Compendium of Successful Practices, Strategies, and Resources in the U.S. DOT Disadvantaged Business Enterprise Program (2019)

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10 A primary objective of this research is to develop a profile of DBEs that are successful from the perspective of state DOTs, including companies that have graduated from the federal DBE program. Definition of a Successful DBE and a Program Graduate Many of the components of this research require identification of successful DBEs as well as graduated DBEs. For example, the research team asked state DOTs for a list of successful DBEs and therefore needed to specifically communicate what constituted being successful when mak- ing the request. Neither “success” nor “graduation” are defined in the regulations governing the federal DBE program, and the term “success” is only used once, as noted in Chapter 1 of this report when discussing objectives of the DBE program. To prepare definitions of DBE success and graduation, the research team reviewed federal regulations and related background materials, examined relevant existing research, and dis- cussed the concepts with business owners. The research team presented a memorandum to the NCHRP 20-95A Project panel to obtain their comments before accepting the definitions used in this research. Appendix B provides this information. Eligibility for the Federal DBE Program The federal DBE program assists firms that are socially and economically disadvantaged. Federal regulations provide concrete measures to use when determining whether or not a firm is economically disadvantaged. Primary criteria are (1) average annual business revenue, (2) personal net worth of the business owner, and (3) the business owner’s ability to accu- mulate substantial wealth. This third criterion can include factors such as the profitability of the business and the total value of the owner’s assets. By necessity, these criteria mix the concepts of economic disadvantage for the “business” and the “business owner” (49 CFR Section 26.67). Gross Revenue To be economically disadvantaged, a firm must meet both of the following criteria related to annual revenue (or in some cases, number of employees): • Over a 3-year period, the business meets the definition of a small business as defined by U.S. SBA standards for specific subindustries (49 CFR Section 26.65(a)). As an example, the small business size standard was $15 million for engineering firms and $36.5 million for C H A P T E R 3 Profile of Successful DBEs

Profile of Successful DBEs 11 highway, street, and bridge construction companies at the time of this research. For manu- facturing and wholesale trade, the size measure is based on average number of employees. • The business has average annual revenue over 3 years that is below the ceiling set in the federal DBE program, which was $23.98 million per year at the time of the research (49 CFR Section 26.65 (b)). Appendix B describes how the SBA sets size limits under the authority of the Small Business Act, which was to encourage competitiveness of small businesses (U.S. Small Business Admin- istration 2009). Measure of Firm Profitability Mentioned in 49 CFR Part 26 Regulations in 49 CFR Section 26.67(b)(1)(ii)(A) provide a $350,000 average for adjusted gross income over 3 years as one factor that might indicate whether a business owner is no longer economically disadvantaged. Personal Net Worth and Total Assets Two measures within 49 CFR Section 26.67 pertain to the net worth and the total assets of the business owner. Graduation from the Federal DBE Program Strictly speaking, the federal DBE program does not have a graduation component. Firms are no longer eligible for DBE certification if they exceed one of the measures of economic dis- advantage. The DBE community and state DOT staff use the term “graduation” as shorthand for when a DBE grows so large in terms of revenue or personal net worth that it no longer meets the definition of economic disadvantage. A firm might also leave the program because its ownership has changed and no longer meets the criterion of 51% or greater ownership by a socially disadvantaged individual. For example, sale of a DBE to a non-DBE entity would typically result in loss of DBE certification. Working Definition of a Successful DBE When asking state DOTs and trade associations to identify successful DBEs in their states, the research team requested the names of DBEs meeting one or more of the follow- ing criteria: 1. Obtains a substantial volume of subcontracts on state DOT contracts without DBE contract goals. 2. Obtains prime contracts on state DOT contracts. 3. Participates in state DOT work and also obtains work with other public or private sector customers that do not operate a program. 4. Obtains considerably more contract dollars than other DBEs in an individual discipline. 5. Has grown, diversified the business, or is on a path to graduating. 6. Has grown to the point it is no longer DBE certified. The research team disaggregated the fifth criterion into three parts: a. On a growth path where the firm might exceed size standards for the program in the next few years; b. After certification, diversified its business and requested additional NAICS codes; and c. A firm that the state DOT is helping to prepare for when it exits the program.

12 Compendium of Successful Practices, Strategies, and Resources in the U.S. DOT Disadvantaged Business Enterprise Program Successful DBEs Identified in the Research Based on the criteria discussed above, the NCHRP Project 20-95A research team collected information about successful DBEs for 45 states including the District of Columbia. Identification of DBEs Meeting Each Success Criterion The “At least 1 DBE in state met criterion” column of Table 1 identifies the percentage of state DOTs and trade associations responding to the written survey that provided at least one company that they thought met the listed success criterion. The “Number of DBEs meeting criterion” column provides the total number of companies mentioned by state DOTs and trade associations that met that success criterion. Firms were counted only once as meeting a par- ticular criterion if more than one state DOT named them (some firms work in multiple states). Businesses identified as meeting multiple success criteria are counted in each one. Almost every state DOT (96%) identified at least one DBE that was successful in participating as a prime contractor in their contracts (124 firms identified in total as shown for Criterion #2 in Table 1). Most DOTs (90%) were also able to identify at least one DBE that obtained consider- ably more contract dollars than other DBEs in an individual discipline (239 firms, as shown for Criterion #4). The results for Criterion #1 show that a lower percentage of state DOTs were able to identify any DBEs that obtained a substantial volume of their subcontracts without the benefit of a DBE goal (63%). This might be because some states have relatively few contracts that have sub- contract opportunities where contract goals do not apply. State DOTs that identified any DBEs based on this question produced 216 individual firms, a large number compared with other definitions of success. 1. Are there DBEs that obtain a substantial volume of your state DOT subcontracts without the benefit of a DBE or MBE/WBE goal? 63 % 216 2. Are there DBEs that are often successful in participating as prime contractors on your state DOT contracts (including construction, consultant or other contracts)? 96 124 3. Are there DBEs that participate in state DOT work that you know obtain a substantial amount of revenue from their work with other public or private sector customers that do not operate a program? 67 100 4. Are there DBEs that obtain considerably more contract dollars than other DBEs in an individual discipline? 90 239 5 a. Are there any current DBEs that are on a growth path where they might exceed size standards for the program in the next few years? 75 70 5 b. Are there any DBEs that, after certification, have diversified their businesses and requested additional NAICS codes? 88 93 5 c. Are you working with any DBEs to prepare them for when they exit the program? 31 9 6. Are there any former DBEs that have experienced growth in revenue or personal net worth such that they are no longer certified? 87 101 Success criteria At least 1 DBE in state met criterion Number of DBEs meeting criterion Table 1. Identification of successful DBEs by state DOTs and trade associations.

Profile of Successful DBEs 13 Two-thirds of state DOTs identified DBEs that participated in state DOT work and obtained a substantial amount of work from public or private sector customers that did not operate programs analogous to the DBE program (Criterion #3). One hundred companies that fit this group were identified. State DOT responses to questions regarding growth and diversification were as follows: • Three-fourths of state DOTs identified DBEs that are on a growth path to possible graduation (70 companies under Criterion #5a); • Nearly 90% of state DOTs identified DBEs that had diversified their businesses and requested new NAICS codes for certification (93 businesses under Criterion #5b); and • One-third of state DOTs identified DBEs that they were preparing to graduate from the pro- gram (only nine businesses under Criterion #5c). Among state DOT respondents, 87% identified at least one DBE firm that had graduated due to exceeding the size standards for DBEs. After accounting for mentions of the same firm by multiple states, there were 101 graduating firms (see Criterion #6). When asked if those firms had permanently graduated, state DOT representatives responded that they thought most had. Some business owners had successfully appealed their decertification and returned to the pro- gram, and some graduated but then returned to the program once their revenues declined or there were other changes to their financial situation causing them to once again meet eligibility criteria. The research team further investigated how many of the 101 graduating firms were not cur- rently in any state’s DBE directory. One-third of them were currently listed as certified DBEs, which suggests that many graduations are not permanent (or that the directories had not been updated with this information). Total Number of Successful DBEs Identified Combined, state DOT and trade association respondents identified a total of 749 successful DBEs. (This total reflects the removal of duplicate mentions of firms and the removal of firms incorrectly identified as ever being DBEs.) Of those 749 firms, there was information to contact 600 in the DBE online survey. Number of Certified DBEs in the United States It is useful to place the total number of firms identified as successful DBEs in some context. Is one out of every 10 certified DBEs successful, or is it closer to one in 100? The National DBE Directory maintained by the FAA contains 41,064 firms with DBE certification in at least one state as of July 2018 (see the FAA Matchmaker System at https:// faa.dbesystem.com/). The 749 currently certified firms identified in this research constitute 1.8% of the firms in the National DBE Directory. Firms listed in the National DBE Directory became certified for many different reasons, including work on FTA- and FAA-funded contracts, and only a portion of the firms are in fields relevant to state DOT transportation contracting. As discussed later in this chapter, just 1% of DBEs in the National DBE Directory have a primary NAICS code that is highway construction (based on analysis of a sample of these DBEs). A better comparison of successful DBEs to total DBEs is to only examine those that have a highway construction NAICS code. Successful DBEs with a primary line of work in highway construction were 3% of all DBEs with that NAICS code. (Note that some firms that perform highway work have a primary code outside the highway construction NAICS code.)

14 Compendium of Successful Practices, Strategies, and Resources in the U.S. DOT Disadvantaged Business Enterprise Program Characteristics of Successful DBEs and Graduated DBEs Compared with All DBEs The research team compiled basic information about successful DBEs and a random sample of all DBEs from • Dun & Bradstreet—address, primary NAICS, sales volume, year started, number of employees); • Local DOT DBE directories—address, NAICS, gender, and race (when available); and • Additional research to identify the race and gender of a business owner, when necessary. Race, Ethnicity, and Gender Of the 749 DBEs identified as successful, 47% are owned by white women, about 17% are owned by Hispanic Americans, and 16% are owned by African Americans. Table 2 shows the number of DBEs owned by minorities, white females, and white males (“majority-owned”), with minority-owned companies disaggregated by the race and ethnicity of the business owner. Among the 101 firms identified by state DOTs as having graduated, 35% are owned by white women. Firms owned by African Americans, Hispanic Americans, Subcontinent Asian Ameri- cans, and Asian-Pacific Americans made up a large share of graduating firms relative to their representation among all successful DBEs. Native American- and majority-owned firms consti- tute lower shares of graduating firms relative to their representation among all successful DBEs. Four percent of graduated DBEs are currently majority-owned. Although prior ownership was not identified in the survey, the research team determined that some graduating DBEs sold their companies to non-minority or female owners. The research team also analyzed the race, ethnicity, and gender of companies by type of success. Table 3 shows these results. All questions measuring growth (on a growth path to gradu- ate the program, diversified or added NAICS codes, and preparing to exit the program) are combined in Column 5. The column labeled 1 in Table 3 shows the ownership of firms that state DOTs identified as obtaining a substantial volume of DOT subcontracts. Firms owned by white females make up more than half of successful DBEs identified in this question, while firms owned by African Americans make up a relatively smaller share of these firms (12%). Race/ethnicity African American 122 16.3 % 20 19.8 % Asian-Pacific American 35 4.7 7 6.9 Hispanic American 125 16.7 18 17.8 Native American 54 7.2 3 3.0 Subcontinent Asian American 44 5.9 13 12.9 MBE - unknown 5 0.7 1 1.0 White female 352 47.0 35 34.7 Majority 12 1.6 4 4.0 Total 749 100.0 % 101 100.0 % Percentage of successful DBEs Percentage of graduated firms Number of successful DBEs Number of graduated DBEs Note: Due to rounding, percentages may not sum to 100%. Table 2. Current race, ethnicity, and gender ownership of successful DBEs and graduated firms.

Profile of Successful DBEs 15 DOTs were then asked to identify successful DBEs that are successful in participating as prime contractors on state DOT projects. The race, ethnicity, and gender profile of the owners of these firms is shown in the column labeled 2. Companies owned by Hispanic Americans constitute about one-quarter of these firms. The share of successful DBEs identified in this way that are owned by white females drops to 42%. The column labeled 3 provides percentages of firms identified as obtaining a substantial amount of revenue from work with other public or private sector firms that do not operate a program. Firms owned by African Americans make up almost one-quarter of these companies. Firms owned by Native Americans constitute a relatively smaller portion (4%) of these firms. Firms identified as obtaining more contract dollars than other firms in a discipline are shown in the column labeled 4. Firms owned by African Americans make up a relatively smaller share (8%), while firms owned by white females make up a relatively larger share of these firms (58%). The column labeled 5 in Table 3 combines all DBE firms identified by DOTs for all indica- tors of being on a growth path. For this combined measure, firms owned by African Americans constitute a larger share of firms (24%) while firms owned by Asian-Pacific Americans and Sub- continent Asian Americans make up a smaller portion compared to their overall share of firms. The race, ethnicity, and gender of owners of successful DBEs differ from what might be expected given the research team’s analysis of ownership for a sample of all DBEs. As shown in Table 4, 27% of a random sample of firms certified in 17 states are owned by white females and 37% are owned by African Americans. A much larger share of successful DBEs identified in this research are owned by white females, and a much smaller share of successful DBEs are owned by African Americans. The random sample of DBEs was from only 17 states. The research team compared the distri- bution of successful DBEs from those 17 states to see if that could explain the differences in race, ethnicity, and gender ownership of DBEs seen in Table 4. Results were very similar. Primary Industry Of the successful DBEs identified by state DOTs and trade associations, nearly half are in con- struction, one-quarter are professional services firms, and the balance are in broader industry categories such as administrative and support, or transportation and warehousing. About 9% of Race/ethnicity/gender African American 11.6 % 11.3 % 23.0 % 7.9 % 24.5 % Asian-Pacific American 6.0 8.9 8.0 2.9 4.4 Hispanic American 14.8 22.6 17.0 17.6 11.3 Native American 6.9 7.3 4.0 8.8 8.8 Subcontinent Asian American 6.5 5.6 6.0 3.3 4.4 MBE - unknown 0.5 0.8 0.0 0.4 0.6 White female 52.3 41.9 40.0 58.2 44.0 Majority 1.4 1.6 2.0 0.8 1.9 Total 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 1 2 3 4 5 On any identified growth path Obtain substantial volume of DOT subcontracts Work as prime contractors Obtain substantial work with other private/public firms Obtain more contract dollars than others Note: Due to rounding, percentages may not sum to 100%. Table 3. Race, ethnicity, and gender of successful DBEs by type of success.

16 Compendium of Successful Practices, Strategies, and Resources in the U.S. DOT Disadvantaged Business Enterprise Program successful DBEs appear to be suppliers based on their two-digit NAICS codes (manufacturing, wholesale trade, or retail trade). Compared with all DBEs, successful DBEs identified by state DOTs are much more likely to be in construction, as shown in Table 5. The research team also examined successful DBEs based on four-digit NAICS codes (see Table 6). Many are in the NAICS code for highway construction (18%) or architectural, engi- neering, and related services (14%). The other subindustries that account for at least 4% of suc- cessful DBEs are the following: • Management, scientific, and technical consulting services (8%); • Other specialty trade contractors (6%); • Foundation, structure, and building exterior contractors (5%); • General freight trucking (5%); and • Residential building construction (4%). Together, the seven NAICS codes discussed above account for 60% of all successful DBEs, but there were 72 other NAICS codes for which there was at least one DBE. This is one indication of a wide distribution of types of disciplines in which DBEs are represented. Among all DBEs, only 1% have a primary industry that is highway, street, and bridge con- struction. A DBE in the highway contracting NAICS code was 20 times more likely to be identi- fied as successful by a state DOT than DBEs in other industries. This suggests that being in the right industry is a key contributor to being successful in state DOT work. Architecture, engineer- ing, or related services firms make up 11% of all DBEs, more closely matching the percentage of businesses in that subindustry for successful DBEs. Again, Table 6 shows that successful DBEs are not concentrated into one type of work. Finally, the online survey asked DBE business owners to indicate the primary specialization that their firm started in, their current primary line of work, and other types of work they per- form based on customized categories of highway-related work. Table 7 shows those results. Because firms could select multiple types of work for “All current lines of work,” the fourth column of Table 7 sums to more than 100%. For example, 4.4% of surveyed DBEs said that concrete flatwork was their primary line of work when starting out. Slightly fewer (3.7%) indicated that concrete flatwork is their current Race/ethnicity/gender African American 16.3 % 36.7 % Asian-Pacific American 4.7 5.0 Hispanic American 16.7 18.2 Native American 7.2 3.0 Subcontinent Asian American 5.9 7.6 MBE - unknown 0.7 0.7 White female 47.0 26.5 Majority 1.6 2.3 Total 100.0 % 100.0 % All successful DBEs All DBEs Note: Due to rounding, percentages may not sum to 100%. Table 4. Race, ethnicity, and gender of successful DBEs and all DBEs.

Profile of Successful DBEs 17 11 Agriculture, forestry, fishing, and hunting 1.2 % 0.2 % 21 Mining, quarrying, and oil and gas extraction 0.1 0.0 22 Utilities 0.0 0.4 23 Construction 42.9 20.6 31 Manufacturing 0.0 0.1 32 Manufacturing 1.3 0.5 33 Manufacturing 3.3 1.8 42 Wholesale trade 2.9 5.0 44 Retail trade 0.8 1.5 45 Retail trade 0.3 0.5 48 Transportation and warehousing 7.2 8.3 49 Transportation and warehousing 0.0 0.1 51 Information 0.3 0.9 52 Finance and insurance 0.3 1.3 53 Real estate and rental and leasing 2.0 1.3 54 Professional, scientific, and technical services 25.8 36.5 56 Administrative and support, and waste mgmt. and remediation svcs. 9.6 12.2 61 Educational services 0.0 0.6 62 Health care and social assistance 0.5 1.4 71 Arts, entertainment, and recreation 0.3 0.4 72 Accommodation and food services 0.1 0.5 81 Other services (except public administration) 0.3 2.4 92 Public administration 0.0 0.1 99 Not available 0.8 % 3.4 % Total 100.0 100.0 NAICS description NAICS code Successful DBEs All DBEs Note: Due to rounding, percentages may not sum to 100%. Table 5. Primary industry of successful DBEs and all DBEs by two-digit NAICS code. primary line of work. However, 22% of successful DBEs reported being able to perform that type of work. No one specialization accounted for 13% or more of the original line of work for successful DBEs. Comparison of results in the “Original primary line of work” column with the “Current pri- mary line of work” column shows some change from original specialization for successful DBEs (29% of surveyed firms indicated a change). The right-most column of Table 7 shows the per- centage of successful DBEs that currently perform that type of work. In total, 86% of successful DBEs indicated more than one area of highway-related work (not shown in Table 7). The research team further examined the extent to which successful DBEs performed one to more than 10 types of work within an industry. Table 8 shows the number of types of work indicated by survey respondents. Note that if a firm indicates one type of work in each industry, that firm would count as one type of work in each industry column and three types of work in the “All industries” column. Diversification of work performed and capability to work on different sizes of contracts were strategies employed by many successful DBEs based on interviews with those companies. For

18 Compendium of Successful Practices, Strategies, and Resources in the U.S. DOT Disadvantaged Business Enterprise Program NAICS code NAICS description 1114 Greenhouse, nursery, and floriculture production 3 0 0.4 % 0.0 % 1119 Other crop farming 1 0 0.1 0.0 1129 Other animal production 0 1 0.0 0.1 1151 Support activities for crop production 4 1 0.5 0.1 1153 Support activities for forestry 1 0 0.1 0.0 2123 Nonmetallic mineral mining and quarrying 1 0 0.1 0.0 2211 Electric power generation, transmission, and distribution 0 1 0.0 0.1 2212 Natural gas distribution 0 1 0.0 0.1 2213 Water, sewage, and other systems 0 1 0.0 0.1 2361 Residential building construction 28 48 3.7 5.7 2362 Nonresidential building construction 26 27 3.5 3.2 2371 Utility system construction 13 8 1.7 0.9 2373 Highway, street, and bridge construction 134 8 17.9 0.9 2379 Other heavy and civil engineering construction 5 2 0.7 0.2 2381 Foundation, structure, and building exterior contractors 36 22 4.8 2.6 2382 Building equip. contractors 17 30 2.3 3.6 2383 Building finishing contractors 18 15 2.4 1.8 2389 Other specialty trade contractors 44 14 5.9 1.7 3119 Other food mfg. 0 1 0.0 0.1 3231 Printing and related support activities 2 3 0.3 0.4 3241 Petroleum and coal products mfg. 1 0 0.1 0.0 3261 Plastics product mfg. 2 1 0.3 0.1 3273 Cement and concrete product mfg. 5 0 0.7 0.0 3311 Iron and steel mills and ferroalloy mfg. 2 1 0.3 0.1 3315 Foundries 0 1 0.0 0.1 3321 Forging and stamping 0 1 0.0 0.1 3323 Architectural and structural metals mfg. 2 3 0.3 0.4 3327 Machine shops; turned product; and screw, nut and bolt mfg. 1 0 0.1 0.0 3329 Other fabricated metal product mfg. 2 0 0.3 0.0 3331 Agriculture, construction, and mining machinery mfg. 0 1 0.0 0.1 3339 Other general purpose machinery mfg. 0 1 0.0 0.1 3342 Communications equip. mfg. 10 0 1.3 0.0 3351 Electric lighting equip. mfg. 1 0 0.1 0.0 3359 Other electrical equip. and component mfg. 1 2 0.1 0.2 3362 Motor vehicle body and trailer mfg. 1 0 0.1 0.0 3365 Railroad rolling stock mfg. 0 1 0.0 0.1 3371 Household and institutional furniture and kitchen cabinet mfg. 0 1 0.0 0.1 3379 Other furniture related product mfg. 0 1 0.0 0.1 3391 Medical equip. and supplies mfg. 1 0 0.1 0.0 3399 Other miscellaneous mfg. 4 2 0.5 0.2 4231 Motor vehicle and motor vehicle parts and supplies merch. whol. 0 1 0.0 0.1 4232 Furniture and home furnishing merch. whol. 0 1 0.0 0.1 4233 Lumber and other construction materials merch. whol. 8 5 1.1 0.6 4234 Professional and commercial equip. and supplies merch. whol. 0 3 0.0 0.4 4235 Metal and mineral (except petroleum) merch. whol. 1 0 0.1 0.0 4236 Household appliances and electrical and electronic goods merch. whol. 1 4 0.1 0.5 4237 Hardware, and plumbing and heating equip., and supplies merch. whol. 2 2 0.3 0.2 4238 Machinery, equip., and supplies merch. whol. 5 9 0.7 1.1 4239 Miscellaneous durable goods merch. whol. 3 4 0.4 0.5 4241 Paper and paper product merch. whol. 1 2 0.1 0.2 4244 Grocery and related product merch. whol. 0 4 0.0 0.5 4246 Chemical and allied products merch. whol. 0 2 0.0 0.2 Successful DBEs All DBEs Successful DBEs All DBEs Table 6. Primary industry of successful DBEs and sample of all DBEs by four-digit NAICS code.

Profile of Successful DBEs 19 NAICS code NAICS description Successful DBEs All DBEs Successful DBEs All DBEs 4251 Wholesale electronic markets and agents and brokers 0 2 0.0 0.2 4411 Automobile dealers 1 0 0.1 0.0 4412 Other motor vehicle dealers 0 1 0.0 0.1 4413 Automotive parts, accessories, and tire stores 1 0 0.1 0.0 4421 Furniture stores 0 2 0.0 0.2 4422 Home furnishings stores 0 1 0.0 0.1 4431 Electronics and appliance stores 0 2 0.0 0.2 4441 Building material and supplies dealers 3 5 0.4 0.6 4442 Lawn and garden equip. and supplies stores 0 1 0.0 0.1 4461 Health and personal care stores 0 1 0.0 0.1 4481 Clothing stores 1 0 0.1 0.0 4511 Sporting goods, hobby, and musical instrument stores 0 1 0.0 0.1 4532 Office supplies, stationery, and gift stores 0 1 0.0 0.1 4539 Other miscellaneous store retailers 1 2 0.1 0.2 4543 Direct selling establishments 1 0 0.1 0.0 4841 General freight trucking 32 41 4.3 4.9 4842 Specialized freight trucking 15 14 2.0 1.7 4851 Urban transit systems 0 3 0.0 0.4 4853 Taxi and limousine service 1 1 0.1 0.1 4881 Support activities for air transportation 0 1 0.0 0.1 4882 Support activities for rail transportation 0 1 0.0 0.1 4884 Support activities for road transportation 1 3 0.1 0.4 4885 Freight transportation arrangement 3 4 0.4 0.5 4889 Other support activities for transportation 2 2 0.3 0.2 4921 Couriers and express delivery services 0 1 0.0 0.1 5111 Newspaper, periodical, book, and directory publishers 0 1 0.0 0.1 5179 Other telecommunications 0 4 0.0 0.5 5182 Data processing, hosting, and related services 0 3 0.0 0.4 5191 Other information services 2 0 0.3 0.0 5223 Activities related to credit intermediation 0 2 0.0 0.2 5239 Other financial investment activities 1 5 0.1 0.6 5242 Agencies, brokerages, and other insurance related activities 1 4 0.1 0.5 5312 Offices of real estate agents and brokers 1 3 0.1 0.4 5313 Activities related to real estate 0 5 0.0 0.6 5322 Consumer goods rental 9 1 1.2 0.1 5324 Commercial and industrial machinery and equip. rental and leasing 5 2 0.7 0.2 5411 Legal services 0 6 0.0 0.7 5412 Accounting, tax preparation, bookkeeping, and payroll services 1 13 0.1 1.5 5413 Architectural, engineering, and related services 105 96 14.0 11.4 5414 Specialized design services 0 9 0.0 1.1 5415 Computer systems design and related services 11 34 1.5 4.0 5416 Management, scientific, and technical consulting services 60 113 8.0 13.4 5417 Scientific research and development services 5 2 0.7 0.2 5418 Advertising, public relations, and related services 6 11 0.8 1.3 5419 Other professional, scientific, and technical services 5 24 0.7 2.8 5611 Office administrative services 10 25 1.3 3.0 5612 Facilities support services 1 3 0.1 0.4 5613 Employment services 7 13 0.9 1.5 5614 Business support services 4 13 0.5 1.5 4249 Miscellaneous nondurable goods merch. whol. 0 1 0.0 0.1 4247 Petroleum and petroleum products merch. whol. 1 2 0.1 0.2 Table 6. (Continued). (continued on next page)

20 Compendium of Successful Practices, Strategies, and Resources in the U.S. DOT Disadvantaged Business Enterprise Program example, a Hispanic American male owner of a DBE specialty contracting firm reported, “We’ve been able to take advantage of some of the opportunities that the state DOT has put out there. [They’ve] given me the ability to buy more equipment and do other types of work.” Years in Operation Table 9 shows how long successful DBEs have been in operation. There were very few success- ful DBEs that had been in business for 8 years or less at the time this research was conducted. About 84% of the DBEs identified as successful were started before 2010. Many of the DBEs that have been in business since 2010 were started in the 2000s or 1990s. Almost one in four were started prior to 1990. NAICS code NAICS description Successful DBEs All DBEs Successful DBEs All DBEs 5622 Waste treatment and disposal 2 0 0.3 0.0 5629 Remediation and other waste management services 1 3 0.1 0.4 6111 Elementary and secondary schools 0 2 0.0 0.2 6115 Technical and trade schools 0 2 0.0 0.2 6116 Other schools and instruction 0 1 0.0 0.1 6211 Offices of physicians 1 1 0.1 0.1 6212 Offices of dentists 0 2 0.0 0.2 6213 Offices of other health practitioners 0 4 0.0 0.5 6214 Outpatient Care Centers 1 0 0.1 0.0 6216 Home health care services 0 1 0.0 0.1 6219 Other ambulatory health care services 2 1 0.3 0.1 6222 Psychiatric and substance abuse hospitals 0 1 0.0 0.1 6241 Individual and family services 0 1 0.0 0.1 6243 Vocational rehabilitation services 0 1 0.0 0.1 7115 Independent artists, writers, and performers 1 1 0.1 0.1 7121 Museums, historical sites, and similar institutions 0 1 0.0 0.1 7139 Other amusement and recreation industries 1 1 0.1 0.1 7211 Traveler accommodation 0 1 0.0 0.1 7225 Restaurants and other eating places 1 3 0.1 0.4 8111 Automotive repair and maintenance 1 5 0.1 0.6 8112 Electronic and precision equip. repair and maintenance 0 3 0.0 0.4 8113 Commercial and industrial machinery and equip. 1 2 0.1 0.2 8114 Personal and household goods repair and maintenance 0 2 0.0 0.2 8121 Personal care services 0 1 0.0 0.1 8123 Drycleaning and laundry services 0 1 0.0 0.1 8129 Other personal services 0 1 0.0 0.1 8131 Religious organizations 0 1 0.0 0.1 8133 Social advocacy organizations 0 2 0.0 0.2 8139 Business, professional, labor, political, and similar organizations 0 2 0.0 0.2 9251 Admin. of housing programs, urban planning, and community dev. 0 1 0.0 0.1 9999 Not available 6 29 0.8 3.4 Total 749 844 100.0 % 100.0 % 5617 Services to buildings and dwellings 22 19 2.9 2.3 5619 Other support services 21 16 2.8 1.9 5621 Waste collection 1 1 0.1 0.1 5615 Travel arrangement and reservation services 0 1 0.0 0.1 5616 Investigation and security services 3 9 0.4 1.1 Note: Due to rounding, percentages may not sum to 100%. Table 6. (Continued).

Profile of Successful DBEs 21 Type of work performed Construction Bridge and elevated highway 1.5 % 2.2 % 15.6 % Asphalt and concrete paving 1.5 1.5 15.6 Pavement milling 0.7 1.5 10.4 Pavement surface treatment 0.0 0.0 8.1 General road construction 5.2 8.1 24.4 Building construction 1.5 0.7 9.6 Wrecking and demolition 0.7 0.7 13.3 Excavation, site prep, grading, and drainage 2.2 3.7 23.0 Drilling and foundations 1.5 1.5 7.4 Concrete pumping 0.0 0.7 0.7 Underground utilities 2.2 0.7 8.1 Electrical work 2.2 3.0 3.0 Concrete cutting 0.7 0.0 13.3 Concrete flatwork 4.4 3.7 22.2 Structural steel and rebar work 3.7 3.7 14.1 Installation of guardrails, fencing, or signs 5.2 5.9 14.8 Plumbing and HVAC 0.0 0.0 0.7 Striping and pavement marking 0.7 1.5 11.9 Painting for road or bridge projects 1.5 1.5 5.2 Landscaping and related work including erosion control 4.4 5.2 11.9 Temporary traffic control 11.9 11.1 22.2 Trucking and hauling 9.6 7.4 22.2 Equipment rental 0.0 0.0 8.1 Other 3.0 0.7 0.7 Professional Services Architecture and engineering 12.6 % 8.9 % 16.3 % Transportation planning 2.2 1.5 8.1 Construction management 0.0 0.7 18.5 Environmental consulting 3.7 3.0 8.9 Inspection and testing 3.7 5.2 14.8 Surveying and mapping 1.5 2.2 7.4 Right of way consulting 0.0 0.0 1.5 Archeology 0.0 0.0 3.7 Public information and outreach 2.2 3.0 10.4 Staffing 1.5 0.0 0.7 Other 3.7 3.7 6.7 Suppliers Asphalt, concrete, or other paving materials 2.2 % 1.5 % 7.4 % Other materials supply 2.2 5.2 43.7 Total 100.0 % 100.0 % Original primary line of work Current primary line of work All current lines of work Note: Due to rounding, percentages may not sum to 100%. Table 7. Original and current primary line of work and percentage of successful DBEs currently performing a type of work (including non-primary lines of work).

22 Compendium of Successful Practices, Strategies, and Resources in the U.S. DOT Disadvantaged Business Enterprise Program Only three of the firms identified as graduating had been established in the past 8 years (3% of all graduating firms). About one-third of the graduating firms were started prior to 1990. In contrast, 35% of the random sample of all DBEs have been started since 2010, more than double what was found for successful DBEs. Only 11% of DBEs from the random sample went into business prior to 1990. Time Period When Certified Based on the DBE online survey, about one-half of successful DBEs became certified within 2 years of when the company started. As a result, many successful DBEs have been certified since before 2010. Table 10 presents year started and year first certified as a DBE for the suc- cessful DBEs completing the online survey. About 65% of firms first became certified between 1990 and 2009. (Note that Table 10 is based on survey responses, not Dun & Bradstreet data for all successful firms.) Annual Gross Revenue The median gross revenue of a successful DBE was $2.5 million for the most recent year in Dun & Bradstreet data. For graduated firms, the median gross revenue was $7.8 million. Even revenue of $7.8 million is well within the limit needed to be categorized as a small business under SBA size standards for most industries. Interviews with state DOTs indicated that many 1 22.9 % 50.0 % 72.5 % 15.6 % 2–5 54.2 42.9 27.5 51.8 6–10 19.5 7.1 0.0 27.7 More than 10 3.4 0.0 0.0 5.0 Total 100.0 % 100.0 % 100.0 % 100.0 % Constructionwork types Number of Professional services Suppliers All industries Note: Due to rounding, percentages may not sum to 100%. Table 8. Percentage of successful DBEs performing single or multiple types of work. Decade started Before 1960 1.1 % 1.1 % 0.6 % 1960–1969 2.4 2.2 0.8 1970–1979 5.1 8.9 2.8 1980–1989 15.8 21.1 7.2 1990–1999 24.9 30.0 15.3 2000–2009 35.0 33.3 38.6 2010–2018 15.7 3.3 34.8 Total 100.0 % 100.0 % 100.0 % All successful DBEs Graduated DBEs Random sample of DBEs Note: Due to rounding, percentages may not sum to 100%. Table 9. Percentages of successful DBEs, graduated DBEs, and a random sample of DBEs by time period of establishment.

Profile of Successful DBEs 23 firms had graduated for reasons other than exceeding annual revenue limits, such as exceeding personal net worth limits or because the certifying agency determined that the owner had dem- onstrated that he or she was able to accumulate substantial wealth. As a point of comparison, Dun & Bradstreet data for the sample of all DBEs indicated median revenue of $270,000. The surveyed DBEs were asked to approximate their annual gross revenue over the past 3 years. A small share (12%) of the surveyed firms reported annual gross revenue over $15 million. More than 60% reported average annual gross revenue as $5 million or less. Table 11 provides these results. When the surveyed successful DBEs were asked if, compared with the past 3 years, they expected their revenue to be higher by 20% or more in the next 3 years, 42% said that they did expect their revenue to be higher by 20% or more. Only 10% indicated that they expected rev- enue to be lower by 20% or more (table not shown). Before 1960 0.7 % 0.0 % 1960–1969 0.7 0.0 1970–1979 4.5 0.8 1980–1989 14.9 7.7 1990–1999 35.8 30.8 2000–2009 32.1 34.6 2010–2018 11.2 26.2 Total 100.0 % 100.0 % Year startedTime period When first certified Note: Due to rounding, percentages may not sum to 100%. Table 10. Time period when successful DBEs established and first certified as DBEs. Average annual gross revenue Up to $0.5 million 11.1 % $0.6 million to $1 million 4.0 $1.1 million to $2.5 million 18.3 $2.6 million to $5 million 27.8 $5.1 million to $7.5 million 7.1 $7.6 million to $10 million 8.7 $10.1 million to $15 million 11.1 $15.1 million to $24 million 10.3 $24.1 million to $36.5 million 0.8 $36.6 million or more 0.8 Total 100.0 % Percentage Note: Due to rounding, percentages may not sum to 100%. Table 11. Average annual gross revenue for surveyed successful DBEs.

24 Compendium of Successful Practices, Strategies, and Resources in the U.S. DOT Disadvantaged Business Enterprise Program Largest Contract When asked about the size of the largest contract or subcontract the firm had received, almost one-half of successful DBEs surveyed indicated that it was between $1 million and $5 million. About one in six surveyed DBEs reported being awarded a contract over $5 million. Table 12 provides survey results. Owners of successful DBEs indicated that the size of the contracts that they bid on is often dictated by their capacity to finance and bond work of a particular size. For example, the female owner of a specialty contracting firm reported conducting work primarily as a “lower-tiered” subcontractor on state DOT contracts because her firm lacks the capacity needed to secure larger projects. Table 12 shows the largest contracts awarded. However, many successful DBEs bid on a wide range of contract sizes. For example, an owner of a specialty contracting firm indicated in an interview that her contract sizes range from $1,000 to millions of dollars and that such flexibility was important to her success. Summary of Differences Between Successful DBEs and All DBEs Beyond having higher annual revenue, which is to be expected, successful DBEs as identified by state DOTs were much more likely than the average DBE-certified company to be • A white woman-owned firm; • A construction contractor, in general; • In the highway, bridge, and street construction NAICS code, specifically; • A company that performs more than one type of work (based on four-digit NAICS codes); and • More than 8 years old (and sometimes much older). Work in the Public and Private Sectors and as a Prime Contractor or Subcontractor The research team also asked successful DBEs to identify the percentage of their total rev- enue over the past 3 years that comes from public or private sector projects; highway, road, and bridge-related work; being a prime contractor or subcontractor; and projects with a DBE or other contract goal. Less than $100,000 7.6 % $100,000 up to $500,000 14.5 $500,000 up to $1 million 13.7 $1 million up to $2 million 20.6 $2 million up to $5 million 26.7 $5 million up to $10 million 9.9 More than $10 million 6.9 Total 100.0 % PercentageSize of largest contract Note: Due to rounding, percentages may not sum to 100%. Table 12. Largest contracts awarded for surveyed successful DBEs (from survey responses).

Profile of Successful DBEs 25 Public and Private Sector Work Ninety-five percent of all successful DBEs reported that they perform work in both the public and private sectors. About 30% of firms indicated that public sector work accounts for at least 90% of their work. Most of the other firms had a more equal mix of revenue from public and private sector contracts. According to successful DBEs, one of the advantages of working in the public sector is greater certainty of being paid. A reason to diversify work between the public and private sector is “simply because when one is doing bad, the other is doing good,” according to one DBE business owner. An owner of a DBE construction-related firm indicated that the firm works in both sectors “to keep busy [and] keep something going.” Highway, Road, and Bridge-Related Work Three-quarters of the DBEs that state DOTs identified as successful reported that at least one- half of their work is related to highway, road, or bridge projects. Work as a Prime Contractor and as a Subcontractor About 80% of successful DBEs perform work as a prime contractor at least some of the time. However, prime contracts are a small share of the total revenue for a majority of successful DBEs. Fifty-four percent of successful DBEs indicated that prime contracts accounted for 10% or less of their total revenue. Only one-quarter of successful DBEs obtained more than one-half of their revenue through prime contracts. Contract sizes on highway-related projects are often very large, even for successful DBEs, which discourages them from working as a prime contractor or consultant. Business owners indicated that this was especially true for state DOT contracts. Many may not have the financing and bonding to bid as prime contractors for typically sized state DOT construction contracts, and engineering-related work may be bundled into large contracts as well. Many successful DBEs reported other barriers to competing for prime contracts with public agencies, especially at state DOTs, as discussed in Chapter 5. Work on Projects with a DBE or Other Contract Goal The research team also asked successful DBEs how much of their total work comes from projects where they meet a DBE contract goal or other type of goal. Answers varied from 0% to 100%. • For 18% of successful DBEs, work on goals contracts was 10% of their revenue; • For 34% of successful DBEs, work on goals contracts was 11% to 50% of their work; and • For 48% of successful DBEs, goals contracts accounted for more than 50% of their revenue. The answers to the questions regarding share of work from certain sectors and contract roles are highly related. For example, an Asian American female owner of a DBE specialty contracting firm reported working in the public and private sectors exclusively as a subcontractor. She said, “We are never the prime . . . which is why we depend so much on the [DBE program].” Projecting the Outcomes of Not Being Certified as a DBE The online survey included the question, “Think about if your firm had never been certified as a DBE. What of the following outcomes would you agree would likely have happened?” Results can be seen in Table 13. (The firm owner checked all the statements that he or she thought would have occurred, so Table 13 sums to more than 100%).

26 Compendium of Successful Practices, Strategies, and Resources in the U.S. DOT Disadvantaged Business Enterprise Program More than two-thirds of firm owners indicated that their firm would have lower annual revenue if they had never been certified as a DBE. More than 40% reported that their company would have lower profit margins. About 40% of firm owners said that they would still be competitive in their field, but one-third indicated that they would not be. Notably, 23% of the owners of successful DBEs reported that their companies would have failed if they had not been certified as a DBE. There were a number of questions to gauge whether DBEs would have employed different business strategies if they had never been certified as a DBE. Only 9% said they would have added more owners, and another 9% agreed that they would have successfully sold or merged their business. About 19% reported that they would do more work on non-goals contracts and less on contracts with goals. Only 10% indicated that they would do more work as a prime and less as a sub. my firm would . . .” “If my firm had never been certified as a DBE, Have higher annual revenue 1 0.8 % Have lower annual revenue 85 69.1 Have higher profit margins 1 0.8 Have lower profit margins 52 42.3 Still be competitive in given field 49 39.8 Not be competitive in given field 39 31.7 Specialize in a different field 17 13.8 Have added more owners 11 8.9 Have successfully sold or merged business 11 8.9 Have failed 28 22.8 Do more work as a prime and less as a sub 12 9.8 Do more work on non-goals contracts and less on contracts with goals 23 18.7 Don't know 17 13.8 Number of DBEs Percentage of respondents Table 13. Successful DBEs in agreement with statements of possible outcomes of never being certified as a DBE (from survey responses).