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

Below is the uncorrected machine-read text of this chapter, intended to provide our own search engines and external engines with highly rich, chapter-representative searchable text of each book. Because it is UNCORRECTED material, please consider the following text as a useful but insufficient proxy for the authoritative book pages.

3BACKGROUND The Disadvantaged Business Enterprise (DBE) program was designed to ensure that small businesses owned and con- trolled by minorities, women, and other disadvantaged indi- viduals have an equal opportunity to compete for contract funds on FHWA-, FAA-, and FTA-funded projects. The DBE program continues to serve as a mechanism to remedy the effects of current and past discrimination in transportation contracting practices. The program began in 1980 as a minority/women’s busi- ness enterprise program established by Title VI of the Civil Rights Act of 1964. Since that time, the program has under- gone many changes. Key time line elements related to the evolution of the DBE regulation are as follows: • 1983—First statutory DBE provision enacted and signed. • 1987—Program expanded to include airports and women-owned firms. • 1991—Reauthorization of the expanded program (high- way and transit). • 1992—Reauthorization of the expanded program (airports). • 1992—Notice of proposed rule: a major rewrite of the program. • 1995—Adarand versus Peña Supreme Court decision. • 1997—Further changes resulted in Supplemental Notice of Proposed Rule Making. • 1998—Transportation Equity Act for the 21st Century (TEA-21): reauthorization through 2003. • 1999—Final Rule for 49 CFR Parts 23 and 26. • 2000—Interim Final Rule corrections. • 2001—Proposed Rule Making 49 CFR 26—Uniform Reporting and Certification Forms Memorandum of Understanding with Small Business Administration; among other issues, the proposed rule redefined per- sonal net worth, retainage, and contract size. • June 2003—Final Rule published: 49 CFR Part 26. This study began with the 1999 Final Rule and interim modifications as the guiding regulations. Subsequently, the DBE program Final Rule was published on June 16, 2003, in the Federal Register. The 2003 Final Rule has been used as the point of reference in the document. DEFINITIONS This study will apply the regulation definitions of a DBE and race-neutral as defined here (49 CFR 26.5, 2003). 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, in which 51 per- cent of the stock is owned by one or more such individuals; and (2) Whose management and daily business operations are con- trolled by one or more of the socially and economically disad- vantaged individuals who own it. Race-neutral measure or program is one that is, or can be, used to assist all small businesses. For the purposes of this part, race- neutral includes gender-neutrality. PURPOSE OF SYNTHESIS The U.S.DOT’s February 2, 1999, Final Rule revised the DBE regulations. The U.S.DOT believed that this change was necessary to remove significant barriers to DBE partici- pation in DOT-assisted contracts. The regulation required state transportation agencies (STAs) and contractors to change their way of doing business. Although the regulation pre- scribes some requirements, it also provides a measure of flex- ibility by allowing recipients to determine how other provi- sions are achieved. This has resulted in different approaches among the states. This study summarizes the various contract administration procedures and methods that have been imple- mented by STAs and their contractors to meet the revised DBE regulations. Different approaches will be examined for various program requirements, including • Bidders list information; • Prompt payment; • Retainage; • Good faith effort analysis; • Approaches for alternate contracting methods (construc- tion management, design–build, etc.); • Measurement of commitments and actual achieve- ment; and • Compliance issues related to fraud, substitutions, and commercially useful function. This study focuses on post-contract award administration issues, but necessarily includes those pre-award issues that CHAPTER ONE INTRODUCTION

shape or define elements of post-award administration. The administrative approaches to the DBE program are different and some STAs will have progressed further in the imple- mentation of some techniques and methods than others. Inter- nal studies and other relevant documents from the STAs were requested to support the review process. Where appropriate, the study also included detailed information and data pro- vided by STAs to illustrate specific issues and practices. SCOPE This report includes a review of the available literature and a survey of STAs to identify the various post-award contract administration procedures and methods that have been imple- mented to meet the regulation requirements. In defining the scope of the work, STAs were chosen as the primary focus for questionnaire distribution. The study discusses certifi- cation, but excludes details about certification procedures and overall goal-setting requirements. The scope of the study applies generally to all DBE programs, but specifically to those in the highway transportation sector. GENERAL SURVEY INFORMATION A survey was developed for distribution to each state TRB representative. Guidance was provided to the TRB represen- tative to direct the survey within the STA to the appropriate respondent group (DBE program, Civil Rights, Contracts 4 Division, etc.). The survey was designed to gather data in four general areas: 1. Respondent information, 2. General administration practices, 3. Pre-contract administration practices, and 4. Contract administration practices. The questionnaire was prepared from the study scope def- inition. Information specific to FTA or FAA DBE implemen- tation activities by the STA was not differentiated in the ques- tionnaire. Transit or airport authorities and agencies working at the state, regional, or local level were not included in the survey. This limits the interpretation primarily to those activ- ities governed by federal highway DBE administration. Thirty- six STAs responded to the request for information. A copy of the final questionnaire is provided in Appendix A. ORGANIZATION OF SYNTHESIS The report contains five chapters. Chapter one establishes the basic scope and purpose of the synthesis. Chapter two is a review of literature and previous work applicable to the sur- vey issues. Chapter three provides a broad picture on the scope of various state DBE programs. Chapter four examines the transition activities for awarding contracts through post- contract administration practices. Chapter five covers several general impact questions, a summary of findings, suggestions for research, and conclusions.