Disadvantaged Business Enterprise Program

**June 22, 2006 Web Conference**

**Certification Standards and Procedures**

**Questions and Answers- Chat Room**

The following is a summary of the questions raised by the participants
during the course of the June 22 Web Conference on DBE Program
Certification. The questions and answers summarized are presented in
reasonably close order to the sequence of the questions raised by the
participants. The list of questions is not intended to capture all of
the questions raised as some have been excluded either because they were
not pertinent to the discussion or the question was considered redundant
and therefore were combined into one question. The questions are not
purposely attached to a particular office or individual who raised the
question but simply identified by the subject matter of the question
itself.

**Question 1:** If a certified DBE firm converts to an Employee Stock
Option Program Corporation should that firm remain certified?
**[Answer:]{.underline}** For a firm to be certified or remain certified
it must be owned and control by socially and economically disadvantaged
individual(s). This means that the firm must be 51% owned by S&E
disadvantaged individual(s) even if the full ownership is by all of
employees through a stock option program. Also those same individuals
must be able to demonstrate that they control the operations of that
firm. Either with respect to ownership and/or control, the individuals
whose social and economic disadvantaged status is being relied upon for
eligibility purposes must be able to distinguish themselves for the
purposes of the DBE program from all other individuals who through a
company's stock option program can claim at least partial ownership.
Employee stock ownership programs are not persons. Another problem with
this arrangement is that it is subject to change as employees come and
leave. In addition, it is impossible to determine the control aspect of
the firm. (If 12 of 20 employees are minorities and each owns shares in
the company, how can you distinguish those that own and control from the
general owners.)

Reference: 49 CFR 26.69(b)

**Question 2**: Define for the purposes of the DBE program what is meant
by "existing" as a firm that has no contracts yet has applied?"
**[Answer:]{.underline}** Under 26.55 of the DBE program regulations, a
firm must be "existing" in order to qualify for the DBE program. If one
would refer to the law itself under 1101(b), Congress established as the
minimum uniform certification criteria to include but not limited to
list of equipment, list of work completed, and analysis of bonding
capacity. Therefore, a firm is to demonstrate that it is operational or
otherwise capable of performing the work it will be doing while in the
program. Does existing imply that a firm must have received a contract
in order to be an existing business? No, but it does mean that the
business exists beyond simply being on paper.

Reference: 49 CFR 26.65

**Question 3:** How much of a percentage must be owned of the
affiliate(s) to count in the small business size?
**[Answer:]{.underline}** There are no prescribed limits or percentage
of ownership but consistent with the criteria set by SBA in 13 CFR 121
affiliation can occur in those instances when there is common
management, common ownership, and constant contractual relationships.

Reference: 13 CFR 121

**Question 4: D**o concessionaires have to comply with the \$19.57M
gross receipts limit? **[Answer]{.underline}:** A firm is to meet the
SBA standard as well as its gross receipts cannot exceed the maximum
threshold set by Congress of \$19,570,000. With specific reference to
concessionaries, under 49 CFR 23, they are to be small business but the
maximum threshold is set at \$30 million averaged over a three year
period.

Reference: 49 CFR 23

**Question 5:** What's an ACDBE? **[Answer:]{.underline}** ACDBE stands
for Airport Concessionaire DBE program.

Reference: None required

**Question 6:** Does the \$750,000 PNW ceiling apply to ACDBE?
**[Answer:]{.underline}** Like Part 26, concessionaire owners must meet
the PNW requirement but for ACDBEs they have up to a \$ 3 million
exclusion which requires a letter from the franchisor or the bank.

Reference: 49 CFR 23.35

**Question 7:** Are we discussing airport concessions?
**[Answer:]{.underline}** Only in the general context of the DBE program
certification requirements whereby Part 23 dated March 22, 2005 follows
many of the requirements of Part 26 specifically, §§26.61--91.

Reference: None required

**Question 8:** Can a firm that is owned by another company be DBE
certified? Any exceptions?

**[Answer:]{.underline}** No, for eligibility purposes a DBE firm can
not be owned by another firm, as set forth in 26.73(e). But the same
rule does allow an exception in the instance of holding companies.

Reference: 49 CFR 26.73

**Question 9:** What other groups are designated by SBA?
**[Answer]{.underline}:** The presumptive groups identified in 49 CFR 26
under definitions, 26.5, lists all those designated by SBA to date.
Other groups can be added through SBA's process on a case by case basis
and when so they are automatically included in the DBE program.

Reference: 49 CFR 26.5, Definitions

**Question 10:** How do we determine the status of the individual when
they appear to be of a particular ethnic group but hold him out to be
white? **[Answer:]{.underline}** Consistent with the DBE program
provisions on group membership, 26.63, the individual can be required as
a routine process to submit one source document that could identify the
individual as being a member of one of the presumptive group. If the
recipient has reasonable cause to question such membership the
individual may be required upon written notice of the need to furnish
adequate proof of membership. Such proof can include documentation that
would show one's association, recognition and identification with and by
that group. The technique of making visual assessments may be factored
into evaluating group membership.

Reference: 49 CFR 26.63

**Question 11:** Is it a good idea to change the size standard threshold
on an annual basis? **[Answer:]{.underline}** While it might make some
sense, the DBE Program size standards are tied directly to those
standards set by SBA by law and therefore any updating must be deferred
to SBA to issue. SBA does not seem to have a periodic time frame for
updating their small business size standards. For DBE purposes, Congress
did establish that USDOT can adjust the maximum threshold figure
annually for inflation. So far USDOT has not raised this limit on an
annual basis. Won\'t this create a moving target for maintaining
eligible firms in our portfolio? A constant adjustment to the size
standards which has previously always resulted in increasing the figure
could have a substantial impact on assessing whether a firm is small
business based on present day or over the extended life of firms'
existence in the DBE program.

Reference: None required (option stated)

**Question 12:** What is the status on the MOU between USDOT and SBA?
**[Answer:]{.underline}** The MOU has effectively expired: but, the 2003
final rule established the procedures to follow when a SBA firm seeks
certification as a DBE and those procedures are still in effect and
should therefore be followed until further notice.

Reference: None required

**Question 13:** Does the interest in other businesses count as an asset
in calculating an individuals' PNW? **[Answer:]{.underline}** Yes, the
only exclusion is the individual's interest in the firm whose
participation in the program is being sought. One could ask for current
balance sheet on the other businesses. Accounts receivable for an
individual is considered an asset. It\'s an asset to the owner because
if it was an investment, then it would be not repayable.

Reference: 49 CFR 26.67

**Question 14:** What about estimated taxes as a liability on PNW? Is
this a valid liability? **[Answer]{.underline}**: Under 26.67 rules for
determining social and economic disadvantaged status the individual
owner must submit a signed, notarized statement of PNW, with supporting
documentation. One of the standard supporting documentations expected is
the individual's personal income tax returns. The filing of estimated
taxes is an accepted practice by the IRS. The IRS has specific rules,
conditions and forms to accommodate an individual in preparing and
submitting estimated taxes to the IRS in meeting one's tax liability.
The IRS for estimated tax purposes, breaks up a year into four payment
periods. Therefore an individual making such claims can furnish the
appropriate supporting documentation anytime during the year. It would
seem appropriate to assess whether the claimed tax liability is
commensurate with the value of the asset that the liability might be
based on using standard IRS rules.

Reference: 49 CFR 26.67

**Question 15:** Is it the correct understanding that one cannot use CUF
as a basis for certification? **[Answer:]{.underline}** The simple
application of a firm's failure to perform a commercial useful function
on a contract can not used for rendering eligibility certification
decisions. Consideration of whether a firm (i.e., regular dealer)
performs a commercially useful function is solely a counting issue
towards meeting the DBE goals by certified DBEs. Except as provided in
subsection (a)(2) of 26.73, while one cannot use the mere lack of
performing a CUF in rendering any decision on the firm\'s eligibility,
you can question its eligibility to remain certified when there is a
lack of performing a CUF over many instances. For example, if a DBE
steel erector fails to perform a CUF because it always used a prime\'s
crane this could reflect on the firm's ability to be in control of its
firm because a lack of independence which is an eligibility standard.

Reference: 49 CFR 26.73, 49 CFR 26.55

**Question 16:** Can a holding company be certified as a DBE?
**[Answer:]{.underline}** No, a holding company cannot be certified
pursuant to 26.73(e).

Reference 49 CFR 26.73(e)

**Question 17:** If a firm graduates from the program due to exceeding
the NAICS size standards, is it possible for the firm to re-enter the
program if the 3 year average falls below the size limit at some point
in the future? **[Answer:]{.underline}** Yes, while the question was
only phrased to cover small business thresholds, a firm can reapply once
its 3 year average is less than the prescribed size standards set by SBA
and less than the maximum threshold. This reapplication can be upon the
time the firm\'s averaged gross receipts falls below the small business
standards. Much like the question of reentry based on size standard the
same rule applies to one\'s PNW less than \$750,000. Since the PNW
statement is not based on averaging the individual can seek re-entry
within the time period set by the individual States DBE program waiting
period (NTE 1 year).

Reference: 13 CFR 121

**Question 18:** According to SBA, brokering firms are CUF, from a DBE
standpoint are they certifiable and if so under what subsection would
the guidelines fall? **[Answer:]{.underline}** Yes, with respect to
brokering under the DBE program, such operations can be counted towards
the goal see 26.55(c). Under various sections of the rule; 26.61 and
26.83, whether a firms is a contractor, regular dealer or broker, only
firms certified as eligible under the procedures and standards set forth
in part 26 can participate as DBEs in your program.

Reference: 49 CFR 26.55

**Question 19:** Is co-signing the same as contingent liability?
**[Answer:]{.underline}** Yes. According to 26.67, contingent liability
does not reduce an individual's PNW.

Reference: 49 CFR 26.67

**Question 20:** How important is a DBE\'s Business Plan while
attempting to be certified? **[Answer:]{.underline}** The business plan
provision in the regulation is an optional element of the program that a
State can adopt but the provision is not an eligibility standard.
Therefore, whether a firm has a business plan is not by itself an
eligibility standard set forth in Subpart D.

Reference: None required (opinion)

**Question 21:** If a firm is certified in another 15 states and another
State denies the firm, the firm appeals to DOT, DOT upholds the denial
should the other 15 states decertify the firm? **[Answer:]{.underline}**
No, you don\'t automatically decertify a firm if the DOT upholds the
decertification in another State. Each decision between States is
independent from each other. What you can do is use the facts as evident
in the appeal decision to look at their continued eligibility in your
state.

Reference: 49 CFR 26.86

**Question 22:** Please define socially and economically disadvantaged.
**[Answer:]{.underline}** Section 1101(b) of SAFETEA-Lu defines it has
having the meaning such term has under section 8(d) of the Small
Business Act . . . : except women shall be presumed to be socially and
economically individuals for purposes of this (program). USDOT as a
result in 26.5 defined socially and economically disadvantaged
individuals as any individual who is a citizen (or lawfully admitted
permanent resident) of the United States and who is Black American,
Hispanic American, Native American, Asian-Pacific American, Subcontinent
Asian American and Women. In the regulations the USDOT has identified
those countries of origin for those persons under each of the
presumptive groups just identified. Also included is any individual who
is found to be socially and economically disadvantaged on a case-by-case
basis following the criteria in Appendix E. It is important to note that
the presumption is rebuttable to ensure only those individuals even in
the presumptive groups are genuinely disadvantaged.

Reference: 49 CFR 26.5

**Question 23: M**ust the contribution of capital be from a person\'s
independently-owned assets? If a joint asset is \"split\" with a portion
being deemed \"capital contribution\" where does that fit? Is the joint
asset not being strictly independently-owned? **[Answer:]{.underline}**
A person's contribution of capital should be from one's own assets. When
it derives from a joint account, you count 50% of that as belonging to
the socially and economically disadvantaged owner if you are in a
community property state. If however the individual lives in a
non-community state the legal rights to that joint account may not be so
clear but it would seem to also be open to whether the person claiming
ownership contributed to the account in which funds to acquire the firm
were used. If in fact the person did not contribute any assets to that
account it could be argued that any money from that account is not
independently owned assets. If the joint owner (non-S&E) renounces his
rights to those assets, and is not involved in the business, you may be
able to count them toward the owner's contribution of capital. With
respect to jointly owned assets see 26.69(h)(2)(ii).

Reference: 49 CFR 26.69

**Question 24:** A firm has a physical address in Washington D.C. and is
certified by WMATA. The firm then moves physically to Alexandria Va., if
the firm does not apply for DBE status in Virginia, are they in
violation of Home-state certification since D.C. is technically not a
state? **[Answer]{.underline}**: A question that additionally could be
asked is did the firm inform the recipient of these changes? If not,
then the DBE has violated the provisions of §26.83(i). Whether DC is a
state or not does not really matter under the DBE program. With respect
to a follow-up question if a firm moves outside of its home state can
that home state evaluate whether the new location effects its continued
eligibility? Yes it can and should involve the two states working
together to coordinate their respective responsibilities in the
certification process in meeting the home state definition.

Reference: 49 CFR 26.81(d)

**Question 25:** What if the owner of a firm works part time for the
post office delivering mail and has no experience in construction? What
if wife lets husband keep president title and she just claims to us that
she really makes decisions and has ownership and financial control?
**[Answer:]{.underline}** No. neither scenario meets the requirements of
26.71(d)(g) and (j). What is the true role of the wife under either
circumstance? The regulations speak directly to part-time ownership,
expertise/experience and holding the highest official position in the
firm.

Reference: 49 CFR 26.71

**Question 26:** What about a large non-minority owned business that
encourages employees (typically non-minorities) to establish a business
entity wherein the spouse (a minority) is the majority owner. The S&E
majority owner is responsible for administrative work and only knows
about the other work because of having been married to the non-minority
for years? **[Answer:]{.underline}** Unless you can establish that the
firm was originated with the owner's personal assets and that she
controls the day-to-day operations of the business and thereby meets the
requirements of 26.71(d) and (g), the eligibility of this firm for the
purposes of being certified into the DBE is very questionable.

Reference: 49 CFR 26.71

**Question 27:** What if the principal owner lives in a different state
from their firm and if the principal owner lives in a different state,
how are they executing full control? **[Answer:]{.underline}** Whether
the owner can control a firm by being located in a different state is
not necessarily a conclusive point of evidence of one's eligibility. For
example, what if a firm is located on the Indiana side of Louisville,
Kentucky? The only dividing line is a river. Is it a red flag that
raises serious questions about the owner's ability to control the firm?
Yes, it can. What if for example the owner's location is over 1,000
miles from the location of the firm? It can show the need to look beyond
the surface. This also emphasizes another key point about the DBE
program and that is the certification process does not start or stop
upon the initial certification and therefore the eligibility of a firm
needs to be evaluated during their time in the program (i.e. annual
affidavit) as in this case there continues to be proof that the S&E
owner is able to control the DBE firm.

Reference: None required (statement/opinion)

**Question 28:** If S/E owner is a business major but has done retail,
can he/she control steel reinforcement and fabrication?
**[Answer:]{.underline}** The mere fact that one has a degree in
business does not necessarily indicate that one can control a steel
reinforcement and fabrication business. This type of business involves
much more than retail. The S&E owner must be able to demonstrate to have
the managerial and technical competence and experience directly related
to the type of business (see 26.71(g)) the firm is involved in.

Reference: 49 CFR 26.71

**Question 29:** In regards to PNW, Section 26.67 b(4) states in part:
If the basis for rebutting the presumption is a determination that the
individual\'s PNW exceeds 750,000, the individual is no longer eligible
for participation in the program and cannot regain eligibility by making
an individual showing of disadvantage. Is this applicable only to people
remaining above the cap or also to people who once exceeding the cap now
fall below the cap? A**[nswer:]{.underline}** This is a rephrasing of
the question asked earlier concerning reentry into a program once denied
or decertified and the answer to this question is yes anyone can seek
reentry upon lapse of the applicable time frame set by the state for
reapplication (NTE 1 year).

Reference: None required

**Question 30:** Can a DBE trucking firm purchase rare materials from a
pit who sells to the open public, and haul it and be given credit for
hauling and supplying same? **[Answer:]{.underline}** This is considered
a crediting question on hauling versus material supplier; therefore, it
would be evaluated consistent with 26.55(e). It does however raise a
side issue that while the regulations is not explicit towards the
certification of the various categories a DBE can operate in while in
the DBE program, it is essential that in keeping with at least 26.61 and
26.83 , every firm that wants to participate in the program must be
certified. This includes contractors, regular dealers, truckers,
brokers, etc.

Reference: 49 CFR 26.55

**Question 31:** What constitutes a material supplier for DBE
certification? **[Answer:]{.underline}** The DBE regulation is not clear
under Subpart D as to the criteria for determining whether an applicant
wanting to participate in the program as a regular dealer is eligible to
participate as a DBE. In the absence of clearly defined criteria under
Subpart D the regulations do provide clear guidance on what a regular
dealer must do in order to perform a CUF once in and participating in
the program. Therefore, the provisions of 26.55 and especially
26.55(e)(1-3) become the criteria for determining the eligibility of the
firm for entry and participation in the DBE program. Again as noted in
such subsections as 26.61, 26.83, etc., only those firms certified as
eligible are to participate in the program. Since there are multiple
circumstances that can play in meeting the provisions of the Part 26,
they are not addressed in these answers. One key point that can weigh
heavily in such decisions is the consistency of the DBE regular dealer
with normal industry practice for the product to be supplied.

Reference: 49 CFR 26.55

**Question 32**: If a firm does new work and the work is
accepted/approved by the source, will this be enough to expand their
scope of work? **[Answer:]{.underline}** It could be sufficient but the
DBE firm must be able to demonstrate that all of the eligibility
standards for the additional work have been met and has been certified
by the UCP for that additional work before it can be used for crediting
purposes as a DBE.

Reference: 49 CFR 26.71

**Question 33:** Does the firm have to show that it is operational and
has resources? What is the real answer \... do firms have to be
operational and have the needed equipment and resources \... or is this
just about I can type - so I\'m going to be a typing company - I don\'t
have a typewriter or computer but I can type? **[Answer:]{.underline}**
Throughout regulations under 26.13, 26.71 and even in light of the
requirements of 26.55, the applicant must be able to demonstrate they
are independent and the S&E owner is in full control of the day-to-day
operations of a firm to be eligible to perform specific types of firm.
So a firm must be operational and capable of performing the type of work
they are certified to perform for crediting purposes while in the DBE
program. This capability by necessity would include the necessary
resources including having the necessary workforce and equipment, see
26.71 and 26.55, to perform the work. A further reference is 26.83(c)(6)
which requires the DBE "to provide a list of equipment . . . and license
. . . and key personnel it posses to perform the work it seeks to do as
part of the DBE program."

Reference: 49 CFR 26.71

**Question 34:** In regards to part-time ownership, if when asked during
the onsite how many hours per day do you work, the person responds 2-4
hrs per day and does not work anywhere else, does this constitute part
time ownership in regards to a trucking firm that is under utilized.

**[Answer]{.underline}**: With respect to the last part of the question
the fact that the firm may be utilized is not a certification issue,
therefore, no response is provided. In regards to whether someone may be
a part time owner because they spend 2-3 hours per day operating the
business is not considered sufficient evidence to render a decision
based on such limited facts. There are two basic parameters to keep in
consideration. First, the DBE must possess the power to make day-to-day
decisions on matters of management, policy, and operations. Second, the
DBE cannot be engaged in outside interests that "conflict(s) with the
management of the firm or prevent the individual from devoting
sufficient time and attention to the affairs of the firm to control its
activities." A question could be if the person (I assume the S&ED
person) only spends 2-4 hrs, who is the person in charge during the
remaining part of the work day and if that person is a non-S&ED person
is the S&ED person in full control.

Reference: 49 CFR 26.71

**Question 35:** Please clarify: isn\'t a telephone interview
appropriate if the recipient finds the other state\'s on-site
acceptable? **[Answer:]{.underline}** NO, telephone interviews are not
appropriate.

Reference: 49 CFR 26.83 (c ) (1)

**Question 36:** Do all of the states have their UCPs up and running?
**[Answer:]{.underline}** No, at the time of the web-conference there
are approximately 4 states that do not have an approved UCP.

Reference: None required

**Question 37:** A lady achieves her ownership by a SBA loan co-signed
by her husband then pays the loan off, 5 years later she applies for DBE
status, is the contribution of capital suspect even if the loan was
repaid and the husband is not a co-signer on other loans?
**[Answer:]{.underline}** While there may have been a question on
whether her contribution to acquiring the firm may not fully meet the
eligibility standards of 26.69 before, because there has been an
extended time since the initial acquisition of the firm, the question
before one based on present day circumstance today is her continued
ability to own and control the firm. The USDOT under 26.73(b) sets forth
that one must evaluate the eligibility of a firm based on present
circumstances. Since the initial acquisition included her husband, the
immediate question upon them applying for certification today is what,
if any role does the husband play in owning and controlling the firm
considering all of the facts in the record, viewed as a whole. You can
not apply past history to this case.

Reference: 49 CFR 26.73

**Question 38: W**hat does UCP stand for? **[Answer:]{.underline}** It
is the acronym for Unified Certification Program.

Reference: 49 CFR 26.81

**Question 39:** Should we include all reasons for denial or just a few
good ones? **[Answer:]{.underline}** The answer is yes on including in a
denial or decertification letter [all]{.underline} reasons for taking
such action. This is a good practice because some appeals are challenged
in court.

Reference: 49 CFR 26.85(a), 49 CFR 26.87 (g)

**Question 40:** In a case of community property (in the State of
Texas), how do you separate the husband and wife\'s initial capital
contribution used to acquire the business? **[Answer:]{.underline}**
When it comes to community property, it seems the state has in effect
established the equity in all interests of the husband and wife no
matter the extent of one's contributions to that asset of one party over
the other. There are other conditions set forth in 26.69(h) in
separating the independent owned assets question.

49 CFR 26, Preamble Page 5119, February 2, 1999 FR Notice

**Question 41:** If an individual who is an employee in a recipient\'s
DBE Office file a Third Party Challenge as an INDIVIDUAL, against a
certified firm; the recipient issues an intent to deny, has an informal
hearing and makes a determination that the firm is eligible to remain
certified, can the individual who filed the Third party Challenge appeal
the recipients decision to DOCR? **[Answer:]{.underline}** Yes, an
individual outside of its employment with the recipient and especially
outside of its job responsibilities can file. But the appropriate
office/agency/department to receive such complaints is not the DOCR but
the operating administration offices that the recipient gets its
majority of federal funding.

49 CFR 26.103(a)

**Question 42**: Which SBA office is notified when there is a denial or
decertification? **[Answer:]{.underline}** Without any specific guidance
as to which SBA office one would notify upon denial or decertification,
it could be a reasonable rule of thumb that the SBA office that rendered
SBA's certification decision whether it is SBA's HQs office or one of
its field offices shall be notified.

49 CFR 26.86, 26.87

**Question 43:** How often is an onsite review required after initial
certification? **[Answer:]{.underline}** There is no requirement to
conduct an on-site review beyond the initial certification process.
Certainly, other situations might occur to justify another on-site
review, for example, a third party complaint, change in ownership, work
code expansion, etc.

49 CFR 26.83(c)(1)

**Question 44:** How can state DOT certification officers be held to the
requirement to accept SBA decisions and forms and not do a thorough
investigation on our own? 95% of the time, the information is outdated
and inaccurate. The applications themselves are not the Uniform
Certification Application and are usually more than two years old. We
keep being told to be careful of fraud, etc. But then you tell us that
we have to accept whatever they give us.

**[Answer:]{.underline}** There is nothing in the MOU or in the process
and procedures set forth in the June 16, 2003 final rule that stipulates
that a firm certified by SBA is automatically certified into the DBE
program. The fundamental purpose of USDOT and SBA working together was
to streamline the processing of applications by a firm certified into
one program and wishing to be certified in the other program. It was
clearly recognized there is significant differences between the two
programs. Under the new provisions of 26.84 and 26.85, it is considered
a reasonable course of action to bring the information supplied from SBA
to present circumstances to enable the recipient to meet the provisions
of 26.73(b). However, if you have reasons to challenge a firm's
certification with SBA, you can bring this matter to the attention of
SBA and request that they take another look at the firm.

49 CFR 26.84

**Question 45:** Typically, in our certification process the onsite is
performed last thing before the decision is made. In regards to a
complete package and the 90 days, does the 90 days start with the
completion of the onsite interview? **[Answer:]{.underline}** The 90 day
time clock starts when the certifying agency has determined they have a
complete application. Some may actually begin processing the application
including conducting an on-site review before receipt of all desired
information because the information requested maybe in an area that may
not impact what the recipient was trying to accomplish in conducting the
on-site review, e.g., ownership -- tax returns.

49 CFR 26.83(k)

**Question 46:** If after three years all that is needed is an update or
certification of their present status, is there a need for an on site?
If not, one can see how it can get to be several years since the last on
site visit. **[Answer:]{.underline}** As already noted there is no
prescribed requirement to conduct an on-site review after the initial
certification process. There is no requirement to conduct an on-site
review every three years in light of requirements of 26.83(h).

49 CFR 26.83(c)(1), 26.83(h)

**Question 47:** Family-owned firms: this was not discussed, if a
company is owned by mother, daughter, son, etc. is this considered
family owned? **[Answer:]{.underline}** Under 26.71(k), it addresses the
issue of control when one or more of the immediate family members are
involved. Under 26.5 the USDOT has effectively defined for purposes of
the DBE program who fall under the definition of immediate family
members. This definition is also in effect for any issues surrounding
ownership by family members.

49 CFR 26.71(k), 26.5

**Question 48:** Some concern about a general acceptance of an 8(a)
approved firm: 1) SBA\'s regs do not require proof of initial
contribution; and 2) SBA regs require that the S&E DVD individual only
possess technical or managerial expertise; and 3) SBA regs only require
management & control by S&E DVD individual, not necessarily an owner.
**[Answer:]{.underline}** A general statement that covers many concerns
that have been raised about the SBA's certification process and its
inconsistency with that required under the DBE program. Again as
mentioned above the MOU and resultant 2003 regulations were not intended
to prevent DBE program recipients for asking these critical questions in
ensuring that applicants fully meet all of the eligibility standards.
Therefore, the process and procedures set forth in the 2003 rule were
drafted to allow a recipient to obtain the necessary and critical
information that enables the recipient to make an informed decision of
the firm's eligibility.

49 CFR 26.84

General Comments:

Various participants asked the question whether the answer to the
questions covered in the PowerPoint is yes. The answer to each question
is yes.

Contractor compliance Session

**June 18, 2006 Web Conference**

**Contract Compliance**

**Questions and Answers- Chat Room**

During the week of July 17, 2006, members of the Resource Center's Civil
Rights Technical Service Team presented a series of three National Web
Conferences. The series of highly demanded Sessions included Contract
Compliance, State Internal EEO/AA and Disadvantaged Business Enterprise
(DBE). Members of the Civil Rights Community requested that the
Questions and Answers (Q&A) be posted. In response to those requests,
please find below the Q&As for each of the three Web Conferences broken
down by Session.

**Question 1:** How do Local Area Preferences fit into Affirmative
Action? **[Answer:]{.underline}** FHWA does not allow our Federal-aid
contractors to specify participation of local workers because such labor
area preferences would violate the competitive bidding requirements of
23 U.S.C. 112 and its implementing regulation, 23 CFR §635.117(b), which
prohibits discrimination against the employment of non-local labor. 23
CFR S §635.117(b), states:

\"No procedures or requirement shall be imposed by any State

which will operate to discriminate against the employment of labor

from any other State, possession or territory of the United States, in

the construction of a Federal-aid project.\"

There are three (3) exceptions that allows local preferences on
Federal-aid highway projects based on explicit statutory authority as it
exists for the employment of Indians living on or near a reservation -
23 U.S.C. § 140(d); for Appalachian residents on projects in that
region - 23 CFR Part §633; and for contracting under the Federal
Disadvantaged Business Enterprise (DBE) program - 49 CFR §26.7 and
26.13. Also, FHWA 1273-Required Contract Provisions Federal-Aid
Construction Contracts indicated:

**Selection of Labor:** During the performance of this contract, the
contractor shall not:

> a\. discriminate against labor from any other State, possession, or
> territory of the United States (except for employment preference for
> Appalachian contracts, when applicable, as specified in Attachment A),
> or

b.  employ convict labor for any purpose within the limits of the
    project unless it is labor performed by convicts who are on parole,
    supervised release, or probation.

References: 23 USC §140 (d)

49 CFR 26.7 and 26.13

23 CFR 633 Appendix B to Subpart B of Part 633 Section II Employment
Preference

FHWA 1273

**Question 2:** What Is OFCCP? **[Answer:]{.underline}** The Office of
Federal Contract Compliance Programs (OFCCP) is part of the U.S.
Department of Labor's Employment Standards Administration. OFCCP is
responsible for ensuring that Federal Contractors comply with their
nondiscrimination and affirmative action contractual obligations. This
mission is based on the underlying principle that employment
opportunities generated by Federal dollars should be available to all
Americans on an equitable and fair basis.

OFCCP administers and enforces three authorities that require equal
employment opportunity: Executive Order 11246, as amended; Section 503
of the Rehabilitation Act of 1973 as amended, and the Vietnam Era
Veteran's Readjustment Assistance Act of 1974, as amended, 38 USC §
4212. These authorities prohibit Federal contractors and subcontractors
from discriminating based on race, color, religion, sex, national
origin, disability and protected veteran status. They also require
Federal contractors and subcontractors to take affirmative action to
ensure equal employment opportunity in their employment processes.

References: 41 CFR § 60

**Question 3:** Do we see possible changes to the "OFCCP's minority &
female Utilization goals?

**[Answer:]{.underline}** The answer is, we do not know. Please keep in
mind that FHWA nor do STAs have independent authority to enforce EO
11246.

Reference: FHWA Order 4710.8.

**Question 4:** Is the 100% draw down for training available for the
highway contractors?

**[Answer:]{.underline}** Yes, 100% Federal funding if the core program
funds are used for training, education, or workforce development
purposes, including "pipeline activities". If used for these purposes,
it is not necessary for the State to match the Federal funds.

Reference: Safe, Accountable, Flexible, Efficient Transportation Equity
Act: A Legacy for Users (SAFETEA-LU), Section 5204(e)-Surface
Transportation Workforce Development Training and Education

**Question 5:** Does FHWA require STA's to review a contractor's
individual employment selections? **[Answer:]{.underline}** No,
according to the specific EEO responsibilities, the contractor is
responsible for the following:

> ***Personnel Actions*.** Wages, working conditions, and employee
>
> benefits shall be established and administered, and personnel actions
> of every type, including hiring, upgrading, promotion, transfer,
> demotion, layoff, and termination, shall be taken without regard to
> race, color, religion, sex, or national origin. The following
> procedures shall be followed:
>
> The contractor will periodically review selected personnel
>
> actions in depth to determine whether there is evidence of
>
> discrimination. Where evidence is found, the contractor will promptly
>
> take corrective action. If the review indicates that the
> discrimination
>
> may extend beyond the actions reviewed, such corrective action shall
>
> include all affected persons.
>
> The contractor will keep such records as are necessary to determine
> compliance with the contractor\'s equal employment opportunity
> obligations. The records kept by the contractor
>
> will be designed to indicate:
>
> \(1\) The number of minority and nonminority group members and women
>
> employed in each work classification on the project.
>
> \(2\) The progress and efforts being made in cooperation with unions
>
> to increase employment opportunities for minorities and women
>
> (applicable only to contractors who rely in whole or in part on unions
>
> as a source of their work force),
>
> \(3\) The progress and efforts being made in locating, hiring,
>
> training, qualifying, and upgrading minority and female employees, and
>
> \(4\) The progress and efforts being made in securing the services of
>
> minority group subcontractors or subcontractors with meaningful
> minority and female representation among their employees.

Reference: 23 CFR Appendix A to Subpart A of Part 230- Special
Provisions, 6, 6 (c)

and 10 (1-4)

**Question 6:** Has FHWA defined the term "active contractor"?
**[Answer:]{.underline}** No. FHWA Form 1273 uses the term "active
contractor" as stated below:

> **"EEO Officer:** The contractor will designate and make known to the
> SHA contracting officers an EEO Officer who will have the
> responsibility for and must be capable of effectively administering
> and promoting an ***active contractor*** program of EEO and who must
> be assigned adequate authority and responsibility to do so."

Also, the regulations refers to the Compliance Specialist notifying the
contractor that for a project review, the prime contractor shall be held
responsible for ensuring that all 'active" subcontractors are present at
the meeting and have supplied the documentation listed in

Sec. 230.409(c)(3) (compliance review notification).

Reference: Required Contract Provisions Federal-Aid Construction
Contracts, FHWA Form 1273, II. (2.)

23 CFR Part 230.409 (c ) (4)

State Internal

Equal Employment Opportunity (EEO) and Affirmative Action (AA)

**July 19, 2006 Web Conference**

**Questions and Answers- Chat Room**

**Question 1:** How much of what is being presented would be mandatory
for all State Highway Departments and how much is up to the discretion
of the State as to what is needed?

**[Answer:]{.underline}** The Web Conference presented the requirements
of 23 CFR § 230, Appendix A to Subpart C. of Part 230 -- State Highway
Agency Equal Employment Opportunity Programs. The following Internal EEO
Program Parts must be satisfied by each State:

                               Part I        Contractor Compliance

                               Part II       State Highway Agency
Employment

References: 23 CFR § 230, Appendix A to Subpart C. of Part 230 -- State
Highway Agency Equal Employment Opportunity Programs.

23 CFR 230.309 & 230.311 (Program Format and STA's Responsibilities)

**Question 2:    **How much is mandatory pertaining to tracking data on
intermittent and temporary employees?**    
[ Answer:]{.underline}   **The EEO-4 Report (which is a document
generated by the Equal Employment Opportunity Commission-EEOC) requires
data on full time permanent employees and has a section for reporting
temporary employees as well. We are unfamiliar with what data is
mandatory regarding intermittent and temporary reporting; however, the
EEO-4 form is required in the STA's Annual EEO Update. STAs can refer to
the EEOC website for the EEO-4 Report Instructions.

References: 23 CFR § 230, Appendix A to Subpart A of Part 230 -- State
Highway Agency Equal Employment Opportunity Programs, Part II. Records
and Reports 10(B)

[www.eeoc.gov](http://www.eeoc.gov/) (Under Section: Employers and EEOC)

**Question 3:** Do you just track qualified applicants in the adverse
impact analysis rather than   both qualified and non-qualified? ** 
[Answer]{.underline}:** SHA's adverse impact analysis and reviews should
consider their entire recruitment and selection process, including those
processes that screen qualified applicants and non-qualified applicants.

Currently many candidates forward general interest resumes on the
Internet for SHA consideration.  If from that pool, the STA selects a
few candidates for further consideration but rejects almost all of them
because of the lack of experience and/or required education, then the
statistical impact must be shown with the reasonable explanations for
any high rejection rates of protected group members. Each STA needs to
remember that they are using a selection process to eliminate
candidates, so their qualification standards, whatever they are, must be
able to stand alone in a demonstration of nondiscrimination.

Also adverse impact analysis allows the STAs to do an analysis on both
qualified and non-qualified as well as selects and non-selects. It is
also key that the STA captures its applicant pool correctly.

References: 23 CFR § 230, Appendix A to Subpart C. of Part 230 -- State
Highway Agency Equal Employment Opportunity Programs, Part II. State
Highway Agency Employment, II. C., b. (Recruitment and Placement), (1)
(4) (6) and (7)

Disparate Impact/Employment Statistical Analysis

http://www.hr-software.net/EmploymentStatistics/DisparateImpact.htm

Disadvantaged Business Enterprise

July 20, 2006 Web Conference

**DBE Program Administration**

**Questions and Answers -- Chat Room**

**Question 1:** Please clarify. Did you say that a DBE plan is not
required unless there are changes? **[Answer:]{.underline}** In the
context of this question, we would state that, first, a DBE program plan
already exists and has been approved by one of the operating
administrations, i.e., FHWA. Under §26.21, a regular update is not
required as long as the recipient remains in compliance with its DBE
program. An update may be required if, for example, USDOT has issued new
regulations and/or guidance that would require a significant change to a
recipient's DBE program as approved. FHWA has held through its annual
DBE Goal Setting Approval Process and DBE Program Plans (last dated
9/14/06) guidance a significant change is any change that is likely to
affect an important aspect of the DBE program if implemented.

References: 49 CFR §26.21; Office of Small and Disadvantaged Business
Utilization's website [OSDBU.DOT.GOV;]{.underline}

> FHWA Memorandum dated 09/14/06

**Question 2:** So, an updated plan must be submitted for each year
there is a change in the DBE goal? **[Answer:]{.underline}** If the
recipient's goal setting methodology used to establish each fiscal
year\'s DBE program overall goal is incorporated into the recipient's
DBE program plan then the plan would need to be updated each year.
However, since there is no specific requirement that the annual goal
setting methodology used in establishing a specific fiscal year goal
must be part of the DBE program plan, it has been accepted that the DBE
program plan could provide a general explanation of the recipient's goal
setting process and methodology. The methodology and actual calculation
in establishing the annual overall program goal could be spelled out in
a separate document. And, that would be the document submitted to the
lead agency for appropriate action.

References: 49 CFR §26.21; §26.45; Goal Setting Methodology memorandum
on FHWA website

**Question 3:** Has the Department of Transportation issued any waivers
to any part of the DBE regulations to anyone? **[Answer:]{.underline}**
Yes, USDOT has approved waivers over the years requested from different
recipients over the life of the DBE program. But no waiver is currently
in effect for any STA program since those previously granted are now
part of the current program through recent rule changes issued by USDOT.

**Question 4:** I was told that an annual DBE Plan is required. Please
help me to understand better by clarifying the meaning of significant
changes with regards to DBE Plan and/or updates. Also, is legal
sufficiency required? **[Answer:]{.underline}** As referenced in the
answer to question 1, the DBE program plan once approved by the lead
federal agency remains in effect until such time a significant change is
made to that program plan. When it becomes necessary to revise the
program plan, it is to submit the revised program plan to the lead
agency for approval. The definition of significant change is that as
described in the answer to question one.

FHWA's DBE Goal Setting Approval Process and DBE Program Plans annual
guidance memorandum (dated 9/14/06) requires a revised program if a
significant change is to be submitted to Washington, DC for concurrence
before the Division Office approval. This may involve coordination with
other FHWA offices (i.e., Office of Chief Counsel) and USDOT, as
appropriate. This coordination does not necessarily constitute a legal
sufficiency review as in the same context as that required in processing
the recipient's goal setting methodology.

Reference: 49 CFR §26.21

**Question 5:** Can the Annual goal deadline be permanently changed to
another date? **[Answer:]{.underline}** No, even if extensions may have
been granted in previous years, it is not the intent to waive the
requirements of §26.45(f) (1). Since the program operates on a fiscal
year basis (i.e. §26.45(e) (1) consistent with the appropriation of
federal-aid highway funds, it is the intent to have the DBE program
annual overall goal established and in effect as of October 1, of each
fiscal year.

References: 49 CFR §26.45 (f) (1); §26.45 (e) (1)

**Question 6:** When States submit their goal setting process to FHWA
should we wait until we also receive the public comments?
**[Answer:]{.underline}** This question raises two possibilities to be
addressed. In waiting, could refer to FHWA rendering its approval action
of the goal setting methodology or waiting for processing the STA's
actual submission. As it has occurred many times under the regulations,
a STA is required to have public participation in its goal setting
process. The second element of public participation involves the STA
publishing its methodology for public comment. Because of the tight
timeframe for meeting the October 1, decision date, often the goal
setting methodology is submitted to FHWA for handling while,
concurrently, the public notice seeking comment is issued. It has been
considered acceptable to continue processing the STA's submission while
the 45 day public comment period runs its course but no final approval
action by FHWA is to take place until the comment period has expired.
The STA compiles and reports the comments received to FHWA and the
comments received do not require any substantive revision to the already
submitted goal setting methodology.

References: 49 CFR §26.45 (f) (1); §26.45 (g) (2)

**Question 7:** What are typical penalties that States have implemented?
**[Answer]{.underline}:** Some of the typical administrative actions
that have been used include but are not limited to the following:

i.  Withholding progress payments

ii. Withholding payments equal to the amount of DBE participation
    shortfall

iii. Suspension of bidding privileges

iv. Suspension and debarment

v.  Reducing/lowering prequalification limits

vi. Cancellation of contract

vii. Referral for criminal prosecution

Reference: 49 CFR §26.107

**Question 8:** What about DBE's subbing to a non-DBE?
**[Answer:]{.underline}** The counting rules under §26.55 apply when
participation by a DBE firm is credited towards meeting a goal. The only
counting allowed is when the DBE firm actually performs the work
themselves. This rule does not prevent a DBE to subcontract its work to
a non-DBE subject to the State's subcontracting limitations set forth in
the contract. But, by doing so, only that portion of the contract
actually performed by the DBE is counted.

Reference: 49 CFR §26.55

**Question 9:** How many tiers down must a SHA account for the DBE's
participation? **[Answer:]{.underline}** Consistent with the answer
given to question 8 above, all work at any tier actually performed by a
DBE is counted towards meeting the goal subject to the subcontracting
limitations set forth in the State's contract.

**Question 10:** Don't you have to get OA approval for one for one truck
counting? **[Answer:]{.underline}** The USDOT in its 2003 final rule
under revised subpart §26.55 allowed the use of a new truck counting
approach at the discretion of a recipient to adopt subject to the
approval by the appropriate Operation Administration (i.e., FHWA).

Reference: 49 CFR §26.55 (d) (5)

**Question 11:** Isn't it a 30% requirement not 50%? See 26.559© (3) or
did I misunderstand what you said? **[Answer:]{.underline}** The FHWA
does have a policy, 23 CFR §635.116, that the 30 percent of the contract
work is to be performed by the prime contractor. There is no similar
policy that carries forth this policy to subcontracting. With respect to
30% versus 50%, many States choose to keep the more restrictive
percentage than to adopt the 30% limitation. A recipient can adopt a
more stringent requirement and be consistent with federal laws and
regulations. If the 30% limitation cited in §26.55(c) (3) is particular
to the DBE program because the largest majority of DBEs perform at the
subcontract level and 23 CFR §635 only applies to prime contractors. The
30% rule is one way to assess whether in such situations a DBE is
performing a Commercially Useful Function consistent with all that
required under §26.55.

References: 23 CFR §635.116; 49 CFR §26.55 (c) (3)

**Question 12:** Can you discuss the "general character" as it applies
to a regular dealer as described in §26.55 (2) (ii)?
**[Answer:]{.underline}** The use of the phrase "general character" is
not necessarily a new one but one that first appeared when USDOT issued
its Supplemental Notice of Proposed Rulemaking (SNPRM) back in 1997.
This proposed rule was the basis for drafting the 1999 final rule issued
on February 2. In all of this process, the USDOT did not really define
clearly the use of this phrase. Maybe a way to help define it though is
to go back to a 1992 Notice of Proposed Rule Making to see what wording
was used under this subpart. It references, to be a regular dealer one
must deal with "materials or supplies required for the performance of
the contract are bought, etc." This qualification has essentially been
the general rule in place since 1980 where only services required by a
DOT-assisted contract are eligible for credit.

Reference: 49 CFR §26.55

**Question 13:** With material supplying, please describe how standard
industry practices come into play. Specifically with a pipe supplier who
receives a contract to supply an extremely large quantity of pipe? The
standard industry practice for non DBE contractors is to drop ship?
**[Answer:]{.underline}** The rules for determining whether a DBE firm
is performing as a regular dealer under the DBE program are specifically
detailed under §26.55(e) (2). This determination is also made consistent
with the over arching provisions of §26.55 concerning performing a CUF
in light of a number of factors including industry practice. It is for
this reason that it is important to determine what is the industry
practice for each and every conceivable possibility of a DBE firm
performing on a federally assisted contract. The intent is to assess
whether, one; there is actually an industry practice that exists outside
of the DBE program and, two, when such industry practice exists whether
the DBE is performing as non-DBEs in this industry. The general rule
applied in such instances is industry practice is one consideration if
such practices are not in conflict or act contrary to the requirements
(i.e., control and independence) of the DBE program. In the example
given with respect to pipe, it may be conceivable that the supply of
concrete pipe, for instance, could, based on industry practice and being
consistent with the DBE program that dependent on the size of the pipe
and/or quantity, that an inventory (i.e., 18 and 24 ") might be required
while the delivery of a contract specified size (i.e., 72") might be by
direct shipment from the casting yard to the project site. The delivery
would then be the consideration in whether the DBE firm performs a CUF
in consideration of industry practice. As a hypothetical, if no
suppliers in a state provides the distribution equipment for hauling 72"
pipe from the yard to the job site then should a DBE consistent with the
spirit, intent or requirements of the DBE program?

Reference: 49 CFR §26.55 (e) (2)

**Question 14:** Could general character mean up to spec or acceptably
equivalent? **[Answer]{.underline}:** It is considered that the response
given to question 12 adequately speaks to this question.

**Question 15:** Commercially useful function needs to be discussed
further when counting participation for procurement assistance by other
than a regular dealer. **[Answer:]{.underline}** 49 CFR §26.55(e)
effectively deals with DBE firms performing other kinds of services that
do not fit into the categories of contractors, manufacturers and regular
dealers. In such cases, the rule also speaks to the counting of such
participation towards meeting the goal. If further clarification is also
sought towards performing a CUF with respect to materials and supplies
used on the contract, then the appropriate citation is §26.55(c) (1).

References: 49 CFR §26.55 (e); §26.55 ( c )(1)

**Question 16:** What can a SHA do when a given DBE performs less than
30 percent of its contract work and the remaining work has been done by
a subcontractor who becomes part of the prime contractor's certified
payroll? **[Answer:]{.underline}** Consistent with the intent of
§26.55(a) (1-3) and §26.55(c), the only work that can be counted towards
meeting the goal is that actually performed by the DBE. In doing so the
DBE must have performed the work themselves with their own resources
including its own workforce. Such red flags of performing less than 30%;
subcontracting a greater portion than normally expected; and/or the
workforce showing up on the prime's payroll before or after, are
potential examples of failure to perform a CUF.

References: 49 CFR §26.55 (a) (1-3); §26.55( c )

**Question 17:** Can DBE credit be counted for procurement assistance by
a DBE if the materials are not part of the DBE's specialty?
**[Answer:]{.underline}** Consistent with the intent of the provisions
of §26.55, work actually performed by a DBE can be counted towards the
goal. It would seem by this scenario that if the procurement assistance
is by another certified DBE then this definition has been met. It
becomes a CUF issue whenever a DBE is limited to that of being an extra
participant in a transaction, contract or project to that role played by
a non-DBE firm.

Reference: 49 CFR §26.55

**Question 18:** FHWA/HQ/RC need to clarify industry practice in regards
to drop shipments with DOT's OIG, my experience with the OIG is they do
not look into industry practice. **[Answer:]{.underline}** This is not
presented in the form of a question so not sure whether a response is
necessary. It is others experience that the OIG is very interested in at
least knowing what the industry practice is to better understand the
issues they may face when looking at the facts of a case under
investigation for fraud.

**Question 19:** Can you elaborate a little on post-award changes in DBE
participation i.e. change in project scope where work items are
eliminated, or there are problems where the DBE can't or won't complete
the work? **[Answer:]{.underline}** Under §26.53, as a condition of
award to a prime contractor, the contractor has adequately documented,
in the form of commitment, its use of those DBEs named, at the dollar
amount quoted and for the work identified in the commitment. If there is
any change during the life of the contract resulting in less or more
work, the prime contractor in consultation with the STA and subject to
the consent of the STA must undertake a Good Faith Effort (GFE) to meet
its commitment as a condition of award.

The substitution and replacement rule under §26. 53(f)(1-2) applies
whenever a DBE firm committed to by the prime as a condition of award is
either unwilling or unable to perform the work. If there is a need to
replace a DBE firm the prime contractor is to carry out Good Faith
Efforts to find a replacement. In doing so if the prime contractor is
unable to find a replacement, then the State in response to a GFE
submission can approve the new commitment.

References: 49 CFR §26.53; §26.53(f) (1-2)