State Department of Transportation Small Business Programs (2013)

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3 chapter one INTRODUCTION This chapter presents the purpose of the report; background information; identifies the issues to be addressed based on the study scope; outlines the survey and interview process, with details presented in appendices; highlights problems and high profile issues to be covered in specific chapters; and describes the organization of the report. Topics to be covered include those listed here. BACKGROUND Effective January 28, 2011, U.S.DOT revised Part 26, which, among other things, required state departments of transportation (DOTs) to develop a small business element to their Disadvantaged Business Enterprise (DBE) programs as a means of maximizing race-neutral DBE participation. The small business element was to be a strategy to facilitate opportunities for small businesses, including DBEs, to par- ticipate in federally assisted contracts. Although this new requirement does not require state DOTs to create an actual “Small Business Program,” many transportation agencies across the country have and or are developing such programs as one way of complying with this requirement. Some methods used by transportation agencies in response to this requirement are new procurement procedures that include unbundling large contracts, creating small business set asides on smaller projects (i.e., only small businesses can bid on contracts under certain dollar amounts), and letting contracts with items that must be subcontracted. Addition- ally, state and local governments as recipients of local and state transportation funding have policies to promote small business participation in their procurement and contracting processes. In most cases, the state and local government small business program is not sufficient or is too restrictive to be accepted by U.S.DOT. This synthesis attempted to review all existing state DOT transportation-related small business programs. However, most programs reviewed apply only to recipients of FHWA funds; whereas, the small business elements applies to all U.S.DOT modes. Many state DOTs have or are developing small business programs to comply with the recent revisions to the federal regulations that require DBE program plans to include a small business element that will facilitate participation on federally assisted contracts for all small businesses, includ- ing DBEs. However, other than the U.S.DOT guidance (pro- vided in Appendix B), there is little information available to assist states with compliance. This study provides state DOTs with a reference document/resource of existing DOT small business programs. Again, it should be underscored that not all programs included in this report have received U.S.DOT approval or are compatible with 49 CFR 26.39. On January 28, 2011, U.S.DOT issued revisions to 49 Code of Federal Regulations (CFR) Part 26 regarding the inclusion of a small business element in state DOT’s DBE program. State DOTs were required to submit this element for approval to the U.S.DOT operating administration by February 28, 2012. The regulation provided the following strategies as suggestions to fulfill the small business element: 1. Establishing a race-neutral small business set-aside for prime contracts under a stated amount (e.g., $1 million). 2. In multi-year design-build contracts or other large con- tracts (e.g., for “megaprojects”) requiring bidders on the prime contract to specify elements of the contract or specific subcontracts that are of a size that small businesses, including DBEs, can reasonably perform. 3. On prime contracts not having DBE contract goals, requiring the prime contractor to provide subcontracting opportunities of a size that small businesses, includ- ing DBEs, can reasonably perform, rather than self- performing all the work involved. 4. Identifying alternative acquisition strategies and struc- turing procurements to facilitate the ability of consortia or joint ventures consisting of small businesses, includ- ing DBEs, to compete for and perform prime contracts. 5. Ensuring that a reasonable number of prime contracts are of a size that small businesses, including DBEs, can reasonably perform to meet the portion of your overall projected to be met through race-neutral measures. 6. Actively implementing program elements to foster small business participation. Doing so is a requirement of good faith implementation of your DBE program. On December 11, 2011, the U.S.DOT provided guid- ance on implementation of §26.39 Fostering Small Busi- ness Participation. The complete guidance can be found in Appendix B.

4 STUDY APPROACH This Synthesis project gathered relevant information through a literature review, survey of state DBE program managers, and individual interviews with DBE program managers. LITERATURE REVIEW The study consisted of a comprehensive search and review of information related to each state DOT’s DBE and small business programs. A majority of this data was collected from online sources including state DOT websites. If avail- able online the most recent version of the state’s DBE plan was reviewed. In many cases, the version obtained was dated prior to the required update for inclusion of small business program elements. Also included was a review of any recent disparity studies referenced by the state DBE program liai- son or representative. In addition, legal documents such as state resolutions and executive orders, as well as any legal proceedings related to the states’ small business programs, were included. To supplement this information and construct program summaries for various states with mature small business pro- grams DBE program liaisons were asked to submit, along with survey responses, any relevant supporting materials related to their programs. Also, all available online presen- tations and marketing materials relating to the state’s DBE and small business program were reviewed. Recognizing that information obtained from the Internet might be inac- curate or out of date, all state DOTs included in the program summaries were sent a copy of the review related to their state and asked to verify or update the information. Four of nine states that provided supporting materials responded to this request. Historical context was also established by reviewing past TRB research reports and U.S.DOT guidelines, including NCHRP Synthesis 416: Implementing Race-Neutral Mea- sures in State Disadvantaged Business Enterprise Programs. The information acquired focused on existing practices of small business programs regardless of funding source and programs that use the following methods that are explicitly mentioned in the Part 26.39 regulatory guidelines (Fostering Small Business Participation): • Structuring contracting requirements to facilitate com- petition by small business concerns (SBCs). • Unbundling of contract requirements to facilitate small business participation in procurements as prime con- tractors or subcontractors. • Establishing a race-neutral small business set-aside for prime contracts under a stated amount (e.g., $1 million). • In multi-year design-build contracts or other large con- tracts (e.g., for megaprojects) requiring bidders on the prime contract to specify elements of the contract or specific subcontracts that are of a size that small busi- nesses, including DBEs, can reasonably perform. • On prime contracts not having DBE contract goals, requir- ing the prime contractor to provide subcontracting oppor- tunities of a size that small businesses, including DBEs, can reasonably perform, rather than self-performing all the work involved. • Identifying alternative acquisition strategies and structur- ing procurements to facilitate the ability of consortia or joint ventures consisting of small businesses, including DBEs, to compete for and perform prime contracts. • Ensuring that a reasonable number of prime contracts are of a size that small businesses, including DBEs, can reasonably perform. • Other activities fostering small business participation. Additional information gathered included the following: • The number of states that have existing small business programs for state-funded contracts. • The cost of the program, including staffing requirements. • How state DOTs define their small business program. • Whether the definition matches the federal definition of a small business program. • If and how state DOTs verify small business. • State regulatory and/or legal impediments to the imple- mentation of a small business program in compliance with 49 CFR 26.39. • State DOT range of contract sizes over the last five years (construction and consultant). • Who decides the size of the contract and how it is decided. • What dictates the size of the projects. • How many states have existing locally funded sup- portive services to help small businesses compete on contracts. SURVEY OF STATE DEPARTMENT OF TRANSPORTATION DISADVANTAGED BUSINESS ENTERPRISE PROGRAM LIAISONS AND MANAGERS A web-based survey of state DBE program managers was conducted between March 2, 2012 and May 18, 2012. The purpose of the survey was to gather and synthesize informa- tion related to existing state DOT transportation-related small business programs and identify strategies that maximize DBE program achievements through race-neutral measures. The survey was conducted by D. Wilson Consulting Group, a policy and research firm located in Jacksonville, Florida. Contact information for DBE program liaisons represent- ing 50 states, as well as the District of Columbia, Puerto Rico, and the Virgin Islands, was obtained from the U.S.DOT Office of Small Disadvantaged Business Utilization website. An initial e-mail was delivered to the primary contact for each state or territory on March 2, 2012. A follow-up e-mail

5 was sent on March 19, 2012. This initial contact resulted in a low response rate and small sample size (19 completed sur- veys) and an additional process of telephone calls was used to contact state DOT DBE program liaisons or managers and supplement the data with quantitative and qualitative informa- tion. This finding indicated a need for regular updates to the list of DBE liaisons that can be accomplished through an annual survey or when DBE plans are submitted. Once the appropriate person was identified, the DBE program liaison either com- plied or referred the survey to the appropriate program staff. Follow-up telephone calls were made to all 34 states or territories that had not responded, and state DOT DBE pro- gram liaisons and alternate contacts were called an average of five times over a six-week period in an effort to reach the appropriate representative, encourage participation in the survey, and gather responses. All phone contacts were given the opportunity to receive an e-mail with a link to the online survey or take part in a phone interview. A total of 26 e-mails were re-sent during this period, and nine DBE program liaisons or designated staff members chose to be interviewed. Interviews were spe- cifically requested of those states that had a known small business program. Phone conversations were documented and entered into the online survey instrument with additional notes captured separately, if needed. A total of 44 states and territories (out of 53) responded to the survey, a response rate of 83%. Survey results were analyzed using an approach that incorporated both quantitative and qualitative analysis: • Quantitative analysis: The survey responses were tal- lied and the resulting data were analyzed to determine the current state of DBE and small business practice for state DOTs, strategies that respondents found most and least effective, and challenges faced by DBE program liaisons in implementing small business elements. • Qualitative analysis: State DOT’s responses to open- ended questions were analyzed to identify patterns in the way states described their small business programs and challenges and impediments to implementing small business elements in fostering race-neutral participa- tion. Respondents’ comments were evaluated individu- ally by question and integrated into the survey report. Comments gathered during telephone interviews were also analyzed and added to the report. Supplemental documentation pertaining to each state’s DBE and small business programs was requested as part of the survey and interview process. Documents were submit- ted by 13 states and reviewed as part of the overall analysis. A copy of the e-mail invitation to state DBE program liai- sons can be found in Appendix C. The follow-up reminder e-mail can be found in Appendix D. A copy of the survey ques- tions is in Appendix E and a summary of survey responses in Appendix F. A copy of the contact call list spreadsheet is provided in Appendix G. APPROVED STATE DEPARTMENT OF TRANSPORTATION SMALL BUSINESS ELEMENTS As of June, 2013, all but two states’ programs had been approved.