State Department of Transportation Small Business Programs (2013)

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This project’s objectives are to (1) gather and synthesize existing state department of trans- portation (DOT) transportation-related small business programs; and (2) identify successful strategies that maximize Disadvantaged Business Enterprise (DBE) program achievements through race-neutral measures. For the purposes of this report, the definition of “race-neutral” from Title 49 Code of Federal Regulations Part 26, §26.5 (Part 26) is: “[A] Race-neutral measure or program is one that is, or can be, used to assist all small businesses. For the purposes of this part, race-neutral includes gender-neutrality.” A definition of terms for this report can be found in Appendix A. In §26.39(a) of Part 26, the regulation states: “Your DBE program must include an element to structure contracting requirements to facilitate competition by small business concerns, taking all reasonable steps to eliminate obstacles to their participation, including unnecessary and unjustified bundling of contract requirements that may preclude small business participa- tion in procurements as prime contractors or subcontractors.” The small business programs discussed in this report have not necessarily been endorsed by the U.S.DOT or evaluated for compliance with Part 26.39. The report was developed by conducting a literature review of DBE programs, a survey of state DOTs, and interviews with DBE liaisons. The survey focused on existing practices of small business programs regardless of funding sources and only on race-neutral means, which are aimed at removing barriers and enhancing opportunities for all small businesses, both DBEs and non-DBEs. The survey was conducted between March 2 and May 18, 2012, with 42 states and the District of Columbia and Puerto Rico (44 total) out of 53 states and territories or 83% completing the survey. Because of an initial low response rate, follow-up telephone calls were made to identify the appropriate contact(s). Participants were allowed to complete the survey by phone. While administering the telephone surveys, interviews were con- ducted to gather additional information regarding their programs and to request available documentation. The results of this study revealed several key findings. It was determined that 15 state DOTs had implemented separate small business programs to meet DBE goals prior to the inclusion of the small business element in the regulation. In many cases, these states use a modified definition of small business that is tailored to their geographic location and applied to state-funded highway construction projects only. For those states that have a 100% race- neutral program or are actively implementing race-neutral measures for federally funded projects, the small business definition mirrors the federal definition for a small business. It is important to note that there are variations in the definition of a small business concern, eligibility criteria, and certification processes between states because of the independent ini- tiatives undertaken by several states to support small businesses. FHWA is working with all SUMMARY STATE DEPARTMENT OF TRANSPORTATION SMALL BUSINESS PROGRAMS

2 states to create a uniform small business definition and modify existing programs as needed to help level the playing field for all small businesses. Strategies for increasing small business participation that were rated most effective by survey respondents were not always those most commonly used, because a relatively small percentage of states have actively implemented race-neutral small business elements. States that are in transition may want to pilot test various strategies to evaluate their potential for success. One such strategy—restricting small contracts for small businesses—can have a high payoff; however, it may be challenging to implement, and may require a state DOT to seek enabling legislation or approval from the U.S.DOT to utilize this strategy on federally funded projects. Survey respondents were most familiar with small business participation strategies that relate to outreach, training, and support, because a majority of states have implemented these types of practices as a part of their DBE program plan. To that end, it is evident that commu- nication, networking, and supportive services are among the most effective tools for increas- ing DBE participation. Facilitating and improving communication between DBEs and prime contractors is seen as critical in helping DBEs effectively solicit work and perform success- fully on state DOT projects. States are actively helping to build these relationships through online networking, meet and greet sessions, online contractor hubs, and proactive manage- ment of subcontractor project performance. Providing one-on-one consulting, training, and tools to help build the knowledge base and capabilities of DBE firms were also determined to be effective practices as derived from comments in the survey. This synthesis is intended to enable a broad-scope evaluation of race-neutral small busi- ness program elements. It is important to note, however, that because a majority of the state DOTs are in the process of submitting or resubmitting their DBE program plans (which include the small business element) to U.S.DOT for comment and approval, many of the plans noted in the report may not fulfill the requirements of Part 26, §26.39. Further, many of the state DOTs are not planning on implementing their plans until they receive U.S.DOT approval. Nonetheless, several effective practices were identified by state DOTs related to outreach, supportive services, and electronic access because these are the most widely used by all states for DBE program participation. However, other methods such as alternative procurement strategies, restricted projects, and prime contractor incentives have been imple- mented on a very small scale and do not provide enough generalized data to prove their effectiveness across all states. Therefore, further research is recommended to evaluate the effectiveness of small business strategies in Federal Fiscal Year 2013–2014.