at least $500 of the loan's principal by
the time Applicant, Inc. applies for certification.
Example 2 to paragraph (a) introductory text. A SEDO who finances
$8,000 of a $10,000 investment in Applicant may apply for Applicant's
certification at any time.
Example 3 to paragraph (a) introductory text. A SEDO who
contributes to the Applicant equipment worth $40,000, which she
purchased with $10,000 of her own money and $30,000 of seller financing
may apply for Applicant's certification at any time.
(1) The SEDO pays the net 15 percent portion of the investment to
Seller or Applicant (as the case may be) from her own, not borrowed,
money.
(2) Money that the SEDO receives as a Sec. 26.69(e) gift is her
own money.
(3) The firm, whether Applicant or DBE, does not finance any part
of the investment, directly or indirectly.
(b) The loan is real, enforceable, not in default, not offset by
another agreement, and on standard commercial, arm's length terms. The
following conditions also apply.
(1) The SEDO is the sole debtor.
(2) The firm is not party to the loan in any capacity, including as
a guarantor.
(3) The SEDO does not rely on the company's credit or other
resources to repay any part of the debt or otherwise to finance any
part of her investment.
(4) The loan agreement requires level, regularly recurring payments
of principal and interest, according to a standard amortization
schedule, at least until the SEDO satisfies requirements in paragraph
(a) of this section.
(5) The loan agreement permits prepayments, including by
refinancing.
(c) If the creditor forgives or cancels all or part of the debt, or
the SEDO defaults, the entire debt-financed portion of the SEDO's
purchase or capital contribution is no longer an investment.
Example 4 to paragraph (c). SEDO finances $40,000 of a $50,000
investment, and the firm becomes certified. When the SEDO has repaid
half of the loan's principal and associated interest, the creditor
forgives the remaining $20,000 debt. The SEDO's investment is now
$10,000.
(d) Paragraph (c) of the section does not prohibit refinancing with
debt that meets the requirements of this section or preclude prompt
curation under Sec. 26.69(f).
0
53. Revise Sec. 26.71 to read as follows:
Sec. 26.71 Control.
(a) General rules. (1) One or more SEDOs of the firm must control
it.
(2) Control determinations must consider all pertinent facts,
viewed together and in context.
(3) A firm must have operations in the business for which it seeks
certification at the time it applies. Certifiers do not certify plans
or intentions, or issue contingent or conditional certifications.
(b) SEDO as final decision maker. A SEDO must be the ultimate
decision maker in fact, regardless of operational, policy, or
delegation arrangements.
(c) Governance. Governance provisions may not require that any SEDO
obtain concurrence or consent from a non-SEDO to transact business on
behalf of the firm.
(1) Highest officer position. A SEDO must hold the highest officer
position in the company (e.g., chief executive officer or president).
(2) Board of directors. Except as detailed in paragraph (c)(4) of
this section, a SEDO must have present control of the firm's board of
directors, or other governing body, through the number of eligible
votes.
(i) Quorum requirements. Provisions for the establishment of a
quorum must not block the SEDO from calling a meeting to vote and
transact business on behalf of the firm.
(ii) Shareholder actions. A SEDO's authority to change the firm's
composition via shareholder action does not prove control within the
meaning of paragraph (c) of this section.
(3) Partnerships. In a partnership, at least one SEDO must serve as
a general partner, with control over all partnership decisions.
(4) Exception. Bylaws or other governing provisions that require
non-SEDO consent for extraordinary actions generally do not contravene
the rules in paragraph (c) of this section. Non-exclusive examples are
a sale of the company or substantially all of its assets, mergers, and
a sudden, wholesale change of type of business.
[[Page 24974]]
(d) Expertise. At least one SEDO must have an overall understanding
of the business and its essential operations sufficient to make sound
managerial decisions not primarily of an administrative nature. The
requirements of this paragraph (d) vary with type of business, degree
of technological complexity, and scale.
(e) SEDO decisions. The firm must show that the SEDO critically
analyzes information provided by non-SEDOs and uses that analysis to
make independent decisions.
(f) Delegation. A SEDO may delegate administrative activities or
operational oversight to a non-SED individual as long as at least one
SEDO retains unilateral power to fire the delegate(s), and the chain of
command is evident to all participants in the company and to all
persons and entities with whom the firm conducts business.
(1) No non-SED participant may have power equal to or greater than
that of a SEDO, considering all the circumstances. Aggregate magnitude
and significance govern; a numerical tally does not.
(2) Non-SED participants may not make non-routine purchases or
disbursements, enter into substantial contracts, or make decisions that
affect company viability without the SEDO's consent.
(3) Written provisions or policies that specify the terms under
which non-SED participants may sign or act on the SEDO's behalf with
respect to recurring matters generally do not violate this paragraph
(f), as long as they are consistent with the SEDO having ultimate
responsibility for the action.
(g) Independent business. (1) If the firm receives from or shares
personnel, facilities, equipment, financial support, or other essential
resources, with another business (whether a DBE or non-DBE firm) or
individual on other than commercially reasonable terms, the firm must
prove that it would be viable as a going concern without the
arrangement.
(2) The firm must not regularly use another firm's business-
critical vehicles, equipment, machinery, or facilities to provide a
product or service under contract to the same firm or one in a
substantially similar business.
(i) Exception 1. Paragraphs (g)(1) and (2) of this section do not
preclude the firm from providing services to a single customer or to a
small number of them, provided that the firm is not merely a conduit,
captive, or unnecessary third party acting on behalf of another firm or
individual. Similarly, providing a volume discount to such a customer
does not impair viability unless the firm repeatedly provides the
service at a significant and unsustainable loss.
(ii) Exception 2. A firm may share essential resources and deal
exclusively with another firm that a SEDO controls and of which the
SEDO owns at least 51 percent ownership.
(h) Franchise and license agreements. A business operating under a
franchise or license agreement may be certified if it meets the
standards in this subpart and the franchiser or licenser is not
affiliated with the franchisee or licensee. In determining whether
affiliation exists, the certifier should generally not consider the
restraints relating to standardized quality, advertising, accounting
format, and other provisions imposed on the franchisee or licensee by
the franchise agreement or license, if the franchisee or licensee has
the right to profit from its efforts and bears the risk of loss
commensurate with ownership. Alternatively, even though a franchisee or
licensee may not be controlled by virtue of such provisions in the
franchise agreement or license, affiliation could arise through other
means, such as common management or excessive restrictions on the sale
or transfer of the franchise interest or license.
0
54. Revise Sec. 26.73 to read as follows:
Sec. 26.73 NAICS Codes.
(a) A certifier must grant certification to a firm only for
specific types of work that the SEDO controls. To become certified in
an additional type of work, the firm must demonstrate to the certifier
only that its SEDO controls the firm with respect to that type of work.
The certifier must not require that the firm be recertified or submit a
new application for certification but must verify the SEDO's control of
the firm in the additional type of work.
(1) A correct NAICS code is the one that describes, as specifically
as possible, the principal goods or services which the firm would
provide to DOT recipients. Multiple NAICS codes may be assigned where
appropriate. Program participants must rely on, and not depart from,
the plain meaning of NAICS code descriptions in determining the scope
of a firm's certification.
(2) If there is not a NAICS code that fully, clearly, or
sufficiently narrowly describes the type(s) of work for which the firm
seeks certification, the certifier must supplement or limit the
assigned NAICS code(s) with a clear, specific, and concise narrative
description of the type of work in which the firm is certified. A
vague, general, or confusing description is insufficient.
(3) Firms and certifiers must check carefully to make sure that the
NAICS codes cited in a certification are kept up-to-date and accurately
reflect work which the UCP has determined the firm's owners can
control. The firm bears the burden of providing detailed company
information the certifying agency needs to make an appropriate NAICS
code designation.
(4) A certifier may change a certification classification or
description if there is a factual basis in the record, in which case it
must notify the firm 30 days before making the change. Certifiers may
not apply such changes retroactively.
(5) In addition to applying the appropriate NAICS code, the
certifier may apply a descriptor from a classification scheme of
equivalent detail and specificity. Such a descriptor (e.g., a ``work
code'') does not supersede or limit the types of work for which a DBE
is eligible under an appropriate NAICS code.
(b) [Reserved]
0
55. Amend Sec. 26.81 by:
0
a. Revising paragraph (a)(1);
0
b. Removing paragraph (a)(5);
0
b. In paragraph (e), removing the word ``the'' from the first sentence;
and
0
c. Revising paragraph (g).
The revisions read as follows:
Sec. 26.81 Unified Certification Programs.
(a) * * *
(1) All recipients in the same jurisdiction (normally a State) must
sign an agreement establishing a UCP and submit the agreement to the
Secretary for approval.
* * * * *
(g) Each UCP must maintain a unified DBE directory containing, for
all firms certified by the UCP (including those from other States
certified under the provisions of this part), the information required
by Sec. 26.31. The UCP must make the directory available to the public
electronically, on the internet. The UCP must update the electronic
version of the directory by including additions, deletions, and other
changes as soon as they are made.
* * * * *
0
56. Amend Sec. 26.83 by revising the section heading and paragraphs
(c)(1)(i), (c)(3), (h), (i)(3), (j), (k), (l), and (m) and adding
paragraph (n) to read as follows:
Sec. 26.83 What procedures do certifiers follow in making
certification decisions?
* * * * *
(c)(1) * * *
(i) A certifier must visit the firm's principal place of business,
virtually or in person, and interview the SEDO,
[[Page 24975]]
officers, and key personnel. The certifier must review those persons'
r[eacute]sum[eacute]s and/or work histories. The certifier must
maintain a complete audio recording of the interview. The certifier
must also visit one or more active job sites (if there is one). These
activities comprise the ``on-site review'' (OSR), a written report of
which the certifier must keep in its files.
* * * * *
(3) The certifier must ensure that the SEDO signs the Declaration
of Eligibility (DOE) at the end of the Uniform Certification
Application (UCA), subscribed to as true under penalty of perjury that
all information provided is current, accurate, and complete.
* * * * *
(h)(1) Once a certifier has certified a firm, the firm remains
certified unless and/or until the certifier removes certification, in
whole or in part (i.e., NAICS code removal), through the procedures of
Sec. 26.87.
(2) The certifier may not require a DBE to reapply for
certification, renew its certification, undergo a recertification, or
impose any functionally equivalent requirement. The certifier may,
however, conduct a certification review at any reasonable time and/or
at regular intervals of at least two years. The certification review
may, at the certifier's discretion, include a new OSR. The certifier
may also make an unannounced visit to the DBE's offices and/or job
site. The certifier may also rely on another certifier's report of its
OSR of the DBE.
(i) * * *
(3) The DBE must notify the certifier of a material change in its
circumstances that affects its continued eligibility within 30 days of
its occurrence, explain the change fully, and include a duly executed
DOE with the notice. The DBE's non-compliance is a Sec. 26.109(c)
failure to cooperate.
(j) A DBE must provide its certifier(s), every year on the
anniversary of its original certification, a new DOE along with the
specified documentation in Sec. 26.65(a), including gross receipts for
its most recently completed fiscal year, calculated on a cash basis
regardless of the DBE's overall accounting method. The sufficiency of
documentation (and its probative value) may vary by business type,
size, history, resources, and overall circumstances. However, the
following documents may generally be considered ``safe harbors,''
provided that they include all reportable receipts, properly
calculated, for the full reporting period: audited financial
statements, a CPA's signed attestation of correctness and completeness,
or all income-related portions of one or more (when there are
affiliates) signed Federal income tax returns as filed. Non-compliance,
whether full or partial, is a Sec. 26.109(c) failure to cooperate.
(k) The certifier must advise each applicant within 30 days of
filing whether the application is complete and suitable for evaluation
and, if not, what additional information or action is required.
(l) The certifier must render a final eligibility decision within
90 days of receiving all information required from the applicant under
this part. The certifier may extend this time period once, for no more
than an additional 30 days, upon written notice to the firm, explaining
fully and specifically the reasons for the extension. On a case-by-case
basis, the concerned OA may give the certifier one deadline extension
if it approves a written request explaining why the certifier needs
more time. The certifier's failure to issue a compliant decision by the
applicable deadline is a constructive denial of the application,
appealable to DOT under Sec. 26.89. In this case, the certifier may be
subject to enforcement actions described in Sec. Sec. 26.103 and
26.105.
(2) The certifier must make an entry in DOCR's Online Portal within
5 days of a denial. The certifier must enter the name of the firm,
names(s) of the firm's owner(s), date of decision, and the reason(s)
for its decision.
(m)(1) A certifier may notify the applicant about ineligibility
concerns and allow the firm to rectify deficiencies within the period
in paragraph (l) of this section.
(2) If a firm takes curative measures before the certifier renders
a decision, the certifier must consider any evidence it submits of
having taken such measures. The certifier must not automatically
construe curative measures as successful or abusive.
(i) Example 1 to paragraph (m)(2). The firm may obtain proof of an
investment, transaction, or other fact on which its eligibility
depends.
(ii) Example 2 to paragraph (m)(2). An owner or related party may
create a legally enforceable document of irrevocable transfer to the
SEDO.
(iii) Example 3 to paragraph (m)(2). The firm may amend an
operating agreement, bylaw provision, or other governance document,
provided that the amendment accurately reflects the parties'
relationships, powers, responsibilities, and other pertinent
circumstances.
(n) Except as otherwise provided in this paragraph (n), if an
applicant for DBE certification withdraws its application before the
certifier issues a decision, the applicant can resubmit the application
at any time. However, the certifier may place the reapplication at the
``end of the line,'' behind other applications that have been made
since the firm's previous application was withdrawn. The certifier may
apply the Sec. 26.86(c) waiting period to a firm that has established
a pattern of withdrawing applications before its decision.
0
57. Revise Sec. 26.85 to read as follows:
Sec. 26.85 Interstate certification.
(a) Applicability. This section applies to a DBE certified in any
UCP.
(b) General rule. When a DBE applies to another UCP for
certification, the new UCP must accept the DBE's certification from its
jurisdiction of original certification (JOC). The JOC is the State in
which the firm maintains its principal place of business at the time of
application unless and until the firm loses certification in that
jurisdiction.
(c) Application procedure. To obtain certification by an additional
UCP, the DBE must provide:
(1) A cover letter with its application that specifies that the DBE
is applying for interstate certification, identifies all UCPs in which
the DBE is certified (including the UCP that originally certified it)
(2) An electronic image of the UCP directory of the original UCP
that shows the DBE certification; and
(3) A new DOE.
(d) Confirmation of eligibility. Within 10 business days of
receiving the documents required under paragraph (c) of this section,
the additional UCP must confirm the certification of the DBE preferably
by reference to the UCP directory of the JOC.
(e) Certification. If the DBE fulfills the requirements of
paragraph (c) of this section and the UCP confirms the DBE's
certification per paragraph (d) of this section, the UCP must certify
the DBE immediately without undergoing further procedures and provide
the DBE with a letter documenting its certification.
(f) Noncompliance. Failure of the additional UCP to comply with
paragraphs (d) and (e) of this section is considered non-compliance
with this part.
(g) Post-interstate certification proceedings. (1) After the
additional UCP certifies the DBE, the UCP may request a fully
unredacted copy of all, or a portion of, the DBE's certification file
from any other UCP in which the DBE is certified.
(2) A UCP must provide a complete unredacted copy of the DBE's
certification materials to the additional UCP within 30 days of
receiving the
[[Page 24976]]
request. Confidentiality requirements of Sec. Sec. 26.83(d) and
26.109(b) do not apply.
(3) Once the new UCP certifies, then it must treat the DBE as it
treats other DBEs, for all purposes.
(4) The DBE must provide an annual DOE with documentation of gross
receipts, under Sec. 26.83(j), to certifying UCPs on the anniversary
date of the DBE's original certification by its JOC.
(h) Decertifications. (1) If any UCP has reasonable cause to remove
a DBE's certification, in whole or in part (i.e., NAICS code removal),
it must notify the other UCPs in which the DBE is certified (``other
jurisdictions'') via email. The notice must explain the UCP's reasons
for believing the DBE's certification should be removed.
(2) Within 30 days of receiving the notice, the other jurisdictions
must email the UCP contemplating decertification a concurrence or non-
concurrence with the proposed action. The other jurisdictions'
responses may provide written arguments and evidence and may propose
additional reasons to remove certification. A jurisdiction's failure to
timely respond to the reasonable cause notice will be deemed to be a
concurrence.
(3) After a UCP receives all timely responses, it must make an
independent decision whether to issue a NOI and what grounds to
include.
(4) Other UCPs may, before the hearing, submit written arguments
and evidence concerning whether the firms should remain certified, but
may not participate in the hearing.
(5) If the UCP finds the firm ineligible the firm immediately loses
certification in all jurisdictions in which it is certified. The NOD
must include appeal instructions provided on the Departmental Office of
Civil Rights' web page, available at https://www.transportation.gov/dbeappeal. The UCP must email a copy of its decision to the other
jurisdictions within 3 business days.
(6) The rules of this paragraph (h)(6) do not apply to attempts to
decertify based upon a DBE's actions or inactions pertaining to
Sec. Sec. 26.83(j) (Declaration of Eligibility) and 26.87(e)(6)
(failure to cooperate).
(7) Decertifications under this paragraph (h) must provide due
process to DBEs.
(i) If a UCP decides not to issue a NOD removing the DBE's
certification, no jurisdiction may initiate decertification
proceedings, within one year, on the same or similar grounds and
underlying facts.
(ii) If a DBE believes a UCP unfairly targets it with repeated
decertification attempts, the DBE may file a complaint to the
appropriate OA.
(8) The Department's appeal decisions are binding on all UCPs
unless stated otherwise.
0
58. Revise Sec. 26.86 to read as follows:
Sec. 26.86 Decision letters.
(a) When a certifier denies a firm's request for certification or
decertifies the firm, the certifier must provide the firm a NOD
explaining the reasons for the adverse decision, specifically
referencing the evidence in the record that supports each reason. A
certifier must also include, verbatim, the instructions found on the
Departmental Office of Civil Rights' web page, available at https://www.transportation.gov/dbeappeal.
(b) The certifier must promptly provide the applicant copies of all
documents and other information on which it based the denial if the
applicant requests them.
(c) The certifier must establish a waiting period for reapplication
of no more than 12 months. That period begins to run the day after the
date of the decision letter is emailed. After the waiting period
expires, the denied firm may reapply to any member of the UCP that
denied the application. The certifier must inform the applicant of that
right, and specify the date the waiting period ends, in its decision
letter.
(d) An appeal does not extend the waiting period.
0
59. Revise Sec. 26.87 to read as follows:
Sec. 26.87 Decertification.
(a) Burden of proof. To decertify a DBE, the certifier bears the
burden of proving, by a preponderance of the evidence, that the DBE
does not meet the certification standards of this part.
(b) Initiation of decertification proceedings. (1) A certifier may
determine on its own that it has reasonable cause to decertify a DBE.
(2) If an OA determines that there is reasonable cause to believe
that a DBE does not meet the eligibility criteria of this part, the OA
may direct the certifier to initiate a proceeding to remove the DBE's
certification.
(i) The OA must provide the certifier and the DBE written notice
describing the reasons for the directive, including any relevant
documentation or other information.
(ii) The certifier must immediately commence a proceeding to
decertify as provided by paragraph (e) of this section.
(3) Any person may file a complaint explaining, with specificity,
why the certifier should decertify a DBE. The certifier need not act on
a general allegation or an anonymous complaint. The certifier must keep
complainants' identities confidential as provided in Sec. 26.109(b).
(i) The certifier must review its records concerning the DBE, any
material the DBE and/or complainant provides, and any other available
information. The certifier may request additional information from the
DBE or conduct any other investigation that it deems necessary.
(ii) If the certifier determines that there is reasonable cause to
decertify the DBE, it initiates a decertification proceeding. If it
determines that there is not such reasonable cause, it notifies the
complainant and the DBE in writing of its decisions and the reasons for
it.
(c) Notice of intent (NOI). A certifier's first step in any
decertification proceeding must be to email a notice of intent (NOI) to
the DBE.
(1) The NOI must clearly and succinctly state each reason for the
proposed action, and specifically identify the supporting evidence for
each reason.
(2) The NOI must notify the DBE of its right to respond in writing,
at an informal hearing, or both.
(3) The NOI must inform the DBE of the hearing scheduled on a date
no fewer than 30 days and no more than 45 days from the date of the
NOI.
(4) If the ground for decertification is that the DBE has been
suspended or debarred for conduct related to the DBE program, the
certifier issues a NOD decertifying the DBE. In this case, there is no
NOI or opportunity for a hearing or written response.
(d) Response to NOI. (1) If the DBE wants a hearing, it must email
the certifier saying so within 10 days of the NOI. If the DBE does not
do so, it loses its opportunity for a hearing.
(2) The certifier and DBE may negotiate a different hearing date
from that stated in the NOI. Parties must not engage in dilatory
tactics.
(3) If the DBE does not want a hearing, or does not give timely
notice to the certifier that it wants one, the DBE may still provide
written information and arguments to the certifier rebutting the
reasons for decertification stated in the NOI.
(e) Hearings. (1) The purpose of the hearing is for the certifier
to present its case and for the DBE to rebut the certifier's
allegations.
(2) The hearing is an informal proceeding with rules set by the
hearing officer. The SEDO's attorney, a non-SEDO, or other individuals
involved with the DBE may attend the hearing and answer questions
related to their own experience or more generally about
[[Page 24977]]
the DBE's ownership, structure and operations.
(3) The certifier must maintain a complete record of the hearing,
either in writing, video or audio. If the DBE appeals to DOT under
Sec. 26.89, the certifier must provide that record to DOT and to the
DBE.
(f) Separation of functions. The certifier must ensure that the
decision in a decertification case is made by an individual who did not
take part in actions leading to or seeking to implement the proposal to
decertify the DBE and is not subject, with respect to the matter, to
direction from the office or personnel who did take part in these
actions.
(1) The certifier's method of implementing this requirement must be
made part of its DBE program and approved by the appropriate OA.
(2) The decisionmaker must be an individual who is knowledgeable
about the certification requirements of this part.
(g) Notice of decision. The certifier must send the firm a NOD no
later than 30 days of the informal hearing and/or receiving written
arguments/evidence from the firm in response to the NOI.
(1) The NOD must describe with particularity the reason(s) for the
certifier's decision, including specific references to the evidence in
the record that supports each reason. The NOD must also inform the firm
of the consequences of the decision under paragraph (i) of this section
and of its appeal rights under Sec. 26.89.
(2) The certifier must send copies of the NOD to the complainant in
an ineligibility complaint or to the OA that directed the certifier to
initiate the proceeding.
(3) When sending a copy of an NOD to a complainant other than an
OA, the certifier must not include information reasonably construed as
confidential business information, unless the certifier has the written
consent of the firm that submitted the information.
(4) The certifier must make an entry in DOCR's Online Portal within
5 days of the action. The certifier must enter the name of the firm,
names(s) of the firm's owner(s), date of decision, and the reason(s)
for its decision.
(h) Status of firm during proceeding. (1) A DBE remains certified
until the certifier issues a NOD.
(i) [Reserved]
(j) Consequences. Decertification has the following effects on
contract and overall goals and DBE participation:
(1) When a prime contractor has made a commitment to use the
decertified firm, but a subcontract has not been executed before the
certifier issues the NOD, the certified firm does not count toward the
contract goal. The recipient must direct the prime contractor to meet
the contract goal with an eligible DBE or demonstrate the certifier
that it has made good faith efforts to do so.
(2) When the recipient has made a commitment to using a DBE prime
contractor, but a contract has not been executed before a
decertification notice provided for in paragraph (g) of this section is
issued, the decertified firm does not count toward the recipient's
overall DBE goal.
(3) If a prime contractor has executed a subcontract with the firm
before the certifier has notified the firm of its decertification, the
prime contractor may continue to use the firm and may continue to
receive credit toward the DBE goal for the firm's work. In this case,
however, the prime contractor may not extend or add work to the
contract after the firm was notified of its decertification without
prior written consent from the recipient.
(4) If a prime contractor has executed a subcontract with the firm
before the certifier has notified the firm of its decertification, the
prime contractor may continue to use the firm as set forth in paragraph
(j)(3) of this section; however, the portion of the decertified firm's
continued performance of the contract must not count toward the
recipient's overall goal.
(5) If the recipient executed a prime contract with a DBE that was
later decertified, the portion of the decertified firm's performance of
the contract remaining after the certifier issued the notice of its
decertification must not count toward an overall goal, but the DBE's
performance of the contract may continue to count toward satisfying the
contract goal.
(6) The following exceptions apply to this paragraph (j):
(i) If a certifier decertifies a firm solely because it exceeds the
business size standard during the performance of the contract, the
recipient may continue to count the portion of the decertified firm's
performance of the contract remaining after it issued the notice of its
decertification toward the recipient's overall goal as well as toward
the contract goals.
(ii) If the certifier decertifies the DBE because it was acquired
by or merged with a non-DBE, the recipient may not continue to count
the portion of the decertified firm's performance on the contract
remaining after the certifier decertified it toward either the contract
goal or the overall goal, even if a prime contractor has executed a
subcontract with the firm or the recipient has executed a prime
contract with the DBE that was later decertified. In this case, if
eliminating the credit of the decertified firm will affect the prime
contractor's ability to meet the contract goal, the recipient must
direct the prime contractor to subcontract to an eligible DBE to the
extent needed to meet the contract goal or demonstrate to the recipient
that it has made good faith efforts to do so.
0
60. Revise Sec. 26.88 to read as follows:
Sec. 26.88 Summary suspension of certification.
(a) Definition. Summary suspension is an extraordinary remedy for
lapses in compliance that cannot reasonably or adequately be resolved
in a timely manner by other means.
(1) A firm's certification is suspended under this part as soon as
the certifier transmits electronic notice to its owner at the last
known email address.
(2) During the suspension period, the DBE may not be considered to
meet a contract or participation goal on contracts executed during the
suspension period.
(b) Mandatory and elective suspensions--(1) Mandatory. The
certifier must summarily suspend a DBE's certification when:
(i) The certifier has clear and credible evidence of the DBE's or
its SEDO's involvement in fraud or other serious criminal activity.
(ii) The OA with oversight so directs.
(2) Elective. (i) The certifier has discretion to suspend summarily
if it has clear and credible evidence that the DBE's continued
certification poses a substantial threat to program integrity.
(ii) An owner upon whom the firm relies for eligibility does not
timely file the declaration and gross receipts documentation that Sec.
26.83(j) requires.
(c) Coordination with other remedies. In most cases, a simple
information request or a Sec. 26.87 NOI is a sufficient response to
events described in paragraphs (b)(1) and (2) of this section. The
certifier should consider the burden to the DBE and to itself in
determining whether summary suspension is a more prudent and
proportionate, effective response. The certifier may elect to suspend
the same DBE just once in any 12-month period.
(d) Procedures--(1) Notice. The certifier must notify the firm, by
email, of its summary suspension notice (SSN) on a business day during
regular business hours. The SSN must explain the action, the reason for
it, the consequences, and the evidence on which the certifier relies.
(i) Elective SSNs may not cite more than one reason for the action.
[[Page 24978]]
(ii) Mandatory SSNs may state multiple reasons.
(iii) The SSN, regardless of type, must demand that the DBE show
cause why it should remain certified and provide the time and date of a
virtual show-cause hearing at which the firm may present information
and arguments concerning why the certifier should lift the suspension.
The SSN must also advise that the DBE may provide written information
and arguments lieu of or in addition to attending the hearing.
(2) Hearing. The hearing date must be a business day that is at
least 15 but not more than 25 days after the date of the notice. The
DBE may respond in writing in lieu of or in addition to attending the
hearing; however, it will have waived its right to a hearing if it does
not confirm its attendance within 10 days of the notice and will have
forfeited its certification if it does not acknowledge the notice
within 15 days. The show-cause hearing must be conducted as a video
conference on a standard commercial platform that the DBE may readily
access at no cost.
(3) Response. The DBE may provide information and arguments
concerning its continuing eligibility until the 15th day following the
suspension notice or the day of the hearing, if any, whichever is
later. The DBE must email any written response it provides. Email
submissions correctly addressed are effective when sent. The certifier
may permit additional submissions after the hearing, as long as the
extension ends on a business day that is not more than 30 days after
the notice.
(4) Scope and burdens. (i) Suspension proceedings are limited to
the suspension ground specified in the notice.
(ii) The certifier may not amend its reason(s) for summarily
suspending certification, nor may it electively suspend the firm again
during the 12-month period following the notice.
(iii) The DBE has the burden of producing information and/or making
arguments concerning its continued eligibility, but it need only
contest the reason cited.
(iv) The certifier has the burden of proving its case by a
preponderance of the evidence. It must issue an NOD within 30 days of
the suspension notice or lift the suspension. Any NOD must rely only on
the reason given in the summary suspension notice.
(v) The DBE's failure to provide information contesting the
suspension does not impair the certifier's ability to prove its case.
That is, the uncontested evidence upon which the certifier relies in
its notice, if substantial, will constitute a preponderance of the
evidence for purposes of the NOD.
(6) Duration. The DBE remains suspended during the proceedings
described in this section but in no case for more than 30 days. If the
certifier has not lifted the suspension or provided a rule-compliant
NOD by 4:30 p.m. on the 30th day, then it must lift the suspension and
amend applicable DBE lists and databases by 12 p.m. the following
business day.
(e) Recourse--(1) Appeal. The DBE may appeal a final decision under
paragraph (c)(5)(iv) of this section, as provided in Sec. 26.89(a),
but may not appeal the suspension itself, unless paragraph (d)(2) of
this section applies.
(2) Enforcement. (i) The DBE may immediately petition the
Department for an order to vacate a certifier's action if:
(A) The certifier sends a second elective SSN within 12 months, or
(B) Cites multiple reasons in an elective SSN contrary to paragraph
(d)(1)(i) of this section.
(ii) The DBE may also petition to the Department for an order to
compel if the certifier fails to act within the time specified in
paragraph (c)(6) of this section.
(3) In either case, the DBE must:
(i) Email the request under the subject line, ``REQUEST FOR
ENFORCEMENT ORDER'' in all caps;
(ii) Limit the request to a one-page explanation that includes:
(A) The certifier's name and the suspension dates;
(B) Contact information for the certifier, the DBE, and the DBE's
SEDO(s); and
(C) The general nature and date of the firm's response, if any, to
the second suspension notice; and
(D) The suspension notice(s).
0
61. Revise Sec. 26.89 to read as follows:
Sec. 26.89 Appeals to the Department.
(a)(1) Applicants and decertified firms may appeal adverse NODs to
the Department.
(2) An ineligibility complainant or applicable Operating
Administration (the latter by the terms of Sec. 26.87(c)) may appeal
to the Department if the certifier does not find reasonable cause to
issue an NOI to decertify or affirmatively determines that the DBE
remains eligible.
(3) Appellants must email appeals as directed in the certifier's
decision letter within 45 days of the date of the letter. The appeal
must at a minimum include a narrative that explains fully and
specifically why the firm believes the decision is in error, what
outcome-determinative facts the certifier did not consider, and/or what
part 26 provisions the certifier misapplied.
(4) The certifier's decision remains in effect until the Department
resolves the appeal or the certifier reverses itself.
(b) When it receives an appeal, the Department requests a copy of
the certifier's complete administrative record including a video,
audio, or transcript of any hearing, which the certifier must provide
within 20 days of the Department's request. The Department may extend
this time period when the certifier demonstrates good cause. The
certifier must ensure that the administrative record is well organized,
indexed, and paginated and the certifier must provide the appellant a
copy of any supplemental information it provides to DOT.
(c)(1) The Department may accept an untimely or incomplete appeal
if it determines, in its sole discretion, that doing so is in the
interest of justice.
(2) The Department may dismiss non-compliant or frivolous appeals
without further proceedings.
(d) The Department will avail itself of whatever remedies for
noncompliance it considers appropriate.
(e) The Department decides only the issue(s) presented on appeal.
It does not conduct a de novo review of the matter, assess all
eligibility requirements, or hold hearings. It considers the
administrative record and any additional information that it considers
relevant.
(f)(1) The Department affirms the certifier's decision if it
determines that the decision is consistent with applicable rules and
supported by substantial evidence.
(2) The Department reverses decisions that do not meet the standard
in paragraph (f)(1) of this section.
(3) The Department need not reverse if an error or omission did not
result in fundamental unfairness or undue prejudice.
(4) The Department may remand the case with instructions for
further action. When the Department specifies further actions, the
certifier must take them without delay.
(5) The Department generally does not uphold the certifier's
decision based on grounds not specified in its decision.
(6) The Department resolves appeals on the basis of facts
demonstrated, and evidence presented, at the time of the certifier's
decision.
(7) The Department may summarily dismiss an appeal. Reasons for
doing so include, but are not limited to, non-compliance, abuse of
process, appellant or certifier request, and failure to state a claim
upon which relief can be granted.
(g) The Department does not issue advisory opinions.
[[Page 24979]]
(h) All decisions described in paragraph (f) of this section are
administratively final unless they say otherwise.
(i) DOCR posts final decisions to its website, available at https://www.transportation.gov/DBEDecisions.
Sec. 26.91 [Amended]
0
62. Amend Sec. 26.91 by:
0
a. Removing the words ``recipients'' and ``recipient'' wherever they
appear and adding in their places the words ``certifiers'' and
``certifier'', respectively; and
0
b. In paragraph (b)(1), removing the cross-reference ``Sec. 26.87(i)''
and adding in its place the cross-reference ``Sec. 26.87(j)''.
Sec. 26.103 [Amended]
0
63. Amend Sec. 26.103 in paragraph (d)(2) by removing the words
``being in compliance'' and adding in their place the word
``complying''.
Appendix A to Part 26 [Amended]
0
64. Amend appendix A by:
0
a. Removing the word ``Conducing'' in paragraph IV.A.(1) and adding in
its place the word ``Conducting''; and
0
b. Adding at the end of paragraph VI after the word ``efforts'' the
phrase ``except in design-build procurement''.
Appendix B to Part 26 [Removed and Reserved]
0
66. Remove and reserve appendix B to part 26.
Appendices E Through G to Part 26 [Removed]
0
67. Remove appendices E through G to part 26.
[FR Doc. 2024-05583 Filed 4-8-24; 8:45 am]
BILLING CODE 4910-9X-P
