Vol. 77 Thursday, 

No. 173 September 6, 2012 

Part II 

Department of Transportation 

49 CFR Part 26 

Disadvantaged Business Enterprise: Program Implementation Modifications; 

Proposed Rule 


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54952 Federal Register / Vol. 77, No. 173 / Thursday, September 6, 2012 / Proposed Rules 

DEPARTMENT OF TRANSPORTATION 

Office of the Secretary 

49 CFR Part 26 

[Docket No. OST–2012–0147] 

RIN 2105–AE08 

Disadvantaged Business Enterprise: 

Program Implementation Modifications 

AGENCY: Office of the Secretary (OST), 

DOT. 

ACTION: Notice of Proposed Rulemaking 

(NPRM). 

SUMMARY: This notice of proposed 

rulemaking (NPRM) proposes three 

categories of changes to improve 

implementation of the Department of 

Transportation’s disadvantaged business 

enterprise (DBE) rule. First, the NPRM 

proposes revisions to personal net 

worth, application, and reporting forms. 

Second, the NPRM proposes 

modifications to certification-related 

provisions of the rule. Third, the NPRM 

would modify several other provisions 

of the rule, concerning such subjects as 

good faith efforts, transit vehicle 

manufacturers and counting of trucking 

companies. 

DATES: Comments on this proposed rule 

must be received by November 5, 2012. 

ADDRESSES: You may submit comments 

(identified by the agency name and DOT 

Docket ID Number OST–2012–0147) by 

any of the following methods: 

• Federal Rulemaking Portal: Go to 

www.regulations.gov and follow the 

online instructions for submitting 

comments. 

• Mail: Docket Management Facility: 

U.S. Department of Transportation, 1200 

New Jersey Avenue SE., West Building 

Ground Floor, Room W12–140, 

Washington, DC 20590–0001. 

• Hand Delivery or Courier: West 

Building Ground Floor, Room W12–140, 

1200 New Jersey Avenue SE., between 

9 a.m. and 5 p.m. ET, Monday through 

Friday, except Federal holidays. 

• Fax: 202–493–2251. 

Note that all comments received will 

become part of the docket and will be 

posted without change to 

www.regulations.gov including any 

personal information provided and will 

be available to internet users. You may 

review DOT’s complete Privacy Act 

Statement in the Federal Register 

published on April 11, 2000 (65 FR 

19477) or you may visit http:// 

www.gpo.gov/fdsys/pkg/FR2010-29/pdf/ 

2010-32876.pdfDocket. For internet 

access to the docket to read background 

documents and comments received, go 

to www.regulations.gov. Background 

documents and comments received may 

also be viewed at the U.S. Department 

of Transportation, 1200 New Jersey Ave 

SE., Docket Operations, M–30, West 

Building Ground Floor, Room W12–140, 

Washington, DC 20590, between 9 a.m. 

and 5 p.m., Monday through Friday, 

except Federal holidays. 

FOR FURTHER INFORMATION CONTACT: Jo 

Anne Robinson, Office of General Law, 

U.S. Department of Transportation, 1200 

New Jersey Avenue SE., Washington, 

DC 20590, 202–366–9154, 

joanne.robinson@dot.gov. 

SUPPLEMENTARY INFORMATION: In January 

2011, the Department published a final 

rule making a number of important 

policy changes to the DBE program. 

These included requiring greater 

accountability for recipients with 

respect to meeting overall goals, 

adjusting the Part 26 personal net worth 

cap applicable to owners of DBE firms 

for inflation to $1.32 million, requiring 

greater monitoring of contracts by 

recipients, adding a small business 

element to recipients’ DBE programs, 

and facilitating interstate certification. 

In order not to delay these policy 

initiatives, the rulemaking did not 

include other, more technical, program 

improvements. These include 

modifications to the forms involved 

with the program, changes to 

certification-related provisions in 

response to eligibility concerns that 

have come to the Department’s 

attention, and modifications to a variety 

of other program provisions. This NPRM 

addresses this series of issues. The 

Department notes that the DBE program 

was recently reauthorized in the Moving 

Ahead for Progress in the 21st Century 

Act (‘MAP–21’), Public Law 112–141 

(enacted July 6, 2012). The Department 

believes that this reauthorization is 

intended to maintain the status quo of 

the DBE program and does not include 

any significant substantive changes to 

the program. 

Forms 

Personal Net Worth (PNW) Form and 

Related Requirements of 49 CFR 26.67 

In an advance notice of proposed 

rulemaking (74 FR 15904; April 8, 

2009), the Department asked for 

comments on potential improvements to 

the rule’s PNW form. Some comments 

sought to simplify the forms, and other 

comments recommended additions. A 

number of commenters provided 

detailed suggestions about how the form 

should be configured. Based on the 

comments, as well as on the 

Department’s experience with reviewing 

certification appeals and other issues 

that have come to the Department’s 

attention, the Department is proposing a 

revised PNW form. 

With respect to the PNW form, we 

mentioned in a June 2003 revision to 

Part 26 that we had not found anything 

more appropriate to capture a snapshot 

of a person’s net worth than a Small 

Business administration (SBA) Form 

413, and we included it in the 

Appendix. Some commenters 

recommended use of this form, with 

some modifications. 

We have learned of several concerns 

regarding SBA Form 413. First, the 

instructions require each partner or 

stockholder with 20% ownership or 

more of voting stock to complete the 

form. This is not required by Part 26 and 

has caused some confusion. Second, in 

order to determine whether an 

applicant’s net worth is below the 

threshold, more detailed information is 

needed by recipients than the SBA form 

provides. Third, an applicant has 

limited space for entering information, 

and it appears they are often 

supplementing their entries with 

separate documents. To correct these 

problems and help alleviate these 

concerns, the Department is proposing, 

in section 26.67 (a)(2)(i), the use of a 

newly designed PNW statement along 

with the accompanying instruction 

sheet (see the proposed Appendix B of 

the regulation) for use by all applicants 

to the program and those submitting 

annual affidavits. The Department 

would encourage recipients to post the 

new form electronically in a screenfillable format on their Web site to allow 

users to complete and print the form online. 

One commenter suggested that the 

Department mandate that the form be 

used without modification and that 

regulatory provisions be added to 

address violations by Uniform 

Certification Programs (UCPs) that 

modify the forms. We agree that the 

standard personal net worth form 

contained in Appendix G should be 

used in all cases and have stated so in 

this proposed revision. We understand, 

however, that individual situations and 

unique financial arrangements within 

certain industries may make it necessary 

for recipients to seek additional 

information beyond what is provided on 

the form. 

For instance, if an applicant reports 

other business interests in section 5 of 

the new form, recipients should 

ascertain the value of these entities by 

obtaining financial statements, balance 

sheets, and federal/state tax returns. 

With this information, recipients will be 

able to verify the applicant’s valuation 

of their ownership interests in these 

other firms. Similarly, an applicant 


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reporting stock and bond holdings 

should be asked to provide quarterly 

account statements. Also, directly 

written on the form in section 2 (Real 

Estate Owner) is the requirement that 

applicants submit copies of real estate 

deeds, mortgage notes, and instruments 

of conveyance. In short, recipients are 

encouraged, during their review of the 

firm’s eligibility, to look behind the 

statement and these submissions, and 

request additional information if 

necessary. Firms must cooperate with 

these requests pursuant to § 26.73(c) and 

§ 26.109(c), and a failure or refusal to 

provide such information is a ground for 

a denial or removal of certification. 

We propose to amend paragraphs 

(a)(2)(ii) and (iii) to stress that the PNW 

statement must include all assets owned 

by the individual, including any 

ownership interests in the applicant 

firm, personal assets, and the value of 

his or her personal residence excluding 

the equity. Item iii(B) clarifies that the 

equity in an owner’s primary residence 

is the market value of the residence less 

any mortgages and home equity loan 

balances. It also states the basic 

consideration that recipients are to 

ensure that home equity loan balances 

are included in the equity calculation 

and not as a separate liability on the 

individual’s personal net worth form. 

Paragraph (b) of § 26.67 currently 

states that if an individual’s statement of 

personal net worth shows that he or she 

exceeds the limitation of $1.32 million 

the individual’s presumption of 

disadvantage is rebutted. 

We propose adding a second 

component to this statement taken from 

the Department’s long-standing 

guidance on personal net worth—if the 

person demonstrates an ability to 

accumulate substantial wealth, has 

unlimited growth potential, or has not 

experienced or has not had to overcome 

impediments to obtaining access to 

financing, markets, and resources, the 

individual’s presumption of economic 

disadvantage is rebutted, even if the 

individual’s PNW is less than $1.32 

million. As stated in this new section 

and demonstrated in an example 

contained in the regulation text, it is 

appropriate for recipients to review the 

total fair market value of the 

individual’s assets and determine if that 

level appears to be substantial and 

indicates an ability to accumulate 

substantial wealth. If a recipient makes 

this determination this may lead to a 

conclusion that the individual is not 

economically disadvantaged. The 

purpose of this proposed amendment is 

to give recipients a tool to exclude from 

the program someone who, in overall 

assets terms, is what a reasonable 

person would consider to be a wealthy 

individual, even if one with liabilities 

sufficient to bring his or her PNW under 

$1.32 million. The Department also 

seeks comment on whether a more 

bright-line approach would be 

preferable, such as saying that someone 

whose Adjusted Gross Income on his or 

her Federal income tax return was over 

$1 million for two or three years in a 

row would lose the presumption of 

economic disadvantage, regardless of 

PNW. 

In certain instances, assets that 

individuals have transferred two years 

prior to filing their certification 

application may be counted when 

calculating their PNW. These 

circumstances are currently described in 

Appendix E, which attributes to an 

individual claiming disadvantaged 

status any assets which that individual 

has transferred to an immediate family 

member, or to a trust a beneficiary of 

which is an immediate family member, 

for less than fair market value, within 

two years prior to a concern’s 

application for participation in the DBE 

program or within two years of a 

participant’s annual program review. 

The Department proposes to add this 

same language directly to the regulation 

text at § 26.67 in a new paragraph (e). 

We are also proposing to add a 

provision concerning transfers from the 

DBE owner to the applicant firm. This 

is necessary for two reasons. First, the 

placement of the added language within 

the current section better emphasizes 

the importance of considering transfers 

of funds from the DBE owner to the 

applicant firm when assessing a 

person’s economic disadvantage. 

Second, we have learned of situations in 

which DBE owner/applicants are 

shielding a portion of their personal 

assets by transferring them to the 

applicant firm that he/she owns and 

controls. The Department recognizes 

that such financial transactions may be 

an acceptable business practice; 

however, we also recognize that asset 

transfers can be used to artificially 

depress their PNW in order to qualify 

for the program. Because the regulation 

excludes the ownership interest in the 

applicant firm in calculating its owner’s 

PNW, the ability to transfer one’s 

personal assets to this entity would 

defeat the purpose of ensuring that only 

economically disadvantaged individuals 

participate in the DBE program. 

Additional portions of this section 

taken from Appendix E would be 

retained. These provisions state that 

transfers will be included in a person’s 

net worth unless the individual 

claiming disadvantaged status can 

demonstrate that the transfer is to, or on 

behalf of, an immediate family member 

for that individual’s education, medical 

expenses, or some other form of 

essential support. In addition, recipients 

are not to attribute to an individual 

claiming disadvantaged status any 

assets transferred by that individual to 

an immediate family member that are 

consistent with the customary 

recognition of special occasions, such as 

birthdays, graduations, anniversaries, 

and retirements. The Department seeks 

comment on whether these exceptions 

to the inclusions of transfers in 

someone’s PNW would open an overly 

wide opportunity for people to 

artificially understate their assets. If so, 

how should such transfers be handled? 

The Department also seeks comment 

on whether the spouse of an applicant 

owner should have to file a PNW 

statement, even if the spouse is not 

involved in the business in question. In 

this connection, we note that SBA 

requires the submission of a separate 

form from a non-applicant spouse if the 

applicant is married and not legally 

separated. Currently, recipients in the 

DOT program can request relevant 

information from spouses on a case-bycase basis. The complexities of jointly 

owned assets and liabilities and the 

ability of married couples to transfer 

assets in order to participate in the 

program could make it useful to 

certifying agencies to have PNW 

information about spouses. Recipients 

could use the net worth statement 

submitted by a non-applicant spouse as 

a way check to see whether applicants 

have transferred assets and as a basis to 

inquire further as to the circumstances. 

While this information could improve 

recipients’ ability to protect the integrity 

of the program, requiring detailed 

information from spouses not involved 

with a company could also prove 

intrusive and add considerably to the 

information burden of the program for 

applicants and the volume of materials 

that recipients would have to review 

and evaluate. We also seek comment on 

whether the treatment of assets held by 

married couples should extend to 

couples who are part of domestic 

partnerships or civil unions where these 

relationships are formally recognized 

under state law. 

In addition, we seek comment on 

whether the Department should adopt a 

provision similar to SBA language 

which considers a spouse’s financial 

situation in determining an individual’s 

access to credit and capital where the 

spouse has a role in the business (e.g. an 

officer, employee, director) or has lent 

money to, provided credit support to, or 

guaranteed a loan of the business. 

Although the Department does not use 


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‘‘access to credit and capital’’ as criteria 

for certification, should the involvement 

of a spouse in the firm trigger further 

consideration of their net worth and 

should the recipient collect the personal 

financial statement from this person? 

Are there other circumstances that 

would warrant this? 

Application Form 

Under the current DBE rule, 

certification occurs on a statewide basis 

through the Unified Certification 

Program (UCP) in each state. The ‘‘onestop shopping’’ for DBE applicants 

within a state has simplified 

certification by making it unnecessary 

for recipients to apply multiple times 

for certification by various transit 

authorities, airports, and highway 

departments. 

In the May 10, 2010 NPRM, we 

proposed several enhancements to the 

program to facilitate interstate 

certification and interstate reciprocity, 

many of which appear in the revised 

rule issued by the Department on 

January 27, 2011. In order to reach the 

goal of a simplified administrative 

process for certification, it is necessary 

to revisit the DBE/ACDBE Certification 

Application form used by firms 

applying for certification. The current 

form, adopted in the June 16, 2003, 

regulation revision (68 FR 35542), was 

designed to be more streamlined and 

user-friendly, yet comprehensive 

enough to supply recipients with the 

necessary information to form their 

initial line of questioning prior to and 

during an on-site visit and to further 

assist them in making determinations as 

to applicants’ qualifications for the DBE 

Program. At the time, the Department 

sought to keep the form manageable, 

easy to read, and easy to follow for 

applicants who must fill out the form, 

while simultaneously being accessible 

and practical for many recipients that 

distribute the form. 

It is important to bear in mind that 

certification has two purposes. One is to 

foster and facilitate DBE participation 

by as many firms as can be determined 

to be eligible. The other is to preserve 

the integrity of the program, a strong 

certification system being the first line 

of defense against program fraud. To 

some extent, these goals can be in 

tension with one another, particularly 

when information collection can be 

viewed as burdensome to applicants but 

also viewed as necessary to recipients’ 

efforts to maintain program integrity. 

Certainly, an application form that 

remains accessible and usable by firms 

is a priority, and the Department 

encourages the continued efforts by 

recipients to post the form on the 

Internet in a screen-fillable format. 

Some commenters on the ANPRM 

sought ways to simplify the forms, 

while others recommended additions. A 

number of commenters provided 

detailed suggestions about how the 

forms should be configured. Based on 

the comments, as well as on the 

Department’s experience with reviewing 

certification appeals and other issues 

that have come to the Department’s 

attention, the Department is proposing a 

revised application form. 

The proposed DBE/ACDBE 

Certification Application form and 

accompanying instructions would be 

used for both the DBE and ACDBE 

programs. Applicants will be requested 

to provide such items as: (1) A list of 

dates of any site visits conducted by the 

firm’s home state and any other UCP 

members; (2) details concerning denial 

or decertification, withdrawals, 

suspension/debarment actions; (3) a 

business profile seeking a concise 

description of the firm’s primary 

activities, products, or services the 

company provides; (4) a written 

description of the applicant’s 

relationships and dealings with other 

businesses, including the sharing of 

equipment, storage space, inventory, 

and staff; (5) an assessment of the 

amount of time the majority owner and 

key officers, directors, managers, and 

key personnel devote to firm activities 

such as bidding and estimating, 

supervising field operations, and 

managing staff or crew, and (6) re ́sume ́s 

and salaries of owners, directors, 

managers and key personnel. The 

proposed form would also remove 

obsolete material (e.g., relating to a nowexpired SBA–DOT memorandum of 

understanding). The proposed form 

revisions include commonly requested 

items as well as items already 

mentioned in the existing regulation at 

§ 26.83. ACDBE applications would be 

requested to provide details concerning 

their concession leases at airports. 

DBE Commitments/Awards and 

Payment Reporting Form 

The Department has identified several 

concerns regarding the format of 

Uniform Report of DBE Commitments/ 

Awards and Payments form found in 

Appendix B of 49 CFR part 26. These 

include the inability to break out 

woman-owned DBE participation by 

race; inadequate, confusing or unclear 

instructions; inability of the form to 

meet differing needs of the various types 

of organizations/businesses 

participating in the DBE program; and 

difficulties in collecting information 

regarding payments to DBE on an 

ongoing/‘‘real time’’ basis. The 

Department believes the proposed form 

responds to these concerns by: Creating 

separate forms for routine DBE reporting 

and for transit vehicle manufacturers 

(TVMs) and mega projects; amending 

and clarifying the report’s instructions 

to better explain how to fill out the 

forms; and changing the forms to better 

capture the desired DBE data on a more 

continuous basis, which should also 

assist with recipients’ post-award 

oversight responsibilities. 

A 2011 Government Accountability 

Office (GAO) report criticized the 

existing form because it did not permit 

DOT to match recipients’ DBE 

commitments in a given year with 

actual payments made to DBEs on the 

contracts to which the commitments 

pertained. The form provides 

information on the funds that are 

committed to DBEs in contracts let each 

year. However, the ‘‘achievements’’ 

block on the form refers to DBE 

payments that took place during the 

current year, including payments 

relating to contracts let in previous 

years, but could not include payments 

relating to contracts let in the current 

year that will not be made until future 

years. 

The form in the NPRM, while 

attempting to clarify various parts of the 

reporting process, does not directly 

address this issue. However, it would be 

possible for the Department, by looking 

at data in 3–5 year groupings, to 

assemble a surrogate for the comparison 

that GAO recommended. For example, if 

the Department looked at data from 

2009–2011, we could calculate an 

average annual amount of commitments 

over that period and an average amount 

of DBE payments over that period. 

While there would still not be a year-toyear correspondence between 

commitments and payments, this 

approach could smooth out statistical 

anomalies (e.g., years with unusually 

high or unusually low commitments or 

payments), providing a reasonable 

approximation of the success of 

recipients in ensuring that commitments 

are realized in terms of actual payments. 

The Department could also modify 

the form to reach more directly the 

result that GAO recommended. The 

modification of the achievements 

portion of the form could look 

something like this: 


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ACTUAL PAYMENTS TO DBES FOR COMPLETED CONTRACTS

Year contract awarded 

Number of 

contracts completed that 

were let in 

each year 

Total $ value 

of contracts 

completed 

DBE participation needed to 

meet $ 

committed 

Total $ paid to 

DBEs 

Total % of $ 

committed 

paid to DBEs 

2012 ..................................................................................... ........................ ........................ ........................ ........................ ........................

2011 ..................................................................................... ........................ ........................ ........................ ........................ ........................

2010 ..................................................................................... 4 $10m $1m $900k 90% 

2009 ..................................................................................... ........................ ........................ ........................ ........................ ........................

2008 ..................................................................................... ........................ ........................ ........................ ........................ ........................

2007 ..................................................................................... ........................ ........................ ........................ ........................ ........................

In each row, data would be entered 

pertaining to payments from contracts 

let in a given year that were completed 

during the reporting year. By the time 

all contracts let in that year had been 

completed, DOT could compile the data 

to compare the recipient’s payments to 

DBEs for payments in a given year to 

commitments and to goals. 

In the example above, a recipient 

sends in the form in 2012. It shows four 

contracts let in 2010 were completed in 

2012, with a total value of $10 million. 

The commitments on those contracts, 

made in 2010, were $1 million. 

However, actual payments were 

$900,000, meaning that the DBEs 

realized only 90 percent of the dollars 

committed to them in 2010 on 

commitments made during 2010. Of 

course, it would be necessary to 

accumulate these forms for another few 

years to account for contracts that were 

not completed until 2013, 2014, etc. 

Consequently, while use of this form 

would allow the calculation of more 

precise data on how well a recipient had 

performed in terms of ensuring that 

commitments resulted in payments (and 

consequently how it had performed in 

terms of meeting its goals in payment as 

well as in commitment terms), this 

calculation would take several years to 

accomplish and would involve greater 

use of resources by recipients and the 

Department. It may also be questioned 

whether getting this information 3–5 

years after the year in which contracts 

are let would limit too greatly the use 

of the resulting numbers for program 

administration and oversight purposes. 

The Department seeks comment on 

how this latter alternative might be 

improved, and also on which of the 

alternatives discussed here, or other 

ideas, would best serve the 

accountability and program 

administration objectives of the 

Department. 

Certification Provisions 

§ 26.65 What rules govern business 

size determinations? 

In this NPRM, the Department 

proposes to adjust the statutory gross 

receipts cap for inflation to $23.98 

million. The inflation rate on purchases 

by state and local governments for the 

current year is calculated by dividing 

the price deflator for the first quarter of 

2012 (124.668) by 2008’s fourth quarter 

price deflator (116.524). The result of 

the calculation is 1.0699, which 

represents an inflation rate of 1.070% 

from the fourth quarter of 2008. 

Multiplying the $22,410,000 figure for 

disadvantaged business enterprises in 

Department of Transportation financial 

assistance programs by 1.0699 equals 

$23,976,459, which will be rounded off 

to the nearest $10,000, or $23,980,000. 

In addition, we propose to add 

language to the section clarifying that 

the size standard that applies to a 

particular firm is the one appropriate to 

its primary industry classification. 

§ 26.69 What rules govern 

determinations of ownership? 

Most firms, particularly those owned 

and controlled by socially and 

economically disadvantaged 

individuals, begin as small operations. 

Their owners often contribute their own 

funds or assets to equip the firm 

(referred to as equity financing) and/or 

borrow or pledge their own assets as 

collateral in order to receive needed 

funds from lending institutions or 

venture capitalists, friends, relatives, or 

industry colleagues (referred as debt 

financing). While each financing 

transaction has its own unique set of 

circumstances and requirements, it is 

fair to say that lenders often require 

some form of the borrower’s personal 

guarantee. 

The DBE rule reflects this reality in 

two of its stated objectives: (1) Create a 

level playing field for firms to compete 

for DOT-assisted contracts, and (2) assist 

the development of firms that can 

compete successfully outside the 

program. To achieve these objectives, it 

is necessary to ensure that firms are 

truly owned and controlled by persons 

who are socially and economically 

disadvantaged. The Department 

incorporated the concept of 

‘‘ownership’’ in the regulation by 

requiring the socially and economically 

disadvantaged owner to demonstrate his 

or her personal stake in their firm. 

Specifically, under § 26.61 and § 26.69, 

socially and economically 

disadvantaged individuals who seek to 

participate in the program bear the 

burden of demonstrating that it is they 

who have made a contribution of capital 

to acquire their ownership in the firm. 

This contribution must be ‘‘real, 

substantial, and continuing, going 

beyond pro forma ownership of the 

firm.’’ The regulation does not define 

these terms, but § 26.69(e) does provide 

some examples of what the Department 

considers to be an insufficient 

contribution, including a promise to 

contribute capital, and an unsecured 

note payable to the firm or an owner 

who is not a disadvantaged individual. 

Throughout the course of the 

program, Unified Certification Programs 

(UCPs) evaluating a firm’s eligibility 

have properly denied certification to 

DBE and ACDBE applicants when an 

owner’s contribution was either not real 

(suggesting the owner did not actually 

make the contribution), insubstantial 

(not enough of a contribution was 

provided for what was received), not 

continuing (no subsequent contribution 

to the firm or rapid withdrawal of a 

contribution that was made), or simply 

a pro forma arrangement (conveying the 

concept of a firm created on paper but 

without actual evidence of a personal 

contribution). For example: 

• A capital contribution by the 

disadvantaged owner of $100 is not 

considered substantial to acquire a 

majority interest in a firm worth $1 

million. 

• A situation in which 51% 

disadvantaged owner and a 49% nondisadvantaged owner who contribute 

$100 and $10,000, respectively, to 


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acquire a firm grossing $1 million, may 

be indicative of a pro forma 

arrangement. 

• A recipient can properly question 

the continuing nature of an owner’s 

contribution when it finds that the sole 

owner of a DBE applicant firm spends 

$250 to file articles of incorporation and 

obtains a $100,000 loan, making only 

nominal or sporadic payments to repay 

the loan. 

In each of these examples, the DBE 

firm is could appropriately be denied 

certification on the grounds that the 

owner’s contribution of capital does not 

meet the requirements of § 26.69. In 

other arrangements, non-disadvantaged 

individuals and non-disadvantaged 

firms may have contributed or loaned 

funds to the disadvantaged owners at 

the inception of the firm and/or 

provided ongoing monetary support to 

the business. These arrangements and 

the source of the funds are appropriately 

questioned by recipients, based on 

provisions contained in the existing 

§ 26.69(h). This section currently 

prescribes a higher ‘‘clear and 

convincing’’ standard in situations 

where non-disadvantaged individuals or 

non-DBE firms that remain involved in 

the firm provide interests in a business 

or gift other assets to the disadvantaged 

owner applying for DBE certification. It 

requires the disadvantaged owner to 

demonstrate that the gift or transfer they 

received was made for reasons other 

than obtaining DBE certification and 

that the disadvantaged owner(s) actually 

control the management, policy, and 

operations of the firm, notwithstanding 

the continuing participation of the nondisadvantaged individual providing the 

gift or transfer. This safeguard is 

necessary to reduce the potential for 

front companies and fraud. We stated 

that as long as there are safeguards such 

as § 26.69(h) in place to protect against 

fronts, the origin of the assets, whether 

from one’s own contribution, a bank 

loan, gift, inheritance, or other means, is 

unimportant. 

In proposed section 26.69(c)(2), we 

propose to add language prohibiting 

situations in which a non-disadvantaged 

party (e.g., an individual, a company) 

has a prior or superior right to a DBE 

firm’s profits, compared to that of 

disadvantaged owners of the DBE. 

Arrangements in which nondisadvantaged owners get paid a 

percentage the firm’s net profits, before 

any calculation of residual profit 

available for other firm purposes, 

defeats ‘‘ownership’’ by the 

disadvantaged owners. For example, in 

the context of certification appeals, the 

Departmental Office of Civil Rights 

(DOCR) has seen profit sharing and 

other arrangements through which the 

disadvantaged owner is paid after 

another owner holding less of an 

interest. This is particularly prevalent in 

ACDBE situations in which the prime is 

paid first from firm profits despite the 

fact that the socially/economically 

disadvantaged owner holds the majority 

interest on paper. 

When a non-disadvantaged individual 

remains involved in a firm, § 26.69(h) 

adequately provides recipients with the 

tools to make an appropriate evaluation 

of the applicant firm’s eligibility. We are 

learning, however, that recipients are 

encountering cases in which a nondisadvantaged individual or non-DBE 

firm provided some form of financing at 

the firm’s inception, enabling a 

disadvantaged owner to acquire an 

interest in the firm, in exchange for an 

ownership interest. These types of 

arrangements call into question whether 

a disadvantaged owner’s ownership is 

‘‘real, substantial, and continuing’’ and 

what considerations should be used in 

evaluating the timing of transactions. 

While the Department remains 

committed to the principle that firms 

are evaluated based on present 

circumstances (see section 26.73(b)(1)), 

it is also important to pay attention to 

the commercial and arms-length 

practices involving collateral, as well as 

the nature, origination, and timing of 

firm acquisition or establishment (i.e., 

the real and continuing requirement). 

This concern applies to situations in 

which non-disadvantaged individuals 

and firms remain involved in the firm 

and in situations where they do not. We 

are also concerned that the 

substantiality of ownership interests be 

considered in the entire context of the 

arrangement and in comparison to the 

overall value of the firm. We believe 

that greater clarity and specificity in 

DOT rules would be useful in helping 

recipients deal with situations of this 

kind. 

This was most evident in The Grove, 

Inc. v. U.S. Department of 

Transportation, (578 F.Supp. 2d 37, 

D.D.C., 2008), a case that upheld the 

DOCR certification appeal decision that 

The Grove, Inc., an ACDBE, lacked 

independence from a non-DBE entity 

that was intertwined in The Grove’s 

finances. However, the Court overturned 

a portion of the DOCR’s determination 

that the disadvantaged owner failed to 

make a real and substantial contribution 

of capital to acquire her ownership 

interest in the firm. At issue in the case 

were the current provisions in § 26.69 

regarding the use of unsecured loans 

from non-disadvantaged individuals 

and how to treat personal and marital 

assets used as collateral to acquire an 

ownership interest asserted by one 

spouse. The case also presented issues 

relating to the timing of a transfer of 

funds from a non-disadvantaged 

individual and the disadvantaged 

owner’s subsequent deposit of these 

funds into a joint/marital account. The 

Court ruled that that regulation clearly 

contemplates the use of funds derived 

from a non-disadvantaged individual or 

entity as a means to acquire an 

ownership interest. It also addressed 

what would be considered a reasonable 

amount of contribution given the size of 

the firm at the time the disadvantaged 

owner acquired her majority interest. It 

ruled that the Department did not 

provide a rationale why a gross profit 

measure is the appropriate measure to 

value a company as opposed to another 

method, such as operating margin or net 

income when making this 

determination. 

To avoid problems of this kind, the 

Department believes it necessary for 

applicants to submit additional proof to 

substantiate both the sufficiency of their 

contribution and the circumstances of 

any funding streams to the firm since its 

inception. This includes documentation 

of how items used as collateral (whether 

jointly held or otherwise) are valued, 

and proof of ownership in these items 

(particularly high valued assets), and 

more stringent guidelines for deposits of 

funds used to acquire the ownership 

interest in a firm. These additions are 

reflected in proposed revisions to 

§ 26.69(a) and (c)(1). The revision to 

(c)(3) concerning dividends and 

distributions proposes to mandate that 

one or more disadvantaged owners must 

be entitled to receive at least 51% of the 

annual distributions of dividends paid 

on the stock of a corporate concern; 

100% of the value of each share of stock 

owned by them in the event that the 

stock is sold; and at least 51% of the 

retained earnings of the concern and 

100% of the unencumbered value of 

each share of stock owned in the event 

of dissolution of the corporation. Of 

course, consistent with section 

26.71(i)(1), recipients should also be 

aware of issues concerning differences 

in remuneration that could affect the 

disadvantaged owner’s control of a firm. 

A revision to § 26.69(i) would add a 

new requirement concerning marital 

assets that form the basis for ownership 

in the firm. Under this proposed 

provision, recipients would have 

discretion in cases where marital assets 

are used to require information 

concerning the spouse’s assets and 

liabilities. The recipient would then 

make a case-by-case determination of 

whether the asset transfer was made for 


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reasons other than obtaining 

certification as a DBE. 

In paragraph (i), concerning joint or 

community property, we seek comment 

on whether greater protections are 

needed to prevent what are effectively a 

non-disadvantaged husband’s assets 

from being treated as the capital 

contribution made by his wife. At 

present, the wife’s share or joint or 

community property is countable 

toward ownership requirements if the 

husband renounces his ownership 

interest in the property. We propose to 

strengthen this provision by adding a 

sentence to paragraph (i)(2) saying that 

such a renunciation must be 

contemporaneous with the transfer 

itself, to avoid after-the-fact 

gamesmanship. 

A new paragraph (k) would 

incorporate language similar to 

§ 26.69(j)(3), which requires recipients 

to give ‘‘particularly close and careful 

scrutiny to the ownership of the firm to 

ensure that it is owned and controlled 

in substance as well as in form, by a 

socially and economically 

disadvantaged individual.’’ The 

wording of this section is one way to 

guard against an artificial arrangement 

or accounting mechanism that gives the 

appearance that a firm was derived from 

the disadvantaged owners’ own assets, 

when in reality it was not. In the 

ANPRM, we invited comments on what 

additional safeguards could be 

incorporated to meet this goal without 

placing undue burden on the applicant 

firm. The NPRM’s draft paragraph (k) 

answers this question by telling 

recipients to give ‘‘particularly close 

and careful scrutiny to all interests in a 

business or other assets obtained by a 

socially and economically 

disadvantaged owner that resulted from 

a seller-financed sale of the firm or in 

cases where a loan or proceeds from a 

non-financial institution were used by 

the owner to purchase the interest.’’ 

The following proposed conditions 

would apply to such a transaction: (1) 

Terms and conditions must be 

comparable to prevailing market 

conditions offered by commercial 

lenders for similar type of projects (e.g., 

in terms of such factors as duration, 

rate, and fees); (2) there must be 

evidence provided by the applicant firm 

and disadvantaged business owner of 

the promissory note or loan agreement 

clearly stating the terms and conditions 

of the loan, including due date and 

payment method, interest rate, 

prepayment, defaults, and collateral; (3) 

the note would be a full-recourse note 

and be personally guaranteed by the 

socially and economically 

disadvantaged owner and/or secured by 

assets outside of the ownership interest 

or future profits of the applicant firm; 

(4) the contributions of capital by the 

socially and economically 

disadvantaged owner and any use of 

collateral by the disadvantaged owner 

must be clearly evident from the firm’s 

and/or individual’s records and 

supported by appropriate 

documentation and appraisals; and (5) 

other than normal loan provisions 

designed to preserve property pledged 

as collateral, there are no conditions, 

provisions, or practices that have the 

effect of limiting the socially and 

economically disadvantaged owner’s 

ability to control the applicant firm. As 

in all certification matters, the applicant 

would bear the burden of proving that 

the transaction meets these criteria. 

§ 26.71 What rules govern 

determinations concerning control? 

This section is intended to ensure that 

recipients analyze the extent to which 

socially and economically 

disadvantaged individuals control their 

firm in both substance and form. Along 

with ownership, control of an applicant 

or participating firm is a central concept 

to the DBE and ACDBE programs and 

the Department seeks to guard against 

control of the firm’s ownership 

structure, its operations, and policy 

decisions by non-disadvantaged 

individuals. Currently, the involvement 

of non-disadvantaged individuals in the 

firm’s affairs is addressed in several 

parts of this section, including 26.71(e), 

(f), and (l). In the Department’s view, the 

disadvantaged owners’ talent and 

expertise and that of non-disadvantaged 

participants must be judged 

concurrently. In situations where the 

disadvantaged owner of an applicant or 

participating DBE firm meets the 

requirements of 26.71(g), the 

involvement of non-disadvantaged 

individuals is one of support rather than 

control, with a clear line of authority 

and decision making ability passed from 

the owner to the non-disadvantaged 

employee. Alternatively, where the 

disadvantaged owner possesses little or 

no experience or expertise, nondisadvantaged individuals can be seen 

as more involved in the firm’s affairs 

such as controlling field operations, 

making major firm decisions, or 

supervising other employees in the 

critical areas of the firm’s work. They 

are frequently compensated at a higher 

rate, and all indications point to their 

disproportionate role at the firm above 

and beyond that deemed acceptable in 

the DBE program. To explicitly address 

these scenarios, the Department is 

placing more stringent control 

requirements in paragraph (e). We are 

proposing to add a new section 

regarding non-disadvantaged 

individuals who once served as an 

employer or a principal of a former 

employer of any disadvantaged owner of 

the applicant or DBE firm. Under the 

proposal, this would form a basis for 

denying certification unless it is 

determined by the recipient that the 

relationship between the former 

employer or principal and the 

disadvantaged individual or applicant 

concern does not give the former 

employer actual control or the potential 

to control the applicant or DBE firm. To 

illustrate the potential scenarios 

wherein non-disadvantaged individuals 

may be found to control the firm, the 

proposed paragraph (e)(2) provides 

examples of unacceptable arrangements 

that negatively affect a disadvantaged 

owners’ control of the firm. 

The current § 26.71(l) requires a 

higher evidentiary standard to be met in 

situations where a firm was formerly 

owned and/or controlled by a nondisadvantaged individual and such 

ownership and/or control is transferred 

to a socially and economically 

disadvantaged individual, where the 

non-disadvantaged individual remains 

involved in the firm. In such a situation, 

§ 26.71(l) requires that the 

disadvantaged individual now owning 

the firm demonstrate by ‘‘clear and 

convincing evidence’’ that: (1) The 

transfer of ownership and/or control to 

the disadvantaged individual was made 

for reasons other than obtaining 

certification as a DBE; and (2) the 

disadvantaged individual actually 

controls the management, policy, and 

operations of the firm, notwithstanding 

the continuing participation of a nondisadvantaged individual who formerly 

owned and/or controlled the firm. The 

Department seeks comment on whether 

this provision should be strengthened 

by presuming, that non-disadvantaged 

individuals who make such transfers 

and remain involved in the firm 

continue to control the business, rather 

than the disadvantaged transferee. 

§ 26.73 What are other rules affecting 

certification? 

Under the current 26.73(g), a recipient 

must not require an applicant firm to be 

prequalified as a condition for 

certification ‘‘unless the recipient 

requires all firms that participate in its 

contracts and subcontracts to be 

prequalified.’’ We propose to delete this 

part of this statement, with the result 

that prequalification could no longer be 

used as a criterion for certification in 

any case. While the Department believes 

that prequalification requirements may 

be an unnecessary barrier to DBE 


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participation, this provision would not 

prohibit prequalification as a condition 

for receiving certain sorts of contracts. 

However, whether a firm is prequalified 

is irrelevant to certification concerns 

such as size, disadvantage, ownership 

and control. It is important for certifiers 

to analyze only the factors relevant to 

DBE eligibility and not incorporate 

other recipient business requirements in 

decisions pertaining to an applicant’s 

qualification for the program. Further, 

while prequalification may be a 

requirement for doing business in one 

mode (e.g., highway) it may not be a 

requirement for doing business in other 

modes (e.g., transit). 

§ 26.83 What procedures do recipients 

follow in making certification decisions? 

Under the current rule, recipients 

must take several steps in determining 

whether a firm meets all eligibility 

criteria for participation in the DBE 

program. The on-site visit to the firm’s 

place of business and job sites is a 

crucial component of this review and 

the Department seeks to strengthen the 

information collection process. Since 

the issuance of the 1999 rule, the 

Department has received numerous 

appeals filed by firms denied 

certification on the basis of control, 

specifically the involvement of nondisadvantaged individuals in the firm’s 

critical activities. Recipients base their 

decision after performing an on-site 

review of the firm and the responses 

owners give to their questions during 

the visit. 

Interviewing the principal officers of 

the firm is required under § 26.83(c). 

Some recipients, however, also 

interview key personnel of the firm as 

a means to verify or cross-check the 

answers they receive from the owners. 

We believe this is an important practice 

recipients should perform before 

determining the firm’s eligibility. In 

addition, interviewing employees reveal 

how they fit in the firm’s overall daily 

operations and management vis-a`-vis 

the owners. By speaking with these 

individuals as well, recipients gain a 

clearer view of how owners oversee a 

project, whether from behind a desk or 

at the field. An owner who is primarily 

in the office handling paperwork may 

have delegated too much authority to 

employees in the field, a factor that 

negatively affects their control of the 

firm. Therefore, the Department 

proposes adding a requirement that 

recipients interview the key personnel 

of the firm. In addition, the on-site visit 

should be performed at the firm’s 

principal place of business, which may 

or may not be the same as the firm’s 

offices. Both revisions appear in the first 

two sentences of § 26.83(c)(1). 

Paragraph (c)(2) requires a recipient to 

analyze the stock ownership in a firm. 

Here, the Department proposes adding 

clarifying language that would require 

an analysis of documentation related to 

the legal structure, ownership, and 

control of the applicant firm. This 

includes, but is not limited to Articles 

of Incorporation/Organization; corporate 

by-laws or operating agreements; 

organizational, annual and board/ 

member meeting records; and stock 

ledgers and certificates. Similarly, a 

revised section (c)(3) and (c)(4) would 

add the requirement that recipients also 

analyze any lease and loan agreements, 

bank signature cards, and payroll 

records. 

Where a firm is applying to be 

certified in more than one North 

American Industrial Classification 

System (NAICS) code, the NPRM 

(§ 26.83(c)(5)) would call on recipients 

to obtain information about the amount 

of work the firm has performed in the 

various NAICS codes involved. This 

will help recipients determine the 

socially and economically 

disadvantaged owners’ level of 

knowledge in each category of work and 

whether they can control the firm’s 

operations in these areas in accordance 

with § 26.71. The proposed Uniform 

Certification Application contains 

added space for firms to enter their 

NAICS Codes directly on the form, 

which in turn will help recipients with 

this determination. Particularly for startup firms or for firms moving into new 

areas of work, we do not intend that 

recipients establish any sort of 

minimum ‘‘track record’’ as a 

prerequisite to certification. This 

proposed amendment is simply 

intended to provide what can be 

additional useful information in some 

cases. 

Recipients also determine whether a 

firm meets the applicable size standards 

and if the applicant owner is 

economically disadvantaged. Tax 

returns are important information for 

this task. The proposed (c)(7) clarifies 

that applicants need to provide 

completed income tax returns or 

requests for extensions filed by the firm, 

its affiliates, and the socially and 

economically disadvantaged owners for 

the last three years. (We recognize that, 

for start-up or other new firms, three 

years’ worth of tax returns may not yet 

exist.) As stated in the new paragraph, 

a complete return is one that includes 

all forms, schedules, and statements 

filed with the Internal Revenue Service, 

and state taxing authority. The proposed 

DBE/ACDBE application form has been 

amended to specifically require this 

information. 

At various times during the 

application review process, recipients 

may seek more information from an 

applicant. In (c)(8)(iii), we propose to 

add language making explicit the 

discretion of certifying agencies to 

request clarification of information 

contained in the application, or to 

request additional information, at any 

time in the application process. This 

will help alleviate confusion by firms 

that believe their application is 

complete once it is submitted and that 

the UCP must make a decision solely on 

the information the firm has initially 

provided. At the same time, we caution 

certifying agencies against prolonging 

the certification process unnecessarily 

through repeated requests for additional 

information, once enough data to make 

an informed decision possible has been 

submitted. 

§ 26.83(h) and (j) 

Paragraph (h) emphasizes that once a 

firm is certified, it remains certified 

unless and until it voluntarily 

withdraws from the program or is 

decertified (with the exception of 

circumstances spelled out in section 

27.67, when an owner’s PNW statement 

shows that the owner is no longer a 

disadvantaged individual). There can be 

partial as well as total decertifications 

(i.e., when a NAICS code in which a 

firm is currently certified is taken 

away). Partial and total decertifications 

both require use of the section 26.87 

process. Recipients are reminded that 

certifications do not lapse; they are not 

like driving licenses, which expire after 

a given number of years if not renewed. 

There is no such thing as a 

‘‘recertification’’ process, after three 

years or any other period, and recipients 

cannot require currently certified firms 

to reapply for certification. Any 

recipient who does so is acting contrary 

to the express requirements of this rule. 

However, if, at any time, information 

comes to a recipient’s attention that 

would cause it to question a firm’s 

continued eligibility, the recipient can, 

and should, review the firm’s 

certification status, in the course of 

which it can conduct a new on-site 

review, announced or unannounced. 

Because firms’ circumstances can 

change over time, we urge recipients, as 

a matter of good practice, to conduct 

reviews of firms’ eligibility, including 

updated on-site reviews, from time to 

time. 

The Department is not changing the 

long-standing practice of annual 

affidavits of no change, and we believe 

that this requirement is crucial to keep 


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recipients current on the status of 

certified firms. The NPRM would 

strengthen this process by directing 

certified firms to submit additional 

items with their affidavits. The 

additional information would include 

updated PNW statements and a record 

from each individual claiming 

disadvantaged status regarding the 

transfer of assets for less than fair 

market value to any immediate family 

member, or to a trust any beneficiary of 

which is an immediate family member, 

within two years of the date of the 

annual review. In addition, the firm 

would have to submit a record of all 

payments, compensation, and 

distributions (including loans, 

advances, salaries and dividends) made 

by the DBE firm to each of its owners, 

officers or directors, as well as the firm’s 

(and its affiliates’) and owners’ most 

recent completed IRS tax returns, IRS 

Form 4506 (Request for Copy or 

Transcript of Tax Return). Recipients 

would also have the discretion, on a 

case-by-case basis, to obtain other 

information relevant to determinations 

about the firm’s size and its ownership 

and control by disadvantaged 

individuals. 

§ 26.86 What rules govern recipients’ 

denials of initial requests for 

certification? 

Under paragraph (c) of this section, 

when a firm is denied certification, the 

recipient must establish a time period of 

no more than twelve months that must 

elapse before the firm may reapply for 

certification. This waiting period can be 

shorter, but, as stated in the rule, the 

time period for reapplication begins to 

run on the date the recipient’s action is 

received by the firm. The NPRM would 

add a sentence clarifying that an 

applicant’s appeal of a recipient’s 

decision to the Department pursuant to 

§ 26.89 does not extend this period. For 

example, suppose a firm is denied 

certification on September 1, 2012. If 

the recipient has six-month waiting 

period, the firm could reapply on March 

1, 2013. If, in the meantime, the firm 

appealed the decision to the 

Department, it could still reapply on 

March 1, 2013, even if its appeal to the 

Department was still pending on that 

date. 

§ 26.87 What procedures does a 

recipient use to remove a DBE’s 

eligibility? 

The Department is proposing to revise 

and expand the grounds on which 

recipients can, in the interest of program 

integrity, decertify DBE firms. First, the 

Department would delete the first 

sentence of 26.87(f), which says that a 

recipient cannot remove a DBE’s 

eligibility on the basis of a 

reinterpretation or changed opinion of 

information available to the recipient at 

the time of the firm’s certification. This 

language was intended to create a 

degree of finality in certifications. There 

can be certification decisions about 

which reasonable people can differ, and 

we believe, as a matter of policy, that it 

is useful to limit situations in which, for 

example, a new certification official 

reviews the same facts that his or her 

predecessor reviewed but simply forms 

a different opinion. That said, certifying 

agencies have expressed concerns that 

this language is too limiting, 

particularly for situations in which it 

appears that a bad mistake led to a 

firm’s certification. 

In an attempt to better accommodate 

both objectives, we are proposing a 

revised paragraph (f)(5) that would 

permit a recipient to decertify a firm on 

the basis that its certification was 

clearly erroneous. This standard means 

that the basis for the decertification 

would be a definite and firm conviction 

on the recipient’s part that a mistake 

was committed, in the absence of which 

the firm would not have been certified. 

This is more than a simple difference of 

opinion or different judgment call about 

the evidence in the matter. To decertify 

a firm based on this paragraph, the 

recipient would have to show, by the 

usual preponderance of the evidence 

standard it must meet in decertification 

cases, that the original certification was 

clearly wrong. 

We also propose to add two 

additional grounds for decertification, 

both of which refer to other provisions 

in the regulations. Consistent with 

section 26.73(a)(2), a firm can be 

decertified for exhibiting a pattern of 

conduct indicating its involvement in 

attempts to subvert the intent or 

requirements of the DBE program by, for 

example, repeatedly seeking DBE credit 

for activities that fail to involve a 

commercially useful function and 

thereby raise questions about the firm’s 

eligibility. Likewise, a firm can be 

decertified for a failure to cooperate, 

under 26.109(c). A failure to cooperate 

can include such things as failure to 

timely file affidavits of no change or 

notices of change, PNW statements, and 

various required supporting documents. 

We also note that the current 

provisions of paragraph (f) cover a 

number of situations that can arise. For 

example, paragraph (f)(3), concerning 

concealed or misrepresented 

information, covers submission of false 

information in applications, PNW 

statements, affidavits of no change, etc. 

Paragraph (f)(1) covers situations where 

changes in ownership, death or 

incarceration of a disadvantaged owner, 

changes in the disadvantaged owner’s 

involvement with management of the 

firm, changes in the firm’s relationship 

with other firms, etc. may make a 

previously eligible firm no longer 

eligible. The provisions relating to 

failure to cooperate covers such things 

as failing to send in affidavits of no 

change or notices of change, and 

accompanying documents, when 

needed. 

We also seek comment on the 

relationship between decertification and 

suspension and debarment proceedings. 

If a firm is suspended or debarred (e.g., 

as the result of a criminal indictment or 

conviction), either as a matter of state or 

Federal action, should the firm also be 

decertified? On one hand, since the firm 

is suspended or debarred, it will not be 

performing any contracts, so its being or 

not being on a state’s certified list seems 

somewhat moot. Moreover, certification 

concerns size, disadvantage, ownership 

and control, and the misconduct of the 

firm may not relate to these criteria. On 

the other hand, especially if the 

misconduct that led to the suspension 

and debarment concerned participation 

in the DBE program, the firm’s conduct 

may constitute a pattern of conduct 

indicating its involvement in attempts 

to subvert the intent or requirements of 

the DBE program. Should suspension 

and debarment result in an automatic 

decertification, should it be a trigger 

causing recipients to evaluate the firm 

for decertification, or is there another 

approach that would make more sense? 

In paragraph (g), we would add a 

sentence clarifying that when a notice 

concerning a recipient’s response to an 

ineligibility complaint is sent to the 

complainant (other than to a DOT 

operating administration), confidential 

business information concerning the 

DBE in question would be redacted, 

absent written consent from the DBE 

firm. This is consistent with the existing 

confidentiality provisions of section 

26.109. 

§ 26.88 Summary Suspension of 

Certification 

As noted above, a certified firm 

remains certified until and unless it is 

decertified. But what happens if there is 

a significant change in the business, 

such as the death of its owner or the sale 

of the firm? Current guidance properly 

tells recipients to look at the changed 

firm and determine whether the firm 

should be decertified and initiate a 

section 26.87 proceeding if appropriate. 

In this situation, the recipient has the 

burden of proof to demonstrate that the 

firm should lose its eligibility. 


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Meanwhile, the firm continues to be 

certified and can obtain new contracts 

as a DBE. Many people in the 

certification community have urged, to 

the contrary, that the firm should lose 

its eligibility when a dramatic change of 

this kind occurs, and should have to 

reapply for certification as if it were a 

new firm. Meanwhile, it would not be 

eligible for new contracts as a DBE. 

The proposed section 26.88 seeks a 

middle ground between these 

approaches, providing that a firm’s 

certification would be suspended in 

some situations (i.e., death or 

incarceration of an owner whose 

participation is needed to meet 

ownership and control requirements) 

and could be suspended in other 

situations (e.g., sale of the firm to a new 

owner), while a recipient determines 

whether the firm’s certification should 

be continued. When a firm’s 

certification is suspended, it cannot 

receive new contracts as a DBE. 

However, its participation on a contract 

it has already received would continue 

to count toward DBE goals. 

Under the proposal, if an owner 

necessary to the firm’s eligibility dies or 

is incarcerated, the recipient must 

suspend the firm’s eligibility. By 

necessary to the firm’s eligibility, we 

mean that without that owner’s 

participation, the firm would not meet 

the requirement of 51 percent 

ownership by disadvantaged 

individuals or the requirement that 

disadvantaged owners control the firm. 

If a single disadvantaged individual is 

the 51 percent owner, then it is obvious 

that the suspension would take effect. 

However, if there were three 

disadvantaged owners who each owned 

30 percent of the business, and one of 

them died, then the other two, between 

them, would still own more than 51 

percent of the business, and the 

recipient would not be required to 

suspend the firm’s certification. Of 

course, if the owner who died was 

essential to control of the business by 

disadvantaged individuals, it would be 

appropriate to suspend the firm. 

In other situations, recipients would 

have the discretion to suspend a firm’s 

eligibility. For example, if a firm was 

sold, and there was a significant 

question about whether the new 

disadvantaged owners controlled the 

firm, or if the firm failed to file the 

required notice following a material 

change in its circumstances, or an 

affidavit of no change, the recipient 

could choose to suspend the firm’s 

eligibility. (This could prove a useful 

incentive for firms to file these 

documents in a timely fashion). After a 

suspension, the firm would provide 

information relevant to its eligibility to 

the recipient. Within 30 days of getting 

that information, the recipient would 

have to lift the suspension or commence 

a decertification proceeding under 

section 26.87. The suspension would 

continue in effect during the 

proceeding. If the firm is not decertified 

as the result of the proceeding, the 

suspension is lifted and the firm 

returned to active status as a DBE. 

§ 26.89 What is the process for 

certification appeals to the Department 

of Transportation? 

The Department is not proposing to 

change the process for firms wishing to 

appeal a recipient’s determination 

concerning its eligibility. However, we 

propose amending this section to clarify 

what type of information should be 

contained in the appeal filed with 

DOCR. Specifically, we propose in 

§ 26.89(c) that the appellant provide a 

‘‘full and specific statement as to why 

the decision is erroneous, what 

significant fact that the recipient failed 

to consider, or what provisions of this 

part the recipient did not properly 

apply.’’ This addition will aid the 

Department in reviewing the recipient’s 

actions. Another change we propose 

that will also aid both recipients and the 

Department in the appeal process is 

clarification of how the regulation 

defines ‘‘days.’’ Under the proposed 

definition in section 26.5, days would 

mean calendar days; and in computing 

any period of time described in the 

regulation, the day from which the 

period begins to run is not counted, and 

when the last day of the period is a 

Saturday, Sunday, or Federal Holiday, 

the period extends to the next day that 

is not a Saturday, Sunday, or Federal 

Holiday. 

Other Provisions 

§ 26.1 What are the objectives of this 

part? 

The NPRM would add a new 

paragraph to this section, saying that a 

purpose of the rule is to promote the use 

of all types of DBEs. This language is 

intended to emphasize that the DBE 

program is not just about construction. 

Other types of work, including, but not 

limited to, professional services, 

supplies etc., are also appropriate for 

DBE participation. 

§ 26.5 Definitions 

In the Department’s experience, 

recipients need clarity on terms already 

used in this provision, and we propose 

adding eight new definitions in this 

section for the following words or 

phrases: ‘‘Assets;’’ ‘‘business, business 

concern, or business enterprise;’’ 

‘‘contingent liability;’’ ‘‘days;’’ 

‘‘immediate family member;’’ 

‘‘liabilities;’’ ‘‘non-disadvantaged 

individual;’’ ‘‘principal place of 

business;’’ and ‘‘transit vehicle 

manufacturer (TVM).’’ With respect to 

the TVM definition, the Department 

seeks comment on whether producers of 

vehicles that receive post-production 

alterations or retrofitting to be used for 

public transportation purposes (e.g., socalled ‘‘cutaway’’ vehicles, vans 

customized for service to people with 

disabilities) should be defined as TVMs 

for DBE program purposes. 

Additionally, we propose to modify 

the existing definition of a ‘‘socially and 

economically disadvantaged 

individual’’ to align with SBA 

principles. Most importantly, the 

definition specifically states that being 

born in a country does not, by itself, 

suffice to make the birth country and 

individual’s country of origin for 

purposes of being included within a 

designated group. For example, a child 

born of Norwegian parents in Chile 

would not, based on that fact alone, be 

regarded as ‘‘Hispanic’’ under the 

definition. Minor technical changes to 

references within the existing 

definitions are also proposed. 

We also note that the proposed 

definition of ‘‘immediate family 

member’’ would include a wider group 

of relatives, and we seek comment on 

the scope of that proposed change (e.g., 

Is it appropriate to include 

grandparents? Should grandchildren 

also be included?). The effect of the 

change is to broaden the impact of 

provisions of the rule that call for a 

higher burden of proof concerning 

ownership and control when transfers of 

interests in a company are made to 

family members. 

The NPRM would amend the 

definition of ‘‘Native Americans’’ to be 

consistent with a February 2011 change 

in SBA’s definition of the term. The 

term ‘‘Alaska native’’ would replace 

‘‘Eskimos and Aleuts,’’ and the phrase 

‘‘enrolled members of a federally or 

state-recognized Indian tribe’’ would 

replace ‘‘American Indians.’’ 

§ 26.11 What records do recipients 

keep and report? 

The NPRM proposes two new 

provisions, both related to certification. 

The first is a record retention 

requirement for certification-related 

records. These are the kind of records 

that recipients and UCPs normally keep, 

but we have heard concerns that some 

recipients may be discarding records 

that may still be relevant for 

certification review purposes. 


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Second, to implement a longstanding 

provision in the DBE authorization 

legislation, the Department proposes 

adding a new reporting requirement. 

Under section 1101(b)(4)9B) of MAP–21, 

states are required to notify the 

Secretary, in writing, of the percentage 

of the small business concerns that are 

controlled by (i) Women; (ii) socially 

and economically disadvantaged 

individuals (other than women); and 

(iii) individuals who are women and are 

otherwise socially and economically 

disadvantaged individuals. To carry out 

this requirement, UCPs would go 

through their statewide Directories and 

count the number of firms controlled, 

respectively, by white women, minority 

or other men, and minority women. 

They would then convert the numbers 

to percentages and send the result to the 

Departmental Office of Civil Rights, 

with which they already have a working 

relationship in certification appeals 

matters. We realize that some firms may 

be controlled by persons in more than 

one of these three categories. In this 

case, we propose that UCPs include a 

firm in the category applicable to the 

owner with the largest stake in the firm 

who is also involved in controlling the 

firm. 

We note that the commitments and 

achievements reporting form already 

captures information broken down by 

gender and ethnicity concerning 

contracts and contracting dollars going 

to DBEs. This is not the same thing as 

the report on the percentages of certified 

firms, but we seek comment on whether 

it would be easier to include the 

percentage information on this reporting 

form in some fashion rather than having 

a separate report submitted. 

§ 26.21 Who must have a DBE 

program? 

It appears that there is some 

confusion in the recipient community as 

to precisely who must have a DBE 

program with the FTA and FAA. For 

example, section 26.21 requires all 

entities that receive FTA federally 

assisted funds over $250,000 used in 

contracts (except for transit vehicle 

purchases) in a federal fiscal year for 

planning, capital, and/or operating 

assistance purposes to have a DBE 

program. However, despite this clear 

mandate, many of FTA’s recipients still 

mistakenly believe only individual 

prime contracts valued above $250,000 

are eligible for the DBE program, and 

thus improperly exclude prime 

contracts valued below $250,000 from 

both their determination as to whether 

they are required to submit a goal and 

from actual goals submitted to FTA. The 

Department has long maintained the 

$250,000 threshold applies to contracts 

in the aggregate, meaning all DBE 

program-eligible contracts, regardless of 

value, must be considered for both 

threshold and goal setting purposes. For 

example, if a recipient were to receive 

several small grants within a fiscal year 

(e.g. $1000 to $200,000) for planning, 

capital, or operating assistance) their 

combined value, if over $250,000, 

would trigger the requirement that the 

entity have a DBE program. The same 

point applies with respect to FAAassisted contracts. The proposed 

amendment modifies the language to 

reflect this long held position, and 

should resolve any lingering 

misconceptions with regard to the issue. 

Section 26.21(a)(1), as currently 

written, requires all FHWA recipients 

receiving funds authorized by a statute 

to which this part applies to have a DBE 

program. ‘‘Recipient,’’ as defined in 

section 26.5, is ‘‘any entity, public or 

private, to which DOT financial 

assistance is extended, whether directly 

or through another recipient. * * *’’ 

FHWA, however, expects that each 

subrecipient will operate under its 

direct recipient’s approved DBE 

program. Therefore, FHWA will not 

allow subrecipients to operate under 

their own DBE programs, separate from 

the program of the direct recipient. If an 

entity that is an FHWA subrecipient is 

also a direct recipient of FAA or FTA 

funds, then the entity would have its 

own DBE program and goal for its FAAor FTA-assisted contracts, while 

operating under the State DOT’s goal for 

FHWA-assisted contracts. Where funds 

are comingled, recipients should 

consult with the DOT agencies involved 

to determine how to proceed. 

§ 26.45 How do recipients set overall 

goals? 

Establishing the overall goal is a 

critical component of administering the 

DBE program. We propose several 

changes to the rules governing overall 

goal setting to ensure that recipients 

employ sound goal setting practices 

consistent with the remedial purpose of 

the program. 

There are two analytical steps to 

establishing an overall goal. The first 

step is to determine the relative 

availability of DBEs in the recipient’s 

transportation contracting market. We 

propose to codify the elements of a 

bidders list that must be documented 

and supported when this approach is 

used to establish DBE availability. 

Those elements include capturing data 

on successful and unsuccessful firms 

(DBEs and non-DBEs, prime contractors 

and subcontractors) that have bid on 

federally assisted contracts during the 

past three-year period. We also propose 

to disallow the use of prequalified 

contractors lists to establish availability 

and seek your views on whether this 

prohibition should be extended to the 

use of bidders list and other such lists 

(registered subcontractors lists, plan 

holders list, etc.) relied upon 

exclusively as a source to identify ready, 

willing, and able firms. 

We know from numerous disparity 

studies that have been conducted across 

the nation that discriminatory practices 

affecting minority and women owned 

small businesses continue to create 

barriers to accessing capital and 

bonding that in turn affect their ability 

to form, grow, and compete with other 

firms for contracting opportunities. 

Looking only to bidders lists, lists of 

prequalified contractors, or similar lists 

to determine availability may serve only 

to perpetuate the effects of 

discrimination rather than attempt to 

remedy those effects. Given this concern 

about the use of bidders lists in goalsetting, and what we understand to be 

difficulties that recipients have had in 

collecting all the bidders list 

information called for in section 26.11, 

we also seek comment on whether the 

bidders list approach to goal-setting 

should be deleted from the rule. 

The focus of the second step in the 

overall goal setting process is to 

consider other available evidence of 

discrimination or its effects that may 

impact availability, and based on that 

evidence consider making an 

appropriate adjustment to set an overall 

goal that reflects the level of 

participation one would expect in the 

absence of discrimination. We have seen 

many recipients routinely adjust 

downward the step one availability 

figure based on past DBE utilization, 

without regard to whether an 

adjustment is warranted by the 

evidence. Under the rules, past DBE 

utilization is defined as a proxy for DBE 

capacity. However, we know that in 

many instances, low levels of past DBE 

utilization does not represent DBE 

capacity in a given contracting market 

and may simply reflect the continuing 

effects of discrimination, the failure of 

a recipient to implement a robust 

program, or the existence of 

circumstances similar to those 

mentioned in Departmental guidance 

(e.g., the effect of past or current 

noncompliance with DBE program 

requirements). Adjusting availability 

downward under these or similar 

circumstances would not be appropriate 

or required. Consequently, we propose 

to expressly state in the rule that step 

two adjustments are not appropriate 


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unless clearly warranted by the 

evidence. 

In reviewing overall goal submissions 

made by recipients, operating 

administrations currently are authorized 

to adjust the overall goal or require the 

recipient to do so if in the opinion of the 

operating administration the overall 

goal has not been correctly calculated or 

the method for calculating the goal is 

inadequate. In making that assessment, 

we propose to clarify that the operating 

administrations are to be guided by the 

goal setting principles and best practices 

announced by the Department pursuant 

to section 26.9. While the ‘‘Tips on Goal 

Setting’’ posted on the OSDBU Web site 

offer recipients a lot of flexibility in 

developing a methodology, the Tips also 

represent the Department’s view of 

practices recipients should follow to 

produce a sound methodology that in 

turn will likely produce a sound overall 

goal that is required by the rules. 

Recipients are not at liberty to employ 

practices that serve no purpose other 

than to drive down the overall goal 

without risking disapproval by the 

appropriate operating administration. 

We are also proposing a clarifying 

change to 26.45(e)(3) concerning project 

goals. The language would note that a 

project goal may be a percentage of the 

value of the entire project as determined 

by the recipient or a percentage of the 

federal share. 

We propose to modify the public 

participation requirements for goal 

setting to strengthen the consultation 

component, to eliminate the public 

comment period associated with 

publication of the proposed goal, and to 

require posting proposed goals on 

recipient Web sites—a less costly 

alternative to the current requirement 

for publication in general circulation 

and other media. These changes are 

designed to reduce the administrative 

burden and expense associated with 

requirements that have added little, if 

any, value to the goal setting process. 

We recognize the importance of 

affording those who are likely to be 

affected by the proposed goal (i.e., 

stakeholders) an opportunity to present 

their views, data, or analysis to 

recipients in the development of an 

appropriate goal setting methodology. 

For that reason, we believe consultation, 

to be meaningful, should involve a 

dialogue between a recipient and 

stakeholders in its contracting market. 

Based on our experience, the most 

meaningful participation by the public 

in goal setting occurs during the 

consultation phase when genuine efforts 

are made to engage interested 

individuals or groups in the process. 

Few comments are received from the 

public during the 45 day comment 

periods that have not been provided 

during consultation. This change also 

would be consistent with the 

requirement for stakeholder 

involvement currently applicable to the 

DBE concessions program in Part 23. 

§ 26.49 How are overall goals 

established for transit vehicle 

manufacturers? 

The Department has been concerned 

for some time about confusion among 

program participants concerning the 

implementation of the transit vehicle 

manufacturer (TVM) provisions of Part 

26. Because a large portion of FTA’s 

federal financial assistance is used by its 

recipients for transit vehicle purchases, 

the Department’s intent was to require 

similar DBE goal setting provisions to 

their operations, and under the current 

rule, such entities were required to 

submit their goal setting methodologies 

to FTA and report to FTA their awards 

to women and minority owned firms. In 

practice, however, the Department has 

seen irregularities in how TVMs 

perform in submitting goal setting 

methodologies, and how TVMs report 

DBE awards and achievements. As a 

result, the Department believes 

additional clarification is needed to 

ensure meaningful application of the 

DBE rule’s requirements within the 

transit vehicle manufacturing industry. 

The proposed rule changes are intended 

to clarify TVM requirements by 

providing additional information as to 

how the Department expects TVMs to 

determine their DBE goals, when and in 

what instances TVMs must report DBE 

awards and achievements data, and by 

specifying which portions of the DBE 

regulations apply to TVMs. 

With respect to goal setting, the 

proposed rule seeks to clarify what 

must—and what must not—be included 

in a transit vehicle manufacturer’s goal 

methodology submission. Specifically, 

it codifies the Department’s long-held 

position that for goal setting purposes, 

transit vehicle manufacturers may not 

selectively choose which contracting 

opportunities will and will not be 

included. Rather, when setting a DBE 

goal, all contracting opportunities made 

available to non-DBEs must also be 

made available to DBEs, and thus must 

be included in the submitted 

methodology. It is important to note that 

this requirement is not intended to 

‘‘solicit’’ DBE participation for any 

specific contracting opportunity or task, 

nor is it intended to dictate contractual 

relationships between transit vehicle 

manufacturers and any specific type of 

firm. Instead, the sole purpose is to 

‘‘level the playing field’’ and ensure 

DBE firms have the opportunity to fairly 

compete for all contracts non-DBEs have 

access to. To provide appropriate 

flexibility in the implementation of this 

provision, we believe that this 

clarification must also be accompanied 

by a strong statement, to FTA recipients 

in particular, that overly prescriptive 

contract specifications on transit vehicle 

procurements that in effect eliminate 

opportunities for DBEs in the 

manufacture of transit vehicles is 

counter to the intent of the DBE Program 

and unduly restricts competition which 

is prohibited by 49 U.S.C. 5325(h). 

Violation of rules that support 

competition in the marketplace may 

result in the loss of FTA financial 

assistance. 

In addition to clarifying which 

opportunities must be included, the 

proposed rule also contemplates which 

opportunities must not be included in 

the goal setting methodology. While the 

provision pertaining to work and 

materials performed outside the 

jurisdiction of the United States remains 

intact, the Department proposes the 

current practice of including the entire 

Federal share of any given vehicle 

procurement be amended to include 

only the portion of the Federal share 

available via contracts to outside firms. 

Because such a large portion of work 

required when manufacturing and 

assembling a transit vehicle is 

performed ‘‘in house,’’ the Department 

does not believe it is appropriate to use 

the entire Federal share of a transit 

vehicle contract as the base figure for 

the DBE goal, as it skews the final goal 

relative to the contracting opportunities 

actually available. Instead, the 

Department proposes that the base 

figure be derived from the total value of 

contracts available to firms outside of 

the manufacturer itself. For example, if 

a particular transit vehicle manufacturer 

is awarded a $10 million contract to 

manufacture buses, and the transit 

vehicle manufacturer performs 70% of 

the work with its own forces while 

contracting out the remaining 30%, then 

the amount from which the base figure 

and goal should be derived would be $3 

million. Since work performed ‘‘in 

house’’ is not truly a contracting 

opportunity available to either DBEs or 

non-DBEs, the Department believes this 

approach will lead to more accurate and 

responsible overall DBE goals, improved 

overall implementation of the DBE 

program by transit vehicle 

manufacturers and simpler, better 

targeted oversight by FTA. While 

proposing this approach, however, the 

Department also seeks comment on 

whether there should be regulatory 


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provisions designed to encourage TVMs 

to make more parts of their 

manufacturing processes available to 

DBEs and other small businesses. If so, 

what should they be? 

The proposed rule also clarifies the 

Department’s stance on when transit 

vehicle manufacturers must report DBE 

information to FTA. Because 

submission of a DBE goal to FTA does 

not guarantee a transit vehicle 

manufacturer will be awarded a 

contract, confusion exists as to when 

DBE reports should be submitted. The 

Department believes the best approach 

is to require transit vehicle 

manufacturers to continuously report 

their contracting activity in the Uniform 

Report of DBE Awards/Commitments 

and Payments, since the administrative 

burden to submit reports with no 

activity is negligible in comparison to 

making a yearly assessment of those 

transit vehicle manufacturers who are 

still performing on contracts underway. 

Finally, the proposed rule seeks to 

reiterate and clarify the existing 

requirement that TVMs are subject to all 

of the applicable provisions of the DBE 

regulation and responsible for their 

implementation. It has been the 

Department’s experience that in many 

cases, compliance with the DBE 

regulation has been reduced to the 

submission of a DBE goal and both of 

the semi-annual DBE reports each year. 

This was never the Department’s 

intention, and the proposed rule seeks 

to correct this issue by reaffirming that 

transit vehicle manufacturers are 

equally as responsible for implementing 

the other areas of the regulation as other 

DOT recipients. However, recognizing 

that transit vehicle manufacturers do 

not participate in the DBE certification 

process, the Department has exempted 

them from those portions of the rule, 

with one notable exception: In order to 

obtain credit for DBE participation, the 

manufacturer must still ensure that the 

DBE firm is certified in the state where 

it performs the work. In addition the 

Department also proposes that the other 

post-award requirements of the DBE 

regulation need not be followed or 

reported on in those years where a 

transit vehicle manufacturer is not 

either awarded or performing on a 

transit vehicle procurement. The 

Department believes these proposed 

changes will both strengthen the 

oversight functions for those portions of 

the rule applicable to transit vehicle 

manufacturers, while exempting 

manufacturers from those portions of 

the regulation that do not specifically 

apply to their businesses. 

§ 26.51 What means do recipients use 

to meet overall goals? 

The current regulation 26.51(a) states 

that race-neutral DBE participation can 

include when a DBE wins a subcontract 

from a prime contractor that did not 

consider DBE status in making the 

award (e.g., a prime contractor that uses 

a strict low bid system to award subcontracts). We propose removing this as 

an example of race-neutral DBE 

participation since it is impossible for 

recipients to determine if a prime uses 

a strict low bid system, and, more 

importantly, it conflicts with Appendix 

A, which states prime should not reject 

a DBE quote over a non-DBE quote if the 

price difference is not unreasonable. 

§ 26.53 What are the good faith efforts 

procedures recipients follow in 

situations where there are contract 

goals? 

When a recipient sets a goal for DBE 

participation on a DOT-assisted 

contract, it must award the contract only 

to a bidder/offeror that makes good faith 

efforts to meet it. Bidders can meet the 

goal in one of two ways. They can 

obtain commitments for enough DBE 

participation to meet the goal. If they do 

not meet the goal, they can also 

document that they have made good 

faith efforts to do so. The existing 

provisions of § 26.53 and Appendix A 

discuss the kinds of good faith efforts 

bidders are expected to make, with the 

Department taking the approach that a 

showing of adequate good faith efforts 

in a particular procurement is 

necessarily a fact-specific judgment 

recipients must make. The unique 

circumstances of procurements vary 

widely and the Appendix spells out 

factors recipients should take into 

account when assessing the behavior of 

bidders in making a good faith effort 

showing. We do not believe that a 

template or checklist approach, or some 

quantitative formula, could ever 

adequately respond to the 

circumstances that recipients have to 

evaluate in determining whether a 

bidder has made good faith efforts to 

meet a goal. 

The current rule requires bidders/ 

offerors to submit: The names and 

addresses of DBE firms that will 

participate on the contract; a description 

of the work that each DBE will perform; 

the proposed dollar amount for each 

DBE firm; written documentation of the 

bidder’s commitment to use the DBE; 

and the DBE’s confirmation that it is 

participating. We believe the 

information reporting requirements can 

be strengthened by requiring that 

bidders, in addition to these 

submissions, provide the recipient with 

information showing that each DBE 

signed up by the bidder is certified in 

the NAICS code(s) for the work it will 

be performing. This provision will help 

to reduce the possibility that bidders, in 

trying to obtain a contract, could list 

firms that cannot qualify for DBE credit 

in the work area involved in the 

contract. This information would have 

to be submitted with the bidder’s initial 

good faith effort submission. To help 

implement the NAICS code provision, 

we recommend that recipients make 

available (e.g., on their Web sites) the 

most important and frequently-used 

NAICS codes relevant to the recipients’ 

operations. 

The current rule distinguishes 

between situations in which contracts 

are let on the basis of ‘‘responsiveness’’ 

or ‘‘responsibility.’’ In the former case, 

all DBE participation information must 

be submitted at the time of bid 

submission. In the latter case, as long as 

a bidder promised to meet the goal, the 

bidder could identify DBEs after the bid 

submission but before the recipient 

commits itself to using a particular 

contractor. The Department has noticed 

an unfortunate trend in which, in 

procurements that otherwise use a 

traditional low-bid procurement 

mechanism, recipients sometimes give 

the apparent successful bidder a period 

of several days or weeks after bid 

opening to submit DBE information, 

sometimes justifying the practice by 

labeling the action as a ‘‘responsibility’’ 

procurement. This has the potential to 

facilitate bid-shopping or other 

questionable activities by prime 

contractors. The section’s 

‘‘responsibility/responsiveness’’ 

terminology has also caused some 

degree of confusion. 

To clarify this situation, the NPRM 

proposes eliminating the 

‘‘responsiveness/responsibility’’ 

distinction. The proposed language 

would simply say that, with one 

exception, competitors for a contract 

having a DBE contract goal would have 

to submit all information about DBEs 

that have been engaged for the project 

with their original submission. There 

could be no additional grace period after 

this point during which competitors 

could subsequently submit this 

information. The exception to this 

requirement would be in a negotiated 

procurement, where the initial 

submission would contain a binding 

commitment to meet the goal or 

document good faith efforts, and 

specific DBE information could be 

submitted in the same time frame as 

price and other terms of the negotiated 

contract were made final. 


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If a bidder/offeror does not meet the 

contract goal on a contract, it must, in 

order to remain eligible for contract 

award, submit documentation showing 

that it made sufficient good faith efforts 

to meet the contract goal. As noted 

above, Appendix A describes the kind 

of information that recipients would use 

to determine whether a bidder/offeror 

has made sufficient good faith efforts. In 

addition, this NPRM proposes that, as 

part of a good faith efforts showing, a 

bidder/offeror would have to provide 

copies of each DBE and non-DBE 

subcontractor quote it had received, in 

situations where it picked a non-DBE 

firm to do work that a DBE had sought. 

This information will help the recipient 

determine whether there is validity to 

any claims by a bidder/offer that a DBE 

was rejected because its quote was 

unreasonably high. 

The NPRM would give recipients two 

options with respect to the timing of the 

provision of good faith efforts 

documentation from bidders/offers who 

do not meet the contract goal. First, 

recipients could require that all bidders/ 

offerors who do not meet the contract 

goal submit good faith efforts 

documentation with their original bids/ 

offers. Bidders/offerors have to amass a 

great deal of information to compete for 

a contract (e.g., with respect to price, 

materials, schedules, etc.). DBE-related 

information is no different and no less 

an integral part of the bidding process. 

DBE information is not some separate, 

foreign intrusion into the procurement 

process that needs to be handled at a 

different time from anything else that 

determines who wins a contract. 

Consequently, we believe that recipients 

can justifiably seek good faith efforts 

information at the same time they 

receive everything else concerning the 

competition for a contract. 

However, we recognize that some 

recipients may wish to reduce 

administrative burdens on unsuccessful 

bidders/offerors. Consequently, the 

second option the proposed rule offers 

is for recipients to require good faith 

efforts documentation only from an 

apparent successful bidder/offeror that 

does not meet the contract goal. In this 

option, no one would be required to 

submit good faith efforts documentation 

with their original submissions. The 

apparent successful bidder/offer would 

have one day after the recipient notified 

it to submit the documentation. The 

documentation would have to relate to 

pre-bid/offer submission efforts; no 

post-bid/offer submission efforts would 

be acceptable. The Department seeks 

comment on whether, in this option, 

one day is an appropriate time frame, or 

whether a longer period (e.g., three 

days) would be acceptable. 

A related provision, added to 

Appendix A, seeks to remedy a practice 

involving the awarding of contracts to 

offerors who pledge to name DBEs after 

they are awarded the contract, but do 

not actually provide specific DBE 

information at the time required. This 

language explicitly states that a promise 

by the prime contractor bidder to 

include DBEs after the award is not to 

be considered as part of a good faith 

efforts evaluation. 

We also propose to add a new 

paragraph (f)(1)(ii) that would create 

additional safeguards for DBEs. It 

requires a recipient to include in each 

prime contract a provision stating that, 

as a condition of the award, the 

contractor must use those DBEs listed to 

perform the specific work items or 

supply the materials as committed and 

that the contractor is not entitled to any 

payment for work or materials 

performed by its own or any other forces 

if the work or supplies were committed 

to a DBE, unless it receives prior written 

consent of the recipient for a 

replacement of the DBE for good cause. 

In the event that it is necessary to 

replace a listed DBE, proposed 

paragraph (g) specifies good faith efforts 

that a prime contractor would have to 

make to find DBE participation in place 

of the original DBE. These include such 

things as (1) A statement of efforts made 

to negotiate with DBEs for specific work 

or supplies, including the names, 

addresses, telephone numbers, and 

emails of those DBEs that were 

contacted; (2) the time and date each 

DBE was contacted; (3) a description of 

the information provided to DBEs 

regarding the plans and specifications 

for portions of the work to be performed 

or the materials supplied; and (4) an 

explanation of why an agreement 

between the prime contractor and a DBE 

was not reached. The Department would 

expect prime contractors to look 

throughout the contract or project to 

find opportunities for DBE participation 

in this situation. This effort would not 

be limited to the same type of work the 

original DBE would have performed, but 

would extend to other types of work as 

well, including work the prime 

contractor may originally have planned 

to self-perform. The prime contractor 

would have to submit the 

documentation within 7 days of the 

recipient’s agreement to permit the 

original DBE to be replaced, and the 

recipient would provide a written 

determination to the contractor stating 

whether or not good faith efforts have 

been demonstrated. 

Under a new paragraph (h), recipients 

would be required to include in each 

prime contract a provision stating that 

failure by the contractor to carry out the 

requirements of this regulation, or meet 

its corrective plan as described above, is 

a material breach of the contract, and 

may result in the termination of the 

contract, use of the remedies set forth in 

proposed paragraph (i), and other 

remedies available to the recipient 

under law. The proposed remedies 

include provisions regarding (i) The 

withholding of monthly progress 

payments; (ii) declaring the contractor 

in default and terminating the contract; 

(iii) assessing sanctions in the amount of 

the difference in the DBE contract 

committal and the actual payments 

made to each certified DBEs; (iv) 

liquidated damages; and/or (v) 

disqualifying the contractor from future 

bidding as non-responsible. 

In an effort to enhance the recipient’s 

ability to review prime and 

subcontractor participation on DOTassisted contracts, we are proposing in 

a new paragraph (k) to require the prime 

contractor to provide all subcontracts 

for all DBEs participating on a contract 

(including first and lower tier 

subcontractors). Lastly, the good faith 

efforts provisions of the current rule 

apply when a procurement involves a 

race-conscious DBE contract goal. 

However, DBEs also participate, as a 

race-neutral matter, on contracts that do 

not have DBE contract goals. The 

Department seeks comment on whether 

some of the provisions of this rule (e.g., 

concerning termination of DBEs and 

good faith efforts to replace DBEs that 

are dropped from a project) should 

apply to DBEs on contracts that did not 

have a contract goal. 

§ 26.55 How is DBE participation 

counted toward goals? 

We propose to modify the factors in 

determining whether a DBE trucking 

company is performing a commercially 

useful function to include the ability to 

count 100% of a DBE’s trucking services 

when it uses its own employees as 

drivers, but leases trucks from a nonDBE truck leasing company. This 

change would allow DBE haulers to 

lease trucks from non-DBE leasing 

companies in instances in which they 

employ sufficient drivers yet lack 

sufficient trucks to fulfill their 

contractual obligations. This change is 

designed to allow DBEs the same ability 

as non-DBEs to use their own drivers 

and supplement their fleets with leased 

trucks without sacrificing any loss of 

DBE credit due to the fact that the trucks 

may be leased from a non-DBE leasing 

company. Credit would not be given, 


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however, in instances in which the DBE 

leases trucks from the prime contractor. 

The regulations pertaining to counting 

DBE trucking in which a DBE 

subcontracts with a non-DBE owneroperator or leases trucks and drivers 

from a non-DBE would remain 

unchanged. We also note that there 

could be situations in which close 

relationships between DBEs and nonDBE companies from which they lease 

trucks (e.g., a non-DBE mentor 

company) or difficulties in 

documentation of arms-length lease 

relationships (e.g., no proof of payment, 

assertions of payment in kind) could 

raise certification or fraud issues. The 

proposed amendment would change 

only counting rules; it would not 

immunize companies involved from 

scrutiny of potentially improper 

relationships. 

The NPRM would also add language 

emphasizing that counting decisions 

concerning whether a firm’s 

participation is best understood as a 

regular dealer or as a transaction 

expediter must be made on a contractby-contract basis, not on a generic basis. 

On December 9, 2011, the Department 

issued a new guidance Question and 

Answer (Q&A) to clarify the counting 

rules with respect to credit for 

suppliers, discussing the application of 

the ‘‘regular dealer’’ and ‘‘transaction 

expediter/broker’’ concepts. The 

Department seeks comment on whether 

any provisions of the Q&A should be 

made part of the rule itself. More 

broadly, the Department wants to open 

a discussion of the regular dealer 

concept itself. As defined in the rule, a 

‘‘regular dealer’’ occupies something 

like the traditional ‘‘middleman’’ role in 

commerce. Conversations with a variety 

of firms and state and local agencies 

have raised the question of whether 

changes in the way business is 

conducted has made the middleman 

role itself somewhat obsolete in the 

kinds of work (e.g., construction, 

professional services) most frequently 

involved in the DBE program. We seek 

comment on this question and on how, 

if at all, changes in the way business is 

conducted should result in changes in 

the way DBE credit is counted in supply 

situations. 

The Department’s key principle in 

counting DBE participation in any 

situation is to ensure that only work the 

DBE does itself, only the value that the 

DBE adds to the transaction, should 

count. When a DBE is involved in 

supplying goods manufactured by a 

non-DBE, and the DBE does not play a 

traditional regular dealer/middleman 

role, what is the appropriate measure of 

the value it adds to the transaction? Is 

it ever more than the fees or 

commissions the DBE gets? If so, what 

is the rationale for counting more than 

this (e.g., some percentage of the 

product that is provided to the ultimate 

user)? 

One policy consideration that has 

influenced the Department’s thinking 

over the years is that allowing toogenerous credit for supplies provided by 

a DBE middleman or transaction 

expediter would work to the 

disadvantage of DBEs who are 

contractors in construction or other 

fields. That is, if a prime contractor can 

get all or most of the DBE credit it needs 

to meet a goal from buying steel or 

petroleum products or other items 

through a DBE middleman, then the 

prime contractor’s incentive to use other 

DBE contractors on a project is 

diminished. The Department seeks 

comment on how this policy 

consideration interacts with the way the 

counting provisions of the rule work in 

practice. 

§ 26.109 What are the rules governing 

information, confidentiality, 

cooperation, and intimidation or 

retaliation? 

One of the concerns the Department 

has with the implementation of the 

program is that certifiers and other state 

and local program officials can be 

subject to pressures to take actions 

inconsistent with the intent and 

language of the Department’s rules. It is 

crucial that recipients’ personnel 

objectively discharge their professional 

responsibilities under this part. 

Objectivity includes being independent 

in fact and appearance when making 

certification decisions, maintaining an 

attitude of impartiality, and being free of 

conflicts of interest. We believe that the 

ethical administration of the program 

means that no public official at any 

level of state or local government should 

make, participate in making or in any 

way attempt to use their official position 

to influence a certification or other 

program decision. No employee, officer 

or agent of the recipient should 

participate in selection, or in the award 

or administration of a contract 

supported by Federal funds if a conflict 

of interest, real or apparent, would be 

involved. 

Recipients and their staffs are, of 

course, obligated to follow their 

jurisdiction’s written codes of ethics. 

Beyond that, the Department seeks 

comment on whether Part 26 should be 

amended (or guidance issued) to add 

provisions concerning ethics and 

conflicts of interest that could perhaps 

play a constructive role in empowering 

DBE officials to resist inappropriate 

pressures. Would such provisions be 

effectual? Could the Department 

effectively develop provisions that 

provided appropriate guidance but did 

not become overly detailed? The 

Department welcomes suggestions about 

this subject. 

Appendix A—Good Faith Efforts 

Appendix A provides guidance for 

recipients that establish a contract goal 

for DBE participation on a DOT-assisted 

contract. The Appendix is mentioned in 

the regulation text § 26.53, which the 

Department is proposing (as described 

above) to revise. The Appendix lists the 

specific types of actions recipients 

should consider as part of bidders’ good 

faith efforts to obtain DBE participation. 

This list was never intended to be a 

mandatory checklist nor to be exclusive 

or exhaustive. We clearly indicate that 

other factors or types of efforts may be 

relevant in appropriate cases. There has 

been no revision to the stated good faith 

efforts examples specified in the 

Appendix since the original issuance of 

the rule, but over time we have learned 

of several possible improvements that 

we hope to make now. These significant 

examples we propose to add are in the 

areas of market research (item A) and 

establishing flexible timeframes for 

performance and delivery schedules in 

a manner that encourages and facilitates 

DBE participation (item B). We further 

propose adding language specifying that 

the rejection of the DBE simply because 

its quotation for the work was not the 

lowest received is not a practice 

considered to be good faith effort. We 

propose to add language saying that 

‘‘determinations should not be made 

using quantitative formulas.’’ There is 

an understandable desire to permit good 

faith efforts decisions to be made on a 

neat, bright-line basis (e.g., if a prime 

contractor has contacted a given number 

or given percentage of DBEs, it has made 

sufficient good faith efforts). To 

accomplish their purpose, however, 

good faith efforts decisions must be a 

judgment based on the entire set of 

factors concerning a particular 

contracting action, and cannot be 

reduced to a formula or checklist 

without distorting the process. 

When a DBE must be replaced on a 

contract, the prime contractor’s inability 

to find a replacement DBE at the 

original price is not alone sufficient to 

support a finding that good faith efforts 

have been made to replace the original 

DBE. The fact that the bidder has the 

ability and/or desire to perform the 

contract work with its own forces is not 

a sound basis for rejecting a prospective 

replacement DBE’s reasonable quote. 

Section V of the Appendix addresses 


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various techniques recipients employ in 

determining whether a bidder has made 

good faith efforts. We propose adding 

language that recommends that 

recipients scrutinize the documented 

efforts and at a minimum, review the 

performance of other bidders in meeting 

the contract goal (e.g., to see if the 

success of other bidders in meeting a 

goal suggests that good faith efforts 

could have resulted in the bidder 

meeting the goal). We propose mirroring 

language we have added in § 26.53 

revisions that recipients require 

contractors to submit all subcontractor 

quotes in order to review whether DBE 

prices were substantially higher. 

Recipients would also contact the DBEs 

listed on a contractor’s solicitation to 

inquire as to whether they were, in fact, 

contacted by the prime. The added 

language also states that pro forma 

mailings to DBEs requesting bids are not 

alone sufficient to satisfy good faith 

efforts under the rule. 

Regulatory Analyses and Notices 

Executive Orders 12866 and 13563 

(Regulatory Planning and Review) 

This proposed rule is not a 

‘‘significant regulatory action’’ under 

section 3(f) of Executive Order 12866, 

Regulatory Planning and Review, and 

does not require an assessment of 

potential costs and benefits under 

section 6(a)(3) of the Order. It does not 

create significant cost burdens, does not 

affect the economy adversely, does not 

interfere or cause a serious 

inconsistency with any action or plan of 

another agency, does not materially alter 

the impact of entitlements, grants, user 

fees or loan programs; and does not 

raise novel legal or policy issues. The 

rule is essentially a streamlining of the 

provisions for implementing an existing 

program, clarifying existing provisions 

and improving existing forms. To the 

extent that clearer certification 

requirements and improved 

documentation can forestall DBE fraud, 

the rule will result in significant savings 

to state and local governments. This 

NPRM does not contain significant 

policy-level initiatives, but rather 

focuses on administrative changes to 

improve program implementation. 

Executive Order 12372 

(Intergovernmental Review) 

The NPRM is a product of a process, 

going back to 2007, of stakeholder 

meetings and written comment that 

generated significant input from state 

and local officials and agencies involved 

with the DBE program in transit, 

highway, and airport programs. 

Regulatory Flexibility Act 

The underlying DBE rule does deal 

with small entities: all DBEs are, by 

definition, small businesses. Also, some 

FAA and FTA recipients that implement 

the program are small entities. However, 

the changes proposed to the rule are 

primarily technical modifications to 

existing requirements (e.g., improved 

forms, refinements of certification 

provisions) that will have little to no 

economic impact on program 

participants. Therefore, the proposed 

changes will not create significant 

economic effects on anyone. In 

compliance with the Regulatory 

Flexibility Act (5 U.S.C. 601–612), I 

certify that this rule will not have a 

significant economic impact on a 

substantial number of small entities. 

Executive Order 13132 (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. As noted above, 

there is no substantial compliance cost 

imposed on state and local agencies, 

who will continue to implement the 

underlying program with administrative 

improvements proposed in the rule. The 

proposed rule does not involve 

preemption of state law. Consequently, 

we have analyzed this proposed rule 

under the Order and have determined 

that it does not have implications for 

federalism. 

Paperwork Reduction Act 

As required by the Paperwork 

Reduction Act of 1995, DOT is 

submitting Information Collection 

Requests (ICRs) 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 an opportunity to comment. 

Organizations and individuals desiring 

to submit comments on the collection of 

information 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, and should also 

send a copy their comments to the 

docket for this rulemaking at 

regulations.gov. Given the time frames 

for DOT and OMB consideration of 

comments, 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. OST may not impose a penalty 

on persons for violating information 

collection requirements which do not 

display a current OMB control number, 

if required. OST 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 either in the final rule or by 

separate notice in the Federal Register. 

The Department invited interested 

persons to submit comments on any 

aspect of these ICRs, including: (1) 

Whether the proposed collection is 

necessary for OST’s performance; (2) the 

accuracy of the estimated burdens; (3) 

ways for OST to enhance the quality, 

usefulness, and clarity of the collected 

information; and (4) ways that the 

burden could be minimized without 

reducing the quality of the collected 

information. 

For each of these information 

collections, the title, a description of the 

entity to which it applies, and an 

estimate of the annual recordkeeping 

and periodic reporting burden are set 

forth below. 

1. Application Form 

Based on discussions with DBEs, it is 

estimated that the total burden hours 

per applicant to complete its DBE or 

ACDBE certification application with 

supporting documentation to be 

approximately 8 hours. In addition, new 

applicants will have to submit a 

personal net worth (PNW) statement 

(see below). 

The number of new applications 

received each year by Unified 

Certification Program members is 

difficult to estimate. There is no central 

repository for DBE certification 

applications and we predict that the 

frequency of submissions at times vary 

according to construction season (high 

applications when the season is over), 

the contracting opportunities available 

in the marketplace, and the number of 

new transportation related business 

formations or expansions. To get some 

estimate however, the Department 

contacted recipients in during the 

process of this NPRM. The agencies we 

contacted reported receiving between 1– 

2 per month, 5–10 per month, or on the 

high end 80–100. There are likely 

several reasons for the variance. 

Jurisdictions that are geographically 

contiguous to other states (such as 

Maryland) and/or have a high DBE 

applicant pool may receive a higher 

number whereas jurisdictions in remote 

areas of the country with smaller 

numbers of firms may have lower 


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applicant requests for DBE certification. 

These rough numbers likely do not 

include requests for expansion of work 

categories from existing firms that are 

already certified. 

Frequency: Once during initial DBE or 

ACDBE certification. 

Estimated Average Burden per 

Response: 8 hours. 

Estimated Total Annual Burden 

Hours: 72–76 thousand hours per year. 

2. PNW Form 

A small business seeking to 

participate in the DBE and ACDBE 

programs must be owned and controlled 

by a socially and economically 

disadvantaged individual. When a 

recipient determines that an 

individual’s net worth exceeds $1.32 

million, the individual’s presumption of 

economic disadvantage is said to have 

been conclusively rebutted. In order to 

make this determination, the current 

rule requires recipients to obtain a 

signed and notarized statement of 

personal net worth from all persons who 

claim to own and control a firm 

applying for DBE or ACDBE certification 

and whose ownership and control are 

relied upon for the certification. These 

personal net worth statements must be 

accompanied by appropriate supporting 

documentation (e.g., tax returns). The 

form proposed in this rule would 

replace use of an SBA form suggested in 

current regulations. 

Based on discussion with DBE firms, 

we estimate that compiling information 

for and filling out this form would take 

approximately 10 hours. 

The number of respondents is 

significantly higher than the number of 

applications received due to annual 

submissions of the form by owners of 

DBE or ACDBE certified firms. 

Frequency: Once during initial DBE 

certification and each year thereafter 

during annual update process. For the 

DBE/ACDBE programs, information 

regarding the assets and liabilities of 

individual owners is necessary for 

recipients of Federal Transit 

Administration, Federal Aviation 

Administration, and Federal Highway 

Administration, to make responsible 

decisions concerning an applicant’s 

economic disadvantage under the rule. 

All persons who claim to own and 

control a firm applying for DBE or 

ACDBE certification and whose 

ownership and control are relied upon 

for the certification will complete the 

form. Once a firm is certified as a DBE 

or ACDBE, these same owners will 

complete the form each year. 

Estimated Average Burden per 

Response: 8 hours for the initial 

statement; 4 hours for future updates. 

Number of Respondents: 9000–9500 

applicants each year. Assuming 

approximately 30,000 certified firms 

nationally, there would be that number 

of updates annually. 

Estimated Burden: 72–76 thousand 

hours per year for applications; 120,000 

hours for annual updates. Total 

estimated burden would be 192–196 

thousand hours per year. 

3. Material With Annual Affidavits of 

No Change 

Each year, a certified firm must 

submit an affidavit of no change. In 

addition to an updated PNW statement 

(see above), the affidavit must be 

accompanied by (1) A record from each 

individual claiming disadvantaged 

status regarding the transfer of assets for 

less than fair market value to any 

immediate family member, or to a trust 

any beneficiary of which is an 

immediate family member, within two 

years of the date of the annual review; 

(2) a record of all payments, 

compensation, and distributions 

(including loans, advances, salaries and 

dividends) made by the DBE firm to 

each of its owners, officers or directors, 

or to any person or entity affiliated with 

such individuals; and (3) the owner and 

the firm’s (including affiliates) most 

recent completed IRS tax return, IRS 

Form 4506 (Request for Copy or 

Transcript of Tax Return). Collection 

and submission of these items during 

the annual affidavit is estimated to take 

approximately 1.5 hours (realizing that 

not all firms will have to submit items 

(1) and (2), and that item 3 will already 

have been prepared for IRS purposes. 

Respondents: The approximately 

30,000 certified DBE firms. 

Burden: Approximately 45, 000 hours 

per year. 

4. Reporting Requirement for 

Percentages of DBEs in Various 

Categories 

The NPRM would implement a 

statutory requirement calling on UCPs 

to report the percentages of white 

women, minority men, and minority 

women who control DBE firms. To carry 

out this requirement, the 52 UCPs 

would read their existing Directories, 

noting which firms fell into each of 

these three categories. The UCPs would 

then calculate the percentages and email 

the results off to the Departmental 

Office of Civil Rights. It would take each 

UCP an estimated three hours to comb 

through their Directories, and another 

three minutes to operate their 

calculators to do the percentages and 

send an email. 

Respondents: 52. 

Burden: Approximately 158.5 hours. 

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 22nd day of August 2012, at 

Washington, DC. 

Robert S. Rivkin, 

General Counsel. 

For the reasons set forth in the 

preamble, the Department of 

Transportation proposes to amend 49 

CFR part 26 as follows: 

PART 26—[AMENDED] 

1. The authority citation for 49 CFR 

part 26 continues 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 § 26.1, redesignate paragraphs (f) 

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

add new paragraph (f),to read as 

follows: 

§ 26.1 What are the objectives of this part? 

* * * * * 

(f) To promote the use of DBEs in all 

types of Federally-assisted contracts and 

procurement activities conducted by 

recipients. 

* * * * * 

3. Amend § 26.5 by removing the 

definition ‘‘DOT/SBA Memorandum of 

Understanding or MOU’’ and by adding 

the following definitions ‘‘Assets’’, 

‘‘Business, business concern or business 

enterprise’’, ‘‘Contingent Liability’’, 

‘‘Days’’, ‘‘Immediate family member’’, 

‘‘Liabilities’’, ‘‘Principal place of 

business’’, ‘‘Transit vehicle 

manufacturer (TVM)’’, in the proper 

alphabetical order to read as follows: 

§ 26.5 What do the terms used in this part 

mean? 

Assets mean all the property of a 

person available for paying debts or for 

distribution, including one’s respective 

share of jointly held assets. This 

includes, but is not limited to, cash on 

hand and in banks, savings accounts, 

IRA or other retirement accounts, 

accounts receivable, life insurance, 

stocks and bonds, real estate, and 

personal property. 

Business, business concern or 

business enterprise means an entity 

organized for profit with a place of 

business located in the United States, 

and which operates primarily within the 

United States or which makes a 

significant contribution to the United 

States economy through payment of 


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taxes or use of American products, 

materials, or labor. 

Contingent Liability means a liability 

that depends on the occurrence of a 

future and uncertain event. This 

includes, but is not limited to, guaranty 

for debts owed by the applicant 

concern, legal claims and judgments, 

and provisions for federal income tax. 

Days mean calendar days. In 

computing any period of time described 

in this part, the day from which the 

period begins to run is not counted, and 

when the last day of the period is a 

Saturday, Sunday, or Federal holiday, 

the period extends to the next day that 

is not a Saturday, Sunday, or Federal 

holiday. Similarly, in circumstances 

where the recipient’s offices are closed 

for all or part of the last day, the period 

extends to the next day on which the 

agency is open. 

Immediate family member means 

father, mother, husband, wife, son, 

daughter, brother, sister, grandfather, 

grandmother, father-in-law, and motherin-law. 

Liabilities mean financial or 

pecuniary obligations. This includes, 

but is not limited to, accounts payable, 

notes payable to bank or others, 

installment accounts, mortgages on real 

estate, and unpaid taxes. 

Principal place of business means the 

business location where the individuals 

who manage the applicant’s day-to-day 

operations spend most working hours. If 

the offices from which management is 

directed and where the business records 

are kept are in different locations, the 

recipient will determine the principal 

place of business. 

Transit vehicle manufacturer (TVM) 

means any manufacturer whose primary 

business purpose is to manufacture 

vehicles specifically built for public 

mass transportation. Such vehicles 

include, but are not limited to: buses, 

rail cars, trolleys, ferries, and vehicles 

manufactured specifically for 

paratransit purposes. Businesses that 

manufacture, mass-produce, or 

distribute vehicles solely for personal 

use and for sale ‘‘off the lot’’ are not 

considered transit vehicle 

manufacturers. 

4. In § 26.5, revise the definitions of 

‘‘Primary industry classification’’ and 

‘‘Socially and economically 

disadvantaged individual’’ to read as 

follows: 

§ 26.5 What do the terms used in this part 

mean? 

* * * * * 

Primary industry classification means 

the most current North American 

Industrial Classification System 

(NAICS) designation which best 

describes the primary business of a firm. 

The NAICS is described in the North 

American Industry Classification 

Manual—United States, which is 

available from the National Technical 

Information Service, 5301 Shawnee 

Road, Alexandria, VA, 22312 by calling 

1–800–553–6847; TDD: (703) 487–4639, 

on the Internet at: http://www.ntis.gov/ 

products/naics.aspx. or through the U.S. 

Census Bureau http://www.census.gov/ 

eos/www/naics/. 

* * * * * 

Socially and economically 

disadvantaged individual means any 

individual who is a citizen (or lawfully 

admitted permanent resident) of the 

United States and who has been 

subjected to racial or ethnic prejudice or 

cultural bias within American society 

because of his or her identity as a 

members of groups and without regard 

to his or her individual qualities. The 

social disadvantage must stem from 

circumstances beyond the individual’s 

control. 

(1) Any individual who a recipient 

finds to be a socially and economically 

disadvantaged individual on a case-bycase basis. An individual must 

demonstrate that he or she has held 

himself or herself out, as a member of 

a designated group if you require it. 

(2) Any individual in the following 

groups, members of which are 

rebuttably presumed to be socially and 

economically disadvantaged: 

(i) ‘‘Black Americans,’’ which 

includes persons having origins in any 

of the Black racial groups of Africa; 

(ii) ‘‘Hispanic Americans,’’ which 

includes persons of Mexican, Puerto 

Rican, Cuban, Dominican, Central or 

South American, or other Spanish or 

Portuguese culture or origin, regardless 

of race; 

(iii) ‘‘Native Americans,’’ which 

includes persons who are enrolled 

members of a federally or state 

recognized Indian tribe, Alaska Natives, 

or Native Hawaiians; 

(iv) ‘‘Asian-Pacific Americans,’’ 

which includes persons whose origins 

are from Japan, China, Taiwan, Korea, 

Burma (Myanmar), Vietnam, Laos, 

Cambodia (Kampuchea), Thailand, 

Malaysia, Indonesia, the Philippines, 

Brunei, Samoa, Guam, the U.S. Trust 

Territories of the Pacific Islands 

(Republic of Palau), Republic of the 

Northern Marianas Islands, Samoa, 

Macao, Fiji, Tonga, Kirbati, Tuvalu, 

Nauru, Federated States of Micronesia, 

or Hong Kong; 

(v) ‘‘Subcontinent Asian Americans,’’ 

which includes persons whose origins 

are from India, Pakistan, Bangladesh, 

Bhutan, the Maldives Islands, Nepal or 

Sri Lanka; 

(vi) Women; 

(vii) Any additional groups whose 

members are designated as socially and 

economically disadvantaged by the 

SBA, at such time as the SBA 

designation becomes effective. 

Being born in a particular country does 

not, standing alone, mean that a person 

is necessarily a member of one of the 

groups listed in this definition. 

* * * * * 

5. In § 26.11, add new paragraphs (d) 

and (e), to read as follows: 

§ 26.11 What records do recipients keep 

and report? 

* * * * * 

(d) You must maintain all records 

documenting a firm’s compliance with 

the requirements of this part. At a 

minimum, you should keep a complete 

application package for each certified 

firm and all affidavits of no-change, 

change notices, and on-site reviews. 

Such records must be retained in 

accordance with applicable record 

retention requirements for the 

recipient’s financial assistance 

agreement. 

(e) Each UCP established pursuant to 

section 26.81 of this Part must report to 

the Department of Transportation’s 

Departmental Office of Civil Rights, by 

May 31 of each year, the percentage of 

certified DBE firms in its Directory 

controlled by the following: 

(1) women; 

(2) socially and economically 

disadvantaged individuals (other than 

women); and 

(3) individuals who are women and 

are otherwise socially and economically 

disadvantaged individuals 

§ 26.21 [Amended] 

6. In § 26.21 paragraph (a)(1) add the 

word ‘‘primary’’ before FHWA, in 

paragraph (a)(2) and (a)(3) remove the 

word ‘‘exceeding’’ and add in its place 

the words ‘‘the cumulative total value of 

which exceeds.’’ 

7. In § 26.45 revise paragraphs (c) (2), 

(c) (5); (d)(introductory paragraph), 

(e)(3), (f)(4) and (g) to read as follows: 

§ 26.45. How Do Recipients Set Overall 

Goals? 

* * * * * 

(c) * * * 

(2) Use a bidders list. Determine the 

number of DBEs that have bid or quoted 

on your DOT-assisted prime contracts or 

subcontracts in the past three years. 

Determine the number of all businesses 

(successful and unsuccessful) that have 

bid or quoted on prime or subcontracts 

in the same time period. Divide the 

number of DBE bidders and quoters by 

the number of all businesses to derive 


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a base figure for the relative availability 

of DBEs in your market. When using 

this approach, you must establish a 

mechanism to directly capture data on 

DBE and non-DBE subcontractors that 

submitted bids or quotes on your DOTassisted contracts. * * * 

(5) Alternative methods. Except as 

otherwise provided in this paragraph, 

you may use other methods to 

determine a base figure for your overall 

goal. Any methodology you choose must 

be based on demonstrable evidence of 

local market conditions and be designed 

to ultimately attain a goal that is 

rationally related to the relative 

availability of DBEs in your market. Use 

of a list of prequalified contractors or 

plan holders is not an acceptable 

alternative means of determining the 

availability of DBEs. 

(d) Step 2. Once you have calculated 

a base figure, you must examine all of 

the evidence available in your 

jurisdiction to determine what 

adjustment, if any, is needed to the base 

figure to arrive at your overall goal. If 

the evidence does not suggest an 

adjustment is necessary, then no 

adjustment shall be made. 

* * * * * 

(e) * * * 

(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, including entire 

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) * * * 

(4) You are not required to obtain 

prior operating administration 

concurrence with your overall goal. 

However, if the operating 

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. 

In evaluating the adequacy or soundness 

of the methodology used to derive the 

overall goal, the operating 

administration will be guided by goal 

setting principles and best practices 

identified by the Department in 

guidance issued pursuant to section 

26.9. 

* * * * * 

(g) In establishing an overall goal, you 

must provide for consultation and 

publication. This includes: 

(1) Consultation with minority, 

women’s and general contractor groups, 

community organizations, and other 

officials or organizations which could 

be expected to have information 

concerning the availability of 

disadvantaged and non-disadvantaged 

businesses, the effects of discrimination 

on opportunities for DBEs, and your 

efforts to establish a level playing field 

for the participation of DBEs. The 

consultation must include a scheduled, 

direct, interactive exchange (e.g., a faceto-face meeting, video conference, 

teleconference) with as many interested 

stakeholders as possible focused on 

obtaining information relevant to the 

goal setting process, and it must occur 

before you are required to submit your 

methodology to the operating 

administration for review pursuant to 

section 26.45(f). You must document in 

your goal submission the consultation 

process you engaged in. 

Notwithstanding section 25.45 (f)(4), 

you may not implement your proposed 

goal until you have complied with this 

requirement. 

(2) A published notice announcing 

your proposed overall goal before 

submission to the operating 

administration on August 1st. The 

notice must be posted on your Internet 

Web site any other sources (e.g., 

minority-focused media, trade 

association publications). If the 

proposed goal changes following review 

by the operating administration, the 

revised goal must be posted on your 

Internet Web site. 

* * * * * 

8. Revise § 26.49 to read as follows: 

§ 26.49 How are overall goals established 

for vehicle manufacturers? 

(a) If you are an FTA recipient, you 

must require in your DBE program that 

each transit vehicle manufacturer, as a 

condition of being authorized to bid or 

propose on FTA-assisted transit vehicle 

procurements, certify that it has 

complied with the requirements of this 

section. You do not include FTA 

assistance used in transit vehicle 

procurements in the base amount from 

which your overall goal is calculated. 

(1) Only those transit vehicle 

manufacturers listed on FTA’s certified 

list of Transit Vehicle Manufacturers at 

the time of solicitation are eligible to 

bid. 

(2) Failure to implement the DBE 

Program in the manner as prescribed in 

this section and throughout 49 CFR Part 

26 will be deemed as non-compliance, 

which will result in removal from FTA’s 

certified TVMs list, resulting in that 

manufacturer becoming ineligible to 

bid. 

(3) FTA recipients must have a 

mechanism in place to document that 

only certified manufacturers were 

allowed to bid. 

(4) FTA recipients are required to 

submit within 30 days of making an 

award, the name of the successful 

bidder, and the total dollar value of the 

contract in the manner prescribed in the 

grant agreement. 

(b) If you are a transit vehicle 

manufacturer, you must establish and 

submit for FTA’s approval an annual 

overall percentage goal. 

(1) In setting your overall goal, you 

should be guided, to the extent 

applicable, by the principles underlying 

§ 26.45. The base from which you 

calculate this goal is the amount of FTA 

financial assistance included in transit 

vehicle contracts you will bid on during 

the fiscal year in question, less the 

portion(s) attributable to the 

manufacturing process performed 

entirely by the transit vehicle 

manufacturer’s own forces. 

(i) You must consider and include in 

your base figure all contracting 

opportunities made available to nonDBE firms; and 

(ii) You must exclude from this base 

figure funds attributable to work 

performed outside the United States and 

its territories, possessions, and 

commonwealths. 

(iii) In establishing an overall goal, the 

transit vehicle manufacturer must 

provide for public participation. This 

includes consultation with interested 

parties consistent with § 26.45(g) as well 

as publication of contracting 

opportunities within a Central 

Repository of Contracting 

Opportunities. 

(2) The requirements of this part with 

respect to submission and approval of 

overall goals apply to you as they do to 

recipients. 

(c) Transit vehicle manufacturers 

awarded must comply with the 

reporting requirements of § 26.11 of this 

part including the requirement to 

submit the Uniform Report of Awards/ 


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Commitments and Payments, in order to 

remain eligible to bid on FTA assisted 

transit vehicle procurements 

(d) Transit vehicle manufacturers 

must implement all other applicable 

requirements of this part, except those 

relating to UCPs and DBE certification 

procedures. 

(e) If you are an FHWA or FAA 

recipient, you may, with FHWA or FAA 

approval, use the procedures of this 

section with respect to procurements of 

vehicles or specialized equipment. If 

you choose to do so, then the 

manufacturers of this equipment must 

meet the same requirements (including 

goal approval by FHWA or FAA) as 

transit vehicle manufacturers must meet 

in FTA-assisted procurements. 

(f) As a recipient you may, with FTA 

approval, establish project-specific goals 

for DBE participation in the 

procurement of transit vehicles in lieu 

of complying through the procedures of 

this section. 

9. Revise § 26.51 paragraph (a) to read 

as follows: 

§ 26.51 What means do recipients use to 

meet overall goals? 

(a) You must meet the maximum 

feasible portion of your overall goal by 

using race-neutral means of facilitating 

race-neutral DBE participation. Raceneutral DBE participation includes any 

time a DBE wins a prime contract 

through customary competitive 

procurement procedures or is awarded a 

subcontract on a prime contract that 

does not carry a DBE contract goal. 

* * * * * 

10. In § 26.53, revise paragraph (b), 

redesignate paragraph (f)(1) as (f)(1)(i), 

and add a new paragraph (f)(1)(ii) to 

read as follows: 

§ 26.53 What are the good faith efforts 

procedures recipients follow in situations 

where there are contract goals? 

* * * * * 

(b) In your solicitations for DOTassisted contracts for which a contract 

goal has been established, you must 

require the following: 

(1) Award of the contract will be 

conditioned on meeting the 

requirements of this section; 

(2) All bidders/offerors will be 

required to submit the following 

information to the recipient, at the time 

provided in paragraph (b)(3) of this 

section: 

(i) The names and addresses of DBE 

firms that will participate in the 

contract; 

(ii) A description of the work that 

each DBE will perform. To count toward 

meeting a goal, each DBE firm must be 

certified in a NAICS code applicable to 

the kind of work the firm would 

perform on the contract; 

(iii) The dollar amount of the 

participation of each DBE firm 

participating; 

(iv) Written documentation of the 

bidder/offeror’s commitment to use a 

DBE subcontractor whose participation 

it submits to meet a contract goal; and 

(v) Written confirmation from each 

listed DBE firm that it is participating in 

the contract in the kind and amount of 

work provided in the prime contractor’s 

commitment. 

(3) You must require that the each 

bidder/offeror present all information 

required by paragraph (b)(2) of this 

section at the time its bid/offer is 

presented (e.g., the time of bid opening, 

the time of presentation of initial 

proposals). Provided that, in a 

negotiated procurement, the offeror may 

make a contractually binding 

commitment to meet the goal at the time 

of the presentation of initial proposals 

but provide the information required by 

paragraph (b)(2) of this section before 

the final selection for the contract is 

made by the recipient. 

(4) If the apparent successful bidder/ 

offeror has not met the contract goal, it 

must submit documentation of the good 

faith efforts it made to meet the goal in 

order to be eligible for contract award. 

The documentation of good faith efforts 

must include copies of each DBE and 

non-DBE subcontractor quote submitted 

to the bidder when a non-DBE 

subcontractor was selected over a DBE 

for work on the contract. 

(i) You may require all bidders/ 

offerors who do not meet the contract 

goal to submit this documentation with 

their original submission; or 

(ii) You may allow an apparent 

successful bidder/offeror who does not 

meet the contract goal to submit this 

documentation within one day of your 

notification that it is the apparent 

successful bidder/offeror. If you use this 

approach, you must require that the 

apparent successful bidder/offeror 

certify that all evidence of good faith 

efforts was created or generated before 

the time of the original bid/offer 

submission. Efforts to obtain additional 

DBE participation made after the time of 

the original submission will not be 

accepted as evidence of good faith 

efforts. 

* * * * * 

(f)(1)(i) * * * 

(ii) You must include in each prime 

contract a provision stating (A) that the 

contractor shall utilize the specific DBEs 

listed to perform the work and supply 

the materials for which each is listed 

unless the contractor obtains your 

written consent as provided in this 

paragraph (f); and (B) that, unless your 

consent is provided under this 

paragraph (f), the contractor shall not be 

entitled to any payment for work or 

material unless it is performed or 

supplied by the listed DBE. 

* * * * * 

11. In § 26.53, revise paragraphs (g) 

and (h), resdesignate paragraph (i) as 

paragraph (j), and add new paragraphs 

(i), and (k) to read as follows: 

§ 26.53 What are the good faith efforts 

procedures recipients follow in situations 

where there are contract goals? 

* * * * * 

(g) When a DBE subcontractor is 

terminated as provided in paragraph (f) 

of this section, or fails to complete its 

work on the contract for any reason, you 

must require the prime contractor to 

make good faith efforts to find another 

DBE subcontractor to substitute for the 

original DBE. These good faith efforts 

shall be directed at finding another DBE 

to perform at least the same amount of 

work under the contract as the DBE that 

was terminated, to the extent needed to 

meet the contract goal you established 

for the procurement. These good faith 

efforts shall be documented by the 

contractor and at your discretion, you 

must direct the contractor to provide— 

(i) written notification to certified 

DBEs that their interest is solicited in 

subcontracting work defaulted by the 

previous DBE or in subcontracting other 

items of work in the contract; 

(ii) a statement of efforts to negotiate 

with certified DBEs for specific sub-bids 

including the names, addresses, and 

telephone numbers of certified DBEs 

who were contacted; a description of the 

information provided to certified DBEs 

regarding the plans and specifications 

for portions of the work to be 

performed; and a statement of why 

additional agreements with certified 

DBEs were not reached; and 

(iii) documentation demonstrating its 

attempts to contact the recipient for 

assistance in locating certified DBEs 

willing to assume the portion of work or 

do other work on the contract. If the 

recipient requests documentation under 

this provision, the contractor shall 

submit the documentation within 7 days 

and the recipient shall provide a written 

determination to the contractor stating 

whether or not good faith efforts have 

been demonstrated. 

(h) You must include in each prime 

contract a provision stating that failure 

by the contractor to carry out the 

requirements of this Part is a material 

breach of the contract, and may result in 

the termination of the contract, the 

remedies set forth in paragraph (i) of 


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this section, or other remedies you deem 

appropriate. 

(i) You must include in each prime 

contract a provision for appropriate 

administrative remedies that you will 

invoke if the prime contractor fails to 

comply with the requirements of this 

section in making good faith efforts to 

meet DBE contract goals and 

commitments. The remedies shall 

include provisions regarding (i) the 

withholding of monthly progress 

payments; (ii) declaring the contractor 

in default and terminating the contract; 

(iii) assessing sanctions in the amount of 

the difference in the DBE contract 

committal and the actual payments 

made to each certified DBEs; (iv) 

liquidated damages; and/or (v) 

disqualifying the contractor from future 

bidding as non-responsible. 

(j) You must apply the requirements 

of this section to DBE bidders/offerors 

for prime contracts. In determining 

whether a DBE bidder/offeror for a 

prime contract has met a contract goal, 

you count the work the DBE has 

committed to performing with its own 

forces as well as the work that it has 

committed to be performed by DBE 

subcontractors and DBE suppliers. 

(k) You must require the contractor to 

provide a copy of all DBE subcontracts. 

The subcontractor shall ensure that all 

subcontracts or an agreement with DBEs 

to supply labor or materials require that 

the subcontract and all lower tier 

subcontractors be performed in 

accordance with this part’s provisions. 

12. In § 26.55, revise paragraph (d)(5) 

and the example to paragraph (d)(5); 

redesignate paragraph (d)(6) as (d)(7); 

and add new paragraph (d)(6) and 

example to paragraph (d)(6); and add a 

new paragraph (e)(4) to read as follows: 

§ 26.55 How is DBE participation counted 

toward goals? 

* * * * * 

(d) * * * 

(5) The DBE may also lease trucks 

from a non-DBE firm, including from an 

owner-operator. The DBE that leases 

trucks equipped with drivers from a 

non-DBE is entitled to credit for the 

total value of transportation services 

provided by non-DBE leased trucks 

equipped with drivers not to exceed the 

value of transportation services on the 

contract provided by DBE-owned trucks 

or leased trucks with DBE employee 

drivers. Additional participation by 

non-DBE owned trucks equipped with 

drivers receives credit only for the fee 

or commission it receives as a result of 

the lease arrangement. If a recipient 

chooses this approach, it must obtain 

written consent from the appropriate 

DOT Operating Administration. 

Example to this paragraph (d)(5): DBE 

Firm X uses two of its own trucks on a 

contract. It leases two trucks from DBE Firm 

Y and six trucks equipped with drivers from 

non-DBE Firm Z. DBE credit would be 

awarded for the total value of transportation 

services provided by Firm X and Firm Y, and 

may also be awarded for the total value of 

transportation services provided by four of 

the six trucks provided by Firm Z. In all, full 

credit would be allowed for the participation 

of eight trucks. DBE credit could be awarded 

only for the fees or commissions pertaining 

to the remaining trucks Firm X receives as a 

result of the lease with Firm Z. 

(6) The DBE may lease trucks without 

drivers from a non-DBE truck leasing 

company. If the DBE leases trucks from 

a non-DBE truck leasing company and 

uses its own employees as drivers, it is 

entitled to credit for the total value of 

these hauling services. 

Example to paragraph (d)(6): DBE Firm X 

uses two of its own trucks on a contract. It 

leases two additional trucks from non-DBE 

Firm Z. Firm X uses its own employees to 

drive the trucks leased from Firm Z. DBE 

credit would be awarded for the total value 

of the transportation services provided by all 

four trucks. 

* * * * * 

(e) * * * 

(4) You must determine the amount of 

credit awarded to a firm for the 

provisions of materials and supplies 

(e.g., whether a firm is acting as a 

regular dealer or a transaction expediter) 

on a contract-by-contract basis. 

* * * * * 

13. In § 26.65, revise paragraph (a), 

and in paragraph (b), remove ‘‘in excess 

of $22.41 million’’ and add in its place 

‘‘in excess of ‘‘$23.98 million’’ to read 

as follows: 

§ 26.65 What rules govern business size 

determinations? 

(a) To be an eligible DBE, a firm 

(including its affiliates) must be an 

existing small business, as defined by 

Small Business Administration (SBA) 

standards. As a recipient, you must 

apply current SBA business size 

standard(s) found in 13 CFR part 121 

appropriate to primary industry 

classification of the applicant. 

* * * * * 

14. Revise § 26.67 to read as follows: 

§ 26.67 What rules determine social and 

economic disadvantage? 

(a) Presumption of disadvantage. (1) 

You must rebuttably presume that 

citizens of the United States (or lawfully 

admitted permanent residents) who are 

women, Black Americans, Hispanic 

Americans, Native Americans, AsianPacific Americans, Subcontinent Asian 

Americans, or other minorities found to 

be disadvantaged by the SBA, are 

socially and economically 

disadvantaged individuals. You must 

require applicants to submit a signed, 

notarized certification that each 

presumptively disadvantaged owner is, 

in fact, socially and economically 

disadvantaged. 

(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. 

(ii) You must require each individual 

who makes this certification to support 

it with a signed, notarized statement of 

personal net worth, with appropriate 

supporting documentation. To meet this 

requirement, you must use the 

application form provided in Appendix 

G to this part without change or 

revision. Where necessary to accurately 

determine an individual’s PNW, you 

may, on a case-by-case basis, require 

additional financial information from 

the owner of an applicant firm (e.g., 

information concerning the assets of the 

owner’s spouse, where needed to clarify 

whether assets have been transferred to 

the spouse). 

(iii) The PNW statement must include 

all assets owned by the individual, 

including any ownership interests in the 

applicant firm, personal assets, and the 

value of his or her personal residence. 

However, when computing an 

individual’s net worth to determine 

economic disadvantage, you must make 

the adjustments in paragraph (iv) of this 

paragraph. 

(iv) In determining an individual’s net 

worth, you must observe the following 

requirements: 

(A) Exclude an individual’s 

ownership interest in the applicant firm; 

(B) Exclude the individual’s equity in 

his or her primary residence (except any 

portion of such equity that is 

attributable to excessive withdrawals 

from the applicant firm). The equity is 

the market value of the residence less 

any mortgages and home equity loan 

balances. Recipients must ensure that 

home equity loan balances are included 

in the equity calculation and not as a 

separate liability on the individual’s 

personal net worth form. Exclusions for 

net worth purposes are not exclusions 

for asset valuation or access to capital 

and credit purposes. 

(C) Do not use a contingent liability to 

reduce an individual’s net worth. 

(D) With respect to assets held in 

vested pension plans, Individual 

Retirement Accounts, 401(k) accounts, 

or other retirement savings or 

investment programs in which the 

assets cannot be distributed to the 


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individual at the present time without 

significant adverse tax or interest 

consequences, include only the present 

value of such assets, less the tax and 

interest penalties that would accrue if 

the asset were distributed at the present 

time. 

(v) 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. 

(b) Rebuttal of presumption of 

disadvantage. (1) If the statement of 

personal net worth and supporting 

documentation that an individual 

submits under paragraph (a)(2) of this 

section shows that the individual’s 

personal net worth exceeds $1.32 

million or demonstrates that the 

individual is (i) able to accumulate 

substantial wealth; (ii) has unlimited 

growth potential; or (iii) has not 

experienced or had to overcome 

impediments to obtaining access to 

financing, markets, and resources, the 

individual’s presumption of economic 

disadvantage is rebutted. As a certifying 

agency, you should review the total fair 

market value of the individual’s assets 

and determine if that level appears to be 

substantial and indicates an ability to 

accumulate substantial wealth. 

Example to paragraph (b)(1): An 

individual with very high assets and 

significant liabilities may, in accounting 

terms, have a PNW of less than $1.32 million. 

However, the person’s assets (e.g., a very 

expensive house, a yacht, extensive real or 

personal property holdings) may lead to a 

conclusion that he or she is not economically 

disadvantaged. The recipient can rebut the 

individual’s presumption of economic 

disadvantage under these circumstances, as 

provided in this section, even though the 

individual’s PNW is less than $1.32 million. 

(2) In the case of an individual whose 

economic disadvantage is rebutted because 

his or her PNW shows a PNW exceeding 

$1.32 million, you are not required to have 

a proceeding under paragraph (b)(2) of this 

section in order to rebut the presumption of 

economic disadvantage in this case. 

(3) If you have a reasonable basis to believe 

that an individual who is a member of one 

of the designated groups is not, in fact, 

socially and/or economically disadvantaged 

you may, at any time, start a proceeding to 

determine whether the presumption should 

be regarded as rebutted with respect to that 

individual. Your proceeding must follow the 

procedures of Sec. 26.87. 

(4) In such a proceeding, you have the 

burden of demonstrating, by a preponderance 

of the evidence, that the individual is not 

socially and economically disadvantaged. 

You may require the individual to produce 

information relevant to the determination of 

his or her disadvantage. 

(5) When an individual’s presumption of 

social and/or economic disadvantage has 

been rebutted, his or her ownership and 

control of the firm in question cannot be used 

for purposes of DBE eligibility under this 

subpart unless and until he or she makes an 

individual showing of social and/or 

economic disadvantage. If the basis for 

rebutting the presumption is a determination 

that the individual’s personal net worth 

exceeds $1.32 million, the individual is no 

longer eligible for participation in the 

program and cannot regain eligibility by 

making an individual showing of 

disadvantage, so long as his or her PNW 

remains above that amount. 

(c) Transfers within two years. 

(1) Except as set forth in paragraph 

(e)(2) of this section, recipients must 

attribute to an individual claiming 

disadvantaged status any assets which 

that individual has transferred to an 

immediate family member, to a trust a 

beneficiary of which is an immediate 

family member, or to the applicant firm 

for less than fair market value, within 

two years prior to a concern’s 

application for participation in the DBE 

program or within two years of 

recipient’s review of the firm’s 

eligibility, unless the individual 

claiming disadvantaged status can 

demonstrate that the transfer is to or on 

behalf of an immediate family member 

for that individual’s education, medical 

expenses, or some other form of 

essential support. 

(2) Recipients must not attribute to an 

individual claiming disadvantaged 

status any assets transferred by that 

individual to an immediate family 

member that are consistent with the 

customary recognition of special 

occasions, such as birthdays, 

graduations, anniversaries, and 

retirements. 

(d) Firms owned and controlled by 

individuals who are not presumed to be 

socially and economically 

disadvantaged (including individuals 

whose presumed disadvantage has been 

rebutted) may apply for DBE 

certification. You must make a case-bycase determination of whether each 

individual whose ownership and 

control are relied upon for DBE 

certification is socially and 

economically disadvantaged. In such a 

proceeding, the applicant firm has the 

burden of demonstrating to you, by a 

preponderance of the evidence, that the 

individuals who own and control it are 

socially and economically 

disadvantaged. In making these 

determinations, use the guidance found 

in Appendix E of this part. You must 

require that applicants provide 

sufficient information to permit 

determinations under the guidance of 

Appendix E of this part. 

15. In § 26.69, revise paragraphs (a), 

(c)(1), and (i), add new paragraph (k), to 

read as follows: 

§ 26.69 What rules govern determinations 

of ownership? 

(a) In determining whether the 

socially and economically 

disadvantaged participants in a firm 

own the firm, you must consider all the 

facts in the record viewed as a whole, 

including the origin of all assets and 

how and when they were used in 

obtaining the firm. All transactions for 

the establishment and ownership (or 

transfer of ownership) must be in the 

normal course of business, reflecting 

commercial and arms-length practices. 

* * * * * 

(c)(1) The firm’s ownership by 

socially and economically 

disadvantaged individuals, including 

their contribution of capital or expertise 

to acquire their ownership interests, 

must be real, substantial, and 

continuing, going beyond pro forma 

ownership of the firm as reflected in 

ownership documents. Proof of 

contribution of capital should be 

submitted at the time of the application. 

When the contribution of capital is 

through a loan, there must be 

documentation of the value of assets 

used as collateral for the loan. 

(2) Insufficient contributions include 

a promise to contribute capital, an 

unsecured note payable to the firm or an 

owner who is not a disadvantaged 

individual, mere participation in a 

firm’s activities as an employee, or 

capitalization not commensurate with 

the value for the firm. 

Examples to paragraph (c): 

1. An individual pays $100 to acquire a 

majority interest in a firm worth $1 million. 

The individual’s contribution to capital 

would not be viewed as substantial. 

2. A 51% disadvantaged owner and a nondisadvantaged 49% owner contribute $100 

and $10,000, respectively, to acquire a firm 

grossing $1 million. This may be indicative 

of a pro forma arrangement that does not 

meet the requirements of (c)(1). 

3. The disadvantaged owner of a DBE 

applicant firm spends $250 to file articles of 

incorporation and obtains a $100,000 loan, 

but makes only nominal or sporadic 

payments to repay the loan. This type of 

contribution is not of a continuing nature. 

(3) The disadvantaged owners must 

enjoy the customary incidents of 

ownership, and share in the risks and 

profits commensurate with their 

ownership interests, as demonstrated by 

the substance, not merely the form, of 

arrangements. Risks include financial, 


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legal, and operational obligations. Any 

terms or practices which give a nondisadvantaged individual or firm a 

priority or superior right a firm’s profits, 

compared to the disadvantaged 

owner(s), 

(4) Dividends and distributions. The 

disadvantaged owners must be entitled 

to receive: 

(i) At least 51 percent of the annual 

distribution of dividends paid on the 

stock of a corporate applicant concern; 

(ii) 100 percent of the value of each 

share of stock owned by them in the 

event that the stock is sold; and 

(iii) At least 51 percent of the retained 

earnings of the concern and 100 percent 

of the unencumbered value of each 

share of stock they own in the event of 

dissolution of the corporation. 

(5) Debt instruments from financial 

institutions or other organizations that 

lend funds in the normal course of their 

business do not render a firm ineligible, 

even if the debtor’s ownership interest 

is security for the loan. 

* * * * * 

(i) You must apply the following rules 

in situations in which marital assets 

form a basis for ownership of a firm: 

(1) When marital assets (other than 

the assets of the business in question), 

held jointly or as community property 

by both spouses, are used to acquire the 

ownership interest asserted by one 

spouse, you must deem the ownership 

interest in the firm to have been 

acquired by that spouse with his or her 

own individual resources, provided that 

the other spouse irrevocably renounces 

and transfers all rights in the ownership 

interest in the manner sanctioned by the 

laws of the state in which either spouse 

or the firm is domiciled. 

(2) A copy of the document legally 

transferring and renouncing the other 

spouse’s rights in the jointly owned or 

community assets used to acquire an 

ownership interest in the firm must be 

included as part of the firm’s 

application for DBE certification. The 

document must have been signed 

contemporaneously with the transfer. 

(3) You have discretion in cases 

where marital assets are used to require 

information concerning the spouse’s 

assets and liabilities. You must make a 

case-by-case determination of whether 

the asset transfer was made for reasons 

other than obtaining certification as a 

DBE. 

* * * * * 

(k) You must give particularly close 

and careful scrutiny to all interests in a 

business or other assets obtained by a 

socially and economically 

disadvantaged owner that resulted from 

a seller-financed sale of the firm or in 

cases where a loan or proceeds from a 

non-financial institution were used by 

the owner to purchase the interest. The 

following conditions apply to such a 

transaction: 

(1) Terms and conditions must be 

comparable to prevailing market 

conditions offered by commercial 

lenders for similar type of projects (e.g., 

in terms of such factors as duration, 

rate, and fees); 

(2) The applicant firm and 

disadvantaged business owner of the 

promissory note or loan agreement must 

provide evidence clearly stating the 

terms and conditions of the loan, 

including due date and payment 

method, interest rate, prepayment, 

defaults, and collateral; 

(3) The note must be a full-recourse 

note and be personally guaranteed by 

the socially and economically 

disadvantaged owner and/or secured by 

assets outside of the ownership interest 

or future profits of the applicant firm; 

(4) The contributions of capital by the 

socially and economically 

disadvantaged owner and any use of 

collateral by them must be clearly 

evident from the firm’s records and 

supported by adequate documentation; 

and 

(5) Other than normal loan provisions 

designed to preserve property pledged 

as collateral, there must be no 

conditions, provisions, or practices that 

have the effect of limiting the socially 

and economically disadvantaged 

owner’s ability to control the applicant 

firm. 

The firm bears the burden of proving by 

clear and convincing evidence the 

transaction meets these criteria. 

16. Revise § 26.71 paragraph (e) to 

read as follows: 

§ 26.71 What rules govern determinations 

concerning control? 

* * * * * 

(e)(1) Individuals who are not socially 

and economically disadvantaged or 

immediate family members may be 

involved in a DBE firm as owners, 

managers, employees, stockholders, 

officers, and/or directors. Such 

individuals must not, however: 

(i) Possess or exercise the power to 

control the firm, or be 

disproportionately responsible for the 

operation of the firm; or 

(ii) Be a former employer or a 

principal of a former employer of any 

disadvantaged owner of the applicant or 

DBE firm, unless it is determined by the 

recipient that the relationship between 

the former employer or principal and 

the disadvantaged individual or 

applicant concern does not give the 

former employer actual control or the 

potential to control the applicant or DBE 

firm. 

(2) The following are examples of 

situations in which non-disadvantaged 

individuals or entities may be found to 

control or have the power to control the 

applicant or participant firm: 

(i) Non-disadvantaged individuals 

control the Board of Directors of the 

applicant or Participant, either directly 

through majority voting membership, or 

indirectly, where the by-laws allow nondisadvantaged individuals effectively to 

prevent a quorum or block actions 

proposed by the disadvantaged 

individuals. 

(ii) A non-disadvantaged individual 

or entity, having an equity interest in 

the applicant or participant, provides 

critical financial or bonding support or 

a critical license to the applicant or DBE 

firm which directly or indirectly allows 

the non-disadvantaged individual 

significantly to influence business 

decisions of the DBE firm. 

(iii) A non-disadvantaged individual 

or entity controls the applicant or DBE 

firm or an individual disadvantaged 

owner through loan arrangements. 

Providing a loan guaranty on 

commercially reasonable terms does 

not, by itself, give a non-disadvantaged 

individual or entity the power to control 

a firm. 

(iv) Business relationships exist with 

non-disadvantaged individuals or 

entities that cause such dependence that 

the applicant or DBE firm cannot 

exercise independent business judgment 

without great economic risk. 

* * * * * 

§ 26.73 [Amended] 

17. In § 26.73 paragraph (g), remove 

the words ‘‘unless the recipient requires 

all firms that participate in its contracts 

and subcontracts to be prequalified.’’ 

18. In § 26.73 paragraph (h), delete 

‘‘26.35’’ and add in its place ‘‘26.65.’’ 

19. In § 26.83, revise paragraphs (c), 

(h), and (j), to read as follows: 

§ 26.83 What procedures do recipients 

follow in making certification decisions? 

* * * * * 

(c)(1) You must take all the following 

steps in determining whether a DBE 

firm meets the standards of subpart D of 

this part: 

(i) Perform an on-site visit to the 

firm’s principal place of business. You 

must interview the principal officers 

and key personnel of the firm and 

review their re ́sume ́s and/or work 

histories. You must also perform an onsite visit to job sites if there are such 

sites on which the firm is working at the 

time of the eligibility investigation in 

your jurisdiction or local area. You may 


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rely upon the site visit report of any 

other recipient with respect to a firm 

applying for certification; 

(ii) Analyze documentation related to 

the legal structure, ownership, and 

control of the applicant firm. This 

includes, but is not limited to, Articles 

of Incorporation/Organization; corporate 

by-laws or operating agreements; 

organizational, annual and board/ 

member meeting records; stock ledgers 

and certificates; and State-issued 

Certificates of Good Standing 

(iii) Analyze the bonding and 

financial capacity of the firm; lease and 

loan agreements; bank account signature 

cards; 

(iv) Determine the work history of the 

firm, including contracts it has received, 

work it has completed; and payroll 

records; 

(v) Obtain a statement from the firm 

of the type of work it prefers to perform 

as part of the DBE program and its 

preferred locations for performing the 

work, if any. Where a firm is applying 

to be certified in more than one NAICS 

code, obtain information about the 

amount of work the firm has performed 

in the various NAICS codes requested 

by the firm. 

(vi) Obtain or compile a list of the 

equipment owned by or available to the 

firm and the licenses the firm and its 

key personnel possess to perform the 

work it seeks to do as part of the DBE 

program; 

(vii) Obtain complete Federal and 

State income tax returns (or requests for 

extensions) filed by the firm, its 

affiliates, and the socially and 

economically disadvantaged owners for 

the last 3 years. A complete return 

includes all forms, schedules, and 

statements filed with the Internal 

Revenue Service and the applicable 

state taxing authority. 

(viii) Require potential DBEs to 

complete and submit an appropriate 

application form, except as otherwise 

provided in sections 26.84 and 26.85 of 

this part. 

(2) You must use the application form 

provided in Appendix F to this part 

without change or revision. However, 

you may provide in your DBE program, 

with the written approval of the 

concerned operating administration, for 

supplementing the form by requesting 

specified additional information not 

inconsistent with this part. 

(3) You must make sure that the 

applicant attests to the accuracy and 

truthfulness of the information on the 

application form. This shall be done 

either in the form of an affidavit sworn 

to by the applicant before a person who 

is authorized by state law to administer 

oaths or in the form of an unsworn 

declaration executed under penalty of 

perjury of the laws of the United States. 

(4) You must review all information 

on the form prior to making a decision 

about the eligibility of the firm. You 

have the discretion to request 

clarification of information contained in 

the application at any time in the 

application process. 

* * * * * 

(h)(1) 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. Provided that, this 

requirement does not apply to 

decertification under the circumstances 

specified in section 26.67(b)(1) of this 

Part. 

(2) You may not require DBEs to 

reapply for certification or undergo a 

recertification process. However, you 

may conduct a certification review of a 

certified DBE firm, including a new onsite review, if appropriate in light of 

changed circumstances (e.g., of the kind 

requiring notice under paragraph (i) of 

this section or relating to suspension of 

certification under section 26.88), a 

complaint, or other information 

concerning the firm’s eligibility. If 

information comes to your attention that 

leads you to question the firm’s 

eligibility, you may conduct an on-site 

review on an unannounced basis, at the 

firm’s offices and job sites. 

* * * * * 

(j) Submissions supporting continued 

eligibility. If you are a DBE, you must 

provide to the recipient annually the 

following items. If you fail to provide 

this information in a timely manner, 

you will be deemed to have failed to 

cooperate under § 26.109(c). 

(1) 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. This affidavit 

must affirm that there have been no 

changes in the firm’s circumstances 

affecting its ability to meet size, 

disadvantaged status, ownership, or 

control requirements of this part or any 

material changes in the information 

provided in its application form, except 

for changes about which you have 

notified the recipient under paragraph 

(i) of this section. The affidavit shall 

specifically affirm that your firm 

continues to meet SBA business size 

criteria and the overall gross receipts 

cap of this part, documenting this 

affirmation with supporting 

documentation of your firm’s size and 

gross receipts. 

(2) A current personal net worth 

statement for each disadvantaged 

owner; 

(3) A record from each individual 

claiming disadvantaged status regarding 

the transfer of assets for less than fair 

market value to any immediate family 

member, or to a trust any beneficiary of 

which is an immediate family member, 

within two years of the application or a 

subsequent certification review by the 

recipient. The record must provide the 

name of the recipient(s) and family 

relationship, and the difference between 

the fair market value of the asset 

transferred and the value received by 

the disadvantaged individual. 

(4) A record of all payments, 

compensation, and distributions 

(including loans, advances, salaries and 

dividends) made by the DBE firm to 

each of its owners, officers or directors; 

and 

(5) The firm’s most recent completed 

IRS tax return, IRS Form 4506, Request 

for Copy or Transcript of Tax Form. 

* * * * * 

§ 26.86 [Amended] 

20. In § 26.86, remove and reserve 

paragraph (b) and add the following 

sentence to the end of paragraph (c): 

‘‘An applicant’s appeal of your decision 

to the Department pursuant to § 26.89 

does not extend this period.’’ 

21. Revise § 26.87 paragraphs (f) and 

(g) to read as follows: 

§ 26.87 What procedures does a recipient 

use to remove a DBE’s eligibility? 

* * * * * 

(f) Grounds for decision. You may 

base a decision to remove a firm’s 

eligibility only on one or more of the 

following grounds: 

(1) Changes in the firm’s 

circumstances since the certification of 

the firm by the recipient that render the 

firm unable to meet the eligibility 

standards of this part; 

(2) Information or evidence not 

available to you at the time the firm was 

certified; 

(3) Information relevant to eligibility 

that has been concealed or 

misrepresented by the firm; 

(4) A change in the certification 

standards or requirements of the 

Department since you certified the firm; 

(5) Your decision to certify the firm 

was clearly erroneous; 

(6) The firm has failed to cooperate 

with you (see section 26.109(c)); or 

(7) The firm has exhibited a pattern of 

conduct indicating its involvement in 

attempts to subvert the intent or 

requirements of the DBE program (see 

section 26.73(a)(2)). 

(g) Notice of decision. Following your 

decision, you must provide the firm 


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written notice of the decision and the 

reasons for it, including specific 

references to the evidence in the record 

that supports each reason for the 

decision. The notice must inform the 

firm of the consequences of your 

decision and of the availability of an 

appeal to the Department of 

Transportation under § 26.89. You must 

send copies of the notice to the 

complainant in an ineligibility 

complaint or the concerned operating 

administration that had directed you to 

initiate the proceeding. Provided that, 

when sending such a notice to a 

complainant other than a DOT operating 

administration, you must not include 

information reasonably construed as 

confidential business information 

without the written consent of the firm 

that submitted the information. 

* * * * * 

22. Add a new § 26.88 to read as 

follows: 

§ 26.88 Summary Suspension of 

Certification. 

(a) A recipient shall immediately 

suspend a DBE’s certification without 

adhering to the requirements in section 

26.87(d) when an individual owner 

whose ownership and control of the 

firm are necessary to the firm’s 

certification dies or is incarcerated. 

(b)(1) A recipient may immediately 

suspend a DBE’s certification without 

adhering to the requirements in section 

26.87(d) when (i) there is adequate 

evidence to believe that there has been 

a material change in circumstances that 

may affect the eligibility of the DBE firm 

to remain certified, or (ii) when the DBE 

fails to notify the recipient or UCP in 

writing of any material change in 

circumstances as required by section 

26.83(i) or fails to timely file an affidavit 

of no change under section 26.83(j). 

(2) In determining the adequacy of the 

evidence to issue a suspension under 

paragraph (b)(1) of this paragraph, the 

recipient shall consider all relevant 

factors, including how much 

information is available, the credibility 

of the information and allegations given 

the circumstances, whether or not 

important allegations are corroborated, 

and what inferences can reasonably be 

drawn as a result. 

(c) The concerned operating 

administration may direct the recipient 

to take action pursuant to paragraph (a) 

or (b) this section if it determines that 

information available to it is sufficient 

to warrant immediate suspension. 

(d) When a firm is suspended 

pursuant to paragraph (a) or (b) of this 

section, the recipient shall immediately 

notify the DBE of the suspension by 

certified mail, return receipt requested, 

to the last known address of the 

owner(s) of the DBE. 

(e) Suspension is a temporary status 

of ineligibility pending an expedited 

show cause hearing/proceeding under 

section 26.87 to determine whether the 

DBE is eligible to participate in the 

program and consequently should be 

removed. The suspension takes effect 

when the DBE receives, or is deemed to 

have received, the Notice of Suspension. 

(f) While suspended, the DBE may not 

be considered to meet a contract goal on 

a new contract, and any work it does on 

a contract received during the 

suspension shall not be counted toward 

a recipient’s overall goal. The DBE may 

continue to perform under an existing 

contract executed before the DBE 

received a Notice of Suspension and 

may be counted toward the contract goal 

during the period of suspension as long 

as the DBE is performing a 

commercially useful function under the 

existing contract. 

(g) Following receipt of the Notice of 

Suspension, if the DBE believes it is no 

longer eligible, it may voluntarily 

withdraw from the program, in which 

case no further action is required. If the 

DBE believes that its eligibility should 

be reinstated, it must provide to the 

recipient information demonstrating 

that the firm is eligible notwithstanding 

its changed circumstances. Within 30 

days of receiving this information, the 

recipient must either lift the suspension 

and reinstate the firm’s certification or 

commence a decertification action 

under section 26.87. If the recipient 

commences a decertification 

proceeding, the suspension remains in 

effect during the proceeding. 

(h) The decision to immediately 

suspend a DBE under paragraph (a)(or 

(b) of this section is not appealable to 

the US Department of Transportation. 

The failure of a recipient to either lift 

the suspension and reinstate the firm or 

commence a decertification proceeding, 

as required by paragraph (g) of this 

section, is appealable to the U.S. 

Department of Transportation under 

section 26.89 of this Part, as a 

constructive decertification. 

23. In § 26.89, revise paragraphs (a)(3), 

(c), and (e) to read as follows: 

§ 26.89 What is the process for 

certification appeals to the Department of 

Transportation? 

(a) * * * 

(1) * * * 

(3) Send appeals to the following 

address: Department of Transportation, 

Departmental Office of Civil Rights, 

1200 New Jersey Avenue SE., 

Washington, DC 20590. 

* * * * * 

(c) If you want to file an appeal, you 

must send a letter to the Department 

within 90 days of the date of the 

recipient’s final decision, including 

information and setting forth a full and 

specific statement as to why the 

decision is erroneous, what significant 

fact that the recipient failed to consider, 

or what provisions of this Part the 

recipient did not properly apply. The 

Department may accept an appeal filed 

later than 90 days after the date of the 

decision if the Department determines 

that there was good cause for the late 

filing of the appeal or in the interest of 

justice. 

* * * 

(e) The Department makes its decision 

based solely on the entire administrative 

record as supplemented by the appeal. 

The Department does not make a de 

novo review of the matter and does not 

conduct a hearing. The Department may 

also supplement the administrative 

record by adding relevant information 

made available by the DOT Office of 

Inspector General; Federal, state, or 

local law enforcement authorities; 

officials of a DOT operating 

administration or other appropriate 

DOT office; a recipient; or a firm or 

other private party. 

* * * * * 

24. Revise Appendix A to 49 CFR part 

26 to read as follows: 

Appendix A to Part 26—Guidance 

Concerning Good Faith Efforts 

I. When, as a recipient, you establish a 

contract goal on a DOT-assisted contract for 

procuring construction, equipment, services, 

or any other purpose, a bidder must, in order 

to be responsible and/or responsive, make 

sufficient good faith efforts to meet the goal. 

The bidder can meet this requirement in 

either of two ways. First, the bidder can meet 

the goal, documenting commitments for 

participation by DBE firms sufficient for this 

purpose. Second, even if it doesn’t meet the 

goal, the bidder can document adequate good 

faith efforts. This means that the bidder must 

show that it took all necessary and 

reasonable steps to achieve a DBE goal or 

other requirement of this part which, by their 

scope, intensity, and appropriateness to the 

objective, could reasonably be expected to 

obtain sufficient DBE participation, even if 

they were not fully successful. 

II. In any situation in which you have 

established a contract goal, Part 26 requires 

you to use the good faith efforts mechanism 

of this part. As a recipient, you have the 

responsibility to make a fair and reasonable 

judgment whether a bidder that did not meet 

the goal made adequate good faith efforts, 

subject to this rule and DOT guidance 

implementing it. It is important for you to 

consider the quality, quantity, and intensity 

of the different kinds of efforts that the 

bidder has made, based on the regulations 

and the guidance in this Appendix. DOT 


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Operating Administrations have the 

discretion to and, if necessary, change 

recipients’ good faith efforts decisions. 

The efforts employed by the bidder should 

be those that one could reasonably expect a 

bidder to take if the bidder were actively and 

aggressively trying to obtain DBE 

participation sufficient to meet the DBE 

contract goal. Mere pro forma efforts are not 

good faith efforts to meet the DBE contract 

requirements. We emphasize, however, that 

your determination concerning the 

sufficiency of the firm’s good faith efforts is 

a judgment call. Determinations should not 

be made using quantitative formulas. 

III. The Department also strongly cautions 

you against requiring that a bidder meet a 

contract goal (i.e., obtain a specified amount 

of DBE participation) in order to be awarded 

a contract, even though the bidder makes an 

adequate good faith efforts showing. This 

rule specifically prohibits you from ignoring 

bona fide good faith efforts. 

IV. The following is a list of types of 

actions which you should consider as part of 

the bidder’s good faith efforts to obtain DBE 

participation. It is not intended to be a 

mandatory checklist, nor is it intended to be 

exclusive or exhaustive. Other factors or 

types of efforts may be relevant in 

appropriate cases. 

A. Conducing market research to identify 

small business contractors and suppliers and 

soliciting through all reasonable and 

available means the interest of all certified 

DBEs that have the capability to perform the 

work of the contract. This may include 

attendance at pre-bid and business 

matchmaking meetings and events, 

advertising and/or written notices, posting of 

Notices of Sources Sought and/or Requests 

for Proposals, written notices or emails to all 

DBEs listed in the state’s directory of 

transportation firms that specialize in the 

areas of work desired (as noted in the DBE 

directory) and which are located in the area 

or surrounding areas of the project. 

The bidder must solicit this interest as 

early in the acquisition process as practicable 

to allow the DBEs to respond to the 

solicitation and submit a timely offer for the 

subcontract. The bidder must determine with 

certainty if the DBEs are interested by taking 

appropriate steps to follow up initial 

solicitations. 

B. Selecting portions of the work to be 

performed by DBEs in order to increase the 

likelihood that the DBE goals will be 

achieved. This includes, where appropriate, 

breaking out contract work items into 

economically feasible units (for example, 

smaller tasks or quantities) to facilitate DBE 

participation, even when the prime 

contractor might otherwise prefer to perform 

these work items with its own forces. This 

may include, where possible, establishing 

flexible timeframes for performance and 

delivery schedules in a manner that 

encourages and facilitates DBE participation. 

C. Providing interested DBEs with 

adequate information about the plans, 

specifications, and requirements of the 

contract in a timely manner to assist them in 

responding to a solicitation with their offer 

for the subcontract. 

D. (1) Negotiating in good faith with 

interested DBEs. It is the bidder’s 

responsibility to make a portion of the work 

available to DBE subcontractors and 

suppliers and to select those portions of the 

work or material needs consistent with the 

available DBE subcontractors and suppliers, 

so as to facilitate DBE participation. Evidence 

of such negotiation includes the names, 

addresses, and telephone numbers of DBEs 

that were considered; a description of the 

information provided regarding the plans and 

specifications for the work selected for 

subcontracting; and evidence as to why 

additional Agreements could not be reached 

for DBEs to perform the work. 

(2) A bidder using good business judgment 

would consider a number of factors in 

negotiating with subcontractors, including 

DBE subcontractors, and would take a firm’s 

price and capabilities as well as contract 

goals into consideration. However, the fact 

that there may be some additional costs 

involved in finding and using DBEs is not in 

itself sufficient reason for a bidder’s failure 

to meet the contract DBE goal, as long as such 

costs are reasonable. Also, the ability or 

desire of a prime contractor to perform the 

work of a contract with its own organization 

does not relieve the bidder of the 

responsibility to make good faith efforts. 

Prime contractors are not, however, required 

to accept higher quotes from DBEs if the 

price difference is excessive or unreasonable. 

E. Not rejecting DBEs as being unqualified 

without sound reasons based on a thorough 

investigation of their capabilities. The 

contractor’s standing within its industry, 

membership in specific groups, 

organizations, or associations and political or 

social affiliations (for example union vs. nonunion status) are not legitimate causes for the 

rejection or non-solicitation of bids in the 

contractor’s efforts to meet the project goal. 

Another practice considered an insufficient 

good faith effort is the rejection of the DBE 

because its quotation for the work was not 

the lowest received. However, nothing in this 

paragraph shall be construed to require the 

bidder or prime contractor to accept 

unreasonable quotes in order to satisfy 

contract goals. 

A prime contractor’s inability to find a 

replacement DBE at the original price is not 

alone sufficient to support a finding that 

good faith efforts have been made to replace 

the original DBE. The fact that the bidder has 

the ability and/or desire to perform the 

contract work with its own forces is not a 

sound basis for rejecting a prospective 

replacement DBE’s reasonable quote. 

F. Making efforts to assist interested DBEs 

in obtaining bonding, lines of credit, or 

insurance as required by the recipient or 

contractor. 

G. Making efforts to assist interested DBEs 

in obtaining necessary equipment, supplies, 

materials, or related assistance or services. 

H. Effectively using the services of 

available minority/women community 

organizations; minority/women contractors’ 

groups; local, state, and Federal minority/ 

women business assistance offices; and other 

organizations as allowed on a case-by-case 

basis to provide assistance in the recruitment 

and placement of DBEs. 

V. In determining whether a bidder has 

made good faith efforts, it is essential to 

scrutinize its documented efforts. At a 

minimum, you must review the performance 

of other bidders in meeting the contract goal. 

For example, when the apparent successful 

bidder fails to meet the contract goal, but 

others meet it, you may reasonably raise the 

question of whether, with additional efforts, 

the apparent successful bidder could have 

met the goal. If the apparent successful 

bidder fails to meet the goal, but meets or 

exceeds the average DBE participation 

obtained by other bidders, you may view 

this, in conjunction with other factors, as 

evidence of the apparent successful bidder 

having made good faith efforts. As provided 

in section 26.53(b)(2)((vi), you must also 

require the contractor to submit all 

subcontractor quotes (from DBEs and nonDBEs, successful and unsuccessful quotes) in 

order to review whether DBE prices were 

substantially higher; and contact the DBEs 

listed on a contractor’s solicitation to inquire 

as to whether they were contacted by the 

prime. Pro forma mailings to DBEs requesting 

bids are not alone sufficient to satisfy good 

faith efforts under the rule. 

VI. A promise to use DBEs after contract 

award is not considered to be responsive to 

the contract solicitation or to constitute good 

faith efforts. 

25. Revise Appendix B to Part 26 to 

read as follows: 

Appendix B to 49 CFR Part 26: Uniform 

Report of DBE Awards and 

Commitments/Payments Form 

INSTRUCTIONS FOR COMPLETING THE 

UNIFORM REPORT OF DBE AWARDS/ 

COMMITMENTS AND PAYMENTS 

Recipients of Department of Transportation 

(DOT) funds are expected to keep accurate 

data regarding the contracting opportunities 

available to firms paid for with DOT dollars. 

Failure to submit contracting data relative to 

the DBE program will result in 

noncompliance with Part 26. 

1. Indicate the DOT Operating 

Administration (OA) that provides your 

Federal financial assistance. If assistance 

comes from more than one OA, use separate 

reporting forms for each OA. If you are an 

FTA recipient, indicate your Vendor Number 

in the space provided. 

2. If you are an FAA recipient, indicate the 

relevant AIP Numbers covered by this report. 

If you are an FTA recipient, indicate the 

Grant/Project numbers covered by this report. 

If more than ten attach a separate sheet. 

3. Specify the Federal fiscal year (i.e., 

October 1–September 30) in which the 

covered reporting period falls. 

4. State the date of submission of this 

report. 

5. Check the appropriate box that indicates 

the reporting period that the data provided in 

this report covers. If this report is due June 

1, data should cover October 1–March 31. If 

this report is due December 1, data should 

cover April 1–September 30. 

6. Provide the name and address of the 

recipient. 

7. State your overall DBE goal(s) 

established for the Federal fiscal year of the 

report. Your Overall Goal is to be reported as 


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well as the breakdown for specific Race 

Conscious and Race Neutral projections. The 

Race Conscious portion of the overall goal 

should be based on programs that focus on 

and provide benefits only for DBEs. The use 

of contract goals is a primary example of a 

race conscious measure. The Race Neutral 

Goal portion should include programs that, 

while benefiting DBEs, are not solely focused 

on DBE firms. For example, a small business 

outreach program, technical assistance, and 

prompt payment clauses can assist a wide 

variety of businesses in addition to helping 

DBE firms. 

Section A: Awards and Commitments Made 

During This Period 

The amounts in items 8(A)–10(I) should 

include all types of prime contracts awarded 

and all types of subcontracts awarded, 

including: professional or consultant 

services, construction, purchase of materials 

or supplies, lease or purchase of equipment 

and any other types of services. All dollar 

amounts are to reflect only the Federal share 

of such contracts, and should be rounded to 

the nearest dollar. 

Line 8: Prime contracts awarded this 

period: The items on this line should 

correspond to the contracts directly between 

the reporting agency and a supply or service 

contractor, with no intermediaries between 

the two. 

8(A). Provide the total dollar amount for 

all prime contracts assisted with DOT funds 

and awarded during this reporting period. 

This value should include the entire Federal 

share of the contracts. 

8(B). Provide the total number of all prime 

contracts assisted with DOT funds and 

awarded during this reporting period. 

8(C). From the total dollar amount awarded 

in item 8(A), provide the dollar amount 

awarded in prime contracts to certified DBE 

firms during this reporting period. This 

amount should not include the amounts 

subcontracted to other firms. 

8(D). From the total number of prime 

contracts awarded in item 8(B), specify the 

number of prime contracts awarded to 

certified DBE firms during this reporting 

period. 

8(E&F). This field is closed for date entry. 

Except for the very rare case of DBE-set 

asides permitted under 49 CFR part 26, all 

prime contracts are regarded as race-neutral. 

8(G). From the total dollar amount awarded 

in item 8(C), provide the dollar amount 

awarded to certified DBEs through the use of 

Race Neutral methods. See the definition of 

Race Neutral Goal in item 7 and the 

explanation in item 8 of project types to 

include. 

8(H). From the total number of prime 

contracts awarded in 8(D), specify the 

number awarded to DBEs through Race 

Neutral methods. 

8(I). Of all prime contracts awarded this 

reporting period, calculate the percentage 

going to DBEs. Divide the dollar amount in 

item 8(C) by the dollar amount in item 8(A) 

to derive this percentage. Round this 

percentage to the nearest tenth. 

Line 9: Subcontracts awarded/committed 

this period: Items 9(A)–9(I) are derived in the 

same way as items 8(A)–8(I), except that 

these calculations should be based on 

subcontracts rather than prime contracts. 

Unlike prime contracts, which may only be 

awarded, subcontracts may be either awarded 

or committed. 

9(A): If filling out the General Reporting 

form, provide the total dollar amount of 

subcontracts assisted with DOT funds 

awarded during this period. This value 

should be a subset of the total dollars 

awarded in prime contracts in 8(A), and 

therefore should never be greater than the 

amount awarded in prime contracts. If filling 

out the Project Reporting form, provide the 

total dollar amount of subcontracts assisted 

with DOT funds awarded during this period. 

This value should be a subset of the total 

dollars awarded previously in prime 

contracts in 8(A). The sum of all subcontract 

amounts in consecutive periods should never 

exceed the sum of all prime contract amounts 

awarded in those periods. 

9(B). Provide the total number of all 

subcontracts assisted with DOT funds that 

were awarded during this reporting period. 

9(C). From the total dollar amount of 

subcontracts awarded/committed this period, 

provide the total dollar amount awarded in 

subcontracts to DBEs. 

9(D). From the total dollar amount of 

subcontracts awarded/committed in item 

8(B), specify the number of subcontracts 

awarded. 

9(E).From the total dollar amount of 

subcontracts awarded/committed to DBEs 

this period, provide the amount in dollars to 

DBEs using Race Conscious measures. 

9(F). From the total number of subcontracts 

awarded/committed to DBEs this period, 

provide the number of subcontracts awarded 

to DBEs using Race Conscious measures. 

9(G). From the total dollar amount of 

subcontracts awarded/committed to DBEs 

this period, provide the amount in dollars to 

DBEs using Race Neutral measures. 

9(H). From the total number of 

subcontracts awarded/committed to DBEs 

this period, provide the number of 

subcontracts awarded to DBEs using Race 

Neutral measures. 

9(I). Of all subcontracts awarded this 

reporting period, calculate the percentage 

going to DBEs. Divide the dollar amount in 

item 9(C) by the dollar amount in item 9(A) 

to derive this percentage. Round this 

percentage to the nearest tenth. 

10(A)–10(B). These fields are unavailable 

for data entry. 

10(A)–11(I). 10(C). Combine the total 

dollars awarded to DBEs on prime contracts 

in 8(C) with the total dollars awarded to 

DBEs on subcontracts in 9(C). The amount 

listed here should be equal to the sum of the 

total dollars awarded to DBEs through Race 

Conscious measures 10(E) and the total 

dollars awarded to DBEs through Race 

Neutral measures 10(G). 

10(D). Combine the total number of prime 

contracts awarded to DBEs in 8(D) with the 

total number of subcontracts awarded to 

DBEs in 9(D). The amount listed here should 

be equal to the sum of the total number of 

contracts awarded to DBEs through Race 

Conscious measures 10(F) and the total 

number of contracts awarded to DBEs 

through Race Neutral measures 10(H). 

10(E). Combine the total dollar of prime 

contracts awarded to DBEs Race Conscious 

8(E) with total dollar of subcontracts awarded 

to DBEs Race Conscious 9(E). 

10(F). Combine the total number of prime 

contracts awarded to DBEs Race Conscious 

8(F) with total number of subcontracts 

awarded to DBEs Race Conscious 9(F). 

10(G). Combine the total dollar of prime 

contracts awarded to DBEs Race Neutral 8(G) 

with total dollar of subcontracts awarded to 

DBEs Race Neutral 9(G). 

10(H). Combine the total number of prime 

contracts awarded to DBEs Race Neutral 8(H) 

with total number of subcontracts awarded to 

DBEs Race Neutral 9(H). 

10(I). If filling out the General Reporting 

form, of all contracts awarded this reporting 

period, calculate the percentage going to 

DBEs. Divide the total dollars awarded to 

DBEs in item 10(C) by the dollar amount in 

item 8(A) to derive this percentage. Round 

percentage to the nearest tenth. In the Project 

Reporting form, this field is closed for data 

entry, since overall percentage of DBE 

participation is not a value that can be 

accurately reflected on a period by period 

basis, and must instead derive from looking 

at the project as a whole over the course of 

time. 

Section B: Breakdown by Ethnicity & Gender 

of Contracts Awarded to DBEs This period 

11–18. Further breakdown the contracting 

activity with DBE involvement. The Total 

Dollar Amount to DBEs in 18(C) should equal 

the Total Dollar Amount to DBEs in 10(C). 

Likewise the total number of contracts to 

DBEs in 18(F) should equal the Total Number 

of Contracts to DBEs in 10(D). Column E 

should only be filled out if this report is due 

on December 1 by recipients required to 

make semiannual submissions. 

Line 17: The ‘‘Other’’ category is reserved 

for any firms whose owners are not members 

of the presumptively disadvantaged groups 

already listed, but who are eligible for the 

DBE program on an individual basis. All DBE 

firms must be certified by the Unified 

Certification Program to be counted in this 

report. ‘‘Other’’ should not be used for 

‘‘Unknown.’’ 

Section C: Payments on Ongoing Contracts 

Line 19(A–E). Submit information on 

contracts that are currently being performed. 

All dollar amounts are to reflect only the 

Federal share of such contracts, and should 

be rounded to the nearest dollar. 

19(A). Provide the total dollar amount paid 

to all firms performing work on contracts. 

19(B). Provide the total number of 

contracts that are currently being performed. 

19(C). Provide the total number of DBE 

firms providing work on contracts assisted 

with federal funds. 

19(D). Provide the total dollar value paid 

to DBE firms currently performing work 

during this period. 

19(E) Of all payments made during this 

period, calculate the percentage going to 

DBEs. Divide the total dollar value to DBEs 

in item 19(C) by the total dollars of all 

payments in 19(A). Round percentage to the 

nearest tenth. 


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Section D: Actual Payments on Contracts 

Completed This Reporting Period 

This section should provide information 

only on contracts that are closed during this 

period. All dollar amounts are to reflect the 

entire Federal share of such contracts, and 

should be rounded to the nearest dollar. 

20(A). Provide the total number of 

contracts completed during this reporting 

period that used Race Conscious methods. 

Race Conscious contracts are those with 

contract goals or another race conscious 

measure. 

20(B). Provide the total dollar value of 

prime contracts completed this reporting 

period that had race conscious goals. 

20(C). Provide the total dollar amount of 

DBE participation on all Race Conscious 

contracts completed this reporting period 

that was necessary to meet the contract goals 

on them. This applies only to Race Conscious 

contracts. 

20(D). Provide the actual total DBE 

participation in dollars on the race conscious 

contracts completed this reporting period. 

20(E). Of all the contracts completed this 

reporting period using Race Conscious 

measures, calculate the percentage of DBE 

participation. Divide the total dollar amount 

to DBEs in item 20(D) by the total dollar 

value provided in 20(B) to derive this 

percentage. Round to the nearest tenth. 

21(A)–21(E). Items 21(A)–21(E) are derived 

in the same manner as items 20(A)–20(E), 

except these figures should be based on 

contracts completed using Race Neutral 

measures. 

21(C). This field is closed. 

22(A)–22(D). Calculate the totals for each 

column by adding the race conscious and 

neutral figures provided in each row above. 

22(C). This field is closed. 

22(E). Calculate the overall percentage of 

dollars to DBEs on completed contracts. 

Divide the Total DBE participation dollar 

value in 22(D) by the Total Dollar Value of 

Contracts Completed in 22(B) to derive this 

percentage. Round to the nearest tenth. 

23. Name of the Authorized Representative 

preparing this form. 

24. Signature of the Authorized 

Representative. 

25. Phone number of the Authorized 

Representative. 

** Submit your completed report to your 

Regional or Division Office. 

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26. Revise Appendix F to Part 26 to 

read as follows: 


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27. Add a new Appendix G to Part 26, 

to read as follows: 


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[FR Doc. 2012–21231 Filed 9–5–12; 8:45 am] 

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