[Federal Register Volume 76, Number 19 (Friday, January 28, 2011)]
[Rules and Regulations]
[Pages 5083-5101]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-1531]


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DEPARTMENT OF TRANSPORTATION

Office of the Secretary

49 CFR Part 26

[Docket No. OST-2010-0118]
RIN 2105-AD75


Disadvantaged Business Enterprise: Program Improvements

AGENCY: Office of the Secretary (OST), DOT.

ACTION: Final rule.

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SUMMARY: This rule improves the administration of the Disadvantaged 
Business Enterprise (DBE) program by increasing accountability for 
recipients with respect to meeting overall goals, modifying and 
updating certification requirements, adjusting the personal net worth 
(PNW) threshold for inflation, providing for expedited interstate 
certification, adding provisions to foster small business 
participation, improving post-award oversight, and addressing other 
issues.

DATES: Effective Dates: This rule is effective February 28, 2011.

FOR FURTHER INFORMATION CONTACT: Robert C. Ashby, Deputy Assistant 
General Counsel for Regulation and Enforcement, U.S. Department of 
Transportation, 1200 New Jersey Avenue, SE., Washington, DC 20590, Room 
W94-302, 202-366-9310, [email protected].

SUPPLEMENTARY INFORMATION: The Department of Transportation issued an 
advance notice of proposed rulemaking (ANPRM) concerning several DBE 
program issues on April 8, 2009 (74 FR 15904). The first issue raised 
in the ANPRM concerned counting of items obtained by a DBE 
subcontractor from its prime contractor. The second concerned ways of 
encouraging the ``unbundling'' of contracts to facilitate participation 
by small businesses, including DBEs. The third was a request for 
comments on potential improvements to the DBE application form and 
personal net worth (PNW) form. The fourth asked for suggestions related 
to program oversight. The fifth concerned potential regulatory action 
to facilitate certification for firms seeking to work as DBEs in more 
than one state. The sixth concerned additional limitations on the 
discretion of prime contractors to terminate DBEs for convenience, once 
the prime contractor had committed to using the DBE as part of its 
showing of good faith efforts. The Department received approximately 30 
comment letters regarding these issues.
    On May 10, 2010, the Department issued a notice of proposed 
rulemaking (NPRM) seeking further comment on proposals based on the 
ANPRM and proposing new provisions (75 FR 25815). The NPRM proposed an 
inflationary adjustment of the PNW cap to $1.31 million, the figure 
that would result from proposed Federal Aviation Administration (FAA) 
reauthorization legislation then pending in both Houses of Congress. 
The Department proposed additional measures to hold recipients 
accountable for their performance in achieving DBE overall goals.
    The NPRM also proposed amendments to the certification-related 
provisions of the DBE regulation. Those proposals resulted from the 
Department's experience dealing with certification issues and 
certification appeal cases during the years since the last major 
revision of the DBE rule in 1999. The proposed amendments were intended 
to clarify issues that have arisen and avoid problems with which

[[Page 5084]]

recipients (i.e., state highway agencies, transit authorities, and 
airport sponsors who receive DOT grant financial assistance) and the 
Department have had to grapple over the last 11 years.
    The Department received approximately 160 comments on the NPRM from 
a variety of interested parties, including DBE and non-DBE firms, 
associations representing them, and recipients of DOT financial 
assistance. A summary of comments on the major issues in the 
rulemaking, and the Department's responses to those comments, follows.

Counting Purchases From Prime Contractors

    Under current counting rules, a DBE subcontractor and its prime 
contractor may count for DBE credit the entire cost of a construction 
contract, including items that the DBE subcontractor purchases or 
leases from a third party (e.g., in a so-called ``furnish and install'' 
contract). There is an exception to this general rule: A DBE and its 
prime contractor may not count toward goals items that the DBE 
purchases or leases from its own prime contractor. The reason for this 
provision is that doing so would allow the prime contractor to count 
for DBE credit items that it produced itself.
    As noted in the ANPRM, one DBE subcontractor and a number of prime 
contractors objected to this approach, saying that it unfairly denies a 
DBE in this situation the opportunity to count credit for items it has 
obtained from its prime contractor rather than from other sources. 
Especially in situations in which a commodity might only be available 
from a single source--a prime contractor or its affiliate--the rule 
would create a hardship, according to proponents of this view. The 
ANPRM proposed four options (1) keeping the rule as is; (2) keeping the 
basic rule as is, but allowing recipients to make exceptions in some 
cases; (3) allowing DBEs to count items purchased from any third party 
source, including the DBE's prime contractor; and (4) not allowing any 
items obtained from any non-DBE third party to be counted for DBE 
credit. Comment was divided among the four alternatives, which each 
garnering some support. For purposes of the NPRM, the Department 
decided not to propose any change from the current rule.
    Comment on the issue was again divided. Seven commenters favored 
allowing items obtained from any source to be counted for credit, 
including the firm that was the original proponent of the idea and 
another DBE, two prime contractors' associations, a prime contractor, 
and two State Departments of Transportation (DOTs). These commenters 
generally made the same arguments as had proponents of this view at the 
ANPRM stage. Thirteen commenters, among which were several recipients, 
a DBE contractors' association, and DBE contractors, favored the NPRM's 
proposed approach of not making any change to the existing rule, and 
they endorsed the NPRM's rationale. Sixteen commenters, including a 
recipient association and a number of DBE companies, supported 
disallowing credit for any items purchased or leased from a non-DBE 
source. They believed that this approach supported the general 
principle of awarding DBE credit only for contributions that DBEs 
themselves make on a contract.

DOT Response

    The Department remains unconvinced that it is appropriate for a 
prime contractor to produce an item (e.g., asphalt), provide it to its 
own DBE subcontractor, and then count the value of the item toward its 
good faith efforts to meet DBE goals. The item--asphalt, in this 
example--is a contribution to the project made by the prime contractor 
itself and simply passed through the DBE. That is, the prime 
contractor, on paper, sells the item to the DBE, who then charges the 
cost of the item it just bought from the prime contractor as part of 
its subcontract price, which the prime then reports as DBE 
participation. In the Department's view, this pass-through relationship 
is inconsistent with the most important principle of counting DBE 
participation, which is that credit should only be counted for value 
that is added to the transaction by the DBE itself.
    As mentioned in the ANPRM and NPRM, the current rule treats 
counting of items purchased by DBEs from non-DBE sources differently, 
depending on whether the items are obtained from the DBE's prime 
contractor or from a third-party source. The Department's current 
approach is a reasonable compromise between the commonly accepted 
practice of obtaining items from non-DBE sources as part of the 
contracting process and maintaining the principle of counting only the 
DBE's own contributions for credit toward goals, which is most 
seriously violated when the prime contractor itself is the source of 
the items. This compromise respects the dual, somewhat divergent, goals 
of accommodating a common way of doing business and avoiding a too-
close relationship between a prime contractor and a DBE subcontractor 
that distorts the counting of credit toward DBE goals. This compromise 
has been part of the regulation since 1999 and, with the exception of 
the proponent of changing the regulation and its prime contractor 
partners, has never been raised by program participants as a widespread 
problem requiring regulatory change. For these reasons, the Department 
will leave the existing regulatory language intact.

Terminations of DBE Firms

    The NPRM proposed that a prime contractor who, in the course of 
meeting its good faith efforts requirements on a procurement involving 
a contract goal, had submitted the names of one or more DBEs to work on 
the project, could not terminate a DBE firm without the written consent 
of the recipient. The firm could be terminated only for good cause. The 
NPRM proposed a list of what constituted good cause for this purpose.
    Over 40 comments addressed this subject, a significant majority of 
which supported the proposal. Two recipients said the proposal was 
unnecessary and a third expressed concern about workload implications. 
Several recipients said that they already followed this practice.
    However, commenters made a variety of suggestions with respect to 
the details of the proposal. A DBE firm questioned a good cause element 
that would allow a firm to be terminated for not meeting reasonable 
bonding requirements, noting that lack of access to bonding is a 
serious problem for many DBEs. A DBE contractors' association said that 
a DBE's action to halt performance should not necessarily be a ground 
for termination, because in some cases such an action could be a 
justified response to an action beyond its control (e.g., the prime 
failing to make timely payments). A DBE requested clarification of what 
being ``not responsible'' meant in this context. A number of 
commenters, including recipients and DBEs, suggested that a prime could 
terminate a DBE only if the DBE ``unreasonably'' failed to perform or 
follow instructions from the prime.
    A prime contractors' association suggested additional grounds for 
good cause to terminate, including not performing to schedule or not 
performing a commercially useful function. Another such association 
said the rule should be consistent with normal business practices and 
not impede a prime contractor's ability to remove a poorly performing 
subcontractor for good cause. A recipient wanted a public safety 
exception to the time frame for a DBE's reply to a prime contractor's 
notice

[[Page 5085]]

proposing termination, and another recipient wanted to shorten that 
period from five to two days. A State unified certification program 
(UCP) suggested adopting its State's list of good cause reasons, and a 
consultant suggested that contracting officers, not just the DBE 
Liaison Officer (DBELO), should be involved in the decision about 
whether to concur in a prime contractor's desire to terminate a DBE. A 
recipient wanted to add language concerning the prime contractor's 
obligation to make good faith efforts to replace a terminated DBE with 
another DBE.

DOT Response

    The Department, like the majority of commenters on this issue, 
believes that the proposed amendment will help to prevent situations in 
which a DBE subcontractor, to which a prime contractor has committed 
work, is arbitrarily dismissed from the project by the prime 
contractor. Comments to the docket and in the earlier stakeholder 
sessions have underlined that this has been a persistent problem. By 
specifying that a DBE can be terminated only for good cause--not simply 
for the convenience of the prime contractor--and with the written 
consent of the recipient, this amendment should help to end this abuse.
    With respect to the kinds of situations in which ``good cause'' for 
termination can exist, the Department has modified the language of the 
rule to say that good cause includes a situation where the DBE 
subcontractor has failed or refused to perform the work of its 
subcontract in accordance with normal industry standards. We note that 
industry standards may vary among projects, and could be higher for 
some projects than others, a matter the recipient could take into 
account in determining whether to consent to a prime contractor's 
proposal to terminate a DBE firm. However, good cause does not exist if 
the failure or refusal of the DBE subcontractor to perform its work on 
the subcontract results from the bad faith or discriminatory action of 
the prime contractor (e.g., the failure of the prime contractor to make 
timely payments or the unnecessary placing of obstacles in the path of 
the DBE's work).
    Good cause also does not exist if the prime contractor seeks to 
terminate a DBE it relied upon to obtain the contract so that it can 
self-perform the work in question or substitute another DBE or non-DBE 
firm. This approach responds to commenters who were concerned about 
prime contractors imposing unreasonable demands on DBE subcontractors 
while offering recipients a more definite standard than simple 
reasonableness in deciding whether to approve a prime contractor's 
proposal to terminate a DBE firm. We have also adopted a recipient's 
suggestion to permit the time frame for the process to be shortened in 
a case where public necessity (e.g., safety) requires a shorter period 
of time before the recipient's decision.
    In addition to the enumerated grounds, a recipient may permit a 
prime contractor to terminate a DBE for ``other documented good cause 
that the recipient determines compels the termination of the DBE 
subcontractor.'' This means that the recipient must document the basis 
for any such determination, and the prime contractor's reasons for 
terminating the DBE subcontractor make the termination essential, not 
merely discretionary or advantageous. While the recipient need not 
obtain DOT operating administration concurrence for such a decision, 
FHWA, FTA, and FAA retain the right to oversee such determinations by 
recipients.

Personal Net Worth

    The NPRM proposed to make an inflationary adjustment in the 
personal net worth (PMW) cap from its present $750,000 to $1.31 
million, based on the consumer price index (CPI) and relating back to 
1989, as proposed in FAA authorization bills pending in Congress. The 
NPRM noted that such an adjustment had long been sought by DBE groups 
and that it maintained the status quo in real dollar terms. The 
Department also asked for comment on the issue of whether assets 
counted toward the PNW calculation should continue to include 
retirement savings products. The rule currently does include them, but 
the pending FAA legislation would move in the direction of excluding 
them from the calculation.
    Of the 95 commenters who addressed the basic issue of whether the 
Department should make the proposed inflationary adjustment, 71--
representing all categories of commenters--favored doing so. Many said 
that such an adjustment was long overdue and that it would mitigate the 
problem of a ``glass ceiling'' limiting the growth and development of 
DBE firms. A few commenters said that such adjustments should be done 
regionally or locally rather than nationally, to reflect economic 
differences among areas of the country. A number of the commenters 
wanted to make sure the Department made similar adjustments annually in 
the future. A member of Congress suggested that the PNW should be 
increased to $2.5 million, while a few recipients favored a smaller 
increase (e.g., to $1 million). A few commenters also suggested that 
the Department explore some method of adjusting PNW other than the CPI, 
but they generally did not spell out what the alternative approaches 
might be.
    The opponents of making the adjustment, mostly recipients and DBEs, 
made several arguments. The first was that $1.31 million was too high 
and would include businesses owners who were not truly disadvantaged. 
The second was that raising the PNW number would favor larger, 
established, richer DBEs at the expense of smaller, start-up firms. 
These larger companies could then stay in the program longer, to the 
detriment of the program's aims. Some commenters said that the 
experience in their states was that very few firms were becoming 
ineligible for PNW reasons, suggesting that a change in the current 
standard was unnecessary.
    With respect to the issue of retirement assets, about 28 comments, 
primarily from DBE groups and recipients, favored excluding some 
retirement assets from the PNW calculation, often asserting that this 
was appropriate because such funds are illiquid and not readily 
available to contribute toward the owners' businesses. Following this 
logic, some of the comments said that Federally-regulated illiquid 
retirement plans (e.g., 401k, Roth IRA, Keough, and Deferred 
Compensation plans, as well as 529 college savings plans) be excluded 
while other assets that are more liquid (CDs, savings accounts) be 
counted, even if said to be for retirement purposes. A number of these 
commenters said that a monetary cap on the amount that could be 
excluded (e.g., $500,000) would be acceptable.
    The 17 comments opposing excluding retirement accounts from the PNW 
calculation generally supported the rationale of the existing 
regulation, which is that assets of this kind, even if illiquid, should 
be regarded as part of an individual's wealth for PNW purposes. A few 
commenters also said that, since it is most likely wealthier DBE owners 
who have such retirement accounts, excluding them would help these more 
established DBEs at the expense of smaller DBEs who are less likely to 
be able to afford significant retirement savings products. Again, 
commenters said that this provision, by effectively raising the PNW 
cap, would inappropriately allow larger firms to stay in the program 
longer. Some of the commenters would accept exclusion of retirement 
accounts if an appropriate cap were put in place, however.
    Finally, several commenters asked for a revised and improved PNW 
form with

[[Page 5086]]

additional guidance and instructions on how to make PNW calculations 
(e.g., with respect to determining the value of a house or business).

DOT Response

    To understand the purpose and effect of the Department's proposal 
to change the PNW threshold from the long-standing $750,000 figure, it 
is important to keep in mind what an inflationary adjustment does. 
(Because of the passage of time from the issuance of the NPRM to the 
present time, the amount of the inflationary adjustment has changed 
slightly, from $1.31 million to $1.32 million.) The final rule's 
adjustment is based on the Department of Labor's consumer price index 
(CPI) calculator. This calculator was used because, of various readily 
available means of indexing for inflation, CPI appears to be the one 
that is most nearly relevant to an individual's personal wealth. Such 
an adjustment simply keeps things as they were originally in real 
dollar terms.
    That is, in 1989, $750,000 bought a certain amount of goods and 
services. In 2010, given the effects of inflation over 21 years, it 
would take $1.32 million in today's dollars to buy the same amount of 
goods and services. The buying power of assets totaling $750,000 in 
1989 is the same as the buying power of assets totaling $1.32 million 
in 2010. Notwithstanding the fact that $1.32 million, on its face, is a 
higher number than $750,000, the wealth of someone with $1.32 million 
in assets today is the same, in real dollar or buying power terms, as 
that of someone with $750,000 in 1989.
    Put another way, if the Department did not adjust the $750,000 
number for inflation, our inaction would have the effect of 
establishing a significantly lower PNW cap in real dollar terms. A PNW 
cap of $750,000 in 2010 dollars is equivalent to a PNW cap of 
approximately $425,700 in 1989 dollars. This means that a DBE applicant 
today would be allowed to have $325,000 less in real dollar assets than 
his or her counterpart in 1989.
    The Department believes, in light of this understanding of an 
inflationary adjustment, that making the proposed adjustment at this 
time is appropriate. This is a judgment that is shared by the majority 
of commenters and both Houses of Congress. We do not believe that any 
important policy interest is served by continuing to lower the real 
dollar PNW threshold, which we believe would have the effect of further 
limiting the pool of eligible DBE owners beyond what is intended by the 
Department in adopting the PNW standard.
    The Department is using 1989 as the base year for its inflationary 
adjustment for two reasons. First, doing so is consistent with what 
both the House and Senate determined was appropriate in the context of 
FAA authorization bills that both chambers passed. Second, while the 
Department adopted a PNW standard in 1999, the standard itself, which 
was adopted by the Small Business Administration (SBA) before 1989, has 
never been adjusted for inflation at any time. By 1999, the real dollar 
value of the original $750,000 standard had already been eroded by 
inflation, and the Department believes that it is reasonable to take 
into account the effect of inflation on the standard that occurred 
before as well as after the Department adopted it.
    We appreciate the concerns of commenters who opposed the proposed 
inflationary adjustment. Some of these commenters, it appears, may not 
have fully understood that an inflationary adjustment simply maintains 
the status quo in real dollar terms. The concern that making the 
adjustment would favor larger, established DBEs over smaller, start-up 
companies has some basis, and reflects the longstanding tension in the 
program between its role as an incubator for new firms and its purpose 
of allowing DBE firms to grow and develop to the point where they may 
be in a better position to compete for work outside the DBE program. 
Allowing persons with larger facial amounts of assets may seem to 
permit participation of people who are less disadvantaged than formerly 
in the program, but disadvantage in the DBE program has always properly 
been understood as relative disadvantage (i.e., relative to owners and 
businesses in the economy generally), not absolute deprivation. People 
who own successful businesses are more affluent, by and large, than 
many people who participate in the economy only as employees, but this 
does not negate the fact that socially disadvantaged persons who own 
businesses may well, because of the effects of discrimination, 
accumulate less wealth than their non-socially disadvantaged 
counterparts. Consequently, the concerns of opponents of this change 
are not sufficient to persuade us to avoid making the proposed 
inflationary adjustment.
    We do not believe that it is practical, in terms of program 
administration, to have standards that vary with recipient or region. 
We acknowledge that one size may not fit all to perfection, but the 
complexity of administering a national program with a key eligibility 
standard that varies, perhaps significantly, among jurisdictions would 
be, in our view, an even greater problem. Nor do we see a strong policy 
rationale for a change to some fixed figure (e.g., $1 million, $2.5 
million) that is not tied to inflation. We do agree, however, that an 
improved PNW form would be an asset to the program, and we will propose 
such a form for comment in the next stage NPRM on the DBE program, 
which we hope to issue in 2011. This NPRM may also continue to examine 
other PNW issues.
    Whenever there is a change in a rule of this sort, the issue of how 
to handle the transition between the former rule and the new rule 
inevitably arises. We provide the following guidance for recipients and 
firms applying for DBE certification.
     For applications or decertification actions pending on the 
date this amendment is published, but before its effective date, 
recipients should make decisions based on the new standards, though 
these decisions should not take effect until the amendment's effective 
date.
     Beginning on the effective date of this amendment, all new 
certification decisions must be based on the revised PNW standard, even 
if the application was filed or a decertification action pertaining to 
PNW began before this date.
     If a denial of an application or decertification occurred 
before the publication date of this amendment, because the owner's PNW 
was above $750,000 but not above $1.32 million, and the matter is now 
being appealed within the recipient's or unified certification 
program's (UCP's) process, then the recipient or UCP should resolve the 
appeal using the new standard. Recipients and UCPs may request updated 
information where relevant. In the case of an appeal pending before the 
Departmental Office of Civil Rights (DOCR) under section 26.89, DOCR 
will take the same approach or remand the matter, as appropriate.
     If a firm was decertified or its application denied within 
a year before the effective date of this amendment, because the owner's 
PNW was above $750,000 but not above $1.32 million, the recipient or 
UCP should permit the firm to resubmit PNW information without any 
further waiting period, and the firm should be recertified if the 
owner's PNW is not over $1.32 million and the firm is otherwise 
eligible.
     We view any individual who has misrepresented his or her 
PNW information, whether before or after the inflationary adjustment 
takes effect, as having failed to cooperate with the DBE

[[Page 5087]]

program, in violation of 49 CFR 26.109(c). In addition to other 
remedies that may apply to such conduct, recipients should not certify 
a firm that has misrepresented this information.
    The Department is not ready, at this time, to make a decision on 
the issue of retirement assets. The comments suggested a number of 
detailed issues the Department should consider before proposing any 
specific provisions on this subject. We will further consider 
commenters' thoughts on this issue at a future time.

Interstate Certification

    In response to longstanding concerns of DBEs and their groups, the 
NPRM proposed a mechanism to make interstate certification easier. The 
proposed mechanism did not involve pure national reciprocity (i.e., in 
which each state would give full faith and credit to other states' 
certification decisions, with the result that a certification by any 
state would be honored nationwide). Rather, it created a rebuttable 
presumption that a firm certified in its home state would be certified 
in other states. A firm certified in home state A could take its 
application materials to State B. Within 30 days, State B would decide 
either to accept State A's certification or object to it. If it did not 
object, the firm would be certified in State B. If State B did object, 
the firm would be entitled to a proceeding in which State B bore the 
burden of proof to demonstrate that the firm should not be certified in 
State B. The NPRM also proposed that the DOT Departmental Office of 
Civil Rights (DOCR) would create a database that would be populated 
with denials and decertifications, which the various State UCPs would 
check with respect to applicants and currently certified firms.
    This issue was one of the most frequently commented-upon subjects 
in the rulemaking. Over 30 comments, from a variety of sources 
including DBEs, DBE organizations, and a prime contractors' 
association. Members of Congress and others supported the proposed 
approach. They emphasized that the necessity for repeated certification 
applications to various UCPs, and the very real possibility of 
inconsistent results on the same facts, were time-consuming, 
burdensome, and costly for DBEs. In a national program, they said, 
there should be national criteria, uniformity of forms and 
interpretations, and more consistent training of certification 
personnel. The proposed approach, they said, while not ideal, would be 
a useful step toward those goals.
    An approximately equal number of commenters, predominantly 
recipients but also including some DBEs and associations, opposed the 
proposal, preferring to keep the existing rules (under which recipients 
can, but are not required to, accept certifications made by other 
recipients) in place. Many of these commenters said that their 
certification programs frequently had to reject out-of-state firms that 
had been certified by their home states because the home states had not 
done a good job of vetting the qualifications of the firms for 
certification. They asserted that there was too much variation among 
states concerning applicable laws and regulations (e.g., with respect 
to business licensing or marital property laws), interpretations of the 
DBE rule, forms and procedures, and the training of certifying agency 
personnel for something like the NPRM proposal to work well. Before 
going to something like the NPRM proposal, some of these commenters 
said, DOT should do more to ensure uniform national training, 
interpretations, forms etc.
    Commenters opposed to the NPRM proposal were concerned that the 
integrity of the program would be compromised, as questionable firms 
certified by one state would slip into the directories of other states 
without adequate vetting. Moreover, the number of certification actions 
each state had to consider, and the number of certified firms that each 
state would have to manage, could increase significantly, straining 
already scarce resources.
    A smaller number of commenters addressed the idea of national 
reciprocity. Some of these commenters said that, at least for the 
future, national reciprocity was a valuable goal to work toward. Some 
of these commenters, including an association that performs 
certification reviews nationally for MBE and WBE suppliers (albeit 
without on-site reviews) and a Member of Congress, supported using such 
a model now. On the other hand, other commenters believed national 
reciprocity was an idea whose time had not come, for many of the same 
reasons stated by commenters opposed to the NPRM proposal. Some of the 
commenters on the NPRM proposal said that the proposal would result in 
de facto national reciprocity, which they believed was bad for the 
program.
    Two features of the NPRM proposal attracted considerable adverse 
comment. Thirty-one of the 34 comments addressing the proposed 30-day 
window for ``State B'' to decide whether to object to a home state 
certification of a firm said that the proposed time was too short. 
These commenters, mostly recipients, suggested time frames ranging from 
45-90 days. They said that the 30-day time frame would be very 
difficult to meet, given their resources, and would cause States to 
accept questionable certifications from other States simply because 
there was insufficient time to review the documentation they had been 
given. Moreover, the 30-day window would mean that out-of-state firms 
would jump to the front of the line for consideration over in-state 
firms, concerning which the rule allows 90 days for certification. This 
would be unfair to in-state firms, they said.
    In addition, 22 of 28 commenters on the issue of the burden of 
proof for interstate certification--again, predominantly recipients--
said that it was the out-of-state applicant firm, rather than State B, 
that should have the burden of proof once State B objected to a home 
state certification of the firm. These commenters also said that is was 
more sensible to put the out-of-state firm in the same position as any 
other applicant for certification by having to demonstrate to the 
certifying agency that it was eligible, rather than placing the 
certification agency in the position of the proponent in a 
decertification action for a firm that it had previously certified. 
Again, commenters said, the NPRM proposal would favor out-of-state over 
in-state applicants.
    A few comments suggested trying reciprocal certification on a 
regional basis (e.g., in the 10 Federal regions) before moving to a 
more national approach. Others suggested that only recent information 
(e.g., applications and on-site reports less than three years old) be 
acceptable for interstate certification purposes. Some states pointed 
to state laws requiring local licenses or registration before a firm 
could do business in the State: Some commenters favored limiting out-
of-state applications to those firms that had obtained the necessary 
permits, while one commenter suggested prohibiting States from imposing 
such requirements prior to DBE certification. Some comments suggested 
limiting the grounds on which State B could object to the home state 
certification of a firm (i.e., ``good cause'' rather than 
``interpretive differences,'' differences in state law, evidence of 
fraud in obtaining home state certification).
    There was a variety of other comments relevant to the issue of 
interstate certification. Most commenters who addressed the idea of the 
DOCR database supported it, though some said that denial/
decertification data should be available only to certification 
agencies, not the general

[[Page 5088]]

public. Some also said that having to input and repeatedly check the 
data base would be burdensome. One commenter suggested including a 
firm's Federal Taxpayer ID number in the database entry. One commenter 
suggested a larger role for the database: Applicants should 
electronically input their application materials to the database, which 
would then be available to all certifying agencies, making individual 
submissions of application information to the States unnecessary. Some 
commenters wanted DOT to create or lead a national training and/or 
accreditation effort for certifier personnel.

DOT Response

    Commenters on interstate were almost evenly divided on the best 
course of action for the Department to take. Most DBEs favored making 
interstate certification less difficult for firms that wanted to work 
outside their home states; most recipients took the opposite point of 
view. This disagreement reflects, we believe, a tension between two 
fundamental objectives of the program. On one hand, it is important to 
facilitate the entry of DBE firms into this national program, so that 
they can compete for DOT-assisted contracting wherever those 
opportunities exist, while reducing administrative burdens and costs on 
the small businesses that seek to participate. On the other hand, it is 
important to maintain the integrity of the program, so that only 
eligible firms participate and ineligible firms do not take unfair 
advantage of the program.
    The main concern of proponents of the NPRM proposal was that 
failing to make changes to facilitate interstate certification would 
leave in place unnecessary and unreasonable barriers to the 
participation of firms outside of their home states. The main concern 
of opponents of the NPRM proposal was that making the proposed changes 
would negatively affect program integrity. Their comments suggest that 
there is considerable mistrust among certification agencies and 
programs. Many commenters appear to believe that, while their own 
certification programs do a good job, other states' certification 
programs do not. Much of the opposition to facilitating interstate 
certification appears to have arisen from this mistrust, as 
certification agencies seek to prevent questionable firms certified by 
what they perceive as weak certification programs in other states from 
infiltrating their domains.
    The Department does not believe that it is constructive to take the 
position that certification programs nationwide are so hopelessly 
inadequate that the best response is to leave interstate barriers in 
place to contain the perceived contagion of poorly qualified, albeit 
certified, firms within the boundaries of their own states. To the 
contrary, we believe that, under a system like that proposed in the 
NPRM, if firms certified by State A are regularly rebuffed by States B, 
C, D, etc., State A firms will have an incentive to bring pressure on 
their certification agency to improve its performance.
    The Department also believes that suggestions made by commenters, 
such as improving training and standardizing forms and interpretations, 
can improve the performance of certification agencies generally. In the 
follow-on NPRM the Department hopes to issue in 2011, one of the 
subjects we will address is improvements in the certification 
application and PNW forms, which certification agencies then would be 
required to use without alteration. DOT already provides many training 
opportunities to certification personnel, such as the National 
Transportation Institute courses provided by the Federal Transit 
Administration, presentations by knowledgeable DOT DBE staff at 
meetings of transportation organizations, and webinars and other 
training opportunities provided by Departmental Office of Civil Rights 
personnel. The Department will consider further ways of fostering 
training and education for certifiers (e.g., a DOT-provided web-based 
training course for certifiers). The Department also produces guidance 
on certification-related issues to assist certifiers in making 
decisions that are consistent with this regulation, and we will 
continue that practice.
    While we will continue to work with our state and local partners to 
improve the certification process, we do not believe that steps to 
facilitate interstate certification should be taken only after all 
recipients achieve an optimal level of performance. The DBE program is 
a national program; administrative barriers to participation impair the 
important program objective of encouraging DBE firms to compete for 
business opportunities; provisions to facilitate interstate 
certification can be drafted in a way that permits ``State B'' to 
screen out firms that are not eligible in accordance with this 
regulation. Consequently, the Department has decided to proceed with a 
modified form of the NPRM proposal. However, the final rule will not 
make compliance with the new section 26.85 mandatory until January 1, 
2012, in order to provide additional time for recipients and UCPs to 
take advantage of training opportunities and to establish any needed 
administrative mechanisms to carry out the new provision. This will 
also provide time for DOCR to make its database for denials and 
decertifications operational.
    As under the NPRM, a firm certified in its home state would present 
its certification application package to State B. In response to 
commenters' concerns about the time available, State B would have 60 
days, rather than 30 as in the NPRM, to determine whether it had 
specific objections to the firm's eligibility and to communicate those 
objections to the firm. If State B believed that the firm was 
ineligible, State B would state, with particularity, the specific 
reasons or objections to the firm's eligibility. The firm would then 
have the opportunity to respond and to present information and 
arguments to State B concerning the specific objections that State B 
had made. This could be done in writing, at an in-person meeting with 
State B's decision maker, or both. Again in response to commenters' 
concerns, the firm, rather than State B, would have the burden of proof 
with respect, and only with respect, to the specific issues raised by 
State B's objections. We believe that these changes will enhance the 
ability of certification agencies to protect the integrity of the 
program while also enhancing firms' ability to pursue business 
opportunities outside their home states.
    We emphasize that State B's objections must be specific, so that 
the firm can respond with information and arguments focused clearly on 
the particular issues State B has identified, rather than having to 
make an unnecessarily broad presentation. It is not enough for State B 
to say ``the firm is not controlled by its disadvantaged owner'' or 
``the owner exceeds the PNW cap.'' These are conclusions, not specific, 
fact-based objections. Rather, State B might say ``the disadvantaged 
owner has a full-time job with another organization and has not shown 
that he has sufficient time to exercise control over the day-to-day 
operations of the firm'' or ``the owner's property interests in assets 
X, Y, and Z were improperly valued and cause his PNW to exceed $1.32 
million.'' This degree of specificity is mandatory regardless of the 
regulatory ground (e.g., new information, factual errors in State A's 
certification: See section 26.85(d)(2)) on which State B makes an 
objection. For example, if State B objected to the firm's State A 
certification on the basis that State B's law required a different 
result, State B would say something like ``State B Revised Statutes 
Section xx.yyyy

[[Page 5089]]

provides only that a registered engineer has the power to control an 
engineering firm in State B, and the disadvantaged owner of the firm is 
not a registered engineer, who is therefore by law precluded from 
controlling the firm in State B.''
    On receiving this specific objection, the owner of the firm would 
have the burden of proof that he or she does meet the applicable 
requirements of Part 26. In the first example above, the owner would 
have to show that either he or she does not now have a full-time job 
elsewhere or that, despite the demands of the other job, he or she can 
and does control the day-to-day operations of the firm seeking 
certification. This burden would be to make the required demonstration 
by a preponderance of the evidence, the same standard used for initial 
certification actions generally. This owner would not bear any burden 
of proof with respect to size, disadvantage, ownership, or other 
aspects of control, none of which would be at issue in the proceeding. 
The proceeding, and the firm's burden of proof, would concern only 
matters about which State B had made a particularized, specific 
objection. This narrowing of the issues should save time and resources 
for firms and certification agencies alike.
    The firm's response to State B's particularized objections could be 
in writing and/or in the form of an in-person meeting with State B's 
decision maker to discuss State B's objections to the firm's 
eligibility. The decision maker would have to be someone who is 
knowledgeable about the eligibility provisions of the DBE rule.
    We recognize that, in unusual circumstances, the information the 
firm provided to State B in response to State B's specific objections 
could contain new information, not part of the original record, that 
could form the basis for an additional objection to the firm's 
certification. In such a case, State B would immediately notify the 
firm of the new objection and offer the firm a prompt opportunity to 
respond.
    Section 26.85(d)(2) of the final rule lists the grounds a State B 
can rely upon to object to a State A certification of a firm. These are 
largely the same as in the NPRM. In response to a comment, the 
Department cautions that by saying that a ground for objection is that 
State A's certification is inconsistent with this regulation, we do not 
intend for mere interpretive disagreements about the meaning of a 
regulatory provision to form a ground for objection. Rather, State B 
would have to cite something in State A's certification that 
contradicted a provision in the regulatory text of Part 26.
    The final rule also gives, as a ground for objecting to a State A 
certification, that a State B law ``requires'' a result different from 
the law of State (see the engineering example above). To form the basis 
for an objection on this ground, a difference between state laws must 
be outcome-determinative with respect to a certification. For example, 
State A may treat marital property as jointly held property, while 
State B is a community property state. The laws are different, but 
both, in a given case, may well result in each spouse having a 50 
percent share of marital assets. This would not form the basis for a 
State B objection.
    With respect to state requirements for business licenses, the 
Department believes that states should not erect a ``Catch 22'' to 
prevent DBE firms from other states from becoming certified. That is, 
if a firm from State A wants to do business in State B as a DBE, it is 
unlikely to want to pay a fee to State B for a business license before 
it knows whether it will be certified. Making the firm get the business 
license and pay the fee before the certification process takes place 
would be an unnecessary barrier to the firm's participation that would 
be contrary to this regulation.
    The Department believes that regional certification consortia, or 
reciprocity agreements among states in a region, are a very good idea, 
and we anticipate working with UCPs in the future to help create such 
arrangements. Among other things, the experience of actually working 
together could help to mitigate the current mistrust among 
certification agencies. However, we do not believe it would be 
appropriate to mandate such arrangements at this time.
    The Department believes that the DOCR database of decertification 
and denial actions would be of great use in the certification process. 
However, the system is not yet up and running. Consequently, the final 
rule includes a one-year delay in the implementation date of 
requirements for use of the database.

Other Certification-Related Issues

    The NPRM asked for comment on whether there should be a requirement 
for periodic certification reviews and/or updates of on-site reviews 
concerning certified firms. The interval most frequently mentioned by 
commenters on this subject was five years, though there was also some 
support for three-, six-, and seven-year intervals. A number of 
commenters suggested that such reviews should include an on-site update 
only when the firm's circumstances had changed materially, in order to 
avoid burdening the limited resources of certifying agencies. Having a 
standardized on-site review form would reduce burdens, some commenters 
suggested. Other commenters suggested that the timing of reviews should 
be left to certifying agencies' discretion, or that on-site updates 
should be done on a random basis of a smaller number of firms.
    The NPRM also asked about the handling of situations where an 
applicant withdraws its application before the certifying agency makes 
a decision. Should certifying agencies be able to apply the waiting 
period (e.g., six or 12 months) used for reapplications after denials 
in this situation? Comments on this issue, mostly from recipients but 
also from some DBEs and their associations, were divided. Some 
commenters said that there were often good reasons for a firm to 
withdraw and correct an application (e.g., a new firm unaccustomed to 
the certification process) and that their experience did not suggest 
that a lot of firms tried to game the system through repeated 
withdrawals. On the other hand, some commenters said that having to 
repeatedly process withdrawn and resubmitted applications was a burden 
on their resources that they would want to mitigate through applying a 
reapplication waiting period. One recipient said that, even in the 
absence of a waiting period, the resubmitted application should go to 
the back of the line for processing. Still others wanted to be able to 
apply case-by-case discretion concerning whether to impose a waiting 
period on a particular firm. A few commenters suggested middle-ground 
positions, such as imposing a shorter waiting period (e.g., 90 days) 
than that imposed on firms who are denied or applying a waiting period 
only for a second or subsequent withdrawal and reapplication by the 
same firm.
    Generally, commenters were supportive of the various detail-level 
certification provision changes proposed in the NPRM (e.g., basing 
certification decisions on current circumstances of a firm). Commenters 
did speak to a wide variety of certification issues, however. One 
commenter said that in its state, the UCP arbitrarily limited the 
number of NAICS codes in which a firm could be certified, a practice 
the commenter said the regulation should forbid. In addition, this 
commenter said, the UCP inappropriately limited certification of 
professional services firms owned by someone who was not a licensed 
professional in a field, even in the

[[Page 5090]]

absence of a state law requiring such licensure. A number of commenters 
said that recipients should not have to automatically certify SBA-
certified 8(a) firms, while another commenter recommended reviving the 
now-lapsed DOT-SBA memorandum of understanding (MOU) on certification 
issues. A DBE association said that certifying agencies should not 
count against firms seeking certification (e.g., with respect to 
independence determinations) investments from or relationships with 
larger firms that are permitted under other Federal programs (e.g., 
HubZone or other SBA programs). One commenter favored, and another 
opposed, allowing States to use their own business specialty 
classifications in addition to or in lieu of NAICS codes.
    One recipient recommended a provision to prevent owners from 
transferring personal assets to their companies to avoid counting them 
in the PNW calculation. Another said the certification for the PNW 
statement should specifically say that the information is ``complete'' 
as well as true. Yet another suggested that a prime contractor who owns 
a high percentage (e.g., 49 percent) of a DBE should not be able to use 
that DBE for credit. There were a number of suggestions that more of 
the certification process be done electronically, rather than on paper. 
A few comments said that getting back to an applicant within 20 days, 
as proposed in the NPRM, concerning whether the application was 
complete was too difficult for some recipients who have small staffs.

DOT Response

    The Department believes that regularly updated on-site reviews are 
an extremely important tool in helping avoid fraudulent firms or firms 
that no longer meet eligibility requirements from participating in the 
DBE program. Ensuring that only eligible firms participate is a key 
part of maintaining the integrity of the program. We also realize that 
on-site reviews can be time- and resource-intensive. Consequently, 
while we believe that it is advisable for recipients and UCPs to 
conduct updated on-site reviews of certified companies on regular and 
reasonably frequent basis, and we strongly encourage such undated 
reviews, we have decided not to mandate a particular schedule, though 
we urge recipients to regard on-site reviews as a critical part of 
their compliance activities. When recipients or UCPs become aware of a 
change in circumstances or concerns that a firm may be ineligible or 
engaging in misconduct (e.g., from notifications of changes by the firm 
itself, complaints, information in the media, etc.), the recipient or 
UCP should review the firm's eligibility, including doing an on-site 
review.
    When recipients in other states (see discussion of interstate 
certification above) obtain the home state's certification information, 
they must rely on the on-site report that the home state has in its 
files plus the affidavits of no change, etc. that the firm has filed 
with the home state. It is not appropriate for State B to object to an 
out-of-state firm's certification because the home state's on-site 
review is older than State B thinks desirable, since that would 
unfairly punish a firm for State A's failure to update the firm's on-
site review. However, if an on-site report is more than three years 
old, State B could require that the firm provide an affidavit to the 
effect that all the facts in the report remain true and correct.
    While we recognize that reports that have not been updated, or 
which do not appear to contain sufficient analysis of a firm's 
eligibility, make certification tasks more difficult, our expectation 
is that the Department's enhanced interstate certification process will 
result in improved quality in on-site reviews so that recipients in 
various states have a clear picture of the structure and operation of 
firms and the qualifications of their owners. To this end, we encourage 
recipients and UCPs to establish and maintain communication in ways 
that enable information collected in one state to be shared readily 
with certification agencies in other states. This information sharing 
can be done electronically to reduce costs.
    Firms may withdraw pending applications for certification for a 
variety of reasons, many of them legitimate. A withdrawal of an 
application is not the equivalent of a denial of that application. 
Consequently, we believe that it is inappropriate for recipients and 
UCPs to penalize firms that withdraw pending applications by applying 
the up-to-12 month waiting period of section 26.86(c) to such 
withdrawals, thereby preventing the firm from resubmitting the 
application before that time elapses. We believe that permitting 
recipients to place resubmitted applications at the end of the line for 
consideration sufficiently protects the recipients' workloads from 
being overwhelmed by repeated resubmissions. For example, suppose that 
Firm X withdraws its application in August. It resubmits the 
application in October. Meanwhile, 20 other firms have submitted 
applications. The recipient must accept Firm X's resubmission in 
October, but is not required to consider it before the 20 applications 
that arrived in the meantime. Recipients should also closely examine 
changes made to the firm since the time of its first application.
    We agree with commenters that it is not appropriate for recipients 
to limit NAICS codes in which a firm is certified to a certain number. 
Firms may be certified in NAICS codes for however many types of 
business they demonstrate that they perform and concerning which their 
disadvantaged owners can demonstrate that they control. We have added 
language to the regulation making this point. We also agree that it is 
not appropriate for a recipient or UCP to insist on professional 
certification as a per se condition for controlling a firm where state 
law does not impose such a requirement. We have no objection to a 
recipient or UCP voluntarily using its own business classification 
system in addition to using NAICS codes, but it is necessary to use 
NAICS codes.
    SBA has now gone to a self-certification approach for small 
disadvantaged business, the SBA 8(a) program differs from the DBE 
program in important respects, and the SBA-DOT memorandum of 
understanding (MOU) on certification matters lapsed over five years 
ago. Under these circumstances, we have decided to delete former 
sections 26.84 and 26.85, relating to provisions of that MOU.
    DBE firms in the DBE program must be fully independent, as provided 
in Part 26. If a firm has become dependent on a non-DBE firm through 
participation in another program, then it may be found ineligible for 
DBE program purposes. To say otherwise would create inconsistent 
standards that would enable firms already participating in other 
programs to meet a lower standard than other firms for DBE 
participation.
    We believe that adding a regulatory provision prohibiting owners 
from transferring personal assets to their companies to avoid counting 
them in the PNW calculation would be difficult to implement, since 
owners of businesses often invest assets in the companies for 
legitimate reasons. However, as an interpretive matter, recipients are 
authorized to examine such transfers and, if they conclude that the 
transfer is a ruse to avoid counting personal assets toward the PNW 
calculation rather than a legitimate investment in the company and its 
growth, recipients or UCPs may continue to count the assets toward PNW.
    We agree that the certification for the PNW statement should 
specifically say

[[Page 5091]]

that the information is ``complete'' as well as true and that a 
somewhat longer time period would be appropriate for recipients and 
UCPs to get back to applicants with information on whether their 
applications were complete. We have added a regulatory text statement 
on the former point and extended the time period on the latter point to 
30 days.
    If a prime contractor who owns a high percentage of a DBE that it 
wishes to use on a contract, issues concerning independence, 
affiliation, and commercially useful function can easily arise. For 
this reason, recipients should closely scrutinize such relationships. 
This scrutiny may well result, in some cases, in denying DBE credit or 
initiating decertification action.
    We encourage the use of electronic methods in the application and 
certification process. As in other areas, electronic methods can reduce 
administrative burdens and speed up the process.

Accountability and Goal Submissions

    The NPRM proposed that if a recipient failed to meet its overall 
goal, it would, within 60 days, have to analyze the shortfall, explain 
the reasons for it, and come up with corrective actions for the future. 
All State DOTs and the largest transit authorities and airports would 
have to send their analyses and corrective action plans to DOT 
operating administrations; smaller transit authorities and airports 
would retain them on file. While there would not be any requirement to 
meet a goal--to ``hit the number''--failure to comply with these 
requirements could be regarded as a failure to implement a recipient's 
program in good faith, which could lead to a finding of noncompliance 
with the regulation.
    In a related provision, the Department asked questions in the NPRM 
concerning the recent final provision concerning submitting overall 
goals on a three-year, rather than an annual, basis. In particular, the 
NPRM asked whether it should be acceptable for a recipient to submit 
year-to-year projections of goals within the structure of a three-year 
goal and how implementation of the accountability proposal would work 
in the context of a three-year goal, whether or not year-to-year 
projections were made.
    About two-thirds of the 64 comments addressing the accountability 
provision supported it. These commenters included DBEs, recipients, and 
some associations and other commenters. Some of these commenters, in 
fact, thought the proposal should be made stronger. For example, a 
commenter suggested that a violation ``will'' rather than ``could'' be 
found for failure to provide the requested information. Another 
suggested that, beyond looking at goal attainment numbers, the 
accountability provisions should be broadened to include the 
recipient's success with respect to a number of program elements (e.g., 
good faith efforts on contracts, outreach, DBE liaison officer's role, 
training and education of staff).
    Commenters also presented various ideas for modifying the proposal. 
These included suggestions that the Department should add a public 
input component, provide more guidance on the shortfall analysis and 
how to do it, delay its effective date to allow recipients to find 
resources to comply, ensure ongoing measurement of achievements rather 
than just measuring at the end of a year or three-year period, ensure 
that there is enough flexibility in explaining the reasons for a 
shortfall, or lengthen the time recipients have to submit the materials 
(e.g., 90 days, or 60 days after the recipient's report of commitments 
and achievements is due). One commenter suggested that an explanation 
should be required only when there is a pattern of goal shortfalls, not 
in individual instances. There could be a provision for excusing 
recipients who fell short of their goal by very small amount, or even 
if the recipient made 80 percent of its goal.
    Opponents of the proposal--mostly recipients plus a few 
associations--said that the proposal would be too administratively 
burdensome. In addition, they feared that making recipients explain a 
shortfall and propose corrective measures would turn the program into a 
prohibited set-aside or quota program, a concern that was particularly 
troublesome in states affected by the Western States decision. 
Moreover, a number of commenters said, the inability of recipients to 
meet overall goals was often the result of factors beyond their 
control. In addition, recipients might unrealistically reduce goals in 
order to avoid having to explain missing a more ambitious target.
    With respect to the reporting intervals for goals, 28 of the 39 
commenters who addressed the issue favored some form of at least 
optional yearly reporting of goals, either in the form of annual goal 
submissions or, more frequently, of year-to-year projections of goals 
within the framework of a three-year overall goal. The main reason 
given for this preference was a concern that projects and the 
availability of Federal funding for them were sufficiently volatile 
that making a projection that was valid for a three-year period was 
problematic. This point of view was advanced especially by airports. 
Some other commenters favored giving recipients discretion whether to 
report annually or triennially. Commenters who took the point of view 
that the three-year interval was preferable agreed with original 
rationale of reducing repeated paperwork burdens on recipients. One 
commenter asked that the rule specify that, especially in a three-year 
interval schedule of goal submission, a recipient ``must'' submit 
revisions if circumstances change.
    There was discussion in the NPRM of the relationship between the 
goal submission interval and the accountability provision. For example, 
if a recipient submitted overall goals on a three-year basis, would the 
accountability provision be triggered annually, based on the 
recipient's annual report (as the NPRM suggested) or only on the basis 
of the recipient's performance over the three-year period? If there 
were year-to-year projections within a three-year goal, would the 
accountability provision relate to accountability for the annual 
projection or the cumulative three-year goal? Commenters who favored 
year-to-year projections appeared to believe that accountability would 
best relate to each year's projection, though the discussion of this 
issue in the comments was often not explicit. Some comments, including 
one from a Member of Congress, did favor holding recipients accountable 
for each year's separate performance.
    There was a variety of other comments on goal-related issues. Some 
commenters asked that the three DOT operating administrations 
coordinate submitting goals so that a State DOT submitting goals every 
three years would be able to submit its FHWA, FAA, and FTA goals in the 
same year. A DBE group wanted the Department to strengthen requirements 
pertaining to the race-neutral portion of a recipient's overall goal. A 
commenter who works with transit vehicle manufacturers requested better 
monitoring of transit vehicle manufacturers by FTA. A group 
representing DBEs wanted recipients to focus on potential, and not just 
certified, DBEs for purposes of goal setting. The same group also urged 
consideration of separate goals for minority- and women-owned firms.

DOT Response

    Under Part 26, the Department has always made unmistakably clear 
that the DBE program does not impose quotas. No one ever has been, or 
ever will be, sanctioned for failing to ``hit the number.'' However, 
goals must be

[[Page 5092]]

implemented in a meaningful way. A recipient's overall goal represents 
its estimate of the DBE participation it would achieve in the absence 
of discrimination and its effects. Failing to meet an overall goal 
means that the recipient has not completely remedied discrimination and 
its effects in its DOT-assisted contracting. In the Department's view, 
good faith implementation of a DBE program by a recipient necessarily 
includes understanding why the recipient has not completely remedied 
discrimination and its effects, as measured by falling short of its 
``level playing field'' estimate of DBE participation embodied in its 
overall goal. Good faith implementation further means that, having 
considered the reasons for such a shortfall, the recipient will devise 
program actions to help minimize the potential for a shortfall in the 
future.
    Under the Department's procedures for reviewing overall goals and 
the methodology supporting them, the Department has the responsibility 
of ensuring that a recipient's goals are well-grounded in relevant data 
and are derived using a sound methodology. The Department would not 
approve a recipient's goal submission if it appeared to understate the 
``level playing field'' amount of DBE participation the recipient could 
rationally expect, whether to avoid being accountable under the new 
provisions of the rule or for other reasons.
    For these reasons, the Department is adopting the NPRM's proposed 
accountability mechanism. We do not believe that the concerns of some 
commenters that this mechanism would create a quota system are 
justified: No one will be penalized for failing to meet an overall 
goal. Moreover, promoting transparency and accountability is not 
synonymous with imposing a penalty and should not be viewed as such. 
Understanding the reasons for not meeting a goal and coming up with 
ways of avoiding a shortfall in the future, while not creating a quota 
system, do help to ensure that recipients take seriously the 
responsibility to address discrimination and its effects.
    Moreover, the administrative burden of compliance falls only on 
those recipients who fail to meet a goal, not on all recipients. 
Understanding what is happening in one's program, why it is happening, 
and how to fix problems is, or ought to be, a normal, everyday part of 
implementing a program, so the analytical tasks involved in meeting 
this requirement should not be new to recipients. We do not envision 
that recipients' responses to this requirement would be book-length; a 
reasonable succinct summary of the recipient's analysis and proposed 
actions should be sufficient though, like all documents submitted in 
connection with the DBE program, it should show the work and reasoning 
leading to the recipient's conclusions.
    For example, a recipient might determine that its process for 
ascertaining whether prime bidders who failed to meet contract goals 
had made adequate good faith efforts was too weak, and that prime 
bidders consequently received contracts despite making insufficient 
efforts to find DBEs for contracts. In such a case, the recipient could 
take corrective action such as more stringent review of bidder 
submissions or meeting with prime bidders to provide guidance and 
assistance on how to do a better job of making good faith efforts.
    We agree that there may be circumstances in which a recipient's 
inability to meet a goal is for reasons beyond its control. If that is 
the case, the recipient's response to this requirement can be to 
identify such factors, as well as suggesting how these problems may be 
taken into account and surmounted in the future. We also agree with 
those commenters who said that good-faith implementation of a DBE 
program involves more than meeting an overall goal. Factors like those 
cited by commenters are important as part of an overall evaluation of a 
recipient's success. This accountability provision, however, is 
intended to focus on the process recipients are using to achieve their 
overall goals, rather than to act as a total program evaluation tool. 
The operating administrations will continue to conduct program reviews 
that address the breadth of recipients' program implementation.
    The Department believes that a clear, bright-line trigger for the 
application of the accountability provision makes the most sense 
administratively and in terms of achieving the purpose of the 
provision. Consequently, we are not adopting suggestions that the 
provision be triggered only by a pattern of missing goals, or an 
average of missing goals over the period of a three-year overall goal, 
or a shortfall of a particular percentage. Any shortfall means that a 
recipient has dealt only incompletely with the effects of 
discrimination, and we believe that it is appropriate in any such case 
that the recipient understand why that is the case and what steps to 
take to improve program implementation in the future.
    The three-year goal review interval was intended to reduce 
administrative burdens on recipients. Nevertheless, we understand that 
some recipients, especially airports, may be more comfortable with 
annual projections and updates of overall goals. We have no objection 
to recipients making annual projections, for informational purposes, 
within the three-year overall goal. It is still the formally submitted 
and reviewed three-year goal, however, and not the informal annual 
projections, that count from the point of view of the accountability 
mechanism. For example, suppose an airport has a three-year annual 
overall goal of 12 percent. For informational purposes, the airport 
chooses to make informal annual projections of 6, 12, and 18 percent 
for years 1-3, respectively (which, by the way, are not required to be 
submitted to the Department). The accountability mechanism requirements 
would be triggered in each of the three years covered by the overall 
goal if DBE achievements in each year were less than 12 percent.
    The Department agrees that recipients should be accountable for 
effectively carrying out the race-neutral portion of their programs. If 
a recipient fell short of its overall goal because it did not achieve 
the projected race-neutral portion of its goal, then this is something 
the recipient would have to explain and establish measures to correct 
(e.g., by stepping up race-neutral efforts and/or concluding that it 
needed to increase race-conscious means of achieving its goal). We also 
agree that it is reasonable, in calculating goals and in doing 
disparity studies, to consider potential DBEs (e.g., firms apparently 
owned and controlled by minorities or women that have not been 
certified under the DBE program) as well as certified DBEs. This is 
consistent with good practice in the field as well as with DOT 
guidance. Separate goals for various groups of disadvantaged 
individuals are possible with a program waiver of the DBE regulation, 
if a sufficient case is made for the need for group-specific goals.
    In the section of the rule concerning goal-setting (49 CFR 26.45), 
the Department is also taking this opportunity to make a technical 
correction. In the final rule establishing the three year DBE goal 
review cycle, the Department inadvertently omitted from Sec.  
26.45(f)'s regulatory text paragraphs (3), (4), and (5), which govern 
the content of goal submissions, operating administration review of the 
submission, and review of interim goal setting mechanisms. It was never 
the intent of the Department to remove or otherwise change those 
provisions of section 26.45(f) of the rule. This final rule corrects 
that error by restructuring

[[Page 5093]]

paragraphs (1) and (2) of section 26.45(f) and restoring the language 
of paragraphs (3), (4), and (5) of that section of the rule. We 
apologize for any confusion that this error may have caused.
    The Department supports strong outreach efforts by recipients to 
encourage minority- and women-owned firms to become certified as DBEs, 
so that recipients can set and meet realistic goals. However, we 
caution recipients against stating or implying that minority- and 
women-owned firms can participate in recipients' contracts only if they 
become certified as DBEs. It would be contrary to nondiscrimination 
requirements of this part and of Title VI for a recipient to limit the 
opportunity of minority- or women-owned firms to compete for any 
contract because the firm was not a certified DBE.

Program Oversight

    The NPRM proposed to require recipients to certify that they have 
monitored the paperwork and on-site performance of DBE contracts to 
make sure that DBEs actually perform them. Comment was divided on this 
proposal, with 21 comments favoring either the proposal or stronger 
oversight mechanisms and 18 opposed.
    Commenters who favored the proposal, including DBEs and some 
associations and recipients, generally believed that the provision 
would make it less likely that post-award abuse of DBEs by prime 
contractors would occur. One recipient noted that it already followed 
this approach with respect to ARRA grants. Some commenters wanted the 
Department to require additional steps, such as requiring recipients to 
make periodic visits to the job site and keeping records of each visit, 
to ensure that the DBELO did in fact have direct access to the 
organization's CEO concerning DBE matters, and to maintain sufficient 
trained staff to do needed monitoring. DBE associations wanted 
mandatory monitoring of good faith efforts (e.g., by keeping records of 
all contacts made by prime contractors) and terminations of DBEs by 
prime contractors, as well as to have certifications signed by persons 
higher up in the organization than the DBELO (e.g., the CEO). Another 
commenter sought further checking concerning counting issues. A 
consultant and a recipient suggested that recipient certifications 
should be more frequent than a one-time affair, (e.g., monthly or 
quarterly).
    Commenters who opposed the NPRM proposal, most of whom were 
recipients, said that the workload the certification requirement would 
create would be too administratively burdensome, particularly for 
recipients with small staffs. The certification requirement could 
duplicate existing commercially useful function reviews. They also 
doubted the payoff in terms of improved DBE program implementation 
would be worth the effort. Some recipients said that they did monitor 
post-award performance and that the proposed additional paperwork 
requirement step would add little to the substance of their processes. 
One recipient noted that it would be very difficult to perform an on-
site review of contract performance in the case of professional 
services consultants whose work was performed out of state.
    One recipient suggested that a middle ground might be to have the 
recipient certify monitoring of a sample of contracts, since it lacked 
the staff for field monitoring of all contracts. A consultant suggested 
selecting contracts for monitoring based on a ``risk-based analysis'' 
of contracts or by focusing on contracts where prime contractors' 
achievements did not measure up to their commitments. One recipient 
suggested limiting the certification requirement to one commercially 
useful function review per year on a contract. A few recipients asked 
for guidance on what constituted adequate staffing for the DBE program.

DOT Response

    The Department's DBE rule already includes a provision (49 CFR 
26.37(b)) requiring recipients to have a monitoring and enforcement 
mechanism to ensure that work committed to DBEs is actually performed 
by DBEs. The trouble is that, based on the Department's experience, 
this provision is not being implemented by recipients as well as it 
should be. The FHWA review team that has been examining state 
implementation of the DBE program found that many states did not have 
an effective compliance monitoring program in place. DBE fraud cases 
investigated by the Department's Office of Inspector General and 
criminal prosecutions in the Federal courts have highlighted numerous 
cases in which recipients were unaware, often for many years, of 
situations in which non-DBE companies were claiming DBE credit for work 
that DBEs did not perform.
    The Department believes that, for the DBE program to be meaningful, 
it is not enough that prime contractors commit to the use of DBEs at 
the time of contract award. It is also necessary that the DBEs actually 
perform the work involved. Recipients need to know whether DBEs are 
actually performing the work involved, lest program effectiveness 
suffer and the door be left open to fraud. Recipients must actually 
monitor each contract, on paper and in the field, to ensure that that 
they have this knowledge. Monitoring DBE compliance on a contract is no 
less important, and should be no more brushed aside, than compliance of 
with project specifications. This is important for prime contracts 
performed by DBEs as well as for situations in which DBEs act as 
subcontractors, and the monitoring and certification requirements will 
apply to both situations.
    Consequently, the Department believes that the proposed requirement 
that recipients memorialize the monitoring they are already required to 
perform has merit. Its intent is to make sure that the monitoring 
actually takes place and that the recipient stands by the statement 
that DBE participation claimed on a contract actually occurred. This 
monitoring, and the recipient's written certification that it took 
place, must occur with respect to every contract on which DBE 
participation is claimed, not just a sample or percentage of such 
contracts, to make sure that the program operates as it is intended. It 
applies to contracts entered into prior to the effective date of this 
rule, since the obligation to monitor work performed by DBEs has always 
been a key feature of the DBE program.
    With respect to concerns about administrative burden, the 
Department believes that monitoring is something that recipients have 
been responsible for conducting since the inception of Part 26. 
Therefore, we are not asking recipients to do something with which they 
can claim they are unfamiliar. Moreover, as the final rule version of 
this provision makes clear, recipients can combine the on-site 
monitoring for DBE compliance with other monitoring they do. For 
example, the inspector who looks at a project to make sure that the 
contractor met contract specifications before final payment is 
authorized could also confirm that DBE requirements were honestly met.
    While we believe that more intensive and more frequent monitoring 
of DBE performance on contracts is desirable, we encourage recipients 
to monitor contracts as closely as they can. However, we do not, for 
workload reasons, want to mandate more pervasive monitoring at this 
time. We agree with commenters that it would be difficult to do on-site 
monitoring of contracts performed outside the state (e.g., an out-of-
state consulting contract), and we have added language specifying that 
the requirement to monitor work sites pertains to work sites in the 
recipient's state. In reference to what constitutes adequate staffing 
of

[[Page 5094]]

a DBE program, we believe that it is best to look at this question in 
terms of a performance standard. The Department's rule requires certain 
tasks (e.g., responding to applications for DBE eligibility, 
certification and monitoring of DBE performance on contracts) to be 
performed within certain time frames. If a recipient has sufficient 
staff to meet these requirements, then its staffing levels are 
adequate. If not (e.g., applications for DBE certification are 
backlogged for several months), then staffing is inadequate.

Small Business Provisions

    The NPRM proposed that recipients would add an element to their DBE 
programs to foster small business participation in contracts. The 
purpose of this proposal was to encourage programs that, by 
facilitating small business participation, augmented race-neutral 
efforts to meet DBE goals. The program element could include items such 
as race-neutral small business set-asides and unbundling provisions. 
The NPRM did not propose to mandate any specific elements, however.
    The majority of commenters addressing this part of the NPRM--38 of 
55--favored the NPRM's approach. Commenters approving the proposal were 
drawn from DBEs, associations, and recipients. Generally, they agreed 
that steps to create improved opportunities for small business would 
help achieve the objectives of the DBE program. Specific elements that 
various commenters supported included unbundling (which some commenters 
suggested should be made mandatory), prohibiting double-bonding, small 
business set-asides, expansions of existing small business development 
programs and mentor-prot[eacute]g[eacute] programs.
    Commenters who did not support the NPRM proposal, most of whom were 
recipients, were concerned that having small business programs would 
draw focus from programs targeted more directly at DBEs. They were also 
concerned about having sufficient resources to carry out the programs 
they might include in a small business program element. One commenter 
thought that a small business program element would duplicate existing 
supportive services programs. Another thought unbundling would not 
work. A number of recipients thought it would be better for DOT to 
issue guidance on this subject rather than to create regulatory 
language. A recipient association characterized the proposal as 
burdensome and not productive.
    Eight commenters addressed the issue of bonding and insurance 
requirements. A bonding company association explained that both 
performance and payment bonds had an appropriate place in contracting 
and believed that subcontractor bonds were not duplicative of prime 
contractor bonds. A DBE wanted to prohibit prime contractors from 
setting bonding requirements for subcontractors. A recipient said the 
Department should treat prime contractors and subcontractors the same 
for bonding purposes. One DBE association said the combination of 
payment bonds, performance bonds, and retention was burdensome for 
subcontractors and Another DBE association said that it was 
inappropriate to require bonding of the subcontractor when the prime 
contractor was already bonded for the overall work of the contract. 
This association suggested that a prime contractor could not 
demonstrate good faith efforts to meet a goal if it insisted on such a 
double bond.

DOT Response

    DBEs are small businesses. Program provisions that help small 
businesses can help DBEs. By facilitating participation for small 
businesses, recipients can make possible more DBE participation, and 
participation by additional DBE firms. Consequently, we believe that a 
program element that pulls together the various ways that a recipient 
reaches out to small businesses and makes it easier for them to compete 
for DOT-assisted contracts will foster the objectives of the DBE 
program. Because small business programs of the kind suggested in the 
NPRM are race-neutral, use of these programs can assist recipients in 
meeting the race-neutral portions of their overall goals. This is 
consistent with the language that under Part 26, recipients are 
directed to meet as much as possible of their overall goals through 
race-neutral means.
    It is important to keep in mind that race-neutral programs should 
not be passive. Simply waiting and hoping that occasional DBEs will 
participate without the use of contract goals does not an effective 
race-neutral program make. Rather, recipients are responsible for 
taking active, effective steps to increase race-neutral DBE 
participation, by implementing programs of the kind mentioned in this 
section of the NPRM and final rule. The Department will be monitoring 
recipients' race-neutral programs to make sure that they meet this 
standard.
    In adopting the NPRM proposal requiring a small business program 
element, the Department believes that this element--which is properly 
viewed as an integral part of a recipient's DBE program--need not 
distract recipients from other key parts of recipients' DBE programs, 
such as certification and the use of race-conscious measures. There are 
different ways of encouraging DBE participation and meeting DBE overall 
goals, and recipients' programs need to address a variety of these 
means. Many of the provisions that recipients can use to implement the 
requirements of the new section (e.g., unbundling, race-neutral small 
business set-asides) are already part of the regulation or DOT 
guidance, and carrying out these elements should not involve extensive 
additional burdens.
    With respect to bonding, the Department believes that commenters 
made a good point with respect to the burden of duplicative bonding. By 
duplicative bonding, we mean insistence by a prime contractor that a 
DBE provide bonding for work that is already covered by bonding or 
insurance provided by the prime contractor or the recipient. Like 
duplicative bonding, excessive bonding--a requirement, which according 
to participants in the Department's stakeholder meetings, is sometimes 
imposed to provide a bond in excess of the value of the subcontractor's 
work--can act as an unnecessary barrier to DBE participation. While we 
believe that additional action to address these problems may have 
merit, there was not a great deal of comment on the implications of 
potential regulatory requirements in these areas. Consequently, we will 
defer action on these issues at this time and seek additional comment 
and information in the follow-on NPRM the Department is planning to 
issue.

Miscellaneous Comments

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

[[Page 5095]]

DOT Response

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

The Continuing Compelling Need for the DBE Program

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

    \1\ See for instance Adarand Constructors, Inc. v. Slater, 228 
F.3d 1147 (10th Cir. 2000), Northern Contracting Inc. v. Illinois 
Department of Transportation, 473 4.3d 715 (7th Cir. 2007), 
Sherbrooke Turf, Inc. v. Minnesota Department of Transportation, 345 
F.3d. 964 (8th Cir. 2003), Western States Paving Co., Inc. v. 
Washington Department of Transportation, 407 F.3d. 983 (9th Cir. 
2005).
---------------------------------------------------------------------------

Regulatory Analyses and Notices

Executive Order 12866 and DOT Regulatory Policies and Procedures

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

Regulatory Flexibility Act

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

Federalism

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

Paperwork Reduction Act

    As required by the Paperwork Reduction Act of 1995, DOT has 
submitted the Information Collection Requests (ICRs) below to the 
Office of Management and Budget (OMB). Before OMB decides whether to 
approve these proposed collections of information and issue a control 
number, the public must be provided 30 days to comment. Organizations 
and individuals desiring to submit comments on the collections of 
information in this rule should direct them to the Office of Management 
and Budget, Attention: Desk Officer for the Office of the Secretary of 
Transportation, Office of Information and Regulatory Affairs, 
Washington, DC 20503. OMB is required to make a decision concerning the 
collection of information requirements contained in this rule between 
30 and 60 days after publication of this document in the Federal 
Register. Therefore, a comment is best assured of having its full 
effect if OMB receives it within 30 days of publication.
    We will respond to any OMB or public comments on the information 
collection requirements contained in this rule. The Department will not 
impose a penalty on persons for violating information collection 
requirements which do not display a current OMB control number, if 
required. The Department intends to obtain current OMB control numbers 
for the new information collection requirements resulting from this 
rulemaking action. The OMB control number, when assigned, will be 
announced by separate notice in the Federal Register.
    It is estimated that the total incremental annual burden hours for 
the information collection requirements in this rule are 47,450 hours 
in the first year, 83,370 in the second year, and 51,875 thereafter. 
The following are the information collection requirements in this rule:
Certification of Monitoring (49 CFR 26.37(b))
    Each recipient would certify that it had conducted post-award 
monitoring of contracts which would be counted for

[[Page 5096]]

DBE credit to ensure that DBEs had done the work for which credit was 
claimed. The certification is for the purpose of ensuring 
accountability for monitoring which the regulation already requires.
    Respondents: 1,050.
    Frequency: 13,400 (i.e., there are about 13,400 contracts per year 
that have DBE participation, based on 2009 data).
    Estimated Burden per Response: \1/2\ hour.
    Estimated Total Annual Burden: 6,700 hours.
Small Business Program Element (49 CFR 26.39)
    Each recipient would add a new DBE program element, consisting of 
strategies to encourage small business participation in their 
contracting activities. No specific element would be required, and many 
of the potential elements are already part of the existing DBE 
regulation or implementing guidance (e.g., unbundling; race-neutral 
small business set-asides). The small business program element is 
intended to pull a recipient's small business efforts into a single, 
unified place in this DBE Program. This requirement goes into effect a 
year from the effective date of the rule.
    Respondents: 1,050.
    Frequency: Once (for a one-time task).
    Estimated Burden per Response: 30 hours.
    Estimated Total Annual Burden Hours: 31,500 (one time).
Accountability Mechanism (49 CFR 26.47(c))
    If a recipient failed to meet its overall goal in a given year, it 
would have to determine the reasons for its failure and establish 
corrective steps. Approximately 150 large recipients would transmit 
this analysis to DOT; smaller recipients would perform the analysis but 
would not be required to submit it to DOT. We estimate that about half 
of recipients would be subject to this requirement in a given year.
    Respondents: 525 (150 of which would have to submit reports to 
DOT).
    Frequency: Once per year.
    Estimated Average Burden per Response: 80 hours + 5 for recipients 
sending report to DOT.
    Estimated Total Annual Burden Hours: 42,750.
Affidavit of Completeness (49 CFR 26.45(c)(4))
    When a firm certified in its home state seeks certification in 
another state (``State B''), the firm must provide an affidavit that 
the information the firm provides to State B is complete and is 
identical to that submitted to the home state. The calculation of the 
burden for this item assumes that there will be an average 2600 
interstate applications each year to which this requirement would 
apply. This requirement takes effect a year from the effective date of 
this rule.
    Respondents: 2,600.
    Frequency: Once per year to a given recipient.
    Estimated Average Burden per Response: 1 hour.
    Estimated Total Annual Burden Hours: 2,600 hours.
Transmittal of On-Site Report (49 CFR 26.85(d)(1))
    When a ``State B'' receives a request for certification from a firm 
certified in ``State A,'' State A must promptly send a copy of that 
report to State B. This would involve simply emailing a PDF or other 
electronic copy of an existing report. This requirement takes effect 
one year from the effective date of this rule.
    Respondents: 52.
    Frequency: An average of 50 per year per recipient.
    Estimated Average Burden per Response: \1/2\ hour.
    Estimated Total Annual Burden Hours: 1,300.
Transmittal of Decertification/Denial Information (49 CFR 26.85(f)(1))
    When a unified certification program (UCP) in a state denies a 
firm's application for certification or decertifies the firm, it must 
electronically notify a DOT database of the fact. The information in 
the database is then available to other certification agencies for 
their reference. The calculation of the burden of this requirement 
assumes that there would be am average of 100 such actions per year by 
each UCP.
    Respondents: 52.
    Frequency: An average of 100 per year per recipient.
    Estimated Average Burden per Response: \1/2\ hour.
    Estimated Total Annual Burden Hours: 2,600.
Transmittal of Denial/Decertification Documents (49 CFR 26.85(f)(3))
    When a UCP notes, from the DOT database, that a firm that has 
applied or been granted certification was denied or decertified 
elsewhere, the UCP would request a copy of the decision by the other 
state, which would then have to send a copy. The Department anticipates 
that this would be done by an email exchange, the response attaching a 
PDF or other electronic copy of an existing document. This requirement 
goes into effect a year from the effective date of the rule.
    Respondents: 52.
    Frequency: An average of 75 per year per recipient.
    Estimated Average Burden per Response: five minutes for the 
request; \1/2\ hour for the response.
    Estimated Total Annual Burden Hours: 2,625.

List of Subjects in 49 CFR Part 26

    Administrative practice and procedure, Airports, Civil rights, 
Government contracts, Grant-programs--transportation, Mass 
transportation, Minority businesses, Reporting and record keeping 
requirements.

    Issued this 11th day of January, 2011, at Washington, DC.
Ray LaHood,
Secretary of Transportation.

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

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

0
1. The authority citation for part 26 is amended to read as follows:

    Authority:  23 U.S.C. 304 and 324; 42 U.S.C. 2000d, et seq. ; 49 
U.S.C. 47107, 47113, 47123; Sec. 1101(b), Pub. L. 105-178, 112 Stat. 
107, 113.


0
2. In section 26.5, add a definition of ``Home state'' in alphabetical 
order to read as follows:


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

* * * * *
    ``Home state'' means the state in which a DBE firm or applicant for 
DBE certification maintains its principal place of business.
* * * * *

0
3. In Sec.  26.11, add paragraph (a) to read as follows:


Sec.  26.11  What records do recipients keep and report?

    (a) You must transmit the Uniform Report of DBE Awards or 
Commitments and Payments, found in Appendix B to this part, at the 
intervals stated on the form.
* * * * *

0
4. Revise Sec.  26.31 to read as follows:


Sec.  26.31  What information must you include in your DBE directory?

    (a) In the directory required under Sec.  26.81(g) of this Part, 
you must list all

[[Page 5097]]

firms eligible to participate as DBEs in your program. 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.
    (b) You must list each type of work for which a firm is eligible to 
be certified by using the most specific NAICS code available to 
describe each type of work. You must make any changes to your current 
directory entries necessary to meet the requirement of this paragraph 
(a) by August 26, 2011.

0
5. Revise Sec.  26.37 (b) to read as follows:


Sec.  26.37  What are a recipient's responsibilities for monitoring the 
performance of other program participants?

* * * * *
    (b) Your DBE program must also include a monitoring and enforcement 
mechanism to ensure that work committed to DBEs at contract award or 
subsequently (e.g., as the result of modification to the contract) is 
actually performed by the DBEs to which the work was committed. This 
mechanism must include a written certification that you have reviewed 
contracting records and monitored work sites in your state for this 
purpose. The monitoring to which this paragraph refers may be conducted 
in conjunction with monitoring of contract performance for other 
purposes (e.g., close-out reviews for a contract).
* * * * *

0
6. Add Sec.  26.39 to subpart B to read as follows:


Sec.  26.39  Fostering small business participation.

    (a) Your DBE program must include an element to structure 
contracting requirements to facilitate competition by small business 
concerns, taking all reasonable steps to eliminate obstacles to their 
participation, including unnecessary and unjustified bundling of 
contract requirements that may preclude small business participation in 
procurements as prime contractors or subcontractors.
    (b) This element must be submitted to the appropriate DOT operating 
administration for approval as a part of your DBE program by February 
28, 2012. As part of this program element you may include, but are not 
limited to, the following strategies:
    (1) Establishing a race-neutral small business set-aside for prime 
contracts under a stated amount (e.g., $1 million).
    (2) In multi-year design-build contracts or other large contracts 
(e.g., for ``megaprojects'') requiring bidders on the prime contract to 
specify elements of the contract or specific subcontracts that are of a 
size that small businesses, including DBEs, can reasonably perform.
    (3) On prime contracts not having DBE contract goals, requiring the 
prime contractor to provide subcontracting opportunities of a size that 
small businesses, including DBEs, can reasonably perform, rather than 
self-performing all the work involved.
    (4) Identifying alternative acquisition strategies and structuring 
procurements to facilitate the ability of consortia or joint ventures 
consisting of small businesses, including DBEs, to compete for and 
perform prime contracts.
    (5) To meet the portion of your overall goal you project to meet 
through race-neutral measures, ensuring that a reasonable number of 
prime contracts are of a size that small businesses, including DBEs, 
can reasonably perform.
    (c) You must actively implement your program elements to foster 
small business participation. Doing so is a requirement of good faith 
implementation of your DBE program.

0
7 . In Sec.  26.45:
0
a. Revise paragraphs (e)(2), (e)(3), (f)(1), and (f)(2);
0
b. Redesignate paragraphs ((f)(3) and (f)(4) as (f)(6) and (f)(7), 
respectively; and
0
c. Add new paragraphs (f)(3), (4), and (5).
    The revisions and addition read as follows:


Sec.  26.45  How do recipients set overall goals?

* * * * *
    (e) * * *
    (2) If you are an FTA or FAA recipient, as a percentage of all FT 
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 three forthcoming fiscal years.
    (3) In appropriate cases, the FHWA, FTA or FAA Administrator may 
permit or require you to express your overall goal as a percentage of 
funds for a particular grant or project or group of grants and/or 
projects. Like other overall goals, a project goal may be adjusted to 
reflect changed circumstances, with the concurrence of the appropriate 
operating administration.
    (i) A project goal is an overall goal, and must meet all the 
substantive and procedural requirements of this section pertaining to 
overall goals.
    (ii) A project goal covers the entire length of the project to 
which it applies.
    (iii) The project goal should include a projection of the DBE 
participation anticipated to be obtained during each fiscal year 
covered by the project goal.
    (iv) The funds for the project to which the project goal pertains 
are separated from the base from which your regular overall goal, 
applicable to contracts not part of the project covered by a project 
goal, is calculated.
    (f)(1)(i) If you set your overall goal on a fiscal year basis, you 
must submit it to the applicable DOT operating administration by August 
1 at three-year intervals, based on a schedule established by the FHWA, 
FTA, or FAA, as applicable, and posted on that agency's Web site.
    (ii) You may adjust your three-year overall goal during the three-
year period to which it applies, in order to reflect changed 
circumstances. You must submit such an adjustment to the concerned 
operating administration for review and approval.
    (iii) The operating administration may direct you to undertake a 
review of your goal if necessary to ensure that the goal continues to 
fit your circumstances appropriately.
    (iv) While you are required to submit an overall goal to FHWA, FTA, 
or FAA only every three years, the overall goal and the provisions of 
Sec. 26.47(c) apply to each year during that three-year period.
    (v) You may make, for informational purposes, projections of your 
expected DBE achievements during each of the three years covered by 
your overall goal. However, it is the overall goal itself, and not 
these informational projections, to which the provisions of section 
26.47(c) of this part apply.
    (2) If you are a recipient and set your overall goal on a project 
or grant basis as provided in paragraph (e)(3) of this section, you 
must submit the goal for review at a time determined by the FHWA, FTA 
or FAA Administrator, as applicable.
    (3) You must include with your overall goal submission a 
description of the methodology you used to establish the goal, incuding 
your base figure and the evidence with which it was calculated, and the 
adjustments you made to the base figure and the evidence you relied on 
for the adjustments. You should also include a summary listing of the 
relevant available evidence in your jurisdiction and, where applicable, 
an explanation of why you did not use that evidence to adjust your base 
figure. You must also include your projection of the portions of the 
overall goal you expect to meet through race-neutral and race-consioous 
measures, respectively (see 26.51(c)).
    (4) You are not required to obtain prior operating administration 
concurrence with your overall goal. However, if the operating

[[Page 5098]]

administration's review suggests that your overall goal has not been 
correctly calculated, or that your method for calculating goals is 
inadequate, the operating administration may, after consulting with 
you, adjust your overall goal or require that you do so. The adjusted 
overall goal is binding on you.
    (5) If you need additional time to collect data or take other steps 
to develop an approach to setting overall goals, you may request the 
approval of the concerned operating administration for an interim goal 
and/or goal-setting mechanism. Such a mechanism must:
    (i) Reflect the relative availability of DBEs in your local market 
to the maximum extent feasible given the data available to you; and
    (ii) Avoid imposing undue burdens on non-DBEs.
* * * * *

0
8. In Sec.  26.47, add paragraphs (c) and (d) to read as follows:


Sec.  26.47  Can recipients be penalized for failing to meet overall 
goals?

* * * * *
    (c) If the awards and commitments shown on your Uniform Report of 
Awards or Commitments and Payments at the end of any fiscal year are 
less than the overall goal applicable to that fiscal year, you must do 
the following in order to be regarded by the Department as implementing 
your DBE program in good faith:
    (1) Analyze in detail the reasons for the difference between the 
overall goal and your awards and commitments in that fiscal year;
    (2) Establish specific steps and milestones to correct the problems 
you have identified in your analysis and to enable you to meet fully 
your goal for the new fiscal year;
    (3)(i) If you are a state highway agency; one of the 50 largest 
transit authorities as determined by the FTA; or an Operational 
Evolution Partnership Plan airport or other airport designated by the 
FAA, you must submit, within 90 days of the end of the fiscal year, the 
analysis and corrective actions developed under paragraphs (c)(1) and 
(2) of this section to the appropriate operating administration for 
approval. If the operating administration approves the report, you will 
be regarded as complying with the requirements of this section for the 
remainder of the fiscal year.
    (ii) As a transit authority or airport not meeting the criteria of 
paragraph (c)(3)(i) of this section, you must retain analysis and 
corrective actions in your records for three years and make it 
available to FTA or FAA on request for their review.
    (4) FHWA, FTA, or FAA may impose conditions on the recipient as 
part of its approval of the recipient's analysis and corrective actions 
including, but not limited to, modifications to your overall goal 
methodology, changes in your race-conscious/race-neutral split, or the 
introduction of additional race-neutral or race-conscious measures.
    (5) You may be regarded as being in noncompliance with this Part, 
and therefore subject to the remedies in Sec.  26.103 or Sec.  26.105 
of this part and other applicable regulations, for failing to implement 
your DBE program in good faith if any of the following things occur:
    (i) You do not submit your analysis and corrective actions to FHWA, 
FTA, or FAA in a timely manner as required under paragraph (c)(3) of 
this section;
    (ii) FHWA, FTA, or FAA disapproves your analysis or corrective 
actions; or
    (iii) You do not fully implement the corrective actions to which 
you have committed or conditions that FHWA, FTA, or FAA has imposed 
following review of your analysis and corrective actions.
    (d) If, as recipient, your Uniform Report of DBE Awards or 
Commitments and Payments or other information coming to the attention 
of FTA, FHWA, or FAA, demonstrates that current trends make it unlikely 
that you will achieve DBE awards and commitments that would be 
necessary to allow you to meet your overall goal at the end of the 
fiscal year, FHWA, FTA, or FAA, as applicable, may require you to make 
further good faith efforts, such as by modifying your race-conscious/
race-neutral split or introducing additional race-neutral or race-
conscious measures for the remainder of the fiscal year.

0
9. In Sec.  26.51, revise paragraphs (b)(1) and (f)(1) to read as 
follows:


Sec.  26.51  What means do recipients use to meet overall goals?

* * * * *
    (b)* * *
    (1) Arranging solicitations, times for the presentation of bids, 
quantities, specifications, and delivery schedules in ways that 
facilitate participation by DBEs and other small businesses and by 
making contracts more accessible to small businesses, by means such as 
those provided under Sec.  26.39 of this part.
* * * * *
    (f) * * *
    (1) If your approved projection under paragraph (c) of this section 
estimates that you can meet your entire overall goal for a given year 
through race-neutral means, you must implement your program without 
setting contract goals during that year, unless it becomes necessary in 
order meet your overall goal.
    Example to paragraph (f)(1): Your overall goal for Year 1 is 12 
percent. You estimate that you can obtain 12 percent or more DBE 
participation through the use of race-neutral measures, without any use 
of contract goals. In this case, you do not set any contract goals for 
the contracts that will be performed in Year 1. However, if part way 
through Year 1, your DBE awards or commitments are not at a level that 
would permit you to achieve your overall goal for Year 1, you could 
begin setting race-conscious DBE contract goals during the remainder of 
the year as part of your obligation to implement your program in good 
faith.
* * * * *

0
10. In Sec.  26.53:
0
a. Redesignate paragraph (g) as paragraph (i);
0
b. Redesignate paragraphs (f)(2) and (3) as paragraphs (g) and (h), 
respectively;
0
c. Revise paragraph (f)(1); and
0
d. Add new paragraphs (f)(2) through (6) to read as follows:


Sec.  26.53  What are the good faith efforts procedures recipients 
follow in situations where there are contract goals?

* * * * *
    (f)(1) You must require that a prime contractor not terminate a DBE 
subcontractor listed in response to paragraph (b)(2) of this section 
(or an approved substitute DBE firm) without your prior written 
consent. This includes, but is not limited to, instances in which a 
prime contractor seeks to perform work originally designated for a DBE 
subcontractor with its own forces or those of an affiliate, a non-DBE 
firm, or with another DBE firm.
    (2) You may provide such written consent only if you agree, for 
reasons stated in your concurrence document, that the prime contractor 
has good cause to terminate the DBE firm.
    (3) For purposes of this paragraph, good cause includes the 
following circumstances:
    (i) The listed DBE subcontractor fails or refuses to execute a 
written contract;
    (ii) The listed DBE subcontractor fails or refuses to perform the 
work of its subcontract in a way consistent with normal industry 
standards. Provided, however, that good cause does not exist if the 
failure or refusal of the DBE subcontractor to perform its work on the 
subcontract results from the bad faith or discriminatory action of the 
prime contracor;
    (iii) The listed DBE subcontractor fails or refuses to meet the 
prime contractor's

[[Page 5099]]

reasonable, nondisrciminatory bond requirements.
    (iv) The listed DBE subcontractor becomes bankrupt, insolvent, or 
exhibits credit unworthiness;
    (v) The listed DBE subcontractor is ineligible to work on public 
works projects because of suspension and debarment proceedings pursuant 
2 CFR Parts 180, 215 and 1,200 or applicable state law;
    (vii) You have determined that the listed DBE subcontractor is not 
a responsible contractor;
    (vi) The listed DBE subcontractor voluntarily withdraws from the 
project and provides to you written notice of its withdrawal;
    (vii) The listed DBE is ineligible to receive DBE credit for the 
type of work required;
    (viii) A DBE owner dies or becomes disabled with the result that 
the listed DBE contractor is unable to complete its work on the 
contract;
    (ix) Other documented good cause that you determine compels the 
termination of the DBE subcontractor. Provided, that good cause does 
not exist if the prime contractor seeks to terminate a DBE it relied 
upon to obtain the contract so that the prime contractor can self-
perform the work for which the DBE contractor was engaged or so that 
the prime contractor can substitute another DBE or non-DBE contractor 
after contract award.
    (4) Before transmitting to you its request to terminate and/or 
substitute a DBE subcontractor, the prime contractor must give notice 
in writing to the DBE subcontractor, with a copy to you, of its intent 
to request to terminate and/or substitute, and the reason for the 
request.
    (5) The prime contractor must give the DBE five days to respond to 
the prime contractor's notice and advise you and the contractor of the 
reasons, if any, why it objects to the proposed termination of its 
subcontract and why you should not approve the prime contractor's 
action. If required in a particular case as a matter of public 
necessity (e.g., safety), you may provide a response period shorter 
than five days.
    (6) In addition to post-award terminations, the provisions of this 
section apply to preaward deletions of or substitutions for DBE firms 
put forward by offerors in negotiated procurements.
* * * * *

0
11. In Sec.  26.67, revise paragraphs (a)(2)(i) and (iv), and in 
paragraphs (b), (c), and (d), remove ``$750,000'' and add in its place 
``$1.32 million''.
    The revisions read as follows:


Sec.  26.67  What rules determine social and economic disadvantage?

    (a) * * *
    (2)(i) You must require each individual owner of a firm applying to 
participate as a DBE, whose ownership and control are relied upon for 
DBE certification to certify that he or she has a personal net worth 
that does not exceed $1.32 million.
* * * * *
    (iv) Notwithstanding any provision of Federal or state law, you 
must not release an individual's personal net worth statement nor any 
documents pertaining to it to any third party without the written 
consent of the submitter. Provided, that you must transmit this 
information to DOT in any certification appeal proceeding under section 
26.89 of this part or to any other state to which the individual's firm 
has applied for certification under Sec.  26.85 of this part.
* * * * *

0
12. Revise Sec.  26.71(n) to read as follows:


Sec.  26.71  What rules govern determinations concerning control?

* * * * *
    (n) 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 must not require that the 
firm be recertified or submit a new application for certification, but 
you must verify the disadvantaged owner's control of the firm in the 
additional type of work.
    (1) The types of work a firm can perform (whether on initial 
certification or when a new type of work is added) must be described in 
terms of the most specific available NAICS code for that type of work. 
If you choose, you may also, in addition to applying the appropriate 
NAICS code, apply a descriptor from a classification scheme of 
equivalent detail and specificity. A correct NAICS code is one that 
describes, as specifically as possible, the principal goods or services 
which the firm would provide to DOT recipients. Multiple NAICS codes 
may be assigned where appropriate. Program participants must rely on, 
and not depart from, the plain meaning of NAICS code descriptions in 
determining the scope of a firm's certification. If your Directory does 
not list types of work for any firm in a manner consistent with this 
paragraph (a)(1), you must update the Directory entry for that firm to 
meet the requirements of this paragraph (a)(1) by August 28, 2011.
    (2) Firms and recipients must check carefully to make sure that the 
NAICS codes cited in a certification are kept up-to-date and accurately 
reflect work which the UCP has determined the firm's owners can 
control. The firm bears the burden of providing detailed company 
information the certifying agency needs to make an appropriate NAICS 
code designation.
    (3) If a firm believes that there is not a NAICS code that fully or 
clearly describes the type(s) of work in which it is seeking to be 
certified as a DBE, the firm may request that the certifying agency, in 
its certification documentation, supplement the assigned NAICS code(s) 
with a clear, specific, and detailed narrative description of the type 
of work in which the firm is certified. A vague, general, or confusing 
description is not sufficient for this purpose, and recipients should 
not rely on such a description in determining whether a firm's 
participation can be counted toward DBE goals.
    (4) A certifier is not precluded from changing a certification 
classification or description if there is a factual basis in the 
record. However, certifiers must not make after-the-fact statements 
about the scope of a certification, not supported by evidence in the 
record of the certification action.
* * * * *

0
13. Revise Sec.  26.73(b) to read as follows:


Sec.  26.73  What are other rules affecting certification?

* * * * *
    (b)(1) 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 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.
    (2) You must not refuse to certify a firm solely on the basis that 
it is a newly formed firm, has not completed projects or contracts at 
the time of its application, has not yet realized profits from its 
activities, or has not demonstrated a potential for success. If the 
firm meets disadvantaged, size, ownership, and control requirements of

[[Page 5100]]

this Part, the firm is eligible for certification.
* * * * *


Sec.  26.81  [Amended]

0
14. Amend Sec.  26.81(g) by removing the word ``section'' and adding in 
its place the word ``part'' and by removing the period at the end of 
the last sentence and adding the words ``and shall revise the print 
version of the Directory at least once a year.''

0
15. In Sec.  26.83, remove and reserve paragraph (e), revise paragraph 
(h), and add paragraphs (l) and (m) to read as follows:


Sec.  26.83  What procedures do recipients follow in making 
certification decisions?

* * * * *
    (h) Once you have certified a DBE, it shall remain certified until 
and unless you have removed its certification, in whole or in part, 
through the procedures of section 26.87. You may not require DBEs to 
reapply for certification or require ``recertification'' of currently 
certified firms. However, you may conduct a certification review of a 
certified DBE firm, including a new on-site review, three years from 
the date of the firm's most recent certification, or sooner if 
appropriate in light of changed circumstances (e.g., of the kind 
requiring notice under paragraph (i) of this section), a complaint, or 
other information concerning the firm's eligibility. If you have 
grounds to question the firm's eligibility, you may conduct an on-site 
review on an unannounced basis, at the firm's offices and jobsites.
* * * * *
    (l) As a recipient or UCP, you must advise each applicant within 30 
days from your receipt of the application whether the application is 
complete and suitable for evaluation and, if not, what additional 
information or action is required.
    (m) Except as otherwise provided in this paragraph, if an applicant 
for DBE certification withdraws its application before you have issued 
a decision on the application, the applicant can resubmit the 
application at any time. As a recipient or UCP, you may not apply the 
waiting period provided under Sec.  26.86(c) of this part before 
allowing the applicant to resubmit its application. However, you may 
place the reapplication at the ``end of the line,'' behind other 
applications that have been made since the firm's previous application 
was withdrawn. You may also apply the waiting period provided under 
Sec.  26.86(c) of this part to a firm that has established a pattern of 
frequently withdrawing applications before you make a decision.


Sec.  26.84  [Removed]

0
16. Remove section 26.84.

0
17. Revise Sec.  26.85 to read as follows


Sec.  26.85  Interstate certification.

    (a) This section applies with respect to any firm that is currently 
certified in its home state.
    (b) When a firm currently certified in its home state (``State A'') 
applies to another State (``State B'') for DBE certification, State B 
may, at its discretion, accept State A's certification and certify the 
firm, without further procedures.
    (1) To obtain certification in this manner, the firm must provide 
to State B a copy of its certification notice from State A.
    (2) Before certifying the firm, State B must confirm that the firm 
has a current valid certification from State A. State B can do so by 
reviewing State A's electronic directory or obtaining written 
confirmation from State A.
    (c) In any situation in which State B chooses not to accept State 
A's certification of a firm as provided in paragraph (b) of this 
section, as the applicant firm you must provide the information in 
paragraphs (c)(1) through (4) of this section to State B.
    (1) You must provide to State B a complete copy of the application 
form, all supporting documents, and any other information you have 
submitted to State A or any other state related to your firm's 
certification. This includes affidavits of no change (see Sec.  
26.83(j)) and any notices of changes (see Sec.  26.83(i)) that you have 
submitted to State A, as well as any correspondence you have had with 
State A's UCP or any other recipient concerning your application or 
status as a DBE firm.
    (2) You must also provide to State B any notices or correspondence 
from states other than State A relating to your status as an applicant 
or certified DBE in those states. For example, if you have been denied 
certification or decertified in State C, or subject to a 
decertification action there, you must inform State B of this fact and 
provide all documentation concerning this action to State B.
    (3) If you have filed a certification appeal with DOT (see Sec.  
26.89), you must inform State B of the fact and provide your letter of 
appeal and DOT's response to State B.
    (4) You must submit 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.
    (i) This affidavit must affirm that you have submitted all the 
information required by 49 CFR 26.85(c) and the information is complete 
and, in the case of the information required by Sec.  26.85(c)(1), is 
an identical copy of the information submitted to State A.
    (ii) If the on-site report from State A supporting your 
certification in State A is more than three years old, as of the date 
of your application to State B, State B may require that your affidavit 
also affirm that the facts in the on-site report remain true and 
correct.
    (d) As State B, when you receive from an applicant firm all the 
information required by paragraph (c) of this section, you must take 
the following actions:
    (1) Within seven days contact State A and request a copy of the 
site visit review report for the firm (see Sec.  26.83(c)(1)), any 
updates to the site visit review, and any evaluation of the firm based 
on the site visit. As State A, you must transmit this information to 
State B within seven days of receiving the request. A pattern by State 
B of not making such requests in a timely manner or by ``State A'' or 
any other State of not complying with such requests in a timely manner 
is noncompliance with this Part.
    (2) Determine whether there is good cause to believe that State A's 
certification of the firm is erroneous or should not apply in your 
State. Reasons for making such a determination may include the 
following:
    (i) Evidence that State A's certification was obtained by fraud;
    (ii) New information, not available to State A at the time of its 
certification, showing that the firm does not meet all eligibility 
criteria;
    (iii) State A's certification was factually erroneous or was 
inconsistent with the requirements of this part;
    (iv) The State law of State B requires a result different from that 
of the State law of State A.
    (v) The information provided by the applicant firm did not meet the 
requirements of paragraph (c) of this section.
    (3) If, as State B, unless you have determined that there is good 
cause to believe that State A's certification is erroneous or should 
not apply in your State, you must, no later than 60 days from the date 
on which you received from the applicant firm all the information 
required by paragraph (c) of this section, send to the applicant firm a 
notice that it is certified and place the firm on your directory of 
certified firms.
    (4) If, as State B, you have determined that there is good cause to 
believe that State A's certification is erroneous or should not apply 
in your State, you

[[Page 5101]]

must, no later than 60 days from the date on which you received from 
the applicant firm all the information required by paragraph (c) of 
this section, send to the applicant firm a notice stating the reasons 
for your determination.
    (i) This notice must state with particularity the specific reasons 
why State B believes that the firm does not meet the requirements of 
this Part for DBE eligibility and must offer the firm an opportunity to 
respond to State B with respect to these reasons.
    (ii) The firm may elect to respond in writing, to request an in-
person meeting with State B's decision maker to discuss State B's 
objections to the firm's eligibility, or both. If the firm requests a 
meeting, as State B you must schedule the meeting to take place within 
30 days of receiving the firm's request.
    (iii) The firm bears the burden of demonstrating, by a 
preponderance of evidence, that it meets the requirements of this Part 
with respect to the particularized issues raised by State B's notice. 
The firm is not otherwise responsible for further demonstrating its 
eligibility to State B.
    (iv) The decision maker for State B must be an individual who is 
thoroughly familiar with the provisions of this Part concerning 
certification.
    (v) State B must issue a written decision within 30 days of the 
receipt of the written response from the firm or the meeting with the 
decision maker, whichever is later.
    (vi) The firm's application for certification is stayed pending the 
outcome of this process.
    (vii) A decision under this paragraph (d)(4) may be appealed to the 
Departmental Office of Civil Rights under sSec.  26.89 of this part.
    (e) As State B, if you have not received from State A a copy of the 
site visit review report by a date 14 days after you have made a timely 
request for it, you may hold action required by paragraphs (d)(2) 
through (4) of this section in abeyance pending receipt of the site 
visit review report. In this event, you must, no later than 30 days 
from the date on which you received from an applicant firm all the 
information required by paragraph (c) of this section, notify the firm 
in writing of the delay in the process and the reason for it.
    (f)(1) As a UCP, when you deny a firm's application, reject the 
application of a firm certified in State A or any other State in which 
the firm is certified, through the procedures of paragraph (d)(4) of 
this section, or decertify a firm, in whole or in part, you must make 
an entry in the Department of Transportation Office of Civil Rights' 
(DOCR's) Ineligibility Determination Online Database. You must enter 
the following information:
    (i) The name of the firm;
    (ii) The name(s) of the firm's owner(s);
    (iii) The type and date of the action;
    (iv) The reason for the action.
    (2) As a UCP, you must check the DOCR Web site at least once every 
month to determine whether any firm that is applying to you for 
certification or that you have already certified is on the list.
    (3) For any such firm that is on the list, you must promptly 
request a copy of the listed decision from the UCP that made it. As the 
UCP receiving such a request, you must provide a copy of the decision 
to the requesting UCP within 7 days of receiving the request. As the 
UCP receiving the decision, you must then consider the information in 
the decision in determining what, if any, action to take with respect 
to the certified DBE firm or applicant.
    (g) You must implement the requirements of this section beginning 
January 1, 2012.


Sec.  26.87  [Amended]

0
18. In Sec.  26.87, remove and reserve paragraph (h).


Sec.  26.107  [Amended]

0
19. In Sec.  26.107, in paragraphs (a) and (b), remove ``49 CFR part 
29'' and add in its place, ``2 CFR parts 180 and 1200''.

0
20. In Sec.  26.109, revise paragraph (a)(2) to read as follows:


Sec.  26.109  What are the rules governing information, 
confidentiality, cooperation, and intimidation or retaliation?

    (a) * * *
    (2) Notwithstanding any provision of Federal or state law, you must 
not release any information that may reasonably be construed as 
confidential business information to any third party without the 
written consent of the firm that submitted the information. This 
includes applications for DBE certification and supporting information. 
However, you must transmit this information to DOT in any certification 
appeal proceeding under Sec.  26.89 of this part or to any other state 
to which the individual's firm has applied for certification under 
Sec.  26.85 of this part.
* * * * *

[FR Doc. 2011-1531 Filed 1-27-11; 8:45 am]
BILLING CODE 4910-9X-P