Source: http://www.govpulse.us/entries/2010/05/10/2010-10968/disadvantaged-business-enterprise-program-improvements
Timestamp: 2014-10-23 03:51:28
Document Index: 701974204

Matched Legal Cases: ['art 26', '§ 26', '§ 26', '§ 26', '§ 26', '§ 26', '§ 26', '§ 26', '§ 26', '§ 26', '§ 26', 'art 26', 'art 26', 'art 26', '§ 26']

govpulse | Disadvantaged Business Enterprise: Program Improvements
Disadvantaged Business Enterprise: Program Improvements
This notice of proposed rulemaking (NPRM) would propose to improve the administration of the Disadvantaged Business Enterprise (DBE) program by increasing accountability for recipients with respect to good faith efforts to meet overall goals, modifying and updating certification requirements, adjusting the personal net worth (PNW) threshold for inflation, providing for expedited interstate certification, adding provisions to foster small business participation and improve post-award oversight, and addressing other issues.
Accountability for Recipients With Respect to Overall Goals
Interstate Certification and Related Issues
Terminations and Substitutions of DBE Subcontractors
Counting Issue
Application and PNW Forms
Certification-Related Provisions
Section 26.71 What rules govern determinations concerning control?
Section 26.73What are other rules affecting certification?
Section 26.83What procedures do recipients follow in making certification decisions?
Comments on this proposed rule must be received by July 9, 2010.
You may submit comments (identified by the agency name and DOT Docket ID Number OST-2010-0118) by any of the following methods:
•Federal eRulemaking Portal: Go to http://www.regulations.gov and follow the online instructions for submitting comments.
•Mail: Docket Management Facility: U.S. Department of Transportation, 1200 New Jersey Avenue, SE., West Building Ground Floor, Room W12-140, Washington, DC 20590-0001
•Hand Delivery or Courier: West Building Ground Floor, Room W12-140, 1200 New Jersey Avenue, SE., between 9 a.m. and 5 p.m. ET, Monday through Friday, except Federal holidays.
•Fax:202-493-2251
Instructions: You must include the agency name (Office of the Secretary, DOT) and Docket number (OST-2010-0118) for this notice at the beginning of your comments. You should submit two copies of your comments if you submit them by mail or courier. Note that all comments received will be posted without change to http://www.regulations.gov including any personal information provided and will be available to internet users. You may review DOT's complete Privacy Act Statement in the Federal Register published on April 11, 2000 (65 FR19477) or you may visit http://DocketsInfo.dot.gov.
Docket: For internet access to the docket to read background documents and comments received, go to http://www.regulations.gov. Background documents and comments received may also be viewed at the U.S. Department of Transportation, 1200 New Jersey Ave, SE., Docket Operations, M-30, West Building Ground Floor, Room W12-140, Washington, DC 20590, between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays.
Robert C. Ashby, Deputy Assistant General Counsel for Regulation and Enforcement, U.S. Department of Transportation, 1200 New Jersey Avenue, SE., Washington, DC, 20590, Room W94-302, 202-366-9310, bob.ashby@dot.gov.
The Department of Transportation issued an advance notice of proposed rulemaking (ANPRM) on April 8, 2009, concerning several DBE program issues (74 FR 15904). The first concerned counting of items obtained by a DBE subcontractor from its prime contractor. The second concerned ways of encouraging the “unbundling” of contracts to facilitate participation by small businesses, including DBEs. The third was a request for comments on potential improvements to the DBE application form and personal net worth (PNW), and the fourth asked for suggestions related to program oversight. The fifth concerned potential regulatory action to facilitate certification for firms seeking to work as DBEs in more than one state. The sixth concerned additional limitations on the discretion of prime contractors to terminate DBEs for convenience, once the prime contractor had committed to using the DBE as part of its showing of good faith efforts. The Department received approximately 30 comment letters concerning these issues. This NPRM makes regulatory proposals concerning many of these issues.
In addition, since the ANPRM was published, both the House of Representatives and the Senate have passed their versions of a Federal Aviation Administration (FAA) reauthorization bill. These bills include a provision requiring an inflationary adjustment to the current $750,000 personal net worth (PNW) cap. Because the timing of the enactment of an FAA reauthorization bill is not yet clear, and the provisions of the bill do not apply to the Department's highway and transit programs in any case, the Department has decided to propose an inflationary adjustment of the PNW cap to $1.3 million, the figure that would result from the House and Senate bills.
Finally, the Department is proposing amendments to the certification-related provisions of the DBE regulation. These proposals result from the Department's experience in dealing with certification issues and certification appeal cases during the years since the last major revision of the DBE rule in 1999. The amendments are intended to clarify issues that have arisen and avoid problems with which recipients (i.e., state highway agencies, transit authorities, and airport sponsors who receive DOT grant financial assistance) and the Department have had to grapple over the last 11 years.
Accountability for Recipients With Respect to Overall Goals ↑
Section 26.47 of the rule states that a recipient cannot be penalized for failing to meet overall goals. To penalize a recipient simply for failing to “hit a number” could create an impermissible quota system. Nonetheless, recipients are required to implement their DBE programs in good faith in order to remain in compliance with Part 26.
The Department takes this “good faith implementation” requirement very seriously. Accountability is the key to ensuring effective program implementation, and the Department believes that it is useful to add a new provision to increase the accountability of recipients with respect to overall goals and their attainment.
An overall goal is the recipient's estimate of the “level playing field” amount of DBE participation that it would expect to achieve in the absence of discrimination or its effects. Failing to meet the overall goal means that the measures the recipient has employed in carrying out its DBE program have not fully created that level playing field, and that discrimination or its effects have not fully been remedied. In order to implement its program in good faith, a recipient should make strong efforts to understand the reasons why it has not met its overall goal and to figure out what it can do to correct the situation.
For this reason, the Department is proposing to add a new paragraph (c) to § 26.47. If at the end of a fiscal year (FY) 1, (e.g., September 30), a recipient has failed to meet its overall goal for that FY, the recipient must do two things: (1) Thoroughly analyze why it fell short of meeting its overall goal for FY1 and (2) establish specific steps and milestones for correcting identified problems so that the recipient will meet its overall goal in FY2 and subsequent years. State highway agencies, the largest 50 transit authorities as designated by FTA, and Operational Evaluation Airports and other airports designated by FAA would have to submit this material to FHWA, FTA, or FAA, as applicable. The NPRM proposes a period of 60 days to submit this material. The Department seeks comment on this process. Other FTA and FAA recipients would retain the information, so that DOT officials conducting program or compliance reviews could review it.
This section also proposes that, if a recipient fails to take actions required under the new provisions, the recipient could be regarded as in noncompliance with § 26.47 and hence subject to the remedies stated in § § 26.101 through 26.105 or other applicable regulations. These remedies include suspension or termination of Federal assistance, refusal to approve projects, payments, grants, or contracts, or other action at the discretion of the operating administration involved.
Goal Submission ↑
On February 2010, the Department amended § 26.45 to allow recipients to submit overall goals every three years, rather than annually (75 FR 5535). This change was intended to reduce administrative burdens for recipients, as well as to permit DOT staff to give greater scrutiny to recipients' submissions. In this NPRM, we propose a clarification of this amendment. While the recipient need only submit a new goal every three years, it is still responsible for good faith implementation of that goal in each year.
In carrying out the accountability provision discussed above, the Department would hold recipients responsible for each year's implementation activity. For example, suppose that a recipient has a 12 percent goal for FY 1-3. If the recipient fell short of 12 percent in FY 1, the § 26.47 requirements for analysis of the shortfall and steps to remedy the problems in FY 2 would apply. The recipient would not be able to say, in effect, “We don't need to worry about our FY 1 shortfall because we'll catch up in FY 3.”
It is possible, however, that a recipient might anticipate a funding stream for projects that would in fact differ from one year to the next. For example, an airport with a 12 percent goal might expect, given the projects, FAA assistance, and DBE availability that it anticipates, that it would have 6 percent DBE participation in FY 1, 18 percent in FY 2, and 12 percent in FY 3. The Department seeks comment on whether a recipient could, if it wished,provide a year-to-year projection of its likely DBE participation within the framework of a goal and methodology submitted only every three years, with the result that in applying the accountability provision of proposed § 26.47, those year-to-year projections, rather than the three-year overall goal number, would be the benchmark for determining whether the analysis/corrective action requirements would be triggered. This could increase flexibility, but could undercut, to an extent, the purpose of the three-year goal submission interval. We anticipate that this approach would be relevant primarily, or perhaps only, in FAA programs, where Federal funding is more likely to change from year to year than in the FHWA and FTA programs.
Improving Oversight ↑
The ANPRM asked for suggestions on how to improve program oversight. The Department received 17 comments. Several recipients commented to the effect that additional resources, including Federal assistance, would be necessary if they were to conduct additional oversight. Other commenters suggested that additional training and information in areas like contract compliance and close-out enforcement could be useful. A DBE organization noted that training for recipient executive-level officials, as well as operating-level staff, would be helpful. This commenter also wanted to emphasize the need for a direct DBE Liaison Officer connection to the top official of the organization. Other comments simply supported the concept of better oversight, without specifying how this could best be accomplished.
Program oversight is not a new concept in the DBE program. Existing § 26.37 requires monitoring and enforcement mechanisms. To strengthen these existing provisions, the Department is proposing to add a sentence to § 26.37(b), calling on recipients to make a written certification that they have reviewed contracting records and monitored the work on-site to ensure that DBEs have actually performed the work in question on each contract involving DBE participation counted toward contract or overall goals. To comply with this requirement, the recipient would have to make one such certification for every contract on any contract with DBE participation. This sentence would simply make more explicit a requirement that the Department believes is implicit in the existing regulatory language.
Existing § 26.25 already requires that the DBE liaison officer (DBELO) must have direct, independent access to the Chief Executive Officer (CEO) of the recipient's organization concerning DBE program matters. This means that the DEBLO must not be required to get anyone's consent or sign-off, or “go through channels,” to talk and write personally to the CEO about DBE program matters. The Department does not believe that additional regulatory language is needed on this point: the existing provision is already explicit.
We also call attention to the last section of § 26.25, which requires that the recipient have adequate staff to administer the DBE program. In times of budget stringency, it may be tempting to cut back on staff and other resources needed for certification, program oversight, and other key DBE program functions. This sentence emphasizes that it is a requirement of Federal law that the DBE program be adequately staffed to ensure compliance with Part 26.
Personal Net Worth ↑
The personal net worth (PNW) criterion has been a perennially controversial subject in the DBE rule. It is intended to ensure that only economically disadvantaged individuals participate in the DBE program, lest the program become overinclusive. The $750,000 PNW “cap,” taken from SBA materials dating to 1989 or earlier, has been criticized by DBEs as penalizing success and imposing a glass ceiling on the growth and competitiveness of DBE firms. At the same time, the PNW cap has been a part of the package of narrow tailoring features that has helped the Department to defend the DBE program successfully against court challenges.
As noted above, the House and Senate versions of the currently pending FAA reauthorization bills both call for an inflationary adjustment in the PNW cap, relating back to 1989. Based on these provisions, the Department did a straight-line inflationary adjustment using the Consumer Price Index (CPI), which suggests a 73 percent inflation since 1989. This results in an adjusted PNW cap of $1.31 million. It is very important to understand that this does not represent an increase in the actual personal net worth which DBE owners may have, viewed in real dollar terms. Rather, $1.31 million today has the same value, in real dollar terms, as $750,000 in 1989. The inflationary adjustment simply maintains the economic status quo.
The Department is aware that there are a number of methodologies and approaches to making inflationary adjustments. The Department seeks comment on whether the straight-line CPI approach used in the NPRM is appropriate, or whether there are other approaches or techniques that would be better or more accurate. Also, it would not make sense for the Department to have one PNW number for FAA programs and another for FTA and FHWA programs. Therefore, the Department's proposal would apply the $1.31 million PNW cap to all programs covered by Part 26.
The pending FAA bills address another issue related to PNW, concerning the handling of retirement savings. Under the Department's current regulation, assets in retirement savings plans are regarded as part of an individual's wealth, and hence are counted as assets for PNW purposes. Some DBEs have long objected to this approach, saying that it is inappropriate to count these assets, which are not liquid and therefore not readily available for purposes of an owner's business. While giving the Department a degree of regulatory discretion, the pending FAA reauthorization bills direct the Department not to count such assets toward the PNW cap.
If these provisions are enacted, the Department will need to devise implementing rules. We seek comment on how best to do so. What sort of retirement savings should be covered by a new provision (e.g.,401(k)s, IRAs, Roth IRAs, Keough Plans, stocks and bonds, certificates of deposit or savings plans, life insurance, etc.)? Should there be any limitation on the amount of money that could be eliminated from counting toward the PNW cap by being in a retirement savings product? Is there a potential problem of abuse, in which DBE owners could shelter assets from PNW consideration in inappropriate ways? If so, how would the Department attempt to deal with such a problem? Would the eliminating consideration of these assets have unintended distributive consequences across the breadth of the DBE program (e.g., helping more affluent firms at the expense of smaller DBEs without such assets, having a racially disparate impact)? We seek comment on how we should shape the details of a future rule implementing the pending statutory provisions.
Interstate Certification and Related Issues ↑
Under the current DBE rule, certification occurs on a statewide basis. The Unified Certification Program (UCP) in each state ensures “one-stop shopping” for DBE applicants within that state. The UCP requirement, which came into effect in 1999, has simplified certification by making it unnecessaryfor recipients to apply multiple times for certification by various transit authorities, airports, and highway departments within a given state.
The present structure, however, does not address problems that occur when DBEs certified in their home state attempt to become certified in other states. As we mentioned in the ANPRM, DBEs and prime contractors have frequently expressed frustration at what they view as unnecessary obstacles to certification by one state of firms located in other states. They complain of unnecessarily repetitive, duplicative, and burdensome administrative processes and what they see as the inconsistent interpretation of the DOT rules by various UCPs. There have been a number of requests for nationwide reciprocity or some other system in which one certification was sufficient throughout the country.
The Department believes that more should be done to facilitate interstate certification. Interstate reciprocity has always been authorized under Part 26 (see§ 26.81 (e) and (f)), and in 1999 we issued a QA encouraging this approach. To further encourage such efforts, the Department issued another QA in 2008, suggesting an approach to facilitating interstate certifications. In the ANPRM, we asked for comment on proposing a regulatory provision based on this guidance, or, in the alternative, whether some version of the nationwide certification reciprocity or Federalizing the certification process would be desirable. We pointed out that nationwide reciprocity could raise concerns about firms engaging in forum shopping to find the “easy graders” among certifying agencies. Federalizing certification, such as having a unitary certification system operated by DOT, would likely raise significant resource issues. Such an approach could also result in less local “on the ground” knowledge of the circumstances of applicant firms, which can be a valuable part of the certification process. The Department asked for comment on how, if at all, these issues could be addressed, and whether there is merit in one or another nationwide approach to certification.
There were about 30 comments on this subject. Most of them favored taking steps to make interstate certification easier. Thirteen commenters favored one variety or another of national reciprocity, with eight of these suggesting that, where a UCP had qualms about an out-of-state firm's bona fides, the UCP could remove the firm's certification after the fact. That is, a firm certified in its home state, State A, would send its certification to State B. State B would immediately put the firm on its list of certified firms, and the firm would become eligible immediately to participate as a DBE. However, State B could subsequently decertify the firm if it appeared that the certification in State A was obtained by fraud or was otherwise invalid. One comment endorsed the rebuttable presumption approach suggested in the Department's QA. Three favored one version or another of Federalizing certification, either by having the Department maintain a centralized certification database or having the Department make certification decisions other than, perhaps, the initial decision in each case.
Other commenters expressed some concerns about reciprocity. Three commenters favored using paperwork submitted to other states to reduce administrative burdens, but reserving to each state the right to make its own decision. Another four commenters opposed or had serious doubts about reciprocity, expressing concerns such as the possibility of forum shopping or variations in state laws that might affect the validity of State A's certification in State B. Three commenters emphasized the necessity for better and more uniform training, without which, some thought, reciprocity would be unlikely to work.
As the Department stated in the ANPRM, we favor making interstate certification easier and reducing burdens on small businesses seeking to work in more than one state. Before 1999, businesses had to make multiple applications in each state if they wanted to work as a DBE for more than one DOT recipient. The Department dealt successfully with that problem by creating the UCP system in the 1999 revision to the DBE regulation. National reciprocity or one-stop shopping for a single nationwide certification system are worthwhile goals to discuss, but the Department believes that an incremental approach is more likely to be practicable.
It is important to keep in mind that certification has two purposes. One is to foster and facilitate DBE participation by as many firms as can be determined to be eligible. The other is to preserve the integrity of the program, a strong certification system being the first line of defense against program fraud. To some extent, these goals can be in tension with one another. We believe that the concerns expressed by commenters about issues like forum shopping, training, and variations in state laws have validity. Recipients' concerns about having the integrity of their program