Current Practices to Set and Monitor DBE Goals on Design-Build Projects and Other Alternative Project Delivery Methods (2015)

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CONTENTS 1 SUMMARY 5 CHAPTER ONE INTRODUCTION Types of Alternative Delivery Method Projects, 5 Federal Regulations, 6 Study Approach, 8 Limitations, 9 Overview of the Report, 9 Chapter Summary, 9 10 CHAPTER TWO USE OF ALTERNATIVE DELIVERY METHODS BY STATE DEPARTMENTS OF TRANSPORTATION Design-Build, 10 Public-Private Partnerships, 10 Construction Manager at Risk and Construction Manager/General Contractor, 11 Chapter Summary, 11 12 CHAPTER THREE APPLICATION OF TRADITIONAL DISADVANTAGED BUSINESS ENTERPRISE CONTRACT GOALS TO ALTERNATIVE DELIVERY METHOD PROJECTS Examples of States Applying Traditional Methods, 12 Applying Disadvantaged Business Enterprise Contract Goals Using Traditional Methods, 14 Chapter Summary, 20 21 CHAPTER FOUR NEW APPROACHES FOR APPLYING DISADVANTAGED BUSINESS ENTERPRISE CONTRACT GOALS Barriers That Emerged with Application of Traditional Approach to Design-Build, 21 Summary of New Approaches, by Stage, 22 Chapter Summary, 33 35 CHAPTER FIVE APPROACHES TO APPLYING DISADVANTAGED BUSINESS ENTERPRISE GOALS TO CONSTRUCTION MANAGER AT RISK AND CONSTRUCTION MANAGER/GENERAL CONTRACTOR METHODS State Departments of Transportation That Use Traditional Application of Disadvantaged Business Enterprise Contract Goals, 35 State Departments of Transportation That Use New Approaches to Disadvantaged Business Enterprise Contract Goals, 36 Other States, 39 Feedback from the Contracting Industry, 39 Feedback from FHWA Staff, 39 Chapter Summary, 39 40 CHAPTER SIX CONCLUSIONS Summary of Results, 40 Barriers to Widespread Implementation of New Methods, 40 Suggestions for Further Research, 40 42 GLOSSARY OF TERMS AND ACRONYMS 44 REFERENCES 46 BIBLIOGRAPHY 50 APPENDIX A STRUCTURED TELEPHONE INTERVIEW GUIDE FOR STATE DEPARTMENTS OF TRANSPORTATION

53 APPENDIX B SAMPLE RFP LANGUAGE FOR DBE CONTRACT GOALS FOR DESIGN-BUILD (NORTH CAROLINA DEPARTMENT OF TRANSPORTATION DESIGN-BUILD PROJECT FROM 2013) 63 APPENDIX C SAMPLE DBE PLAN SUBMITTED BY PROPOSER IN RESPONSE TO A DESIGN-BUILD RFP (TEXAS DEPARTMENT OF TRANSPORTATION DESIGN-BUILD PROJECT FROM 2013) 77 APPENDIX D SAMPLE DBE AND WORKFORCE/EEO PROJECT PLANS SUBMITTED BY PROPOSERS IN RESPONSE TO A DESIGN-BUILD RFP (THE LOUISVILLE–SOUTHERN INDIANA OHIO RIVER BRIDGES PROJECT, A COLLABORATION BETWEEN THE KENTUCKY TRANSPORTATION CABINET AND INDIANA DOT) 88 APPENDIX E VIRGINIA DEPARTMENT OF TRANSPORTATION SPECIAL PROVISIONS PERTAINING TO DBE PROGRAM FOR DESIGN-BUILD 101 APPENDIX F MINNESOTA DOT DISADVANTAGED BUSINESS ENTERPRISE (DBE) SPECIAL PROVISIONS FOR DESIGN-BUILD PROJECTS Note: Many of the photographs, figures, and tables in this report have been converted from color to grayscale for printing. The electronic version of the report (posted on the web at www.trb.org) retains the color versions.

SUMMARY CURRENT PRACTICES TO SET AND MONITOR DBE GOALS ON DESIGN-BUILD PROJECTS AND OTHER ALTERNATIVE PROJECT DELIVERY METHODS Use of traditional methods for disadvantaged business enterprise (DBE) contracting goals on design-build projects is challenging for state transportation departments and design- build teams. Many state departments of transportation (DOTs) have responded to the chal- lenge by creating new methods for applying DBE contract goals to design-build and other alternative delivery method projects. This study reviews and synthesizes these traditional and new methods, as well as other aspects of the Federal DBE Program as it pertains to U.S.DOT-funded alternative delivery method projects. At the time of this report, at least 45 states plus the District of Columbia and Puerto Rico had used design-build as a delivery method for state DOT projects. Somewhat fewer had experience with public-private partnerships (P3) and construction manager at risk (CMAR) or construction manager/general contractor (CMGC) delivery methods. Among the state DOTs that had used alternative delivery methods for U.S.DOT-funded projects, 33 applied DBE contract goals. State DOTs that were not using DBE contract goals on alterna- tive delivery method projects were typically those that do not set DBE contract goals for any U.S.DOT-funded projects. The federal regulations at Title 49 Code of Federal Regulations (CFR) Part 26 provide requirements for state and local governments to implement the Federal DBE Program and, when necessary, use DBE contract goals. The typical process for a design-bid-build project starts with the state DOT setting a goal for DBE participation, usually expressed as a per- centage of total cost (e.g., 8%). Bidders on that project are required to meet the DBE goal or show good faith efforts to do so. If a bidder has neither met the goal nor demonstrated good faith efforts, federal regulations require its bid to be rejected. Bidders usually provide the state DOT with supporting information, including a list of dollar commitments to specific DBEs. After contract award, the state DOT monitors whether those DBEs actually receive the committed work. State DOTs were reviewed to determine whether they have adapted this standard appli- cation of DBE contract goals for alternative delivery method projects. If so, what has been their experience? Do any of these new methods approach a new standard for application of DBE contract goals? All 50 states plus the District of Columbia and Puerto Rico were contacted for in-depth interviews. Interviews were completed with 47 of the 52 state DOTs, a 90% response rate. For the five agencies not successfully reached for an interview, the necessary information was gathered through a review of relevant agency reports and documents. In addition, tele- phone interviews were conducted with contractors and contractors associations, FHWA staff, DBEs, and others. The study found that five state DOTs (Delaware, Indiana, Mississippi, Pennsylvania, and Tennessee) apply DBE contract goals to design-build projects using the same methods

2 they use for design-bid-build projects. At the time of this report, two state DOTs (Colorado and Connecticut) applied traditional methods for CMAR/CMGC projects. These state DOTs use the limited information available at the beginning of the procurement process to set a DBE contract goal for the design-build or CMAR/CMGC project. Proposers must meet the goal or show good faith efforts as part of their proposal submissions. Proposers provide a detailed list of DBE commitments for the design-build project, including types of work and subcontract amounts for those DBEs. Other state DOTs have tried this approach and found it inadequate given the nature of design-build, CMAR/CMGC, and P3 projects. Contractors attempting to comply with DBE contract goals suggested changes to the traditional approach: • Colorado DOT (CDOT) indicated that its use of traditional methods for DBE contract goals resulted in design-builders making specific DBE commitments that they later had to change before the work occurred. CDOT reported that contractors much prefer its new system, which allows the selected design-builder to provide commitments for DBE construction firms later in the project (but before those firms are used). • New York State DOT’s design-build manual states that applying traditional methods for DBE contract goals would require DBEs to provide firm quotes for items that have not been designed. New methods of implementing the DBE contract goals are required to avoid placing DBEs and other subcontractors at risk of bidding on incomplete plans. Under the new methods, the design-builder secures DBEs as the design of project components is completed. • South Carolina DOT used traditional DBE contract goal methods until May 2014. SCDOT indicated that it was dissatisfied with requiring commitments at time of pro- posal, as were DBEs and prime contractors. SCDOT reported that DBEs sometimes backed out of commitments they had made at contract award because they could not do the work or could not keep their prices by the time their work came up, which might be 2 years later. Prime contractors complained that it was difficult to make commitments because so little was known about project design at time of proposal. SCDOT changed its requirements so that proposers now submit a plan for DBE participation at time of proposal. The selected design-builder must then submit DBE commitments within 180 days of project award. According to SCDOT, primes, DBEs, and agency staff all found this method acceptable. • Utah DOT (UDOT) reported that traditional application of DBE contract goals was unsatisfactory for the agency, prime contractors, and DBEs. They found that design- build projects evolved quickly as design progressed, which often resulted in changes in subcontracted work items. As a result, some DBE commitments that were made dur- ing the proposal period could not be fulfilled, leaving committed DBEs without work. (Staff described this process as a nightmare.) At time of proposal, UDOT now requires proposers to commit only to meeting the DBE contract goal or to demonstrate that they have made good faith efforts to do so. The proposer no longer needs to submit DBE commitments at time of proposal or before contract execution. Instead, the selected design-builder must submit DBE commitment before use of the subcontractor. UDOT reported that this approach substantially improved the process for applying DBE con- tract goals to design-build projects. • The California Department of Transportation—Caltrans—reported more opportuni- ties for a prime contractor to meet the DBE contract goal on a design-build project than a traditional project because of its size and length of construction time (most are 3–4 years in length). To take advantage of these differences, Caltrans modified its approach to applying DBE contract goals. Caltrans now requires a plan for DBE participation as part of its proposals. During performance of the contract, the selected design-builder identifies the DBEs that will be involved. The new approach allows the design-builder the time and flexibility to customize work components and develop smaller scopes of work to involve more DBEs.

3 • Until 2014, Virginia DOT (VDOT) applied its traditional design-bid-build approach to DBE contract goals, including a requirement that proposers identify commitments to DBEs with their proposals. VDOT received widespread negative feedback from prime contractors expressing concern that DBEs might be unable to fulfill their obli- gations because of the extended period between the proposal and the actual com- mencement of subcontracted work. Based on input from prime contractors and DBEs as well as suggestions from staff in its divisions, VDOT developed a new approach to DBE contract goals that moved the requirement for DBE commitments to later in the process. VDOT initially used this model in its P3 projects and has extended it to design-build projects. In sum, representatives of many state transportation departments, contractors, DBEs, and FHWA report substantial difficulties applying traditional DBE contract goal approaches for alternative delivery method projects. They indicate that new methods focusing on a DBE plan at time of proposal, rather than commitments to specific DBEs, can achieve more of the objectives of the Federal DBE Program. State DOTs can require or strongly urge pro- posers to include many different strategies for assisting DBEs and other small businesses in their DBE plans. State DOTs also report that higher DBE goals can be set under the new approaches, and prime contractors are better able to meet them (and consistently do so). Based on the interviews conducted for this report, prime contractors, DBEs, and state DOTs appear to be better served by these new approaches. The approaches do require expanded monitoring methods to ensure that DBE plans are effectively implemented by the selected contractor. When examining the CMAR or CMGC delivery approach, the study also found that most state DOTs have developed new methods for applying DBE contract goals. Most state DOTs using CMAR/CMGC do not set a DBE contract goal at time of proposal. Instead, the DBE goal is developed when more of the design is complete. Because no DBE contract goal has been set at the time of proposal, proposers commit to making good faith efforts to meet- ing a DBE goal that will be set at a future date (before construction). Some state DOTs also require a DBE plan from the proposer, which is evaluated as part of the proposal process. Based on interviews and other review, additional study conclusions include the following: • Some state DOTs indicated that DBE contract goals were less successful in their states because staff implementing the Federal DBE Program were not involved from the beginning, or there was a lack of cooperation from contracts or project delivery divisions. Some interviewees noted that successful implementation of the DBE pro- gram requires an organization-wide commitment from both the public agency and the contracting team. • The proposal selection process in alternative delivery method projects provides state transportation departments with opportunities to achieve more of the objectives of the Federal DBE Program, especially through evaluation and scoring of DBE plans. • Requirements for proposers and the selected design-builder, and criteria for how qualifications and proposals will be evaluated, must be clearly articulated in requests for qualifications (RFQs), requests for proposals (RFPs), contracts, and related docu- ments. If not, there is potential for confusion and misunderstanding, possibly weak- ening administration of DBE contract goals. • Regulations prohibit certain practices sometimes previously employed by state DOTs in applying DBE contract goals to alternative delivery method projects. For example, federal regulations prohibit awarding extra points if a proposer indicates DBE par- ticipation exceeding a DBE contract goal. The same factors cannot be used in both the RFQ and RFP evaluation stages. And state DOTs must not treat the DBE goal as a quota that must be met—federal regulations say that a contractor’s showing that it

4 has made good faith efforts to meet a DBE contract goal shall be an acceptable way to comply with the goal set for a project. If a state DOT determines that a design-builder has not met the good faith efforts requirement, the firm can ask for reconsideration of that decision. Although many state DOTs have seen the need to adopt new methods to applying DBE contract goals to alternative delivery method projects, based on interviews with state DOT and FHWA staff, they are doing so with very limited knowledge, experience with the meth- ods, or guidance from U.S.DOT. Study results indicate that most long-standing state DOT practices as well as available U.S.DOT guidance and training do not relate to alternative delivery method contracts. Regulations governing the Federal DBE Program in 49 CFR Part 26 primarily relate to design-bid-build projects and traditional consultant contracts. Lack of knowledge and little guidance are the principal barriers to further refinement and implementation of the new methods. State DOTs would value additional information about successes and failures, as well as clarification from U.S.DOT or FHWA. Future research could include topics such as (1) new DBE program language for RFPs and other contract documents; (2) options for how and when to establish a DBE goal on design-build and CMAR/CMGC projects and on public-private partnership (P3) contracts; (3) how and when to evaluate whether the contractor has met the DBE goal or shown good faith efforts to do so; (4) DBE plan requirements and state DOT evaluation methods; (5) effective monitoring; (6) steps to ensure consistency with federal regulations; and (7) any opportunities to extend these new methods for applying DBE contract goals to traditional design-bid-build contracts. Such information would be an invaluable resource for DBE program staff, legal staff, contracting staff, project management staff, contractors, DBEs, and U.S.DOT related to how the Federal DBE Program relates to each aspect of alternative delivery method projects.

5 at risk (CMAR) and construction manager/general contrac- tor (CMGC) projects as well as public-private partnership (P3) projects, as further defined here. Although the study focuses on state DOTs, the literature review and interviews examined other examples of transpor- tation projects as well. Study methods are discussed in more detail at the end of this chapter, and the bibliography at the end of the report lists key information sources. The balance of chapter one— • Briefly defines the alternative delivery methods examined; • Introduces key elements of the Federal DBE Program as they apply to alternative delivery method projects; • Summarizes the study approach; and • Introduces other chapters of the report. TYPES OF ALTERNATIVE DELIVERY METHOD PROJECTS The study examines the following types of alternative delivery method projects. The introductions to each method follow the definitions provided by FHWA. (See the glossary at the end of the report for additional definitions of terms and acronyms.) • Design-build. Design-build (DB) is a project delivery method that combines two, usually separate, services into a single contract. With design-build procurements, owners execute a single, fixed-fee contract for both architectural/engineering services and construction. The design-build entity may be a single firm, a consor- tium, a joint venture, or other organization assembled for a particular project (FHWA 2014b). • Construction manager at risk or construction man- ager/general contractor. The construction manager/ general contractor (CMGC) project delivery method allows an owner to engage a construction manager dur- ing the design process to provide constructability input. The construction manager is generally selected based on qualifications, past experience, or best value. During the design phase, the construction manager provides input regarding scheduling, pricing, phasing, and other project components that helps the owner design a more construct- ible project. At an average of 60% to 90% design comple- CHAPTER ONE INTRODUCTION This study reviews and synthesizes current practices and challenges that state departments of transportation face as they implement the Federal Disadvantaged Business Enter- prise (DBE) Program for design-build projects and other alternative project delivery methods. As DBE contract goals are an important component of the Federal DBE Program, the study focuses on application of this element of the pro- gram. Key issues include the following: • How and when agencies set DBE contract goals for these projects; • What proposers are required to submit at the qualifica- tions or proposal submission stage; • How submissions concerning DBE participation are evaluated; • What is required at time of contract award; • How program compliance is monitored through the contract; and • Enforcement mechanisms available to state depart- ments of transportation (DOTs). Federal regulations and years of state DOT implementa- tion of DBE contract goals govern how contract goals are applied to design-bid-build contracts. In contrast, there are few federal regulations specific to the application of DBE contract goals on alternative delivery method projects. Even recent research about state DOT use of design-build provides little information on the topic (see, for example, Transporta- tion Design-Build Users Group 2009). An examination was undertaken as to whether state DOTs have adapted their standard application of contract goals for alternative delivery method projects. If so, what has been their experience? Do any of these new methods approach a new standard for application of DBE contract goals? These questions were answered through a review of past research, compilation of documents relevant to state DOT practices, in-depth interviews with state DOT staff and oth- ers, and follow-up review. Information concerning use of alternative delivery methods was obtained for every state, and interviews were completed with staff of nearly every state DOT. In addition to design-build projects, the study assessed application of DBE contract goals to construction manager

6 tion, the owner and the construction manager negotiate a guaranteed maximum price for the construction of the project based on the defined scope and schedule. If this price is acceptable to both parties, they execute a contract for construction services, and the construction manager becomes the general contractor. In some states the CMGC delivery method is called the construction manager at risk (CMAR) method (FHWA 2014a). • Public-private partnerships. Public-private partner- ships (P3s) are contractual agreements formed between a public agency and a private sector entity that allow for greater private sector participation in the delivery and financing of public facilities (FHWA 2014c). These delivery methods differ from traditional design-bid- build contracts. Proposers are allowed, and often encouraged, to furnish alternative technical concepts (ATCs), which are alternative design solutions for features of work designated by the agency in its design-build request for proposals (RFP) (Carpenter 2010). In addition, contracts are awarded before designs are complete (or sometimes even begun), which means that the total dollars for various subcontracting and supply components are not known. Unless required by the owner, it is not typical for prime contractors to identify or enter construc- tion subcontracts at the time of award. Typical methods for setting DBE contract goals and evaluating good faith efforts to meet that goal can be challenging to apply to alternative delivery method contracts. As described in this report, alterna- tive delivery projects may also present complexities and issues when it comes to monitoring compliance with DBE contract goals or other aspects of the Federal DBE Program. FEDERAL REGULATIONS The Federal DBE Program and alternative delivery method projects operate within the framework of federal regulations for U.S.DOT-funded transportation projects. Federal DBE Program The federal government requires state and local governments to implement the Federal Disadvantaged Business Enter- prise (DBE) Program if they receive certain U.S.DOT funds for transportation projects. State departments of transporta- tion have been implementing some version of the Federal DBE Program since the 1980s. After enactment of the Trans- portation Equity Act for the 21st Century in 1998, U.S.DOT established a new Federal DBE Program to be implemented by state and local agencies that receive U.S.DOT funds. The regulations were most recently amended on November 3, 2014, after previous revisions in 2011 (49 CFR Part 26). The objectives of the Federal DBE Program, as outlined in Title 49 of the Code of Federal Regulations (CFR) Section 26.1, include these: (a) “To ensure nondiscrimination in the award and administration of DOT-assisted contracts in the Department’s highway, transit, and airport financial assistance programs; (b) To create a level playing field on which DBEs can compete fairly for DOT-assisted contracts; (c) To ensure that the Department’s DBE program is narrowly tailored in accordance with applicable law; (d) To ensure that only firms that fully meet this part’s eligibility standards are permitted to participate as DBEs; (e) To help remove barriers to the participation of DBEs in DOT-assisted contracts; (f) To assist the development of firms that can compete successfully in the marketplace outside the DBE program; and (g) To provide appropriate flexibility to recipients of Federal financial assistance in establishing and providing opportunities for DBEs.” (49 CFR Part 26) DBE Contract Goals The federal regulations in 49 CFR at Part 26 guide how state and local governments operate the Federal DBE Program. If necessary, under the federal regulations, the program allows state and local governments to use DBE contract goals, which agencies might set on certain U.S.DOT-funded contracts. In awarding those contracts, in accordance with federal regulations, the state DOT considers whether or not a bidder meets the DBE contract goal or shows good faith efforts to do so. The Federal DBE Program also applies to cities, coun- ties, transportation authorities, and other jurisdictions that receive U.S.DOT funds through state DOTs. A state DOT typically receives funds from multiple operating administrations of the U.S.DOT, including FHWA, FTA, and FAA. The state DOT must implement the Federal DBE Program for funds received from each operating administration. For exact language concerning sources of funds that trigger application of the program, see 49 CFR Section 26.3. Note that these Federal DBE Pro- gram regulations do not apply to funds received through the U.S.DOT FRA. As outlined in 49 CFR Part 26, for each operating admin- istration, there may be two types of DBE goals that a state DOT sets regarding the projects funded in full or in part from that agency: • A state DOT’s overall annual goal, set every three years, for DBE participation for contracts funded in whole or in part from that U.S.DOT operating agency (e.g., FHWA); and

7 • As necessary, individual DBE contract goals for all or a subset of contracts funded in whole or part from that operating agency (e.g., FHWA-funded contracts). A state DOT or other agency can also set a project-level goal for DBE participation for the length of the project (simi- lar to its overall annual DBE goal but for a specific project). DBE goals would then be established for specific contracts involved in that project [49 CFR Section 26.45 (e)(3)]. This is sometimes done for U.S.DOT-funded megaprojects. U.S.DOT allows local governments that receive FHWA or FTA funds through a state department of transportation to follow that state DOT’s implementation of the Federal DBE Program (U.S.DOT 2014). In other words, the state DOT establishes how cities, counties, and other sub-recipients implement the Federal DBE Program for contracts using FHWA funds received through that state DOT. DBE contract goals are only one of the ways state DOTs and other agencies meet their overall goals for DBE par- ticipation. Application of DBE contract goals to alternative delivery method projects is the subject of this synthesis. The Federal DBE Program, 49 CFR Section 26.51 (d–g), instructs state DOTs and other federal aid recipients on the use of DBE contract goals. Regulations provide that— • An agency can use DBE contract goals to the extent that they are needed to help it meet its overall DBE goal for that year. If the agency can meet the overall goal solely through race- neutral means, the regulations provide that it not set DBE contract goals during that year. [49 CFR Section 26.51 (f)(1)] • Agencies are not permitted to use quotas for DBEs on U.S.DOT-assisted contracts. [49 CFR Section 26.43 (a)] • Agencies may use contract goals only on those U.S.DOT-assisted contracts that have subcontracting possibilities. [49 CFR Section 26.51 (e)(1)] • Contract goals may be higher or lower than the overall annual DBE goal for the agency, depending on factors such as the type of work involved, the location of the work, and the availability of DBEs for the work of the particular contract. [49 CFR Section 26.51 (e)(1)] • Operating administrations (e.g., FHWA) do not need to approve each contract goal but may choose to review and approve or disapprove any contract goal estab- lished. [49 CFR Section 26.51 (e) (3)] The Federal DBE Program requires agencies to use race- neutral efforts to assist DBEs and small business enterprises in general and to further the development of minority- and women-owned businesses. Race-neutral initiatives identi- fied in 49 CFR Section 26.51 are included in the following list. DBE contract goals are used only to meet any portion of an agency’s overall DBE goal that cannot be met using race- neutral means [49 CFR Section 26.51(d)]. (1) Arranging solicitations, times for the presentation of bids, quantities, specifications, and delivery schedules in ways that facilitate DBE, and other small businesses, participation (e.g., unbundling large contracts to make them more accessible to small businesses, requiring or encouraging prime contractors to subcontract portions of work that they might otherwise perform with their own forces); (2) Providing assistance in overcoming limitations such as inability to obtain bonding or financing (e.g., by such means as simplifying the bonding process, reducing bonding requirements, eliminating the impact of surety costs from bids, and providing services to help DBEs, and other small businesses, obtain bonding and financing); (3) Providing technical assistance and other services; (4) Carrying out information and communications programs on contracting procedures and specific contract opportunities (e.g., ensuring the inclusion of DBEs, and other small businesses, on recipient mailing lists for bidders; ensuring the dissemination to bidders on prime contracts of lists of potential subcontractors; provision of information in languages other than English, where appropriate); (5) Implementing a supportive services program to develop and improve immediate and long-term business management, record keeping, and financial and accounting capability for DBEs and other small businesses; (6) Providing services to help DBEs, and other small businesses, improve long-term development, increase opportunities to participate in a variety of kinds of work, handle increasingly significant projects, and achieve eventual self-sufficiency; (7) Establishing a program to assist new, start-up firms, particularly in fields in which DBE participation has historically been low; (8) Ensuring distribution of your DBE directory, through print and electronic means, to the widest feasible universe of potential prime contractors; and (9) Assisting DBEs, and other small businesses, to develop their capability to utilize emerging technology and conduct business through electronic media. Source: 49 CFR 26. Portions of 49 CFR Part 26 Specific to Alternative Delivery Methods Federal regulations in 49 CFR Sections 26.39 and 26.53 contain the following requirements for alternative delivery projects:

8 • To foster small business participation on multi-year design-build contracts or other large contracts (e.g., for megaprojects) as part of this program element, recipients may include the strategy that bidders on the prime contract are required to specify elements of the contract or specific subcontracts that are of a size that small businesses, including DBEs, can reasonably per- form. [49 CFR Section 26.39 (2)] • State DOTs receiving federal funds for use on a design- build project may establish a goal for the project. (In addition to design-build, this section also refers to “turnkey” contracts.) The master contractor then estab- lishes contract goals, as appropriate, for the subcon- tracts it lets. State DOTs maintain oversight to ensure that the contractor’s activities are consistent with fed- eral DBE requirements. [49 CFR Section 26.53 (e)] Other Federal Regulations Governing Alternative Delivery Method Contracts Title 23 Part 636 of the CFR covers FHWA’s policies con- cerning the use of design-build for certain FHWA-funded contracts. The regulations include guidance on how agencies receiving FHWA funds can use nonprice factors to evalu- ate proposers on design-build contracts. In the regulations, design-build is broadly defined to include design and con- struction by a private developer, concessionaire, or other entity that might then operate or maintain the improvement. Title 23 Section 635.107 covers regulations concerning participation of DBEs on design-build contracts. These reg- ulations cite 49 CFR Part 26 concerning use of the Federal DBE Program for design-build contracts. FHWA comments on this requirement strongly urge state transportation depart- ments to modify their overall DBE program plans to include provisions for design-build contracts and note that state DOTs have flexibility in structuring these processes (FHWA 2002). The only additional restriction in Section 635.107 is that DBE commitments above the DBE contract goal for a design- build project cannot be used as a proposal evaluation factor. As discussed in chapter four, state DOTs retain flexibility as to other evaluation scores related to DBE commitments or plans. STUDY APPROACH The study involved an extensive literature review followed by in-depth interviews with state DOTs, U.S.DOT staff, con- tractors and consultants, DBEs, and trade organizations. Review of Published Literature, State DOT Documents, and Other Sources Study team members began by examining journal articles and other literature concerning the use of alternative deliv- ery methods in the United States, including past NCHRP syntheses. State statutes were reviewed to identify legisla- tion permitting or prohibiting the use of alternative procure- ment methods for horizontal construction projects. A review of state DOT websites, RFP documents, DBE program man- uals, and alternative procurement manuals was conducted. Individual state websites were evaluated to gain an under- standing of the status of alternative procurement methods in each state. Interviews with State DOTs All 50 states plus the District of Columbia and Puerto Rico were contacted for in-depth interviews. Interviews were completed with 47 of the 52 state DOTs, a 90% response rate (see Figure 1 for a list of the state DOTs that completed interviews). Although state DOT representatives from Iowa, Louisiana, Maryland, Massachusetts, and Washing- ton, D.C., were not successfully reached for an interview, other information for these state transportation depart- ments was accessed. FIGURE 1 In-depth interview respondents from state DOTs. In-depth interview discussion topics included the following: • Authorization for alternative delivery methods; • Use of alternative procurement, including design- build, CMAR/CMGC, and P3; • Application of the Federal DBE Program on alternative procurement projects; • Sub-recipient use of alternative procurement; and • Any challenges in goal setting, monitoring, and compliance. Interviews with 42 state DOTs included a member of the team responsible for the DBE program for that state DOT. The remaining six state DOT interviews were conducted with representatives from bid letting, contract compliance, contract awards, construction management, project manage- ment, and legal departments. Some interviews also included other engineering or contracting staff, and one included the FHWA regional staff person for the DBE program. A copy of the interview guide is included in Appendix A.

9 Four U.S.DOT staff, five contractors and consultants, two DBE representatives, and two trade organization representa- tives were also interviewed. LIMITATIONS Many of the methods for applying DBE contract goals on alternative delivery method projects identified in this study were developed very recently, so more will be known about their success once the projects awarded under the new meth- ods are complete. This may take two years or more. It will be longer still before new approaches to applying DBE contract goals to operational phases of P3 projects can be evaluated. A further limitation is that staff interviewed from state DOTs were not always knowledgeable about application of DBE contract goals to previous alternative delivery projects in their states. The interview information was often supplemented by other reviews of a state DOT’s practices. Where information from the interviews was inconsistent with documents for that state DOT or past research studies, an attempt was made to clarify those discrepancies. Even with these steps, it is possible that some of the information in the report that came from interviews is not fully accurate. As this study focuses on application of DBE contract goals for alternative delivery method projects, DBE con- tract goals methods for traditional design-bid-build proj- ects are discussed only as they are applied to design-build, CMAR/CMGC, and P3 projects. Much more could be learned about the variety of ways state DOTs use DBE contract goals for traditional design-bid-build projects, from goal-setting methodology through electronic track- ing systems. One of the cautions in using the research is that U.S.DOT may not approve of some aspects of the new methods in use. Some state DOTs discovered that the practices they initially developed had to be revised to meet federal regu- lations. Current practices of state DOTs that might require refinement are noted. It is important that state DOTs not regard all practices in place to have been endorsed by U.S.DOT. OVERVIEW OF THE REPORT The report comprises six chapters: • State DOTs that have used design-build, CMAR/ CMGC, and P3 alternative delivery methods were identified. Chapter two summarizes these results. • Some state DOTs apply DBE contract goals to design- build projects in the same way they do for traditional design-bid-build projects. Chapter three reviews the experience of these states. • Many states have deviated from traditional approaches for implementing DBE contract goals for alternative delivery method projects. Chapter four describes these new approaches. • Chapter five reviews state DOTs’ experience with DBE contract goals on CMAR and CMGC projects. • Chapter six summarizes the study conclusions. Several appendices, as well as a list of references and a bibliography, provide supporting information. CHAPTER SUMMARY The federal government requires state and local govern- ments to implement the Federal Disadvantaged Business Enterprise Program if they receive certain U.S.DOT funds for transportation projects. State departments of transporta- tion have been implementing some version of the Federal DBE Program since the 1980s. Federal regulations and years of state DOT implementa- tion of DBE contract goals govern how these goals are applied to design-bid-build contracts. In contrast, there are few fed- eral regulations specific to the application of DBE contract goals to alternative delivery method projects. To determine whether states have adapted their standard application of contract goals for alternative delivery method projects, state DOTs were studied through a review of past research, compi- lation of documents relevant to state DOT practices, in-depth interviews with state DOT staff and others, and follow-up research. Information concerning the use of alternative deliv- ery methods was obtained for every state, and interviews were completed with staff of nearly every state DOT.