Document ID: DOT-OST-1997-2550-0356
Agency: dot
Document Type: Proposed Rule
Title: Participation by Disadvantaged Business Enterprise in Airport Concessions
Posted Date: 2005-03-16T05:00Z

DEPARTMENT OF TRANSPORTATION

Office of the Secretary

49 CFR Part 23 

[Docket       Docket OST-97-2550;  Notice       ]

RIN  2105-AD521

Participation by Disadvantaged Business Enterprises in Airport
Concessions

AGENCY:  Office of the Secretary, DOT

ACTION:  Supplemental notice of proposed rulemaking (SNPRM) 

SUMMARY:   This SNPRM seeks further comment on the issue of business
size standards for the Department of Transportation’s airport
concession disadvantaged business enterprise (ACDBE) program.  It also
requests comment on issues such as additional measures to combat fraud
and abuse in the program and to provide additional flexibility for
airports in implementing the program.  

COMMENT CLOSING DATE:   Comments should be submitted to the docket by
[insert date 90 days from date of publication].  Late-filed comments
will be considered to the extent practicable.

ADDRESSES:   Comments should be sent to Docket Clerk, Attn: Docket No.
OST-97-2550, Department of Transportation, 400 7th Street, SW., Room
PL401, Washington DC, 20590.  For the convenience of persons wishing to
review the docket, it is requested that comments be sent in triplicate. 
Persons wishing their comments to be acknowledged should enclose a
stamped, self-addressed postcard with their comments.  The docket clerk
will date stamp the postcard and return it to the sender.  Comments may
be reviewed at the above address from 9:00 a.m. through 5:30 p.m. Monday
through Friday.  Commenters may also submit their comments
electronically.  Instructions for electronic submission may be found at
the following web address:   HYPERLINK http://dms.dot.gov/search/. 
http://dms.dot.gov/submit/.  The public may also review docketed
comments electronically.  The following web address provides
instructions and access to the DOT electronic docket:   HYPERLINK
http://dms.dot.gov/search/.  http://dms.dot.gov/search/. .

FOR FURTHER INFORMATION CONTACT:  Robert C. Ashby, Deputy Assistant
General Counsel for Regulation and Enforcement, Department of
Transportation, 400 7th Street, SW., Room 10424, Washington, DC  20590,
phone numbers (202) 366-9310 (voice), (202) 366-9313 (fax), (202)
755-7687 (TTY), bob.ashby@ost.dot.gov (e-mail). 

SUPPLEMENTARY INFORMATION:   

	In today’s Federal Register, the Department of Transportation
published a final rule revising 49 CFR Part 23, the regulation governing
the airport concessions disadvantaged business enterprise (ACDBE)
program.    This SNPRM seeks comment on the issue of business size
standards to be used in Part 23 and also asks for comment on three two
other issues matters concerning implementation of the program on which
we have not previously sought comment.

Business Size Standards 

	Size standards in this ACDBE regulation are important for a number of
reasons.  They implement the statutory requirement that participants be
small businesses.  They provide a means to ensure that participation in
DBE programs is not necessarily foreverof indefinite duration:  if a
firm grows to exceed size standards, it “graduates” fromceases to be
eligible for the program.  They are calibrated to help meet the
objectives of the program, including permitting ACDBE firms to compete
in the airport concessions market.

In Part 26, businesses seeking DBE certification must, by statute, meet
SBA size standards and an additional statutory $17.42million dollar cap
on average annual gross receipts.  These requirements do not apply to
Part 23, since the ACDBE statute gives the Secretary discretion to set
size standards for concessions.  For most airport concessions, the size
standard under current Part 23 is $30 million average annual gross
receipts.  

	In the 2000 SNPRM proposing revisions to Part 23, the Department
suggested adjusting the size standards for inflation (e.g., from $30
million to approximately $33 million) and to create new size standards
for management contractors ($5 million) and car dealers (500 employees).
 Many airport comments supported a size standard higher than $33
million, especially for advertising, but did not suggest an alternative.
 One ACDBE suggested using a higher figure, or an employee number (as in
car dealers).  One airport suggested trying to match size standards more
precisely to the types of businesses involved, while another thought it
was confusing not to apply the Part 26 $17.42 million dollar cap to
concessions.  A consultant asked for more detail, especially with
respect to the affiliation rule.  

For parking management, one airport suggested $12 million rather than $5
million, while another said there was confusion between how these two
figures were meant to be applied.  Three airports and a car rental trade
association supported the 500-employee standard for car dealers, while
another large airport said it was too high.

In December 2002, the Department responded to a petition from an airport
advertising firm to alter the size standards further (67 FR 76327;
December 2, 2002).   The petitioner argued that because some types of
concessionaires pay higher concession or lease fees to airports than
others, size standards should be adjusted to equalize the situation of
these different businesses.  The NPRM proposed two options for
equalizing the size standards to take differing concession fees into
accounts, one of which would have increased the size standard
significantly for most categories of businesses and the other of which
would have meant smaller increases for some types of businesses and
modest decreases for others.

The Department seeks additional comment on certain size standard issues.
  One of these is the “equity” issue raised in the December 2002
NPRM.   The Department received 50 comments on this NPRM.  Most were
from airport operators.  A sizeable majority of the airport comments
supported the proposal, particularly the option that would have raised
the size standards significantly.  Four ACDBE firms and associations
also commented in favor of the proposal.  Supporters generally believed
that the proposed change would create a “level playing field” among
types of ACDBEs.  Some airports, including most of the large airports
that responded, opposed the proposal or thought further study would be
necessary.  A state DOT and an individual commenter also took this
position.  These commenters’ reservations about the proposal centered
on concerns that the proposal would make some size standards
unreasonably high, lead to other inequities among types of businesses,
or were based on inadequate or incomplete data.

After reviewing the comments and thinking further about the proposal, we
have concluded that we should not adopt either of the specific options
we proposed.  One could raise the basic size standard too high, and the
other could result in excluding some presently certified firms by
lowering some current size standards.  Both are based on data that
pertains to several categories of firms at large airports, but we have
no data about other categories of firms or practices at smaller
airports.  We are also concerned that facially very different size
standards for different categories of business could lead to perceptions
of unfairness and difficult administrative or legal decisions about the
category in which a particular firm belongs.

However, the evident differences in concession or lease fees among types
of businesses do raise a fairness issue.   One way of addressing this
issue would be to keep the existing size standards but to subtract from
a firm’s gross receipts the concession or lease fees it pays to the
airport for the privilege of doing business.    For example, suppose a
concessionaire has annual gross receipts of $30 million.  It pays 20
percent of its gross receipts ($6 million) to the airport in concession
fees.  Consequently, for purposes of calculating whether the firm meets
the size standard, the firm’s receipts for that year would be valued
at $24 million.   The Department seeks comment on this approach.

We also seek further comment on adjusting the dollar size standard –
which has remained in place since 1992 -- for inflation.  In the 2000
SNPRM, as noted above, we proposed an inflationary adjustment to $33
million for most ACDBEs, a proposal to which commenters did not object. 
 However, we now seek comment on a different calculation, using a method
similar to the one we use for inflationary adjustments to Part 26 size
standards.  Using this method, we calculate that the adjusted standards
would be $40.57  million (in place of the former $30 million standard
for most businesses) and $54.1 million (in place of the former $40
million standard) for car rental companies.  

In arriving at these numbers, the DOT used a Department of Commerce
price index to make a current inflation adjustment.  The Department of
Commerce’s Bureau of Economic Analysis prepares constant dollar
estimates of state and local government purchases of goods and services
by deflating current dollar estimates by suitable price indicies.  These
indicies include purchases of durable and non-durable goods, and other
services.  Using these price deflators enables the Department to adjust
dollar figures for past years’ inflation. Given the nature of DOT's
ACDBE Program, adjusting the gross receipts cap in the same manner in
which inflation adjustments are made to the costs of state and local
government purchases of goods and services is simple, accurate and fair.
 

The inflation rate on purchases by state and local governments for the
current year is calculated by dividing the price deflator for the fourth
quarter of 2003 (109.546) by 1992’s third quarter price deflator
(80.997).  The third quarter of 1992 is used because that is when the
Department established the current size limitations.  The result of the
calculation is 1.35247, which represents an inflation rate of 35.25%
from the third quarter of 1992 through the fourth quarter of 2003. 
Multiplying the $30,000,000 figure by 1.35247 equals $40,574,100, which
will be rounded off to the nearest $10,000, or $40,570,000.  Multiplying
the $40,000,000 figure by 1.35247 equals $54,098,800, which will be
rounded off to the nearest $10,000, or $54,100,000.  

We also seek comment on the alternative of making the size standard of
Part 23 equivalent to that of Part 26, for the reasons of enhancing the
narrow tailoring of Part 23 and to avoid potential confusion from having
two different size standards for different parts of the Department’s
overall DBE program.  This alternative would rely on SBA size standards,
and might or might not include the gross receipts cap that Congress
imposed in the highway/transit program DBE provision (currently
calculated as $17.42 million, and subject to periodic inflationary
adjustments).  

On March 19, 2004, the Small Business Administration (SBA) issued a
notice of proposed rulemaking to restructure its small business size
standards (69 FR 13130).  The basic thrust of the SBA proposal is to
replace most size standards based on gross receipts with standards based
on the number of employees.   For example, the size standard for hotels
would be 100 employees.  A 50-employee standard would apply to
restaurants, advertising agencies, beauty/barber shops, taxi companies,
new car dealers, and most specialty retail stores.   

One additional idea on which the The Department believes is that of that
this proposalcreating an employee number-based size standard, in place
of the current dollar-based standards.    may have considerable merit as
applied to the airport concession industrySuch an approach and could
make ACDBE size standards simpler and fairer.   For example, using an
employee number-based standard would apparently moot the issue raised in
the 2002 NPRM concerning concession fees paid to airports.  Likewise,
using an employee number-based standard would eliminate questions about
the relationship between the income of businesses located on airports
and similar businesses located elsewhere.  While DOT is not required to
use SBA standards, harmonizing ACDBE standards with those used in other
small business programs would avoid confusion and inconsistency.

Of course, parties interested in the ACDBE program have not yet had the
opportunity to comment to the Department on how, if at all, to adapt
this SBA concept to the ACDBE rule.   That is a primary reason why we
are issuing this SNPRM.    In addition to considering comments on this
SNPRM, it will be important for the Department to take into account the
content of the final rule that SBA will issue based on its March 2004
NPRM.

There is a relatively limited number of types of businesses that perform
as ACDBEs, offering the possibility of creating a set of employee number
standards specific to these types of businesses relatively readily.  In
any case, the task would have a narrower scope than the Small Business
Administration’s recent efforts to establish employee number standards
for the full range of small businesses.  We seek comment on whether
pursuing such an approach is desirable and, if so, what reasonable
employee number standards might be for ACDBEs.  Is it likely that
employee numbers of concession businesses differ from those in other
contexts?   In considering the prospective application of employee
number-based size standards to the ACDBE program, we seek comment on
whether there is any reason to believe that employee numbers of airport
concessionaires differ from those in other business sectors.  IsFor
example, is it likely that a restaurant or specialty retail store on an
airport concourse will have a different number of employees from the
same type of restaurant or store in a shopping mall?    Will the
employee numbers proposed in the SBA NPRM, if applied to the ACDBE
program, unreasonably limit the growth of ACDBEs or cause existing
ACDBEs to become ineligible?  

If an employee number-based standard were adopted inproposed for Part
23, would it make more sense to apply the standard on an
airport-by-airport basis or to the total employee numbers of a company
that served multiple airports?  For example, suppose a chain of
bookshops retail stores seeking ACDBE certification has locations at six
airports, and each location employees 10 people.  If the size standard
for the business were 50 employees, For ACDBE certification purpose,
should the certifying office airports look at this business as one
company with 60 employees, exceeding the size standard, or six stores
with 10 workers per store, each of which individually meets the
standard?

If the Department does not adopt an employee number-based standard, it
is likely that the Department will retain a gross receipts-based
standard.  In that event, we will need to address certain issues that
have already been raised previous notices.   One of these is the
“equity” issue raised in the December 2002 NPRM.   The Department
received 50 comments on this NPRM.  Most were from airport operators.  A
sizeable majority of the airport comments supported the proposal,
particularly the option that would have raised the size standards
significantly.  Four ACDBE firms and associations also commented in
favor of the proposal.  Supporters generally believed that the proposed
change would create a “level playing field” among types of ACDBEs. 
Some airports, including most of the large airports that responded,
opposed the proposal or thought further study would be necessary.  A
state DOT and an individual commenter also took this position.  These
commenters’ reservations about the proposal centered on concerns that
the proposal would make some size standards unreasonably high, lead to
other inequities among types of businesses, or were based on inadequate
or incomplete data.

After reviewing the comments and thinking further about the proposal, we
have concluded that we should not adopt either of the specific options
we proposed.  One could raises the basic size standard too high, and the
other could result in excluding some presently certified firms by
lowering some current size standards.  Both are based on data that
pertains to several categories of firms at large airports, but we have
no data about other categories of firms or practices at smaller
airports.  We are also concerned that facially very different size
standards for different categories of business could lead to perceptions
of unfairness and difficult administrative or legal decisions about the
category in which a particular firm belongs.

However, we are persuaded that the evident differences in concession or
lease fees among types of businesses do present a fairness issue that we
should address.   The most straightforward way of addressing would be to
keep the existing size standards but to subtract from a firm’s gross
receipts the concession or lease fees it pays to the airport for the
privilege of doing business.    For example, suppose a concessionaire
has annual gross receipts of $30 million.  It pays 20 percent of its
gross receipts ($6 million) to the airport in concession fees. 
Consequently, for purposes of calculating whether the firm meets the
size standard, the firm’s receipts for that year would be valued at
$24 million.   

The Department seeks comment on this approach.

We also seek comment on adjusting the dollar size standard – which has
remained in place since 1992 -- for inflation.  Commenters to the
Department’s NPRMs have not objected to such an adjustment.   If we do
adjust the size standard, we believe that reasonable adjusted standards
would be $40.57  million (in place of the former $30 million standard
for most businesses) and $54.1 million (in place of the former $40
million standard for car rental companies).  

In arriving at these numbers, the DOT used a Department of Commerce
price index to make a current inflation adjustment.  The Department of
Commerce’s Bureau of Economic Analysis prepares constant dollar
estimates of state and local government purchases of goods and services
by deflating current dollar estimates by suitable price indicies.  These
indicies include purchases of durable and non-durable goods, and other
services.  Using these price deflators enables the Department to adjust
dollar figures for past years’ inflation. Given the nature of DOT's
DBE Program, adjusting the gross receipts cap in the same manner in
which inflation adjustments are made to the costs of state and local
government purchases of goods and services is simple, accurate and fair.
 

The inflation rate on purchases by state and local governments for the
current year is calculated by dividing the price deflator for the fourth
quarter of 2003 (109.546) by 1992’s third quarter price deflator
(80.997).  The third quarter of 1992 is used because that is when the
Department established the current size limitations.  The result of the
calculation is 1.35247, which represents an inflation rate of 35.25%
from the third quarter of 1992 through the fourth quarter of 2003. 
Multiplying the $30,000,000 figure by 1.35247 equals $40,574,100, which
will be rounded off to the nearest $10,000, or $40,570,000.  Multiplying
the $40,000,000 figure by 1.35247 equals $54,098,800, which will be
rounded off to the nearest $10,000, or $54,100,000.  

Additional Provisions to Combat Fraud and Abuse

	As noted in the preamble to the final Part 23 rule issued today, the
Department’s Office of Inspector General has focused considerable
effort and attention on the need to prevent fraud and abuse in the ACDBE
program.  Parts 23 and 26 already contain a number of provisions
designed to prevent fraud and abuse.  For example, the ownership and
control certification standards (§§26.69 – 26.71) include detailed
instructions to UCPs and recipients on how to address eligibility
issues.  Are there additional specific provisions the Department should
add to address particular issues affecting the ownership and control of
types of businesses or business arrangements common in the ACDBE
program?

	Likewise, the certification process contains various safeguards against
fraud and abuse.  Applicants must attest, under penalty of perjury, to
the accuracy and truthfulness of information on their applications
(§26.83(c)(7)(ii)).

Certified DBEs must inform the recipient within 30 days of material
changes in their circumstances that may affect their continued
eligibility (§26.83(i)).   Certified DBEs must also provide the
recipient an annual “affidavit of no change” affirming that there
have not been changes in their circumstances that would call into
question their continued eligibility (§26.83(j).   This affidavit
specifically covers matters of business size and PNW.  All these
provisions apply to ACDBEs under Part 23 as well as other DBEs under
Part 26.  

The Department seeks comment on whether there is other information that
ACDBEs should report to airports that would enable airports and the
Department to better monitor the eligibility of ACDBEs as well as the
ongoing performance of ACDBEs in the concession business.   For example,
are there additional reports that airports should receive concerning the
actual performance by ACDBEs of the work for which credit toward ACDBE
goals is being claimed?  Should there be additional reporting
responsibilities for “prime” concessionaires as well as ACDBEs
themselves?  Should ACDBEs be required to report on the specific
commercially useful functions they are performing on a given contract? 
Should they report, on an annual basis, their number of employees,
revenue dollars, and PNW to the airport, UCP, or the FAA?  

Additional Flexibility

	The exemption and program waiver processes of §26.15 also apply to
Part 23 and the ACDBE program.  These provisions are designed to permit
airports and other recipients to depart from the specific requirements
of DBE regulations when circumstances warrant.  The Department seeks
comment on whether there should be any additional provisions, either
applying generally to Part 23 or applying to specific portions of Part
23, to give greater flexibility to airports and other participants in
meeting ACDBE requirements.   For example, are there categories of
airports that should be excepted from one or more requirements of the
rule?  Should the $200,000 concessions revenue threshold for submitting
overall goals be raised?  If airports consistently meet overall goals
over a given period of years, should they be excused from future goal
setting submissions, at least as long as DBE participation continued at
the level of their recent goals?  We

We will consider suggestions of for such provisions.  

	With respect to flexibility in goal setting, the Department wishes to
raise for further comment the idea of establishing car rental goals on a
national basis for car rental companies that have a nationwide presence.
 Under this concept, modeled on the handling of goals for transit
vehicle manufacturers under Part 26, a national-scope car rental company
would establish a national goal for ACDBE participation in its airport
business, using the goal setting provisions of Part 23 and obtaining FAA
approval for the nationwide goal.  Then the car rental company would
submit to each airport a certification that it had such an FAA-approved
nationwide goal.  This approach would reduce administrative burdens both
on airports – who would not have to calculate car rental goals at all
for national-scope car rental companies – and on the car rental
companies themselves.  It would also recognize that the car rental
market is, in large measure, a national market.  Local airports would
not be able to set locally-derived goals for national-scope car rental
companies under this concept, however.  We also seek comment on whether,
if the Department adopts this concept, there are other types of business
to which it might reasonably apply (e.g., hotels).  

Regulatory Analyses and Notices

	This SNPRM is nonsignificant for purposes of Executive Order 12866 and
the Department of Transportation’s Regulatory Policies and Procedures.
  The SNPRM continues the discussion of size standards, one issue from
today’s broader, but also nonsignificant, final rule to implement the
ACDBE program.   While the resolution of size standards issue may help
certain individual businesses and harm others, we do not anticipate any
across-the-board significant economic impacts from the clarification and
further development of size standards.  The other issues raised in the
SNPRM are administrative in nature and should not have significant
impacts on any regulated parties.

The rule does not have Federalism impacts sufficient to warrant the
preparation of a Federalism Assessment.  

	The Department certifies that this rule will not have a significant
economic effect on a substantial number of small entities.  The rule
clearly affects small entities:  ACDBEs are, by definition, small
businesses.  However, as mentioned above, the economic effect of the
matters discussed in the SNPRM on these small entities is not likely to
be significant.    In other respects, compared to the existing rule, the
matters discussed in the SNPRM should not have noticeable incremental
economic effects on small businesses.

	There are a number of other statutes and Executive Orders that apply to
the rulemaking process that the Department considers in all rulemakings.
 However, none of them are relevant to this SNPRM.  These include the
Unfunded Mandates Reform Act (which does not apply to
nondiscrimination/civil rights requirements), the National Environmental
Policy Act, E.O. 12630 (concerning property rights), E.O. 12988
(concerning civil justice reform), and E.O. 13045 (protection of
children from environmental risks).  

ISSUED THIS       DAY OF            , 20042005, AT WASHINGTON, D.C.

							(signed)

						______________________________

						Norman Y. Mineta

						Secretary of Transportation

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