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Panoptic Enterprises' FEDERAL CONTRACTS DISPATCH

DATE: May 8, 2001

SUBJECT: Department of Transportation (DOT); Disadvantaged Business Enterprise Program

SOURCE: Federal Register, May 8, 2001, Vol. 66, No. 89, page 23208

AGENCIES: Office of the Secretary, DOT

ACTION: Proposed Rule

SYNOPSIS: DOT is proposing revisions to its Disadvantaged Business Enterprise (DBE) program in Title 49 of the Code of Federal Regulations (CFR), Part 26, Participation by Disadvantaged Business Enterprises in Department of Transportation Financial Assistance Programs. The changes would (1) establish a uniform reporting form and a uniform certification application form; (2) establish procedures to implement a Memorandum of Understanding (MOU) between DOT and the U.S. Small Business Administration (SBA) to streamline certification procedures for participation in SBA's 8(a) and Small Business Development (SDB) programs and DOT's DBE program; and (3) make other changes pertaining to personal net worth, retainage, the size standard, proof of ethnicity, confidentiality, proof of economic disadvantage, and DBE credit for trucking firms.

EDITOR'S NOTE: Guidance on the DBE program, including application procedures, is at http://osdbuweb.dot.gov/business/dbe/index.html.

DOT's DBE regulations are in Title 49 of the Code of Federal Regulations (CFR), Part 23, Participation by Disadvantaged Business Enterprise in Airport Concessions, and Part 26, Participation by Disadvantaged Business Enterprises in Department of Transportation Financial Assistance Programs. This proposed rule addresses 49 CFR Part 26.

SBA's 8(a) and SDB certification regulations are in Title 13 of the CFR, Part 124, 8(a) Business Development/Small Disadvantaged Business Status Determinations, Subpart B, Eligibility, Certification, and Protests Relating to Federal Small Disadvantaged Business Programs.

DATES: Comments on the proposed rule should be received no later than June 7, 2001.

ADDRESSES: Three copies of comments should be submitted to the Docket Clerk, Docket No. OST-2000-7639, Department of Transportation, 400 7th Street, SW., Room PL-401, Washington, DC 20590.

FOR FURTHER INFORMATION CONTACT: Laura A. Aguilar, Attorney, Office of Environmental, Civil Rights, and General Law, Department of Transportation, 400 7th Street, SW., Room 10102, Washington, DC 20590; 202-366-0365 (voice), 202-366-9170 (fax), 202-755-7687 (TDD), e-mail: laura.aguilar@ost.dot.gov.

SUPPLEMENTAL INFORMATION: On February 2, 1999, DOT revised its DBE regulations to conform to the Supreme Court's decision in Adarand Constructors, Inc. v. Pena, Secretary of Transportation, et al. In the preamble to the rule change, DOT stated that it would adopt one standard reporting form to reduce the administrative burdens for recipients who receive funds from more than one DOT administration, such as the Federal Aviation Administration, the Federal Highway Administration, and Federal Transit Administration. This proposed rule would adopt as Appendix B of 41 CFR Part 26 a "Uniform Reporting Requirements Form" that would be used for DBE's reporting to any of DOT's administrations.

On November 23, 1999, DOT and SBA entered into an MOU to develop common application procedures for DOT's DBE program and SBA's 8(a) and SDB programs because the programs share many of the same certifications requirements and apply to the same basic constituents. The form, which would become Appendix F of 41 CFR Part 26, Uniform Certification Application Form, has been coordinated with SBA so it will be suitable for use by applicants to the DBE, 8(a), or SDB programs. The proposed form would have a main section with common requirements and three additional parts for DBE, 8(a), or SDB certification. The applicant would complete the main section only once, then fill out the program specific part applicable to each program for which the applicant is applying.

The proposed changes pertaining to reciprocal certifications would require recipients of DBE program funds to recognize 8(a) and SDB certifications in place of the recipient's own application. However, an applicant that is 8(a) or SDB certified would still have to meet all of the 49 CFR Part 26 requirements, such as the DOT statutory gross receipts cap, which currently is $17,420,000. (EDITOR'S NOTE: For more on "interim reciprocal certification procedures" that DOT and SBA have using until a standard form and certification process are in place, see the May 3, 2000, FEDERAL CONTRACTS DISPATCH "Department of Transportation and Small Business Administration; Update on Reciprocal Disadvantaged Business Certifications." For more on the statutory gross receipts cap, see the August 28, 2000, FEDERAL CONTRACTS DISPATCH "Department of Transportation; Inflation Adjustment of Size Limits on Participants in the Disadvantaged Business Enterprise (DBE) Program.")

The following are several other changes being proposed to DOT's DBE program regulations:

• Applicants must not have a personal net worth that exceeds $750,000. The current regulations require that applicants document compliance by completing a two page form supported by two years of personal and business tax returns. This proposed rule would provide an option allowing applicants to submit a signed, notarized statement from a certified public accountant (CPA) attesting that the CPA has examined the applicant's personal net worth and determined that his or her personal net worth does not exceed $750,000 (see 49 CFR 26.67, What rules determine social and economic disadvantage?).
  
  
• A significant problem is delays in payment of "retainage" by prime contractors to subcontractors. Often, subcontractors finish all their work on a contract months (even years) before the end of the project on which the prime contractor is working, but the prime contractor does not pay them fully until after the recipient has paid retainage to the prime contract at the end of the entire project. The February 2, 1999, rule requires prime contractors to pay retainage to subcontractors promptly after the subcontractors satisfactorily complete their work. However, prime contractors have complained that the requirement to pay subcontractors fully before the recipient pays retainage to the prime contractor is a financial hardship on them. Therefore, DOT is proposing to require recipients to take one of three options:
  
  
  1. Eliminate retainage entirely, neither retaining funds from prime contractors nor permitting prime contractors to hold retainage from subcontractors.
     
     
  2. Not retain funds from prime contractors, but give prime contractors discretion to hold retainage from subcontractors. The recipient would require prime contractors to pay subcontractors in full after satisfactory completion of the subcontractor's work.
     
     
  3. Hold retainage from prime contractors, but make incremental inspections and approvals of the prime contractor's work at various stages of the project. The recipient would pay the prime contractor the portion of the retainage based on these approvals. The prime contractor, in turn, would be required to promptly pay all retainage owed to the subcontractor for satisfactory completion of the approved work (see 49 CFR 26.29, What prompt payment mechanisms must recipients have?).
  
  
• One of the purposes of the DBE rule is to make it possible for small firms to grow. To be able to perform prime contracts, companies often need to be larger and have more resources than they had as subcontractors, but if they grow beyond the limits of the SBA size standards applicable to their subcontracting field, then recipients may decertify them because they are no longer small businesses. While DOT has not proposed any changes to its regulations to address this concern, it is seeking comments on whether it should address this situation further in its regulations.
  
  
• Because there have been some cases of individuals attempting to fraudulently participate in the DBE program by falsely asserting to be a member of one of the groups benefiting from the presumption of social and economic disadvantage, paragraph (c) of 49 CFR 26.61, How are burdens of proof allocated in the certification process?, and paragraph (a) of 49 CFR 26.63, What rules govern group membership determinations?, would require applicants to submit signed, notarized statements that they are a member of one of the groups in 49 CFR 26.67(a).
  
  
• Because there have been many complaints from DBEs that their business information is not provided sufficient confidentiality, particularly through state Freedom of Information Act (FOIA) requests or discovery in state or federal court proceedings. Therefore, paragraph (a) of 49 CFR 26.109, What are the rules governing information, confidentiality, cooperation, and intimidation or retaliation?, would be amended to prohibit the release of any DBE confidential business information to any third party without the written consent of the firm that submitted the information "notwithstanding any provision of federal or state law..."
  
  
• Paragraph (B)(2) of Appendix E to Part 26, Individual Determinations of Social and Economic Disadvantage, requires that applications by individuals must include personal financial information for the applicant's spouse to support the claim of social and economic disadvantage. However, this is inconsistent with the personal net worth provisions in 49 CFR 26.67 for applicants who are members of a group presumed to be economically and socially disadvantaged. Therefore, DOT proposes to remove this paragraph.
  
  
• In the February 2, 1999, rule, DOT revised the regulations to count credit for the participation of DBE trucking companies only with respect to trucks that DBEs themselves owned and operated. This was intended to prevent a situation in which, for example, a DBE trucking company owned only one truck or a few trucks and leased the services of a larger number of non-DBE truckers, claiming credit for them as well. DOT made this change because it believed this practice was contrary to the general principle that DBE credit should be counted only for work that DBEs themselves perform. However, a number of people have commented that this provision works an unnecessary hardship on DBE trucking companies and is difficult for recipients to administer. As a compromise, some have suggested allowing credit for twice the number of trucks actually owned by the DBE (that is, if a DBE owned one truck, and leased another from a non-DBEs, it could get credit for both). DOT is seeking comments on whether this provision should be modified and, if so, how.

FOR FURTHER INFORMATION CONTACT: Panoptic Enterprises at 703-451-5953 or by e-mail to Panoptic@FedGovContracts.com.

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