State Department of Transportation Small Business Programs (2013)

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33 chapter six CONCLUSIONS The following is a summary of key findings and conclusions including: • Current and evolving state of practice. • Effective practices inferred from review and lessons learned: what has worked, what has not, in each case, and why? • Influences and constraints on small business programs: for example, applicable state law, procurement practices. DEPARTMENT OF TRANSPORTATION SMALL BUSINESS PROGRAMS A total of 14 states plus the District of Columbia had estab- lished some form of a small business program prior to the Part 26 requirement for the inclusion of a small business ele- ment. More than half have had these programs in place for longer than 5 years, with several dating back to the early 1990s. Over the years, these states have piloted a variety of strategies to help foster race-neutral small business participa- tion in DOT transportation-related contracts. Although sev- eral practices have been broadly successful, it appears that the effectiveness of individual methods varies by state. This may be the result of differences in the implementation or the overall contracting environment. The other state departments of transportation (DOTs), as well as Puerto Rico and the Virgin Islands, are currently seeking guidance on how to best comply with the new regu- lations. Many states have sought advice from other agencies with existing small business programs to develop a revised Disadvantaged Business Enterprise (DBE) program plan. In general, many have relied solely on direction from U.S.DOT, as well as a review of current DBE programs to recommend small business elements that would be applicable to their state. Because these states were waiting for approval of their revised plans or were within the acceptable nine-month period for implementation, they were not able to comment on specific small business strategies that may increase race- neutral participation. A few states, including Florida, New Hampshire, and Ver- mont, have been successful at achieving DBE goals using primarily race-neutral means. Florida has had a 100% race- neutral program in operation since 2000, and has utilized vari- ous strategies such as small business set-aside projects with good success. As more states adopt these types of practices in their new programs, the overall utilization of DBE firms on transportation projects through race-neutral means should gradually increase. EFFECTIVE PRACTICES The following is a list of effective practices summarized from the quantitative and qualitative analysis that was conducted on the write-in comments and telephone interviews. Outreach and One-on-One Networking As reported by state participants, by far the most effective strategy listed by survey respondents for fostering increased small business participation is through outreach and one-on- one networking. This has worked for narrowly tailored DBE programs as well as 100% race-neutral and separate small business programs. As a representative from Georgia stated, “definitely, outreach has been our best method.” For various states this includes a combination of public communication, media, and direct connections with prime contractors and the small business community. The types of successful outreach strategies that were cited included: • Events such as business fairs hosted by the Small Busi- ness Administration, regional small business develop- ment centers, procurement technical assistance centers, and other state and municipal agencies. • Co-sponsored private industry events that target specific topics such as a local financial institution pro- viding presentations on how to obtain a loan or secure bonding. • Business development conferences focused on helping small businesses learn how to brand and market their services to prime contractors and other DBE firms for teaming opportunities. • Meet and greet with prime contractors that provides an overview of how to work with the company, identi- fies upcoming opportunities, and allows small business owners to “speed date,” make personal introductions, and present their capabilities. • Training symposiums that provide a variety of differ- ent training tracks on topics relevant to small business, including how to become certified. Having an on-site

34 notary at these events allows attendees to submit and complete their applications immediately. • Establishing DOT liaison officers in outlying regions so that coverage and assistance is available to small busi- nesses statewide rather than concentrated at the head- quarters location. • Mandatory pre-bid meetings that include the prime contractor and estimator to provide small business sub- contractors with the opportunity to meet and network directly with potential bidders. • Multimedia communication using electronic newslet- ters, e-mail campaigns, videos, and social media such as Facebook, LinkedIn, and Twitter, as well as distrib- uting bid opening information and upcoming project alerts through small business organization websites and other DBE-targeted newsletters. • Training or informational webinars on relevant small business topics to enable better outreach to rural and outlying areas of the state. Supportive Services A majority of states provide supportive services to DBE firms through federally provided funding. Some states have expanded these services to all small businesses leveraging state, local, and private partnership funds. These services are viewed as a key ingredient in preparing DBE firms for DOT contract opportunities and helping them perform suc- cessfully as a prime or subcontractor. One of the most effec- tive means of delivering these services is by using outside consultants with a broad knowledge of small business issues and specialized expertise in transportation contracting. The following is a list of the most commonly used and top-rated supportive services. • One-on-one consulting: Leveraging outside consul- tants or in-house resources to work with DBE firms and other small businesses to increase their knowledge and business acumen. This includes working with firms personally to overcome individual challenges such as payment issues, subcontracting issues, bidding advice, and other relevant education as they arise. • Workshops and training: On business topics such as financials, taxes, bidding, bonding, business planning, marketing, and business development. Mock contract- ing workshops are also a successful method of helping subcontractors learn the ropes and understand state- specific specifications, regulations, and processes. • Technical assistance: Focused on getting small busi- nesses up to speed on technology, including online com- petitive bid research, finding opportunities, electronic bidding, and networking. • Mentor-Protégé Program: Matching prime contrac- tors and consultants with small businesses that can partner as subcontractors in a project environment. This extends the traditional educational and support model beyond basic mentoring to assisting with project implementation. Small Project Procurements Many states have found that structuring projects and pro- curement requirements at a size that is manageable for a small business increases participation. Larger prime con- tractors are not as likely to compete for these projects and smaller firms are able to meet state-mandated bonding and insurance requirements. This practice requires internal team coordination between the departments that identify and let projects (e.g., engineering and contracts), as well as the staff dedicated to implementing the DBE program. The challenge is often controlling rising administrative costs that are inherent when managing multiple smaller proj- ects. Strategic assignment of smaller projects and unbundling can be successful when small business prime contractors are educated on competitive bidding and are able to control proj- ect costs; passing on the savings to the DOT, which negates additional administrative costs. Restricted Projects When permitted by state law, implementing a program to set-aside projects of less than $500,000 for bidding by small businesses can be a very effective strategy for obtaining race- neutral participation. States that have piloted these programs found that the project size needs to be small enough for a small business to meet requirements such as bonding. Although some states have a limit of up to $1 million, they have dis- covered that a project of that size is often difficult for a small business to bid and perform. Therefore, identifying smaller projects in a line of work (e.g., National American Industry Classification System) where there is a fair amount of small business availability is critical to a successful outcome. It is also important to have the internal cooperation of let- ting departments to identify set-aside projects early in the forecasting cycle. This provides DBE firms with ample notice and opportunity to structure teams and obtain the required bonding, insurance, and other specifications typical of DOT contracts. Colorado is currently restricting construction and consultant projects and has already identified a minimum of seven projects in its planning process for FY 2013. Waiving Requirements Because it is often difficult for small businesses to meet state DOT contracting requirements, especially for larger projects, many states have waived certain requirements for small businesses. For example, one state DOT representative reported that the most important change that they have made to increase small business participation was to eliminate retainage on all projects. This “put money into the pockets of

35 primes and subs in a timely manner allowing them to better manage cash flow.” Several states have also encouraged prime contractors to waive bonding for subcontractors, and states have pro- vided assistance to small businesses in obtaining bonding. Often the issue with bonding is qualifying the small business. Therefore, offering funding support does not help as much as reducing or completely eliminating bonding requirements. One state DOT has implemented this practice by not requir- ing bonding for jobs in its Small Business Element pro- gram. Additionally, they waive the general contractor license requirement for small businesses. Electronic Access Increasingly, state DOTs are adopting technology to stream- line and improve outreach, bidding, and contracting practices. Most states provide a significant amount of information to small businesses on their state website. Some states have taken this a step farther and created online areas for prime and subcontractor identification and networking. One state DOT representative noted that its web-based initiatives such as the Contractor Information Table, the prime-sub opt-in site, and the free central hub for downloading project plans have been the most successful in increasing small business participation. Several states are also moving toward 100% electronic bidding, which has reduced the administrative cost of pro- curement for both the agency and bidders. The challenge has been educating small businesses on the systems and encourag- ing them to sign up for accounts. Two state DOTs mentioned that they have provided a limited number of free accounts for DBE firms and small businesses in order to utilize their state online bidding systems. However, both are finding that small businesses are not readily taking advantage of this incentive. One state DOT reported that during a pilot program it estab- lished 100 free accounts; however, only 17 DBE firms regis- tered. They are now in the process of conducting additional outreach and education to improve the adoption rate. Prime Contractor Incentives States with a race-conscious DBE program have found that setting goals generally increases the utilization of minority and woman-owned firms. Race-neutral measures that include encouraging prime contractors to use small business subcon- tractors even when there is not an established goal has also been successful. As a state DOT representative noted “hav- ing DBE participation goals has helped improve the mindset of primes using small businesses as subcontractors.” Some states have gone beyond verbal encouragement and have piloted practices that “put teeth” into their small business programs. For example, one state DOT is in the process of implementing a financial pay-out incentive for prime con- tractors on low-bid projects that meet a small business par- ticipation target percentage on certain projects. The reward amount is between 0.5% and 1% of the total contract value. For consultant contracts that are awarded based on scoring a Statement of Interest, points are allocated to prime consul- tants that commit to meeting the target percentage. Projects are then monitored to ensure that the prime is complying with the commitment. Compliance is enforced using a contractor “grade” that affects future bidding. INFLUENCES AND CHALLENGES Several state DOTs are limited by state statutes in the pro- curement strategies they can legally utilize to increase small business participation. For example, some states mentioned that they are not able to limit contracting opportunities based on business size, as there is not authority in the state’s public contracting code to do so or there is a proposition that pre- vents giving preference in contracting. In most cases, state DOTs are not prohibited by the state legislation from implementing a small business program. Only four states have state legislative action requirements and this is primarily because their small business programs were initially being authorized by state legislation with sup- porting state funds. Other states structured their small busi- ness elements to follow state statutes so they can implement the DBE plan without legislative approval. Because many states are in the process of developing and implementing race-neutral small business elements, they are still trying to navigate the legislative waters. States that have an existing small business program have often encountered fundamental issues in applying program regulations to fed- erally funded projects. A representative from one state DOT “does have an existing state SBE program and there were some fundamental issues in terms of designating a separate federal SBE program.” In addition to federal and state law impediments, state DOTs outlined several challenges they are currently facing or antic- ipate encountering with regard to implementing small busi- ness program elements. The primary factor is an inadequate budget and staff resources to cover the additional outreach, education, monitoring, and reporting that is required. With unstable and unknown funding sources year to year, the pro- cess of budgeting for the DBE program is difficult. Without additional state or private funds to support a separate small business program, states will be required to stretch already reduced federal funds to implement additional program ele- ments. In addition, most states facing internal challenges with their DBE program are concerned that those same challenges will adversely impact their small business element. Coordination with other agencies, as well as garner- ing internal and external support, has also been challeng- ing for several states. The political environment surrounding a government agency has a direct bearing on its ability to

36 implement new programs successfully. Many states have found that outreach and education to internal staff, as well as external stakeholders, has mitigated these impediments. Coordination among parties that have buy-in from the top down has contributed to making existing small business pro- grams successful. Outreach and education is also critical to ensuring that the public, including contractors, understand the new regu- lations and revisions made to individual state DBE plans. This will require an extra effort by each state to successfully launch their small business elements. Additional support from U.S.DOT in promoting the regulatory change is strongly encouraged, as well as providing more specific and tailored guidance to state DOTs. Ultimately, all states are prepared to implement additional race-neutral measures as required by U.S.DOT to foster DBE small business participation. Those states that already have small business programs in place have experienced proven results that justify moving toward more race-neutral strate- gies. Follow-up research that examines the success and/or failures of recently approved revisions to DBE plans would also be beneficial because there will be more states report- ing on tested strategies. One state representative noted that the information gathered as part of this study is somewhat premature because it is “not capturing the ‘approved’ work the state is agreeing to do. States have nine months after approval to put their final SBE plan together. So redoing this or a similar survey [in the] summer [of] 2013 would be an interesting comparison.”