Federal Register / Vol. 76, No. 19 / Friday, January 28, 2011 / Rules and Regulations 5083 

State and location Community 

No. 

Effective date authorization/cancellation of 

sale of flood insurance in community 

Current effective 

map Date 

Date certain 

federal 

assistance 

no longer 

available 

in SFHAs 

Taft, Town of, Muskogee County .......... 400128 June 26, 1976, Emerg; August 25, 1987, 

Reg; February 4, 2011, Susp.

......do* .............. Do. 

Wainwright, Town of, Muskogee County 400129 March 9, 1976, Emerg; August 8, 1978, 

Reg; February 4, 2011, Susp.

......do* .............. Do. 

Warner, Town of, Muskogee County .... 400130 December 29, 1976, Emerg; May 25, 1978, 

Reg; February 4, 2011, Susp.

......do* .............. Do. 

Webbers Falls, Town of, Muskogee 

County.

400131 November 28, 1975, Emerg; May 1, 1980, 

Reg; February 4, 2011, Susp.

......do* .............. Do. 

Texas: 

Bandera County, Unincorporated Areas 480020 January 21, 1974, Emerg; November 1, 

1978, Reg; February 4, 2011, Susp.

......do* .............. Do. 

Benavides, City of, Duval County ......... 480792 July 24, 1975, Emerg; March 4, 1986, Reg; 

February 4, 2011, Susp.

......do* .............. Do. 

Colorado County, WCID Number 2 ....... 481489 October 28, 1977, Emerg; June 1, 1988, 

Reg; February 4, 2011, Susp.

......do* .............. Do. 

Colorado County, Unincorporated Areas 480144 February 29, 1980, Emerg; September 19, 

1990, Reg; February 4, 2011, Susp.

......do* .............. Do. 

Columbus, City of, Colorado County ..... 480145 February 19, 1975, Emerg; June 19, 1985, 

Reg; February 4, 2011, Susp.

......do* .............. Do. 

Duval County, Unincorporated Areas .... 480202 July 24, 1975, Emerg; May 1, 1987, Reg; 

February 4, 2011, Susp.

......do* .............. Do. 

Eagle Lake, City of, Colorado County ... 480146 July 30, 1975, Emerg; April 1, 1987, Reg; 

February 4, 2011, Susp.

......do* .............. Do. 

Lamesa, City of, Dawson County .......... 480191 February 25, 1972, Emerg; April 30, 1976, 

Reg; February 4, 2011, Susp.

......do* .............. Do. 

San Diego, City of, Duval and Jim 

Wells Counties.

481199 December 26, 1975, Emerg; March 1, 

1987, Reg; February 4, 2011, Susp.

......do* .............. Do. 

*-do- = Ditto. 

Code for reading third column: Emerg.—Emergency; Reg.—Regular; Susp.—Suspension. 

Dated: January 19, 2011. 

Sandra K. Knight, 

Deputy Federal Insurance and Mitigation 

Administrator, Mitigation. 

[FR Doc. 2011–1930 Filed 1–27–11; 8:45 am] 

BILLING CODE 9110–12–P 

DEPARTMENT OF TRANSPORTATION 

Office of the Secretary 

49 CFR Part 26 

[Docket No. OST–2010–0118] 

RIN 2105–AD75 

Disadvantaged Business Enterprise: 

Program Improvements 

AGENCY: Office of the Secretary (OST), 

DOT. 

ACTION: Final rule. 

SUMMARY: This rule improves the 

administration of the Disadvantaged 

Business Enterprise (DBE) program by 

increasing accountability for recipients 

with respect to meeting overall goals, 

modifying and updating certification 

requirements, adjusting the personal net 

worth (PNW) threshold for inflation, 

providing for expedited interstate 

certification, adding provisions to foster 

small business participation, improving 

post-award oversight, and addressing 

other issues. 

DATES: Effective Dates: This rule is 

effective February 28, 2011. 

FOR FURTHER INFORMATION CONTACT: 

Robert C. Ashby, Deputy Assistant 

General Counsel for Regulation and 

Enforcement, U.S. Department of 

Transportation, 1200 New Jersey 

Avenue, SE., Washington, DC 20590, 

Room W94–302, 202–366–9310, 

bob.ashby@dot.gov. 

SUPPLEMENTARY INFORMATION: The 

Department of Transportation issued an 

advance notice of proposed rulemaking 

(ANPRM) concerning several DBE 

program issues on April 8, 2009 (74 FR 

15904). The first issue raised in the 

ANPRM concerned counting of items 

obtained by a DBE subcontractor from 

its prime contractor. The second 

concerned ways of encouraging the 

‘‘unbundling’’ of contracts to facilitate 

participation by small businesses, 

including DBEs. The third was a request 

for comments on potential 

improvements to the DBE application 

form and personal net worth (PNW) 

form. The fourth asked for suggestions 

related to program oversight. The fifth 

concerned potential regulatory action to 

facilitate certification for firms seeking 

to work as DBEs in more than one state. 

The sixth concerned additional 

limitations on the discretion of prime 

contractors to terminate DBEs for 

convenience, once the prime contractor 

had committed to using the DBE as part 

of its showing of good faith efforts. The 

Department received approximately 30 

comment letters regarding these issues. 

On May 10, 2010, the Department 

issued a notice of proposed rulemaking 

(NPRM) seeking further comment on 

proposals based on the ANPRM and 

proposing new provisions (75 FR 

25815). The NPRM proposed an 

inflationary adjustment of the PNW cap 

to $1.31 million, the figure that would 

result from proposed Federal Aviation 

Administration (FAA) reauthorization 

legislation then pending in both Houses 

of Congress. The Department proposed 

additional measures to hold recipients 

accountable for their performance in 

achieving DBE overall goals. 

The NPRM also proposed 

amendments to the certification-related 

provisions of the DBE regulation. Those 

proposals resulted from the 

Department’s experience dealing with 

certification issues and certification 

appeal cases during the years since the 

last major revision of the DBE rule in 

1999. The proposed amendments were 

intended to clarify issues that have 

arisen and avoid problems with which 

WReier-Aviles on DSKGBLS3C1PROD with RULES

5084 Federal Register / Vol. 76, No. 19 / Friday, January 28, 2011 / Rules and Regulations 

recipients (i.e., state highway agencies, 

transit authorities, and airport sponsors 

who receive DOT grant financial 

assistance) and the Department have 

had to grapple over the last 11 years. 

The Department received 

approximately 160 comments on the 

NPRM from a variety of interested 

parties, including DBE and non-DBE 

firms, associations representing them, 

and recipients of DOT financial 

assistance. A summary of comments on 

the major issues in the rulemaking, and 

the Department’s responses to those 

comments, follows. 

Counting Purchases From Prime 

Contractors 

Under current counting rules, a DBE 

subcontractor and its prime contractor 

may count for DBE credit the entire cost 

of a construction contract, including 

items that the DBE subcontractor 

purchases or leases from a third party 

(e.g., in a so-called ‘‘furnish and install’’ 

contract). There is an exception to this 

general rule: A DBE and its prime 

contractor may not count toward goals 

items that the DBE purchases or leases 

from its own prime contractor. The 

reason for this provision is that doing so 

would allow the prime contractor to 

count for DBE credit items that it 

produced itself. 

As noted in the ANPRM, one DBE 

subcontractor and a number of prime 

contractors objected to this approach, 

saying that it unfairly denies a DBE in 

this situation the opportunity to count 

credit for items it has obtained from its 

prime contractor rather than from other 

sources. Especially in situations in 

which a commodity might only be 

available from a single source—a prime 

contractor or its affiliate—the rule 

would create a hardship, according to 

proponents of this view. The ANPRM 

proposed four options (1) keeping the 

rule as is; (2) keeping the basic rule as 

is, but allowing recipients to make 

exceptions in some cases; (3) allowing 

DBEs to count items purchased from 

any third party source, including the 

DBE’s prime contractor; and (4) not 

allowing any items obtained from any 

non-DBE third party to be counted for 

DBE credit. Comment was divided 

among the four alternatives, which each 

garnering some support. For purposes of 

the NPRM, the Department decided not 

to propose any change from the current 

rule. 

Comment on the issue was again 

divided. Seven commenters favored 

allowing items obtained from any 

source to be counted for credit, 

including the firm that was the original 

proponent of the idea and another DBE, 

two prime contractors’ associations, a 

prime contractor, and two State 

Departments of Transportation (DOTs). 

These commenters generally made the 

same arguments as had proponents of 

this view at the ANPRM stage. Thirteen 

commenters, among which were several 

recipients, a DBE contractors’ 

association, and DBE contractors, 

favored the NPRM’s proposed approach 

of not making any change to the existing 

rule, and they endorsed the NPRM’s 

rationale. Sixteen commenters, 

including a recipient association and a 

number of DBE companies, supported 

disallowing credit for any items 

purchased or leased from a non-DBE 

source. They believed that this approach 

supported the general principle of 

awarding DBE credit only for 

contributions that DBEs themselves 

make on a contract. 

DOT Response 

The Department remains unconvinced 

that it is appropriate for a prime 

contractor to produce an item (e.g., 

asphalt), provide it to its own DBE 

subcontractor, and then count the value 

of the item toward its good faith efforts 

to meet DBE goals. The item—asphalt, 

in this example—is a contribution to the 

project made by the prime contractor 

itself and simply passed through the 

DBE. That is, the prime contractor, on 

paper, sells the item to the DBE, who 

then charges the cost of the item it just 

bought from the prime contractor as part 

of its subcontract price, which the prime 

then reports as DBE participation. In the 

Department’s view, this pass-through 

relationship is inconsistent with the 

most important principle of counting 

DBE participation, which is that credit 

should only be counted for value that is 

added to the transaction by the DBE 

itself. 

As mentioned in the ANPRM and 

NPRM, the current rule treats counting 

of items purchased by DBEs from nonDBE sources differently, depending on 

whether the items are obtained from the 

DBE’s prime contractor or from a thirdparty source. The Department’s current 

approach is a reasonable compromise 

between the commonly accepted 

practice of obtaining items from nonDBE sources as part of the contracting 

process and maintaining the principle of 

counting only the DBE’s own 

contributions for credit toward goals, 

which is most seriously violated when 

the prime contractor itself is the source 

of the items. This compromise respects 

the dual, somewhat divergent, goals of 

accommodating a common way of doing 

business and avoiding a too-close 

relationship between a prime contractor 

and a DBE subcontractor that distorts 

the counting of credit toward DBE goals. 

This compromise has been part of the 

regulation since 1999 and, with the 

exception of the proponent of changing 

the regulation and its prime contractor 

partners, has never been raised by 

program participants as a widespread 

problem requiring regulatory change. 

For these reasons, the Department will 

leave the existing regulatory language 

intact. 

Terminations of DBE Firms 

The NPRM proposed that a prime 

contractor who, in the course of meeting 

its good faith efforts requirements on a 

procurement involving a contract goal, 

had submitted the names of one or more 

DBEs to work on the project, could not 

terminate a DBE firm without the 

written consent of the recipient. The 

firm could be terminated only for good 

cause. The NPRM proposed a list of 

what constituted good cause for this 

purpose. 

Over 40 comments addressed this 

subject, a significant majority of which 

supported the proposal. Two recipients 

said the proposal was unnecessary and 

a third expressed concern about 

workload implications. Several 

recipients said that they already 

followed this practice. 

However, commenters made a variety 

of suggestions with respect to the details 

of the proposal. A DBE firm questioned 

a good cause element that would allow 

a firm to be terminated for not meeting 

reasonable bonding requirements, 

noting that lack of access to bonding is 

a serious problem for many DBEs. A 

DBE contractors’ association said that a 

DBE’s action to halt performance should 

not necessarily be a ground for 

termination, because in some cases such 

an action could be a justified response 

to an action beyond its control (e.g., the 

prime failing to make timely payments). 

A DBE requested clarification of what 

being ‘‘not responsible’’ meant in this 

context. A number of commenters, 

including recipients and DBEs, 

suggested that a prime could terminate 

a DBE only if the DBE ‘‘unreasonably’’ 

failed to perform or follow instructions 

from the prime. 

A prime contractors’ association 

suggested additional grounds for good 

cause to terminate, including not 

performing to schedule or not 

performing a commercially useful 

function. Another such association said 

the rule should be consistent with 

normal business practices and not 

impede a prime contractor’s ability to 

remove a poorly performing 

subcontractor for good cause. A 

recipient wanted a public safety 

exception to the time frame for a DBE’s 

reply to a prime contractor’s notice 

WReier-Aviles on DSKGBLS3C1PROD with RULES

Federal Register / Vol. 76, No. 19 / Friday, January 28, 2011 / Rules and Regulations 5085 

proposing termination, and another 

recipient wanted to shorten that period 

from five to two days. A State unified 

certification program (UCP) suggested 

adopting its State’s list of good cause 

reasons, and a consultant suggested that 

contracting officers, not just the DBE 

Liaison Officer (DBELO), should be 

involved in the decision about whether 

to concur in a prime contractor’s desire 

to terminate a DBE. A recipient wanted 

to add language concerning the prime 

contractor’s obligation to make good 

faith efforts to replace a terminated DBE 

with another DBE. 

DOT Response 

The Department, like the majority of 

commenters on this issue, believes that 

the proposed amendment will help to 

prevent situations in which a DBE 

subcontractor, to which a prime 

contractor has committed work, is 

arbitrarily dismissed from the project by 

the prime contractor. Comments to the 

docket and in the earlier stakeholder 

sessions have underlined that this has 

been a persistent problem. By specifying 

that a DBE can be terminated only for 

good cause—not simply for the 

convenience of the prime contractor— 

and with the written consent of the 

recipient, this amendment should help 

to end this abuse. 

With respect to the kinds of situations 

in which ‘‘good cause’’ for termination 

can exist, the Department has modified 

the language of the rule to say that good 

cause includes a situation where the 

DBE subcontractor has failed or refused 

to perform the work of its subcontract in 

accordance with normal industry 

standards. We note that industry 

standards may vary among projects, and 

could be higher for some projects than 

others, a matter the recipient could take 

into account in determining whether to 

consent to a prime contractor’s proposal 

to terminate a DBE firm. However, good 

cause does not exist if the failure or 

refusal of the DBE subcontractor to 

perform its work on the subcontract 

results from the bad faith or 

discriminatory action of the prime 

contractor (e.g., the failure of the prime 

contractor to make timely payments or 

the unnecessary placing of obstacles in 

the path of the DBE’s work). 

Good cause also does not exist if the 

prime contractor seeks to terminate a 

DBE it relied upon to obtain the contract 

so that it can self-perform the work in 

question or substitute another DBE or 

non-DBE firm. This approach responds 

to commenters who were concerned 

about prime contractors imposing 

unreasonable demands on DBE 

subcontractors while offering recipients 

a more definite standard than simple 

reasonableness in deciding whether to 

approve a prime contractor’s proposal to 

terminate a DBE firm. We have also 

adopted a recipient’s suggestion to 

permit the time frame for the process to 

be shortened in a case where public 

necessity (e.g., safety) requires a shorter 

period of time before the recipient’s 

decision. 

In addition to the enumerated 

grounds, a recipient may permit a prime 

contractor to terminate a DBE for ‘‘other 

documented good cause that the 

recipient determines compels the 

termination of the DBE subcontractor.’’ 

This means that the recipient must 

document the basis for any such 

determination, and the prime 

contractor’s reasons for terminating the 

DBE subcontractor make the termination 

essential, not merely discretionary or 

advantageous. While the recipient need 

not obtain DOT operating 

administration concurrence for such a 

decision, FHWA, FTA, and FAA retain 

the right to oversee such determinations 

by recipients. 

Personal Net Worth 

The NPRM proposed to make an 

inflationary adjustment in the personal 

net worth (PMW) cap from its present 

$750,000 to $1.31 million, based on the 

consumer price index (CPI) and relating 

back to 1989, as proposed in FAA 

authorization bills pending in Congress. 

The NPRM noted that such an 

adjustment had long been sought by 

DBE groups and that it maintained the 

status quo in real dollar terms. The 

Department also asked for comment on 

the issue of whether assets counted 

toward the PNW calculation should 

continue to include retirement savings 

products. The rule currently does 

include them, but the pending FAA 

legislation would move in the direction 

of excluding them from the calculation. 

Of the 95 commenters who addressed 

the basic issue of whether the 

Department should make the proposed 

inflationary adjustment, 71— 

representing all categories of 

commenters—favored doing so. Many 

said that such an adjustment was long 

overdue and that it would mitigate the 

problem of a ‘‘glass ceiling’’ limiting the 

growth and development of DBE firms. 

A few commenters said that such 

adjustments should be done regionally 

or locally rather than nationally, to 

reflect economic differences among 

areas of the country. A number of the 

commenters wanted to make sure the 

Department made similar adjustments 

annually in the future. A member of 

Congress suggested that the PNW 

should be increased to $2.5 million, 

while a few recipients favored a smaller 

increase (e.g., to $1 million). A few 

commenters also suggested that the 

Department explore some method of 

adjusting PNW other than the CPI, but 

they generally did not spell out what the 

alternative approaches might be. 

The opponents of making the 

adjustment, mostly recipients and DBEs, 

made several arguments. The first was 

that $1.31 million was too high and 

would include businesses owners who 

were not truly disadvantaged. The 

second was that raising the PNW 

number would favor larger, established, 

richer DBEs at the expense of smaller, 

start-up firms. These larger companies 

could then stay in the program longer, 

to the detriment of the program’s aims. 

Some commenters said that the 

experience in their states was that very 

few firms were becoming ineligible for 

PNW reasons, suggesting that a change 

in the current standard was 

unnecessary. 

With respect to the issue of retirement 

assets, about 28 comments, primarily 

from DBE groups and recipients, favored 

excluding some retirement assets from 

the PNW calculation, often asserting 

that this was appropriate because such 

funds are illiquid and not readily 

available to contribute toward the 

owners’ businesses. Following this 

logic, some of the comments said that 

Federally-regulated illiquid retirement 

plans (e.g., 401k, Roth IRA, Keough, and 

Deferred Compensation plans, as well as 

529 college savings plans) be excluded 

while other assets that are more liquid 

(CDs, savings accounts) be counted, 

even if said to be for retirement 

purposes. A number of these 

commenters said that a monetary cap on 

the amount that could be excluded (e.g., 

$500,000) would be acceptable. 

The 17 comments opposing excluding 

retirement accounts from the PNW 

calculation generally supported the 

rationale of the existing regulation, 

which is that assets of this kind, even 

if illiquid, should be regarded as part of 

an individual’s wealth for PNW 

purposes. A few commenters also said 

that, since it is most likely wealthier 

DBE owners who have such retirement 

accounts, excluding them would help 

these more established DBEs at the 

expense of smaller DBEs who are less 

likely to be able to afford significant 

retirement savings products. Again, 

commenters said that this provision, by 

effectively raising the PNW cap, would 

inappropriately allow larger firms to 

stay in the program longer. Some of the 

commenters would accept exclusion of 

retirement accounts if an appropriate 

cap were put in place, however. 

Finally, several commenters asked for 

a revised and improved PNW form with 

WReier-Aviles on DSKGBLS3C1PROD with RULES

5086 Federal Register / Vol. 76, No. 19 / Friday, January 28, 2011 / Rules and Regulations 

additional guidance and instructions on 

how to make PNW calculations (e.g., 

with respect to determining the value of 

a house or business). 

DOT Response 

To understand the purpose and effect 

of the Department’s proposal to change 

the PNW threshold from the longstanding $750,000 figure, it is important 

to keep in mind what an inflationary 

adjustment does. (Because of the 

passage of time from the issuance of the 

NPRM to the present time, the amount 

of the inflationary adjustment has 

changed slightly, from $1.31 million to 

$1.32 million.) The final rule’s 

adjustment is based on the Department 

of Labor’s consumer price index (CPI) 

calculator. This calculator was used 

because, of various readily available 

means of indexing for inflation, CPI 

appears to be the one that is most nearly 

relevant to an individual’s personal 

wealth. Such an adjustment simply 

keeps things as they were originally in 

real dollar terms. 

That is, in 1989, $750,000 bought a 

certain amount of goods and services. In 

2010, given the effects of inflation over 

21 years, it would take $1.32 million in 

today’s dollars to buy the same amount 

of goods and services. The buying 

power of assets totaling $750,000 in 

1989 is the same as the buying power of 

assets totaling $1.32 million in 2010. 

Notwithstanding the fact that $1.32 

million, on its face, is a higher number 

than $750,000, the wealth of someone 

with $1.32 million in assets today is the 

same, in real dollar or buying power 

terms, as that of someone with $750,000 

in 1989. 

Put another way, if the Department 

did not adjust the $750,000 number for 

inflation, our inaction would have the 

effect of establishing a significantly 

lower PNW cap in real dollar terms. A 

PNW cap of $750,000 in 2010 dollars is 

equivalent to a PNW cap of 

approximately $425,700 in 1989 dollars. 

This means that a DBE applicant today 

would be allowed to have $325,000 less 

in real dollar assets than his or her 

counterpart in 1989. 

The Department believes, in light of 

this understanding of an inflationary 

adjustment, that making the proposed 

adjustment at this time is appropriate. 

This is a judgment that is shared by the 

majority of commenters and both 

Houses of Congress. We do not believe 

that any important policy interest is 

served by continuing to lower the real 

dollar PNW threshold, which we believe 

would have the effect of further limiting 

the pool of eligible DBE owners beyond 

what is intended by the Department in 

adopting the PNW standard. 

The Department is using 1989 as the 

base year for its inflationary adjustment 

for two reasons. First, doing so is 

consistent with what both the House 

and Senate determined was appropriate 

in the context of FAA authorization bills 

that both chambers passed. Second, 

while the Department adopted a PNW 

standard in 1999, the standard itself, 

which was adopted by the Small 

Business Administration (SBA) before 

1989, has never been adjusted for 

inflation at any time. By 1999, the real 

dollar value of the original $750,000 

standard had already been eroded by 

inflation, and the Department believes 

that it is reasonable to take into account 

the effect of inflation on the standard 

that occurred before as well as after the 

Department adopted it. 

We appreciate the concerns of 

commenters who opposed the proposed 

inflationary adjustment. Some of these 

commenters, it appears, may not have 

fully understood that an inflationary 

adjustment simply maintains the status 

quo in real dollar terms. The concern 

that making the adjustment would favor 

larger, established DBEs over smaller, 

start-up companies has some basis, and 

reflects the longstanding tension in the 

program between its role as an incubator 

for new firms and its purpose of 

allowing DBE firms to grow and develop 

to the point where they may be in a 

better position to compete for work 

outside the DBE program. Allowing 

persons with larger facial amounts of 

assets may seem to permit participation 

of people who are less disadvantaged 

than formerly in the program, but 

disadvantage in the DBE program has 

always properly been understood as 

relative disadvantage (i.e., relative to 

owners and businesses in the economy 

generally), not absolute deprivation. 

People who own successful businesses 

are more affluent, by and large, than 

many people who participate in the 

economy only as employees, but this 

does not negate the fact that socially 

disadvantaged persons who own 

businesses may well, because of the 

effects of discrimination, accumulate 

less wealth than their non-socially 

disadvantaged counterparts. 

Consequently, the concerns of 

opponents of this change are not 

sufficient to persuade us to avoid 

making the proposed inflationary 

adjustment. 

We do not believe that it is practical, 

in terms of program administration, to 

have standards that vary with recipient 

or region. We acknowledge that one size 

may not fit all to perfection, but the 

complexity of administering a national 

program with a key eligibility standard 

that varies, perhaps significantly, among 

jurisdictions would be, in our view, an 

even greater problem. Nor do we see a 

strong policy rationale for a change to 

some fixed figure (e.g., $1 million, $2.5 

million) that is not tied to inflation. We 

do agree, however, that an improved 

PNW form would be an asset to the 

program, and we will propose such a 

form for comment in the next stage 

NPRM on the DBE program, which we 

hope to issue in 2011. This NPRM may 

also continue to examine other PNW 

issues. 

Whenever there is a change in a rule 

of this sort, the issue of how to handle 

the transition between the former rule 

and the new rule inevitably arises. We 

provide the following guidance for 

recipients and firms applying for DBE 

certification. 

• For applications or decertification 

actions pending on the date this 

amendment is published, but before its 

effective date, recipients should make 

decisions based on the new standards, 

though these decisions should not take 

effect until the amendment’s effective 

date. 

• Beginning on the effective date of 

this amendment, all new certification 

decisions must be based on the revised 

PNW standard, even if the application 

was filed or a decertification action 

pertaining to PNW began before this 

date. 

• If a denial of an application or 

decertification occurred before the 

publication date of this amendment, 

because the owner’s PNW was above 

$750,000 but not above $1.32 million, 

and the matter is now being appealed 

within the recipient’s or unified 

certification program’s (UCP’s) process, 

then the recipient or UCP should 

resolve the appeal using the new 

standard. Recipients and UCPs may 

request updated information where 

relevant. In the case of an appeal 

pending before the Departmental Office 

of Civil Rights (DOCR) under section 

26.89, DOCR will take the same 

approach or remand the matter, as 

appropriate. 

• If a firm was decertified or its 

application denied within a year before 

the effective date of this amendment, 

because the owner’s PNW was above 

$750,000 but not above $1.32 million, 

the recipient or UCP should permit the 

firm to resubmit PNW information 

without any further waiting period, and 

the firm should be recertified if the 

owner’s PNW is not over $1.32 million 

and the firm is otherwise eligible. 

• We view any individual who has 

misrepresented his or her PNW 

information, whether before or after the 

inflationary adjustment takes effect, as 

having failed to cooperate with the DBE 

WReier-Aviles on DSKGBLS3C1PROD with RULES

Federal Register / Vol. 76, No. 19 / Friday, January 28, 2011 / Rules and Regulations 5087 

program, in violation of 49 CFR 

26.109(c). In addition to other remedies 

that may apply to such conduct, 

recipients should not certify a firm that 

has misrepresented this information. 

The Department is not ready, at this 

time, to make a decision on the issue of 

retirement assets. The comments 

suggested a number of detailed issues 

the Department should consider before 

proposing any specific provisions on 

this subject. We will further consider 

commenters’ thoughts on this issue at a 

future time. 

Interstate Certification 

In response to longstanding concerns 

of DBEs and their groups, the NPRM 

proposed a mechanism to make 

interstate certification easier. The 

proposed mechanism did not involve 

pure national reciprocity (i.e., in which 

each state would give full faith and 

credit to other states’ certification 

decisions, with the result that a 

certification by any state would be 

honored nationwide). Rather, it created 

a rebuttable presumption that a firm 

certified in its home state would be 

certified in other states. A firm certified 

in home state A could take its 

application materials to State B. Within 

30 days, State B would decide either to 

accept State A’s certification or object to 

it. If it did not object, the firm would be 

certified in State B. If State B did object, 

the firm would be entitled to a 

proceeding in which State B bore the 

burden of proof to demonstrate that the 

firm should not be certified in State B. 

The NPRM also proposed that the DOT 

Departmental Office of Civil Rights 

(DOCR) would create a database that 

would be populated with denials and 

decertifications, which the various State 

UCPs would check with respect to 

applicants and currently certified firms. 

This issue was one of the most 

frequently commented-upon subjects in 

the rulemaking. Over 30 comments, 

from a variety of sources including 

DBEs, DBE organizations, and a prime 

contractors’ association. Members of 

Congress and others supported the 

proposed approach. They emphasized 

that the necessity for repeated 

certification applications to various 

UCPs, and the very real possibility of 

inconsistent results on the same facts, 

were time-consuming, burdensome, and 

costly for DBEs. In a national program, 

they said, there should be national 

criteria, uniformity of forms and 

interpretations, and more consistent 

training of certification personnel. The 

proposed approach, they said, while not 

ideal, would be a useful step toward 

those goals. 

An approximately equal number of 

commenters, predominantly recipients 

but also including some DBEs and 

associations, opposed the proposal, 

preferring to keep the existing rules 

(under which recipients can, but are not 

required to, accept certifications made 

by other recipients) in place. Many of 

these commenters said that their 

certification programs frequently had to 

reject out-of-state firms that had been 

certified by their home states because 

the home states had not done a good job 

of vetting the qualifications of the firms 

for certification. They asserted that there 

was too much variation among states 

concerning applicable laws and 

regulations (e.g., with respect to 

business licensing or marital property 

laws), interpretations of the DBE rule, 

forms and procedures, and the training 

of certifying agency personnel for 

something like the NPRM proposal to 

work well. Before going to something 

like the NPRM proposal, some of these 

commenters said, DOT should do more 

to ensure uniform national training, 

interpretations, forms etc. 

Commenters opposed to the NPRM 

proposal were concerned that the 

integrity of the program would be 

compromised, as questionable firms 

certified by one state would slip into the 

directories of other states without 

adequate vetting. Moreover, the number 

of certification actions each state had to 

consider, and the number of certified 

firms that each state would have to 

manage, could increase significantly, 

straining already scarce resources. 

A smaller number of commenters 

addressed the idea of national 

reciprocity. Some of these commenters 

said that, at least for the future, national 

reciprocity was a valuable goal to work 

toward. Some of these commenters, 

including an association that performs 

certification reviews nationally for MBE 

and WBE suppliers (albeit without onsite reviews) and a Member of Congress, 

supported using such a model now. On 

the other hand, other commenters 

believed national reciprocity was an 

idea whose time had not come, for many 

of the same reasons stated by 

commenters opposed to the NPRM 

proposal. Some of the commenters on 

the NPRM proposal said that the 

proposal would result in de facto 

national reciprocity, which they 

believed was bad for the program. 

Two features of the NPRM proposal 

attracted considerable adverse 

comment. Thirty-one of the 34 

comments addressing the proposed 30- 

day window for ‘‘State B’’ to decide 

whether to object to a home state 

certification of a firm said that the 

proposed time was too short. These 

commenters, mostly recipients, 

suggested time frames ranging from 45– 

90 days. They said that the 30-day time 

frame would be very difficult to meet, 

given their resources, and would cause 

States to accept questionable 

certifications from other States simply 

because there was insufficient time to 

review the documentation they had 

been given. Moreover, the 30-day 

window would mean that out-of-state 

firms would jump to the front of the line 

for consideration over in-state firms, 

concerning which the rule allows 90 

days for certification. This would be 

unfair to in-state firms, they said. 

In addition, 22 of 28 commenters on 

the issue of the burden of proof for 

interstate certification—again, 

predominantly recipients—said that it 

was the out-of-state applicant firm, 

rather than State B, that should have the 

burden of proof once State B objected to 

a home state certification of the firm. 

These commenters also said that is was 

more sensible to put the out-of-state 

firm in the same position as any other 

applicant for certification by having to 

demonstrate to the certifying agency 

that it was eligible, rather than placing 

the certification agency in the position 

of the proponent in a decertification 

action for a firm that it had previously 

certified. Again, commenters said, the 

NPRM proposal would favor out-of-state 

over in-state applicants. 

A few comments suggested trying 

reciprocal certification on a regional 

basis (e.g., in the 10 Federal regions) 

before moving to a more national 

approach. Others suggested that only 

recent information (e.g., applications 

and on-site reports less than three years 

old) be acceptable for interstate 

certification purposes. Some states 

pointed to state laws requiring local 

licenses or registration before a firm 

could do business in the State: Some 

commenters favored limiting out-ofstate applications to those firms that had 

obtained the necessary permits, while 

one commenter suggested prohibiting 

States from imposing such requirements 

prior to DBE certification. Some 

comments suggested limiting the 

grounds on which State B could object 

to the home state certification of a firm 

(i.e., ‘‘good cause’’ rather than 

‘‘interpretive differences,’’ differences in 

state law, evidence of fraud in obtaining 

home state certification). 

There was a variety of other 

comments relevant to the issue of 

interstate certification. Most 

commenters who addressed the idea of 

the DOCR database supported it, though 

some said that denial/decertification 

data should be available only to 

certification agencies, not the general 

WReier-Aviles on DSKGBLS3C1PROD with RULES

5088 Federal Register / Vol. 76, No. 19 / Friday, January 28, 2011 / Rules and Regulations 

public. Some also said that having to 

input and repeatedly check the data 

base would be burdensome. One 

commenter suggested including a firm’s 

Federal Taxpayer ID number in the 

database entry. One commenter 

suggested a larger role for the database: 

Applicants should electronically input 

their application materials to the 

database, which would then be available 

to all certifying agencies, making 

individual submissions of application 

information to the States unnecessary. 

Some commenters wanted DOT to 

create or lead a national training and/or 

accreditation effort for certifier 

personnel. 

DOT Response 

Commenters on interstate were almost 

evenly divided on the best course of 

action for the Department to take. Most 

DBEs favored making interstate 

certification less difficult for firms that 

wanted to work outside their home 

states; most recipients took the opposite 

point of view. This disagreement 

reflects, we believe, a tension between 

two fundamental objectives of the 

program. On one hand, it is important 

to facilitate the entry of DBE firms into 

this national program, so that they can 

compete for DOT-assisted contracting 

wherever those opportunities exist, 

while reducing administrative burdens 

and costs on the small businesses that 

seek to participate. On the other hand, 

it is important to maintain the integrity 

of the program, so that only eligible 

firms participate and ineligible firms do 

not take unfair advantage of the 

program. 

The main concern of proponents of 

the NPRM proposal was that failing to 

make changes to facilitate interstate 

certification would leave in place 

unnecessary and unreasonable barriers 

to the participation of firms outside of 

their home states. The main concern of 

opponents of the NPRM proposal was 

that making the proposed changes 

would negatively affect program 

integrity. Their comments suggest that 

there is considerable mistrust among 

certification agencies and programs. 

Many commenters appear to believe 

that, while their own certification 

programs do a good job, other states’ 

certification programs do not. Much of 

the opposition to facilitating interstate 

certification appears to have arisen from 

this mistrust, as certification agencies 

seek to prevent questionable firms 

certified by what they perceive as weak 

certification programs in other states 

from infiltrating their domains. 

The Department does not believe that 

it is constructive to take the position 

that certification programs nationwide 

are so hopelessly inadequate that the 

best response is to leave interstate 

barriers in place to contain the 

perceived contagion of poorly qualified, 

albeit certified, firms within the 

boundaries of their own states. To the 

contrary, we believe that, under a 

system like that proposed in the NPRM, 

if firms certified by State A are regularly 

rebuffed by States B, C, D, etc., State A 

firms will have an incentive to bring 

pressure on their certification agency to 

improve its performance. 

The Department also believes that 

suggestions made by commenters, such 

as improving training and standardizing 

forms and interpretations, can improve 

the performance of certification agencies 

generally. In the follow-on NPRM the 

Department hopes to issue in 2011, one 

of the subjects we will address is 

improvements in the certification 

application and PNW forms, which 

certification agencies then would be 

required to use without alteration. DOT 

already provides many training 

opportunities to certification personnel, 

such as the National Transportation 

Institute courses provided by the 

Federal Transit Administration, 

presentations by knowledgeable DOT 

DBE staff at meetings of transportation 

organizations, and webinars and other 

training opportunities provided by 

Departmental Office of Civil Rights 

personnel. The Department will 

consider further ways of fostering 

training and education for certifiers 

(e.g., a DOT-provided web-based 

training course for certifiers). The 

Department also produces guidance on 

certification-related issues to assist 

certifiers in making decisions that are 

consistent with this regulation, and we 

will continue that practice. 

While we will continue to work with 

our state and local partners to improve 

the certification process, we do not 

believe that steps to facilitate interstate 

certification should be taken only after 

all recipients achieve an optimal level of 

performance. The DBE program is a 

national program; administrative 

barriers to participation impair the 

important program objective of 

encouraging DBE firms to compete for 

business opportunities; provisions to 

facilitate interstate certification can be 

drafted in a way that permits ‘‘State B’’ 

to screen out firms that are not eligible 

in accordance with this regulation. 

Consequently, the Department has 

decided to proceed with a modified 

form of the NPRM proposal. However, 

the final rule will not make compliance 

with the new section 26.85 mandatory 

until January 1, 2012, in order to 

provide additional time for recipients 

and UCPs to take advantage of training 

opportunities and to establish any 

needed administrative mechanisms to 

carry out the new provision. This will 

also provide time for DOCR to make its 

database for denials and decertifications 

operational. 

As under the NPRM, a firm certified 

in its home state would present its 

certification application package to 

State B. In response to commenters’ 

concerns about the time available, State 

B would have 60 days, rather than 30 as 

in the NPRM, to determine whether it 

had specific objections to the firm’s 

eligibility and to communicate those 

objections to the firm. If State B believed 

that the firm was ineligible, State B 

would state, with particularity, the 

specific reasons or objections to the 

firm’s eligibility. The firm would then 

have the opportunity to respond and to 

present information and arguments to 

State B concerning the specific 

objections that State B had made. This 

could be done in writing, at an inperson meeting with State B’s decision 

maker, or both. Again in response to 

commenters’ concerns, the firm, rather 

than State B, would have the burden of 

proof with respect, and only with 

respect, to the specific issues raised by 

State B’s objections. We believe that 

these changes will enhance the ability of 

certification agencies to protect the 

integrity of the program while also 

enhancing firms’ ability to pursue 

business opportunities outside their 

home states. 

We emphasize that State B’s 

objections must be specific, so that the 

firm can respond with information and 

arguments focused clearly on the 

particular issues State B has identified, 

rather than having to make an 

unnecessarily broad presentation. It is 

not enough for State B to say ‘‘the firm 

is not controlled by its disadvantaged 

owner’’ or ‘‘the owner exceeds the PNW 

cap.’’ These are conclusions, not 

specific, fact-based objections. Rather, 

State B might say ‘‘the disadvantaged 

owner has a full-time job with another 

organization and has not shown that he 

has sufficient time to exercise control 

over the day-to-day operations of the 

firm’’ or ‘‘the owner’s property interests 

in assets X, Y, and Z were improperly 

valued and cause his PNW to exceed 

$1.32 million.’’ This degree of specificity 

is mandatory regardless of the 

regulatory ground (e.g., new 

information, factual errors in State A’s 

certification: See section 26.85(d)(2)) on 

which State B makes an objection. For 

example, if State B objected to the firm’s 

State A certification on the basis that 

State B’s law required a different result, 

State B would say something like ‘‘State 

B Revised Statutes Section xx.yyyy 

WReier-Aviles on DSKGBLS3C1PROD with RULES

Federal Register / Vol. 76, No. 19 / Friday, January 28, 2011 / Rules and Regulations 5089 

provides only that a registered engineer 

has the power to control an engineering 

firm in State B, and the disadvantaged 

owner of the firm is not a registered 

engineer, who is therefore by law 

precluded from controlling the firm in 

State B.’’ 

On receiving this specific objection, 

the owner of the firm would have the 

burden of proof that he or she does meet 

the applicable requirements of Part 26. 

In the first example above, the owner 

would have to show that either he or 

she does not now have a full-time job 

elsewhere or that, despite the demands 

of the other job, he or she can and does 

control the day-to-day operations of the 

firm seeking certification. This burden 

would be to make the required 

demonstration by a preponderance of 

the evidence, the same standard used 

for initial certification actions generally. 

This owner would not bear any burden 

of proof with respect to size, 

disadvantage, ownership, or other 

aspects of control, none of which would 

be at issue in the proceeding. The 

proceeding, and the firm’s burden of 

proof, would concern only matters 

about which State B had made a 

particularized, specific objection. This 

narrowing of the issues should save 

time and resources for firms and 

certification agencies alike. 

The firm’s response to State B’s 

particularized objections could be in 

writing and/or in the form of an inperson meeting with State B’s decision 

maker to discuss State B’s objections to 

the firm’s eligibility. The decision 

maker would have to be someone who 

is knowledgeable about the eligibility 

provisions of the DBE rule. 

We recognize that, in unusual 

circumstances, the information the firm 

provided to State B in response to State 

B’s specific objections could contain 

new information, not part of the original 

record, that could form the basis for an 

additional objection to the firm’s 

certification. In such a case, State B 

would immediately notify the firm of 

the new objection and offer the firm a 

prompt opportunity to respond. 

Section 26.85(d)(2) of the final rule 

lists the grounds a State B can rely upon 

to object to a State A certification of a 

firm. These are largely the same as in 

the NPRM. In response to a comment, 

the Department cautions that by saying 

that a ground for objection is that State 

A’s certification is inconsistent with this 

regulation, we do not intend for mere 

interpretive disagreements about the 

meaning of a regulatory provision to 

form a ground for objection. Rather, 

State B would have to cite something in 

State A’s certification that contradicted 

a provision in the regulatory text of Part 

26. 

The final rule also gives, as a ground 

for objecting to a State A certification, 

that a State B law ‘‘requires’’ a result 

different from the law of State (see the 

engineering example above). To form 

the basis for an objection on this 

ground, a difference between state laws 

must be outcome-determinative with 

respect to a certification. For example, 

State A may treat marital property as 

jointly held property, while State B is a 

community property state. The laws are 

different, but both, in a given case, may 

well result in each spouse having a 50 

percent share of marital assets. This 

would not form the basis for a State B 

objection. 

With respect to state requirements for 

business licenses, the Department 

believes that states should not erect a 

‘‘Catch 22’’ to prevent DBE firms from 

other states from becoming certified. 

That is, if a firm from State A wants to 

do business in State B as a DBE, it is 

unlikely to want to pay a fee to State B 

for a business license before it knows 

whether it will be certified. Making the 

firm get the business license and pay the 

fee before the certification process takes 

place would be an unnecessary barrier 

to the firm’s participation that would be 

contrary to this regulation. 

The Department believes that regional 

certification consortia, or reciprocity 

agreements among states in a region, are 

a very good idea, and we anticipate 

working with UCPs in the future to help 

create such arrangements. Among other 

things, the experience of actually 

working together could help to mitigate 

the current mistrust among certification 

agencies. However, we do not believe it 

would be appropriate to mandate such 

arrangements at this time. 

The Department believes that the 

DOCR database of decertification and 

denial actions would be of great use in 

the certification process. However, the 

system is not yet up and running. 

Consequently, the final rule includes a 

one-year delay in the implementation 

date of requirements for use of the 

database. 

Other Certification-Related Issues 

The NPRM asked for comment on 

whether there should be a requirement 

for periodic certification reviews and/or 

updates of on-site reviews concerning 

certified firms. The interval most 

frequently mentioned by commenters on 

this subject was five years, though there 

was also some support for three-, six-, 

and seven-year intervals. A number of 

commenters suggested that such reviews 

should include an on-site update only 

when the firm’s circumstances had 

changed materially, in order to avoid 

burdening the limited resources of 

certifying agencies. Having a 

standardized on-site review form would 

reduce burdens, some commenters 

suggested. Other commenters suggested 

that the timing of reviews should be left 

to certifying agencies’ discretion, or that 

on-site updates should be done on a 

random basis of a smaller number of 

firms. 

The NPRM also asked about the 

handling of situations where an 

applicant withdraws its application 

before the certifying agency makes a 

decision. Should certifying agencies be 

able to apply the waiting period (e.g., 

six or 12 months) used for 

reapplications after denials in this 

situation? Comments on this issue, 

mostly from recipients but also from 

some DBEs and their associations, were 

divided. Some commenters said that 

there were often good reasons for a firm 

to withdraw and correct an application 

(e.g., a new firm unaccustomed to the 

certification process) and that their 

experience did not suggest that a lot of 

firms tried to game the system through 

repeated withdrawals. On the other 

hand, some commenters said that 

having to repeatedly process withdrawn 

and resubmitted applications was a 

burden on their resources that they 

would want to mitigate through 

applying a reapplication waiting period. 

One recipient said that, even in the 

absence of a waiting period, the 

resubmitted application should go to the 

back of the line for processing. Still 

others wanted to be able to apply caseby-case discretion concerning whether 

to impose a waiting period on a 

particular firm. A few commenters 

suggested middle-ground positions, 

such as imposing a shorter waiting 

period (e.g., 90 days) than that imposed 

on firms who are denied or applying a 

waiting period only for a second or 

subsequent withdrawal and 

reapplication by the same firm. 

Generally, commenters were 

supportive of the various detail-level 

certification provision changes 

proposed in the NPRM (e.g., basing 

certification decisions on current 

circumstances of a firm). Commenters 

did speak to a wide variety of 

certification issues, however. One 

commenter said that in its state, the 

UCP arbitrarily limited the number of 

NAICS codes in which a firm could be 

certified, a practice the commenter said 

the regulation should forbid. In 

addition, this commenter said, the UCP 

inappropriately limited certification of 

professional services firms owned by 

someone who was not a licensed 

professional in a field, even in the 

WReier-Aviles on DSKGBLS3C1PROD with RULES

5090 Federal Register / Vol. 76, No. 19 / Friday, January 28, 2011 / Rules and Regulations 

absence of a state law requiring such 

licensure. A number of commenters said 

that recipients should not have to 

automatically certify SBA-certified 8(a) 

firms, while another commenter 

recommended reviving the now-lapsed 

DOT–SBA memorandum of 

understanding (MOU) on certification 

issues. A DBE association said that 

certifying agencies should not count 

against firms seeking certification (e.g., 

with respect to independence 

determinations) investments from or 

relationships with larger firms that are 

permitted under other Federal programs 

(e.g., HubZone or other SBA programs). 

One commenter favored, and another 

opposed, allowing States to use their 

own business specialty classifications in 

addition to or in lieu of NAICS codes. 

One recipient recommended a 

provision to prevent owners from 

transferring personal assets to their 

companies to avoid counting them in 

the PNW calculation. Another said the 

certification for the PNW statement 

should specifically say that the 

information is ‘‘complete’’ as well as 

true. Yet another suggested that a prime 

contractor who owns a high percentage 

(e.g., 49 percent) of a DBE should not be 

able to use that DBE for credit. There 

were a number of suggestions that more 

of the certification process be done 

electronically, rather than on paper. A 

few comments said that getting back to 

an applicant within 20 days, as 

proposed in the NPRM, concerning 

whether the application was complete 

was too difficult for some recipients 

who have small staffs. 

DOT Response 

The Department believes that 

regularly updated on-site reviews are an 

extremely important tool in helping 

avoid fraudulent firms or firms that no 

longer meet eligibility requirements 

from participating in the DBE program. 

Ensuring that only eligible firms 

participate is a key part of maintaining 

the integrity of the program. We also 

realize that on-site reviews can be timeand resource-intensive. Consequently, 

while we believe that it is advisable for 

recipients and UCPs to conduct updated 

on-site reviews of certified companies 

on regular and reasonably frequent 

basis, and we strongly encourage such 

undated reviews, we have decided not 

to mandate a particular schedule, 

though we urge recipients to regard onsite reviews as a critical part of their 

compliance activities. When recipients 

or UCPs become aware of a change in 

circumstances or concerns that a firm 

may be ineligible or engaging in 

misconduct (e.g., from notifications of 

changes by the firm itself, complaints, 

information in the media, etc.), the 

recipient or UCP should review the 

firm’s eligibility, including doing an onsite review. 

When recipients in other states (see 

discussion of interstate certification 

above) obtain the home state’s 

certification information, they must rely 

on the on-site report that the home state 

has in its files plus the affidavits of no 

change, etc. that the firm has filed with 

the home state. It is not appropriate for 

State B to object to an out-of-state firm’s 

certification because the home state’s 

on-site review is older than State B 

thinks desirable, since that would 

unfairly punish a firm for State A’s 

failure to update the firm’s on-site 

review. However, if an on-site report is 

more than three years old, State B could 

require that the firm provide an affidavit 

to the effect that all the facts in the 

report remain true and correct. 

While we recognize that reports that 

have not been updated, or which do not 

appear to contain sufficient analysis of 

a firm’s eligibility, make certification 

tasks more difficult, our expectation is 

that the Department’s enhanced 

interstate certification process will 

result in improved quality in on-site 

reviews so that recipients in various 

states have a clear picture of the 

structure and operation of firms and the 

qualifications of their owners. To this 

end, we encourage recipients and UCPs 

to establish and maintain 

communication in ways that enable 

information collected in one state to be 

shared readily with certification 

agencies in other states. This 

information sharing can be done 

electronically to reduce costs. 

Firms may withdraw pending 

applications for certification for a 

variety of reasons, many of them 

legitimate. A withdrawal of an 

application is not the equivalent of a 

denial of that application. 

Consequently, we believe that it is 

inappropriate for recipients and UCPs to 

penalize firms that withdraw pending 

applications by applying the up-to-12 

month waiting period of section 26.86(c) 

to such withdrawals, thereby preventing 

the firm from resubmitting the 

application before that time elapses. We 

believe that permitting recipients to 

place resubmitted applications at the 

end of the line for consideration 

sufficiently protects the recipients’ 

workloads from being overwhelmed by 

repeated resubmissions. For example, 

suppose that Firm X withdraws its 

application in August. It resubmits the 

application in October. Meanwhile, 20 

other firms have submitted applications. 

The recipient must accept Firm X’s 

resubmission in October, but is not 

required to consider it before the 20 

applications that arrived in the 

meantime. Recipients should also 

closely examine changes made to the 

firm since the time of its first 

application. 

We agree with commenters that it is 

not appropriate for recipients to limit 

NAICS codes in which a firm is certified 

to a certain number. Firms may be 

certified in NAICS codes for however 

many types of business they 

demonstrate that they perform and 

concerning which their disadvantaged 

owners can demonstrate that they 

control. We have added language to the 

regulation making this point. We also 

agree that it is not appropriate for a 

recipient or UCP to insist on 

professional certification as a per se 

condition for controlling a firm where 

state law does not impose such a 

requirement. We have no objection to a 

recipient or UCP voluntarily using its 

own business classification system in 

addition to using NAICS codes, but it is 

necessary to use NAICS codes. 

SBA has now gone to a selfcertification approach for small 

disadvantaged business, the SBA 8(a) 

program differs from the DBE program 

in important respects, and the SBA– 

DOT memorandum of understanding 

(MOU) on certification matters lapsed 

over five years ago. Under these 

circumstances, we have decided to 

delete former sections 26.84 and 26.85, 

relating to provisions of that MOU. 

DBE firms in the DBE program must 

be fully independent, as provided in 

Part 26. If a firm has become dependent 

on a non-DBE firm through participation 

in another program, then it may be 

found ineligible for DBE program 

purposes. To say otherwise would 

create inconsistent standards that would 

enable firms already participating in 

other programs to meet a lower standard 

than other firms for DBE participation. 

We believe that adding a regulatory 

provision prohibiting owners from 

transferring personal assets to their 

companies to avoid counting them in 

the PNW calculation would be difficult 

to implement, since owners of 

businesses often invest assets in the 

companies for legitimate reasons. 

However, as an interpretive matter, 

recipients are authorized to examine 

such transfers and, if they conclude that 

the transfer is a ruse to avoid counting 

personal assets toward the PNW 

calculation rather than a legitimate 

investment in the company and its 

growth, recipients or UCPs may 

continue to count the assets toward 

PNW. 

We agree that the certification for the 

PNW statement should specifically say 

WReier-Aviles on DSKGBLS3C1PROD with RULES

Federal Register / Vol. 76, No. 19 / Friday, January 28, 2011 / Rules and Regulations 5091 

that the information is ‘‘complete’’ as 

well as true and that a somewhat longer 

time period would be appropriate for 

recipients and UCPs to get back to 

applicants with information on whether 

their applications were complete. We 

have added a regulatory text statement 

on the former point and extended the 

time period on the latter point to 30 

days. 

If a prime contractor who owns a high 

percentage of a DBE that it wishes to use 

on a contract, issues concerning 

independence, affiliation, and 

commercially useful function can easily 

arise. For this reason, recipients should 

closely scrutinize such relationships. 

This scrutiny may well result, in some 

cases, in denying DBE credit or 

initiating decertification action. 

We encourage the use of electronic 

methods in the application and 

certification process. As in other areas, 

electronic methods can reduce 

administrative burdens and speed up 

the process. 

Accountability and Goal Submissions 

The NPRM proposed that if a 

recipient failed to meet its overall goal, 

it would, within 60 days, have to 

analyze the shortfall, explain the 

reasons for it, and come up with 

corrective actions for the future. All 

State DOTs and the largest transit 

authorities and airports would have to 

send their analyses and corrective 

action plans to DOT operating 

administrations; smaller transit 

authorities and airports would retain 

them on file. While there would not be 

any requirement to meet a goal—to ‘‘hit 

the number’’—failure to comply with 

these requirements could be regarded as 

a failure to implement a recipient’s 

program in good faith, which could lead 

to a finding of noncompliance with the 

regulation. 

In a related provision, the Department 

asked questions in the NPRM 

concerning the recent final provision 

concerning submitting overall goals on 

a three-year, rather than an annual, 

basis. In particular, the NPRM asked 

whether it should be acceptable for a 

recipient to submit year-to-year 

projections of goals within the structure 

of a three-year goal and how 

implementation of the accountability 

proposal would work in the context of 

a three-year goal, whether or not yearto-year projections were made. 

About two-thirds of the 64 comments 

addressing the accountability provision 

supported it. These commenters 

included DBEs, recipients, and some 

associations and other commenters. 

Some of these commenters, in fact, 

thought the proposal should be made 

stronger. For example, a commenter 

suggested that a violation ‘‘will’’ rather 

than ‘‘could’’ be found for failure to 

provide the requested information. 

Another suggested that, beyond looking 

at goal attainment numbers, the 

accountability provisions should be 

broadened to include the recipient’s 

success with respect to a number of 

program elements (e.g., good faith 

efforts on contracts, outreach, DBE 

liaison officer’s role, training and 

education of staff). 

Commenters also presented various 

ideas for modifying the proposal. These 

included suggestions that the 

Department should add a public input 

component, provide more guidance on 

the shortfall analysis and how to do it, 

delay its effective date to allow 

recipients to find resources to comply, 

ensure ongoing measurement of 

achievements rather than just measuring 

at the end of a year or three-year period, 

ensure that there is enough flexibility in 

explaining the reasons for a shortfall, or 

lengthen the time recipients have to 

submit the materials (e.g., 90 days, or 60 

days after the recipient’s report of 

commitments and achievements is due). 

One commenter suggested that an 

explanation should be required only 

when there is a pattern of goal 

shortfalls, not in individual instances. 

There could be a provision for excusing 

recipients who fell short of their goal by 

very small amount, or even if the 

recipient made 80 percent of its goal. 

Opponents of the proposal—mostly 

recipients plus a few associations—said 

that the proposal would be too 

administratively burdensome. In 

addition, they feared that making 

recipients explain a shortfall and 

propose corrective measures would turn 

the program into a prohibited set-aside 

or quota program, a concern that was 

particularly troublesome in states 

affected by the Western States decision. 

Moreover, a number of commenters 

said, the inability of recipients to meet 

overall goals was often the result of 

factors beyond their control. In addition, 

recipients might unrealistically reduce 

goals in order to avoid having to explain 

missing a more ambitious target. 

With respect to the reporting intervals 

for goals, 28 of the 39 commenters who 

addressed the issue favored some form 

of at least optional yearly reporting of 

goals, either in the form of annual goal 

submissions or, more frequently, of 

year-to-year projections of goals within 

the framework of a three-year overall 

goal. The main reason given for this 

preference was a concern that projects 

and the availability of Federal funding 

for them were sufficiently volatile that 

making a projection that was valid for 

a three-year period was problematic. 

This point of view was advanced 

especially by airports. Some other 

commenters favored giving recipients 

discretion whether to report annually or 

triennially. Commenters who took the 

point of view that the three-year interval 

was preferable agreed with original 

rationale of reducing repeated 

paperwork burdens on recipients. One 

commenter asked that the rule specify 

that, especially in a three-year interval 

schedule of goal submission, a recipient 

‘‘must’’ submit revisions if 

circumstances change. 

There was discussion in the NPRM of 

the relationship between the goal 

submission interval and the 

accountability provision. For example, 

if a recipient submitted overall goals on 

a three-year basis, would the 

accountability provision be triggered 

annually, based on the recipient’s 

annual report (as the NPRM suggested) 

or only on the basis of the recipient’s 

performance over the three-year period? 

If there were year-to-year projections 

within a three-year goal, would the 

accountability provision relate to 

accountability for the annual projection 

or the cumulative three-year goal? 

Commenters who favored year-to-year 

projections appeared to believe that 

accountability would best relate to each 

year’s projection, though the discussion 

of this issue in the comments was often 

not explicit. Some comments, including 

one from a Member of Congress, did 

favor holding recipients accountable for 

each year’s separate performance. 

There was a variety of other 

comments on goal-related issues. Some 

commenters asked that the three DOT 

operating administrations coordinate 

submitting goals so that a State DOT 

submitting goals every three years 

would be able to submit its FHWA, 

FAA, and FTA goals in the same year. 

A DBE group wanted the Department to 

strengthen requirements pertaining to 

the race-neutral portion of a recipient’s 

overall goal. A commenter who works 

with transit vehicle manufacturers 

requested better monitoring of transit 

vehicle manufacturers by FTA. A group 

representing DBEs wanted recipients to 

focus on potential, and not just certified, 

DBEs for purposes of goal setting. The 

same group also urged consideration of 

separate goals for minority- and womenowned firms. 

DOT Response 

Under Part 26, the Department has 

always made unmistakably clear that 

the DBE program does not impose 

quotas. No one ever has been, or ever 

will be, sanctioned for failing to ‘‘hit the 

number.’’ However, goals must be 

WReier-Aviles on DSKGBLS3C1PROD with RULES

5092 Federal Register / Vol. 76, No. 19 / Friday, January 28, 2011 / Rules and Regulations 

implemented in a meaningful way. A 

recipient’s overall goal represents its 

estimate of the DBE participation it 

would achieve in the absence of 

discrimination and its effects. Failing to 

meet an overall goal means that the 

recipient has not completely remedied 

discrimination and its effects in its 

DOT-assisted contracting. In the 

Department’s view, good faith 

implementation of a DBE program by a 

recipient necessarily includes 

understanding why the recipient has not 

completely remedied discrimination 

and its effects, as measured by falling 

short of its ‘‘level playing field’’ estimate 

of DBE participation embodied in its 

overall goal. Good faith implementation 

further means that, having considered 

the reasons for such a shortfall, the 

recipient will devise program actions to 

help minimize the potential for a 

shortfall in the future. 

Under the Department’s procedures 

for reviewing overall goals and the 

methodology supporting them, the 

Department has the responsibility of 

ensuring that a recipient’s goals are 

well-grounded in relevant data and are 

derived using a sound methodology. 

The Department would not approve a 

recipient’s goal submission if it 

appeared to understate the ‘‘level 

playing field’’ amount of DBE 

participation the recipient could 

rationally expect, whether to avoid 

being accountable under the new 

provisions of the rule or for other 

reasons. 

For these reasons, the Department is 

adopting the NPRM’s proposed 

accountability mechanism. We do not 

believe that the concerns of some 

commenters that this mechanism would 

create a quota system are justified: No 

one will be penalized for failing to meet 

an overall goal. Moreover, promoting 

transparency and accountability is not 

synonymous with imposing a penalty 

and should not be viewed as such. 

Understanding the reasons for not 

meeting a goal and coming up with 

ways of avoiding a shortfall in the 

future, while not creating a quota 

system, do help to ensure that recipients 

take seriously the responsibility to 

address discrimination and its effects. 

Moreover, the administrative burden 

of compliance falls only on those 

recipients who fail to meet a goal, not 

on all recipients. Understanding what is 

happening in one’s program, why it is 

happening, and how to fix problems is, 

or ought to be, a normal, everyday part 

of implementing a program, so the 

analytical tasks involved in meeting this 

requirement should not be new to 

recipients. We do not envision that 

recipients’ responses to this requirement 

would be book-length; a reasonable 

succinct summary of the recipient’s 

analysis and proposed actions should be 

sufficient though, like all documents 

submitted in connection with the DBE 

program, it should show the work and 

reasoning leading to the recipient’s 

conclusions. 

For example, a recipient might 

determine that its process for 

ascertaining whether prime bidders who 

failed to meet contract goals had made 

adequate good faith efforts was too 

weak, and that prime bidders 

consequently received contracts despite 

making insufficient efforts to find DBEs 

for contracts. In such a case, the 

recipient could take corrective action 

such as more stringent review of bidder 

submissions or meeting with prime 

bidders to provide guidance and 

assistance on how to do a better job of 

making good faith efforts. 

We agree that there may be 

circumstances in which a recipient’s 

inability to meet a goal is for reasons 

beyond its control. If that is the case, the 

recipient’s response to this requirement 

can be to identify such factors, as well 

as suggesting how these problems may 

be taken into account and surmounted 

in the future. We also agree with those 

commenters who said that good-faith 

implementation of a DBE program 

involves more than meeting an overall 

goal. Factors like those cited by 

commenters are important as part of an 

overall evaluation of a recipient’s 

success. This accountability provision, 

however, is intended to focus on the 

process recipients are using to achieve 

their overall goals, rather than to act as 

a total program evaluation tool. The 

operating administrations will continue 

to conduct program reviews that address 

the breadth of recipients’ program 

implementation. 

The Department believes that a clear, 

bright-line trigger for the application of 

the accountability provision makes the 

most sense administratively and in 

terms of achieving the purpose of the 

provision. Consequently, we are not 

adopting suggestions that the provision 

be triggered only by a pattern of missing 

goals, or an average of missing goals 

over the period of a three-year overall 

goal, or a shortfall of a particular 

percentage. Any shortfall means that a 

recipient has dealt only incompletely 

with the effects of discrimination, and 

we believe that it is appropriate in any 

such case that the recipient understand 

why that is the case and what steps to 

take to improve program 

implementation in the future. 

The three-year goal review interval 

was intended to reduce administrative 

burdens on recipients. Nevertheless, we 

understand that some recipients, 

especially airports, may be more 

comfortable with annual projections and 

updates of overall goals. We have no 

objection to recipients making annual 

projections, for informational purposes, 

within the three-year overall goal. It is 

still the formally submitted and 

reviewed three-year goal, however, and 

not the informal annual projections, that 

count from the point of view of the 

accountability mechanism. For example, 

suppose an airport has a three-year 

annual overall goal of 12 percent. For 

informational purposes, the airport 

chooses to make informal annual 

projections of 6, 12, and 18 percent for 

years 1–3, respectively (which, by the 

way, are not required to be submitted to 

the Department). The accountability 

mechanism requirements would be 

triggered in each of the three years 

covered by the overall goal if DBE 

achievements in each year were less 

than 12 percent. 

The Department agrees that recipients 

should be accountable for effectively 

carrying out the race-neutral portion of 

their programs. If a recipient fell short 

of its overall goal because it did not 

achieve the projected race-neutral 

portion of its goal, then this is 

something the recipient would have to 

explain and establish measures to 

correct (e.g., by stepping up race-neutral 

efforts and/or concluding that it needed 

to increase race-conscious means of 

achieving its goal). We also agree that it 

is reasonable, in calculating goals and in 

doing disparity studies, to consider 

potential DBEs (e.g., firms apparently 

owned and controlled by minorities or 

women that have not been certified 

under the DBE program) as well as 

certified DBEs. This is consistent with 

good practice in the field as well as with 

DOT guidance. Separate goals for 

various groups of disadvantaged 

individuals are possible with a program 

waiver of the DBE regulation, if a 

sufficient case is made for the need for 

group-specific goals. 

In the section of the rule concerning 

goal-setting (49 CFR 26.45), the 

Department is also taking this 

opportunity to make a technical 

correction. In the final rule establishing 

the three year DBE goal review cycle, 

the Department inadvertently omitted 

from § 26.45(f)’s regulatory text 

paragraphs (3), (4), and (5), which 

govern the content of goal submissions, 

operating administration review of the 

submission, and review of interim goal 

setting mechanisms. It was never the 

intent of the Department to remove or 

otherwise change those provisions of 

section 26.45(f) of the rule. This final 

rule corrects that error by restructuring 

WReier-Aviles on DSKGBLS3C1PROD with RULES

Federal Register / Vol. 76, No. 19 / Friday, January 28, 2011 / Rules and Regulations 5093 

paragraphs (1) and (2) of section 26.45(f) 

and restoring the language of paragraphs 

(3), (4), and (5) of that section of the 

rule. We apologize for any confusion 

that this error may have caused. 

The Department supports strong 

outreach efforts by recipients to 

encourage minority- and women-owned 

firms to become certified as DBEs, so 

that recipients can set and meet realistic 

goals. However, we caution recipients 

against stating or implying that 

minority- and women-owned firms can 

participate in recipients’ contracts only 

if they become certified as DBEs. It 

would be contrary to nondiscrimination 

requirements of this part and of Title VI 

for a recipient to limit the opportunity 

of minority- or women-owned firms to 

compete for any contract because the 

firm was not a certified DBE. 

Program Oversight 

The NPRM proposed to require 

recipients to certify that they have 

monitored the paperwork and on-site 

performance of DBE contracts to make 

sure that DBEs actually perform them. 

Comment was divided on this proposal, 

with 21 comments favoring either the 

proposal or stronger oversight 

mechanisms and 18 opposed. 

Commenters who favored the 

proposal, including DBEs and some 

associations and recipients, generally 

believed that the provision would make 

it less likely that post-award abuse of 

DBEs by prime contractors would occur. 

One recipient noted that it already 

followed this approach with respect to 

ARRA grants. Some commenters wanted 

the Department to require additional 

steps, such as requiring recipients to 

make periodic visits to the job site and 

keeping records of each visit, to ensure 

that the DBELO did in fact have direct 

access to the organization’s CEO 

concerning DBE matters, and to 

maintain sufficient trained staff to do 

needed monitoring. DBE associations 

wanted mandatory monitoring of good 

faith efforts (e.g., by keeping records of 

all contacts made by prime contractors) 

and terminations of DBEs by prime 

contractors, as well as to have 

certifications signed by persons higher 

up in the organization than the DBELO 

(e.g., the CEO). Another commenter 

sought further checking concerning 

counting issues. A consultant and a 

recipient suggested that recipient 

certifications should be more frequent 

than a one-time affair, (e.g., monthly or 

quarterly). 

Commenters who opposed the NPRM 

proposal, most of whom were 

recipients, said that the workload the 

certification requirement would create 

would be too administratively 

burdensome, particularly for recipients 

with small staffs. The certification 

requirement could duplicate existing 

commercially useful function reviews. 

They also doubted the payoff in terms 

of improved DBE program 

implementation would be worth the 

effort. Some recipients said that they 

did monitor post-award performance 

and that the proposed additional 

paperwork requirement step would add 

little to the substance of their processes. 

One recipient noted that it would be 

very difficult to perform an on-site 

review of contract performance in the 

case of professional services consultants 

whose work was performed out of state. 

One recipient suggested that a middle 

ground might be to have the recipient 

certify monitoring of a sample of 

contracts, since it lacked the staff for 

field monitoring of all contracts. A 

consultant suggested selecting contracts 

for monitoring based on a ‘‘risk-based 

analysis’’ of contracts or by focusing on 

contracts where prime contractors’ 

achievements did not measure up to 

their commitments. One recipient 

suggested limiting the certification 

requirement to one commercially useful 

function review per year on a contract. 

A few recipients asked for guidance on 

what constituted adequate staffing for 

the DBE program. 

DOT Response 

The Department’s DBE rule already 

includes a provision (49 CFR 26.37(b)) 

requiring recipients to have a 

monitoring and enforcement mechanism 

to ensure that work committed to DBEs 

is actually performed by DBEs. The 

trouble is that, based on the 

Department’s experience, this provision 

is not being implemented by recipients 

as well as it should be. The FHWA 

review team that has been examining 

state implementation of the DBE 

program found that many states did not 

have an effective compliance 

monitoring program in place. DBE fraud 

cases investigated by the Department’s 

Office of Inspector General and criminal 

prosecutions in the Federal courts have 

highlighted numerous cases in which 

recipients were unaware, often for many 

years, of situations in which non-DBE 

companies were claiming DBE credit for 

work that DBEs did not perform. 

The Department believes that, for the 

DBE program to be meaningful, it is not 

enough that prime contractors commit 

to the use of DBEs at the time of contract 

award. It is also necessary that the DBEs 

actually perform the work involved. 

Recipients need to know whether DBEs 

are actually performing the work 

involved, lest program effectiveness 

suffer and the door be left open to fraud. 

Recipients must actually monitor each 

contract, on paper and in the field, to 

ensure that that they have this 

knowledge. Monitoring DBE compliance 

on a contract is no less important, and 

should be no more brushed aside, than 

compliance of with project 

specifications. This is important for 

prime contracts performed by DBEs as 

well as for situations in which DBEs act 

as subcontractors, and the monitoring 

and certification requirements will 

apply to both situations. 

Consequently, the Department 

believes that the proposed requirement 

that recipients memorialize the 

monitoring they are already required to 

perform has merit. Its intent is to make 

sure that the monitoring actually takes 

place and that the recipient stands by 

the statement that DBE participation 

claimed on a contract actually occurred. 

This monitoring, and the recipient’s 

written certification that it took place, 

must occur with respect to every 

contract on which DBE participation is 

claimed, not just a sample or percentage 

of such contracts, to make sure that the 

program operates as it is intended. It 

applies to contracts entered into prior to 

the effective date of this rule, since the 

obligation to monitor work performed 

by DBEs has always been a key feature 

of the DBE program. 

With respect to concerns about 

administrative burden, the Department 

believes that monitoring is something 

that recipients have been responsible for 

conducting since the inception of Part 

26. Therefore, we are not asking 

recipients to do something with which 

they can claim they are unfamiliar. 

Moreover, as the final rule version of 

this provision makes clear, recipients 

can combine the on-site monitoring for 

DBE compliance with other monitoring 

they do. For example, the inspector who 

looks at a project to make sure that the 

contractor met contract specifications 

before final payment is authorized could 

also confirm that DBE requirements 

were honestly met. 

While we believe that more intensive 

and more frequent monitoring of DBE 

performance on contracts is desirable, 

we encourage recipients to monitor 

contracts as closely as they can. 

However, we do not, for workload 

reasons, want to mandate more 

pervasive monitoring at this time. We 

agree with commenters that it would be 

difficult to do on-site monitoring of 

contracts performed outside the state 

(e.g., an out-of-state consulting 

contract), and we have added language 

specifying that the requirement to 

monitor work sites pertains to work 

sites in the recipient’s state. In reference 

to what constitutes adequate staffing of 

WReier-Aviles on DSKGBLS3C1PROD with RULES

5094 Federal Register / Vol. 76, No. 19 / Friday, January 28, 2011 / Rules and Regulations 

a DBE program, we believe that it is best 

to look at this question in terms of a 

performance standard. The 

Department’s rule requires certain tasks 

(e.g., responding to applications for DBE 

eligibility, certification and monitoring 

of DBE performance on contracts) to be 

performed within certain time frames. If 

a recipient has sufficient staff to meet 

these requirements, then its staffing 

levels are adequate. If not (e.g., 

applications for DBE certification are 

backlogged for several months), then 

staffing is inadequate. 

Small Business Provisions 

The NPRM proposed that recipients 

would add an element to their DBE 

programs to foster small business 

participation in contracts. The purpose 

of this proposal was to encourage 

programs that, by facilitating small 

business participation, augmented raceneutral efforts to meet DBE goals. The 

program element could include items 

such as race-neutral small business setasides and unbundling provisions. The 

NPRM did not propose to mandate any 

specific elements, however. 

The majority of commenters 

addressing this part of the NPRM—38 of 

55—favored the NPRM’s approach. 

Commenters approving the proposal 

were drawn from DBEs, associations, 

and recipients. Generally, they agreed 

that steps to create improved 

opportunities for small business would 

help achieve the objectives of the DBE 

program. Specific elements that various 

commenters supported included 

unbundling (which some commenters 

suggested should be made mandatory), 

prohibiting double-bonding, small 

business set-asides, expansions of 

existing small business development 

programs and mentor-prote ́ge ́ programs. 

Commenters who did not support the 

NPRM proposal, most of whom were 

recipients, were concerned that having 

small business programs would draw 

focus from programs targeted more 

directly at DBEs. They were also 

concerned about having sufficient 

resources to carry out the programs they 

might include in a small business 

program element. One commenter 

thought that a small business program 

element would duplicate existing 

supportive services programs. Another 

thought unbundling would not work. A 

number of recipients thought it would 

be better for DOT to issue guidance on 

this subject rather than to create 

regulatory language. A recipient 

association characterized the proposal 

as burdensome and not productive. 

Eight commenters addressed the issue 

of bonding and insurance requirements. 

A bonding company association 

explained that both performance and 

payment bonds had an appropriate 

place in contracting and believed that 

subcontractor bonds were not 

duplicative of prime contractor bonds. 

A DBE wanted to prohibit prime 

contractors from setting bonding 

requirements for subcontractors. A 

recipient said the Department should 

treat prime contractors and 

subcontractors the same for bonding 

purposes. One DBE association said the 

combination of payment bonds, 

performance bonds, and retention was 

burdensome for subcontractors and 

Another DBE association said that it was 

inappropriate to require bonding of the 

subcontractor when the prime 

contractor was already bonded for the 

overall work of the contract. This 

association suggested that a prime 

contractor could not demonstrate good 

faith efforts to meet a goal if it insisted 

on such a double bond. 

DOT Response 

DBEs are small businesses. Program 

provisions that help small businesses 

can help DBEs. By facilitating 

participation for small businesses, 

recipients can make possible more DBE 

participation, and participation by 

additional DBE firms. Consequently, we 

believe that a program element that 

pulls together the various ways that a 

recipient reaches out to small 

businesses and makes it easier for them 

to compete for DOT-assisted contracts 

will foster the objectives of the DBE 

program. Because small business 

programs of the kind suggested in the 

NPRM are race-neutral, use of these 

programs can assist recipients in 

meeting the race-neutral portions of 

their overall goals. This is consistent 

with the language that under Part 26, 

recipients are directed to meet as much 

as possible of their overall goals through 

race-neutral means. 

It is important to keep in mind that 

race-neutral programs should not be 

passive. Simply waiting and hoping that 

occasional DBEs will participate 

without the use of contract goals does 

not an effective race-neutral program 

make. Rather, recipients are responsible 

for taking active, effective steps to 

increase race-neutral DBE participation, 

by implementing programs of the kind 

mentioned in this section of the NPRM 

and final rule. The Department will be 

monitoring recipients’ race-neutral 

programs to make sure that they meet 

this standard. 

In adopting the NPRM proposal 

requiring a small business program 

element, the Department believes that 

this element—which is properly viewed 

as an integral part of a recipient’s DBE 

program—need not distract recipients 

from other key parts of recipients’ DBE 

programs, such as certification and the 

use of race-conscious measures. There 

are different ways of encouraging DBE 

participation and meeting DBE overall 

goals, and recipients’ programs need to 

address a variety of these means. Many 

of the provisions that recipients can use 

to implement the requirements of the 

new section (e.g., unbundling, raceneutral small business set-asides) are 

already part of the regulation or DOT 

guidance, and carrying out these 

elements should not involve extensive 

additional burdens. 

With respect to bonding, the 

Department believes that commenters 

made a good point with respect to the 

burden of duplicative bonding. By 

duplicative bonding, we mean 

insistence by a prime contractor that a 

DBE provide bonding for work that is 

already covered by bonding or 

insurance provided by the prime 

contractor or the recipient. Like 

duplicative bonding, excessive 

bonding—a requirement, which 

according to participants in the 

Department’s stakeholder meetings, is 

sometimes imposed to provide a bond 

in excess of the value of the 

subcontractor’s work—can act as an 

unnecessary barrier to DBE 

participation. While we believe that 

additional action to address these 

problems may have merit, there was not 

a great deal of comment on the 

implications of potential regulatory 

requirements in these areas. 

Consequently, we will defer action on 

these issues at this time and seek 

additional comment and information in 

the follow-on NPRM the Department is 

planning to issue. 

Miscellaneous Comments 

Several commenters expressed 

general support for the DBE program 

and/or the NPRM, while two 

commenters opposed the DBE program 

in general. A large number of comments 

from an advocacy organization’s 

members supported additional bonding 

assistance and more frequent data 

reporting. A commenter wanted to add 

DBE coverage for Federal Railroad 

Administration (FRA) grants. 

Commenters also suggested such steps 

as increasing technical assistance, using 

project labor agreements to increase 

DBE participation, an SBA 8(a) programlike term limit on participation in the 

DBE program, a better uniform reporting 

form, greater ease in complaining to 

DOT and recipients about 

noncompliance issues, and putting 

current joint check guidance into the 

rule’s text. 

WReier-Aviles on DSKGBLS3C1PROD with RULES

Federal Register / Vol. 76, No. 19 / Friday, January 28, 2011 / Rules and Regulations 5095 

1See for instance Adarand Constructors, Inc. v. 

Slater, 228 F.3d 1147 (10th Cir. 2000), Northern 

Contracting Inc. v. Illinois Department of 

Transportation, 473 4.3d 715 (7th Cir. 2007), 

Sherbrooke Turf, Inc. v. Minnesota Department of 

Transportation, 345 F.3d. 964 (8th Cir. 2003), 

Western States Paving Co., Inc. v. Washington 

Department of Transportation, 407 F.3d. 983 (9th 

Cir. 2005). 

DOT Response 

The Department already has programs 

in place concerning bonding and data 

reporting. There is not currently a 

direct, specific statutory mandate for a 

DBE program in FRA financial 

assistance programs, though the 

Department is considering ways of 

ensuring nondiscrimination in 

contracting in these programs. For 

example, like all recipients of Federal 

financial assistance, FRA recipients are 

subject to requirements under Title VI of 

the Civil Rights Act of 1964. Existing 

programs, such as the FHWA supportive 

services program and various initiatives 

by the Department’s Office of Small and 

Disadvantaged Business Utilization, are 

in place to assist DBEs in being 

competitive. Given the language of the 

statutes authorizing the DOT DBE 

program, we do not believe that a term 

limit on the participation of DBE 

companies would be permissible. The 

Department is working on 

improvements on all its DBE forms, and 

we expect to seek comment on revised 

forms in the follow-on NPRM we 

anticipate publishing. At this point, we 

think that the joint check guidance is 

sufficient without codification, but we 

can look at this issue, among other 

certification issues, in the next round of 

rulemaking. 

The Continuing Compelling Need for 

the DBE Program 

As numerous court decisions have 

noted,1 the Department’s DBE 

regulations, and the statutes authorizing 

them, are supported by a compelling 

need to address discrimination and its 

effects. This basis for the program has 

been established by Congress and 

applies on a nationwide basis. Both the 

House and Senate FAA reauthorization 

bills contained findings reaffirming the 

compelling need for the program. We 

would also call to readers’ attention the 

additional information presented to the 

House of Representatives in a March 26, 

2009, hearing before the Transportation 

and Infrastructure Committee and made 

a part of the record of that hearing and 

a Department of Justice document 

entitled ‘‘The Compelling Interest for 

Race- and Gender-Conscious Federal 

Contracting Programs: A Decade Later 

An Update to the May 23, 1996 Review 

of Barriers for Minority- and WomenOwned Businesses’’ and the information 

and documents cited therein. This 

information confirms the continuing 

compelling need for race- and genderconscious programs such as the DOT 

DBE program. 

Regulatory Analyses and Notices 

Executive Order 12866 and DOT 

Regulatory Policies and Procedures 

This is a nonsignificant regulation for 

purposes of Executive Order 12866 and 

the Department of Transportation’s 

Regulatory Policies and Procedures. Its 

provisions involve administrative 

modifications to several provisions of a 

long-existing and well-established 

program, designed to improve the 

program’s implementation. The rule 

does not alter the direction of the 

program, make major policy changes, or 

impose significant new costs or 

burdens. 

Regulatory Flexibility Act 

A number of provisions of the rule 

reduce small business burdens or 

increase opportunities for small 

business, notably the interstate 

certification process and the small 

business DBE program element 

provisions. Small recipients would not 

be required to file reports concerning 

the reasons for overall goal shortfalls 

and corrective action steps to be taken. 

Only State DOTs, the 50 largest transit 

authorities, and the 30–50 airports 

receiving the greatest amount of FAA 

financial assistance would have to file 

these reports. The task of sending copies 

of on-site review reports to other 

certification entities fall on UCPs, which 

are not small entities, and in any case 

can be handled electronically (e.g., by 

emailing PDF copies of the documents). 

While all recipients would have to input 

information about decertifications and 

denials into a DOT database, this would 

be a quick electronic process that would 

not be costly or burdensome. In any 

case, this requirement will be phased in 

as the Department prepares to put the 

database online. The rule does not make 

major policy changes that would cause 

recipients to expend significant 

resources on program modifications. For 

these reasons, the Department certifies 

that the rule does not have a significant 

economic effect on a substantial number 

of small entities. 

Federalism 

A rule has implications for federalism 

under Executive Order 13132, 

Federalism, if it has a substantial direct 

effect on State or local governments and 

would either preempt State law or 

impose a substantial direct cost of 

compliance on them. We have analyzed 

this rule under the Order and have 

determined that it does not have 

implications for federalism, since it 

merely makes administrative 

modifications to an existing program. It 

does not change the relationship 

between the Department and State or 

local governments, pre-empt State law, 

or impose substantial direct compliance 

costs on those governments. 

Paperwork Reduction Act 

As required by the Paperwork 

Reduction Act of 1995, DOT has 

submitted the Information Collection 

Requests (ICRs) below to the Office of 

Management and Budget (OMB). Before 

OMB decides whether to approve these 

proposed collections of information and 

issue a control number, the public must 

be provided 30 days to comment. 

Organizations and individuals desiring 

to submit comments on the collections 

of information in this rule should direct 

them to the Office of Management and 

Budget, Attention: Desk Officer for the 

Office of the Secretary of 

Transportation, Office of Information 

and Regulatory Affairs, Washington, DC 

20503. OMB is required to make a 

decision concerning the collection of 

information requirements contained in 

this rule between 30 and 60 days after 

publication of this document in the 

Federal Register. Therefore, a comment 

is best assured of having its full effect 

if OMB receives it within 30 days of 

publication. 

We will respond to any OMB or 

public comments on the information 

collection requirements contained in 

this rule. The Department will not 

impose a penalty on persons for 

violating information collection 

requirements which do not display a 

current OMB control number, if 

required. The Department intends to 

obtain current OMB control numbers for 

the new information collection 

requirements resulting from this 

rulemaking action. The OMB control 

number, when assigned, will be 

announced by separate notice in the 

Federal Register. 

It is estimated that the total 

incremental annual burden hours for the 

information collection requirements in 

this rule are 47,450 hours in the first 

year, 83,370 in the second year, and 

51,875 thereafter. The following are the 

information collection requirements in 

this rule: 

Certification of Monitoring (49 CFR 

26.37(b)) 

Each recipient would certify that it 

had conducted post-award monitoring 

of contracts which would be counted for 

WReier-Aviles on DSKGBLS3C1PROD with RULES

5096 Federal Register / Vol. 76, No. 19 / Friday, January 28, 2011 / Rules and Regulations 

DBE credit to ensure that DBEs had 

done the work for which credit was 

claimed. The certification is for the 

purpose of ensuring accountability for 

monitoring which the regulation already 

requires. 

Respondents: 1,050. 

Frequency: 13,400 (i.e., there are 

about 13,400 contracts per year that 

have DBE participation, based on 2009 

data). 

Estimated Burden per Response: 1⁄2

hour. 

Estimated Total Annual Burden: 

6,700 hours. 

Small Business Program Element (49 

CFR 26.39) 

Each recipient would add a new DBE 

program element, consisting of 

strategies to encourage small business 

participation in their contracting 

activities. No specific element would be 

required, and many of the potential 

elements are already part of the existing 

DBE regulation or implementing 

guidance (e.g., unbundling; race-neutral 

small business set-asides). The small 

business program element is intended to 

pull a recipient’s small business efforts 

into a single, unified place in this DBE 

Program. This requirement goes into 

effect a year from the effective date of 

the rule. 

Respondents: 1,050. 

Frequency: Once (for a one-time task). 

Estimated Burden per Response: 30 

hours. 

Estimated Total Annual Burden 

Hours: 31,500 (one time). 

Accountability Mechanism (49 CFR 

26.47(c)) 

If a recipient failed to meet its overall 

goal in a given year, it would have to 

determine the reasons for its failure and 

establish corrective steps. 

Approximately 150 large recipients 

would transmit this analysis to DOT; 

smaller recipients would perform the 

analysis but would not be required to 

submit it to DOT. We estimate that 

about half of recipients would be subject 

to this requirement in a given year. 

Respondents: 525 (150 of which 

would have to submit reports to DOT). 

Frequency: Once per year. 

Estimated Average Burden per 

Response: 80 hours + 5 for recipients 

sending report to DOT. 

Estimated Total Annual Burden 

Hours: 42,750. 

Affidavit of Completeness (49 CFR 

26.45(c)(4)) 

When a firm certified in its home state 

seeks certification in another state 

(‘‘State B’’), the firm must provide an 

affidavit that the information the firm 

provides to State B is complete and is 

identical to that submitted to the home 

state. The calculation of the burden for 

this item assumes that there will be an 

average 2600 interstate applications 

each year to which this requirement 

would apply. This requirement takes 

effect a year from the effective date of 

this rule. 

Respondents: 2,600. 

Frequency: Once per year to a given 

recipient. 

Estimated Average Burden per 

Response: 1 hour. 

Estimated Total Annual Burden 

Hours: 2,600 hours. 

Transmittal of On-Site Report (49 CFR 

26.85(d)(1)) 

When a ‘‘State B’’ receives a request 

for certification from a firm certified in 

‘‘State A,’’ State A must promptly send 

a copy of that report to State B. This 

would involve simply emailing a PDF or 

other electronic copy of an existing 

report. This requirement takes effect one 

year from the effective date of this rule. 

Respondents: 52. 

Frequency: An average of 50 per year 

per recipient. 

Estimated Average Burden per 

Response: 1⁄2 hour. 

Estimated Total Annual Burden 

Hours: 1,300. 

Transmittal of Decertification/Denial 

Information (49 CFR 26.85(f)(1)) 

When a unified certification program 

(UCP) in a state denies a firm’s 

application for certification or 

decertifies the firm, it must 

electronically notify a DOT database of 

the fact. The information in the database 

is then available to other certification 

agencies for their reference. The 

calculation of the burden of this 

requirement assumes that there would 

be am average of 100 such actions per 

year by each UCP. 

Respondents: 52. 

Frequency: An average of 100 per year 

per recipient. 

Estimated Average Burden per 

Response: 1⁄2 hour. 

Estimated Total Annual Burden 

Hours: 2,600. 

Transmittal of Denial/Decertification 

Documents (49 CFR 26.85(f)(3)) 

When a UCP notes, from the DOT 

database, that a firm that has applied or 

been granted certification was denied or 

decertified elsewhere, the UCP would 

request a copy of the decision by the 

other state, which would then have to 

send a copy. The Department 

anticipates that this would be done by 

an email exchange, the response 

attaching a PDF or other electronic copy 

of an existing document. This 

requirement goes into effect a year from 

the effective date of the rule. 

Respondents: 52. 

Frequency: An average of 75 per year 

per recipient. 

Estimated Average Burden per 

Response: five minutes for the request; 1⁄2 hour for the response. 

Estimated Total Annual Burden 

Hours: 2,625. 

List of Subjects in 49 CFR Part 26 

Administrative practice and 

procedure, Airports, Civil rights, 

Government contracts, Grantprograms—transportation, Mass 

transportation, Minority businesses, 

Reporting and record keeping 

requirements. 

Issued this 11th day of January, 2011, at 

Washington, DC. 

Ray LaHood, 

Secretary of Transportation. 

For the reasons set forth in the 

preamble, the Department amends 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 part 26 is 

amended to read as follows: 

Authority: 23 U.S.C. 304 and 324; 42 

U.S.C. 2000d, et seq. ; 49 U.S.C. 47107, 

47113, 47123; Sec. 1101(b), Pub. L. 105–178, 

112 Stat. 107, 113. 

■ 2. In section 26.5, add a definition of 

‘‘Home state’’ in alphabetical order to 

read as follows: 

§ 26.5 What do the terms used in this part 

mean? 

* * * * * 

‘‘Home state’’ means the state in which 

a DBE firm or applicant for DBE 

certification maintains its principal 

place of business. 

* * * * * 

■ 3. In § 26.11, add paragraph (a) to read 

as follows: 

§ 26.11 What records do recipients keep 

and report? 

(a) You must transmit the Uniform 

Report of DBE Awards or Commitments 

and Payments, found in Appendix B to 

this part, at the intervals stated on the 

form. 

* * * * * 

■ 4. Revise § 26.31 to read as follows: 

§ 26.31 What information must you include 

in your DBE directory? 

(a) In the directory required under 

§ 26.81(g) of this Part, you must list all 

WReier-Aviles on DSKGBLS3C1PROD with RULES

Federal Register / Vol. 76, No. 19 / Friday, January 28, 2011 / Rules and Regulations 5097 

firms eligible to participate as DBEs in 

your program. In the listing for each 

firm, you must include its address, 

phone number, and the types of work 

the firm has been certified to perform as 

a DBE. 

(b) You must list each type of work for 

which a firm is eligible to be certified 

by using the most specific NAICS code 

available to describe each type of work. 

You must make any changes to your 

current directory entries necessary to 

meet the requirement of this paragraph 

(a) by August 26, 2011. 

■ 5. Revise § 26.37 (b) to read as follows: 

§ 26.37 What are a recipient’s 

responsibilities for monitoring the 

performance of other program participants? 

* * * * * 

(b) Your DBE program must also 

include a monitoring and enforcement 

mechanism to ensure that work 

committed to DBEs at contract award or 

subsequently (e.g., as the result of 

modification to the contract) is actually 

performed by the DBEs to which the 

work was committed. This mechanism 

must include a written certification that 

you have reviewed contracting records 

and monitored work sites in your state 

for this purpose. The monitoring to 

which this paragraph refers may be 

conducted in conjunction with 

monitoring of contract performance for 

other purposes (e.g., close-out reviews 

for a contract). 

* * * * * 

■ 6. Add § 26.39 to subpart B to read as 

follows: 

§ 26.39 Fostering small business 

participation. 

(a) Your DBE program must include 

an element to structure contracting 

requirements to facilitate competition 

by small business concerns, taking all 

reasonable steps to eliminate obstacles 

to their participation, including 

unnecessary and unjustified bundling of 

contract requirements that may preclude 

small business participation in 

procurements as prime contractors or 

subcontractors. 

(b) This element must be submitted to 

the appropriate DOT operating 

administration for approval as a part of 

your DBE program by February 28, 

2012. As part of this program element 

you may include, but are not limited to, 

the following strategies: 

(1) Establishing a race-neutral small 

business set-aside for prime contracts 

under a stated amount (e.g., $1 million). 

(2) In multi-year design-build 

contracts or other large contracts (e.g., 

for ‘‘megaprojects’’) requiring bidders on 

the prime contract to specify elements 

of the contract or specific subcontracts 

that are of a size that small businesses, 

including DBEs, can reasonably 

perform. 

(3) On prime contracts not having 

DBE contract goals, requiring the prime 

contractor to provide subcontracting 

opportunities of a size that small 

businesses, including DBEs, can 

reasonably perform, rather than selfperforming all the work involved. 

(4) Identifying alternative acquisition 

strategies and structuring procurements 

to facilitate the ability of consortia or 

joint ventures consisting of small 

businesses, including DBEs, to compete 

for and perform prime contracts. 

(5) To meet the portion of your overall 

goal you project to meet through raceneutral measures, ensuring that a 

reasonable number of prime contracts 

are of a size that small businesses, 

including DBEs, can reasonably 

perform. 

(c) You must actively implement your 

program elements to foster small 

business participation. Doing so is a 

requirement of good faith 

implementation of your DBE program. 

■ 7 . In § 26.45: 

■ a. Revise paragraphs (e)(2), (e)(3), 

(f)(1), and (f)(2); 

■ b. Redesignate paragraphs ((f)(3) and 

(f)(4) as (f)(6) and (f)(7), respectively; 

and 

■ c. Add new paragraphs (f)(3), (4), and 

(5). 

The revisions and addition read as 

follows: 

§ 26.45 How do recipients set overall 

goals? 

* * * * * 

(e) * * * 

(2) If you are an FTA or FAA 

recipient, as a percentage of all FT or 

FAA funds (exclusive of FTA funds to 

be used for the purchase of transit 

vehicles) that you will expend in FTA 

or FAA-assisted contracts in the three 

forthcoming fiscal years. 

(3) In appropriate cases, the FHWA, 

FTA or FAA Administrator may permit 

or require you to express your overall 

goal as a percentage of funds for a 

particular grant or project or group of 

grants and/or projects. Like other overall 

goals, a project goal may be adjusted to 

reflect changed circumstances, with the 

concurrence of the appropriate 

operating administration. 

(i) A project goal is an overall goal, 

and must meet all the substantive and 

procedural requirements of this section 

pertaining to overall goals. 

(ii) A project goal covers the entire 

length of the project to which it applies. 

(iii) The project goal should include a 

projection of the DBE participation 

anticipated to be obtained during each 

fiscal year covered by the project goal. 

(iv) The funds for the project to which 

the project goal pertains are separated 

from the base from which your regular 

overall goal, applicable to contracts not 

part of the project covered by a project 

goal, is calculated. 

(f)(1)(i) If you set your overall goal on 

a fiscal year basis, you must submit it 

to the applicable DOT operating 

administration by August 1 at three-year 

intervals, based on a schedule 

established by the FHWA, FTA, or FAA, 

as applicable, and posted on that 

agency’s Web site. 

(ii) You may adjust your three-year 

overall goal during the three-year period 

to which it applies, in order to reflect 

changed circumstances. You must 

submit such an adjustment to the 

concerned operating administration for 

review and approval. 

(iii) The operating administration may 

direct you to undertake a review of your 

goal if necessary to ensure that the goal 

continues to fit your circumstances 

appropriately. 

(iv) While you are required to submit 

an overall goal to FHWA, FTA, or FAA 

only every three years, the overall goal 

and the provisions of Sec. 26.47(c) 

apply to each year during that three-year 

period. 

(v) You may make, for informational 

purposes, projections of your expected 

DBE achievements during each of the 

three years covered by your overall goal. 

However, it is the overall goal itself, and 

not these informational projections, to 

which the provisions of section 26.47(c) 

of this part apply. 

(2) If you are a recipient and set your 

overall goal on a project or grant basis 

as provided in paragraph (e)(3) of this 

section, you must submit the goal for 

review at a time determined by the 

FHWA, FTA or FAA Administrator, as 

applicable. 

(3) You must include with your 

overall goal submission a description of 

the methodology you used to establish 

the goal, incuding your base figure and 

the evidence with which it was 

calculated, and the adjustments you 

made to the base figure and the 

evidence you relied on for the 

adjustments. You should also include a 

summary listing of the relevant 

available evidence in your jurisdiction 

and, where applicable, an explanation 

of why you did not use that evidence to 

adjust your base figure. You must also 

include your projection of the portions 

of the overall goal you expect to meet 

through race-neutral and race-consioous 

measures, respectively (see 26.51(c)). 

(4) You are not required to obtain 

prior operating administration 

concurrence with your overall goal. 

However, if the operating 

WReier-Aviles on DSKGBLS3C1PROD with RULES

5098 Federal Register / Vol. 76, No. 19 / Friday, January 28, 2011 / Rules and Regulations 

administration’s review suggests that 

your overall goal has not been correctly 

calculated, or that your method for 

calculating goals is inadequate, the 

operating administration may, after 

consulting with you, adjust your overall 

goal or require that you do so. The 

adjusted overall goal is binding on you. 

(5) If you need additional time to 

collect data or take other steps to 

develop an approach to setting overall 

goals, you may request the approval of 

the concerned operating administration 

for an interim goal and/or goal-setting 

mechanism. Such a mechanism must: 

(i) Reflect the relative availability of 

DBEs in your local market to the 

maximum extent feasible given the data 

available to you; and 

(ii) Avoid imposing undue burdens on 

non-DBEs. 

* * * * * 

■ 8. In § 26.47, add paragraphs (c) and 

(d) to read as follows: 

§ 26.47 Can recipients be penalized for 

failing to meet overall goals? 

* * * * * 

(c) If the awards and commitments 

shown on your Uniform Report of 

Awards or Commitments and Payments 

at the end of any fiscal year are less than 

the overall goal applicable to that fiscal 

year, you must do the following in order 

to be regarded by the Department as 

implementing your DBE program in 

good faith: 

(1) Analyze in detail the reasons for 

the difference between the overall goal 

and your awards and commitments in 

that fiscal year; 

(2) Establish specific steps and 

milestones to correct the problems you 

have identified in your analysis and to 

enable you to meet fully your goal for 

the new fiscal year; 

(3)(i) If you are a state highway 

agency; one of the 50 largest transit 

authorities as determined by the FTA; or 

an Operational Evolution Partnership 

Plan airport or other airport designated 

by the FAA, you must submit, within 90 

days of the end of the fiscal year, the 

analysis and corrective actions 

developed under paragraphs (c)(1) and 

(2) of this section to the appropriate 

operating administration for approval. If 

the operating administration approves 

the report, you will be regarded as 

complying with the requirements of this 

section for the remainder of the fiscal 

year. 

(ii) As a transit authority or airport 

not meeting the criteria of paragraph 

(c)(3)(i) of this section, you must retain 

analysis and corrective actions in your 

records for three years and make it 

available to FTA or FAA on request for 

their review. 

(4) FHWA, FTA, or FAA may impose 

conditions on the recipient as part of its 

approval of the recipient’s analysis and 

corrective actions including, but not 

limited to, modifications to your overall 

goal methodology, changes in your raceconscious/race-neutral split, or the 

introduction of additional race-neutral 

or race-conscious measures. 

(5) You may be regarded as being in 

noncompliance with this Part, and 

therefore subject to the remedies in 

§ 26.103 or § 26.105 of this part and 

other applicable regulations, for failing 

to implement your DBE program in good 

faith if any of the following things 

occur: 

(i) You do not submit your analysis 

and corrective actions to FHWA, FTA, 

or FAA in a timely manner as required 

under paragraph (c)(3) of this section; 

(ii) FHWA, FTA, or FAA disapproves 

your analysis or corrective actions; or 

(iii) You do not fully implement the 

corrective actions to which you have 

committed or conditions that FHWA, 

FTA, or FAA has imposed following 

review of your analysis and corrective 

actions. 

(d) If, as recipient, your Uniform 

Report of DBE Awards or Commitments 

and Payments or other information 

coming to the attention of FTA, FHWA, 

or FAA, demonstrates that current 

trends make it unlikely that you will 

achieve DBE awards and commitments 

that would be necessary to allow you to 

meet your overall goal at the end of the 

fiscal year, FHWA, FTA, or FAA, as 

applicable, may require you to make 

further good faith efforts, such as by 

modifying your race-conscious/raceneutral split or introducing additional 

race-neutral or race-conscious measures 

for the remainder of the fiscal year. 

■ 9. In § 26.51, revise paragraphs (b)(1) 

and (f)(1) to read as follows: 

§ 26.51 What means do recipients use to 

meet overall goals? 

* * * * * 

(b)* * * 

(1) Arranging solicitations, times for 

the presentation of bids, quantities, 

specifications, and delivery schedules 

in ways that facilitate participation by 

DBEs and other small businesses and by 

making contracts more accessible to 

small businesses, by means such as 

those provided under § 26.39 of this 

part. 

* * * * * 

(f) * * * 

(1) If your approved projection under 

paragraph (c) of this section estimates 

that you can meet your entire overall 

goal for a given year through raceneutral means, you must implement 

your program without setting contract 

goals during that year, unless it becomes 

necessary in order meet your overall 

goal. 

Example to paragraph (f)(1): Your 

overall goal for Year 1 is 12 percent. 

You estimate that you can obtain 12 

percent or more DBE participation 

through the use of race-neutral 

measures, without any use of contract 

goals. In this case, you do not set any 

contract goals for the contracts that will 

be performed in Year 1. However, if part 

way through Year 1, your DBE awards 

or commitments are not at a level that 

would permit you to achieve your 

overall goal for Year 1, you could begin 

setting race-conscious DBE contract 

goals during the remainder of the year 

as part of your obligation to implement 

your program in good faith. 

* * * * * 

■ 10. In § 26.53: 

■ a. Redesignate paragraph (g) as 

paragraph (i); 

■ b. Redesignate paragraphs (f)(2) and 

(3) as paragraphs (g) and (h), 

respectively; 

■ c. Revise paragraph (f)(1); and 

■ d. Add new paragraphs (f)(2) through 

(6) to read as follows: 

§ 26.53 What are the good faith efforts 

procedures recipients follow in situations 

where there are contract goals? 

* * * * * 

(f)(1) You must require that a prime 

contractor not terminate a DBE 

subcontractor listed in response to 

paragraph (b)(2) of this section (or an 

approved substitute DBE firm) without 

your prior written consent. This 

includes, but is not limited to, instances 

in which a prime contractor seeks to 

perform work originally designated for a 

DBE subcontractor with its own forces 

or those of an affiliate, a non-DBE firm, 

or with another DBE firm. 

(2) You may provide such written 

consent only if you agree, for reasons 

stated in your concurrence document, 

that the prime contractor has good cause 

to terminate the DBE firm. 

(3) For purposes of this paragraph, 

good cause includes the following 

circumstances: 

(i) The listed DBE subcontractor fails 

or refuses to execute a written contract; 

(ii) The listed DBE subcontractor fails 

or refuses to perform the work of its 

subcontract in a way consistent with 

normal industry standards. Provided, 

however, that good cause does not exist 

if the failure or refusal of the DBE 

subcontractor to perform its work on the 

subcontract results from the bad faith or 

discriminatory action of the prime 

contracor; 

(iii) The listed DBE subcontractor fails 

or refuses to meet the prime contractor’s 

WReier-Aviles on DSKGBLS3C1PROD with RULES

Federal Register / Vol. 76, No. 19 / Friday, January 28, 2011 / Rules and Regulations 5099 

reasonable, nondisrciminatory bond 

requirements. 

(iv) The listed DBE subcontractor 

becomes bankrupt, insolvent, or exhibits 

credit unworthiness; 

(v) The listed DBE subcontractor is 

ineligible to work on public works 

projects because of suspension and 

debarment proceedings pursuant 2 CFR 

Parts 180, 215 and 1,200 or applicable 

state law; 

(vii) You have determined that the 

listed DBE subcontractor is not a 

responsible contractor; 

(vi) The listed DBE subcontractor 

voluntarily withdraws from the project 

and provides to you written notice of its 

withdrawal; 

(vii) The listed DBE is ineligible to 

receive DBE credit for the type of work 

required; 

(viii) A DBE owner dies or becomes 

disabled with the result that the listed 

DBE contractor is unable to complete its 

work on the contract; 

(ix) Other documented good cause 

that you determine compels the 

termination of the DBE subcontractor. 

Provided, that good cause does not exist 

if the prime contractor seeks to 

terminate a DBE it relied upon to obtain 

the contract so that the prime contractor 

can self-perform the work for which the 

DBE contractor was engaged or so that 

the prime contractor can substitute 

another DBE or non-DBE contractor after 

contract award. 

(4) Before transmitting to you its 

request to terminate and/or substitute a 

DBE subcontractor, the prime contractor 

must give notice in writing to the DBE 

subcontractor, with a copy to you, of its 

intent to request to terminate and/or 

substitute, and the reason for the 

request. 

(5) The prime contractor must give the 

DBE five days to respond to the prime 

contractor’s notice and advise you and 

the contractor of the reasons, if any, 

why it objects to the proposed 

termination of its subcontract and why 

you should not approve the prime 

contractor’s action. If required in a 

particular case as a matter of public 

necessity (e.g., safety), you may provide 

a response period shorter than five days. 

(6) In addition to post-award 

terminations, the provisions of this 

section apply to preaward deletions of 

or substitutions for DBE firms put 

forward by offerors in negotiated 

procurements. 

* * * * * 

■ 11. In § 26.67, revise paragraphs 

(a)(2)(i) and (iv), and in paragraphs (b), 

(c), and (d), remove ‘‘$750,000’’ and add 

in its place ‘‘$1.32 million’’. 

The revisions read as follows: 

§ 26.67 What rules determine social and 

economic disadvantage? 

(a) * * * 

(2)(i) You must require each 

individual owner of a firm applying to 

participate as a DBE, 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 $1.32 million. 

* * * * * 

(iv) Notwithstanding any provision of 

Federal or state law, you must not 

release an individual’s personal net 

worth statement nor any documents 

pertaining to it to any third party 

without the written consent of the 

submitter. Provided, that you must 

transmit this information to DOT in any 

certification appeal proceeding under 

section 26.89 of this part or to any other 

state to which the individual’s firm has 

applied for certification under § 26.85 of 

this part. 

* * * * * 

■ 12. Revise § 26.71(n) to read as 

follows: 

§ 26.71 What rules govern determinations 

concerning control? 

* * * * * 

(n) You must grant certification to a 

firm only for specific types of work in 

which the socially and economically 

disadvantaged owners have the ability 

to control the firm. To become certified 

in an additional type of work, the firm 

need demonstrate to you only that its 

socially and economically 

disadvantaged owners are able to 

control the firm with respect to that type 

of work. You must not require that the 

firm be recertified or submit a new 

application for certification, but you 

must verify the disadvantaged owner’s 

control of the firm in the additional type 

of work. 

(1) The types of work a firm can 

perform (whether on initial certification 

or when a new type of work is added) 

must be described in terms of the most 

specific available NAICS code for that 

type of work. If you choose, you may 

also, in addition to applying the 

appropriate NAICS code, apply a 

descriptor from a classification scheme 

of equivalent detail and specificity. A 

correct NAICS code is one that 

describes, as specifically as possible, the 

principal goods or services which the 

firm would provide to DOT recipients. 

Multiple NAICS codes may be assigned 

where appropriate. Program participants 

must rely on, and not depart from, the 

plain meaning of NAICS code 

descriptions in determining the scope of 

a firm’s certification. If your Directory 

does not list types of work for any firm 

in a manner consistent with this 

paragraph (a)(1), you must update the 

Directory entry for that firm to meet the 

requirements of this paragraph (a)(1) by 

August 28, 2011. 

(2) Firms and recipients must check 

carefully to make sure that the NAICS 

codes cited in a certification are kept 

up-to-date and accurately reflect work 

which the UCP has determined the 

firm’s owners can control. The firm 

bears the burden of providing detailed 

company information the certifying 

agency needs to make an appropriate 

NAICS code designation. 

(3) If a firm believes that there is not 

a NAICS code that fully or clearly 

describes the type(s) of work in which 

it is seeking to be certified as a DBE, the 

firm may request that the certifying 

agency, in its certification 

documentation, supplement the 

assigned NAICS code(s) with a clear, 

specific, and detailed narrative 

description of the type of work in which 

the firm is certified. A vague, general, or 

confusing description is not sufficient 

for this purpose, and recipients should 

not rely on such a description in 

determining whether a firm’s 

participation can be counted toward 

DBE goals. 

(4) A certifier is not precluded from 

changing a certification classification or 

description if there is a factual basis in 

the record. However, certifiers must not 

make after-the-fact statements about the 

scope of a certification, not supported 

by evidence in the record of the 

certification action. 

* * * * * 

■ 13. Revise § 26.73(b) to read as 

follows: 

§ 26.73 What are other rules affecting 

certification? 

* * * * * 

(b)(1) You must evaluate the 

eligibility of a firm on the basis of 

present circumstances. You must not 

refuse to certify a firm based solely on 

historical information indicating a lack 

of ownership or control of the firm by 

socially and economically 

disadvantaged individuals at some time 

in the past, if the firm currently meets 

the ownership and control standards of 

this part. 

(2) You must not refuse to certify a 

firm solely on the basis that it is a newly 

formed firm, has not completed projects 

or contracts at the time of its 

application, has not yet realized profits 

from its activities, or has not 

demonstrated a potential for success. If 

the firm meets disadvantaged, size, 

ownership, and control requirements of 

WReier-Aviles on DSKGBLS3C1PROD with RULES

5100 Federal Register / Vol. 76, No. 19 / Friday, January 28, 2011 / Rules and Regulations 

this Part, the firm is eligible for 

certification. 

* * * * * 

§ 26.81 [Amended] 

■ 14. Amend § 26.81(g) by removing the 

word ‘‘section’’ and adding in its place 

the word ‘‘part’’ and by removing the 

period at the end of the last sentence 

and adding the words ‘‘and shall revise 

the print version of the Directory at least 

once a year.’’ 

■ 15. In § 26.83, remove and reserve 

paragraph (e), revise paragraph (h), and 

add paragraphs (l) and (m) to read as 

follows: 

§ 26.83 What procedures do recipients 

follow in making certification decisions? 

* * * * * 

(h) Once you have certified a DBE, it 

shall remain certified until and unless 

you have removed its certification, in 

whole or in part, through the procedures 

of section 26.87. You may not require 

DBEs to reapply for certification or 

require ‘‘recertification’’ of currently 

certified firms. However, you may 

conduct a certification review of a 

certified DBE firm, including a new onsite review, three years from the date of 

the firm’s most recent certification, or 

sooner if appropriate in light of changed 

circumstances (e.g., of the kind 

requiring notice under paragraph (i) of 

this section), a complaint, or other 

information concerning the firm’s 

eligibility. If you have grounds to 

question the firm’s eligibility, you may 

conduct an on-site review on an 

unannounced basis, at the firm’s offices 

and jobsites. 

* * * * * 

(l) As a recipient or UCP, you must 

advise each applicant within 30 days 

from your receipt of the application 

whether the application is complete and 

suitable for evaluation and, if not, what 

additional information or action is 

required. 

(m) Except as otherwise provided in 

this paragraph, if an applicant for DBE 

certification withdraws its application 

before you have issued a decision on the 

application, the applicant can resubmit 

the application at any time. As a 

recipient or UCP, you may not apply the 

waiting period provided under 

§ 26.86(c) of this part before allowing 

the applicant to resubmit its 

application. However, you may place 

the reapplication at the ‘‘end of the line,’’ 

behind other applications that have 

been made since the firm’s previous 

application was withdrawn. You may 

also apply the waiting period provided 

under § 26.86(c) of this part to a firm 

that has established a pattern of 

frequently withdrawing applications 

before you make a decision. 

§ 26.84 [Removed] 

■ 16. Remove section 26.84. 

■ 17. Revise § 26.85 to read as follows 

§ 26.85 Interstate certification. 

(a) This section applies with respect 

to any firm that is currently certified in 

its home state. 

(b) When a firm currently certified in 

its home state (‘‘State A’’) applies to 

another State (‘‘State B’’) for DBE 

certification, State B may, at its 

discretion, accept State A’s certification 

and certify the firm, without further 

procedures. 

(1) To obtain certification in this 

manner, the firm must provide to State 

B a copy of its certification notice from 

State A. 

(2) Before certifying the firm, State B 

must confirm that the firm has a current 

valid certification from State A. State B 

can do so by reviewing State A’s 

electronic directory or obtaining written 

confirmation from State A. 

(c) In any situation in which State B 

chooses not to accept State A’s 

certification of a firm as provided in 

paragraph (b) of this section, as the 

applicant firm you must provide the 

information in paragraphs (c)(1) through 

(4) of this section to State B. 

(1) You must provide to State B a 

complete copy of the application form, 

all supporting documents, and any other 

information you have submitted to State 

A or any other state related to your 

firm’s certification. This includes 

affidavits of no change (see § 26.83(j)) 

and any notices of changes (see 

§ 26.83(i)) that you have submitted to 

State A, as well as any correspondence 

you have had with State A’s UCP or any 

other recipient concerning your 

application or status as a DBE firm. 

(2) You must also provide to State B 

any notices or correspondence from 

states other than State A relating to your 

status as an applicant or certified DBE 

in those states. For example, if you have 

been denied certification or decertified 

in State C, or subject to a decertification 

action there, you must inform State B of 

this fact and provide all documentation 

concerning this action to State B. 

(3) If you have filed a certification 

appeal with DOT (see § 26.89), you must 

inform State B of the fact and provide 

your letter of appeal and DOT’s 

response to State B. 

(4) You must submit an affidavit 

sworn to by the firm’s owners before a 

person who is authorized by State law 

to administer oaths or an unsworn 

declaration executed under penalty of 

perjury of the laws of the United States. 

(i) This affidavit must affirm that you 

have submitted all the information 

required by 49 CFR 26.85(c) and the 

information is complete and, in the case 

of the information required by 

§ 26.85(c)(1), is an identical copy of the 

information submitted to State A. 

(ii) If the on-site report from State A 

supporting your certification in State A 

is more than three years old, as of the 

date of your application to State B, State 

B may require that your affidavit also 

affirm that the facts in the on-site report 

remain true and correct. 

(d) As State B, when you receive from 

an applicant firm all the information 

required by paragraph (c) of this section, 

you must take the following actions: 

(1) Within seven days contact State A 

and request a copy of the site visit 

review report for the firm (see 

§ 26.83(c)(1)), any updates to the site 

visit review, and any evaluation of the 

firm based on the site visit. As State A, 

you must transmit this information to 

State B within seven days of receiving 

the request. A pattern by State B of not 

making such requests in a timely 

manner or by ‘‘State A’’ or any other 

State of not complying with such 

requests in a timely manner is 

noncompliance with this Part. 

(2) Determine whether there is good 

cause to believe that State A’s 

certification of the firm is erroneous or 

should not apply in your State. Reasons 

for making such a determination may 

include the following: 

(i) Evidence that State A’s 

certification was obtained by fraud; 

(ii) New information, not available to 

State A at the time of its certification, 

showing that the firm does not meet all 

eligibility criteria; 

(iii) State A’s certification was 

factually erroneous or was inconsistent 

with the requirements of this part; 

(iv) The State law of State B requires 

a result different from that of the State 

law of State A. 

(v) The information provided by the 

applicant firm did not meet the 

requirements of paragraph (c) of this 

section. 

(3) If, as State B, unless you have 

determined that there is good cause to 

believe that State A’s certification is 

erroneous or should not apply in your 

State, you must, no later than 60 days 

from the date on which you received 

from the applicant firm all the 

information required by paragraph (c) of 

this section, send to the applicant firm 

a notice that it is certified and place the 

firm on your directory of certified firms. 

(4) If, as State B, you have determined 

that there is good cause to believe that 

State A’s certification is erroneous or 

should not apply in your State, you 

WReier-Aviles on DSKGBLS3C1PROD with RULES

Federal Register / Vol. 76, No. 19 / Friday, January 28, 2011 / Rules and Regulations 5101 

must, no later than 60 days from the 

date on which you received from the 

applicant firm all the information 

required by paragraph (c) of this section, 

send to the applicant firm a notice 

stating the reasons for your 

determination. 

(i) This notice must state with 

particularity the specific reasons why 

State B believes that the firm does not 

meet the requirements of this Part for 

DBE eligibility and must offer the firm 

an opportunity to respond to State B 

with respect to these reasons. 

(ii) The firm may elect to respond in 

writing, to request an in-person meeting 

with State B’s decision maker to discuss 

State B’s objections to the firm’s 

eligibility, or both. If the firm requests 

a meeting, as State B you must schedule 

the meeting to take place within 30 days 

of receiving the firm’s request. 

(iii) The firm bears the burden of 

demonstrating, by a preponderance of 

evidence, that it meets the requirements 

of this Part with respect to the 

particularized issues raised by State B’s 

notice. The firm is not otherwise 

responsible for further demonstrating its 

eligibility to State B. 

(iv) The decision maker for State B 

must be an individual who is 

thoroughly familiar with the provisions 

of this Part concerning certification. 

(v) State B must issue a written 

decision within 30 days of the receipt of 

the written response from the firm or 

the meeting with the decision maker, 

whichever is later. 

(vi) The firm’s application for 

certification is stayed pending the 

outcome of this process. 

(vii) A decision under this paragraph 

(d)(4) may be appealed to the 

Departmental Office of Civil Rights 

under s§ 26.89 of this part. 

(e) As State B, if you have not 

received from State A a copy of the site 

visit review report by a date 14 days 

after you have made a timely request for 

it, you may hold action required by 

paragraphs (d)(2) through (4) of this 

section in abeyance pending receipt of 

the site visit review report. In this event, 

you must, no later than 30 days from the 

date on which you received from an 

applicant firm all the information 

required by paragraph (c) of this section, 

notify the firm in writing of the delay in 

the process and the reason for it. 

(f)(1) As a UCP, when you deny a 

firm’s application, reject the application 

of a firm certified in State A or any other 

State in which the firm is certified, 

through the procedures of paragraph 

(d)(4) of this section, or decertify a firm, 

in whole or in part, you must make an 

entry in the Department of 

Transportation Office of Civil Rights’ 

(DOCR’s) Ineligibility Determination 

Online Database. You must enter the 

following information: 

(i) The name of the firm; 

(ii) The name(s) of the firm’s owner(s); 

(iii) The type and date of the action; 

(iv) The reason for the action. 

(2) As a UCP, you must check the 

DOCR Web site at least once every 

month to determine whether any firm 

that is applying to you for certification 

or that you have already certified is on 

the list. 

(3) For any such firm that is on the 

list, you must promptly request a copy 

of the listed decision from the UCP that 

made it. As the UCP receiving such a 

request, you must provide a copy of the 

decision to the requesting UCP within 7 

days of receiving the request. As the 

UCP receiving the decision, you must 

then consider the information in the 

decision in determining what, if any, 

action to take with respect to the 

certified DBE firm or applicant. 

(g) You must implement the 

requirements of this section beginning 

January 1, 2012. 

§ 26.87 [Amended] 

■ 18. In § 26.87, remove and reserve 

paragraph (h). 

§ 26.107 [Amended] 

■ 19. In § 26.107, in paragraphs (a) and 

(b), remove ‘‘49 CFR part 29’’ and add in 

its place, ‘‘2 CFR parts 180 and 1200’’. 

■ 20. In § 26.109, revise paragraph (a)(2) 

to read as follows: 

§ 26.109 What are the rules governing 

information, confidentiality, cooperation, 

and intimidation or retaliation? 

(a) * * * 

(2) Notwithstanding any provision of 

Federal or state law, you must not 

release any information that may 

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 

information. However, you must 

transmit this information to DOT in any 

certification appeal proceeding under 

§ 26.89 of this part or to any other state 

to which the individual’s firm has 

applied for certification under § 26.85 of 

this part. 

* * * * * 

[FR Doc. 2011–1531 Filed 1–27–11; 8:45 am] 

BILLING CODE 4910–9X–P 

WReier-Aviles on DSKGBLS3C1PROD with RULES