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

Chapter: Chapter Three - General Administrative Practices

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Suggested Citation:"Chapter Three - General Administrative Practices." National Academies of Sciences, Engineering, and Medicine. 2005. Management of Disadvantaged Business Enterprise Issues in Construction Contracting. Washington, DC: The National Academies Press. doi: 10.17226/13817.
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Suggested Citation:"Chapter Three - General Administrative Practices." National Academies of Sciences, Engineering, and Medicine. 2005. Management of Disadvantaged Business Enterprise Issues in Construction Contracting. Washington, DC: The National Academies Press. doi: 10.17226/13817.
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Suggested Citation:"Chapter Three - General Administrative Practices." National Academies of Sciences, Engineering, and Medicine. 2005. Management of Disadvantaged Business Enterprise Issues in Construction Contracting. Washington, DC: The National Academies Press. doi: 10.17226/13817.
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Suggested Citation:"Chapter Three - General Administrative Practices." National Academies of Sciences, Engineering, and Medicine. 2005. Management of Disadvantaged Business Enterprise Issues in Construction Contracting. Washington, DC: The National Academies Press. doi: 10.17226/13817.
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Suggested Citation:"Chapter Three - General Administrative Practices." National Academies of Sciences, Engineering, and Medicine. 2005. Management of Disadvantaged Business Enterprise Issues in Construction Contracting. Washington, DC: The National Academies Press. doi: 10.17226/13817.
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Suggested Citation:"Chapter Three - General Administrative Practices." National Academies of Sciences, Engineering, and Medicine. 2005. Management of Disadvantaged Business Enterprise Issues in Construction Contracting. Washington, DC: The National Academies Press. doi: 10.17226/13817.
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Suggested Citation:"Chapter Three - General Administrative Practices." National Academies of Sciences, Engineering, and Medicine. 2005. Management of Disadvantaged Business Enterprise Issues in Construction Contracting. Washington, DC: The National Academies Press. doi: 10.17226/13817.
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Suggested Citation:"Chapter Three - General Administrative Practices." National Academies of Sciences, Engineering, and Medicine. 2005. Management of Disadvantaged Business Enterprise Issues in Construction Contracting. Washington, DC: The National Academies Press. doi: 10.17226/13817.
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Suggested Citation:"Chapter Three - General Administrative Practices." National Academies of Sciences, Engineering, and Medicine. 2005. Management of Disadvantaged Business Enterprise Issues in Construction Contracting. Washington, DC: The National Academies Press. doi: 10.17226/13817.
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Suggested Citation:"Chapter Three - General Administrative Practices." National Academies of Sciences, Engineering, and Medicine. 2005. Management of Disadvantaged Business Enterprise Issues in Construction Contracting. Washington, DC: The National Academies Press. doi: 10.17226/13817.
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Suggested Citation:"Chapter Three - General Administrative Practices." National Academies of Sciences, Engineering, and Medicine. 2005. Management of Disadvantaged Business Enterprise Issues in Construction Contracting. Washington, DC: The National Academies Press. doi: 10.17226/13817.
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9ORGANIZATION AND STAFFING The synthesis questionnaire collected general organizational information of individual DBE program functions and sizes. The responses to these questions showed a marked varia- tion in individual agency approaches to how an organization should manage its DBE program. From an organizational per- spective, 3 of the 36 responding STAs placed the DBE pro- gram within their construction contract administration groups, whereas the remaining DBE organizations were located admin- istratively within Equal Employment Opportunity (EEO)/Civil Rights administrative units. In 58% (21 of 36) of the respond- ing STAs, the DBE program staff had complete responsibil- ity for all aspects of the program. In 36%, the central office staff was assisted by resident engineers or other district-level personnel performing a variety of tasks, including • Reviewing overall contract compliance issues for EEO/ DBE requirements, • Conducting field audits for DBE certifications, • Providing commercially useful function determination through project observations, and • Conducting a preconstruction conference on EEO/DBE. The approach to managing the DBE program did not have any apparent relationship to staff size. Staff sizes reported in the survey varied significantly. A few STAs reported staffing levels of 50 or more full-time employees, whereas others reported one or even no full-time employees. Other factors identified in comments provided by STAs that could influ- ence office staffing levels included • Frequency of certification/recertification, • Number of contracts with contract goals, • Method of contracting (size, complexity, etc.), and • Services (i.e., training) provided by staff versus con- tracted consultants. UNIFIED CERTIFICATION PROGRAM The requirements for implementing a unified certification pro- gram (UCP) were described in the 1999 revision to the reg- ulations and retained in the 2003 Final Rule. The revision required each state to develop a UCP. The certification process had been a problem for DBEs before the UCP program, when a DBE would have to file applications for certification with each recipient agency it wished to work with. Much of the information was redundant; however, the formats and sub- mission details would often be different. With the UCP in place, a DBE can be certified in one agency and have their certification recognized by all agencies within that UCP. The UCP section of the regulation requires that specific informa- tion and updates be provided to contractors and the public on request. Once the UCP is established, there are a number of activ- ities and responsibilities that are required by the regulation (49 CFR 26.81, 2003), which are paraphrased as follows: • Certification decisions by the UCP shall be binding on all recipients within the state. • The UCP shall provide “one-stop shopping” to appli- cants for certification, such that an applicant is required to apply only once for a DBE certification that will be honored by all recipients in the state. • Subject to U.S.DOT approval, the recipients in two or more states may form a regional UCP. The UCP may also enter into written reciprocity agreements with other UCPs. • Pending the establishment of the UCP, STAs can enter into agreements with other recipients, on a regional or interjurisdictional basis, to perform certification func- tions, and they can approve reciprocity to other recipi- ent’s certification decisions. • Each UCP shall maintain a unified DBE directory con- taining, for all firms certified by the UCP, the informa- tion required by Section 26.31. The UCP shall make the directory available to the public on the Internet, as well as in print. The UCP shall update the electronic version of the directory by including additions, deletions, and other changes as soon as they are made. One of the key elements of the UCP section is the require- ment for an electronically accessible directory of firms. Sec- tion 26.31 of the regulation requires that specific information (addresses, phone numbers, and types of work the firm has been certified to perform as a DBE) be maintained in the DBE directory. The requirements also state that the directory must be updated annually. The information available on the certifica- tion lists reported in the questionnaire was very consistent with the directory requirement. All respondents published the company and/or owner name, address, telephone, fax, and CHAPTER THREE GENERAL ADMINISTRATIVE PRACTICES

work types. Three STAs published the standard industrial classification code and age of the firm. E-mail addresses, Internet home pages, contact person’s name, SB 8A status, and certification dates were also noted as information avail- able on the DBE certification lists. The questionnaire did not request data on updating or publication frequency. The study questionnaire asked if the STA maintained a website with a list of certified DBE firms. The response was unanimous that the status information of DBEs was available through STA websites. In addition, some comments from the web page listing were of interest. • DBEs view the listing as similar to a “yellow pages” directory, without having to pay for advertising. Prime contractors can access and see their listing. This was noted as an “excellent marketing tool.” • Usefulness to prime contractors ranged from “no, they use the information we release with bidding documents” to the directory being an essential tool for locating and identifying subcontractors for bidding specific projects. • One state commented that contractors must contact two- thirds of certified DBEs in a work area to be in compli- ance with good faith effort requirements. Its directory listing was the most current and provides prime con- tractors with the most up-to-date information available for bidding. • One STA has made their web page searchable by work scope. It is “one of the most frequently visited sites on our webpage.” The STAs in many states are the primary source of DBE contracting opportunities; 92% of those surveyed (33 STAs) replied that their agency was responsible for coordination of the UCP. Three were not the lead agency for certifications, but participated in a separate entity that was established to perform the UCP function. Respondents were also asked to examine their past year’s data and identify if they had expe- rienced an increase, decrease, or no change in new firm cer- tifications. Figure 1 shows the trends in new firm certifica- tions reported from the questionnaire. The three most frequent reasons for increased certifica- tions were 10 • Increased outreach (7), • UCP (2), and • Major local project announcements (2). Only one notation was provided on factors contributing to a decline in certification. The decline was attributed to the change in personal net worth reporting requirements. This was supported by another question about trends in firms requesting removal from DBE certification and if reasons for the change were known. Five STAs indicated that they had experienced an increase in the number of requests to be removed from cer- tification; four attributed personal financial disclosure require- ments as the primary factor for removal and the other reported that there had been some confusion about their certification process. Seven STAs reported a decline in the number of requests to be removed from certification lists. There were no specific factors attributed to this trend. Figure 2 shows the experience of STA administration with ready, willing, and able DBE firms. The only factor noted by more than one STA for their increase in the number of ready, willing, and able DBE firms was the effectiveness of outreach programs. On average, these STAs had experi- enced a 10% increase in the number of ready, willing, and able DBE firms. No information was provided by those expe- riencing a decline in ready, willing, and able DBE firms. NUMBER OF CERTIFICATIONS The number of certified DBE firms affects every aspect of the DBE program. The number of certified firms varies greatly from state to state. Although they are certified, many of the firms seeking certification do not perform work related to transportation construction. Table 1 shows the number of certifications and an estimate of the number of firms that were willing to work on highway construction projects. The list of certified firms also requires updates, as new firms are added or firms loose their eligibility. Monthly updates were per- formed by 60% of the responding STAs. The other responses were a mixture of weekly and biweekly updates. Same 46% Increased 45% Declined 9% FIGURE 1 STA new certification experiences. No Response 11% Same 39% Increased 36% Declined 14% FIGURE 2 STA experience with the number of ready, willing, and able DBEs.

11 DETERMINATION OF INELIGIBILITY Determining that a firm is ineligible as a DBE is not a com- mon process; however, in some circumstances a DBE firm’s certification will be removed. The determination can occur for a wide variety of reasons that could include ineligibility as a result of exceeding company size standard, poor contract performance, or fraud. The timing of the ineligibility deci- sion and contracting phase of contracts the firm is involved in are two key points to consider with respect to their impact on contract administration. When a DBE has been declared ineligible, but was a certified DBE when the contract was signed, the prime contractor can finish the project with the ineligible firm and can count the work completed toward their contract goal. If the determination of ineligibility was made by the STA before the contract was executed, the contractor may not use the ineligible firm as part of its contract goal attainment. In most STAs, the contractor is expected to per- form a good faith effort in obtaining a replacement subcon- tractor for the contract goal. Details and other information about the frequency of ineligible DBEs were not requested in the questionnaire. GOALS Before the current regulation, STA overall goals were gen- erally considered to be 10% across the board, regardless of their local situation or market conditions. “The national 10% goal does not authorize or require recipients to set overall or contract goals at the 10% level, or any other particular level, or to take any special administrative steps if their goals are above or below 10%” (49 CFR 26.41, 2003). Recipients of U.S.DOT funds must, however, set an overall goal. The fol- lowing are provided as guidelines: • An overall goal must be based on demonstrable evidence of the availability of ready, willing, and able DBEs rela- tive to all businesses ready, willing, and able to partic- ipate on STA-assisted contracts. • The goal must reflect a determination of the level of DBE participation absent the effects of discrimination. • An STA cannot simply rely on the 10% national goal, any previous overall goal, or past DBE participation rates. They must benchmark relative to availability of DBEs in the market. Five STAs did not report actual achievement as the result of unavailable data for 2002 when they completed the ques- tionnaire. Split goals, those split between race-neutral and race-conscious methods, were reported for 70% of the STAs. The goal achievement for 2002 is shown in Table 2 and Fig- ure 3. A significant change in the regulation is the require- ment that state recipients must meet the maximum feasible portion of their overall goal by using race-neutral means of DBE participation. By definition, race neutral includes gen- der neutral. Race-neutral DBE participation primarily is any time a DBE wins a prime contract through customary com- petitive procurement procedures or a DBE firm is selected as a subcontractor on a project that does not have DBE partici- pation goals. Race-conscious participation indicates that spe- cific goals are established on contracts. The flexibility of the goal assignment is that individual contract goals may vary depending on factors such as availability, location, and con- tract size or type. COUNTING SECOND TIER DISADVANTAGED BUSINESS ENTERPRISE SUBCONTRACTOR CONTRIBUTIONS Second tier subcontractors are created by subcontractors awarding subcontracts to other contractors for a portion of their work. When counting DBE participation, the direct work contribution of a first tier DBE subcontractor is counted toward the project goal. However, when a DBE subcontracts work to another DBE firm, that portion can also be counted State No. of Certified DBEs RWA for STA Construction Alabama 416 89 Alaska 190 130 Arizona 300 NA Arkansas 125 110 California 2,739 1,949 Colorado 418 35 Connecticut 312 260 Georgia 750 225 Hawaii 350 30 Idaho 170 120 Illinois 575 466 Iowa 100 70 Kansas 245 95 Kentucky 337 94 Maine 220 190 Massachusetts 900 89 Michigan 319 NA Minnesota 300 274 Missouri 250 80 Nevada 425 200 New Hampshire 170 69 New Jersey 425 417 New Mexico 175 40 New York 475 46 North Carolina 600 NA North Dakota 75 40 Ohio 300 250 Oklahoma 150 65 Pennsylvania 475 171 South Dakota 75 30 Texas 1,198 NA Vermont 131 20 Washington 673 NA West Virginia 129 103 Wisconsin 292 81 Wyoming 65 14 Notes: NA = not available; RWA = ready, willing, and able. TABLE 1 NUMBER OF DBEs CERTIFIED AS OF 2002

toward the project goal. The regulation describes the methods for counting DBE second tier subcontractor participation as follows [49 CFR 26.55 (a)]: (3) 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. 12 Not all STAs include payments of second tier subcontrac- tors. Twenty-three STAs have a mechanism to include second tier subcontracting contributions. Eleven indicated that they do not count second tier contributions and two did not provide a response to this question. No clarification was provided for why some STAs do not count second tier contributions. DISADVANTAGED BUSINESS ENTERPRISE REGULATION FOR LOCAL FUND PROJECTS Local projects with federal aid need to be included in STA goal-setting processes. Several terms are used to describe these projects. They are known as either “pass through” or “local let” contracts when they involve federal funds. The terms accurately describe the transactions. When a local gov- ernment receives money from the federal government for a project the money is provided through the STA. The local authority is generally responsible for the bid letting, award- ing, and oversight of the resulting contracts. The STA should receive monthly or quarterly reports on the disbursement of funds to the project contractors, including DBE firms, to use in the STA reports. In some cases, the local authority seeks STA assistance in the oversight and management of the local project. In most cases, the STA then has direct access to reporting documents. Of the 13 responses obtained to a ques- tion about local DBE programs, 7 STAs indicated that local goals had been established. Three STAs indicated that they are not tracking DBE participation in pass through or local let contracts. SET-ASIDE PROGRAMS Section 26.43 (2003) addresses the use of set-asides or quotas in meeting program goals. Quotas are not permitted and set- aside contracts are only permissible when no other method could reasonably be expected to achieve the program goals. None of the respondents had used any set-aside programs. OVERCONCENTRATION Overconcentration is not precisely defined in the regulation, allowing for a wide variety of interpretation. Overconcentra- tion occurs when DBE firms are so frequently used in a cer- tain type of work as to “unduly burden” the opportunity of non-DBE firms to participate in this type of work. It is up to each individual STA to establish the metrics for when a work type is “unduly burdened” or “overconcentrated.” New Mex- ico defined overconcentration as occurring where more than 50% of the firms ready, willing, and able to perform such work are DBE firms or when more than 50% of the total fed- eral-aid dollars spent on such work in the previous fiscal year was earned by DBE firms. For trucking, they raise the defin- ition percentages to 80%. In Georgia, overconcentration is when the total work of DBE firms comprises 85% of the State DBE Goal (%) Race Neutral (%) Race Conscious (%) Achievement (%) Alabama 9.00 2.6 6.4 9.00 Alaska 8.00 3.5 4.5 5.00 Arizona 9.00 2.5 6.5 9.00 Arkansas 8.15 0.30 7.8 7.00 California 17.00 3.0 14.0 NA Colorado 10.93 8.1 2.83 11.00 Connecticut 11.70 1.7 10.0 NA Georgia 12.00 4.0 8.0 12.00 Hawaii 17.00 17.0 17.00 Idaho 8.00 2.3 5.5 4.00 Illinois 12.29 2.5 9.79 10.95 Iowa 6.80 7.00 Kansas 10.30 1.0 9.3 9.00 Kentucky 11.00 9.0 2.0 NA Maine 7.00 7.00 Massachusetts 13.80 4.3 9.5 13.00 Michigan 11.00 2.0 9.0 13.00 Minnesota 8.00 2.6 5.0 NA Missouri 9.00 2.93 6.41 9.00 Nevada 6.00 3.0 3.0 7.00 New Hampshire 8.00 6.0 2.0 21.00 New Jersey 15.00 9.6 4.9 16.00 New Mexico 8.07 13.52 New York 12.70 1.2 11.5 NA North Carolina 12.00 2.94 9.06 NA North Dakota 7.00 4.42 2.71 5.00 Ohio 9.00 6.00 Oklahoma 10.00 6.00 Pennsylvania 9.00 1.93 6.93 NA South Dakota 7.00 2.62 4.38 8.00 Texas 12.00 12.00 Vermont 12.50 10.5 2 13.00 Washington 12.00 7.0 5.0 14.00 West Virginia 10.00 9.75 5.00 Wisconsin 11.00 1.9 8.6 9.14 Wyoming 5.00 5.0 7.00 Note: NA = not available. TABLE 2 STATE OVERALL DBE GOALS AND ACHIEVEMENT (2002) Below Goal 31% On Goal 19% Above Goal 31% Not Tracking 19% FIGURE 3 Goal achievement distribution, 2002.

13 work in a specific area. Although the questionnaire sought processes for overconcentration, most respondents annotated their responses, stating that overconcentration did not exist or that they had not performed any analysis. Five respondents indicated that they did not have a method for evaluating over- concentration. If an STA determines that it has overconcentration, it needs to devise and implement appropriate procedures to cor- rect the situation. The regulation provides some limited insight into acceptable measures as follows: • Use of incentives, • Technical assistance, • Business development programs, • Mentor–protégé programs, and • Other appropriate measures designed to assist DBEs in performing work outside of the specific field where over- concentration is occurring. Once approved, the overconcentration practice or procedure becomes part of the operating DBE program. Without a requirement in the regulation for overconcen- tration analysis, 25% of the responding STAs have not per- formed an overconcentration analysis nor do they have a process for performing the analysis. Annual reviews were reported to be conducted at five (14%) of the responding STAs, whereas six of the STAs (16%) reported that their process was complaint driven. Complaint-driven processes are imple- mented only when a formal complaint is received. Only two STAs reported having received any complaints and they deter- mined that overconcentration was not present in both situa- tions. Thus, strategies for remedying overconcentration have not been widely tested. The following strategies were pro- posed by the STAs in responses to the questionnaire: • Remove the item from DBE credit work items (Alaska). • Set a 0% goal on contracts where only one item is iden- tified for potential DBE participation, otherwise non- DBE contractors would be unfairly prevented from com- peting for the contract (Colorado). Although not a direct response to known overconcentration, a cap of 50% of the value for permanent materials provided under furnish and install items was implemented on the Mass- achusetts Central Artery/Tunnel Project to broaden partici- pation across subcontract areas. In addition, mentor–protégé programs, business develop- ment activities, and technical assistance are also considered proactive measures to reduce overconcentration. However, because a majority of the state STAs did not feel they were experiencing overconcentration, these were not described as methods they were employing to reduce overconcentration. PUBLIC PARTICIPATION In addition to data collection on participation, the regulations call for STAs to include public participation in the goal-setting process. Several requirements concerning public participa- tion in goal setting are published in the regulation as follows (Section 26.45, 2003): 1. Consultation with minority, women’s, and general con- tractor groups, community organizations, and other offi- cials or organizations that could be expected to have information concerning the availability of disadvan- taged and nondisadvantaged businesses. 2. A published notice announcing that the proposed over- all goal is to inform the public about the proposed goal and its rationale. 3. The notice must include addresses to which comments may be sent, and it must be published in the general circulation media and available minority-focused media and trade association publications. 4. Overall goals must provide for participation by all cer- tified DBEs and must not be subdivided into group- specific goals. Table 3 summarizes the public participation reported in the study questionnaire. General contractor organizations were identified as state chapters of the Associated General Con- tractors of America (AGC) and chapters of the American Road and Transportation Builders Association. In some cases, special committees have been established to act as a liaison with all groups and to be the primary channel for goal rec- ommendations. For example, in Wisconsin the Transportation Advisory Committee is a permanent standing committee that advises the Wisconsin DOT on DBE matters. This committee establishes the recommended overall goal. The committee is comprised of the following members: • A woman-owned DBE, • Three members of the Wisconsin Chapter of the National Association of Minority Contractors, • Three members from the Wisconsin Transportation Builders Association, Public Participation No. of STAs Responding Minority and/or Women’s Contracting Groups 11 General Contractor Groups 11 Community Organizations 8 Publications (newspapers, trade magazines, etc.) 8 Direct Mailing 3 Personal Interviews 2 Website 2 Contact Other Authorities 1 Note: Only 11 of 36 survey respondents provided details on their public participation requirements to the open-ended goal-setting process. TABLE 3 TYPES OF PUBLIC PARTICIPATION IN GOAL SETTING

• Three Wisconsin DOT staff members, and • One staff person from the FHWA. This composition covers all major stakeholders in the DBE program and ensures that most viewpoints are represented. Other STAs choose to have individual contacts with stake- holders. Public input can also be achieved by holding periodic public meetings and inviting the stakeholders to participate. Publications used to advertise the goal and invite com- mentary included regional and local trade magazines, STA DBE newsletters, and local (major market) newspapers. Some also advertise through their Internet websites. The Idaho Transportation Department (ITD) used a direct solici- tation mailing to minorities, women, contracting groups, and other organizations. The questions they use in their direct mailing approach are as follows: 1. Are you aware of any other disadvantaged businesses, other than certified DBE firms? 2. Do you have information regarding discrimination that has affected opportunities for the DBE and or non- DBE firms? 3. Do you believe that ITD’s efforts are helping to estab- lish a level playing field? 4. Has ITD’s goal-setting process been beneficial to their group or organization? 5. Do you have comments or concerns that should be considered in the determination of new goals? 6. Do you have additional comments or concerns? In addition to gaining information on the goal-setting process, this survey approach also directs some feedback to program administrators for potential process improvement. CONTRACT GOAL-SETTING PROCEDURES The basic guidance from 49 CFR 26.51 (2003) for goal-setting is as follows: • Use contract goals only on those STA-assisted contracts that have subcontracting possibilities. • Use goals to offset overall goal achievement not accom- plished by race-neutral means. • A goal set requirement is not required for every STA- assisted contract. • The contract goal does not need to match the overall goal and depends on – Type of work involved, – Location of the work, and – Availability of DBEs for the work on the contract. • Contract goals must provide for participation by all certified DBEs and must not be subdivided into group- specific goals. The process to be used by STAs for setting contract goals is not specifically defined. The factors identified in the regu- 14 lation are, in general, the same used by the state STAs for evaluating contracts. Table 4 is a summary of the factors used for selecting contract goals. Specific factors eliminating a contract from a DBE goal requirement include • Contract value deemed too small for subcontracting opportunities (7), • Emergency work (4), • High degree of work specialization (2), • Only using state funds (2), and • Very short duration contracts (1). DISADVANTAGED BUSINESS ENTERPRISE PROGRAM CONTRACT ADVISING The STAs were asked about how the DBE program person- nel provide guidance or advice to engineering and/or the STA contracts division regarding contract size, bundling or grouping contracts with certain work types, and work type distribution in lettings. More than 60% (23 of 36) responded that they did not provide guidance to engineering or the con- tracts division on contract size, bundling, or grouping of con- tracts on lettings. One-third of the respondents indicated that they had a role within their STA to advise on contract issues. This group indi- cated that the DBE program advised on and acted as advo- cates for smaller contract sizes and provided consultation and training to engineering groups. In two cases, the relationship described was a collaborative review of contracts with engi- neers and construction to determine contract DBE goals. The major problem reported was that large contracts associated with bundled contracts limited DBE participation. BUNDLED CONTRACTS Figure 4 shows that one-half of the responding states have experienced an increase in contract bundling. Contract bun- Factors for Selecting Contracts for Goals No. of States Responding1 Type of Work or Bid Items 24 Location of Work (geographic) 18 Availability of RWA DBE Firms 202 Contract Size ($) 173 Project Schedule 3 Current Level of Goal Attainment 2 Notes: RWA = ready, willing, able; DBE = disadvantaged business enterprise. 1Thirty-six potential responses. Seven states did not provide a response (four were not using contract goals). 2Three states indicated they looked for a minimum of three RWA DBE firms to compete on each item included in the contract goal; one looks for a minimum of three RWA DBE firms for three or more work items. 3Various minimum contract sizes were noted as cut-offs for contract sizes with goals: $100,000, $250,000, and $1,000,000. TABLE 4 CONTRACT SELECTION FACTORS

15 dling occurs when an STA consolidates a group of smaller or potentially smaller contracts into one large contract. Fewer contracts require fewer lettings, project managers, consultants and so forth, which generates some overhead and administra- tive savings for an STA. For example, where the STA could have let three contracts for bituminous resurfacing on several roads in a district, it may bundle these together into a single contract for bid. Bundled contracts tend to be larger aggre- gate dollar volume contracts. Bundling reduces the number of DBEs able to bid as a prime contractor. In some instances, it limits opportunities for prime contractors as well. Bundling often reduces the pool of subcontractors owing to the increased size of the subcontracted work items. The prime contractor can redefine work packages to achieve the required DBE par- ticipation where there are contract goals. The true impact of bundling cannot be determined from survey responses. Three of the 36 respondents believed that bundling has had no impact and their STAs benefited by hav- ing reduced administrative requirements. Ten STAs reported that bundling does affect a DBE’s ability to bid as prime con- tractors. Only 5 of the 10 indicated that it was a problem for subcontracting. The others believed that there was little impact on subcontracting opportunities. To reduce the impact of bun- dling, Illinois has developed a “small contracts listing,” enabling DBEs to identify and bid contracts as prime con- tractors or subcontractors. Pennsylvania reported that they no longer bundle contracts because of the impact it had on DBEs. An secondary effect noted in the response from Col- orado was that some DBEs were bidding city, county, or pri- vate work because the contracts were smaller. DISADVANTAGED BUSINESS ENTERPRISE GOALS FOR OTHER CONTRACTING METHODS Other types of contracts that are commonly assigned contract goals are shown in Table 5 and briefly described here. Construction Management A number of states have leveraged their capability to under- take a larger number of contracts, without increasing their permanent staff levels, by outsourcing (contracting with out- side firms) construction management. Fifteen STAs indicated that they outsourced construction management services. The goals for construction management contracts were different. Only three states reported using a fixed-percentage goal for construction management contracts when determining con- tract goals for construction management services contracts. Indefinite Delivery/Indefinite Quantity Also known as “on-call contracts” or “retainer contracts,” indefinite delivery/indefinite quantity (ID/IQ) contracts were also examined in the survey. Generally, DBE goals are not being used on ID contracts. Six STAs responded that they used ID/IQ contracting. One respondent further commented that the use of ID/IQ “improves DBE participation since they (the contracts) are let prior to the need for services,” allow- ing the DBE firm to better allocate resources rather than wait- ing for individual contract bids. No changes in the reporting format were noted. DESIGN–BUILD CONTRACTS Goal setting on design–build drew a wide variety of responses. For example, not all STAs are authorized by their state reg- ulations to use design–build or other innovative delivery methods at this time; therefore, they either stated this or pro- vided no response. From the 36 available responses the fol- lowing was reported: • Thirteen use the same process for all contracts regard- less of contract type, • Three use one goal for the master contract in design– build contracts, • One noted that it was considering separate goals for design and construction portions, • Three are in the process of developing a procedure, • Thirteen did not respond or indicated not applicable, and • Three specifically do not use design–build. The current DBE regulations have addressed design–build construction with the following: • State STAs can establish an overall goal for design– build projects. • The “master contractor” under the design–build agree- ment is responsible for establishing contract goals, as appropriate, for the construction subcontracts it lets. • State STAs must maintain oversight of the master con- tractor’s activities. New Mexico is an example of a state using a single goal for the master contract. It lets the master contract for a design– build contract with a single goal established for the project. The master contractor establishes the individual contract goals as appropriate to the work division they establish. The New Mexico STA maintains an oversight role in the entire process. Yes 50%No 42% No Response 8% FIGURE 4 Percentage of STAs experiencing increased contract bundling.

Although design–build contracts were not used by more than one-half of the respondents; those that are using or experimenting with design–build provided some insight to their administration requirements. • Include appropriate DBE language and provisions into the master contract. • Require a written performance plan for meeting the overall project goal and a schedule of participation. • Have the master contract holder submit periodic (yearly on large projects) goals, including the items to be con- tracted to DBE firms. PREQUALIFICATION PRACTICES Prequalification of contractors is one way that an STA can ensure that the contractors bidding on work are qualified to perform specific types of work and to specify what size contracts they will be permitted to bid on. Prequalification is a process where the contractor submits experience and financial qualification information to the STA. Once qual- 16 ified for bidding, the contractor is typically classified according to eligible work types, STA total contract volume, and/or a limitation on the maximum size contract on which they can bid. Theoretically, prequalification enables the STA to limit their post-bid submission evaluation to only those issues related to bid responsiveness. Prequalification effectively establishes the contractor as a responsible bidder through the prequalification process. The break- down of the prequalification of prime contractors and sub- contractors is as follows: • Prequalify prime contractors (30)—five states indicated that they did not use prequalification. One state did not respond to this question. • Prequalify subcontractors (7)—some STAs are required to qualify all contractors regardless of their status as a prime contractor or subcontractor. One had a subcon- tract value qualifier. Contracts under $250,000 do not require a state prequalification. Not all STAs use prequalification. Some elect to have no requirement other than contract bonds and rely on the surety State Planning Engineering and Architectural Services Materials Testing and Inspection Construction Inspection Construction Management Maintenance Services Alaska ✔ ✔ ✔ ✔ Arizona ✔ ✔ ✔ California ✔ ✔ ✔ ✔ ✔ Colorado ✔ ✔ ✔ Connecticut ✔ ✔ ✔ ✔ ✔ ✔ Georgia ✔ ✔ ✔ ✔ Hawaii ✔ ✔ ✔ ✔ Idaho ✔ ✔ ✔ ✔ ✔ Illinois ✔ ✔ Iowa ✔ Maine ✔ ✔ ✔ ✔ ✔ Massachusetts ✔ ✔ ✔ ✔ Minnesota ✔ ✔ ✔ Missouri ✔ ✔ ✔ ✔ Nevada ✔ New Hampshire ✔ ✔ New Jersey ✔ ✔ ✔ ✔ ✔ ✔ New Mexico ✔ ✔ ✔ ✔ ✔ ✔ New York ✔ ✔ ✔ ✔ Ohio ✔ Oklahoma ✔ ✔ ✔ ✔ ✔ Pennsylvania ✔ ✔ ✔ ✔ Texas ✔ Vermont ✔ ✔ ✔ ✔ ✔ ✔ Washington ✔ ✔ ✔ Wisconsin ✔ ✔ ✔ ✔ ✔ Notes: Alabama, Arkansas, Kansas, Kentucky, North Carolina, North Dakota, South Dakota, and Wyoming responded that they did not have DBE requirements on nonconstruction contracts. Michigan and West Virginia did not respond to this question. TABLE 5 DBE REQUIREMENTS ON CONTRACTS OTHER THAN CONSTRUCTION

17 bond approval process to qualify bidders. Others rely on a post-contract evaluation of contractor finances and qualifica- tions to determine their qualification as a responsible bidder. BIDDERS LISTS Section 26.11 (c) (2003) of the regulation requires that STAs create and maintain a bidders list to aid in the identification of DBE and non-DBE contractors. The language of the reg- ulation is very specific with regard to the information to be retained in such a list. (c) You must create and maintain a bidders list, consisting of all firms bidding on prime contracts and bidding or quoting sub- contracts on DOT-assisted projects. For every firm, the fol- lowing 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, and (5) The annual gross receipts of the firm. There is no indication if this is for each letting or simply a listing of all contractors who have bid projects. Tradition- ally a bidders list is specific to a letting. Table 6 lists the information each STA included in their public bidders list based on the elements required in the regulation. It would appear that some STAs are maintaining a bidders list; how- ever, they are primarily focused on providing a listing of active bidders for a specific letting. A random check of six STA websites confirmed their response listing in Table 6 as a letting specific listing according to specific contracts. A separate survey question asked if they maintained a bidders list of DBE and non-DBE firms quoting work for each high- way letting. Seven of the 36 STAs responded “no” to this question and four indicated that they were only tracking prime contractors at this time. Many included other informa- tion such as contact telephone numbers, fax numbers, and type of work on the bidders list, in addition to the required information. BIDDERS LIST DATA COLLECTION Data to be included in a bidders list can be generated in a variety of ways. Table 7 summarizes the methods indicated by the responding STAs. Written and/or e-mail surveys requesting information for the bidders list from contractors were also noted. Most generate the list from contractors who have previously bid on STA projects as prime contractors or subcontractors. Another key source is the listing of active bidders determined from previous bid letting information. Subcontractor information regarding all quotes provided by DBE and non-DBE subcontractors is required of the suc- cessful bidder. This information is useful for the bidders list as well as evaluation of a good faith effort. A bid data sub- scription list may be an e-mail list, an automated fax system, or a physical mailing of anticipated letting projects. When- ever a contractor requests information about a project, they are included on the bidders list. Some STAs post letting infor- mation on their websites, so the need for mailing lists is lim- ited. Two STAs required a contractor to provide their bidders list information as a registration requirement for access to project information. STA Firm Name Address Age of the Firm Annual Gross Receipts Alabama ✔ ✔ Alaska ✔ ✔ Arizona ✔ ✔ Arkansas ✔ ✔ Colorado ✔ ✔ ✔ Connecticut ✔ ✔ Georgia ✔ ✔ Hawaii ✔ ✔ ✔ Idaho ✔ ✔ Illinois ✔ ✔ ✔ ✔ Iowa ✔ ✔ Kentucky ✔ ✔ Maine ✔ ✔ ✔ Massachusetts ✔ ✔ ✔ Missouri ✔ ✔ Nevada ✔ ✔ ✔ ✔ New Hampshire ✔ ✔ New Mexico ✔ ✔ New York ✔ ✔ ✔ ✔ North Carolina ✔ ✔ North Dakota ✔ ✔ Ohio ✔ ✔ Oklahoma ✔ ✔ ✔ South Dakota ✔ ✔ Texas ✔ ✔ Vermont ✔ ✔ ✔ ✔ Washington ✔ ✔ ✔ Wisconsin ✔ ✔ Wyoming ✔ ✔ Note: No responses were received from California, Kansas, Michigan, Minnesota, New Jersey, Pennsylvania, and West Virginia. TABLE 6 BIDDERS LIST INFORMATION Method No. of Respondents Questionnaire/Survey 11 Previous Letting Information (successful primes and some request unsuccessful primes) 10 Bid Data Subscription 4 Certification Files—DBEs Only 3 Currently Performing Work for STA 2 Registration with the STA as a Bidder 2 Prequalification Lists 2 Bidder History File—Bidding on Past Projects 2 Plans Counter Information—Request for Documents 1 Required in Special Provision to Submit Data for Each Firm Bidding 1 Association Lists (general contractor, minority contractor, etc.) 1 Note: Total number of responses exceeds the number of respondents. Respondents were not limited to a single option or choice. TABLE 7 BIDDERS LIST DATA COLLECTION

MENTOR–PROTÉGÉ PROGRAMS Regulation Section 26.35 (b) (2003) provides the following guidance on mentor–protégé programs as described in con- junction with or part of the STA business development pro- gram (BDP). (b) As part of a BDP or separately, you may establish a “mentor– protégé” program, in which another DBE or non-DBE firm is the principal source of business development assistance to a DBE firm. (1) Only firms you have certified as DBEs before they are proposed for participation in a mentor–protégé pro- gram are eligible to participate in the mentor–protégé program. (2) During the course of the mentor–protégé relationship, you must: (i) Not award DBE credit to a non-DBE mentor firm for using its own protégé firm for more than one-half of its goal on any contract let by the recipient, and (ii) Not award DBE credit to a non-DBE mentor firm for using its own protégé firm for more than every other contract performed by the protégé firm. (3) For purposes of making determinations of business size under this part, you must not treat protégé firms as affil- iates of mentor firms, when both firms are participating under an approved mentor–protégé program. See Appen- dix D of this part for guidance concerning the operation of mentor–protégé programs [included in Appendix B of this synthesis.] A mentor–protégé program is a business relationship in which another firm is the principal source of business devel- opment assistance to a DBE firm. Only 12 of 36 respondents indicated that they have a mentor–protégé program in place. None of the STAs indicated that such programs were manda- tory for DBE firms. Distinctly different approaches were noted among the mentor–protégé programs. The Ohio, California, and Texas programs are described briefly here. Ohio The Ohio Contractor Association and Ohio DOT have entered into a partnership mentor–protégé program. Each mentor– protégé pair has agreed to work together for 2 years under the program guidelines. The time commitment for the mentor firm is estimated to be between 5 and 10 h per month. The relationship is monitored by the sponsor organization, the Ohio DOT. The roles of the three parties are described as follows (http://www.dot.state.oh.us): • Mentor role: – Sign an agreement with the protégé; – Meet regularly to discuss protégé strengths, weak- nesses, and opportunities; – Recommend training options; and – Monitor and report on protégé progress. • Protégé role: – Be available for meetings with the mentor, 18 – Openly share relevant business information with the mentor, – Follow through with actions identified in the devel- opmental action plan, and – Report on program progress and satisfaction. • Sponsor role: – Monitor mentor–protégé working relationship, – Coordinate DBE support services, – Receive and evaluate progress reports, and – Program publicity. The general text of the Ohio web page describing their mentor– protégé program is provided in Appendix E. California The California DOT (Caltrans) mentor–protégé mission state- ment is as follows: The Caltrans Mentor–Protégé Program will assist Disadvan- taged Business Enterprises (DBEs) in the development of their technical and business capabilities via training and assistance from larger, well-established construction firms. The program elements include: • Monthly meetings between mentor and protégé, • Technical support from service providers, • Technical and administrative training, • Notices of anticipated and actual project opportuni- ties, and • Networking opportunities. Protégé firms are selected through an application process that limits enrollment to DBE firms in business for at least 24 months and specializing in highway construc- tion and related activities. The AGC of California provides two mentor firms for each protégé. This partnership mentor– protégé program is supported by AGC of California and Caltrans. Texas The Texas mentor–protégé program is called Learning Infor- mation Networking Collaboration (LINC). Its purpose is to prepare small businesses to bid and perform on Texas DOT (TxDOT) projects and functions as a business development and department mentor–protégé system. LINC mentors introduce the protégé firms to TxDOT staff and to prime con- tractors by providing networking opportunities. The mentor in this program is the STA rather than the traditional arrangement where a non-DBE contractor is a mentor to a DBE contractor. The program consists of six meetings; an introductory meet- ing followed by five meetings held in a specified STA district.

19 The location is determined by upcoming contracting volume in the area and the number of potential DBE firms. Participant firms receive presentations on the following topics: • Bidding and estimating (with a hands-on bid review by a support services provider), • Contract administration, • Record keeping, • Construction-related legal issues, • Inspections, • Equipment usage, • Material/product testing, and • Marketing plan. In addition to the training, participants are directly intro- duced to prime contractor personnel who have been provided with an information packet about their LINC protégé. The final session provides participants with a working view of the opportunities to bid on maintenance contracts as prime con- tractors. Some additional topics are covered on prequalifica- tion, bidders questionnaire, bonding, insurance, and specific contract requirements.

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TRB National Cooperative Highway Research Program (NCHRP) Synthesis 343: Management of Disadvantaged Business Enterprise Issues in Construction Contracting examines state transportation agencies’ (STA's) various approaches to implementation of DBE regulations relating to bidder’s lists; prompt payment; return of retainage; actual achievements, including accounting and reporting procedures; good faith efforts; and compliance, including substitutions, fraud, and commercially useful functions. The report also includes information on construction and construction management contracts, design–build projects, master contracts (indefinite delivery/indefinite quantity, services on demand, and task ordering), pass-through to local agencies, and STA performance measures.

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