Chapter 7

7 - Disadvantaged Business Enterprise

7.1 Comparison of Old vs. New DBE Rules (6/99)

7.1.1 Applicability of DBE Rules to Grantee Programs (2/00)
7.1.2 Definition of Terms (2/00)

7.2 Administrative Requirements (6/99)

7.2.1 Who Must Have a DBE Program? (6/99)
7.2.2 DBE Liaison Officer (6/99)
7.2.3 Required Efforts on Behalf of DBE Financial Institutions (6/99)
7.2.4 Prompt Payment Mechanisms (9/05)
7.2.5 DBE Directory (6/99)
7.2.6 Bidders List (6/99)
7.2.7 Monitoring Contractors' Performance (2/00)

7.3 Goals for DBE Participation (6/99)

7.3.1 DOT National Goal of 10% (6/99)
7.3.2 Use of Quotas and Set-Asides (6/99)
7.3.3 Establishing Overall Goals (2/00)
7.3.4 Establishing Overall Goals for Transit Vehicle Manufacturers (6/99)
7.3.5 Means of Meeting Overall Goals (6/99)

7.3.5.1 Race-Neutral Means (6/99)
7.3.5.2 Using Contract Goals (6/99)
7.3.5.3 Evaluation of Contractor Proposals for DBE Participation (2/00)
7.3.5.4 Good Faith Efforts to Meet Contract Goals (9/05)
7.3.5.5 Counting DBE Participation toward the Goal (9/05)

7.4 Certification: Standards and Procedures (2/00)

7.5 Exemptions and Waivers (6/99)

7.1 COMPARISON OF OLD VS. NEW DBE RULES

REQUIREMENT

The Federal Department of Transportation's policies concerning Disadvantaged Business Enterprise (DBE) participation in programs of the Federal Transit Administration are set forth in 49 CFR Part 26.

49 CFR Part 26 supercedes the old DBE regulation found at 49 CFR Part 23, subparts A and C through E. 1 This Part 26 also supercedes FTA Circular 4716.1A, dated July 26, 1988.

DISCUSSION

Grantees are encouraged to visit the Web sites of the Department of Transportation, Office of Small and Disadvantaged Business Utilization (OSDBU) 2 and the FTA Office of Civil Rights 3 for current information and guidance on DBE regulations and issues. Following is a summary of the old vs. the new DBE rules as found at the Web site of the Office of Small and Disadvantaged Business Utilization (OSDBU).

Setting and Meeting DBE Goals

Old Rule - Part 23

New Rule - Part 26

1. Did not use, but also did not prohibit, quotas. It explicitly authorized set-asides under some circumstances. DOT never penalized recipients for failing to meet goals under the old rule, but the text of the rule did not make the point explicitly.

2. Under the old rule, recipients who had less than a ten percent goal had to make a special justification to the Department.

3. Under the old rule, overall goals were set to achieve the object of "maximum practicable" use of DBEs. The recipient's goal could be based directly on the 10 percent national goal or on the recipient's past achievements.

4. The old rule did not mandate the use of race-neutral measures or give them priority. There was no prompt payment requirement.

5. Under the old rule, contract goals were required on all contracts with subcontracting possibilities, regardless of whether the contract goals were needed to meet overall goals.

6. The old rule employed the same good faith efforts mechanism, but did not emphasize as strongly the mandate that recipients seriously consider good faith efforts showings. There was no reconsideration provision.

7. The old rule did not have an overconcentration provision.

1. The new rule explicitly prohibits the use of quotas. The rule also explicitly prohibits the use of set-asides, except in extreme cases to remedy egregious problems. The rule explicitly provides that recipients will not be penalized for failing to meet their DBE goals.

2. The new rule views the statutory 10 percent goal as a nationwide aspirational goal, which does not require that recipients set their goals at 10 percent or any other particular level.

3. Recipients must set overall goals to represent a "level playing field"- the amount of DBE participation they could realistically expect in the absence of discrimination. This goal must be based on demonstrable evidence of the availability of ready, willing and able DBEs to participate on your DOT-assisted contracts. The rule gives recipients substantial flexibility in the methods they choose to set overall goals.

4. Recipients must obtain as much as possible of the DBE participation needed to meet their overall goals through race-neutral measures. Race-neutral measures include such activities as training, technical assistance, bonding assistance, business development or mentor-protégé programs, breaking contracts up into pieces that small businesses can readily perform, and awards of prime contracts to DBEs through the regular competitive process. One type of race-neutral measure, a prompt payment provision, will be required for all subcontractors, DBEs and non-DBEs alike.

5. Contract goals, or other race-conscious measures, must be used only to obtain DBE participation needed to meet overall goals that cannot be obtained through use of race-neutral measures. Contract goals are not required on every contract. If recipients are overachieving or underachieving their overall goals, they have to adjust their use of contract goals.

6. When there is a contract goal, a bidder must make good faith efforts to meet it. The bidder can do so either through obtaining enough DBE participation to meet the goal or documenting the good faith efforts it made to do so. The rule explicitly provides that recipients must not disregard showings of good faith efforts, and it gives bidders the right to have the recipient reconsider a decision that their good faith efforts were insufficient.

7. If a recipient determines that DBE firms are so overconcentrated in a certain type of work as to unduly burden the opportunity of non-DBE firms to participate in this type of work, it must devise appropriate measures to address this overconcentration.

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Certification and Eligibility

Old Rule - Part 23

New Rule - Part 26

1. The old rule did not state a specific standard of proof.

2. The old rule did not have either a personal net worth cap for participation or a requirement to submit information concerning personal net worth.

3. The less specific standards of the old regulation were interpreted in many varying ways by recipients and DOT offices, leading to inconsistent and confusing results.

4. Formerly, a firm that wanted to work for the State highway agency, two airports, and three transit agencies in the same State had to fill out six application forms and endure six certification processes. This created significant burdens on applicants and used recipient resources inefficiently.

5. The old rule suggested, but did not require, administrative due process. Recipients' practices varied, and some recipients' processes were so lacking in due process that substantively valid decisions were overturned by the courts on procedural grounds. Many recipients erroneously believed that the Department required annual "recertifications," which burdened DBEs and used recipient resources inefficiently.

6. The old rule lacked specific standards and procedures for certification appeals, resulting in informal and sometimes inconsistent handling of certification issues.

1. Applicants must show that they meet size, group membership, ownership and control standards by a preponderance of the evidence.

2. Each disadvantaged individual seeking certification for his or her firm must submit a notarized certification of disadvantage and a statement of personal net worth. If an individual's personal net worth (excluding his or her principal residence and his of her interest in the applicant firm) exceeds $750,000, the person is not an eligible DBE owner.

3. Ownership and control requirements provide detailed, specific, clarified standards for determining whether to certify firms. The standards are intended to resolve many difficult issues that have arisen in the implementation of the program.

4. By February 2002, all the transit, airport, and highway recipients in each State are required to agree on a unified certification program (UCP). This program must be fully operational no later than August 2003. The UCP must provide for "one-stop shopping" for DBE firms applying for certification in each State. The applicant fills out one form, goes through one application process and, if certified, can work as a DBE for any DOT recipient in the State. There will be a single DBE directory for the State. The rule allows recipients substantial discretion about the form the UCP will take in each State.

5. In certifying or "decertifying" firms, recipients must provide administrative due process to ensure that procedures are fair. When a firm is certified, it normally stays certified for three years, but must inform the recipient in writing of any changes that would affect its eligibility and must submit an annual affidavit that such changes have not taken place.

6. All certification actions begin with a proceeding by a recipient. A party dissatisfied with the result can appeal to the DOT Office of Civil Rights. This appeal proceeding is an administrative review of the record of the recipient's action, and does not involve a new hearing before DOT. Recipients must promptly implement the Department's decision.

Program Administration

Old Rule - Part 23

New Rule - Part 26

1. There was no program waiver provision in the old rule.

3. The inconsistency of DOT guidance concerning the old rule led to substantial confusion and was criticized by a General Accounting Office report. Greater coordination is appropriate in an era of "One DOT."

5. The old rule did not have similar provisions.

1. A recipient can apply to the Department for a program waiver if it wants to implement the program in a way not provided for in the rule. If the Secretary believes that the recipient's idea will meet the program's objectives, he or she will approve the application. Waivers can apply to such matters as overall and contract goals, but program waivers do not apply to DBE eligibility standards and procedures, which must remain uniform nationwide.

2. Recipients must submit revised DBE program documents to DOT, reflecting the new rule's changed requirements, by September 1999.

3. To avoid confusion and promote consistency and certainty, written guidance about the new rule is valid and binding - and represents the official position of the Department - only if it has been approved by the DOT General Counsel. Guidance issued under the old rule is no longer binding.

4. Recipients must begin to collect data about the bidders on their contracts and subcontracts, for later use in calculating overall goals.

5. In the near future, DOT will develop new, uniform program data reporting and certification application forms.

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7.1.1 Applicability of DBE Rules to Grantee Programs

REQUIREMENT

49 CFR § 26.3 -- To Whom Does This Part Apply? -- defines the applicability of the new DBE regulations in terms of the types of funds being expended by the recipient. The types of Federal transit funds to which the DBE regulations apply are defined as those authorized by:

a) Titles I, III, V and VI of ISTEA, Pub. L. 102-240, or

b) Federal transit laws in Title 49, U.S. Code, or

c) Federal transit laws in Titles I, III, and V of the Transportation Equity Act for the 21st Century (TEA-21), Pub. L. 105-178.

Stated simply, any third party contract which is awarded by a FTA grantee and which is funded in whole or in part with Federal DOT funds, is subject to the DBE regulations in 49 CFR Part 26. It does not matter whether the Federal funds are for planning, capital or operating assistance, the DBE rules apply. A contract that is funded entirely with local funds - without any Federal funds - is not subject to the DBE requirements under this rule.

DISCUSSION

The DBE rules set forth in 49 CFR Part 26 apply to all third party contracts funded in whole or in part with Federal DOT funds. This does not mean, however, that every procurement or contract must be reviewed for DBE participation. The rules give grantees flexibility in when and how they establish individual contract goals. Certain types of procurements (e.g., off-the-shelf commodities) may not have subcontracting opportunities or be appropriate for DBE goal setting. In other words, the DBE rules that apply to all contracts also include guidance and flexibility throughout Part 26 as to how grantees can comply with this part without subjecting every procurement to an individual review for DBE participation. If, for example, the grantee can meet its overall goal through race-neutral means, then contract goal setting will not be necessary. And where goal setting is necessary, the rules do not require goals for every contract nor that every procurement be reviewed for goal setting purposes.

7.1.2 Definition of Terms

REQUIREMENT

49 CFR §26.5 -- What Do The Terms Used In This Part Mean? -- contains definitions of the terms used in the new DBE regulation. The definitions of the designated groups included in the definition of "socially and economically disadvantaged individual" are derived from the Small Business Administration's (SBA) new small disadvantaged business program regulation (13 CFR §124.3).

DEFINITIONS

a) Disadvantaged business enterprise or DBE means a for-profit small business concern: (1) That is at least 51 percent owned by one or more individuals who are both socially and economically disadvantaged, or, in the case of a corporation, 51 percent of the stock of which is owned by one or more such individuals; and (2) Whose management and daily business operations are controlled by one or more of the socially and economically disadvantaged individuals who own it.

b) Small business concern means, with respect to firms seeking to participate as DBEs in DOT-assisted contracts, a small business concern as defined pursuant to section 3 of the Small Business Act and Small Business Administration regulations implementing it (13 CFR part 121) that also does not exceed the cap on average annual gross receipts specified in 49 CFR §26.65(b). The cap is currently set at $16.6 million in average annual gross receipts over the firm's previous three fiscal years. 4 This amount is adjusted for inflation by the Secretary of DOT from time to time. It should be noted that a not-for-profit firm may not be certified as a DBE. However, a firm owned by an Indian tribe or Alaska Native Corporation as an entity may be certified as a DBE.

c) Race- conscious measure or program is one that is focused specifically on assisting only DBEs, including women-owned DBEs. The use of contract goals is the primary example of a race-conscious measure in the DBE program, but set-asides and price credits for DBEs would also be considered race-conscious measures.

d) Race-neutral measure or program is one that is, or can be, used to assist all small businesses. While benefiting DBEs, such programs are not solely focused on DBE firms. Examples of race-neutral measures would include outreach programs, technical assistance programs, and prompt payment clauses, all of which can assist a wide variety of small businesses, not just DBEs. As used in this regulation, race-neutral includes gender neutrality.

e) Set-aside means a contracting practice restricting eligibility for the competitive award of a contract solely to DBE firms.

f) Personal net worth means the net value of the assets of an individual remaining after total liabilities are deducted. An individual's personal net worth does not include: The individual's ownership interest in an applicant or participating DBE firm or the individual's equity in his or her primary place of residence. An individual's personal net worth includes only his or her own share of assets held jointly or as community property with the individual's spouse.

g) Socially and economically disadvantaged individuals means any individual who is a citizen (or lawfully admitted permanent resident) of the United States and who is -

(1) Any individual who a recipient finds to be a socially and economically disadvantaged individual on a case-by-case basis.

(2) Any individual in the following groups, members of which are rebuttably presumed to be socially and economically disadvantaged:

(i) "Black Americans," which includes persons having origins in any of the Black racial groups of Africa;

(ii) "Hispanic Americans," which includes persons of Mexican, Puerto Rican, Cuban, Dominican, Central or South American, or other Spanish or Portuguese culture or origin, regardless of race;

(iii) "Native Americans," which includes persons who are American Indians, Eskimos, Aleuts, 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, Macao, Fiji, Tonga, Kirbati, Juvalu, 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 individual groups whose members are designated as socially and economically disadvantaged by the SBA, at such time as the SBA designation becomes effective.

h) Contract means a legally binding relationship obligating a seller to furnish supplies or services (including, but not limited to, construction and professional services) and the buyer to pay for them. For purposes of this part, a lease is considered to be a contract.

i) Bidders List - For the meaning of this term, see Section 7.2.6 - Bidders List.

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7.2 ADMINISTRATIVE REQUIREMENTS

7.2.1 Who Must Have a DBE Program?

REQUIREMENT

49 CFR §26.21 -- Who Must Have a DBE Program? -- requires all FTA recipients who receive $250,000 or more in FTA planning, capital, and/or operating assistance in a Federal fiscal year, and who let DOT-assisted contracts, to have a DBE program meeting the requirements of 49 CFR part 26.

7.2.2 DBE Liason Officer

REQUIREMENT

49 CFR §26.25 -- What Is the Requirement for a Liaison Officer? -- requires grantees to have a DBE Liaison Officer who has direct, independent access to the Chief Executive Officer concerning DBE program matters. The Liaison Officer must be responsible for implementing all aspects of the grantee's DBE program. Grantees must also have adequate staff to administer the DBE program.

DISCUSSION

The DBE Liaison Officer will be responsible for overseeing all aspects of the grantee's DBE program. One area of the Liaison Officer's responsibility would include acting as an advocate for DBE contractors, subcontractors and suppliers of any tier on the grantee's contracts. The DBE Liaison Officer would be available to any DBE who is experiencing difficulties in the payment process or in any other aspect of the contract work. The Liaison Officer would be available to investigate complaints, mediate disputes and recommend remedies to the appropriate grantee management officials.

Some grantees require their contractors to post notices on the job site, (these notices are provided by the grantee), identifying the DBE Liaison Officer, and the contractors must require all subcontractors of any tier to include an appropriate notification in their subcontracts with DBE firms. 5

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7.2.3 Required Efforts on Behalf of DBE Financial Institutions

REQUIREMENT

49 CFR §26.27 -- What Efforts Must Recipients Make Concerning DBE Financial Institutions? -- requires grantees to thoroughly investigate the full extent of services offered by DBE financial institutions in the community, and to make reasonable efforts to use these institutions. Grantees must also encourage prime contractors to use such institutions.

7.2.4 Prompt Payment Mechanisms

REQUIREMENT

49 CFR §26.29 -- What Prompt Payment Mechanisms Must Recipients Have? -- requires grantees to establish a contract clause which requires prime contractors to pay subcontractors for satisfactory performance of their contracts no later 30 days from receipt of each payment that the grantee makes to the prime contractor. This clause must also require the prompt return of retainage payments from the prime contractor to the subcontractor within 30 days after the subcontractor's work is satisfactorily completed.

This part also discusses other aspects of a prompt payment program that grantees may wish to consider, including:

(1) Appropriate penalties for failure to comply,

(2) Prior written consent of grantee for delays in payment of subcontractors,

(3) Requirement for primes and subcontractors to use alternative dispute resolution mechanisms to resolve payment disputes, and

(4) Requirement that primes will not be paid for work performed by a subcontractor until the prime ensures that the subcontractor is paid.

DISCUSSION

Prompt payment provisions are an important race-neutral mechanism that can benefit DBEs and all other small businesses. Under part 26, all grantees must include a provision in their DOT-assisted contracts requiring prime contractors to make prompt payments to their subcontractors, DBE and non-DBE alike. DBE contractors are significantly affected by late payments from prime contractors, and lack of prompt payment constitutes a very real barrier to the ability of DBEs to compete in the marketplace. Non-DBE contractors are also affected by late payment problems. A prompt payment requirement applying to all subcontractors is an excellent example of a race-neutral measure that will assist all subcontractors.

The required contract clause would obligate the prime contractor to pay subcontractors no later than 30 days from the receipt of each payment the grantee makes to the prime contractor. Payment is required only for satisfactory completion of the subcontractor’s work. Retainage would have to be returned within 30 days from the time the subcontractor’s work had been satisfactorily completed, even if the prime contractor’s work had not yet been completed. The number of days specified in the prompt payment clause for the payment of subcontractors may be less than 30 days, at the grantee’s discretion. Grantees who already operate under prompt payment statutes may use their existing authority in implementing this requirement. It may be necessary, however, to add to existing contract clauses in some cases (e.g., if existing prompt payment requirements do not cover retainage).

Paragraph (e) of § 26.29 lists a series of additional measures that the regulation authorizes, but does not require, grantees to use. In addition to the mechanisms suggested by §26.29, another possible mechanism that grantees should consider would be declaring a prime contractor to be not responsible for future awards where the contractor has exhibited a pattern of withholding or making late payments to subcontractors.

 Best Practices

Following are examples of prompt payment and reporting requirements (of payments to subcontractors) contract clauses used by the Chicago Transit Authority (CTA). 6 We would note that the time periods specified in the CTA clause for payment of subcontractors may be too aggressive and may not be feasible for all grantees. In any event, FTA gives grantees discretion in stipulating the payment timelines in their prompt payment contract clauses.

PROMPT PAYMENT TO SUBCONTRACTORS

  1. The Contractor is required to pay all Subcontractors for all work that the Subcontractor has satisfactorily completed, no later than five (5) business days after the Contractor has received payment from the Authority. 7


  2. In addition, all Retainage amounts must be paid by the Contractor to the Subcontractor no later than fourteen (14) business days after the Subcontractor has, in the opinion of the VP Construction, satisfactorily completed its portion of the Work. 8


  3. A delay in or postponement of payment to the Subcontractor requires good cause and prior written approval of the General Manager, Purchasing.


  4. The Contractor is required to include, in each subcontract, a clause requiring the use of appropriate arbitration mechanisms to resolve all payment disputes.


  5. The Authority will not pay the Contractor for work performed unless and until the Contractor ensures that the Subcontractors have been promptly paid for the work they have performed under all previous payment requests, as evidenced by the filing with the Authority of lien waivers, canceled checks (if requested), and the Contractor’s sworn statement that it has complied with the prompt payment requirements. Prime Contractors must submit a prompt payment affidavit, (form to be provided by the Authority) which identifies each subcontractor (both DBE and non-DBE) and the date and amount of the last payment to such subcontractor, with every payment request filed with the Authority, except for the first payment request, on every contract with the Authority. (See below for Prompt Payment Affidavit developed by CTA).


  6. Failure to comply with these prompt payment requirements is a breach of the Contract, which may lead to any remedies permitted under law, including, but not limited to, Contractor debarment. In addition, Contractor’s failure to promptly pay its Subcontractors is subject to the provisions of 50 ILCS 505/9.
REPORTING REQUIREMENTS DURING THE TERM OF THE CONTRACT

  1. The bidder shall, within five (5) business days of contract award, or prior to any work being performed, execute formal subcontracts or purchase orders with the DBE firms included in the bid. 9 These written agreements shall be made available to the General Manager, DBE Program, upon request. All contracts between the bidder and its subcontractors must contain a prompt payment clause as set forth in Section VIII herein.


  2. During the term of annual contracts, the bidder shall submit regular "Status Reports of DBE Subcontract Payments" in a form acceptable to the Authority. The frequency with which these reports are to be submitted will be determined by the General Manager, DBE Program, but in no event will reports be required less frequently than quarterly. In the absence of written notice from the General Manager, DBE Program, the bidder’s first “Status Report of DBE Subcontract Payments” will be due ninety (90) days after the date of contract award, with additional reports due quarterly thereafter.


  3. In the case of a one-time procurement with either a single or multiple deliveries, a “Status Report of DBE Subcontract Payments,” in a form acceptable to the Authority, indicating final DBE payments shall be submitted directly to the General Manager, DBE Program. The information must be submitted prior to or at the same time as the bidder’s final invoice to the Authority user department identified in the solicitation. (NOTICE: The original invoices must be submitted directly to the Authority’s department identified in the contract documents and the Status Report of DBE Subcontract Payments must be submitted directly to the General Manager, DBE Program.) Failure to follow these directions may delay final payment.


  4. The address for the General Manager, DBE Program, is: CTA General Manager, Chicago Transit Authority, DBE/EEO Programs/Contract Compliance Department, 567 West Lake Street, Chicago, IL 60661-1498).

PROMPT PAYMENT AFFIDAVIT

Contractor will place a check in the appropriate box below that applies to this payment request.

Re: Payment Request No. _______

I, ___________________________ (Name), the _________________________________ (Title - e.g., President, Vice President, etc.) of _________________________________ ("Company"), do state the following with regard to payments made under Contract No. ______________________ ("Contract"):

  1. ____Subcontractors, at the first tier, both DBE and non-DBE, who completed work and were listed for payment on the prior Payment Request No. _______, were paid no later than five (5) business days after Company received payment from CTA.


  2. ____Copies of invoices and cancelled checks for subcontractors at the first tier who were paid under the prior payment request have been delivered or mailed to the DBE Department. In addition, Company has attached to the current Payment Request all lien waivers for prior subcontractor payments and any other documentation required by CTA. (Failure to attach all required documentation to the Payment Request or forward cancelled checks and invoices to the CTA DBE Department may cause the Payment Request to be rejected by CTA.)


  3. ____All retainage amounts withheld from any subcontractor who satisfactorily completed its portion of the contract work, including punch list items, were paid to the subcontractor(s) no later than fourteen (14) business days after it satisfactorily completed its work, whether or not CTA has paid said retainage amounts to Company. Attach a copy of the cancelled check evidencing payment of each retainage amount.


  4. ____There was no delay in or postponement of any payment owed to a subcontractor, whether periodic payment or retainage amount, except for good cause and after receipt of prior written approval from the CTA Purchasing Agent.

    Attach a copy of the written approval from the CTA Purchasing Agent.

________________________________________
Company Name
________________________________________
Signature
________________________________________
Print Name

Date: _______________________

Subscribed and sworn to before me this ________day of ________ 20__.

_________________________________
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7.2.5 DBE Directory

REQUIREMENT

49 CFR §26.31 -- What Requirements Pertain to the DBE Directory? -- requires grantees to compile and update at least annually a directory or source list of all firms eligible to participate as DBEs in the grantee's programs. The listing for each firm must include its address, phone number, and the types of work the firm has been certified to perform as a DBE. This directory is to be made available to interested persons, including contractors and the public on request.

DISCUSSION

Grantees must maintain directories of DBE firms that have been certified to do work as DBEs. The information required for the Directory includes the name, address, phone number, and the types of work the firm has been certified to perform as DBE. The primary purpose of the Directory is to show the results of the certification process. Since certification under the DBE rule pertains to the various kinds of work a firm's disadvantaged owners can control, it is important to list those kinds of work in the Directory. For example, if a firm seeks to work in fields A, B, and C, but the grantee has determined that its disadvantaged owners can control its operations only with respect to A and B, then the Directory would recite that the firm is certified to perform work as a DBE in fields A and B.

The focus of the Directory is intended to be eligibility. A Directory is intended to permit interested firms to contact the DBEs. The Directory is not intended to be a comprehensive business resource manual. For example, information about firms' qualifications, geographical preferences for work, performance track record, capitalization, etc. are not required to be part of the Directory.

7.2.6 Bidders List

REQUIREMENT

49 CFR §26.11 -- What Records Do Recipients Keep and Report? -- requires grantees to create and maintain a bidders list, consisting of all firms bidding on prime contracts and bidding or quoting subcontracts on DOT-assisted projects. For every firm, the following information must be included:

(1) Firm name,
(2) Firm address,
(3) Firm's status as a DBE or non-DBE,
(4) The age of the firm,
(5) The annual gross receipts of the firm.

DISCUSSION

The bidders list is intended to be a count of all firms that are participating, or attempting to participate, on DOT-assisted contracts. The list must include all firms that bid on prime contracts or bid or quote subcontracts on DOT-assisted projects, including both DBEs and non-DBEs. DOT believes that bidders lists are a promising method for accurately determining the availability of DBE and non-DBE firms, and DOT believes that developing bidders data will be useful for grantees. Creating and maintaining a bidders list will give grantees another valuable way to measure the relative availability of ready, willing and able DBEs when setting their overall goals. (See section 7.3.3--Establishing Overall Goals.) The DOT regulations do not impose any procedural requirement as to how the data is collected. Grantees are free to choose how they collect the required data. DOT suggests that grantees consider using a widely publicized public notice or a widely disseminated survey to encourage all firms that have bid on the grantees' contracts to make themselves known to the grantee. Once the list of bidders has been created, grantees will need to supplement this information with the age of each firm (since establishment) and the annual gross receipts of the firm (or an average of its annual gross receipts). Grantees can gather this additional information by sending a questionnaire to the firms on the list, or by any other means that the grantee believes will produce reliable information. The grantee's plan for how to create and maintain the list and gather the required information must be included in its DBE program.

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7.2.7 Monitoring Contractors' Performance

REQUIREMENT

49 CFR §26.37 -- What Are a Recipient's Responsibilities for Monitoring the Performance of Other Program Participants? -- requires grantees to establish a monitoring and enforcement mechanism to verify that the work committed to DBEs at contract award is actually performed by the DBEs.

DISCUSSION

DOT has avoided prescribing monitoring and enforcement mechanisms for grantees. The Department is looking for grantees themselves to define a strong and effective set of monitoring and compliance provisions in their DBE programs. These mechanisms could be almost anything available to the grantee under Federal, State or local law (e.g., liquidated damages provisions, responsibility determinations, suspension and debarment rules, etc.). The results that grantees must measure consist of payments actually made to DBEs, not just promises at the award stage. Credit toward goals can be awarded only when payments (including, for example, the return of retainage payments) are actually made to DBEs. Grantees must keep a running tally of the extent to which, on each contract, performance had matched promises. Prime contractors whose performance fell short of original commitments would be subject to the compliance mechanisms the grantee had made available.

Best Practices

Suggestions for monitoring contractor's performance would include:

a) Requiring adequate justification when a prime contractor proposes to substitute a non-DBE subcontractor.
b) Conducting status reviews of contractor's compliance at regularly scheduled project meetings.
c) Requiring written monthly or quarterly reviews of the contractor's performance in meeting goals.
d) Requiring the contractor to propose plans to cure and then implement those plans when the contractor is failing to meet the contract goals.

7.3 GOALS FOR DBE PARTICIPATION

7.3.1 DOT National Goal of 10%

DISCUSSION

There is a statutory goal that not less than 10 percent of the transit funds authorized are to be expended with DBEs. Under the former part 23, the 10 percent goal derived from the statute played a role in the setting of overall goals by grantees. For example, if grantees had a goal of less than 10 percent, the rule required them to make a special justification to FTA. The new rule makes clear that the 10 percent goal is an aspirational goal that applies to the Department of Transportation on a national level, not to individual grantees or their contractors. The national goal of 10 percent is not tied to grantees' goal-setting decisions. Grantees set goals based on what will achieve a level playing field for DBEs in their own programs, without regard to the national DOT goal. Grantees are not required to set their overall or contract goals at 10 percent or any other particular level. Nor are grantees required to make a special justification if their overall goals are less than 10 percent.

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7.3.2 Use of Quota Uses and Set-Asides

REQUIREMENT

49 CFR §26.43 -- Can Recipients Use Quotas or Set-Asides as Part of This Program? -- prohibits the use of quotas for DBEs on DOT-assisted contracts under any circumstances. Set-asides are not permitted except in limited and extreme circumstances to redress egregious instances of discrimination.

DISCUSSION

The DBE program does not set aside a certain percentage of contracts or dollars for a specific set of contractors. The DBE program is a goals program, which encourages participation without imposing rigid requirements of any type.

Quotas are not permitted under any circumstances. A quota is a simple numerical requirement that a contractor must meet, without consideration of other factors. For example, if a grantee sets a 12 percent goal on a particular contract and refuses to award the contract to any bidder who does not have a 12 percent DBE participation, either refusing to look at showings of good faith efforts or arbitrarily disregarding them, then the grantee has used a quota. Bidders must make good faith efforts to meet contract goals where such goals are stated, but grantees may not deny a contract to a bidder simply because it did not obtain enough DBE participation to meet the goal. Grantees must seriously consider bidders' documentation of good faith efforts. If bidders make good faith efforts to meet contract goals, they have complied with the intent of the DBE regulations, even if their good faith efforts fail to meet the actual contract goal.

Set-asides are not permitted except in extreme circumstances to redress extreme instances of discrimination. A contracting agency sets a contract aside for DBEs if it permits no one but DBEs to compete for the contract. Firms other than DBEs are not eligible to bid. A grantee may use a set-aside under part 26 if other methods of meeting overall goals are demonstrated to be unavailing and the grantee has legal authority independent of part 26. DOT believes that set-asides should not be used in the DBE program unless they are absolutely necessary to address a specific problem when no other means would suffice. Set-asides are a last resort.

7.3.3 Establishing Overall Goals

REQUIREMENT

49 CFR §26.45 -- How Do Recipients Set Overall Goals? -- requires grantees to set an overall goal for DBE participation in their DOT-assisted contracts. The overall goal must be based upon demonstrable evidence of the relative availability of DBEs in the grantee's own market. Section 26.45 also furnishes examples of methods that grantees may use to develop a base figure for the relative availability of DBEs in their particular market. The methods suggested include the use of DBE Directories, Census Bureau Data, Bidders Lists, etc. Goals must be submitted to FTA by August 1 of each year. Public participation is also required in establishing an overall goal; i.e., consultation with minority, women's and general contractor groups, and other organizations that could have information concerning the availability of DBEs, as well as public notices announcing the proposed overall goal and its rationale.

DISCUSSION

“Establishing Overall Goals” is not normally a procurement office function. DBE program administrators should seek guidance from the U.S. DOT Office of Small and Disadvantaged Business Utilization (http://osdbu.dot.gov).

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7.3.4 Establishing Overall Goals for Transit Vehicle Manufacturers

REQUIREMENT

49 CFR §26.49 -- How Are Overall Goals Established for Transit Vehicle Manufacturers? -- requires grantees to obtain a certification from each transit vehicle manufacture that desires to bid or propose upon a DOT-assisted transit vehicle procurement that it has complied with the requirements of 49 CFR §26.49. Grantees may, however, with FTA approval, establish project-specific goals for DBE participation in the procurement of transit vehicles in lieu of complying through the overall goal-setting procedures.

DISCUSSION

49 CFR §26.49 requires transit vehicle manufacturers (TVMs) to establish and submit for FTA approval an annual overall percentage goal for DBEs. Part 26 continues the older rule that was in part 23 for TVMs. TVMs must set their goals based on the principles in §26.45. Grantees are required to obtain a certification from TVMs that wish to bid or propose on DOT-assisted transit vehicle procurements, or alternately, grantees may, with FTA approval, establish a project-specific goal for DBE participation. 10 The APTA Standard Bus Procurement Guidelines provide a sample solicitation provision and a certification to be signed by the TVM's authorized official. 11

7.3.5 Means of Meeting Overall Goals

7.3.5.1 Race-Neutral Means

REQUIREMENT

49 CFR §26.51 -- What Means Do Recipients Use to Meet Overall Goals? -- requires grantees to meet the maximum feasible portion of their overall goal by using race-neutral means of facilitating DBE participation. This Section includes examples of race-neutral steps that grantees can take to facilitate DBE participation. In any year in which the grantee expects to meet part of its goal through race-neutral means and the remainder through contract goals, the grantee must maintain data separately on DBE achievements in those contracts with and without contract goals, respectively. This data must be reported to FTA.

DISCUSSION

One of the key points of the new DBE rule is that, in meeting overall goals, grantees have to give priority to race-neutral means. By race-neutral means (a term that includes gender neutrality for purposes of this rule), DOT means outreach, technical assistance, procurement process modification, etc.-measures that can be used to increase opportunities for all small businesses, not just DBEs, and do not involve setting specific goals for the use of DBEs on individual contracts. Whenever a DBE receives a prime contract because it is the lowest responsible bidder, the resulting DBE participation was achieved through race-neutral measures. Similarly, when a DBE receives a subcontract on a project that does not have a contract goal, its participation was also achieved through race-neutral measures.

Race-neutral means include, but are not limited to, the following:

(1) Arranging solicitations, times for the submission of bids or proposals, quantities, specifications, and delivery schedules in ways that facilitate participation by DBEs, and other small businesses. Examples might include the unbundling of large contracts to make them more accessible to small businesses, requiring or encouraging prime contractors to subcontract portions of work that they might otherwise perform with their own forces, etc.;

(2) Providing assistance in overcoming limitations such as inability to obtain bonding or financing (e.g., by such means as simplifying the bonding process, reducing the bonding requirements, eliminating the impact of surety costs from bids, and providing services to help DBEs, and other small businesses, obtain bonding and financing;

(3) Providing technical assistance and other services;

(4) Carrying out information and communications programs on contracting procedures and specific contract opportunities (e.g., ensuring the inclusion of DBEs and other small businesses on grantee mailing lists for bidders; ensuring that prime contractors receive lists of potential subcontractors; provision of information in languages other than English, where appropriate);

(5) Implementing a supportive services program to develop and improve immediate and long-term business management, record keeping, and financial and accounting capability for DBEs and other small businesses;

(6) Providing services to help DBEs, and other small businesses, improve long-term development, increase opportunities to participate in a variety of kinds of work, handle increasingly significant projects, and achieve eventual self-sufficiency;

(7) Establishing a program to assist new, start-up firms, particularly in fields in which DBE participation has historically been low;

(8) Ensuring distribution of the DBE Directory, through print and electronic means, to the widest feasible universe of potential prime contractors; and

(9) Assisting DBEs and other small businesses to develop their capability to utilize emerging technology and conduct business through electronic media.

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7.3.5.2 Using Contract Goals

REQUIREMENT

49 CFR §26.51(d) -- What Means Do Recipients Use to Meet Overall Goals? -- requires grantees to establish contract goals to meet any portion of their overall goal that they do not project being able to meet using race-neutral means. Grantees may use contract goals only on those DOT-assisted contracts that have subcontracting possibilities. Further, grantees are not required to set goals on every DOT-assisted contract, nor must they set a particular contract goal at the level of the overall goal. The particular contract goal will depend on the type of work involved, the location of the work, and the availability of DBEs for the work of the particular contract. However, over the period covered by the overall goal, grantees must set contract goals so that they will cumulatively result in meeting any portion of the overall goal that they do not project being able to meet through the use of race-neutral means. If the grantee's approved projection indicates that it can meet its entire overall goal through race-neutral measures, the grantee must implement its program without setting contract goals during that year.

DISCUSSION

The expressed priority for race-neutral means does not preclude the use of race-conscious measures, such as contract goals, by grantees. The rule simply requires grantees to get the maximum feasible DBE participation through race-neutral measures. The first step is to establish an overall goal and estimate, in advance, what part of the goal can be met through the use of race-neutral measures. This projection is furnished to FTA at the time the overall goal is submitted, and is subject to FTA approval. The grantee uses race-conscious measures (e.g., sets contract goals) to get the remainder of the DBE participation it needs to meet the overall goal. If the grantee expects to meet its entire overall goal through race-neutral means, it could, with FTA approval, implement its program without any use of contract goals.

Grantees will most likely use a combination of race-neutral and race-conscious measures. It is important that grantees keep accurate records of contract awards to DBEs through race-neutral vs. race-conscious methods. The grantee's actual experience with the methods will enable the grantee to adjust the methodology it uses to achieve its future overall goal. For example, a grantee that was consistently able to meet its overall goal using only race-neutral measures would never need to use contract goals.

The new DBE rule makes clear that contract goals are not required on all contracts. The rule also states that the contract goal need not be set at the same level as the overall goal. For example, if a grantee has an overall goal of 11 percent, it does not have to set a contract goal on each contract. Nor does it have to establish an 11 percent goal on each contract where it does set a contract goal. The idea is for the grantee to set contract goals that, cumulatively for the year, bring in enough DBE participation, which when added to the participation expected from race-neutral measures, will result in achieving the overall goal.

Best Practices

When grantees must use contract goals to meet their overall goal, grantees need to review candidate procurements to determine if they afford subcontracting opportunities for DBE participation. DBE subcontracting goals are to be established based on the known availability of qualified DBEs. Grantees can obtain information about certified DBE firms from their State or local government offices as well as the Federal Small Business Administration, which publishes a listing of certified small businesses and small disadvantaged businesses on their Pro-Net Internet site. Pro-Net is an Internet-based database of information on more than 171,000 small, disadvantaged, 8(a) and women-owned businesses. This data is free to the general public as a resource for those seeking contractors and subcontractors and/or partnership opportunities. Businesses profiled on the Pro-Net can be searched by SIC codes; key words; location; quality certifications; business type, ownership race and gender; E.I. capability, etc. 12 Of course, grantees are required to maintain a current Directory of DBE sources in order to facilitate the establishment of specific contract goals and to assist prime contractors in identifying potential DBE subcontractors. See Section 7.2.5, DBE Directory, above.

Grantee initiatives to promote DBE participation in their third-party contracts would include such steps as:

Your contract contains a Disadvantaged Business Goal of ______%. The Contract requires that you submit work schedules and copies of executed subcontract agreements for your proposed DBE subcontractors within 30 days of the date of this award letter. You are further required to submit monthly reports of your progress toward meeting these goals, on the forms provided in the contract documents. 14

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7.3.5.3 Evaluation of Contractor Proposals For DBE Participation

DISCUSSION

There are two practices for submission of DBE information by offerors

When determining compliance with DBE requirements, two scenarios are possible:

The following are best practices to follow for the two scenarios:

Scenario 1: Proposer/bidder submits information that the DBE goals will be met

Required Information - The information submitted by the offeror must include

Counting DBE Participation - Having received the above information, verify the counting of DBE participation towards the goal using the criteria set forth above in section 7.3.5.5, Counting DBE Participation Toward the Goal.

If the goal has been met satisfactorily, the award process can continue. If the goal has not been met even though the offeror stated that it will, you should assess the cause for differing conclusions; notify the offeror and seek additional information, or consider documentation of good faith efforts as provided by your DBE program and procedures.

If these steps conclude with the offeror meeting the goal or demonstrating good faith efforts to meet the goal, you can proceed with the award. If these steps conclude without the offeror meeting the goal or demonstrating good faith efforts to meet the goal, you can eliminate the offer and proceed to the next ranked offer.

Scenario 2: Offeror submits information that the DBE goals will not be met.

Required Information- Documentation of good faith efforts by the proposer/bidder is required in all cases where the proposer/bidder fails to meet the stated goal for DBEs. As discussed above, the solicitation may require that good faith efforts be accomplished prior to bid opening or that good faith efforts be accomplished prior to the receipt of best and final offers. Where the shopping period is permitted after final submission of offers, good faith effort requirements are established accordingly.

Your agency's DBE program should include guidelines for determining and evaluating good faith efforts by proposers/bidders. Criteria for determining whether a good faith effort was made can include those factors discussed in section 7.3.5.4--Good Faith Efforts to Meet Contract Goals.

If the proposer/bidder has satisfactorily demonstrated good faith efforts, the award process must continue. If not, the offer should not be accepted, and you may proceed to the next best offer (next lowest bid, or next highest score proposal, depending on your agency's DBE program components). In either case, the proposer/bidder's good faith effort documentation, as well as your written evaluation of that material, are important entries in the contract file. This is a potential protest area and should be well-documented.

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7.3.5.4 Good Faith Efforts to Meet Contract Goals

REQUIREMENT

49 CFR §26.53 -- What Are the Good Faith Efforts Procedures Recipients Follow? -- requires grantees to award a contract that requires a DBE goal to a bidder/offeror who has made good faith efforts to meet the goal. A good faith effort is defined as one where the bidder:

(1) Documents that it has obtained enough DBE participation to meet the goal; or

(2) Documents that it made adequate good faith efforts to meet the goal, even though it did not succeed in obtaining enough DBE participation to do so.

Appendix A to Part 26 - Guidance Concerning Good Faith Efforts, provides grantees with suggested types of actions that they should consider when making judgments as to whether bidders/offerors have used good faith efforts. Grantees are specifically prohibited from ignoring bona fide good faith efforts.

It follows from the above that grantees, in a negotiated procurement, may not give extra credit (higher evaluation scores) to an offeror’s proposal if it exceeds the grantee’s subcontracting goal, nor less credit (lower scores) to a proposal that cannot achieve the full DBE goal. The DOT requirement is that the offeror make good faith efforts to meet the goal, and if this is demonstrated by the offeror the grantee cannot penalize the offeror in the proposal evaluation and contract award process.

If a grantee determines that an otherwise successful bidder/proposer has failed to meet the good faith efforts requirement of this Part, the grantee must provide the bidder/proposer an opportunity for administrative reconsideration. The requirements that grantees must follow in the administrative reconsideration process are outlined in 49 CFR § 26.53(d).



DISCUSSION

The types of actions that grantees should consider as part of the bidder’s good faith efforts would include, but not be limited to, the following:
  1. Adequate solicitation of DBEs (through all reasonable and available means), with sufficient time for DBEs to respond to the solicitation;


  2. Selecting portions of the work to be performed by DBEs in order to increase the likelihood that the DBE goals will be achieved;


  3. Providing interested DBEs with adequate information about the plans, specifications and requirements of the contract in a timely manner;


  4. Negotiating in good faith with interested DBEs. 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 goal, as long as the costs are reasonable. Prime contractors are not, however, required to accept higher quotes from DBEs if the price difference is excessive or unreasonable.


  5. Not rejecting DBEs as being unqualified without sound reasons based on a thorough investigation of their capabilities.


  6. Making efforts to assist interested DBEs in obtaining bonding, lines of credit, or insurance as required by the grantee or contractor.


  7. Making efforts to assist interested DBEs in obtaining necessary equipment, supplies, materials, or related assistance or services.


  8. Effectively using the services of available minority/women community organizations and other organizations to provide assistance in the recruitment and placement of DBEs.
In determining whether a bidder has made good faith efforts, grantees may take into account the performance of other bidders in meeting the contract goal. For example, if the apparent successful bidder failed to meet the goal, but meets or exceeds the average DBE participation obtained by other bidders, grantees may view this as evidence of the bidder having made good faith efforts.

The CFR allows discretion to grantees in when they require bidders/proposers to submit their good faith efforts documentation. This may be required: (a) as a matter of responsiveness with initial bids under sealed bid procedures; (b) as a matter of responsiveness with initial proposals under contract negotiation procedures; or (c) as a matter of responsibility at any time before the grantee commits itself to the performance of the contract by the bidder/proposer.

In those procurements where bidders/proposers are required to submit their DBE participation information and good faith efforts with the initial bid/proposal as a matter of responsiveness, they are to be evaluated on the basis of that information, and may be rejected if the information presented is not satisfactory. (See however, the requirement for administrative reconsideration noted above in the Requirements block.) During the course of the negotiation process, changes may be made to the contract scope that affect either the need for some DBE subcontractors or the level of their participation. In that event, the agency should request that the proposer adjust its subcontract plan to maintain or enhance the DBE participation, and should require each proposer to submit a final DBE participation plan as part of its Final Proposal Revision (Best and Final Offer).

Best Practices

Following is a solicitation provision used by the Chicago Transit Authority (CTA) describing the types of actions that CTA would consider as demonstrating good faith efforts on the part of a bidder.

GOOD FAITH EFFORTS

In order to be responsive, a bidder must make good faith efforts to meet the DBE participation goal set forth in the contract. The bidder must document the good faith efforts it made in that regard. Thus, the Bid submitted to the Authority must be accompanied by written documentation prepared by the bidder evidencing all of its sufficient and reasonable good faith efforts toward fulfilling the goal. These efforts must be active steps, and ones, which could reasonably be expected to lead to sufficient DBE participation to meet the contract DBE participation goal. Mere pro forma efforts are not acceptable and will be rejected by the General Manager, DBE Program.

Good Faith Efforts require that the bidder consider all qualified DBEs, who express an interest in performing work under the contract. This means that the bidder cannot reject a DBE as unqualified unless the bidder has sound reasons based on a thorough investigation of the DBE’s capabilities. Further, the DBE’s standing within its industry, membership in specific groups, organizations or associations and political or social affiliation (for example, union vs. non-union employee status) are not legitimate causes for the rejection or non-solicitation of bids in the Contractor’s efforts to meet the contract DBE participation goal.

The following list, which is not exclusive or exhaustive, sets forth the types of actions, which indicate good faith efforts on the part of a bidder to meet the DBE goal. The extent and type of actions required will vary depending on such things as industry practice; the time available for submitting a bid and the type of contract involved.

  1. Attendance at a pre-bid meeting, if any, scheduled by the Authority to inform DBEs of subcontracting opportunities under a given solicitation.


  2. Advertisement in general circulation media, trade association publications, and minority-focus media for at least twenty (20) days before bids are due. If 20 days are not available, publication for a shorter reasonable time is acceptable.


  3. Written notification to capable DBEs that their interest in the contract is solicited.


  4. Documentation of efforts to negotiate with DBEs for specific sub-contracts including at a minimum:

    1. The names, addresses, and telephone numbers of DBEs that were contacted and the date(s) of contact.

    2. A description of the information provided to DBEs regarding the plans and specifications for portions of the work to be performed.

    3. A statement explaining why additional agreements with DBEs were not reached.

  5. For each DBE the bidder contacted but rejected as unqualified, the reason for the bidder’s conclusion.


  6. Documentation of efforts made to assist the DBEs contacted that needed assistance in obtaining bonding or insurance required by the bidder or the Authority.


  7. Documentation of efforts to utilize the services of small business organizations, community and contractor groups to locate qualified DBEs.


  8. Documentation that the bidder has broken out contract work items into economically feasible units in fields where there are available DBE firms to perform the work.


  9. Evidence that adequate information was provided to interested DBEs about the plans, specifications and requirements of the contract, and that such information was communicated in a timely manner.


  10. Documentation of any efforts made to assist interested DBEs in obtaining necessary equipment, supplies, materials or related assistance or services.

GOOD FAITH EFFORTS RECONSIDERATION

If it is determined that the apparent successful low bidders have failed to meet the requirements of the contract goal/good faith efforts, the Authority will provide them with ONE opportunity for administrative reconsideration, before the Authority awards the contract. This reconsideration will include the following:

  1. The bidder will be permitted to either provide written evidence or to present oral argument at a pre-scheduled time that the documentation it submitted with its bid met the DBE goal and/or showed good faith efforts to do so. No new evidence of good faith efforts may be presented after the bid submission deadline.


  2. The Authority’s Reconsideration Officer will review the evidence presented by the bidder and issue a written determination that the bidder has: 1) met the DBE goal; 2) not met the DBE goal but has made adequate good faith efforts to do so; or 3) has not met the DBE goal and the good faith efforts made were not adequate.


  3. The decision of the Authority’s Reconsideration Officer is final and may not be appealed to the Authority, its funding agencies or the USDOT.


  4. The Authority will not award a contract to any bidder who does not meet the contract DBE participation goal or show good faith efforts to meet that goal. Thus, it is essential that all bidders submit ALL relevant documentation concerning the DBE goal and/or good faith efforts in the envelope or package containing their sealed bid.
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7.3.5.5 Counting DBE Participation Toward Goals

REQUIREMENT

49 CFR § 26.55 -- How is DBE Participation Counted Toward Goals? -- sets forth the criteria to be used in counting DBE participation toward DBE contract goals. Grantees should refer to this section and not rely solely on the discussion below since the section may contain relevant additional details not included here.

DISCUSSION

49 CFR § 26.55 defines the methodology for counting DBE participation toward contract goals. Grantees must be familiar with the details of this section, not all of which are discussed here. The basic principles of this section are summarized below:

1. When a DBE participates in a contract, you count only the value of the work actually performed by the DBE toward DBE goals.

(a) For construction contracts, count the entire amount of that portion of the contract that is performed by the DBEs own forces, including the cost of supplies purchased and equipment leased by the DBE for the work.

(b) For professional, technical, consultant or managerial services contracts, count the entire amount of fees or commissions charged by a DBE firm for providing a bona fide service, or for providing bonds or insurance specifically required for the performance of a DOT-assisted contract, provided you determine the fee to be reasonable and not excessive as compared with fees customarily allowed for similar services.

(c) When a DBE subcontracts part of the work of its contract to another firm, the value of the subcontracted work may be counted toward DBE goals only if the DBE's subcontractor is itself a DBE. Work that a DBE subcontracts to a non-DBE firm does not count toward DBE goals.

2. When a DBE performs as a participant in a joint venture, count a portion of the total dollar value of the contract equal to the distinct, clearly defined portion of the work that the DBE performs with its own forces toward DBE goals.

3. Count expenditures to a DBE contractor only if the DBE is performing a commercially useful function on that contract. This section sets forth a number of criteria for determining when a DBE is performing a commercially useful function. Included among these criteria for determining when a DBE is performing a commercially useful function is a requirement that the DBE perform or exercise responsibility for at least 30 percent of the total cost of its contract with its own work force, or that the DBE does not subcontract a greater portion of the work of a contract than would be expected on the basis of normal industry practice for the type of work involved. Grantee decisions on commercially useful functions matters are subject to review by FTA, but are not administratively appealable to DOT. This section also contains detailed guidance for determining whether a DBE trucking company is performing a commercially useful function. 15

4. For expenditures with DBEs who supply materials or supplies, this section establishes rules for counting DBE participation based upon whether the DBE is a manufacturer or a regular dealer. For expenditures with DBE manufacturers, count 100 percent of the cost of the materials or supplies. For expenditures with DBEs who are regular dealers, count 60 of the cost of the materials or supplies. The terms "manufacturer" and "regular dealer" are defined in this section.

5. For purchases of materials and supplies from a DBE, which is neither a manufacturer nor a regular dealer, do not count any portion of the cost of the materials and supplies toward DBE goals. However, fees or commissions charged by a DBE for assistance in the procurement of the materials and supplies, or fees or transportation charges for the delivery of materials or supplies required on a job site, may be counted toward DBE goals, provided they are reasonable and not excessive as compared with industry practices.

6. Do not count the participation of a DBE subcontractor toward the prime contractor's DBE achievements or your overall goal until the amount being counted toward the goal has been paid to the DBE.

 Best Practices

Following is a solicitation provision developed by the Chicago Transit Authority (CTA) that defines how the Authority will evaluate and count DBE participation.

COUNTING DBE PARTICIPATION TOWARD THE CONTRACT GOAL

The inclusion of any DBE by the bidder in its bid documents shall not conclusively establish the bidder’s eligibility for full DBE credit for the firm’s participation in the contract. The amount of DBE participation credit shall be based upon an analysis by the General Manager, DBE Program, of the specific duties which will be performed by the DBE.

The bidder may count toward its DBE goal only expenditures to firms which are currently certified by the IL UCP (or with the Authority prior to the implementation of the IL UCP) and which perform a commercially useful function. A firm is considered to perform a commercially useful function when it is responsible for the performance of a distinct element of the work and carries out its responsibilities by actually performing, managing and supervising the work involved.

To determine whether a firm is performing a commercially useful function, the General Manager, DBE Program, will evaluate the amount of work subcontracted, industry practices and other relevant factors. The General Manager, DBE Program, reserves the right to deny or limit DBE credit to the bidder where any DBE is found to be engaged in substantial pass-through activities with others.

DBE participation shall be counted toward the DBE goal in the contract as follows:

  1. Once a DBE is determined to be eligible in accordance with these rules, the total dollar value of the contract awarded to the DBE may be counted toward the DBE goal except as indicated below.


  2. A bidder may count toward its DBE goal that portion of the total dollar value of a contract with an eligible joint venture equal to the distinct, clearly defined portion of the work of the contract that the DBE performs with its own forces.


  3. Consistent with normal industry practices, a DBE may enter into subcontracts. If a DBE subcontracts more than thirty percent (30%) or a significantly greater portion of the work of the contract than would be expected on the basis of normal industry practices, the DBE shall be presumed not to be performing a commercially useful function. Evidence may be presented by the bidder involved to rebut this presumption.


  4. When a DBE subcontracts a part of the work under the contract to another firm, the value of the subcontracted work may only be counted towards the DBE goal if the DBE’s subcontractor is itself a DBE. Work that a DBE subcontracts to a non-DBE firm does not count towards the DBE goal.


  5. The bidder may count one-hundred percent (100%) of its expenditures for materials and supplies required under the contract and which are obtained from a DBE manufacturer towards the DBE goal. The bidder may count sixty percent (60%) of its expenditures for material and supplies under the contract obtained from a DBE regular dealer towards its DBE goal. The terms “manufacturer” and “regular dealer” are defined in 49 C.F.R. Part 26.55(e)(1)(ii) and (2)(ii).


  6. The bidder may count towards its DBE goal expenditures to DBEs which are not manufacturers or regular dealers, such as fees or commissions charged for services and assistance in the procurement of essential personnel, facilities, equipment, materials or supplies and transportation charges as set forth in 49 C.F.R. Part 26. However, the General Manager, DBE Program, must determine the fee or charge to be reasonable and not excessive as compared with fees or charges customarily allowed for similar services.


  7. The bidder must use good business judgment when negotiating with subcontractors and take a DBE’s price and capabilities into consideration. The fact that there may be some additional costs involved in finding and using DBE firms is not sufficient reason to fail to meet the DBE goal set forth in the contract, as long as such costs are reasonable.

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7.4 CERTIFICATION: STANDARDS AND PROCEDURES

REQUIREMENT

49 CFR Part 26, Subparts D and E, prescribe standards to be applied and procedures to be followed when certifying businesses as DBEs. Grantees must use the new certification standards for all decisions issued after March 4, 1999. Grantees must also determine whether all disadvantaged owners of current certified firms meet the personal net worth standard by September 1, 1999.

APPENDIX E to Part 26 contains guidance as to how grantees are to make individual determinations of social and economic disadvantage.

DISCUSSION

"Certification: Standards and Procedures" is not normally a procurement office function. DBE program administrators should seek guidance from the U.S. DOT Office of Small and Disadvantaged Business Utilization (http://osdbu.dot.gov/).

7.5 EXEMPTIONS AND WAIVERS

REQUIREMENT

49 CFR §26.15 -- How Can Recipients Apply for Exemptions or Waivers? -- describes the provisions made by DOT for the granting of exemptions and waivers to the requirements of the DBE regulations.

DISCUSSION

There is a distinction made in this section between exemptions and waivers. The procedures to be followed when applying for exemptions and waivers are described in §26.15.

Exemptions are for unique situations that are most likely not to be either generally applicable to all recipients or to have been contemplated in the rulemaking process. If such a situation occurs and it makes it impractical for a particular grantee to comply with a provision of part 26, the grantee should apply for an exemption from that provision. The Secretary will grant the request only if it documents special or exceptional circumstances, not likely to be generally applicable, and not contemplated in connection with the rulemaking that established this part, that make the grantee's compliance with a specific provision of this part impractical.

Waivers, by contrast, are not designed for extraordinary circumstances where a grantee may not be able to comply with part 26. Waivers are for situations where a grantee believes that it can better accomplish the objectives of the DBE program through means other than the specific provisions of part 26. The waiver provision is designed to ensure that DOT and a grantee can work together to respond to any unique local circumstances. Grantees are encouraged to carefully review the circumstances in their own jurisdictions to determine what mechanisms are best suited to achieving compliance with the overall objectives of the DBE program. If a grantee believes it is appropriate to operate its program differently from the way that a provision of Subpart B or C provides, including, but not limited to, any provisions regarding administrative requirements, overall or contract goals, good faith efforts or counting provisions, it can apply for a waiver. For example, waiver requests could pertain to such subjects as the use of a race-conscious measure other than a contract goal, different ways of counting DBE participation in certain industries, use of separate overall or contract goals to address demonstrated discrimination against specific categories of socially and economically disadvantaged individuals, the use or wording of assurances, differences in information collection requirements and methods, etc.

Chapter Footnotes

1 - As of January 29, 1999.

2 - http://osdbu.dot.gov/

3 - http://www.fta.dot.gov/office/civil

4 - As of April 1,1999

5 - For an example of a clause, see BART Clause SC7.1.10 "Ombudsperson." Contact BART at (510) 464-6380.

6 - For further information contact Mr. Donald Mayes, Manager, DBE Contract Compliance at 312-664-7200, ext. 3519.

7 - We would note that five business days to pay subcontractors may not be realistic in all cases and could lead to complaints from subcontractors that the grantee enforce this timeframe.

8 - Other transit agencies have imposed a 30-day requirement for payment of retainage.

9 - The five-day requirement may not be realistic. Some agencies require subcontracts with DBEs within 60 days of contract award if the contract term is less than one year, or within 30 days of commencement of work for a contract that is for one year or more. The commencement of work rather than initial contract award is more realistic in the case of multiyear contracts where work may not start for another year or so.

10 - The TVM must certify that it has complied with the DBE goal requirements of § 26.49.

11 - See the APTA Guidelines sections 1.1.3.5 for the solicitation provision and 1.1.5.7 for the DBE certification.

12 - The Internet address for Pro-Net is: http://pro-net.sba.gov/

13 - Contact King Elliott, Metro-Dade Transit Agency, 111 N.W. First St., Suite 910, Miami, FL 33128 at (305) 375-3634.

14 - New York City Transit. Contact Stan Grill at (718) 694-4350.

15 - Paragraph (d).

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