Management of Disadvantaged Business Enterprise Issues in Construction Contracting (2005)

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The U.S.DOT’s February 2, 1999, Final Rule revised the Disadvantaged Business Enterprise (DBE) regulations. The U.S.DOT believed that this change was necessary to remove signif- icant barriers to DBE participation in DOT-assisted contracts. The regulation requirements have caused state transportation agencies (STAs) and contractors to change their way of doing business. Although the regulation prescribes some new requirements, it also provides flexi- bility by allowing recipients to determine how other provisions are fulfilled. This has resulted in different approaches among the states. This study summarizes the various contract admin- istration procedures and methods that have been implemented by STAs and their contractors to meet the revised DBE regulation requirements. The STA practices listed in this report may not necessarily have been reviewed, approved, acknowledged, or endorsed by the FHWA. The DBE program has been a work in progress for more than two decades. It has evolved into a program that enables small businesses, owned and controlled by minorities, women, and other disadvantaged individuals, an equal opportunity to compete for contract funds on a wide variety of federal-aid-supported transportation construction projects. Given the difficult environment for all small businesses in the transportation construction industry, the program has been able to provide administrative oversight and various outreach activities through federal- aid-recipient organizations. The overriding finding from the study effort is that, although STAs have a common program definition in 49 CFR 26, they have implemented the require- ments in different ways. Thus, the program when viewed at the STA level shows there is not one model to work from. The three main improvements from the regulation revisions noted most frequently by the STAs were: • The DBE certification process has been redefined under the unified certification pro- gram. Before the unified program, DBE firms were required to provide certification information to individual agencies. This duplication of effort was unnecessary and could potentially lead to different determinations of eligibility. The unified certification process allows for reciprocity among all agencies within a state. • The prompt payment provisions have benefited non-DBE and DBE subcontractors with respect to obtaining payment faster. Variation in the time used to define “prompt” was evident in the data. Many STAs in this study implemented their prompt payment pro- visions after the 1999 regulation revision. • The changes in the goal setting process and change to race-neutral (includes gender- neutral) goals has enabled STAs to better match their program goals to the market. The respondent STAs also noted that their key indicators of program performance were DBE firm growth and graduation, along with the number of firms obtaining STA contracts. This was supported through feedback obtained from surveys, focus groups, and town meetings. Barriers to the DBE program were also identified in the responses. The greatest barrier to DBE utilization was reported to be the lack of resources (financial, bonding, insurances, etc.) available to the DBE contractors. The DBE program’s evolution, resulting in the recent regulation, has created many new requirements for DBE contractors, non-DBE contractors, and STA administrators. The data SUMMARY MANAGEMENT OF DISADVANTAGED BUSINESS ENTERPRISE ISSUES IN CONSTRUCTION CONTRACTING

from this study suggest that STAs have, in most instances, adapted their programs or are in the process of addressing the new requirements. The study data show the following: • State goals are no longer 10% across the board. The variation ranges from 5% to 17%. Goal accomplishment was mixed for 2002, with equal proportions exceeding their goals and not meeting their goals. • Certified DBEs and ready, willing, and able contractors wanting to work in construction are not the same. States need to track the bidders on their contracts to determine ready, willing, and able DBEs. • Bonding assistance and financial assistance for DBEs remain predominately U.S.DOT office of programs. One STA local assistance program was identified. • Mentor–protégé programs have been developed in one-third of the surveyed STAs, with some variations in their structure and format. Their use is not mandatory, but was noted several times as being effective. • A recommended race-neutral strategy was to break contracts into smaller pieces; how- ever, 50% of the STAs noted that they were experiencing an increase in bundled con- tracts. The impact of design–build remains unknown at this time. • A few STAs have been successful at establishing and accomplishing their goals in a race-neutral program. Split goals are predominate among the STA data in this study. • Good faith efforts are approved nearly 80% of the time, including those that achieve or exceed the contract goal as well as those accepted after evaluation. • Overconcentration is predominately a complaint-driven process. Not all STAs have a method to evaluate or rate overconcentration. No summary can be given on overcon- centration correction strategies because little overconcentration has been reported. • Waivers on program elements can be submitted to the U.S.DOT. Nearly as many STAs indicated they had been instructed not to submit waivers as those who had submitted waivers. It was unclear, from the questionnaire, if any had been approved. • Recipients must collect data about bidders on their contracts and subcontracts for later use in calculating overall goals. Data collection was not uniform and not all record keep- ing is being implemented in accordance with the regulation. This study represents one of the few published reports on the DBE program. (There is a 2001 General Accounting Office report on the program.) This is a significant contract admin- istration area that needs further data collection and analysis to truly identify best practices and effective solutions. Using technology transfer, best practices and effective solutions dis- covered could be quickly disseminated to STAs. 2