State Department of Transportation Small Business Programs (2013)

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30 This chapter provides details on challenges related to facili- tating small business participation by state DOTs. The infor- mation is based on the surveys, interviews conducted, and the literature review. CHALLENGES The following items are the most common challenges related to facilitating small business participation: • Administrative challenges (budget constraints, staffing requirements); • External factors, such as economic conditions or rising fuel costs, material costs, etc.; and • Internal agency challenges (lack of support or attention from upper management, bureaucracy, agency reluctance to alter method of procuring contracts or to unbundle contracts planned in advance). The primary challenges faced by state DOTs in implement- ing a small business program or facilitating small business participation are budget constraints and lack of staff. As shown in Table 21, more than half of the states responding (21) believe that this is a significant to severe problem for their organization. On the other hand, internal agency challenges did not appear to be as much of a problem. More than one-third of respondents indicated that lack of support, bureaucracy, or agency reluctance to alter procure- ment methods was not a problem at all. New Hampshire and Vermont noted that they had not encountered any challenges to date. This was primarily because they have been able to achieve more than adequate small business participation through race- neutral means on their federal-aid projects. A representative from New Hampshire reported that “NH is primarily race-neutral with contracts that vary in size from $50 million dollar highway construction to small 100–200K locally administered town projects. We don’t have difficulty securing a variety of subcontracting opportunities for small business, including DBEs. NH’s race-neutral program and typi- cal contract size and scope of work provide sufficient diverse contracting opportunities for small business, including DBEs.” Because the majority of state DOTs had not yet implemented a small business program or developed targeted strategies for increasing race-neutral participation, these challenges were experienced within the DBE program itself (see Table 22). Incorporating new small business elements heightened con- cerns about budget and resources and how existing funds could be stretched even further to accommodate additional outreach, internal education, and program management. Coordination with other agencies that currently manage small business certification is a new task that many states have not yet undertaken and that will require additional resources as well. For the remaining states that provided feedback on the survey or during an interview there were several challenges that have been or are anticipated to be barriers in implement- ing a successful small business program. A summary of these challenges is presented here. BUDGET AND STAFF LIMITATIONS As mentioned previously and shown in Table 22, an inade- quate budget and insufficient staff are the primary challenges faced by state DOTs. As a representative from one state DOT succinctly said, “Budget is the big one.” This sentiment was shared in comments by more than ten other states. Typically, budgetary constraints are felt most in a state’s inability to acquire sufficient resources to manage additional program elements. Many states are already under pressure to provide adequate support for the DBE program because of a lack of staff. The following are additional comments by states that are challenged by budget and staffing constraints: • Staffing continues to be an issue. The DBE program is a one-person program, so adding requirements that will not necessarily add benefit to the department or the contrac- tor is costly. Most of our contracts are less than $5 mil- lion (84%), with 42% being less than $1 million. We just don’t have the budget to support such regulation. • We have a limited number of staff dedicated to outreach to DBEs. By adding new outreach to the SBE community and additional industry associations we will be stretched. We also do not have any additional funding for this effort. We have recommended creating a position for a Small Business Advocate who will manage outreach, monitor- ing, and applications. • We can barely provide effective services to our DBE par- ticipants with the employees we currently have. The small chapter five CHALLENGES RELATED TO FACILITATING SMALL BUSINESS PARTICIPATION

31 business program is certainly a step in the right direction; however, we have [few] resources to commit to it. • Funding and staffing are huge issues. We have one staff member for DBE program administration, DBE support- ive services and OJT [on-the-job training] supportive services, so resources are very sparse. • We do not know how we will fund expanding supportive services to all small businesses and could use guidance on that aspect. We currently only include DBE firms, but once the program is expanded to all small businesses we can’t exactly exclude them from meetings or ser- vices because it would be like [the] cousin who can’t come to dinner. COORDINATION WITH OTHER AGENCIES Another concern cited by several states was the necessity to coordinate with other state and local agencies to imple- ment a small business program. Ohio listed this as one of its primary challenges after budget and staffing constraints. In some cases, state DOTs work with “sister” agencies to man- age certifications and to maintain a directory of eligible small businesses. Even though most state DOTs have a unified certification process for the DBE program, they do not have unified certification for small businesses. This will require additional identification and coordination with other agencies to simplify the process. Additional coordination is also required to comply with state statutes and requirements of local agencies on federal-aid transportation projects. This can be an impediment because of the multiple stakeholders involved and the lack of autonomy in implementing a program for the DOT. For example, a repre- sentative from Virginia stated, “Another agency is responsible for DBE certification and the state’s small business program; it will be a challenge to collaborate with the certifying agency to verify PNW and revenues.” This coordination extends to other federal agencies as well, because the small business element of the DBE plan also applies to projects funded by FAA and FTA. State DOTs anticipate additional challenges with communication between federal agencies and educating various stakeholders and small businesses on how the program elements apply to all federal- aid projects. LACK OF GUIDANCE As evidenced in the survey and during personal interviews there appears to be a lack of specific guidance regarding how to best implement small business program elements. Several states that did not currently have a small business program reported that they felt somewhat in the dark about the strate- gies they should or could include in their DBE plan. Some state DOTs believe this lack of direction resulted in portions of their plan being rejected, which then required additional effort to rethink and revise program elements. As a represen- tative from a state DOT noted, “We would like more specific guidance from U.S.DOT on what to do with the program and how to make it effective. There were general guidelines and then all states had to figure it out for themselves.” Several states took the initiative to contact other states with existing small business programs to request advice and identify methods that have been effective. During interviews, a majority of representatives requested a copy of the research report produced from the study to obtain ideas and learn about current practices. One state DOT representative noted that, “We could use additional guidance on how to imple- ment the program. We did our own research of other states and talked with another state DOT, but they are way too big for us to compare to and another state DOT spent a lot of time talking with us but they were still trying to figure out their plan as well.” UNSTABLE FUNDING SOURCE There were also several concerns expressed about the inability to plan because of unknown federal funding levels. Most states rely primarily on U.S.DOT funding to support DBE program components. Every year, states must apply for these funds and the amount to be allocated is not known in advance, which makes budgeting difficult. Although many states are faced with eroding infrastructures and having to prioritize projects, the lack of a known funding amount for small business pro- grams is a challenge. TABLE 21 CHALLENGES WITHIN THE DBE PROGRAM Challenge Not a Problem Minor Problem Problem Significant Problem Severe Problem Don’t Know Responses Administrative challenges (budget constraints, lack of staff) 2.6% 1 17.9% 7 20.5% 8 30.8% 12 23.1% 9 5.1% 2 39 Internal agency challenges (lack of support or attention from upper management, bureaucracy, agency reluctance to alter method of procuring contracts or to unbundle contracts planned in advance) 30.8% 12 20.5% 8 17.9% 7 12.8% 5 7.7% 3 10.3% 4 39

32 PUBLIC UNDERSTANDING Because the federal regulation for inclusion of small business program elements was recently enacted, several states have been struggling with how to best educate prime contractors, DBE firms, and the public. With limited resources, there is a concern that it will be difficult to provide adequate education regarding changes to their program. A representative from one state DOT stated that “Public understanding of the new program will be most challenging.” Concerns were expressed as to how general small busi- ness participation will be included in addition to DBE par- ticipation. Most states have a DBE program that includes an overall annual race-conscious goal and project-specific DBE goals. There is concern that non-DBE firms will not have equal contracting opportunities even if a separate small business program is implemented, because there are no goals and no enforcement. One state representative noted that, “The challenge we have heard in the contracting community is how will the SB program be enforced when there is not a goal. We can encourage usage but there is no accountabil- ity. Contractors do not like that the SBE and DBE programs will be separate instead of combined with percentages of the goal set for both.” INTERNAL AND EXTERNAL SUPPORT Although a majority of states reported that internal agency challenges are not a problem, eight states (20% of respon- dents) reported that this was a significant to severe problem. For these states, the most common issue is related to garner- ing support from contracting and procurement and construc- tion and engineering departments that are responsible for determining procurement strategies and project requirements. It was noted that these teams must support the small business effort for the program to be successful. For example, these internal teams must be willing to unbundle contract require- ments or identify projects to be set aside for small business. A representative from one state DOT mentioned that this would be a potential issue because “in order for us to be able to make a small business program work, we will need to have our construction and consultant contract letting teams work together. Currently, they are separate and this will be a chal- lenge because we will need buy-in from the different groups.”