DBE Compliance News

Caltrans recently released a guide to help certified DBEs understand the requirements of the commercially useful function. This informative guide can be found on the Caltrans OBEO website.

Follow Caltrans’ Office of Business & Economic Opportunity on Twitter to learn about the latest announcements, changes, and information.

https://twitter.com/#!/Caltrans_OBEO

The Federal Highway Administration recently released Questions & Answers on Procurement, Management and Administration of Engineering and Design Related Services.

VII. Disadvantaged Business Enterprise (DBE) Considerations

1. Are contracting agencies required to give consideration to DBE consulting engineering firms in the procurement of engineering and design related services?
2. Under competitive negotiation/qualifications based selection (Brooks Act) procurement procedures, maya contracting agency consider the use/participation of DBEs as an evaluation criterion in the selection of the most highly qualified consulting firm/team?
3. May a contracting agency set goals for DBE participation on engineering and design related services contracts?
4. May a contracting agency advertise or solicit engineering and design related services with set-asides exclusive for DBE consulting firms?

The California Transportation Commission (CTC) today allocated $825 million in new funding to 92 highway, transit, and rail projects that will strengthen California’s economy and upgrade the state’s vast transportation system.

The allocations included nearly $9 million from Proposition 1B, a 2006 voter-approved transportation bond. To date, the state has allocated nearly $8 billion in Proposition 1B funds.

“From one end of the state to the other, transportation projects are providing jobs and improving mobility for people and businesses in California,” said Caltrans Acting Director Malcolm Dougherty. Two notable design-build projects in Los Angeles County received $526 million in allocations: the Gerald Desmond Bridge ($470 million) and the Interstate 10/Interstate 605 Direct Connector ($56 million). Design-build streamlines a project by overlapping design and construction to speed up construction and potentially reduce costs. Design-build is currently being used in 32 other states. Caltrans obtained design-build authority in February 2009 with the passage of Senate Bill 4 (second extraordinary session). The legislation established a demonstration program, which allows 10 design-build projects for Caltrans and five for local transportation agencies, subject to authorization by the CTC. Orange County was allocated $16 million to repave and repair 82 lane miles of pavement on Interstate 5 in San Juan Capistrano and Mission Viejo from SR-1 to Oso Creek to improve safety and provide motorists a smoother ride.

For information about all projects that received allocations please visit: http://www.dot.ca.gov/docs/ctcprojectallocationsjune2011.pdf

From the Sacramento Bee:

A Sacramento judge’s validation of a program that reserves millions of dollars of California’s road-building contracts for women- and minority-owned firms is on its way to a federal appellate court.

U.S. District Judge John A. Mendez ruled in March that the California Department of Transportation is within constitutional bounds in awarding 6.75 percent of construction and engineering contracts involving federal funds to companies owned by African Americans, Native Americans, Asian Pacific Americans or women.

Caltrans also strives to funnel a similar amount of work to companies owned by the same minority groups, but without utilizing race and gender as a criteria.

The overall policy has a direct effect on about $2.75 billion worth of projects, according to a legal challenge by the Associated General Contractors of America.

U.S. DOT released a statement on the expansion of the successful Small Business Bonding Education Program:

U.S. Transportation Secretary Ray LaHood yesterday announced that small and disadvantaged businesses will be better positioned to compete for large government contracts as the result of an expansion of the Department of Transportation’s successful bonding education program. The Secretary made the announcement at the department’s Second Annual Small Business Summit in Washington, D.C.

“When more small and disadvantaged businesses are bond-ready, more will be able to compete for large government contracts,” said Secretary LaHood. “Helping small businesses helps the U.S. economy grow.”

See the full press release here.

The following is from the San Francisco Chronicle:

A Caltrans program to reserve federally funded road-building contracts for companies owned by minorities and women has survived a federal court challenge by predominantly white-owned contractors.

The program, begun in March 2009, requires state Department of Transportation contractors to set aside at least 6.75 percent of their federal dollars for minority and female subcontractors or make good-faith efforts to reach that goal.

Caltrans had similar rules before 2006 but suspended them after a federal appeals court ruled that states need evidence of discrimination to justify set-asides for minorities in federally funded programs.

The Bush and Obama administrations had both pressed Caltrans to reinstate the preferences. No set-asides are allowed in entirely state-funded projects because of a ban on minority preferences that California voters approved in 1996.

In a suit by the Associated General Contractors’ San Diego chapter, U.S. District Judge John Mendez of Sacramento ruled Wednesday that Caltrans had shown that without the preferences, its contracting practices discriminate against minorities and women.

He cited a department study that found minority- and female-owned companies were receiving more than 10 percent of federal funds before 2006 and less than 3 percent after the state suspended the set-aside program.

Mendez also cited civil rights groups’ evidence of discriminatory contracting practices. The evidence showed an “old boys’ network” in which contractors usually awarded subcontracts to their friends and rarely contacted minorities or women, said attorney Oren Sellstrom of the Lawyers’ Committee for Civil Rights in San Francisco.

The contractors’ association is considering an appeal, said attorney Sharon Browne of the Pacific Legal Foundation. She said there was no evidence Caltrans had discriminated.

The set-aside program also harms taxpayers, who are “paying an extra premium to bring in minorities and women as subcontractors,” Browne said.

The California Transportation Commission (CTC) today allocated $101 million in funding to 90 projects to improve transportation statewide.

“From one end of the state to the other, transportation projects are providing jobs and improving mobility for people and businesses in California,” said Caltrans Director Cindy McKim.

For specific projects or district information, please visit the Caltrans press release.

U.S. DOT- Disadvantaged Business Enterprise Program Improvements

Final Rule effective February 28, 2011

This rule improves the administration of the Disadvantaged Business Enterprise (DBE) program by increasing accountability for recipients with respect to meeting 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, improving post-award oversight, and addressing other issues.

TERMINATIONS OF DBE FIRMS

A prime contractor who, in the course of meeting its good faith efforts requirements on a procurement involving a contract goal, has submitted the names of one or more DBEs to work on the project, cannot terminate a DBE firm without the written consent of the recipient. The firm can be terminated only for good cause.

Good cause includes a situation where the DBE subcontractor has failed or refused to perform the work of its subcontract in accordance with normal industry standards. However, good cause does not exist if the failure or refusal of the DBE subcontractor to perform its work on the subcontract results from the bad faith or discriminatory action of the prime contractor (e.g., the failure of the prime contractor to make timely payments or the unnecessary placing of obstacles in the path of the DBE’s work). Good cause also does not exist if the prime contractor seeks to terminate a DBE it relied upon to obtain the contract so that it can self-perform the work in question or substitute another DBE or non-DBE firm.

In addition to the enumerated grounds, a recipient may permit a prime contractor to terminate a DBE for “other documented good cause that the recipient determines compels the termination of the DBE subcontractor.” This means that the recipient must document the basis for any such determination, and the prime contractor’s reasons for terminating the DBE subcontractor make the termination essential, not merely discretionary or advantageous.

PERSONAL NET WORTH

The personal net worth (PNW) is adjusted to $1.32 million, based on the consumer price index (CPI) and relating back to 1989, as proposed in FAA authorization bills pending in Congress.

ACCOUNTABILITY AND GOAL SUBMISSIONS

If a recipient fails to meet its overall goal, it will, within 60 days, have to analyze the shortfall, explain the reasons for it, and come up with corrective actions for the future. All State DOTs and the largest transit authorities and airports would have to send their analyses and corrective action plans to DOT operating administrations; smaller transit authorities and airports would retain them on file. While there would not be any requirement to meet a goal—to ‘‘hit the number’’—failure to comply with these requirements could be regarded as a failure to implement a recipient’s program in good faith, which could lead to a finding of noncompliance with the regulation.

A recipient’s overall goal represents its estimate of the DBE participation it would achieve in the absence of discrimination and its effects. Failing to meet an overall goal means that the recipient has not completely remedied discrimination and its effects in its DOT-assisted contracting. In the Department’s view, good faith implementation of a DBE program by a recipient necessarily includes understanding why the recipient has not completely remedied discrimination and its effects, as measured by falling short of its ‘‘level playing field’’ estimate of DBE participation embodied in its overall goal. Good faith implementation further means that, having considered the reasons for such a shortfall, the recipient will devise program actions to help minimize the potential for a shortfall in the future.

Promoting transparency and accountability is not synonymous with imposing a penalty and should not be viewed as such. Understanding the reasons for not meeting a goal and coming up with ways of avoiding a shortfall in the future, while not creating a quota system, do help to ensure that recipients take seriously the responsibility to address discrimination and its effects. Moreover, the administrative burden of compliance falls only on those recipients who fail to meet a goal, not on all recipients. Understanding what is happening in one’s program, why it is happening, and how to fix problems is, or ought to be, a normal, everyday part of implementing a program, so the analytical tasks involved in meeting this requirement should not be new to recipients.

PROGRAM OVERSIGHT

Each recipient will certify that it had conducted post-award monitoring of contracts which would be counted for DBE credit to ensure that DBEs had done the work for which credit was claimed. The certification is for the purpose of ensuring accountability for monitoring which the regulation already requires.

For the DBE program to be meaningful, it is not enough that prime contractors commit to the use of DBEs at the time of contract award. It is also necessary that the DBEs actually perform the work involved. Recipients need to know whether DBEs are actually performing the work involved, lest program effectiveness suffer and the door be left open to fraud. Recipients must actually monitor each contract, on paper and in the field, to ensure that that they have this knowledge. Monitoring DBE compliance on a contract is no less important, and should be no more brushed aside, than compliance of with project specifications.

This monitoring, and the recipient’s written certification that it took place, must occur with respect to every contract on which DBE participation is claimed, not just a sample or percentage of such contracts, to make sure that the program operates as it is intended. It applies to contracts entered into prior to the effective date of this rule, since the obligation to monitor work performed by DBEs has always been a key feature of the DBE program.

The Department’s DBE rule already includes a provision (49 CFR 26.37(b)) requiring recipients to have a monitoring and enforcement mechanism to ensure that work committed to DBEs is actually performed by DBEs. With respect to concerns about administrative burden, the Department believes that monitoring is something that recipients have been responsible for conducting since the inception of Part 26. Therefore, we are not asking recipients to do something with which they can claim they are unfamiliar. Moreover, as the final rule version of this provision makes clear, recipients can combine the on-site monitoring for DBE compliance with other monitoring they do.

SMALL BUSINESS PROVISIONS

Each recipient would add a new DBE program element, consisting of strategies to encourage small business participation in their contracting activities. No specific element would be required, and many of the potential elements are already part of the existing DBE regulation or implementing guidance (e.g., unbundling; race-neutral small business set-asides). The small business program element is intended to pull a recipient’s small business efforts into a single, unified place in this DBE Program. This requirement goes into effect a year from the effective date of the rule.

DBEs are small businesses. Program provisions that help small businesses can help DBEs. By facilitating participation for small businesses, recipients can make possible more DBE participation, and participation by additional DBE firms. Consequently, a program element that pulls together the various ways that a recipient reaches out to small businesses and makes it easier for them to compete for DOT-assisted contracts will foster the objectives of the DBE program.

WASHINGTON – U.S. Transportation Secretary Ray LaHood today announced a final rulemaking that will help economically and socially disadvantaged businesses take advantage of opportunities to participate in federally funded highway, transit and airport projects.  The final rule, issued by the U.S. Department of Transportation (DOT) today, will also hold states and local agencies more accountable for including disadvantaged businesses in their transportation plans

“When we help small businesses, we’re helping to get the economy going,” said Secretary LaHood.  “This rule will help small and disadvantaged businesses get a fair shot at participating in state and local transportation projects.”

The U.S. Department of Transportation’s Disadvantaged Business Enterprise (DBE) Program helps small businesses owned and controlled by socially and economically disadvantaged individuals compete for government contracts.  The Department also requires state and local transportation agencies to establish goals for DBE participation.

The Department of Transportation’s new rulemaking will require greater accountability from state and local transportation agencies for including disadvantaged businesses in their spending plans.  Those that fail to meet established goals for DBE participation will be required to evaluate why the goals were not met and offer a plan to help meet the goal in the future.

In addition, the final rule will adjust the personal net worth limit for DBE owners for inflation from the present $750,000 to $1.32 million.  The current limit was set in 1989 and has not been adjusted since.

The Department of Transportation’s rulemaking will also add provisions to ensure that prime contractors fulfill commitments to use DBE subcontractors.  State and local agencies will be required to monitor each contract to make sure prime contractors are fulfilling their obligations and do not dismiss DBE subcontractors without good cause. The rule also requires state and local agencies to create a plan for improving the use of small businesses, including DBEs.

Another major change under the rulemaking will reduce burdens on small businesses seeking DBE certification in more than one state.  As a result of today’s rulemaking, all states will be required to accept DBE certifications obtained in other states, unless the state finds good cause not to accept it.  The rule establishes a process for resolving issues with respect to eligibility raised by states concerning out-of-state firms.

The Department anticipates issuing a proposed rulemaking to make changes in its regulation for airport concession DBEs paralleling those in today’s final regulation.

The U.S. Department of Transportation’s final rule to improve the DBE Program appeared on the Federal Register’s Electronic Public Inspection Desk today.  For the full Federal Register notice please visit http://osdbu.dot.gov/documents/pdf/dbe/2011-1531.pdf.