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

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29 The survey questionnaire requested comments on what the state transportation agencies (STAs) believed were the improvements that have resulted from the revised regulation. The following list indicates the Final Rule improvements, with the number of responses noted in parentheses. Responses that had similar content and subject were grouped together. • Prompt payment provisions (6), • Goals responsive to market (5), • Unified Certification Program (UCP) (4), • Personal net worth (2), • Race-neutral participation (2), • Better interpretation guidance—good faith effort (2), and • Reduced number of fraudulent firms owing to compli- ance audits (1). STAs were also asked to describe the methods, other than goal achievement, used to determine program effectiveness. Similar comments have been grouped together. The number in parentheses indicates the number of similar responses. • Measures of improved Disadvantaged Business Enter- prise (DBE) firm competitiveness (27). – DBE firm growth and/or graduating from DBE pro- gram (10); – Number of DBE firms with contracts (8); – Number of ready, willing, and able firms competing for contracts (4); – Firms bidding as prime contractors (3); – DBEs obtaining contracts outside of STA contracts (2); and – Ability to stay in business (1). • Feedback from companies using surveys, focus groups, town meetings, etc.) (9). • Number of new DBE firm start-ups (3). • Race-neutral participation (3). The diverse number of responses suggests that STAs tend to view DBE program effectiveness somewhat differently. However, the primary focus of the STAs responding to the questionnaire was on success measures related to DBE firms rather than on internal or administrative goals. STAs were requested to provide their thoughts and exper- tise on what the greatest barriers were or remain for DBE uti- lization. The number of responses is noted in parentheses. Responses that had similar content and subject were grouped together. • Lack of resources (financial, bonding, insurances, etc.) (12); • Stigma of “DBE” designation or perception of special treatment (5); • Larger contract sizes (5); • Prime contractors unwilling to work with new DBE firms (4); • FHWA/U.S.DOT (3); • Lack of incentives to prime contractors to exceed goals (1); • Personal net worth reporting (1); • Not all DBEs are ready, willing, and able (1); • Trucking rules (1); and • DBE perception that certification is a work guarantee (1). The primary barrier described by the STAs is the contin- uing difficulty with the lack of resources available to DBE firms. Larger contract sizes and related ideas that limit com- petitive opportunities was also a key trend described in the responses. The questionnaire contained a request for information on what activities the STAs were involved in that included new methods or techniques to improve operational effectiveness. Responses that had similar content and subject were grouped together. Not all STAs provided a response. • Implement or continue implementation of Champ, a software system for managing contract compliance (2), • Improve business development programs (2), • Develop auditing or monitoring for design contracts (2), • Improve supportive services offerings (2), • Improve our good faith effort analysis (2), • Targeted assistance programs (1), • Provide DBE training for on-line bidding (1), • Conduct more focus groups to learn about program needs (1), • Learn UCP best practices (1), and • Develop next phase of mentor–protégé program (1). The new methods and techniques identified here are predom- inately improvements in existing programs and activities. Respondents were asked to provide their thoughts and expertise on what was needed to improve the DBE program and use of DBE firms. The following list notes the number of responses in parentheses. Responses that had similar content CHAPTER FIVE CONCLUSIONS

and subject were grouped together. There was significant diversity in the responses to this question. • Return to two goal program: women and minorities (4). • Increase support services funding commensurate with the size of the state’s DBE program and number of par- ticipants (3). • Establish local DBE/small business bonding and insur- ance consortia (1). • Create legal consortiums for subcontract oversight and resolution (1). • Increase education of non-DBE contractors (1). • Raise personal net worth cap (1). • Increase Associated General Contractors of America participation (1). • Measure success by growth and net worth of DBEs rather than dollars contracted (1). • Provide more standardization and guidance nation- ally (1). • Provide better access to prime contractors; break down barriers (1). • When requested, have the U.S.DOT issue guidance (1). • Include DBE utilization in bidding software (1). • Continue networking with Small Business Administra- tion (1). • Consider regular dealer and trucking credit to conform to industry practice (1). The DBE program’s evolution resulting in the recent regu- lation has created many new requirements for DBE contrac- tors, non-DBE contractors, and STA administrators. The data from this study suggest that STAs have, in most instances, adapted their programs or are in the process of addressing the new requirements. Recalling the major points of change in the program, the study data revealed the following: • Set-aside programs are not being used. • State goals are no longer 10% across the board, but range 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 willing 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 Small and Disadvantaged Business Utilization programs. One STA provided documentation attesting to a local assistance program. • Mentor–protégé programs have been developed in one- third of the surveyed STAs, with some variation in their structure and format. Their primary focus is to aid in small business development. Their use is nonmandatory. • A recommended race-neutral strategy was to divide contracts into smaller pieces; however, 50% of the STAs 30 noted that they were experiencing an increase in bun- dled contracts. In addition, more STAs are using design– build delivery programs on larger projects. The impact of design–build was unknown at this time. • A few STAs have been successful at establishing and accomplishing their goals in a race-neutral program. Split goals were predominate among the STA data in this study. • Good faith efforts are approved nearly 80% of the time. This includes those who achieve or exceed the contract goal, as well as those accepted after an evaluation of the contractor’s efforts to achieve the goal. • Overconcentration is predominately a complaint-driven process. Not all STAs have a method to evaluate or rate overconcentration. No summary can be given on over- concentration correction strategies because little over- concentration has been reported. • Waivers on program elements can be submitted to the U.S.DOT. Nearly as many STAs indicated that they had been instructed not to submit waivers as those who had. It was unclear, from the questionnaire, if any had been approved. • Recipients must collect data about bidders on their con- tracts and subcontracts for later use in calculating over- all goals. Data collection was not uniform and not all record keeping is being implemented in accordance with the regulation. Previously, a paper-based record system, the automation and capture of data will need development. This study is one of the few published reports on the DBE program. It is a significant contract management area that needs further data collection and analysis to identify best practices or effective solutions. Through technology transfer activities these best practices and solutions can be dissemi- nated to STAs. In particular, the following topics are sug- gested for future research: • Program effectiveness and performance measures – Methods for improving goal setting accuracy—Some STAs are successfully achieving their goals, whereas others are not, based on their reported goals and achievements. The methods for establishing goals could be studied to better assist DBE program administrators. – STA program performance measures for compar- isons—Achieving goals is the primary performance measure for STAs. However, many STAs have been successful in other aspects of their programs that sup- port goal achievement. A study to benchmark other program elements and performance indicators could aid DBE program administrators. • Technical/administrative issues – Refined good faith effort analysis procedures—There is wide latitude in determination of good faith efforts.

31 A study that would model the various approaches to good faith effort analysis would aid all STA programs that have good faith effort requirements. – Design–build and bundled contract impact analy- sis—There is inadequate scientific data measuring the impact of new contracting approaches such as design– build and bundled contracts. The anecdotal data sug- gest that there is an impact on DBE contracting oppor- tunities. This needs to be balanced with the impact on STA management requirements. • Best practices – DBE company growth models—Growth models would aid DBE firms in understanding the pattern of growth for a construction firm in the transporta- tion construction industry. Suggestions for all aspects of business growth could assist in business decision making. – Overconcentration definition and analysis model— Overconcentration and the analysis for overconcentra- tion vary among the STAs. A more consistent method for determining overconcentration might be devel- oped to aid program managers in identifying where and when it occurs. • Resource issues – A significant limiting factor for DBE participation is the lack of resources such as bonding and insurance. The issues to be researched might include appropriate models to provide assistance and to evaluate if the assistance creates an imbalance in the competitive bid process. Generally, the overall lack of published investigations on these and related issues has limited the amount of informa- tion that is disseminated about DBE administrative activities. Innovative practices that could have a significant impact on all DBE programs may be discounted if they do not have independent analysis or evaluation data. Overall, the DBE programs reviewed in this study had some common points or objectives, but there were wide variations in interpretation, implementation, and tracking.