This final rule implements multiple provisions of the 2008 Farm Bill (Pub. L. 110-246) concerning loan servicing for FSA's direct loan program. In general, FSA direct loans provide credit to farmers who are unable to get credit elsewhere.

On August 7, 2009, FSA published the loan servicing proposed rule (74 FR 39565-39569). As discussed below, FSA proposed three substantive amendments and one conforming technical amendment in the proposed rule. This final rule addresses the comments received on the proposed rule and makes some minor revisions to the proposed language to address the comments received. FSA received comments on the proposed rule from two commenters; the comments addressed multiple provisions of the rule. The commenters were a nonprofit organization and an FSA employee.

The amendments in this rule are made to 7 CFR part 761, “General Program Administration,” which specifies provisions that apply to multiple Farm Loan Programs, and to7 CFR part 766, “Direct Loan Servicing—Special,” which specifies the requirements and procedures for direct loan servicing in special circumstances, primarily those involving financially distressed borrowers.

One amendment promotes the goal of transitioning borrowers to private credit. This rule clarifies and expands the requirements that borrowers must meet, including training and planning activities, to demonstrate that they are gaining the skills to transition to private credit. These amendments are made to 7 CFR 761.1, “Introduction,” a general introductory section to the farm loan regulations, and to 7 CFR 761.103, “Farm Assessment,” which describes how FSA assesses a borrower's farming operation to determine credit counseling needs and training needs. As discussed below, in response to a comment on the proposed rule, FSA added additional clarity and detail to the requirements.

A second amendment allows family members of lessees who are members of a socially disadvantaged group to purchase properties under Homestead Protection. This amendment, which is made to 7 CFR 766.154, “Homestead Protection Leases,” is specifically required by the 2008 Farm Bill. The purpose of the Homestead Protection program is to allow borrowers who secured their loan with their principal residence to continue to occupy that property through a lease or lease-purchase, after it has come into the inventory of the Government after foreclosure or voluntary conveyance. Before this amendment was made, only the original lessee on a Homestead Protection lease-purchase agreement had the option to purchase the property; this amendment allows the lessee to designate a family member the right to exercise that option.

The third amendment sets a moratorium on foreclosure and loan acceleration actions for borrowers with an accepted program discrimination claim with the USDA Office of the Assistant Secretary for Civil Rights, Office of Adjudication. This amendment will stop foreclosure and loan acceleration actions for borrowers with an accepted discrimination claim, including interest accruals and offsets, while the discrimination claim is being resolved. This amendment adds a new section, 7 CFR 766.358, “Acceleration and Foreclosure Moratorium” to 7 CFR part 766 subpart H, “Loan Liquidation.”

In addition to the amendments required by the 2008 Farm Bill, this rule implements a conforming amendment to comply with section 335(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Pub. L. 111-203, July 21, 2010), which increased the maximum deposit insurance amount for accounts insured by the Federal Deposit Insurance Corporation (FDIC). This rule changes a reference to the limit on insured accounts from $100,000 to “the maximum amount insurable by the Federal government,” which means that the FLP regulations will remain consistent with federal deposit insurance regulations, even if the FDIC limit is revised again or authority for deposit insurance is transferred to another Federal government entity. The current FDIC limit is $250,000. This amendment is made to 7 CFR 761.51, “Establishing a Supervised Bank Account.”

The following provides a summary of the comments related to each amendment, and FSA's response, including changes we are making to the regulations in response to the comments.

Comment: “Borrower graduation requirements” should be added to the tools noted in 7 CFR 761.1 to assist borrowers in the transition to private credit. Also, the new sentence clarifying the purpose of FSA farm loan programs should be moved up a sentence.

Response: FSA agrees and has made the suggested changes.

Comment: “Graduation plan” should be added to the list of items required as part of the farm assessment in 7 CFR 761.103(b).

Response: FSA agrees with the comment and has made the suggested change. This change supports the concept of transitioning borrowers to private commercial credit in the shortest period possible and reinforces the importance of the graduation plan. We also added a reference to Conservation Loans (CL), to clarify which requirements do not apply to those loans. Conservation Loans are a new type of farm loan, authorized by the 2008 Farm Bill, which may be used to implement certain conservation practices. An inability to obtain commercial credit is not a requirement for CL eligibility, so some of the requirements that are intended to help borrowers transition to commercial credit do not apply to CL.

Comment: “Sufficient experience and training for a successful transition to private commercial credit” should be made part of the training waiver requirements in 7 CFR 764.453.

Response: The proposed rule did not propose changes to 7 CFR 764.453. The suggested change is not consistent with the overall objectives of the direct loan program, which include assisting borrowers in obtaining training and experience needed to qualify for commercial credit. The direct loan program requires that borrowers who need additional training must complete that training during the term of their direct loan, not as a condition to initially qualify for a loan. A loan applicant who already had the experience and training sufficient to make a successful transition to private credit would likely not need and would therefore not be eligible for a direct loan. Therefore, FSA is not amending the regulations in response to this comment.

Comment: FSA should reference the statutory requirement for performance criteria and publish those criteria.

Response: The existing statutory requirements for performance criteria are referenced in the preamble to the proposed rule. Specifically, Section 5304 of the 2008 Farm Bill amends the Consolidated Farm and Rural Development Act (7 U.S.C. 1981-2008r, the Con Act) to add a section that requires the Secretary to establish a plan and performance criteria that promote the goal of transitioning borrowers to private commercial credit and other sources of credit in the shortest time possible. As discussed in the preamble to the proposed rule, FSA does not intend to publish additional detail about the performance criteria in the regulations. Regulations set requirements and benefits for the public; these performance criteria are the internal procedures that FSA will use to evaluate its own performance in transitioning borrowers to private credit.

Comment: Why is this opportunity only provided for lessees who are a member of a socially disadvantaged group, rather than all lessees? If it's a good idea for one, it's a good idea for all.

Response: FSA cannot extend this opportunity to all lessees because Section 5305 of the 2008 Farm Bill does not provide authority for us to do so. FSA is merely implementing the statutory language approved by Congress.

Comment: Oppose FSA's “term limits” on loans and the applicable provisions should have been removed in the 2008 Farm Bill. Term limits are arbitrary.

Response: This comment is outside the scope of this rule. FSA did not propose changing the term limits in the proposed rule.

This rule makes minor clarifying changes, which are not in response to a comment on the provisions in the proposed rule, to make terms consistent throughout the rule. For example, this rule consistently uses the term “lessee or designee” to refer to a lessee utilizing a lease-purchase option, rather than sometimes using that term and sometimes using the term “purchaser.” This rule also adds references to Conservation Loans where appropriate, to clarify which provisions do not apply to those loans.

The Office of Management and Budget (OMB) designated this rule as not significant under Executive Order 12866 and, therefore, OMB has not reviewed this final rule.

The Regulatory Flexibility Act (5 U.S.C. 601-612), as amended by the Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA), generally requires an agency to prepare a regulatory flexibility analysis of any rule subject to the notice and comment rulemaking requirements under the Administrative Procedure Act (5 U.S.C. 553) or any other statute, unless the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities. FSA has determined that this rule will not have a significant impact on a substantial number of small entities for the reasons explained below. Thus, FSA has not prepared a regulatory flexibility analysis.

All FSA direct loan borrowers and all farm entities affected by this rule are small businesses according to U.S. Small Business Administration small business size standards. There is no diversity in size of the entities affected by this rule, and the costs to comply with it are the same for all sizes of entities. The costs of compliance with this rule are expected to be minimal. The foreclosure and loan acceleration moratorium will reduce interest costs for some borrowers, and should in no case increase costs for borrowers. No comments were received on the proposed rule regarding disparate impact on small entities. Therefore, FSA certifies that this rule will not have a significant economic impact on a substantial number of small entities.

The environmental impacts of this rule have been considered in a manner consistent with the provisions of the National Environmental Policy Act (NEPA, 42 U.S.C. 4321-4347), the regulations of the Council on Environmental Quality (40 CFR parts 1500-1508), and FSA regulations for compliance with NEPA (7 CFR part 799). The changes to the FLP direct loan servicing program, required by the 2008 Farm Bill, that are identified in this final rule are administrative in nature and can be considered non-discretionary. Therefore, FSA has determined that NEPA does not apply to this rule, and no environmental assessment or environmental impact statement will be prepared.

Executive Order 12372, “Intergovernmental Review of Federal Programs,” requires consultation with State and local officials. The objectives of the Executive Order are to foster an intergovernmental partnership and a strengthened Federalism, by relying on State and local processes for State and local government coordination and review of proposed Federal Financial assistance and direct Federal development. For reasons set forth in the Notice to 7 CFR part 3015, subpart V (48 FR 29115, June 24, 1983), the programs and activities within this rule are excluded from the scope of Executive Order 12372.

This rule has been reviewed in accordance with Executive Order 12988, “Civil Justice Reform.” The provisions of this rule will not have preemptive effect with respect to any State or local laws, regulations, or policies that conflict with such provision or which otherwise impede their full implementation. The rule will not have retroactive effect. Before any judicial action may be brought regarding this rule, all administrative remedies in accordance with 7 CFR part 11 must be exhausted.

This rule has been reviewed under Executive Order 13132, “Federalism.” The policies contained in this rule do not have any substantial direct effect on States, the relationship between the Federal government and the States, or the distribution of power and responsibilities among the various levels of government. Nor does this final rule impose substantial direct compliance costs on State and local governments. Therefore, consultation with the States is not required.

This rule has been reviewed for compliance with Executive Order 13175, “Consultation and Coordination with Indian Tribal Governments.” This Executive Order imposes requirements on the development of regulatory policies that have tribal implications or preempt tribal laws. The policies contained in this rule do not preempt Tribal law. This rule was included in the October through December 2010, Joint Regional Consultation Strategy facilitated by USDA that consolidated consultation efforts of 70 rules from the 2008 Farm Bill. USDA sent senior level agency staff to seven regional locations and consulted with Tribal leadership in each region on the rules. When the consultation process is complete, USDA will analyze the feedback and then incorporate any appropriate changes into the regulations through rulemaking procedures.

USDA will respond in a timely and meaningful manner to all Tribal government requests for consultation concerning this rule and will provide additional venues, such as webinars and teleconferences, to periodically host collaborative conversations with Tribal leaders and their representatives concerning ways to improve this rule in Indian country.

Title II of the Unfunded Mandate Reform Act of 1995 (UMRA, Pub. L. 104-4) requires Federal agencies to assess the effects of their regulatory actions on State, local, or tribal governments or the private sector. Agencies generally must prepare a written statement, including a cost benefit analysis, for proposed and final rules with Federal mandates that may result in expenditures of $100 million or more in any 1 year for State, local, or tribal governments, in the aggregate, or to the private sector. UMRA generally requires agencies to consider alternatives and adopt the more cost effective or least burdensome alternative that achieves the objectives of the rule. This rule contains no Federal mandates as defined by Title II of UMRA for State, local, or tribal governments or for the private sector. Therefore, this rule is not subject to the requirements of sections 202 and 205 of UMRA.

The title and number of the Federal assistance programs, as found in the Catalog of Federal Domestic Assistance, to which this rule applies are:

The amendments to 7 CFR parts 761 and 766 in this final rule require no new collection or changes to the current information collections approved by OMB under the control numbers 0560-0233 and 0560-0238.

FSA is committed to complying with the E-Government Act, to promote the use of the Internet and other information technologies to provide increased opportunities for citizen access to Government information and services, and for other purposes.

For the reasons discussed above, this rule amends 7 CFR chapter VII as follows:

Background

Part 122 of the CBP regulations, subpart O, consisting of sections 122.151-122.158 (19 CFR 122.151-122.158), sets forth special procedures that apply to all aircraft (except public aircraft) entering or departing the United States to or from Cuba. In particular, section 122.153 (19 CFR 122.153) provides that the owner or person in command of any aircraft clearing the U.S. for, or entering the U.S. from, Cuba must clear or obtain permission to depart from, or enter at, the Miami International Airport, Miami, Florida; the John F. Kennedy International Airport, Jamaica, New York; or the Los Angeles International Airport, Los Angeles, California. Additionally, section 122.154 of the CBP regulations (19 CFR 122.154) requires the person in command of the aircraft to provide advance notice of arrival at least one hour before crossing the U.S. coast or border. This notice must be given either through the Federal Aviation Administration flight notification procedure or directly to the CBP officer in charge at one of the designated airports, as applicable.

Title 8 of the Code of Federal Regulations pertaining to landing requirements for aliens arriving by civil aircraft also restricts flights arriving from Cuba that are carrying passengers or crew that are required to be inspected under section 235 of the Immigration and Nationality Act (INA). Paragraph (a) of section 234.2 of title 8 (8 CFR 234.2(a)) requires that these flights land only at the same three airports: John F. Kennedy, Los Angeles, or Miami, unless advance permission to land elsewhere has been obtained from CBP's Office of Field Operations.

In a statement issued on January 14, 2011, the President announced a series of changes to ease the restrictions on travel to and from Cuba as part of an initiative to support the Cuban people's desire to freely determine their country's future by, among other things, supporting licensed travel and intensifying people-to-people exchanges. This announcement builds on the President's April 13, 2009 initiative to promote greater contact between separated family members in the United States and Cuba.

In the January 14, 2011 statement, the President announced that additional U.S. airports able to process international flights may request CBP approval to accept direct flights to and from Cuba in accordance with procedures to be established by CBP. Provided CBP is satisfied that the airport is suitable to process these flights, CBP will add the airport to the list of airports authorized for direct flights to or from Cuba.

In accordance with this statement, DHS is amending section 122.153 of title 19 of the Code of Federal Regulations (19 CFR 122.153) to provide that airports that meet existing CBP standards for accommodating international flights may request CBP approval to accept direct flights to and from Cuba. Properly authorized flights to and from Cuba will be able to arrive at or depart from any U.S. airport that CBP has approved. For reference purposes, CBP will provide a list of authorized airports in section 122.153 as well as on the CBP Web site, http://www.cbp.gov.

DHS is also amending section 122.154 of title 19 (19 CFR 122.154) and section 234.2 of title 8 (8 CFR 234.2) to bring these sections into conformity with revised section 122.153 of title 19. Revised paragraph (b) of section 122.154 of title 19 indicates that when notice of arrival is provided to CBP, it must be provided to the CBP officer in charge at the applicable authorized airport. Revised paragraph (a) of section 234.2 of title 8 indicates that aircraft arriving from Cuba with passengers or crew required to be inspected under the INA must land at one of the airports that CBP has authorized pursuant to 19 CFR 122.153. DHS is also revising paragraph (a) of section 234.2 to reflect current CBP terminology.

The requirements to obtain clearance and permission from CBP to depart from or enter at the airport and to provide advance notice of arrival will still apply. Clearance and permission to depart from or enter at the airport must be obtained by contacting the CBP officer in charge at the authorized airport at which the aircraft departs or arrives. Advance notice of arrival must be provided either through the Federal Aviation Administration flight notification procedure or directly to the CBP officer in charge at the authorized airport of arrival.

The regulations are amended to set forth eligibility requirements and application and approval procedures for airports seeking approval to accept aircraft traveling between the United States and Cuba. (The three airports currently referenced in section 122.153 of the regulations are already approved to accept aircraft traveling between the United States and Cuba and will not need to seek CBP approval under this procedure.)

To be eligible to request approval to accept flights to and from Cuba, an airport must be an international airport, landing rights airport, or user fee airport, as defined and described in part 122 of the CBP regulations (19 CFR part 122) and have adequate and up-to-date staffing, equipment, and facilities to process international traffic. In addition, the airport must have an Office of Foreign Assets Control (OFAC) licensed carrier service provider that is prepared to provide flights between the airport and Cuba. The director of the port authority governing the airport seeking approval must send a written request to the Assistant Commissioner, Office of Field Operations, CBP Headquarters (1300 Pennsylvania Avenue, NW., Washington, DC 20229).

After CBP determines that the airport is suitable to accommodate flights traveling between the United States and Cuba, CBP will notify the requestor that the airport has been approved to accept aircraft traveling to or from Cuba, and that it may immediately begin to accept such aircraft. For reference purposes, approved airports will be listed on the CBP Web site http://www.cbp.gov and in new paragraph (c) of section 122.153. That paragraph as set forth in this document lists only the three airports that are already authorized to accept such aircraft—John F. Kennedy International Airport, Los Angeles International Airport, and Miami International Airport—but will be revised periodically to reflect additional airports that CBP has approved.

All aircraft to which these amended regulations apply must be properly licensed or otherwise authorized to travel between the United States and Cuba. Several Federal agencies administer the necessary authorizations, and it is the responsibility of the owner or person in command of the aircraft to ensure that the aircraft has the necessary authorization to travel.

OFAC, an office within the U.S. Department of Treasury, administers the Cuban Assets Control Regulations, 31 CFR part 515, which prohibit, in relevant part, all persons subject to the jurisdiction of the United States from engaging in travel-related transactions involving Cuba unless authorized by OFAC. Persons transporting authorized travelers between the United States and Cuba by international charter flights as carrier service providers must also be authorized by OFAC to provide this service.

Additionally, an aircraft traveling between the United States and Cuba may require a license from the Department of Commerce, the Department of State, or the Department of Transportation, as applicable. Note that, as a condition precedent for clearance, section 122.157 of the CBP regulations (19 CFR 122.157) requires the aircraft commander to present to CBP a validated license issued by the Department of Commerce or a license issued by the Department of State, as well as documents required pursuant to 19 CFR part 122, subpart H. Also, air carriers and other commercial operators are required to adopt and implement the security requirements established by the Transportation Security Administration for individuals, property, and cargo aboard aircraft ( see 49 CFR chapter XII, subchapter C (Civil Aviation Security)), and ensure that any airport(s) to be served in Cuba carry out effective security measures, in accordance with 49 U.S.C. 44907.

The Administrative Procedure Act (APA) generally requires (with exceptions) that the public be allowed to participate in agency rulemaking. Normally, an agency publishes a notice of proposed rulemaking in the Federal Register (5 U.S.C. 553(b)) providing interested persons the opportunity to submit comments (5 U.S.C. 553(c)). The APA also provides (with exceptions) that a final rule published after consideration of those comments not take effect for at least 30 days from the date of publication (5 U.S.C. 553(d)). In addition, the APA establishes requirements for adjudications required by statute to be determined on the record after opportunity for an agency hearing. (5 U.S.C. 554).

The Department of Homeland Security is of the opinion that easing travel restrictions between the United States and Cuba is a foreign affairs function of the United States Government and that rules implementing this function are exempt from § 553 (Rulemaking) and § 554 (Adjudications) of the APA. In addition, the Department of Homeland Security does not consider this rule to be a “significant regulatory action” under Executive Order 12866, section 3(f), Regulatory Planning and Review. The Department is of the opinion that easing travel restrictions between the United States and Cuba is a foreign affairs function of the United States Government and that rules governing the conduct of this function are exempt from the requirements of Executive Order 12866. Finally, because the Department is of the opinion that this rule is not subject to the requirements of 5 U.S.C. 553, the Department does not consider this document to be subject to the provisions of the Regulatory Flexibility Act (5 U.S.C. 601 et seq. ).

The collection of information encompassed within this final rule is contained in 19 CFR 122.153 and requires a written request to CBP requesting approval for the airport to be able to accept aircraft traveling to or from Cuba. The information will be used by CBP to assist in determining if an airport is suitable to accommodate aircraft traveling between the United States and Cuba. A request to approve this information collection has been submitted to the Office of Management and Budget (OMB) for review in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507). An agency may not conduct, and a person is not required to respond to, a collection of information unless the collection of information displays a valid control number assigned by OMB.

The burden estimates for eligibility requirements and application and approval procedure under § 122.153 are as follows:

Estimated annual reporting burden: 16 hours.

Estimated number of respondents: 16.

Estimated average annual burden per respondent: 1 hour.

This final rule is being issued in accordance with 8 CFR 2.1 and 19 CFR 0.2(a). Accordingly, this final rule is signed by the Secretary of Homeland Security.

Accordingly, part 234 of title 8 of the Code of Federal Regulations and part 122 of title 19 CFR are amended as set forth below:

The FAA has determined that notice of, and opportunity for, prior public comment on these special conditions are impracticable because these procedures would significantly delay issuance of the design approval and thus delivery of the affected aircraft. In addition, the substance of these special conditions has been subject to the public-comment process in several prior instances with no substantive comments received. The FAA, therefore, finds that good cause exists for making these special conditions effective upon issuance.

We invite interested people to take part in this rulemaking by sending written comments, data, or views. The most helpful comments reference a specific portion of the special conditions, explain the reason for any recommended change, and include supporting data. We ask that you send us two copies of written comments.

We will file in the docket all comments we receive, as well as a report summarizing each substantive public contact with FAA personnel about these special conditions. You can inspect the docket before and after the comment closing date. If you wish to review the docket in person, go to the address in the ADDRESSES section of this preamble between 7:30 a.m. and 4 p.m., Monday through Friday, except Federal holidays.

We will consider all comments we receive by the closing date for comments. We will consider comments filed late if it is possible to do so without incurring expense or delay. We may change these special conditions based on the comments we receive.

If you want us to acknowledge receipt of your comments on these special conditions, include with your comments a self-addressed, stamped postcard on which you have written the docket number. We will stamp the date on the postcard and mail it back to you.

On May 27, 2010, TTF Aerospace, LLC (TTF) applied for a supplemental type certificate (STC) for installation of a lower lobe pilot crew rest module (CRM) in Boeing Model 767-300 series airplanes. The CRM will be a one-piece, self-contained unit for installation in the forward portion of the aft cargo compartment. It will be attached to the existing cargo restraint system and will be limited to a maximum of two occupants. An approved seat or berth, able to withstand the maximum flight loads when occupied, will be provided for each occupant permitted in the CRM. The CRM is intended to be occupied only in flight, i.e., not during taxi, takeoff, or landing. A smoke detection system, manual fire fighting system, oxygen system, and occupant amenities will be provided.

Two entry/exits between the main deck area will be required. The floor structure will be modified to provide access for the main entry hatch and emergency-access hatch.

Under the provisions of 14 CFR 21.101, TTF must show that Boeing Model 767-300 series airplanes, with the CRM, continue to meet either:

(1) The applicable provisions of the regulations incorporated by reference in Type Certificate No. A1NM, or

(2) The applicable regulations in effect on the date of TTF's application for the change.

The regulations incorporated by reference in the type certificate are commonly referred to as the “original type-certification basis.” The certification basis for Boeing Model 767-300 series airplanes is 14 CFR part 25, as amended by Amendments 25-1 through 25-37. Refer to Type Certificate No. A1NM for a complete description of the certification basis for this model.

According to 14 CFR 21.16, if the Administrator finds that the applicable airworthiness regulations do not contain adequate or appropriate safety standards for Boeing Model 767-300 series airplanes because of a novel or unusual design feature, the Administrator prescribes special conditions for the airplane.

As defined in 14 CFR 11.19, special conditions are issued in accordance with 14 CFR 11.38 and become part of the type certification basis in accordance with 14 CFR 21.101.

Special conditions are initially applicable to the model for which they are issued. If the type certificate for that model is amended to include any other model that incorporates the same or similar novel or unusual design feature, the special conditions would also apply to that model. Similarly, if any other model already included on the same type certificate is modified to incorporate the same or similar novel or unusual design feature, the special conditions would apply to that other model under the provisions of 14 CFR 21.101.

In addition to the applicable airworthiness regulations and special conditions, Boeing Model 767-300 series airplanes must comply with the fuel vent and exhaust emission requirements of 14 CFR part 34, and the noise certification requirements of 14 CFR part 36.

While installation of a CRM is not a new concept for large, transport category airplanes, each module has unique features based on its design, location, and use. The CRM to be installed on Boeing Model 767-300 series airplanes is novel in that it will be located below the passenger cabin floor in the aft portion of the forward cargo compartment.

Because of the novel or unusual features associated with the installation of a CRM, special conditions are considered necessary to provide a level of safety equal to that established by the airworthiness regulations incorporated by reference in the type certificate of this airplane model. These special conditions do not negate the need to address other applicable part 25 regulations.

These special conditions specify requirements for design approvals ( i.e., type design changes and STCs) of CRMs administered by the FAA's Aircraft Certification Service. The FAA's Flight Standards Service, Aircraft Evaluation Group (AEG), must evaluate and approve the “basic suitability” of the CRM for occupation by crewmembers before the module may be used. If an operator wishes to use a CRM as “sleeping quarters,” the module must undergo an additional operational evaluation and approval. AEG would evaluate the CRM for compliance with §§ 121.485(a) and 121.523(b), with Advisory Circular 121-31, “Flight Crew Sleeping Quarters and Rest Facilities,” providing one method of compliance to these operational regulations.

To obtain an operational evaluation, the supplemental type design holder must contact AEG within the Flight Standards Service that has operational-approval authority for the project. In this instance, it is the Seattle AEG. The supplemental type design holder must request a “basic suitability” evaluation or a “sleeping quarters” evaluation of the crew rest module. The supplemental type design holder may make this request concurrently with the demonstration of compliance with these special conditions.

The Boeing Model 767-300 Flight Standardization Board Report Appendix will document the results of these evaluations. In discussions with the FAA Principal Operating Inspector, individual operators may refer to these standardized evaluations as the basis for an operational approval, instead of an on-site operational evaluation.

Any change to the approved CRM configuration requires an operational re-evaluation and approval, if the change affects any of the following:

• Procedures for emergency egress of crewmembers,

• Other safety procedures for crewmembers occupying the CRM, or

• Training related to these procedures.

The applicant for any such change is responsible for notifying the Seattle AEG that a new evaluation of the CRM is required. All instructions for continued airworthiness, including service bulletins, must be submitted to the Seattle AEG for approval before the FAA approves the modification.

The following clarifies the intent of Special Condition No. 9 relative to the fire fighting equipment necessary in the CRM:

Amendment 25-38 modified the requirements of § 25.1439(a) by adding, “In addition, protective breathing equipment must be installed in each isolated separate compartment in the airplane, including upper and lower lobe galleys, in which crewmember occupancy is permitted during flight for the maximum number of crewmembers expected to be in the area during any operation.”

Section 25.851(a)(4) requires at least one hand fire extinguisher be located in, or readily accessible for use in, each galley located above or below the passenger compartment. The crew rest is not considered a galley, and it does not meet one of the cargo compartment classifications in § 25.851(a)(3). Therefore, special conditions are required to define the quantity and type of fire extinguishers required in order to maintain the same level of safety.

The CRM is an isolated, separate compartment, so § 25.1439(a) is applicable. However, the requirements of Special Condition No. 9 clarify the expected number of portable PBE in relation to the number of required fire extinguishers.

These special conditions address a CRM that can accommodate up to two crewmembers. In the event of a fire, the first action should be for each occupant to leave the confined space, unless that occupant is fighting the fire. Taking the time to don protective breathing equipment would prolong the time for the emergency evacuation of the occupants and possibly interfere with efforts to extinguish the fire. However, the FAA considers it appropriate that a minimum of two crewmembers would be used fight a fire. As such, Special Condition No. 9 describes the minimum equipment necessary to fight a fire in the crew rest area.

Regarding Special Condition No. 12, the FAA considers that during the 1-minute smoke detection time, penetration of a small quantity of smoke from the aft lower lobe CRM into an occupied area of the airplane would be acceptable, given the limitations in these special conditions. The FAA considers that the special conditions place sufficient restrictions on the quantity and type of material allowed in crew carry-on bags that the threat from a fire in the remote CRM would be equivalent to the threat from a fire in the main cabin.

As discussed above, these special conditions are applicable to Boeing Model 767-300 series airplanes. Should TTF apply at a later date for a STC to modify any other model included on Type Certificate No. A1NM to incorporate the same or similar novel or unusual design feature, the special conditions would apply to that model as well.

This action affects only certain novel or unusual design features on Boeing Model 767-300 series airplanes. It is not a rule of general applicability and affects only the applicant who applied to the FAA for approval of these features on the airplane.

The substance of these special conditions has been subjected to the notice and comment period in several prior instances and has been derived without substantive change from those previously issued. It is unlikely that prior public comment would result in a significant change from the substance contained herein. Therefore, because a delay would significantly affect the certification of the airplane, which is imminent, the FAA has determined that prior public notice and comment are unnecessary and impracticable, and good cause exists for adopting these special conditions upon issuance. The FAA is requesting comments to allow interested persons to submit views that may not have been submitted in response to the prior opportunities for comment described above.

The authority citation for these special conditions is as follows:

We issued a notice of proposed rulemaking (NPRM) to amend 14 CFR part 39 to supersede AD 2005-25-05, Amendment 39-14398 (70 FR 73361, December 12, 2005). That AD applies to the specified products. The NPRM published in the Federal Register on August 18, 2010 (75 FR 50942). That NPRM proposed to modify the TLS of the manufacturer's engine manual and an air carrier's approved continuous airworthiness maintenance program to incorporate additional inspection requirements and reduce the model applicability. PW has developed and the FAA has approved improved inspection procedures for the critical life-limited parts. The mandatory inspections are needed to identify those critical rotating parts with conditions which, if allowed to continue in service, could result in uncontained failures.

We gave the public the opportunity to participate in developing this AD. We received no comments on the NPRM or on the determination of the cost to the public.

We reviewed the relevant data and determined that air safety and the public interest require adopting the AD as proposed.

We estimate that this AD will affect 1,527 JT8D -7, -7A, -7B, -9, -9A, -11, -15, -15A, -17, -17A, -17R, and -17AR series turbofan engines installed on airplanes of U.S. registry. We also estimate that it will take about 10 work-hours per engine to perform the actions, and that the average labor rate is $85 per work-hour. Since this is an added inspection requirement, included as part of the normal maintenance cycle, no additional part costs are involved. Based on these figures, we estimate the total cost of the AD to U.S. operators to be $1,297,950.

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the Agency's authority.

We are issuing this rulemaking under the authority described in subtitle VII, part A, subpart III, section 44701, “General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

We have determined that this AD will not have federalism implications under Executive Order 13132. This AD will not have a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government.

For the reasons discussed above, I certify that this AD:

(1) Is not a “significant regulatory action” under Executive Order 12866;

(2) Is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979),

(3) Will not affect intrastate aviation in Alaska, and

(4) Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

Accordingly, under the authority delegated to me by the Administrator, the FAA amends 14 CFR part 39 as follows:

On August 5, 2010, the FAA published in the Federal Register a notice of proposed rulemaking (NPRM) to establish five low altitude RNAV routes within Denver and Minneapolis ARTCC airspace (75 FR 47252). Previously, the pilot's only options are to either fly Visual Flight Rules (VFR), VFR-On-Top, file a flight plan with an altitude high enough for air traffic control to maintain radar surveillance and communication frequency coverage, or fly many miles out of their way to use established airways. Interested parties were invited to participate in this rulemaking effort by submitting written comments on the proposal. One comment was received, from the Aircraft Owners and Pilots Association, supporting the proposal.

The FAA is amending Title 14 Code of Federal Regulations (14 CFR) part 71 to establish five low altitude RNAV routes within Denver and Minneapolis ARTCC airspace. This action establishes five T-routes where none exist today and enables aircraft to navigate between the sites identified in the regulatory route descriptions. The routes, designated as T-281, T-283, T-285, T-286, and T-288, will be depicted on the appropriate IFR En Route Low Altitude charts and will only be available for use by GPS/GNSS equipped aircraft. This action enhances safety and facilitates the efficient use of navigable airspace for en route IFR operations within Denver and Minneapolis ARTCC airspace.

Low altitude RNAV routes are published in paragraph 6011 of FAA Order 7400.9U dated August 18, 2010, and effective September 15, 2010, which is incorporated by reference in 14 CFR 71.1. The low altitude RNAV routes listed in this document will be published subsequently in the Order.

The FAA has determined that this regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current. Therefore, this regulation: (1) Is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under Department of Transportation (DOT) Regulatory Policies and Procedures (44 FR 11034; February 26, 1979); and (3) does not warrant preparation of a regulatory evaluation as the anticipated impact is so minimal. Since this is a routine matter that will only affect air traffic procedures and air navigation, it is certified that this rule, when promulgated, will not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

The FAA's authority to issue rules regarding aviation safety is found in Title 49 of the United States Code. Subtitle I, section 106 describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the agency's authority.

This rulemaking is promulgated under the authority described in subtitle VII, part A, subpart I, section 40103. Under that section, the FAA is charged with prescribing regulations to assign the use of the airspace necessary to ensure the safety of aircraft and the efficient use of airspace. This regulation is within the scope of that authority as it establishes low altitude RNAV routes (T-routes) over Nebraska and South Dakota.

The FAA has determined that this action qualifies for categorical exclusion under the National Environmental Policy Act in accordance with FAA Order 1050.1E, “Environmental Impacts: Policies and Procedures,” paragraph 311a. This airspace action is not expected to cause any potentially significant environmental impacts, and no extraordinary circumstances exist that warrant preparation of an environmental assessment.

In consideration of the foregoing, the Federal Aviation Administration amends 14 CFR part 71 as follows:

General. The Internal Revenue Code authorizes the Secretary of the Treasury to offset Federal tax refund payments to satisfy debts owed to the United States, past-due support collected by States, and income tax debts owed to States. The 2008 Act amended section 6402 of the Internal Revenue Code to authorize tax refund offset to collect an additional type of debt unemployment compensation debts owed to the States which were incurred as a result of fraud, and which were not outstanding for more than ten years. The 2010 Act expanded that authority to include all unemployment compensation debts incurred as a result of the debtor's failure to report earnings, whether or not the failure constituted fraud. The 2010 Act also eliminated the ten-year time limitation on collection, the requirement that the debtor reside in the State seeking to collect the debt, and the requirement to use certified mail with return receipt for pre-offset notices.

This rule governs the offset of one type of payment (i.e., Federal tax refunds) to pay one type of delinquent debt ( i.e., past-due, legally enforceable State unemployment debts). FMS has promulgated separate rules and procedures governing other types of offset, such as tax refund offset to collect nontax debt owed to the United States ( see section 285.2 of this title).

The Treasury Offset Program. FMS operates TOP to carry out offsets under the Internal Revenue Code and other laws. TOP is a centralized offset program by which FMS offsets payments to collect delinquent debts owed to Federal agencies and States. TOP currently works as follows. FMS maintains a database containing information about delinquent debts submitted and updated by Federal and State agencies. Before Federal payments, including Federal tax refund payments, are disbursed to a payee, FMS compares the payee information with debt information in the TOP delinquent debt database. If the name and taxpayer identifying number (TIN) associated with a payment match the name (or derivative of the name) and TIN associated with a debt, the payment is offset in whole or part to satisfy the debt. FMS transmits amounts collected to the appropriate agencies or States owed the delinquent debts after deducting a fee charged to cover the cost of the offset program. Information about a delinquent debt or past-due, legally enforceable debt will remain in the debtor database for offset as long as the debt remains past due and legally collectible by offset.

Offset of Tax Refund Payments To Collect Debts Owed to States Through the Treasury Offset Program. TOP will be expanded to include the collection of past-due, legally enforceable State unemployment compensation debts. As is done by States for State income tax debts, before submitting a debt to the database, States will certify to FMS that the debt is past due, legally enforceable and that all due process prerequisites have been met.

This rule establishes procedures for such collection, and amends section 285.8, which governs tax refund offset to collect State income tax obligations, because the two types of offset are similar.

FMS is promulgating this interim rule without opportunity for prior public comment pursuant to the Administrative Procedure Act, 5 U.S.C. 553 (the “APA”), because FMS has determined, for the following reasons, that a comment period would be unnecessary and contrary to the public interest. The authority to offset tax refund payments to collect delinquent State unemployment debt incurred as a result of fraud was effective on September 30, 2008, and the authority to collect unemployment compensation debts not resulting from fraud was effective December 8, 2010. A comment period is unnecessary because this interim rule is not required in order to exercise this authority and does not change the ongoing TOP offset process. It only provides guidance for State agencies and Federal disbursing officials to facilitate the addition of State unemployment debts into TOP. Under this interim rule, State agencies are required to provide to the debtor the same pre offset notice, opportunities, and rights to dispute the debt and seek waiver as currently required by 26 U.S.C. 6402. Since this interim rule provides important guidance ensuring that debtors receive appropriate notices and opportunities from States that elect to participate, FMS believes that it is in the public interest to issue this interim rule without delaying the effective date to wait for prior public comment.

For the same reasons, FMS has determined that good cause exists to make this interim rule effective upon publication without providing the 30-day period between publication and the effective date contemplated by 5 U.S.C. 553(d)(3). The public is invited to submit comments on the interim rule, which will be taken into account before a final rule is issued.

Executive Order 12866 requires each agency in the executive branch to write regulations that are simple and easy to understand. We invite comment on how to make the proposed rule clearer. For example, you may wish to discuss: (1) Whether we have organized the material to suit your needs; (2) whether the requirements of the rule are clear; or (3) whether there is something else we could do to make this rule easier to understand.

This interim rule is not a significant regulatory action as defined in Executive Order 12866. Because no notice of proposed rulemaking is required for this rule, the provisions of the Regulatory Flexibility Act (5 U.S.C. 601 et seq. ) do not apply.

This rule has been reviewed under Executive Order 13132, Federalism. This rule will not have substantial direct effects on States, on the relationship between the national government and the States, or on distribution of power and responsibilities among the various levels of government. Participation in the program governed by this rule is voluntary for the States; this rule only sets forth the general procedures for State participation. States already participate in offset of tax refunds to collect delinquent State income tax obligations pursuant to 31 CFR 285.8. This rule merely updates the regulations to reflect the statutory change authorizing States to submit additional debts to TOP for collection by tax refund offset. Therefore, in accordance with Executive Order 13132, it is determined that this rule does not have sufficient federalism implications to warrant the preparation of a federalism summary impact statement.

For the reasons set forth in the preamble, 31 CFR Part 285 is amended as follows:

This document and additional information concerning OFAC are available from OFAC's Web site ( http://www.treasury.gov/ofac ). Certain general information pertaining to OFAC's sanctions programs also is available via facsimile through a 24-hour fax-on-demand service, tel.: 202/622-0077.

The U.S. Government issued the Cuban Assets Control Regulations, 31 CFR part 515 (the “Regulations”), on July 8, 1963, under the Trading With the Enemy Act (50 U.S.C. App. 5 et seq. ). On September 3, 2009, OFAC amended the Regulations to implement measures announced by the President in April 2009 to promote democracy and human rights in Cuba by easing travel restrictions to facilitate greater contact between separated family members in the United States and Cuba and by increasing the flow of remittances and information to the Cuban people.

OFAC is now amending the Regulations to implement certain policy changes announced by the President on January 14, 2011, to continue efforts to reach out to the Cuban people in support of their desire to freely determine their country's future. These amendments allow for greater licensing of travel to Cuba for educational, cultural, religious, and journalistic activities and expand licensing of remittances to Cuba. These amendments also modify regulations regarding authorization of transactions with Cuban national individuals who have taken up permanent residence outside of Cuba, as well as implement certain technical and conforming changes.

Travel to Cuba for educational activities. Section 515.565 is amended to implement policy changes for travel-related transactions incident to educational activities. A new general license authorizing accredited U.S. graduate and undergraduate degree-granting academic institutions to engage in Cuba travel-related transactions incident to certain educational activities replaces the former statement of specific licensing policy in paragraph (a) of section 515.565. Specific licenses issued pursuant to former paragraph (a) were limited to one year in duration and covered only “full-time permanent” employees of, and students enrolled “at,” a particular licensed institution. The new general license authorizes transactions incident to the educational activities described in paragraph (a) of section 515.565 by all members of the faculty and staff (including but not limited to adjunct faculty and part-time staff) of a sponsoring U.S. academic institution. The new general license also authorizes students to participate in academic activities in Cuba through any sponsoring U.S. academic institution, not only through the accredited U.S. academic institution at which the student is pursuing a degree. The requirement that participation in a structured educational program in Cuba or participation in a formal course of study at a Cuban academic institution be no shorter than 10 weeks in duration is removed, and the new general license instead requires that the study in Cuba be accepted for credit toward the student's degree.

Revised paragraph (b) of section 515.565 sets forth specific licensing policies. Paragraph (b)(1) provides that specific licenses may be issued to authorize travel-related transactions incident to an individual's educational activities of certain types described in but that are not authorized by the new general license contained in revised paragraph (a). New paragraph (b)(3) allows accredited U.S. graduate or undergraduate degree-granting academic institutions, by specific license, to sponsor or co-sponsor academic seminars, conferences, and workshops related to Cuba or global issues involving Cuba, and it allows faculty, staff, and students of such institutions to attend those events. A new note to section 515.565 explains that U.S. academic institutions may open accounts at Cuban financial institutions for the purpose of accessing funds in Cuba for transactions authorized pursuant to that section. Nothing in these amendments authorizes U.S. financial institutions to open or use direct correspondent accounts of their own at Cuban financial institutions.

People-to-people exchanges. OFAC also is adding new paragraph (b)(2) to section 515.565 to restore a statement of specific licensing policy for “people-to-people” exchanges. This travel category provides for specific licenses authorizing educational exchanges not involving academic study pursuant to a degree program when those exchanges take place under the auspices of an organization that sponsors and organizes such programs to promote people-to-people contact.

Travel to Cuba for religious activities. Section 515.566 is amended to implement policy changes for travel-related transactions incident to religious activities. A new general license authorizing religious organizations located in the United States to engage in Cuba travel-related transactions incident to religious activities replaces the former statement of specific licensing policy in paragraph (a) of section 515.566. Revised paragraph (b) provides that specific licenses may be issued to authorize travel-related transactions incident to religious activities that are not authorized by the new general license contained in revised paragraph (a). A new note to section 515.566 explains that religious organizations may open accounts at Cuban financial institutions for the purpose of accessing funds in Cuba for transactions authorized pursuant to that section. Nothing in these amendments authorizes U.S. financial institutions to open or use direct correspondent accounts of their own at Cuban financial institutions.

Other travel to Cuba. Section 515.567, including its heading, is revised to restore a statement of specific licensing policy for travel-related transactions incident to participation in clinics or workshops. New paragraph (b)(3) of section 515.567 includes a condition that any clinics or workshops in Cuba must be organized and run, at least in part, by the licensee. Paragraph (b) of section 515.563 is amended to increase the scope of the statement of specific licensing policy for journalistic activities in Cuba to include free-lance journalistic projects other than “articles.”

Remittances. OFAC also is amending section 515.570 to implement several policy changes regarding remittances to Cuba. New paragraph (b) contains a general license authorizing persons subject to U.S. jurisdiction to remit up to $500 per quarter to any Cuban national, except prohibited officials of the Government of Cuba or prohibited members of the Cuban Communist Party, to support the development of private businesses, among other purposes. A second general license has been added in new paragraph (c), authorizing unlimited remittances to religious organizations in Cuba in support of religious activities. Prior to this amendment, remittances to religious organizations in Cuba were authorized by specific license. New paragraph (d) contains a third new general license, authorizing remittances to close relatives who are students in Cuba pursuant to an educational license for the purpose of funding transactions authorized by the license under which the student is traveling. Former paragraphs (b), (c), and (d) have been redesignated as paragraphs (e), (f), and (g), respectively. Newly redesignated paragraph (g)(1) of section 515.570 has been revised to clarify that specific licenses may be issued to authorize remittances to individuals or independent non-governmental entities to support the development of private businesses, including small farms.

Certain transactions with Cuban nationals who have taken up permanent residence outside of Cuba. Section 515.505, including its heading, is revised to add a general license in new paragraph (d) authorizing certain transactions with individual nationals of Cuba who have taken up permanent residence outside of Cuba (former paragraphs (d) and (e) have been redesignated as paragraphs (e) and (f), respectively). Persons subject to U.S. jurisdiction may engage in transactions with such individuals, prospectively, as if they were unblocked Cuban nationals as defined in section 515.307 of this part. All property in which such Cuban nationals have an interest that was blocked pursuant to this part prior to the later of the date on which the individual took up permanent residence outside of Cuba or January 28, 2011, however, remains blocked. To determine whether an individual Cuban national has taken up permanent residence outside of Cuba, persons subject to U.S. jurisdiction are required to collect copies of at least two documents issued to the individual by the government authorities of the new country of permanent residence. An example illustrating the application of this general license is found in new paragraph (f)(4).

Because the amendments of the Regulations involve a foreign affairs function, Executive Order 12866 and the provisions of the Administrative Procedure Act (5 U.S.C. 553) requiring notice of proposed rulemaking, opportunity for public participation, and delay in effective date are inapplicable. Because no notice of proposed rulemaking is required for this rule, the Regulatory Flexibility Act (5 U.S.C. 601-612) does not apply.

The collections of information related to the Regulations are contained in 31 CFR part 501 (the “Reporting, Procedures and Penalties Regulations”). Pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. 3507), those collections of information have been approved by the Office of Management and Budget under control number 1505-0164. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection of information displays a valid control number.

For the reasons set forth in the preamble, the Department of the Treasury's Office of Foreign Assets Control amends 31 CFR part 515 as set forth below:

The NFIP enables property owners to purchase flood insurance which is generally not otherwise available. In return, communities agree to adopt and administer local floodplain management aimed at protecting lives and new construction from future flooding. Section 1315 of the National Flood Insurance Act of 1968, as amended, 42 U.S.C. 4022, prohibits flood insurance coverage as authorized under the NFIP, 42 U.S.C. 4001 et seq., , unless an appropriate public body adopts adequate floodplain management measures with effective enforcement measures. The communities listed in this document no longer meet that statutory requirement for compliance with program regulations, 44 CFR part 59. Accordingly, the communities will be suspended on the effective date in the third column. As of that date, flood insurance will no longer be available in the community. However, some of these communities may adopt and submit the required documentation of legally enforceable floodplain management measures after this rule is published but prior to the actual suspension date. These communities will not be suspended and will continue their eligibility for the sale of insurance. A notice withdrawing the suspension of the communities will be published in the Federal Register .

In addition, FEMA has identified the Special Flood Hazard Areas (SFHAs) in these communities by publishing a Flood Insurance Rate Map (FIRM). The date of the FIRM, if one has been published, is indicated in the fourth column of the table. No direct Federal financial assistance (except assistance pursuant to the Robert T. Stafford Disaster Relief and Emergency Assistance Act not in connection with a flood) may legally be provided for construction or acquisition of buildings in identified SFHAs for communities not participating in the NFIP and identified for more than a year, on FEMA's initial flood insurance map of the community as having flood-prone areas (section 202(a) of the Flood Disaster Protection Act of 1973, 42 U.S.C. 4106(a), as amended). This prohibition against certain types of Federal assistance becomes effective for the communities listed on the date shown in the last column. The Administrator finds that notice and public comment under 5 U.S.C. 553(b) are impracticable and unnecessary because communities listed in this final rule have been adequately notified.

Each community receives 6-month, 90-day, and 30-day notification letters addressed to the Chief Executive Officer stating that the community will be suspended unless the required floodplain management measures are met prior to the effective suspension date. Since these notifications were made, this final rule may take effect within less than 30 days.

National Environmental Policy Act. This rule is categorically excluded from the requirements of 44 CFR part 10, Environmental Considerations. No environmental impact assessment has been prepared.

Regulatory Flexibility Act. The Administrator has determined that this rule is exempt from the requirements of the Regulatory Flexibility Act because the National Flood Insurance Act of 1968, as amended, 42 U.S.C. 4022, prohibits flood insurance coverage unless an appropriate public body adopts adequate floodplain management measures with effective enforcement measures. The communities listed no longer comply with the statutory requirements, and after the effective date, flood insurance will no longer be available in the communities unless remedial action takes place.

Regulatory Classification. This final rule is not a significant regulatory action under the criteria of section 3(f) of Executive Order 12866 of September 30, 1993, Regulatory Planning and Review, 58 FR 51735.

Executive Order 13132, Federalism. This rule involves no policies that have federalism implications under Executive Order 13132.

Executive Order 12988, Civil Justice Reform. This rule meets the applicable standards of Executive Order 12988.

Paperwork Reduction Act. This rule does not involve any collection of information for purposes of the Paperwork Reduction Act, 44 U.S.C. 3501 et seq.

Accordingly, 44 CFR part 64 is amended as follows:

The Department of Transportation issued an advance notice of proposed rulemaking (ANPRM) concerning several DBE program issues on April 8, 2009 (74 FR 15904). The first issue raised in the ANPRM concerned counting of items obtained by a DBE subcontractor from its prime contractor. The second concerned ways of encouraging the “unbundling” of contracts to facilitate participation by small businesses, including DBEs. The third was a request for comments on potential improvements to the DBE application form and personal net worth (PNW) form. The fourth asked for suggestions related to program oversight. The fifth concerned potential regulatory action to facilitate certification for firms seeking to work as DBEs in more than one state. The sixth concerned additional limitations on the discretion of prime contractors to terminate DBEs for convenience, once the prime contractor had committed to using the DBE as part of its showing of good faith efforts. The Department received approximately 30 comment letters regarding these issues.

On May 10, 2010, the Department issued a notice of proposed rulemaking (NPRM) seeking further comment on proposals based on the ANPRM and proposing new provisions (75 FR 25815). The NPRM proposed an inflationary adjustment of the PNW cap to $1.31 million, the figure that would result from proposed Federal Aviation Administration (FAA) reauthorization legislation then pending in both Houses of Congress. The Department proposed additional measures to hold recipients accountable for their performance in achieving DBE overall goals.

The NPRM also proposed amendments to the certification-related provisions of the DBE regulation. Those proposals resulted from the Department's experience dealing with certification issues and certification appeal cases during the years since the last major revision of the DBE rule in 1999. The proposed amendments were intended to clarify issues that have arisen and avoid problems with which recipients ( i.e., state highway agencies, transit authorities, and airport sponsors who receive DOT grant financial assistance) and the Department have had to grapple over the last 11 years.

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

Under current counting rules, a DBE subcontractor and its prime contractor may count for DBE credit the entire cost of a construction contract, including items that the DBE subcontractor purchases or leases from a third party ( e.g., in a so-called “furnish and install” contract). There is an exception to this general rule: A DBE and its prime contractor may not count toward goals items that the DBE purchases or leases from its own prime contractor. The reason for this provision is that doing so would allow the prime contractor to count for DBE credit items that it produced itself.

As noted in the ANPRM, one DBE subcontractor and a number of prime contractors objected to this approach, saying that it unfairly denies a DBE in this situation the opportunity to count credit for items it has obtained from its prime contractor rather than from other sources. Especially in situations in which a commodity might only be available from a single source—a prime contractor or its affiliate—the rule would create a hardship, according to proponents of this view. The ANPRM proposed four options (1) keeping the rule as is; (2) keeping the basic rule as is, but allowing recipients to make exceptions in some cases; (3) allowing DBEs to count items purchased from any third party source, including the DBE's prime contractor; and (4) not allowing any items obtained from any non-DBE third party to be counted for DBE credit. Comment was divided among the four alternatives, which each garnering some support. For purposes of the NPRM, the Department decided not to propose any change from the current rule.

Comment on the issue was again divided. Seven commenters favored allowing items obtained from any source to be counted for credit, including the firm that was the original proponent of the idea and another DBE, two prime contractors' associations, a prime contractor, and two State Departments of Transportation (DOTs). These commenters generally made the same arguments as had proponents of this view at the ANPRM stage. Thirteen commenters, among which were several recipients, a DBE contractors' association, and DBE contractors, favored the NPRM's proposed approach of not making any change to the existing rule, and they endorsed the NPRM's rationale. Sixteen commenters, including a recipient association and a number of DBE companies, supported disallowing credit for any items purchased or leased from a non-DBE source. They believed that this approach supported the general principle of awarding DBE credit only for contributions that DBEs themselves make on a contract.

The Department remains unconvinced that it is appropriate for a prime contractor to produce an item ( e.g., asphalt), provide it to its own DBE subcontractor, and then count the value of the item toward its good faith efforts to meet DBE goals. The item—asphalt, in this example—is a contribution to the project made by the prime contractor itself and simply passed through the DBE. That is, the prime contractor, on paper, sells the item to the DBE, who then charges the cost of the item it just bought from the prime contractor as part of its subcontract price, which the prime then reports as DBE participation. In the Department's view, this pass-through relationship is inconsistent with the most important principle of counting DBE participation, which is that credit should only be counted for value that is added to the transaction by the DBE itself.

As mentioned in the ANPRM and NPRM, the current rule treats counting of items purchased by DBEs from non-DBE sources differently, depending on whether the items are obtained from the DBE's prime contractor or from a third-party source. The Department's current approach is a reasonable compromise between the commonly accepted practice of obtaining items from non-DBE sources as part of the contracting process and maintaining the principle of counting only the DBE's own contributions for credit toward goals, which is most seriously violated when the prime contractor itself is the source of the items. This compromise respects the dual, somewhat divergent, goals of accommodating a common way of doing business and avoiding a too-close relationship between a prime contractor and a DBE subcontractor that distorts the counting of credit toward DBE goals. This compromise has been part of the regulation since 1999 and, with the exception of the proponent of changing the regulation and its prime contractor partners, has never been raised by program participants as a widespread problem requiring regulatory change. For these reasons, the Department will leave the existing regulatory language intact.

The NPRM proposed that a prime contractor who, in the course of meeting its good faith efforts requirements on a procurement involving a contract goal, had submitted the names of one or more DBEs to work on the project, could not terminate a DBE firm without the written consent of the recipient. The firm could be terminated only for good cause. The NPRM proposed a list of what constituted good cause for this purpose.

Over 40 comments addressed this subject, a significant majority of which supported the proposal. Two recipients said the proposal was unnecessary and a third expressed concern about workload implications. Several recipients said that they already followed this practice.

However, commenters made a variety of suggestions with respect to the details of the proposal. A DBE firm questioned a good cause element that would allow a firm to be terminated for not meeting reasonable bonding requirements, noting that lack of access to bonding is a serious problem for many DBEs. A DBE contractors' association said that a DBE's action to halt performance should not necessarily be a ground for termination, because in some cases such an action could be a justified response to an action beyond its control ( e.g., the prime failing to make timely payments). A DBE requested clarification of what being “not responsible” meant in this context. A number of commenters, including recipients and DBEs, suggested that a prime could terminate a DBE only if the DBE “unreasonably” failed to perform or follow instructions from the prime.

A prime contractors' association suggested additional grounds for good cause to terminate, including not performing to schedule or not performing a commercially useful function. Another such association said the rule should be consistent with normal business practices and not impede a prime contractor's ability to remove a poorly performing subcontractor for good cause. A recipient wanted a public safety exception to the time frame for a DBE's reply to a prime contractor's notice proposing termination, and another recipient wanted to shorten that period from five to two days. A State unified certification program (UCP) suggested adopting its State's list of good cause reasons, and a consultant suggested that contracting officers, not just the DBE Liaison Officer (DBELO), should be involved in the decision about whether to concur in a prime contractor's desire to terminate a DBE. A recipient wanted to add language concerning the prime contractor's obligation to make good faith efforts to replace a terminated DBE with another DBE.

The Department, like the majority of commenters on this issue, believes that the proposed amendment will help to prevent situations in which a DBE subcontractor, to which a prime contractor has committed work, is arbitrarily dismissed from the project by the prime contractor. Comments to the docket and in the earlier stakeholder sessions have underlined that this has been a persistent problem. By specifying that a DBE can be terminated only for good cause—not simply for the convenience of the prime contractor—and with the written consent of the recipient, this amendment should help to end this abuse.

With respect to the kinds of situations in which “good cause” for termination can exist, the Department has modified the language of the rule to say that good cause includes a situation where the DBE subcontractor has failed or refused to perform the work of its subcontract in accordance with normal industry standards. We note that industry standards may vary among projects, and could be higher for some projects than others, a matter the recipient could take into account in determining whether to consent to a prime contractor's proposal to terminate a DBE firm. However, good cause does not exist if the failure or refusal of the DBE subcontractor to perform its work on the subcontract results from the bad faith or discriminatory action of the prime contractor ( e.g., the failure of the prime contractor to make timely payments or the unnecessary placing of obstacles in the path of the DBE's work).

Good cause also does not exist if the prime contractor seeks to terminate a DBE it relied upon to obtain the contract so that it can self-perform the work in question or substitute another DBE or non-DBE firm. This approach responds to commenters who were concerned about prime contractors imposing unreasonable demands on DBE subcontractors while offering recipients a more definite standard than simple reasonableness in deciding whether to approve a prime contractor's proposal to terminate a DBE firm. We have also adopted a recipient's suggestion to permit the time frame for the process to be shortened in a case where public necessity ( e.g., safety) requires a shorter period of time before the recipient's decision.

In addition to the enumerated grounds, a recipient may permit a prime contractor to terminate a DBE for “other documented good cause that the recipient determines compels the termination of the DBE subcontractor.” This means that the recipient must document the basis for any such determination, and the prime contractor's reasons for terminating the DBE subcontractor make the termination essential, not merely discretionary or advantageous. While the recipient need not obtain DOT operating administration concurrence for such a decision, FHWA, FTA, and FAA retain the right to oversee such determinations by recipients.

The NPRM proposed to make an inflationary adjustment in the personal net worth (PMW) cap from its present $750,000 to $1.31 million, based on the consumer price index (CPI) and relating back to 1989, as proposed in FAA authorization bills pending in Congress. The NPRM noted that such an adjustment had long been sought by DBE groups and that it maintained the status quo in real dollar terms. The Department also asked for comment on the issue of whether assets counted toward the PNW calculation should continue to include retirement savings products. The rule currently does include them, but the pending FAA legislation would move in the direction of excluding them from the calculation.

Of the 95 commenters who addressed the basic issue of whether the Department should make the proposed inflationary adjustment, 71—representing all categories of commenters—favored doing so. Many said that such an adjustment was long overdue and that it would mitigate the problem of a “glass ceiling” limiting the growth and development of DBE firms. A few commenters said that such adjustments should be done regionally or locally rather than nationally, to reflect economic differences among areas of the country. A number of the commenters wanted to make sure the Department made similar adjustments annually in the future. A member of Congress suggested that the PNW should be increased to $2.5 million, while a few recipients favored a smaller increase ( e.g., to $1 million). A few commenters also suggested that the Department explore some method of adjusting PNW other than the CPI, but they generally did not spell out what the alternative approaches might be.

The opponents of making the adjustment, mostly recipients and DBEs, made several arguments. The first was that $1.31 million was too high and would include businesses owners who were not truly disadvantaged. The second was that raising the PNW number would favor larger, established, richer DBEs at the expense of smaller, start-up firms. These larger companies could then stay in the program longer, to the detriment of the program's aims. Some commenters said that the experience in their states was that very few firms were becoming ineligible for PNW reasons, suggesting that a change in the current standard was unnecessary.

With respect to the issue of retirement assets, about 28 comments, primarily from DBE groups and recipients, favored excluding some retirement assets from the PNW calculation, often asserting that this was appropriate because such funds are illiquid and not readily available to contribute toward the owners' businesses. Following this logic, some of the comments said that Federally-regulated illiquid retirement plans ( e.g., 401k, Roth IRA, Keough, and Deferred Compensation plans, as well as 529 college savings plans) be excluded while other assets that are more liquid (CDs, savings accounts) be counted, even if said to be for retirement purposes. A number of these commenters said that a monetary cap on the amount that could be excluded ( e.g., $500,000) would be acceptable.

The 17 comments opposing excluding retirement accounts from the PNW calculation generally supported the rationale of the existing regulation, which is that assets of this kind, even if illiquid, should be regarded as part of an individual's wealth for PNW purposes. A few commenters also said that, since it is most likely wealthier DBE owners who have such retirement accounts, excluding them would help these more established DBEs at the expense of smaller DBEs who are less likely to be able to afford significant retirement savings products. Again, commenters said that this provision, by effectively raising the PNW cap, would inappropriately allow larger firms to stay in the program longer. Some of the commenters would accept exclusion of retirement accounts if an appropriate cap were put in place, however.

Finally, several commenters asked for a revised and improved PNW form with additional guidance and instructions on how to make PNW calculations ( e.g., with respect to determining the value of a house or business).

To understand the purpose and effect of the Department's proposal to change the PNW threshold from the long-standing $750,000 figure, it is important to keep in mind what an inflationary adjustment does. (Because of the passage of time from the issuance of the NPRM to the present time, the amount of the inflationary adjustment has changed slightly, from $1.31 million to $1.32 million.) The final rule's adjustment is based on the Department of Labor's consumer price index (CPI) calculator. This calculator was used because, of various readily available means of indexing for inflation, CPI appears to be the one that is most nearly relevant to an individual's personal wealth. Such an adjustment simply keeps things as they were originally in real dollar terms.

That is, in 1989, $750,000 bought a certain amount of goods and services. In 2010, given the effects of inflation over 21 years, it would take $1.32 million in today's dollars to buy the same amount of goods and services. The buying power of assets totaling $750,000 in 1989 is the same as the buying power of assets totaling $1.32 million in 2010. Notwithstanding the fact that $1.32 million, on its face, is a higher number than $750,000, the wealth of someone with $1.32 million in assets today is the same, in real dollar or buying power terms, as that of someone with $750,000 in 1989.

Put another way, if the Department did not adjust the $750,000 number for inflation, our inaction would have the effect of establishing a significantly lower PNW cap in real dollar terms. A PNW cap of $750,000 in 2010 dollars is equivalent to a PNW cap of approximately $425,700 in 1989 dollars. This means that a DBE applicant today would be allowed to have $325,000 less in real dollar assets than his or her counterpart in 1989.

The Department believes, in light of this understanding of an inflationary adjustment, that making the proposed adjustment at this time is appropriate. This is a judgment that is shared by the majority of commenters and both Houses of Congress. We do not believe that any important policy interest is served by continuing to lower the real dollar PNW threshold, which we believe would have the effect of further limiting the pool of eligible DBE owners beyond what is intended by the Department in adopting the PNW standard.

The Department is using 1989 as the base year for its inflationary adjustment for two reasons. First, doing so is consistent with what both the House and Senate determined was appropriate in the context of FAA authorization bills that both chambers passed. Second, while the Department adopted a PNW standard in 1999, the standard itself, which was adopted by the Small Business Administration (SBA) before 1989, has never been adjusted for inflation at any time. By 1999, the real dollar value of the original $750,000 standard had already been eroded by inflation, and the Department believes that it is reasonable to take into account the effect of inflation on the standard that occurred before as well as after the Department adopted it.

We appreciate the concerns of commenters who opposed the proposed inflationary adjustment. Some of these commenters, it appears, may not have fully understood that an inflationary adjustment simply maintains the status quo in real dollar terms. The concern that making the adjustment would favor larger, established DBEs over smaller, start-up companies has some basis, and reflects the longstanding tension in the program between its role as an incubator for new firms and its purpose of allowing DBE firms to grow and develop to the point where they may be in a better position to compete for work outside the DBE program. Allowing persons with larger facial amounts of assets may seem to permit participation of people who are less disadvantaged than formerly in the program, but disadvantage in the DBE program has always properly been understood as relative disadvantage (i.e., relative to owners and businesses in the economy generally), not absolute deprivation. People who own successful businesses are more affluent, by and large, than many people who participate in the economy only as employees, but this does not negate the fact that socially disadvantaged persons who own businesses may well, because of the effects of discrimination, accumulate less wealth than their non-socially disadvantaged counterparts. Consequently, the concerns of opponents of this change are not sufficient to persuade us to avoid making the proposed inflationary adjustment.

We do not believe that it is practical, in terms of program administration, to have standards that vary with recipient or region. We acknowledge that one size may not fit all to perfection, but the complexity of administering a national program with a key eligibility standard that varies, perhaps significantly, among jurisdictions would be, in our view, an even greater problem. Nor do we see a strong policy rationale for a change to some fixed figure ( e.g., $1 million, $2.5 million) that is not tied to inflation. We do agree, however, that an improved PNW form would be an asset to the program, and we will propose such a form for comment in the next stage NPRM on the DBE program, which we hope to issue in 2011. This NPRM may also continue to examine other PNW issues.

Whenever there is a change in a rule of this sort, the issue of how to handle the transition between the former rule and the new rule inevitably arises. We provide the following guidance for recipients and firms applying for DBE certification.

• For applications or decertification actions pending on the date this amendment is published, but before its effective date, recipients should make decisions based on the new standards, though these decisions should not take effect until the amendment's effective date.

• Beginning on the effective date of this amendment, all new certification decisions must be based on the revised PNW standard, even if the application was filed or a decertification action pertaining to PNW began before this date.

• If a denial of an application or decertification occurred before the publication date of this amendment, because the owner's PNW was above $750,000 but not above $1.32 million, and the matter is now being appealed within the recipient's or unified certification program's (UCP's) process, then the recipient or UCP should resolve the appeal using the new standard. Recipients and UCPs may request updated information where relevant. In the case of an appeal pending before the Departmental Office of Civil Rights (DOCR) under section 26.89, DOCR will take the same approach or remand the matter, as appropriate.

• If a firm was decertified or its application denied within a year before the effective date of this amendment, because the owner's PNW was above $750,000 but not above $1.32 million, the recipient or UCP should permit the firm to resubmit PNW information without any further waiting period, and the firm should be recertified if the owner's PNW is not over $1.32 million and the firm is otherwise eligible.

• We view any individual who has misrepresented his or her PNW information, whether before or after the inflationary adjustment takes effect, as having failed to cooperate with the DBE program, in violation of 49 CFR 26.109(c). In addition to other remedies that may apply to such conduct, recipients should not certify a firm that has misrepresented this information.

The Department is not ready, at this time, to make a decision on the issue of retirement assets. The comments suggested a number of detailed issues the Department should consider before proposing any specific provisions on this subject. We will further consider commenters' thoughts on this issue at a future time.

In response to longstanding concerns of DBEs and their groups, the NPRM proposed a mechanism to make interstate certification easier. The proposed mechanism did not involve pure national reciprocity ( i.e., in which each state would give full faith and credit to other states' certification decisions, with the result that a certification by any state would be honored nationwide). Rather, it created a rebuttable presumption that a firm certified in its home state would be certified in other states. A firm certified in home state A could take its application materials to State B. Within 30 days, State B would decide either to accept State A's certification or object to it. If it did not object, the firm would be certified in State B. If State B did object, the firm would be entitled to a proceeding in which State B bore the burden of proof to demonstrate that the firm should not be certified in State B. The NPRM also proposed that the DOT Departmental Office of Civil Rights (DOCR) would create a database that would be populated with denials and decertifications, which the various State UCPs would check with respect to applicants and currently certified firms.

This issue was one of the most frequently commented-upon subjects in the rulemaking. Over 30 comments, from a variety of sources including DBEs, DBE organizations, and a prime contractors' association. Members of Congress and others supported the proposed approach. They emphasized that the necessity for repeated certification applications to various UCPs, and the very real possibility of inconsistent results on the same facts, were time-consuming, burdensome, and costly for DBEs. In a national program, they said, there should be national criteria, uniformity of forms and interpretations, and more consistent training of certification personnel. The proposed approach, they said, while not ideal, would be a useful step toward those goals.

An approximately equal number of commenters, predominantly recipients but also including some DBEs and associations, opposed the proposal, preferring to keep the existing rules (under which recipients can, but are not required to, accept certifications made by other recipients) in place. Many of these commenters said that their certification programs frequently had to reject out-of-state firms that had been certified by their home states because the home states had not done a good job of vetting the qualifications of the firms for certification. They asserted that there was too much variation among states concerning applicable laws and regulations ( e.g., with respect to business licensing or marital property laws), interpretations of the DBE rule, forms and procedures, and the training of certifying agency personnel for something like the NPRM proposal to work well. Before going to something like the NPRM proposal, some of these commenters said, DOT should do more to ensure uniform national training, interpretations, forms etc.

Commenters opposed to the NPRM proposal were concerned that the integrity of the program would be compromised, as questionable firms certified by one state would slip into the directories of other states without adequate vetting. Moreover, the number of certification actions each state had to consider, and the number of certified firms that each state would have to manage, could increase significantly, straining already scarce resources.

A smaller number of commenters addressed the idea of national reciprocity. Some of these commenters said that, at least for the future, national reciprocity was a valuable goal to work toward. Some of these commenters, including an association that performs certification reviews nationally for MBE and WBE suppliers (albeit without on-site reviews) and a Member of Congress, supported using such a model now. On the other hand, other commenters believed national reciprocity was an idea whose time had not come, for many of the same reasons stated by commenters opposed to the NPRM proposal. Some of the commenters on the NPRM proposal said that the proposal would result in de facto national reciprocity, which they believed was bad for the program.

Two features of the NPRM proposal attracted considerable adverse comment. Thirty-one of the 34 comments addressing the proposed 30-day window for “State B” to decide whether to object to a home state certification of a firm said that the proposed time was too short. These commenters, mostly recipients, suggested time frames ranging from 45-90 days. They said that the 30-day time frame would be very difficult to meet, given their resources, and would cause States to accept questionable certifications from other States simply because there was insufficient time to review the documentation they had been given. Moreover, the 30-day window would mean that out-of-state firms would jump to the front of the line for consideration over in-state firms, concerning which the rule allows 90 days for certification. This would be unfair to in-state firms, they said.

In addition, 22 of 28 commenters on the issue of the burden of proof for interstate certification—again, predominantly recipients—said that it was the out-of-state applicant firm, rather than State B, that should have the burden of proof once State B objected to a home state certification of the firm. These commenters also said that is was more sensible to put the out-of-state firm in the same position as any other applicant for certification by having to demonstrate to the certifying agency that it was eligible, rather than placing the certification agency in the position of the proponent in a decertification action for a firm that it had previously certified. Again, commenters said, the NPRM proposal would favor out-of-state over in-state applicants.

A few comments suggested trying reciprocal certification on a regional basis (e.g., in the 10 Federal regions) before moving to a more national approach. Others suggested that only recent information ( e.g., applications and on-site reports less than three years old) be acceptable for interstate certification purposes. Some states pointed to state laws requiring local licenses or registration before a firm could do business in the State: Some commenters favored limiting out-of-state applications to those firms that had obtained the necessary permits, while one commenter suggested prohibiting States from imposing such requirements prior to DBE certification. Some comments suggested limiting the grounds on which State B could object to the home state certification of a firm ( i.e., “good cause” rather than “interpretive differences,” differences in state law, evidence of fraud in obtaining home state certification).

There was a variety of other comments relevant to the issue of interstate certification. Most commenters who addressed the idea of the DOCR database supported it, though some said that denial/decertification data should be available only to certification agencies, not the general public. Some also said that having to input and repeatedly check the data base would be burdensome. One commenter suggested including a firm's Federal Taxpayer ID number in the database entry. One commenter suggested a larger role for the database: Applicants should electronically input their application materials to the database, which would then be available to all certifying agencies, making individual submissions of application information to the States unnecessary. Some commenters wanted DOT to create or lead a national training and/or accreditation effort for certifier personnel.

Commenters on interstate were almost evenly divided on the best course of action for the Department to take. Most DBEs favored making interstate certification less difficult for firms that wanted to work outside their home states; most recipients took the opposite point of view. This disagreement reflects, we believe, a tension between two fundamental objectives of the program. On one hand, it is important to facilitate the entry of DBE firms into this national program, so that they can compete for DOT-assisted contracting wherever those opportunities exist, while reducing administrative burdens and costs on the small businesses that seek to participate. On the other hand, it is important to maintain the integrity of the program, so that only eligible firms participate and ineligible firms do not take unfair advantage of the program.

The main concern of proponents of the NPRM proposal was that failing to make changes to facilitate interstate certification would leave in place unnecessary and unreasonable barriers to the participation of firms outside of their home states. The main concern of opponents of the NPRM proposal was that making the proposed changes would negatively affect program integrity. Their comments suggest that there is considerable mistrust among certification agencies and programs. Many commenters appear to believe that, while their own certification programs do a good job, other states' certification programs do not. Much of the opposition to facilitating interstate certification appears to have arisen from this mistrust, as certification agencies seek to prevent questionable firms certified by what they perceive as weak certification programs in other states from infiltrating their domains.

The Department does not believe that it is constructive to take the position that certification programs nationwide are so hopelessly inadequate that the best response is to leave interstate barriers in place to contain the perceived contagion of poorly qualified, albeit certified, firms within the boundaries of their own states. To the contrary, we believe that, under a system like that proposed in the NPRM, if firms certified by State A are regularly rebuffed by States B, C, D, etc., State A firms will have an incentive to bring pressure on their certification agency to improve its performance.

The Department also believes that suggestions made by commenters, such as improving training and standardizing forms and interpretations, can improve the performance of certification agencies generally. In the follow-on NPRM the Department hopes to issue in 2011, one of the subjects we will address is improvements in the certification application and PNW forms, which certification agencies then would be required to use without alteration. DOT already provides many training opportunities to certification personnel, such as the National Transportation Institute courses provided by the Federal Transit Administration, presentations by knowledgeable DOT DBE staff at meetings of transportation organizations, and webinars and other training opportunities provided by Departmental Office of Civil Rights personnel. The Department will consider further ways of fostering training and education for certifiers ( e.g., a DOT-provided web-based training course for certifiers). The Department also produces guidance on certification-related issues to assist certifiers in making decisions that are consistent with this regulation, and we will continue that practice.

While we will continue to work with our state and local partners to improve the certification process, we do not believe that steps to facilitate interstate certification should be taken only after all recipients achieve an optimal level of performance. The DBE program is a national program; administrative barriers to participation impair the important program objective of encouraging DBE firms to compete for business opportunities; provisions to facilitate interstate certification can be drafted in a way that permits “State B” to screen out firms that are not eligible in accordance with this regulation. Consequently, the Department has decided to proceed with a modified form of the NPRM proposal. However, the final rule will not make compliance with the new section 26.85 mandatory until January 1, 2012, in order to provide additional time for recipients and UCPs to take advantage of training opportunities and to establish any needed administrative mechanisms to carry out the new provision. This will also provide time for DOCR to make its database for denials and decertifications operational.

As under the NPRM, a firm certified in its home state would present its certification application package to State B. In response to commenters' concerns about the time available, State B would have 60 days, rather than 30 as in the NPRM, to determine whether it had specific objections to the firm's eligibility and to communicate those objections to the firm. If State B believed that the firm was ineligible, State B would state, with particularity, the specific reasons or objections to the firm's eligibility. The firm would then have the opportunity to respond and to present information and arguments to State B concerning the specific objections that State B had made. This could be done in writing, at an in-person meeting with State B's decision maker, or both. Again in response to commenters' concerns, the firm, rather than State B, would have the burden of proof with respect, and only with respect, to the specific issues raised by State B's objections. We believe that these changes will enhance the ability of certification agencies to protect the integrity of the program while also enhancing firms' ability to pursue business opportunities outside their home states.

We emphasize that State B's objections must be specific, so that the firm can respond with information and arguments focused clearly on the particular issues State B has identified, rather than having to make an unnecessarily broad presentation. It is not enough for State B to say “the firm is not controlled by its disadvantaged owner” or “the owner exceeds the PNW cap.” These are conclusions, not specific, fact-based objections. Rather, State B might say “the disadvantaged owner has a full-time job with another organization and has not shown that he has sufficient time to exercise control over the day-to-day operations of the firm” or “the owner's property interests in assets X, Y, and Z were improperly valued and cause his PNW to exceed $1.32 million.” This degree of specificity is mandatory regardless of the regulatory ground ( e.g., new information, factual errors in State A's certification: See section 26.85(d)(2)) on which State B makes an objection. For example, if State B objected to the firm's State A certification on the basis that State B's law required a different result, State B would say something like “State B Revised Statutes Section xx.yyyy provides only that a registered engineer has the power to control an engineering firm in State B, and the disadvantaged owner of the firm is not a registered engineer, who is therefore by law precluded from controlling the firm in State B.”

On receiving this specific objection, the owner of the firm would have the burden of proof that he or she does meet the applicable requirements of Part 26. In the first example above, the owner would have to show that either he or she does not now have a full-time job elsewhere or that, despite the demands of the other job, he or she can and does control the day-to-day operations of the firm seeking certification. This burden would be to make the required demonstration by a preponderance of the evidence, the same standard used for initial certification actions generally. This owner would not bear any burden of proof with respect to size, disadvantage, ownership, or other aspects of control, none of which would be at issue in the proceeding. The proceeding, and the firm's burden of proof, would concern only matters about which State B had made a particularized, specific objection. This narrowing of the issues should save time and resources for firms and certification agencies alike.

The firm's response to State B's particularized objections could be in writing and/or in the form of an in-person meeting with State B's decision maker to discuss State B's objections to the firm's eligibility. The decision maker would have to be someone who is knowledgeable about the eligibility provisions of the DBE rule.

We recognize that, in unusual circumstances, the information the firm provided to State B in response to State B's specific objections could contain new information, not part of the original record, that could form the basis for an additional objection to the firm's certification. In such a case, State B would immediately notify the firm of the new objection and offer the firm a prompt opportunity to respond.

Section 26.85(d)(2) of the final rule lists the grounds a State B can rely upon to object to a State A certification of a firm. These are largely the same as in the NPRM. In response to a comment, the Department cautions that by saying that a ground for objection is that State A's certification is inconsistent with this regulation, we do not intend for mere interpretive disagreements about the meaning of a regulatory provision to form a ground for objection. Rather, State B would have to cite something in State A's certification that contradicted a provision in the regulatory text of Part 26.

The final rule also gives, as a ground for objecting to a State A certification, that a State B law “requires” a result different from the law of State ( see the engineering example above). To form the basis for an objection on this ground, a difference between state laws must be outcome-determinative with respect to a certification. For example, State A may treat marital property as jointly held property, while State B is a community property state. The laws are different, but both, in a given case, may well result in each spouse having a 50 percent share of marital assets. This would not form the basis for a State B objection.

With respect to state requirements for business licenses, the Department believes that states should not erect a “Catch 22” to prevent DBE firms from other states from becoming certified. That is, if a firm from State A wants to do business in State B as a DBE, it is unlikely to want to pay a fee to State B for a business license before it knows whether it will be certified. Making the firm get the business license and pay the fee before the certification process takes place would be an unnecessary barrier to the firm's participation that would be contrary to this regulation.

The Department believes that regional certification consortia, or reciprocity agreements among states in a region, are a very good idea, and we anticipate working with UCPs in the future to help create such arrangements. Among other things, the experience of actually working together could help to mitigate the current mistrust among certification agencies. However, we do not believe it would be appropriate to mandate such arrangements at this time.

The Department believes that the DOCR database of decertification and denial actions would be of great use in the certification process. However, the system is not yet up and running. Consequently, the final rule includes a one-year delay in the implementation date of requirements for use of the database.

The NPRM asked for comment on whether there should be a requirement for periodic certification reviews and/or updates of on-site reviews concerning certified firms. The interval most frequently mentioned by commenters on this subject was five years, though there was also some support for three-, six-, and seven-year intervals. A number of commenters suggested that such reviews should include an on-site update only when the firm's circumstances had changed materially, in order to avoid burdening the limited resources of certifying agencies. Having a standardized on-site review form would reduce burdens, some commenters suggested. Other commenters suggested that the timing of reviews should be left to certifying agencies' discretion, or that on-site updates should be done on a random basis of a smaller number of firms.

The NPRM also asked about the handling of situations where an applicant withdraws its application before the certifying agency makes a decision. Should certifying agencies be able to apply the waiting period ( e.g., six or 12 months) used for reapplications after denials in this situation? Comments on this issue, mostly from recipients but also from some DBEs and their associations, were divided. Some commenters said that there were often good reasons for a firm to withdraw and correct an application ( e.g., a new firm unaccustomed to the certification process) and that their experience did not suggest that a lot of firms tried to game the system through repeated withdrawals. On the other hand, some commenters said that having to repeatedly process withdrawn and resubmitted applications was a burden on their resources that they would want to mitigate through applying a reapplication waiting period. One recipient said that, even in the absence of a waiting period, the resubmitted application should go to the back of the line for processing. Still others wanted to be able to apply case-by-case discretion concerning whether to impose a waiting period on a particular firm. A few commenters suggested middle-ground positions, such as imposing a shorter waiting period ( e.g., 90 days) than that imposed on firms who are denied or applying a waiting period only for a second or subsequent withdrawal and reapplication by the same firm.

Generally, commenters were supportive of the various detail-level certification provision changes proposed in the NPRM ( e.g., basing certification decisions on current circumstances of a firm). Commenters did speak to a wide variety of certification issues, however. One commenter said that in its state, the UCP arbitrarily limited the number of NAICS codes in which a firm could be certified, a practice the commenter said the regulation should forbid. In addition, this commenter said, the UCP inappropriately limited certification of professional services firms owned by someone who was not a licensed professional in a field, even in the absence of a state law requiring such licensure. A number of commenters said that recipients should not have to automatically certify SBA-certified 8(a) firms, while another commenter recommended reviving the now-lapsed DOT-SBA memorandum of understanding (MOU) on certification issues. A DBE association said that certifying agencies should not count against firms seeking certification ( e.g., with respect to independence determinations) investments from or relationships with larger firms that are permitted under other Federal programs ( e.g., HubZone or other SBA programs). One commenter favored, and another opposed, allowing States to use their own business specialty classifications in addition to or in lieu of NAICS codes.

One recipient recommended a provision to prevent owners from transferring personal assets to their companies to avoid counting them in the PNW calculation. Another said the certification for the PNW statement should specifically say that the information is “complete” as well as true. Yet another suggested that a prime contractor who owns a high percentage ( e.g., 49 percent) of a DBE should not be able to use that DBE for credit. There were a number of suggestions that more of the certification process be done electronically, rather than on paper. A few comments said that getting back to an applicant within 20 days, as proposed in the NPRM, concerning whether the application was complete was too difficult for some recipients who have small staffs.

The Department believes that regularly updated on-site reviews are an extremely important tool in helping avoid fraudulent firms or firms that no longer meet eligibility requirements from participating in the DBE program. Ensuring that only eligible firms participate is a key part of maintaining the integrity of the program. We also realize that on-site reviews can be time- and resource-intensive. Consequently, while we believe that it is advisable for recipients and UCPs to conduct updated on-site reviews of certified companies on regular and reasonably frequent basis, and we strongly encourage such undated reviews, we have decided not to mandate a particular schedule, though we urge recipients to regard on-site reviews as a critical part of their compliance activities. When recipients or UCPs become aware of a change in circumstances or concerns that a firm may be ineligible or engaging in misconduct ( e.g., from notifications of changes by the firm itself, complaints, information in the media, etc.), the recipient or UCP should review the firm's eligibility, including doing an on-site review.

When recipients in other states ( see discussion of interstate certification above) obtain the home state's certification information, they must rely on the on-site report that the home state has in its files plus the affidavits of no change, etc. that the firm has filed with the home state. It is not appropriate for State B to object to an out-of-state firm's certification because the home state's on-site review is older than State B thinks desirable, since that would unfairly punish a firm for State A's failure to update the firm's on-site review. However, if an on-site report is more than three years old, State B could require that the firm provide an affidavit to the effect that all the facts in the report remain true and correct.

While we recognize that reports that have not been updated, or which do not appear to contain sufficient analysis of a firm's eligibility, make certification tasks more difficult, our expectation is that the Department's enhanced interstate certification process will result in improved quality in on-site reviews so that recipients in various states have a clear picture of the structure and operation of firms and the qualifications of their owners. To this end, we encourage recipients and UCPs to establish and maintain communication in ways that enable information collected in one state to be shared readily with certification agencies in other states. This information sharing can be done electronically to reduce costs.

Firms may withdraw pending applications for certification for a variety of reasons, many of them legitimate. A withdrawal of an application is not the equivalent of a denial of that application. Consequently, we believe that it is inappropriate for recipients and UCPs to penalize firms that withdraw pending applications by applying the up-to-12 month waiting period of section 26.86(c) to such withdrawals, thereby preventing the firm from resubmitting the application before that time elapses. We believe that permitting recipients to place resubmitted applications at the end of the line for consideration sufficiently protects the recipients' workloads from being overwhelmed by repeated resubmissions. For example, suppose that Firm X withdraws its application in August. It resubmits the application in October. Meanwhile, 20 other firms have submitted applications. The recipient must accept Firm X's resubmission in October, but is not required to consider it before the 20 applications that arrived in the meantime. Recipients should also closely examine changes made to the firm since the time of its first application.

We agree with commenters that it is not appropriate for recipients to limit NAICS codes in which a firm is certified to a certain number. Firms may be certified in NAICS codes for however many types of business they demonstrate that they perform and concerning which their disadvantaged owners can demonstrate that they control. We have added language to the regulation making this point. We also agree that it is not appropriate for a recipient or UCP to insist on professional certification as a per se condition for controlling a firm where state law does not impose such a requirement. We have no objection to a recipient or UCP voluntarily using its own business classification system in addition to using NAICS codes, but it is necessary to use NAICS codes.

SBA has now gone to a self-certification approach for small disadvantaged business, the SBA 8(a) program differs from the DBE program in important respects, and the SBA-DOT memorandum of understanding (MOU) on certification matters lapsed over five years ago. Under these circumstances, we have decided to delete former sections 26.84 and 26.85, relating to provisions of that MOU.

DBE firms in the DBE program must be fully independent, as provided in Part 26. If a firm has become dependent on a non-DBE firm through participation in another program, then it may be found ineligible for DBE program purposes. To say otherwise would create inconsistent standards that would enable firms already participating in other programs to meet a lower standard than other firms for DBE participation.

We believe that adding a regulatory provision prohibiting owners from transferring personal assets to their companies to avoid counting them in the PNW calculation would be difficult to implement, since owners of businesses often invest assets in the companies for legitimate reasons. However, as an interpretive matter, recipients are authorized to examine such transfers and, if they conclude that the transfer is a ruse to avoid counting personal assets toward the PNW calculation rather than a legitimate investment in the company and its growth, recipients or UCPs may continue to count the assets toward PNW.

We agree that the certification for the PNW statement should specifically say that the information is “complete” as well as true and that a somewhat longer time period would be appropriate for recipients and UCPs to get back to applicants with information on whether their applications were complete. We have added a regulatory text statement on the former point and extended the time period on the latter point to 30 days.

If a prime contractor who owns a high percentage of a DBE that it wishes to use on a contract, issues concerning independence, affiliation, and commercially useful function can easily arise. For this reason, recipients should closely scrutinize such relationships. This scrutiny may well result, in some cases, in denying DBE credit or initiating decertification action.

We encourage the use of electronic methods in the application and certification process. As in other areas, electronic methods can reduce administrative burdens and speed up the process.

The NPRM proposed that if a recipient failed to meet its overall goal, it would, within 60 days, have to analyze the shortfall, explain the reasons for it, and come up with corrective actions for the future. All State DOTs and the largest transit authorities and airports would have to send their analyses and corrective action plans to DOT operating administrations; smaller transit authorities and airports would retain them on file. While there would not be any requirement to meet a goal—to “hit the number”—failure to comply with these requirements could be regarded as a failure to implement a recipient's program in good faith, which could lead to a finding of noncompliance with the regulation.

In a related provision, the Department asked questions in the NPRM concerning the recent final provision concerning submitting overall goals on a three-year, rather than an annual, basis. In particular, the NPRM asked whether it should be acceptable for a recipient to submit year-to-year projections of goals within the structure of a three-year goal and how implementation of the accountability proposal would work in the context of a three-year goal, whether or not year-to-year projections were made.

About two-thirds of the 64 comments addressing the accountability provision supported it. These commenters included DBEs, recipients, and some associations and other commenters. Some of these commenters, in fact, thought the proposal should be made stronger. For example, a commenter suggested that a violation “will” rather than “could” be found for failure to provide the requested information. Another suggested that, beyond looking at goal attainment numbers, the accountability provisions should be broadened to include the recipient's success with respect to a number of program elements ( e.g., good faith efforts on contracts, outreach, DBE liaison officer's role, training and education of staff).

Commenters also presented various ideas for modifying the proposal. These included suggestions that the Department should add a public input component, provide more guidance on the shortfall analysis and how to do it, delay its effective date to allow recipients to find resources to comply, ensure ongoing measurement of achievements rather than just measuring at the end of a year or three-year period, ensure that there is enough flexibility in explaining the reasons for a shortfall, or lengthen the time recipients have to submit the materials ( e.g., 90 days, or 60 days after the recipient's report of commitments and achievements is due). One commenter suggested that an explanation should be required only when there is a pattern of goal shortfalls, not in individual instances. There could be a provision for excusing recipients who fell short of their goal by very small amount, or even if the recipient made 80 percent of its goal.

Opponents of the proposal—mostly recipients plus a few associations—said that the proposal would be too administratively burdensome. In addition, they feared that making recipients explain a shortfall and propose corrective measures would turn the program into a prohibited set-aside or quota program, a concern that was particularly troublesome in states affected by the Western States decision. Moreover, a number of commenters said, the inability of recipients to meet overall goals was often the result of factors beyond their control. In addition, recipients might unrealistically reduce goals in order to avoid having to explain missing a more ambitious target.

With respect to the reporting intervals for goals, 28 of the 39 commenters who addressed the issue favored some form of at least optional yearly reporting of goals, either in the form of annual goal submissions or, more frequently, of year-to-year projections of goals within the framework of a three-year overall goal. The main reason given for this preference was a concern that projects and the availability of Federal funding for them were sufficiently volatile that making a projection that was valid for a three-year period was problematic. This point of view was advanced especially by airports. Some other commenters favored giving recipients discretion whether to report annually or triennially. Commenters who took the point of view that the three-year interval was preferable agreed with original rationale of reducing repeated paperwork burdens on recipients. One commenter asked that the rule specify that, especially in a three-year interval schedule of goal submission, a recipient “must” submit revisions if circumstances change.

There was discussion in the NPRM of the relationship between the goal submission interval and the accountability provision. For example, if a recipient submitted overall goals on a three-year basis, would the accountability provision be triggered annually, based on the recipient's annual report (as the NPRM suggested) or only on the basis of the recipient's performance over the three-year period? If there were year-to-year projections within a three-year goal, would the accountability provision relate to accountability for the annual projection or the cumulative three-year goal? Commenters who favored year-to-year projections appeared to believe that accountability would best relate to each year's projection, though the discussion of this issue in the comments was often not explicit. Some comments, including one from a Member of Congress, did favor holding recipients accountable for each year's separate performance.

There was a variety of other comments on goal-related issues. Some commenters asked that the three DOT operating administrations coordinate submitting goals so that a State DOT submitting goals every three years would be able to submit its FHWA, FAA, and FTA goals in the same year. A DBE group wanted the Department to strengthen requirements pertaining to the race-neutral portion of a recipient's overall goal. A commenter who works with transit vehicle manufacturers requested better monitoring of transit vehicle manufacturers by FTA. A group representing DBEs wanted recipients to focus on potential, and not just certified, DBEs for purposes of goal setting. The same group also urged consideration of separate goals for minority- and women-owned firms.

Under Part 26, the Department has always made unmistakably clear that the DBE program does not impose quotas. No one ever has been, or ever will be, sanctioned for failing to “hit the number.” However, goals must be implemented in a meaningful way. A recipient's overall goal represents its estimate of the DBE participation it would achieve in the absence of discrimination and its effects. Failing to meet an overall goal means that the recipient has not completely remedied discrimination and its effects in its DOT-assisted contracting. In the Department's view, good faith implementation of a DBE program by a recipient necessarily includes understanding why the recipient has not completely remedied discrimination and its effects, as measured by falling short of its “level playing field” estimate of DBE participation embodied in its overall goal. Good faith implementation further means that, having considered the reasons for such a shortfall, the recipient will devise program actions to help minimize the potential for a shortfall in the future.

Under the Department's procedures for reviewing overall goals and the methodology supporting them, the Department has the responsibility of ensuring that a recipient's goals are well-grounded in relevant data and are derived using a sound methodology. The Department would not approve a recipient's goal submission if it appeared to understate the “level playing field” amount of DBE participation the recipient could rationally expect, whether to avoid being accountable under the new provisions of the rule or for other reasons.

For these reasons, the Department is adopting the NPRM's proposed accountability mechanism. We do not believe that the concerns of some commenters that this mechanism would create a quota system are justified: No one will be penalized for failing to meet an overall goal. Moreover, promoting transparency and accountability is not synonymous with imposing a penalty and should not be viewed as such. Understanding the reasons for not meeting a goal and coming up with ways of avoiding a shortfall in the future, while not creating a quota system, do help to ensure that recipients take seriously the responsibility to address discrimination and its effects.

Moreover, the administrative burden of compliance falls only on those recipients who fail to meet a goal, not on all recipients. Understanding what is happening in one's program, why it is happening, and how to fix problems is, or ought to be, a normal, everyday part of implementing a program, so the analytical tasks involved in meeting this requirement should not be new to recipients. We do not envision that recipients' responses to this requirement would be book-length; a reasonable succinct summary of the recipient's analysis and proposed actions should be sufficient though, like all documents submitted in connection with the DBE program, it should show the work and reasoning leading to the recipient's conclusions.

For example, a recipient might determine that its process for ascertaining whether prime bidders who failed to meet contract goals had made adequate good faith efforts was too weak, and that prime bidders consequently received contracts despite making insufficient efforts to find DBEs for contracts. In such a case, the recipient could take corrective action such as more stringent review of bidder submissions or meeting with prime bidders to provide guidance and assistance on how to do a better job of making good faith efforts.

We agree that there may be circumstances in which a recipient's inability to meet a goal is for reasons beyond its control. If that is the case, the recipient's response to this requirement can be to identify such factors, as well as suggesting how these problems may be taken into account and surmounted in the future. We also agree with those commenters who said that good-faith implementation of a DBE program involves more than meeting an overall goal. Factors like those cited by commenters are important as part of an overall evaluation of a recipient's success. This accountability provision, however, is intended to focus on the process recipients are using to achieve their overall goals, rather than to act as a total program evaluation tool. The operating administrations will continue to conduct program reviews that address the breadth of recipients' program implementation.

The Department believes that a clear, bright-line trigger for the application of the accountability provision makes the most sense administratively and in terms of achieving the purpose of the provision. Consequently, we are not adopting suggestions that the provision be triggered only by a pattern of missing goals, or an average of missing goals over the period of a three-year overall goal, or a shortfall of a particular percentage. Any shortfall means that a recipient has dealt only incompletely with the effects of discrimination, and we believe that it is appropriate in any such case that the recipient understand why that is the case and what steps to take to improve program implementation in the future.

The three-year goal review interval was intended to reduce administrative burdens on recipients. Nevertheless, we understand that some recipients, especially airports, may be more comfortable with annual projections and updates of overall goals. We have no objection to recipients making annual projections, for informational purposes, within the three-year overall goal. It is still the formally submitted and reviewed three-year goal, however, and not the informal annual projections, that count from the point of view of the accountability mechanism. For example, suppose an airport has a three-year annual overall goal of 12 percent. For informational purposes, the airport chooses to make informal annual projections of 6, 12, and 18 percent for years 1-3, respectively (which, by the way, are not required to be submitted to the Department). The accountability mechanism requirements would be triggered in each of the three years covered by the overall goal if DBE achievements in each year were less than 12 percent.

The Department agrees that recipients should be accountable for effectively carrying out the race-neutral portion of their programs. If a recipient fell short of its overall goal because it did not achieve the projected race-neutral portion of its goal, then this is something the recipient would have to explain and establish measures to correct ( e.g., by stepping up race-neutral efforts and/or concluding that it needed to increase race-conscious means of achieving its goal). We also agree that it is reasonable, in calculating goals and in doing disparity studies, to consider potential DBEs ( e.g., firms apparently owned and controlled by minorities or women that have not been certified under the DBE program) as well as certified DBEs. This is consistent with good practice in the field as well as with DOT guidance. Separate goals for various groups of disadvantaged individuals are possible with a program waiver of the DBE regulation, if a sufficient case is made for the need for group-specific goals.

In the section of the rule concerning goal-setting (49 CFR 26.45), the Department is also taking this opportunity to make a technical correction. In the final rule establishing the three year DBE goal review cycle, the Department inadvertently omitted from § 26.45(f)'s regulatory text paragraphs (3), (4), and (5), which govern the content of goal submissions, operating administration review of the submission, and review of interim goal setting mechanisms. It was never the intent of the Department to remove or otherwise change those provisions of section 26.45(f) of the rule. This final rule corrects that error by restructuring paragraphs (1) and (2) of section 26.45(f) and restoring the language of paragraphs (3), (4), and (5) of that section of the rule. We apologize for any confusion that this error may have caused.

The Department supports strong outreach efforts by recipients to encourage minority- and women-owned firms to become certified as DBEs, so that recipients can set and meet realistic goals. However, we caution recipients against stating or implying that minority- and women-owned firms can participate in recipients' contracts only if they become certified as DBEs. It would be contrary to nondiscrimination requirements of this part and of Title VI for a recipient to limit the opportunity of minority- or women-owned firms to compete for any contract because the firm was not a certified DBE.

The NPRM proposed to require recipients to certify that they have monitored the paperwork and on-site performance of DBE contracts to make sure that DBEs actually perform them. Comment was divided on this proposal, with 21 comments favoring either the proposal or stronger oversight mechanisms and 18 opposed.

Commenters who favored the proposal, including DBEs and some associations and recipients, generally believed that the provision would make it less likely that post-award abuse of DBEs by prime contractors would occur. One recipient noted that it already followed this approach with respect to ARRA grants. Some commenters wanted the Department to require additional steps, such as requiring recipients to make periodic visits to the job site and keeping records of each visit, to ensure that the DBELO did in fact have direct access to the organization's CEO concerning DBE matters, and to maintain sufficient trained staff to do needed monitoring. DBE associations wanted mandatory monitoring of good faith efforts ( e.g., by keeping records of all contacts made by prime contractors) and terminations of DBEs by prime contractors, as well as to have certifications signed by persons higher up in the organization than the DBELO ( e.g., the CEO). Another commenter sought further checking concerning counting issues. A consultant and a recipient suggested that recipient certifications should be more frequent than a one-time affair, ( e.g., monthly or quarterly).

Commenters who opposed the NPRM proposal, most of whom were recipients, said that the workload the certification requirement would create would be too administratively burdensome, particularly for recipients with small staffs. The certification requirement could duplicate existing commercially useful function reviews. They also doubted the payoff in terms of improved DBE program implementation would be worth the effort. Some recipients said that they did monitor post-award performance and that the proposed additional paperwork requirement step would add little to the substance of their processes. One recipient noted that it would be very difficult to perform an on-site review of contract performance in the case of professional services consultants whose work was performed out of state.

One recipient suggested that a middle ground might be to have the recipient certify monitoring of a sample of contracts, since it lacked the staff for field monitoring of all contracts. A consultant suggested selecting contracts for monitoring based on a “risk-based analysis” of contracts or by focusing on contracts where prime contractors' achievements did not measure up to their commitments. One recipient suggested limiting the certification requirement to one commercially useful function review per year on a contract. A few recipients asked for guidance on what constituted adequate staffing for the DBE program.

The Department's DBE rule already includes a provision (49 CFR 26.37(b)) requiring recipients to have a monitoring and enforcement mechanism to ensure that work committed to DBEs is actually performed by DBEs. The trouble is that, based on the Department's experience, this provision is not being implemented by recipients as well as it should be. The FHWA review team that has been examining state implementation of the DBE program found that many states did not have an effective compliance monitoring program in place. DBE fraud cases investigated by the Department's Office of Inspector General and criminal prosecutions in the Federal courts have highlighted numerous cases in which recipients were unaware, often for many years, of situations in which non-DBE companies were claiming DBE credit for work that DBEs did not perform.

The Department believes that, for the DBE program to be meaningful, it is not enough that prime contractors commit to the use of DBEs at the time of contract award. It is also necessary that the DBEs actually perform the work involved. Recipients need to know whether DBEs are actually performing the work involved, lest program effectiveness suffer and the door be left open to fraud. Recipients must actually monitor each contract, on paper and in the field, to ensure that that they have this knowledge. Monitoring DBE compliance on a contract is no less important, and should be no more brushed aside, than compliance of with project specifications. This is important for prime contracts performed by DBEs as well as for situations in which DBEs act as subcontractors, and the monitoring and certification requirements will apply to both situations.

Consequently, the Department believes that the proposed requirement that recipients memorialize the monitoring they are already required to perform has merit. Its intent is to make sure that the monitoring actually takes place and that the recipient stands by the statement that DBE participation claimed on a contract actually occurred. This monitoring, and the recipient's written certification that it took place, must occur with respect to every contract on which DBE participation is claimed, not just a sample or percentage of such contracts, to make sure that the program operates as it is intended. It applies to contracts entered into prior to the effective date of this rule, since the obligation to monitor work performed by DBEs has always been a key feature of the DBE program.

With respect to concerns about administrative burden, the Department believes that monitoring is something that recipients have been responsible for conducting since the inception of Part 26. Therefore, we are not asking recipients to do something with which they can claim they are unfamiliar. Moreover, as the final rule version of this provision makes clear, recipients can combine the on-site monitoring for DBE compliance with other monitoring they do. For example, the inspector who looks at a project to make sure that the contractor met contract specifications before final payment is authorized could also confirm that DBE requirements were honestly met.

While we believe that more intensive and more frequent monitoring of DBE performance on contracts is desirable, we encourage recipients to monitor contracts as closely as they can. However, we do not, for workload reasons, want to mandate more pervasive monitoring at this time. We agree with commenters that it would be difficult to do on-site monitoring of contracts performed outside the state ( e.g., an out-of-state consulting contract), and we have added language specifying that the requirement to monitor work sites pertains to work sites in the recipient's state. In reference to what constitutes adequate staffing of a DBE program, we believe that it is best to look at this question in terms of a performance standard. The Department's rule requires certain tasks ( e.g., responding to applications for DBE eligibility, certification and monitoring of DBE performance on contracts) to be performed within certain time frames. If a recipient has sufficient staff to meet these requirements, then its staffing levels are adequate. If not ( e.g., applications for DBE certification are backlogged for several months), then staffing is inadequate.

The NPRM proposed that recipients would add an element to their DBE programs to foster small business participation in contracts. The purpose of this proposal was to encourage programs that, by facilitating small business participation, augmented race-neutral efforts to meet DBE goals. The program element could include items such as race-neutral small business set-asides and unbundling provisions. The NPRM did not propose to mandate any specific elements, however.

The majority of commenters addressing this part of the NPRM—38 of 55—favored the NPRM's approach. Commenters approving the proposal were drawn from DBEs, associations, and recipients. Generally, they agreed that steps to create improved opportunities for small business would help achieve the objectives of the DBE program. Specific elements that various commenters supported included unbundling (which some commenters suggested should be made mandatory), prohibiting double-bonding, small business set-asides, expansions of existing small business development programs and mentor-protégé programs.

Commenters who did not support the NPRM proposal, most of whom were recipients, were concerned that having small business programs would draw focus from programs targeted more directly at DBEs. They were also concerned about having sufficient resources to carry out the programs they might include in a small business program element. One commenter thought that a small business program element would duplicate existing supportive services programs. Another thought unbundling would not work. A number of recipients thought it would be better for DOT to issue guidance on this subject rather than to create regulatory language. A recipient association characterized the proposal as burdensome and not productive.

Eight commenters addressed the issue of bonding and insurance requirements. A bonding company association explained that both performance and payment bonds had an appropriate place in contracting and believed that subcontractor bonds were not duplicative of prime contractor bonds. A DBE wanted to prohibit prime contractors from setting bonding requirements for subcontractors. A recipient said the Department should treat prime contractors and subcontractors the same for bonding purposes. One DBE association said the combination of payment bonds, performance bonds, and retention was burdensome for subcontractors and Another DBE association said that it was inappropriate to require bonding of the subcontractor when the prime contractor was already bonded for the overall work of the contract. This association suggested that a prime contractor could not demonstrate good faith efforts to meet a goal if it insisted on such a double bond.

DBEs are small businesses. Program provisions that help small businesses can help DBEs. By facilitating participation for small businesses, recipients can make possible more DBE participation, and participation by additional DBE firms. Consequently, we believe that a program element that pulls together the various ways that a recipient reaches out to small businesses and makes it easier for them to compete for DOT-assisted contracts will foster the objectives of the DBE program. Because small business programs of the kind suggested in the NPRM are race-neutral, use of these programs can assist recipients in meeting the race-neutral portions of their overall goals. This is consistent with the language that under Part 26, recipients are directed to meet as much as possible of their overall goals through race-neutral means.

It is important to keep in mind that race-neutral programs should not be passive. Simply waiting and hoping that occasional DBEs will participate without the use of contract goals does not an effective race-neutral program make. Rather, recipients are responsible for taking active, effective steps to increase race-neutral DBE participation, by implementing programs of the kind mentioned in this section of the NPRM and final rule. The Department will be monitoring recipients' race-neutral programs to make sure that they meet this standard.

In adopting the NPRM proposal requiring a small business program element, the Department believes that this element—which is properly viewed as an integral part of a recipient's DBE program—need not distract recipients from other key parts of recipients' DBE programs, such as certification and the use of race-conscious measures. There are different ways of encouraging DBE participation and meeting DBE overall goals, and recipients' programs need to address a variety of these means. Many of the provisions that recipients can use to implement the requirements of the new section ( e.g., unbundling, race-neutral small business set-asides) are already part of the regulation or DOT guidance, and carrying out these elements should not involve extensive additional burdens.

With respect to bonding, the Department believes that commenters made a good point with respect to the burden of duplicative bonding. By duplicative bonding, we mean insistence by a prime contractor that a DBE provide bonding for work that is already covered by bonding or insurance provided by the prime contractor or the recipient. Like duplicative bonding, excessive bonding—a requirement, which according to participants in the Department's stakeholder meetings, is sometimes imposed to provide a bond in excess of the value of the subcontractor's work—can act as an unnecessary barrier to DBE participation. While we believe that additional action to address these problems may have merit, there was not a great deal of comment on the implications of potential regulatory requirements in these areas. Consequently, we will defer action on these issues at this time and seek additional comment and information in the follow-on NPRM the Department is planning to issue.

Several commenters expressed general support for the DBE program and/or the NPRM, while two commenters opposed the DBE program in general. A large number of comments from an advocacy organization's members supported additional bonding assistance and more frequent data reporting. A commenter wanted to add DBE coverage for Federal Railroad Administration (FRA) grants. Commenters also suggested such steps as increasing technical assistance, using project labor agreements to increase DBE participation, an SBA 8(a) program-like term limit on participation in the DBE program, a better uniform reporting form, greater ease in complaining to DOT and recipients about noncompliance issues, and putting current joint check guidance into the rule's text.

The Department already has programs in place concerning bonding and data reporting. There is not currently a direct, specific statutory mandate for a DBE program in FRA financial assistance programs, though the Department is considering ways of ensuring nondiscrimination in contracting in these programs. For example, like all recipients of Federal financial assistance, FRA recipients are subject to requirements under Title VI of the Civil Rights Act of 1964. Existing programs, such as the FHWA supportive services program and various initiatives by the Department's Office of Small and Disadvantaged Business Utilization, are in place to assist DBEs in being competitive. Given the language of the statutes authorizing the DOT DBE program, we do not believe that a term limit on the participation of DBE companies would be permissible. The Department is working on improvements on all its DBE forms, and we expect to seek comment on revised forms in the follow-on NPRM we anticipate publishing. At this point, we think that the joint check guidance is sufficient without codification, but we can look at this issue, among other certification issues, in the next round of rulemaking.

As numerous court decisions have noted, 1 the Department's DBE regulations, and the statutes authorizing them, are supported by a compelling need to address discrimination and its effects. This basis for the program has been established by Congress and applies on a nationwide basis. Both the House and Senate FAA reauthorization bills contained findings reaffirming the compelling need for the program. We would also call to readers' attention the additional information presented to the House of Representatives in a March 26, 2009, hearing before the Transportation and Infrastructure Committee and made a part of the record of that hearing and a Department of Justice document entitled “The Compelling Interest for Race- and Gender-Conscious Federal Contracting Programs: A Decade Later An Update to the May 23, 1996 Review of Barriers for Minority- and Women-Owned Businesses” and the information and documents cited therein. This information confirms the continuing compelling need for race- and gender-conscious programs such as the DOT DBE program.

This is a nonsignificant regulation for purposes of Executive Order 12866 and the Department of Transportation's Regulatory Policies and Procedures. Its provisions involve administrative modifications to several provisions of a long-existing and well-established program, designed to improve the program's implementation. The rule does not alter the direction of the program, make major policy changes, or impose significant new costs or burdens.

A number of provisions of the rule reduce small business burdens or increase opportunities for small business, notably the interstate certification process and the small business DBE program element provisions. Small recipients would not be required to file reports concerning the reasons for overall goal shortfalls and corrective action steps to be taken. Only State DOTs, the 50 largest transit authorities, and the 30-50 airports receiving the greatest amount of FAA financial assistance would have to file these reports. The task of sending copies of on-site review reports to other certification entities fall on UCPs, which are not small entities, and in any case can be handled electronically ( e.g., by emailing PDF copies of the documents). While all recipients would have to input information about decertifications and denials into a DOT database, this would be a quick electronic process that would not be costly or burdensome. In any case, this requirement will be phased in as the Department prepares to put the database online. The rule does not make major policy changes that would cause recipients to expend significant resources on program modifications. For these reasons, the Department certifies that the rule does not have a significant economic effect on a substantial number of small entities.

A rule has implications for federalism under Executive Order 13132, Federalism, if it has a substantial direct effect on State or local governments and would either preempt State law or impose a substantial direct cost of compliance on them. We have analyzed this rule under the Order and have determined that it does not have implications for federalism, since it merely makes administrative modifications to an existing program. It does not change the relationship between the Department and State or local governments, pre-empt State law, or impose substantial direct compliance costs on those governments.

As required by the Paperwork Reduction Act of 1995, DOT has submitted the Information Collection Requests (ICRs) below to the Office of Management and Budget (OMB). Before OMB decides whether to approve these proposed collections of information and issue a control number, the public must be provided 30 days to comment. Organizations and individuals desiring to submit comments on the collections of information in this rule should direct them to the Office of Management and Budget, Attention: Desk Officer for the Office of the Secretary of Transportation, Office of Information and Regulatory Affairs, Washington, DC 20503. OMB is required to make a decision concerning the collection of information requirements contained in this rule between 30 and 60 days after publication of this document in the Federal Register . Therefore, a comment is best assured of having its full effect if OMB receives it within 30 days of publication.

We will respond to any OMB or public comments on the information collection requirements contained in this rule. The Department will not impose a penalty on persons for violating information collection requirements which do not display a current OMB control number, if required. The Department intends to obtain current OMB control numbers for the new information collection requirements resulting from this rulemaking action. The OMB control number, when assigned, will be announced by separate notice in the Federal Register .

It is estimated that the total incremental annual burden hours for the information collection requirements in this rule are 47,450 hours in the first year, 83,370 in the second year, and 51,875 thereafter. The following are the information collection requirements in this rule:

Each recipient would certify that it had conducted post-award monitoring of contracts which would be counted for DBE credit to ensure that DBEs had done the work for which credit was claimed. The certification is for the purpose of ensuring accountability for monitoring which the regulation already requires.

Respondents: 1,050.

Frequency: 13,400 ( i.e., there are about 13,400 contracts per year that have DBE participation, based on 2009 data).

Estimated Burden per Response: 1/2 hour.

Estimated Total Annual Burden: 6,700 hours.

Each recipient would add a new DBE program element, consisting of strategies to encourage small business participation in their contracting activities. No specific element would be required, and many of the potential elements are already part of the existing DBE regulation or implementing guidance ( e.g., unbundling; race-neutral small business set-asides). The small business program element is intended to pull a recipient's small business efforts into a single, unified place in this DBE Program. This requirement goes into effect a year from the effective date of the rule.

Respondents: 1,050.

Frequency: Once (for a one-time task).

Estimated Burden per Response: 30 hours.

Estimated Total Annual Burden Hours: 31,500 (one time).

If a recipient failed to meet its overall goal in a given year, it would have to determine the reasons for its failure and establish corrective steps. Approximately 150 large recipients would transmit this analysis to DOT; smaller recipients would perform the analysis but would not be required to submit it to DOT. We estimate that about half of recipients would be subject to this requirement in a given year.

Respondents: 525 (150 of which would have to submit reports to DOT).

Frequency: Once per year.

Estimated Average Burden per Response: 80 hours + 5 for recipients sending report to DOT.

Estimated Total Annual Burden Hours: 42,750.

When a firm certified in its home state seeks certification in another state (“State B”), the firm must provide an affidavit that the information the firm provides to State B is complete and is identical to that submitted to the home state. The calculation of the burden for this item assumes that there will be an average 2600 interstate applications each year to which this requirement would apply. This requirement takes effect a year from the effective date of this rule.

Respondents: 2,600.

Frequency: Once per year to a given recipient.

Estimated Average Burden per Response: 1 hour.

Estimated Total Annual Burden Hours: 2,600 hours.

When a “State B” receives a request for certification from a firm certified in “State A,” State A must promptly send a copy of that report to State B. This would involve simply emailing a PDF or other electronic copy of an existing report. This requirement takes effect one year from the effective date of this rule.

Respondents: 52.

Frequency: An average of 50 per year per recipient.

Estimated Average Burden per Response: 1/2 hour.

Estimated Total Annual Burden Hours: 1,300.

When a unified certification program (UCP) in a state denies a firm's application for certification or decertifies the firm, it must electronically notify a DOT database of the fact. The information in the database is then available to other certification agencies for their reference. The calculation of the burden of this requirement assumes that there would be am average of 100 such actions per year by each UCP.

Respondents: 52.

Frequency: An average of 100 per year per recipient.

Estimated Average Burden per Response: 1/2 hour.

Estimated Total Annual Burden Hours: 2,600.

When a UCP notes, from the DOT database, that a firm that has applied or been granted certification was denied or decertified elsewhere, the UCP would request a copy of the decision by the other state, which would then have to send a copy. The Department anticipates that this would be done by an email exchange, the response attaching a PDF or other electronic copy of an existing document. This requirement goes into effect a year from the effective date of the rule.

Respondents: 52.

Frequency: An average of 75 per year per recipient.

Estimated Average Burden per Response: five minutes for the request; 1/2 hour for the response.

Estimated Total Annual Burden Hours: 2,625.

For the reasons set forth in the preamble, the Department amends 49 CFR Part 26 as follows: