[Federal Register: May 8, 2001 (Volume 66, Number 89)]
[Proposed Rules]               
[Page 23208-23227]                         

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DEPARTMENT OF TRANSPORTATION

Office of the Secretary

49 CFR Part 26

[Docket OST-2000-7639]
RIN 2105-AC88

 
Participation by Disadvantaged Business Enterprises in Department 
of Transportation Financial Assistance Programs; Memorandum of 
Understanding With the Small Business Administration; Uniform Forms and 
Other Revisions

AGENCY: Office of the Secretary, DOT.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Department of Transportation (DOT or the Department) is 
proposing revisions to the Department's regulations for its 
Disadvantaged Business Enterprise (DBE) program (49 CFR part 26). In 
its final DBE rule the Department reserved publication of a uniform 
reporting form and a uniform certification application form for a later 
date. This document proposes those forms. In addition, this document 
proposes implementation procedures for a Memorandum of Understanding 
(MOU) between DOT and the U.S. Small Business Administration (SBA). The 
MOU streamlines certification procedures for participation in SBA's 
8(a) Business Development (8(a) BD) and Small Disadvantaged Business 
(SDB) programs, and DOT's DBE program for small and disadvantaged 
businesses. Finally, this document proposes substantive changes to 
several provisions, including: Personal net worth, retainage, the size 
standard, proof of ethnicity, confidentiality, proof of economic 
disadvantage, and DBE credit for trucking firms.

DATES: Comments should be received no later than June 7, 2001. Late-
filed comments will be considered to the extent practicable.

ADDRESSES: Interested persons should send comments to Docket Clerk, 
Docket No. OST-2000-7639, Department of Transportation, 400 7th Street, 
SW., Room PL-401, Washington, DC 20590. We request that, in order to 
minimize burdens on the docket clerk's staff, commenters send three 
copies of their comments to the docket. Commenters wishing to have 
their submissions acknowledged should include a stamped, self-addressed 
postcard with their comments. The docket clerk will date stamp the 
postcard and return it to the commenter. Comments will be available for 
inspection at the above address from 10:00 a.m. to 5:00 p.m., Monday 
through Friday, except Federal holidays.

FOR FURTHER INFORMATION CONTACT: Laura A. Aguilar, Attorney, Office of 
Environmental, Civil Rights, and General Law, Department of 
Transportation, 400 7th Street, SW., Room 10102, Washington, DC 20590, 
phone numbers (202) 366-0365 (voice), (202) 366-9170 (fax), (202) 755-
7687 (TDD), laura.aguilar@ost.dot.gov (e-mail).

SUPPLEMENTARY INFORMATION:

Background

    On February 2, 1999, the Department published a final rule revising 
its Disadvantaged Business Enterprise (DBE) program. The new 
regulations (49 CFR part 26) replaced 49 CFR part 23, except for the 
airport concessions regulations. In shaping the final rule, the 
Department responded to 600 comments on its December 1992 Notice of 
Proposed Rulemaking (NPRM), and 300 comments on its May 1997 
Supplemental Notice of Proposed Rulemaking (SNPRM). The Department also 
participated in the Clinton Administration's review of affirmative 
action programs and listened carefully to Congressional debate during 
the reauthorization of the Department's DBE program in the 
Transportation Equity for the 21st Century (TEA-21). The final rule 
also incorporates requirements set forth in the Supreme Court's June 
1995 decision in Adarand v. Pena. The result is a narrowly tailored 
program that provides a ``level playing field'' for small socially and 
economically disadvantaged businesses.
    There are three different parts addressed in this document. The 
first part addresses uniform forms. In the final rule, the Department 
stated that it would develop a single reporting form and a standard DOT 
application form for DBE eligibility. The Department did not want to 
delay the issuance of the final rule, so it reserved the date on which 
the uniform form requirements would go into effect. This document 
addresses both of these forms. The second part addresses the 
implementation of a Memorandum of Understanding (MOU) between the DOT 
and the Small Business Administration (SBA). The MOU streamlines 
certification procedures for participation in SBA's 8(a) Business 
Development (8(a) BD) and Small Disadvantaged Business (SDB) programs 
and DOT's DBE program. The final part proposes substantive changes to 
several provisions, including: personal net worth, retainage, proof of 
ethnicity,

[[Page 23209]]

confidentiality, proof of economic disadvantage, and DBE credit for 
trucking firms.

A. Forms

1. Reporting Form
    In the preamble to the February 2, 1999, final DBE rule, the 
Department adopted the suggestion of having one standard reporting 
form. We believe it will reduce administrative burdens for recipients, 
particularly those who receive funds from more than one DOT operating 
administration (OA). We are now addressing the format and substance of 
the uniform reporting form. We are also proposing that recipients 
report DBE program data to the concerned OA semi-annually. The 
concerned OA is the DOT agency from which the recipient received 
Federal funds. See Sec. 26.21(a). For example, a recipient of Federal 
Highway funds must submit a report to the Federal Highway 
Administration (FHWA). If a recipient receives funds from more than one 
OA, it must submit a separate report to each OA. Finally, we are 
proposing a three-year retention requirement for basic program data. We 
are requesting comment on the content and format of the standard form. 
To assist commenters in formulating responses, we are publishing a 
proposed form in the NPRM that would become appendix B to 49 CFR part 
26.
    The proposed reporting form requires that information concerning 
both awards or commitments and attainments of DBE participation be 
reported. The rule requires recipients to have a mechanism to verify 
that the work committed and awarded to DBEs is actually performed by 
DBEs. See 49 CFR 26.37(b). The preamble to the final rule explains that 
recipients should keep a running tally of the extent to which, on each 
contract, performance matched promises. However, we recognize that in 
many instances the awards and commitments reported will not correspond 
to the attainments reported on the same form within a single fiscal 
year. For example, if a contract is awarded to a DBE in January 2001, 
the award would be reflected in the report for that period. However, 
the contract would likely not be completed for many years. Therefore, 
the actual achievement section in that report could not reflect the 
achievements on that contract. Instead, the report will reflect 
attainments on contracts completed during the reporting period. It is 
essentially a ``snap-shot'' of a recipient's progress towards the 
participation of DBEs in its DBE program and not a determinative factor 
as to whether or not DBE goals are being met and programs are 
successful.
    In the attainments section, recipients would report the actual 
number and dollar amounts of payments made to DBEs during the reporting 
period. This section is also in keeping with the mandate of 49 CFR 
26.55(a), which specifies ``(w)hen a DBE participates in a contract, 
you count only the value of the work actually performed by the DBE 
toward DBE goals.''
    Currently, Federal Aviation Administration (FAA) recipients submit 
annual reports while Federal Highway Administration (FHWA) and Federal 
Transit Administration (FTA) recipients submit quarterly reports. The 
December 1992 NPRM proposed that recipients report DBE program data 
quarterly to the appropriate OA. Again, the appropriate OA is the DOT 
agency (FAA, FHWA and/or FTA) from which the recipient receives Federal 
funding. The OA's believe that quarterly reporting is often too 
burdensome for recipients. This is especially true for smaller 
recipients with only one contract over a long period of time. Requiring 
quarterly reports in that instance would result in unnecessary 
repetition of information. Therefore, we are proposing semi-annual 
reporting. This will allow the Department to adequately monitor the 
extent to which recipients are meeting DBE goals while not overly 
burdening smaller recipients with redundant reporting requirements.
    Reports would be due to a recipient's OA on June 1 and December 1 
each year. The June 1 report would include information from October 1 
through March 31. The December 1 report would include information from 
April 1 through September 30. Since the majority of recipients set 
goals based on a fiscal year, we believe that these dates will assist 
them in setting their overall goals which must be submitted to the OA 
by August 1 of each year.
    In keeping within the parameters suggested by commentators during 
the SNPRM, we are proposing that recipients retain information relating 
to basic program data for three years.
2. Uniform Application Form
    In the preamble to the final rule, the Department adopted a single, 
uniform, nationwide form that all recipients must use without 
modification for DBE eligibility. We are now addressing the substance 
of the uniform application form and requirements. Although recipients 
must use the uniform application form without modification, we 
recognize that some States have additional statutory and/or regulatory 
requirements. Therefore, recipients may supplement the uniform 
application form with a one to two page attachment containing the 
additional certification requirements. We are requesting comment on the 
content of the standard form. To assist commenters in formulating 
responses, we are publishing a proposed form in this NPRM that would 
become appendix F to 49 CFR part 26.
    In developing the proposed form, we started with FHWA's Region 5 
Certification Application. We asked a few recipients who receive 
financial assistance from FHWA, FAA, and FTA to comment on the content 
and format of the application. We are attempting to balance the need 
for a complete form and the desire to simplify the application. We urge 
commenters to think about what must be contained in the application and 
what may be reserved for an on-site review.
    We are working closely with representatives from the SBA in 
developing a uniform application form to be used by both agencies. The 
MOU is designed to streamline the application process for SBA's 8(a) BD 
and SDB programs and DOT's DBE program. We believe that having a joint 
uniform application form will make it easier for small businesses to 
apply for certification for programs from both agencies. It is our hope 
that with the comments received on the proposed form in appendix F will 
be able to issue the joint DOT/SBA certification application form in 
the final rule.

B. Memorandum of Understanding

1. Background
    The SBA's 8(a) BD and SDB programs and DOT's DBE program share many 
common certification requirements. Therefore, on November 23, 1999, the 
former Secretary of Transportation, Rodney Slater, signed a Memorandum 
of Understanding (MOU) with Aida Alvarez, the former Administrator of 
the SBA, the purpose of which is to develop common application 
procedures that will streamline the certification process for the 
respective programs. This streamlined process is designed to reduce 
administrative costs and to provide more opportunities for small 
businesses owned and controlled by socially and economically 
disadvantaged individuals. It also establishes procedures for the 
efficient transfer of information among SBA, DOT, and DOT recipients, 
and for the consideration of certification appeals.
    We are issuing this NPRM to amend 49 CFR part 26 to establish new 
or revised responsibilities for DOT recipients created by the MOU. The

[[Page 23210]]

MOU and these proposed changes do not alter the program requirements. 
For example, women are not presumed disadvantaged in SBA's programs. 
Therefore a woman-owned DBE will still have to show disadvantage to 
qualify for SBA's 8(a) BD and SDB programs. Similarly, an SBA-certified 
firm must still undergo an on-site review before receiving DBE 
certification.
    The current DBE regulations allow recipients the flexibility to 
accept certifications for 8(a) BD or SDB-certified firms in lieu of 
conducting its own certification process or to require the firm to go 
through part or all of its own application process. See 49 CFR 26.67 
(c). Under the MOU, recipients would be required to accept and 
recognize 8(a) BD and SDB certifications in lieu of requiring the 
applicant firm to fill out the recipient's own application. However, 
the applicant firm must still meet all the part 26 requirements. For 
example, a firm must meet the DOT statutory gross receipts cap, 
currently $17,420,000, see 65 FR 52470 (August 29, 2000). Based on the 
information gained from the on-site review, including documentation 
that the firm meets DOT eligibility criteria, a DOT recipient may deny 
certification to a firm that the SBA certified.
    As stated in the previous section, we are working with 
representatives from the SBA in developing a joint certification 
application form. We anticipate that the joint application form will 
contain a main section with common requirements and have three 
additional parts for 8(a) BD, SDB and DBE certification. The applicant 
would need to complete the main section of the application only once. 
Then the applicant would fill out the program specific part for each 
program for which the applicant is applying. We believe that the joint 
application form will simplify the application process for new 
applicants.
    For SBA-certified firms seeking DBE certification, we are proposing 
the following procedures. An SBA-certified firm may submit its 
certification package to the applicable DOT recipient or it may request 
that the SBA forward the certification package to the DOT recipient. 
Pursuant to the MOU, the SBA will forward the package to the DOT 
recipient within thirty days after receipt of the firm's request. If 
necessary, the recipient may request additional information from the 
applicant or from the SBA. If requested from the SBA, the additional 
information will be transferred within 45 days after receipt of the 
request. The recipient will then make an independent certification 
decision based on the SBA application package, any additional 
information provided and an on-site review. If the SBA conducted an on-
site review, the DOT recipient may rely on SBA's report of the on-site 
review in lieu of conducting its own on-site review. 49 CFR 26.83(k) 
requires a recipient to make decisions on applications of certification 
within 90 days of receiving from the applicant firm all information 
required under part 26. If a firm applies for DBE certification 
pursuant to the MOU, the recipient is required to make a decision 
within 90 days of receiving all the required information, whether it is 
from the applicant or the SBA.
    Recipients are not required to process an application for 
certification from an SBA-certified firm having its principal place of 
business outside the state unless there is a report of a ``home state'' 
on-site review on which the recipient may rely. This helps the problem 
of costly out-of-state visits.
    If a recipient denies certification to a firm certified by the SBA, 
it must notify the SBA in writing. The notification must include the 
reason for denial. A recipient may simply send a copy of the denial 
letter to the SBA. Similarly, when a recipient decertifies a firm 
certified by the SBA, it must notify the SBA in writing. Again, the 
notification must include the reason for denial. A copy of the denial 
letter is sufficient notification.
    An SBA-certified firm that is denied DBE certification or whose 
eligibility is removed by a DOT recipient is entitled to the same 
appeal rights as DBE firms. Such a firm may make an administrative 
appeal to the Department pursuant to part 26. The Department will 
notify the SBA, in writing, when DOT takes an action on an appeal that 
results in or confirms a loss of DBE eligibility to any SBA-certified 
firm. The notice will include the reasons for the Department's 
decision, including specific references to the evidence in the record 
that supports each reason for the decision.
    If a DBE-certified firm is seeking SBA certification, it may 
request, in writing, that the applicable DOT recipient forward a copy 
of its application to the SBA. If a recipient receives such a request, 
it must forward the application package to the SBA within 30 days of 
receiving the request. Under the MOU, the recipient will be required to 
pay the copying and transmittal fees. We are requesting comment on the 
impact this will have on recipients. If the SBA requests additional 
information, the recipient must forward the requested information 
within 45 days of receiving the request.
    Recipients would also be required to provide appropriate assistance 
to SBA-certified firms, including information pertaining to the DBE 
application process, filing locations, required information and status 
of the application.

C. Additional Changes

1. Personal Net Worth
    Section 26.67 requires each individual whose ownership and control 
are relied upon for DBE certification to submit a signed, notarized 
statement of personal net worth (PNW), with appropriate supporting 
documentation. The Department received a number of questions about what 
documentation is appropriate for recipients to require in ascertaining 
the PNW of owners of DBE firms. In the preamble to the final rule 
correction (see 49 FR 34569 (June 11, 1999)), the Department 
recommended using the SBA's form as a model. SBA requires completion of 
a two-page form, supported by two years of personal and business tax 
returns. The Department wanted to remain flexible while encouraging 
recipients to use forms that are not unduly lengthy, burdensome or 
intrusive. The Department did not require recipients to use the SBA 
form verbatim but encouraged them to use a form of similar length and 
content, including collecting and retaining two years of an 
individuals' personal and business tax returns.
    The final rule explicitly requires that the personal financial 
information be kept confidential. Nevertheless, the Department has 
continued to receive comments concerning the intrusiveness of 
collecting personal tax returns. We understand the justifiable privacy 
concerns associated with collecting personal income tax information. 
However, we must also ensure that the integrity of the program is 
maintained. Recipients must have a tool to ensure that non-
disadvantaged persons do not participate in the program.
    Therefore, we are proposing an alternative option with regard to 
supporting documentation. Recipients must still require an individual 
whose ownership and control are relied upon for DBE certification to 
certify that he or she has a personal net worth that does not exceed 
$750,000. Applicants could still submit a signed, notarized statement 
of PNW, with appropriate documentation. Alternatively, the applicant 
could submit a signed, notarized statement from a certified public 
accountant (CPA) attesting that the CPA has examined his or her 
personal net worth pursuant to

[[Page 23211]]

Sec. 26.67(a)(2)(iii) and determined that his or her personal net worth 
does not exceed $750,000. This second option would eliminate the need 
for the applicant to provide personal income tax information to the DOT 
recipient for purposes of PNW.
    Under either method, the determination of an individual's PNW 
should follow certain requirements specified in the final rule. For 
example, the rule requires that an individual's ownership in the 
applicant firm be excluded. With the exception of one proposed change 
discussed below, the requirements remain the same. However, we are 
making the wording and format of the current language clearer and 
easier to read.
    We are proposing a change with respect to vested pension plans, 
Individual Retirement Accounts, 401(k) accounts, and other retirement 
savings or investment programs in which the assets cannot be 
distributed to the individual at the present time without significant 
adverse tax or interest consequences. We are proposing that PNW would 
include only the present value of such assets, less the tax and 
interest penalties that would accrue if the asset were distributed at 
the present time. An alternative method would be to exclude such assets 
from the personal net worth calculation. We are requesting comment on 
this issue.
2. Retainage
    As the Department noted in the preamble to the February 1999 final 
rule, delays in payment have long been one of the most significant 
barriers to the competitiveness, and in some cases the viability, of 
small subcontractors. One of the delays in payment about which 
subcontractors have been most concerned is payment of retainage. Often, 
subcontractors have told us, they finish all their work on a contract 
months or years before the end of the project on which the prime 
contractor is working, but the prime contractor does not pay them fully 
until after the recipient has paid retainage to them at the end of the 
entire project. To help surmount this barrier, the final rule requires 
prime contractors to pay retainage to subcontractors promptly after the 
subcontractors satisfactorily complete their work.
    Many states and other recipients have responded very creatively to 
this provision, taking such steps as making incremental payments to 
contractors or eliminating retainage altogether. Where recipients have 
not taken such steps, however, prime contractors have complained that 
the requirement to pay subcontractors fully before the recipient pays 
retainage to the prime contractor is a financial hardship on prime 
contractors.
    In order to address the prime contractors' concerns, without 
diminishing the benefit of the existing provision to subcontractors, 
the Department is proposing to require recipients to take one of three 
approaches. First, a recipient could eliminate retainage entirely, 
neither retaining funds from prime contractors nor permitting prime 
contractors to hold retainage from subcontractors. Second, a recipient 
could decide not to retain funds from prime contractors, but give prime 
contractors discretion to hold retainage from subcontractors. In this 
case, the recipient would require prime contractors to pay 
subcontractors in full after satisfactory completion of the 
subcontractor's work. Third, the recipient could hold retainage from 
prime contractors, but make incremental inspections and approvals of 
the prime contractor's work at various stages of the project (sometimes 
called ``mini-finals''). The recipient would pay the prime contractor 
the portion of the retainage based on these approvals. The prime 
contractor, in turn, would be required to promptly pay all retainage 
owed to the subcontractor for satisfactory completion of the approved 
work. None of these three approaches is new. All are being employed 
successfully by DOT recipients today.
    We are defining ``prompt'' as no later than thirty days. Based on 
our experience in program review thirty days was the most common length 
of time suggested by recipients. We think that this is a sensible 
amount of time. We seek comment on these approaches and on any other 
ideas commenters may have concerning this matter.
3. Size Standard
    One of the purposes of the DBE rule is to make it possible for 
small firms to grow. This includes the opportunity for subcontractors 
to become able to compete as prime contractors. To be able to perform 
prime contracts, companies often need to be larger and have more 
resources than they had as subcontractors. Frequently, firms who are 
attempting to grow will perform both prime contracts and subcontracts. 
This may create a dilemma for DBE firms in some cases. In order to work 
as prime contractors, firms may need to grow beyond the limits of the 
SBA size standards applicable to their subcontracting field. If they 
do, then recipients may decertify them because they are no longer small 
businesses. A number of firms have expressed the concern that this 
situation penalizes success and impedes achievement of an important 
objective of the DBE program.
    We emphasized in the preamble to the final rule and a recent 
Question and Answer that recipients should not totally decertify a firm 
because it exceeds the size standard for one or more of its activities. 
Under Sec. 26.65(a), if a firm meets the size standard for one type of 
work (e.g., as a general contractor), it should continue to be 
certified and receive DBE credit for that type of work, even if it has 
exceeded the size standard for another type of work (e.g., as a 
specialty subcontractor). In that case, of course, the firm could not 
remain eligible and receive DBE credit for this type of activity.
    The Department seeks comment on whether we should make any 
modifications of the rule to address further the situations of firms 
that work as both prime contractors and subcontractors.
4. Proof of Ethnicity
    We are proposing minor modifications to Sec. 26.61(c) and 
Sec. 26.63(a) to address concerns raised by both DBEs and recipients 
regarding issues related to group membership. There have been a few 
documented instances of individuals attempting to fraudulently 
participate in the DBE program by falsely asserting to be a member of 
one of the groups benefiting from the rebuttable presumption of social 
and economic disadvantage as outlined in Sec. 26.67(a). For this 
reason, many recipients seek to obtain evidence of group membership 
that goes beyond an oral statement or ``checking off a box on a form.'' 
At the same time, recipients are concerned that if they request 
additional evidence from some individuals but not others, they could be 
accused of discrimination in the certification process. In response to 
both of these concerns, we are proposing that recipients obtain a 
signed and notarized statement of group membership from all persons who 
claim to own and control a firm applying for DBE certification and 
whose ownership and control are relied upon for DBE certification.
    A signed, notarized statement should be considered sufficient proof 
of ethnicity. The recipient should not ask for additional evidence 
unless it has a well founded reason to doubt the veracity of the owner. 
We emphasize that great care must be taken in looking behind the 
individual's assertion of membership in one of the groups designated in 
Sec. 26.67(a). As a recipient, if you have reason to believe that the 
owner of a firm seeking certification has misrepresented his/her group 
membership, then further information

[[Page 23212]]

can and must be collected. However, you must inform that person, in 
writing, of your reasons for doubting his or her statement and your 
need for additional documentary evidence. Such instances should be the 
exception, not the rule. It is our expectation that requiring a written 
record justifying the need for additional information will help to 
reduce the number of unnecessary requests.
    Even where additional documentation is necessary, care should be 
taken to ensure that particular ethnic group members are not forced to 
meet a higher level of proof than members of other groups. For example, 
many recipients accept a driver's license or a birth certificate as 
adequate proof of group membership. These forms of identification 
always indicate gender and sometimes indicate the race of the holder, 
however they often do not designate whether or not an individual is 
Hispanic or Native American. In some instances, members of these groups 
have been required to provide not one, but several types of additional 
proof of ethnicity simply because their driver's license did not 
indicate their race. Such actions could constitute a violation of the 
nondiscrimination provisions of 49 CFR parts 21 and 26 and of Title VI 
of the Civil Rights Act of 1964.
    A driver's license or a birth certificate may be adequate types of 
proof of ethnicity. However, in cases where the required proof does not 
indicate specific races, such as Hispanic or Native American, the 
applicant should only be required to provide the same level of proof as 
members of other groups. For example, if a birth certificate is 
adequate for one group, then only a single piece of evidence may be 
required from members of other groups. Such single piece of evidence 
might include naturalization papers, Indian tribal roll, tribal voter 
registration certificate, a letter from a community group, educational 
institution, religious leader, or government agency stating that the 
individual is a member of the claimed group, or a letter from the 
individual setting forth specific reasons for believing himself/herself 
to be a member of the designated group.
5. Confidentiality
    A common complaint of DBEs is that there are insufficient 
protections for the confidentiality of their business information. When 
DBEs submit significant amounts of information to recipients for 
certification purposes, firms are concerned that, through state Freedom 
of Information Act (FOIA) requests or discovery in state or Federal 
court proceedings, their confidential information will be released to 
the public. We believe that this concern is justified, and we believe 
that the concern that confidential documents may become public can act 
as a deterrent to program participation by some potential DBEs. For 
this reason, we are amending the confidentiality section of the 
regulation to parallel the existing, tighter confidentiality provision 
of Sec. 26.67 concerning personal net worth information. Under the 
proposed provision, recipients would not be authorized to release 
confidential business information in any circumstance without the 
submitter's written consent.
6. Economic Disadvantage
    In appendix E to part 26, ``Individual Determinations of Social and 
Economic Disadvantage'', we are proposing to remove paragraph (B)(2) 
under ``Economic Disadvantage''. This paragraph requires that in the 
case of applications by individuals to be considered socially and 
economically disadvantaged, the applicant submit personal financial 
information for his or her spouse. This is inconsistent with the way 
the Department's personal net worth provisions under Sec. 26.67 work in 
the case of applicants who are members of a group presumed to be 
economically and socially disadvantaged. In order to remove this 
inconsistency, we are deleting the paragraph in question.
7. Credit for Trucking Firms
    In the final rule, after reviewing comments and the contrasting 
practices of a number of recipients, the Department decided to count 
credit for the participation of DBE trucking companies only with 
respect to trucks that DBEs themselves owned and operated. This was 
intended to prevent a situation in which, for example, a DBE trucking 
company owned only one truck or a few trucks and leased the services of 
a larger number of non-DBE truckers, claiming credit for them as well. 
The Department believed that this practice was contrary to the general 
principle that DBE credit should be counted only for work that DBEs 
themselves perform.
    Since we issued the rule, a number of people have said to us that 
this provision works an unnecessary hardship on DBE trucking companies 
and is difficult for recipients to administer. Some have suggested, as 
a middle ground, allowing credit for twice the number of trucks 
actually owned by the DBE (i.e., if a DBE owned one truck, and leased 
another from a non-DBEs, it could get credit for both). The Department 
seeks comment on whether this provision should be modified and, if so, 
how.

Regulatory Analyses and Notices

Executive Order 12866 and DOT Regulatory Policies and Provisions

    This proposed rule is not a significant regulation under either 
Executive Order 12866 and DOT Regulatory Policies and Provisions. The 
proposal will not impose any new costs on recipients or contractors. It 
simply would make administrative adjustments concerning existing 
provisions and assist contractors by implementing the SBA-DOT MOU.

Regulatory Flexibility Act Analysis

    The Department certifies that this proposed rule, if made final, 
would not have significant economic effects on a substantial number of 
small entities. While the proposal affects small entities, it does not 
have a significant economic impact on anyone.

Paperwork Reduction Act

    This proposed rule also contains information collection 
requirements. As required by the Paperwork Reduction Act of 1995 (the 
PRA, 44 U.S.C. 3507(d)), the Department will submit these requirements 
to the Office of Information And Regulatory Affairs of the Office of 
Management and Budget for review.
    As noted elsewhere in this preamble, the Department adopted the 
suggestion of having one standard reporting form in the February 2, 
1999, final DBE rule. The proposed Uniform Semi-Annual Report of DBE 
Awards or Commitments and Achievements form is contained in Appendix B 
of this NPRM. At the present time, the Department has an information 
collection item approved under the Paperwork Reduction Act. This is for 
a quarterly DBE data report from recipients to DOT (OMB No. 2105-0510). 
This approval expires July 31, 2001. Under the NPRM, the frequency of 
reporting would change from four times a year to twice a year, which 
would reduce the burden involved.
    The February 2, 1999, final DBE rule also adopted a single, 
uniform, nationwide certification application form. Part 26 requires 
firms applying for DBE certification to provide information to 
recipients to allow them to make eligibility decisions. Currently, an 
applicant firm may be required to fill out different applications for 
FAA, FHWA and FTA recipients. The Department believes that requiring 
one uniform application will reduce the paperwork burden. The proposed 
Uniform Certification Application form

[[Page 23213]]

is contained in appendix F of this NPRM.
    Individuals and organizations may submit comments on the 
information collection elements of this NPRM by September 5, 2001 and 
should direct them to the DOT docket specified at the beginning of the 
NPRM. According to OMB's regulations implementing the PRA (5 CFR 
1320.8(b)(2)(vi)), an agency may not conduct or sponsor, and a person 
need not respond to, a collection of information unless it displays a 
currently valid OMB control number. The OMB control number for this 
information will be published in the Federal Register after it is 
approved by OMB.

Federalism

    The Department has determined that this proposed rule, if made 
final, would not have Federalism impacts sufficient to warrant 
preparation of a Federalism assessment.

List of Subjects in 49 CFR Part 26

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

    Issued this 26th day of April, 2001, at Washington, DC.
Norman Y. Mineta,
Secretary of Transportation.
    For the reasons set forth in the preamble, the Department proposes 
to amend 49 CFR part 26 as follows:

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

    1. The authority citation for 49 CFR part 26 continues to read as 
follows:

    Authority: 23 U.S.C. 324; 41 U.S.C. 2000d, et seq.; 49 U.S.C. 
1615, 47107, 47113, 47123; Pub. L. 105-178, sec. 1101(b), 112 Stat. 
107, 113.

    2. Amend Sec. 26.5 by adding a definition of ``DOT/SBA MOU 
Memorandum of Understanding or MOU'' after ``DOT-assisted contract'' 
and by adding a definition of ``SBA certified firm'' after ``Small 
Business Administration'' to read as follows:


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

* * * * *
    DOT/SBA Memorandum of Understanding or MOU, refers to the agreement 
signed on November 23, 1999, between the Department of Transportation 
(DOT) and the Small Business Administration (SBA) streamlining 
certification procedures for participation in SBA's 8(a) Business 
Development (8(a) BD) and Small Disadvantaged Business (SDB) programs, 
and DOT's Disadvantaged Business Enterprise (DBE) program for small and 
disadvantaged businesses.
* * * * *
    SBA certified firm refers to firms that have a current, valid 
certification from or recognized by the SBA under the 8(a) BD or SDB 
programs.
* * * * *
    3. Amend Sec. 26.11 by adding paragraph (a) to read as follows:


Sec. 26.11  What records to recipients keep and report?

    (a) You must use the reporting form provided in Appendix B to this 
part without change or revision.
* * * * *
    4. Revise Sec. 26.29 to read as follows:


Sec. 26.29  What prompt payment mechanisms must recipients have?

    (a) You must establish, as part of your DBE program, a contract 
clause to require prime contractors to pay subcontractors for 
satisfactory performance of their contracts no later than thirty days 
from receipt of each payment you make to the prime contractor.
    (b) You must ensure prompt and full payment of retainage from the 
prime contractor to the subcontractor within thirty days after the 
subcontractor's work is satisfactorily completed. You must use one of 
the following methods to comply with this requirement:
    (1) You may decline to hold retainage from prime contractors and 
prohibit prime contractors from holding retainage from subcontractors.
    (2) You may decline to hold retainage from prime contractors and 
require a contract clause obligating prime contractors to make prompt 
and full payment of any retainage kept by prime contractor to the 
subcontractor within a specific number of days after the 
subcontractor's work is satisfactorily completed.
    (3) You may hold retainage from prime contractors and provide for 
prompt and regular incremental acceptances of portions of the prime 
contract, pay retainage to prime contractors based on these 
acceptances, and require a contract clause obligating the prime 
contractor to pay all retainage owed to the subcontractor for 
satisfactory completion of the accepted work within a specific number 
of days after your payment to the prime contractor.
    (c) For purposes of this section, a subcontractor's work is 
satisfactorily completed when all the tasks called for in the 
subcontract have been accomplished and documented as required by the 
recipient. When a recipient has made an incremental acceptance of a 
portion of a prime contract, the work of a subcontractor covered by 
that acceptance is deemed to be satisfactorily completed.
    (d) Your DBE program must provide appropriate means to enforce the 
requirements of this section. These means may include appropriate 
penalties for failure to comply, the terms and conditions of which you 
set. Your program may also provide that any delay or postponement of 
payment among the parties may take place only for good cause, with your 
prior written approval.
    (e) You may also establish, as part of your DBE program, any of the 
following additional mechanisms to ensure prompt payment:
    (1) A contract clause that requires prime contractors to include in 
their subcontracts language providing that prime contractors and 
subcontractors will use appropriate alternative dispute resolution 
mechanisms to resolve payment disputes. You may specify the nature of 
such mechanisms.
    (2) A contract clause providing that the prime contractor will not 
be reimbursed for work performed by subcontractors unless and until the 
prime contractor ensures that the subcontractors are promptly paid for 
the work they have performed.
    (3) Other mechanisms, consistent with this part and applicable 
state and local law, to ensure that DBEs and other contractors are 
fully and promptly paid.
    5. Revise Sec. 26.61 (c) to read as follows:


Sec. 26.61  How are burdens of proof allocated in the certification 
process?

* * * * *
    (c) You must rebuttably presume that members of the designated 
groups identified in Sec. 26.67(a) are socially and economically 
disadvantaged. This means they do not have the burden of proving to you 
that they are socially and economically disadvantaged. In order to 
obtain the benefit of the rebuttable presumption, individuals must 
submit a signed, notarized statement that they are a member of one of 
the groups in Sec. 26.67(a). Applicants do have the obligation to 
provide you information concerning their economic disadvantage (see 
Sec. 26.67).
* * * * *
    6. Revise Sec. 26.63(a) to read as follows:

[[Page 23214]]

Sec. 26.63  What rules govern group membership determinations?

    (a)(1) If, after reviewing the signed notarized statement of 
membership in a presumptively disadvantaged group (see Sec. 26.61(c)), 
you have a well founded reason to question the individual's claim of 
membership in that group, you must require the individual to present 
additional evidence that he or she is a member of the group.
    (2) You must provide the individual a written explanation of your 
reasons for questioning his or her group membership and a written 
request for additional evidence as outlined in paragraph (b) of this 
section.
    (3) In implementing this section, you must take special care to 
ensure that you do not impose a disproportionate burden on members of 
any particular designated group. Imposing a disproportionate burden on 
members of a particular group could violate Sec. 26.7(b) of this part 
and/or Title VI of the Civil Rights Act of 1964 and 49 CFR part 21.
* * * * *
    7. Amend Sec. 26.67 as follows:
    a. Revise paragraph (a)(2);
    b. Remove and reserve paragraph (c), the revision reads as follows:


Sec. 26.67  What rules determine social and economic disadvantage?

    (a) * * *
    (1) * * *
    (2)(i) You must require each individual owner of a firm applying to 
participate as a DBE (except a firm applying to participate as a DBE 
airport concessionaire) whose ownership and control are relied upon for 
DBE certification to certify that he or she has a personal net worth 
that does not exceed $750,000.
    (ii) You must require each individual who makes this certification 
to support it with the individual's choice of either of the following:
    (A) A signed, notarized statement of personal net worth, with 
appropriate supporting documentation. This statement and documentation 
must not be unduly lengthy, burdensome, or intrusive; or
    (B) A signed, notarized statement from a certified public 
accountant (CPA) attesting that the CPA has examined the individual's 
personal net worth and determined, consistent with the provisions of 
this section and generally accepted accounting standards, that the 
individual's personal net worth does not exceed $750,000.
    (iii) In determining an individual's net worth, you or the 
individual's CPA must observe the following requirements:
    (A) Exclude an individual's ownership interest in the applicant 
firm;
    (B) Exclude the individual's equity in his or her primary residence 
(except any portion of such equity that is attributable to excessive 
withdrawals from the applicant firm).
    (C) For an Alaska Native, include assets and income from sources 
other than an Alaska Native Corporation but exclude any of the 
following that the individual receives from any Alaska Native 
Corporation: Cash (including cash dividends on stock received from an 
ANC) to the extent that it does not, in the aggregate, exceed $2,000 
per individual per annum; stock (including stock issued or distributed 
by an ANC as a dividend or distribution on stock); a partnership 
interest; land or an interest in land (including land or an interest in 
land received from an ANC as a dividend or distribution on stock); and 
an interest in a settlement trust.
    (D) Do not use a contingent liability to reduce an individual's net 
worth.
    (E) With respect to assets held in vested pension plans, Individual 
Retirement Accounts, 401(k) accounts, or other retirement savings or 
investment programs in which the assets cannot be distributed to the 
individual at the present time without significant adverse tax or 
interest consequences, include only the present value of such assets, 
less the tax and interest penalties that would accrue if the asset were 
distributed at the present time.
    (iv) Notwithstanding any provision of Federal or state law, you 
must not release an individual's personal net worth statement nor any 
documentation supporting it to any third party without the written 
consent of the submitter. Provided, that you must transmit this 
information to DOT in any certification appeal proceeding under 
Sec. 26.89 in which the disadvantaged status of the individual is in 
question.
* * * * *
    8. Amend Sec. 26.83 by revising paragraph (c)(7)(i) to read as 
follows:


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

* * * * *
    (c) * * *
    (7) Require potential DBEs to complete and submit an appropriate 
application form, unless the potential DBE is an SBA certified firm 
applying pursuant to the DOT/SBA MOU.
    (i) You must use the application form provided in Appendix F to 
this part without change or revision. However, you may provide in your 
DBE program, with the approval of the concerned operating 
administration, for supplementing the form by requesting additional 
information not inconsistent with this part.
* * * * *
    9. Add a new Sec. 26.84 to read as follows:


Sec. 26.84  How do recipients process applications submitted pursuant 
to the DOT/SBA MOU?

    (a) When an SBA-certified firm applies for certification pursuant 
to the DOT/SBA MOU, you must accept the certification applications, 
forms and packages submitted by a firm to the SBA for either the 8(a) 
BD or SDB programs, in lieu of requiring the applicant firm to complete 
your own application forms and packages. The applicant may submit the 
package directly, or may request that the SBA forward the package to 
you. Pursuant to the MOU, the SBA will forward the package within 
thirty days.
    (b) If necessary, you may request additional relevant information 
from the SBA. The SBA will provide this additional material within 
forty-five days of your written request.
    (c) Before certifying a firm based on its 8(a) BD or SDB 
certification, you must conduct an on-site review of the firm (see 
Sec. 26.83(c)(1)). If the SBA conducted an on-site review, you may rely 
on the SBA's report of the on-site review. In connection with this 
review, you may also request additional relevant information from the 
firm.
    (d) Unless you determine, based on the on-site review and 
information obtained in connection with it, that the firm does not meet 
the eligibility requirements of subpart D of this part, you must 
certify the firm.
    (e) You are not required to process an application for 
certification from an SBA-certified firm having its principal place of 
business outside the state(s) in which you operate unless there is a 
report of a ``home state'' on-site review on which you may rely.
    (f) You are not required to process an application for 
certification from an SBA-certified firm if the firm does not provide 
products or services that you use in your DOT-assisted programs or 
airport concessions.
    10. Redesignate Sec. 26.85 as Sec. 26.86. In newly redesignated 
Sec. 26.86, redesignate paragraphs (b) and (c) as paragraphs (c) and 
(d), respectively, and add a new paragraph (b) to read as follows:


Sec. 26.86  What rules govern recipients' denials of initial requests 
for certification?

* * * * *
    (b) When you deny DBE certification to a firm certified by the SBA, 
you must notify the SBA in writing. The

[[Page 23215]]

notification must include the reason for denial.
* * * * *
    11. Add a new Sec. 26.85 to read as follows:


Sec. 26.85  How do recipients respond to requests from DBE-certified 
firms or the SBA made pursuant to the DOT/SBA MOU?

    (a) Upon receipt of a signed, written request from a DBE-certified 
firm, you must transfer to the SBA a copy of the firm's application 
package. You must transfer this information within thirty days of 
receipt of the request.
    (b) If necessary, the SBA may make a written request to the 
recipient for additional materials (e.g., the report of the on-site 
review). You must provide a copy of this material to the SBA within 
forty-five days of the additional request.
    (c) You must provide appropriate assistance to SBA-certified firms, 
including providing information pertaining to the DBE application 
process, filing locations, required documentation and status of 
applications.
    12. Amend Sec. 26.87 by redesignating paragraphs (h) through (j) as 
paragraphs (i) through (k) and by adding a new paragraph (h) to read as 
follows:


Sec. 26.87  What procedure does a recipient use to remove a DBE's 
eligibility?

* * * * *
    (h) When you decertify a DBE firm certified by the SBA, you must 
notify the SBA in writing. The notification must include the reason for 
denial.
* * * * *
    13. Amend Sec. 26.89 by revising paragraphs (a)(1) and (f)(7) to 
read as follows:


Sec. 26.89  What is the process for certification appeals to the 
Department of Transportation?

    (a)(1) If you are a firm that is denied certification or whose 
eligibility is removed by a recipient, including SBA-certified firms 
applying pursuant to the DOT/SBA MOU, you may make an administrative 
appeal to the Department.
* * * * *
    (f) * * *
    (7) The Department provides written notice of its decision to you, 
the firm, and the complainant in an ineligibility complaint. A copy of 
the notice is also sent to any other recipient whose administrative 
record or decision has been involved in the proceeding (see paragraph 
(d) of this section). The Department will also notify the SBA in 
writing when DOT takes an action on an appeal that results in or 
confirms a loss of eligibility to any SBA-certified firm. The notice 
includes the reasons for the Department's decision, including specific 
references to the evidence in the record that supports each reason for 
the decision.
* * * * *
    14. In Sec. 26.109, revise paragraph (a)(2) to read as follows:


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

    (a) * * *
    (1) * * *
    (2) Notwithstanding any provision of Federal or state law, you must 
not release information that may be reasonably be construed as 
confidential business information to any third party without the 
written consent of the firm that submitted the information. This 
includes applications for DBE certification and supporting 
documentation. However, you must transmit this information to DOT in 
any certification appeal proceeding under Sec. 26.89 in which the 
disadvantaged status of the individual is in question.
* * * * *
    15. Add Appendix B to part 26 to read as follows:
BILLING CODE 4910-62-P

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Appendix B to Part 26--Uniform Reporting Requirements Form
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    16. In Appendix E, under Economic Disadvantage, remove and reserve 
section (B)(2).
    17. Add a new Appendix F to read as follows:

Appendix F to Part 26--Uniform Certification Application Form
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[FR Doc. 01-11317 Filed 5-7-01; 8:45 am]
BILLING CODE 4910-62-C