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Suggested Citation:"Front Matter." 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:"Front Matter." 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:"Front Matter." 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:"Front Matter." 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:"Front Matter." 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:"Front Matter." 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:"Front Matter." 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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T R A N S P O R T A T I O N R E S E A R C H B O A R D WASHINGTON, D.C. 2005 www.TRB.org NAT IONAL COOPERAT IVE H IGHWAY RESEARCH PROGRAM NCHRP SYNTHESIS 343 Research Sponsored by the American Association of State Highway and Transportation Officials in Cooperation with the Federal Highway Administration SUBJECT AREAS Planning and Administration and Materials and Construction Management of Disadvantaged Business Enterprise Issues in Construction Contracting A Synthesis of Highway Practice CONSULTANT GARY SMITH North Dakota State University TOPIC PANEL JAMES DOSSETT, Texas Department of Transportation FREDERICK D. HEJL, Transportation Research Board MICHAEL KISSEL, California Department of Transportation SHARON M. TAEGEL, Missouri Department of Transportation DEAN TESTA, Kansas Department of Transportation JAMES S. THIEL, Wisconsin Department of Transportation CHARLES KLEMSTINE, Federal Highway Administration (Liaison) GERALD YAKOWENKO, Federal Highway Administration (Liaison)

NATIONAL COOPERATIVE HIGHWAY RESEARCH PROGRAM Systematic, well-designed research provides the most effective approach to the solution of many problems facing highway administrators and engineers. Often, highway problems are of local interest and can best be studied by highway departments individually or in cooperation with their state universities and others. However, the accelerating growth of highway transportation develops increasingly complex problems of wide interest to highway authorities. These problems are best studied through a coordinated program of cooperative research. In recognition of these needs, the highway administrators of the American Association of State Highway and Transportation Officials initiated in 1962 an objective national highway research program employing modern scientific techniques. This program is supported on a continuing basis by funds from participating member states of the Association and it receives the full cooperation and support of the Federal Highway Administration, United States Department of Transportation. The Transportation Research Board of the National Academies was requested by the Association to administer the research program because of the Board’s recognized objectivity and understanding of modern research practices. The Board is uniquely suited for this purpose as it maintains an extensive committee structure from which authorities on any highway transportation subject may be drawn; it possesses avenues of communications and cooperation with federal, state, and local governmental agencies, universities, and industry; its relationship to the National Research Council is an insurance of objectivity; it maintains a full-time research correlation staff of specialists in highway transportation matters to bring the findings of research directly to those who are in a position to use them. The program is developed on the basis of research needs identified by chief administrators of the highway and transportation departments and by committees of AASHTO. Each year, specific areas of research needs to be included in the program are proposed to the National Research Council and the Board by the American Association of State Highway and Transportation Officials. Research projects to fulfill these needs are defined by the Board, and qualified research agencies are selected from those that have submitted proposals. Administration and surveillance of research contracts are the responsibilities of the National Research Council and the Transportation Research Board. The needs for highway research are many, and the National Cooperative Highway Research Program can make significant contributions to the solution of highway transportation problems of mutual concern to many responsible groups. The program, however, is intended to complement rather than to substitute for or duplicate other highway research programs. Published reports of the NATIONAL COOPERATIVE HIGHWAY RESEARCH PROGRAM are available from: Transportation Research Board Business Office 500 Fifth Street, NW Washington, DC 20001 and can be ordered through the Internet at: http://www.national-academies.org/trb/bookstore Printed in the United States of America NCHRP SYNTHESIS 343 Project 20-5 FY 2002 (Topic 34-05) ISSN 0547-5570 ISBN 0-309-09745-2 Library of Congress Control No. 2005920333 © Transportation Research Board Price $18.00 NOTICE The project that is the subject of this report was a part of the National Cooperative Highway Research Program conducted by the Transportation Research Board with the approval of the Governing Board of the National Research Council. Such approval reflects the Governing Board’s judgment that the program concerned is of national importance and appropriate with respect to both the purposes and resources of the National Research Council. The members of the technical committee selected to monitor this project and to review this report were chosen for recognized scholarly competence and with due consideration for the balance of disciplines appropriate to the project. The opinions and conclusions expressed or implied are those of the research agency that performed the research, and, while they have been accepted as appropriate by the technical committee, they are not necessarily those of the Transportation Research Board, the National Research Council, the American Association of State Highway and Transportation Officials, or the Federal Highway Administration, U.S. Department of Transportation. Each report is reviewed and accepted for publication by the technical committee according to procedures established and monitored by the Transportation Research Board Executive Committee and the Governing Board of the National Research Council. NOTE: The Transportation Research Board of the National Acade- mies, the National Research Council, the Federal Highway Adminis- tration, the American Association of State Highway and Transporta- tion Officials, and the individual states participating in the National Cooperative Highway Research Program do not endorse products or manufacturers. Trade or manufacturers’ names appear herein solely because they are considered essential to the object of this report.

The National Academy of Sciences is a private, nonprofit, self-perpetuating society of distinguished schol- ars engaged in scientific and engineering research, dedicated to the furtherance of science and technology and to their use for the general welfare. On the authority of the charter granted to it by the Congress in 1863, the Academy has a mandate that requires it to advise the federal government on scientific and techni- cal matters. Dr. Bruce M. Alberts is president of the National Academy of Sciences. The National Academy of Engineering was established in 1964, under the charter of the National Acad- emy of Sciences, as a parallel organization of outstanding engineers. It is autonomous in its administration and in the selection of its members, sharing with the National Academy of Sciences the responsibility for advising the federal government. The National Academy of Engineering also sponsors engineering programs aimed at meeting national needs, encourages education and research, and recognizes the superior achieve- ments of engineers. Dr. William A. Wulf is president of the National Academy of Engineering. The Institute of Medicine was established in 1970 by the National Academy of Sciences to secure the services of eminent members of appropriate professions in the examination of policy matters pertaining to the health of the public. The Institute acts under the responsibility given to the National Academy of Sciences by its congressional charter to be an adviser to the federal government and, on its own initiative, to identify issues of medical care, research, and education. Dr. Harvey V. Fineberg is president of the Institute of Medicine. The National Research Council was organized by the National Academy of Sciences in 1916 to associate the broad community of science and technology with the Academy’s purposes of furthering knowledge and advising the federal government. Functioning in accordance with general policies determined by the Acad- emy, the Council has become the principal operating agency of both the National Academy of Sciences and the National Academy of Engineering in providing services to the government, the public, and the scientific and engineering communities. The Council is administered jointly by both the Academies and the Institute of Medicine. Dr. Bruce M. Alberts and Dr. William A. Wulf are chair and vice chair, respectively, of the National Research Council. The Transportation Research Board is a division of the National Research Council, which serves the National Academy of Sciences and the National Academy of Engineering. The Board’s mission is to promote innovation and progress in transportation through research. In an objective and interdisciplinary setting, the Board facilitates the sharing of information on transportation practice and policy by researchers and practitioners; stimulates research and offers research management services that promote technical excellence; provides expert advice on transportation policy and programs; and disseminates research results broadly and encourages their implementation. The Board’s varied activities annually engage more than 5,000 engineers, scientists, and other transportation researchers and practitioners from the public and private sectors and academia, all of whom contribute their expertise in the public interest. The program is supported by state transportation departments, federal agencies including the component administrations of the U.S. Department of Transportation, and other organizations and individuals interested in the development of transportation. www.TRB.org www.national-academies.org

NCHRP COMMITTEE FOR PROJECT 20-5 CHAIR GARY D. TAYLOR, CTE Engineers MEMBERS THOMAS R. BOHUSLAV, Texas DOT DONN E. HANCHER, University of Kentucky DWIGHT HORNE, Federal Highway Administration YSELA LLORT, Florida DOT WESLEY S.C. LUM, California DOT JAMES W. MARCH, Federal Highway Administration JOHN M. MASON, JR., Pennsylvania State University LARRY VELASQUEZ, New Mexico DOT PAUL T. WELLS, New York State DOT FHWA LIAISON WILLIAM ZACCAGNINO TRB LIAISON MARK R. NORMAN COOPERATIVE RESEARCH PROGRAM STAFF ROBERT J. REILLY, Director, Cooperative Research Programs CRAWFORD F. JENCKS, Manager, NCHRP EILEEN P. DELANEY, Director of Publications NCHRP SYNTHESIS STAFF STEPHEN R. GODWIN, Director for Studies and Information Services JON WILLIAMS, Manager, Synthesis Studies DONNA L. VLASAK, Senior Program Officer DON TIPPMAN, Editor CHERYL KEITH, Senior Secretary

Highway administrators, engineers, and researchers often face problems for which infor- mation already exists, either in documented form or as undocumented experience and prac- tice. This information may be fragmented, scattered, and unevaluated. As a consequence, full knowledge of what has been learned about a problem may not be brought to bear on its solution. Costly research findings may go unused, valuable experience may be overlooked, and due consideration may not be given to recommended practices for solving or alleviat- ing the problem. There is information on nearly every subject of concern to highway administrators and engineers. Much of it derives from research or from the work of practitioners faced with problems in their day-to-day work. To provide a systematic means for assembling and eval- uating such useful information and to make it available to the entire highway community, the American Association of State Highway and Transportation Officials—through the mechanism of the National Cooperative Highway Research Program—authorized the Transportation Research Board to undertake a continuing study. This study, NCHRP Pro- ject 20-5, "Synthesis of Information Related to Highway Problems," searches out and syn- thesizes useful knowledge from all available sources and prepares concise, documented reports on specific topics. Reports from this endeavor constitute an NCHRP report series, Synthesis of Highway Practice. This synthesis series reports on current knowledge and practice, in a compact format, without the detailed directions usually found in handbooks or design manuals. Each report in the series provides a compendium of the best knowledge available on those measures found to be the most successful in resolving specific problems. FOREWORD By Staff Transportation Research Board This synthesis report will be of interest to state transportation agencies (STAs) and their contractors as they implement Disadvantaged Business Enterprise (DBE) regulations as set forth in the U.S.DOT Final Rule, revised February 2, 1999. The revised Final Rule caused STAs to change the way they do business by prescribing new regulations, but also provid- ing additional flexibility. The resulting different approaches to requirements among STAs are discussed, including bidder’s lists; prompt payment provisions; return of retainage pro- visions; actual achievements, including accounting and reporting procedures; good faith efforts; and compliance, including substitutions, fraud, and commercially useful functions The synthesis also includes information on construction and construction management con- tracts, design–build projects, master contracts (indefinite delivery/indefinite quantity, ser- vices on demand, and task ordering), pass-through to local agencies, and STA performance measures. The scope of the study applies generally to all DBE programs, but specifically to those in the highway transportation sector. A survey was distributed to each TRB representative. It was designed to gather infor- mation in four general areas: respondent information, general administration practices, pre- contract administration, and contract administration practices. This report also includes a review of the available literature and previous applicable work. A panel of experts in the subject area guided the work of organizing and evaluating the collected data and reviewed the final synthesis report. A consultant was engaged to collect and synthesize the information and to write the report. Both the consultant and the mem- bers of the oversight panel are acknowledged on the title page. This synthesis is an imme- diately useful document that records the practices that were acceptable within the limita- tions of the knowledge available at the time of its preparation. As progress in research and practice continues, new knowledge will be added to that now at hand. PREFACE

CONTENTS 1 SUMMARY 3 CHAPTER ONE INTRODUCTION Background, 3 Definitions, 3 Purpose of Synthesis, 3 Scope, 4 General Survey Information, 4 Organization of Synthesis, 4 5 CHAPTER TWO BACKGROUND Regulation Objectives, 5 Major Rule Changes, 5 FHWA Review of Disadvantaged Business Enterprise Plans, 5 General Accounting Office Report Summary, 5 AASHTO Survey, 6 Other Disadvantaged Business Enterprise Regulation Commentary, 6 Data Management Systems, 7 Websites for Disadvantaged Business Enterprise Program Administration, 7 Background Summary, 8 9 CHAPTER THREE GENERAL ADMINISTRATIVE PRACTICES Organization and Staffing, 9 Unified Certification Program, 9 Number of Certifications, 10 Determination of Ineligibility, 11 Goals, 11 Counting Second Tier Disadvantaged Business Enterprise Subcontractor Contributions, 11 Disadvantaged Business Enterprise Regulation for Local Fund Projects, 12 Set-Aside Programs, 12 Overconcentration, 12 Public Participation, 13 Contract Goal-Setting Procedures, 14 Disadvantaged Business Enterprise Program Contract Advising, 14 Bundled Contracts, 14 Disadvantaged Business Enterprise Goals for Other Contracting Methods, 15 Design–Build Contracts, 15 Prequalification Practices, 16 Bidders Lists, 17 Bidders List Data Collection, 17 Mentor–Protégé Programs, 18

20 CHAPTER FOUR CONTRACT ADMINISTRATION Bidding Patterns, 20 Disadvantaged Business Enterprise Commitment Submissions, 20 Good Faith Effort, 20 Iowa Expedited Good Faith Effort Process, 21 Minimum Level of Self-Performed Work, 21 Financial Incentives for Disadvantaged Business Enterprise Use, 21 Performance Bonds, 22 Disadvantaged Business Enterprise Bonding Assistance, 23 Short-Term Loan Program, 23 Prompt Payment, 24 Release of Retainage, 24 Contract Compliance Reviews, 25 Commercially Useful Function, 25 Termination of Nonperforming Disadvantaged Business Enterprise Subcontractor, 26 Tracking Information, 26 Fraud Investigations, 27 Program Waivers, 28 29 CHAPTER FIVE CONCLUSIONS 32 REFERENCES 33 APPENDIX A SYNTHESIS QUESTIONNAIRE 44 APPENDIX B FINAL RULE 49 CFR 26, 2003 91 APPENDIX C WHAT’S NEW IN THE NEW DOT DISADVANTAGED BUSINESS ENTERPRISE RULE? 93 APPENDIX D DESIGN–BUILD SPECIAL PROVISION TABLE OF CONTENTS—MINNESOTA 94 APPENDIX E DETAILS OF OHIO MENTOR–PROTÉGÉ WEBSITE 96 APPENDIX F GOOD FAITH EFFORT SYSTEMS

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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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