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

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35 CHAPTER FIVE APPROACHES TO APPLYING DISADVANTAGED BUSINESS ENTERPRISE GOALS TO CONSTRUCTION MANAGER AT RISK AND CONSTRUCTION MANAGER/GENERAL CONTRACTOR METHODS The various approaches state transportation departments employ for DBE goals on CMAR/CMGC contracts parallel those for design-build contracts. Interviews with state DOTs elicited the following information: • Two state DOTs apply DBE contract goals using a tra- ditional design-bid-build method, as outlined in Table 5. At the time of this report, one of those states was considering moving to a new approach. • Seven state DOTs use a “negotiated DBE goal” method, described later in this chapter. • For one state DOT, it was unclear what method was used. STATE DEPARTMENTS OF TRANSPORTATION THAT USE TRADITIONAL APPLICATION OF DISADVANTAGED BUSINESS ENTERPRISE CONTRACT GOALS Colorado and Connecticut DOTs use a traditional approach to DBE goals for CMAR and CMGC contracts, although Colorado DOT reported that it is considering a change. Colorado DOT At the time of the interview with CDOT, it had applied tra- ditional design-bid-build methods for DBE contract goals on CMGC projects. CDOT had set goals on the construc- tion phase to be met at time of proposal. CDOT considered whether the proposer met the goal or showed good faith efforts to do in its pass-fail examination of the DBE compo- nent of a proposal. CDOT indicated that it was reviewing a change in this policy. In the future it might delay setting a goal on the con- struction portion until bid packages are being developed. CDOT would then negotiate the DBE contract goal with the selected contractor. Once a goal was set, CDOT would moni- tor whether the contractor met the goal or demonstrated good faith efforts to do so during the course of the construction. Connecticut DOT The Connecticut Department of Transportation recently received legislative authority to use CMAR. The state DOT is allowed to complete one of these projects, at which point it State transportation departments also use construction man- ager at risk and construction manager/general contractor contracts as delivery methods that include construction con- tractors in the design phase of a project. To do this, the state DOT selects a contractor at about the same time as it selects the design team. Total construction cost is not known at this stage, and CMAR and CMGC contractor selection is based on qualifications, with cost typically not considered. The textbox in chapter two shows that many state DOTs have legislative authority to use CMAR or CMGC, but only 10 of the state DOTs interviewed had actually used one of these methods, usually recently. Most state DOT interviewees were unfamiliar with the methods; however, CMAR/CMGC use appears to be growing, so it is appropriate to review how state DOTs have been applying DBE contract goals. As with other information reported in this chapter, approaches to DBE contract goals for these types of projects are evolving. This chapter gives a snapshot of methods as of 2014. FHWA continues to develop regulations concerning CMAR and CMGC. MAP-21, Section 1303 requires FHWA to develop regulations concerning CMGC project delivery. At the time of this report, FHWA said it would issue a Notice of Proposed Rulemaking in 2014 (FHWA 2014a). TABLE 5 USE OF NEW OR TRADITIONAL METHODS FOR CMAR/ CMGC PROJECTS States That Have Applied DBE Contract Goals to CMAR/ CMGC Projects Use Same Methods as for Design-Bid- Build Projects Always or Sometimes Use New Methods Arizona • California • Colorado • Considering Connecticut • Michigan • Minnesota • Nevada • Oregon • Rhode Island Unclear Utah • Total 2 7

36 will evaluate results. The CMAR project is state-funded, so the Federal DBE Program does not apply; however, the DOT is setting an SBE goal. The agency is responsible for 50% of the design for the CMAR project. A project-specific SBE program is devel- oped before the RFP. Summary for State DOTs with Traditional Methods Table 6 compares traditional approaches to using DBE contract goals for CMAR/CMGC projects with the new approaches for the state DOTs described in the balance of this chapter. STATE DEPARTMENTS OF TRANSPORTATION THAT USE NEW APPROACHES TO DISADVANTAGED BUSINESS ENTERPRISE CONTRACT GOALS Several state DOTs no longer set a DBE goal for the con- struction portion of the contract before they select the con- struction manager. Arizona DOT ADOT had been awarding CMAR projects without DBE goals; it began setting goals on these projects after receiving a letter from FHWA directing it to do so. A CMAR DBE goal is negotiated with the construction manager when the guaranteed maximum price is negotiated. ADOT reported that DBE participation is relatively high on CMAR projects (above 6% or 7%) because of substan- tial subcontracting opportunities on the types of projects for which CMAR is used. Caltrans Caltrans has the authority to pilot about six CMGC projects. Caltrans is in the initial stages of two projects: • State Route 140 Ferguson Slide Permanent Restoration Project; and • State Route 99 Realignment. Caltrans did not set a DBE goal at the RFQ stage of the SR 140 project. Contractors were only required to sign an affidavit stating that they would meet the goal that would be set by Caltrans for the construction phase or make good faith efforts to do so. As Caltrans is funding the State Route 99 Realignment with funds from the California High Speed Rail Authority, a small business participation goal of 30% will be applied. TABLE 6 KEY DIFFERENCES FOR NEW APPROACHES TO USING DBE CONTRACT GOALS FOR CMAR/CMGC Stage in the Process Traditional Approach to CMAR/CMGC New Approaches to CMAR/CMGC Change from Traditional Approach 1. Identifying the project as appropriate for DBE contract goals Need to involve DBE program staff early Need to involve DBE program staff early No difference 2. Incorporating DBE program language in RFQ, RFP, and contract documents Need to incorporate DBE lan- guage into all documents prior to RFQ Need to incorporate DBE lan- guage into all documents prior to RFQ Need to create custom language for innovative approach 3. Communicating opportunities to DBEs and other small businesses Outreach from project identi- fication through proposal date Outreach from project identifica- tion through construction phase Extended length of outreach 4. Establishing a DBE goal for the project Set DBE goal based on infor- mation prior to RFQ/RFP Set DBE goal before award of construction phase Can wait to set DBE contract goal until at least 60% design point 5. Reviewing DBE proposal submissions when determining award Commitments or DBE plan Pass-fail or scoring Proposers indicate whether can meet goal or show good faith efforts Proposers provide DBE com- mitments with proposal or immediately after Typically pass-fail Proposers agree to make good faith effort to meet goal (to be set later) Proposers provide DBE plan (sometimes this step is used) Pass-fail or scoring No goal set at RFP stage No DBE commitments with proposal Can score or conduct pass-fail review of plan 6. Monitoring compliance Track DBE commitments (subcontracts, payments) Review good faith efforts Receive DBE commitments Track DBE commitments Review good faith efforts Refine/monitor DBE plan DBE commitments in construction phase Can evaluate based on plan execution Review plan execution 7. Remedying any noncompliance Apply remedies for any noncompliance Apply remedies for any noncompliance No difference

37 Minnesota DOT MnDOT sets a DBE contract goal on the construction phase of the CMGC contract once the design of the project is near- ing completion. The contractor must then meet the goal or show good faith efforts to do so. The following textbox pro- vides sample RFP language regarding the Federal DBE Pro- gram for a CMGC contract. It is the policy of MnDOT that Disadvantaged Business Enterprises, as defined in 49 CFR Part 26, and other small businesses shall have the maximum feasible opportunity to participate in contracts financed in whole or in part with public funds. Consistent with this policy, MnDOT will not allow any person or business to be excluded from participation in, denied the benefits of, or otherwise discriminated against in connection with the award and performance of any U.S. Department of Transportation- assisted contract because of sex, race, religion, or national origin. MnDOT has established a DBE program in accordance with regulations of the U.S.DOT, 49 CFR Part 26. In this regard, the CMGC contractor will take all necessary and reasonable steps in accordance with 49 CFR Part 26 to ensure that DBEs have the maximum opportunity to compete for and perform the contract. MnDOT will determine a DBE goal for this project. The DBE goal, which will be identified once the design of the project is nearing completion, will apply to the construction of the project. There will not be a DBE goal for the preconstruction professional/technical services contract. Source: MnDOT 2013a. Nevada Department of Transportation As of spring 2014, the Nevada DOT (NDOT) had experience with four CMAR contracts. As part of their proposals, NDOT asks proposers to submit a DBE participation plan, which is evaluated pass-fail. The DBE plan must describe how proposers will recruit DBEs and assist them with issues such as bonding. NDOT includes language in each CMAR contract that requires primes to either meet the DBE contract goal or show good faith efforts to do so. After contract award, NDOT works with the contractor to set the contract goal. The DBE contract goal is set at the 60% design point. According to an FHWA official, setting the goal at the 30% design point had been considered, but the informa- tion gained by waiting made the 60% design point preferable. Nevada’s CMAR statute requires subcontractor identifi- cation and prequalification at the 60% design point. There is a mandatory meeting of planned subcontractors. These requirements make it essential to conduct substantial DBE outreach early in the project. One interviewee noted that an advantage of CMAR/CMGC is that the state DOT can offer direct assistance to primes to help them get DBEs. To monitor the project, NDOT holds ad hoc meetings (ini- tiated by the NDOT project manager) at which the NDOT civil rights office can make recommendations concerning good faith efforts. NDOT requires regular reports on DBE participation and whether the contractor is meeting the goal. One CMAR project had 12–15 DBEs, more than tradi- tional projects. NDOT reported that these projects can be very large, and bid limits for contractors in Nevada can make it difficult to meet the DBE contract goal (DBEs some- times have low bid limits). NDOT indicated that the design- builder underestimated the amount of outreach needed to meet the goal and did not have the proper reporting system to show monthly payments. Oregon Department of Transportation Oregon DOT has many years of experience applying the DBE program to CMGC contracting methods. The largest project in its history, the I-5 Willamette River Bridge, was completed using CMGC. Oregon DOT does not set a DBE goal on a CMGC contract until it has established a guaran- teed maximum price. At that point Oregon DOT reviews the contractor’s plan to meet the goal. Oregon DOT RFPs for CMGC ask the proposer to describe its “commitment to maximizing diversity in sub- contracting.” This description could include a subcontract- ing management plan and implementation strategy. Oregon DOT notes that the “plan may include application of best practices described in Section 00144 of the CM/GC General Provisions.” Oregon DOT also asks the proposer to describe its plans to ensure that the proposed subcontracting plan is applied at all tiers. Reporting requirements included provid- ing a schedule showing the commencement data and esti- mated completion date for each DBE subcontractor. Finally, proposers are asked to identify DBE representatives and their roles and responsibilities. Similar questions are asked about EEO issues and workforce diversity under the general category “Diversity Plan Outline.” Oregon DOT has scored this evaluation factor on a pass-fail basis. The following textbox includes some of the most effec- tive practices listed in the current copy identified for the General Provisions. Rhode Island Department of Transportation Rhode Island DOT has used CMAR on rail projects and overseen CMAR projects for local airport and seaport authorities. Exact methods for applying DBE contract goals are unclear.

38 Obtaining a list of certified DBEs. Designating a qualified DBE liaison. Developing and maintaining bidder lists of DBEs from all possible sources. Ensuring that procurement packages are structured to permit DBEs to participate to the maximum extent possible. Ensuring inclusion of DBEs in solicitation for products or services that they are capable of providing. Reviewing solicitations to remove statements, clauses, and so on that might restrict or prohibit DBE participation. Reviewing the bid document’s reasons for not selecting bids submitted by DBE and minority, women, and emerging small business firms. Ensuring the establishment and maintenance of records of solicitations and subcontract award activity. Attending or arranging for attendance of contractor’s project manager at business opportunity workshops, meetings of minority organizations/chambers, trade fairs, and so on. Monitoring attainment of proposed aspirational targets. Preparing and submitting periodic required subcontracting reports, including the gathering and assembling of all reports from large business subcontractors (regardless of tier) and submission of those reports to the agency. Coordinating the conduct of the contractor’s activities involving the development and implementation of its DBE and MWESB subcontracting plan. Designating 40% of work subcontracted to DBEs and MWESBs by dollars to new firms (a firm with which the contractor has not worked within the past three years). Advertising all subcontracting and potential DBE and MWESB opportunities in local and minority-owned newspapers at least 30 calendar days in advance of the bid/proposal due date. Soliciting the interest of DBEs and MWESBs for two consecutive weeks to allow those firms to respond to the solicitation. Providing project information to interested DBEs. Documenting DBE and MWESB solicitations in writing. Breaking out contract items into economically feasible units and, where possible, identifying rotation opportunities so that DBE participation is maximized. Making an effort to allocate these and other subcontracting opportunities to a broad range of qualified DBE and MWESB firms to maximize the number of contracts in the $10,000–$50,000 range, the $50,000–$100,000 range, the $100,000–$250,000 range, the $250,000–$500,000 range, and the $500,000–$1 million range. Negotiating in good faith with interested DBEs. Not rejecting any DBEs as unqualified without a thorough investigation of their capabilities, and working with a technical assistance provider to determine the qualifications of any potentially unqualified DBE. Making efforts to help interested DBEs obtain insurance or software as required by the contractor, and making efforts to help them obtain necessary equipment, supplies, or related services needed for a competitive bid/proposal. Following up with all competitive bids/proposals from DBEs to clarify any questions that may arise (and to document any proposals that are not used). Using the services of available minority/women community organizations, minority/women contractors’ groups, minority/women business assistance offices, and other organizations to assist in the recruitment and placement of DBEs. Source: Oregon DOT 2008.

39 Utah DOT UDOT has had many CMGC projects and has applied DBE contract goals to those contracts. UDOT does not set a DBE contract goal before the contract award; it waits until about the 90% design stage, when the construction manager is develop- ing a bid for the contract. The DBE goal is set at that time, and the construction manager must either meet the goal or show good faith efforts (identical to the design-bid-build process). UDOT sets the goal independent of construction manager input (i.e., the goal is not “negotiated” with the contractor). OTHER STATES Two other state DOTs discussed here use CMAR/CMGC delivery methods but do not apply DBE contract goals. Florida DOT The Florida DOT (FDOT) may use CMAR subject to approval by the State Project Management Office and an annual statewide cap of $120 million. FDOT applies the DBE program to CMAR as it does to design-build projects: it includes an overall annual DBE goal but no contract-specific goal. FDOT reports that it has a 100% race-neutral program. Maine DOT At the time of the interview, Maine DOT was in the design phase of its first CMAR but had not set a DBE goal, as it operates a 100% race-neutral program. FEEDBACK FROM THE CONTRACTING INDUSTRY Limited industry feedback for CMAR/CMGC was consis- tent with that for design-build. In general, industry represen- tatives reported that for contractor selection based solely on qualifications, it is impractical for the contractor to include DBE subcontractors and their contract values as part of the proposal submission. In their view, such a requirement flies in the face of the rationale for CMAR projects. In its purest form, design-build or CMAR projects begin with zero plans. The design and construction team works with the owner to create a project. Alternative delivery methods could encour- age creativity in how to approach a project. According to these interviewees, it makes no sense to require subcontract information prior to design. There is a subcontractor selec- tion process, but it comes later than it does in a traditional design-bid-build project. Industry representatives advised establishing the DBE goal for a CMAR when the design is completed and a guaranteed maximum price is determined. The DBE goal should be set through collaboration between the contractor and the state DOT. The interviewees said that there can be a more realistic assessment of DBE availability for the project when the contractor is involved in the process. As the design comes together, contractors will know where they can use a DBE. Industry representatives also suggested that requiring DBE commitments at time of proposal may put the DBEs at a disadvantage, as they will be making a work and price commitment perhaps years in advance of the actual work. Interviewees noted that DBE program staff at a typical state DOT might not fully understand CMAR/CMGC and therefore would not appreciate the difficulties of setting a DBE goal or requiring DBE commitments too soon in the process. FEEDBACK FROM FHWA STAFF An FHWA official who has substantial experience with CMAR/CMGC urged state DOTs to wait to set the DBE con- tract goal on construction until much of the design is com- plete. However, he also advised that state DOTs include DBE requirements in the RFP and contract when they initially select the construction manager for the project. He pointed out that most construction managers selected for the precon- struction phase go on to win the construction contract. State DOTs should include what they want for the DBE program upfront—that opportunity cannot be regained after contrac- tor selection, according to this interviewee. CHAPTER SUMMARY Based on interviews with states, 10 state DOTs apply DBE contract goals for CMAR/CMGC contracts. Seven state DOTs no longer set a DBE goal before the contract and instead wait to set a DBE goal to just before the construction phase. These DOTs then monitor the contractor’s efforts to meet the DBE goal in the construction phase. Some state DOTs require proposers to include a DBE plan in their proposals. Some interviewees reported that a state DOT may be able to improve a contractor’s plan for DBE participation if a DBE plan is required and evaluated when the construction manager is selected. They advised state transportation departments to include this factor at the RFQ or RFP stage of the contracting process. Most construction managers at the beginning of a CMAR/CMGC contract eventually become the general con- tractor for the construction phase, so the plans they set forth in the proposal submission would then be part of the contract language guiding later efforts for DBE participation.