[Federal Register Volume 75, Number 89 (Monday, May 10, 2010)]
[Proposed Rules]
[Pages 25815-25828]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-10968]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF TRANSPORTATION

Office of the Secretary

49 CFR Part 26

[Docket No. OST-2010-0118]
RIN 2105-AD75


Disadvantaged Business Enterprise: Program Improvements

AGENCY: Office of the Secretary (OST), DOT.

ACTION: Notice of proposed rulemaking (NPRM).

-----------------------------------------------------------------------

SUMMARY: This notice of proposed rulemaking (NPRM) would propose to 
improve the administration of the Disadvantaged Business Enterprise 
(DBE) program by increasing accountability for recipients with respect 
to good faith efforts to meet overall goals, modifying and updating 
certification requirements, adjusting the personal net worth (PNW) 
threshold for inflation, providing for expedited interstate 
certification, adding provisions to foster small business participation 
and improve post-award oversight, and addressing other issues.

DATES: Comments on this proposed rule must be received by July 9, 2010.

ADDRESSES: You may submit comments (identified by the agency name and 
DOT Docket ID Number OST-2010-0118) by any of the following methods:
    <bullet> Federal eRulemaking Portal: Go to http://www.regulations.gov and follow the online instructions for submitting 
comments.
    <bullet> 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
    <bullet> 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.
    <bullet> Fax: 202-493-2251
    Instructions: You must include the agency name (Office of the 
Secretary, DOT) and Docket number (OST-2010-0118) for this notice at 
the beginning of your comments. You should submit two copies of your 
comments if you submit them by mail or courier. Note that all comments 
received will be posted without change to http://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

[[Page 25816]]

19477) or you may visit http://DocketsInfo.dot.gov.
    Docket: For internet access to the docket to read background 
documents and comments received, go to http://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: Robert C. Ashby, Deputy Assistant 
General Counsel for Regulation and Enforcement, U.S. Department of 
Transportation, 1200 New Jersey Avenue, SE., Washington, DC, 20590, 
Room W94-302, 202-366-9310, <a href="/cdn-cgi/l/email-protection#365459541857455e544f7652594218515940"><span class="__cf_email__" data-cfemail="563439347837253e342f1632392278313920">[email protected]</span></a>.

SUPPLEMENTARY INFORMATION: The Department of Transportation issued an 
advance notice of proposed rulemaking (ANPRM) on April 8, 2009, 
concerning several DBE program issues (74 FR 15904). The first 
concerned counting of items obtained by a DBE subcontractor from its 
prime contractor. The second concerned ways of encouraging the 
``unbundling'' of contracts to facilitate participation by small 
businesses, including DBEs. The third was a request for comments on 
potential improvements to the DBE application form and personal net 
worth (PNW), and the fourth asked for suggestions related to program 
oversight. The fifth concerned potential regulatory action to 
facilitate certification for firms seeking to work as DBEs in more than 
one state. The sixth concerned additional limitations on the discretion 
of prime contractors to terminate DBEs for convenience, once the prime 
contractor had committed to using the DBE as part of its showing of 
good faith efforts. The Department received approximately 30 comment 
letters concerning these issues. This NPRM makes regulatory proposals 
concerning many of these issues.
    In addition, since the ANPRM was published, both the House of 
Representatives and the Senate have passed their versions of a Federal 
Aviation Administration (FAA) reauthorization bill. These bills include 
a provision requiring an inflationary adjustment to the current 
$750,000 personal net worth (PNW) cap. Because the timing of the 
enactment of an FAA reauthorization bill is not yet clear, and the 
provisions of the bill do not apply to the Department's highway and 
transit programs in any case, the Department has decided to propose an 
inflationary adjustment of the PNW cap to $1.3 million, the figure that 
would result from the House and Senate bills.
    Finally, the Department is proposing amendments to the 
certification-related provisions of the DBE regulation. These proposals 
result from the Department's experience in dealing with certification 
issues and certification appeal cases during the years since the last 
major revision of the DBE rule in 1999. The amendments are intended to 
clarify issues that have arisen and avoid problems with which 
recipients (i.e., state highway agencies, transit authorities, and 
airport sponsors who receive DOT grant financial assistance) and the 
Department have had to grapple over the last 11 years.

Accountability for Recipients With Respect to Overall Goals

    Section 26.47 of the rule states that a recipient cannot be 
penalized for failing to meet overall goals. To penalize a recipient 
simply for failing to ``hit a number'' could create an impermissible 
quota system. Nonetheless, recipients are required to implement their 
DBE programs in good faith in order to remain in compliance with Part 
26.
    The Department takes this ``good faith implementation'' requirement 
very seriously. Accountability is the key to ensuring effective program 
implementation, and the Department believes that it is useful to add a 
new provision to increase the accountability of recipients with respect 
to overall goals and their attainment.
    An overall goal is the recipient's estimate of the ``level playing 
field'' amount of DBE participation that it would expect to achieve in 
the absence of discrimination or its effects. Failing to meet the 
overall goal means that the measures the recipient has employed in 
carrying out its DBE program have not fully created that level playing 
field, and that discrimination or its effects have not fully been 
remedied. In order to implement its program in good faith, a recipient 
should make strong efforts to understand the reasons why it has not met 
its overall goal and to figure out what it can do to correct the 
situation.
    For this reason, the Department is proposing to add a new paragraph 
(c) to Sec.  26.47. If at the end of a fiscal year (FY) 1, (e.g., 
September 30), a recipient has failed to meet its overall goal for that 
FY, the recipient must do two things: (1) Thoroughly analyze why it 
fell short of meeting its overall goal for FY1 and (2) establish 
specific steps and milestones for correcting identified problems so 
that the recipient will meet its overall goal in FY2 and subsequent 
years. State highway agencies, the largest 50 transit authorities as 
designated by FTA, and Operational Evaluation Airports and other 
airports designated by FAA would have to submit this material to FHWA, 
FTA, or FAA, as applicable. The NPRM proposes a period of 60 days to 
submit this material. The Department seeks comment on this process. 
Other FTA and FAA recipients would retain the information, so that DOT 
officials conducting program or compliance reviews could review it.
    This section also proposes that, if a recipient fails to take 
actions required under the new provisions, the recipient could be 
regarded as in noncompliance with Sec.  26.47 and hence subject to the 
remedies stated in Sec.  Sec.  26.101 through 26.105 or other 
applicable regulations. These remedies include suspension or 
termination of Federal assistance, refusal to approve projects, 
payments, grants, or contracts, or other action at the discretion of 
the operating administration involved.

Goal Submission

    On February 2010, the Department amended Sec.  26.45 to allow 
recipients to submit overall goals every three years, rather than 
annually (75 FR 5535). This change was intended to reduce 
administrative burdens for recipients, as well as to permit DOT staff 
to give greater scrutiny to recipients' submissions. In this NPRM, we 
propose a clarification of this amendment. While the recipient need 
only submit a new goal every three years, it is still responsible for 
good faith implementation of that goal in each year.
    In carrying out the accountability provision discussed above, the 
Department would hold recipients responsible for each year's 
implementation activity. For example, suppose that a recipient has a 12 
percent goal for FY 1-3. If the recipient fell short of 12 percent in 
FY 1, the Sec.  26.47 requirements for analysis of the shortfall and 
steps to remedy the problems in FY 2 would apply. The recipient would 
not be able to say, in effect, ``We don't need to worry about our FY 1 
shortfall because we'll catch up in FY 3.''
    It is possible, however, that a recipient might anticipate a 
funding stream for projects that would in fact differ from one year to 
the next. For example, an airport with a 12 percent goal might expect, 
given the projects, FAA assistance, and DBE availability that it 
anticipates, that it would have 6 percent DBE participation in FY 1, 18 
percent in FY 2, and 12 percent in FY 3. The Department seeks comment 
on whether a recipient could, if it wished,

[[Page 25817]]

provide a year-to-year projection of its likely DBE participation 
within the framework of a goal and methodology submitted only every 
three years, with the result that in applying the accountability 
provision of proposed Sec.  26.47, those year-to-year projections, 
rather than the three-year overall goal number, would be the benchmark 
for determining whether the analysis/corrective action requirements 
would be triggered. This could increase flexibility, but could 
undercut, to an extent, the purpose of the three-year goal submission 
interval. We anticipate that this approach would be relevant primarily, 
or perhaps only, in FAA programs, where Federal funding is more likely 
to change from year to year than in the FHWA and FTA programs.

Improving Oversight

    The ANPRM asked for suggestions on how to improve program 
oversight. The Department received 17 comments. Several recipients 
commented to the effect that additional resources, including Federal 
assistance, would be necessary if they were to conduct additional 
oversight. Other commenters suggested that additional training and 
information in areas like contract compliance and close-out enforcement 
could be useful. A DBE organization noted that training for recipient 
executive-level officials, as well as operating-level staff, would be 
helpful. This commenter also wanted to emphasize the need for a direct 
DBE Liaison Officer connection to the top official of the organization. 
Other comments simply supported the concept of better oversight, 
without specifying how this could best be accomplished.
    Program oversight is not a new concept in the DBE program. Existing 
Sec.  26.37 requires monitoring and enforcement mechanisms. To 
strengthen these existing provisions, the Department is proposing to 
add a sentence to Sec.  26.37(b), calling on recipients to make a 
written certification that they have reviewed contracting records and 
monitored the work on-site to ensure that DBEs have actually performed 
the work in question on each contract involving DBE participation 
counted toward contract or overall goals. To comply with this 
requirement, the recipient would have to make one such certification 
for every contract on any contract with DBE participation. This 
sentence would simply make more explicit a requirement that the 
Department believes is implicit in the existing regulatory language.
    Existing Sec.  26.25 already requires that the DBE liaison officer 
(DBELO) must have direct, independent access to the Chief Executive 
Officer (CEO) of the recipient's organization concerning DBE program 
matters. This means that the DEBLO must not be required to get anyone's 
consent or sign-off, or ``go through channels,'' to talk and write 
personally to the CEO about DBE program matters. The Department does 
not believe that additional regulatory language is needed on this 
point: the existing provision is already explicit.
    We also call attention to the last section of Sec.  26.25, which 
requires that the recipient have adequate staff to administer the DBE 
program. In times of budget stringency, it may be tempting to cut back 
on staff and other resources needed for certification, program 
oversight, and other key DBE program functions. This sentence 
emphasizes that it is a requirement of Federal law that the DBE program 
be adequately staffed to ensure compliance with Part 26.

Personal Net Worth

    The personal net worth (PNW) criterion has been a perennially 
controversial subject in the DBE rule. It is intended to ensure that 
only economically disadvantaged individuals participate in the DBE 
program, lest the program become overinclusive. The $750,000 PNW 
``cap,'' taken from SBA materials dating to 1989 or earlier, has been 
criticized by DBEs as penalizing success and imposing a glass ceiling 
on the growth and competitiveness of DBE firms. At the same time, the 
PNW cap has been a part of the package of narrow tailoring features 
that has helped the Department to defend the DBE program successfully 
against court challenges.
    As noted above, the House and Senate versions of the currently 
pending FAA reauthorization bills both call for an inflationary 
adjustment in the PNW cap, relating back to 1989. Based on these 
provisions, the Department did a straight-line inflationary adjustment 
using the Consumer Price Index (CPI), which suggests a 73 percent 
inflation since 1989. This results in an adjusted PNW cap of $1.31 
million. It is very important to understand that this does not 
represent an increase in the actual personal net worth which DBE owners 
may have, viewed in real dollar terms. Rather, $1.31 million today has 
the same value, in real dollar terms, as $750,000 in 1989. The 
inflationary adjustment simply maintains the economic status quo.
    The Department is aware that there are a number of methodologies 
and approaches to making inflationary adjustments. The Department seeks 
comment on whether the straight-line CPI approach used in the NPRM is 
appropriate, or whether there are other approaches or techniques that 
would be better or more accurate. Also, it would not make sense for the 
Department to have one PNW number for FAA programs and another for FTA 
and FHWA programs. Therefore, the Department's proposal would apply the 
$1.31 million PNW cap to all programs covered by Part 26.
    The pending FAA bills address another issue related to PNW, 
concerning the handling of retirement savings. Under the Department's 
current regulation, assets in retirement savings plans are regarded as 
part of an individual's wealth, and hence are counted as assets for PNW 
purposes. Some DBEs have long objected to this approach, saying that it 
is inappropriate to count these assets, which are not liquid and 
therefore not readily available for purposes of an owner's business. 
While giving the Department a degree of regulatory discretion, the 
pending FAA reauthorization bills direct the Department not to count 
such assets toward the PNW cap.
    If these provisions are enacted, the Department will need to devise 
implementing rules. We seek comment on how best to do so. What sort of 
retirement savings should be covered by a new provision (e.g., 401(k)s, 
IRAs, Roth IRAs, Keough Plans, stocks and bonds, certificates of 
deposit or savings plans, life insurance, etc.)? Should there be any 
limitation on the amount of money that could be eliminated from 
counting toward the PNW cap by being in a retirement savings product? 
Is there a potential problem of abuse, in which DBE owners could 
shelter assets from PNW consideration in inappropriate ways? If so, how 
would the Department attempt to deal with such a problem? Would the 
eliminating consideration of these assets have unintended distributive 
consequences across the breadth of the DBE program (e.g., helping more 
affluent firms at the expense of smaller DBEs without such assets, 
having a racially disparate impact)? We seek comment on how we should 
shape the details of a future rule implementing the pending statutory 
provisions.

Interstate Certification and Related Issues

    Under the current DBE rule, certification occurs on a statewide 
basis. The Unified Certification Program (UCP) in each state ensures 
``one-stop shopping'' for DBE applicants within that state. The UCP 
requirement, which came into effect in 1999, has simplified 
certification by making it unnecessary

[[Page 25818]]

for recipients to apply multiple times for certification by various 
transit authorities, airports, and highway departments within a given 
state.
    The present structure, however, does not address problems that 
occur when DBEs certified in their home state attempt to become 
certified in other states. As we mentioned in the ANPRM, DBEs and prime 
contractors have frequently expressed frustration at what they view as 
unnecessary obstacles to certification by one state of firms located in 
other states. They complain of unnecessarily repetitive, duplicative, 
and burdensome administrative processes and what they see as the 
inconsistent interpretation of the DOT rules by various UCPs. There 
have been a number of requests for nationwide reciprocity or some other 
system in which one certification was sufficient throughout the 
country.
    The Department believes that more should be done to facilitate 
interstate certification. Interstate reciprocity has always been 
authorized under Part 26 (see Sec.  26.81 (e) and (f)), and in 1999 we 
issued a Q&A encouraging this approach. To further encourage such 
efforts, the Department issued another Q&A in 2008, suggesting an 
approach to facilitating interstate certifications. In the ANPRM, we 
asked for comment on proposing a regulatory provision based on this 
guidance, or, in the alternative, whether some version of the 
nationwide certification reciprocity or Federalizing the certification 
process would be desirable. We pointed out that nationwide reciprocity 
could raise concerns about firms engaging in forum shopping to find the 
``easy graders'' among certifying agencies. Federalizing certification, 
such as having a unitary certification system operated by DOT, would 
likely raise significant resource issues. Such an approach could also 
result in less local ``on the ground'' knowledge of the circumstances 
of applicant firms, which can be a valuable part of the certification 
process. The Department asked for comment on how, if at all, these 
issues could be addressed, and whether there is merit in one or another 
nationwide approach to certification.
    There were about 30 comments on this subject. Most of them favored 
taking steps to make interstate certification easier. Thirteen 
commenters favored one variety or another of national reciprocity, with 
eight of these suggesting that, where a UCP had qualms about an out-of-
state firm's bona fides, the UCP could remove the firm's certification 
after the fact. That is, a firm certified in its home state, State A, 
would send its certification to State B. State B would immediately put 
the firm on its list of certified firms, and the firm would become 
eligible immediately to participate as a DBE. However, State B could 
subsequently decertify the firm if it appeared that the certification 
in State A was obtained by fraud or was otherwise invalid. One comment 
endorsed the rebuttable presumption approach suggested in the 
Department's Q&A. Three favored one version or another of Federalizing 
certification, either by having the Department maintain a centralized 
certification database or having the Department make certification 
decisions other than, perhaps, the initial decision in each case.
    Other commenters expressed some concerns about reciprocity. Three 
commenters favored using paperwork submitted to other states to reduce 
administrative burdens, but reserving to each state the right to make 
its own decision. Another four commenters opposed or had serious doubts 
about reciprocity, expressing concerns such as the possibility of forum 
shopping or variations in state laws that might affect the validity of 
State A's certification in State B. Three commenters emphasized the 
necessity for better and more uniform training, without which, some 
thought, reciprocity would be unlikely to work.
    As the Department stated in the ANPRM, we favor making interstate 
certification easier and reducing burdens on small businesses seeking 
to work in more than one state. Before 1999, businesses had to make 
multiple applications in each state if they wanted to work as a DBE for 
more than one DOT recipient. The Department dealt successfully with 
that problem by creating the UCP system in the 1999 revision to the DBE 
regulation. National reciprocity or one-stop shopping for a single 
nationwide certification system are worthwhile goals to discuss, but 
the Department believes that an incremental approach is more likely to 
be practicable.
    It is important to keep 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. We believe that the concerns expressed 
by commenters about issues like forum shopping, training, and 
variations in state laws have validity. Recipients' concerns about 
having the integrity of their programs damaged by having to accept what 
they view as poorly-considered certification decisions made elsewhere 
are also important. The Department's task is to balance, as best we 
can, the desire to make interstate certification less onerous for small 
businesses with the imperative of maintaining the integrity of the 
program.
    A seamless, nationwide, one-stop-shopping eligibility process for 
all firms is, in a sense, the ``holy grail'' of certification. The 
Department does not believe we are currently in a position to make this 
objective a reality. As commenters pointed out, better nationwide 
uniform training (which has been proposed in Congress as a requirement 
in pending FAA reauthorization legislation) and considerable additional 
resources at the Federal level (e.g., for the database and staff that 
would likely be necessary to make a more centralized certification 
system practical) are not yet in place. Given what the Department views 
as the very real concerns about forum shopping and variations in the 
quality of certifications that commenters and participants in DOT 
stakeholder meetings have expressed, we believe that moving at this 
time to a nationwide reciprocity approach would be premature and could 
endanger the integrity of the program.
    As noted above, several commenters favored a slightly modified 
national reciprocity approach in which a firm certified in its home 
state would automatically be certified in ``State B,'' immediately 
eligible to participate as a DBE in State B's contracts. However, if 
State B determined that the firm had obtained its home state 
certification by fraud, or other information questioning its 
eligibility came to State B's attention, State B could remove the 
firm's certification. In our view, this approach does not differ 
significantly from a straight national reciprocity approach, in that 
the ability to decertify a certified firm already exists. Moreover, the 
``certify first and ask questions later'' tenor of this approach does 
not inspire confidence: by the time the questions got asked, and a 
dubious firm removed from the eligible list, it could have received 
contracts in place of genuinely eligible firms. As a practical matter, 
it is hard to imagine how a certification agency in, say, Utah, would 
learn in a timely fashion about fraud or other problems with a firm 
originally certified in, for example, Florida.
    Having considered the comments, the Department believes the best 
course is to propose a ``rebuttable presumption'' approach akin to the 
Department's recent guidance Q&A. Proposed

[[Page 25819]]

regulatory language to carry out this approach is found in Sec. Sec.  
26.84 through 26.85 of the NPRM. Under this approach, a firm certified 
in its home state would not have to create a second application 
package. It would send its home state application package, together 
with other existing documentation (e.g., its affidavits of no change 
submitted to the home state since the time of the firm's original 
certification), to State B. State B would obtain a copy of the on-site 
review report from the home state. State B would be required to certify 
the firm within 30 days from the date it received this information 
unless State B had good cause to object to the home state's 
certification. If it objected, State B would hold a proceeding similar 
to a decertification proceeding in this case, in which State B would 
bear the burden of proof to show that the firm should not be certified 
in State B, notwithstanding its certification in State A. The 
Department seeks comment on the burden of proof in such a proceeding: 
Should the firm, rather than State B, bear this burden? This latter 
approach would be more consistent with the usual rule that the 
applicant carries the burden of proof with respect to eligibility 
matters, but it could limit the extent to which the new procedures 
would actually facilitate interstate certification.
    This approach is a significant incremental step toward nationwide 
reciprocity, which would significantly reduce burdens and obstacles in 
the path of firms seeking certification outside their home states. 
Within 30 days of providing copies of existing documentation to State B 
and receiving a copy of State A's on-site review report, the firm would 
either be certified in State B or be on notice of specific problems 
with its eligibility that State B had found. The opportunity for a 
hearing would have to take place within the next 30 days, with a 
decision issued 30 days after that. The Department expects that, 
because providing notice and a hearing and issuing a decision on this 
``fast track'' basis is not something that UCPs would do lightly, UCPs 
would not overuse their authority to delay certification pending this 
process. Of course, as is now the case, UCPs could accept the home 
state's certification without further review.
    The Department seeks comment on whether the 30-day period for 
initial review of an out-of-state certification, and a decision on 
whether to accept it, is an appropriate time period. Would this period 
place unwarranted pressure on State B to accept State A's 
certification, even if it were not warranted? On the other hand, would 
a longer period defeat the purpose of the proposed interstate 
certification process? Again, the question goes to achieving the best 
balance between the two purposes of the proposed process.
    The Department seeks comment on one potential technical problem in 
this proposed system. When it is asked by State B to send an on-site 
review of a firm certified in State A, State A is supposed to send a 
copy of the report to State B within seven days. In this era of e-mail 
and pdf documents, doing so should be quick and easy. However, what 
happens if State A does not provide a timely response? Proposed Sec.  
26.84(e) would say that if State B has not received the report by 14 
days after State B's request, State B may hold action on the firm's 
application in abeyance pending receipt of State A's report. State B 
would need to inform the firm of the situation. The Department seeks 
comment on what, if anything, the Department should do in a final rule 
to address situations in which a State A's response to a request for an 
on-site report is delayed.
    In proposing these new provisions to the DBE rule, the Department 
is also proposing to make certain changes to existing rules. We would 
remove Sec.  26.83(e), which is no longer needed in light of the 
proposed new Sec.  26.84 interstate certification procedures. We would 
also amend Sec.  26.83(h) to put to rest a misunderstanding that has 
continued to exist, despite the Department's efforts to clarify it. 
Once a firm is certified as a DBE, it stays certified unless and until 
it is decertified using the procedures of Sec.  26.87, the rule's 
decertification procedure. There is no periodic ``recertification'' or 
``reapplication'' procedure required or even authorized. Certifications 
do not lapse after a given number of years. However, UCPs can, and, in 
our view, should, review each existing certified firm's eligibility, 
including a new on-site review, from time to time. The Department seeks 
comment on the most appropriate interval for such reviews (comments to 
the ANPRM suggested periods of between three and six years).
    One phenomenon the Department's staff has noticed in recent years 
is the withdrawal by applicants of their applications before a UCP has 
made a decision in the matter. In some cases, this may reflect ``games-
playing'' by applicants of dubious merit, as they seek repeatedly to 
revise their organizations to avoid problems that come up in the UCP's 
review of the application, without triggering the waiting period for 
reapplication that follows a denial of the application. However, in 
other cases, there can be innocent explanations for a withdrawal. The 
Department seeks comment on whether the rule should be amended to 
authorize recipients to apply to firms withdrawing an application the 
same reapplication waiting period that they can apply after a denial. 
This would reduce administrative burdens on certifying agencies. 
However, doing so might also penalize firms with legitimate reasons for 
withdrawing and resubmitting an application or create the perception or 
reality that recipients might act inconsistently, seeming to favor some 
firms over others with respect to applying the reapplication period.
    Current Sec. Sec.  26.84 and 26.85 relate to a 1999 memorandum of 
understanding (MOU) between DOT and SBA concerning DBE certification of 
SBA 8(a) and 8(d) firms and 8(a) and 8(d) certifications of certified 
DBEs. This MOU lapsed in 2004 and has not been renewed. Consequently, 
much of the existing material in these sections has become outdated. 
Proposed Sec.  26.85 would continue a portion of the current 
provisions. If an 8(a) firm applies to a DOT UCP, the 8(a) firm could 
submit its SBA application package in lieu of a new DBE application 
package. The UCP would have to do the statutorily-mandated on-site 
review of the firm, since on-site reviews are not normally part of the 
8(a) application process. The UCP could also request additional 
information from the applicant to ensure that all Part 26 requirements 
are met and that all information has been updated. The UCP would have 
to certify the firm unless information from the on-site review and 
other information received by the UCP demonstrates that the firm does 
not meet Part 26 eligibility criteria. If the 8(a) firm is not from the 
UCP's state, the UCP would not have to process the application in the 
absence of the home state's on-site review report, which it would 
obtain in the same way as it obtains such reports under the 
``rebuttable presumption'' system of proposed Sec.  26.84(d)(1).
    The proposed Sec.  26.84 contains the proposed rebuttable 
presumption reciprocity system. When this section refers to State A (a 
firm's home state) or State B, it means the UCP of that state. As under 
the current rule, a UCP always has the option of accepting, without 
further ado, a certification by another state's UCP. The only new 
element this provision would add is a basic requirement for the UCP to 
verify that the out-of-state certification presented by the applicant 
is genuine.
    The main obligation of a firm seeking to get certified outside its 
home state is

[[Page 25820]]

to provide ``State B'' with a full package of all relevant existing 
documentation, including its home state application, affidavits of no 
change, reports of changes, decisions or correspondence relating to 
certification matters from other states, certification appeal 
decisions, etc. Any prudent company would keep photocopies or 
electronic versions of all this documentation, and firms would send in 
copies of this documentation, rather than generating new documents. 
There would have to be an affidavit, under penalty of perjury, that the 
documents were full, complete, and unaltered.
    When State B receives this full package of information, it contacts 
the home state and requests the on-site review report. It is crucial to 
the operation of this system that the home state respond promptly; 
otherwise, the certification of the firm can be delayed (see proposed 
paragraph 26.84(e)). State B must certify the firm within 30 days, 
unless it finds good cause to believe that the firm should not be 
certified. If State B fails to respond within 30 days, the Department 
would regard the firm as having been certified.
    Good cause to object to a reciprocal certification could arise from 
a number of sources: evidence that the home state certification had 
been obtained fraudulently or if there was new evidence not available 
to the home state; differences in state law (e.g., home state does not 
require a professional license for the person controlling a given type 
of company; State B law does impose such a requirement); or the 
information the applicant provided was inadequate or insufficient or 
otherwise not meet the rule's requirements (e.g., the applicant failed 
to disclose a denial or decertification in another state).
    One of the proposed bases to find good cause bears a bit more 
discussion. The proposed language would permit State B to find good 
cause if the home state's certification was factually erroneous or 
inconsistent with Part 26. For example, suppose State B reviews the 
documentation used by the home state to certify Firm Y and finds an 
outcome-determinative fact about Firm Y that the home state overlooked, 
or State B notices that the home state had based its decision on what 
is clearly a misreading or misinterpretation by the home state of Part 
26 or DOT guidance. In these cases, under the proposal, State B could 
find good cause to begin a proceeding to deny reciprocal certification. 
On the other hand, it is often the case that reasonable people can 
differ in their conclusions about whether the facts surrounding a 
firm's application demonstrate that the firm meets Part 26 criteria. We 
would not want this provision simply to become a way for what amounts 
to no more than differences of opinion to obstruct interstate 
certification. We seek comment on how, if at all, the language of this 
provision should be refined to avoid that result.
    Where the UCP finds good cause, it must so notify the firm, and 
provide the reasons for its finding. The firm must have the 
opportunity, within 30 days, for a proceeding--including a hearing, if 
the firm wants it--that is essentially the same as a decertification 
hearing. Importantly, as in a decertification proceeding, the burden of 
proof is on the UCP to demonstrate that the firm is ineligible. The UCP 
must render its decision within another 30 days. The Department 
proposes these short time frames in the belief that reciprocal 
certification actions should be on a fast track, lest the ability of a 
firm to become certified outside its home state becomes overly subject 
to bureaucratic delay.
    One of the issues that arises in discussions of reciprocity of 
certifications is how to handle denials of certification and 
decertifications. If firm X is certified in its home state, 
reciprocally certified in State B, and then decertified in his home 
state, what is State B supposed to do? If, in the ``rebuttable 
presumption'' process described above, the home state certifies Firm X, 
but State B rejects the firm's certification after the hearing process, 
what is State C supposed to do when Firm X applies for certification 
there?
    In this NPRM, we are proposing to have UCPs send to the 
Departmental Office of Civil Rights (DOCR) online database information 
about firms whose applications have been denied, which have been 
decertified, or which have been rejected for reciprocal certification 
after the rebuttable presumption process described above, as well as 
the date of the action and a very brief summary of the reason for the 
action. UCPs would be responsible for checking the DOCR Web site to see 
if any applicant for certification or currently certified firm appears 
on the list. For example, if State D's UCP saw Firm X (which State D 
had certified) on the list as having been decertified by State F's UCP, 
State D's UCP would request from the State F's UCP a copy of State F's 
decertification decision. State F's UCP would promptly provide the 
copy. State D's UCP would take the information in State F's decision 
into account in determining what action, if any, to take with respect 
to Firm X. The Department seeks comment not only on the merits of this 
proposal but also on any other measures that would address this overall 
issue.
    The Department intends that this interstate certification process 
apply to airport concessions DBEs as well as those DBEs who seek work 
on Federally-assisted contracts. Consequently, we will subsequently 
propose a conforming amendment to 49 CFR Part 23.

Fostering Small Business Participation

    One of the matters discussed in the ANPRM was the issue of 
``unbundling,'' as well as other ways of reducing barriers to the 
participation of small businesses, including DBEs, on DOT-assisted 
contracts. The relatively small number of comments on this subject 
generally suggested that while unbundling was a good thing, it was 
difficult to achieve, and recipients should have discretion concerning 
whether and how to implement initiatives in this area.
    The Department believes that fostering small business participation 
in a race-neutral way is an important component of a successful DBE 
program. For that reason, we are proposing to require recipients to 
create a small business element of their DBE programs, that could 
include a number of different approaches. The NPRM, in Sec.  26.39, 
proposes a menu of strategies that are neither exhaustive nor mandatory 
to include in this program element. The Department seeks comment on 
this overall approach, as well as on the individual menu items 
proposed. Are there additional strategies that should be considered? 
How much time should recipients be given to amend their DBE program 
plans to include a small business element?
    As noted in a March 2010 DBE conference held by the Department's 
Office of Small and Disadvantaged Business Utilization, some states 
(e.g., Missouri, Wisconsin) have devised innovative approaches to 
increasing small business and DBE participation. The Department seeks 
comment on the extent to which this experience can be generalized and 
on whether any elements of these approaches should be included as 
recommended or required practices in the DBE regulation.
    The pending FAA reauthorization legislation mentioned above would 
direct the Department to issue rules to prohibit discriminatory or 
excessive bonding practices. The Department seeks comment on whether 
there are such practices, what they are, and how DOT rules could best 
be crafted to implement such a statutory requirement, if it is enacted. 
For example, we have heard in stakeholder meetings that prime 
contractors sometimes require subcontractors to be

[[Page 25821]]

bonded at a level well above the amount of the subcontract or in a way 
that duplicates bonding that has already been provided to the project 
owner. Do such practices exist, and, if so, are they common?

Terminations and Substitutions of DBE Subcontractors

    The Department had noted some concerns about termination and 
substitution practices by prime contractors that negatively impacted 
DBE subcontractors committed during the contract award process and 
sought comment on whether Sec.  26.53(f)(1) should be modified. There 
was overwhelming support to revise the section by recipients and DBE 
trade groups in their response to this inquiry. They supported 
requiring recipients to concur in terminations and substitutions of DBE 
subcontractors who are being used for DBE credit on a contract, with 
concurrence to be provided only if the action was for good cause. Prime 
contractors and their respective trade groups took a contrary view and 
wanted to retain their independent authority. These commenters 
suggested that recipients should have no say regarding a change or 
termination of a DBE subcontractor in instances where the change does 
not impact DBE goal achievement.
    Many recipients commented that they currently do require prime 
contractors to receive written approval from the recipient prior to the 
prime substituting DBE subcontractors. In addition, some comments 
recommended that the Department adopt a regulation containing a 
standard similar to that required under California Law PCC 4107, which 
requires notice prior to termination.
    The Department is cognizant of the prime contractors' position that 
primes should have the ability to remove a nonperforming or poorly 
performing subcontractor. However, the Department does not believe a 
revision to this section of the rule requiring a recipient's approval 
prior to termination of a DBE subcontractor for other than good cause 
would undermine this authority or insert an onerous burden on prime 
contractors. Moreover, based on the comments from recipients, this 
change would formalize a practice already undertaken by many 
recipients. Accordingly, the Department is proceeding with the proposed 
revision, proposed to be located in Sec.  26.53(f), in order to 
maintain program integrity and ensure a more meaningful commitment to a 
particular DBE firm that the prime contractor listed as part of the 
contract award process. The proposed section includes a list of actions 
that would constitute good cause for this purpose. We seek comment on 
whether there should be any additions or changes to this list.

Counting Issue

    The ANPRM discussed the background of this issue in some detail 
(see 74 FR 15905). For convenience of readers, we are summarizing that 
discussion here. Section 26.55(a)(1) of the Department's DBE rule 
provides as follows:
    (a) When a DBE participates in a contract, you count only the value 
of the work actually performed by the DBE toward DBE goals.
    (a)(1) Count the entire amount of that portion of a construction 
contract (or other contract not covered by paragraph (a)(2) of this 
section) that is performed by the DBE's own forces. Include the cost of 
supplies and materials obtained by the DBE for the work of the 
contract, including supplies purchased or equipment leased by the DBE 
(except supplies and equipment the DBE subcontractor purchases or 
leases from the prime contractor or its affiliate.
    The preamble discussion of this provision said the following:
    The value of work performed by DBEs themselves is deemed to include 
the cost of materials and supplies purchased, and equipment leased, by 
the DBE from non-DBE sources. For example, if a DBE steel erection firm 
buys steel from a non-DBE manufacturer, or leases a crane from a non-
DBE construction firm, these costs count toward DBE goals. There is one 
exception: if a DBE buys supplies or leases equipment from the prime 
contractor on its contract, these costs do not count toward DBE goals. 
Several comments from prime contractors suggested these costs should 
count, but this situation is too problematic, in our view, from an 
independence and commercially useful function (CUF) point of view to 
permit DBE credit. 64 FR5115-16, February 2, 1999.
    This provision creates an intentional inconsistency between the 
treatment of purchases or leases of items by DBEs from non-DBE sources. 
If a DBE contractor buys or rents items from a non-DBE source other 
than the prime contractor, the recipient counts those items for DBE 
credit on the contract. If a DBE subcontractor buys or rents the same 
items from the prime contractor for the DBE's subcontract, the 
recipient does not award DBE credit for the items.
    The policy rationale for this provision, as the preamble quotation 
notes, is that permitting the prime contractor to provide an item to 
its own DBE subcontractor, and then claim DBE credit for the value of 
that item, raises issues concerning whether the DBE is actually 
independent and performing a CUF. The rule regards the item as having 
been provided by the prime contractor to the project and, consequently, 
not as part of the ``work actually performed by the DBE.'' Therefore, 
the rule does not permit it to be counted for DBE credit.
    Some prime contractors and DBE contractors have objected to this 
provision, both in correspondence with the Department and in 
stakeholder meeting discussions. They assert that 26.55(a)(1) prevents 
DBE firms from successfully competing for projects involving the 
purchase of commodities like asphalt, concrete, or quarried rock, since 
the DBE credit they could bring to the project would be limited to the 
installation and labor costs of the job (likely a relatively small 
percentage of the overall contract). This is particularly true, they 
say, when there are only one or two suppliers of the commodity within a 
reasonable distance of the DBE, and those suppliers are owned by or 
affiliated with a prime contractor.
    Participants in the stakeholder meeting discussions also suggested 
that the current rule could lead to competitive inequities between 
prime contractors. For example, suppose Prime Contractor A has an 
asphalt plant--the only one in the area--and Prime Contractor B does 
not. Both are bidding on a highway construction contract on which there 
is a DBE goal. Prime Contractor A cannot count for DBE credit the 
asphalt that a DBE paving contractor buys, while Prime Contractor B 
can. This makes it easier for B to meet the DBE goal on the contract.
    The ANPRM asked for comments on four alternatives: (1) No change; 
(2) keep current rule in place, but allow recipients to make exceptions 
in limited circumstances; (3) permit items obtained by DBEs for a 
contract to be counted for DBE credit regardless of their non-DBE 
source; or (4) prohibit items obtained by a DBE from any non-DBE source 
to be counted for DBE credit. Twenty-eight comments addressed this 
issue, and each of the options attracted support (11 favored option 1, 
6 favored option 2, 7 favored option 3, and 4 favored option 4).
    The Department believes that the basic policy objective of the 
current regulation--preventing items actually supplied by prime 
contractors from counting for DBE credit by being passed through their 
DBE subcontractors--is a sound one. Simply allowing such items to count 
toward DBE goals in all

[[Page 25822]]

situations, as option 3 would provide, is too contrary to this 
objective for the Department to consider further. Option 2's 
authorization of exceptions to this general rule could lead to very 
inconsistent, and arguably arbitrary, results within and among states. 
Option 4 establishes consistency in how items obtained by DBEs are 
treated, but would likely result in reduced dollar amounts overall DBE 
participation. Option 1, which received at least plurality support 
among commenters and prevents prime contractors from counting as DBE 
participation items that they themselves contribute to a project, 
appears the best approach. Consequently, the Department is not 
proposing to change this section. We will continue to consider comments 
on the issue, however.

Application and PNW Forms

    The ANPRM asked for comments on potential improvements to the 
rule's application and personal net worth (PNW) forms. This is an 
important matter, and one requiring detailed attention as well as 
thorough analysis of the information collection burdens involved. For 
this reason, while the Department is currently working on revised 
forms, we are deferring proposing new forms to a subsequent NPRM.

Certification-Related Provisions

    This NPRM also proposes a number of modifications to the 
certification provisions of the rule, based primarily on the 
Department's experience in certification appeals cases and other issues 
that have come to the Department's attention. The Department is 
continuing to review and update certification provisions, and we 
anticipate proposing several additional modifications in the subsequent 
NPRM that will also propose revised PNW and application forms. Minor 
technical changes to references within the existing definitions are 
also proposed.

Section 26.71 What rules govern determinations concerning control?

    ``Generic'' certification of a firm as a DBE is not proper in the 
program. Under Sec.  26.71(n), DBEs are certified by recipients and 
UCPs only with respect to specific types of work in which the 
certifying agency has determined that the socially and economically 
disadvantaged owners control. When applying for certification, an 
applicant is asked to describe the ``primary business and professional 
activities the firm is engaged in.'' The types of work a firm can 
perform (whether on initial certification or when a new type of work is 
added) should be described in terms of six-digit North American 
Industry Classification System (NAICS) codes, or another classification 
scheme of equivalent detail and specificity. In order to meet its 
burden of proof, a firm must provide detailed information the 
certifying agency needs and/or requests so that the certifying agency 
may make an appropriate NAICS code designation. Firms are also 
responsible for ensuring that the NAICS codes cited in a certification 
are up-to-date and accurately reflect work which the UCP has determined 
the firm's owners can control. To assist recipients and firms address 
these issues, the Department is proposing an amendment to Sec.  
26.71(n), which would codify the substance of a guidance Q & A the 
Department issued in 2009.

Section 26.73 What are other rules affecting certification?

    The Department has learned, through the Department's certification 
appeal process and from oversight of recipients' DBE programs, that 
some recipients may deny certification to firms on the basis that they 
do not appear prepared to perform a particular project, are newly 
formed, or lack employees or specific pieces of equipment. We have 
learned that recipients are taking this action after perceiving the 
firm incapable of success later down the road. This is somewhat of a 
premature determination and akin to a finding that a firm's work would 
not be counted for DBE credit sometime in the future. We have 
consistently held that counting issues are separate from certification; 
and we continue to hold that firms should be evaluated based on their 
present circumstances. The Department therefore, is restating Sec.  
26.73(b), which prohibits a recipient from refusing to certify a firm 
solely on the basis that it is a newly formed firm; and adding a 
section (b)(2) to emphasize also that recipients should not refuse to 
certify a firm that has not completed contracts or projects at the time 
of its application, has not yet realized profits from its activities, 
or has not demonstrated a potential for success. We stress that if the 
firm meets the size, ownership, and control requirements of this part, 
the firm is eligible for certification.
    A firm must be a going concern in order to be certified. It is not 
realistic to expect a recipient, for example, to conduct an on-site 
review of a business plan that exists only on paper. Nevertheless, 
given that one of the primary purposes of the DBE program is to serve 
as an incubator for start-up businesses, recipients should not create 
unauthorized or unnecessary barriers to the participation of newer 
firms. For example, it would be contrary to this section for a 
certifying agency to insist on two years of business tax returns from a 
firm that had only been in business six months.

Section 26.83 What procedures do recipients follow in making 
certification decisions?

    The Department wants to reemphasize, in Sec.  26.83(h), that once a 
firm is certified, is stays certified unless and until its 
certification is removed under Sec.  26.87. Certifications do not 
expire or lapse, whether after three years or any particular number of 
years. Firms cannot be required to reapply for certification. However, 
recipients may properly conduct certification reviews of certified 
firms, including a new on-site review, three years from the date of the 
most recent certification of the firm or sooner if changed 
circumstances relating to the firm's ownership, control, size or 
disadvantaged status warrant. In addition, recipients may conduct on-
site visits on an unannounced basis at the firm's offices and job sites 
if information comes to a recipients' attention regarding the firm's 
eligibility. The Department seeks comment on whether periodic new on-
site reviews should be conducted (e.g., every three or five years) to 
ensure that information about certified firms is up-to-date and that 
firms have not changed in ways that adversely impact their eligibility? 
Would such a requirement make the interstate certification process work 
better? What would the resource implications be?
    One of the problems that the Department has seen is that on-site 
reviews, once conducted, are not periodically updated by some 
certifying agencies. The result may be that the information in an on-
site review report may be stale. This is a particular concern given the 
interstate certification provisions of proposed Sec.  26.84, in which a 
``State B' must rely on the on-site report of the applicant firm's home 
state. If the on-site report is 5 or 10 years old, can other states 
safely rely on the information? If not, should we require updated on-
site reviews to be conducted by firms' home states at a given interval 
(e.g., every three years)? Should states be permitted to charge user 
fees to firms for updated on-site reviews? Are there ways of reducing 
burdens of on-site reviews (e.g., by use of videoconferencing or other 
technologies)? Could the need for updated on-site reviews be mitigated 
if firms had to submit additional annual update information (e.g., PNW 
statements, tax returns, data about the

[[Page 25823]]

firm's finances and transactions)? The Department seeks comment on this 
topic.
    The Department has learned, through the Department's certification 
appeal process and oversight of recipients' DBE programs, of instances 
in which applicants may have been unaware that their application lacked 
the necessary information, through either a misunderstanding of the 
process and/or submitting some, but not all, of the information a 
recipient needs to make a decision. It is therefore useful for 
recipients to inform each applicant within 20 business days after 
receiving an application, whether the application is complete and ready 
for evaluation, and if not, what additional information or action is 
required. Many recipients engage in this practice and promptly notify 
firms, either by e-mail or certified mail of their need for additional 
information. The addition of a requirement to this effect, therefore, 
does not seem onerous and we added a new lead sentence in paragraph (l) 
to reflect this addition.

Other Provisions

    The Uniform Report of DBE Awards or Commitments and Payments, found 
in Appendix B of Part 26, has long been required to be submitted by DOT 
recipients. The form itself states that FHWA and FTA recipients submit 
the form twice a year, while FAA recipients submit it annually. It was 
called to our attention, however, that body of the regulation does not 
specifically reference the form. To remedy this situation, we propose 
adding such a reference to Sec.  26.11. There is no change to the 
existing requirement for submission of the form and no additional 
information collection burden involved.
    In Sec.  26.45, the NPRM would clarify requirements concerning 
project overall goals and the implementation of the recent amendment 
calling for submission of overall goals on a triennial, rather than 
annual, basis. In Sec.  26.51, the NPRM would clarify that, if a 
recipient had an all race-neutral overall goal, it nevertheless would 
use race-conscious contract goals if, part way through the year, it 
became necessary to do so in order to have a reasonable opportunity to 
meet the overall goal. This proposed amendment is related to the 
proposed ``accountability'' mechanism in proposed Sec.  26.47. Finally, 
an obsolete citation to suspension and debarment rules would be 
replaced by the current citation in Sec.  26.107.

Regulatory Analyses and Notices

Executive Order 12866 and DOT Regulatory Policies and Procedures

    This is a nonsignificant regulation for purposes of Executive Order 
12866 and the Department of Transportation's Regulatory Policies and 
Procedures. The proposals involve administrative modifications to 
several provisions of a long-existing and well-established program, 
designed to improve the program's implementation. The proposals, if 
made final, would not alter the direction of the program, make major 
policy changes, or impose significant new costs or burdens.

Regulatory Flexibility Act

    A number of provisions of the NPRM would reduce small business 
burdens or increase opportunities for small business, notably the 
interstate certification process and the small business DBE program 
element proposals. Small recipients would not be required to prepare or 
transmit reports concerning the reasons for overall goal shortfalls and 
corrective action steps to be taken. Only State DOTs, the 50 largest 
transit authorities, and the 30-50 airports receiving the greatest 
amount of FAA financial assistance would have to file these reports. 
The task of sending copies of on-site review reports to other 
certification entities fall on UCPS, which are not small entities, and 
in any case can be handled electronically by e-mailing PDF copies of 
the documents. While all recipients would have to input information 
about decertifications and denials into a DOT database, this would be a 
quick electronic process that would not be costly or burdensome. The 
NPRM would not make major policy changes that would cause recipients to 
expend significant resources on program modifications. For these 
reasons, the Department certifies that the NPRM, if made final, would 
not have a significant economic effect on a substantial number of small 
entities.

Federalism

    A rule has implications for federalism under Executive Order 13132, 
Federalism, if it has a substantial direct effect on State or local 
governments and would either preempt State law or impose a substantial 
direct cost of compliance on them. We have analyzed this proposed rule 
under the Order and have determined that it does not have implications 
for federalism, since it merely makes administrative modifications to 
an existing program. It does not change the relationship between the 
Department and State or local governments, pre-empt State law, or 
impose substantial direct compliance costs on those governments.

Paperwork Reduction Act

    As required by the Paperwork Reduction Act of 1995, DOT will submit 
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 provided 30 days 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. We also request that a copy 
of such comments be sent to the docket for this NPRM. OMB is required 
to make a decision concerning the collection of information 
requirements contained in this rule between 30 and 60 days after 
publication of this document in the Federal Register. Therefore, a 
comment is best assured of having its full effect if OMB receives it 
within 30 days of publication.
    The items in this NPRM for which DOT intends to seek Paperwork 
Reduction Act approvals are the following:

Proposed Sec.  23.39(b): Submission of small business program element.
Proposed Sec.  26.47 (c): Submission of analysis of reasons for falling 
short of overall goal corrective actions.
Proposed Sec.  26.84(c)(4): Affidavit concerning information of 
certification information.
Proposed Sec.  26.84(f): Submission of certification information to DOT 
database.

List of Subjects in 49 CFR Part 26

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

    Issued This Day of May, 2010, at Washington DC.
Ray Lahood,
Secretary of Transportation.
    For the reasons set forth in the preamble, the Department of 
Transportation proposes to amend 49 CFR part 26 as follows:

[[Page 25824]]

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

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

    Authority:  23 U.S.C. 324; 42 U.S.C. 2000d, et seq. ; 49 U.S.C 
1615, 47107, 47113, 47123; Sec. 1101(b), Pub. L. 105-178, 112 Stat. 
107, 113.

    2. Add Sec.  26.11(a) to read as follows:


Sec.  26.11  What records do recipients keep and report?

    (a) You must transmit the Uniform Report of DBE Awards or 
Commitments and Payments, found in Appendix B to this part, at the 
intervals stated on the form.
* * * * *
    3. Revise Sec.  26.31 to read as follows:


Sec.  26.31  What information must you include in your DBE directory?

    You must maintain and make available to interested persons a 
directory identifying all firms eligible to participate as DBEs in your 
program. In the listing for each firm, you must include its address, 
phone number, and the types of work the firm has been certified to 
perform as a DBE.
    4. Revise Sec.  26.37 (b) to read as follows:


Sec.  26.37  What are a recipient's responsibilities for monitoring the 
performance of other program participants?

* * * * *
    (b) Your DBE program must also include a monitoring and enforcement 
mechanism to ensure that work committed to DBEs at contract award or 
subsequently (e.g., as the result of modification to the contract) is 
actually performed by the DBEs to which the work was committed, where 
the DBEs' work is intended to count toward DBE goals. This mechanism 
must include a written certification for each such contract that you 
have reviewed contracting records for and monitored the work on-site 
for the contract to ensure that DBEs have actually performed the work 
in question.
* * * * *
    5. Add a new Sec.  26.39 to subpart B, to read as follows:


Sec.  26.39  Fostering small business participation.

    (a) Your DBE program must include an element to structure 
contracting requirements to facilitate competition by small business 
concerns, taking all reasonable steps to eliminate obstacles to their 
participation, including unnecessary and unjustified bundling of 
contract requirements that may preclude small business participation in 
procurements as prime contractors.
    (b) This element must be submitted to the appropriate DOT operating 
administration for approval as a part of your DBE program. As part of 
this program element you may include, but are not limited to, the 
following strategies:
    (1) Establishing a race-neutral small business set-aside for prime 
contracts under a stated amount (e.g., $1 million).
    (2) In multi-year design-build contracts or other large contracts 
(e.g., for ``meagprojects'') requiring bidders on the prime contract to 
specify elements of the contract or specific subcontracts that are of a 
size that small businesses, including DBEs, can reasonably perform.
    (3) On prime contracts not having DBE contract goals, requiring the 
prime contractor to provide subcontracting opportunities of a size that 
small businesses, including DBEs, can reasonably perform, rather than 
self-performing all the work involved.
    (4) Identifying alternative acquisition strategies and structuring 
procurements to facilitate the ability of consortia or joint ventures 
consisting of small businesses, including DBEs, to compete for and 
perform prime contracts.
    (5) If you are implementing your overall goal wholly through race-
neutral measures,, ensuring that a reasonable number of prime contracts 
are of a size that small businesses, including DBEs, can reasonably 
perform.
    6. Revise Sec.  26.45(e)(2), (e)(3), (f)(1), and (f)(2) to read as 
follows:


Sec.  26.45  How do recipients set overall goals?

* * * * *
    (e) * * *
    (2) If you are an FTA or FAA recipient, as a percentage of all FTA 
or FAA funds (exclusive of FTA funds to be used for the purchase of 
transit vehicles) that you will expend in FTA or FAA-assisted contracts 
in the three forthcoming fiscal years.
    (3) In appropriate cases, the FHWA, FTA or FAA Administrator may 
permit you to express your overall goal as a percentage of funds for a 
particular grant or project or group of grants and/or projects. Like 
other overall goals, a project goal may be adjusted to reflect changed 
circumstances, with the concurrence of the appropriate operating 
administration.
    (i) A project goal is an overall goal, and must meet all the 
substantive and procedural requirements of this section pertaining to 
overall goals.
    (ii) A project goal covers the entire length of the project to 
which it applies.
    (iii) The project goal should include a projection of the DBE 
participation anticipated to be obtained during each fiscal year 
covered by the project goal.
    (iv) The funds for the project to which the project goal pertains 
are separated from the base from which your regular overall goal, 
applicable to contracts not part of the project covered by a project 
goal, is calculated.
    (f)(1)(i) If you set your overall goal on a fiscal year basis, you 
must submit it to the applicable DOT operating administration by August 
1 at three-year intervals, based on a schedule established by the FHWA, 
FTA, or FAA, as applicable, and posted on that agency's Web site.
    (ii) You must submit to the operating administration for approval 
any significant adjustment you make to your goal during the three-year 
period based on changed circumstances. The operating administration may 
direct you to undertake a review of your goal if necessary to ensure 
that the goal continues to fit your circumstances appropriately.
    (iii) While you are required to submit an overall goal to FHWA, 
FTA, or FAA only every three years, the overall goal and the provisions 
of Sec.  26.47(c) apply to each year during that three-year period.
    (2) If you are a recipient and set your overall goal on a project 
or grant basis as provided in paragraph (e)(3) of this section, you 
must submit the goal for review at a time determined by the FHWA, FTA 
or FAA Administrator, as applicable.
* * * * *
    7. Add new paragraph (c) and (d) to Sec.  26.47, to read as 
follows:


Sec.  26.47  Can recipients be penalized for failing to meet overall 
goals?

* * * * *
    (c) If the awards and commitments shown on your Uniform Report of 
Awards or Commitments and Payments at the end of any fiscal year are 
less than the overall goal applicable to that fiscal year, you must do 
the following in order to be regarded by the Department as implementing 
your DBE program in good faith:
    (1) Analyze in detail the reasons for the difference between the 
overall goal and your awards and commitments in that fiscal year;
    (2) Establish specific steps and milestones to correct the problems 
you have identified in your analysis and to enable you to meet fully 
your goal for the new fiscal year;
    (3) (i) If you are a State highway agency; one of the 50 largest 
transit

[[Page 25825]]

authorities as determined by the FTA; or an Operational Evolution 
Partnership Plan airport or other airport designated by the FAA, you 
must submit, within 60 days of the end of the fiscal year, the analysis 
and corrective actions developed under paragraphs (c)(1) and (2) of 
this section to the appropriate operating administration for approval. 
If the operating administration approves the report, you will be 
regarded as complying with the requirements of this section for the 
remainder of the fiscal year.
    (ii) As a transit authority or airport not meeting the criteria of 
paragraph (c)(3)(i) of this section, you must retain analysis and 
corrective actions in your records for three years and make it 
available to FTA or FAA on request for their review.
    (4) FHWA, FTA, or FAA may impose conditions on the recipient as 
part of its approval of the recipient's analysis and corrective actions 
including, but not limited to, modifications to your overall goal 
methodology, changes in your race conscious/race neutral split, or the 
introduction of additional race-neutral or race-conscious measures.
    (5) You may be regarded as being in noncompliance with this Part, 
and therefore subject to the remedies in Sec. Sec.  26.103 or 26.105 of 
this part and other applicable regulations,for failing to implement 
your DBE program in good faith if any of the following things occur:
    (i) You do not submit your analysis and corrective actions to FHWA, 
FTA, or FAA in a timely manner as required under paragraph (c)(3) of 
this section;
    (ii) FHWA, FTA, or FAA disapproves your analysis or corrective 
actions; or
    (iii) You do not fully implement the corrective actions to which 
you have committed or conditions that FHWA, FTA, or FAA has imposed 
following review of your analysis and corrective actions.
    (d) If, as recipient, your 6-month Uniform Report of DBE Awards or 
Commitments and Payments (for FHWA and FTA recipients) or other 
information coming to the attention of FTA, FHWA, or FAA, demonstrates 
that you are falling short of the DBE awards and commitments that would 
be necessary to allow you to meet your overall goal at the end of the 
fiscal year, FHWA, FTA, or FAA, as applicable, may require you to make 
further good faith efforts, such as by modifying your race-conscious/
race neutral split or introducing additional race-neutral or race-
conscious measures for the remainder of the fiscal year.
    8. Revise Sec.  26.51(b)(1), (f)(1), and the example to paragraph 
(f)(1), to read as follows:


Sec.  26.51  What means do recipients use to meet overall goals?

* * * * *
    (b) Race-neutral means include, but are not limited to, the 
following:
    (1) Arranging solicitations; times for the presentation of bids, 
quantities, specifications, and delivery schedules in ways that 
facilitate participation by DBEs and other small businesses and by 
making contracts more accessible to small businesses, by means such as 
those provided under Sec.  26.39 of this part.
* * * * *
    (f) * * *
    (1) If your approved projection under paragraph (c) of this section 
estimates that you can meet your entire overall goal for a given year 
through race-neutral means, you must implement your program without 
setting contract goals during that year, unless it becomes necessary to 
do so to avoid falling short of our overall goal.
    Example to Paragraph (f)(1): Your overall goal for Year 1 is 12 
percent. You estimate that you can obtain 12 percent or more DBE 
participation through the use of race-neutral measures, without any 
use of contract goals. In this case, you do not set any contract 
goals for the contracts that will be performed in Year 1. However, 
if part way through Year 1, your DBE awards or commitments are not 
at a level that would permit you to achieve your overall goal for 
Year 1, you would begin setting race-conscious DBE contract goals 
during the remainder of the year as part of your obligation to 
implement your program in good faith.
* * * * *
    9. In Sec.  26.53, redesignate paragraph (g) as paragraph (i), 
redesignate paragraphs (f)(2) and (3) as paragraphs (g) and (h) 
respectively, revise paragraph (f)(1), and add new paragraphs (f)(2) 
through (5) to read as follows:


Sec.  26.53  What are the good faith efforts procedures recipients 
follow in situations where there are contract goals?

* * * * *
    (f)(1) You must require that a prime contractor not terminate a DBE 
subcontractor listed in response to paragraph (b)(2) of this section 
(or an approved substitute DBE firm) without your written concurrence 
This includes, but is not limited to, instances in which a prime 
contractor seeks to perform work originally designated for a DBE 
subcontractor with its own forces or those of an affiliate, a non-DBE 
firm, or with a substitute DBE firm.
    (2) You may provide such written consent only if you agree, for 
reasons stated in your concurrence document, that the prime contractor 
has good cause to terminate the DBE firm.
    (3) For purposes of this paragraph, good cause includes the 
following circumstances:
    (i) The listed DBE subcontractor fails or refuses to execute a 
written contract;
    (iii) The listed DBE subcontractor fails or refuses to perform its 
subcontract;
    (iv) The listed DBE subcontractor fails to perform its work on the 
subcontract in a way that is acceptable to you;
    (v) The listed DBE subcontractor fails or refuses to meet the prime 
contractor's reasonable bond requirements;
    (vi) The listed DBE subcontractor becomes bankrupt, insolvent, or 
exhibits credit unworthiness;
    (vii) The listed DBE subcontractor is ineligible to work on public 
works projects because of suspension and debarment proceedings pursuant 
2 CFR Parts 180, 215 and 1200 or applicable state law;
    (viii) You have determined that the listed DBE subcontractor is not 
a responsible contractor;
    (ix) The listed DBE subcontractor voluntarily withdraws from the 
project and provides to you written notice of its withdrawal;
    (x) The listed DBE is ineligible to receive DBE credit for the type 
of work required;
    (xi) A DBE owner dies or becomes disabled with the result that the 
listed DBE contractor is unable to complete its work on the contract.
    (xii) Other good cause that you determine compels the termination 
of the DBE subcontractor, with the concurrence of FHWA, FTA, or FAA, as 
applicable.
    (3) Before transmitting to you its request to terminate and/or 
substitute a DBE subcontractor, the prime contractor must give notice 
in writing to the DBE subcontractor, with a copy to you, of its intent 
to request to terminate and/or substitute, and the reason for the 
request.
    (4) The prime contractor must give the DBE 5 days to respond to the 
prime contractor's notice and advise you and the contractor of the 
reasons, if any, why it objects to the proposed termination of its 
subcontract and why you should not approve the prime contractor's 
action.
    (5) In addition to post-award terminations, the provisions of this 
section apply to preaward deletions of or substitutions for DBE firms 
put forward by offerors in negotiated procurements.
* * * * *
    10. Revise Sec.  26.67 (a)(2)(i) to read as follows:

[[Page 25826]]

Sec.  26.67  What rules determine social and economic disadvantage?

    (a) * * *
    (2)(i) You must require each individual owner of a firm applying to 
participate as a DBE (except a firm applying to participate as a DBE 
airport concessionaire under 49 CFR part 23) 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 $1.3 million.
* * * * *
    11. Revise Sec.  26.71(n) to read as follows:


Sec.  26.71  What rules govern determinations concerning control?

* * * * *
    (n) You must grant certification to a firm only for specific types 
of work in which the socially and economically disadvantaged owners 
have the ability to control the firm. To become certified in an 
additional type of work, the firm need demonstrate to you only that its 
socially and economically disadvantaged owners are able to control the 
firm with respect to that type of work. You may not, in this situation, 
require that the firm be recertified or submit a new application for 
certification, but you must verify the disadvantaged owner's control of 
the firm in the additional type of work.
    (1) The types of work a firm can perform (whether on initial 
certification or when a new type of work is added) must be described in 
terms of NAICS codes or a classification scheme of equivalent detail 
and specificity. A correct NAICS code is one that describes, as 
specifically as possible, the principal goods or services which the 
firm would provide to DOT recipients. Multiple NAICS codes may be 
assigned, where appropriate. Program participants must rely on, and not 
depart from, the plain meaning of NAICS code descriptions in 
determining the scope of a firm's certification.
    (2) Firms and recipients must check carefully to make sure that the 
NAICS codes cited in a certification are kept up-to-date and accurately 
reflect work which the UCP has determined the firm's owners can 
control. The firm bears the burden of providing detailed company 
information the certifying agency needs to make an appropriate NAICS 
code designation.
    (3) If a firm believes that there is not a NAICS code that fully or 
clearly describes the type(s) of work in which it is seeking to be 
certified as a DBE, the firm may request that the certifying agency, in 
its certification documentation, supplement the assigned NAICS code(s) 
with a clear, specific, and detailed narrative description of the type 
of work in which the firm is certified. A vague, general, or confusing 
description is not sufficient for this purpose, and recipients should 
not rely on such a description in determining whether a firm's 
participation can be counted toward DBE goals.
    (4) A certifier is not precluded from changing a certification 
classification or description if there is a factual basis in the 
record. However, certifiers should not make after-the-fact statements 
about the scope of a certification, not supported by evidence in the 
record of the certification action.
* * * * *
    12. Revise Sec.  26.73(b) to read as follows:


Sec.  26.73  What are other rules affecting certification?

* * * * *
    (b)(1)You must evaluate the eligibility of a firm on the basis of 
present circumstances. You must not refuse to certify a firm based 
solely on historical information indicating a lack of ownership or 
control of the firm by socially and economically disadvantaged 
individuals at some time in the past, if the firm currently meets the 
ownership and control standards of this part.
    (2) You must not refuse to certify a firm solely on the basis that 
it is a newly formed firm, has not completed projects or contracts at 
the time of its application, has not yet realized profits from its 
activities, or has not demonstrated a potential for success. If the 
firm meets disadvantaged, size, ownership, and control requirements of 
this Part, the firm is eligible for certification.
* * * * *


Sec.  26.81  [Amended]

    13. Amend Sec.  26.81(g) by removing the period at the end of the 
last sentence and adding the words ``and shall revise the print version 
of the Directory at least once a year.''
    14. In Sec.  26.83, remove and reserve paragraph (e), revise 
paragraph (h), and add a new paragraph (l) to read as follows:


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

* * * * *
    (h) Once you have certified a DBE, it shall remain certified until 
and unless you have removed its certification, in whole or in part, 
through the procedures of Sec.  26.87. You may not require DBEs to 
reapply for certification. However, you may conduct a certification 
review of a certified DBE firm, including a new on-site review, three 
years from the date of the firm's most recent certification, or sooner 
if appropriate in light of changed circumstances (e.g., of the kind 
requiring notice under paragraph (i) of this section), a complaint, or 
other information concerning the firm's eligibility. If 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 jobsites.
* * * * *
    (l) As a recipient or UCP, you must advise each applicant within 20 
business days from your receipt of the application whether the 
application is complete and suitable for evaluation and, if not, what 
additional information or action is required.
    15. Revise Sec.  26.84 to read as follows


Sec.  26.84  Interstate certification.

    (a) This section applies with respect to any firm that is currently 
certified in its home State.
    (b) When a firm currently certified in its home State (``State A'') 
applies to another State (``State B'') for DBE certification, State B 
may, at its discretion, accept State A's certification and certify the 
firm,. without further procedures.
    (1) To obtain certification in this manner, the firm must provide 
to State B a copy of its certification notice from State A.
    (2) Before certifying the firm, State B must confirm that the firm 
has a current valid certification from State A. State B can do so by 
reviewing State A's electronic directory or getting written 
confirmation from the home State.
    (c) In any situation in which State B chooses not to accept State 
A's certification of a firm as provided in paragraph (b) of this 
section, as the applicant firm you must provide the following 
information in paragraphs (c)(1) through (4) of this section to State 
B.
    (1) You must provide to State B a complete copy of the application 
form, all supporting documents, and any other information you have 
submitted to State A related to your firm's certification. This 
includes affidavits of no change (see Sec.  26.83(j) and any notices of 
changes (see Sec.  26.83(i) that you have submitted to State A, as well 
as any correspondence you have had with State A's UCP or any recipient 
concerning your application or status as a DBE firm.
    (2) You must also provide to State B any notices or correspondence 
from states other than State A relating to your status as an applicant 
or certified DBE

[[Page 25827]]

in those states. For example, if you have been denied certification or 
decertified in State C, or subject to a decertification action there, 
you must inform State B of this fact and provide all documentation 
concerning this action to State B.
    (3) If you have filed a certification appeal with DOT (see Sec.  
26.89), you must inform State B of the fact and provide your letter of 
appeal and DOT's response to State B.
    (4) You must submit an affidavit sworn to by the firm's owners 
before a person who is authorized by State law to administer oaths or 
an unsworn declaration executed under penalty of perjury of the laws of 
the United States. This affidavit must affirm that you have submitted 
all the information required by 49 CFR 26.84(c) and the information is 
complete and, in the case of the information required by Sec.  
26.84(c)(1), an identical copy of the information submitted to State A.
    (d) As State B, when you receive from an applicant firm all the 
information required by paragraph (c) of this section, you must take 
the following actions:
    (1) Immediately contact State A and request a copy of the site 
visit review report for the firm (see Sec.  26.83(c)(1)), any updates 
to the site visit review, and any evaluation of the firm based on the 
site visit. As State A, you must transmit this information to State B 
within seven days of receiving the request.
    (2) Determine, within 30 days, whether there is good cause to 
believe that State A's certification of the firm is erroneous or should 
not apply in your State. Reasons for making such a determination may 
include, but are not limited to, the following:
    (i) Evidence that State A's certification was obtained by fraud;
    (ii) New information, not available to State A at the time of its 
certification, indicating that the firm does not meet all eligibility 
criteria;
    (iii) State A's certification was factually erroneous or was 
inconsistent with the requirements of this part;
    (iv) The State law of State B leads to a result different from that 
of the State law of State A.
    (v) The information provided by the applicant firm did not meet the 
requirements of paragraph (c) of this section.
    (3) If, as State B, unless you have determined that there is good 
cause to believe that State A's certification is erroneous or should 
not apply in your State, you must, no later than 30 days from the date 
on which you received from the applicant firm all the information 
required by paragraph (c) of this section, send to the applicant firm a 
notice that it is certified and place the firm on your directory of 
certified firms.
    (4) If, as State B, you have determined that there is good cause to 
believe that State A's certification is erroneous or should not apply 
in your State, you must, no later than 30 days from the date on which 
you received from the applicant firm all the information required by 
paragraph (c) of this section, send to the applicant firm a notice 
stating the reasons for your determination.
    (i) This notice must meet the requirements of Sec.  26.87(b) of 
this part and offer the firm the opportunity for a hearing meeting the 
requirements of Sec.  26.87(d), (e)(2), and (g) of this part.
    (ii) If the firm elects to have a hearing, you must ensure that it 
takes place within 30 days, and your decision must be issued within 30 
days after the date of the hearing.
    (iii) Consistent with the provisions of Sec.  26.87(d)(1) and (3) 
of this part, you bear the burden of proving, by a preponderance of the 
evidence, that the firm does not meet the certification standards of 
this part.
    (iv) The firm's application for certification is stayed pending the 
outcome of this proceeding.
    (v) The firm may appeal the outcome of this proceeding to DOT as 
provided in Sec.  26.89 of this part.
    (e) As State B, if you have not received from State A a copy of the 
site visit review report by a date 14 days after you have made a timely 
request for it, you may hold action required by paragraphs (d)(2) 
through (4) of this section in abeyance pending receipt of the site 
visit review report. In this event, you must, no later than 30 days 
from the date on which you received from an applicant firm all the 
information required by paragraph (c) of this section, notify the firm 
in writing of the delay in the process and the reason for it.
    (f)(1) As a UCP, when you deny a firm's application, reject the 
application of a firm certified in State A or any other State in which 
the firm is certified, through the procedures of paragraph (d)(4) of 
this section, or decertify a firm, in whole or in part, you must make 
an entry to the Department of Transportation Office of Civil Rights' 
(DOCR's) Ineligibility Determination online database. You must enter 
the following information:
    (i) The name of the firm;
    (ii) The name(s) of the firm's owner(s);
    (iii) The type and date of the action;
    (iv) The reason for the action.
    (2) As a UCP, you must check the DOCR Web site at least once every 
month to determine whether any firm that is applying to you for 
certification or that you have already certified is on the list.
    (3) For any such firm that is on the list, you must promptly 
request a copy of the listed decision from the UCP that made it. As the 
UCP receiving such a request, you must provide a copy of the decision 
to the requesting UCP within 7 days of receiving the request. As the 
UCP receiving the decision, you must then consider the information in 
the decision in determining what, if any, action to take with respect 
to the certified DBE firm or applicant.
    16. Revise Sec.  26.85 to read as follows:


Sec.  26.85  Certification of SBA 8(a)-certified firms.

    (a) As a recipient or UCP, if a firm certified by SBA under its 
8(a) program applies to you for certification as a DBE, you must follow 
the procedures of this section.
    (b) When an SBA 8(a)-certified firm applies for certification, you 
must accept the certification applications, forms and packages 
submitted by a firm to the SBA for 8(a) program certification, in lieu 
of requiring the applicant firm to complete your own application forms 
and packages. The applicant may submit the package directly, or may 
request that the SBA forward the package to you.
    (c) Before certifying a firm based on its SBA 8(a) certification, 
you must conduct an on-site review of the firm (see Sec.  26.83(c)(1)). 
You may also request additional relevant information from the firm to 
ensure that the requirements of this Part for DBE certification have 
been met. If the SBA application package presented by the firm is more 
than two years old, you must obtain updated information from the 
applicant.
    (d) Unless you determine, based on the on-site review and other 
information obtained in connection with the firm's application that the 
firm does not meet the eligibility requirements of subpart D of this 
part, you must certify the firm.
    (e) For an SBA 8(a) firm that you certify under this section, you 
must determine, based on the on-site and other information you have 
gathered, the NAICS codes in which the firm may participate in your 
contracts as a DBE.
    (f) You are not required to process an application for 
certification from an SBA-certified firm having its principal place of 
business outside the State(s) in which you operate unless there is a 
report of a ``home State'' on-site review on which you may rely.
    (g) If the SBA 8(a) firm applying to you is already certified as a 
DBE by another State's UCP, you must use the procedures of Sec.  26.84 
of this part, rather

[[Page 25828]]

than those of this section, for considering its eligibility.


Sec.  26.81  [Amended]

    17. In Sec.  26.107 (a) and (b), remove ``49 CFR part 29'' and add 
in its place, ``2 CFR parts 180 and 1200.''

[FR Doc. 2010-10968 Filed 5-6-10; 3:00 pm]
BILLING CODE 4910-9X-P


</pre><script data-cfasync="false" src="/cdn-cgi/scripts/5c5dd728/cloudflare-static/email-decode.min.js"></script></body>
</html>