Guidelines for Conducting a Disparity and Availability Study for the Federal DBE Program (2010)

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TRANSPORTAT ION RESEARCH BOARD WASHINGTON, D.C. 2010 www.TRB.org N A T I O N A L C O O P E R A T I V E H I G H W A Y R E S E A R C H P R O G R A M NCHRP REPORT 644 Subject Areas Transportation Law Guidelines for Conducting a Disparity and Availability Study for the Federal DBE Program Jon Wainwright NERA ECONOMIC CONSULTING Austin, TX Colette Holt COLETTE HOLT & ASSOCIATES Chicago, IL Research sponsored by the American Association of State Highway and Transportation Officials in cooperation with the Federal Highway Administration

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. 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CRP STAFF FOR NCHRP REPORT 644 Christopher W. Jenks, Director, Cooperative Research Programs Crawford F. Jencks, Deputy Director, Cooperative Research Programs Christopher J. Hedges, Senior Program Officer Eileen P. Delaney, Director of Publications Hilary Freer, Senior Editor NCHRP PROJECT 20-76 PANEL Area of Special Projects Sally A. Howard, Office of the Governor - Kansas, Topeka, KS (Chair) Greg Diehl, Colorado DOT, Denver, CO Jeffery W. Brown, Alabama DOT, Montgomery, AL Olivia Fonseca, California DOT, Sacramento, CA Mark G. Kelsey, City of Columbus, Columbus, OH Robert J. Shea, Pennsylvania DOT, Harrisburg, PA Lester Woods, Jr., Missouri DOT, Jefferson City, MO Candace J. Groudine, FHWA Liaison Martine A. Micozzi, TRB Liaison AUTHOR ACKNOWLEDGMENTS The research reported herein was performed under NCHRP Project 20-76. NERA Economic Consult- ing was the contractor and Colette Holt & Associates was the subcontractor. NERA Vice President Dr. Jon Wainwright was project director and co-Principal Investigator. Attorney Colette Holt of Colette Holt & Associates was co-Principal Investigator. The other authors of this report are Kim Stewart, M.S., Research Assistant at NERA, and J. Wesley Stewart, A.A., Research Assistant at NERA. The work was performed under the general supervision of Dr. Wainwright and Attorney Holt. C O O P E R A T I V E R E S E A R C H P R O G R A M S

This report presents guidelines for state departments of transportation (DOTs) on how to conduct effective and legally defensible disparity and availability studies to meet the requirements of the Disadvantaged Business Enterprise program for federally funded proj- ects. It includes guidance to assist DOTs in determining when and if a disparity or availabil- ity study is recommended, a model scope of work that can be used in a request for propos- als, and detailed recommendations on how to design and implement disparity and availability studies. The report will serve as an invaluable resource for legal and contracting staff in all state transportation agencies. Since 1987, the U.S. DOT has required that grantees implement a Disadvantaged Busi- ness Enterprise (DBE) program based on regulations found in 49 C.F.R Parts 23 and 26. The most current regulations, contained at 49 C.F.R Part 26, provide the states with an annual DBE goal-setting methodology. State DOTs must set DBE goals based on demonstrable evi- dence of the availability of “ready, willing and able” DBEs. The regulations state that a dis- parity study can be used to demonstrate availability, but does not require its use. A ruling in the Ninth Circuit Court of Appeals, however, has made the use of a valid disparity study a legal requirement to meet the standards in that Circuit. The ruling in the Ninth Circuit as well as those in other Circuits demonstrates a trend toward utilizing a disparity study to jus- tify race-conscious elements of a DOT DBE program in response to constitutional chal- lenges. Thus, state DOTs, especially those in the Ninth Circuit, will be conducting dispar- ity studies at considerable expense. There are no guidelines or standards provided to states by the U.S. DOT on the elements of an effective disparity and availability study. Because each state is unique, a broad, over- arching framework is needed to guide the development and conduct of disparity and avail- ability studies. Under NCHRP Project 20-76, a research team led by NERA Economic Consulting reviewed current DOT goal-setting methods, conducted a thorough review of existing dis- parity and availability studies, and analyzed relevant court decisions. Current studies were compared according to key elements: definition and use of geographic and product mar- kets, development of availability estimates, analysis of contracting disparities, analyses of economy-wide disparities, and collection of anecdotal evidence. A model scope of work was developed that identified major elements to be included and offered tips for a successful process. The report includes appendices on the importance of collecting comprehensive subcontract data, understanding the concept and definition of “capacity,” and legal stan- dards for race-conscious government contracting programs. F O R E W O R D By Christopher J. Hedges Staff Officer Transportation Research Board

C O N T E N T S 1 Chapter 1 Overview of Legal Standards for Disadvantaged Business Enterprise Programs 1 Strict Scrutiny Standard 2 Intermediate Scrutiny 2 Strict Scrutiny as Applied to the Disadvantaged Business Enterprise Program 7 Implications and Effects of Western States 8 TRB Model Disparity Study Project 9 Chapter 2 Designing Defensible DBE Programs 9 Introduction 12 Guidelines for Conducting Disparity and Availability Studies 16 Review of Existing Studies 25 Current State DOT Goal-Setting Methods 29 Chapter 3 Model Disparity Study 29 Determination of Relevant Geographic Market Area 29 Determination of Relevant Product Market 30 Estimation of DBE Availability 48 State DOT Utilization Analyses 48 State DOT Disparity Analyses 51 Economy-Wide Disparity Analyses for the Relevant Markets 51 Anecdotal Analyses 54 Chapter 4 Study Resource Issues 54 Sources of Funds 54 Management of the Study Process 55 In-House Studies versus Outside Consultants 55 Availability Studies versus Disparity Studies 55 Collection of Subcontracting Data 56 Subrecipient Data 56 Examples of Costs for Other Analytical Elements 56 Multi-Jurisdiction Studies 57 Multi-Agency State Studies 57 Model Study Scope of Work 58 Tips for a Successful DBE Disparity or Availability Study RFP Process 60 Appendix A Importance of Comprehensive Subcontract Data Collection 60 Introduction 60 Non-DBE Subcontract Data Is Just as Important as DBE Subcontract Data 62 Subcontract Data Allow Detailed Industry Statistics 62 Methods for Collecting Subcontract Data in Anticipation of Future Studies 63 Methods for Addressing Missing Subcontract Data for Current Studies

65 Appendix B Understanding “Capacity” 68 Appendix C Legal Standards for Race-Conscious Government Contracting Programs 68 Strict Scrutiny Standard 79 Strict Scrutiny as Applied to the Disadvantaged Business Enterprise Program 82 State DOTs’ Implementation of Part 26 Must be Narrowly Tailored 84 Judicial Review of DBE Goal Setting Under Part 26 88 Additional Evidence of Discrimination 92 Additional Elements of Narrowly Tailored DBE Goal Setting 94 Implications of Western States 96 Appendix D Glossary 99 References 99 Cases (Alphabetical) 100 Cases (By Circuit) 101 Statutes 101 Regulations 101 General References 102 Disparity and Availability Studies