[Federal Register Volume 71, Number 56 (Thursday, March 23, 2006)]
[Notices]
[Pages 14775-14778]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-4226]


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DEPARTMENT OF TRANSPORTATION

Federal Transit Administration

[Docket No. FTA-2006-24063]


Disadvantaged Business Enterprises; Western States Guidance for 
Public Transportation Providers

AGENCY: Federal Transit Administration (FTA), DOT.

ACTION: Notice of policy implementation and request for comments.

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SUMMARY: This notice provides the opportunity for public comment on 
specific issues regarding the Federal Transit Administration's (FTA) 
implementation of Department of Transportation (DOT) guidance for 
participants of the Disadvantaged Business Enterprise (DBE) program. 
This guidance is applicable to recipients of Federal financial 
assistance from the Federal Transit Administration (FTA) located in the 
states under the U.S. Court of Appeals for the 9th Circuit (California, 
Oregon, Washington, Alaska, Arizona, Idaho, Montana, Nevada, and 
Hawaii).

DATES: Effective Date: Comments must be received on or before April 24, 
2006. Late-filed comments will be considered to the extent practicable.

ADDRESSES: Written Comments: Submit written comments to the Docket 
Management System, U.S. Department of Transportation, Room PL-401, 400 
Seventh Street, SW., Washington, DC 20590-0001. You may submit comments 
identified by the docket number (FTA-06-24063) by any of the following 
methods:
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the online instructions for submitting comments.
     Web Site: http://dms.dot.gov. Follow the instructions for 
submitting comments on the DOT electronic docket site.
     Fax: 1-202-493-2478.
     Mail: Docket Management System; U.S. Department of 
Transportation, 400 Seventh Street, SW., Nassif Building, Room PL-401, 
Washington, DC 20590-0001.
     Hand Delivery: To the Docket Management System; Room PL-
401 on the plaza level of the Nassif Building, 400 Seventh Street, SW., 
Washington, DC between 9 a.m. and 5 p.m., Monday through Friday, except 
Federal holidays.
    Instructions: All submissions must include the agency name (Federal 
Transit Administration) and Docket number (FTA-2006-24063) for this 
notice. Note that all comments received will be posted without change 
to http://dms.dot.gov including any personal information provided.

FOR FURTHER INFORMATION CONTACT: Scheryl Portee, Attorney Advisor, 
Office of the Chief Counsel, (202) 366-4011 (telephone) and (202) 366-
3809 (fax).

SUPPLEMENTARY INFORMATION:

Background

    The General Counsel of the Department of Transportation recently 
reviewed and approved guidance concerning the effects of the Western 
States Paving Co. v. United States & Washington State Department of 
Transportation, 407 F. 3d 983 (9th Cir. 2005), court decision on 
participants in the Department's disadvantaged business enterprise 
(DBE) program. The guidance applies to recipients of Federal funds 
authorized under chapter 53 of Title 49 of the United States Code that 
are located within the states of Alaska, Arizona, California, Hawaii, 
Idaho, Montana, Nevada, Oregon, and Washington.
    The Court of Appeals for the 9th Circuit, like other Federal courts 
that have reviewed the Department of Transportation's DBE program, held 
that 49 CFR Part 26 and the authorizing statute for the DBE program in 
TEA-21

[[Page 14776]]

are constitutional. The court upheld congressional determination that 
there is a compelling need for the DBE program and the DOT rules at 
Part 26 are narrowly tailored to meet that need.
    However, the 9th Circuit held that the DBE Program administered by 
the Washington State Department of Transportation was not narrowly 
tailored because the evidence of discrimination supporting the use of 
race-conscious measures in the program was inadequate. Since the 
Western States decision and DOT's guidance on the effects of that 
decision will impact FTA grantees in the 9th Circuit, we are issuing 
this Federal Register notice.
    Specifically, this notice provides information on the procedures 
that FTA will employ as a review process for fiscal year 2006 DBE goal 
submissions (due on August 1, 2005) to FTA in regard to: Race-neutral 
submissions, the evidence-gathering process to determine evidence of 
discrimination or its effects in grantees' market, and action plans for 
disparity/availability studies or other appropriate evidence gathering 
process, is undertaken. FTA will apply the following guidance to 
recipients of Federal funds:

The DOT Guidance

    The following is the text of the DOT Western States guidance:
    The General Counsel of the Department of Transportation has 
reviewed this document and approved it as consistent with the language 
and intent of 49 CFR Part 26.

Question: To Whom Do These Questions and Answers Apply?

Answer
    These questions and answers apply only to recipients of Federal 
financial assistance from the Federal Highway Administration (FHWA), 
Federal Transit Administration (FTA), and Federal Aviation 
Administration (FAA) located in the states comprising the 9th Federal 
Judicial Circuit. These states are California, Oregon, Washington, 
Alaska, Arizona, Idaho, Montana, Nevada, and Hawaii.
    These questions and answers do not apply to recipients in other 
states.
    These questions and answers apply only to the disadvantaged 
business enterprise programs (DBE) of recipients of Federal financial 
assistance governed by 49 CFR Part 26.

Question: What Did the Court Say in Western States?

Answer
    Like other Federal courts that have reviewed the Department of 
Transportation's DBE program, the 9th Circuit panel held that 49 CFR 
Part 26 and the authorizing statute for the DBE program in TEA-21 were 
constitutional. The court affirmed that Congress had determined that 
there was a compelling need for the DBE program and the Part 26 was 
narrowly tailored.
    The court agreed that Washington State did not need to establish a 
compelling need for its DBE program, independent of the determinations 
that Congress made on a national basis.
    However, the court said that race conscious elements of a national 
program, to be narrowly tailored as applied, must be limited to those 
parts of the country where its race-based measures are demonstrably 
needed.
    Whether race-based measures are needed depends on the presence or 
absence of discrimination or its effects in a state's transportation 
contracting industry.
    In addition, even when discrimination is present in a state, a 
program is narrowly tailored only if its application is limited to 
those specific groups that have actually suffered discrimination or its 
effects.
     The court concluded that Washington State DOT's DBE 
program was not narrowly tailored because the evidence of 
discrimination supporting its application was inadequate. The court 
mentioned several ways in which the state's evidence was insufficient:
    + Washington State DOT had not conducted statistical studies to 
establish the existence of discrimination in the highway contracting 
industry that were completed or valid.
    + Washington State DOT's calculation of the capacity of DBEs to do 
work was flawed because it failed to take into account the effects of 
past race-conscious programs on current DBE participation.
    + The disparity between DBE participation on contracts with and 
without affirmative action components did not provide any evidence of 
discrimination.
    + A small disparity between the proportion of DBE firms in the 
state and the percentage of funds awarded to DBEs in race-neutral 
contracts (2.7% in the case of Washington State DOT) was entitled to 
little weight as evidence of discrimination, because it did not account 
for other factors that may affect the relative capacity of DBEs to 
undertake contracting work.
    + This small statistical disparity is not enough, standing alone, 
to demonstrate the existence of discrimination. To demonstrate 
discrimination, a larger disparity would be needed.
    + Washington State DOT did not present any anecdotal evidence of 
discrimination.
    + The affidavits required by 49 CFR 26.67(a), in which DBEs certify 
that they are socially and economically disadvantaged, are not evidence 
of the presence of discrimination.
    Consequently, the court found that the Washington State DOT DBE 
program was unconstitutional as applied.
    The court cited the 8th Circuit's decision in Sherbrooke Turf v. 
Minnesota Department of Transportation. In that case, the court said, 
Minnesota and Nebraska had hired outside consulting firms to conduct 
statistical analyses of the availability and capacity of DBEs in their 
local markets, which the 8th Circuit had relied on in holding that the 
two states' DBE programs were constitutional as applied.

Question: What Action Should Recipients Take With Respect to Submitting 
Their Overall Goals for FY 2006?

Answer
    Recipients should examine the evidence they have on hand of 
discrimination and its effects. Does this evidence appear to address 
successfully the problems the 9th Circuit's decision articulated 
concerning the Washington State DOT DBE program?
    If the recipient currently has sufficient evidence of 
discrimination or its effects, the recipient should go ahead and submit 
race- and gender-conscious goals where appropriate, as provided in Part 
26. (This submission would include the normal race conscious/race-
neutral ``split'' in overall goals.)
    If the evidence of discrimination and its effects pertains to some, 
but not all, of the groups that Part 26 presumes to be socially and 
economically disadvantaged, then these race- and gender-conscious goals 
should apply only to the group or groups for which the evidence is 
adequate.
    If necessary, the Department may entertain program waivers of Part 
26's prohibition of group-specific goals in this situation.
    If the recipient does not currently have sufficient evidence of 
discrimination or its effects, then the recipient would submit an all-
race neutral overall goal for FY 2006. The recipient's submission would 
include a statement concerning the absence of adequate evidence of 
discrimination and its effects.
    A race-neutral submission of this kind should include a description 
of plans to conduct a study or other appropriate

[[Page 14777]]

evidence-gathering process to determine the existence of discrimination 
or its effects in the recipient's market. An action plan describing the 
study and time lines for its completion should also be included.
    The Department's operating administrations are willing, in response 
to recipients' requests, to extend the time for submitting FY 2006 
goals for a time sufficient to allow recipients to evaluate the 
adequacy of their current evidence of discrimination or its effects.
    Operating administrations will review recipients' annual goal 
submissions to determine whether recipients have provided evidence of 
discrimination or its effects.

Question: Should Recipients Who Will Be Submitting All Race-Neutral 
Overall Goals for FY 2006 Because They Do Not Have Sufficient Evidence 
of Discrimination or Its Effects Make Any Changes to Contracts Issued 
During FY 2005 or Earlier?

Answer
    No. Even where FY 2005 contracts used race-conscious contract 
goals, we do not believe it is appropriate to attempt to revise or 
reform those contracts.

Question: If Recipients Will Be Operating an All-Race Neutral DBE 
Program in FY 2006 or Subsequent Years, What Should Such a Program 
Include?

    With few exceptions, generally there is no difference in how the 
DBE program regulations apply to a race- and gender-neutral program 
(hereafter race-neutral) as compared to a race- and gender-conscious 
program (hereafter race-conscious).
    In a wholly race-neutral program (e.g., the annual overall DBE goal 
has been approved with no portion of it projected to be attained by 
using race- and gender-conscious means) the recipient does not set 
contract goals on any of its U.S. DOT-assisted contracts for which DBE 
subcontracting possibilities exist. Recipients having an all race-
neutral program are not required to establish contract goals to meet 
any portion of their overall goal.
    Recipients should take affirmative steps to use as many of the 
race-neutral means of achieving DBE participation identified at 49 CFR 
26.51(b) as possible to meet the overall goal and to demonstrate that 
you are administering your program in good faith. The Department 
expects that recipients using all race-neutral programs will use 
methods such as unbundling of contracts, technical assistance, capital 
and bonding assistance, business development programs, etc., rather 
than waiting passively for DBEs to participate.
    The good faith efforts requirements in 49 CFR 26.53 that apply when 
DBE contract goals are set have no required application to recipients 
implementing a race-neutral program. However, recipients must continue 
to collect the data required to be reported in the Uniform Report of 
DBE Awards or Commitments and Payments Form (see Sec.  26.11) and to 
monitor compliance with the commercially useful function requirements.
    The prompt payment and retainage requirements of 49 CFR 26.29 are 
race-neutral mechanisms designed to benefit all subcontractors, DBEs 
and non-DBEs alike. Recipients using all race-neutral programs must 
continue to implement them.
    The requirement that DBEs must perform a commercially useful 
function to receive credit toward the overall goal applies to race 
neutral programs just as it does to programs that use race-conscious 
means to meet program objectives.
    It is helpful for recipients to maintain an effective monitoring 
and enforcement program to track DBE participation obtained through 
race neutral means that the recipient claims credit (see 49 CFR 
26.37(b)).

Question: What Must Recipients Do That Have Already Submitted Their FY 
2006 Goals to Modal Administrations for Approval?

Answer
    If the appropriate modal administration determines that the FY 2006 
DBE goal submission does not contain the kind of information or 
documentation suggested by this guidance that would comport with the 
law established by the Ninth Circuit Court of Appeals, the recipient 
will be directed to revise and resubmit its DBE goal submission 
consistent with this guidance.

Question: Will the Process Used by the Modal Administrations to Review 
and Approve Goal Submissions Made by Recipients in the Ninth Circuit 
Change?

    For FHWA recipients in the 9th Circuit, FY 2006 DBE goal 
submissions will require concurrence by the FHWA Office of Civil Rights 
and the Office of Chief Counsel in Washington, DC before approval by 
the appropriate FHWA division office.
    FTA's process will remain the same. [Note--Please see request for 
comment below].
    For FAA recipients in the 9th Circuit, FY 2006 DBE goal submissions 
with a race-conscious component will require concurrence by the FAA 
Headquarters Office of Civil Rights and a legal sufficiency review by 
the Office of Chief Counsel in Washington, DC before being approved by 
the appropriate FAA Regional Office of Civil Rights and Office of Chief 
Counsel. Those with an all race-neutral overall goal will be approved 
by the Regional Office of Civil Rights.

Question: If A Recipient Lacks Sufficient Evidence of Discrimination or 
Its Effects, What Should It Do To Remedy the Lack of Information?

Answer
    A recipient in this situation should immediately begin to conduct a 
rigorous and valid study to determine whether there is evidence of 
discrimination or its effects.
    The Department expects recipients who submit an all-race neutral 
goal for FY 2006 because they lack sufficient evidence of 
discrimination to ensure that this evidence-gathering effort is 
completed expeditiously.
    Studies to determine the presence of discrimination or its effects 
are often referred to as ``disparity'' or ``availability'' studies, 
though there can also be rigorous and scientifically valid studies 
which may have different names. Whatever label is applied to a study, 
however, the key point is that it be designed to determine, in a fair 
and valid way, whether evidence of the kind the 9th Circuit decision 
determined was essential to a DBE program including race-conscious 
elements exists.

Question: What Should Recipients' Studies Include?

Answer
    Based on the 9th Circuit decision, recipients should consider the 
following points as they design their studies:
    The study should ascertain the evidence for discrimination and its 
effects separately for each of the groups presumed by Part 26 to be 
disadvantaged.
    The study should include an assessment of any anecdotal and 
complaint evidence of discrimination.
    Recipients may consider the kinds of evidence that are used in 
``Step 2'' of the Part 26 goal-setting process, such as evidence of 
barriers in obtaining bonding and financing, disparities in business 
formation and earnings.
    With respect to statistical evidence, the study should rigorously 
determine the effects of factors other than discrimination that may 
account for

[[Page 14778]]

statistical disparities between DBE availability and participation. 
This is likely to require a multivariate/regression analysis.
    The study should quantify the magnitude of any differences between 
DBE availability and participation, or DBE participation in race-
neutral and race-conscious contracts. Recipients should exercise 
caution in drawing conclusions about the presence of discrimination and 
its effects based on small differences.
    In calculating availability of DBEs, the study should not rely on 
numbers that may have been inflated by race-conscious programs that may 
not have been narrowly tailored.
    Recipients should consider, as they plan their studies, evidence-
gathering efforts that Federal courts have approved in the past. These 
include the studies by Minnesota and Nebraska cited in Sherbrooke Turf, 
Inc. v. Minnesota Department of Transportation, 345 F.3d 964 (8th Cir. 
2003), cert. denied 124 S. Ct. 2158 (2004) and the Illinois evidence 
cited in Northern Contracting, Inc. v. State of Illinois, et al. 2005 
WL 2230195, N.D.Ill., September 08, 2005 (No. 00 C 4515)

Question: Can There Be Statewide or Regional Studies, as Opposed to a 
Separate Study for Each Individual Recipient?

Answer
    If feasible, studies may be undertaken on a regional or statewide 
basis to reduce the costs that would be involved if each recipient 
conducted its own separate study.
    We would expect that each State DOT would conduct a statewide 
study. Such a study should be conducted in cooperation with transit and 
airport recipients in the state, so that the study would apply to 
recipients in all three modes.
    Larger transit and/or airport recipients may want to conduct their 
own study, since the demographics of large urban areas may differ from 
that of the state as a whole.

Question: Will Federal Funds Help To Defray the Costs of Recipients' 
Studies?

Answer
    Yes. FHWA, FTA, and FAA have all stated that the costs of 
conducting disparity studies are reimbursable from Federal program 
funds, subject to the availability of those funds.
    Recipients should contact their operating administration for more 
detailed information.

FTA Requests for Comment

    FTA requests comment on two matters concerning the implementation 
of the DOT General Counsel's DBE Guidance on the Western States court 
decision:
    1. For 9th circuit recipients only, with respect to FY 2006 overall 
DBE goals, recipients should submit DBE goals to their FTA Regional 
Office for review by the Regional Civil Rights Officer. As determined 
by the Regional Civil Rights Officer, recipients with race-neutral 
goals may be required to certify that they will conduct or participate 
in a disparity or availability study or other appropriate evidence 
gathering process and the time frame for completion of the study or 
process.
    2. As mentioned in the DOT Guidance, disparity studies using FY 
2006 funding allocations will be an authorized expense for 
reimbursement, subject to the availability of funds. We seek comment on 
whether disparity studies should receive grantee funding priority, and 
on whether any additional funding should be made available for this 
purpose.

    Issued on: March 20, 2006.
Sandra K. Bushue,
Deputy Administrator.
[FR Doc. E6-4226 Filed 3-22-06; 8:45 am]
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