Disadvantaged Business Enterprises: Critical Information Is	 
Needed to Understand Program Impact (01-JUN-01, GAO-01-586).	 
								 
The Department of Transportation's (DOT) Disadvantaged Business  
Enterprise (DBE) program seeks to remedy the effects of current  
and past discrimination against small businesses owned and	 
controlled by socially and economically disadvantaged persons and
to foster equal opportunity in transportation contracting. This  
report provides information on (1) important changes made to the 
program since 1999; (2) characteristics of DBEs and non-DBEs that
receive DOT-assisted highway and transit contracts; (3) evidence 
of discrimination and other factors that may limit DBEs' ability 
to compete for DOT-assisted contracts; and (4) the programs	 
impact on costs, competition, and job creation and the impact of 
discontinuing the federal and nonfederal DBE programs. GAO found 
that the program has changed significantly since DOT issued new  
regulations in 1999 in response to a 1995 Supreme Court decision 
that heightened standards for federal programs that use race or  
ethnicity as a criterion in decision-making. The new regulations 
overhauled the DBE goal-setting process. For example, states and 
transit authorities are no longer required to justify goals lower
than 10 percent--the amount identified in the statutory DBE	 
provision. Rather, goals are to be based on the number of "ready,
willing, and able" DBEs in local markets. GAO was unable to	 
determine the characteristics of DBE participants because of a	 
lack of information. Without this information, it is impossible  
to define the universe of DBEs, compare them with the		 
transportation contracting community as a whole, or gain a clear 
understanding of the programs impact. DOT does not systematically
track information on discrimination complaints filed by DBEs.	 
Although DOT receives written discrimination complaints filed by 
DBEs, it could not provide the total number of such complaints,  
the total number of investigations launched, or the outcomes of  
the investigations.						 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-01-586 					        
    ACCNO:   A00891						        
  TITLE:     Disadvantaged Business Enterprises: Critical Information 
             Is Needed to Understand Program Impact                           
     DATE:   06/01/2001 
  SUBJECT:   Audits						 
	     Minority business assistance			 
	     Reporting requirements				 
	     Small business assistance				 
	     Small disadvantaged business contractors		 
	     Statistical data					 
	     Transportation contracts				 
	     DOT Disadvantaged Business Enterprise		 
	     Program						 
								 

******************************************************************
** This file contains an ASCII representation of the text of a  **
** GAO Testimony.                                               **
**                                                              **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced.  Tables are included, but    **
** may not resemble those in the printed version.               **
**                                                              **
** Please see the PDF (Portable Document Format) file, when     **
** available, for a complete electronic file of the printed     **
** document's contents.                                         **
**                                                              **
******************************************************************
GAO-01-586
     
A

Report to Congressional Committees

June 2001 DISADVANTAGED BUSINESS ENTERPRISES

Critical Information Is Needed to Understand Program Impact

GAO- 01- 586

Letter 3 Appendixes Appendix I: Section of the Transportation Equity Act for
the 21st Century

Requiring GAO?s Study 46 Appendix II: GAO?s Survey Instrument and Overall
Results 48 Appendix III: Objectives, Scope, and Methodology 74 Appendix IV:
Comments From the U. S. Department of Transportation 79 Appendix V: GAO
Contacts and Staff Acknowledgments 84

Figures Figure 1: Percentage of Federal Highway Contract Dollars Awarded to
DBEs, Fiscal Year 1999 21 Figure 2: DBEs? Participation in Federal
Transportation Contracting in

Minnesota, 1995- 2000 39 Figure 3: MBE/ WBEs? Participation in Louisiana?s
State- Funded

Transportation Contracting, 1992- 2000 41

Abbreviations

DBE Disadvantaged Business Enterprise DOCR Department of Transportation's
Office of Civil Rights DOJ Department of Justice FHWA Federal Highway
Administration FTA Federal Transit Administration GAO General Accounting
Office MBE/ WBE Minority Business Enterprise/ Women Business Enterprise SBA
Small Business Administration TEA- 21 Transportation Equity Act for the 21st
Century UCP Unified Certification Program USDOT Department of Transportation

Lett er

June 1, 2001 Congressional Committees The U. S. Department of
Transportation?s (USDOT) Disadvantaged Business Enterprise (DBE) program is
designed to remedy the effects of current and past discrimination against
small businesses owned and controlled by socially and economically
disadvantaged individuals and to foster equal opportunity in transportation
contracting. The Surface Transportation Assistance Act of 1982 contained the
first statutory DBE provision for federal highway and transit programs,
requiring that at least 10 percent of the funds provided be expended with
DBEs, unless the Secretary of

Transportation determined otherwise. From 1983 through 1999, about $35
billion of the federal funds expended through USDOT- assisted highway and
transit contracts went to DBEs. Congressional debate preceding the passage
in 1998 of the Transportation Equity Act for the 21st Century (TEA21), which
reauthorized the DBE program, focused largely on the need for and impact of
the DBE program. USDOT issued new regulations in 1999

that significantly altered the DBE program. These regulations were designed
to respond to issues raised in the congressional debate and the Supreme
Court?s 1995 decision in Adarand Constructors, Inc. v. Pena.

In addition to reauthorizing the DBE program, TEA- 21 required that we
review the program?s impact throughout the United States and directed us to
include analyses of specific program- related issues in our review. 1 (See
app. I for the section of TEA- 21 requiring our study.) Accordingly, this
report provides information on (1) important changes made to the DBE

program since 1999, (2) characteristics of DBEs and non- DBEs that receive
USDOT- assisted highway and transit contracts, (3) evidence of
discrimination and other factors that may limit DBEs? ability to compete for
USDOT- assisted contracts, and (4) the impact of the DBE program on costs,
competition, and job creation and the impact of discontinuing the federal
and nonfederal DBE programs.

1 Under TEA- 21, at least 10 percent of the highway, transit, and research
funds authorized by the act are to be expended with DBEs, unless the
Secretary of Transportation determines otherwise. This report focuses on the
DBE program applicable to state departments of transportation and transit
authorities with respect to USDOT- assisted highway and transit contracts
rather than on direct expenditures of federal funds by USDOT.

To address these issues, we conducted a nationwide mail survey in October
2000 of the 52 state departments of transportation (including those of the
District of Columbia and Puerto Rico) and the 36 largest transit
authorities. 2 We received responses to our survey from all 52 state
departments of transportation (states) and 31 transit authorities, for an
overall response rate of 94 percent. Our survey instrument and overall
results are included in appendix II and selected survey results are
available at www. gao. gov/ special. pubs/ dbe. We also assessed USDOT?s DBE
program data, reviewed court cases addressing the constitutionality of
USDOT?s DBE program since 1995, and analyzed transportation- specific
disparity studies. 3 This report is not a compliance review and therefore
does not address whether states and transit authorities followed the DBE
program regulations or how USDOT enforced those regulations, particularly
with respect to the certification of DBEs. (See app. III for a more detailed
discussion of our report?s scope and methodology.)

Results in Brief The DBE program has changed significantly since USDOT
issued new regulations in 1999, in part, to respond to a 1995 Supreme Court
decision

that heightened standards for federal programs that use race or ethnicity as
a criterion in decision- making. The new regulations overhauled the DBE
goal- setting process. States and transit authorities are no longer required
to justify goals lower than 10 percent- the amount identified in the
statutory DBE provision. Rather, goals are to be based on the number of
?ready, willing, and able? DBEs in local markets. In addition, states and
transit authorities must now use race- neutral measures (i. e., measures
intended to help all small businesses, not just DBEs), such as outreach and
technical assistance, to the greatest extent possible to achieve their DBE
goals. Furthermore, the new regulations revised the eligibility requirements
to 2 Transit authorities provide local or regional multiple- occupancy-
vehicle passenger services for general public use. We planned to survey all
transit authorities required to submit DBE

program plans. However, the Federal Transit Administration (FTA) could not
provide an accurate list of these transit authorities. Therefore, we
surveyed the 36 largest transit authorities (as defined by the number of
unlinked passenger trips in 1999) across the nation. These transit
authorities accounted for two- thirds of the federal transit grant funds
obligated in 1999. 3 These disparity studies measure the availability and
utilization of minority- and womenowned businesses in transportation
contracts. We chose to review only transportationspecific disparity studies
published between 1996 and 2000, in part, because the DBE regulations state
that any disparity study used in the DBE goal- setting process should be as

recent as possible and focused on the transportation contracting industry.

include a personal net worth cap of $750, 000 for the individuals who own
and control DBEs. States and transit authorities were required to submit to
USDOT new DBE program plans that reflected the new regulations in August
1999. About three- fourths of the states and transit authorities

responding to our survey reported that the new regulations have made it more
difficult for them to administer the DBE program. Furthermore, over half of
the states and transit authorities indicated that the new regulations made
it more difficult for DBEs to apply to the program. These views are probably
attributable to the new goal- setting process that states and transit
authorities must complete and the additional paperwork that DBEs must
submit.

A lack of key information prevents anyone from gaining a clear understanding
of the firms that participate in the DBE program and how these firms compare
with the rest of the transportation contracting community. For example, we
cannot calculate the total number of certified DBEs nationwide because of
duplication in states? and transit authorities? DBE directories. In
addition, about two- thirds of our survey respondents could not provide
information on the annual gross receipts of DBEs or the

personal net worth of the individuals who own and control DBEs- information
that is required to determine eligibility for the program but is not
reported to USDOT. The primary reason states and transit authorities

cited for not being able to provide this information was that the
information was not in an electronic database and therefore would be too
difficult and time- consuming to compile. Moreover, states and transit
authorities are just starting to collect personal net worth information as
required by the new regulations. In addition, about 95 percent of the states
and transit authorities we surveyed could not provide information on the
annual gross receipts of non- DBEs, and none could provide information on
the personal net worth of the individuals who own and control non- DBEs.
Although financial information on DBEs and non- DBEs is lacking, the
majority of the states and transit authorities could provide basic
information on DBEs, such as the total number of prime contracts awarded to
the firms- information that is regularly reported to USDOT. These data
indicate that DBEs received about 7 percent of the prime contracts

awarded and 2 percent of the federal dollars awarded for prime contracts in
fiscal year 2000.

A variety of sources could provide information relevant to whether
discrimination limits the ability of DBEs to compete for USDOT- assisted
contracts. These sources include relevant court cases; studies of lending,
bonding, and business practices affecting the formation and competition of

such firms; state and local disparity studies; and discrimination
complaints. Our review focused on court cases addressing the
constitutionality of the federal DBE program; transportation- specific
disparity studies; and written complaints of discrimination filed by DBEs
with states, transit authorities, and USDOT. We focused on these sources
because they are directly related to transportation contracting and the
federal DBE program. In summary, we found the following:

 The federal courts that have considered the constitutionality of USDOT?s
DBE program under the standard adopted by the Supreme Court in 1995 have
concluded that discrimination adversely affects DBEs. These decisions were
based on various types of evidence, including studies of business practices
affecting DBE formation and competition, and disparity studies. In these
cases, the courts found that the evidence of discrimination presented was
sufficient for them to conclude that the federal DBE program serves a
compelling

governmental interest, namely, providing a remedy for that discrimination.

 Studies finding statistical disparities between the availability and
utilization of minority- and women- owned firms in transportation
contracting are recognized as a potential source of evidence of
discrimination. As a result, numerous state and local governments have
conducted disparity studies to support their minority contracting

programs and to help set their federal DBE participation goals. All 14
studies we reviewed found that there were disparities between the
availability and utilization of minority- and women- owned businesses in
transportation contracts. Taken as a whole, these studies suggest that
disparities exist; however, we found significant weaknesses in the disparity
studies we reviewed. For example, the studies consistently overstated the
number of qualified, willing, and able firms or

understated firms? utilization in transportation contracts. The weaknesses
we identified create uncertainties about the studies? findings- that is,
they could result in either an overstatement or an understatement of
minority- and women- owned businesses availability and utilization.

 USDOT does not systematically track information on complaints of
discrimination filed with the Department by DBEs- information that could
shed light on the existence of discrimination against DBEs. For

example, although USDOT receives written discrimination complaints filed by
DBEs, it could not provide the total number of such complaints, the total
number of investigations launched, or the outcomes of the investigations. We
also asked states and transit authorities about written

discrimination complaints filed by DBEs in 1999 and 2000. Eighty- one
percent of the states and transit authorities reported that they did not
receive any written complaints of discrimination filed by DBEs during this
period. Nineteen percent of the states and transit authorities

reported that they received a total of 31 written discrimination complaints
from DBEs in 1999 and 2000. Of the 31 complaints filed, 29 had been
investigated. Four of these investigations resulted in findings of
discrimination.

Other factors may also limit the ability of DBEs to compete for
USDOTassisted contracts. According to our survey results, the majority of
the states and transit authorities we surveyed had not conducted any type of
analysis to identify these factors. Using anecdotal information, we

identified a number of factors, or barriers, such as a lack of working
capital and limited access to bonding, that may limit DBEs? ability to
compete for contracts. However, there was little agreement among the
officials we contacted on whether these factors were attributable to
discrimination.

Limited data prevent a thorough assessment of the impact of the DBE program,
including the impact on DBEs of discontinuing the federal or nonfederal DBE
programs. We identified one state and one transit authority that had
discontinued their federal DBE programs as a result of court decisions. In
addition, through our survey, we identified 10 other states and transit
authorities that had participated in nonfederal DBE programs that had been
discontinued. Ten of these 12 states and transit authorities could

not provide sufficient data for us to fully evaluate the impact of this
action. The data provided from the remaining two states indicate that
discontinuing the federal and nonfederal programs had a negative impact on
minority- and women- owned businesses.

Our report contains several recommendations to USDOT designed to (1) enhance
the collection of data so that more and better information will be available
to evaluate the impact of the DBE program and (2) help states and transit
authorities set DBE participation goals that reflect the availability of
ready, willing, and able DBEs in the relevant market. We recognize that
implementing these recommendations may result in some additional costs

for USDOT, states, and transit authorities. However, given existing data
collection requirements and the benefits associated with these
recommendations, we believe such costs are warranted. We provided USDOT with
a draft of this report for review and comment. USDOT did not

comment on our recommendations but offered comments on such areas as the
role of disparity studies in the DBE program, the need for states and

transit authorities to use the best available data in DBE goal- setting, and
the status of DBE and non- DBE participation data.

Background USDOT established a minority and women?s business enterprise
program for its highway, airport, and transit programs by regulation in
1980. The Surface Transportation Assistance Act of 1982 contained the first
statutory DBE provision for federal highway and transit programs, requiring
that a minimum of 10 percent of the funds provided by the act be expended
with small businesses owned and controlled by socially and economically
disadvantaged individuals, unless the Secretary of Transportation

determined otherwise. Nonminority women were not included as socially and
economically disadvantaged individuals. The Surface Transportation and
Uniform Relocation Assistance Act of 1987 continued the program and included
nonminority women in the statutory definition of socially and economically
disadvantaged individuals, thereby allowing states to use contracts with
both minority- and women- owned businesses to meet their

DBE goals. The Intermodal Surface Transportation Efficiency Act of 1991 and
TEA- 21 (1998) reauthorized the program, continuing the combined 10- percent
provision for participation by minority- owned and nonminoritywomen- owned
DBEs. The percentage of federal funds expended through USDOT- assisted
highway and transit contracts with DBEs increased from 9.9 percent in 1983
to 12. 8 percent in 1999.

TEA- 21 and USDOT?s regulations establish the basic eligibility requirements
for participation in the DBE program. The program is limited to small
businesses owned and controlled by socially and economically disadvantaged
individuals. Women and members of certain minority populations, such as
African-, Hispanic-, and Native- Americans and other minorities found to be
disadvantaged by the Small Business Administration (SBA), are presumed to be
socially and economically disadvantaged unless proved otherwise. 4 These
individuals must own at least 51 percent of thefirm and actually control its
operations. To qualify as a small business, a

firm must have average annual gross receipts over a 3- year period that do 4
Firms owned and controlled by those who are not presumed to be socially and
economically disadvantaged may qualify for the program if the owner can
demonstrate disadvantage. However, no individual whose personal net worth
exceeds $750, 000 may be considered economically disadvantaged. This amount
does not include the individual?s interest in the business or equity in a
primary residence.

not exceed either (1) the applicable SBA small business size standards 5 or
(2) a USDOT- specific cap ($ 17.4 million). 6 There is no legislative or
administrative requirement limiting the length of time firms can participate
in the program. However, DBEs become ineligible, or ?graduate,? when their
average annual gross receipts over a 3- year period exceed the

applicable SBA small business size standards or the USDOT- specific cap.
According to our survey results, most of the states and transit authorities
did not have any DBEs graduate in 2000. In addition, about one- quarter of
the states and transit authorities we surveyed could not provide this
information. States and transit authorities are not required to track this
information, and graduation is not a goal of the DBE program. Moreover, as
we reported in 1994, 7 because average annual gross receipts do not reliably
indicate DBEs? success, graduation is not a useful measure of the success of
the program as a whole. USDOT administers the DBE program through the Office
of the Secretary and the Department?s operating administrations, including
the Federal Transit Administration (FTA) and the Federal Highway
Administration

(FHWA). USDOT develops program policies, instructions, and procedures;
reviews and approves states? and transit authorities? DBE program plans; and
provides technical assistance, among other things. States and transit
authorities must certify that program applicants meet the eligibility
criteria, reassess annually the eligibility of certified businesses, and
establish

overall annual goals for the participation of DBEs in their USDOT- assisted
contracts. DBE participation goals are expressed as a percentage of all
federal highway and transit funds expended on USDOT- assisted contracts in a
fiscal year.

5 SBA?s size standards define the maximum size at which a firm can be
considered a small business. The size standards are usually defined by the
number of employees or the average annual receipts. 6 TEA- 21 established a
cap of $16. 6 million, but authorized the Secretary of Transportation to
adjust this amount for inflation. In August 2000, USDOT raised this cap from
$16. 6 million to $17. 4 million. Since the change was effective only for
the last 2 months of fiscal year 2000, we used the $16. 6 million figure
when we asked in our questionnaire for fiscal year 2000 data on annual gross
receipts. 7 Highway Contracting: Disadvantaged Business Program Meets
Contract Goal, but Refinements Are Needed (GAO/ RCED- 94- 168, Aug. 17,
1994).

One of the sources states and transit authorities may use to help set their
overall federal DBE participation goals is data derived from disparity
studies, which measure the availability of minority- and women- owned
businesses compared with their utilization in contracting. States and
transit authorities also use disparity studies to support state and local
minority

business contracting programs. The significance of disparity studies as
evidence of discrimination in this context was discussed in a 1989 Supreme
Court decision. 8 In City of Richmond v. J. A. Croson Co., 9 the Court held
that state and local programs that use race or ethnicity as a factor in
apportioning public contracting opportunities are subject to strict
scrutiny. 10 This means that the programs must serve a compelling
governmental interest and be narrowly tailored- that is, designed to be no
broader than necessary- to meet that interest.

8 This decision does not address state and local governments? implementation
of the federal DBE program. Furthermore, several members of the Court stated
that, unlike state and local governments, the Congress legislates on a
nationwide basis and has inherently broader powers to remedy discrimination.
Therefore, the Congress may deserve greater deference than state and local
governments. Also, we note disparity studies are not required to support

their participation in the federal program. 9 488 U. S. 469 (1989).

10 The purpose of strict scrutiny is to ensure that the goal of the program
is important enough to warrant treating people differently on the basis of
their race or ethnicity and that the means chosen to achieve the goal fit it
so closely that there is little or no possibility that an illegitimate
prejudice or stereotype is the motive for such different treatment. Programs
that use gender as a factor in decision- making are subject to a more
lenient standard than those involving race or ethnicity. These programs must
be substantially related to the achievement of an important governmental
interest.

The Court found that combating racial discrimination is a compelling
interest. However, it held that the city had not presented sufficient
evidence of discrimination to justify its minority contracting plan. In

evaluating the city?s evidence, the Court found, among other things, that
the city had inappropriately relied on the disparity between the number of
prime contracts awarded to minority firms and the minority population of
Richmond. It stated that an appropriate disparity evaluation would

compare the percentage of qualified minority contractors with the percentage
of dollars actually awarded to minority businesses. 11 While courts have
favorably cited disparity studies in some cases, 12 many courts

have rejected the studies? findings, often because of methodological
weaknesses, when considering whether a compelling interest exists for state
or local minority contracting programs. 13 These decisions provide varying
degrees of guidance on the data and methodology that need to be used in
disparity studies to produce reliable evidence of discrimination.

11 Several members of the Court emphasized that an inference of
discrimination could arise from a significant statistical disparity between
the number of qualified, willing, and able minority contractors and the
number actually engaged to perform a particular service. 12 See, e. g., Cone
Corp. v. Hillsborough County, 908 F. 2d 908 (11th Cir. 1990), cert. denied,

498 U. S. 983 (1990) and Concrete General, Inc. v. Washington Suburban
Sanitary Comm?n,

779 F. Supp. 370 (D. Md. 1991)( both finding that statistical analyses
presented in connection with motions for summary judgment did not suffer
from the defects identified by the Supreme Court in Croson). 13 See, e. g.,
W. H. Scott Construction Co., Inc. v. City of Jackson, 199 F. 3d 206 (5th
Cir. 1999)( study did not include an analysis of the availability and
utilization of qualified minority subcontractors, the relevant statistical
pool for the city?s program); Engineering Contractors Ass?n of South
Florida, Inc. v. Metropolitan Dade County, 122 F. 3d 895 (11th Cir. 1997),
cert. denied, 523 U. S. 1004 (1998)( marketplace study included the number
of licensed construction contractors rather than the number of firms
willing, able, or qualified to perform work on county construction contracts
and data on certain minority and women contractors did not contain any
statistically significant unfavorable disparities after accounting for firm
size); Concrete Works of Colorado, Inc. v. City and County of Denver, 86 F.
Supp. 2d 1042 (D. Col. 2000)( studies assumed that all existing firms were
available to perform within applicable time constraints and aggregated
available minority firms

regardless of their size or the services they performed); Phillips & Jordan,
Inc. v. Watts, 13 F. Supp. 2d 1308 (N. D. Fla. 1998)( study assumed that
every firm included in selected standard industrial codes was qualified,
willing, and able to bid on road maintenance contracts and calculated
availability and utilization rates on a statewide basis, even though
contracts were let on the district level).

A 1995 Supreme Court decision had a significant impact on the federal DBE
program, as well as other federal programs that use race or ethnicity as
factors in decision- making. Adarand Constructors, Inc. v. Pena 14 involved

FHWA?s use of a subcontracting compensation clause in direct federal
contracting to implement the DBE provision and provisions of the Small
Business Act. 15 Adarand Constructors, a nondisadvantaged contractor,
initiated the litigation in 1990 after it was denied a subcontract on a
federal lands highway project. In 1992, the district court held that the
programs at issue were constitutional, and in 1994 the Tenth Circuit Court
of Appeals affirmed that decision. 16 In 1995, the Supreme Court set aside
the Court of Appeals? decision and sent the case back to the lower courts,
directing

them to apply the strict scrutiny standard and thus determine whether the
programs were narrowly tailored to further a compelling governmental
interest. Applying this standard, the district court held that the
subcontracting compensation clause and related statutory provisions were
unconstitutional in 1997. 17 This decision was the subject of considerable
discussion during the congressional debate over the reauthorization of the
DBE program as part of TEA- 21, which was enacted in 1998. 18 14 515 U. S.
200 (1995).

15 The subcontracting compensation clause provided prime contractors
additional compensation for hiring subcontractors certified as small
businesses controlled by socially and economically disadvantaged
individuals. 16 Adarand Constructors, Inc. v. Pena, 16 F. 3d 1537 (10th Cir.
1994); Adarand Constructors, Inc. v. Skinner, 790 F. Supp. 240 (D. Colo.
1992). 17 Adarand Constructors, Inc. v. Pena, 965 F. Supp. 1556 (D. Colo.
1997). On appeal, the Tenth Circuit Court of Appeals found that the case was
moot since Adarand Constructors had been certified as a DBE after the
district court?s decision. Adarand Constructors, Inc. v. Slater, 169 F. 3d
1292 (10th Cir. 1999). However, the Supreme Court held that the case was

not moot and directed the Tenth Circuit Court of Appeals to consider the
district court?s 1997 decision. Adarand Constructors, Inc. v. Slater, 528 U.
S. 216 (2000).

18 USDOT believes that the Congress established a compelling governmental
interest in the DBE program through the body of evidence that supporters of
the program presented during the congressional debate over the program and
the subsequent reauthorization of the DBE provision in TEA- 21.

Responding largely to the Supreme Court?s 1995 decision and congressional
debate over the DBE program, USDOT issued regulations in 1999 to ensure that
the DBE program is narrowly tailored. In addition, the regulations are
designed to ensure nondiscrimination in the award and administration of
USDOT- assisted contracts, remove barriers to the participation of DBEs in
such contracts, and provide appropriate flexibility to the recipients of
federal funds in establishing and providing opportunities to DBEs, among
other things. In September 2000, the Tenth Circuit Court of Appeals upheld
the constitutionality of the current DBE program because it found that the

program served a compelling governmental interest and was narrowly tailored,
largely because of structural changes in the program resulting from USDOT?s
new regulations. 19 Adarand Constructors requested that the

Supreme Court review the Court of Appeals? decision in November 2000. In
March 2001, the Supreme Court agreed to hear the case. 20 USDOT?s New
USDOT?s 1999 DBE regulations made significant changes to the DBE Regulations

program. For example, the new regulations overhauled the program?s
goalsetting process, including the use of race- neutral measures (e. g.,
technical Significantly Changed

assistance) and revised its eligibility requirements. In addition, the new
the DBE Program

regulations required that states and transit authorities develop bidders
lists and unified certification programs, among other things, to make the
DBE program more streamlined and efficient. However, 72 percent of the
states and transit authorities responding to our survey indicated that the
new regulations have made it more difficult for them to administer the
program. In addition, over half of the states and transit authorities
indicated that the

new regulations have made it more difficult for DBEs to apply to the
program.

19 Adarand Constructors, Inc. v. Slater, 228 F. 3d 1147 (10th Cir. 2000). By
the time of the Tenth Circuit Court of Appeals? decision, FHWA had
discontinued its use of the subcontracting compensation clause. 20 Adarand
Constructors, Inc. v. Mineta, 121 S. Ct. 1401, amended by 69 U. S. L. W 3670
(U. S. Apr. 13, 2001) (No. 00- 730). The Supreme Court will address the
following two questions: (1) Did the court of appeals misapply the strict
scrutiny standard in determining if Congress had a compelling interest to
enact legislation designed to remedy the effects of racial discrimination?
and (2) Is USDOT?s current DBE program narrowly tailored to serve a
compelling government interest?

New Goal- Setting Process The new goal- setting process shifted the focus of
the program from Shifts Focus of Program

achieving the maximum feasible extent of DBE participation in USDOTassisted
contracting to achieving a ?level playing field?- that is, the amount of
participation DBEs would be expected to achieve in the absence of
discrimination. For example, under the prior regulations, states and transit

authorities were required to justify goals lower than 10 percent- the amount
identified in the statutory DBE provision. The regulations established a
direct link between the amount of participation identified in

the statute and the goals set by states and transit authorities. In
contrast, the new regulations require states and transit authorities to base
their DBE participation goals on demonstrable evidence of the number of
?ready, willing, and able? DBEs available in local markets relative to the
number of

all businesses ?ready, willing, and able? to participate in USDOT- assisted
contracts in such markets- representing the level of DBE participation
expected in the absence of discrimination. 21

The regulations outline a two- step process for goal- setting. First, states
and transit authorities must establish a base figure that represents the
?ready, willing, and able? DBEs in the state or transit authority?s market
relative to all ?ready, willing, and able? firms in that market (i. e.,
relative availability of DBEs). To determine the relative availability of
DBEs, the new regulations

require that states and transit authorities use the best available data and
suggest that states and transit authorities use DBE directories and Census
Bureau data, bidders lists, disparity studies, or the goal of another
recipient. Second, states and transit authorities must adjust their base
figure to account for other factors affecting DBEs, such as the capacity of
DBEs to perform work in USDOT- assisted contracts and findings from
disparity studies. According to our survey results, the most common sources
used to set states? and transit authorities? fiscal year 2000 participation
goals were DBE directories, historical utilization patterns, Census Bureau
data, and bidders lists. Under the new goal- setting process, the average
DBE participation goal decreased from 14. 6 percent in fiscal year 1999 to
13.5 percent in fiscal year 2000.

21 According to the new regulations, the 10- percent goal established in
TEA- 21 is an aspirational goal at the national level that USDOT will use as
a means of evaluating the overall performance of the DBE program nationwide;
however, it is not tied to individual states and transit authorities and
does not require that states and transit authorities set a 10percent goal.

The new regulations also require that states and transit authorities meet
the maximum feasible portion of their overall DBE goals using race- neutral
measures rather than race- conscious measures. The prior regulations did

not require the use of race- neutral measures (e. g., outreach and technical
assistance), which are designed to increase contracting opportunities for
all small businesses, and do not involve setting specific goals for the use
of DBEs on individual contracts. A race- conscious measure is one that is
focused solely on assisting DBEs. An example of a race- conscious measure is
a contract goal- that is, a DBE participation goal set for a specific
contract or project. While quotas are prohibited and set- asides are allowed
only in the most extreme cases of discrimination, states and transit
authorities must use contract goals to meet any portion of their overall
goals they do not expect to meet using race- neutral measures. 22 States and
transit authorities must submit their overall DBE participation goals,
including the methodology used to set the goals and the projected use of

race- neutral and race- conscious measures, to USDOT for approval on an
annual basis. The states and transit authorities we surveyed indicated that,
on average, they used race- neutral measures to achieve slightly over
onethird of their overall DBE participation goals in fiscal year 2000.

New Eligibility Requirement The new regulations established a personal net
worth cap for individuals Focuses on Owners? whose ownership and control of
a business determines DBE eligibility. Personal Wealth

According to USDOT, this new eligibility requirement is designed to ensure
that the program is limited to firms owned and controlled by genuinely
disadvantaged individuals. Prior to the new regulations, the absence of a
limit on personal net worth led to criticism that wealthy individuals could
benefit from the program. Under the new regulations, to qualify as
economically disadvantaged, individuals who own and control DBEs must

have a personal net worth that does not exceed $750, 000. USDOT chose the
$750,000 cap because it is a well- established standard for the SBA?s
programs. According to our survey results, the number of firms that exceeded
this limit and became ineligible for the DBE program in fiscal year 2000
ranged from 0 in 14 states and transit authorities to 39 in 1 state. Twenty-
two percent of the states and transit authorities we surveyed

reported that this information was not available. 22 To the extent that
race- conscious measures are no longer needed to achieve overall goals,
states and transit authorities must discontinue their use.

New Regulations Include The new regulations include other changes designed
to improve the

Other Requirements to effectiveness and efficiency of the DBE program. For
example, states and

Improve the DBE Program transit authorities are now required to create and
maintain a bidders list,

which is a record of all firms that bid on prime and subcontracts for USDOT-
assisted projects. The list must include each firm?s name, its status as a
DBE or non- DBE, its years in operation, and its annual gross receipts. 23
The list is intended to count all firms that are participating, or
attempting to participate in USDOT- assisted contracts; however the
regulations do not specify how often the bidders list must be updated, for
example, to ensure

that firms no longer available are removed from the list. USDOT believes
that the bidders list is a promising tool for states and transit authorities
to accurately measure the relative availability of ?ready, willing, and
able? DBEs when setting their DBE goals. Sixty percent of the states and
transit authorities we surveyed reported that they are in the process of
developing or implementing their bidders lists while 27 percent indicated
that their lists are fully implemented. Eight percent of the states and
transit authorities reported that they had not yet started developing their
bidders lists. The remaining 5 percent of the states and transit authorities
reported

that their bidders lists were in some other stage of development. 23 USDOT
issued an interim final rule in November 2000, specifying that states and
transit authorities could collect annual gross receipts information from
firms in ranges rather than exact figures.

Another change designed to improve the efficiency of the DBE program is the
requirement that states and transit authorities develop and participate in a
unified certification program (UCP). A UCP provides ?one- stop shopping? for
DBEs because it makes all DBE certification decisions within a state. All
recipients within a state must honor the certification decisions

of the UCP. Prior to the new regulations, DBEs often had to obtain separate
certifications from multiple recipients within one state. For example, in
California there were about 60 certifying agencies throughout

the state. Under the new regulations, DBEs will have to be certified by only
one agency to participate in the DBE programs administered by all recipients
in that state. By March 2002, the state DOT and all transit authorities
within each state must sign an agreement establishing the UCP for that state
and submit an implementation plan to USDOT for approval. The UCP must be
fully operational no later than 18 months after USDOT

approves the plan. The majority of the states and transit authorities (72
percent) we surveyed indicated that their UCPs were in some stage of
development or implementation while 7 percent indicated that their UCPs

were fully implemented; 14 percent reported that they had not yet started to
develop their UCPs; and the remaining 6 percent noted that their UCPs were
in some other stage of development. 24

New Regulations Make Fifty- four percent of the states and transit
authorities we surveyed

Application to and indicated that the new regulations had made it somewhat
or much more Administration of the DBE

difficult for DBEs to apply to the DBE program. This view could be Program
More Difficult attributable to the requirement for additional documentation
that DBEs must now submit- specifically, documentation of the personal net
worth of the individuals who own and control the firms. Furthermore, when
states and transit authorities were asked to identify barriers to firms?
participation in the DBE program, the two most common barriers cited

were (1) reluctance to provide personal information and (2) the time
required for certification paperwork. Despite these problems, most states
and transit authorities (58 percent) indicated that they believe the
benefits to firms participating in the DBE program outweigh any costs.

24 Percentages do not add to 100 percent because of rounding.

In addition, states and transit authorities reported that the new
regulations made it more difficult to administer the program. For example,
59 of 82 states and transit authorities we surveyed reported that the new

regulations had made it somewhat or much more difficult to administer the
DBE program while 9 states and transit authorities indicated that the new
regulations had made it easier to administer the program. 25 Fourteen states
and transit authorities reported that there was no change or they had no
basis to judge. It is not surprising that most states and transit
authorities reported that the new regulations made it more difficult to
administer the DBE program, since the new regulations required that they
completely overhaul their DBE goal- setting process and collect more
information from DBEs and non- DBEs. One source of frustration for states
and transit authorities appears to be the process for developing and
approving the new DBE program plans. The new regulations required that
states and transit authorities develop and submit plans for fiscal year 2000
that reflected the requirements and changes under the new regulations to
USDOT by August 31, 1999- about 6 months after the effective date of the new
regulations. During the approval process, USDOT sometimes sent the DBE plans
back to states and transit

authorities multiple times for revisions and clarifications. 26 One state
noted that even after it had worked closely with USDOT?s local office to
develop its plan, USDOT headquarters twice rejected the plan. On average, it
took USDOT 8 months to approve the 2000 DBE plans. According to our

survey results, one state and seven transit authorities reported that their
2000 DBE plans had yet to be approved.

Limited Data Are A lack of key information prevents anyone from gaining a
clear Available on the understanding of firms that participate in the DBE
program and how they

compare with the rest of the transportation contracting community. For
Characteristics of example, we cannot use the information provided by the
states and transit DBEs and Non- DBEs

authorities we surveyed to calculate the total number of certified DBEs
nationwide because of duplication in the states? and transit authorities?
DBE directories. In addition, almost two- thirds of our survey respondents

could not provide information on the annual gross receipts of DBEs or the
personal net worth of the individuals who own and control DBEs-

25 One survey respondent did not answer this question. 26 According to
USDOT, the plans were reviewed to ensure that they met legal requirements.

information that is used to determine firms? eligibility for the program but
is not reported to USDOT and was not readily available. Furthermore, almost
95 percent of the states and transit authorities we surveyed could not
provide information on the annual gross receipts of non- DBEs and none could
provide information on the personal net worth of the individuals who own and
control non- DBEs. While financial information on DBEs and non- DBEs is
lacking, most states and transit authorities could provide some other type
of information on DBEs, such as the total number of prime contracts awarded
to DBEs- information that is regularly reported to USDOT. These data
indicate, among other things, that DBEs

received about 7 percent of the prime contracts awarded and 2 percent of the
federal dollars awarded for prime contracts in fiscal year 2000. Duplication
and Data

We cannot calculate the total number of certified DBEs nationwide Problems
Preclude because of duplication in states? and transit authorities? DBE
directories.

Thorough Analysis of the States and transit authorities are required to
maintain DBE directories that list all the DBEs they have certified. 27
However, DBEs can be certified in DBE Community

multiple locations. For example, a DBE may be certified by Virginia,
Maryland, Pennsylvania, and the District of Columbia. Unlike the SBA?s Small
and Disadvantaged Business program, which gives a unique identification
number to each certified small and disadvantaged business, the DBE
regulations do not require states and transit authorities to assign unique
identifiers to certified DBEs. As a result, a DBE certified with four states
would be listed in four different DBE directories. Because of this

duplication, aggregating the number of certified DBEs listed in states? and
transit authorities? DBE directories would significantly overstate the
number of firms certified. While we cannot provide the total number of
certified DBEs nationwide, our survey results indicate that the number of
certified DBEs per state and transit authority varies greatly. For example,
in fiscal year 2000, the number of certified DBEs per state or transit
authority ranged from 39 in the state of Maine 28 to 3, 350 in the
Metropolitan Atlanta Rapid Transit Authority, with an average of 551 per
state and transit

authority. 27 The DBE directories must be updated at least annually. 28 The
Metropolitan Transit Authority of Harris County (Houston, Texas) reported
that it had no certified DBEs in 2000. According to USDOT, the Metropolitan
Transit Authority has a DBE program, with a goal intended to be met with all
race- neutral participation, but does not certify firms itself.

Although FHWA could provide information on the demographics of DBEs that
obtain highway contracts, FTA could not provide comparable data. As a
result, the demographics of the entire DBE community are unknown. FHWA?s
data on DBE participation indicate that nonminority- womenowned

businesses obtain a significant portion of contracts. Prior to 1987, states
and transit authorities could not generally count contracts with
nonminority- owned businesses toward DBE goals. The Surface

Transportation and Uniform Relocation Assistance Act of 1987 included
nonminority- women- owned businesses in the statutory definition of socially
and economically disadvantaged individuals and thus allowed states and
transit authorities to use contracts with both minority- and nonminority-
women owned businesses to meet their DBE goals. According to FHWA?s data,
nonminority- women- owned businesses have become one of the most competitive
groups in the DBE community since 1987. For

example, in 1999 (the latest year for which these data are available),
nonminority- women- owned businesses accounted for about 48 percent of all
federal highway contract dollars awarded to DBEs; minority- owned

businesses (those owned by both men and women) combined accounted for about
52 percent. (See fig. 1.) FTA was unable to provide reliable data on the
demographics of the DBEs that were awarded federal transit contracts, even
though transit authorities must provide this information to FTA on a
quarterly basis. 29 According to FTA, it does not centrally compile this
information.

29 States and transit authorities must submit certain information about DBEs
to USDOT on a quarterly basis, such as number of firms awarded prime and
subcontracts, the ethnicity of the firms? owners, and the type of work the
firms perform.

Figure 1: Percentage of Federal Highway Contract Dollars Awarded to DBEs,
Fiscal Year 1999

Source: FHWA.

Data Are Available to The majority of the states and transit authorities we
surveyed (78 percent) Calculate Participation Rate

provided sufficient data- that is, the number and value of prime contracts
of DBEs in Prime Contracts

awarded to DBEs and non- DBEs- to determine DBEs? participation rates in
prime contracts. 30 According to the data we obtained from these states but
Are Limited for

and transit authorities, DBEs received about 7 percent of the prime
Subcontracts contracts awarded and 2 percent of the federal dollars awarded
for prime contracts in fiscal year 2000. In comparison, about 70 percent of
the states and transit authorities could not provide both the number and
value of subcontracts awarded to DBEs and non- DBEs- information necessary
to calculate DBEs? participation rates in subcontracts. Because DBEs are
small businesses and are more likely to compete for subcontracts, which

generally require fewer resources (e. g., capital, equipment, and employees)
than prime contracts, the lack of subcontracting data prevents anyone from
30 We measured DBEs? participation rates in USDOT- assisted contracts using
both the number and value of the prime and subcontracts awarded.

gaining a complete understanding of DBEs? participation in transportation
contracting. The data provided from about one- third of the states and
transit authorities indicate that DBEs received about 33 percent of all
subcontracts awarded and 26 percent of the federal dollars awarded through
subcontracts in fiscal year 2000. However, because this information is based
on a small number of states and transit authorities, it may not be
representative and therefore should not be generalized to the entire DBE
community.

The participation rates of DBEs in both prime and subcontracts in fiscal
year 2000 indicate that they received a relatively small percentage of
federal prime and subcontracts and dollars when compared with nonDBEs.
However, we do not know whether the percentage is disproportionately low.
Such a determination cannot be made without an

accurate measure of the availability of DBEs- that is, the number of DBEs
?ready, willing, and able? to participate in prime and subcontracts compared
with the number of non- DBEs.

Financial Profile of DBEs The majority of states and transit authorities
responding to our survey Cannot Be Determined With

could not provide information on the annual gross receipts of DBEs. Current
Data Specifically, 60 percent of these states and transit authorities could
not provide information on the annual gross receipts of the DBEs that were
awarded prime or subcontracts in fiscal year 2000. Furthermore, 75 percent

of the states and transit authorities could not provide information on the
annual gross receipts of the DBEs that were not awarded prime or
subcontracts in fiscal year 2000. While the annual gross receipts of a DBE
are required to determine the firm?s eligibility for the program, this
information is not reported to USDOT. The primary reason survey

respondents cited for not being able to provide the information was that the
information is not in an electronic database and therefore would be
difficult and time- consuming to compile. The information that was provided
from a limited number of states and transit authorities indicates that most
DBEs? annual gross receipts are below $5 million- well below the current
USDOT- specific cap of $17.4 million. Furthermore, 85 percent of the DBEs
awarded contracts in fiscal year 2000 had annual gross receipts of less than
$5 million. In comparison, 94 percent of the DBEs that did not receive a
contract in fiscal year 2000 had annual gross receipts of less than $5
million. However, because this information is based on only a small
percentage of the states and transit authorities we surveyed, it may not be
representative and therefore should not be generalized to the entire DBE
community. (For more detailed information see app. II.)

The majority of the states and transit authorities we surveyed could not
provide information on the personal net worth of the individuals who own and
control DBEs. Specifically, about 65 percent of the states and transit
authorities indicated that they could not provide information on the
personal net worth of the owners of DBEs that were awarded prime contracts
in fiscal year 2000. Sixty- seven percent of the states and transit
authorities reported that they could not provide information on the

personal net worth of the owners of DBEs that were awarded subcontracts in
fiscal year 2000. In addition, 81 percent of the states and transit
authorities indicated that they could not provide information on the
personal net worth of the owners of DBEs that were not awarded prime
contracts in fiscal year 2000. Seventy- eight percent of the states and
transit authorities indicated that they could not provide information on the

personal net worth of the owners of DBEs that were not awarded subcontracts
in fiscal year 2000. Similar to the information on a firm?s annual gross
receipts, personal net worth information is required to determine a firm?s
eligibility for the program but is not reported to USDOT.

Since this eligibility requirement was introduced in the new regulations,
states and transit authorities are just starting to collect this
information. 31 Over 60 percent of the states and transit authorities
indicated that they

could not provide this information because it is not electronically
maintained and therefore would be difficult and time- consuming to compile
and report. The information that was provided from a limited number of
states and transit authorities indicates that over half of the DBEs that
received prime and subcontracts in fiscal year 2000 had owners whose
personal net worth was less than $250,000. Additionally, the data indicate
that the personal net worth of the owners of DBEs receiving prime contracts
was higher than the personal net worth of the owners of DBEs receiving
subcontracts.

However, because this information is based on the responses of a small
percentage of all states and transit authorities, it may not be
representative and therefore should not be generalized to the entire DBE
community. (For more detailed information see app. II.)

31 According to the regulations, firms applying to the DBE program must
provide a signed and notarized statement of personal net worth from the
individuals whose net worth is used to determine the firms? DBE eligibility.
Firms that were participating in the program before the effective date of
the new regulations (Mar. 1999) would have to submit the information

the next time they applied for recertification, which occurs every 3 years.
Hence, information on personal net worth may not be collected from all DBEs
until fiscal year 2002.

Lack of Data Prevents a Currently, the financial status of DBEs cannot be
compared with that of the

Financial Profile of NonDBEs transportation contracting community as a whole
because most states and

transit authorities do not collect or maintain financial information on
nonDBEs. For instance, over 90 percent of the states and transit authorities
responding to our survey could not provide information on the annual gross
receipts of non- DBEs. The primary reason for not being able to report

the information was not having it in an electronic database. The new
regulations require states and transit authorities to collect information on
the annual gross receipts of the non- DBEs that bid on their USDOT- assisted
contracts. This information is to be included in the states? and transit

authorities? bidders lists. According to USDOT, states and transit
authorities have expressed concern about their ability to collect this
information because non- DBEs have been reluctant to share this information.
No survey respondent could provide information on the personal net worth of
the owners of non- DBEs that were awarded prime or subcontracts in fiscal
year 2000. The majority of the states and transit authorities (61 percent)
indicated that they do not currently collect this information or

plan to do so in the future. Only 8 percent reported that they plan to
collect this information in the future. States and transit authorities are
not required to collect information on the personal net worth of the owners
of nonDBEs.

Information on There are numerous sources that could contain information
relevant to Discrimination and whether discrimination limits the ability of
DBEs to compete for USDOTassisted

contracts, including studies of lending, bonding, and business Other
Barriers That

practices affecting the formation and competition of minority firms; state
May Limit DBEs

and local disparity studies; discrimination complaints; and relevant court
cases. We focused our review on court cases involving the federal DBE
program since the Supreme Court?s 1995 decision in Adarand Constructors,
Inc. v. Pena, transportation- specific disparity studies published between

1996 and 2000; and written complaints of discrimination filed by DBEs with
states, transit authorities, and USDOT. We focused on these sources because
they are directly related to transportation contracting and the federal DBE
program. However, we did not address whether the DBE program satisfies the
requirements of strict scrutiny and is therefore

constitutional. In our review, we found the following:

 The courts that have considered the constitutionality of the federal DBE
program under the standard articulated in the Supreme Court?s 1995 decision
in the Adarand case have concluded that discrimination adversely affects
DBEs.

 All 14 studies we reviewed found that there were disparities between the
availability and utilization of minority- and women- owned business
enterprises (MBE/ WBEs) in transportation contracts. 32 Taken as a whole,
these studies suggest that disparities exist. However, none provide reliable
evidence of disparity because the limited data used to calculate
disparities, compounded by methodological weaknesses,

create significant uncertainties about the studies? findings- that is, they
could result in either an overstatement or an understatement of MBE/ WBEs?
availability and utilization.

 USDOT does not systematically track information on the discrimination
complaints filed by DBEs- information that could shed light on the existence
of discrimination against DBEs. In addition, a number of factors are often
cited by agency officials and representatives from both industry and
minority associations as limiting DBEs? ability to compete for contracts.
These factors include a lack of working capital and limited access to
bonding. However, there was little agreement among the officials we
contacted about whether these factors

are attributable to discrimination or are barriers that all small businesses
face.

32 Two studies did not have enough data to perform a statistically valid
disparity ratio analysis of transportation- specific contracts, and instead
conducted disparity analyses of contracts awarded by several agencies
including the transportation agencies. Several studies analyzed disparity
separately within sub- groups of MBE/ WBEs. Disparity was found

in at least one subgroup, but not in all of them.

Courts Have Found In order to uphold a program, such as the federal DBE
program, that uses

Sufficient Evidence of race or ethnicity as a criterion for decision-
making, a court must find

Discrimination to Justify the sufficient evidence of discrimination to
conclude that the program serves a

Federal DBE Program compelling governmental interest. Therefore, cases
considering the

constitutionality of the federal DBE program can indicate whether
discrimination adversely affects DBEs? participation in transportation
contracting. The courts that have addressed the DBE program under the
standard articulated by the Supreme Court?s 1995 decision in Adarand
Constructors, Inc. v. Pena (discussed on page 13 of this report) have found
that the evidence of discrimination presented was sufficient for them to
conclude that the program serves a compelling governmental interest,
specifically, remedying the effects of discrimination against DBEs. 33

Most recently, in its review of the DBE program in Adarand, the Tenth
Circuit Court of Appeals concluded that discrimination adversely affects
both the formation of qualified minority subcontracting businesses and their
ability to successfully compete for highway construction subcontracts. 34 On
the basis of the evidence presented, 35 the court found

33 Several additional challenges to the constitutionality of the DBE program
are in various stages of litigation. In addition, in 1996, a district court
in Texas concluded that the DBE program of the Metropolitan Transit
Authority of Harris County was unconstitutional and called into question the
constitutionality of the federal DBE program as well. See Houston

Contractors Ass?n v. Metropolitan Transit Authority of Harris County, 993 F.
Supp. 545 (S. D. Tex. 1997). The court did not, however, assess whether the
programs served a compelling governmental interest. The Fifth Circuit Court
of Appeals set aside the district court?s decision and sent the case back to
the district court for further review. 34 As discussed earlier, the Tenth
Circuit Court of Appeals reversed a 1997 district court decision finding
that the subcontracting compensation clause and DBE provision were
unconstitutional. The district court had found that the programs at issue
served a

compelling interest, but were not narrowly tailored. The district court?s
findings regarding discrimination were adopted by another district court
addressing a constitutional challenge to the DBE provision, the Department
of Transportation?s implementing regulations, and the state of Minnesota?s
federal DBE program. In that case, the district court found that the DBE
program satisfied the first element of strict scrutiny on the basis of the
district court?s 1997 decision in Adarand. However, as in Adarand, the court
concluded that the program was not

narrowly tailored to serve the identified compelling interest. See In re:
Sherbrooke Sodding,

17 F. Supp. 2d 1026 (D. Minn. 1998). 35 Throughout its decision, the court
referred to the congressional investigations, hearings, statistical and
anecdotal evidence, and other studies cited in a 1996 Department of Justice
review entitled ?The Compelling Interest for Affirmative Action in Federal
Procurement,? 61 Fed. Reg. 26050 (1996). As a preliminary matter, the court
found that the federal government need not be as geographically limited as
states and local governments in remedying the

effects of discrimination in markets created by the disbursement of federal
funds.

that discrimination by prime contractors, unions, and lenders impedes the
formation of qualified minority businesses in the subcontracting market
nationwide. The court also acknowledged the causal link between the

availability of capital and the ability to implement public works
construction projects and found that the studies cited by the government
strongly supported a finding of discrimination in lending. For example, it
cited a survey of 407 business owners in the Denver area that found

significant differences in the loan denial rate for white, African-
American, and Hispanic business owners, even after controlling for other
factors like size and net worth.

The court also addressed barriers to competition by existing minority
businesses. Citing congressional hearings and statistical evidence, among
other things, the court found that minority businesses are often excluded by
business networks of prime and subcontractors from opportunities to bid on
construction projects. The court also discussed bonding

requirements, finding another barrier to competition. For example, it cited
a Louisiana study finding that minority firms were nearly twice as likely to
be rejected for bonding; three times more likely to be rejected for bonding
in amounts over $1 million; and, on average, charged higher rates for the

same bonding policies than white firms with the same experience. Similarly,
the court accepted evidence of suppliers? withholding price discounts from
minority subcontractors, thus driving up their bids. In light

of this evidence, the court rejected Adarand Constructors? argument that
minority businesses face the same problems as all new businesses, regardless
of the race of the owners.

Finally, the court considered disparity studies conducted by state and local
governments. 36 In doing so, the court accepted the government?s finding,
based on a review of disparity studies, that minority construction
subcontracting firms received 87 cents for every dollar that they would be
expected to receive given their availability. The court also acknowledged
the potential for weaknesses in the data and methodology used in disparity
studies and stated that particular evidence undermining the reliability of
specific studies would be relevant to a determination regarding
discrimination. However, it noted that Adarand Constructors had not provided
it with evidence undermining the studies? reliability. 37 Furthermore, the
court found that Adarand Constructors had failed to introduce credible,
specific evidence to refute the government?s showing of a compelling
interest. 38 As a result, it held that there was sufficient evidence of
discrimination to justify the use of racial and ethnic criteria in

transportation contracting. 36 Although states and local governments do not
conduct disparity studies to justify the federal DBE program, the Department
of Justice review stated that disparity studies conducted by states and
local governments throughout the country in connection with their own
programs are of particular relevance to affirmative action measures in
federal programs providing grants to such entities. 37 The court
acknowledged the need for studies to take into account the special
qualifications needed to undertake the task at issue. However, the court
stated that it was unaware of such qualifications, aside from the general
qualifications necessary to operate a construction contracting business, and
that the record was without evidence that the subcontractors who had been
utilized had performed inadequately or otherwise

demonstrated a lack of necessary qualifications. 38 The court also ?[ took]
notice? of evidence of the link between the discontinuance of a
raceconscious program and minority business participation in the relevant
market. The court stated that this evidence supported the claim of
discriminatory barriers to participation by minority contractors.

Data and Methodological Fourteen recent, transportation- specific disparity
studies 39 concluded that Weaknesses Limit the disparities existed between
the utilization of MBE/ WBEs in transportation contracts and availability of
these firms in the marketplace. 40 Numerous

Findings of TransportationSpecific state and local governments have used
disparity studies to support their

Disparity Studies minority contracting programs and in setting their federal
DBE goals. For

example, about 30 percent of the states and transit authorities we surveyed
reported that they used a disparity study to help set their fiscal year 2000
DBE participation goals. However, our review of the 14 disparity studies
found that the limited data used to calculate disparities, compounded by

methodological weaknesses, create uncertainties about the studies? findings.
41 Rather than discuss the limitations of each study specifically, we have
chosen to discuss some of the more common problems we found. While not all
studies suffered from every problem, each suffered from enough problems to
make its findings questionable. We recognize that there are difficulties
inherent in conducting disparity studies and that such limitations are
common to social science research; however, the disparity

studies we reviewed did not sufficiently address such problems or disclose
their limitations. It is not clear what conclusions a court would draw about
the studies? findings. The studies we reviewed relied on a disparity ratio-
that is, a comparison of the availability of MBE/ WBEs to their utilization
in contracts- as an 39 We defined recent, transportation- specific disparity
studies as studies published between

1996 and 2000 containing a separate disparity analysis on transportation
contracting. 40 We chose to review transportation- specific disparity
studies published between 1996 and 2000, in part, because the new DBE
regulations recommend that any disparity study relied on in the DBE goal-
setting process should be as recent as possible and focused on the
transportation contracting industry. We reviewed two additional
transportation- specific studies published between 1996 and 2000 that
examined minority- and women- owned

business procurement. One of these studies did not use a traditional
disparity ratio and thus is not included in our discussion. However, we did
review the study and found that it contained methodological weaknesses that
create uncertainties about its findings. The other study was considered a
work in progress and thus was not included in our discussion. Both of these
studies used new approaches to identify barriers to full and active MBE/ WBE

participation. For example, one study disaggregated the procurement process
into discrete components to determine if any individual procurement practice
negatively affects MBE/ WBEs. USDOT has not conducted any disparity studies
or any other type of analysis examining discrimination in federal
transportation contracting because it believes such studies or analyses are
not needed to justify the federal DBE program. 41 Because our review of
transportation- specific disparity studies was limited, our conclusions
cannot be generalized to disparity studies as a whole. Moreover, the
findings in

any disparity study would be limited to the geographical scope of that
particular study.

indicator of discrimination. However, the data necessary to properly
calculate such ratios- complete and accurate lists of MBE/ WBEs?
availability and utilization- are often lacking. An availability list should

include all qualified, willing, and able firms in the relevant market area,
grouped by industry subspecialties and by MBE/ WBE or non- MBE/ WBE status.
A utilization list should include all firms in the relevant market area that
were awarded prime and subcontracts, grouped by industry

subspecialty and MBE/ WBE or non- MBE/ WBE status. Because these data are
often lacking, some proxies (i. e., substitute information) have been used
to calculate disparity ratios.

To develop proxies of availability, the disparity studies we reviewed used
sources including Census Bureau data, directories or other listings of
firms, prequalification lists, 42 and/ or bidders lists. These could be
useful data sources. However, all of these data sources have shortcomings,
whether

used separately or in combination, that must be taken into account when
using them as proxies for availability. Such shortcomings would result in
availability lists that could either under- or overstate the number of firms
available for transportation contracting. The limitations of using these
data sources as proxies for availability include the following:

 Census Bureau data cannot adequately indicate whether a firm is truly
available, that is, whether it has the qualifications, willingness, or
ability to complete contracts. However, in using Census Bureau data, the
studies depicted all operational firms as available for contracting. Some
studies attempted to account for the qualifications of firms by including
only firms in the relevant two- digit Standard Industry Classification (SIC)
codes in their availability lists. 43 Using a finer degree of distinction
(e. g., classification by the four- digit SIC code level) would help to
ensure that firms are similar enough for comparison. For example, some
studies used the two- digit SIC code for heavy construction, a category that
includes firms as diverse as general contractors for highway construction
and general contractors for radio tower construction.

42 A prequalification list, sometimes referred to as a precertification
list, includes all firms that have been prequalified by states or transit
authorities to compete for contracts. 43 SIC codes are used to identify
companies by their primary business activity. The activity is determined by
the major product produced or service rendered. The coding system consists
of major industries that are further divided into a multitude of minor
groups identified by a four- digit SIC code.

 Directories and other listings do not contain information on firms?
qualifications, willingness, or abilities. This could result in an
overstatement of how many firms are available for transportation
contracting. In addition, some of the data obtained from directories and
listings were inaccurate. For example, some of the disparity studies we
reviewed indicated that as many as 16 percent of the firms included in the
directories and listings were unreachable because of such problems as
disconnected telephones, wrong telephone numbers, incorrect addresses, or
dissolution of the firms.

 Prequalification and bidders lists may be better sources of availability
than Census Bureau data or directories because they better approximate
firms? qualifications, willingness, and ability to compete for contracts.
However, the mechanisms used by states and transit authorities to compile
them may limit their reliability. In the studies we reviewed, we found four
problems. First, some studies we reviewed used bidders and prequalification
lists that were updated infrequently or had no mechanism to ensure that
firms no longer available were

removed from the list. For example, one study used a list that never removed
firms, increasing the risk that it contained firms no longer in business in
the relevant market area. Second, some studies we reviewed

used bidders or prequalification lists that were maintained for multiple
city agencies, ranging from school districts to port authorities. Businesses
qualified to perform school district work may not be qualified to perform
port authority work. Third, the lists grouped all potential firms together,
failing to take into account their industry subspecialty and capacity.
Because of these problems, availability lists based on this information
would overstate the number of firms that were qualified, willing, and able
to perform transportation contracts. Finally, prequalification and bidders
lists could under represent capable

firms. Firms may refrain from participating because of perceived or actual
barriers. For example, one study we reviewed surveyed firms and found that
only 22 percent of those firms that expressed an interest in contracting
with the transit agency had actually attempted to obtain such work in the
past.

The disparity studies we reviewed made few efforts to mitigate the problems
with using these data sources as proxies for availability, nor did they
disclose the limitations of their use. For example, the disparity studies
did not sufficiently account for the lack of information on firms?
qualifications when the availability lists were developed. One aspect of a
firm?s qualifications is its capability to handle transportation
contracting. Some studies used average yearly revenue as a proxy for
capability.

However, revenue does not adequately explain the differences in firms?
capability. For example, two firms could have similar yearly revenues, but
one firm might have performed 100 small contracts throughout the year
because it did not have the capacity to perform large contracts, whereas the
second firm might have performed two very large contracts. If revenue were
used as a proxy for capability, these two firms would be considered
equivalent.

In addition to determining the availability of firms, disparity studies must
measure the utilization of MBE/ WBEs to determine if disparities in
contracting exist. This requires an analysis of both the number and dollar
amount of contracts awarded to MBE/ WBEs and non- MBE/ WBEs. Such
measurement is difficult because some states and transit authorities have
incomplete records of the prime and subcontracts they have awarded. For
example, several studies we reviewed did not include any analyses of
subcontracting and therefore may understate the utilization of firms.
Because MBE/ WBEs are more likely to be awarded subcontracts than prime
contracts, MBE/ WBEs in particular may appear underutilized when the focus
remains on prime contractor data. Furthermore, although some studies did
include calculations based on the number of contracts, all but two based
their determination of disparities on only the dollar amounts of contracts.
Because MBE/ WBEs tend to be smaller than non- MBE/ WBEs,

they are often unable to perform larger contracts. Therefore, it would
appear that they were awarded a disproportionately smaller amount of
contract dollars. A more complete indicator of utilization would consider
both the dollar amount and the number of contracts awarded or to control for
differences in contract dollar amounts. USDOT Has Not Provided In March
2001, USDOT advised states and transit authorities that disparity Criteria
for Reliability of

studies used to set their DBE participation goals should be reliable. While
Disparity Studies Used to Set pointing out that all or part of a disparity
study pertaining to a local market DBE Goals area could provide a rich
source of information for the goal- setting process, USDOT did not explain
how states and transit authorities could evaluate the reliability of such
studies. USDOT?s guidance does not, for instance, caution against using
studies that contain the types of data and methodological problems that we
identified above. Without explicit guidance on what makes a disparity study
reliable, states and transit authorities risk using studies that may not
provide accurate information in

setting their DBE goals.

Data on Written USDOT receives written complaints of discrimination from
DBEs but does Discrimination Complaints not systematically track or analyze
information on these complaints. 44 As a

Are Inconclusive result, this information is not readily available to shed
light on the absence

or presence of discrimination against DBEs. USDOT could not provide the
total number of written complaints filed by DBEs for two reasons. First,
while USDOT?s Office of Civil Rights (DOCR) records the complaints and
assigns identification numbers before routing them to FTA or FHWA for
investigation, DOCR?s records may not include complaints filed directly with
those agencies. Second, DBEs may file complaints of discrimination under the
DBE regulations or regulations issued under title VI of the Civil Rights Act
of 1964; however, DOCR does not record which title VI complaints are filed
by DBEs. Similarly, FTA does not separately track the title VI complaints
filed by DBEs. Because of these two problems,

information provided by USDOT would likely understate the number of
complaints of discrimination filed by DBEs.

In addition, USDOT could not provide the total number of investigations
launched as a result of the written discrimination complaints filed by DBEs
or information on the outcomes of these investigations. In order to
determine whether the discrimination complaints filed by DBEs have merit,
the number of investigations launched and the outcomes of the investigations
are critical pieces of information. USDOT officials stated they do not track
the number of investigations of written discrimination complaints filed by
DBEs or the number of times discrimination was found through their
investigations. To gather this type of information, USDOT

officials stated one would need to go through each case file individually-
nearly 100 over the last several years, not including title VI complaints.

We also asked the states and transit authorities we surveyed about written
discrimination complaints filed by DBEs in fiscal years 1999 and 2000.
Eighty- one percent of the respondents reported that they had not received
any written discrimination complaints filed by DBEs during this period.
Nineteen percent of the states and transit authorities reported that they
had received a total of 31 written discrimination complaints filed by DBEs
in 1999 and 2000. Of the 31 complaints filed, 29 had been investigated. Four
of these investigations resulted in findings of discrimination. While the

number of complaints filed by DBEs with states and transit authorities may
seem low, it is important to note that DBEs that believe they have been the
44 We did not review USDOT?s response to individual written complaints of
discrimination.

victims of discrimination have several options and may have elected to
pursue action elsewhere. For example, a DBE could file a complaint with the
responsible state or transit authority, USDOT, and/ or the courts. In
addition, USDOT officials stated that the number of written discrimination
complaints filed (at any level) probably understates the level of
discrimination for two reasons. Specifically, DBEs may choose not to file
complaints because they believe the process is too time- consuming or
burdensome or because they fear retribution (i. e., they would be denied

future work). Other Barriers May Limit

Other factors may also limit the ability of DBEs to compete for
USDOTassisted DBEs? Ability to Compete

contracts. However, there was little agreement among the officials for
Contracts

we spoke with as to whether these factors are due to discrimination or the
nature of small businesses. According to our survey results, 80 percent of
the states and transit authorities responding had not conducted any type of
analysis on this subject. 45 In addition, neither USDOT, nor SBA, nor the
industry groups we contacted had conducted any type of study on factors that
may limit the ability of DBEs to obtain contracts. 46 The industry officials
we spoke with often cited such factors as contract bundling;

limited access to bonding, working capital, and credit; and prequalification
requirements.

The most common factors cited as limiting DBEs? ability to compete for
contracts are a lack of working capital and limited access to credit and
bonding. For example, according to an association representing small
minority- owned businesses, DBEs frequently lack the capital needed to
finance jobs without drawing on credit and are denied credit because they

lack sufficient cash flow. Since these factors are widely perceived as
limiting the ability of DBEs to compete for contracts, USDOT has established
a number of services, including short- term lending and bonding assistance,
to help overcome these barriers.

45 Eight of the 17 states and transit authorities that had conducted such
analyses reported that the analyses were included in their disparity
studies. 46 The 1996 Department of Justice review contained information on
these factors.

Another factor often cited as a barrier to DBEs? ability to compete for
contracts is contract bundling. Contract bundling is the consolidation of
two or more procurement requirements previously provided or performed under
separate, smaller contracts into a solicitation of offers for a single
contract. 47 The resulting contract is likely to be unsuitable for award to
small businesses, such as DBEs, because of (1) the diversity, size, or

specialized nature of the elements of the performance specified; (2) the
aggregate dollar value of the anticipated award; (3) the geographic
dispersion of contract performance sites; or (4) any combination of these
three factors. USDOT officials stated that they believe contract bundling is
one of the largest barriers for DBEs in competing for transportation

contracts. GAO recently reported that there is limited government- wide data
on the extent of contract bundling and its effect on small businesses. 48

Prequalification requirements are also cited as a barrier for DBEs. Most
states require that firms competing for prime contracts be prequalified,
meaning they must prove to the state that they are capable of performing
contracts. For example, firms must show that they have an adequate line of
credit and are bonded. According to USDOT officials, these requirements can
hurt DBEs because the firms may not have the working capital and

access to credit required for prequalification. Impact of the DBE

Several measures could be used to help determine the impact of the DBE
Program

program. TEA- 21 directed us to analyze:

 the impact of the DBE program on costs, including the costs of
administering the program;

 the impact of the DBE program on competition and the creation of jobs; and

 the impact of discontinuing federal or non- federal DBE programs on DBEs.
47 A similar concept is contract consolidation. Contract consolidation
occurs when agencies combine existing contracts into fewer contracts as a
means of streamlining as well as reducing procurement and contract
administration costs. 48 Small Businesses: Limited Information Available on
Contract Bundling?s Extent and Effects (GAO/ GGD- 00- 82, Mar. 31, 2000).

Impact of the DBE Program USDOT, states and transit authorities incur costs
in implementing and on Costs, Competition, and

administering the DBE program. USDOT estimates that it incurred about $6 the
Creation of Jobs

million in costs (including salaries and training expenses) to administer
the DBE program for highways and transit authorities in fiscal year 2000. 49
Sixty- nine percent of the states and transit authorities responding to our
survey estimated that they incurred a total of about $44 million in costs,
including certification costs, to administer the DBE program in fiscal year

2000. The costs incurred ranged from a high of $4.5 million to a low of
about $10,000. In addition, 13 states and transit authorities incurred a
total of about $250,000 in litigation costs in fiscal year 2000 that they
attributed to the federal DBE program. Although it has been asserted that
the DBE program increases the costs of contracting (referred to as
additional construction costs), 99 percent of the states and transit
authorities we

surveyed had not conducted a study or analysis to determine whether the DBE
program has an impact on their contract costs. 50 USDOT has also not
conducted such an analysis.

Almost none of the states and transit authorities responding to our survey
have analyzed the impact of the DBE program on competition and the creation
of jobs. Nor has USDOT conducted this type of analysis.

According to USDOT officials and representatives from transportation
associations, the DBE program does not create jobs; rather it shifts jobs to
individuals who might not receive the jobs otherwise. As USDOT officials
noted, USDOT- assisted contracts will be let regardless of the DBE program,
and the program encourages greater racial and gender diversity within
transportation contracting. 51 However, there is less agreement about the
effects of the program on competition. Officials from USDOT and a minority
business group stated that the DBE program does not hurt competition, noting
that the DBE program does not use quotas and that DBEs must compete with
non- DBEs to receive USDOT- assisted contracts.

Moreover, these officials commented that the DBE program enhances 49
According to USDOT, the costs incurred in fiscal year 2000 are higher than
typical because of the work associated with the new regulations, such as
training and reviews of recipients? new programs and goal- setting methods.
USDOT indicated that, during a typical year, it would incur about $3. 5
million to administer the DBE program. 50 The Dallas Area Rapid Transit
(DART) reported that it is collecting information to determine the overall
costs of unbundling larger contracts. 51 We did not look at the make- up and
number of employees that work for DBEs compared with non- DBEs.

competition because it encourages greater participation by more firms. In
contrast, representatives from transportation associations believe that the
DBE program stifles competition in certain subcontracting areas (e. g.,
guardrail work) where there is an overconcentration of DBEs. Because of this
overconcentration of DBEs, according to the transportation associations,
non- DBEs do not have an opportunity to work in those fields. Although USDOT
does not have data indicating that overconcentration is a serious,
nationwide problem, the new regulations authorized states and transit
authorities to remedy situations in which an overconcentration of DBEs is
limiting non- DBEs? ability to compete for contracts, such as

varying the use of contract goals in these areas. Impact of Discontinuing
Limited data prevent a thorough assessment of the impact of suspending or
Federal and Nonfederal repealing (discontinuing) federal or nonfederal DBE
programs on DBEs? DBE Programs

participation in transportation contracting. As evidence that the DBE
program is needed, supporters often cite statistics on DBEs? participation
in transportation contracting after minority- and women- owned business
contracting programs are discontinued. An example used during the

congressional debate preceding the passage of TEA- 21 was the effect of
discontinuing the state of Michigan?s minority business contracting program
in 1989. According to evidence cited during the debate, within 9 months of
the suspension, the proportion of state highway dollars awarded

to minority- owned businesses had dropped from 5 percent to 0 percent, while
the proportion of state highway dollars awarded to women- owned businesses
had declined from about 10 percent to 1 percent. Moreover, these new low
rates of participation in state transportation contracting by minority- and
women- owned businesses were contrasted with these firms? participation
rates in USDOT- assisted contracts, which were significantly

higher. 52 USDOT has not conducted studies or analyses measuring the impact
of discontinuing federal or nonfederal DBE programs.

52 Michigan could not provide us with minority- and women- owned business
participation data in state highway contracting for the years immediately
before and after it discontinued its program. Furthermore, Michigan
officials stated that the analysis showing the decline that is often cited
was a one- time- only analysis and that the analysis is no longer available.
Consequently, we cannot verify the numbers cited during the debate.

Most states and transit authorities that participated in federal DBE
programs or nonfederal minority business enterprise and women business
enterprise (MBE/ WBE) contracting programs that were discontinued could not
provide data that would allow us to thoroughly evaluate the impact of

that action. For example, we identified one state and one transit authority
that had discontinued their federal DBE programs as a result of a court
order. 53 However, only the state could provide participation data that
would allow us to evaluate the impact of discontinuing the federal DBE
program. We also identified 10 states and transit authorities that had
participated in nonfederal MBE/ WBE programs that were discontinued prior to
2000. 54 Only one state could provide sufficient data for us to evaluate the
impact of

the action. Conversely, officials from six states and transit authorities,
including Michigan, told us that participation data for minorities and women
in state transportation contracting for the years immediately before and
after the discontinuance of their nonfederal MBE/ WBE programs were not
available. In addition, few of the states and transit authorities could

provide equivalent data on non- MBE/ WBEs. This information is important to
determine whether changes in MBE/ WBEs? participation rates in state
transportation contracting were similar to the changes in the participation
rates of non- MBE/ WBEs or unique to the MBE/ WBE community. Consequently,
we could not evaluate the impact of discontinuing these programs.

Two s t at es- Minnesota and Louisiana- were able to provide sufficient data
to assess the impact of discontinuing a federal and nonfederal program,
respectively. We measured DBEs? and MBE/ WBEs? participation using two
indicators-( 1) the number of transportation contracts awarded and (2) the
dollar amounts awarded through those contracts. The participation data from
these states suggest that discontinuing these programs had a negative impact
on DBEs? and MBE/ WBEs? participation in transportation contracting. For
example, in Minnesota, DBEs? participation

53 In 1998, Minnesota?s Department of Transportation (MNDOT) discontinued
its federal DBE program when it was declared unconstitutional; however,
MNDOT reinstituted its federal program under the new DBE regulations in
2000. The Metropolitan Transit Authority of Harris County in Houston
discontinued its federal DBE program in 1996 when its constitutionality was
called into question. In 1998, it established a race and gender- neutral

small business program, which FTA approved as its federal DBE program. 54
Two other transit authorities had participated in minority- and women- owned
business contracting programs that were discontinued in 2000. We did not try
to obtain information from these two transit authorities because not enough
time has elapsed for us to evaluate the impact of this action.

in federal transportation contracting remained relatively stable from 1995
to 1998. However, after the discontinuance of Minnesota?s federal DBE
program in 1998, DBEs? participation in federal transportation contracting
dramatically declined. (See fig. 2.)

Figure 2: DBEs? Participation in Federal Transportation Contracting in
Minnesota, 1995- 2000

Source: GAO?s analysis of data from Minnesota?s Department of
Transportation.

Similarly, the data provided by Louisiana indicate that MBE/ WBEs?
participation in transportation contracting declined after Louisiana?s
nonfederal program was discontinued. As shown in figure 3, MBE/ WBEs?
participation in state transportation contracting increased from 1992 to
1995. In 1996, the year the nonfederal program was discontinued, the
participation rate of MBE/ WBEs in state transportation contracting dropped
and continued to decline over the next 4 years. 55 An official from

Louisiana attributed the decline in MBE/ WBEs? participation in state
transportation contracting to the removal of affirmative action requirements
on state funded projects and the realization by contractors that efforts to
include MBE/ WBEs were no longer necessary.

55 We also obtained data on DBE participation in Louisiana?s federal DBE
program from 1995 to 2000. In our review of data on DBE and MBE/ WBE
participation in federally- assisted and state contracting, we did not
observe a shift of MBE/ WBEs to federally- assisted contracts after the
Louisiana?s MBE/ WBE program was discontinued.

Figure 3: MBE/ WBEs? Participation in Louisiana?s State- Funded
Transportation Contracting, 1992- 2000

Source: GAO?s analysis of data from Louisiana?s Department of
Transportation.

Conclusions The Congress identified and directed us to collect information
that would shed light on the impact of the DBE program across the nation-
including information on who benefits from the program, the financial status
of the

DBE community compared with that of the non- DBE community, and degree to
which DBEs participate in transportation contracting. However, much of this
information is not readily available from USDOT, states and

transit authorities, and industry groups. Without this information it is
impossible to define the universe of DBEs, compare them with the
transportation contracting community as a whole or gain a clear
understanding of the overall impact of the DBE program. In some cases, USDOT
has mechanisms in place, such as its quarterly reporting requirement, that
could be used to collect additional information, including the annual gross
receipts of DBEs and non- DBEs as well as non- DBEs? participation in
subcontracting. In other cases, new mechanisms to collect

or process the information are needed such as a method for determining the
total number of certified DBEs nationwide. USDOT could also do more to
analyze the information that is currently collected. By not systematically
tracking and evaluating the total number of discrimination complaints filed

by DBEs, the number of investigations launched, and the outcomes of the
investigations, USDOT misses an opportunity to obtain information that could
be used to identify trends and problem areas that may need attention.

USDOT could also identify ways to improve the effectiveness of its own
policies and guidance to states and transit authorities, and ultimately
DBEs, by collecting and analyzing the information that the Congress has
identified. Such information would help USDOT contribute to an informed
congressional debate on the impact of the DBE program in connection with

its reauthorization in 2003 and more effectively administer the program.
USDOT could also look for ways to provide more guidance to the states and
transit authorities that are implementing the DBE program. Specifically,
USDOT?s new regulations put a mechanism in place for setting DBE goals and
identified Census Bureau data and DBE directories, bidders lists, and
disparity studies as data sources that states and transit authorities

could use in setting these goals. However, in our review of disparity
studies, we identified problems with these data sources that should be
avoided or mitigated to help ensure that goals set by states and transit
authorities are based on the level of DBE participation expected in the
absence of discrimination- specifically, a level consistent with the
availability of ready, willing, and able DBEs in the relevant market. USDOT
provided examples of how to set DBE goals in its regulations, but has issued
minimal guidance to the states and transit authorities on how to avoid the
types of data and methodological problems we identified and ensure that the
data sources used to set goals are as reliable as possible. USDOT could
provide additional guidance to help states and transit authorities carry out
the program.

Recommendations for To assist USDOT in administering the DBE program and to
help inform the

Executive Action Congress about the impact of the program, we recommend that
the

Secretary of Transportation take the following steps:

 Develop and implement a method for states and transit authorities to
assign unique identification numbers to DBEs so that the total number of
DBEs certified nationwide can be determined.

 Amend the quarterly reporting requirements for states and transit
authorities to include information on the annual gross receipts of DBEs

and non- DBEs and the number and dollar amount of the subcontracts awarded
to non- DBEs. This information could be used to gain a more complete
understanding of the participation rate of DBEs in subcontracting and of
their financial status compared with other transportation contracting firms.
Furthermore, USDOT should compile, analyze, and publish (in aggregate
format) the information collected in the quarterly reports.

 Compile and analyze data on written complaints of discrimination filed by
DBEs with USDOT in order to (1) determine trends in the number and types of
complaints filed and (2) identify problem areas that require action.

 Periodically compile information on DBEs, through a survey or other
appropriate mechanism, to better understand the types of programs needed to
assist these firms. To better assist states and transit authorities in
implementing the DBE program and help ensure that DBE participation goals
reflect the availability of ready, willing, and able DBEs in the relevant
market, we recommend that the Secretary of Transportation provide specific
guidance

to states and transit authorities on strategies to mitigate the potential
problems associated with using Census Bureau data and DBE directories,
disparity studies, and bidders lists to set their DBE goals.

We recognize that the implementation of these recommendations may result in
some additional costs for USDOT, states, and transit authorities. However,
given existing data collection requirements and the benefits associated with
these recommendations, we believe such costs are

warranted. Agency Comments and

We provided USDOT with a draft of this report for review and comment. Our
Evaluation

On May 1, 2001, the Assistant Secretary for Administration responded for
USDOT. USDOT did not comment on our recommendations. Instead, USDOT offered
comments to clarify the role of disparity studies in the DBE program, the
evidentiary value of disparity studies, the need for states and transit
authorities to use the best available data in DBE goal- setting, and the
status of DBE and non- DBE participation data. During recent meetings and
discussions, USDOT provided similar comments, which we considered and
incorporated where appropriate. Therefore, we believe that the

majority of USDOT?s comments are already reflected in the report. USDOT?s
comments and our responses are located in Appendix IV.

We conducted our review from August 2000 through April 2001 in accordance
with generally accepted government auditing standards. We are sending copies
of this report to congressional committees with responsibilities for the
activities discussed in this report; the Honorable Norman Y. Mineta,
Secretary of Transportation; the Honorable Mitchell Daniels, Director of the
Office of Management and Budget; Hiram Walker, Acting Deputy Administrator,
Federal Transit Administration; and Vincent F. Schimmoller, Deputy Executive
Director, Federal Highway Administration. We will make copies available to
others upon request. If you or your staff have any questions about this
report, please call me at (202) 512- 2834. Key contributors to this report
are listed in appendix V.

Sincerely yours, John H. Anderson, Jr. Managing Director, Physical
Infrastructure Issues

List of Committees The Honorable Phil Gramm Chairman The Honorable Paul
Sarbanes Ranking Member Committee on Banking, Housing, and Urban Affairs
United States Senate

The Honorable Bob Smith Chairman The Honorable Harry Reid Ranking Member
Committee on Environment and Public Works

United States Senate The Honorable Don Young Chairman The Honorable James L.
Oberstar Ranking Democratic Member

Committee on Transportation and Infrastructure House of Representatives

Appendi xes Section of the Transportation Equity Act for st Appendi x I

the 21 Century Requiring GAO?s Study The following is the text of the
section of the Transportation Equity Act for the 21 st Century (1998)
requiring GAO?s study. Section 1101( b)( 6): (6) Review by comptroller
general.- Not later than 3 years after the date of enactment of this Act,
the Comptroller General of the United States shall conduct a review of, and
publish and report to Congress findings and conclusions on, the impact
throughout the United States of administering the requirement of paragraph
(1), including an analysis of(

A) in the case of small business concerns certified in each State under
paragraph (4) as owned and controlled by socially and economically
disadvantaged individuals-

(i) the number of the small business concerns; and (ii) the participation
rates of the small business concerns in prime contracts and subcontracts
funded under titles I, III, and V of this Act;

(B) in the case of small business concerns described in subparagraph (A)
that receive prime contracts and subcontracts funded under titles I, III,
and V of this Act-

(i) the number of the small business concerns; (ii) the annual gross
receipts of the small business concerns; and (iii) the net worth of socially
and economically disadvantaged individuals that own and control the small
business concerns; (C) in the case of small business concerns described in
subparagraph (A) that do not receive prime contracts and subcontracts funded
under titles I,

III, and V of this Act-

(i) the annual gross receipts of the small business concerns; and (ii) the
net worth of socially and economically disadvantaged individuals that own
and control the small business concerns;

(D) in the case of business concerns that receive prime contracts and
subcontracts funded under titles I, III, and V of this Act, other than small
business concerns described in subparagraph (B)-

(i) the annual gross receipts of the business concerns; and (ii) the net
worth of individuals that own and control the business concerns;

(E) the rate of graduation from any programs carried out to comply with the
requirement of paragraph (1) for small business concerns owned and
controlled by socially and economically disadvantaged individuals; (F) the
overall cost of administering the requirement of paragraph (1), including
administrative costs, certification costs, additional construction costs,
and litigation costs;

(G) any discrimination on the basis of race, color, national origin, or sex
against small business concerns owned and controlled by socially and
economically disadvantaged individuals;

(H)( i) any other factors limiting the ability of small business concerns
owned and controlled by socially and economically disadvantaged individuals
to compete for prime contracts and subcontracts funded under titles I, III,
and V of this Act; and (ii) the extent to which any of those factors are
caused, in whole or in part, by discrimination based on race, color,
national origin, or sex;

(I) any discrimination, on the basis of race, color, national origin, or
sex, against construction companies owned and controlled by socially and
economically disadvantaged individuals in public and private transportation
contracting and the financial, credit, insurance, and bond markets;

(J) the impact on small business concerns owned and controlled by socially
and economically disadvantaged individuals of-

(i) the issuance of a final order described in paragraph (5) by a Federal
court that suspends a program established under paragraph (1); or (ii) the
repeal or suspension of State or local disadvantaged business enterprise
programs; and

(K) the impact of the requirement of paragraph (1), and any program carried
out to comply with paragraph (1), on competition and the creation of jobs,
including the creation of jobs for socially and economically disadvantaged
individuals.

Appendi x II

GAO?s Survey Instrument and Overall Results GAO?s Survey Instrument and
Overall Results U. S. General Accounting Office GAO

Survey of State DOTs and Transit Authorities Concerning Their U. S.
Department of Transportation Disadvantaged Business Enterprise Programs

October 2000 U. S. General Accounting Office 441 G Street, NW Washington, D.
C. 20548- 0001

Introduction Reporting Dates

The Transportation Equity Act for the We would prefer to have data based on

21 st Century required the U. S. General the federal fiscal year (FY)
(October 1 to

Accounting Office (GAO) to examine the September 30). Please indicate the
way

Department of Transportation?s the data from your agency will be

Disadvantaged Business Enterprise provided: (N= 83)

(DBE) program.

89% Federal Fiscal Year As part of our study of the DBE program,

5% State Fiscal Year we are surveying Departments of

Dates for State Fiscal Year: Transportation (DOTs) in each of the 50

_________ to _________ states, the District of Columbia, and

month/ day month/ day Puerto Rico and selected Transit Authorities.

2% Calendar Year We recognize that there are great

(Note: Four percent of respondents

demands on your time; however, your

indicated that they provided data based

cooperation is critical to our ability to

on their agency?s fiscal year.)

provide current and complete information to the Congress.

Note: Please use the same reporting year throughout the questionnaire.

Instructions

This questionnaire asks for information about the federal DBE program that
your agency administers and the firms in the program.

For definitions of terms used throughout this questionnaire, please see U.
S. DOT?s regulations on the DBE program.

Please complete and mail your questionnaire within three weeks of receipt.

If the enclosed envelope is misplaced, the questionnaire should be returned
to:

Nikki Clowers U. S. General Accounting Office 441 G Street, NW, Mail Room
6K17R Washington, D. C. 20548

If you have any questions, please contact Nikki Clowers at clowersa. rced@
gao. gov or (202) 512- 4010.

Section I: Your Federal DBE Program

and Participants 1.  What are your total DBE

3.  What race- neutral programs did your participation goals for FY 1999 -
FY

agency use in FY 2000 to achieve your 2001, and for FY 2000 and FY 2001,

DBE participation goal? ( Check all that your goals to be achieved through
apply.) N= 79

race- conscious and race- neutral programs? ( Please indicate the 8.7%
Mentor- protï¿½gï¿½ program percentage to be achieved through 22.8% Business
development each type of program and the total program percentages.)

26.6% Dividing larger contracts into smaller contracts

Total

83.5% Outreach

Fiscal Type of Program Participation

72.2% Technical assistance

Year RaceConscious RaceNeutral Goal

51.9% Training

14.6% (avg.) 21.5% Assistance obtaining bonding

1999

(N= 67) 13.9% Other Please specify:

8.6% (avg.) 5.4% (avg.)

13.5% (avg.)

_____________________________

2000

(N= 70) (N= 73)

(N= 80)

_____________________________

8.2% (avg.) 5.2% (avg.)

13.1% (avg.)

_____________________________

2001

(N= 69) (N= 73) (N= 78) 2.  Which of the following sources were

4.  How many certified DBE firms were used to set your FY 2000 DBE

available (i. e., in your database or participation goal? ( Check all that

directory) to your agency in FY 1999 apply. ) N= 82

and FY 2000? ( Enter number. If none, enter 0.)

48.8% Census Bureau data FY 1999: 559.4 (avg.) (N= 78) 80.5% DBE Directory

36.6% Bidder?s list FY 2000: 551.5 (avg.) (N= 81) 29.3% Disparity study/
studies

59.8% Historical utilization patterns data

6.1% DBE goal( s) from another agency/ agencies

26.8% Other Please specify: _____________________________
_____________________________ _____________________________

5.  Please indicate the number of DBE firms that were awarded prime
contracts through your agency, the number of prime contracts that were
awarded to these firms, and the total value of these prime contracts for FY
1999 and FY 2000. ( Enter numbers and dollar amounts. If none, enter 0.)

Number of DBE firms Total number of prime

Total value of prime Fiscal

awarded prime contracts awarded to

contracts awarded to Year

contracts these DBE firms

these DBE firms 1999 # of Firms: 19. 1 (avg.)

# of Contracts: 40. 4 (avg.) $ 8,203,394 (avg.)

(N= 70) (N= 79)

(N= 78)

2000 # of Firms: 18. 4 (avg.)

# of Contracts: 37. 4 (avg.) $ 6,585,338 (avg.)

(N= 71) (N= 77)

(N= 76)

6.  Please indicate the number of DBE firms that were awarded subcontracts
through your agency, the number of subcontracts that were awarded to these
firms, and the total value of these subcontracts for FY 1999 and FY 2000. (
Enter numbers and dollar amounts. If none, enter 0.)

Number of DBE firms Total number of

Total value of Fiscal

awarded subcontracts awarded to

subcontracts awarded Year

subcontracts these DBE firms

to these DBE firms 1999 # of Firms: 66. 9 (avg.)

# of Subcontracts: 254.5 (avg.) $ 27, 006,958 (avg.)

(N= 72) N= 79)

(N= 79)

2000 # of Firms: 61. 6 (avg.)

# of Subcontracts: 235.1 (avg.) $ 24, 427,942 (avg.)

(N= 71) (N= 79)

(N= 79)

Note: Questions 7 - 14 have two parts- ?a? and ?b.? If you cannot answer
part ?a? of these questions, please be sure to answer part ?b.?

Note: Thirty agencies (36%) provided information for Part 7a, while 52
agencies (63%) provided information for Part 7b. Two agencies gave estimates
for Part 7a. One agency did not answer question.

7a.  What were the annual gross receipts of the DBE firms that were awarded
prime and/ or subcontracts through your agency in FY 1999? Use the DBE
firms? most recent certification or recertification to determine annual
gross receipts . If you are not able to provide this information, please
answer Question 7b.

( Enter the number of firms for each category of annual gross receipts. If
none, enter 0.) Annual Gross Receipts of DBE Firms That Were Awarded

Prime Contracts and/ or Subcontracts in FY 1999 $1,000,000 to

$5,000,001 to $10,000,001 to

Less than $1,000,000 $5,000,000

$10,000,000 $16,600,000

# of Firms: 17. 5 (avg.)

# of Firms: 16. 1 (avg.)

# of Firms: 4.8 (avg.)

# of Firms: 1.2 (avg.) (N= 29)

(N= 30) (N= 30)

(N= 29)

7b.  If you answered Question 7a (above), please go on to Question 8a. If
you did not provide the above information, please indicate the reason( s). (
Check all that apply.)

15.4% Information is not collected.

15.4% Information is being collected, but is not yet available.

11.5% Our agency relies on the certification of other jurisdictions.

7.7% Information is verified during certification and recertification, but
it is not retained.

61.5% Information is not maintained in an electronic database, and would be
difficult and/ or time- consuming to report.

19.2% Other. Please explain:

Note: Thirty- three agencies (40%) provided information for Part 8a, while
50 agencies (60%) provided information for Part 8b. Two agencies gave
estimates for Part 8a.

8a. What were the annual gross receipts of the DBE firms that were awarded
prime and/ or subcontracts through your agency in FY 2000? Use the DBE
firms? most recent certification or recertification to determine annual
gross receipts . If you are not able to provide this information, please
answer Question 8b.

( Enter the number of firms for each category of annual gross receipts. If
none, enter 0.) Annual Gross Receipts of DBE Firms That Were Awarded

Prime Contracts and/ or Subcontracts in FY 2000 $1,000,000 to

$5,000,001 to $10,000,001 to

Less than $1,000,000 $5,000,000 $10,000,000 $16,600,000

# of Firms: 15. 6 (avg.)

# of Firms: 14. 7 (avg.)

# of Firms: 4.3 (avg.)

# of Firms: 1.2 (avg.) (N= 33)

(N= 33) (N= 33)

(N= 31)

8b.  If you answered Question 8a (above), please go on to Question 9a. If
you did not provide the above information, please indicate the reason( s). (
Check all that apply.)

12.0% Information is not collected.

24.0% Information is being collected, but is not yet available.

12.0% Our agency relies on the certification of other jurisdictions.

6.0% Information is verified during certification and recertification, but
it is not retained.

64.0% Information is not maintained in an electronic database, and would be
difficult and/ or time- consuming to report.

12.0% Other. Please explain:

Note: Nineteen agencies (23%) provided information for Part 9a, while 63
agencies (76%) provided information for Part 9b. One agency did not answer
question.

9a.  What were the annual gross receipts of the DBE firms that were not
awarded prime or subcontracts through your agency in FY 1999? Use the DBE
firms? most recent certification or recertification to determine annual
gross receipts . If you are not able to provide this information, please
answer Question 9b.

( Enter the number of firms for each category of annual gross receipts. If
none, enter 0.) Annual Gross Receipts of DBE Firms That Were Not Awarded

Prime Contracts or Subcontracts in FY 1999 $1,000,000 to

$5,000,001 to $10,000,001 to

Less than $1,000,000 $5,000,000 $10,000,000 $16,600,000

# of Firms: 122.2 (avg.)

# of Firms: 37.2 (avg.)

# of Firms: 6.3 (avg.)

# of Firms: 2.5 (avg.) (N= 19)

(N= 19) (N= 19)

(N= 19)

9b.  If you answered Question 9a (above), please go on to Question 10a. If
you did not provide the above information, please indicate the reason( s). (
Check all that apply.)

22.2% Information is not collected.

14.3% Information is being collected, but is not yet available.

9.5% Our agency relies on the certification of other jurisdictions.

4.8% Information is verified during certification and recertification, but
it is not retained.

54.0% Information is not maintained in an electronic database, and would be
difficult and/ or time- consuming to report.

15.9% Other. Please explain:

Note: Twenty- one agencies (25%) provided information for Part 10a, while 62
agencies (75%) provided information for Part 10b. One agency gave estimates
for Part 10a.

10a. What were the annual gross receipts of the DBE firms that were not
awarded prime or subcontracts through your agency in FY 2000? Use the DBE
firms? most recent certification or recertification to determine annual
gross receipts. If you are not able to provide this information, please
answer Question 10b.

( Enter the number of firms for each category of annual gross receipts. If
none, enter 0.) Annual Gross Receipts of DBE Firms That Were Not Awarded

Prime Contracts or Subcontracts in FY 2000 $1,000,000 to

$5,000,001 to $10,000,001 to

Less than $1,000,000 $5,000,000 $10,000,000 $16,600,000

# of Firms: 102.3 (avg.)

# of Firms: 33.2 (avg.)

# of Firms: 5.9 (avg.)

# of Firms: 2.5 (avg.) (N= 21)

(N= 21) (N= 20)

(N= 20)

10b. If you answered Question 10a (above), please go on to Question 11a. If
you did not provide the above information, please indicate the reason( s). (
Check all that apply.)

21.0% Information is not collected.

17.4% Information is being collected, but is not yet available.

9.7% Our agency relies on the certification of other jurisdictions.

4.8% Information is verified during certification and recertification, but
it is not retained.

54.8% Information is not maintained in an electronic database, and would be
difficult and/ or time- consuming to report.

12.9% Other. Please explain:

Note: Twenty- eight agencies (34%) provided information for Part 11a, while
54 agencies (65%) provided information for Part 11b. One agency did not
answer question.

11a. What was the personal net worth of individuals who own and control DBE
firms that were awarded prime contracts through your agency in FY 2000? Use
the DBE firms? most recent certification or recertification to determine
personal net worth. We are aware that you may not have personal net worth
information for all DBE firms; however, please provide the information that
is available. If you cannot provide any personal net worth information,
please answer Question 11b.

( Enter the number of firms for each category of personal net worth. If
none, enter 0.) Personal Net Worth of Individuals Who Own and Control DBE
Firms

That Were Awarded Prime Contracts in FY 2000 Less than $100,000 $100,000 to
$250,000 $250,001 to $500,000 $500,001 to $750,000

# of Firms: 1.4 (avg.)

# of Firms: 1.9 (avg.)

# of Firms: 1.8 (avg.)

# of Firms: 1.0 (avg.) (N= 24)

(N= 24) (N= 25)

(N= 24)

11b. If you answered Question 11a (above), please go on to Question 12a. If
you did not provide the above information, please indicate the reason( s). (
Check all that apply.)

5.6% Information is not collected.

16.7% Information is being collected, but is not yet available.

13.0% Our agency relies on the certification of other jurisdictions.

9.3% Information is verified during certification and recertification, but
it is not retained.

66.7% Information is not maintained in an electronic database, and would be
difficult and/ or time- consuming to report.

9.3% Other. Please explain:

Note: Twenty- seven agencies (33%) provided information for Part 12a, while
56 agencies (67%) provided information for Part 12b.

12a. What was the personal net worth of individuals who own and control DBE
firms that were awarded subcontracts through your agency in FY 2000? Use the
DBE firms? most recent certification or recertification to determine
personal net worth. We are aware that you may not have personal net worth
information for all DBE firms; however, please provide the information that
is available. If you cannot provide any personal net worth information,
please answer Question 12b.

( Enter the number of firms for each category of personal net worth. If
none, enter 0.) Personal Net Worth of Individuals Who Own and Control DBE
Firms

That Were Awarded Subcontracts in FY 2000 Less than $100,000 $100,000 to

$250,001 to $500,001 to

$250,000 $500,000

$750,000

# of Firms: 11.9 (avg.)

# of Firms: 8.8 (avg.)

# of Firms: 6.1( avg.)

# of Firms: 3.7 (avg.) (N= 27)

(N= 26) (N= 27)

(N= 26)

12b. If you answered Question 12a (above), please go on to Question 13a. If
you did not provide the above information, please indicate the reason( s). (
Check all that apply.)

5.4% Information is not collected.

17.9% Information is being collected, but is not yet available.

12.5% Our agency relies on the certification of other jurisdictions.

8.9% Information is verified during certification and recertification, but
it is not retained.

67.9% Information is not maintained in an electronic database, and would be
difficult and/ or time- consuming to report.

7.1% Other. Please explain:

Note: Fifteen agencies (18%) provided information for Part 13a, while 67
agencies (81%) provided information for Part 13b. One agency did not answer
question 13.

13a. What was the personal net worth of individuals who own and control DBE
firms that were not awarded prime contracts through your agency in FY 2000?
Use the DBE firms? most recent certification or recertification to determine
personal net worth. We are aware that you may not have personal net worth
information for all DBE firms; however, please provide the information that
is available. If you cannot provide any personal net worth information,
please answer Question 13b.

( Enter the number of firms for each category of personal net worth. If
none, enter 0.) Personal Net Worth of Individuals Who Own and Control DBE
Firms

That Were Not Awarded Prime Contracts in FY 2000 Less than $100,000 $100,000
to

$250,001 to $500,001 to

$250,000 $500,000

$750,000

# of Firms: 60.2 (avg.)

# of Firms: 35.6 (avg.)

# of Firms: 26.0 (avg.)

# of Firms: 12.9 (avg.) (N= 14)

(N= 14) (N= 15)

(N= 14)

13b. If you answered Question 13a (above), please go on to Question 14a. If
you did not provide the above information, please indicate the reason( s). (
Check all that apply.)

10.5% Information is not collected.

16.4% Information is being collected, but is not yet available.

10.5% Our agency relies on the certification of other jurisdictions.

7.5% Information is verified during certification and recertification, but
it is not retained.

64.2% Information is not maintained in an electronic database, and would be
difficult and/ or time- consuming to report.

6.0% Other. Please explain:

Note: Eighteen agencies (22%) provided information for Part 14a, while 65
agencies (78%) provided information for Part 14b.

14a. What was the personal net worth of individuals who own and control DBE
firms that were not awarded subcontracts through your agency in FY 2000? Use
the DBE firms? most recent certification or recertification to determine
personal net worth. We are aware that you may not have personal net worth
information for all DBE firms; however, please provide the information that
is available. If you cannot provide any personal net worth information,
please answer Question 14b.

( Enter the number of firms for each category of personal net worth. If
none, enter 0.) Personal Net Worth of Individuals Who Own and Control DBE
Firms

That Were Not Awarded Subcontracts in FY 2000 Less than $100,000 $100,000 to
$250,000 $250,001 to $500,000 $500,001 to $750,000

# of Firms: 46.4 (avg.)

# of Firms: 34.2 (avg.)

# of Firms: 21.8 (avg.)

# of Firms: 13.8 (avg.) (N= 18)

(N= 17) (N= 17)

(N= 17)

14b. If you answered Question 14a (above), please go on to Question 15. If
you did not provide the above information, please indicate the reason( s). (
Check all that apply.)

12.3% Information is not collected.

13.9% Information is being collected, but is not yet available.

10.8% Our agency relies on the certification of other jurisdictions.

7.7% Information is verified during certification and recertification, but
it is not retained.

64.6% Information is not maintained in an electronic database, and would be
difficult and/ or time- consuming to report.

6.2% Other. Please explain:

15.  How many DBE firms became ineligible for the DBE program in FY 1999
and FY 2000 because they exceeded the program?s statutory cap on annual
gross receipts ($ 16.6 million)? ( Enter number. If none, enter 0.) N= 83

FY 1999: 0.5 (avg.) (N= 60)  Check here if information is not available. FY
2000: 0.3 (avg.) (N= 60)  Check here if information is not available.

16.  How many DBE firms became ineligible for the DBE program in FY 1999
and FY 2000 because they exceeded applicable SBA small business size
standards? ( Enter number. If none, enter 0.) N= 83

FY 1999: 1.1 (avg.) (N= 62)  Check here if information is not available. FY
2000: 1.7 (avg.) (N= 63)  Check here if information is not available.

17.  How many DBE firms became ineligible for the DBE program in FY 2000
because individuals who own or control the firm exceeded the program?s cap
on personal net worth ($ 750,000)? ( Enter number. If none, enter 0.) N= 83

FY 2000: 6.1 (avg.) (N= 65)  Check here if information is not available.

18.  Please estimate the cost of administering the DBE program in your
agency? ( In your estimate include such things as salaries, certification
costs, technical assistance, database development and maintenance, and
contracted studies/ analyses.) N= 83

FY 1999: $633,124 (avg.) (N= 55)  Check here if information is not
available. FY 2000: $772,160 (avg.) (N= 57)  Check here if information is
not available.

Section II: Non- DBE Firms

19.  Please indicate the number of non- DBE firms that were awarded prime
contracts through your agency, the number of prime contracts that were
awarded to these firms, and the total value of these contracts for FY 1999
and FY 2000. ( Enter numbers and dollar amounts. If none, enter 0. If this
information is not available, put a check in the appropriate box on the
right side of the table below.)

Number of nonDBE Total number of

Total dollar value firms

prime contracts of prime contracts

Fiscal awarded prime

awarded to these awarded to these

Year contracts

non- DBE firms non- DBE firms

 Check here if FY 1999 # of Firms: 202.6 (avg.)

# of Contracts: 474.8 (avg.) $ 313,477,141 (avg.)

1999 information is

(N= 58) (N= 67)

(N= 69)

not available.

 Check here if FY 2000 # of Firms: 185.2 (avg.)

# of Contracts: 454.2 (avg.) $ 308,620,950 (avg.)

2000 information is

(N= 59) (N= 68)

(N= 69)

not available.

20.  Please indicate the number of non- DBE firms that were awarded
subcontracts through your agency, the number of subcontracts that were
awarded to these firms, and the total value of these subcontracts for FY
1999 and FY 2000. ( Enter numbers and dollar amounts. If none, enter 0. If
this information is not available, put a check in the appropriate box on the
right side of the table below.)

Number of nonDBE Total number of

Total dollar value Fiscal

firms subcontracts awarded to

of subcontracts Year

awarded these non- DBE firms

awarded to these subcontracts

non- DBE firms

 Check here if FY 1999 # of Firms: 180.1 (avg.)

# of Subcontracts: 597.1 (avg.) $ 92,747,776 (avg.)

1999 information is not available

(N= 28) (N= 27)

(N= 27)

 Check here if FY 2000 # of Firms: 190.3 (avg.)

# of Subcontracts: 604.6 (avg.) $ 96,320,366 (avg.)

2000 information is not available

(N= 29) (N= 28)

(N= 28)

Note: Questions 21 - 23 have two parts- ?a? and ?b.? If you cannot answer
part ?a?

of these questions, please be sure to answer part ?b.?

Note: Three agencies (4%) provided information for Part 21a, while 80
agencies (96%) provided information for Part 21b. Two agencies gave
estimates for Part 21a.

21a. What were the annual gross receipts of the non- DBE firms that were
awarded prime and/ or subcontracts through your agency in FY 1999? If you
are not able to provide this information, please answer Question 21b.

( Enter the number of firms for each category of annual gross receipts. If
none, enter 0.) Annual Gross Receipts of Non- DBE Firms That Were Awarded

Prime Contracts and/ or Subcontracts in FY 1999 Less than

$1,000,000 to $5,000,001 to

$10,000,001 to Greater than

$1,000,000 $5,000,000 $10,000,000 $16,600,000 $16,600,000

# of Firms: 21. 3

# of Firms: 36. 0

# of Firms: 11. 7

# of Firms: 11. 7

# of Firms: 17. 7 (avg.)

(avg.) (avg.)

(avg.) (avg.) (N= 3)

(N= 3) (N= 3)

(N= 3) (N= 3)

21b. If you answered Question 21a (above), please go on to Question 22a. If
you did not provide the above information, please indicate the reason( s). (
Check all that apply.)

32.5% Information is not collected, but will be in the future.

18.8% Information is not collected, and there are no plans to collect it in
the future.

12.5% Information is being collected, but is not yet available.

31.3% Information is not maintained in an electronic database, and would be
difficult and/ or time- consuming to report.

11.3% Other. Please explain:

Note: Five agencies (6%) provided information for Part 22a, while 78
agencies (94%) provided information for Part 22b. Three agencies gave
estimates for Part 22a.

22a. What were the annual gross receipts of the non- DBE firms that were
awarded prime and/ or subcontracts through your agency in FY 2000. If you
are not able to provide this information, please answer Question 22b.

( Enter the number of firms for each category of annual gross receipts. If
none, enter 0.) Annual Gross Receipts of Non- DBE Firms That Were Awarded

Prime Contracts and/ or Subcontracts in FY 2000 Less than

$1,000,000 to $5,000,001 to

$10,000,001 to Greater than

$1,000,000 $5,000,000 $10,000,000 $16,600,000 $16,600,000

# of Firms: 16. 8

# of Firms: 20. 6

# of Firms: 9.0

# of Firms: 7.8

# of Firms: 10. 4 (avg.)

(avg.) (avg.)

(avg.) (avg.) (N= 5)

(N= 5) (N= 5)

(N= 5) (N= 5)

22b. If you answered Question 22a (above), please go on to Question 23a. If
you did not provide the above information, please indicate the reason( s). (
Check all that apply.)

29.5% Information is not collected, but will be in the future.

20.5% Information is not collected, and there are no plans to collect it in
the future.

16.7% Information is being collected, but is not yet available.

28.2% Information is not maintained in an electronic database, and would be
difficult and/ or time- consuming to report.

10.3% Other. Please explain:

Note: No agency could provide information for Part 23a. Eighty- two agencies
(99%) provided information for Part 23b. One agency did not answer question.

23a. What was the personal net worth of individuals who own and control non-
DBE firms that were awarded prime and/ or subcontracts through your agency
in FY 2000 . If you are not able to provide this information, please answer
Question 23b.

( Enter the number of firms for each category of personal net worth. If
none, enter 0.) Personal Net Worth of Individuals Who Own and Control Non-
DBE Firms

That Were Awarded Prime Contracts and/ or Subcontracts in FY 2000 Less than

$100,000 to $250,001 to

$500,001 to Greater than

$100,000 $250,000

$500,000 $750,000

$750,000

# of Firms: # of Firms:

# of Firms: # of Firms:

# of Firms:

(No respondents (No respondents

(No respondents (No respondents

(No respondents provided

provided provided

provided provided

information) information)

information) information)

information)

23b. If you answered Question 23a (above), please go on to Question 24. If
you did not provide the above information, please indicate the reason( s). (
Check all that apply.)

8.5% Information is not collected, but will be in the future.

62.2% Information is not collected, and there are no plans to collect it in
the future.

4.9% Information is being collected, but is not yet available.

19.5% Information is not maintained in an electronic database, and would be
difficult and/ or time- consuming to report.

11.0% Other. Please explain:

Section III: Litigation and Complaints

24.  Has the federal DBE program

29.  Of the formal written discrimination administered by your agency been
the

complaints filed by DBE firms in FY 1999 subject of litigation? ( Please
check one.)

and FY 2000, how many were

N= 83

investigated by your agency? ( Enter the number of complaints. If none,
enter 0.)

71% No Please go to Question 27.

N= 16 29% Yes

Number of complaints investigated in FY 1999: 15 (sum) (N= 16)

25.  What year( s) was this program under

 Check here if information is not available. litigation? N= 24

Number of complaints investigated in Year( s): Responses ranged from 1986 to

FY 2000: 14 (sum) (N= 15) 2001

 Check here if information is not available.

26.  What were your litigation costs for FY 1999 and FY 2000? ( Enter
dollar 30.  With respect to the complaints and amount( s). If none, enter
0.) N= 24

investigations identified in Questions 27 to 29, how many times did your
agency FY 1999:  $ 7,166.7 (avg.) (N= 15)

find evidence of discrimination? ( Enter        


the number of times. If none, enter 0.)

N= 16

FY 2000: $ 19,897. 3 (avg.) (N= 13)

 Check here if information is not available. FY 1999: 2 (sum) (N= 14)

  Check here if information is not available.

27.  Were any formal written discrimination FY 2000: 2 (sum) (N= 12)

complaints filed by DBE firms with your

 Check here if information is not available. agency in FY 1999 and FY 2000?
( Please check one.) N= 83

81% No Please go to Question 31.

19% Yes

28.  How many complaints were filed? ( Enter the number of complaints. If
none, enter 0.) N= 16

FY 1999: 15 (sum) (N= 16)

 Check here if information is not available. FY 2000: 16 (sum) (N= 15)

 Check here if information is not available.

Section IV: DBE- Related Studies Conducted for Your Agency

31.  Have you conducted, or are you conducting, any studies or analyses to
determine if awarding prime contracts to DBE firms affects contract costs?
(Please check one.) N= 83

 No

1.2% Yes Please briefly describe: 32.  Have you conducted, or are you
conducting, any studies or analyses to determine if awarding

subcontracts to DBE firms affects contract costs? (Please check one.) N= 83
98.8% No

1.2% Yes Please briefly describe:

33.  Have you conducted, or are you conducting, any studies or analyses of
discrimination against DBE firms on the basis of race, color, national
origin, or sex? ( Please check one.) N= 83

67.5% No

32.5% Yes Please briefly describe: 34.  Have you conducted, or are you
conducting, any studies or analyses of discrimination on the

basis of race, color, national origin, or sex against DBE construction firms
by the financial, credit, insurance, or bond markets and/ or in other
contracts? ( Please check one.) N= 82

84.2% No

15.9% Yes Please briefly describe:

35.  Have you conducted, or are you conducting, any studies or analyses of
other factors that limit the ability of DBE firms to compete for prime and/
or subcontracts? ( Please check one. )

N= 83 79.5% No

20.5% Yes Please briefly describe: 36.  Have you conducted, or are you
conducting, any studies or analyses on the impact of the

DBE program on competition and the creation of jobs? ( Please check one.) N=
83 92.8% No

7.2% Yes Please briefly describe:

Section V: Other Related Programs

37.  In addition to the federal DBE program, is your agency subject to the
requirements of a nonfederal minority business enterprise (MBE), women-
owned business enterprise (WBE), or another DBE program? ( Please check
one.) N= 83

65.1% No

34.9% Yes 38. Has your agency participated in a non- federal MBE, WBE, or
DBE program that has been

suspended, repealed, or otherwise terminated? ( Please check one.) N= 83
85.5% No Please go to Question 40.

14.5% Yes 39.  Please indicate the year( s) that program( s) were repealed
and the type of program( s)

repealed. Repealed Program: _______________________________________ Year
Repealed: _________ Repealed Program:
_______________________________________ Year Repealed: _________ Repealed
Program: _______________________________________ Year Repealed: _________
Repealed Program: _______________________________________ Year Repealed:
_________ Repealed Program: _______________________________________ Year
Repealed: _________

Note: Years ranged from 1989 to 2000.

Section VI: Implementation of the Federal DBE Program

40.  When was your FY 2000 DBE program

43.  In your opinion, which of the following plan submitted to DOT? N= 83

best describes the costs and benefits of participation in the DBE program?
Month: _________ Year: _________

( Please check one.) N= 79 Note: All 83 agencies indicated that they

3.8% The costs greatly outweigh the benefits

submitted a FY 2000 DBE program plan 7.6% The costs somewhat outweigh the

to DOT.

benefits

7.6% The costs and benefits are about equal 41. Has your FY 2000 DBE program
plan

25.3% The benefits somewhat outweigh the been approved by DOT? ( Please
check costs one.) N= 83

32.9% The benefits greatly outweigh the costs

22.8% No basis to judge

10% No

90% Yes When was your program approved?

44.  In your opinion, have the revised DBE Month: _________ Year: _________

regulations made it easier or more

Note: On average, it took DOT 8 months

difficult for firms to participate in the

to approve the FY ?2000 DBE plans.

DBE program? ( Please check one.)

N= 81

42. In your opinion, which of the following,

0.0% Much easier for firms to participate if any, are barriers to
participation in the

16.1% Somewhat easier for firms to participate DBE program? ( Check all that
apply.) N= 83

21.0% No change in the ease or difficulty of participation

19.3% The costs (e. g., hiring accountants,

40.7% Somewhat more difficult for firms to lawyers) associated with the

participate certification process

13.6% Much more difficult for firms to

62.7% The time required for completing participate

certification paperwork

8.6% No basis to judge

79.5% Reluctance to provide personal information (e. g., personal net worth)

18.1% Lack of information about eligibility requirements

32.5% Stigma associated with participating in the DBE program

6.0% None of the above

24% Other Please briefly describe



45.  How would you rate the guidance and 49.  Has your uniform
certification program technical assistance you have received

(UCP) been approved by the U. S. DOT? from FTA on implementing the revised

( Please check one.) N= 7

DBE regulations? ( Please check one. ) N= 83 28.6% No

8.4% Excellent

71.4% Yes When was your plan approved?

38.6% Good

26.5% Average Month: _________ Year: _________

12.1% Below average

13.3% Poor

1.2% No basis to judge 50.  Which of the following best describes

the status of your uniform certification program (UCP)? ( Please check one.)
46.  How would you rate the guidance and

N= 83

technical assistance you have received from FTA on developing your FY 2000

7.2% Our agency?s UCP is fully DBE program plan? ( Please check one.)

implemented

N= 83 10.8% Our agency is in the process of

implementing our UCP

12.1% Excellent

61.5% Our agency is currently

38.6% Good developing our UCP

24.1% Average

14.5% Our agency has not yet started

10.8% Below average developing our UCP

13.3% Poor

6.0% Other Please briefly describe:

1.2% No basis to judge 47.  In your opinion, have the revised DBE

regulations made it easier or more difficult to administer the DBE program?

51.  What is the current status of your ( Please check one.) N= 82

Bidder?s List? ( Please check one.) N= 83 1.2% Much easier to administer

26.5% Our agency?s Bidder?s List is fully

9.8% Somewhat easier to administer developed and fully implemented

9.8% No change in the ease or difficulty of

21.7% Our agency is in the process of administering the DBE program

implementing our Bidder?s List

30.5% Somewhat more difficult to administer

38.6% Our agency is currently developing

41.5% Much more difficult to administer our Bidder?s List

7.3% No basis to judge

8.4% Our agency has not yet started developing our Bidder?s List

4.8% Other Please briefly describe: 48.  Has your uniform certification
program

(UCP) been submitted to the U. S. DOT? ( Please check one.) N= 82

91.5% No Please go to Question 50.

8.5% Yes When was your plan submitted? Month: _________ Year: _________



52.  Do you use a computer database system to track and monitor the
information identified in the revised DBE regulation? ( Please check one.)
N= 81

56.8% No

43.2% Yes When was your system implemented?

Month: _________ Year: _________ 53.  Which of the following best describes
the

status of your database system used to track and monitor the information
identified in the revised DBE regulation? ( Please check one.) N= 82

14.6% Our agency?s system is fully implemented

19.5% Our agency is in the process of implementing our system

40.2% Our agency is currently developing our system

9.8% Our agency has not yet started developing our system

2.4% Our agency has no plans to develop a computer database system to track
this information

13.4% Other Please briefly describe:



Please provide the following information about the individual( s) who
completed this questionnaire:

(Note: We are planning to report contact names and phone numbers for each
DBE program included in this survey. Please check the box to the right of
the name of the person who should be listed for your program.)

Name:

   Check here to

Title:

list this person as your program?s contact.

Office/ Department: Phone Number: Email Address:

Name:

   Check here to

Title:

list this person as your program?s contact.

Office/ Department: Phone Number: Email Address:

Name:

   Check here to Title:

list this person as your program?s contact. Office/ Department: Phone
Number: Email Address:

Thank you very much for taking time to complete this questionnaire. If you
would like to make additional comments concerning any of the questions or
comment on topics not covered, please feel free to use this page or to
attach additional pages.



Appendi x I II

Objectives, Scope, and Methodology The Transportation Equity Act for the 21
st Century directed us to evaluate the impact of the U. S. Department of
Transportation?s (USDOT) Disadvantaged Business Enterprise (DBE) program
throughout the nation and address 11 specific objectives. We grouped the
statute?s 11 objectives into the following 4 researchable questions:

1. How has the DBE program changed since 1999? 2. What are the
characteristics of DBEs and non- DBEs that receive USDOT- assisted highway
and transit contracts?

3. What do selected sources indicate about discrimination or other factors
that may limit DBEs? ability to compete for USDOT- assisted contracts?

4. What is the impact of the DBE program on costs, competition, and job
creation as well as the impact of discontinuing federal and nonfederal DBE
programs?

To determine how the DBE program has changed since 1999 and to identify the
characteristics of DBEs and non- DBEs that receive USDOT- assisted
contracts, we reviewed USDOT?s regulations and guidance pertaining to the
DBE program. We also interviewed USDOT officials and representatives from
minority- owned business and transportation associations. In addition, we
surveyed the departments of transportation of the 50 states, the District of
Columbia, and Puerto Rico, and 36 transit authorities throughout the nation.
(We planned to survey all transit

authorities required to submit plans for a DBE program. However, the Federal
Transit Administration could not provide an accurate list of these transit
authorities.) The 36 transit authorities we surveyed are the largest

transit authorities in the nation as defined by the number of unlinked
passenger trips in 1999. 1 They also received about two- thirds of all
federal transit grant funds obligated in 1999. Our survey was designed to
obtain

information on the issues that TEA- 21 directed us to examine, including the
participation rates of DBEs in USDOT- assisted contracts, the annual gross
receipts of DBEs and non- DBEs, and the cost of administering the DBE
program. 1 Unlinked passenger trips represent the number of passengers who
board public transportation vehicles. A passenger is counted each time he/
she boards a vehicle even though he/ she may be on the same journey from
origin to destination.

To help design our survey, we obtained input from USDOT, states, and transit
authorities. After we developed our survey, we pre- tested the questionnaire
with officials of 4 state departments of transportation (states) and 5
transit authorities. We selected states and transit authorities from a
variety of geographical regions for our pre- tests. For each pre- test,
members of our staff met with officials from the state or transit authority
and simulated the actual survey experience by asking the officials to fill
out the questionnaire. We also interviewed the officials after they had

completed the questionnaire to ensure that (1) the questions were
understandable and clear, (2) the terms used were precise, (3) the
questionnaire did not place undue burden on state or transit authority
officials, and (4) the questionnaire was unbiased. Appropriate changes were
incorporated in the final survey based on our pre- testing. In addition,

we provided a draft copy of our questionnaire to USDOT officials and
incorporated comments from them, as appropriate.

To increase the response rate of our survey, we sent two additional
reminders after the survey was mailed in October 2000, including (1) a
postcard sent one week after the survey and (2) a follow- up letter and
replacement survey to nonrespondents sent about 3 weeks after the initial
mailing. In addition, we conducted follow- up phone calls to nonrespondents
through January 2001. We received survey responses from all 52 states and 31
transit authorities for a response rate of 94 percent.

To evaluate the existence of discrimination against DBEs, we reviewed recent
court cases that have addressed the constitutionality of the federal DBE
program, transportation- specific disparity studies, and written

discrimination complaints filed by DBEs with USDOT, states and transit
authorities. Specifically:

 We reviewed the court decisions that have addressed the constitutionality
of the federal DBE program since the Supreme Court?s 1995 decision in
Adarand Constructors, Inc. v. Pena. We identified decisions meeting these
criteria and consulted with officials from USDOT and the Department of
Justice (DOJ) to ensure that we included

all relevant decisions in our review. We also obtained information from
USDOT and DOJ about pending cases concerning the constitutionality of the
federal DBE program.

 We identified and reviewed all (14) transportation- specific disparity
studies published between 1996 and 2000. We reviewed disparity studies
because DOJ has stated that they are of particular relevance for affirmative
action measures in federal programs providing grants to

states and local governments, and because courts have recognized them as a
source of evidence of discrimination in considering the federal DBE program.
In addition, USDOT has identified disparity studies as one source that
states and transit authorities could use to help set their federal DBE
participation goals. Numerous state and local governments have used them to
support their minority business contracting programs

and to set their federal DBE goals. We selected disparity studies that (1)
were published between 1996 and 2000, (2) contained a separate disparity
analysis on transportation contracting, and (3) used a disparity

ratio- that is, a comparison of the availability of MBE/ WBEs to their
utilization in contracts- as a indicator of discrimination. 2 These criteria
are generally consistent with USDOT?s regulations, which state that any
disparity studies used in the DBE goal setting process should be as recent
as possible and focused on the transportation contracting industry. To
determine whether the disparity studies? findings were reliable, we
evaluated the methodological soundness of the studies using common social
science and statistical practices. For example, we

systematically examined each study?s methodology, including its assumptions
and limitations, data sources, analyses, and conclusions.

To identify relevant disparity studies, we obtained information from USDOT,
DOJ, the Policy Sciences Graduate Program of the University of Maryland
Baltimore City, the Minority Business Enterprise Legal Defense and Education
Fund, Inc. (MBELDEF). In addition, we obtained information from the five
consulting firms most noted for conducting disparity studies: National
Economic Research Associates, Inc., BBC Research and Consulting, MGT of
America, Mason- Tillman Associates, Ltd., and DJ Miller and Associates, Inc.
The evidence- along with its strengths and weaknesses- contained in any
disparity study would be limited to the geographical scope of that
particular study. Moreover, because we limited our review to

transportation- specific disparity studies, our conclusions cannot be
generalized to disparity studies pertaining to other industries.

 We interviewed USDOT officials about written complaints of discrimination
DBEs filed with USDOT. We also reviewed USDOT?s data on written complaints
of discrimination filed by DBEs since fiscal year 2 Only one transportation-
specific disparity study published between 1996 and 2000 did not

use a disparity ratio in its analysis and therefore was excluded from our
review.

1996. In addition, we analyzed information on written complaints of
discrimination filed by states and transit authorities collected through our
nationwide survey. We recognize that we did not review all of the
information that could be

relevant to the issue of discrimination in transportation contracting.
However, we chose to review sources directly related to transportation
contracting and the federal DBE program, including those suggested by USDOT
and minority- owned business and transportation associations. Since we did
not conduct an exhaustive review and evaluation of all evidence of
discrimination, our results cannot be used to support or dismiss claims
about the existence of discrimination against DBEs

throughout the nation. Moreover, we did not address whether the DBE program
satisfies the requirements of strict scrutiny and is therefore
constitutional.

To identify factors, other than discrimination that may limit the ability of
DBEs to compete for transportation contracts, we reviewed information
collected in our nationwide survey and recent GAO reports. In addition, we
interviewed officials from USDOT and the Small Business Administration (SBA)
and representatives from the American Road and Transportation Builders
Association, Associated General Contractors of America, Minority Business
Enterprise Legal Defense and Education Fund, Inc., Women

Construction Owners and Executives, and National Black Chamber of Commerce.

To determine the impact of the DBE program on costs, competition, and job
creation, we collected data from states and transit authorities through our
survey and from USDOT. In addition, we interviewed officials from USDOT and
SBA as well as representatives from minority- and womenowned business groups
and transportation associations.

To evaluate the impact of discontinuing a federal DBE program, we identified
the states and transit authorities that had discontinued the federal DBE
program through our review of the court decisions that have

addressed the constitutionality of the federal DBE program since the Supreme
Court?s 1995 decision in Adarand Constructors, Inc. v. Pena. We identified 1
state and 1 transit authority that had discontinued their federal DBE
programs due to court decisions. We interviewed officials from the state and
transit authority and requested DBE and non- DBE participation data in
federal transportation contracting for the years immediately before

and after the discontinuance. Only the state DOT provided the requested
data.

To assess the impact of discontinuing a nonfederal DBE program, we used our
survey to identify states and transit authorities that had participated in a
nonfederal DBE program that was discontinued. Twelve survey

respondents indicated that they had participated in such programs. We
excluded the two transit authorities that had participated in nonfederal DBE
programs that were discontinued in 2000 because sufficient time had not
elapsed to determine the impact of this change. We contacted the remaining
ten states and transit authorities and requested data on DBEs? and non-
DBEs? participation in nonfederal and federal transportation

contracting for the years immediately before and after the program was
discontinued. Eight of the 10 states and transit authorities responded to
our requests for data; however, only one state could provide the data

necessary to thoroughly evaluate the impact of discontinuing its program-
that is, data on DBEs? and non- DBEs? participation in nonfederal
transportation contracting before and after the nonfederal program was

discontinued. We conducted our review from August 2000 through April 2001 in
accordance with generally accepted government auditing standards.

Comments From the U. S. Department of

Appendi x V I Transportation See comment 1.

See comment 2. See comment 3.

See comment 4.

GAO?s Comments The following are GAO?s comments on USDOT?s letter dated May
1, 2001. 1. As noted on pages 24 and 74, our objective was not to address
the question of whether the DBE program satisfies the requirements of strict
scrutiny and is therefore constitutional as USDOT seems to suggest. In
particular, we did not attempt to determine whether sufficient evidence of
discrimination exists to demonstrate that the DBE program serves a

compelling interest. Further, as stated on pages 11, 14, and 24, we
recognize that disparity studies are not required to support the federal DBE
program, represent one of several sources of evidence of discrimination, and
are but one method that states and transit authorities could use to set
their federal DBE goals. 2. We agree with USDOT?s assertion that an
inference of discrimination can

be drawn from studies finding statistical disparities between the
availability and utilization of MBE/ WBEs. Consequently, we chose to review
disparity studies as one source of evidence of discrimination. Also,

as we stated on pages 6 and 29, all 14 studies we reviewed found disparities
between the availability and utilization of MBE/ WBEs in contracting, and
taken as a whole, these studies suggest discrimination against MBE/ WBEs.
However, the data limitations and methodological weaknesses we

identified create uncertainties about their findings. Furthermore, we agree
with USDOT that we did not review all sources of evidence of discrimination
against DBEs- a point we make repeatedly throughout the report. While we
could not review all possible sources, we

chose to review the sources directly pertaining to transportation
contracting and the federal DBE program. As such, one of the sources we
reviewed were transportation- specific disparity studies published between
1996 and 2000. As noted on page 29, we defined transportation- specific
studies as those containing a separate disparity analysis on transportation

contracting. While the Urban Institute report cited by USDOT included
several studies focusing on transportation contracting, it combined these
studies with a variety of others in its analysis and did not contain a
separate disparity analysis of transportation contracting. In addition,
although the

Urban Institute published its report in 1997, all of the disparity studies
it examined had been published before 1996. Therefore, the Urban Institute
report did not meet our criteria. We did not discuss all of the details
about the methods we used to analyze the 14 disparity studies because the
methods are commonly used in social

science research. To help clarify this for readers who are unfamiliar with
these methods, we have added an example to our discussion in appendix III.
3. We agree with USDOT that states and transit authorities must use the

best available data in setting their DBE goals and that there are inherent
limitations in conducting disparity studies. However, we disagree that we
are seeking an unobtainable level of sophistication and detail in these
endeavors. Rather, we believe we identified some basic problems with the
data sources that should be recognized and, in most cases, could reasonably
be avoided in conducting disparity studies and setting DBE goals. For
example, if bidders lists are used to set DBE goals, they should be as up-
to- date as possible in order to avoid overstating or understating the
number of available firms.

4. We disagree that the information necessary to calculate DBE participation
rates in subcontracts is routinely made available to DOT. To calculate DBE
participation rates in prime contracts and subcontracts, one needs the
number and value of prime contracts and subcontracts awarded

to DBEs and the number and value of prime contracts and subcontracts awarded
to non- DBEs. We were able to calculate DBE participation rates in prime
contracts because most states and transit authorities could provide

the number and value of prime contracts awarded to DBEs and non- DBEs.
However, the majority of states and transit authorities could not provide
the number and value of subcontracts awarded to non- DBEs and therefore the
data on DBEs? participation rates in subcontracts are limited. Information
on the number and value of subcontracts awarded to nonDBEs

is not reported to USDOT and USDOT does not maintain this information. Most
states and transit authorities provided the number and value of subcontracts
awarded to DBEs- information that is routinely provided to USDOT. However,
this information alone does not allow one to calculate DBEs? participation
rates in subcontracts.

Appendi x V

GAO Contacts and Staff Acknowledgments GAO Contacts Ronald Stouffer, (202)
512- 4416 Susan Fleming, (202) 512- 4431 Acknowledgments In addition to
those named above, the following staff members made key

contributions to this report: Physical Infrastructure

Nikki Clowers Team

Elizabeth Eisenstadt Colin Fallon Amy Gleason- Carroll Phyllis F. Scheinberg

Office of General Counsel Alan Belkin Helen Desaulniers

Office of Applied Research Michele Fejfar

and Methods Bethany Letiecq

Sara Moessbauer Lynn Musser Judy Pagano

(348255) Lett er

Ordering Information The first copy of each GAO report is free. Additional
copies of reports are $2 each. A check or money order should be made out to

the Superintendent of Documents. VISA and MasterCard credit cards are
accepted, also. Orders for 100 or more copies to be mailed to a single
address are discounted 25 percent.

Orders by mail: U. S. General Accounting Office P. O. Box 37050 Washington,
DC 20013

Orders by visiting: Room 1100 700 4th St. NW (corner of 4th and G Sts. NW)
U. S. General Accounting Office Washington, DC

Orders by phone: (202) 512- 6000 fax: (202) 512- 6061 TDD (202) 512- 2537

Each day, GAO issues a list of newly available reports and testimony. To
receive facsimile copies of the daily list or any list from the past 30
days, please call (202) 512- 6000 using a touchtone

phone. A recorded menu will provide information on how to obtain these
lists.

Orders by Internet: For information on how to access GAO reports on the
Internet, send an e- mail message with ?info? in the body to:

info@ www. gao. gov or visit GAO?s World Wide Web home page at: http:// www.
gao. gov

To Report Fraud, Contact one:

Waste, or Abuse in  Web site: http:// www. gao. gov/ fraudnet/ fraudnet.
htm

Federal Programs

 e- mail: fraudnet@ gao. gov

 1- 800- 424- 5454 (automated answering system)

GAO United States General Accounting Office

Page 1 GAO- 01- 586 Disadvantaged Business Enterprises

Contents

Page 2 GAO- 01- 586 Disadvantaged Business Enterprises

Page 3 GAO- 01- 586 Disadvantaged Business Enterprises United States General
Accounting Office

Washington, D. C. 20548 Page 3 GAO- 01- 586 Disadvantaged Business
Enterprises

Page 4 GAO- 01- 586 Disadvantaged Business Enterprises

Page 5 GAO- 01- 586 Disadvantaged Business Enterprises

Page 6 GAO- 01- 586 Disadvantaged Business Enterprises

Page 7 GAO- 01- 586 Disadvantaged Business Enterprises

Page 8 GAO- 01- 586 Disadvantaged Business Enterprises

Page 9 GAO- 01- 586 Disadvantaged Business Enterprises

Page 10 GAO- 01- 586 Disadvantaged Business Enterprises

Page 11 GAO- 01- 586 Disadvantaged Business Enterprises

Page 12 GAO- 01- 586 Disadvantaged Business Enterprises

Page 13 GAO- 01- 586 Disadvantaged Business Enterprises

Page 14 GAO- 01- 586 Disadvantaged Business Enterprises

Page 15 GAO- 01- 586 Disadvantaged Business Enterprises

Page 16 GAO- 01- 586 Disadvantaged Business Enterprises

Page 17 GAO- 01- 586 Disadvantaged Business Enterprises

Page 18 GAO- 01- 586 Disadvantaged Business Enterprises

Page 19 GAO- 01- 586 Disadvantaged Business Enterprises

Page 20 GAO- 01- 586 Disadvantaged Business Enterprises

Page 21 GAO- 01- 586 Disadvantaged Business Enterprises

Page 22 GAO- 01- 586 Disadvantaged Business Enterprises

Page 23 GAO- 01- 586 Disadvantaged Business Enterprises

Page 24 GAO- 01- 586 Disadvantaged Business Enterprises

Page 25 GAO- 01- 586 Disadvantaged Business Enterprises

Page 26 GAO- 01- 586 Disadvantaged Business Enterprises

Page 27 GAO- 01- 586 Disadvantaged Business Enterprises

Page 28 GAO- 01- 586 Disadvantaged Business Enterprises

Page 29 GAO- 01- 586 Disadvantaged Business Enterprises

Page 30 GAO- 01- 586 Disadvantaged Business Enterprises

Page 31 GAO- 01- 586 Disadvantaged Business Enterprises

Page 32 GAO- 01- 586 Disadvantaged Business Enterprises

Page 33 GAO- 01- 586 Disadvantaged Business Enterprises

Page 34 GAO- 01- 586 Disadvantaged Business Enterprises

Page 35 GAO- 01- 586 Disadvantaged Business Enterprises

Page 36 GAO- 01- 586 Disadvantaged Business Enterprises

Page 37 GAO- 01- 586 Disadvantaged Business Enterprises

Page 38 GAO- 01- 586 Disadvantaged Business Enterprises

Page 39 GAO- 01- 586 Disadvantaged Business Enterprises

Page 40 GAO- 01- 586 Disadvantaged Business Enterprises

Page 41 GAO- 01- 586 Disadvantaged Business Enterprises

Page 42 GAO- 01- 586 Disadvantaged Business Enterprises

Page 43 GAO- 01- 586 Disadvantaged Business Enterprises

Page 44 GAO- 01- 586 Disadvantaged Business Enterprises

Page 45 GAO- 01- 586 Disadvantaged Business Enterprises

Page 46 GAO/ XXXX-??-?? Document Name

Appendix I

Appendix I Section of the Transportation Equity Act for the 21st Century
Requiring GAO?s Study

Page 47 GAO/ XXXX-??-?? Document Name

Page 48 GAO- 01- 586 Disadvantaged Business Enterprises

Appendix II

Appendix II GAO?s Survey Instrument and Overall Results

Page 49 GAO- 01- 586 Disadvantaged Business Enterprises

Appendix II GAO?s Survey Instrument and Overall Results

Page 50 GAO- 01- 586 Disadvantaged Business Enterprises

Appendix II GAO?s Survey Instrument and Overall Results

Page 51 GAO- 01- 586 Disadvantaged Business Enterprises

Appendix II GAO?s Survey Instrument and Overall Results

Page 52 GAO- 01- 586 Disadvantaged Business Enterprises

Appendix II GAO?s Survey Instrument and Overall Results

Page 53 GAO- 01- 586 Disadvantaged Business Enterprises

Appendix II GAO?s Survey Instrument and Overall Results

Page 54 GAO- 01- 586 Disadvantaged Business Enterprises

Appendix II GAO?s Survey Instrument and Overall Results

Page 55 GAO- 01- 586 Disadvantaged Business Enterprises

Appendix II GAO?s Survey Instrument and Overall Results

Page 56 GAO- 01- 586 Disadvantaged Business Enterprises

Appendix II GAO?s Survey Instrument and Overall Results

Page 57 GAO- 01- 586 Disadvantaged Business Enterprises

Appendix II GAO?s Survey Instrument and Overall Results

Page 58 GAO- 01- 586 Disadvantaged Business Enterprises

Appendix II GAO?s Survey Instrument and Overall Results

Page 59 GAO- 01- 586 Disadvantaged Business Enterprises

Appendix II GAO?s Survey Instrument and Overall Results

Page 60 GAO- 01- 586 Disadvantaged Business Enterprises

Appendix II GAO?s Survey Instrument and Overall Results

Page 61 GAO- 01- 586 Disadvantaged Business Enterprises

Appendix II GAO?s Survey Instrument and Overall Results

Page 62 GAO- 01- 586 Disadvantaged Business Enterprises

Appendix II GAO?s Survey Instrument and Overall Results

Page 63 GAO- 01- 586 Disadvantaged Business Enterprises

Appendix II GAO?s Survey Instrument and Overall Results

Page 64 GAO- 01- 586 Disadvantaged Business Enterprises

Appendix II GAO?s Survey Instrument and Overall Results

Page 65 GAO- 01- 586 Disadvantaged Business Enterprises

Appendix II GAO?s Survey Instrument and Overall Results

Page 66 GAO- 01- 586 Disadvantaged Business Enterprises

Appendix II GAO?s Survey Instrument and Overall Results

Page 67 GAO- 01- 586 Disadvantaged Business Enterprises

Appendix II GAO?s Survey Instrument and Overall Results

Page 68 GAO- 01- 586 Disadvantaged Business Enterprises

Appendix II GAO?s Survey Instrument and Overall Results

Page 69 GAO- 01- 586 Disadvantaged Business Enterprises

Appendix II GAO?s Survey Instrument and Overall Results

Page 70 GAO- 01- 586 Disadvantaged Business Enterprises

Appendix II GAO?s Survey Instrument and Overall Results

Page 71 GAO- 01- 586 Disadvantaged Business Enterprises

Appendix II GAO?s Survey Instrument and Overall Results

Page 72 GAO- 01- 586 Disadvantaged Business Enterprises

Appendix II GAO?s Survey Instrument and Overall Results

Page 73 GAO- 01- 586 Disadvantaged Business Enterprises

Page 74 GAO- 01- 586 Disadvantaged Business Enterprises

Appendix III

Appendix III Objectives, Scope, and Methodology

Page 75 GAO- 01- 586 Disadvantaged Business Enterprises

Appendix III Objectives, Scope, and Methodology

Page 76 GAO- 01- 586 Disadvantaged Business Enterprises

Appendix III Objectives, Scope, and Methodology

Page 77 GAO- 01- 586 Disadvantaged Business Enterprises

Appendix III Objectives, Scope, and Methodology

Page 78 GAO- 01- 586 Disadvantaged Business Enterprises

Page 79 GAO- 01- 586 Disadvantaged Business Enterprises

Appendix IV

Appendix IV Comments From the U. S. Department of Transportation

Page 80 GAO- 01- 586 Disadvantaged Business Enterprises

Appendix IV Comments From the U. S. Department of Transportation

Page 81 GAO- 01- 586 Disadvantaged Business Enterprises

Appendix IV Comments From the U. S. Department of Transportation

Page 82 GAO- 01- 586 Disadvantaged Business Enterprises

Appendix IV Comments From the U. S. Department of Transportation

Page 83 GAO- 01- 586 Disadvantaged Business Enterprises

Page 84 GAO- 01- 586 Disadvantaged Business Enterprises

Appendix V

Appendix V GAO Contacts and Staff Acknowledgments

Page 86 GAO- 01- 586 Disadvantaged Business Enterprises

United States General Accounting Office Washington, D. C. 20548- 0001

Official Business Penalty for Private Use $300

Address Correction Requested Presorted Standard

Postage & Fees Paid GAO Permit No. GI00
*** End of document ***