Document ID: DOT-OST-2012-0147-0329
Agency: dot
Document Type: Rule
Title: Disadvantaged Business Enterprise; Modifications
Posted Date: 2014-10-02T04:00Z

[Federal Register Volume 79, Number 191 (Thursday, October 2, 2014)]
[Rules and Regulations]
[Pages 59565-59622]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-23173]

[[Page 59565]]

Vol. 79

Thursday,

No. 191

October 2, 2014

Part II

Department of Transportation

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Office of the Secretary

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49 CFR Part 26

Disadvantaged Business Enterprise: Program Implementation 
Modifications; Final Rule

  Federal Register / Vol. 79 , No. 191 / Thursday, October 2, 2014 / 
Rules and Regulations  

[[Page 59566]]

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DEPARTMENT OF TRANSPORTATION

Office of the Secretary

49 CFR Part 26

[Docket No. OST-2012-0147]
RIN 2105-AE08

Disadvantaged Business Enterprise: Program Implementation 
Modifications

AGENCY: Office of the Secretary (OST), U.S. Department of 
Transportation (DOT).

ACTION: Final rule.

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SUMMARY: The U.S. Department of Transportation (DOT or Department) is 
amending its disadvantaged business enterprise (DBE) program 
regulations to improve program implementation in three major areas or 
categories. First, the rule revises the uniform certification 
application and reporting forms, creates a uniform personal net worth 
form, and collects data required by the Moving Ahead for Progress in 
the 21st Century Act (MAP-21), on the percentage of DBEs in each State. 
Second, the rule strengthens the certification-related program 
provisions, which includes adding a new provision authorizing summary 
suspensions under specified circumstances. Third, the rule modifies 
several other program provisions concerning such subjects as: Overall 
goal setting, good faith efforts, transit vehicle manufacturers, and 
counting for trucking companies. The revision also makes minor 
corrections to the rule.

DATES: This rule is effective November 3, 2014.

FOR FURTHER INFORMATION CONTACT: For questions related to this final 
rule or general information about the DBE rules/regulations, please 
contact Jo Anne Robinson, Senior Attorney, Office of General Law, 
Office of the General Counsel, U.S. Department of Transportation, 1200 
New Jersey Avenue SE., Washington, DC 20590, Room W94-205, 202-366-
6984, JoAnne.Robinson@dot.gov. DBE program points of contact for 
information related to other aspects of the DBE program, including 
certification appeals, programs to assist small and disadvantaged 
businesses, and information on the DBE program in specific operating 
administrations, can be found at https://www.civilrights.dot.gov/disadvantaged-business-enterprise/about-dbe-program/dbe-program-points-contact.

SUPPLEMENTARY INFORMATION: On September 6, 2012, the Department 
published in the Federal Register (77 FR 54952) a notice of proposed 
rulemaking (NPRM) to improve implementation of the DBE program. The DBE 
program is designed to enable small businesses owned and controlled by 
socially and economically disadvantaged individuals to compete for 
federally-funded contracts let by State and local transportation 
agencies the receive funds from DOT (i.e., recipients). The proposed 
rule called for a 60-day comment period, with comments to be received 
by November 5, 2012. Subsequently, the comment period was extended to 
December 24, 2012, through a notice published October 25, 2012 (77 FR 
65164). The Department received approximately 300 comments from State 
departments of transportation, transit authorities, airports, DBEs, 
non-DBE firms, and representatives of various stakeholder 
organizations. Several commenters suggested that the Department hold a 
public meeting or listening session on the proposed changes before 
issuing a final rule. The Department responded by scheduling a public 
listening session for October 9, 2013, as announced in a September 18, 
2013 notice (78 FR 57336), to receive additional public input on the 
costs and benefits of certain proposed changes, among other things. The 
public comment period also was reopened and extended from the date of 
publication until October 30, 2013. However, due to the lapse in 
government funding on October 1, 2013, the October 9, 2013 listening 
session was canceled and rescheduled to December 5, 2013 (78 FR 68016; 
November 13, 2013). The public comment period was reopened and extended 
to December 26, 2013.
    The Department received an additional 50 written comments during 
the reopened comment periods and received in-person oral testimony from 
23 individuals at the listening session, which was held in Washington, 
DC. Over 500 individuals registered to participate in the listening 
session via Web conferencing made available by the Department. A 
transcript of the comments received at the listening session and 
through the Web conferencing was placed in the NPRM docket before it 
closed on December 26, 2013.
    Many of the written comments the Department received were extensive 
and covered numerous proposed changes, as well as commentary on 
existing regulations that are not the subject of a proposed amendment. 
Commenters also suggested changes beyond the scope of what was proposed 
by the Department in the NPRM. The Department has made changes in this 
final rule to some of its proposals in response to comments received 
during the entire comment period and at the listening session. With the 
exception of comments that are beyond the scope of the proposed 
rulemaking, or that failed to set forth any rationale or make 
suggestions, the Department discusses and responds to the comments on 
the major issues in the NPRM below.

Personal Net Worth (PNW) Form and Related Requirements

PNW Form

    The Department explained in the NPRM the reasons it believed 
creating a uniform personal net worth (PNW) form would clear the 
confusion that may exist when recipients or other entities that perform 
the certification function (i.e., certifying agencies) use the U.S. 
Small Business Administration's (SBA) Personal Financial Statement Form 
413 as part of their evaluation of the economic disadvantage of an 
applicant for certification pursuant to the rule. For example, the SBA 
Form 413 requires each partner or stockholder with 20% ownership or 
more of voting stock to complete the form. This is not required by 49 
CFR part 26 and has caused some confusion. We proposed a revision to 49 
CFR 26.67 and offered a sample PNW form and accompanying instruction 
sheet (see the proposed Appendix G of the September 6, 2012, proposed 
rule). The Department proposed that a standard form be used by all 
applicants to the program. Recipients were encouraged to post the new 
form electronically in a screen-fillable format on their Web site to 
allow users to complete and print the form online.
    The proposed PNW form differed in several respects from the SBA's 
form that the Department mentioned in its June 2003 revision to Part 26 
as an appropriate form for use by our recipients in determining whether 
an applicant meets the economic disadvantage requirements. Most 
notably, the form's length increased when more columns and rows were 
added to give applicants space to fill in their answers. We also 
proposed that persons completing the form submit backup documentation 
such as current bank, brokerage, and retirement account statements, 
mortgage notes, and instruments of conveyance and encouraged recipients 
when reasonable questions or concerns arise to look behind the 
statement and the submissions. A related proposal involved requiring 
applicants to submit documentation for items excluded from the PNW 
calculation, such as net equity in the primary residence and the value

[[Page 59567]]

of the disadvantaged owner's interest in the applicant firm.
    The Department invited comment on whether the spouse of an 
applicant owner should have to file a PNW statement even if the spouse 
is not involved in the business in question. We noted that the SBA 
requires the submission of a separate form from a non-applicant spouse 
if the applicant is not legally separated. However, the SBA requirement 
is linked to the agency's consideration of a spouse's financial 
situation in determining a person's access to credit and capital; the 
existing DOT rule does not take this into account except in cases 
involving individual determinations of social and economic disadvantage 
(e.g., Appendix E situations). Currently, certifiers are able to 
request relevant information on a case-by-case basis. The NPRM proposed 
adding language to 49 CFR 26.67 to recognize the authority of 
certifiers to request information concerning the assets of the 
disadvantaged owner's spouse where needed to clarify whether assets 
have been transferred to the spouse.
    On a related subject, the Department asked for comment on whether 
the treatment of assets held by married couples should extend to 
couples who are part of domestic partnerships or civil unions where 
these relationships are formally recognized under State law.
    Over 60 comments addressed issues related to the PNW form, a 
significant majority of which supported the idea of a DOT-developed PNW 
form, although some did advocate for the continued use of SBA Form 413. 
One commenter suggested that the Department mandate that the new form 
be used without modification and that regulatory provisions be added to 
address violations by Unified Certification Program (UCP) certifying 
agencies that revise the form. There were many comments regarding the 
propriety of including in the PNW form assets that are excluded from 
the calculation used to determine economic disadvantage under the terms 
of the existing regulations at 49 CFR 26.67(a). While the majority of 
the commenters supported creating a DOT form, many thought the proposed 
form was too burdensome, requested too much documentation, is 
complicated, and should not be used for those reasons. Similarly, other 
commenters objected to the form's length, with some likening it to a 
Federal income tax filing. Some commenters requested information on the 
methodology used to estimate the paperwork burden associated with 
completing the proposed DOT PNW form.
    Commenters that addressed the question of requiring the spouse of 
an applicant who is not involved in operating the business to submit a 
PNW form included business owners, UCP recipients, and advocacy group 
representatives. Ten commenters favored such a requirement, citing the 
need to review the applicant's claim that his or her PNW statement 
accurately reflects community property interests and as a check on the 
transfer of assets as a means to circumvent the eligibility 
requirements. Twenty commenters opposed requiring a spousal PNW 
statement, citing paperwork burden concerns and pointing out that the 
existing regulation enables certifiers to obtain this information on a 
``case-by-case'' basis. Many commenters believed the requirement would 
be intrusive and unwarranted and would complicate an already burdensome 
application. A commenter stated that a blanket requirement would be 
counter-productive and dissuade eligible DBE owners from participating 
in the program. However, the majority of commenters favored the 
collection of a PNW statement from a spouse if he or she has some role 
in the business (e.g., stockholder, corporate director, partner, 
officer, of key person), has funded or provided financial guarantees, 
or has transferred or sold the business to the applicant.
    All of the commenters that responded to the Department's question 
of extending the treatment of assets of married couples to domestic 
partnerships or civil unions recognized under State law supported such 
an extension as a matter of fairness and equal treatment. Among the 
commenters was a coalition of nine organizations led by the National 
Gay & Lesbian Chamber of Commerce, a national not-for-profit advocacy 
organization dedicated to expanding the economic opportunities and 
advancements of lesbian, gay, bisexual and transgender-owned businesses 
across the country.
    DOT Response: The Department has decided to finalize its own PNW 
form largely as proposed, but with certain changes in response to 
comments that argued that the proposed form was unnecessarily 
burdensome. We believe a more prudent approach than the proposal to 
require all persons to submit backup documentation in every instance 
(including items excluded under the regulations) is for recipients to 
request this information for any assets or liabilities noted on the PNW 
form on a case-by-case basis rather than mandatory submission by all 
applicants. A one-size fits all approach, in which certifiers attempt 
to ``substantiate'' every line item regardless of magnitude or 
innocuousness is ill advised, administratively burdensome, and unduly 
restrictive. As argued by many commenters, that approach is 
unreasonable, onerous to applicants and sometimes excludes eligible 
firms. The final rule accomplishes two purposes: (1) Preserves 
recipient flexibility in seeking explanations for specific assets and 
liabilities and (2) shortens the form from 6 pages to a more manageable 
3 pages, thereby streamlining the time it takes to complete it.
    The DOT PNW form (attached as Appendix G) is the result of this 
balance of interests. As we proposed, this new form must be used 
without modification by certifiers and applicants whose economic 
disadvantaged status is relied upon for DBE certification. Section 
26.67(a)(2)(i) and (ii) are amended to reflect this requirement. This 
is necessary to ensure that the requirements of this program are 
applied consistently by all certifying agencies. Language in the 
existing rule that requires requests for supporting documentation not 
be unduly lengthy, burdensome, or intrusive remains unchanged. We 
remind recipients that with regard to personal net worth, we intend for 
all information collection requests to serve a useful purpose that 
addresses a specific question regarding a value stated in the form and 
not in any way operate as authority to collect all possible 
documentation for each listed asset or a general requirement that 
business owners obtain appraisals of all assets. We urge recipients to 
exercise judgment and restraint when requesting reasonable supporting 
documentation. Personal net worth statements should not be requested 
for owners that are not claiming social and economic disadvantage. Nor 
should a personal net worth statement be requested from persons who are 
not listed as comprising 51% or more of the ownership percentage of the 
applicant firm.
    The style and content of the form were carefully considered by the 
Department in this rulemaking. We are cognizant of concerns that too 
radical a departure from a form that certifiers are accustomed to using 
may cause some temporary confusion and corresponding administrative 
burdens. However, the Department believes that a standardized DOT PNW 
form accompanying the standard DBE Certification Application (also 
revised in this final rule) is a significant step in uniformity of 
practice. The DOT PNW form is modelled closely on SBA's Form 413, with 
differences tailored to DBE

[[Page 59568]]

program-specific needs, e.g., not to include the 49 CFR 
26.67(a)(2)(iii) exclusions for ownership interest in the firm and 
equity in the primary residence on the front page.
    The Department notes that the estimated burden hours contained in 
the proposed rule were based on the Department's experience in working 
with DBE and UCP agencies and our intent to produce a DBE-specific PNW 
form that includes the information typically needed to perform the 
certification function, but is not overly burdensome. Further, our 
proposed rule's estimate of 8 hours to complete the proposed PNW form 
is greater than the 1.5 hours SBA estimates for its form, which was 
designed to take into account the different purposes between the two 
programs and the fact that DBE applicants often need to supplement 
their form with supporting documentation. As discussed above, in 
response to comments, we have decided to lessen the requirements of the 
final form in today's final rule and believe that our original 
estimate, based on the form that will be now finalized, is reduced to 2 
hours, slightly more than the SBA estimate for its form.
    Another change we proposed and that we finalize today is that the 
instructions at the top of the form are customized for the DBE and 
ACDBE programs. Like SBA, we are requiring each owner to list on page 1 
all assets (whether solely or jointly held) and specify liabilities. 
The categories of assets and liabilities we require mirror closely the 
SBA's categories but have minor differences. The Department's PNW form 
omits ``sources of income and contingent liabilities,'' which is 
contained on SBA's form. On page 2, section 4 of the DOT PNW form, 
owners must report any equity line of credit balances on real estate 
holdings, how the asset was acquired (e.g. purchase, inherit, divorce, 
gift), and the source of market valuation. Owners must also detail in 
section 6, the nature of the personal property or assets, such as 
automobiles and other vehicles, their household goods, and any accounts 
receivable, placing a value on such items in the appropriate column. We 
added a column to this section asking whether any of these assets are 
insured. We envision recipients (again on a case-by-case basis) may 
wish to request copies of any insurance valuation on these assets 
listed as insured and copies of notes or liens. Sections 7 (value of 
other business investments) and 9 (transfer of assets) are unique to 
the Department's PNW form and require applicants to list these 
activities as described.
    We have decided not to require submission of the PNW form by the 
spouse of a disadvantaged owner who is not involved in the operations 
of the business. We agree that such a requirement is unduly burdensome 
for the applicant and the certifier, needlessly intrudes into the 
affairs of individuals who are not participants in the program, and is 
not necessary since certifiers may request this information as needed 
on a case-by-case basis, but not as a routine matter.
    We also agree with the commenters urging us to extend the treatment 
of assets held by married couples to include domestic partnerships and 
civil unions that are legally recognized under State law. To this end, 
we have added a definition of spouse that includes same-sex or 
opposite-sex couples that are part of a domestic partnership or civil 
union recognized under State law.
    Concurrent with this final rule and as requested by many 
commenters, the Departmental Office of Civil Rights is making the final 
form available for distribution in a screen-fillable portable document 
(PDF) format, which recipients may post on their Web sites and 
distribute to applicants as part of the DBE certification application 
process.

Economic Disadvantage 49 CFR 26.67

    Since 2007, the Department has, through guidance, recommended that 
recipients take account of evidence that indicates assets held by an 
individual suggest he or she is not economically disadvantaged even 
though the personal net worth falls below the $1.32 million threshold 
that gives rise to a rebuttable presumption of economic disadvantage. 
The guidance reflects the Department's view that the purpose and intent 
of the economic disadvantage criteria is to more narrowly tailor the 
program to only reach those disadvantaged individuals adversely 
impacted by discrimination and the effects of discrimination and to 
accomplish the goal of remedying the effects of discrimination. The 
presumption is by regulation rebutted when the individual's personal 
net worth exceeds the $1.32 million cap. We proposed in the NPRM to 
codify the existing guidance to recognize that the presumption also may 
be rebutted if the individual's personal net worth falls below the cap, 
but the individual is, in fact, too wealthy to be considered 
disadvantaged by any reasonable measure. To illustrate the point, the 
guidance notes that under some circumstances a person with a very 
expensive house, a yacht, and extensive real or personal property 
holdings may be found not to be economically disadvantaged.
    The Department also sought comment on whether a more bright-line 
approach would be preferable, such as whether someone with an adjusted 
gross income over one million dollars for two or three years on his or 
her Federal income tax return should not be presumed to be economically 
disadvantaged, regardless of their personal net worth (as defined by 
this program).
    The Department received 42 comments on this issue. The difficulties 
potential applicants and recipients experience regarding economic 
disadvantage were expressed by many of the commenters and their views 
were not limited to whether the $1.32 million personal net worth cap is 
reasonable. Commenters mentioned several difficulties with both the 
current rule, the proposed codification of the ``accumulation of 
substantial wealth'' guidance, and the alternative bright-line approach 
tied to the adjusted gross income of the disadvantaged owners. Most 
commenters comprised of recipients, DBEs, and general contractors 
opposed amending the regulations to include the ability to accumulate 
substantial wealth as a basis for rebutting the presumption of economic 
disadvantage. The opponents viewed the proposal as vague, subjective, 
and likely to result in arbitrary decisions.
    Many of the opponents of this approach believed that, if the 
Department were to finalize criteria for personal net worth beyond the 
existing calculation, a measure similar to the bright-line approach 
with varying adjusted gross income numbers over varying numbers of 
years would be preferable because it provides a more objective measure 
of whether an applicant is economically disadvantaged. Several 
commenters thought that the existing bright line of $1.32 million in 
personal net worth is sufficient. One commenter believes a bright-line 
approach helps certifiers because most are not accountants or tax 
experts. The Department also received comments specific to the 
application of the bright-line approach to S Corporations. Two 
commenters stated that using a bright-line approach was a false 
indicator for S Corporations in which the firm's income is passed 
through to DBE shareholders and thus is not a reflection of a 
shareholder's wealth. As defined by the U.S. Internal Revenue Service, 
S Corporations are corporations that elect to pass corporate income, 
losses, deductions, and credits through to their shareholders for 
federal tax purposes. One commenter did not

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believe that a bright-line approach was appropriate for S Corporations 
and Limited Liability Corporations because owners of these entities 
recoup the profits on their personal returns in proportion to their 
ownership interests. The commenter went on to say that these entities 
distribute sufficient cash to their owners to enable them to pay income 
tax and this distribution does not increase the person's net worth.
    DOT Response: As noted in the NPRM, the purpose of this proposed 
regulatory amendment is to give recipients a tool to exclude from the 
program someone who, in terms of overall assets is what a reasonable 
person would consider to be a wealthy individual, even if one with 
liabilities sufficient to bring his or her personal net worth under 
$1.32 million. The Department continues to believe that this kind of 
tool must be available to ensure that the program truly benefits those 
for whom it is intended. We have seen in certification appeals upheld 
by the Federal courts the reasoned application of this standard based 
on specific facts and circumstances in the entire administrative record 
that support the decision. See SRS Technologies v. United States, 894 
F. Supp 8 (D.D.C. 1995); SRS Technologies v. United States, 843 F. 
Supp. 740 (D.D.C. 1994).
    We acknowledge the benefits of a bright-line approach (whether it 
is the adjusted gross income approach proposed in the NPRM or the 
current bright-line personal net worth cap that exist in the 
regulations) and the potential for manipulation to fall within the 
bright-line. The Department strongly believes that recipients must be 
able to look beyond the individual's personal net worth bottom line and 
consider his or her overall economic situation in cases where the 
specific facts suggest the individual is obviously wealthy with 
resources indicating to a reasonable person that he or she is not 
economically disadvantaged. Thus, the final rule incorporates the 
guidance but does not go beyond it as proposed. We have not included as 
factors ``unlimited growth potential'' or ``has not experienced 
impediments to obtaining access to financing, markets, and resources.'' 
We believe that those additional criteria are unnecessary because the 
essence of what we intend is captured in the ``ability to accumulate 
substantial wealth'' standard as evidenced by the individual's income 
and the value of the various accumulated personal assets.
    The Department, however, is sympathetic to the concerns raised by 
many commenters that the subjective standard could lead to arbitrary 
decisions by recipients. To address this concern, we have included in 
the final rule specific factors recipients may consider in evaluating 
the economic disadvantaged status of an applicant or owner in this 
circumstance. Those factors include (1) whether the average adjusted 
gross income of the owner over the most recent three-year period 
exceeds $350,000; (2) whether the income was unusual and not likely to 
occur in the future (e.g., inheritance); (3) whether the earnings were 
offset by losses (e.g., winnings and losses from gambling); (4) whether 
the income was reinvested in the firm or used to pay taxes arising in 
the normal course of operations by the firm; (5) other evidence that 
income is not indicative of lack of economic disadvantage, and (6) 
whether the fair market value of all assets exceed $6 million. Similar 
factors are used by the Small Business Administration in its 
application of the economic disadvantage criteria to individuals 
seeking to participate in its Small Disadvantaged Business and 8(a) 
programs, which has long recognized the ability to accumulate 
substantial wealth as a basis for a finding of no economic 
disadvantage. The Federal courts have upheld consideration of income 
levels tied to the top 1-2% of high income wage earners in the United 
States to evaluate the economic disadvantaged status of a small 
business owner as reasonably based, not the subject of arbitrary 
decision making. Id. SRS Technologies cases cited above. As noted by 
the SBA, ``. . . the average income for a small business owner is 
generally higher than the average income for the population at large 
and, therefore, what appears to be a high benchmark is merely 
reflective of the small business community.'' See preamble to the 2011 
SBA Final Rule, 76 FR 8222-01.
    We stress that we are not, with this change, requiring that a 
recipient consider these factors for every disadvantaged owner whose 
PNW would be below the current regulatory cap. Instead, today's final 
rule merely provides recipients who have a reasonable basis to believe 
that a particular owner should not be considered economically 
disadvantaged, despite their PNW, with the explicit authority to look 
at evidence beyond the PNW to determine whether that owner is truly 
economically disadvantaged. Further, the listed factors are simply 
intended to provide guidance to recipients about the kind of evidence 
they may look to in making this determination; it is not intended to be 
a checklist. An adjusted gross income below $350,000 may in appropriate 
circumstances indicate a lack of economic disadvantage. The 
determination should be based on the totality of the circumstances. 
Finally, as the final regulatory text clarifies, a recipient can only 
rebut the presumption of disadvantage under this standard through a 
proceeding that follows the same procedures as those used to remove a 
firm's eligibility under Sec.  26.87. The Department believes that this 
procedural safeguard makes it unlikely that recipients will proceed in 
attempting to rebut the presumption of disadvantage in all but the most 
egregious cases.

Transfer of Assets 49 CFR 26.67

    Under existing guidance contained in Appendix E, assets that 
individuals have transferred two years prior to filing their 
certification application may be counted when calculating their PNW. 
The Department proposed to codify the guidance by placing it in the 
rule text at Sec.  26.67. The proposed rule essentially attributes to 
an individual claiming disadvantaged status any assets which that 
individual has transferred to an immediate family member, or to a trust 
a beneficiary of which is an immediate family member, for less than 
fair market value, within two years prior to the submission of an 
application for certification or within two years of a participant's 
annual program review. This transfer rule would not apply to transfers 
to, or on behalf of, an immediate family member for that individual's 
education, medical expenses, or some other form of essential support or 
transfers to immediate family members that are consistent with the 
customary recognition of special occasions like birthdays, graduations, 
anniversaries, and retirements. We also proposed to expand the transfer 
rule to include transfers from the DBE owner to the applicant firm to 
ensure that such transfer are not used to enable the DBE owner to 
qualify for the program.
    Most of the commenters, comprised largely of State departments of 
transportation and transit authorities, supported the proposed rule. 
Several commenters suggested there be no exception for transfers to a 
spouse and no exception where it can be demonstrated that the transfer 
was done to qualify for the program. Other commenters asked for 
clarification of certain terms (i.e., ``transfer'' or ``essential 
support'') or a narrowing of the exclusions. The few commenters that 
opposed the proposed rule provided little detail.

[[Page 59570]]

    DOT Response: The Department is adopting the rule with a minor 
modification to the text. We see no reason to treat a spouse 
differently than other immediate family members regarding the 
exception. We agree with commenters that the exceptions would not apply 
if there is evidence indicating that a transfer to an immediate family 
member was in fact designed to enable the disadvantaged owner to evade 
the PNW threshold and thereby qualify for the program or remain in the 
program. The burden is on the applicant or the participant to 
demonstrate that the transfer is covered by the exception. In our 
experience with the Appendix E guidance, recipients have not had 
difficultly applying the transfer restrictions. However, we will 
through guidance provide clarification of terms used in the rule if 
needed based on specific facts and circumstances presented to the 
Department.

Certification Application Form

    The Department proposed a revised nationwide uniform DBE 
Certification Application Form to replace the one in use since 2003. In 
the 2003 proposed rule (68 FR 35542) at that time, we urged commenters 
to think about what must be contained in the application and what might 
be reserved for an on-site review. The resulting application reflected 
the Department's goal of retaining the basic structure originating in 
the 1999 rule that was manageable and easy to follow for applicants who 
must fill out the form, while simultaneously being accessible and 
practical for the many recipients required to accept the form. We 
acknowledged a concern about keeping the application within reasonable 
limit, regarding its length and content, to prevent it from becoming 
too unwieldy and burdensome. We allowed recipients to supplement the 
form with written consent of the operating administration with a one to 
two page attachment containing the additional information collection 
requirements. We also required applicants to submit additional 
supporting documents not already required by the uniform application. 
We strongly suggested that the form be streamlined and that additional 
information should be sought during the on-site review rather than 
during the application process. As explained in the 2012 NPRM, the 2003 
application was designed to be more streamlined and user-friendly, yet 
comprehensive enough to supply recipients with the necessary 
information to form their initial line of questioning prior to and 
during an on-site visit. In addition, the application was designed to 
further assist recipients in making determinations as to an applicant's 
eligibility for the DBE program.
    In the Department's view, the above objectives still hold true, 
especially now that we provide for interstate certification. Pursuant 
to the January 28, 2011, final rule revision, provisions for interstate 
certification were added requiring applicants to provide to State B a 
complete copy of their application form, all supporting documentation, 
and other information submitted to State A or other States wherein the 
firm is certified. The application, therefore, must serve the needs of 
both sets of certifiers by providing a window into a firm's 
eligibility. As required by 49 CFR 26.73, eligibility determinations 
are to be based on present circumstances.
    The Department's proposed application form as presented in the NPRM 
was longer in length than the existing form because of extra space 
added for applicants to write in their answer. We first noticed the 
need for more room for answers in the course of processing denial and 
decertification appeals where information was sometimes handwritten and 
overflowing the strict margins of the old form. However, despite our 
intention to make the form more amenable for applicants to have the 
option to fully explain their responses directly on the form, 
commenters raised concerns about the length of the form.
    DOT Response: In response to comments about length and more 
specific technical comments about various aspects of the proposed form, 
we have shortened the entry spaces and removed several details that in 
our experience were not useful to include in the application but may 
have been more suitable questions to pose during an on-site review, as 
needed. For example, in the banking information space, we removed the 
need to insert the bank's phone number and address, but added a space 
identifying the names of individuals able to sign checks on the 
account. Similarly, in the bonding entry, we removed the need to 
specify the binder number, and the contact information of the bonding 
agent/broker. These items may be useful to a certifier, but we want to 
limit the amount of things an owner would have to ``look up'' to 
complete its application. The new form also removes obsolete material 
from the roadmap for applicants (page 1) and page 2 (e.g., relating to 
the long-expired Small Business Administration (SBA)--DOT Memorandum of 
Understanding). The final application form contains new items that were 
in the proposed form we believe are important. First, the dates of any 
site visits conducted by other UCPs (besides the home State) are 
important facts that will enable certifiers to determine if any other 
certifier has assessed the firm's eligibility as a DBE. If an entry 
here is checked, we encourage certifiers to obtain the site visit 
report and denial/decertification decisions from their UCP members or 
fellow certifiers in other States. Second, the new application offers 
ample space for a firm to provide a concise description of its primary 
activities, the products and/or services it provides, and the North 
American Industry Classification System (NAICS) codes it believes apply 
to the firm. This description will help certifiers prepare for their 
on-site visit but also assign NAICS codes and list the firm properly in 
the UCP online directory if certified.
    One section of the old form that deserves more explanation as to 
why it was revised is the area where applicants are asked to specify by 
name, title, ethnicity, and gender the firm's management personnel who 
control several key areas, such as financial decisions, estimating and 
bidding, contract negotiation, field supervision, etc. In crafting the 
NPRM, we believed then, as we do now, that some of these entries could 
be reworded or broken down into sub-questions and we have incorporated 
these changes in the new form. For instance, ``sets policy for company 
direction/scope of operations,'' ``hire and fire field staff or crew,'' 
and ``attend bid opening and lettings,'' are new entries that examine 
more broadly the authority and responsibilities and authority roles of 
the majority owner vis-[agrave]-vis others in the firm. A more 
descriptive parenthetical is offered for ``office management,'' which 
now adds billing, accounts receivable/payable, etc. within the entry.
    We have also added a feature we modelled after a few certifying 
agencies who supplemented their form with a chart for applicants to 
specify the frequency by which owners and key management personnel 
perform the relevant tasks. Applicants will now circle, in the 
appropriate rows, how often a person is involved in the functions 
identified as: ``always'', ``frequently'', ``seldom'', or ``never.'' 
These types of responses are very common across all certifiers who 
often ask this question during the on-site review. At least one 
commenter opposed this addition believing that assessing the amount of 
time owners and others devote implies that if they do not go into the 
field and supervise operations they are not in charge of the firm; and 
small business owners

[[Page 59571]]

frequently spend time arranging office-related matters (insurance, 
banking, accounting, etc.) to keep a business operational. We believe 
at a minimum, certifiers need to understand who does what, where, and 
for how long, when they assess owners' control of their firm. It is our 
intent that this simple breakdown of the frequency of the tasks 
identified will aid certifiers as they prepare for their on-site review 
of the owners, enabling them to ask targeted questions concerning the 
owners' control of their firm. The Department does not intend for 
certifiers to treat the new frequency chart as independently 
determinative of a firm's eligibility; rather, it is a tool to narrow 
the areas of further inquiry.
    The application checklist, a vital component of the process to 
becoming a DBE, has also been simplified and divided into mandatory and 
optional items. Items from the original checklist have been left 
largely intact. However, to ease the paperwork burden, some are now no 
longer mandatory for all applicants (e.g., trust agreements held by any 
owner claiming disadvantaged status, year-end balance sheets and income 
statements for the past 3 years (or life of firm, if less than 3 
years)). The Department intends for recipients to request and collect 
only the information necessary to determine eligibility. Smaller 
businesses with simple structures should not be subjected to 
unnecessarily burdensome data requests. We re-emphasize here that an 
owner's affidavit of certification attests to the fact that the 
information submitted is true and correct. Applicants should not be 
penalized for not having (or being unable to produce) items from the 
optional documentation list. Recipients should base eligibility 
decisions on the information they receive from the applicant.
    To help simplify the data collection, we also clarified that the 
request for all applicants to submit tax returns should be limited to 
Federal not State returns. Two items identified in the NPRM were added 
to the checklist--the r[eacute]sum[eacute]s of key personnel for the 
firm and any firm requests for current year federal tax return filing 
extensions. R[eacute]sum[eacute]s of key personnel are frequently 
requested of the applicant or provided voluntarily and should be 
readily available.
    Various miscellaneous comments focused on the role of the 
Department in the certification process, with commenters suggesting 
that we host an on-line system for applications. Such a system would be 
difficult for the Department to manage and not in keeping with the 
delegation of the certification function to recipients and others 
through their UCPs. We will conspicuously post the uniform 
certification application, instructions, certification affidavit, and 
checklist on the Departmental Office of Civil Rights Web site, https://www.civilrights.dot.gov. A handful of commenters (including a member of 
Congress) spoke to the idea that newly established firms should only be 
required to complete a shorter more simplified form. In response, we 
note that newer firms may not have the level of documentation a larger 
firm will and can easily enter ``n/a'' (not applicable) in the entries 
provided. In the interest of uniformity, it is more beneficial to 
require all applicants to submit the standardized form. We remind 
certifiers that a firm lacking certain documentation or a history of 
providing a particular good or service is, under 49 CFR 26.73(b), not 
necessarily ineligible for certification.

Uniform Report of DBE Awards or Commitments and Payments, Appendix B

    The Department proposed several changes to the Uniform Report of 
DBE Awards or Commitments and Payments (Uniform Report) designed to 
address concerns regarding the absence of data on women-owned DBE 
participation by race, confusing instructions, the differing needs of 
the various types of businesses/organizations participating in the 
program, and the collection of payments to DBEs on a ``real time'' 
basis. In response, we proposed to: (1) Create separate forms for 
general DBE reports and projects reports; (2) clarify the instructions; 
(3) collect information on minority women-owned DBEs; and (4) collect 
information on actual payments to DBEs on ongoing contracts performed 
during the reporting period (i.e., real time). The proposed forms in 
the NPRM kept the standard format but provided clearer instructions for 
completing some fields. We also proposed a surrogate for comparing DBE 
payments to the corresponding DBE commitments to respond to concerns 
raised by the Government Accountability Office (GAO) in its 2011 report 
on the adequacy of using DBE commitment data to determine whether a 
recipient is meeting its overall DBE goal. As we explained in the NPRM, 
the GAO criticized the existing form because it did not permit DOT to 
match recipients' DBE commitments in a given year with actual payments 
made to DBEs on the contracts to which the commitments pertained. The 
existing form provides information on the funds that are committed to 
DBEs in contracts let each year. However, the ``achievements'' block on 
the form refers to DBE payments that took place during the current 
year, including payments relating to contracts let in previous years, 
but could not include payments relating to contracts let in the current 
year that will not be made until future years.
    Thirty-six (36) commenters addressed some aspect of the proposed 
changes to the existing Uniform Report. The majority of commenters 
agreed that the Uniform Report needs changes. Six commenters expressed 
general support for the proposed revisions and six expressed general 
opposition. Three commenters asked for simplified reporting 
requirements.
    The collection of data on women-owned DBEs based on race/ethnicity 
drew comments from four general contractors associations, two of which 
suggested that the Department is creating additional requirements 
beyond what Congress intended in MAP-21. One commenter expressed the 
view that the breakout of DBE participation data by gender and race 
does nothing to improve the program and serves no purpose. Another 
commenter stated that prime contractors should not be responsible for 
gathering and reporting the racial classification of the women-owned 
DBE firms used on a project and that the data should not be used by the 
Department to set separate goals for women based on race.
    The proposal to collect actual ``real time'' payment data on 
ongoing contracts drew a number of comments, many of which were 
favorable. Supporters viewed the information as a better snapshot of 
DBE participation and more closely connected to the overall DBE goal in 
some instances than is obtained through the existing collection of 
payment data on completed contracts. Proponents of this view include 
the Transit Vehicle Manufacturers (TVMs) who would like to submit data 
only on current payments, as well as some recipients that undertake 
mega projects (e.g., design/build) that may not show DBE activity at 
the outset. Some opponents thought the opposite, preferring to report 
payments on completed contracts to payments on ongoing contracts 
because, in their view, one can make the final comparison between the 
contract goal and actual payments to DBEs. One opponent was more 
concerned with the potential for the Department to incorrectly judge 
the recipients' overall performance, based on the payment data on 
ongoing contracts since the data would be affected by project 
schedules, project delays, change orders, and weather, all factors that 
impact the

[[Page 59572]]

schedule of DBE work and therefore payments to DBEs on a project. 
Another commenter expressed grave concerns about reporting on the 
current payment status of all active federally-assisted projects, 
citing the significant resources required and the challenge presented 
for those with electronic or paper processes. Two commenters suggested 
that the Department define ``ongoing contracts'' and one commenter 
asked for a definition of ``completed contract.''
    To address concerns raised by the GAO about the lack of a match 
between DBE commitments in a given year and the actual payments to DBEs 
on the contracts pertaining to the commitments, the NPRM sought to 
provide options for connecting work committed to DBEs with actual 
payments to the committed DBEs that are credited toward the overall 
goal for a particular year. One option was to collect data in 3-5 year 
groupings and calculate the average amount of commitments and the 
average amount of payments, providing a reasonable approximation for 
comparing the extent to which commitments result in actual payments 
over a specified period of time. Alternatively, a proposed modification 
to the existing form that would track payments credited to contracts 
let over a 5-year period was described in the preamble in an attempt to 
reach the result the GAO recommended. However, we acknowledged that it 
would take several years to determine the extent to which commitments 
resulted in payments that enabled a recipient to meet the relevant 
overall DBE goal and that the collection and reporting of this data 
would involve greater resources by recipients that may yield 
information of limited use for program administration and oversight 
purposes. We invited the public to offer other ideas that would meet 
the accountability and program administration objectives of the 
Department.
    Comments on this issue supported the idea but did not think the 
proposed options would produce current usable information. One 
commenter indicated that making programmatic changes 3 years after the 
data is collected seems irrelevant. A State department of 
transportation objected to the administrative burden of accumulating 
and reporting data over several years, diverting resources from the 
``good work'' of the DBE program for this purpose. In fact, of the six 
commenters who registered disapproval, four did so because of the level 
of effort needed to maintain this data. Two of the opponents did not 
think the proposals sufficiently addressed the GAO's concerns. One 
commenter suggested that the Department establish a workgroup with 
external stakeholders to address the GAO's concern.
    DOT Response: The Department has decided to make final the 
revisions to the Uniform Report and the accompanying instructions to be 
used by all recipients for general reporting, project reporting, and 
reporting by TVMs. The proposed ``general reporting'' and ``project 
reporting'' forms published in the NPRM were identical in format and 
content. The difference between the proposed forms lies in the 
instructions for completing one part of the form (Section A) when 
reporting on a project versus general reporting on DBE participation 
achieved during a specified period of time. Thus, the same form will be 
used by recipients for the different purposes as is done currently. 
Recipients will be expected to use the revised form to report on 
activity in Federal Fiscal Year 2015 (October 1, 2014-September 30, 
2015). For example, the first report for FHWA and FTA recipients using 
the revised form will be due June 1, 2015 for the period beginning 
October 1, 2014 through March 31, 2015. The second report will be due 
December 1, 2015 for the period April 1, 2015 through September 30, 
2015. Federal Aviation Administration (FAA) recipients will use the 
revised forms when they submit the annual report that is due December 
1, 2015. Each operating administration will provide technical 
assistance and guidance to their recipients to ensure they understand 
what is required in each field for general reporting, project 
reporting, and reporting by TVMs. Collecting data on DBE participation 
by minority women will enable the Department to more fully respond to 
Congressional inquiries.
    Actual payment data on ongoing contracts collected in Section C of 
the report applies to work on federally-assisted contracts performed 
during the reporting period. Payment data collected in Section D on 
completed contracts applies to contracts that the recipient has 
determined to be fully performed and thereby completed. No more work is 
required to be performed under the completed contract. In both 
instances, the data on payments to DBEs provides a ``snap shot'' of 
monies actually paid to DBEs, compared to dollars committed or awarded 
to DBEs but not yet paid, during the reporting period. The payment data 
on completed contracts allows recipients and the Department to 
determine success in meeting contract goals, while the payment data on 
ongoing contracts, over time, may provide some indication of how well 
yearly overall goals are being met.
    The Department is sensitive to the concerns raised by commenters 
about the practicality of the proposals offered in response to the GAO 
report. The additional payment data for work performed during the 
reporting period on ongoing contracts may enable us to better assess 
the adequacy of the existing comparisons used to determine how well 
annual overall goals are being met through dollars expended with DBEs. 
Because most DOT-assisted contracts are multi-year contracts, payments 
made pursuant to those contracts will cross more than one fiscal year. 
However, in those cases where the yearly overall DBE goal does not 
change radically from year to year, the on-going payment data may 
provide a closer match than currently exists. For now, reliance on 
contractual commitments made during the fiscal year to determine the 
extent to which overall DBE goals for that fiscal year are met provides 
a reasonable proxy. The Department will continue to explore ways of 
addressing the GAO's concern that are likely to produce ``real time,'' 
useful information that does not strain existing recipient resources.

MAP-21 Data Reports

    MAP-21 reauthorized the DBE program and included Congressional 
findings on the continued compelling need for the program. Section 
1101(b)(4) of the statute included a long-standing but not yet 
implemented statutory requirement that States notify the Secretary in 
writing of the percentage of small business concerns that are 
controlled by: (1) Women, (2) socially and economically disadvantaged 
individuals (other than women), and (3) individuals who are women and 
are otherwise socially and economically disadvantaged individuals. The 
statute also directs the States to include the location of the 
aforementioned small businesses. The Department proposed to implement 
this requirement through the State Unified Certification Programs (UCP) 
that maintain statewide directories of all small businesses certified 
as DBEs. The information required by MAP-21 would be submitted to the 
Departmental Office of Civil Rights, the lead agency in the Office of 
the Secretary responsible for overseeing DOT implementation of the DBE 
program. For those firms that fall into more than one of the three 
categories, we proposed that the UCP agencies include a firm in the 
category applicable to the owner with the largest stake in the firm who 
is also involved in controlling the firm. We sought

[[Page 59573]]

comment on whether the Uniform Report of DBE Awards or Commitments and 
Payments should be the vehicle used to report the MAP-21 information.
    Five commenters directly addressed this proposal. Only one of the 
commenters, a DBE contractor advocacy organization, opposed the 
collection and reporting of this information, stating that it serves no 
purpose. Four commenters support reporting the MAP-21 information 
separately from the Uniform Report and the advocacy organization 
suggested that the information should be submitted near the beginning 
of the fiscal year (October 15) to be consistent with other MAP-21 
reporting requirements, as it would also be helpful for the purposes of 
those recipients involved in the program to have that information 
early. One commenter thought it would be more efficient to include it 
with the Uniform Report and that it could provide useful comparative 
data.
    DOT Response: The Department has decided to require each State 
department of transportation, on behalf of the UCP, to submit the MAP-
21 information to the Departmental Office of Civil Rights each year by 
January 1st, beginning in 2015. Most State departments of 
transportation are certifying agencies within the UCP; those who are 
not certifying agencies are, nonetheless, members of the UCP and share 
in the responsibility of making sure the UCP complies with DOT 
requirements. We agree that the information should not be reported on 
the Uniform Report; instead, it should be reported in a letter to the 
Director of the Departmental Office of Civil Rights. As indicated in 
the NPRM, to carry out this requirement, the UCPs would go through 
their statewide unified DBE directories and count the number of firms 
controlled, respectively, by: (1) White women, (2) minority or other 
men, and (3) minority women, and then convert the numbers to 
percentages, showing the calculations. The information reported would 
include the location of the firms in the State; it would not include 
ACDBEs in the numbers.

Certification Provisions

Size Standard 49 CFR 26.65

    The Department proposed to adjust the statutory gross receipts cap 
from $22.41 million to $23.98 million for inflation and to clarify that 
the size standard that applies to a particular firm is the one 
appropriate to the firm's primary industry classification. To qualify 
as a small business, the average annual gross receipts of the firm 
(including its affiliates) over the previous three fiscal years shall 
not exceed this cap. Of the 23 comments received from State departments 
of transportation, UCPs, transit authorities, and representatives of 
DBEs and general contractors, most supported the increase in the size 
standard and a few suggested it be made effective immediately. Those 
that opposed the change (and some of the supporters) asked that the 
Department clarify what is meant by ``primary industry 
classification.''
    DOT Response: The Department is amending the gross receipts cap for 
the financial assistance programs in 49 CFR Part 26 as proposed to 
$23.98 million to ensure that the opportunity of small businesses to 
participate in the DBE program remains unchanged after taking inflation 
into account. Under MAP-21 Section 1101(b)(2)(A) the Secretary of 
Transportation is instructed to make the adjustment annually for 
inflation. With this adjustment, if a firm's gross receipts, averaged 
over the firm's previous three fiscal years, exceed $23.98 million, 
then it exceeds the small business size limit for participation in the 
DBE program. We remind recipients that firms are not eligible as DBEs 
if they exceed the relevant NAICS code size limitation for the type(s) 
of work the firm seeks to perform in DOT-assisted contract, which may 
be lower than $23.98 million and may not constitute the primary 
business of the firm. The term ``primary industry classification'' is 
currently defined in the DBE program regulations at 49 CFR 26.5. To 
avoid any confusion on the application of SBA size standards to the 
various NAICS codes in which a firm may be certified, we have clarified 
the text of Sec.  26.65(a) so that it is not limited to the firm's 
primary industry classification.

Ownership 49 CFR 26.69

    The Department proposed several changes to the rules that govern 
ownership of a DBE to provide greater clarity and specificity to aid 
recipients in addressing situations in which non-disadvantaged 
individuals or firms are involved with the DBE and to address concerns 
raised by the decision of the court in The Grove, Inc. v. U.S. 
Department of Transportation, 578 F. Supp. 2d 37 (D.D.C., 2008).
    This discussion focuses on the proposed changes most commented 
upon. Specifically, the NPRM proposed to explicitly prohibit a non-
disadvantaged owner's prior or superior rights to profits (Sec.  
26.69(c)(3)); proposed clarifications relating to funding streams and 
sources of capital used to acquire an ownership interest in the firm 
(Sec.  26.69(c)(1)); provided further specificity through examples on 
what constitutes capital contributions not commensurate with the DBE's 
value (including new examples of arrangements in which ownership fails 
to meet the ``real, substantial, and continuing'' requirements in the 
existing rule) (Sec.  26.69(c)(2)); and proposed to require that 
disadvantaged owners be entitled to at least 51% of dividends and other 
distributions (including liquidations) (Sec.  26.69(c)(4)). The NPRM 
further proposed to require that spousal renunciations be 
contemporaneous with applicable capital contributions or other 
transfers of marital or joint assets. Finally, the NPRM proposed to 
require close scrutiny of assets (including ownership interests in 
applicant firms) that disadvantaged owners obtain or other seller-
nonbank financed transactions. This last proposed change would, among 
other specified conditions, generally require prevailing market (arm's 
length) terms with full recourse to the disadvantaged owners and/or to 
assets other than the ownership interest or an interest in the firm's 
profits.
    The ownership proposals drew comments (33 in all) from State 
departments of transportation, transit authorities, UCPs, associations 
of minority business owners, other business owners, trade associations, 
counsel for DBE firms, a former DOT official, and a member of Congress. 
None expressed specific views on every proposal although several 
expressed either blanket approval or blanket reservations. Twenty 
commenters exclusively supported the proposals while thirteen expressed 
concerns with at least some of the changes.
    A clear majority of recipients and UCPs supported most changes as 
providing clarity and ensuring program integrity. Private parties and 
trade associations, with some exceptions, expressed concern that the 
proposals overreached--by being too stringent, subjective, or 
burdensome to administer. More than a few commenters suggested that the 
proposals, if adopted, would discourage legitimate DBE participation, 
lead to inconsistent certification results across jurisdictions, or 
trap worthy but unsophisticated owners.
    A transportation company opined that the ``substantial and complex 
revisions and additions'' to Sec.  26.69 would require firm owners to 
attend ``a workshop to understand the criteria;'' would require 
recipients to employ staff with real estate, accounting, business 
management, and finance expertise; and would require the Department to

[[Page 59574]]

conduct nationwide training in a classroom setting. Some State 
transportation departments similarly objected that the careful scrutiny 
conditions would increase recipient time spent evaluating financial 
records and require hiring outside experts at added expense. A former 
Department official noted that this provision could create unwarranted 
barriers to program entry because in situations involving non-bank 
financing, ``the list of five items required in the proposed Sec.  
26.69(k) could be quite difficult to produce.''
    Regarding the proposed change to the spousal renunciation rule, a 
transit authority proposed that DOT scrap the rule as ``unduly 
burdensome'' and allow spousal renunciations that occur at least two 
years after the use of marital assets to acquire an ownership interest 
in an applicant firm, provided that ``the transfer was not made solely 
for the purposes of obtaining DBE certification.'' DBE firm counsel and 
at least one State department of transportation objected to the 
renunciation rule as unduly burdensome, requiring excessive owner 
sophistication regarding certification standards, and discriminatory 
against DBEs in community property states. One trade association 
``enthusiastically'' supported the ownership changes, however, 
particularly the new marital assets rule, and a transportation 
department urged that DOT provide new guidance regarding when a 
spouse's transfer is considered to be for the purpose of obtaining 
certification. Another transportation department feared that the 
renunciation rule would lead to fewer women owners qualifying for the 
DBE program; it requested that DOT generally ``explain more 
specifically what types of documents'' are sufficient to substantiate a 
firm's capitalization, including the source of funds. Finally, an 
association of women contractors criticized the renunciation proposal 
as a Catch-22 (renunciation indicates ``forethought to DBE creation'') 
that may be contrary to State law and current certification rules.
    DOT Response: The Department carefully considered, evaluated, and 
weighed comments on both sides. We adopted some provisions as proposed 
(e.g., Sec.  26.69(c)) and rejected others due to stakeholder concerns 
and possible unintended consequences.
    We retain the existing marital asset provision of Sec.  26.69(i) as 
currently written and do not adopt the proposed change to require 
spousal renunciation contemporaneous with the transfer. To adopt such a 
change might unnecessarily inhibit applicants from allocating marital 
assets in such a way so that a disadvantaged spouse can establish and 
fund their business using marital funds. The current rule has adequate 
protections in place to prevent a non-disadvantaged spouse from 
retaining ownership of marital assets used to acquire ownership of an 
applicant firm or of an ownership interest in the firm. As long as the 
non-disadvantaged spouse irrevocably renounces and transfers all rights 
in the assets/ownership interest in the manner sanctioned by State law 
in which either spouse or the firm is domiciled (as the rule currently 
provides), we see no reason to require a renunciation at the time of 
the transfer. Recipients should not view a firm's submission of 
renunciation contemporaneous with its application as precluding 
eligibility.
    Regarding the careful scrutiny conditions in the proposed changes 
in Sec.  26.69(k), we think it prudent not to finalize the revisions 
pending further study and review. Our proposal would have required 
careful scrutiny of situations where the disadvantaged owners of the 
firm obtain interests in a business or other assets from a seller-
financed sale of the firm or in cases where a loan or proceeds from a 
non-financial institution was used by the owner to purchase the 
interest. The goal was to guard against seller-financed acquisitions 
(whether stock or assets) intended to disguise a non-disadvantaged 
owned business as a DBE firm. We agree with commenters that as written, 
the proposed language imposing mandatory conditions on transactions 
would be difficult for recipients to implement and has the potential of 
unfairly limiting the range of legitimate arrangements.
    The Department adopts a revision we proposed to Sec.  26.69(c)(3), 
which currently requires that a firm's disadvantaged owners must 
``share in the risks and profits commensurate with their ownership 
interests, as demonstrated by the substance, not merely the form, of 
arrangements.'' This concept has proven difficult for certifiers to 
implement because of the tendency to interpret the phrase ``profits 
commensurate with their ownership interests'' to mean that the 
disadvantaged owners must be the highest paid persons in the firm, and 
to tie in Sec.  26.71(i)'s mandate to ``consider remuneration'' 
differences between disadvantaged owners and other participants in the 
firm. We clarify here in this preamble and in the final rule for 
ownership purposes of Sec.  26.69, the disadvantaged owners should be 
entitled to the profits and loss commensurate with their ownership 
interests; and any terms or practices that give a non-disadvantaged 
individual or firm a priority or superior right to a firm's profits are 
grounds for denial of certification. This added provision is meant to 
be broad and is not absolute. There may be circumstances, particularly 
in franchise situations, where such an arrangement may be acceptable.

Control 49 CFR 26.71

    Regarding control, the NPRM proposed clarifications to the rules 
concerning the involvement of non-disadvantaged individuals in the 
affairs of the firm by establishing more stringent requirements to 
ensure the disadvantaged owner(s) is in control of the company. To that 
end, the Department proposed to delineate some situations, 
circumstances, or arrangements (through examples) in which the 
involvement of a non-disadvantaged individual who is a former employer 
of the disadvantaged owner(s) may indicate a lack of control by the 
disadvantaged owner(s) and consequently may form the basis for denying 
certification. The examples included situations where the non-
disadvantaged former employer controls the Board of Directors, contrary 
to existing requirements in 49 CFR 26.71(e); provides critical 
financial, bonding, or license support that enables the former employer 
to significantly influence business decisions; and loan arrangements or 
business relationships that cause dependence that prevents the 
disadvantaged owner from exercising independent judgment without great 
economic risk. In such cases, the recipient must determine that the 
relationship between the non-disadvantaged former employer and the 
disadvantaged individual or concern does not give the former employer 
``actual control or the potential to control'' the DBE. The NPRM sought 
comment on whether there should be a presumption that non-disadvantaged 
owners who ostensibly transfer ownership and/or control to a 
disadvantaged person and remain involved with the firm in fact continue 
to control the firm.
    Most of the commenters that addressed these proposed changes, many 
of whom were State departments of transportation, supported the change. 
Specific control-related comments included a UCP objecting to the 
proposed Sec.  26.71(e) change as presuming misconduct and discouraging 
mentor-prot[eacute]g[eacute] relationships and spin-offs; and DBE 
counsel criticizing the proposed presumption as unnecessary and

[[Page 59575]]

antithetical to valid business and personal reasons for a non-
disadvantaged person remaining associated with a DBE firm. A former DOT 
official likewise opined that the presumption could create 
unintentional barriers to entry ``for the very firms that are intended 
to benefit from the program.'' That official stated his view that when 
there is a legitimate business reason for the transfer, the firm should 
not be ineligible, even if DBE certification ``may have been part of 
the motivation.'' A member of Congress recommended that the Department 
hold ``additional stakeholder input sessions,'' particularly concerning 
paperwork and other burdens on DBE firms, applicants, and UCP/recipient 
staff.
    DOT Response: As indicated in the NPRM, control is essential to 
program integrity designed to ensure that the benefits of the program 
reach the intended beneficiaries. The Department has decided to 
finalize the presumption of control by non-disadvantaged owners who 
remain involved in the company after a transfer. We emphasize that the 
presumption is rebuttable. Mentor-prot[eacute]g[eacute] relationships 
that conform to the guidance provided at 49 CFR 26.35 would rebut the 
presumption. Similarly, some of the explanations for continued 
involvement by the non-disadvantaged previous owner offered by one of 
the commenters may also rebut the presumption. For example, remaining 
with the firm to maintain contacts with previous customers, remaining 
temporarily to assist with the transfer, or maintaining a small 
ownership interest or minimal participation in the firm with no control 
of the company may rebut the presumption. Also, we have removed the 
phrase ``actual control or the potential to control'' to avoid muddying 
the concept; ``control'' is the issue.
    We have removed the examples from the final rule because, upon 
further reflection, we believe they describe conduct that the rule 
itself prohibits or they are not helpful and may cause more confusion.

Prequalification 49 CFR 26.73

    The Department proposed to revise the current provision at 49 CFR 
26.73 to disconnect prequalification requirements (e.g., State or local 
conditions imposed on companies seeking to bid on certain categories of 
work) from certification requirements. As stated in the NPRM, the 
proposed change has the effect of not allowing prequalification to be 
used as a criterion for certification under any circumstances. This 
change would not prohibit the use of prequalification requirements that 
may exist for certain kinds of contracts. However, the prequalification 
status of a firm would not be relevant to an evaluation of whether the 
firm meets the requirements for certification as a DBE (e.g., size, 
social and economic disadvantaged status of the owners, ownership, and 
control). We noted that prequalification requirements may not exist for 
doing business in all modes of transportation (e.g., highways versus 
transit).
    Only a few commenters addressed this proposed change, with most in 
favor because they agree it has no relevance to certification. The 
opponents of the change (mostly general contractors) read this proposal 
as eliminating the prequalification requirements imposed under State 
law (e.g., Pennsylvania) for DBEs while such requirements continue to 
exist for non-DBEs.
    DOT Response: The Department has decided to finalize the rule as 
proposed. In doing so, we reiterate that this change has no effect on 
existing State laws that require all contractors and subcontractors 
performing work on contracts let by State departments of transportation 
or other government entities to be prequalified. Under the final rule, 
the certifying entities in a State UCP are not permitted to consider 
whether a firm seeking certification as a DBE is or is not 
prequalified. Certifiers are to analyze only the factors relevant to 
DBE eligibility (Subpart D of the rule) and not incorporate other 
recipient business requirements like prequalification status in 
decisions pertaining to the applicant's eligibility for certification 
in the DBE program, except as otherwise provided in the rules. Thus, a 
firm, once certified as a DBE, must satisfy any other applicable 
requirements imposed by the State on persons doing business with the 
State or in the State.

Certification Procedures 26.83

    The Department proposed a variety of changes to the certification 
procedures that are set out at 49 CFR 26.83.

Additional Information Requirements

    The Department proposed several changes to strengthen the process 
by which recipients evaluate the eligibility of a firm to be certified 
as a DBE and remain certified as a DBE. These proposed changes were 
intended to enable recipients to better assess the extent to which 
disadvantaged individuals own and control the kind of work the firm is 
certified to perform by: (1) Requiring key personnel be interviewed as 
part of the mandatory on-site review; (2) requiring the on-site visit 
be performed at the firm's principal place of business; (3) clarifying 
what should be covered in a review of the legal structure of a firm; 
(4) requiring the review of lease and loan agreements, bank signature 
cards, and payroll records; (5) obtaining information on the amount of 
work the firm has performed in the various NAICS codes in which the 
firm seeks certification; (6) clarifying that the applicant (the firm, 
its affiliates, and the disadvantaged owners) must provide income tax 
returns (Federal only) for the last three years; and (7) expressly 
authorizing the certifying agency to request clarification of 
information contained in the application at any time during the 
application process.
    Most of the commenters (primarily State departments of 
transportation) supported the idea of interviewing key personnel, 
though several noted (as did the opponents) the increased 
administrative burden it may place on agency staff and suggested it be 
made an optional practice instead of an across-the-board requirement. 
Opponents questioned the need for such interviews and expressed concern 
about the focus on the involvement of the disadvantaged owner ``in the 
field,'' which is part of the rationale given by the Department for 
requiring key personnel interviews.
    The proposal to request information on the amount of work performed 
in the NAICS code assignments requested by an applicant generated a 
fair number of comments opposed to the idea. The reasons for the 
opposition included concerns about the burden such a requirement would 
impose, the discriminatory impact it may have, the extent to which it 
contradicts or conflicts with the requirements of 49 CFR 26.73(b)(2), 
and the means to be used to determine the ``amount'' of work. Nearly 
all those who commented on this provision argued that the proposal to 
require three years of tax returns should only apply to Federal 
returns; State returns were viewed as unnecessary or not useful. 
Lastly, some commenters representing DBEs thought the proposal 
expressly authorizing certifiers to request clarification of 
information in the application at any time was too open-ended and 
needed to be limited.
    DOT Response: The Department has decided to modify its proposed 
amendment to 49 CFR 26.83(c)(1) to leave it to the discretion of 
recipients whether key personnel identified by the recipient should be 
interviewed as part of the on-site review, to eliminate the proposal 
that applicants provide

[[Page 59576]]

information about the amount of work the firm has performed in the 
NAICS codes requested by the firm, and to only require Federal tax 
returns for the past 3 years. It is not the intent of the Department to 
create unnecessary administrative burdens for applicants or certifiers. 
We agree that the focus on the amount of work a DBE performs in a given 
NAICS code could be misinterpreted and applied in a way that adversely 
impacts newly formed start-up companies. In the DBE program, there is 
no requirement that a DBE perform a specific percentage of work for 
NAICS code assignment purposes. We are adopting the other proposed 
changes in Sec.  26.83(c)(1).
    By finalizing in the rule (Sec.  26.83(c)(4)) what is currently 
implied--that certifiers may seek clarification from applicants of any 
information contained in the application material--we are not 
conferring carte blanche authority to certifiers to request additional 
information beyond that which is currently allowed and subject to prior 
approval from the concerned operating administration pursuant to 49 CFR 
26.83(c)(7). In the context of this rule change, the word 
``clarification'' is to be given its commonly understood dictionary 
meaning--to be free of confusion or to make reasonably understandable. 
In other words, if the application material is unclear, confusing, or 
conflicting, the certifying agency may ask the applicant to clarify 
information already provided.

Certification Reviews

    Under the current rule, recipients may conduct a certification 
review of a firm three years from the date of the most recent 
certification or sooner if appropriate in light of changed 
circumstances, a complaint, or other information affecting the firm's 
eligibility. The Department proposed to remove the reference to three 
years and instead clarify that a certification review should occur 
whenever there has been a change in the DBE's circumstances (i.e., a 
notice of change filed by the DBE), whenever a recipient becomes aware 
of information that raises a genuine question about the continued 
eligibility of a firm, or after a specified number of years set forth 
in the UCP agreement. The important point here is that a recipient may 
not, as a matter of course, require all DBEs reapply for certification 
every three years or go through a recertification process every three 
years that essentially requires a DBE resubmit a new application and 
all the accompanying documentation to remain certified. As the rule 
currently states, ``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.''
    DOT Response: Only a handful of commenters addressed this proposal. 
They uniformly supported it. The Department is finalizing the change as 
proposed.

Annual Affidavit of No Change

    The Department proposed to require the submission every year of 
several additional documents to support the annual affidavit of no 
change DBEs currently file with recipients on the anniversary date of 
their certification. The additional documentation would include an 
updated statement of personal net worth, a record of any transfers of 
assets by the disadvantaged owner for less than fair market value to a 
family member within the preceding two years, all payments from the 
firm to the officers, owners, or directors, and the most recent Federal 
tax return.
    Commenters were evenly divided among those who support the proposed 
change (mostly recipients) and those who oppose the change (mostly 
DBEs). Some commenters suggested the recipients be given the discretion 
to request the additional information if questions are raised about a 
DBE's status and others thought the Department should develop a uniform 
affidavit to be used by all.
    DOT Response: The Department has decided to retain the existing 
rule and expressly provide for the submission of updated Federal tax 
information with the annual affidavit of no change, in addition to 
other documentation supporting the firm's size and gross receipts, 
which is currently required in 49 CFR 26.83(j) (``The affidavit shall 
specifically affirm that your firm continues to meet SBA business size 
criteria and the overall gross receipts cap of this part, documenting 
this affirmation with supporting documentation of your firm's size and 
gross receipts.''). We are not adopting the proposal to annually 
require the submission of documentation beyond that which is currently 
required. We agree that the yearly submission of the additional 
documentation proposed in the NPRM would be unduly burdensome for DBEs 
and certifiers alike, is contrary to the basic premise underlying the 
``no change affidavit,'' and begins to look like a reexamination of 
eligibility. Recipients have sufficient authority under current rules 
to request information from a DBE in individual cases if there is 
reason to believe the DBE may no longer be eligible to remain 
certified. See 49 CFR 26.83(h). With respect to the affidavit itself, 
the Department has developed a model affidavit for use by recipients 
that is posted on the Department's Web site and sees no need, at this 
time, to require its use instead of other forms suitable for this 
purpose developed by recipients.

Certification Denial 49 CFR 26.86

    We proposed to clarify the effect of an appeal to the Department of 
a certification denial decision on the start of the waiting period that 
limits when an applicant may reapply for certification. The proposed 
rule adds language that states the appeal of a denial of certification 
does not extend (or toll the start of) the waiting period. In other 
words, the waiting period begins to run the day after the final 
decision at the State level, regardless of whether the firm appeals 
that decision to the Department.
    The Department received comments from State departments of 
transportation, one State UCP, and representatives of general 
contractors and DBEs. The opponents of the proposal argued that the 
appeal process should be allowed to resolve issues concerning applicant 
eligibility before the applicant is allowed to reapply, so that 
certifiers are not wasting time or expending resources better spent 
elsewhere reviewing another application from the same applicant that 
may present the same issues that are before the Department for decision 
on appeal. In contrast, supporters of the proposed change simply agreed 
without further comment, presumably accepting the change as clarifying 
in nature.
    DOT Response: The Department believes that an applicant who appeals 
the denial of its application for certification should not have to wait 
until the appeal has been decided before it can reapply at the end of 
the waiting period. In many instances, the deficiency that is the 
subject of the appeal may be cured reasonably quickly. There are, 
further, various cases in which the waiting period expires before the 
Department can render a decision. There should be no penalty or 
disincentive to appealing an adverse certifier decision; the Department 
intends that an appellant be no worse off than an applicant who does 
not appeal.

Decertification 49 CFR 26.87(f)

    The Department proposed revisions to the grounds on which 
recipients may remove a DBE's certification to protect the integrity of 
the DBE program. The NPRM proposed to add three grounds for removal: 
(1) The certification

[[Page 59577]]

decision was clearly erroneous, (2) the DBE has failed to cooperate as 
required by 49 CFR 26.109, and (3) the DBE has exhibited a pattern of 
conduct indicating its involvement in attempts to subvert the intent or 
requirements of the program. The second and third grounds for removal 
are not new; the proposed revision simply places them among the 
existing list of five grounds for removal. As explained in the NPRM, 
the first ground revises the existing standard by replacing ``factually 
erroneous'' with ``clearly erroneous'' to address ``situations in which 
a mistake [of fact or law] was committed, in the absence of which the 
firm would not have been certified.'' The Department also sought 
comment on whether the suspension or debarment of a DBE should result 
in automatic decertification, should cause an evaluation of the DBE for 
decertification purposes, or should prompt some other action.
    Recipients were universally supportive of the proposal to add 
additional grounds for removal of a DBE from the program. 
Representatives of DBEs and general contractors also registered 
support. An organization representing a caucus of women-owned 
businesses in Chicago and a DBE from Alabama opposed the changes. The 
focus of the opposition centered on the appropriateness of allowing 
removal for failing to timely file an annual no change affidavits or 
notice of change (i.e., failure to cooperate) or removal for not 
performing a commercially useful function (i.e., a pattern of conduct). 
One commenter suggested there be a higher standard of proof (i.e., 
willful disregard) applied to situations that involve not filing an 
annual no change affidavit in recognition of the fact that many DBEs 
have multiple certifications and may inadvertently fail to timely file 
required documents.
    Most of the nineteen commenters on the question concerning the 
relationship between decertification and suspension and debarment 
proceedings were recipients (i.e., State Departments of Transportation, 
transit authorities, organizations that represent State DOTs) that 
overwhelmingly supported either the automatic decertification of a DBE 
that is suspended or debarred for any reason or the automatic 
decertification of a DBE that is suspended or debarred for conduct 
relevant or related to the DBE program. Five commenters opposed 
automatic decertification, suggesting instead that suspension and 
debarment should trigger an immediate evaluation of the DBE or should 
be a factor considered by the recipient based on the circumstances. One 
commenter suggested different treatment for suspensions and debarments: 
A debarment would result in permanent decertification, while a 
suspended DBE that is decertified could reapply at the end of the 
waiting period.
    DOT Response: The Department has decided to make final the 
additional grounds for removal from the program. Two of the changes 
essentially represent a cross reference to existing regulations that 
permit removal for failure to cooperate and for a pattern of conduct 
indicating involvement in attempts to subvert the intent or 
requirements of the program. In the NPRM preamble discussion of this 
proposed change, we noted that the failure to cooperate covers such 
things as failing to send in affidavits of no change or notices of 
change and accompanying documents when needed. To be clear, the failure 
to cooperate is triggered when a DBE program participant fails to 
respond to a legitimate, reasonable request for information. If a DBE 
is notified by a recipient that it has not submitted the annual no 
change affidavit as required by the regulations, we would expect the 
DBE to respond promptly to such a request for information. Its failure 
to submit the requested information would be grounds for initiating a 
removal proceeding. Removal proceedings should not be initiated simply 
because the DBE failed to file the affidavit on its certification 
anniversary date, even though the information has been provided; nor 
should removal proceedings be continued once the DBE submits the 
requested information.
    When a DBE is suspended or debarred based on a Federal, State, or 
local criminal indictment or conviction, or based on agency fact based 
proceedings, for conduct related to the DBE program (i.e., the DBE or 
its owners were indicted or convicted for perpetrating a fraud on the 
program related to the eligibility of the firm to be certified or fraud 
associated with the use of the DBE as a pass through or front company), 
the Department believes the DBE should be automatically decertified 
from the DBE program. Under those circumstances, recipients should not 
be required to initiate a separate Sec.  26.87 decertification 
proceeding to remove a DBE. The suspension and debarment process 
affords the DBE an opportunity to be heard on the evidence of 
misconduct related to the DBE program that is relied upon to support 
the denial of bidding privileges. The same evidence would be relied 
upon to support decertification of the DBE, making further proceedings 
unnecessary. The Department believes that suspensions or debarments 
unrelated to the DBE program and consequently not bringing into 
question the DBE's size, disadvantage, ownership, control, or pattern 
of conduct to subvert the requirements of the program should not result 
in automatic removal from the DBE program. In those cases, recipients 
are advised to take appropriate action to note in the UCP directory the 
suspended or debarred status of the DBE. Because suspension or 
debarment actions are not permanent, we see no reason to make a 
decertification action permanent. Recipients must accept an application 
for certification from a previously suspended or debarred firm once the 
action is over.

Summary Suspension of Certification

    The Department proposed to require the automatic or mandatory 
suspension of a DBE's certification without a hearing when a recipient 
has reason to believe that one or more of the disadvantaged owners 
needed to meet the ownership and control requirements is incarcerated 
or has died. As we indicted in the NPRM, a disadvantaged owner is 
considered necessary to the firm's eligibility if without that owner 
the firm would not meet the requirement of 51 percent ownership by 
disadvantaged individuals or the requirement that disadvantaged owners 
control the firm. Other material changes affecting the eligibility of 
the DBE to remain certified--like the sale of the firm to a new owner, 
the failure to notify the recipient of a material change in 
circumstances, or the failure to file the annual no change affidavit as 
currently required--may be the subject of a summary suspension (at the 
discretion of the recipient) but such action would not be automatic. 
During the period of suspension, the recipient must take steps to 
determine whether proceedings to remove the firm's certification should 
be initiated. While suspended, the DBE may not be counted toward 
contract goals on new contracts executed after the suspension but could 
continue to perform and be counted on contracts already underway. The 
recipient would have 30 days from receipt of information from the DBE 
challenging the suspension to determine whether to rescind the 
suspension or commence decertification proceedings through a UCP 
certifying entity.
    Of the comments received from a combination of State departments of 
transportation, transit and airport authorities, and groups 
representing DBEs and prime contractors, almost all commenters 
supported this proposal as a much-needed program improvement. A group 
representing women-owned small businesses opposed the proposal,

[[Page 59578]]

arguing that suspending a DBE jeopardizes contracts that are a part of 
the assets of the company and consequently affects the valuation of the 
DBE. The group also suggested that there be some recognition of estate 
plans that provide for the child of the disadvantaged owner, who also 
may be a member of a presumptive group, to take over the firm. In such 
a case, the commenter posits that the DBE should remain certified if 
the heir submits an application within six months of the death of the 
disadvantaged owner. A State department of transportation did not agree 
that incarceration of the disadvantaged owner should result in an 
automatic suspension; instead, the State DOT believes the DBE should be 
removed from the program immediately.
    There were several commenters that raised questions or suggested 
further clarification was needed in certain areas. For example, should 
the length of the period of incarceration or the reason for the 
incarceration matter in determining whether the DBE is suspended? 
Should suspended DBEs be entered in the Department's ineligibility 
database? A commenter also suggested that a failure to file the annual 
no change affidavit should not be grounds for summary suspension of a 
DBE, and recipients should be given more time to consider the DBE's 
response (60-90 days) before lifting the suspension or commencing 
decertification proceedings. Similarly, a State DOT suggested the 
automatic suspension include sale of a firm to a non-disadvantaged 
owner and when a DBE is under investigation by a recipient for dubious 
practices on its own contracts. A suspension under these circumstances 
would prevent the DBE from being listed on other contracts pending 
review or investigation. One commenter asked that we include a hold 
harmless provision if no decertification proceeding commenced or 
results.
    DOT Response: The Department is adopting the proposed summary 
suspension provision. The fundamental premise underlying the summary 
suspension provision is that when a dramatic change in the operation of 
the DBE occurs that directly affects the status of the company as a 
DBE, swift action should be taken to address that situation to preserve 
the integrity of the program without compromising the procedural 
protections afforded DBEs to safeguard against action by recipients 
based on ill-founded or mistaken information. A recipient must have 
sufficient evidence of facts or circumstances that form the basis for 
its belief that a suspension of certification is in order. In cases 
where the recipient learns that a disadvantaged owner whose 
participation is essential to the continued certification of the firm 
as a DBE is no longer involved in the company due to incarceration or 
death, suspending the certification for a short period of time (30 days 
from the date the DBE receives notice of the suspension) strikes an 
appropriate balance between program integrity and fairness concerns. It 
does not matter how long the disadvantaged owner is incarcerated or the 
reason for the incarceration. What matters is that the company appears 
to be no longer owned and/or controlled by disadvantaged individuals as 
determined by the certifying authority. If a recipient determines after 
hearing from the DBE that the period of incarceration has ended or will 
end in 30 days, the recipient will lift the suspension (i.e., reinstate 
the DBE's certification) without initiating removal proceedings. 
Similarly, when an essential disadvantaged owner dies, his or her heirs 
who are also members of groups presumed to be disadvantaged are not 
presumed to be able to demonstrate sufficient ownership or control of 
the company. DBE certification is not transferable and does not pass to 
an owner's heirs. A short suspension of the DBE's certification until 
the heirs submit sufficient evidence to support a continuation of the 
firms' DBE status seems appropriate. The sooner the evidence of 
continued eligibility is provided by the DBE, the shorter the period of 
suspension if the certifying authority agrees that the firm remains 
eligible.
    Under the current rules, disadvantaged owners have an affirmative 
obligation to notify recipients within 30 days of any material change 
in circumstances that would affect their continued eligibility to 
participate in the program and to annually affirm there have been no 
material changes. The Department does not agree that the authority to 
suspend one's certification should not be exercised when a DBE fails to 
abide by these requirements that are essential to ensuring that only 
eligible DBEs are certified as such and allowed to participate in the 
program.
    Contrary to some of the comments, the summary suspension authority 
is not and should not be triggered by any violation of DBE program 
rules by a DBE. The Department also does not believe it appropriate or 
consistent with fundamental fairness to suspend a DBE while an 
investigation is pending since it would appear to prejudge the outcome 
of any investigation, assuming the reasons for the investigation are 
relevant to DBE program certification. Likewise, automatic 
decertification assumes that the likelihood or risk of error is small 
compared to the interest in protecting the integrity of the program 
such that there is little to be gained from hearing from the DBE to 
safeguard against inadvertent errors.
    Lastly, suspensions are temporary actions taken until more 
information is obtained from the affected DBE. Consequently, 
suspensions should not be entered into the Department's ineligibility 
database, which is reserved for initial certification denial decisions 
and decertification actions taken by recipients after the DBE has been 
accorded a full hearing or an opportunity to be heard. We have taken 
steps to ensure that suspensions do not interfere with the ability of 
the DBE to continue working on a contract entered into before the 
suspension took effect. Thus, in this respect, a suspension is accorded 
the same treatment as the decertification of a DBE that occurs after a 
DBE has executed a contract. The same rationale applies. The Department 
is not persuaded that existing contracts that may be considered company 
assets will be placed in jeopardy if recipients are granted suspension 
authority.

Certification Appeals 49 CFR 26.89

    The Department proposed clarifying amendments to the regulations 
governing appeals of certification decisions. The amendment would 
require appellants include in their letter of appeal a statement that 
specifies why the certification decision is erroneous, identifies the 
significant facts that were not considered by the certifying agency, or 
identifies the regulatory provision that was improperly applied. The 
amendment also would make clear that the Department's decision on 
appeal is based on the entire administrative record including the 
letter of appeal. The Department received a handful of comments on this 
proposed amendment; all of the comments supported the clarifications. 
The commenters included a State transportation department, a UCP 
certifying agency, and several individuals and organizations that 
represent DBEs and ACDBEs.
    DOT Response: The Department is finalizing the substance of the 
proposal with a slight modification to the rule text. The entire 
administrative record includes the record compiled by the certifying 
agency from whom the appeal is taken, the letter of appeal from the 
appellant that contains the arguments for reversing the decision, and 
any supplemental material made a part of the record by the Department 
in its

[[Page 59579]]

discretion pursuant to 49 CFR 26.89(e). We hope that this minor, 
technical, clarifying change will dispel the notion that the Department 
is not to consider any information outside of the record created by the 
recipient, including the appellant's letter of appeal which necessarily 
comes after the recipient has created its record. The purpose of the 
appeal is to provide the appellant an opportunity to point out to the 
Department, through facts in the record and/or arguments in the appeal 
letter, why the certifying agency's decision is not ``supported by 
substantial evidence or inconsistent with the substantive or procedural 
provisions of [Part 26] concerning certification.'' It is not an 
opportunity to add new factual information that was not before the 
certifying agency. However, it is completely within the discretion of 
the Department whether to supplement the record with additional, 
relevant information made available to it by the appellant as provided 
in the existing rule.

Other Provisions

Program Objectives 49 CFR 26.1

    In the NPRM, the Department proposed to add to the list of program 
objectives: Promoting the use of all types of DBEs . This minor 
technical modification is intended to make clear that application of 
the DBE program is not limited to construction contracting; the program 
covers the various kinds of work covered by federally funded contracts 
let by DOT recipients (e.g., professional services, supplies, etc.). 
All of the commenters that addressed this modification supported it.
    DOT Response: For the reasons expressed in the NPRM, the Department 
made this change in the final rule.

Definitions

    The Department proposed to add six new definitions to the rule for 
terms used in existing provisions. The words or phrases to be defined 
for purposes of the DBE program include ``assets;'' ``business, 
business concern, or business enterprise;'' ``contingent liability;'' 
``days;'' ``liabilities;'' and ``transit vehicle manufacturer (TVM).'' 
We also proposed to modify the existing definition of ``immediate 
family member,'' ``primary industry classification,'' ``principal place 
of business,'' and the definitions of ``socially and economically 
disadvantaged individual,'' and ``Native American'' to be in sync with 
the U.S. Small Business Administration use of those two terms. We 
invited comment on whether the definition of TVM should include 
producers of vehicles to be used for public transportation purposes 
that receive post-production alterations or retrofitting (e.g., so-
called ``cutaway'' vehicles, vans customized for service to people with 
disabilities). We also wanted to know if the scope of the existing 
definition of ``immediate family member'' is too broad. It currently 
includes grandchildren.
    Most commenters supported all or some of the proposed definitions. 
We did not include an actual definition of ``non-disadvantaged 
individual'' and consequently have not added that term to 49 CFR 26.5. 
The definitions that generated some opposition or suggested changes 
were those for TVMs, immediate family member, and Native American. We 
focus only on these three terms for discussion. One of the few TVMs 
that provided comments expressed puzzlement over the Department's 
request for comment on whether producers of ``cutaway'' vehicles should 
be included in the TVM definition. According to the commenter, such 
companies, including its company that performs this type of 
manufacturing work, are indeed TVMs.
    One commenter suggested we remove the word ``immediate'' from the 
term ``family member'' so that recipients may determine on a case-by-
case basis whether an individual is considered an immediate family 
member. Another commenter thought grandparents and in-laws should be 
excluded, while a different commenter suggested we include ``sons and 
daughters-in-law.'' We also were asked to include ``live-in significant 
others'' to recognize domestic partnerships or civil unions. Regarding 
the definition of Native American, one commenter did not think it 
should be limited to recognized tribes.
    DOT Response: The Department has modified the definition of TVM to 
include companies that cutaway, retrofit, or customize vehicles to be 
used for public transportation purposes. We do not think a change to 
the current approach of specifying in the rule who is considered an 
``immediate family member'' in favor of leaving that determination to 
the certifying agency to decide case-by-case is the right policy 
choice. However, the Department has decided to modify the existing 
definition of ``immediate family member'' to keep it in sync with the 
existing definition of that term in Part 23. The revised definition 
includes brother-in-law, sister-in-law, or registered domestic partner 
and civil unions recognized under State law. In addition, we are 
including a definition for the term ``spouse'' that covers domestic 
partnerships and civil unions because we agree such relationships 
should be recognized in the DBE program.
    We are finalizing the changes to the definition of Native American 
to incorporate the requirement that an American Indian be an enrolled 
member of a federally or State-recognized Indian tribe to make it 
consistent with the SBA definition. By statute, the term ``socially and 
economically disadvantaged individuals'' has the meaning given the term 
in section 8(d) of the Small Business Act and relevant subcontracting 
regulations issued pursuant to that Act. As explained in the SBA final 
rule:

    This final rule clarifies that an individual must be an enrolled 
member of a Federally or State recognized Indian Tribe in order to 
be considered an American Indian for purposes of the presumptive 
social disadvantage. This definition is consistent with the majority 
of other Federal programs defining the term Indian. An individual 
who is not an enrolled member of a Federally or State recognized 
Indian Tribe will not receive the presumption of social disadvantage 
as an American Indian. Nevertheless, if that individual has been 
identified as an American Indian, he or she may establish his or her 
individual social disadvantage by a preponderance of the evidence, 
and be admitted to the [DBE program] on that basis.

(76 FR 8222-01)

Record Keeping Requirements 49 CFR 26.11

    The Department proposed to establish record retention requirements 
for certification related records to ensure that recipients maintain 
documents needed to conduct certification reviews when necessary. All 
records documenting a firm's compliance with Part 26 must be retained 
in accord with the record retention requirements in the recipient's 
financial assistance agreement. Only six commenters expressed a view 
about this proposed change. Three of the commenters supported the 
change, two commenters requested clarification on the kind of records 
to be retained and for how long, and one commenter was neutral.
    DOT Response: The regulatory text of the final rule identifies the 
minimal records that must be retained. They include the application 
package for all certified DBEs, affidavits of no change, notices of 
change, and on-site reviews. Recipients are encouraged to retain any 
other documents that may be relevant in the event of a compliance 
review. The uniform administrative rules for Federal grants and 
cooperative agreements and sub-awards to State, local and Indian tribal 
governments establish a three-year record retention requirement subject 
to exceptions set out at 49 CFR 18.42. We

[[Page 59580]]

have modified the final rule to include a three year retention period 
as a default for records other than the minimal records specified in 
the rule. The 3 year retention period applied to other records may be 
modified as provided by applicable Federal regulations or the grant 
agreement, whichever is longer.

DBE Program Requirement

    The current rule regarding the application of the DBE program 
requirement to recipients of the various operating administrations of 
DOT has been the source of confusion for some. The Department proposed 
modifications to the rule to eliminate the confusion so that recipients 
will be clear about their obligation to establish a program and the 
corresponding obligation to establish an overall DBE participation 
goal. For FTA and FAA recipients, you must have a DBE program if in any 
Federal fiscal year the cumulative value of DBE program eligible 
contracts you will award will exceed $250,000 in Federal funds. In 
other words, when you add all the eligible Federally funded contracts 
you expect to award with Federal funds, the aggregate of total Federal 
funds to be expended will exceed $250,000. For FHWA, the proposed 
modification makes clear that under FHWA's financial assistance 
program, its direct, primary recipients must have an approved DBE 
program plan, and sub-recipients are expected to operate under the 
primary recipient's FHWA-approved DBE program plans.
    Comments generally were supportive of the proposed changes, 
particularly those related to the FTA and FAA clarification of the 
$250,000 threshold requirement. Some of the State departments of 
transportation that commented requested further clarification of the 
FTA and FAA requirements and had questions about the proposed change 
applicable to FHWA recipients. For example, a State department of 
transportation asked that we identify or define what is an eligible 
contract and that we specify whether the $250,000 threshold applies to 
the total Federal dollars spent in contracts or the total Federal 
dollars received in a fiscal year. One commenter also asked that we 
reconsider requiring subrecipients of FHWA funds operate under the 
primary recipient's approved DBE program. Lastly, in situations where 
funding on a project is provided by more than one operating 
administration, a commenter suggested that the Department specify how 
that situation will be handled rather than direct recipients to consult 
the relevant DOT agencies for guidance.
    DOT Response: The Department has finalized the proposed revisions. 
Where more than one operating administration is providing funding for a 
project or a contract, recipients should consult the OA providing the 
most funding for the project or contract and the OA, in turn, will 
coordinate with the DOT agencies involved to determine how to proceed. 
The final rule applies the $250,000 amount to the total Federal dollars 
to be expended by an FTA or FAA recipient in contracts funded in whole 
or in part with Federal assistance during the fiscal year. The rule 
expressly excludes from this calculation expenditures for transit 
vehicle purchases.
    The following examples illustrate how this provision works:
    A. The Hypothetical Area Transit System (HATS) receives $500,000 in 
FTA assistance. It spends $300,000 of this amount on bus purchases. It 
is spending $800,000 in local funds plus the remaining $200,000 in FTA 
funds to build an addition to its bus garage. Because HATS is spending 
less than $250,000 in FTA funds on contracting, exclusive of transit 
vehicle purchases, HATS is not responsible for having a DBE program.
    B. The Your County Regional Airport receives $400,000 in FAA 
financial assistance. It uses $100,000 to purchase land and expends 
$300,000 of the FAA funds for contracts concerning a runway improvement 
project, as well as $500,000 in local funds. The airport must have a 
DBE program.
    In the first example, even though HATS does not have to have a DBE 
program, it still must comply with Subpart A requirements of 49 CFR 
Part 26, such as nondiscrimination (Sec.  26.7) and assurances (Sec.  
26.13). Compliance with these requirements, like compliance with Title 
VI of the Civil Rights Act is triggered by the receipt of any amount of 
DOT financial assistance. In both examples, eligible contracts are 
federally funded prime contracts.
    The requirement that subrecipients of funds from FHWA operate under 
the direct recipients' approved DBE program is consistent with the way 
FHWA administers its financial assistance program regarding other 
Federal requirements imposed as a condition of receiving financial 
assistance. Through official guidance, the Department describes how 
subrecipients would administer contract goals on their contracts under 
the umbrella of the primary recipient's DBE program and overall goals. 
The continued validity of that guidance is not affected by this rule 
change.

Overall Goal Setting 49 CFR 26.45

    The Department proposed several changes to the regulations 
governing overall goal setting. They include: (1) Codifying the 
elements of a bidders list that must be documented and supported when a 
bidders list is used to establish the base figure for DBE availability 
under Step One in the goal setting analysis; (2) disallowing the use of 
prequalification or plan holders lists (and other such lists) as a 
means of determining the base figure and consider extending the 
prohibition to bidders lists; (3) establishing a standard for when Step 
Two adjustments to the base figure should not be made; (4) specifying 
that in reviewing recipient's overall goal submission, the operating 
administrations are to be guided by the goal setting principles and 
best practices identified by the Department; (5) clarifying that 
project goals may reflect a percentage of the value of the entire 
project or a percentage of the Federal share; and (6) strengthening and 
streamlining the public participation requirements for goal setting.
    The overwhelming majority of the comments received on the proposed 
changes to 49 CFR 26.45 were directed at the proposal to disallow use 
of prequalification lists and other such lists, including the bidders 
list, to establish the relative availability of DBEs (Step One of the 
goal setting analysis). Over 100 commenters, many of them general 
contractors who submitted form letters of objection, representatives of 
general contractors, and a few State departments of transportation, 
expressed the view that both prequalification lists and bidders lists 
are viable data sources for identifying qualified DBEs that are ready, 
willing, and able to perform on federally funded transportation 
contracts and that disallowing the use of these data sources would 
produce unrealistic overall goals that are not narrowly tailored as 
required by the United States Supreme Court to satisfy constitutional 
standards. Supporters of the proposal expressed the view that such 
lists underestimate availability and the true continuing effects of 
discrimination, represent the most conservative approach, and limit DBE 
opportunities by restricting consideration of all available DBEs. Other 
commenters, recognizing the limitations and the benefits of such lists, 
suggested that the lists should not be the exclusive source of data 
relied upon to capture the pool of available DBEs. One commenter 
supported retaining use of the prequalification list but supported 
getting rid of the bidders list which it

[[Page 59581]]

believed is worse than the prequalification list.
    Commenters opposed to identifying the elements of a true bidders 
list (including successful and unsuccessful DBE and non-DBE prime 
contractors and subcontractors) suggested it might be difficult to 
compile such a list (i.e., capturing the unsuccessful firms--both DBEs 
and non-DBEs--bidding or submitting quotes on projects). Despite that 
concern, of the few commenters that addressed this proposal, most 
commenters supported it, which reflects the longstanding view of the 
Department, as set forth in the official tips on goal setting, of what 
a true bidders list should contain. With regard to the Step Two 
adjustment, nine of the twelve commenters opposed the change out of a 
belief that it effectively eliminates adjustments based on past 
participation by DBEs.
    Commenters were almost evenly divided over the proposal to 
eliminate from the public participation process the requirement that 
the proposed overall goal be published in general circulation media for 
a 45-day comment period. Those objecting to this change were mostly 
representatives of general contractors and some State departments of 
transportation who viewed this process as more valuable than the 
stakeholder consultation process. There was universal support among the 
commenters for posting the proposed and final overall DBE goal on the 
recipient's Web site.
    DOT Response: The Department is retaining the bidders list as one 
of the approaches recipients may use to establish the annual overall 
DBE participation goal. To be acceptable, the bidders list must conform 
to the elements that we finalize in this final rule by capturing the 
data that identifies the firms that bid or quote on federally assisted 
contracts. This includes successful and unsuccessful prime contractors, 
subcontractors, suppliers, truckers, other service providers, etc. that 
are interested in competing for contracts or work. Recipients that use 
this method must demonstrate and document to the satisfaction of the 
concerned operating administration the mechanism used to capture and 
compile the bidders list. If the bidders list does not capture all 
available firms that bid or quote, it must be used in combination with 
other data sources to ensure that it meets the standard in the existing 
regulations that applies to alternative methods used to derive a base 
figure for the DBE availability estimate (e.g., it is ``designed to 
ultimately attain a goal that is rationally related to the relative 
availability of DBEs in your market.'').
    Prequalification lists and other such lists (i.e., plan holders 
lists) may be used but must be supplemented by other data sources on 
DBE availability not reflected in the lists. Looking only to 
prequalified contractors lists or similar lists to determine 
availability may serve only to perpetuate the effects of discrimination 
rather than attempt to remediate such discrimination. Thus, to 
summarize, a recipient may use a bidders list that meets the 
requirements of the final rule as the sole source in deriving its Step 
One base figure. However, if its bidders list does not meet these 
requirements, that list can still be used in determining the overall 
goal, but must be used in conjunction with other sources. Under no 
circumstances, though, may a recipient use a prequalification or plan 
holders list as the sole source used to derive the overall goal.
    The purpose of the Step Two analysis in overall goal setting is to 
consider other available evidence of discrimination or its effects that 
may impact availability and based on that evidence consider making an 
appropriate adjustment to derive an overall goal that reflects the 
level of DBE participation one would expect in the absence of 
discrimination. The amendment made to the regulations through this 
final rule does not eliminate the discretion recipients have to make a 
Step Two adjustment based on past DBE participation or other evidence 
like econometric data that quantifies the ``but for discrimination'' 
effects on DBE availability. It recognizes, however, that where there 
are circumstances that indicate an adjustment is not necessary because, 
for example, the base figure and the level of past DBE participation 
are close or the DBE participation level reflects the effects of past 
or current noncompliance with DBE program regulations, then the 
evidence would not support making the adjustment. That said, it is 
incumbent upon recipients to explain to the operating administration 
why the adjustment is appropriate.
    Instead of mandating publication of the proposed overall goal for a 
45-day comment period, the Department decided to leave that decision to 
the discretion of the recipient. The proposal to eliminate this aspect 
of the existing public participation requirement was designed to reduce 
the administrative burden, expense, and delay associated with the 
publication requirement that is borne by recipients and often leads to 
few, if any, comments (i.e., not much value added). To the extent that 
some recipients view this as a worthwhile exercise, we see no reason to 
restrict their ability to allow additional comment through this 
process. In response to one commenter, we have reduced the comment 
period from 45 days to 30 days. Those recipients that choose to publish 
their overall goal for comment, in addition to engaging in the required 
consultation with stakeholders, must complete their process well before 
the deadline for submitting the overall goal documentation to the 
operating administration for review. As stated in the NPRM, the 
Department believes meaningful consultation with stakeholders is an 
important, cost-effective means of obtaining relevant information from 
the public concerning the methodology, data, and analysis that support 
the overall DBE goal. Once again, all public participation must be 
completed before the overall goal submission is provided to the 
operating administration. Failure to complete the publication process 
by those recipients that choose to conduct such a process should not 
delay review by the operating administration.

Transit Vehicle Manufacturers 49 CFR 26.49

    The Department proposed to clear up confusion that exist about the 
goal setting and reporting requirements that apply to Transit Vehicle 
Manufacturers (TVMs). Specifically, the proposed rule clarifies how 
TVMs are to determine their annual overall DBE goals, when TVMs must 
report DBE awards and achievements data, and which portion of the DBE 
regulations apply to TVMs. Under the proposed rule, the goal setting 
methodology used by TVMs must include all federally funded domestic 
contracting opportunities made available to non-DBEs, not just those 
that apply to DBEs, and only the portion of the Federal share of a 
procurement that is available for contracts to outside firms is to be 
included. In other words, the DBE goal represents a percentage of the 
work the TVM will contract to others and not perform in house since 
work performed in-house is not truly a contracting opportunity 
available to the DBEs or non-DBEs. The Department sought comment on 
whether and how the Department should encourage more of the 
manufacturing process to be opened to DBEs and other small businesses.
    With respect to reporting awards and achievements, the Department 
proposed to require TVMs continuously report their contracting activity 
in the Uniform Reports of DBE Awards/Commitments and Payments. In 
addition, the Department removed any doubt that the TVMs are 
responsible for implementing regulatory requirements similar to DOT

[[Page 59582]]

recipients. There is one notable exception: TVMs do not participate in 
the certification process (i.e., TVMs do not perform certification 
functions required of recipients and are not required to be a member of 
a UCP), and post-award requirements need not be followed in those years 
when a TVM is not awarded or performing as a transit vehicle provider. 
Lastly, the NPRM included a provision requiring recipients to document 
that only certified TVMs were allowed to bid and submit the name of the 
successful bidder consistent with the grant agreement.
    Only 12 commenters addressed various aspects of the proposed 
changes to the TVM provisions. Three recipients supported the proposals 
as a whole, while others raised questions about the recommended changes 
and/or questioned existing requirements for which no change was 
proposed (e.g., suggested requiring the application of TVM provisions 
to all kinds of highway contracts or opposed the requirement that only 
certified TVMs are permitted to bid). One commenter rejected specific 
areas of the proposed changes. There was an additional comment 
submitted by the owner of a TVM who commented that it needed the 
services that the DBE program provides, rather than being forced into 
being a provider of those services.
    DOT Response: The Department is confident that the proposed changes 
will strengthen compliance with TVM provisions and oversight of TVMs by 
exempting manufacturers from those regulations that are not applicable 
to this industry. Many of the proposed changes simply clarify the 
intent and practical application of existing TVM provisions. For 
example, the existing regulations require compliance, prior to bidding, 
to confirm a TVM's commitment to the DBE program before it is awarded a 
federally-assisted vehicle procurement. This is a long-standing 
requirement. The proposal introduces measures that help ensure pre-bid 
compliance (e.g., viewing the FTA certified TVM list and submitting the 
successful bidder to FTA after the award). The proposed changes also 
confirm that TVM regulatory requirements are nearly identical to that 
of transit recipients. For this reason, the FTA requires DBE goals from 
both transit recipients and TVMs as a condition of receiving Federal 
funds in the case of recipients and as a condition of being authorized 
to submit a bid or proposal on FTA-assisted transit vehicle 
procurements, in the case of TVMs.
    In order to provide appropriate flexibility in implementing this 
provision, we must emphasize, to FTA recipients in particular, that 
overly prescriptive contract specifications on transit vehicle 
procurements--which, in effect, eliminate opportunities for DBEs in 
vehicle manufacturing--counter the intent of the DBE program and unduly 
restrict competition. Moreover, after request for proposals (RFPs) are 
released, FTA recipients should allow TVMs a reasonable timeframe to 
submit bids. To do otherwise limits the TVMs' ability to locate and 
utilize ready, willing, and able DBEs on FTA-assisted vehicle 
procurements. To lessen any administrative burdens, the FTA will 
continue posting a list of certified (i.e., compliant) TVMs to the FTA 
TVM Web page. Recipients may also request verification that a TVM has 
complied with the regulatory requirement by contacting the appropriate 
FTA Regional Civil Rights Officer--via email. FTA will respond to this 
request within 5 business days--via email.

Means Used To Meet Overall Goals 49 CFR 26.51

    In the NPRM, we proposed to modify the rule that sets forth 
examples of what constitutes race-neutral DBE participation to remove 
as one of the examples ``selection of a DBE subcontractor by a prime 
contractor that did not consider the DBE's status in making the award 
(e.g., a prime contractor that uses a strict low-bid system to award 
subcontracts).'' We explained that it is impossible for recipients to 
determine if a prime contractor uses a strict low-bid system, and 
moreover, that such a system conflicts with the good faith efforts 
guidance in Appendix A that instructs prime contractors not to reject a 
DBE's quote over a non-DBE quote if the price difference is not 
unreasonable. Although not stated explicitly in the preamble, the 
proposed regulatory text made clear that the Department's proposal was 
simply to eliminate the statement ``or even if there is a DBE goal, 
wins a subcontract from a prime contractor that did not consider its 
DBE status in making the award (e.g., a prime contractor that uses a 
strict low bid system to award subcontracts)'' from the regulatory text 
(emphasis added). Thus, as proposed, the Department only intended to 
remove this example for contracts that had a DBE goal.
    Commenters, including general contractors and State departments of 
transportation, overwhelmingly opposed the proposed change for a 
variety of reasons. General contractors and organizations that 
represent contractors viewed this proposal as a major policy shift away 
from the use of race-neutral measures to obtain DBE participation, 
contrary to existing regulations and relevant court decisions. One 
commenter actually referred to the proposal as eliminating the use of 
race and gender means of obtaining DBE participation through the 
elimination of this one example. One commenter questioned the impact 
this change would have in those States where DBE contract goals are not 
established because the overall goal can be meet through race-neutral 
means alone. Another commenter mistakenly thought the proposed change 
would not allow DBE participation that exceeds a contract goal to be 
considered race-neutral participation as currently provided in 
Departmental guidance. Supporters of the proposal agreed with the 
explanation provided by the Department.
    DOT Response: The Department believes that most of the opposition 
to this proposal stems from a misunderstanding of what the Department 
intended to change. The intent of the Department in the NPRM was to 
remove the proposed example only for contracts that had a DBE goal, not 
for contracts that were race-neutral. Thus, the Department did not 
propose nor is finalizing removing the other two examples of race-
neutral DBE participation or to remove the third example for race-
neutral contracts. The Department understands how the preamble to the 
NPRM could have led to this confusion, as it was not explicit. 
Certainly, had the Department proposed to remove, as an example of 
race-neutral participation, the ``selection of a DBE subcontractor by a 
prime contractor that did not consider the DBE's status in making the 
award'' in contracts that had no DBE goals, the Department would have, 
effectively, been eliminating the very concept of race-neutral 
participation.
    Thus, instead of the drastic change that concerned many commenters, 
the revised final rule simply removes as an example of race-neutral DBE 
participation in contracts that have DBE goals the use of a strict low 
bid system to award subcontracts. The Department continues to believe 
that it is difficult for recipients to determine if a prime contractor 
uses a strict low bid system and that use of such a system when 
contract goals are set runs counter to the Department's good faith 
effort guidance in Appendix A.
    However, this final rule does not mean DBE participation obtained 
in excess of a contract goal may never be considered race-neutral DBE 
participation. When DBE participation is obtained as a prime contractor

[[Page 59583]]

through customary competitive procurement procedures, is obtained as a 
subcontractor on a contract without a DBE goal, or is obtained in 
excess of a contract or project goal, the use of a DBE under those 
circumstances properly may be characterized as race-neutral DBE 
participation. This revision to our rule does not represent a policy 
shift from the existing requirement that recipients meet the maximum 
feasible portion of the overall goal through the use of race-neutral 
means of facilitating DBE participation. Indeed, if a recipient is able 
to meet its overall DBE participation goal without using race-conscious 
measures (i.e., setting contract goals), the recipient is obligated to 
do so under the existing regulations. The revision to 49 CFR 26.51(a) 
does not change that requirement.

Good Faith Efforts To Meet Contract Goals 49 CFR 26.53

Responsiveness vs. Responsibility

    The NPRM proposed eliminating the ``responsiveness vs. 
responsibility'' distinction for when good faith efforts (GFE) 
documentation, which includes specific information about DBE 
participation, must be submitted on solicitations with DBE contract 
goals. The ``responsiveness'' approach requires all bidders or offerors 
to submit the DBE participation information and other GFE documentation 
required by 49 CFR 26.53(b)(2) at the time of bid submission. By 
contrast, the ``responsibility'' approach allows all bidders or 
offerors to submit the required information at some point before a 
commitment to perform the contract is made to a particular bidder or 
offeror (e.g., before contract award). The proposed change to the rule 
would have removed the current discretion recipients have to choose 
between the two approaches and require, with one exception, the 
submission of all information about DBEs that will participate on the 
contract and the evidence of GFE made to obtain DBE participation on 
the contract when the bid or offer is presented.
    The NPRM also put forward an alternative approach that would allow 
a short period of time (e.g., 24 hours) after the bid submission 
deadline during which the apparent successful bidder or offeror would 
submit its GFE documentation. Under the alternative, the GFE 
documentation would have to relate to the pre-bid submission efforts; 
no post-bid efforts would be acceptable. The Department also asked for 
comment as to whether the one-day period should be extended to three 
days.
    The exception to the across-the-board responsiveness approach or 
the alternative approach (all of which apply to sealed bid 
procurements) would be in a negotiated procurement, where in the 
initial submission the bidders or offerors may make a contractually 
binding commitment to meet the DBE contract goal and provide specific 
DBE information and GFE documentation before final selection for the 
contract is made. Negotiated procurement would include alternate 
procurement practices such as Design Build procurements in which it is 
not always possible to commit to specific DBEs at the time of bid 
submission or contract award.
    The Department received many comments on this proposal. The 
majority of the responses opposing the revisions were submitted by 
prime contractors, prime contractor associations and some State 
departments of transportation. Over one hundred form letters of 
opposition from contractors were received. Those opposing the revision 
cited the nature of the construction industry and recipient procurement 
processes as a main reason for opposition. The majority of these 
comments concentrated on the administrative burden of providing GFE 
documentation that includes DBE commitments at the time of bid. 
Commenters stated that because of the nature of bidding on construction 
contracts, such as hectic timeframes, fixed deadlines, and electronic 
bidding forms, it was not possible to submit DBE commitments and other 
GFE documentation at the time of bid. Other reasons given for 
disapproval included the belief that the proposed rule would limit the 
use of DBEs on contracts, and it would be difficult for DBEs to 
negotiate with multiple bidders as opposed to only the identified 
lowest bidder. In addition, some commenters believed it would not be 
possible to implement the ``responsiveness'' approach on ``design build 
projects'' because the design and scope of work for the project is not 
known at the time of bid.
    The Department received comments in favor of the proposal, 
primarily from minority and women advocacy organizations, regional 
transit authorities, and some State departments of transportation that 
already required DBE documentation as a matter of responsiveness. Those 
in support of the revision primarily stated that the current practice 
of allowing each recipient to decide whether DBE information should be 
collected as a matter of responsiveness or responsibility has led to 
abuses of the DBE program, such as facilitating ``bid shopping'' 
practices. A member of Congress supported this proposal stating that 
the current practice of allowing each recipient to decide whether DBE 
information should be collected as a matter of responsiveness or 
responsibility has led to abuses of the DBE program, without more 
specifics.
    There were alternatives suggested by some organizations. Most of 
the suggestions can be grouped into three general categories: (1) Leave 
the ``responsiveness/responsibility'' distinction as is; (2) allow a 
short time frame for GFE documentation that includes DBE information to 
be submitted (1-3 days); and (3) allow a longer time frame for that 
information to be submitted (3-14 days). Many who opposed eliminating 
the ``responsive/responsibility'' distinction had less opposition if 
good faith efforts documentation could be submitted by the apparent low 
bidder sometime after bid submission. Most opponents expressed a need 
for a longer timeframe to review the quotes. In addition, general 
contractor organizations overwhelmingly stated that the good faith 
efforts documentation should only be submitted by the apparent 
successful bidder. There were additional comments that opposed the 
proposal, but they did not offer any suggestions for a different 
timeframe.
    After the Department reopened the comment period in September 2013 
and convened a listening session on December 5, 2013, to hear directly 
from stakeholders about the specific costs and benefits of this 
proposed regulatory change, general contractors overwhelmingly 
continued to express strong opposition to the proposal. According to 
the contractors, the problems presented by the proposal include, among 
others: (1) A failure of the Department to understand the complexities 
and challenges of the bidding process; (2) increased burdens placed on 
the limited resources available to DBEs to develop multiple quotes and 
engage in time-consuming negotiations before bids are due; (3) adverse 
impact on the willingness of general contractors to consider new, 
unfamiliar DBEs because of limited vetting time; (4) increased risk to 
prime contractors from incomplete or inaccurate DBE quotes likely to 
result in less DBE participation; (5) a reduction in, or elimination 
of, second tier subcontracting opportunities for DBEs; and (6) a 
deterrent to the use of DBEs in creative methods due to concerns about 
disclosure of confidential, proprietary information. Moreover, the 
American Road & Transportation Builders Association (ARTBA) and the

[[Page 59584]]

Associated General Contractors of America (AGC) challenged the claim of 
``bid shopping'' as the basis for the proposed change, demanding a full 
explanation of the problem (if it exists) and the data relied upon to 
justify the proposal.
    Based on a survey of 300 ARTBA members, 42% of the contractors 
indicated they would bid on less Federal-aid work if this (and other) 
proposed change is made permanent; that they would have to increase bid 
prices to cover additional costs ($25,000-$100,000 per bid); that they 
would have to add staff; and that the estimated cost of complying 
annually across the industry is in the range of $2.5 million-$11 
billion. Forty-three percent (43%) of the members indicated that DBE 
plans (i.e., DBE commitments) currently are required by their State 
departments of transportation at the time of bid; and 37% currently 
submit good faith efforts documentation with their bid. The AGC 
acknowledged that some States currently require listing DBEs at the 
time of bid, but it asserts that those contacted universally responded 
that the bidding process is costly, burdensome, and results in lower 
DBE utilization.
    The few State departments of transportation that submitted written 
comments during the reopened comment period supported allowing 
recipients the flexibility to permit submission of good faith efforts 
documentation at least 7-10 days after bids are due. Those with 
electronic bidding systems cited costs associated with modifying those 
systems to conform to changes in the rules as one more burden straining 
already limited resources. One State department of transportation 
supported the proposed change requiring good faith efforts 
documentation at bid opening.
    A few DBEs submitted a form expressing support for the requirement 
that good faith efforts documentation be submitted with the bid, while 
others saw the change as creating an unnecessary burden that would tax 
resources and may result in shutting out DBEs. Before adopting an 
across-the-board approach, one commenter urged the Department to look 
carefully at other States that follow the ``responsiveness'' approach 
to assess whether it creates opportunities or closes doors. Given prime 
contractor opposition, the commenter thought there should be more of a 
factual predicate to support this proposed change.
    DOT Response: For years the Department has been concerned about 
claims of ``bid shopping'' engaged in by some prime contractors to the 
detriment of DBE and non-DBE subcontractors, suppliers, truckers, etc. 
and the adverse impact it has on the principle of fair competition. The 
meaning and practice of bid shopping is well understood within the 
construction industry and among public contracting entities. It occurs 
when a general contractor discloses the bid price of one subcontractor 
to a competing subcontractor in an attempt to obtain a lower bid than 
the one on which the general contractor based its bid to the owner. 
Variations include ``reverse auctions'' (where the subcontractors 
compete for the job by lowering prices) and ``bid peddling'' 
(subcontractors offering to reduce their bid to induce the contractors 
to substitute the subcontractor after award).
    In 1992, when the Department proposed a similar change in the DBE 
program regulations, it believed then, as it does now, that requiring 
the submission of good faith efforts documentation that includes DBE 
information at the time bids are due (as a matter of responsiveness) is 
a reasonable means of reducing the bid shopping problem. Contrary to 
the current claims made by general contractors, the Department's 
interest in revisiting this issue represents neither a ``startling'' 
change in direction for the DBE program nor a lack of understanding of 
the procurement process for transportation construction projects. At 
the same time, the Department acknowledged later in 1997 and 1999 when 
we finalized that proposed rulemaking, as it does now, that the 
responsiveness approach may be more difficult administratively for 
prime contractors and recipients, even though that approach was, and 
is, being used in some places.
    One of the hallmarks of the DBE program is the flexibility afforded 
recipients to tailor implementation of some aspects of the program to 
respond to local conditions or circumstances. Indeed, the DBE program 
regulations cite among the objectives, the desire ``to provide 
appropriate flexibility to recipients of Federal financial assistance 
in establishing and providing opportunities for DBEs.'' 49 CFR 26.1(g). 
Flexibility is recognized in many ways: For recipients, overall and 
contract goals are set based on local conditions, taking into account 
circumstances specific to a particular recipient or a particular 
contract; and for prime contractors, they cannot be penalized or denied 
a contract for failing to meet the goal, as long as documented good 
faith efforts are made. At what point in the procurement process the 
good faith efforts documentation must be submitted is yet another 
example of the flexibility that the Department should not undo without 
more information.
    To the extent that bid shopping exists, it works to the detriment 
of all subcontractors, DBEs and non-DBEs alike, and drives up the cost 
of projects to the taxpaying public. However, absent sufficient data 
regarding the impact of each approach on deterring bid shopping and its 
effects or data on the costs/benefits of each approach when implemented 
consistent with the rule, as well as the potential burdens argued by 
those opposed to the change, the Department is not prepared, at this 
time, to finalize the proposal to adopt an across-the-board approach. 
Before taking that step, we think it prudent to examine closely the 
``responsiveness'' approach used by many recipients to determine its 
impact on mitigating bid shopping and on providing greater or lesser 
opportunities for DBE participation. We intend to undertake such a 
review which may lead to proposed regulatory action in the future.
    While we are retaining the discretion of recipients to choose 
between a responsiveness or responsibility approach, we think there 
should be some limit to how long after bid opening bidders or offerors 
are allowed to submit GFE documentation that includes specific DBE 
information to reduce the opportunity to bid shop where it exists. This 
would have the effect of reducing the burden on prime contractors and 
recipients who use a responsibility approach from the burden allegedly 
caused by the proposal, while at the same time minimizing opportunities 
for bid shopping by restricting the amount of time truly needed to 
gather the necessary information. From the comments, the time period 
permitted by recipients that use the responsibility approach can run 
the gamut from 3 to 30 days. These comments present timelines similar 
to those found in a review the Department recently conducted of the DBE 
Program Plans for all 50 states, Puerto Rico and the District of 
Columbia.\1\ The results of this analysis are available in the docket 
for this rulemaking.\2\ This analysis shows that: (1) 30 of the State 
departments of transportation report that they use the responsiveness 
approach, although the Department notes that some variations on the 
responsiveness approach--a combination of responsiveness and 
responsibility--may actually be used by

[[Page 59585]]

some of these recipients; (2) 20 State departments of transportation 
used the responsibility approach; and (3) two State departments of 
transportation (Puerto Rico and Florida) have completely race-neutral 
programs and thus do not set DBE contract goals. Of the 20 
responsibility States, 17 States have a set period of time bidders or 
offerors are given to submit the required information, which ranges 
from 3 to 15 days, while three States have no set time for all 
contracts.\3\ The results of this review are generally consistent with 
the survey conducted by ARTBA indicating that 43% of the 300 members 
responding stated that their State departments of transportation 
required submission of DBE utilization plans with the bid. We note that 
the term ``DBE utilization plan'' is not used anywhere in the DBE 
program regulations.
---------------------------------------------------------------------------

    \1\ For purposes of this discussion, Puerto Rico and the 
District of Columbia are considered ``States,'' thus the totals add 
up to 52.
    \2\ See DOT Docket ID Number OST-2012-0147.
    \3\ Under 49 CFR 26.53(c), all GFE documentation must be 
submitted before committing to the performance of the contract by 
the bidder or offeror (i.e., before contract award).
---------------------------------------------------------------------------

    We think it reasonable ultimately to limit the time to a maximum of 
5 calendar days to protect program beneficiaries and overall program 
integrity.\4\ The Department believes 5 calendar days is reasonable 
because it is more than or equal to the time permitted by five of the 
responsibility states and, by definition, all of the responsiveness 
states. Moreover, many of the DOT recipients that commented on 
establishing a time limit recommended between one (1) to 7 days. 
Allowing a longer time frame, such as between 7 and 14 days, is too 
long; it increases opportunities for bid shopping to occur. However, in 
the final rule we have provided some time for recipients that use this 
revised responsibility approach to transition to the shorter time frame 
by January 1, 2017. The transition period is intended to provide time 
to put in place any necessary system modifications. Until then, 
recipients will be permitted up to 7 calendar days to require the 
submission of DBE documentation after bid opening when using a 
responsibility approach. The Department believes this will allow for a 
smoother transition to the new approach, while seemingly without 
encountering the administrative difficulties and added costs pointed to 
by some of the commenters opposed to the proposed change.
---------------------------------------------------------------------------

    \4\ Due to the definition of ``days'' adopted in this final 
rule, bidders or offerors will have 5 calendar days (i.e., not 
business days) to submit the necessary information. Thus, if a bid 
is submitted on Thursday, the apparent low bidder would have until 
Tuesday to submit the information.
---------------------------------------------------------------------------

    Based on the comments, there is some confusion about how the 
document requirements of Sec.  26.53(b) apply to design-build 
contracts. It bears repeating what the Department said in 1999 on this 
subject, because it remains the case today:

    On design-build contracts, the normal process for setting 
contract goals does not fit the contract award process well. At the 
time of the award of the master contract, neither the recipient nor 
the master contractor knows in detail what the project will look 
like or exactly what contracting opportunities there will be, let 
alone the identity of DBEs who may subsequently be involved. In 
these situations, the recipient may alter the normal process, 
setting a project goal to which the master contractor commits. 
Later, when the master contractor is letting subcontracts, it will 
set contract goals as appropriate, standing in the shoes of the 
recipient. The recipient will exercise oversight of this process.

(64 FR 5115). The proposed change would not have applied to design-
build contracts.

NAICS Codes

    The Department proposed changes to the information to be included 
with bids or offers by requiring the bidders or offerors to provide the 
recipient with information showing that each DBE signed up by the 
bidder or offeror is certified in the NAICS code(s) for the kind of 
work the DBE will be performing. This proposed change was intended to 
help bidders or offerors identify firms that can qualify for DBE credit 
in the work area involved in the contract. This information would be 
submitted with the bidder's or offeror's DBE participation data.
    The Department received 26 comments regarding the NAICS codes, 15 
against the proposal and nine in favor of it. The comments submitted 
included State departments of transportation, prime contractors and 
contractor associations. The opponents of this proposal included mostly 
prime contractors and contractor associations, and a few State 
departments of transportation. The opponents' comments focused on a 
concern that the legal risk associated with including a DBE who could 
not perform a commercially useful function would fall on the prime 
contractor, meaning that the prime contractor could be the subject of 
investigations and charges brought by the DOT Inspector General and 
others, when it is the certifying agencies that should bear this 
responsibility. Other comments indicated that adding NAICS codes would 
not add any value to the process. The proponents of the proposal 
included advocacy groups and some State departments of transportation. 
Proponents believe that the NAICS code requirement will add 
clarification to the process and ensure that the recipient can complete 
the work.
    DOT Response: Under existing regulations, DBEs must be certified in 
the type of work the firm can perform as described by the most specific 
available NAICS code for that type of work. Certifiers (i.e., 
recipients or other agencies that perform the certification function) 
also may apply a descriptor from a classification scheme of equivalent 
detail and specificity that reflects the goods and services provided by 
the DBE (49 CFR 26.71(n)). It is the responsibility of the DBE to 
provide the certifier with the information needed to make an 
appropriate NAICS code assignment. In the new certification application 
form, firms are asked to describe their primary activities and the 
product(s) or services(s) they provide and to list applicable NAICS 
codes they seek. If the firm enters into new areas of work since it was 
first certified, it is the firm's responsibility to provide the 
certifier the evidence of how they qualify for the new NACIS codes. It 
is then incumbent upon the certifying agency to determine that the 
NAICS code to be assigned adequately describes the kind of work the 
disadvantaged owners have demonstrated they can control and it is the 
responsibility of the recipient of DOT funds to determine that the 
DBE's participation on a particular contract can be counted because the 
DBE is certified to perform the kind of work to be performed on that 
contract.
    The Department has decided to make final this proposed rule change. 
In doing so, the Department does not intend to shift responsibility for 
the accuracy of NAICS code assignments from the certifier to the 
contractor. When a DBE submits a bid to a recipient as a prime 
contractor or a quote to a general contractor as a subcontractor, it is 
the responsibility of the DBE to ensure that the bid or quote shows 
that the NAICS code in which the DBE is certified corresponds to the 
work to be performed by the DBE on that contract. It would be in the 
best interest of the contractor to also have this information when it 
is considering DBEs interested in competing for contract opportunities 
where a contract goal has been set. This enables the contractor to make 
a reasonable determination whether it has made good faith efforts to 
meet the goal through the DBEs listed. Ultimately, the recipient is 
responsible for ensuring the DBE is certified to do the kind of work 
covered by the contract before DBE participation can be counted. 
Including this information in the bid documents should assist all 
parties concerned in

[[Page 59586]]

complying with DBE program requirements. Thus, it is the responsibility 
of the certifier to ensure that DBEs are certified only in the 
appropriate NAICS codes; it is the responsibility of the DBE to provide 
that NAICS code to the prime while the prime is putting together a bid; 
and it is the responsibility of the prime to provide those codes to the 
recipient when providing the other DBE information. It is not the 
responsibility of the prime to vouch for the accuracy of that 
certification.

Replacement of a DBE

    The NPRM proposed that in the event that it is necessary to replace 
a DBE listed on a contract, a contractor must document the GFE taken to 
obtain a replacement and may be required to take specific steps to 
demonstrate GFE. The specific steps would include: (1) A statement of 
efforts made to negotiate with DBEs for specific work or supplies, 
including the names, address, telephone numbers, and emails of those 
DBEs that were contacted; (2) the time and date each DBE was contacted; 
(3) a description of the information provided to DBEs regarding the 
plans and specifications for portions of the work to be performed or 
the materials supplied; and (4) an explanation of why an agreement 
between the prime contractor and a DBE was not reached. The prime 
contractor would have to submit this information within 7 days of the 
recipient's agreement to permit the original DBE to be replaced, and 
the recipient must provide a written determination to the contractor 
stating whether or not good faith efforts have been demonstrated. 
Failure to comply with the GFE requirements in the rule would 
constitute a material breach of contract, subject to termination and 
other remedies provided in the contract.
    Twenty-eight commenters opposed this modification to the rules. 
They included prime contractors, State departments of transportation, 
and contractor associations. Essentially, the opponents were of the 
view that prime contractors should not be responsible for looking 
beyond the original commitment for DBE replacements. Others felt that 
the 7 day timeframe to replace a DBE is not long enough. Some opponents 
suggested changing the proposal so that it is desirable to replace a 
DBE with a DBE, but not mandatory. Some prime contractors also stated 
that there is a need to be compensated for the delays to replace a DBE. 
Those in favor of the proposal included five commenters representing 
State departments of transportation, transit authorities, and DBE 
advocacy groups. These commenters felt that contractors should make 
efforts to replace a DBE and failure to carry out the requirement to do 
so is a breach of contract.
    DOT Response: When the Department amended the regulations in 2011 
(the first phase of its recent focus on program improvements), we 
required prime contractors that terminate DBEs make GFE to find a 
replacement to perform at least the same amount of work under the 
contract to meet the contract goal established for the procurement. 
Thus, this GFE obligation currently exists and is not new. We agree 
that the GFE guidance in Appendix A used by recipients to assess the 
efforts made by bidders and offerors before contract award can also be 
used to evaluate efforts made by the contractor to replace a DBE after 
contract award. There is no need to separately identify steps that a 
recipient may require when a contractor is replacing a DBE. However, 
there is nothing that prevents a contractor from taking any of the 
steps included in the proposed amendment to the rules. Indeed, 
recipients may consider, as part of their evaluation of the efforts 
made by the contractor, whether DBEs were notified of subcontracting 
opportunities, whether new items of work were made available for 
subcontracting, what information was made available to DBEs, and what 
efforts were made to negotiate with DBEs.
    The GFEs made by the contractor to obtain a replacement DBE should 
be documented and submitted to the recipient within a reasonable time 
after obtaining approval to terminate an existing DBE. To avoid 
needless delay and ensure timely action, we think 7 days is reasonable, 
but we have modified the rule to allow recipients to extend the time if 
necessary at the request of the contractor.
    The existing regulations currently require a contract clause be 
included in prime contracts and subcontracts that make the failure by 
the contractor to carry out applicable requirements of 49 CFR Part 26 a 
material breach of contract, which may result in the termination of the 
contract or such other remedy as the recipient deems appropriate. See 
49 CFR 26.13(b). Consequently, a contractor that fails to comply with 
the requirements for terminating or replacing a DBE would be in breach 
of contract, subject to contract sanctions that include termination of 
the contract. We need not replicate the provisions of Sec.  26.13. We 
also will not prescribe what the appropriate contract sanctions or 
administrative remedies must be. However, we have revised Sec.  26.13 
to incorporate the list of remedies we proposed as other possible 
contract remedies recipients should consider. Many of the suggestions 
are sanctions currently used by some recipients. They include 
withholding progress payments, liquidated damages, disqualifying the 
contractor from future bidding, and assessing monetary penalties.

Copies of Quotes and Subcontracts

    The Department proposed to require the apparent successful bidder/
offeror, as part of its GFE documentation, provide copies of each DBE 
and non-DBE subcontractor quote it received in situations where the 
bidder/offeror selected a non-DBE firm to do work sought by a DBE. This 
information would help the recipient determine whether there is 
validity to any claims by a bidder/offeror that a DBE was rejected 
because its quote was too high. The contractor who is awarded the 
contract also would be required to submit copies of all DBE 
subcontracts.
    There were 15 organizations that commented on the proposal 
regarding quotes and 19 commenters on the proposal regarding 
subcontracts. Commenters were almost evenly divided in their support 
for, or opposition to, requiring the submission of quotes under the 
limited circumstances set out in the proposed rule. A State department 
of transportation noted that the submission of quotes was already being 
implemented in its program. One supporter suggested this requirement 
should apply only when the DBE contract goal is not met. Opponents 
raised concerns about the burden imposed and questioned the benefit to 
be derived since the comparison of quotes is not viewed as a useful 
exercise. Regarding the submission of subcontracts, the commenters 
overwhelming opposed making this a requirement because of the burden. 
One commenter suggested that the proposal appears to duplicate an 
existing requirement of the Federal Highway Administration (FHWA) and 
another commenter questioned the steps that would be taken to protect 
confidential or proprietary information.
    DOT Response: The GFE guidance in Appendix A, in its current form, 
instructs prime contractors to consider a number of factors when 
negotiating with a DBE and states that the fact that there may be some 
additional costs involved in finding and using DBEs is not in itself 
sufficient reason for a bidder's failure to meet the contract DBE goal, 
as long as such costs are reasonable. Thus, the reasonableness of a 
DBE's quote as compared to a non-DBE's quote is often

[[Page 59587]]

an issue cited by a prime contractor in selecting a non-DBE over a DBE. 
The Department believes that requiring a bidder/offeror to provide, as 
part of the GFE documentation, subcontractor quotes received by the 
bidder/offeror in those instances where a DBE's quote was rejected over 
a non-DBE's quote will assist recipients in determining the validity of 
claims made by the bidder/offeror that the DBE's quote was too high or 
unreasonable and has therefore decided to finalize this proposal. 
Further, we stress that only the quote would need to be submitted in 
these situations, not any additional information and only in instances 
where a non-DBE was selected over a DBE, thus limiting the burden of 
this requirement.
    The Department recognizes that requiring the submission of DBE 
subcontracts may pose unnecessary burdens on contractors and 
recipients. Thus, the Department has decided to modify its proposal to 
only require that DBE subcontracts be made available to recipients upon 
request when needed to ensure compliance with the requirements of 49 
CFR Part 26.

Good Faith Efforts Applied to Race-Neutral DBE Participation

    We sought comment on whether some of the good faith efforts 
provisions of the rule concerning contracts with DBE goals should apply 
to DBEs on contracts that do not have a DBE goal. For example, the 
rules that restrict termination of DBEs and that impose good faith 
efforts obligations to replace DBEs that are dropped from a contract or 
project would apply regardless of whether the DBE's participation 
resulted from race-conscious or race-neutral measures.
    Of the 28 commenters that responded to this question, only 3 
expressed support and all three supporters were DBEs or organizations 
representing DBEs. Three commenters also were conflicted, unsure of 
whether the proposal would result in benefits to DBEs. The general 
contracting community, many State departments of transportation, and 
some transit agencies expressed opposition because they believe DBEs 
should be treated no different than non-DBEs on contracts with no DBE 
goals (the primary means of obtaining measurable DBE participation 
through race- and gender-neutral measures), and to do otherwise is to 
essentially convert what began as race-neutral conduct into race-
conscious conduct.
    DOT Response: The Department agrees with the points raised by the 
commenters opposing this change (specifically, that no distinction 
should be made between DBEs and non-DBEs when race-neutral measures are 
used to obtain participation) and has decided to maintain the status 
quo. The restrictions on terminating and replacing a DBE selected by a 
bidder or offeror to meet a contract goal are intended to hold the 
contractor to the good faith efforts commitment made to win the 
contract. No comparable commitment is made when DBE contract goals are 
not set.

Trucking 49 CFR 26.55(d)

    The Department proposed to change the counting rule for trucking to 
allow 100% of a DBE's trucking services to be counted when the DBE uses 
its own employees as drivers but leases trucks from a non-DBE truck 
leasing company. This proposed change gives DBEs the same ability as 
non-DBEs to use their own drivers and supplement their fleets with 
leased trucks without sacrificing any loss of DBE credit because the 
trucks may be leased from a non-DBE leasing company. Consistent with 
the current prohibition on counting materials, supplies, equipment, 
etc., obtained from the prime contractor or its affiliates (49 CFR 
26.55(a)(1)), trucks leased from the prime contractor would not be 
counted. As noted in the NPRM, this proposed rule change applies to 
counting only; it would not immunize companies from scrutiny due to 
potentially improper relationships between DBEs and non-DBEs that raise 
certification eligibility or fraud concerns.
    More than 25 comments were received on this proposed change, mostly 
in favor of the modification. There were several commenters that 
believed the proposed rule would invite more fraud for an area that is 
one of the top means of obtaining DBE participation on Federal-aid 
contracts. Additional comments included expanding the definition of 
``employees'' to expressly include those drivers that are hired by DBEs 
from the union hall on an as-needed basis to fulfill contracts, 
clarifying what constitutes ownership of trucks, eliminating the 
current option allowed under the rule that permits credit for trucks 
and drivers leased from non-DBEs, eliminating the need to obtain 
written consent from the operating administrations on the option chosen 
by the recipient; and reinforcing the restriction on not allowing a DBE 
to count trucks purchased or leased from the prime contractor.
    DOT Response: The Department did not propose any changes in the 
NPRM to the existing rule that allows a DBE that leases trucks (and 
also leases the drivers) from a non-DBE firm to receive credit for the 
value of transportation services provided by the non-DBE firm up to the 
amount of credit provided by trucks owned by DBEs that are used on the 
contract. This option was added to the DBE program rules in 2003 (68 
Fed. Reg. 35542-02) to recognize the practical reality of leasing in 
the trucking business and to respond to concerns about reduced 
opportunities for DBEs caused by the 1999 version of the counting rule. 
As indicated in the 2003 final rule, a recipient may choose the one-
for-one option to credit trucks and drivers leased from non-DBEs or it 
may limit credit to fees and commissions for work done with non-DBE 
lessees, consistent with the 1999 version of the rule. If a recipient 
chooses to count the use of trucks and drivers leased from a non-DBE 
firm, as provided in the existing rule, the recipient's choice should 
be reflected in the recipient's DBE program plan, which is subject to 
approval by the cognizant operating administration (OA) to ensure 
appropriate safeguards are taken by the recipient to prevent fraud. 
Contrary to the way some commenters are reading the existing rule, it 
does not contemplate obtaining OA consent on a transaction-by-
transaction basis.
    The modification to the rule that the Department makes final today 
simply clarifies that trucks that are leased by a DBE from a non-DBE 
for use by the DBE's employees should be treated no differently than 
other equipment a DBE may lease to conduct its business. The value of 
the transportation services provided by the DBE would not be adversely 
impacted by the fact that the equipment used by the DBE's employees is 
leased instead of owned. This is consistent with the existing counting 
rule and with the basic principle that DBE participation should be 
counted for work performed with a DBE firm's own forces. The term 
``employee'' is to be given its commonly understood dictionary meaning, 
and ``ownership'' includes the purchase of a truck or trucks through 
conventional financing arrangements.

Regular Dealer 49 CFR 26.55(e)

    The Department proposed to codify guidance issued in 2011 on how to 
treat the services provided by a DBE acting as a regular dealer or a 
transaction expediter/broker for counting purposes (i.e., crediting the 
work of the DBE toward the goal). The guidance makes clear that 
counting decisions involving a DBE acting as a regular dealer are made 
on a contract-by-contract basis and not based on a general description 
or designation of a DBE as a regular

[[Page 59588]]

dealer. The Department also invited an open discussion of the regular 
dealer concept in light of changes in the way business is conducted. 
Specifically, we sought comment on: (1) How, if at all, changes in the 
way business is conducted should result in changes in the way DBE 
credit is counted in supply situations?; (2) what is the appropriate 
measure of the value added by a DBE that does not play a traditional 
regular dealer/middleman role in a transaction?; and (3) do the policy 
considerations for the current 60% regular dealer credit actually 
influence more use of DBEs as contractors that receive 100% credit?
    The Department received over 50 comments from prime contractors, 
DBEs, and recipients, many of which emphasized the need for additional 
clarification of, or changes to, the terminology used to describe 
regular dealers, middlemen, transaction expediters, and brokers. The 
comments were evenly divided over whether the guidance should be 
codified in the regulations. Those in support agreed that the 
determination of whether or not a DBE is functioning as a regular 
dealer as defined in the existing rule should be based on the role 
performed by the DBE on the contract, which may vary from contract to 
contract. Those opposed to the contract-by-contract approach, 
represented mostly, but not exclusively, by prime contractors, argued 
that the approach reflected in the guidance is burdensome and that once 
a recipient determines at certification that a DBE is a supplier, a 
wholesaler, a manufacturer, a transaction expediter, a middleman, or a 
broker, the credit allowed under the rules should be applied. To do 
otherwise creates inconsistency, uncertainty, and exposes the prime and 
the DBE to risks associated with fraud investigations in this area. It 
is the responsibility of the certifier, they argue, to ensure that a 
DBE certified as a supplier, for example (and thereby acting as a 
regular dealer), is, in fact, a supplier and not a transaction 
expediter. Indeed, several commenters expressed the view that 
certifiers should be allowed to certify a DBE as a ``regular dealer.'' 
Followed to its logical conclusion, once certified, how the work to be 
performed by the DBE is counted would be automatic without regard to 
what the DBE is actually doing on the contract.
    Many comments addressed the changing business environment where the 
best method of delivering supplies ordered from a non-DBE manufacturer 
may in fact be drop-ship rather than delivery by the DBE regular dealer 
using its own trucks. One commenter stated that the requirement that a 
DBE own and operate its own distribution equipment directly conflicts 
with industry practice and creates a greater burden and challenge to 
DBEs. Similarly, some maintain the requirement for an inventory or 
store front is outdated. The way business is conducted today, they 
argue, services provided by wholesalers or e-Commerce businesses do not 
require an inventory or a store open to the public. Several commenters 
indicated that they would be comfortable with the elimination of the 
distinct categories and only have a single distinction of a goods 
supplier from a non-DBE manufacturer with a set percentage of dollars 
that could be counted or only using fees and commissions as the amount 
that can be counted as done currently for transaction expediters and 
brokers. To encourage greater use of DBE contractors to meet contract 
goals, one commenter suggested placing a cap (e.g., no more than 50%) 
on how much of a contract goal could be met using DBE suppliers.
    There were suggestions that the Department eliminate altogether 
regular dealers and brokers from the rule. Others countered that any 
proposal to eliminate counting regular dealer participation toward 
contract goals would severely reduce the pool of ready, willing, and 
able DBEs given how often the regular dealer credit is used to meet 
contract goals; such a proposal, they maintain, should result in a 
corresponding reduction in goals. Other commenters believe that it is 
important to keep the regular dealer concept and consider increasing 
the counting percentage due to the value added services they provide. 
Still others thought a complete overhaul of the regular dealer 
provisions in the rule is needed to recognize decades of changes in the 
construction industry, and no modifications to the rule should be made 
until further analysis is done.
    DOT Response: The Department has decided to codify the guidance on 
the treatment of counting decisions that involve DBEs functioning as 
regular dealers. This guidance is consistent with the basic counting 
principles set out in the rule that apply regardless of the kind of 
work performed by the DBE. Specifically, the counting rules apply to a 
specific contract in which a DBE participates based on the value of 
work actually performed by the DBE that involves a commercially useful 
function on that contract. Throughout 49 CFR 26.55 there are numerous 
references to ``a contract,'' ``the contract,'' or ``that contract.'' 
In other words, counting is by definition a ``contract-by-contract'' 
determination made by recipients after evaluating the work to be 
performed by the DBE on a particular contract.
    The Department appreciates the thought that went into the varied 
comments received on the questions we posed and the overall interest in 
the subject. In the context of this discussion, it is important to 
reiterate that certification and counting are separate concepts in the 
DBE rule. This applies regardless of the type of work the DBE is 
certified to perform. It is also important to note that DBEs must be 
certified in the most specific NAICS code(s) for the type of work they 
perform and that there is no regular dealer NAICS code. Regular dealer 
is a term of art used in the context of the DBE program. That said, the 
Department believes that more analysis and discussion is needed to make 
informed policy decisions about appropriate modifications to the 
regulations governing regular dealers, transaction expediters, and 
brokers. We think it more appropriate at this point to develop 
additional guidance to address different business scenarios rather than 
promulgate regulatory requirements or restrictions beyond those that 
currently exist. We will continue the conversation through future 
stakeholder meetings.

Ethics and Conflicts of Interest

    The Department sought comment on whether Part 26 should be amended 
(or guidance issued) to add provisions concerning ethics and conflicts 
of interest to help play a constructive role in empowering DBE 
officials in resisting inappropriate political pressures. At the same 
time, the Department questioned whether such a provision would be 
effectual and whether the provision could be drafted so as not to be 
overly detailed. The Department also welcomed suggestions about ethics 
and conflicts of interest.
    Less than 25 commenters elected to address this subject; the 
significant majority of commenters expressed support for adding ethics 
and conflict of interest provisions to enable DBE certification 
officials and others to resist inappropriate pressures. An advocacy 
group commended the Department for initiating a discussion about 
ethics. A State transportation department suggested including 
applicable penalties and offering protection via the Whistleblower 
Protection Act. An airport sponsor supported adding provisions that 
clarify the roles of staff who administer the selection process.
    A State transit authority did not believe that effective guidance 
could be provided in the regulation without being overly detailed and 
burdensome. Moreover, the commenter recognized

[[Page 59589]]

that while adding such provisions would play a constructive role, they 
would not totally eradicate inappropriate pressure. A State 
transportation department directed the Department to professional codes 
of conduct for the fields of law and engineering as examples. An 
advocacy group and a DBE noted that a code of ethics might provide 
recipients with a ``safety net'' when responding to undue pressure. 
Another State transportation department supports the provision if DOT 
takes quick action against known abusers of ethics. A DBE commenter 
recommended a workgroup approach be utilized to prepare draft language.
    DOT Response: There was general support among the commenters for 
establishing a code of ethics of some kind to insulate or protect DBE 
program administrators from undue pressure to take actions inconsistent 
with the intent and language of the DBE program rules. However, very 
few of the commenters made suggestions on the details of such a code or 
on the kind of provisions that might be added to address specific 
concerns. As indicated in the NPRM, recipients and their staffs are 
subject to State and local codes of ethics that govern public employees 
and officials in the performance of their official duties and 
responsibilities, including the responsibilities they carry out in 
administering the DBE program as a condition of receiving Federal 
financial assistance. Of course, grant recipients are subject to the 
common grant rules which prohibit participating in the selection, 
award, or administration of a contract supported by Federal funds if a 
conflict of interest would be involved. Because we lack sufficient 
information, at this point, to determine the extent to which widespread 
problems exist or how best to approach the issue--through regulations 
or guidance--the Department thinks it best to hold off on adopting 
ethics rules for the DBE program to supplement existing State and local 
ethics codes. Instead, the Department may engage stakeholders in a 
further discussion to aid in identifying appropriate next steps.

Appendix A--Good Faith Efforts Guidance

    The Department proposed several revisions to Appendix A to Part 
26--Guidance Concerning Good Faith Efforts to clarify and reinforce the 
GFE obligation of bidders/offerors and to provide additional guidance 
to recipients. We proposed to add more examples of the types of actions 
recipients may consider when evaluating the bidders'/offerors' GFE to 
obtain DBE participation. The proposed examples included conducting 
market research to identify small business contractors and suppliers 
and establishing flexible timeframes for performance and delivery 
schedules that encourage and facilitate DBE participation. We 
reinforced concepts that we have emphasized in communicating with 
recipients over the years: Namely, that a contractor's desire to 
perform work with its own forces is not a basis for not making GFE and 
rejecting a replacement DBE that submits a reasonable quote; and 
reviewing the performance of other bidders should be a part of the GFE 
evaluation. The Department also proposed to add language specifying 
that the rejection of a DBE simply because it was not the low bidder is 
not a practice considered to be a good faith effort.
    There were 25 comments collected that opposed the suggestion that 
flexible timeframes and schedules be established to facilitate DBE 
participation. The comments received were submitted by prime 
contractors, contractor associations, and State departments of 
transportation. These organizations stated that a ``flexible 
timeframe'' was unrealistic and went against the nature of the 
construction industry. Other organizations stated the need to further 
quantify what constitutes an ``unreasonable quote'' when making GFE to 
replace a DBE. There were two organizations that supported these 
provisions. U.S. Representative Judy Chu agreed that there can be no 
definitive checklist, but suggested that best practices be collected 
and disseminated to clarify the issue. One State department of 
transportation agreed that the bidder cannot reject a DBE simply due to 
price.
    In the NPRM, we also proposed in Appendix A that DOT operating 
administrations may change recipients' good faith efforts decisions. 
There were a few comments regarding this proposal, all in opposition. 
The commenters included a DBE, prime contractor, a State department of 
transportation, and a contractors association. The prime contractor 
noted that operating administrations should be involved throughout the 
good faith efforts review process and not after the recipient has made 
a decision. There were no comments in support of this proposal.
    DOT Response: It is important to reiterate and reinforce that 
Appendix A is guidance to be used by recipients in considering the good 
faith efforts of bidders/offerors. It does not constitute a mandatory, 
exclusive, or exhaustive checklist. Rather, a good faith efforts 
evaluation looks at the ``quality, quantity, and intensity of the 
different kinds of efforts that the bidder has made.'' The proposed 
revisions to the guidance made by the Department are based on 
experience gained since the development of the guidance in 1999 and are 
intended to incorporate clarifications and additional examples of the 
different kinds of activities to consider. We have modified the final 
guidance in keeping with the existing purpose and intent. The guidance 
also seeks to indicate what reasonably may not be viewed as a 
demonstration of good faith efforts. In this regard, rejecting a DBE 
only because it was not the low bidder is not consistent with the 
longstanding idea that a bidder/offeror should consider a variety of 
factors when negotiating with a DBE, including the fact that there may 
be additional costs involved in finding and using DBEs, as currently 
stated in the existing guidance. Similarly, the inability to find a 
replacement DBE at the original price is not, without more, sufficient 
to demonstrate GFE were made to replace the original DBE. As currently 
stated under the existing guidance, a firm's price is one of many 
factors to consider in negotiating in good faith with interested DBEs.
    The Department has decided to make no change to the current role of 
the operating administrations with respect to the GFE determinations 
made by recipients. It is the responsibility of recipients to 
administer the DBE program consistent with the requirements of 49 CFR 
Part 26, and it is the responsibility of the operating administrations 
to oversee recipients' program administration to ensure compliance 
through appropriate enforcement action if necessary. Such action 
includes refusing to approve or provide funding for a contract awarded 
in violation of 49 CFR 26.53(a). The proposed change may confuse the 
relative roles and responsibilities of the recipients and the operating 
administrations and consequently has been removed from the final rule.

Technical Corrections

    The Department is amending the following provisions in 49 CFR Part 
26 to correct technical errors:
    1. Section 26.3(a)--Include a reference to the Highway and Transit 
funds authorized under SAFETEA-LU and MAP-21.
    2. Section 26.83(c)(7)--Remove the reference to the DOT/SBA MOU 
since the MOU has lapsed.
    3. Section 26.89(a)--Amend to recognize that the DOT/SBA MOU has 
lapsed.

[[Page 59590]]

Regulatory Analyses and Notices

Executive Orders 12866 and 13563 (Regulatory Planning and Review)

    This final rule is not a ``significant regulatory action'' under 
section 3(f) of Executive Order 12866, Regulatory Planning and Review, 
and does not require an assessment of potential costs and benefits 
under section 6(a)(3) of the Order. It does not create significant cost 
burdens, does not affect the economy adversely, does not interfere or 
cause a serious inconsistency with any action or plan of another 
agency, does not materially alter the impact of entitlements, grants, 
user fees or loan programs; and does not raise novel legal or policy 
issues. The final rule is essentially a streamlining of the provisions 
for implementing an existing program, clarifying existing provisions 
and improving existing forms. To the extent that clearer certification 
requirements and improved documentation can forestall DBE fraud, the 
rule will result in significant savings to State and local governments. 
This final rule does not contain significant policy-level initiatives, 
but rather focuses on administrative changes to improve program 
implementation. The Department notes that several commenters, 
particularly general contractors and their representatives, argued that 
the NPRM should have been designated as ``significant.'' Although the 
Department continues to believe that the designation of the NPRM was 
correct based on the intent of this rulemaking, we note that, as 
discussed above, we have decided to not finalize at this time many of 
the provisions that those commenters argued were significant changes to 
the DBE program.

Executive Order 12372 (Intergovernmental Review)

    The final rule is a product of a process, going back to 2007, of 
stakeholder meetings and written comment that generated significant 
input from State and local officials and agencies involved with the DBE 
program in transit, highway, and airport programs.

Regulatory Flexibility Act

    In compliance with the Regulatory Flexibility Act (Pub. L. 96-354, 
5 U.S.C. 601-612), we have evaluated the effects of this final rule on 
small entities and anticipate that this action will not have a 
significant economic impact on a substantial number of small entities. 
The underlying DBE rule does deal with small entities: All DBEs are, by 
definition, small businesses. Also, some FAA and FTA recipients that 
implement the program are small entities. However, the changes to the 
rule are primarily technical modifications to existing requirements 
(e.g., improved forms, refinements of certification provisions) that 
will have little to no economic impact on program participants. 
Therefore, the changes will not create significant economic effects on 
anyone. In compliance with the Regulatory Flexibility Act (5 U.S.C. 
601-612), I certify that this rule will not have a significant economic 
impact on a substantial number of small entities.

Executive Order 13132 (Federalism)

    A rule has implications for federalism under Executive Order 13132, 
Federalism, if it has a substantial direct effect on State or local 
governments and would either preempt State law or impose a substantial 
direct cost of compliance on them. As noted above, there is no 
substantial compliance cost imposed on State and local agencies, who 
will continue to implement the underlying program with administrative 
improvements proposed in the rule. The proposed rule does not involve 
preemption of State law. Consequently, we have analyzed this proposed 
rule under the Order and have determined that it does not have 
implications for federalism.

National Environmental Policy Act (NEPA)

    The Department has analyzed the environmental impacts of this 
proposed action pursuant to the National Environmental Policy Act of 
1969 (NEPA) (42 U.S.C. 4321 et seq.) and has determined that it is 
categorically excluded pursuant to DOT Order 5610.1C, Procedures for 
Considering Environmental Impacts (44 FR 56420, Oct. 1, 1979). 
Categorical exclusions are actions identified in an agency's NEPA 
implementing procedures that do not normally have a significant impact 
on the environment and therefore do not require either an environmental 
assessment (EA) or environmental impact statement (EIS). See 40 CFR 
1508.4. In analyzing the applicability of a categorical exclusion, the 
agency must also consider whether extraordinary circumstances are 
present that would warrant the preparation of an EA or EIS. Id. 
Paragraph 3.c.5 of DOT Order 5610.1C incorporates by reference the 
categorical exclusions for all DOT Operating Administrations. This 
action is covered by the categorical exclusion listed in the Federal 
Highway Administration's implementing procedures, ``[p]romulgation of 
rules, regulations, and directives.'' 23 CFR 771.117(c)(20). The 
purpose of this rulemaking is to make technical improvements to the 
Department's DBE program, including modifications to the forms used by 
program and certification-related changes. While this rule has 
implications for eligibility for the program--and therefore may change 
who is eligible for participation in the DBE program--it does not 
change the underlying programs and projects being carried out with DOT 
funds. Those programs and projects remain subject to separate 
environmental review requirements, including review under NEPA. The 
Department does not anticipate any environmental impacts, and there are 
no extraordinary circumstances present in connection with this 
rulemaking.

Paperwork Reduction Act

    According to the 1995 amendments to the Paperwork Reduction Act (5 
CFR 1320.8(b)(2)(vi)), an agency may not collect or sponsor the 
collection of information, nor may it impose an information collection 
requirement unless it displays a currently valid Office of Management 
and Budget (OMB) control number. This action contains additional 
amendments to the existing information collection requirements 
previously approved under OMB Control Number 2105-0510. As required by 
the Paperwork Reduction Act, the Department has submitted these 
information collection amendments to OMB for its review. The Department 
will announce the finalization of this information collection request 
in a separate Federal Register notice following OMB approval. The NPRM 
contained estimates of the burden associated with the additional 
collection requirements proposed in that document. Various commenters 
stated that the Department understated the proposed burden for the 
collections associated with the application form and personal net worth 
form. As discussed above in the relevant portions of the preamble, the 
Department is sensitive to those concerns and has revised those 
collections to minimize what information must be submitted and to 
simplify other aspects of the forms. For each of these information 
collections, the title, a description of the entity to which it 
applies, and an estimate of the annual recordkeeping and periodic 
reporting burden are set forth below.
1. Application Form
    Today's final rule modifies the application form for the DBE 
program. In the NPRM, the Department explained that its estimate of 8 
total burden hours per applicant to complete its DBE or

[[Page 59591]]

ACDBE certification application with supporting documentation was based 
on discussions the Department has had with DBEs in the past. The 
comments and the Department's response to those comments are discussed 
above in the preamble.
    The number of new applications received each year by Unified 
Certification Program members is difficult to estimate. There is no 
central repository for DBE certification applications and we predict 
that the frequency of submissions at times vary according to 
construction season (high applications when the season is over), the 
contracting opportunities available in the marketplace, and the number 
of new transportation-related business formations or expansions. To get 
some estimate however, the Department contacted recipients during the 
process of developing the NPRM. The agencies we contacted reported 
receiving between 1-2 applications per month, 5-10 per month, or on the 
high end 80-100 per month. There are likely several reasons for the 
variance. Jurisdictions that are geographically contiguous to other 
states (such as Maryland) and/or have a high DBE applicant pool may 
receive a higher number whereas jurisdictions in remote areas of the 
country with smaller numbers of firms may have lower applicant requests 
for DBE certification. These rough numbers likely do not include 
requests for expansion of work categories from existing firms that are 
already certified.
    Frequency: Once during initial DBE or ACDBE certification.
    Estimated Average Burden per Response: 8 hours.
    Number of Respondents: 9,000-9,500 applicants each year.
    Estimated Total Annual Burden Hours: 72,000-76,000 hours per year.
2. PNW Form
    A small business seeking to participate in the DBE and ACDBE 
programs must be owned and controlled by a socially and economically 
disadvantaged individual. When a recipient determines that an 
individual's net worth exceeds $1.32 million, the individual's 
presumption of economic disadvantage is said to have been conclusively 
rebutted. In order to make this determination, the current rule 
requires recipients to obtain a signed and notarized statement of 
personal net worth from all persons who claim to own and control a firm 
applying for DBE or ACDBE certification and whose ownership and control 
are relied upon for the certification. These personal net worth 
statements must be accompanied by appropriate supporting documentation 
(e.g., tax returns). The form finalized in this rule would replace use 
of an SBA form suggested in current regulations.
    As discussed above in the preamble, we estimate that compiling 
information for and filling out this form would take approximately 2 
hours, slightly longer than that for the SBA form currently in use. As 
explained in further detail in the above preamble, the Department has 
chosen not to finalize its proposal to require a PNW form with each 
annual affidavit of no change. Thus, the number of respondents who must 
submit a PNW form is the same as the number of applications.
    Frequency: Once during initial DBE certification. For the DBE/ACDBE 
programs, information regarding the assets and liabilities of 
individual owners is necessary for recipients of grants from the 
Federal Transit Administration, the Federal Aviation Administration, 
and the Federal Highway Administration, to make responsible decisions 
concerning an applicant's economic disadvantage under the rule. All 
persons who claim to own and control a firm applying for DBE or ACDBE 
certification and whose ownership and control are relied upon for the 
certification will complete the form.
    Estimated Average Burden per Response: 2 hours.
    Number of Respondents: 9,000-9,500 applicants each year.
    Estimated Burden: 18,000-19,000 hours per year for applications.
3. Material With Annual Affidavits of No Change
    Each year, a certified firm must submit an affidavit of no change. 
Although the Department proposed that DBE would need to submit various 
additional documentation with the affidavit (e.g., an updated PNW 
statement and records of transfers) today's final rule only requires 
that the owner and the firm's (including affiliates) most recent 
completed IRS tax return, IRS Form 4506 (Request for Copy or Transcript 
of Tax Return) be submitted with the affidavit. Collection and 
submission of these items during the annual affidavit is estimated to 
take approximately 1.5 hours.
    Estimated Average Burden per Response: 1.5 hours.
    Respondents: The approximately 30,000 certified DBE firms.
    Burden: Approximately 45,000 hours per year.
4. Reporting Requirement for Percentages of DBEs in Various Categories
    The final rule implements a statutory requirement calling on UCPs 
to annually report the percentages of white women, minority men, and 
minority women who control DBE firms. To carry out this requirement, 
the 52 UCPs would read their existing Directories, noting which firms 
fell into each of these three categories. The UCPs would then calculate 
the percentages and email their results to the Departmental Office of 
Civil Rights. It would take each UCP an estimated 3 hours to comb 
through their Directories, and another three minutes to calculate the 
percentages and send an email to DBE@DOT.GOV.
    Estimated Average Burden per Response: 3 hours, 3 minutes.
    Respondents: 52.
    Burden: Approximately 158.5 hours.
5. Uniform Report of DBE Commitments/Awards and Payments
    As part of this rulemaking, the Department is reinstating the 
information collection entitled, ``Uniform Report of DBE Commitments/
Awards and Payments,'' OMB Control No. 2105-0510, consistent with the 
changes proposed in this final rule. This collection requires that DOT 
Form 4630 be submitted once or twice per year by each recipient having 
an approved DBE program. The report form is collected from recipients 
by FHWA, FTA, and FAA, and is used to enable DOT to conduct program 
oversight of recipients' DBE programs and to identify trends or problem 
areas in the program. This collection is necessary for the Department 
to carry out its oversight responsibilities of the DBE program, since 
it allows the Department to obtain information from the recipients 
about the DBE participation they obtain in their programs.
    In this final rule, the Department modified certain aspects of this 
collection in response to issues raised by stakeholders: (1) Creating 
separate forms for routine DBE reporting and for transit vehicle 
manufacturers (TVMs) and mega projects; (2) amending and clarifying the 
report's instructions to better explain how to fill out the forms; and 
(3) changing the forms to better capture the desired DBE data on a more 
continuous basis, which should also assist with recipients' post-award 
oversight responsibilities.
    Frequency: Once or twice per year.
    Estimated Average Burden per Response: 5 hours per response.
    Number of Respondents: 1,250. The Department estimates that

[[Page 59592]]

approximately 550 of these respondents prepare two reports per year, 
while approximately 700 prepare one report per year.
    Estimated Burden: 9,000 hours.

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 recordkeeping 
requirements.

    Issued this 19th day of September 2014, at Washington, DC.
Anthony R. Foxx,
Secretary of Transportation.

    For the reasons set forth in the preamble, the Department of 
Transportation amends 49 CFR part 26 as follows:

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

0
1. The authority citation for part 26 continues to read as follows:

    Authority: 23 U.S.C. 304 and 324; 49 U.S.C. 2000d, et seq., 49 
U.S.C. 47107, 47113, 47123; Section 1101(b) and divisions A and B of 
the Moving Ahead for Progress in the 21st Century Act (MAP-21), Pub. 
L. 112-141, 126 Stat. 405, and 23 U.S.C. 403.

0
2. In Sec.  26.1, redesignate paragraphs (f) and (g) as paragraphs (g) 
and (h), and add new paragraph (f) to read as follows:

Sec.  26.1  What are the objectives of this part?

* * * * *
    (f) To promote the use of DBEs in all types of federally-assisted 
contracts and procurement activities conducted by recipients.
* * * * *

0
3. In Sec.  26.3, amend paragraphs (a)(1) and (2) by adding a sentence 
to the end of each to read as follows:

Sec.  26.3  To whom does this part apply?

    (a) * * *
    (1) * * * Titles I, III, and V of the Safe, Accountable, Flexible, 
Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU), 
Pub. L. 109-59, 119 Stat. 1144; and Divisions A and B of the Moving 
Ahead for Progress in the 21st Century Act (MAP-21), Pub. L. 112-141, 
126 Stat. 405.
    (2) * * * Titles I, III, and V of the Safe, Accountable, Flexible, 
Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU), 
Pub. L. 109-59, 119 Stat. 1144; and Divisions A and B of the Moving 
Ahead for Progress in the 21st Century Act (MAP-21), Pub. L. 112-141, 
126 Stat. 405.
* * * * *

0
4. Amend Sec.  26.5 by:
0
a. Adding in alphabetical order definitions for ``Assets'', ``Business, 
business concern or business enterprise'', ``Contingent Liability'', 
and ``Days'';
0
b. Removing the definition of ``DOT/SBA Memorandum of Understanding'';
0
c. Revising the definition of ``immediate family member'';
0
d. Adding in alphabetical order definition for ``Liabilities''
0
e. Revising the definitions of ``primary industry classification'', 
``principal place of business'', and ``socially and economically 
disadvantaged individual''; and
0
f. Adding in alphabetical order definitions for ``Spouse'' and 
``Transit vehicle manufacturer (TVM)''.
    The additions and revisions read as follows:

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

* * * * *
    Assets mean all the property of a person available for paying debts 
or for distribution, including one's respective share of jointly held 
assets. This includes, but is not limited to, cash on hand and in 
banks, savings accounts, IRA or other retirement accounts, accounts 
receivable, life insurance, stocks and bonds, real estate, and personal 
property.
* * * * *
    Business, business concern or business enterprise means an entity 
organized for profit with a place of business located in the United 
States, and which operates primarily within the United States or which 
makes a significant contribution to the United States economy through 
payment of taxes or use of American products, materials, or labor.
* * * * *
    Contingent Liability means a liability that depends on the 
occurrence of a future and uncertain event. This includes, but is not 
limited to, guaranty for debts owed by the applicant concern, legal 
claims and judgments, and provisions for federal income tax.
* * * * *
    Days mean calendar days. In computing any period of time described 
in this part, the day from which the period begins to run is not 
counted, and when the last day of the period is a Saturday, Sunday, or 
Federal holiday, the period extends to the next day that is not a 
Saturday, Sunday, or Federal holiday. Similarly, in circumstances where 
the recipient's offices are closed for all or part of the last day, the 
period extends to the next day on which the agency is open.
* * * * *
    Immediate family member means father, mother, husband, wife, son, 
daughter, brother, sister, grandfather, grandmother, father-in-law, 
mother-in-law, sister-in-law, brother-in-law, and domestic partner and 
civil unions recognized under State law.
* * * * *
    Liabilities mean financial or pecuniary obligations. This includes, 
but is not limited to, accounts payable, notes payable to bank or 
others, installment accounts, mortgages on real estate, and unpaid 
taxes.
* * * * *
    Primary industry classification means the most current North 
American Industry Classification System (NAICS) designation which best 
describes the primary business of a firm. The NAICS is described in the 
North American Industry Classification Manual--United States, which is 
available on the Internet at the U.S. Census Bureau Web site: http://www.census.gov/eos/www/naics/.
* * * * *
    Principal place of business means the business location where the 
individuals who manage the firm's day-to-day operations spend most 
working hours. If the offices from which management is directed and 
where the business records are kept are in different locations, the 
recipient will determine the principal place of business.
* * * * *
    Socially and economically disadvantaged individual means any 
individual who is a citizen (or lawfully admitted permanent resident) 
of the United States and who has been subjected to racial or ethnic 
prejudice or cultural bias within American society because of his or 
her identity as a members of groups and without regard to his or her 
individual qualities. The social disadvantage must stem from 
circumstances beyond the individual's control.
    (1) Any individual who a recipient finds to be a socially and 
economically disadvantaged individual on a case-by-case basis. An 
individual must demonstrate that he or she has held himself or herself 
out, as a member of a designated group if you require it.
    (2) Any individual in the following groups, members of which are 
rebuttably presumed to be socially and economically disadvantaged:

[[Page 59593]]

    (i) ``Black Americans,'' which includes persons having origins in 
any of the Black racial groups of Africa;
    (ii) ``Hispanic Americans,'' which includes persons of Mexican, 
Puerto Rican, Cuban, Dominican, Central or South American, or other 
Spanish or Portuguese culture or origin, regardless of race;
    (iii) ``Native Americans,'' which includes persons who are enrolled 
members of a federally or State recognized Indian tribe, Alaska 
Natives, or Native Hawaiians;
    (iv) ``Asian-Pacific Americans,'' which includes persons whose 
origins are from Japan, China, Taiwan, Korea, Burma (Myanmar), Vietnam, 
Laos, Cambodia (Kampuchea), Thailand, Malaysia, Indonesia, the 
Philippines, Brunei, Samoa, Guam, the U.S. Trust Territories of the 
Pacific Islands (Republic of Palau), Republic of the Northern Marianas 
Islands, Samoa, Macao, Fiji, Tonga, Kirbati, Tuvalu, Nauru, Federated 
States of Micronesia, or Hong Kong;
    (v) ``Subcontinent Asian Americans,'' which includes persons whose 
origins are from India, Pakistan, Bangladesh, Bhutan, the Maldives 
Islands, Nepal or Sri Lanka;
    (vi) Women;
    (vii) Any additional groups whose members are designated as 
socially and economically disadvantaged by the SBA, at such time as the 
SBA designation becomes effective.
    (3) Being born in a particular country does not, standing alone, 
mean that a person is necessarily a member of one of the groups listed 
in this definition.
    Spouse means a married person, including a person in a domestic 
partnership or a civil union recognized under State law.
    Transit vehicle manufacturer means any manufacturer whose primary 
business purpose is to manufacture vehicles specifically built for 
public mass transportation. Such vehicles include, but are not limited 
to: Buses, rail cars, trolleys, ferries, and vehicles manufactured 
specifically for paratransit purposes. Producers of vehicles that 
receive post-production alterations or retrofitting to be used for 
public transportation purposes (e.g., so-called cutaway vehicles, vans 
customized for service to people with disabilities) are also considered 
transit vehicle manufacturers. Businesses that manufacture, mass-
produce, or distribute vehicles solely for personal use and for sale 
``off the lot'' are not considered transit vehicle manufacturers.
* * * * *

0
5. In Sec.  26.11, add paragraphs (d) and (e) to read as follows:

Sec.  26.11  What records do recipients keep and report?

* * * * *
    (d) You must maintain records documenting a firm's compliance with 
the requirements of this part. At a minimum, you must keep a complete 
application package for each certified firm and all affidavits of no-
change, change notices, and on-site reviews. These records must be 
retained in accordance with applicable record retention requirements 
for the recipient's financial assistance agreement. Other certification 
or compliance related records must be retained for a minimum of three 
(3) years unless otherwise provided by applicable record retention 
requirements for the recipient's financial assistance agreement, 
whichever is longer.
    (e) The State department of transportation in each UCP established 
pursuant to Sec.  26.81 of this part must report to the Department of 
Transportation's Office of Civil Rights, by January 1, 2015, and each 
year thereafter, the percentage and location in the State of certified 
DBE firms in the UCP Directory controlled by the following:
    (1) Women;
    (2) Socially and economically disadvantaged individuals (other than 
women); and
    (3) Individuals who are women and are otherwise socially and 
economically disadvantaged individuals.

0
6. Revise Sec.  26.13, to read as follows:

Sec.  26.13  What assurances must recipients and contractors make?

    (a) Each financial assistance agreement you sign with a DOT 
operating administration (or a primary recipient) must include the 
following assurance: The recipient shall not discriminate on the basis 
of race, color, national origin, or sex in the award and performance of 
any DOT-assisted contract or in the administration of its DBE program 
or the requirements 49 CFR part 26. The recipient shall take all 
necessary and reasonable steps under 49 CFR part 26 to ensure 
nondiscrimination in the award and administration of DOT-assisted 
contracts. The recipient's DBE program, as required by 49 CFR part 26 
and as approved by DOT, is incorporated by reference in this agreement. 
Implementation of this program is a legal obligation and failure to 
carry out its terms shall be treated as a violation of this agreement. 
Upon notification to the recipient of its failure to carry out its 
approved program, the Department may impose sanctions as provided for 
under 49 CFR part 26 and may, in appropriate cases, refer the matter 
for enforcement under 18 U.S.C. 1001 and/or the Program Fraud Civil 
Remedies Act of 1986 (31 U.S.C. 3801 et seq.).
    (b) Each contract you sign with a contractor (and each subcontract 
the prime contractor signs with a subcontractor) must include the 
following assurance: The contractor, sub recipient or subcontractor 
shall not discriminate on the basis of race, color, national origin, or 
sex in the performance of this contract. The contractor shall carry out 
applicable requirements of 49 CFR part 26 in the award and 
administration of DOT-assisted contracts. Failure by the contractor to 
carry out these requirements is a material breach of this contract, 
which may result in the termination of this contract or such other 
remedy as the recipient deems appropriate, which may include, but is 
not limited to:
    (1) Withholding monthly progress payments;
    (2) Assessing sanctions;
    (3) Liquidated damages; and/or
    (4) Disqualifying the contractor from future bidding as non-
responsible.

Sec.  26.21  [Amended]

0
7. In Sec.  26.21, paragraph (a)(1) add the word ``primary'' before the 
word ``recipients'', and in paragraphs (a)(2) and (3), remove the word 
``exceeding'' and add in its place the words ``the cumulative total 
value of which exceeds''.
0
8. In Sec.  26.45, revise paragraphs (c)(2), (c)(5); (d) introductory 
text, (e)(3), (f)(4), and (g) to read as follows:

Sec.  26.45.  How do recipients set overall goals?

* * * * *
    (c) * * *
    (2) Use a bidders list. Determine the number of DBEs that have bid 
or quoted (successful and unsuccessful) on your DOT-assisted prime 
contracts or subcontracts in the past three years. Determine the number 
of all businesses that have bid or quoted (successful and unsuccessful) 
on prime or subcontracts in the same time period. Divide the number of 
DBE bidders and quoters by the number of all businesses to derive a 
base figure for the relative availability of DBEs in your market. When 
using this approach, you must establish a mechanism (documented in your 
goal submission) to directly capture data on DBE and non-DBE prime and

[[Page 59594]]

subcontractors that submitted bids or quotes on your DOT-assisted 
contracts.
* * * * *
    (5) Alternative methods. Except as otherwise provided in this 
paragraph, you may use other methods to determine a base figure for 
your overall goal. Any methodology you choose must be based on 
demonstrable evidence of local market conditions and be designed to 
ultimately attain a goal that is rationally related to the relative 
availability of DBEs in your market. The exclusive use of a list of 
prequalified contractors or plan holders, or a bidders list that does 
not comply with the requirements of paragraph (c)(2) of this section, 
is not an acceptable alternative means of determining the availability 
of DBEs.
    (d) Step 2. Once you have calculated a base figure, you must 
examine all of the evidence available in your jurisdiction to determine 
what adjustment, if any, is needed to the base figure to arrive at your 
overall goal. If the evidence does not suggest an adjustment is 
necessary, then no adjustment shall be made.
* * * * *
    (e) * * *
    (3) In appropriate cases, the FHWA, FTA or FAA Administrator may 
permit or require you to express your overall goal as a percentage of 
funds for a particular grant or project or group of grants and/or 
projects, including entire projects. Like other overall goals, a 
project goal may be adjusted to reflect changed circumstances, with the 
concurrence of the appropriate operating administration.
    (i) A project goal is an overall goal, and must meet all the 
substantive and procedural requirements of this section pertaining to 
overall goals.
    (ii) A project goal covers the entire length of the project to 
which it applies.
    (iii) The project goal should include a projection of the DBE 
participation anticipated to be obtained during each fiscal year 
covered by the project goal.
    (iv) The funds for the project to which the project goal pertains 
are separated from the base from which your regular overall goal, 
applicable to contracts not part of the project covered by a project 
goal, is calculated.
    (f) * * *
    (4) You are not required to obtain prior operating administration 
concurrence with your overall goal. However, if the operating 
administration's review suggests that your overall goal has not been 
correctly calculated or that your method for calculating goals is 
inadequate, the operating administration may, after consulting with 
you, adjust your overall goal or require that you do so. The adjusted 
overall goal is binding on you. In evaluating the adequacy or soundness 
of the methodology used to derive the overall goal, the operating 
administration will be guided by goal setting principles and best 
practices identified by the Department in guidance issued pursuant to 
Sec.  26.9.
* * * * *
    (g)(1) In establishing an overall goal, you must provide for 
consultation and publication. This includes:
    (i) Consultation with minority, women's and general contractor 
groups, community organizations, and other officials or organizations 
which could be expected to have information concerning the availability 
of disadvantaged and non-disadvantaged businesses, the effects of 
discrimination on opportunities for DBEs, and your efforts to establish 
a level playing field for the participation of DBEs. The consultation 
must include a scheduled, direct, interactive exchange (e.g., a face-
to-face meeting, video conference, teleconference) with as many 
interested stakeholders as possible focused on obtaining information 
relevant to the goal setting process, and it must occur before you are 
required to submit your methodology to the operating administration for 
review pursuant to paragraph (f) of this section. You must document in 
your goal submission the consultation process you engaged in. 
Notwithstanding paragraph (f)(4) of this section, you may not implement 
your proposed goal until you have complied with this requirement.
    (ii) A published notice announcing your proposed overall goal 
before submission to the operating administration on August 1st. The 
notice must be posted on your official Internet Web site and may be 
posted in any other sources (e.g., minority-focused media, trade 
association publications). If the proposed goal changes following 
review by the operating administration, the revised goal must be posted 
on your official Internet Web site.
    (2) At your discretion, you may inform the public that the proposed 
overall goal and its rationale are available for inspection during 
normal business hours at your principal office and for a 30-day comment 
period. Notice of the comment period must include addresses to which 
comments may be sent. The public comment period will not extend the 
August 1st deadline set in paragraph (f) of this section.
* * * * *

0
9. Revise Sec.  26.49 to read as follows:

Sec.  26.49  How are overall goals established for transit vehicle 
manufacturers?

    (a) If you are an FTA recipient, you must require in your DBE 
program that each transit vehicle manufacturer, as a condition of being 
authorized to bid or propose on FTA-assisted transit vehicle 
procurements, certify that it has complied with the requirements of 
this section. You do not include FTA assistance used in transit vehicle 
procurements in the base amount from which your overall goal is 
calculated.
    (1) Only those transit vehicle manufacturers listed on FTA's 
certified list of Transit Vehicle Manufacturers, or that have submitted 
a goal methodology to FTA that has been approved or has not been 
disapproved, at the time of solicitation are eligible to bid.
    (2) A TVM's failure to implement the DBE Program in the manner as 
prescribed in this section and throughout 49 CFR part 26 will be deemed 
as non-compliance, which will result in removal from FTA's certified 
TVMs list, resulting in that manufacturer becoming ineligible to bid.
    (3) FTA recipient's failure to comply with the requirements set 
forth in paragraph (a) of this section may result in formal enforcement 
action or appropriate sanction as determined by FTA (e.g., FTA 
declining to participate in the vehicle procurement).
    (4) FTA recipients are required to submit within 30 days of making 
an award, the name of the successful bidder, and the total dollar value 
of the contract in the manner prescribed in the grant agreement.
    (b) If you are a transit vehicle manufacturer, you must establish 
and submit for FTA's approval an annual overall percentage goal.
    (1) In setting your overall goal, you should be guided, to the 
extent applicable, by the principles underlying Sec.  26.45. The base 
from which you calculate this goal is the amount of FTA financial 
assistance included in transit vehicle contracts you will bid on during 
the fiscal year in question, less the portion(s) attributable to the 
manufacturing process performed entirely by the transit vehicle 
manufacturer's own forces.
    (i) You must consider and include in your base figure all domestic 
contracting opportunities made available to non-DBE firms; and
    (ii) You must exclude from this base figure funds attributable to 
work performed outside the United States and its territories, 
possessions, and commonwealths.
    (iii) In establishing an overall goal, the transit vehicle 
manufacturer must

[[Page 59595]]

provide for public participation. This includes consultation with 
interested parties consistent with Sec.  26.45(g).
    (2) The requirements of this part with respect to submission and 
approval of overall goals apply to you as they do to recipients.
    (c) Transit vehicle manufacturers awarded must comply with the 
reporting requirements of Sec.  26.11 of this part including the 
requirement to submit the Uniform Report of Awards or Commitments and 
Payments, in order to remain eligible to bid on FTA assisted transit 
vehicle procurements.
    (d) Transit vehicle manufacturers must implement all other 
applicable requirements of this part, except those relating to UCPs and 
DBE certification procedures.
    (e) If you are an FHWA or FAA recipient, you may, with FHWA or FAA 
approval, use the procedures of this section with respect to 
procurements of vehicles or specialized equipment. If you choose to do 
so, then the manufacturers of this equipment must meet the same 
requirements (including goal approval by FHWA or FAA) as transit 
vehicle manufacturers must meet in FTA-assisted procurements.
    (f) As a recipient you may, with FTA approval, establish project-
specific goals for DBE participation in the procurement of transit 
vehicles in lieu of complying through the procedures of this section.

0
10. In Sec.  26.51, revise paragraph (a) to read as follows:

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

    (a) You must meet the maximum feasible portion of your overall goal 
by using race-neutral means of facilitating race-neutral DBE 
participation. Race-neutral DBE participation includes any time a DBE 
wins a prime contract through customary competitive procurement 
procedures or is awarded a subcontract on a prime contract that does 
not carry a DBE contract goal.
* * * * *

0
11. In Sec.  26.53, revise paragraph (b), redesignate paragraph (f)(1) 
as (f)(1)(i) and add paragraph (f)(1)(ii), revise paragraphs (g) and 
(h), and add paragraph (j) to read as follows:

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

* * * * *
    (b) In your solicitations for DOT-assisted contracts for which a 
contract goal has been established, you must require the following:
    (1) Award of the contract will be conditioned on meeting the 
requirements of this section;
    (2) All bidders or offerors will be required to submit the 
following information to the recipient, at the time provided in 
paragraph (b)(3) of this section:
    (i) The names and addresses of DBE firms that will participate in 
the contract;
    (ii) A description of the work that each DBE will perform. To count 
toward meeting a goal, each DBE firm must be certified in a NAICS code 
applicable to the kind of work the firm would perform on the contract;
    (iii) The dollar amount of the participation of each DBE firm 
participating;
    (iv) Written documentation of the bidder/offeror's commitment to 
use a DBE subcontractor whose participation it submits to meet a 
contract goal; and
    (v) Written confirmation from each listed DBE firm that it is 
participating in the contract in the kind and amount of work provided 
in the prime contractor's commitment.
    (vi) If the contract goal is not met, evidence of good faith 
efforts (see Appendix A of this part). The documentation of good faith 
efforts must include copies of each DBE and non-DBE subcontractor quote 
submitted to the bidder when a non-DBE subcontractor was selected over 
a DBE for work on the contract; and
    (3)(i) At your discretion, the bidder/offeror must present the 
information required by paragraph (b)(2) of this section--
    (A) Under sealed bid procedures, as a matter of responsiveness, or 
with initial proposals, under contract negotiation procedures; or
    (B) No later than 7 days after bid opening as a matter of 
responsibility. The 7 days shall be reduced to 5 days beginning January 
1, 2017.
    (ii) Provided that, in a negotiated procurement, including a 
design-build procurement, the bidder/offeror may make a contractually 
binding commitment to meet the goal at the time of bid submission or 
the presentation of initial proposals but provide the information 
required by paragraph (b)(2) of this section before the final selection 
for the contract is made by the recipient.
* * * * *
    (f)(1) * * *
    (ii) You must include in each prime contract a provision stating:
    (A) That the contractor shall utilize the specific DBEs listed to 
perform the work and supply the materials for which each is listed 
unless the contractor obtains your written consent as provided in this 
paragraph (f); and
    (B) That, unless your consent is provided under this paragraph (f), 
the contractor shall not be entitled to any payment for work or 
material unless it is performed or supplied by the listed DBE.
* * * * *
    (g) When a DBE subcontractor is terminated as provided in paragraph 
(f) of this section, or fails to complete its work on the contract for 
any reason, you must require the prime contractor to make good faith 
efforts to find another DBE subcontractor to substitute for the 
original DBE. These good faith efforts shall be directed at finding 
another DBE to perform at least the same amount of work under the 
contract as the DBE that was terminated, to the extent needed to meet 
the contract goal you established for the procurement. The good faith 
efforts shall be documented by the contractor. If the recipient 
requests documentation under this provision, the contractor shall 
submit the documentation within 7 days, which may be extended for an 
additional 7 days if necessary at the request of the contractor, and 
the recipient shall provide a written determination to the contractor 
stating whether or not good faith efforts have been demonstrated.
    (h) You must include in each prime contract the contract clause 
required by Sec.  26.13(b) stating that failure by the contractor to 
carry out the requirements of this part is a material breach of the 
contract and may result in the termination of the contract or such 
other remedies set forth in that section you deem appropriate if the 
prime contractor fails to comply with the requirements of this section.
* * * * *
    (j) You must require the contractor awarded the contract to make 
available upon request a copy of all DBE subcontracts. The 
subcontractor shall ensure that all subcontracts or an agreement with 
DBEs to supply labor or materials require that the subcontract and all 
lower tier subcontractors be performed in accordance with this part's 
provisions.

0
12. In Sec.  26.55, revise paragraph (d)(5), redesignate paragraph 
(d)(6) as (d)(7), and add new paragraph (d)(6) and paragraph (e)(4) to 
read as follows:

Sec.  26.55  How is DBE participation counted toward goals?

* * * * *
    (d) * * *
    (5) The DBE may also lease trucks from a non-DBE firm, including 
from an owner-operator. The DBE that leases

[[Page 59596]]

trucks equipped with drivers from a non-DBE is entitled to credit for 
the total value of transportation services provided by non-DBE leased 
trucks equipped with drivers not to exceed the value of transportation 
services on the contract provided by DBE-owned trucks or leased trucks 
with DBE employee drivers. Additional participation by non-DBE owned 
trucks equipped with drivers receives credit only for the fee or 
commission it receives as a result of the lease arrangement. If a 
recipient chooses this approach, it must obtain written consent from 
the appropriate DOT operating administration.

    Example to paragraph (d)(5):  DBE Firm X uses two of its own 
trucks on a contract. It leases two trucks from DBE Firm Y and six 
trucks equipped with drivers from non-DBE Firm Z. DBE credit would 
be awarded for the total value of transportation services provided 
by Firm X and Firm Y, and may also be awarded for the total value of 
transportation services provided by four of the six trucks provided 
by Firm Z. In all, full credit would be allowed for the 
participation of eight trucks. DBE credit could be awarded only for 
the fees or commissions pertaining to the remaining trucks Firm X 
receives as a result of the lease with Firm Z.

    (6) The DBE may lease trucks without drivers from a non-DBE truck 
leasing company. If the DBE leases trucks from a non-DBE truck leasing 
company and uses its own employees as drivers, it is entitled to credit 
for the total value of these hauling services.

    Example to paragraph (d)(6):  DBE Firm X uses two of its own 
trucks on a contract. It leases two additional trucks from non-DBE 
Firm Z. Firm X uses its own employees to drive the trucks leased 
from Firm Z. DBE credit would be awarded for the total value of the 
transportation services provided by all four trucks.

* * * * *
    (e) * * *
    (4) You must determine the amount of credit awarded to a firm for 
the provisions of materials and supplies (e.g., whether a firm is 
acting as a regular dealer or a transaction expediter) on a contract-
by-contract basis.
* * * * *

0
13. In Sec.  26.65, revise paragraph (a), and in paragraph (b), remove 
``in excess of $22.41 million'' and add in its place ``in excess of 
$23.98 million''.
    The revision reads as follows:

Sec.  26.65  What rules govern business size determinations?

    (a) To be an eligible DBE, a firm (including its affiliates) must 
be an existing small business, as defined by Small Business 
Administration (SBA) standards. As a recipient, you must apply current 
SBA business size standard(s) found in 13 CFR part 121 appropriate to 
the type(s) of work the firm seeks to perform in DOT-assisted 
contracts, including the primary industry classification of the 
applicant.
* * * * *

0
14. Revise Sec.  26.67 to read as follows:

Sec.  26.67  What rules determine social and economic disadvantage?

    (a) Presumption of disadvantage. (1) You must rebuttably presume 
that citizens of the United States (or lawfully admitted permanent 
residents) who are women, Black Americans, Hispanic Americans, Native 
Americans, Asian-Pacific Americans, Subcontinent Asian Americans, or 
other minorities found to be disadvantaged by the SBA, are socially and 
economically disadvantaged individuals. You must require applicants to 
submit a signed, notarized certification that each presumptively 
disadvantaged owner is, in fact, socially and economically 
disadvantaged.
    (2)(i) You must require each individual owner of a firm applying to 
participate as a DBE, whose ownership and control are relied upon for 
DBE certification, to certify that he or she has a personal net worth 
that does not exceed $1.32 million.
    (ii) You must require each individual who makes this certification 
to support it with a signed, notarized statement of personal net worth, 
with appropriate supporting documentation. To meet this requirement, 
you must use the DOT personal net worth form provided in appendix G to 
this part without change or revision. Where necessary to accurately 
determine an individual's personal net worth, you may, on a case-by-
case basis, require additional financial information from the owner of 
an applicant firm (e.g., information concerning the assets of the 
owner's spouse, where needed to clarify whether assets have been 
transferred to the spouse or when the owner's spouse is involved in the 
operation of the company). Requests for additional information shall 
not be unduly burdensome or intrusive.
    (iii) In determining an individual's net worth, you must observe 
the following requirements:
    (A) Exclude an individual's ownership interest in the applicant 
firm;
    (B) Exclude the individual's equity in his or her primary residence 
(except any portion of such equity that is attributable to excessive 
withdrawals from the applicant firm). The equity is the market value of 
the residence less any mortgages and home equity loan balances. 
Recipients must ensure that home equity loan balances are included in 
the equity calculation and not as a separate liability on the 
individual's personal net worth form. Exclusions for net worth purposes 
are not exclusions for asset valuation or access to capital and credit 
purposes.
    (C) Do not use a contingent liability to reduce an individual's net 
worth.
    (D) With respect to assets held in vested pension plans, Individual 
Retirement Accounts, 401(k) accounts, or other retirement savings or 
investment programs in which the assets cannot be distributed to the 
individual at the present time without significant adverse tax or 
interest consequences, include only the present value of such assets, 
less the tax and interest penalties that would accrue if the asset were 
distributed at the present time.
    (iv) Notwithstanding any provision of Federal or State law, you 
must not release an individual's personal net worth statement nor any 
documents pertaining to it to any third party without the written 
consent of the submitter. Provided, that you must transmit this 
information to DOT in any certification appeal proceeding under Sec.  
26.89 of this part or to any other State to which the individual's firm 
has applied for certification under Sec.  26.85 of this part.
    (b) Rebuttal of presumption of disadvantage. (1) An individual's 
presumption of economic disadvantage may be rebutted in two ways.
    (i) If the statement of personal net worth and supporting 
documentation that an individual submits under paragraph (a)(2) of this 
section shows that the individual's personal net worth exceeds $1.32 
million, the individual's presumption of economic disadvantage is 
rebutted. You are not required to have a proceeding under paragraph 
(b)(2) of this section in order to rebut the presumption of economic 
disadvantage in this case.

    Example to paragraph (b)(1)(i):  An individual with very high 
assets and significant liabilities may, in accounting terms, have a 
PNW of less than $1.32 million. However, the person's assets 
collectively (e.g., high income level, a very expensive house, a 
yacht, extensive real or personal property holdings) may lead a 
reasonable person to conclude that he or she is not economically 
disadvantaged. The recipient may rebut the individual's presumption 
of economic disadvantage under these circumstances, as provided in 
this section, even though the individual's PNW is less than $1.32 
million.

    (ii)(A) If the statement of personal net worth and supporting 
documentation that an individual submits under paragraph (a)(2) of this 
section

[[Page 59597]]

demonstrates that the individual is able to accumulate substantial 
wealth, the individual's presumption of economic disadvantage is 
rebutted. In making this determination, as a certifying agency, you may 
consider factors that include, but are not limited to, the following:
    (1) Whether the average adjusted gross income of the owner over the 
most recent three year period exceeds $350,000;
    (2) Whether the income was unusual and not likely to occur in the 
future;
    (3) Whether the earnings were offset by losses;
    (4) Whether the income was reinvested in the firm or used to pay 
taxes arising in the normal course of operations by the firm;
    (5) Other evidence that income is not indicative of lack of 
economic disadvantage; and
    (6) Whether the total fair market value of the owner's assets 
exceed $6 million.
    (B) You must have a proceeding under paragraph (b)(2) of this 
section in order to rebut the presumption of economic disadvantage in 
this case.
    (2) If you have a reasonable basis to believe that an individual 
who is a member of one of the designated groups is not, in fact, 
socially and/or economically disadvantaged you may, at any time, start 
a proceeding to determine whether the presumption should be regarded as 
rebutted with respect to that individual. Your proceeding must follow 
the procedures of Sec.  26.87.
    (3) In such a proceeding, you have the burden of demonstrating, by 
a preponderance of the evidence, that the individual is not socially 
and economically disadvantaged. You may require the individual to 
produce information relevant to the determination of his or her 
disadvantage.
    (4) When an individual's presumption of social and/or economic 
disadvantage has been rebutted, his or her ownership and control of the 
firm in question cannot be used for purposes of DBE eligibility under 
this subpart unless and until he or she makes an individual showing of 
social and/or economic disadvantage. If the basis for rebutting the 
presumption is a determination that the individual's personal net worth 
exceeds $1.32 million, the individual is no longer eligible for 
participation in the program and cannot regain eligibility by making an 
individual showing of disadvantage, so long as his or her PNW remains 
above that amount.
    (c) Transfers within two years. (1) Except as set forth in 
paragraph (c)(2) of this section, recipients must attribute to an 
individual claiming disadvantaged status any assets which that 
individual has transferred to an immediate family member, to a trust a 
beneficiary of which is an immediate family member, or to the applicant 
firm for less than fair market value, within two years prior to a 
concern's application for participation in the DBE program or within 
two years of recipient's review of the firm's annual affidavit, unless 
the individual claiming disadvantaged status can demonstrate that the 
transfer is to or on behalf of an immediate family member for that 
individual's education, medical expenses, or some other form of 
essential support.
    (2) Recipients must not attribute to an individual claiming 
disadvantaged status any assets transferred by that individual to an 
immediate family member that are consistent with the customary 
recognition of special occasions, such as birthdays, graduations, 
anniversaries, and retirements.
    (d) Individual determinations of social and economic disadvantage. 
Firms owned and controlled by individuals who are not presumed to be 
socially and economically disadvantaged (including individuals whose 
presumed disadvantage has been rebutted) may apply for DBE 
certification. You must make a case-by-case determination of whether 
each individual whose ownership and control are relied upon for DBE 
certification is socially and economically disadvantaged. In such a 
proceeding, the applicant firm has the burden of demonstrating to you, 
by a preponderance of the evidence, that the individuals who own and 
control it are socially and economically disadvantaged. An individual 
whose personal net worth exceeds $1.32 million shall not be deemed to 
be economically disadvantaged. In making these determinations, use the 
guidance found in Appendix E of this part. You must require that 
applicants provide sufficient information to permit determinations 
under the guidance of appendix E of this part.

0
15. In Sec.  26.69, revise paragraphs (a) and (c) to read as follows:

Sec.  26.69  What rules govern determinations of ownership?

    (a) In determining whether the socially and economically 
disadvantaged participants in a firm own the firm, you must consider 
all the facts in the record viewed as a whole, including the origin of 
all assets and how and when they were used in obtaining the firm. All 
transactions for the establishment and ownership (or transfer of 
ownership) must be in the normal course of business, reflecting 
commercial and arms-length practices.
* * * * *
    (c)(1) The firm's ownership by socially and economically 
disadvantaged individuals, including their contribution of capital or 
expertise to acquire their ownership interests, must be real, 
substantial, and continuing, going beyond pro forma ownership of the 
firm as reflected in ownership documents. Proof of contribution of 
capital should be submitted at the time of the application. When the 
contribution of capital is through a loan, there must be documentation 
of the value of assets used as collateral for the loan.

    (2) Insufficient contributions include a promise to contribute 
capital, an unsecured note payable to the firm or an owner who is not a 
disadvantaged individual, mere participation in a firm's activities as 
an employee, or capitalization not commensurate with the value for the 
firm.
    (3) The disadvantaged owners must enjoy the customary incidents of 
ownership, and share in the risks and be entitled to the profits and 
loss commensurate with their ownership interests, as demonstrated by 
the substance, not merely the form, of arrangements. Any terms or 
practices that give a non-disadvantaged individual or firm a priority 
or superior right to a firm's profits, compared to the disadvantaged 
owner(s), are grounds for denial.
    (4) Debt instruments from financial institutions or other 
organizations that lend funds in the normal course of their business do 
not render a firm ineligible, even if the debtor's ownership interest 
is security for the loan.

    Examples to paragraph (c):  (i) An individual pays $100 to 
acquire a majority interest in a firm worth $1 million. The 
individual's contribution to capital would not be viewed as 
substantial.
    (ii) A 51% disadvantaged owner and a non-disadvantaged 49% owner 
contribute $100 and $10,000, respectively, to acquire a firm 
grossing $1 million. This may be indicative of a pro forma 
arrangement that does not meet the requirements of (c)(1).
    (iii) The disadvantaged owner of a DBE applicant firm spends 
$250 to file articles of incorporation and obtains a $100,000 loan, 
but makes only nominal or sporadic payments to repay the loan. This 
type of contribution is not of a continuing nature.
* * * * *

0
16. In Sec.  26.71, revise paragraphs (e) and (l) to read as follows:

Sec.  26.71  What rules govern determinations concerning control?

* * * * *

[[Page 59598]]

    (e) Individuals who are not socially and economically disadvantaged 
or immediate family members may be involved in a DBE firm as owners, 
managers, employees, stockholders, officers, and/or directors. Such 
individuals must not, however possess or exercise the power to control 
the firm, or be disproportionately responsible for the operation of the 
firm.
* * * * *
    (l) Where a firm was formerly owned and/or controlled by a non-
disadvantaged individual (whether or not an immediate family member), 
ownership and/or control were transferred to a socially and 
economically disadvantaged individual, and the nondisadvantaged 
individual remains involved with the firm in any capacity, there is a 
rebuttable presumption of control by the non-disadvantaged individual 
unless the disadvantaged individual now owning the firm demonstrates to 
you, by clear and convincing evidence, that:
    (1) The transfer of ownership and/or control to the disadvantaged 
individual was made for reasons other than obtaining certification as a 
DBE; and
    (2) The disadvantaged individual actually controls the management, 
policy, and operations of the firm, notwithstanding the continuing 
participation of a nondisadvantaged individual who formerly owned and/
or controlled the firm.
* * * * *

Sec.  26.73  [Amended]

0
17. In Sec.  26.73, in paragraph (g), remove the words ``unless the 
recipient requires all firms that participate in its contracts and 
subcontracts to be prequalified'' and in paragraph (h), remove 
``26.35'' and add in its place ``26.65''.

0
18. In Sec.  26.83, revise paragraphs (c), (h), and (j), to read as 
follows:

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

* * * * *
    (c)(1) You must take all the following steps in determining whether 
a DBE firm meets the standards of subpart D of this part:
    (i) Perform an on-site visit to the firm's principal place of 
business. You must interview the principal officers and review their 
r[eacute]sum[eacute]s and/or work histories. You may interview key 
personnel of the firm if necessary. You must also perform an on-site 
visit to job sites if there are such sites on which the firm is working 
at the time of the eligibility investigation in your jurisdiction or 
local area. You may rely upon the site visit report of any other 
recipient with respect to a firm applying for certification;
    (ii) Analyze documentation related to the legal structure, 
ownership, and control of the applicant firm. This includes, but is not 
limited to, Articles of Incorporation/Organization; corporate by-laws 
or operating agreements; organizational, annual and board/member 
meeting records; stock ledgers and certificates; and State-issued 
Certificates of Good Standing
    (iii) Analyze the bonding and financial capacity of the firm; lease 
and loan agreements; bank account signature cards;
    (iv) Determine the work history of the firm, including contracts it 
has received, work it has completed; and payroll records;
    (v) Obtain a statement from the firm of the type of work it prefers 
to perform as part of the DBE program and its preferred locations for 
performing the work, if any.
    (vi) Obtain or compile a list of the equipment owned by or 
available to the firm and the licenses the firm and its key personnel 
possess to perform the work it seeks to do as part of the DBE program;
    (vii) Obtain complete Federal income tax returns (or requests for 
extensions) filed by the firm, its affiliates, and the socially and 
economically disadvantaged owners for the last 3 years. A complete 
return includes all forms, schedules, and statements filed with the 
Internal Revenue Service.
    (viii) Require potential DBEs to complete and submit an appropriate 
application form, except as otherwise provided in Sec.  26.85 of this 
part.
    (2) You must use the application form provided in Appendix F to 
this part without change or revision. However, you may provide in your 
DBE program, with the written approval of the concerned operating 
administration, for supplementing the form by requesting specified 
additional information not inconsistent with this part.
    (3) You must make sure that the applicant attests to the accuracy 
and truthfulness of the information on the application form. This shall 
be done either in the form of an affidavit sworn to by the applicant 
before a person who is authorized by State law to administer oaths or 
in the form of an unsworn declaration executed under penalty of perjury 
of the laws of the United States.
    (4) You must review all information on the form prior to making a 
decision about the eligibility of the firm. You may request 
clarification of information contained in the application at any time 
in the application process.
* * * * *
    (h)(1) Once you have certified a DBE, it shall remain certified 
until and unless you have removed its certification, in whole or in 
part, through the procedures of Sec.  26.87 of this part, except as 
provided in Sec.  26.67(b)(1) of this part.
    (2) You may not require DBEs to reapply for certification or 
undergo a recertification process. However, you may conduct a 
certification review of a certified DBE firm, including a new on-site 
review, if appropriate in light of changed circumstances (e.g., of the 
kind requiring notice under paragraph (i) of this section or relating 
to suspension of certification under Sec.  26.88), a complaint, or 
other information concerning the firm's eligibility. If information 
comes to your attention that leads you to question the firm's 
eligibility, you may conduct an on-site review on an unannounced basis, 
at the firm's offices and job sites.
* * * * *
    (j) If you are a DBE, you must provide to the recipient, every year 
on the anniversary of the date of your certification, an affidavit 
sworn to by the firm's owners before a person who is authorized by 
State law to administer oaths or an unsworn declaration executed under 
penalty of perjury of the laws of the United States. This affidavit 
must affirm that there have been no changes in the firm's circumstances 
affecting its ability to meet size, disadvantaged status, ownership, or 
control requirements of this part or any material changes in the 
information provided in its application form, except for changes about 
which you have notified the recipient under paragraph (i) of this 
section. The affidavit shall specifically affirm that your firm 
continues to meet SBA business size criteria and the overall gross 
receipts cap of this part, documenting this affirmation with supporting 
documentation of your firm's size and gross receipts (e.g., submission 
of Federal tax returns). If you fail to provide this affidavit in a 
timely manner, you will be deemed to have failed to cooperate under 
Sec.  26.109(c).
* * * * *

0
19. In Sec.  26.86, remove and reserve paragraph (b) and add a sentence 
to the end of paragraph (c) to read as follows:

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

* * * * *
    (c) * * * An applicant's appeal of your decision to the Department

[[Page 59599]]

pursuant to Sec.  26.89 does not extend this period.
* * * * *

0
20. In Sec.  26.87, revise paragraphs (f) and (g) to read as follows:

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

* * * * *
    (f) Grounds for decision. You may base a decision to remove a 
firm's eligibility only on one or more of the following grounds:
    (1) Changes in the firm's circumstances since the certification of 
the firm by the recipient that render the firm unable to meet the 
eligibility standards of this part;
    (2) Information or evidence not available to you at the time the 
firm was certified;
    (3) Information relevant to eligibility that has been concealed or 
misrepresented by the firm;
    (4) A change in the certification standards or requirements of the 
Department since you certified the firm;
    (5) Your decision to certify the firm was clearly erroneous;
    (6) The firm has failed to cooperate with you (see Sec.  
26.109(c));
    (7) The firm has exhibited a pattern of conduct indicating its 
involvement in attempts to subvert the intent or requirements of the 
DBE program (see Sec.  26.73(a)(2)); or
    (8) The firm has been suspended or debarred for conduct related to 
the DBE program. The notice required by paragraph (g) of this section 
must include a copy of the suspension or debarment action. A decision 
to remove a firm for this reason shall not be subject to the hearing 
procedures in paragraph (d) of this section.
    (g) Notice of decision. Following your decision, you must provide 
the firm written notice of the decision and the reasons for it, 
including specific references to the evidence in the record that 
supports each reason for the decision. The notice must inform the firm 
of the consequences of your decision and of the availability of an 
appeal to the Department of Transportation under Sec.  26.89. You must 
send copies of the notice to the complainant in an ineligibility 
complaint or the concerned operating administration that had directed 
you to initiate the proceeding. Provided that, when sending such a 
notice to a complainant other than a DOT operating administration, you 
must not include information reasonably construed as confidential 
business information without the written consent of the firm that 
submitted the information.
* * * * *

0
21. Add Sec.  26.88 to read as follows:

Sec.  26.88  Summary suspension of certification.

    (a) A recipient shall immediately suspend a DBE's certification 
without adhering to the requirements in Sec.  26.87(d) of this part 
when an individual owner whose ownership and control of the firm are 
necessary to the firm's certification dies or is incarcerated.
    (b)(1) A recipient may immediately suspend a DBE's certification 
without adhering to the requirements in Sec.  26.87(d) when there is 
adequate evidence to believe that there has been a material change in 
circumstances that may affect the eligibility of the DBE firm to remain 
certified, or when the DBE fails to notify the recipient or UCP in 
writing of any material change in circumstances as required by Sec.  
26.83(i) of this part or fails to timely file an affidavit of no change 
under Sec.  26.83(j).
    (2) In determining the adequacy of the evidence to issue a 
suspension under paragraph (b)(1) of this section, the recipient shall 
consider all relevant factors, including how much information is 
available, the credibility of the information and allegations given the 
circumstances, whether or not important allegations are corroborated, 
and what inferences can reasonably be drawn as a result.
    (c) The concerned operating administration may direct the recipient 
to take action pursuant to paragraph (a) or (b) this section if it 
determines that information available to it is sufficient to warrant 
immediate suspension.
    (d) When a firm is suspended pursuant to paragraph (a) or (b) of 
this section, the recipient shall immediately notify the DBE of the 
suspension by certified mail, return receipt requested, to the last 
known address of the owner(s) of the DBE.
    (e) Suspension is a temporary status of ineligibility pending an 
expedited show cause hearing/proceeding under Sec.  26.87 of this part 
to determine whether the DBE is eligible to participate in the program 
and consequently should be removed. The suspension takes effect when 
the DBE receives, or is deemed to have received, the Notice of 
Suspension.
    (f) While suspended, the DBE may not be considered to meet a 
contract goal on a new contract, and any work it does on a contract 
received during the suspension shall not be counted toward a 
recipient's overall goal. The DBE may continue to perform under an 
existing contract executed before the DBE received a Notice of 
Suspension and may be counted toward the contract goal during the 
period of suspension as long as the DBE is performing a commercially 
useful function under the existing contract.
    (g) Following receipt of the Notice of Suspension, if the DBE 
believes it is no longer eligible, it may voluntarily withdraw from the 
program, in which case no further action is required. If the DBE 
believes that its eligibility should be reinstated, it must provide to 
the recipient information demonstrating that the firm is eligible 
notwithstanding its changed circumstances. Within 30 days of receiving 
this information, the recipient must either lift the suspension and 
reinstate the firm's certification or commence a decertification action 
under Sec.  26.87 of this part. If the recipient commences a 
decertification proceeding, the suspension remains in effect during the 
proceeding.
    (h) The decision to immediately suspend a DBE under paragraph (a) 
or (b) of this section is not appealable to the US Department of 
Transportation. The failure of a recipient to either lift the 
suspension and reinstate the firm or commence a decertification 
proceeding, as required by paragraph (g) of this section, is appealable 
to the U.S. Department of Transportation under Sec.  26.89 of this 
part, as a constructive decertification.

0
22. In Sec.  26.89, revise paragraphs (a)(1) and (3), (c), and (e) to 
read as follows:

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

    (a)(1) If you are a firm that is denied certification or whose 
eligibility is removed by a recipient, including SBA-certified firms, 
you may make an administrative appeal to the Department.
* * * * *
    (3) Send appeals to the following address: U.S. Department of 
Transportation, Departmental Office of Civil Rights, 1200 New Jersey 
Avenue SE., Washington, DC 20590-0001.
* * * * *
    (c) If you want to file an appeal, you must send a letter to the 
Department within 90 days of the date of the recipient's final 
decision, including information and setting forth a full and specific 
statement as to why the decision is erroneous, what significant fact 
that the recipient failed to consider, or what provisions of this Part 
the recipient did not properly apply. The Department may accept an 
appeal filed later than 90 days after the date of the decision if the 
Department determines that there was good cause for the late

[[Page 59600]]

filing of the appeal or in the interest of justice.
* * * * *
    (e) The Department makes its decision based solely on the entire 
administrative record as supplemented by the appeal. The Department 
does not make a de novo review of the matter and does not conduct a 
hearing. The Department may also supplement the administrative record 
by adding relevant information made available by the DOT Office of 
Inspector General; Federal, State, or local law enforcement 
authorities; officials of a DOT operating administration or other 
appropriate DOT office; a recipient; or a firm or other private party.
* * * * *

0
23. Revise appendix A to part 26 to read as follows:

Appendix A to Part 26--Guidance Concerning Good Faith Efforts

    I. When, as a recipient, you establish a contract goal on a DOT-
assisted contract for procuring construction, equipment, services, 
or any other purpose, a bidder must, in order to be responsible and/
or responsive, make sufficient good faith efforts to meet the goal. 
The bidder can meet this requirement in either of two ways. First, 
the bidder can meet the goal, documenting commitments for 
participation by DBE firms sufficient for this purpose. Second, even 
if it doesn't meet the goal, the bidder can document adequate good 
faith efforts. This means that the bidder must show that it took all 
necessary and reasonable steps to achieve a DBE goal or other 
requirement of this part which, by their scope, intensity, and 
appropriateness to the objective, could reasonably be expected to 
obtain sufficient DBE participation, even if they were not fully 
successful.
    II. In any situation in which you have established a contract 
goal, Part 26 requires you to use the good faith efforts mechanism 
of this part. As a recipient, you have the responsibility to make a 
fair and reasonable judgment whether a bidder that did not meet the 
goal made adequate good faith efforts. It is important for you to 
consider the quality, quantity, and intensity of the different kinds 
of efforts that the bidder has made, based on the regulations and 
the guidance in this Appendix.
    The efforts employed by the bidder should be those that one 
could reasonably expect a bidder to take if the bidder were actively 
and aggressively trying to obtain DBE participation sufficient to 
meet the DBE contract goal. Mere pro forma efforts are not good 
faith efforts to meet the DBE contract requirements. We emphasize, 
however, that your determination concerning the sufficiency of the 
firm's good faith efforts is a judgment call. Determinations should 
not be made using quantitative formulas.
    III. The Department also strongly cautions you against requiring 
that a bidder meet a contract goal (i.e., obtain a specified amount 
of DBE participation) in order to be awarded a contract, even though 
the bidder makes an adequate good faith efforts showing. This rule 
specifically prohibits you from ignoring bona fide good faith 
efforts.
    IV. The following is a list of types of actions which you should 
consider as part of the bidder's good faith efforts to obtain DBE 
participation. It is not intended to be a mandatory checklist, nor 
is it intended to be exclusive or exhaustive. Other factors or types 
of efforts may be relevant in appropriate cases.
    A. (1) Conducing market research to identify small business 
contractors and suppliers and soliciting through all reasonable and 
available means the interest of all certified DBEs that have the 
capability to perform the work of the contract. This may include 
attendance at pre-bid and business matchmaking meetings and events, 
advertising and/or written notices, posting of Notices of Sources 
Sought and/or Requests for Proposals, written notices or emails to 
all DBEs listed in the State's directory of transportation firms 
that specialize in the areas of work desired (as noted in the DBE 
directory) and which are located in the area or surrounding areas of 
the project.
    (2) The bidder should solicit this interest as early in the 
acquisition process as practicable to allow the DBEs to respond to 
the solicitation and submit a timely offer for the subcontract. The 
bidder should determine with certainty if the DBEs are interested by 
taking appropriate steps to follow up initial solicitations.
    B. Selecting portions of the work to be performed by DBEs in 
order to increase the likelihood that the DBE goals will be 
achieved. This includes, where appropriate, breaking out contract 
work items into economically feasible units (for example, smaller 
tasks or quantities) to facilitate DBE participation, even when the 
prime contractor might otherwise prefer to perform these work items 
with its own forces. This may include, where possible, establishing 
flexible timeframes for performance and delivery schedules in a 
manner that encourages and facilitates DBE participation.
    C. Providing interested DBEs with adequate information about the 
plans, specifications, and requirements of the contract in a timely 
manner to assist them in responding to a solicitation with their 
offer for the subcontract.
    D. (1) Negotiating in good faith with interested DBEs. It is the 
bidder's responsibility to make a portion of the work available to 
DBE subcontractors and suppliers and to select those portions of the 
work or material needs consistent with the available DBE 
subcontractors and suppliers, so as to facilitate DBE participation. 
Evidence of such negotiation includes the names, addresses, and 
telephone numbers of DBEs that were considered; a description of the 
information provided regarding the plans and specifications for the 
work selected for subcontracting; and evidence as to why additional 
Agreements could not be reached for DBEs to perform the work.
    (2) A bidder using good business judgment would consider a 
number of factors in negotiating with subcontractors, including DBE 
subcontractors, and would take a firm's price and capabilities as 
well as contract goals into consideration. However, the fact that 
there may be some additional costs involved in finding and using 
DBEs is not in itself sufficient reason for a bidder's failure to 
meet the contract DBE goal, as long as such costs are reasonable. 
Also, the ability or desire of a prime contractor to perform the 
work of a contract with its own organization does not relieve the 
bidder of the responsibility to make good faith efforts. Prime 
contractors are not, however, required to accept higher quotes from 
DBEs if the price difference is excessive or unreasonable.
    E. (1) Not rejecting DBEs as being unqualified without sound 
reasons based on a thorough investigation of their capabilities. The 
contractor's standing within its industry, membership in specific 
groups, organizations, or associations and political or social 
affiliations (for example union vs. non-union status) are not 
legitimate causes for the rejection or non-solicitation of bids in 
the contractor's efforts to meet the project goal. Another practice 
considered an insufficient good faith effort is the rejection of the 
DBE because its quotation for the work was not the lowest received. 
However, nothing in this paragraph shall be construed to require the 
bidder or prime contractor to accept unreasonable quotes in order to 
satisfy contract goals.
    (2) A prime contractor's inability to find a replacement DBE at 
the original price is not alone sufficient to support a finding that 
good faith efforts have been made to replace the original DBE. The 
fact that the contractor has the ability and/or desire to perform 
the contract work with its own forces does not relieve the 
contractor of the obligation to make good faith efforts to find a 
replacement DBE, and it is not a sound basis for rejecting a 
prospective replacement DBE's reasonable quote.
    F. Making efforts to assist interested DBEs in obtaining 
bonding, lines of credit, or insurance as required by the recipient 
or contractor.
    G. Making efforts to assist interested DBEs in obtaining 
necessary equipment, supplies, materials, or related assistance or 
services.
    H. Effectively using the services of available minority/women 
community organizations; minority/women contractors' groups; local, 
State, and Federal minority/women business assistance offices; and 
other organizations as allowed on a case-by-case basis to provide 
assistance in the recruitment and placement of DBEs.
    V. In determining whether a bidder has made good faith efforts, 
it is essential to scrutinize its documented efforts. At a minimum, 
you must review the performance of other bidders in meeting the 
contract goal. For example, when the apparent successful bidder 
fails to meet the contract goal, but others meet it, you may 
reasonably raise the question of whether, with additional efforts, 
the apparent successful bidder could have met the goal. If the 
apparent successful bidder fails to meet the goal, but meets or 
exceeds the average DBE participation obtained by other bidders, you 
may view this, in conjunction with other factors, as evidence of the 
apparent successful bidder having made good faith efforts. As 
provided in Sec.  26.53(b)(2)((vi), you must also require the

[[Page 59601]]

contractor to submit copies of each DBE and non-DBE subcontractor 
quote submitted to the bidder when a non-DBE subcontractor was 
selected over a DBE for work on the contract to review whether DBE 
prices were substantially higher; and contact the DBEs listed on a 
contractor's solicitation to inquire as to whether they were 
contacted by the prime. Pro forma mailings to DBEs requesting bids 
are not alone sufficient to satisfy good faith efforts under the 
rule.
    VI . A promise to use DBEs after contract award is not 
considered to be responsive to the contract solicitation or to 
constitute good faith efforts.

0
24. Revise appendix B to part 26 to read as follows:

Appendix B to 49 CFR Part 26--Uniform Report of DBE Awards or 
Commitments and Payments Form

INSTRUCTIONS FOR COMPLETING THE UNIFORM REPORT OF DBE AWARDS/
COMMITMENTS AND PAYMENTS

    Recipients of Department of Transportation (DOT) funds are 
expected to keep accurate data regarding the contracting 
opportunities available to firms paid for with DOT dollars. Failure 
to submit contracting data relative to the DBE program will result 
in noncompliance with Part 26. All dollar values listed on this form 
should represent the DOT share attributable to the Operating 
Administration (OA): Federal Highway Administration (FHWA), Federal 
Aviation Administration (FAA) or Federal Transit Administration 
(FTA) to which this report will be submitted.
    1. Indicate the DOT (OA) that provides your Federal financial 
assistance. If assistance comes from more than one OA, use separate 
reporting forms for each OA. If you are an FTA recipient, indicate 
your Vendor Number in the space provided.
    2. If you are an FAA recipient, indicate the relevant AIP 
Numbers covered by this report. If you are an FTA recipient, 
indicate the Grant/Project numbers covered by this report. If more 
than ten attach a separate sheet.
    3. Specify the Federal fiscal year (i.e., October 1-September 
30) in which the covered reporting period falls.
    4. State the date of submission of this report.
    5. Check the appropriate box that indicates the reporting period 
that the data provided in this report covers. For FHWA and FTA 
recipients, if this report is due June 1, data should cover October 
1-March 31. If this report is due December 1, data should cover 
April 1-September 30. If the report is due to the FAA, data should 
cover the entire year.
    6. Provide the name and address of the recipient.
    7. State your overall DBE goal(s) established for the Federal 
fiscal year of the report being submitted to and approved by the 
relevant OA. Your overall goal is to be reported as well as the 
breakdown for specific Race Conscious and Race Neutral projections 
(both of which include gender-conscious/neutral projections). The 
Race Conscious projection should be based on measures that focus on 
and provide benefits only for DBEs. The use of contract goals is a 
primary example of a race conscious measure. The Race Neutral 
projection should include measures that, while benefiting DBEs, are 
not solely focused on DBE firms. For example, a small business 
outreach program, technical assistance, and prompt payment clauses 
can assist a wide variety of businesses in addition to helping DBE 
firms.

Section A: Awards and Commitments Made During This Period

    The amounts in items 8(A)-10(I) should include all types of 
prime contracts awarded and all types of subcontracts awarded or 
committed, including: professional or consultant services, 
construction, purchase of materials or supplies, lease or purchase 
of equipment and any other types of services. All dollar amounts are 
to reflect only the Federal share of such contracts and should be 
rounded to the nearest dollar.
    Line 8: Prime contracts awarded this period: The items on this 
line should correspond to the contracts directly between the 
recipient and a supply or service contractor, with no intermediaries 
between the two.
    8(A). Provide the total dollar amount for all prime contracts 
assisted with DOT funds and awarded during this reporting period. 
This value should include the entire Federal share of the contracts 
without removing any amounts associated with resulting subcontracts.
    8(B). Provide the total number of all prime contracts assisted 
with DOT funds and awarded during this reporting period.
    8(C). From the total dollar amount awarded in item 8(A), provide 
the dollar amount awarded in prime contracts to certified DBE firms 
during this reporting period. This amount should not include the 
amounts sub contracted to other firms.
    8(D). From the total number of prime contracts awarded in item 
8(B), specify the number of prime contracts awarded to certified DBE 
firms during this reporting period.
    8(E&F). This field is closed for data entry. Except for the very 
rare case of DBE-set asides permitted under 49 CFR part 26, all 
prime contracts awarded to DBES are regarded as race-neutral.
    8(G). From the total dollar amount awarded in item 8(C), provide 
the dollar amount awarded to certified DBEs through the use of Race 
Neutral methods. See the definition of Race Neutral in item 7 and 
the explanation in item 8 of project types to include.
    8(H). From the total number of prime contracts awarded in 8(D), 
specify the number awarded to DBEs through Race Neutral methods.
    8(I). Of all prime contracts awarded this reporting period, 
calculate the percentage going to DBEs. Divide the dollar amount in 
item 8(C) by the dollar amount in item 8(A) to derive this 
percentage. Round percentage to the nearest tenth.
    Line 9: Subcontracts awarded/committed this period: Items 9(A)-
9(I) are derived in the same way as items 8(A)-8(I), except that 
these calculations should be based on subcontracts rather than prime 
contracts. Unlike prime contracts, which may only be awarded, 
subcontracts may be either awarded or committed.
    9(A). If filling out the form for general reporting, provide the 
total dollar amount of subcontracts assisted with DOT funds awarded 
or committed during this period. This value should be a subset of 
the total dollars awarded in prime contracts in 8(A), and therefore 
should never be greater than the amount awarded in prime contracts. 
If filling out the form for project reporting, provide the total 
dollar amount of subcontracts assisted with DOT funds awarded or 
committed during this period. This value should be a subset of the 
total dollars awarded or previously in prime contracts in 8(A). The 
sum of all subcontract amounts in consecutive periods should never 
exceed the sum of all prime contract amounts awarded in those 
periods.
    9(B). Provide the total number of all sub contracts assisted 
with DOT funds that were awarded or committed during this reporting 
period.
    9(C). From the total dollar amount of sub contracts awarded/
committed this period in item 9(A), provide the total dollar amount 
awarded in sub contracts to DBEs.
    9(D). From the total number of sub contracts awarded or 
committed in item 9(B), specify the number of sub contracts awarded 
or committed to DBEs.
    9(E). From the total dollar amount of sub contracts awarded or 
committed to DBEs this period, provide the amount in dollars to DBEs 
using Race Conscious measures.
    9(F). From the total number of sub contracts awarded orcommitted 
to DBEs this period, provide the number of sub contracts awarded or 
committed to DBEs using Race Conscious measures.
    9(G). From the total dollar amount of sub contracts awarded/
committed to DBEs this period, provide the amount in dollars to DBEs 
using Race Neutral measures.
    9(H). From the total number of sub contracts awarded/committed 
to DBEs this period, provide the number of sub contracts awarded to 
DBEs using Race Neutral measures.
    9(I). Of all subcontracts awarded this reporting period, 
calculate the percentage going to DBEs. Divide the dollar amount in 
item 9(C) by the dollar amount in item 9(A) to derive this 
percentage. Round percentage to the nearest tenth.
    Line 10: Total contracts awarded or committed this period. These 
fields should be used to show the total dollar value and number of 
contracts awarded to DBEs and to calculate the overall percentage of 
dollars awarded to DBEs.
    10(A)-10(B). These fields are unavailable for data entry.
    10(C-H). Combine the total values listed on the prime contracts 
line (Line 8) with the corresponding values on the subcontracts line 
(Line 9).
    10(I). Of all contracts awarded this reporting period, calculate 
the percentage going to DBEs. Divide the total dollars awarded to 
DBEs in item 10(C) by the dollar amount in item 8(A) to derive this 
percentage. Round percentage to the nearest tenth.

[[Page 59602]]

Section B: Breakdown by Ethnicity & Gender of Contracts Awarded to 
DBEs This Period

    11-17. Further breakdown the contracting activity with DBE 
involvement. The Total Dollar Amount to DBEs in 17(C) should equal 
the Total Dollar Amount to DBEs in 10(C). Likewise the total number 
of contracts to DBEs in 17(F) should equal the Total Number of 
Contracts to DBEs in 10(D).
    Line 16: The ``Non-Minority'' category is reserved for any firms 
whose owners are not members of the presumptively disadvantaged 
groups already listed, but who are either ``women'' OR eligible for 
the DBE program on an individual basis. All DBE firms must be 
certified by the Unified Certification Program to be counted in this 
report.

Section C: Payments on Ongoing Contracts

    Line 18(A-E). Submit information on contracts that are currently 
in progress. All dollar amounts are to reflect only the Federal 
share of such contracts, and should be rounded to the nearest 
dollar.
    18(A). Provide the total dollar amount paid to all firms 
performing work on contracts.
    18(B). Provide the total number of contracts where work was 
performed during the reporting period.
    18(C). From the total number of contracts provided in 18(A) 
provide the total number of contracts that are currently being 
performed by DBE firms for which payments have been made.
    18(D). From the total dollar amount paid to all firms in 18(A), 
provide the total dollar value paid to DBE firms currently 
performing work during this period.
    18(E). Provide the total number of DBE firms that received 
payment during this reporting period. For example, while 3 contracts 
may be active during this period, one DBE firm may be providing 
supplies or services on all three contracts. This field should only 
list the number of DBE firms performing work.
    18(F). Of all payments made during this period, calculate the 
percentage going to DBEs. Divide the total dollar value to DBEs in 
item 18(D) by the total dollars of all payments in 18(B). Round 
percentage to the nearest tenth.

Section D: Actual Payments on Contracts Completed This Reporting 
Period

    This section should provide information only on contracts that 
are closed during this period. All dollar amounts are to reflect the 
entire Federal share of such contracts, and should be rounded to the 
nearest dollar.
    19(A). Provide the total number of contracts completed during 
this reporting period that used Race Conscious measures. Race 
Conscious contracts are those with contract goals or another race 
conscious measure.
    19(B). Provide the total dollar value of prime contracts 
completed this reporting period that had race conscious measures.
    19(C). From the total dollar value of prime contracts completed 
this period in 19(B), provide the total dollar amount of dollars 
awarded or committed to DBE firms in order to meet the contract 
goals. This applies only to Race Conscious contracts.
    19(D). Provide the actual total DBE participation in dollars on 
the race conscious contracts completed this reporting period.
    19(E). Of all the contracts completed this reporting period 
using Race Conscious measures, calculate the percentage of DBE 
participation. Divide the total dollar amount to DBEs in item 19(D) 
by the total dollar value provided in 19(B) to derive this 
percentage. Round to the nearest tenth.
    20(A)-20(E). Items 21(A)-21(E) are derived in the same manner as 
items 19(A)-19(E), except these figures should be based on contracts 
completed using Race Neutral measures.
    20(C). This field is closed.
    21(A)-21(D). Calculate the totals for each column by adding the 
race conscious and neutral figures provided in each row above.
    21(C). This field is closed.
    21(E). Calculate the overall percentage of dollars to DBEs on 
completed contracts. Divide the Total DBE participation dollar value 
in 21(D) by the Total Dollar Value of Contracts Completed in 21(B) 
to derive this percentage. Round to the nearest tenth.
    23. Name of the Authorized Representative preparing this form.
    24. Signature of the Authorized Representative.
    25. Phone number of the Authorized Representative.
    **Submit your completed report to your Regional or Division 
Office.
BILLING CODE 4910-9X-P

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0
25. Revise appendix F to part 26 to read as follows:

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0
26. Add appendix G to part 26 to read as follows:

Appendix G to Part 26--Personal Net Worth Statement

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[FR Doc. 2014-23173 Filed 10-1-14; 8:45 am]
BILLING CODE 4910-9X-C