# Disadvantaged Business Enterprise and Airport Concession Disadvantaged Business Enterprise Program Implementation Modifications > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/fr%3A2024-05583 ## Record - **Collection:** Federal Register - **Document type:** Rule - **Published:** April 9, 2024 - **Citation:** 89 FR 24898 ## Text DEPARTMENT OF TRANSPORTATION Office of the Secretary 49 CFR Parts 23 and 26 [Docket No. DOT-OST-2022-0051] RIN 2105-AE98 Disadvantaged Business Enterprise and Airport Concession Disadvantaged Business Enterprise Program Implementation Modifications AGENCY: Office of the Secretary (OST), U.S. Department of Transportation (DOT or the Department). ACTION: Final rule. SUMMARY: The U.S. Department of Transportation (DOT or Department) is amending its Disadvantaged Business Enterprise (DBE) and Airport Concession Disadvantaged Business Enterprise (ACDBE) program regulations. The DBE and ACDBE programs are designed to allow small businesses owned and controlled by socially and economically disadvantaged individuals to compete fairly for DOT funded contracts let by State and local transportation agencies and in airport concession opportunities. The final rule improves program implementation in major areas, including by updating the personal net worth and program size thresholds for inflation; modernizing rules for counting of material suppliers; incorporating procedural flexibilities enacted during the coronavirus (COVID-19) pandemic; adding elements to foster greater usage of DBEs and ACDBEs with concurrent, proactive monitoring and oversight; updating certification provisions with less prescriptive rules that give certifiers flexibility when determining eligibility; revising the interstate certification process to provide for reciprocity among certifiers; and making technical corrections to commonly misinterpreted rules. DATES: This rule is effective May 9, 2024. FOR FURTHER INFORMATION CONTACT: For questions related to the final rule or general information about the DBE and ACDBE Program regulations, please contact Marc D. Pentino, Associate Director, Disadvantaged Business Enterprise Programs Division, Departmental Office of Civil Rights, Office of the Secretary, U.S. Department of Transportation, 1200 New Jersey Avenue SE, Room W78-302, Washington, DC 20590, at 202-366-6968/ marc.pentino@dot.gov or Lakwame Anyane-Yeboa, ACDBE and DBE Compliance Lead, Disadvantaged Business Enterprise Programs Division, Departmental Office of Civil Rights, Office of the Secretary, U.S. Department of Transportation, 1200 New Jersey Avenue SE, Room W78-103, Washington, DC 20590, at 202-366-9361/ Lakwame.Anyane-Yeboa@dot.gov. Questions concerning part 23 amendments should be directed to Marcus England, Office of Civil Rights, National Airport Civil Rights Policy and Compliance (ACR-4C), Federal Aviation Administration, 600 Independence Ave. SW, Washington, DC 20591, at 202-267-0487/ marcus.england@faa.gov or Nicholas Giles, Office of Civil Rights, National Airport Civil Rights Policy and Compliance (ACR-4C), Federal Aviation Administration, 600 Independence Ave. SW, Washington, DC 20591, at 202-267-0201/ nicholas.giles@faa.gov. Office hours are from 8 a.m. to 4:30 p.m., E.T., Monday through Friday, except Federal holidays. Electronic Access and Filing This document, the Notice of Proposed Rulemaking (NPRM), all comments received, and all background material may be viewed online at www.regulations.gov using the docket number listed above. Electronic retrieval help and guidelines are available on the website. It is available 24 hours each day, 365 days each year. An electronic copy of this document may also be downloaded from the Office of the Federal Register's website at www.federalregister.gov and the Government Publishing Office's website at www.GovInfo.gov. SUPPLEMENTARY INFORMATION: Table of Contents Executive Summary 49 CFR Part 26 Subpart A—General 1. Bipartisan Infrastructure Law (BIL) and Fixing America's Surface Transportation (FAST) Act (§ 26.3) 2. Definitions (§ 26.5) 3. Reporting Requirements (§ 26.11 and Appendix B) Subpart B—Administrative Requirements for DBE Programs for Federally Assisted Contracting 4. Threshold Program Requirement for FTA Recipients (§ 26.21) 5. Unified Certification Program (UCP) DBE/ACDBE Directories (§§ 26.31, 26.81(g)) 6. Monitoring Requirements (§ 26.37) Subpart C—Goals, Good Faith Efforts, and Counting 7. Prompt Payment and Retainage (§ 26.29) 8. Transit Vehicle Manufacturers (TVMs) (§ 26.49) 9. Good Faith Efforts Procedures for Contracts With DBE Goals (§ 26.53) 10. Terminations 11. DBE Supplier Credit (§ 26.55(e)) Subpart D—Certification Standards 12. General Certification Rules (§ 26.63) 13. Business Size (§§ 26.65, 23.33) 14. Personal Net Worth (PNW) Adjustment (§ 26.68) 15. Presumption of Social and Economic Disadvantage (SED) (§§ 26.5, 26.63, 26.67 16. Ownership (§ 26.69) 17. Control (§ 26.71) Subpart E—Certification Procedures 18. Technical Corrections to UCP Requirements (§ 26.81) 19. Virtual On-Site Visits (§§ 26.83(c)(1) and (h)(1)) 20, 23. Timely Processing of In-State Certification Applications (§ 26.83(k)) 21. Curative Measures (§ 26.83(m)) 22. Interstate Certification (§ 26.85) 23. Denials of Initial Requests for Certification 24. Decertification Procedures (§ 26.87) 25. Counting DBE Participation After Decertification (§ 26.87(j)) 26. Summary Suspension (§ 26.88) 27. Appeals to the Departmental Office of Civil Rights (DOCR) (§ 26.89) 28. Updates to Appendices F and G 49 CFR Part 23 Subpart A—General 29. Miscellaneous Program Elements and Conncerns 30. Aligning Part 23 With Part 26 Objectives (§ 23.1) 31. Definitions (§ 23.3) Subpart B—ACDBE Programs 32. Socially and Economically Disadvantaged Owned Financial Institutions (§ 23.23) 33. Direct Ownership, Goal Setting, and Good Faith Efforts Requirements (§ 23.25) 34. Fostering ACDBE Small Business Participation (§ 23.26) 35. Retaining and Reporting Information About ACDBE Program Implementation (§ 23.27) Subpart C—Certification and Eligibility of ACDBEs 36. Size Standards (§ 23.33) 37. Certifying Firms That Do Not Perform Work Relevant to an Airport's Concessions (§ 23.39) Subpart D—Goals, Good Faith Efforts, and Counting 38. Removing Consultation Requirement When No New Concession Opportunities Exist (§ 23.43) 39. Non-Car Rental Concession Goal Base (§ 23.47) 40. Counting ACDBE Participation After Decertification (§ 23.55) 41. Shortfall Analysis Submittal Date (§ 23.57) Subpart E—Other Provisions 42. Long-Term Exclusive Agreements (§ 23.75) 43. Local Geographic Preferences (§ 23.79) 44. Appendix A to Part 23: Uniform Report of ACDBE Participation 45. Technical Corrections 46. Duration Regulatory Analyses and Notices Executive Summary This final rule modernizes the DBE and ACDBE program rules to provide greater clarity and flexibility to DOT recipients and enhance the ability of DBEs to compete on a level playing field for DOT-assisted 1 contract opportunities. Spanning over 40 years, the DBE and ACDBE programs are small business initiatives intended to prevent discrimination, and to remedy the effects of past discrimination, in DOT-assisted contracting markets and airport concession opportunities. Since 1983, Congress has authorized the DBE program for highway and transit projects, most recently in Section 11101(e) of the Bipartisan Infrastructure Law (BIL), enacted as the Infrastructure Investment and Jobs Act (IIJA) (Pub. L. 117-58) (November 15, 2021). Congress codified the ACDBE program in 1987. (See 49 U.S.C. 47107(e)). In reauthorizing the DBE program in the BIL, Congress received and reviewed testimony and documentation from numerous sources which show that discrimination, its effects, and related barriers continue to pose significant obstacles for minority- and women-owned businesses seeking to do business in federally assisted surface transportation markets across the United States. See BIL, section 11101(e)(1). 1 DOT-assisted contract means any contract between a recipient and a contractor (at any tier) funded in whole or in part with DOT financial assistance, including letters of credit or loan guarantees, except a contract solely for the purchase of land. The current rules and the revisions contained herein leave intact the goal setting rules that have been in place over many decades. These rules, then and now, prohibit DBE contract quotas; and they do not impose any penalties for failing to meet DBE goals, unless a recipient fails to administer its program in good faith. Every court to have considered the constitutionality of the program, as implemented by these regulations, has held that these limitations and other flexibilities embedded in the DBE program—such as the ability of recipients to seek waivers of or exemptions from certain provisions, the requirement for recipients to reexamine their programs and program goals every three years, and the authority to decertify firms that do not continue to meet certification standards—ensure that DOT's DBE regulations, on their face, are narrowly tailored to achieve the compelling interest that has been identified by Congress, thus satisfying strict scrutiny. On July 21, 2022, the Department issued a notice of proposed rulemaking (NPRM) in the Federal Register (87 FR 43620) setting forth the major categories of revisions, the Department's rationale, and proposed rule text. In July and August 2022, the Department held seven virtual listening sessions to brief the public and stakeholders on the proposals and to solicit further input. Recordings of the sessions are posted on the Department's DBE web page https://www.transportation.gov/dbe-rulemaking, and a transcript of all comments received are available at Regulations.gov (DOT-OST-2022-0051). DOT extended the comment period deadline from September 19 until October 31, 2022, through a notice published in the Federal Register on September 1, 2022 (87 FR 53708). The Department received approximately 400 written comments from State departments of transportation, transit authorities, airports, DBEs, non-DBEs, representatives of various stakeholder organizations, and individuals. Many of the comments were extensive and covered numerous proposed changes. Some commenters suggested changes beyond the scope of what the Department proposed in the NPRM. We fully considered all written comments we received. Congress created the DBE and ACDBE programs by statute and has continued to reauthorize the program in successive transportation reauthorization laws. The purpose of this rulemaking is to make technical improvements to the Department's DBE and ACDBE programs, including modifications to the forms used by program and certification-related changes. While this rule has implications for program eligibility, it does not change the underlying programs and projects being carried out with DOT funds. However, the Department recognizes that certain provisions focus on discrete aspects of the DBE and ACDBE programs. Therefore, the Department finds that the various provisions of this final rule are severable and able to operate functionally if severed from each other. In the event a court were to invalidate one or more of this final rule's unique provisions, the remaining provisions should stand, thus allowing this congressionally mandated program to continue to operate. Part 26 Subpart A—General 1. Bipartisan Infrastructure Law (BIL) and Fixing America's Surface Transportation Act (FAST Act) (§ 26.3) The Department proposed adding citations to applicable surface authorization legislation. We received no comments, and the final rule adopts our proposal with minor technical corrections to the text. 2. Definitions (§ 26.5) NPRM In addition to minor technical and spelling changes, the NPRM proposed new or altered definitions of disadvantaged business enterprise, principal place of business, transit vehicle, transit vehicle dealer, transit vehicle manufacturer, and unsworn declaration. In addition, because “home state” is no longer being used as a term of art in the regulation, we are removing that definition from the current rule. Comments Disadvantaged Business Enterprise The majority of the comments addressed the proposed addition of “be engaged in transportation-related industries” to the definition of “disadvantaged business enterprise.” We proposed the addition because applicants that have no capability or interest in working on DOT-assisted contracts seek DBE certification for other, unrelated reasons, resulting in an unnecessary burden on certifiers' workloads. Ten of the 40 commenters (mostly recipients and DBEs) supported the proposed definition, though most requested clarification because they found it confusing. They stated that an absence of clarification would cause difficulty in determining which firms were in transportation-related industries and which were not, and the results could easily be inconsistent and arbitrary. Some commenters noted that many DBEs do not have specific mentions of transportation in their North American Industry Classification System (NAICS) codes. A few recipients asked how they should handle DBEs that might not be performing work in transportation-related industries. The majority of commenters who sought clarification, as well as several others who opposed the proposal altogether, opined that the limitation would constrain opportunities for small businesses, especially those in the goods and services sector or new or non-traditional types of work. One commenter cited the example of firms supporting electric vehicles or related infrastructure. Very few of the commenters who sought clarification proposed an approach that would better clarify the definition. One State DOT suggested there could be a “stop here” entry on the Uniform Certification Application, analogous to the current check entry box on which an applicant would check whether it was a for-profit firm, on which a company could affirm that it intended to work on transportation projects. Principal Place of Business All three commenters supported the proposal, though one asked for more guidance. Transit Vehicles, Manufacturers, and Dealerships For comments and the Department's response related to the definitions of transit vehicle, transit vehicle manufacturer, and transit vehicle dealership, please see the portion of the preamble below concerning TVMs. Unsworn Declaration With the exception of one State DOT, which thought DOT's proposal could enable fraud, all of the more than 20 commenters on the concept and definition of unsworn declaration, both recipients and DBEs, supported the proposal. The main reason was that it reduced the burden on both firms and certifiers. One State DOT suggested the idea be extended to information provided in on-site interviews as well as applications. One transit agency suggested having a witness sign the declaration, the use of which it thought should be limited to declarations of eligibility (DOEs) or interstate certification applications. Miscellaneous Comments Received Some commenters asked for the addition of such groups as LGBTQ individuals, disabled veterans, individuals with disabilities, and persons from North Africa and the Middle East to the definition of “socially and economically disadvantaged individual.” One commenter found the definition of “affiliation” confusing but did not suggest a clarification. As has been the case during past rulemakings, a few commenters disliked the use of the term “disadvantaged business enterprise,” finding its connotation too negative. Those commenters suggested alternatives like “historically underutilized business,” “business inclusion program,” or making the “D” in DBE stand for diverse, dynamic, or distinguished. A commenter wished to exclude “micro purchases,” as defined in Federal procurement rules, from the definition of “contract.” One commenter asked to expand the definition of “DOT-assisted contract” to include all contracts relating to any phase of a DOT-assisted project ( e.g., State or locally funded pre-construction engineering or design of a project that would ultimately gain DOT funding). DOT Response Disadvantaged Business Enterprise With respect to comments on the proviso in the definition of “disadvantaged business enterprise” that a DBE be one “engaged in transportation-related industries,” we considered two program concerns. On one hand, some Unified Certification Programs (UCPs) may have been burdened by significant numbers of applications from firms that appear not to have interest in, or the ability to work on, the DOT-assisted contracts of recipients. For example, some firms may seek certification from a UCP in order to become eligible for State and local programs in areas unrelated to transportation. We believe it is useful to limit such burdens on certifiers, which themselves have limited resources. On the other hand, it would be counterproductive to use language that could be interpreted as limiting DBE program participation given the diversity of the types of work that DOT-assisted projects entail. Thus, we exclude “engaged in transportation-related industries” from the definition of DBE. Instead, the final rule requires applicants to describe in detail in the Uniform Certification Application (UCA)—with examples wherever possible—the type(s) of work they envision performing on DOT-assisted contracts. The UCA will not be considered complete if the applicant omits this information. During the onsite visit, for example, certifiers should ask applicants to describe the nature of their work and what they seek to achieve with certification. If the applicant's response reasonably suggests to the certifier that the firm would likely not have opportunities to participate in, or has no intention of pursuing participation in, DOT-assisted contracts, the certifier should encourage the applicant to withdraw its UCA in order to avoid unnecessary expenditures of time and effort by all parties. This mechanism fulfills the intended purpose of the now-deleted “transportation-related industries” language. Unsworn Declaration Given commenters' general support of our proposal, and the likelihood that permitting unsworn declarations will reduce burdens and maintain program integrity, the final rule adopts the proposal without substantive change. Principal Place of Business We believe that the NPRM's proposed definition of “principal place of business” is clear as written, and the final rule incorporates it without change. Other Comments The Department does not have legal authority to add groups ( e.g., LGBTQ persons or disabled veterans) to the current list of groups whose members are rebuttably presumed socially and economically disadvantaged. However, persons who are not members of a presumptive group may qualify as socially and economically disadvantaged through individual determination procedures as detailed in § 26.67(d). We recognize that some commenters were uncomfortable with possibly negative connotations of the term “disadvantaged business enterprise.” We leave the program name unchanged. It is well-recognized and cited as such in the statutes authorizing the program, and changing the name of the program may lead to confusion. 3. Reporting Requirements (§ 26.11 and Appendix B) NPRM The NPRM proposed adding and changing three reporting requirements. First, the NPRM proposed adding ten new data fields to the Uniform Report of Awards, Commitments and Payments (Uniform Report) that recipients submit annually, such as work category/trade a firm performed in a contract, federally assisted contract number, and terminations (for the complete list, see 87 FR 43624 (July 21, 2022)). We believed this additional information would help the Department evaluate whether the DBE program is making progress toward the objectives stated in § 26.1 of the regulation. Recipients would submit the Uniform Report in a manner acceptable to the relevant OA, but the form itself, while on the DOT website, would no longer be printed in the regulation. The NPRM also proposed to require recipients to obtain and enter bidders list data into a centralized, searchable database that the Department would specify. The data points for this bidders list would be expanded to include race and gender information for a firm's socially and economically disadvantaged owner (SEDO) and the NAICS code applicable to each scope of work the firm proposed to perform in its bid. The NPRM asked for comment on the estimated costs for developing and maintaining such a database. The Department said that since recipients already collect most of the information that would be reported on the bidders list, reporting this data would be beneficial to the Department in evaluating program success with anticipated minimal impact on stakeholders. Third, the NPRM asked for comments on expanding the information collected through what is referred to as the MAP-21 data report. That report includes information taken from each State's UCP directory and reporting on the percentage and location of DBEs owned and controlled by women, by disadvantaged individuals who are not women, and individuals who are women and are also otherwise disadvantaged. The NPRM proposed collecting data on the following six additional items: the number and percentage of in-state and out-of-state SEDOs by gender and ethnicity; the number of applications received from in-state and out-of-state firms and the number of each found eligible or ineligible; the number of in-state and out-of-state firms decertified or summarily suspended; the number of in-state and out-of-state applications involving a request for an individual determination of social and economic disadvantage; the number of in-state and out-of-state firms certified based on such a determination; and the number of DBEs prequalified in their work type by the Department. The Department proposed creating a similar data requirement for ACDBEs. Comments This section was one of the most frequently commented upon of any subject in the NPRM, with some commenters expressing general support for the proposals, some expressing general opposition, and others delving into the details of one or more of the reports. General Comments on Proposed Reports Of the nearly 60 commenters who expressed a view (pro or con) about the Uniform Report and MAP-21 report proposals, a significant majority, predominantly recipients, opposed the proposals. Often, these comments did not distinguish closely between the MAP-21 report and the Uniform Report but talked about the NPRM's reporting requirements generally. Opponents primarily expressed that the proposals were too detailed and created unnecessary burdens and costs, particularly for local agencies and subrecipients. The required information would be difficult to collect, and create a cumbersome, time-consuming process, sometimes involving manual reporting ( e.g., concerning listing replaced firms), keeping staff from doing more substantive work. One recipient said it would have to double its staff to handle the requirements, for example. Another said that handling the proposed Uniform Report requirements would double its staff time on that work by 16 hours per year. Programs are short-staffed as it is, others said, especially for small recipients and some saw the expanded Uniform Report items as a substantial change. Certification could be slowed down. While some commenters in this category said the requested information could be helpful, they did not think that its potential use outweighed the burdens involved. One commenter questioned the use the Department would make of the additional data; something more specific than “program evaluation” in general was needed to justify new collections. Instead of making reporting requirements more complex, commenters said they should be reduced and simplified ( e.g., one contractor suggested limiting fields to firm name, disadvantaged group membership, contracts, and DBE commitment amount). Some commenters also thought that certain fields in the report were duplicative or redundant. For example, one commenter said that information about decertifications had to be reported in three different places. A few commenters thought some fields, such as those addressing decertifications and terminations, did not fit well in the Uniform Report. Another said the proposed reports generally were not relevant to ACDBEs. Rather than sending one report to the OA and another to DOCR, there should be a single, streamlined form sent to only one office at DOT. Some commenters recommended that DOT convene a recipients' group to do a feasibility study and figure out how to make the reports work efficiently prior to adopting the proposals. Commenters suggested time frames from one to five years to phase in the requirements. Other commenters suggested that the Department should also develop, test, and make available a uniform, centralized database before imposing requirements that all recipients, vendors, and subcontractors could use and delay implementation 3 to 5 years. Commenters said that such a database would allow data from different sources to merge and that the database should be made available to users through an online portal. Other commenters said DOT should provide funding for recipients to comply with the expanded requirements and provide more guidance on the reporting forms and process. Supporters of the proposals included some recipients but were predominantly DBEs. Generally, they favored obtaining the additional detailed data for program evaluation purposes. Some cited particular items they thought were useful, such as race/ethnic/gender data, explaining that those items could keep better track of the use of Black-owned firms. Some commenters suggested collection of additional data points such as dollar amount of contracts by NAICS codes, and some commenters recommended that recipients be required to maintain copies of all prime contracts and subcontracts. Bidders Lists A large majority of the over 40 comments concerning the NPRM's bidders list proposal opposed it. A few comments, all but one of which were from DBEs, supported the proposal for the reasons stated in the preamble. Some of these comments favored the idea of a centralized database for bidders list information. One asked for more data on the actual use of successful DBE bidders, to address the issue of prime contractors listing DBEs in their bid and then not using them. Most of the comments opposing the proposal were from recipients. Some of these commenters said that the existing bidders list requirements were sufficient, and that there was no need to make any changes. They asserted that the proposed changes to the Uniform and MAP-21 reports would be unduly burdensome and create an unfunded mandate. One airport trade organization member noted it would take 25 hours to complete the MAP-21 report of ACDBEs in various categories rather than the 3.2 hours estimated. Commenters said that the NPRM underestimated the costs and burdens of the proposal, particularly with recipients for small staffs. One commenter estimated that its staff would have to take an extra 20 minutes per project under the proposed system, adding up to 13 hours per month, in contrast to the eight hours forecast in the NPRM. Another said it could take weeks of staff time per year to comply. Another estimated that it would take two hours of staff time to enter information into the system for each bidder. A few commenters expressed concern that prime contractors would be disincentivized from hiring DBE subcontractors, especially if they had to input information at the time of submitting a bid or offer. They also stated that it would reduce the data available to recipients. One commenter explained that it would be better if a bidder on a prime contract could submit information within a short time after the time the bid or offer was submitted, such as five days. One recipient said it typically allows prime contractors until the end of the month in which a letting takes place to submit bidders list data. On the other hand, a comment said that bidders list items should be submitted at the time of bid or offer. Another commenter suggested that to reduce burdens on prime contractors, recipients should collect information directly from subcontractors. One commenter recommended that firms submit to the recipient the NAICS codes they have worked on in the past year. In addition to the general concern about burdens, a number of commenters focused on the centralized database that the NPRM said the Department would specify. Some thought having to communicate with such a database would be a source of administrative burdens for their staff. Others, while sympathetic to the concept of a centralized database, pointed to the fact that the Department had not yet specified the database to be used. Without such a system being in place, including a standard format, they said, the proposed changes would not work. Two commenters said that rather than creating a centralized database, DOT should make software available to allow interface with UCP directories and create reports. Another was concerned that, in the absence of an actual centralized system, recipients would develop their own electronic formats, which were likely to be incompatible with each other. Some commenters questioned the utility of bidders lists. One said that such a list is an imperfect tool to gauge DBE interest in the program, since some DBEs do not submit bids because, in their experience, prime contractors typically use the same DBE firms that they always use. Because of this, another commenter said, firms effectively drop out of the program because they are not getting any work, even if they maintain their certified status. Others said that bidders lists have proved not to be an accurate or reliable indicator of DBEs' availability or interest in seeking contracts. One commenter suggested that DBEs should not have to submit confidential or proprietary business information, another suggested that race/ethnic/gender information should be part of bidders list entries; while another indicated that some firms may decline to submit this information. Another asked if there should be an exemption to some requirements for publicly traded firms. One commenter suggested working with American Association of State Highway and Transportation Official's Civil Rights and Labor Committee on how best to handle bidders list issues. Detailed Comments on Reporting and Bidders List Contents Commenters had a wide variety of comments on details of the documents discussed in this portion of the NPRM. A commenter wanted to clarify the meaning of “awards,” “commitments, and “payments.” It said the age of a firm should be entered only for DBEs. Another suggested that termination data should be submitted as “known DBE terminations during the reporting period” to capture a lag in information reaching the recipient from contractors. One commenter suggested not using “dollar value of contract,” preferring the use of ranges ( e.g., less than $100,000 or $100,000-500,000). On the other hand, another commenter thought that the dollar value of contracts and NAICS codes involved were very important information to capture. That same commenter also thought that information on firms that have exceeded size standards was important, to see if the program was creating sustainable growth. Another commenter wanted to make sure that the reporting would include professional services, even in States that do not include professional services in their DBE goals. One commenter said it does not do prequalifications, and so did not know how to respond to that field. One commenter expressed uncertainty about how reporting could be uniform since different States have different prequalification requirements. The commenter was also unsure what “work type” meant, and how firms prequalified in some, but not all, of the areas in which they were certified could be counted. With respect to terminations and replacements of DBEs, one commenter thought reports should include the date of contract award, the date of the prime's termination notice, the reasons for the action, and the DBE's response. Another commenter agreed that the reason should be reported, adding that any resulting revisions of the recipient's overall goal should be noted. One commenter said that termination data should be reported in the semi-annual reporting timeframe, using a Google or Excel spreadsheet, and that the reporting should include the number of terminations and NAICS codes of terminated firms. Another commenter also supported using Excel spreadsheets or XML files for reporting this and other information into the reports, rather than relying on manual inputs of information. Two commenters addressed the “running tally” requirement, one saying it did not currently have a running tally provision and was unsure how to develop one. Another asked how the running tally provision differed from the “open” and “completed” reporting fields, suggesting that the information requested was duplicative. Another commenter suggested that information about DBE's that have been decertified or graduated only be included in the “open” and “completed” fields, while a different commenter suggested that, for re-entering firms, the reports include the date and basis of graduation, the date of reapplication, and the basis for re-entry. Some commenters expressed concern about what data should be submitted and by whom. One commenter said that the DBE owner's contact information and the ZIP code of the firm's principal place of business need not be reported. Another suggested that if multiple contracts were awarded to a firm during a reporting period, there should not have to be multiple entries of the firm's information. Two others said that if recipients submitted basic information ( e.g., a firm's certification number and NAICS code), the Operating Administration (OA), rather than the recipient, should enter other information about the firm. One commenter asked whether race and gender were intended to be entered for all firms or only DBEs, and how the recipient would handle situations in which a firm is certified in more than one NAICS code. Another commenter advocated expanding the information reported, adding such items as the number and percentage of in-state and out-of-state firms by race and ethnicity, looking at applications, decertifications, and prequalifications information. With respect to the bidders list, one commenter raised several questions. Would the centralized database be available at all times to recipients, as opposed to only during certain reporting periods? Would the December 1 date for submitting information apply to the bid date or the contract award date, when one was before and the other was after December 1? How would micro purchases and single bidder or sole source procurements be handled? How should a recipient handle incomplete forms submitted by bidders? Since the commenter had a race-neutral program, how would “subcontract approval” be reported? This commenter, as well as another, said that reporting a high volume of bids would be very burdensome and expensive. A few commenters said that prime contractors should have to submit most or all of the data required for the bidders list, while another said that recipients should collect bidders list information directly from bidders for subcontracts or certification process records, rather than indirectly through prime contractors. One commenter said that, with respect to engineering firms, the bidders list should include the number of such firms bidding on prime contracts or subcontracts, the number of such firms that were shortlisted or awarded, and the total number of engineering contracts with and without DBE goals. DOT Response As described in this preamble (see discussion of § 26.11 and Appendix B), the final rule adopts revisions to all three reporting requirements, including the creation of a centralized bidders list system. A recipient must provide its bidders list collection information in a standardized and centralized form. Although recipients are already obligated to gather most of this data, the rule imposes the additional step of reporting this information. However, the burden of this reporting process is expected to be minimal since recipients are already required to collect most of the information. One commenter stated that it does not collect bidder information on a per project basis. That recipient maintained that the compliance burden would be more than minimal. We respond that the current rule requires collection for all projects. The bidders list data that needs to be reported to DOT includes specific details such as the race and gender information for the owners of all firms and the NAICS code that is applicable to each scope of work proposed by the firm in its bid. To ensure usability and standardization of the bidders list data, the Department will build a comprehensive and searchable database to house this information, a feature recommended by a commenter. The final rule allows for a delay in the requirement to allow ample time for the Department to complete the development of the database and ensure its readiness before recipients are obligated to submit the necessary data. Once the database is fully operational, recipients will be able to seamlessly enter the required information with minimal additional burden. Recipients may use the information to set their overall goals. With this data, the Department will analyze the representation of DBEs within the bidding process. This assessment will enable a closer examination of the specific types of work that DBEs actively pursue and competitively bid for. Ultimately, this analysis will serve as a vital tool in monitoring the effectiveness of the rule and guiding future policy decisions. It enables the Department to make informed assessments regarding the impact of the regulations and take appropriate actions to address any identified shortcomings, thereby ensuring that DBEs can compete fairly for DOT-assisted contracts. For the Uniform Report, the Department is requiring recipients to submit names of DBEs, NAICS codes performed in a contract, federally assisted contract number(s), and the dollar value of the contract. We disagree with a commenter who stated entering this information constitutes a substantial expansion of what is collected, because these data points should already be tabulated by the recipient in order for them to properly upload the current report. We inadvertently listed prequalification in the uniform report draft rule and deleted it from the final rule. We agree with commenters' concerns regarding “work categories” and exclude the ambiguous category from the final rule. Also, after careful consideration, the Department believes that the proposed data collection on terminations would pose significant challenges for recipients. Given the complexities and challenges inherent in collecting and reporting termination data, the Department believes that it would be unreasonable to mandate recipients to undertake this task. We must strike a balance between gathering valuable information for analysis and avoiding excessive administrative burden for recipients. The Department will continue to explore alternative approaches and strategies that can provide meaningful insights into terminations without imposing disproportionate burdens on recipients. The additional uniform report information will help the Department evaluate whether the DBE program is making progress toward the objectives stated in § 26.1 of the regulation. Recipients would submit the Uniform Report Form online in a manner acceptable to the relevant OA. The Department will post a copy of the form, which is no longer posted in the regulation, to the DOT website. Finally, the Department expands the MAP-21 data report collection to cover six items mentioned in the NPRM: the number and percentage of in-state and out-of-state SEDOs by gender and ethnicity; the number of applications received from in-state and out-of-state firms and the number of each found eligible or ineligible; the number of in-state and out-of-state firms decertified or summarily suspended; the number of in-state and out-of-state applications involving a request for an individual determination of social and economic disadvantage; and the number of in-state and out-of-state firms certified based on such a determination. Decertified DBEs that exceed gross receipts and PNW caps must be reported using MAP-21 data instead of the uniform report proposed in the NPRM. Subpart B—Administrative Requirements for DBE Programs for Federally Assisted Contracting 4. Tiered Program Requirements for FTA Recipients (§ 26.21) NPRM Under the current rule, FTA recipients who will award prime contracts exceeding $250,000 (cumulatively) in a fiscal year must have a DBE program meeting all requirements of part 26. Based on changes in the consumer price index (CPI) since 1983 (the year the $250,000 value was established), the NPRM proposed to increase this value to $670,000. FTA recipients receiving planning, capital, or operating assistance who will award prime contracts (other than transit vehicle purchases) that cumulatively exceed $670,000 in a fiscal year would be required to comply with every requirement of part 26 and have a full DBE program. Recipients awarding prime contracts totaling $670,000 or less would also have to maintain a program, but compliance with only certain provisions of part 26 would be required. Specifically, these recipients would be subject to the requirements for reporting and recordkeeping, contract assurances, a policy statement, fostering small business participation, and transit vehicle procurements. The Department's records show that in most years there were about 80 FTA recipients awarding between $250,000 and $670,000 per year. The Department estimated that the change would provide cost savings for such recipients from the reduction in administrative burdens. Based on attainment data from previous years, the Department found that if there were any reductions in total program-level DBE participation, the reduction would be minimal. Comments Commenters on this issue, predominately transit operators and DBEs, were almost evenly divided. Supporters were attracted to the reduction in administrative burdens for some small transit providers. One commenter suggested raising the value further, to $750,000, while another suggested that a similar threshold should be established for airports. One supporter of the proposal asked the Department to define “significant changes” to a DBE program that would require OA approval (this provision, in proposed § 26.21(b)(2), applies to all OAs). Opponents pointed to the estimated 80 transit operators that would not have to maintain full DBE programs, saying that this would reduce opportunities for DBEs. All recipients should have DBE programs, some comments said. One commenter said a problem could arise for a recipient who had been below the threshold but then received a large grant that put it above the threshold. The recipient would have to quickly create a full program, the commenter said. Most of the commenters not in favor of the proposals or who expressed negative opinions were concerned that DBEs seeking to work with smaller recipients would not be afforded a level playing field because the DBE programs of such recipients would not be subject to as stringent oversight by FTA. These commenters were concerned that less oversight would result in these recipients taking the program less seriously. DOT Response The final rule is adopting this proposal substantively unchanged from the NPRM. The Department recognizes that the proposed regulatory text used a structure and phrasing that may not have been clear to some readers. Though commenters did not address the clarity of the drafting specifically, the comments suggested there may be some confusion as to what requirements apply to which recipients. In response to these comments, the final rule includes definitions for FTA Tier I and FTA Tier II recipients. Further, the final rule adds paragraphs to § 26.21(a)(2) to list the applicable requirements for Tier II recipients more clearly. The Department notes that under the new requirement, all FTA recipients that receive planning, capital, or operating assistance and award FTA funded contracts must have a DBE program. The Department takes seriously commenters' concerns that some affected recipients might operate their DBE programs less robustly under the new rules. The Department expects that the positive impacts of expanding DBE program requirements to almost all FTA recipients mitigates that risk. The intent of reducing administrative burdens on smaller recipients is to allow them to direct a greater share of their resources towards implementing the DBE program elements that expand opportunities for DBEs, and the Department expects that they will do so. Under the final rule, all FTA recipients with DBE programs will be subject to enhanced reporting requirements, which will allow FTA to conduct more effective oversight. As explained in the Regulatory Impact Analysis of the NPRM, if every single contract awarded annually to DBEs by the approximately 80 recipients that award between $250,001 and $670,000 annually (in prime contracts) went instead to non-DBEs, 99.7 percent of Federal funds awarded to DBEs on FTA assisted contracts would still be awarded to DBEs. In response to the comments received, FTA reviewed Uniform Report data for fiscal year 2021 to better understand the potential impact of the proposed Tier II DBE program on contract awards to DBEs. The data shows that 195 recipients reported awarding between $0 and $250,000 in that fiscal year. Of those, 159 operated completely race-neutral DBE programs. Of the remaining 36 recipients with race conscious goals, five awarded race conscious contracts to DBEs, resulting in $170,913 of cumulative awards to DBEs through the use of race-conscious means (or 0.02 percent of total dollars to DBEs that year). The Department expects that many Tier II recipients will operate entirely race-neutral programs, though they are not prohibited from employing race-conscious means as necessary. The Department does not anticipate any reduction in awards to DBEs by Tier II recipients under the new rules, especially in light of increased funds being awarded by FTA to transit agencies. Further, FTA will be conducting more oversight of recipients currently awarding $250,000 or less. FTA will remain responsible for ensuring that all FTA recipients subject to the DBE program are awarding and administering their contracts in a nondiscriminatory manner, and the reporting requirements under the new rules will provide FTA the information needed to ensure compliance. Regarding the comment that discusses the impact of receiving a large grant, as compared to the current rule the final rule would reduce the risk and mitigate the negative impact of exceeding the threshold due to a single grant. First, and as a matter of clarification, whether a recipient is tier I or II is determined by the value of contracts it awards, not the value of funds it receives from FTA. Under the current rule, since the contract value threshold is low ($250,000), there is a greater risk than under the final rule that a recipient will be required to implement all DBE program requirements after receiving a large grant. Further, since FTA Tier II recipients will be operating DBE programs, the additional administrative burden of becoming an FTA Tier I recipient is comparatively less than under the current rule, since recipients below the current threshold do not have the experience and administrative infrastructure to operate an effective DBE program. Finally, the Department expects recipients to budget and plan accordingly, and if a large grant is awarded then appropriate and commensurate resources should be devoted to compliance. Regarding the comment that suggested raising the contract value to $750,000, the Department notes that $670,000 represents an inflationary adjustment, and there is no evidence to support that $750,000 would be more effective. Regarding the comment asking the Department to define “significant changes” to program plans, the Department notes that the final rule does not change what qualifies as a significant change. 5. Unified Certification Program (UCP) DBE/ACDBE Directories (§§ 26.31 and 26.81(g)) NPRM The NPRM proposed to expand existing DBE and ACDBE directories to allow certified firms to display information about the firms' ability, availability, and capacity to perform work. The Department thought that this would provide a one-stop tool that would enable DBEs to market their services and help prime contractors seek out potential DBE subcontractors. Directories would include a standard set of options for information that firms could choose to make public, such as a capability statement, State licenses held, prequalifications, personnel and firm qualifications, bonding coverage, recently completed projects, equipment capability, and a link to the firm's website. UCPs would not have to vouch for the accuracy of the information provided. The NPRM would also eliminate the option for a hard copy directory since online availability of the information is sufficient. The NPRM said that the Department anticipated that UCPs could implement the proposed requirements by January 1, 2024, or 180 days after the final rule. However, the Department sought comment on having a phase-in period to allow necessary changes to be made. Comments This subject was among the most heavily commented upon in the NPRM, attracting over 70 comments. Of the almost 50 comments that expressed an opinion about the overall wisdom of the proposal, a majority fully or partially supported it. Many other comments addressed details of the directory process or had other ideas of how the directory process could best work. Comments from supporters said that an expanded directory would help DBEs market themselves to primes, especially if DBEs could update information in an efficient way. Such a directory would be useful to primes searching for DBEs for a contract and could help to avoid the “can't find qualified DBEs” excuse for failing to meet goals, one comment said. More detail in the directory would also save DBEs from being inundated with solicitations from primes for work in areas in which the DBEs are not interested. DBEs, several comments said, should be allowed to add data about their operations, since NAICS codes, by themselves, provide only limited information about what a firm does. Some supporters of the proposal nevertheless noted concerns about it. For example, commenters believed that the information in the expanded directories would be helpful to DBEs but acknowledged that costs and administrative burdens could be a problem, throwing the cost-effectiveness of the expanded directories into question. One asked whether there would be any DOT funds to support the expansion. Another supported the proposed expansion only if DBEs were not allowed to be certified in all 50 States under the interstate certification proposal in the NPRM. Others were concerned that, despite disclaimers to the contrary, the public would think that information about firms in the directory had been vetted for accuracy by certifiers. If certifiers were expected to verify information submitted by DBEs, another asked, how would certifiers determine the accuracy and timeliness of the information? One commenter wanted to make sure that capability information about a firm be specific; another, however, thought that information about bonding and equipment should not be included because some of this information could be proprietary and could change from project to project. Other commenters suggested that owners' race and gender information should be included or that additional information categories should be included. One commenter expressed concern that there would be large burdens on certifiers if they, rather than DBEs themselves, had to input data about the firms. It estimated that it would take 30 minutes to two hours of staff time per procurement for this process. Another commenter wanted the rule to prohibit recipients from using data from the expanded directory to judge which firms are ready, able, and willing to work. A small number of commenters suggested that the Department go beyond the proposed changes and create a centralized, nationwide database, to which DBEs could upload information and which would be user-friendly and readily searchable by such terms as State and type of work. A variation on this idea was that States' UCP directories should be merged together to avoid duplication and inconsistency. A comment said that such a directory should specify which states a firm is certified in and should be in an Excel format and include the DBE's email and the SEDO's presumptive group membership. It could also include information on a firm's ability to perform a commercially useful function (CUF). The principal objection of commenters who opposed the proposal is that it would add costs, take additional staff time, and create unnecessary administrative burdens. New software and additional staff would be needed, and staff would be unable to keep up with the workload they claimed. Two commenters said that adding too much detail about firms would be counterproductive, and making sure information was updated would be a slow and difficult process. Another said that most of the proposed fields were available in commercial software, but seldom used. Similarly, another commenter questioned the usefulness of the added fields. Commenters were concerned that there could be confusion about what a prime contractor could get credit for, based on representations in material DBEs added, since self-reported capability statements could be misleading. For this reason, one commenter said, DBEs should not be able to upload information themselves. Another said that capacity, availability, and other detailed information should not be entered, as that could lead to inaccuracy, discrimination, and lost opportunities. Two commenters suggested that it would be simpler and less burdensome to limit additional information to a link to the DBEs' websites, making additional directory fields unnecessary. There was a wide variety of other comments concerning directories and the NPRM's proposal. A commenter expressed concern that, with many firms potentially being added to a UCP's directory as the result of the interstate certification proposal, the availability numbers used for goal setting could be distorted, even though many of the newly added firms might not be available to work in projects in the State. On the other hand, another commenter was concerned that directories might undercount firms that were potentially ready, willing, and able to work in a State, affecting goals in the other direction. Some commenters were concerned about computer security and privacy. Two mentioned a concern about the privacy implications of including home addresses for businesses operated out of the SEDO's home, particularly in the context of more widespread certification under the interstate certification proposal. Some commenters thought the proposed implementation time frame for the new requirements was too short, and should be extended a year, or until software development and vendors were in place. A commenter asked that more detail about the specifics of directory format, including using a spreadsheet and having search functions based on such factors as NAICS and ZIP codes. Another commenter wanted more to ensure that the dates when details concerning such items as prequalification, licensing, or bonding would be displayed. A commenter asked that all UCP directories use a standard format. Another commenter said the Department should give a unique identifier for each DBE that would be consistent across all UCP directories. A commenter recommended that directory entries have a notation about whether a DBE firm was eligible for FAA projects but not FTA or FHWA projects, because of differences in applicable size standards. DOT Response The main purpose of the DBE directory is to show DBEs, prime contractors, and the public which firms are certified as a DBE to do the various kinds of work that take place in DOT-assisted contracts. The directory is not primarily about the resources, equipment, bonding, experience, or other qualifications of a firm to do particular sorts of work. In performing their due diligence in selecting DBE contractors, considering those factors is a task for prime contractors. We understand that it is useful for prime contractors to have such information readily at hand. One important means of making this information available to prime contractors would be for DBEs to include such information on their websites, which would then be linked to their entries in UCP directories. In the NPRM, we proposed including fields for many of these types of information in UCP directories. However, we recognize, as commenters pointed out, that mandating a large expansion of the content of directories could create additional administrative burdens for certifiers. We are also concerned about some pitfalls that we recognize about open data fields for firms to enter their own information ( e.g., accuracy, information that has not been updated, unintended exclusion of eligible firms, available information being inconsistent from one firm to another). In light of these concerns, DOT has limited the elements that must be included. They are firm name, location, NAICS code(s), and websites. The directory, which we now clarify must be an online platform, must permit the public to search and/or filter for these items in addition to the types of work a firm is seeking to perform. We will also mandate that the directory must include a prominently displayed disclaimer ( e.g., large type, bold font) that states the information within the directory is not a guarantee of the DBE's capacity and ability to perform work. Certifiers may, at their discretion, include optional additional fields in their directories, including those proposed for inclusion in the NPRM. UCPs with sufficient resources may include such fields in their electronic directories, while others may find it more feasible to simply tell firms to provide a link to their own company websites, which would include the information they wanted prime contractors to access. UCPs have the responsibility, under the final rule, to ensure that mandatory items about firms are and remain accurate. UCPs permitting permissive entry of other information about firms' capabilities should also take steps to ensure that what the firms enter is accurate and up to date, including removal of inaccurate or untimely information they learn of. But the disclaimer mentioned above must state, UCPs do not warrant the accuracy of information provided by firms, and users' reliance upon it is at their own risk. Prime contractors always need to fact-check the claims made by firms they are considering doing business with. 6. Monitoring Requirements (§ 26.37) NPRM The NPRM would make a number of changes concerning a recipient's monitoring responsibilities. Recipients must monitor race-neutral participation by DBEs as well as participation on contracts that have DBE goals. The recipient would have to verify that a DBE was performing work on a contract, the recipient would also have to verify that it was performing a commercially useful function (CUF). This dual verification would have to occur on every contract involving a DBE. The NPRM emphasized the need for recipients to keep a “running tally” of its overall DBE attainment as well as each prime contractor's payments to DBEs it is using to meet its goal, rather than waiting until the end of the contract. Comments Monitoring Proposal Most of the over 30 commenters on the NPRM supported the idea of more intensive and consistent monitoring of work in the DBE program, some saying they were already effectively doing what the NPRM proposed. Design/build contracts were one place where more monitoring was needed, a commenter said. The focus should be on actual dollars that DBEs receive, and payments should be confirmed on a regular and frequent basis, particularly to ensure compliance with prompt payment requirements. Monitoring should continue throughout the procurement process and involve all elements of the recipient's organization, not just the civil rights office. More resources for monitoring are necessary, another comment said, because often times monitoring is not happening as it should. A comment said that DOT should verify commitment and performance numbers as well as CUF matters. One comment suggested that recipients use independent, third-party monitors. Some of the comments supported the “running tally” requirement, especially the point that this applies to progress throughout the contract, and not just at the end of the project. One comment said that there should be written verification or a signed checklist concerning progress. Similarly, another said that there should be payment reconciliation on all invoices issued by DBEs. Two comments questioned how and whether the running tally provision would apply to race-neutral contracts. Two others said that for funding or software reasons, implementation of the running tally provision should be phased in as funding, or software, becomes available (which one of these comments said would take 3-5 years). Another commenter, a recipient, said that more monitoring procedures are not needed beyond what it was already doing and that the OAs should provide uniform forms for monitoring purposes. One comment asked how often monitoring would have to be done and what the effect would be on staff workload. Another asked whether “local public agencies” that are part of FHWA's local public agency program would have to follow the proposed requirements applying to principal recipients themselves. Other Enforcement Comments Several comments talked about enforcement matters generally in the DBE program, rather than the specifics of the NPRM's monitoring proposal. One detailed a complaint about the commenter's perceived failure of a major recipient to enforce the program effectively. Another asked for stricter enforcement by the Department, since the commenter did not believe recipients could be trusted. There should be stiffer sanctions for noncompliance, including debarment of contractors, and DBEs who violate the rules should be decertified, other comments said. Another suggested that the Department should set up a public list of prime contractors' performance in meeting goals and getting DBE “waivers.” A commenter said that the Department should crack down on misuse of waivers and exemptions that evaded DBE requirements. A commenter asked for greater involvement by the Office of Inspector General (OIG) and the imposition of penalties for noncompliance. On the other hand, a commenter said that audits should focus more on customer service, rather than on negative matters. DOT Response Bidders on contracts with DBE contract goals can meet their obligations in one of two ways, which are equally acceptable under the regulation. First, they can enlist sufficient DBE participation to meet the goal. Second, they can document sufficient good faith efforts to meet the goal. Either route results in compliance with the requirements of the rule. The second route is not a “waiver” of the requirements of the regulation. This is simply an alternative method of compliance, one necessary to avoid the DBE program becoming a quota-based program that would not be narrowly tailored, as is legally required. We believe that the running tally requirement is an important element of the compliance monitoring that all recipients are responsible for completing. It ensures that, throughout the course of a contract, the recipient will know whether a DBE is doing the work to which the prime contractor has committed, whether payments to DBEs are timely, and whether DBEs are performing a commercially useful function. If problems are found, then they can be corrected at a time before it becomes too late to do anything about them as a practical matter. We believe it is crucial to avoid situations where issues are revealed only when a contract is completed, and there are no available measures to achieve the meaningful DBE participation that was promised at contract award. The optimal frequency of running tally inspections of a contract is likely to vary with the length and complexity of the contract. In a relatively simple, 60-day contract involving one DBE, for example, a running tally check 30 days after the beginning of the contract might suffice. In a more complex, multi-year contract, involving several DBEs, more frequent checks focusing on the times when the DBEs would be performing their tasks would be appropriate. While there is not a one-size-fits-all interval for running tally checks, it is essential that a recipient know at all times what is going on with DBE participation on its projects. “There was a problem we didn't know about until after the fact” is not an acceptable way for a recipient to oversee a project. The Department chose to clarify that the “running tally” not only applies to monitoring contract goal attainment but also to monitoring the recipient's progress toward attaining its overall goal each year. Recipients must meet the maximum feasible portion of their overall goal by using race-neutral means (§ 26.51(a)), establishing contract goals to meet any portion of the overall goal that the recipient does not project being able to meet using race-neutral means (§ 26.51 (d)). Accordingly, recipients need a mechanism to keep a running tally of progress toward annual goal achievement that provides for a frequent comparison of current DBE awards/commitments to DOT-assisted prime contract awards to determine whether the use of contract goals is appropriate. It is also important to emphasize who provides information that goes into the running tally. The DBE program is not the exclusive province of a recipient's civil rights or business diversity office, the staff of which are often small. The DBE program is the responsibility of all parts of the recipient's program and of all personnel who work with it. On a highway construction project, for example, it is inconceivable that resident engineers, inspectors, procurement officials, and others would not be keeping track of the progress of the work, whether the work met schedules and specifications, whether the work was meeting budget projections, etc. The DBE program is an element of the contract no less than these routine matters that are regularly overseen, and needs to be given the same attention and, importantly, by the same people. The same individuals who inspect a project to see if, for example, materials meet specifications and that a project is on time and on budget can and should be trained, and required, to give the same attention to providing the information informing the recipient's running tally. It is part of their job. This is a point that the Department has emphasized over many years, and we wish to re-emphasize it here. When the Department reviews a recipient's compliance, we will be paying special attention to whether the recipient is doing what needs to be done in this respect. Subpart C—Goals, Good Faith Efforts, and Counting 7. Prompt Payment and Retainage (§ 26.29) NPRM Responding to Congressional mandates and OIG recommendations, the Department in 2016 issued guidance concerning prompt payment and retainage. The guidance emphasized that recipients had responsibility for affirmatively monitoring contractors' compliance with prompt payment and retainage requirements, rather than relying on complaints from subcontractors. However, a 2020 FHWA review of recipients' practices showed that many were not fulfilling this responsibility adequately. Therefore, the NPRM proposed a specific provision concerning mandating affirmative monitoring and an enforcement mechanism, including appropriate penalties for noncompliance. Requirements would flow down to lower-tier subcontractors as well as prime contractors. Comments DBE and recipient commenters generally supported the NPRM proposal, emphasizing the need for affirmative monitoring and stressing the need for prompt payment to avoid cash flow problems for subcontractors. Commenters who mentioned the flow-down of requirements to lower-tier contractors also supported the proposal. Several commenters asked for a clarification of the rule that would specifically authorize enforcement of State laws mandating payment to subcontractors with a shorter period of the time than the 30 days provided for in § 26.29(b). Many of these commenters and others emphasized the need for closer oversight and stricter enforcement; a few made suggestions about what this would look like. Monitoring should be conducted on a regular and frequent basis ( e.g., monthly). Other commenters suggested mandating a 10- or 15-day rather than 30-day payment period. Some commenters advocated those penalties ( e.g., 3 percent of the subcontractor's invoice, interest on late payments) be assessed against tardy contractors. Several comments proposed alternative ideas to achieve the objective of prompt payment. One was to provide an incentive to prime contractors who paid subcontractors on time or early, such as a bonus or gaining points that could be used in future procurements. Another was to follow a model the commenter said was used in the Department of Defense and some SBA programs, involving an automated payment system and online certifications that payments have been made on time. A comment suggested that recipients could set up an escrow-like account to pay subcontractors in the event prime contractors were late. Some commenters emphasized that primes should send invoices to recipients on time or that recipients could avoid problems by making partial payments to primes when a subcontractor's portion of the work was completed, as opposed to waiting until the entire project had been completed. A commenter suggested that DOT should develop software for grantees to track payments by all parties at all stages of the process. Comments from some recipients, especially in the transit industry, expressed concern about affirmative monitoring being burdensome, especially for smaller recipients that have limited staff. Other commenters thought that applying prompt payment requirements to all subcontractors, rather than just DBEs, exceeded the scope of the DBE program. DOT Response We believe as a basic, upper limit, standard for a national program, the proposed 30-day period for payment and for the return of retainage following the satisfactory completion of a DBE's work on its portion of the overall contract is appropriate. We agree with commenters that when State law or a recipient's program calls for a quicker turnaround time, that shorter requirement prevails. For example, if State M's law calls for payment to be made in 15 days, all recipients in that State would have to observe the 15-day rule. On the other hand, if State P's law allowed 45 days for payment or the return of retainage, the regulation would require the action to be taken in 30 days on a DOT-assisted contract. We strongly encourage recipients to establish shorter time frames for lower tier subcontractors, because these smaller businesses have more acute cash flow needs than their larger counterparts. While we are not adopting, as generally applicable national requirements, the various ideas that commenters suggested to make prompt payment and retainage more effective, we encourage recipients to adopt measures that will work in their circumstances, and we will work with recipients to incorporate such measures in their DBE programs. The idea of providing special incentives for contractors, merely for doing what they are supposed to do, is not one that the Department supports, however. In any case, adopting strong enforcement mechanisms is critical to making prompt payment and retainage return requirements work. For example, making failure to meet these requirements a material breach of contract, or an explicit cause for liquidated damages in the prime contract, are among many possible measures for this purpose. Letting failure to comply go unnoticed, or to be without consequences, is not an acceptable option. As part of their normal oversight of recipient operations, as well as in compliance reviews, the OAs will make prompt payment and return of retainage a point of emphasis. 8. Transit Vehicle Manufacturers (TVMs) (§§ 26.5 & 26.49) NPRM The Department proposed several changes to provisions in 49 CFR part 26 related to requirements for FTA assisted transit vehicle procurements. The NPRM included revisions in § 26.5 to the definition of TVM and proposed two new definitions, transit vehicle and transit vehicle dealership. Additionally, the Department proposed several revisions to § 26.49 to clarify reporting requirements for FTA recipients and TVMs. The NPRM proposed terminology changes to make § 26.49 more reader-friendly and clear, such as using “TVM” consistently to refer to transit vehicle manufacturers and using the term “eligible” rather than “certified” when referring to a TVM's eligibility to bid. The Department also sought to clarify that a contract to procure vehicles from a transit vehicle dealership (TVD) does not qualify as a contract with a TVM, even if the vehicle was originally manufactured by a TVM. Comments Definitions The proposed definitions of transit vehicles, manufacturers, and dealers drew only a small number of comments, most of which supported the changes, though a transit authority and a consultant sought more clarity. As noted above, a commenter said that a transit vehicle dealer (TVD) should be more simply defined as a firm that sells transit vehicles (including modified vehicles) made by a transit vehicle manufacturer (TVM), whether or not the dealer is “primarily engaged” in selling such vehicles. Terminology The few comments addressing the proposed change from “certified” to “eligible” in § 26.49(a)(1) and (2) supported it. Procuring Transit Vehicles Two commenters agreed that a vehicle purchased from a non-TVM should not be treated in the TVM category for goal and reporting purposes. Another suggested that paratransit vehicles like SUVs and vans be allowed to be purchased from dealers rather than manufacturers. Two commenters expressed concerns about the proposal that vehicles purchased from TVDs are not treated under the TVM provisions of the rule. Both said they procure ADA paratransit vehicles from TVDs. One concern was that because a TVD is not a TVM under the proposal, FTA funding would not be available for the paratransit vehicle purchases. A related concern was that since most TVDs are non-DBE firms, there are no meaningful contacting opportunities for DBEs in that field and hence no point in setting contract goals for TVDs. Moreover, a commenter noted that the proposal could limit DBE opportunities related to paratransit vehicles that might exist through the TVM program. A commenter recommended that neither modified nor unmodified transit vehicles purchased through TVDs should be included in a recipient's goals or uniform reports. A State DOT said that it procured its paratransit vehicles from TVDs, which then would not count as TVMs under the proposed language. It was concerned that FTA therefore would not treat such purchases as eligible for Federal funds because, as TVDs rather than TVMs, they could not participate in the TVM program. The commenter was unsure how a recipient would comply with the rule under these definitions. Moreover, it said, most TVDs are owned by socially and economically disadvantaged individuals (SEDs) and have few if any DBE subcontracting opportunities. It suggested that recipients be able to report purchases of such vehicles from TVDs in the same manner as for TVMs. TVM Goal Submissions Four commenters recommended that TVMs only have to submit goals every three years, rather than annually. This would reduce burdens, they said. Ferries The NPRM did not address ferries specifically, but several commenters noted the difficulty in applying the TVM rules to ferry procurements. For example, commenters suggested that the proposed definition of transit vehicle would likely result in additional confusion as to how to treat procurements of ferries because they are vehicles that clearly should be regarded as transit vehicles yet are manufactured by entities that should not be considered TVMs. TVM Other Details A commenter said that since TVMs report directly to FTA, a TVM should not have to report the same data to recipients. Another commenter said that TVMs should not have to provide confidential bidders list information in their DBE goal submission; FTA can audit their records for this information if needed. A commenter suggested amending § 26.49(a)(4) to say, “becoming contractually required [as opposed to the proposed “obligated”] to procure a transit vehicle.” Another commenter said that it thought that NAICS codes do not cover vehicle component manufacturers adequately. Another commenter supported the proposed revision of § 26.49(c) that clarified that TVMs would have to submit reports only for years in which they were eligible. It also suggested that the “awards/commitments” line item in section A of the Uniform Report form be clarified to apply only to work performed in the U.S., to be consistent with the language in § 26.49(b) that limits TVM goals to work performed in the U.S. A transit advocacy organization added that since many TVMs may be small businesses with limited staff, TVMs should be required to submit their goal information in the same three-year interval as recipients, thus further reducing the paperwork burden. Overall, this organization commented that any additional administrative burdens could result in fewer DBE businesses participating, fewer bids, less competition, and longer lead time for new capital projects. DOT Response § 26.5 Definitions The final rule will adopt the proposed definition of TVM. In response to the comments expressing concern over applying the definition to ferry manufacturers, the final rule further clarifies how recipients may establish project goals to procure transit vehicles from entities that are not eligible TVMs. See the discussion of § 26.49(f) below. After considering the comments received, the Department decided not to adopt the proposed definition of transit vehicle. As noted in the preamble to the 2022 NPRM, the Department recognizes that there is some ambiguity as to what qualifies as a “transit vehicle procurement” and is therefore subject to special rules. However, since these situations are relatively rare and the most appropriate course of action depends on the unique facts and circumstances, the Department expects that providing training, guidance, and technical assistance will be more effective than issuing a one-size-fits-all regulatory definition. The final rule will not include a definition for transit vehicle dealer. Commenters explained that small transit agencies routinely use dealers to procure transit vehicles, and that paratransit vehicles are often procured through dealers. As discussed elsewhere in this notice, these comments persuaded the Department to maintain the status quo with respect to dealership transactions in § 26.49. Since the definition would only be relevant if the Department retained the proposal in § 26.49, there is no need for a definition. § 26.49 Procuring Transit Vehicles As noted above, the proposed revisions to § 26.49 received mixed comments. Generally, commenters agreed that the proposals would clarify the requirements. The Department appreciates the comments in support of the proposed change from “certified” to “eligible” in § 26.49(a)(1) and (2). Accordingly, the final rule adopts this change as proposed. The Department agrees with the commenter who suggested that the word “required,” instead of “obligated,” better conveys the necessary action that triggers the 30-day reporting requirement in § 26.49 (a)(4). The final rule therefore uses the term “required.” Several commenters opined that the proposed addition of paragraph (a)(5) addressing awards to dealerships could severely disrupt vehicle acquisition practices by small transit agencies and paratransit providers. In response to these comments, the final rule does not adopt proposed paragraph (a)(5) or otherwise address awards to dealerships. The final rule substantively adopts all other proposed changes in § 26.49 with only minor additional revisions to paragraph (a)(2) for clarity. Additionally, the final rule incorporates changes to paragraph (f) to address situations in which recipients establish project goals. § 26.49 TVM Goal Submissions The Department recognizes that TVMs are required to set and submit goals more frequently than recipients. The timelines are different because TVMs and direct recipients (often transit agencies in the case of FTA funds) fundamentally differ in their ability to predict contracting opportunities. Generally, transit agencies are able to predict the projects they will undertake over the next three years with a relatively high degree of accuracy, which allows transit agencies to accurately predict the scale and scope of contracts they will award. TVMs, though, are often limited to the information their potential clients (often transit agencies) make available. Since most transit agencies do not provide extensive details on the vehicles that they intend to procure prior to issuing a public solicitation, which in many cases is within months (at most) of the deadline to submit bids, TVMs cannot accurately predict the federally funded subcontracting opportunities they will have available in several years. Thus, the Department will retain the requirement for TVMs to set DBE goals on an annual basis and submit goal methodologies annually. Without more information from commenters, we are unaware of how this administrative burden can result in fewer DBEs participating, fewer bids, etc. Ferries The Department understands that large ships are manufactured by shipyards, and that the shipyard industry is different from bus and rail manufacturing industries. Shipyards are contracted by entities from various other industries to build vessels specified to the customer's needs. Smaller vessels, though, are typically manufactured by well-known brands, and may be specialized by the manufacturer or third parties. Thus, there are aspects of ferry manufacturing that are unique to the shipbuilding industry. However, other aspects are similar to the rest of the transit vehicle manufacturing industry. Such factors mean that ferry procurements are often best addressed through project goals pursuant to § 26.49(f). As discussed below, the final rule clarifies how to apply project goals to transit vehicle procurements from specialized manufacturers when a TVM cannot be identified. Use of Project Goals The final rule revises § 26.49(f) to clarify how to use project goals to procure transit vehicles. The revisions codify and clarify current practices and are in response to comments expressing confusion over how to apply the TVM rules to ferry procurements (project goals may be used to acquire vehicles other than ferries). The final rule adds new paragraphs (f)(1), (f)(2) and (f)(3) and simplifies paragraph (f) to clarify that project goals are used in cases when transit vehicles are procured from specialized manufacturers when a TVM cannot be identified. Pursuant to paragraph (f)(1), if a recipient establishes a project goal, it must use the process prescribed in § 26.45 to do so. This effectively requires recipients to use the same methodology for project goals as overall goals. Pursuant to paragraph (f)(2), FTA must approve the recipient's decision to use a project goal before the recipient issues a public solicitation for vehicles. Paragraph (f)(3) requires recipients to demonstrate that no TVMs are available to manufacture the transit vehicle it intends to procure. The Department established the project goal option in paragraph (f) in 2014. This option has always been intended to maintain the spirit of the DBE program when compliance with the general rule would be impracticable or create more barriers for DBEs in the transit vehicle manufacturing industry. Often, this scenario occurs when a transit agency intends to procure a vehicle for transit purposes but the entities that manufacture the vehicle do not meet the TVM definition (and are not excluded from the definition). It has been FTA's longstanding practice that if a recipient can show that it is procuring transit vehicles with FTA funds and there are no entities that qualify as TVMs that manufacture such vehicles, the recipient may use a project goal to procure the vehicles. If a recipient intends to use a project goal, the recipient must request FTA's approval of that decision, and must not issue a public solicitation until FTA has approved the decision. The request for approval must demonstrate that the recipient looked for and could not identify a TVM that manufactures the vehicles sought. To be clear, the project goal does not have to be approved by FTA prior to the recipient's issuance of a request for proposals. Generally, recipients will be required to submit the project goal methodology prior to issuing a public solicitation, though FTA may make case-by-case decisions depending on the facts and circumstances; only under extraordinary circumstances will FTA permit recipients to submit the goal methodology after contract award. This is similar to how FTA reviews and approves all project and overall goals. TVM Other Details Regarding the comments on duplicative reporting requirements imposed by part 26 and locally by recipients, the Department recognizes that recipients have legitimate reasons for collecting information from TVMs, some of which may also be reported to FTA. Thus, the Department does not believe it would be prudent at this time to limit recipients' ability to collect such information. Regarding the comments on confidential bidders lists submitted with goal methodologies, part 26 only requires submission of such information if the TVM chooses to use a bidders list when calculating its overall goal. Otherwise, TVMs are merely required to retain their bidders lists on file. Since it would be impossible to verify the validity of a goal based on a bidders list without reviewing the bidders list, the Department intends to continue to require TVMs to submit their bidders lists when they choose to use a bidders list in their goal methodology. The final rule adopts the proposed changes to § 26.49(c). Regarding the comment about changing the Uniform Report to clarify that only domestically performed work is to be included in the report, the Department does not believe that this specific change is necessary. We acknowledge that the final rule will result in several changes to the Uniform Report; FTA will issue guidance to TVMs on how to fulfill their reporting requirements under the new rules. The Department appreciates the comment that discussed the inadequacy of NAICS codes to describe the sort of work available in the vehicle manufacturing industry. The Department intends to use the data it collects under the final rule to learn more about the opportunities available to small businesses and DBEs in the vehicle manufacturing industry. Finally, the Department intends to use this notice to clarify longstanding policy on how to count DBEs performing on transit vehicle procurements. In recognition of the complex supply chain necessary to manufacture a transit vehicle, the Department has always permitted TVMs to count awards to any certified DBE if the DBE is certified in the State in which it performs the work, regardless of whether the TVM is present in the State. More recently, particularly in the context of ferry procurements, the Department has been asked to allow recipients to count awards to DBEs certified in States other than the recipient's home State if the recipient is using a project goal. The Department has found that such practices can be an effective means of ensuring DBEs are afforded opportunities to compete on transit vehicle procurements. Thus, the Department may approve such practices when sufficiently justified (here, the Department reminds recipients and TVMs that work performed outside of the United States or its territories must not be counted). 9. Procedures for Good Faith Efforts on Design-Build Contracts With DBE Goals (§ 26.53) NPRM The NPRM proposed that, in a negotiated procurement ( e.g., for professional services), the bidder or offeror may make a binding commitment to meet the goal at the time of bid submission or presentation of initial proposals but provide the detailed information about its DBE participation later, before selection. This provision would not apply to design/build contracts, however. The NPRM proposed that for a design-build contract, the bidder or offeror would submit a DBE Performance Plan (DPP) with its proposal. The DPP would have to include a commitment to meet the goals and provide details—including dollar amounts and time frames—for the type of subcontracting work or services the proposer will solicit DBEs to perform. The recipient would monitor the design-builder's good faith efforts (GFE) to comply with the DPP and its schedule. The recipient and design-builder could agree to revisions of the DPP over the course of the project. Comments DBE Performance Plans Nearly 50 commenters, from all the major interests, addressed the NPRM's DPP proposal. Of these, about 40 supported the proposed concept, though many had suggestions for modifying the proposal. In addition to agreeing with the NPRM's rationale for DPPs, supporters said that the DPP would help small businesses seeking work on large projects and would update the regulation to be consistent with existing best practices. Several comments said that they already used something like a DPP in their procurements. Other advantages include, commenters said, giving greater flexibility to prime contractors while allowing for detailed planning and monitoring to provide better experiences for DBEs. One suggestion made by numerous commenters for modifying the proposal was to have a “hybrid” or two-step process in design/build procurements. That is, for the design and pre-construction phases of a project, recipients could use this flexibility to set goals that the design-builder would have to meet up front, as traditionally done in the DBE program. For the longer construction phase, recipients would have a process like that described in the NPRM. A few commenters suggested that if, as might happen in smaller design/build projects, a contractor meets the goal with sufficient DBE commitments before the project started, the DPP might not be required for the project. A comment requested that prime contractors be required to commit to DBEs as soon as possible in the process. Other suggestions included setting specific time frames in which actual DBE contracts would have to be executed and making the DPP process available to a broader scope of projects than design/build projects per se ( e.g., public-private partnerships). To make this point clearer, some comments said, the regulation should use a term like “alternative delivery” rather than “design/build” for projects involving a DPP. Several commenters wanted to make sure that there was active and frequent monitoring of contractors' performance under the DPP. Commenters suggested that DOT could assist this process by providing monitoring software and additional funding to deal with the costs of additional resources for evaluating and monitoring DPPs, and that DOT should also provide more details about what an adequate DPP looks like. Other commenters suggested that DOT should also provide guidance on how to deal with issues that may arise in the course of a project ( e.g., change orders), several commenters said, as well as on proper use of DPPs to avoid bids nonresponsive bids. A few commenters asked how, if at all, the DPP concept would apply to contracts that have race-neutral goals ( e.g., as is commonly the case in Florida). One comment suggested that since many design/build projects are large, DBE size standards should be increased for firms participating in them. Another commenter asked that the regulation prohibit prime contractors from making small, incremental additions to their contracts to avoid making firm commitments to subcontractors for DBE work. Another pointed to what it thought could be an inconsistency between the DPP proposal and present Appendix A, section VI, which says that a promise to use DBEs after contract award is not considered responsive to the contract solicitation or to constitute GFE. If what a prime contractor promises in a DPP does not happen, then what is a recipient to do, some commenters asked. In addition to monitoring, these commenters said, the rule should take enforcement action and impose consequences on prime contractors who are in noncompliance with their DPP obligations. One commenter said, however, that enforcement can be difficult because contractors often do not understand what is involved in a DPP. The smaller number of comments opposed to the DPP proposal said that moving away from the requirement to have prime contractors commit to specific DBEs in advance would diminish opportunities for DBEs. A comment suggested that a bidder on a prime contract should have to always meet a goal or show GFE before being awarded a contract, no matter what the structure of the contract may be. DBEs need time to get working capital, employees, and equipment in order; and advance notice at the start of a project is important to enabling them to do so, a commenter noted. Another commenter asserted that the premise of the proposal is mistaken, it is not that difficult to identify subcontractors at the start of a project, it said. In the absence of requiring compliance before contract award, DBE participation could become an afterthought for the prime contractor and recipient. Others opposing the proposal said that implementing the DPP proposal could increase burdens and costs for recipients, delay projects, or lead to additional restrictions or conditions on RFPs, potentially deterring some bidders. DOT Response Commenters generally approved of the concept of a DBE performance plan in design/build contracts, and we continue to believe that this will be a useful tool in managing DBE participation in a type of contract in which award of the contract occurs before the design is complete and the details of the work, quantities, and scheduling are not yet known. We agree with commenters that there may well be circumstances in which DBE subcontractors can be selected for the design phase of a project at the outset, in which case the DBE Performance Plan would include commitments to those firms while listing the work types it plans to solicit DBEs to perform in the remainder of the plan. While we appreciate that many projects span over the course of several years, at this time, it is only those contract procurement and delivery methods that lack the details needed to make subcontracting commitments prior to contract award to which the Department approves of the use of a DBE Performance Plan. Since the beginning of the DBE program in the 1980s, the Department has heard complaints from prime contractors that they cannot find sufficiently qualified, capable DBEs to meet goals on a project. This belief itself appears to be one of the effects of discrimination that the program is designed to combat, and it can act as a self-fulfilling prophecy preventing prime contractors from exerting optimal efforts to find DBEs to meet a goal, whether on a traditional contract or a design-build project. Making good faith efforts to find DBEs is essential to compliance with the regulation. Open communication among the recipients and prime contractors is essential to ensure that the work commitments in the performance plan result in actual subcontracts. With agreement of the parties, work types identified up front could be altered to account for actual work needed in real time; however as long as there are subcontracting opportunities, the recipient must enforce the prime contractor's requirement to make ongoing good faith efforts to meet the goal. We do appreciate the comment that Appendix A needs to be revised to provide an exception for design-build contracts. We are making that alteration. In addition, we are re-naming the DBE Performance Plan to DBE Open Ended Performance Plan (OEPP) to align with the FHWA's EDC-7 initiative. 2 Other than these changes, we are adopting the proposal as proposed in the NPRM without substantive change. 2 In 2009, FHWA launched the Every Day Counts (EDC) initiative in cooperation with state, local, and industry partners to speed up the delivery of highway projects and create a broad culture of innovation within the highway community. Proven innovations and enhanced business processes promoted through EDC facilitate greater efficiency at the state and local levels, saving time, money, and resources that can be used to deliver more projects. The EDC initiative is a state-based model to identify and rapidly deploy proven, yet underutilized innovations to shorten the project delivery process, enhance roadway safety, reduce traffic congestion, and improve environmental sustainability. Rethinking DBE for design-build projects is one of the innovations being promoted in the seventh round of the EDC initiative. 10. Terminations (§ 26.53(f)) NPRM The NPRM restated the prohibition on terminating DBE subcontractors' work without the recipient's written consent ( e.g., because the prime contractor wanted to self-perform the work or use a different firm for the work that had been committed to the DBE). The NPRM further clarified that “terminations” need not be terminations in full, but that “partial terminations,” e.g., removing a work item or decreasing the amount of work committed to a DBE would still require prime contractors to follow the process by providing a “good cause” reason it proposes to terminate, provide the DBE with time to respond, and not terminating before receiving prior written consent from the recipient. The NPRM also proposed to clarify that termination, on the one hand, and replacement or substitution, on the other, are two separate and distinct processes. Comments The majority of the nearly 20 commenters supported the proposal. They agreed that a prime contractor may not terminate a DBE's contract without the recipient's written consent. Some of these comments said that it made sense to fold the notion “substitution” into the overall “termination” framework, since a substitution had the effect of terminating the original contractor. One commenter wanted to make sure that the five-day period for a recipient's consent had elapsed before the prime contractor actually terminated the DBE. Another said that, if there was additional work to be done in the scope of a DBE's work, and the goal had been met, the DBE should complete the additional work, rather than the prime contractor self-performing it. Some commenters sought clarifications of the proposal. Three commenters said that a recipient's removal of work intended for a DBE to perform should not be treated as a termination by the prime contractor. There could be circumstances, another commenter said, in which a recipient would need to make a determination in less than five days; for example, there may be an urgent need to ensure that hauling supplies to the job site happens on time. In such a case, the commenter said, the recipient would have to respond to the contractor's written notice in 24 hours, and a formal termination process could follow. The small number of opponents preferred retaining the former regulation's provisions. Some thought that the list of “good cause” reasons for termination is too restrictive. DOT Response In the NPRM, the Department underscored that any time a prime contractor seeks to terminate a DBE to which it had made a commitment in response to a contract goal or approved substitution, it must follow the process set out in § 26.53(f). The Department sought to clarify that this requirement applies not only to a complete termination but also to a “partial termination,” i.e., eliminating a portion of work committed to a DBE. For example, a “partial termination” in which a prime contractor wishes the DBE to do $100,000 worth of work as opposed to the originally committed $200,000, is just as much subject to the approval as an action to terminate the DBE firm entirely. This would not apply to change orders initiated by the recipient that had the effect of eliminating some or all of the work to which a DBE was committed to perform. The Department continues to believe that it is important to separate the termination requirements from the substitution process. We have found that some recipients will not allow the prime contractor to terminate a DBE until it has submitted a substitution. Other recipients forgo the termination process and merely require the prime contractor to submit a request for substitution. The due process requirements in § 26.53(f) are essential to protect DBEs committed toward a contract goal, or approved replacement, from arbitrary elimination. This is true whether or not a substitution of another firm for the terminated DBE's work is intended. Again, after considering the comments, we are adopting the termination and substitution provisions as proposed in the NPRM. 11. DBE Supplier Credit (§ 26.55(e)) NPRM As noted in the 2022 NPRM preamble (87 FR 43631-43632), the issue of how to count DBE credit for suppliers has long been a subject of debate and extensive stakeholder input. Changes over the years in the way that materials are delivered for projects and the importance of concepts like the “regular dealer” to DBE suppliers and prime contractors seeking to meet goals have been among the frequent topics of discussion. Based on the Department's consideration of stakeholder input, the NPRM proposed several changes to the counting provisions of § 26.55(e). First, a prime contractor could meet no more than 50 percent of a goal on a given contract through use of DBE suppliers (including manufacturers, regular dealers, distributors, or transaction facilitators). A recipient could, with prior OA approval, make exceptions to this limit ( e.g., for material-intensive contracts). The purpose of this proposal was to prevent the use of DBE suppliers from crowding out opportunities for other types of DBE contractors on a project. To avoid ad hoc, post-contract award determinations of whether the contributions of a supplier were those of a “regular dealer” eligible for 60 percent credit, the NPRM proposed that recipients establish a system to determine, before contract award, whether a DBE supplier meets the basic requirements for being a regular dealer. That is, does the firm generally engage in the sale or purchase of the items in question or items having the general character of those to be supplied under the contract? As part of this pre-award process, the recipient would look at such questions as whether the items would be provided from the supplier's inventory, whether the supplier would have physical possession of the items, or, in the case of bulk items, whether the supplier would deliver the items using its own distribution equipment. Goal credit would ultimately be decided on a contract-by-contract basis based on the recipient's final evaluation of whether the firm would provide a commercially useful function (CUF) deserving of 60 percent regular dealer credit. The recipient's system for carrying out this proposal would also evaluate situations in which all or most of a regular dealer's supplies come from its inventory, but other sources, such as a manufacturer, would provide additional minor quantities of items related to those in the contract. In addition, the recipient's system would consider situations in which a DBE supplies items/goods that are not typically stocked ( e.g., specialty items). A DBE that provides such items would be eligible for 60 percent regular dealer credit if, like a supplier of bulk items, it used its own distribution equipment. One of the issues that stakeholders have discussed is the handling of “drop shipping,” in which a DBE supplier arranges to have a product sent from its manufacturer to the job site, without passing physically through the hands of the DBE. On the one hand, this arrangement appears similar to that of a transaction facilitator, whose credit is limited to its fees or commissions. On the other, some stakeholders said that dealers in bulk items with distributorship agreements had a good deal of control of a transaction, take significant risks, and often use their own delivery equipment, meaning that their involvement went beyond being simply a transaction facilitator. To address these concerns, the NPRM proposed that a “distributor” having a valid distributorship agreement receive 40 percent credit for the items it provides. Recipients would have to review distributorship agreements, prior to contract award, to determine their validity with respect to each purchase order/subcontract and the risk the DBE assumes. Where a distributor “drop ships” materials without assuming risk, or does not operate according to its distributorship agreement, its credit would be limited to fees or commissions. The NPRM proposed to retain the existing requirement that to receive credit for supplying materials, a DBE must negotiate the price of supplies, determine quality and quantity, order the materials, and pay for the materials itself. The NPRM would clarify the definition of “manufacturer” by proposing that manufacturing includes blending or modifying raw materials or assembling components to create the finished product to meet contract specifications. Minor modifications do not count as manufacturing eligible for 100 percent credit. Comments The 50 Percent Limit on Credit Toward Goals for Use of Suppliers This provision of the NPRM attracted over 60 comments, which, by roughly a 5-1 ratio, opposed the Department's proposal. DBEs, non-DBEs, and recipients found reasons for objecting to the proposed limit on the use of suppliers to meet goals. Commenters opposing the proposal did so on a variety of grounds. Several comments challenged the factual basis for the proposal. A DBE supplier said that there were no statistics or other evidence supporting the proposal, making the limit arbitrary, a point other commenters made as well. A non-DBE contractor said that there were no studies showing that DBE suppliers were favored over other kinds of DBEs, or showing what percentage of goals were being met by different categories of DBE firms. Nor was there evidence that suppliers or manufactures were being used at a greater rate in the DBE program than in the construction industry generally, or that the participation of non-supplier DBEs were unduly limited under the present rule. The comment added that the only evidence in the NPRM preamble for the proposal was a reference to a 2018 stakeholder meeting in which some DBE participants had said that, on some contracts, prime contractors were able to meet all or most of DBE goals through use of suppliers, especially of bulk items, making use of other types of DBEs unnecessary. It depends, one commenter said: in some contracts in which his company had been involved, goals had been met mostly or entirely with DBEs other than suppliers. A State-level contractors' association said that it had been told by its State DOT that it does not keep numbers on the participation of DBE suppliers vs. other DBEs, resulting in a lack of evidence that could provide a basis for a supplier limit. A national-level contractors' association said, referencing the stakeholder meeting mentioned above, that use of comments constituted rulemaking by anecdote. Moreover, it said, it had not been given the opportunity to participate in the meeting, the results of which had never been published. Another commenter noted it did not appear that the views of prime contractors or recipients had been solicited in the stakeholder meeting cited in the NPRM preamble. Commenters who are or who represented recipients expressed concern that the proposal did not take into account the realities of their contracting activities, such as the unique characteristics of contracts, the needs associated with each contract, and the availability of DBEs relevant to the work of each contract. Two such commenters said that in their jurisdictions, there was not an excess of suppliers, one of them noting that only 20 percent of the DBEs in its directory were suppliers. Others said that the provision would not work with respect to contracts heavily involving bulk and other materials ( e.g., asphalt), therefore harming businesses who focus on those materials. One recipient said that there were often few DBEs to work on contracts in rural areas, making reliance on suppliers more important there. Recipients and contractors both said that the proposal would adversely affect the ability of prime contractors to meet contract goals and of recipients to meet overall goals. Recipients' goals might have to be lowered as a result, especially when a contract did not provide significant opportunities for non-supplier DBEs. For example, one State contractors' association said that materials made up 60-80 percent of typical highway contracts in its State. On a paving contract for example, a commenter said, there might be only two or three, usually small, scopes of work that a DBE subcontractor could perform. If a contractor could count only suppliers to meet half of its goal, it would make it impossible to meet goals in many cases, commenters asserted, given what they characterize as the frequent unavailability of other types of ready, willing and able non-supplier firms. The effects of the pandemic on small business could make this problem worse, a prime contractor suggested. All this would make more good faith efforts “waivers” necessary, commenters said. A few recipients expressed the concern that the proposal could increase their workload and create confusion or delays in their administration of their contracting activities. A frequent comment opposing the proposal is that it would unfairly create financial harm to DBE suppliers. These firms have configured their businesses to meet the requirements of the existing rule, commenters said, making considerable investments in facilities, inventory, and employees. They would have fewer opportunities to work under the proposal, as the rule favors one category of DBEs over another, with the result that suppliers would lose income and could even be forced out of business. One DBE stated that it would cut their business in half. A few comments also asked how the exception process was supposed to work. When would recipients have to go to an OA to have an exception approved, and what would be the OAs' criteria for approving the request? A commenter suggested there should be a deadline for an OA's response to a request for an exception ( e.g., five days). One comment suggested that the matter of exceptions should be delegated to recipients, without needing approval from an OA. Some commenters also had suggestions for modifying the proposal. One would allow suppliers to count 50 percent of their gross sales for credit. Another suggested giving recipients flexibility to decide what level of credit ( e.g., 50, 60, or some other percentage) applied to a particular contract. Another suggestion was to calibrate credit according to the percentage of supplies on a contract. If supplies account for 80 percent of a contract, then the recipient would allow DBE suppliers' contribution to count for 80 percent of the goal. Another variation would be to apply the 50 percent limit with respect to commitments in the pre-award process, but then count the entire amount of actual supplier participation toward actual attainment at the end of the project. The smaller number of commenters who supported the proposal, or at least did not object to it, said they thought the proposal fair and useful to keep open opportunities for non-supplier DBEs. Some supporters said there should be exceptions for materials-heavy contracts ( e.g., guardrails). Another said it could support a 50 percent limit for large contracts but not smaller contracts. A few recipients said the issue did not much impact their operations. One comment asked how the provision would apply to situations where there was no contract goal. A few comments wanted stricter limits on supplier participation ( e.g., 25 percent). Regular Dealer Issues The largest number of comments on regular dealer issues focused on the proposal that recipients have a system to make contract-by-contract pre-award decisions about whether a supplier deserved 60 percent credit as a regular dealer. More than 20 comments, mostly from recipients, opposed the idea. Their primary objection was that implementing the proposal would be confusing, difficult, and burdensome. For example, there would be additional work for contract administrators, which could delay contact awards. Prime contract bidders would face an undue burden, as they would have to do additional due diligence to make sure that the credit they were claiming for DBE participation was consistent with the recipient's determination in each case. These determinations could be subjective and subject to challenge. Most of the comments opposed to the proposal stated that if there was to be a determination about whether a supply firm was a regular dealer, it should be made by the UCP at the time of certification, not on a pre-award basis on each contract by the recipient. On the other hand, a commenter objected to UCPs performing this function, since it would result in a de facto certification of regular dealers. A few comments supported the proposal. One comment suggested that the approval of a DBE as a regular dealer could be done as part of a recipient's good faith efforts review. Another suggested that firms could submit an affidavit attesting to its meeting regular requirements as part of the pre-award process. Another recommended that a CUF review for regular dealers consider such factors as the firm's ability to secure the items, do their own takeoffs and quantity planning, get quotes, and have distribution agreements. On other regular dealer matters, a few commenters said that the credit awarded to regular dealers should remain at 60 percent. Some would increase the percentage ( e.g., to 75, 80, or 100 percent). One commenter said that regular dealers in specialized fields for items such as bridges should be able to count 100 percent. Another commenter favored 100 percent credit if the firm's workforce was predominately minority or female. One commenter said the entire regular dealer concept was outdated and should be taken out of the regulation. The commenter urged that the regulation talk about suppliers in general in a simpler way. Other commenters requested clarification with respect to terms like keeping a “sufficient quantity” of materials in stock (which the commenter said could vary among different kinds of items), “drop shipper,” or “specialty items.” Another asked how a recipient could make regular decisions with respect to out-of-state firms that were certified via interstate certification. Another provided a detailed typology of regular dealers, bulk suppliers, and brokers/transaction expediters. Commercially Useful Function In addition to its role in determining whether a firm was a regular dealer, some comments addressed CUF decisions more generally. Two supported doing CUF reviews on all federally assisted contracts, while another thought doing so would too burdensome if applied to contracts without a DBE goal. One of these asked for more specific CUF criteria. One wanted to streamline the process by allowing a CUF review that would apply to all jobs within a year, while another commenter thought certifiers could verify CUF at the time of certification. Recipients, not prime contractors, should make CUF determinations, one commenter said. Another added that recipients should not be able to request CUF data from prime contractors; the prime contractor should get DBE credit unless there is documented evidence of noncompliance. Another was concerned that CUF reviews and the “running tally” monitoring requirements could become confused with one another. A commenter thought that prime contractors should be able to do several things to assist DBEs without running afoul of CUF requirements. These included providing specialized training through a shared superintendent or foreman, access to contract management software and back- office assistance, sharing of equipment and workers, and guarantees consistent with industry practice. Bulk Suppliers and Supplies of Specialty Items The 60 percent credit given to suppliers of bulk materials and specialty items is a subcategory of the treatment of regular dealers under the rule. There was a division of opinion among commenters about whether, as the NPRM proposed, these suppliers would need to have their own distribution equipment to count for 60 percent credit towards a DBE goal. Several comments said that leasing equipment was a common industry practice among suppliers, and that suppliers should not be penalized for doing so. Being unable to lease distribution equipment would be burdensome and could make DBE suppliers uncompetitive, one comment said. A distinction based on physical delivery of products is unrealistic, a DBE supplier said, as suppliers have to do a lot of work that adds value no matter how products are delivered. One recipient suggested that an equipment lease should be long term ( e.g., at least a year). Others would make allowance for a situation in which a supplier that had its own distribution equipment used a short- or long-term lease arrangement for items that are infrequently needed ( e.g., highway signs) or to supplement their own equipment, as needed ( e.g., through engaging owner-operators). Among other comments on the subject, a few supported the proposal as written. Another raised a problem concerning what it said was a common practice of manufacturers ( e.g., of structural steel) shipping their products to the job site using their own trucking company. The commenter wondered whether there would be a CUF for a DBE in such a situation. Drop Shipping and Distributors All but a few of over 40 comments that addressed this issue opposed the NPRM's proposal, though not all for the same reasons. A mix of recipients, DBEs, and non-DBEs said that the proposal was unclear, confusing, overly complex, burdensome, and difficult to administer. Recipients do not have expertise in evaluating the validity of a distributorship agreement, some said, adding that the NPRM did not provide guidance or criteria to aid [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A2024-05583. Public record. Not legal advice.