[Federal Register Volume 62, Number 104 (Friday, May 30, 1997)]
[Proposed Rules]
[Pages 29548-29621]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-13961]



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Part IV





Department of Transportation





_______________________________________________________________________



Office of the Secretary



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49 CFR Parts 23 and 26



Participation by Disadvantaged Business Enterprise in Department of 
Transportation Programs; Proposed Rule

  Federal Register / Vol. 62, No. 104 / Friday, May 30, 1997 / Proposed 
Rules  

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DEPARTMENT OF TRANSPORTATION

Office of the Secretary

49 CFR Parts 23 and 26

[Docket OST-97-2550; Notice 97-5]
RIN 2105-AB92


Participation by Disadvantaged Business Enterprise in Department 
of Transportation Programs

AGENCY: Office of the Secretary, DOT.

ACTION: Supplemental notice of proposed rulemaking.

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SUMMARY: This document proposes revisions of the Department of 
Transportation's regulations for its disadvantaged business enterprise 
(DBE) program. The notice responds to comments on notices of proposed 
rulemaking issued December 1992 and October 1993 and also proposes 
responses to the Supreme Court's decision in Adarand v. Pena. It would 
replace the current DBE rule (49 CFR Part 23) with a new rule (49 CFR 
Part 26). The proposed changes in the latter category would modify the 
overall goal, contract goal, and good-faith efforts provisions of the 
rule, as well as add provisions concerning diversification in the DBE 
program and provide greater flexibility to recipients. A final rule 
based on this SNPRM would replace the existing DBE rule in its 
entirety.

DATES: Comments should be received no later than July 29, 1997. Late-
filed comments will be considered to the extent practicable.

ADDRESSES: Interested persons should send comments to Docket Clerk, 
Docket No. OST-97-2550, Department of Transportation, 400 7th Street, 
SW., Room 4107, Washington, DC 20590. We request that, in order to 
minimize burdens on the docket clerk's staff, commenters send three 
copies of their comments to the docket. Commenters wishing to have 
their submissions acknowledged should include a stamped, self-addressed 
postcard with their comments. The docket clerk will date stamp the 
postcard and return it to the commenter. Comments will be available for 
inspection at the above address from 10 a.m. to 5 p.m., Monday through 
Friday.

FOR FURTHER INFORMATION CONTACT: For questions concerning Subpart G 
(airport concessions), David Micklin , FAA Office of Civil Rights, 800 
Independence Avenue, SW., 20591, Room 1030, (202) 267-3270; or Kathleen 
Connon, FAA Office of Chief Counsel, same street address, Room 922-C, 
(202) 267-3473. For questions on other portions of the SNPRM, Robert C. 
Ashby, Deputy Assistant General Counsel for Regulation and Enforcement, 
Department of Transportation, 400 7th Street, SW., Room 10424, 
Washington, DC 20590. Phone numbers (202) 366-9306 (voice); (202) 366-
9313 (fax); 202-755-7687 (TDD).

SUPPLEMENTARY INFORMATION:

Background

    The Department first published 49 CFR Part 23 in 1980. The 
regulation required goals to be set for businesses owned or controlled 
by members of minority groups and women (MBEs/WBEs). This regulation 
has been amended several times. Many of these amendments responded to 
statutory changes. In 1983, Congress enacted the first statutory 
disadvantaged business enterprise (DBE) provision. This provision 
required the Department to ensure, except as the Secretary determined 
otherwise, that not less than 10% of the funds authorized for the 
highway and transit financial assistance programs be expended with 
DBEs. Under the 1983 statute, members of several minority groups were 
presumed to be socially and economically disadvantaged; women were not.
    In 1987, Congress re authorized and amended the statutory DBE 
program. In this legislation, Congress added women to the groups 
presumed to be disadvantaged. In separate legislation, Congress added 
an identical provision applying to the FAA's airport grant program. The 
Department's 1987 amendments to Part 23 added FAA programs to the DBE 
portion of the rule and established a single DBE goal for firms owned 
by women and minority group members. In 1992, the Department added 
Subpart F, which implements a statutory requirement for DBE programs in 
airport concessions.
    As a result of these changes, Part 23 became something of a 
patchwork. To clarify the rule, reflect program changes since 1980, 
incorporate updated interpretations of rule provisions, correct 
problems in implementation, and reduce burdens on state and local 
governments and small businesses, the Department issued a notice of 
proposed rulemaking (NPRM) on December 9, 1992 (57 FR. 58288). The 
December 1992 NPRM was intended to create a clearer regulation that 
deals explicitly with known implementation problems in the program. The 
Department received 601 comments in response. The Department has 
thoroughly considered these comments, and much of this SNPRM consists 
of the Department's responses to these comments. In October 1993, the 
Department issued a separate NPRM to amend Subpart F. This SNPRM's 
provisions concerning airport concessions are based on the October 1993 
NPRM and the comments received in response to it.
    In June 1995, the Supreme Court issued its decision in Adarand v. 
Pena (115 S. Ct. 2097). In this case, the Court determined that race-
conscious affirmative action programs are subject to strict judicial 
scrutiny. To meet this heightened level of scrutiny, such a program 
must be based on a compelling government interest (e.g., remedying the 
effects of discrimination) and must be narrowly tailored to meeting its 
objective. In response to this decision, the Department has included in 
this SNPRM a wide range of ideas for revising the rule, particularly in 
the areas of overall and contract goals, good faith efforts, and other 
means of ``narrowly tailoring'' the provisions of the rule.
    Following its review of the comments received in response to this 
SNPRM, the Department intends to publish a final rule that will 
constitute a comprehensive revision of the entire DBE rule. The SNPRM 
and the final rule will refer to 49 CFR Part 26, for clarity and to 
emphasize that Part 23 and guidance and interpretations pertaining to 
it are being replaced in their entirety by Part 26.

Summary of Adarand-Related Proposals

    In commenting on the Administration's review of affirmative action 
programs, President Clinton said his objective was to ``mend it, not 
end it.'' This is the approach the Department is taking concerning the 
DBE program. We have submitted to Congress, as part of our highway/
transit program reauthorization bill (``NEXTEA''), a proposal to 
reauthorize, without change, the statute underlying the DBE program. We 
believe that this statute is Constitutional and that it is based on the 
continuing compelling need for the government to remedy the effects of 
discrimination in DOT-assisted contracting. The material gathered by 
the Department of Justice (DOJ) in connection with review of Federal 
procurement affirmative action programs also supports our view that 
this compelling need exists.
    The Department of Transportation's SNPRM is one part of the 
Administration's overall effort to revise affirmative action programs 
in light of Adarand. On May 9, 1996, the Department of Justice (DOJ) 
published proposed regulations concerning the use

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of race-conscious remedies for the effects of discrimination in direct 
Federal contracting programs. Other agencies with significant Federal 
procurement responsibilities (the Department of Defense, General 
Services Administration, and National Aeronautics and Space 
Administration) expect soon to propose changes to the Federal 
Acquisition Regulation (FAR) concerning small disadvantaged businesses. 
These proposed changes would amend the FAR to be consistent with the 
proposed rules. The Small Business Administration is planning to issue 
a proposal to change the rules for its 8(a) and 8(d) programs, which 
are intended to foster the participation of small disadvantaged 
businesses in Federal agency procurement. These proposals will affect 
direct procurements by the Department of Transportation.
    This SNPRM affects only the airport, transit and highway financial 
assistance programs of the Department. While the thinking behind this 
SNPRM is intended to be consistent with the proposals other agencies 
are making, the specific proposals are different because this SNPRM 
concerns state and local, rather than Federal, procurement actions.
    This SNPRM is the Department's primary vehicle for ``mending'' the 
details of the DBE program, tailoring program implementation more 
precisely to the objective of remedying the effects of discrimination. 
Here is a summary of the most important proposals we are making toward 
this end. The section-by-section analysis discusses these provisions in 
greater detail.

1. Overall Goals

    We propose to change the method for calculating overall goals. 
Under the existing rule, recipients determine the maximum amount of 
work they can obtain from DBEs available to them. They must also take 
into account their past performance in meeting their overall goals. 
This system is well-understood and accepted in the recipient and DBE 
communities. However, we believe the system can be tuned more precisely 
to obtain the amount of DBE participation needed to remedy the effects 
of discrimination.
    In a world in which discrimination did not affect business 
opportunities for DBEs--a world, in other words, in which market forces 
operated on a level playing field--how much would DBEs participate in 
DOT-assisted contracts? The answer to this question would lead us to 
the level of DBE participation that recipients should expect for DBEs. 
This level is the appropriate DBE goal to remedy the effects of 
discrimination.
    The SNPRM asks for comment on three alternative ways of estimating 
a goal consistent with this concept. Each of the proposed methods has 
strengths and weaknesses, and each raises question about the kind of 
data that is available to help recipients set goals. We ask commenters 
to participate fully in helping us determine how best to establish what 
the ``level playing field'' result for DBE participation would be, 
including whether recipients should be able to choose from a variety of 
methods.
    The approach we propose is conceptually consistent with that 
developed by the Department of Justice (DOJ) in its Federal procurement 
affirmative action reform effort (see May 23, 1996 DOJ Federal Register 
notice). However, we are not proposing to require recipients to follow 
the ``benchmarks'' established by the Department of Commerce (DOC) as 
part of the procurement reform initiative. The proposal describes, 
however, some circumstances under which recipients may be able to use 
DOC benchmarks, goals established by other recipients, or other 
information (e.g., local disparity studies) in place of the goal-
setting mechanism in this rule.

2. Means of Meeting Overall Goals

    The SNPRM emphasizes that race/gender-neutral mechanisms (e.g., 
outreach, technical assistance) are the means of first resort for 
recipients to use in seeking to meet overall goals. Only to the extent 
that these means are insufficient to meet overall goals would 
recipients use race/gender-conscious mechanisms, such as contract goals 
or evaluation credits. Unlike the existing rule, contract goals would 
not be required on every DOT-assisted contract, regardless of whether 
they were needed to meet overall goals. More intrusive mechanisms 
(e.g., set-asides) could be used only if the recipient had legal 
authority independent of the Department's DBE rule and made a finding 
that other methods to reach overall goals had not worked. When it 
became apparent that the effects of discrimination were being addressed 
successfully (e.g., when the recipient had exceeded its overall goals 
over a significant period of time), the recipient would reassess its 
use of race/gender-conscious measures and would rely more on race/
gender-neutral measures and less on race/gender-conscious measures to 
meet its overall goals.

3. Good Faith Efforts

    The SNPRM emphasizes that when they use contract goals, recipients 
must take seriously their obligation to award a contract to a bidder 
who makes good faith efforts, even if the bidder does not meet the 
goal. To do otherwise would result in a de facto quota. Recipients must 
provide a reconsideration mechanism to a bidder who is denied a 
contract on the basis of a failure to make good faith efforts.

4. DBE Diversification

    The SNPRM asks for comment on alternatives to reduce concentration 
of DBE firms in certain types of work in which, at least in highway 
construction, they are said to cluster. The aim is to diversify the 
types of work in which DBEs participate, as well as to reduce what is 
perceived as unfair competitive pressure on non-DBE firms attempting to 
work in certain fields.

5. Added Flexibility for Recipients

    The SNPRM proposes that, with the Secretary's concurrence, 
recipients could obtain a waiver of provisions of DBE program 
requirements if they devised an alternative that would effectively 
redress the effects of discrimination in their DOT-assisted 
contracting. This added flexibility could allow states and localities 
to deal creatively with their specific circumstances. The SNPRM also 
would give recipients flexibility in choosing the mix of measures 
(race-neutral and race-conscious) they use to meet overall goals.

Section-by-Section Analysis

    This portion of the preamble describes the Department's responses 
to comments on the December 1992 and October 1993 NPRMs and the 
rationales for the proposals in this SNPRM. Because the Department has 
already extensively considered comments on many of the provisions of 
this SNPRM, we request that commenters focus their comments on the 
Adarand-related provisions highlighted above and issues about which the 
preamble specifically asks for additional comment.

A Style Note

    We are making one general stylistic change to the regulatory text. 
The text (except for Subpart G) is being organized in a question/answer 
format in the interest of greater clarity. This format directly 
addresses recipients (and other parties identified in the text), 
saying, for example, ``You must * * *.'' in place of ``The recipient 
shall * * *.'' We believe that this approach will make the regulation 
easier to read and use.

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Section 26.1  What are the Purposes of This Rule?

    Seventeen comments to the December 1992 NPRM addressed the purpose 
section. Ten of these comments favored retention of the purpose 
language in the existing rule, particularly its reference to providing 
the ``fullest possible participation'' to DBEs. Other comments included 
a suggested reference to the desirability of DBEs being able to compete 
on their own, outside the DBE program and a request to include language 
on the ``equitable distribution'' of DBE awards among various groups.
    The SNPRM makes a few additions to the NPRM language. One addition 
states that a purpose of the program is to ensure, consistent with 
Federal law, significant opportunities for DBEs to participate in DOT-
assisted contracts. In addition, we have added a paragraph emphasizing 
the importance to the program of keeping ``fronts'' and other 
ineligible firms out of the program. We also added a sentence stating 
the aim of the program as developing businesses that can compete 
independently.
    We did not adopt the suggestion of including ``equitable 
distribution'' language, which appears to refer to a concept of 
ensuring that various groups (e.g., blacks, Hispanics, Asians, women) 
receive what is viewed, under a given concept of equity, as a fair 
market share of DBE contract awards. This concept would be difficult to 
implement, and mechanisms to carry it out appear to exceed the 
Department's discretion under the statutes authorizing the DBE program. 
The Department has adequate authority, under Title VI of the Civil 
Rights of 1964, to address any alleged discriminatory effects of its 
DBE program.

Section 26.3  To Whom Does This Rule Apply?

    There was only one comment on this section of the December 1992 
NPRM, from a DBE firm that objected to deleting the Federal Railroad 
Administration (FRA) from this rule. The Department continues to 
believe that it makes sense to drop FRA from the rule, since FRA--
unlike FTA, FHWA, and FAA--does not have a statute establishing a DBE 
program. We have added a paragraph clarifying that Part 26 requirements 
would not apply to the non-Federally-assisted contracts of recipients 
of DOT funds.
    It should be pointed out that Part 26 would be authorized not only 
by the specific DBE statutes Congress has enacted, but also by 
longstanding nondiscrimination statutes such as Title VI of the Civil 
Rights Act of 1964 and nondiscrimination provisions in the FHWA, FTA, 
and FAA program statutes. The original 1980 49 CFR Part 23 was based on 
these statutes, and the courts upheld that regulation even though 
specific DBE legislation had not yet been enacted.

Section 26.5  What Do the Terms Used in This Rule Mean?

    Many of the comments to this section of the December 1992 NPRM 
recommended adding definitions to the Department's proposed list. 
Twelve comments, all from recipients and DBEs, suggested a definition 
of ``affirmative action.'' Eight comments, mostly from recipients, 
asked for a definition of ``commercially useful function.'' Other 
comments sought definitions of a variety of terms, including applicant, 
good faith efforts, graduation, real and substantial contribution, 
expertise, good cause, subsidiary, broker, complainant, 
precertification, business opportunity, normal industry practices, pro 
forma ownership, equitable distribution, regulated party, exemptions, 
exceptions, discrimination, dollar value, debarment, origin, and social 
and economic disadvantage, to name a few.
    Several comments sought amplification of certain terms, such as 
joint venture and affiliate. Twenty-one comments, mostly from DBEs and 
recipients, concerned the key term ``disadvantaged business 
enterprise.'' Most of these comments were not about the content of the 
definition but rather about the words of the term itself. A few 
preferred MBE/WBE terminology to DBE terminology. Others suggested 
terms having what they viewed as having more positive connotations, 
such as ``emerging business enterprises'' (EBEs) or ``historically 
underutilized businesses'' (HUBs).
    Four comments recommended deleting persons of European Spanish or 
Portuguese origin from the definition of ``Hispanic Americans,'' saying 
that the regulation should focus on persons whose origins were from 
Latin America (one of these comments preferred the term ``Latino''). 
Four other comments suggested that Asian-Americans (e.g., persons of 
Japanese or Chinese descent) should be deleted from the definition and 
the program, because the comments perceived these persons as not being 
disadvantaged. Other comments requested clarification of the stock 
ownership requirement (i.e., does the regulation mean 51 percent of all 
stock combined, 51 percent of each class of stock, or both?).
    In response to the comments, the SNPRM is not adding a definition 
of ``affirmative action.'' The main point of a definitions section in a 
rule is to describe the meaning of terms of art that are used in the 
regulation. The rest of the regulation does not use the term 
``affirmative action.'' Nor does the SNPRM add a definition of 
``commercially useful function.'' This is an important term, which is 
given its operational meaning in the context of the counting section of 
the rule. In our view, an abstract definition of the term outside of 
that context would add little to users' understanding of the rule.
    ``Disadvantaged business enterprise'' is a term that derives 
directly from the statutes authorizing this program, which by now is 
well known and understood among recipients and contractors. It is 
difficult to imagine a more apt term to use for businesses that, by 
statute, must be owned and controlled by socially and economically 
disadvantaged individuals. The suggested alternatives are not as 
suitable. Minority and women's business enterprise terminology suggests 
a program in which status as a minority group member or woman, standing 
alone, makes one an eligible business owner. EBE and HUB do not relate 
conceptually to the operation of the program. Part 26 would remain a 
DBE regulation. The stock ownership requirement--that 51 percent all 
stock be owned by disadvantaged individuals--would remain as part of 
the ownership criteria, and is discussed in more detail in the SNPRM.
    The DBE statutes direct DOT to use the definitions of the 
``presumptive groups'' found in SBA's rules implementing section 8(d) 
of the Small Business Act. The definitions of Hispanic Americans and 
Asian-Americans in the December 1992 NPRM are taken directly from SBA 
materials. We recognize that the inclusion of persons of European 
Spanish and Portuguese origin is controversial, but, absent legislative 
direction to the contrary, we believe it is necessary to leave the 
definition unchanged. Congress has determined that Asian-Americans are 
presumptively disadvantaged (a judgment that can be supported by a 
substantial history of discrimination against many Asian groups in this 
country), and the Department could not exclude them even if it wanted 
to.
    It is not good regulatory drafting practice to place a great deal 
of the substance of the rule into the definitions section. Abstract 
descriptions of a word or term are often of little help in making 
decisions about how to apply a regulation to real-world situations. 
Regulatory concepts are best understood

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in the context of the rule's operational provisions. For this reason, 
the SNPRM does not add definitions of the many terms suggested by 
various comments. However, the SNPRM does incorporate the text of SBA's 
definition of ``affiliate'' rather than merely cross-referencing SBA 
regulations, as some comments requested. The counting section in the 
SNPRM includes additional guidance concerning counting the 
participation of joint ventures.

Section 26.7  What Discriminatory Actions Are Forbidden?

    There were few comments on this section of the December 1992 NPRM. 
One comment suggested that age, disability, and religion be added as 
prohibited grounds for discrimination. These grounds are not mentioned 
in the authorizing statutes for the program. To the extent that other 
statutes apply nondiscrimination requirements to actions of DOT 
recipients (e.g., the ADA re disability), these statutes can stand on 
their own. One comment said that the rule should clarify that someone 
need not discriminate in order to violate the rule. This is true: 
noncompliance can arise from a violation of a variety of provisions, 
but this does not need to be reiterated in regulatory text.
    The provision would be left as proposed, with the exception of 
adding a paragraph clarifying that discrimination in the administration 
of a DBE program is prohibited. This clarification is proposed in order 
to avoid a potential loophole concerning actions by recipients (e.g., 
in the administration of their certification programs) that allegedly 
have the effect of discriminating against persons on one of the 
forbidden grounds, even if the award and performance of a contract is 
not directly involved.
    This paragraph prohibits not only intentional discrimination but 
also actions that have the effect of discriminating against individuals 
on one of the forbidden grounds (e.g., that have a disparate adverse 
impact on members of a particular group). The language of paragraph (b) 
is similar to that in the Department's long-standing Title VI 
regulation (49 CFRSec. 21.5(b)(2)) and is consistent with court 
interpretations of nondiscrimination statutes in other contexts. See, 
e.g., Alexander v. Choate, 469 U.S. 287 (1985); Elston v. Talladega 
Board of Education, 997 F.2d 1394 (11th Cir., 1993).

Section 26.9  How Does the Department Issue Guidance, Interpretations, 
Exemptions and Program Waivers Under this Rule?

    The SNPRM would add paragraph (a) of this section to avoid 
confusion over the status of guidance and interpretations issued by DOT 
in the past concerning the current version of this DBE regulation (49 
CFR Part 23). Language in this paragraph is intended to emphasize that 
it is interpretations of Part 26, not interpretations of Part 23, that 
definitively would set forth the meaning of the Department's DBE 
requirements.
    As noted in the preamble to the December 1992 NPRM, a General 
Accounting Office (GAO) study criticized the Department's 
administration of the DBE program because guidance was uncoordinated, 
inconsistent and confusing. As part of our response to this problem, 
the December 1992 NPRM proposed creating a DBE Program Council to 
coordinate guidance and interpretations. Thirty-eight comments favored 
this idea, as a means of dealing with inconsistency, though some 
expressed reservations about potential bureaucratic delays. A number of 
the comments that supported the Council suggested that it be expanded 
into an Advisory Committee, with participation from outside the 
Department. Five comments opposed the Council, mostly on the grounds of 
potentially adding to bureaucratic delay.
    The SNPRM references a DBE Coordination Mechanism, which is 
intended to be established within the Department by the time the rule 
becomes final. It would include representatives of all the DOT 
organizations--FHWA, FTA, FAA, the Office of General Counsel, the 
Office of Civil Rights, and the Office of Small and Disadvantaged 
Business Utilization--that are regular players in the DBE program. 
Because these offices are very familiar with the regulation, we do not 
anticipate that the review of guidance and interpretations through this 
mechanism would create undue delay. On the other hand, the presence of 
the mechanism would make it much more likely that guidance will be 
consistent and correct, which will result in much more reliable and 
useful customer service.
    Because the kind of work we intend the mechanism to do is 
intrinsically a government task, it would not be appropriate to include 
non-DOT parties in its deliberations. However, the Department does 
believe that receiving input from interested parties on a regular basis 
is very useful, and we are exploring the creation of an advisory 
committee that would provide continuing input to the Department on the 
implementation of this program.
    The Department proposes to maintain its existing exemptions 
mechanism, which is consistent with the way that all exemptions are 
handled in Office of the Secretary rules. The Department seeks comment 
on how participants view this process as working, and on any 
improvements commenters might want to suggest.
    In addition, paragraph (d) proposes a new provision, not included 
in previous NPRMs. It permits recipients to apply for a program waiver, 
allowing them to construct a DBE program different from that called for 
in Subparts B, C or G (airport concessions), of the SNPRM (the general 
provisions of Subpart A and the certification standards and procedures 
of Subparts D and E would not be subject to waiver). Public 
participation would be required, and the Secretary could impose 
conditions on the grant of a waiver. The Department seeks comment on 
this concept, which is designed to provide recipients greater 
flexibility, as well as on the details of the proposed provision.

Section 26.11 What Records do Recipients Keep and Report?

    The December 1992 NPRM proposed that recipients report DBE program 
data to the concerned operating administration (OA) quarterly, unless 
that OA determined a different frequency for the data. The preamble to 
the December 1992 NPRM included a draft Office of Small and 
Disadvantaged Business Utilization reporting form and asked whether 
this form, or a modification of it, should be required Department-wide.
    Twenty-four comments generally favored the idea of a single, 
Department-wide reporting form, though some of these suggested allowing 
recipients to modify the form. Two comments favored annual, rather than 
quarterly, reporting. When it came to what the form should include, 
there was a wide divergence of views. Several comments each supported 
detailed breakouts of awards (i.e., by awards to DBEs owned by various 
minority groups and women) and tracking actual payouts to DBEs as well 
as commitments to DBE participation. Other comments suggested detailed 
changes in the data elements (e.g., distinguishing between awards to 
prime and subcontractors, counting of overhead, tracking areas of 
work), and two favored electronic reporting of data.

[[Page 29552]]

    The Department believes, in view of these comments, that it needs 
to consider further the best way of obtaining program evaluation data 
for the DBE program. Specifically, the Department asks whether there 
are modifications the Department should make in order to adequately 
capture DBE participation through race/gender neutral means and 
mechanisms other than contract goals. Meanwhile, the SNPRM would 
maintain the status quo for reporting. We ask, however, for comment 
specifically on whether the frequency of reporting should be reduced 
(e.g., to twice a year) and, if so, whether this would continue to 
allow sufficient program oversight and evaluation. The SNPRM would add, 
as an aid to DOT oversight of recipients' programs, a three-year record 
retention requirement for basic program data. Again, recipients should 
rely on DOT guidance concerning the content of this material. As a 
general matter, the Department intends that recipients retain only 
basic data needed to allow DOT personnel to review and evaluate 
recipients' program compliance.

Section 26.13  Assurances

    As under the old version of the rule, recipients and contractors 
have to subscribe to assurances of compliance with Part 26 
requirements. There were few comments on the December 1992 NPRM 
assurances section. One comment preferred the lengthier language of the 
old rule's assurances section, another suggested adding more 
enforcement language, a third asked that contractors who fail to 
promptly pay DBEs should be told in the assurance that this will be in 
breach of contract, and a fourth asked how states will enforce the 
requirement for assurances in contracts.
    In the assurance for recipients, the SNPRM would add references to 
additional remedies available to the Department, namely the Federal 
false statements statute (18 U.S.C. 1001) and the Program Fraud Civil 
Remedies Act of 1986 (31 U.S.C. 3801 et seq.). We believe that the 
issue of prompt payment is better handled under the provision of the 
SNPRM dealing with that subject. Consistent with the language added 
toSec. 26.7, the SNPRM would add a statement to the assurance 
concerning nondiscrimination in the administration of DBE programs.
    States can enforce the requirement for assurances in contracts by 
the same means that they enforce other requirements for the inclusion 
of contract clauses: a prospective contractor who fails to include 
Federally-required contract clauses in a Federally-assisted contract is 
not, presumably, a responsive bidder. We believe the shorter, more 
compact language of the new version of the assurances is clearer, less 
verbose, and more easily understood than the old version. In addition, 
an operating administration is permitted to prescribe a briefer 
assurance or certification of compliance in its grant agreements.

Subpart B--Administrative Requirements for DBE Programs for Federally-
Assisted Contracts

Section 26.13  What Assurances Must Recipients and Contractors Make?

    This section details which recipients have to establish DBE 
programs. There were several comments to the December 1992 NPRM about 
it. One comment said that FRA and port authorities should have to have 
DBE programs. The issue about including FRA under Part 26 was discussed 
above. With respect to port authorities, if a port authority receives 
FHWA, FTA, or FAA funds, it would be subject to the requirements of 
Part 26 like any other recipient. One comment asked whether the 
thresholds apply to prime recipients or subrecipients, while another 
disliked the change from the two-tier threshold system of the old 
regulation to the proposed one-tier system, saying it would involve 
duplicate work by prime recipients and subrecipients. If any 
recipient--prime or sub--receives the requisite amount of DOT financial 
assistance and lets DOT-assisted contracts, it must have a program. If 
the prime recipient is a pure pass-through agency that does not let any 
DOT-assisted contracts, it would not have to have a program.
    A comment asked that the threshold level for airports be raised to 
$1 million, which would have the effect of exempting some airports 
(smaller ones, in most cases) from the DBE program requirement. The 
Department believes that airports, and other recipients that receive 
the proposed $200,000 in financial assistance, are likely to have 
adequate resources for establishing a DBE program and may let contracts 
of sufficient size to make DBE participation a realistic possibility. 
For this reason, we are leaving this portion of the proposal unchanged.
    One comment asked that annual program updates not be required, and 
two others asked for updates at three-year rather than one-year 
intervals. Recipients would have to revise their programs to conform to 
Part 26, submit overall goals each year, and request the consent of the 
applicable DOT office for any significant program change. For these 
reasons, we do not believe it is necessary to require a formal update 
at any particular interval, so this proposed requirement is not 
included in the SNPRM. This would have the effect of reducing paperwork 
burdens.
    The Department seeks comment on whether additional public 
participation mechanisms are desirable for recipients as they prepare 
DBE programs for submission to DOT. For example, do their need to be 
more explicit requirements for input from DBEs, non-DBEs, the public 
etc.?

Sections 26.23-26.27 and 26.37  Other DBE Program Provisions

    This subpart contains a number of provisions incorporated from Part 
23, concerning a DBE policy statement, a DBE liaison officer with 
direct access to the CEO of the organization, use of DBE financial 
institutions, and monitoring, compliance and enforcement mechanisms. 
There were few comments on these items, and we are incorporating them 
in the SNPRM with only minor changes. All these items are components of 
a recipient's DBE program that would have to be approved by the 
concerned operating administration.

Section 26.29  Prompt Payment Mechanism

    The December 1992 NPRM proposed that recipients would establish a 
prompt payment mechanism, containing one or more of five options listed 
in the proposed provision. This provision, and its components, drew 
substantial interest from commenters.
    Sixty-nine comments favored requiring a prompt payment clause in 
contracts, saying that it addressed a serious problem that had adverse 
consequences on subcontractors. Among ideas suggested by these comments 
were that contract goal attainment should not be counted until DBEs are 
paid and that subcontractors should be paid within a given period of 
time (e.g., 10 days) of the time the prime is paid by the recipient. 
Some of these comments suggested that sanctions be imposed for failure 
to comply with prompt payment clauses. On the other hand, 29 comments 
opposed prompt payment clauses and mechanisms in general, saying that 
they involved too great intrusion into the contract process and added 
cost to the system. All the suggested options were impractical, many of 
these comments said.
    One of the five options listed was direct payment of DBE 
subcontractors by the recipient, who could ensure that the DBE was paid 
on time. Fifteen comments, mostly DBEs, supported this idea, while 44 
comments, mostly prime contractors and some recipients,

[[Page 29553]]

opposed it. Proponents said that this approach would end the waiting 
game that they perceive prime contractors as playing, while 
subcontractors go dry awaiting payment. Opponents complained that prime 
contractors would lose control over subcontractors' performance and 
that delays in paying subcontractors are as often caused by delays in 
state payments to prime contractors as anything else.
    Nine comments supported, and five opposed, mandatory alternative 
dispute resolution between prime and subcontractors as a way of 
addressing payment delay disagreements. There were smaller numbers of 
comments on other proposals, with scattered support for and opposition 
to them.
    The Department, having reviewed the extensive comment on this 
issue, remains convinced that delays in payment to DBE subcontractors 
are a significant problem in the DBE program, which we should take 
steps to correct. The SNPRM would specifically authorize two such 
steps. Given the concerns expressed, particularly by recipients, about 
the problems that could arise in some cases from mandating prompt 
payment mechanisms, the Department is seeking further comment on 
whether these steps should be mandatory. (Under the SNPRM, recipients 
who use prompt payment mechanisms would do so under the legal authority 
of this rule, but using them would be optional.)
    The first specifically authorized step would be a prompt payment 
clause that would be inserted in all contracts between recipients and 
prime contracts, obligating the prime contractor to pay DBE subs for 
work satisfactorily completed within a specific number of days (e.g., 
10 days) of each payment by the recipient to the prime contractor. The 
contract would include appropriate penalties, chosen by the recipient, 
for failure to comply. In addition, the recipient could require prime 
contractors to get the written consent of the recipient, based on good 
cause, for any delay.
    The second specifically authorized step would be a clause in both 
prime and DBE subcontracts committing the parties to participate in 
alternative dispute resolution (ADR) to resolve payment disputes. 
Recipients could specify the nature of these mechanisms in contract 
documents. In addition, recipients could take additional steps, such as 
withholding payments from primes until subcontractors are paid, or 
other steps devised by the recipient, to ensure prompt payment of DBE 
subcontractors. All prompt payment mechanisms would be incorporated in 
the recipient's DBE program, and would be subject to DOT approval.
    Because they frequently lack working capital, access to credit, and 
a strong cash flow, DBEs are particularly vulnerable to delays in 
payment. However, we recognize that prompt payment is an issue for all 
subcontractors, and we therefore recommend that recipients apply prompt 
payment provisions to all subcontractors, not just DBEs.
    One prompt payment-related issue of which we are aware concerns 
retainage payments. DBEs have complained that prime contractors often 
do not return retainage payments to DBE subcontractors until the 
recipient returns the prime contractor's retainage payment at the end 
of the entire project. This is true, DBEs have said, even in a large 
project in which a subcontractor's work has been inspected and approved 
long before the overall project has been completed. This can result in 
a lengthy delay in the subcontractor getting its money back. The 
Department seeks comment on whether prompt payment provisions should 
address this issue.

Section 26.31  What Requirements Pertain to the DBE Directory?

    The statutes mandate that recipients have a DBE directory. Sixteen 
comments explicitly favored the December 1992 NPRM proposal on this 
subject. There was a good deal of debate among commenters on the issue 
of whether, as the December 1992 NPRM proposed, the directory should 
list the types of work DBEs preferred to do or whether recipients 
should limit (and reflect in the directory) DBEs' types of work to 
those in which the firm was qualified.
    Twenty-six comments favored the latter approach, taking two 
different basic rationales. Some said that recipients should prequalify 
DBEs, certifying only those, and only in those types of work, that the 
recipient viewed as being qualified to perform the work. Others said 
that the ``qualifications'' of DBE firms were relevant only insofar as 
they affected control. The comments that favored the NPRM approach 
argued against both rationales, saying that prequalification 
overstepped the bounds of appropriate recipient discretion in the 
certification process and that certifying firms only in certain fields 
(as opposed to simply certifying them as DBEs) would ``pigeon-hole'' 
firms into a few areas and thwart their efforts at diversification.
    The Department believes that a good case can be made that a firm 
should be certified only in those areas of work in which its 
disadvantaged owners are able to control its management and operations. 
It is reasonable, then, to reflect the recipient's determinations on 
this point in the directory, and we have modified this provision 
accordingly. The Department believes, however, that a firm wishing to 
move into a new area of work should not have to go through an entire 
new certification process. Also, the Department does not believe that 
``prequalification,'' as such, is an appropriate part of the 
certification process. In fact, the Department believes that requiring 
prequalification for DBE firms would be a discriminatory practice under 
Part 26, unless the recipient also requires prequalification of all 
other firms.
    The directory would have to be republished at least annually. 
Updated information (e.g., who's in and who's out) would have to be 
made available, on request, in the meantime. This would ensure that, 
for example, prime contractors would be able to find information on new 
DBEs that had been certified between publications of the directory.

Section 26.33  What Steps Must a Recipient Take To Foster DBE 
Diversification?

    This is a substantially new section proposed as part of the 
Department's efforts to narrowly tailor the DBE program. Paragraph (a) 
of this section proposes for comment four alternatives designed to 
foster diversification in the kinds of work DBEs perform in DOT-
assisted contracts. Taking steps to reduce adverse impacts on non-
disadvantaged parties is one of the ways in which it is appropriate to 
narrowly tailor an affirmative action program.
    Over many years, the Department has received anecdotal information 
suggesting that DBE subcontractors in highway construction have been 
concentrated in a few specialty areas that require relatively modest 
capitalization (e.g., guardrail, landscaping, traffic control). Non-DBE 
contractors in these areas have complained that they are denied 
contracting opportunities because of the number of DBE firms obtaining 
subcontracts, a point also addressed in a 1994 GAO report. At the same 
time, some DBE firms have expressed the concern that it is difficult 
for them to expand and diversify.
    The December 1992 NPRM asked for comment on a variety of ideas 
related to this issue, ranging from ceilings on DBE participation in 
certain areas to ``extra credit'' for the use of DBEs in ``non-
traditional'' fields to financial or other incentives for prime 
contractors to involve DBEs in such fields. Generally, commenters had a 
negative reaction to

[[Page 29554]]

these suggestions. For example, only seven comments favored caps or 
ceilings on DBE participation in areas in which DBEs were heavily 
represented, while 49 comments opposed this idea. Opponents said that 
the problem may be over-hyped and that implementing a cap would be an 
administrative nightmare. One commenter preferred that recipients be 
encouraged to come up with their own innovative approaches.
    Concerning incentive programs, 17 comments favored the idea and 28 
opposed it. Among the opponents, one noted that it didn't make sense to 
pay people to obey the law, while another said that it had tried the 
idea for six years and it hadn't worked. Supporters mentioned a state 
incentive program that had worked, and others said that the incentives 
should be permitted, though not required.
    The suggestion that comments received most favorably was for 
``extra credit.'' For example, if a contractor used a DBE outside 
certain traditional fields, it could receive $1.15 or $1.25 worth of 
credit toward its contract goal for every dollar it expended with the 
DBE. Twenty-one comments favored this approach, while four opposed it. 
Commenters pointed out that DOT or recipients would have to determine 
what constituted a ``traditional'' field to make this idea work.
    This SNPRM asks for comment on a series of ideas for addressing the 
concentration issue. The first alternative focuses on types of work in 
which DBE firms receive a given percentage (e.g., 50%, 75%) or more of 
the contracts in Year 1. If this is the case, prime contractors and 
recipients in Year 2 could count only half the actual DBE participation 
in that field toward goals. The intent of the provision is that this 
shift in the incentives would reduce the concentration.

    Example: Recipient X's highway construction contracts give rise 
to 100 subcontracts for landscaping in Year 1. Of these, 80 go to 
DBEs. In Year 2, any DBE firm's landscaping subcontract leads only 
to 50 percent credit toward the prime contractor's contract goal and 
the recipient's overall goal (e.g., a $50,000 subcontract counts for 
$25,000 toward these goals).

    The Department seeks comment both on the concept and on what the 
percentage standard should be. We ask the same question about the level 
of DBE participation that would be allowed in the second year. In 
addition, we ask whether it would make more sense to tie the criterion 
to an average over a number of years rather than to a particular year. 
We also ask whether a provision of this type could have the unintended 
consequence of increasing concentration in these fields (e.g., because 
recipients might use more DBE contractors to meet a goal if credit for 
using a DBE is reduced).
    The second alternative looks at the issue in terms of 
proportionality between the recipient's overall goal for all work and 
the DBE participation in a particular field of work. If DBE 
participation in a particular field far exceeds the overall DBE goal 
percentage, then the recipient would not credit toward DBE goals 
further work in that field during the year.

    Example: Recipient X's overall goal for the year is 10 percent. 
The recipient estimates that it will spend $10 million for widget 
wrangling in all its contracts that year. By September 15, DBE 
widget wranglers have received contracts worth $4.1 million (i.e., 
more than four times 10 percent of the recipient's projection for 
widget wrangling expenses for the year). For contracts let after 
that date, the recipient would not count DBE participation for this 
worthy activity toward goals.

    In addition to the concept itself, the Department asks commenters 
whether the multiple (four times the overall goal) is a reasonable one, 
whether the consequence should be no credit after the threshold is 
reached (as distinct from some other percentage), and whether it makes 
more sense to implement such a provision on a year-to-year basis than 
on a part-year basis.
    The third alternative would focus on fields in which there is a 
concentration of DBEs, again defined as one in which DBEs in general 
get a given percentage of the contracts. Unlike the first alternative, 
however, the limitation on receiving credit for contracts would fall 
not on all DBEs in a field but only those that had received several 
recent contracts. The intention is to address situations in which the 
same DBE firms repeatedly receive contracts, to the exclusion of 
others.

    Example: Recipient X's highway construction contracts give rise 
to 100 subcontracts for guardrail in Year 1. Of these, 80 go to 
DBEs. DBE Q has received four guardrail subcontracts during Year 1 
and the preceding three years. In Year 2, no credit toward goals can 
be counted for a guardrail subcontract awarded to DBE Q.

    The questions asked about the appropriate percentage level for 
determining concentration under Alternative 1 apply here as well. In 
this alternative, in a field in which there is a DBE concentration, in 
Year 2 the recipient would not count toward goals participation from 
any particular DBE firm that had received four or more contracts in 
that field over the previous four years. The Department seeks comment 
on the concept and on the number of contracts over the number of years 
that would be most appropriate.
    The fourth alternative would again focus on fields in which there 
was DBE concentration at a given percentage level (the same questions 
apply). This alternative would direct the recipient to establish 
contract goals that gave special emphasis to DBE participation in other 
fields.

    Example: Recipient X's highway construction contracts give rise 
to 100 subcontracts for fencing in Year 1. Of these, 80 go to DBEs. 
In Year 2, Recipient X sets contract goals to emphasize steel 
erection, widget wrangling, barrier placement etc. (i.e., fields in 
which there is not a concentration of DBEs).

    The Department seeks comment on whether this concept would be 
practical to administer (e.g., it would require setting somewhat more 
complex contract goals than is now the case).
    These alternatives are not necessarily mutually exclusive, and it 
might be possible to combine some of them. It might also be possible to 
offer recipients a menu of such alternatives from which they could 
choose. The Department also seeks comment on any other ideas for 
encouraging DBE participation in particular fields, including those 
mentioned in the December 1992 NPRM and the comments on it. We note 
that these alternatives focus on situations in which contract goals are 
used, and we seek other ideas that may work in situations where 
contract goals are not used.
    Paragraphs (b) and (c) focus on the other side of the coin, fields 
in which DBEs are poorly represented. The proposed definition of such a 
field is one in which DBEs receive 25 percent or fewer of the 
contracts. The Department seeks comment on whether 25 percent is an 
appropriate level for this purpose and whether the standard ought to 
refer to a specific period of time, such as the previous year or an 
average over a number of previous years.
    Paragraph (b) would direct recipients to give priority to 
``underrepresented'' fields in operating their outreach and technical 
assistance programs. The recipients' focus would be on assisting firms 
to enter such fields. The Department seeks comment on whether any 
greater degree of specificity in terms of what recipients are to do in 
this respect is advisable.
    Paragraph (c) is based on a proposal for business development 
programs (BDPs) in the December 1992 NPRM. Thirty-two comments, mostly 
from recipients, thought this was a bad idea, primarily because it 
would result in costly, administratively burdensome,

[[Page 29555]]

new requirements for them. Some also said it would be burdensome for 
firms and would duplicate other government programs. The 21 comments 
supporting the idea, including recipients and some DBE and non-DBE 
contractors, thought that providing additional training for DBEs would 
be beneficial. They differed on whether the program should be voluntary 
or mandatory for DBEs and on other details, and several mentioned that 
additional funding would be needed to make the idea work.
    The SNPRM continues to propose the BDP concept, which gains added 
importance as a means of helping to meet the narrow tailoring 
requirements of current law. Having a BDP would be mandatory for a 
recipient, however, only if an operating administration decided it must 
have such a program. Recipients would also have the option to create 
such a program on their own, subject to DOT program approval.
    The Department recognizes that BDPs can be costly and burdensome. 
Consequently, the size and scope of a recipient's BDP could vary with 
the recipient's resources. The SNPRM does not propose a given level of 
resources or activity for a BDP, even where an operating administration 
mandates the creation of BDPs. The Department also intends that 
recipients would have considerable flexibility in the creation of BDPs, 
which can be adapted, within the regulatory framework, to each 
recipient's circumstances. The NPRM's safeguards for the integrity of 
the BDP process, on which there was little comment, have also been 
retained in the SNPRM.
    Like the December 1992 NPRM, the SNPRM permits recipients, as part 
of their BDPs, to create a mentor-protege program. Sixteen comments 
favored this NPRM proposal, which was a modification of an existing 
non-regulatory FHWA initiative. These comments generally favored the 
limitations on the use of protege firms incorporated in the proposal, 
which were designed to avoid the abuse of mentor programs. A few 
thought that the restrictions would make it too hard to attract 
participants, however. Three comments opposed the proposal, out of 
concern that such programs make it too easy for fronts to participate. 
As a discretionary, limited program, the Department believes that a 
mentor-protege program can be useful as part of a strategy to help DBEs 
diversify, and so we are retaining this provision in the SNPRM. It 
should be noted that this is the only context in which a mentor-protege 
program would be authorized.
    The SNPRM includes appendices setting out guidelines for the 
operation of BDPs and mentor-protege programs. The Department seeks 
comments on this guidance material.
    One suggestion that has been made would tie together the idea of 
quality inspections of DBEs' work and mentor-protege programs. Under 
this suggestion, recipients would inspect the work performed by DBE 
firms. Those that were not performing at an appropriate level would be 
referred to a mentor-protege program for additional training, with 
incentives provided to the mentor firms. The Department seeks comment 
on the merits of this suggestion.
    One of the key issues affecting virtually all parts of this section 
is how to define a ``field'' in which DBEs may be either over- or 
underrepresented. The SNPRM proposes a two-pronged approach. First, a 
field could be viewed as an industry defined by a SIC code in the SBA 
small business regulations. (Should this be a four-digit SIC code in 
all cases, or are there circumstances in which other levels of SIC 
codes would work?) Second, a ``field'' could mean a readily 
identifiable field of work designated by the recipient (e.g., 
landscaping or guardrail in highway construction). The Department seeks 
comment on whether it would be desirable and feasible for the 
Department to devise at least a partial list of ``fields'' in the 
second sense and, if so, what should be included on such a list.

Duration

    One of the elements the courts have identified as part of narrow 
tailoring is that affirmative action programs should not be established 
in perpetuity. The duration of DBE program, as currently structured by 
statute, is narrowly tailored in this respect. That is, Congress 
reauthorizes the program from time to time. If Congress determines that 
the effects of discrimination have been eliminated, Congress would have 
a justification for ending the program.
    The issue of duration is also sometimes discussed in terms of 
limits on the participation of individual firms in the program. In the 
December 1992 NPRM, the Department raised this issue under the heading 
of ``graduation.'' There were 110 comments opposed to the idea of 
graduation. The point of many of these comments, particularly those 
from DBEs, was that it takes more than several years for a firm to be 
able to overcome disadvantage and survive in the open market. Being 
thrown into the open market could prove fatal to many DBE firms, 
comments said, given that discrimination has not disappeared from the 
marketplace.
    Some prime contractors said that it was hard enough to find 
qualified DBEs as it is, without adding to the problem by graduating 
firms. Other comments pointed out that there are significant 
differences between the DBE program and the 8(a) program, which ties a 
very complex graduation formula to the success of the 8(a) program's 
systematic business development efforts.
    On the other hand, 61 comments favored a graduation requirement or 
suggested an approach to graduation. Some of these comments favored 
``term limits'' for firms (e.g., 5-10 years) in order to clear the way 
for other, newer firms in the DBE program. Others suggested approaches 
based on such factors as success in business development, gross 
receipts, number of projects or contracts in which a firm participated, 
a sunset provision for unsuccessful firms, etc. Graduation, comments 
suggested, could provide an incentive to DBE firms to become more 
competitive.
    In one sense, the structure of the DBE program already provides for 
a limit on the participation of individual DBE firms. If a DBE firm 
grows to the point where it no longer meets SBA small business size 
standards or the statutory DBE size cap, it becomes ineligible. But as 
long as a firm remains a small business, and as long as there is a 
compelling need to remedy the effects of discrimination on small 
businesses owned and controlled by socially and economically 
disadvantaged individuals, it is difficult to find a sound rationale 
for excluding an otherwise eligible DBE from the program just because 
it has participated for a certain number of years or has had a degree 
of success in the program.
    Arguments by opponents of graduation programs have considerable 
force. Unlike the 8(a) program, the DBE program does not provide for an 
encompassing business development program, with substantial agency 
assistance. The DBE program does not provide a comparable program for 
DBEs to graduate from. Experience has shown that, when firms leave the 
8(a) program, or when state or local MBE/WBE programs are eliminated 
(e.g., in response to the Supreme Court's decision in Croson), the 
firm's success or the state or local government's MBE/WBE participation 
is imperiled. To force otherwise eligible DBEs out of the program 
would, given a marketplace in which the effects of discrimination 
persist, set up those firms to fail.
    Therefore, while the Department will consider comments concerning 
how best to address the duration element of narrow tailoring, we are 
not proposing

[[Page 29556]]

any ``graduation'' mechanisms in the SNPRM.

Subpart C--Goals, Good Faith Efforts, and Counting

Section 26.41  Overall Goals

    The statutes underlying this program direct the Department to 
ensure, unless the Secretary determines otherwise, that 10 percent of 
the funds authorized by the statutes be expended with DBEs. This 
statutory formulation is important for two reasons. First, it 
constitutes a determination by Congress (in the context of the highway, 
transit, airport, and airport concessions programs) that discrimination 
in contracting opportunities has existed, that the problem is 
nationwide in scope, and that remedial efforts are needed to address 
this problem. Second, it constitutes a determination by Congress that, 
unless the Secretary determines otherwise, expending 10 percent of 
authorized funds with DBEs is a reasonable nationwide level of effort 
to achieve the remedial objective of the statutes.
    These actions by Congress form an important part of the 
Department's basis for concluding that there is a compelling government 
interest in maintaining the DBE program, meeting the first part of the 
strict scrutiny test articulated in Adarand. We note that Department of 
Justice proposals for modifying affirmative action programs in Federal 
procurement are backed by an appendix citing substantial evidence of 
the compelling need for programs of this kind. The Department also 
relies on this appendix and similar evidence.
    Strict scrutiny also requires that the program be narrowly tailored 
to address the compelling government interest. In our view, some 
aspects of narrow tailoring are best addressed at the recipient level. 
Under Part 23, recipients set overall goals, and we believe that 
recipients should continue to perform this function. The SNPRM proposes 
to modify how recipients set overall goals, with the aim of improving 
and strengthening the process from a narrow tailoring point of view. 
These proposals are, in the Department's view, consistent with 
Congressional action establishing the nationwide ten percent level of 
effort, which the Department anticipates continuing to use as a guide 
for evaluating the overall success of the DBE program.
    Under the current overall goal requirements (49 CFR 
Sec. 23.45(g)(5)), recipients set overall goals based on two factors: 
(1) a projection of the number and types of contracts the recipient 
will award and a projection of the number of DBEs likely to be 
available to compete for the contracts; and (2) past results of the 
recipient's DBE efforts. These factors are used to implement the DBE 
program goal of supporting ``the fullest possible participation of [DBE 
firms]'' Sec. 23.1). Recipients must make a special showing to obtain 
DOT approval for an overall goal of less than 10 percent (this showing 
has been made on a few occasions). As a practical matter, recipients 
have often implemented these provisions by looking at their potential 
contracting opportunities, estimating how much DBE participation could 
be obtained from existing DBEs, and setting a goal to maximize this 
potential participation. The recipient's past performance often has 
operated as an informal ``maintenance of effort'' provision with 
respect to the level of overall goals.
    In the context of narrow tailoring, a recipient's goal would remedy 
the effects of discrimination if it led to the results we could expect 
if the playing field for all businesses were level. The Department 
seeks comment on three conceptually similar, but mechanically 
different, means of setting a goal to approximate the results of a 
level playing field.
    The first alternative would compare DBEs with all businesses. If we 
know the percentage that DBEs make up of all businesses that are 
available to work for the recipient, then the results of a level 
playing field will be DBE participation in the same proportion. The 
calculation looks like this:
[GRAPHIC] [TIFF OMITTED] TP30MY97.000

    By all businesses in this context, we mean all businesses in types 
of work relevant to the recipient's DOT-assisted contracting. We seek 
comment on the use of SIC codes or other information to identify the 
relevant business types. Also, would it make better sense to compare 
DBEs to only small businesses?
    This option parallels the way we calculate DBE achievements, which 
looks like this:
[GRAPHIC] [TIFF OMITTED] TP30MY97.001

    Under the second alternative, the recipient would estimate the 
number of minority-and women-owned businesses in the state or locality 
in which it operates. This estimate could be made on the basis of U.S. 
Department of Commerce data. The data are broken down by 2-digit SIC 
codes. The recipient would make the estimate using only those SIC codes 
that represent a major portion of its DOT-assisted contracting work 
(e.g., for a state highway agency, those SIC codes encompassing 
construction, architects and engineers, etc.) The Department seeks 
comments on whether the Department should standardize the SIC codes 
used for this purpose by various categories of DOT recipients, and, if 
so, what those SIC codes should be (e.g., for state highway agencies, 
airports, transit authorities).
    Second, the recipient would determine the total number of all 
businesses in these SIC codes within the state or locality. There is 
U.S. Census data available that provides this number. The recipient 
would then determine what percentage minority-and women-owned 
businesses were of the total. This percentage, absent adjustments (see 
discussion below), would become the recipient's overall goal. The goal 
would be expressed in terms of a percentage of the recipient's DOT-
assisted contracting dollars. This is the result we would expect from a 
level playing field. The calculation would look like this:

[[Page 29557]]

[GRAPHIC] [TIFF OMITTED] TP30MY97.002


It may be possible for the Department to calculate these goals, saving 
recipients the time and effort required. The Department will consider 
doing so, and we invite comment on whether this would be a good idea.
    We note that there are limitations to the data currently available. 
The 2-digit SIC code data on which the numerator of this equation would 
be based could have significant error rates for some states, leading to 
a degree of statistical uncertainty. At the present time, however, this 
appears to be the best state-by-state data available on a nationwide 
basis.
    Data are available by single-digit SIC codes for construction. 
However, this code tends to aggregate data for a greater number of 
businesses than those usually found in highway or transit construction. 
On the other hand, the state-by-state one-digit SIC data is likely to 
have a lower error rate than two-digit state-by-state data. We invite 
comment on whether this alternative should use one-digit rather than 
two-digit SIC data.
    We also recognize that there may be differences between localities 
and states concerning the relative availability of minority-and women-
owned businesses. Federal data is not currently available, however, in 
a useful form to make the calculation needed for the numerator for 
localities. Where there is not better local data, however, we may have 
to rely on statewide data, for lack of a practicable alternative.
    The third alternative differs from the others in that it focuses on 
actual participation by both DBEs and other firms. The approach would 
determine the percentage that DBEs make up of all firms that actually 
work for the recipient, in any capacity, on DOT-assisted contracts. To 
avoid having short-term trends skewing the calculation, we propose to 
use a five-year average as the basis for the calculation. (We seek 
comment on whether this is an appropriate time period for this 
purpose.) The calculation looks like this:
[GRAPHIC] [TIFF OMITTED] TP30MY97.003

    This approach uses data that are readily available to the 
recipient. Since it is based on actual experience, it does not rely on 
projections about potential participation.
    Each of these alternatives describes the shape of a level playing 
field in a somewhat different way. Each may have its advantages and 
disadvantages. We seek comment on the relative merits and problems of 
each approach, or other approaches that commenters may suggest.
    In considering how to analyze capacity for Federal procurement, the 
Departments of Justice and Commerce are considering whether it is 
possible to include information on whether firms are ready, willing, 
and able to work on Federal contracts. Is this a relevant consideration 
for calculating DBE capacity in this program, and is data available 
that would make it possible?
    As a means of reducing potential burdens on recipients, 
Sec. 26.41(c) would permit recipients to use a DBE capacity figure 
calculated by another agency in certain circumstances. First, as part 
of the Federal government's proposed direct procurement rules, the DOC 
will calculate ``benchmarks'' for various industries. These benchmarks, 
which are likely to be established on a national or regional basis 
(e.g., a regional basis for construction), could form a basis for a 
recipient's DBE capacity calculation.
    To use the benchmark for this purpose, however, the recipient would 
have to determine that the area from which it obtained contractors was 
generally similar to the area for which DOC prepared the benchmark. 
That is, if DOC calculates a benchmark for construction in a particular 
region, a recipient could use the benchmark (and not calculate its own 
DBE capacity figure) if it obtained construction contractors from the 
same general region. (Since DOT does not permit its grantees to use 
geographic preferences in contracting, such comparisons may be readily 
demonstrable.) In some fields, of course, there might be a national 
market that everyone uses (e.g., transit vehicle purchases). One of the 
issues in using DOC figures is that DOC benchmarks, because of 
differences between Federal procurement and the DBE program, will not 
include women-owned firms. Consequently, recipients would have to 
adjust DOC benchmarks to account for women-owned DBEs. We seek comment 
on whether data are available for this purpose.
    Closer to home, recipients may find that other recipients have 
established overall goals. For example, all state DOTs will establish 
such goals. A transit authority in a particular state could use the 
state DOT's goal, assuming the transit authority did its procurement in 
the same general area. Likewise, recipients (e.g., airports and transit 
authorities) in a metropolitan area might use one another's goals, or 
work together on a combined goal, again assuming that their procurement 
areas are generally similar. The objective is for recipients to use the 
best possible data to arrive at DBE capacity, while not unnecessarily 
duplicating the relevant work that others may have done.
    As noted in proposed Sec. 26.41(d), recipients may also use other 
means to establish goals (e.g., a local disparity study). In the 
interest of promoting flexibility in the program, these could include 
methods a recipient has devised that are not mentioned anywhere in Part 
26. Under Sec. 26.41(d), the recipient would need the operating 
administration's approval to use alternative goal-setting methods, to 
ensure that its tailoring was appropriately narrow to meet Adarand 
standards.
    The SNPRM (Sec. 26.41(e))asks for comment on one additional 
consideration in goal setting. The goal-setting analysis is based 
primarily on present DBE capacity. But it is very possible that the 
effects of discrimination have suppressed the formation of DBE firms 
(e.g., by having made capital more difficult to obtain over a long 
period, by having deterred potential DBE owners from entering 
businesses relevant to DOT-assisted

[[Page 29558]]

contracting). To account for this suppression of DBE business 
formation, the proposed rule would require the recipient to increase 
the goal, if the recipient had evidence to support a finding that DBE 
business formation had been suppressed. DOJ has proposed a similar 
mechanism in its NPRM on Federal procurement affirmative action issues.
    We seek comment on what data sources would be relevant and 
available, or would need to be created, to complete this so-called 
``but for'' analysis. Other relevant information might include evidence 
of discrimination in the public and private sectors in such areas as 
obtaining credit, bonding, and licenses. It could include evidence of 
discrimination in pricing and contract awards. If, through analysis of 
such information, the recipient could make a quantitative estimate of 
DBE suppression, the recipient would increase its overall goal 
proportionately.
    The SNPRM would require recipients to seek information relevant to 
DBE suppression as part of their public participation process, but it 
would not require recipients to calculate a suppression factor where 
data was unavailable. At the same time, where recipients have some 
information (e.g., anecdotal information that cannot readily be 
quantified) that the capacity analysis understates the appropriate 
goal, recipients could take appropriate action in administering their 
programs to attempt to account for this factor. The Department seeks 
comment on the issue of how recipients would best obtain data and how 
they would best proceed in the absence of quantifiable data.
    The Department is also aware that, under Adarand, programs for 
women-owned firms may be subject to different legal standards than 
minority-owned firms. Nonetheless, because the Department's statutes 
call for operating a unified DBE program, including both minority-and 
women-owned firms, this SNPRM proposes to use the same administrative 
mechanisms for all DBEs. We invite comments on alternative ways of 
viewing the overall goal process, in the post-Adarand legal climate, as 
well as alternative mechanisms. We would also be interested in seeing 
data that might illustrate the effects on DBE goals of making the 
calculation this way, as well as through alternative means commenters 
might suggest.
    The Department wants very much to work with recipients and other 
commenters to flesh out the mechanics of the new goal-setting process. 
(The costs of making changes in the goal-setting process are eligible 
for reimbursement from Federal funds on the same basis as the funds are 
available for other program administration costs.) Since this proposal 
is intended, in large part, to conform to the legal requirements 
enunciated in Adarand, the Department also seeks comment on the extent 
to which it succeeds in doing so. The Department also seeks any other 
suggestions commenters may have on ways of adjusting the overall goal 
provisions of the rule in light of Adarand.
    Comments to the December 1992 NPRM raised only a few issues 
concerning overall goals. Sixteen commenters, mostly recipients, 
favored dropping the current rule's requirement for a public notice and 
comment procedure prior to the adoption of each annual overall goal. 
They said it was an administrative requirement that did not result in 
the receipt of useful comments. Some of these comments said the 
requirement should be retained in cases where a goal of less than 10 
percent was requested. Three commenters, also recipients, favored its 
retention. As noted above, we believe that there are values in public 
participation, and the SNPRM includes such a requirement.
    A few comments requested the deletion of the existing requirement 
that the Governor or other politically responsible official at the head 
of a governmental jurisdiction sign a request for a goal of less than 
10 percent. We believe that this change would be beneficial, in that it 
would remove an administrative step that can delay goal submissions, so 
the SNPRM does not include it. We believe that, by this time, the 
process of goal-setting is likely to be well institutionalized in most 
recipients' organizations, making a political official's sign-off less 
important than when we began the program in 1980.
    One issue related to goal-setting that was the subject of 
considerable comment to the December 1992 NPRM is that of group-
specific goals. The Department received 32 comments to the December 
1992 NPRM, principally from minority-owned DBE firms and their 
organizations, as well as some recipients, urging the adoption of 
either separate goals for minority-owned and women-owned DBEs or of 
multiple goals for different designated groups. Twelve comments, 
principally from recipients and women-owned DBEs, opposed changing the 
program to permit separate DBE goals.
    The reason most often advanced for adopting separate ``MBE/WBE'' or 
group-specific goals was a concern on the part of minority firms that 
they were losing market share to firms owned by white women. Since 
Congress included women in the DBE program in 1987, comments said, the 
proportion of contracts going to women-owned DBEs has increased while 
the proportion of contracts going to minority-owned DBEs has decreased 
(FHWA statistics appear to support this observation in a number of 
states). Many of these comments suggested that firms owned by white 
women are, in effect, less disadvantaged than those owned by 
minorities. They perceive women-owned firms as having better access to 
capital, credit, and business opportunities than minority-owned firms. 
Many women-owned firms are simply fronts, in the view of some of these 
comments. Even if they are not fronts, strictly speaking, they still 
can ride on the coat-tails of spouses, relatives, or established 
businesses.
    Women-owned firms countered by asserting that bias against their 
firms by recipients in the certification process made it more difficult 
for them to get certified. The main reason these comments suggested for 
the perceived bias was a desire by some certifying officials to ensure 
that minority-owned firms retained the lion's share of contracting 
opportunities under the program.
    The Department understands the views of commenters favoring group-
specific goals, recognizing that many minority participants in the 
program have a genuine concern with the market share of DBE work that 
is available to them. We also note that some of the comments 
(particularly one from the Mexican-American Legal Defense and Education 
Fund) made interesting arguments that such goals are constitutionally 
permissible. However, the use of group-specific goals could raise a 
variety of policy and administrative problems, and we believe for legal 
reasons that we cannot propose making group-specific goals part of the 
Department's program.
    The problem that we believe precludes the Department from 
permitting group-specific goals in the DBE program is a statutory one. 
The Surface Transportation and Uniform Relocation Assistance Act of 
1987 (STURAA) added women as a ``presumptive group'' within the 
definition of disadvantaged business enterprises. The legislative 
history of STURAA was quite explicit about the intent of this change. 
The Senate report on the bill said the following:

    This provision extends the [DBE] program through 1990 and adds 
women (WBEs) to the rebuttable presumption of being disadvantaged. * 
* * It is the intention of this language that prime contractors 
performing Federal-aid highway construction

[[Page 29559]]

contracts and State transportation departments will now be able to 
use WBEs to meet their DBE contract goals. It is not intended that 
the overall DBE requirement set by this section be increased as a 
result of the inclusion of WBEs as a presumptive group. (S. Rept. 
100-4 (1987) at 11-13).

    The STURAA Conference Report directly addressed the issue of 
separate goals. It said the following:

    It is the intention of the conferees that firms owned and 
controlled by women (WBEs) be included, as a presumptive group, 
within the definition of Disadvantaged Business Enterprise (DBE). 
The conferees intend that contractors bidding on Federal-aid highway 
projects will now be able to make best efforts to meet DBE contract 
goals using DBEs (as they were defined prior to this Act),WBEs, or 
combinations thereof. Additionally, the conferees intend that the 
Department of Transportation and the States no longer should require 
contractors . . . to meet separate goals for DBEs (as defined prior 
to this Act) and WBEs. (H. Rept. 100-27 (1987) at 148, emphasis 
added).

    In the 1987 amendment to Part 23, the Department's contemporaneous 
construction of this statutory change was that Congress mandates a 
single goal encompassing both minority and women-owned DBEs.
    Congress extended the DBE program in section 1003(b) of the 
Intermodal Surface Transportation Efficiency Act of 1991 (ISTEA). 
Congress made clear that ``[t]his section provides for an ongoing 
Disadvantaged Business Enterprise (DBE) program. This section is a 
continuation of section 106(c) of the STURAA of 1987* * *.'' (H. Rept. 
102-404 (1991) at 307). Twice, during the House Public Works and 
Transportation Committee's consideration of ISTEA and in a subsequent 
floor vote, the House rejected amendments that would have authorized or 
required separate MBE/WBE goals.
    The present DBE program statute, then, is a continuation of section 
106(c) of STURAA, concerning which Congress expressed its explicit 
intent that contractors should not have to meet separate goals for 
minority-owned and women-owned businesses. Congress had opportunities 
to change that direction in 1991 and did not do so. In these 
circumstances, it is difficult to see how the Department could, 
consistent with the language and legislative history of the statute, 
require or authorize separate, let alone group-specific, goals. (This 
same point applies to DBE airport concessions under Subpart G, since 
the airport program DBE legislation--49 U.S.C. 47102 and 47113--
incorporates the same DBE definition).

Section 26.43  How Are Overall Goals Established for Transit Vehicle 
Manufacturers?

    There were few comments on the December 1992 NPRM section on 
transit vehicle manufacturers (TVMs), which proposed to continue the 
existing Part 23 TVM section. Two comments supported the section, one 
asked for greater clarity, and another said it would be useful if 
acquisition of specialized equipment obtained by non-transit recipients 
(e.g., airport fire trucks) could benefit from the same approach. 
Another comment said that recipients, rather than TVMs themselves, 
should be responsible for certifying DBEs who work for TVMs.
    The Department has adopted one of these comments, and the SNPRM 
would permit an FAA or FHWA recipient to use the procedures of this 
section with respect to meeting DBE requirements in the acquisition of 
specialized equipment, subject to the approval of the concerned 
operating administration. The Department would make one additional 
change, intended to provide greater flexibility to recipients, 
particularly when dealing with a large vehicle procurement. In such a 
case, the recipient may, with the approval of the concerned operating 
administration, establish a project-specific goal instead of relying on 
this section.
    Transit vehicle production is clearly a national market, in which 
it does not make sense for individual transit authorities to set goals 
for DBE participation individually. Consequently, under the SNPRM, FTA 
would set a goal for manufacturers. The goal would be set by a means 
similar to the means the Department chooses for establishing overall 
goals under Sec. 26.41.

Section 26.45  What Means Do Recipients Use To Meet Overall Goals?

    In narrowly tailoring a nondiscrimination regulation, one of the 
important steps the Department can take is to place greater emphasis on 
race-neutral approaches such as outreach and technical assistance to 
meet program objectives. Consequently, the Department is proposing that 
recipients' first resort in meeting overall goals be to use these 
means. The proposed, non-exclusive, list of steps that recipients can 
take include several measures mentioned in the existing Part 23 and the 
December 1992 NPRM.
    The recipient would use means like those listed in paragraph (a) to 
meet its overall goal to the extent it was able to do so. In many 
cases, however, it will probably be necessary to use race-conscious 
means to overcome the effects of discrimination. The Department does 
not intend, in this section, to say that race-neutral means must be 
used ``before'' race-conscious measures in any crude chronological 
sense. We anticipate that a variety of measures will be used in 
combination to provide appropriate flexibility to recipients.
    The basic means to be used when a recipient cannot meet its overall 
goal wholly through race-neutral methods is contract goals. Because the 
recipient may meet at least a portion of overall goals using other 
means, this proposed rule differs from the existing rule and the 
December 1992 NPRM by not necessarily requiring a contract goal on 
every contract that has subcontracting possibilities. It would be up to 
the recipient to determine when use of contract goals is needed to meet 
the overall goal. For example, if a recipient had met its overall goal 
for a given year by the end of September, it might use paragraph (a) 
techniques rather than contract goals the rest of the year.
    The proposed regulatory text does not change the existing rule's 
provision that contract goals are calculated on the basis of the entire 
amount of the contract (i.e., Federal plus non-Federal shares). We 
solicit comments, however, on whether there should be any change in 
this provision, particularly in situations where there is only a small 
percentage of Federal funds in the contract.
    The SNPRM also seeks comment on including an ``evaluation credit'' 
approach. Under this approach, if a DBE's bid or offer on a prime 
contract falls within a price differential designated by the recipient 
(from one to ten percent of the lowest non-DBE offer), the DBE would 
get the contract. Alternatively, as among non-DBE bidders on prime 
contracts, a bidder who had a designated level of DBE participation 
(set by the recipient in a way equivalent to the way contract goals are 
set) would receive the contract if its bid fell within a given 
percentage differential of the lowest bid by a bidder who did not 
achieve that level of DBE participation.
    We emphasize that, as proposed, this mechanism would apply only to 
bidding on prime contracts (though we seek comment on whether there is 
any feasible way of using it or a similar mechanism on subcontracts). 
For example, suppose a recipient established a price credit of 7 
percent for bidders who had at least 10 percent DBE participation. 
Bidder A bids $105,000 on a contract, and has 10 percent DBE 
participation. Bidder B bids $100,000 for the same contract, but has 
only 5 percent DBE participation.

[[Page 29560]]

Bidder A would receive the contract, since it achieved the targeted DBE 
participation and was within the 7 percent evaluation credit range 
established by the recipient.
    If race-neutral means are the first resort under this proposed 
section, then set-asides and other more intrusive means, such as a 
``conclusive presumption,'' are the last resort. By a set-aside, we 
mean a procurement practice that permits no one but DBEs to compete for 
a given contract. Only if the recipient documents that there are no 
other, less intrusive, ways to meet DBE goals, and only if the 
recipient has state or local authority independent of Part 26, should 
the recipient use means of this kind on a DOT-assisted contract.
    When a recipient uses race-conscious measures, and these measures 
appear to have significant success in combating the effects of 
discrimination, what happens next? Given that, under Adarand, measures 
must be narrowly tailored to achieve nondiscrimination, we believe that 
recipients must consider changing their use of race-conscious measures 
when it appears that DBEs are closer to competing on a level playing 
field.
    For example, suppose a recipient significantly exceeds its overall 
goals over a number of years. This suggests to us that the recipient 
should rethink its use of race-conscious measures to achieve overall 
goals (e.g., to rely more on race-neutral measures). Note that we are 
not suggesting shutting down the program or getting rid of overall 
goals in this situation, just changing the mix of measures used to 
achieve overall goals.
    Another way of looking at the slope of the playing field shifts the 
focus to the broader economy. It is likely that, in many places, DBE 
participation is better in DOT-assisted contracting than in many other 
sectors of the economy, simply because of the existence of this program 
over the last 17 years. Were it not for the DBE program, it is likely 
that the picture of DBE participation in DOT-assisted contracting would 
resemble that in similar sectors of the broader economy.
    Suppose that, in a given state, minority-and women-owned 
contractors account for 20 percent of the contractors, but only 10 
percent of the business volume. Whatever DBE participation achievements 
may be in DOT recipient contracting, this suggests that the playing 
field is not altogether level in the state. If we took away the use of 
race-conscious measures in the DOT program, its achievements would 
probably fall to a level approximating that of the broader economy. 
This is a rationale for maintaining the use of race-conscious measures. 
If this rationale disappears in the broader economy, then the recipient 
should rethink its use of race-conscious measures to achieve overall 
goals (e.g., rely more on race-neutral measures). The Department asks 
for comments on the data that would be needed to make this approach 
work.
    One concern that disadvantaged businesses have expressed is that 
recipient sometimes do not apply measures to obtain DBE participation 
evenly through their various contracting opportunities. For example, 
DBEs have said that some recipients meet their goals entirely through 
construction contracting, largely ignoring other types of businesses 
(e.g., suppliers, architects and engineers, other professional 
services). The Department's intention is that recipients explore all 
opportunities for DBE participation, in all fields in which DOT-
assisted contracting occurs. We seek comment on whether any regulatory 
provisions are needed on this subject and, if so, what they should say.

Section 26.47  What Are the Good Faith Efforts Procedures Recipients 
Follow in Situations Where There Are Contract Goals?

    The concept of good-faith efforts is a very broad one, applicable 
in some senses in a variety of contexts under the rule. Section 23.47, 
however, applies only in the case where a recipient uses contract 
goals, one of the intermediate level of mechanisms available to meet 
overall goals. When the recipient has set a contract goal, the 
recipient would award the contract to the apparent successful bidder if 
either of two things happen: the bidder meets the contract goal by 
providing sufficient DBE participation or the contractor documents 
adequate good faith efforts (GFE) , despite not meeting the contract 
goal with DBE participation. This section emphasizes that either 
showing is acceptable. It would not be consistent with the rule for the 
recipient to insist on a bidder meeting the goal, disregarding its 
showing of GFE. To do so would establish a de facto quota system. At 
the same time, it is not consistent with the rule for a recipient to 
award a contract based on merely pro forma or perfunctory efforts by a 
bidder. This is equally inconsistent with the rule.
    In order to reinforce the point that the good faith efforts 
provision is meant to be taken seriously, the SNPRM proposes that 
recipients would implement an administrative reconsideration process 
when the apparent successful bidder had been denied the contract for 
failing to make adequate good faith efforts. This process is intended 
to be informal and minimally burdensome, but it is also intended to 
cause recipients to make sure that their decisions on GFE are well-
founded.
    One suggestion made by DBEs was that, rather than the recipient 
itself, a committee made up of recipient, DBE, prime contractor, etc. 
representatives should make GFE decisions. Is this a good idea, either 
at the initial decision or review level? Should the Department include 
such a provision in the final rule?
    One issue related to GFE that was the subject of a good deal of 
comment on the December 1992 NPRM was whether DBE prime contractors 
should have to meet contract goals. It is clear that the existing Part 
23 does not permit recipients to require DBE prime contractors to do 
so, as pointed out in the preamble to the December 1992 NPRM. (Any 
recipient programs to the contrary are inconsistent with the 
Department's rule; FHWA has provided guidance to its recipients 
emphasizing that any programs containing inconsistent provisions on 
this point need to be changed.) Under the existing rule, a DBE prime 
contractor meets a contract goal by virtue of being a DBE. Since the 
entire amount of a contract to a DBE is counted toward the contract 
goal, a DBE prime contractor's goal attainment is 100 percent.
    Thirty-six comments to the December 1992 NPRM favored changing this 
provision, so that a DBE prime contractor would have to meet 
subcontracting goals just like any other prime contractor. Commenters 
taking this position said that requiring DBE primes to meet goals would 
help to maximize DBE participation and that it was fair to impose the 
same requirements on all prime contractors. In some cases, these 
comments said that DBE primes should only meet goals when they would 
otherwise subcontract work, or should only have goals applying to that 
part of the work of a contract they did not plan to perform with their 
own forces.
    Twenty-four comments opposed adding a regulatory requirement for 
DBE prime goals. Some of these agreed with the rationale of the 
existing rule, saying that there was already, in effect, 100 percent 
participation. Others said that requiring DBE primes to meet goals 
would hinder their growth and productivity, or that recipients should 
have discretion on this matter. Some comments said that DBE primes 
should have to meet goals only if they subcontracted work.
    The Department seeks additional comment on this issue. We note that 
there are two competing notions of

[[Page 29561]]

equity involved in the debate. On one hand, requiring DBE primes to 
meet subcontracting goals imposes the same requirements on all prime 
contractors. On the other hand, since DBE primes are implicitly viewed 
as not enjoying a level playing field with non-DBE primes, requiring 
both to meet the same subcontracting requirement can be viewed as 
simply maintaining the inequity.
    With respect to subcontracting, the SNPRM, with certain exceptions, 
would not count toward DBE goals work performed by non-DBE second tier 
subcontractors. This approach for subcontractors is more consistent 
conceptually with a requirement for DBE primes to meet subcontracting 
goals. On the other hand, it can be argued that to make a DBE prime 
meet subcontracting goals in effect requires over 100 percent DBE 
participation on DBEs' prime contracts.
    The SNPRM proposes the two approaches in the alternative. We also 
seek comment on a third alternative, specifying that a DBE prime has to 
use its own forces for a sufficient percentage of the contract to meet 
the contract goal. If the DBE prime were subcontracting out so much of 
its work that it would not cover the goal amount with work performed by 
its own forces, then the DBE would have to make up the difference with 
other DBE participation.
    The most commented-upon issue in the December 1992 NPRM section on 
GFE concerned whether compliance with the requirement to supply 
information about goal attainment or GFE should be a matter of 
responsiveness or responsibility. If a matter of responsiveness, the 
bidder must submit all the required information with its bid. Failure 
to do so results in the bid being non-responsive. If a matter of 
responsibility, the apparent successful bidder is given a certain 
amount of time to submit the information following the opening of bids. 
Under Part 23, recipients had the option of whether to use the 
responsiveness or the responsibility approach. The December 1992 NPRM 
proposed that the responsiveness approach be used in all cases, in 
order to mitigate the problem of ``bid-shopping,'' in which the 
apparent successful bidder uses the compliance time after bid opening 
to conduct a sort of reverse auction among prices of DBEs interested in 
the job.
    Thirty-eight comments, mostly recipients and DBEs, supported the 
NPRM proposal. Many of these comments said that it would be an 
effective means of limiting prime contractors' opportunity to bid-shop. 
Others pointed to specific recipients' programs that successfully used 
the responsiveness approach. A few comments suggested modifications to 
this approach, such as allowing 5-7 days for contractors who did not 
meet the goal to show GFE. We have also received a suggestion that, 
given what some DBEs perceive as abuses of the ``letter of intent'' or 
``commitment'' process by prime contractors, that the Department should 
establish a firm policy of requiring the use of the DBEs that a prime 
contractor originally names.
    Sixty-five comments, mostly prime contractors but including a few 
recipients, opposed the December 1992 NPRM proposal. These comments 
said that bid shopping was not that big a problem, or that some degree 
of bid shopping was appropriate. Their main objection was that the 
proposal was too burdensome for prime contractors. They painted a 
picture of contractors submitting multiple bids after a hectic whirl of 
last-minute negotiations involving quotes from a variety of 
subcontractors. The time frame for finalizing bids is too short to make 
the responsiveness approach practical, they said. Some recipients said 
that they had tried this approach and found it didn't work. Other 
comments suggested variations on the responsibility approach, such as 
limiting the time after bid opening in which a contractor could submit 
the required information or considering as evidence of GFE only those 
actions a contractor had taken prior to bid opening.
    Both sides of this debate make some valid points. Based on DOT's 
experience with the contracting process, bid shopping appears to be a 
significant problem that negatively affects the ability of DBE 
subcontractors to succeed in performing contracts for a profit. 
Requiring information to be submitted as a matter of responsiveness, in 
our view and that of a number of comments, appears to be a reasonable 
means of mitigating that problem. On the other hand, the responsiveness 
approach would probably be more difficult administratively for prime 
contractors, though it is being used successfully in some places.
    Given that there are valid points to be made in favor of both 
responsibility and responsiveness, and that the circumstances of 
different recipients may well differ concerning the desirability of one 
approach or the other, the significance of a bid-shopping problem in a 
particular jurisdiction, etc., the SNPRM would continue the existing 
practice of allowing recipients to choose which approach to follow. The 
Department seeks additional comment on this issue. In particular, the 
Department would be interested in receiving examples of how one system 
works, or fails to work, in current practice.
    Sixteen comments to the December 1992 NPRM asked for clarification 
or greater guidance concerning what constitutes GFE. Some of these 
comments asked for more ``objective'' GFE criteria, though they did not 
suggest what the objective criteria should be. Others suggested 
tightening up informational requirements. For example, some agreed with 
a proposal in the December 1992 NPRM that the prime should actually 
have a contract with the DBE in hand to present to the recipient.
    The Department is responding to these comments in two ways. First, 
the Department has rewritten and expanded the rule's GFE guidance (see 
Appendix B) to provide greater assistance to recipients and 
contractors. There would also be a new definition in Sec. 26.5 which 
says that GFE are ``efforts to achieve a DBE goal or other requirement 
of this Part which, by their scope, intensity, and appropriateness to 
the objective, can reasonably be expected to fulfill the program 
requirement.'' Second, while it may not be necessary to have a written 
contract between the DBE and the prime contractor presented to the 
recipient, the SNPRM would require that the prime contractor present a 
letter from each DBE submitted to meet the goal confirming that the DBE 
is going to perform the contract as represented in the prime 
contractor's submission.
    One of the features of the existing guidance concerning GFE is that 
a contractor is not viewed as making GFE if it rejects a quote from a 
DBE in favor of a quote from a non-DBE when the former is higher than 
the latter, but the DBE has still offered a ``reasonable'' price. 
Seventeen comments asked for clarification of what a reasonable price 
is, four supported the existing guidance, while 14 opposed the concept. 
Opponents said the requirement makes the system more expensive, since 
it does not allow prime contractors to get the lowest price they can 
for subcontracts. Some of these comments also said they did not want to 
have specific ``reasonable price'' requirements (e.g., a percentage) in 
their bid documents.
    The Department believes it would be difficult to mandate a 
``reasonable price'' differential that would make sense across the 
board for DOT-assisted contracts. However, the Department does believe 
that recipients should have the discretion to do so. Appendix B would 
specifically provide this

[[Page 29562]]

discretion to recipients. The Department notes that in Federal 
procurement, a range of 1-10 percent is suggested. The Department seeks 
comment on whether this is a reasonable range, and whether Appendix B 
should include a specific numerical range of this kind. The Department 
seeks comment on whether it would be desirable and feasible to 
establish a national standard concerning award of a subcontract to a 
DBE which quoted a higher price than another subcontractor, consistent 
with the narrow tailoring standard of Adarand.
    The GFE guidance would provide that in determining whether a bidder 
has made good faith efforts, a recipient may take into account the 
success of other bidders in meeting goals. That is, if Bidder A has met 
the goal, but lower Bidder B has not, it is fair for a recipient to 
inquire if Bidder B's efforts were sufficient. We also seek comment on 
whether additional provisions would be useful. For example, should 
there be additional language concerning good faith efforts in 
subcontracting initiated by a prime contractor after award of the 
initial prime contract, particularly when the prime contractor may not 
have met its original commitments to DBE participation?
    The December 1992 NPRM proposed that a prime contractor could 
terminate a DBE only for breach of contract. This proposal would have 
prohibited terminations for convenience of DBEs. Sixteen comments, 
primarily from recipients and some DBEs, favored the NPRM proposal, 
while 19 comments, mostly from prime contractors, opposed it. The 
opponents said that terminations for convenience were an often-
necessary part of doing business and that prohibiting them would add to 
expense, delay, and litigation. The Department takes a middle ground in 
the SNPRM. As a general matter, the rule would not prohibit 
terminations for convenience. However, a contractor could not terminate 
a DBE for convenience and then turn around and perform the work with 
its own forces or subcontract to a non-DBE subcontractor, absent the 
prior written consent of the recipient. We believe that this approach 
will stop a potential source of abusive conduct by primes while not 
denying primes needed flexibility.
    The December 1992 NPRM also proposed that when a DBE was dropped 
from a contract, the prime contractor would have to make GFE to find a 
substitute DBE, even if the prime was meeting its goal by using other 
DBEs. Twenty comments, principally prime contractors, opposed this 
proposal. They did not think that requiring substitution even when a 
prime contractor was already meeting its goal from other sources was a 
good idea. It would, they said, be a disincentive to prime contractors 
oversubscribing their goals. Four comments supported the proposal.
    The Department has decided not to adopt this proposal in its 
entirety. As under the existing rule, recipients would still have to 
make good faith efforts to find a DBE substitute for a DBE that has 
been unable to complete its planned participation. However, a 
requirement to replace DBE participation, even when doing so is not 
needed to meet a contract goal, departs too far from the objective of 
race-conscious remedies, which is to remedy the effects of 
discrimination. Consequently, the SNPRM would propose requiring 
substitution only as needed to meet a contract goal. The Department 
seeks comments, however, on whether there is a supportable rationale 
for requiring substitution of DBEs simply on the basis of contract law 
(i.e., meeting the original commitment to the recipient).
    The December 1992 NPRM proposed that recipients have a liquidated 
damages or penalty provision in their contracts to sanction 
noncompliance by recipients with the termination and substitution 
provisions of this section. Two comments favored this idea, while 20 
opposed it, saying that liquidated damages or penalty clauses were 
contrary to state procurement laws in many cases. The SNPRM adopts the 
suggestion made by one of these comments that recipients be required to 
have appropriate administrative remedies available to deal with 
noncompliance, without prescribing what they should be.

Section 26.49  How Is DBE Participation Counted Toward Goals?

    One of the issues most commented upon in response to the December 
1992 was that of whether the cost of materials obtained from non-DBE 
sources, but used by DBE contractors, should be counted toward goals. 
The December 1992 NPRM solicited comment on this issue because the 
present regulation (49 CFR 23.47(a)) results in an inconsistency in the 
way credit is counted for materials, providing that the entire value of 
a contract with a DBE is counted toward goals. This has been 
interpreted, since the beginning of Part 23 in 1980, to include the 
cost of materials the DBE contractor obtains, from whatever source, for 
performance of the contract.
    For example, suppose a DBE steel erection firm buys structural 
steel from a major steel company, which is not a DBE. The steel 
accounts for 75 percent of the cost of the contract, the rest being 
accounted for by labor, overhead, profit, etc. Under the present rules, 
the entire cost of the contract, including 100 percent of the cost of 
the steel, would be counted toward DBE goals.
    The inconsistency arises because of the way that supplies and 
materials are counted in other situations. If a non-DBE steel erection 
company bought the same steel from the same steel manufacturer at the 
same price, none of the value of the steel would count toward DBE 
goals. If the non-DBE steel erection company bought the steel through a 
DBE regular dealer, 60 percent of the cost of the steel would count 
toward DBE goals. The inconsistency could be removed if all materials 
and supplies were counted the same way: that is, if only materials and 
supplies produced by a DBE manufacturer or purchased through a DBE 
regular dealer could count toward DBE goals, regardless of whether the 
contractor was a DBE or not. This approach would result in the DBE 
steel erection company, in the example above, being able to count only 
25 percent of the value of its contract toward DBE goals.
    The great majority of comments on this point (83) opposed resolving 
the inconsistency in this way, saying that the entire amount of DBE 
contracts--including materials obtained from non-DBE sources--should 
continue to count toward DBE goals. Recipients, DBEs, and non-DBE 
contractors were all represented in this group. They said that 
materials are always included in the cost of any contract, and so it 
was meaningless to talk about counting the value of a contract and yet 
not counting the cost of materials. DBEs, like other contractors, take 
a financial risk in obtaining materials, and this should be taken into 
account. Also, since materials often make up a significant portion of 
the value of a contract, not counting materials would mean a 
significant reduction in goal attainment, and goals would have to be 
lowered accordingly. Some comments said that DBE supplies or 
manufacturers were not available in their areas, making reliance on 
other sources inevitable.
    Fourteen comments, including some recipients and DBEs, favored 
limiting the counting of materials from non-DBE sources. Some of these 
suggested treating DBE and non-DBE contractors alike with respect to 
the counting of materials. In this scenario, only the work actually 
performed by the DBE would count toward goals. Others suggested 
limiting to 60 percent the amount of credit for non-DBE source supplies 
that could be counted toward

[[Page 29563]]

goals (placing a DBE contractor in an analogous position to that of a 
DBE regular dealer).
    The Department has decided not to propose changing this provision. 
There are advantages, from the point of view of consistency and logic, 
in counting supplies and materials the same way in all cases. These 
advantages are outweighed, in our view, by the potential disruption 
that would be caused to the program by changing this basic counting 
policy. Making the change would have significant effects on goal 
attainment and would cause recipients and contractors to reorient the 
way that they do business. We also believe that comments have a good 
point when they say that since a DBE contractor takes a risk in 
acquiring materials, and must manage their acquisition and use, it 
should receive credit for using them in the context of the contract. We 
do agree with a comment saying that credit should be allowed only for 
materials that the DBE contractor actually obtains and uses for the 
contract, and we have added language to this effect.
    Another issue of interest to commenters was an NPRM proposal that, 
for the value of a DBE contract to be counted toward goals, at least 30 
percent of the work of the contract must be performed with its own 
forces. The idea behind this proposal was that such a requirement would 
limit the possibility of ``pass-throughs.'' Twenty-six comments favored 
a requirement of this type set at a level of at least 30 percent (a 
number of these comments favored higher levels, such as 60-75 percent, 
or supported recipient discretion to establish such a limit). Seventeen 
comments opposed such a provision, most saying that it would hurt 
contractors whose work is material-intensive.
    The Department believes that a mechanism of this kind would be 
useful in preventing pass-throughs and in making sure that DBEs really 
have a sufficient role in performing contracts for which they obtain 
credit. The SNPRM therefore would provide that a DBE contractor that 
does not perform at least 30 percent of the contract is rebuttably 
presumed not to be performing a commercially useful function. The 
comments opposing this proposal may have misunderstood its implications 
for material-intensive contracts. This provision (and the existing FHWA 
practice for prime contractors on which it is based) does not interfere 
with such contracts: if the contractor is responsible for the materials 
(i.e., as the comment referred to above suggested, if the DBE 
negotiates price, determines quantities, orders the material, and 
installs and pays for the material itself), the portion of the contract 
represented by the materials is viewed as being performed by the 
contractor. Language referring to this concept has been included in the 
SNPRM.
    Another issue raised by the December 1992 NPRM is so-called ``back-
subbing.'' A non-DBE prime contractor subcontracts a portion of the 
work of the contract to a DBE. The DBE, in turn, subcontracts a portion 
of its work back to the prime contractor. Forty-eight comments agreed 
that work subcontracted back to the prime contractor by a DBE 
subcontractor should not be counted toward the goals, since it is work 
performed by the prime contractor, not by the DBE. A number of these 
comments suggested that the prohibition on counting work subcontracted 
out by DBEs should apply to work subcontracted to any non-DBE, not just 
a prime contractor. Some of these comments would make exceptions for 
what they viewed as customary practices such as equipment rental in 
certain industries. Ten comments opposed this proposal, saying that 
such practices as backcharging from the prime to the subcontractor or 
equipment rental from non-DBEs are normal, constructive industry 
practices.
    Work performed by non-DBE contractors (primes or others) on the 
basis of subcontracts from DBE subcontractors may well be legitimate in 
various contexts, as distinct from an attempt to circumvent the DBE 
program. Whatever else it is, however, it is not work performed by a 
DBE. The Department believes it makes sense to count toward DBE goals 
only work that is actually performed by DBEs, and the SNPRM proposes 
that work performed by a non-DBE subcontractor on the basis of a 
subcontract from a DBE subcontractor would not count toward DBE goals.
    In response to the comments concerned about equipment rentals, the 
SNPRM provision includes an exception for such rentals, as long as the 
equipment is rented from someone other than the prime contractor or its 
affiliate. Supplies would be treated in the same way. This approach 
recognizes the legitimacy of the DBE's need to acquire equipment and 
supplies from outside sources in some instances, while guarding against 
attempts by prime contractors to claim DBE credit for the use of their 
own materials and equipment.
    One issue that comments addressed here, as well as under other 
provisions of the rule, concerns what happens to DBE credit from a firm 
that a recipient decertifies while a contract is underway. Six comments 
favored continuing DBE credit for a contract begun in good faith with a 
then-certified DBE. One recipient suggested that the credit could 
continue to be counted toward the prime contractor's goal, but not 
toward the recipient's overall goal. The SNPRM adopts the recipient's 
suggestion, which seems a good balance between fairness to contractors 
and the point that credit to non-DBE firms should not be reflected as 
DBE goal achievements.
    There were a variety of comments on other matters. Eight comments 
favored, and eight opposed, not crediting DBE participation to prime 
contractors until the DBE is paid. For purposes of awarding contracts, 
of course, recipients must operate on the basis of commitments to DBE 
participation. However, it is administratively feasible not to credit 
DBE participation to a contractor's goal attainment until the DBE has 
been paid for the work in question, and the SNPRM proposes such a 
provision.
    Other comments asked for clarification of the commercially useful 
function, regular dealer, and normal industry practices concepts. A few 
comments asked for clarification on awarding DBE credit for DBE 
trucking companies, a particular concern being companies that lease all 
or most of their trucks from non-DBEs. The SNPRM would presume that a 
DBE trucking company that does not own at least 50 percent of the 
trucks it uses for a particular contract does not perform a 
commercially useful function on that contract. This presumption could 
be overcome by a determination by the recipient that the firm is 
performing a commercially useful function in light of normal industry 
practices.
    Finally, a few comments supported the notion of the ``carry-
forward'' of DBE credit. That is, if a prime contractor gets 15 percent 
DBE participation on a contract with a 10 percent goal, then the 
``extra'' 5 percent credit could be applied to meeting its goal on its 
next prime contract with the recipient, allowing it to obtain only five 
percent ``new'' DBE participation on the second contract. The 
Department has not adopted this idea, because we believe it would lead 
to an inappropriate focus on merely meeting minimum requirements.
    Only the work of DBEs, of course, may be counted toward DBE goals. 
If a formerly certified firm does not have a certification that is 
current at the time a contract is executed (e.g., it has been 
decertified, it has allowed its certification to lapse), then it cannot 
satisfy DBE requirements. For example,

[[Page 29564]]

suppose a DBE prime contractor is identified as the apparent successful 
bidder for a contract in July. The contract is to be executed in 
September. In August, however, the firm loses its certification. The 
recipient cannot use the contract to meet DBE goals, and the firm would 
have to meet a DBE contract goal (assuming there was one on the 
contract) the same way any other non-DBE prime contractor would.

Subpart D--Cerftification Standards

    The clarification of certification standards is one of the most 
important purposes of this SNPRM. Recipients and contractors should be 
aware that the certification standards in this subpart, while not yet 
formally in effect, represent the Department's interpretations of 
current Part 23 standards. Recipients should use this material as 
guidance in applying existing standards to the facts of certification 
cases.
    The SBA is proposing new certification standards and procedures for 
the 8(a) and 8(d) program, which concern Federal procurement. These 
standards and procedures are similar in some ways, and differ in other 
ways, from the proposed Part 26 standards and procedures. The 
Department seeks comment on whether, in various specific respects, DOT 
should alter any of its proposed standards to more closely resemble the 
proposed SBA standards. During and after the comment period, DOT 
anticipates working with SBA to explore areas where greater convergence 
between the standards and procedures of the two agencies may be useful.

Section 26.51  How are Burdens of Proof Allocated in the Certification 
Process?

    The purpose of this section is to state clearly who must prove what 
in certification matters. The December 1992 NPRM proposed that the 
applicant must bear the burden of proof that it meets eligibility 
criteria. Forty two comments agreed with this proposal, 36 of them 
supporting the ``preponderance of the evidence'' standard, which the 
SNPRM proposes to adopt. This standard means, in essence, that on 
balance, the recipient must be able to determine that the applicant 
more likely than not meets each of the basic certification standards: 
group membership, business size, ownership, and control. The applicant 
is responsible for demonstrating to the recipient that it meets each of 
these standards by a preponderance of the evidence. If the applicant 
fails to carry this burden, then the recipient would not certify it. 
Six comments favored the higher ``clear and convincing evidence'' 
standard, which the Department believes is too stringent for this 
purpose.
    There is a major exception to the general rule that the applicant 
bears the burden of proof on the elements of certification. Because the 
statutes authorizing this program provide that members of the 
designated groups are presumed to be socially and economically 
disadvantaged, applicants who are members of these groups do not have 
the burden of proving to the recipient that they are disadvantaged. (As 
noted above, these individuals do have a burden of proof with respect 
to group membership, however.) Other individuals, as well as designated 
group members whose presumption of disadvantage has been rebutted, 
would have the burden of proving, by a preponderance of the evidence, 
that they are disadvantaged. How the presumption is rebutted is 
discussed below in the section on social and economic disadvantage.
    The December 1992 NPRM said that recipients should avoid ``single 
factor'' determinations about certification and should make 
determinations based on all the facts. Eleven comments supported this 
position, while 13 others opposed it or asked for clarification. Most 
of the latter noted that there could be a single large factor (e.g., 
the disadvantaged individual didn't own the company) that outweighed 
everything else. To avoid the confusion that some commenters noted, we 
have not incorporated the ``single factor'' language in the SNPRM, but 
it clearly states that the recipient would have to consider all the 
facts in the record, viewed as a whole, in deciding whether an 
applicant has met its burden of proof. A single fact or problem would 
prevent certification only where it prevented the applicant from making 
its case by a preponderance of the evidence.

Section 26.53  What Rules Govern Group Membership Determinations?

    Group membership is important in making certification decisions 
because only members of the designated groups enjoy the presumption of 
disadvantage. Individuals outside these groups must make individual 
showings of disadvantage in order to be eligible. In many cases, 
membership in a designated group will be obvious (e.g., women, many 
Black Americans). The SNPRM does not require recipients to make any 
special inquiry in these cases. Rather, the recipient would simply 
accept the obvious. In other cases (e.g., some American Indians, 
Hispanics, or Asian-Americans) there may be individuals whose 
membership in a designated group is not obvious to the recipient. When 
the recipient has reason to question the claimed group membership of an 
individual, the recipient would require the individual to demonstrate, 
by a preponderance of the evidence, that he is a member of the group.
    There were few comments on this section. Most of them concerned 
American Indians, a category which a number of comments thought was 
subject to abuse by persons with little Indian ancestry and little 
connection with Indian communities. These comments proposed that 
guidance concerning group membership of Indians be clarified and that 
recipients be authorized to require documentation of group membership. 
The Department agrees, and we intend to provide additional guidance 
concerning group membership when the final rule is issued. The SNPRM 
would specifically authorize recipients to require applicants to 
produce appropriate documentation of group membership.

Section 26.55  What Rules Govern Business Size Determinations?

    The Department's business size criteria are established by statute. 
There are two criteria, both of which a firm must meet in order to be 
eligible. First, a firm must meet SBA small business size criteria, 
which are found in 13 CFR Part 121. Second, a firm must not exceed an 
average annual receipts cap required by statute. The proposed section 
reflects the Department's contemplated adjustment of the current cap 
($16.6 million) to $17.77 million. The Department anticipates 
publishing a Federal Register notice in the near future making this 
adjustment.
    Many of the comments on size standards asked for changes that could 
be accomplished only by legislative amendments. Eight comments thought 
the gross receipts cap was too high (e.g., one comment said that even 
non-DBE prime contractors in its jurisdiction fell under the cap) while 
four (e.g., a petroleum products distributor) thought it was too low. 
Commenters in both camps, plus a few additional comments, thought that 
recipients should have discretion to adjust the cap to fit local 
conditions better. Four commenters thought that we should use only the 
cap, without involving the SBA size standards. Six other comments 
thought that DOT should develop its own size standards to replace 
reliance on SBA standards.
    Six comments said that the SBA size standard for architectural and 
engineering (A & E) firms was too low

[[Page 29565]]

and had not changed in many years. We suggest that, if members of a 
particular industry believe that their SBA size standard is 
inappropriate, they work with SBA to see if SBA will alter the 
standard. Such firms are in a better position than DOT to advocate the 
merits of such a change to SBA.
    One comment said that there needed to be different size standards 
for airport concessionaires. Subpart G contains FAA-developed size 
standards for airport concessionaires that differ from the size 
standards of this section, and which control for airport concession 
purposes. Finally, three comments asked for guidance on how to deal 
with situations in which a firm may work in more than one area. The 
size standard for each area may differ. The Department plans to issue 
guidance on this subject when the final rule is issued.

Section 26.57  What Rule Determine Determinations of Social and 
Economic Disadvantage?

    The presumption of social and economic disadvantage for members of 
the designated groups has always been rebuttable in the Department's 
DBE program. The problem has been how to determine when the presumption 
has been rebutted. There has been substantial uncertainty on 
recipients' parts on what is necessary to rebut the presumption, with 
the result that there have been few proceedings under current 
Sec. 23.69 to remove the presumption from members of the designated 
groups.
    The December 1992 NPRM proposed to address this problem by 
directing each presumptively disadvantaged owner of an applicant firm 
to submit a statement of personal net worth (PNW) with the application. 
If the statement showed that the individual's net worth was over 
$750,000, then the presumption of that individual's social and economic 
disadvantage would be rebutted, and the individual would have to 
demonstrate his or her disadvantage on a case-by-case basis. (The 
$750,000 number was suggested by SBA's PNW standard for owners of 8(d) 
program firms. See 13 CFR 124.106(b)). This relatively simple, bright 
line, across-the-board approach was also intended to prevent the 
possibility of abuses in which recipients might target a particular 
firm or class of firms for inquiry into social and economic 
disadvantage.
    This proposal was the subject of extensive comment. Forty comments 
supported the NPRM approach, or something like it, basically for the 
reasons stated in the December 1992 NPRM. A few of these comments 
supported a more draconian approach, in which an applicant with a PNW 
of over $750,000 would be barred from participating in the program, 
with no possibility of an individual showing of disadvantage. Another 
24 comments disagreed with the $750,000 number. Exactly half of this 
group thought the number should be lower (e.g., $250,000-$500,000) 
while the other half thought it should be higher (e.g., $1-$2.75 
million). Those who wanted it lower generally thought that the program 
should not include persons who were affluent enough to have PNW in the 
mid-six figures range, while those who wanted it higher said that a low 
figure would limit the borrowing power and ability to expand of DBE 
firms. A few comments also supported recipients having discretion to 
set their own threshold.
    Fifty-six comments opposed using a PNW threshold at all. They said 
that the bias that creates disadvantage for minority and women owners 
has little to do with personal net worth, and that until that bias is 
eradicated, a PNW threshold was inappropriate. They said it penalizes 
success. Some of these comments said that PNW was based on a paper 
accounting of assets, including many that had little to do with the 
ability of someone to succeed in business. It would be difficult to 
administer, particularly where firms have multiple owners. It would 
limit the ability of businesses to expand (i.e., banks and bonding 
companies often demand that the personal assets of a small business 
owner guarantee the loan or bond, and if personal assets are limited by 
this rule, then financing or bonding becomes more difficult). Many 
comments expressed strong concern about the adverse impact on personal 
financial privacy of being required to submit personal financial 
statements to the recipient with all applications. Requiring this 
information with the application is inconsistent with the statutory 
presumption, other comments asserted, as well as being a substantial 
additional paperwork burden on applicants. Many also disagreed with 
using a number derived from SBA programs, which they saw as very 
different from the DBE program.
    Among other miscellaneous comments were suggestions that spouse's 
assets, the owner's house, and/or business assets be counted in 
calculating PNW. Some comments suggested that owners should certify 
that their PNW was within the threshold or only send PNW information to 
the recipient as part of a due process proceeding that was challenging 
the firm's disadvantage.
    The Department believes that its original purposes for the $750,000 
threshold proposal were valid: establishing a clearly understandable 
standard for rebuttal of the presumption of disadvantage and preventing 
potential abuses that single out certain DBEs or classes of DBEs for 
unfavorable treatment. At the same time, the Department is persuaded 
that some of the flaws noted by comments that opposed the NPRM 
proposal--adverse effect on privacy, inconsistency with the statutory 
presumption, administrative difficulties, additional paperwork burden, 
etc.--should be considered.
    For these reasons, the Department is proposing to adopt a modified 
version of its NPRM proposal. Recipients would be prohibited from 
requiring owners to prove their social and economic disadvantage as 
part of the application process. However, in order to have relevant 
information to enable them to make determinations about whether there 
should be inquiry into the disadvantage of applicants, the applicants 
would have to submit a signed certification that they are socially and 
economically disadvantaged and a brief summary statement of their 
personal net worth, which the recipient would have to keep 
confidential. The applicant would not be required to submit actual 
personal financial data (e.g., personal income tax returns or a 
detailed financial statement) documenting the information in the 
summary statement, however. These provisions are intended to balance 
applicants' interest in protecting the privacy of financial data and in 
avoiding unnecessary paperwork with recipients' interest in having 
sufficient information to determine when further investigation of 
disadvantage is needed.
    Under the SNPRM, if a recipient has a reasonable basis to believe 
that an owner may not be disadvantaged (e.g., from summary statement of 
PNW, information provided by third parties, or other information 
available to the recipient), the recipient could commence a proceeding 
to determine whether the presumption of disadvantage should be removed 
from the individual. This proceeding would use the same due process 
procedures that the recipient uses in a decertification proceeding. The 
recipient would bear the burden of proving that the individual was not 
disadvantaged, by a preponderance of the evidence standard. In order to 
ensure that the statutory presumption is given proper effect, the 
recipient would not begin such a proceeding until it had

[[Page 29566]]

determined that the individual(s) in question owned and controlled the 
firm. However, to prevent contracts from being awarded to a firm that 
might not ultimately be owned and controlled by disadvantaged 
individuals, the recipient could hold the firm's certification in 
abeyance until the conclusion of the proceeding concerning the owner's 
disadvantage.
    The SNPRM leaves open for further comment the issue of the amount 
of the threshold. There was considerable disagreement about the proper 
amount, and the Department asks commenters to provide, if possible, 
data or even anecdotal information about the potential effects of 
different thresholds. In doing so, commenters should be aware that this 
issue concerns the wealth of the owner, not the size of the business. 
How wealthy can an individual be before he or she ceases to be 
reasonably regarded as disadvantaged? This is not an abstract inquiry. 
The legitimacy of the DBE program rests, in part, on being perceived by 
the public and the courts as fair and as helping the people it is 
intended to help. Participation in the program by someone who is a 
strong candidate for air time on ``Lifestyles of the Rich and Famous'' 
can only undermine the program's credibility.
    The Department seeks comment on whether it would be feasible to 
have recipients, unified certification process entities, or regional 
consortiums establish variations on the net worth of persons 
participating in the program. Doing so could increase flexibility in 
the program, but could also lead to a variety of inconsistent 
standards. The Department also seeks comment on whether there are other 
indices of individual social and/or economic disadvantage--other than 
personal net worth--that the rule should focus on to assist recipients 
in making disadvantage determinations.
    The Department does not agree with those comments that favored 
using a PNW standard as an absolute cutoff for program eligibility, 
without the possibility of an individual being able to demonstrate 
eligibility on a case-by-case basis. Under the DBE program, all persons 
who are not entitled to the presumption of eligibility may make an 
individual demonstration of eligibility, and we believe that this 
should remain the case for persons who lose the presumption by virtue 
of a PNW over the applicable threshold as well as those who are not 
members of one of the designated groups.
    Another issue concerned what standards recipients should use to 
make individual determinations of social and economic disadvantage. The 
December 1992 NPRM proposed using standards based on SBA 8(a) standards 
(13 CFR Sec. 124.106(a)). Nine comments favored, and 10 opposed, this 
approach. The opponents pointed to differences between SBA programs and 
the DOT DBE program that could lead to confusion; proponents believed 
the standards were appropriate. The Department will retain SBA 
standards as the basis for guidance on making individual determinations 
of social and economic disadvantage, there being no other or better 
standards of which the Department is aware. However, as one comment 
pointed out, there are some inconsistencies between SBA standards and 
requirements of the DOT DBE program. Rather than simply incorporate or 
copy the SBA standards, therefore, Appendix F would modify the 
standards to ensure a good fit with the DOT program.
    At times, firms certified under the SBA 8(a) program seek to 
participate in the DBE program. Under Part 23, the Department had said 
that, since these firms had been determined by another Federal agency 
to be owned and controlled by socially and economically disadvantaged 
individuals, recipients were required to accept their 8(a) 
certifications as valid for DBE program purposes. Recipients could not 
look behind the 8(a) certification to deny certification to such a firm 
based on the recipients' own evaluation of its ownership and control. 
Over the years, the Department had heard from recipients that this 
requirement resulted in their having to use 8(a) firms they believed to 
be ineligible under DBE program criteria. Therefore, the December 1992 
NPRM proposed to allow recipients to look behind 8(a) certifications in 
some circumstances.
    Nine commenters supported the NPRM provision, saying that too many 
questionable firms have 8(a) status, that size and other criteria 
differed between the programs, and that they had difficulty in securing 
assistance from SBA in reviewing the eligibility of 8(a) firms whose 
eligibility they questioned. Four commenters supported the existing 
rule's approach, one of them suggesting that there should a memorandum 
of understanding between DOT and SBA on the subject.
    The Department believes, with the latter group of commenters, that 
deference to the eligibility determinations of SBA is warranted. At the 
same time, when a recipient has a reasonable belief that a firm is not 
eligible, we believe that it is contrary to the goals of the program to 
preclude inquiry. To balance both these concerns, the SNPRM would 
establish a presumption that an 8(a) firm is owned and controlled by 
socially and economically disadvantaged individuals. (The firm would 
have to demonstrate that it meets the DOT gross receipts cap and SBA 
size criteria for the type of work it was to perform as a DBE.) 
However, if the recipient had a reasonable basis to believe that the 
firm or its owner fails to meet Part 26 ownership, control, or 
disadvantaged status criteria, the recipient would request a response 
to these concerns from SBA. Taking into account SBA's response (or 
after 60 days, if SBA had not responded), the recipient could, on the 
basis of these concerns, initiate an eligibility removal proceeding 
under Sec. 26.77.

Section 26.59  What Rules Govern Determinations of Ownership?

    This section and the control section respond to the need to 
reinvent the certification standards in the existing Part 23. These 
sections have provided insufficient guidance to recipients and other 
participants, resulting in inconsistent and burdensome interpretations 
and decisions concerning certification. This situation has resulted in 
DBEs unfairly being denied certification and permitted the 
certification of firms who should not participate. To ensure that 
ineligible firms are screened out properly, and that applicants are not 
treated unfairly, the Department is proposing to provide clearer and 
more precise standards.
    The December 1992 NPRM, like Part 23, said that contributions of 
capital or expertise can count toward ownership. The December 1992 NPRM 
proposed to clarify the circumstances under which expertise may be 
counted as the contribution to acquire ownership. The December 1992 
NPRM said that the expertise must be in areas critical to the firm's 
operation, specific to the type of work the firm performs, and 
documented in the records of the firm. These records would have to show 
clearly the contributions of expertise and their value to the firm.
    There were 23 comments on this issue, 19 of which supported the 
proposal. A few of these comments suggested minor modifications. One 
suggested that the rule should allow contributions of expertise in 
areas related to the firm's operations, another that under most 
circumstances business administration skills (e.g., bookkeeping, 
accounting, office supervision) should not be counted, a third that 
contributions of expertise should be limited (i.e., to 60 percent of 
the 51 percent of the firm needed to establish

[[Page 29567]]

ownership), and a fourth that the contribution should be entered into 
corporate documents at the time it arises.
    The Department has decided to adopt the NPRM proposal unchanged. 
The SNPRM would therefore allow business owners who bring a special 
expertise, but relatively little capital, to a company to establish 
their ownership. At the same time, the provision provides standards to 
recipients on how to evaluate these situations. One requirement is that 
the expertise be specific to the type of work the firm performs. This 
would exclude, in most instances, general business administration 
experience from counting. The requirement that the expertise be in 
areas critical to the firm's operations has sufficient flexibility to 
allow for expertise in areas closely related to its operations. The 
Department does not see a rational basis for a specific percentage 
limitation on the amount of expertise that can be contributed, and it 
is probably asking too much of a firm to enter details about the 
contribution of expertise in its records at the time the issue arises, 
since the firm may not know at that time that it is planning to seek 
DBE participation.
    Part 23 said that no assets held in trust could be counted toward 
DBE ownership. Early in the implementation of Part 23, the Department 
interpreted this provision liberally, to allow assets held in trust to 
be counted in some situations. The December 1992 NPRM proposed to 
codify this interpretation, allowing trusts to be counted where the 
trustee and the beneficial owner were disadvantaged individuals or the 
disadvantaged beneficial owner clearly controlled the company. Seven 
comments supported the NPRM provision and 11 opposed it. Two comments 
on each side of the issue raised the question of whether living trusts 
should be counted.
    The SNPRM will adopt the NPRM provision, with the addition that 
assets held in a revocable living trust may not be counted toward 
ownership in any circumstances. Since such a trust can be revoked, 
there is continuing uncertainty about the beneficial owner's possession 
of the assets. Irrevocable living trusts can be counted if they meet 
other requirements of the section. Otherwise, the provision meets the 
original purpose of the ``no trusts'' provision, which was to ensure 
that titular ownership of assets did not count when the power to 
control the assets lay with a non-disadvantaged person or organization. 
If the disadvantaged beneficial owner is also the trustee, or the 
trustee is also a disadvantaged individual, then this problem does not 
arise. Also, if it is clear that the disadvantaged beneficial owner 
controls the firm, and the non-disadvantaged trustee does not, the 
problem does not arise.
    Part 23 said nothing specific about assets acquired through such 
means as gifts, divorce settlements, and inheritances. Recipients have 
taken a variety of positions on whether assets acquired through these 
means constitute a ``real and substantial'' contribution of capital 
that can count toward ownership. The December 1992 NPRM provided that, 
while the recipient could take such circumstances into account, 
recipients could not disregard assets solely because they were acquired 
by these means.
    Six comments favored the NPRM provision, though two of these 
requested greater specificity. Thirty-one comments opposed one or more 
provisions of the December 1992 NPRM. The general concern of these 
commenters is that allowing ownership based on assets acquired through 
these means would make it easier for fronts to get into the program. It 
was gifts--particularly interspousal gifts--that commenters were most 
concerned about. Several of these commenters thought transfers 
resulting from death or divorce were less troublesome, though others 
thought where the assets in these cases had been generated through 
efforts of non-disadvantaged persons, even the irrevocable turnover of 
the assets to disadvantaged persons in these cases should not result in 
the assets being counted.
    The Department is responding to the comments by introducing more 
specificity into this portion of the rule. First, the Department 
believes that assets transferred as the result of death or divorce 
should always be counted toward ownership. Assets or ownership 
interests passed through inheritance become the property of the 
beneficiary, and the decedent, absent supernatural intervention beyond 
the Department's regulatory jurisdiction, will play no further role in 
the affairs of the company. Likewise, when assets pass from one spouse 
to another via a property settlement or other formal resolution of a 
divorce or legal separation, the assets or ownership interest becomes 
the property of the party in question, and the former spouse--unless 
there is some term or condition of the settlement or decree to the 
contrary--loses all control over the assets. It is very difficult to 
argue that assets so wholly belonging to an individual, with the former 
owner out of the picture, should not be counted toward ownership.
    On the other hand, the Department is persuaded that many gifts 
(including transfers not based on adequate consideration) are 
problematical. The limitation we propose to place on gifts in the SNPRM 
relates to the identity of the donor and the donor's relationship to 
the firm seeking certification. If a non-disadvantaged individual who 
is involved in (1) the firm seeking certification, (2) any affiliate of 
the firm, (3) a firm in the same or a similar line of business, or (4) 
a firm having an ongoing business relationship with the firm seeking 
certification gives assets or an interest in the business to the 
applicant, then those assets are presumed not to count toward 
ownership. To overcome this presumption, the applicant must show clear 
and convincing evidence--a high standard--that the transfer was made 
for reasons other than DBE certification and that the applicant really 
does own and control the firm.
    The Department believes these limitations will cover the great 
majority of situations in which gifts can be used to circumvent the 
intent of the ownership requirements. In other situations, such as a 
gift from one disadvantaged individual to another, while the recipient 
may review the situation, the recipient could not rule out counting the 
assets involved toward ownership just because they result from a gift.
    One subject about which the Department has often received requests 
for clarification is the role of marital assets. This was also a topic 
on which Part 23 did not provide explicit guidance. The December 1992 
NPRM proposed that when joint or community property assets are used to 
acquire the disadvantaged spouse's ownership interest in the applicant 
firm, the recipient would count these assets as belonging to the 
disadvantaged owner if the other spouse formally renounced all rights 
of ownership in the assets. The December 1992 NPRM proposed that 
spousal co-signature on documents involved with ownership of the firm 
would not constitute a ground for finding the firm ineligible on 
ownership grounds. The December 1992 NPRM also said that a higher level 
of scrutiny should be given to situations where one spouse's assets are 
transferred to the other.
    There were relatively few comments on these subjects, which were 
fairly evenly divided. Five comments supported the marital assets 
provision, while four others supported simply relying on a 50/50 split 
in such assets

[[Page 29568]]

and one opposed counting marital assets that had not been segregated 
prior to the firm's application. Five comments supported the spousal 
co-signature provision, while six opposed it. Some comments on both 
sides of this issue said that co-signature should be a ``red flag'' for 
recipients. The Department would retain both provisions. Recipients 
could consider spousal co-signature, but could not determine that a 
firm is ineligible on this ground alone. The provision concerning 
interspousal transfers of assets (transfers for adequate consideration, 
since gifts are treated elsewhere) would be made more specific. The 
SNPRM would give recipients direction to give particularly close and 
careful scrutiny in this situation to make sure that the firm is owned 
and controlled by a disadvantaged individual.
    The NPRM preamble asked whether there should be additional 
limitations on ownership by non-disadvantaged persons in DBE firms. 
That is, should non-disadvantaged participants be limited to less than 
the 49 percent stake in a firm possible under Part 23? Again, comments 
were divided. Twenty-five comments supported more stringent limits, 
ranging from 10-40 percent. These comments generally said that such a 
provision would make it less likely that fronts or marginal DBE firms 
could participate. Twenty-six comments opposed change, mostly on the 
ground that such a limit would limit the availability of needed capital 
to DBEs, especially to start-up companies. The Department has decided 
not to make a change, for the reason suggested by the commenters and 
because a change (especially a stringent limit like 10 percent) could 
have very disruptive effects on many currently-certified DBEs and on 
recipients' programs.
    A few comments asked for more specificity on the meaning of the 51 
percent stock ownership requirement for corporations. This issue has 
arisen in some cases where corporations are organized with two or more 
classes of stock. Should the 51 percent requirement apply to the total 
of all stock, to the voting stock, or to each class of stock 
independently? The Department believes the most reasonable answer to 
this question is that the disadvantaged owner(s) must own 51 percent of 
all stock (i.e., the combined total) in order to meet ownership 
requirements. (Of course, a disadvantaged owner who did not own 51 
percent of voting stock could not control a firm.) The SNPRM would add 
a parallel requirement for businesses organized as partnerships, based 
on SBA regulatory provisions.

Section 26.61  What Rules Govern Determinations Concerning Control?

    The December 1992 NPRM proposed that a DBE must be an independent 
firm, whose disadvantaged owners control its day-to-day operations as 
well as its overall management. It proposed clarifications of the 
details of making control determinations at a number of points, which 
often codified existing DOT interpretations of the rule.
    One of these clarifications concerned the role of occupational or 
professional licenses. Some recipients had taken the position that a 
disadvantaged owner must personally possess such a license in order to 
control a firm. The December 1992 NPRM proposed that personal holding 
of the license be essential for certification only where state law 
mandated that the person controlling such a firm possess the license. 
Otherwise, holding a license would be only one of the various factors 
taken into account by the recipient. Seven comments supported and five 
opposed this proposal. Some of the latter said that the individual 
should be required to hold the license for certification purposes even 
if state law did not require it for other purposes. Comments on the 
other side of the issue said that it was unfair to require more of DBE 
firms than others, that it was common business practice in some places 
for a firm to hire the licensee as an employee, and that experience in 
the type of work could confer enough ability to control a firm even in 
the absence of a license.
    We believe that the December 1992 proposal makes good sense. Except 
where expressly mandated by state law as a condition of controlling a 
firm, we believe it best, in a program intended to facilitate the entry 
of new businesses into the market, to de-emphasize formal barriers to 
entry. It is better to make control decisions on the basis of the 
individual reality of each firm than to rely on a surrogate for 
determining whether an individual in fact controls the firm.
    The Department has interpreted its regulation, since the mid-1980s, 
as permitting the delegation of functions by disadvantaged business 
owners. A certification appeal and ensuing litigation in the 1980s 
established that disadvantaged owners can delegate authority and 
functions to non-disadvantaged participants, as long as they retain 
actual control over the firm. This interpretation also states that the 
disadvantaged owners are not required to have expertise or experience 
superior to that of other participants in the firm, but must have the 
ability to intelligently and critically evaluate information provided 
by others and make their own decisions based on that information. This 
interpretation provided the basis for the NPRM provision on the 
delegation/expertise issue.
    Comments were evenly divided on this issue. The 18 comments that 
opposed or expressed serious concern about the proposal (some of which 
appeared not to be aware that it had been DOT's interpretation of Part 
23 for several years) thought that this approach could make it too easy 
for fronts to enter the program. They stressed the importance of 
disadvantaged owners having personal expertise in their firms' field of 
work. Two of the comments thought the proposal was ill-advised because 
it would increase the market share of white female owned firms at the 
expense of minority-owned firms. One thought an owner should be able to 
perform all the tasks his or her company performs, even if not 
regularly performing them. Two commenters said that owners should be 
required to have experience or expertise in every critical area of the 
firm's operations. Others thought that owners should never have less 
expertise than employees. One suggested that general business 
administration experience should never, standing alone, be viewed as 
providing enough expertise to control a company.
    An equal number of comments supported the NPRM provision, generally 
saying that it accurately reflected the reality of business practice. 
Some of these commenters also said that business administration 
experience should be counted for control experience. As one commenter 
noted, being able to keep the financial and administrative sides of a 
business afloat can be just as critical as experience in driving a 
truck or operating a grader.
    The Department has decided to retain the NPRM provision with a few 
modifications. In our view, once a firm grows beyond the one-person 
shop stage, delegation is essential. The more successful or complex a 
firm becomes, the more inevitable delegation becomes. It is fanciful to 
imagine that one or a few owners can or should do, or be prepared to 
do, everything that a firm does. As long as the owners can take back 
authority they have delegated, retain hiring and firing authority, and 
continue to ``run the show'' for the company, they control it, 
notwithstanding delegation of some authority and functions.
    With respect to expertise, the disadvantaged owners must, in our 
view, generally understand and be competent with respect to the 
substance of the firm's business. We agree with commenters who say that 
generally (aside, perhaps, from a firm whose

[[Page 29569]]

substantive business is providing business administration services) 
generic business administration experience is insufficient, by itself, 
to meet this standard. However, the disadvantaged owners need not have 
extensive experience or expertise in everything the company does, even 
in all critical areas, or have more experience or expertise than some 
employees or managers, so long as the owners are able to intelligently 
and critically evaluate information their subordinates provide and use 
the information to make independent decisions. We find it difficult to 
accept the proposition that an individual who exercises this ability is 
not controlling his or her firm or is acting as a front for some other 
party.
    The December 1992 NPRM addressed the issue of the relative pay 
levels of owners and other participants. It proposed that the fact that 
the disadvantaged owner took a lower salary than a non-disadvantaged 
key employee did not necessarily mean that the owner did not control 
the firm, even though the recipient could consider this disparity as 
one factor in reviewing control. Nine comments supported this proposal, 
one cautioning that the firm should be able to show a good reason for 
the disparity. Five comments cautioned that recipients needed to 
continue to look at relative salary levels, since a lower salary for 
the owner could indicate a ``front'' situation. One of these suggested 
that no non-disadvantaged participant should have a higher salary than 
a disadvantaged owner.
    The SNPRM follows the NPRM provision, affirming that it is 
appropriate for recipients to scrutinize relative salary levels in a 
firm. In doing so, recipients should take into account the duties of 
the persons involved, normal industry practices, the firm's policy 
concerning reinvestment of income, and other reasons provided. Because 
there are common circumstances in which an owner may choose to take a 
lower salary than he or she may have to pay to certain key employees, a 
difference of this kind does not necessarily mean that the owner does 
not control the firm. We are adding a sentence specifying that where a 
firm used to be owned by a non-disadvantaged person and is now owned by 
a disadvantaged person, a difference in remuneration between the former 
and present owner can be taken into account by recipients.
    The December 1992 NPRM proposed that recipients treat non-
disadvantaged family members the same as other non-disadvantaged 
participants in DBE firms. The participation of family members in a 
firm should not be viewed as meaning that a disadvantaged individual 
fails to control a firm, the December 1992 NPRM said. Seven comments 
supported the NPRM proposal, one mentioning concern that some 
recipients appeared to apply a per se rule against firms that employ 
family members. Fourteen other comments expressed various concerns 
about the proposal. One said that the NPRM statement was true but too 
obvious to include in the rule. Two expressed concern about businesses 
that appear to be run by an entire family as a unit. Two others 
expressed concern about firms that used to be run by a male relative or 
still do a lot of work with businesses run by male relatives. One 
wanted to make sure that family member involvement could be reviewed by 
recipients, while another favored banning participation by non-
disadvantaged family members. The underlying concern of these comments 
appeared to be that family-run businesses were subject to being used to 
circumvent requirements of the rule.
    The Department believes that its basic statement in the December 
1992 NPRM is the most sensible way of looking at the participation of 
non-disadvantaged family members in a firm. The rule recognizes only 
two kinds of people in the world: socially and economically 
disadvantaged individuals and others. Generally, there seems little 
basis for treating ``others'' who are family members differently from 
``others'' who are unrelated, and non-disadvantaged family members may 
participate in a DBE firm on the same basis as any other non-
disadvantaged persons. Except as otherwise provided in the rule, the 
recipient could not apply a more stringent standard to situations in 
which family members participate.
    However, in response to comments as well as the Department's 
experience in working with the DBE program, the SNPRM would provide 
that where the recipient cannot discern that the disadvantaged owners 
themselves, as distinct from the family unit as a whole, independently 
control the firm, the applicant has not demonstrated control. In 
addition, given concerns about firms owned and controlled by white 
males being transferred to their wives or female relatives and 
allegedly continuing to operate as before, the SNPRM would add a 
provision designed to deter this practice. Where the white male or 
other non-disadvantaged owner continues to be involved with the firm, 
the current disadvantaged owner would have to meet a higher burden of 
proof--clear and convincing evidence--concerning ownership and control. 
The owner must also demonstrate by this higher burden of proof that the 
transfer of ownership and control was made for reasons other than 
gaining certification in the DBE program. The Department believes that 
the combination of provisions on ``family businesses'' should avoid 
unfairness to businesses that legitimately employ family members while 
preventing abuses.
    Two comments asked that the regulation specify that a firm could be 
controlled by disadvantaged persons even though it leased, rather than 
owned, equipment. The SNPRM responds by stating that the recipient 
could consider this factor, but could not find a firm to be not 
controlled by its disadvantaged owners solely because it leases or 
rents equipment, where doing so is a normal industry practice and the 
lease does not involve a relationship with a prime contractor or other 
party that compromises the independence of the firm.
    In the context of its discussion of the DBE directory, the December 
1992 NPRM said that recipients should certify and reflect DBEs simply 
as DBEs, not as a particular sort of firm. Twenty-six comments, mostly 
from recipients, objected, their basic argument being that recipients 
should certify firms to perform only those types of work in which the 
expertise and experience of the owners allowed them to control. Many of 
these comments preferred certification by SIC code, while some went 
further and wished to prequalify DBE firms. Some other comments 
suggested that the Department should avoid authorizing recipients to 
take steps that could pigeonhole DBE firms in a particular type of work 
and inhibit their ability to diversify.
    In response to these comments, the Department proposes adding a 
provision that tells recipients to grant certification to firms only 
for specific types of work in which the owners have the ability to 
control the firms. However, to become certified in an additional area, 
the firm need only demonstrate that its owners have the ability to 
control the firm in this type of work as well. A complete 
recertification or new application would not be needed.
    Because the Department has received a number of questions about how 
partnerships and franchises should be handled under the rule, the SNPRM 
would add paragraphs on these subjects. The provision concerning 
franchises has been adopted from the Department's regulation concerning 
the DBE program for airport concessions (see Subpart G). The provision 
generally permits franchises to participate in the program,

[[Page 29570]]

notwithstanding the requirements that franchisers place on them with 
respect to some aspects of the business. As a policy matter, we do not 
wish to exclude all franchises, which may be an important route for 
disadvantaged individuals to enter the market. However, if the ties 
between franchiser and franchisee are so close as to constitute 
affiliation, then the franchisee could not participate as a DBE.
    With respect to partnerships, the basic requirement would be that, 
in addition to other control criteria, the non-disadvantaged partners 
cannot have the power, without the concurrence of the disadvantaged 
partners, to commit the partnership in a contract or to take actions 
that subject the partnership to contract or tort liability. On another 
subject, a sentence would be added to this section to clarify that, for 
control purposes, the socially and economically disadvantaged owners 
must own and control 51 percent of the voting stock. Finally, in 
response to issues that have been raised in certification appeals and 
in questions to DOT staff, the SNPRM adds a paragraph saying that to be 
viewed as controlling a firm, a disadvantaged owner cannot engage in 
outside employment or business interests that prevent the individual 
from devoting enough time and attention to his duties with the firm. 
For example, it is unlikely that an individual could control a full-
time firm while he spent only part of his or her time working with the 
business.

Section 26.63  What Are Other Rules Affecting Certification?

    This section includes several miscellaneous provisions concerning 
certification. One of them concerns the role of not-for-profit 
organizations in the DBE program. The December 1992 NPRM proposed to 
maintain the Department's long-standing policy of excluding such 
organizations. Thirty-three commenters agreed, citing such reasons as 
that the program was designed for entrepreneurs and that the not-for-
profit sector has a different, generally more favorable, tax status. 
Four commenters favored allowing not-for-profits to participate, 
because they often included useful community organizations, could help 
individuals with disabilities enter the program, and because some may 
specialize in technical assistance to DBEs. The Department will retain 
its existing policy. The basic purpose of this program is to assist 
firms in entering into and succeeding within the competitive business 
marketplace. Not-for-profit organizations are often very worthy and 
useful, but assisting them does not achieve this purpose. The different 
tax and legal status of not-for-profit organizations in most 
jurisdictions also weights against permitting them to be certified as 
DBEs in competition with for-profit businesses.
    The December 1992 NPRM proposed to specify that certification 
decisions be made on the basis of the present, not the past, status of 
the firm. Eleven comments supported this proposal, while five said that 
recipients should be able to take the firm's history into account in 
making certification decisions. We agree with one of the former group 
that said that this provision should not be construed to preclude a 
recipient taking action against a DBE for previous fraudulent or 
deceptive conduct that has come to light. We disagree with a comment in 
the latter group that suggested that if a firm applies for 
certification in Year 1, is turned down for lack of expertise on the 
part of the disadvantaged owner, and reapplies in Year 3 after the 
owner has acquired the needed expertise, the recipient should have 
discretion to refuse certification again based on the owner's lack of 
expertise in Year 1. If the owner now has enough expertise to control 
the firm, it is illogical to say that he or she is ineligible today 
because of a three-year-old expertise deficit that has since been 
corrected. Certainly no one would argue that a firm that was eligible 
three years ago must be retained as a certified DBE when its 
circumstances change so that it presently fails to meet ownership and 
control criteria. The same rationale applies in both directions.
    A few comments suggested that recipients should be able to use 
``commercially useful function'' as a certification or recertification 
criterion. The Department disagrees. ``Commercially useful function'' 
is a concept that concerns solely how credit is counted toward goals 
for a DBE that has already been certified. It is a contract-specific 
concept: a DBE may perform a commercially useful function on one 
contract but not on another. It has nothing to do with determining 
group membership, disadvantage, size, ownership, or control, which are 
the factors involved in certification. We agree with those comments 
that said that a pattern of conduct designed to evade program 
requirements, which can include such things as repeated instances of 
operating as a ``pass-through'' for prime contractors, can be taken 
into account in certification decisions, however.
    A few other commenters suggested that there should be, in effect, a 
prequalification standard for businesses seeking certification, so that 
only ``viable'' businesses entered the program. The Department believes 
that it is appropriate to require prequalification for DBEs only if 
prequalification is required for all contractors. To require more of 
DBEs than of other participants would, in our view, be discriminatory. 
Policy on prequalification is at the recipient's discretion, but the 
policy cannot single out DBEs. That is, it would be consistent with 
nondiscrimination requirements to require prequalification of DBE 
subcontractors only if all subcontractors are required to be 
prequalified. One suggestion that we received would, in fact, call for 
all subcontractors to be prequalified, DBEs as well as non-DBEs. The 
intent of the suggestion is to ensure, in advance, that all 
subcontractors are fully qualified, and to counter assertions that 
primes cannot find qualified DBEs. The Department seeks comment on this 
suggestion.
    The SNPRM continues to include provisions of the December 1992 NPRM 
that are derived either from uncontroversial Part 23 language or long-
standing DOT policy, concerning Indian tribal firms, cooperation with 
recipients' information requests, and the limited effect of legal or 
tax status of firms on determinations concerning independence. Except 
for one comment agreeing with the Indian tribal firms provision, there 
were no comments on these provisions. The SNPRM would change one NPRM 
provision, on which there was also no comment. The December 1992 NPRM 
proposed to allow certification of a subsidiary of a DBE firm. That is, 
if Company Q is a small business 51 percent owned and controlled by one 
or more certified DBE firms, then Company Q could be certified. On 
further reflection, we have decided that this proposal is inconsistent 
with the statutes underlying Part 26, which require DBEs to be owned 
and controlled by socially and economically disadvantaged individuals. 
If Company Q is owned by other business organizations, rather than by 
disadvantaged individuals, as such, then it would not be certified.

Subpart E--Certification Procedures

Section 26.71  What Are the Requirements for Unified Certification 
Programs?

    By better than a 4-1 margin, commenters endorsed the December 1992 
NPRM's proposal to establish unified certification programs (UCPs) in 
each state that would provide ``one-stop shopping'' to firms seeking 
DBE

[[Page 29571]]

certification. Eighty-two comments favored the proposal, 12 opposed it, 
and 9 either said UCPs should be optional or expressed concern that it 
would be difficult to obtain resources for this purpose.
    Among the comments favoring the proposal, most agreed that the 
present system's administrative burden on small businesses seeking 
multiple certifications was unduly heavy and that it led to a waste of 
recipient resources. Many of these comments favored regional 
certification as well, most on a voluntary but some on a mandatory 
basis. Some of the comments said that more time was needed to establish 
UCPs than the three years proposed in the December 1992 NPRM, though 
equal numbers of comments approved the three-year phase-in period or 
advocated quicker implementation (e.g., one or two years). Some 
comments asked questions concerning whether individual recipients could 
``veto'' UCP decisions with which they disagreed, whether there could 
be several regional mini-UCPs in a state as distinct from a single 
state agency, and whether the agencies would be required to follow DOT 
certification standards.
    Comments opposing or expressing concern about the concept said that 
a UCP would be too difficult to administer, would lessen local autonomy 
in certification decisions, lead to a ``lowest common denominator'' 
approach to certification, or would require funding and agency 
resources that comments said was probably unavailable.
    A related issue discussed by a substantial number of comments was 
mandatory reciprocity. Currently, and under the December 1992 NPRM, 
recipients have the discretion to accept certification decisions made 
by other recipients if they choose. Under mandatory reciprocity, a 
recipient would be required to accept other recipients' decisions. 
Twenty-six comments favored adopting mandatory reciprocity, at least 
within a state or region or particular industry, while 33 opposed the 
idea.
    Proponents cited mandatory reciprocity as a way of reducing the 
impact of multiple certification requirements on applicants, while 
opponents were concerned that mandatory reciprocity would lead to 
``least common denominator'' certification practices, where applicants 
would ``forum shop'' for recipients with less stringent certification 
processes, obtain certification, and then force these certifications on 
recipients who would otherwise not certify them.
    The SNPRM would adopt the UCP proposal with certain modifications 
that respond to commenters' concerns. Restructuring government programs 
to provide better and more economical services to customers, while 
making more efficient use of scarce resources, is consistent with the 
purpose of the Clinton Administration's Regulatory Reform Initiative. 
Introducing the UCP in DOT Federally-assisted programs is a step 
similar to many reforms adopted for the Federal government itself as a 
result of the National Performance Review.
    By providing one-stop shopping to small businesses seeking 
certification, this reform would reduce significant burdens on DBEs. 
Some comments estimated that going through the certification process 
one time can cost a business as much as $5000. Avoiding repetitions of 
this process within a state can save substantial money for these 
businesses. Moreover, if several recipients within a state have to 
review an application from the same firm, there is an obviously 
inefficient use of the recipients' collective resources. UCPs will 
avoid this costly duplication of effort. Given appropriate cooperation 
and sharing among the recipients in the state, operation of a UCP 
should save resources, not increase costs.
    The proposed UCP requirement takes fully into account the needs of 
recipients for flexibility and adequate time for negotiation and 
implementation of UCP agreements. Recipients within each state would 
have three years to form an agreement creating a UCP, with the 
possibility of a one-year extension if granted by the Secretary. The 
UCPs will have an additional 18 months after DOT approval of the 
agreement to become fully operational. The Department seeks comment on 
whether it is desirable and feasible to shorten these time periods 
(e.g., to two years for forming an agreement and a year for 
implementation).
    Moreover, the recipients in a state would have discretion to devise 
a type of UCP that best fits their needs. This SNPRM would not 
prescribe any particular administrative structure. Recipients could 
choose from among a number of types of UCPs listed in the regulation or 
construct a different structure of their choosing, which can be 
responsive to recipient concerns about resources, the role of local 
recipients, etc. Whatever structure is constructed would have to follow 
Part 26 certification standards and all other certification 
requirements applying to recipients, in whose shoes the UCP stands. It 
would also have to ensure genuine one-stop shopping, which means that 
individual recipients would have to accept UCP certification decisions.
    While mandatory reciprocity within recipients in a state is one 
optional way to structure a UCP, the SNPRM does not propose mandatory 
reciprocity among recipients or among UCPs, primarily because of 
concern about the ``least common denominator'' problem. (Nevertheless, 
the Department is interested in commenters views on whether nationwide 
mandatory reciprocity would be, on balance, a good idea.) The SNPRM 
would authorize, and DOT encourages, multistate UCPs and other regional 
cooperation ventures. DOT will work with recipients both to assist in 
setting up UCPs and in fostering regional arrangements.
    Commenters also addressed some implementation issues. Twenty-four 
comments favored, and seven opposed, a system that would require a firm 
to be certified in its ``home state'' before it could be certified in 
other states. Proponents believed this could reduce resource needs for 
out-of-state site visits and place basic certification responsibility 
on the recipients that are closest to the applicant and know the most 
about it. Opponents said this could lead to hardship for a firm who for 
some reason was on the wrong side of its local recipient, or which 
simply found it most expedient, for business reasons, to seek most of 
its work in a state other than the one in which it was domiciled. The 
SNPRM takes a middle ground on this issue, permitting UCPs (but not 
recipients prior to the establishment of UCPs) to decline to accept an 
application from a firm that had not first been certified by the UCP in 
the state in which it maintained its principal place of business. Home-
state certification would be much harder to implement before UCPs are 
in place (i.e., would it mean certification by any transit authority, 
airport, or state highway agency in the state? What if some home state 
recipients certified the firm and others did not?). Giving UCPs 
flexibility with respect to accepting out-of-state applicants not 
having home-state UCP certifications also is preferable to requiring 
home-state certification in all cases.
    The December 1992 NPRM had proposed that UCP certifications be 
``precertifications'' (i.e., certifications decided in advance of the 
proposed use of a firm to meet DBE goals on a particular contract). 
Commenters' opinion was split on this issue, with seven comments 
favoring and six opposing the proposal. The SNPRM would adopt this 
proposal for two reasons. First, certification under

[[Page 29572]]

pressure of a procurement deadline is more likely than precertification 
to lead to hurried, less adequate, certification decisions. Second, 
UCPs' resources and priorities are likely to be more effectively 
allocated in the absence of pressures from recipients to give 
precedence to processing an application involved in a pending 
procurement.
    Finally, it makes sense, once UCPs are in place, for the UCP, 
rather than individual recipients, to maintain the DBE directory. This 
directory would cover all firms certified by the UCP. Since so many 
agencies and businesses are now equipped with computer communications 
capability, this unified directory would be made available 
electronically as well as on paper.

Section 26.73  What Procedures Do Recipients Follow in Making 
Certification Decisions?

    The December 1992 NPRM listed a series of actions that recipients 
would be required to perform in each certification. They are 
essentially the same as those in the existing regulation. The only one 
of these to inspire significant comment was the requirement for a site 
visit. Fourteen commenters opposed mandatory site visits, while six 
favored mandatory site visits by each recipient (i.e., they opposed a 
provision in the December 1992 NPRM that would allow one recipient to 
rely on another recipient's site visit report). The opponents of 
mandatory site visits generally cited the cost and burden of carrying 
out this requirement, particularly when the firm seeking certification 
was located elsewhere. The Department cannot eliminate the requirement 
for site visits, because it is statutory. A recipient that fails to 
make site visits is out of compliance with the rule. On the other hand, 
allowing a recipient to make use of a site visit report compiled 
recently by another recipient can be a useful way of conserving 
resources, and the SNPRM would permit it.
    The December 1992 NPRM proposed to require recertification reviews 
of certified DBEs every two years; that a DBE would remain certified 
unless it were decertified through a decertification proceeding; and 
that a DBE had to notify the recipient of any changes in its 
circumstances that would affect its certification and submit a sworn 
statement at the time of the recertification review concerning any 
changes in the firm that could affect its eligibility. Eleven comments 
favored this general approach, three of which said that the process 
should be abbreviated (e.g., through the use of a short form or 
certification instead of a full-fledged review). Another comment said 
that recipients should not be permitted to force already-certified 
firms to reapply for certification on an annual or other periodic basis 
on the rationale that a certification had expired, allowing firms to be 
effectively decertified without due process. Most of these comments 
said that two years was an appropriate interval, though two said that 
annual recertification was preferable. Thirteen commenters supported 
the specific proposal that DBEs be required to report changes as they 
occur, a few of which asked for greater specificity in terms of what 
changes had to be reported and a few others of which suggested that the 
requirement would be difficult to enforce.
    The Department has decided, in response to comments, to modify the 
NPRM proposal in the SNPRM. First, the Department would retain the 
requirement for DBEs to submit an affidavit when there is a change in 
their circumstances that can affect certification. The rule would 
specify that the recipient must report changes affecting size, 
disadvantaged status, ownership, control, or any material changes to 
the information presented on the certification form. Second, in 
response to comments about simplifying the recertification process, and 
in order to reduce administrative burdens on DBEs and workload 
requirements on recipients, the SNPRM would drop the proposed 
requirement for a recertification review to be conducted by the 
recipient. (Recipients would remain free to conduct reviews of the 
status of firms at their discretion, however.) The SNPRM does include 
the requirement that the DBE would submit an annual affidavit that 
nothing in its circumstances has changed beyond what it has told the 
recipient and that it continues to meet size criteria (with supporting 
documentation).
    The December 1992 NPRM proposed that firms would remain certified 
unless the recipient decertifies them through a decertification 
proceeding. The proposal was based on the view that requiring frequent 
reapplications, besides imposing unnecessary paperwork burdens on DBEs 
that have already been through a certification process, tends to divert 
recipients' resources from new certifications and decertifications. 
These resources can better be used for reducing or avoiding 
certification backlogs. The Department continues to believe that this 
view has merit. However, we also believe that is inappropriate to 
require that DBEs remain certified indefinitely. As a means of 
accommodating both these concerns, the SNPRM would require that a 
recipient permit a firm to remain certified for three years without any 
``recertification'' or ``reapplication'' process, absent cause for 
decertifying the firm. The Department seeks comment on whether this 
period should be longer (e.g., five years).
    The December 1992 NPRM said that UCPs would have to make 
certification decisions within 60 days of receiving a complete 
application. Commenters were divided on this issue. Ten comments said a 
60-day period was not enough, suggesting that 90 days or a period of 
the recipient's discretion was more reasonable. Nine comments supported 
the 60-day period, saying that it was useful in preventing recipients 
from unduly delaying responses to applications. One of these said there 
could be a DOT waiver of the deadline. Three comments supported a 
shorter period, such as 15 or 30 days, suggesting that such a period 
was useful in preventing bureaucratic stalling. Many of the commenters 
on all sides of this issue discussed the deadline in terms of 
certifications in general, not just those to be performed by UCPs.
    The Department has decided, in response to these comments, to 
propose extending the deadline to 90 days, with a possibility of a 60-
day extension of this period if the recipient sends a specific written 
explanation to the applicant. The Department is persuaded that a 60-day 
deadline is unrealistic in light of the certification workloads facing 
many recipients. However, a deadline remains necessary to give firms 
the assurance of reasonably timely handling of their applications. With 
the approval of the concerned operating administration, the recipient 
could alter the deadline involved, but the appropriate DOT office would 
be very careful to grant only what relief is necessary to recipients.
    One issue that has arisen since the publication of the December 
1992 NPRM is whether recipients should be able to impose user fees or 
other charges on applicants for certification. Recipients have taken 
different positions on this issue, and the Department's rule provides 
no guidance on the issue. The Department has decided to propose that 
recipients may impose a modest, reasonable application processing fee, 
not to exceed the actual cost of processing the application. Such a fee 
would have to be approved by the concerned operating administration as 
part of the DBE program approval process. The Department seeks comment 
on whether there should be a cap on such fees.

[[Page 29573]]

    Under Part 23, the Department published a model certification form 
(Schedule A). Recipients had discretion to modify this form. This led 
to a proliferation of somewhat similar forms that often differed 
significantly in their details, leading to confusion and difficulty for 
those applicants who sought certification in more than one 
jurisdiction. Based in part on the Department's experience in our drug 
testing program, where a similar approach created similar problems for 
participants, the December 1992 NPRM proposed requiring the use of a 
standard, uniform, form by all recipients. Commenters were divided on 
this proposal. Twenty-four comments favored the idea of a single 
nationwide form. Two additional comments advocated allowing recipients 
to add material to the standard form. Twenty commenters preferred the 
approach of the existing rule, with a model form that recipients could 
modify. A number of commenters suggested specific modifications to the 
form published with the December 1992 NPRM.
    The Department believes that requiring a single, uniform, 
nationwide form that all recipients must use without modification is 
the best approach to take. Many firms seek certification with more than 
one recipient. Having them have to fill out somewhat different forms 
providing the same basic substance to different recipients (as distinct 
from photocopying a standard form they have already filled out) is a 
waste of their time and money. The same Part 26 standards apply to all 
these certifications. Each recipient needs the same information to make 
determinations according to these standards. When UCPs become 
operational, each UCP (particularly those UCPs that rely on centralized 
or relatively centralized structures) will presumably need to have a 
standard form. Under these circumstances, we do not believe that 
allowing different recipient forms is productive. However, as a few 
comments suggested, we will allow recipients to supplement (not alter) 
the standard form to capture additional information that is consistent 
with Part 26 requirements and reasonably necessary for program 
administration. Such supplements will have to be approved by the 
concerned operating administration as part of the recipient's DBE 
program.
    The SNPRM incorporates this policy decision. We are also requesting 
renewed comment on the content and format of the standard form, 
including examples of existing forms that commenters would recommend 
and suggestions about how to make the form both complete and user-
friendly. We are also seeking comment on whether, at least when UCPs 
are operational, we should require that they have a capability of 
accepting application forms electronically. To assist commenters in 
formulating responses, we are publishing in Appendix C to the SNPRM a 
proposed form, but the Department is not committed to adopting the 
specifics of this form.

Section 26.75  What Rules Govern Recipients' Denials of Initial 
Requests for Certification?

    The December 1992 NPRM proposed that, within 30 days of a 
recipient's denial of an application, the applicant could fix problems 
that had led to the denial, and resubmit a revised application to the 
recipient for consideration at that time. Two comments favored this 
proposal, while 18 opposed it, mostly out of concern that repeated 
resubmissions within a short period of time would waste agency 
resources. Some commenters were also concerned that it would lead to 
successful resubmissions based on little more than rearranging 
paperwork. The Department believes that the opponents of this proposal 
have the better of this argument, and we are not adopting this 
proposal. However, recipients should allow applicants to correct minor 
paperwork errors or non-material mistakes or omissions in applications 
before rejecting the application.
    The December 1992 NPRM proposed that after an application was 
denied, the recipient could set a waiting period of 6-12 months before 
the firm could reapply. Eighteen comments supported a 12-month waiting 
period, 12 supported a shorter period (generally 3-6 months), two 
supported a longer period (12-18 months), five supported letting 
recipients have discretion in establishing a waiting period, and two 
advocated having no waiting period. The Department believes that 12 
months is long enough to meet recipients' concerns about avoiding 
wasting their resources on rapidly repeating reapplications and is also 
consistent with the reported practices of most recipients who 
commented. A longer period would have too harsh an impact on potential 
reapplicants. Therefore, the SNPRM proposes a waiting period of no more 
than 12 months. If a recipient wants to establish a shorter waiting 
period (e.g., 3, 6 or 9 months), it can seek approval from the relevant 
DOT administration as part of its DBE program.
    The December 1992 NPRM also proposed that the recipient must notify 
a firm of the denial of its application in writing, with a written 
explanation of the reasons for the denial. The explanation would have 
to specifically reference the evidence in the record supporting each 
reason for the denial. Six comments supported this proposal, while 
another five wanted additional due process protections (e.g., 
equivalent to those required in decertification proceedings). The 
Department has decided to retain the NPRM provision, which we believe 
provides sufficient protection to applicants in initial denial 
circumstances. We do not believe that the additional due process 
protections needed in decertifications (where a recipient is proposing 
to take away from a firm an existing status, which takes on some of the 
character of a property interest) are essential here.

Section 26.77  What Procedures Does a Recipient Use To Remove a DBE's 
Eligibility?

    The December 1992 NPRM proposed a set of procedures to govern 
recipient's decertification proceedings. Comments focused on a 
relatively small number of the procedural points proposed in the 
December 1992 NPRM. The subject of the most comments was the proposal 
that decertification actions must provide administrative due process 
protections to DBEs, particularly that separation of functions be 
incorporated into the procedure.
    By separation of functions, we mean the principle that, to preserve 
the fairness of a proceeding, the proponent of an action should not 
also be the decisionmaker. A prosecuting attorney, for example, is not 
permitted to serve as the judge or jury. Likewise, the December 1992 
NPRM said, a recipient official who proposes that a firm be decertified 
should not be the same official who decides whether or not the proposal 
has merit. Fourteen comments supported the separation of functions 
proposal, a few of whom said that a requirement for administrative law 
judges (ALJs) or other officials completely separate from the 
recipient's DBE certification office would be even better. Eight 
commenters opposed the proposal, many in the apparent belief that it 
would require the use of ALJs, the hiring of extra personnel.
    With respect to the more general issue of administrative due 
process (e.g., requirements for notice, the opportunity for a hearing, 
written statement of reasons for a decision, etc.), 21 comments 
supported the proposal to require these protections. Five comments 
opposed the proposal, generally saying that it was too burdensome.

[[Page 29574]]

    The Department believes that it is essential to provide 
administrative due process to DBEs when recipients propose to decertify 
them. Basic requirements like notice, the opportunity for a hearing on 
the record, separation of functions, and a written statement of reasons 
for a decision are necessary to avoid the appearance, and sometimes the 
reality, of arbitrary decisions. Through the Department's certification 
appeals process, we have become aware of situations in which these 
protections have not been provided. For the sake of fairness to 
participants, and to uphold the legitimacy of the program, this must 
change. In addition, DBE certification may take on, to a degree, the 
character of a property interest. Taking away an interest in property 
without appropriate due process raises issues under the 5th and 14th 
Amendments to the Constitution.
    Separation of functions is one of the most important features of 
administrative due process, since it avoids a major potential source of 
unfairness. Clearly, if a DBE owner walks into a proceeding and sees, 
in the role of the decisionmaker, the same official who proposed to 
decertify the firm, the owner may well have a justified perception that 
the deck is stacked against the company. We would emphasize that 
separation of functions can be provided in a number of ways, and it 
does not require hiring ALJs or other ``outside'' personnel. For these 
reasons, the SNPRM adopts, with minor modifications (e.g., a 
simplification of the notice procedure, a change requested by several 
comments), the administrative due process proposals of the December 
1992 NPRM.
    There were eight comments on the issue of the burden of proof in a 
decertification proceeding, equally divided between those who agreed 
with the December 1992 NPRM that the recipient should have the burden 
of proving the firm should not be certified (including one that said 
the recipient should have to carry its case by a ``clear and convincing 
evidence'' standard) and those who said that the firm should have the 
burden of proving it should remain certified. The SNPRM would continue 
to require the recipient to carry the burden of proof. In virtually all 
proceedings in the U.S. legal system, the proponent (e.g., the state in 
a criminal proceeding, the plaintiff in a civil suit, the agency in a 
regulatory enforcement proceeding) bears the burden of proof. We do not 
think that adopting a system contrary to this NPRM would be fair or 
appropriate. Moreover, the DBE, to become certified in the first place, 
has had to carry a burden of proof. It is reasonable to ask the 
recipient to carry the burden to remove the certification. We believe 
that it is appropriate to apply the preponderance of the evidence 
standard--the same standard that the DBE must meet to be certified--to 
attempts by the recipient to decertify the firm.
    A few commenters said that recipients should be able to accept 
anonymous complaints, which the December 1992 NPRM proposed to 
prohibit. The SNPRM would change this provision so that recipients are 
not required to accept such complaints, though they may. The December 
1992 NPRM also proposed that DOT could act to suspend a firm's 
certification and direct a recipient to start a decertification 
proceeding. Three comments objected to this proposal. The SNPRM would 
modify this provision. Concerned operating administrations would have 
the discretion to direct a recipient to initiate a proceeding when the 
Department reasonably believes that a certified DBE is ineligible. 
However, DOT would not assert the authority to suspend the firm's 
certification pending the outcome of the recipient's proceeding.
    One of the grounds for decertification in the December 1992 NPRM 
was a documented finding that the recipient's previous decision to 
certify a firm was clearly erroneous. The intent of this provision was 
to prevent a recipient from decertifying a firm on the basis of nothing 
more substantial than a change of mind about an unchanged set of facts. 
Three commenters questioned this proposal, saying that a recipient 
should be able to reopen a certification, at least if there were an 
error. One suggested modifying the language to refer to a ``substantial 
evidence'' rather than ``clearly erroneous'' standard. Another 
supported the NPRM language. The standard applying to all 
decertifications is that the recipient demonstrate by a preponderance 
of the evidence that the firm does not meet eligibility standards. It 
would be confusing to introduce another standard here, so we are 
removing reference to the ``clearly erroneous'' standard. While we are 
not adopting the ``substantial evidence'' standard here (it is more 
appropriate as a standard in reviews of administrative proceedings, as 
distinct from de novo proceedings like this), we do think that the 
emphasis of this standard on factual backing for determinations is 
appropriate.
    The point of this provision is to allow recipients to correct 
factual mistakes that resulted in certifications, not to reverse 
judgment calls. For this reason, this SNPRM refers to situations when a 
previous certification was factually erroneous.
    The December 1992 NPRM proposed that if a firm was decertified in 
the midst of a contract, the remainder of its performance would not 
count toward contract or overall goals, since it was no longer a DBE. A 
few comments suggested allowing the remainder of the contract to count 
at least toward contract goals, assuming that the prime contractor had 
used the firm in good faith. We have decided to adopt this comment. The 
remainder of the contract would not count toward the recipient's 
overall goal, however.
    As a general matter, it is not appropriate to remove a firm's 
eligibility until the recipient has determined that the firm is 
ineligible. However, there may be situations in which the case against 
a firm looks very strong, but the process will not conclude before the 
firm is awarded a contract. In this case, the SNPRM proposes that the 
recipient can suspend the firm's eligibility to receive new contracts, 
pending the outcome of the proceeding. This would be a sort of 
administrative preliminary injunction designed to protect the program 
from harm.
    There was not significant comment on the remainder of the proposed 
section, and the SNPRM would adopt it with minor modifications (e.g., a 
cross-reference to SBA regulations has been dropped, given that 
Appendix F, which is adapted from SBA rules, provides guidance 
concerning social and economic disadvantage issues).

Section 26.79  What is the Process for Certification Appeals to the 
Department of Transportation?

    Part 23 lacked specific procedures for certification appeals. The 
Department's procedures for handling appeals evolved as a matter of 
informal practice. The December 1992 NPRM proposed filling in this gap. 
Commenters focused on a few points of the proposed procedures.
    The December 1992 NPRM proposed that DOT would decide appeals 
within 60 days of receiving a complete administrative record. Six 
comments suggested a shorter period (e.g., 30 days) or a longer period 
(e.g., 90 days); others favored no stated period at all, lest there be 
reversals or affirmances through inaction; and 12 comments favored the 
NPRM proposal, some of which supported affirmances or reversals when 
the time frame was not met. The SNPRM notes that, while we would 
administratively set a goal of 90 days for finishing appeal decisions 
once a complete administrative record is acquired, a regulatory time 
frame would

[[Page 29575]]

not be advisable, particularly given the often heavy workload of 
certification appeals. In short, we do not want to promise what we 
cannot ensure delivering. We think that affirmances or reversals 
resulting from failure to meet a self-imposed deadline, rather than on 
the merits of the appeals, would be inconsistent with the purposes of 
the appeals system.
    Currently, firms have 180 days after a denial or decertification to 
make a certification appeal. The NPRM proposed reducing that number--
which was based on the amount of time used for Title VI complaints--to 
90 days, since firms always would have specific notice of the 
recipient's action on which to base an appeal. Four of the five 
comments on this issue supported the change, which the SNPRM 
incorporates for the reason stated above. This change would help the 
system run reasonably quickly, and provide closure for recipient 
decisions that are not appealed promptly.
    The December 1992 NPRM proposed that, as under Part 23, the effects 
of a recipient's decision would remain in force pending the DOT appeal. 
For instance, a firm that the recipient had decertified would stay 
decertified unless and until DOT reversed the recipient's decision. 
Sixteen comments supported this position, while two said that DOT 
should grant stays of recipients' actions in appropriate cases. The 
SNPRM adopts the NPRM provision.
    In the December 1992 NPRM, the Department proposed that we would 
reverse a recipient's decision if we found that it was unsupported by 
substantial evidence or inconsistent with this regulation. Nine 
comments supported the proposal, while six preferred a different 
standard, such as ``arbitrary and capricious.'' Both the ``substantial 
evidence'' and ``arbitrary and capricious'' standards are used for the 
judicial review of administrative action, a function which is analogous 
to the role of the Department in the certification appeals process. The 
standards are closely linked, and there is no ``bright line'' between 
them in most administrative law cases. For example, courts will 
sometimes say that an agency decision is arbitrary and capricious 
because it is not supported by substantial evidence.
    Generally, the ``arbitrary and capricious'' standard is viewed as 
slightly narrower, with courts considering whether the agency's 
decision was based on a consideration of the relevant factors and 
whether there has been a clear error in judgment. If there was a 
rational basis for the agency's decision, court decisions say that 
courts should not substitute their judgment for that of the agency. The 
``substantial evidence'' test is said to go to the reasonableness of 
what the agency did on the basis of the evidence before it. 
``Substantial evidence'' must do more than create a suspicion of the 
fact to be established, requires objective evidence affording a 
rational basis for the agency's conclusions, and must be capable of 
convincing an unprejudiced ``reasonable person'' of the truth or 
validity of the agency's findings. It is less than a preponderance of 
the evidence, however. There can be ``substantial evidence'' supporting 
the agency's conclusion even though the record would also support a 
different conclusion. Use of the ``substantial evidence'' standard 
implies a somewhat more intensive inquiry into the facts of the case by 
the reviewing body than the ``arbitrary and capricious.'' Under either 
standard, inconsistency with governing law is a ground for invalidating 
an agency's finding.
    The SNPRM uses ``substantial evidence'' as the standard for review 
of agency certification decisions. The Administrative Procedure Act 
(APA) uses this standard for cases ``reviewed on the record of an 
agency hearing provided by statute'' (5 U.S.C. 706(2)(E)). In this 
process, DOT is acting in a role analogous to that of a court reviewing 
agency action. DOT is reviewing cases on the record of a recipient 
hearing provided by, in this case, Part 26. The same considerations 
that support using this standard in court review of agency action, such 
as the desirability of authorizing a reasonably limited inquiry into 
the factual basis of the agency's decision, apply in the case of 
certification appeals. Under the APA, the ``arbitrary and capricious'' 
standard applies not to adjudications by agencies but to their more 
purely administrative actions, such as issuing regulations and adopting 
environmental impact statements. We believe the APA model is an 
appropriate one for DOT to use in responding to certification appeals.
    Two comments said that DOT should hold hearings in certification 
appeal cases. Such hearings are not appropriate to a review of an 
administrative record. Two other comments said that a firm should have 
to pay for a transcript when it appeals. To make possible the 
administrative review of the record, a recipient who does not already 
have a transcript of the hearing will have to prepare it to send to 
DOT. The only appropriate charge to the company, in our view, is for 
the cost of photocopying the transcript, not for its preparation. 
Twenty-five commenters supported the Department having an improved 
indexing/retrieval system for certification appeal decisions. The 
Department agrees that this is desirable, and we will work to establish 
such a system for decisions rendered under Part 26. We hope to utilize 
existing or planned computer bulletin boards in the Department to make 
certification appeal decisions, as well as guidance, interpretations, 
etc. of Part 26 available to the public electronically.

Section 26.81  What Actions do Recipients Take Following DOT 
Certification Appeal Decisions?

    This section concerns what happens to recipients' certification 
actions concerning a firm--including those of recipients other than the 
one whose decision was appealed to DOT--following a DOT certification 
appeal decision. The December 1992 NPRM proposed that certification 
appeal decisions would be binding only on the recipient from whom the 
appeal was taken. Most of the comment on this section concerned the 
effects on other recipients.
    Twenty-four comments said that other recipients should be able to 
adopt the Department's certification appeal decisions as their own, 
without the necessity of conducting further proceedings of their own. 
That is, if State A decertified Company X, and DOT upheld the 
decertification, then States B, C, etc. should be able to decertify 
Company X without being required to go through a Sec. 26.77 
decertification proceeding. Most of these comments did not discuss 
automatically certifying firms when DOT overturned a recipient's 
denial. Nine comments said that other recipients should have to go 
through their own due process procedure, rather than automatically 
taking action to follow a DOT decision.
    As a legal matter, it would be inappropriate for recipients, other 
than the recipient directly involved in the appeal, to automatically 
take action to certify or decertify firms based on the outcome of a DOT 
certification appeal. This is because the nature of a DOT certification 
appeal proceeding. DOT is not, as such, determining whether a firm 
meets Part 26 eligibility criteria. All DOT is determining is whether a 
particular recipient's decision about a firm's eligibility is supported 
by substantial evidence and consistent with Part 26 standards. Under 
the substantial evidence standard, the Department can uphold a 
recipient's decision as supported by substantial evidence even though 
an alternative decision could also be supported by

[[Page 29576]]

substantial evidence. The Department could reverse a recipient's 
decision as unsupported by substantial evidence even though another 
recipient could have substantial evidence to come to the same result. 
The Department's decision is necessarily specific to the administrative 
record of the particular recipient involved and is not a legally 
definitive statement about the eligibility of the firm. The Department 
recognizes that it would be possible for the Department to uphold 
different decisions on the eligibility of a firm by different 
recipients, if both met the substantial evidence test.
    Consequently, when a DOT certification appeal decision upholds or 
directs a denial of eligibility to a firm, this would provide a basis 
for other recipients to initiate a decertification proceeding, but they 
must go through such a proceeding to decertify the firm. Where DOT's 
action results in a firm being certified, this fact would be taken into 
account by other recipients to whom the firm is applying, but it would 
not result in automatic certifications elsewhere. The Department's 
decision, and its reasoning, would be taken into consideration by other 
recipients in their proceedings.
    Other parts of the NPRM proposal for this section were not the 
subject of comment, and the SNPRM adopts them without substantive 
modification.

Section 26.83  What Procedures Govern Direct Ineligibility Complaints 
to DOT?

    Under the existing Part 23, the Office of Civil Rights has accepted 
so-called ``third party complaints,'' in which a party complains that a 
recipient has erroneously certified a firm. The NPRM did not include 
such a mechanism, on the basis that DOT's most useful role was the 
administrative review of the record of proceedings held at the 
recipient level. Nevertheless, there may be situations in which it is 
important for the Department to take a direct hand in responding to an 
ineligibility complaint.
    To handle these situations, the SNPRM proposes that any person may 
file a direct ineligibility complaint. The Office of Civil Rights would 
have complete discretion concerning the disposal of the complaint. It 
could accept the complaint, decline to accept it, or refer it to the 
appropriate recipient for action. In no case would the Department be 
required to accept such a complaint; nor would it have to offer 
explanation for not accepting it.
    If the Office of Civil Rights accepted the complaint, it would 
follow essentially the same procedure as a recipient would in a 
Sec. 26.79 ineligibility complaint. As in the case of a recipient, the 
Department could invoke the ``administrative preliminary injunction'' 
procedure in an appropriate case.

Subpart F--Compliance and Enforcement

    Sections 26.91-26.99 concern compliance and enforcement procedures 
under the rule. They were the subject of little comment. One comment 
favored leaving them as they were in the December 1992 NPRM. Five 
comments supported including additional measures, such as requirements 
for liquidated damages or making more use of the Program Fraud Civil 
Remedies Act of 1986 (PFCRA). Five comments supported the use of 
suspension and debarment remedies for program abuses, while six others 
said that this remedy should be limited to cases of indictment or 
conviction for criminal offenses (some of these said suspension should 
only be used where there has been a conviction).
    The SNPRM retains the enforcement provisions of the December 1992 
NPRM with little change. We are adding a specific reference to PFCRA. 
We are also deleting paragraphs discussing decertification in cases of 
criminal conduct, since we believe suspension and debarment remedies 
are adequate to deal with DBEs involved in criminal offenses. 
Recipients would retain discretion to begin decertification proceedings 
concerning DBEs involved in criminal activity, however. Under normal 
suspension and debarment practice relating to criminal offenses, a firm 
may be suspended when it is indicted but is only debarred following 
conviction. The Department will follow this practice in suspension and 
debarment actions related to criminal activity in the DBE program.

Subpart G--DBE Participation in Airport Concessions

    On October 3, 1993, the Department published an NPRM in the Federal 
Register, proposing to revise its DBE program requirements applicable 
to airport concessions. (58 F.R. 52050) The NPRM proposed to implement 
statutory provisions which would allow airport sponsors to count new 
forms of DBE participation toward the overall goals of a DBE concession 
plan. These new forms include purchases from DBEs of goods and services 
used in the operation of a concession, as well as management contracts 
and subcontracts with DBEs. To make these and other changes, the 
Department proposed to amend Subpart F of 49 CFR Part 23, DOT's 
existing DBE rule.
    The statutory provisions authorizing these changes were cited in 
the NPRM as Sections 511(a)(17) and 511(h) of the Airport and Airway 
Improvement Act (AAIA) of 1982, as amended by Section 117 of the 
Airport and Airway Safety, Capacity, Noise Improvement, and Intermodal 
Transportation Act of 1992 (Pub. L. 102-581). The AAIA and other 
transportation statutes were repealed effective July 5, 1994, by Public 
Law 103-272 and have been recodified in title 49 of the United States 
Code (U.S.C.). The recodification does not change substantively the 
legal authority of the DOT or the Federal Aviation Administration (FAA) 
or any prior interpretations of that authority, but is merely a 
restatement of the authority granted under prior statutes using 
different language and a reordering of provisions.
    In accordance with this change, the Department will cite title 49 
of the U.S.C., rather than the AAIA or any act which amended it, as 
authority for administering the DBE program. References to the Airport 
Improvement Program (AIP) will continue to be made, however.
    49 U.S.C. 47107(e) (formerly Sections 511(a)(17) and (h) of the 
AAIA) provides as follows:

    (e) Written Assurances of Opportunities for Small Business 
Concerns.--
    (1) The Secretary of Transportation may approve a project 
application under this subchapter for an airport development project 
only if the Secretary receives written assurances, satisfactory to 
the Secretary, that the airport owner or operator will take 
necessary action to ensure, to the maximum extent practicable, that 
at least 10 percent of all businesses at the airport selling 
consumer products or providing consumer services to the public are 
small business concerns (as defined by regulations of the Secretary) 
owned and controlled by a socially and economically disadvantaged 
individual (as defined in section 47113(a) of this title).
    (2) An airport owner or operator may meet the percentage goal of 
paragraph (1) of this subsection by including any business operated 
through a management contract or subcontract. The dollar amount of a 
management contract or subcontract with a disadvantaged business 
enterprise shall be added to the total participation by 
disadvantaged business enterprises in airport concessions and to the 
base from which the airport's percentage goal is calculated. The 
dollar amount of a management contract or subcontract with a non-
disadvantaged business enterprise and the gross receipts of business 
activities to which the management contract or subcontract pertains 
may not be added to this base.
    (3) Except as provided in paragraph (4) of this section, an 
airport owner or operator may meet the percentage goal of paragraph 
(1) of this subsection by including the purchase from disadvantaged 
business enterprises of goods and services used in businesses 
conducted at the airport, but the

[[Page 29577]]

owner or operator and the businesses conducted at the airport shall 
make good faith efforts to explore all available options to achieve, 
to the maximum extent practicable, compliance with the goal through 
direct ownership arrangements, including joint ventures and 
franchises.
    (4)(A) In complying with paragraph (1) of this subsection, an 
airport owner or operator shall include the revenues of car rental 
firms at the airport in the base from which the percentage goal in 
paragraph (1) is calculated.
    (B) An airport owner or operator may require a car rental firm 
to meet a requirement under paragraph (1) of this subsection by 
purchasing or leasing goods or services from a disadvantaged 
business enterprise. If an owner or operator requires such a 
purchase or lease, a car rental firm shall be permitted to meet the 
requirement by including purchases or leases of vehicles from any 
vendor that qualifies as a small business concern owned and 
controlled by a socially and economically disadvantaged individual.
    (C) This subsection does not require a car rental firm to change 
its corporate structure to provide for direct ownership arrangements 
to meet the requirements of this subsection.
    (5) This subsection does not preempt--
    (A) a State or local law, regulation, or policy enacted by the 
governing body of an airport owner or operator; or
    (B) the authority or a State or local government or airport 
owner or operator to adopt or enforce a law, regulation, or policy 
related to disadvantaged business enterprises.
    (6) An airport owner or operator may provide opportunities for a 
small business concern owned and controlled by a socially and 
economically disadvantaged individual to participate through direct 
contractual agreement with that concern.
    (7) An air carrier that provides passenger or property-carrying 
services or another business that conducts aeronautical activities 
at an airport may not be included in the percentage goal of 
paragraph (1) of this subsection for participation of small business 
concerns at the airport.

    The NPRM was drafted based on the language in the AAIA, and 
redrafting the rule to reflect the recodification would be cumbersome. 
Thus, when appropriate, the SNPRM (as well as this preamble) uses the 
language in the AAIA. Final rule language will be modified, as needed, 
to conform to the recodified version of the statute.
    Of the entities that submitted comments to the October 1993 NPRM, 
16 are minority or female owners of car dealerships. Of these, 13 
submitted comments in advance of publication of the NPRM. Five industry 
associations commented. These include the Airport Minority Advisory 
Council (AMAC); American Bar Association (ABA); American Car Rental 
Association (ACRA); Airports Council International--North American 
Region (ACI-NA); and National Automobile Dealers Association (NADA). 
Representatives of ten airport operators or owners (sponsors) commented 
individually. Representatives of 5 car rental agencies also commented 
individually, including Alamo Rent a Car, Inc.; Avis Rent a Car System, 
Inc.; Dollar Systems, Inc.; the Hertz Corporation; Thrifty Rent-a-Car 
System. Thrifty and Dollar submitted comments jointly, while Avis and 
Hertz each filed several comments. Hertz filed its major papers jointly 
with ACRA. The remaining comments (9) came from Congresswomen Eleanor 
Holmes Norton and Cardiss Collins; the Small Business Administration 
(SBA); two DBEs that are not car dealers; Host Marriott Corporation; 
Tie Rack, Plc; Smarte Carte, Inc., and one consulting firm.
    Much of proposed Subpart G in this SNPRM reflects the Department's 
response to comments on the October 1993 NPRM. Subpart G also includes 
proposals for revising overall goals and contract goals based on 
Adarand and proposed implementing guidance issued by the Department of 
Justice. Generally, the Department intends to employ the same 
methodology in revising the concession program as the DOT-assisted 
contracting program. Following the close of the comment period, the 
Department expects to publish a final rule setting forth the concession 
provisions in Subpart G to 49 CFR Part 26. This subpart will respond to 
comments to this SNPRM and the comments to the October 1993 NPRM.
    The following analysis includes a discussion of the Department's 
response to comments on the October 1993 NPRM. As with the other 
portions of this rule, we request that commenters focus on those 
matters responsive to Adarand and issues on which the Department 
specifically requests comment.

Section 26.101  Definitions

    In one of several matters unrelated to the grant legislation or to 
Adarand, the October 1993 NPRM proposed to modify the definition of 
``affiliation.'' Subpart F of 49 CFR Part 23, as issued in 1992, 
incorporated the definition of the term from Sec. 121.401 of the SBA's 
regulation, 13 CFR Part 121. The Department chose to adopt the SBA 
definition but was not required by the statute to do so. 49 U.S.C. 
Sec. 47107(e) delegates authority to the Secretary to designate size 
standards for the concession program.
    As set forth in 13 CFR Sec. 121.401(l), affiliation may arise 
through a joint venture agreement, requiring the parties thereto to 
combine their gross receipts in making a determination of business 
size. The NPRM proposed to delete Sec. 121.401(l) from the definition 
employed in the concession program.
    Based on a review of the comments, the SNPRM retains this provision 
as proposed. Of five comments submitted to the docket which address the 
matter, four are generally supportive, while one is opposed. Two 
commenters are concerned that DBEs qualifying under the SBA's existing 
definition may have trouble competing against joint ventures involving 
a very large firm and a DBE. Another commenter, writing in support of 
the change, opposes any restrictions on a DBE owning an interest in 
another firm. This commenter points out that in the concession area, 
operations often are organized under separate businesses at individual 
airports, and separate partnerships often are established.
    The Department does not believe that this provision would adversely 
affect a significant number of DBEs meeting SBA's definition of 
affiliation. The SNPRM does not require modification or abrogation of 
existing concession agreements during their term. Thus, if a DBE 
meeting SBA's affiliation standards currently operates a concession, 
its concession agreement could not be disturbed during the remainder of 
the term. Further, any DBE could compete for the award of future 
concession contracts by forming joint ventures or other eligible 
arrangements under the revised standard. The Department believes that 
joint ventures can offer DBEs a viable means of participating in a 
direct ownership arrangement when a lease, sublease, or other 
arrangement is not feasible.
    The Department does not concur that all affiliation requirements 
should be suspended, and the NPRM did not propose this. Only Section 
121.401(l) of 13 CFR Part 121, pertaining to joint ventures, has been 
deleted from the definition of ``affiliation'' used in the concession 
program. All other provisions of Section 121.401 would be retained. 
Under the remaining provisions, affiliation can arise through a variety 
of other arrangements, such as through an identity of interest, through 
stock ownership, or through common management. We also point out that 
the affiliation standards set forth in 13 CFR Part 121 apply regardless 
of the location of the businesses. To illustrate: if the same socially 
and economically disadvantaged individual owns 100 percent and clearly 
exercises management control over a retail concession at an airport and 
two other businesses located off-airport, the firms are affiliated. The 
gross receipts earned by all three would be summed in

[[Page 29578]]

determining the size of the airport concession.
    The SNPRM also would amend the definition of ``concession'' to 
exclude long distance telephone service. The proposed change is 
intended to formalize 1993 administrative guidance issued by the FAA. 
The FAA concluded that facilities operated by long distance carriers 
generally are not ``located at an airport'' as provided in the 
definition of a concession and thus, should be excluded from the 
program. Local pay telephone service, by contrast, generally qualifies 
as a concession and hence, would be subject to the requirements of the 
rule.
    In further regard to the term ``concession,'' one commenter 
apparently advocates inclusion of car rentals in the definition if the 
firm holds a license or permit to pick up or deliver customers to 
airport terminals. Another organization comments to the contrary, 
stating that there is no evidence that Congress envisaged such an 
extension to the program. The Department concurs with the latter 
position and, to date, the rule has been administered using this latter 
approach. Since this matter has been the source of some confusion, the 
SNPRM proposes to clarify it.
    As proposed, the SNPRM states that a car rental firm servicing the 
public from an on-airport facility is deemed ``at the airport,'' while 
one that only picks up and/or delivers customers to the airport is not 
so regarded. The same principle would apply to taxicabs, limousines, 
hotels, and other businesses. In a related matter, an off-airport hotel 
that maintains a direct telephone in a terminal building would not be 
considered ``at the airport,'' while a hotel doing business anywhere on 
airport property would be so regarded.
    The SNPRM would further clarify that any firm meeting the 
definition of ``concession'' is covered by the program, regardless of 
the name given to its legal agreement with the sponsor or other 
organization.
    The SNPRM proposes to add a definition of ``direct ownership 
arrangement.'' The term appears in the legislation at 49 U.S.C. 
Sections 47107(e) (3) and (4). Section 47107(e)(3) names ``joint 
ventures'' and ``franchises'' as examples of direct ownership 
arrangements. Under the proposed definition in the SNPRM, such 
arrangement is one in which a firm owns and controls a concession. 
``Subleases'' and ``partnerships'' are other examples of direct 
ownership arrangements that the SNPRM proposes to reference.
    Four commenters favor expanding the definition of ``management 
contract or subcontract'' to include firms hired by concessionaires. 
The October 1993 NPRM limited the scope of the term to only those firms 
hired by sponsors. Although the statute does not define the term, 49 
U.S.C. Section 47107(e)(2) explicitly provides for counting DBE 
management contracts and subcontracts toward a sponsor's overall goal. 
However, the legislation is devoid of any reference to counting such 
contracts toward a goal imposed on a concessionaire.
    Furthermore, as set forth in Section 47107(e)(2), when a sponsor 
counts a management contract or subcontract with a DBE toward its 
overall goal, the gross receipts earned by the business activity to 
which the management contract applies must be excluded from the base. 
Section 47107(e)(2) also explicitly requires exclusion of the dollar 
value of management contracts or subcontracts with non-DBEs from the 
base.
    Thus, if the definition of a management contract is expanded as 
these commenters request, the gross receipts accrued by a non-DBE 
concessionaire that hires a DBE management contractor or subcontractor 
would presumably be excluded from the base. In such case, the only 
expenditures from the concession added to the base would be the value 
of the DBE management contracts and/or subcontracts, as well as any 
goods or services purchased or leased from DBEs, if such provisions 
apply. DBE participation in the concession would necessarily equal 100 
percent, even though the concessionaire is a non-DBE. To take another 
example, if a non-DBE concessionaire hires a non-DBE management 
contractor and purchases no goods or services from DBEs, no 
expenditures or gross receipts from the concession would be added to 
the base.
    The Department concludes that expanding the scope of the term 
management contract could result in calculating overall DBE goals from 
a base which is not inclusive of all concession gross receipts. This, 
in our view, would conflict with 49 U.S.C. Section 47107(e)(1), which 
requires overall goals to be calculated as a percentage of the gross 
receipts from all concessions (in the case of a sponsor that uses gross 
receipts, rather than number of concession agreements, as the base.) 
Further, adopting an expanded definition of management contract could 
allow an airport to achieve a high percentage of DBE participation, 
while not reporting substantial gross receipts accrued by non-DBE 
concessions.
    Since we have no indication that Congress intended such results, we 
do not propose to expand the scope of the term beyond those agreements 
with airport sponsors. However, under the SNPRM, managerial services 
procured by concessionaires, like other services used to operate a 
concession, can count toward the goals pursuant to the procedures of 49 
U.S.C. Section 47107(e) (3) or (4).
    In response to another comment, the wording in the definition of 
``management contract or subcontract'' would be changed from ``operates 
a business activity'' to ``operates or directs one or more business 
activities.'' As this comment points out, in some management contracts, 
the contractor directs the activities of other entities rather than 
conducting operations directly. In addition, the Department concurs 
with the comment that the words ``the assets of which are owned by the 
sponsor'' should be changed to ``the assets of which are owned, leased 
or otherwise controlled by the sponsor.'' This makes clear that the 
sponsor's interest in the business activity is not limited strictly to 
an ownership interest. One other comment recommends a slight variation-
inserting the words ``or in which the airport sponsor has a significant 
interest or over which the airport sponsor exercises control'' after 
``the assets of which are owned.'' However, this version makes no 
reference to ``leased'' assets and would require a further definition 
of ``significant interest.''
    To further distinguish between a ``concessionaire'' and 
``management contractor,'' the SNPRM proposes to modify the former to 
mean a firm that owns and controls a concession, as opposed to one that 
simply operates one.
    We propose to amend the definition of ``small business concern'' to 
specify that the appropriate size standard is the one which best 
describes the type of business a firm seeks to operate under the DBE 
concession program. The sole exception would be the size standard for 
car dealerships. This matter is discussed below under ``Appendix G--
Size Standards for the Airport Concession Program.'' The SNPRM would 
also clarify that a small business concern must be an ``existing'' 
firm.
    Under provisions of the SNPRM for DOT-assisted contractors 
(including FAA-assisted contractors), the presumption of social and 
economic disadvantage is deemed to be rebutted when an individual's 
personal net worth exceeds $750,000. The October 1993 NPRM proposed to 
not apply the

[[Page 29579]]

$750,000 personal net worth limit to the concession program.
    All five comments to the October 1993 NPRM that address this matter 
supported the Department's proposal to not apply the $750,000 standard 
to the concession program. The rationale for not applying this standard 
to airport concessions is that, given the larger businesses that may 
participate in the concessions DBE program, the $750,000 figure would 
be unreasonably low. excluding businesses that the Department intends 
to be able to participate.
    Nevertheless, there are grounds for having some disadvantage 
threshold or other in this part of the rule. Even though larger 
businesses are intended to be eligible to participate in airport 
concessions, the concept of program eligibility based on economic 
disadvantage appears to call for a criterion to determine when someone 
is no longer disadvantaged. The Department is seeking comment on the 
appropriate dollar level for the economic disadvantage threshold in the 
financial assistance part of the SNPRM. We will ask the same question 
in the context of airport concessions. In this context, is it 
reasonable to have a higher threshold than in the case of the financial 
assistance program and, if so, what should it be?

Section 26.103  Applicability

    As modified, this section would state that the subpart applies to 
any sponsor that received a grant for airport development after January 
1988.

Section 26.105  Requirements for Airport Sponsors

    In response to one comment, we propose to modify this section to 
require insertion of the nondiscrimination clause in management 
contracts. The NPRM required inclusion of the provisions only in 
concession agreements executed by the sponsor. The clause also would 
also be required as part of any subsequent contract or subcontract 
covered by the rule, including contracts for the provision of goods or 
services. The Department also concurs with a recommendation to include 
recordkeeping requirements in the rule that will enable sponsors to 
monitor contract awards and payments by concessionaires to DBEs which 
provide goods or services. A section would be added pertaining to all 
recordkeeping and reporting requirements; it would apply to both 
primary and non-primary airports.
    We have not adopted a recommendation to allow small primary 
airports to submit their DBE concession plans to the FAA for review 
less frequently than annually, as currently required. We point out 
that, as administered by the FAA, the concession plan covers a three 
year period, which requires sponsors to do long-range planning. One 
purpose of an annual review and update is to include any information in 
the plan not previously available to the sponsor. Submission of an 
entirely new document is not required. Additionally, since the rule 
requires overall annual goals, accomplishments in meeting them must be 
reported yearly. Thus, the Department believes that the current 
requirements are appropriate.
    Another comment opposes a quarterly reporting requirement, which 
the Department proposed for the DOT-assisted contracting program. 
Currently, the FAA requires an annual report of accomplishments in the 
concession program and does not propose to increase the frequency.
    The SNPRM would retain a provision established in 1992 with the 
issuance of Subpart F of 49 CFR Part 23. Under the proposal, only 
primary airport sponsors would be required to implement a DBE 
concession plan. Other airports would not be subject to goal-setting 
and other components of a plan. Rather, these sponsors would be 
required to take appropriate outreach steps to encourage available DBEs 
to participate as concessionaires whenever there is a concession 
opportunity. This approach is consistent with the narrow tailoring 
principle of applying race-neutral mechanisms whenever possible to 
accomplish program objectives.

Section 26.107  Elements of a DBE Concession Plan

1. Overall Goals
    This section has been modified for consistency with the 
Department's approach to overall goals in the DOT-assisted contracting 
portion of the SNPRM. A discussion of Sec. 26.41 is found above. In it, 
we note that provisions of the SNPRM concerned with data collection and 
analysis could be burdensome to recipients. Realizing that the market 
for airport concessionaires is different from the market for many kinds 
of contractors for DOT-assisted contracting, we seek comment on how 
these concepts can best be adapted to the concessions industry and what 
data sources are available or should be developed to assist this 
process.
    DBE program costs incurred in connection with an approved project 
are eligible for reimbursement with Federal funds. However, it should 
be noted that costs incurred in administering the airport concession 
program are not eligible for AIP funds. The Department therefore 
invites additional comments on resources available to sponsors to 
collect and analyze concession program data as required by the SNPRM.
    A new requirement has been added to the SNPRM. It would require 
sponsors to provide for public participation in establishing overall 
annual goals. This provision is intended to assist sponsors in arriving 
at appropriate goals.
    Several comments to the October 1993 NPRM concern calculation of 
overall goals. One favors the use of net payment to the airport in lieu 
of gross receipts as the base from which overall goals are calculated. 
This commenter opposes using a combination of net payment and gross 
receipts, as currently required when the gross receipts from a 
particular concession are not known to the sponsor. This matter was 
fully considered when Subpart F of Part 23 was published in 1992 and 
was not raised as an issue under the current rulemaking. (See 
discussion in preamble to Subpart F at 57 FR 18400, April 30, 1992.) We 
also do not propose to adopt a comment to allow DBEs that perform an 
aeronautical business to count toward concession goals. 49 U.S.C. 
Sec. 47107(e)(7) provides that air carriers and other businesses 
conducting aeronautical activities are not included in the ``overall 
percentage goal.''
    Another comment favors calculating goals based on ``committed'' 
dollar values derived from agreed-to contracts or contingent purchase 
orders, rather than estimated dollars. This commenter also disagrees 
with the proposal to exclude from the base from which the overall goal 
is calculated, the value of non-DBE management contracts and the gross 
revenues from the activity to which the management contract pertains. 
It advocates establishing a base annually to reflect all eligible DBE 
program activity.
    Regarding the latter comment, as discussed above, the statute 
explicitly requires exclusion of these figures referenced from the 
base. Further, the goal of ``at least 10 percent'' is expressed in 49 
U.S.C. Sec. 47107(e)(1) as a percentage of ``all businesses at the 
airport selling consumer products or services to the public,'' language 
that the Department interprets to mean ``concessions.'' The statute 
permits a sponsor to count management contracts with DBEs or goods or 
services purchased or leased from DBEs toward meeting the goal. Thus, 
Section 47107(e)(2) provides that a sponsor ``may meet the percentage 
goal of paragraph (1) of this subsection by

[[Page 29580]]

including any business operated through a management contract or 
subcontract.'' Section 47107(e)(3) provides that a sponsor ``may meet 
the percentage goal of paragraph (1) of this subsection by including 
the purchase from [DBEs] of goods and services used in businesses 
conducted at the airport * * *'' The Department believes that expanding 
the base to include all management contract fees or all purchases or 
leases of goods or services would be inconsistent with these statutory 
provisions.
    Concerning the use of ``estimated'' versus ``committed'' dollars 
when setting overall goals, we note that overall annual goals are 
required as part of a three year plan. Some projections must be made a 
year or two in advance. Thus, sponsors would not ordinarily have 
sufficient information to base overall goals on committed dollars. To 
the extent that they do, however, such information should be reflected 
in the goals.
    The SNPRM states that all overall goals must provide for 
participation by all certified DBEs and that goals may not be 
subdivided by specific groups. The Department's rationale for applying 
this provision to DOT-assisted contracting is discussed above in 
connection with 49 CFR Sec. 26.41. Since the concession program 
authorized by 49 U.S.C. Sec. 47107(e) incorporates the definition of 
``socially and economically disadvantaged individuals'' from the 
contracting provisions of 49 U.S.C. Sec. 47113, the Department's 
rationale applies equally to concessions.
    In response to two comments, a provision has been added stating 
that in setting overall goals, a sponsor is permitted to include only 
those projected expenditures/gross receipts or number of agreements, as 
applicable, as the rule allows to be counted toward meeting such goals.
2. Counting DBE Participation Toward Meeting Goals
    Several comments point out that the October 1993 NPRM does not 
clearly state whether the requirement to perform a commercially useful 
function applies to all expenditures that can be counted toward DBE 
goals. One commenter favors doing so, and we concur. The SNPRM 
clarifies this provision. In the preamble to the NPRM, the Department 
indicated that this was its intention from the outset. It states, 
``While the requirement to perform a commercially useful function would 
be made applicable to any DBE eligible under subpart F, it would be 
particularly useful in evaluating firms which provide services or 
supplies, and which subsequently enter into subcontracts.'' (58 FR 
52050 at 52053)
    Although the NPRM incorporated the provisions of Sec. 23.47(d), it 
did not include guidance on other counting provisions, such as the 
definition of ``regular dealer,'' ``manufacturer,'' and others. One 
commenter believes that it would be useful to add a definition of 
``providers of goods or services,'' while another believes that the 
NPRM is too broad in allowing credit for procurement of goods and 
services which may be ``pass-throughs'', such as with distributors and 
brokers. Other comments, discussed below, express the same concerns.
    The Department concurs that additional guidance is needed. The 
SNPRM proposes to adopt many of the counting provisions proposed for 
DOT-assisted contracting. Although ``providers of goods or services'' 
would not be defined as such, the SNPRM lists all types of transactions 
in which a DBE may participate, including as a regular dealer, 
manufacturer, or provider of a professional, technical, consultant or 
other service.
    a. Counting purchases or leases of vehicles by car rental firms. 
The NPRM proposed to count the total dollar value of purchases or 
leases of vehicles toward DBE goals. Of 10 comments which address this 
proposal, 6 favor it, 3 oppose it, while one recommends additional 
review. Of those opposed, two suggest that the profit earned by the DBE 
is the appropriate amount to be counted.
    The comments indicate that car rentals generally acquire their 
vehicles through fleet purchases. The Department was unaware of this 
practice at the time the NPRM was developed, and indeed, there is no 
reference to fleet purchases in the NPRM. According to the comments, 
most states have franchise laws requiring that fleet purchases be made 
through a car dealership. Commenters also state that the major 
automobile manufacturers have franchise agreements with their dealers, 
which require all car sales to be made through the dealers.
    Fleet purchase transactions vary from one car rental firm to 
another and from one new car dealer to another. The dealer and car 
rental firm often agree to have the cars delivered directly from the 
manufacturer to the car rental firm, a practice known as ``drop 
shipment,'' in which the dealer neither sees nor touches the cars. The 
profit margin in a fleet purchase is generally lower than a single car 
acquired in a retail sale. According to one comment, in a recent year, 
a minority dealer made a gross profit of approximately $8 per unit on 
fleet sales of 15,737 cars. The same dealer made $1,090 per unit on 770 
cars through retail sales. This dealer comments that car dealers buy 
and resell these vehicles all in one transaction for which they 
generally receive a fee of between $10 and $20. Another comment refers 
to a dealer that made $44 per car or less.
    Commenters point out that in a fleet purchase, car rental firms 
generally adhere to one of two scenarios in processing a new vehicle's 
ownership documents. In many cases, the new vehicle is delivered to the 
car rental company and its ownership documents are sent to the new car 
dealer. In these instances, the dealer handles the titling and 
registering of the vehicle. In other cases, a new vehicle's ownership 
documents are sent to the car rental company's regional office or its 
national headquarters. At these locations, employees of the car rental 
company, acting as agents for the dealer, perform the various 
procedures necessary to title and register these new vehicles.
    Based on the comments, the Department has concluded that a fleet 
purchase is a separate function from retail sales of vehicles, and that 
car dealerships handle the transactions differently. Indeed, a dealer 
may use a separate account for its fleet purchases. In our view, the 
statute does not require that 100 percent of the cost of vehicles 
acquired in a fleet purchase count toward meeting DBE goals. Section 
511(h)(3)(B) of the AAIA provided in part, ``In the event that an 
airport owner or operator requires the purchase or lease of goods or 
services from DBEs, a car rental firm shall be permitted to meet such 
requirement by including purchases or leases of vehicles from any 
vendor that qualifies as a small business concern * * *''
    Moreover, we do not interpret the statute to preclude application 
of ``commercially useful function'' principles to purchases or leases 
of vehicles. As referenced above, the additional counting provisions 
included in the SNPRM represent a logical outgrowth in response to 
comments to the NPRM. Hence, we do not concur with one comment which 
contends that the Department must issue a new NPRM and obtain 
additional comments on this matter. Also, we are unable to concur with 
the rationale provided by commenters who state that the total dollar 
value of vehicles acquired in fleet purchases must be counted so that a 
car rental can achieve the goals imposed by a sponsor. Under the SNPRM, 
a concessionaire that fails to meet a DBE contract goal would be 
permitted to

[[Page 29581]]

demonstrate that it made good faith efforts.
    The Department believes that the car dealer's role in a fleet 
purchase best fits the description in 49 CFR Section 26.107(2)(iii)(E), 
which provides for counting the fee or commission charged by a DBE that 
is neither a manufacturer nor a regular dealer. Under paragraph (1) of 
this section, the entire amount of the fee or commission charged by a 
DBE for assistance in the procurement of goods would be counted toward 
the goals, provided that it is determined by the sponsor to be 
reasonable and not excessive as compared with fees customarily allowed 
for similar services. However, no portion of the goods themselves (in 
this case, vehicles) would be counted toward the goals.
    While a car dealership may qualify as a ``regular dealer'' in other 
types of transactions, the Department does not believe that it 
functions as such in arranging a fleet purchase of vehicles. ``Regular 
dealer'' is defined in the SNPRM at Section 26.49(f)(2)(ii), applicable 
to DOT-assisted contracting, and is incorporated into the concession 
program. It reads in part as follows:``A firm that owns, operates, or 
maintains a store, warehouse, or other establishment in which the 
materials, supplies, articles, or equipment of the general character 
described by the specifications and required under the contract are 
bought, kept in stock, and regularly sold or leased to the public in 
the usual course of business. To be a regular dealer, the firm must be 
an established, regular business that engages, as its principal 
business and under its own name, in the purchase and sale or lease of 
the products in question * * * ''
    Part 23 contained a similar definition at Section 23.47(e)(3). We 
point out that the vehicles acquired in a fleet purchase are not 
``bought, kept in stock, and regularly sold or leased to the public in 
the usual course of business.'' Rather, they are always acquired from a 
manufacturer and often shipped directly to the car rental agency.
    The fee or commission earned by a car dealer in a fleet purchase 
generally will equal the gross profit-the difference between the amount 
charged by the manufacturer and the amount charged by the car dealer. 
To facilitate compliance with the rule, a definition of ``fleet 
purchase'' is proposed, as follows: ``a purchase of vehicles in volume 
from a manufacturer at a discounted price, which is made through a car 
dealer. While the process may vary by manufacturer and by car dealer, 
the vehicles are frequently `drop-shipped' directly to the car rental 
firm. A car dealer may handle fleet purchases through a separate 
account. The minimum number of vehicles in a fleet may vary, but as few 
as 10 have been used.''
    Under the SNPRM, a car dealer may qualify as a regular dealer in 
retail sales of vehicles (other than fleet sales) or when it leases 
vehicles or sells supplies or new parts. As proposed, 100 percent of 
the cost of goods purchased or leased from a DBE regular dealer would 
be counted toward DBE goals.
    b. Other counting issues pertaining to car rentals. Two commenters 
make reference to car repair services performed under a manufacturer's 
warranty. In some instances, the car rental that purchased the vehicle 
can select the company to perform the warranty work. The manufacturer, 
rather than the car rental, pays for the service. One commenter 
requests that the cost of such warranty services performed by a DBE be 
counted toward the goals.
    Reference is made to 49 U.S.C. 47107(e)(4)(B), which provides that 
a sponsor ``may require a car rental firm to meet a requirement under 
paragraph (1) of this subsection by purchasing or leasing goods or 
services from a [DBE] * * *'' Since the manufacturer, not the car 
rental, pays for the work performed under a warranty agreement, we 
conclude that such purchases do not meet the standard in the 
legislation. As such, they would not count toward DBE goals.
    The SNPRM proposes to incorporate a recommendation by a sponsor to 
credit toward the goals, the amount paid by a car rental franchise to a 
DBE hired to manage its leased facilities. This provision relates to 
the discussion of ``management contracts and subcontracts'' set forth 
above.
3. Counting Purchases of Goods and Services by Concessionaires (Other 
Than Car Rentals)
    Seven comments address the proposal in the NPRM to count the total 
dollar value of purchases of goods and services by non-DBE 
concessionaires. As proposed, counting such expenditures would be 
subject to a requirement that the sponsor and non-DBE make good faith 
efforts to explore all available options to attain, to the maximum 
extent practical, a direct ownership arrangement with a DBE. This good 
faith efforts ``test'' would apply to concessionaires other than car 
rentals. Three commenters favor the proposal, while four are opposed.
    Of those opposed, three prefer use of a ``discount factor'' similar 
to DOT-assisted contracting procedures, in which 60 percent of supplies 
obtained from a DBE regular dealer can be counted. Another comment 
wishes to minimize ``pass-throughs'' such as with distributors and 
brokers, while one other believes that all concessionaires should be 
given the same latitude as car rentals, by being exempted from the good 
faith efforts test.
    The SNPRM proposes to apply the same principles of commercially 
useful function to these transactions as to the ones involving car 
rentals. Thus, 100 percent of the cost of goods purchased from a DBE 
acting as a regular dealer or manufacturer would count toward the 
goals.
    If a concessionaire purchases goods from a DBE which is acting 
neither as a regular dealer nor a manufacturer, only the fee or the 
commission charged for assistance in the transaction or the cost of the 
transportation provided would count toward goals, provided that it is 
determined by the sponsor to be reasonable and not excessive as 
compared with fees customarily allowed for similar services. However, 
no portion of the cost of the goods themselves would be counted. 
Further, the entire amount of fees or commissions charged by a DBE firm 
that provides a bona fide service to a non-DBE concessionaire would be 
counted toward goals. Counting any of these expenditures would be 
predicated on a good-faith efforts test, a condition that is not 
imposed on car rentals.
    The SNPRM makes clear that such purchases of goods and/or services 
would count even if a non-DBE concessionaire meets a goal for a direct 
ownership arrangement with a DBE. In response to one comment, we point 
out that any qualifying DBE participation could count toward goals. The 
commenter notes that only a limited number of manufacturers of 
equipment used in baggage cart concessions exist throughout the 
country. While the rule does not impose restrictions on the 
geographical location of firms, 49 CFR Section 26.123 does allow a 
sponsor to employ a geographical preference under the conditions stated 
in that section.
    One comment inquires about warehousing and distribution systems, 
which have acquired their inventories from DBEs. The commenter proposes 
that concessionaires be given credit for purchases from such 
warehousing and distribution systems in proportion to the DBE product 
mix as a part of the total inventory. Based on a review of the 
legislation, we do not propose to adopt this comment. 49 U.S.C. Section 
47107(e)(3) authorizes sponsors to count purchases from DBEs of goods 
and services used in ``businesses conducted at the airport,'' words 
which we

[[Page 29582]]

interpret to mean ``concessions.'' Thus, only those goods actually 
purchased by a concessionaire from a DBE and used in operating a 
concession would be counted toward meeting DBE goals under this SNPRM.
    In response to several comments, the SNPRM incorporates a provision 
stating that packagers, brokers, manufacturers' representatives, or 
other persons who arrange or expedite transactions are not regular 
dealers.
4. Other Counting Provisions
    One commenter recommends that a DBE should not be required to 
perform at least 30 percent of the work of a contract with its own 
forces in order to be considered to perform a commercially useful 
function. The commenter notes that for management contacts, the 30 
percent requirement, which appeared in the December 1992 NPRM, may 
impose an unrealistically high standard, particularly if it is applied 
to any work of a concession or activities associated with a management 
contract. The Department concurs. Thus, while the 30 percent standard 
and other provisions of 49 CFR Section 26.49(e)(3) would be 
incorporated into the concession program, management contracts and 
subcontracts would be exempt. Concession agreements would also be 
exempt based on our observation that DBEs frequently make up less than 
30 percent of a joint venture or sublease less than 30 percent from a 
prime concessionaire. Other participants in the DBE concession program 
would be covered by Section 26.49(e)(3), however, in order to be 
consistent with DOT-assisted contracting provisions.
    In response to another comment, the Department could not find a 
basis in the statute to count purchases of goods or services from DBEs 
made by non-DBE management contractors. 49 U.S.C. 47107(e)(2) makes no 
reference to such a procedure, while we interpret Section 47107(e)(3) 
to apply only to concessions. Under the SNPRM, however, a sponsor may 
impose a contract goal on a management contractor to attain DBE 
participation through a management subcontract. (See 49 CFR 26.115(d).)

Section 26.107(g)  Certification Procedures

    The SNPRM gives sponsors the discretion of participating in the 
Unified Certification Process (UCP) with regard to certifying DBEs 
under the concession program. (All sponsors would be required to 
participate in the UCP with regard to certifying DOT-assisted 
contractors.) A sponsor that elects not to participate in the UCP would 
need to independently certify firms that will count toward overall and 
contract goals set under the concession program. These sponsors could 
choose to adopt precertification or certify only firms to be counted 
toward DBE goals.

Section 26.107(h)  Certification Process

    A sponsor that does not participate in the UCP would not be subject 
to the timeframes set forth in 49 CFR 26.73(i) in which to make an 
eligibility determination. These sponsors would be required to 
determine that a firm is eligible before it could count toward the 
overall goal or to a firm's contract goal.
    Nine comments responded to the Department's proposal for 
considering the feasibility of adopting a self-certification procedure 
in limited circumstances, such as for providers of goods and services 
holding contracts of less than a designated dollar value. Six favor 
such a procedure, while three are opposed. One proponent recommends 
using procedures similar to SBA's under which a contracting officer may 
accept a self-certification in the absence of a written protest by 
competitors or other credible information. A second proponent suggests 
imposing penalties for fraud or willful misrepresentation, such as 
fines or debarment, and also recommends that the Department conduct 
random samplings of self-certified firms. Those opposed are concerned 
that self-certification will allow ineligible firms to participate in 
the program to the detriment of legitimate DBEs.
    Significantly, a state department of transportation estimates that 
25 percent of applications for DBE certification it receives do not 
meet eligibility standards and are denied. We concur with the comment 
that since these applicants believe their firms to be eligible, there 
may be an inherent problem with a self-certification process. Self-
certification may also offer greater opportunity for fraud and abuse. 
We believe that these potential difficulties would offset any 
advantages gained by streamlining the process.
    Concerning the proposal to allow sponsors to give ``full faith and 
credit'' to certifications of other DOT recipients, all 10 comments on 
the subject favor it. Two organizations recommend that both the 
certifying and accepting agency be held harmless if a defect is 
discovered in the certification, while another recommends that the 
certifying agency be held harmless. While the SNPRM would allow UCPs to 
form reciprocal agreements, it does not propose giving ``full faith and 
credit'' to certifications of DOT-assisted contractors made by other 
UCPs or recipients. In view of this, allowing such a practice in the 
concession program could cause confusion. The Department also believes 
that the sponsor that counts a firm toward its goals should be the 
entity responsible for the validity of the certification. If full faith 
and credit is allowed, a sponsor could knowingly and with impunity 
accept a defective certification.
    Two comments address the feasibility of accepting certifications by 
local or state agencies that are not DOT recipients, but which use the 
same eligibility criteria as DOT. Both commenters support such a 
provision. The Department believes, however, that such agencies would 
not be proficient in applying the new eligibility standards proposed in 
this SNPRM, even if their local procedures incorporate them. Also, 
these agencies would not have the same interest as a recipient in 
ensuring that their certifications are valid.
    For the reasons cited, the SNPRM does not include provisions for 
self-certification, giving ``full faith and credit,'' or accepting 
certifications of agencies that are not DOT recipients. We have 
attempted, however, to minimize administrative requirements associated 
with certification, whenever feasible. For example, the SNPRM retains 
the provision in Subpart F of Part 23 that on-site visits are not 
mandatory in all instances. The establishment of the UCPs and other 
provisions pertaining to DOT-assisted contracting would also result in 
a reduction of administrative costs. The following proposed provisions 
address many concerns raised by commenters.
    A UCP would make all certification decisions on behalf of all DOT 
recipients in the state, except for sponsors that elect not to 
participate in regard to their concession programs. If a sponsor does 
elect to participate, the certification decisions made by the UCP would 
be binding on it. Subject to the Department's approval, recipients in 
two or more states could form a regional UCP. UCPs could also enter 
into reciprocity agreements with other UCPs. A UCP would be permitted 
but not required to accept the certifications of another UCP. A UCP 
would not be required to process an application for certification from 
a firm having its principal place of business outside the state if the 
firm is not certified by the UCP in the state in which it maintains its 
principal place of business.
    Concerning a comment that sponsors be permitted to contract out 
certification, the FAA issued guidance to sponsors in 1993 on the 
eligibility of such costs under the AIP. In response to comments 
recommending that the

[[Page 29583]]

Federal government or other agencies be responsible for certification, 
the Department is proposing recipients retain that responsibility. 
Regarding certification schedules, Subpart G would incorporate 
provisions of section 26.73(c), which requires potential DBEs to 
complete and submit an appropriate application form. Sponsors would be 
required to use the form provided in Appendix C without change or 
revision, except that subject to approval by FAA, additional 
information not inconsistent with the rule could be requested.

Section 26.107(j)  Certification Standards

    We received 7 comments concerning automobile dealer development 
programs operated and financed by major car manufacturers. All 7 
commenters would support a provision to allow these firms to 
participate as DBEs. They suggest that the Department grant a limited 
exception to the ownership requirements in the rule. The comments 
explain that firms seeking to become car dealerships do not have access 
to the $700,000 to $1 million in start-up costs necessary to place a 
new car dealership in business. The commenters state that since 
commercial banks have not been interested in lending money to these 
unestablished dealers, the automobile manufacturers have provided 
start-up financing as a component of their dealer development programs.
    Comments indicate that under the program, a candidate must provide 
a minimum of 15 percent of the start-up capital for the dealership, in 
return for which the candidate receives 100 percent of the common stock 
of the new dealership. The manufacturer loans the candidate the 
remainder of the start-up capital, taking back what is in effect a 
security interest in the new dealership. This security interest takes 
the form of a controlling interest in the preferred stock of the 
corporation. The dealership contract is structured so that as long as 
the preferred stock is outstanding, the common stockholders in the 
corporation will not have voting control over the corporation.
    This dealership contract is often for a period of ten years, after 
which the contract will lapse if certain performance and profit 
conditions have not been met. The intent of the arrangement is that the 
candidate/dealer will redeem, on an annual basis, a portion of the 
preferred stock held by the manufacturer out of the profits of the 
dealership. The dealer gradually redeems all of the preferred stock and 
gains full control of the dealership within ten years of inception. 
During the early years of their contracts, dealers in development will 
not be able to participate in the DBE concession program because they 
do not own 51 percent of the their dealerships. These commenters do not 
advocate waiving any other eligibility criteria. They state that the 
industry recognizes the importance of assuring that disadvantaged 
owners are actively involved in the daily management of the dealership 
and meet appropriate size standards.
    In considering this matter, we make reference to the definition of 
a ``DBE'' as follows: ``a for-profit small business concern--(a) which 
is at least 51 percent owned by one or more socially and economically 
disadvantaged individuals or, in the case of a corporation, in which 51 
percent of the stock is owned by one or more such individuals; and (b) 
whose management and daily business operations are controlled by one or 
more of the socially and economically disadvantaged individuals who own 
it.'' (49 CFR Sections 26.5 and 26.101)
    The comments request that we waive the requirements in paragraph 
(a) concerning ownership. As paragraph (b) makes clear, to qualify as a 
DBE, the management and daily operations of the firm must be controlled 
by one or more disadvantaged individuals who are the 51 percent owners. 
In the case of some dealers in development, however, disadvantaged 
individuals own less than 51 percent of the business. Thus, control of 
such a firm cannot rest with disadvantaged individuals, as specified in 
paragraph (b), if the manufacturer is a non-DBE. Additionally, the 
comments indicate that the manufacturer and developing firm are in a 
franchisor/franchisee relationship. If this is the case, and the 
franchisor controls the franchisee, the firms would be affiliated. 
Under 49 CFR Section 26.107(j)(4), a business operating under a 
franchise agreement is eligible for certification only if it qualifies 
as a DBE and the franchise is not affiliated with the franchisee. Firms 
are affiliated if one firm controls or has the power to control the 
other or they meet other criteria stated in the definition of 
``affiliation'' found in 49 CFR Section 26.101.
    Inasmuch as both ownership and control criteria would need to be 
waived, the SNPRM would not grant an exemption for dealers in 
development. However, in the event that the Department adopts a 
developmental program or a mentor-protege program for concessions at a 
future date, we would reexamine our position to determine if dealers in 
development could qualify.
    A commenter notes that while the Department's program encourages 
the formation and growth of new firms, it may be difficult to make an 
eligibility determination of a newly formed firm that intends to 
perform a concession. A provision has been added which would address 
such situations. The SNPRM states that while a new firm applying for 
certification as a concessionaire must meet all eligibility standards, 
a sponsor cannot deny certification solely because it is new, without 
applying the eligibility standards.
    The rule would also clarify that a limited partnership is not 
eligible for DBE certification if a non-DBE or a non-disadvantaged 
individual is the general partner.

Section 26.107(k)  Good Faith Efforts

    This section would require sponsors to use race neutral means, such 
as outreach and technical assistance, in an effort to meet overall 
goals, prior to applying the race-conscious technique of contract 
goals. In many cases, we anticipate that sponsors will need to apply 
race-conscious means in order to overcome the effects of past 
discrimination.
    This section includes a list of good faith efforts, which is not 
exhaustive, that a sponsor would consider making to meet its overall 
annual goals. The efforts would also apply, as appropriate, to firms 
subject to a DBE contract goal, as well as to a sponsor and firm 
required to make good faith efforts to attain a direct ownership 
arrangement with a DBE. To assist sponsors and businesses, a definition 
of ``good faith efforts'' has been added.
    One commenter to the October 1993 NPRM requests that a method be 
developed for obtaining nationwide information about the availability 
of certified DBE providers of goods and services. The FAA will provide 
such information or sources of information that it has. Another 
commenter requests additional guidance to clarify the meaning of 
suggested good faith efforts for attaining a direct ownership 
arrangement with a DBE. The Department suggests, as one example, that 
the firm conduct a pre-bid meeting concerned with the DBE portion of 
the contract to explain the solicitation and proposal process.
    Another comment observes that the statute requires concessionaires 
to enter into joint venture agreements with DBEs only if ``practical'' 
and urges the Department to clarify that concessionaires cannot be 
required to offer DBEs financial assistance, management training, or 
other support as a means of making a joint venture

[[Page 29584]]

arrangement practical. The Department concurs, and an appropriate 
provision would be added at 49 CFR Section 26.115(g).
    The Department believes, however, that it is within the authority 
of the legislation to require sponsors and concessionaires to provide 
technical assistance to DBEs in overcoming limitations, such as the 
inability to obtain bonding or financing. This assistance may include 
providing DBEs with information on lending institutions. A provision to 
this effect now appears in the SNPRM. A sponsor and/or concessionaire 
may also work with banks in their community in an effort to encourage 
loans to DBE program participants. A regulation of the Board of 
Governors of the Federal Reserve System, implementing the Community 
Reinvestment Act, imposes a continuing and affirmative obligation on 
financial institutions to help meet the credit needs of their local 
communities. (See 12 CFR Part 228.)

Section 26.107(l)  Monitoring and Compliance Procedures

    One commenter recommends establishing a requirement to ensure that 
non-DBE concessionaires actually fulfill their promised levels of DBE 
participation. We concur. A new provision would direct sponsors to 
implement appropriate mechanisms to ensure that all program 
participants comply with the requirements established pursuant to this 
subpart. The sponsor would utilize its own local authority to enforce 
these contractual conditions.

Section 26.115  Obligations of Concessionaires, Contractors, and 
Competitors

    The Department concurs with a comment to the NPRM stating that a 
sponsor is authorized to impose a DBE contract goal on competitors for 
concession agreements. This provision is included in the SNPRM. It 
would also permit a sponsor to impose a contract goal on a management 
contractor to attain DBE participation through a management 
subcontract.
    Like the current rule, the SNPRM does not require a DBE contract on 
each concession; rather, the sponsor has discretion to select 
agreements to be covered by this requirement.
    Three commenters to the NPRM support the provision that requires 
sponsors to seek DBE participation in all types of concessions to the 
extent practical. They believe that the overall percentage of DBE 
participation should be distributed equitably among concessionaires. 
Another commenter requests that the rule expressly prohibit sponsors 
from levying disproportionate requirements on small concessions. It 
believes such a provision is a corollary to the statement in the 
current rule that sponsors ``not concentrate participation in one 
category or a few categories to the exclusion of others.''
    The SNPRM retains the provision in the existing rule requiring 
sponsors, to the maximum extent practical, to seek DBE participation in 
all types of concession activities and not concentrate participation in 
any one or few categories to the exclusion of others. However, we do 
not propose to adopt a recommendation to require all contract goals to 
be set at the same percentage level. The SNPRM proposes that a contract 
goal may be higher or lower than the overall goal, depending on such 
factors as the type of work involved, its location, and the 
availability of DBEs for the work of the contract or concession. 
Unreasonably high contract goals, unrelated to the availability of 
DBEs, would not be authorized.
    The SNPRM proposes that when a contract goal is set, the sponsor 
would be required to notify competitors that as a condition of 
receiving the award, the firm must submit information indicating that 
it will meet the goal by using named DBEs or that it made good faith 
efforts. Sponsors would be prohibited from using more stringent 
mechanisms than good faith efforts, such as a set-aside or conclusive 
presumption, except under specific conditions. A similar approach is 
proposed under 26.45 for DOT-assisted contracting.
    Like overall goals, all contract goals would provide for 
participation by all certified DBEs and could not be divided into 
group-specific goals. We concur with one comment that opposes demands 
by sponsors to give preferential treatment to one group of DBEs over 
another.
    Under the SNPRM, a sponsor may impose either of two requirements on 
a non-DBE concessionaire or firm competing for the award of a 
concession agreement, other than a car rental. A contract goal may be 
set to attain DBE participation solely through a direct ownership 
arrangement. Alternatively, a contract goal may be set for the purchase 
of goods or services. In the latter case, the sponsor would be subject 
to the procedures in 49 CFR 26.117, pertaining to making good faith 
efforts to attain a direct ownership arrangement.
    The Department concurs with a comment that sponsors should not be 
required to allow car rental firms to meet DBE goals through purchase 
or lease of goods and services. Accordingly, the SNPRM proposes that a 
sponsor may levy one or both of the following requirements on such 
firms. First, it may set a contract goal for purchases or leases of 
goods or services, in which case, the car rental would be permitted to 
meet the goal by including costs associated with purchases or leases of 
vehicles from any firm that qualifies as a DBE.
    A sponsor could also require a car rental to state in writing 
whether a change to its corporate structure is needed in order to form 
a direct ownership arrangement with a DBE; and to identify any such 
arrangements. If the car rental can provide for a direct ownership 
arrangement with a DBE without altering its corporate structure, the 
sponsor could require it to make good faith efforts to achieve a 
contract goal through such arrangement. If, however, the car rental 
cannot form a direct ownership arrangement with a DBE without altering 
its corporate structure, the sponsor must deem the firm to be 
responsive to any requirement pertaining to direct ownership 
arrangements.
    The SNPRM proposes that DBEs may participate as prime 
concessionaires or management contractors through direct contractual 
agreements with the sponsor. Although the NPRM made reference only to 
DBEs as prime concessionaires, the legislation does not limit the 
provision in this way.
    Since several comments address the matter of calculating DBE 
contract goals, we have included a new section on this matter. If a 
goal applies to a direct ownership arrangement, it would be calculated 
as a percentage of the total estimated annual gross receipts from the 
concession. If the goal applies to purchases and/or leases of goods and 
services, it would be calculated by dividing the estimated dollar value 
of such purchases/leases from DBEs by the sum of that amount and the 
estimated annual gross receipts from the concession. The latter is 
expressed in the following formula, which is designed to parallel the 
statutory direction for calculating overall goals:

[[Page 29585]]

[GRAPHIC] [TIFF OMITTED] TP30MY97.005


To illustrate: A concession is expected to generate $1 million in gross 
receipts, and the sponsor wishes to set a DBE contract goal of 10 
percent. To meet the goal, the concessionaire must purchase/lease 
$111,111 in goods or services from DBEs.
[GRAPHIC] [TIFF OMITTED] TP30MY97.006

While the rule would not include a formula for calculating a DBE 
contract goal imposed on a management contractor, it may be calculated 
as a percentage of the amount of the prime contract. The Department 
seeks comment on whether this approach is a sensible one for contract 
goals, or whether there are other approaches the Department should 
consider.
    Several comments address the proposal under which car rentals are 
not required to make good faith efforts to form a direct ownership 
arrangement with a DBE as a condition of counting the purchase or lease 
of goods and services from DBEs. All representatives of the car rental 
industry agree with the proposal. Another comment states that the 
statute does not relieve sponsors or any business operating at airports 
from making good faith efforts to achieve direct DBE participation. 
This commenter states that alternative methods of compliance through 
purchase of goods and services from DBEs is permitted only when direct 
participation is not practical. Yet another comment states that the 
statute does not preclude car rental firms from entering into a joint 
venture, partnership, sublease, or other direct ownership arrangement 
with a DBE, where such an arrangement is practical or desirable. This 
comment states that the statute does not relieve car rental firms of 
the ``good faith'' requirement applicable to every other non-DBE 
business operating at the airport.
    Still another commenter, contending that the good faith efforts 
test should be applied to car rentals, strongly disagrees with the 
NPRM. It points out that much of the intent of Congress was stated 
between the time of the 1987 amendments to the AAIA and the subsequent 
1992 Act. This commenter notes that several members of Congress made 
very key and explicit statements in their remarks on the good faith 
efforts issue.
    Based on its review, the Department has concluded that the 
Congressional statements cited by this last commenter either do not 
support its position or are largely irrelevant because they refer to an 
early version of Section 117 of the 1992 Act which is substantially 
different than the language of Section 117 that was enacted into law. 
The position advocated by the commenter was thoroughly considered by 
Congress during its early deliberations on the 1992 Act but was 
discarded by Congress in drafting the final statutory language.
    Moreover, the Department believes that the plain language of the 
statute does not impose a good faith efforts test on car rental firms 
before they are permitted to engage in vendor purchases. 49 U.S.C. 
Section 47107(e)(3) of 49 U.S.C. (formerly Section 511(h)(2) of the 
AAIA), which covers all concessionaires except car rental companies, 
contains the good faith efforts test. Section 47104(e)(4)(B) (formerly 
Section 511(h)(3)(B) of the AAIA), which covers car rental 
concessionaires only, contains no such language. Standard rules of 
statutory construction require that the words of a statute must be 
given their plain meaning, and the absence of the good faith efforts 
test from the provision covering car rental concessionaires shows that 
the test is not mandated for these concessionaires. In Russello v. 
United States, 464 U.S. 16.23 (1983), the U.S. Supreme Court held that 
where Congress includes particular language in one section of a statute 
but omits it in another section of the same act, it is generally 
presumed that Congress acts intentionally and purposely in the 
disparate inclusion or exclusion.
    The Department concurs with other comments on this matter to the 
extent that a sponsor may, within the constraints imposed by the 
statute, levy certain requirements on car rentals pertaining to direct 
ownership arrangements. These requirements are discussed above.
    The NPRM proposed that a car rental firm would not be required to 
change its corporate structure in order to provide for a direct 
ownership arrangement with a DBE. A change in corporate structure was 
defined to include a ``transfer of corporate assets, or execution of a 
joint venture, partnership, or sublease agreement.'' One commenter 
disagrees with the proposal, while several others agree. The one 
opposed comments that it does not see a ``coming-together'' of two 
businesses such as in a joint venture, partnership, or a specific 
sublease as a change in corporate structure, and the rule should not 
define it as such. The Department believes, however, that a firm that 
does not generally conduct its operations through such arrangements may 
need to alter its corporate structure to provide for doing so. Although 
the statute does not define ``change to corporate structure,'' Senator 
Wendell Ford addressed this point as follows:

    Section 511(h)(3) of the AAIA, as amended provides that nothing 
in the law on DBE assurance `shall require a car rental firm to 
change its corporate structure to provide for direct ownership 
arrangements.' For example, a car rental firm is not required, but 
is permitted, by the DBE assurance sections 511(a)(17) and 511(h) of 
the AAIA, as amended, to transfer corporate assets or engage in 
joint ventures, partnerships, or subleases. I would like to repeat 
that this language has been agreed to by both the car rental 
industry and the airports. 138 Cong. Rec. S17843 (October 8, 1992) 
(statement of Sen. Ford). 

    In an extension of his remarks on the floor of the House of 
Representatives on October 2, 1992, Representative James L. Oberstar 
submitted a similar statement for the Congressional Record on October 
8, 1992 (138 Cong. Rec. E 3501). Representative William F. Clinger 
submitted the same statement to the Congressional Record, as an 
extension of his remarks. (138 Cong. Rec. D 3257.) The SNPRM retains 
the definition of ``change to corporate structure'' consistent with the 
sense of Congress described above.
    One commenter requests clarification of whether an airport can 
express a preference for a car rental that can

[[Page 29586]]

achieve a DBE goal through a direct ownership arrangement without 
changing its corporate structure, for instance, a firm that 
traditionally franchises. The SNPRM would prohibit sponsors from 
granting such a preference. The Department believes that if adopted, 
the practice could have the effect of imposing a de facto requirement 
on some firms to change their corporate structure in order to enter 
direct ownership arrangements. The prohibition in the rule applies to 
the selection by sponsors of car rental concessionaires and to the 
terms and conditions of concession agreements.

Section 26.117  Conditions Precedent to Counting Purchases of Goods and 
Services by Concessionaires (Other Than Car Rentals) Toward DBE Goals

    The rule would include this separate section on the good faith 
efforts test, which lists the conditions precedent to counting 
purchases of goods and services toward DBE goals by concessionaires 
(other than car rentals). For each covered concession, the sponsor 
would be obligated to either (1) set a DBE contract goal for a direct 
ownership arrangement and require the non-DBE firm to make good faith 
efforts; or (2) submit information to the FAA demonstrating that the 
sponsor and firm made appropriate good faith efforts to attain DBE 
participation through a direct ownership arrangement.
    In the latter case, the sponsor would be permitted, if appropriate, 
to submit an explanation as to why the nature of a particular 
concession makes a direct ownership arrangement not economically 
feasible or otherwise impractical. Any contract goals established under 
this section would be subject to FAA approval. The Department 
interprets 49 U.S.C. 47107(e)(3) as authority to require a contract 
goal for a direct ownership arrangement, whenever practicable. The 
statute requires the sponsor and concessionaire to ``make good faith 
efforts to explore all available options to achieve, to the maximum 
extent through practicable, compliance with the [overall DBE] goal 
through direct ownership arrangements, including joint ventures and 
franchises.''
    Purchases of goods and services covered by this section would be 
counted toward DBE goals throughout the duration of the concession 
agreement, as long as the requirements of this section and subpart are 
met. For example, if a concessionaire meets a contract goal for a 
direct ownership arrangement, the purchases of goods and services can 
also count toward the goals.

Section 26.121  Prohibition on Long-Term, Exclusive Concession 
Agreements

    Under the SNPRM, a sponsor would be permitted to enter into a long-
term, exclusive agreement only if one or more DBEs participate 
throughout the term of the agreement. These DBEs must account for a 
percentage of the gross receipts equal to a level set in accordance 
with the goaling process of Sec. 26.107. The SNPRM would specify that 
such DBE involvement must be in the form of a concession.
    However, purchases of goods and services from DBEs would also count 
toward the goals, as provided in Sec. 26.117. The SNPRM also proposes 
that if a DBE concessionaire cannot perform successfully, the non-DBE 
concessionaire must replace the firm with another DBE, if the remaining 
term of the agreement makes this feasible. Under a newly proposed 
provision, if such a replacement would not be feasible, the non-DBE 
would be required to make good faith efforts during the remaining term 
of the agreement to encourage DBEs to compete for the purchase and/or 
leases of goods and services that it procures.

Section 26.123  Compliance Procedures

    One commenter recommends that the final rule include relatively 
short deadlines for completing the various stages of investigating a 
complaint, and that in any case, the FAA be required to resolve a 
complaint within six months. Two commenters believe that unless the 
areas relating to car rental concessions are more specific in terms of 
what a sponsor is permitted to require, many complaints will be 
generated. One of these commenters recommends that this section be 
modified accordingly.
    The FAA considered matters pertaining to complaint processing in 
connection with the development of 14 CFR Part 16 (61 FR 53998; October 
16, 1996). In the NPRM leading to this rule (59 FR 29889; June 9, 
1994), the Department invited comments on specific procedures that 
would apply to complaints filed under the DBE program. Prior to 
issuance of Part 16, the procedures in 14 CFR Part 13 governed.
    The obligations that would be imposed on concessionaires, including 
car rentals, are set forth in other sections of the rule, including 49 
CFR Section 26.115. 49 CFR Section 26.123 would provide for processing 
complaints and taking enforcement actions in the event of 
noncompliance. Complaints would be processed in accordance with the 
procedures of FAA regulation 14 CFR Part 16, while Title 49 of the 
United States Code (U.S.C.), including Sections 47106(d), 47111(d), and 
47122, would govern the enforcement actions the Administrator is 
empowered to take in the event of noncompliance. We would like to point 
out that these procedures would apply to any noncompliance matter, 
regardless of whether it involves a car rental or other covered 
organization. We note that other procedures (e.g., DOT Title VI 
procedures) may apply concurrently in some cases.

Section 26.125  Effect of Subpart

    The SNPRM retains the provision in the NPRM concerning 
nonpreemption of State or local requirements. A new paragraph is 
proposed concerning local geographical preference, which formalizes FAA 
guidance on the matter. This section would also incorporate certain 
miscellaneous requirements from 49 CFR Section 26.99, concerning the 
availability of records, confidentiality of information on 
complainants, cooperation, and the prohibition on intimidation and 
retaliation. These provisions would apply equally to the concession 
program.

Appendix G--Size Standards for the Airport Concession Program

    The NPRM focused on two issues relating to size standards. It 
solicited comments on an appropriate size standard for car dealerships, 
and proposed use of SBA size standards for other off-airport firms and 
for management contractors.
    Regarding car dealerships, the NPRM incorrectly stated that the SBA 
size standard was $11.5 million. The actual standard at the time was 
$18 million. The standard has since been raised to $21 million, due to 
an inflationary adjustment to the receipts-based size standards in 13 
CFR Part 121, not otherwise prohibited by statute from change. SBA 
announced this change April 7, 1994. (See 59 F.R. 16513.)
    All car rental agencies that commented and four other commenters 
strongly support basing the size standard for car dealers on number of 
employees. The number recommended by these organizations ranges from 
100 (unaggregated where a DBE owns more than one dealership) to 500 (if 
aggregated). The SBA believes that its size standard is reasonable for 
car dealerships, although it comments that a moderately higher standard 
would also be acceptable. Two commenters suggest basing the standard on 
annual net profits, while five commenters recommend that the Department 
conduct additional research prior to

[[Page 29587]]

setting a standard. Two of these latter propose that no size limit be 
imposed during the initial implementation of the rule, while one favors 
use of an interim standard. Those recommending additional research 
believe that a number of factors should be studied, including average 
annual gross receipts earned by dealerships; impact of fleet purchases 
on gross receipts; number and location of minority dealerships; 
recognition that not all dealers are given the same line of credit, and 
that a small dealer may be unable to obtain the credit needed for a 
fleet inventory.
    One sponsor observes that in processing applications for 
certification, DBE car dealers who own less than 51 percent of a 
dealership are more likely to meet SBA's size standard, while DBEs who 
own more that 51 percent of a dealership often exceed this cap. Of the 
comments favoring the use of gross receipts, one recommends a standard 
of $58 million, another in excess of $200 million, while another 
recommends setting the standard based on non-fleet sales, together with 
other revenues earned from service, parts, and body shop work. Ten car 
dealerships comment that fleet sales result in very low profits even 
though dollar volume is high. All car dealers that commented voice the 
concern that a low gross receipts cap such as $17 million would make 
them ineligible immediately.
    Most dealers provided information on their own gross receipts and 
number of employees. Only one dealer reports yearly revenues of less 
than $5 million; five range between $17 and $29 million; three between 
$45 and $62 million; and three between $100 and $150 million. Two have 
multiple dealerships (four and five), with aggregated revenues of 
approximately $424 million and approximately $250 million respectively. 
The number of employees ranged from 38 to 150 per dealership. Most 
employment levels range from 38 to 70, with only one dealer reporting 
more than 600 at four dealerships.
    As suggested by one commenter, we obtained the SBA's study, 
``Review of Auto Dealer Size Standard March 1991,'' prepared by Robert 
N. Ray. The study, which has been included in the docket, was 
undertaken to determine what assistance the SBA could provide to new 
and used automobile dealers. The industry was in distress at the time 
of the study due to a downturn in the business cycle. The study 
recommended an increase in the size limit to $13.5 million or $14.5 
million.
    The Department concurs with commenters who believe that a size 
standard based on gross receipts is inappropriate to the extent that 
revenues from fleet purchases are included, as only a small profit is 
made by the dealer in these transactions.
    The Department has concluded that car dealers meeting the SBA's 
size standard, in general, are not large enough to handle fleet 
purchases or are participating in a dealer development program and may 
own less than 51 percent of the dealership. As noted above, such 
dealers in development cannot qualify as DBEs. Thus, adopting the 
current SBA standard of $21 million may leave only a small pool of DBEs 
to perform the type of work eligible to be counted toward DBE goals. 
This approach could also eliminate many firms soon after ``graduating'' 
from a dealer development program and which could benefit significantly 
from the DOT's DBE program. Selection of a size standard must also 
consider the substantial capital investment that a new car dealer 
makes. Setting the standard too low may not provide sufficient time for 
the firm to develop and grow.
    Extensive research may be required in order for the Department to 
determine an appropriate receipts-based standard that excludes revenues 
from fleet purchases. A commenter observes that SBA regulations include 
an employee-based size standard of 500 employees for Division G, 
``Retail Trade,'' non-manufacturers engaged in government procurement, 
and 100 employees for wholesale dealers for Division F, ``Automobiles 
and Other Motor Vehicles.'' The Department is proposing to use a 
maximum of 500 employees as the standard. It would apply to any firm 
that meets the definition of SIC 5511, ``Motor Vehicle Dealers (New and 
Used),'' found in 49 CFR Section 26.101 under ``small business 
concern.'' Given the nature of the comments, we do not believe that 
this standard would result in a very few DBEs dominating the market, to 
the detriment of smaller DBEs.
    If the proposal is adopted, the FAA would notify sponsors in the 
event of a change to the definition of SIC 5511. The size standard of 
500 employees would apply to any firm meeting this definition, 
regardless of the type of goods and/or services it seeks to provide 
under the concession program. Thus, if a DBE dealer arranges for a 
fleet purchase and provides vehicle repair services to a 
concessionaire, a maximum of 500 employees would be used as the 
standard for both transactions (whereas, the SBA standard for many 
types of automobile repair and services is $5.0 million, as in Major 
Group 75). We believe that this approach would simplify administration 
of the program and is proposed based on many of the same factors as 
discussed above.
    One comment addresses the matter of the size standard for 
management contractors. This commenter believes that SBA's size 
standard of $3.5 million for parking lot contractors may be low, given 
the experience necessary to manage a parking lot. It suggests a survey 
of DBE firms currently in this business and of the minimum 
qualification criteria set by airports.
    In proposing to use SBA's size standards, the Department commented 
that management contractors, unlike concessionaires, generally are not 
required to make a substantial capital investment in a leasehold 
facility. Thus, they would not encounter the hardships associated with 
``graduating'' from the DBE program after exceeding the size standard, 
that ordinarily would befall concessionaires. Indeed, the turnover of 
DBEs would allow more firms to enter and benefit from the program.
    The SBA's April 7, 1994, final rule increased the size standard for 
parking lot operators to a maximum of $5.0 million. (See SIC 7521, 
``Automobile Parking.'') The Department points out that rulemaking 
procedures do not require a survey of organizations having an interest 
in the matter. Further, at least some of the information that would be 
obtained in a survey could have been addressed by commenters. 
Significantly, no firms and only one sponsor commented. In view of this 
and the recent increase in the standard, the Department proposes to use 
$5.0 million as the size standard for parking lot operators.
    The rule would also incorporate the SBA's size standards for all 
other providers of goods or services. With regard to leasing of 
vehicles, if a firm does not fall under SIC 5511, ``Motor Vehicle 
Dealers (New and Used),'' the appropriate size standard would generally 
be SIC 7515, ``Passenger Car Leasing,'' which is set at $18.5 million.
    The SNPRM would make an inflationary adjustment to the size 
standards for concessionaires, pursuant to the Secretary's authority 
under 49 CFR Section 26.101. The Department of Commerce, Bureau of 
Economic Analysis, prepares estimates of personal consumption 
expenditures using suitable price indices. These indices include 
purchases of goods and services, many of which are sold to the public 
by airport concessionaires. The implicit price deflator for personal 
consumption expenditures was 10.9 from June 1992 to March 1996. Since 
size standards for concessionaires were originally established and 
became effective June 1, 1992, the second

[[Page 29588]]

quarter of 1992 is used as the base period. 10.9 percent represents the 
rate of increase since that time. By multiplying the appropriate size 
standard by 1.109 we are able to adjust dollar figures for inflation.
    Thus, $40,000,000 multiplied by 1.109 yields $44,360,000 as the 
proposed new size standard for auto rental concessionaires. 
$30,000,000, when multiplied by 1.109, yields $33,270,000 as the 
proposed new size standard for many other categories of 
concessionaires. These standards would apply to concessions as listed 
in Appendix G, until such time as they are amended. The standards will 
be further adjusted upon issuance of a final rule.

Miscellaneous Comments to the NPRM

    The SNPRM does not incorporate a recommendation by one commenter to 
require prompt payment to DBE contractors. The Department has no 
experience in administering a concession program involving providers of 
goods or services and does not know whether prompt payment to DBEs is 
an issue under such contracts. This matter can be reconsidered at a 
later point if problems are brought to our attention.
    Two commenters believe that the proposed revisions are not in the 
best interest of minorities. One is concerned that the resources 
required to monitor purchases of goods and services and management 
contractors will make it more difficult to facilitate DBE involvement 
in direct ownership arrangements. The Department does not concur that 
such monitoring will impose an unreasonable burden. Additionally, the 
Department is required by statute to issue a regulation implementing 
the provisions relating to goods and services.
    Another commenter supports the idea of implementing a ``managed 
growth'' program in which DBEs move from threshold to threshold in 
terms of development. Upon attaining the level of progress that enables 
the firm to compete in the free marketplace, the DBE program will have 
accomplished its goal. The comment does not indicate whether such 
``thresholds'' are size standards or other types of developmental 
stages. Another commenter believes that the proposed development 
program presents major problems and should not be included without 
research and testing. We point out that the October 3, 1993, NPRM did 
not propose a developmental program for DBEs. Such a program was 
proposed for DOT-assisted contractors and is addressed in that section 
of the SNPRM.

Other Matters Pertaining to Adarand

    The SNPRM does not include a proposal for diversifying DBEs in 
concessions similar to the one proposed under Sec. 26.33 for DOT-
assisted contractors. There are several reasons for this. First, 
available data does not indicate that DBEs are concentrated in 
particular types of concessions. Further, when all primary airports are 
included, DBEs have accounted for less than 10 percent of total gross 
receipts earned during each of the past three years. Many individual 
airports are also below this level. Additionally, in contrast to 
highway construction, very few non-DBEs have complained to the 
Department of being excluded from particular types of concessions due 
to a concentration of DBEs.
    Like the current rule, the SNPRM would require a DBE to leave the 
program once it exceeds a specified size standard. As in the other 
portions of the SNPRM, Subpart G does not propose additional 
``graduation'' provisions. However, the Department seeks comment on 
whether additional provisions affecting the duration element of narrow 
tailoring should be added to this portion of the rule.

Regulatory Analyses and Notices

Executive Order 12866

    This is a significant NPRM under Executive Order 12886. We view it 
as significant because it has substantial policy and public interest 
and affects a broad variety of parties across three DOT modes. As noted 
earlier in the preamble, this SNPRM is one part of the Clinton 
Administration's overall reform of affirmative action programs. For the 
same reasons, it is also significant under the Department's Regulatory 
Policies and Procedures.
    We do not believe that the SNPRM would have significant economic 
impacts, however. In evaluating the potential economic impact of this 
SNPRM, we begin by noting that this proposal would not create a new 
program. It would revise the rule governing an existing program. The 
economic impacts of the DBE program are created by the existing 
regulation and the statutes that mandate it. The changes that we 
propose in this program are likely to have some positive economic 
impacts. For example, ``one-stop shopping'' and clearer standards in 
certification are likely to reduce costs for small businesses applying 
for DBE certification, as well as reducing administrative burdens on 
recipients.
    ``Narrow tailoring'' changes are likely to be neutral in terms of 
their overall economic impact. These could have some distributive 
impacts (e.g., if the proposed goal-setting mechanism results in 
changes in DBE goals, a different mix of firms may work on DBE 
contracts), but there would probably not be net gains or losses to the 
economy. There could be some short-term costs to recipients owing to 
changes in program administration resulting from ``narrow tailoring,'' 
however.
    In any event, the economic impacts are quite speculative and appear 
nearly impossible to quantify. We do not now have any data that would 
allow us to quantify these impacts. The Department is working with 
other agencies to see if data on DBE participation and potential 
effects of the proposal can be obtained. We also seek comments and 
information on the issue of economic impacts or costs to participants. 
We will conduct further analysis if information or comments we receive 
make it possible.

Regulatory Flexibility Act Analysis

    The DBE program is aimed at improving contracting opportunities for 
small businesses owned and controlled by socially and economically 
disadvantaged individuals. Virtually all the businesses it affects are 
small entities. There is no doubt that a DBE rule always affects a 
substantial number of small entities.
    The SNPRM, while improving program administration and facilitating 
DBE participation (e.g., by making the certification process clearer) 
and responding to legal developments, appears essentially cost-neutral 
with respect to small entities in general (as noted above, the one-stop 
shopping feature is intended to benefit small entities seeking to 
participate). It does not impose new burdens or costs on small 
entities, compared to the existing rule. It does not affect the total 
funds or business opportunities available to small businesses who seek 
to work in DOT financial assistance programs. To the extent that the 
proposals in this SNPRM (e.g., with respect to changes in the methods 
used to set overall goals) lead to a different goals than the existing 
rule, some small firms may gain, and others lose, business.
    There is no data of which the Department is aware that would permit 
us, at this time, to measure the distributive effects of the proposed 
revisions on various types of small entities. It is likely that any 
attempt to gauge these effects would be highly speculative. For this 
reason, we are not able to make a quantitative, or even a precise 
qualitative, estimate of these effects.
    Nevertheless, the Department seeks any information that commenters 
may

[[Page 29589]]

have on potential small entity impacts of the SNPRM, particularly the 
provisions concerning goal-setting and DBE diversification. In addition 
to reviewing information we receive in comments, DOT anticipates 
working with other agencies involved in the Administration's 
affirmative action reform effort to benefit from research and analysis 
they have performed. Based on the information we have obtained (or 
program data after a final rule is implemented), the Department may be 
in a position to do a more detailed analysis of small entity impacts in 
the future.

Paperwork Reduction Act

    At the present time, under 49 CFR Part 23, the Department has one 
information collection item approved under the Paperwork Reduction Act. 
This is for a quarterly DBE data report from recipients to DOT (OMB No. 
2105-0510). This approval expires July 31, 1997. Under the SNPRM, the 
frequency of reporting would change from four times a year to twice a 
year, which would reduce the burden involved.
    Under Part 23, there are other regulatory requirements that may 
have Paperwork Reduction Act implications. These include the 
requirement for applicants for DBE participation to submit eligibility 
information to recipients (Appendix C of the SNPRM contains a proposed 
certification form that applicants would use) and for recipients to 
submit DBE programs and overall goals to DOT for approval. Similar 
requirements apply in the airport concessions portion of the rule. 
These provisions, for the most part, originated before the current 
version of the Paperwork Reduction Act, and the Department did not, at 
the time, submit Paperwork Reduction Act approval requests concerning 
them. These activities would continue under the SNPRM, which would also 
add a one-time requirement for the submission of a unified 
certification program plan to the Department for approval.
    The Department intends to analyze information collection 
requirements in the DBE program in greater detail before the issuance 
of a final rule, and we seek comments on information collection issues. 
The Department intends, based on its own analysis and information we 
receive in comments, to submit a formal information collection approval 
request to OMB in connection with paperwork contained in Part 26.
    Organizations and individuals wishing to submit comments on these 
proposed requirements should direct comments to OMB's Office of 
Information and Regulatory Affairs, Room 10235, New Executive Office 
Building, Washington, DC 20503: Attention: Desk Officer for U.S. 
Department of Transportation. OMB is required to make a decision 
concerning the collection of information proposed in this SNPRM between 
30 and 60 days after its publication. Therefore, a comment to OMB is 
best assured of having its full effect if OMB receives it within 30 
days of publication. This does not affect the Department's comment 
closing date.

Regulatory Reform Initiative

    This proposal is intended to help the Department achieve the goals 
of the Clinton Administration's Regulatory Reform Initiative. It does 
so in several ways. It proposes to reduce the frequency of reports. It 
proposes to reduce the burden on small businesses by creating a one-
stop shopping certification system in each state and by ensuring that 
recipient certification processes treat all applicants fairly and 
consistently.
    One of the most burdensome aspects of the current administration of 
the program is the vagueness of certification standards and the 
multiplicity of interpretations and varying guidance and policies that 
have implemented these standards at the Federal, state, and local 
levels. To address this problem, the SNPRM reinvents the certification 
standards and provides clear, specific, uniform, nationwide standards 
for certification. This will provide greater certainty to all 
participants and reduce the time, difficulty, and cost involved in the 
certification process. It will also substantially improve the fairness 
of the process to applicants.
    One aspect of regulatory reinvention is enhancing partnership with 
state and local governments, providing greater opportunities for state 
and local innovation and responsibility in carrying out programs. The 
SNPRM seeks to do so in a number of ways, such as the program waiver 
provision and the flexibility provided to establish the unified 
certification process in each state. The Department seeks comment on 
additional ways the DBE program can accomplish this objective.
    The Department also seeks comment on additional ways in which the 
Department's regulation can be reinvented, simplified, clarified, or 
made easier for participants to work with, consistent with the goals of 
the Administration's Regulatory Reform Initiative.

Federalism

    The SNPRM does not have sufficient Federalism impacts to warrant 
the preparation of a Federalism assessment. While the rule concerns the 
activities of state and local governments in DOT financial assistance 
programs, the proposal would not significantly alter the role of state 
and local governments vis-a-vis DOT from the present Part 23. The 
proposal to permit program waivers could allow greater flexibility for 
state and local participants, however.

    Issued this 21st day of May, 1997, at Washington, DC.
Rodney E. Slater,
Secretary of Transportation.
    For the reasons set forth in the preamble, and under the authority 
of 49 U.S.C. 322, the Department proposes to amend Title 49, Subtitle 
A, by removing Part 23 and adding Part 26, to read as follows:

PART 26--PARTICIPATION BY DISADVANTAGED BUSINESS ENTERPRISES IN 
DEPARTMENT OF TRANSPORTATION FINANCIAL ASSISTANCE PROGRAMS

Subpart A--General

Sec.
26.1  What are the purposes of this rule?
26.3  To whom does this rule apply?
26.5  What do the terms used in this rule mean?
26.7  What discriminatory actions are forbidden?
26.9  How does the Department issue guidance, interpretations, 
exemptions and program waivers under this rule?
26.11  What records do recipients keep and report?
26.13  What assurances must recipients and contractors make?
26.15-26.19  [Reserved]

Subpart B--Administrative Requirements for DBE Programs for Federally-
Assisted Contracting

26.13  What assurances must recipients and contractors make?
26.23  What is the requirement for a policy statement?
26.25  What is the requirement for a liaison officer?
26.27  What efforts must recipients make concerning DBE financial 
institutions?
26.29  What prompt payment mechanisms may recipients have?
26.31  What requirements pertain to the DBE directory?
26.33  What steps must a recipient take to foster DBE 
diversification?
26.35  What are a recipient's responsibilities for monitoring the 
performance of other program participants?
26.37-39  [Reserved]

Subpart C--Goals, Good Faith Efforts, and Counting

26.41  How do recipients set overall goals?
26.43  How are overall goals established for transit vehicle 
manufacturers?
26.45  What means do recipients use to meet overall goals?

[[Page 29590]]

26.47  What are the good faith efforts procedures recipients follow 
in situations where there are contract goals?
26.49  How is DBE participation counted toward goals?

Subpart D--Certification Standards

26.51  How are burdens of proof allocated in the certification 
process?
26.53  What rules govern group membership determinations?
26.55  What rules govern business size determinations?
26.57  What rule determine determinations of social and economic 
disadvantage?
26.59  What rules govern determinations of ownership?
26.61  What rules govern determinations concerning control?
26.63  What are other rules affecting certification?
26.65-26.69  [Reserved]

Subpart E--Certification Procedures

26.71  What are the requirements for Unified Certification Programs?
26.73  What procedures do recipients follow in making certification 
decisions?
26.75  What rules govern recipients' denials of initial requests for 
certification?.
26.77  What procedures does a recipient use to remove a DBE's 
eligibility?
26.79  What is the process for certification appeals to the 
Department of Transportation?
26.81  What actions do recipients take following DOT certification 
appeal decisions?
26.83  What procedures govern direct ineligibility complaints to 
DOT?
6.85-26.89  [Reserved]

Subpart F--Compliance and Enforcement

26.91  What compliance procedures apply to recipients?
26.93  What enforcement actions apply in FHWA and FTA programs?
26.95  What enforcement actions apply in FAA Programs?
26.97  What enforcement actions apply to firms participating in the
    DBE program?
26.99  What are the rules governing information, confidentiality, 
cooperation, and intimidation or retaliation?

Subpart G--DBE Participation in Airport Concessions

26.101  Definitions.
26.103  Applicability.
26.105  Requirements for airport sponsors.
26.107  Elements of Disadvantaged Business Enterprise (DBE) 
concession plan.
26.109  Rationale for basing overall goals on the number of 
concession agreements.
26.111  Obligations of concessionaires, contractors, and 
competitors.
26.113  Conditions precedent to counting purchases of goods and 
services (other than car rentals) toward DBE goals.
26.115  Privately-owned terminal buildings.
26.117  Prohibition on exclusive, long-term concession agreements.
26.119  Compliance procedures.
26.121  Effect of subpart.
Appendix A--Explanation and Construction of Provisions of 49 CFR 
Part 26
Appendix B--Good Faith Efforts
Appendix C--DBE Certification Form
Appendix D--DBE Developmental Program Guidelines
Appendix E--Mentor-Protege Program Guidelines
Appendix F--Guidance for Making Individual Determinations of Social 
and Economic Disadvantage
Appendix G--Size Standards for Airport Concessionaires

    Authority: Section 1003(b) of the Intermodal Surface 
Transportation Efficiency Act of 1991; 49 U.S.C. 47113, 47107, 
47123; 49 U.S.C. 1615; 23 U.S.C. 324; and 42 U.S.C. 2000d, et seq.

Subpart A--General


Sec. 26.1  What are the purposes of this part?

    In this part, the Department seeks to achieve several objectives:
    (a) To ensure nondiscrimination in the award and administration of 
DOT-assisted contracts in the Department's highway, transit, and 
airport financial assistance programs;
    (b) To result in programs that, consistent with Federal law, create 
significant opportunities for DBEs to participate, on a 
nondiscriminatory basis, in the DOT-assisted contracts
    (c) To carry out the statutory requirement concerning DBE 
participation in concessions at airports receiving Federal grant funds;
    (d) To assist the development of firms that can compete 
successfully in the marketplace outside the DBE program;
    (e) To ensure that only firms that fully meet this part's 
eligibility standards are permitted to participate as DBEs; and
    (f) To provide appropriate flexibility to recipients of Federal 
financial assistance in establishing and providing opportunities for 
DBEs.


Sec. 26.3  To whom does this part apply?

    (a) If you are a recipient of any of the following types of funds, 
this part applies to you:
    (1) Federal-aid highway funds authorized Titles I (other than Part 
B) and V of the Intermodal Surface Transportation Efficiency Act of 
1991 (ISTEA), Pub. L. 102-240.
    (2) Federal transit funds authorized by Titles I, III, V and VI of 
Pub. L. 102-240 or by Federal transit laws in Title 49, U.S. Code.
    (3) Airport funds authorized by the Airport and Airway Improvement 
Act of 1982 (AAIA), as amended.
    (b) If you are an airport sponsor that has received a grant for 
airport development after January 1988 authorized by the AAIA, as 
amended, Subpart G of this part applies to you.
    (c) If you are letting a contract, and that contract is to be 
performed entirely outside the United States, its possessions, Puerto 
Rico, Guam, or the Northern Marianas Islands, this part does not apply 
to the contract.
    (d) If you are letting a contract in which DOT financial assistance 
does not participate, this part does not apply to the contract.


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

    Affiliation has the same meaning the term has in the Small Business 
Administration (SBA) regulations, 13 CFR part 121.
    (1) Except as otherwise provided in 13 CFR part 121, concerns are 
affiliates of each other when, either directly or indirectly:
    (i) One concern controls or has the power to control the other; or
    (ii) A third party or parties controls or has the power to control 
both; or
    (iii) An identity of interest between or among parties exists such 
that affiliation may be found.
    (2) In determining whether affiliation exists, you must consider 
all appropriate factors, including common ownership, common management, 
and contractual relationships. You must consider affiliates together 
when you determine if a concern meets small business size criteria and 
the statutory cap on the participation of firms in the DBE program.
    Compliance means that you have correctly implemented the 
requirements of this part.
    Contract means a legally binding relationship obligating a seller 
to furnish supplies or services (including, but not limited to, 
construction and professional services) and the buyer to pay for them.
    Contractor means one who participates, through a contract or 
subcontract (at any tier), in a DOT-assisted highway, transit, or 
airport program.
    Department or DOT means the U.S. Department of Transportation, 
including the Office of the Secretary and FHWA, FTA, and FAA.
    DOT-assisted contract means any contract between a you and a 
contractor funded in whole or in part with DOT financial assistance 
(including letters of credit or loan guarantees), except a contract 
solely for the purchase of land.
    Disadvantaged business enterprise or DBE means a for-profit small 
business concern--
    (1) Which is at least 51 percent owned by one or more socially and 
economically disadvantaged individuals or, in the case of a 
corporation, in which

[[Page 29591]]

51 percent of the stock is owned by one or more such individuals; and
    (2) Whose management and daily business operations are controlled 
by one or more of the socially and economically disadvantaged 
individuals who own it.
    Good faith efforts means efforts to achieve a DBE goal or other 
requirement of this part which, by their scope, intensity, and 
appropriateness to the objective, can reasonably be expected to fulfill 
the program requirement.
    Joint venture means an association of a DBE firm and one or more 
other firms to carry out a single, for-profit business enterprise, for 
which the parties combine their property, capital, efforts, skills and 
knowledge, and in which the DBE is responsible for a distinct, clearly 
defined portion of the work of the contract and shares in the control, 
management, risks, and profits of the joint venture to a degree 
commensurate with its ownership interest.
    Noncompliance means that you have not correctly implemented the 
requirements of this rule.
    Operating Administration or OA means any of the following parts of 
DOT: the Federal Aviation Administration (FAA), Federal Highway 
Administration (FHWA), and Federal Transit Administration (FTA). The 
``Administrator'' of an operating administration includes his or her 
designees.
    Personal net worth means the net value of the assets of an 
individual remaining after total liabilities are deducted. An 
individual's personal net worth does not include
    (1) The individual's ownership interest in an applicant or 
participating DBE firm or
    (2) The individual's equity in his or her primary place of 
residence. An individual's personal net worth includes only his or her 
own share of assets held jointly or as community property with the 
individual's spouse.
    You are a Primary recipient if you receive DOT financial assistance 
and pass some or all of it on to another recipient.
    Program means any undertaking on your part to use DOT financial 
assistance.
    You are a Recipient if you are any entity, public or private, to 
which DOT financial assistance is extended, whether directly or through 
another recipient, through the programs of the FAA, FHWA, or FTA, or if 
you have applied for such assistance.
    Secretary means the Secretary of Transportation or his/her 
designee.
    Set-aside means a contracting practice restricting eligibility for 
the competitive award of a contract solely to DBE firms.
    Small Business Administration or SBA means the United States Small 
Business Administration.
    Small business concern means, with respect to firms seeking to 
participate as DBEs in DOT-assisted contracts, a small business concern 
as defined pursuant to section 3 of the Small Business Act and Small 
Business Administration regulations implementing it (13 CFR part 121) 
that also does not exceed the cap on average annual gross receipts 
specified in Sec. 26.55(b).
    Socially and economically disadvantaged individuals means 
individuals who are citizens (or lawfully admitted permanent residents) 
of the United States and who are:
    (1) Individuals in the following groups, who are rebuttably 
presumed to be socially and economically disadvantaged:
    (i) ``Black Americans,'' which includes persons having origins in 
any of the Black racial groups of Africa;
    (ii) ``Hispanic Americans,'' which includes persons of Mexican, 
Puerto Rican, Cuban, Central or South American, or other Spanish or 
Portuguese culture or origin, regardless of race;
    (iii) ``Native Americans,'' which includes persons who are American 
Indians, Eskimos, Aleuts, or Native Hawaiians;
    (iv) ``Asian-Pacific Americans,'' which includes persons whose 
origins are from Japan, China, Taiwan, Korea, Burma (Myanmar), Vietnam, 
Laos, Cambodia (Kampuchea), Thailand, Malaysia, Indonesia, the 
Philippines, Brunei, Samoa, Guam, the U.S. Trust Territories of the 
Pacific Islands (Republic of Palau), the Commonwealth of the Northern 
Marianas Islands, Macao, Fiji, Tonga, Kirbati, Juvalu, Nauru, Federated 
States of Micronesia, or Hong Kong.
    (v) ``Subcontinent Asian Americans,'' which includes persons whose 
origins are from India, Pakistan, Bangladesh, Bhutan, the Maldives 
Islands, Nepal or Sri Lanka.
    (vi) Women.
    (vii) Any additional groups whose members are designated as 
socially and economically disadvantaged by the SBA, at such time as the 
SBA designation becomes effective.
    (2) Any individual, not a member of one of these groups, who a 
recipient finds to be a socially and economically disadvantaged 
individual on a case-by-case basis.
    You refers to recipients, unless the context requires otherwise.


Sec. 26.7  What discriminatory actions are forbidden?

    (a) You must never exclude any person from participation in, deny 
any person the benefits of, or otherwise discriminate against anyone in 
connection with the award and performance of any contract covered by 
this rule on the basis of race, color, sex, or national origin.
    (b) In administering your DBE program, you must not, directly or 
through contractual or other arrangements, use criteria or methods of 
administration that have the effect of defeating or substantially 
impairing accomplishment of the objectives of the program with respect 
to individuals of a particular race, color, sex, or national origin 
(see the Department's rules implementing Title VI of the Civil Rights 
Act of 1964, 49 CFR part 21).


Sec. 26.9  How does the Department issue guidance, interpretations, 
exemptions and program waivers under this part?

    (a) This part supersedes the former 49 CFR part 23 contained in the 
49 CFR, parts 1 to 99, edition revised as of October 1, [19--]. Only 
guidance and interpretations (including interpretations set forth in 
certification appeal decisions) consistent with and issued after [the 
effective date of the final rule] have definitive, binding, or 
precedential effect in implementing the provisions of this part.
    (b) The Office of the Secretary of Transportation and FHWA, FTA, 
and FAA may issue written interpretations of or written guidance 
concerning this part. Interpretations are valid and binding only if 
they contain the following statement:

    This interpretation of 49 CFR Part 26 has been reviewed and 
approved through the Department of Transportation DBE Coordination 
Mechanism for consistency with the language and intent of Part 26.

    (c) If you want an exemption from any provision of this part, you 
must request it in writing from the Office of the Secretary of 
Transportation, FHWA, FTA, or FAA. We will grant the request only if it 
meets these criteria:
    (1) The request documents special or exceptional circumstances, not 
likely to be generally applicable, and not contemplated in connection 
with the rulemaking that established this part effective [effective 
date of final rule], that make your compliance with a specific 
provision of this part impracticable. You must agree to take steps we 
specify to comply with the intent of the provision from which an 
exemption is granted.
    (2) We will issue written responses to all exemption requests. 
Grants or

[[Page 29592]]

denials of exemption requests are valid and binding only if they 
contain the following statement:

    This response to a request for an exemption from 49 CFR Part 26 
has been reviewed and approved through the Department of 
Transportation DBE Coordination Mechanism for consistency with the 
language and intent of Part 26.

    (d) If you want a program waiver authorizing you to operate a DBE 
program that achieves the objectives of this part by means that differ 
from one or more of the requirements of subparts B, C or G of this 
part, you must follow these procedures:
    (1) You must apply through the concerned operating administration. 
The application must include a specific program proposal and address 
how you will meet the criteria of paragraph (d)(2) of this section. 
Before submitting its application, you must have had public 
participation in developing your proposal, including consultation with 
the DBE community and at least one public hearing. Your application 
must include a summary of the public participation process and the 
information gathered through it.
    (2) Your application must show that--
    (i) There is a reasonable basis to conclude that you could achieve 
a level of DBE participation consistent with the objectives of this 
rule using different, innovative, or less prescriptive means than are 
provided in subparts B , C or G.
    (ii) Conditions in your jurisdiction are appropriate for 
implementing the proposal.
    (iii) Your proposal would prevent discrimination against any 
individual or group in access to contracting opportunities or other 
benefits of the program; and
    (iv) Your proposal is consistent with legal and program 
requirements of the concerned operating administration's financial 
assistance program.
    (3) The Secretary decides whether to grant your application. If the 
Secretary grants your application, you may administer your DBE program 
as provided in your proposal, subject to the following conditions:
    (i) DBE eligibility is determined as provided in subparts D and E 
of this part, and DBE participation is counted as provided in 
Sec. 26.49 of this part or Subpart G, as applicable;
    (ii) Your level of DBE participation continues to be consistent 
with the objectives of this part;
    (iii) There is a reasonable limitation on the duration of the 
modified program; and
    (iv) Any other conditions the Secretary makes on the grant of the 
waiver.
    (4) The Secretary may end a program waiver at any time and require 
you to comply with this part's provisions. The Secretary may also 
extend the waiver, if he or she determines that all requirements of 
paragraphs (d) (2) and (3) of this section continue to be met. Any such 
extension shall be for no longer than the period originally set for the 
duration of the program.
    (5) The Secretary and Administrators of the concerned operating 
administrations may establish a limit on the number of recipients' 
programs operating under a waiver provided under this paragraph.


Sec. 26.11  What records do recipients keep and report?

    (a) You must retain sufficient basic information about its program 
implementation, its certification of DBEs, and the award and 
performance of contracts and subcontracts to enable the concerned 
operating administration to monitor your compliance with this part. 
Keep this data for at least three years after the completion of the 
contract or project.
    (b) You must report data to the concerned operating administration 
concerning DBE participation in DOT-assisted contracts twice a year, in 
a format and on dates determined by the appropriate DOT office.
    (c) You must follow the requirements in this section whether or not 
you have to have a DBE program under Sec. 26.21 of this part.


Sec. 26.13  What assurances must recipients and contractors make?

    (a) Except as provided in paragraph (b) of this section, each 
financial assistance agreement you sign with a DOT operating 
administration (or a primary recipient) must include the following 
assurance:

    The recipient shall not discriminate on the basis of race, 
color, national origin, or sex in the award and performance of any 
DOT-assisted contract or in the administration of its DBE program or 
the requirements of this Part. The recipient shall take all 
necessary and reasonable steps under 49 CFR Part 26 to ensure 
nondiscrimination in the award and administration of DOT-assisted 
contracts. The recipient's DBE program, if required by 49 CFR Part 
26 and as approved by DOT, is incorporated by reference in this 
agreement. Implementation of this program is a legal obligation and 
failure to carry out its terms shall be treated as a violation of 
this agreement. Upon notification to the recipient of its failure to 
carry out its approved program, the Department may impose sanctions 
as provided for under Part 26 and may, in appropriate cases, refer 
the matter for enforcement under 18 U.S.C. 1001 and/or the Program 
Fraud Civil Remedies Act of 1986 (31 U.S.C. 3801 et seq.).

    (b) An operating administration may, in place of the assurance in 
paragraph (a) of this section, prescribe other language you must agree 
to in grant agreements or certifications of compliance.
    (c) Each contract you sign with a contractor (and each subcontract 
the prime contract signs with a subcontractor) must include the 
assurance in this paragraph.

    The contractor, subrecipient or subcontractor shall not 
discriminate on the basis of race, color, national origin, or sex in 
the performance of this contract. The requirements of 49 CFR Part 26 
and the recipient's DOT-approved DBE program (where required) are 
incorporated in this contract by reference. The contractor shall 
take all necessary and reasonable steps in accordance with Part 26 
to ensure nondiscri-mination in the award and administration of DOT-
assisted contracts. Failure by the contractor to carry out these 
requirements is a material breach of this contract, which may result 
in the termination of this contract or such other remedy as the 
recipient deems appropriate.

Subpart B--Administrative Requirements for DBE Programs for 
Federally-Assisted Contracting


Sec. 26.21  Who must have a DBE program?

    (a) If you are in one of these categories and let DOT-assisted 
contracts, you must have a DBE program meeting the requirements of 
subparts B, C, D, and E of this part:
    (1) All FHWA recipients;
    (2) FTA recipients that receive $250,000 or more in FTA planning, 
capital, and/or operating assistance in a Federal fiscal year.
    (3) FAA recipients that receive a grant of $250,000 or more for 
airport planning or development.
    (b) (1) You must submit your program for approval to the concerned 
operating administration. You must submit revised programs conforming 
to this part by [a date 180 days from the effective date of the final 
rule]. Once we approve your program, the approval counts for all DOT 
programs.
    (2) You don't have to submit regular updates of your DBE programs, 
as long as you remain in compliance. However, you must submit 
significant changes in the program for approval.
    (c) You are not eligible to receive DOT financial assistance unless 
DOT has approved your DBE program and you are in compliance with it and 
this part. You must continue to carry out your program until all funds 
from DOT financial assistance have been expended.

[[Page 29593]]

Sec. 26.23  What is the requirement for a policy statement?

    You must issue a signed and dated policy statement which expresses 
your commitment to your DBE program, states its objectives, and 
outlines responsibilities for its implementation. You must circulate 
the statement throughout your organization and to the DBE and non-DBE 
business communities that perform work on your DOT-assisted contracts.


Sec. 26.25  What is the requirement for a liaison officer?

    You must have a DBE liaison officer, who shall have direct, 
independent access to your Chief Executive Officer concerning DBE 
program matters. The liaison officer shall be responsible for 
implementing all aspects of your DBE program. You must also have 
adequate staff to administer the program in compliance with this part.


Sec. 26.27  What efforts must recipients make concerning DBE financial 
institutions?

    You must thoroughly investigate the full extent of services offered 
by financial institutions owned and controlled by socially and 
economically disadvantaged individuals in its community and make 
reasonable efforts to use these institutions. You must also encourage 
prime contractors to use such institutions.


Sec. 26.29  What prompt payment mechanisms may recipients have?

    You may establish, as part of your DBE program, one or more 
mechanisms to ensure that DBE subcontractors are promptly and fully 
paid.
    (a) You may include a contract clause to require prime contractors 
to pay DBE subcontractors for satisfactory performance of their 
contracts no later than a specific number of days (e.g., 10 days) from 
receipt of each payment you make to the prime contractor. This prompt 
payment clause may also provide for appropriate penalties for failure 
to comply, the terms and conditions of which you set.
    (b) Prompt payment clauses may also provide that any delay or 
postponement of payment among the parties may take place only for good 
cause, with your prior written approval.
    (c) You may also use a contract clause that requires prime 
contractors to include in their DBE subcontracts language providing 
that prime contractors and DBE subcontractors will use appropriate 
alternative dispute resolution mechanisms to resolve payment disputes. 
You may specify the nature of such mechanisms.
    (d) You may include a contract clause providing that the prime 
contractor will not be reimbursed for work performed by DBE 
subcontractors unless and until the prime contractor ensures that the 
DBE subcontractors are promptly paid for the work they have performed.
    (e) You may establish other mechanisms, consistent with this part 
and applicable state and local law, to ensure that DBEs are fully and 
promptly paid, including the prompt return of retainage payments 
following the satisfactory completion of the DBE's portion of the work.


Sec. 26.31  What requirements pertain to the DBE directory?

    You must maintain and make available to interested persons a 
directory identifying all eligible DBEs. In the listing for each firm, 
you must include its address, phone number, and the types of work the 
firm has been certified to perform as a DBE. The listing may include 
additional relevant information. You must revise your directory at 
least annually and make updated information available to contractors 
and the public on request.


Sec. 26.33  What steps must a recipient take to foster DBE 
diversification?

    (a) You must include in your DBE program a diversification 
mechanism to discourage the concentration of DBEs in certain fields. 
The mechanism shall provide that--

Alternative 1

    If DBE firms receive [50, 75] percent or more of the contracts in a 
particular field in a given year, you will count toward overall and 
contract goals in the next year 50 percent of the DBE participation in 
that field that is normally countable under Sec. 26.49.

Alternative 2

    If the cumulative DBE participation in a particular field during 
any year exceeds four times your overall goal percentage as applied to 
the work projected to be available in that field over the entire year, 
you will not count any DBE credit for participation in that field for 
contracts awarded during the remainder of the year.

Alternative 3

    If all DBEs receive [50, 75] percent or more of the contracts in a 
particular field in a given year, you will not, in the following year, 
count toward overall and contract goals any participation in that field 
of a particular DBE firm (or its affiliate) that has received four or 
more contracts in that field over the preceding four years.

Alternative 4

    If DBEs receive [50, 75] percent or more of the contracts in a 
particular field in a given year, you will, in the following year, 
tailors its contract goals to specify participation in other fields.
    (b) In operating outreach and technical assistance programs under 
Sec. 26.45(a), you must give priority to assisting firms to enter 
fields in which DBEs receive [10, 25, 50] percent or fewer of the 
contracts.
    (c) You may, or, if an operating administration directs you to, 
must establish a DBE business development program (BDP) to assist 
selected DBE firms in becoming able to compete in fields in which DBEs 
receive [10, 25, 50] percent or fewer of the contracts awarded. You may 
include in this program only firms that meet these criteria:
    (1) A DBE firm must have been certified by you for at least two 
years and must have participated in at least one of your DOT-assisted 
contracts during that time.
    (2) You must have made the following determinations about the firm:
    (i) It has as its primary area of operation a field in which DBEs 
have received at least [50, 75] percent of your DOT-assisted contracts 
in at least one of the previous three years, and
    (ii) It is capable, with business development assistance, of 
competing successfully in one or more fields in which DBEs have 
received [10, 25, 50] percent or fewer of your DOT-assisted contracts 
in at least one of the previous three years.
    (3) In providing business development assistance to DBE firms, you 
must be guided by the provisions of appendix D of this part.
    (d) As part of a BDP established under paragraph (c) of this 
section, you may establish a ``mentor-protege'' program, in which 
another DBE or non-DBE firm is a principal source of business 
development assistance. To participate in such a program, a DBE firm 
must meet these criteria:
    (1) It must meet the criteria of paragraphs (c) (1) and (2) of this 
section.
    (2) It must have participated, during the preceding two years, in 
at least one contract you let in which the mentor firm did not 
participate.
    (e) In operating a mentor-protege program, you must follow these 
additional requirements:
    (1) During the course of the mentor-protege relationship, you must 
not award DBE credit to the mentor firm for using the protege firm for 
more than one half of its goal on any contract let by the recipient.

[[Page 29594]]

    (2) For purposes of making determinations of business size under 
this part, you must not treat protege firms as affiliates of mentor 
firms, when both firms are participating under an approved mentor-
protege program.
    (3) You must operate your mentor-protege program consistent with 
the guidelines of appendix E to this part.
    (f) For purposes of this section, a ``field'' means an industry as 
defined by a four-digit SIC code in 13 CFR part 121 or a readily 
identifiable category of work in your DOT-assisted contracting, as 
designated in your DBE program with the approval of the concerned 
operating administration.


Sec. 26.35  What are a recipient's responsibilities for monitoring the 
performance of other program participants?

    You must implement appropriate mechanisms to ensure compliance with 
this part's requirements by all program participants. You must include 
in your DBE program the contract provisions, enforcement mechanisms, or 
other means you use to ensure compliance. These must include a 
monitoring and enforcement mechanism to verify that the work committed 
to DBEs at contract award is actually performed by the DBEs.


Secs. 26.37-39  [Reserved]

Subpart C--Goals, Good Faith Efforts, and Counting


Sec. 26.41  How do Recipients Set Overall Goals?

    (a) You must have an overall goal and calculate it as follows:
    (1) If you are an FHWA recipient, as a percentage of all Federal-
aid highway funds you will expend in FHWA-assisted contracts in the 
forthcoming fiscal year;
    (2) If you are an FTA or FAA recipient, as a percentage of all FTA 
or FAA funds (exclusive of FTA funds to be used for the purchase of 
transit vehicles) that you will expend in FTA or FAA-assisted contracts 
in the forthcoming fiscal year. In appropriate cases, the FTA or FAA 
Administrator may permit you to express your overall goal as a 
percentage of funds for a particular grant or project or group of 
grants and/or projects.
    (b) Except as provided in paragraphs (c) through (e) of this 
section, you must calculate its overall goal in the following way:

Alternative 1

    (1) Calculate the number of DBE firms available to work on your 
DOT-assisted contracts. This is the number of certified DBE firms in 
your DBE directory.
    (2) Calculate the total number of firms available to work on your 
DOT-assisted contracts. This number includes both the DBE firms in your 
DBE directory and non-DBE firms available to work on your DOT-assisted 
contracts.
    (3) Calculate the percentage of DBEs among the total number of 
firms available to work on the recipient's DBE contracts. The result 
represents DBE capacity and becomes your overall goal.

    Example to paragraph (b): You have 10 DBE firms in your 
Directory. There are 100 firms, including the 10 DBEs and 90 non-
DBEs, available to work on your DOT-assisted contracts. Your overall 
goal is 10 percent.

Alternative 2

    (1) Calculate the number of minority and women-owned firms in your 
jurisdiction, using 2-digit SIC codes covering the principal types of 
work in your DOT-assisted contracts.
    (2) Calculate the total number of firms in your jurisdiction in the 
same SIC codes.
    (3) Calculate the percentage that minority- and women-owned firms 
make up of all firms. This percentage becomes your DBE goal.

    Example to paragraph (b): You determine that there are 10 
minority-and women-owned firms (not just DBE firms) in your 
jurisdiction in the three two-digit SIC codes in which you do the 
bulk of your DOT-assisted contracting. In these same SIC codes, 
there are a total of 100 firms in your jurisdiction. Your overall 
goal is 10 percent.

Alternative 3

    (1) Calculate the average number of DBE firms that have worked on 
your DOT-assisted contracts in any capacity (e.g., as prime 
contractors, subcontractors, suppliers) in the preceding five years.
    (2) Calculate the average number of all firms that have worked on 
your DOT-assisted contracts in any capacity in the preceding five 
years.
    (3) Using the average numbers calculated in paragraphs (b) (1) and 
(2), determine the percentage that DBE firms make up of all firms that 
have worked for you in the preceding five years. This percentage 
becomes your overall goal.

    Example to paragraph (b): Over the five years preceding this 
year, the following numbers of firms have worked for you:

------------------------------------------------------------------------
                                                       DBEs    All firms
------------------------------------------------------------------------
Year 1............................................          4         45
Year 2............................................          5         49
Year 3............................................          6         42
Year 4............................................          4         38
Year 5............................................          6         41
                                                   ---------------------
  Total...........................................         25        215
  Average.........................................          5        43 
  Percentage--11.6%--becomes the overall goal...........................
------------------------------------------------------------------------

    (c) Under the following circumstances, you may use an overall goal 
developed by another agency:
    (1) You may use a ``benchmark'' developed by the U.S. Department of 
Commerce (DOC) for purposes of Federal procurement if--
    (i) The geographic scope of your market with respect to the type of 
business involved is generally similar to the geographic scope of the 
market studied by DOC; and
    (ii) You make an appropriate adjustment to the ``benchmark'' to 
account for the participation of women-owned DBEs (which are not 
included in the DOC numbers).
    (2) You may use an overall goal developed under paragraph (b) of 
this section by another DOT recipient if the other recipient's goal 
pertains to an area generally similar to the area from which you obtain 
contractors for DOT-assisted contracts.

    Example to paragraph (c)(2): City X is located within State Y. 
The city transit authority could use the State DOT's overall goal, 
assuming that it procures from the same general area. It could also 
use the local airport's overall goal, assuming that the airport and 
transit authority typically obtained contractors for DOT-assisted 
projects from the same general area.

    (3) When you use the overall goal of another agency, you may adjust 
that goal upward or downward based on information about differences 
between your market and that of the other agency.

    Example to paragraph (c)(3): City X uses the overall goal 
developed by State Y's DOT. However, there is a heavier 
concentration of minority-owned businesses in City X than there is 
statewide. City X could adjust its goal upward to take this 
demographic difference into account.

    (d) With the approval of the concerned operating administration, 
you could use another means (e.g., a disparity study) of calculating 
your overall goal, provided that this means is narrowly tailored to 
redress the effects of discrimination.
    (e) On the basis of evidence that discrimination has suppressed 
business development by DBEs, you must increase the overall goal by a 
percentage representing the degree to which DBE capacity has been 
suppressed.

    Example to paragraph (e): You determine that discrimination has 
suppressed DBE business development by 20 percent. DBE capacity is 
10 percent. The overall goal

[[Page 29595]]

becomes 12 percent (i.e., the 10 percent capacity number plus 20 
percent of that number).

    (f)(1) If you set overall goals on a fiscal year basis, you must 
submit them to the applicable DOT operating administration for review 
60 days before the beginning of the Federal fiscal year to which the 
goal applies, or at another time determined by the Administrator of the 
concerned operating administration.
    (2) If you are an FTA or FAA recipient and set your overall goal on 
a project or grant basis, you must submit the goal for review at a time 
determined by the FTA or FAA Administrator.
    (3) You must include with your overall goal submission a 
description of the methodology you used to establish the goal and the 
basis for selecting the particular goal submitted.
    (4) You are not required to obtain prior operating administration 
concurrence with your overall goal. However, if the operating 
administration's review suggests that your overall goal has not been 
correctly calculated, or that its justification is inadequate, the 
operating administration may, after consulting with you, adjust your 
overall goal. The adjusted overall goal is binding on you.
    (g) In establishing an overall goal, you must provide for public 
participation. This public participation must include:
    (1) Consultation with minority, women's and general contractor 
groups, community organizations, and other officials or organizations 
which could be expected to have information concerning the availability 
of disadvantaged businesses, the effects of discrimination on 
opportunities for DBEs, and your efforts to increase the participation 
of DBEs.
    (2) A published notice announcing your proposed overall goal, 
informing the public that the proposed goal and its rationale are 
available for inspection during normal business hours at your principal 
office for 30 days following the date of the notice, and informing the 
public that you and the Department will accept comments on the goals 
for 45 days from the date of the notice. The notice must include 
addresses to which comments may be sent, and you must publish it in 
general circulation media and available minority-focus media and trade 
association publications.
    (h) If you don't establish and implement an overall goal as 
provided in this section, you are in noncompliance with this part and 
you are not eligible to receive FHWA, FTA, or FAA financial assistance.
    (i) If you don't meet your overall goal, you will have an 
opportunity to explain to the concerned operating administration why 
you could not do so and why meeting the goal was beyond your control. 
If you do not make such an explanation, or the explanation is 
inadequate, the operating administration may direct you to take 
remedial action. If you don't take this remedial action, you are in 
noncompliance with this part.
    (j) Your overall goals must provide for participation by all 
certified DBEs and must not be subdivided into group-specific goals.


Sec. 26.43  How are overall goals established for transit vehicle 
manufacturers?

    (a) If you are an FTA recipient, you must require in your DBE 
program that each transit vehicle manufacturer, as a condition of being 
authorized to bid on FTA-assisted transit vehicle procurements, certify 
that it has complied with the requirements of this section. You do not 
include FTA assistance used in transit vehicle procurements in the base 
amount from which your overall goal is calculated.
    (b) If you are a transit vehicle manufacturer, you must use an 
overall goal determined by FTA on a national basis for the industry. 
The base from which the goal shall be calculated is the amount of FTA 
financial assistance participating in transit vehicle contracts you 
will perform during the fiscal year in question. FTA will not include 
funds attributable to work performed outside the United States and its 
territories, possessions, and commonwealths in this base.
    (c) If you are an FTA recipient, you may, with FTA approval, 
establish project-specific goals under Sec. 26.41 for DBE participation 
in the procurement of transit vehicles in place of complying with this 
section.
    (d) If you are an FHWA or FAA recipient, you may, with FHWA or FAA 
approval, in a case where FHWA or FAA has established a national goal, 
use the procedures of this section with respect to procurements of 
vehicles or specialized equipment.


Sec. 26.45  What means do recipients use to meet overall goals?

    (a) You must meet as much of your overall goal as you can by using 
outreach, technical assistance, and other methods to facilitate DBE 
participation, including but not limited to the following:
    (1) Arranging solicitations, times for the presentation of bids, 
quantities, specifications, and delivery schedules in ways to 
facilitate DBE participation (e.g., unbundling large contracts to make 
them more accessible to DBEs);
    (2) Providing assistance to DBEs in overcoming limitations such as 
inability to obtain bonding or financing (e.g., by such means as 
simplifying the bonding process, reducing bonding requirements, 
eliminating the impact of surety costs from bids, and providing 
services to help DBEs obtain bonding and financing);
    (3) Providing technical assistance and other services;
    (4) Carrying out information and communications programs on 
contracting procedures and specific contract opportunities (e.g., 
ensuring the inclusion of DBEs on recipient mailing lists for bidders; 
ensuring the dissemination to bidders on prime contracts of lists of 
potential DBE subcontractors; provision of information in languages 
other than English, where appropriate);
    (5) Implementing a supportive services program to develop and 
improve immediate and long-term business management, recordkeeping, and 
financial and accounting capability for DBEs;
    (6) Providing services to help DBEs improve long-term development, 
increase opportunities to participate in a variety of kinds of work, 
handle increasingly significant projects, and achieve eventual self-
sufficiency;
    (7) Establishing a race/gender-neutral program to assist new, 
start-up firms, particularly in fields in which DBE participation has 
not been traditionally significant;
    (8) Ensuring distribution of its DBE directory, through print and 
electronic means, to the widest feasible universe of potential prime 
contractors.
    (b) To meet any portion of your overall goal you cannot meet using 
the means provided in paragraph (a) of this section, you must use the 
means provided in paragraphs (c) and/or (d) of this section.
    (c) The following provisions apply to the use of contract goals:
    (1) You may use contract goals only on those DOT-assisted contracts 
that have subcontracting possibilities.
    (2) You must calculate contract goals on the basis of the entire 
amount of the prime contract (i.e., both the state/local and Federal 
share of the contract).
    (3) You are not required to set each contract goal at the same 
percentage level as the overall goal. The goal for a specific contract 
may be higher or lower than that percentage level of the overall goal, 
depending on such factors as the type of work involved, the location of 
the work, and the availability of DBEs for the work of the particular 
contract. However, over the period covered by its overall goal, you 
must set contract goals so that they will cumulatively result in the 
meeting any portion of your overall

[[Page 29596]]

goal not met through use of the mechanisms in paragraph (a) of this 
section.
    (4) Operating administration approval of each contract goal is not 
necessarily required. However, operating administrations may review and 
approve or disapprove any contract goal you establish.
    (5) Your overall goals must provide for participation by all 
certified DBEs and must not be subdivided into group-specific goals.
    (d) The following provisions apply to the use of evaluation 
credits:
    (1) You may use evaluation credits only to the award of prime 
contracts.
    (2) You may provide that a responsible and responsive DBE firm 
competing for the prime contract will receive the contract if the price 
it offers is a stated percentage, between one and 10 percent, higher 
than the lowest price offered by any responsible and responsive non-DBE 
firm.
    (3) You may also provide that a responsible and responsive non-DBE 
firm competing for the prime contract that provides a stated level of 
DBE participation will receive the contract if the price it offers is a 
stated percentage, between one and 10 percent of the amount that is 
subcontracted, higher than the lowest price offered by any responsible 
and responsive non-DBE firm that does not provide this level of DBE 
participation.
    (4) In establishing the level of DBE participation used in this 
mechanism, you must use the factors set forth in paragraphs (c) (2) 
through (5) of this section. You must require competitors for the prime 
contract to submit DBE participation information as provided in 
Sec. 26.47(b)(2) (i) through (v) and (b)(3) of this part.
    (5) Your evaluation credit procedures must provide for 
participation by all certified DBEs and must not be subdivided into 
group-specific goals.
    (e) You must not use more stringent mechanisms (including, but not 
limited to, set-asides or a conclusive presumption) on DOT-assisted 
contracts unless--
    (1) You have legal authority independent of this part to use such 
mechanisms; and
    (2) You have a continuing, substantial inability to meet your 
overall goal using the mechanisms provided for in this section. In such 
a case, you must document in its file for the contract the basis for 
the determination that other available methods have proven unable to 
meet DBE goals.
    (f) You must review, at appropriate intervals, the methods and 
procedures used to comply with this section to ensure that they 
continue to be needed to overcome the effects of discrimination, 
modifying them as needed for this purpose.
    (1) If your actual DBE participation significantly exceeds your 
overall goals over a substantial period of time, you must consider 
appropriate reductions in your use of race/gender-conscious means of 
meeting overall goals.
    (2)(i) You must calculate--
    (A) The percentage that minority- and women-owned businesses in 
your state (not just DBEs) in types of work relevant to DOT-assisted 
contracting make up of all such businesses; and
    (B) The percentage of all business receipts in these types of work 
attributable to minority- and/or women-owned businesses.

    Example to paragraph (b)(2): In State Z, minority- and women-
owned firms account for 20 percent of all businesses. These same 
firms account for 10 percent of business volume (i.e., as measured 
by receipts).

    (ii) Where the percentage calculated in paragraph (b)(2)(i)(B) is 
greater than that calculated in paragraph (b)(2)(i)(A), you must 
consider appropriate reductions in its use of race/gender-conscious 
means of meeting overall goals.

    Example to paragraph (b)(2)(ii): In State Z, minority- and 
women-owned firms continue to account for 20 percent of all 
businesses, but now account for 27 percent of business volume. 
Particularly where this pattern persists over a significant period 
of time, you would rely more on race/gender-neutral methods of 
achieving goals in construction contracts and less on race/gender-
conscious means.


Sec. 26.47  What are the good faith efforts procedures recipients 
follow in situations where there are contract goals?

    (a) When you have established a DBE contract goal, you must award 
the contract only to a contractor who either meets the contract goal 
requirement or demonstrates that it has made adequate good faith 
efforts to do so. If the contractor does document adequate good faith 
efforts, you must not deny award of the contract on the basis that the 
contractor failed to meet the goal.
    (b) In your solicitations for DOT-assisted contracts for which a 
contract goal has been established, you must require the following of 
competitors:
    (1) Award of the contract will be conditioned on meeting the 
requirements of this section; and
    (2) All bidders/offerors will be required to submit the following 
information to the recipient, at the time provided in paragraph (b)(3) 
of this section:
    (i) The names and addresses of DBE firms that will participate in 
the contract;
    (ii) A description of the work that each DBE will perform;
    (iii) The dollar amount of the participation of each DBE firm 
participating;
    (iv) Written documentation of the bidder/offeror's commitment to 
use a DBE subcontractor whose participation it submits to meet a 
contract goal;
    (v) Written confirmation from the DBE that it is participating in 
the contract as provided in the prime contractor's commitment; and
    (vi) If the contract goal is not met, evidence of good faith 
efforts.
    (3) At your discretion, the bidder/offeror must present the 
information required by paragraph (b)(2) of this section--
    (i) Under sealed bid procedures, as a matter of responsiveness, or 
with initial proposals, under contract negotiation procedures; or
    (ii) At any time before you commit yourself to the performance of 
the contract by the bidder/offeror, as a matter of responsibility.
    (c) If the DBE participation submitted by the bidder/offeror does 
not meet the contract goal, you must determine whether the bidder/
offeror's good faith efforts are adequate. In making this 
determination, use the guidance provided in appendix B to this part. If 
the bidder/offeror makes a showing of adequate good faith efforts, you 
must award the contract to the bidder/offeror, even if the bidder/
offeror did not meet the contract goal.
    (d) You must make sure all information is complete and accurate and 
adequately documents the bidder/offeror's good faith efforts committing 
yourself to the performance of the contract by the bidder/offeror.
    (e) When the apparent successful bidder/offeror for a contract 
fails to meet the DBE contract goal, and you determine that the bidder/
offeror has failed to make adequate good faith efforts, you must, 
before awarding the contract, provide the bidder/offeror an opportunity 
for administrative reconsideration.
    (1) As part of this reconsideration, the bidder/offeror must have 
the opportunity to provide written documentation or argument concerning 
the issue of whether it made adequate good faith efforts to meet the 
contract goal.
    (2) The bidder/offeror must also have the opportunity to meet in 
person with your officials to discuss the issue of whether it made 
adequate good faith efforts to meet the contract goal.

[[Page 29597]]

    (3) Your decision on reconsideration must be made by an official 
who did not take part in the original determination that the bidder/
offeror failed to make adequate good faith efforts.
    (4) Your must send the bidder/offeror a written decision on 
reconsideration, explaining the basis for finding that the bidder did 
or did not make adequate good faith efforts.
    (5) The result of the reconsideration process is not 
administratively appealable to the Department of Transportation.
    (f) A DBE prime contractor--
    Alternative 1--is required to meet DBE contract goals on the same 
basis as other prime contractors.
    Alternative 2--is not required to meet DBE contract goals.
    Alternative 3--that will perform, with its own forces, a sufficient 
percentage of the work on the contract to meet the contract goal is not 
required to obtain other DBE participation to meet the goal. If a DBE 
prime contractor will not perform such a percentage of the work with 
its own forces, it must obtain other DBE participation sufficient to 
meet the remainder of the goal, or demonstrate that it made adequate 
good faith efforts to do so.
    (g)(1) You must require that a prime contractor not terminate for 
convenience a DBE subcontractor listed in response to paragraph (b)(2) 
of this section (or an approved substitute DBE firm) and then perform 
the work of the terminated subcontract with its own forces or those of 
an affiliate, without your prior written consent.
    (2) When a DBE subcontractor is terminated, or fails to complete 
its work on the contract, for any reason, you must require the prime 
contractor to make good faith efforts to find another DBE subcontractor 
to substitute for the original DBE. These good faith efforts shall be 
directed at finding another DBE to perform at least the same amount of 
work under the contract as the DBE that was terminated, to the extent 
needed to meet the contract goal.
    (3) You must include in each prime contract a provision for 
appropriate administrative remedies that you will invoke if the prime 
contractor fails to comply with the requirements of this section.


Sec. 26.49  How is DBE participation counted toward goals?

    (a) Except as otherwise provided in this section, count the total 
dollar value of a contract with a DBE toward DBE goals.
    (b)(1) Count the entire amount of a construction contract toward 
DBE goals, including the cost of supplies and materials obtained by the 
DBE for the work of the contract.
    (2) Count the entire amount of fees or commissions charged by a DBE 
firm for providing a bona fide service, such as professional, 
technical, consultant, or managerial services, or for providing bonds 
or insurance specifically required for the performance of a DOT-
assisted contract, toward DBE goals, provided you determine the fee to 
be reasonable and not excessive as compared with fees customarily 
allowed for similar services.
    (c) When a DBE performs as a participant in a joint venture, count 
a portion of the total dollar value of the contract equal to the 
distinct, clearly defined portion of the work of the contract that the 
DBE performs toward DBE goals.
    (d) Do not count any portion of the value of a contract that a DBE 
subcontractor subcontracts to any non-DBE firm (including a non-DBE 
prime contractor or its affiliate) toward DBE goals. Provided, however, 
that you may count value of supplies purchased or equipment leased by a 
DBE subcontractor from a non-DBE firm (other than the prime contractor 
or its affiliate) and used by the DBE in the performance of the 
subcontract toward DBE goals.
    (e) Count expenditures to a DBE contractor toward DBE goals only if 
the DBE is performing a commercially useful function on that contract.
    (1) A DBE performs a commercially useful function when it is 
responsible for execution of the work of the contract and is carrying 
out its responsibilities by actually performing, managing, and 
supervising the work involved. To perform a commercially useful 
function, the DBE must also be responsible, with respect to materials 
and supplies used on the contract, for negotiating price, determining 
quality and quantity, ordering the material, and installing (where 
applicable) and paying for the material itself. To determine whether a 
DBE is performing a commercially useful function, you must evaluate the 
amount of work subcontracted, industry practices, whether the amount 
the firm is to be paid under the contract is commensurate with the work 
it is actually performing and the DBE credit claimed for its 
performance of the work, and other relevant factors.
    (2) A DBE does not perform a commercially useful function if its 
role is limited to that of an extra participant in a transaction, 
contract, or project through which funds are passed in order to obtain 
the appearance of DBE participation. In determining whether a DBE is 
such an extra participant, you must examine similar transactions, 
particularly those in which DBEs do not participate.
    (3) If a DBE does not perform or exercise responsibility for at 
least 30 percent of the total cost of its contract with its own work 
force, or the DBE subcontracts a greater portion of the work of a 
contract than would be expected on the basis of normal industry 
practice for the type of work involved, you must presume that it is not 
performing a commercially useful function.
    (4) You must presume that a DBE engaged in transporting materials 
is not performing a commercially useful function if the DBE does not 
own at least 50 percent of the vehicles used for the contract.
    (5) When a DBE is presumed not to be performing a commercially 
useful function as provided in paragraph (e) (3) or (4) of this 
section, the DBE may present evidence to rebut this presumption. You 
may determine that the firm is performing a commercially useful 
function given the type of work involved and normal industry practices.
    (6) Your decisions on commercially useful function matters are 
subject to review by the concerned operating administration.
    (f) Count expenditures with DBEs for materials or supplies toward 
DBE goals as provided in this paragraph:
    (1)(i) If the materials or supplies are obtained from a DBE 
manufacturer, count 100 percent of the cost of the materials or 
supplies toward DBE goals.
    (ii) For purposes of this paragraph, a manufacturer is a firm that 
operates or maintains a factory or establishment that produces, on the 
premises, the materials, supplies, articles, or equipment required 
under the contract and of the general character described by the 
specifications.
    (2)(i) If the materials or supplies are purchased from a DBE 
regular dealer, count 60 percent of the cost of the materials or 
supplies toward DBE goals.
    (ii) For purposes of this section, a regular dealer is a firm that 
owns, operates, or maintains a store, warehouse, or other establishment 
in which the materials, supplies, articles or equipment of the general 
character described by the specifications and required under the 
contract are bought, kept in stock, and regularly sold or leased to the 
public in the usual course of business.
    (A) To be a regular dealer, the firm must be an established, 
regular business that engages, as its principal business and under its 
own name, in the purchase and sale or lease of the products in 
question.

[[Page 29598]]

    (B) A regular dealer in such bulk items as petroleum products, 
steel, cement, gravel, stone, or asphalt may be a person who owns and 
operates distribution equipment for the products and/or owns, operates, 
or maintains a store, warehouse, or other place of business in which 
products of the general character described by the specifications and 
required under the contract are bought for the account of such person 
and sold to the public in the usual course of business. Any 
supplementing of regular dealers' own distribution equipment shall be 
by a long-term lease agreement and not on an ad hoc or contract-by-
contract basis.
    (C) Packagers, brokers, manufacturers' representatives, or other 
persons who arrange or expedite transactions are not regular dealers 
within the meaning of this paragraph.
    (3) With respect to materials or supplies are purchased from a DBE 
which is neither a manufacturer nor a regular dealer, count the entire 
amount of fees or commissions charged for assistance in the procurement 
of the materials and supplies, or fees or transportation charges for 
the delivery of materials or supplies required on a job site, toward 
DBE goals, provided you determine the fees to be reasonable and not 
excessive as compared with fees customarily allowed for similar 
services. Do not count any portion of the cost of the materials and 
supplies themselves toward DBE goals, however.
    (g) If a firm is not currently certified as a DBE in accordance 
with standards of subpart D of this part at the time of the execution 
of the contract, do not count the firm's participation toward DBE 
goals.
    (h) Do not count the dollar value of work performed under a 
contract with a firm after it has ceased to be certified toward the 
your overall goal.
    (i) Do not count the participation of a DBE subcontractor toward 
the prime contractor's goal attainment until the amount being counted 
toward the goal has been paid to the DBE.

Subpart D--Certification Standards


Sec. 26.51  How are burdens of proof allocated in the certification 
process?

    (a) In determining whether to certify a firm as eligible to 
participate as a DBE, you must apply the standards of this subpart.
    (b) The firm seeking certification has the burden of demonstrating 
to you, by a preponderance of the evidence, that it meets the 
requirements of this subpart concerning group membership, business 
size, ownership, and control.
    (c) You must rebuttably presume that members of the designated 
groups identified in Sec. 26.57(a) are socially and economically 
disadvantaged. This means that they do not have the burden of proving 
to you that they are socially and economically disadvantaged.
    (d) Individuals who are not presumed to be socially and 
economically disadvantaged, and individuals concerning whom the 
presumption of disadvantage has been rebutted, have the burden of 
proving to you, by a preponderance of the evidence, that they are 
socially and economically disadvantaged.
    (e) You must make determinations concerning whether individuals and 
firms have met their burden of demonstrating group membership, 
ownership, control, and social and economic disadvantage (where 
disadvantage must be demonstrated on an individual basis) by 
considering all the facts in the record, viewed as a whole.


Sec. 26.53  What rules govern group membership determinations?

    (a) If you have reason to question whether an individual is a 
member of a group that is presumed to be socially and economically 
disadvantaged, you must require the individual to demonstrate, by a 
preponderance of the evidence, that he is a member of the group.
    (b) In making such a determination, you must consider whether the 
person has held himself out to be a member of the group over a long 
period of time prior to application for certification and whether the 
person is regarded as a member of the group by the relevant minority 
community. You may require the applicant to produce appropriate 
documentation of group membership.
    (1) If you determine that an individual claiming to be a member of 
a group presumed to be disadvantaged is not a member of the group, the 
individual must demonstrate social and economic disadvantage on an 
individual basis.
    (2) Your decisions concerning membership in a designated group are 
subject to the certification appeals procedure of Sec. 26.79.


Sec. 26.55  What rules govern business size determinations?

    (a) To be an eligible DBE, a firm (including its affiliates) must 
be an existing small business, as defined by Small Business 
Administration (SBA) standards. You must apply current SBA business 
size standard(s) found in 13 CFR part 121 appropriate to the type(s) of 
work the firm seeks to perform in DOT-assisted contracts.
    (b) Even if it meets the requirements of paragraph (a) of this 
section, a firm is not an eligible DBE in any Federal fiscal year if 
the firm (including its affiliates) has had average annual gross 
receipts, as defined by SBA regulations (see 13 CFR 121.402), over the 
firm's previous three fiscal years, in excess of $17.77 million. The 
Secretary adjusts this amount for inflation from time to time.


Sec. 26.57  What rules determine social and economic disadvantage?

    (a) Presumption of disadvantage. (1) You must rebuttably presume 
that citizens of the United States (or lawfully admitted permanent 
residents) who are women, Black Americans, Hispanic Americans, Native 
Americans, Asian-Pacific Americans, Subcontinent Asian Americans, or 
other minorities found to be disadvantaged by the SBA, are socially and 
economically disadvantaged individuals. You must not require an 
individual who are members of a designated group to demonstrate, in 
connection with his or her firm's application for certification, that 
he or she is , in fact, socially and economically disadvantaged.
    (2) Except as provided in paragraph (a)(3) of this section, you 
must not collect information related to the social and economic 
disadvantage of individuals who are members of the designated groups 
(including, but not limited to, information concerning personal net 
worth, personal income tax returns, or other personal financial data) 
as part of the certification process, except information essential to 
ascertain the individuals' ownership and control of a business that is 
unavailable from any other source. When you require an applicant to 
submit personal financial information, you must provide a written 
statement to the applicant stating with specificity what information is 
required, why the information is essential to a determination of 
ownership and control, and why the information is unavailable from any 
other source.
    (3) You must require applicants for certification to submit a 
signed, notarized certification that each socially and disadvantaged 
owner is, in fact, a socially and economically disadvantaged 
individual, as provided in this part. You must also require applicants 
for certification to submit a brief summary statement of the personal 
net worth of each socially and economically disadvantaged owner.
    (b) Rebuttal of presumption of disadvantage. (1) If you have a 
reasonable basis to believe that an individual who is a member of one 
of the designated groups is, in fact, not socially and/or economically 
disadvantaged, you may start a

[[Page 29599]]

proceeding to determine whether the presumption should be regarded as 
rebutted with respect to that individual.
    (2) In the case of a firm that is applying for initial 
certification, do not start such a proceeding unless and until you have 
determined that the individual owns and controls the firm and that the 
firm meets business size criteria. In this case, you may hold the 
issuance of a certification in abeyance pending the outcome of the 
proceeding.
    (3) Your proceeding must follow the procedures of Sec. 26.77.
    (4) In such a proceeding, you have the burden of demonstrating, by 
a preponderance of the evidence, that the individual is not socially 
and economically disadvantaged.
    (5) If you demonstrate that the personal net worth of the 
individual exceeds [an amount to be inserted in the final rule], you 
have met this burden, and the presumption of social and economic 
disadvantage is rebutted for that individual. In this case, the 
individual must, in order for his or her firm to be certified, 
demonstrate on an individual basis that he or she is socially and 
economically disadvantaged.
    (6) For purposes of such a proceeding, you may require the 
individual whose disadvantage is being questioned to provide 
information about his or her personal net worth. You may require only 
such information as is necessary to establish whether the individual's 
personal worth exceeds [the amount inserted in the final rule].
    (c) 8(a) firms. (1) If a firm applying for certification has a 
current, valid certification from the SBA under the 8(a) program, you 
must presume it to be eligible for the DBE program, subject to 
demonstrating that it meets the average annual gross receipts limit 
referenced in Sec. 26.55(b) and that it meets SBA business size 
criteria for the type(s) of work it seeks to perform in your DBE 
program. If the firm does not meet these requirements, it is not an 
eligible DBE, even though it has a valid 8(a) certification from SBA.
    (2) Consistent with this presumption, you must not, in connection 
with the firm's application for certification, require an 8(a) firm to 
provide information related to ownership, control, or social and 
economic disadvantage. You may require the firm to provide information 
to demonstrate that it meets the average annual gross receipts limit 
and that it meets SBA small business size criteria for any type of 
contracting it expects to perform in your DBE program. You may also 
require the firm to provide information that will appear in your DBE 
directory.
    (3) If you have a reasonable basis to believe that the ownership, 
control, or disadvantaged status of an 8(a) firm is not consistent with 
its participation in the DBE program, bring your concerns to the 
attention of, and request a response from, the SBA. Following the 
receipt of the response from SBA, or after 60 days if no response from 
SBA has been received, you may initiate a proceeding under Sec. 26.77 
of this part, including in the record and taking into account any 
response received from SBA. If the 8(a) firm is making its initial 
application for certification, you may hold the firm's certification in 
abeyance pending the outcome of this proceeding.
    (d) Individual determinations of social and economic disadvantage. 
Firms owned and controlled by individuals who are not presumed to be 
socially and economically disadvantaged (including individuals whose 
presumed disadvantage has been rebutted) may apply for DBE 
certification. You must make a case-by-case determination of whether 
such an individual is socially and economically disadvantaged. In such 
a proceeding, the applicant firm has the burden of demonstrating to 
you, by a preponderance of the evidence, that the individuals who own 
and control it are socially and economically disadvantaged. In making 
these determinations, use the guidance in appendix F to this part.


Sec. 26.59  What rules govern determinations of ownership?

    (a) In determining whether the socially and economically 
disadvantaged participants in a firm own the firm, you must consider 
all the facts in the record, viewed as a whole.
    (b) To be an eligible DBE, a firm must be at least 51 percent owned 
by socially and economically disadvantaged individuals. In the case of 
a corporation, such individuals must own unconditionally at least 51% 
of the stock. In the case of an applicant firm which is a partnership, 
51% of the partnership interest must be unconditionally owned by 
socially and economically disadvantaged individuals. Such unconditional 
ownership must be reflected in the firm's partnership agreement.
    (c) The firm's ownership by socially and economically disadvantaged 
individuals must be real, substantial, and continuing, going beyond pro 
forma ownership of the firm as reflected in ownership documents. The 
disadvantaged owners must enjoy the customary incidents of ownership, 
and share in the risks and profits commensurate with their ownership 
interests, as demonstrated by the substance, not merely the form, of 
arrangements.
    (d) All securities that constitute ownership of a firm shall be 
held directly by disadvantaged persons. Except as provided in this 
paragraph, no securities or assets held in trust, or by any guardian 
for a minor, are considered as held by disadvantaged persons in 
determining the ownership of a firm. However, securities or assets held 
in trust (other than in a revocable living trust) are regarded as held 
by a disadvantaged individual for purposes of determining ownership of 
the firm, if--
    (1) The beneficial owner of securities or assets held in trust is a 
disadvantaged individual, and the trustee is the same or another such 
individual; or
    (2) The beneficial owner is a disadvantaged individual who, rather 
than the trustee, exercises effective control over the management, 
policy-making, and daily operational activities of the firm.
    (e) The contributions of capital or expertise by the socially and 
economically disadvantaged owners to acquire their ownership interests 
must be real and substantial. Examples of insufficient contributions 
include a promise to contribute capital, an unsecured note payable to 
the firm or an owner who is not a disadvantaged individual, or mere 
participation in a firm's activities as an employee. Debt instruments 
from financial institutions or other organizations which lend funds in 
the normal course of their business do not render a firm ineligible, 
even if the debtor's ownership interest is security for the loan.
    (f) In situations in which expertise is relied upon as the 
contribution to acquire ownership, the expertise must be in areas 
critical to the firm's operations, specific to the type of work the 
firm performs, and documented in the records of the firm. The records 
must clearly show the contribution of expertise and its value to the 
firm.
    (g) You must always deem as held by a socially and economically 
disadvantaged individual, for purposes of determining ownership, all 
interests in a business or other assets obtained by the individual--
    (1) As the result of a property settlement or court order in a 
divorce or legal separation, provided that no term or condition of the 
agreement or divorce decree is inconsistent with this section; or
    (2) Through inheritance, or otherwise because of the death of the 
former owner.

[[Page 29600]]

    (h)(1) You must presume as not being held by a socially and 
economically disadvantaged individual, for purposes of determining 
ownership, all interests in a business or other assets obtained by the 
individual as the result of a gift, or transfer without adequate 
consideration, from any non-disadvantaged individual or non-DBE firm 
that is--
    (i) Involved in the same firm for which the individual is seeking 
certification, or an affiliate of that firm;
    (ii) Involved in the same or a similar line of business; or
    (iii) Engaged in an ongoing business relationship with the firm, or 
an affiliate of the firm, for which the individual is seeking 
certification.
    (2) To overcome this presumption and permit the interests or assets 
to be counted, the disadvantaged individual firm must demonstrate to 
you, by clear and convincing evidence, that--
    (i) The gift or transfer to the disadvantaged individual was made 
for reasons other than obtaining certification as a DBE; and
    (ii) The disadvantaged individual actually controls the management, 
policy, and operations of the firm, notwithstanding the continuing 
participation of a non-disadvantaged individual who provided the gift 
or transfer.
    (i) You must apply the following rules in situations in which 
marital assets form a basis for ownership of a firm:
    (1) When marital assets (other than the assets of the business in 
question), held jointly or as community property by both spouses, are 
used to acquire the ownership interest asserted by one spouse, you must 
deem the ownership interest in the firm to have been acquired by that 
spouse with his or her own individual resources, provided that the 
other spouse irrevocably renounces and transfers all rights in the 
ownership interest in the manner sanctioned by the laws of the state in 
which either spouse or the firm is domiciled.
    (2) A copy of the document legally transferring and renouncing the 
other spouse's rights in the jointly owned or community assets used to 
acquire an ownership interest in the firm must be included as part of 
the firm's application for DBE certification.
    (j) You may consider the following factors in determining the 
ownership of a firm. However, you must not regard a contribution of 
capital as failing to be real and substantial, or find a firm 
ineligible, solely because--
    (1) A socially and economically disadvantaged individual acquired 
his or her ownership interest as the result of a gift, or transfer 
without adequate consideration, other than the types set forth in 
paragraph (h) of this section;
    (2) There is a provision for the co-signature of a spouse who is 
not a socially and economically disadvantaged individual on financing 
agreements, contracts for the purchase or sale of real or personal 
property, bank signature cards, or other documents; or
    (3) Ownership of the firm in question or its assets is transferred 
for adequate consideration from a spouse who is not a socially and 
economically disadvantaged individual to a spouse who is such an 
individual. In this case, you must give particularly close and careful 
scrutiny to the ownership and control of a firm to ensure that it is 
owned and controlled, in substance as well as in form, by a socially 
and economically disadvantaged individual.


Sec. 26.61  What rules govern determinations concerning control?

    (a) In determining whether socially and economically disadvantaged 
owners control a firm, you must consider all the facts in the record, 
viewed as a whole.
    (b) Only an independent business may be certified as a DBE. An 
independent business is one the viability of which does not depend on 
its relationship with another firm or firms.
    (1) In determining whether a potential DBE is an independent 
business, you must scrutinize relationships with non-DBE firms, in such 
areas as personnel, facilities, equipment, financial and/or bonding 
support, and other resources.
    (2) You must consider whether present or recent employer/employee 
relationships between the disadvantaged owner(s) of the potential DBE 
and non-DBE firms or persons associated with non-DBE firms compromise 
the independence of the potential DBE firm.
    (3) You must examine the firm's relationships with prime 
contractors to determine whether a pattern of exclusive or primary 
dealings with a prime contractor compromises the independence of the 
potential DBE firm.
    (4) In considering factors related to the independence of a 
potential DBE firm, you must consider the consistency of relationships 
between the potential DBE and non-DBE firms with normal industry 
practice.
    (c) A DBE firm must not be subject to any formal or informal 
restrictions which limit the customary discretion of the socially and 
economically disadvantaged owners. In the case of a corporation, the 
socially and economically disadvantaged owners must own and control at 
least 51 percent of voting stock. There can be no restrictions through 
corporate charter provisions, by-law provisions, contracts or any other 
formal or informal devices (e.g., cumulative voting rights, voting 
powers attached to different classes of stock, employment contracts, 
requirements for concurrence by non-disadvantaged partners) that 
prevent the socially and economically disadvantaged owners, without the 
cooperation or vote of any non-disadvantaged individual, from making 
any business decision of the firm. This paragraph does not preclude a 
spousal co-signature on documents as provided for in Sec. 26.59(i)(2) 
of this part.
    (d) The socially and economically disadvantaged owners must possess 
the power to direct or cause the direction of the management and 
policies of the firm and to make day-to-day as well as long-term 
decisions on matters of management, policy and operations.
    (e) Individuals who are not socially and economically disadvantaged 
may be involved in a DBE firm as owners, managers, employees, 
stockholders, officers, and/or directors. Such individuals must not, 
however, possess or exercise the power to control the firm, or be 
disproportionately responsible for the operation of the firm.
    (f) The socially and economically disadvantaged owners of the firm 
may delegate various areas of the management, policymaking, or daily 
operations of the firm to other participants in the firm, regardless of 
whether these participants are socially and economically disadvantaged 
individuals. Such delegations of authority must be revocable, and the 
socially and economically disadvantaged owners must retain the power to 
hire and fire any person to whom such authority is delegated. The 
managerial role of the socially and economically disadvantaged owners 
in the firm's overall affairs must be such that the recipient can 
reasonably conclude that the socially and economically disadvantaged 
owners actually exercise control over the firm's operations, 
management, and policy.
    (g) The socially and economically disadvantaged owners must have an 
overall understanding of, and managerial or technical competence and 
experience directly related to, the type of business in which the firm 
is engaged and the firm's operations. The socially and economically 
disadvantaged owners are not required to have experience or expertise 
in every critical area of the firm's operations, or to have greater 
experience or expertise in a given field than managers or key 
employees. The socially and economically disadvantaged owners must have 
the

[[Page 29601]]

ability to intelligently and critically evaluate information presented 
by other participants in the firm's activities and to use this 
information to make independent decisions concerning the firm's daily 
operations, management, and policymaking. Generally, expertise limited 
to office management, administration, or bookkeeping functions 
unrelated to the principal business activities of the firm is 
insufficient to demonstrate control.
    (h) If state or local law requires the persons to have a particular 
license or other credential in order to own and/or control a certain 
type of firm, then the socially and economically disadvantaged persons 
who own and control a potential DBE firm of that type must possess the 
required license or credential. If state or local law does not require 
such a person to have such a license or credential to own and/or 
control a firm, the you must not deny certification solely on the 
ground that the person lacks the license or credential. However, you 
may take into account the absence of the license or credential as one 
factor in determining whether the socially and economically 
disadvantaged owners actually control the firm.
    (i) You may consider differences in remuneration between the 
socially and economically disadvantaged owners and other participants 
in the firm in determining whether to certify a firm as a DBE. Such 
consideration shall be in the context of the duties of the persons 
involved, normal industry practices, the firm's policy and practice 
concerning reinvestment of income, and any other explanations for the 
differences proffered by the firm. You may determine that a firm is 
controlled by its socially and economically disadvantaged owner 
although that owner's remuneration is lower than that of some other 
participants in the firm. In a case where a non-disadvantaged 
individual formerly controlled the firm, and a socially and 
economically disadvantaged individual now controls it, you may consider 
a difference between the remuneration of the former and current 
controller of the firm as a factor in determining who controls the 
firm, particularly when the non-disadvantaged individual remains 
involved with the firm and continues to receive greater compensation 
than the disadvantaged individual.
    (j) In order to be viewed as controlling a firm, a socially and 
economically disadvantaged owner cannot engage in outside employment or 
other business interests that conflict with the management of the firm 
or prevent the individual from devoting sufficient time and attention 
to the affairs of the firm to control its activities.
    (k) A socially and economically disadvantaged individual may 
control a firm even though one or more members of the individual's 
family participate in the firm as a manager, employee, owner, or in 
another capacity. Except as otherwise provided in this paragraph, you 
must make a judgment about the control the socially and economically 
disadvantaged owner exercises vis-a-vis other persons involved in the 
business as it does in other situations, without regard to whether or 
not the other persons are family members.
    (1) If you cannot determine that the socially and economically 
disadvantaged owners--as distinct from the family as a whole--control 
the firm, then the socially and economically disadvantaged owners have 
failed to carry their burden of proof concerning control, even though 
they may participate significantly in the firm's activities.
    (2) Where a firm was formerly owned and/or controlled by a non-
disadvantaged individual, ownership and/or control were transferred to 
a socially and economically disadvantaged individual, and the non-
disadvantaged individual remains involved with the firm in any 
capacity, the disadvantaged individual now owning the firm must 
demonstrate to you, by clear and convincing evidence, that
    (i) The transfer of ownership and/or control to the disadvantaged 
individual was made for reasons other than obtaining certification as a 
DBE; and
    (ii) The disadvantaged individual actually controls the management, 
policy, and operations of the firm, notwithstanding the continuing 
participation of a non-disadvantaged individual who formerly owned and/
or controlled the firm.
    (l) In determining whether a firm is controlled by its socially and 
economically disadvantaged owners, you may consider whether the firm 
owns equipment necessary to perform its work. However, you must not 
determine that a firm is not controlled by socially and economically 
disadvantaged individuals solely because the firm leases, rather than 
owns, such equipment, where leasing equipment is a normal industry 
practice and the lease does not involve a relationship with a prime 
contractor or other party that compromises the independence of the 
firm.
    (m) You must grant certification to a firm only for specific types 
of work in which the socially and economically disadvantaged owners 
have the ability to control the firm. To become certified in an 
additional type of work, the firm need demonstrate to you only that its 
socially and economically disadvantaged owners are able to control the 
firm with respect to that type of work. You may not, in this situation, 
require that the firm be recertified or submit a new application for 
certification.
    (n) A business operating under a franchise or license agreement may 
be certified if it meets the standards in this subpart and the 
franchiser or licenser is not affiliated with the franchisee or 
licensee. In determining whether affiliation exists, you should 
generally not consider the restraints relating to standardized quality, 
advertising, accounting format, and other provisions imposed on the 
franchisee or licensee by the franchise agreement or license, provided 
that the franchisee or licensee has the right to profit from its 
efforts and bears the risk of loss commensurate with ownership. 
Alternatively, even though a franchisee or licensee may not be 
controlled by virtue of such provisions in the franchise agreement or 
license, affiliation could arise through other means, such as common 
management or excessive restrictions on the sale or transfer of the 
franchise interest or license.
    (o) In order for a partnership to be controlled by socially and 
economically disadvantaged individuals, any non-disadvantaged partners 
shall not have the power, without the specific written concurrence of 
the socially and economically disadvantaged partner(s), to 
contractually bind the partnership or subject the partnership to 
contract or tort liability.


Sec. 26.63  What are other rules affecting certification?

    (a) (1) Consideration of whether a firm performs a commercially 
useful function or is a regular dealer pertains solely to counting 
toward DBE goals the participation of firms that have already been 
certified as DBEs. Except as provided in paragraph (a)(2) of this 
section, you must not consider commercially useful function issues in 
any way in making decisions about whether to certify a firm as a DBE.
    (2) You may consider, in making certification decisions, whether a 
firm has exhibited a pattern of conduct indicating its involvement in 
attempts to evade or subvert the intent or requirements of the DBE 
program.
    (b) You must evaluate the eligibility of a firm on the basis of 
present circumstances. You must not refuse to certify a firm based 
solely on historical information indicating a lack of

[[Page 29602]]

ownership or control of the firm by socially and economically 
disadvantaged individuals at some time in the past, if the firm 
currently meets the ownership and control standards of this part. Nor 
must you refuse to certify a firm solely on the basis that it is a 
newly formed firm.
    (c) DBE firms and firms seeking DBE certification shall cooperate 
fully with your requests (and DOT requests) for information relevant to 
the certification process. Failure or refusal to provide such 
information is a ground for a denial or removal of certification.
    (d) Only firms organized for profit may be eligible DBEs. Not-for-
profit organizations, even though controlled by socially and 
economically disadvantaged individuals, are not eligible to be 
certified as DBEs.
    (e) Except as provided in paragraph (f) of this section, an 
eligible DBE firm shall be owned by individuals who are socially and 
economically disadvantaged. A firm that is owned not by such 
individuals, but by another firm, is not an eligible DBE, even if the 
other firm is itself an eligible DBE.
    (f) A firm owned by an Indian tribe recognized by the Department of 
the Interior or an Alaskan Native Corporation may be regarded as owned 
by socially and economically disadvantaged individuals, notwithstanding 
the fact that ownership may formally reside in the tribe or corporation 
as an entity, rather than in individual members of the tribe. Such a 
firm must meet the control and business size criteria of this section 
in order to be an eligible DBE. In determining business size, 
recipients shall apply the affiliation standards of 13 CFR part 121.
    (g) Recognition of a business as a separate entity for tax or 
corporate purposes is not necessarily sufficient to demonstrate that a 
firm is an independent business, owned and controlled by socially and 
economically disadvantaged individuals.
    (h) You must not require a DBE firm to be prequalified as a 
condition for certification unless the recipient requires all firms 
that participate in its contracts and subcontracts to be prequalified.


Secs. 26.65--26.69  [Reserved]

Subpart E--Certification Procedures


Sec. 26.71  What are the requirements for Unified Certification 
Programs?

    (a) Except as provided in paragraph (b) of this section, you and 
all other DOT recipients in your state must participate in a Unified 
Certification Program (UCP).
    (1) Within three years of [the effective date of the final rule], 
you and the other recipients in your state must sign an agreement 
establishing the UCP for that state and submit the agreement to the 
Secretary for approval. The Secretary may, on the basis of extenuating 
circumstances shown by the recipients in the state, extend this 
deadline for no more than one additional year.
    (2) The agreement must provide the establishment of a UCP meeting 
all the requirements of this section. The agreement must specify that 
the UCP will follow all certification procedures and standards of this 
part, on the same basis as recipients; that the UCP shall cooperate 
fully with oversight, review, and monitoring activities of DOT and its 
operating administrations; and that the UCP shall implement DOT 
directives and guidance concerning certification matters. The agreement 
shall also commit recipients to ensuring that the UCP has sufficient 
resources and expertise to carry out the requirements of this part. The 
agreement shall include an implementation schedule ensuring that the 
UCP is fully operational no later than 18 months following the approval 
of the agreement by the Secretary.
    (3) Subject to approval by the Secretary, the UCP in each state may 
take any form acceptable to the recipients in that state.
    (4) The Secretary shall review the UCP and approve it, disapprove 
it, or remand it to the recipients in the state for revisions. A 
complete agreement which is not disapproved or remanded within 180 days 
of its receipt is deemed to be accepted.
    (5) If the you and the other recipients in your state fail to meet 
the deadlines set forth in this paragraph, you shall have the 
opportunity to make an explanation to the Secretary why a deadline 
could not be met and why meeting the deadline was beyond your control. 
If you fail to make such an explanation, or the explanation does not 
justify the failure to meet the deadline, the Secretary shall direct 
you to complete the required action within a time certain. If you and 
the other recipients fail to carry out this direction in a timely 
manner, you are collectively in noncompliance with this part.
    (b) If you are an airport sponsor, you may, but are not required 
to, participate in the UCP for your state with respect to firms seeking 
certification as airport concessionaires. If you choose not to 
participate in the UCP with respect to the concession program, you must 
certify concessionaires and other concession program participants 
independently. You must participate in the UCP for your state with 
respect to contractors on FAA-assisted contracts.
    (c) The UCP shall make all certification decisions on behalf of all 
DOT recipients in the state with respect to participation in the DOT 
DBE Program. Certification decisions by the UCP shall be binding on all 
DOT recipients within the state. The UCP shall provide ``one-stop 
shopping'' to applicants for certification, such that an applicant is 
required to apply only once for a DBE certification that will be 
honored by all recipients in the state.
    (d) All certifications by UCPs shall be pre-certifications; i.e., 
certifications that take place before the issuance of a solicitation 
for a contract on which a firm seeks to participate as a DBE.
    (e) A UCP is not required to process an application for 
certification from a firm having its principal place of business 
outside the state if the firm is not certified by the UCP in the state 
in which it maintains its principal place of business.
    (f) Subject to DOT approval as provided in this section, the 
recipients in two or more states may form a regional UCP. UCPs may also 
enter into written reciprocity agreements with other UCPs. Such an 
agreement shall outline the specific responsibilities of each 
participant. A UCP may accept the certification of any other UCP or DOT 
recipient.
    (g) Pending the establishment of UCPs meeting the requirements of 
this section, you may enter into agreements with other recipients, on a 
regional or inter-jurisdictional basis, to perform certification 
functions required by this part. You may also grant reciprocity to 
other recipient's certification decisions.
    (h) Each UCP shall maintain a unified DBE directory containing, for 
all firms certified by the UCP, the information required by Sec. 26.31 
of this part. The UCP shall make the directory available to the public 
electronically as well as in print.
    (i) Except as otherwise specified in this section, all provisions 
of this subpart and subpart D pertaining to recipients also apply to 
UCPs.


Sec. 26.73  What procedures do recipients follow in making 
certification decisions?

    (a) You must ensure that only firms certified as eligible DBEs 
under this section participate as DBEs in their programs.
    (b) You must determine the eligibility of firms as DBEs consistent 
with the standards of subpart D of this part.
    (c) You must take all the following steps in determining whether a 
DBE firm meets the standards of subpart D:

[[Page 29603]]

    (1) Perform an on-site visit to the offices of the firm. You must 
interview the principal officers of the firm and review their resumes 
and/or work histories. You must also perform an on-site visit to job 
sites if there are such sites on which the firm is working at the time 
of the eligibility investigation in your jurisdiction or local area. 
You may rely upon the site visit report of any other recipient with 
respect to a firm applying for certification. If you have made a site 
visit to a firm, you must promptly make available the report of that 
visit to any other recipient that makes a written request for it.
    (2) If the firm is a corporation, analyze the ownership of stock in 
the firm;
    (3) Analyze the bonding and financial capacity of the firm;
    (4) Determine the work history of the firm, including contracts it 
has received and work it has completed;
    (5) Obtain a statement from the firm of the type of work it prefers 
to perform as part of the DBE program and its preferred locations for 
performing the work, if any;
    (6) Obtain or compile a list of the equipment owned by or available 
to the firm and the licenses the firm and its key personnel possess to 
perform the work it seeks to do as part of the DBE program;
    (7) Require potential DBEs to complete and submit an appropriate 
application form.
    (i) You must use the application form provided in Appendix B to 
this part without change or revision. However, you may provide in your 
DBE program, with the approval of the concerned operating 
administration, for supplementing the form by requesting additional 
information not inconsistent with this part.
    (ii) You must make sure that the applicant attests to the accuracy 
and truthfulness of the information on the application form. This shall 
be done either in the form of an affidavit sworn to by the applicant 
before a person who is authorized by state law to administer oaths or 
in the form of an unsworn declaration executed under penalty of perjury 
of the laws of the United States.
    (iii) You must review all information on the form prior to making a 
decision about the eligibility of the firm.
    (d) Subject to the approval of the concerned operating 
administration as part of your DBE program, you may impose a reasonable 
fee for processing a firm's application for certification, which in no 
case shall exceed the actual cost of the administrative processing of 
the application. Fee waivers shall be made in appropriate cases.
    (e) You must safeguard from disclosure to unauthorized persons 
information gathered as part of the certification process that may 
reasonably be regarded as proprietary or other confidential business 
information, consistent with applicable Federal, state, and local law.
    (f) Once you have certified a DBE, it shall remain certified for a 
period of at least three years unless and until its certification has 
been removed through the procedures of Sec. 26.77. You must not require 
DBEs to reapply for certification as a condition of continuing to 
participate in the program during this three-year period.
    (g) If you are a DBE, you must inform the recipient or UCP in 
writing of any change in its circumstances affecting its ability to 
meet size, disadvantaged status, ownership, or control requirements of 
this part or any material change in the information provided in its 
application form. You must attach supporting documentation describing 
in detail the nature of such changes. The notice must take the form of 
an affidavit sworn to by the applicant before a person who is 
authorized by state law to administer oaths or of an unsworn 
declaration executed under penalty of perjury of the laws of the United 
States. You must provide the written notification within 21 days of the 
occurrence of the change. If you fail to make timely notification of 
such a change, you will be deemed to have failed to cooperate under 
Sec. 26.99(c) of this part.
    (h) If you are a DBE, you must provide to the recipient, every year 
on the anniversary of the date of its certification, an affidavit sworn 
to by the firm's owners before a person who is authorized by state law 
to administer oaths or an unsworn declaration executed under penalty of 
perjury of the laws of the United States. This affidavit must affirm 
that there have been no changes in the firm's circumstances affecting 
its ability to meet size, disadvantaged status, ownership, or control 
requirements of this part or any material changes in the information 
provided in its application form, except for changes about which you 
have notified the recipient under paragraph (g) of this section. The 
affidavit shall specifically affirm that your firm continues to meet 
SBA business size criteria and the overall gross receipts cap of this 
part, documenting this affirmation with supporting documentation of 
your firm's size and gross receipts. If you fail to provide this 
affidavit in a timely manner, you will be deemed to have failed to 
cooperate under Sec. 26.99(c) of this part.
    (i) If you are a recipient, you must shall make decisions on 
applications for certification within 90 days of receiving from the 
applicant firm all information required under this part. You may extend 
this time period once, for no more than an additional 60 days, upon 
written notice to the firm, explaining fully and specifically the 
reasons for the extension. You may establish a different time frame in 
its DBE program, upon a showing that this time frame is not feasible, 
and subject to the approval of the concerned operating administration. 
Your failure to make a decision by the applicable deadline under this 
paragraph is deemed a constructive denial of the application, on the 
basis of which the firm may appeal to DOT under Sec. 26.79.


Sec. 26.75  What rules govern recipients' denials of initial requests 
for certification?

    (a) When you deny a request by a firm, which is not currently 
certified with you, to be certified as a DBE, you must provide the firm 
a written explanation of the reasons for the denial, specifically 
referencing the evidence in the record that supports each reason for 
the denial. All documents and other information on which the denial is 
based must be made available to the applicant, on request.
    (b) When a firm is denied certification, you must establish a time 
period of no more than twelve months that must elapse before the firm 
may reapply to the recipient for certification. You may provide, in its 
DBE program, and subject to approval by the concerned operating 
administration, a shorter waiting period for reapplication. The time 
period for reapplication begins to run on the date the explanation 
required by paragraph (a) of this section is received by the firm.
    (c) When you make an administratively final denial of certification 
concerning a firm, the firm may appeal the denial to the Department 
under Sec. 26.79.


Sec. 26.77  What procedures does a recipient use to remove a DBE's 
Eligibility?

    (a) Ineligibility complaints. (1) Any person may file with you a 
written complaint alleging that a currently-certified firm is 
ineligible and specifying the alleged reasons why the firm is 
ineligible. You are not required to accept a general allegation that a 
firm is ineligible or an anonymous complaint. The complaint may include 
any information or arguments supporting the complainant's assertion 
that the firm is ineligible and should not continue to be certified. 
Confidentiality of complainants' identities may be

[[Page 29604]]

protected as provided in Sec. 26.99(b) of this part.
    (2) You must review your records concerning the firm, any material 
provided by the firm and the complainant, and other available 
information. You may request additional information from the firm or 
conduct any other investigation that you deem necessary.
    (3) If you determine, based on this review, that there is 
reasonable cause to believe that the firm is ineligible, you must 
provide written notice to the firm that you propose to find the firm 
ineligible, setting forth the reasons for the proposed determination. 
If you determine that such reasonable cause does not exist, you must 
notify the complainant and the firm in writing of this determination 
and the reasons for it. All statements of reasons for findings on the 
issue of reasonable cause must specifically reference the evidence in 
the record on which each reason is based.
    (b) Recipient-initiated proceedings. If, based on notification by 
the firm of a change in its circumstances or other information that 
comes to your attention, you determine that there is reasonable cause 
to believe that a currently-certified firm is ineligible, you must 
provide written notice to the firm that you propose to find the firm 
ineligible, setting forth the reasons for the proposed determination. 
The statement of reasons for the finding of reasonable cause must 
specifically reference the evidence in the record on which each reason 
is based.
    (c) DOT directive to initiate proceeding. (1) If the concerned 
operating administration determines that information in your 
certification records, or other information available to the concerned 
operating administration, provides reasonable cause to believe that a 
firm you certified does not meet the eligibility criteria of this part, 
the concerned operating administration may direct you to initiate a 
proceeding to remove the firm's certification.
    (2) The concerned operating administration concerned must provide 
you and the firm a notice setting forth the reasons for the directive, 
including any relevant documentation or other information.
    (3) You must immediately commence and prosecute a proceeding to 
remove eligibility as provided by paragraph (b) of this section.
    (d) Hearing. When you notify a firm that there is reasonable cause 
to remove its eligibility, under paragraph, (a), (b) or (c) of this 
section, you must give the firm an opportunity for an informal hearing, 
at which the firm may respond to the reasons for the proposal to remove 
its eligibility in person and provide information and arguments 
concerning why it should remain certified.
    (1) In such a proceeding, you bear the burden of proving, by a 
preponderance of the evidence, that the firm does not meet the 
certification standards of this part.
    (2) You must maintain a complete record of the hearing, by any 
means acceptable under state law for the retention of a verbatim record 
of an administrative hearing. If there is an appeal to DOT under 
Sec. 26.79, you must provide a transcript of the hearing to DOT and, on 
request, to the firm. You must retain the original record of the 
hearing. You may charge the firm only for the cost of making a 
photocopy for the firm.
    (3) The firm may elect to present information and arguments in 
writing, without going to a hearing. In such a situation, a decision 
you make to remove the firm's eligibility must be based on a 
preponderance of the evidence that the firm does not meet the 
eligibility standards of this part.
    (e) Separation of functions. You must ensure that the decision in a 
proceeding to remove a firm's eligibility is made by an office and 
personnel that did not take part in actions leading to or seeking to 
implement the proposal to remove the firm's eligibility and are not 
subject, with respect to the matter, to direction from the office or 
personnel who did take part in these actions.
    (f) Grounds for decision. You must not base a decision to remove 
eligibility on a reinterpretation or changed opinion of information 
available to the recipient at the time of its certification of the 
firm. You may base such a decision only on one or more of the 
following:
    (1) Changes in the firm's circumstances since the certification of 
the firm by the recipient that render the firm unable to meet the 
eligibility standards of this part;
    (2) Information or evidence not available to you at the time of its 
certification of the firm;
    (3) Information that was concealed or misrepresented by the firm in 
previous certification actions by a recipient;
    (4) A change in the certification standards or requirements of the 
Department since you certified the firm; or
    (5) A documented finding that your determination to certify the 
firm was factually erroneous.
    (g) Notice of decision. Following your decision, you must provide 
the firm written notice of the decision and the reasons for it, 
including specific references to the evidence in the record that 
supports each reason for the decision. The notice must inform the firm 
of the consequences of your decision and of the availability of an 
appeal to the Department of Transportation under Sec. 26.79. You must 
send copies of the notice to the complainant in an ineligibility 
complaint or the concerned operating administration that had directed 
the recipient to initiate the proceeding.
    (h) Status of firm during proceeding. (1) Except as provided in 
paragraph (h)(3) of this section, a firm remains an eligible DBE during 
the pendancy of your proceeding to remove its eligibility.
    (2) The firm does not become ineligible until the issuance of the 
notice provided for in paragraph (g) of this section.
    (3) If you determine that there is a strong likelihood that the 
firm will be determined to be ineligible, and it appears that the firm 
will be awarded a contract or subcontract before the conclusion of the 
proceeding, you may suspend the eligibility of the firm to receive any 
new contracts or subcontracts as a DBE, pending the conclusion of the 
proceeding.
    (i) Effects of removal of eligibility. When you remove a firm's 
eligibility, you must take the following action:
    (1) When a prime contractor has made a commitment to using the 
ineligible firm, or you have made a commitment to using a DBE prime 
contractor, but a subcontract or contract has not been executed before 
you issue the decertification notice provided for in paragraph (g) of 
this section, the ineligible firm does not count toward the contract 
goal or overall goal. You must direct the prime contractor to meet the 
contract goal with an eligible DBE firm or demonstrate good faith 
efforts to the recipient.
    (2) If a prime contractor has executed a subcontract with the firm 
before you have notified the firm of its ineligibility, the prime 
contractor may continue to use the firm on the contract and may 
continue to receive credit toward its DBE goal for the firm's work. In 
this case or in a case where you have let a prime contract to the firm, 
the portion of ineligible firm's performance of the contract remaining 
after you issued the notice of its ineligibility shall not count toward 
the overall goal.
    (3) When a firm is found to be ineligible, the effects of its 
ineligibilty (e.g., its participation not counting toward overall 
goals) are retroactive to the date you received the complaint of

[[Page 29605]]

ineligibility or other event initiating the ineligibility proceeding.
    (j) Availability of appeal. When you make an administratively final 
removal of a firm's eligibility under this section, the firm may appeal 
the removal to the Department under Sec. 26.79.


Sec. 26.79  What is the process for certification appeals to the 
Department of Transportation?

    (a) (1) If you are a firm which is denied certification or whose 
eligibility is removed by a recipient, you may make an administrative 
appeal to the Department.
    (2) If you are a complainant in an ineligibility complaint to a 
recipient (including the concerned operating administration in the 
circumstances provided in Sec. 26.77(c)), you may appeal to the 
Department if the recipient does not find reasonable cause to propose 
removing the firm's eligibility or, following a removal of eligibility 
proceeding, determines that the firm is eligible.
    (3) Send appeals to the following address:

Department of Transportation Office of Civil Rights 400 7th Street, 
SW., Room 2401 Washington, DC 20590

    (b) Pending the Department's decision in the matter, the 
recipient's decision remains in effect. The Department does not stay 
the effect of the recipient's decision while it is considering an 
appeal.
    (c) If you want to file an appeal, you must send a letter to the 
Department within 90 days of the date of the recipient's decision, 
including information and arguments concerning why the recipient's 
decision should be reversed. The Department may accept an appeal filed 
later than 90 days after the date of the decision if the Department 
determines that there was good cause, beyond the control of the 
appellant, for the late filing of the appeal.
    (1) If you are an appellant who is a firm which has been denied 
certification, whose certification has been removed, whose owner is 
determined not to be a member of a designated disadvantaged group, or 
concerning whose owner the presumption of disadvantage has been 
rebutted, your letter must state the name and address of any other 
recipient which currently certifies the firm, which has rejected an 
application for certification from the firm or removed the firm's 
eligibility within one year prior to the date of the appeal, or before 
which an application for certification or a removal of eligibility is 
pending. Failure to provide this information may be deemed a failure to 
cooperate under Sec. 26.99(c).
    (2) If you are an appellant other than one described in paragraph 
(c)(1), the Department will request, and the firm whose certification 
has been questioned shall promptly provide, the information called for 
in paragraph (c)(1). Failure to provide this information may be deemed 
a failure to cooperate under Sec. 26.99(c).
    (d) When it receives an appeal, the Department requests a copy of 
the recipient's complete administrative record in the matter. If you 
are the recipient, you must provide the administrative record, 
including a hearing transcript, within 20 days of the Department's 
request. To facilitate the Department's review of a recipient's 
decision, you must ensure that such administrative records are well 
organized, indexed, and paginated. Records that do not comport with 
these requirements are not acceptable and will be returned to you to be 
corrected immediately.
    (e) The Department makes its decision based solely on the entire 
administrative record. The Department does not make a de novo review of 
the matter and does not conduct a hearing. The Department may 
supplement the administrative record by adding relevant information 
made available by the DOT Office of Inspector General; Federal, state, 
or local law enforcement authorities; officials of a DOT operating 
administration or other appropriate DOT office; a recipient; or a firm 
or other private party.
    (f) As a recipient, when you provide supplementary information to 
the Department, you shall also make this information available to the 
firm and any third-party complainant involved, consistent with Federal 
or applicable state laws concerning freedom of information and privacy. 
The Department makes available, on request by the firm and any third-
party complainant involved, any supplementary information it receives 
from any source.
    (1) The Department affirms your decision unless it determines, 
based on the entire administrative record, that your decision is 
unsupported by substantial evidence or inconsistent with the 
substantive or procedural provisions of this part concerning 
certification.
    (2) If the Department determines, after reviewing the entire 
administrative record, that your decision was unsupported by 
substantial evidence or inconsistent with the substantive or procedural 
provisions of this part concerning certification, the Department 
reverses your decision and directs you to certify the firm or remove 
its eligibility, as appropriate. You must take the action directed by 
the Department's decision immediately upon receiving written notice of 
it.
    (3) The Department is not required to reverse your decision if the 
Department determines that a procedural error did not result in 
fundamental unfairness to the appellant or substantially prejudice the 
opportunity of the appellant to present its case.
    (4) If it appears that the record is incomplete or unclear with 
respect to matters likely to have a significant impact on the outcome 
of the case, the Department may remand the record to you with 
instructions seeking clarification or augmentation of the record before 
making a finding. The Department may also remand a case to you for 
further proceedings consistent with Department instructions concerning 
the proper application of the provisions of this part.
    (5) The Department does not uphold your decision based on grounds 
not specified in the your decision.
    (6) The Department's decision is based on the status and 
circumstances of the firm as of the date of your decision that is being 
appealed.
    (7) The Department provides written notice of its decision to you, 
the firm, and the complainant in an ineligibility complaint. The notice 
includes the reasons for the Department's decision, including specific 
references to the evidence in the record that supports each reason for 
the decision.
    (g) All decisions under this section are administratively final, 
and are not subject to petitions for reconsideration.


Sec. 26.81  What actions do recipients take following DOT certification 
appeal decisions?

    (a) If you are the recipient from whose action an appeal under 
Sec. 26.79 is taken, the decision is binding. It is not binding on 
other recipients.
    (b) If you are a recipient to which a DOT determination under 
Sec. 26.79 is applicable, you must take the following action:
    (1) If the Department determines that you erroneously certified a 
firm, you must remove the firm's eligibility on receipt of the 
determination, without further proceedings on your part. Effective on 
the date of your receipt of the Department's determination, the 
consequences of a removal of eligibility set forth in Sec. 26.77(i) 
take effect.
    (2) If the Department determines that you erroneously failed to 
find reasonable cause to propose removing the firm's eligibility, you 
must

[[Page 29606]]

expeditiously commence a proceeding to determine whether the firm's 
eligibility should be removed, as provided in Sec. 26.77.
    (3) If the Department determines that you erroneously declined to 
certify or removed the eligibility of the firm, you must certify the 
firm, effective on the date of your receipt of the written notice of 
Department's determination.
    (4) If the Department determines that you erroneously determined 
that the presumption of social and economic disadvantage either should 
or should not be deemed rebutted, you must take appropriate corrective 
action as determined by the Department.
    (5) If the Department affirms your determination, no further action 
is necessary.
    (c) Where DOT has upheld your denial of certification to or removal 
of eligibility from a firm, or directed the removal of a firm's 
eligibility, other recipients with whom the firm is certified may 
commence a proceeding to remove the firm's eligibility under 
Sec. 26.77. Such recipients must not remove the firm's eligibility 
absent such a proceeding. Where DOT has reversed your denial of 
certification to or removal of eligibility from a firm, other 
recipients must take the DOT action into account in any certification 
action involving the firm. However, other recipients are not required 
to certify the firm based on the DOT decision.


Sec. 26.83  What procedures govern direct ineligibility complaints to 
DOT?

    (a) Any person who believes that a recipient has erroneously 
certified a firm as a DBE may file a written complaint with the DOT 
Office of Civil Rights. The complaint should be sent to the address in 
Sec. 26.79(a)(3).
    (b) The Office of Civil Rights may, at its discretion, accept the 
complaint, decline the complaint, or refer the complaint for action by 
a recipient under Sec. 26.77.
    (c) If the Office of Civil Rights accepts the complaint, it 
investigates the facts of the matter and determines if there is 
reasonable cause to believe that the firm is ineligible. The Office of 
Civil Rights notifies the firm of its determination, in the same way as 
provided in Sec. 26.77(a)(3).
    (d) If the Office of Civil Rights determines there is reasonable 
cause to believe that the firm is ineligible, it provides an 
opportunity for a hearing and makes a decision in the same way as 
provided in Sec. 26.77 (d) through (g) (except that there is no further 
administrative appeal to the Department under Sec. 26.79). The effects 
of a Departmental decision to remove a firm's eligibility is the same 
as provided in Sec. 26.77(i).
    (e) Except as provided in this paragraph, a firm remains eligible 
during the pendancy of a proceeding under this section. However, if the 
Office of Civil Rights determines that there is a strong likelihood 
that the firm will be determined to be ineligible, and it appears that 
the firm will be awarded a contract or subcontract before the 
conclusion of the proceeding, the Office of Civil Rights may direct the 
recipient to suspend, pending the conclusion of the proceeding, the 
eligibility of the firm to receive any new contracts or subcontracts as 
a DBE.


Secs. 26.85-26.89  [Reserved]

Subpart F--Compliance and Enforcement


Sec. 26.91  What compliance procedures apply to recipients?

    If you fail to comply with any requirement of this part, you may be 
subject to formal enforcement action under Sec. 26.93 or Sec. 26.95 of 
this subpart or appropriate program sanctions by the concerned 
operating administration, such as the suspension or termination of 
Federal funds, or refusal to approve projects, grants or contracts 
until deficiencies are remedied. Program sanctions may include, in the 
case of the FHWA program, actions provided for under 23 CFR 1.36; in 
the case of the FAA program, actions consistent with section 519 of the 
Airport and Airway Improvement Act of 1982, as amended; and in the case 
of the FTA program, any actions permitted under the Federal Transit Act 
of 1964, as amended, or applicable FTA program requirements.


Sec. 26.93  What enforcement actions apply in FHWA and FTA programs?

    The provisions of this section apply to enforcement actions under 
FHWA and FTA programs:
    (a) Noncompliance complaints. Any person who believes that a 
recipient has failed to comply with its obligations under this part may 
file a written complaint with Office of Civil Rights. If you want to 
file a complaint, you must do so no later than 180 days after the date 
of the alleged violation or the date on which you learned of a 
continuing course of conduct in violation of this part. The Office of 
Civil Rights may extend the time for filing in the interest of justice, 
specifying in writing the reason for so doing. The Office of Civil 
Rights may protect the confidentiality of your identity as provided in 
Sec. 26.99(b) of this part. Complaints under this part are limited to 
allegations of violation of the provisions of this part.
    (b) Compliance reviews. The concerned operating administration may 
review the recipient's compliance with this part at any time, including 
reviews of paperwork and on-site reviews, as appropriate.
    (c) Reasonable cause notice. If it appears, from the investigation 
of a complaint or the results of a compliance review, that you, as a 
recipient, are in noncompliance with this part, the appropriate DOT 
office promptly sends you, return receipt requested, a written notice 
advising you that there is reasonable cause to find you in 
noncompliance. The notice states the reasons for this finding and 
directs you to reply within 30 days concerning whether you wish to 
begin conciliation.
    (d) Conciliation. (1) If you request conciliation, the appropriate 
DOT office shall pursue conciliation for at least 30, but not more than 
120, days from the date of your request. The appropriate DOT office may 
extend the conciliation period for up to 30 days for good cause, 
consistent with applicable statutes.
    (2) If you and the appropriate DOT office sign a conciliation 
agreement, then the matter is regarded as closed and you are regarded 
as being in compliance. The conciliation agreement sets forth the 
measures you have taken or will take to ensure its compliance. While a 
conciliation agreement is in effect, you remain eligible for FHWA or 
FTA financial assistance.
    (3) The concerned operating administration shall monitor your 
implementation of the conciliation agreement and ensure that its terms 
are complied with. If you fail to carry out the terms of a conciliation 
agreement, you are in noncompliance.
    (4) If you do not request conciliation, or a conciliation agreement 
is not signed within the time provided in paragraph (d)(1) of this 
section, then enforcement proceedings begin.
    (e) Enforcement actions. (1) Enforcement actions are taken as 
provided in this subpart.
    (2) Applicable findings in enforcement proceedings are binding on 
all DOT offices.


Sec. 26.95   What enforcement actions apply in FAA Programs?

    (a) Compliance with all requirements of this part by airport 
sponsors and other recipients of FAA financial assistance is enforced 
through procedures of Title 49 of the United States Code, including 49 
U.S.C. 47106(d), 47111(d), and 47122, and regulations implementing 
them.
    (b) The provisions of Sec. 26.93(b) and Sec. 26.97 apply to 
enforcement actions in FAA programs.

[[Page 29607]]

    (c) Any person who knows of a violation of this part by a recipient 
of FAA funds may file a complaint under 14 CFR part 16 with the Federal 
Aviation Administration Office of Chief Counsel.


Sec. 26.97   What enforcement actions apply to firms participating in 
the DBE program?

    (a) If you are a firm that does not meet the eligibility criteria 
of subpart D of this part and which attempts to participate in a DOT-
assisted program as a DBE on the basis of false, fraudulent, or 
deceitful statements or representations or under circumstances 
indicating a serious lack of business integrity or honesty, the 
Department may initiate suspension or debarment proceedings against you 
under 49 CFR part 29.
    (b) If you are a firm which, in order to meet DBE contract goals or 
other DBE program requirements, uses or attempts to use, on the basis 
of false, fraudulent or deceitful statements or representations or 
under circumstances indicating a serious lack of business integrity or 
honesty, another firm that does not meet the eligibility criteria of 
subpart D, the Department may initiate suspension or debarment 
proceedings against you under 49 CFR part 29.
    (c) In a suspension or debarment proceeding brought under paragraph 
(a) or (b) of this section, the concerned operating administration may 
consider the fact that a purported DBE has been certified by a 
recipient. Such certification does not preclude the Department from 
determining that the purported DBE, or another firm that has used or 
attempted to use it to meet DBE goals, should be suspended or debarred.
    (d) The Department may take enforcement action under 49 CFR part 
31, implementing the Program Fraud Civil Remedies Act of 1986, against 
any participant in the DBE program whose conduct is subject to such 
action under part 31.
    (e) The Department may refer to the Department of Justice, for 
prosecution under 18 U.S.C. 1001 or other applicable provisions of law, 
any person who makes a false or fraudulent statement in connection with 
participation of a DBE in any DOT-assisted program or otherwise 
violates applicable Federal statutes.


Sec. 26.99  What are the rules governing information, confidentiality, 
cooperation, and intimidation or retaliation?

    (a) Availability of records. (1) In responding to requests for 
information concerning any aspect of the DBE program, the Department 
complies with provisions of the Federal Freedom of Information and 
Privacy Acts. The Department may make available to the public any 
information concerning the DBE program release of which is not 
prohibited by Federal law.
    (2) If you are a recipient, you shall safeguard from disclosure to 
unauthorized persons information that may reasonably be considered as 
confidential business information, consistent with Federal, state, and 
local law.
    (b) Confidentiality of information on complainants. Notwithstanding 
the provisions of paragraph (a) of this section, the identity of 
complainants shall be kept confidential, at their election. If such 
confidentiality will hinder the investigation, proceeding or hearing, 
or result in a denial of appropriate administrative due process to 
other parties, the complainant must be advised for the purpose of 
waiving the privilege. Complainants are advised that, in some 
circumstances, failure to waive the privilege may result in the closure 
of the investigation or dismissal of the proceeding or hearing. FAA 
follows the procedures of 14 CFR part 13 with respect to 
confidentiality of information in complaints.
    (c) Cooperation. All participants in the Department's DBE program 
(including, but not limited to, recipients, DBE firms and applicants 
for DBE certification, complainants and appellants, and contractors 
using DBE firms to meet contract goals) are required to cooperate fully 
and promptly with DOT and recipient compliance reviews, certification 
reviews, investigations, and other requests for information. Failure to 
do so shall be a ground for appropriate action against the party 
involved (e.g., with respect to recipients, a finding of noncompliance; 
with respect to DBE firms, denial of certification or removal of 
eligibility; with respect to a complainant or appellant, dismissal of 
the complaint or appeal; with respect to a contractor which uses DBE 
firms to meet goals, findings of non-responsibility for future 
contracts or suspension and debarment).
    (d) Intimidation and retaliation. If you are a recipient, 
contractor, or any other participant in the program, you must not 
intimidate, threaten, coerce, or discriminate against any individual or 
firm for the purpose of interfering with any right or privilege secured 
by this part or because the individual or firm has made a complaint, 
testified, assisted, or participated in any manner in an investigation, 
proceeding, or hearing under this part. If you violate this 
prohibition, you are in noncompliance with this part.

Subpart G--DBE Participation in Airport Concessions


Sec. 26.101  Definitions.

    Affiliation has the same meaning the term has in regulations of the 
Small Business Administration, 13 CFR part 121, except that the 
provisions of Sec. 121.401(l), ``Affiliation under joint venture 
agreements,'' shall not apply to the definition used in this subpart. 
Except as otherwise provided in 13 CFR part 121 and in this section, 
concerns are affiliates of each other when either directly or 
indirectly--
    (1) One concern controls or has the power to control the other, or
    (2) A third party or parties controls or has the power to control 
both, or
    (3) An identity of interest between or among parties exists such 
that affiliation may be found. In determining whether affiliation 
exists, consideration shall be given to all appropriate factors, 
including common ownership, common management, and contractual 
relationships. Affiliates are considered together for purposes of 
determining whether either concern meets the applicable small business 
size standard.
    Concession means a for-profit business enterprise, located on an 
airport subject to this subpart, that is engaged in the sale of 
consumer goods or services to the public under an agreement with the 
sponsor, another concessionaire, or the owner of a terminal, if other 
than the sponsor. Businesses which conduct an aeronautical activity are 
not considered concessionaires for purposes of this subpart. 
Aeronautical activities include scheduled and non-scheduled air 
carriers, air taxis, air charters, and air couriers, in their normal 
passenger or freightcarrying capacities; fixed base operators; flight 
schools; and sky-diving, parachute-jumping, flying guide services, and 
helicopter or other air tours.
    (1) Appendix G to this part contains a listing of the types of 
businesses that are frequently operated as concessions.
    (2) Examples of entities that do not meet the definition of a 
concession include flight kitchens and inflight caterers servicing air 
carriers, government agencies, industrial plants, farm leases, 
individuals leasing hangar space, custodial and security contracts, 
telephone and electric utilities, long distance telephone service, and 
skycap services under contract with an air carrier.
    (3) For purposes of this subpart, a business is not considered to 
be ``located on the airport'' solely because it picks up and/or 
delivers customers under a permit, license, or other

[[Page 29608]]

agreement. This provision applies to, but is not limited to, taxicabs, 
limousines, hotels, and car rentals. A business is considered to be 
``located on the airport,'' however, if it has an on-airport facility 
which services the public. On-airport facilities include in the case of 
a taxi-cab, a dispatcher; in the case of a limousine, a booth selling 
tickets to the public; in the case of a car rental, a counter at which 
its services are sold to the public; and in the case of a hotel 
operator, a hotel located anywhere on airport property.
    (4) Any business meeting the definition of concession is covered by 
this subpart, regardless of the name given to the agreement with the 
sponsor, concessionaire, or airport terminal owner. A concession may be 
operated under various types of agreements, including:
    (i) Leases.
    (ii) Subleases.
    (iii) Permits.
    (iv) Contracts.
    (v) Other instruments or arrangements.
    Concessionaire means a firm that owns and controls a concession.
    Direct ownership arrangement means a joint venture, partnership, 
sublease, franchise, or other arrangement in which a firm owns and 
controls a concession.
    Disadvantaged business enterprise or DBE has the same meaning the 
term has in Sec. 26.5 of this part, except that for purposes of this 
subpart--
    (1) The firm must qualify as a small business concern, as defined 
in this subpart; and
    (2) The definition of ``socially and economically disadvantaged 
individuals'' set forth in this subpart shall apply.
    Management contract or subcontract means an agreement with a 
sponsor or a derivative subagreement under which a firm directs or 
operates one or more business activities, the assets of which are 
owned, leased, or otherwise controlled by the sponsor.
    (1) The managing agent generally receives, as compensation, a flat 
fee or a percentage of the gross receipts or profit from the business 
activity. For purposes of this subpart, the business activity operated 
or directed by the managing agent must be other than an aeronautical 
activity, be located at an airport subject to this subpart, and be 
engaged in the sale of consumer goods or services to the public.
    (2) As used in this subpart, the term management contract or 
subcontract shall not include an agreement between a concessionaire and 
a managing agent. (In the event such managing agent qualifies as a DBE 
and meets other appropriate criteria in this subpart, it can be counted 
toward DBE goals as provided in paragraph (c)(2)(iii) or (c)(2)(iv) of 
Sec. 26.107.)
    Material amendment means a substantial change to the basic rights 
or obligations of the parties to a concession agreement. Examples of 
material amendments include an extension to the term not provided for 
in the original agreement or a substantial increase in the scope of the 
concession privilege. Examples of nonmaterial amendments include a 
change in the name of the concessionaire or a change to the payment due 
dates.
    Primary airport means a commercial service airport which is 
determined by the Secretary to have more than 10,000 passengers 
enplaned annually.
    Small business concern means an existing firm, including all its 
domestic and foreign affiliates, that qualifies under the appropriate 
size standard referenced in Appendix G to this part. Except as provided 
in paragraph (4) of this definition, the appropriate standard is the 
one which best describes the type of concession the firm seeks to 
operate, or type of goods or services the firm seeks to provide under 
the DBE concession program.
    (1) A concessionaire qualifying under this definition that exceeds 
the size standard after entering a concession agreement, but which 
otherwise remains eligible, may continue to be counted as DBE 
participation toward the overall goals and any contract goals set under 
this subpart, until the current agreement, including the exercise of 
options, expires.
    (2) The Secretary may periodically adjust the size standards in 
Appendix G to this part for inflation.
    (3) If a concessionaire was certified as a minority/woman/or 
disadvantaged business enterprise (MBE/WBE/DBE) prior to [the effective 
date of the final rule], pursuant to a requirement in Sec. 23.43(d) or 
subpart F of 49 CFR part 23, and the firm has exceeded the size 
standard, it may be counted as DBE participation until the current 
agreement, including the exercise of options, expires, provided that 
the firm remains otherwise eligible.
    (4) Any firm falling under ``Standard Industrial Classification 
(SIC)'' code 5511 shall be considered a small business concern for 
purposes of this subpart, if it has no more than 500 employees, 
regardless of the nature of the goods and/or services it seeks to 
provide under the DBE concession program. SIC 5511, ``Motor Vehicle 
Dealers (New and Used),'' hereinafter ``car dealerships,'' means: 
Establishments primarily engaged in the retail sale of new automobiles 
or new and used automobiles. These establishments frequently maintain 
repair departments and carry stocks of replacement parts, tires, 
batteries, and automotive accessories. Such establishments also 
frequently sell pickups and vans at retail.
    Socially and economically disadvantaged individuals has the same 
meaning the term has in Sec. 26.5 and as further defined in Sec. 26.57 
and Appendix F to this part.
    Sponsor means the recipient of an FAA grant.


Sec. 26.103  Applicability.

    This subpart applies to any sponsor that received a grant for 
airport development after January 1988 which was authorized under Title 
49 of the United States Code.


Sec. 26.105  Requirements for airport sponsors.

    (a) General requirements. (1) Each sponsor shall abide by the non-
discrimination requirements of Sec. 26.7 with respect to the award and 
performance of any concession agreement, management contract or 
subcontract, purchase or lease agreement, or other agreement covered by 
this subpart.
    (2) Each sponsor shall take all necessary and reasonable steps to 
ensure nondiscrimination in the award and administration of contracts 
and agreements covered by this subpart.
    (3) The following statements shall be included in all concession 
agreements and management contracts executed between the sponsor and 
any firm after [the effective date of the final rule].
    (i) ``This agreement is subject to the requirements of the U.S. 
Department of Transportation's regulations, 49 CFR Part 26, subpart G. 
The concessionaire or contractor agrees that it will not discriminate 
against any business owner because of the owner's race, color, national 
origin, or sex in connection with the award or performance of any 
concession agreement, management contract, or subcontract, purchase or 
lease agreement, or other agreement covered by 49 CFR Part 26, subpart 
G.''
    (ii) ``The concessionaire or contractor agrees to include the above 
statements in any subsequent concession agreement or contract covered 
by 49 CFR Part 26, subpart G, that it enters and cause those businesses 
to similarly include the statements in further agreements.''
    (4)(i) Each sponsor shall retain sufficient basic information about 
its program implementation, its certification of DBEs, and the award 
and

[[Page 29609]]

performance of agreements and contracts to enable the FAA to monitor 
the sponsor's compliance with this subpart. Data shall be retained for 
a minimum of three years following the completion of the concession 
agreement or other covered contract.
    (ii) Sponsors shall report data to the appropriate FAA Regional 
Office concerning DBE participation in concession activities. The 
reports shall be made in a format, and with a frequency, as determined 
by the FAA Administrator.
    (iii) The requirements of this paragraph apply to all obligated 
sponsors, whether or not it is required to establish a DBE concession 
plan under paragraph (b) of this section.
    (b) Additional requirements for primary airports. (1) Sponsors of 
primary airports shall implement a disadvantaged business enterprise 
(DBE) concession plan containing the elements listed in Sec. 26.107. 
Sponsors of more than one primary airport shall implement a separate 
plan for each location that has received assistance for airport 
development. The plan shall be submitted to the appropriate FAA 
Regional Office for approval.
    (2) The sponsor shall review and update the plan at least annually. 
The updated plan shall include any information required under 
Sec. 26.107 that was not available to the sponsor when the previous 
submission was made. Updated plans shall be submitted to the 
appropriate FAA Regional Office for approval.
    (c) Additional requirements for nonprimary airports. Sponsors of 
commercial service airports (except primary), general aviation and 
reliever airports are not required to implement a DBE concession plan 
but shall take appropriate outreach steps to encourage available DBEs 
to participate as concessionaires whenever there is a concession 
opportunity.


Sec. 26.107  Elements of a Disadvantaged Business Enterprise (DBE) 
concession plan.

    (a) Overall annual DBE goals.
    (1) The sponsor shall establish an overall goal for the 
participation of DBEs in concession activities for each 12-month period 
covered by the plan.
    (2) Sponsors shall calculate the overall DBE goal as a percentage 
of one of the following bases:
    (i) The estimated gross receipts that will be earned by all 
concessions operating at the airport during the goal period.
    (ii) The total number of concession agreements operating at the 
airport during the goal period.
    (3) The plan shall indicate which base the sponsor proposes to use 
for calculating the overall goals.
    (4) Sponsors that employ the procedures of paragraph (a)(2)(i) of 
this section may add the following amounts to the total DBE 
participation and to the base from which the overall percentage goal is 
calculated:
    (i) The estimated dollar value of a management contract or 
subcontract with a DBE. (The dollar value of management contracts and 
subcontracts with non-DBE firms are not added to the base from which 
the overall percentage goal is calculated.)
    (ii) Subject to the conditions set forth in Sec. 26.117 of this 
subpart, the estimated dollar value of goods and services that a non-
DBE concessionaire (except a car rental) will purchase from DBEs and 
use in operating the concession.
    (iii) The estimated dollar value of goods and services that a non-
DBE car rental firm will purchase or lease from DBEs and use in 
operating the concession.
    (5) Sponsors that employ the procedures of paragraph (a)(2)(i) of 
this section shall also:
    (i) Use the net payment to the airport for banks and banking 
services, including automated teller machines (ATM) and foreign 
currency exchanges, in calculating the overall goals.
    (ii) Exclude from the overall goal calculation any portion of a 
firm's estimated gross receipts that will not be generated from a 
concession activity.

    Example to paragraph (a)(5). A firm operates a restaurant in the 
airport terminal which services the traveling public and under the 
same lease agreement, provides in-flight catering service to the air 
carriers. The projected gross receipts from the restaurant are 
included in the overall goal calculation, while the gross receipts 
to be earned by the in-flight catering services are excluded.

    (iii) State in the plan which concession agreements, if any, do not 
provide for the sponsor to know the value of the gross receipts earned. 
For such agreements, the sponsor shall use the net payment to the 
airport and combine these figures with the estimated gross receipts 
from other agreements, for purposes of calculating overall goals.
    (6)(i) Sponsors that will employ the procedures of paragraph 
(a)(2)(ii) of this section shall submit a rationale as required by 
Sec. 26.111.
    (ii) In calculating overall goals, these sponsors may add the 
number of management contracts and subcontracts with DBEs to the total 
of DBE participation and to the base from which the overall percentage 
goal is calculated. Management contracts and subcontracts with non-DBEs 
shall not be included in this base.
    (7) All overall goals established under this subpart shall provide 
for participation by all certified DBEs and may not be subdivided into 
group specific goals.
    (8) In setting overall goals, sponsors shall include only those 
projected expenditures/gross receipts or number of agreements, as 
applicable, as Sec. 26.107(c) allows to be counted toward meeting such 
goals.
    (9) In establishing the overall annual goals of the concession 
plan, the sponsor shall provide for public participation by taking at 
least the steps listed in paragraphs (a)(9)(i) and (ii) of this 
section. If the FAA approves the overall annual goals of the concession 
plan, the sponsor is not required to repeat the steps in subsequent 
years covered by the plan.
    (i) Consult with minority, women's and general contractor groups, 
community organizations, and other officials or organizations which 
could be expected to have information concerning the availability of 
disadvantaged businesses, the effects of discrimination on 
opportunities for DBEs, and the sponsor's efforts to increase 
participation of DBEs.
    (ii) Publish a notice announcing the sponsor's proposed overall 
goals, informing the public that the goals and a description of how 
they were selected are available for inspection during normal business 
hours at the principal office of the sponsor for 30 days following the 
date of the notice, and informing the public that the Department and 
the sponsor will accept comments on the goals for 45 days from the date 
of the notice. The notice shall include addresses to which comments may 
be sent, and shall be published in general circulation media and 
available minority-focus media and trade association publications, and 
shall state that the comments are for informational purposes only.
    (10) Failure to establish and implement overall annual goals as 
provided in this section constitutes noncompliance with this subpart. A 
sponsor that fails to comply with this requirement is not eligible to 
receive Federal financial assistance from the FAA.
    (11) In setting overall DBE goals, the sponsor shall follow the 
procedures set forth in Sec. 26.41 (b) through (e), as applied to 
contractors who are available for airport concession leases or 
contracts.
    (12) To the extent practicable, sponsors shall seek to obtain DBE 
participation in all types of concession

[[Page 29610]]

activities and not concentrate participation in one category or a few 
categories to the exclusion of others.
    (13) Approval by the appropriate FAA Regional Office of the 
sponsor's overall annual goals is required prior to implementation. If 
the FAA determines that the overall goals have not been correctly 
calculated or the justification is inadequate, the FAA may, after 
consulting with the sponsor, establish one or more adjusted overall 
annual goals. The adjusted overall goal(s) represents the FAA's 
determination of an appropriate overall goal for DBE participation in 
the sponsor's concession program, based on relevant data and analysis. 
The adjusted overall goal(s) shall be binding on the sponsor.
    (b) Goal methodology. (1) The plan shall contain a description of 
the methodology used to calculate each overall DBE goal. The 
methodology shall include information on the concessions that will 
operate at the airport during the period covered by the plan. For each 
concession agreement, the sponsor shall provide the following 
information, together with any additional information requested by the 
Regional Civil Rights Officer:
    (i) Name of firm (if known).
    (ii) Type of business (e.g. bookstore, car rental, baggage carts).
    (iii) Beginning and expiration dates of agreement, including 
options to renew.
    (iv) For new agreements, method of solicitation proposed by sponsor 
(e.g. request for proposals, invitation for bids).
    (v) Dates that material amendments will be made to the agreement 
(if known).
    (vi) Except for sponsors covered by paragraph (a)(2)(ii) of this 
section, the estimated gross receipts for each goal period established 
in the plan.
    (vii) Identification of those concessionaires that have been 
certified under this subpart as DBEs.
    (viii) An indication of those concessions having potential for 
participation by DBEs.
    (2) The plan shall provide information on other projected 
expenditures with DBE firms that the sponsor proposes to count toward 
meeting overall goals, including
    (i) Name of each DBE firm (if known).
    (ii) Type of business arrangement (e.g. management contract, 
vehicle leasing, building cleaning and maintenance service).
    (iii) Estimated value of funds to be counted toward meeting the 
overall goals.
    (iv) Identification of entity purchasing or leasing the goods or 
services from the DBE (e.g., the sponsor or name of non-DBE 
concessionaire).
    (3) Sponsors that will levy a DBE contact goal or other 
requirements on competitors or concessionaires in accordance with 
Sec. 26.115 of this subpart shall state those requirements in the plan.
    (4) The plan shall include a narrative description of the types of 
efforts the sponsor intends to make in good faith to achieve the 
overall annual goals, in accordance with paragraph (k) of this section.
    (c) Counting DBE participation toward meeting the goals. (1) A 
sponsor or concessionaire may count toward DBE goals expenditures with 
DBEs as referenced in this section, provided that the DBE performs a 
commercially useful function in the work of the contract. For purposes 
of this subpart, the term commercially useful function has the same 
meaning as in Sec. 26.49(e) of this part, except that the requirements 
of Sec. 26.49(e)(3) shall not apply to a concession agreement or 
management contract or subcontract.
    (2) If a sponsor is covered by paragraph (a)(2)(i) of this section, 
DBE participation is counted toward meeting goals as follows.
    (i) The total dollar value of a management contract or subcontract 
with a DBE is counted toward the goals (but the value of the gross 
receipts of the business activity to which the management contract or 
subcontract pertains is not counted toward the goals.)
    (ii)(A) The total dollar value of gross receipts a DBE earns under 
a concession agreement is counted toward the goals, provided, however, 
that if the DBE enters into a subconcession agreement with a non-DBE, 
no portion of the gross receipts earned by the non-DBE is counted.
    (B) When a DBE performs as a subconcessionaire to a non-DBE, only 
the portion of the gross receipts earned by the DBE under its 
subagreement is counted toward the goals.
    (C) When a concession is performed by a joint venture involving a 
DBE, a portion of the gross receipts equal to the percentage of the 
ownership and control by the DBE partner in the joint venture is 
counted toward the goals.
    (iii) A non-DBE car rental firm may count toward a contract goal 
set under Sec. 26.115, the expenditures with DBEs for goods and 
services listed in paragraphs (c)(2)(iii) (A) through (C), (D)(1), and 
(E) of this section, which are used in operation of the concession. A 
sponsor may count these same expenditures toward its overall goal. 
Counting such expenditures toward DBE goals is subject to the 
additional condition stated in Sec. 26.49(d) of this part.
    (A) Costs incurred in connection with the renovation, repair, or 
construction of a concession facility (sometimes referred to as the 
``build-out'') are counted toward DBE goals in accordance with 
Sec. 26.49 of this part, except that 100 percent of the cost of any 
materials or supplies purchased from a DBE regular dealer and used in 
the project are counted toward the goals. For purposes of this subpart, 
the term regular dealer has the same meaning as in 
Sec. 26.49(f)(2)(iii).
    (B) The entire amount of fees or commissions charged by a DBE firm 
for a bona fide service is counted toward DBE goals, provided that it 
is determined by the sponsor to be reasonable and not excessive as 
compared with fees customarily allowed for similar services. Such 
services may include, but are not limited to, professional, technical, 
consultant, legal, security systems, advertising, building cleaning and 
maintenance, computer programming, or managerial.
    (C) 100 percent of the cost of goods obtained from a DBE 
manufacturer is counted toward the goal. For purposes of this subpart, 
the term manufacturer has the same meaning as in Sec. 26.49(f)(1)(ii) 
of this part.
    (D)(1) 100 percent of the cost of goods purchased or leased from a 
DBE regular dealer is counted toward the goals.
    (2) 100 percent of the goods purchased from a DBE regular dealer is 
counted toward goals.
    (E) If goods are purchased from a DBE which is neither a 
manufacturer nor a regular dealer, credit toward DBE goals may be 
counted as follows:
    (1) The entire amount of fees or commissions charged for assistance 
in the procurement of the goods is counted toward the goals, provided 
that it is determined by the sponsor to be reasonable and not excessive 
as compared with fees customarily allowed for similar services. No 
portion of the cost of the goods themselves may be counted toward DBE 
goals, however.
    (2) The entire amount of fees or transportation charges for the 
delivery of goods required in a concession is counted toward DBE goals, 
provided that it is determined by the sponsor to be reasonable and not 
excessive as compared with fees customarily allowed for similar 
services. No portion of the cost of goods themselves may be counted 
toward the goals, however.
    (iv) A non-DBE concessionaire (other than a car rental) may count 
toward a contract goal set under Sec. 26.115, the expenditures listed 
in paragraphs

[[Page 29611]]

(c)(2)(iii)(A) through (C), (D)(2) and (E) of this section that are 
used in the operation of a concession. A sponsor may count these same 
expenditures towards its overall goal. Counting such expenditures 
toward DBE goals is subject to meeting the additional conditions set 
forth in Sec. 26.117 of this subpart and Sec. 26.49(d) of this part.
    (3) The following guidelines apply the counting provisions of 
paragraph (c)(2) of this section to various transactions involving car 
rental firms.
    (i) For purposes of this subpart, a fleet purchase means a purchase 
of vehicles in volume from a manufacturer at a discounted price, which 
is made through a car dealer. While the process used varies by 
manufacturer and by car dealer, the vehicles in a fleet purchase are 
frequently ``dropped-shipped'' directly to the car rental firm. A car 
dealer may use a separate account to handle fleet purchases. The 
minimum number of vehicles in a fleet purchase may vary, but as few as 
10 have been used.
    (ii) A car dealership shall not be regarded as a regular dealer in 
a transaction in which it assists a car rental firm to make a fleet 
purchase from a manufacturer. The entire amount of the fee or 
commission charged by a DBE car dealership for arranging a fleet 
purchase is counted toward DBE goals, provided that it is determined by 
the sponsor to be reasonable and not excessive as compared to fees 
customarily allowed for similar services. No portion of the cost of the 
vehicles themselves is counted toward DBE goals, however.
    (iii) A DBE car dealership may be regarded as a regular dealer with 
respect to other transactions, including but not limited to, retail 
sales or leasing of vehicles other than through a fleet purchase and 
selling motor vehicle supplies or new parts, provided that the 
operation meets appropriate criteria in this section. In these 
instances, 100 percent of the cost charged by the DBE car dealer for 
such goods is counted toward DBE goals.
    (iv) The entire amount of the cost charged by a DBE for repairing 
vehicles is counted toward DBE goals, provided that it is determined by 
the sponsor to be reasonable and not excessive as compared with fees 
customarily allowed for similar services.
    (v) The entire amount of the fee or commission charged by a DBE to 
manage a car rental concession under an agreement with the 
concessionaire is counted toward DBE goals, provided that it is 
determined by the sponsor to be reasonable and not excessive as 
compared with fees customarily allowed for similar services.
    (vi) No portion of a fee paid by a manufacturer to a car dealership 
for reimbursement of work performed under the manufacturer's warranty 
shall be counted toward DBE goals.
    (4) If the sponsor is covered by paragraph (a)(2)(ii) of this 
section, DBE participation is counted toward meeting overall goals and 
any contract goals set under this subpart as follows:
    (i) A sponsor or concessionaire shall count each concession 
agreement with a DBE toward its goal.
    (ii) A sponsor shall count each management contract or subcontract 
with a DBE toward its goal.
    (5) If a firm has not been certified as a DBE in accordance with 
the standards in this part, the firm's participation may not count 
toward DBE goals.
    (6) Except in the case of a concessionaire that exceeds the small 
business size standard, as referenced under the definition of a ``small 
business concern,'' the work performed or gross receipts earned by a 
firm after its eligibility has been removed may not be counted toward 
DBE goals.
    (d) [Reserved]
    (e) Accomplishments in achieving DBE goals. The plan shall contain 
an annual analysis of the accomplishments made by the sponsor toward 
achieving the previous year's goals. The plan shall show the effect of 
those results on the overall level of DBE participation in the 
sponsor's concession program.
    (f) Explanation for not achieving a goal. (1) If the analysis 
required under paragraph (e) of this section indicates that the sponsor 
failed to meet the previous year's overall goal, the plan shall include 
a statement of the reasons demonstrating why failure to meet the goal 
was beyond the sponsor's control.
    (2) If the FAA determines that the reasons given by the sponsor are 
not sufficient justification, or if the sponsor fails to state any 
reasons, the FAA may require the sponsor to implement appropriate 
remedial measures. Such measures may include an adjustment to the 
overall goals of the concession plan.
    (g) Certification procedures. (1) The procedures in Sec. 26.71 
apply to this subpart. The DBE concession plan shall state whether the 
sponsor participates in the unified certification program (UCP) for its 
state.
    (i) A sponsor that participates in a UCP shall be subject to all 
certification procedures applicable to the UCP.
    (ii) A sponsor that elects not to participate in the UCP shall 
independently certify concessionaires and other program participants 
counted toward DBE contract goals and overall goals under this subpart. 
Such a sponsor:
    (A) Is not authorized to accept the certifications made by another 
sponsor or by a UCP;
    (B) May, at its own discretion, use the pre-certification 
procedures in Sec. 26.71(d).
    (2) Pending the establishment of a UCP meeting the requirements of 
this part, any sponsor is authorized to take the actions set forth in 
Sec. 26.71(g). A sponsor that does not participate in the UCP in its 
state is not authorized to take such actions, however, after the UCP 
has become operational.
    (h) Certification process. (1) Except for paragraphs (c) (1) 
through (6) of this section, the requirements of Sec. 26.73 of this 
part apply to all certifications made under this subpart.
    (2) In determining whether a firm is an eligible DBE, a sponsor or 
UCP shall take all steps listed in paragraphs (h)(2) (i) through (vi) 
of this section.
    (i) Obtain the resumes or work histories of the principal owners of 
the firm and personally interview these individuals;
    (ii) Analyze the ownership of stock of the firm, if it is a 
corporation;
    (iii) Analyze the bonding and financial capacity of the firm;
    (iv) Determine the work history of the firm, including any 
concession contracts or other contracts it may have received;
    (v) Obtain or compile a list of the licenses of the firm and its 
key personnel to perform the concession contracts or other contracts it 
wishes to receive;
    (vi) Obtain a statement from the firm of the type(s) of 
concession(s) it prefers to operate or the type(s) of other contract(s) 
it prefers to perform.
    (3) When determined by the sponsor or UCP to be necessary to 
validate the certification information submitted by the firm, the 
sponsor or UCP shall perform an on-site visit to the offices of the 
firm and to any facilities within the sponsor's jurisdiction or local 
area prior to making an eligibility determination.
    (4) Each certified DBE shall provide the affidavit required by 
Sec. 26.73(h) of this part, except that, for certifications made under 
this subpart, the affidavit shall affirm that the firm meets the 
appropriate size standard in Appendix G to this part.
    (5) A sponsor described in paragraph (g)(1)(ii) of this section 
that does not adopt pre-certification procedures, is required to 
certify only those firms which will count toward DBE contract goals and 
overall goals set under this subpart. The provisions of Sec. 26.73(i) 
shall not apply to such a sponsor if the application for certification 
is submitted

[[Page 29612]]

by a firm that will not count toward such goals.
    (i) Other certification procedures. (1) Except as provided in 
paragraph (i)(2) of this section, the procedures in Secs. 26.75, 26.77, 
26.79, and 26.81 apply to this subpart. For purposes of this subpart, 
the term ``prime contractor'' in Sec. 26.77(i) shall include:
    (i) A firm holding a prime contract with an airport concessionaire 
to provide goods or services to the concessionaire; and
    (ii) A firm holding a prime concession agreement with a sponsor.
    (2) The procedures of Sec. 26.77(i)(2) shall apply to this subpart, 
except when a sponsor removes a concessionaire's eligibility because 
the firm exceeded the size standard after entering a concession 
agreement. In such instances, the procedures set forth under the 
definition of a ``small business concern'' in Sec. 26.101 shall apply.
    (j) Certification standards. (1) Except as provided in paragraphs 
(j)(1) (i) and (ii) of this section, sponsors shall use the same 
standards as contained in Secs. 26.51, 26.53, 26.57, 26.59, 26.61, and 
26.63 of this part to determine whether a firm may be certified as a 
DBE under this subpart.
    (i) The personal net worth threshold used in rebutting the 
presumption of disadvantage, referenced in Secs. 26.57(b)(5) and (b)(6) 
and in appendix F of this part, shall be [a number to be inserted in 
the final rule] under this subpart;
    (ii) The provisions of Sec. 26.61(n) of this part shall not apply 
to this subpart.
    (2) A newly formed firm applying for DBE certification as a 
concessionaire must meet all applicable eligibility standards in this 
part. A sponsor shall not deny certification solely because such firm 
was newly formed, without applying the standards in this part.
    (3) Businesses operating under the following structures may be 
eligible for certification as DBEs under this subpart:
    (i) Sole proprietorships meeting the standards in this part.
    (ii) Corporations described in Sec. 26.59(b).
    (iii) Partnerships described in Sec. 26.59(b).
    (iv) Other structures that provide for ownership and control by the 
socially and economically disadvantaged owners.
    (4) A business operating under a franchise or license agreement may 
be certified if it meets the standards in this subpart and the 
franchiser or licenser is not affiliated with the franchisee or 
licensee. In determining whether affiliation as defined in Sec. 26.101 
exists, the restraints relating to standardizing quality, advertising, 
accounting format, and other provisions imposed on a franchisee or 
licensee by its franchise or license agreement generally shall not be 
considered, provided that the franchisee or licensee has the right to 
profit from its efforts and bears the risk of loss commensurate with 
ownership. Alternatively, even though a franchisee or licensee may not 
be controlled by the franchiser or licenser by virtue of such 
provisions in the franchise agreement or license, affiliation could 
arise through other means, such as common management or excessive 
restrictions upon the sale or transfer of the franchise interest or 
license.
    (5) An association of a DBE firm and one or more other firms 
meeting the definition of a joint venture in Sec. 26.5 of this part is 
eligible for certification under this subpart.
    (6) Businesses operating under the following arrangements are not 
eligible for certification as DBEs under this subpart:
    (i) A limited partnership, in which a non-DBE firm or a non-
disadvantaged individual is the general partner.
    (ii) Other arrangements that do not provide for ownership and 
control by the socially and economically disadvantaged owners.
    (k) Good faith efforts. (1)(i) A sponsor shall make good faith 
efforts in accordance with this section to achieve the overall goals of 
an approved concession plan.
    (ii) For purposes of this subpart, good faith efforts means efforts 
which, by their scope, intensity, and appropriateness to the objective, 
can reasonably be expected to achieve a DBE goal or fulfill another 
program requirement.
    (2) To the maximum extent feasible, sponsors shall meet overall 
goals by using outreach, technical assistance, and other methods to 
facilitate DBE participation, including, but not limited to the steps 
listed in paragraphs (k)(4) (i) through (iv) of this section.
    (3)(i) To the extent that a sponsor has determined that it cannot 
meet its overall goals by using the means referenced in paragraph 
(k)(2) of this section, the sponsor shall use the additional steps 
listed in paragraphs (k)(4) (v) and (vi) of this section and the 
procedures in Sec. 26.115.
    (ii) Sponsors shall review at appropriate intervals the methods and 
procedures used to comply with this section to ensure that they 
continue to be needed to meet overall goals, modifying them as needed 
for this purpose. If the sponsor's actual DBE participation 
significantly exceeds its overall goals over a substantial period of 
time, the sponsor shall appropriately reduce the use of DBE contract 
goals as a means of meeting overall goals.
    (4) Good faith efforts include the following:
    (i) Locating and identifying DBEs who may be interested in 
participating as concessionaires or contractors under this subpart;
    (ii) Notifying DBEs and other organizations of concession/
contracting opportunities and encouraging them to compete, when 
appropriate;
    (iii) When practical, structuring contracting activities so as to 
encourage and facilitate the participation of DBEs; and
    (iv) Providing technical assistance to DBEs in overcoming 
limitations, such as inability to obtain bonding or financing.
    (v) Informing competitors for concession/contracting opportunities 
of any DBE requirements during pre-solicitation meetings;
    (vi) Providing information concerning the availability of DBE firms 
to competitors to assist them in meeting DBE requirements;
    (5) A firm subject to a DBE contract goal set under Sec. 26.115 of 
this subpart shall make good faith efforts to meet the goal. The firm 
shall consider implementing at least the steps listed in paragraph 
(k)(4) of this section.
    (6) A sponsor and firm covered by Sec. 26.117(b)(2) of this subpart 
shall make good faith efforts to meet the requirements of that section. 
The sponsor and firm shall consider implementing at least the steps 
listed in paragraph (k)(4) of this section.
    (l) Monitoring and compliance procedures. The sponsor shall 
implement appropriate mechanisms to ensure compliance with the 
requirements of this subpart by all participants in the program. The 
sponsor shall include in its DBE concession plan the specific 
provisions to be inserted into concession agreements and management 
contracts, the enforcement mechanisms, and other means it uses to 
ensure compliance. These provisions shall include a monitoring and 
enforcement mechanism to verify that the work committed to DBEs as a 
condition of receiving the award of a covered contract is actually 
performed by the DBEs.


Sec. 26.109  [Reserved]


Sec. 26.111  Rationale for basing overall goals on the number of 
concession agreements.

    (a) A sponsor that proposes to calculate the overall DBE goals as a 
percentage of the number of concession agreements shall submit 
information with the DBE plan to demonstrate that

[[Page 29613]]

one of the following applies to the airport:
    (1) In order to achieve the overall DBE goals of the plan on the 
basis of gross receipts, the airport would need to award a 
disproportionate percentage of concession agreements to DBEs. This 
rationale may address a time period that extends beyond that covered by 
the current plan; or
    (2) Other circumstances at the airport exist that do not make it 
feasible to use gross receipts as the basis for calculating the goals.
    (b) If the FAA approves the request, the sponsor shall not be 
required to provide further justification during subsequent years of 
the plan, unless requested by the FAA to do so.
    (c) If the FAA determines that the information submitted by the 
sponsor fails to justify the requested goal-setting procedure, the 
sponsor shall resubmit the plan. The goals in the revised plan shall be 
calculated as a percentage of gross receipts, as outlined in 
Sec. 26.107(a)(2)(i) of this subpart.


Sec. 26.113  [Reserved]


Sec. 26.115  Obligations of concessionaires, contractors, and 
competitors.

    (a)(1) Nothing in this subpart shall require any sponsor to modify 
or abrogate an existing concession agreement (one executed prior to the 
date the sponsor became subject to this subpart G) during its term. 
When an option to renew such an agreement is exercised or when a 
material amendment is made, the sponsor shall assess potential for DBE 
participation and may, if permitted by the agreement, set a DBE 
contract goal in accordance with this section.
    (2) Sponsors may impose DBE contract goals on competitors for 
concession agreements or management contracts. If a contract goal is 
established, the solicitation shall notify competitors that as a 
condition of receiving the award of the agreement/contract, the 
competitor shall be required to submit information indicating that the 
competitor--
    (i) Will meet the contract goal through utilization of one or more 
named DBEs; or
    (ii) Made good faith efforts in accordance with Sec. 26.107(k) of 
this subpart.
    (3) The sponsor shall award an agreement or contract for which a 
contract goal has been established only to a firm that is responsive to 
the requirements of this section.
    (4) All DBE contract goals established under this subpart shall 
provide for participation by all certified DBEs and may not be 
subdivided into group-specific goals.
    (5) Sponsors are not required to set each contract goal at the same 
percentage level as the overall goal. The goal for a specific contract 
may be higher or lower than the percentage level of the overall goal, 
depending on such factors as the type of work involved, the location of 
the work, and the availability of DBEs for the work of the particular 
contract or concession.
    (6) DBE contract goals shall be calculated as follows:
    (i) If the goal is to attain a direct ownership arrangement with a 
DBE, the goal is calculated as a percentage of the total estimated 
annual gross receipts from the concession.
    (ii) If the goal applies to purchases and/or leases of goods and 
services, the goal is calculated by dividing the estimated dollar value 
of such purchases and/or leases from DBEs by the sum of this amount and 
the estimated annual gross receipts to be earned by the concession.
    (b) A sponsor may impose the requirements of paragraphs (b)(1) and/
or (b)(2) of this section on a non-DBE car rental firm.
    (1) The sponsor may set a DBE contract goal for the purchase or 
lease of goods or services, provided, that a car rental firm shall be 
permitted to meet such goal by including costs associated with 
purchases or leases of vehicles from any firm that qualifies as a DBE, 
as defined in this subpart.
    (2)(i) The sponsor may require a car rental firm to state in 
writing--
    (A) Whether a change in its corporate structure is needed in order 
to provide for a direct ownership arrangement with a DBE; and
    (B) To identify the particular arrangements it can utilize for such 
purpose, if any.
    (ii) For purposes of this subpart, a change in corporate structure 
shall include a transfer of corporate assets or execution of a joint 
venture, partnership, or sublease agreement.
    (iii) If a car rental firm identifies one or more direct ownership 
arrangements pursuant to paragraph (b)(2)(i)(B) of this section, the 
sponsor may require the firm to make good faith efforts to achieve a 
DBE contract goal through such arrangement.
    (iv) If a car rental firm cannot provide for a direct ownership 
arrangement with a DBE without changing its corporate structure, the 
firm shall be considered responsive to any requirement established by 
the sponsor under this paragraph (b)(2).
    (3)(i) Nothing in this subpart shall require a car rental firm to 
change its corporate structure to provide for a direct ownership 
arrangement with a DBE in order to meet the requirements of this 
subpart.
    (ii) In evaluating bids or proposals for a car rental concession, a 
sponsor shall not give preference or more favorable consideration 
solely because a firm can provide for a direct ownership arrangement 
with a DBE without changing its corporate structure.
    (iii) A sponsor shall not grant more favorable terms or conditions 
in a car rental concession agreement solely because a firm can provide 
for a direct ownership arrangement with a DBE without changing its 
corporate structure.
    (c) A sponsor may impose the requirements of paragraphs (b)(1) and/
or (b)(2) of this section on a non-DBE concessionaire or competitor 
(except a car rental firm):
    (1) Subject to complying with the conditions in Sec. 26.117, the 
sponsor may set a DBE contract goal for the purchase of goods or 
services.
    (2) The sponsor may set a contract goal to attain DBE participation 
solely through a direct ownership arrangement.
    (d) A sponsor may impose a contract goal on a management contractor 
to attain DBE participation through a management subcontract.
    (e) A sponsor is permitted to afford DBE firms opportunities to 
participate as prime concessionaires or management contractors through 
direct contractual agreements with the sponsor.
    (f) When a contract goal has been established in accordance with 
this section, sponsors are prohibited from using more stringent 
mechanisms than good faith efforts (including, but not limited to, set-
asides and a conclusive presumption) unless--
    (1) The sponsor has legal authority independent of this part to use 
such mechanisms; and
    (2) Where the sponsor has a continuing, substantial inability to 
meet its overall goal using the mechanisms provided for in this 
section. In such a case, the sponsor shall document in its file for the 
contract the basis for the determination that other available methods 
have proven unable to meet DBE goals.
    (g) The concession plan shall include a description, together with 
a citation of state or local law, regulation, or policy, to support any 
requirement that a sponsor will levy on a firm which is in addition to 
the requirements of this subpart, such as a requirement to provide 
financial assistance to a DBE.

[[Page 29614]]

This subpart does not provide authority to establish such a 
requirement.


Sec. 26.117  Conditions precedent to counting purchases of goods and 
services by concessionaires (other than car rentals) toward DBE goals.

    (a) A sponsor that proposes to count expenditures referenced in 
Sec. 26.107(c)(1)(iv) of this subpart toward a DBE goal, shall include 
information in the concession plan on how it will comply with the 
requirements set forth in this section.
    (b)(1) Except as provided in paragraph (d) of this section, the 
sponsor shall, with respect to each concession agreement covered by 
this section, implement the procedures of paragraph (b)(1) (i) or (ii) 
as follows:
    (i) Set a DBE contract goal for a direct ownership arrangement and 
require the non-DBE firm to make good faith efforts as provided in 
Sec. 26.115 of this subpart.
    (ii) Submit information demonstrating that the sponsor and non-DBE 
firm made good faith efforts, in accordance with Sec. 26.107(k) of this 
subpart, to explore all available options to attain, to the maximum 
extent practical, DBE participation through a direct ownership 
arrangement. If appropriate, the submission may include an explanation 
why the nature of a particular concession makes DBE participation 
through a direct ownership arrangement not economically feasible or 
otherwise impractical.
    (2) [Reserved]
    (c)(1) The FAA shall approve or disapprove a DBE contract goal 
submitted by the sponsor pursuant to paragraph (b)(2)(1) of this 
section.
    (2)(i) If a sponsor submits information meeting the standards in 
paragraph (b)(1)(ii) of this section, the FAA Regional Office shall 
approve the submission, and if appropriate, require the sponsor to 
reassess the feasibility of setting a DBE contract goal prior to 
exercising each option to renew the concession agreement, when a 
material amendment is made to the agreement, or at another appropriate 
time.
    (ii) If a sponsor submits information that does not meet the 
standards in paragraph (b)(1)(ii) of this section, the FAA Regional 
Office may;
    (A) Require that additional efforts be made by the sponsor and 
concessionaire;
    (B) Direct the sponsor to set a DBE contract goal for a direct 
ownership arrangement; or
    (C) Take other appropriate action in accordance with this subpart.
    (d) If the FAA approved a plan referenced in Sec. 26.121(b)(2) of 
this subpart, the sponsor is not required to submit additional 
information pursuant to this section unless requested by the FAA to do 
so.
    (e)(1) Purchases of goods and services covered by this section may 
be counted toward DBE goals throughout the duration of a concession 
agreement, provided, that all requirements of this section and subpart 
are being met.
    (2) In the event the FAA determines that the sponsor and non-DBE 
firm did not comply with all requirements of this subpart, the FAA may 
direct that the purchases of goods and services affected by such 
determination shall not be counted toward DBE goals.


Sec. 26.119  Privately-owned terminal buildings.

    (a) The requirements of this subpart apply to concession activities 
conducted by a private owner of an airport terminal building. The 
sponsor shall levy the applicable requirements on the terminal owner 
through the agreement with the owner or by other means, except that 
certification shall, in the case of a primary airport, remain the 
responsibility of the sponsor. The sponsor shall ensure that the 
terminal owner complies with the requirements imposed pursuant to this 
subpart.
    (b) If a terminal building is at a primary airport, the sponsor 
shall obtain from the terminal owner the overall goals and other 
elements of the DBE concession plan required under Sec. 26.107. This 
information shall be incorporated into the concession plan and goals 
established by the sponsor and submitted to the FAA in accordance with 
this subpart.
    (c) If the terminal building is at a commercial service airport 
(except primary), general aviation, or reliever airport, the sponsor 
shall ensure that the owner complies with the requirements in 
Sec. 26.105(c).


Sec. 26.121  Prohibition on long-term, exclusive concession agreements.

    (a) Except as provided in paragraph (b) of this section, sponsors 
shall not enter into long-term, exclusive agreements for the operation 
of concessions. For purposes of this section, a long-term agreement is 
one having a term in excess of five years. Guidelines for determining 
whether an agreement is exclusive, as used in this section, shall be 
issued by the FAA and be made available through any FAA Regional Civil 
Rights Officer or from the FAA Office of Civil Rights, 800 Independence 
Avenue, SW., Washington, DC 20591, Attention, ACR-4.
    (b) A long-term, exclusive agreement is permitted under this 
subpart, provided that:
    (1) Special local circumstances exist that make it important to 
enter such agreement, and
    (2) The responsible FAA regional civil rights officer approves of a 
plan for ensuring adequate DBE participation throughout the term of the 
agreement.
    (c) Sponsors shall submit the following information with the plan 
referenced in paragraph (b)(2) of this section:
    (1) A description of the special local circumstances that warrant a 
long-term, exclusive agreement, e.g., a requirement to make certain 
capital improvements to a leasehold facility.
    (2) A copy of the draft and final leasing and subleasing or other 
agreements. The long-term, exclusive agreement shall provide that:
    (i) One or more DBEs will participate as concessionaires throughout 
the term of the agreement and account for at a percentage of the 
estimated annual gross receipts equivalent to a level set in accordance 
with Sec. 26.107(a)(11) of this subpart.
    (ii) The extent of DBE participation will be reviewed prior to the 
exercise of each renewal option to consider whether an increase is 
warranted. (In some instances, a decrease may be warranted.)
    (iii) A DBE concessionaire that is unable to perform successfully 
will be replaced by another DBE concessionaire, if the remaining term 
of the agreement makes this feasible. In the event that such action is 
not feasible, the sponsor shall require the concessionaire to make good 
faith efforts during the remaining term of the agreement encourage DBEs 
to compete for the purchase and/or lease of goods and services that it 
procures.
    (3) Assurances that a DBE concessionaire will be in an acceptable 
form, such as a sublease, joint venture, or partnership.
    (4) Documents used by the sponsor in certifying the DBEs.
    (5) A description of the type of business or businesses to be 
operated, location, storage and delivery space, ``back-of-the-house 
facilities'' such as kitchens, window display space, advertising space, 
and other amenities that will increase the DBE's chance to succeed.
    (6) Information on the investment required on the part of the DBE 
and any unusual management or financial arrangements between the prime 
concessionaire and DBE.

[[Page 29615]]

    (7) Information on the estimated gross receipts and net profit to 
be earned by the DBE.


Sec. 26.123  Compliance procedures.

    (a) Complaints. Any person who believes that there has been a 
violation of this subpart may personally, or through a representative, 
file a written complaint in accordance with FAA regulations (14 CFR 
part 16). The complaint must be submitted to the Federal Aviation 
Administration, Office of the Chief Counsel, Attention: FAA Part 16 
Airport Proceedings Docket (AGC-610), 800 Independence Avenue, SW., 
Washington, DC 20591. Complaints which meet the requirements of 14 CFR 
part 16 shall be docketed and processed as formal complaints.
    (b) Compliance procedures. In the event of noncompliance with this 
subpart by a sponsor, the FAA Administrator may take such action as 
provided in Title 49 of the United States Code (U.S.C.), including 
sections 47106(d), 47111(d), and 47122.


Sec. 26.125  Effect of subpart.

    (a) Local requirements not preempted. Nothing in this subpart shall 
preempt any State or local law, regulation, or policy enacted by the 
governing body of a sponsor, or the authority of any State or local 
government or sponsor to adopt or enforce any law, regulation, or 
policy relating to DBEs. In the event that a State or local law, 
regulation, or policy conflicts with the requirements of this subpart, 
the sponsor shall, as a condition of remaining eligible to receive 
Federal financial assistance from the DOT, take such steps as may be 
necessary to comply with the requirements of this subpart.
    (b) Local geographical preference. Nothing in this subpart shall 
prohibit a sponsor from employing a local geographical preference in 
evaluating bids or proposals for a concession agreement or other 
contract covered by this subpart, provided that the procedure does not 
conflict with any provision in this part or have the effect of 
defeating or substantially impairing accomplishment of the objectives 
of the program. An example of a prohibited practice is a local 
geographical preference that has the effect of discriminating against a 
business owner on the grounds of race, color, sex, or national origin, 
in violation of Sec. 26.7 of this part.
    (c) The miscellaneous provisions set forth in Sec. 26.99 of this 
part apply to this subpart.

Appendix A to Part 26--Explanation of Provisions

    The text of this appendix is not included in this SNPRM, since 
it is intended to reflect the Department's understanding of the 
meaning and proper interpretation of the provisions of the final 
version of Part 26. The Department, as an alternative or addition to 
publishing this Appendix in the final rule, may publish this 
material as part of a compliance guide responding to the 
requirements of the Small Business Regulatory Enforcement Fairness 
Act of 1996.

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

    When, as a recipient, you establish a contract goal on a DOT-
assisted contract, any bidder which does not meet this goal must 
show you that it made good faith efforts to do so. This means that 
the bidder must show that it took all necessary and reasonable steps 
to achieve a DBE goal or other requirement of this part which, by 
their scope, intensity, and appropriateness to the objective, can 
reasonably be expected to fulfill the program requirement.
    It is important for you to look at not only the different kinds 
of efforts that the contractor has made, but also the quantity and 
intensity of these efforts. The efforts employed by the bidder 
should be those that one could reasonably expect a bidder to take if 
the bidder were actively and aggressively trying to obtain DBE 
participation sufficient to meet the DBE contract goal. Mere pro 
forma efforts are not good faith efforts to meet the DBE contract 
requirements. The extent to which other bidders obtained DBE 
participation, and the kind and quality of steps they took in 
attempting to do so, can be considered by the recipient in the 
course of evaluating a bidder's good faith efforts.
    The following is a list of types of actions which you should 
consider as part of the bidder's good faith efforts to obtain DBE 
participation. It is not intended to be a mandatory checklist, nor 
is it intended to be exclusive or exhaustive. Other factors or types 
of efforts may be relevant in appropriate cases.
    A. Soliciting through all reasonable and available means (e.g. 
attendance at pre-bid meetings, advertising and/or written notices) 
the interest of all certified DBEs who have the capability to 
perform the work of the contract. The bidder must solicit this 
interest within sufficient time to allow the DBEs to respond to the 
solicitation. The bidder must determine with certainty if the DBEs 
are interested by taking appropriate steps to follow up initial 
solicitations.
    B. Selecting portions of the work to be performed by DBEs in 
order to increase the likelihood that the DBE goals will be 
achieved. This includes, where appropriate, breaking out contract 
work items into economically feasible units to facilitate DBE 
participation.
    C. Providing interested DBEs with adequate information about the 
plans, specifications, and requirements of the contract in a timely 
manner to assist them in responding to a solicitation.
    D. Negotiating in good faith with interested DBEs. It is the 
bidder's responsibility to make a portion of the work available to 
DBE subcontractors and suppliers and to select those portions of the 
work or material needs consistent with the available DBE 
subcontractors and suppliers, so as to facilitate DBE participation. 
Evidence of such negotiation includes the names, addresses, and 
telephone numbers of DBEs that were considered; a description of the 
information provided regarding the plans and specifications for the 
work selected for subcontracting; and evidence as to why additional 
agreements could not be reached for DBEs to perform the work.
    A bidder using good business judgment would consider a number of 
factors in negotiating with subcontractors, including DBE 
subcontractors, and would take a firm's price and capabilities as 
well as contract goals into consideration. However, the extra cost 
involved in finding and utilizing DBEs is not in itself sufficient 
reason for a bidder's failure to meet the contract DBE goal, as long 
as such costs are reasonable. As a recipient, you may establish, as 
part of the solicitation, a reasonable range of additional cost that 
you will consider in making a good faith efforts determination. The 
range set forth in solicitation documents, or your finding of 
reasonableness in the absence of a predetermined range should be 
determined on a case-by-case basis appropriate to the circumstances 
of the contract involved.
    We also note that the ability or desire of a prime contractor to 
perform the work of a contract with its own organization does not 
relieve the bidder of the responsibility to either meet the contract 
goal or demonstrate that it made adequate, but unsuccessful, good 
faith efforts.
    E. Noting whether other bidders have met the contract goal. When 
the apparent successful bidder fails to meet the contract goal, but 
others meet it, you may reasonably raise the question of whether, 
with additional reasonable efforts, the apparent successful bidder 
could have met the goal.
    F. Not rejecting DBEs as being unqualified without sound reasons 
based on a thorough investigation of their capabilities. The 
contractor's standing within the highway construction industry, 
membership in specific groups, organizations, or associations and 
political or social affiliations [for example union vs. non-union 
employee status] are not legitimate causes for the rejection or non-
solicitation of bids in the contractor's efforts to meet the project 
goal.
    G. Making efforts to assist interested DBEs in obtaining 
bonding, lines of credit, or insurance as required by the recipient 
or contractor.
    H. Making efforts to assist interested DBEs in obtaining 
necessary equipment, supplies, materials, or related assistance or 
services.
    I. Effectively using the services of available minority/women 
community organizations; minority/women contractors' groups; local, 
state, and Federal minority/women business assistance offices; and 
other organizations as allowed on a case-by-case basis to provide 
assistance in the recruitment and placement of DBEs.
    In any situation in which you have established a contract goal, 
Part 26 requires you to use the good faith efforts mechanism

[[Page 29616]]

of this part in determining whether bidders/offerors have met 
program requirements. You must make a fair and reasonable judgment 
concerning the good faith efforts made by competitors for contracts, 
and must not accept a showing of efforts that are inadequate or 
merely pro forma.
    You are also cautioned against requiring that a bidder meet a 
contract goal in order to be awarded a contract, even though the 
bidder makes an adequate good faith efforts showing. If you impose 
such a requirement, or reject reasonable showings of good faith 
efforts by bidders, you may create a de facto quota system. Except 
in the limited circumstances noted in Sec. 26.45(e), you are 
prohibited from using quotas, a conclusive presumption, or set-
asides in the award of DOT-assisted contracts. Such actions may also 
expose you to lawsuits from contractors.

Appendix C--DBE Certification Application Form

    Application is hereby made by the Individual (organization) 
identified below for certification as a disadvantaged business 
enterprise (DBE) under the U.S. Department of Transportation DBE 
program pursuant to 49 CFR part 26. Socially and Economically 
Disadvantaged (SED) Individuals are presumed to be members of the 
following groups: Black Americans, Hispanic Americans, Native 
Americans, Asian Pacific Americans, Subcontinent Americans, Women 
and any groups so designated by the Small Business Administration 
(SBA). Applicants who are not one of the presumed groups must prove 
social and economic disadvantage in accordance with the standards in 
49 CFR Part 26, Appendix F.
    Any person claiming SED status shall attach copies of a current 
Financial Statement prepared by an independent CPA or accountant. In 
addition a copy of one of the following documents must be submitted 
to prove membership in the ethnic group claimed:
    Membership letter or certificate of ethnic organization--Tribal 
Certificate or Bureau of Indian Affairs Card--Birth Certificate/
Record (including those of natural parents)--U.S. Passport--Armed 
Service Discharge Papers--Alien Registration Number--Any other 
document that provides evidence of ethnicity.

    Note: For purposes of this application the following SED codes 
are to be used (B) Black Americans, (H) Hispanic Americans, (NA) 
Native Americans, (AP) Asian-Pacific Americans, (AS) Subcontinent--
Asian Americans, (W) Women, (SBA) Other Groups Approved By SBA (O) 
Other.

    Answer all questions. Indicate ``N/A'' if question does not 
pertain to your firm.

----------------------------------------------------------------------
1. Name and Address of Company
----------------------------------------------------------------------
2. Mailing Address (if Different)
----------------------------------------------------------------------
3. Contact Person and Title
----------------------------------------------------------------------
4. Telephone No.
----------------------------------------------------------------------
5. Federal Identification Number
----------------------------------------------------------------------
6. Other Identification Number Used

    7. Has this firm been certified under Section 8(a) by the Small 
Business Administration? Yes __ No __ If certified attach a copy of 
the certification.
    8. NATURE OF THE FIRM'S BUSINESS:
----------------------------------------------------------------------
    9. Standard Industrial Classification (SIC) Code and applicable 
size standard for which the firm qualifies to do business (Refer to 
the small business size standard at 13 CFR part 121)
SIC--------------------------------------------------------------------
Size-------------------------------------------------------------------
SIC--------------------------------------------------------------------
Size-------------------------------------------------------------------
SIC--------------------------------------------------------------------
Size-------------------------------------------------------------------
SIC--------------------------------------------------------------------
Size-------------------------------------------------------------------
    10. List States in which the firm is authorized to do business.
    11. LICENSES REQUIRED TO CONDUCT BUSINESS. Attach copies of any 
required local, county and state active business license(s) and 
permit(s), i.e., contractors, PUC, A&E registration etc.
    A. For each license/permit attached, indicate:

----------------------------------------------------------------------------------------------------------------
                                   Name of qualifying                                                           
      Name of licensee                 individual                Type of licenses         DBE code    Exp. date 
----------------------------------------------------------------------------------------------------------------
                                                                                                                
----------------------------------------------------------------------------------------------------------------
                                                                                                                
----------------------------------------------------------------------------------------------------------------
                                                                                                                
----------------------------------------------------------------------------------------------------------------
(If the qualifying individual is not one of the minority or women owners listed in the application, please      
  explain in Item 28.)                                                                                          

    12. OWNERSHIP INFORMATION:
____Sole Proprietor  ____Partnership  ____Corporation  ____Joint 
Venture  ____Other
Date established/incorporated ____________ State ____________
    13. LIST OWNERS/INVESTORS WHO HAVE A 5% OR MORE INTEREST:

----------------------------------------------------------------------------------------------------------------
                                                                                                U.S. citizen or 
        Name           DBE code    Gender M/F   Date of ownership      No. of      Voting %        permanent    
                                                                       shares                      resident?    
----------------------------------------------------------------------------------------------------------------
                                                                                                                
----------------------------------------------------------------------------------------------------------------
                                                                                                                
----------------------------------------------------------------------------------------------------------------
                                                                                                                
----------------------------------------------------------------------------------------------------------------
Check here ____, if more space is needed and continue listing in Item 29.                                       

    14. List on an attachment to this form, any other companies in 
which any of their individuals are employed, have been employed 
within the past year, and also have more than a 5% ownership 
interest.
    15. BOARD OF DIRECTORS (in the last three years)

------------------------------------------------------------------------
       Name            Title     DBE code      M/F       Expiration of  
------------------------------------------------------------------------
                                                                        
------------------------------------------------------------------------
                                                                        
------------------------------------------------------------------------
                                                                        
------------------------------------------------------------------------
Check here ____, if more space is needed and continue listing in Item   
  29.                                                                   


[[Page 29617]]

    16. List the contributions of money, equipment, real estate, or 
expertise of each of the owners/investor. Attach proof of the 
initial investment in the firm (dollars, real estate, equipment, 
etc.) on behalf of each of the owners. If more space is required 
continue in Item 29.
    17. MANAGEMENT: List individuals by name and title responsible 
for the management areas indicated. Detailed resume showing work/
experience history and current responsibilities must be included for 
each individual listed.

----------------------------------------------------------------------------------------------------------------
                                                                   Individual                                   
                            Duties                                responsible        Reports to:       DBE code 
----------------------------------------------------------------------------------------------------------------
Preparation and presentation of estimates and bids:                                                             
----------------------------------------------------------------------------------------------------------------
Hiring and firing management personnel:                                                                         
----------------------------------------------------------------------------------------------------------------
Final Determination of what jobs the company will undertake:                                                    
----------------------------------------------------------------------------------------------------------------
Day to Day Operations                                                                                           
----------------------------------------------------------------------------------------------------------------
Negotiations and approval of contracts:                                                                         
----------------------------------------------------------------------------------------------------------------
Administration of company contracts:                                                                            
----------------------------------------------------------------------------------------------------------------
Marketing and sales activities:                                                                                 
----------------------------------------------------------------------------------------------------------------
Negotiating and signing for surety bonds:                                                                       
----------------------------------------------------------------------------------------------------------------
Supervision of field operations:                                                                                
----------------------------------------------------------------------------------------------------------------

    18. Identify any owner or management official of the firm who 
is, or has been, an employee of another firm that has an ownership 
interest in or a present business relationship with the named firm. 
Provide details of the arrangement and relationship. Present 
business relationships include shared space, equipment, financing or 
employees, as well as both firms having the same owners. Be sure to 
list those persons who are currently working for any other business 
which has a relationship with this firm, whether on a full-time or 
part-time basis as an owner, partner, shareholder, advisor, 
consultant, or employee.
    19. Company's experience: List the three largest projects 
performed by the company in the last 3 years. If performed as a 
subcontractor, indicate the name of the prime contractor and a 
contact person for these projects.

----------------------------------------------------------------------------------------------------------------
              Project                   Dollar amount      Date  completed     Prime contractor/contact  person 
----------------------------------------------------------------------------------------------------------------
                                                                                                                
----------------------------------------------------------------------------------------------------------------
                                                                                                                
----------------------------------------------------------------------------------------------------------------
                                                                                                                
----------------------------------------------------------------------------------------------------------------
                                                                                                                
----------------------------------------------------------------------------------------------------------------

    20. Indicate the firm's gross receipts for the last three tax 
years:

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                        
--------------------------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDING                                                                                                                                             
--------------------------------------------------------------------------------------------------------------------------------------------------------
GROSS RECEIPTS                         $                                      $                                     $                                   
--------------------------------------------------------------------------------------------------------------------------------------------------------

    21. Name of Surety Company ______________ Bonding limit 
______________
    Agent ______________ Telephone Number ______________
    22. Who signs for insurance and payroll? ______________. Provide 
copy of the signed Corporate Bank Resolution(s) and bank account(s) 
signature card(s)
    23. List all sources and amounts of money loaned to the company, 
when and by whom:

----------------------------------------------------------------------------------------------------------------
                 Source                           Amount                   Date                    Terms        
----------------------------------------------------------------------------------------------------------------
                                                                                                                
----------------------------------------------------------------------------------------------------------------
                                                                                                                
----------------------------------------------------------------------------------------------------------------
                                                                                                                
----------------------------------------------------------------------------------------------------------------

    24. NAME, COMPANY AND ADDRESS OF FIRM'S CPA OR ACCOUNTANT
    25. NAME, COMPANY AND ADDRESS OF FIRM'S ATTORNEY
    26. WORKFORCE INFORMATION:
    Past calendar year: Highest Total __________ Lowest Total 
__________ Average __________
    A. Permanent Personnel Currently on Payroll

----------------------------------------------------------------------------------------------------------------
                     Administrative        Clerical         Supervisory          Skilled           Unskilled    
----------------------------------------------------------------------------------------------------------------
Part-Time                                                                                                       
----------------------------------------------------------------------------------------------------------------
Full-Time                                                                                                       
----------------------------------------------------------------------------------------------------------------

[[Page 29618]]

                                                                                                                
TOTAL                                                                                                           
----------------------------------------------------------------------------------------------------------------

    B. Are any of the employees on another firm's payroll? Yes ____ 
No ____. If yes, please identify firm(s) and number of employees 
______________
    27. Provide a listing of owned and leased equipment. Do not 
include leases. Copies of the state registration cards and titles 
must be provided for all vehicles that require state registration/
licensing. Copies of documentation of ownership for all other 
equipment owned or leases for leased equipment must be attached.
    28. Indicate if the firm or other firms with any of the same 
officers or owners has previously received or has been denied 
certification of participation as a DBE, MBE or WBE and describe the 
circumstances. Indicate the name of the certifying authority and the 
date of such certification or denial or decertification.
    29. Please use the space provided below to explain any of the 
above items. You may attach additional sheets if necessary.

Affidavit

    ``The undersigned swears that the foregoing statements are true 
and correct and include all material information necessary to 
identify and explain the operations of the firm below as well as the 
ownership thereof. Further, the undersigned agrees to permit an 
onsite review of the company's operation as well as the audit and 
examination of books, records and files of the named firm. Any 
material misrepresentation will be grounds terminating eligibility 
as well as any contract which may be awarded and for initiating 
action under Federal and/or State laws concerning false 
statements.''

    Note: If additional information is required to determine 
certification, the conditions stated in the affidavit are 
applicable. If there are any significant changes in the information 
provided above that would alter your status as a DBE inform the 
certifying agency (See 49 CFR 26.73(g)).

----------------------------------------------------------------------
Name of Firm

----------------------------------------------------------------------
Name

----------------------------------------------------------------------
Title

----------------------------------------------------------------------
Signature

----------------------------------------------------------------------
Date

    On this ________ day of ________________, 19____, before me 
appeared

----------------------------------------------------------------------
who, being duly sworn, did execute the foregoing affidavit, and did 
state that he or she was properly authorized by (Name of Firm)

----------------------------------------------------------------------
to execute the affidavit and did so as his or her free act and deed.

Notary Public----------------------------------------------------------

Commission expires-----------------------------------------------------

[Seal]
--Submit the following Documents (and any amendments thereto):

------------------------------------------------------------------------
                                                                        
------------------------------------------------------------------------
S                P                C                1. Equipment rental  
                                                    and purchase        
                                                    agreement.          
S                P                C                2. Management service
                                                    agreements.         
                 P                ...............  3. Current Federal   
                                                    Tax Form 1065 (plus 
                                                    previous two (2)    
                                                    years).             
                 P                ...............  4. Partnership       
                                                    agreement.          
                 P                ...............  5. Buy-out rights    
                                                    agreement.          
                 P                ...............  6. Profit-sharing    
                                                    agreement.          
S                P                C                7. Proof of capital  
                                                    invested.           
S                P                C                8. Current financial 
                                                    statement prepared  
                                                    by an independent   
                                                    CPA or accountant.  
                 ...............  C                9. Current Federal   
                                                    Tax Form 1120S and  
                                                    4562 (plus previous 
                                                    two (2) years).     
S                P                C                10. Resumes of       
                                                    principals of your  
                                                    company showing     
                                                    education, training 
                                                    and employment, with
                                                    dates.              
                 ...............  C                11. Articles of      
                                                    incorporation,      
                                                    including date      
                                                    approved by State.  
                 ...............  C                12. Minutes of first 
                                                    corporate           
                                                    organizational      
                                                    meeting.            
                 ...............  C                13. Minutes of board 
                                                    meetings for the    
                                                    past two years.     
                 ...............  C                14. Corporate bylaws.
                 ...............  C                15. Copy of stock    
                                                    certificates issued 
                                                    (not a specimen     
                                                    copy)               
                 ...............  C                16. Stock transfer   
                                                    ledger.             
                 ...............  C                17. Proof of stock   
                                                    purchase.           
S                P                C                18. Copies of third- 
                                                    party agreements,   
                                                    such as rental or   
                                                    management service  
                                                    agreements.         
S                P                C                19. Applicable       
                                                    license(s) and/or   
                                                    permit(s).          
S                P                C                20. Business card.   
S                P                C                21. Birth certificate
                                                    or American passport
                                                    of qualifying       
                                                    applicant.          
S                P                C                22. Names of two     
                                                    client references.  
S                P                C                23. Lease/rental     
                                                    agreement for       
                                                    business site.      
S                P                C                24. One canceled     
                                                    check used for lease/
                                                    rental of business  
                                                    site.               
S                P                C                25. Bank signature   
                                                    card.               
S                P                C                26. Recent           
                                                    contractual         
                                                    agreement between   
                                                    firm and client.    
S                P                C                27. Brochure (or     
                                                    descriptive         
                                                    information on      
                                                    firm).              
------------------------------------------------------------------------
S--Sole Proprietorship    P--Partnership    C--Corporation.             


[[Page 29619]]

Appendix D to Part 26--DBE Business Development Program Guidelines

    (A) Each firm that participates in the developmental program is 
subject to a program term determined by the recipient. The term will 
consist of two stages; a developmental stage and a transitional 
stage.
    (B) In order for a firm to remain eligible for program 
participation, it must continue to meet all eligibility criteria 
contained in Subpart G.
    (C) By no later than 6 months of program entry, the participant 
should develop and submit to the recipient a comprehensive business 
plan setting forth the participant's business targets, objectives 
and goals. The participant will not be eligible for program benefits 
until such business plan is submitted and approved by the recipient. 
The approved business plan will constitute the participant's short 
and long term goals and the strategy for developmental growth to the 
point of economic viability beyond traditional areas of DBE program 
participation.
    (D) The business plan should contain at least the following:
    1. An analysis of market potential, competitive environment and 
other business analyses estimating the program participant's 
prospects for profitable operation during the term of program 
participation and after graduation from the program.
    2. An analysis of the firm's strengths and weaknesses, with 
particular attention paid to the means of correcting any financial, 
managerial, technical, or labor conditions which could impede the 
participant from receiving contracts other than those in traditional 
areas of DBE participation.
    3. Specific targets, objectives, and goals for the business 
development of the participant during the next two years, utilizing 
the results of the analysis conducted pursuant to paragraphs (C) and 
(D)(1) of this appendix;
    4. Estimates of contract awards from the DBE program and from 
other sources which are needed to meet the objectives and goals for 
the years covered by the business plan; and
    5. Such other information as the recipient may require.
    (E) Each participant shall annually review its currently 
approved business plan with the recipient and shall modify such plan 
as may be appropriate to account for any changes in the firm's 
structure and redefined needs. The currently approved plan shall be 
considered the applicable plan for all program purposes until the 
recipient approves in writing a modified plan. The recipient shall 
establish an anniversary date for review of the participant's 
business plan and contract forecasts.
    (F) Each participant shall annually forecast in writing its need 
for contract awards for the next program year and the succeeding 
program year during the review of its business plan conducted under 
paragraph (E) of this appendix. Such forecast shall be included in 
the participant's business plan. The forecast shall include:
    (1) The aggregate dollar value of contracts to be sought under 
the DBE program, reflecting compliance with the business plan;
    (2) The aggregate dollar value of contracts to be sought in 
areas other than traditional areas of DBE participation;
    (3) The types of contract opportunities being sought, based on 
the firm's primary line of business; and
    (4) Such other information as may be requested by the recipient 
to aid in providing effective business development assistance to the 
participant.
    (G) Program participation is divided into two stages; (1) A 
developmental stage and (2) a transitional stage. The developmental 
stage is designed to assist participants to overcome their social 
and economic disadvantage by providing such assistance as may be 
necessary and appropriate to enable them to access relevant markets 
and strengthen their financial and managerial skills. The 
transitional stage of program participation follows the 
developmental stage and is designed to assist participants to 
overcome, insofar as practical, their social and economic 
disadvantage and to prepare the participant for leaving the program.
    (H) The length of service in the program term should not be a 
pre-set time frame for either the developmental or transitional 
stages but should be figured on the number of years considered 
necessary in normal progression of achieving the firm's established 
goals and objectives. The setting of such time could be factored on 
such items as, but not limited to, the number of contracts, 
aggregate amount of the contract received, years in business, growth 
potential, etc.
    (I) Beginning in the first year of the transitional stage of 
program participation, each participant shall annually submit for 
inclusion in its business plan a transition management plan 
outlining specific steps to promote profitable business operations 
in areas other than traditional areas of DBE participation after 
graduation from the program. The transition management plan should 
be submitted to the recipient at the same time other modifications 
are submitted pursuant to the annual review under paragraph (E) of 
this section. Such plan shall set forth the same information as 
required under paragraph (F) of steps the participant will take to 
continue its business development after the expiration of its 
program term.
    (J) When a participant is recognized as successfully completing 
the program by substantially achieving the targets, objectives and 
goals set forth in its program term, and has demonstrated the 
ability to compete in the marketplace in non-traditional areas, its 
further participation within the program may be determined by the 
recipient.
    (K) In determining whether a concern has substantially achieved 
the goals and objectives of its business plan, the following 
factors, among others, shall be considered by the recipient:
    (1) Profitability;
    (2) Sales, including improved ratio of non-traditional contracts 
to traditional-type contracts;
    (3) Net worth, financial ratios, working capital, 
capitalization, access to credit and capital;
    (4) Ability to obtain bonding;
    (5) A positive comparison of the DBE's business and financial 
profile with profiles of non-DBE businesses in the same area or 
similar business category; and
    (6) Good management capacity and capability.
    (L) Upon determination by the recipient that the participant 
should be graduated from the developmental program, the recipient 
shall notify the participant in writing of its intent to graduate 
the firm in a letter of notification. The letter of notification 
shall set forth findings, based on the facts, for every material 
issue relating to the basis of the program graduation with specific 
reasons for each finding. The letter of notification shall also 
provide the participant 45 days from the date of service of the 
letter to submit in writing information which would explain why the 
proposed basis of graduation is not warranted.
    (M) Participation of a DBE firm in the program may be 
discontinued by the recipient prior to expiration of the firm's 
program term for good cause due to the failure of the firm to engage 
in business practices that will promote its competitiveness within a 
reasonable period of time as evidenced by, among other indicators, a 
pattern of inadequate performance or unjustified delinquent 
performance. Also, the recipient can discontinue the participation 
of a firm that does not actively pursue and bid on contracts, and a 
firm that, without justification, regularly fails to respond to 
solicitations in the type of work it is qualified for and in the 
geographical areas where it has indicated availability under its 
approved business plan. The recipient shall take such action if over 
a 2-year period a DBE firm exhibits such a pattern.

Appendix E to Part 26--Mentor-Protege Program Guidelines

    The purpose of this program element is to assist DBEs to move 
into non-traditional areas of work, via the provision of training 
and assistance from other firms. Any mentor-protege program shall be 
evidenced by a written development plan, approved by the recipient, 
which clearly sets forth the objectives of the parties and their 
respective roles, the duration of the arrangement and the resources 
covered. The formal mentor/protege agreement may set a fee schedule 
to cover the direct and indirect cost for such services rendered by 
the mentor for specific training and assistance to the protege 
through the life of the agreement. It is recognized that this type 
of service provided by the mentor is considered fundable under the 
applicable DOT federally assisted program.
    To be eligible, the mentor's services provided and associated 
costs must be directly attributable and properly allowable to 
specific individual contracts; the recipient may establish a line 
item for the mentor to quote the portion of the fee schedule 
expected to be provided during the life of the contract. The amount 
claimed shall be verified by the recipient and paid on an 
incremental basis representing the time the protege is working on 
the contract. The total individual contract figures accumulated over 
the life of the agreement shall not exceed the

[[Page 29620]]

amount stipulated in the original mentor/protege agreement.
    DBEs involved in a mentor-protege agreement must be independent 
business entities which meet the requirements for certification as 
defined in Subpart D. If the recipient chooses to recognize mentor/
protege agreements, formal general program guidelines shall be 
developed and submitted to the operating administration for approval 
prior to the recipient executing an individual contractor/
subcontractor-mentor/protege plan.

Appendix F to Part 26--Individual Determinations of Social and Economic 
Disadvantage

    This appendix contains guidance for recipients as they make 
individual determinations of social and economic disadvantage for 
individuals who are not entitled to the statutory presumption of 
social and economic disadvantage. Applicants not entitled to the 
presumption must establish both social and economic disadvantage by 
a preponderance of the evidence.

Social Disadvantage

    Socially disadvantaged individuals are those who have been 
subjected to racial or ethnic prejudice or cultural bias because of 
their identities as members of groups without regard to their 
individual qualities. The social disadvantage must stem from 
circumstances beyond their control. Social disadvantage must include 
the following elements:
    (a) The individual's social disadvantage must stem from his or 
her color, ethnic origin, gender, physical handicap, long-term 
residence in an environment isolated from the mainstream of American 
society, or other similar cause not common to small business persons 
who are not socially disadvantaged.
    (b) The individual must demonstrate that he or she has 
personally suffered social disadvantage, not merely claim membership 
in a nondesignated group which could be considered socially 
disadvantaged.
    (c) The individual's social disadvantage must be rooted in 
treatment which he or she has experienced in American society, not 
in other countries.
    (d) The individual social disadvantage must be chronic and 
substantial, not fleeting or insignificant.
    (e) The individual's social disadvantage must have negatively 
impacted on his or her entry into and/or advancement in the business 
world. Recipients must entertain any relevant evidence in assessing 
this element of an applicant's case, placing emphasis on the 
following experiences of the individual, where relevant:
    (1) Education. The recipient must consider, as evidence of an 
individual's social disadvantage, denial of equal access to 
institutions of higher education; exclusion from social and 
professional association with students and teachers; denial of 
educational honors; social patterns or pressures which have 
discouraged the individual from pursuing a professional or business 
education; and other similar factors.
    (2) Employment. The recipient must consider, as evidence of an 
individual's social disadvantage, discrimination in hiring; 
discrimination in promotions and other aspects of professional 
advancement; discrimination in pay and fringe benefits; 
discrimination in other terms and conditions of employment; 
retaliatory behavior by an employer; social patterns or pressures 
which have channeled the individual into nonprofessional of non-
business fields; and other similar factors.
    (3) Business history. The recipient must consider, as evidence 
of an individual's social disadvantage, unequal access to credit or 
capital; acquisition of credit or capital under unfavorable 
circumstances; discrimination in receipt (award and/or bid) of 
contracts; discrimination by potential clients; exclusion from 
business of professional organizations; and other similar factors 
which have impeded the individual's business development.

Economic Disadvantage

    Economically disadvantaged individuals are socially 
disadvantaged individuals whose ability to compete in the free 
enterprise system has been impaired due to diminished capital and 
credit opportunities as compared to others in the same or similar 
line of business who are not socially disadvantaged, and such 
diminished opportunities have precluded or are likely to preclude 
such individuals from successfully competing in the open market 
(i.e., the individuals are not in a position to compete on a ``level 
playing field'' with non-disadvantaged businesses or business 
owners). The DBE program is not intended to assist concerns owned 
and controlled by socially disadvantaged individuals who have 
accumulated substantial wealth, who have unlimited growth potential 
or who have not experienced or have overcome impediments to 
obtaining access to financing, markets and resources.
    In determining the degree of diminished credit and capital 
opportunities of a socially disadvantaged individual, the recipient 
must consider factors relating both to the applicant and to the 
individual(s) claiming disadvantaged status, including that 
individual's access to credit and capital; the financial condition 
of the applicant; and the applicant's access to credit, capital, and 
markets. That is, the recipient must look at the situation of the 
business as well as that of the owner personally. The recipient must 
compare the applicant's business and financial profile with profiles 
of businesses in the same or similar line of business which are not 
owned and controlled by socially and economically disadvantaged 
individuals.
    The recipient must consider the following factors:
    (a) Personal financial condition of the individuals claiming 
disadvantaged status. This criterion is designed to assess the 
relative degree of economic disadvantage of the individual, as well 
as the individual's potential to capitalize or otherwise provide 
financial support for the business. The specific factors to be 
considered include, but are not limited to, the individual's 
personal net worth, the individual's personal income for at least 
the past two years, and the total fair market value of all assets. 
Generally, an individual whose personal net worth exceeds [an amount 
to be inserted in the final rule] is viewed as not being 
economically disadvantaged, absent a showing by the individual that 
other factors in his or her economic situation, the nature of the 
markets in which his or her firm is competing, the business 
financial condition of the firm, or its access to capital or credit, 
make that individual and his or her business relatively 
disadvantaged (i.e., not on a level playing field), compared to 
competing firms.
    (b) Business financial condition. This criterion will be used to 
provide a financial picture of a firm at a specific point in time in 
comparison to other concerns in the same or similar line of business 
which are not owned and controlled by socially and economically 
disadvantage individuals. In evaluating a concern's financial 
condition, the recipient's consideration must include, but not be 
limited to, the following factors: business assets, revenues, pre-
tax profits, working capital and net worth of the concern, including 
the value of the investments in the concern held by the individual 
claiming disadvantaged status.
    (c) Access to credit and capital. This criterion will be used to 
evaluate the ability of the applicant concern to obtain the external 
support necessary to operate a competitive business enterprise. In 
making the evaluation, the recipient must consider the concern's 
access to credit and capital, including, but not limited to, the 
following factors: Access to long-term financing; equipment trade 
credit; access to raw materials and/or supplier to trade credit; and 
bonding capability.

Claims of Disadvantage Based on Alleged Effects of DBE Program

    Individuals cannot establish they are socially and economically 
disadvantaged by relying on competitive disadvantages they allegedly 
suffer because of the operation of the DBE program itself, or of 
similar state and local programs. Over the years, there have been 
allegations from some white male-owned firms that they have 
difficulty getting contracts in certain fields or certain 
jurisdictions because the DBE program results in a significant 
portion of contracts going to DBEs. The Department is aware of 
arguments having been made that this situation may make a given 
white male-owned firm eligible for an individual finding of social 
and economic disadvantage. The Department does not accept this 
argument, which would have the effect of benefiting firms the DBE 
program is not intending to assist because the program has been 
successful in assisting the firms for which it is intended. Nothing 
in this appendix provides that the effect of government-sponsored 
affirmative action programs can be used as a basis for a finding of 
disadvantage. Recipients are instructed not to make findings of 
disadvantage on such a basis.

[[Page 29621]]

Appendix G to Part 26--Size Standards for the Airport Concession 
Program

       Maximum Average Annual Gross Receipts in Preceding 3 Years       
                        [In millions of dollars]                        
------------------------------------------------------------------------
                         Concession                             Amount  
------------------------------------------------------------------------
Food and beverage...........................................      33.270
Book stores.................................................      33.270
Auto rental.................................................      44.360
Banks.......................................................  \1\ 100.00
Hotels and motels...........................................      33.270
Insurance machines and counters.............................      33.270
Gift, novelty, and souvenir shops...........................      33.270
Newsstands..................................................      33.270
Shoe shine stands...........................................      33.270
Barber shops................................................      33.270
Automobile parking..........................................      33.270
Jewelry stores..............................................      33.270
Liquor stores...............................................      33.270
Travel agencies.............................................      33.270
Drug stores.................................................      33.270
Pastries and baked goods....................................      33.270
Luggage cart rental.........................................      33.270
Coin-operated T.V.'s........................................      32.040
Game rooms..................................................      33.270
Luggage and leather goods stores............................      33.270
Candy, nut, and confectionery stores........................      33.270
Toy stores..................................................      33.270
Beauty shops................................................      33.270
Vending machines............................................      33.270
Coin-operated lockers.......................................      33.270
Florists....................................................      33.270
Advertising.................................................      33.270
Taxicabs....................................................      33.270
Limousines..................................................      33.270
Duty free shops.............................................      33.270
Local pay telephone service.................................  \2\ 1500  
Gambling machines...........................................      33.270
Other concessions not shown above...........................      33.270 
------------------------------------------------------------------------
\1\ As measured by total assets.                                        
\2\ As measured by number of employees.                                 


                           Other Participants                           
------------------------------------------------------------------------
                                                                        
------------------------------------------------------------------------
Management contractors:                                                 
    Parking lots..........................  5.0.                        
    Other.................................  As defined in 13 CFR Part   
                                             121.                       
Motor vehicle dealers (new and used)......  500 employees.\3\           
Other providers of goods or services......  As defined in 13 CFR Part   
                                             121.                       
------------------------------------------------------------------------
\3\ See definition of ``small business concern'' in Sec.  26.101 for    
  additional information regarding firms classified within this         
  industry.                                                             


[FR Doc. 97-13961 Filed 5-29-97; 8:45 am]
BILLING CODE 4910-62-P