[Congressional Record (Bound Edition), Volume 147 (2001), Part 9]
[Senate]
[Pages 12367-12369]
[From the U.S. Government Publishing Office, www.gpo.gov]



GENERAL ACCOUNTING OFFICE REPORT ON DISADVANTAGED BUSINESS ENTERPRISES 
                                PROGRAM

  Mr. McCONNELL. Mr. President, when the 105th Congress passed the 
Transportation Equity Act for the 21st Century, TEA-21, there was a 
vigorous and close debate about whether to convert the Disadvantaged 
Business Enterprise Program into a race neutral program helping all 
small disadvantaged businesses. It troubled many members of both Houses 
that we lacked basic information about the characteristics of DBEs and 
non-DBEs and about alleged discrimination in the transportation 
industry. Consequently, I introduced, with widespread bi-partisan 
support, an amendment to TEA-21, requiring the GAO to gather the 
information Congress was missing that is essential to understanding the 
DBE program. As Congressman Shuster, Chair of the House Committee on 
Transportation and Infrastructure and the floor manager for the 
transportation bill, emphasized during the House debate, the Act ``also 
requires a GAO study that would examine whether there is continued 
evidence of discrimination against small business owned and controlled 
by socially and economically disadvantaged individuals. I believe such 
a study will lay the groundwork for future reform.''
  Three years later, the GAO has produced a comprehensive report on the 
questions Congress asked it to investigate. This objective, impartial 
report

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entitled, ``Disadvantaged Business Enterprises: Critical Information is 
needed to Understand Program Impact,'' GAO Report GAO-01-586, June 
2001, is highly significant to the continuing legislative and judicial 
debate over the DBE program. Professor George R. La Noue, one of the 
distinguished scholars in this field, has analyzed the GAO's report. He 
notes that the ``DBE program has been continuously subject to 
litigation during its almost two decades of existence.'' Professor La 
Noue concludes that ``the picture of the DBE program that emerges from 
the GAO report is one of essential information that is missing, or if 
available, does not support any finding of a national pattern of 
discrimination against DBEs.'' I am pleased to provide Professor La 
Noue's analysis of the GAO report, and I request that it be printed in 
the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

     An Analysis of ``Disadvantaged Business Enterprises: Critical 
          Information Is Needed to Understand Program Impact''

                   GAO Report [GAO-01-586 June 2001]

         (By George R. La Noue, Professor of Political Science)


 Director, Project on Civil Rights and Public Contracts, University of 
                       Maryland, Baltimore County

       During the 1998 consideration of the Transportation Equity 
     Act for the 21st Century (TEA-21), there was extensive debate 
     in both Houses about whether to make the DBE program race-
     neutral. In the end, a compromise was reached to retain a 
     race conscious DBE program, while requiring the General 
     Accounting Office to make a three year study of the 
     characteristics of the DBEs and non-DBEs participating in 
     federal transportation programs and to gather existing 
     evidence of discrimination against DBEs. Such information was 
     intended to provide a solid basis of facts for courts, 
     legislators, and others grappling with the complex issues of 
     the constitutionality of the DBE program.
       The GAO study now has been released and its conclusions are 
     highly significant. GAO performed its three year study by 
     obtaining data from 52 state DOT recipients (including the 
     District of Columbia and Puerto Rico) and 31 of the largest 
     (accounting for two-thirds of transit grant funds obligated 
     in 1999) transportation districts in the country. In addition 
     GAO staff interviewed representatives of interest groups on 
     both sides of the DBE question and analyzed the results of 14 
     transportation related disparity studies.
       Following are GAO's major conclusions.


                      1. Discrimination complaints

       GAO conducted a survey of discrimination complaints 
     received by USDOT and recipients. GAO found that, while USDOT 
     sometimes receives written complaints of discrimination, the 
     agency does not compile or analyze the information in those 
     complaints. GAO could not supply information on the number of 
     complaints filed, investigations launched, or their outcomes. 
     (p. 33) GAO also asked state and local transit recipients 
     about complaints they received and they had better data. 
     During 1999 and 2000, 81 percent of the recipients had no 
     complaints, while a total of 31 complaints were received by 
     the other recipients. Of these, 29 were investigated and 
     findings of discrimination were made only 4 times across the 
     nation .
       The report concluded: Other factors may also limit the 
     ability of DBEs to compete for USDOT-state assisted 
     contracts. The majority of states and transit districts we 
     surveyed had not conducted any kind of analysis to identify 
     these factors. Using anecdotal information, we identified a 
     number of factors, or barriers, such as a lack of working 
     capital and limited access to bonding, that may limit DBEs' 
     ability to compete for contracts. However, there was little 
     agreement among the officials we contacted on whether these 
     factors were attributable to discrimination. (p.7)
       In fact GAO reported there were few if any studies by 
     government agencies or industry groups regarding barriers to 
     DBE contracting. ``USDOT officials, however, stated that they 
     believe contract bundling is one of the largest barriers for 
     DBEs in competing for transportation contracts.'' (p. 35) 
     That, of course, is not a problem caused by discrimination.


                          2. Disparity studies

       GAO also reviewed 14 transportation-specific disparity 
     studies completed between 1996 and 2000. GAO examined these 
     studies because they might be a source of evidence about 
     discrimination against DBEs and because USDOT permits 
     recipients to use disparity studies to set annual goals and 
     to determine the level of discrimination these goals 
     purportedly are remedying. GAO found that about 30 percent of 
     the recipients surveyed used disparity studies to set their 
     fy 2000 goals. (p. 29).
       GAO found that: the limited data used to calculate 
     disparities, compounded by the methodological weaknesses, 
     create uncertainties about the studies findings. . . . While 
     not all studies suffered from every problem, each suffered 
     enough problems to make its findings questionable. We 
     recognize there are difficulties inherent in conducting 
     disparity studies and that such limitations are common to 
     social science research; however, the studies we reviewed did 
     not sufficiently address such problems or disclose their 
     limitations. (p.29)
       GAO then detailed disparity study problems, particularly in 
     calculating DBE availability. These problems are important 
     not only because they undermine the validity of the disparity 
     studies involved, but because these same problems exist in 
     the regulations USDOT issued regarding annual goal setting. 
     USDOT as a practical matter permits recipients to use a wide 
     variety of sources to measure availability on which goals are 
     then based.
       GAO made other specific criticisms of the studies. For 
     example, the studies did not have information on firm 
     qualifications or capacities; they failed to analyze both the 
     dollars and contracts awarded and sometimes did not have 
     subcontracting data. This was important: Because MBE/WBEs are 
     more likely to be awarded subcontracts than prime contracts, 
     MBEs/WBEs may appear to be underutilized when the focus 
     remains on prime contractor data. Furthermore, although some 
     studies did include calculations based on the number of 
     contracts, all but two based their determination of 
     disparities on only the dollar amounts of the contracts. 
     Because MBEs/WBEs tend to be smaller than non-MBEs/WBEs, they 
     often are unable to perform on larger contracts. Therefore, 
     it would appear that they were awarded a disproportionately 
     smaller amount of contract dollars. (p. 32) (see data on 
     contracting awards on p. 51)
       GAO's conclusion here is significant because the USDOT 
     regulations measure utilization only in dollars, not 
     contracts, and annual goals are set based on total dollars 
     rather than on the DBE share of subcontracting dollars.
       Finally GAO notes that although USDOT advised recipients 
     that disparity studies should be ``reliable,'' USDOT provided 
     no guidance on what would be a reliable study. GAO concluded 
     that: USDOT's guidance does not, for example, caution against 
     using studies that contain the types of data and 
     methodological problems that we identified above. Without 
     explicit guidance on what makes a disparity study reliable, 
     states and transit authorities risk using studies that may 
     not provide accurate information in setting DBE goals. (p. 
     32)
       GAO's finding about the unreliability of disparity studies 
     is consistent with the findings of every court that has 
     examined the merits of such studies after discovery and 
     trial.


                       3. Discontinuing Programs

       One of the arguments used in the TEA-21 debates and 
     defendant's trial briefs is the assertion, often anecdotal, 
     that without goals, DBE participation would decline 
     precipitously. The difficulty with that assertion, even if 
     true, is that the decline in DBE participation may be the 
     result of previous overutilization caused by goals set too 
     high or because when a program is struck down DBEs may have 
     little incentive to seek or maintain certification.
       But is the basic assertion true? It turned out that 10 of 
     12 recipients with discontinued programs did not know what 
     the DBE participation result was. For instance, although 
     Michigan was cited by DBE proponents in the TEA-21 debate as 
     an example of DBE utilization decline after Michigan Road 
     Builders Assn. v. Millikin (1987) struck down the state 
     highway MBE program, GAO reports: Michigan could not provide 
     us with minority and women owned business participation data 
     in state highway contracting for the years immediately before 
     and after it discontinued its program. Furthermore, Michigan 
     officials stated that the analysis showing the decline that 
     is often cited was a one-time-only analysis and that analysis 
     is no longer available. Consequently we can not verify the 
     number cited during the debate (p.37)


                         4. Missing information

       Much of the above criticisms GAO cast in terms of a lack of 
     information, but there were other key items missing as well. 
     GAO had planned to survey all transit authorities receiving 
     federal funds, but FTA does not have a complete list. (p. 74) 
     When the 83 state and transit recipients were surveyed, only 
     40% or less of the respondents could report the gross 
     revenues of the DBEs that won contracts. Less than 25% of the 
     respondents could report the gross revenues of the DBEs that 
     did not win contracts. (pp. 52-55) Only about a third of the 
     agencies could report data on the personal net worth of DBE 
     owners, although TEA-21 regulations require that such owners 
     net worth not exceed $750,000.
       Only a handful of respondents could report data on the 
     gross revenues or owner net worth characteristics of non-DBE 
     firms. (p. 64) While 79 respondents could report data about 
     subcontracts awarded DBEs, only 28 respondents could report 
     similar data for non-DBEs. That means that most respondents 
     did not regard comparing DBE and non-DBE subcontractor 
     utilization relevant in setting goals or in determining 
     whether discrimination exists.

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       Nor are respondents acquiring relevant information: 98.8% 
     have not conducted any study determining if awarding prime or 
     sub contracts to DBEs affects contract costs; 67.5% no study 
     on discrimination against DBE firms; 84.2% no study of 
     discrimination against DBEs by financial credit, insurance or 
     bond markets; 79.5% no study of factors making it difficult 
     for DBEs to compete; and 92.8% no study on the impact of the 
     DBE program on competition and the creation of jobs. (pp. 66-
     68). Only 26.5% of the respondents have developed and 
     implemented use of a bidders list, although the regulations 
     require such.
       The DBE program has been continuously subject to litigation 
     during its almost two decades of existence. Overall, the 
     picture of the DBE program that emerges from the GAO report 
     is one of essential information that is missing, or if 
     available, does not support any finding of a national pattern 
     of discrimination against DBEs.

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