[Federal Register Volume 89, Number 69 (Tuesday, April 9, 2024)]
[Rules and Regulations]
[Pages 24898-24979]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-05583]



[[Page 24897]]

Vol. 89

Tuesday,

No. 69

April 9, 2024

Part II





Department of Transportation





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49 CFR Parts 23 and 26





Disadvantaged Business Enterprise and Airport Concession Disadvantaged 
Business Enterprise Program Implementation Modifications; Final Rule

  Federal Register / Vol. 89 , No. 69 / Tuesday, April 9, 2024 / Rules 
and Regulations  

[[Page 24898]]


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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: Final rule.

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SUMMARY: The U.S. Department of Transportation (DOT or Department) is 
amending its Disadvantaged Business Enterprise (DBE) and Airport 
Concession Disadvantaged Business Enterprise (ACDBE) program 
regulations. The DBE and ACDBE programs are designed to allow small 
businesses owned and controlled by socially and economically 
disadvantaged individuals to compete fairly for DOT funded contracts 
let by State and local transportation agencies and in airport 
concession opportunities. The final rule improves program 
implementation in major areas, including by updating the personal net 
worth and program size thresholds for inflation; modernizing rules for 
counting of material suppliers; incorporating procedural flexibilities 
enacted during the coronavirus (COVID-19) pandemic; adding elements to 
foster greater usage of DBEs and ACDBEs with concurrent, proactive 
monitoring and oversight; updating certification provisions with less 
prescriptive rules that give certifiers flexibility when determining 
eligibility; revising the interstate certification process to provide 
for reciprocity among certifiers; and making technical corrections to 
commonly misinterpreted rules.

DATES: This rule is effective May 9, 2024.

FOR FURTHER INFORMATION CONTACT: For questions related to the final 
rule or general information about the DBE and ACDBE Program 
regulations, please contact Marc D. Pentino, Associate Director, 
Disadvantaged Business Enterprise Programs Division, Departmental 
Office of Civil Rights, Office of the Secretary, U.S. Department of 
Transportation, 1200 New Jersey Avenue SE, Room W78-302, Washington, DC 
20590, at 202-366-6968/[email protected] or Lakwame Anyane-Yeboa, 
ACDBE and DBE Compliance Lead, Disadvantaged Business Enterprise 
Programs Division, Departmental Office of Civil Rights, Office of the 
Secretary, U.S. Department of Transportation, 1200 New Jersey Avenue 
SE, Room W78-103, Washington, DC 20590, at 202-366-9361/[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]. Office hours are from 
8 a.m. to 4:30 p.m., E.T., Monday through Friday, except Federal 
holidays.

Electronic Access and Filing

    This document, the Notice of Proposed Rulemaking (NPRM), all 
comments received, and all background material may be viewed online at 
www.regulations.gov using the docket number listed above. Electronic 
retrieval help and guidelines are available on the website. It is 
available 24 hours each day, 365 days each year. An electronic copy of 
this document may also be downloaded from the Office of the Federal 
Register's website at www.federalregister.gov and the Government 
Publishing Office's website at www.GovInfo.gov.

SUPPLEMENTARY INFORMATION: 

Table of Contents

Executive Summary

49 CFR Part 26

Subpart A--General
    1. Bipartisan Infrastructure Law (BIL) and Fixing America's 
Surface Transportation (FAST) Act (Sec.  26.3)
    2. Definitions (Sec.  26.5)
    3. Reporting Requirements (Sec.  26.11 and Appendix B)
Subpart B--Administrative Requirements for DBE Programs for 
Federally Assisted Contracting
    4. Threshold Program Requirement for FTA Recipients (Sec.  
26.21)
    5. Unified Certification Program (UCP) DBE/ACDBE Directories 
(Sec. Sec.  26.31, 26.81(g))
    6. Monitoring Requirements (Sec.  26.37)
Subpart C--Goals, Good Faith Efforts, and Counting
    7. Prompt Payment and Retainage (Sec.  26.29)
    8. Transit Vehicle Manufacturers (TVMs) (Sec.  26.49)
    9. Good Faith Efforts Procedures for Contracts With DBE Goals 
(Sec.  26.53)
    10. Terminations
    11. DBE Supplier Credit (Sec.  26.55(e))
Subpart D--Certification Standards
    12. General Certification Rules (Sec.  26.63)
    13. Business Size (Sec. Sec.  26.65, 23.33)
    14. Personal Net Worth (PNW) Adjustment (Sec.  26.68)
    15. Presumption of Social and Economic Disadvantage (SED) 
(Sec. Sec.  26.5, 26.63, 26.67
    16. Ownership (Sec.  26.69)
    17. Control (Sec.  26.71)
Subpart E--Certification Procedures
    18. Technical Corrections to UCP Requirements (Sec.  26.81)
    19. Virtual On-Site Visits (Sec. Sec.  26.83(c)(1) and (h)(1))
    20, 23. Timely Processing of In-State Certification Applications 
(Sec.  26.83(k))
    21. Curative Measures (Sec.  26.83(m))
    22. Interstate Certification (Sec.  26.85)
    23. Denials of Initial Requests for Certification
    24. Decertification Procedures (Sec.  26.87)
    25. Counting DBE Participation After Decertification (Sec.  
26.87(j))
    26. Summary Suspension (Sec.  26.88)
    27. Appeals to the Departmental Office of Civil Rights (DOCR) 
(Sec.  26.89)
    28. Updates to Appendices F and G

49 CFR Part 23

Subpart A--General
    29. Miscellaneous Program Elements and Conncerns
    30. Aligning Part 23 With Part 26 Objectives (Sec.  23.1)
    31. Definitions (Sec.  23.3)
Subpart B--ACDBE Programs
    32. Socially and Economically Disadvantaged Owned Financial 
Institutions (Sec.  23.23)
    33. Direct Ownership, Goal Setting, and Good Faith Efforts 
Requirements (Sec.  23.25)
    34. Fostering ACDBE Small Business Participation (Sec.  23.26)
    35. Retaining and Reporting Information About ACDBE Program 
Implementation (Sec.  23.27)
Subpart C--Certification and Eligibility of ACDBEs
    36. Size Standards (Sec.  23.33)
    37. Certifying Firms That Do Not Perform Work Relevant to an 
Airport's Concessions (Sec.  23.39)
Subpart D--Goals, Good Faith Efforts, and Counting
    38. Removing Consultation Requirement When No New Concession 
Opportunities Exist (Sec.  23.43)
    39. Non-Car Rental Concession Goal Base (Sec.  23.47)
    40. Counting ACDBE Participation After Decertification (Sec.  
23.55)
    41. Shortfall Analysis Submittal Date (Sec.  23.57)
Subpart E--Other Provisions
    42. Long-Term Exclusive Agreements (Sec.  23.75)
    43. Local Geographic Preferences (Sec.  23.79)
    44. Appendix A to Part 23: Uniform Report of ACDBE Participation
    45. Technical Corrections
    46. Duration

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Regulatory Analyses and Notices

Executive Summary

    This final rule modernizes the DBE and ACDBE program rules to 
provide greater clarity and flexibility to DOT recipients and enhance 
the ability of DBEs to compete on a level playing field for DOT-
assisted \1\ contract opportunities. Spanning over 40 years, the DBE 
and ACDBE programs are small business initiatives intended to prevent 
discrimination, and to remedy the effects of past discrimination, in 
DOT-assisted contracting markets and airport concession opportunities. 
Since 1983, Congress has authorized the DBE program for highway and 
transit projects, most recently in Section 11101(e) of the Bipartisan 
Infrastructure Law (BIL), enacted as the Infrastructure Investment and 
Jobs Act (IIJA) (Pub. L. 117-58) (November 15, 2021). Congress codified 
the ACDBE program in 1987. (See 49 U.S.C. 47107(e)). In reauthorizing 
the DBE program in the BIL, Congress received and reviewed testimony 
and documentation from numerous sources which show that discrimination, 
its effects, and related barriers continue to pose significant 
obstacles for minority- and women-owned businesses seeking to do 
business in federally assisted surface transportation markets across 
the United States. See BIL, section 11101(e)(1).
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    \1\ DOT-assisted contract means any contract between a recipient 
and a contractor (at any tier) funded in whole or in part with DOT 
financial assistance, including letters of credit or loan 
guarantees, except a contract solely for the purchase of land.
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    The current rules and the revisions contained herein leave intact 
the goal setting rules that have been in place over many decades. These 
rules, then and now, prohibit DBE contract quotas; and they do not 
impose any penalties for failing to meet DBE goals, unless a recipient 
fails to administer its program in good faith. Every court to have 
considered the constitutionality of the program, as implemented by 
these regulations, has held that these limitations and other 
flexibilities embedded in the DBE program--such as the ability of 
recipients to seek waivers of or exemptions from certain provisions, 
the requirement for recipients to reexamine their programs and program 
goals every three years, and the authority to decertify firms that do 
not continue to meet certification standards--ensure that DOT's DBE 
regulations, on their face, are narrowly tailored to achieve the 
compelling interest that has been identified by Congress, thus 
satisfying strict scrutiny.
    On July 21, 2022, the Department issued a notice of proposed 
rulemaking (NPRM) in the Federal Register (87 FR 43620) setting forth 
the major categories of revisions, the Department's rationale, and 
proposed rule text. In July and August 2022, the Department held seven 
virtual listening sessions to brief the public and stakeholders on the 
proposals and to solicit further input. Recordings of the sessions are 
posted on the Department's DBE web page https://www.transportation.gov/dbe-rulemaking, and a transcript of all comments received are available 
at Regulations.gov (DOT-OST-2022-0051). DOT extended the comment period 
deadline from September 19 until October 31, 2022, through a notice 
published in the Federal Register on September 1, 2022 (87 FR 53708).
    The Department received approximately 400 written comments from 
State departments of transportation, transit authorities, airports, 
DBEs, non-DBEs, representatives of various stakeholder organizations, 
and individuals. Many of the comments were extensive and covered 
numerous proposed changes. Some commenters suggested changes beyond the 
scope of what the Department proposed in the NPRM. We fully considered 
all written comments we received.
    Congress created the DBE and ACDBE programs by statute and has 
continued to reauthorize the program in successive transportation 
reauthorization laws. The purpose of this rulemaking is to make 
technical improvements to the Department's DBE and ACDBE programs, 
including modifications to the forms used by program and certification-
related changes. While this rule has implications for program 
eligibility, it does not change the underlying programs and projects 
being carried out with DOT funds. However, the Department recognizes 
that certain provisions focus on discrete aspects of the DBE and ACDBE 
programs. Therefore, the Department finds that the various provisions 
of this final rule are severable and able to operate functionally if 
severed from each other. In the event a court were to invalidate one or 
more of this final rule's unique provisions, the remaining provisions 
should stand, thus allowing this congressionally mandated program to 
continue to operate.

Part 26

Subpart A--General

1. Bipartisan Infrastructure Law (BIL) and Fixing America's Surface 
Transportation Act (FAST Act) (Sec.  26.3)

    The Department proposed adding citations to applicable surface 
authorization legislation. We received no comments, and the final rule 
adopts our proposal with minor technical corrections to the text.

2. Definitions (Sec.  26.5)

NPRM

    In addition to minor technical and spelling changes, the NPRM 
proposed new or altered definitions of disadvantaged business 
enterprise, principal place of business, transit vehicle, transit 
vehicle dealer, transit vehicle manufacturer, and unsworn declaration. 
In addition, because ``home state'' is no longer being used as a term 
of art in the regulation, we are removing that definition from the 
current rule.

Comments

Disadvantaged Business Enterprise
    The majority of the comments addressed the proposed addition of 
``be engaged in transportation-related industries'' to the definition 
of ``disadvantaged business enterprise.'' We proposed the addition 
because applicants that have no capability or interest in working on 
DOT-assisted contracts seek DBE certification for other, unrelated 
reasons, resulting in an unnecessary burden on certifiers' workloads.
    Ten of the 40 commenters (mostly recipients and DBEs) supported the 
proposed definition, though most requested clarification because they 
found it confusing. They stated that an absence of clarification would 
cause difficulty in determining which firms were in transportation-
related industries and which were not, and the results could easily be 
inconsistent and arbitrary. Some commenters noted that many DBEs do not 
have specific mentions of transportation in their North American 
Industry Classification System (NAICS) codes. A few recipients asked 
how they should handle DBEs that might not be performing work in 
transportation-related industries.
    The majority of commenters who sought clarification, as well as 
several others who opposed the proposal altogether, opined that the 
limitation would constrain opportunities for small businesses, 
especially those in the goods and services sector or new or non-
traditional types of work. One commenter cited the example of firms

[[Page 24900]]

supporting electric vehicles or related infrastructure.
    Very few of the commenters who sought clarification proposed an 
approach that would better clarify the definition. One State DOT 
suggested there could be a ``stop here'' entry on the Uniform 
Certification Application, analogous to the current check entry box on 
which an applicant would check whether it was a for-profit firm, on 
which a company could affirm that it intended to work on transportation 
projects.
Principal Place of Business
    All three commenters supported the proposal, though one asked for 
more guidance.
Transit Vehicles, Manufacturers, and Dealerships
    For comments and the Department's response related to the 
definitions of transit vehicle, transit vehicle manufacturer, and 
transit vehicle dealership, please see the portion of the preamble 
below concerning TVMs.
Unsworn Declaration
    With the exception of one State DOT, which thought DOT's proposal 
could enable fraud, all of the more than 20 commenters on the concept 
and definition of unsworn declaration, both recipients and DBEs, 
supported the proposal. The main reason was that it reduced the burden 
on both firms and certifiers. One State DOT suggested the idea be 
extended to information provided in on-site interviews as well as 
applications. One transit agency suggested having a witness sign the 
declaration, the use of which it thought should be limited to 
declarations of eligibility (DOEs) or interstate certification 
applications.
Miscellaneous Comments Received
    Some commenters asked for the addition of such groups as LGBTQ 
individuals, disabled veterans, individuals with disabilities, and 
persons from North Africa and the Middle East to the definition of 
``socially and economically disadvantaged individual.'' One commenter 
found the definition of ``affiliation'' confusing but did not suggest a 
clarification.
    As has been the case during past rulemakings, a few commenters 
disliked the use of the term ``disadvantaged business enterprise,'' 
finding its connotation too negative. Those commenters suggested 
alternatives like ``historically underutilized business,'' ``business 
inclusion program,'' or making the ``D'' in DBE stand for diverse, 
dynamic, or distinguished. A commenter wished to exclude ``micro 
purchases,'' as defined in Federal procurement rules, from the 
definition of ``contract.'' One commenter asked to expand the 
definition of ``DOT-assisted contract'' to include all contracts 
relating to any phase of a DOT-assisted project (e.g., State or locally 
funded pre-construction engineering or design of a project that would 
ultimately gain DOT funding).

DOT Response

Disadvantaged Business Enterprise
    With respect to comments on the proviso in the definition of 
``disadvantaged business enterprise'' that a DBE be one ``engaged in 
transportation-related industries,'' we considered two program 
concerns. On one hand, some Unified Certification Programs (UCPs) may 
have been burdened by significant numbers of applications from firms 
that appear not to have interest in, or the ability to work on, the 
DOT-assisted contracts of recipients. For example, some firms may seek 
certification from a UCP in order to become eligible for State and 
local programs in areas unrelated to transportation. We believe it is 
useful to limit such burdens on certifiers, which themselves have 
limited resources.
    On the other hand, it would be counterproductive to use language 
that could be interpreted as limiting DBE program participation given 
the diversity of the types of work that DOT-assisted projects entail. 
Thus, we exclude ``engaged in transportation-related industries'' from 
the definition of DBE.
    Instead, the final rule requires applicants to describe in detail 
in the Uniform Certification Application (UCA)--with examples wherever 
possible--the type(s) of work they envision performing on DOT-assisted 
contracts. The UCA will not be considered complete if the applicant 
omits this information. During the onsite visit, for example, 
certifiers should ask applicants to describe the nature of their work 
and what they seek to achieve with certification. If the applicant's 
response reasonably suggests to the certifier that the firm would 
likely not have opportunities to participate in, or has no intention of 
pursuing participation in, DOT-assisted contracts, the certifier should 
encourage the applicant to withdraw its UCA in order to avoid 
unnecessary expenditures of time and effort by all parties. This 
mechanism fulfills the intended purpose of the now-deleted 
``transportation-related industries'' language.
Unsworn Declaration
    Given commenters' general support of our proposal, and the 
likelihood that permitting unsworn declarations will reduce burdens and 
maintain program integrity, the final rule adopts the proposal without 
substantive change.
Principal Place of Business
    We believe that the NPRM's proposed definition of ``principal place 
of business'' is clear as written, and the final rule incorporates it 
without change.
Other Comments
    The Department does not have legal authority to add groups (e.g., 
LGBTQ persons or disabled veterans) to the current list of groups whose 
members are rebuttably presumed socially and economically 
disadvantaged. However, persons who are not members of a presumptive 
group may qualify as socially and economically disadvantaged through 
individual determination procedures as detailed in Sec.  26.67(d).
    We recognize that some commenters were uncomfortable with possibly 
negative connotations of the term ``disadvantaged business 
enterprise.'' We leave the program name unchanged. It is well-
recognized and cited as such in the statutes authorizing the program, 
and changing the name of the program may lead to confusion.

3. Reporting Requirements (Sec.  26.11 and Appendix B)

NPRM

    The NPRM proposed adding and changing three reporting requirements. 
First, the NPRM proposed adding ten new data fields to the Uniform 
Report of Awards, Commitments and Payments (Uniform Report) that 
recipients submit annually, such as work category/trade a firm 
performed in a contract, federally assisted contract number, and 
terminations (for the complete list, see 87 FR 43624 (July 21, 2022)). 
We believed this additional information would help the Department 
evaluate whether the DBE program is making progress toward the 
objectives stated in Sec.  26.1 of the regulation. Recipients would 
submit the Uniform Report in a manner acceptable to the relevant OA, 
but the form itself, while on the DOT website, would no longer be 
printed in the regulation.
    The NPRM also proposed to require recipients to obtain and enter 
bidders list data into a centralized, searchable database that the 
Department would

[[Page 24901]]

specify. The data points for this bidders list would be expanded to 
include race and gender information for a firm's socially and 
economically disadvantaged owner (SEDO) and the NAICS code applicable 
to each scope of work the firm proposed to perform in its bid. The NPRM 
asked for comment on the estimated costs for developing and maintaining 
such a database. The Department said that since recipients already 
collect most of the information that would be reported on the bidders 
list, reporting this data would be beneficial to the Department in 
evaluating program success with anticipated minimal impact on 
stakeholders.
    Third, the NPRM asked for comments on expanding the information 
collected through what is referred to as the MAP-21 data report. That 
report includes information taken from each State's UCP directory and 
reporting on the percentage and location of DBEs owned and controlled 
by women, by disadvantaged individuals who are not women, and 
individuals who are women and are also otherwise disadvantaged. The 
NPRM proposed collecting data on the following six additional items: 
the number and percentage of in-state and out-of-state SEDOs by gender 
and ethnicity; the number of applications received from in-state and 
out-of-state firms and the number of each found eligible or ineligible; 
the number of in-state and out-of-state firms decertified or summarily 
suspended; the number of in-state and out-of-state applications 
involving a request for an individual determination of social and 
economic disadvantage; the number of in-state and out-of-state firms 
certified based on such a determination; and the number of DBEs 
prequalified in their work type by the Department. The Department 
proposed creating a similar data requirement for ACDBEs.

Comments

    This section was one of the most frequently commented upon of any 
subject in the NPRM, with some commenters expressing general support 
for the proposals, some expressing general opposition, and others 
delving into the details of one or more of the reports.
General Comments on Proposed Reports
    Of the nearly 60 commenters who expressed a view (pro or con) about 
the Uniform Report and MAP-21 report proposals, a significant majority, 
predominantly recipients, opposed the proposals. Often, these comments 
did not distinguish closely between the MAP-21 report and the Uniform 
Report but talked about the NPRM's reporting requirements generally.
    Opponents primarily expressed that the proposals were too detailed 
and created unnecessary burdens and costs, particularly for local 
agencies and subrecipients. The required information would be difficult 
to collect, and create a cumbersome, time-consuming process, sometimes 
involving manual reporting (e.g., concerning listing replaced firms), 
keeping staff from doing more substantive work. One recipient said it 
would have to double its staff to handle the requirements, for example. 
Another said that handling the proposed Uniform Report requirements 
would double its staff time on that work by 16 hours per year. Programs 
are short-staffed as it is, others said, especially for small 
recipients and some saw the expanded Uniform Report items as a 
substantial change. Certification could be slowed down.
    While some commenters in this category said the requested 
information could be helpful, they did not think that its potential use 
outweighed the burdens involved. One commenter questioned the use the 
Department would make of the additional data; something more specific 
than ``program evaluation'' in general was needed to justify new 
collections. Instead of making reporting requirements more complex, 
commenters said they should be reduced and simplified (e.g., one 
contractor suggested limiting fields to firm name, disadvantaged group 
membership, contracts, and DBE commitment amount).
    Some commenters also thought that certain fields in the report were 
duplicative or redundant. For example, one commenter said that 
information about decertifications had to be reported in three 
different places. A few commenters thought some fields, such as those 
addressing decertifications and terminations, did not fit well in the 
Uniform Report. Another said the proposed reports generally were not 
relevant to ACDBEs. Rather than sending one report to the OA and 
another to DOCR, there should be a single, streamlined form sent to 
only one office at DOT.
    Some commenters recommended that DOT convene a recipients' group to 
do a feasibility study and figure out how to make the reports work 
efficiently prior to adopting the proposals. Commenters suggested time 
frames from one to five years to phase in the requirements. Other 
commenters suggested that the Department should also develop, test, and 
make available a uniform, centralized database before imposing 
requirements that all recipients, vendors, and subcontractors could use 
and delay implementation 3 to 5 years.
    Commenters said that such a database would allow data from 
different sources to merge and that the database should be made 
available to users through an online portal. Other commenters said DOT 
should provide funding for recipients to comply with the expanded 
requirements and provide more guidance on the reporting forms and 
process.
    Supporters of the proposals included some recipients but were 
predominantly DBEs. Generally, they favored obtaining the additional 
detailed data for program evaluation purposes. Some cited particular 
items they thought were useful, such as race/ethnic/gender data, 
explaining that those items could keep better track of the use of 
Black-owned firms. Some commenters suggested collection of additional 
data points such as dollar amount of contracts by NAICS codes, and some 
commenters recommended that recipients be required to maintain copies 
of all prime contracts and subcontracts.
Bidders Lists
    A large majority of the over 40 comments concerning the NPRM's 
bidders list proposal opposed it. A few comments, all but one of which 
were from DBEs, supported the proposal for the reasons stated in the 
preamble. Some of these comments favored the idea of a centralized 
database for bidders list information. One asked for more data on the 
actual use of successful DBE bidders, to address the issue of prime 
contractors listing DBEs in their bid and then not using them.
    Most of the comments opposing the proposal were from recipients. 
Some of these commenters said that the existing bidders list 
requirements were sufficient, and that there was no need to make any 
changes. They asserted that the proposed changes to the Uniform and 
MAP-21 reports would be unduly burdensome and create an unfunded 
mandate. One airport trade organization member noted it would take 25 
hours to complete the MAP-21 report of ACDBEs in various categories 
rather than the 3.2 hours estimated.
    Commenters said that the NPRM underestimated the costs and burdens 
of the proposal, particularly with recipients for small staffs. One 
commenter estimated that its staff would have to take an extra 20 
minutes per project under the proposed system, adding up to 13 hours 
per month, in contrast to the eight hours forecast in the NPRM. Another 
said it could take weeks of staff time per year to comply.

[[Page 24902]]

Another estimated that it would take two hours of staff time to enter 
information into the system for each bidder.
    A few commenters expressed concern that prime contractors would be 
disincentivized from hiring DBE subcontractors, especially if they had 
to input information at the time of submitting a bid or offer. They 
also stated that it would reduce the data available to recipients. One 
commenter explained that it would be better if a bidder on a prime 
contract could submit information within a short time after the time 
the bid or offer was submitted, such as five days. One recipient said 
it typically allows prime contractors until the end of the month in 
which a letting takes place to submit bidders list data. On the other 
hand, a comment said that bidders list items should be submitted at the 
time of bid or offer. Another commenter suggested that to reduce 
burdens on prime contractors, recipients should collect information 
directly from subcontractors. One commenter recommended that firms 
submit to the recipient the NAICS codes they have worked on in the past 
year.
    In addition to the general concern about burdens, a number of 
commenters focused on the centralized database that the NPRM said the 
Department would specify. Some thought having to communicate with such 
a database would be a source of administrative burdens for their staff. 
Others, while sympathetic to the concept of a centralized database, 
pointed to the fact that the Department had not yet specified the 
database to be used. Without such a system being in place, including a 
standard format, they said, the proposed changes would not work. Two 
commenters said that rather than creating a centralized database, DOT 
should make software available to allow interface with UCP directories 
and create reports. Another was concerned that, in the absence of an 
actual centralized system, recipients would develop their own 
electronic formats, which were likely to be incompatible with each 
other.
    Some commenters questioned the utility of bidders lists. One said 
that such a list is an imperfect tool to gauge DBE interest in the 
program, since some DBEs do not submit bids because, in their 
experience, prime contractors typically use the same DBE firms that 
they always use. Because of this, another commenter said, firms 
effectively drop out of the program because they are not getting any 
work, even if they maintain their certified status. Others said that 
bidders lists have proved not to be an accurate or reliable indicator 
of DBEs' availability or interest in seeking contracts.
    One commenter suggested that DBEs should not have to submit 
confidential or proprietary business information, another suggested 
that race/ethnic/gender information should be part of bidders list 
entries; while another indicated that some firms may decline to submit 
this information. Another asked if there should be an exemption to some 
requirements for publicly traded firms. One commenter suggested working 
with American Association of State Highway and Transportation 
Official's Civil Rights and Labor Committee on how best to handle 
bidders list issues.
Detailed Comments on Reporting and Bidders List Contents
    Commenters had a wide variety of comments on details of the 
documents discussed in this portion of the NPRM. A commenter wanted to 
clarify the meaning of ``awards,'' ``commitments, and ``payments.'' It 
said the age of a firm should be entered only for DBEs. Another 
suggested that termination data should be submitted as ``known DBE 
terminations during the reporting period'' to capture a lag in 
information reaching the recipient from contractors.
    One commenter suggested not using ``dollar value of contract,'' 
preferring the use of ranges (e.g., less than $100,000 or $100,000-
500,000). On the other hand, another commenter thought that the dollar 
value of contracts and NAICS codes involved were very important 
information to capture. That same commenter also thought that 
information on firms that have exceeded size standards was important, 
to see if the program was creating sustainable growth.
    Another commenter wanted to make sure that the reporting would 
include professional services, even in States that do not include 
professional services in their DBE goals. One commenter said it does 
not do prequalifications, and so did not know how to respond to that 
field. One commenter expressed uncertainty about how reporting could be 
uniform since different States have different prequalification 
requirements. The commenter was also unsure what ``work type'' meant, 
and how firms prequalified in some, but not all, of the areas in which 
they were certified could be counted.
    With respect to terminations and replacements of DBEs, one 
commenter thought reports should include the date of contract award, 
the date of the prime's termination notice, the reasons for the action, 
and the DBE's response. Another commenter agreed that the reason should 
be reported, adding that any resulting revisions of the recipient's 
overall goal should be noted. One commenter said that termination data 
should be reported in the semi-annual reporting timeframe, using a 
Google or Excel spreadsheet, and that the reporting should include the 
number of terminations and NAICS codes of terminated firms. Another 
commenter also supported using Excel spreadsheets or XML files for 
reporting this and other information into the reports, rather than 
relying on manual inputs of information.
    Two commenters addressed the ``running tally'' requirement, one 
saying it did not currently have a running tally provision and was 
unsure how to develop one. Another asked how the running tally 
provision differed from the ``open'' and ``completed'' reporting 
fields, suggesting that the information requested was duplicative. 
Another commenter suggested that information about DBE's that have been 
decertified or graduated only be included in the ``open'' and 
``completed'' fields, while a different commenter suggested that, for 
re-entering firms, the reports include the date and basis of 
graduation, the date of reapplication, and the basis for re-entry.
    Some commenters expressed concern about what data should be 
submitted and by whom. One commenter said that the DBE owner's contact 
information and the ZIP code of the firm's principal place of business 
need not be reported. Another suggested that if multiple contracts were 
awarded to a firm during a reporting period, there should not have to 
be multiple entries of the firm's information. Two others said that if 
recipients submitted basic information (e.g., a firm's certification 
number and NAICS code), the Operating Administration (OA), rather than 
the recipient, should enter other information about the firm.
    One commenter asked whether race and gender were intended to be 
entered for all firms or only DBEs, and how the recipient would handle 
situations in which a firm is certified in more than one NAICS code. 
Another commenter advocated expanding the information reported, adding 
such items as the number and percentage of in-state and out-of-state 
firms by race and ethnicity, looking at applications, decertifications, 
and prequalifications information.
    With respect to the bidders list, one commenter raised several 
questions. Would the centralized database be available at all times to 
recipients, as opposed to only during certain reporting periods? Would 
the December 1 date for submitting information apply to the bid date or 
the contract award date, when

[[Page 24903]]

one was before and the other was after December 1? How would micro 
purchases and single bidder or sole source procurements be handled? How 
should a recipient handle incomplete forms submitted by bidders? Since 
the commenter had a race-neutral program, how would ``subcontract 
approval'' be reported? This commenter, as well as another, said that 
reporting a high volume of bids would be very burdensome and expensive.
    A few commenters said that prime contractors should have to submit 
most or all of the data required for the bidders list, while another 
said that recipients should collect bidders list information directly 
from bidders for subcontracts or certification process records, rather 
than indirectly through prime contractors.
    One commenter said that, with respect to engineering firms, the 
bidders list should include the number of such firms bidding on prime 
contracts or subcontracts, the number of such firms that were 
shortlisted or awarded, and the total number of engineering contracts 
with and without DBE goals.

DOT Response

    As described in this preamble (see discussion of Sec.  26.11 and 
Appendix B), the final rule adopts revisions to all three reporting 
requirements, including the creation of a centralized bidders list 
system.
    A recipient must provide its bidders list collection information in 
a standardized and centralized form. Although recipients are already 
obligated to gather most of this data, the rule imposes the additional 
step of reporting this information. However, the burden of this 
reporting process is expected to be minimal since recipients are 
already required to collect most of the information. One commenter 
stated that it does not collect bidder information on a per project 
basis. That recipient maintained that the compliance burden would be 
more than minimal. We respond that the current rule requires collection 
for all projects. The bidders list data that needs to be reported to 
DOT includes specific details such as the race and gender information 
for the owners of all firms and the NAICS code that is applicable to 
each scope of work proposed by the firm in its bid.
    To ensure usability and standardization of the bidders list data, 
the Department will build a comprehensive and searchable database to 
house this information, a feature recommended by a commenter. The final 
rule allows for a delay in the requirement to allow ample time for the 
Department to complete the development of the database and ensure its 
readiness before recipients are obligated to submit the necessary data. 
Once the database is fully operational, recipients will be able to 
seamlessly enter the required information with minimal additional 
burden. Recipients may use the information to set their overall goals.
    With this data, the Department will analyze the representation of 
DBEs within the bidding process. This assessment will enable a closer 
examination of the specific types of work that DBEs actively pursue and 
competitively bid for. Ultimately, this analysis will serve as a vital 
tool in monitoring the effectiveness of the rule and guiding future 
policy decisions. It enables the Department to make informed 
assessments regarding the impact of the regulations and take 
appropriate actions to address any identified shortcomings, thereby 
ensuring that DBEs can compete fairly for DOT-assisted contracts.
    For the Uniform Report, the Department is requiring recipients to 
submit names of DBEs, NAICS codes performed in a contract, federally 
assisted contract number(s), and the dollar value of the contract. We 
disagree with a commenter who stated entering this information 
constitutes a substantial expansion of what is collected, because these 
data points should already be tabulated by the recipient in order for 
them to properly upload the current report. We inadvertently listed 
prequalification in the uniform report draft rule and deleted it from 
the final rule. We agree with commenters' concerns regarding ``work 
categories'' and exclude the ambiguous category from the final rule. 
Also, after careful consideration, the Department believes that the 
proposed data collection on terminations would pose significant 
challenges for recipients. Given the complexities and challenges 
inherent in collecting and reporting termination data, the Department 
believes that it would be unreasonable to mandate recipients to 
undertake this task. We must strike a balance between gathering 
valuable information for analysis and avoiding excessive administrative 
burden for recipients. The Department will continue to explore 
alternative approaches and strategies that can provide meaningful 
insights into terminations without imposing disproportionate burdens on 
recipients.
    The additional uniform report information will help the Department 
evaluate whether the DBE program is making progress toward the 
objectives stated in Sec.  26.1 of the regulation. Recipients would 
submit the Uniform Report Form online in a manner acceptable to the 
relevant OA. The Department will post a copy of the form, which is no 
longer posted in the regulation, to the DOT website.
    Finally, the Department expands the MAP-21 data report collection 
to cover six items mentioned in the NPRM: the number and percentage of 
in-state and out-of-state SEDOs by gender and ethnicity; the number of 
applications received from in-state and out-of-state firms and the 
number of each found eligible or ineligible; the number of in-state and 
out-of-state firms decertified or summarily suspended; the number of 
in-state and out-of-state applications involving a request for an 
individual determination of social and economic disadvantage; and the 
number of in-state and out-of-state firms certified based on such a 
determination. Decertified DBEs that exceed gross receipts and PNW caps 
must be reported using MAP-21 data instead of the uniform report 
proposed in the NPRM.

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

4. Tiered Program Requirements for FTA Recipients (Sec.  26.21)

NPRM

    Under the current rule, FTA recipients who will award prime 
contracts exceeding $250,000 (cumulatively) in a fiscal year must have 
a DBE program meeting all requirements of part 26. Based on changes in 
the consumer price index (CPI) since 1983 (the year the $250,000 value 
was established), the NPRM proposed to increase this value to $670,000. 
FTA recipients receiving planning, capital, or operating assistance who 
will award prime contracts (other than transit vehicle purchases) that 
cumulatively exceed $670,000 in a fiscal year would be required to 
comply with every requirement of part 26 and have a full DBE program. 
Recipients awarding prime contracts totaling $670,000 or less would 
also have to maintain a program, but compliance with only certain 
provisions of part 26 would be required. Specifically, these recipients 
would be subject to the requirements for reporting and recordkeeping, 
contract assurances, a policy statement, fostering small business 
participation, and transit vehicle procurements.
    The Department's records show that in most years there were about 
80 FTA recipients awarding between $250,000 and $670,000 per year. The 
Department estimated that the change would provide cost savings for 
such recipients

[[Page 24904]]

from the reduction in administrative burdens. Based on attainment data 
from previous years, the Department found that if there were any 
reductions in total program-level DBE participation, the reduction 
would be minimal.

Comments

    Commenters on this issue, predominately transit operators and DBEs, 
were almost evenly divided. Supporters were attracted to the reduction 
in administrative burdens for some small transit providers. One 
commenter suggested raising the value further, to $750,000, while 
another suggested that a similar threshold should be established for 
airports. One supporter of the proposal asked the Department to define 
``significant changes'' to a DBE program that would require OA approval 
(this provision, in proposed Sec.  26.21(b)(2), applies to all OAs).
    Opponents pointed to the estimated 80 transit operators that would 
not have to maintain full DBE programs, saying that this would reduce 
opportunities for DBEs. All recipients should have DBE programs, some 
comments said. One commenter said a problem could arise for a recipient 
who had been below the threshold but then received a large grant that 
put it above the threshold. The recipient would have to quickly create 
a full program, the commenter said.
    Most of the commenters not in favor of the proposals or who 
expressed negative opinions were concerned that DBEs seeking to work 
with smaller recipients would not be afforded a level playing field 
because the DBE programs of such recipients would not be subject to as 
stringent oversight by FTA. These commenters were concerned that less 
oversight would result in these recipients taking the program less 
seriously.

DOT Response

    The final rule is adopting this proposal substantively unchanged 
from the NPRM. The Department recognizes that the proposed regulatory 
text used a structure and phrasing that may not have been clear to some 
readers. Though commenters did not address the clarity of the drafting 
specifically, the comments suggested there may be some confusion as to 
what requirements apply to which recipients. In response to these 
comments, the final rule includes definitions for FTA Tier I and FTA 
Tier II recipients. Further, the final rule adds paragraphs to Sec.  
26.21(a)(2) to list the applicable requirements for Tier II recipients 
more clearly. The Department notes that under the new requirement, all 
FTA recipients that receive planning, capital, or operating assistance 
and award FTA funded contracts must have a DBE program.
    The Department takes seriously commenters' concerns that some 
affected recipients might operate their DBE programs less robustly 
under the new rules. The Department expects that the positive impacts 
of expanding DBE program requirements to almost all FTA recipients 
mitigates that risk. The intent of reducing administrative burdens on 
smaller recipients is to allow them to direct a greater share of their 
resources towards implementing the DBE program elements that expand 
opportunities for DBEs, and the Department expects that they will do 
so. Under the final rule, all FTA recipients with DBE programs will be 
subject to enhanced reporting requirements, which will allow FTA to 
conduct more effective oversight.
    As explained in the Regulatory Impact Analysis of the NPRM, if 
every single contract awarded annually to DBEs by the approximately 80 
recipients that award between $250,001 and $670,000 annually (in prime 
contracts) went instead to non-DBEs, 99.7 percent of Federal funds 
awarded to DBEs on FTA assisted contracts would still be awarded to 
DBEs. In response to the comments received, FTA reviewed Uniform Report 
data for fiscal year 2021 to better understand the potential impact of 
the proposed Tier II DBE program on contract awards to DBEs. The data 
shows that 195 recipients reported awarding between $0 and $250,000 in 
that fiscal year. Of those, 159 operated completely race-neutral DBE 
programs. Of the remaining 36 recipients with race conscious goals, 
five awarded race conscious contracts to DBEs, resulting in $170,913 of 
cumulative awards to DBEs through the use of race-conscious means (or 
0.02 percent of total dollars to DBEs that year).
    The Department expects that many Tier II recipients will operate 
entirely race-neutral programs, though they are not prohibited from 
employing race-conscious means as necessary. The Department does not 
anticipate any reduction in awards to DBEs by Tier II recipients under 
the new rules, especially in light of increased funds being awarded by 
FTA to transit agencies. Further, FTA will be conducting more oversight 
of recipients currently awarding $250,000 or less. FTA will remain 
responsible for ensuring that all FTA recipients subject to the DBE 
program are awarding and administering their contracts in a 
nondiscriminatory manner, and the reporting requirements under the new 
rules will provide FTA the information needed to ensure compliance.
    Regarding the comment that discusses the impact of receiving a 
large grant, as compared to the current rule the final rule would 
reduce the risk and mitigate the negative impact of exceeding the 
threshold due to a single grant. First, and as a matter of 
clarification, whether a recipient is tier I or II is determined by the 
value of contracts it awards, not the value of funds it receives from 
FTA. Under the current rule, since the contract value threshold is low 
($250,000), there is a greater risk than under the final rule that a 
recipient will be required to implement all DBE program requirements 
after receiving a large grant. Further, since FTA Tier II recipients 
will be operating DBE programs, the additional administrative burden of 
becoming an FTA Tier I recipient is comparatively less than under the 
current rule, since recipients below the current threshold do not have 
the experience and administrative infrastructure to operate an 
effective DBE program. Finally, the Department expects recipients to 
budget and plan accordingly, and if a large grant is awarded then 
appropriate and commensurate resources should be devoted to compliance.
    Regarding the comment that suggested raising the contract value to 
$750,000, the Department notes that $670,000 represents an inflationary 
adjustment, and there is no evidence to support that $750,000 would be 
more effective. Regarding the comment asking the Department to define 
``significant changes'' to program plans, the Department notes that the 
final rule does not change what qualifies as a significant change.

5. Unified Certification Program (UCP) DBE/ACDBE Directories 
(Sec. Sec.  26.31 and 26.81(g))

NPRM

    The NPRM proposed to expand existing DBE and ACDBE directories to 
allow certified firms to display information about the firms' ability, 
availability, and capacity to perform work. The Department thought that 
this would provide a one-stop tool that would enable DBEs to market 
their services and help prime contractors seek out potential DBE 
subcontractors. Directories would include a standard set of options for 
information that firms could choose to make public, such as a 
capability statement, State licenses held, prequalifications, personnel 
and firm qualifications, bonding coverage, recently completed projects, 
equipment capability, and a link to the firm's

[[Page 24905]]

website. UCPs would not have to vouch for the accuracy of the 
information provided.
    The NPRM would also eliminate the option for a hard copy directory 
since online availability of the information is sufficient. The NPRM 
said that the Department anticipated that UCPs could implement the 
proposed requirements by January 1, 2024, or 180 days after the final 
rule. However, the Department sought comment on having a phase-in 
period to allow necessary changes to be made.

Comments

    This subject was among the most heavily commented upon in the NPRM, 
attracting over 70 comments. Of the almost 50 comments that expressed 
an opinion about the overall wisdom of the proposal, a majority fully 
or partially supported it. Many other comments addressed details of the 
directory process or had other ideas of how the directory process could 
best work.
    Comments from supporters said that an expanded directory would help 
DBEs market themselves to primes, especially if DBEs could update 
information in an efficient way. Such a directory would be useful to 
primes searching for DBEs for a contract and could help to avoid the 
``can't find qualified DBEs'' excuse for failing to meet goals, one 
comment said. More detail in the directory would also save DBEs from 
being inundated with solicitations from primes for work in areas in 
which the DBEs are not interested. DBEs, several comments said, should 
be allowed to add data about their operations, since NAICS codes, by 
themselves, provide only limited information about what a firm does.
    Some supporters of the proposal nevertheless noted concerns about 
it. For example, commenters believed that the information in the 
expanded directories would be helpful to DBEs but acknowledged that 
costs and administrative burdens could be a problem, throwing the cost-
effectiveness of the expanded directories into question. One asked 
whether there would be any DOT funds to support the expansion. Another 
supported the proposed expansion only if DBEs were not allowed to be 
certified in all 50 States under the interstate certification proposal 
in the NPRM. Others were concerned that, despite disclaimers to the 
contrary, the public would think that information about firms in the 
directory had been vetted for accuracy by certifiers. If certifiers 
were expected to verify information submitted by DBEs, another asked, 
how would certifiers determine the accuracy and timeliness of the 
information?
    One commenter wanted to make sure that capability information about 
a firm be specific; another, however, thought that information about 
bonding and equipment should not be included because some of this 
information could be proprietary and could change from project to 
project. Other commenters suggested that owners' race and gender 
information should be included or that additional information 
categories should be included.
    One commenter expressed concern that there would be large burdens 
on certifiers if they, rather than DBEs themselves, had to input data 
about the firms. It estimated that it would take 30 minutes to two 
hours of staff time per procurement for this process. Another commenter 
wanted the rule to prohibit recipients from using data from the 
expanded directory to judge which firms are ready, able, and willing to 
work.
    A small number of commenters suggested that the Department go 
beyond the proposed changes and create a centralized, nationwide 
database, to which DBEs could upload information and which would be 
user-friendly and readily searchable by such terms as State and type of 
work. A variation on this idea was that States' UCP directories should 
be merged together to avoid duplication and inconsistency. A comment 
said that such a directory should specify which states a firm is 
certified in and should be in an Excel format and include the DBE's 
email and the SEDO's presumptive group membership. It could also 
include information on a firm's ability to perform a commercially 
useful function (CUF).
    The principal objection of commenters who opposed the proposal is 
that it would add costs, take additional staff time, and create 
unnecessary administrative burdens. New software and additional staff 
would be needed, and staff would be unable to keep up with the workload 
they claimed.
    Two commenters said that adding too much detail about firms would 
be counterproductive, and making sure information was updated would be 
a slow and difficult process. Another said that most of the proposed 
fields were available in commercial software, but seldom used. 
Similarly, another commenter questioned the usefulness of the added 
fields.
    Commenters were concerned that there could be confusion about what 
a prime contractor could get credit for, based on representations in 
material DBEs added, since self-reported capability statements could be 
misleading. For this reason, one commenter said, DBEs should not be 
able to upload information themselves. Another said that capacity, 
availability, and other detailed information should not be entered, as 
that could lead to inaccuracy, discrimination, and lost opportunities. 
Two commenters suggested that it would be simpler and less burdensome 
to limit additional information to a link to the DBEs' websites, making 
additional directory fields unnecessary.
    There was a wide variety of other comments concerning directories 
and the NPRM's proposal. A commenter expressed concern that, with many 
firms potentially being added to a UCP's directory as the result of the 
interstate certification proposal, the availability numbers used for 
goal setting could be distorted, even though many of the newly added 
firms might not be available to work in projects in the State. On the 
other hand, another commenter was concerned that directories might 
undercount firms that were potentially ready, willing, and able to work 
in a State, affecting goals in the other direction.
    Some commenters were concerned about computer security and privacy. 
Two mentioned a concern about the privacy implications of including 
home addresses for businesses operated out of the SEDO's home, 
particularly in the context of more widespread certification under the 
interstate certification proposal. Some commenters thought the proposed 
implementation time frame for the new requirements was too short, and 
should be extended a year, or until software development and vendors 
were in place.
    A commenter asked that more detail about the specifics of directory 
format, including using a spreadsheet and having search functions based 
on such factors as NAICS and ZIP codes. Another commenter wanted more 
to ensure that the dates when details concerning such items as 
prequalification, licensing, or bonding would be displayed. A commenter 
asked that all UCP directories use a standard format. Another commenter 
said the Department should give a unique identifier for each DBE that 
would be consistent across all UCP directories. A commenter recommended 
that directory entries have a notation about whether a DBE firm was 
eligible for FAA projects but not FTA or FHWA projects, because of 
differences in applicable size standards.

[[Page 24906]]

DOT Response

    The main purpose of the DBE directory is to show DBEs, prime 
contractors, and the public which firms are certified as a DBE to do 
the various kinds of work that take place in DOT-assisted contracts. 
The directory is not primarily about the resources, equipment, bonding, 
experience, or other qualifications of a firm to do particular sorts of 
work. In performing their due diligence in selecting DBE contractors, 
considering those factors is a task for prime contractors.
    We understand that it is useful for prime contractors to have such 
information readily at hand. One important means of making this 
information available to prime contractors would be for DBEs to include 
such information on their websites, which would then be linked to their 
entries in UCP directories.
    In the NPRM, we proposed including fields for many of these types 
of information in UCP directories. However, we recognize, as commenters 
pointed out, that mandating a large expansion of the content of 
directories could create additional administrative burdens for 
certifiers. We are also concerned about some pitfalls that we recognize 
about open data fields for firms to enter their own information (e.g., 
accuracy, information that has not been updated, unintended exclusion 
of eligible firms, available information being inconsistent from one 
firm to another).
    In light of these concerns, DOT has limited the elements that must 
be included. They are firm name, location, NAICS code(s), and websites. 
The directory, which we now clarify must be an online platform, must 
permit the public to search and/or filter for these items in addition 
to the types of work a firm is seeking to perform. We will also mandate 
that the directory must include a prominently displayed disclaimer 
(e.g., large type, bold font) that states the information within the 
directory is not a guarantee of the DBE's capacity and ability to 
perform work.
    Certifiers may, at their discretion, include optional additional 
fields in their directories, including those proposed for inclusion in 
the NPRM. UCPs with sufficient resources may include such fields in 
their electronic directories, while others may find it more feasible to 
simply tell firms to provide a link to their own company websites, 
which would include the information they wanted prime contractors to 
access. UCPs have the responsibility, under the final rule, to ensure 
that mandatory items about firms are and remain accurate. UCPs 
permitting permissive entry of other information about firms' 
capabilities should also take steps to ensure that what the firms enter 
is accurate and up to date, including removal of inaccurate or untimely 
information they learn of. But the disclaimer mentioned above must 
state, UCPs do not warrant the accuracy of information provided by 
firms, and users' reliance upon it is at their own risk. Prime 
contractors always need to fact-check the claims made by firms they are 
considering doing business with.

6. Monitoring Requirements (Sec.  26.37)

NPRM

    The NPRM would make a number of changes concerning a recipient's 
monitoring responsibilities. Recipients must monitor race-neutral 
participation by DBEs as well as participation on contracts that have 
DBE goals. The recipient would have to verify that a DBE was performing 
work on a contract, the recipient would also have to verify that it was 
performing a commercially useful function (CUF). This dual verification 
would have to occur on every contract involving a DBE. The NPRM 
emphasized the need for recipients to keep a ``running tally'' of its 
overall DBE attainment as well as each prime contractor's payments to 
DBEs it is using to meet its goal, rather than waiting until the end of 
the contract.

Comments

Monitoring Proposal
    Most of the over 30 commenters on the NPRM supported the idea of 
more intensive and consistent monitoring of work in the DBE program, 
some saying they were already effectively doing what the NPRM proposed. 
Design/build contracts were one place where more monitoring was needed, 
a commenter said. The focus should be on actual dollars that DBEs 
receive, and payments should be confirmed on a regular and frequent 
basis, particularly to ensure compliance with prompt payment 
requirements.
    Monitoring should continue throughout the procurement process and 
involve all elements of the recipient's organization, not just the 
civil rights office. More resources for monitoring are necessary, 
another comment said, because often times monitoring is not happening 
as it should. A comment said that DOT should verify commitment and 
performance numbers as well as CUF matters. One comment suggested that 
recipients use independent, third-party monitors.
    Some of the comments supported the ``running tally'' requirement, 
especially the point that this applies to progress throughout the 
contract, and not just at the end of the project. One comment said that 
there should be written verification or a signed checklist concerning 
progress. Similarly, another said that there should be payment 
reconciliation on all invoices issued by DBEs.
    Two comments questioned how and whether the running tally provision 
would apply to race-neutral contracts. Two others said that for funding 
or software reasons, implementation of the running tally provision 
should be phased in as funding, or software, becomes available (which 
one of these comments said would take 3-5 years). Another commenter, a 
recipient, said that more monitoring procedures are not needed beyond 
what it was already doing and that the OAs should provide uniform forms 
for monitoring purposes. One comment asked how often monitoring would 
have to be done and what the effect would be on staff workload. Another 
asked whether ``local public agencies'' that are part of FHWA's local 
public agency program would have to follow the proposed requirements 
applying to principal recipients themselves.
Other Enforcement Comments
    Several comments talked about enforcement matters generally in the 
DBE program, rather than the specifics of the NPRM's monitoring 
proposal. One detailed a complaint about the commenter's perceived 
failure of a major recipient to enforce the program effectively. 
Another asked for stricter enforcement by the Department, since the 
commenter did not believe recipients could be trusted. There should be 
stiffer sanctions for noncompliance, including debarment of 
contractors, and DBEs who violate the rules should be decertified, 
other comments said. Another suggested that the Department should set 
up a public list of prime contractors' performance in meeting goals and 
getting DBE ``waivers.'' A commenter said that the Department should 
crack down on misuse of waivers and exemptions that evaded DBE 
requirements. A commenter asked for greater involvement by the Office 
of Inspector General (OIG) and the imposition of penalties for 
noncompliance. On the other hand, a commenter said that audits should 
focus more on customer service, rather than on negative matters.

[[Page 24907]]

DOT Response

    Bidders on contracts with DBE contract goals can meet their 
obligations in one of two ways, which are equally acceptable under the 
regulation. First, they can enlist sufficient DBE participation to meet 
the goal. Second, they can document sufficient good faith efforts to 
meet the goal. Either route results in compliance with the requirements 
of the rule. The second route is not a ``waiver'' of the requirements 
of the regulation. This is simply an alternative method of compliance, 
one necessary to avoid the DBE program becoming a quota-based program 
that would not be narrowly tailored, as is legally required.
    We believe that the running tally requirement is an important 
element of the compliance monitoring that all recipients are 
responsible for completing. It ensures that, throughout the course of a 
contract, the recipient will know whether a DBE is doing the work to 
which the prime contractor has committed, whether payments to DBEs are 
timely, and whether DBEs are performing a commercially useful function. 
If problems are found, then they can be corrected at a time before it 
becomes too late to do anything about them as a practical matter. We 
believe it is crucial to avoid situations where issues are revealed 
only when a contract is completed, and there are no available measures 
to achieve the meaningful DBE participation that was promised at 
contract award.
    The optimal frequency of running tally inspections of a contract is 
likely to vary with the length and complexity of the contract. In a 
relatively simple, 60-day contract involving one DBE, for example, a 
running tally check 30 days after the beginning of the contract might 
suffice. In a more complex, multi-year contract, involving several 
DBEs, more frequent checks focusing on the times when the DBEs would be 
performing their tasks would be appropriate. While there is not a one-
size-fits-all interval for running tally checks, it is essential that a 
recipient know at all times what is going on with DBE participation on 
its projects. ``There was a problem we didn't know about until after 
the fact'' is not an acceptable way for a recipient to oversee a 
project.
    The Department chose to clarify that the ``running tally'' not only 
applies to monitoring contract goal attainment but also to monitoring 
the recipient's progress toward attaining its overall goal each year. 
Recipients must meet the maximum feasible portion of their overall goal 
by using race-neutral means (Sec.  26.51(a)), establishing contract 
goals to meet any portion of the overall goal that the recipient does 
not project being able to meet using race-neutral means (Sec.  26.51 
(d)). Accordingly, recipients need a mechanism to keep a running tally 
of progress toward annual goal achievement that provides for a frequent 
comparison of current DBE awards/commitments to DOT-assisted prime 
contract awards to determine whether the use of contract goals is 
appropriate.
    It is also important to emphasize who provides information that 
goes into the running tally. The DBE program is not the exclusive 
province of a recipient's civil rights or business diversity office, 
the staff of which are often small. The DBE program is the 
responsibility of all parts of the recipient's program and of all 
personnel who work with it.
    On a highway construction project, for example, it is inconceivable 
that resident engineers, inspectors, procurement officials, and others 
would not be keeping track of the progress of the work, whether the 
work met schedules and specifications, whether the work was meeting 
budget projections, etc. The DBE program is an element of the contract 
no less than these routine matters that are regularly overseen, and 
needs to be given the same attention and, importantly, by the same 
people. The same individuals who inspect a project to see if, for 
example, materials meet specifications and that a project is on time 
and on budget can and should be trained, and required, to give the same 
attention to providing the information informing the recipient's 
running tally. It is part of their job. This is a point that the 
Department has emphasized over many years, and we wish to re-emphasize 
it here. When the Department reviews a recipient's compliance, we will 
be paying special attention to whether the recipient is doing what 
needs to be done in this respect.

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

7. Prompt Payment and Retainage (Sec.  26.29)

NPRM

    Responding to Congressional mandates and OIG recommendations, the 
Department in 2016 issued guidance concerning prompt payment and 
retainage. The guidance emphasized that recipients had responsibility 
for affirmatively monitoring contractors' compliance with prompt 
payment and retainage requirements, rather than relying on complaints 
from subcontractors. However, a 2020 FHWA review of recipients' 
practices showed that many were not fulfilling this responsibility 
adequately. Therefore, the NPRM proposed a specific provision 
concerning mandating affirmative monitoring and an enforcement 
mechanism, including appropriate penalties for noncompliance. 
Requirements would flow down to lower-tier subcontractors as well as 
prime contractors.

Comments

    DBE and recipient commenters generally supported the NPRM proposal, 
emphasizing the need for affirmative monitoring and stressing the need 
for prompt payment to avoid cash flow problems for subcontractors. 
Commenters who mentioned the flow-down of requirements to lower-tier 
contractors also supported the proposal. Several commenters asked for a 
clarification of the rule that would specifically authorize enforcement 
of State laws mandating payment to subcontractors with a shorter period 
of the time than the 30 days provided for in Sec.  26.29(b).
    Many of these commenters and others emphasized the need for closer 
oversight and stricter enforcement; a few made suggestions about what 
this would look like. Monitoring should be conducted on a regular and 
frequent basis (e.g., monthly). Other commenters suggested mandating a 
10- or 15-day rather than 30-day payment period. Some commenters 
advocated those penalties (e.g., 3 percent of the subcontractor's 
invoice, interest on late payments) be assessed against tardy 
contractors.
    Several comments proposed alternative ideas to achieve the 
objective of prompt payment. One was to provide an incentive to prime 
contractors who paid subcontractors on time or early, such as a bonus 
or gaining points that could be used in future procurements. Another 
was to follow a model the commenter said was used in the Department of 
Defense and some SBA programs, involving an automated payment system 
and online certifications that payments have been made on time.
    A comment suggested that recipients could set up an escrow-like 
account to pay subcontractors in the event prime contractors were late. 
Some commenters emphasized that primes should send invoices to 
recipients on time or that recipients could avoid problems by making 
partial payments to primes when a subcontractor's portion of the work 
was completed, as opposed to waiting until the entire project had been 
completed. A commenter suggested that DOT should develop software for

[[Page 24908]]

grantees to track payments by all parties at all stages of the process.
    Comments from some recipients, especially in the transit industry, 
expressed concern about affirmative monitoring being burdensome, 
especially for smaller recipients that have limited staff. Other 
commenters thought that applying prompt payment requirements to all 
subcontractors, rather than just DBEs, exceeded the scope of the DBE 
program.

DOT Response

    We believe as a basic, upper limit, standard for a national 
program, the proposed 30-day period for payment and for the return of 
retainage following the satisfactory completion of a DBE's work on its 
portion of the overall contract is appropriate. We agree with 
commenters that when State law or a recipient's program calls for a 
quicker turnaround time, that shorter requirement prevails. For 
example, if State M's law calls for payment to be made in 15 days, all 
recipients in that State would have to observe the 15-day rule. On the 
other hand, if State P's law allowed 45 days for payment or the return 
of retainage, the regulation would require the action to be taken in 30 
days on a DOT-assisted contract.
    We strongly encourage recipients to establish shorter time frames 
for lower tier subcontractors, because these smaller businesses have 
more acute cash flow needs than their larger counterparts. While we are 
not adopting, as generally applicable national requirements, the 
various ideas that commenters suggested to make prompt payment and 
retainage more effective, we encourage recipients to adopt measures 
that will work in their circumstances, and we will work with recipients 
to incorporate such measures in their DBE programs. The idea of 
providing special incentives for contractors, merely for doing what 
they are supposed to do, is not one that the Department supports, 
however.
    In any case, adopting strong enforcement mechanisms is critical to 
making prompt payment and retainage return requirements work. For 
example, making failure to meet these requirements a material breach of 
contract, or an explicit cause for liquidated damages in the prime 
contract, are among many possible measures for this purpose. Letting 
failure to comply go unnoticed, or to be without consequences, is not 
an acceptable option. As part of their normal oversight of recipient 
operations, as well as in compliance reviews, the OAs will make prompt 
payment and return of retainage a point of emphasis.

8. Transit Vehicle Manufacturers (TVMs) (Sec. Sec.  26.5 & 26.49)

NPRM

    The Department proposed several changes to provisions in 49 CFR 
part 26 related to requirements for FTA assisted transit vehicle 
procurements. The NPRM included revisions in Sec.  26.5 to the 
definition of TVM and proposed two new definitions, transit vehicle and 
transit vehicle dealership. Additionally, the Department proposed 
several revisions to Sec.  26.49 to clarify reporting requirements for 
FTA recipients and TVMs.
    The NPRM proposed terminology changes to make Sec.  26.49 more 
reader-friendly and clear, such as using ``TVM'' consistently to refer 
to transit vehicle manufacturers and using the term ``eligible'' rather 
than ``certified'' when referring to a TVM's eligibility to bid. The 
Department also sought to clarify that a contract to procure vehicles 
from a transit vehicle dealership (TVD) does not qualify as a contract 
with a TVM, even if the vehicle was originally manufactured by a TVM.

Comments

Definitions
    The proposed definitions of transit vehicles, manufacturers, and 
dealers drew only a small number of comments, most of which supported 
the changes, though a transit authority and a consultant sought more 
clarity. As noted above, a commenter said that a transit vehicle dealer 
(TVD) should be more simply defined as a firm that sells transit 
vehicles (including modified vehicles) made by a transit vehicle 
manufacturer (TVM), whether or not the dealer is ``primarily engaged'' 
in selling such vehicles.
Terminology
    The few comments addressing the proposed change from ``certified'' 
to ``eligible'' in Sec.  26.49(a)(1) and (2) supported it.
Procuring Transit Vehicles
    Two commenters agreed that a vehicle purchased from a non-TVM 
should not be treated in the TVM category for goal and reporting 
purposes. Another suggested that paratransit vehicles like SUVs and 
vans be allowed to be purchased from dealers rather than manufacturers.
    Two commenters expressed concerns about the proposal that vehicles 
purchased from TVDs are not treated under the TVM provisions of the 
rule. Both said they procure ADA paratransit vehicles from TVDs. One 
concern was that because a TVD is not a TVM under the proposal, FTA 
funding would not be available for the paratransit vehicle purchases. A 
related concern was that since most TVDs are non-DBE firms, there are 
no meaningful contacting opportunities for DBEs in that field and hence 
no point in setting contract goals for TVDs. Moreover, a commenter 
noted that the proposal could limit DBE opportunities related to 
paratransit vehicles that might exist through the TVM program.
    A commenter recommended that neither modified nor unmodified 
transit vehicles purchased through TVDs should be included in a 
recipient's goals or uniform reports.
    A State DOT said that it procured its paratransit vehicles from 
TVDs, which then would not count as TVMs under the proposed language. 
It was concerned that FTA therefore would not treat such purchases as 
eligible for Federal funds because, as TVDs rather than TVMs, they 
could not participate in the TVM program. The commenter was unsure how 
a recipient would comply with the rule under these definitions. 
Moreover, it said, most TVDs are owned by socially and economically 
disadvantaged individuals (SEDs) and have few if any DBE subcontracting 
opportunities. It suggested that recipients be able to report purchases 
of such vehicles from TVDs in the same manner as for TVMs.
TVM Goal Submissions
    Four commenters recommended that TVMs only have to submit goals 
every three years, rather than annually. This would reduce burdens, 
they said.
Ferries
    The NPRM did not address ferries specifically, but several 
commenters noted the difficulty in applying the TVM rules to ferry 
procurements. For example, commenters suggested that the proposed 
definition of transit vehicle would likely result in additional 
confusion as to how to treat procurements of ferries because they are 
vehicles that clearly should be regarded as transit vehicles yet are 
manufactured by entities that should not be considered TVMs.
TVM Other Details
    A commenter said that since TVMs report directly to FTA, a TVM 
should not have to report the same data to recipients. Another 
commenter said that TVMs should not have to provide confidential 
bidders list information in their DBE goal submission; FTA can

[[Page 24909]]

audit their records for this information if needed.
    A commenter suggested amending Sec.  26.49(a)(4) to say, ``becoming 
contractually required [as opposed to the proposed ``obligated''] to 
procure a transit vehicle.'' Another commenter said that it thought 
that NAICS codes do not cover vehicle component manufacturers 
adequately.
    Another commenter supported the proposed revision of Sec.  26.49(c) 
that clarified that TVMs would have to submit reports only for years in 
which they were eligible. It also suggested that the ``awards/
commitments'' line item in section A of the Uniform Report form be 
clarified to apply only to work performed in the U.S., to be consistent 
with the language in Sec.  26.49(b) that limits TVM goals to work 
performed in the U.S. A transit advocacy organization added that since 
many TVMs may be small businesses with limited staff, TVMs should be 
required to submit their goal information in the same three-year 
interval as recipients, thus further reducing the paperwork burden. 
Overall, this organization commented that any additional administrative 
burdens could result in fewer DBE businesses participating, fewer bids, 
less competition, and longer lead time for new capital projects.

DOT Response

Sec.  26.5 Definitions
    The final rule will adopt the proposed definition of TVM. In 
response to the comments expressing concern over applying the 
definition to ferry manufacturers, the final rule further clarifies how 
recipients may establish project goals to procure transit vehicles from 
entities that are not eligible TVMs. See the discussion of Sec.  
26.49(f) below.
    After considering the comments received, the Department decided not 
to adopt the proposed definition of transit vehicle. As noted in the 
preamble to the 2022 NPRM, the Department recognizes that there is some 
ambiguity as to what qualifies as a ``transit vehicle procurement'' and 
is therefore subject to special rules. However, since these situations 
are relatively rare and the most appropriate course of action depends 
on the unique facts and circumstances, the Department expects that 
providing training, guidance, and technical assistance will be more 
effective than issuing a one-size-fits-all regulatory definition.
    The final rule will not include a definition for transit vehicle 
dealer. Commenters explained that small transit agencies routinely use 
dealers to procure transit vehicles, and that paratransit vehicles are 
often procured through dealers. As discussed elsewhere in this notice, 
these comments persuaded the Department to maintain the status quo with 
respect to dealership transactions in Sec.  26.49. Since the definition 
would only be relevant if the Department retained the proposal in Sec.  
26.49, there is no need for a definition.
Sec.  26.49 Procuring Transit Vehicles
    As noted above, the proposed revisions to Sec.  26.49 received 
mixed comments. Generally, commenters agreed that the proposals would 
clarify the requirements. The Department appreciates the comments in 
support of the proposed change from ``certified'' to ``eligible'' in 
Sec.  26.49(a)(1) and (2). Accordingly, the final rule adopts this 
change as proposed. The Department agrees with the commenter who 
suggested that the word ``required,'' instead of ``obligated,'' better 
conveys the necessary action that triggers the 30-day reporting 
requirement in Sec.  26.49 (a)(4). The final rule therefore uses the 
term ``required.'' Several commenters opined that the proposed addition 
of paragraph (a)(5) addressing awards to dealerships could severely 
disrupt vehicle acquisition practices by small transit agencies and 
paratransit providers. In response to these comments, the final rule 
does not adopt proposed paragraph (a)(5) or otherwise address awards to 
dealerships. The final rule substantively adopts all other proposed 
changes in Sec.  26.49 with only minor additional revisions to 
paragraph (a)(2) for clarity. Additionally, the final rule incorporates 
changes to paragraph (f) to address situations in which recipients 
establish project goals.
Sec.  26.49 TVM Goal Submissions
    The Department recognizes that TVMs are required to set and submit 
goals more frequently than recipients. The timelines are different 
because TVMs and direct recipients (often transit agencies in the case 
of FTA funds) fundamentally differ in their ability to predict 
contracting opportunities. Generally, transit agencies are able to 
predict the projects they will undertake over the next three years with 
a relatively high degree of accuracy, which allows transit agencies to 
accurately predict the scale and scope of contracts they will award. 
TVMs, though, are often limited to the information their potential 
clients (often transit agencies) make available. Since most transit 
agencies do not provide extensive details on the vehicles that they 
intend to procure prior to issuing a public solicitation, which in many 
cases is within months (at most) of the deadline to submit bids, TVMs 
cannot accurately predict the federally funded subcontracting 
opportunities they will have available in several years. Thus, the 
Department will retain the requirement for TVMs to set DBE goals on an 
annual basis and submit goal methodologies annually. Without more 
information from commenters, we are unaware of how this administrative 
burden can result in fewer DBEs participating, fewer bids, etc.
Ferries
    The Department understands that large ships are manufactured by 
shipyards, and that the shipyard industry is different from bus and 
rail manufacturing industries. Shipyards are contracted by entities 
from various other industries to build vessels specified to the 
customer's needs. Smaller vessels, though, are typically manufactured 
by well-known brands, and may be specialized by the manufacturer or 
third parties. Thus, there are aspects of ferry manufacturing that are 
unique to the shipbuilding industry. However, other aspects are similar 
to the rest of the transit vehicle manufacturing industry. Such factors 
mean that ferry procurements are often best addressed through project 
goals pursuant to Sec.  26.49(f). As discussed below, the final rule 
clarifies how to apply project goals to transit vehicle procurements 
from specialized manufacturers when a TVM cannot be identified.
Use of Project Goals
    The final rule revises Sec.  26.49(f) to clarify how to use project 
goals to procure transit vehicles. The revisions codify and clarify 
current practices and are in response to comments expressing confusion 
over how to apply the TVM rules to ferry procurements (project goals 
may be used to acquire vehicles other than ferries).
    The final rule adds new paragraphs (f)(1), (f)(2) and (f)(3) and 
simplifies paragraph (f) to clarify that project goals are used in 
cases when transit vehicles are procured from specialized manufacturers 
when a TVM cannot be identified. Pursuant to paragraph (f)(1), if a 
recipient establishes a project goal, it must use the process 
prescribed in Sec.  26.45 to do so. This effectively requires 
recipients to use the same methodology for project goals as overall 
goals. Pursuant to paragraph (f)(2), FTA must approve the recipient's 
decision to use a project goal before the recipient issues a public 
solicitation for vehicles. Paragraph (f)(3) requires recipients to 
demonstrate that no TVMs are available to manufacture the transit 
vehicle it intends to procure.

[[Page 24910]]

    The Department established the project goal option in paragraph (f) 
in 2014. This option has always been intended to maintain the spirit of 
the DBE program when compliance with the general rule would be 
impracticable or create more barriers for DBEs in the transit vehicle 
manufacturing industry. Often, this scenario occurs when a transit 
agency intends to procure a vehicle for transit purposes but the 
entities that manufacture the vehicle do not meet the TVM definition 
(and are not excluded from the definition).
    It has been FTA's longstanding practice that if a recipient can 
show that it is procuring transit vehicles with FTA funds and there are 
no entities that qualify as TVMs that manufacture such vehicles, the 
recipient may use a project goal to procure the vehicles. If a 
recipient intends to use a project goal, the recipient must request 
FTA's approval of that decision, and must not issue a public 
solicitation until FTA has approved the decision. The request for 
approval must demonstrate that the recipient looked for and could not 
identify a TVM that manufactures the vehicles sought. To be clear, the 
project goal does not have to be approved by FTA prior to the 
recipient's issuance of a request for proposals. Generally, recipients 
will be required to submit the project goal methodology prior to 
issuing a public solicitation, though FTA may make case-by-case 
decisions depending on the facts and circumstances; only under 
extraordinary circumstances will FTA permit recipients to submit the 
goal methodology after contract award. This is similar to how FTA 
reviews and approves all project and overall goals.
TVM Other Details
    Regarding the comments on duplicative reporting requirements 
imposed by part 26 and locally by recipients, the Department recognizes 
that recipients have legitimate reasons for collecting information from 
TVMs, some of which may also be reported to FTA. Thus, the Department 
does not believe it would be prudent at this time to limit recipients' 
ability to collect such information.
    Regarding the comments on confidential bidders lists submitted with 
goal methodologies, part 26 only requires submission of such 
information if the TVM chooses to use a bidders list when calculating 
its overall goal. Otherwise, TVMs are merely required to retain their 
bidders lists on file. Since it would be impossible to verify the 
validity of a goal based on a bidders list without reviewing the 
bidders list, the Department intends to continue to require TVMs to 
submit their bidders lists when they choose to use a bidders list in 
their goal methodology.
    The final rule adopts the proposed changes to Sec.  26.49(c). 
Regarding the comment about changing the Uniform Report to clarify that 
only domestically performed work is to be included in the report, the 
Department does not believe that this specific change is necessary. We 
acknowledge that the final rule will result in several changes to the 
Uniform Report; FTA will issue guidance to TVMs on how to fulfill their 
reporting requirements under the new rules.
    The Department appreciates the comment that discussed the 
inadequacy of NAICS codes to describe the sort of work available in the 
vehicle manufacturing industry. The Department intends to use the data 
it collects under the final rule to learn more about the opportunities 
available to small businesses and DBEs in the vehicle manufacturing 
industry.
    Finally, the Department intends to use this notice to clarify 
longstanding policy on how to count DBEs performing on transit vehicle 
procurements. In recognition of the complex supply chain necessary to 
manufacture a transit vehicle, the Department has always permitted TVMs 
to count awards to any certified DBE if the DBE is certified in the 
State in which it performs the work, regardless of whether the TVM is 
present in the State. More recently, particularly in the context of 
ferry procurements, the Department has been asked to allow recipients 
to count awards to DBEs certified in States other than the recipient's 
home State if the recipient is using a project goal. The Department has 
found that such practices can be an effective means of ensuring DBEs 
are afforded opportunities to compete on transit vehicle procurements. 
Thus, the Department may approve such practices when sufficiently 
justified (here, the Department reminds recipients and TVMs that work 
performed outside of the United States or its territories must not be 
counted).

9. Procedures for Good Faith Efforts on Design-Build Contracts With DBE 
Goals (Sec.  26.53)

NPRM

    The NPRM proposed that, in a negotiated procurement (e.g., for 
professional services), the bidder or offeror may make a binding 
commitment to meet the goal at the time of bid submission or 
presentation of initial proposals but provide the detailed information 
about its DBE participation later, before selection. This provision 
would not apply to design/build contracts, however.
    The NPRM proposed that for a design-build contract, the bidder or 
offeror would submit a DBE Performance Plan (DPP) with its proposal. 
The DPP would have to include a commitment to meet the goals and 
provide details--including dollar amounts and time frames--for the type 
of subcontracting work or services the proposer will solicit DBEs to 
perform. The recipient would monitor the design-builder's good faith 
efforts (GFE) to comply with the DPP and its schedule. The recipient 
and design-builder could agree to revisions of the DPP over the course 
of the project.

Comments

DBE Performance Plans
    Nearly 50 commenters, from all the major interests, addressed the 
NPRM's DPP proposal. Of these, about 40 supported the proposed concept, 
though many had suggestions for modifying the proposal.
    In addition to agreeing with the NPRM's rationale for DPPs, 
supporters said that the DPP would help small businesses seeking work 
on large projects and would update the regulation to be consistent with 
existing best practices. Several comments said that they already used 
something like a DPP in their procurements. Other advantages include, 
commenters said, giving greater flexibility to prime contractors while 
allowing for detailed planning and monitoring to provide better 
experiences for DBEs.
    One suggestion made by numerous commenters for modifying the 
proposal was to have a ``hybrid'' or two-step process in design/build 
procurements. That is, for the design and pre-construction phases of a 
project, recipients could use this flexibility to set goals that the 
design-builder would have to meet up front, as traditionally done in 
the DBE program. For the longer construction phase, recipients would 
have a process like that described in the NPRM.
    A few commenters suggested that if, as might happen in smaller 
design/build projects, a contractor meets the goal with sufficient DBE 
commitments before the project started, the DPP might not be required 
for the project. A comment requested that prime contractors be required 
to commit to DBEs as soon as possible in the process.
    Other suggestions included setting specific time frames in which 
actual DBE contracts would have to be executed and making the DPP 
process available to a broader scope of projects than design/build 
projects per se (e.g.,

[[Page 24911]]

public-private partnerships). To make this point clearer, some comments 
said, the regulation should use a term like ``alternative delivery'' 
rather than ``design/build'' for projects involving a DPP.
    Several commenters wanted to make sure that there was active and 
frequent monitoring of contractors' performance under the DPP. 
Commenters suggested that DOT could assist this process by providing 
monitoring software and additional funding to deal with the costs of 
additional resources for evaluating and monitoring DPPs, and that DOT 
should also provide more details about what an adequate DPP looks like. 
Other commenters suggested that DOT should also provide guidance on how 
to deal with issues that may arise in the course of a project (e.g., 
change orders), several commenters said, as well as on proper use of 
DPPs to avoid bids nonresponsive bids.
    A few commenters asked how, if at all, the DPP concept would apply 
to contracts that have race-neutral goals (e.g., as is commonly the 
case in Florida). One comment suggested that since many design/build 
projects are large, DBE size standards should be increased for firms 
participating in them. Another commenter asked that the regulation 
prohibit prime contractors from making small, incremental additions to 
their contracts to avoid making firm commitments to subcontractors for 
DBE work. Another pointed to what it thought could be an inconsistency 
between the DPP proposal and present Appendix A, section VI, which says 
that a promise to use DBEs after contract award is not considered 
responsive to the contract solicitation or to constitute GFE.
    If what a prime contractor promises in a DPP does not happen, then 
what is a recipient to do, some commenters asked. In addition to 
monitoring, these commenters said, the rule should take enforcement 
action and impose consequences on prime contractors who are in 
noncompliance with their DPP obligations. One commenter said, however, 
that enforcement can be difficult because contractors often do not 
understand what is involved in a DPP.
    The smaller number of comments opposed to the DPP proposal said 
that moving away from the requirement to have prime contractors commit 
to specific DBEs in advance would diminish opportunities for DBEs. A 
comment suggested that a bidder on a prime contract should have to 
always meet a goal or show GFE before being awarded a contract, no 
matter what the structure of the contract may be. DBEs need time to get 
working capital, employees, and equipment in order; and advance notice 
at the start of a project is important to enabling them to do so, a 
commenter noted. Another commenter asserted that the premise of the 
proposal is mistaken, it is not that difficult to identify 
subcontractors at the start of a project, it said. In the absence of 
requiring compliance before contract award, DBE participation could 
become an afterthought for the prime contractor and recipient.
    Others opposing the proposal said that implementing the DPP 
proposal could increase burdens and costs for recipients, delay 
projects, or lead to additional restrictions or conditions on RFPs, 
potentially deterring some bidders.

DOT Response

    Commenters generally approved of the concept of a DBE performance 
plan in design/build contracts, and we continue to believe that this 
will be a useful tool in managing DBE participation in a type of 
contract in which award of the contract occurs before the design is 
complete and the details of the work, quantities, and scheduling are 
not yet known. We agree with commenters that there may well be 
circumstances in which DBE subcontractors can be selected for the 
design phase of a project at the outset, in which case the DBE 
Performance Plan would include commitments to those firms while listing 
the work types it plans to solicit DBEs to perform in the remainder of 
the plan. While we appreciate that many projects span over the course 
of several years, at this time, it is only those contract procurement 
and delivery methods that lack the details needed to make 
subcontracting commitments prior to contract award to which the 
Department approves of the use of a DBE Performance Plan.
    Since the beginning of the DBE program in the 1980s, the Department 
has heard complaints from prime contractors that they cannot find 
sufficiently qualified, capable DBEs to meet goals on a project. This 
belief itself appears to be one of the effects of discrimination that 
the program is designed to combat, and it can act as a self-fulfilling 
prophecy preventing prime contractors from exerting optimal efforts to 
find DBEs to meet a goal, whether on a traditional contract or a 
design-build project. Making good faith efforts to find DBEs is 
essential to compliance with the regulation. Open communication among 
the recipients and prime contractors is essential to ensure that the 
work commitments in the performance plan result in actual subcontracts. 
With agreement of the parties, work types identified up front could be 
altered to account for actual work needed in real time; however as long 
as there are subcontracting opportunities, the recipient must enforce 
the prime contractor's requirement to make ongoing good faith efforts 
to meet the goal. We do appreciate the comment that Appendix A needs to 
be revised to provide an exception for design-build contracts. We are 
making that alteration. In addition, we are re-naming the DBE 
Performance Plan to DBE Open Ended Performance Plan (OEPP) to align 
with the FHWA's EDC-7 initiative.\2\ Other than these changes, we are 
adopting the proposal as proposed in the NPRM without substantive 
change.
---------------------------------------------------------------------------

    \2\ In 2009, FHWA launched the Every Day Counts (EDC) initiative 
in cooperation with state, local, and industry partners to speed up 
the delivery of highway projects and create a broad culture of 
innovation within the highway community. Proven innovations and 
enhanced business processes promoted through EDC facilitate greater 
efficiency at the state and local levels, saving time, money, and 
resources that can be used to deliver more projects. The EDC 
initiative is a state-based model to identify and rapidly deploy 
proven, yet underutilized innovations to shorten the project 
delivery process, enhance roadway safety, reduce traffic congestion, 
and improve environmental sustainability. Rethinking DBE for design-
build projects is one of the innovations being promoted in the 
seventh round of the EDC initiative.
---------------------------------------------------------------------------

10. Terminations (Sec.  26.53(f))

NPRM

    The NPRM restated the prohibition on terminating DBE 
subcontractors' work without the recipient's written consent (e.g., 
because the prime contractor wanted to self-perform the work or use a 
different firm for the work that had been committed to the DBE). The 
NPRM further clarified that ``terminations'' need not be terminations 
in full, but that ``partial terminations,'' e.g., removing a work item 
or decreasing the amount of work committed to a DBE would still require 
prime contractors to follow the process by providing a ``good cause'' 
reason it proposes to terminate, provide the DBE with time to respond, 
and not terminating before receiving prior written consent from the 
recipient. The NPRM also proposed to clarify that termination, on the 
one hand, and replacement or substitution, on the other, are two 
separate and distinct processes.
Comments
    The majority of the nearly 20 commenters supported the proposal. 
They agreed that a prime contractor may not terminate a DBE's contract 
without the recipient's written consent. Some of these comments said 
that it made sense

[[Page 24912]]

to fold the notion ``substitution'' into the overall ``termination'' 
framework, since a substitution had the effect of terminating the 
original contractor. One commenter wanted to make sure that the five-
day period for a recipient's consent had elapsed before the prime 
contractor actually terminated the DBE. Another said that, if there was 
additional work to be done in the scope of a DBE's work, and the goal 
had been met, the DBE should complete the additional work, rather than 
the prime contractor self-performing it.
    Some commenters sought clarifications of the proposal. Three 
commenters said that a recipient's removal of work intended for a DBE 
to perform should not be treated as a termination by the prime 
contractor. There could be circumstances, another commenter said, in 
which a recipient would need to make a determination in less than five 
days; for example, there may be an urgent need to ensure that hauling 
supplies to the job site happens on time. In such a case, the commenter 
said, the recipient would have to respond to the contractor's written 
notice in 24 hours, and a formal termination process could follow.
    The small number of opponents preferred retaining the former 
regulation's provisions. Some thought that the list of ``good cause'' 
reasons for termination is too restrictive.

DOT Response

    In the NPRM, the Department underscored that any time a prime 
contractor seeks to terminate a DBE to which it had made a commitment 
in response to a contract goal or approved substitution, it must follow 
the process set out in Sec.  26.53(f). The Department sought to clarify 
that this requirement applies not only to a complete termination but 
also to a ``partial termination,'' i.e., eliminating a portion of work 
committed to a DBE. For example, a ``partial termination'' in which a 
prime contractor wishes the DBE to do $100,000 worth of work as opposed 
to the originally committed $200,000, is just as much subject to the 
approval as an action to terminate the DBE firm entirely. This would 
not apply to change orders initiated by the recipient that had the 
effect of eliminating some or all of the work to which a DBE was 
committed to perform.
    The Department continues to believe that it is important to 
separate the termination requirements from the substitution process. We 
have found that some recipients will not allow the prime contractor to 
terminate a DBE until it has submitted a substitution. Other recipients 
forgo the termination process and merely require the prime contractor 
to submit a request for substitution. The due process requirements in 
Sec.  26.53(f) are essential to protect DBEs committed toward a 
contract goal, or approved replacement, from arbitrary elimination. 
This is true whether or not a substitution of another firm for the 
terminated DBE's work is intended. Again, after considering the 
comments, we are adopting the termination and substitution provisions 
as proposed in the NPRM.

11. DBE Supplier Credit (Sec.  26.55(e))

NPRM

    As noted in the 2022 NPRM preamble (87 FR 43631-43632), the issue 
of how to count DBE credit for suppliers has long been a subject of 
debate and extensive stakeholder input. Changes over the years in the 
way that materials are delivered for projects and the importance of 
concepts like the ``regular dealer'' to DBE suppliers and prime 
contractors seeking to meet goals have been among the frequent topics 
of discussion.
    Based on the Department's consideration of stakeholder input, the 
NPRM proposed several changes to the counting provisions of Sec.  
26.55(e). First, a prime contractor could meet no more than 50 percent 
of a goal on a given contract through use of DBE suppliers (including 
manufacturers, regular dealers, distributors, or transaction 
facilitators). A recipient could, with prior OA approval, make 
exceptions to this limit (e.g., for material-intensive contracts). The 
purpose of this proposal was to prevent the use of DBE suppliers from 
crowding out opportunities for other types of DBE contractors on a 
project.
    To avoid ad hoc, post-contract award determinations of whether the 
contributions of a supplier were those of a ``regular dealer'' eligible 
for 60 percent credit, the NPRM proposed that recipients establish a 
system to determine, before contract award, whether a DBE supplier 
meets the basic requirements for being a regular dealer. That is, does 
the firm generally engage in the sale or purchase of the items in 
question or items having the general character of those to be supplied 
under the contract? As part of this pre-award process, the recipient 
would look at such questions as whether the items would be provided 
from the supplier's inventory, whether the supplier would have physical 
possession of the items, or, in the case of bulk items, whether the 
supplier would deliver the items using its own distribution equipment. 
Goal credit would ultimately be decided on a contract-by-contract basis 
based on the recipient's final evaluation of whether the firm would 
provide a commercially useful function (CUF) deserving of 60 percent 
regular dealer credit.
    The recipient's system for carrying out this proposal would also 
evaluate situations in which all or most of a regular dealer's supplies 
come from its inventory, but other sources, such as a manufacturer, 
would provide additional minor quantities of items related to those in 
the contract.
    In addition, the recipient's system would consider situations in 
which a DBE supplies items/goods that are not typically stocked (e.g., 
specialty items). A DBE that provides such items would be eligible for 
60 percent regular dealer credit if, like a supplier of bulk items, it 
used its own distribution equipment.
    One of the issues that stakeholders have discussed is the handling 
of ``drop shipping,'' in which a DBE supplier arranges to have a 
product sent from its manufacturer to the job site, without passing 
physically through the hands of the DBE. On the one hand, this 
arrangement appears similar to that of a transaction facilitator, whose 
credit is limited to its fees or commissions. On the other, some 
stakeholders said that dealers in bulk items with distributorship 
agreements had a good deal of control of a transaction, take 
significant risks, and often use their own delivery equipment, meaning 
that their involvement went beyond being simply a transaction 
facilitator.
    To address these concerns, the NPRM proposed that a ``distributor'' 
having a valid distributorship agreement receive 40 percent credit for 
the items it provides. Recipients would have to review distributorship 
agreements, prior to contract award, to determine their validity with 
respect to each purchase order/subcontract and the risk the DBE 
assumes. Where a distributor ``drop ships'' materials without assuming 
risk, or does not operate according to its distributorship agreement, 
its credit would be limited to fees or commissions.
    The NPRM proposed to retain the existing requirement that to 
receive credit for supplying materials, a DBE must negotiate the price 
of supplies, determine quality and quantity, order the materials, and 
pay for the materials itself.
    The NPRM would clarify the definition of ``manufacturer'' by 
proposing that manufacturing includes blending or modifying raw 
materials or assembling components to create the finished product to 
meet contract specifications. Minor modifications do

[[Page 24913]]

not count as manufacturing eligible for 100 percent credit.

Comments

The 50 Percent Limit on Credit Toward Goals for Use of Suppliers
    This provision of the NPRM attracted over 60 comments, which, by 
roughly a 5-1 ratio, opposed the Department's proposal. DBEs, non-DBEs, 
and recipients found reasons for objecting to the proposed limit on the 
use of suppliers to meet goals. Commenters opposing the proposal did so 
on a variety of grounds.
    Several comments challenged the factual basis for the proposal. A 
DBE supplier said that there were no statistics or other evidence 
supporting the proposal, making the limit arbitrary, a point other 
commenters made as well.
    A non-DBE contractor said that there were no studies showing that 
DBE suppliers were favored over other kinds of DBEs, or showing what 
percentage of goals were being met by different categories of DBE 
firms. Nor was there evidence that suppliers or manufactures were being 
used at a greater rate in the DBE program than in the construction 
industry generally, or that the participation of non-supplier DBEs were 
unduly limited under the present rule. The comment added that the only 
evidence in the NPRM preamble for the proposal was a reference to a 
2018 stakeholder meeting in which some DBE participants had said that, 
on some contracts, prime contractors were able to meet all or most of 
DBE goals through use of suppliers, especially of bulk items, making 
use of other types of DBEs unnecessary. It depends, one commenter said: 
in some contracts in which his company had been involved, goals had 
been met mostly or entirely with DBEs other than suppliers.
    A State-level contractors' association said that it had been told 
by its State DOT that it does not keep numbers on the participation of 
DBE suppliers vs. other DBEs, resulting in a lack of evidence that 
could provide a basis for a supplier limit. A national-level 
contractors' association said, referencing the stakeholder meeting 
mentioned above, that use of comments constituted rulemaking by 
anecdote. Moreover, it said, it had not been given the opportunity to 
participate in the meeting, the results of which had never been 
published. Another commenter noted it did not appear that the views of 
prime contractors or recipients had been solicited in the stakeholder 
meeting cited in the NPRM preamble.
    Commenters who are or who represented recipients expressed concern 
that the proposal did not take into account the realities of their 
contracting activities, such as the unique characteristics of 
contracts, the needs associated with each contract, and the 
availability of DBEs relevant to the work of each contract. Two such 
commenters said that in their jurisdictions, there was not an excess of 
suppliers, one of them noting that only 20 percent of the DBEs in its 
directory were suppliers. Others said that the provision would not work 
with respect to contracts heavily involving bulk and other materials 
(e.g., asphalt), therefore harming businesses who focus on those 
materials. One recipient said that there were often few DBEs to work on 
contracts in rural areas, making reliance on suppliers more important 
there.
    Recipients and contractors both said that the proposal would 
adversely affect the ability of prime contractors to meet contract 
goals and of recipients to meet overall goals. Recipients' goals might 
have to be lowered as a result, especially when a contract did not 
provide significant opportunities for non-supplier DBEs. For example, 
one State contractors' association said that materials made up 60-80 
percent of typical highway contracts in its State. On a paving contract 
for example, a commenter said, there might be only two or three, 
usually small, scopes of work that a DBE subcontractor could perform. 
If a contractor could count only suppliers to meet half of its goal, it 
would make it impossible to meet goals in many cases, commenters 
asserted, given what they characterize as the frequent unavailability 
of other types of ready, willing and able non-supplier firms. The 
effects of the pandemic on small business could make this problem 
worse, a prime contractor suggested. All this would make more good 
faith efforts ``waivers'' necessary, commenters said.
    A few recipients expressed the concern that the proposal could 
increase their workload and create confusion or delays in their 
administration of their contracting activities.
    A frequent comment opposing the proposal is that it would unfairly 
create financial harm to DBE suppliers. These firms have configured 
their businesses to meet the requirements of the existing rule, 
commenters said, making considerable investments in facilities, 
inventory, and employees. They would have fewer opportunities to work 
under the proposal, as the rule favors one category of DBEs over 
another, with the result that suppliers would lose income and could 
even be forced out of business. One DBE stated that it would cut their 
business in half.
    A few comments also asked how the exception process was supposed to 
work. When would recipients have to go to an OA to have an exception 
approved, and what would be the OAs' criteria for approving the 
request? A commenter suggested there should be a deadline for an OA's 
response to a request for an exception (e.g., five days). One comment 
suggested that the matter of exceptions should be delegated to 
recipients, without needing approval from an OA.
    Some commenters also had suggestions for modifying the proposal. 
One would allow suppliers to count 50 percent of their gross sales for 
credit. Another suggested giving recipients flexibility to decide what 
level of credit (e.g., 50, 60, or some other percentage) applied to a 
particular contract. Another suggestion was to calibrate credit 
according to the percentage of supplies on a contract. If supplies 
account for 80 percent of a contract, then the recipient would allow 
DBE suppliers' contribution to count for 80 percent of the goal. 
Another variation would be to apply the 50 percent limit with respect 
to commitments in the pre-award process, but then count the entire 
amount of actual supplier participation toward actual attainment at the 
end of the project.
    The smaller number of commenters who supported the proposal, or at 
least did not object to it, said they thought the proposal fair and 
useful to keep open opportunities for non-supplier DBEs. Some 
supporters said there should be exceptions for materials-heavy 
contracts (e.g., guardrails). Another said it could support a 50 
percent limit for large contracts but not smaller contracts. A few 
recipients said the issue did not much impact their operations. One 
comment asked how the provision would apply to situations where there 
was no contract goal. A few comments wanted stricter limits on supplier 
participation (e.g., 25 percent).
Regular Dealer Issues
    The largest number of comments on regular dealer issues focused on 
the proposal that recipients have a system to make contract-by-contract 
pre-award decisions about whether a supplier deserved 60 percent credit 
as a regular dealer.
    More than 20 comments, mostly from recipients, opposed the idea. 
Their primary objection was that implementing the proposal would be 
confusing, difficult, and burdensome. For example, there would be 
additional work for contract administrators, which could delay contact 
awards. Prime contract bidders would face an undue

[[Page 24914]]

burden, as they would have to do additional due diligence to make sure 
that the credit they were claiming for DBE participation was consistent 
with the recipient's determination in each case. These determinations 
could be subjective and subject to challenge.
    Most of the comments opposed to the proposal stated that if there 
was to be a determination about whether a supply firm was a regular 
dealer, it should be made by the UCP at the time of certification, not 
on a pre-award basis on each contract by the recipient. On the other 
hand, a commenter objected to UCPs performing this function, since it 
would result in a de facto certification of regular dealers.
    A few comments supported the proposal. One comment suggested that 
the approval of a DBE as a regular dealer could be done as part of a 
recipient's good faith efforts review. Another suggested that firms 
could submit an affidavit attesting to its meeting regular requirements 
as part of the pre-award process. Another recommended that a CUF review 
for regular dealers consider such factors as the firm's ability to 
secure the items, do their own takeoffs and quantity planning, get 
quotes, and have distribution agreements.
    On other regular dealer matters, a few commenters said that the 
credit awarded to regular dealers should remain at 60 percent. Some 
would increase the percentage (e.g., to 75, 80, or 100 percent). One 
commenter said that regular dealers in specialized fields for items 
such as bridges should be able to count 100 percent. Another commenter 
favored 100 percent credit if the firm's workforce was predominately 
minority or female. One commenter said the entire regular dealer 
concept was outdated and should be taken out of the regulation. The 
commenter urged that the regulation talk about suppliers in general in 
a simpler way.
    Other commenters requested clarification with respect to terms like 
keeping a ``sufficient quantity'' of materials in stock (which the 
commenter said could vary among different kinds of items), ``drop 
shipper,'' or ``specialty items.'' Another asked how a recipient could 
make regular decisions with respect to out-of-state firms that were 
certified via interstate certification. Another provided a detailed 
typology of regular dealers, bulk suppliers, and brokers/transaction 
expediters.
Commercially Useful Function
    In addition to its role in determining whether a firm was a regular 
dealer, some comments addressed CUF decisions more generally. Two 
supported doing CUF reviews on all federally assisted contracts, while 
another thought doing so would too burdensome if applied to contracts 
without a DBE goal. One of these asked for more specific CUF criteria. 
One wanted to streamline the process by allowing a CUF review that 
would apply to all jobs within a year, while another commenter thought 
certifiers could verify CUF at the time of certification.
    Recipients, not prime contractors, should make CUF determinations, 
one commenter said. Another added that recipients should not be able to 
request CUF data from prime contractors; the prime contractor should 
get DBE credit unless there is documented evidence of noncompliance. 
Another was concerned that CUF reviews and the ``running tally'' 
monitoring requirements could become confused with one another.
    A commenter thought that prime contractors should be able to do 
several things to assist DBEs without running afoul of CUF 
requirements. These included providing specialized training through a 
shared superintendent or foreman, access to contract management 
software and back- office assistance, sharing of equipment and workers, 
and guarantees consistent with industry practice.
Bulk Suppliers and Supplies of Specialty Items
    The 60 percent credit given to suppliers of bulk materials and 
specialty items is a subcategory of the treatment of regular dealers 
under the rule. There was a division of opinion among commenters about 
whether, as the NPRM proposed, these suppliers would need to have their 
own distribution equipment to count for 60 percent credit towards a DBE 
goal.
    Several comments said that leasing equipment was a common industry 
practice among suppliers, and that suppliers should not be penalized 
for doing so. Being unable to lease distribution equipment would be 
burdensome and could make DBE suppliers uncompetitive, one comment 
said. A distinction based on physical delivery of products is 
unrealistic, a DBE supplier said, as suppliers have to do a lot of work 
that adds value no matter how products are delivered.
    One recipient suggested that an equipment lease should be long term 
(e.g., at least a year). Others would make allowance for a situation in 
which a supplier that had its own distribution equipment used a short- 
or long-term lease arrangement for items that are infrequently needed 
(e.g., highway signs) or to supplement their own equipment, as needed 
(e.g., through engaging owner-operators).
    Among other comments on the subject, a few supported the proposal 
as written. Another raised a problem concerning what it said was a 
common practice of manufacturers (e.g., of structural steel) shipping 
their products to the job site using their own trucking company. The 
commenter wondered whether there would be a CUF for a DBE in such a 
situation.
Drop Shipping and Distributors
    All but a few of over 40 comments that addressed this issue opposed 
the NPRM's proposal, though not all for the same reasons. A mix of 
recipients, DBEs, and non-DBEs said that the proposal was unclear, 
confusing, overly complex, burdensome, and difficult to administer. 
Recipients do not have expertise in evaluating the validity of a 
distributorship agreement, some said, adding that the NPRM did not 
provide guidance or criteria to aid this task. It could be difficult 
for recipients to distinguish between those transactions counted at 40 
and 60 percent, another comment asserted. One comment suggested that 
other factors aside, all drop-shipped goods should be counted at a 
fixed percentage (e.g., 30 or 50 percent) to simplify matters.
    Two commenters thought that, as comments had suggested about 
regular dealer evaluations, decisions about the validity of 
distributorship agreements should be made in advance, through the 
certification process. Monitoring would be very hard to accomplish, 
requiring intensive work. Recipients should have the flexibility to 
determine how much credit to permit for drop-shipped goods, depending 
on the circumstances of individual contracts, a comment said. Some 
commenters were concerned that the 40 percent number was arbitrary, 
lacking a basis in evidence.
    Another theme expressed by some commenters was that drop shipping 
was a normal industry practice for building and construction materials, 
particularly in this day of just-in-time logistics. Firms that do 
business this way, assuming that they insure the goods and bear the 
risk of loss, should not be penalized by the lower 40 percent level for 
credit. If a firm delivers or insures the material, commenters of this 
view said, it should count at the 60 percent level, even if drop 
shipped. The proposal could make it difficult for small firms to make a 
profit, another said. This is particularly true, one commenter said, 
for made-to-order items that are not typically kept in warehouses 
(e.g., rail ties and switches). The proposal could place DBE shippers

[[Page 24915]]

at a competitive disadvantage compared to non-DBEs.
    On the other hand, a few comments opposed any credit for drop 
shipping distributors, beyond fees and commissions, saying that regular 
dealers add more value and have more overhead costs. Moreover, a 
comment said, the proposal opens opportunities for fraud. Others said 
that distributorship was not a valid business model. In a similar vein, 
a few commenters suggested that a lower percentage (e.g., 20 or 30 
percent) should count. Another said that drop shipping credit should be 
permitted only for large quantities or oversized items that are 
difficult to store in a warehouse.
    A few comments did support the proposal, though with the caveats 
that more guidance from DOT would be needed about what a valid 
distributorship agreement should look like, and that close scrutiny of 
such agreements by recipients would be necessary to make the concept 
work.
Negotiating Price of Supplies
    Relatively few comments addressed the proposal to continue in 
effect the current requirement that, to get credit, a DBE supplier must 
negotiate the price of supplies, determine quality and quantity, order 
the materials, and pay for the materials itself. Some said that there 
are situations (e.g., airport lighting) when the price of items cannot 
be negotiated. An equal number of comments supported the proposal. One 
of them added that a DBE should have to perform, and not outsource, all 
of the four required functions; otherwise, there would be opportunities 
for fraud and abuse. In any case, another said, recipients had to 
enforce these requirements strictly.
Definition of Manufacturer
    A majority of the 13 comments that addressed this proposal 
supported it, though some asked for clarification of what constituted a 
``minor'' modification of materials. Commenters asked whether 
activities like adding logos to uniforms, cement mixing trucks, coating 
rebar, or cutting materials to a specific size would count as 
manufacturing or minor modifications. Some comments also suggested 
using SBA regulations in 13 CFR 121.406 to define what constitutes a 
manufacturer. One comment asked that manufacturers not be subject to 
the proposed 50 percent limit on DBE credit for supplies provided to a 
project.
Other Comments
    One comment said that there should be a special rule for counting 
disposal of hazardous materials, such as a percentage of the disposal 
costs. Two others said that DBE credit should be allowed for at least 
some of the work that a DBE subcontracts to a non-DBE, at least as long 
as the non-DBE is not an affiliate. Another said that brokers had a 
legitimate role, asking that the rule define their proper role.

DOT Response

50 Percent Limit on Credit Toward Goals for Use of Suppliers
    In proposing the 50 percent limit on the counting of DBE 
participation by suppliers toward goals, the Department was responding 
to the perception of many DBEs, as well the experience of DOT staff, 
that prime contractors find it easier to meet DBE contract goals 
through obtaining supplies and materials from DBE suppliers than 
through using DBE subcontractors who work on projects on the ground. 
For example, on a highway project it can be simpler for a prime 
contractor to buy paving materials through a DBE supplier than to 
engage a DBE to install the materials. This has given rise to the 
concern that DBE subcontractors can be frozen out of opportunities, 
since goals may be able to be met without them. By limiting the portion 
of the goal that could be met by using suppliers, the Department hoped 
to keep open a significant percentage of work that would then be 
available for DBE subcontractors.
    Nevertheless, the Department has been persuaded by the comments 
that this provision should not be included in the final rule. Comment 
periods on proposed rules are not simply votes, and in making this 
decision the Department is not simply responding to the numbers of 
comments opposing the proposal. Rather, we believe that commenters made 
reasonable points about the basis and potential effects of the 
proposal.
    We find plausible the concern that if suppliers could not comprise 
more than 50 percent of a goal, many contract goals might not be met, 
resulting in higher numbers of goal attainment through documented good 
faith efforts instead of sufficient DBE subcontracting; this may have 
possible implications for overall goal attainment. This concern appears 
particularly credible with respect to contracts that emphasize bulk 
supplies like asphalt or petroleum products, or projects that may be 
located in parts of States or work scopes in which few DBE 
subcontractors may be available.
    The proposed exception mechanism, as well as some of the 
commenters' suggestions for modifications that could be added to a 
supplier limit regime to provide greater flexibility, are well 
intended, but could easily lead to greater complexity and inconsistency 
in program administration. In any event, because we are not adopting 
the 50 percent limit provision, they are unnecessary.
    Our underlying concern about ensuring that the program does not 
have inadvertent adverse effects on DBE subcontractors is addressed 
through other changes to the present rule that are adopted in this 
final rule. The definition of regular dealer is being strengthened to 
emphasize the necessity of regular dealers having facilities, 
inventories, and/or distribution/delivery equipment in order for 60 
percent of the value of their supplies to be counted toward goals.
    The new distributor definition limits to 40 percent the credit that 
can be obtained for many drop-shipped goods, provided the DBE bears 
risk for loss or damage of such items. The credit for broker and 
expediter participation continues to be limited to fees or commissions. 
These provisions should reduce the incentives and opportunities for 
prime contractors to over-rely on suppliers to meet goals to the 
detriment of other DBEs. We expect recipients to enforce these 
provisions rigorously and to take care, at the pre-award stage, to 
ensure that bidders on prime contractors do not obtain credit beyond 
what the provisions permit.
    The Department also understands commenters' point that creating a 
provision that would directly benefit one category of DBEs at the 
expense of another category does risk being arbitrary. It is likewise 
the case that DBE suppliers, particularly those that are regular 
dealers, have a reliance interest in retaining full access to the 
program, and may often have made considerable investments to establish 
their position in the program. To limit their business opportunities 
could well cause them economic harm, as comments asserted, based solely 
on the type of work they do.
    The risk of arbitrariness increases absent quantitative information 
to support an impression--even one based on considerable anecdotal 
experience--that there is a problem that such a regulatory provision is 
needed to solve. The Department recognizes that it does not collect 
information from recipients about the type of work DBEs perform on 
contracts. The Department proposed in the NPRM the ability to collect 
that information as part of recipient's required submission of the 
Uniform Report of DBE Awards, Commitments, and Payments. It may be that 
reliable data showing that DBE subcontractors

[[Page 24916]]

are effectively shut out of opportunities to work on projects by prime 
contractors' over-reliance on suppliers to meet goals could make a 
``market failure'' case for imposing a provision like that of the NPRM; 
however, without that information at the present time, the Department 
is declining to change the rule at this time.
    Going forward, the Department will have recipient data from the 
updated Uniform Report of DBE Awards, Commitments and Payments 
regarding not only the number and dollar amount of DBEs that 
participated on federally assisted contracts that we currently collect, 
but information on the type of work performed by those DBEs as well. 
Depending on what such data shows, the Department may reconsider 
whether a limit on goal credit for DBE suppliers is appropriate.
Commercially Useful Function and Regular Dealer Issues
    Finding a means of limiting potential over-crediting of suppliers, 
while not unreasonably limiting their participation, is an important 
step toward creating a well-balanced DBE program.
    We believe that we can achieve this objective by having recipients 
pay close attention, at the pre-award stage, to how suppliers proposed 
to be used by a prime contract bidder can go far to avoiding over-
crediting in a way well-suited to the circumstances of a particular 
contract.
    Recipients are already required to carefully examine, before 
contract award, whether the bidder has committed to a sufficient number 
of DBEs in sufficient amounts to meet the contract goal or has 
submitted adequate documentation of good faith efforts. Often, however, 
recipients assume that DBEs committed as suppliers are entitled to 60 
percent of the cost of supplies when evaluating pre-award goal 
attainment. The final rule requires recipients to look in detail at how 
a DBE supplier would provide supplies and materials to the contract to 
provide more certainty whether the contractor would be entitled to 
count 60 percent of the cost of supplies toward goal attainment during 
contract performance. The recipient would do so through asking a series 
of questions with respect to the role of a proposed DBE supplier. In so 
doing, it would not determine whether a DBE was, in some intrinsic 
sense, a ``regular dealer.'' The inquiry would not focus on the nature 
of the firm, but on what the firm proposed to do on a particular 
contract and how it proposed to carry out its responsibilities.
    The Department determined that the proposed change to Sec.  26.55 
with respect to requiring bidders submitting commitments to DBE 
suppliers to include is better placed in Sec.  26.53(c)(1). Thus, Sec.  
26.53(c)(1) of the final rule describes the nature of the questions and 
affirmations a proposed DBE supplier will provide, and the prime bidder 
will include in the pre-award process for each contract. This 
information helps the recipient to determine if the firm should be 
awarded 60 or 40 percent credit for supplies. For example, the 
recipient would ask, whether on a particular contract, the DBE supplier 
will be using its own distribution equipment, whether it maintain a 
warehouse or other facility, whether it engages in the sale of the sort 
of goods involved in the contract to the public on a regular basis, 
etc. We will also make available a form tool on the Departmental Office 
of Civil Rights' website.
Drop Shipping and Distributorship Issues
    In an effort to address the fact that drop-shipping is a common way 
of doing business, we proposed that drop-shipping by a DBE that has a 
distributorship agreement with a manufacturer would be able to count 40 
percent of the value of materials toward goals. The distributorship 
agreement concept troubled many commenters, both from the viewpoint of 
how recipients would decide if an agreement was legitimate and the fact 
that many, especially smaller, DBE suppliers might not have the 
resources to enter such an agreement. Commenters said that if a DBE 
supplier took enough risk, it should be entitled to credit regardless 
of whether it was part of a formal relationship of this kind with a 
manufacturer.
    The Department will respond to these comments by eliminating the 
distributorship agreement proposal. Instead, as part of the pre-award 
review for firms proposing to drop-ship items, the recipient would 
determine whether the proposed supplier demonstrates ownership of the 
items in question and assumes all risk for loss or damage during 
transportation, evidenced by the terms of the purchase order or a bill 
of lading (BOL) from a third party, indicating Free on Board (FOB) at 
the point of origin or similar terms that transfer responsibility of 
the items in question to the DBE distributor. Again, the Department's 
form tool will have questions to help recipients make this 
determination. If the proposed drop-shipper met these criteria, it 
would receive 40 percent credit for the cost of the items. We 
anticipate that many bulk material items may well fall into this 
category, if all the requirements are met.
    The current rule's provisions for 100 percent credit for materials 
provided by a DBE manufacturer, and for credit limited to the fees or 
commissions for firms who did not meet the criteria for 60 or 40 
percent credit, would remain the same. The Department believes that 
detailed enforcement of all the supplier provisions discussed above 
would be sufficient to prevent or limit over-crediting of suppliers, to 
the detriment of other kinds of DBEs, to make the proposed 50 percent 
cap on supplier credit toward goals unnecessary, while respecting the 
arrangements that may be appropriate to the wide variety of contracts 
in DOT-assisted programs. To make this approach work, recipients would 
have to ensure that bidders and proposed DBE suppliers specify and 
certify the details of the work that would be performed and how it will 
be performed, so that post-award monitoring could ensure that 
commitments were being met.
Other Matters
    The Department adopts the NPRM provisions concerning the definition 
of manufacturers and the responsibility of DBEs for negotiations 
concerning price without change. In regard to a commenter's view that 
credit be allowed for work performed by a non-DBE subcontractor, such 
an approach is not aligned with the intent of the program. The comments 
regarding the disposal of hazardous materials and brokers were not 
proposed in the NPRM and are therefore outside the scope of this final 
rule. DOCR appreciates the commenters' input and will consider any 
information or recommendations the commenters may have on these issues.

Subpart D--Certification Standards

12. General Certification Rules (Sec.  26.63)

NPRM

    Proposed Sec.  26.63 of the NPRM was largely a redesignation of the 
material previously found in Sec.  26.73. The one substantive change of 
note would be that, in place of current Sec.  26.73(e), concerning DBEs 
owned by holding or parent companies, the NPRM would substitute a 
simpler provision saying that there could be one level of ownership 
above the company seeking certification. That is, there could be a 
subsidiary and its parent company, but there could not be a 
``grandparent'' company above both of them. Eligibility in such a 
situation assumes cumulative 51 percent ownership of the subsidiary 
company and that other eligibility

[[Page 24917]]

requirements were met. The proposal includes several examples of 
arrangements that would or would not be eligible under the revised 
rule.

Comments

    There were 10 comments on this proposal; all but one favored it. 
The unfavorable comment expressed concern that the proposal could 
compromise the independence of the subsidiary firm.
    Several commenters addressed the regulation's approach to 
certification in general. For example, some commenters asked the 
Department to simplify the certification process, which they 
characterized as a lengthy, costly, and paperwork intensive process 
that was an obstacle and deterrent to firms seeking to enter the 
program.
    Other comments said that the annual submissions of a DOE and 
financial data were unnecessarily burdensome on both DBEs and 
certifiers. It would be better to require this submission only every 
two or three years. Moreover, in the context of the interstate 
certification proposal, the burden on firms would be multiplied if they 
had to submit a DOE to every State in which they had become certified.
    Two comments suggested having independent third-party 
administrators do certification reviews instead of recipient personnel. 
Another commenter suggested better education and training about Federal 
and State program rules (e.g., requirements for continuing education). 
Another commenter recommended and that the Department develop a code of 
conduct for certifiers.

DOT Response

    The final rule adopts NPRM's proposal to limit DBEs to having one 
level of ownership above an operating DBE company. That is, there could 
be a ``parent'' company but not a ``grandparent'' company. The rule 
does not specify the type of business entity involved in the level 
above the operating company, as long as it permitted the operating 
company's ownership to meet certification requirements.
    The final rule also retains the requirement for the annual DOE for 
all companies. A firm that is certified in multiple States must submit 
DOEs to all States in which it was certified on the anniversary date of 
its certification by the jurisdiction of original certification (JOC).
    Given the frequent turnover of certifier personnel, and the errors 
in the certification process that too often come to light in the 
certification appeal process, it is clear that training is key to 
smooth operation of the certification function. This is especially true 
when, following the issuance of this final rule, new and changed 
certification standards go into effect. While we are not mandating a 
specific number of ``continuing certification hours'' for staff, or 
setting forth a standard curriculum at this time, the Department 
intends to make comprehensive training opportunities available to 
certifiers, which we expect all certifiers to take advantage of.

13. Business Size (Sec. Sec.  26.65, 23.33)

NPRM

    Only small businesses may participate in the DBE program. The 
business size limit for applicant and certified DBEs seeking to 
participate in FHWA and FTA assisted contracts is adjusted for 
inflation per the BIL. As of this final rule, this statutory gross 
receipts cap is $30.40 million. A DBE firm must still meet the size 
standard(s) appropriate to the type(s) of work the firm seeks to 
perform in DOT-assisted contracts. These standards vary by industry 
according to the NAICS code(s) defined by the Small Business 
Administration (SBA).
    The adjusted gross receipts cap does not apply to determining a 
firm's eligibility for participation in FAA assisted projects. This is 
due to a recent statutory change that eliminated this requirement for 
FAA assisted contracts. This means that the Department does not have 
the discretion to change these size standards through administrative 
action. DBE firms working on FAA assisted projects must meet the size 
standard(s) appropriate to the type(s) of work based solely on the 
applicable NAICS code(s) size standard(s). UCP directories must clearly 
indicate which firms are only eligible for counting on FAA assisted 
work. (There are separate size standards for the part 23 ACDBE program 
that are not affected by recent changes in SBA regulations pursuant to 
the Small Business Runway Extension Act of 2018 (Pub. L. 115-324).)
    The NPRM proposed to conform the Department's rule so that a firm's 
compliance with NAICS code size standards would be based on its average 
annual gross receipts over the firm's previous five fiscal years. 
However, under Sec.  1101(e)(2)(A)(i) and (ii) of the Bipartisan 
Infrastructure Law (BIL), only the firm's gross receipts for the most 
recent three fiscal years may be submitted to determine whether it 
meets the small business statutory size cap.
    The NPRM also addressed size provisions in the ACDBE program. There 
would be minor changes to part 23 and a reference to pay telephone 
operators would be removed. The NPRM would also remove a requirement 
for adjusting the ACDBE size standards every two years; the preamble 
asked whether any change was needed at this time and, if so, what 
measure of inflation the Department should use. The preamble expressed 
concern that raising the standards could harm the chances of smaller 
firms trying to enter the program. It also asked whether industry-
specific standards, like that for car rentals, are still needed. 
Finally, the NPRM added a clarification that an ACDBE that is a party 
to a joint venture must include in its gross receipts its proportional 
share of receipts generated by the joint venture.

Comments

Part 26 Standards
    A significant number of commenters, from both DBEs and recipients, 
supported the proposal to go to a five-year calculation for NAICS code 
size standard compliance, though a couple of commenters would have 
preferred a shorter (3-year) or longer (7-year) calculation. A number 
of commenters, however, said that the NAICS codes limits and/or 
statutory size cap were themselves too low, given inflation that has 
particularly affected commodity prices. Several commenters advocated 
raising the part 26 limits to the level of the part 23 standards, or to 
the $39.5 million level applicable to many types of business under SBA 
regulations.
    A few commenters recommended regional variations in the size 
standards. For example, in high-cost construction areas, like New York 
or San Francisco, size standards could be adjusted along a scale tuned 
to the prevailing wage rates in those areas. One commenter suggested 
that proceeds from COVID-19 pandemic relief legislation, like the 
Paycheck Protection Program, should not be counted toward a firm's 
gross receipts calculation. A few comments also suggested using net, 
rather than gross, receipts to calculate whether a firm meets size 
standards. One commenter said pass-through payments to subcontractors 
in particular should not be part of the calculation.
    A smaller number of commenters stated that the regulation should 
eliminate size standards because they unfairly limit DBEs' growth. 
Several commenters recommended a mechanism that would allow mid-size 
DBEs to remain certified for a limited time after exceeding the size 
standards so that they should be able to continue their growth and 
success. For example,

[[Page 24918]]

DBE credit for using a firm could be progressively reduced over a 
period of three years (i.e., 75 percent in year 1, 50 percent in year 
2, 25 percent in year 3) after it first exceeded the size limits for 
full DBE participation.
    With respect to adjustments, commenters generally agreed with the 
proposal, though some pointed out that adjustment dates had been missed 
in the past, that stakeholders should be consulted on the subject, that 
industry-specific data should be used, that White-owned businesses 
should be omitted from the calculation, or that inflation should be 
used as the measure for adjustments.
Part 23 Standards
    Two commenters, both from the same urban area, asked to retain a 
standard for pay telephone operators, lest existing contracts with such 
operators be adversely affected. Those commenters, who addressed the 
proposal that an ACDBE that is a party to a joint venture must include 
in its gross receipts its proportional share of receipts generated by 
the joint venture, approved it.

DOT Response

    The Department adopts the NPRM's proposals on these issues. While 
we understand the objectives that supporters of regional or local 
standards seek to achieve, we believe that in a national program--
especially one in which interstate certification reciprocity will 
become a reality--a single national standard is appropriate. We also do 
not believe that a variety of different standards would be consistent 
with the program's governing statutes. For example, the Department is 
now working under a statutory requirement for five-year averaging for 
NAICS code gross receipts size standard purposes, such that a different 
period--three or seven years--is not something we have the statutory 
authority to authorize.
    With respect to size calculations, the final rule clarifies that 
certifiers should count on a cash basis, regardless of a firm's choice 
of accounting method. This is intended to level the accounting playing 
field among firms.
    For part 23, because there are still some airports that have pay 
telephones, the final rule retains the size standard for existing pay 
telephone concessionaires. Similarly, the final rule retains the 
proposed provision that joint venture receipts be included in the ACDBE 
size calculation in proportion to the ACDBE's demonstrated ownership 
interests in the joint venture, lest the size of such firms be either 
overstated or understated.

14. Personal Net Worth (Sec.  26.68)

NPRM

    The NPRM's discussion of proposed changes to the personal net worth 
(PNW) standard was the most complex portion of its preamble. The 
discussion noted the reason for having a PNW standard, namely that in 
its absence persons who are members of presumptively eligible groups 
but who in fact are not economically disadvantaged could benefit from 
the DBE program, undermining both the program's ability to assist 
persons who are truly disadvantaged and the narrow tailoring that is 
vital to the program's continued legal validity.
    The preamble also noted the balancing act that the Department faces 
in setting a PNW cap. If set too high, persons who are not truly 
disadvantaged can participate. If set too low, socially and 
economically disadvantaged owners (SEDOs) whose firms have grown 
successful can be prematurely excluded.
PNW Cap
    Since 2011, the PNW cap has been set at $1.32 million, which had 
been adjusted upward for inflation from the $750,000 level in its 1989 
base year. As explained in the NPRM preamble, 87 FR 43636-38 (July 21, 
2022), rather than make a direct inflationary adjustment, based on a 
measure like the Consumer Price Index (CPI), the Department employed a 
complex analysis based on the Federal Reserve Board's 2019 Survey of 
Consumer Finances (SCF), a triennial cross-sectional survey of U.S. 
families' balance sheets, pensions, income and demographic 
characteristics. The methodology accounts for differences among racial 
and ethnic groups (e.g., White, non-Hispanic households have net worth 
of six to seven times that of Hispanic or Black households).
    Specifically, using SCF data on household assets and liabilities 
allowed the Department to construct a proxy measure of PNW that is 
close to the how PNW is currently defined by the program but also 
allows consideration of the impact of removing retirement accounts from 
the definition of PNW accounts for the relative wealth of potential 
DBEs by comparing their financial position to other self-employed 
business owners, rather than the general public. After constructing the 
proxy measure of the revised PNW definition that removes retirement 
accounts using the 2019 SCF, the Department constructed a distribution 
of PNW across white, male, non-Hispanic self-employed business owners. 
See Table 2 of NPRM preamble. There is an apparent breakpoint between 
the 80th and 90th percentiles. As described in the discussion of Table 
2 of the NPRM preamble, ``[t]he 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.'' 87 FR at 43638. Therefore, there is a substantial jump in 
PNW between the 80th and 90th percentiles, making it an intuitive 
breakpoint between wealth groups. A 90th percentile cutoff is commonly 
used to describe the most wealthy group and to compare the economic 
position of the most wealthy group to the rest of the population.\3\
---------------------------------------------------------------------------

    \3\ See Smith, Zidar, and Zwick, ``Top Wealth in America: New 
Estimates under Heterogeneous Returns,'' 138 Quarterly Journal of 
Economics 515 (2023) available at https://economics.princeton.edu/working-papers/top-wealth-in-america-new-estimates-under-heterogenous-returns/; Kuhn, Schularick, and Steins, ``Income and 
Wealth Inequality in America,'' Center for Economic and Policy 
Research (Aug. 9, 2017) available at https://www.wiwi.hu-berlin.de/de/professuren/vwl/wtm2/seminar-schumpeter/hscf_cepr.pdf; 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; 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/.
---------------------------------------------------------------------------

    Looking to the percentile distribution of personal net worth for 
male, White, non-Hispanic business owners, the Department calculated 
that the 90th percentile PNW for persons in this category was 
approximately $1.60 million (in 2019 dollars). Based on this 
calculation, the NPRM proposed that $1.60 million be the new PNW cap 
for SEDOs, meaning that they could continue in the DBE program if their 
PNW was at the same level as a 90th percentile White, non-Hispanic, 
male business owner. This would mean, the preamble explained, that 92.6 
percent of self-employed business owners who are women, Hispanic, or 
non-White would fit under the revised cap.
    The NPRM proposed using changes in aggregate household net worth 
data published by the Federal Reserve to adjust the PNW amount in 
future years. Details of this approach are found at 87 FR 43639. We 
would make the first adjustment 180 days after the effective date of 
the final rule and make further adjustments at five-year intervals. The 
NPRM proposed that we make only upward adjustments.

[[Page 24919]]

Reporting
    The NPRM proposed several changes affecting asset inclusion and 
valuation in reporting PNW. Under the proposal:
     The SEDO reports asset values without regard to community 
property, equitable distribution, or similar State laws. In general, 
title determines ownership.
     The SEDO reports assets held in qualified retirement 
accounts at full value but excludes them in full from the calculation 
of PNW.
     The SEDO may not report loans taken against retirement 
assets as liabilities, regardless of title.
     The SEDO continues to exclude her share of the equity in 
the primary residence although in some cases that share may change.
     The SEDO reports 100 percent of the value of household 
contents unless she and a spouse or domestic partner cohabit, in which 
case the SEDO reports 50 percent of total value. Total value is deemed 
to be a least the amount for which contents, including fixtures and 
appurtenances, are insured,
     The SEDO reports motor vehicle values in the proportion to 
which she holds title. The Department requested comments concerning how 
the SEDO should report, if at all, the value of leased vehicles.
     The SEDO reports at full value assets she transferred to 
certain related parties during the two years preceding an application 
for certification and in any single year following a declaration of 
eligibility. The NPRM clarifies which related-party transfers trigger 
the inclusion and adds a de minimis exception. It further clarifies 
which ``personal expenditures'' the SEDO may exclude.
     A natural person's signatory (not guarantor) status on a 
debt instrument generally determines ownership of the liability. In 
cases in which another party consistently makes payments on the debt, 
however, the certifier may determine, as it may under the current rule, 
that for eligibility purposes the debt does not belong to the formal 
obligor.

Comments

PNW Cap
    Over 50 comments, not only from DBEs but recipients and other non-
DBE commenters as well, supported the proposed $1.60 million PNW limit. 
The basic reason for their support was that the adjustment would 
increase opportunities for DBEs and avoid penalizing SEDOs for success. 
One comment suggested that, following SBA's practice, there should be 
separate entry and retention PNW limits for firms.
    Nearly as many comments (including some of the above) said that 
$1.60 million was still too low a number. One common reason for this 
view was that the $1.60 million adjustment, based as it was on 2019 
dollars, failed to keep pace with recent higher rates of inflation. 
Even if the proposed methodology were used, the final rule should 
update the number to be consistent with more recent data, they said. A 
commenter argued that a higher PNW number was needed to allow DBEs to 
compete in markets dominated by large corporations. Another noted that 
data from the Federal Reserve Bank of New York supported the 
proposition that Black and Hispanic Americans took a bigger hit from 
impacts on the economy of the COVID-19 pandemic and recent inflation 
than other persons, suggesting that this be considered in setting PNW 
numbers.
    Other commenters' suggestions included $1.84 million (based on CPI 
inflation since 1989), $2 million, $2.5 or 2.6 million, $3 million, $5 
million, or even $20 million. A few commenters referred to New York 
State's $15 million cap for its State minority and women business (M/
WBE) programs. Several DBE commenters went further, advocating for the 
elimination of a PNW cap altogether, saying that it was ``anti-
entrepreneurial'' and too limiting on firms' growth.
    Using the SCF as the basis for the adjustment was problematic, a 
few comments said (e.g., because it uses data from the male in an 
opposite-sex couple, the older person in a same-sex couple, or an 
individual, making it difficult to use the SCF to determine PNW for 
DBEs).
    A significant number of comments advocated taking regional, or even 
local, differences in the cost of living and the cost of doing business 
into account in setting PNW limits, rather than establishing a one-
size-fits-all national number. For example, one comment said, the cost 
of living in the New York metropolitan area was 69 percent higher than 
the national average. One of these made an analogy to the ``locality 
adjustments'' made in the salaries of Federal employees. Differences in 
the type of business involved (e.g., have higher PNWs for types of 
firms, like heavy construction companies or ACDBEs) should also be 
taken into account.
    A small number of commenters dissented from the concept of 
increasing the PNW number. Some said that even someone whose PNW was 
$1.32 million, let alone $1.60 million, should not truly be regarded as 
economically disadvantaged. The main reason commenters opposed the 
increase is that it allowed established DBEs who already get 
significant amounts of work to remain in the program, limiting 
opportunities for smaller, newer firms, especially those operated by 
Black or Hispanic SEDOs.
    Two recipients said that they knew of few DBEs that became 
ineligible for their SEDOs' excess PNW, while a DBE association said 
that increasing the limit could risk narrow-tailoring challenges to the 
program. A few comments questioned the economic rationale for the 
NPRM's calculation or found it confusing.
    Commenters generally agreed with our proposal to make future 
adjustments without formal rule making. While some commenters endorsed 
the proposed five-year adjustment intervals, others advocated more-
frequent adjustments.
    Several commenters questioned or opposed the 90th percentile 
benchmark for the adjustment. Some commenters thought that this choice 
was arbitrary or confusing, with no compelling rationale. Other 
commenters said the 90 percent level is unfair because DBEs must 
compete with extremely wealthy and powerful non-DBEs, and that using 95 
percent might be better.
    Taking the opposite point of view, some commenters thought using 
the 90th percentile standard could be over-inclusive, letting too-
wealthy individuals into the program, undermining the concept of 
economic disadvantage, and risking challenges to the program based on a 
lack of narrow tailoring. One commenter questioned the point of having 
a PNW cap at all, considering the commenter's assertion that more than 
90 percent of small business owners have a PNW below the current cap, 
and the NPRM would increase the cap and exclude retirement assets.
Reporting
    Retirement assets drew well over 50 comments, with a considerably 
wider divergence of opinion than on the PNW number itself. Supporters 
of the proposal outnumbered opponents by about two to one. Supporters 
were primarily DBEs but included some recipients and non-DBE groups as 
well. Opponents were primarily recipients.
    Comments supporting the proposal generally did so for the reasons 
stated in the NPRM. It would make SEDOs' lives fairer and the program 
easier to deal with, one of them said.
    The most significant reason for opposition to the proposal was a 
concern that it would be subject to

[[Page 24920]]

manipulation and allow wealthier SEDOs to shelter significant assets, 
perhaps in the millions of dollars in some cases, from the PNW 
calculation. This would exacerbate inequality among DBEs, disfavoring 
SEDOs of smaller, newer DBEs and implicitly favoring White females over 
minority SEDOs. The proposal would likely benefit only a few existing 
firms, mostly those who already get a large portion of DBE 
participation and open the door to firms that are not truly 
disadvantaged, resulting in an uneven playing field among DBEs, one 
recipient said.
    The proposal could have unintended consequences, according to some 
comments, such as incentivizing transfers of assets to retirement 
accounts, resulting in unrealistically low PNW asset totals. In 
addition, comments said, the proposal could disfavor individuals who 
invested in real property, as distinct from financial instruments, as a 
means of retirement planning. Retirement savings are a part of 
someone's wealth, after all, another commenter noted, and should be 
treated as such. Excluding them dilutes the notion of economic 
disadvantage and could facilitate the participation in the program of 
people who are not genuinely economically disadvantaged. Being able to 
put significant sums into retirement accounts itself suggests a level 
of affluence that may indicate that someone is not economically 
disadvantaged.
    Some of the opponents of the proposal, and other commenters, 
suggested modifications of the proposal to deal with what they saw as 
its problematic aspects. One suggested a $500,000 reduction in excluded 
retirement assets, with a 10 percent reduction of the remainder. Other 
comments recommended that only a portion of retirement assets be 
excluded, such as 10, 20, 50, or 75 percent. Another comment wanted 
more guidance on what constituted a retirement asset for purposes of 
the provision.
    Commenters addressed several of the NPRM's proposed provisions 
regarding the SEDO's reporting of assets and liabilities for PNW 
purposes.
    The most contentious issue in this PNW component was the proposal 
that SEDOs report assets without regard to State community property, 
equitable distribution, or similar laws or principles. The opinion 
among commenters was evenly divided on the subject. Supporters 
generally agreed with the NPRM's rationale for the proposal, some 
specifically citing the desirability of avoiding inconsistency among 
States.
    A number of the opponents of the proposal were concerned that 
removing consideration of marital and community property laws could 
disproportionately favor wealthier SEDOs over less affluent SEDOs, and 
White female SEDOs over minority SEDOs. Opponents maintained that the 
proposed rule would allow a SEDO access to a spouse's wealth while 
artificially reducing her own reportable assets. Excluding these laws 
from consideration could cause problems for some States in 
administering the program, others said, and it would be better to 
retain the current rule.
    If household goods are divided equally between spouses or domestic 
partners, a number of others asked, why should their house itself not 
be treated the same way? One commenter asked how the Department would 
treat a house that was titled in a revocable trust (which the commenter 
said was a common estate planning technique). The commenter suggested 
that it be counted in the owner's PNW calculation if the SEDO was a 
beneficiary of the trust for purposes of the house.
    The commenters who addressed the ownership of household goods 
expressed a variety of concerns. Two opposed counting goods at all 
because doing so, or keeping the information up to date, was too 
complex and burdensome for applicants (e.g., figuring in depreciation). 
Another idea was to exclude personal property up to a certain dollar 
limit (e.g., $250,000). One said that insurance values tend to be 
understated, and another stated that insurance companies tend to value 
household goods at a certain percentage of the value of the home 
itself, a figure which the homeowner should be able to contest in the 
PNW process. Requiring a copy of the insurance policy for verification 
would be a good idea, two comments suggested.
    Several comments suggested that leased vehicles should be treated 
neither as a liability or an asset, though a few other commenters 
thought they should be one or the other. Other comments expressed 
concern that vehicles, including valuable ones, could be hidden from 
the PNW calculation by being placed in the name of an applicant's non-
disadvantaged spouse. One such comment suggested that a vehicle in a 
spouse's name should always be counted as part of the SEDO's assets. 
Two others questioned why a vehicle would be placed solely in the name 
of its title holder, while other personal property, like household 
goods, would be divided 50/50 between an applicant and a non-
disadvantaged spouse.
    One commenter expressed concern that attributing a debt to the 
signatory on a debt instrument could serve as a way for a wealthy 
applicant to inflate his liabilities for PNW purposes. Another asked 
whether a business going into default should be counted as a liability 
if the owner had guaranteed the loan personally, while a third asked 
for clarification that a firm's debt, as opposed to a personal debt, 
should not count as a liability for PNW purposes. Another question 
concerned how the rule would treat a debt entered into by a SEDO in his 
or her personal capacity but was being paid off by the firm. One 
commenter suggested that in connection with the proposal not to 
consider State marital property laws, having the signatory on the debt 
instrument determine the ownership of the liability would be a loophole 
that would favor applicants with non-SED spouses.
Other Comments
    A number of comments propose alternative approaches. One commenter 
advocated not counting any of a spouse's assets for PNW purposes; 
another took the opposite view, suggesting that all of a spouse's 
assets be counted. Another said that in addition to excluding 
contingent liabilities, contingent assets should not be counted. 
Exclusions should include non-revenue producing property (e.g., 
timeshares, vacant land) and the cash surrender value life of insurance 
policies should not be counted as an asset, a commenter asserted. 
Another comment suggested excluding encumbered assets from 
consideration.
    One commenter suggested that the rule define the time period in 
which direct payments for health care, education, or celebration of 
significant family life events should be counted. A DBE association 
said, with respect to the proposed rule limiting transfers to family 
members or related entities, there should be an exception for transfers 
that were irrevocable or were pursuant to a bona fide tax planning, 
estate planning, family support, or similar strategy, perhaps involving 
a third-party professional's certification that the transfer was part 
of such a plan.

DOT Response

    The PNW cap is an important feature, among the other eligibility 
criteria and standards set for the program, that helps ensure that the 
DBE program remains narrowly tailored. The cap prevents people who are 
too wealthy to be reasonably considered economically disadvantaged from 
participating in the program.

[[Page 24921]]

The PNW Cap
    As explained in the NPRM, and in this final rule, the Department 
undertook a fresh, comprehensive approach to tailor an original 
analysis of wealth based on quantitative analysis. The approach in this 
rulemaking uses SCF data on household assets and liabilities to allow 
us to construct a proxy measure of PNW that is close to the how PNW is 
currently defined by the program and also allows us to consider the 
impact of removing retirement accounts from the definition of PNW. 
Further, it allows us to allow for the relative wealth of potential 
DBEs--by comparing their financial position to other self-employed 
business owners, rather than the general public. After constructing the 
proxy measure of the revised PNW definition that removes retirement 
accounts using the 2019 SCF, we then constructed a distribution of PNW 
across white, male, non-Hispanic self-employed business owners. See 
Table 2 of NPRM preamble.
    In arriving at the $1.60 million proposal in the NPRM, the 
Department used data from the Survey of Consumer Finances (SCF), a 
survey conducted every three years by the Federal Reserve and U.S. 
Department of the Treasury. This data was specifically analyzed for 
business owners by race and gender to reach the proposed $1.60 million 
PNW threshold. The NPRM proposed to adjust that figure subsequently 
based on the 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.
    Determining a threshold beyond which an individual is considered to 
have accumulated wealth too substantial to need the program's 
assistance is an exercise in judgment. Nonetheless, as explained in the 
NPRM and in this final rule, using the 90th percentile to identify a 
high level of wealth or income is a common convention used to describe 
economic inequality. 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 businesses that are currently 
participating in the DBE and ACDBE programs which would be an 
undesirable outcome for the DBE and ACDBE programs. Choosing a 
substantially higher threshold would risk the possibility of that the 
program would no longer be narrowly tailored. However, we deem the 90th 
percentile appropriate because based on a review of the 2019 SCF data, 
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.
    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 PNW lower than the current PNW cap as PNW is 
currently defined.\4\ Under the proposed cap of $1.60 million, 92.6 
percent of that group would fall under the cap, an increase of 1.8 to 
3.9 percentage points.
---------------------------------------------------------------------------

    \4\ 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.
---------------------------------------------------------------------------

    The final rule adopts a higher number than that of the proposal, 
not only in response to comments suggesting an increase in the cap, but 
also because we have modified the methodology used to establish and 
later adjust the PNW cap. These modifications take into account the 
inflation that has affected the financial situation of all Americans 
not only since the publication of the NPRM, but more importantly since 
the 2019 data on which the NPRM's calculations were based. These 
modifications also rely on data more recent than the data on which we 
based the NPRM proposal. The data, as cited in the NPRM, are a 
combination of households and nonprofit organizations when really only 
households should be considered. Additionally, by using solely the 
growth in net worth we are not accounting for the normal population 
growth. Accounting for population growth is necessary to obtain a 
figure that represents the average wealth per household rather than an 
aggregate. Consequently, for purposes of the final rule, the Department 
has made two adjustments. The first adjustment is a change in the 
dataset to the ``Financial Accounts of the United States: Balance Sheet 
of Households (Supplementary Table B.101.h),'' effectively removing 
nonprofit organizations from the net worth calculation. The second 
adjustment is to normalize household net worth by the number of 
households as calculated by the Census (Families and Households, Total 
Households [TTLHH].\5\)
---------------------------------------------------------------------------

    \5\ https://www.census.gov/topics/families/families-and-households.html.
---------------------------------------------------------------------------

    With these adjustments and using 2022 data rounded to the nearest 
thousand, we have set the current PNW limit at $2,047,000. This takes 
inflation into account and, as in the past, includes in the calculation 
the most common forms of wealth (e.g., an owner's personal and shared 
assets, real estate and trust assets, cash and cash on hand, the value 
of outside businesses, life insurance policies). We have determined 
that rounding to the nearest thousand is more appropriate than rounding 
to the nearest ten-thousand (as we do for the statutory gross receipts 
cap in Sec.  26.65(b)) because of the relative difference between these 
two caps (the current gross receipts cap is $30.40 million, effective 
March 1, 2023). It also takes into account the fact that the population 
of business owners has greater net worth than the overall population. 
PNW is now, and always has been, a relative concept: how does the 
wealth of business owners in presumptively economically disadvantaged 
groups relate to that of business owners generally? With this in mind, 
we believe that this number effectively meets the objectives of 
allowing businesses to grow; establishing a PNW limit based on current 
and relevant data; and ensuring that the program remains narrowly 
tailored by not creating eligibility criteria that are overbroad.
    The Department will use the data discussed above in connection with 
establishing the current PNW to make future adjustments to the PNW cap, 
which will be made every three years. We do not believe this will 
result in a substantially higher amount based on our assessment of the 
likelihood that the datasets described above will produce large jumps 
in net worth. An adjustment on a more frequent basis, though favored by 
some commenters, will not be made because of the issues it may cause in 
the certification and decertification processes. The Department will 
post the adjustments on the Departmental Office of Civil Rights' web 
page. Each such adjustment will become the currently applicable PNW cap 
for purposes of this regulation.
Reporting
    The Department adopts as final the general rule that community 
property,

[[Page 24922]]

equitable distribution, and similar laws or principles have no effect 
on the SEDO's PNW reporting. In most cases, the new provisions either 
produce the same result or work in the firm's favor. The Program and 
its stakeholders will benefit from burden reduction and more-
consistent, predictable, equitable results.
    The final rule adopts the NPRM's proposal to exclude retirement 
assets in full. We believe that saving for retirement is crucial to 
wealth creation. We do not think it is appropriate to make it harder 
for eligible firms to become and remain certified, simply because their 
SEDOs are planning for their retirement.
    We note this rationale mirrors SBA's 8(a) program, which eliminated 
the counting of these assets for PNW purposes in 2020. (91 FR 27650 
(May 11, 2020)). As SBA opined, this accords with the valuable public 
policy of incentivizing, rather than punishing, saving for retirement; 
and expands the pool of potential eligible participants ``because 
retirement-age small business owners will no longer be ineligible 
solely due to their retirement savings.'' (Id. at 27651).
    We understand the concern some commenters expressed that wealthier 
SEDOs could stay in the program longer by sequestering assets in 
retirement accounts, to the detriment of smaller, newer DBE firms. A 
certifier's continued ability to rebut an owner's claim of economic 
disadvantage will help prevent this. That backstop, reworked in revised 
provisions in Sec.  26.67(c)(2), is an important mechanism to prevent 
wealthy individuals from gaming the PNW calculation rules and ensures 
that the program remains narrowly tailored. As explained below, the 
rebuttal provisions are meant for situations in which a reasonable 
person would not consider the individual to be economically 
disadvantaged.
    Under Sec.  26.67(c)(2), certifiers may consider assets and income, 
free use of them or ready access to their benefits, and any other 
indicators of non-disadvantage that the certifier considers relevant. 
The provision states that there are no asset (including retirement 
assets), income, equity, or other exclusions and no limitations on 
inclusions. Several commenters seem to have understood that the current 
and/or proposed rules permit the SEDO to exclude the entire value of 
the primary residence. They do not. Under either rule, the SEDO 
excludes only his share of the equity in the home. Under the proposed 
rule, transferring title to a spouse reduces the SEDO's PNW exclusion 
to zero, and that result is consistent across all States, regardless of 
the potential application of community property rules in some States, 
under the old rule. The Department adopts the rule as proposed, with 
modifications to clarify that the marital/community property change 
applies to all PNW reporting, not simply to the exclusion of equity in 
the primary residence. The new rule clarifies and refines but does not 
change the general rule that actual ownership, normally denoted by 
title, determines PNW reporting. We disagree with the commenters who 
opine that the old rule, the effect of which varied by jurisdiction, is 
preferable to the proposed rule. Under either regime, the SEDO may 
transfer title to avoid reporting all or part of an asset's value. The 
final rule makes the result more predictable, and it levels the playing 
field nationwide. Anti-abuse rules address transfers that have an 
evasive effect.
    Other, targeted NPRM provisions attempt to resolve smaller, 
thornier issues with bright-line solutions that should ease 
administration and compliance. We finalize the rule that attributes 100 
percent of personal property in a SEDO's primary residence to the SEDO 
unless the SEDO shares the residence with a spouse or domestic partner. 
Determining aggregate value is difficult enough; we do not believe it 
is an effective use of certifiers' or owners' time to pick through 
property item by item to determine individual ownership and value. In 
most cases, the value of personal property is not of sufficient 
magnitude to pierce the PNW ceiling. We adopt the 50 percent/100 
percent rule for ease of administration and to curb some of the abuses 
that concerned commenters.
    PNW reporting for leased vehicles is another case in point. We 
agree with the plurality of commenters that opined that a leased 
vehicle is neither an asset nor a liability. Thus, the final rule 
states that leased vehicles should not be reported at all.
    We retain the ``two-year transfer'' rule and adopt as final the 
changes proposed, again with clarifying edits in response to comments. 
The broader proposition, that substance trumps form when the asserted 
transaction, fact, or circumstance is unreal or abusive, remains in 
effect. The final rule so provides in, for example, sections 26.68(c), 
26.69(c)(3)(ii), and 26.69(g)(1) and (g)(2). All of these iterations 
are anti-abuse rules that apply across the entirety of subparts D and 
E. We encourage certifiers to make use of them when circumstances 
warrant.

15. Social and Economic Disadvantage (Sec.  26.67)

    In this section, because the overall topic contains several 
important subtopics, we have organized the material around the 
subtopics, with discussions about the NPRM provision, comments, and DOT 
response pertaining to each individual subtopic.
    As a general matter, the final rule notes that Congress continues 
to recognize present-day discrimination and the ongoing effects of past 
discrimination against members of certain groups who seek to 
participate in DOT-assisted contracting opportunities. Under the DBE 
regulation, members of those groups are rebuttably presumed socially 
and economically disadvantaged. A certifier's ability to rebut the 
presumption is a key ``narrow tailoring'' feature because it prevents 
the DBE program from being overinclusive. We make clear that 
questioning the owner's claim of membership in one or more of the 
groups whose members are presumed disadvantaged is a separate process 
from rebutting a presumption of social and economic disadvantage. The 
former requires the applicant to bear the burden of proof to 
demonstrate that they are a member of a presumed group. The latter 
requires the certifier to bear the burden of proof to demonstrate that 
even though the owner is a member of one or more of the presumed 
disadvantaged groups, they are not, in fact socially disadvantaged.

Group Membership (Sec. Sec.  26.5, 26.63, 26.67)

NPRM

    The general rule in the regulation is that all an applicant needs 
to claim membership in a group whose members are presumed socially and 
economically disadvantaged is to check the appropriate box or boxes on 
the Uniform Certification Application (UCA) and submit a signed 
Declaration of Eligibility (DOE). We reminded certifiers that this is 
the only evidence of membership owners must provide at the time of 
submitting the UCA. An exception is that owners claiming Native 
American status must also provide proof of enrollment in a federally or 
State-recognized Indian Tribe, or proof that the individual is an 
Alaska Native or Native Hawaiian. We explicitly stated that certifiers 
must not question an owner's claim of group membership as a matter of 
course, as doing so unduly burdens applicants and contravenes the rule 
itself. The NPRM retained the requirement that when questioning an 
individual's group

[[Page 24923]]

membership, a 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 genetic 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. Because of 
confusion expressed by certifiers and applicants alike, the Department 
proposed defining ``a long period of time'' as a period of at least 
five years, marking the first time the Department ever proposed a 
specific number.
    The NPRM placed timelines/deadlines in Sec.  26.67 to ensure that 
neither certifiers nor applicants unduly delay the process of 
questioning group membership. We also proposed allowing a firm whose 
owner's claim of group membership has been rebutted to submit a claim 
of the owner's individual social disadvantage at any time under Sec.  
26.67(d) (Sec.  26.67(e) in the final rule), 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.

Comments

    The majority of comments addressed evidence of Native American 
group membership and the proposed minimum 5-year time frame for 
``holding oneself out.''
    Given that the DOE is the only evidence of group membership an 
individual must submit with the UCA, some commenters asked whether, and 
how, certifiers could obtain proof of enrollment in a federally or 
State-recognized Tribe from an individual claiming Native American 
group membership. One commenter asked about State-recognized Tribes in 
the context of interstate certification, as not all States recognize 
the same Tribes. One commenter suggested that Native American-owned and 
tribally owned firms be afforded the same exceptions from some 
certification requirements provided to Alaska Native Corporations.
    Of the 15 comments addressing the ``holding out for a long period 
of time'' proposal, 10 supported implementing a minimum five-year 
requirement. One commenter asked when the five-year period started to 
run (e.g., from someone's first application, a current application?). 
Some commenters asked for clarity on how to apply the ``holding out'' 
provision and examples of evidence. Opponents said that five years is 
too short a period to meaningfully demonstrate that an individual had 
held themselves out to be a group member. One commenter suggested 10 
years. Another suggested that ``since adulthood'' would be a better 
criterion.
    A few commenters sought clarification about the definition of a 
``well-founded reason'' for questioning an individual's claim of group 
membership. Two commenters asked for guidance on how to handle 
situations involving a transgender person or one whose gender 
identification is inconsistent with that on her/his/their birth 
certificate. One commenter noted that looking into someone's claim of 
disadvantage could run up against the shortened time frame for issuance 
of a certifier's decision on an application.

DOT Response

    The regulation's general rule is that all an applicant needs to do 
to claim membership in a group whose members are presumed SED is to 
check the appropriate box(es) on the UCA and submit a signed DOE. 
However, an individual claiming membership in the Native American group 
must also provide proof of enrollment in a federally or State-
recognized Indian Tribe, or proof that the individual is an Alaska 
Native or Native Hawaiian. Examples of proof of Tribal enrollment 
include, but are not limited to, a Tribal identification card, or a 
letter from a Tribal leader. We recognize that Alaska Natives and 
Native Hawaiians do not necessarily possess Tribal enrollment 
documents. Certifiers must verify government-recognized documentation 
submitted by Alaska Natives or Native Hawaiians, such as enrollment 
documents from the U.S. Department of the Interior or a State agency. 
The final rule amends Sec.  26.67(a)(2) to reflect that requirement.
    The Department continues to give certifiers latitude in determining 
whether there is a well-founded reason to question someone's claim of 
presumptive group membership. We also continue to emphasize our view 
that a well-founded reason must not be a mere suspicion or a bare 
expression of a certifier's opinion. Certifiers must continue to fully 
explain the basis for the well-founded reason and reference specific 
evidence in the record. Without that, an individual cannot meaningfully 
respond.
    People who are members of the regulation's designated groups are 
presumed to be disadvantaged because members of those groups have, 
historically and currently, suffered from discrimination and its 
effects. If someone has not identified as, or been regarded as, a group 
member for long enough to have suffered these effects, they are not 
someone whose situation is intended to be remedied by participation in 
the program.
    The final rule does not include a definition of ``long period of 
time'' in order for certifiers to consider the full context of an 
individual's claim of group membership. Specifying a rigid time period 
could be subject to manipulation by an applicant who continues to 
assert a clearly invalid claim of group membership for many years. 
Members of the regulation's designated groups are presumed to be 
disadvantaged because members of those groups have, historically and 
currently, suffered from discrimination and its effects. If someone has 
not identified as, or been regarded as, a group member for long enough 
to have suffered these effects, they are not someone who is intended to 
have the presumption of disadvantage.\6\ By not including a definition 
of ``long period of time,'' we preserve the ability of certifiers to 
consider a persons' claim of group membership and to demonstrate such 
by a preponderance of the evidence.
---------------------------------------------------------------------------

    \6\ The Department has acknowledged, even as far back as the 
1999 final rule preamble, that commenters have wanted further 
definition of what ``a long period of time'' means. As we stated 
then, we believe ``it would be counterproductive to designate a 
number of years that would apply in all cases, since circumstances 
are likely to differ. The point is to avoid ``certification 
conversions'' in which an individual suddenly discovers, not long 
before the application process, ancestry or culture with which he 
previously has had little involvement.'' 84 FR 5116 (Feb. 2, 1999).
---------------------------------------------------------------------------

    Lastly, the procedures for questioning the membership of a 
transgender individual, or one whose gender identification is 
inconsistent with that on the individual's birth certificate, are the 
same as questioning the group membership of any other individual. If, 
after a proper inquiry, a certifier rebuts a transgender individual's 
membership in the ``female'' group, the certifier must deny the 
application and inform the individual of the right to apply under Sec.  
26.67(e) (individualized showing of disadvantage) at any time and of 
the right to appeal to the Department. This scenario differs from an 
instance in which a person does not check the box for ``female'' and 
instead writes ``transgender'' after checking the ``other'' box. In 
that instance, a certifier must inform the person that ``transgender'' 
is not a group whose members are presumed SED and explain the option of 
applying under Sec.  26.67(e)

[[Page 24924]]

to demonstrate SED status on an individualized basis.

Evidence and Rebuttal of Economic Disadvantage

NPRM

    The NPRM proposed eliminating the six ``ability to accumulate 
substantial wealth'' (AASW) factors by which a certifier could rebut an 
owner's presumed economic disadvantage, because the Department 
witnessed the significant extent to which certifiers and firms 
inappropriately treat the six factors as a checklist of required 
criteria and treat the examples' numbers as floors or ceilings.
    We proposed bringing the ``reasonable person'' standard from the 
preamble to the 2014 regulation into the regulation itself, just as we 
moved AASW from guidance into the regulation in 2014. Via a Sec.  26.87 
proceeding, a certifier would bear the burden of proving, by a 
preponderance of the evidence, that a reasonable person would not 
consider the individual to be economically disadvantaged even though 
the individual's PNW did not exceed the regulation's limit. Among the 
evidence that could be considered are ready access to wealth, income or 
assets of a type or magnitude inconsistent with economic disadvantage, 
a lavish lifestyle, or other circumstances that economically 
disadvantaged people typically do not enjoy. Liabilities and the kind 
of asset exclusions used in PNW calculations would not be taken into 
account as part of this determination.

Comments

    Most commenters opposed our proposal to replace the AASW factors 
with a ``reasonable person'' evaluation. About 30 comments, primarily 
from recipients but also including some DBE and non-DBE firms, said 
that it was too vague and subjective. It could lead to inconsistent and 
arbitrary results and could let in people who should not be in the 
program. It left too much discretion to the personal opinions of 
certifiers, leading to conscious or unconscious bias, or a certifier's 
dislike of a particular firm, being able to affect decisions.
    More than 20 commenters (there was some overlap with the first 
group) advocated retaining either the existing six guidance factors or 
some other factors more concrete than a reasonable person standard. 
Many of these comments suggested modifications to make something like 
the existing provisions work better, such as more guidance. One subject 
suggested for guidance is how certifiers should look at situations 
involving S-corporations or LLCs, where business income is passed on to 
an individual's personal return, enlarging the SEDO's AGI. Some said, 
given inflation, the AGI criterion should be increased to $400,000-
$500,000. Others recommended stronger language to prevent single-factor 
evaluations using the criteria, or that more than one factor should 
always be used.
    A smaller number of commenters supported the proposal, favoring the 
``big picture'' approach of the NPRM. One recipient said it already 
used a holistic approach successfully. One of the supporters commented 
favorably on what it regarded as the NPRM's simpler approach to the 
issue. Another wanted the certifier to have to prove its case under the 
proposed approach by the clear and convincing evidence standard. One 
comment was concerned about the proposal's subjectivity but said the 
current six factors were worse. It asked that the Department not 
provide guidance that made decisions on rebutting disadvantage harder 
for certifiers.
    Two comments said that evaluations under the section exclude 
spouses' assets, while another thought those assets should be included.

DOT Response

    The Department's final rule about rebutting economic disadvantage 
helps ensure that the DBE program remains narrowly tailored and 
strengthens current safeguards that prevent firms owned by individuals 
who cannot fairly be viewed as economically disadvantaged from 
participating in the program. Rebutting an owner's presumed economic 
disadvantage inevitably requires certifiers to make a judgment call 
about whether an owner can be reasonably considered economically 
disadvantaged. We make final our proposal to eliminate the AASW 
framework and shift the analysis from a list of specific criteria to a 
``reasonable person'' evaluation.
    By giving certifiers the ability to make judgment calls, we believe 
that we place them in the best position to achieve this objective, 
without needing to engage with factors that, while intended as 
suggestions, were too often taken as strict regulatory criteria. 
Retaining and/or revising some or all of the existing factors, as some 
commenters suggested, will not solve the problem and might 
inadvertently create additional complexity. We understand commenters' 
concern about decisions on this matter becoming too subjective. That is 
why, and consistent with prior final rules, certifiers must articulate, 
in writing, a detailed explanation and not simply make a conclusory 
statement.

Individual Determinations of Social and Economic Disadvantage (Sec.  
26.67(d))

NPRM

    The Department proposed eliminating its guidance in Appendix E and 
adding flexible, less prescriptive requirements into the regulation 
itself. An individual seeking to demonstrate SED status on an 
individual basis would still have to prove, by a preponderance of the 
evidence, that he experienced social and economic disadvantage within 
American society and without regard to the individual's personal 
characteristics.

Comments

    Of the more than 20 comments that addressed this issue, a majority 
opposed the NPRM's proposal, saying that it was too subjective. It gave 
certifiers too much discretion, left open the possibility of 
inconsistency and bias, and might help ineligible firms to obtain 
certification. Most of these commenters favored retaining the guidance 
or something like it. A smaller number of commenters favored the 
proposal for the reasons stated in the NPRM preamble, with two asking 
for more examples to help certifiers.

DOT Response

    We adopt proposed Sec.  26.67(d) with modifications in response to 
the comments. We believe that the changes provide clearer guidance to 
certifiers and business owners. The final rule removes the lopsided 
and, in some cases, insurmountable burdens that the previous rule and 
guidance imposed and curbs the excesses they enabled. The rule 
simplifies, specifies, and streamlines. It substantially levels a 
skewed playing field for owners, which should result in more accurate 
determinations and the more efficient administration of the 
certification process.
    The final rule reunites the social and economic aspects of 
``disadvantage,'' which are intrinsically linked, and explicitly 
identifies the three elements that the owner must demonstrate. Although 
the substance deviates very little from that of the superseded 
guidance, the final rule concisely identifies the ``what'' and the 
``how'' and does it in plain language. The rule clearly specifies the 
criteria that an owner must satisfy, and the kind of evidence that he 
must present, to show that the negative effects of discrimination 
(social disadvantage) caused economic hardship.
    The final rule, as did the previous provision, requires a degree of

[[Page 24925]]

subjectivity because each owner presents unique facts and personalized 
experiences. The checklist approach of the superseded appendix was ill-
suited to the evaluation. Although the final rule is less rigid, it 
continues to require robust proof of individual disadvantage. We are 
confident that certifiers will evaluate the evidence fully and 
objectively, in accordance with the restated, simplified criteria, and 
thereby ensure that only eligible firms become certified.
    The reauthorization of the DBE program in successive Congressional 
reauthorizations, including the Bipartisan Infrastructure Law, 
demonstrates Congress' intent to facilitate the participation of social 
groups that have experienced past, and continuing, discrimination in 
federally assisted contracting. The final rule safeguards against 
certifiers imposing undue requirements on individuals that are not 
presumptive group members. The rule focuses solely on essential 
requirements, ensuring fairness and clarity in the certification 
process. This matches Congress' and DOT's objective to remove barriers 
and facilitate certification of eligible firms.
    The Department's final rule adopts in full our NPRM proposal for 
the reasons given there. As with evaluating the SED status of an 
individual claiming membership in one of the groups whose members are 
presumed SED, evaluation of an application under Sec.  26.67(e) 
inherently requires certifiers to make a judgment call. In doing so, 
certifiers must not simply rely on the quantity of examples of 
disadvantage an owner provides; rather, certifiers must focus on the 
quality of the evidence presented. Applicants have to submit a personal 
narrative detailing the experiences that demonstrate the social and 
economic disadvantages they have had to contend with. While applicants 
bear the burden of both production and persuasion with respect to all 
elements of certification, certifiers must holistically evaluate all 
presented evidence before making a determination.
    We reiterate that an owner need not have filed a complaint of 
discrimination as a prerequisite of claiming social disadvantage. Nor 
must an owner produce corroborating evidence, as such evidence may not 
exist. The final rule merely levels the field by removing what amounts 
to a higher burden than ``preponderance of the evidence.'' \7\ The 
owner still must make his case, and the certifier may disregard a claim 
of social disadvantage where the individual presents evidence of 
discriminatory conduct but does not connect that conduct to negatively 
impact on his own entry into or advancement in the business world. On 
this point, the Department is following SBA's guidance that individuals 
need to provide ``a complete picture, or additional facts that would 
make an individual's claim of bias or discriminatory conduct more 
likely than not.'' \8\ Like SBA, certifiers should not intend as a 
matter of course, to disbelieve an applicant but should continue to 
rely on the affidavits and sworn statements, as long as those 
statements clearly establish an instance of social disadvantage.
---------------------------------------------------------------------------

    \7\ SBA uses the preponderance of the evidence standard as well 
in its eligibility standards. In its final rule, SBA addressed the 
Supreme Court's decision regarding the DBE program (Adarand 
Constructors, Inc. v. Pe[ntilde]a, 515 U.S. 200 (1995), which 
requires programs to provide a race-based remedy to be ``narrowly 
tailored.'' SBA noted that the Department of Justice recommended the 
``preponderance of the evidence'' standard for government-wide 
disadvantaged business programs; and therefore, based its 
``preponderance of the evidence'' standard accordingly. See 63 FR 
35728 (June 30, 1998). The Department follows this standard.
    \8\ 81 FR 48569 (Jul. 25, 2016).
---------------------------------------------------------------------------

    Appendix E is modeled after several, but not all, SBA requirements. 
When it was first introduced by the Department, we modified our 
guidance to make it fit our needs because of the differences between 
the two programs. Appendix E was intended by the Department to be 
guidance only, yet recipients used it to impose rigid, prescriptive 
requirements that too often excluded meritorious applicants who, by any 
reasonable standard, proved their SED status. Nonetheless, certifiers 
found them ineligible because they did not produce a specific type of 
evidence, in sufficient volume, of each of the several ``required'' 
varieties. In some cases, the evidence (e.g., corroboration of malign 
intent) does not exist; in others, it cannot be obtained. For example, 
researching and compiling data about other firms in the same or a 
similar line of business with which to compare the individual's 
circumstances is well beyond the means of an owner of a small business 
seeking DBE certification. Competitors tend not to publish information 
concerning capital, net worth, access to credit, etc. As stated in the 
NPRM preamble, we believe that this is inequitable. The rule at Sec.  
26.67(a) aligns with the Department's surface authorization requirement 
to follow SBA's definition of members of groups deemed socially 
disadvantaged; and Sec.  26.67(d) retains SBA's regulatory requirements 
that a person who is not socially disadvantaged must make an individual 
showing of disadvantage. To do so, Sec.  26.67(d) requires an owner to 
identify at least one objective distinguishing feature (ODF) that 
resulted in racial, ethnic, cultural, or other prejudice against him 
personally and describe with particularity how the ODF caused personal 
social disadvantage. The owner may provide evidence related to the 
owner's education, employment, or any other evidence the owner 
considers relevant.

16. Ownership (Sec.  26.69)

    The NPRM proposed changes that would streamline the ownership rules 
and make them easier to understand and administer. The proposal 
retained the essential substantive elements of the 2014 rule but recast 
them in simpler language. It distilled from the multitude of 
prescriptive ``real, substantial, and continuing'' (RS&C) rules a few 
general principles and set those out as the main components of 
ownership. Sub-rules fleshed out the framework. The Department's 
overall goal was to make certification easier to obtain, maintain, and 
monitor.
    The proposed rule employed a new term, Reasonable Economic Sense 
(RES) as its rationalizing principle. RES, like RS&C in the 2014 rule, 
was to be a touchstone, shorthand, and umbrella for the underlying 
concepts and operating rules. We intended for the term to signal 
flexibility, a common-sense focus, and tighter alignment with small 
business realities.

Reasonable Economic Sense (RES)

NPRM

    The NPRM replaced the term RS&C with RES in describing the rule's 
unifying principle or overarching requirement. The proposal restated 
the 2014 rule's essential requirements and organized them more 
logically. At the top analytical tier, the proposed language simplified 
and clarified the rule's main components; it changed nomenclature and 
emphasized more than substance. For example, ``proportionality'' 
(broader, less rigid, more clearly defined) replaced the 2014 rule's 
``real,'' ``substantial,'' and ``commensurate with'' language. The 
changes gave certifiers more latitude than they believed they had 
before, to encourage them to consider firm-specific facts without undue 
regard for technical disqualifications. Similarly, the proposal gave 
owners more control over how to structure their businesses' ownership. 
Proportionality does not require exactitude. Owners have latitude up 
the point at which the benefits and burdens of ownership are ``clearly 
disproportionate'' or ``undue.'' While the proposed rule described the

[[Page 24926]]

ownership requirements in plainer, more accessible language, the 
animating theory remained: substance prevails over form.

Comments

    Commenters supported the NPRM's overall approach, including the 
rule's substantive provisions, by a wide margin. Supporters often cited 
increased flexibility and the likelihood of better outcomes. However, a 
sizable majority of all commenters specifically opposed RES. They 
faulted the term for vagueness, subjectivity, the potential for 
inconsistent results (e.g., disfavoring WBEs), and the possibility that 
front companies could become certified more easily. While some of the 
commenters opposing RES wanted to retain the existing rule, most 
requested more definitions, guidance, and examples.

DOT Response

    Our objectives in promulgating the proposed and final rules are to 
simplify, clarify, and modernize certification standards; give firms 
and certifiers more flexibility; and promote consistent, fair results. 
We intended for RES to capture in a single, overarching term the 
essence of the DBE ownership standards, as simplified and clarified. 
The comments, however, persuade us that RES is unhelpful, and on 
further reflection, we see no need for an overarching term. We 
therefore delete all references to RES.
    The comments also prompt us to explain key concepts and rules more 
thoroughly and to add substantially more situational guidance and 
examples. We adopt proposed Sec.  26.69, with these additions and 
edited for clarity.
    We believe that the final rule reduces burdens, increases 
understanding, and promotes equity.

Investments

    The regulation frames ownership in terms of ``investments'' and 
provides detailed guidance on which investments in ownership make a 
firm eligible for certification. Investments are the mechanism through 
which the rule applies. If the SED owner (SEDO) makes no investment, an 
insignificant one, or one that is disproportionately low, the firm is 
ineligible.
    Purchases, capital contributions, and gifts are investments if they 
meet specified standards, including proportionality consistent with the 
owners' relationships and the business's circumstances. Investments 
must have real economic effect. The SEDO must have parted irrevocably 
with (her own) cash or with a combination of cash and tangible or real 
property. She must stand to lose the entire investment if the business 
folds. In colloquial terms, the SEDO must have real ``skin in the 
game.''

Rules for Acquisition, Proportionality, and Maintenance

    Section 26.69(b) retains the proposed rules for acquiring and 
maintaining ownership interests. In all cases, the principle of 
proportionality applies. The SEDO's investment to acquire ownership 
must be substantial, and it must include a significant cash component.
    Example 1. SEDO contributes $51 to acquire 51 percent of Newco. The 
cash outlay is insubstantial, and the capital contribution is therefore 
not an investment. Newco is ineligible for certification.
    Example 2. SEDO contributes $5,100 in exchange for 51 percent of 
Newco, which does not yet operate any business. Regardless of whether 
$5,100 is a substantial outlay, Newco is ineligible under Sec.  
26.71(a), which requires that an applicant have business operations.
    Example 3. SEDO purchases 60 percent of Opco for $30,000 cash. 
Assuming that the outlay is not clearly disproportionate to value, and 
the SEDO does not reap benefits or shoulder burdens clearly 
disproportionate to those of other owners, Opco is eligible on 
ownership grounds.
    Example 4. SEDO contributes a truck worth $60,000 to Haulco in 
exchange for 100 percent ownership. Without a significant cash 
contribution, Haulco is ineligible.
    Example 5. SEDO buys 80 percent of Opco from Founder, who is 
retiring, for $8,000. Opco has run at a small net loss for the last 2 
years but was profitable in several preceding years. Opco has generated 
over $3 million of revenue in each of the last four years. Opco is 
probably ineligible because $8,000 is unlikely to be proportional to 
the value of 80 percent of Opco.
    Example 6. SEDO pays $55,000 to buy 60 percent of the stock of 
Oldco from Founder, who was Oldco's sole owner. Oldco's book (net 
asset) value is $100,000. Since there are no other, recent stock sales 
or other persuasive evidence of fair value, Oldco is probably eligible 
because $55,000 is not ``clearly disproportionate'' to the value of the 
shares purchased.
    ``Proportionality'' requires that the SEDO not derive 
disproportionate benefits or bear disproportionate burdens of 
ownership. The SEDO may not make a conditional or revocable investment, 
and once made, the SEDO must maintain the investment. ``Maintain'' 
means both that the SEDO not withdraw her investment and that she keep 
her investment proportional to those of other owners.

Purchases and Capital Contribution

    A purchase is an investment when the consideration is exclusively 
monetary and not a trade of property or services. A capital 
contribution is an investment when the owner contributes cash, tangible 
property, realty or a combination of these assets. Contributions of 
time, labor, and services (i.e., called ``sweat equity'') are never 
investments.
    We exclude as unhelpful our proposal concerning contributions of 
expertise, even though we received no comments about it.

Gifts

NPRM

    The NPRM provides that a gift is an investment only if the 
transferor 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 supplier of standard support 
services. This language is a condensation and simplification of current 
regulation Sec. Sec.  26.69 (h) and (j). The NPRM removes the 
prohibition on the transferor's involvement with a non-DBE firm in a 
similar business; adds the contracting restriction and a documentation 
requirement; and removes as unwieldy, unnecessary, and unfair the 
paragraph (h) presumption of non-ownership, two-pronged rebuttal (one 
wholly unrelated to ownership), and heightened burden of proof.

Comments

    One commenter supported the proposal, while another opposed 
allowing gifts to be considered toward ownership at all. A third 
opposed the proposal that a non-SEDO providing a gift to a SEDO would 
have to become uninvolved with the company. It could be a good thing 
for the business if the non-SEDO could stay involved, the comment 
asserted. Another expressed the concern that, under the proposal, 
someone could acquire ownership solely on the basis of a gift.

DOT Response

    Paragraph (e) of the final rule replaces paragraph (h) of the 2014 
rule. The new rule eliminates the more complex two-prong test and 
heightened burden of proof of the former paragraph (h), which has 
proved confusing in practice. Under the final rule, when a non-
disadvantaged person gives an ownership interest to a disadvantaged

[[Page 24927]]

person, the gift is the donee's ``investment'' for certification 
purposes only if the donor becomes completely uninvolved in the 
business or any that contracts with it. Unless or until that happens, 
the firm will not be eligible for certification and will remain 
ineligible until the donor severs all ties. Of course, if other SEDOs 
own 51 percent of the firm without the donee's contribution, the firm 
could be certified.
    We acknowledge that there are often good reasons for a former, non-
disadvantaged owner and a new, disadvantaged owner to work together 
during a transition period, but we remain concerned that permitting 
such arrangements across the board presents risks to program integrity. 
However, we believe that the prohibition on the donor's involvement in 
similar businesses is unwarranted. Although removing that prohibition 
marginally increases risk of program abuse, other provisions of the 
regulation curb those risks. As this restriction may discourage 
transfers that benefit SEDOs and their businesses, we adopt the 
proposed rule but strike the ``similar business'' proviso.

Loans and Debt-Financed Investments

NPRM

    Under the NPRM, a SEDO may finance all or part of an investment in 
the company, including a purchase from a third-party owner. In that 
case, the company is eligible only when the SEDO has paid at least 15 
percent of her total investment from her own funds. The firm may not be 
a party to the loan, and its property may not serve as collateral. The 
firm is eligible only if the SEDO meets this requirement before the 
firm applies for certification.

Comments

    One commenter proposed raising the 15 percent requirement to 35 
percent, since the higher floor would demonstrate a greater stake in 
the business. Another commenter opposed the 15 percent requirement as 
unwarranted because it could impair the ability of younger owners to 
become certified. Others suggested that, instead of naming a 
percentage, the rule should require a ``commercially reasonable portion 
of total investment'' to come from a SEDO's own resources or that 
repayment be consistent with the terms of the loan agreement, if 
consistent with industry standards. Another commenter opposed 
prohibiting the use of a firm's property as collateral for a loan to 
the SEDO claiming the investment.

DOT Response

    We adopt the debt financing rules as proposed, move them into a new 
Sec.  26.70, and respond to comments by breaking the definitions into 
smaller components, reordering the rules for clarity, and adding 
multiple examples. We do not raise the 15 percent self-funding 
requirement because we believe that a higher percentage would be too 
exclusionary.
    We move these rules to emphasize a crucial distinction that the 
2014 rule did not articulate effectively. While a SEDO may make an 
investment using funds from a debt, meeting the requirements of this 
section, the loans themselves are not investments. This rule applies 
regardless of who the creditor and debtor may be. The rule is that, 
subject to the conditions specified in Sec. Sec.  26.69 and 26.70, the 
owner ``invests'' only when she contributes the loan proceeds to the 
firm or uses them to purchase an ownership interest.
    To further explain the distinction and the rationale for it, the 
SEDO's ``contribution'' of her debt to the company relieves her of the 
obligation to repay. Such a transaction is the opposite of an 
investment: the owner has parted with nothing but a liability, the firm 
receives no capital, and the firm must pay out its own capital to repay 
the owner's debt. A loan from the company is not an investment because 
the firm cannot contribute capital to itself or buy shares from itself 
for itself. (Treasury stock is already treasury stock; the asserted 
transaction is as fictional as it is unnecessary.) Nor may the SEDO use 
the company's property to secure her loan: a different rule would 
effectively nullify the general rule that a loan from the company is 
not an investment. Given this treatment of the owner's debt, a mere 
guarantee is not an investment.
    Section 26.70 also requires regular, level payments of principal 
and interest over the term of the loan at least until sufficient 
principal has been repaid to make the owner's out-of-pocket expenditure 
at least 15 percent of the total investment. Related rules ensure the 
integrity of the rule's limitations.

Curative Measures

NPRM

    Proposed revisions to Sec.  26.69 would adopt by regulation the 
memorandum that the Department issued on August 7, 2019. Applicants can 
take curative measures to correct impediments to eligibility, as long 
as they are legitimate, accurately reflect relevant facts, are made in 
good faith, and are not prohibited in the regulation.

Comments

    A strong majority of comments supported the NPRM proposal. Several 
commenters said this was a practice they already followed. Some of 
these comments suggested that the use of curative measures should be 
limited to minor administrative matters rather than serious issues 
concerning the organization or structure of a business. Opponents were 
concerned that the provision would allow firms to circumvent the rules 
or put certifiers in the position of ``coaching'' applicants on how to 
get certified.

DOT Response

    The final rule adopts the proposal, essentially for the reasons 
explained in the NPRM preamble. It will encourage recipients to catch 
problems that often unwittingly lead particularly new, inexperienced, 
but otherwise potentially eligible firms into mistakes that result in 
denials and the application of a waiting period before the firm can try 
again. We believe that certifiers can exercise sound judgment 
concerning the kinds of matters on which they can usefully assist such 
firms. We do so with the safeguard that, like all actions by 
participants in the program, abusive or sham actions are prohibited. 
When part or all of a transaction or series of transactions involved 
with the certification or participation involving a firm have no 
apparent purpose other than camouflaging facts or circumstances which 
more likely than not render the firm ineligible, the final rule's Sec.  
26.69(g) calls for sanctions against the offending parties.
Other Ownership Issues
    There were a variety of comments regarding aspects of ownership 
that the NPRM did not address. One suggested there should be more 
guidance on firms that had more complex ownership arrangements, like 
``simple agreements for future equity.'' Another would delete the 
requirement that a SEDO own 51 percent of each class of ownership, 
which it found too restrictive. This commenter would instead say that a 
SEDO should have enough shares of any or all classes of ownership to 
control the firm and receive 51 percent of its profits.
    Other comments requested clarification on what information an 
applicant is required to provide to show ownership and on the status of 
trusts under the proposal. Another comment expressed concern that 
deleting provisions concerning marital property would make it easier 
for applicants to circumvent the intent of the rules.

[[Page 24928]]

Another opined that non-SEDOs should not be able to be part owners of a 
DBE firm if they were involved in non-DBE firms in the same type of 
work, a relationship that could enable pass-throughs. A final commenter 
believed that certifiers should take workforce diversity as well as 
ownership into account in certifying firms.

DOT Response

    The final rule retains the joint ownership provision as proposed, 
for the reasons stated in the NPRM: consistent results across 
jurisdictions, federalism, and expertise. Fairness, prudence, and 
practicability underlie the final rule.
    Any issues arising from the other concerns noted by commenters can, 
if needed, be addressed through future guidance or on a case-by-case 
basis as a matter of program administration.

17. Control (Sec.  26.71)

    In this section, because the overall topic contains several 
important subtopics, we have organized the material around the 
subsections, with discussions about the NPRM proposals, comments 
received, and DOT responses pertaining to each subtopic.
    The thrust of the Department's final rule is to shift the focus 
from the actions and experience of non-disadvantaged participants in 
the firm to those of the SEDO, to reflect the original intent of the 
regulation's control requirements. A SEDO must pass the three-part test 
of managerial oversight, revocable delegation of authority, and 
critical and independent decision-making.

``Operations'' Requirement

NPRM

    The NPRM proposed several changes to the current Sec.  26.71. One 
proposal stated that firms (except ACDBEs) would have to have 
``operations'' in the type of business in which they seek 
certification. The NPRM said that this would allow certifiers to make 
decisions based on actions the SEDO takes and avoid wasting certifier 
resources on firms that are not conducting business and have no ability 
to perform DBE contracts.

Comments

    Of the nearly 40 comments that addressed this issue, a majority 
opposed the NPRM proposal. The principal argument of opponents was that 
requiring a business to have operations before being certified would be 
a barrier to new firms or those seeking to expand into new areas of 
work. The program should encourage, not discourage, firms seeking their 
first contract. It would create a disincentive to entrepreneurship in 
non-traditional types of work. It should be enough, commenters said, 
for the SEDO to have experience in the type of work involved with a new 
firm. For example, it should suffice if an engineer had work experience 
relevant to the field a new engineering firm wanted to work in as a 
DBE, even if a newly formed firm had not yet obtained a contract.
    Among commenters who either supported or did not object to the 
proposal, some said that it made sense to prevent situations in which a 
certifier would be asked, in effect, to certify a business plan. The 
provision would save staff time, in that staff would not have to do 
certification workups on firms that would not be able to perform 
contracts. A commenter thought that an applicant should have at least a 
year of experience in its type of work.
    Several commenters asked for clarification of what constituted 
``operations'' for purposes of the proposed section, and what 
applicants would have to show in order to meet the requirement. Would 
they need to have already performed work on a contract? Others 
suggested that certifiers should have discretion to decide the 
question, given that more operational experience may be needed in some 
fields than others (e.g., heavy highway construction vs. landscaping). 
A number of commenters questioned or objected to the exception to the 
proposed requirement for ACDBEs, asking why the same standards should 
not apply to an ACDBE.

DOT Response

    A DBE must have business operations. Certifiers should not be 
involved in what amounts to certifying a business plan. It does not 
make sense for a certifier to engage in the certification process for a 
firm, which, if certified, is not in a position to work on a DOT-
assisted contract. This is no less true for new businesses than for 
long-existing businesses. For this reason, the final rule retains the 
proposed requirement.
    This is not to say that an applicant must have had previous 
contracts in order to be certified. We expect certifiers to make the 
necessary judgment calls to determine when an applicant firm is 
sufficiently ready to participate in the program if certified.
    The Department explains how to apply these concepts in the context 
of the ACDBE program in the preamble discussion on Sec.  26.71 
regarding the operations requirement for DBEs, including ACDBEs.

Control (SEDO as the Ultimate Decision Maker) (Sec.  26.71)

NPRM

    The NPRM would require a firm to demonstrate that, beyond 
formalities of business structure and governance documents, the SEDO 
``runs the show,'' having the final say on all matters, regardless of 
the size or complexity of the business. Governance continues to matter, 
however, and provisions that require non-SEDO concurrence or consent 
for the SEDO to act, including provisions related to board of 
directors, quorums, and votes, would prevent the SEDO from being 
determined to control the firm (there would be an exception allowing 
non-SEDO members to block an extraordinary action, like sale or merger 
of the company, that would affect their ownership rights). The SEDO 
must hold the highest officer position and have voting authority over 
all other participants.
    As under the former rule, a SEDO would have to understand and be 
competent in the substance of the firm's business. The NPRM noted that 
the degree of understanding the owner should have can vary with the 
type and complexity of the business. A SEDO would have to actually make 
major decisions, not just have the ability to do so as under the former 
rule. Control determinations would be based on a three-part test: (1) 
the firm would have to show that a SEDO gets pertinent information from 
subordinates, (2) a SEDO analyzes the information, and (3) a SEDO makes 
independent decisions. Tasks can be delegated, as long as the SEDO can 
revoke the delegation. Everyone in the company must recognize and abide 
by the chain of command, with a SEDO at the top.

Comments

    By about a three-to-one majority, commenters endorsed the new 
control framework, saying that less prescriptive requirements would 
simplify the certification process. There were supportive comments on a 
number of the specific points in the proposal, such as the SEDO being 
the ultimate decision maker and having the top position in the company 
and the three-part test with respect to how and by whom decisions are 
made. Commenters asked for more guidance on what an applicant would 
have to show in order to carry its burden of proof on these matters.
    Comments opposed to the proposal said that the proposal would lower 
standards and compromise program integrity. Others thought the approach 
too subjective. One said the three-part test was not realistic for 
certifiers to

[[Page 24929]]

apply; it boiled down to whether a certifier thought what an applicant 
said was credible.
    One commenter supported the NPRM's proposal about boards of 
directors, saying it would clarify matters. Another opined that firms 
should be able to set up their boards as they wish because boards of 
directors are generally not decision-making bodies. Another said that 
non-SEDOs should not be able to block extraordinary actions of the 
company and still have the SEDO regarded as controlling the firm, while 
another commenter supported the proposed provision concerning 
extraordinary actions.
    One comment asked for a clarification continuing the present rule's 
allowance of control by any SEDO, not only the one having the largest 
stake in the company. Another suggested that Sec.  26.71 be made 
broader and more ``big picture'' in nature. Another said that if the 
certifier determined that the owner does not control the firm, it 
should be required to state who does control it.
    A few commenters expressed concern about certifiers' ability to 
verify the reality of decision-making power within a company. One 
commenter noted that anyone can be placed at the top of an 
organizational chart. Another commenter asked how a certifier would 
know whether other participants faithfully follow the SEDO's 
directives. Would the certifier have to interview all key participants 
as part of an on-site review? This commenter also was concerned that 
what it saw as the proposal's emphasis on formal authority could cause 
certifiers to overlook situations in which someone other than the SEDO 
had the bulk of expertise and clout within the firm. Other commenters 
thought the proposal's bright line approach to a company's chain of 
command, and the importance of the SEDO's ability to revoke 
delegations, would add clarity to the certification process. Commenters 
opposed to the proposal said that the proposal would lower standards 
and increase the possibility of opening the program to increased fraud. 
Others thought the approach was too subjective. One said the three-part 
test was not realistic for certifiers to apply; it boiled down to 
whether a certifier thought what an applicant said was credible.

DOT Response

    The Department believes that the overall approach taken to control 
matters in the NPRM is sound and will meet the dual objective of 
removing unnecessary obstacles from applicant firms while ensuring that 
only those firms that are genuinely controlled by SEDOs are certified. 
It comes down to whether the SEDO in fact--not just in theory or on 
paper--runs the show. The SEDO must show that they possess not only the 
authority to make decisions, but in fact make those decisions.
    With respect to control, certifiers must necessarily make a 
judgment call: does the SEDO, based on the complete record, including 
the application and the on-site interview, really ``run the show?'' The 
NPRM clearly stated this responsibility on the certifier's part. One of 
the best ways a certifier can do this is to make in-depth inquiries, 
during the on-site interview, to determine if SEDOs critically analyze 
information provided by others and make reasonable business decisions 
based on independent analysis. Do other key employees bring issues or 
problems to the SEDO, who asks good questions, and then makes the 
decisions, which others carry out? Or do others make decisions 
autonomously, without involving the SEDO, or disregarding direction 
from the SEDO? Interviewing not only the SEDO, but also other key 
employees where relevant, to get a full picture of how decisions are 
made is crucial to good control decisions by the certifier. To the 
extent possible, the certifier should ask for examples about how real-
life decisions were made within the firm in the past. The Department 
believes this approach, as stated in the NPRM, makes sense and is 
consistent with the intent of the program and maintaining program 
integrity, and we are adopting it as final.
    The NPRM discussed, in Sec.  26.71(c), the point that governance 
provisions of a company must ensure that the SEDO, in addition to 
having the highest officer position in the company (e.g., CEO), must 
not be constrained from fully controlling actions of the company by 
quorum, by-law, or other provisions. Non-SEDO consent for certain 
extraordinary actions (e.g., sale or dissolution of the company) would 
be permitted. However, similar provisions in the former rule often 
proved to be problematic for small or inexperienced companies, who in 
our certification appeal practice we have found used templates for 
governance documents that limit SEDO actions without non-SEDO 
concurrence. This is a classic example of where a certifier can 
vindicate the intent of the program by pointing out such problems to an 
applicant and allowing the applicant to take curative measures.

Expertise and Delegation

NPRM

    As under the current rule, the NPRM proposed that SEDOs would have 
to understand and be competent in the substance of the firm's business. 
The NPRM noted that the degree of understanding that the owner should 
have can vary with the type and complexity of the business. The SEDO 
would have to actually make major decisions, not just have the ability 
to do so as under the present rule. Control determinations would be 
based on a three-part test: the firm would have to show that the SEDO 
receives pertinent information from subordinates, that the SEDO 
analyzes the information, and that the SEDO makes independent 
decisions. Tasks can be delegated, as long as the SEDO can revoke the 
delegation. Everyone in the company must recognize and abide by the 
chain of command, with the SEDO at the top.

Comments

    A few commenters were concerned about how certifiers would verify 
the reality of decision-making power within a company. Anyone can be 
placed at the top of an organization chart, after all, one comment 
noted; and another asked how a certifier would know whether other 
participants faithfully follow directives from the SEDO. Would the 
certifier have to interview all key participants as part of an on-site 
review? This commenter also was concerned that what it saw as the 
proposal's emphasis on formal authority could overlook situations in 
which someone other than the SEDO had the bulk of expertise and clout 
within the firm. Other commenters thought the proposal's bright-line 
approach to a company's chain of command, and the importance of the 
SEDO's ability to revoke delegations, would add clarity to the 
certification process.
    Three commenters supported the proposal as written. Another said 
that there should be language telling certifiers not to reject a firm 
because a SEDO, even if clearly the decision maker, has employees who 
have greater experience or expertise than the SEDO. On the other hand, 
one commenter said that an unlicensed or non-expert person should not 
be viewed as controlling a firm (e.g., a non-electrician in charge of 
an electrical services firm). One commenter said the SEDO should be 
qualified in the NAICS code(s) the firm is seeking, while others asked 
for more clarification and examples, especially in professional 
services firms and for ACDBEs, where the commenter expressed concern 
that inexperienced

[[Page 24930]]

people were getting certified as a part of joint ventures.

DOT Response

    The Department adopts the NPRM proposal without change. It 
emphasizes that the SEDO, while permitted to delegate authority and 
functions, must be able to revoke that authority. There must be a 
recognized chain of command within the company in reality, and not just 
on an organizational chart, for example. Making probing inquiries on 
this point, and on the recognition and acting upon this authority 
structure, is something certifiers should, as described above, ensure 
is part of the on-site interview process.
    The Department emphasizes, in the final rule, that the proper focus 
for certifiers is the role the SEDO plays and the SEDO's being the 
ultimate decision maker. We have often seen that certifiers go astray 
by determining that a SEDO does not control a company simply because 
other participants have experience or expertise in a given aspect of 
the firm's operations. The contribution of non-SEDOs to the operation 
of a company is not a ground for denying eligibility to a company, so 
long as the SEDO runs the show in all aspects of the business, 
including with respect to areas of work that may be delegated to 
others.
    While we do not believe it is necessary to include rule text 
language on these points, we agree with commenters that, as under the 
present rule, in a situation where there is more than one SEDO, control 
by any SEDO is sufficient to meet Sec.  26.71 requirements. This is 
consistent with the definition of a DBE under Sec.  26.5. For example, 
if one SEDO owns 45 percent of a company, and the other owns 10 
percent, the firm can meet control requirements if the 10 percent owner 
runs the show.

Independence

NPRM

    With respect to independence, the proposed rule (redesignated as 
Sec.  26.71(g)) clarifies 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 would not 
necessarily render a firm ineligible as long as it was not operating as 
a front or pass-through for another firm or individual. The proposed 
rule 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 issue.

Comments

    While a few commenters supported this proposal as written, others 
asked for more clarification of what a certifier needs to know in order 
to determine if an applicant is independent. One request for 
clarification asked whether independence concerns relationships with 
any firms, or only relationships with non-DBEs. Another thought that 
the reference to ``commercially reasonable terms'' in the proposed 
Sec.  26.71(g) was too vague, while another comment asked how a 
certifier should evaluate whether firms ``shared essential resources.'' 
Another asked for clarification in the context of leasing trucks, 
suggesting that a DBE should lease trucks from leasing companies that 
lease trucks to the general public.
    With respect to the proviso that dealings with only one or a small 
number of firms does not necessarily compromise independence, one 
commenter agreed while another asked how a certifier would determine 
when such a situation was problematic. Two commenters expressed concern 
about a situation in which, after a firm is certified, it enters into 
an exclusive or nearly exclusive relationship with a prime contractor. 
One commenter suggested that this should be prohibited.
    Among other suggestions by commenters were to retain the present 
language because independence determinations would be harder to make 
under the proposed language; to substitute language from the identity 
of interest provision of the SBA regulation (13 CFR 121.103(f)(2) and 
(i)). If the Department modeled its provision after Sec.  121.103(f)(2) 
the commenter argued, certifiers could presume an identity of interest 
based upon economic dependence if the concern in question derived 70 
percent or more of its receipts from another concern over the previous 
three fiscal years. Likewise, adopting a similar provision as SBA had 
done, this presumption may be rebutted by a showing that despite the 
contractual relations with another concern, the concern at issue is not 
solely dependent on that other concern, such as where the concern has 
been in business for a short amount of time and has only been able to 
secure a limited number of contracts or where the contractual relations 
do not restrict the concern in question from selling the same type of 
products or services to another purchaser.
    Another commenter suggested allowing prime contractors to provide 
specialized training to DBEs through a shared foreman or 
superintendent.

DOT Response

    As in the NPRM, the final rule provides that a key element of 
meeting the control requirements of the rule is that a firm must be 
independent. Independence in this context refers to the relationship 
between the firm in question and other firms, whether those other firms 
be DBEs or non-DBEs. A firm cannot be independent if, absent such 
relationships, it would not be viable. If a firm cuts the ties that 
bind applicant Firm X to Firm Y--whether those ties, be sharing of 
facilities, resources, or personnel, common ownership or management, 
exclusive or nearly exclusive contracting or business relationships--
would Firm X continue to be able to do business? If not, then Firm X is 
not independent.
    The regulation does not prohibit relationships with other firms, 
including relationships that may create affiliation. Nor does the 
regulation prohibit a firm from providing services only to one 
business, or only a few businesses. That scenario might arise in a 
locale that has a limited number of potential customers. However, the 
DBE must not be used as a conduit or pass-through to obtain DBE credit. 
In any case where an applicant has relationships with other firms, the 
applicant must demonstrate that it is independently viable, 
notwithstanding relationships with another DBE or non-DBE firm.
    We disagree with the commenters who suggested that the Department 
should adopt the Small Business Administration's 8(a) or 8(d) program 
rules about independence. The Department's final rule sufficiently 
equips certifiers to make the necessary judgment calls, without 
unnecessarily leaning on another agency's regulations.
    It is likely that allowing a prime contractor to share experienced 
personnel with a DBE, especially if they have a contractual 
relationship, has a high probability of compromising the DBE's 
independence. Certifiers should carefully investigate any such 
relationships.

Licensing and Other Specific Sections Proposed for Deletion

NPRM

    The NPRM proposed removing several control provisions from the 
former rule, including Sec.  26.71(h) (licensing); Sec.  26.71(i) 
(differences in remuneration); Sec.  26.71(j) (outside employment); 
Sec.  26.71(k) (family relationships); Sec.  26.71(l) (transfer of a

[[Page 24931]]

firm to a SEDO when the non-SEDO transferor remains involved); Sec.  
26.71(m) (ownership and leasing of equipment); Sec.  26.71(p) (ability 
of non-SEDOs to bind the firm without SEDO's consent); and Sec.  
26.71(q) (use of employee leasing companies).

Comments

    Supporters of the licensing proposal thought that deleting Sec.  
26.71(h) would make the certification process less onerous for 
applicants and less likely to lead to decisions based on a 
misunderstanding of the regulations. Slightly more opponents 
recommended retaining Sec.  26.71(h) to prevent licensed non-SEDO 
participants from having de facto control of the firm. Others said 
that, especially in specialized fields, the SEDO should be the license 
holder. Two commenters noted that in their States, the majority owner 
must have a license to operate certain kinds of professional services 
firms. One commenter advocated that the SEDO of a trucking company 
should have a CDL.
    Commenters also raised the question of how, in the context of 
reciprocal interstate certification, differing licensing requirements 
of different States would be handled. One recipient suggested that an 
additional State could deny certification to an out-of-state firm in a 
NAICS code for which that State required a license, but the 
jurisdiction of original certification (JOC) did not, while still 
certifying the firm in other NAICS codes.
    Several commenters asked that the Department retain all or most of 
the other specific existing provisions in Sec.  26.71 that the NPRM 
proposed to delete. Considering issues covered by these provisions was 
an important element of doing a good job of certification, these 
commenters suggested. The proposed rule would shift the burden of proof 
from applicants to certifiers, one commenter said. Among specific 
provisions mentioned by commenters were those concerning family 
businesses, outside employment, differences in remuneration, and 
leasing of equipment. In the absence of these provisions, another 
commenter said, DOT would need to provide more guidance on how to make 
control determinations when these issues arose.

DOT Response

    Consistent with the NPRM, the final rule deletes Sec. Sec.  
26.71(h), (i), (j), (k), (l), (m), (p), and (q) as duplicative and 
outdated. The overhaul of the control provisions described in this 
final rule are more than adequate for certifiers to properly evaluate 
whether a SEDO controls a firm.
    The proposed deletion receiving the most comment concerned 
licensing (Sec.  26.71(h) of the former rule). We wish to remind 
certifiers that, in many cases, it is the business as an entity, not 
the SEDO as an individual, who is required to have a license. For 
example, an engineering firm must have someone with an engineering 
license. The firm may still be certified if the license holder is 
someone other than the SEDO, as long as the SEDO meets all the 
``running the show'' requirements of Sec.  26.71. We also note--this is 
an issue that has frequently arisen in certification appeal cases--that 
it is not essential for the SEDO in a trucking or transportation 
company to personally hold a CDL (commercial driver's license); as long 
as the SEDO establishes control of the company as this section 
requires.
    In the context of interstate certification, if a firm is certified 
in its JOC, it can obtain certification in any other State. But suppose 
that the firm lacks a professional license in an additional State that 
is not needed in the JOC or that the firm's licenses the JOC are not 
valid in another State? In such a case, the firm would be certified in 
the additional State--because it met basic size, disadvantage, 
ownership requirements via its certification in the JOC--but would not 
yet be able to do business in the additional State.
    While Sec.  26.71(l) of the existing regulation, concerning firms 
where a non-disadvantaged individual who formerly owned and controlled 
a company remains involved with the company, we note that the ownership 
requirements of the final rule require the former owner to immediately 
become uninvolved with the company or other business that performs 
similar work or contracts with the applicant firm other than as a 
lessor or provider of standard support services. We take this action in 
the final rule because parties have not understood how to handle the 
rebuttal procedurally or apply the stricter burden of proof. The crux 
of the rule states that the new owner needs to still show that he/she 
is in control, notwithstanding the presence of the old owner. The final 
rule preserves and emphasizes this.
    While the specific outside employment provision of the existing 
rule is being removed, certifiers may still consider the effect on 
outside employment as they determine whether a SEDO is in a position to 
really run the show for an applicant firm. For example, when a SEDO has 
a full-time job for another employer, how does the SEDO find the time 
to analyze information and make independent decisions for the applicant 
firm? How does the SEDO communicate with employers and customers if the 
SEDO has duties for another employer that conflict, in terms of time 
and place, with the applicant firm's work? The applicant has the burden 
of proving to the certifier that the SEDO can do everything needed to 
control the firm, notwithstanding the SEDO's duties for another 
employer. Delegations by a SEDO with outside employment must meet the 
same requirement as other delegations; the SEDO must remain in active 
control of those to whom the SEDO has delegated duties.

North American Industry Classification System (NAICS) Codes

NPRM

    The NPRM proposed removing material concerning NAICS codes from the 
control requirements to a new Sec.  26.73, making minor technical 
corrections in the process.

Comments

    While there were no comments on the proposal to put NAICS code 
provisions into a new section of the rule, as such, there were comments 
on the general subject of NAICS codes. A few commenters said that the 
ability of firms to expand into additional codes should be expanded, 
for example by relaxing the requirement that the narrowest applicable 
code be used for a firm, allowing expansion based on staff 
capabilities, or allowing a SEDO to be considered qualified to control 
a firm in a related NAICS code to that one a firm already has been 
assigned. One commenter suggested that a firm should be able to remain 
certified in a narrower NAICS code even if it exceeded the size 
standard for that code as long as it continued to meet the size 
standard for a broader NAICS code that encompassed the subject matter 
of the narrower code.
    A few comments also asked that NAICS code assignments be made more 
consistent among certifiers, though they did not suggest how this would 
be done. Another suggested updating NAICS codes and making them more 
specific. Another wanted firms to be certified in State work codes, 
where applicable, as well as NAICS codes. Two comments said that 
existing NAICS codes do not work well for TVMs, and that the Department 
should find another way of classifying especially subcomponent 
manufacturers for transit vehicles.

[[Page 24932]]

DOT Response

    The Department is adopting the NAICS code provisions of the NPRM--
which are substantively identical to the those of the existing rule--
without change. We continue to believe that the narrowest appropriate 
code should control for purposes of certification; doing otherwise 
would allow circumvention of the intent of small business size 
standards for firms. It is important for certifiers to avoid overly 
broad NAICS codes. For example, NAICS code 237310, concerning highway 
and bridge construction, has sometimes been applied to specialty 
contractors who perform only one or two of the functions under that 
code's broad umbrella. We intend that certifiers, in such a case, 
assign only the narrower code applicable to the specialty functions 
that the firm performs.
    As under the present rule, states may employ State work codes or 
categories, but they cannot supersede NAICS codes for purposes of DBE 
eligibility or credit toward goals. Certifiers cannot certify firms as 
DBEs using State work codes, or limit opportunities for DBE credit to 
firms certified in a given NAICS code to types of work named under a 
State code that is in effect a subset of the work encompassed by the 
NAICS code in which the firm is certified.

Subpart E--Certification Procedures

18. Technical Corrections UCP Requirements (Sec.  26.81)

    We did not receive any comments on our proposal to remove outdated 
references in Sec.  26.81 (a)--the original due date for recipients to 
sign a UCP agreement (March 4, 1999) and Sec.  26.81 (g)--the 
requirement that UCP directories be made available in print. The rule 
is revised to reflect these changes.

19. Virtual On-Site Visits and Other On-Site Comments (Sec. Sec.  
26.83(c)(1) and (h)(1))

NPRM

    The Department proposed making an option for virtual on-site visits 
a regular part of the certification process based on positive 
experiences with permitting on-site certification visits to be 
conducted virtually as an accommodation to conditions during the COVID-
19 pandemic. This change would reduce administrative burdens and costs 
for certifiers and applicants. As stated in the NPRM, the Department 
believed that virtual on-site visits were equally as effective as in-
person visits and were a more efficient means of achieving the purpose 
of the visits. The software used for virtual visits would also permit 
recording of the conversations between applicants and certifiers, which 
would permit certifiers to prepare more accurate on-site visit reports 
and create a fuller record for cases that resulted in a certification 
appeal. The NPRM still gave certifiers the discretion to conduct on-
site visits in person.

Comments

    Almost all commenters, particularly recipients, but DBE and non-DBE 
contractors as well, supported the Department's proposal, citing the 
reasons stated in the NPRM preamble. Commenters also supported 
certifiers' discretion to choose whether to conduct on-site visits in 
person or virtually. Only one commenter, a DBE association, said that 
in-person on-site visits should continue to be conducted for both 
initial applications and subsequent certification reviews. Another 
commenter asked why the NPRM used the term ``on-site'' at all, given 
that it proposed having interviews conducted remotely rather than 
actually on site.
    Around 10 commenters suggested that the use of virtual on-sites be 
somewhat limited, for example, by using in-person on-site visits for 
initial certification applications, with virtual on-site visits being 
reserved for post-certification reviews. These same commenters 
suggested that on-site visits for heavy construction firms or other 
businesses requiring specialized expertise or equipment (e.g., a 
medical laboratory) be conducted in person.
Other Comments About On-Site Visits
    Comments also addressed other subjects related to on-site visits. 
Several commenters urged the Department to develop a uniform on-site 
questionnaire for all certifiers to use. One commenter asked whether 
establishing a practice of periodic on-site reviews (e.g., at 3, 5, or 
7-year intervals) was allowed. Another commenter suggested that follow-
up on-site visits be required at three-year intervals.

DOT Response

    Under the current rule, recipients must take several steps in 
determining whether a firm meets all eligibility criteria for DBE 
certification. An on-site visit to a firm's principal place of business 
and job sites are a crucial component of this review.
    The Department's experience after authorizing virtual on-site 
interviews during the early years of the COVID-19 pandemic has been 
overwhelmingly positive. Virtual on-sites are more efficient for 
certifiers, avoiding sometimes lengthy time periods needed to travel to 
an applicant's office. That said, there may be situations where an in-
person visit to an applicant's office or job site will be beneficial. 
Particularly in the case of construction firms or others that have 
field operations, a job site visit can be very useful, and in such 
cases (as distinct, for example from the case of a professional 
services firm, all of the work of which is done in an office) the final 
rule will direct certifiers to go to the job site, if feasible. The 
decision belongs to the certifier. Certifiers can also set their own 
schedules for virtual or in-person interviews to certified DBEs in the 
context of periodic reviews.
    There will continue to be no standard form for on-site interviews, 
and we strongly urge certifiers to avoid using routine questionnaires 
or checklists because they are not probative and ask for information 
that duplicates what is found in a UCA. They also miss the point of an 
on-site interview, which is to comprehensively investigate how the SEDO 
acquired ownership, how the firm actually operates, and whether the 
SEDO has enough knowledge to independently make daily and long-term 
decisions. Interviews should be a conversation tailored specifically to 
the circumstances of each firm. The conversation must be with the SEDO, 
as well as with other principals and key employees.
    For example, one of the common situations we see is a firm where 
there is a SEDO and co-owners or key employees who work together to 
accomplish the firm's goals. In the interview, it would be beneficial 
to ask specifically how decisions are made. When an issue comes up, 
does a participant other than the SEDO bring the matter to the SEDO's 
attention, as opposed to handling the matter autonomously? Is the SEDO 
able to ask knowledgeable questions about the matter? Does the SEDO 
then decide based on information or options presented by the other 
participant, and does the other participant then carry out the SEDO's 
decision? The certifier should seek real-world examples of how this 
decision-making process has worked in practice.
    The final rule will require certifiers to make audio recordings of 
interviews. In cases where certifiers have done so, the Department has 
found them highly useful in deciding certification appeals. They tend 
to provide much more thorough and nuanced information than certifier 
staff summaries or paraphrases of what has been said during an 
interview. Making these recordings will provide fuller context for the 
information on which certification decisions are based and will help to

[[Page 24933]]

prevent misunderstandings or decisions based on paraphrases of what an 
interviewee says. Whether in a virtual or in-person interview, current 
technology readily permits recordings to be made with negligible 
additional burden.

20 and 23. Timely Processing of In-State Certification (Sec.  26.83(k)) 
Applications and Denials of Initial Certification Applications

NPRM

    Currently, when a certifier receives all required information from 
an applicant, it has 90 days to complete review and issue a written 
decision. However, a certifier may, upon written notice to the 
applicant, extend this period for another 60 days. The NPRM proposed to 
reduce the extension period to 30 days, though a certifier could get 
approval for a further extension from an OA. One reason stated in the 
preamble was to give a firm the chance to cure a defect in its 
application. Failure by a certifier to meet the deadline would be 
treated as a constructive denial of the application, and the certifier 
could become subject for noncompliance under Sec. Sec.  26.103 and 
26.105.
    Under the present rule, when a certifier denies an application, the 
certifier must establish a waiting period of no more than 12 months 
before the firm can reapply. The NPRM would remove a current 
requirement for OA approval before a certifier could establish a 
shorter waiting period. The date on which the waiting period would 
start to run would be the date of the denial letter.

Comments

    Supporters of the proposed change to shorten the extension time 
frame from 60 to 30 days, among them both recipients and DBEs, 
outnumbered opponents by a 3-1 ratio. The proposal would encourage 
quicker and more timely decisions, supporters said. Opponents said that 
the shorter time frame would impose an undue burden on certifiers' 
staff, particularly given that staff are often small. Rushed decisions 
could be poor decisions, one said, suggesting that the 90-day deadline 
should be a target to be met, if practicable, rather than a mandate.
    Some commenters suggested modifications of the proposal. One said 
that extensions should be for 45 days, rather than for 30 or 60. Two 
comments said that the process should accommodate delays in the 
transmission of information from the applicant to the certifier. 
Another idea was that, if applicant did not get complete materials to 
the certifier within 90 days, the certifier could return the 
application without deciding on the merits. Another suggestion was 
that, during the time that a firm was making curative changes in its 
application, the clock for the certifier's deadline should pause. Two 
commenters suggested adding specific consequences for tardy 
certification actions, such as being able to appeal constructive 
denials to the Department.
    One commenter supported the ability of certifiers to have 
reapplication waiting periods shorter than 12 months without seeking 
permission from an OA.

DOT Response

    Existing provisions are designed to ensure that recipients afford 
adequate procedural due process to DBE applicants, standardize 
certification practices, and develop an adequate record of 
certification actions. The 2014 final rule explained the Department's 
rationale for setting 90 days as a reasonable time for recipients to 
render a certification decision. We believe 90 days remains sufficient 
and that notifications to firms about a 60-day extension beyond that 
point are rare. The Department is keeping the proposal to shorten this 
extension period to 30 days, because this is in the best interests of 
firms that may be seeking contracting opportunities as a DBE and the 
recipient, who can assign sufficient staff to perform the certification 
function in an efficient manner. In our view, the ability of all 
certifiers to email questions and requests for information to firms and 
their ability to conduct virtual on-site visits will mitigate the 
concerns of the handful of commenters on this issue. We believe that 90 
days is more than enough time.
    The Department proposed adding verbatim language that recipients 
must include in all denial and decertification letters, essentially 
directing firms what to include in their appeal letter, how to appeal 
to DOCR, and their right to request information. This language was 
communicated to recipients by DOCR, and we have noticed its inclusion 
in most of the adverse decision letters processed since that time. This 
final rule references that language, which will be posted on the 
Departmental Office of Civil Rights website.
    The Department is also finalizing the proposal to remove the 
current requirement for OA approval before a certifier could establish 
a shorter waiting period for the firm to reapply for certification to 
less than 12 months from the date of denial. This change to the new 
Sec.  26.86(c) gives UCPs the leeway to improve wait time to certify 
firms without OA approval. The final change clarifies that the date on 
which the waiting period would start to run would be the date of the 
denial letter. This information, per Sec.  26.86(a), must be included 
in all denial letters.
    We want to call to participants attention the provisions of Sec.  
26.83(h)(2), which prohibit certifiers from requiring a DBE to reapply 
for certification, ``renew'' a certification, or a similar requirement. 
We are aware that recipients sometimes use commercial software that 
calls on recipients to submit information associated with an initial 
certification in order to complete the annual DOE process. This is 
contrary to the regulations, which limit the material that must be 
submitted with a DOE to documentation of a firm's size and gross 
receipts. For a recipient to, in effect, require more because a 
software program calls for it amounts to noncompliance with the 
regulation. We expect a recipient, in such a situation, to work with 
the vendor to conform the software to the requirements of the rule.

21. Curative Measures (Sec.  26.83(m))

NPRM

    The NPRM proposed a new Sec.  26.83(m) that would permit, though 
not require, certifiers to notify an applicant of ineligibility 
concerns and allow the applicant an opportunity to rectify the 
deficiencies in a timely manner. The NPRM cited two examples of matters 
that might be subject to curative measures: proof of a financial 
contribution meeting Sec.  26.69 requirements and revising an operating 
agreement or bylaw provision to meet control requirements of Sec.  
26.71.
    Proposed Sec.  26.69(f) would create a parallel curative measures 
provision concerning ownership. There was not a parallel provision in 
Sec.  26.71 concerning curative measures for control, though the second 
example in the discussion of proposed Sec.  26.83(m) applies that 
provision to a control issue.

Comments

    The comments below apply to the proposed curative measures sections 
in proposed Sec. Sec.  26.83(m) and 26.69(f).
    Of the over 20 comments on this subject, about two thirds, from 
both recipients and DBEs, supported the concept. Many of the 
supporters, however, asked for additional guidance or examples 
concerning what kinds of defects would be subject to curative measures. 
How much help should certifiers provide to applicants, and what should 
that help concern (e.g., minor administrative matters, governance 
issues like organization of boards of directors, larger matters 
affecting the structure of a company)?

[[Page 24934]]

    Opponents, most of which were recipients, expressed the concern 
that the proposal would allow firms to circumvent the rules and enable 
fraud. Certifiers should not be cast in a ``coaching'' role in which 
they tell applicants how to structure their firms. Applicants should be 
responsible for getting things right as they present companies for 
certification.

DOT Response

    The Department contemplated curative measures as far back as 1992. 
We do not agree with commenters who felt that allowing a firm to take 
curative measures increases the possibility of fraud. Our view is that 
to be considered non-fraudulent, curative measures must be a legitimate 
effort to correct impediments to certification made in good faith. A 
firm bears the burden of showing that it undertook curative measures in 
good faith and not in an attempt to circumvent the requirements and 
intention of the DBE program.
    The DBE program exists to facilitate participation of small, 
disadvantaged businesses in DOT-sponsored contracting projects and 
airport concession opportunities. The program is not intended for 
certifiers to create hurdles for firms that would be eligible but for 
minor deficiencies that the firm could easily rectify. As described in 
the Department's August 7, 2019, memorandum and in the NPRM preamble, 
startup firms created by inexperienced SEDOs have been particularly 
vulnerable to this, causing them to endure a 12-month waiting period 
for reapplying. Such situations can be avoided if a certifier notifies 
the firm of potential denial grounds and offers the firm an opportunity 
to address them before the certifier renders a final decision. The 
August 7, 2019, memorandum explicitly encourages certifiers to do so 
and provide a reasonable time for the issues to be resolved before the 
certifier renders a decision. This would result in lifting the burden 
on a certifier to begin the eligibility evaluation anew should the firm 
reapply.
    The Department codifies in Sec.  26.83(m) of today's final rule the 
language of the August 7, 2019, memorandum. We agree with commenters 
that this provision is not intended to make certifiers ``coaches'' for 
all aspects of the certification process or require certifiers to pause 
the evaluation process to allow firms to make time-consuming changes, 
such as major organizational restructurings. We agree with commenters 
who pointed out that firms bear the burden of proving that they fully 
meet the regulation's certification requirements, while emphasizing 
that we view the task of certifiers as reasonably balancing the 
interest in ensuring that only eligible firms participate with the 
interest of the program in providing opportunities for small, 
disadvantaged businesses, including those that may not be sophisticated 
in the details of the certification process.
    Section Sec.  26.83(m) amounts to ``if you see something, say 
something.'' While it is not a mandate, the Department believes 
strongly that certifiers should call situations potentially solvable 
through curative measures to applicants' attention, in order to better 
serve the program's objectives of improving opportunities for DBEs.
    Doing so does not impose an unnecessary time crunch on certifiers 
with respect to the final rule's deadlines for action on applications. 
If a certifier notices a problem, notifies the applicant about it in 
writing, and the applicant takes, for example, 14 days to fix it, that 
period would be added to the certifier's timeline for completing the 
decision. The certifier could also set a realistic deadline for the 
applicant to fix a problem the certifier mentioned; if the applicant 
did not respond in a timely fashion, the certifier could then decide on 
the basis of the original documentation. In all cases, it will be 
important for the certifier to memorialize corrective measures, 
notifications, dates, and responses in its records.
    The NPRM preamble mentioned two types of problems that the 
Department has seen frequently in certification appeals. One involves 
proof of a financial contribution. For example, sometimes a SEDO who is 
married to a non-disadvantaged individual will make an initial capital 
contribution from a joint bank account, not realizing that, absent a 
renunciation of interest in the funds by the spouse, only 50 percent of 
the contribution will be counted toward ownership, insufficient to 
support an assertion of 51 percent or greater ownership.
    Similarly, a bylaw provision-often one seemingly copied from an 
online template-will say that a majority of the members of the board of 
directors is needed to form a quorum or act on behalf of the board. In 
a two-person company, this inadvertently can result in the possibility 
of a deadlock on the board, even though the SEDO clearly owns 51 
percent or more of the stock and thus is able to control stockholder 
votes. Mere paper changes, without substantive changes, would not 
``cure'' a defect.
    These are not the only problems to which this provision could 
apply, but they exemplify the scope of the sorts of issues the 
Department has in mind in adopting this provision.

22. Interstate Certification (Sec.  26.85)

NPRM

    The NPRM proposed major changes to the interstate certification 
provisions of Sec.  26.85, which became effective on January 1, 2012. 
For the first time in the program's history, there would be nationwide 
reciprocity among UCPs. The NPRM would also reform the way that UCPs 
share information about firms certified in more than one State.
    The NPRM proposed to eliminate the ``home State first'' requirement 
of the present rule, and instead allow a firm to apply for its initial 
certification to any UCP. Then, any other State would be required to 
accept the original UCP's certification. All the firm would have to 
submit to an additional State would be a short cover letter, an image 
of its Original State of Certification (OSC) directory entry, and a 
Declaration of Eligibility (DOE). Unlike under the present rule, the 
firm would not have to send an additional State its entire 
certification package.
    Following the interstate certification by an additional State, that 
State and others that have certified the firm, could ask State A or 
other UCPs for information on the firm, which would need to be provided 
within 10 business days, as part of all program participants' 
obligation to cooperate. The Department said that this should not be 
unduly burdensome, given electronic file sharing technology.
    A firm would have to submit an annual DOE to each State in which it 
is certified. The NPRM asked whether it would be helpful to create a 
centralized database to reduce the burden on firms certified in 
multiple States. The NPRM also would allow States to participate in 
oversight and enforcement activities with other States about a firm, 
including joint removal procedures that would be voluntary among the 
UCPs involved.
    A proposed provision would state that if a firm certified in more 
than one State were decertified (for any reason except failure to 
cooperate with one State), the firm then appealed the decision to DOT, 
and DOT affirmed the decertification, the firm would then automatically 
be decertified in all States, without further right of appeal. That is, 
if one State decertifies a firm and DOCR upholds the action, then the 
firm would be automatically decertified in all States in which the firm 
was certified without the need for further process in those States.

[[Page 24935]]

Comments

    Interstate certification proposals have long inspired input from a 
significant number of commenters, and the response to this NPRM was no 
exception. About twice as many commenters expressed general support for 
the NPRM's nationwide reciprocity proposal as expressed opposition, but 
there were also a wide variety of nuances and suggestions among 
commenters on the topic.
    The largest number of supporters were DBEs or their associations, 
who cited the reduced burden on firms who have often had to submit 
extensive documentation to become certified in more than one State. One 
DBE, for example, mentioned having to submit about 3,000 pages of 
paperwork to become certified in another State, but was unsuccessful 
because it did not have its original application. Another spoke of 
inconsistencies in acceptance of NAICS codes from one State to another, 
long delays by certifiers outside of its home State, and differing 
paperwork requirements and regulatory interpretations among States. One 
DBE owner related their difficulty with tracking different deadlines 
for renewal each year, citing a burden in preparing and submitting 
materials for each State in which it was certified in. The same owner 
expressed that it takes some UCPs a long time to process renewals or 
notice of change, which results in their view of an expiration date 
passing without renewing paperwork. On these points, we reiterate that 
there is no DBE renewal process, nor does certification expire.
    A significant number of recipients also supported the proposal, one 
citing reduced staff time demands that would allow its staff to focus 
on other program tasks (e.g., compliance). It said that it now takes 
them 38 staff days to process an out-of-state certification and 
believed the proposal would reduce this to 10 staff days. Other 
recipients also cited reduced processing time or greater flexibility as 
potential benefits. One recipient noted that it had already been doing 
a good deal of reciprocity and found that it reduced their burdens.
    Some of the supporters of the reciprocity proposal and other 
commenters, among them both DBEs and recipients, suggested going to 
what might be called national certification. This would involve a 
single national directory, with a Federal certification database. A DBE 
firm, for example, mentioned that it has to send annual updates to 15 
different States. Sending one update to a centralized database would be 
far less burdensome, it said.
    This group of commenters supported the concept that once a firm was 
certified in its original State of certification usually its home 
State, the firm's status would be reflected in the database, and it 
would automatically be certified in all States, without having to 
submit additional documentation elsewhere. Annual update issues or 
decertification actions could be handled through the centralized 
database or by the firm's home State. If universal certification of 
this kind were put into place, there would be a greatly reduced need 
for individual State systems and the resources needed to run them.
    Generally, commenters with a variety of views on the overall 
question of interstate certification supported the idea of a 
centralized database and/or national portal, though three recipients 
warned that questions about control of such a database and a variety of 
implementation problems that could beset it might create serious risks 
to the program.
    Recipients made up a large majority of commenters opposing 
reciprocity. One reason was the long-standing concern that given what 
they saw as the varying quality of other recipients' certification 
programs, unqualified firms could become certified in its OSC and then 
become certified in other States without further review. The proposal 
puts too much trust in other certifiers, one recipient said, preventing 
recipients from exercising due diligence for their own programs. One 
large recipient complained, for example, that another large recipient 
never looked at the personal net worth of firms following initial 
certification and was concerned about having to deal with other 
certifiers' out-of-date records.
    Some certifiers wanted to vet each firm that sought certification 
in their jurisdictions, and doing the job right would require seeing 
the firm's documentation before granting eligibility. Absent that 
ability, questionable firms could get contracts in other States before 
they had adequate time to review their bona fides, and after-the-fact 
decertification was too little and too late as a remedy for such 
problems. Accordingly, some certifiers claimed that reciprocity would 
consequently undermine program integrity. To mitigate this problem, one 
recipient suggested that reciprocity be limited to five UCPs in its 
region.
    Moreover, the proposed system would encourage DBEs to join the 
directories of multiple States (a ``land rush,'' one commenter called 
it), multiplying the workloads of certifier staffs to oversee the 
continued eligibility of firms (e.g., with respect to annual DOEs), 
some of whom might never work in their jurisdictions. A DBE was 
concerned that if there were different DOE due dates for different 
States in which a firm was certified, it would be all too easy for 
small businesses to miss submission deadlines, resulting in 
decertification. DOEs should go only to the home State, not other 
States, some commenters said. A non-DBE contractors' association said 
that, in general, a home State should bear the burden of oversight to 
prevent increased burdens for other States. For example, it said, its 
State already has over 400 out-of-state firms in its directory, and 
reciprocity could require it to oversee many more.
    One concern expressed by several commenters pertained to State 
licenses. For example, if the OSC does not require the person running 
an engineering company to personally have a professional license, but 
another State does, how is that other State to enforce its licensing 
requirement in the proposed reciprocity regime? Commenters also 
expressed concern about data security issues, as entries in online 
directories multiplied without regard to the cybersecurity protections 
that would guard sensitive business data and personal protected 
information.
    A recipient association said that interstate certification should 
not be implemented until a robust oversight system could be established 
everywhere. Commenters doubting the wisdom of the proposal also said 
that 10 days was too short a time to exchange information among UCPs, 
especially because all certification records are not yet electronic. 
Sixty days would be more realistic, one recipient said. A DBE expressed 
concern that large out-of-state prime contractors would travel with 
their favorite DBE firms, crowding out local DBEs in other States.
    A recipient and a non-DBE contractors association raised the issue 
of how an influx of out-of-state contractors would affect goal setting 
and disparity studies. Would out-of-state entries in a UCP's directory 
be used as a measure of the availability of ready, willing and able 
contractors? If so, it could distort the goal-setting process, these 
commenters feared.
    Commenters who either favored or opposed the reciprocity proposal 
in general, and other commenters as well, suggested a variety of ideas 
that they believed would improve the certification system. One DBE 
suggested that States should recognize other States' business and 
professional licenses as well as certifications. A UCP asked DOT to 
create a uniform interstate application form. A non-DBE association 
wanted to make sure that the

[[Page 24936]]

rule did not allow other States to second-guess State A without a 
``well-founded'' reason.
    Three recipients favored creating a ``challenge procedure'' to 
allow an additional State to prevent an out-of-state firm from 
immediately becoming certified immediately, if the additional State had 
a good reason to believe that OSC certification was based on faulty or 
missing data. A non-DBE firm suggested that if an OSC's certification 
is more than 10 years old, another State in which the firm is certified 
should be able to do a review of its eligibility.
    A group of recipients suggested that an additional State could 
choose to require an out-of-state firm to provide a statement that it 
intended to work in that State before the firm would be certified 
there. They and other commenters also supported retaining the ``home 
State first'' provision of the existing rule, rather than the NPRM's 
idea that any State could become a firm's OSC. Another recipient 
suggested that an interstate application firm should include details 
about its licenses to work in that State. Two recipients suggested 
that, to minimize recipients' burdens, requests from one UCP to another 
about a firm be limited to the original application, its supporting 
documentation, and the most recent four years of DOEs. A similar 
suggestion was that it should be enough for the OSC to submit its most 
recent on-site report to another State.
    The proposal to give nationwide effect to DOCR certification 
appeals decisions upholding a decertification action in one State was 
discussed in several comments. Two comments supported it, and three 
opposed it. Opponents said the proposal would deter firms from 
appealing and raise due process and federalism concerns for both firms 
and certifiers. Another commenter said that other States should be able 
to conduct their own decertification process. A third said that a firm 
should be decertified only in those States that had joined the 
decertification proceeding. One commenter wanted the Department to look 
at the other side of the coin, by imposing retraining requirements or 
other consequences on UCPs that had had a decertification decision 
overturned on appeal.
    Two comments raised questions about this proposal. One asked how 
and when firms decertified in this manner could reapply in the States 
in which they were automatically decertified. A second asked what would 
happen if a firm decertified in one State declined to appeal.

DOT Response

    In the original version of the DBE program in the 1980s, each 
recipient certified applicant firms independently. If there were a 
State highway agency, three airports, and four transit agencies in a 
State, then a firm wanting to work throughout the State might need to 
get certified by eight different agencies, each with its own 
certification process. This proved inefficient and burdensome. First 
proposed in 1992 and added to the rule in the major 1999 revision, the 
creation of unified certification programs (UCPs) ensured that a firm 
would have to be certified only once to work in any recipient's DBE 
program in the State.
    The DBE program is a national program, and the same kinds of 
inefficiencies and burdens that adversely affected DBEs within States 
in the pre-UCP era continued to affect firms that wanted to work in 
more than one State. A firm certified in one State would have to go 
through a new certification process in another, complete with the 
submission of extensive documentation and having to wait for the 
completion of the second State's administrative process. Because 
certifiers' views of a given firm's bona fides could differ among 
States, a firm could be approved for participation in one State while 
denied in another, all based on the same facts.
    The idea of nationwide reciprocity among UCPs was raised, but 
rejected, in the 1999 rulemaking, though the Department at that time 
encouraged cooperative arrangements among States to reduce 
certification burdens. Unfortunately, few certifiers chose to enter 
into such agreements. Consequently, in a 2010 NPRM, the Department 
proposed an interstate certification system that sought to occupy a 
middle ground between full-fledged nationwide reciprocity and an 
approach that allowed UCPs to challenge and reject DBEs certified in 
other States. This became the basis, in 2011, for what became Sec.  
26.85 of the current regulation.
    Under this current provision, a firm certified in its home State 
(``State A'') would submit its certification credentials to ``State 
B,'' which could either accept the firm or require the firm to submit a 
much more extensive document package. Within 60 days, State B would 
either accept the firm's certification or determine that there was 
``good cause'' of a kind specified in the regulation for rejecting the 
firm. In the latter case, the firm would then bear the burden of proof 
of showing State B that it was nonetheless eligible.
    As documented in the preamble of the 2022 NPRM, Sec.  26.85 has not 
worked well (see 87 FR 43647). Few UCPs have accepted out-of-state 
firms without requiring lengthy and burdensome additional certification 
processes. Some UCPs have effectively ignored interstate certification 
procedures, treating all or nearly all out-of-state applicants as if 
they were applying for certification for the first time. The ``good 
cause'' reasons for questioning an out-of-state firm's eligibility have 
been widely misunderstood or misapplied (e.g., ``factually erroneous or 
inconsistent with the requirement of this part'' being used to mean a 
simple disagreement about a judgment call). The result is that a large 
majority of interstate certification cases appealed to the Department 
have been reversed.
    As long ago as the 2010 NPRM, the Department stated that true 
nationwide reciprocity is a worthwhile objective, and in the 2022 NPRM 
we proposed to make it a reality, so that a firm in a nationwide 
program under a single national set of eligibility criteria could 
expect to be eligible throughout the country. As noted above, the 
comments on the proposal followed the lines of the long-term debate on 
the subject. Generally speaking, most DBEs favored this approach, for 
its value in reducing burdens, while many certifiers opposed it, out of 
concern about having to accept firms whose qualifications they 
questioned. Having found, over many years, that approaches short of 
nationwide reciprocity have been unsatisfactory, the Department is 
convinced that it is time to treat certification on a meaningfully 
national basis. For this reason, we are, with some modifications in 
detail, adopting the NPRM proposal, intending to reduce burdens on all 
participants while building trust, encouraging teamwork, and improving 
the quality of certifications. As with the adoption of UCPs in 1999 
within States, we believe that the adoption of nationwide reciprocity 
among States, while necessitating some adjustments in current practice, 
will result in a system that works better for everyone concerned.
    Under the final rule, a firm would initially be certified in the 
State in which it maintains its principal place of business. We no 
longer use the ``home State'' or ``State A'' terminology, instead 
speaking in terms of a firm's ``jurisdiction of original 
certification'' (JOC). The JOC would normally be the State in which the 
firm maintains its principal place of business, though there could be 
unusual cases that could lead to the JOC being a different State

[[Page 24937]]

(e.g., a situation in which a firm's principal place of business has 
moved to another State after it has been certified). However, the 
additional State may not deny a DBE's application based on questions 
regarding the location of the firm's JOC.
    Once a firm is certified in its JOC, all it needs to submit to 
become certified in any other State is a short cover letter and a 
signed Declaration of Eligibility (DOE). The cover letter must state 
that the firm is applying for certification in the additional State and 
all other States in which the firm is certified. The cover letter may 
also list any licenses (e.g., business or professional licenses) that 
the firm has in the additional State. The additional State could 
request the JOC's documentation concerning the firm, which the JOC 
would be required to provide within 30 days (modified from the NPRM's 
10 business days to reduce burdens on the JOC). Ten days, in the view 
of a commenter that still retains paper copies of certification 
materials, is too short a period to scan and send these materials 
manually. We agree and modified the rule accordingly.
    We acknowledge that implementing the revised interstate rule will 
require additional monitoring of businesses, and we would like to 
remind recipients that the current rule allows UCPs to charge 
reasonable application fees. These fees can help alleviate some of the 
burden associated with managing the increased number of businesses 
under reciprocity. Application fees may also deter firms that seek 
certification in multiple jurisdictions without any intentions of 
conducting significant work within each jurisdiction. As noted in the 
discussion of control provisions above, an out-of-state firm and owner 
that lack a necessary business or professional license in an additional 
State, while it would be certified and listed in the directory, would 
not be able to conduct business there until it obtained the required 
license(s).
    When a firm is certified in its JOC, it becomes responsible for 
submitting a DOE to that State each year on the anniversary date of its 
certification. When the firm then becomes certified in other States, it 
also becomes responsible for submitting annual DOEs to them. We believe 
the most convenient way of handling this requirement is to use the JOC 
anniversary date as the date for submission of DOEs to all States in 
which the firm is certified. This will likely result in firms initially 
submitting a second DOE to an additional State before a year has 
elapsed, but after that will avoid the potential confusion of multiple 
submission dates. This alleviates the burden on firms certified in 
multiple jurisdictions.
    For example, suppose a firm is certified in its JOC on September 1, 
one additional State on October 7, and a second additional State on the 
following January 8. The firm would submit its first DOEs to all three 
States on the next September 1, and then on every September 1 
thereafter. Doing so will inform all the States involved that the firm 
has a continuing interest in working there. Having a single DOE date, 
reduces the burden on firms, some of which noted in their comments that 
it can be burdensome to submit paperwork to each State on different 
timelines. With this change, the Department also believes the annual 
submission requirement is not onerous. Some commenters asked that there 
be a national, centralized database for DBE certifications. While we 
understand the attractiveness of the concept, we do not believe that it 
is feasible at this time. In addition to budgetary limitations, 
concerns about ensuring that data are updated and secure would need to 
be addressed. Until it is possible to deal successfully with the issues 
involved, the program must continue to rely on UCP directories, which 
are responsible for treating out-of-state firms in the same way as in-
state firms for directory and other program administration purposes.
    Some commenters expressed a concern that having larger numbers of 
out-of-state firms in their directories could skew goal setting. 
Recipients commonly use bidders lists as a primary source of data for 
setting overall goals; thus, only those out-of-state firms that bid or 
quote on projects should be included in the methodology's base figure. 
Recipients using other primary data sources should review their UCP 
database, including the NAICS codes associated with each firm, and 
consider whether out-of-state firms will likely submit bids or quotes 
prior to including them in their base figure.
    A few commenters asked to have a ``challenge procedure'' available, 
through which they could delay certifying an out-of-state firm for a 
given period (e.g., 30 days), giving them an opportunity to raise 
issues concerning the firm's eligibility with the OSC. We believe 
implementing such a procedure would not facilitate the certification 
process but would rather introduce an additional bureaucratic step. Our 
goal is to streamline the interstate certification process. We view the 
``challenge procedure'' as a slight modification of the old interstate 
rule, which was a complex and burdensome certification framework. 
Instead, we aim to adopt a more streamlined and transparent process 
that eliminates unnecessary barriers to certification. Given the 
procedure described below, for collective action to decertify a firm 
that appeared not to be eligible, we do not believe such a preemptive 
procedure is needed.
    One of the issues considered in the NPRM was how, in the context of 
a firm that is certified in multiple States, a decertification process 
would work. Proposed Sec.  26.85(g)(4) said that any UCP could join a 
decertification proceeding initiated by another State, on the same 
grounds and facts alleged by the initiating State. The joining UCP 
could present evidence at the hearing. The result of the ensuing 
decision would apply to all States that are parties to the action. 
Under paragraph (g)(6) of the proposed section, if a decertification by 
any UCP in which the firm had been certified is upheld on appeal by the 
Department (except with respect to actions concerning a failure to 
cooperate or send a timely DOE to the decertifying State), then the 
firm would lose its eligibility in all States in which it was 
certified.
    As noted above, some commenters said that UCPs should be able to 
conduct their own certification proceedings, that the effect of a 
decertification should apply only to States that have joined a 
decertification proceeding in another State, and that the nationwide 
effect of a DOT decision upholding a decertification by one State was 
unfair to the firm as well as the other certifiers involved.
    In considering these comments, the Department believes that a 
modification of the proposal would serve not only the interest of 
fairness to certifiers and firms but also further the Department's 
policy goal of encouraging cooperation and interaction among 
certifiers. Therefore, the final rule will establish procedures that 
would apply to a scenario in which a firm is certified in more than one 
State and one of the States believes it has a ground under proposed 
Sec.  26.87(e) to decertify.
    The procedures are best illustrated by an example. DBE X is 
certified in its JOC and in five additional States via reciprocity. One 
of the additional States believes that it has reason to decertify the 
firm. It notifies not only the firm, but also the other States in which 
the firm is certified, that it is considering beginning a 
decertification proceeding, as well as the grounds for doing so and the 
evidence supporting such an action. The other States have 30 days to 
respond. They may comment on proposed basis for its proposed actions, 
concur or non-concur. A certifier would

[[Page 24938]]

be deemed to concur in the proposed action if it did not respond. If it 
had grounds under Sec.  26.88, the certifier proposing decertification 
may impose a summary suspension without affecting the status of the 
firm in other States, though we encourage the certifier to notify the 
other States of its action so that they could take similar action if 
warranted.
    If after considering the input from other States, the State 
proposing decertification decided to pursue the matter, it would then 
issue its formal NOI and proceed to a decision. Any of the other States 
could decide to file a brief or other arguments and evidence. In its 
final decision, the State that proposed decertification may address 
arguments and evidence from other States involved, as well as those 
made by the respondent firm. This is in effect a ``speak now or forever 
hold your peace'' provision. We note that the resolution of the matter 
is an independent decision of the UCP proposing the decertification, 
not dependent on the ``votes'' or views of other certifiers.
    Because a decision by a UCP to decertify the firm would only be 
issued after soliciting views from the other States involved, the 
decision would represent the collective view of the UCPs involved and 
would take effect in all the States involved. If the firm appealed, any 
certifier that did not agree could submit its views to the Department. 
The Department's decision to affirm or reverse the decision would apply 
to all the States in question, since all would have had the opportunity 
to participate and make their views known.

23. Denials of In-State Certification Applications (Sec.  26.86)

    See discussion above, item 20.

24. Decertification Procedures (Sec.  26.87)

NPRM

    The NPRM emphasized that certifiers must strictly follow the 
regulation's procedural requirements concerning decertification 
proceedings, putting the certifier's burden of proof up front in the 
revised Sec.  26.87 and clarifying what must be included in certifiers 
notices of intent (NOI) to remove the firm's certification.
    If a DBE fails to submit the required annual Declaration of 
Eligibility (DOE) required under Sec.  26.83(j) in a timely manner, the 
NPRM proposed that a certifier could initiate decertification 
proceedings on that basis without offering the opportunity for a 
hearing. If within 15 days of the issuance of a certifier's NOI to 
remove the firm's certification, the certifier could issue a final 
notice of decertification.
    The NPRM would say that, if a ground for decertification is a 
change in DOT's certification standards or requirements, the certifier 
would have to offer the firm, in writing, the opportunity to cure 
resulting eligibility defects within 30 days.
    The Department proposed authorizing, on a permanent basis, virtual 
hearings (i.e., via video conferencing) in decertification cases. 
Virtual hearings are more efficient, can be more easily scheduled and 
better protect the health of participants. Other requirements, like 
those for verbatim transcripts, would remain intact. To avoid dilatory 
tactics, the NPRM would impose a 45-day deadline for submission of 
written responses to an NOI or a hearing. Once the hearing had 
happened, or written responses received, the certifier would have 30 
days to issue a final decision.
    When there is a hearing, the NPRM would require that only the SEDO 
be permitted to answer questions concerning the firm's control. While 
an attorney or other representative could be present and participate, 
and answer questions concerning other aspects of a firm's eligibility, 
only the SEDO could testify about control matters. An attorney or other 
representative could ask follow-up questions to the SEDO concerning 
control, however.

Comments

Decertifications for Lack of a Timely DOE
    Almost all comments on the issue of decertifications for lack of 
timely submission of a DOE supported the idea that there need not be a 
hearing in such cases. However, several of these commenters thought 
that the 15-day window for response to a NOI concerning a late DOE was 
too short. A 21-, 30-, 45-, or 60-day time period for response before a 
final decertification was issued would be fairer, some commenters said, 
pointing to the difficulty that especially small firms may have keeping 
up with paperwork or potential increases in certifier workload. One 
comment cautioned that, because of the uncertainties of email, the time 
period prior to a decertification action start to run only on 
confirmation that the DBE received the certifier's NOI.
    To avoid confusion and potential decertification actions, firms 
should have to submit only one DOE per year, the commenter said. 
Another commenter said that it did not want lack of a timely DOE to be 
the sole ground for removal of eligibility.
Deadlines
    There were few comments about the proposed deadline in the NPRM for 
issuance of a final decertification decision, all of which were from 
recipients. One would prefer no deadline at all, but if there is one, 
believed 60 days for the issuance of a final decision would be 
appropriate. Another supported 60 days, saying that 30 days was too 
short a time to handle complex cases, especially for high volume 
certifiers. A third found the proposed 30-day deadline acceptable but 
wanted to allow a 15-day extension on a case-by-case basis.
    With respect to the proposed deadline for conducting a hearing, a 
recipient suggested that the hearing should be scheduled 45 days from 
the firm's request for a hearing, rather than from the issuance of the 
NOI by the recipient.
Hearing Procedures
    Concerning representation at hearings, a large majority of the 
comments addressing the issue supported the NPRM's proposal that only 
the SEDO should testify about control issues. Attorneys and other 
representatives should be able to speak about other matters (e.g., 
PNW), several added. The commenters who disagreed thought that the 
requirement would impinge on the due process owed to DBEs in a 
proceeding that could remove certification, a property right, from a 
firm. A recipient thought that panel members at a hearing should be 
able to use their discretion with respect to who is allowed to testify 
on issues being discussed. One comment said that only owners should be 
able to testify about ownership and other issues, as well as control.
    All the comments that addressed the proposal for allowing virtual 
decertification hearings supported it. One said that, however, a firm 
should be able to have an in-person hearing if it wanted one.
    Among other comments, one thought that an ``informal hearing'' 
should be better defined, and that there should be additional 
safeguards against abusive or dilatory tactics by attorneys. This 
comment also said that it was important that hearing officers and 
decision makers in decertification actions really understood the rules 
well, suggesting that additional training from DOT for such persons 
would be useful. Another commenter thought that hearings should not be 
heard by staff from recipients in the same State as the certifier 
proposing certification, as this could lead to

[[Page 24939]]

rubber-stamping of the proposed removal. A comment said that firms 
needed stronger protections in decertification actions, as they can be 
subject to burdensome information requirements and harassment, 
especially in cases involving rebuttal of the SEDO's presumption of 
economic disadvantage.
Other Comments
    Once a firm has been decertified, a few recipients said, the 
certifier should notify all other States in which the firm is 
certified. DOT should notify States if a decertification is upheld on 
appeal, another said.

DOT Response

    Filing a timely DOE is an affirmative obligation of certified 
firms. Given that all DOEs to all States would now be due on the same 
date--the anniversary date of certification in the JOC--firms should 
not be confused about the time they are supposed to send DOEs to all 
the States in which they are certified. We believe that summary 
suspension is the most efficient provision for enforcing failures in 
filing Sec.  26.83(j) material. Nevertheless, the final rule allows the 
certifier the discretion to choose either Sec.  26.87 or Sec.  26.88 as 
the most appropriate course of action.
    With respect to the date for a hearing on other decertification 
actions, we believe that it is prudent to require certifiers to set a 
hearing date that is no less than 30, but no more than 45, days from 
the date of the NOI. This prevents both undue delays in the process and 
schedules that do not allow a firm to prepare adequately. The firm must 
let the certifier know within 10 days whether it wants a hearing, and 
the parties can negotiate an agreed-upon date for the hearing. If the 
firm does not want a hearing or does not notify the certifier in a 
timely manner that it wants one, the firm can still submit written 
information and arguments.
    In cases in which the firm elects not to go to a hearing, and 
rather only submits written materials, we believe that the firm should 
have the same amount of time to prepare as in the case where it chose 
to appear at a hearing. Therefore, the material would be due by what 
would have been the hearing date. If a firm does not show up for a 
hearing, or does not submit written materials, the certifier makes its 
decision on the basis of the information it already has.
    In the interest of simplifying the procedure, we are not specifying 
by rule who can speak to issues at the hearing. We emphasize that, 
during a hearing, a SEDO or other witnesses should have a reasonable 
opportunity to consult with counsel, other witnesses, or experts. It is 
appropriate neither for a certifier to deny the firm such an 
opportunity, nor for the firm to unduly delay or interfere with the 
conduct of the proceeding. Dilatory tactics are prohibited and may be 
sanctioned by a certifier. It is up to the hearing officer to make sure 
that information presented is relevant and is provided by the most 
knowledgeable sources. For example, if an attorney or other witness 
attempts to speak to a matter affecting control, it could be 
appropriate for the hearing officer to say, in effect, ``I want to hear 
directly from the SEDO on this matter.''
    It is incumbent on certifiers to conduct thorough on-site 
interviews--including a review of a certified firm prior to considering 
decertification--so that information about the roles of other key 
participants and the firm's decision-making process can already be part 
of the record before the hearing.
    We agree with commenters that the decisionmaker in a 
decertification hearing must, in addition to complying with separation 
of functions requirements, have extensive familiarity with the program 
regulation. We urge certifiers to make sure that any officials who may 
be tasked with this responsibility have received thorough training 
concerning the regulation, such as the Department has made available. 
We also note that, as under the previous versions of the regulation, 
the deciding official must also be an individual who was not involved 
in the earlier stages of the proceeding or who is not supervised by 
anyone who was. This could be someone in another part of the 
certifier's agency or someone who works for another agency.
    In administrative law, a ``formal'' hearing is one that involves a 
trial-type hearing with administrative law judge and detailed rules of 
evidence. At the Federal Government level, sections 554-557 of the 
Administrative Procedure Act (5 U.S.C. 554-557) provide a model for 
what such a proceeding looks like. One example of such a proceeding 
within the Department of Transportation is the process for aviation 
enforcement proceedings under 14 CFR part 300. Anything other than that 
is an ``informal hearing.'' The structure of informal hearing in the 
DBE program can vary among certifiers, but in all cases must provide 
reasonable administrative due process to the respondent and other 
participants.
    Commenters agreed with the proposal to authorize virtual hearings 
in decertifications proceedings. While in-person hearings are also 
permitted, we note that in an interstate decertification case in which 
staff from other States are participating, a virtual component would be 
essential. The requirement to provide a transcript of any hearing, 
virtual or in-person, to the Department in the event the firm appeals 
remain in place.
    The NPRM proposed that once a hearing had been held, or written 
arguments received, a certifier would have 30 days to issue a final 
decision. Some commenters thought that time period was too short, given 
certifiers' workloads. A firm remains certified until the NOD is 
issued, so the effect of a certifier's delay beyond that period has the 
effect of keeping in effect a certification that the certifier believes 
should be removed. A certifier that often fails to meet this deadline 
may be the subject of DOT compliance and enforcement action.
    In the interest of simplifying the rule and avoiding disputes over 
the basis for a decertification, the proposed Sec.  26.87(g), 
specifying the grounds on which a decertification can take place, is 
not included in the final rule. In our experience, these provisions 
have often led to confusion (e.g., concerning whether a certifier's 
previous decision was ``clearly erroneous'' or simply change of mind). 
The key question in any decertification action is whether a firm meets 
eligibility criteria at the time of the action. If a certifier 
certifies a firm in September, and the following April comes to 
believe, on the same facts, that the firm is not eligible, it is likely 
to have a difficult time meeting its burden of proof in a 
decertification proceeding.

25. Counting DBE Participation After Decertification (Sec.  26.87(j))

NPRM

    In addition to clarifying the effect of the removal of a firm's 
certification prior to a DBE obtaining a prime contract or subcontract, 
the NPRM proposed changes to Sec.  26.87(j) concerning how DBE 
participation is counted with respect to firms that lose their 
certification partway through a contract. The Department proposed that 
a prime contractor would only be permitted to add work or extend a 
completed contract with a previously certified firm with the prior 
written consent of the recipient.
    This proposal was responsive to the concern that, especially in a 
long-term project of the sort that is often done via a design-build 
contract, prime contractors had an incentive to give work to 
decertified firms that were already working for them, rather than find 
new eligible DBEs to do the work going forward. At the same time, the 
proposal would give recipients

[[Page 24940]]

flexibility to permit a brief amendment to or continuation of a 
contract with a decertified former DBE.
    Under the current rule, when a DBE is decertified in the midst of a 
contract, after the subcontract is executed, the prime contractor gets 
to count credit for its use through the end of the contract. The NPRM 
proposed to make an exception to that rule, saying that if the reason 
for the DBE's ineligibility is that it was acquired by, or merged with, 
a non-DBE firm, the prime contractor could no longer count the former 
DBE's participation for the remainder of its contract. This means that, 
under these circumstances, continuing to count the former DBE's work 
for credit would deprive other DBEs of opportunities.

Comments

    A narrow majority of commenters opposed the NPRM's proposals 
concerning Sec.  26.87(j). Opponents, including non-DBE contractors and 
recipients, but some DBEs as well, said the proposal concerning merged 
or purchased DBE firms would impose burdens on prime contractors who, 
after engaging a DBE in good faith, found that the DBE had later merged 
with or been purchased by a non-DBE. This would unfairly penalize the 
prime since the DBE's relationship with the acquiring firm was not the 
prime's responsibility. One of these comments suggested that the 
proposed exception should apply only if the non-DBE that bought or 
merged with the DBE was the prime contractor itself. One opponent of 
the proposal said that it could place DBEs in an unequal position 
compared to non-DBEs, who can use mergers and acquisitions for business 
growth purposes.
    Some comments opposed to the proposals said that requiring 
recipients' consent to count credit for added or extended work for a 
decertified DBE would be an extra burden on both recipients and prime 
contractors. A comment said that added tasks for the DBE within its 
scope of work, including via change orders, should be counted. Denying 
DBE credit for added or extended use of decertified DBEs could disrupt 
projects, another comment said. Recipients should make case-by-case 
judgments on such matters, it added.
    Proponents of the proposals, also from a variety of stakeholder 
types, supported them for the reasons stated in the NPRM preamble. Some 
of these comments specifically mentioned favoring prior recipient 
consent for any extension of or addition to the former DBE's work, 
wanting prime contractors to seek new DBE participation in the absence 
of such consent.
    One comment that supported the proposal asked for clarification 
about its application in situations where a DBE had exceeded the size 
standard or had withdrawn from the program. Another did not want firms 
who had exceeded the size standard during the contract to lose credit. 
In the context of the ACDBE program, a DBE commenter that supported the 
proposal nevertheless thought it should be waived if a decertified 
ACDBE showed that it had made good faith efforts to sell to another 
ACDBE.

DOT Response

    We continue to believe that in most instances, if a DBE loses its 
eligibility during contract performance but after execution of the 
subcontract and continues to perform a commercially useful function, 
its participation should continue to count toward contract goal credit; 
prime contractors should not bear the burden of finding a DBE 
replacement if the firm was certified at the time the subcontract was 
executed. However, many have raised concerns about a prime contractor's 
ability to continue to count toward goal credit the performance of a 
DBE that was certified at the time the subcontract was executed but 
loses its eligibility during contract performance because it merges 
with, or is acquired by, a non-DBE (at times by the prime itself). This 
may occur early in the performance of a multi-year contract and result 
in a non-DBE receiving goal credit at the expense of other ready, 
willing, and able, certified DBEs.
    We agree that the standard rule should have an exception if a DBE 
loses its certification eligibility after execution of the subcontract 
because it merges with or is acquired by a non-DBE. In that instance 
only, we believe that the benefit to the DBE program of directing the 
prime contractor to seek DBE participation to make up the now-
ineligible firm's contribution to the goal outweighs the costs to the 
prime contractor of doing so. Similarly, seeking the recipient's 
consent for a prime contractor's practice of adding work or change 
orders, typically in the context of a design-build project, to extend 
the performance of a DBE that has lost certification during project 
performance, is a good check on actions that could go counter to the 
interests of the program. Recipients should reach out to a prime 
contractor when it becomes apparent that the prime is repeatedly 
extending the work of a firm after the firm becomes ineligible to 
determine if the extensions are made for the purpose of avoiding 
soliciting other DBEs. If so, the program benefits when the recipient 
withholds consent to add further work to an ineligible DBE to allow 
room for certified DBEs to participate.

26. Summary Suspension (Sec.  26.88)

NPRM

    The existing summary suspension rule permits or requires certifiers 
to immediately suspend a DBE's certification in extraordinary 
situations that could jeopardize program integrity or when time is 
otherwise of the essence. It is an extraordinary remedy that certifiers 
should not use lightly and to which a firm should have an adequate 
opportunity to respond.
    The changes proposed to Sec.  26.88 in the NPRM remedy problems in 
the current language that in effect converts what was intended as swift 
summary suspension action into a slower Sec.  26.87 process. Notice of 
the suspension would be by email, rather than certified mail to ensure 
that the firm received immediate notice of the action and a time 
certain when the parties would know requisite timelines begin. Credible 
evidence of the firm's involvement in criminal or fraudulent activity 
would be added as mandatory grounds for suspension. The death or 
incarceration of the SEDO, on the other hand, would trigger a 
discretionary elective summary suspension only if there is ``clear and 
credible evidence'' that the DBE's continued certification poses a 
substantial threat to program integrity. This bar allows for more 
certifier discretion to determine if either event demanded immediate 
action. Failure to file a timely DOE, which is essential to a firm's 
continued eligibility, would also be elective grounds for a suspension. 
This change expands the ability to remove ineligible firms without 
invoking a Sec.  26.87 proceeding.
    Elective summary suspensions could be based on only a single 
ground, while mandatory suspensions could cite multiple grounds. The 
NRPM also provided procedural details for Sec.  26.88 proceedings, 
designed to bring the proceedings to conclusion within 30 days. A new 
elective suspension occurring within 12 months of a previous elective 
suspension would be null and void, and subject to ``injunctive relief'' 
from the Department.
    Baked into the proposed rule are balanced due process parameters 
framing both certifier and firm actions. This includes a certifier 
explaining with specificity the reasons for the actions, their 
consequences, and the evidence replied upon. The firm may elect to 
present information and arguments or explanations but is required to

[[Page 24941]]

affirmatively respond to the certifier's scheduled hearing--opting in 
or responding in the timeline specified. If the firm fails to cancel or 
appear at the hearing, it forfeits its certification. Boundaries on 
what evidence the certifier may present are delineated in the proposed 
rule as is the applicable burdens of production and proof by both 
parties. Lastly, the proposed changes make suspensions immediately 
appealable to DOT.

Comments

    The nearly 20 comments addressing this section of the NPRM had a 
variety of things to say about it. Several supported the proposal as 
written. One comment asked whether the ``clear and credible evidence'' 
standard for an elective suspension is the same as ``clear and 
convincing evidence,'' while another thought that the ``clear and 
credible evidence'' standard placed an undue burden on certifiers.
    One commenter thought that the proposed scheduling requirements 
would be difficult for certifiers to meet. Two commenters asked for 
more detail on the timing and procedures for the process, such as who 
could attend and who the decision maker would be. Others believed that 
a certifier should be able to suspend a firm more than once in a 12-
month period, if circumstances supported doing so (e.g., there are two 
separate events in such a period that would justify a suspension).
    One comment suggested adding bankruptcy, especially under Chapter 
7, as a trigger for a suspension. Another suggested that, after a 
bankruptcy, death of a SEDO, or another basis for an elective 
suspension, there should be a 90-day grace period to allow a firm to 
deal with the issue before it could be suspended. On the other hand, 
another commenter thought there should be a mandatory suspension 
whenever ownership of a firm changes in a way that could affect its 
eligibility. One commenter said that certifiers should be able to cite 
multiple grounds for a discretionary suspension if such grounds 
existed.
    A number of commenters said that in addition to or instead of 
sending an email, a certified letter should be used to provide notice 
of a suspension. Emails were too uncertain, these commenters thought, 
and a certified letter would provide evidence of receipt. Given the 
difficulties that small firms often have keeping track of paperwork, 
another commenter said, imposing a suspension for a late DOE seemed 
unduly harsh.

DOT Response

    Summary suspension is an important tool for protecting the DBE 
program in situations involving serious, often rapidly developing 
situations that could adversely affect its integrity. It is intended to 
be used rarely, in situations that present an obvious threat to program 
integrity. It is not intended to be used in situations where a 
certifier merely has a suspicion or a hunch that a firm may be 
ineligible, or where there is uncertainty about whether the suspension 
is justified. It is intended to be used when the cause is certain, and 
when the need for action to protect the integrity of the program is 
time-sensitive because delay in action could lead to real harm to the 
program or participants in it. It is not intended to be a shortcut for 
removing the eligibility of firms whose status is properly addressed 
under the normal decertification provisions of the regulation.
    The NPRM used the term ``clear and credible evidence'' to describe 
the proper basis for a summary suspension which, perhaps because of its 
seemingly similarity to the ``clear and convincing evidence'' term used 
in sections of the current rule and in other proceedings, raised 
questions for some commenters. The Department is not creating a new 
legal standard or a variation on an existing standard. We are simply 
saying that to serve as the basis for a summary suspension, the 
certifier's evidence must be clear. It must be credible. If not, then 
summary suspension is not an appropriate remedy.
    The credible, clear evidence must pertain to specific types of 
facts. The death of a SEDO, leaving the ownership and/or control of a 
DBE in question, is one situation that could lead to a summary 
suspension. Likewise, incarceration, a medical condition (e.g., a 
seriously disabling stroke), or a legal disability (e.g., having one's 
affairs placed in a conservatorship) that prevents a SEDO from 
controlling a firm could be a basis for a summary suspension. As a 
commenter suggested, an event putting the viability of the firm into 
serious question, like a Chapter 7 bankruptcy or a merger or 
acquisition involving a non-DBE firm could also be a basis for action 
by a certifier under this section.
    A DBE or its SEDO's involvement in fraud or other serious criminal 
activity affecting business integrity or potential to impact continued 
eligibility could be another basis for suspending the firm. This is not 
an exclusive or exhaustive list of offenses that could form a basis for 
a suspension; certifiers should use good judgment to invoke the 
provisions of this section when misconduct on the part of SEDOs or DBE 
firms warrants prompt action. We also note that not all criminal 
offenses are necessarily grounds for suspension. For example, a 
conviction for driving under the influence of alcohol or drug 
possession would not provide a basis for a suspension in most cases.
    The Department is maintaining the NPRM's distinction between 
mandatory and discretionary grounds for suspension. If an OA directs a 
certifier to take suspension action, or in a case involving fraud or 
other serious criminal activity, then taking suspension action is 
mandatory. Otherwise, including cases involving the failure to file a 
timely DOE, the action is discretionary.
    Few commenters addressed the timing and procedural provisions of 
the proposed summary suspension section, and we are adopting them 
without change. We believe that the provisions are clear and 
appropriate to what is intended to be a summary procedure. In a hearing 
under this section, we would apply the same requirements (e.g., with 
respect to representation by attorneys, separation of functions) as 
applied to decertification proceedings under Sec.  26.87. To make sure 
that the firm has received the notice initiating the procedure, we 
recommend that certifiers send emails having a ``read receipt'' 
feature.
    We wish, however, to clarify that, once a certifier issues a notice 
of suspension, the firm has the burden of production. This means coming 
forward with evidence to argue that a suspension should not be issued. 
Just as in a decertification action, however, the ultimate burden of 
persuasion rests with the certifier that proposes the action. It is the 
certifier that must show, by a preponderance of the evidence, that the 
suspension is appropriate, and that the firm's eligibility should be 
removed.
    What kind of evidence might a firm produce to show that a 
suspension should not be issued? While this evidence would necessarily 
vary from case to case, some examples might be that, even without the 
participation of a deceased or incarcerated SEDO, other SEDOs' 
participation is sufficient to meet ownership and control requirements. 
In the case of a SEDO whose affairs were placed in a conservatorship, a 
firm might be able to show that the conservator was a socially and 
economically disadvantaged individual who can maintain the required 
degree of ownership and control.
    The NPRM proposed notifying DBEs of a notice of suspension by 
email.

[[Page 24942]]

Some commenters suggested that the requirement for certified mail be 
retained, in order to provide greater certainty that the notice had 
been received. We believe, however, that email is more prompt, 
important in a time-sensitive matter like a summary. DBEs have to 
provide email addresses to certifiers as part of the normal 
certification process and are responsible for updating the address as 
needed and reading emails when they arrive. Moreover, many email 
systems include features that confirm receipt of a message.
    One result of a summary suspension proceeding can be the 
decertification of a firm. In a case where a firm is certified in more 
than one State through interstate certification, however, the 
suspension and a resulting removal of eligibility apply only in the 
State that took action to suspend the firm. This is unlike the regular 
interstate decertification procedure included in the final regulation, 
in which a decertification action can apply to all States in which the 
firm is certified.
    We have noted that, with respect to firms that fails to file a 
timely DOE and documentation of gross receipts, the summary suspension 
process of Sec.  26.88(b)(2)(ii) enables more rapid action than the 
decertification procedures of Sec.  26.87. The final rule provides 
failure to file a timely DOE as an optional ground for summary 
suspension.
    Where a certifier fails to follow the procedures of this section 
properly, the rule makes available to an affected firm a petition for 
an enforcement order that could vacate an improper second elective 
suspension within a 12-month period or require a certifier that did not 
take final action on a suspension within 30 days to lift the suspension 
and reinstate the firm's certification.

27. Appeals to the Departmental Office of Civil Rights (DOCR) (Sec.  
26.89)

NPRM

    The NPRM proposed reinserting language from the 2014 rule that was 
inadvertently omitted. This includes the requirement that appellants 
notify DOCR in its appeal decision of other certifiers that have denied 
or decertified the firm.
    The Department proposed modifying existing procedures for 
certification appeals to the DOCR to improve administrative efficiency. 
The time for appellants to file appeals would be reduced from 90 to 45 
days. Our proposals sought to streamline the process and balance the 
needs of firms, recipients, and DOCR. We left intact the firm's ability 
to demonstrate that there was good cause for a late filing and explain 
to the Department why it would be in the interest of justice to accept 
the appeal.
    The requirement that records be sent from certifiers to DOCR in an 
indexed and organized fashion would be strengthened by allowing DOCR to 
reject poorly organized records, resulting in a directive to send a 
corrected record within 7 days. Failure by the certifier to do so would 
be a failure to cooperate under Sec.  26.109(c). The NPRM proposed new 
language wherein DOCR could summarily dismiss an appeal if warranted, 
such as situations wherein the firm does not set forth a full and 
specific statement under Sec.  26.89(c), if a firm withdraws its appeal 
request, or if a certifiers requests to reconsider its decision. The 
rule would explicitly state that DOCR does not issue advisory opinions 
and that the 180-day target for issuing an appeals decision would be 
met ``if practicable.''

Comments

    Several comments from recipients supported the NPRM's time frames 
for setting the time frame for appeals at 45 days rather than the 
current 90 days, while a DBE organization suggested using 60 days as a 
middle ground. Two commenters said DOT should not have more than 180 
days to decide a case once a complete record had been received. One of 
these also suggested that the effect of a UCP's decertification 
decision should be stayed until DOCR had decided the appeal. A 
recipient noted that, especially with respect to voluminous records in 
large cases, indexing and organizing the record can be a major task 
that may not be able to be accomplished in 45 days.

DOT Response

    The final rule incorporates all the proposed changes. Forty-five 
days is reasonable in our view for appellants to state in their appeal 
the reasons why they believe the certifier's decision is erroneous, 
what significant facts the certifier failed to consider, or the 
provisions of the rule the certifier did not properly apply. On this 
point, we reiterate language in our 2014 preamble, that the appeal ``is 
not an opportunity to add new factual information that was not before 
the certifying agency; [H]owever, it is completely within the 
discretion of the Department whether to supplement the record with 
additional, relevant information made available to it by the appellant 
as provided in the existing rule.'' (79 FR 59579 (October 2, 2014).
    To ensure that certifiers' records sent to the Department for 
certification appeal purposes are as complete and useful as possible, 
the final rule requires that the records include video or audio 
recordings, or written transcripts, of any hearings in the case. In 
addition, certifiers must make audio recordings of on-site interviews. 
This information is invaluable, particularly in cases hinging on 
ownership and control issues.
    The NPRM sought to streamline DBE and ACDBE processes and balance 
the needs of firms, recipients, and DOCR. In the last several years, 
the number of appeals has been low compared to the number of adverse 
certification decisions. Also, many UCPs have transitioned to 
electronic application processing. We think it is rare that a UCP could 
not submit organized and indexed records to DOCR, even those that may 
be voluminous, within 45 days. This is reasonable in our view 
particularly considering that effort it takes for both program 
participants (firms and certifiers) to submit/review application 
material, participate in an on-site interview, craft and review denial 
or decertification letters, then appeal.
    The Department takes seriously the appeal obligations of firms and 
certifiers. DOCR will dismiss firms' non-compliant appeals (as Sec.  
26.89(c) specifies) and remand matters to certifiers with instructions 
to augment or fix its record within a specified time, and the OAs will 
act upon non-compliance (e.g., by conducting compliance reviews).
    The Department has decided not to include in the final rule the 
proposed provision setting a 180-day time frame for decisions in appeal 
cases. The parallel provision in the current regulation has often 
proved confusing. It did not relate, as some have thought, to a clock 
that starts when an appeal letter arrives. Rather, it related to the 
time when a complete record is available to the Department, something 
that has often occurred well after the Department received an appeal 
letter and the precise date for what is often an iterative process can 
be uncertain. Moreover, the ``if practicable'' language of the proposal 
made the timeframe essentially aspirational. The proposal that the 
Department send a letter when the timeframe was exceeded would likely 
occupy staff time that could otherwise be more productively used in 
completing appeals cases. Using its resources, the Department will do 
its best to respond to appeals promptly. If there is a systematic delay 
in processing appeals (e.g., because all available staff are assigned 
to a major project for a

[[Page 24943]]

time), the Department intends to place a notice on its website 
informing the public of the situation.

28. Updates to Appendices F and G

NPRM

    The NPRM proposed to remove the Uniform Certification Application 
and personal net worth (PNW) forms from Appendices F and G, 
respectively. In addition, the NPRM proposed technical and 
terminological changes within the appendices, most notably renaming the 
current affidavit of certification the ``Declaration of Eligibility'' 
(DOE). The DOE would be used both in initial applications and in the 
annual submission to certifiers. Consistent with the proposals 
concerning personal net worth, the ``retirement accounts'' line item 
would be deleted from the PNW form.

Comments

    There were few comments on these proposals. One recipient supported 
them. Another expressed concern about how changes in the forms would be 
communicated to certifiers if the forms were no longer to be found in 
the regulation itself. It was also concerned about maintaining 
uniformity in the absence of a regulatory requirement. One commenter 
suggested changing the submission requirement of a DOE to every other 
year because, in their view, there is not much change between years and 
the change would lower the paperwork burden on certification agencies.

DOT Response

    The final rule fully adopts the Department's proposed changes. The 
annual submission by firms of a DOE is made easier in our view by the 
widespread use of electronic systems that notify firms and recipients 
when the DOE is due.

29. Miscellaneous Program Elements and Concerns

    There were a wide variety of comments that did not fit neatly 
within the NPRM's numbered areas of proposed change.

Legal Defensibility of DBE Program

    Commenters on this issue expressed deep concern that, in the 
present legal climate, the DBE program was vulnerable to renewed legal 
challenges. Consequently, commenters said, it was important to have a 
discussion in the preamble to the final rule of the continuing 
compelling need for a race-conscious program, based on recent disparity 
studies and material that has been provided to Congress in the context 
of authorizing legislation. A recent report from the Department of 
Justice was mentioned as a possible source of evidence supporting a 
continuing compelling need.\9\ Given some of the proposals in the NPRM, 
another comment said, it was important to demonstrate how revisions to 
the program would remain consistent with the narrow tailoring 
requirement for race-conscious programs.
---------------------------------------------------------------------------

    \9\ U.S. Department of Justice, ``The Compelling Interest to 
Remedy the Effects of Discrimination in Federal Contracting: A 
Survey of Recent Evidence,'' (Jan. 31, 2022), See https://www.govinfo.gov/content/pkg/FR-2022-01-31/pdf/2022-01478.pdf and 
https://www.justice.gov/crt/page/file/1463921/download.
---------------------------------------------------------------------------

Paperwork Reduction Act

    Two commenters said that the Paperwork Reduction Act statement in 
the NPRM underestimated the burdens on airports in the ACDBE program. 
For the small business ACDBE program, an airport said it would take 120 
staff hours rather than the estimated 5.6. For the active participants 
list, the commenters believed that the staff hour commitment would be 
40 hours rather than the projected 42. For other proposed reporting 
requirements, the commenters said that the burden would be 25 or 40 
hours, rather than the projected 3.2 hours. Other commenters thought 
proposed reporting, directory and related requirements, would increase 
costs beyond the Department's projections. Recipients would have to 
make organizational changes, hire staff, and acquire or modify 
software. The Department should, commenters said, retain existing 
flexibility and provide funding for changes that a final rule requires.

Advisory Committee

    A commenter said that the Department should create a standing 
advisory committee under the Federal Advisory Committee Act to provide 
ongoing feedback and recommendations to the Department concerning 
implementation issues and to suggest guidance that could be helpful in 
the future. The committee would include representatives of all the 
principal interests involved in the program such as DBEs and ACDBEs, 
non-DBEs, recipients in various OA programs, and organizations 
representing them. Similarly, another commenter suggested having a 
national roundtable of people to share data and experiences.

Training

    Several commenters suggested that the Department provide additional 
training to program participants, including DBEs, prospective 
applicants, recipients, and certifiers. The program, a commenter added, 
should encourage technical guidance and instruction for DBEs.

Incentives for Prime Contractors and Recipients

    Several commenters suggested giving incentives to prime contractors 
who meet or exceed goals, analogous to incentives given for finishing a 
contract ahead of schedule. There could be incentives for prime 
contractors to form joint ventures with DBEs. Recipients could 
publicize good performance by prime contractors. Stipends could be 
provided to encourage prime contractors to enter mentor-
prot[eacute]g[eacute] programs. Mentor-prot[eacute]g[eacute] programs 
could be made more attractive by removing some of the restrictions in 
the current mentor-prot[eacute]g[eacute] provision of the regulation 
(Sec.  26.35(b)(2)(i) and (ii)). There could be ``extra credit'' toward 
DBE goals on a federally assisted contract for having used DBEs on 
private sector work, or by giving points on the next procurement for a 
contractor who exceeded DBE goals on a previous one. Prime contractors 
could also be encouraged to set up ``one-stop shopping'' hubs to inform 
DBEs of opportunities. Recipients could provide incentives to prime 
contractors to use newer, smaller DBEs rather than old standbys.
    A commenter suggested that States with excellent DBE programs 
receive preferences in discretionary grant programs.

Add Other Types of Firms to the Program

    A letter-writing campaign resulted in numerous docket entries 
recommending that there be a national MBE program and goals, in 
addition to the DBE program and goals. Other commenters suggested 
allowing SBA-certified 8(a) firms into the DBE program automatically.

Term Limits

    Two comments suggested either term limits--like those in SBA 
programs--for all DBEs/ACDBEs or ``graduation'' for firms who had been 
in the program for a lengthy period and received many contracts.

Miscellaneous Program Suggestions

    Among ideas suggested by commenters to improve the program were 
set-asides, sole-source contracts for DBEs, providing surplus recipient 
or DOT property to DBEs, simplifying prequalification standards and 
requirements for responding to solicitations for small firms, making

[[Page 24944]]

provisions like those concerning Alaska Native Corporation firms or SBA 
programs available to African-American firms, assistance with bonding 
and insurance requirements (e.g., by reducing performance bonds for 
DBEs to 50 percent or having prime contractor take out subcontractor 
default insurance in place of requiring bonds for DBEs), increasing 
overall goals to more than 10 percent, maintaining a national DBE 
database at DOT, doing more to encourage unbundling on all types of 
contracts, giving DBEs the first opportunity to get contracts under 
$500,000, supporting greater use of mentor-prot[eacute]g[eacute] 
programs, requiring recipients to conduct updated disparity studies, 
adding supplier outreach and diversity programs, strengthening the role 
of DBE liaison office and require additional reporting from them, 
adding an ``ombudsman'' function to help newer firms get work, and 
channeling funds to ``subject matter experts'' to provide technical 
assistance to DBEs.

Other Program Concerns

    Some comments referenced the longstanding concern that only a few 
established DBE firms get most of the work, limiting opportunities for 
the rest. One commenter said that in their State, 10 DBEs got 46 
percent of the work, while 30 did 80 percent of the work. A study from 
a non-DBE contractors group said that DBEs had the most capacity in the 
smallest areas of contracting opportunity, but the lowest capacity in 
the most significant contracting areas (e.g., heavy highway and bridge 
work). Commenters expressed continuing concern about fraud in the 
program.

DOT Response

    The DBE program ``has the important responsibility of ensuring that 
firms competing for DBE contracts are not disadvantaged by unlawful 
discrimination.'' This statement, in the preamble to the Department's 
1999 final DBE rule (64 FR 5096, 5096 (February 2, 1999)) encapsulates 
the program's longstanding purpose. That preamble discussed, at length, 
how the program and its regulation met the constitutional ``strict 
scrutiny'' requirement for programs using racial classifications, 
including how the part 26 provisions met each of the elements of the 
``narrow tailoring'' prong of strict scrutiny articulated by the 
courts. See id. at 5101-5103. The constitutionality of the program has 
been challenged several times in Federal court, but in each case, the 
courts have upheld the program. See Midwest Fence Corp. v. Dep't of 
Transp., 840 F.3d 932, 941, 935-36 (7th Cir. 2016); W. States Paving 
Co. v. Wash. State Dep't of Transp., 407 F.3d 983, 995 (9th Cir. 2005); 
Sherbrooke Turf, Inc. v. Minn. Dep't of Transp., 345 F.3d 964, 967-68 
(8th Cir. 2003); Adarand Constructors, Inc. v. Slater, 228 F.3d 1147, 
1155 (10th Cir. 2000). Courts have also relied upon these decisions' 
findings about the constitutionality of the program when ``as applied'' 
challenges have been brought. Here again, the program has withstood 
these strict scrutiny challenges, largely due to the fact that 
recipients properly following program mandates may rely upon the 
Congressional findings of compelling need. See Mountain West Holding 
Co. v. Montana, 691 F. App'x 326 (9th Cir. 2017, memorandum opinion); 
Dunnet Bay Construction Co. v. Borggren, 799 F. 3d 676 (7th Cir. 2015); 
Northern Contracting, Inc. v. Illinois, 473 F.3d 71 (7th Cir. 2007); 
Associated General Contractors of America, San Diego Chapter, Inc. v. 
California Department of Transportation, 713 F. 3d 1187 (9th Cir. 
2013); Geyer Signal, Inc. v. Minnesota Department of Transportation, 
No. 11-321 (JRT/LIB), 2014 WL 1309092 (D. Minn. Marc. 31, 2014; Geod 
Corporation v. New Jersey Transit Corporation, 678 F. Supp. 2d 276 
(D.N.J. 2009), and 746 F. Supp. 2d 642 (D.N.J. 2010).
    Repeated reauthorizations of the program by Congress (listed in 
Sec.  26.3 (a) of the rule), and extensive evidence supporting it, 
underscore the continuing compelling need for the program to combat 
discrimination and its effects.\10\ These actions have been based on 
statistical and anecdotal evidence of the persistence of discrimination 
affecting firms seeking work in DOT-assisted contracts, often in the 
form of the numerous disparity studies that have been conducted on 
behalf of DOT recipients and other parties. In this important respect, 
the DBE program differs significantly from other programs that may use 
race-based classifications in order to advance worthy, but conceptually 
distinct, objectives such as achieving diversity.
---------------------------------------------------------------------------

    \10\ See BIL, Sec. 11101(e)(1) (``. . . testimony and 
documentation . . . provide a strong basis that there is a 
compelling need for the continuation of the disadvantaged business 
enterprise program to address race and gender discrimination . . . 
.''); Congressional Record--Senate, S5898, S5899 (August 5, 2021); 
Congressional Record--House, H3506, H3507 (June 30, 2021); ``DRIVING 
EQUITY: THE U.S. DEPARTMENT OF TRANSPORTATION'S DISADVANTAGED 
BUSINESS ENTERPRISE PROGRAM''--Remote Hearing Before the Committee 
on Transportation and Infrastructure, 116th Cong. 64 (Sept. 23, 
2020), available at https://www.govinfo.gov/content/pkg/CHRG-116hhrg43413/pdf/CHRG-116hhrg43413.pdf.
---------------------------------------------------------------------------

    We emphasize that the present part 26 and the revisions this final 
rule makes to modernize administrative provisions of the program and 
leave intact the mechanics of goal setting as has been the case over 
many decades. Part 26 does not allow quotas nor impose any penalties 
for failing to meet goals, and it requires that recipients use race- 
and gender-neutral means to the maximum extent to achieve DBE 
participation goals before resorting to race- and gender-conscious 
means. The program retains the basic narrow tailoring building blocks 
which, as noted above, have repeatedly been upheld by courts.
    We believe there would be value in establishing a standing Federal 
advisory committee to provide input to the Department on the continuing 
implementation of the program and suggestions for guidance on issues 
that may arise in the future. However, this and several other 
suggestions for changes in the program (e.g., applying term limits to 
firm's participation) are outside the scope of this rulemaking, beyond 
the Department's statutory authority, or both.

Part 23

Subpart A--General

30. Aligning Part 23 Objectives With Part 26 Objectives (Sec.  23.1)

NPRM

    The NPRM proposed to add two new program objectives to part 23 to 
align it with the objectives in part 26. These objectives, similar to 
those in Sec. Sec.  26.1(f) and (g), promote the use of ACDBEs in all 
types of concessions activities at airports and assist the development 
of firms that can compete in the marketplace outside the ACDBE program. 
The proposal received support from trade associations, consultants, and 
airport recipients, with one trade association cautioning against 
simply adding similar objectives due to differences in business 
activities between the DBE and ACDBE programs. Instead, the commenter 
suggested adopting the following single objective: ``To support the 
development of ACDBEs that can compete independently for concessions 
opportunities at airports receiving DOT financial assistance.''

DOT Response

    The change suggested by the one commenter is not substantively 
different from language proposed. In addition, support for adding the 
two program objectives is unanimous. Therefore, the final rule retains 
both objectives as proposed.

[[Page 24945]]

31. Definitions (Sec.  23.3)

NPRM

    For consistency and clarity, the NPRM proposed that Sec.  23.3 
adopt existing definitions in part 26 which are also applicable to part 
23. The definitions for terms such as, ``Alaska Native,'' ``Assets,'' 
``Contingent liability,'' ``Days,'' ``Immediate Family Member,'' 
``Liabilities,'' ``Operating Administration'' or ``OA,'' and ``Socially 
and economically disadvantaged individual'' were proposed to be added 
or amended to ensure that the definitions and terms contained in both 
parts aligned. Additional definitions for ``Airport Concession 
Disadvantaged Business Enterprise (ACDBE),'' ``Part 26,'' ``Personal 
Net Worth,'' ``Affiliation,'' ``Concession,'' ``Subconcession or 
subcontractor,'' and ``Sublease'' were either proposed to be added or 
amended to clarify existing requirements in part 23 or to correct 
errors and replace obsolete cross-references within the regulation.

Comments and DOT Response

    A majority of commenters in general supported the addition or 
alteration of the definitions at large.
Assets
    For the definition of ``assets,'' one commenter suggested that the 
Department clarify the requirements for demonstrating ownership of sole 
and separate property. For example, if ownership of property or assets 
were to be demonstrated by evaluating the title, this should be 
clarified in the ``assets'' definition.
    The Department adds the part 26 definition of ``assets'' to part 23 
without revision to ensure consistency in its meaning across both 
parts. We added other definitions from Sec.  26.5 to Sec.  23.3 for 
this same reason. The final rule does not adopt the commenter's 
proposed ``asset'' definition in part 23 because it would otherwise 
make the definition inconsistent with its counterpart in part 26.
Airport Concession Disadvantaged Business Enterprise (ACDBE)
    Commenters were evenly divided in support and opposition of the 
NPRM's proposal to modify the definition of ``ACDBE.'' The proposed 
change is intended to clarify that a firm does not need to be 
operational or demonstrate that it previously performed contracts at 
the time of its application for certification. Comments in favor of the 
change indicated that the proposal would increase the number of 
available ACDBE firms and that previous experience of the firm was less 
important in the concessionaire industry, as long as airports are 
permitted to consider experience of the individual owner when selecting 
a firm. The commenters opposing the change expressed concern about how 
an unqualified firm could become competent in a particular line of work 
in which the firm has no experience.
    The final rule adopts the definition of ACDBE as proposed. The 
Department acknowledges the distinction between the experience of a 
firm and SEDO and believes that the experience of the individual owner 
is more relevant for purposes of certification in the concession 
context. Moreover, conditioning certification on a firm's experience 
would present significant barriers for firms seeking ACDBE 
certification status. See preamble discussion on Sec.  26.71 for 
discussion on the operations requirement for DBEs.
Concession
    The final rule incorporates the term ``traveling public'' into the 
``concession'' definition to clarify that businesses that do not 
primarily serve the traveling public should not be considered 
concessions. A majority of commenters supported this change. However, 
the comments in opposition expressed concern that a revision 
restricting the term ``concession'' to the traveling public would 
negatively impact an airport recipient's ability to meet its 
participation goals by limiting the number of businesses that may be 
considered an ACDBE concession. The commenters said that without 
additional guidance or clarity, this change would result in confusion 
within the industry because there is significant subjectivity involved 
in determining what businesses are intended to serve the traveling 
public.
    The final rule adopts the definition of concession as proposed. The 
legislative and regulatory history of the concessions provision has 
always focused on businesses that serve the traveling public at the 
airport, which supports the final rule's revision. The Department does 
not believe that including the term ``traveling public'' in the 
definition will cause confusion or inhibit airport recipients' from 
achieving participation goals. Instead, it merely reflects the 
Department's longstanding interpretation of the regulation.
Personal Net Worth (PNW)
    The Department received several comments on changes to the PNW 
definition in part 26, ranging from the PNW cap adjustment to other 
aspects of the PNW calculation (e.g., exclusion of retirement assets, 
removal of community property rules, etc.). These areas are discussed 
at greater length in the part 26 preamble. For part 23, we are limiting 
the discussion of the definition of PNW to what the NPRM's preamble 
referred to as the ``third exemption.'' That term refers to the 
exclusion from the PNW calculation those assets that a SEDO can 
demonstrate were necessary to obtain financing for purposes of entering 
or expanding a concessions business subject to part 23 at an airport.
    The final rule's amendments to part 23 aligns the PNW definition 
with that of part 26, effectively eliminating the PNW's ``third 
exemption.'' While one trade association supported this change, another 
requested that the Department consider retaining the exclusion due to 
significant cost increases associated with doing business as an ACDBE.
    The Department recognizes the substantial cost increases associated 
with concessions and addresses this concern, in part, through proposed 
increases to the PNW cap to $2,047,000. and other changes to the PNW 
calculation. However, the final rule removes the ``third exemption'' 
language from the PNW definition in part 23. In the 2005 final rule, 
the Department under the third exemption allowed the exclusion to a 
maximum of $3 million. As noted in the current rule Sec.  23.3, the 
Department suspended the effectiveness of the provision with respect to 
any application for ACDBE certification made or any financing or 
franchise agreement obtained after June 20, 2012. As proposed, the 
definition removes this reference entirely, and the definition of 
personal net worth in part 23 refers back to that found in part 26.
Sublease, Subconcession or Subcontractor
    For the proposed definitions of sublease, subconcession or 
subcontractor, all commenters were unanimous in their support. However, 
several commenters requested the proposed definition of ``sublease'' be 
expanded to clarify the requirements to be considered a subtenant. 
Commenters suggested that a definition of sublease address whether a 
capital investment from the ACDBE is required or whether the facility 
development cost can be paid monthly as a ``lease cost.'' They also 
suggested that the definition address if the terms of the primary lease 
must be a direct pass-through and whether a concessionaire must manage 
a location with its own personnel.
    This final rule adopts the term sublease as proposed to clarify how 
airport recipients should count direct

[[Page 24946]]

ownership arrangement participation generated by ACDBEs in subtenant 
arrangements. Generally, airport recipients may credit the entire 
amount of gross receipts generated from a sublease completely operated 
and owned by an ACDBE. However, airport recipients must look beyond the 
agreement to evaluate the capacity the ACDBE is performing and ensure 
that the agreement does not improperly restrict the ACDBE's ownership 
and control.
    Under the sublease definition, all requirements applicable to the 
concession under the primary lease passes on to the sublessee, 
including the management of personnel. The ACDBE must also be 
responsible for its proportionate share of facility development costs 
and capital investment. Facility development cost can be paid monthly 
as a ``lease cost''. However, the total lease costs to be paid must be 
proportionate to the ACDBE's responsible share of capital investment 
required under the primary lease.
    For the definition of subconcession or subcontractor, the final 
rule removes the term subcontractor from the definition title and 
adopts the definition as proposed by the NPRM. With this change, the 
term subconcession is now found in the definition section, as well as 
in Appendix A of the regulation.
Other Definition Changes
    Commenters proposed additional amendments or changes to definitions 
that were not addressed by the NPRM.
    One commenter proposed revisions to the definition of ``joint 
venture.'' The commenter expressed that the current definition in which 
the ACDBE is ``responsible for a distinct, clearly defined portion of 
the work of the contract,'' places restrictions on minority joint 
venture partners' financing, management, and operations that would not 
be required of a majority joint venture partner. The commenter believed 
that the language unfairly restricts ACDBE joint venture partners in 
that it imposes conditions on their participation that are not 
similarly imposed on the non-ACDBE participants. To address this, the 
commenter proposed revising the definition to balance the one-sided 
conditions that the current language imposes on ACDBE joint venture 
partners.
    The final rule retains the existing definition of joint venture. 
Credit toward ACDBE goals must be based on a commercially useful 
function. Any change to remove the requirement for an ACDBE joint 
venture participant to perform independently a distinct portion of the 
joint venture's work would adversely affect the integrity of the 
program.
    In addition to the definitions above, another commenter suggested 
that the Department add a definition for ``contract award'' to clarify 
the term's use in other sections in Parts 23 and 26.
    The Department has opted not to define contract award in the 
regulatory text as commenters requested. Given the wide array of 
contexts the term contract award appears across Parts 23 and 26, we 
decided against adding a definition for the term to avoid confusion.

Subpart B--ACDBE Programs

32. Socially and Economically Disadvantaged Owned Financial 
Institutions (Sec.  23.23)

    A commenter suggested that the Department consider options to 
address capital access issues that hinder small businesses from 
competing for concession opportunities. The Department is sensitive to 
concerns regarding access to capital. The FAA's 2023 updated Best 
Practices for Fostering Participation from New DBEs and ACDBEs at 
Airports (April 11, 2023) letter recommended evaluating the 
availability of services offered by financial institutions owned and 
controlled by socially and economically disadvantaged individuals in an 
airport recipient's community. See https://www.faa.gov/about/office_org/headquarters_offices/acr/bus_ent_program. The letter 
recommends airport recipients make reasonable efforts to use such 
institutions and encourage prime concessionaires to use them, as well.
    Recognizing that capital access has historically been, and 
continues to be, a significant barrier to ACDBE participation within 
the program, the final rule seeks to reduce this barrier by amending 
the administrative provisions under Sec.  23.23 to add a new paragraph 
that applies the related requirement in Sec.  26.27, to part 23. This 
change codifies best practices in the letter by requiring recipients, 
for their ACDBE programs, to thoroughly investigate the full extent of 
services offered by financial institutions owned and controlled by 
socially and economically disadvantaged individuals in their 
communities and to make reasonable efforts to use these institutions. 
Recipients must also encourage prime concessionaires to use such 
institutions.
    The term ``financial institution'' under this provision includes 
but is not limited to traditional banking institutions and Community 
Development Financial Institutions (CDFIs).

33. Direct Ownership, Goal Setting, and Good Faith Efforts Requirements 
(Sec.  23.25)

NPRM

    The NPRM proposed changes to Sec.  23.25 clarifying that all 
businesses must make good faith efforts to meet the concession-specific 
goals as set by recipients pursuant to this section regardless of 
whether a concession-specific goal is based on goods and services or 
direct ownership arrangements. Airport recipients may set concession-
specific goals on purchases or leases of goods and services only after 
performing an analysis that shows there is de minimis availability for 
ACDBE direct ownership arrangement participation for that opportunity.

Comments

    The majority of comments, which were received from trade 
associations, consultants, ACDBEs, and recipients, generally supported 
the NPRM's clarifying modifications to Sec.  23.25. However, one 
commenter noted supplying evidence to support setting concession-
specific goals based on goods and service purchases versus direct 
ownership arrangements, in some instances, would not be possible until 
a successful proposer is selected. The commenter explained that 
recipients are not able to obtain a firm's purchase commitments at the 
time of award. Moreover, purchase goals could be impacted by purchase 
requirements if the firm is a licensed or franchised operation.
    Another commenter suggested that the Department add an appendix to 
part 23, similar to the detailed guidance in part 26 Appendix A, to 
reflect the differences in good faith effort requirements for DBE and 
ACDBE program bidders and offerors.

DOT Response

    The Department adopts the changes to Sec.  23.25 as proposed by the 
NPRM. The timing of when evidence may become available in order to 
perform the analysis required under this section should not present an 
issue to recipients who are determining whether to set a concession-
specific goal based on goods and services purchases. In addition, 
airport recipients do not need a firm's actual purchase commitments at 
the time of award to perform the analysis in paragraph (e)(1)(i) of 
this section.
    Recipients calculate their overall ACDBE goals for concessions 
other than car rental by evaluating the relative availability of ACDBEs 
in the categories of work that concession operations will

[[Page 24947]]

likely entail. Because the rule at Sec.  23.47 provides that the base 
of an airport's goal for concessions other than car rental is the total 
gross receipts of concessions, this approach is necessary when setting 
overall goals. Recipients may meet their overall goals through the 
application of concession-specific goals, as explained in Sec.  23.25. 
Under the revised Sec.  23.25 (e)(1)(i), an analysis that finds a 
particular concession opportunity has only de minimis availability of 
direct ownership arrangement participation may be used by recipients as 
evidence in support of setting a concession-specific goal based on 
goods and services for that opportunity. Such analysis would satisfy 
the good faith efforts requirement that recipients must make to 
explore, to the maximum extent practicable, opportunities for 
participation via direct ownership arrangements.
    In response to comments, the Department will not add a separate 
appendix for guidance on good faith efforts to part 23. Appendix A to 
part 26 provides guidance on good faith efforts concerning DBE contract 
goals. This guidance is referenced in Sec.  26.53(b)(2)(vi), which is 
made applicable to concession-specific goals through Sec.  
23.25(e)(1)(iv). Notwithstanding differences between the ACDBE and DBE 
program, we do not believe this issue is significant to warrant 
creating a new appendix on good faith efforts in part 23.

34. Fostering Small Business Participation (Sec.  23.26)

NPRM

    The NPRM proposed to add a provision 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 in concession activities. As part of the proposed 
element, recipients would be required to actively implement their 
programs through various strategies that include race- and gender-
neutral small business set-asides, prime subleasing opportunities and 
alternative concession contracting approaches (e.g., direct leasing). 
One feature proposed for part 23 that is distinct from part 26, is the 
requirement for recipients to periodically report on the implementation 
of race-neutral strategies under the small business element for their 
ACDBE programs.

Comments

ACDBE Small Business Element
    Support for the proposed ACDBE small business element was expressed 
by several members of a trade association, who commented that part 23 
needed to make the small business element (SBE) a requirement in order 
to achieve small business participation for airport concessions. An 
airport consultant believed the proposed part 23 SBE requirement would 
foster creativity among recipients when structuring their small 
business elements.
    Comments opposing the proposal were concerned that the new SBE 
requirement would be overly burdensome and that the Department 
underestimated the time it would take. However, commenters' estimated 
range of time to complete the task varied. One airport authority 
estimated it would take 120 hours, not the 5.6 hours estimated by the 
Department; a member of a trade organization thought ``at least 40.'' 
Another commenter mentioned that small hub and non-hub airports would 
be particularly affected, as they have limited concession opportunities 
and revenue streams, making it difficult for them to attract bidders.
    Others opposing the new requirement expressed that SBE would not 
work for part 23 as it does for part 26 because the industries involved 
in the DBE program (federally assisted contracting) and the ACDBE 
program (airport concession opportunities) are different. They noted 
that set-asides under the small business element could unintentionally 
harm both small businesses and other concessionaires by forcing a 
choice between them for feasible concession locations. Others expressed 
doubt about the feasibility of subleasing opportunities for airport 
concessions, as such opportunities are rare, and multi-unit operations 
do not support subleasing. If adopted, commenters recommended that 
recipients should conduct a small-business analysis on opportunities 
without an ACDBE goal to determine the viability of a small business 
sublease.
Reporting on Small Business Element
    The Department received some comments, both from trade associations 
and recipients, on the proposed requirement for recipients to 
periodically report on the implementation of race-neutral strategies 
under their small business element. These commenters viewed the 
requirement as unduly burdensome and costly. However, if adopted in the 
final rule, one commenter recommended that the Department establish a 
supplemental report to the Uniform Report for reporting on a 
recipient's small business element in order to minimize the 
administrative burdens.

DOT Response

    The Department believes that the ACDBE SBE requirements will not 
impose any significant burdens on recipients because it mirrors the 
current DBE SBE requirements that recipients must currently implement 
under Sec.  26.39. Instead, the ACDBE SBE requirement should serve as a 
mere extension to the SBE requirements that recipients have currently 
in place for their DBE programs.
    Smaller hub airports may benefit from statewide small business 
element consortiums permitting them to pool resources with other 
recipients who are required to actively implement SBEs under both DBE 
and ACDBE programs. Upon request, FAA will engage interested recipients 
on the mechanics and steps needed to establish and implement statewide 
consortiums for SBEs.
    Furthermore, distinctions may exist in how certain small business 
strategies apply across the DBE and ACDBE programs. The list of 
strategies in the proposed Sec.  23.26 for the ACDBE program is 
designed to give recipients some ideas on how to accomplish the 
objectives of the rule. It is not an exhaustive list, nor is any 
strategy listed in the regulation mandatory. Airport recipients may 
choose one or more of the listed strategies or may develop any 
alternative strategy that can be effective in creating airport 
concession opportunities for small businesses.
    In selecting SBE strategies, the Department still expects airport 
recipients to be forward-looking and innovative in their approaches. 
This means that recipients should not completely foreclose the 
possibility of using certain strategies (e.g., subleasing opportunities 
for small businesses) over others because they do not appear to be 
viable options at the time. Rather, they should continuously explore 
creative ways on how to make those strategies possible.
    Section 23.26(c) mandates that airport recipients incorporate 
certain assurances within their SBEs. These include the confirmation 
that their SBEs are authorized under State law, and that certified 
ACDBEs meeting the specified size criteria are presumptively eligible 
to participate. In addition, airport recipients must assure that no 
limitations are placed on the number of contracts awarded to 
participating firms and that every effort will be made to avoid 
creating barriers to the use of new, emerging, or untried businesses.
Reporting on Small Business Element
    The ACDBE SBE requirement needs a reporting feature for the 
Department to

[[Page 24948]]

evaluate not only the effectiveness of each recipients' element, but 
also whether recipients are actively implementing their SBEs, as 
required by 23.26(g). In an effort to minimize burdens, the Department 
will adopt the recommendation that the part 23 SBE reporting 
requirement be added as a supplemental report to the part 23 Uniform 
Report. This will alleviate the time burden noted by a commenter as 
described above. However, as explained in the supporting statement 
developed by the Department in support of the rulemaking and associated 
information collection that has been submitted to OMB for approval, we 
disagree with their estimate of 120 hours. Recipients are already 
required to implement SBEs for DBE programs, and they also must collect 
and report their race neutral participation annually, so this minimal 
supplemental information is not burdensome. Therefore, we believe that 
the Department's estimate of 5.6 hours is appropriate.

35. Retaining and Reporting Information About ACDBE Program 
Implementation (Sec.  23.27) (Active Participants List)

Comments

    The Department received numerous comments on the NPRM's proposal to 
add an active participants list requirement to part 23, with the 
majority opposing the proposal. Supporters believed the change would 
benefit the program administration and assist car rental companies in 
locating certified ACDBE vendors. However, many opposed the change, 
finding it unduly burdensome and costly, and highlighting the 
logistical complexities in acquiring all the data from every firm that 
reaches out via email, phone, or fax inquiring about concession 
opportunities. One trade organization member thought 60 hours was more 
appropriate for this task than the 42 proposed by the Department.
    Commenters also raised concerns about the active participants list 
not meeting its intended purpose of providing accurate data on ACDBE 
and non-ACDBE firms seeking concession opportunities. They noted that 
the NAICS codes used by various concessionaires are inconsistent, and 
the data from proposals and responses to solicitations and negotiated 
procurements would not provide accurate information. Commenters argued 
that this approach would result in an undercount of actual active 
participation and lead to incorrect calculations of goals and 
participation. A commenter suggested that the number of firms certified 
in concession-operating trades would be a better indicator of the 
number of ACDBE firms wanting to participate.
    One commenter recommended that the Department provide a clarifying 
definition for ``active participants'' at the end of Sec.  23.27(c) to 
include individuals or firms that have submitted proposals, attended 
outreach events, or made inquiries about concession opportunities from 
the recipient.

DOT Response

    The final rule is adding a requirement that recipients develop and 
maintain an active participants list. The ``active participant'' list 
adopted in this rule is parallel to the bidders list requirement in 
Sec.  26.11. Similar to the bidders list requirement in part 26, 
creating and maintaining an ``active participants'' list gives 
recipients another valuable way to measure the relative availability of 
ready, willing and able ACDBEs when setting their overall goals. It 
also gives the Department data to evaluate the extent to which the 
objectives of Sec.  23.1 are being achieved.
    The Department has elected to adopt the proposal and require 
recipients to collect the data from all active participants for 
concession opportunities by requiring the information under this 
section to be submitted with their proposals, or with initial responses 
to negotiated procurements. The Department acknowledges that the 
collection of active participants data from only these sources may not 
capture every firm that seeks to perform work on concession 
opportunities. However, in absence of concession-specific NAICS codes, 
the Department believes that narrowing the source of this data 
collection to only proposals and initial responses to negotiated 
procurements would produce the most accurate and consistent data on 
firms who compete for and perform work on concession opportunities. The 
commenter's estimate of 60 hours to complete the task is slightly above 
our estimate that it would take around 42 hours to complete. We believe 
42 hours would be a rough average, with small airports taking much less 
time.
    Recipients should not rely exclusively on an active participants 
list that does not reflect the relative availability of ACDBEs in their 
local market area to the maximum extent feasible. Such reliance may 
result in skewed goal calculations and potentially undercounting of 
participation. This is not the intent, nor should such a scenario occur 
under the rule. The FAA will not approve a goal-setting methodology 
that is not rationally related to the relative availability of ACDBEs 
in a recipient's market. If a recipient decides to use an active 
participants list that is not demonstrative of all ready, willing and 
able ACDBEs relative to all businesses that are ready, willing and able 
to participate in a recipient's ACDBE program, then the active 
participants list must be used in combination with other data sources 
to ensure that it meets the standard in the existing regulations that 
apply to alternative methods used to derive a base figure for the ACDBE 
availability estimate. See Sec.  23.51.

Subpart C--Certification and Eligibility of ACDBEs

36. Size Standards (Sec.  23.33)

    See discussion of requirements in Sec.  26.65.

37. Certifying Firms That Do Not Perform Work Relevant to the Airport's 
Concessions (Sec.  23.39)

NPRM

    Section 23.55(k) prohibits recipients from counting costs incurred 
in connection with the renovation, repair, or construction of a 
concession facility (sometimes referred to as the ``build-out'') toward 
ACDBE goals. The NPRM proposed to add a paragraph to Sec.  23.39 
clarifying that certifiers may not certify applicant firms that intend 
to perform activities exclusively related to ``build-out'' for which 
participation cannot be counted.

Comments

    The Department received comments from recipients, prime 
concessionaires, consultants and trade associations, all of whom 
generally supported the NPRM's proposed change. Some commenters 
requested that the Department ensure the change does not exclude the 
certification of firms that provide services such as electrical, 
plumbing or work to concessionaires as a maintenance service, not 
related to initial construction (e.g., car rental offices, advertising 
displays). Other commenters expressed concern that the change would 
allow certifiers to make discretionary decisions about businesses they 
are unfamiliar with, unless that business has an opportunity to appeal 
the decision in the event they are denied.

DOT Response

    The Department is not adopting its proposal to permit certifiers to 
refrain from certifying applicant ACDBE firms if they determine the 
firms intend to perform only activities exclusively related to the 
renovation, repair, or construction of a concession facility

[[Page 24949]]

(``build-out''). We agree with the comments and seek to avoid a change 
that could result in erroneous certification denials based on 
subjective determinations by certifiers on whether the work an 
applicant firm intends to perform is exclusively related to build-out.
    Notwithstanding our position, the Department shares similar 
concerns to comments raised above for the definition of disadvantaged 
business enterprise for applicant firms that cannot have their 
participation counted toward ACDBE goals under Sec.  23.55(k). The 
Department strives to reduce wasted time and effort that UCPs encounter 
when processing applications from firms that seek certification in 
construction-related work that cannot be credited toward ACDBE goals.
    To address this, we adopt a similar approach to that taken under 
part 26. The Department will include an item in the ACDBE portion of 
the Uniform Certification Application (UCA) asking applicants to detail 
the kinds of work that they anticipate performing on concession 
opportunities. Accordingly, if the applicant's response reasonably 
suggested to the certifier that the work it performs would be 
construction-related activities exclusively in connection with build-
out of concession facilities that otherwise could not be counted toward 
ACDBE goals under Sec.  23.55(k), we would encourage the certifier to 
recommend that the applicant withdraw its application, thereby avoiding 
certification of firms that would not be able to utilize their ACDBE 
status to obtain an airport concession opportunity.

38. Removing Consultation Requirement When No New Concession 
Opportunities Exist (Sec.  23.43)

NPRM

    The NPRM proposed to amend Sec.  23.43 to require consultation only 
when the recipient's ACDBE goal methodology includes opportunities for 
new concession agreements.

Comments

    The majority of commenters, predominantly recipients, endorsed the 
NPRM's proposal to remove the requirement for recipients to perform 
consultation when there are no concession opportunities to evaluate or 
promote. They cited that the proposal would alleviate burdens on 
recipients and preserve the resources of ACDBEs who may attend a 
meeting only to learn that there are no opportunities in which they can 
participate.
    The Department received one comment from a car rental 
concessionaire that disagreed with the proposed change to remove the 
consultation requirement even when the recipient wishes to change its 
ACDBE goal requirement as long as there are no new concession 
opportunities. They were opposed to any change that would remove the 
consultation requirement when recipients propose to adjust their ACDBE 
goal. Therefore, they recommended the Department revise the proposed 
amendment to Sec.  23.43 to remove the consultation requirement only 
when there are no new concession opportunities and when no adjustment 
is being made, or is proposed to be made, to the recipient's ACDBE 
goal.

DOT Response

    Section 23.43 requires consultation only when the ACDBE goal 
methodology includes opportunities for new concession agreements. The 
Department agrees that consultation under Sec.  23.43 is still 
necessary when an adjustment is being made, or is proposed to be made, 
to the base figure of the recipient's ACDBE goal. However, we do not 
believe it is necessary to make this explicit in the regulatory text 
since adjustments usually arise only when there are new concession 
opportunities.
    That aside, the Department is concerned that the text of Sec.  
23.43 references only opportunities for new concession agreements that 
become available during the goal period. It is silent on new goods and 
service purchase opportunities. This omission may be construed to mean 
that consultation is required only when new direct ownership 
opportunities become available during the goal period. This is not the 
case. The final rule intends for the consultation requirement to apply 
when there are new concession opportunities for both direct ownership 
arrangements and purchases of goods and services.
    For this reason, the Department makes a minor revision to the Sec.  
23.43 to account for new opportunities that may arise in the form of 
both direct ownership arrangements and goods and service purchases. 
Depending on the nature of the opportunities, this revision in addition 
to the overall change will allow recipients to focus their consultation 
efforts on firms in the position to take advantage of those 
opportunities available.

39. Non-Car Rental Concession Goal Base (Sec.  23.47)

Comments

    The NPRM would have amended Sec.  23.47(a) to clarify that airport 
recipients may use the alternative method in Sec.  23.51(c)(5) to 
supplement with goods and service purchases those portions of the base 
figure of their overall non-car rental goals where there is no feasible 
direct ownership arrangement participation available. The Department 
received several comments from industry trade associations, recipients, 
consultants, and non-ACDBE firms, who generally supported the 
clarifying changes to Sec.  23.47(a) but felt that additional 
clarification was necessary.
    One commenter sought clarification on whether the proposed changes 
would require setting purchasing goals for every contract without a 
direct ownership goal. Another commenter suggested the final rule 
address reporting of gross revenues for concessions in the Uniform 
Report.
    Finally, the Department received one comment requesting 
clarification on the term ``substantial majority'' in Sec.  23.51(b)(3) 
and asked whether it should be based on a count of the number of 
interested concessionaires or their size. The commenter also inquired 
about how a recipient should account for the relative availability of 
concessionaires outside its putative geographic area if the NPRM's 
proposed changes to interstate certification expands the number of 
concessionaires in a recipient's geographic area.
    Although not raised in the NPRM, one commenter requested that the 
Department adopt a national ACDBE goal setting process for car rentals 
similar to Transit Vehicle Manufacturers (TVM). The commenter stated 
that adopting a national goal would better achieve the objectives of 
the ACDBE program and increase participation in the car rental 
industry.

DOT Response

    The final rule will not adopt the proposed changes to Sec.  23.47. 
As proposed, the revisions to this section would have allowed 
recipients to supplement with purchases and/or leases of goods and 
services the portion of their base where no feasible direct ownership 
arrangement participation is available. With few exceptions, Sec.  
23.47 is clear that the base of a recipient's overall goal for 
concessions other than car rentals includes only the total gross 
receipts of all concessions. The base does not include the dollar value 
of purchases and/or leases of goods and

[[Page 24950]]

services. The Department does not intend to change that. Instead, the 
Department intends only to clarify when goods and services concession 
goals can or should be used in light of the statutory requirement for 
recipients to explore, to the maximum extent practicable, direct 
ownership arrangements.
    We believe the final rule achieves this objective with its 
revisions to Sec.  23.25(e)(1)(i).
    The boundaries of a recipient's market area should be determined by 
the number of firms which seek to do concession business with that 
airport and their locations. The market area may be different for 
different types of concessions, so another factor is the area in which 
the firms which receive the substantial majority of concessions-related 
revenues are located.
    We recognize that the changes to interstate certification may 
increase the number of interested concessionaires located outside a 
recipient's putative geographic area. The Department's Tips for Goal-
Setting in the Disadvantaged Business Enterprise (DBE) Program (https://www.transportation.gov/civil-rights/disadvantaged-business-enterprise/tips-goal-setting-disadvantaged-business-enterprise; June 25, 2013), 
however, makes clear that a recipient's local market area is not 
necessarily the same as the political jurisdiction in which it is 
geographically located. Therefore, the changes to the interstate 
certification provisions do not impact how airport recipients determine 
the relative availability of ACDBEs under Sec.  23.51(c). Recipients 
still must determine their market area for goals in accordance with 
Sec.  23.51(b).
    The final rule will not adopt regional and national car rental 
goals for the ACDBE program. The recommendation to establish these 
goals is outside of the scope of the rule.

40. Counting ACDBE Participation After Decertification (Sec.  23.55)

NPRM

    Sections 23.39(e) and 23.55(j) allow for participation of ACDBE 
firms that lost certification for exceeding size and PNW limits to 
count towards ACDBE goals for the remainder of a concession agreement. 
However, this continued participation depends on those decertified 
firms maintaining their eligibility in all other respects (e.g., 
control, ownership). The current regulation does not contain any 
provision that instructs airport recipients on how they must monitor 
these decertified firms to ensure their eligibility in this regard.
    The NPRM proposed requiring declarations from decertified firms to 
track their eligibility for continued counting purposes. Under the 
rule, airport recipients would be responsible for gathering 
declarations and monitoring eligibility, not the certifying entity. If 
a decertified firm becomes ineligible due to ownership or control 
changes, its participation will no longer count. Failure to provide a 
``no-change affidavit'' also stops the continued counting of 
participation of these firms.

Comments

    Most comments were in favor of the requirement for former ACDBE 
firms to submit declarations to Sec.  23.55. However, many were opposed 
to making the airport recipient, rather than the certifying agency, 
responsible for submission and monitoring. These individuals and 
organizations argued that this responsibility might be too burdensome 
for airports and that the State UCP, as the certifier, is better 
equipped to monitor those firms. They also pointed out that airports 
are not certifiers and do not have the necessary expertise to monitor 
submissions.
    Finally, one commenter recommended counting decertified firm 
participation beyond the current concession agreement term, as it is a 
common industry practice to extend concession agreements. They argued 
that an ACDBE that has secured a contract should be allowed to continue 
to benefit from the agreement as long as they maintain eligibility in 
all other respects.

DOT Response

    The Department believes that the steps arising under proposed Sec.  
23.55(j) should not be burdensome since they are not significantly 
different or greater than those recipient obligations currently 
performed. Non-certifying airport recipients are already required to 
include the monitoring and compliance measures that they will use in 
their ACDBE programs, including levels of effort and resources devoted 
to this task. In implementing these measures, non-certifying recipients 
must, at a minimum, conduct annual verifications of the status of the 
ACDBE's certification eligibility and review records. They must also 
perform on-site reviews of concession workplaces to determine whether 
ACDBEs are actually performing the work for which credit is being 
claimed and that participants are not circumventing program 
requirements.
    Section 23.55(j) does not expand these monitoring obligations. 
Rather, it provides non-certifying airport recipients a framework and 
tools to monitor former ACDBE firms that lost certification for 
exceeding small business size standard or PNW. This monitoring is 
necessary for airport recipients to determine if these firms' 
participation can continue to be counted towards ACDBE goals for the 
remainder of a concession agreement. If the non-certifying recipient 
finds through its monitoring efforts that the former ACDBE has 
relinquished an element of control or ownership during the performance 
of an agreement, the monitoring recipient would immediately cease 
counting that firm's participation toward the goal.
    Counting a decertified firm's participation beyond the current 
concession agreement term deprives eligible ACDBE firms of 
opportunities. Therefore, the Department will not change the status quo 
under paragraph (e) of Sec.  23.39, which prohibits a recipient from 
counting a former ACDBE's participation toward goals beyond the 
termination date for the concession agreement in effect at the time of 
the decertification. The regulation will continue to require recipients 
to ensure that prime concessionaires make up any loss of ACDBE 
participation with good faith efforts.

41. Shortfall Analysis Submission Date (Sec.  23.57)

NPRM

    Section 23.57 requires recipients to submit a shortfall analysis 
and corrective action plan if they do not meet their ACDBE 
participation goal. The plan explains the reasons for the differences 
between their overall goal and the awards and commitments in that 
fiscal year and the specific steps and milestones they will take to 
remedy the shortfall. The Department proposed extending the due date 
for submitting a shortfall analysis from within 90 days of the end of 
the fiscal year to 30 days after submitting the Uniform Report per 49 
CFR 23.27(b).

Comments

    Commenters unanimously supported the proposed amendment noting the 
30-day extension would allow recipients to perform a more thorough 
shortfall analysis using current data from the Uniform Report.

DOT Response

    The final rule adopts the change to the shortfall provisions in 
Sec.  23.57 and

[[Page 24951]]

sets the due date to April 1 for the shortfall analysis, which is 30 
days after Uniform Report due date on March 1.

Subpart E--Other Provisions

42. Long-Term Exclusive Agreements (Sec.  23.75)

Comments

Five-Year Term for Long-Term Agreements
    The NPRM did not propose to redefine ``long-term'' to a longer 
period greater than five years because of concerns that doing such 
would reduce the degree of FAA's oversight to ensure that long-term 
concession agreements include adequate ACDBE participation. However, 
the NPRM did request additional comment from stakeholders on keeping 
the term at 5 years rather than revising it to 10 years.
    Several commenters agreed on extending the term to 7 to 10 years or 
more. The reasons for extending the term included attracting a diverse 
pool of bidders/proposers, allowing for investment amortization, 
establishing brand recognition, improving customer service, and 
reducing the workload for recipient staff during concession 
solicitations. The Department received one comment stating that the 
definition of long-term agreement should be revised to State that 
agreements are only considered long-term if an agreement contains 
options that result in a lease period of more than ten years.
Options and Definition of an Exclusive Agreement
    The current regulation does not define the term ``exclusive,'' nor 
does it include ``options'' in its definition of ``long-term'' under 
Sec.  23.75(a). To ensure that these terms are addressed in the rule, 
the NPRM proposed to revise the definition of ``long-term exclusive 
agreement'', under Sec.  23.75(a) to include the definition of 
``exclusive'' and to state an agreement is long-term if it includes 
options that result in a lease period of more than five years.
    In response to the proposal to define ``exclusive agreements'' in 
Sec.  23.75(a), commenters asked why the proposal still required FAA 
approval for an exclusive agreement with an ACDBE. They also suggested 
defining ``exclusive agreement'' as a contract that does not have ACDBE 
participation at the airport's approved goal levels for the applicable 
trade. Another commenter asked for clarification on the term ``type of 
business activity.''
Long-Term Agreements and Holdovers
    The NPRM raised concerns over holdover tenancies that may cause an 
exclusive agreement to become long-term and preclude potential ACDBE 
competitors from participating in agreements in the same manner as 
other agreements currently prohibited under the rule. While the NPRM 
did not put forth any specific proposals on how best to address 
holdover tenancies in the context of Sec.  23.75, the Department sought 
public comment on the matter.
    The few comments received in response to holdover tenancies in the 
NPRM recommended the Department to provide flexibility and allow 
holdovers up to 12 months without triggering long-term exclusive 
agreement requirements.
Special Local Circumstances
    One comment requested the Department define the term ``special 
local circumstances.'' The commenter believed that without further 
explanation, the evaluation of ``special local circumstances'' is 
completely subjective for each application and may lead to unfair 
inconsistencies across the country and, possibly, within a single 
airport. Another commenter requested clarification on whether the 
amortization period required for investment was sufficient to be 
considered a ``special local circumstance.''
Amending Document Requirements
    In response to stakeholder concerns about the documentation and 
information that recipients must submit to the FAA for approval of 
long-term exclusive agreements, the NPRM proposed several changes to 
Sec.  23.75(c). These changes aimed to address unclear, unfeasible, or 
non-pertinent documentation requirements. This included removing or 
replacing requirements under paragraph (c)(2)(ii) to review the extent 
of ACDBE participation before the exercise of each renewal option and 
the assurances under paragraph (c)(3) that require any ACDBE 
participant to be in an acceptable form. The proposal also included 
changes that allow for certain documentation and information required 
for approval of long-term exclusive (LTE) agreements to be submitted 
prior to the release of the solicitation or request for proposals and 
others, prior to award of the contract.
    The Department received a comment stating that the proposed 
revisions to the information and documentation requirements would 
significantly increase the time between when a solicitation is prepared 
and when it can be released, which could impair an airport's ability to 
obtain timely, market-relevant proposals. The comment explained that 
the timelines proposed would require airports to initiate a 
solicitation process about 12 months in advance of a contract's 
expiration in order to ensure that a new contract is in place. They 
noted that this was of particular concern because market conditions can 
change significantly over a 12-month period. They urged delaying the 
implementation of the proposed changes to the documentation 
requirements to avoid disrupting ongoing and planned procurement 
processes.
    The Department also received a comment that recommended completely 
overhauling the long-term exclusive agreement approval process and 
adopting a two-step process. This process would require the airport 
recipient to submit a goal analysis to the FAA as a notification before 
solicitation. After the solicitation process concluded, the airport 
recipient would send FAA information on the level of interest and 
availability of ACDBEs and show that the contract was awarded to a 
proposer that met the goal or made good faith efforts to meet the goal. 
Another commenter suggested that the final rule only require a 
recipient to perform a goal analysis for the specific opportunity, 
along with the type of concession and term of the proposed long-term 
exclusive agreement, which would both be sent to the FAA for approval.

DOT Response

Five-Year Term for Long-Term Agreements
    The Department recognizes that most concession agreements extend 
beyond a term of five years. Thus, the final rule extends the 
definition of long term to ten years to ease burdens that fall on 
airports required to implement LTE requirements under part 23. We note 
that this aids smaller hub airports that have fewer concession 
opportunities, increasing the likelihood of long-term exclusive 
agreements subject to FAA approval under Sec.  23.75(c). Extending the 
definition to ten years also aims to mitigate any additional burdens 
placed on smaller hub airports by the new FAA approval requirements of 
leases that become long term as a result of holdovers as discussed 
below. The Department elected not to extend the term beyond ten years 
in order to maintain FAA oversight to ensure long-term exclusive 
concession agreements maintain adequate ACDBE participation.
Long-Term Agreements and Holdovers
    Holdover provisions of an airport lease, agreement, or contract may 
permit

[[Page 24952]]

a recipient airport to extend the terms of an existing airport lease, 
in the event both the airport recipient and the tenant desire to 
continue the relationship as it exists, without executing a new lease. 
The length of holdover periods is often not defined in the lease and 
may continue on a month-to-month basis once the lease term ends.
    Notwithstanding that holdovers may bridge gaps to meet short-term 
needs, the Department is starting to see longer holdover periods 
following the end of concession lease terms. These extended holdover 
periods have a similar effect of precluding potential ACDBE competitors 
from participating in opportunities as long-term exclusive agreements 
that require approval by the FAA pursuant to Sec.  23.75. If not 
addressed, the use of holdovers in these cases, without FAA oversight, 
circumvents the requirements under Sec.  23.75. For this reason, the 
final rule now makes clear that exclusive leases, agreements, or 
contracts that become long-term as a result a holdover, absent an 
approved plan to release a solicitation for that opportunity or 
renegotiate the lease or contract, are generally prohibited.
    The final rule adds an oversight mechanism in the new paragraph (e) 
for FAA to monitor short-term leases that become long-term as a result 
of holdovers. Under the rule, airport recipients must submit a 
``holdover plan'' to FAA for approval at least 60 days prior to the 
expiration of the current contract, agreement, or lease. Holdover plans 
include the same information and documentation for LTE agreements under 
the amended paragraphs (c)(3), (c)(4), (c)(6) and (c)(7) of Sec.  
23.75, in addition to a written explanation for the holdover and the 
method and date the airport recipient will use to solicit or 
renegotiate the concession contract, agreement, or lease in holdover 
status.
    The written explanation for a holdover is similar to the existing 
special local circumstance provision. Airport recipients must 
articulate a need for a holdover period that causes an exclusive 
agreement to become a long-term lease or contract. Reasons that may 
support a holdover are bridging operational gaps that might occur due 
to renegotiations and transitions of lessees or expected delays in 
solicitation or re-bidding processes. The requirement for airport 
recipients to submit the solicitation method that they intend to apply, 
as well as a date it will renegotiate or re-bid a concession 
opportunity, provides a definitive strategy and timeframe to afford an 
opportunity for ACDBE participation.
    Under this provision, recipients are also required to submit the 
information and documentation required under Sec.  23.75(c)(3), (c)(4), 
(c)(6) and (c)(7). This includes an ACDBE contract goal analysis, ACDBE 
certification documentation and investment information, and the final 
long-term exclusive concession agreement. These items are necessary for 
FAA to determine the anticipated length of the holdover period and the 
level of ACDBE participation precluded by the holdover. Airport 
recipients that are unable to produce this information or documentation 
must submit an explanation as to why the item is not available or 
cannot be submitted as part of their holdover plan.
Definition of an Exclusive Agreement
    The final rule adopts the definition of ``exclusive'' as proposed. 
Evaluating whether an agreement is ``exclusive'' requires examining the 
agreement in reference to the type of business covered (e.g., 
management contract, advertising, web-based or electronic businesses, 
food and beverage, parking). A determination on whether a certain 
business activity under a contract, lease or agreement is exclusive 
should be made based on the totality of the circumstances. See 
Principles for Evaluating Long-Term, Exclusive Agreements in the ACDBE 
Program, June 10, 2013, Sec.  1.2, at pp. 5-6.
    In response to comments, the Department will not adopt a definition 
of ``exclusive'' that exempts LTE agreements with ACDBE participation 
from the requirements of Sec.  23.75. Such a change is inconsistent 
with the intent of Sec.  23.75, which 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 18401 (Apr. 30, 1992). Not 
requiring the review of a long-term concession agreement with ACDBE 
participation would allow low ACDBE goals set on contracts to remain in 
place for extended lease periods without justification, thereby 
precluding those opportunities from generating more meaningful ACDBE 
participation.
Special Local Circumstances
    We are not defining ``special local circumstances'' in this final 
rule. The term is intended to be broad and flexible to account for a 
wide range of scenarios that may justify the use of a long-term 
exclusive agreement. Contrary to the comment's concern that without 
further explanation, the evaluation of ``special local circumstances'' 
may lead to unfair inconsistencies, to date, FAA has not disapproved 
any request for approval of an LTE agreement based on an inadequate 
special local circumstance.
    In response to the comment seeking clarification on whether the 
amortization period required for investment was sufficient to be 
considered a ``special local circumstance,'' the answer is no. The LTE 
Guidance provides several examples of special local circumstances, 
which include the market size relative to the number of available 
vendors, reduced enplanements, an extreme act of nature, new business 
concepts, and severe economic factors (for instance, an airline goes 
out of business). The LTE Guidance makes clear that the amortization of 
the initial investment alone is not sufficient to justify approval of a 
long-term exclusive agreement, but may be a factor among others (e.g., 
marketplace concepts and full-kitchen restaurants that require more 
costly development) to support the special local circumstances 
provision under the rule.
Amending Document Requirements
    The Department is electing to amend the document requirements under 
Sec.  23.75. First, paragraph (c)(2)(i) is removed from Sec.  23.75, 
eliminating the requirement that an LTE agreement provide the ``number 
of ACDBEs that reasonably reflects their availability in a recipient's 
market area, . . . and account for a percentage of the estimated annual 
gross receipts equivalent to a level set in accordance with Sec.  23.47 
through Sec.  23.49.'' This provision is removed since the agreement 
may not provide opportunities for direct ownership and is now included 
via the new requirement to submit an ACDBE contract goal analysis under 
paragraph (c)(3).
    Second, paragraph (c)(2)(ii) is removed, eliminating the 
requirement that airport recipients ``review the extent of ACDBE 
participation before the exercise of each renewal option to consider 
whether an increase or decrease in ACDBE participation is warranted.'' 
Removing this provision is necessary to prevent a prime concessionaire 
from terminating an ACDBE from an LTE agreement after it made an 
investment simply because a decrease in participation may be warranted 
upon the exercise of an option.
    Third, paragraph (c)(2)(iii) is removed, eliminating the 
requirement that an LTE agreement include a

[[Page 24953]]

provision that provides for the termination of an ACDBE during the term 
of the LTE agreement, without the recipient's consent. This provision 
is redundant and unnecessary since Sec.  26.53, which applies to part 
23 by reference, already establishes the requirements for the 
replacement or substitution of the ACDBEs, including those that are 
party to an LTE agreement or contract.
    Fourth, the requirement in paragraph (c)(3), which requires 
recipients to submit assurances that any ACDBE participant will be in 
an acceptable form such as a sublease, joint venture, or partnership is 
replaced. The new provision now requires recipients submit an ACDBE 
contract goal analysis which captures goals set on both direct 
ownership arrangements and goods and service purchases.
    Next, the requirement in paragraph (c)(7) for recipients to provide 
information on the estimated gross receipts and net profit to be earned 
by the ACDBE is removed. This financial disclosure requirement applies 
only to the ACDBE and may be a discriminatory practice since the 
process does not require the same from the non-ACDBE.
    Section 23.75(c) is amended to now require airport recipients to 
submit items in paragraphs (c)(1) through (3) of this section prior to 
releasing the solicitation or request for proposals (RFP) and items in 
paragraphs (c)(4) through (7) prior to award of the contract.
    The Department agrees that the 90-day period to submit those items 
before the solicitation is released may be shortened to mitigate 
impacts to some airport recipients' planned procurement processes. The 
FAA does not anticipate 90 days will be required to review and approve 
LTE agreements. Therefore, the final rule shortens the 90-day period to 
submit the items in paragraphs (c)(1) through (3), to at least 60-days 
prior to release of the solicitation. The 45-day period to submit items 
in paragraphs (c)(4) through (7) before contract award will remain 
unchanged.
    Next, the Department disagrees with comments to simplify the 
information and documentation requirements under Sec.  23.75(c) to two 
items (e.g., contract goal analysis, and evidence that goal was met, or 
good faith efforts were made, etc.). ACDBE participation is a key part 
of the information needed for approval and each item in paragraphs 
(c)(1) through (c)(7) is valuable for FAA to determine whether 
arrangements have been made for adequate ACDBE participation throughout 
the LTE agreement. For this reason, the final rule retains the 
information and documentation requirements in Sec.  23.75(c) as 
proposed by the NPRM.
    The final rule adds a new paragraph (d) to Sec.  23.75 that 
addresses the requirements for agreements awarded through direct 
negotiation. Because there is no competition for awards made through 
direct negotiation, this provision omits the requirement under 
paragraph (c)(2) for airport recipients to submit a copy of the 
solicitation because solicitations are not used for direct negotiated 
procurements. Under the rule, airport recipients are still required to 
submit the items in paragraphs (c)(1) and (c)(3) through (7) of the 
updated Sec.  23.75.

43. Local Geographic Preferences (Sec.  23.79)

NPRM

    The current Sec.  23.79 prohibits recipients from using local 
geographic preference, which is defined under the rule as any 
requirement that gives an ACDBE located in one place an advantage over 
ACDBEs from other places in obtaining business as, or with, a 
concession at an airport. The proposed revision to Sec.  23.79 
clarifies that regardless of a concession's certification status, any 
local geographic preferences that gives a concession located in a local 
area an advantage over concessions from other places is prohibited.

Comments

    There was unanimous support for the NPRM's proposed revisions to 
Sec.  23.79. Commenters agreed with the revisions to clarify that local 
geographic preferences are not permitted regardless of concession 
certification status but that recipients may request concepts that are 
local to a specific region when soliciting proposals.
    One commenter suggested that the Department include within the 
regulation examples of what requirements could constitute ``advantage'' 
for local concessionaires over other concessionaires from other places.

DOT Response

    The final rule adopts the changes to Sec.  23.79. This clarifying 
change makes clear that the provision prohibiting local geographic 
preferences applies not just to ACDBEs but all firms, regardless of 
their concession certification status. The final rule also leaves the 
existing definition of local geographic preference unchanged. Section 
23.79 defines local geographic preference as any requirement that gives 
a concessionaire located in one place (e.g., [recipient's] local area) 
an advantage over concessionaires from other places in obtaining 
business as, or with, a concession at [recipient's] airport.
    Under the definition of local geographic preference, an example of 
what may constitute an advantage is a preference criteria used in the 
evaluation of bids or proposals based on a firm's geographic location, 
or owner's residency. Another example of what may constitute advantage 
is the placement of unreasonable local requirements on firms in order 
for them to qualify to do business. Nothing in this section should be 
construed as preempting State licensing requirements or prohibiting 
concepts that are local to a specific region when soliciting proposals. 
However, airport recipients should still report to the FAA all other 
State or local law, regulation, or policy pertaining to minorities, 
women, or disadvantaged business enterprises concerning airport 
concessions that adds to, goes beyond, or imposes more stringent 
requirements than the provisions of part 23. The FAA will determine 
whether such a law, regulation, or policy conflicts with this part, in 
which case the requirements of this part will govern. See Sec.  23.77.

44. Appendix A to Part 23: Uniform Report of ACDBE Participation Form

NPRM

    Section 23.27(b) requires recipients to submit an annual report on 
ACDBE participation using the Uniform Report found in Appendix A. The 
Department proposed to remove the Uniform Report of ACDBE Participation 
from Appendix A to Part 23 and instead post the form on DOT's website. 
This is an administrative action that does not affect the public's 
ability to comment on any amendments to the information collections in 
the form.

Comments

    In the NPRM, the Department estimated that it would take primary 
airports 3.2 hours to comply with the proposed ACDBE Annual Report of 
Percentages of ACDBEs in Various Categories in Sec.  23.27(d). The 
commenter objected to the Department's estimate, approximating that it 
would take at least 40 hours.
Block #5 Instructions of Appendix A, Definition of Goods and Services
    The NPRM proposed revising 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 ACDBEs should be reported. The

[[Page 24954]]

majority of commenters supported the proposal to revise the definition 
of ``goods/services.'' However, concerns were raised on the calculation 
of Columns A and C in block #5 of Appendix A. Some commenters inquired 
about why purchases were not included in the total line for Column A 
but included in Column C, which could lead to misrepresentation of 
data.
    A few commenters focused on goods/services and recommended that the 
Department revisit the calculation, as recipients are not clear on how 
to utilize goods/services. One commenter noted that goods/services were 
not sufficiently addressed in the NPRM, and another requested 
clarification on reporting gross revenues if the goal is based on 
purchases.
Block #5 New Joint Venture Participation Category
    No comments were received in response to the NPRM's proposal to 
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. The purpose of the change was to provide 
guidance to recipients 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 Department received several comments on the NPRM's proposal to 
amend the requirements under block #11 in the Uniform Report to allow 
for participation to be reported by ACDBEs owned by multiple partners 
who are from different groups and whose members are presumed socially 
and economically disadvantaged (SED).
    Two stakeholders provided comments regarding the proposed change to 
block #11, expressing concerns about the amount of time it would take 
to complete the reporting and the lack of detailed information that 
airports may have regarding ownership demographics. As a result, 
neither commenter supported the proposed change to Appendix A, blocks 
#10 and #11. Instead, they recommended that recipients report the 
ethnicity and gender of the largest socially and economically 
disadvantaged shareholder, the owner with primary control, or the owner 
who holds the highest position within the business. Additionally, 
commenters suggested that certifying entities should make detailed 
information on the owners and their firms more easily accessible to 
non-certifying airports.

DOT Response

    The final rule adopts the Department's proposal and will post the 
Uniform Report of ACDBE Participation on Department's website as 
amended below. A commenter's estimate of 40 hours to complete this task 
is unreasonable; based on the supporting statement DOT developed in 
support of this rulemaking and the information collection that has been 
submitted to OMB for approval, this task should take -4 hours, much 
less time on average.
Block #5 Instructions of Appendix A, Definition of Goods and Services
    For the goods and services to be credited toward goals, goods and 
services must be purchased by concessionaires and management 
contractors from firms that meet definitions of ``concession'' and 
``ACDBE'' under Sec.  23.3. Purchases of goods and services by the 
airport cannot be credited toward goals. For this reason, the final 
rule adopts the definition of ``goods/services'' in the block #5 
instructions as proposed, with the clarification that only 
participation in the form of goods and services purchased by 
concessionaires and management contractors from ACDBEs should be 
reported.
    In response to comments, the existing Block #5 instructions are 
clear that recipients should enter in Column A, purchases of goods and 
services (ACDBE and non-ACDBE combined) at the airport.
Block #5 New Joint Venture Participation Category
    The final rule will adopt the new participation category for joint 
ventures as proposed.
Blocks #10 and #11 Reporting of ACDBEs Owned by Members of Different 
Socially Disadvantaged Groups
    The final rule adopts the proposed amendment to the requirements 
under block #11 in the Uniform Report to allow for participation to be 
reported by ACDBEs owned by multiple partners who are from different 
groups and whose members are presumed socially and economically 
disadvantaged (SED). The Department disagrees with comments that 
information on individual SEDOs would be difficult to obtain and that 
implementation of this new reporting requirement would be burdensome. 
Demographic information of individual SEDOs should be readily available 
to non-certifying airports since they are already obligated to collect 
racial and ethnic data of lessees, concessionaires and contractors 
under the existing Title VI nondiscrimination requirements in 49 CFR 
part 21.
    In addition, the final rule expands the MAP-21 reporting 
requirements under Sec.  26.11 to include ACDBEs and the number and 
percentage of in-state and out-of-state SEDOs by gender and ethnicity. 
Non-certifying airports will be able to more easily obtain information 
on individual SEDOs and their firms and report this information each 
year on the Uniform Report.

45. Technical Corrections

    Commenters unanimously supported the Department's proposal to make 
the provisions in part 23 consistent with the provisions of part 26, 
clarify existing requirements, correct typographical errors, and revise 
obsolete and/or duplicative provisions, and make cross references, as 
appropriate. The final rule fully adopts the proposal.

46. Duration

    The Department received a comment on the length of time that a 
certification remains in effect. The commenter suggested the Department 
cap the number of years that a firm may remain certified for. In their 
view, the indefinite nature of certification stifles outreach and 
implicitly closes the door to other small eligible firms. By adding a 
maximum duration for certification, the program could open 
opportunities for new and developing firms to take advantage of the 
program.
    The final rule will not adopt the above recommendation. The 
authorizations and statutes governing the airport improvement program 
do not provide the Department flexibility to place limitations or 
timeframes on certification of firms.

Regulatory Analysis and Notices

A. Executive Order: 12866 (``Regulatory Planning and Review''), 
Executive Order 13563 (``Improving Regulation and Regulatory Review''), 
Executive Order 14094 (Modernizing Regulatory Review), and 49 CFR Part 
5 and DOT Order 2100.6A

    This final rule has been deemed significant under section 3(f) of 
Executive Order 12866, ``Regulatory Planning and Review,'' as amended 
by Executive Order 14094 (``Modernizing Regulatory Review'') and the 
Department's regulations and orders (49 CFR part 5 and DOT Order 
2100.6A, available at https://www.transportation.gov/sites/dot.gov/files/2021-06/DOT-2100.6A-Rulemaking-and-Guidance-%28003%29.pdf), 
because of its interest to the small business community and

[[Page 24955]]

transportation industries. It has been reviewed by the Office of 
Management and Budget (OMB) under Executive Order 12866.
    The objective of the rule is to 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 in this 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 rule. Businesses, recipients, 
and the Department would incur some costs due to increased reporting 
requirements. At the same time, they would experience overall cost 
savings because the rule simplifies provisions and would relax 
requirements--for example, by allowing recipients to conduct virtual 
on-site visits.
    Table 1 summarizes the estimated costs and cost savings of the rule 
over a ten-year analysis period (non-Federal Government). The rule has 
annualized net cost savings of $58.7 million at a 3 percent discount 
rate and $6.74 million at a 7 percent discount rate.

Table 1--Summary of Costs and Cost Savings of the Rule, 10-Year Period

[Rounded to Thousands]

                                                     Table 1--Costs and Cost Savings, 10-Year Period
                                                         [Dollars, rounded to the nearest 1,000]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                              Undiscounted     Present value 3%    Annualized 3%     Present value 7%    Annualized 7%
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total cost savings.......................................        203,668,000        178,773,000         20,957,000        152,727,000         21,744,000
Total cost...............................................        134,030,000        120,073,000         14,075,000        105,400,000         15,005,000
                                                          ----------------------------------------------------------------------------------------------
    Net cost savings.....................................         69,638,000         58,700,000          6,882,000         47,327,000          6,739,000
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The Department determined that amending the rules is necessary 
because 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 post-pandemic environment. 
The rule updates several core provisions of the regulation to maintain 
optimal program performance, improve operational cohesiveness, and 
provide contemporary solutions for program deficiencies.

B. 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 agencies 
to review regulations 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. 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-OST-2022-0051-008.
    DOT invited all interested parties to submit data and information 
regarding the potential economic impact on small entities that would 
come from promulgating the NPRM. DOT considered the comments received 
in the public comment process when preparing the Final Regulatory 
Flexibility Analysis, and we received no comments on the preliminary 
finding of non-significance.

C. Executive Order 13132 (``Federalism'')

    This final rule has been analyzed in accordance with the principles 
and criteria contained in Executive Order 13132 (``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.

D. 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.

E. Unfunded Mandates Reform Act

    The Unfunded Mandates Reform Act (UMRA) of 1995, 2 U.S.C. 1501, 
requires agencies to prepare a written assessment of the costs, 
benefits, and other effects of proposed or final rules that include a 
Federal mandate likely to result in the expenditures by State, local or 
Tribal governments, or by the private sector, of $100 million or more 
(adjusted annually for inflation with base year of 1995) in any one 
year. The 2021 threshold after adjustment for inflation is $165 
million, using the Implicit Price Deflator for the Gross Domestic 
Product. The assessment may be included in conjunction with other 
assessments, as it is here. The final rule is unlikely to result in 
expenditures by State, local, or Tribal governments of more than $100 
million annually.

F. Paperwork Reduction Act

    This final rule adds 6 new collections of information and 17 
existing collections being revised that require approval by OMB under 
the Paperwork Reduction Act of 1995 (Pub. L. 104-13, 44 U.S.C. 3501 et 
seq.). Under the Paperwork Reduction Act, before an agency submits a 
proposed collection of information to OMB for approval, it must first 
publish a document in the Federal Register providing notice of the 
proposed information collection and a 60-day comment period, and 
otherwise consult with members of the public and affected agencies 
concerning each proposed collection of information. The Department met 
these requirements when it published a notice of the proposed 
information in its July 21, 2022, NPRM and accompanying submission to 
OIRA. Comments to these collections are described above.

[[Page 24956]]

G. 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) and Federal Highway 
Administration's implementing procedures, ``[p]romulgation of rules, 
regulations, and directives.'' 23 CFR 771.117(c)(20). 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 purpose of this rulemaking is to make technical improvements to 
the Department's DBE program, including modifications to the forms used 
by program and certification-related changes. While this rule has 
implications for eligibility for the program--and therefore may change 
who is eligible for participation in the DBE program--it does not 
change the underlying programs and projects being carried out with DOT 
funds. Those programs and projects remain subject to separate 
environmental review requirements, including review under NEPA. The 
Department does not anticipate any environmental impacts, and there are 
no extraordinary circumstances present in connection with this 
rulemaking.

List of Subjects in 49 CFR Part 23 and 26

    Administrative practice and procedure, Airports, Civil Rights, 
Government contracts, Grant programs--transportation; Mass 
transportation, Minority Businesses, Reporting and recordkeeping 
requirements.

    Issued this 27 day of February, 2024, at Washington, DC.
Peter Paul Montgomery Buttigieg,
Secretary of Transportation.

    For the reasons set forth in the preamble, the Department of 
Transportation amends 49 CFR parts 23 and 26 as follows:

PART 23--PARTICIPATION OF DISADVANTAGED BUSINESS ENTERPRISE IN 
AIRPORT CONCESSIONS

0
1. The authority citation for part 23 is revised 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. 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); and
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 marketplace outside the ACDBE program; and
* * * * *

0
3. Revise Sec.  23.3 to read as follows:


Sec.  23.3  What do the terms used in this part mean?

    Administrator means the Administrator of the Federal Aviation 
Administration (FAA).
    Affiliation has the same meaning the term has in the Small Business 
Administration (SBA) regulations, 13 CFR part 121, except that the 
provisions of SBA regulations concerning affiliation in the context of 
joint ventures (13 CFR 121.103(h)) do not apply to this part.
    (1) Except as otherwise provided in 13 CFR part 121, concerns are 
affiliates of each other when, either directly or indirectly:
    (i) One concern controls or has the power to control the other; or
    (ii) A third party or parties controls or has the power to control 
both; or
    (iii) An identity of interest between or among parties exists such 
that affiliation may be found.
    (2) In determining whether affiliation exists, it is necessary to 
consider all appropriate factors, including common ownership, common 
management, and contractual relationships. Affiliates must be 
considered together in determining whether a concern meets small 
business size criteria and the statutory cap on the participation of 
firms in the ACDBE program.
    Airport Concession Disadvantaged Business Enterprise (ACDBE) means 
a firm seeking to operate as a concession that is a for-profit small 
business concern--
    (1) That is at least 51 percent owned by one or more individuals 
who are both socially and economically disadvantaged or, in the case of 
a corporation, in which 51 percent of the stock is owned by one or more 
such individuals; and
    (2) Whose management and daily business operations are controlled 
by one or more of the socially and economically disadvantaged 
individuals who own it.
    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.
    Alaska Native Corporation (ANC) means any Regional Corporation, 
Village Corporation, Urban Corporation, or Group Corporation organized 
under the laws of the State of Alaska in accordance with the Alaska 
Native Claims Settlement Act (43 U.S.C. 1601 et seq.)
    Assets has the same meaning the term has in 49 CFR part 26.
    Car dealership means an establishment primarily engaged in the 
retail sale of new and/or used automobiles. Car dealerships frequently 
maintain repair departments and carry stocks of replacement parts, 
tires, batteries, and automotive accessories. Such establishments also 
frequently sell pickup trucks and vans at retail. In the standard 
industrial classification system, car dealerships are categorized in 
NAICS code 441110.
    Concession means one or more of the types of for-profit businesses 
that serve the traveling public listed in paragraph (1) or (2) of this 
definition:
    (1) A business, located on an airport subject to this part, that is 
engaged in the sale of consumer goods or services

[[Page 24957]]

to the traveling 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 this part, 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.
    Example 1 to paragraph (2): A supplier of goods or a management 
contractor maintains its office or primary place of business off the 
airport. However, the supplier provides goods to a retail establishment 
in the airport; or the management contractor operates the parking 
facility on the airport. These businesses are considered concessions 
for purposes of this part.
    (3) For purposes of this subpart, a business is not considered to 
be ``located on the airport'' solely because it picks up and/or 
delivers customers under a permit, license, or other agreement. For 
example, providers of taxi, limousine, car rental, or hotel services 
are not considered to be located on the airport just because they send 
shuttles onto airport grounds to pick up passengers or drop them off. A 
business is considered to be ``located on the airport,'' however, if it 
has an on-airport facility. Such facilities include in the case of a 
taxi operator, a dispatcher; in the case of a limousine, a booth 
selling tickets to the public; in the case of a car rental company, a 
counter at which its services are sold to the public or a ready return 
facility; and in the case of a hotel operator, a hotel located anywhere 
on airport property.
    (4) Any business meeting the definition of concession is covered by 
this subpart, regardless of the name given to the agreement with the 
recipient, concessionaire, or airport terminal owner or lessee. A 
concession may be operated under various types of agreements, including 
but not limited to the following:
    (i) Leases.
    (ii) Subleases.
    (iii) Permits.
    (iv) Contracts or subcontracts.
    (v) Other instruments or arrangements.
    (5) The conduct of an aeronautical activity is not considered a 
concession for purposes of this subpart. Aeronautical activities 
include scheduled and non-scheduled air carriers, air taxis, air 
charters, and air couriers, in their normal passenger or freight 
carrying capacities; fixed base operators; flight schools; recreational 
service providers (e.g., skydiving, parachute-jumping, flying guides); 
and air tour services.
    (6) Other examples of entities that do not meet the definition of a 
concession include flight kitchens and in-flight caterers servicing air 
carriers, government agencies, industrial plants, farm leases, 
individuals leasing hangar space, custodial and security contracts, 
telephone and electric service to the airport facility, holding 
companies, and skycap services under contract with an air carrier or 
airport.
    Concessionaire means a firm that owns and controls a concession or 
a portion of a concession.
    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.
    Direct ownership arrangement means a joint venture, partnership, 
sublease, licensee, franchise, or other arrangement in which a firm 
owns and controls a concession.
    Good faith efforts means efforts to achieve an ACDBE goal or other 
requirement of this part that, by their scope, intensity, and 
appropriateness to the objective, can reasonably be expected to meet 
the program requirement.
    Immediate family member means father, mother, husband, wife, son, 
daughter, brother, sister, grandmother, grandfather, grandson, 
granddaughter, mother-in-law, father-in-law, brother-in-law, sister-in-
law, or registered domestic partner.
    Indian Tribe means any Indian Tribe, band, nation, or other 
organized group or community of Indians, including any ANC, which is 
recognized as eligible for the special programs and services provided 
by the United States to Indians because of their status as Indians, or 
is recognized as such by the State in which the Tribe, band, nation, 
group, or community resides. See definition of ``tribally-owned 
concern'' in this section.
    Joint venture means an association of an ACDBE firm and one or more 
other firms to carry out a single, for-profit business enterprise, for 
which the parties combine their property, capital, efforts, skills and 
knowledge, and in which the ACDBE is responsible for a distinct, 
clearly defined portion of the work of the contract and whose shares in 
the capital contribution, control, management, risks, and profits of 
the joint venture are commensurate with its ownership interest. Joint 
venture entities are not certified as ACDBEs.
    Large hub primary airport means a commercial service airport that 
has a number of passenger boardings equal to at least one percent of 
all passenger boardings in the United States.
    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.
    Management contract or subcontract means an agreement with a 
recipient or another management contractor under which a firm directs 
or operates one or more business activities, the assets of which are 
owned, leased, or otherwise controlled by the recipient. The managing 
agent generally receives, as compensation, a flat fee or a percentage 
of the gross receipts or profit from the business activity. For 
purposes of this subpart, the business activity operated or directed by 
the managing agent must be other than an aeronautical activity, be 
located at an airport subject to this subpart, and be engaged in the 
sale of consumer goods or provision of services to the public.
    Material amendment means a significant change to the basic rights 
or obligations of the parties to a concession agreement. Examples of 
material amendments include an extension to the term not provided for 
in the original agreement or a substantial increase in the scope of the 
concession privilege. Examples of nonmaterial amendments include a 
change in the name of the concessionaire or a change to the payment due 
dates.
    Medium hub primary airport means a commercial service airport that 
has a number of passenger boardings equal to at least 0.25 percent of 
all passenger boardings in the United States but less than one percent 
of such passenger boardings.

[[Page 24958]]

    Native Hawaiian means any individual whose ancestors were natives, 
prior to 1778, of the area that now comprises the State of Hawaii.
    Native Hawaiian Organization means any community service 
organization serving Native Hawaiians in the State of Hawaii that is a 
not-for-profit organization chartered by the State of Hawaii, and is 
controlled by Native Hawaiians
    Noncompliance means that a recipient has not correctly implemented 
the requirements of this part.
    Nonhub primary airport means a commercial service airport that has 
more than 10,000 passenger boardings each year but less than 0.05 
percent of all passenger boardings in the United States.
    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 designee(s).
    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.
    Primary airport means a commercial service airport that the 
Secretary determines to have more than 10,000 passengers enplaned 
annually.
    Primary industry classification means the North American Industrial 
Classification System (NAICS) code designation that best describes the 
primary business of a firm. The NAICS Manual is available through the 
U.S. Census Bureau of the U.S. Department of Commerce. The U.S. Census 
Bureau also makes materials available through its website (https://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 and where top management's business records are kept. If 
the offices from which management is directed and where business 
records are kept are in different locations, the recipient will 
determine the principal place of business for ACDBE program purposes.
    Race-conscious means a measure or program that is focused 
specifically on assisting only ACDBEs, including women-owned ACDBEs. 
For the purposes of this part, race-conscious measures include gender-
conscious measures.
    Race-neutral means a measure or program that is, or can be, used to 
assist all small businesses, without making distinctions or 
classifications on the basis of race or gender.
    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.
    Secretary means the Secretary of Transportation or his/her 
designee.
    Set-aside means a contracting practice restricting eligibility for 
the competitive award of a contract solely to ACDBE firms.
    Small Business Administration or SBA means the United States Small 
Business Administration.
    Small business concern means a for profit business that does not 
exceed the size standards of Sec.  23.33.
    Small hub airport means a publicly owned commercial service airport 
that has a number of passenger boardings equal to at least 0.05 percent 
of all passenger boardings in the United States but less than 0.25 
percent of such passenger boardings.
    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 the certifier requires it.
    (2) Any individual in the following groups, members of which are 
rebuttably presumed to be socially and economically disadvantaged:
    (i) ``Black Americans,'' which includes persons having origins in 
any of the Black racial groups of Africa;
    (ii) ``Hispanic Americans,'' which includes persons of Mexican, 
Puerto Rican, Cuban, Dominican, Central or South American, or other 
Spanish or Portuguese culture or origin, regardless of race;
    (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.
    (v) ``Subcontinent Asian Americans,'' which includes persons whose 
origins are from India, Pakistan, Bangladesh, Bhutan, the Maldives 
Islands, Nepal or Sri Lanka;
    (vi) Women;
    (vii) Any additional groups whose members are designated as 
socially and economically disadvantaged by the SBA, at such time as the 
SBA designation becomes effective.
    Subconcession 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 subconcession in which the 
sublessee is independently responsible for the full financing and 
operation of the subleased concession location(s) and activities. A 
sublease passes on to the sublessee all requirements applicable to the 
concession under the primary lease, including proportionate share of 
the rent and capital expenditures.
    Tribally-owned concern means any concern at least 51 percent owned 
by an Indian Tribe as defined in this section.
    You refers to a recipient, unless a statement in the text of this 
part or the context requires otherwise (i.e., ``You must do XYZ'' means 
that recipients must do XYZ).


Sec.  23.13  [Amended]

0
4. Amend Sec.  23.13 by:
0
a. In paragraph (b) introductory text, in the first sentence, removing 
the word ``of'' appearing after the word ``interpretations''; and
0
b. In paragraph (d) introductory text, removing the phrase ``are for 
the purpose of authorizing'' and adding in its place the word 
``authorize''.

0
5. Revise Sec.  23.21 to read as follows:


Sec.  23.21  Who must submit an ACDBE program to FAA, and when?

    (a) If you are a primary airport and receive FAA financial 
assistance, you must submit an ACDBE program plan meeting the 
requirements of this part to the FAA for approval.

[[Page 24959]]

    (1) The recipient must submit this program plan on the same 
schedule as provided for in 23.45(a) of this part.
    (2) Timely submission and FAA approval of a recipient's ACDBE 
program plan is a condition of eligibility for FAA financial 
assistance.
    (b) If you are a primary airport that does not have an ACDBE 
program, and you apply for a grant of FAA funds for airport planning 
and development under 49 U.S.C. 47107 et seq., you must submit an ACDBE 
program plan to the FAA at the time of your application. Timely 
submission and FAA approval of your ACDBE program are conditions of 
eligibility for FAA financial assistance.
    (c) If you are the owner of more than one airport that is required 
to have an ACDBE program, you may implement one plan for all your 
locations. However, you must establish a separate ACDBE goal for each 
airport.
    (d) If a recipient makes any significant changes to their ACDBE 
program at any time, the recipient must provide the amended program to 
the FAA for approval before implementing the changes.
    (e) If a recipient is a non-primary airport, non-commercial service 
airport, a general aviation airport, reliever airport, or any other 
airport that does not have scheduled commercial service, it is not 
required to have an ACDBE program. However, the recipient must take 
appropriate outreach steps to encourage available ACDBEs to participate 
as concessionaires whenever there is a concession opportunity.

0
6. Amend Sec.  23.23 by adding paragraph (c) to read as follows:


Sec.  23.23  What administrative provisions must be in a recipient's 
ACDBE program?

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

0
7. Amend Sec.  23.25 by revising paragraphs (d), (e), and (f) to read 
as follows:


Sec.  23.25  What measures must recipients include in their ACDBE 
programs to ensure nondiscriminatory participation of ACDBEs in 
concessions?

* * * * *
    (d) Your ACDBE program must include race-neutral measures that you 
will take. You must maximize the use of race-neutral measures, 
obtaining as much as possible of the ACDBE participation needed to meet 
overall goals through such measures. These are responsibilities that 
you directly undertake as a recipient, in addition to the efforts that 
concessionaires make, to obtain ACDBE participation. The following are 
examples of race-neutral measures you can implement:
    (1) Locating and identifying ACDBEs and other small businesses who 
may be interested in participating as concessionaires under this part;
    (2) Notifying ACDBEs of concession opportunities and encouraging 
them to compete, when appropriate;
    (3) When practical, structuring concession activities to encourage 
and facilitate the participation of ACDBEs;
    (4) Providing technical assistance to ACDBEs in overcoming 
limitations, such as inability to obtain bonding or financing;
    (5) Ensuring that competitors for concession opportunities are 
informed during pre-solicitation meetings about how the recipient's 
ACDBE program will affect the procurement process;
    (6) Providing information concerning the availability of ACDBE 
firms to competitors to assist them in obtaining ACDBE participation; 
and
    (7) Establishing a business development program (see Sec.  26.35 of 
this chapter); technical assistance program; or taking other steps to 
foster ACDBE participation 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 of the relative availability of ACDBEs and all relevant 
evidence reasonably supports that there is de minimis availability for 
direct ownership arrangement participation for that concession 
opportunity.
    (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 from ACDBEs, calculate the goal as a percentage of 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 
Sec. Sec.  26.51 through 26.53 of this chapter 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 no later than October 7, 2024. As part of 
this program element

[[Page 24960]]

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.
    (3) On concession opportunities that do not include ACDBE contract 
goals, require all concession models 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, and implementation 
timeline.
    (d) Your element must include the following assurances:
    (1) Your element is authorized under State law;
    (2) Certified ACDBEs that meet the size criteria established under 
your element are presumptively eligible to participate in your element;
    (3) There are no geographic preferences or limitations imposed on 
any concession opportunities included in your element;
    (4) There are no limits on the number of concession opportunities 
awarded to firms participating in your element but that every effort 
will be made to avoid creating barriers to the use of new, emerging, or 
untried businesses;
    (5) You will take aggressive steps to encourage those minority and 
women owned firms that are eligible for ACDBE certification to become 
certified; and
    (6) Your element is open to small businesses regardless of their 
location (i.e., that there is no local or other geographic preference).
    (e) 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.
    (f) This element must not include local geographic preferences per 
Sec.  23.79.
    (g) 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.
    (h) 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 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 participants 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 the concession contract in which the 
firm is seeking to perform;
    (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 March 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 Sec.  26.81 of this 
chapter must report to DOT's Departmental Office of Civil Rights each 
year, the following information:
    (1) The 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) The number of ACDBE certification applications received from 
in-state and out-of-state firms and the number found eligible and 
ineligible;
    (3) The number of decertified firms:
    (i) Total in-state and out-of-state firms decertified;
    (ii) Names of in-state and out-of-state firms decertified because 
SEDO exceeded the personal net worth cap;
    (iii) Names of in-state and out-of-state firms decertified for 
excess gross receipts beyond the relevant size standard.
    (4) Number of in-state and out-of-state ACDBEs summarily suspended;
    (5) Number of in-state and out-of-state ACDBE applications received 
for an individualized determination of social and economic disadvantage 
status; and
    (6) 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) Except as provided in paragraph (b) of this section, recipients 
must 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;

[[Page 24961]]

    (2) Passenger car rental companies. $75.23 million average annual 
gross receipts over the firm's previous five fiscal years;
    (3) Pay telephones. 1,500 employees; and
    (4) 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?

    (a) The Department will adjust the PNW cap by May 9, 2024 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 (Supplementary Table B.101.h)'' produced by the 
Board of Governors of the Federal Reserve (https://www.federalreserve.gov/releases/z1/), and normalized by the total 
number of households as collected by the Census in ``Families and 
Living Arrangements'' (https://www.census.gov/topics/families/families-and-households.html) to account for population growth. The Department 
will adjust the PNW cap every 3 years on the anniversary of the initial 
adjustment date described in this section. The Department will post the 
adjustments on the Departmental Office of Civil Rights' web page, 
available at https://www.Transportation.gov/DBEPNW. Each such 
adjustment will become the currently applicable PNW limit for purposes 
of this regulation.
    (b) The Department will use the following formula to adjust the PNW 
limit:
[GRAPHIC] [TIFF OMITTED] TR09AP24.000

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 Sec.  26.83(c)(1) of this chapter 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) Visit the firm's principal place of business, virtually or in 
person, and interview the SEDO, officers, and key personnel. You must 
review those persons' r[eacute]sum[eacute]s and/or work histories. You 
must maintain a complete audio recording of the interviews. The 
certifier must also visit one or more active job sites (if there is 
one). These activities comprise the ``on-site review'' (OSR), a written 
report of which the certifier must keep in its files.
    (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
    (8) Require applicants for ACDBE certification to complete and 
submit an appropriate application form, except as otherwise provided in 
Sec.  26.85 of this chapter.
    (b) In reviewing the Declaration of Eligibility required by Sec.  
26.83(j) of this chapter, 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 Sec.  
26.87(j) of this chapter includes a firm holding a 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 Sec.  26.63(c)(2) of this chapter do not 
apply. The eligibility of ANC-owned firms for purposes of this part is 
governed by Sec.  26.63(c)(1) of this chapter.
    (e) You must use the Uniform Certification Application found in 
part 26 of this chapter 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. 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.

0
15. 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?

* * * * *

[[Page 24962]]

    (c) The requirements of this section do not apply if no new 
concession opportunities 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
16. Amend Sec.  23.45 by revising paragraphs (a), (b), and (h) to read 
as follows:


Sec.  23.45  What are the requirements for submitting overall goal 
information to the FAA?

    (a) You must submit your overall goals to the appropriate FAA 
Regional Civil Rights Office for approval. 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.
    (b) You must then submit goals every three years based on the 
published schedule.
* * * * *
    (h) If the FAA determines that your goals have not been correctly 
calculated or the justification is inadequate, the FAA may, after 
consulting with you, adjust your overall goal or race-conscious/race-
neutral ``split.'' The adjusted goal represents the FAA's determination 
of an appropriate overall goal for ACDBE participation in the 
recipient's concession program, based on relevant data and analysis. 
The adjusted goal is binding.
* * * * *


Sec.  23.51  [Amended]

0
17. Amend Sec.  23.51 in paragraph (c)(1) by removing ``www.census.gov/epcd/cbp/view/cbpview.html'' and adding in its place https://www.census.gov/programs-surveys/cbp.html.''


Sec.  23.53  [Amended]

0
18. Amend Sec.  23.53 in paragraph (d)(2) by removing ``a ACDBE'' and 
adding ``an ACDBE'' in its place.

0
19. Amend Sec.  23.55 by:
0
a. Revising paragraph (e);
0
b. In paragraph (g), removing ``a ACDBE'' and adding ``an ACDBE'' in 
its place; and
0
c. Revising paragraphs (h)(1) and (2) and (j).
    The revisions read as follows:


Sec.  23.55  How do recipients count ACDBE participation toward goals 
for items other than car rentals?

* * * * *
    (e) Count 100 percent of fees or commissions charged by an ACDBE 
firm for a bona fide service, provided that, as the recipient, you 
determine this amount to be reasonable and not excessive as compared 
with fees customarily allowed for similar services. Such services may 
include, but are not limited to, professional, technical, consultant, 
legal, security systems, advertising, building cleaning and 
maintenance, computer programming, or managerial.
* * * * *
    (h) * * *
    (1) Count 100 percent of fees or commissions charged for assistance 
in the procurement of the goods, provided that this amount is 
reasonable and not excessive as compared with fees customarily allowed 
for similar services. Do not count any portion of the cost of the goods 
themselves.
    (2) Count 100 percent of fees or transportation charges for the 
delivery of goods required for a concession, provided that this amount 
is reasonable and not excessive as compared with fees customarily 
allowed for similar services. Do not count any portion of the cost of 
goods themselves.
* * * * *
    (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 change. 
Reporting must be made as provided in Sec.  26.83(i) of this chapter.
    (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
20. Amend Sec.  23.57 by revising 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
21. Amend Sec.  23.59 in paragraph (b) by removing ``DBEs' '' and 
adding ``ACDBEs' '' in its place.


Sec.  23.71  [Amended]

0
22. Amend Sec.  23.71 by removing the first sentence.

0
23. 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 of more than ten years, including any combination of base 
term and options or holdovers to extend the term of the agreement, if 
the effect is a term of more than ten 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 60 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:

[[Page 24963]]

    (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, if applicable.
    (7) Final long-term exclusive concession agreement, subleasing or 
other agreements.
    (d) In order to obtain FAA approval of a long-term exclusive 
concession agreement that has been awarded through direct negotiations, 
you must submit the items in paragraphs (c)(1) and (3) through (7) of 
this section at least 45 days before contract award.
    (e) In order to obtain FAA approval of an exclusive concession 
agreement that becomes long-term as a result of a holdover tenancy, you 
must submit to the responsible FAA regional office a holdover plan for 
FAA approval at least 60 days prior to the expiration of the current 
lease term. The holdover plan shall include the following information:
    (1) A description of the special local circumstances that warrant 
the holdover.
    (2) Anticipated date for renewal or re-bidding of the agreement.
    (3) The method to be applied for renewal or re-bidding of the 
agreement.
    (4) Submission of all items required under paragraphs (c)(3), (4), 
(6), and (7) of this section for the agreement in holdover status or an 
explanation as to why the item is not available or cannot be submitted.


Sec.  23.77  [Amended]

0
24. Amend Sec.  23.77 in paragraph (b) by removing the term 
``disadvantaged business enterprise'' and adding in its place 
``Disadvantaged Business Enterprise''.

0
25. 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
26. 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).


Sec.  26.1  [Amended]

0
29. Amend Sec.  26.1 in paragraph (f) by removing ``federally-
assisted'' and add in its place ``federally assisted''.

0
30. 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), Public Law 102-240, 105 Stat. 1914, or Titles I, III, 
and V of the Transportation Equity Act for the 21st Century (TEA-21), 
Public Law 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), Public Law 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) Public Law 114-
94;, and Divisions A and C of the Bipartisan Infrastructure Law (BIL), 
enacted as the Infrastructure Investment and Jobs Act (IIJA), Public 
Law 117-58.
    (2) Federal transit funds authorized by Titles I, III, V and VI of 
ISTEA, Public Law 102-240 or by Federal transit laws in Title 49, U.S. 
Code, or Titles I, III, and V of the TEA-21, Public Law 105-178. Titles 
I, III, and V of the Safe, Accountable, Flexible, Efficient 
Transportation Equity Act: A Legacy for Users (SAFETEA-LU), Public Law 
109-59, 119 Stat. 1144; Divisions A and B of the Moving Ahead for 
Progress in the 21st Century Act (MAP-21), Public Law 112-141, 126 
Stat. 405; Titles I, II, III, and VI of the Fixing America's Surface 
Transportation Act (FAST Act) Public Law 114-94; and Divisions A and C 
of the Bipartisan Infrastructure Law (BIL), enacted as the 
Infrastructure Investment and Jobs Act (IIJA) (Pub. L. 117-58), Public 
Law 117-58.
    (3) Airport funds authorized by 49 U.S.C. 47101, et seq.
    (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 not participate, this part does not apply to the contract.

0
31. 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. Adding the definitions for FTA Tier I recipient and FTA Tier II 
recipient in alphabetical order;
0
d. Removing the definition of Home state;
0
e. Removing the definition of Indian tribe and adding the definition of 
Indian Tribe or Native American Tribe in its place;
0
f. Adding the definitions for Notice of decision and Notice of intent 
in alphabetical order;
0
g. Removing the definition Personal net worth and adding the definition 
Personal net worth or PNW in its place;
0
h. Revising the definitions of Primary industry classification, 
Principal place of business, Recipient, and Secretary;
0
i. In the definition of Socially and economically disadvantaged 
individual:
0
i. 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
j. Removing the definition of Transit vehicle manufacturer and adding 
in its place the definition Transit vehicle manufacturer (TVM); and
0
k. Adding the definition of Unsworn declaration in alphabetical order.

[[Page 24964]]

    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--
    (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.
* * * * *
    FTA Tier I recipient means an FTA recipient to whom this part 
applies 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.
    FTA Tier II recipient means an FTA recipient to whom this part 
applies who will award prime contracts (excluding transit vehicle 
purchases) the cumulative total value of which does not exceed $670,000 
in FTA funds in a Federal fiscal year.
* * * * *
    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.
* * * * *
    Notice of intent or NOI means recipients letter informing a DBE of 
a suspension or proposed decertification.
    Notice of decision or NOD means determination that denies a firm's 
application or decertifies a DBE.
* * * * *
    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 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
32. 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 purpose 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;
    (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

[[Page 24965]]

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 State 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:
    (1) The number and percentage of in-state and out-of-state DBE 
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 decertified firms:
    (i) Total in-state and out-of-state firms decertified;
    (ii) Names of in-state and out-of-state firms decertified because 
SEDO exceeded the personal net worth cap;
    (iii) Names of in-state and out-of-state firms decertified for 
excess gross receipts beyond the relevant size standard.
    (4) The number of in-state and out-of-state firms summarily 
suspended;
    (5) The number of in-state and out-of-state applications received 
for an individualized determination of social and economic disadvantage 
status;
    (6) The number of in-state and out-of-state firms certified whose 
owner(s) made an individualized showing of social and economic 
disadvantaged status.

0
33. Revise the heading for subpart B to read as follows:

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

0
34. 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 DBE program.
    (i) FTA Tier I recipients must have a DBE program meeting all the 
requirements of this part.
    (ii) Beginning 180 days after the publication of the final rule, 
FTA Tier II recipients must maintain a program locally meeting the 
following requirements of this part:
    (A) Reporting and recordkeeping under Sec.  26.11;
    (B) Contract assurances under Sec.  26.13;
    (C) Policy statement under Sec.  26.23;
    (D) Fostering small business participation under Sec.  26.39; and
    (E) Transit vehicle procurements under Sec.  26.49.
    (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
35. Amend Sec.  26.29 by:
0
a. Revising paragraph (d);
0
b. Redesignating paragraph (e) as paragraph (g); and
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
36. 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, firm website(s), and the types of work 
the firm has been certified to perform as a DBE and/or ACDBE.
    (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 the firm performs. 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 may include additional data fields of other 
items readily verifiable in State or locally maintained databases, such 
as State licenses held, Prequalifications, and Bonding capacity.
    (d) Your directory must be an online system that permits the public 
to search and/or filter for DBEs by:
    (1) Physical location;
    (2) NAICS code(s);
    (3) Work descriptions; and
    (4) All optional information added pursuant to paragraph (c) of 
this section. The directory must include a prominently displayed 
disclaimer (e.g., large type, bold font) that states the information 
within the directory is not a guarantee of the DBE's capacity and 
ability to perform work.
    (e) You must make any changes to your current directory entries by 
November 5, 2024.

[[Page 24966]]


0
37. 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
38. Revise Sec.  26.37 to read as follows:


Sec.  26.37  What are a recipient's responsibilities for monitoring?

    (a) A recipient 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). The recipient must set forth 
these mechanisms in its DBE program.
    (b) A recipient's DBE program must also include a monitoring and 
enforcement mechanism to ensure that work committed, or in the case of 
race-neutral participation, the work subcontracted, to all DBEs at 
contract award or subsequently is performed by the DBEs to which the 
work was committed or subcontracted to, 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 
such as a commercially useful function review.
    (c) You must effectively implement the following running tally 
mechanisms:
    (1) With respect to achieving your overall goal, you must use a 
running tally that provides for a frequent comparison of cumulative DBE 
awards/commitments to DOT-assisted prime contract awards to determine 
whether your current implementation of contract goals is projected to 
be sufficient to meet your annual goal. This mechanism should inform 
your decisions to implement goals on contracts to be advertised 
according to your established contract goal-setting process.
    (2) With respect to each DBE commitment, you must use a running 
tally that provides for a frequent comparison of payments made to each 
listed DBE relative to the progress of work, including payments for 
such work to the prime contractor to determine whether the contractor 
is on track with meeting its DBE commitment and whether any projected 
shortfall exists that requires the prime contractor's good faith 
efforts to address to meet the contract goal pursuant to Sec.  
26.53(g).


Sec.  26.39  [Amended]

0
39. Amend Sec.  26.39 in paragraph (b) introductory text by removing 
the phrase ``by February 28, 2012''.

0
40. Amend Sec.  26.45 by:
0
a. Revising paragraph (a);
0
b. Removing in paragraph (c)(1) ``www.census.gov/epcd/cbp/view/cbpview.html'' and adding in its place 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 ``website''; and
0
d. Removing in paragraph (f)(3) the text ``incuding'', ``race-
conscioous'', 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 Tier II recipient 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
41. 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
42. 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 that fails to follow the requirements of this section and 
this part will be deemed as non-compliant, which will result in removal 
from FTA's eligible TVMs list and ineligibility 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 required 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.
    (b) If you are a TVM, you must establish and submit to FTA an 
annual overall percentage goal for DBE participation.
    (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 
on 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.

[[Page 24967]]

    (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) Recipients may establish project-specific goals for DBE 
participation in the procurement of transit vehicles from specialized 
manufacturers when a TVM cannot be identified.
    (1) Project-specific goals established pursuant to this section are 
subject to the same review and approval and must be established as 
prescribed in the project goal provisions of Sec.  26.45.
    (2) FTA must approve the decision to use a project goal before the 
recipient issues a public solicitation for the vehicles in question.
    (3) To support the request to develop a project goal, recipients 
must demonstrate that no TVMs are available to manufacture the vehicle.


Sec.  26.51  [Amended]

0
43. Amend Sec.  26.51 in paragraph (f)(4) introductory text by removing 
the words ``through the use of'' and adding in their place the word 
``using''.

0
44. Amend Sec.  26.53 by:
0
a. Revising paragraphs (b)(2)(v) and (b)(3)(ii);
0
b. Adding paragraph (c)(1) and a reserved paragraph (c)(2); and
0
c. Revising paragraphs (e), (f), and (g).
    The revisions and addition read as follows:


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

* * * * *
    (b) * * *
    (2) * * *
    (v) Written confirmation from each listed DBE firm that it is 
participating in the contract in the kind and amount of work provided 
in the prime contractor's commitment. Each DBE listed to perform work 
as a regular dealer or distributor must confirm its participation 
according to the requirements of paragraph (c)(1) of this section.
    (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.
* * * * *
    (c) * * *
    (1) For each DBE listed as a regular dealer or distributor you must 
make a preliminary counting determination to assess its eligibility for 
60 or 40 percent credit, respectively, of the cost of materials and 
supplies based on its demonstrated capacity and intent to perform as a 
regular dealer or distributor, as defined in Sec.  26.55(e)(2)(iv)(A), 
(B), and (C) and (e)(3) under the contract at issue. Your preliminary 
determination shall be made based on the DBE's written responses to 
relevant questions and its affirmation that its subsequent performance 
of a commercially useful function will be consistent with the 
preliminary counting of such participation. Where the DBE supplier does 
not affirm that its participation will meet the specific requirements 
of either a regular dealer or distributor, you are required to make 
appropriate adjustments in counting such participation toward the 
bidder's good faith efforts to meet the contract goal. The bidder is 
responsible for verifying that the information provided by the DBE 
supplier is consistent with the counting of such participation toward 
the contract goal.
    (2) [Reserved]
* * * * *
    (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 Open-Ended DBE Performance Plan 
(OEPP) with the proposal. The OEPP 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 OEPP 
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 OEPP 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 OEPP and 
schedule. The recipient and the design-builder may agree to make 
written revisions of the OEPP 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 the 
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 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, unless you cause 
the termination or reduction. A termination includes any reduction or 
underrun in work listed for a DBE not caused by a material change to 
the prime contract by the recipient. This requirement applies to 
instances that include, but are not limited to, when 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 this paragraph 
(f); and
    (B) Unless your consent is provided under this paragraph (f), 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 or any portion of its work that 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

[[Page 24968]]

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 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 5 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 5 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.
    (g) When a DBE subcontractor or any portion of its work is 
terminated by the prime contractor as provided in paragraph (f) of this 
section, or if work committed to a DBE is reduced due to 
overestimations made prior to award, the prime contractor must use good 
faith efforts to include additional DBE participation to the extent 
needed to meet the contract goal. The good faith efforts shall be 
documented by the contractor. If the recipient requests documentation 
under this provision, the contractor shall submit the documentation 
within 7 days, which may be extended for an additional 7 days, if 
necessary, at the request of the contractor, and the recipient shall 
provide a written determination to the contractor stating whether or 
not good faith efforts have been demonstrated.
* * * * *

0
45. Amend Sec.  26.55 by:
0
a. Removing the word ``actually'' in paragraph (a) introductory text 
and twice in paragraph (c)(1);
0
b. In paragraph (c)(2), removing the words ``in order'';
0
c. In paragraph (c)(3), removing the words ``on the basis of'' and 
adding in their place the word ``within'';
0
d. Revising paragraph (e);
0
e. In paragraph (f), removing the cross-reference ``Sec.  26.87(i)'' 
and adding in its place the cross-reference ``Sec.  26.87(j)''; and
0
f. 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 this paragraph (e)(1), 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. Minor modifications are additional changes to a 
manufactured product that are small in scope and add minimal value to 
the final product.
    (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 must establish a system to determine that a DBE regular 
dealer per paragraph (e)(2)(iv)(A) of this section, over a reasonable 
period of time, keeps sufficient quantities and regularly sells the 
items in question. This system must also ensure that a regular dealer 
of bulk items per (e)(2)(iv)(B) of this section owns/leases and 
operates distribution equipment for the products it sells. This 
requirement may be administered through questionnaires, inventory 
records reviews, or other methods to determine whether each DBE 
supplier has the demonstrated capacity to perform a commercially useful 
function (CUF) as a regular dealer prior to its participation. The 
system you implement must be maintained and used to identify all DBE 
suppliers with capacity to be eligible for 60 percent credit, 
contingent upon the performance of a CUF. This requirement is a 
programmatic safeguard apart from that described in Sec.  26.53(c)(1).
    (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 percent of the cost of materials or supplies (including 
transportation cost) when all, or at least 51 percent 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.
    (B) A DBE may be a regular dealer in such bulk items as petroleum 
products, steel, concrete or concrete products, 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 firm 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.

[[Page 24969]]

    (C) A DBE supplier of items that are not typically stocked due to 
their unique characteristics (e.g., limited shelf life or items ordered 
to specification) 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 
percent 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. A DBE 
distributor assumes responsibility for the items it purchases once they 
leave the point of origin (e.g., a manufacturer's facility), making it 
liable for any loss or damage not covered by the carrier's insurance. A 
DBE distributor performs a CUF when it demonstrates ownership of the 
items in question and assumes all risk for loss or damage during 
transportation, evidenced by the terms of the purchase order or a bill 
of lading (BOL) from a third party, indicating Free on Board (FOB) at 
the point of origin or similar terms that transfer responsibility of 
the items in question to the DBE distributor. If these conditions are 
met, DBE distributors may receive 40 percent for drop-shipped items. 
Terms that transfer liability to the distributor at the delivery 
destination (e.g., FOB destination), or deliveries made or arranged by 
the manufacturer or another seller do not satisfy this requirement.
    (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 that you deem to be 
reasonable, including transportation charges for the delivery of 
materials or supplies. Do not count any portion of the cost of the 
materials and supplies themselves.
    (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.
* * * * *
    (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 paid the DBE the amount being counted.

0
46. Revise Sec.  26.61 to read as follows:


Sec.  26.61  Burden of proof

    (a) In determining whether to certify a firm, the certifier must 
apply the standards of this subpart. Unless the context indicates 
otherwise, singular terms include their plural forms and vice versa.
    (b) The firm has the burden of demonstrating, by a preponderance of 
the evidence, i.e., more likely than not, that it satisfies all of the 
requirements in this subpart. In determining whether the firm has met 
its burden, the certifier must consider all the information in the 
record, viewed as a whole.
    (1) Exception 1. In a decertification proceeding the certifier 
bears 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 a certifier has a reasonable basis to believe 
that an individual who is a member of a group in Sec.  26.67(a) of this 
section is not, in fact, socially and/or economically disadvantaged, 
the certifier bears the burden of proving, by a preponderance of the 
evidence, that the individual is not socially and/or economically 
disadvantaged.

0
47. 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 engaged in business activities.
    (2) In making eligibility determinations, a certifier may not 
consider whether a firm performs a commercially useful function (CUF), 
or the potential effect on goals or counting.
    (3) A certifier cannot condition eligibility on State 
prequalification requirements for bidding on contracts.
    (4) Certification is not a warranty of competence or suitability.
    (5) A 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.
    (6) Entering into a fraudulent transaction or presenting false 
information to obtain or maintain DBE certification is disqualifying.
    (b) Indirect ownership. A subsidiary (i.e., S) that SEDOs own and 
control indirectly is eligible, if it satisfies the other requirements 
of this part and only under the following circumstances.
    (1) Look-through. SEDOs own at least 51 percent of S through their 
ownership of P (i.e., the parent firm) as shown in the examples 
following.
    (2) Control. SEDOs control P, and P controls S.
    (3) One tier of separation. The SEDOs indirectly own S through P 
and no other intermediary. That is, no applicant or DBE may be more 
than one entity (P) removed from its individual SEDOs.
    (4) Examples. The following examples assume that S and its SEDOs 
satisfy all other requirements in this part.
    (i) Example 1 to paragraph (b)(4). SEDOs own 100 percent of P, and 
P owns 100 percent of S. S is eligible for certification.
    (ii) Example 2 to paragraph (b)(4). Same facts as Example 1, except 
P owns 51 percent of S. S is eligible.
    (iii) 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.
    (iv) Example 4 to paragraph (b)(4). SEDOs own and control P, and 
they own 52 percent of S by operation of this paragraph (b). However, a 
non-SEDO controls S. S is ineligible.
    (v) 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.
    (vi) 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, do not exceed the applicable small 
business size cap of Sec.  26.65. 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.
    (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 
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

[[Page 24970]]

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, a certifier must not use the Uniform Certified 
Application. The certifier must obtain from the firm documentation 
sufficient to demonstrate that the entity meets the requirements of 
paragraph (c)(2)(i) of this section. The certifier must also obtain 
sufficient information about the firm to allow the certifier to 
administer its program (e.g., information that would appear in a 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
48. Revise Sec.  26.65 to read as follows:


Sec.  26.65  Business Size Determinations.

    (a) By NAICS Code. A firm (including its affiliates) must be a 
small business, as defined by the Small Business Administration (SBA). 
The certifier must apply the SBA business size limit in 13 CFR part 121 
which corresponds to the applicable primary industry classifications 
(NAICS codes). The firm is ineligible when its affiliated ``receipts'' 
(computed on a cash basis), as defined in 13 CFR 121.104(a) and 
averaged over the firm's preceding five fiscal years, exceed the 
applicable SBA size cap(s).
    (b) Statutory Cap. Even if a firm is a small business under 
paragraph (a) of this section, it is ineligible to perform DBE work on 
FHWA or FTA assisted contracts if its affiliated annual gross receipts, 
as defined in 13 CFR 121.104, over the firm's previous three fiscal 
years exceed $30.40 million (as of March 1, 2023). The Department will 
adjust this amount annually and post the adjusted amount on its website 
available at https://www.transportation.gov/DBEsizestandards. 50.

0
49. Revise Sec.  26.67 to read as follows:


Sec.  26.67  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. A 
firm owner claiming the presumption must specify of which groups in 
this paragraph (a)(1) she or he is a member on the Declaration of 
Eligibility (DOE).
    (2) Native American group membership. An owner claiming Native 
American group membership must submit a signed DOE as well as proof of 
enrollment in a federally or State-recognized Indian Tribe. An owner 
claiming Native Hawaiian or Alaska Native group membership must submit 
documentation legally recognized under State or Federal law attesting 
to the individual's status as a member of that group.
    (3) Questioning group membership. (1) Certifiers may not question 
claims of group membership as a matter of course. Certifiers 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 a certifier has a well-founded reason(s) to question an 
owner's claim of membership in a group in paragraph (a)(1) of this 
section, it must provide the individual a written explanation of its 
reason(s), using the most recent email address provided. The firm bears 
the burden of proving, by a preponderance of the evidence, that the 
owner is a member of the group in question.
    (ii) A certifier's written explanation must instruct the individual 
to submit evidence demonstrating that the individual has held herself/
himself/themself out publicly as a member of the group for a long 
period of time prior to applying for DBE certification, and that the 
relevant community considers the individual a member. The certifier may 
not require the individual to provide evidence beyond that related to 
group membership.
    (iii) The owner must email the certifier evidence described in 
paragraph (a)(3)(ii) of this section no later than 20 days after the 
written explanation. The certifier must email the owner a decision no 
later than 30 days after receiving timely submitted evidence.
    (iv) If a certifier determines that an individual has not 
demonstrated group membership, the certifier's decision must 
specifically reference the evidence in the record that formed the basis 
for the 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(a), and of the right to 
reapply at any time under paragraph (e) of this section.
    (b) Rebuttal of social disadvantage. (1) If a certifier has 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, the certifier must initiate a Sec.  26.87 proceeding, 
regardless of the firm's DBE status. As is the case in all section 
Sec.  26.87 proceedings, the certifier must prove ineligibility.
    (2) If the certifier finds that the owner is not socially 
disadvantaged, its decision letter must inform the firm of its appeal 
rights.
    (c) Rebuttal of economic disadvantage--(1) Personal net worth. If a 
certifier has a reasonable basis to believe that an individual who 
submits a PNW Statement that is below the currently applicable PNW cap 
is not economically disadvantaged, the certifier may rebut the 
individual's presumption of economic disadvantage.
    (i) The certifier must not attempt to rebut presumed economic 
disadvantage as a matter of course and it must avoid imposing 
unnecessary burdens on individual owners or disproportionately impose 
them on members of a particular group.
    (ii) The certifier must proceed as provided in Sec.  26.87.
    (2) Economic disadvantage in fact. (i) To rebut the presumption, 
the certifier must prove that a reasonable person would not consider 
the individual economically disadvantaged. The certifier may consider 
assets and income, free use of them or ready access to their benefits, 
and any other trappings of wealth that the certifier considers 
relevant. There are no assets (including retirement assets), income, 
equity, or other exclusions and no limitations on inclusions. A broad 
and general analysis suffices in most cases: the owner has, or enjoys 
the benefits of, income of X; two homes worth approximately Y; 
substantial interests in outside businesses Q, R, and S; four rental 
properties of aggregate value Z; etc. The certifier need only 
demonstrate ``ballpark'' values based on available evidence. The 
reasonable person is not

[[Page 24971]]

party to detailed financial information. S/he considers the owner's 
overall circumstances and lifestyle.
    (ii) The certifier must proceed as provided in Sec.  26.87.
    (d) Non-presumptive disadvantage. An owner who is not presumed to 
be SED under paragraph (a) of this section may demonstrate that he is 
SED based on his own experiences and circumstances that occurred within 
American society.
    (1) To attempt to prove individual SED, the owner provides the 
certifier a Personal Narrative (PN) that describes in detail specific 
acts or omissions by others, which impeded his progress or success in 
education, employment, and/or business, including obtaining financing 
on terms available to similarly situated, non-disadvantaged persons.
    (2) The PN must identify at least one objective basis for the 
detrimental discrimination. The basis may be any identifiable status or 
condition. The PN must describe this objective distinguishing 
feature(s) (ODF) in sufficient detail to justify the owner's conclusion 
that it prompted the prejudicial acts or omissions.
    (3) The PN must state how and to what extent the discrimination 
caused the owner harm, including a full description of type and 
magnitude.
    (4) The owner must establish that he is economically disadvantaged 
in fact and that he is economically disadvantaged relative to similarly 
situated non-disadvantaged individuals.
    (5) The owner must attach to the PN a current PNW statement and any 
other financial information he considers relevant.
    (6) This rule does not prescribe how the owner must satisfy his 
burden of proving disadvantage. He need not, for example, have filed 
any formal complaint, or prove discrimination under a particular 
statute.
    Example 1 to paragraph (d). A White male claiming to have 
experienced employment discrimination must provide evidence that his 
employment status and/or limited opportunities to earn income result 
from specific prejudicial acts directed at him personally because of an 
ODF, and not, e.g., an economic recession that caused widespread 
unemployment.

0
50. Add Sec.  26.68 to read as follows:


Sec.  26.68  Personal net worth.

    (a) General. An owner whose PNW exceeds the regulation's currently 
applicable PNW limit is not presumed economically disadvantaged.
    (b) Required documents. Each owner on whom the firm relies for 
certification must submit a DOE and a corroborating personal net worth 
(PNW) statement, including required attachments. The owner must report 
PNW on the form, available at https://www.Transportation.gov/DBEFORMS. 
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 legitimate and demonstrable need 
for the additional information.
    (c) Reporting. The following rules apply without regard to State 
community property, equitable distribution, or similar rules. The owner 
reports assets and liabilities that she owns or is deemed to own. 
Ownership tracks title to the asset or obligor status on the liability 
except where otherwise provided or when the transaction results in 
evasion or abuse.
    (1) The owner excludes her ownership interest in the applicant or 
DBE.
    (2) The owner excludes her share of the equity in her primary 
residence. There is no exclusion when the SEDO does not own the home.
    Example 1 to paragraph (c)(2). The owner and her 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 owner may exclude her 
$75,000 share of the $150,000 of total equity.
    (3) The owner includes the full value of the contents of her 
primary residence unless she cohabits with a spouse or domestic 
partner, in which case she excludes only 50 percent of those assets.
    (4) The owner includes the value of all motor vehicles, including 
watercraft and ATVs, titled in her name or of which she is the 
principal operator.
    (5) The owner excludes the liabilities of any other party and those 
contingent on a future event or of undetermined value as of the date of 
the PNW Statement.
    (6) The owner includes her proportional share of the balance of a 
debt on which she shares joint and severable liability with other 
primary debtors.
    Example 2 to paragraph (c)(6). When the owner co-signs a debt 
instrument with two other individuals, the rule considers her liable 
for one-third of the current loan balance.
    (7) The owner includes assets transferred to relatives or related 
entities within the two years preceding any UCA or DOE, 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 the owner or any relative is 
grantor, trustee, or beneficiary, except when the transfer is 
irrevocable.
    (8) The owner excludes direct payments, on behalf of immediate 
family members or their children, to unrelated providers of healthcare, 
education, or legal services.
    (9) The owner excludes direct payments to providers of goods and 
services directly related to a celebration of an immediate family 
member's or that family member's child's significant, normally non-
recurring life event.
    (10) The owner excludes from net worth all assets in qualified 
retirement accounts but must report those accounts, the value of assets 
in them, and any significant terms and restrictions concerning the 
assets' use, to the certifier.
    (d) Regulatory adjustments. (1) The Department will adjust the PNW 
cap by May 9, 2024 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 (Supplementary Table 
B.101.h)'' produced by the Board of Governors of the Federal Reserve 
(https://www.federalreserve.gov/releases/z1/), and normalized by the 
total number of households as collected by the Census in ``Families and 
Living Arrangements'' (https://www.census.gov/topics/families/families-and-households.html) to account for population growth. The Department 
will adjust the PNW cap every 3 years on the anniversary of the initial 
adjustment date described in this section. The Department will post the 
adjustments on the Departmental Office of Civil Rights' web page, 
available at https://www.Transportation.gov/DBEPNW. Each such 
adjustment will become the currently applicable PNW limit for purposes 
of this regulation.
    (2) The Department will use the following formula to adjust the PNW 
limit:

[[Page 24972]]

[GRAPHIC] [TIFF OMITTED] TR09AP24.001

    (e) Confidentiality. Notwithstanding any provision of Federal or 
State law, a certifier must not release an individual's PNW 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
51. Revise Sec.  26.69 to read as follows:


Sec.  26.69  Ownership.

    (a) General rule. A SEDO must own at least 51 percent of each class 
of ownership of the firm. Each SEDO whose ownership is necessary to the 
firm's eligibility must demonstrate that her ownership satisfies the 
requirements of this section. If not, the firm is ineligible.
    (b) Overall Requirements. A SEDO's acquisition and maintenance of 
an ownership interest meets the requirements of this section only if 
the SEDO demonstrates the following:
    (1) Acquisition. The SEDO acquires ownership at fair value and by 
one or more ``investments,'' as defined in paragraph (c) of this 
section.
    (2) Proportion. No owner derives benefits or bears burdens that are 
clearly disproportionate to their ownership shares.
    (3) Maintenance. This section's requirements continue to apply 
after the SEDO's acquisition and the firm's certification. That is, the 
SEDO must maintain her investment and its proportion relative to those 
of other owners.
    (i) The SEDO may not withdraw or revoke her investment.
    (ii) When an existing co-owner contributes significant, additional, 
post-acquisition cash or property to the firm, the SEDO must increase 
her own investment to a level not clearly disproportionate to the non-
SEDO's investment.
    (A) Example 1 to paragraph (b)(3)(ii). SEDO and non-SEDO own DBE 
60/40. Their respective investments are approximately $600,000 and 
$400,000. The DBE has operated its business under this ownership and 
with this capitalization for 2 years. In Year 3, the non-SEDO 
contributes a $2 million asset to the business. The SEDO, as a result, 
owns 60 percent of a $2 million asset without any additional outlay. 
Her ownership interest, assuming no other pertinent facts, is worth 
$1.2 million more than it was before. Unless the SEDO increases her 
investment significantly, it is clearly disproportionate to the non-
SEDO's investment and to her nominal 60 percent ownership. She has not 
maintained her investment.
    (B) Example 2 to paragraph (b)(3)(ii). Same facts except that the 
DBE purchases the asset with a combination of 30 percent operating 
income and 70 percent proceeds of a bank loan. The SEDO maintains her 
investment because it remains in proportion to the non-SEDO's 
investment and to the value of her 60 percent ownership interest.
    (C) Example 3 to paragraph (b)(3)(ii). Same facts except that the 
non-SEDO, not a bank, is the DBE's creditor. The SEDO has not 
maintained her investment because the benefits and burdens of her 
ownership are clearly disproportionate to those of the non-SEDO. The 
transaction may also raise Sec.  26.71 concerns.
    (iii) An organic increase in the value of the business does not 
affect maintenance because the value of the owners' investments remains 
proportional. In Example 2 above, the SEDO and the non-SEDO own the new 
asset at 60 percent and 40 percent of its net value of $60,000.
    (c) Investments. A 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 qualifying gifts.
    (1) Investments are unconditional and at full risk of loss.
    (2) Investments include a significant outlay of the SEDO's own 
money.
    (3) For purposes of this part, title determines ownership of assets 
used for investments and of ownership interests themselves. This rule 
applies regardless of contrary community property, equitable 
distribution, banking, contract, or similar laws, rules, or principles.
    (i) The person who has title to the asset owns it in proportion to 
her share of title.
    (ii) However, the title rule is deemed not to apply when it 
produces a certification result that is manifestly unjust.
    (4) If the SEDO jointly (50/50) owns an investment of cash or 
property, the SEDO may claim at least a 51 percent ownership interest 
only if the other joint owner formally transfers to the SEDO enough of 
his ownership in the invested asset(s) to bring the SEDO's investment 
to at least 51 percent of all investments in the firm. Such transfers 
may be gifts described in paragraph (e) of this section.
    (d) Purchases and capital contributions. (1) A purchase of an 
ownership interest is an investment when the consideration is entirely 
monetary and not a trade of property or services.
    (2) Capital that the SEDO contributes directly to the company is an 
investment when the contribution is all cash or a combination of cash 
and tangible property and/or realty.
    (3) Contributions of time, labor, services, and the like are not 
investments or components of investments.
    (4) Loans are not investments. The proceeds of loans may be 
investments to the extent that they finance the SEDO's qualifying 
purchase or capital contribution.
    (5) Debt-financed purchases or capital contributions are 
investments when they comply with the rules in this section and in 
Sec.  26.70.
    (6) Guarantees are not investments.
    (7) The firm's purchases or sales of property, including ownership 
in itself or other companies, are not the SEDO's investments.
    (8) Other persons' or entities' purchases or capital contributions 
are not the SEDO's investments.
    (e) Gifts. A gift to the SEDO is an investment when it meets the 
requirements of this section. The gift rules apply to partial gifts, 
bequests, inheritances, trust distributions, and transfers for 
inadequate consideration. They apply to gifts of ownership interests 
and to gifts of cash or property that the SEDO invests. The following 
requirements apply to gifts on which the SEDO relies for her 
investment.
    (1) The transferor/donor is or immediately becomes uninvolved with 
the firm in any capacity and in any other business that contracts with 
the

[[Page 24973]]

firm other than as a lessor or provider of standard support services;
    (2) The transferor does not derive undue benefit; and
    (3) A writing documents the gift. When the SEDO cannot reasonably 
produce better evidence, a receipt, cancelled check, or transfer 
confirmation suffices, if the writing identifies transferor, 
transferee, amount or value, and date.
    (f) Curative measures. The rules of this section do not prohibit 
transactions that further the objectives of, and compliance with, the 
provisions of this part. A 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 remove, surmount, or correct defects in eligibility, as long as the 
actions are consistent with this part.
    (1) The certifier may notify the firm of eligibility concerns and 
give the firm time, if the firm wishes, to attempt to remedy 
impediments to certification.
    (2) The firm may, of its own volition, take curative action up to 
the time of the certifier's decision. However, it must present evidence 
of curation before the certifier's decision.
    (3) The certifier may provide general assistance and guidance but 
not professional (legal, accounting, valuation, etc.) advice or 
opinions.
    (4) While the certifier may not affirmatively impede attempts to 
cure, it may maintain its decision timeline and make its decision based 
on available evidence.
    (5) The certifier must deny or remove certification when the firm's 
efforts or submissions violate the rules in paragraph (g) of this 
section.
    (g) Anti-abuse rules. (1) The substance and not the form of 
transactions drives the eligibility determination.
    (2) The certifier must deny applications based on sham transactions 
or false representations, and it must decertify DBEs that engage in or 
make them. Transactions or representations designed to evade or 
materially mislead subject the firm to the same consequences.
    (3) Fraud renders the firm ineligible and subjects it to sanctions, 
suspension, debarment, criminal prosecution, civil litigation, and any 
other consequence or recourse not proscribed in this part.
    Example 1 to paragraph (g)(3). SEDO claims an investment consisting 
of a contribution of equipment and a significant amount of her own 
cash. She shows that she transferred title to the equipment and wrote a 
check from an account she alone owns. She does not disclose that her 
brother-in-law lent her the money and she must repay him. The firm is 
ineligible under paragraphs (g)(1) and (2) of this section.

0
52. Add Sec.  26.70 to read as follows:


Sec.  26.70  Debt-financed investments.

    (a) Subject to the other provisions of this subpart, a SEDO may 
borrow money to finance a Sec.  26.69(c) investment entirely or 
partially if the SEDO has paid, on a net basis, at least 15 percent of 
the total value of the investment by the time the firm applies for 
certification.
    Example 1 to paragraph (a) introductory text. A SEDO who borrows 
$9,000 of her $10,000 cash investment in Applicant, Inc., must have 
repaid, from her own funds, at least $500 of the loan's principal by 
the time Applicant, Inc. applies for certification.
    Example 2 to paragraph (a) introductory text. A SEDO who finances 
$8,000 of a $10,000 investment in Applicant may apply for Applicant's 
certification at any time.
    Example 3 to paragraph (a) introductory text. A SEDO who 
contributes to the Applicant equipment worth $40,000, which she 
purchased with $10,000 of her own money and $30,000 of seller financing 
may apply for Applicant's certification at any time.
    (1) The SEDO pays the net 15 percent portion of the investment to 
Seller or Applicant (as the case may be) from her own, not borrowed, 
money.
    (2) Money that the SEDO receives as a Sec.  26.69(e) gift is her 
own money.
    (3) The firm, whether Applicant or DBE, does not finance any part 
of the investment, directly or indirectly.
    (b) The loan is real, enforceable, not in default, not offset by 
another agreement, and on standard commercial, arm's length terms. The 
following conditions also apply.
    (1) The SEDO is the sole debtor.
    (2) The firm is not party to the loan in any capacity, including as 
a guarantor.
    (3) The SEDO does not rely on the company's credit or other 
resources to repay any part of the debt or otherwise to finance any 
part of her investment.
    (4) The loan agreement requires level, regularly recurring payments 
of principal and interest, according to a standard amortization 
schedule, at least until the SEDO satisfies requirements in paragraph 
(a) of this section.
    (5) The loan agreement permits prepayments, including by 
refinancing.
    (c) If the creditor forgives or cancels all or part of the debt, or 
the SEDO defaults, the entire debt-financed portion of the SEDO's 
purchase or capital contribution is no longer an investment.
    Example 4 to paragraph (c). SEDO finances $40,000 of a $50,000 
investment, and the firm becomes certified. When the SEDO has repaid 
half of the loan's principal and associated interest, the creditor 
forgives the remaining $20,000 debt. The SEDO's investment is now 
$10,000.
    (d) Paragraph (c) of the section does not prohibit refinancing with 
debt that meets the requirements of this section or preclude prompt 
curation under Sec.  26.69(f).

0
53. Revise Sec.  26.71 to read as follows:


Sec.  26.71  Control.

    (a) General rules. (1) One or more SEDOs of the firm 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. A SEDO must be the ultimate 
decision maker in fact, regardless of operational, policy, or 
delegation arrangements.
    (c) Governance. Governance provisions may not require that any SEDO 
obtain concurrence or consent from a non-SEDO to transact business on 
behalf of the firm.
    (1) Highest officer position. A SEDO 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, a 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. A 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, at least one SEDO must serve as 
a general partner, 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.

[[Page 24974]]

    (d) Expertise. At least one 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 complexity, and scale.
    (e) SEDO decisions. The firm must show that the SEDO critically 
analyzes information provided by non-SEDOs and uses that analysis to 
make independent decisions.
    (f) Delegation. A SEDO may delegate administrative activities or 
operational oversight to a non-SED individual as long as at least one 
SEDO retains unilateral power to fire the delegate(s), and the chain of 
command is evident to all participants in the company and to all 
persons and entities with whom the firm conducts business.
    (1) No non-SED participant may have power equal to or greater than 
that of a 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 this paragraph 
(f), as long as they are consistent with the SEDO having ultimate 
responsibility for the action.
    (g) Independent business. (1) If the firm receives from or shares 
personnel, facilities, equipment, financial support, or other essential 
resources, with another business (whether a DBE or non-DBE firm) or 
individual on other than commercially reasonable terms, the firm must 
prove that it would be viable as a going concern without the 
arrangement.
    (2) The firm 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. Paragraphs (g)(1) and (2) of this section do 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 repeatedly provides the 
service at a significant and unsustainable loss.
    (ii) Exception 2. A firm may share essential resources and deal 
exclusively with another firm that a SEDO controls and of which the 
SEDO owns at least 51 percent ownership.
    (h) Franchise and license agreements. 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, the certifier 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.

0
54. Revise Sec.  26.73 to read as follows:


Sec.  26.73  NAICS Codes.

    (a) A certifier must grant certification to a firm only for 
specific types of work that the SEDO controls. To become certified in 
an additional type of work, the firm must demonstrate to the certifier 
only that its SEDO controls the firm with respect to that type of work. 
The certifier must not require that the firm be recertified or submit a 
new application for certification but must verify the SEDO's control of 
the firm in the additional type of work.
    (1) A correct NAICS code is the 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) If there is not a NAICS code that fully, clearly, or 
sufficiently narrowly describes the type(s) of work for which the firm 
seeks certification, the certifier must supplement or limit the 
assigned NAICS code(s) with a clear, specific, and concise narrative 
description of the type of work in which the firm is certified. A 
vague, general, or confusing description is insufficient.
    (3) 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.
    (4) A certifier may change a certification classification or 
description if there is a factual basis in the record, in which case it 
must notify the firm 30 days before making the change. Certifiers may 
not apply such changes retroactively.
    (5) In addition to applying the appropriate NAICS code, the 
certifier may apply a descriptor from a classification scheme of 
equivalent detail and specificity. Such a descriptor (e.g., a ``work 
code'') does not supersede or limit the types of work for which a DBE 
is eligible under an appropriate NAICS code.
    (b) [Reserved]

0
55. Amend Sec.  26.81 by:
0
a. Revising paragraph (a)(1);
0
b. Removing paragraph (a)(5);
0
b. In paragraph (e), removing the word ``the'' from the first sentence; 
and
0
c. Revising paragraph (g).
    The revisions read as follows:


Sec.  26.81  Unified Certification Programs.

    (a) * * *
    (1) All recipients in the same jurisdiction (normally a State) must 
sign an agreement establishing a UCP and submit the agreement to the 
Secretary for approval.
* * * * *
    (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 revising the section heading and paragraphs 
(c)(1)(i), (c)(3), (h), (i)(3), (j), (k), (l), and (m) and adding 
paragraph (n) to read as follows:


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

* * * * *
    (c)(1) * * *
    (i) A certifier must visit the firm's principal place of business, 
virtually or in person, and interview the SEDO,

[[Page 24975]]

officers, and key personnel. The certifier must review those persons' 
r[eacute]sum[eacute]s and/or work histories. The certifier must 
maintain a complete audio recording of the interview. The certifier 
must also visit one or more active job sites (if there is one). These 
activities comprise the ``on-site review'' (OSR), a written report of 
which the certifier must keep in its files.
* * * * *
    (3) The certifier must ensure that the SEDO signs the Declaration 
of Eligibility (DOE) at the end of the Uniform Certification 
Application (UCA), subscribed to as true under penalty of perjury that 
all information provided is current, accurate, and complete.
* * * * *
    (h)(1) Once a certifier has certified a firm, the firm remains 
certified unless and/or until the certifier removes certification, in 
whole or in part (i.e., NAICS code removal), through the procedures of 
Sec.  26.87.
    (2) The certifier may not require a DBE to reapply for 
certification, renew its certification, undergo a recertification, or 
impose any functionally equivalent requirement. The certifier may, 
however, conduct a certification review at any reasonable time and/or 
at regular intervals of at least two years. The certification review 
may, at the certifier's discretion, include a new OSR. The certifier 
may also make an unannounced visit to the DBE's offices and/or job 
site. The certifier may also rely on another certifier's report of its 
OSR of the DBE.
    (i) * * *
    (3) The DBE must notify the certifier of a material change in its 
circumstances that affects its continued eligibility within 30 days of 
its occurrence, explain the change fully, and include a duly executed 
DOE with the notice. The DBE's non-compliance is a Sec.  26.109(c) 
failure to cooperate.
    (j) A DBE must provide its certifier(s), every year on the 
anniversary of its original certification, a new DOE along with the 
specified documentation in Sec.  26.65(a), including gross receipts for 
its most recently completed fiscal year, calculated on a cash basis 
regardless of the DBE's overall accounting method. The sufficiency of 
documentation (and its probative value) may vary by business type, 
size, history, resources, and overall circumstances. However, the 
following documents may generally be considered ``safe harbors,'' 
provided that they include all reportable receipts, properly 
calculated, for the full reporting period: audited financial 
statements, a CPA's signed attestation of correctness and completeness, 
or all income-related portions of one or more (when there are 
affiliates) signed Federal income tax returns as filed. Non-compliance, 
whether full or partial, is a Sec.  26.109(c) failure to cooperate.
    (k) The certifier must advise each applicant within 30 days of 
filing whether the application is complete and suitable for evaluation 
and, if not, what additional information or action is required.
    (l) The certifier must render a final eligibility decision within 
90 days of receiving all information required from the applicant under 
this part. The certifier 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 give the certifier one deadline extension 
if it approves a written request explaining why the certifier needs 
more time. The certifier's failure to issue a compliant decision by the 
applicable deadline is a constructive denial of the application, 
appealable to DOT under Sec.  26.89. In this case, the certifier may be 
subject to enforcement actions described in Sec. Sec.  26.103 and 
26.105.
    (2) The certifier must make an entry in DOCR's Online Portal within 
5 days of a denial. The certifier must enter the name of the firm, 
names(s) of the firm's owner(s), date of decision, and the reason(s) 
for its decision.
    (m)(1) A certifier may notify the applicant about ineligibility 
concerns and allow the firm to rectify deficiencies within the period 
in paragraph (l) of this section.
    (2) If a firm takes curative measures before the certifier renders 
a decision, the certifier must consider any evidence it submits of 
having taken such measures. The certifier must not automatically 
construe curative measures as successful or abusive.
    (i) Example 1 to paragraph (m)(2). The firm may obtain proof of an 
investment, transaction, or other fact on which its eligibility 
depends.
    (ii) Example 2 to paragraph (m)(2). An owner or related party may 
create a legally enforceable document of irrevocable transfer to the 
SEDO.
    (iii) Example 3 to paragraph (m)(2). The firm may amend an 
operating agreement, bylaw provision, or other governance document, 
provided that the amendment accurately reflects the parties' 
relationships, powers, responsibilities, and other pertinent 
circumstances.
    (n) Except as otherwise provided in this paragraph (n), if an 
applicant for DBE certification withdraws its application before the 
certifier issues a decision, the applicant can resubmit the application 
at any time. However, the certifier 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. The certifier may 
apply the Sec.  26.86(c) waiting period to a firm that has established 
a pattern of withdrawing applications before its 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 
UCP.
    (b) General rule. When a DBE applies to another UCP for 
certification, the new UCP must accept the DBE's certification from its 
jurisdiction of original certification (JOC). The JOC is the State in 
which the firm maintains its principal place of business at the time of 
application unless and until the firm loses certification in that 
jurisdiction.
    (c) Application procedure. To obtain certification by an additional 
UCP, the DBE must provide:
    (1) A cover letter with its application that specifies that the DBE 
is applying for interstate certification, identifies all UCPs in which 
the DBE is certified (including the UCP that originally certified it)
    (2) An electronic image of the UCP directory of the original UCP 
that shows the DBE certification; and
    (3) A new DOE.
    (d) Confirmation of eligibility. Within 10 business days of 
receiving the documents required under paragraph (c) of this section, 
the additional UCP must confirm the certification of the DBE preferably 
by reference to the UCP directory of the JOC.
    (e) Certification. If the DBE fulfills the requirements of 
paragraph (c) of this section and the UCP confirms the DBE's 
certification per paragraph (d) of this section, the UCP must certify 
the DBE immediately without undergoing further procedures and provide 
the DBE with a letter documenting its certification.
    (f) Noncompliance. Failure of the additional UCP to comply with 
paragraphs (d) and (e) of this section is considered non-compliance 
with this part.
    (g) Post-interstate certification proceedings. (1) After the 
additional UCP 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) A UCP must provide a complete unredacted copy of the DBE's 
certification materials to the additional UCP within 30 days of 
receiving the

[[Page 24976]]

request. Confidentiality requirements of Sec. Sec.  26.83(d) and 
26.109(b) do not apply.
    (3) Once the new UCP certifies, then it must treat the DBE as it 
treats other DBEs, for all purposes.
    (4) The DBE must provide an annual DOE with documentation of gross 
receipts, under Sec.  26.83(j), to certifying UCPs on the anniversary 
date of the DBE's original certification by its JOC.
    (h) Decertifications. (1) If any UCP has reasonable cause to remove 
a DBE's certification, in whole or in part (i.e., NAICS code removal), 
it must notify the other UCPs in which the DBE is certified (``other 
jurisdictions'') via email. The notice must explain the UCP's reasons 
for believing the DBE's certification should be removed.
    (2) Within 30 days of receiving the notice, the other jurisdictions 
must email the UCP contemplating decertification a concurrence or non-
concurrence with the proposed action. The other jurisdictions' 
responses may provide written arguments and evidence and may propose 
additional reasons to remove certification. A jurisdiction's failure to 
timely respond to the reasonable cause notice will be deemed to be a 
concurrence.
    (3) After a UCP receives all timely responses, it must make an 
independent decision whether to issue a NOI and what grounds to 
include.
    (4) Other UCPs may, before the hearing, submit written arguments 
and evidence concerning whether the firms should remain certified, but 
may not participate in the hearing.
    (5) If the UCP finds the firm ineligible the firm immediately loses 
certification in all jurisdictions in which it is certified. The NOD 
must include appeal instructions provided on the Departmental Office of 
Civil Rights' web page, available at https://www.transportation.gov/dbeappeal. The UCP must email a copy of its decision to the other 
jurisdictions within 3 business days.
    (6) The rules of this paragraph (h)(6) do not apply to attempts to 
decertify based upon a DBE's actions or inactions pertaining to 
Sec. Sec.  26.83(j) (Declaration of Eligibility) and 26.87(e)(6) 
(failure to cooperate).
    (7) Decertifications under this paragraph (h) must provide due 
process to DBEs.
    (i) If a UCP decides not to issue a NOD removing the DBE's 
certification, no jurisdiction may initiate decertification 
proceedings, within one year, on the same or similar grounds and 
underlying facts.
    (ii) If a DBE believes a UCP unfairly targets it with repeated 
decertification attempts, the DBE may file a complaint to the 
appropriate OA.
    (8) The Department's appeal decisions are binding on all UCPs 
unless stated otherwise.

0
58. Revise Sec.  26.86 to read as follows:


Sec.  26.86  Decision letters.

    (a) When a certifier denies a firm's request for certification or 
decertifies the firm, the certifier must provide the firm a NOD 
explaining the reasons for the adverse decision, specifically 
referencing the evidence in the record that supports each reason. A 
certifier must also include, verbatim, the instructions found on the 
Departmental Office of Civil Rights' web page, available at https://www.transportation.gov/dbeappeal.
    (b) The certifier must promptly provide the applicant copies of all 
documents and other information on which it based the denial if the 
applicant requests them.
    (c) The certifier must establish a waiting period for reapplication 
of no more than 12 months. That period begins to run the day after the 
date of the decision letter is emailed. After the waiting period 
expires, the denied firm may reapply to any member of the UCP that 
denied the application. The certifier must inform the applicant of that 
right, and specify the date the waiting period ends, in its decision 
letter.
    (d) An appeal does not extend the waiting period.

0
59. Revise Sec.  26.87 to read as follows:


Sec.  26.87  Decertification.

    (a) Burden of proof. To decertify a DBE, the certifier bears the 
burden of proving, by a preponderance of the evidence, that the DBE 
does not meet the certification standards of this part.
    (b) Initiation of decertification proceedings. (1) A certifier may 
determine on its own that it has reasonable cause to decertify a DBE.
    (2) If an OA determines that there is reasonable cause to believe 
that a DBE does not meet the eligibility criteria of this part, the OA 
may direct the certifier to initiate a proceeding to remove the DBE's 
certification.
    (i) The OA must provide the certifier and the DBE written notice 
describing the reasons for the directive, including any relevant 
documentation or other information.
    (ii) The certifier must immediately commence a proceeding to 
decertify as provided by paragraph (e) of this section.
    (3) Any person may file a complaint explaining, with specificity, 
why the certifier should decertify a DBE. The certifier need not act on 
a general allegation or an anonymous complaint. The certifier must keep 
complainants' identities confidential as provided in Sec.  26.109(b).
    (i) The certifier must review its records concerning the DBE, any 
material the DBE and/or complainant provides, and any other available 
information. The certifier may request additional information from the 
DBE or conduct any other investigation that it deems necessary.
    (ii) If the certifier determines that there is reasonable cause to 
decertify the DBE, it initiates a decertification proceeding. If it 
determines that there is not such reasonable cause, it notifies the 
complainant and the DBE in writing of its decisions and the reasons for 
it.
    (c) Notice of intent (NOI). A certifier's first step in any 
decertification proceeding must be to email a notice of intent (NOI) to 
the DBE.
    (1) The NOI must clearly and succinctly state each reason for the 
proposed action, and specifically identify the supporting evidence for 
each reason.
    (2) The NOI must notify the DBE of its right to respond in writing, 
at an informal hearing, or both.
    (3) The NOI must inform the DBE of the hearing scheduled on a date 
no fewer than 30 days and no more than 45 days from the date of the 
NOI.
    (4) If the ground for decertification is that the DBE has been 
suspended or debarred for conduct related to the DBE program, the 
certifier issues a NOD decertifying the DBE. In this case, there is no 
NOI or opportunity for a hearing or written response.
    (d) Response to NOI. (1) If the DBE wants a hearing, it must email 
the certifier saying so within 10 days of the NOI. If the DBE does not 
do so, it loses its opportunity for a hearing.
    (2) The certifier and DBE may negotiate a different hearing date 
from that stated in the NOI. Parties must not engage in dilatory 
tactics.
    (3) If the DBE does not want a hearing, or does not give timely 
notice to the certifier that it wants one, the DBE may still provide 
written information and arguments to the certifier rebutting the 
reasons for decertification stated in the NOI.
    (e) Hearings. (1) The purpose of the hearing is for the certifier 
to present its case and for the DBE to rebut the certifier's 
allegations.
    (2) The hearing is an informal proceeding with rules set by the 
hearing officer. The SEDO's attorney, a non-SEDO, or other individuals 
involved with the DBE may attend the hearing and answer questions 
related to their own experience or more generally about

[[Page 24977]]

the DBE's ownership, structure and operations.
    (3) The certifier must maintain a complete record of the hearing, 
either in writing, video or audio. If the DBE appeals to DOT under 
Sec.  26.89, the certifier must provide that record to DOT and to the 
DBE.
    (f) Separation of functions. The certifier must ensure that the 
decision in a decertification case is made by an individual who did not 
take part in actions leading to or seeking to implement the proposal to 
decertify the DBE and is not subject, with respect to the matter, to 
direction from the office or personnel who did take part in these 
actions.
    (1) The certifier's method of implementing this requirement must be 
made part of its 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.
    (g) Notice of decision. The certifier must send the firm a NOD no 
later than 30 days of the informal hearing and/or receiving written 
arguments/evidence from the firm in response to the NOI.
    (1) The NOD must describe with particularity the reason(s) for the 
certifier's 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 the decision under paragraph (i) of this section 
and of its appeal rights under Sec.  26.89.
    (2) The certifier must send copies of the NOD to the complainant in 
an ineligibility complaint or to the OA that directed the certifier to 
initiate the proceeding.
    (3) When sending a copy of an NOD to a complainant other than an 
OA, the certifier must not include information reasonably construed as 
confidential business information, unless the certifier has the written 
consent of the firm that submitted the information.
    (4) The certifier must make an entry in DOCR's Online Portal within 
5 days of the action. The certifier must enter the name of the firm, 
names(s) of the firm's owner(s), date of decision, and the reason(s) 
for its decision.
    (h) Status of firm during proceeding. (1) A DBE remains certified 
until the certifier issues a NOD.
    (i) [Reserved]
    (j) Consequences. Decertification has the following effects on 
contract and overall goals and DBE participation:
    (1) When a prime contractor has made a commitment to use the 
decertified firm, but a subcontract has not been executed before the 
certifier issues the NOD, the certified firm does not count toward the 
contract goal. The recipient must direct the prime contractor to meet 
the contract goal with an eligible DBE or demonstrate the certifier 
that it has made good faith efforts to do so.
    (2) When the recipient has made a commitment to using a DBE prime 
contractor, but a contract has not been executed before a 
decertification notice provided for in paragraph (g) of this section is 
issued, the decertified firm does not count toward the recipient's 
overall DBE goal.
    (3) If a prime contractor has executed a subcontract with the firm 
before the certifier has notified the firm of its decertification, 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 decertification without 
prior written consent from the recipient.
    (4) If a prime contractor has executed a subcontract with the firm 
before the certifier has notified the firm of its decertification, the 
prime contractor may continue to use the firm as set forth in paragraph 
(j)(3) of this section; however, the portion of the decertified firm's 
continued performance of the contract must not count toward the 
recipient's overall goal.
    (5) If the recipient executed a prime contract with a DBE that was 
later decertified, the portion of the decertified firm's performance of 
the contract remaining after the certifier issued the notice of its 
decertification must not count toward an 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 this paragraph (j):
    (i) If a certifier decertifies a firm solely because it exceeds the 
business size standard during the performance of the contract, the 
recipient may continue to count the portion of the decertified firm's 
performance of the contract remaining after it issued the notice of its 
decertification toward the recipient's overall goal as well as toward 
the contract goals.
    (ii) If the certifier decertifies the DBE because it was acquired 
by or merged with a non-DBE, the recipient may not continue to count 
the portion of the decertified firm's performance on the contract 
remaining after the certifier decertified it toward either the contract 
goal or the overall goal, even if a prime contractor has executed a 
subcontract with the firm or the recipient has executed a prime 
contract with the DBE that was later decertified. In this case, if 
eliminating the credit of the decertified firm will affect the prime 
contractor's ability to meet the contract goal, the recipient must 
direct the prime contractor to subcontract to an eligible DBE to the 
extent needed to meet the contract goal or demonstrate to the recipient 
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. Summary suspension is an extraordinary remedy for 
lapses in compliance that cannot reasonably or adequately be resolved 
in a timely manner by other means.
    (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. (i) The certifier has discretion to suspend summarily 
if it has clear and credible evidence that the DBE's continued 
certification poses a substantial threat to program integrity.
    (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.
    (c) Coordination with other remedies. In most cases, a simple 
information request or a Sec.  26.87 NOI 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.
    (d) Procedures--(1) Notice. The certifier must notify the firm, by 
email, of its summary suspension notice (SSN) on a business day during 
regular business hours. The SSN must explain the action, the reason for 
it, the consequences, and the evidence on which the certifier relies.
    (i) Elective SSNs may not cite more than one reason for the action.

[[Page 24978]]

    (ii) Mandatory SSNs may state multiple reasons.
    (iii) The SSN, regardless of type, 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. 
The SSN must also advise that the DBE may provide written information 
and arguments lieu of or in addition to attending the hearing.
    (2) Hearing. The hearing date must be 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) 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 must email any written response it provides. Email 
submissions correctly addressed are effective when sent. The certifier 
may permit additional submissions after the hearing, as long as the 
extension ends on a business day that is not more than 30 days after 
the notice.
    (4) Scope and burdens. (i) Suspension proceedings are limited to 
the suspension ground specified in the notice.
    (ii) The certifier may not amend its reason(s) 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.
    (iv) The certifier has the burden of proving its case by a 
preponderance of the evidence. It must issue an 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.
    (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, if substantial, will constitute a preponderance of the 
evidence for purposes of the NOD.
    (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 4:30 p.m. on the 30th day, then it must lift the suspension and 
amend applicable DBE lists and databases by 12 p.m. the following 
business day.
    (e) Recourse--(1) Appeal. The DBE may appeal a final decision under 
paragraph (c)(5)(iv) of this section, as provided in Sec.  26.89(a), 
but may not appeal the suspension itself, unless paragraph (d)(2) of 
this section applies.
    (2) Enforcement. (i) The DBE may immediately petition the 
Department for an order to vacate a certifier's action if:
    (A) The certifier sends a second elective SSN within 12 months, or
    (B) Cites multiple reasons in an elective SSN contrary to paragraph 
(d)(1)(i) of this section.
    (ii) The DBE may also petition to the Department for an order to 
compel if the certifier fails to act within the time specified in 
paragraph (c)(6) of this section.
    (3) In either case, the DBE must:
    (i) Email the request under the subject line, ``REQUEST FOR 
ENFORCEMENT ORDER'' in all caps;
    (ii) Limit the request to a one-page explanation that includes:
    (A) The certifier's name and the suspension dates;
    (B) Contact information for the certifier, the DBE, and the DBE's 
SEDO(s); and
    (C) The general nature and date of the firm's response, if any, to 
the second suspension notice; and
    (D) The suspension notice(s).

0
61. Revise Sec.  26.89 to read as follows:


Sec.  26.89  Appeals to the Department.

    (a)(1) Applicants and decertified firms may appeal adverse NODs to 
the Department.
    (2) An ineligibility complainant or applicable Operating 
Administration (the latter by the terms of Sec.  26.87(c)) may appeal 
to the Department if the certifier does not find reasonable cause to 
issue an NOI to decertify or affirmatively determines that the DBE 
remains eligible.
    (3) Appellants must email appeals as directed in the certifier's 
decision letter within 45 days of the date of the letter. The appeal 
must at a minimum include a narrative that explains fully and 
specifically why the firm believes the decision is in error, what 
outcome-determinative facts the certifier did not consider, and/or what 
part 26 provisions the certifier misapplied.
    (4) The certifier's decision remains in effect until the Department 
resolves the appeal or the certifier reverses itself.
    (b) When it receives an appeal, the Department requests a copy of 
the certifier's complete administrative record including a video, 
audio, or transcript of any hearing, which the certifier must provide 
within 20 days of the Department's request. The Department may extend 
this time period when the certifier demonstrates good cause. The 
certifier must ensure that the administrative record is well organized, 
indexed, and paginated and the certifier must provide the appellant a 
copy of any supplemental information it provides to DOT.
    (c)(1) The Department may accept an untimely or incomplete appeal 
if it determines, in its sole discretion, that doing so is in the 
interest of justice.
    (2) The Department may dismiss non-compliant or frivolous appeals 
without further proceedings.
    (d) The Department will avail itself of whatever remedies for 
noncompliance it considers appropriate.
    (e) The Department decides only the issue(s) presented on appeal. 
It does not conduct a de novo review of the matter, assess all 
eligibility requirements, or hold hearings. It considers the 
administrative record and any additional information that it considers 
relevant.
    (f)(1) The Department affirms the certifier's decision if it 
determines that the decision is consistent with applicable rules and 
supported by substantial evidence.
    (2) The Department reverses decisions that do not meet the standard 
in paragraph (f)(1) of this section.
    (3) The Department need not reverse if an error or omission did not 
result in fundamental unfairness or undue prejudice.
    (4) The Department may remand the case with instructions for 
further action. When the Department specifies further actions, the 
certifier must take them without delay.
    (5) The Department generally does not uphold the certifier's 
decision based on grounds not specified in its decision.
    (6) The Department resolves appeals on the basis of facts 
demonstrated, and evidence presented, at the time of the certifier's 
decision.
    (7) The Department may summarily dismiss an appeal. Reasons for 
doing so include, but are not limited to, non-compliance, abuse of 
process, appellant or certifier request, and failure to state a claim 
upon which relief can be granted.
    (g) The Department does not issue advisory opinions.

[[Page 24979]]

    (h) All decisions described in paragraph (f) of this section are 
administratively final unless they say otherwise.
    (i) DOCR posts final decisions to its website, available at https://www.transportation.gov/DBEDecisions.


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; and
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 by:
0
a. Removing the word ``Conducing'' in paragraph IV.A.(1) and adding in 
its place the word ``Conducting''; and
0
b. Adding at the end of paragraph VI after the word ``efforts'' the 
phrase ``except in design-build procurement''.

Appendix B to Part 26 [Removed and Reserved]

0
66. Remove and reserve appendix B to part 26.

Appendices E Through G to Part 26 [Removed]

0
67. Remove appendices E through G to part 26.

[FR Doc. 2024-05583 Filed 4-8-24; 8:45 am]
BILLING CODE 4910-9X-P