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A Guidebook for Increasing Diverse and Small Business Participation in Airport Business Opportunities (2015)

Chapter: Chapter 2 - Federal Disadvantaged Business Enterprise Programs

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Suggested Citation:"Chapter 2 - Federal Disadvantaged Business Enterprise Programs." National Academies of Sciences, Engineering, and Medicine. 2015. A Guidebook for Increasing Diverse and Small Business Participation in Airport Business Opportunities. Washington, DC: The National Academies Press. doi: 10.17226/22220.
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Suggested Citation:"Chapter 2 - Federal Disadvantaged Business Enterprise Programs." National Academies of Sciences, Engineering, and Medicine. 2015. A Guidebook for Increasing Diverse and Small Business Participation in Airport Business Opportunities. Washington, DC: The National Academies Press. doi: 10.17226/22220.
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Suggested Citation:"Chapter 2 - Federal Disadvantaged Business Enterprise Programs." National Academies of Sciences, Engineering, and Medicine. 2015. A Guidebook for Increasing Diverse and Small Business Participation in Airport Business Opportunities. Washington, DC: The National Academies Press. doi: 10.17226/22220.
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Suggested Citation:"Chapter 2 - Federal Disadvantaged Business Enterprise Programs." National Academies of Sciences, Engineering, and Medicine. 2015. A Guidebook for Increasing Diverse and Small Business Participation in Airport Business Opportunities. Washington, DC: The National Academies Press. doi: 10.17226/22220.
×
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Suggested Citation:"Chapter 2 - Federal Disadvantaged Business Enterprise Programs." National Academies of Sciences, Engineering, and Medicine. 2015. A Guidebook for Increasing Diverse and Small Business Participation in Airport Business Opportunities. Washington, DC: The National Academies Press. doi: 10.17226/22220.
×
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Suggested Citation:"Chapter 2 - Federal Disadvantaged Business Enterprise Programs." National Academies of Sciences, Engineering, and Medicine. 2015. A Guidebook for Increasing Diverse and Small Business Participation in Airport Business Opportunities. Washington, DC: The National Academies Press. doi: 10.17226/22220.
×
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Suggested Citation:"Chapter 2 - Federal Disadvantaged Business Enterprise Programs." National Academies of Sciences, Engineering, and Medicine. 2015. A Guidebook for Increasing Diverse and Small Business Participation in Airport Business Opportunities. Washington, DC: The National Academies Press. doi: 10.17226/22220.
×
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Suggested Citation:"Chapter 2 - Federal Disadvantaged Business Enterprise Programs." National Academies of Sciences, Engineering, and Medicine. 2015. A Guidebook for Increasing Diverse and Small Business Participation in Airport Business Opportunities. Washington, DC: The National Academies Press. doi: 10.17226/22220.
×
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Suggested Citation:"Chapter 2 - Federal Disadvantaged Business Enterprise Programs." National Academies of Sciences, Engineering, and Medicine. 2015. A Guidebook for Increasing Diverse and Small Business Participation in Airport Business Opportunities. Washington, DC: The National Academies Press. doi: 10.17226/22220.
×
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Suggested Citation:"Chapter 2 - Federal Disadvantaged Business Enterprise Programs." National Academies of Sciences, Engineering, and Medicine. 2015. A Guidebook for Increasing Diverse and Small Business Participation in Airport Business Opportunities. Washington, DC: The National Academies Press. doi: 10.17226/22220.
×
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Suggested Citation:"Chapter 2 - Federal Disadvantaged Business Enterprise Programs." National Academies of Sciences, Engineering, and Medicine. 2015. A Guidebook for Increasing Diverse and Small Business Participation in Airport Business Opportunities. Washington, DC: The National Academies Press. doi: 10.17226/22220.
×
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Suggested Citation:"Chapter 2 - Federal Disadvantaged Business Enterprise Programs." National Academies of Sciences, Engineering, and Medicine. 2015. A Guidebook for Increasing Diverse and Small Business Participation in Airport Business Opportunities. Washington, DC: The National Academies Press. doi: 10.17226/22220.
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4C H A P T E R 2 This chapter presents a legal overview of the federal DBE and ACDBE Programs (collectively called the Programs). It discusses the enabling legislation, grant assurances, general framework, and requirements of the federal regulations for concessions and for airport contracts funded under the FAA Airport Improvement Program (AIP). Important constitutional considerations also are discussed in this chapter. U.S. DOT established the DBE Program for AIP-funded contracts and the ACDBE Program for airport concessions, including certain management contracts. The goal of the Programs is to ensure non-discrimination in awarding AIP-funded airport development contracts and airport concessions contracts. The U.S. DOT’s Office of the Secretary sets rules and regulations for the Programs and FAA regional offices supervise local implementation of the Programs, ensuring that AIP grant recipients comply with legal and regulatory requirements. 2.1 Enabling Legislation Congress has stated a goal of promoting economic development, emphasizing the promotion of small and disadvantaged businesses, and addressing discrimination in federally funded proj- ects (see, e.g., 49 U.S.C. §§ 47101; 47113; 47123). Congress also seeks to provide transportation contracting opportunities to small businesses owned and controlled by socially and economically disadvantaged individuals (see, e.g., the Airport and Airway Improvement Act, as amended, at 49 U.S.C. § 47107 et seq., which established the AIP). Consequently, under 49 U.S.C. § 47107(e)(1), the Secretary of Transportation (Secretary) is permitted to approve a project application for an airport development project only if the Secretary receives written assurances that the airport owner or operator will take the necessary action to ensure, to the maximum extent practicable, that at least 10 percent of all businesses at the airport selling consumer products or providing consumer services to the public are small business concerns owned and controlled by a socially and economically disadvantaged individual. U.S. DOT and FAA distribute substantial funds nationwide to finance government transporta- tion projects that meet these congressional goals and policies. To effectuate these congressional policies, U.S. DOT established the DBE Program in 49 CFR Part 26 (Part 26) and the ACDBE Program in 49 CFR Part 23 (Part 23). The objectives of the Programs can be summarized as follows (quotes are from 49 CFR §§ 23.1; 26.1): 1. “To ensure non-discrimination” in the award and administration of opportunities for [airport] concessions and U.S. DOT-assisted contracts. 2. “To create a level playing field” on which DBEs and ACDBEs can compete fairly. Federal Disadvantaged Business Enterprise Programs

Federal Disadvantaged Business Enterprise Programs 5 3. To ensure that the Programs’ measures are “narrowly tailored in accordance with appli- cable law.” 4. “To help remove barriers to the participation of ACDBEs in opportunities for [airport] concessions” and of DBEs in AIP-funded contracts. 5. “To assist the development of firms that can compete successfully in the marketplace” outside of the Programs. 6. To provide airports with “appropriate flexibility” in providing opportunities to DBEs and ACDBEs (117, 118). Every public agency receiving an AIP grant after January 1988 is required to implement pro- grams that comply with Parts 26 and 23. 2.2 Grant Assurances Airport owners, sponsors, planning agencies, or other organizations that accept funds from FAA-administered financial assistance programs must agree to certain obligations known as “grant assurances.” These grant assurances state that the recipient will not discriminate against anyone in connection with the award or performance of contracts covered by both the Pro- grams on the basis of race, color, sex, or national origin. The grant assurances also extend to prime contractors and subcontractors, requiring them to include non-discrimination provi- sions in prime contracts, as well as in each subcontract a prime contractor signs with a sub- contractor (49 CFR § 26.13 and 49 CFR 23.9(c)(1)–(2)). The grant assurance process thus extends the reach of the Programs beyond state and local governments, transportation agen- cies, and private entities that receive federal funds, to encompass their prime contractors and subcontractors as well. 2.3 49 CFR Part 26—Airport DBE Program Part 26 contains the U.S. DOT’s guidelines and requirements for the implementation of the federal DBE Program by airport grant recipients. Part 26 requires airport grant recipients to develop their own local plans to implement and enforce the requirements and objectives of the DBE Program in good faith. Practice Tip: Airport grant recipients that reasonably anticipate awarding prime contracts of $250,000 or less in a federal fiscal year for airport planning or devel- opment are not required to have a DBE program. 2.3.1 Program Policy Statement In implementing the DBE Program, an airport must create, issue, and circulate a policy state- ment throughout its organization and to the business community that expresses commitment to the DBE Program, states the Program’s objectives, and outlines the responsibilities for Program implementation (49 CFR § 26.23). 2.3.2 General Administrative Requirements Part 26 contains administrative requirements for all airports implementing the Program in order to ensure that local DBE programs follow consistent federal standards.

6 A Guidebook for Increasing Diverse and Small Business Participation in Airport Business Opportunities For example, airports must: • Keep and maintain detailed records and bidders lists of DBE and non-DBE contractors and subcontractors who seek to work on federally funded contracts (§ 26.11). • Designate a DBELO who is responsible for implementing all aspects of the airport’s DBE program and who has direct and independent access to the airport’s executive officer (49 CFR § 26.25; see also Chapter 4 in this guidebook). • Thoroughly investigate services offered by financial institutions in their local community that are owned and controlled by socially and economically disadvantaged individuals, and make reasonable efforts to use these institutions and encourage prime contractors to use such insti- tutions (49 CFR § 26.27). • Add a “prompt payment” clause to all federally funded contracts requiring contractors to pay their subcontractors within 30 days of receipt of prime contract payments and establish appropriate enforcement mechanisms for ensuring prompt payment (49 CFR § 26.29; see also Chapter 6 in this guidebook). • Keep and maintain a directory that identifies all certified DBEs, which must contain the firms’ addresses and phone numbers, and which must list the types of work the firms have been certified to perform as DBEs (49 CFR §§ 26.31; 26.81(g)). • Implement appropriate mechanisms to ensure compliance with the DBE program’s require- ments by all program participants and set forth these mechanisms in the airport’s DBE program (49 CFR § 26.37). • Include an element in the implementation of the airport’s DBE program that structures con- tracts to facilitate small business competition (49 CFR § 26.39(a)). • Set an overall goal for DBE participation in U.S. DOT-assisted contracts (49 CFR § 26.45). Practice Tip: Several of the administrative requirements presented in this chap- ter are detailed in subsequent chapters; however, this Guidebook provides an overview of some of these provisions and is not exhaustive. Airports should thus carefully review 49 CFR, Part 26. 2.3.3 Implementing the Plan: Goal-Setting and Program Measure Development It merits repeating that, beyond certain general duties, the DBE Program is not a uniform affirmative action program. Airports must design and implement their own DBE programs based on their unique circumstances. Airports must design programs to meet the overall aspi- rational goal of Section 26.45 for DBE participation in federally funded contracts over a 3-year period. The overall goal may be met using race- and gender-neutral means or, if necessary, using race- and gender-conscious means (49 CFR §§ 26.45; 26.51). Setting an overall goal is a two-step process. As Step 1, the airport must develop a base figure for DBE participation based on the availability of DBEs in its own market area (§ 26.45(c)). This base figure may be derived from one or more sources such as: • DBE directories and data from the Bureau of the Census. • Bidders lists. • The goal of another recipient of U.S. DOT funds in the same market or a substantially similar market. • Data from a disparity study. • Other demonstrable evidence of local market conditions.

Federal Disadvantaged Business Enterprise Programs 7 In Step 2, the airport may adjust the base figure to account for factors that affect DBE avail- ability (§ 26.45(d)). Such factors include but are not limited to: • The current capacity of DBEs to perform work in the airport’s DOT-assisted contracting pro- gram, as measured by the volume of work DBEs have performed in recent years. • Evidence from disparity studies conducted anywhere within the airport’s jurisdiction, to the extent that this has not already been accounted for in the base figure. • Evidence (if available) from related fields that affect the opportunities for DBEs to form, grow, and compete. In establishing an overall goal, the airport must consult with stakeholders, including minor- ity, women’s and general contractor groups, community organizations, and others that can be expected to have information concerning the availability of disadvantaged and non-disadvantaged businesses, and the effects of discrimination on opportunities for DBEs. An airport’s proposed overall goal must also be published for public comment (§ 26.45(g)). An airport’s proposed implementation of the DBE Program, including the detailed calculation of its overall DBE participation goal and projections of program measures designed to meet it, must be submitted to U.S. DOT (through FAA) for approval for each 3-year period (§ 26.45(f)). After setting an overall DBE participation goal, an airport must design and implement a pro- gram that can meet it. An airport must meet the maximum feasible portion of its overall goal through race- and gender-neutral measures (§ 26.51(a)-(b)). Practice Tip: Examples of neutral measures are set forth in 49 CFR § 26.51(b). If an airport can meet its overall DBE participation goal through neutral means, it cannot implement race- or gender-conscious program measures (measures specifically designed to increase the participation of minority- or woman-owned DBEs, such as race-specific contract- ing goals). If an airport projects that it cannot meet its overall goal solely through neutral means, however, the DBE Program authorizes the use of race- and gender-conscious measures. If an airport decides that race- or gender-conscious measures are needed, it must analyze which racial, ethnic, or gender groups are eligible for those measures. Although race- and gender-conscious measures generally may not be targeted at specific groups, U.S. DOT pro- vides for a waiver if an airport determines that it does not need to include certain groups in those measures (§§ 26.51(e)(4); 26.15). Practice Tip: If an airport’s DBE program uses race- and/or gender-conscious measures, it must comply with specific constitutional standards (discussed in the Constitutional Parameters section of this Guidebook). Airports must also be flexible in using race- and gender-conscious measures: If DBE participa- tion exceeds an overall goal in any year, the airport must adjust race- or gender-conscious mea- sures, and if it falls short, the airport must modify its neutral measures to meet the overall goal (§ 26.51(f)). DBE quotas are prohibited, and contracts may be set aside for DBEs only in extreme circumstances (§ 26.43). Airports must also take corrective measures if an overconcentration of DBEs in one area unduly burdens non-DBEs (§ 26.33).

8 A Guidebook for Increasing Diverse and Small Business Participation in Airport Business Opportunities An airport’s overall goal is aspirational: The airport is not penalized for failing to meet its goal, but must make “good faith” efforts to do so (49 CFR § 26.47(a)). If a goal is not met, however, the airport must analyze why it did not meet the goal and establish specific steps and milestones to address the deficiency (§ 26.47(c)). Practice Tip: U.S. DOT provides “good faith” procedures in 49 CFR § 26.53 and related guidance in Appendix A of Part 26. Section 26.55 describes how airports count DBE participation to meet overall goals. 2.3.4 Compliance and Enforcement An airport is not eligible to receive grant funds unless (1) FAA has approved its DBE Program Plan (DBE Plan) and (2) the airport is in compliance with its DBE Plan (49 CFR § 26.21(c)). The DBE Plan must state the internal policies and processes established for compliance, monitoring, and enforcement (§ 26.37). Airports must annually report DBE participation achievements to FAA (§ 26.11(b)). Failure to comply with any of the regula- tory requirements of the DBE Program may subject an airport to formal enforcement actions or sanctions by U.S. DOT, including the withholding, suspension, or termination of federal funds (§ 26.101(a)). 2.4 49 CFR Part 23—ACDBE Program Part 23 constitutes the U.S. DOT’s requirements for implementation of the ACDBE Program by airport grant recipients. Part 23 requires airports to develop, implement, and enforce a pro- gram for concession businesses that meet the goals of the ACDBE Program. 2.4.1 Program Policy Statement The ACDBE Program policy statement provision mirrors the policy statement provision in the DBE Program, requiring airports to issue and circulate a policy statement that expresses its commitment to the ACDBE Program, states its objectives, and outlines the airport’s responsibili- ties for its implementation (49 CFR § 23.23(a)). Part 23 also requires airports to meet the same non-discrimination requirements provided in Part 26 (§ 26.7) with respect to the award and performance of any concession agreement, management contract or subcontract, purchase or lease agreement, or other agreement (§ 23.9). 2.4.2 General Administrative Requirements The ACDBE Program incorporates several of the DBE Program’s administrative require- ments. For example, airports implementing the ACDBE Program must: • Designate a DBELO who is responsible for implementing all aspects of the airport’s ACDBE program, and who has direct and independent access to the airport’s executive officer (§ 23.23(a)). • Keep and maintain records about the implementation of the program, the certification of ACDBEs, and the award and performance of agreements and contracts sufficient “to enable the FAA to determine compliance with [the Program]” for a minimum of 3 years following the end of the concession agreement (49 CFR § 23.27).

Federal Disadvantaged Business Enterprise Programs 9 • Keep and maintain a directory that identifies all certified ACDBEs, that contains the firms’ addresses and phone numbers, and that lists the types of work the firms have been certified to perform as ACDBEs (§ 23.27). • Set an overall goal for ACDBE participation in FAA-assisted contracts (49 CFR § 23.25(b)). Practice Tip: Because the ACDBE Program borrows many requirements of the DBE Program, airports implementing both an ACDBE program and a DBE pro- gram may combine shared program requirements. Thus, an airport may issue one policy statement and appoint one DBELO for both of its programs (49 CFR § 23.23(b)). 2.4.3 Implementing the Plan: Goal-Setting and Program Measure Development As with the DBE Program, airports must set aspirational, 3-year overall goals for ACDBE par- ticipation in their concession opportunities (49 CFR § 23.41(c)) and design program measures to meet the goals through neutral or race- and gender-conscious measures (49 CFR § 23.25). Airports must submit goals to FAA after consultation with stakeholders (49 CFR § 23.43), and the goals must be calculated based upon ACDBE availability in the airport’s concessions market(s) (49 CFR § 23.51(b)). Practice Tip: Two overall ACDBE participation goals must be established: one for car rentals and one for concessions other than car rentals (49 CFR § 23.41[a]). The goal-setting process also must be completed separately for each of the two overall goals (49 CFR § 23.51(a)(3)). Stakeholders with whom airports must consult include, but are not limited to: • Minority and women’s business groups. • Community organizations and trade associations representing concessionaires currently located at the airport. • Existing concessionaires. • Other officials or organizations that could be expected to have information concerning the availability of disadvantaged businesses and the effects of discrimination on opportunities for ACDBEs (§ 23.43(b)). ACDBE goal-setting generally follows the same two-step process outlined in the DBE Program. Airports must first develop a base figure based on the availability of ACDBEs in its own market area (§ 23.51(c)) and then determine if any adjustments are needed (§ 23.51(d)). If an airport’s annual revenues for car rental concessions averaged over the 3 years preceding the date on which it is required to submit overall goals do not exceed $200,000, the airport is not required to submit an overall goal for car rental concessions. The same is true for concessions other than car rentals: If the annual revenues averaged over the 3 years preceding the date on which the airport would otherwise be required to submit overall goals do not exceed $200,000, the airport is not required to submit a non–car rental overall goal (§ 23.41(b)).

10 A Guidebook for Increasing Diverse and Small Business Participation in Airport Business Opportunities After setting overall ACDBE participation goals, an airport must design program measures to meet them (§ 23.25). Airports must also meet the maximum feasible portion of the overall goals using race- and gender-neutral measures (§ 23.25(d)). Such measures include, but are not limited to: • Identifying small businesses interested in participating as ACDBEs (§ 23.25(d)(1)). • Structuring concessions to encourage ACDBE participation (§ 23.25(d)(3)). • Providing technical support to ACDBEs (§ 23.25(d)(4)). • Establishing a business development program (§ 23.25(d)(7)). Practice Tip: Further examples of race- and gender-neutral ACDBE Program mea- sures can be found in 49 CFR § 23.25(d). If necessary, airports must also provide for race- and gender-conscious measures to meet the overall goals (49 CFR § 23.25(e)). If an airport’s ACDBE program uses race- and/or gender- conscious measures, it must comply with the constitutional standards discussed in the section of this guidebook on constitutional parameters. Although airports may not generally target specific groups with race- and gender-conscious measures, FAA allows for a waiver if necessary (49 CFR § 23.13(d)); however, the ACDBE pro- gram absolutely prohibits both quotas and set-asides to achieve overall goals (49 CFR § 23.61). Practice Tip: FAA concurrence with the airport’s overall goal (i.e., with the number itself) is not required. FAA may adjust the overall goal, however, or may require the airport to adjust the goal if its review suggests that the overall goal has been incorrectly calculated or that the method for calculating goals is inadequate. The adjusted overall goal is binding (49 CFR § 23.51(e)). An airport’s proposed implementation of the ACDBE Program, including the detailed calcula- tion of its overall ACDBE participation goals and the projections of program measures designed to meet it, must be submitted to FAA for approval for each 3-year period (49 CFR § 23.21). These overall goals are aspirational, and an airport will not be penalized for failing to meet its overall goals if it demonstrates good faith, explains its methodology, and establishes specific steps to enable it to meet its goal for the new fiscal year (49 CFR §23.57(b)(1)-(2)). Practice Tip: A general aviation airport that does not have scheduled commercial service is not required to have an ACDBE program but must take appropriate outreach steps to encourage available ACDBEs to participate as concessionaires whenever there is a concession opportunity (49 CFR § 23.21(e)). 2.4.4 Compliance and Enforcement An airport’s eligibility for federal financial assistance is conditioned on the submission of and FAA’s approval of its ACDBE Plan (§ 23.21(b)). As with the DBE Program, an airport’s ACDBE

Federal Disadvantaged Business Enterprise Programs 11 program must establish appropriate monitoring and enforcement mechanisms to ensure con- tinuing compliance with the regulatory requirements, and to ensure that work committed to ACDBEs is actually performed by them (49 CFR § 23.29). Airports must annually report ACDBE participation to FAA (§ 23.27). Failure to comply with any of the regulatory requirements of the DBE Program may subject an airport to formal enforcement actions or sanctions, including the withholding, suspension, or termination of federal funds (49 CFR § 23.11). 2.5 Constitutional Parameters This section of the guidebook discusses the constitutionality of the Programs and provides guidance on important constitutional issues that airports must consider when planning and implementing their own local DBE and ACDBE programs, especially if they use race-conscious program measures. 2.5.1 Overview As a result of the U.S. Supreme Court’s rulings in City of Richmond v. J. A. Croson Co. , 488 U.S. 469 (1989), and Adarand Constructors, Inc., v. Peña, 515 U.S. 200 (1995), any federal program that uses race or ethnicity as a basis for making decisions is subject to “strict scrutiny,” which is the most rigorous standard of judicial review. Nevertheless, courts have consistently found the regulations contained in 49 CFR Part 26 (the DBE Program) constitutional as written. Courts have also allowed local DBE programs to use the race-conscious measures authorized by Part 26 where there was sufficient evidence of discrimination to support the use of those measures. Although courts have yet to consider the constitutionality of the regulations contained in Part 23 (the ACDBE Program), the two Programs are similar enough that judicial decisions concerning the DBE Program can provide guidance for the ACDBE Program. Both Programs also permit use of gender-conscious program measures. Although gender is typi- cally reviewed under a less rigorous “intermediate” judicial standard, gender-based programs that have been reviewed under the “strict” judicial standard have also been found constitutional (e.g., Concrete Works of Colorado, Inc. v. City and County of Denver, 321 F.3d 950, 961 (10th Cir. 2003)). 2.5.2 “Facial” Constitutionality To pass constitutional muster under the “strict scrutiny” test, federal statutes and regulations that use race or ethnicity as a basis for making decisions must be (1) supported by a “compelling interest,” and (2) “narrowly tailored” to achieve that interest. Courts first consider if the statutes or regulations meet these requirements as they are written (i.e., whether they are “facially” con- stitutional). Several important cases have established that the statutes and regulations underlying the DBE Program are facially constitutional, including the following: • Northern Contracting, Inc. v. State of Illinois, 472 F.3d 715 (7th Cir. 2007). • Western States Paving Co. Inc. v. Washington State Dep’t of Transp., 407 F.3d 983 (9th Cir. 2005). • Sherbrook Turf, Inc. v. Minnesota Dep’t of Transp., 345 F.3d 964 (8th Cir. 2003). • Adarand Constructors, Inc. v. Slater (Adarand VII), 228 F.3d 1147 (10th Cir. 2000). 2.5.3 “As Applied” Constitutionality Once a federal statute or regulation has been held facially constitutional, courts next con- sider whether it is constitutional “as applied.” Thus, in the context of the implementation of a

12 A Guidebook for Increasing Diverse and Small Business Participation in Airport Business Opportunities DBE program, courts would analyze whether a state program using race-conscious measures is supported by a “compelling interest” and whether the program has been “narrowly tailored” to achieve that interest. A state’s DBE program does not need to independently show a compelling interest. Congress’ compelling nationwide interest in preventing discrimination can be used to justify implementation of the DBE Program. Thus, typically the important factor in analyzing the constitutionality of a state’s program is whether it is narrowly tailored. To make this decision, courts examine whether the state’s program demonstrates a sufficient evidentiary basis for using race-conscious program measures. Generally, a state’s program has a sufficient evidentiary basis when it relies on detailed, independent studies. This is why U.S. DOT recommends the use of objective evidence, such as disparity studies, which can establish a significant statistical basis for the use of race-conscious program measures. Anecdotal evidence of discrimination generally is not sufficient by itself, but a state’s program can rely on anecdotal evidence to complement statistical evidence. Examples of anecdotal evi- dence would include specific instances in which minority-owned DBEs were: • Denied contracts despite being the low bidder. • Wrongfully considered unqualified. • Refused work after being awarded contracts. • Excluded by “good-old-boy” networks. • Otherwise harassed to discourage contract participation. Court cases that address the use of anecdotal evidence of discrimination include Associated General Contractors of America, San Diego Chapter, Inc. v. Caltrans, 713 F.3d 1187 (9th Cir. 2013), in which the court held that Caltrans’ substantial statistical and anecdotal evidence provided a strong basis in evidence of discrimination and that the program was narrowly tailored, and Associ- ated General Contractors Inc. v. Coalition for Economic Equity, 950 F.2d 1405, 1315 (9th Cir. 1991). In the case of subcontractors, anecdotal evidence of discrimination includes instances in which minority-owned DBEs were: • Replaced with majority subcontractors after being listed on proposals. • Denied subcontracts despite being the low bidder. • Cancelled from projects after contract award. • Paid late to discourage participation. • Wrongfully berated for work within industry standards. Pertinent court cases include Coral Const. Co v. King County, 941 F.2d 910, 917–18 (9th Cir. 1991) and Associated General Contractors of California, Inc. v. City and County of San Francisco, 748 F. Supp. 1443, 1452 (N.D. Cal. 1990). Practice Tip: State programs are not required to provide anecdotal evidence of discrimination. Statistical evidence alone can justify race-conscious measures. 2.6 Integrating Local Efforts and Policies with Federal Requirements Although Part 23 and Part 26 generally prohibit favoritism toward local businesses in the award of federally funded contracts, these same regulations expressly allow grant recipients to harmonize state and local requirements with their DBE Plan and ACDBE Plan, subject to certain

Federal Disadvantaged Business Enterprise Programs 13 legal limitations. This section of the guidebook aims to provide airports with the tools necessary to integrate their local policies with the Programs and answers the compelling question, How can airports adopt and implement policies that include local businesses and concessionaires while complying with the Programs? 2.6.1 Preemption: Legal Overview “Preemption” is a doctrine based on the Supremacy Clause of the U.S. Constitution that holds that certain matters are of such a national character that federal laws preempt or take precedence over state or local laws. Federal law will therefore preempt state and local laws in three instances: (1) when the federal law contains an express preemption provision; (2) when a state or local law is in actual conflict with federal law; or (3) where there is no clear conflict, but Congress intended the federal law to occupy the field (U.S. Const. Art. VI, cl. 2; Crosby v. National Foreign Trade Council, 530 U.S. 363, 372–73 (2000); Aeroground v. City and County of San Francisco, 170 F. Supp. 2d 950, 954 (N.D. Cal. 2001)). Although the Programs are federal laws, they do not preempt state or local law. The Programs’ enabling legislation clearly states that the Airport and Airway Improvement Act does not preempt “a [s]tate or local law, regulation, or policy enacted by the governing body of an airport owner or operator . . . or the authority of a [s]tate or local government or airport owner or operator to adopt or enforce a law, regulation, or policy related to disadvantaged business enterprises” (49 U.S.C. § 47107(e)(5)(a)-(b)). Part 23 makes this explicit for the ACDBE Program, stating, “nothing in this part preempts any [s]tate or local law, regulation, or policy enacted by the governing body of a recipient, or the authority of any [s]tate or local government or recipient to adopt or enforce any law, regulation, or policy relating to ACDBEs” (49 CFR § 23.77; see also 70 Fed. Reg. 14496, 14507 (Mar. 5, 2005)). Unlike Part 23, Part 26 does not discuss preemption so there is no analogue to Section 23.77 for airports implementing DBE programs. Because both the Programs derive their authority from the same enabling legislation, however, the DBE Program—like the ACDBE Program—will preempt state or local law only if the state or local law actually conflicts with the federal law and regulations. 2.6.2 Local Preferences One area where there is an actual conflict between the Programs and local authority is local geographic preference. Both the Programs contain provisions that, in most cases, directly con- flict with local policies that give preference to DBEs or ACDBEs located within a particular geographic area. 2.6.2.1 ACDBE Program and Local Geographic Preferences Part 23 prohibits a grant recipient from using any local geographic preferences in its pro- gram measures (49 CFR § 23.79). The regulation defines a local geographic preference as “any requirement that gives an ACDBE located in one place (e.g., your local area) an advantage over an ACDBE from other places in obtaining business as, or with, a concession” at an airport (§ 23.79). Thus, local policies granting local geographic preferences conflict with Part 23 and would be preempted. 2.6.2.2 DBE Program and Local Geographic Preferences 49 CFR Part 18 (Part 18) sets forth the administrative requirements for grants made by the U.S. DOT to state and local governments. In certain areas, including procurement, states are to

14 A Guidebook for Increasing Diverse and Small Business Participation in Airport Business Opportunities “expend and account for grant funds according to their own laws and procedures” (53 Fed. Reg. 8034-01 (Mar. 11, 1998); see also 49 CFR § 18.36(a)). However, grant recipients may not use “stat- utorily or administratively imposed in-[s]tate or local geographical preferences in the evaluation of bids or proposals, except in those cases where applicable [f]ederal statutes expressly mandate or encourage geographic preference” (§ 18.36(c)(2)). Thus, local policies granting state or local geographical preferences in the evaluation of grant bids or proposals conflict with Part 18 and would be preempted. Practice Tip: Certain services, such as architectural and engineering services, are exempted from this general prohibition on local preferences (49 CFR § 18.36(c)(2)). As discussed in this chapter’s section on grant assurances, the grant assurance process applies the regulatory provisions to an airport’s ACDBE program. Thus, with the exception of architectural and engineering services, a geographic preference would conflict with Part 26 and be preempted. 2.6.2.3 Issues to Consider When Integrating Local Policies Airports that want to adopt and implement policies that include local businesses and conces- sionaires while complying with the Programs have several issues to consider: • Part 23 provides guidance to airports that wish to apply state or local laws, regulations, or policies that differ from the requirements of the ACDBE Program. – The airport must provide a copy of the state or local law, regulation, or policy to FAA when submitting its implementation of the ACDBE Program. (§ 23.77(b)–(d); see also 70 Fed. Reg. 14496, 14507 (Mar. 5, 2005)). – FAA will determine whether the law, regulation, or policy conflicts with the ACDBE Pro- gram (§ 23.77(b)). – FAA will not approve an ACDBE Plan if it contains provisions that are inconsistent with Part 23 (§ 23.77(d)). – If FAA determines that the law, regulation, or policy is not in conflict with the ACDBE Program, the airport must write and administer the state or local law, regulation, or policy separately from its implementation of the ACDBE Program (§ 23.77(c)). Thus, there must be “a separate program document for [the state or local laws, regulations or policies], and the [f]ederal and state/local additional programs, respectively, must be administered in a clearly distinct manner” (70 Fed. Reg. 14496, 14507 (Mar. 5, 2005)). U.S. DOT has expressed concern that “additional or more stringent local or state requirements that go beyond the provisions of Part 23 could implicate the federal ACDBE Program in matters of questionable constitutionality” (70 Fed. Reg. 14496, 14507 (Mar. 5, 2005)). Practice Tip: When applying state or local requirements to its implementation of the ACDBE Program, an airport should remain cognizant of the constitutional limitations discussed in the section of this guidebook that addresses constitutional parameters. • Part 26 does not specifically address preemption, or how an airport should integrate a state or local law, regulation, or policy into its implementation of the federal DBE Program. None- theless, given that both the DBE Program and the ACDBE Program are authorized under the

Federal Disadvantaged Business Enterprise Programs 15 same enabling legislation—which specifically states that the Programs do not preempt state or local law—it would be prudent for an airport establishing a DBE program to follow the same procedures as those set forth in Part 23 (§ 23.77(a)-(d)) for ACDBE programs and to submit to FAA for approval, as part of its DBE Plan, the state or local laws that it would like to apply. • When implementing either of the Programs, airports should keep in mind the general pre- emption framework of Parts 26 and 23, and take care not to implement local policies that are in actual conflict with the federal provisions. Subsequent chapters of this guidebook expand on the framework introduced in this chapter and explore creative techniques airports are employing to ensure the participation of locally based small businesses in airport concessions and AIP-funded contracts. Policies and programs to promote and retain local firms can be successfully designed and implemented notwithstand- ing the federal regulatory prohibition against granting a local geographic preference in the award of AIP-funded contracts and concessions.

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TRB’s Airport Cooperative Research Program (ACRP) Report 126: A Guidebook for Increasing Diverse and Small Business Participation in Airport Business Opportunities is a compilation of industry best practices and other measures airports can use to attract and enhance participation in their contract opportunities.

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