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91 APPENDIX C What's New in the New DOT Disadvantaged Business Enterprise Rule? The Department of Transportation's new disadvantaged busi- Contract goals, or other race-conscious measures, must ness enterprise (DBE) program final rule (49 CFR Part 26) be used only to obtain DBE participation needed to meet makes significant changes that will affect recipients, DBEs, overall goals that cannot be obtained through use of and non-DBE contractors who participate in the program. race-neutral measures. Contract goals are not required This paper summarizes the major changes from the old rule. on every contract. If recipients are overachieving or underachieving their overall goals, they have to adjust their use of contract goals. [Under the old rule, con- SETTING AND MEETING DBE GOALS tract goals were required on all contracts with sub- contracting possibilities, regardless of whether the The rule explicitly prohibits the use of quotas. The rule contract goals were needed to meet overall goals.] also explicitly prohibits the use of set-asides, except in When there is a contract goal, a bidder must make good extreme cases to remedy egregious problems. The rule faith efforts to meet it. The bidder can do so either explicitly provides that recipients will not be penalized through obtaining enough DBE participation to meet the for failing to meet their DBE goals. [The old rule did goal or documenting the good faith efforts it made to do not use, but also did not explicitly prohibit, quotas. so. The rule explicitly provides that recipients must not It explicitly authorized set-asides under some cir- disregard showings of good faith efforts, and it gives bid- cumstances. The Department never penalized recip- ders the right to have the recipient reconsider a decision ients for failing to meet goals under the old rule, but that their good faith efforts were insufficient. [The old the text of the rule did not make the point explicitly.] rule employed the same good faith efforts mecha- The rule views the statutory 10 percent goal as a nation- nism, but did not emphasize as strongly the mandate wide aspirational goal, which does not require that recip- that recipients seriously consider good faith efforts ients set their goals at 10 percent or any other particu- showings. There was no reconsideration provision.] lar level. [Under the old rule, recipients who had less If a recipient determines that DBE firms are so over- than a 10 percent goal had to make a special justifi- concentrated in a certain type of work as to unduly bur- cation to the Department.] den the opportunity of non-DBE firms to participate in Recipients must set overall goals to represent a "level this type of work, it must devise appropriate measures to address this overconcentration. [The old rule did playing field"--the amount of DBE participation they not have an overconcentration provision.] could realistically expect in the absence of discrimina- tion. This goal must be based on demonstrable evidence of the availability of ready, willing, and able DBEs to CERTIFICATION AND ELIGIBILITY participate on your DOT-assisted contracts. The rule gives recipients substantial flexibility in the methods Applicants must show that they meet size, group mem- they choose to set overall goals. [Under the old rule, bership, ownership, and control standards by a prepon- overall goals were set to achieve the object of "max- derance of the evidence. [The old rule did not state a imum practicable" use of DBEs. The recipient's goal specific standard of proof.] could be based directly on the 10 percent national Each disadvantaged individual seeking certification goal or on the recipient's past achievements.] for his or her firm must submit a notarized certifica- Recipients must obtain as much as possible of the DBE tion of disadvantage and a statement of personal net participation needed to meet their overall goals through worth. If an individual's personal net worth (exclud- race-neutral measures. Race-neutral measures include ing his or her principal residence and his or her inter- such activities as training, technical assistance, bonding est in the applicant firm) exceeds $750,000, the person assistance, business development or mentorprotg pro- is not an eligible DBE owner. [The old rule did not grams, breaking contracts up into pieces that small busi- have either a personal net worth cap for participa- nesses can readily perform, and awards of prime con- tion or a requirement to submit information con- tracts to DBEs through the regular competitive process. cerning personal net worth.] One type of race-neutral measure, a prompt payment Ownership and control requirements provide detailed, provision, will be required for all subcontractors, DBEs specific, clarified standards for determining whether to and non-DBEs alike. [The old rule did not mandate certify firms. The standards are intended to resolve many the use of race-neutral measures or give them prior- difficult issues that have arisen in the implementation ity. There was no prompt payment requirement.] of the program. [The less specific standards of the old

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92 regulation were interpreted in many varying ways before the DOT. Recipients must promptly implement by recipients and DOT offices, leading to inconsis- the Department's decision. [The old rule lacked specific tent and confusing results.] standards and procedures for certification appeals, By February 2002, all the transit, airport, and highway resulting in informal and sometimes inconsistent han- recipients in each state are required to agree on a Unified dling of certification issues.] Certification Program (UCP). This program must be fully operational no later than August 2003. The UCP PROGRAM ADMINISTRATION must provide for "one-stop shopping" for DBE firms applying for certification in each state. The applicant fills A recipient can apply to the Department for a program out one form, goes through one application process and, waiver if it wants to implement the program in a way if certified, can work as a DBE for any DOT recipient in not provided for in the rule. If the Secretary believes the state. There will be a single DBE directory for the that the recipient's idea will meet the program's objec- state. The rule allows recipients substantial discretion tives, he or she will approve the application. Waivers about the form the UCP will take in each state. [For- can apply to such matters as overall and contract goals. merly, a firm that wanted to work for the state high- Program waivers do not apply to DBE eligibility stan- way agency, two airports, and three transit agencies dards and procedures, which must remain uniform in the same state had to fill out six application forms nationwide. [There was no program waiver provi- and endure six certification processes. This created sion in the old rule.] significant burdens on applicants and used recipient Recipients must submit revised DBE program documents resources inefficiently.] to DOT, reflecting the new rule's changed requirements, In certifying or "decertifying" firms, recipients must pro- by September 1999. vide administrative due process to ensure that proce- To avoid confusion and promote consistency and cer- dures are fair. When a firm is certified, it normally stays tainty, written guidance about the new rule is valid and certified for 3 years, but must inform the recipient in binding--and represents the official position of the writing of any changes that would affect its eligibility Department--only if it has been approved by the DOT and must submit an annual affidavit that such changes General Counsel. Guidance issued under the old rule is have not taken place. [The old rule suggested, but did no longer binding. [The inconsistency of DOT guid- not require, administrative due process. Recipients' ance concerning the old rule led to substantial con- practices varied, and some recipients' processes were fusion and was criticized by a General Accounting so lacking in due process that substantively valid deci- Office report. Greater coordination is appropriate sions were overturned by the courts on procedural in an era of "One DOT."] grounds. Many recipients erroneously believed that Recipients must begin to collect data about the bidders the Department required annual "recertifications," on their contracts and subcontracts for later use in cal- which burdened DBEs and used recipient resources culating overall goals. inefficiently.] All certification actions begin with a proceeding by a In the near future, the DOT will develop new, uniform recipient. A party dissatisfied with the result can appeal program data reporting and certification application forms. to the DOT Office of Civil Rights. This appeal pro- [The old rule did not have similar provisions.] ceeding is an administrative review of the record of the recipient's action, and does not involve a new hearing (http://osdbuweb.dot.gov/business/Dbe/Summary.html)