[Federal Register Volume 87, Number 139 (Thursday, July 21, 2022)]
[Proposed Rules]
[Pages 43620-43685]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-14586]
[[Page 43619]]
Vol. 87
Thursday,
No. 139
July 21, 2022
Part II
Department of Transportation
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Office of the Secretary
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49 CFR Parts 23 and 26
Disadvantaged Business Enterprise and Airport Concession Disadvantaged
Business Enterprise Program Implementation Modifications; Proposed Rule
Federal Register / Vol. 87 , No. 139 / Thursday, July 21, 2022 /
Proposed Rules
[[Page 43620]]
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DEPARTMENT OF TRANSPORTATION
Office of the Secretary
49 CFR Parts 23 and 26
[Docket No. DOT-OST-2022-0051]
RIN 2105-AE98
Disadvantaged Business Enterprise and Airport Concession
Disadvantaged Business Enterprise Program Implementation Modifications
AGENCY: Office of the Secretary (OST), U.S. Department of
Transportation (DOT or the Department).
ACTION: Notice of proposed rulemaking (NPRM).
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SUMMARY: This rulemaking would strengthen implementation of the
Department of Transportation's (Department or DOT) Disadvantaged
Business Enterprise (DBE) and Airport Concession Disadvantaged Business
Enterprise (ACDBE) Program regulations. The NPRM would update personal
net worth and program size thresholds for inflation; modernizes rules
for counting of material suppliers; incorporate procedural
flexibilities enacted during the coronavirus (COVID-19) pandemic; add
new program elements to foster greater usage of DBEs and ACDBEs with
concurrent, proactive monitoring and oversight; update certification
provisions with less prescriptive rules that give certifiers
flexibility when determining eligibility; and make technical
corrections that have led to substantive misinterpretations of the
rules by recipients, program applicants, and participants.
DATES: Comments should be filed by September 19, 2022. Late-filed
comments will be considered to the extent practicable.
ADDRESSES: You may submit comments (identified by the agency name and
DOT Docket ID Number DOT-OST-2022-0051) by any of the following
methods:
Federal eRulemaking Portal: Go to https://www.regulations.gov and follow the online instructions for submitting
comments.
Mail: Docket Management Facility: U.S. Department of
Transportation, 1200 New Jersey Ave. SE, West Building Ground Floor,
Room W12-140, Washington, DC 20590-0001.
Hand Delivery or Courier: U.S. Department of
Transportation, West Building Ground Floor, Room W12-140, 1200 New
Jersey Ave. SE, Washington, DC 20590-0001 between 9 a.m. and 5 p.m.
EST, Monday through Friday, except Federal holidays.
Fax: 202-493-2251.
Instructions: You must include the agency name and docket number
DOT-OST-2022-0051 or the Regulatory Identification Number (RIN) 2105-
AE98 for the rulemaking at the beginning of your comment. All comments
received will be posted without change to https://www.regulations.gov,
including any personal information provided.
Privacy Act: Anyone is able to search the electronic form of all
comments received in any of our dockets by the name of the individual
submitting the comment (or signing the comment, if submitted on behalf
of an association, business, labor union, etc.). You may review DOT's
Privacy Act statement in the Federal Register published on April 11,
2000 (65 FR 19477-78).
Paperwork Reduction Act: Pursuant to 44 U.S.C 3506(c)(2)(B), DOT
solicits comments about the accuracy of the hours and cost burden
estimates. Comments should be submitted to Walter Bohorfoush,
Supervisory Information Technology Specialist, Office of the Chief
Information Officer, U.S. Department of Transportation, at 202-366-0560/[email protected] or Joseph Nye, Office of the Secretary
Desk Officer, Office of Management and Budget, at
[email protected]. The Office of Management and Budget (OMB) is
required to make a decision concerning the collection of information
requirements contained in this proposed rule between 30 and 60 days
after publication of this document in the Federal Register. Therefore,
a comment to OMB is best assured of having its full effect if OMB
receives it within 30 days of publication. The final rule will respond
to any OMB or public comments on the information collection
requirements contained in this proposal.
Docket: For internet access to the docket to read background
documents and comments received, go to https://www.regulations.gov.
Background documents and comments received may also be viewed at the
U.S. Department of Transportation, 1200 New Jersey Ave. SE, Docket
Operations, M-30, West Building Ground Floor, Room W12-140, Washington,
DC 20590-0001, between 9 a.m. and 5 p.m. EST, Monday through Friday,
except Federal holidays.
Electronic Access and Filing: A copy of the Notice of Proposed
Rulemaking, all comments, final rule and all background material may be
viewed online at https://www.regulations.gov using the docket number
listed above. A copy of this notice will be placed in the docket.
Electronic retrieval help and guidelines are available on the website.
An electronic copy of this document may be downloaded from the Office
of the Federal Register's website at: https://www.FederalRegister.gov
and the Government Publishing Office's website at: https://www.GovInfo.gov.
FOR FURTHER INFORMATION CONTACT: Questions concerning part 26
amendments should be directed to Marc D. Pentino, Associate Director,
Disadvantaged Business Enterprise Programs Division, Departmental
Office of Civil Rights, Office of the Secretary, U.S. Department of
Transportation, at 202-366-6968/[email protected]. Questions
concerning part 23 amendments should be directed to Marcus England,
Office of Civil Rights, National Airport Civil Rights Policy and
Compliance (ACR-4C), Federal Aviation Administration, 600 Independence
Ave. SW, Washington, DC 20591 at 202-267-0487/[email protected] or
Nicholas Giles, Office of Civil Rights, National Airport Civil Rights
Policy and Compliance (ACR-4C), Federal Aviation Administration, 600
Independence Ave. SW, Washington, DC 20591, at 202-267-0201/[email protected].
SUPPLEMENTARY INFORMATION:
Table of Contents
Introduction
49 CFR Part 26
Subpart A--General
Bipartisan Infratructure Law (BIL) and Fixing America's Surface
Transportation (FAST) Act (Sec. 26.3)
Definitions (Sec. 26.5)
Disadvantaged Business Enterprise
Personal Net Worth
Principal Place of Business
Transit Vehicle
Transit Vehicle Dealership
Transit Vehicle Manufacturer (TVM)
Unsworn Declaration
Reporting Requirements (Sec. 26.11 and Appendix B)
Uniform Report of DBE Awards or Commitments and Payments
(Uniform Report)
Bidders lists
Moving Ahead for Progress in the 21st Century (MAP-21) data
reports
Subpart B--Administrative Requirements for DBE Programs for
Federally Assisted Contracting
Threshold Program Requirement for FTA Recipients (Sec. 26.21)
Unified Certification Program (UCP) DBE/ACDBE Directories
(Sec. Sec. 26.31 and 26.81(g))
Monitoring Requirements (Sec. 26.37)
Subpart C--Goals, Good Faith Efforts, and Counting
Prompt Payment and Retainage (Sec. 26.29)
Transit Vehicle Manufacturers (TVMs) (Sec. 26.49)
Section Heading
Terminology and Abbreviations
Post-Award Reporting Requirements
Awards to Transit Vehicle Dealerships
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TVM Goal Setting, Submission, and Review
TVM Uniform Reports
Good Faith Efforts Procedures for Contracts with DBE Goals
(Sec. 26.53)
DBE Performance Plan (DPP)
Terminations
DBE Supplier Credit (Sec. 26.55(e))
Limiting DBE Supplier Goal Credit
Evaluating a Supplier's Designation as a Regular Dealer
Drop-Shipping and Delivery From Other Sources
Negotiating the Price of Supplies
DBE manufacturers
Suppliers of Specialty Items
Subpart D--Certification Standards
General Certification Rules (Sec. 26.63)
Business Size (Sec. Sec. 26.65, 23.33)
Changing the Measurement for NAICS Code Size Calculations From 3
to 5 Years
Statutory Gross Receipts Cap
Future Amendments and Technical Amendments
Gross Receipts of ACDBE Affiliates and Joint Venture Partners
Personal Net Worth (PNW) Adjustment
Rationale for $1.60 Million Adjustment
Periodic Adjustments to the PNW Cap
Presumption of Social and Economic Disadvantage (SED)
(Sec. Sec. 26.5, 26.63, and 26.67 and Appendix E)
Evidence and Rebuttal of Social Disadvantage
Evidence and Rebuttal of Economic Disadvantage
Individualized Determinations of Social and Economic
Disadvantage
Ownership (Sec. 26.69)
Burden Reduction, simplification, and Consistency
Reasonable Economic Sense
Control (Sec. 26.71)
Socially and Economically Disadvantaged Owner (SEDO) Decisions
Governance
Expertise
SEDO Decisions
Delegation
Independent Business
Franchises
NAICS codes
Subpart E--Certification Procedures
Technical Corrections to UCP Requirements (Sec. 26.81)
Virtual On-site Visits (Sec. 26.83(c)(1) and (h)(1))
Timely Processing of In-State Certification Applications (Sec.
26.83(k))
Curative Measures (Sec. 26.83(m))
Interstate Certification (Sec. 26.85)
Issues With the Current Rule
Post-Interstate Certification Procedures
Denials of In-State Certification Applications (Sec. 26.86)
Decertification Procedures (Sec. 26.87)
Strict Compliance
Failure to Submit Declaration of Eligibility (DOE)
Decertification Grounds
Virtual Informal Hearings
Informal Hearing Participation
Counting DBE Participation After Decertification (Sec.
26.87(j))
Summary Suspension (Sec. 26.88)
Appeals to DOCR (Sec. 26.89)
Updates to Appendices F and G
49 CFR Part 23
Subpart A--General
Aligning Part 23 With Part 26 Objectives (Sec. 23.1)
Definitions (Sec. 23.3)
Affiliation
Airport Concession Disadvantaged Business Enterprise (ACDBE)
Concession
Personal Net Worth
Socially and Economically Disadvantaged Individual
Sublease
Subpart B--ACDBE Program
Direct Ownership, Goal setting, and Good Faith Efforts
Requirements (Sec. 23.25)
Fostering ACDBE Small Business Participation (Sec. 23.26)
Retaining and Reporting Information About ACDBE Program
Implementation (Sec. 23.27)
Subpart C--Certification and Eligibility of ACDBEs
Size Standards (Sec. 23.33)
Certifying Firms That Do Not Perform Work Relevant to an
Airport's Concessions (Sec. 23.39)
Subpart D--Goals, Good Faith Efforts, and Counting
Removing Consultation Requirement When No New Concession
Opportunities Exist (Sec. 23.43)
Non-car Rental Concession Goal Base (Sec. 23.47)
Counting ACDBE Participation After Decertification (Sec. 23.55)
Shortfall Analysis Submission Date (Sec. 23.57)
Subpart E--Other Provisions
Long-tErm Exclusive Agreements (Sec. 23.75)
Five-Year Term for Long-Term Agreements
Long-Term Agreements and Options
Long-Term Agreements and Holdovers
Definition of Exclusive Agreement
Local Geographic Preferences (Sec. 23.79)
Appendix A to Part 23: Uniform Report of ACDBE Participation
Technical Corrections
Obsolete Dates in Sec. 23.31
2019 Uniform Certification Application (UCA) Inconsistency
Enhanced Consistency With Part 26
Introduction
Spanning nearly 40 years, the DBE and ACDBE Programs are small
business initiatives intended to prevent discrimination, and remedy the
effects of past discrimination, in federally assisted contracting
markets. This proposed rulemaking advances the administration's goals
of advancing equity and expanding opportunities in government programs.
We invite comment from Federal Aviation Administration (FAA), Federal
Highway Administration (FHWA), and Federal Transit Administration (FTA)
funding recipients and project sponsors, firms participating or seeking
to participate in federally assisted contracts and/or in airport
concessions, the prime contracting community at large, and the general
public about our proposed changes to the DBE and ACDBE Program
regulations at 49 CFR parts 26 and 23, respectively.
The Department revised the ACDBE Program regulation in 49 CFR part
23 (part 23) in 2005 to make it parallel, in many important respects,
to the DBE regulation in 49 CFR part 26 (part 26). DOT later modified
part 23 in June 2012, amending the small business size standards and
personal net worth limit for ACDBE Program participants. In October
2014, the Department published a final rule for part 26, revising the
Uniform Certification Application (UCA) and the Uniform Report of DBE
Awards or Commitments and Payments (Uniform Report), and adding the
Personal Net Worth (PNW) Statement. The rule also strengthened the
certification-related provisions, amended provisions addressing good
faith efforts, overall goal setting, transit vehicle manufacturers, and
counting for trucking companies.
Since 2014, FAA, FHWA, FTA, and the Departmental Office of Civil
Rights (DOCR) have held outreach and listening sessions and conducted
trainings on a range of critical program topics including
certification, counting, goal setting, good faith efforts, joint
ventures, long-term exclusive (LTE) agreements at airports, PNW, gross
receipts calculation adjustments, and participatory reporting. In
Fiscal Year 2019, for example, FAA conducted six listening sessions,
each focusing on issues identified within the specific subparts of part
23 with input from airport sponsors, ACDBEs, certifying agencies,
consultants, and industry groups. In that same fiscal year, FHWA held
stakeholder listening sessions about supply transactions and counting
mechanisms for DBEs considered brokers, manufacturers, and regular
dealers.
The Department also conducted internal research and analysis of
issues raised by stakeholders before and during the COVID-19 pandemic,
including those presented by the Transportation Research Board, the
Airport Cooperative Research Program, prime contractor associations,
and small businesses submitting certification appeals to DOCR. The
Department found that many portions of the current rules seem outdated
for today's DBE and ACDBE marketplace. They might inhibit firm growth
and success, and limit recipient and sponsors' ability to effectively
monitor program compliance by all participants in a pandemic and post-
pandemic environment. The Department seeks to update several core
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provisions of the regulation to maintain optimal program performance,
improve operational cohesiveness, and provide contemporary solutions
for program deficiencies.
The DBE Program was reauthorized in the Bipartisan Infrastructure
Law (BIL) (enacted as the Infrastructure Investment and Jobs Act (Nov.
15, 2021) (Pub. L. 117-58)). The ACDBE Program is authorized and
mandated by 49 U.S.C. 47107(e), 42 U.S.C. 2000d, 49 U.S.C. 322, and
Executive Order 12138.
Part 26
Subpart A--General
1. Bipartisan Infrastructure Law (BIL) and Fixing America's Surface
Transportation Act (FAST Act) (Sec. 26.3)
The Department is amending Sec. 26.3 to add applicable Titles in
the reference to the Department's surface authorizations, the BIL
enacted on November 15, 2021, and the Fixing America's Surface
Transportation Act (FAST Act), enacted on December 4, 2015.
2. Definitions (Sec. 26.5)
We propose minor technical and spelling corrections for the
following terms: ``Alaska Native, ``Department or DOT,'' ``Indian tribe
or Native American tribe,'' ``primary industry classification,''
``recipient,'' and ``Secretary.'' We also propose expanding current
definitions and adding new definitions, as described below.
Disadvantaged Business Enterprise
We would like to clarify the term ``Disadvantaged Business
Enterprise'' to align it with the definition in the Department's
official guidance regarding the types of firms that should apply for
DBE and/or ACDBE certification.\1\ The guidance provides that
certification in the DBE Program be limited to business concerns
engaged in transportation-related industries. We propose adding that
language to the definition of Disadvantaged Business Enterprises.
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\1\ See ``USDOT Official Guidance--DBE and ACDBE Certification
for Non-Transportation Industry Businesses'' at https://www.transportation.gov/civil-rights/disadvantaged-business-enterprise/dbe-and-acdbe-certification-non-transportation.
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Personal Net Worth
The Department seeks to modify the definition of ``personal net
worth'' for simplicity and to include a reference to the applicable
provision (i.e., proposed Sec. 26.68).
Principal Place of Business
We would like to clarify the definition of ``principal place of
business'' to explain that it does not include construction trailers or
other temporary construction sites. This clarification would mirror the
Small Business Administration's (SBA) definition of ``bona fide place
of business'' in 13 CFR 124.3.
Transit Vehicle
The Department recognizes that the term ``transit vehicle'' is used
throughout part 26 yet is not defined; some recipients and TVMs have
expressed confusion over whether ``transit vehicle'' refers to only
those vehicles produced by a TVM. The Department believes that defining
this term in the regulation is important because whether a vehicle
qualifies as a ``transit vehicle'' under part 26 has a significant
impact on a recipient's goal setting and reporting efforts. For
example, pursuant to Sec. 26.45(a)(2), ``transit vehicle purchases''
are to be excluded from a recipient's goal calculation. Some recipients
have incorrectly interpreted ``transit vehicle'' to mean ``vehicles
used by the recipient for transit purposes,'' and therefore have
excluded from their goal vehicles such as minivans manufactured by
major automakers to be used for micro-transit pilots. In practice,
funds used to purchase such vehicles must be included in the
recipient's goal calculations because such manufacturers do not qualify
as TVMs and therefore do not have their own DBE programs. The
Department proposes to alleviate this confusion by adding the following
definition of ``transit vehicle'' to Sec. 26.5: a vehicle manufactured
by a TVM. Additionally, the Department proposes to make explicit that a
vehicle manufactured by a non-TVM is not considered a transit vehicle
for purposes of part 26, notwithstanding the vehicle's ultimate use.
Thus, when a recipient procures vehicles that are not manufactured by a
TVM, the FTA funds used in that procurement must be included in either
the recipient's overall triennial goal or in a project goal established
pursuant to Sec. 26.45(e)(3) and must not be treated as if the funds
were awarded to a TVM. Relatedly, any FTA funds used to procure
vehicles that are not manufactured by a TVM must be reported in the
recipient's Uniform Report pursuant to Sec. 26.11(a).
Transit Vehicle Dealership
The Department proposes to add a definition of ``transit vehicle
dealership'' to Sec. 26.5. This change, in combination with the
proposed edits to Sec. 26.49, will clarify the Department's existing
practice regarding transit vehicle dealerships. The Department proposes
to define ``transit vehicle dealership'' as follows: a business that is
primarily engaged in selling transit vehicles but that does not
manufacture vehicles itself. This addition would facilitate more
accurate tracking of FTA funds and DBE participation, thus better
serving the program.
Transit Vehicle Manufacturer (TVM)
The Department first added a definition of TVM to Sec. 26.5 on
October 2, 2014 (79 FR 59592). Through experience, we have seen that
the current definition creates confusion for manufacturers of both
public and private mass transportation vehicles. The Department's
practice is to require all manufacturers of vehicles intended for
public mass transportation to become certified TVMs to bid on FTA-
funded contracts for such vehicles, even if they also manufacture
vehicles for both public and private transportation and industrial
vehicles. However, under the current definition such a manufacturer may
question whether its ``primary business purpose is to manufacture
vehicles specifically built for public mass transportation,''
especially if the combined sales to private operators and from
commercial vehicles exceed the sales of vehicles sold to public transit
operators. The Department has found that the current definition of TVM
is ambiguous and does not clearly convey which entities qualify as
TVMs. Thus, we are proposing several changes to the TVM definition. We
wish to remove ``specifically'' and ``public'' from the definition.
This would clarify that such manufacturers are considered TVMs and are
therefore subject to all applicable DBE regulation requirements.
Further, the Department has found that the TVM definition creates
ambiguity as to which entities are subject to part 26 when a vehicle
receives post-production alterations or is retrofitted for public
transportation purposes (e.g., so-called ``cutaway'' vehicles, vans
customized for service to people with disabilities). In practice, the
Department has noted that the current definition, which includes
``producers of vehicles that receive post-production alterations or
retrofitting to be used for public transportation purposes,'' has
caused some recipients and TVMs to mistakenly believe that any
manufacturer of any motor vehicle could become a TVM based on the
actions of a third-party modifier. However, as the Department stated in
its response to comments on the 2014 final rule, we intended to include
only those businesses that perform the alterations
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or retrofitting to vehicles for public transportation purposes.
Accordingly, the Department proposes to address this confusion by
clarifying that the businesses that perform retrofitting or post-
production alterations to vehicles so that such vehicles may be used
for public transportation purposes are considered TVMs.
Further, the current TVM definition states that ``businesses that
manufacture, mass-produce, or distribute vehicles solely for personal
use and for sale ``off the lot'' are not considered transit vehicle
manufacturers.'' With this language, the Department intended to exclude
from the TVM definition entities that mass produce vehicles that are
not specifically intended to carry a large number of passengers, which
generally lack significant opportunities for recipient-requested
specifications at the manufacturing stage. The Department recognizes
that some recipients do use such vehicles for transit purposes. For
example, a transit agency may use a completely unmodified four-door
sedan to provide paratransit services for riders who do not require
specialized equipment. In practice, the Department has noted that it is
unclear whether any vehicle manufacturer makes vehicles ``solely'' for
personal use. Still, the Department intends to exclude vehicle
manufacturers that are primarily engaged in selling vehicles that are
ultimately designed to be used by individuals, notwithstanding their
actual use. Generally, public transportation does not currently
represent a major line of business for these manufacturers, and their
business structures and supply chains do not create the sort of
subcontracting opportunities that would allow for meaningful DBE
participation. The Department would like to exclude such manufacturers
and requests comments on whether such manufacturers should be treated
as TVMs when they intend to bid on FTA-assisted contracts, particularly
in light of new transit models and emerging vehicle technologies.
Additionally, the Department has found that the ``off the lot''
condition is unnecessary and results in further confusion. The
Department initially included the ``off the lot'' language to highlight
that once a vehicle reaches the lot there are no longer meaningful
opportunities for DBEs to participate in the manufacturing process,
therefore obviating the rationale for requiring a TVM to operate a DBE
Program. However, the language has caused some eligible TVMs to
question how they should treat vehicles that they manufacture and sell
to recipients from their own lots. The current definition creates some
confusion over whether a vehicle must be both for personal use and for
sale off the lot to meet the exception, or instead only needs to meet
one of those conditions.
The Department proposes to address this ambiguity by replacing
``solely'' with ``primarily,'' removing the reference to ``off the
lot'' purchases and, as discussed below and in the discussion of the
proposed changes to Sec. 26.49, add a definition and specify the
requirements for transit vehicle dealerships. The Department expects
that these revisions would clarify to vehicle manufacturers primarily
engaged in producing personal use vehicles that they are generally not
subject to part 26 and would clarify to eligible TVMs that the point of
sale is irrelevant if it is the TVM that bids on the contract from the
recipient.
Unsworn Declaration
Parts 26 and 23 contain several sections that require applicants
and DBEs to submit documentation by notarized statement, sworn
affidavit or unsworn declaration. See e.g., Sec. Sec. 23.31(c)(2),
23.39(b), 26.61(c), 26.67(a), 26.83(c)(3), (i)(3), and (j), and
26.85(c)(4). The Department recognized (and continues to recognize)
that the COVID-19 public health emergency made it difficult and unsafe
to have forms notarized in person. Thus, on April 30, 2020, we issued
temporary guidance to address this challenge.\2\ It was extended until
June 30, 2022, and permits alternative methods to meet the notary
requirements in parts 26 and 23 by:
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\2\ See ``COVID-19 Public Health Emergency: Update and
Supplemental Guidance'' at https://www.transportation.gov/sites/dot.gov/files/2020-05/DOCR%20Guidance%20April%2030%2C%202020_0.pdf.
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1. Allowing the use of online notary public services if the
recipient's state permits notarized digital signatures validated with
an electronic notary seal.
2. Allowing the use of a subscribing witness if the recipient's
state permits such use permitting the document to be signed in the
presence of a witness; the witness, not the signer, then appears before
a notary if doing so does not compromise social distancing.
3. Allowing the filing of unsworn declarations executed under
penalty of perjury rather than sworn affidavits, including affidavits
of no change.
4. Allowing unsworn declarations as an interim measure and
requiring the applicant or certified firm to follow up with a sworn
version at a to-be determined later date.
The Department is aware that the remote online notarization process
is working effectively, and states are increasingly permitting this
process in furtherance of the DBE requirements. The Department
understands that in response to the COVID-19 pandemic, some states
accelerated the implementation of laws permitting remote notarization
or temporarily waived certain provisions of law that would otherwise
impede the availability of remote notarization.
Further, the Department believes the use of unsworn declarations
executed under penalty of perjury rather than sworn affidavits has been
viewed as a positive development. There are compelling reasons to
continue allowing declarations under circumstances in the regulation
where affidavits or verifications are normally required. The Department
underscores that the use of declarations in lieu of sworn affidavits
does not diminish the legal sanctions available. Section 26.107(e)
acknowledges that the Department may refer false statement claims under
18 U.S.C. 1001 to the U.S. Department of Justice for prosecution.
Additionally, misstatements in a declaration are punishable as perjury
under 18 U.S.C. 1621. Moreover, 28 U.S.C. 1746 recognizes that a matter
required or permitted to be supported, evidenced, or proved by the
sworn affidavit, may be supported by an unsworn declaration under
penalty of perjury, with like force and effect.
The use of online notarization services and the use of declarations
in lieu of sworn affidavits has reduced burdens for small businesses
that do not have direct or immediate access to a notary public. The
Department, however, believes more benefits with even less burden can
be achieved by relying on declarations rather than sworn affidavits;
these benefits include convenience, time, and cost savings. Based on
the success of the temporary practices and the benefits to small
businesses, the Department is proposing to eliminate the requirement
for sworn affidavits and notarization and instead require the use of
unsworn declarations under penalty of perjury.
3. Reporting Requirements (Sec. 26.11 and Appendix B)
The Department proposes three changes to reporting requirements:
(1) revise the Uniform Report to include additional data fields, (2)
direct recipients to obtain a standardized set of bidders list data and
enter it into a centralized database specified by DOT, and (3) expand
data collection requirements for Moving Ahead for
[[Page 43624]]
Progress in the 21st Century (MAP-21) data reports.
The proposed revisions to reporting requirements are critical to
DOT's efforts to improve data-driven program evaluation and DBE Program
decision making going forward. The Department believes the proposed
revisions would remedy current reporting deficiencies. They would also
be a meaningful step toward a more data-driven and uniform approach to
making future program improvements. An expanded data collection would
allow DOT to look at data across several years to get a thorough
assessment of the impact of the DBE Program.
Uniform Report
The Department collects much of its DBE utilization data from the
Uniform Report. Recipients annually submit it to the OA(s) that provide
funding to them. We propose to revise the Uniform Report to include
additional data that would assist the OAs and the Department with
evaluating whether the DBE Program is making progress toward meeting
its stated objectives in Sec. 26.1. The Department proposes to revise
the Uniform Report to include the following new data fields:
Names of the DBEs with contracts that are included in the
Uniform Report.
Zip code of the firm's principal place of business.
Owner(s)' contact information.
Work category/trade firm performed in that contract.
North American Industry Classification System (NAICS) code
associated with the type of work performed.
Dollar value of the contract.
Federally assisted contract number.
Ethnic group membership.
DBEs decertified during the reporting period for excess
gross receipts beyond the relevant size standard or because the
disadvantaged owner exceeded the personal net worth cap.
Number of DBEs listed at time of commitment that were
replaced during the life of the contract.
The Department believes that access to this data would help inform
the Department about areas that may need to be addressed through future
policy decisions and regulation revisions. For example, the names of
DBEs and NAICS codes would allow the Department to identify the firms
working on federally assisted contracts to determine whether the DBE
Program is benefiting a large subsection of all DBEs and not only a
select few.
Information on firms that have ``outgrown'' the DBE Program by
exceeding the business size or PNW limits, would allow the Department
to determine whether firms later reenter the program. This data would
help the Department to evaluate progress towards the DBE Program
objective: ``[t]o assist the development of firms that can compete
successfully in the marketplace outside the DBE Program.'' Sec.
26.1(g).
The proposed data collection would make it possible for the
Department to compare information from 3 datasets: the new MAP-21
report (e.g., the total number of DBEs, delineated by NAICS code and
prequalification), bidders list (i.e., those DBEs that are actively
bidding on federally assisted contracts), and Uniform Report (i.e.,
those DBEs that are awarded contracts and subcontracts). The new
information would improve the Department's ability to evaluate program
trends and would help establish a national baseline for the status of
the DBE Program.
The Department also proposes to revise the method that recipients
use to submit the Uniform Report. Section 26.11(a) instructs recipients
to transmit the Uniform Report form in appendix B for review by the
applicable OA. Recipients currently submit the information
electronically and no longer submit printed spreadsheets. For this
reason, the Department proposes to amend the rule, instructing
recipients to submit this information in a form acceptable to the
concerned OA. We also propose to remove the Uniform Report form from
appendix B. Official forms are not required to be reproduced in the
Code of Federal Regulations (CFR), and the Uniform Report is readily
available on the DOT website.\3\ Removing this form from the CFR is an
administrative action and would not impact the ability of the public to
comment on any amendments to the information collections contained in
these forms.
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\3\ See ``New DBE Uniform Report'' at https://www.transportation.gov/civil-rights/disadvantaged-business-enterprise/new-dbe-uniform-report.
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The proposal would make a minor change to instruction 5, which
specifies the reporting period for FHWA and FTA recipients. The change
would clarify that FTA recipients that do not meet the new $670,000
threshold in Sec. 26.21, are required to report data to the OA that
covers the entire year.
The proposal would also make a technical correction to line 18 of
the report to conform the form text with the Department's official
guidance on reporting payments on ongoing contracts and add an example
to explain the number of contracts reported in item 18(C) may differ
from the number reported in item 18(A).\4\
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\4\ See ``Guidance on Completing Ongoing Payments'' at https://www.transportation.gov/sites/dot.gov/files/2020-01/docr-20180425-001part26qa.pdf.
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Finally, the Department does not currently collect data on the
number of DBEs committed in response to a contract goal (prior to
contract award) that were terminated during the life of the contract by
the prime contractor. Nor do we collect information on the reasons for
those terminations. This data would assist the Department with
identifying any trends in the number of terminations and the most
common reasons for terminations. For example, many terminations may
occur in certain parts of the country, or many terminations may occur
due to overcommitments by DBEs. With this data available, the
Department can provide focused technical assistance and training to
reduce the number of DBEs terminated and provide supportive services to
DBEs to assist in appropriate bidding practices. The Department seeks
comment about how frequent and detailed the collection should be as
well as what would be the best and most efficient method to capture
data on terminations of committed DBEs.
Bidders Lists
Section 26.11(c) instructs recipients to create and maintain a
bidders list with certain information about DBE and non-DBE contractors
and subcontractors who seek work on federally assisted contracts.
Section 26.11(c)(1) states that the purpose of the list is related to
determining availability for use in goal-setting. In the 1999 final
rule, the Department noted ``bidders lists appear to be a promising
method for accurately determining the availability of DBE and non-DBE
firms'' and that ``creating and maintaining a bidders list would give
recipients another valuable way to measure the relative availability of
ready, willing and able DBEs when setting their overall goals.'' (64 FR
5096, 5104 (Feb. 2, 1999)) The Department also noted in the 1999 final
rule that flexibility was important because of potential burdens
related to collecting data about ``subcontractors that were
unsuccessful in their attempts to obtain contracts.'' Id. At the time,
the Department did not seek to impose procedural requirements for
collecting the data, in the interest of reducing burdens. The
Department suggested several possible collection methods, including
disseminating surveys and aggregating data from multiple sources.
[[Page 43625]]
These suggestions were incorporated into Sec. 26.11(c)(3). It is not
currently known how many recipients engaged or continue to engage in
surveys and questionnaires to obtain bidders list information or how
many are using this information to set overall goals. In practice, when
setting overall goals many--if not most--recipients use DBE directories
and U.S. Census Bureau data, a method described in Sec. 26.45(c)(1) or
use data from a disparity study as described in Sec. 26.45(c)(3).
Many recipients of DBE Programs specify that bidders list
information is collected from all bidders at the time of bid
submission, and many recipients rely on electronic systems for
capturing and storing this information. Currently, all bidders list
information is obtained and maintained locally by each recipient and is
not reported to the Department or the concerned OA. As a result, this
data is disaggregated among thousands of recipients in a wide variety
of formats and may contain a variety of different data points. In a
standardized and centralized format, this data could be of great value
to the Department in evaluating the extent to which the program is
achieving the objectives of Sec. 26.1(b) and (g). A centralized
database, searchable by recipients, could also improve the viability of
the bidders list method described in Sec. 26.45(c)(2) as a means for
recipients to identify DBE availability at Step 1 of the overall goal
setting process.
The Department therefore proposes revising Sec. 26.11(c) to
require recipients to obtain and enter bidders list data into a
centralized database the Department would specify. The purpose of this
proposed change is twofold: first, the revision would build a data
source that would allow more accurate and more granular analysis of
firms actively seeking to participate in DOT-funded contracts in
relation to the DBE Program objectives of Sec. 26.1; secondly, a
searchable, centralized database with bidders list information that
includes an expanded dataset would aid recipients in evaluating DBE
availability for goal setting purposes. We invite comment on estimated
costs for developing and maintaining such a database (this is not a
request for proposals or offers, and the Department is not seeking or
accepting unsolicited proposals).
The Department also proposes to amend Sec. 26.11(c)(2) to require
recipients to obtain and report the following additional data sets:
race and gender information for the firm's majority owner; and NAICS
code applicable to each scope of work the firm sought to perform in its
bid. This proposed revision would help ensure that the bidders list
information to be collected includes at least the same elements as
those being required in the proposed change to the Uniform Report. In
conjunction with the proposed changes to the MAP-21 Report in Sec.
26.11(e) and the Uniform Report, the proposed bidders list reporting
requirement would provide the Department with data showing how many and
what types of DBE firms are certified, how many DBEs are actively
bidding as prime or subcontractors, and which of them are actually
awarded contracts or subcontracts.
To ensure uniformity of data collection for proper analysis, the
Department proposes a change to Sec. 26.11(c)(3) regarding the
collection of bidders list information to require a standard practice
of requesting the information with bids or initial proposals.
The Department anticipates minimal impact to stakeholders from
these changes as recipients already collect most (if not all) of this
information when conducting good faith efforts to obtain DBE
participation on contracts with DBE goals. Additionally, contrary to
the situation in 1999, current internet and data capture technology
makes sending out surveys and questionnaires and aggregating that data
less burdensome.
MAP-21 Data Reports
In 2014, the Department implemented a longstanding provision in the
Department's surface transportation program authorizations, adding a
new reporting requirement which we called the MAP-21 data report. Under
Sec. 26.11(e), state departments of transportation, on behalf of their
UCP members, submit UCP directory information yearly to the
Departmental Office of Civil Rights reporting the percentage and
location in the state of DBEs controlled by women; socially and
economically disadvantaged individuals (other than women); and
individuals who are women and are otherwise socially and economically
disadvantaged individuals. The Department usually sends a request for
this information each Fall with a January due date and we have
interpreted the ``location in the state'' to mean certified in a
recipient's home state or certified out-of-state.
The MAP-21 report information is distinct from what is included in
the Uniform Report that recipients and sponsors annually submit to the
relevant OAs. It provides a yearly snapshot of the number and
percentage of DBEs in that state. However, the MAP-21 report is limited
in scope and utility largely because the Department is unable to break
out the number of firms certified, denied, or decertified by ethnicity.
This limitation prevents any comparison to section C of the Uniform
Report that could show volume of participation in relation to firm
ownership data contained in state directories.
We are mindful that similar concerns were raised in a 2001
Government Accountability Office (GAO) report (``Disadvantaged Business
Enterprise: Critical Information is Needed to Understand Program
Impact,'' GAO-01-586, pp. 18-19 (Jun. 1, 2001)), which criticized
elements of the Department's data collection as not truly reflective of
the environment that exists for the small business community of DBEs
and DBE applicants. The GAO observed, for example, that a lack of key
information prevents anyone from gaining a clear understanding of the
firms that participate in the DBE Program and how these firms compare
with the rest of the transportation contracting community.
In response to the GAO report and subsequent observations, the
Department instituted many changes to the Uniform Report, mandated
improvements to state directories, and instituted the current MAP-21
collection. The existing MAP-21 data collected shows the number of DBE
certifications steadily increasing (approximately 3.5 percent each
year). More can be done now, however, to inform our understanding of
the DBE Program's impact and depth of coverage.
The Department believes the proposed revision remedies the current
report deficiencies and is a meaningful first step toward a data-driven
and uniform approach to future program improvements and coordination
among program actors. The proposed revision does not replace existing
data collection requirements under the BIL but expands the collection
of data to cover the number of firms denied certification, summarily
suspended, or decertified by ethnicity and gender. This expanded data
collection would allow the Department to look at data across several
years to develop a thorough assessment of the impact of the DBE
certification process.
We invite comment on expanding this collection to cover: (1) the
number and percentage of in-state and out-of-state DBE certifications
for socially and economically disadvantaged owners by gender and
ethnicity (Black American, Asian-Pacific American, Native American,
Hispanic American, Subcontinent-Asian American, and non-minority); (2)
the number of DBE
[[Page 43626]]
certification applications received from in-state and out-of-state
firms and the number found eligible and ineligible; (3) the number of
in-state and out-of-state firms decertified and summarily suspended;
(4) the number of in-state and out-of-state applications received for
an individualized determination of social and economic disadvantage
status; (5) the number of in-state and out-of-state firms certified
whose owner(s) made an individualized showing of social and economic
disadvantaged status; and (6) the number of DBEs pre-qualified in their
work type by the recipient.
The Department proposes to create a similar data reporting
requirement for the ACDBE Program (excluding prequalification data).
The proposed rule would add a new paragraph to Sec. 23.27 that would
require state departments of transportation, on behalf of their UCP
members, to include ACDBE data in the yearly report to DOCR. This data
collection would provide the Department a yearly snapshot of the number
and percentage of ACDBEs. The Department anticipates that expanding the
collection to include information on ACDBEs would pose minimal burden
on recipients because UCPs are already required to report this data for
DBEs. It is highly useful in our view for data on ACDBEs to be reported
in order for the Department to gain a deeper understanding of the firms
that participate in that program and how these firms compare with the
rest of the airport concession community. It is important for the
Department to be able to do this in order to enhance the Department's
ability to conduct more detailed trend analyses of changes in ACDBE
participation levels and assess the program's overall success.
Subpart B--Administrative Requirements for DBE Programs for Federally
Assisted Contracting
4. Threshold Program Requirement for FTA Recipients (Sec. 26.21)
Currently, the rule requires only those FAA and FTA recipients that
will award prime contracts with cumulative total value exceeding
$250,000 in a fiscal year to have a DBE Program. The $250,000 value for
the threshold was first introduced in a 1983 final rule, but it
originally meant that FTA and FAA recipients who received over $250,000
in a fiscal year were required to have a DBE Program--in 2000, the
$250,000 threshold was updated to apply to contract awards.
There is little documentation as to the rationale for the threshold
when it was originally introduced. However, program experience shows
that recipients with lower dollar amounts of total prime contract
awards have low levels of DBE participation. Those lower contract
amounts necessarily imply low amounts of DBE participation simply
because the pool of available contract awards is small. In addition,
small prime contract awards have fewer opportunities for unbundling to
allow for subcontracting opportunities. It is only with subcontracting
opportunities that race-conscious awards can be used. Further,
subcontracts of small prime contracts are of low total value and may
not attract much interest from DBEs.
The proposed rule makes one adjustment to the rule based on
observed changes in the consumer price index (CPI) from 1983 to 2020.
The change sets a new threshold level for FTA recipients that would
trigger full adherence to those rule requirements FTA deems essential
for all recipients. This change amends the rule so that FTA recipients
receiving planning, capital and/or operating assistance less than
$670,000 must maintain a program locally that includes the requirements
of Sec. 26.11, reporting and record keeping; Sec. 26.13, contract
assurances; Sec. 26.23, a policy statement; Sec. 26.39, fostering
small business participation; and Sec. 26.49, concerning transit
vehicle manufacturers. FTA recipients receiving planning, capital and/
or operating assistance that will award prime contracts (excluding
transit vehicle purchases) the cumulative total value of which exceeds
$670,000 in FTA funds in a Federal fiscal year must have a DBE Program
meeting all the requirements of the rule. The Department will adjust
the threshold for inflation in its discretion as the need arises.
The Department conducted an economic analysis of this change,
identifying how many FTA recipients would no longer need a full program
(approximately 80), and the cost savings to those recipients and the
Department. FTA also conducted a public outreach session on October 14,
2021 and received general comments on changes to the DBE Program,
including increasing the threshold and amending the reporting
requirements for recipients of that OA. The Department found that
raising the threshold is expected to provide administrative cost
savings to FTA recipients with reduced reporting requirements and only
minor levels of reductions in total program-level DBE participation.
The FTA Office of Civil Rights will also experience reduced workload
related to monitoring, oversight, and training of these smaller
recipients. Further, the FTA Office of Civil Rights staff will be able
to direct their resources to recipients in other areas of need. That
redeployment of FTA staff resources may produce more DBE participation
from other recipients that may offset any losses in DBE participation
from recipients who are below the revised threshold.
We anticipate that recipients would experience cost savings
resulting from lower administrative burdens if the threshold were
raised. The exact impacts of this change would vary from year to year,
given that recipients have varying amounts of Federal contract dollars
every year, but an average impact can be estimated. The categories of
cost savings included in the analysis are:
Program development and goal setting: These are the
administrative costs associated with the development of a recipient's
DBE Program and establishing the DBE Program goals every three years.
This work involves some amount of effort by recipients. In some cases,
recipients may contract this work out to a consultant.
Monitoring, reporting, and outreach: These are the
administrative costs incurred by the recipient related to administering
their DBE Program every year. The recipient must monitor their
contracts to ensure the work committed to DBEs is actually performed by
DBEs, and verify payments made to DBEs. The recipient performs this
work by conducting contract reviews and work site visits. Entities must
report on their DBE participation twice a year to FTA. They must also
conduct regular outreach to DBEs in their community.
Conferences and trainings: Recipients may send their
employees to conferences or trainings related to the DBE Program. The
cost to the recipient is incurred through travel expenses and the
opportunity cost of the employee's time. Some trainings provided by
private companies and organizations include registration fees, but DOT
offers training free of charge. This analysis assumes no registration
fees for the conferences and trainings.
DOT technical assistance: FTA provides technical
assistance to transit agencies for their DBE Programs. This cost is
measured by the typical number of hours spent by FTA staff providing
such assistance per recipient.
The Department conducted a Regulatory Impact Analysis (RIA)
(available in the docket) of this proposal in connection with this
rulemaking; and believes that the revisions proposed reduces the
administrative burden of the DBE Program on recipients receiving less
funding and would have a minimal impact on race-neutral awards. We are
proposing to retain annual reporting
[[Page 43627]]
requirements, nondiscrimination contract assurances, strategies for
expanding contracts with small businesses, and transit vehicle
manufacturing requirements.
5. Unified Certification Program (UCP) DBE/ACDBE Directories
(Sec. Sec. 26.31 and 26.81(g))
Under the current DBE and ACDBE rules, each UCP must maintain a
directory of all DBE and ACDBE firms, in the state in which the UCP is
located. The directories must include each firm's address, phone
number, and types of work the firm has been certified to perform.\5\
The directories must be publicly available both electronically and in
print. UCPs are to make additions, deletions, and other changes as soon
as they learn of them.
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\5\ The UCP directory provisions in Sec. Sec. 26.31 and
26.81(g) are applicable to the ACDBE program per Sec. 23.23(a).
---------------------------------------------------------------------------
The Department enacted this requirement in 1999, noting in its
final rule that commenters discussed whether the directories should
include information concerning the qualifications of the firm to do
various sorts of work. For example, has the firm been pre-qualified by
the recipient or another state agency? Can it do creditable work? What
kinds of work does the firm prefer to do? Some commenters also
requested that the directory should list the geographical areas in
which the firm is willing to work.
The primary purpose of the directories is to show the results of
the certification process, with sufficient identifying information for
prime contractors to contact the DBEs or ACDBEs for those areas of work
or supply they could perform or provide on a potential project or
concession opportunity. Information about firms' qualifications,
geographical preferences for work, performance track record, capital,
etc., were not required to be part of the directories because, as
stated in the 1999 preamble, this would ``clutter up the directory and
dilute its focus on certification.'' The Department expected that a
prime contractor or prime concessionaire would contact a DBE or ACDBE
to discuss its qualifications before hiring it to perform work as a
subcontractor, sub-concessionaire, or supplier on a federally assisted
contract or concession opportunity. While the Department continues to
believe that the directories serve this purpose, the current regulation
was written before the widespread adoption of the internet and the
availability of online resources.
The proposed rule would direct UCPs to expand their directories of
DBE and ACDBE firms, allowing them to display other essential
information about DBEs and ACDBEs that attests to the firms' ability,
availability, and capacity to perform work. While the UCP would in no
way be required to vouch for the quality of the DBE or ACDBE's work, it
could expand information regarding a DBE or ACDBE beyond merely its
contact information and NAICS code(s). Under the proposal, all UCPs
would amend their directories so that firms would have a standard set
of options for information they can choose to make public, such as a
capability statement, state licenses held, pre-qualifications,
personnel and firm qualifications, bonding coverage, recently completed
project(s), equipment capability, and a link to the firm's website.
Under the proposed rule, UCPs would be required to incorporate these
information fields as additional criteria by which the public can
search and filter the UCP directory. We invite comments about the
specific categories of information that prime contractors or prime
concessionaires and DBEs or ACDBEs would find useful to have publicly
available. We anticipate that most DBEs and ACDBEs will avail
themselves of this opportunity, recognizing this is a cost-effective
and timesaving alternative to market their qualifications while
providing a one-stop baseline tool for prime contractors and prime
concessionaires as they seek out potential subcontractors and sub-
concessionaires. Further, the Department also proposes eliminating the
paper requirement for the directory in Sec. 26.81; we see no continued
utility for this requirement as all directories are available online.
We invite comments on whether prime contractors and prime
concessionaires will see time-and-resource savings with such a change
to the directory. There is a clear benefit to prime contractors and
prime concessionaires that seek out information regarding a firm's
capabilities, experience, and past performance. Given the growing size
of DBE/ACDBE directories each year, this may expedite contractor or
concessionaire selection and overall bid or solicitation response
times. Additional time savings would be realized in ``contract or
concession specific goal'' situations, wherein an award to a prime
contractor or prime concessionaire cannot be made unless that prime
contractor or prime concessionaire commits to contracting to a
sufficient number of DBEs or ACDBEs to meet a contract or concession
specific goal or demonstrates good faith efforts if it falls short of
the goal through contracting commitments. Also, when a prime contractor
complies with the regulatory requirements to terminate and replace a
DBE or ACDBE to which it committed at the time of award, it is
typically required to make good faith efforts to replace that DBE or
ACDBE. A more informative directory could assist prime contractors or
prime concessionaires with the replacement process as well and could be
used as one element in the good faith efforts analysis, a point
referenced by prime contracting organizations in response to the
Department's October 2017 request for public input on existing
regulatory and agency actions. (82 FR 45750 (Oct. 2, 2017))
We are aware that some UCPs have already expanded the search
capabilities of their current directories of DBE and ACDBE firms. We
anticipate UCPs being able to implement the requirement by January 1,
2024, or within 180 days of the final rule, but we invite comment on
how long UCPs expect the proposed enhancements may take, if
enhancements are feasible given existing resources, and whether the
benefits we describe above outweigh any upfront costs. We invite
comment on whether the directory enhancements should consist of drop-
down menus that draw from available data sources, open-ended fields
with a word limitation (e.g., 250 words more or less), or some
combination thereof. We invite comment on which of these approaches
would be most conducive to useful search functionality, feasibility,
and resource efficiency. If the proposed change takes effect, the
Department anticipates having a phase-in period for the additional
requirements described and will not make compliance mandatory until the
certification members of UCPs can build the enhancements and make them
operational.
6. Monitoring Requirements (Sec. 26.37)
Since 1999, Sec. 26.37 has set forth a recipient's responsibility
for monitoring the performance of other program participants. This
regulation in Subpart B, however, focuses on a recipient's
responsibility to include in its DBE Program a monitoring and
enforcement mechanism to verify that work committed to a DBE at
contract award is actually performed by that DBE. In addition, the
recipient must keep a running tally of actual DBE payments to ensure
that DBE participation is credited toward overall and contract
[[Page 43628]]
goals only when payments are actually made to DBEs.
The Department has learned that certain language in Sec. 26.55(h)
has caused confusion among recipients. The heading of this section is
misleading; it suggests that the section is limited to monitoring the
performance of other program participants, when it also sets forth
significant oversight requirements for recipients, including the
requirement to keep a ``running tally'' of payments toward the
achievement of the recipient's overall goal as well as each contract
with a DBE goal. Recipients also questioned how the requirement to
certify in writing each DBE was actually performing the work for which
it was committed intersected with Sec. 26.55, which requires
recipients to count DBE participation toward its annual goal and a
contract goal only if the DBE is performing a commercially useful
function (CUF).
The Department also learned that the requirement for the recipient
to keep a ``running tally'' was often overlooked or misconstrued.
Finally, the Department learned that many recipients were confused by
use of the word ``certification,'' used in this section as it pertains
to the requirement that there must be written, signed confirmation that
each DBE was monitored. The word ``certification'' in the DBE Program
more often than not refers to the application process a firm undertakes
to achieve DBE status or ``certification.''
We seek to clarify Sec. 26.37 by changing the title from ``What
are a recipient's responsibilities for monitoring the performance of
other program participants?'' to ``What are a recipient's
responsibilities for monitoring?'' We believe that this would better
describe the substantive content of the regulatory requirements.
The Department also wants to make clear that even DBEs used race-
neutrally must be monitored to count toward a recipient's overall goal.
We have learned that some recipients do not monitor DBE participation
unless there is a race-conscious contract goal.
We also seek to combine the requirements under this section with
the commercially useful function (CUF) requirements in Sec. 26.55. In
order for a recipient to verify that a DBE is performing the work it
was committed to perform, the recipient would be required to also
verify that the DBE is performing in the manner in which it can be
counted toward the recipient's overall goal and a contract goal. This
would clarify that while a CUF review can be an additional step in
monitoring, a CUF review is necessary for every DBE that performs for
credit toward a recipient's overall goal and a contract goal. A CUF
review could be combined with the Sec. 26.37 requirement for the
written verification or performed in a subsequent monitoring. Our
official guidance on this section also makes this clear.\6\
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\6\ See ``Official Questions and Answers (Q&A's) Disadvantaged
Business Enterprise Program Regulation (49 CFR 26)--Commercially
Useful Function'' at https://www.transportation.gov/sites/dot.gov/files/2020-01/docr-20180425-001part26qa.pdf.
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The Department seeks to emphasize the importance of the ``running
tally'' requirement. Since 1999, the Department has made it clear that
a running tally applies to a recipient's overall goal and contract
goals. Therefore, we want to underscore in this revision that each
recipient would be required to keep a running tally, or ongoing
accounting, of its attainment of its overall DBE goal (including race-
neutral DBE participation) and make adjustments, if necessary, as set
forth in Sec. 26.51(d).
The running tally requirement would also require recipients to keep
an accounting of each contractor's progress in attaining a contract
goal through progressive payments to the committed DBE. This would be
necessary to allow recipients to intervene in real time when and/or if
they observe a prime contractor fall short of its contract goal.
Keeping an accounting of a prime contractor's progress toward meeting a
contract goal would allow recipients to observe when a prime contractor
is not on target toward achieving the goal. This information would
allow the recipient to question whether there has been unreported
termination of a DBE pursuant to a change order or otherwise; or
whether the DBE has withdrawn, and whether the contractor should be
using good faith efforts to find additional DBE credit, etc. If a
recipient were to wait until the end of the contract to match
commitments to actual payments, it would be too late to rectify any
shortfalls during contract performance. This is also why the Department
is also removing the sentence that indicates the monitoring requirement
in this section could be performed during contract close-out reviews.
The elimination of this sentence also conforms to the Department's
official guidance on this issue.\7\
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\7\ See ``Recipient Responsibilities for Oversight and
Monitoring of DBE Participation'' at https://www.transportation.gov/sites/dot.gov/files/docs/mission/civil-rights/disadvantaged-business-enterprise/318146/oversight-and-monitoring-dbe-participation.pdf.
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The Department proposes replacing the word ``certification'' with
``verification'' to avoid confusion with other parts of the regulation.
We also recommend eliminating the last sentence in this section
regarding DBE reports because it is misplaced.
Subpart C--Goals, Good Faith Efforts, and Counting
7. Prompt Payment and Retainage (Sec. 26.29)
In the 1999 preamble to the final rule, we stated that prompt
payment mechanisms are an important race-neutral mechanism that can
benefit DBEs and other small businesses. Without the protections
embedded in the rule, we remain concerned that DBE subcontractors can
be significantly--and, to the extent that they tend to be smaller than
non-DBEs, disproportionately--affected by late payments from prime
contractors. As we said in 1999, lack of prompt payment constitutes a
very real barrier to the ability of DBEs to compete in the marketplace;
since that time, the Department has required recipients to take
reasonable steps to address this barrier.
In the 2021 BIL (section 1101(e)(8)) Congress repeated mandates it
made in prior surface authorizations that the Department should take
additional steps to ensure that recipients comply with Sec. 26.29.
Similarly, the Department's Office of Inspector General recommended the
Department improve oversight of this issue.\8\
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\8\ See ``New Disadvantaged Business Enterprise Firms Face
Additional Barriers to Obtaining Work at the Nation's Largest
Airports,'' USDOT Office of Inspector General, Report ZA-2016-002
(Nov. 3, 2015) at https://www.oig.dot.gov/sites/default/files/New%20DBE%20Participation%20Is%20Decreasing%20at%20the%20Nation%E2%80%99%20Largest%20Ariports%2C%20and%20Certification%20Barriers%20Exist.pdf.
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In response, the OAs recommended that guidance on this section was
necessary to underscore the Department's intent. Thus, on April 15,
2016, we published official guidance \9\ consisting of 12 questions and
answers regarding Sec. 26.29. With respect to prompt payment and
return of retainage monitoring, the Department specified the need for
recipients to create a mechanism to affirmatively monitor a
contractor's compliance with subcontractor prompt payment and return of
retainage requirements, and that a recipient's reliance on complaints
or notifications from subcontractors is
[[Page 43629]]
insufficient. The guidance provides, in relevant part, as follows:
---------------------------------------------------------------------------
\9\ See ``USDOT Official Questions and Answers (Q&A's)
Disadvantaged Business Enterprise Program Regulation (49 CFR 26)''
at https://www.transportation.gov/sites/dot.gov/files/docs/Official%20Questions%20and%20Answers%204-15-16.pdf.
Relying only on complaints or notifications from subcontractors
about a contractor's failure to comply with prompt payment and
retainage requirements is not a sufficient mechanism to enforce the
requirements of section 26.29 . . .
While this section does not mandate that a recipient employ a
specific type of mechanism for monitoring prompt payment, recipients
are expected to take affirmative steps to monitor and enforce prompt
payment and retainage requirements.
The guidance continues, providing examples of affirmative
monitoring methods.
In 2020, FHWA performed a national review on recipient compliance
with prompt payment and return of retainage compliance. Among other
things, the review found most recipients are not affirmatively
monitoring subcontractor payments on FHWA-assisted projects. Many
recipients wait for subcontractor payment complaints or other
notification of non-payment before taking any action.
The Department believes including in this regulatory section a
specific reference to the need for affirmative monitoring of
subcontractor prompt payment and return of retainage by the recipient
will reinforce the Department's position on this matter. This revision
also makes clear that the requirements within this rule are intended to
flow down to all lower tier subcontractors through an addition of a
paragraph (f) to Sec. 26.29.
8. Transit Vehicle Manufacturers (TVMs) (Sec. 26.49)
Section Heading
The current heading of Sec. 26.49 is ``How are overall goals
established for transit vehicle manufacturers?'' The heading of Sec.
26.49 has remained constant since its introduction in 1999, but it no
longer accurately describes the section's contents. The Department
proposes to revise the heading to ``What are the requirements for TVMs
and for awarding DOT-assisted contracts to TVMs?'' This heading would
describe the contents of the section more accurately, which includes
requirements for TVMs that go beyond goal setting and pre- and post-
award requirements for recipients.
Terminology and Abbreviations
Section 26.49 in the current rule uses language and terms
inconsistently and does not match the language and terms used by the
Department in related documents and used by the industry.
The Department proposes to abbreviate ``transit vehicle
manufacturer'' to ``TVM'' throughout Sec. 26.49 so that the term's
usage is uniform throughout part 26. The Department proposes to revise
Sec. 26.49(b) to use ``you'' and its forms consistently when referring
to a party subject to this regulatory provision.
The Department also proposes to change references to ``certified''
TVMs to ``eligible'' TVMs in Sec. 26.49(a)(1) and (2) to reduce any
confusion as to whether a TVM must first receive a certification from
FTA prior to becoming eligible to bid on FTA-assisted transit vehicle
procurements. While FTA does evaluate whether a vehicle manufacturer
meets the qualifications for a TVM and whether it is eligible to bid,
such entities do not receive any sort of formal certification, and
their eligibility is always conditioned on whether they are maintaining
a DBE Program in compliance with part 26 and in good faith. We expect
that this change will reduce the likelihood of a recipient mistakenly
determining that a TVM is ineligible to bid because the TVM is unable
to produce a certification from FTA.
Post-Award Reporting Requirements
Section 26.49(a) details the pre- and post-award requirements for
FTA recipients engaged in procuring transit vehicles with FTA
assistance.
Section 26.49(a)(4) requires FTA recipients ``to submit within 30
days of making an award, the name of the successful bidder, and the
total dollar value of the contract in the manner prescribed in the
grant agreement.'' Since 2016, the Department has maintained an
internet-based reporting form for recipients to fulfill this
requirement. The Department has found that as currently written, Sec.
26.49(a)(4) results in inconsistent and inaccurate reporting. These
issues are especially prevalent when recipients report contracts with
options or schedules.
Recipients occasionally do not know which events trigger the 30-day
requirement and from which day they must begin counting. Some of the
confusion comes from the use of the word ``award.'' Generally, FTA
defines ``award'' as the Federal assistance FTA has provided to the
recipient to carry out the scope of work that FTA has approved.
However, Sec. 26.49(a)(4) uses ``award'' to refer to the procurement
mechanism used by a recipient to procure a transit vehicle from a TVM.
Additionally, some recipients are unsure when to report when they
exercise an option or receive a delivery from a schedule. One of the
most common errors the Department observes related to this requirement
is a recipient reporting the date the initial procurement occurred
instead of the date the option was exercised. To alleviate this
confusion, the Department proposes to replace ``making an award'' with
``becoming contractually required to procure a transit vehicle'' in
Sec. 26.49(a)(4), and to revise that paragraph for clarity. This
clarifies that a recipient needs to reference its contract with the TVM
to determine the trigger for the reporting requirements.
Recipients have also expressed confusion about which information is
required to be reported. Recipients sometimes do not know what to
include and exclude from the report. Section 26.49(a)(4) states that
recipients must report the ``total dollar value of the contract in the
manner prescribed in the grant agreement.'' Since the Uniform Report
specifies that recipients are only to report the Federal share, some
recipients misinterpret the language in Sec. 26.49(a)(4) to mean both
the Federal and non-Federal share.
Additionally, when reporting exercised options or scheduled
deliveries, some recipients report the value of the entire contract. In
practice, they must only report the value of the vehicles received from
the option or schedule. For example, if a recipient contracts with a
TVM to purchase 10 buses at a cost of $100,000 per bus, with the option
to purchase up to 10 additional buses at the same price per bus over
the next two years, and the Federal share is 50 percent; the recipient
is to report only $500,000 for the initial contract, and only $50,000
per bus if and only if the recipient exercises the option to procure
additional buses.
To alleviate this misunderstanding, the Department proposes to
specify in Sec. 26.49(a)(4) that the recipient is to report ``the
Federal share of the contractual commitment at that time.'' This
clarifies that only the Federal share is to be reported and only the
funds actually required to be paid at that time.
These proposals, if adopted, would result in the Department
collecting the information most useful to it, including in situations
in which recipients use options and schedules. The Department clarifies
that when a recipient uses a schedule in a contract and becomes
contractually obligated to pay for the vehicles that will be delivered
in the future as of the initial contract signing, the recipient must
report once and only once. This is because the entirety of the funds
will be expended by the recipient and received by the TVM in a single
reporting period.
[[Page 43630]]
Awards to Transit Vehicle Dealerships
As currently written, part 26 does not specifically address
situations in which an FTA recipient procures transit vehicles through
a dealership. Reports received by FTA show that the transit vehicle
market includes both direct-from-manufacturer procurements and
procurements from dealerships. Previously, the rationale for requiring
TVMs to maintain a DBE Program was that TVMs control their
subcontracting opportunities and thus are better positioned than
recipients to promote a level playing field for DBEs in the transit
vehicle manufacturing market. Transit vehicle dealerships, however, are
not required to maintain a DBE Program. Consequently, a transit vehicle
dealership is generally not eligible to bid on FTA-assisted transit
vehicle contracts. Recipients may procure vehicles from these entities
but must treat such procurements as any other procurement when
calculating their DBE goal. Thus, recipients may only procure transit
vehicles from transit vehicle dealerships by establishing project-
specific goals pursuant to Sec. 26.49(f) and must report using the
Uniform Report for that project. Further, many FTA recipients currently
incorrectly report contracts with dealerships as if they were contracts
with TVMs, complicating FTA's oversight efforts and resulting in
inaccurate data.
The Department proposes adding new paragraph (a)(5) to Sec. 26.49
to expressly state that a contract with a transit vehicle dealership
does not qualify as a contract with a TVM, even if a TVM manufactured
the vehicles procured by the recipient from the dealership. Further, as
described in the discussion of Sec. 26.5, the Department proposes
defining ``transit vehicle dealership'' and ``transit vehicle'' to
clarify which procurements qualify as transit vehicle procurements. The
Department expects that clarifying this aspect of the DBE Program will
result in more accurate DBE goals, more accurate reporting, and
generally greater compliance.
TVM Goal Setting, Submission, and Review
As currently written, Sec. 26.49(b) states that development,
submission, and approval of goals is generally the same for TVMs as it
is for recipients. Recipients and TVMs have expressed confusion
regarding how frequently TVMs must submit their goal, what period their
goal should cover, and whether FTA approval is required prior to the
TVM becoming eligible to bid. The Department proposes adding language
to expressly state that TVMs' goals are set and submitted annually.
Further, the Department proposes eliminating the language related to
FTA's approval to harmonize the requirements for TVMs with the
requirements for recipients.
The proposed removal of the ``approval'' language is not intended
to have any substantive effect on the conditions necessary for a TVM to
be eligible to bid on FTA-assisted transit vehicle procurements, nor
any effect on the process by which FTA reviews a TVM's goal and goal
methodology. Even though Sec. 26.49(a)(1) expressly states that TVMs
that have submitted goals that have yet to be approved are eligible to
bid, recipients and TVMs often express confusion over whether prior
approval is required. Further, Sec. 26.45(f)(4), part of the section
TVMs are to reference when setting their goals, expressly states that
recipients ``are not required to obtain prior Operating Administration
concurrence with [their] overall goal[s].'' Additionally, Sec.
26.49(b)(2) expressly states that the requirements for goal approval
apply to TVMs in the same manner that they apply to recipients. Thus,
by removing ``approval'' from Sec. 26.49(b), the Department expects
that recipients and TVMs will better understand that FTA need not
approve a TVM's goal prior to the TVM becoming eligible to bid without
affecting the eligibility processes and conditions.
TVM Uniform Report
As currently written, Sec. 26.49(c) requires ``transit vehicle
manufacturers awarded'' to submit the Uniform Report in the same manner
as recipients to remain eligible to bid on FTA-assisted transit vehicle
procurements. Some TVMs have expressed confusion over the word
``awarded'' and that confusion has resulted in eligible TVMs failing to
report properly. These TVMs misinterpret the current text to mean that
only TVMs that have actually been awarded contracts by FTA need to
submit the Uniform Report. However, TVMs that are eligible to bid on
FTA-assisted transit vehicle procurements in a given fiscal year must
submit the Uniform Reports for that fiscal year, even if they were not
awarded any contracts with FTA assistance. Reporting zero contracts is
important for the Department's oversight efforts because it allows the
Department to cross-reference the data provided by TVMs with data
provided by recipients.
The Department proposes eliminating the word ``awarded'' to clarify
that an eligible TVM must fulfill the relevant reporting requirements
for the years in which it is eligible. This revision should not be
construed to mean that an entity that otherwise qualifies as a TVM is
required to submit any reports to FTA or the Department if it is not
eligible to bid on FTA-assisted transit vehicle procurements.
9. Good Faith Efforts Procedures for Contracts With DBE Goals (Sec.
26.53)
Considerations for administering the DBE Program in the context of
a design-build contract were introduced by the Department in 1999, in
Sec. 26.53(e). In this section of the regulation, pertaining to
contract goal attainment, the Department recognized that at the time a
design-build contract is awarded, the project is minimally designed,
and future subcontracting opportunities are unknown. In light of this,
the Department acknowledged that specific DBEs that will subsequently
be involved in the contract cannot reasonably be identified as required
under paragraph (b)(2) of this section.
DBE Performance Plan (DPP)
To address this issue, in 2014, DOT revised Sec. 26.53(b)(3) to
provide that bidders in negotiated procurements, such as design-build
procurements, may make a commitment to meet the DBE goal at the time of
their response to initial proposals but provide the information
required by paragraph (b)(2) of this section before the recipient makes
its final contractor selection. However, challenges to identifying
specific DBEs when the project is minimally designed, and
subcontracting opportunities are unknown, remain at the time the
recipient makes its final selection and even after contract award.
Further, in the event the design builder is unable to meet the goal
through committing to enough DBEs before the recipient makes its final
selection, the design builder must submit documented good faith
efforts. In practice, the Department has noted that by requiring the
contractor to identify specific DBEs and document good faith efforts at
this early stage of a design-build project, goal achievement is often
attained through minimal DBE subcontracting commitments and large
submissions of documented good faith efforts. Thus, as currently
written, Sec. 26.53(b)(3)(ii) may unnecessarily limit the
participation of DBEs in a design-build project that likely includes an
abundance of subcontracting opportunities.
Since 1999, design-build contracts have become much more prevalent,
and best practices for administering the DBE Program in the context of
this contract delivery method have been identified. The Department
proposes to revise
[[Page 43631]]
Sec. 26.53(e), to align with current best practices which allow for
continued DBE participation as the contract proceeds and definitive
subcontracting opportunities arise.
The Department proposes to revise Sec. 26.53(e), to direct
recipients requesting proposals for a design-build project to require a
design builder to submit a DBE Performance Plan (DPP) with its
proposal. The DPP replaces the need to commit to specific DBEs or
submit good faith efforts at the time of the proposal or prior to final
selection. To be considered responsive, a contractor's DPP must include
a commitment to meet the goal by providing details of the types of work
and projected dollar amounts the contractor will solicit DBEs to
perform. The DPP must also include an estimated time frame in which
actual DBE subcontracts would be executed. Once the contract is
awarded, the recipient must provide ongoing monitoring and oversight of
the contractor to evaluate its good faith efforts to comply with the
DPP and schedule. The parties may agree to revise the DPP throughout
the life of the project, e.g., replacing the type of work items the
contractor will solicit DBEs to perform and/or adjusting the proposed
schedule as long as the contractor continues to use good faith efforts
to meet the goal. The Department believes this method will result in
greater opportunities for DBEs to participate in design-build
contracts.
In addition, DOT proposes clarifying Sec. 26.53(b)(3)(ii) to
address negotiated procurements outside of the context of design-build
procurements.
Terminations
Since 1999, Sec. 26.53(f)(1) has prohibited a prime contractor
from terminating a DBE used in response to a contract goal without the
recipient's prior written consent. The Department implemented
protections in these situations to prevent abuse, i.e., that absent a
recipient's consent, a prime contractor may not terminate a DBE
committed on the contract for convenience and then perform the work
with its own forces. Also, since 1999, Sec. 26.53(g) has required a
prime contractor that has terminated a DBE to make good faith efforts
to substitute another DBE to perform the same amount of work as the DBE
that was terminated. In 2005, these termination and substitution
provisions in Sec. 26.53(f) and (g) were made applicable by Sec.
23.25(e)(1)(iv) to concession specific goals. The Department expanded
Sec. 26.53(f)(4) and (5) in 2011 to require recipients to include a
provision in its prime contract requiring the prime contractor or prime
concessionaire to give written notice to the DBE or ACDBE subcontractor
or sub-concessionaire (within five days) of its intention to request
termination and/or substitution, and the reasons for the request. The
prime contractor or prime concessionaire must also give the DBE or
ACDBE five days to respond to the prime contractor's or prime
concessionaire's notice and advise the recipient of any reasons the
request should not be approved.
The 2014 revisions to Sec. 26.53(g) expanded the good faith
efforts requirements a prime contractor or prime concessionaire must
follow to replace the terminated DBE or ACDBE. After making this
change, the Department has learned that because the section above
combines the terms ``terminate and/or substitute,'' some recipients
permit a prime contractor or prime concessionaire that wishes to
terminate a DBE or ACDBE in response to a contract or concession
specific goal to seek written concurrence only for a DBE or ACDBE
substitution. This action often omits the procedures a prime contractor
or prime concessionaire is required to follow prior to terminating a
firm. The required actions a prime contractor or prime concessionaire
must take prior to terminating a firm provide the DBE or ACDBE with an
opportunity to respond in writing to the recipient, indicating the
reasons why it objects to the proposed termination. Requiring a prime
contractor or prime concessionaire only to seek written concurrence for
a proposed substitution deprives the DBE or ACDBE from these due
process protections.
To avoid this unintended result, the Department proposes a minor
revision to this section to eliminate the pairing of ``termination''
with ``substitution'' to clarify that proposed DBE and ACDBE
terminations require the prime contractor or prime concessionaire to
follow specific actions and provide a DBE or ACDBE an opportunity to
respond before a recipient may provide written concurrence or denial.
Under this proposed revision, the prime contractor or prime
concessionaire would be permitted to propose a substitution only after
a recipient's written concurrence with the proposed termination is
received.
The revisions also make clear that a prime contractor's or prime
concessionaire's desire to eliminate a portion of the work committed to
a DBE or ACDBE as a condition of award would also constitute a
``termination'' in which the prime contractor or prime concessionaire
and recipient must follow the above-referenced procedures.
10. DBE Supplier Credit (Sec. 26.55(e))
The Department first adopted regulatory provisions related to
``regular dealer'' suppliers in the 1987 DBE final rule (52 FR 39225
(Oct. 21, 1987)) (revising then-existing Sec. 23.47(e) to Sec.
23.47(e) and (f)). This regulation has gone through several revisions
since then, most recently in 2014 (79 FR 59566 (Oct. 2, 2014)), and now
appears as Sec. 26.55(e). This section assists recipients in
evaluating the appropriate credit to be given toward a contract goal
(and a recipient's overall goal) when a DBE provides services as a
manufacturer, supplier, or transaction facilitator; the latter is
sometimes referred to as packager, broker, manufacturers'
representative, or other firm that arranges or expedites transactions.
The Department requested stakeholder feedback on the regular dealer
concept in the 2012 Notice of Proposed Rulemaking. See 77 FR 54592
(Sept. 6, 2012), which led to the 2014 final rule. The preamble to the
2014 final rule states: ``Specifically, we sought comment on: (1) how,
if at all, changes in the way business is conducted should result in
changes in the way DBE credit is counted in supply situations;? (2)
what is the appropriate measure of the value added by a DBE that does
not play a traditional regular dealer/middleman role in a transaction;?
and (3) do the policy considerations for the current 60% regular dealer
credit actually influence more use of DBEs as contractors that receive
100% credit?'' See 79 FR 59566, 59588 (Oct. 2, 2014).
In response to the 2012 NPRM, the Department received over 50
comments from prime contractors, DBEs, stakeholder associations, and
recipients, many of which emphasized the need for additional
clarification of, or changes to, the terminology used to describe
regular dealers, middlemen, transaction expediters, and brokers. The
Department responded that more analysis and discussion was needed to
make informed policy decisions about how best to amend the regulations
governing regular dealers and transaction facilitators; it committed to
continuing the conversation through future stakeholder meetings.
On September 26 and 27, 2018, the Department held stakeholder
meetings on the topic of ``regular dealers.'' Prime contractors,
recipients, stakeholder associations, and DBEs, attended and many
shared valuable information from their various perspectives. While the
Department often hears that the ``regular dealer'' concept is outdated,
does not reflect current industry practice, and
[[Page 43632]]
should be eliminated, most meeting contributors did not propose doing
away with the regular dealer concept. Most acknowledged that even
though the market has changed to allow prime contractors the ability to
obtain goods through e-commerce without the need for a ``middle-man,''
many DBE suppliers reported that they rely upon the DBE Program and
contract goals to maintain a viable business. Similarly, prime
contractors conveyed their reliance on DBE suppliers to assist in
meeting contract goals.
Based on the input from the stakeholder sessions and DOT's
continued analysis of the role of the regular dealer provisions in the
success of the DBE Program, DOT proposes several modifications to the
regular dealer provisions designed to better align with modern business
practices. Modifications to this section also include clarifying the
definition of ``manufacturer'' and ``suppliers of specialty items.''
Limiting DBE Supplier Goal Credit
Since the beginning of the DBE Program in 1980, DOT has never
placed a cap on the total amount of credit a prime contractor could
obtain from supply contracts toward meeting a contract goal. DOT has
long had a concern, however, that if prime contractors could frequently
meet contract goals primarily through supply contracts with DBEs,
opportunities for DBEs that perform other types of work would be too
limited. DOT addressed this concern by allowing prime contractors to
only count a certain percentage of the value of individual supply
contracts toward contract goals. The Department's initial comprehensive
Minority Business Enterprise regulation, issued in 1980, limited goal
credit for a contract with a non-manufacturer supplier to 20 percent of
the expenditures with the supplier, provided the supplier performed a
commercially useful function (CUF).\10\ In 1987, based on feedback from
stakeholders, DOT adjusted the limit on goal credit to 60 percent of
expenditures with a non-manufacturer supplier, determining that the
adjusted figure would better balance the considerations that too low of
a credit figure would unduly limit participation by MBE suppliers and
that too high of a figure would unduly limit participation by other MBE
firms (e.g., construction contractors). The 60 percent figure was set
in 1987.\11\
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\10\ See 45 FR 21172, 21181 (Mar. 31, 1980) available at https://www.transportation.gov/sites/dot.gov/files/2020-06/1980%20Final%20Rule%2045%20Fed.%20Reg.%2020771%2C%2021172%28Mar.%2031%2C%201980%29.pdf.
\11\ See 52 FR 39225 (Oct. 21, 1987) available at https://www.transportation.gov/civil-rights/disadvantaged-business-enterprise/1987-final-rule).
---------------------------------------------------------------------------
During the 2018 stakeholder meetings, some DBE participants
conveyed that although crediting suppliers is limited to 60 percent of
the value of the contract, some contractors, are still able to meet all
or most of a contract goal through DBE suppliers, especially suppliers
that provide high-cost or bulk items such as petroleum or steel,
diminishing or even eliminating the need for the prime to employ
additional DBE subcontractors on a project.
In consideration of the comments received, the Department proposes
to revise this Part by adding a provision at Sec. 26.55(e)(6) to limit
the total allowable credit for a prime contractor's expenditures with
DBE suppliers (manufacturers, regular dealers, distributors, and
transaction facilitators) to no more than 50 percent of the contract
goal. This revision would allow exceptions to the crediting limit (50
percent) for DBE material suppliers on a contract-by-contract basis
(for example, certain contracts may be material-intensive), with the
prior approval of the appropriate OA.
The following hypothetical is an example of how DBE credit should
be applied under the proposed rule:
A prime contractor seeks to bid on a $1M contract with a DBE
goal of 20%. The prime contractor's total creditable portion of the
commitment submitted to meet the contract goal-cannot exceed
$100,000 in DBE material supplier participation: ($1M x 0.2 =
$200,000 (total amount to meet goal)) ($200,000 x 50% = $100,000
(material supplier limit)). For example, the prime will use a DBE
manufacturer of bricks for $50,000 and a regular dealer of steel
costing $100,000. The regular dealer of steel can only count 60% of
the cost of steel ($100,000 x 0.6 = $60,000). The total amount for
DBE supplies is ($50,000 plus $60,000 = $110,000). The prime can
only count $100,000.
Evaluating a Supplier's Designation as a Regular Dealer
The Department proposes to continue to credit 60 percent of the
cost of supplies toward the contract goal (and recipient's overall
goal) should a DBE meet the regular dealer requirements. This
determination is made up of two components: (1) whether the DBE is an
established business regularly engaged in the sale or lease of a
product of the ``general character'' of that required under the
contract; and (2) whether the DBE meets certain performance
requirements in supplying the item.
The Department has learned that recipients often find it difficult
to determine whether a DBE is ``regularly engaged'' in a supply
activity, versus a firm that occasionally engages in such work or does
so on an ad hoc or contract-by-contract basis. Similarly, recipients
find it difficult to determine if the DBE regularly sells products of
the ``general character'' of those called for in a specific contract.
Moreover, recipients often wait to make these determinations until
after the contract is awarded, during a CUF review in the field. While
field inspectors performing CUF monitoring can evaluate a DBE
supplier's performance, they are unlikely to have a method to determine
if the DBE supplier meets the fundamental criteria to be considered a
regular dealer.
In a design-bid-build contract, contractors/bidders must submit,
either at the time of bid or within 5 days thereafter, information
regarding the specific DBE firms to which they have committed to meet a
contract goal. To determine if a contractor/bidder is eligible for
contract award, recipients must evaluate these commitments to determine
if the contractor/bidder met the goal either by sufficient
subcontracting to DBEs and/or by demonstrating sufficient good faith
efforts. See Sec. 26.53(b). Contractor/bidder commitments often
include the use of DBE suppliers and indicate 60 percent credit of the
cost of the supplies toward goal achievement.
The Department has learned that many recipients accept the 60
percent commitment at face value without knowing whether the DBE
``regularly engages'' in the purchase and sale or lease of items, or
those of the ``general character,'' that it is committed to supply for
the contract at issue.
This face-value determination could affect whether a contractor/
bidder has actually met the contract goal and is eligible for contract
award. To avoid overcounting upfront toward contract goal achievement
prior to contract award, and potential overcounting of goal credit in
the field, the Department proposes to add a requirement in Sec.
26.55(e)(2)(iv) for a recipient to establish a system to determine,
prior to award, that the DBE supplier meets the fundamental
characteristics of a ``regular dealer,'' i.e., whether the committed
DBE is ``regularly engaged'' in the purchase or sale of items, or those
of the ``general character,'' called for in the contract. (In the race-
neutral context, this information should first be considered prior to
entering the DBE's participation into the recipient's reporting system,
which usually occurs when subcontracts are approved.) To make such a
determination, the
[[Page 43633]]
recipient must evaluate whether the DBE supplier keeps sufficient
quantities of the items in question and regularly sells the items to a
sector of the public that demands such items.
To address the second component of the determination, the
Department proposes under Sec. 26.55(e)(2)(iv)(A) to add a requirement
that a recipient establish a system, pre-award, to determine whether a
DBE supplier submitted by the contractor/bidder as a ``regular dealer''
has demonstrated capacity and intent to perform as a regular dealer to
ensure preliminary counting determinations are based on the DBE's
capacity and intent to comply with the CUF requirements. Such
procedures would be flexible but should include preliminary questions
to identify whether the products sold or leased will be provided from
the DBE's inventory or whether the DBE will have physical possession
before they are sold or leased to the prime.
Under this same section, these procedures would also address the
supply of bulk items by including questions on the disclosure of
information to determine if the DBE will deliver the items using
distribution equipment it owns and operates. This system is necessary
to provide a sound basis for evaluating goal attainment prior to
contract award and is necessary to support the likelihood that the DBE
supplier will actually perform as a regular dealer in the field. Should
the additional information a recipient receives result in a
determination that the committed DBE supplier's services would not be
entitled to the goal credit listed, the recipient would then determine
that the contractor/bidder fell short of the goal and would then
evaluate the bidder's good faith efforts to determine eligibility for
contract award or subcontractor approval.
Ultimately, goal crediting would be made on a contract-by-contract
basis contingent upon the outcome of a recipient's final CUF and
counting determination of the DBE supplier's performance during the
contract.
Drop-Shipping and Delivery From Other Sources
Many DBE suppliers said that the absolute prohibition on drop-
shipping materials from the manufacturer to the desired location
severely impacts their ability to compete with non-DBE suppliers. On
the other hand, it is of concern to the Department and DBE
subcontractors that a firm would receive 60 percent credit of the cost
of supplies if the DBE's role is limited to making phone calls or
sending emails to manufacturers or suppliers and asking them to drop-
ship the materials to the desired location. The latter role is akin to
a broker or transaction facilitator, and credit should be limited to
the amount paid by the prime as a commission or fee for these services.
During the 2018 stakeholder meetings, the Department learned that
the prohibition of drop-shipping materials is especially of concern to
DBEs with distributorship agreements for the supply of bulk items.
Those with distributorship agreements conveyed that these agreements
with manufacturers are limited in nature, costly, and require them to
assume significant risk of loss or damage. They stressed that the
requirement that they use and operate their own distribution equipment
to deliver the products is a barrier to their ability to compete fairly
with other suppliers of bulk items.
Recognizing that a DBE with a distributorship agreement typically
has more control regarding the quality of materials and bears
significant risk, the Department proposes to add language to Sec.
26.55(e)(3) to allow materials or supplies purchased from a DBE
distributor that neither maintains sufficient inventory nor uses its
own distribution equipment for the products in question to receive
credit for 40 percent of the cost of materials, including
transportation costs.
In this section, a DBE distributor is defined as an established
business that engages in the regular sale or lease of the general
character of items specified by the contract and described under a
valid distributorship agreement. This section further explains that a
DBE distributor performs a CUF, entitling it to 40 percent credit, when
it operates in accordance with the terms of its distributorship
agreement; and with respect to shipping, the DBE distributor must
assume the risk for lost or damaged goods. The Department proposes that
recipients must review the language in distributorship agreements,
prior to contract award, to determine their validity relevant to each
purchase order/subcontract and the risk assumed by the DBE. Where the
DBE distributor drop-ships materials without assuming risk, or
otherwise does not operate in accordance with its distributorship
agreement, credit is limited to fees or commissions.
Stakeholders also expressed concern regarding how to credit
supplies from a DBE regular dealer that provides the major portion of
items under the contract from its inventory, but must provide
additional quantities ``of the general character'' of those kept and
regularly sold, from other sources. The Department believes it places
an undue burden on recipients to segregate minor quantities of an order
delivered by sources other than the DBE, to eliminate them from regular
dealer credit (60 percent). The Department proposes to clarify in Sec.
26.55(e)(2)(iv)(A) that 60 percent credit of the cost of materials or
supplies (including transportation costs) is appropriate when all, or
the major portion, of the supplies under a purchase order or
subcontract are provided from the DBE's inventory, and when necessary,
any additional minor quantities, of the ``general character'' as those
kept and regularly sold, are delivered from other sources (e.g., the
manufacturer). The Department proposes that the recipient's system
mentioned above should include a means to evaluate at the commitment
stage, prior to contract award, the type and quantity of items the DBE
intends to have delivered by other sources.
Negotiating the Price of Supplies
The Department made clear that to receive credit for supplying
materials, a DBE must demonstrate ownership by negotiating the price of
supplies, determining quantity and quality, ordering the materials, and
paying for the materials itself. Some DBE suppliers conveyed that they
are unable to compete with those prices negotiated by larger companies
with established relationships with manufacturers, or who purchase
supplies regionally in bulk; and that this scenario is a barrier for
DBEs to fairly compete. They asked us to consider eliminating the need
to negotiate price for certain bulk items, and still allow 60 percent
goal credit. We considered this request but ultimately do not support
it. The Department reaffirms the following statement set forth in
official guidance posted on May 24, 2012:
The Department understands that there may be some kinds of
transactions in which no subcontractor performs all of the four
required functions (e.g., a prime contractor decides who will supply
a commodity and at what price, with the result that a subcontractor
cannot negotiate the price for the item). In such situations, the
way the transaction occurs does not lend itself to the performance
of a CUF by a DBE subcontractor, and it is not appropriate to award
DBE credit for the acquisition of the commodity by the DBE
subcontractor. All the DBE has done with respect to acquiring the
commodity is to carry out, in a ministerial manner, a decision made
by the prime contractor.\12\
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\12\ Official FAQs on DBE Program Regulations--Commercially
Useful Function https://www.transportation.gov/civil-rights/disadvantaged-business-enterprise/dbe-guidance/official-faqs-dbe-program-regulations-49-cfr-26#Commercially.
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[[Page 43634]]
DBE Manufacturers
The Department has learned from the OAs that the definition of a
DBE manufacturer should be clarified to assist recipients in evaluating
whether a DBE is a manufacturer, allowing 100 percent credit of the
cost of supplies and materials it manufactures toward a contract goal
(and a recipient's overall goal). In response, we propose revising
Sec. 26.55(e)(1) to clarify the meaning of the term ``manufacturer.''
A DBE is a manufacturer if it owns or leases and operates a factory or
establishment that produces the materials, supplies, articles, or
equipment required under the contract. Manufacturing also includes
blending or modifying raw materials or assembling components to create
the product to meet contract specifications. A DBE does not meet the
definition of a manufacturer, however, when it makes minor
modifications to the materials, supplies, articles, or equipment.
Suppliers of Specialty Items
The Department proposes a new provision at Sec. 26.55(e)(2)(iv)(C)
to address a common scenario in which a DBE supplies items that are not
typically stocked due to their unique characteristics (e.g., limited
shelf life, or specialty items requested by contractors on an ad hoc
basis). We consider a DBE supplier that operates in this manner as a
regular dealer of bulk items that can receive 60 percent credit for the
items only if it owns and operates its own distribution equipment. We
propose that the recipient include in its pre-award system procedures
to determine whether the DBE supplier of such items will operate its
own distribution equipment in order to be entitled to 60 percent
credit.
Subpart D--Certification Standards
11. General Certification Rules (Sec. 26.63)
To begin, we propose changing ``recipient'' to ``certifier''
throughout subparts D and E because firms often do not know that
``recipient'' refers to ``certifier.''
Currently, Sec. 26.73 is a catch-all section that mostly provides
broad certification requirements. The overall objective of the proposed
revisions is to create more succinct and clearer paragraphs for rules.
For this reason, we propose changing the title of this section from
``What are the other rules affecting certification?'' to ``General
Certification Rules;'' and redesignating Sec. 26.73 to Sec. 26.63.
These changes provide context to the certification rules that follow
and more accurately reflect the section's purpose.
The proposal would restate and compile the rules discussed in
current paragraphs (a) through (d) and (f) through (g) into new
paragraph (a). The Department believes that the new paragraph (a) would
increase readability, making the rules more accessible to the general
public.
The most notable change in proposed Sec. 26.63(b) pertains to
firm's owned and controlled by a parent or holding company. The current
Sec. 26.73(e) states that a DBE must be owned by individuals and not
another firm. However, Sec. 26.73(e)(1) provides an exception to the
general rule and states that ``if socially and economically
disadvantaged individuals own and control a firm through a parent or
holding company, established for tax, capitalization, or other purposes
consistent with industry practice, and the parent or holding company in
turn owns and controls an operating subsidiary, you may certify the
subsidiary if it otherwise meets all [other certification]
requirements.'' Sec. 26.73(e)(1).
Because the text of current Sec. 26.73(e) does not clearly define
``parent,'' ``holding company,'' or ``tax, capitalization or other
purposes,'' the ambiguity created by these terms makes the entire
provision difficult to apply. The Department interprets the exception
to the general rule to allow a DBE to be owned by another firm so long
as the parent or holding company is owned and controlled by
disadvantaged individuals. The proposal takes this approach. As we
acknowledged in the 1999 preamble when we issued the rule, ``[t]he
purpose of the DBE Program is to help create a level playing field for
DBEs. It would be inconsistent with the program's intent to deny DBEs a
financial tool that is generally available to other businesses.'' (64
FR 5096, 5120 (Feb. 2, 1999))
Contrary to the goal stated in the preamble, the ``general rule''
in Sec. 26.73(e) unduly excludes the disadvantaged owner from
indirectly owning a firm through another entity--a flexibility that is
available to non-DBEs. This restriction arguably puts the DBE at a
competitive disadvantage with its non-disadvantaged competitors.
We are aware that the more complex a firm's ownership structure is,
the more difficult it is for the certifier to assess its eligibility.
Our proposal would permit only one tier of ownership above the
subsidiary DBE. No firm would be certified based on ownership of a
business, control on the grandparent level (i.e., a DBE cannot be 51
percent owned by firm B, which is 51 percent owned by firm C, which is
owned by the disadvantaged owner).
Also, the firm would still be required to meet all other
certification requirements, including the PNW limit and business size
standard, which may create eligibility issues related to the outside
business interests and affiliation counting rules. The firm's refusal
to provide pertinent information about its parent or holding company
would be grounds for denial or decertification for failure to
cooperate.
The proposal also makes technical corrections to the portions of
the section concerning Indian tribes and Alaska Native Corporations.
Overall, proposed Sec. 26.63 simplifies and removes ambiguous
language that exists within the current rule. It preserves common
business practices while securing program integrity.
12. Business Size (Sec. Sec. 26.65, 23.33)
Size standards in the DBE and ACDBE regulation are important for a
number of reasons. They implement the statutory requirement that
participants be small businesses. They provide a means to ensure that
participation in the DBE and ACDBE Programs is not necessarily of
indefinite duration: if a firm grows to exceed the applicable size
standard, it ceases to be eligible for the applicable Program. The size
standards are calibrated to help meet the objectives of the Programs,
including permitting ACDBEs to compete in the transportation and
airport concessions markets.
To be classified as a small business under the DBE Program, a
business's gross receipts (including those of its affiliates) must
satisfy two size standards. Per Sec. 26.71(n), DBEs must meet a size
limit for each North American Industry Classification System (NAICS)
code corresponding to the firm's work. The size standard represents the
highest amount of receipts a firm can have to be considered small. For
example, an architecture firm, assigned NAICS Code 541310, cannot
exceed $11 million in average annual gross receipts (SBA's size limit
for NAICS Code 541310) and still be considered small. DBEs must also
meet a secondary size standard prescribed in the Department's surface
reauthorization legislation, known as the statutory or secondary gross
receipts cap. This provision is currently implemented through Sec.
26.65(b) and (c), and to qualify as a DBE, a firm cannot exceed the
size cap prescribed by this regulation. The NAICS code standard cap is
expressed in either millions of dollars or number of employees whereas
the statutory gross receipts cap is
[[Page 43635]]
measured in average annual gross receipts.
The Federal Aviation Administration (FAA) Reauthorization Act of
2018 (Pub. L. 115-254) removed the secondary gross receipts cap under
Sec. 26.65(b) for purposes of eligibility for FAA-assisted work.
Therefore, the revised rule published on December 14, 2020, reflects
that the secondary gross receipts cap of Sec. 26.65(b) and (c) does
not apply for purposes of determining a firm's eligibility for FAA-
assisted work.\13\
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\13\ See 85 FR 80646 (Dec. 14, 2020) available at https://www.transportation.gov/civil-rights/disadvantaged-business-enterprise/december-14-2020-final-rule-gross-receipts.
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Size limits are similarly placed on ACDBEs and firms applying for
ACDBE certification, but under Sec. 23.33, these are not currently
aligned with the SBA limits based on individual NAICS codes. Section
(a) of the current provision requires recipients to treat a firm as a
small business eligible to be certified as an ACDBE if its gross
receipts, averaged over the firm's previous 3 fiscal years does not
exceed $56.42 million. Unique types of businesses have size standards
that differ--Banks and financial institutions; car rental companies;
pay telephone companies; and automobile dealers.
Changing the Measurement for the NAICS Code Size Calculations From 3 to
5 Years
Section 1101(e)(3) of the BIL states that for purposes of the DBE
Program's definition of a small business, the term is defined as used
in section 3 of the Small Business Act (15 U.S.C. 632). The Small
Business Runway Extension Act of 2018 (SBREA) (Pub. L. 115-324) amended
Section 3 of the Small Business Act, which in turn changed the method
used by the SBA to calculate business size under 13 CFR part 121. The
SBA implemented this change on January 6, 2020, through a final
rule.\14\ This rule changed the time period for calculating average
annual gross receipts under 13 CFR part 121 from 3 years to 5 years but
provided firms with the option to use either the 3-year calculation or
the 5-year calculation until the 5-year period became mandatory on
January 6, 2022.
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\14\ See 84 FR 66561 (Dec. 5, 2019) available at https://www.federalregister.gov/documents/2019/12/05/2019-26041/small-business-size-standards-calculation-of-annual-average-receipts.
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The SBA final rule applies to FHWA, FTA, and FAA-assisted projects
because the DBE regulation requires recipients to use the current SBA
business size standard(s) found in the SBA regulation. On October 19,
2020, the Department issued guidance stating that until January 6,
2022, DBEs participating in FHWA, FTA, and FAA-assisted projects may
choose between using a 3-year averaging period or a 5-year averaging
period for the purposes of meeting the requirements of the DBE Program,
as described in Sec. 26.65(a), and after that date, the 5-year
averaging period would become mandatory.\15\
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\15\ See ``DBE/ACDBE Size Standards'' at https://www.transportation.gov/DBEsizestandards.
---------------------------------------------------------------------------
The Department proposes to incorporate the 5-year calculation
changes in Sec. 26.65(a) to meet these statutory requirements. Under
the proposed additional language, a firm would be eligible as a DBE in
any Federal fiscal year if the firm (including its affiliates) has had
average annual gross receipts, as defined by the SBA regulation at 13
CFR 121.104, over the firm's previous five fiscal years.
Statutory Gross Receipts Cap
For the statutory DOT size cap found at Sec. 26.65(b), DBEs are
still subject to the 3-year averaging period because this 3-year period
is specifically prescribed by the BIL. Therefore, while a DBE firm may
elect to submit its average annual gross receipts for either the last 3
years or last 5 years to show it meets the size standard for a NAICS
code under 13 CFR part 121, only the last 3 years may be considered for
determining whether the firm also meets the DOT size standard
prescribed by Sec. 26.65(b).
Future Adjustments and Technical Amendments
In December 2020, the Department removed the requirement from part
26 to publish a Federal Register document informing the public of
inflationary adjustments. In this proposed rulemaking, the Department
will make a similar change to part 23 and will strike this language
from paragraph (c) of Sec. 23.33. Like Sec. 26.65(c), the proposed
Sec. 23.33(c) language states that the Departmental Office of Civil
Rights will publish the annually adjusted number on its web page.\16\
---------------------------------------------------------------------------
\16\ See https://www.transportation.gov/DBEsizestandards.
---------------------------------------------------------------------------
We propose adding the word ``passenger'' to car rental companies,
replacing ``automobile dealer'' with ``new car dealer,'' and remove
reference to pay telephone operators. The size standards for these
types of firms (with the proposed new titles) will remain the same,
i.e., $1 billion in assets for banks and financial institutions; $75.23
million average annual gross receipts from passenger car rental
companies' 5 previous fiscal years; and 350 employees for new car
dealers.
We also propose removing the regulatory requirement for the
Department to adjust the ACDBE size standards every two years. The
Department last adjusted the ACDBE size standards in June 2012. We seek
comments on whether any inflationary adjustment to the ACDBE size
standards is needed at this time. The standards far exceed the SBA
small business size limits placed on these types of businesses, and any
adjustment must be made in recognition of the overall intent to
narrowly tailor all program requirements. We are contemplating whether
there is a need to further raise the current size standards,
particularly given that we propose changing the period of measurement
under Sec. 23.33 from 3 to 5 years. It is the Department's view that
raising the standards too high could result in smaller firms seeking to
enter the concession industry having to compete with larger firms for
space that is already limited in opportunities because of limited
airport opportunities.
The Department seeks data on whether the additional categories with
different size standards, like car rental companies, are still needed
and if the size standards applicable to these categories require an
adjustment. If proponents advise that an adjustment is needed, should
the Department again use an inflation rate tied to purchases by state
and local governments as it does in part 26 adjustments? We currently
use data from the Department of Commerce's Bureau of Economic Analysis
(BEA). The BEA measures constant dollar estimates of state and local
government purchases of goods and services by deflating current dollar
estimates by suitable price indexes. These indexes include purchases of
durable and non-durable goods, and other services.
Gross Receipts of ACDBE Affiliates and Joint Venture Partners
The Department is proposing to address how an ACDBE must account
for annual gross receipts of affiliates and joint ventures for size
purposes, as provided in 13 CFR 121.104(d) and Sec. 121.103(h)(3) of
the SBA regulations, respectively. The Department will add a new
paragraph (d) to Sec. 23.33, making clear that an ACDBE that is a
party to a joint venture must include in its gross receipts its
proportionate share of receipts generated by the joint venture.
13. Personal Net Worth (PNW) Adjustment
Section 26.67(a)(1) provides a presumption of social and economic
disadvantage for citizens (or lawfully admitted permanent residents)
who are
[[Page 43636]]
women, Black Americans, Hispanic Americans, Native Americans, Asian-
Pacific Americans, Subcontinent Asian Americans, or other minorities
found to be disadvantaged by the SBA. However, individuals who belong
to a group(s) whose members are presumed socially and economically
disadvantaged (SED) could be too wealthy to be considered economically
disadvantaged for purposes of the DBE Program. As a mechanism for
excluding those individuals from the DBE Program, in 1999, the
Department adopted a PNW cap of $750,000. A PNW cap means that,
regardless of membership in a group whose members are presumed SED, any
individual whose PNW exceeds the PNW cap is not considered economically
disadvantaged. This helps ensure that the DBE Program is narrowly
tailored and that only those individuals who are actually economically
disadvantaged are eligible for the DBE Program.
The Department's 2011 final rule raised the PNW limit from $750,000
to $1.32 million to keep up with inflation.\17\ The Department now
proposes raising the limit to $1,600,000 ($1.60 million) for the DBE
and ACDBE Programs, based on a number of factors. In addition, the
Department proposes establishing a method for adjusting the PNW cap in
the future that would allow the DBE and ACDBE Programs to adjust the
PNW cap in a timely and responsive manner while avoiding the delay and
the administrative burden of a formal rulemaking.
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\17\ The $750,000 PNW cap was adjusted using the CPI from the
base year of 1989. As explained in previous rulemakings, 1989 was
used as the base year because this was the year the Small Business
Administration initially proposed the $750,000 PNW cap. See January
2011 final rule, available at https://www.transportation.gov/civil-rights/disadvantaged-business-enterprise/dbe-laws-policy-and-guidance.
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The DBE Program adjusts the traditional definition of total
personal net worth by excluding the disadvantaged owner's interest in
the firm in question, equity in the owner's primary residence, and 50
percent of any assets held as community property with a spouse or
domestic partner. The existence of a PNW cap highlights a tension
between the DBE Program's multiple objectives. If the PNW cap is set
too high, the program would include business owners who are not in fact
economically disadvantaged. If the PNW cap is set too low, the program
will exclude some truly disadvantaged business owners who could benefit
from participating in the program and whose participation would advance
the program's progress towards achieving equity in Federal contracting.
A 2007 report commissioned by the Congressional Black Caucus
Foundation, ``Increasing the Capacity of the Nation's Small
Disadvantaged Businesses,'' points out that businesses need resources
to build capacity and be competitive, thus a PNW cap that is too low
will limit the success of participating businesses.
In 2019, the Federal Aviation Administration (FAA) conducted
listening sessions related to this rulemaking. Commenters noted that
the current $1.32 million PNW cap hinders the success of the ACDBE
Program. They noted that restaurants in airports can have very high
upfront financing needs related to build-out costs, covering initial
operating costs, and the need to refresh their facilities midway
through a typical 7 to 10-year lease. In addition, because of the
nature of those types of expenses (and possibly the risk inherent with
the airport concession industry), banks require a high amount of
collateral for loans to finance those upfront expenses.\18\
Consequently, a PNW cap that is too low means that the business owners
who have the means to provide the collateral for airport concessions
with high upfront investment requirements are generally not eligible to
participate in the ACDBE Program. Note, however, that the business
owner's total household net worth can be used as collateral for a loan,
so that while the PNW as defined by the program must be below the
rule's cap, the amount available to use as collateral might be higher
than the cap due to how PNW is calculated for the DBE and ACDBE
Programs.
---------------------------------------------------------------------------
\18\ Fed. Aviation Admin., ``49 CFR Part 23 Review Virtual
Virtual Listening Session Subpart C'' (Apr. 4, 2019).
---------------------------------------------------------------------------
Rationale for $1.60 Million Adjustment
As part of this proposed rulemaking, the Department conducted an
original analysis to establish an appropriate PNW cap. We recognize
that the determination of economic disadvantage is a comparative
exercise, not an absolute determination made in isolation.\19\ In this
analysis, the determination of an economically disadvantaged business
is based on comparing the business owner to other business owners,
since the wealth of business owners generally is likely higher than the
wealth of the general population. Further, this analysis focuses on the
wealth of business owners who are not presumed to be socially and
economically disadvantaged: White, non-Hispanic men. To make this
comparison, this analysis uses data from the 2019 Survey of Consumer
Finances (SCF) to analyze the distribution of PNW among business owners
to determine where a new PNW cap should be set.\20\
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\19\ As explained in the 1983 final rule, ``[when] considering
the economic disadvantage of firms and owners, it is important for
recipients to understand that they are making a comparative judgment
about relative disadvantage. Obviously, someone who is destitute is
not likely to be in any position to own a business. The test is not
absolute deprivation, but rather disadvantage compared to business
owners who are not socially disadvantaged individuals and firms
owned by such individuals.'' 48 FR 33432, 33452 (July 21, 1983)
available at https://www.transportation.gov/sites/dot.gov/files/docs/Final%20Rule%2C%20July%2021%2C%201983.pdf.
\20\ The Survey of Consumer Finances (SCF) is a cross-sectional
survey of primary economic units (PEU) in the United States
conducted every three years from 1983 to 2019. The PEU consists of
the economically dominant individual or couple and all individuals
in the household that are financially dependent on the individual or
couple. The SCF is sponsored by the Federal Reserve Board of
Governors and the U.S. Department of the Treasury. The survey
includes information on demographics, income, assets, and debts,
among other topics. The SCF presents five replicates of each record
as a method of approximating missing values in the data. Thus, the
number of records in the public dataset is 28,885, five times more
than the number of households that responded to the survey (5,777).
See https://www.federalreserve.gov/econres/scfindex.htm.
---------------------------------------------------------------------------
In the SCF, the race and ethnic group for a household is based on
the identification of the original respondent to the survey. The
employment status and other demographic descriptors are based on the
reference person for the family. The reference person used for the
household in the SCF data is the male in an opposite-sex couple, the
older person in a same-sex couple, or the individual if the household
is led by a single person. The SCF data allows for identification of
the following race and ethnic group categorizations: White, Non-
Hispanic; Black, Non-Hispanic, Hispanic, and Other. ``Other'' includes
individuals who identify as Asian, American Indian, Alaska Native,
Native Hawaiian, Pacific Islander, other race, and all respondents
reporting more than one racial identification.\21\ Table 1 shows that
the mean net worth of White, Non-Hispanic households is roughly 6 to 7
times higher than for Black, Non-Hispanic and Hispanic households. Even
at the highest wealth levels, the disparity exists: the wealth of the
top 10 percent of White households exceeds the wealth of the top 10
percent of Black, Non-Hispanic, and Hispanic households by a factor of
5.
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\21\ Codebook for 2019 Survey of Consumer Finances, Board of
Governors of the Federal Reserve System, assessed at https://www.federalreserve.gov/econres/files/codebk2019.txt.
[[Page 43637]]
Table 1--Total Net Worth of the Household by Race and Ethnic Group in 2019
[2019 Dollars]
----------------------------------------------------------------------------------------------------------------
Total number 90th
Race & ethnicity of households Mean Median percentile
----------------------------------------------------------------------------------------------------------------
ALL............................................. 5,777 $746,821 $121,774 $1,219,499
White, Non-Hispanic............................. 3,980 980,549 188,985 1,610,000
Black, Non-Hispanic............................. 679 142,330 24,100 324,901
Hispanic........................................ 490 165,541 36,031 333,500
Other........................................... 627 656,603 74,500 1,164,100
----------------------------------------------------------------------------------------------------------------
Source: 2019 SCF.
The current PNW calculation for the DBE and ACDBE Programs allows
the firm owner to omit the value of their primary residence and the
value of the business for which the owner is applying for
certification. In addition, the PNW definition includes only the assets
of the firm owner, meaning that only half the value of any assets held
jointly by the owner and their spouse (community property) are included
in the calculation of PNW. Finally, applicants are instructed only to
report the current value of any retirement accounts, after any early
withdrawal penalties and applicable taxes are subtracted. During
stakeholder engagement events and compliance reviews, the Department
received many comments that the calculations required to compute the
applicable taxes and penalties on retirement accounts is highly
burdensome to applicants and certifiers. Those calculations require a
great deal of information including what portion of the account is the
initial contributions versus subsequent capital gains or interest
earned, applicable state and Federal income tax rates, and applicable
state and Federal capital gains tax rates. In response to those
comments, the Department proposes to exclude the full balance of
retirement accounts in calculating PNW.
In addition, the Department proposes to increase the PNW cap to
$1.60 million in order to account for factors such as inflation, since
the PNW cap was last updated 10 years ago. The Department's proposal to
make future adjustments to the PNW cap is discussed later in this
section.
The analysis underlying the proposal to increase the PNW cap
constructs a proxy measure for PNW under the proposed definition of PNW
for the DBE and ACDBE Programs. Using the 2019 SCF data, the proxy
measure, shown in Equation 1, calculates PNW using measures of total
household net worth, home equity (value in primary residence minus any
home secured debt), active business equity (equity the individual owns
in a business they actively manage), and current balance of retirement
accounts.\22\ The calculation is performed separately for single
individuals versus couples in order to account for adjustments for
community property made in the definition of PNW for the DBE and ACDBE
Programs. Only 50 percent of any jointly held assets between a couple
(community property) should be accounted for in an individual's PNW
according to that definition. Equation 2 shows the calculation for the
proxy measure for PNW under an alternative proposal (not being proposed
in this NPRM), which would include the full amount of the retirement
account balances in the calculation of PNW. In the SCF, net worth is
reported using the current balance of any retirement accounts with no
adjustments made for early withdrawal penalties or taxes.
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\22\ The SCF data does not allow a distinction between all of an
applicant's active businesses and the sole business the applicant
might choose to certify as a DBE or ACDBE. Therefore, the PNW proxy
measure used here removes the total value of all active businesses.
As a result, this proxy measure for PNW could be under-estimating an
applicant's true PNW.
[GRAPHIC] [TIFF OMITTED] TP21JY22.000
[[Page 43638]]
In addition, the analysis includes only White, Non-Hispanic
households with male reference persons identified as owning a business
and who indicated they were self-employed or in a partnership as their
occupational status. The focus is on self-employed business owners
because the intent is to identify a comparison group for business
owners who are likely to participate in the DBE and ACDBE Programs.
Table 2 shows the percentile distribution related to the estimated
PNW calculation from the 2019 SCF for the proposal.
Table 2--Percentile Distribution of the Personal Net Worth for Male,
White, Non-Hispanic, Self-Employed, Business Owners, as Calculated Under
the Proposal
[2019 Dollars]
------------------------------------------------------------------------
PNW as calculated
Percentile under proposal
------------------------------------------------------------------------
10th................................................. -$50
20th................................................. 11,610
30th................................................. 24,050
40th................................................. 48,300
50th................................................. 77,875
60th................................................. 157,500
70th................................................. 265,000
80th................................................. 558,950
90th................................................. 1,601,500
95th................................................. 3,757,750
------------------------------------------------------------------------
Source: 2019 SCF.
Under the proposal that the Department is recommending in this
NPRM, retirement accounts (along with home and business equity) would
be removed from the calculation of PNW. The 90th percentile of PNW for
male, White, Non-Hispanic self-employed business owners is roughly
$1.60 million, which is $1.04 million higher than the 80th percentile
of $0.56 million, which is in turn just $0.29 million greater than the
70th percentile. Using the proposed definition of PNW with exclusion of
all retirement accounts, the Department proposes to set the PNW cap at
the 90th percentile of the group of male, White, Non-Hispanic, self-
employed business owners ($1.60 million). Determining a threshold
beyond which an individual is considered to have accumulated wealth too
substantial to need the program's assistance, we used the 90th
percentile to identify a high level of wealth or income, which is a
common convention.\23\ Choosing a substantially lower threshold, such
as the 80th percentile, would result in a cap that is lower than the
current cap and would act to remove eligible businesses that are
currently participating in the DBE and ACDBE Programs. Choosing a
substantially higher threshold would increase the possibility that the
program would no longer be sufficiently narrowly tailored. While the
Department proposes to use the 90th percentile, it acknowledges that
using a different threshold amount could also meet the goals of the
program and requests comment from the public on how an appropriate PNW
cap should be set.
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\23\ See Bricker, Goodman, Moore and Volz. ``Wealth and Income
Concentration in the SCF: 1989-2019'' in ``FEDS Notes'' (Sept. 28,
2020) available at https://www.federalreserve.gov/econres/notes/feds-notes/wealth-and-income-concentration-in-the-scf-20200928.htm;
see also Credit Suisse, ``World Wealth Report 2020,'' at p. 29 and
available at https://worldwealthreport.com/resources/world-wealth-report-2020/; see also Kochar and Cilluffo, ``Income Inequality in
the U.S. Is Rising Most Rapidly Among Asians,'' Pew Research Center
(July 12, 2018) available at https://www.pewresearch.org/social-trends/2018/07/12/income-inequality-in-the-u-s-is-rising-most-rapidly-among-asians/.
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Data from the 2019 SCF suggests that between 88.7 and 90.8 percent
of self-employed business owners who are presumed to be socially and
economically disadvantaged (i.e., individuals who are women, Hispanic,
or non-White) have a PNW lower than the current PNW cap as PNW is
currently defined.\24\ Under the proposed cap of $1.60 million, 92.6
percent of that group would fall under the cap, an increase of 2.0 to
4.4 percent.
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\24\ The range on this estimate is the result of lack of
information in the SCF on how to appropriately adjust the current
balances of retirement accounts for early withdrawal penalties and
taxes. The lower end of the estimated range (88.7 percent) assumes
that the entire balance of retirement accounts is counted toward the
PNW cap while the upper end (90.8 percent) assumes that no portion
of retirement account balances are counted toward the PNW cap. The
Department believes that the true value is likely closer to 88.7
percent than 90.8 percent because the deduction for early withdrawal
penalties and taxes is likely to be less than 50 percent, but a more
precise estimate is not possible with the available information.
Table 3--Comparison of Current and Proposed Methods
----------------------------------------------------------------------------------------------------------------
Label Description Cap amount
----------------------------------------------------------------------------------------------------------------
Current Method............................... Applicants must calculate current value of $1.32 million.
retirement accounts by determining any early
withdrawal penalties and applicable taxes.
Proposed Method.............................. Full current retirement account balance $1.60 million.
excluded from PNW calculation.
----------------------------------------------------------------------------------------------------------------
Periodic Adjustments to the PNW Cap
The previous adjustment of the PNW cap in January 2011 used the CPI
to reflect the increase in prices due to inflation. However, while
household net worth is expected to grow in nominal terms over time,
simply due to inflation, it is also subject to additional influences.
For instance, the 2008 financial crisis significantly reduced household
net worth but a CPI adjustment would not account for that change caused
by the financial crisis. In consecutive periods of sustained economic
growth that raises the net worth of all business owners in real terms
(after adjusting for inflation), an adjustment using only the CPI could
maintain a PNW cap that remains too low over time.
One alternative to using a CPI adjustment includes using data on
the changes in aggregate household net worth data published quarterly
by the Federal Reserve.\25\ Another alternative is to calculate the
90th percentile of PNW for self-employed business owners using future
editions of the SCF, which is published every three years. An advantage
of using the Federal Reserve data is that the information is readily
and frequently available whereas analysis of the SCF requires
specialized statistical programming skills and the updates would be
limited to a 3-year cycle.
---------------------------------------------------------------------------
\25\ Federal Reserve, ``Financial Accounts of the United States;
Balance Sheet of Households and Nonprofit Organizations Table Z.1,''
available at https://www.federalreserve.gov/releases/zl/dataviz/zl/balance_sheet/chart/.
---------------------------------------------------------------------------
Table 4 compares the nominal growth rates inferred by the CPI, the
Federal
[[Page 43639]]
Reserve measure of total household net worth, and the historic
information of the 90th percentile of PNW (calculated with exclusion of
retirement accounts) for male, White, non-Hispanic, self-employed
business owners from previous editions of the SCF. While the SCF data
might be considered the most precise in terms of accurately
representing the proposed cap based on the 90th percentile of self-
employed business owners, the Federal Reserve data historically shows
very similar dynamics and is more accessible because it is easily
computed and is updated more frequently. The CPI does not adequately
reflect the underlying dynamics of household net worth. Using the CPI
to adjust the cap going forward would result in a cap that may block
participation from a growing number of firms over time. Therefore, the
Department proposes to make future adjustments to the PNW cap using
growth in Federal Reserve measure of total household net worth from
``Financial Accounts of the United States: Balance Sheet of Households
and Nonprofit Organizations Table Z.1'' using 2019 as the base year.
Table 4--Growth of CPI, Federal Reserve Total Household Net Worth, and Personal Net Worth 90th Percentile of
White, Non-Hispanic, Male, Self-Employed Business Owners From the SCF
[Indexed to 1992]
----------------------------------------------------------------------------------------------------------------
Personal net
Federal Reserve worth 90th
Year CPI total household percentile from
net worth SCF
----------------------------------------------------------------------------------------------------------------
1992................................................... 100.0 100.0 100.0
1995................................................... 108.6 118.2 105.8
1998................................................... 116.2 154.1 183.0
2001................................................... 126.2 184.4 237.1
2004................................................... 134.6 228.2 327.3
2007................................................... 147.8 287.7 411.5
2010................................................... 155.4 263.9 325.3
2013................................................... 166.0 319.4 535.3
2016................................................... 171.1 383.5 498.0
2019................................................... 182.2 467.4 514.2
----------------------------------------------------------------------------------------------------------------
Based on the above analysis, the proposed rule would simplify the
PNW calculation by excluding retirement accounts and changing the PNW
cap for the DBE and ACDBE Programs from $1.32 million to $1.60 million.
The proposed rule would increase that cap every 5 years using growth in
the Federal Reserve measure of total household net worth from
``Financial Accounts of the United States: Balance Sheet of Households
and Nonprofit Organizations Table Z.1,'' using 2019 as the base year.
If household net worth were ever to decline by that measure, the
Department would not revise the PNW cap and thereby avoid a downward
adjustment of the PNW. A downward adjustment of the PNW cap might cause
certain firms to be decertified due to circumstances beyond their
control and would be an undesirable outcome for the DBE and ACDBE
Programs.
Note that the above analysis is broad-based in that it analyzes the
distribution of PNW for all self-employed business owners and does not
focus on the types of businesses that would be expected to be involved
in the DBE and ACDBE Programs. The SCF does not contain sufficient
detail on the industry of the business owners to permit a more focused
analysis. There may be additional industry-specific factors that
warrant consideration, and we invite comment on what factors could be
considered for further analysis.
The Department requests comment on the proposed $1.60 million PNW
cap and seeks comment on whether the cap for the ACDBE Program should
be different than the cap for the DBE Program. If recommending that the
PNW cap be different than $1.60 million, wet request data and
information that can be used to support an alternative PNW cap.
Rules for Reporting PNW
The Department proposes revisions for clarity and enhanced
specificity. Our goal overall is to remove the ambiguity and confusion
that we have seen caused by the current rules for reporting PNW. To
start, we would like to remove any consideration of state marital laws
or community property rules when calculating the socially and
economically disadvantaged owner's (SEDO) equity in the primary
residence. It is neither appropriate nor practicable for the Department
to interpret state marital laws or community property rules. Every
state has its own laws and rules. The DBE Program is a Federal program
governed by a Federal regulation.
We are also proposing a detailed explanation of ``household
contents'' in Sec. 26.68(e) because of disputes we have seen between
owner-applicants and certifiers. One hundred percent of the contents of
the SEDO's primary residence belong to the SEDO. The exception is if
the SEDO's spouse or domestic partner cohabits with the SEDO in the
SEDO's primary residence; in that case, fifty percent of the value of
all household contents is attributable to the SEDO, regardless of who
acquired them and regardless of whether they were acquired before or
after cohabitation.
Motor vehicles of any type belong to the individual who holds title
to the vehicle. We would like comments on how to treat leased vehicles
under the definition of ``household contents.'' Specifically, should a
vehicle leased in the SEDO's name be considered an asset or should it
be considered a liability?
The general purpose behind the proposed asset transfers rule is to
prevent individuals from offloading wealth immediately before or
concurrent with applying for DBE certification to stay within the PNW
limit. To what extent might there be administrative difficulties in
implementing the proposed rule that could outweigh the intended
benefits?
In addition, as stated above, we would like to exclude all
retirement assets from PNW calculations. Our rationale is twofold. The
current rule states that the value of all assets held in vested pension
plans, Individual Retirement Accounts, 401(K) accounts, etc. must be
included, minus the tax and interest penalties that would accrue if the
asset were distributed at the present time. The Department has
witnessed multiple conflicts among certifiers, firm owners,
accountants, etc. about how to
[[Page 43640]]
determine the amount of tax and interest penalties. To eliminate this
problem, and perhaps more importantly, to avoid the unintended
consequence of penalizing individuals from saving for retirement, we
propose fully excluding all retirement assets.
14. Social and Economic Disadvantage (Sec. Sec. 26.5, 26.63, and
26.67)
Section 26.5 currently defines ``socially and economically
disadvantaged individual'' as any individual who is a citizen (or
lawfully admitted permanent resident) of the United States and who has
been subjected to racial or ethnic prejudice or cultural bias within
American society because of the individual's identity as a member of a
group and without regard individual qualities. The social disadvantage
must stem from circumstances beyond the individual's control. These
individuals who are members of one or more of the following groups are
rebuttably presumed to be socially and economically disadvantaged
(SED): Black Americans, Hispanic Americans, Native Americans, Asian-
Pacific Americans, Subcontinent Asian Americans, women, and any
additional groups whose members are designated as SED by the Small
Business Administration (SBA), at such time as the SBA definition
becomes effective.
Evidence and Rebuttal of Social Disadvantage
Section 26.61(c) states that certifiers must rebuttably presume
that members of the designated groups identified in Sec. 26.67(a) are
socially and economically disadvantaged (SED). This means that
individuals who are members of the designated groups do not have the
burden of proving that they are (SED). In order to obtain the benefit
of the rebuttable presumption, individuals must only submit a signed,
notarized statement that they are a member of one of the groups in
Sec. 26.67(a). Applicants do, however, have the obligation to provide
certifiers with information concerning their economic disadvantage. See
Sec. 26.67.
Section 26.63(a)(1) provides that if, after reviewing the signed,
notarized affidavit of membership in a Sec. 26.5 presumptively
disadvantaged group, the certifier has a well-founded reason to
question the individual's claim of membership, the certifier must
require the individual to present additional evidence of group
membership. See Sec. Sec. 26.61(c) and 26.63(b)(1). The current rule
states that in making such a determination, the certifier must consider
whether the person has held himself/herself/themselves out to be a
member of the group over a ``long period of time'' prior to applying
for certification and whether the person is regarded as a member of the
group by the relevant community. The certifier may require the
individual to produce additional evidence of group membership. If,
after reviewing the evidence, the certifier determines that the
individual is not a member of a Sec. 26.5 group, the individual may
elect to apply for certification by demonstrating social and economic
disadvantage on an individualized basis.
Current Sec. 26.67(a)(1) states that certifiers must rebuttably
presume that citizens of the United States (or lawfully admitted
permanent residents) who are women, Black Americans, Hispanic
Americans, Native Americans, Asian-Pacific Americans, Subcontinent
Asian Americans, or other individuals, as defined by the SBA, are SED.
Each owner claiming the presumption must submit a signed, notarized
affidavit as evidence of the claim. Section 26.67(b)(2) provides that
if a certifier has a reasonable basis to believe that an individual who
is a member of one of the designated groups is not, in fact, socially
and/or economically disadvantaged, the certifier may, at any time,
start a proceeding to determine whether the individual's presumption of
social and economic disadvantage should be deemed rebutted. Section
26.67(b)(3) explains that the certifier bears the burden of
demonstrating, by a preponderance of the evidence, that the individual
is not SED. The certifier may, however, require the individual to
produce information relevant to the determination of the individual's
disadvantage.
The Department acknowledges there has been confusion caused by the
definition of SED in Sec. 26.5, the provisions governing group
membership determinations, in Sec. 26.63 and the rebuttal of social
and economic disadvantage provisions in Sec. 26.67.
To more clearly address group membership, the presumption of social
and economic disadvantage that attaches to group membership, and the
rebuttal of presumed social and economic disadvantage, we propose
several changes. Current Sec. 26.63(b)(1) explains that when
questioning an individual's group membership, the certifier ``must
consider whether the person has held himself out to be a member of the
group over a long period of time prior to application for certification
. . .'' (italics added). Without that requirement, a White male (for
example) could suddenly discover he has Black ancestry and apply for
DBE certification based on that recent discovery--even though he has
never held himself out as Black, and he would likely have no evidence
that the Black community regards him as a member of the Black
community. The Department has not previously defined what constitutes
``a long period of time.'' Because of confusion expressed by certifiers
and applicants alike, the Department now proposes defining ``a long
period of time'' as a period of at least five years. We also propose
adding procedural requirements to be followed by the certifier and the
owner of the applicant firm claiming group membership in the event that
the certifier questions the owner's claim of group membership.
We also propose folding the requirements of Sec. 26.63 into Sec.
26.67 for clarification and simplicity. Under Sec. 26.67(a)(1), an
individual claims the presumption of social disadvantage by filing a
signed, notarized Affidavit of Certification. We propose changing the
name of this document to Declaration of Eligibility (DOE). Like the
Affidavit of Certification, the DOE is found in the Uniform
Certification Application (UCA).
In the current rule, the definition of social disadvantage is
immediately followed by the definition of economic disadvantage; both
definitions precede the provisions regarding rebuttal of each type of
disadvantage. We propose that the social disadvantage rebuttal
provisions immediately follow the definition of social disadvantage,
and likewise for economic disadvantage (i.e., definition immediately
followed by rebuttal provisions. It is our view that this reordering
will increase efficiency for certifiers and applicants when trying to
find the rules for each type of disadvantage.
To claim a presumption of social disadvantage, an owner must only
check the box(es) on the DOE for which group(s) the individual is a
member, and sign and submit the DOE with the firm's UCA. To claim the
presumption of economic disadvantage, the owner must sign and submit
the DOE as well as a PNW statement.
We propose adding a reminder in Sec. 26.67 that the signed DOE is
the only evidence of group membership an individual must provide with
the UCA. We want to add this reminder because we have seen instances in
which certifiers burden applicants to provide additional evidence of
group membership as a matter of course without a well-founded reason to
question the individual's claim of membership. This NPRM would clarify
that certifiers must not request
[[Page 43641]]
additional evidence as a matter of course. Additional evidence may only
be requested if the certifier has a well-founded reason to question the
individual's claim of group membership. When group membership is in
question, Sec. 26.61(b) states that the firm seeking certification
bears the burden of demonstrating, by a preponderance of the evidence,
that it meets the regulation's group membership requirements.
In the proposed rule, we are placing timelines/deadlines in Sec.
26.67 to ensure that the process of questioning group membership is not
unduly delayed by certifiers or applicants. For example, if a certifier
properly asks an owner for additional evidence of group membership, the
owner would be required to submit the evidence within 15 days of the
certifier's written explanation. If the owner timely submits the
evidence requested, the certifier would be required to notify the owner
in writing, no later than 30 days after receiving the evidence, of the
certifier's determination of group membership.
We emphasize that the presumption of social disadvantage remains
rebuttable. If a certifier has a reasonable basis to believe that,
despite membership in one of the groups whose members are presumed
socially disadvantaged, the individual is not, in fact, socially
disadvantaged, the certifier may commence a proceeding to determine
whether the presumption of social disadvantage should be regarded as
rebutted. When social disadvantage is questioned, Sec. 26.67(b)(3)
states that the certifier bears the burden of proof. We point out that
current Sec. 26.67(b)(2) states that a certifier may (not must), at
any time start a proceeding under Sec. 26.87 to determine whether an
individual's presumption of social disadvantage should be rebutted. We
believe that if a certifier has a well-founded basis to question an
individual's social disadvantage, it must initiate a proceeding under
Sec. 26.87, and we have adjusted this language accordingly. We propose
allowing the owner of a firm that is denied certification to submit a
claim of individual disadvantage at any time, without regard to the
waiting period in Sec. 26.86(c). A certifier would not be able to
require the individual to file a new application; the individual would
be permitted to simply amend the original application.
Evidence and Rebuttal of Economic Disadvantage
Under the current rule, an owner claiming a presumption of economic
disadvantage must, in addition to submitting a signed DOE, demonstrate
that the owner's PNW does not exceed the DBE Program's current $1.32
million limit. The owner must also submit a signed statement of PNW,
with appropriate supporting documentation, using the Department's PNW
Statement without change or revision.
As explained in current guidance, the DBE Program ``should not
include people who can reasonably be regarded as having accumulated
wealth too substantial to need the program's assistance.'' \26\ For
example, there are instances in which an individual's PNW is below the
program's cap, yet the individual is not, in fact, economically
disadvantaged. Thus, if a certifier has an articulable reason, on a
case-by-case basis (and not as a matter of course) to believe that an
individual whose PNW does not exceed the cap should not be regarded as
economically disadvantaged, the certifier is permitted under Sec.
26.67(b)(1)(ii)(A) to evaluate whether the individual has the ability
to accumulate substantial wealth (AASW). Under the current rule, the
individual's presumption of economic disadvantage will be rebutted if
the certifier finds that the individual does have the AASW. In making
its determination under the current rule, a certifier may consider
factors such as, but not limited to: (1) whether the average adjusted
gross income of the owner over the most recent three year period
exceeds $350,000; (2) whether the income was unusual and not likely to
occur in the future; (3) whether the earnings were offset by losses;
(4) whether the income was reinvested in the firm or used to pay taxes
arising in the normal course of operations by the firm; (5) other
evidence that income is not indicative of lack of economic
disadvantage; and (6) whether the total fair market value of the
owner's assets exceed $6 million.
---------------------------------------------------------------------------
\26\ See ``Official Questions and Answers (Q&A's) Disadvantaged
Business Enterprise Program Regulation (49 CFR Part 26)'' available
at https://www.transportation.gov/sites/dot.gov/files/docs/mission/civil-rights/disadvantaged-business-enterprise/55851/official-questions-and-answers-disadvantaged-business-enterprise-program-regulation-49-cfr-26-4-25.pdf and ``Official FAQs on DBE Program
Regulations (49 CFR 23)--Section 23.31; 27.67(b)(2)--Personal Net
Worth'' available at https://www.transportation.gov/osdbu/disadvantaged-business-enterprise/official-faqs-dbe-program-49-cfr-23.
---------------------------------------------------------------------------
During the last eight years, the Department has seen, on multiple
occasions, that certifiers and applicant firms misinterpret the AASW
rule. For example, they often treat the six factors as a checklist and
unduly focus on the owner's adjusted gross income while ignoring the
other five factors, rather than doing a holistic evaluation. In
addition, calculating whether an owner's assets exceed $6 million has
resulted in overly complex calculation disputes, while again largely
ignoring any other factors that could have indicated an AASW. Thus, the
Department proposes eliminating the six factors in favor of a more
``big picture'' approach. Specifically, the provision would instruct
certifiers to evaluate whether a reasonable person would consider the
owner economically disadvantaged. Indicators could include (but are not
limited to) ready access to wealth, lavish lifestyle, income or assets
of a type or magnitude inconsistent with economic disadvantage, or
other circumstances that economically disadvantaged people typically do
not enjoy. We emphasize that inquiry would have no effect on the PNW
asset exclusions or limitations on inclusions. It would entirely
disregard liabilities. We welcome comment on whether this proposed
replacement swings the pendulum too far in the opposite direction of
the current AASW provision. In other words, are the proposed elements
too vague in nature and result in just as much confusion and dispute as
the current provision? Would the proposal lead to inconsistent
application of the regulation? If so, what factors should be considered
in making an AASW evaluation?
Individualized Determinations of SED Status
Because the DBE Program is intended to be as inclusive as
possible--without compromising the program's integrity and while
remaining narrowly tailored--firms whose owners are not presumed
socially and economically disadvantaged can still apply for
certification. The DBE Program regulation has allowed for this since
the program began in 1983. Appendix E of the regulation provides
guidance for evaluating disadvantage on an individualized basis under
Sec. 26.67(d) (Sec. 26.67(e) in the proposed rule). The Department
regularly receives feedback from certifiers, applicants, and other
stakeholders about the excessive burdens related to gathering and
submitting evidence under appendix E, particularly the evidence of
economic disadvantage. Though not the Department's intention, much of
the required evidence of economic disadvantage can be more challenging
to obtain than necessary. The list of required evidence also focuses
largely on the stature of other firms rather than on the applicant
firm. Multiple stakeholders have told us that the standards set forth
in appendix E are nearly impossible to meet. The standard is
``preponderance of the evidence,'' but
[[Page 43642]]
in practice is ``clear and convincing.'' The latter is a much more
stringent burden to bear. Thus, we propose replacing appendix E with
flexible, less prescriptive rules that will better allow certifiers to
make accurate case-by-case determinations using the correct
``preponderance of the evidence'' standard. Further, we want to reduce
the cost and hours burden for applicants to submit evidence of their
individual disadvantage.
15. Ownership (Sec. 26.69)
The Department proposes considerable revisions to Sec. 26.69,
which has remained largely unchanged since 1999. The changes are
essential because disadvantaged ownership is the foundation of the DBE
Program.
Burden Reduction, Simplification, and Consistency
The revisions would preserve the section's programmatic objectives
and effect but articulate the operative concepts differently. We
believe that the revisions would serve several related goals: burden
reduction, simplification, improved understanding and thus compliance,
streamlined administration, consistent results, and enhanced program
integrity. We also think that revised Sec. 26.69 can drive efficiency
gains across the board. The proposed changes would further these goals
by stating rules and intent plainly and directly. They would more
logically organize the material. Our proposed changes would replace
language that has proved confusing, impractical, awkward, or outdated,
with text that we believe corrects or mitigates these shortcomings.
Clear rules and consistent results are what stakeholders tell us they
value above all. Accordingly, we propose several bright-line rules that
we believe will make certification easier to obtain, maintain, and
monitor. The overarching objective of subpart D, after all, is to
certify eligible firms.
The Department's proposed revisions would describe and prescribe.
It is more flexible than the language it replaces. At the same time,
the revised rules would provide detail when detail can resolve
longstanding misinterpretations. The intent is to confront interpretive
challenges directly and unambiguously. A measure of certainty should
provide all stakeholders peace of mind. The proposed revision would
also make the certification process quicker and less intrusive. To the
extent possible, we prefer to leave business decisions to business
owners and give certifiers similar latitude to determine how the rules
apply to individual applicants and DBEs. They are in the best position
to make these judgments. Broad anti-abuse rules, rather than long lists
of suspect transactions, safeguard the integrity of the ownership
requirements. We consider the revision to be notably more user-friendly
than the present Sec. 26.69.
The Department has come to believe that current Sec. 26.69(a) is
too complex. It is more a chronology or summary of ownership-related
events than a statement of the core requirement for eligibility. It is
also out of sync with current business realities. The revised rule
reworks and simplifies the essential concepts and moves them to places
in Sec. 26.69 that correspond to their role in explaining the general
rule. There, we develop and update those concepts and cross-refer to
related provisions.
The current Sec. 26.69(b), streamlined and restated as the general
rule, would become the new Sec. 26.69(a). The restatement would
overtly tie the rules that follow to the general rule that SEDOs must
own at least 51 percent of the business. It would explain concisely and
precisely the import of the provision and what the firm must prove to
be eligible for certification.
Reasonable Economic Sense
The proposed new Sec. 26.69(b) replaces the concepts of ``real,
substantial, and continuing'' (RS&C) capital contributions and
ownership, and the binary alternative of ``pro forma'' ownership, with
the broader, more flexible requirement that transactions affecting
ownership make reasonable economic sense (RES). The revision would
accomplish several objectives, not least of which are objectivity and
neutrality. The revision would recast the requirement in terms less
awkward and more descriptive. The revision would also address the
rigidity of the RS&C, avoiding outcomes (e.g., ineligibility
determinations based on a one-dollar deficiency in contributed capital)
that can seem capricious.
We propose retiring RS&C in favor of a more workable standard, one
that can adapt to unforeseen transactions and business structures. RES
is less absolute. It acknowledges that substance trumps form and one
size never really fits all. Our objective is to encourage certifiers
not just to ``consider'' all pertinent facts but to weigh them in firm-
specific context. The current language obscures the fact that
certifiers have always had the freedom and discretion to make these
judgments. We believe that the proposed revision would make certifiers
more confident and business owners less wary. Paragraph (b) of the
revised Sec. 26.69 describes the proposed standard's components and
signals that reasonable proportionality, economic effect, and common
sense are the new touchstones. We intend, in the ``benefits and
burdens'' clauses, to give certifiers a more useful yardstick for
assessing initial and continuing eligibility.
The proposed revisions to Sec. 26.69(c) would define the new term
``investments'' to include purchase of ownership interests, capital
contributions, and certain gifts, and additional investments after
acquiring the ownership. This would be consistent with the current RS&C
standard but more straightforward and less strained. Stakeholders
frequently do not understand what the current language means. A
purchase, for example, is not a capital contribution, and investments
``to acquire'' ownership are not the only ones to which the rules
apply. The single-sentence numbered provisions under new paragraph (c)
attempt to remedy these deficiencies in the current rule, which too
often confuse SEDOs who are not versed in certification nuances.
The paragraphs under Sec. 26.69(c) would also streamline the rule
and make it more equitable. The proposed Sec. 26.69(c)(3) would treat
all joint owners the same, regardless of marital status or state-
specific community property law. We intend for the same rules to apply
to all SEDOs and to all cases of joint ownership regardless of
jurisdiction. Hence the simple statement that ownership tracks title.
Paragraph (c)(4) clarifies which gifts count as investments, simplifies
the analysis, and minimizes opportunities for gamesmanship.
These proposed changes would permit us to eliminate the marital
property rule in current Sec. 26.69(i) and extend the renunciation and
transfer remedy to all joint owners. We would remove as unnecessary the
complex machinery of current Sec. 26.69(h), which applies when a non-
disadvantaged individual gifts or transfers interest or other assets
without adequate consideration. The presumption and two-pronged
rebuttal/higher standard of proof is overly complex. The streamlined,
modernized proposed rule would work in better coordination with the
rest of part 26 and would enable us to simplify or eliminate
corresponding rules in other sections, e.g., in Sec. Sec. 26.67 and
26.71. Revised Sec. 26.69(c), in short, should minimize haggling, save
resources, and improve program administration. We expect it to produce
speedier, more accurate results that do not vary by state.
The proposed Sec. 26.69(d) explains how the rules for purchases
differ from those for capital contributions, and they provide simple
but significant
[[Page 43643]]
backstops. These rules tie into concepts introduced in preceding
paragraphs and replace rules that have proved nearly impossible to
administer effectively. The revised rule explains the concepts more
objectively and more directly than do current Sec. 26.69(c) through
(f).
The proposed revisions to Sec. 26.69(e) would provide new, bright-
line rules for debt-financed capital contributions and purchases. They
would replace disjointed and often misunderstood provisions. The
proposed would substitute an RES analysis for RS&C and go a step
further toward clarity and preventing abuse. They give effect to
longstanding Departmental and Congressional intent and, we believe,
substantially reduce certifier burden. We intend for them to
significantly reduce administrative bottlenecks. They should preempt at
least some frivolous or premature applications and give certifiers a
clear reason for rejecting the ones that get through.
Paragraph (f) revisions bring Department policy into the
regulation. We want to make clear that legitimate efforts to correct
impediments to certification are not evasive or subversive. The
ultimate objective remains certifying eligible small, disadvantaged
businesses with as little hindrance as possible.
The three, short anti-abuse rules in proposed paragraph (g) would
put firms on notice of particular, and logical, results of the RES
requirement and would give certifiers explicit authority to streamline
the analysis.
We believe that all of the proposed revisions would save firms and
certifiers time and significantly improve program administration. We
expect to see results that are more accurate and more equitable.
16. Control (Sec. 26.71)
Control of DBEs has been part of the certification eligibility
criteria since the program began in 1983. Certifiers are required to
analyze the extent to which disadvantaged individuals control their
business in both substance and form. However, the Department believes
that strict requirements about non-disadvantaged participants hinder
the certifier from conducting a meaningful analysis of whether the
disadvantaged owner controls the firm. As such, we are proposing
significant revisions to the control provisions found in Sec. 26.71.
The rationale of our revisions is to give certifiers flexibility when
determining whether the SEDO controls the firm. Thus, we recommend
replacing the current checklist-type requirements with less
prescriptive rules. The proposed revisions would also give applicants
more flexibility in demonstrating control.
The proposed revisions would shift the focus from the actions and
experience of non-disadvantaged participants in the firm to those of
the SEDO. The proper and originally intended inquiry is whether the
SEDO controls the firm through managerial oversight, revocable
delegation of authority, and critical and independent decision-making.
The proposal would also streamline Sec. 26.71 by removing redundancy,
and in some instances, excessively burdensome requirements.
The Department proposes to add general rules to Sec. 26.71(a).
Proposed Sec. 26.71(a)(1) would state that disadvantaged owners who
own at least 51 percent of the firm must also control it. Proposed
Sec. 26.71(a)(2) would add a fine point that the certifier must
consider all relevant facts together in context.
Because control requires the certifier to make a fact-intensive
determination, proposed rule Sec. 26.71(a)(3) would state that a firm
must have operations in the type of business that it seeks to perform
as a DBE before it applies for certification. We believe there are two
benefits to this proposal. First, the proposed rule would allow the
certifier to evaluate the disadvantaged owner's control of the firm
based on demonstrable actions that the owner takes to run the business.
Second, the proposed rule would help certifiers better allocate their
resources by relieving them from the burden of evaluating applications
from firms that are not conducting business and have no ability to bid
on DBE contracts. The proposed rule would exclude firms that are
applying for ACDBE certification, since many potential ACDBEs have no
operations before obtaining a contract.
SEDO as the Ultimate Decision Maker
The Department proposes Sec. 26.71(b) to clarify that a
disadvantaged owner must be the ultimate decision maker. The rule
reminds certifiers and firms that the control inquiry requires an
analysis that goes beyond formalities shown in business structure,
governing documents, and policies. What the firm must prove under this
provision is that the SEDO ``runs the show'' by having the final say on
all matters. This means that the firm's chain of command must be led by
the disadvantaged owner, whether in a small startup business or a large
multifaceted corporation. Except under narrow circumstances described
in Sec. 26.71(c)(4), other participants at the firm must faithfully
carry out every decision that the SEDO makes.
Governance
Proposed rule Sec. 26.71(c) combines the requirements of the
current Sec. 26.71(c) and (d) rules and clarifies what a firm must
prove to demonstrate control of the firm's governance.
The proposal simplifies current Sec. 26.71(c) into one general
rule that precludes provisions that require non-SEDO concurrence or
consent for the SEDO to act. The proposed rule would simplify the
introductory language of current Sec. 26.71(d), denoting that the
disadvantaged owners must ``possess the power to direct or cause the
direction of the management and policies of the firm and to make day-
to-day as well as long-term decisions on matters of management, policy
and operations.'' This phrase comes from an earlier rule that the
Department intended to remove after it issued the more specific
provisions of Sec. 26.71(e), (f), and (g). The phrase has caused
certifiers to misinterpret this broad, introductory language as the
rule itself, independent of the precise paragraphs (d)(1) through
(3).\27\ We have previously opined that the introductory language is
merely prefatory and does not constitute an eligibility requirement
independent of paragraphs (d)(1) through (3).\28\
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\27\ See, e.g., 17-0058 ARS Electric, LLC (Oct. 10, 2017) at 2
(omitting any eligibility analysis under paragraphs (d)(1) through
(3)). https://www.transportation.gov/sites/dot/files/data/dbe/appeal-docs/17-0058%20ARS%20Electric%20FINAL-REDACTED.pdf.
\28\ See, e.g., 13-0073 C2PM, Inc. (Nov. 7, 2013) (certifier
disregarded SEDO's holding of highest officer position and
demonstrated control of board of directors; decision reversed) and
16-0017 Tamarac Land Surveying, LLC (Apr. 28, 2016) (certifier cited
introductory language of Sec. 26.71(d) to support denial but did
not dispute SEDO's ability to control board of directors; decision
reversed).
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The Department intends the proposed rule to reflect what is
described in the current Sec. 26.71(d)(1) through (3)--that the
disadvantaged owner must control the firm by holding the highest
officer position and having voting authority over other directors,
partners, or members. We believe the proposal would resolve confusion
and clarify that the rule is about the disadvantaged owner's governance
of the firm.
We also propose to clarify the requirement that ``disadvantaged
owners must control the board of directors.'' Our proposal outlines
voting and quorum provisions that would prevent a disadvantaged owner
from controlling the board of directors. The proposal also clarifies
that disadvantaged individual(s) must have present control of the board
of directors, meaning they cannot prove eligibility under Sec.
26.71(c) based on a disadvantaged owner's power as a
[[Page 43644]]
majority shareholder to later change the composition of the board of
directors. See Sec. 26.73(b) (certifier must evaluate eligibility
based on present circumstances). The Department affirms many
certification denials each year because of disqualifying voting and
quorum provisions in the firm's bylaws. We believe that adding more
explicit language to the rule would encourage firms to amend bylaw
provisions that do not conform with the rule before applying for DBE
certification.
The only exception proposed under Sec. 26.71(c) is for
extraordinary actions detailed within proposed Sec. 26.71(c)(4). The
Department believes that non-SEDOs should have the power to block
extraordinary measures that would affect their ownership rights. We
believe that protecting minority ownerships through governing
provisions is generally permissible and consistent with standard
business practices.
Expertise
The Department proposes revisions to Sec. 26.71(d), to incorporate
a portion of the current Sec. 26.71(g) with minor adjustments. The
proposed rule would clarify that the SEDO must have an overall
understanding of the firm's business operations to the extent necessary
to make managerial decisions. Administrative decisions made by the
disadvantaged owner do not prove control unless the firm primarily
performs administrative business services for its customers.
The owner of a DBE does not need to be an expert in every aspect of
the firm's operations, as we explained in the 1997 supplemental notice
of proposed rulemaking (SNPRM): ``with respect to expertise, the
disadvantaged owners must, in our view, generally understand and be
competent with respect to the substance of the firm's business.'' (62
FR 29548, 29568 (May 30, 1997))
The understanding that the owner should have varies by the nature
and complexity of the firm's operations. For example, a disadvantaged
owner of a large electrical firm may not be an electrician but would
need to know enough about the firm's electrical work and processes to
make managerial decisions. In contrast, an owner of a three-employee
firm that provides lawn services may only need general managerial
expertise to control the firm.
SEDO Decisions
Proposed rule Sec. 26.71(e) incorporates a portion of the current
Sec. 26.71(g) with minor amendments. Based on several appeal
decisions, the Department believes that this rule is too subjective,
since it requires that the owner must have ``the ability to'' make
decisions. To correct this issue, the proposed rule would direct the
inquiry to whether the SEDO makes major decisions that affect the
firm's prospects. The proposed rule would have three requirements.
First, the firm would be required to show that the SEDO receives
pertinent information from subordinates to demonstrate that other
participants are not making important decisions without the owner's
knowledge. Second, the firm the firm would be required to show that the
SEDO critically analyzes the pertinent information, based on the SEDO's
knowledge demonstrated in Sec. 26.71(d). Failure to prove this means
that the owner simply ``rubber-stamps'' what another participant has to
say about an issue. The proposed rule, however, would not preclude the
owner from asking questions and consulting other participants as the
owner analyzes the information. Finally, the SEDO would need to make
independent decisions after receiving and analyzing the pertinent
information.
Delegation
The Department proposes to simplify and restructure the current
delegation rule. As we stated in the 1997 SNPRM, ``[t]he more
successful or complex a firm becomes; the more inevitable delegation
becomes. It is fanciful to imagine that one or a few owners can or
should do, or be prepared to do, everything that a firm does. As long
as the owners can take back authority they have delegated, retain
hiring and firing authority, and continue to `run the show' for the
company, they control it, notwithstanding delegation of some authority
and functions.'' (62 FR 29548, 29568 (May 2, 1997))
The proposal makes clear that the disadvantaged owner must have the
power to revoke the delegated authority, but also emphasizes that the
firm must show that an obvious chain-of-command exists within the
company, which is recognized by all employees and associates of the
business.
Finally, the proposed paragraphs describe what delegated actions by
non-disadvantaged individuals are permissible under Sec. 26.71.
Independent Business
The Department proposes to make minor amendments to current Sec.
26.71(b) and redesignate the provision as Sec. 26.71(g). The proposed
rule would clarify that a firm must prove that it is independently
viable, notwithstanding a relationship with another firm from which it
receives or shares essential resources. A pattern of regular dealings
with a single or small number of firms does not necessarily make a firm
ineligible for certification so long as it is not acting as a ``front''
or ``pass-through'' for another firm or individual. For example, the
fact that a trucking firm in a rural part of a state provides services
to the only prime contractor in town does not necessarily make the firm
ineligible under the proposed rule, unless the certifier determines
that the applicant firm is set up as a conduit for another firm or
person who is not eligible to participate in the DBE Program. The
proposal also clarifies that relationships and transactions between
firms of which the SEDO has 51 percent ownership and control does not
violate the rule, although the relationship may raise a business size/
affiliation issue.
Franchises
The Department proposes redesignating the current provision Sec.
26.71(o), which is commonly referred to as the franchise rule, to Sec.
26.71(h).
NAICS Codes
The Department proposes redesignating the current provision Sec.
26.71(n), which is commonly referred to as NAICS rule, to Sec. 26.73
with minor technical corrections.
Removed Provisions (Sec. 26.71 (i), (j), (k), (l), (m), (p), and (q))
The current language of Sec. 26.71(i), (j), (k), (l), (m), (p),
and (q) relates to the concept that non-disadvantaged individuals can
participate in any DBE firm, as long as disadvantaged individuals
control the firm. The Department's proposed rules offer more than
adequate means to decide whether an owner controls his or her firm,
with or without the involvement of non-disadvantaged participants. The
proposal would eliminate redundancy but also remove the tendency of
certifiers to rely in accurately on these provision as catch-all
grounds for ineligibility whenever a non-disadvantaged participant is
involved or present in the firm's operations. The Department has
stressed for decades that this is inappropriate, and that the proper
inquiry is whether the disadvantaged owner controls the firm
notwithstanding the participation of other employees, family members,
or non-disadvantaged owners.
For example, the Department proposes to remove Sec. 26.71(k),
commonly known as the ``family business'' provision, to eliminate an
eligibility criterion that is often misused by certifiers. Family-owned
firms have long been a concern in the program. The December 1992 NPRM
proposed that certifiers treat non-disadvantaged family
[[Page 43645]]
members the same as other non-disadvantaged participants in DBEs. The
participation of family members in a firm should not be viewed as
meaning that a disadvantaged individual fails to control a firm, as
stated in the December 1992 NPRM. The May 1997 SNPRM provided
explicitly that if the threads of control in a family-run business
cannot be disentangled, such that the certifier can specifically find
that a woman or other disadvantaged individual independently controls
the business, the certifier may not certify the firm. The 1999 final
rule maintained this line of thinking--a business that is controlled by
the family as a group, as distinct from controlled individually by
disadvantaged individuals, is ineligible.
The current language of Sec. 26.71(k) stresses that non-
disadvantaged individuals can participate in any DBE firm, as long as
disadvantaged individuals control the firm. This is duplicative of
revisions proposed in this NPRM. The Department believes that the
proposed provisions offer more than adequate means to determine whether
a SEDO controls his or her firm, with or without the involvement of
non-disadvantaged or disadvantaged individuals and relatives.
The Department recommends removing current Sec. 26.71(h), commonly
referred to as the ``license rule,'' to eliminate redundancy with
proposed rules Sec. 26.71(d) and (e) and to eliminate state law
requirements from the rule as we propose in revisions to the personal
net worth and ownership provisions.
The current Sec. 26.71(h) directs the certifier to deny
certification if the SEDO does not hold a license or credentials that a
state or local law requires to own and control the firm. The Department
believes that the UCP is the proper authority on state or local license
requirements since it is more familiar with the law within its state,
and Departmental personnel are not experts in state and local law. For
example, appeal cases often provide two opposing interpretations of a
state or local law, with no citation to the law at issue, and fail to
explain how the law does, or does not, apply to the SEDO. The
Department remands in these circumstances for the certifier to decide
and interpret which license state or local law requires the SEDO to
hold under the rule.
More often however, a state or local law(s) only require that
someone employed at the firm hold a license to perform specific work.
In the preamble to the 1999 final rule, the Department explained that
when ``State law allows someone to run a certain type of business
(e.g., electrical contractors, engineers) without personally having a
license in that occupation, then we do not think it is appropriate for
the certifier to refuse to consider that someone without a license may
be able to control the business.'' (64 FR 5096, 5119-20 (Feb. 2, 1999))
The current language of Sec. 26.71(h) adopts the view that the
Department expressed in the preamble and allows the certifier to
consider the SEDO's lack of a license as ``one factor'' in determining
control.
The Department reversed many appeal decisions where the ``one
factor'' rule is either misapplied or not considered in context with
the firm's overall operations. For example, the rule does not
disqualify trucking firms if the SEDO does not have a commercial
driver's license.\29\ The Department believes proposed rules Sec.
26.71(d) and (e) better describe the proper control inquiry than the
current ``one factor'' rule, making Sec. 26.71(h) therefore redundant.
The pertinent questions, which exist regardless of licensing, are
whether the SEDO has enough of an overall understanding of the business
to run the firm and whether the SEDO makes independent decisions.\30\
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\29\ See e.g., 18-0003 Clear Creek of Salisbury, Inc. (May 29,
2018) (owner did not need own commercial driver's license (CDL) to
control hauling firm); see also 18-0007 K-Kap, Inc. (May 15, 2018).
\30\ See 13-0064 J&L Steel, Inc. (Aug. 23, 2013) (absence of
electrician license did not impair owner's control of large
electrical contracting business when she did not perform electrical
work); 13-0112 Nancy's Tree Planting, Inc. (Jan. 10, 2014) (no home
improvement contractor license needed to control commercial
landscaping business).
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Subpart E--Certification Procedures
17. Technical Corrections to UCP Requirements (Sec. 26.81)
The Department would like to make minor technical changes to
sections (a) and (g), removing language that is outdated and no longer
applicable.
18. Virtual On-Site Visits (Sec. 26.83(c)(1) and (h)(1))
Ensuring that only eligible firms participate in the DBE Program is
central to the integrity of the program and critical to recipient
compliance activities. The Department believes that regularly updated
on-site reviews are an extremely important tool in helping prevent
fraudulent firms or firms that no longer meet eligibility requirements
from participating in the DBE Program. See 76 FR 5083, 5090 (Jan. 28,
2011). We acknowledged in the 2011 final rule that on-site visits can
be time and resource-intensive, but the Department encouraged
recipients to conduct updated on-site visits of certified firms on a
regular and reasonably frequent basis. The current rule instructs
certifiers to perform an on-site visit at the firm's principal place of
business to interview firm officers and evaluate their work histories
and/or r[eacute]sum[eacute]s. The rule also requires certifiers to
visit job sites the firm is working on at the time of its eligibility
review.
The Department proposes amending Sec. 26.83(c)(1) to make
permanent the virtual on-site visit flexibilities announced in guidance
in response to the COVID-19 pandemic.\31\ This would free up certifier
resources to enable them to better administer other aspects of the DBE
and ACDBE Programs, e.g., on-site monitoring of contractor compliance.
Following the announcement of the Department's flexibilities, we have
received feedback from certifiers stating that virtual on-site visits
have reduced logistical burdens, time, and expense on certifiers and
firms while ensuring the safety of all parties involved in the on-site
process.
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\31\ See COVID-19 Guidance (June 29, 2021) (extending virtual
on-site flexibilities announced in March 2020) available at https://www.transportation.gov/mission/civil-rights/covid-19-guidance.
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Even before the COVID-19 pandemic flexibilities were put in place,
the Department's past guidance and policy gave certifiers the
discretion to conduct virtual on-site interviews. For example, the
Department explained in a 2005 Q&A, issued before the current
interstate rule, that ``the UCP has discretion to require the applicant
to appear in person for an interview. Before imposing such a
requirement, the UCP should determine if other, less onerous, means can
be used to obtain the needed information (e.g., sending documents,
participating in a teleconference or videoconference).'' \32\
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\32\ 49 CFR part 26 Q&A, ``Is it appropriate for UCP's to
require out-of-state applicants to appear in person for an
interview?'' available at https://www.transportation.gov/sites/dot.gov/files/2020-01/docr-20180425-001part26qa.pdf.
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The Department believes that virtual on-site visits are less
onerous and more efficient, for certifiers and firms alike, for
certifiers to obtain information about a firm. It is our view that a
virtual on-site visit is equally effective as an in-person visit. It
gives the certifier the choice to setup and complete multiple
interviews during the day since it eliminates travel time to the firm's
principal place of business or job site. For example, one medium-sized
certifier reported that conducting virtual on-site visits saved about
$20,000 in travel costs and decreased the time it took to process
applications by 10 percent. With the time and resources that a
certifier would by not traveling to a
[[Page 43646]]
firm's principal place of business, the certifier could better prepare
for the interview itself, ultimately review more applications, and
improve the quality of their on-site review report.
Also, when certifiers 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 certifier or UCP
should review the firm's eligibility, including conducting an on-site
review. Certifiers can meet this objective more efficiently with a
virtual option.
The Department believes the proposal would give the firm a better
opportunity to demonstrate eligibility because the SEDO would have more
time to fully explain their industry and how the business runs, its
relationships with other businesses, and describe how they control
their business within the meaning of the rule. The owner can also make
more employees available to support the owner's statements or answer
questions certifier may have.
Many certifiers report that another benefit of virtual on-site
visits is that most communication software allows the reviewer to
record the interview, which is another flexibility that the Department
proposes in this rulemaking. Recordings allow certifiers to prepare
more precise on-site visit reports. The certifier and firm can use the
recording as evidence during a decertification hearing, and the
independent decisionmaker may find it useful to review the recording
before ruling on the proposed decertification. The Department rarely
receives recordings on appeal, but we believe that they may be useful
when there is a dispute as to what the parties discussed during an on-
site visit.
Virtual on-site visits also have safety and health benefits.
Several certifiers used virtual on-site visits during COVID-19 surges
to protect the health and safety of employees and firm employees.
Certifiers also report that the choice of conducting a virtual on-site
visit eases the concerns of employees about traveling to rural areas
where there is no mobile phone service or traveling to the homes of
business owners.
The Department believes that virtual on-site visits are an easier
means for certifiers to conduct on-site reviews after it certifies a
DBE that is in another state. As a matter of good auditing practice,
certifiers can easily perform virtual on-sites visits of an out-of-
state DBE on a regular and frequent basis per the UCP program
requirements, or if the certifiers have a reason to question the firm's
eligibility. See Sec. Sec. 26.83(h)(2), 26.87(b).
Although there are many benefits of virtual on-sites, we recognize
that some certifiers may prefer to conduct interviews of some firms in
person. The proposed rule would retain certifier discretion to still
conduct in-person on-site visits.
Finally, the proposal would not otherwise obviate requirements for
conducting on-sites during an initial application. The certifier would
still interview principal officers at the firm, review
r[eacute]sum[eacute]s with the SEDO, interview the firm's other
participants, and visit an active jobsite (virtually or in-person).
19. Timely Processing of In-State Certification Applications (Sec.
26.83(k))
The Department proposes amending the current Sec. 26.83(k)
(redesignated to Sec. 26.83(l) in the proposed rule) to reduce
impediments to the certification process. Specifically, we seek to
limit a certifier's ability to extend the 90-day timeframe in which a
certifier must issue a final eligibility decision for in-state
certification applications and to codify existing guidance that gives
certifiers discretion to allow firms to fix errors within an
application. Under the current rule, the certifier must notify a firm
in writing within 30 days from receipt of the application whether the
application is complete and ready for evaluation. The Department
clarified in guidance that a ``complete'' application means that the
firm filed a Uniform Certification Application (UCA) and the documents
required from the UCA's checklist. See 49 CFR part 26 Q&A, Compliance
with Requirements for Timely Processing of Certification Applications
(Apr. 25, 2018, at 1-2 (discussing when the 90-day review period starts
and steps UCPS should take to ensure the timely processing of DBE
applications)).\33\
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\33\ See ``Compliance with Requirements for Timely Processing of
Certification Applications'' available at https://www.transportation/gov/sites/dot.gov/files/docs/mission/civil-rights/disadvantaged-business-enterprise/308776/dbe-guidance-timely-processing-dbe-certification-applications.pdf.
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After the certifier receives all the information required under the
rule, the certifier must make a certification decision within 90 days.
Current Sec. 26.83(k) states that a certifier may extend the 90-day
period up to 60 days ``upon written notice to the firm, explaining
fully and specifically the reasons for the extension.'' Our proposal
would reduce the extension period from 60 days to 30 days. A certifier
would need OA approval for any extension beyond 30 days. The 1997 NPRM
explains our rationale for the current review periods, providing that
the Department decided to propose extending the deadline to 90 days,
with a possibility of a 60-day extension of this period if the
recipient sends a specific written explanation to the applicant. The
Department was persuaded that a 60-day deadline was unrealistic in
light of the certification workloads facing many recipients. However,
the Department determined that a deadline remained necessary to give
firms the assurance of reasonably timely handling of their
applications. With the approval of the concerned Operating
Administration, the recipient could alter the deadline involved, but
the appropriate DOT office would be very careful to grant only what
relief is necessary to recipients. (62 FR 29548, 29573 (May 30, 1997))
The Department believes that the technological advances that exist
today eliminate the need for a 60-day extension. Many certifiers now
use software that reduce the time it takes to process an application,
and the proposed allowance of virtual on-site visits should also give
the certifier enough time to decide applications within the standard
90-day period.
We understand, however, that there are some situations where the
certifier would need a brief extension. For example, a certifier may
extend its review to give the firm time to cure a defect in its
application. There may also be extraordinary or unusual instances where
the certifier may need more time beyond the proposed 30-day extension
period, at which point, the proposal requires that the certifier obtain
OA approval for another extension. The Department seeks comment on
whether another extension is necessary.
Finally, we remind certifiers that a failure to make an application
decision within the Sec. 26.83(l) period is a constructive denial of
the firm's application, and that certifier may become subject to
penalties for noncompliance under Sec. Sec. 26.103 and 26.105.
20. Curative Measures
We propose to codify our 2019 memorandum regarding curative
measures during the DBE and ACDBE certification application process to
streamline and reduce redundancy in the certification process.\34\ As
we explained, the certification process can
[[Page 43647]]
be a lengthy and intensive undertaking for certifiers and applicant
firms. If a certifier finds a firm ineligible, the certifier must
expend often limited resources to issue a regulation compliant denial
letter. If the denied firm reapplies, the certifier must reprocess a
very similar application to what was previously submitted, including
conducting another on-site review. That is why our 2019 memorandum
reminds applicant firms and certifiers that firms may proactively
revise their UCA and/or supporting documents to conform with the
regulation's certification requirements before a certifier makes a
final eligibility decision. Similarly, a certifier may notify the
applicant about any eligibility concerns before making a final
decision. We see tremendous benefits to this practice. The Department
continues to stress that allowing an applicant to take curative
measures is not meant to allow unqualified firms into the program. It
would simply give the firm a chance to resolve certification issues
during the eligibility evaluation. A firm contacting a certifier to
request permission to cure deficiencies is generally not an attempt to
circumvent program requirements.
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\34\ See ``Curative Measures During DBE/ACDBE Certification
Application Process'' available at https://www.transportation.gov/civil-rights/disadvantaged-business-enterprise/curative-measures-during-dbeacdbe-certification.
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Proposed rule Sec. 26.83(m) would incorporate what is stated in
the 2019 memorandum. A certifier would be required to allow a firm to
make any change(s) as long as the changes are made within the Sec.
26.83(l) review period. In addition to essentially mirroring the 2019
memorandum, our proposed change is consistent with policies we
discussed in previous preambles. In 1992, the Department proposed an
amendment that would allow a firm to correct errors within 30 days of
receiving a denial letter to avoid reapplying for certification. In the
1997 SPRM, the Department recognized certifiers' concerns that allowing
firms to fix errors and reapply soon after a denial wastes resources.
The 1997 NPRM, however, encouraged certifiers to allow applicants to
correct minor paperwork errors, non-material mistakes, and omissions in
applications before denying an application. (62 FR 29548, 29573 (May
30, 1997)) The 1999 preamble to the final rule reiterated that
certifiers may allow firms to correct minor errors without invoking the
usual 12-month waiting period, and the Department urged certifiers to
follow such a policy. (64 FR 5096, 5123 (Feb. 2, 1999))
21. Interstate Certification (Sec. 26.85)
The Department proposes changes to the current Sec. 26.85, the
interstate certification rule, which would streamline the interstate
certification process while preserving the integrity of the DBE
Program. First, the proposal would implement reciprocity between
Unified Certification Programs (UCP)--achieving a goal that we
described in the 2010 NPRM as the ``holy grail of certification.'' (75
FR 25815, 25818 (May 10, 2010)) Second, after a UCP certifies a DBE
that applies for interstate certification, the Department is proposing
procedures that would facilitate information sharing amongst UCPs and
would establish efficient processes to remove ineligible firms from the
program.
We believe the proposal would provide faster and more efficient
means to achieve the ``fundamental objectives'' of interstate
certification, which are: (1) facilitating the ability of DBEs to
compete for DOT-assisted contracting; (2) reducing administrative
burdens and costs on the small businesses that seek to pursue
contracting opportunities in other states; and (3) fostering greater
consistency and uniformity in the application of certification
requirements while maintaining program integrity.\35\
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\35\ See ``Interstate Certification 49 CFR Sec. 26.85
Guidance'' available at https://www.transportation.gov/civil-rights/disadvantaged-business-enterprise/interstate-certification-49-cfr-2685.
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Issues With the Current Rule
The Department compiled appeal information for the purpose of this
NPRM. We observed that from fiscal years 2011 to 2020, 77 percent of
the appeals that involved an interstate certification denial are
reversed or remanded, less than 22 percent of cases are affirmed, and 1
percent are dismissed.
Among the cases that are reversed, a plurality (35 percent) are
reversed because the UCP required the firm to provide more information
than Sec. 26.85(c) requires, and 26 percent of cases are overturned
because the certifier denied certification without referencing a good
cause reason. The same percentage of cases are reversed because the UCP
did not give the DBE an opportunity to respond to the UCP's objection
to the DBE's home state certification as the rule requires. Our
reversals show a common trend: UCPs generally give little deference to
the DBE's existing certification. However, the UCP often chooses to
verify, question, and reevaluate all aspects of the DBEs certification,
which the interstate rule prohibits.
Relatively few interstate certification denial cases are affirmed
on appeal, and even fewer are affirmed because the home state
certification is erroneous. Approximately 54 percent of affirmations
occur because the DBE did not provide its entire home state (State A)
package as Sec. 26.85(c) requires. In these cases, it is not uncommon
that the DBE cannot locate material or mistakenly omits a document. Few
appeals decisions are affirmed because State A's certification was
erroneous. Cases are primarily affirmed because of defects in the
certification file that the DBE could have easily corrected (e.g., a
disqualifying bylaw provisions). There has not been a case where the
Department affirmed based on an allegation that State A's certification
was obtained by fraud.
The Department has observed over the 10 years since we promulgated
Sec. 26.85 that the rule has not operated in a way that achieves the
rule's objectives. The high reversal rate of interstate certification
denials shows that the rule must be revised to reduce unnecessary
burden on firms, certifiers, and the Department. We believe national
reciprocity would build trust, encourage teamwork, and improve the
quality of certifications as contemplated when the Department
introduced the UCP system in 1999.
Proposed Sec. 26.85(a) would revise the interstate rule to apply
to all DBEs, replacing the restrictive text of the current rule which
applies only to DBEs with a home state certification. The Department
believes that excluding a subset of DBEs would contradict the rule's
objective to facilitate certification.
Paragraph (b) would clearly state that a UCP (State B) must accept
certifications from a firm that has already been certified as a DBE--
directly implementing interstate reciprocity. The proposal would repeal
``option 2'' under the current rule. The proposal for paragraph (c)
would provide a simple and streamlined interstate application process
for DBEs. The DBE would apply to State B by submitting a short cover
letter, an electronic image, or a photocopy of a UCP directory showing
the DBE's certification, and a signed Declaration of Eligibility (DOE)
(the same declaration described in proposed Sec. Sec. 26.67 and
26.83).
The cover letter would inform State B that the DBE is applying for
interstate certification and identify the states where the DBE is
certified. Since DBEs often do not have a certification notice readily
available, the proposal only requires the DBE to provide proof that its
name appears on a UCP directory. This would remove the unnecessary
burden for a DBE to have to contact a certifier for a copy of its
certification notice. Finally, we emphasize that the Declaration of
Eligibility represents
[[Page 43648]]
conclusive evidence that the DBE is eligible when it submits its
interstate certification application. The DOE ameliorates the burden of
providing an entire certification package, which State B may require
under the current rule; this is the most common issue presented on
appeal. Of course, State B may later obtain certification information
from other UCPs to carry out its compliance activities under proposed
paragraphs (g) and (h) after it certifies the DBE.
After receiving the material from paragraph (c), State B would have
10 business days under proposed paragraphs (d) and (e) to verify that
the firm is already certified as a DBE and to approve the DBE's
interstate certification application. State B would only contact State
A for confirmation in rare cases where the name of the DBE does not
appear in State A's UCP directory.
Since interstate certification is an expedited procedure, proposed
paragraph (f) warns the certifier that any undue delay by State B in
certifying the DBE would be noncompliance with this part.
Overall, proposed paragraphs (a) through (f) would streamline a
process that could take more than 140 days under the existing rule and
reduce the review period to 10 business days or less. The interstate
application would consist of the three documents described above.
Post-Interstate Certification Procedures
After certifying the DBE, as with the current rule, State B would
treat the DBE as any other DBE within its UCP.
Proposed paragraph (g)(1) describes a discretionary process for any
UCP to obtain all or a portion of a DBE's unredacted certification
files. The UCP that initially certified the firm would likely have the
bulk of the DBE's information, but other UCPs could have additional
information that may be helpful to monitor the DBE. The Department
seeks comment on whether there should be limits to the information a
UCP may request from another state. Should the rule only allow the UCP
to request certification information from the previous seven years? Or
should a UCP be entitled to only a subset of information in the
certification file (e.g., most recent on-site report and the latest
Declaration of Eligibility)?
Paragraph (g)(2) would require all UCPs to share certification file
information within 10 business days of a request. We believe the
proposal would create a minimal burden, as technological advances now
allow a certifier to send electronic certification files. The
Department stresses that the integrity of the program is the
responsibility of all participants, regardless of where the DBE is
located. UCPs are required to promptly share information with other
states. The proposal simply reinforces the UCP's duty to cooperate, as
described in Sec. Sec. 26.81(d) and 26.109(c).
As in the current rule, a UCP would be required to carry out its
own oversight of its out-of-state DBEs. The proposed paragraph (g)(3)
clarifies that the UCP must conduct its own certification reviews and
investigate complaints regarding out-of-state DBEs, as it would do with
in-state DBEs. We believe that the proposal to allow virtual on-site
visits makes this process less burdensome.
Paragraph (g)(3) would also clarify that the DBE must submit an
annual DOE, with documentation of gross receipts to confirm small
business size, to the UCP of each state in which it is certified. The
Department seeks comment on whether a centralized portal should be
created to reduce the burden on DBEs that must file declarations in
multiple states. The DBEs could upload current annual and material
change declarations to the system at a specific time during the year
where all UCPs could review the information. The Department seeks other
ideas on how a centralized portal, which would not be housed at USDOT,
would function and what additional capabilities the portal should have.
To address concerns discussed in previous preambles that
reciprocity would promote forum shopping by DBEs to apply to UCPs that
may be perceived as less stringent in their certification reviews,
proposed paragraphs (g)(4) and (6) would provide UCPs tools to remove
ineligible firms from the DBE Program. The objective of paragraphs
(g)(4) and (6) is to promote uniformity in certification and program
integrity.
Proposed paragraph (g)(4) would allow a UCP to take part in a
decertification proceeding conducted by another state, if the UCP
believes the DBE is ineligible based on the same facts and reasons as
the other state. The joint removal procedures would only be a possible
if UCPs communicate with each other. We hope that the proposed rule
will encourage UCPs to interact more frequently. If the UCP joining the
proceeding has additional evidence to support ineligibility, both
states could agree to update the notice of reasonable cause to propose
decertification. While the UCP joining the proceeding would be
permitted to provide additional information to support the initiating
UCP's case, the UCP would not be permitted to change the grounds for
the proposed removal or unduly delay the informal hearing. The joint
decertification proceedings would be a discretionary process and only
UCPs that choose to participate would be bound to the decision of the
independent decisionmaker. The Department seeks comments about
additional, or alternative procedures and due process protections the
provision should include.
Proposed paragraph (g)(5) would provide that UCPs should regularly
check and update the ineligibility database, which is the same
requirement that exists under the current rule.
Finally, to strengthen program integrity, proposed paragraph (g)(6)
states that if the Department determines on appeal that substantial
evidence supports a UCP's decertification of a firm, that firm would
automatically be decertified in all states. The proposal would not
provide appeal rights to challenge an automatic decertification because
the firm already had the opportunity to challenge its decertification
after the UCP's initial determination. This proposal promotes program
integrity and uniformity in certifications through a single action.
The proposed paragraph (g)(6) would not apply in instances where
the Department affirms a decision because of failure to cooperate,
since such cases are limited to a firm's interaction with one UCP.
22. Denials of In-State Certification Applications (Sec. 26.86)
Under existing paragraph (c) of Sec. 26.86, when a firm is denied
certification, the certifier must establish a waiting period of no more
than twelve months before the firm may reapply. We propose removing the
requirement for the certifier to gain OA approval before adopting a
shorter waiting period, as we do not see the necessity for it. In May
2020, DOCR began requiring certifiers to include specific, verbatim
appeal instructions in their denial letters.\36\ We propose adding
those instructions to Sec. 26.86(a). Most notable in the instructions
is a shorter timeframe for filing an appeal as well as notifying the
firm that they have a right to request the documents that the certifier
relied on to make its decision.
---------------------------------------------------------------------------
\36\ Email from Departmental Office of Civil Rights to
Recipients.
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Under the current rule, the clock for the waiting period for
reapplication begins to run on the date the applicant receives the
denial letter; we propose that the period begin on the date the
certifier sends the denial letter, which
[[Page 43649]]
in the majority of cases is done by email.
23. Decertification Procedures (Sec. 26.87)
Strict Compliance
Since the beginning of the DBE Program in 1983, rules have been in
place that recipients/certifiers must follow when removing a DBE's
certification. These rules are essential for ensuring that only
eligible firms participate in the program. We reiterate that these
rules exist to give certifiers the tools to take prompt action in a
fair manner if a firm's circumstances, ownership, or control changes
over time, resulting in once-eligible firms becoming ineligible.
Certifiers' strict compliance with the program's decertification rules
is critical to keeping intact appropriate due process protections
afforded to DBEs and ensuring administrative efficiencies if or when
the firm chooses to appeal a decertification decision to the
Department. As such, decertification procedures are not to be
perfunctorily executed. Given the inconsistent and erroneous manner in
which we see certifiers sometimes implementing the procedures, we are
proposing to streamline and strengthen the current language in Sec.
26.87. Our goal is to make the procedures easier to understand so that
they may be more easily followed. Although the substance of Sec. 26.87
remains largely the same, we propose adding some requirements and
clarifications.
In too many instances, we have seen certifiers issue pro forma
notices of intent to decertify and pro forma final notices of
decertification, with scant justifications articulated. Section 26.87
requires both notices to fully explain the reason(s) for moving to
decertify a firm with references to specific evidence in the record.
Sparse notices and blanket, incomplete, or cryptic references deprive
the DBE of the ability to meaningfully respond and provide information
that demonstrates its continued eligibility. Further, the certifier
bears the burden of proof in decertification proceedings (i.e., the
certifier must show that, more likely than not, the DBE is no longer
eligible for certification); notices not fulfilling the requirements of
Sec. 26.87 do not satisfy that burden. To address these issues, we
propose more succinct and pointed language in paragraphs (b) and (g),
which are respectively paragraphs (d) and (h) in the proposed rule. We
also propose stating the burden of proof information at the very
beginning of Sec. 26.87.
Failure To Submit Declaration of Eligibility (DOE)
The Department notes an upward trend in the number of appeals from
DBEs that certifiers decertified based on the DBE's failure to
cooperate with a request(s) to submit a Sec. 26.83(j) annual no-change
affidavit (and now proposed as declaration of eligibility (DOE)). The
responsibility of timely filing a DOE squarely falls on the DBE. There
is no requirement that a certifier remind a DBE of the annual DOE
submission deadline, though we are aware many do send reminders
electronically through automated systems. In the preamble to the 2014
final rule we explained that a DBE's failure to provide a DOE after a
request or reminder from a certifier is failure to cooperate under
Sec. 26.109(c), for which a certifier may initiate decertification
proceedings. We also stated in 2014 that a certifier should not
commence decertification proceedings simply because the DBE failed to
meet the filing deadline; nor should decertification proceedings
continue once the DBE submits the requested information. That statement
unintentionally suggested that a DBE can fail to submit a DOE without
consequence.
The proposed revision to Sec. 26.87 would clarify that that is not
the case. In the requirement for offering the firm an opportunity for
an informal hearing, we are proposing an exception: the firm would not
be entitled to a hearing if the ground for decertification is the
firm's failure to timely submit a Sec. 26.83(j) DOE. If the firm does
not provide the DOE within 15 days of the notice of intent to
decertify, the certifier may issue a final notice of decertification
based on Sec. 26.83(j) and/or Sec. 26.109(c) without offering an
opportunity for a hearing. The Department recognizes the time and
resources a certifier must undertake to convene a decertification
hearing, no matter the simplicity or complexity of the issues. The
proposed exception to the informal hearing requirement would help
certifiers conserve resources that in many instances are already
limited.
Decertification Grounds
Section 26.87(e) lists the grounds upon which certifiers may
initiate decertification proceedings. One of the grounds (Sec.
26.87(e)(5)) is if there is a change in DOT's certification standards
or requirements after the firm was certified. The Department proposes
an amendment to Sec. 26.87(e)(5) stating that in the instance of a
change in certification standards or requirements, the certifier must
offer the firm, in writing, an opportunity to cure eligibility defects
within 30 days. If the firm does not do so, the certifier may proceed
with sending the firm a notice of intent to decertify. The Department's
rationale is that certified firms should not be penalized for changes
to certification standards of which they most likely are unaware and
with which they might be able to comply--and thus remain eligible--if
given the opportunity to do so.
Virtual Informal Hearings
Section 26.87(d) requires a certifier to offer a firm that it
intends to decertify an informal hearing at which the firm may respond
in person to the reasons for the intent to decertify. At the onset of
the COVID-19 pandemic in March 2020, the Department issued guidance
allowing certifiers to conduct a Sec. 26.87(d) hearing using virtual
methods such as (but not limited to) video conferencing.\37\ We propose
making permanent the option to conduct hearings virtually. In addition
to reducing the risk of transmitting or contracting COVID-19 or other
illness, virtual hearings would be more efficient for all parties
because of the reduction in travel time and cost, as well as helping
certifiers conserve financial and other resources that in-person
hearings require. Moreover, the Department has not heard of any
negative repercussions from conducting virtual informal hearings. The
requirement for a certifier to maintain a complete, verbatim transcript
remains intact.
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\37\ See ``Memorandum--DBE and ACDBE Certification Procedures
During COVID-19 Pandemic'' available at https://www.transportation.gov/sites/dot.gov/files/2020-04/DOCR-20200324-001.pdf.
---------------------------------------------------------------------------
However, having heard of instances in which a certifier or a DBE
requests multiple date changes for the hearing (some we suspect may be
attempts to delay an adverse finding), we seek to impose a deadline by
which the hearing must occur. If the DBE elects not to have a hearing,
we would propose to impose the same deadline by which the DBE would be
required to submit written information or arguments regarding its
eligibility. The deadline in both instances would be within 45 days of
the date of the certifier's notice of intent to decertify (NOI).
Otherwise, the ad infinitum potential for date changes would become
excessively cumbersome for all parties, waste resources, and ultimately
create unnecessary delay. Both the hearing and submission of written
information would remain optional for the DBE, and we remind certifiers
that a firm's decision not to attend a hearing or submit written
[[Page 43650]]
information does not equate to a failure to cooperate.
Informal Hearing Participation
We also propose that during an informal hearing, only the socially
and economically disadvantaged owner (SEDO) be permitted to answer
questions related to the SEDO's control of the firm. Often, the purpose
of the informal hearing is for the certifier to ascertain whether the
SEDO in fact controls the firm. Responses from someone other than the
SEDO do not allow a certifier to make an accurate or meaningful
determination about the SEDO's role in the firm, such as whether the
SEDO makes independent decisions about the firm's daily and long-term
operations. Based on the Department's regular review of multiple
hearing transcripts when firms appeal decertification decisions, the
Department has seen instances of a non-SEDO or other party providing
rehearsed and/or falsified responses on behalf of the SEDO regarding
the SEDO's control of the firm. Thus, this proposed requirement would
further protect the DBE Program's integrity and help prevent fraud. A
representative of the SEDO, including an attorney, would still be
permitted to attend and participate in the hearing, including answering
questions about ownership, business size, the firm's structure, etc. A
representative of the SEDO, including an attorney, would be permitted
to ask the SEDO follow-up questions about any topic--including
control--during the hearing. Other employees of the firm would still be
permitted to answer questions about their own roles/experiences as well
as other general aspects of the firm. We emphasize that the requirement
for the SEDO to directly answer questions only applies to questions
about control. We welcome comments from certifiers and firms on this
proposal.
For similar reasons for proposing informal hearing and written
submission deadlines, we propose a 30-day deadline in Sec. 26.87(h)
for a certifier to render a final decision following an informal
hearing or receiving written information from the DBE.
24. Counting DBE Participation After Decertification (Sec. 26.87(j))
In response to requests for clarification and various concerns
evidenced by recipients and other stakeholders, the Department is
proposing the following revisions to Sec. 26.87(j).
The first revision breaks out the current first paragraph into two
paragraphs to clarify the effect of removing a DBE's eligibility prior
to a prime contractor executing a subcontract with the DBE or prior to
the recipient entering into a prime contract with the DBE. The
Department believes that addressing each scenario in a separate
subheading would not change the requirements of the rule; it would
simply make it easier to understand by separately addressing each
scenario in the current rule.
The next proposed revisions concern the effects of decertifying a
DBE after it has entered into a subcontract with the prime contractor.
The current rule states that the DBE's performance could continue to
count toward the contract goal if it received notice of its
decertification after the subcontract was executed. However,
stakeholders have informed the Department that they have witnessed
prime contractors taking advantage of this provision, particularly in
the context of a design-build contract. On design-build contracts,
prime contractors/developers may submit an open-ended DBE commitment
plan, and only commit work to specific DBEs once they have been awarded
a subcontract. In such instances, prime contractors have an incentive
to add work to an existing contract with the now decertified firm.
Prime contractors do this to avoid having to end the subcontract with
the formerly certified firm and find another DBE to perform the
additional work. This practice deprives other DBEs from being solicited
to perform work on new subcontracts. Of course, in other situations, it
may make sense to allow minor amendments, or a brief continuation, of a
decertified firm's work on a contract to alleviate the burden of ending
the subcontract and soliciting a new DBE subcontractor. To balance the
two concerns, the Department proposes that prime contractors would only
be permitted to add work or extend a completed subcontract with a
previously certified firm if it obtains prior, written consent from the
applicable recipient.
Further, DBEs have expressed concerns regarding the situation in
which a DBE, after a subcontract has been executed between the DBE and
the prime, becomes disqualified from the program because it was
purchased or merged with a non-DBE firm, perhaps even by the prime
contractor on the project. The current rule allows DBEs to continue to
count toward contract goal credit, regardless of the reason they become
disqualified from the program. The purpose of the current rule is to
avoid burdening a prime contractor to find a replacement for a DBE that
becomes ineligible after the subcontract was signed; the prime
contractor already made a subcontracting commitment with a DBE that was
certified at the time the commitment was made and should not have to
repeat the process. The Department proposes an exception to this
current rule because the Department has determined that the deprivation
of opportunities for DBEs that results from a prime contractor's
ability to continue to count work now performed by a non-DBE outweighs
the burden for a prime contractor to make good faith efforts to solicit
a new DBE, if necessary to meet the contract goal. Thus, the Department
proposes to disallow continued credit toward a contract goal if the
DBE's ineligibility after the subcontract is signed is the result of a
purchase by, or merger with, a non-DBE firm. In that situation, the
prime contractor would be required to use good faith efforts to replace
the DBE if additional credit is needed to meet the contract goal.
25. Summary Suspension (Sec. 26.88)
Section 26.88 permits or requires the certifier to suspend a DBE's
certification immediately under specified circumstances. In
promulgating this rule in 2014, the Department intended for it to apply
in extraordinary situations that jeopardize program integrity or when
time is otherwise of the essence. We said in the 2012 NPRM that we
sought a ``middle ground'' between not having a suspension rule at all,
as was then the case, and, as ``many'' stakeholders urged, one that is
universal and automatic. See 77 FR 54960 (Sept. 6, 2012). The middle
ground was a rule requiring suspension upon the incarceration or death
of a SEDO necessary to the firm's eligibility and permitting suspension
in the event of ``[o]ther material changes.'' Preamble to final rule
(79 FR 59577 (Oct. 2, 2014)). We noted the need for ``swift action''
when a ``dramatic change in the operation of the DBE occurs that
directly affects the status of the company as a DBE,'' and our intent
that suspensions be short and quickly resolved. Id. at 59578. We
explained that our overall objective in adopting the current rule was
``to preserve the integrity of the program without compromising the
procedural protections afforded DBEs to safeguard against action by
certifiers based on ill-founded or mistaken information.'' Id.
The Department would like to add language in Sec. 26.88 to permit
a certifier to only rely on a single reason if the summary suspension
is elective; if the suspension is for a mandatory reason, the certifier
may rely on more than one reason. As already expressed, it is our
[[Page 43651]]
view that summary suspension is an extraordinary measure that greatly
impacts a firm's operations. It is a severe remedy that certifiers
should not invoke lightly and to which a firm should have adequate
opportunity to respond. We believe the latter is critical to preserving
a firm's due process rights. Furthermore, being permitted to only
provide a single reason would rightfully narrow the focus of the
summary suspension while retaining a certifier's discretion to decide
the basis of the suspension.
We remain committed to the objective. Experience has shown,
however, that the rule has not functioned as intended. Too often, the
rule has needlessly jeopardized the DBE's viability, made the
certifier's job harder, or provided unfair and unreasonable outcomes.
It has produced divergent results among jurisdictions without much
time-to-resolution improvement over standard Sec. 26.87 proceedings.
None of these outcomes enhances program integrity, reduces regulatory
burden, or streamlines administration.
The proposal states clearer rules and would reduce burdens
bilaterally. The language would clarify and simplify procedures,
provide bright-line rules, and rebalance rights and responsibilities
more equitably. It would specify what needs to happen and when.
Individual provisions would spell out what certifiers must do to get a
result within 45 days and what protections from arbitrary action DBEs
could expect. The revised rule would require both parties to the
suspension to act faster, which the Department believes is consistent
with the gravity of the action, with procedural protections specified
in much greater detail. We believe that both speed and precision
bolster the integrity of the program.
We have tried to reduce ambiguity and remove internal
inconsistencies. We do not believe, for example, that an ``expedited''
procedure should in fact delay the ``commence[ment]'' of an action to
decertify. See current paragraphs (e) and (g). Similarly, current
paragraphs (b) and (e) seem to take opposite sides on the question of
whether Sec. 26.87(d) procedures apply in resolving summary
suspensions. The proposal would correct these problems and seize an
opportunity. While the current rule requires nothing in the certifier's
notice other than the fact that the DBE is suspended--the reason, the
evidence, the DBE's response options, consequences, etc.--the proposed
rule would require notice of the ``procedural protections'' to which we
referred in 2012. We realize now that the current rule can be revised
to afford greater fairness to DBEs. For example, under the current rule
a DBE cannot meaningfully ``show cause'' in defense of the unknown, let
alone do it quickly. We invite comments on our proposed revisions,
which we believe will address the above-described deficiencies.
Proposed Sec. 26.88(a) would consolidate the language in current
paragraphs (e) and (f) about the temporary nature and consequences of
summary suspension, with an important clarification and an essential
simplification. The clarification would resolve the ambiguity in
paragraphs (a) and (e) about whether a summary suspension triggers a
Sec. 26.87 proceeding and immediately activates all Sec. 26.87
procedures. The Department does not believe it does. Otherwise, there
would be no distinction between Sec. Sec. 26.87 and 26.88 except the
immediate penalty on the DBE. The current rule compounds the problem
with hybridization: it converts swift suspensions into slower Sec.
26.87 decertifications, which further obscures the rule's purpose and
erodes its utility. Finally, the substantive reach of the current
provisions is nearly identical. The proposed revision would eliminate
much of the overlap and time lag by deeming a rule-compliant suspension
decision to be a final decision appealable to the Department. It
recognizes the reality that regular decertification proceedings almost
always take more than 30 days, and it removes the additional,
unintended burden to the DBEs of open-ended suspensions. The most
obvious results would be time savings, burden reduction, and more
business-critical certainty about what a suspension entails and how
soon it would be resolved. Reinforcing and conforming changes elsewhere
in Sec. 26.88 would close structural gaps, shorten embedded deadline,
and strengthen procedural integrity.
The simplification is small but critical to fairness and
transparency. The proposed rule would require notice of the suspension
by email. The change would eliminate the certified mail requirement,
which needlessly burdens both parties. The DBE would receive immediate
notice of the suspension, including information critical to its
response. Emailing notice to the DBE at an email address provided by
the DBE in its initial DBE application or its annual DOE would remove
uncertainty about when the suspension is, or is deemed to be,
effective. The certifier would save time and resources, both parties
would know when the 30-day clock begins to run, and the DBE would have
a meaningful opportunity to contest the suspension. We believe the
change is essential to producing speedy and principled results. Short,
clear rules in subsequent paragraphs would specify the contents of the
notice, its effect, and the rights and responsibilities of certifier
and firm.
Revised Sec. 26.88(b) would alter the description of events
requiring or permitting summary suspension. The most notable revision
is also the most obvious. We propose to add as a mandatory suspension
condition clear and credible evidence of the DBE's involvement in fraud
or other serious criminal activity. This proposed change should be
self-explanatory. The proposed provision would omit the two ``material
change'' grounds for elective suspension as too subjective and better
resolved by information request or Sec. 26.87(b) notice. We consider
the ``clear and credible'' standard a simplified, plain language
encapsulation of the more extensive but less helpful explanation in the
current rule.
The proposed rule would change the treatment of death and
incarceration as suspension events. Our reasoning is that in a
significant number of cases the event itself does not meaningfully
affect program integrity. When a SEDO dies, a successor in interest may
be able to demonstrate SED. We also believe that certifiers should be
mindful of the effect of instantly removing certification at a time
when the company is likely to be particularly vulnerable. Similarly,
when a SEDO is incarcerated, the SEDO may be incarcerated for a minor
offense of which s/he has not been convicted or on a charge that might
not threaten program integrity. The decedent's estate, though not an
individual, might reasonably be considered to represent the interests
of SED persons. While we generally leave to the certifier's discretion
which deaths or incarcerations demand immediate action, the new
language in paragraph (b)(2)(i) would raise the bar. In short, deaths
and incarcerations could trigger elective suspensions only if they
clear that bar.
Finally, proposed Sec. 26.88(b) would resolve the apparent tension
between summary suspension's extraordinary nature and the current
rule's explicit provision for suspension in the case of a DBE's SEDO's
failure to comply with Sec. 26.83(j) requirements. In this case, the
rationales are procedural/administrative and substantive. Certifiers
rightly point out that the magnitude of noncompliance unreasonably
strains resources and hamstrings enforcement. The number of DBEs that
do not comply strains the system in ways that sometimes preclude fair,
efficient administration overall. We do not
[[Page 43652]]
believe that giving every noncompliant firm a full Sec. 26.87
proceeding in each year of noncompliance is tenable, given the
likelihood that many offenders once suspended will simply provide the
DOE and gross receipts documentation. The current rule diverts
resources from more productive uses.
The substantive rationale for retaining the No Change Affidavit
(NCA)/Declaration of Eligibility (DOE) trigger for discretionary
suspension is more compelling: program integrity depends on the NCA/DOE
filing. The NCA/DOE substitutes for the much more burdensome option of
periodically requiring DBEs to re-demonstrate that they meet all
eligibility requirements. Section 26.83(h) prohibits such
recertification requirements as unreasonably burdensome, and Sec.
26.83(j) makes them unnecessary. The annual filing is the price of
continued certification and one we consider more than reasonable. Hence
our view that suspension is an appropriate remedy for a DBE's failure
to comply with the relatively light burden of submitting a NCA/DOE to
demonstrate its continued eligibility for the DBE Program. Notably, the
proposal expands the universe of cases that can be resolved without
invoking Sec. 26.87, which greatly streamlines program administration.
We base these changes on stakeholder input and our own experience
with the rule. In keeping with our oversight role, our primary concern
is to maintain the integrity of the entire program. Local certifiers
are better equipped than we are to consider issues such as changes in
ownership of particular DBEs and whether such changes affect the DBE's
eligibility for the program.
Proposed Sec. 26.88(c)(1) specifies what the paragraph (a) notice
must contain. The new language clarifies how Sec. Sec. 26.87 and 26.88
differ and specifies the scope of each in the suspension context. It
closes the gap (i.e., the notice's due process role referenced above)
between notice and result. The rest of the paragraph fleshes out the
necessary particulars and limits potential abuse in equal measure on
both sides. The new rules, with their component time limits, explicit
burden allocations, waivers, and defaults, are the mechanical core of
Sec. 26.88. They will provide a realistic mechanism for achieving
full, fair, and final resolutions within 30 days. We anticipate
substantial efficiency gains from eliminating redundant processes and
the much benefit to DBEs of certainty that any suspension will be fully
and finally resolved by a date certain.
Proposed revisions in Sec. 26.88(d) preserve the current rule's
articulation of the firm's appeal rights and add a provision for
injunctive relief when the certifier does not comply with the new time
limitations. The DBE may request injunctive relief when the certifier,
contrary to a new curb on its expanded discretion, electively suspends
the same firm twice within a rolling one-year period. The DBE may also
request injunctive relief when the certifier fails to lift a suspension
by the 30th day. These curbs reinforce our intent that a brief
discretionary suspension is a remedy to be employed judiciously.
26. Certification Appeals to DOCR (Sec. 26.89)
The overarching goals of the Department's proposed changes to this
section are to increase administrative efficiency and enhance the
clarity of existing rules by reordering the paragraphs and introducing
a few requirements.
We recommend shortening the timeframe for filing an appeal from 90
to 45 days. The Department set the 90-day deadline prior to applicants
commonly having access to email and the internet. The proposed
timeframe matches the rule set by the SBA Office of Hearings and
Appeals for firms determined ineligible for participation in SBA's 8(a)
contracting program. See 13 CFR 134.404. We welcome comment from
business owners on the feasibility of appealing within 45 days. We
emphasize that we are not proposing any change to a firm's ability to
show that there was good cause for a late filing and to explain why it
would be in the interest of justice for the Department to accept the
late filing.
While the Department will continue to accept appeals sent via mail
or hand delivery, we encourage appellants to submit them via email to
help decrease administrative costs and increase efficiency for all
involved parties.
Next, the requirement in Sec. 26.89(d) that certifiers send the
Department administrative records that are well organized, indexed, and
paginated has long been in existence. Nonetheless, the vast majority of
administrative records we receive are poorly organized and not indexed.
Having to weed through these types of records--most of which are many
hundreds of pages--wastes time and can prevent the Department from
issuing timely decisions. Moving forward, the Department will reject
non-indexed or otherwise disorganized records that do not meet this
standard and will request certifiers to immediately correct and
resubmit them. A certifier's failure to comply with our request within
seven days will be regarded as a failure to cooperate under Sec.
26.109(c).
The Department would like to reinsert the language from Sec.
26.89(c)(1) and (2), which were inadvertently omitted from the
published rule during the 2014 revision. The first provision to be
reinserted would require appellants to identify in their appeal the
other certifiers that have certified the firm, which certifier(s) have
rejected an application for certification from the firm or removed the
firm's eligibility within one year prior to the date of the appeal, and
which certifier(s), if any, before which an application for
certification or a removal of eligibility is pending. The second
reinsertion would notify program recipients that in the event of an
appeal, the Department would request the information described above,
which the firm in question would be required to promptly provide.
In the interest of administrative efficiency, the Department
proposes adding a paragraph that would allow DOCR, at its discretion,
to summarily dismiss an appeal. DOCR would dismiss an appeal that does
not set forth a full and specific statement under Sec. 26.89(c). It is
plausible that there are additional circumstances under which DOCR
would decide to summarily dismiss. In every instance of a summary
dismissal, DOCR's written notification would include an explanation for
the decision and would instruct the parties what action(s) to take.
The proposed language for paragraph (e) restates portions of the
current rules found in Sec. 26.89(e) and (f)(1) and (2), in plain
language and aggregates them. There is no substantive change.
We are also proposing a paragraph to clarify the parameters within
which we give recipients technical advice. At present, we provide
technical advice about the overall meaning and general implementation
of the provisions of part 26 concerning DBE/ACDBE certification.
Recipients sometimes give the Department a description of a specific
firm's certification application and ask the Department to opine on the
firm's eligibility. When that happens, the Department reminds
recipients that determining certification eligibility is not within the
Department's purview. If we issued advisory opinions, we would be
effectively directing certifier's actions and altering the result.
Doing so would violate basic separation of functions principles, as
eligibility decisions are squarely the responsibility of the certifier,
while we are responsible for considering appeals of certifiers'
decisions. To make the reminder more permanent, we propose adding
[[Page 43653]]
Sec. 26.89(g) to definitively state that the Department does not issue
advisory opinions.
We also wish to remove the references to SBA from Sec. 26.89
because the former memorandum of understanding between SBA and DOT is
no longer in effect.
Section 26.89(i) states a Departmental ``policy'' to make an appeal
decision within 180 days of receiving the complete administrative
record, that the Department will notify the parties of the reason(s)
for a delay beyond this point, and to provide a date by which an appeal
decision will be made. Recipients and appellants alike interpret this
policy as a requirement that the Department issue decisions in 180 days
and to do so by an absolute date. That was never the Department's
intent, and we would like to clarify that the Department will issue a
decision in 180 days ``if practicable,'' and changing the phrase ``date
by which'' to ``approximate date.''
27. Updates to Appendices F and G
The Department proposes to remove from part 26 forms in Appendices
F (Uniform Certification Application/UCA) and G (Personal Net Worth
Statement). Official forms are not required to be reproduced in the
Code of Federal Regulations (CFR). Moreover, the UCA and PNW Statement
are readily available on DOT's website.\38\ Removing the forms from the
CFR is an administrative action and does not impact the ability of the
public to comment on any amendments to the information collections
contained in these forms.
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\38\ See www.transportation.gov/civil-rights/disadvantaged-business-enterprise/ready-apply.
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The changes we are proposing to the UCA are largely technical in
nature. They include updating website addresses, clarifying
definitions, minimizing the use of pronouns, and providing more details
on how applicants can learn more about the DBE and ACDBE Programs. The
only substantive change we recommend is changing the term ``Affidavit
of Certification'' to ``Declaration of Eligibility.'' We propose that
change so that the same form can also be used in lieu of the current
annual affidavit of no change that certified firms must annually
submit. Using the same form for both purposes will increase efficiency
and decrease burden for firms and certifiers alike.
On the PNW Statement, we propose adding a sentence in the
introductory paragraph specifying the rule's PNW limit, changing the
``Spouse's Full Name'' field to ``Spouse or Domestic Partner's Full
Name,'' and removing the ``Retirement Accounts'' field from the Assets
column, consistent with our proposal of fully excluding retirement
accounts from the personal net worth calculation.
Part 23
Subpart A--General
28. Aligning Part 23 With Part 26 Objectives (Sec. 23.1)
The program objectives for the DBE Program currently identified in
Sec. 26.1 are inconsistent with the program objectives for the ACDBE
Program currently identified in Sec. 23.1. Although the objectives are
largely identical, a 2014 revision to Sec. 26.1 added the following
two objectives that are not included in Sec. 23.1:
To promote the use of DBEs in all types of federally
assisted contracts and procurement activities conducted by recipients
(``program objective 1''); and
To assist the development of firms that can compete
successfully in the marketplace outside the DBE Program (``program
objective 2'').
For consistency with the program objectives in part 26, the
proposed rule adds program objectives similar to Sec. 26.1 of the DBE
Program to Sec. 23.1 for the ACDBE Program. Importantly, the concepts
found in the DBE Program Sec. 26.1 objectives 1 and 2 are already
included in the ACDBE Program at Sec. 23.25(c) and (d)(7).
29. Definitions (Sec. 23.3)
In the Department's experience, recipients need clarity on terms
already used in this provision. Discussed below are a few of the
definitions we propose adding or amending to clarify existing
requirements in part 23 and to make provisions in part 23 consistent
with the provisions of 49 CFR part 26.
Affiliation
The definition of ``affiliation'' under Sec. 23.3 incorrectly
references ``13 CFR 121.103(f),'' titled ``affiliation based on
identity of interest.'' The SBA amended its regulation in 2004
redesignating ``(f)'' to ``(h).'' When the part 23 rule was finalized
in 2005, the reference to 13 CFR 121.103(f) was inadvertently not
updated to reference ``(h).'' See 58 FR 52050 (Oct. 8, 1993); 62 FR
29548 (May 30, 1997); and 65 FR 54454 (Sept. 8, 2000). Accordingly, the
correct reference is to 13 CFR 121.103(h), titled ``affiliation based
on joint ventures.'' Therefore, the proposed rule would make a
technical correction to address the aforementioned error in the
definition of ``affiliation'' in Sec. 23.3.
Airport Concession Disadvantaged Business Enterprise (ACDBE)
Based on the definitions of ``Airport Concession Disadvantaged
Business Enterprise'' and ``concession'' under Sec. 23.3, certifying
agencies are not clear when providing an ACDBE designation to an
applicant if the firm does not currently operate an airport concession.
The current Sec. 23.3 defines ``concession'' in part as one or
more of the types of for-profit businesses in item 1 or 2.
1. A business, located on an airport subject to part 23, that is
engaged in the sale of consumer goods or services to the public under
an agreement with the recipient, another concessionaire, or the owner
or lessee of a terminal, if other than the recipient.
2. A business conducting one or more of the following covered
activities, even if it does not maintain an office, store, or other
business location on an airport subject to part 23, as long as the
activities take place on the airport:
Management contracts and subcontracts, a web-based or other
electronic business in a terminal or which passengers can access at
the terminal, an advertising business that provides advertising
displays or messages to the public on the airport, or a business
that provides goods and services to concessionaires.
The 2000 supplemental notice of proposed rulemaking (SNPRM) opines
that a ``small business concern'' must be an ``existing'' business but
notes that the firm does not need to be operational or demonstrate that
it previously performed contracts at the time of its application for
certification. See 65 FR 54454, 54456 (2000). The terms ``engaged in''
and ``conducting'' in the current definition of ``ACDBE'' have led some
certifying agencies to believe that they cannot provide an ACDBE
designation to an applicant firm unless the firm already is engaged in
an operational airport concession activity. Part 23, subpart C,
``Certification and Eligibility of ACDBEs'', does not address this. We
agree with the perspective described in the 2000 SNPRM and propose
amending. the definition of ``ACDBE'' under Sec. 23.3 to clarify that
a firm does not need to be operational or demonstrate that it
previously performed contracts at the time it applies for
certification.
Concession
A ``concession'' is defined as ``[a] business, located on an
airport subject to this part, that is engaged in the sale of consumer
goods or services to the public under an agreement with the recipient,
another concessionaire, or the
[[Page 43654]]
owner or lessee of a terminal, if other than the recipient.'' See Sec.
23.3 (emphasis added). Some stakeholders contend that the definition of
``concession'' should apply only to businesses that serve the
``traveling public.'' In other words, even though the definition of
``concession'' in part 23 applies the term ``public,'' this should be
interpreted to mean exclusively to the ``traveling public.''
In the past, the Department considered the issue of whether
businesses that may occupy a portion of airport property serving the
public in general, but that do not focus on serving passengers who use
airport for air transportation, should be deemed ``concessions'' for
purposes of the program. See 65 FR 54455 (2000). The Department
determined that businesses on airport property that do not primarily
serve the public should not be viewed as concessions. See 70 FR 14496,
14501 (2005). Instead, the term ``concession'' in part 23 refers only
to businesses that serve the traveling public, except as otherwise
provided in the definition of ``concession'' in the rule (e.g., a hotel
located anywhere on airport property is considered to be a concession).
The proposed rule revises the definition of ``concession'' to
reflect the Department's interpretation that concessions are businesses
who serve the ``traveling public.''
Personal Net Worth
The current definition of ``personal net worth'' (PNW) in Sec.
23.3 exempts from inclusion in the PNW calculation the values of a
maximum of $3 million dollars in assets, which an owner/applicant could
demonstrate were necessary to obtain financing for purposes of entering
or expanding a concessions business subject to part 23 at an airport
(the ``PNW Third exemption''). This exemption was instituted in 2005
when the Department determined that raising the PNW cap for ACDBEs to
enter the concessions industry was not the best solution to mitigate
the high capital requirements of the industry. Instead, the Department
determined that it was more appropriate to adopt exceptions such as the
PNW third exemption. This exemption considered an individual's
circumstances in order to avoid a ``glass ceiling'' effect of an
across-the-board PNW standard. When adopting the PNW third exemption in
2005, the Department made clear that it believed the additional burdens
of implementing the exemption were justified in the interest of opening
business opportunities to ACDBEs. See 70 FR 14496, 14498 (Mar. 22,
2005).
Nonetheless, in the preamble to the 2012 final rule, the Department
cited evidence showing that the PNW third exemption was infrequently
used. The evidence also showed that when the exemption was applied, it
often appeared to be the subject of considerable uncertainty and
confusion on the part of ACDBEs and certifying agencies alike.
Therefore, the Department suspended the exemption to consider whether
the provision should be retained, modified, or deleted. See 77 FR
36924, 36928 (June 20, 2012).
The Department contemplated whether the inflationary adjustment of
the underlying PNW cap to $1.32 million, which maintained the real
dollar value of the previous $750,000 cap, may have the effect of
mitigating what the Department had seen in 2005, as the need for
adopting a provision of this kind. This NPRM proposes raising the PNW
cap to $1.60 million, further obviating the need for the PNW third
exemption. Also, given the indefinite state of suspension of the
exemption with no firm applying it since 2012, the Department is
proposing to delete the PNW third exemption from the definition of
``personal net worth'' in Sec. 23.3.
Instead of removing the above exemption and other proposed changes
to Sec. 26.67(a)(2)(i), the Department proposes to simplify the
definition of ``personal net worth'' in Sec. 23.3 by amending the
definition to have the same meaning as the term ``personal net worth,
in part 26. See discussion above.
Socially and Economically Disadvantaged Individual
The term ``Native Americans'' within the definition of ``socially
and economically disadvantaged individual'' in 49 CFR part 26 was
revised in the Department's 2014 final rule to make it consistent with
the SBA's definition of the term. See 79 FR 59566, 59579 (Oct. 2,
2014). This revision clarified that an individual must be an enrolled
member of a federally or state recognized Indian tribe to receive the
presumption of social disadvantage as a Native American in the DBE
certification process. Consequently, the current definition of ``Native
Americans'' in Sec. 26.5 ``includes persons who are enrolled members
of a federally or State recognized Indian tribe, Alaska Natives or
Native Hawaiians.''
In contrast, the term ``Native Americans'' included within the
definition of ``socially and economically disadvantaged individual'' in
Sec. 23.3 for the ACDBE Program fails to incorporate the requirement
of Federal or state recognition. It includes ``persons who are American
Indians, Eskimos, Aleuts, or Native Hawaiians.'' The existing
definition of ``Native Americans'' in Sec. 23.3 has not been updated
to mirror its counterpart definition of ``Native Americans'' in Sec.
26.5. The proposed rule amends the term ``Native Americans'' included
under the definition of ``socially and economically disadvantaged
individual'' in Sec. 23.3 to conform to the wording of the term
``Native Americans'' included under the definition of ``socially and
economically disadvantaged individual'' in Sec. 26.5.
Sublease
Airports are encountering more complex subtenant arrangements
between ACDBEs and primes. For instance, there are a growing number of
agreements with primes that include provisions that bind tenants to
more than simply the payment of rent. For example, these provisions
might include providing services and supplies and profit-sharing. These
new types of agreements raise questions of control, ownership, and the
manner of counting ACDBE participation. They have given rise to the
need for clarification as to what terms and provisions are appropriate
in a sublease operation that would allow the ACDBE participation to
count as direct ownership toward the ACDBE goal.
The term ``sublease'' is used in several sections of the regulation
but is not defined. This has created uncertainty as to how to determine
if the ACDBE participation should be counted as a sublease agreement.
Other terms used in the regulation to reference sublease relationships
include subconcession (Sec. 23.55 and the Uniform Report) and
subcontract (Sec. Sec. 23.3, 23.9, 23.47, and 23.55). The term
``subconcession'' is defined in the Uniform Report as ``a firm that has
a sublease or other agreement with a prime concessionaire, rather than
with the airport itself, to operate a concession at the airport.'' The
regulation defines the term direct ownership arrangement as ``a joint
venture, partnership, sublease, licensee, franchise, or other
arrangement in which a firm owns and controls a concession.''
In 2011, the Airport Cooperative Research Program (ACRP), ``an
industry-driven, applied research program that develops near-term,
practical solutions to airport challenges'' published a Resource Manual
for Airport In-Terminal Concessions intended to provide guidance on the
development of airport concessions programs. Under the discussion of
subtenant agreements (i.e., subleases), it states that ``subtenants are
[[Page 43655]]
usually responsible for all aspects of their operations. Subtenants may
be franchisees or licensees, or they may operate brands and concepts
that they developed. Counting concession gross receipts generated by
subtenants toward ACDBE goals is, for the most part, straightforward
when subtenants use their own capital and workforce and manage the
overall and day-to-day operations of their business.'' \39\
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\39\ The National Acadmey of Sciences, Engineering, & Medicine
2011, ``Resource Manual for Airport In-Terminal Concessions,''
Washington, DC: The National Academies Press., available at https://doi.org/10.17226/13326.
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Airports are encountering an increasing number of unconventional
subtenant arrangements that are termed ``subleases'' which in many
cases contain restrictions that limit the ACDBE's control of its
operations. In order to determine how to count ACDBE participation, a
recipient must determine in what capacity the ACDBE is performing and
whether the firm owns and controls the concession location.
The proposed rule would add a definition for ``sublease'' to
clarify that the use of the words ``sublease, subconcession, or
subcontract'' in describing the type of agreement is not controlling as
to whether the participation should be counted as direct ownership. The
proposed rule would also add the definition of the term
``subconcession'' to Sec. 23.3, which currently only is found in the
Uniform Report to part 23.
Subpart B--ACDBE Programs
30. Direct Ownership, Goal Setting, and Good Faith Efforts Requirements
(Sec. 23.25)
By statute (49 U.S.C. 47107(e)(3)), recipients and businesses at
the airport must ``make good faith efforts to explore all available
options to achieve, to the maximum extent practicable, compliance with
the goal through direct ownership arrangements, including joint
ventures and franchises.'' This statutory good faith efforts
requirement is addressed in the regulations at Sec. 23.25(f), which
mandates that a recipient include in its ACDBE Program a requirement
for businesses subject to ACDBE goals at the airport, other than car
rental companies, to make good faith efforts to explore all available
options to meet goals, to the maximum extent practicable, through
direct ownership arrangements with ACDBEs.
The current Sec. 23.25(e) provides for the ``use of race-conscious
measures when race-neutral measures, standing alone, are not projected
to be sufficient to meet an overall goal.'' Establishing concession-
specific goals is an example of an acceptable race-conscious measure
that can be implemented. In establishing contract goals, Sec.
23.25(e)(1)(i) and (ii) mandates that the goal can be set through
direct ownership arrangements or through the purchase and/or leases of
good and services. Additionally, Sec. 23.25(e)(1)(iii) addresses the
good faith efforts requirement, and states that ``to be eligible to be
awarded the concession, competitors must make good faith efforts to
meet this goal,'' referencing the narrowly tailored goal that was set
in accordance with 49 CFR part 23, subpart D.
Some airports have interpreted the requirement under Sec. 23.25(e)
to mean that they must require competitors to always make good faith
efforts to meet the goal through direct ownership arrangement
regardless of how the goal was set. Stakeholders have requested
clarification on when concessionaires must make good faith efforts to
explore participation through direct ownership arrangements when a goal
is established based on goods and services provided by ACDBEs as well
as when a goods and services goal can or should be used.
It is important to note the parenthetical ``except car rental
companies'' in Sec. 23.25(f) is intended only to implement the
statutory limitation in 49 U.S.C. 47107(e)(4)(C) against requiring car
rental companies to change their corporate structure to include direct
ownership arrangements as a means of meeting ACDBE goals.
Notwithstanding this exception, car rental companies are still
obligated to make good faith efforts to meet such goals.\40\
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\40\ See ``What are the Good Faith Efforts Obligations of Car
Rental Companies to Meet ACDBE Goals at an Airport?'' available at
https://www.transportation.gov/sites/dot.gov/files/2020-01/docr-20160329-001carrentalcompaniesgoodfaitheffortsguidance.pdf.
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The proposed rule would amend Sec. 23.25(e) and (f) to clarify
direct ownership goal setting and good faith efforts requirements.
31. Fostering ACDBE Small Business Participation (Sec. 23.26)
This NPRM proposes a conforming amendment to add a small business
requirement as under part 26 to the DBE Program (49 CFR part 23). The
rationale for this proposed change is similar to the corresponding
rationale for the requirement under the DBE Program. See 76 FR 5083,
5094 (Jan. 28, 2011).
The Department previously amended the ACDBE part 23 regulation to
conform in several respects to the DBE rule via a June 20, 2012, final
rule. However, in the preamble for this final part 23 rule, we
contemplated but decided not to issue a parallel small business program
requirement for the ACDBE Program. We explained that at the time, it
was primarily focused on applying this provision to federally assisted
contracting and associated issues such as ``unbundling.'' However, we
acknowledged indications of barriers to ACDBEs in the concessions
program that a small business element may help to alleviate. See 77 FR
36924, 36926 (June 20, 2012). We further stated that it would consider
the comments in deciding whether to proceed with a small business
provision for the ACDBE Program in the future, and that it hoped to
learn from airport recipients' implementation of the small business
element part 26.
The Department learned about the implementation of a small business
element from airport recipients and their success in achieving race-
neutral participation from small businesses, including DBEs, through
this process. Moreover, we continue to receive feedback from
stakeholders stating that there is a lack of concession opportunities
of a size and nature that small businesses, including ACDBEs, can
compete for fairly. Given the continued concerns expressed by
stakeholders, we believe the inclusion of a small business element
focused on concessions is warranted. Therefore, we propose adding a
provision in part 23 that would closely mirror the Sec. 26.39
requirement for recipients to create an element for their ACDBE Program
specifically designed to foster small business participation. For
purposes of monitoring compliance, this element would include a
requirement for recipients to periodically report on the implementation
of race-neutral strategies under the small business element for their
programs.
32. Retaining and Reporting Information About ACDBE Program
Implementation (Sec. 23.27)
Active Participants List
The Department proposes adding a ``bidders list'' requirement to
part 23 like the one in part 26. Section 26.11(c) instructs recipients
to create and maintain a bidders list with certain information about
DBE and non-DBE contractors and subcontractors who seek work on
federally assisted contracts. However, for part 23, this proposed rule
would add a requirement for recipients to develop and maintain an
``active participants list.'' The term ``active participants list'' is
used in place of ``bidders list;'' ``bidding,'' is generally
[[Page 43656]]
not used in the context of concessions. The active participants list
would include all firms that have participated or attempted to
participate in airport concession programs in previous years. See Sec.
23.51(c)(2).
Similar to Sec. 26.11(c)(1), one of the purposes of the ``active
participants list'' would be to provide recipients with data that is as
accurate as possible about the universe of ACDBE and non-ACDBEs who
seek concession opportunities for use in helping recipients set overall
goals for car rentals and concessions other than car rental. See Sec.
23.41(a). Recipients could also use all the already available data
methods of reporting and communication with their concessions
community. See 64 FR 5096, 5104 (Feb. 2, 1999). Recipients may obtain
information on firms interested in seeking concession opportunities
from a number of sources, such as past experience with firms that have
run concessions or sought concession contracts or leases, knowledge
about the universe of firms in certain areas of retail and food and
beverage service that tend to be interested in participating in airport
concessions, and attendance lists from informational and outreach
meetings about upcoming concessions opportunities. See 70 FR 14496,
14506 (Mar. 22, 2005).
As with the proposed change to Sec. 26.11(c), the Department
proposes to require recipients to enter this active participant list
information into a centralized database that the FAA would specify.
Requiring recipients to report this information into a centralized
database would create a data source that would allow a more accurate
analysis of firms actively seeking concession opportunities. In
addition, a searchable, centralized database with information about
active participants that includes an expanded dataset would aid
recipients in evaluating ACDBE availability for goal-setting purposes.
We list in proposed Sec. 23.27(c)(2) the types of data that
recipients would be required to obtain and report. Recipients would be
required to obtain and report for the active participants list
requirement the same data sets under the proposed Sec. 26.11(c)(2). In
conjunction with the Department's proposal to add a similar MAP-21
reporting requirement to Sec. 23.27, and its changes to the Uniform
Report, the proposed active participants list reporting requirement
would provide the Department with data showing how many and what types
of ACDBEs are certified, how many ACDBEs are actively seeking
concession opportunities as primes, joint venture participants or sub-
concessions, and which of them are actually awarded concession
opportunities.
To ensure uniformity of data collection for proper analysis, the
Department proposes to add Sec. 23.27(c)(3) to require a standard
practice of requesting the information with proposals and initial
responses to negotiated procurements.
As the Department noted for part 26 with the bidders list, the
active participants list is a promising method for accurately
determining the availability of ACDBE and non-ACDBEs. We also believe
that creating and maintaining an active participants list will give
recipients another valuable tool to measure the relative availability
of ready, willing, and able ACDBEs when setting their overall goals.
See 64 FR 5096, 5104 (Feb. 2, 1999). For this reason, the Department
proposes to add a new paragraph (c) to Sec. 23.27 to require
recipients to develop and maintain an ``active participants list'' for
their ACDBE programs.
Subpart C--Certification and Eligibility of ACDBEs
33. Size Standards (Sec. 23.33)
See discussion on Sec. 26.65 above.
34. Certifying Firms That Do Not Perform Work Relevant to the Airport's
Concessions (Sec. 23.39)
The regulatory definition of ``concession'' under Sec. 23.3 allows
firms that provide goods and services to concessionaires and do not
maintain physical locations on airport property to be certified as
ACDBEs. Firms that provide construction services for the build-out of
concession facilities to concessionaires (e.g., food and beverage,
retailers, etc.) at airports satisfy the definition of ``concession''
under part 23. Hence, suppliers of goods and services (e.g.,
architects, engineers, etc.) to these construction firms also meet the
definition of ``concession'' and are not excluded from receiving ACDBE
certification.
While the firms that perform these construction-related activities
for concessions may qualify as ACDBEs, Sec. 23.55(k) prohibits
recipients from counting toward ACDBE goals the costs incurred in
connection with the ``build-out'' of a concession facility, such as
costs related to renovation, repair or construction. Section 23.55(k)
was promulgated to address concerns that primes may use participation
from construction firms completing build-out projects to primarily
satisfy their goals instead of having ACDBEs meaningfully participate
in as many other concession activities outside of construction.
Given that the definition of ``concession'' under Sec. 23.3
includes suppliers of goods and services to concessionaires without
excepting suppliers of goods and services for build-outs, stakeholders
report that certifiers continue to provide ACDBE certification to
construction firms and firms that supply goods and services to the
construction industry. However, these firms often do not realize that
their participation as ACDBEs cannot be counted until after they have
gone through the certification process. Thus, many are left with having
undergone the burden of obtaining certification and not obtaining
airport jobs.
Firms seeking their ACDBE designation to perform construction-
related activities exclusively in connection with build-out of
concession facilities should not be granted certification given that
the participation derived from those activities cannot be counted
toward goals. Although existing regulations provide certifiers the
discretion to withhold certification of firms that are certified as
DBEs that seek ACDBE certification if they do not perform work relevant
to the Program, the regulations are not explicit regarding whether
certifiers possess the same discretion to deny certification to ACDBE
applicants that are not certified as DBEs. See Sec. 23.37(b).
Therefore, the proposed rule would add a paragraph to Sec. 23.39
explaining that certifiers must not certify applicant firms if they
intend to perform activities exclusively related to the renovation,
repair, or construction of a concession facility (sometimes referred to
as the ``build-out'') for which participation cannot be counted toward
an ACDBE goal.
Subpart D--Goals, Good Faith Efforts, and Counting
35. Removing Consultation Requirement When No New Concession
Opportunities Exist (Sec. 23.43)
The current Sec. 23.43 requires recipients to consult with
stakeholders before submitting overall goals to the FAA. Recipients
must submit goals every three years, which may include periods when
there are no concession opportunities to evaluate. See Sec. 23.45(b).
Examples of stakeholders with whom recipients must consult include, but
are not limited to, minority and women's business groups, community
organizations, trade associations representing concessionaires
currently located at the airport, as well as existing concessionaires
themselves. See Sec. 23.43(b). Meaningful consultation with
[[Page 43657]]
stakeholders is an important, cost-effective means of obtaining
relevant information from the public concerning the methodology, data,
and analysis that support the overall ACDBE goal. See 79 FR 59566,
59581 (Oct. 2, 2014). The type of information that might be derived
from these consultations includes the availability of disadvantaged
businesses, the effects of discrimination on opportunities for ACDBEs,
and recipients' efforts to increase participation of ACDBEs. See Sec.
23.43(b).
The Department's guidance, titled ``Tips for Goal Setting,''
discusses the need for consultation as a source in determining an
adjustment to the base goal figure. It states, in part: ``In
determining whether or not your base figure should be adjusted to
account for the effects of past discrimination, you should consider
consulting with the following organizations and institutions to
determine whether they can direct you to information about past
discrimination in public contracting; discrimination in private
contracting; discrimination in credit, bonding or insurance; data on
employment, self-employment, training or union apprenticeship programs;
and/or data on firm formation.'' \41\
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\41\ See ``Tips for Goal Setting in the Disadvantaged Business
Enterprise (DBE) Program'' available at https://www.transportation.gov/osdbu/disadvantaged-business-enterprise/tips-goal-setting-disadvantaged-business-enterprise.
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Stakeholders expressed that the regulatory requirement for
recipients to perform consultation when there are no concession
opportunities to evaluate or promote is misleading and burdensome. They
argue that it would be more meaningful if they only had to conduct
stakeholder consultation when their goal methodology would include new
concession opportunities.
The Department agrees that consultation work is most appropriate in
gathering narrative data to adjust the base goal figure and when there
are concession opportunities to promote. The consultation requirement
becomes unnecessary without relative availability of new concessions
opportunities to analyze or a base figure to adjust.
The proposed rule would require consultation only when the ACDBE
goal methodology includes opportunities for new concession agreements.
36. Non-Car Rental Concession Goal Base (Sec. 23.47)
Section 23.47 requires recipients to include in the base of the
overall goal for concessions other than car rentals the total gross
receipts of all concessions at the airport, with the following specific
exclusions: (1) the gross receipts of car rental operations; (2) the
dollar amount of a management contract or subcontract with a non-ACDBE;
(3) the gross receipts of business activities to which a management or
subcontract with a non-ACDBE pertains; and (4) any portion of a firm's
estimated gross receipts that will not be generated from a concession.
However, Sec. 23.25(e)(1) provides for establishing concession-
specific goals for particular concession opportunities. Specifically,
it provides that if the objective of the concession-specific goal is to
obtain ACDBE participation through a direct ownership arrangement with
an ACDBE, recipients must calculate the goal as a percentage of the
total estimated annual gross receipts from the concession. See Sec.
23.25(e)(1)(i). It further provides that if the goal applies to
purchases and/or leases of goods and services, recipients must
calculate the goal by dividing the estimated dollar value of such
purchases and/or leases from ACDBEs by the total estimated dollar value
of all purchases to be made by the concessionaire. See Sec.
23.25(e)(1)(ii).
Since the overall goal is an analysis of concessions opportunities
and concession-specific goals set on those opportunities, recipients
have requested clarification on what to use as their base for their
overall goal when the concessions opportunities will yield
participation through the purchase of goods and services from
concessionaires. Recipients report situations where participation for
some non-car rental concessions can only be reasonably expected to be
achieved in the form of goods and services purchases.
The Department explained in the 2000 SNPRM for parts 23 and 26 that
``[c]onsistent with statutory requirements, management contracts and
purchases by concessions from DBE suppliers form part of the goal.'' 65
FR 54454, 54457 (Sept. 8, 2000) Where direct ownership arrangements are
not practicable, it is permissible to add the potential value of
management contracts or subcontracts with ACDBEs and goods and services
to be purchased by concessionaires from ACDBEs when calculating overall
goals. These amounts are added to the base for the overall goal in both
the numerator and denominator.
The proposed rule would amend Sec. 23.47(a) to provide for the
goal setting requirements set forth in Sec. 23.25.
37. Counting ACDBE Participation After Decertification (Sec. 23.55)
Both Sec. Sec. 23.39(e) and 23.55(j) provide that upon an ACDBE
firm losing its ACDBE certification because the firm exceeded the small
business size standard or because an owner has exceeded the PNW, the
participation of the ACDBE firm may be counted toward ACDBE goals
during the remainder of the term of a concession agreement.
Specifically, Sec. 23.39(e) also requires that ``the firm in all other
respects remains an eligible DBE'' as a condition to continue counting
their participation.
When a firm is certified, it is required to report changes that
impact its eligibility by submitting annual affidavits that provide
either notice of no changes or notification of changes in accordance
with Sec. 26.83(i) and (j), made applicable to part 23 by Sec. 23.31.
However, there is currently no provision in the regulation to monitor
whether a firm whose ACDBE certification was removed solely for
exceeding the size standard or PNW cap, but remains eligible for ACDBE
certification in all other respects, remains an eligible ACDBE for the
purpose of counting its participation. Of note, once a firm loses its
certification as an ACDBE due to exceeding the business size standard
or PNW cap, it is no longer obligated to provide the information or
affidavits required by Sec. 26.83.
Section 23.39(e) provides that firms whose ACDBE certification has
been removed because of size or PNW must continue to meet the ownership
and control eligibility requirements to be counted for the duration of
a concession agreement. Stakeholders have highlighted the need to
monitor if it is appropriate to continue counting the participation of
ACDBEs once they lose their ACDBE certification due to size or personal
net worth standards. This type of monitoring is necessary and the
proposed rule amends Sec. 23.55(j) to require those firms to continue
to report changes by submitting declarations similar to those
affidavits required of DBEs by Sec. 26.83(i) and (j). This should be
carried out only with respect to their ability to meet ownership and
control requirements, as a condition to continue counting their
participation.
Under the proposed rule, firms would report changes to recipients
rather than UCPs, given that the firms' participation is counted by
airports. That is, as a condition to counting a firm's continued
participation in the ACDBE Program upon losing certification due to
failure to meet size or PNW standards, the firm would be required to
submit an annual declaration that provides either notice
[[Page 43658]]
of no changes or notification of changes similar to those required by
Sec. 26.83(i) and (j). More specifically, firms would be required to
submit a declaration to report any change in their circumstances
affecting their ability to meet ownership and control requirements
under part 23. In addition, a ``no change declaration,'' submitted
annually to the airport, would affirm that there have been no changes
in the firm's circumstances affecting its ability to meet these
ownership or control requirements. Should an ACDBE firm fail to provide
a no change declaration, the recipient would cease counting the firm's
participation toward ACDBE goals.
Firms would need to report a change in ownership through a notice
of change declaration because the change might impact the recipient's
ability to count the participation of that firm. For example, if a
previously certified ACDBE firm was sold or a controlling interest in
the firm was sold to a non-ACDBE, its participation would cease to be
counted as of the date of the sale based on Sec. 23.39(e). A sale
constitutes a material change that impacts the ownership and control
eligibility requirements in part 23. Therefore, the counting of the
ACDBE's participation would no longer meet the requirements of Sec.
23.39(e), which states in part that ``in all other respects [the firm]
remains an eligible [AC]DBE.'' However, if the sale is made to a ACDBE
firm that meets all eligibility criteria under the ACDBE Program,
recipients should not disqualify the firm's participation from counting
under Sec. 23.55(j).
Upon notice of a sale or change of ownership, recipients should
verify via state electronic directories whether the firm or a
controlling interest in the firm was sold to a ACDBE. Once the sale or
change of ownership is verified, the recipient's monitoring obligation
as well as the selling firm's reporting requirements under this
recommendation would cease. Therefore, the UCP would be solely
responsible for keeping current on the status of the acquiring firm's
ACDBE's certification status and the ACDBE would continue to comply
with its reporting obligations under Sec. 26.83(i) and (j) as
required, prior to acquiring the firm or a controlling interest
therein.
The Department proposes to delete Sec. 23.39(e), and redesignate
paragraphs (f) and (g) as paragraphs (e), (f), and (g) under Sec.
23.39. Both Sec. Sec. 23.39(e) and 23.55(j) address the identical
issue concerning continued counting, and therefore, there is no valid
justification for having these two differently worded sections
instituting the same rule.
38. Shortfall Analysis Submission Date (Sec. 23.57)
Section 23.57(b) requires recipients to conduct a shortfall
analysis and establish steps and milestones as corrective actions
(collectively, ``Shortfall Analysis'') if the recipient fails to meet
its overall goal for the fiscal year. See Sec. 23.57(b)(1) and (2).
The Shortfall Analysis must be submitted to FAA within 90 days of the
end of the Federal fiscal year. See Sec. 23.57(b)(3)(i). In contrast,
Sec. 23.27(b) requires recipients to submit an annual Uniform Report
of ACDBE Participation (``Uniform Report'') by March 1 of each year.
Stakeholders expressed concerns over the due date of the Shortfall
Analysis under part 23 as it becomes due before the Uniform Report is
due.
Part 26 includes a similar requirement; however, the shortfall
analysis is due 30 days after the Uniform Report is due. This affords
recipients 30 days after they are required to submit the report to
analyze the data in the Uniform Report. See Sec. 26.47(c)(3)(i).
The proposed rule would extend the due date of the part 23
Shortfall Analysis by amending Sec. 23.57(b)(3)(i) to allow recipients
to submit the Shortfall Analysis 30 days after they submit their
Uniform Report.
Subpart E--Other Provisions
39. Long-Term Exclusive Agreements (Sec. 23.75)
Five-Year Term for Long-Term Agreements
Section 23.75(a) prohibits recipients from entering into ``long-
term, exclusive agreements'' (LTE) for concessions without prior FAA
approval based on very limited conditions that are outlined in the
regulation. The reason for this general prohibition is to limit
situations where an entire category of business activity is not subject
to competition for an extended period through the use of an LTE
agreement. See Principles for Evaluating Long-Term, Exclusive
Agreements in the ACDBE Program, June 10, 2013 (LTE Guidance).\42\
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\42\ See ``Principles for Evaluating Long-term, Exclusive
Agreements in the ACDBE Program'' available at https://www.faa.gov/sites/faa.gov/files/about/office_org/headquarters_offices/acr/LTE_Guidance_Final.pdf.
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Stakeholders suggest that the five-year term in the definition
contained in Sec. 23.75(a) is too short. As an alternative,
stakeholders suggested that ``long-term'' should be re-defined to a
minimum of ten years given that the term of the typical concession
lease agreement is generally ten years or longer, per industry
standards.
The Department discussed the definition of ``long-term agreement''
under Sec. 23.75 in the preamble to the 2005 final rule, which states
that ``[o]ne airport suggested making 10 years rather than 5 years the
criterion for a long-term exclusive lease subject to this section. We
have not adopted this comment because doing so would reduce the degree
of oversight FAA can exercise under the rule to make sure that long-
term concession agreements include adequate ACDBE participation.'' (70
FR 14496, 14507 (March 22, 2005))
The need for oversight remains unchanged. It is worth noting that
concession agreements with terms that exceed five years but do not meet
the definition of ``exclusive'' need not be submitted for FAA approval
under the rule. The Department seeks comments on keeping the term at 5
years rather than revising it to 10 years. See section 1.2 of LTE
Guidance.
Long-Term Agreements and Options
Section 23.75(a) does not address whether a concession agreement
becomes ``long-term'' if its duration exceeds the five-year threshold
as a result of options. The LTE Guidance explains that a long-term
agreement is one that has a term of more than five years, including any
combination of base term and options (e.g., options to extend the term
of the lease agreement, or to expand the scope of the agreement to a
new section or terminal, or to enter into a new contract, etc.) if the
effect is a lease period of more than five years. See section 1.3 LTE
Guidance. The Department proposes to amend the definition of ``long-
term agreement'' under Sec. 23.75(a) to state that options are subject
to the regulation's requirements if the options result in a lease
period of more than five years.
Long-Term Agreements and Holdovers
Holdover provisions of an airport lease typically allow the airport
sponsor to extend the terms of an existing airport lease without
execution of a new lease, which are distinct from options. Options
involve an extension of the lease and sometimes an adjustment in rental
rates for the extended period set by the option. In contrast, holdover
provisions are meant to provide a short-term extension of the
protections and terms described within the lease document.
Notwithstanding the fact that holdover provisions are designed to
bridge gaps to meet the short-term needs of the parties, holdover
tenancies that cause an exclusive agreement to extend the term beyond
five years may preclude potential ACDBE competitors from participating
in the agreement in
[[Page 43659]]
the same manner as long-term exclusive agreements requiring approval by
the FAA per Sec. 23.75.
The Department seeks public comment on how to address holdovers
that would result in short-term exclusive agreements becoming long-term
without FAA oversight, leading to the possible circumvention of Sec.
23.75.
Definition of Exclusive Agreement
Section 23.75 prohibits sponsors from entering into long-term
exclusive agreements for the operation of concessions except under
limited conditions and subject to FAA approval. Section 23.75(a)
contains a definition of ``long-term agreement'' but does not define an
``exclusive agreement.'' However, the FAA's LTE Guidance defines the
term ``exclusive'' as follows:
For purposes of this guidance and in accord with 49 CFR Section
23.75, the term ``exclusive'' is defined as a type of business
activity that is conducted solely by a single business entity on the
entire airport. In the context of this guidance, the concept of
``exclusive'' includes the absence of any ACDBE participation. (LTE
Guidance, section 1.2) \43\
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\43\ Id.
The intent of Sec. 23.75 is to provide for the review of LTE
agreements to ensure adequate ACDBE participation throughout the term
of the agreement, irrespective of whether an ACDBE or a non-ACDBE
enterprise is the prime concessionaire being considered for award of an
exclusive, long-term agreement. See 57 FR 18400, 18401 (Apr. 30, 1992).
Therefore, the Department proposes to add the definition of ``exclusive
agreement'' to Sec. 23.75(a) to be consistent with the LTE guidance's
discussion of the term ``exclusive.''
Amending Document Requirements
Section 23.75(c) requires recipients to submit to the FAA various
documents and information to obtain approval from the FAA of an
exclusive LTE agreement. In Fiscal Year 2020, the FAA held several
listening sessions with stakeholders in reference to part 23.
Stakeholders shared their concerns regarding LTE requirements for
documentation, specifically, that some of the LTE requirements for
documentation and information were unclear, not feasible, or pertinent.
Moreover, we understand that certain documentation and information
required under the existing rule are typically not available before a
concession opportunity solicitation is published.
The Department believes these concerns merit addressing and
proposes the following changes to Sec. 23.75(c):
Amend the introductory text in Sec. 23.75(c) to allow for
certain documentation and information required for approval of an LTE
agreement under this section to be submitted prior to the release of
the solicitation or request for proposals and others, prior to award of
the contract.
Delete Sec. 23.75(c)(2)(i) as there may not be
opportunities for direct ownership.
Delete Sec. 23.75 (c)(2)(ii) as the existing rule can be
improperly read to permit the prime concessionaire to terminate ACDBEs
on an operation, after the ACDBEs made an investment. Relatedly, delete
Sec. 23.75(c)(2)(iii), as the termination provision language is
inconsistent with the requirements of Sec. 26.53 and the provisions of
Sec. 26.53(f). These termination provisions apply to part 23 by
reference and address replacement or substitution of ACDBEs.
Replace the current provision in Sec. 23.75(c)(3) that
requires ACDBE participants to be in an acceptable form such as a
sublease, joint venture, or partnership, with a requirement for
recipients to submit an ACDBE contract goal analysis developed in
accordance with part 23.
Amend Sec. 23.75(c)(4) to specify that documentation that
ACDBE participants are certified in the appropriate NAICS code need
only be provided before award of the concession contract.
Amend Sec. 23.75(c)(5) to only require a general
description, including location and concept of the ACDBE operation, and
require the information to be submitted only prior to final award,
i.e., allowing information to be submitted after prime concessionaire
selected.
Lastly, delete the current provisions in Sec. 23.75(c)(7)
as actual information on estimated gross receipts and net profits are
not available at the solicitation stage. Requesting data on net profit
to be earned by the ACDBE is not equitable because the process does not
require the same information from the non-ACDBE. Insert in its place, a
provision to allow recipients to submit agreements in draft form prior
to the release of the solicitation or RFP, and to subsequently provide
the final agreements prior to award of the contract.
40. Local Geographic Preferences (Sec. 23.79)
This NPRM provision proposes to revise Sec. 23.79 to make it clear
that local geographic preferences are not permitted regardless of
concession certification status. This change is needed to address
confusion about whether the local geographic preference limitation
under Sec. 23.79 applies only to ACDBEs.
This change would be consistent with the Department's views from
2005 part 23 final rule. The ACDBE Program is a national program, and
some concession markets are national markets. Under these conditions, a
local preference program is out of place. The disadvantages of local
preferences, such as the elimination of benefits of wider competition
for business opportunities and the possible loss of opportunities for
ACDBEs who are not located in the locality served by an airport,
continue to be important to warrant prohibiting local preferences in
the context of the ACDBE Program. (70 FR 14496, 14507 (March 22, 2005))
Revising this section would make clear that a local geographic
preference that gives a concession located in a local area an advantage
over concessions from other places in obtaining business as, or with, a
concession at an airport is prohibited. However, while recipients
cannot limit solicitations to local concessionaires or use local
geographic preference as a selection criterion, recipients may request
concepts that are local to a specific region when soliciting proposals.
We understand the objective of local concepts is to create a sense of
place for passengers, but this does not extend to local geographic
preferences that limit concession awards to local concessionaires.
41. Appendix A to Part 23: Uniform Report of ACDBE Participation Form
The Department proposes removing the Uniform Report of ACDBE
Participation from appendix A to part 23. Official forms are not
required to be reproduced in the CFR; this report will be posted on the
DOT website. Removing this form from the CFR is an administrative
action and would not impact the ability of the public to comment on any
amendments to the information collections contained in the form.
Section 23.27(b) requires recipients to complete and submit an
annual report on ACDBE participation using the Uniform Report found in
appendix A. The Department proposes several amendments to the Uniform
Report to enhance the accuracy of participation reported and address
stakeholder concerns. In lieu of the above proposal to remove appendix
A from the CFR, the following amendments would be found in the Uniform
Report.
[[Page 43660]]
Block #5 Instructions of Appendix A, Definition of Goods and Services
The Uniform Report's block #5 instructions state that ``[ . . . ]
`Goods/services' refers to those goods and services purchased by the
airport itself or by concessionaires and management contractors from
DBEs.'' Block #5 encompasses all non-car rental cumulative ACDBE
participation during the reporting period.
There are several participation categories (e.g., prime
concessions; subconcession; management contracts; and goods and
services) listed in the Uniform Report under which gross revenues, and
goods and service expenditures are to be reported. These categories
include ``prime concession'' which is defined as ``concessions who have
a direct relationship with the airport (e.g., a company who has a lease
agreement directly with the airport to operate a concession).'' The
category ``subconcession'' is defined as ``a firm that has a sublease
or other agreement with a prime concessionaire, rather than with the
airport itself, to operate a concession at the airport.'' Because
airport recipients do not meet either the definition of a
``concession'' or ``concessionaire,'' it is the Department's view that
goods and services purchased by recipients should not be reported in
the Uniform Report.
The proposed rule would amend the definition of ``goods/services''
in the block #5 instructions to clarify that only participation in the
form of goods and services purchased by concessionaires and management
contractors from DBEs should be reported. The definition of
``subconcession'' is currently in the Uniform Report but not in the
Sec. 23.3 list of definitions. The Department proposes adding the
definition to Sec. 23.3.
Block #5 New Joint Venture Participation Category
Stakeholders expressed that the Uniform Report should be modified
to address the reporting of participation of joint venture partnerships
as compared to participation from goods/services purchases or sub-
concessions. The proposed rule would amend blocks #5, #6, #8, and #9 to
incorporate a separate row for reporting joint venture participation.
The proposed rule also would amend the instructions in all blocks of
the Uniform Report to include the definition of ``joint venture'' as
defined in Sec. 23.3 as a new participation category and provides
directions on how to count ACDBE participation derived from joint
ventures.
Blocks #10 and #11 Reporting of ACDBEs Owned by Members of Different
Socially Disadvantaged Groups
The Uniform Report does not provide for the reporting of ACDBEs
owned by multiple partners who are from different groups whose members
are presumed socially and economically disadvantaged (SED). Block #10
instructs recipients to break down the cumulative ACDBE participation
figures from blocks #5 and #8 by race and gender categories. The data
reported under block #10 only permits reporting of firms by race and
gender by one group whose members are presumed SED. Block #10 does
provide a column for ``other,'' but this is used to report
participation by individuals who are found disadvantaged on an
individualized basis.
To enhance the accuracy of participation reported in the Uniform
Report, the Department proposes to amend the requirements under block
#11 in the Uniform Report to allow for participation to be reported by
ACDBEs that are owned by multiple individuals of different races,
ethnicities, and/or genders.
42. Technical Corrections
In addition to substantive proposed changes to part 23, the
Department is proposing a number of technical amendments. These
amendments fall into the following categories: (1) additions and
amendments to make provisions in part 23 consistent with the provisions
of Part 26; (2) additions or amendments to provisions to clarify
existing requirements in part 23; and (3) corrections of typographical
errors, and revisions to obsolete and/or duplicative provisions, and
cross-references within the regulation. Some of these proposed
technical amendments to part 23 are discussed below.
Obsolete Dates in Sec. 23.31
Regulatory changes instituted in 2005 direct airports or UCPs to
review the eligibility of ACDBEs to make sure that they met the
eligibility standards of part 23. More specifically, Sec. 23.31(c)(1)
and (2) direct airports or UCPs to complete these eligibility reviews
by no later than April 21, 2006, or three years from the anniversary
date of each firm's recent certification. Additionally, recipients are
obligated by these regulations to direct DBEs to submit by April 21,
2006, a PNW statement, a certification of disadvantage, and a No Change
Affidavit.
These deadlines have expired. In addition, the date is confusing,
especially to participants new to the ACDBE Program. Section
23.31(c)(1) and (2) was promulgated in 2005 to account for new PNW
criteria instituted in 2005, triggering the need to review certified
firms to ascertain their PNW. During the 17 years following the
adoption of the 2005 regulation, there has been ample time for review
of PNW standards. In addition, Sec. 26.83(h) through (j), made
applicable by Sec. 23.31(a), provides for certification reviews of
DBEs, annual certification of disadvantage, and notification of changes
regarding circumstances affecting certification, including size and PNW
standards. Hence, Sec. 23.31(c) is unnecessary and the Department
recommends deleting it.
Uniform Certification Application (UCA) Inconsistencies
The current Sec. 23.39(g) which would become paragraph (f) under
the above proposed redesignation, requires UCPs to use the UCA to
certify firms for the ACDBE Program. However, the language of Sec.
23.39(g) is inconsistent with Sec. 26.83(c)(2), made applicable to
part 23 by Sec. 23.31. In addition, Sec. 23.39(g) is inconsistent
with the revised UCA that the Department published in 2019. The
proposed rule would therefore delete Sec. 23.39(g)(1) through (3) and
revise Sec. 23.39 to be consistent with Sec. 26.83(c)(2) and the
revised UCA.
Enhanced Consistency with Part 26
Sections 23.39(a) and 26.83(c)(1) detail the requirements for
determining the eligibility of firms for the ACDBE and DBE programs.
The introductory text in paragraph (a) of Sec. 23.39 lists by
reference several provisions in Sec. 26.83(c) that are not to be
applied to part 23; the provisions that are not specifically excluded
remain applicable to part 23 via Sec. 23.31(a).
Notwithstanding slight differences between part 23 and part 26
certification, all of the requirements of Sec. 26.83(c)(1)(i) through
(viii) generally apply to part 23 certification, but various
modifications to the cross-references make Sec. 23.39 difficult to
follow as written. To address this, the Department proposes to simplify
the rule by excluding all of the provisions of Sec. 26.83(c)(1)(i)
through (viii) and stating each of those requirements in Sec. 23.39(a)
in a manner that is consistent with the ACDBE Program.
[[Page 43661]]
Regulatory Analyses And Notices
A. Executive Order: 12866 (``Regulatory Planning and Review''),
Executive Order 13563 (``Improving Regulation and Regulatory Review''),
and DOT Regulatory Policies and Procedures (49 CFR Parts 23, 26)
The proposed rule is not a significant regulatory action under
Executive Order 12866, ``Regulatory Planning and Review,'' as
supplemented by Executive Order 13563, ``Improving Regulation and
Regulatory Review.'' Accordingly, OMB has not reviewed it under that
Executive order. It is also not significant under the Department's
regulatory policies and procedures.\44\
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\44\ See ``DOT Order 2100.6A, Rulemaking and Guidance
Procedures'' available at https://www.transportation.gov/sites/dot.gov/files/2021-06/DOT-2100.6A-Rulemaking-and-Guidance-%28003%29.pdf.
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The proposed rule would amend reporting and eligibility
requirements for the Department's Airport Concession Disadvantaged
Business Enterprises (ACDBE) program and Disadvantaged Business
Enterprise (DBE) program. These programs are implemented and overseen
by recipients of certain Department funds. The changes to the proposed
rule would affect businesses participating in the programs, recipients
of Department funds who oversee the programs, and the Department.
The Department conducted a regulatory impact analysis, available in
the docket, to assess the effects of the proposed rule. Businesses,
recipients, and the Department would incur some costs due to increased
reporting requirements. At the same time, they would experience cost
savings overall because the rule would relax requirements--for example,
by allowing recipients to conduct virtual on-site visits--and clarify
regulations.
Table 1 summarizes the estimated costs and cost savings of the rule
over a ten-year analysis period. The rule has annualized net cost
savings of $6.2 million at a 3 percent discount rate and $6.1 million
at a 7 percent discount rate. DOT requests comment on the assumptions
made and conclusions drawn in the regulatory impact analysis.
Table 1--Costs and Cost Savings of the Proposed Rule, 10-Year Period
[Rounded to thousands]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Undiscounted Present value 3% Annualized 3% Present value 7% Annualized 7%
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total cost savings....................................... 202,778,000 177,991,000 20,865,000 152,057,000 21,649,000
Total cost............................................... 140,623,000 125,153,000 14,672,000 108,953,000 15,513,000
Net cost savings......................................... 62,155,000 52,838,000 6,193,000 43,104,000 6,136,000
--------------------------------------------------------------------------------------------------------------------------------------------------------
B. Executive Order 13132 (``Federalism'')
This proposed rule has been analyzed in accordance with the
principles and criteria contained in Executive Order 13121
(``Federalism''). It would not include any provision that: (1) has
substantial direct effects on the states, the relationship between the
National Government and the states, or the distribution of power and
the responsibilities among the various levels of government; (2)
imposes substantial direct compliance costs on state and local
governments; or (3) preempts state law. The DBE and ACDBE programs are
governed by Federal regulations 49 CFR parts 26 and 23. Therefore, the
consultation and funding requirements of Executive Order 13132 do not
apply.
C. Executive Order 13084 (``Tribal Consultation and Coordination'')
This rulemaking has been analyzed in accordance with the principles
and criteria contained in Executive Order 13084 (``Consultation and
Coordination with Indian Tribal Governments''). Because this rulemaking
does not significantly or uniquely affect the communities of the Indian
Tribal governments or impose substantial direct compliance costs on
them, the funding and consultation requirements of Executive Order
13084 do not apply.
D. Unfunded Mandates Reform Act
The Department has determined that the requirements of the Title II
of the unfunded Mandates Reform Act of 1995 do not apply to this
rulemaking.
E. National Environmental Policy Act
The Department has analyzed the environmental impacts of this
action pursuant to the National Environmental Policy Act of 1969 (NEPA)
(42 U.S.C 4321 et seq.) and has determined that it is categorically
excluded pursuant to DOT Order 5610.1C, Procedures for Considering
Environmental Impacts (44 FR 56420, Oct. 1, 1979). Categorical
exclusions are actions identified in an agency's NEPA implementing
procedures that do not normally have a significant impact on the
environment and therefore do not require either an environmental
assessment (EA) or environmental impact statement (EIS). The purpose of
this rulemaking is to amend the Department's DBE and ACDBE regulations.
Paragraph 4(c)(5) of DOT Order 5610.1C incorporates by reference the
categorical exclusions for all DOT Operating Administrations. This
action is covered by the categorical exclusion listed in the Federal
Transit Administration's implementing procedures, ``[p]lanning and
administrative activities that do not involve or lead directly to
construction, such as: . . . promulgation of rules, regulations,
directives. . .'' 23 CFR 771.118(c)(4). In analyzing the applicability
of a categorical exclusion, the agency must also consider whether
extraordinary circumstances are present that would warrant the
preparation of an EA or EIS. The Department does not anticipate any
environmental impacts, and there are no extraordinary circumstances
present in connection with this rulemaking.
F. Regulatory Flexibility Act
The Regulatory Flexibility Act of 1980, as amended, (5 U.S.C. 601
et seq.) and E.O. 13272 (67 FR 53461, Aug. 16, 2002) requires agency
review of proposed and final rules to assess their impacts on small
entities. An agency must prepare an Initial Regulatory Flexibility
Analysis (IRFA) unless it determines and certifies that a rule, if
issued, would not have a significant economic impact on a substantial
number of small entities. DOT has not determined whether the NPRM would
have a significant economic impact on a substantial number of small
entities.
The Department prepared an IRFA as part of the Department's
regulatory impact analysis (appendix C of the regulatory impact
analysis), available in the docket. DOT invites all interested parties
to submit data and information regarding the potential economic impact
on small entities that would come from promulgating the NPRM. DOT will
consider all information and comments
[[Page 43662]]
received in the public comment process when preparing the Final
Regulatory Flexibility Analysis.
G. Paperwork Reduction Act
The Paperwork Reduction Act (PRA) of 1995 (Pub. L. 104-13, 49
U.S.C. 3501, 3507) requires Federal agencies to obtain approval from
the Office of Management and Budget (OMB) before undertaking a new
collection of information imposed on ten or more persons, or continuing
a collection previously approved by OMB that is set to expire.\45\ On
March 1, 2022, OMB renewed its approval of five information collection
instruments that were previously approved in 2018 (OMB Control No.
2105-0510).\46\ Nonetheless, the Department is resubmitting them to OMB
because the proposed rule modifies, and in some cases, reduces PRA
burdens. On March 10, 2022, OMB took under consideration the
Department's request for an OMB Control Number for 17 additional part
26 information collection instruments that had not previously been
submitted for approval (ICR Reference No: 202203-2105-001). On April
27, 2022, OMB took under consideration the Department's request for an
OMB Control Number for part 23 collection instruments that had not
previously been submitted for approval (ICR Reference No: 202204-2120-
002).
---------------------------------------------------------------------------
\45\ A ``collection of information'' is defined as ``the
obtaining, causing to be obtained, soliciting, or requiring the
disclosure to an agency, requiring the disclosure to an agency,
third parties or the public of information by or for an agency by
means of identical questions posed to, or identical reporting,
recordkeeping, or disclosure requirements imposed on, ten or more
persons.'' 5 CFR 1320.3(c)(1). The activities that constitute the
``burden'' associated with a collection are defined in 5 CFR
1320.3(b)(1) as ``the total time, effort, or financial resources
expended by persons to generate, maintain, retain, or disclose or
provide information to or for a Federal agency.''
\46\ The instruments are the Uniform Report of DBE Awards or
Commitments and Payments, Uniform Certification Application, Annual
Affidavit of No Change, Personal Net Worth Statement, and
Percentages of DBEs in Various Categories.
---------------------------------------------------------------------------
This proposed rule would add new collection instruments as well as
modify existing collection instruments in both parts 23 and 26. The
following is a description of the sections that contain new and
modified information collection requirements, along with the estimated
hours and cost to fulfill them.\47\
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\47\ For part 23 recipient wage rates, the Department calculated
the total annual cost burden by multiplying the total annual burden
hours (56 hours x 396 respondents) against the fully loaded state
government wage rate taken from Bureau of Labor and Statistics'
(BLS) estimate of median wages for employees in ``Management
Occupations'' (SOC 11-000) working in ``State Government, excluding
schools and hospitals'' (NAICS 999200) at https://www.bls.gov/oes/current/naics4_999200.htm#11-0000. The wage rate ($44.66/hour) is
multiplied by 1.62 to get a fully loaded wage rate (compensation
rate) or $72.35 to account for the cost of employer provided
benefits. For part 26, recipient staff hourly wage rate is taken
from the BLS estimate of an Eligibility Interviewer in Government
Programs (OEWS Designation). The wage rate is multiplied by 1.62 to
get a fully loaded hourly wage rate of $34.77 to account for the
cost of employer provided benefits. For state and local government
workers, wages represent 61.9% of total compensation in 2020,
therefore the multiplier is 1.62 (1/0.619).
---------------------------------------------------------------------------
1. ACDBE Small Business Element (New Requirement)
CFR Section: 49 CFR 23.26.
Respondents: Primary airports.
Number of respondents: 396.
Frequency: Once each year.
Number of responses: 396.
Hours per response: 5.6 hours.
Wage rate: $72.35/hour.
Total annual burden: 14,097.6 hours and $1,019,961.36.
2. ACDBE Active Participants List (New Requirement)
CFR Section: 49 CFR 23.27(c).
Respondents: Primary airports and ACDBE and non-ACDBEs that seek to
work on concession opportunities.
Number of respondents: 396 primary airports; 3,945 ACDBE and non-
ACDBEs.
Frequency: once each year.
Number of responses: 396 primary airports; 3,945 ACDBE and non-
ACDBEs.
Hours per response: 42 hours per primary airport; .5 hours per
ACDBE and non-ACDBE firm.
Wage rate: $72.35/hour.
Total annual burden: 16,632 hours and $1,203,325.20 for primary and
non-hub airports; 1,972.5 hours and $0 for ACDBE and non-ACDBEs.
3. ACDBE Annual Report of Percentages of ACDBEs in Various Categories
(New Requirement)
CFR Section: 49 CFR 23.27(d).
Respondents: 49 state departments of transportation, District of
Columbia, and Puerto Rico.
Number of respondents: 51.
Frequency: once each year.
Number of responses: 51.
Hours per response: 3.2.
Wage rate: $72.35/hour.
Total annual burden: 161.6 hours and $11,807.52.
4. Counting of ACDBE Participation Following Eligibility Removal (Sec.
23.55) (New Requirement)
Respondents: ACDBE firms.
Number of respondents: 1,233.
Frequency: once each year.
Number of responses: 1,233.
Total annual burden: 25,276.5 hours and $1,259,528.
5. Long-Term Exclusive Agreements (Sec. 23.75) (Modification of
Existing Requirement)
Proposed modification: Amend and/or remove LTE requirements for
documentation and information that are unclear, not feasible, or
pertinent.
Respondents: Recipients of FAA airport development grants.
Number of respondents: 7.
Frequency: once.
Number of responses: 7.
Total annual burden: 35.09 hours and $2,130.23.
6. Personal Net Worth Statement (Modification of Existing Requirement)
Proposed modification: Remove the requirement for firms to report
their retirement assets, thus reducing the hours and cost burden of
completing the form.
CFR Section: Appendix G of 49 CFR part 26.
Respondents: DBE and ACDBE certification applicants.
Number of respondents: 9,500.
Frequency: once each year.
Number of responses: 9,500.
Hours per response: 8.
Wage rate: There is no applicable wage rate because there is no
standardized way in which firms operate and how they pay their
employees and/or contractors It is not possible for DOT to contact
firms for estimates.
Total annual burden: 76,000 hours.
7. Uniform Certification Application (UCA) (Modification of Existing
Requirement)
Proposed modification: Add clarifying instructions and terminology
to assist applicants in filling out the application, thereby reducing
the hours and cost burdens of completing it.
CFR Section: Appendix F of 49 CFR part 26.
Respondents: DBE and ACDBE certification applicants.
Number of respondents: 9,500.
Frequency: once.
Number of responses: 9,500.
Hours per response: 35.
Wage rate: There is no applicable wage rate because there is no
standardized way in which firms operate and how they pay their
employees or contractors It is not possible for DOT to contact firms
for estimates.
Total annual burden: 332,500 hours.
[[Page 43663]]
8. Declaration of Eligibility (Currently Titled ``Annual No Change
Affidavit'') (Modification of Existing Requirement)
Proposed modification: Eliminate the notarization requirement, thus
reducing the hours and cost burden of completing and submitting the
form.
CFR Section: 49 CFR 26.83(j).
Respondents: DBE and ACDBE firms.
Number of respondents: 45,525.
Frequency: once each year.
Number of responses: 45,525.
Hours per response: .5 hour (30 minutes).
Wage rate: There is no applicable wage rate because there is no
standardized way in which firms operate and how they pay their
employees or contractors It is not possible for DOT to contact firms
for estimates.
Total annual burden: 22,762 hours.
9. Maintaining Bidders Lists (Modification of Existing Requirement)
Proposed modification: Recipients would obtain additional data sets
and enter all bidders list information into a centralized database.
CFR Section: 49 CFR 26.11(c).
Respondents: DOT funding recipients.
Number of respondents: 1,198.
Frequency: 3 times per year.
Number of responses: 3,594.
Hours per response: 8.
Wage rate: $34.77.
Total annual burden: 86,256 hours and $2,999,121.12.
10. Reporting Percentages of DBEs in Various Categories (MAP-21 Data
Report) (Modification of Existing Requirement)
Proposed modification: Expand data collection to cover the number
of firms denied certification, summarily suspended, or decertified. The
data would be disaggregated by ethnicity, gender, and the number of
prequalified certified firms in each North American Industry
Classification System (NAICS) code.
CFR Section: 49 CFR 26.11(e).
Respondents: state departments of transportation, District of
Columbia, and Puerto Rico.
Number of respondents: 52.
Frequency: once per year.
Number of responses: 52.
Hours per response: 315.
Wage rate: $34.77.
Total annual burden: 16,380 hours and $569,532.60.
11. Updating and Maintaining State Directories of DBEs and ACDBEs
(Modification of Existing Requirement)
Proposed modifications: Eliminate the requirement of publishing
printed directories. Add additional information fields to the
directories.
CFR Section: 49 CFR 26.31 and 26.81(g).
Respondents: Certifying agencies of DOT funding recipients.
Number of respondents: 132.
Frequency: Each respondent does this 12 times each year.
Number of responses: 1,584.
Hours per response: 2.
Wage rate: $34.77.
Total annual burden: 38,016 hours and $1,321,816.32.
12. DBE Performance Plan (New Requirement)
CFR Section: 49 CFR 26.53(e).
Respondents: Recipients of FHWA funds that let design-build
contracts.
Number of respondents: 50.
Frequency: 15 times each year.
Number of responses: 750.
Hours per response: 3.
Wage rate: $34.77.
Total annual burden: 33,750 hours and $1,173,487.50.
13. Mailing and Maintaining Copies of Notices of Summary Suspension
(Modification of Existing Requirement)
Proposed modification: Remove the requirement for sending notices
of summary suspension by mail and allow respondents to send the notices
by email.
CFR Section: 49 CFR 26.88.
Respondents: Certifying agencies of DOT funding recipients.
Number of respondents: 132.
Frequency: 5 times each year.
Number of responses: 660.
Hours per response: .25 hours (15 minutes).
Wage rate: $34.77.
Total annual burden: 165 hours and $5,737.05.
14. Uniform Report of DBE Awards or Commitments and Payments
(Modification of Existing Requirement)
Proposed modification: Recipients would fill out 10 additional data
fields.
CFR Section: 49 CFR 26.11(a).
Respondents: DOT funding recipients.
Number of respondents: 1,198.
Frequency: once each year.
Number of responses: 1,198.
Hours per response: 317.
Wage rate: $34.77.
Total annual burden: 377,370 hours and $11,022.
Pursuant to 44 U.S.C 3506(c)(2)(B), DOT solicits comments about the
accuracy of the hours and costs burden estimates. Comments should be
submitted to Walter Bohorfoush, Supervisory Information Technology
Specialist, Office of the Chief Information Officer, Department of
Transportation, at 202-366-0560 or [email protected] or to
Joseph Nye, Office of the Secretary Desk Officer, Office of Management
and Budget, at [email protected]. The Office of Management and
Budget (OMB) is required to make a decision concerning the collection
of information requirements contained in this proposed rule between 30
and 60 days after publication of this document in the Federal Register.
Therefore, a comment to OMB is best assured of having its full effect
if OMB receives it within 30 days of publication. The final rule will
respond to any OMB or public comments on the information collection
requirements contained in this proposal.
List of Subjects in 49 CFR Parts 23 and 26
Administrative practice and procedure, Airports, Civil rights,
Government contracts, Grant programs--transportation, Mass
transportation, Minority businesses, Reporting and recordkeeping
requirements.
Issued on July 5, 2022, in Washington, DC.
Peter Paul Montgomery Buttigieg,
Secretary of Transportation.
For the reasons set forth in the preamble, the Department of
Transportation proposes to amend 49 CFR parts 23 and 26 as follows:
PART 23--PARTICIPATION OF DISADVANTAGED BUSINESS ENTERPRISE IN
AIRPORT CONCESSIONS
0
1. Revise the authority citation for part 23 to read as follows:
Authority: 49 U.S.C. 47107; 42 U.S.C. 2000d; 49 U.S.C. 322; E.O.
12138, 44 FR 29637, 3 CFR, 1979 Comp., p. 393.
0
2. In part 23, remove ``a ACDBE'' wherever the term appears and add in
its place ``an ACDBE''.
0
3. Amend Sec. 23.1 by:
0
a. In paragraph (e), removing the word ``and'' at the end of the
paragraph.
0
b. Redesignating paragraph (f) as paragraph (h).
0
c. Adding new paragraph (f) and paragraph (g).
The additions read as follows:
Sec. 23.1 What are the objectives of this part?
* * * * *
(f) To promote the use of ACDBEs in all types of concessions
activities at airports receiving DOT financial assistance;
(g) To assist the development of firms that can compete
successfully in the
[[Page 43664]]
marketplace outside the ACDBE program; and
* * * * *
0
4. Amend Sec. 23.3 by:
0
a. Removing ``13 CFR 121.103(f)'' in the definition of Affiliation and
adding in its place ``13 CFR 121.103(h).''
0
b. Removing the phrase ``a concession that'' from the introductory text
in the definition of Airport Concession Disadvantaged Business
Enterprise (ACDBE) and adding in its place ``a firm seeking to operate
as a concession that.''
0
c. Adding the definitions of Alaska Native and Assets in alphabetical
order.
0
d. In the definition of Concession:
0
i. In the introductory text, adding the phrase ``that serve the
traveling public'' after ``the types of for-profit businesses.''
0
ii. Adding the phrase ``traveling'' after ``sale of consumer goods or
services to the'' in paragraph (1).
0
e. Adding the definitions of Contingent liability and Days in
alphabetical order.
0
f. Removing the definition Department (DOT) and adding the definition
Department or DOT in its place.
0
g. Adding the definition of Home State in alphabetical order.
0
h. Removing the phrase ``or registered domestic partner'' from the
definition of Immediate family member and adding in its place ``and
domestic partner and civil unions recognized under State law.''
0
i. Adding the definitions of Liabilities and Operating Administration
or OA in alphabetical order.
0
j. Revising the definitions of Part 26 and Personal net worth.
0
k. Removing the definition of Primary recipient.
0
l. Moving the definition of Recipient into alphabetical order and
revising the definition.
0
m. Revising the introductory text and paragraphs (1) and (2)(iii) and
(iv) in the definition of Socially and economically disadvantaged
individual.
0
n. Adding the definitions of Subconcession or subcontractor and
Sublease in alphabetical order.
The revisions and additions read as follows:
Sec. 23.3 What do the terms used in this part mean?
* * * * *
Alaska Native means a citizen of the United States who is a person
of one-fourth degree or more Alaskan Indian (including Tsimshian
Indians not enrolled in the Metlakatla Indian Community), Eskimo, or
Aleut blood, or a combination of those bloodlines. The term includes,
in the absence of proof of a minimum blood quantum, any citizen whom a
Native village or Native group regards as an Alaska Native if their
father or mother is regarded as an Alaska Native.
* * * * *
Assets mean all the property of a person available for paying debts
or for distribution, including one's respective share of jointly held
assets. This includes, but is not limited to, cash on hand and in
banks, savings accounts, individual retirement account (IRA) or other
retirement accounts, accounts receivable, life insurance, stocks and
bonds, real estate, and personal property.
* * * * *
Contingent liability means a liability that depends on the
occurrence of a future and uncertain event. This includes, but is not
limited to, guaranty for debts owed by the applicant firm, legal claims
and judgments, and provisions for Federal income tax.
Days means calendar days. In computing any period of time described
in this part, the day from which the period begins to run is not
counted, and when the last day of the period is a Saturday, Sunday, or
Federal holiday, the period extends to the next day that is not a
Saturday, Sunday, or Federal holiday. Similarly, in circumstances where
the recipient's offices are closed for all or part of the last day, the
period extends to the next day on which the agency is open.
Department or DOT means the U.S. Department of Transportation,
including the Office of the Secretary.
* * * * *
Home State means the state in which an ACDBE firm or applicant for
ACDBE certification maintains its principal place of business.
* * * * *
Liabilities mean financial or pecuniary obligations. This includes,
but is not limited to, accounts payable, notes payable to bank or
others, installment accounts, mortgages on real estate, and unpaid
taxes.
* * * * *
Operating Administration or OA means any of the following: Federal
Aviation Administration (FAA), Federal Highway Administration (FHWA),
and Federal Transit Administration (FTA). The ``Administrator'' of an
OA includes his or her designees.
Part 26 means 49 CFR part 26, DOT's Disadvantaged Business
Enterprise Program regulation.
Personal net worth or PNW has the same meaning the term has in 49
CFR part 26.
* * * * *
Recipient is any entity, public or private, to which DOT financial
assistance is extended, whether directly or through another recipient,
through the programs of the FAA, FHWA, or FTA, or who has applied for
such assistance.
* * * * *
Socially and economically disadvantaged individual means any
individual who is a citizen (or lawfully admitted permanent resident)
of the United States and has been subjected to racial or ethnic
prejudice or cultural bias within American society because of his or
her identity as a member of a certain group and without regard to his
or her individual qualities. The social disadvantage must stem from
circumstances beyond the individual's control. Socially and
economically disadvantaged individuals include:
(1) Any individual determined by a recipient to be a socially and
economically disadvantaged individual on a case-by-case basis. An
individual must demonstrate that he or she has held himself or herself
out, as a member of a designated group if you require it.
(2) * * *
(iii) ``Native Americans,'' which includes persons who are enrolled
members of a federally or state recognized Indian tribe, Alaska
Natives, or Native Hawaiians.
(iv) ``Asian-Pacific Americans,'' which includes persons whose
origins are from Japan, China, Taiwan, Korea, Burma (Myanmar), Vietnam,
Laos, Cambodia (Kampuchea), Thailand, Malaysia, Indonesia, the
Philippines, Brunei, Samoa, Guam, the U.S. Trust Territories of the
Pacific Islands (Republic of Palau), the Commonwealth of the Northern
Marianas Islands, Macao, Fiji, Tonga, Kiribati, Tuvalu, Nauru,
Federated States of Micronesia, or Hong Kong.
Subconcession or subcontractor means a firm that has a sublease or
other agreement with a prime concessionaire, rather than with the
airport itself, to operate a concession at the airport.
Sublease means a lease by a lessee (tenant) to a sublessee
(subtenant). Sublease is an example of a direct ownership arrangement
in which the concessionaire operates a concession location at the
airport. Under a sublease arrangement, the subtenant is responsible for
the full operation of the concession and all requirements applicable to
that concession under the master lease including proportionate share of
the rent, and owns and controls the concession.
* * * * *
[[Page 43665]]
Sec. 23.13 [Amended]
0
5. Amend Sec. 23.13 by:
0
a. In paragraph (b), removing ``of'' that appears after the word
``interpretations.''
0
b. In paragraph (d) introductory text, removing the phrase ``are for
the purpose of authorizing'' and adding in its place the word
``authorize.''
Sec. 23.21 [Amended]
0
6. Amend Sec. 23.21 by:
0
a. In paragraph (a) introductory text, removing the word ``revisesd''
and add in its place the word ``revised.''
0
b. In paragraph (b), removing the term ``a DBE concessions'' and add in
its place ``an ACDBE''.
0
c. In the second sentence of paragraph (c), removing the phrase ``If
you do so,'' and add in its place the word ``However,''.
0
7. Amend Sec. 23.25 by:
0
a. In paragraph (d)(3), removing the words ``so as'' after the word
``activities'' and adding a semicolon at the end of the sentence.
0
b. Revising paragraphs (e) and (f).
The revisions read as follows:
Sec. 23.25 What measures must recipients include in their ACDBE
programs to ensure nondiscriminatory participation of ACDBEs in
concessions?
* * * * *
(e) Your ACDBE program must also provide for the use of race-
conscious measures when race-neutral measures, standing alone, are not
projected to be sufficient to meet an overall goal. The following are
examples of race-conscious measures you can implement:
(1) Establishing concession-specific goals for particular
concession opportunities.
(i) In setting concession-specific goals for concession
opportunities other than car rental, you are required to explore, to
the maximum extent practicable, all available options to set goals that
concessionaires can meet through direct ownership arrangements. A
concession-specific goal for any concession other than car rental may
be based on purchases or leases of goods and services only when the
analysis for the relative availability of ACDBEs and all relevant
evidence reasonably supports that proposition.
(ii) In setting car rental concession-specific goals, you cannot
require a car rental company to change its corporate structure to
provide for participation via direct ownership arrangement. When your
overall goal for car rental concessions is based on purchases or leases
of goods and services, you are not required to explore options for
direct ownership arrangements prior to setting a car rental concession-
specific goal based on purchases or leases of goods and services.
(iii) If the objective of the concession-specific goal is to obtain
ACDBE participation through a direct ownership arrangement with an
ACDBE, calculate the goal as a percentage of the total estimated annual
gross receipts from the concession.
(iv) If the goal applies to purchases or leases of goods and
services, calculate the goal by dividing the estimated dollar value of
such purchases or leases from ACDBEs by the total estimated dollar
value of all purchases to be made by the concessionaire.
(v) To be eligible to be awarded the concession, competitors must
make good faith efforts to meet this goal. A competitor may do so
either by obtaining enough ACDBE participation to meet the goal or by
documenting that it made sufficient good faith efforts to do so.
(vi) The administrative procedures applicable to contract goals in
part 26, Sec. Sec. 26.51 through 26.53, apply with respect to
concession-specific goals.
(2) Negotiation with a potential concessionaire to include ACDBE
participation, through direct ownership arrangements or measures, in
the operation of the non-car rental concession.
(3) With the prior approval of FAA, other methods that take a
competitor's ability to provide ACDBE participation into account in
awarding a concession.
(f) Your ACDBE program must require businesses subject to car
rental and non-car rental ACDBE goals at the airport to make good faith
efforts to meet goals when set pursuant to paragraph (e) of this
section.
* * * * *
0
8. Add Sec. 23.26 to read as follows:
Sec. 23.26 Fostering small business participation.
(a) Your ACDBE program must include an element to provide for the
structuring of concession opportunities to facilitate competition by
small business concerns, taking all reasonable steps to eliminate
obstacles to their participation, including unnecessary and unjustified
bundling of concession opportunities that may preclude small business
participation in solicitations.
(b) This element must be submitted to the FAA for approval as a
part of your ACDBE program. As part of this program element you may
include, but are not limited to including, the following strategies:
(1) Establish a race-neutral small business set-aside for certain
concession opportunities. Such a strategy would include the rationale
for selecting small business set-aside concession opportunities which
may include consideration of size and availability of small businesses
to operate the concession.
(2) Consider the concession opportunities available through all
concession models, including but not limited to direct leasing, third
party developer, and leasing manager.
(3) On concession opportunities that do not include ACDBE contract
goals, require prime concessionaires to provide subleasing
opportunities of a size that small businesses, including ACDBEs, can
reasonably operate.
(4) Identify alternative concession contracting approaches to
facilitate the ability of small businesses, including ACDBEs, to
compete for and obtain direct leasing opportunities.
(c) This element should include an objective, definition of small
business, verification process, monitoring plan, implementation
timeline, and required assurances.
(d) A state, local or other program, in which eligibility requires
satisfaction of race/gender or other criteria in addition to business
size, may not be used to comply with the requirements of this part.
(e) This element must not include local geographic preferences per
Sec. 23.79.
(f) You must submit an annual report on small business
participation obtained through the use of your small business element.
This report must be submitted in a format acceptable to the FAA based
on a schedule established and posted to the agency's website, available
at https://www.faa.gov/about/office_org/headquarters_offices/acr/bus_ent_program.
(g) You must actively implement your program elements to foster
small business participation. Doing so is a requirement of good faith
implementation of your ACDBE program.
0
9. Amend Sec. 23.27 by revising paragraph (b) and adding paragraphs
(c) and (d) to read as follows:
Sec. 23.27 What information does a recipient have to retain and
report about implementation of its ACDBE program?
* * * * *
(b) You must submit an annual report on ACDBE participation to the
FAA by March 1 following the end of each fiscal year. This report must
be submitted in the format acceptable to the FAA and contain all of the
information described in the Uniform Report of ACDBE Participation.
(c) You must create and maintain active participants list
information as
[[Page 43666]]
described in paragraph (c)(2) of this section and enter it into a
system designated by the FAA.
(1) The purpose of this active participants list is to ensure that
you have the most accurate data possible about the universe of ACDBE
and non-ACDBEs who seek work in your airport concessions program as a
tool to help you set your overall goals and, to provide the Department
with data for evaluating the extent to which the objectives of Sec.
23.1 are being achieved.
(2) You must obtain the following active participant list
information about ACDBE and non-ACDBEs who seek to work on each of your
concession opportunities.
(i) Firm name;
(ii) Firm address including zip code;
(iii) Firm status as an ACDBE or non-ACDBE;
(iv) Race and gender information for the firm's majority owner;
(v) NAICS code applicable to each scope of work the firm sought to
perform in its proposal;
(vi) Age of the firm; and
(vii) The annual gross receipts of the firm. You may obtain this
information by asking each firm to indicate into what gross receipts
bracket they fit (e.g., less than $1 million; $1-3 million; $3-6
million; $6-10 million, etc.) rather than requesting an exact figure
from the firm.
(3) You must collect the data from all active participants for your
concession opportunities by requiring the information in paragraph
(c)(2) of this section to be submitted with their proposals or initial
responses to negotiated procurements. You must enter this data in FAA's
designated system no later than December 1 following the fiscal year in
which the relevant concession opportunity was awarded.
(d) The state department of transportation in each Unified
Certification Program (UCP) established pursuant to 49 CFR 26.81 must
report to DOT's Departmental Office of Civil Rights, by January 1st
each year, the information in the UCP directory:
(1) Number and percentage of in-state and out-of-state ACDBE
certifications for socially and economically disadvantaged by gender
and ethnicity (Black American, Asian-Pacific American, Native American,
Hispanic American, Subcontinent-Asian Americans, and non-minority);
(2) Number of ACDBE certification applications received from in-
state and out-of-state firms and the number found eligible and
ineligible;
(3) Number of in-state and out-of-state ACDBEs decertified and/or
summarily suspended;
(4) Number of in-state and out-of-state ACDBE applications received
for an individualized determination of social and economic disadvantage
status; and
(5) Number of in-state and out-of-state ACDBEs whose owner(s) made
an individualized showing of social and economic disadvantaged status.
Sec. 23.31 [Amended]
0
10. Amend Sec. 23.31 by removing paragraph (c).
0
11. Revise Sec. 23.33 to read as follows:
Sec. 23.33 What size standards do recipients use to determine the
eligibility of applicants and ACDBEs?
(a) As a recipient, you must, except as provided in paragraph (b)
of this section, treat a firm as a small business eligible to be
certified as an ACDBE if the gross receipts of the applicant firm and
its affiliates, calculated in accordance with 13 CFR 121.104 averaged
over the firm's previous five fiscal years, do not exceed $56.42
million.
(b) The following types of businesses have size standards that
differ from the standard set forth in paragraph (a) of this section:
(1) Banks and financial institutions. $1 billion in assets;
(2) Passenger car rental companies. $75.23 million average annual
gross receipts over the firm's previous five fiscal years; and
(3) New car dealers. 350 employees.
(c) For size purposes, gross receipts (as defined in 13 CFR
121.104(a)), of affiliates should be included in a manner consistent
with 13 CFR 121.104(d), except in the context of joint ventures. For
gross receipts attributable to joint venture partners, a firm must
include in its gross receipts its proportionate share of joint venture
receipts, unless the proportionate share already is accounted for in
receipts reflecting transactions between the firm and its joint
ventures (e.g., subcontracts from a joint venture entity to joint
venture partners).
0
12. Revise Sec. 23.35 to read as follows:
Sec. 23.35 What is the personal net worth (PNW) limit for
disadvantaged owners of ACDBEs?
The PNW limit used in determining eligibility for purposes of this
part is $1.60 million. Any individual who has a PNW exceeding this
amount is not a socially and economically disadvantaged individual for
purposes of this part, even if the individual is a member of a group
otherwise presumed to be disadvantaged.
Sec. 23.37 [Amended]
0
13. Amend Sec. 23.37 in the second sentence of paragraph (b) by
removing the phrase ``does not do work relevant to the airport's
concessions program'' and adding the phrase ``does not perform work or
provide services relevant to the airport's concessions program'' in its
place.
0
14. Revise Sec. 23.39 to read as follows:
Sec. 23.39 What are other ACDBE certification requirements?
(a) The provisions of 49 CFR 26.83(c)(1) do not apply to
certifications for purposes of this part. Instead, in determining
whether a firm is an eligible ACDBE, you must take the following steps:
(1) Perform an on-site visit, virtually or in person, to the firm's
principal place of business. You must obtain the r[eacute]sum[eacute]s
or work histories of the principal owners of the firm and personally
interview these individuals. You must interview the principal officers
and review their r[eacute]sum[eacute]s and/or work histories. You may
interview key personnel of the firm if necessary. You must also perform
an on-site visit to job sites if there are such sites on which the firm
is working at the time of the eligibility investigation in your
jurisdiction or local area;
(2) Analyze documentation related to the legal structure,
ownership, and control of the applicant firm. This includes, but is not
limited to, articles of incorporation/organization; corporate by-laws
or operating agreements; organizational, annual and board/member
meeting records; stock ledgers and certificates; and state-issued
certificates of good standing;
(3) Analyze the bonding and financial capacity of the firm; lease
and loan agreements; and bank account signature cards;
(4) Determine the work history of the firm, including any
concession contracts or other contracts it may have received; and
payroll records;
(5) Obtain or compile a list of the licenses of the firm and its
key personnel to perform the concession contracts or other contracts it
wishes to receive;
(6) Obtain a statement from the firm of the type(s) of
concession(s) it prefers to operate or the type(s) of other contract(s)
it prefers to perform;
(7) Obtain complete Federal income tax returns (or requests for
extensions) filed by the firm, its affiliates, and the socially and
economically disadvantaged owners for the last 5 years. A complete
return includes all forms, schedules, and statements filed with the
Internal Revenue Service; and
[[Page 43667]]
(8) Require applicants for ACDBE certification to complete and
submit an appropriate application form, except as otherwise provided in
49 CFR 26.85.
(b) In reviewing the Declaration of Eligibility required by 49 CFR
26.83(j), you must ensure that the ACDBE applicant provides
documentation that it meets the applicable size standard in Sec.
23.33.
(c) For purposes of this part, the term prime contractor in 49 CFR
26.87(j) includes a firm holding a prime contract with an airport
concessionaire to provide goods or services to the concessionaire or a
firm holding a prime concession agreement with a recipient.
(d) With respect to firms owned by Alaska Native Corporations
(ANCs), the provisions of 49 CFR 26.63(c)(2) do not apply. The
eligibility of ANC-owned firms for purposes of this part is governed by
Sec. 26.63(c)(1).
(e) You must use the Uniform Certification Application found in
part 26 without change. However, you may provide in your ACDBE program,
with the written approval of the concerned Operating Administration,
for supplementing the form by requesting specified additional
information consistent with this part. In the same space available in
section 1(A) of the form, the applicant must state that it is applying
for certification as an ACDBE and complete all of section 5.
(f) Car rental companies and private terminal owners or lessees are
not authorized to certify firms as ACDBEs. As a car rental company or
private terminal owner or lessee, you must obtain ACDBE participation
from firms which a recipient or UCPs have certified as ACDBEs.
(g) You are not required to certify an applicant firm if the firm
intends to perform activities exclusively related to the renovation,
repair, or construction of a concession facility (sometimes referred to
as the ``build-out'') for which participation cannot be counted toward
an ACDBE goal.
0
15. Revise Sec. 23.41 to read as follows:
Sec. 23.41 What is the basic overall goal requirement for
recipients?
(a) If you are a recipient who must implement an ACDBE program, you
must establish two separate overall ACDBE goals. The first is for car
rentals and the second is for concessions other than car rentals.
(b) If your annual car rental concession revenues, averaged over
the three-years preceding the date on which you are required to submit
overall goals, do not exceed $200,000, you are not required to submit a
car rental overall goal. If your annual revenues for concessions other
than car rentals, averaged over the three years preceding the date on
which you are required to submit overall goals, do not exceed $200,000,
you are not required to submit a non-car rental overall goal.
(c) Each overall goal must cover a three-year period. You must
review your goals annually to make sure they continue to fit your
circumstances appropriately. You must report to the FAA any significant
adjustments that you make to your goal before your next scheduled
submission.
(d) Your goals established under this part must provide for
participation by all DBEs and may not be subdivided into group-specific
goals.
(e) If you fail to establish and implement goals as provided in
this section, you are not in compliance with this part. If you
establish and implement goals in a way different from that provided in
this part, you are not in compliance with this part. If you fail to
comply with this requirement, you are not eligible to receive FAA
financial assistance.
(f) If you fail to establish and implement goals as provided in
this section, you are not in compliance with this part. If you
establish and implement goals in a way different from that provided in
this part, you are not in compliance with this part. If you fail to
comply with this requirement, you are not eligible to receive FAA
financial assistance.
0
16. Amend Sec. 23.43 by adding paragraph (c) as to read follows:
Sec. 23.43 What are the consultation requirements in the development
of recipients' overall goals?
* * * * *
(c) The requirements of this section do not apply if no
opportunities for new concession agreements will become available
during the goal period. However, recipients must take appropriate
outreach steps to encourage available ACDBEs to participate as
concessionaires whenever there is a concession opportunity.
0
17. Amend Sec. 23.45 by:
0
a. Revising the second sentence of paragraph (a) introductory text.
0
b. Removing paragraphs (a)(1) through (3).
0
c. Removing the word ``new'' in paragraph (b).
0
d. Removing the words ``on you'' in paragraph (h) in the last sentence.
The revision reads as follows:
Sec. 23.45 What are the requirements for submitting overall goal
information to the FAA?
(a) * * * Your overall goals meeting the requirements of this
subpart are due based on a schedule established by the FAA and posted
on the FAA's website.
* * * * *
0
18. Amend Sec. 23.47 by revising paragraph (a) to read as follows:
Sec. 23.47 What is the base for a recipient's goal for concessions
other than car rentals?
(a) When setting your overall goal you must evaluate all available
opportunities for participation that can be obtained, to the maximum
extent practicable, through direct ownership arrangements. You may use
an alternative method as allowed by Sec. 23.51(c)(5) for the portion
of your overall goal for circumstances where there is no relative
availability for direct ownership participation by ACDBEs in a
particular concession opportunity.
* * * * *
Sec. 23.51 [Amended]
0
19. Amend Sec. 23.51 in paragraph (c)(1) by removing the hyperlink
``www.census.gov/epcd/cbp/view/cbpview.html'' and adding in its place
the hyperlink ``https://www.census.gov/programs-surveys/cbp.html.''
0
20. Amend Sec. 23.55 by:
0
a. In paragraphs (e) and (h)(1) and (2), removing the phrase ``the
entire amount'' and adding ``100 percent'' in its place.
0
b. Revising paragraph (j).
The revision reads as follows:
Sec. 23.55 How do recipients count ACDBE participation toward goals
for items other than car rentals?
* * * * *
(j) When an ACDBE is decertified because one or more of its
disadvantaged owners exceed the PNW cap or the firm exceeds the
business size standards of this part during the performance of a
contract or other agreement, the firm's participation may continue to
be counted toward ACDBE goals for the remainder of the term of the
contract or other agreement. However, you must verify that the firm in
all other respects remains an eligible ACDBE and you must not count the
concessionaire's participation toward ACDBE goals beyond the
termination date for the concession agreement in effect at the time of
the decertification (e.g., in a case where the agreement is renewed or
extended, or an option for continued participation beyond the current
term of the agreement is exercised).
(1) The firm must inform the recipient in writing of any change in
circumstances affecting its ability to meet ownership or control
requirements of subpart C of this part or any material
[[Page 43668]]
change. Reporting must be made as provided in 49 CFR 26.83(i).
(2) The firm must provide to the recipient, annually on December 1,
a Declaration of Eligibility, affirming that there have been no changes
in the firm's circumstances affecting its ability to meet ownership or
control requirements of subpart C of this part or any other material
changes, other than changes regarding the firm's business size or the
owner's personal net worth.
* * * * *
0
21. Amend Sec. 23.57 by revising the first sentence of paragraph
(b)(3)(i) to read as follows:
Sec. 23.57 What happens if a recipient falls short of meeting its
overall goals?
* * * * *
(b) * * *
(3) * * *
(i) If you are a CORE 30 airport or other airport designated by the
FAA, you must submit, by April 1, the analysis and corrective actions
developed under paragraphs (b)(1) and (2) of this section to the FAA
for approval. * * *
* * * * *
Sec. 23.59 [Amended]
0
22. Amend Sec. 23.59 in paragraph (b) by removing the word ``DBEs' ''
and adding ``ACDBEs' '' in its place.
Sec. 23.71 [Amended]
0
23. Amend Sec. 23.71 by removing the first sentence.
0
24. Revise Sec. 23.75 to read as follows:
Sec. 23.75 Can recipients enter into long-term, exclusive agreements
with concessionaires?
(a) Except as provided in paragraph (b) of this section, you must
not enter into long-term, exclusive agreements for concessions.
(1) For purposes of this section, a long-term agreement is one
having a term longer than five years including any combination of base
term and options to extend the term of the agreement, if the effect is
a term of more than five years.
(2) For purposes of this section, an exclusive agreement is one
having a type of business activity that is conducted solely by a single
business entity on the entire airport, irrespective of ACDBE
participation.
(b) You may enter into a long-term, exclusive concession agreement
only under the following conditions:
(1) Special local circumstances exist that make it important to
enter such agreement; and
(2) The responsible FAA regional office approves your plan for
meeting the standards of paragraph (c) of this section.
(c) In order to obtain FAA approval of a long-term-exclusive
concession agreement, you must submit the following information to the
FAA regional office, the items in paragraphs (c)(1) through (3) of this
section must be submitted at least 90 days before the solicitation is
released and items in paragraphs (c)(4) through (7) of this section
must be submitted at least 45 days before contract award:
(1) A description of the special local circumstances that warrant a
long-term, exclusive agreement.
(2) A copy of the solicitation.
(3) ACDBE contract goal analysis developed in accordance with this
part.
(4) Documentation that ACDBE participants are certified in the
appropriate NAICS code in order for the participation to count towards
ACDBE goals.
(5) A general description of the type of business or businesses to
be operated by the ACDBE, including location and concept of the ACDBE
operation.
(6) Information on the investment required on the part of the ACDBE
and any unusual management or financial arrangements between the prime
concessionaire and ACDBE.
(7) Final long-term-exclusive concession agreement, subleasing or
other agreements.
Sec. 23.77 [Amended]
0
25. Amend Sec. 23.77 in paragraph (b) by removing the term
``disadvantaged business enterprise'' and adding in its place
``Disadvantaged Business Enterprise''.
0
26. Revise Sec. 23.79 to read as follows:
Sec. 23.79 Does this part permit recipients to use local geographic
preferences?
No. As a recipient you must not use a local geographic preference.
For purposes of this section, a local geographic preference is any
requirement that gives a concessionaire located in one place (e.g.,
your local area) an advantage over concessionaires from other places in
obtaining business as, or with, a concession at your airport.
Appendix A to Part 23 [Removed]
0
27. Remove appendix A to part 23.
PART 26--PARTICIPATION BY DISADVANTAGED BUSINESS ENTERPRISES IN
DEPARTMENT OF TRANSPORTATION FINANCIAL ASSISTANCE PROGRAMS
0
28. The authority citation for part 26 is revised to read as follows:
Authority: 23 U.S.C. 304 and 324; 42 U.S.C. 2000d, et seq.; 49
U.S.C. 47113, 47123; Sec. 1101(b), Pub. L. 114-94, 129 Stat. 1312,
1324 (23 U.S.C. 101 note); Sec. 150, Pub. L. 115-254, 132 Stat. 3215
(23 U.S.C. 101 note); Pub. L. 117-58, 135 Stat. 429 (23 U.S.C. 101
note).
0
29. In part 26, remove the word ``actually'' wherever it appears.
Sec. 26.1 [Amended]
0
30. Amend Sec. 26.1 in paragraph (f) by removing ``federally-
assisted'' and add in its place ``federally assisted''.
0
31. Revise Sec. 26.3 to read as follows:
Sec. 26.3 To whom does this part apply?
(a) If you are a recipient of any of the following types of funds,
this part applies to you:
(1) Federal-aid highway funds authorized under Titles I (other than
Part B) and V of the Intermodal Surface Transportation Efficiency Act
of 1991 (ISTEA), Pub. L. 102-240, 105 Stat. 1914, or Titles I, III, and
V of the Transportation Equity Act for the 21st Century (TEA-21), Pub.
L. 105-178, 112 Stat. 107. Titles I, III, and V of the Safe,
Accountable, Flexible, Efficient Transportation Equity Act: A Legacy
for Users (SAFETEA-LU), Pub. L. 109-59, 119 Stat. 1144; Divisions A and
B of the Moving Ahead for Progress in the 21st Century Act (MAP-21),
Pub. L. 112-141, 126 Stat. 405; Titles I, II, III, and VI of the Fixing
America's Surface Transportation Act (FAST Act) Pub. L. 114-94, 23
U.S.C. 204; section 403 of Title 23, U.S. Code, and Division C of the
Bipartisan Infrastructure Law (BIL), Pub. L. 117-58.
(2) Federal transit funds authorized by Titles I, III, V and VI of
ISTEA, Pub. L. 102-240 or by Federal transit laws in Title 49, U.S.
Code, or Titles I, III, and V of the TEA-21, Pub. L. 105-178. Titles I,
III, and V of the Safe, Accountable, Flexible, Efficient Transportation
Equity Act: A Legacy for Users (SAFETEA-LU), Pub. L. 109-59, 119 Stat.
1144; Divisions A and B of the Moving Ahead for Progress in the 21st
Century Act (MAP-21), Pub. L. 112-141, 126 Stat. 405; Titles I, II,
III, and VI of the Fixing America's Surface Transportation Act (FAST
Act) Pub. L. 114-94, and Division C of the Bipartisan Infrastructure
Law (BIL), Pub. L. 117-58.
(3) Airport funds authorized by 49 U.S.C. 47101, et seq.
(4) [Reserved]
(b) [Reserved]
(c) If you are letting a contract, and that contract is to be
performed entirely outside the United States, its territories and
possessions, Puerto Rico, Guam, or the Northern Mariana Islands, this
part does not apply to the contract.
(d) If you are letting a contract in which DOT financial assistance
does
[[Page 43669]]
not participate, this part does not apply to the contract.
0
32. Amend Sec. 26.5 by:
0
a. Revising the definitions of Alaska Native and Department or DOT.
0
b. Removing the definition Disadvantaged business enterprise or DBE and
adding the definition Disadvantaged Business Enterprise or DBE in its
place.
0
c. Removing the definition Indian tribe and adding the definition
Indian tribe or Native American tribe in its place.
0
d. Removing the definition Personal net worth and adding the definition
Personal net worth or PNW in its place.
0
e. Revising the definitions of Primary industry classification,
Principal place of business, Recipient, and Secretary.
0
f. In the definition of Socially and economically disadvantaged
individual:
0
g. In the introductory text, removing the phrase ``as a members of
groups'' and adding in its place the phrase ``as a member of a group''.
0
ii. In paragraph (2)(iv), removing the locations ``Republic of the
Northern Marianas Islands'' and ``Kirbati'' and adding in their place
the locations ``Republic of the Northern Mariana Islands'' and
``Kiribati'', respectively.
0
iii. In paragraph (2)(v), removing the location ``the Maldives
Islands'' and adding in its place the location ``Maldives''.
0
f. Adding the definitions of Transit vehicle and Transit vehicle
dealership in alphabetical order.
0
g. Removing the definition of Transit vehicle manufacturer and adding
in its place the definition Transit vehicle manufacturer (TVM).
0
h. Adding the definition of Unsworn declaration in alphabetical order.
The revisions and additions read as follows:
Sec. 26.5 Definitions
* * * * *
Alaska Native means a citizen of the United States who is a person
of one-fourth degree or more Alaskan Indian (including Tsimshian
Indians not enrolled in the Metlakatla Indian Community), Eskimo, or
Aleut blood, or a combination of those bloodlines. The term includes,
in the absence of proof of a minimum blood quantum, any citizen whom a
Native village or Native group regards as an Alaska Native if their
father or mother is regarded as an Alaska Native.
* * * * *
Department or DOT means the U.S. Department of Transportation,
including the Office of the Secretary, the Departmental Office of Civil
Rights, the Federal Highway Administration (FHWA), the Federal Transit
Administration (FTA), and the Federal Aviation Administration (FAA).
Disadvantaged Business Enterprise or DBE means a for-profit small
business concern engaged in transportation-related industries:
(1) That is at least 51 percent owned by one or more individuals
who are both socially and economically disadvantaged; and
(2) Whose management and daily business operations are controlled
by one or more of the socially and economically disadvantaged
individuals who own it.
* * * * *
Indian tribe or Native American tribe means any federally or state-
recognized tribe, band, nation, or other organized group of Indians
(Native Americans), or an ANC.
* * * * *
Personal net worth or PNW means the net value of an individual's
reportable assets and liabilities, per the calculation rules in Sec.
26.68.
Primary industry classification means the most current North
American Industry Classification System (NAICS) designation which best
describes the primary business of a firm. The NAICS is described in the
North American Industry Classification Manual--United States which is
available online on the U.S. Census Bureau website: www.census.gov/naics/.
* * * * *
Principal place of business means the business location where the
individuals who manage the firm's day-to-day operations spend most
working hours. If the offices from which management is directed and
where the business records are kept are in different locations, the
recipient will determine the principal place of business. The term does
not include construction trailers or other temporary construction
sites.
* * * * *
Recipient means any entity, public or private, to which DOT
financial assistance is extended, whether directly or through another
recipient, through the programs of the FAA, FHWA, or FTA, or that has
applied for such assistance.
Secretary means DOT's Secretary of Transportation or the
Secretary's designee.
* * * * *
Transit vehicle means a vehicle manufactured by a TVM. A vehicle
manufactured by a non-TVM is not considered a transit vehicle for
purposes of this part, notwithstanding the vehicle's ultimate use.
Transit vehicle dealership means a business that is primarily
engaged in selling transit vehicles but that does not manufacture
vehicles itself.
Transit vehicle manufacturer (TVM) means any manufacturer whose
primary business purpose is to manufacture vehicles built for mass
transportation. Such vehicles include, but are not limited to buses,
rail cars, trolleys, ferries, and vehicles manufactured specifically
for paratransit purposes. Businesses that perform retrofitting or post-
production alterations to vehicles so that such vehicles may be used
for public transportation purposes are also considered TVMs. Businesses
that manufacture, mass-produce, or distribute vehicles primarily for
personal use are not considered TVMs.
* * * * *
Unsworn declaration means an unsworn statement, dated and in
writing, subscribed as true under penalty of perjury.
* * * * *
0
33. Revise Sec. 26.11 to read as follows:
Sec. 26.11 What records do recipients keep and report?
(a) You must submit a report on DBE participation to the concerned
Operating Administration containing all the information described in
the Uniform Report to this part. This report must be submitted at the
intervals required by, and in the format acceptable to, the concerned
Operating Administration.
(b) You must continue to provide data about your DBE program to the
Department as directed by DOT operating administrations.
(c) You must obtain bidders list information as described in
paragraph (c)(2) of this section and enter it into a system designated
by the Department.
(1) The purposes of this bidders list information is to compile as
accurate data as possible about the universe of DBE and non-DBE
contractors and subcontractors who seek to work on your federally
assisted contracts for use in helping you set your overall goals; and,
to provide the Department with data for evaluating the extent to which
the objectives of Sec. 26.1 are being achieved.
(2) You must obtain the following bidders list information about
all DBE and non-DBEs who bid as prime contractors and subcontractors on
each of your federally assisted contracts:
(i) Firm name;
(ii) Firm address including zip code;
(iii) Firm's status as a DBE or non-DBE;
(iv) Race and gender information for the firm's majority owner;
[[Page 43670]]
(v) NAICS code applicable to each scope of work the firm sought to
perform in its bid;
(vi) Age of the firm; and
(vii) The annual gross receipts of the firm. You may obtain this
information by asking each firm to indicate into what gross receipts
bracket they fit (e.g., less than $1 million; $1-3 million; $3-6
million; $6-10 million; etc.) rather than requesting an exact figure
from the firm.
(3) You must collect the data from all bidders for your federally
assisted contracts by requiring the information in paragraph (c)(2) of
this section to be submitted with their bids or initial responses to
negotiated procurements. You must enter this data in the Department's
designated system no later than December 1 following the fiscal year in
which the relevant contract was awarded. In the case of a ``design-
build'' contracting situation where subcontracts will be solicited
throughout the contract period as defined in a DBE Performance Plan
pursuant to Sec. 26.53(e), the data must be entered no later than
December 1 following the fiscal year in which the design-build
contractor awards the relevant subcontract(s).
(d) You must maintain records documenting a firm's compliance with
the requirements of this part. At a minimum, you must keep a complete
application package for each certified firm and all Declarations of
Eligibility, change notices, and on-site visit reports. These records
must be retained in accordance with applicable record retention
requirements for the recipient's financial assistance agreement. Other
certification or compliance related records must be retained for a
minimum of three (3) years unless otherwise provided by applicable
record retention requirements for the recipient's financial assistance
agreement, whichever is longer.
(e) The department of transportation in each Unified Certification
Program (UCP) established pursuant to Sec. 26.81 must report to DOT's
Departmental Office of Civil Rights each year, the following
information in the UCP directory:
(1) The number and percentage of in-state and out-of-state DBE and
Airport Concession Disadvantaged Business Enterprise (ACDBE)
certifications by gender and ethnicity (Black American, Asian-Pacific
American, Native American, Hispanic American, Subcontinent-Asian
Americans, and non-minority);
(2) The number of DBE certification applications received from in-
state and out-of-state firms and the number found eligible and
ineligible;
(3) The number of in-state and out-of-state firms decertified and/
or summarily suspended;
(4) The number of in-state and out-of-state applications received
for an individualized determination of social and economic disadvantage
status;
(5) The number of in-state and out-of-state firms certified whose
owner(s) made an individualized showing of social and economic
disadvantaged status; and
(6) The number of DBEs pre-qualified in their work type by the
recipient.
0
34. Revise the heading for subpart B to read as follows:
Subpart B--Administrative Requirements for DBE Programs for
Federally Assisted Contracting
0
35. Revise Sec. 26.21 to read as follows:
Sec. 26.21 Who must have a DBE program?
(a) If you are in one of these categories and let DOT-assisted
contracts, you must have a DBE program meeting the requirements of this
part:
(1) All FHWA primary recipients receiving funds authorized by a
statute to which this part applies;
(2) All FTA recipients receiving planning, capital and/or operating
assistance must maintain a program locally that includes the
requirements of reporting and recordkeeping under Sec. 26.11; contract
assurances under Sec. 26.13; policy statement under Sec. 26.23;
fostering small business participation under Sec. 26.39; and transit
vehicle manufacturers under Sec. 26.49. FTA recipients receiving
planning, capital and/or operating assistance to award prime contracts
(excluding transit vehicle purchases) the cumulative total value of
which exceeds $670,000 in FTA funds in a Federal fiscal year must have
a DBE program meeting all the requirements of this part; and
(3) FAA recipients receiving grants for airport planning or
development that will award prime contracts the cumulative total value
of which exceeds $250,000 in FAA funds in a Federal fiscal year.
(b)(1) You must submit a conforming DBE program to the concerned
Operating Administration (OA). Once the OA has approved your program,
the approval counts for all of your DOT-assisted programs (except goals
that are reviewed by the relevant OA).
(2) You do not have to submit regular updates of your DBE program
plan if you remain in compliance with this part. However, you must
submit significant changes to the relevant OA for approval.
(c) You are not eligible to receive DOT financial assistance unless
DOT has approved your DBE program and you are in compliance with it and
this part. You must continue to carry out your DBE program until all
funds from DOT financial assistance have been expended.
0
36. Amend Sec. 26.29 by:
0
a. Revising paragraph (d).
0
b. Redesignating paragraph (e) as paragraph (g).
0
c. Adding new paragraph (e) and paragraph (f).
The revision and additions read as follows:
Sec. 26.29 What prompt payment mechanisms must recipients have?
* * * * *
(d) Your DBE program must include the mechanisms you will use for
proactive monitoring and oversight of a prime contractor's compliance
with subcontractor prompt payment and return of retainage requirements
in this part. Reliance on complaints or notifications from
subcontractors about a contractor's failure to comply with prompt
payment and retainage requirements is not a sufficient monitoring and
oversight mechanism.
(e) Your DBE program must provide appropriate means to enforce the
requirements of this section. These means must be described in your DBE
program and should include appropriate penalties for failure to comply,
the terms and conditions of which you set. Your program may also
provide that any delay or postponement of payment among the parties may
take place only for good cause, with your prior written approval.
(f) Prompt payment and return of retainage requirements in this
part also apply to lower-tier subcontractors.
* * * * *
0
37. Revise Sec. 26.31 to read as follows:
Sec. 26.31 What information must a UCP include in its DBE/ACDBE
directory?
(a) In the directory required under Sec. 26.81(g), you must list
all firms eligible to participate as a DBE and/or ACDBE in your
program. In the listing for each firm, you must include its business
address, business phone number, the types of work the firm has been
certified to perform as a DBE and/or ACDBE, and all the following
information that the firm chooses to make public:
(1) State licenses held;
(2) Pre-qualifications;
(3) Bonding capacity;
(4) Equipment capability;
(5) Recently completed projects; and
(6) website.
[[Page 43671]]
(b) You must list each type of work a DBE and/or ACDBE is eligible
to perform by using the most specific NAICS code available to describe
each type of work. Pursuant to Sec. 26.81(n)(1) and (3), your
directory must allow for NAICS codes to be supplemented with specific
descriptions of the type(s) of work the firm performs.
(c) Your directory must permit the public to search and/or filter
for DBEs and/or using the following criteria:
(1) Physical location;
(2) NAICS code(s);
(3) Keyword search of work descriptions; or
(4) The information in paragraphs (a)(1) through (6) of this
section:
(i) State license(s);
(ii) Pre-qualifications;
(iii) Bonding and maximum bonding capacity;
(iv) Equipment type and number of each equipment type;
(v) Dollar value of largest completed project and keyword search of
project descriptions; and
(vi) Firms that have websites.
(d) You must make any changes to your current directory entries by
January 1, 2024, or within [DATE 180 DAYS AFTER DATE OF PUBLICATION OF
FINAL RULE]. The directory should clearly indicate that the information
displayed pursuant to paragraphs (a)(1) through (6) of this section was
submitted by the DBE and/or ACDBE and has not been reviewed for
accuracy by the members of the UCP.
0
38. Amend Sec. 26.35 by revising paragraph (b)(2) introductory text to
read as follows:
Sec. 26.35 What role do business development and mentor-
prot[eacute]g[eacute] programs have in the DBE program?
* * * * *
(b) * * *
(2) In the mentor-prot[eacute]g[eacute] relationship, you must:
* * * * *
0
39. Revise Sec. 26.37 to read as follows:
Sec. 26.37 What are a recipient's responsibilities for monitoring?
(a) You must implement appropriate mechanisms to ensure compliance
with the requirements in this part by all program participants (e.g.,
applying legal and contract remedies available under Federal, state,
and local law). You must set forth these mechanisms in your DBE
program.
(b) Your DBE program must also include a monitoring and enforcement
mechanism to ensure that work committed to all DBEs at contract award
or subsequently, including race- neutral participation, is actually
performed by the DBEs to which the work was committed, and such work is
counted according to the requirements of Sec. 26.55. This mechanism
must include a written verification that you have reviewed contracting
records and monitored the work site to ensure the counting of each
DBE's participation is consistent with its function on the contract.
The monitoring to which this paragraph (b) refers may be conducted in
conjunction with monitoring of contract performance for other purposes.
(c) This mechanism must also provide for running tallies of actual
DBE attainments toward the overall goal and for each DBE commitment
submitted pursuant to meeting a contract goal. Regarding the running
tally used to monitor the overall goal, this mechanism must provide a
means to compare current DBE attainments to anticipated contract awards
for the remainder of the annual reporting period. This mechanism should
ensure that contract goals are applied in accordance with Sec.
26.51(d). Regarding the running tally used to monitor the fulfillment
of each DBE commitment, this mechanism must provide a means of
comparing cumulative payments made to the DBE to the work listed for
each. This mechanism should assess whether the commitment will be
fulfilled or whether the prime contractor has demonstrated good faith
efforts, or should be required to demonstrate good faith efforts, to
address any projected shortfall per Sec. 26.53(g).
Sec. 26.39 [Amended]
0
40. Amend Sec. 26.39 in paragraph (b) introductory text by removing
the phrase ``by February 28, 2012''.
0
41. Amend Sec. 26.45 by:
0
a. Revising paragraph (a).
0
b. Removing in paragraph (c)(1) the hyperlink ``www.census.gov/epcd/cbp/view/cbpview.html'' and adding in its place the hyperlink ``https://www.census.gov/programs-surveys/cbp.html.''
0
c. Removing in paragraph (f)(1)(i) the words ``website'' and adding in
their place the word ``Web site''.
0
d. Removing in paragraph (f)(3) the text ``incuding'', ``race-
consioous'', and ``26.51(c)'' and adding in their places the text
``including'', ``race-conscious'', and ``Sec. 26.51(c)'',
respectively.
The revision reads as follows:
Sec. 26.45 How do recipients set overall goals?
(a) General rule. (1) Except as provided in paragraph (a)(2) of
this section, you must set an overall goal for DBE participation in
your DOT-assisted contracts.
(2) If you are an FTA or FAA recipient who reasonably anticipates
awarding (excluding transit vehicle purchases) $670,000 or less in FTA
or $250,000 or less in FAA funds in prime contracts in a Federal fiscal
year, you are not required to develop overall goals for FTA or FAA
respectively for that fiscal year.
* * * * *
Sec. 26.47 [Amended]
0
42. Amend Sec. 26.47 in paragraph (c)(3)(i) by removing the words
``Operational Evolution Partnership Plan'' and adding in their place
the term ``CORE 30''.
0
43. Revise Sec. 26.49 to read as follows:
Sec. 26.49 What are the requirements for transit vehicle
manufactures (TVMs) and for awarding DOT-assisted contracts to TVMs?
(a) If you are an FTA recipient, you must require in your DBE
program that each TVM, as a condition of being authorized to bid or
propose on FTA-assisted transit vehicle procurements, certify that it
has complied with the requirements of this section. You do not include
FTA assistance used in transit vehicle procurements in the base amount
from which your overall goal is calculated.
(1) Only those TVMs listed on FTA's list of eligible TVMs, or that
have submitted a goal methodology to FTA that has been approved or has
not been disapproved, at the time of solicitation are eligible to bid.
(2) A TVM's failure to follow the requirements of this section and
throughout this part will be deemed as non-compliant, which will result
in removal from FTA's eligible TVMs list and will become ineligible to
bid.
(3) An FTA recipient's failure to comply with the requirements set
forth in paragraph (a) of this section may result in formal enforcement
action or appropriate sanction as determined by FTA (e.g., FTA
declining to participate in the vehicle procurement).
(4) Within 30 days of becoming contractually obligated to procure a
transit vehicle, an FTA recipient must report to FTA:
(i) The name of the TVM that was the successful bidder; and
(ii) The Federal share of the contractual commitment at that time.
(5) A contract with a transit vehicle dealership to procure
vehicles does not qualify as a contract with a TVM, notwithstanding the
manufacturer of the vehicles procured.
(b) If you are a TVM, you must establish and submit to FTA an
annual overall percentage goal for DBE participation.
[[Page 43672]]
(1) In setting your overall goal, you should be guided, to the
extent applicable, by the principles underlying Sec. 26.45. The base
from which you calculate this goal is the amount of FTA financial
assistance included in transit vehicle contracts on which you will bid
during the fiscal year in question, less the portion(s) attributable to
the manufacturing process performed entirely by your own forces.
(i) You must consider and include in your base figure all domestic
contracting opportunities made available to non-DBEs.
(ii) You must exclude from this base figure funds attributable to
work performed outside the United States and its territories,
possessions, and commonwealths.
(iii) In establishing an overall goal, you must provide for public
participation. This includes consultation with interested parties
consistent with Sec. 26.45(g).
(2) The requirements of this part with respect to submission and
approval of overall goals apply to you as they do to recipients, except
that TVMs set and submit their goals annually and not on a triennial
basis.
(c) TVMs must comply with the reporting requirements of Sec.
26.11, including the requirement to submit the Uniform Report of DBE
Awards or Commitments and Payments, in order to remain eligible to bid
on FTA-assisted transit vehicle procurements.
(d) TVMs must implement all other requirements of this part, except
those relating to UCPs and DBE certification procedures.
(e) If you are an FHWA or FAA recipient, you may, with FHWA or FAA
approval, use the procedures of this section with respect to
procurements of vehicles or specialized equipment. If you choose to do
so, then the manufacturers of the equipment must meet the same
requirements (including goal approval by FHWA or FAA) that TVMs must
meet in FTA-assisted procurements.
(f) As a recipient you may, with FTA approval, establish project-
specific goals for DBE participation in the procurement of transit
vehicles in lieu of complying with the procedures of this section.
Sec. 26.51 [Amended]
0
44. Amend Sec. 26.51 in paragraph (f)(4) by removing the words
``through the use of'' and adding in their place the word ``using.''
0
45. Amend Sec. 26.53 by revising paragraphs (b)(3)(ii), (e), and (f)
to read as follows:
Sec. 26.53 What are the good faith efforts procedures recipients
follow in situations where there are contract goals?
* * * * *
(b) * * *
(3) * * *
(ii) Provided that, in a negotiated procurement, such as a
procurement for professional services, the bidder/offeror may make a
contractually binding commitment to meet the goal at the time of bid
submission or the presentation of initial proposals but provide the
information required by paragraph (b)(2) of this section before the
final selection for the contract is made by the recipient. This
paragraph (b)(3)(ii) does not apply to a design-build procurement,
which must follow the provisions in paragraph (e) of this section.
* * * * *
(e) In a design-build contracting situation, in which the recipient
solicits proposals to design and build a project with minimal-project
details at time of letting, the recipient may set a DBE goal that
proposers must meet by submitting a DBE Performance Plan (DPP) with the
proposal. The DPP replaces the requirement to provide the information
required in paragraph (b) of this section that applies to design-bid-
build contracts. To be considered responsive, the DPP must include a
commitment to meet the goal and provide details of the types of
subcontracting work or services (with projected dollar amount) that the
proposer will solicit DBEs to perform. The DPP must include an
estimated time frame in which actual DBE subcontracts would be
executed. Once the design-build contract is awarded, the recipient must
provide ongoing monitoring and oversight to evaluate whether the
design-builder is using good faith efforts to comply with the DPP and
schedule. The recipient and the design-builder may agree to make
written revisions of the DPP throughout the life of the project, e.g.,
replacing the type of work items the design builder will solicit DBEs
to perform and/or adjusting the proposed schedule, as long as design-
builder continues to use good faith efforts to meet the goal.
(f)(1)(i) You must require that a prime contractor not terminate a
DBE subcontractor or any portion of its work listed in response to
paragraph (b)(2) of this section (or an approved substitute DBE firm
per paragraph (g) of this section) 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.
(ii) You must include in each prime contract a provision stating
that:
(A) The contractor must utilize the specific DBEs listed to perform
the work and supply the materials for which each is listed unless the
contractor obtains your written consent as provided in paragraph (f) of
this section; and
(B) Unless your consent is provided under paragraph (f) of this
section, the prime contractor must not be entitled to any payment for
work or material unless it is performed or supplied by the listed DBE.
(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 listed DBE or any portion of its work.
(3) 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. For purposes of this paragraph
(f)(3), 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 contractor;
(iii) The listed DBE subcontractor fails or refuses to meet the
prime contractor's reasonable, nondiscriminatory 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
to 2 CFR parts 180, 215, and 1200 or applicable state law;
(vi) You have determined that the listed DBE subcontractor is not a
responsible contractor;
(vii) The listed DBE subcontractor voluntarily withdraws from the
project and provides to you written notice of its withdrawal;
(viii) The listed DBE is ineligible to receive DBE credit for the
type of work required;
(ix) A DBE owner dies or becomes disabled with the result that the
listed
[[Page 43673]]
DBE contractor is unable to complete its work on the contract; and
(x) Other documented good cause that you determine compels the
termination of the DBE subcontractor.
(4) Before transmitting to you its request to terminate a DBE
subcontractor or any portion of its work, the prime contractor must
give notice in writing to the DBE subcontractor, with a copy to you
sent concurrently, of its intent to request to terminate and the reason
for the proposed request.
(5) The prime contractor's written notice must give the DBE five
days to respond, advising you and the contractor of the reasons, if
any, why it objects to the proposed termination of its subcontract/or
portion thereof and why you should not approve the prime contractor's
request. 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 pre-award deletions or changes to DBEs or their listed
work put forward by offerors in negotiated procurements.
* * * * *
0
46. Amend Sec. 26.55 by:
0
a. In paragraph (c)(2), removing the words ``in order''.
0
b. In paragraph (c)(3), removing the words ``on the basis of'' and
adding in their place the word ``within''.
0
c. Revising paragraph (e).
0
d. In paragraph (f), removing the cross-reference ``Sec. 26.87(i)''
and adding in its place the cross-reference ``Sec. 26.87(j)''.
0
e. Revising paragraph (h).
The revisions read as follows:
Sec. 26.55 How is DBE participation counted toward goals?
* * * * *
(e) Count expenditures with DBEs for materials or supplies toward
DBE goals as provided in the following:
(1)(i) If the materials or supplies are obtained from a DBE
manufacturer, count 100 percent of the cost of the materials or
supplies.
(ii) For purposes of paragraph (e)(1) of this section, a
manufacturer is a firm that owns (or leases) and operates a factory or
establishment that produces, on the premises, the materials, supplies,
articles, or equipment required under the contract and of the general
character described by the specifications. Manufacturing includes
blending or modifying raw materials or assembling components to create
the product to meet contract specifications. When a DBE makes minor
modifications to the materials, supplies, articles, or equipment, the
DBE is not a manufacturer.
(2)(i) If the materials or supplies are purchased from a DBE
regular dealer, count 60 percent of the cost of the materials or
supplies (including transportation costs).
(ii) For purposes of this section, a regular dealer is a firm that
owns (or leases) and-operates, a store, warehouse, or other
establishment in which the materials, supplies, articles or equipment
of the general character described by the specifications and required
under the contract are bought, kept in sufficient quantities, and
regularly sold or leased to the public in the usual course of business.
(iii) Items kept and regularly sold by the DBE are of the ``general
character'' when they share the same material characteristics and
application as the items specified by the contract.
(iv) You should establish a system to determine that a DBE regular
dealer, over time, keeps sufficient quantities and regularly sells the
items in question. This system should ensure that each DBE supplier is
eligible for 60% credit based on its demonstrated capacity to perform a
commercially useful function (CUF) as a regular dealer. This
determination is intended to prevent overcounting at the pre-award or
subcontract approval stage and is contingent upon the outcome of a
final CUF and counting determination.
(A) To be a regular dealer, the firm must be an established
business that engages, as its principal business and under its own
name, in the purchase and sale or lease of the products in question. A
DBE supplier performs a CUF as a regular dealer and receives credit for
60% of the cost of materials or supplies (including transportation
cost) when all, or the major portion of, the items under a purchase
order or subcontract are provided from the DBE's inventory, and when
necessary, any minor quantities delivered from and by other sources are
of the general character as those provided from the DBE's inventory.
Recipients should establish procedures to ensure that preliminary
counting determinations at the pre-award/subcontract approval stage
include an evaluation of the type and quantity of items the DBE intends
to have delivered by other sources.
(B) A DBE may be a regular dealer in such bulk items as petroleum
products, steel, cement, gravel, stone, or asphalt without owning,
operating, or maintaining a place of business as provided in paragraph
(e)(2)(ii) of this section if the person both owns and operates
distribution equipment used to deliver the products. Any supplementing
of regular dealers' own distribution equipment must be by a long-term
operating lease and not on an ad hoc or contract-by-contract basis.
Recipients should establish procedures to make preliminary counting
determinations at the pre-award/subcontract approval stage based on the
DBE's capacity and intent to comply with the requirement of this
paragraph (e)(2)(iv)(B).
(C) A DBE supplier of items that are not typically stocked due to
their unique characteristics (e.g., limited shelf life or specialty
items) should be considered in the same manner as a regular dealer of
bulk items per paragraph (e)(2)(iv)(B) of this section. If the DBE
supplier of these items does not own or lease distribution equipment,
as descried above, it is not a regular dealer.
(D) Packagers, brokers, manufacturers' representatives, or other
persons who arrange, facilitate, or expedite transactions are not
regular dealers within the meaning of paragraph (e)(2) of this section.
(3) If the materials or supplies are purchased from a DBE
distributor that neither maintains sufficient inventory nor uses its
own distribution equipment for the products in question, count 40% of
the cost of materials or supplies (including transportation costs). A
DBE distributor is an established business that engages in the regular
sale or lease of the items specified by the contract and described
under a valid distributorship agreement. A DBE distributor performs a
CUF when it operates in accordance with the terms of its
distributorship agreement; with respect to shipping, the DBE
distributor must assume risk for lost or damaged goods. You should
review the language in distributorship agreements to determine their
validity relevant to each purchase order/subcontract and the risk
assumed by the DBE. Where the DBE distributor does not assume risk or,
otherwise, does not operate in accordance with its distributorship
agreement, counting is limited to fees and commissions.
(4) With respect to materials or supplies purchased from a DBE that
is neither a manufacturer, a regular dealer, nor a distributor, count
the entire amount of fees or commissions charged for assistance in the
procurement of the materials and supplies, or fees or transportation
charges for the delivery of materials or supplies required on a job
site, provided you determine the fees to be reasonable and not
excessive as compared with fees customarily allowed for similar
services. Do not count any portion of the cost of the
[[Page 43674]]
materials and supplies themselves, however.
(5) You must determine the amount of credit awarded to a firm for
the provisions of materials and supplies (e.g., whether a firm is
acting as a regular dealer, distributor, or a transaction facilitator)
on a contract-by-contract basis.
(6) The total allowable credit for a prime contractor's
expenditures with DBE suppliers (manufacturers, regular dealers,
distributors, and transaction facilitators) is limited to 50% of the
participation used by a prime contractor to meet a contract goal.
Exceptions to this cap for material-intensive projects may be granted
on a contract-by-contract basis with prior approval of the appropriate
OA.
* * * * *
(h) Do not count the participation of a DBE subcontractor toward a
contractor's final compliance with its DBE obligations on a contract
until the contractor has actually paid the DBE the amount being
counted.
0
47. Revise Sec. 26.61 to read as follows:
Sec. 26.61 How are burdens of proof allocated in the certification
process?
(a) In determining whether to certify a firm as eligible to
participate as a DBE, you must apply the standards of this subpart.
(b) The firm seeking certification has the burden of demonstrating
to you, by a preponderance of the evidence (i.e., more likely than not)
that it meets all the certification eligibility requirements in this
subpart. In determining whether the firm has met its burden, you must
consider all the information in the record, viewed as a whole.
(1) Exception 1. In proceedings to decertify a firm, you bear the
burden of proving, by a preponderance of the evidence, that the firm is
no longer eligible for certification under the rules of this part.
(2) Exception 2. If you seek to rebut an individual's claim of
presumed social and/or economic disadvantage, you bear the burden of
proving, by a preponderance of the evidence, why the individual is not
entitled to the presumption of social and economic disadvantage. See
Sec. 26.67(c).
0
48. Revise Sec. 26.63 to read as follows:
Sec. 26.63 General certification rules.
(a) General rules. Except as otherwise provided:
(1) The firm must be for-profit and operational.
(2) Whether a firm performs a commercially useful function is
irrelevant to certification eligibility.
(3) Certification cannot be conditioned on state pre-qualification
requirements for bidding on contracts.
(4) Entering into a fraudulent transaction is disqualifying per se.
(5) The certifier determines eligibility based on the evidence it
has at the time of its decision, not on the basis of historical or
outdated information, giving full effect to the ``curative measures''
provisions of this part.
(b) Indirect ownership. A firm (i.e., a subsidiary, denoted S) that
socially and economically disadvantaged owners (SEDOs) own and control
indirectly is eligible, assuming it satisfies the other requirements of
this part, only under the following circumstances.
(1) Look-through. SEDOs own at least 51 percent of S cumulatively,
as shown in the examples following.
(2) Control. The same SEDOs control P, and P controls S.
(3) One tier only. The SEDOs indirectly own S through a single P
and not through, for example, a parent of P (grandparent).
(4) Examples. The following examples assume that S and its SEDOs
satisfy all other requirements in this part.
Example 1 to paragraph (b)(4). SEDOs own 100 percent of P, and P
owns 100% of S. S is eligible for certification.
Example 2 to paragraph (b)(4). Same facts, except P owns 51 percent
of S. S is eligible.
Example 3 to paragraph (b)(4). SEDOs own 80 percent of P, and P
owns 70 percent of S. S is eligible because SEDOs indirectly own 56
percent of S. The calculation is 80 percent of 70 percent or .8 x .7 =
.56.
Example 4 to paragraph (b)(4). SEDOs own and control P, and they
own 52 percent of S by operation of this part. However, a non-SEDO
controls S. S is ineligible.
Example 5 to paragraph (b)(4). SEDOs own 60 percent of P, and P
owns 51 percent of S. S is ineligible because SEDOs own just 31 percent
of S.
Example 6 to paragraph (b)(4). P indirectly owns and controls S and
has other affiliates. S is eligible only if its gross receipts plus
those of all of its affiliates, including those of P, do not exceed the
applicable small business size cap. Note that all of P's affiliates are
affiliates of S by virtue of P's ownership and/or control of S.
(c) Indian tribes, NHOs, and ANCs--(1) Indian tribes and NHOs. A
firm that is owned by an Indian tribe or Native Hawaiian organization
(NHO), rather than by Indians or Native Hawaiians as individuals, is
eligible if it meets all other certification requirements in this part.
Such a firm must satisfy all requirements of this part.
(2) Alaska Native Corporations (ANCs). (i) Notwithstanding any
other provisions of this subpart, a subsidiary corporation, joint
venture, or partnership entity of an ANC is eligible for certification
as a DBE if it meets all the following requirements:
(A) The Settlement Common Stock of the underlying ANC and other
stock of the ANC held by holders of the Settlement Common Stock and by
Natives and descendants of Natives represents a majority of both the
total equity of the ANC and the total voting power of the corporation
for purposes of electing directors;
(B) The shares of stock or other units of common ownership interest
in the subsidiary, joint venture, or partnership entity held by the ANC
and by holders of its Settlement Common Stock represent a majority of
both the total equity of the entity and the total voting power of the
entity for the purpose of electing directors, the general partner, or
principal officers; and
(C) The subsidiary, joint venture, or partnership entity has been
certified by the Small Business Administration under the 8(a) or small
disadvantaged business program.
(ii) As a certifier to whom an ANC-related entity applies for
certification, you do not use the DOT Uniform Certified Application.
You must obtain from the firm documentation sufficient to demonstrate
that the entity meets the requirements of paragraph (c)(2)(i) of this
section. You must also obtain sufficient information about the firm to
allow you to administer your program (e.g., information that would
appear in your UCP directory).
(iii) If an ANC-related firm does not meet all the conditions of
paragraph (c)(2)(i) of this section, then it must meet the requirements
of paragraph (c)(1) of this section in order to be certified.
0
49. Revise Sec. 26.65 to read as follows:
Sec. 26.65 What rules govern business size determinations?
(a) To be an eligible DBE, a firm (including its affiliates) must
be an existing small business, as defined by Small Business
Administration (SBA) standards. You must apply current SBA business
size standard(s) found in 13 CFR part 121 appropriate to the type(s) of
work the firm seeks to perform in DOT-assisted contracts, including the
primary industry classification of the applicant. A firm is not an
eligible DBE in any Federal fiscal year if the firm (including its
affiliates) has had average annual gross receipts, as defined in 13 CFR
121.104, over the firm's previous
[[Page 43675]]
five fiscal years, in excess of the applicable SBA size standard(s).
(b) Even if it meets the requirements of paragraph (a) of this
section, a firm is not an eligible DBE for the purposes of FHWA and
FTA-assisted work in any Federal fiscal year if the firm (including its
affiliates) has had average annual gross receipts, as defined in 13 CFR
121.104, over the firm's previous three fiscal years, in excess of
$28.48 million (as of March 1, 2022). The Department will adjust this
amount for inflation on an annual basis. The adjusted amount will be
published on the Department's website in subsequent years.
0
50. Revise Sec. 26.67 to read as follows:
Sec. 26.67 What rules determine social and economic disadvantage?
(a) Group membership--(1) General rule. Citizens of the United
States (or lawfully admitted permanent residents) who are women, Black
American, Hispanic American, Native American, Asian Pacific American,
Subcontinent Asian American, or other minorities found to be
disadvantaged by the Small Business Administration (SBA), are
rebuttably presumed to be socially and economically disadvantaged.
(2) Evidence of group membership. To claim group membership, a firm
owner must indicate on the Declaration of Eligibility (DOE), found in
the Uniform Certification Application (UCA), in which of the group(s)
in paragraph (a)(1) of this section the owner is a member and submit
the signed and sworn DOE with the applicant firm's UCA. The DOE is the
only evidence of group membership an owner must provide with the UCA.
(3) Questioning group membership. You may not question an
individual's claim of group membership as a matter of course. You must
not impose a disproportionate burden on members of any particular
group. Imposing a disproportionate burden on members of a particular
group could violate Title VI of the Civil Rights Act of 1964, paragraph
(b) of this section, and/or 49 CFR part 21.
(i) If you have a well-founded reason(s) to question an
individual's claim of membership in a group in paragraph (a)(1) of this
section, you must email the individual a written explanation of your
reason(s), using the email address for the firm or individual provided
in the UCA (for applicants) or the most recent you have on file (for
certified firms). The individual bears the burden of proving, by a
preponderance of the evidence, that the individual is a member of the
group in question.
(ii) Your written explanation must meet all the following criteria:
(A) Specifically describe the evidence that forms the basis for
your well-founded reason(s).
(B) Instruct the individual to submit evidence demonstrating that
the individual has held herself/himself/themself/themselves out
publicly as a member of the group for at least 5 years prior to
applying for DBE certification, and that the relevant community
considers the individual a member. You may not require the individual
to provide evidence beyond that related to group membership.
(iii) The owner must email you the evidence described in paragraph
(a)(3)(ii)(B) of this section no later than 15 days of your written
explanation. If the owner untimely sends you information, you may use
your discretion whether to consider it; however, you must still email
the owner a final decision no later than 30 days after receiving timely
submitted evidence.
(iv) If you determine that an individual has not demonstrated group
membership by a preponderance of the evidence, your final decision must
specifically reference the evidence in the record that formed the basis
for your conclusion and give a detailed explanation of why the evidence
submitted was insufficient. It must also inform the individual of the
right to appeal, as provided in Sec. 26.89(c), and of the right to
reapply at any time by amending the original UCA with evidence of
individual social and economic disadvantage under paragraph (d) of this
section.
(b) Evidence and rebuttal of social disadvantage. (1) If you have a
reasonable basis to believe that an individual who is a member of a
group in paragraph (a)(1) of this section is not, in fact, socially
disadvantaged, you must initiate a proceeding to determine whether the
individual's presumption should be regarded as rebutted. Your
proceeding must fully comply with the requirements of Sec. 26.87. You
have the burden of demonstrating, by a preponderance of the evidence,
that the individual is not, in fact, socially disadvantaged. To meet
the burden, you must produce evidence that the individual has not been
subjected to racial or ethnic prejudice or cultural bias within
American society because of the individual's identity as a member of a
group in paragraph (a)(1) of this section and without regard to
individual qualities. Social disadvantage must stem from circumstances
beyond the individual's control.
(2) If an individual's presumption of social disadvantage has been
rebutted based on a finding, by the preponderance of the evidence, that
the individual is not socially disadvantaged, your final decision must
inform the individual of the right to appeal, as provided in Sec.
26.89(c), and of the right to reapply at any time by amending the
original UCA with evidence of individual social and economic
disadvantage under paragraph (d) of this section.
(c) Evidence and rebuttal of economic disadvantage. (1) Each
owner(s) on whom the applicant firm relies for certification
eligibility must submit the DOE found in the UCA. The owner(s) must
declare that the owner's personal net worth (PNW) does not exceed $1.60
million and corroborate the declaration by completing the PNW Statement
available at https://www.transportation.gov/civil-rights/disadvantaged-business-enterprise/ready-apply without alteration and by using the
calculation rules in Sec. 26.68. You must not attempt to rebut
presumed economic disadvantage as a matter of course.
(i) An owner whose PNW exceeds the regulation's $1.60 million limit
is not presumed economically disadvantaged. The limit is exact.
Rounding down is impermissible.
(ii) A certifier may require an owner to provide additional
information on a case-by-case basis to verify the accuracy and
completeness of the PNW Statement. The certifier must have a
demonstrable need for the additional information and avoid imposing an
unnecessary burden on an owner. Nor may you impose a disproportionate
burden on members of any particular group as doing so could violate
Title VI of the Civil Rights Act of 1964, paragraph (b) of this
section, and/or 49 CFR part 21.
(2)(i) If you have a reasonable basis to believe that an individual
who submits a PNW Statement that is below the $1.60 million limit is
not economically disadvantaged, you may rebut the individual's
presumption of economic disadvantage.
(ii) In determining whether an individual's presumption of economic
disadvantage should be rebutted, you must initiate a proceeding fully
complying with the requirements of Sec. 26.87. You have the burden of
demonstrating, by a preponderance of the evidence, that a reasonable
person would not consider the individual economically disadvantaged. To
meet the burden, you must produce evidence that demonstrates that a
reasonable person would not consider the individual economically
disadvantaged. You may consider indicators including, but not limited
to ready access to
[[Page 43676]]
wealth; lavish lifestyle; income or assets of a type or magnitude
inconsistent with economic disadvantage; or other circumstances that
economically disadvantaged people typically do not enjoy. This inquiry
gives the Sec. 26.68 asset exclusions, and limitations on inclusions,
no effect. It disregards liabilities entirely.
(iii) If you determine that the owner's presumption of economic
disadvantage is rebutted, your decision must inform the firm of the
right to appeal as provided in Sec. 26.89(c).
(d) Individualized determinations of social and economic
disadvantage--(1) Burden of proof. Firms owned and controlled by
individual(s) who are not presumed SED may be eligible for DBE
certification. The firm must prove, by a preponderance of the evidence,
that the owner seeking to establish an individualized showing of social
and economic disadvantage meets the criteria in paragraphs (d)(3) and
(4) of this section.
(i) You must consider the evidence presented as a whole. There is
no checklist of required evidence.
(ii) An individual need not have filed a complaint of
discrimination in order to successfully demonstrate social and/or
economic disadvantage.
(2) Individuals with disabilities. The Department acknowledges that
individuals with disabilities encounter many physical and attitudinal
barriers that individuals without disabilities do not have to overcome.
It is plausible that many individuals with disabilities--including
``invisible'' disabilities such as (but not limited to) post-traumatic
stress disorder, major depressive disorder, dyslexia, anxiety
disorder--may be socially and economically disadvantaged. As public
entities, certifiers must fully comply with Title II of the American
Disabilities Act, which includes ensuring that their DBE programs are
fully accessible to individuals with disabilities.
(3) Individualized determination of social disadvantage. (i) An
owner seeking to establish an individualized showing of social
disadvantage must identify at least one objective distinguishing
feature that resulted in racial, ethnic, cultural, or other prejudice
within American society because of the owner's membership in a group
and without regard to individual identity.
(ii) The owner must describe with particularity how the objective
distinguishing feature identified in paragraph (d)(3)(i) of this
section has resulted in the owner's social disadvantage. The owner may
provide evidence related to the owner's education, employment, or any
other evidence the owner considers relevant.
Example 1 to paragraph (d)(3). A White male claiming to have
experienced disadvantage in employment must provide evidence that his
status of belonging to a particular group, e.g., persons with dyslexia,
contributed to his disadvantage, as opposed to, e.g., a nationwide
economic recession that resulted in widespread unemployment.
(4) Individualized determination of economic disadvantage. (i) The
owner must submit the Personal Net Worth Statement, available at
https://www.transportation.gov/civil-rights/disadvantaged-business-enterprise/ready-apply, using the calculation rules in Sec. 26.68. An
owner whose PNW exceeds $1.60 million is not economically disadvantaged
under any circumstance.
(ii) The owner must describe with particularity how the owner's
objective distinguishing feature identified in paragraph (d)(3)(i) of
this section has resulted in the owner's economic disadvantage. The
owner may provide any financial or other information that the owner
considers relevant.
0
51. Add Sec. 26.68 to read as follows:
Sec. 26.68 Personal net worth.
(a) Calculation. (1) Exclude the SEDO's ownership interest in the
applicant or certified firm.
(2) Exclude the SEDO's equity in the SEDO's primary residence,
without reference to state marital laws or community property rules.
Title to the property governs.
Example 1 to paragraph (a)(2). The SEDO and their spouse hold joint
title to their primary residence, for which they paid $300,000 and are
coequal debtors on a bank mortgage and a home equity line of credit
with current combined balances of $150,000. The SEDO may exclude the
SEDO's $75,000 share of the equity. There is no exclusion when the SEDO
does not own the home or when attributable debt balances exceed the
purchase price.
(3) One hundred percent of the contents of the SEDO's primary
residence belong to the SEDO. The total value of household contents is
at least the total amount for which they are insured, taking into
account all policies, riders, amendments, and endorsements. If the
SEDO's spouse or domestic partner cohabits with the SEDO, and the
SEDO's primary residence is also the spouse or domestic partner's
primary residence, then, subject to the following special rules, the
SEDO is deemed to own 50% of those assets.
(4) Motor vehicles of any type belong to the natural person who
holds title.
(5) Exclude liabilities contingent on a future event, of unfixed
value, and those not owed in full on the date of the PNW Statement.
Example 2 to paragraph (a)(5). The SEDO may not report a projected
liability for Federal income tax unless and until the SEDO has reported
the precise amount of the SEDO's tax liability on a personal, Federal
tax return, duly signed, dated, and filed with the Internal Revenue
Service (IRS). If the SEDO has so reported to the IRS, the SEDO may
exclude from the PNW Statement only the net amount still owed to the
IRS, and not in arrears, on the latter of the regular due date (e.g.,
April 15) for the return or the date of the PNW Statement. If the SEDO
reports and documents such a tax liability, the SEDO must also provide
the SEDO's request for deferred payment and, if applicable, the IRS's
acquiescence.
(6) A natural person's signatory (not guarantor) status on any debt
instrument determines ownership of the liability. A business entity's
debt is not the SEDO's liability at all unless:
(i) The SEDO cosigns and is liable for 100% of the debt in the
event of default; and
(ii) The creditor is a traditional financial institution or an
entity that sells and finances sales of equipment in the ordinary
course of its business, provided that the DBE or applicant actually
uses the equipment other than incidentally in its business and the
equipment secures the debt.
Example 3 to paragraph (a)(6). When the SEDO and two other natural
persons are jointly and severally liable to repay the debt, the SEDO
may claim to be liable for only one third of principal and interest
presently owing.
(7) Include assets transferred to relatives or related entities
within the two years preceding an application for certification or one
year preceding the due date for a Sec. 26.83(j) declaration, when the
assets so transferred during the period have an aggregate value of more
than $20,000. Relatives include the owner's spouse or domestic partner,
children (whether biological, adopted or stepchildren), siblings
(including stepsiblings and those of the spouse or domestic partner),
and parents (including stepparents and those of the spouse or domestic
partner). Related entities include for-profit privately held companies
of which any relative is an owner, officer, director, or equivalent;
and family or other trusts of which any relative is grantor, trustee,
or beneficiary, except when the transfer is irrevocable.
[[Page 43677]]
(8) Exclude the SEDO's direct payments, on behalf of immediate
family members or their children, to unrelated providers of healthcare,
education, or legal services.
(9) Exclude the SEDO's direct payments to providers of goods and
services directly related to a celebration of an immediate family
member or her children's significant, normally non-recurring life event
such as a christening, munj, bat mitzvah, graduation, wedding,
retirement, memorial, or culturally analogous similar commemoration.
(10) Exclude all assets of the SEDO that are held in vested pension
plans, Individual Retirement Accounts, 401(k) accounts, or other
retirement savings or retirement investment programs.
(b) Regulatory adjustments. The PNW cap will be adjusted by January
1, 2024, or within [DATE 180 DAYS AFTER DATE OF PUBLICATION OF FINAL
RULE]. It will be adjusted by multiplying $1,600,000 by the growth in
total household net worth since 2019 as described by ``Financial
Accounts of the United States: Balance Sheet of Households and
Nonprofit Organizations'' produced by the Board of Governors of the
Federal Reserve (https://www.federalreserve.gov/releases/z1/).
Subsequent PNW adjustments will be made every 5 years on the
anniversary of the initial adjustment. The Department will post future
PNW limit adjustments on the Departmental Office of Civil Rights' web
page.
(1) The PNW adjustment will be based on the following formula:
[GRAPHIC] [TIFF OMITTED] TP21JY22.001
(2) The PNW cap will not be adjusted if the future year PNW cap
determined under paragraph (b)(1) of this section is less than the
previous amount. The cap will increase each year after the Federal
Reserve releases its annual data, so long as the amount determined
under paragraph (b)(1) is greater than the previous PNW cap.
(c) Confidentiality. 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
Sec. 26.89 or to any other state to which the individual's firm has
applied for certification under Sec. 26.85.
0
52. Revise Sec. 26.69 to read as follows:
Sec. 26.69 What rules govern determinations of ownership?
(a) General rule. A firm's SEDO(s) must own at least 51% of every
class of ownership. Each SEDO whose ownership is necessary to the
firm's eligibility must demonstrate that his or her ownership satisfies
the requirements of this section. If not, the firm is ineligible.
(b) Ownership acquisition and maintenance. The SEDO's acquisition
and maintenance of his or her ownership interest makes reasonable
economic sense (RES) under the circumstances.
(1) Acquisition. RES depends in part on the SEDO having acquired
ownership at fair value.
(2) Continuation. The SEDO's continued ownership makes RES if he or
she does not derive undue benefit relative to other owners.
(3) Proportionality. RES requires that neither SEDOs nor non-SEDOs
derive benefits or bear burdens that are clearly disproportionate to
their ownership shares.
(c) Investments. The SEDO may acquire ownership by purchase,
capital contribution, or gift. Subject to the other requirements of
this section, each is considered an ``investment'' in the firm, as are
additional purchases, contributions, and gifts. All investments relied
upon for eligibility must make RES.
(1) Irrevocability. Investments must be unconditional, irrevocable,
and at full risk of loss.
(2) Title. Title generally determines ownership of investments. The
rule in this paragraph (c)(2) operates independently of state or local
community property, equitable distribution, or similar provisions.
Thus, the person who has title to the investment owns it in proportion
to his or her share of title.
(3) Joint ownership. When the SEDO jointly owns an investment of
cash or property, the SEDO may claim at least a 51% ownership interest
only if the other joint owner formally transfers to the SEDO enough of
his or her ownership in the investment to bring the SEDO's investment
to at least 51% of all investments in the firm. Such transfers may be
gifts if they meet the requirements of paragraph (c)(4) of this
section.
(4) Gifts, including by bequest or inheritance. A gift of an
ownership interest to the SEDO is an investment that makes RES when it
satisfies the following criteria:
(i) The transferor is or immediately becomes uninvolved with the
applicant or DBE in any capacity and in any other business that
performs similar work or contracts with the firm other than as a lessor
or provider of standard support services;
(ii) The transferor does not derive undue benefit; and
(iii) A writing (e.g., a cancelled check when there is no better
evidence) documents the gift.
(d) Purchases and capital contributions. (1) Purchases of ownership
interests are investments when the consideration is entirely monetary
and not a trade of property or services.
(2) Contributed capital may be cash, tangible property, realty, or
a combination.
(3) Contributions of expertise or intangible property are
investments when they are extraordinary, uniquely suited to the firm's
main business, and of reasonably and credibly ascertained value
documented at the time of the company's application. In addition, and
in all cases, the SEDO must have a substantial financial investment at
the time the firm applies for certification and thereafter.
(4) Contributions of time, labor, services, and the like are not
investments.
(5) Loans to or from the firm or a non-disadvantaged owner,
guarantees, the firm's own purchases and redemptions, and capital
contributed by others are not the SEDO's investments.
(e) Debt-financed investments--(1) General rule. Subject to the
other provisions of this section, including the RES requirement, the
SEDO may borrow money to finance his/her/their investment entirely or
partially if the SEDO has paid, on a net basis, at least 15% of the
total value of the investment by the time the firm applies for
certification. The net payment must be from the SEDO's own, not
borrowed, money. Money that the SEDO receives as a gift or transfer
described in paragraph (c)(3) or (4) of this section is the SEDO's own.
[[Page 43678]]
Example 1 to paragraph (e)(1). A SEDO who borrows $9,000 of her
$10,000 investment in Applicant, Inc., must have repaid, from her own
funds, at least $500 of the loan's principal by the time of
application.
Example 2 to paragraph (e)(1). A SEDO who finances $8,000 of a
$10,000 investment in Applicant, Inc., may apply for certification at
any time.
(2) The SEDO must have a significant amount of the SEDO's own money
invested and at full risk of loss.
(3) The loan must be real, enforceable, not in default, and not
offset by another agreement.
(4) The SEDO must be the debtor.
(5) The firm may not be party to the loan in any capacity, nor can
its property serve as collateral. The SEDO may not rely on the
company's credit to finance his or her investment.
(6) When the creditor forgives the debt or the SEDO defaults, the
firm is no longer eligible.
(7) The overall investment must make RES.
(f) Curative measures. The rules of this section do not preclude
transactions that further the objectives of, and compliance with, the
provisions of this part. The SEDO or firm may enter into legitimate
transactions, alter the terms of ownership, make additional
investments, or bolster underlying documentation in a good faith effort
to correct impediments to eligibility, as long as the actions are
consistent with this part and make RES. The certifier should not hinder
the SEDO or firm when it attempts to become compliant with
certification requirements of this part.
(g) Anti-abuse rules. (1) Transactions lacking RES or apparent
business purpose may be disregarded.
(2) Multiple transactions occurring within any 2-year period may be
considered one transaction that leads from beginning circumstances to
end result.
(3) Transactions that have evasive effect are null and void.
0
53. Revise Sec. 26.71 to read as follows:
Sec. 26.71 What rules govern determinations concerning control?
(a) General rules. (1) SEDOs of at least 51% of the company must
control it.
(2) Control determinations must consider all pertinent facts,
viewed together and in context.
(3) A firm must have operations in the business for which it seeks
certification at the time it applies. Certifiers do not certify plans
or intentions or issue contingent or conditional certifications.
(b) SEDO as final decision maker. The SEDO must be the ultimate
decision maker in fact, regardless of operational, policy, or
delegation arrangements.
(c) Governance. Governance provisions may not require that the SEDO
obtain concurrence or consent from a non-SEDO or other participant to
transact business on behalf of the firm.
(1) Highest officer position. A disadvantaged owner must hold the
highest officer position in the company (e.g., chief executive officer
or president).
(2) Board of directors. Except as detailed in paragraph (c)(4) of
this section, the SEDO must have present control of the firm's board of
directors, or other governing body, through the number of eligible
votes.
(i) Quorum requirements. Provisions for the establishment of a
quorum must not block the SEDO from calling a meeting to vote and
transact business on behalf of the firm.
(ii) Shareholder actions. SEDO(s) authority to change the firm's
composition via shareholder action does not prove control within the
meaning of paragraph (c) of this section.
(3) Partnerships. In a partnership, one or more disadvantaged
owners must serve as general partners, with control over all
partnership decisions.
(4) Exception. Bylaws or other governing provisions that require
non-SEDO consent for extraordinary actions generally do not contravene
the rules in paragraph (c) of this section. Non-exclusive examples are
a sale of the company or substantially all of its assets, mergers, and
a sudden, wholesale change of type of business.
(d) Expertise. The SEDO must have an overall understanding of the
business and its essential operations sufficient to make sound
managerial decisions not primarily of an administrative nature. The
requirements of this paragraph (d) vary with type of business, degree
of technological intensity, and scale. In some cases, managerial
competence suffices.
(e) SEDO decisions. The firm must show that the SEDO critically
analyzes operational information provided to the owner by other
participants in the firm's activities and has made reasonable business
decisions based on the SEDO's independent analysis.
(f) Delegation. The SEDO may delegate administrative activities or
operational oversight to others if the SEDO retains unilateral power to
terminate the delegate(s) and the chain of command is evident to all
participants in the company and persons associated which the firm does
business.
(1) No non-SED participant may have power equal to or greater than
that of the SEDO, considering all the circumstances. Aggregate
magnitude and significance govern; a numerical tally does not.
(2) Non-SED participants may not make non-routine purchases or
disbursements, enter into substantial contracts, or make decisions that
affect company viability without the SEDO's consent.
(3) Written provisions or policies that specify the terms under
which non-SED participants may sign or act on the SEDO's behalf with
respect to recurring matters generally do not violate paragraph (f) of
this section, as long as they are consistent with the SEDO having
exclusive and ultimate responsibility for the action.
(g) Independent business. When the firm receives from or shares
personnel, facilities, equipment, financial support, or other essential
resources, with another business or individual on other than
commercially reasonable terms, the firm must prove that it would be
viable as a going concern without the arrangement.
(h) Franchise and license agreements. (1) A business operating
under a franchise or license agreement may be certified if it meets the
standards in this subpart and the franchiser or licenser is not
affiliated with the franchisee or licensee. In determining whether
affiliation exists, you should generally not consider the restraints
relating to standardized quality, advertising, accounting format, and
other provisions imposed on the franchisee or licensee by the franchise
agreement or license, if the franchisee or licensee has the right to
profit from its efforts and bears the risk of loss commensurate with
ownership. Alternatively, even though a franchisee or licensee may not
be controlled by virtue of such provisions in the franchise agreement
or license, affiliation could arise through other means, such as common
management or excessive restrictions on the sale or transfer of the
franchise interest or license.
(2) A DBE must not regularly use another firm's business-critical
vehicles, equipment, machinery, or facilities to provide a product or
service under contract to the same firm or one in a substantially
similar business.
(i) Exception 1. This paragraph (h)(2) does not preclude the firm
from providing services to a single customer or to a small number of
them, provided that the firm is not merely a conduit, captive, or
unnecessary third party acting on behalf of another firm or individual.
Similarly, providing a volume discount to such a customer does not
impair viability unless the firm
[[Page 43679]]
repeatedly provides the service at a significant and unsustainable
loss.
(ii) Exception 2. A DBE may share essential resources and deal
exclusively with another firm that the SEDO 51% owns and controls.
0
54. Revise Sec. 26.73 to read as follows:
Sec. 26.73 What rules govern the assignment of NAICS codes?
(a) You must grant certification to a firm only for specific types
of work in which the SEDOs control. To become certified in an
additional type of work, the firm must demonstrate to you only that its
SEDOs 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 performs (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.
(2) Firms and certifiers 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.
(b) [Reserved]
0
55. Amend Sec. 26.81 by:
0
a. Revising paragraphs (a)(1) and 5.
0
b. In paragraph (e), removing the word ``the'' from the first sentence.
0
c. Revising paragraph (g).
The revisions read as follows:
Sec. 26.81 What are the requirements for Unified Certification
Programs?
(a) * * *
(1) You and the other recipients in your state must sign an
agreement establishing the UCP for that state and submit the agreement
to the Secretary for approval.
* * * * *
(5) If you and the other recipients in your state fail to meet the
deadlines set forth in paragraph (a) of this section, you will have the
opportunity to make an explanation to the Secretary why a deadline
could not be met and why meeting the deadline was beyond your control.
If you fail to make such an explanation, or the explanation does not
justify the failure to meet the deadline, the Secretary will direct you
to complete the required action by a certain date. If you and the other
recipients fail to carry out this direction in a timely manner, you are
collectively in noncompliance with this part.
* * * * *
(g) Each UCP must maintain a unified DBE directory containing, for
all firms certified by the UCP (including those from other states
certified under the provisions of this part), the information required
by Sec. 26.31. The UCP must make the directory available to the public
electronically, on the internet. The UCP must update the electronic
version of the directory by including additions, deletions, and other
changes as soon as they are made.
* * * * *
0
56. Amend Sec. 26.83 by:
0
a. Revising the section heading and paragraph (c)(1)(i), (c)(3), (h),
(i)(3), (j), (k), (l), and (m).
0
b. Adding paragraph (n).
The revisions and addition read as follows:
Sec. 26.83 What procedures do certifiers follow in making
certification decisions?
* * * * *
(c)(1) * * *
(i) Perform an on-site visit, virtually or in person, to the firm's
principal place of business. You must interview the principal owners
and officers and review their r[eacute]sum[eacute]s and/or work
histories. You may interview key personnel of the firm if necessary.
You may make an audio recording of the interview. You must also perform
an on-site visit, either virtually or in-person, to job sites if there
are sites on which the firm is working at the time of the eligibility
investigation in your jurisdiction or local area;
* * * * *
(3) You must make sure that the applicant attests to the accuracy
and truthfulness of the information on the application form. This must
be done in the form of an unsworn Declaration of Eligibility executed
under penalty of perjury of the laws of the United States.
* * * * *
(h)(1) Once you have certified a DBE, it must remain certified
until and unless you have removed its certification, in whole or in
part (i.e, NAICS Code removal), through the procedures of Sec. 26.87.
(2) You may not require a DBE to reapply for certification or
undergo a recertification process. However, you may conduct a
certification review of a DBE firm, including a new on-site review
(virtually or in person), if appropriate in light of changed
circumstances (e.g., of the kind requiring notice under paragraph (i)
of this section or relating to suspension of certification under Sec.
26.88), a complaint, or other information concerning the firm's
eligibility. If information comes to your attention that leads you to
question the firm's eligibility, you may conduct an on-site review
(virtually or in person) on an unannounced basis, at the firm's offices
and job sites. You may also rely upon the site visit report of any
other certifier with respect to a firm applying for certification, if
it falls within the on-site review timeframe specified in your UCP
agreement.
(i) * * *
(3) The notice must take the form of an unsworn Declaration of
Eligibility executed under penalty of perjury of the laws of the United
States. You must provide the written notification within 30 days of the
occurrence of the change. If you fail to make timely notification of
such a change, you will be deemed to have failed to cooperate under
Sec. 26.109(c).
(j) If you are a DBE, you must provide to the recipient, every year
on the anniversary of the date of your certification, an unsworn
Declaration of Eligibility executed under penalty of perjury of the
laws of the United States. This declaration must affirm that there
[[Page 43680]]
have been no changes in the firm's circumstances affecting its ability
to meet size, disadvantaged status, ownership, or control requirements
of this part or any material changes in the information provided in its
application form, except for changes about which you have notified the
recipient under paragraph (i) of this section. The declaration must
specifically affirm that your firm continues to meet SBA business size
criteria and the overall gross receipts cap of this part, documenting
this affirmation with supporting documentation of your firm's size and
gross receipts (e.g., submission of Federal tax returns). If you fail
to provide this declaration in a timely manner, you will be deemed to
have failed to cooperate under Sec. 26.109(c).
(k) 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.
(l) If you are a certifier, you must issue decisions on
applications for certification within 90 days of receipt of all
information required from the applicant under this part. You may extend
this time period once, for no more than an additional 30 days, upon
written notice to the firm, explaining fully and specifically the
reasons for the extension. On a case-by-case basis, the concerned OA
may allow you to further extend the deadline one time if it receives
from you a written explanation of why you need more time. Your failure
to issue a decision by the applicable deadline under this paragraph is
deemed a constructive denial of the application, on the basis of which
the firm may appeal to DOT under Sec. 26.89. You may also be subject
to noncompliance penalties described in Sec. Sec. 26.103 and 26.105.
(m)(1) You may notify the applicant about ineligibility concerns
that you may have and allow the firm to rectify deficiencies within the
period for making a decision in paragraph (l) of this section.
(2) If a firm takes curative measure before your decision, you must
consider any evidence it submits to you of having taken such measures.
A curative measure does not automatically equate to a firm's attempt to
circumvent the rules of this part.
Example 1 to paragraph (m)(2). The firm may obtain proof of a
financial contribution meeting the ownership requirements in Sec.
26.69.
Example 2 to paragraph (m)(2). The firm might revise a
disqualifying operating agreement or bylaw provision to meet the
control requirements in Sec. 26.71.
(n) Except as otherwise provided in this paragraph (n), 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) 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) to a firm that has established a pattern of frequently
withdrawing applications before you make a decision.
0
57. Revise Sec. 26.85 to read as follows:
Sec. 26.85 Interstate certification.
(a) Applicability. This section applies to a DBE certified in any
state (``State A'').
(b) General rule. When a DBE certified in State A applies to
another state (``State B'') for DBE certification, State B must accept
State A's certification of the DBE.
(c) Application procedure. To obtain certification in State B, the
DBE must provide:
(1) A cover letter with its application that specifies that it is
applying for interstate certification;
(2) A copy of the certificate from State A or an electronic image
of the UCP directory of State A that shows the DBE certification; and
(3) A DOE signed under penalty of perjury. This is the same
declaration described in Sec. 26.83(j).
(d) Verification of eligibility. Within 10 business days of
receiving the documents required under paragraph (c) of this section,
State B must verify the certification of the DBE by reference to the
online UCP directory of State A.
(e) Certification. If the DBE fulfils the requirements of paragraph
(c) of this section and State B affirmatively verifies the State A
certification, State B must certify the DBE without undergoing further
procedures and provide the DBE with a letter documenting its
certification in State B.
(f) Noncompliance. Failure of State B to comply with paragraphs (d)
and (e) of this section would be considered non-compliance with this
part.
(g) Post-interstate certification proceedings--(1) Requests for
records. After State B certifies the DBE, the UCP may request a fully
unredacted copy of all, or a portion of, the DBE's certification file
from any other UCP in which the DBE is certified.
(2) Availability of records. A UCP must provide a complete
unredacted copy of the DBE's certification material to State B within
10 business days of receiving the request. Confidentiality requirements
of Sec. Sec. 26.83(d) and 26.109(b) do not apply.
(3) Oversight and compliance activities related to an out-of-state
DBE. Once State B certifies a DBE through the interstate certification
process, it becomes a DBE in State B and must be treated like any other
DBE in its directory of certified firms.
(i) The DBE must provide an annual Declaration of Eligibility with
documentation of gross receipts, under Sec. 26.83(j), to State B on
the anniversary date of the DBE's State A certification.
(ii) State B may conduct its own certification review of a DBE
under Sec. 26.83(h), or as specified in its UCP plan.
(iii) State B must conduct its own investigation of third-party
complaints, State A, or any other UCP where the firm holds
certification, must cooperate to the extent required by paragraph (h)
of this section and Sec. 26.109(c).
(iv) Except as described in paragraph (j) of this section, State B
must initiate its own decertification proceedings to remove a DBE's
eligibility if it finds reasonable cause to believe that the DBE is
ineligible.
(v) If State B decertifies a DBE for any reason, State B must email
a copy of its decision to State A and make the decision available to
any UCP upon request within 10 business days.
(4) Joint decertification proceedings. Any UCP may join a
decertification proceeding initiated by another state, pursuant to
Sec. 26.87, on the same grounds and facts specified in the notice
proposing to remove eligibility.
(i) The UCP joining the decertification proceeding may present
evidence at the hearing, but it cannot add additional grounds for
decertification not specified in the initiating state's notice
proposing removal.
(ii) After a UCP(s) joins another state's decertification
proceedings, the final notice of decision applies to all states that
are a party to the action. The final notice must include the appeal
instructions in Sec. 26.86(a).
(5) Ineligibility database. (i) When a UCP decertifies a firm, in
whole or in part (i.e., NAICS code removal), it must make an entry in
the Departmental Office of Civil Rights' (DOCR) online ineligibility
database. The UCP must enter the following information:
(A) The name of the firm;
(B) The name(s) of the firm's owner(s);
[[Page 43681]]
(C) The type and date of the action; and
(D) The reason for the action.
(ii) A UCP must check DOCR's online ineligibility database at least
once every month to determine whether any DBE your UCP certified or is
applying to your UCP is in the database.
(iii) For any such firm in paragraph (k)(2) of this section that is
on the list, a UCP must promptly request a copy of the adverse decision
from the UCP that made the decision. If the UCP receives such a
request, it must provide a copy of the decision to the requesting UCP
within 5 business days of receiving the request. The UCP receiving the
decision must then consider the information in the decision in
determining what, if any, action to take with respect to the DBE firm
or applicant.
(6) Effect of DOT's appeal decisions. If a DBE appeals a
decertification decision, and the Department upholds the decision, the
firm will lose its DBE eligibility in every UCP in which it is
certified.
(i) Exception. The rules of this section do not apply when the
Department upholds a decertification decision that is based on grounds
specific to a DBE's actions pertaining to a specific UCP under
Sec. Sec. 26.83(j) (Declaration of Eligibility) and 26.87(e)(6)
(failure to cooperate).
(ii) [Reserved]
0
58. Revise Sec. 26.86 to read as follows:
Sec. 26.86 What rules govern certifiers' denials of in-state
certification applications?
(a) When you deny a request by a firm an application for
certification, you must provide the applicant firm a written
explanation of the reasons for the denial, specifically referencing the
evidence in the record that supports each reason. You must also
include, verbatim, the following instructions for filing an appeal with
DOT:
You may appeal this decision to the U.S. Department of
Transportation. If you want to file an appeal, you must email the
Department at [email protected] within 45 days of the date of this
decision, setting forth a full and specific statement as to why you
believe this decision is erroneous, what significant facts that you
believe we did not consider, or what provisions of the DBE program
regulation you believe we misapplied. You have the right to request
copies of all documents and other information on which this decision
is based. USDOT does not accept notices of intent to appeal, partial
appeals, or otherwise non-compliant submissions. Please include a
copy of this letter and your contact information when you file your
appeal.
(b) You must promptly provide the applicant copies of all documents
and other information on which you based the denial if the applicant
requests them.
(c) You must establish waiting period of no more than twelve
months. After the waiting period expires, the denied firm may reapply
to any member of the UCP that denied the application. The time period
for reapplication begins to run on the date you send the denial letter.
An applicant's appeal of your decision to the Department pursuant to
Sec. 26.89 does not extend this period. You must include this
information, including the waiting period for reapplication, in your
denial letter.
0
59. Revise Sec. 26.87 to read as follows:
Sec. 26.87 What procedures does a certifier use to remove a DBE's
certification?
(a) Burden of proof. If you seek to decertify a DBE under the
circumstances described in paragraph (b), (c), or (d) of this section,
you bear the burden of proving, by a preponderance of the evidence,
that the firm does not meet the certification standards of this part.
(b) Ineligibility complaint. (1) Any person may file with you a
written complaint explaining why you should decertify a certified firm.
You are not required to accept a general allegation that a firm is
ineligible or an anonymous complaint. The complaint may include any
information or arguments supporting the complainant's assertion that
the firm is ineligible and should not continue to be certified.
Confidentiality of complainants' identities must be protected as
provided in Sec. 26.109(b).
(2) You must review your records concerning the firm, any material
provided by the firm and the complainant, and other available
information. You may request additional information from the firm or
conduct any other investigation that you deem necessary.
(3) If you determine, based on this review, that there is
reasonable cause to believe that the firm is no longer eligible for DBE
certification, you must provide the firm written notice of your intent
to decertify it, setting forth the reasons for the proposed
determination. The written notice must offer the firm an opportunity
for an informal hearing or to submit written arguments or evidence
demonstrating its continued eligibility. If you determine that
reasonable cause for decertifying the firm does not exist, you must
notify the complainant and the firm in writing of this determination
and the reasons for it. All statements of reasons for findings on the
issue of reasonable cause must specifically reference the evidence in
the record on which each reason is based.
(c) DOT directive. (1) If an OA determines that there is reasonable
cause to believe that a firm you or another member of your UCP
certified does not meet the eligibility criteria of this part, the OA
may direct you to initiate a proceeding to remove the firm's
certification.
(2) The OA must provide you and the firm written notice setting
forth the reasons for the directive, including any relevant
documentation or other information.
(3) You must immediately commence a proceeding to remove
eligibility as provided by paragraph (d) of this section.
(d) Certifier-initiated proceeding. If you determine that you have
reasonable cause to decertify a firm, you must provide the firm written
notice of your intent (NOI) to decertify it. The NOI must state clearly
and succinctly each of the reasons for the proposed action and must
specifically identify all the information on which you base each
reason.
(e) Grounds for decertification. Your notices of intent and final
decertification decisions must specifically identify which of the
following ground(s) you rely on:
(1) Changes in the firm's circumstances since the certification of
the firm by you or another member of your UCP that render the firm
unable to meet the eligibility standards of this part;
(2) The firm fails to timely submit an annual Declaration of
Eligibility per Sec. 26.83(j);
(3) Information or evidence regarding the firm's eligibility that
was not available to you at the time the firm was certified;
(4) Information relevant to eligibility that the firm concealed or
misrepresented;
(5) A change in DOT's certification standards or requirements after
the firm was certified. In this instance, you must offer the firm, in
writing, an opportunity to cure any defects within 30 days. If the firm
does not do so, you may proceed with sending the firm a notice of
intent to decertify;
(6) Your decision to certify the firm was clearly erroneous;
(7) The firm has failed to cooperate with you under Sec.
26.109(c);
(8) The firm has exhibited a pattern of conduct indicating its
involvement in attempts to subvert the intent or requirements of the
DBE program; or
(9) The firm has been suspended or debarred for conduct related to
the DBE program. The notice required by paragraph (h) of this section
must include a copy of the suspension or
[[Page 43682]]
debarment action. A decision to remove a firm for this reason will not
be subject to the hearing procedures in paragraph (d) of this section.
(f) Hearing. When you notify a DBE that you have reasonable cause
to decertify it, as provided in paragraph (b), (c), or (d) of this
section, you must give the firm written notification of an opportunity
for an informal hearing. The hearing must be conducted either in person
or virtually using an interactive video conference. The firm may accept
the hearing offer via properly addressed email sent by 4:30 p.m. in the
certifier's time zone by the 7th day following the date of the NOI;
failure of the firm to do so will result in the firm's forfeiture of
the hearing opportunity. You and the firm must schedule and conduct the
hearing not more than 45 business days (unless otherwise authorized by
the appropriate OA) after you notify the firm of the opportunity to
have a hearing. The firm may elect to submit written arguments or other
information in lieu of a hearing. In either situation, you bear the
same burden of proving, by a preponderance of the evidence, that the
firm is no longer eligible for participation in the DBE program. The
firm must submit the written arguments or other information no later
than 7 days prior to the hearing date.
(1) At the hearing the SEDO may respond to the reasons for the
proposal to remove the firm's certification and provide information and
arguments concerning why it should remain certified. However, the firm
is not entitled to a hearing if the ground for decertification is the
firm's failure to timely submit a Sec. 26.83(j) annual declaration. If
the firm does not provide the annual declaration within 15 days of your
NOI, you may issue a final notice of decertification based on Sec.
26.83(j) and/or Sec. 26.109(c).
(2) Questions related to the SEDO's control of the firm must be
answered by the SEDO. The SEDO's attorney, a non-SEDO or other
individuals involved with the firm are permitted to attend the hearing
and answer questions related to their own experience or more generally
about the firm's ownership, structure, and operations. No part of this
paragraph (f)(2) precludes the SEDO from having attorney representation
at the hearing.
(3) You must maintain a complete and verbatim record of the
hearing, either in writing or audio (or both). If the firm appeals to
DOT under Sec. 26.89, you must provide a transcript of the hearing to
DOT and, on request, to the firm. You must retain the original record
of the hearing.
(g) Separation of functions. You must ensure that the decision in a
proceeding to decertify a firm is made by an office and personnel that
did not take part in actions leading to or seeking to implement the
proposal to decertify the firm and are not subject, with respect to the
matter, to direction from the office or personnel who did take part in
these actions.
(1) Your method of implementing this requirement must be made part
of your DBE program and approved by the appropriate OA.
(2) The decisionmaker must be an individual who is knowledgeable
about the certification requirements of this part.
(h) Notice of decision. You must send the firm a final written
decision no later than 30 days of the informal hearing and/or receiving
written arguments/evidence from the firm in response to your NOI. If
you decide to decertify the firm, you must provide the firm a written
notice of decertification (NOD).
(1) The NOD must describe with particularity the reason(s) for your
decision, including specific references to the evidence in the record
that supports each reason. The NOD must also inform the firm of the
consequences of your decision under paragraph (j) of this section and
of its appeal rights under Sec. 26.89.
(2) You must send copies of the NOD to the complainant in an
ineligibility complaint or to the OA that directed you to initiate the
proceeding.
(3) When sending a copy of an NOD to a complainant other than an
OA, you must not include information reasonably construed as
confidential business information, unless you have the written consent
of the firm that submitted the information.
(4) You must make an entry in DOCR's online ineligibility
determination database. You must enter the name of the firm, names(s)
of the firm's owner(s), date of your decision, and the reason(s) for
your action.
(i) Status of firm during proceeding. (1) A firm remains an
eligible DBE during the pendency of your proceeding to remove its
eligibility.
(2) The firm does not become ineligible until the issuance of the
notice provided for in paragraph (h) of this section.
(j) Effects of removal of eligibility. When you remove a firm's
eligibility, you must take the following actions:
(1) When a prime contractor has made a commitment to using the
ineligible firm, but a subcontract has not been executed before you
issue the decertification notice provided for in paragraph (g) of this
section, the ineligible firm does not count toward the contract goal.
You must direct the prime contractor to meet the contract goal with an
eligible DBE firm or demonstrate to you that it has made good faith
efforts to do so.
(2) When you have made a commitment to using a DBE prime
contractor, but a contract has not been executed before you issue the
decertification notice provided for in paragraph (g) of this section,
the ineligible firm does not count toward your overall DBE goal.
(3) If a prime contractor has executed a subcontract with the firm
before you have notified the firm of its ineligibility, the prime
contractor may continue to use the firm and may continue to receive
credit toward the DBE goal for the firm's work. In this case, however,
the prime contractor may not extend or add work to the contract after
the firm was notified of its ineligibility without prior written
concurrence from recipient.
(4) If a prime contractor has executed a subcontract with the firm
before you have notified the firm of its ineligibility, the prime
contractor may continue to use the firm as set forth in paragraph
(j)(3) of this section; however, the portion of the ineligible firm's
continued performance of the contract must not count toward your
overall goal.
(5) If you have executed a prime contract with a DBE that was later
ruled ineligible, the portion of the ineligible firm's performance of
the contract remaining after you issued the notice of its ineligibility
must not count toward your overall goal, but the DBE's performance of
the contract may continue to count toward satisfying the contract goal.
(6) The following exceptions apply to paragraph (j) of this
section.
(i) If the DBE's ineligibility is caused solely by its having
exceeded the size standard during the performance of the contract, you
may continue to count the portion of the ineligible firm's performance
of the contract remaining after you issued the notice of its
ineligibility toward your overall goal as well as toward the contract
goals.
[[Page 43683]]
(ii) If the DBE's ineligibility results from its acquisition by a
non-DBE, you may not continue to count the portion of the ineligible
firm's performance on the contract remaining after you issued the
notice of its ineligibility toward either the contract goal or your
overall goal, even if a prime contractor has executed a subcontract
with the firm or you have executed a prime contract with the DBE that
was later ruled ineligible. In this case, if eliminating the credit of
the ineligible firm will affect the prime contractor's ability to meet
the contract goal, you must direct the prime contractor to subcontract
to an eligible DBE firm to the extent needed to meet the contract goal,
or demonstrate to you that it has made good faith efforts to do so.
0
60. Revise Sec. 26.88 to read as follows:
Sec. 26.88 Summary suspension of certification.
(a) Definition, operation, and effect. Summary suspension is an
extraordinary remedy for lapses in compliance that cannot reasonably or
adequately be resolved by other means. A certifier may summarily
suspend a DBE's certification in the circumstances and according to the
procedures described in this section.
(1) A firm's certification is suspended under this part as soon as
the certifier transmits electronic notice to its owner at the last
known email address.
(2) During the suspension period, the DBE may not be considered to
meet a contract or participation goal on contracts executed during the
suspension period.
(b) Mandatory and elective suspensions--(1) Mandatory. The
certifier must summarily suspend a DBE's certification when:
(i) The certifier has clear and credible evidence of the DBE's or
its SEDO's involvement in fraud or other serious criminal activity.
(ii) The OA with oversight so directs.
(2) Elective. The certifier has discretion to suspend summarily
when:
(i) It has clear and credible evidence that the DBE's continued
certification poses a substantial threat to program integrity; or
(ii) An owner upon whom the firm relies for eligibility does not
timely file the declaration and gross receipts documentation that Sec.
26.83(j) requires.
(3) Flexibilities. In most cases, an information request or notice
of intent under Sec. 26.87 to decertify is a sufficient response to
events described in paragraphs (b)(1) and (2) of this section. The
certifier should consider the burden to the DBE and to itself in
determining whether summary suspension is a more prudent and
proportionate, effective response. The certifier may elect to suspend
the same DBE just once in any 12-month period.
(c) Procedures--(1) Notice. The certifier must notify the firm, by
email, of its summary suspension on a business day during regular
business hours. The notice must explain the action, the reason for it,
the consequences, and the evidence on which the certifier relies.
(i) Elective summary suspensions must only provide a single reason
for the action.
(ii) Mandatory summary suspensions may provide multiple reasons.
(iii) In either scenario, i.e., elective or mandatory, the notice
must demand that the DBE show cause why it should remain certified and
provide the time and date of a virtual show-cause hearing at which the
firm may present information and arguments concerning why the certifier
should lift the suspension.
(2) Other requirements. As used in this section, ``days'' refers to
calendar days unless otherwise stated. The hearing date must be on a
business day that is at least 15 but not more than 25 days after the
date of the notice. The DBE may respond in writing in lieu of or in
addition to attending the hearing; however, it will have waived its
right to a hearing if it does not confirm its attendance within 10 days
of the notice and will have forfeited its certification if it does not
acknowledge the notice within 15 days. The show-cause hearing must be
conducted as a video conference on a standard commercial platform that
the DBE may readily access at no cost.
(3) DBE response. The DBE may provide information and arguments
concerning its continuing eligibility until the 15th day following the
suspension notice or the day of the hearing, if any, whichever is
later. The DBE may email or fax its written response or send it via
common carrier or courier. Email submissions correctly addressed are
effective when sent; faxes are effective when and to the extent
confirmed; and physical deliveries are effective when the carrier
confirms delivery. While there is no requirement that the DBE appear at
the scheduled hearing, as noted in paragraph (c)(2) of this section, it
must opt in, acknowledge, and/or respond within the time frames noted.
The certifier may permit additional submissions after the hearing, as
long as the extension is on a business day that is not more than 30
days after the notice.
(4) Failure to cancel or appear. If the DBE confirms its attendance
at the hearing, does not cancel its confirmation at least 5 days before
the hearing, and does not appear, it forfeits its certification. If the
certifier does not hold a hearing that the DBE has accepted, it
forfeits the suspension. The parties, however, may negotiate in good
faith to reschedule to another time or business day that is no later
than 29 days from the notice of suspension.
(5) Scope and burdens. (i) Suspension proceedings are limited to
the suspension ground specified in the notice.
(ii) The certifier may not amend its reason for summarily
suspending certification, nor may it electively suspend the firm again
during the 12-month period following the notice.
(iii) The DBE has the burden of producing information and/or making
arguments concerning its continued eligibility, but it need only
contest the reason cited. No other evidence is required.
(iv) The certifier has the burden of proving its case by a
preponderance of the evidence. It must send the suspended firm a notice
of decertification (NOD) within 30 days of the suspension notice or
lift the suspension. Any NOD must rely only on the reason given in the
summary suspension notice, and it must meet requirements in Sec.
26.87(g). Such an NOD is deemed to be a final decision under Sec.
26.87(g) to remove certification.
(v) The DBE's failure to provide information contesting the
suspension does not impair the certifier's ability to prove its case.
That is, the uncontested evidence upon which the certifier relies in
its notice will constitute a preponderance of the evidence for purposes
of the NOD, and the decertification will become final, provided that
the certifier complies with applicable rules in this part.
(6) Duration. The DBE remains suspended during the proceedings
described in this section but in no case for more than 30 days. If the
certifier has not lifted the suspension or provided a rule-compliant
NOD by 4 p.m. in the certifier's time zone on the 45th day, then it
must lift the suspension and amend DBE lists and databases as
necessary, by 12 p.m. in the certifier's time zone the following
business day.
(d) Remedies--(1) Appeal. The DBE may appeal a final decision under
paragraph (c)(5)(iv) of this section, as provided in Sec. 26.89(c),
but may not appeal the suspension itself, unless paragraph (d)(2) of
this section applies.
(2) Injunctive relief. A new, elective suspension occurring within
12 months of an earlier elective suspension is null and void. The DBE
subject to such a
[[Page 43684]]
suspension may immediately petition the Department to enjoin its
enforcement. Similarly, a suspended DBE may request injunctive relief
when the certifier fails to act within the time specified in paragraph
(c)(6) of this section. In either case, the DBE must:
(i) Email the request under the subject line, ``Request for
Injunctive Relief'';
(ii) Limit the request to a one-page explanation that includes the
certifier's name and the suspension dates; contact information for the
certifier, the DBE, and the DBE's SEDO(s); and the general nature and
date of the firm's response, if any, to the second suspension notice;
and
(iii) Attach both suspension notices.
(3) Withdrawal. A DBE may withdraw from the program at any time
before the certifier's final decision to remove certification.
0
61. Revise Sec. 26.89 to read as follows:
Sec. 26.89 Appeals to the Department.
(a)(1) If you are a firm that is denied certification or whose
certification is removed by a certifier, you may appeal to the
Department.
(2) If you are a complainant in an ineligibility complaint to a
certifier (or the concerned Operating Administration in the
circumstances provided in Sec. 26.87(c)), you may appeal to the
Department if the certifier does not find reasonable cause to propose
removing the firm's certification or, following a removal of
eligibility proceeding, determines that the firm is eligible.
(3) If you want to file an appeal, you must send a letter to the
Department within 45 days of the date of the certifier's final
decision, including information and setting forth a full and specific
statement as to why you believe the decision is erroneous, what
significant fact(s) the certifier failed to consider, or what
provisions of this part you believe the certifier did not properly
apply. The Department may accept an appeal filed later than 45 days
after the date of the decision if the Department determines that there
was good cause for the late filing of the appeal or in the interest of
justice.
(4) You may email your appeal to [email protected] or mail or
deliver it to U.S. Department of Transportation, Departmental Office of
Civil Rights, W78-101, 1200 New Jersey Avenue SE, Washington, DC 20590-
0001.
(b) Pending the Department's decision, the certifier's decision
remains in effect. The Department does not stay the effect of the
decision while it is considering an appeal.
(c) When it receives an appeal, the Department requests a copy of
the certifier's complete administrative record in the matter. The
certifier must provide the administrative record, including a hearing
transcript, within 20 days of the Department's request. The Department
may extend this time period on the basis of a certifier's showing of
good cause.
(1) If you are an appellant who is a firm which has been denied
certification, whose certification has been removed, whose owner is
determined not to be a member of a designated disadvantaged group, or
whose owner the presumption of disadvantage has been rebutted, your
letter must state the name and address of any other recipient which
currently certifies the firm, which has rejected an application for
certification from the firm or removed the firm's eligibility within
one year prior to the date of the appeal, or before which an
application for certification or a removal of eligibility is pending.
Failure to provide this information may be deemed a failure to
cooperate under Sec. 26.109(c).
(2) If you are an appellant other than one described in paragraph
(c)(1) of this section, the Department will request, and the firm whose
certification has been questioned must promptly provide, the
information called for in paragraph (c)(1) of this section. Failure to
provide this information may be deemed a failure to cooperate under
Sec. 26.109(c).
(d)(1) You must ensure that the administrative record is well
organized, indexed, and paginated. Records that do not comport with
these requirements are not acceptable and will be returned to you for
immediate correction. Failure to send a corrected record within seven
days of the Department's request will be deemed a failure to cooperate
under Sec. 26.109(c).
(2) If an appeal is brought concerning one certifier's
certification decision regarding a firm, and that certifier relied on
the decision and/or administrative record of another certifier, this
requirement applies to both certifiers involved.
(e) The Department decides only the issue(s) presented on appeal.
It does not reexamine overall eligibility, conduct a de novo review, or
hold hearings. It considers the administrative record and any
additional information it considers relevant. The Department resolves
appeals on substantive and/or procedural grounds.
(f)(1) The Department affirms your decision if it determines that
your decision is supported by substantial evidence and is consistent
with the provisions of this part concerning certification.
(2) The Department reverses your decision if it determines that
your decision is not supported by substantial evidence or is
inconsistent with the provisions of this part concerning certification.
The Department will direct you to certify the firm or remove its
eligibility, as appropriate. You must take the action directed by the
Department's decision immediately upon receiving written notice of it.
(3) The Department is not required to reverse your decision if the
Department determines that a procedural error did not result in
fundamental unfairness to the appellant or substantially prejudice the
opportunity of the appellant to present its case.
(4) If it appears that the record is incomplete or unclear with
respect to matters likely to have a significant impact on the outcome
of the case, the Department may remand the decision to you with
instructions seeking clarification and/or augmentation of the record.
The Department may also remand a case to you for further proceedings
consistent with Department instructions concerning the proper
application of the provisions of this part.
(5) The Department does not uphold your decision based on grounds
not specified in your decision.
(6) The Department's decision is based on the status and
circumstances of the firm as of the date of the decision being
appealed.
(7) The Department may summarily dismiss an appeal. Reasons for
doing so may include (but are not limited to) the Department's own
initiative, a withdrawal request from the appellant, non-compliance
with paragraph (c) of this section, or a request by the certifier to
reconsider its decision.
(g) The Department does not issue advisory opinions.
(h) The Department provides written notice of its decision to you,
the firm, and the complainant in an ineligibility complaint. A copy of
the notice is also sent to any other certifier whose administrative
record or decision has been involved in the proceeding (see paragraph
(d) of this section).
(i) If practicable, the Department will issue a written decision
within 180 calendar days of receiving the complete administrative
record. If the Department does not make its decision within this
period, the Department will provide written notice to concerned
parties, including a statement of the reason(s) for the delay and an
approximate date by which it will render an appeal decision.
(j) As a certifier, when you provide supplemental information to
the
[[Page 43685]]
Department, you must also make this information available to the firm
and any third-party complainant involved, consistent with Federal or
applicable state laws concerning freedom of information and privacy.
The Department makes available, on request by the firm and any third-
party complainant involved, any supplemental information it receives
from any source.
(k) All decisions under this section are administratively final and
are not subject to petitions for reconsideration.
(l) Final decisions are normally published without redactions on
DOCR's website. Decisions will likely contain confidential business and
financial information and/or personally identifiable information.
Therefore, DOCR, within its full discretion, may publish final
decisions issued under this section with any necessary redactions.
Sec. 26.91 [Amended]
0
62. Amend Sec. 26.91 by:
0
a. Removing the words ``recipients'' and ``recipient'' wherever they
appear and adding in their places the words ``certifiers'' and
``certifier'', respectively.
0
b. In paragraph (b)(1), removing the cross-reference ``Sec. 26.87(i)''
and adding in its place the cross-reference ``Sec. 26.87(j)''.
Sec. 26.103 [Amended]
0
63. Amend Sec. 26.103 in paragraph (d)(2) by removing the words
``being in compliance'' and adding in their place the word
``complying''.
Appendix A to Part 26 [Amended]
0
64. Amend appendix A in paragraph IV.A.(1) by removing the word
``conducing'' and adding in its place the word ``conducting''.
Appendix B to Part 26 [Removed and Reserved]
0
65. Remove and reserve appendix B to part 26.
Appendices E through G to Part 26 [Removed]
0
66. Remove appendices E through G to part 26.
[FR Doc. 2022-14586 Filed 7-20-22; 8:45 am]
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