propose nor is finalizing removing the other two examples of race-
neutral DBE participation or to remove the third example for race-
neutral contracts. The Department understands how the preamble to the
NPRM could have led to this confusion, as it was not explicit.
Certainly, had the Department proposed to remove, as an example of
race-neutral participation, the ``selection of a DBE subcontractor by a
prime contractor that did not consider the DBE's status in making the
award'' in contracts that had no DBE goals, the Department would have,
effectively, been eliminating the very concept of race-neutral
participation.
    Thus, instead of the drastic change that concerned many commenters,
the revised final rule simply removes as an example of race-neutral DBE
participation in contracts that have DBE goals the use of a strict low
bid system to award subcontracts. The Department continues to believe
that it is difficult for recipients to determine if a prime contractor
uses a strict low bid system and that use of such a system when
contract goals are set runs counter to the Department's good faith
effort guidance in Appendix A.
    However, this final rule does not mean DBE participation obtained
in excess of a contract goal may never be considered race-neutral DBE
participation. When DBE participation is obtained as a prime contractor

through customary competitive procurement procedures, is obtained as a
subcontractor on a contract without a DBE goal, or is obtained in
excess of a contract or project goal, the use of a DBE under those
circumstances properly may be characterized as race-neutral DBE
participation. This revision to our rule does not represent a policy
shift from the existing requirement that recipients meet the maximum
feasible portion of the overall goal through the use of race-neutral
means of facilitating DBE participation. Indeed, if a recipient is able
to meet its overall DBE participation goal without using race-conscious
measures (i.e., setting contract goals), the recipient is obligated to
do so under the existing regulations. The revision to 49 CFR 26.51(a)
does not change that requirement.

Good Faith Efforts To Meet Contract Goals 49 CFR 26.53

Responsiveness vs. Responsibility

    The NPRM proposed eliminating the ``responsiveness vs.
responsibility'' distinction for when good faith efforts (GFE)
documentation, which includes specific information about DBE
participation, must be submitted on solicitations with DBE contract
goals. The ``responsiveness'' approach requires all bidders or offerors
to submit the DBE participation information and other GFE documentation
required by 49 CFR 26.53(b)(2) at the time of bid submission. By
contrast, the ``responsibility'' approach allows all bidders or
offerors to submit the required information at some point before a
commitment to perform the contract is made to a particular bidder or
offeror (e.g., before contract award). The proposed change to the rule
would have removed the current discretion recipients have to choose
between the two approaches and require, with one exception, the
submission of all information about DBEs that will participate on the
contract and the evidence of GFE made to obtain DBE participation on
the contract when the bid or offer is presented.
    The NPRM also put forward an alternative approach that would allow
a short period of time (e.g., 24 hours) after the bid submission
deadline during which the apparent successful bidder or offeror would
submit its GFE documentation. Under the alternative, the GFE
documentation would have to relate to the pre-bid submission efforts;
no post-bid efforts would be acceptable. The Department also asked for
comment as to whether the one-day period should be extended to three
days.
    The exception to the across-the-board responsiveness approach or
the alternative approach (all of which apply to sealed bid
procurements) would be in a negotiated procurement, where in the
initial submission the bidders or offerors may make a contractually
binding commitment to meet the DBE contract goal and provide specific
DBE information and GFE documentation before final selection for the
contract is made. Negotiated procurement would include alternate
procurement practices such as Design Build procurements in which it is
not always possible to commit to specific DBEs at the time of bid
submission or contract award.
    The Department received many comments on this proposal. The
majority of the responses opposing the revisions were submitted by
prime contractors, prime contractor associations and some State
departments of transportation. Over one hundred form letters of
opposition from contractors were received. Those opposing the revision
cited the nature of the construction industry and recipient procurement
processes as a main reason for opposition. The majority of these
comments concentrated on the administrative burden of providing GFE
documentation that includes DBE commitments at the time of bid.
Commenters stated that because of the nature of bidding on construction
contracts, such as hectic timeframes, fixed deadlines, and electronic
bidding forms, it was not possible to submit DBE commitments and other
GFE documentation at the time of bid. Other reasons given for
disapproval included the belief that the proposed rule would limit the
use of DBEs on contracts, and it would be difficult for DBEs to
negotiate with multiple bidders as opposed to only the identified
lowest bidder. In addition, some commenters believed it would not be
possible to implement the ``responsiveness'' approach on ``design build
projects'' because the design and scope of work for the project is not
known at the time of bid.
    The Department received comments in favor of the proposal,
primarily from minority and women advocacy organizations, regional
transit authorities, and some State departments of transportation that
already required DBE documentation as a matter of responsiveness. Those
in support of the revision primarily stated that the current practice
of allowing each recipient to decide whether DBE information should be
collected as a matter of responsiveness or responsibility has led to
abuses of the DBE program, such as facilitating ``bid shopping''
practices. A member of Congress supported this proposal stating that
the current practice of allowing each recipient to decide whether DBE
information should be collected as a matter of responsiveness or
responsibility has led to abuses of the DBE program, without more
specifics.
    There were alternatives suggested by some organizations. Most of
the suggestions can be grouped into three general categories: (1) Leave
the ``responsiveness/responsibility'' distinction as is; (2) allow a
short time frame for GFE documentation that includes DBE information to
be submitted (1-3 days); and (3) allow a longer time frame for that
information to be submitted (3-14 days). Many who opposed eliminating
the ``responsive/responsibility'' distinction had less opposition if
good faith efforts documentation could be submitted by the apparent low
bidder sometime after bid submission. Most opponents expressed a need
for a longer timeframe to review the quotes. In addition, general
contractor organizations overwhelmingly stated that the good faith
efforts documentation should only be submitted by the apparent
successful bidder. There were additional comments that opposed the
proposal, but they did not offer any suggestions for a different
timeframe.
    After the Department reopened the comment period in September 2013
and convened a listening session on December 5, 2013, to hear directly
from stakeholders about the specific costs and benefits of this
proposed regulatory change, general contractors overwhelmingly
continued to express strong opposition to the proposal. According to
the contractors, the problems presented by the proposal include, among
others: (1) A failure of the Department to understand the complexities
and challenges of the bidding process; (2) increased burdens placed on
the limited resources available to DBEs to develop multiple quotes and
engage in time-consuming negotiations before bids are due; (3) adverse
impact on the willingness of general contractors to consider new,
unfamiliar DBEs because of limited vetting time; (4) increased risk to
prime contractors from incomplete or inaccurate DBE quotes likely to
result in less DBE participation; (5) a reduction in, or elimination
of, second tier subcontracting opportunities for DBEs; and (6) a
deterrent to the use of DBEs in creative methods due to concerns about
disclosure of confidential, proprietary information. Moreover, the
American Road & Transportation Builders Association (ARTBA) and the

Associated General Contractors of America (AGC) challenged the claim of
``bid shopping'' as the basis for the proposed change, demanding a full
explanation of the problem (if it exists) and the data relied upon to
justify the proposal.
    Based on a survey of 300 ARTBA members, 42% of the contractors
indicated they would bid on less Federal-aid work if this (and other)
proposed change is made permanent; that they would have to increase bid
prices to cover additional costs ($25,000-$100,000 per bid); that they
would have to add staff; and that the estimated cost of complying
annually across the industry is in the range of $2.5 million-$11
billion. Forty-three percent (43%) of the members indicated that DBE
plans (i.e., DBE commitments) currently are required by their State
departments of transportation at the time of bid; and 37% currently
submit good faith efforts documentation with their bid. The AGC
acknowledged that some States currently require listing DBEs at the
time of bid, but it asserts that those contacted universally responded
that the bidding process is costly, burdensome, and results in lower
DBE utilization.
    The few State departments of transportation that submitted written
comments during the reopened comment period supported allowing
recipients the flexibility to permit submission of good faith efforts
documentation at least 7-10 days after bids are due. Those with
electronic bidding systems cited costs associated with modifying those
systems to conform to changes in the rules as one more burden straining
already limited resources. One State department of transportation
supported the proposed change requiring good faith efforts
documentation at bid opening.
    A few DBEs submitted a form expressing support for the requirement
that good faith efforts documentation be submitted with the bid, while
others saw the change as creating an unnecessary burden that would tax
resources and may result in shutting out DBEs. Before adopting an
across-the-board approach, one commenter urged the Department to look
carefully at other States that follow the ``responsiveness'' approach
to assess whether it creates opportunities or closes doors. Given prime
contractor opposition, the commenter thought there should be more of a
factual predicate to support this proposed change.
    DOT Response: For years the Department has been concerned about
claims of ``bid shopping'' engaged in by some prime contractors to the
detriment of DBE and non-DBE subcontractors, suppliers, truckers, etc.
and the adverse impact it has on the principle of fair competition. The
meaning and practice of bid shopping is well understood within the
construction industry and among public contracting entities. It occurs
when a general contractor discloses the bid price of one subcontractor
to a competing subcontractor in an attempt to obtain a lower bid than
the one on which the general contractor based its bid to the owner.
Variations include ``reverse auctions'' (where the subcontractors
compete for the job by lowering prices) and ``bid peddling''
(subcontractors offering to reduce their bid to induce the contractors
to substitute the subcontractor after award).
    In 1992, when the Department proposed a similar change in the DBE
program regulations, it believed then, as it does now, that requiring
the submission of good faith efforts documentation that includes DBE
information at the time bids are due (as a matter of responsiveness) is
a reasonable means of reducing the bid shopping problem. Contrary to
the current claims made by general contractors, the Department's
interest in revisiting this issue represents neither a ``startling''
change in direction for the DBE program nor a lack of understanding of
the procurement process for transportation construction projects. At
the same time, the Department acknowledged later in 1997 and 1999 when
we finalized that proposed rulemaking, as it does now, that the
responsiveness approach may be more difficult administratively for
prime contractors and recipients, even though that approach was, and
is, being used in some places.
    One of the hallmarks of the DBE program is the flexibility afforded
recipients to tailor implementation of some aspects of the program to
respond to local conditions or circumstances. Indeed, the DBE program
regulations cite among the objectives, the desire ``to provide
appropriate flexibility to recipients of Federal financial assistance
in establishing and providing opportunities for DBEs.'' 49 CFR 26.1(g).
Flexibility is recognized in many ways: For recipients, overall and
contract goals are set based on local conditions, taking into account
circumstances specific to a particular recipient or a particular
contract; and for prime contractors, they cannot be penalized or denied
a contract for failing to meet the goal, as long as documented good
faith efforts are made. At what point in the procurement process the
good faith efforts documentation must be submitted is yet another
example of the flexibility that the Department should not undo without
more information.
    To the extent that bid shopping exists, it works to the detriment
of all subcontractors, DBEs and non-DBEs alike, and drives up the cost
of projects to the taxpaying public. However, absent sufficient data
regarding the impact of each approach on deterring bid shopping and its
effects or data on the costs/benefits of each approach when implemented
consistent with the rule, as well as the potential burdens argued by
those opposed to the change, the Department is not prepared, at this
time, to finalize the proposal to adopt an across-the-board approach.
Before taking that step, we think it prudent to examine closely the
``responsiveness'' approach used by many recipients to determine its
impact on mitigating bid shopping and on providing greater or lesser
opportunities for DBE participation. We intend to undertake such a
review which may lead to proposed regulatory action in the future.
    While we are retaining the discretion of recipients to choose
between a responsiveness or responsibility approach, we think there
should be some limit to how long after bid opening bidders or offerors
are allowed to submit GFE documentation that includes specific DBE
information to reduce the opportunity to bid shop where it exists. This
would have the effect of reducing the burden on prime contractors and
recipients who use a responsibility approach from the burden allegedly
caused by the proposal, while at the same time minimizing opportunities
for bid shopping by restricting the amount of time truly needed to
gather the necessary information. From the comments, the time period
permitted by recipients that use the responsibility approach can run
the gamut from 3 to 30 days. These comments present timelines similar
to those found in a review the Department recently conducted of the DBE
Program Plans for all 50 states, Puerto Rico and the District of
Columbia.\1\ The results of this analysis are available in the docket
for this rulemaking.\2\ This analysis shows that: (1) 30 of the State
departments of transportation report that they use the responsiveness
approach, although the Department notes that some variations on the
responsiveness approach--a combination of responsiveness and
responsibility--may actually be used by

some of these recipients; (2) 20 State departments of transportation
used the responsibility approach; and (3) two State departments of
transportation (Puerto Rico and Florida) have completely race-neutral
programs and thus do not set DBE contract goals. Of the 20
responsibility States, 17 States have a set period of time bidders or
offerors are given to submit the required information, which ranges
from 3 to 15 days, while three States have no set time for all
contracts.\3\ The results of this review are generally consistent with
the survey conducted by ARTBA indicating that 43% of the 300 members
responding stated that their State departments of transportation
required submission of DBE utilization plans with the bid. We note that
the term ``DBE utilization plan'' is not used anywhere in the DBE
program regulations.
---------------------------------------------------------------------------

    \1\ For purposes of this discussion, Puerto Rico and the
District of Columbia are considered ``States,'' thus the totals add
up to 52.
    \2\ See DOT Docket ID Number OST-2012-0147.
    \3\ Under 49 CFR 26.53(c), all GFE documentation must be
submitted before committing to the performance of the contract by
the bidder or offeror (i.e., before contract award).
---------------------------------------------------------------------------

    We think it reasonable ultimately to limit the time to a maximum of
5 calendar days to protect program beneficiaries and overall program
integrity.\4\ The Department believes 5 calendar days is reasonable
because it is more than or equal to the time permitted by five of the
responsibility states and, by definition, all of the responsiveness
states. Moreover, many of the DOT recipients that commented on
establishing a time limit recommended between one (1) to 7 days.
Allowing a longer time frame, such as between 7 and 14 days, is too
long; it increases opportunities for bid shopping to occur. However, in
the final rule we have provided some time for recipients that use this
revised responsibility approach to transition to the shorter time frame
by January 1, 2017. The transition period is intended to provide time
to put in place any necessary system modifications. Until then,
recipients will be permitted up to 7 calendar days to require the
submission of DBE documentation after bid opening when using a
responsibility approach. The Department believes this will allow for a
smoother transition to the new approach, while seemingly without
encountering the administrative difficulties and added costs pointed to
by some of the commenters opposed to the proposed change.
---------------------------------------------------------------------------

    \4\ Due to the definition of ``days'' adopted in this final
rule, bidders or offerors will have 5 calendar days (i.e., not
business days) to submit the necessary information. Thus, if a bid
is submitted on Thursday, the apparent low bidder would have until
Tuesday to submit the information.
---------------------------------------------------------------------------

    Based on the comments, there is some confusion about how the
document requirements of Sec.  26.53(b) apply to design-build
contracts. It bears repeating what the Department said in 1999 on this
subject, because it remains the case today:

    On design-build contracts, the normal process for setting
contract goals does not fit the contract award process well. At the
time of the award of the master contract, neither the recipient nor
the master contractor knows in detail what the project will look
like or exactly what contracting opportunities there will be, let
alone the identity of DBEs who may subsequently be involved. In
these situations, the recipient may alter the normal process,
setting a project goal to which the master contractor commits.
Later, when the master contractor is letting subcontracts, it will
set contract goals as appropriate, standing in the shoes of the
recipient. The recipient will exercise oversight of this process.

(64 FR 5115). The proposed change would not have applied to design-
build contracts.

NAICS Codes

    The Department proposed changes to the information to be included
with bids or offers by requiring the bidders or offerors to provide the
recipient with information showing that each DBE signed up by the
bidder or offeror is certified in the NAICS code(s) for the kind of
work the DBE will be performing. This proposed change was intended to
help bidders or offerors identify firms that can qualify for DBE credit
in the work area involved in the contract. This information would be
submitted with the bidder's or offeror's DBE participation data.
    The Department received 26 comments regarding the NAICS codes, 15
against the proposal and nine in favor of it. The comments submitted
included State departments of transportation, prime contractors and
contractor associations. The opponents of this proposal included mostly
prime contractors and contractor associations, and a few State
departments of transportation. The opponents' comments focused on a
concern that the legal risk associated with including a DBE who could
not perform a commercially useful function would fall on the prime
contractor, meaning that the prime contractor could be the subject of
investigations and charges brought by the DOT Inspector General and
others, when it is the certifying agencies that should bear this
responsibility. Other comments indicated that adding NAICS codes would
not add any value to the process. The proponents of the proposal
included advocacy groups and some State departments of transportation.
Proponents believe that the NAICS code requirement will add
clarification to the process and ensure that the recipient can complete
the work.
    DOT Response: Under existing regulations, DBEs must be certified in
the type of work the firm can perform as described by the most specific
available NAICS code for that type of work. Certifiers (i.e.,
recipients or other agencies that perform the certification function)
also may apply a descriptor from a classification scheme of equivalent
detail and specificity that reflects the goods and services provided by
the DBE (49 CFR 26.71(n)). It is the responsibility of the DBE to
provide the certifier with the information needed to make an
appropriate NAICS code assignment. In the new certification application
form, firms are asked to describe their primary activities and the
product(s) or services(s) they provide and to list applicable NAICS
codes they seek. If the firm enters into new areas of work since it was
first certified, it is the firm's responsibility to provide the
certifier the evidence of how they qualify for the new NACIS codes. It
is then incumbent upon the certifying agency to determine that the
NAICS code to be assigned adequately describes the kind of work the
disadvantaged owners have demonstrated they can control and it is the
responsibility of the recipient of DOT funds to determine that the
DBE's participation on a particular contract can be counted because the
DBE is certified to perform the kind of work to be performed on that
contract.
    The Department has decided to make final this proposed rule change.
In doing so, the Department does not intend to shift responsibility for
the accuracy of NAICS code assignments from the certifier to the
contractor. When a DBE submits a bid to a recipient as a prime
contractor or a quote to a general contractor as a subcontractor, it is
the responsibility of the DBE to ensure that the bid or quote shows
that the NAICS code in which the DBE is certified corresponds to the
work to be performed by the DBE on that contract. It would be in the
best interest of the contractor to also have this information when it
is considering DBEs interested in competing for contract opportunities
where a contract goal has been set. This enables the contractor to make
a reasonable determination whether it has made good faith efforts to
meet the goal through the DBEs listed. Ultimately, the recipient is
responsible for ensuring the DBE is certified to do the kind of work
covered by the contract before DBE participation can be counted.
Including this information in the bid documents should assist all
parties concerned in

complying with DBE program requirements. Thus, it is the responsibility
of the certifier to ensure that DBEs are certified only in the
appropriate NAICS codes; it is the responsibility of the DBE to provide
that NAICS code to the prime while the prime is putting together a bid;
and it is the responsibility of the prime to provide those codes to the
recipient when providing the other DBE information. It is not the
responsibility of the prime to vouch for the accuracy of that
certification.

Replacement of a DBE

    The NPRM proposed that in the event that it is necessary to replace
a DBE listed on a contract, a contractor must document the GFE taken to
obtain a replacement and may be required to take specific steps to
demonstrate GFE. The specific steps would include: (1) A statement of
efforts made to negotiate with DBEs for specific work or supplies,
including the names, address, telephone numbers, and emails of those
DBEs that were contacted; (2) the time and date each DBE was contacted;
(3) a description of the information provided to DBEs regarding the
plans and specifications for portions of the work to be performed or
the materials supplied; and (4) an explanation of why an agreement
between the prime contractor and a DBE was not reached. The prime
contractor would have to submit this information within 7 days of the
recipient's agreement to permit the original DBE to be replaced, and
the recipient must provide a written determination to the contractor
stating whether or not good faith efforts have been demonstrated.
Failure to comply with the GFE requirements in the rule would
constitute a material breach of contract, subject to termination and
other remedies provided in the contract.
    Twenty-eight commenters opposed this modification to the rules.
They included prime contractors, State departments of transportation,
and contractor associations. Essentially, the opponents were of the
view that prime contractors should not be responsible for looking
beyond the original commitment for DBE replacements. Others felt that
the 7 day timeframe to replace a DBE is not long enough. Some opponents
suggested changing the proposal so that it is desirable to replace a
DBE with a DBE, but not mandatory. Some prime contractors also stated
that there is a need to be compensated for the delays to replace a DBE.
Those in favor of the proposal included five commenters representing
State departments of transportation, transit authorities, and DBE
advocacy groups. These commenters felt that contractors should make
efforts to replace a DBE and failure to carry out the requirement to do
so is a breach of contract.
    DOT Response: When the Department amended the regulations in 2011
(the first phase of its recent focus on program improvements), we
required prime contractors that terminate DBEs make GFE to find a
replacement to perform at least the same amount of work under the
contract to meet the contract goal established for the procurement.
Thus, this GFE obligation currently exists and is not new. We agree
that the GFE guidance in Appendix A used by recipients to assess the
efforts made by bidders and offerors before contract award can also be
used to evaluate efforts made by the contractor to replace a DBE after
contract award. There is no need to separately identify steps that a
recipient may require when a contractor is replacing a DBE. However,
there is nothing that prevents a contractor from taking any of the
steps included in the proposed amendment to the rules. Indeed,
recipients may consider, as part of their evaluation of the efforts
made by the contractor, whether DBEs were notified of subcontracting
opportunities, whether new items of work were made available for
subcontracting, what information was made available to DBEs, and what
efforts were made to negotiate with DBEs.
    The GFEs made by the contractor to obtain a replacement DBE should
be documented and submitted to the recipient within a reasonable time
after obtaining approval to terminate an existing DBE. To avoid
needless delay and ensure timely action, we think 7 days is reasonable,
but we have modified the rule to allow recipients to extend the time if
necessary at the request of the contractor.
    The existing regulations currently require a contract clause be
included in prime contracts and subcontracts that make the failure by
the contractor to carry out applicable requirements of 49 CFR Part 26 a
material breach of contract, which may result in the termination of the
contract or such other remedy as the recipient deems appropriate. See
49 CFR 26.13(b). Consequently, a contractor that fails to comply with
the requirements for terminating or replacing a DBE would be in breach
of contract, subject to contract sanctions that include termination of
the contract. We need not replicate the provisions of Sec.  26.13. We
also will not prescribe what the appropriate contract sanctions or
administrative remedies must be. However, we have revised Sec.  26.13
to incorporate the list of remedies we proposed as other possible
contract remedies recipients should consider. Many of the suggestions
are sanctions currently used by some recipients. They include
withholding progress payments, liquidated damages, disqualifying the
contractor from future bidding, and assessing monetary penalties.

Copies of Quotes and Subcontracts

    The Department proposed to require the apparent successful bidder/
offeror, as part of its GFE documentation, provide copies of each DBE
and non-DBE subcontractor quote it received in situations where the
bidder/offeror selected a non-DBE firm to do work sought by a DBE. This
information would help the recipient determine whether there is
validity to any claims by a bidder/offeror that a DBE was rejected
because its quote was too high. The contractor who is awarded the
contract also would be required to submit copies of all DBE
subcontracts.
    There were 15 organizations that commented on the proposal
regarding quotes and 19 commenters on the proposal regarding
subcontracts. Commenters were almost evenly divided in their support
for, or opposition to, requiring the submission of quotes under the
limited circumstances set out in the proposed rule. A State department
of transportation noted that the submission of quotes was already being
implemented in its program. One supporter suggested this requirement
should apply only when the DBE contract goal is not met. Opponents
raised concerns about the burden imposed and questioned the benefit to
be derived since the comparison of quotes is not viewed as a useful
exercise. Regarding the submission of subcontracts, the commenters
overwhelming opposed making this a requirement because of the burden.
One commenter suggested that the proposal appears to duplicate an
existing requirement of the Federal Highway Administration (FHWA) and
another commenter questioned the steps that would be taken to protect
confidential or proprietary information.
    DOT Response: The GFE guidance in Appendix A, in its current form,
instructs prime contractors to consider a number of factors when
negotiating with a DBE and states that the fact that there may be some
additional costs involved in finding and using DBEs is not in itself
sufficient reason for a bidder's failure to meet the contract DBE goal,
as long as such costs are reasonable. Thus, the reasonableness of a
DBE's quote as compared to a non-DBE's quote is often

an issue cited by a prime contractor in selecting a non-DBE over a DBE.
The Department believes that requiring a bidder/offeror to provide, as
part of the GFE documentation, subcontractor quotes received by the
bidder/offeror in those instances where a DBE's quote was rejected over
a non-DBE's quote will assist recipients in determining the validity of
claims made by the bidder/offeror that the DBE's quote was too high or
unreasonable and has therefore decided to finalize this proposal.
Further, we stress that only the quote would need to be submitted in
these situations, not any additional information and only in instances
where a non-DBE was selected over a DBE, thus limiting the burden of
this requirement.
    The Department recognizes that requiring the submission of DBE
subcontracts may pose unnecessary burdens on contractors and
recipients. Thus, the Department has decided to modify its proposal to
only require that DBE subcontracts be made available to recipients upon
request when needed to ensure compliance with the requirements of 49
CFR Part 26.

Good Faith Efforts Applied to Race-Neutral DBE Participation

    We sought comment on whether some of the good faith efforts
provisions of the rule concerning contracts with DBE goals should apply
to DBEs on contracts that do not have a DBE goal. For example, the
rules that restrict termination of DBEs and that impose good faith
efforts obligations to replace DBEs that are dropped from a contract or
project would apply regardless of whether the DBE's participation
resulted from race-conscious or race-neutral measures.
    Of the 28 commenters that responded to this question, only 3
expressed support and all three supporters were DBEs or organizations
representing DBEs. Three commenters also were conflicted, unsure of
whether the proposal would result in benefits to DBEs. The general
contracting community, many State departments of transportation, and
some transit agencies expressed opposition because they believe DBEs
should be treated no different than non-DBEs on contracts with no DBE
goals (the primary means of obtaining measurable DBE participation
through race- and gender-neutral measures), and to do otherwise is to
essentially convert what began as race-neutral conduct into race-
conscious conduct.
    DOT Response: The Department agrees with the points raised by the
commenters opposing this change (specifically, that no distinction
should be made between DBEs and non-DBEs when race-neutral measures are
used to obtain participation) and has decided to maintain the status
quo. The restrictions on terminating and replacing a DBE selected by a
bidder or offeror to meet a contract goal are intended to hold the
contractor to the good faith efforts commitment made to win the
contract. No comparable commitment is made when DBE contract goals are
not set.

Trucking 49 CFR 26.55(d)

    The Department proposed to change the counting rule for trucking to
allow 100% of a DBE's trucking services to be counted when the DBE uses
its own employees as drivers but leases trucks from a non-DBE truck
leasing company. This proposed change gives DBEs the same ability as
non-DBEs to use their own drivers and supplement their fleets with
leased trucks without sacrificing any loss of DBE credit because the
trucks may be leased from a non-DBE leasing company. Consistent with
the current prohibition on counting materials, supplies, equipment,
etc., obtained from the prime contractor or its affiliates (49 CFR
26.55(a)(1)), trucks leased from the prime contractor would not be
counted. As noted in the NPRM, this proposed rule change applies to
counting only; it would not immunize companies from scrutiny due to
potentially improper relationships between DBEs and non-DBEs that raise
certification eligibility or fraud concerns.
    More than 25 comments were received on this proposed change, mostly
in favor of the modification. There were several commenters that
believed the proposed rule would invite more fraud for an area that is
one of the top means of obtaining DBE participation on Federal-aid
contracts. Additional comments included expanding the definition of
``employees'' to expressly include those drivers that are hired by DBEs
from the union hall on an as-needed basis to fulfill contracts,
clarifying what constitutes ownership of trucks, eliminating the
current option allowed under the rule that permits credit for trucks
and drivers leased from non-DBEs, eliminating the need to obtain
written consent from the operating administrations on the option chosen
by the recipient; and reinforcing the restriction on not allowing a DBE
to count trucks purchased or leased from the prime contractor.
    DOT Response: The Department did not propose any changes in the
NPRM to the existing rule that allows a DBE that leases trucks (and
also leases the drivers) from a non-DBE firm to receive credit for the
value of transportation services provided by the non-DBE firm up to the
amount of credit provided by trucks owned by DBEs that are used on the
contract. This option was added to the DBE program rules in 2003 (68
Fed. Reg. 35542-02) to recognize the practical reality of leasing in
the trucking business and to respond to concerns about reduced
opportunities for DBEs caused by the 1999 version of the counting rule.
As indicated in the 2003 final rule, a recipient may choose the one-
for-one option to credit trucks and drivers leased from non-DBEs or it
may limit credit to fees and commissions for work done with non-DBE
lessees, consistent with the 1999 version of the rule. If a recipient
chooses to count the use of trucks and drivers leased from a non-DBE
firm, as provided in the existing rule, the recipient's choice should
be reflected in the recipient's DBE program plan, which is subject to
approval by the cognizant operating administration (OA) to ensure
appropriate safeguards are taken by the recipient to prevent fraud.
Contrary to the way some commenters are reading the existing rule, it
does not contemplate obtaining OA consent on a transaction-by-
transaction basis.
    The modification to the rule that the Department makes final today
simply clarifies that trucks that are leased by a DBE from a non-DBE
for use by the DBE's employees should be treated no differently than
other equipment a DBE may lease to conduct its business. The value of
the transportation services provided by the DBE would not be adversely
impacted by the fact that the equipment used by the DBE's employees is
leased instead of owned. This is consistent with the existing counting
rule and with the basic principle that DBE participation should be
counted for work performed with a DBE firm's own forces. The term
``employee'' is to be given its commonly understood dictionary meaning,
and ``ownership'' includes the purchase of a truck or trucks through
conventional financing arrangements.

Regular Dealer 49 CFR 26.55(e)

    The Department proposed to codify guidance issued in 2011 on how to
treat the services provided by a DBE acting as a regular dealer or a
transaction expediter/broker for counting purposes (i.e., crediting the
work of the DBE toward the goal). The guidance makes clear that
counting decisions involving a DBE acting as a regular dealer are made
on a contract-by-contract basis and not based on a general description
or designation of a DBE as a regular

dealer. The Department also invited an open discussion of the regular
dealer concept in light of changes in the way business is conducted.
Specifically, we sought comment on: (1) How, if at all, changes in the
way business is conducted should result in changes in the way DBE
credit is counted in supply situations?; (2) what is the appropriate
measure of the value added by a DBE that does not play a traditional
regular dealer/middleman role in a transaction?; and (3) do the policy
considerations for the current 60% regular dealer credit actually
influence more use of DBEs as contractors that receive 100% credit?
    The Department received over 50 comments from prime contractors,
DBEs, and recipients, many of which emphasized the need for additional
clarification of, or changes to, the terminology used to describe
regular dealers, middlemen, transaction expediters, and brokers. The
comments were evenly divided over whether the guidance should be
codified in the regulations. Those in support agreed that the
determination of whether or not a DBE is functioning as a regular
dealer as defined in the existing rule should be based on the role
performed by the DBE on the contract, which may vary from contract to
contract. Those opposed to the contract-by-contract approach,
represented mostly, but not exclusively, by prime contractors, argued
that the approach reflected in the guidance is burdensome and that once
a recipient determines at certification that a DBE is a supplier, a
wholesaler, a manufacturer, a transaction expediter, a middleman, or a
broker, the credit allowed under the rules should be applied. To do
otherwise creates inconsistency, uncertainty, and exposes the prime and
the DBE to risks associated with fraud investigations in this area. It
is the responsibility of the certifier, they argue, to ensure that a
DBE certified as a supplier, for example (and thereby acting as a
regular dealer), is, in fact, a supplier and not a transaction
expediter. Indeed, several commenters expressed the view that
certifiers should be allowed to certify a DBE as a ``regular dealer.''
Followed to its logical conclusion, once certified, how the work to be
performed by the DBE is counted would be automatic without regard to
what the DBE is actually doing on the contract.
    Many comments addressed the changing business environment where the
best method of delivering supplies ordered from a non-DBE manufacturer
may in fact be drop-ship rather than delivery by the DBE regular dealer
using its own trucks. One commenter stated that the requirement that a
DBE own and operate its own distribution equipment directly conflicts
with industry practice and creates a greater burden and challenge to
DBEs. Similarly, some maintain the requirement for an inventory or
store front is outdated. The way business is conducted today, they
argue, services provided by wholesalers or e-Commerce businesses do not
require an inventory or a store open to the public. Several commenters
indicated that they would be comfortable with the elimination of the
distinct categories and only have a single distinction of a goods
supplier from a non-DBE manufacturer with a set percentage of dollars
that could be counted or only using fees and commissions as the amount
that can be counted as done currently for transaction expediters and
brokers. To encourage greater use of DBE contractors to meet contract
goals, one commenter suggested placing a cap (e.g., no more than 50%)
on how much of a contract goal could be met using DBE suppliers.
    There were suggestions that the Department eliminate altogether
regular dealers and brokers from the rule. Others countered that any
proposal to eliminate counting regular dealer participation toward
contract goals would severely reduce the pool of ready, willing, and
able DBEs given how often the regular dealer credit is used to meet
contract goals; such a proposal, they maintain, should result in a
corresponding reduction in goals. Other commenters believe that it is
important to keep the regular dealer concept and consider increasing
the counting percentage due to the value added services they provide.
Still others thought a complete overhaul of the regular dealer
provisions in the rule is needed to recognize decades of changes in the
construction industry, and no modifications to the rule should be made
until further analysis is done.
    DOT Response: The Department has decided to codify the guidance on
the treatment of counting decisions that involve DBEs functioning as
regular dealers. This guidance is consistent with the basic counting
principles set out in the rule that apply regardless of the kind of
work performed by the DBE. Specifically, the counting rules apply to a
specific contract in which a DBE participates based on the value of
work actually performed by the DBE that involves a commercially useful
function on that contract. Throughout 49 CFR 26.55 there are numerous
references to ``a contract,'' ``the contract,'' or ``that contract.''
In other words, counting is by definition a ``contract-by-contract''
determination made by recipients after evaluating the work to be
performed by the DBE on a particular contract.
    The Department appreciates the thought that went into the varied
comments received on the questions we posed and the overall interest in
the subject. In the context of this discussion, it is important to
reiterate that certification and counting are separate concepts in the
DBE rule. This applies regardless of the type of work the DBE is
certified to perform. It is also important to note that DBEs must be
certified in the most specific NAICS code(s) for the type of work they
perform and that there is no regular dealer NAICS code. Regular dealer
is a term of art used in the context of the DBE program. That said, the
Department believes that more analysis and discussion is needed to make
informed policy decisions about appropriate modifications to the
regulations governing regular dealers, transaction expediters, and
brokers. We think it more appropriate at this point to develop
additional guidance to address different business scenarios rather than
promulgate regulatory requirements or restrictions beyond those that
currently exist. We will continue the conversation through future
stakeholder meetings.

Ethics and Conflicts of Interest

    The Department sought comment on whether Part 26 should be amended
(or guidance issued) to add provisions concerning ethics and conflicts
of interest to help play a constructive role in empowering DBE
officials in resisting inappropriate political pressures. At the same
time, the Department questioned whether such a provision would be
effectual and whether the provision could be drafted so as not to be
overly detailed. The Department also welcomed suggestions about ethics
and conflicts of interest.
    Less than 25 commenters elected to address this subject; the
significant majority of commenters expressed support for adding ethics
and conflict of interest provisions to enable DBE certification
officials and others to resist inappropriate pressures. An advocacy
group commended the Department for initiating a discussion about
ethics. A State transportation department suggested including
applicable penalties and offering protection via the Whistleblower
Protection Act. An airport sponsor supported adding provisions that
clarify the roles of staff who administer the selection process.
    A State transit authority did not believe that effective guidance
could be provided in the regulation without being overly detailed and
burdensome. Moreover, the commenter recognized

that while adding such provisions would play a constructive role, they
would not totally eradicate inappropriate pressure. A State
transportation department directed the Department to professional codes
of conduct for the fields of law and engineering as examples. An
advocacy group and a DBE noted that a code of ethics might provide
recipients with a ``safety net'' when responding to undue pressure.
Another State transportation department supports the provision if DOT
takes quick action against known abusers of ethics. A DBE commenter
recommended a workgroup approach be utilized to prepare draft language.
    DOT Response: There was general support among the commenters for
establishing a code of ethics of some kind to insulate or protect DBE
program administrators from undue pressure to take actions inconsistent
with the intent and language of the DBE program rules. However, very
few of the commenters made suggestions on the details of such a code or
on the kind of provisions that might be added to address specific
concerns. As indicated in the NPRM, recipients and their staffs are
subject to State and local codes of ethics that govern public employees
and officials in the performance of their official duties and
responsibilities, including the responsibilities they carry out in
administering the DBE program as a condition of receiving Federal
financial assistance. Of course, grant recipients are subject to the
common grant rules which prohibit participating in the selection,
award, or administration of a contract supported by Federal funds if a
conflict of interest would be involved. Because we lack sufficient
information, at this point, to determine the extent to which widespread
problems exist or how best to approach the issue--through regulations
or guidance--the Department thinks it best to hold off on adopting
ethics rules for the DBE program to supplement existing State and local
ethics codes. Instead, the Department may engage stakeholders in a
further discussion to aid in identifying appropriate next steps.

Appendix A--Good Faith Efforts Guidance

    The Department proposed several revisions to Appendix A to Part
26--Guidance Concerning Good Faith Efforts to clarify and reinforce the
GFE obligation of bidders/offerors and to provide additional guidance
to recipients. We proposed to add more examples of the types of actions
recipients may consider when evaluating the bidders'/offerors' GFE to
obtain DBE participation. The proposed examples included conducting
market research to identify small business contractors and suppliers
and establishing flexible timeframes for performance and delivery
schedules that encourage and facilitate DBE participation. We
reinforced concepts that we have emphasized in communicating with
recipients over the years: Namely, that a contractor's desire to
perform work with its own forces is not a basis for not making GFE and
rejecting a replacement DBE that submits a reasonable quote; and
reviewing the performance of other bidders should be a part of the GFE
evaluation. The Department also proposed to add language specifying
that the rejection of a DBE simply because it was not the low bidder is
not a practice considered to be a good faith effort.
    There were 25 comments collected that opposed the suggestion that
flexible timeframes and schedules be established to facilitate DBE
participation. The comments received were submitted by prime
contractors, contractor associations, and State departments of
transportation. These organizations stated that a ``flexible
timeframe'' was unrealistic and went against the nature of the
construction industry. Other organizations stated the need to further
quantify what constitutes an ``unreasonable quote'' when making GFE to
replace a DBE. There were two organizations that supported these
provisions. U.S. Representative Judy Chu agreed that there can be no
definitive checklist, but suggested that best practices be collected
and disseminated to clarify the issue. One State department of
transportation agreed that the bidder cannot reject a DBE simply due to
price.
    In the NPRM, we also proposed in Appendix A that DOT operating
administrations may change recipients' good faith efforts decisions.
There were a few comments regarding this proposal, all in opposition.
The commenters included a DBE, prime contractor, a State department of
transportation, and a contractors association. The prime contractor
noted that operating administrations should be involved throughout the
good faith efforts review process and not after the recipient has made
a decision. There were no comments in support of this proposal.
    DOT Response: It is important to reiterate and reinforce that
Appendix A is guidance to be used by recipients in considering the good
faith efforts of bidders/offerors. It does not constitute a mandatory,
exclusive, or exhaustive checklist. Rather, a good faith efforts
evaluation looks at the ``quality, quantity, and intensity of the
different kinds of efforts that the bidder has made.'' The proposed
revisions to the guidance made by the Department are based on
experience gained since the development of the guidance in 1999 and are
intended to incorporate clarifications and additional examples of the
different kinds of activities to consider. We have modified the final
guidance in keeping with the existing purpose and intent. The guidance
also seeks to indicate what reasonably may not be viewed as a
demonstration of good faith efforts. In this regard, rejecting a DBE
only because it was not the low bidder is not consistent with the
longstanding idea that a bidder/offeror should consider a variety of
factors when negotiating with a DBE, including the fact that there may
be additional costs involved in finding and using DBEs, as currently
stated in the existing guidance. Similarly, the inability to find a
replacement DBE at the original price is not, without more, sufficient
to demonstrate GFE were made to replace the original DBE. As currently
stated under the existing guidance, a firm's price is one of many
factors to consider in negotiating in good faith with interested DBEs.
    The Department has decided to make no change to the current role of
the operating administrations with respect to the GFE determinations
made by recipients. It is the responsibility of recipients to
administer the DBE program consistent with the requirements of 49 CFR
Part 26, and it is the responsibility of the operating administrations
to oversee recipients' program administration to ensure compliance
through appropriate enforcement action if necessary. Such action
includes refusing to approve or provide funding for a contract awarded
in violation of 49 CFR 26.53(a). The proposed change may confuse the
relative roles and responsibilities of the recipients and the operating
administrations and consequently has been removed from the final rule.

Technical Corrections

    The Department is amending the following provisions in 49 CFR Part
26 to correct technical errors:
    1. Section 26.3(a)--Include a reference to the Highway and Transit
funds authorized under SAFETEA-LU and MAP-21.
    2. Section 26.83(c)(7)--Remove the reference to the DOT/SBA MOU
since the MOU has lapsed.
    3. Section 26.89(a)--Amend to recognize that the DOT/SBA MOU has
lapsed.

Regulatory Analyses and Notices

Executive Orders 12866 and 13563 (Regulatory Planning and Review)

    This final rule is not a ``significant regulatory action'' under
section 3(f) of Executive Order 12866, Regulatory Planning and Review,
and does not require an assessment of potential costs and benefits
under section 6(a)(3) of the Order. It does not create significant cost
burdens, does not affect the economy adversely, does not interfere or
cause a serious inconsistency with any action or plan of another
agency, does not materially alter the impact of entitlements, grants,
user fees or loan programs; and does not raise novel legal or policy
issues. The final rule is essentially a streamlining of the provisions
for implementing an existing program, clarifying existing provisions
and improving existing forms. To the extent that clearer certification
requirements and improved documentation can forestall DBE fraud, the
rule will result in significant savings to State and local governments.
This final rule does not contain significant policy-level initiatives,
but rather focuses on administrative changes to improve program
implementation. The Department notes that several commenters,
particularly general contractors and their representatives, argued that
the NPRM should have been designated as ``significant.'' Although the
Department continues to believe that the designation of the NPRM was
correct based on the intent of this rulemaking, we note that, as
discussed above, we have decided to not finalize at this time many of
the provisions that those commenters argued were significant changes to
the DBE program.

Executive Order 12372 (Intergovernmental Review)

    The final rule is a product of a process, going back to 2007, of
stakeholder meetings and written comment that generated significant
input from State and local officials and agencies involved with the DBE
program in transit, highway, and airport programs.

Regulatory Flexibility Act

    In compliance with the Regulatory Flexibility Act (Pub. L. 96-354,
5 U.S.C. 601-612), we have evaluated the effects of this final rule on
small entities and anticipate that this action will not have a
significant economic impact on a substantial number of small entities.
The underlying DBE rule does deal with small entities: All DBEs are, by
definition, small businesses. Also, some FAA and FTA recipients that
implement the program are small entities. However, the changes to the
rule are primarily technical modifications to existing requirements
(e.g., improved forms, refinements of certification provisions) that
will have little to no economic impact on program participants.
Therefore, the changes will not create significant economic effects on
anyone. In compliance with the Regulatory Flexibility Act (5 U.S.C.
601-612), I certify that this rule will not have a significant economic
impact on a substantial number of small entities.

Executive Order 13132 (Federalism)

    A rule has implications for federalism under Executive Order 13132,
Federalism, if it has a substantial direct effect on State or local
governments and would either preempt State law or impose a substantial
direct cost of compliance on them. As noted above, there is no
substantial compliance cost imposed on State and local agencies, who
will continue to implement the underlying program with administrative
improvements proposed in the rule. The proposed rule does not involve
preemption of State law. Consequently, we have analyzed this proposed
rule under the Order and have determined that it does not have
implications for federalism.

National Environmental Policy Act (NEPA)

    The Department has analyzed the environmental impacts of this
proposed action pursuant to the National Environmental Policy Act of
1969 (NEPA) (42 U.S.C. 4321 et seq.) and has determined that it is
categorically excluded pursuant to DOT Order 5610.1C, Procedures for
Considering Environmental Impacts (44 FR 56420, Oct. 1, 1979).
Categorical exclusions are actions identified in an agency's NEPA
implementing procedures that do not normally have a significant impact
on the environment and therefore do not require either an environmental
assessment (EA) or environmental impact statement (EIS). See 40 CFR
1508.4. In analyzing the applicability of a categorical exclusion, the
agency must also consider whether extraordinary circumstances are
present that would warrant the preparation of an EA or EIS. Id.
Paragraph 3.c.5 of DOT Order 5610.1C incorporates by reference the
categorical exclusions for all DOT Operating Administrations. This
action is covered by the categorical exclusion listed in the Federal
Highway Administration's implementing procedures, ``[p]romulgation of
rules, regulations, and directives.'' 23 CFR 771.117(c)(20). The
purpose of this rulemaking is to make technical improvements to the
Department's DBE program, including modifications to the forms used by
program and certification-related changes. While this rule has
implications for eligibility for the program--and therefore may change
who is eligible for participation in the DBE program--it does not
change the underlying programs and projects being carried out with DOT
funds. Those programs and projects remain subject to separate
environmental review requirements, including review under NEPA. The
Department does not anticipate any environmental impacts, and there are
no extraordinary circumstances present in connection with this
rulemaking.

Paperwork Reduction Act

    According to the 1995 amendments to the Paperwork Reduction Act (5
CFR 1320.8(b)(2)(vi)), an agency may not collect or sponsor the
collection of information, nor may it impose an information collection
requirement unless it displays a currently valid Office of Management
and Budget (OMB) control number. This action contains additional
amendments to the existing information collection requirements
previously approved under OMB Control Number 2105-0510. As required by
the Paperwork Reduction Act, the Department has submitted these
information collection amendments to OMB for its review. The Department
will announce the finalization of this information collection request
in a separate Federal Register notice following OMB approval. The NPRM
contained estimates of the burden associated with the additional
collection requirements proposed in that document. Various commenters
stated that the Department understated the proposed burden for the
collections associated with the application form and personal net worth
form. As discussed above in the relevant portions of the preamble, the
Department is sensitive to those concerns and has revised those
collections to minimize what information must be submitted and to
simplify other aspects of the forms. For each of these information
collections, the title, a description of the entity to which it
applies, and an estimate of the annual recordkeeping and periodic
reporting burden are set forth below.
1. Application Form
    Today's final rule modifies the application form for the DBE
program. In the NPRM, the Department explained that its estimate of 8
total burden hours per applicant to complete its DBE or

ACDBE certification application with supporting documentation was based
on discussions the Department has had with DBEs in the past. The
comments and the Department's response to those comments are discussed
above in the preamble.
    The number of new applications received each year by Unified
Certification Program members is difficult to estimate. There is no
central repository for DBE certification applications and we predict
that the frequency of submissions at times vary according to
construction season (high applications when the season is over), the
contracting opportunities available in the marketplace, and the number
of new transportation-related business formations or expansions. To get
some estimate however, the Department contacted recipients during the
process of developing the NPRM. The agencies we contacted reported
receiving between 1-2 applications per month, 5-10 per month, or on the
high end 80-100 per month. There are likely several reasons for the
variance. Jurisdictions that are geographically contiguous to other
states (such as Maryland) and/or have a high DBE applicant pool may
receive a higher number whereas jurisdictions in remote areas of the
country with smaller numbers of firms may have lower applicant requests
for DBE certification. These rough numbers likely do not include
requests for expansion of work categories from existing firms that are
already certified.
    Frequency: Once during initial DBE or ACDBE certification.
    Estimated Average Burden per Response: 8 hours.
    Number of Respondents: 9,000-9,500 applicants each year.
    Estimated Total Annual Burden Hours: 72,000-76,000 hours per year.
2. PNW Form
    A small business seeking to participate in the DBE and ACDBE
programs must be owned and controlled by a socially and economically
disadvantaged individual. When a recipient determines that an
individual's net worth exceeds $1.32 million, the individual's
presumption of economic disadvantage is said to have been conclusively
rebutted. In order to make this determination, the current rule
requires recipients to obtain a signed and notarized statement of
personal net worth from all persons who claim to own and control a firm
applying for DBE or ACDBE certification and whose ownership and control
are relied upon for the certification. These personal net worth
statements must be accompanied by appropriate supporting documentation
(e.g., tax returns). The form finalized in this rule would replace use
of an SBA form suggested in current regulations.
    As discussed above in the preamble, we estimate that compiling
information for and filling out this form would take approximately 2
hours, slightly longer than that for the SBA form currently in use. As
explained in further detail in the above preamble, the Department has
chosen not to finalize its proposal to require a PNW form with each
annual affidavit of no change. Thus, the number of respondents who must
submit a PNW form is the same as the number of applications.
    Frequency: Once during initial DBE certification. For the DBE/ACDBE
programs, information regarding the assets and liabilities of
individual owners is necessary for recipients of grants from the
Federal Transit Administration, the Federal Aviation Administration,
and the Federal Highway Administration, to make responsible decisions
concerning an applicant's economic disadvantage under the rule. All
persons who claim to own and control a firm applying for DBE or ACDBE
certification and whose ownership and control are relied upon for the
certification will complete the form.
    Estimated Average Burden per Response: 2 hours.
    Number of Respondents: 9,000-9,500 applicants each year.
    Estimated Burden: 18,000-19,000 hours per year for applications.
3. Material With Annual Affidavits of No Change
    Each year, a certified firm must submit an affidavit of no change.
Although the Department proposed that DBE would need to submit various
additional documentation with the affidavit (e.g., an updated PNW
statement and records of transfers) today's final rule only requires
that the owner and the firm's (including affiliates) most recent
completed IRS tax return, IRS Form 4506 (Request for Copy or Transcript
of Tax Return) be submitted with the affidavit. Collection and
submission of these items during the annual affidavit is estimated to
take approximately 1.5 hours.
    Estimated Average Burden per Response: 1.5 hours.
    Respondents: The approximately 30,000 certified DBE firms.
    Burden: Approximately 45,000 hours per year.
4. Reporting Requirement for Percentages of DBEs in Various Categories
    The final rule implements a statutory requirement calling on UCPs
to annually report the percentages of white women, minority men, and
minority women who control DBE firms. To carry out this requirement,
the 52 UCPs would read their existing Directories, noting which firms
fell into each of these three categories. The UCPs would then calculate
the percentages and email their results to the Departmental Office of
Civil Rights. It would take each UCP an estimated 3 hours to comb
through their Directories, and another three minutes to calculate the
percentages and send an email to<EMAIL_ADDRESS>    Estimated Average Burden per Response: 3 hours, 3 minutes.
    Respondents: 52.
    Burden: Approximately 158.5 hours.
5. Uniform Report of DBE Commitments/Awards and Payments
    As part of this rulemaking, the Department is reinstating the
information collection entitled, ``Uniform Report of DBE Commitments/
Awards and Payments,'' OMB Control No. 2105-0510, consistent with the
changes proposed in this final rule. This collection requires that DOT
Form 4630 be submitted once or twice per year by each recipient having
an approved DBE program. The report form is collected from recipients
by FHWA, FTA, and FAA, and is used to enable DOT to conduct program
oversight of recipients' DBE programs and to identify trends or problem
areas in the program. This collection is necessary for the Department
to carry out its oversight responsibilities of the DBE program, since
it allows the Department to obtain information from the recipients
about the DBE participation they obtain in their programs.
    In this final rule, the Department modified certain aspects of this
collection in response to issues raised by stakeholders: (1) Creating
separate forms for routine DBE reporting and for transit vehicle
manufacturers (TVMs) and mega projects; (2) amending and clarifying the
report's instructions to better explain how to fill out the forms; and
(3) changing the forms to better capture the desired DBE data on a more
continuous basis, which should also assist with recipients' post-award
oversight responsibilities.
    Frequency: Once or twice per year.
    Estimated Average Burden per Response: 5 hours per response.
    Number of Respondents: 1,250. The Department estimates that

approximately 550 of these respondents prepare two reports per year,
while approximately 700 prepare one report per year.
    Estimated Burden: 9,000 hours.

List of Subjects in 49 CFR Part 26

    Administrative practice and procedure, Airports, Civil Rights,
Government contracts, Grant-programs--transportation; Mass
transportation, Minority Businesses, Reporting and recordkeeping
requirements.

    Issued this 19th day of September 2014, at Washington, DC.
Anthony R. Foxx,
Secretary of Transportation.

    For the reasons set forth in the preamble, the Department of
Transportation amends 49 CFR part 26 as follows:

PART 26--PARTICIPATION BY DISADVANTAGED BUSINESS ENTERPRISES IN
DEPARTMENT OF TRANSPORTATION FINANCIAL ASSISTANCE PROGRAMS

0
1. The authority citation for part 26 continues to read as follows:

    Authority: 23 U.S.C. 304 and 324; 49 U.S.C. 2000d, et seq., 49
U.S.C. 47107, 47113, 47123; Section 1101(b) and divisions A and B of
the Moving Ahead for Progress in the 21st Century Act (MAP-21), Pub.
L. 112-141, 126 Stat. 405, and 23 U.S.C. 403.

0
2. In Sec.  26.1, redesignate paragraphs (f) and (g) as paragraphs (g)
and (h), and add new paragraph (f) to read as follows:

Sec.  26.1  What are the objectives of this part?

* * * * *
    (f) To promote the use of DBEs in all types of federally-assisted
contracts and procurement activities conducted by recipients.
* * * * *

0
3. In Sec.  26.3, amend paragraphs (a)(1) and (2) by adding a sentence
to the end of each to read as follows:

Sec.  26.3  To whom does this part apply?

    (a) * * *
    (1) * * * Titles I, III, and V of the Safe, Accountable, Flexible,
Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU),
Pub. L. 109-59, 119 Stat. 1144; and Divisions A and B of the Moving
Ahead for Progress in the 21st Century Act (MAP-21), Pub. L. 112-141,
126 Stat. 405.
    (2) * * * Titles I, III, and V of the Safe, Accountable, Flexible,
Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU),
Pub. L. 109-59, 119 Stat. 1144; and Divisions A and B of the Moving
Ahead for Progress in the 21st Century Act (MAP-21), Pub. L. 112-141,
126 Stat. 405.
* * * * *

0
4. Amend Sec.  26.5 by:
0
a. Adding in alphabetical order definitions for ``Assets'', ``Business,
business concern or business enterprise'', ``Contingent Liability'',
and ``Days'';
0
b. Removing the definition of ``DOT/SBA Memorandum of Understanding'';
0
c. Revising the definition of ``immediate family member'';
0
d. Adding in alphabetical order definition for ``Liabilities''
0
e. Revising the definitions of ``primary industry classification'',
``principal place of business'', and ``socially and economically
disadvantaged individual''; and
0
f. Adding in alphabetical order definitions for ``Spouse'' and
``Transit vehicle manufacturer (TVM)''.
    The additions and revisions read as follows:

Sec.  26.5  What do the terms used in this part mean?

* * * * *
    Assets mean all the property of a person available for paying debts
or for distribution, including one's respective share of jointly held
assets. This includes, but is not limited to, cash on hand and in
banks, savings accounts, IRA or other retirement accounts, accounts
receivable, life insurance, stocks and bonds, real estate, and personal
property.
* * * * *
    Business, business concern or business enterprise means an entity
organized for profit with a place of business located in the United
States, and which operates primarily within the United States or which
makes a significant contribution to the United States economy through
payment of taxes or use of American products, materials, or labor.
* * * * *
    Contingent Liability means a liability that depends on the
occurrence of a future and uncertain event. This includes, but is not
limited to, guaranty for debts owed by the applicant concern, legal
claims and judgments, and provisions for federal income tax.
* * * * *
    Days mean calendar days. In computing any period of time described
in this part, the day from which the period begins to run is not
counted, and when the last day of the period is a Saturday, Sunday, or
Federal holiday, the period extends to the next day that is not a
Saturday, Sunday, or Federal holiday. Similarly, in circumstances where
the recipient's offices are closed for all or part of the last day, the
period extends to the next day on which the agency is open.
* * * * *
    Immediate family member means father, mother, husband, wife, son,
daughter, brother, sister, grandfather, grandmother, father-in-law,
mother-in-law, sister-in-law, brother-in-law, and domestic partner and
civil unions recognized under State law.
* * * * *
    Liabilities mean financial or pecuniary obligations. This includes,
but is not limited to, accounts payable, notes payable to bank or
others, installment accounts, mortgages on real estate, and unpaid
taxes.
* * * * *
    Primary industry classification means the most current North
American Industry Classification System (NAICS) designation which best
describes the primary business of a firm. The NAICS is described in the
North American Industry Classification Manual--United States, which is
available on the Internet at the U.S. Census Bureau Web site: http://www.census.gov/eos/www/naics/.
* * * * *
    Principal place of business means the business location where the
individuals who manage the firm's day-to-day operations spend most
working hours. If the offices from which management is directed and
where the business records are kept are in different locations, the
recipient will determine the principal place of business.
* * * * *
    Socially and economically disadvantaged individual means any
individual who is a citizen (or lawfully admitted permanent resident)
of the United States and who has been subjected to racial or ethnic
prejudice or cultural bias within American society because of his or
her identity as a members of groups and without regard to his or her
individual qualities. The social disadvantage must stem from
circumstances beyond the individual's control.
    (1) Any individual who a recipient finds to be a socially and
economically disadvantaged individual on a case-by-case basis. An
individual must demonstrate that he or she has held himself or herself
out, as a member of a designated group if you require it.
    (2) Any individual in the following groups, members of which are
rebuttably presumed to be socially and economically disadvantaged:

    (i) ``Black Americans,'' which includes persons having origins in
any of the Black racial groups of Africa;
    (ii) ``Hispanic Americans,'' which includes persons of Mexican,
Puerto Rican, Cuban, Dominican, Central or South American, or other
Spanish or Portuguese culture or origin, regardless of race;
    (iii) ``Native Americans,'' which includes persons who are enrolled
members of a federally or State recognized Indian tribe, Alaska
Natives, or Native Hawaiians;
    (iv) ``Asian-Pacific Americans,'' which includes persons whose
origins are from Japan, China, Taiwan, Korea, Burma (Myanmar), Vietnam,
Laos, Cambodia (Kampuchea), Thailand, Malaysia, Indonesia, the
Philippines, Brunei, Samoa, Guam, the U.S. Trust Territories of the
Pacific Islands (Republic of Palau), Republic of the Northern Marianas
Islands, Samoa, Macao, Fiji, Tonga, Kirbati, Tuvalu, Nauru, Federated
States of Micronesia, or Hong Kong;
    (v) ``Subcontinent Asian Americans,'' which includes persons whose
origins are from India, Pakistan, Bangladesh, Bhutan, the Maldives
Islands, Nepal or Sri Lanka;
    (vi) Women;
    (vii) Any additional groups whose members are designated as
socially and economically disadvantaged by the SBA, at such time as the
SBA designation becomes effective.
    (3) Being born in a particular country does not, standing alone,
mean that a person is necessarily a member of one of the groups listed
in this definition.
    Spouse means a married person, including a person in a domestic
partnership or a civil union recognized under State law.
    Transit vehicle manufacturer means any manufacturer whose primary
business purpose is to manufacture vehicles specifically built for
public mass transportation. Such vehicles include, but are not limited
to: Buses, rail cars, trolleys, ferries, and vehicles manufactured
specifically for paratransit purposes. Producers of vehicles that
receive post-production alterations or retrofitting to be used for
public transportation purposes (e.g., so-called cutaway vehicles, vans
customized for service to people with disabilities) are also considered
transit vehicle manufacturers. Businesses that manufacture, mass-
produce, or distribute vehicles solely for personal use and for sale
``off the lot'' are not considered transit vehicle manufacturers.
* * * * *

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5. In Sec.  26.11, add paragraphs (d) and (e) to read as follows:

Sec.  26.11  What records do recipients keep and report?

* * * * *
    (d) You must maintain records documenting a firm's compliance with
the requirements of this part. At a minimum, you must keep a complete
application package for each certified firm and all affidavits of no-
change, change notices, and on-site reviews. These records must be
retained in accordance with applicable record retention requirements
for the recipient's financial assistance agreement. Other certification
or compliance related records must be retained for a minimum of three
(3) years unless otherwise provided by applicable record retention
requirements for the recipient's financial assistance agreement,
whichever is longer.
    (e) The State department of transportation in each UCP established
pursuant to Sec.  26.81 of this part must report to the Department of
Transportation's Office of Civil Rights, by January 1, 2015, and each
year thereafter, the percentage and location in the State of certified
DBE firms in the UCP Directory controlled by the following:
    (1) Women;
    (2) Socially and economically disadvantaged individuals (other than
women); and
    (3) Individuals who are women and are otherwise socially and
economically disadvantaged individuals.

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6. Revise Sec.  26.13, to read as follows:

Sec.  26.13  What assurances must recipients and contractors make?

    (a) Each financial assistance agreement you sign with a DOT
operating administration (or a primary recipient) must include the
following assurance: The recipient shall not discriminate on the basis
of race, color, national origin, or sex in the award and performance of
any DOT-assisted contract or in the administration of its DBE program
or the requirements 49 CFR part 26. The recipient shall take all
necessary and reasonable steps under 49 CFR part 26 to ensure
nondiscrimination in the award and administration of DOT-assisted
contracts. The recipient's DBE program, as required by 49 CFR part 26
and as approved by DOT, is incorporated by reference in this agreement.
Implementation of this program is a legal obligation and failure to
carry out its terms shall be treated as a violation of this agreement.
Upon notification to the recipient of its failure to carry out its
approved program, the Department may impose sanctions as provided for
under 49 CFR part 26 and may, in appropriate cases, refer the matter
for enforcement under 18 U.S.C. 1001 and/or the Program Fraud Civil
Remedies Act of 1986 (31 U.S.C. 3801 et seq.).
    (b) Each contract you sign with a contractor (and each subcontract
the prime contractor signs with a subcontractor) must include the
following assurance: The contractor, sub recipient or subcontractor
shall not discriminate on the basis of race, color, national origin, or
sex in the performance of this contract. The contractor shall carry out
applicable requirements of 49 CFR part 26 in the award and
administration of DOT-assisted contracts. Failure by the contractor to
carry out these requirements is a material breach of this contract,
which may result in the termination of this contract or such other
remedy as the recipient deems appropriate, which may include, but is
not limited to:
    (1) Withholding monthly progress payments;
    (2) Assessing sanctions;
    (3) Liquidated damages; and/or
    (4) Disqualifying the contractor from future bidding as non-
responsible.

Sec.  26.21  [Amended]

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7. In Sec.  26.21, paragraph (a)(1) add the word ``primary'' before the
word ``recipients'', and in paragraphs (a)(2) and (3), remove the word
``exceeding'' and add in its place the words ``the cumulative total
value of which exceeds''.
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8. In Sec.  26.45, revise paragraphs (c)(2), (c)(5); (d) introductory
text, (e)(3), (f)(4), and (g) to read as follows:

Sec.  26.45.  How do recipients set overall goals?

* * * * *
    (c) * * *
    (2) Use a bidders list. Determine the number of DBEs that have bid
or quoted (successful and unsuccessful) on your DOT-assisted prime
contracts or subcontracts in the past three years. Determine the number
of all businesses that have bid or quoted (successful and unsuccessful)
on prime or subcontracts in the same time period. Divide the number of
DBE bidders and quoters by the number of all businesses to derive a
base figure for the relative availability of DBEs in your market. When
using this approach, you must establish a mechanism (documented in your
goal submission) to directly capture data on DBE and non-DBE prime and

subcontractors that submitted bids or quotes on your DOT-assisted
contracts.
* * * * *
    (5) Alternative methods. Except as otherwise provided in this
paragraph, you may use other methods to determine a base figure for
your overall goal. Any methodology you choose must be based on
demonstrable evidence of local market conditions and be designed to
ultimately attain a goal that is rationally related to the relative
availability of DBEs in your market. The exclusive use of a list of
prequalified contractors or plan holders, or a bidders list that does
not comply with the requirements of paragraph (c)(2) of this section,
is not an acceptable alternative means of determining the availability
of DBEs.
    (d) Step 2. Once you have calculated a base figure, you must
examine all of the evidence available in your jurisdiction to determine
what adjustment, if any, is needed to the base figure to arrive at your
overall goal. If the evidence does not suggest an adjustment is
necessary, then no adjustment shall be made.
* * * * *
    (e) * * *
    (3) In appropriate cases, the FHWA, FTA or FAA Administrator may
permit or require you to express your overall goal as a percentage of
funds for a particular grant or project or group of grants and/or
projects, including entire projects. Like other overall goals, a
project goal may be adjusted to reflect changed circumstances, with the
concurrence of the appropriate operating administration.
    (i) A project goal is an overall goal, and must meet all the
substantive and procedural requirements of this section pertaining to
overall goals.
    (ii) A project goal covers the entire length of the project to
which it applies.
    (iii) The project goal should include a projection of the DBE
participation anticipated to be obtained during each fiscal year
covered by the project goal.
    (iv) The funds for the project to which the project goal pertains
are separated from the base from which your regular overall goal,
applicable to contracts not part of the project covered by a project
goal, is calculated.
    (f) * * *
    (4) You are not required to obtain prior operating administration
concurrence with your overall goal. However, if the operating
administration's review suggests that your overall goal has not been
correctly calculated or that your method for calculating goals is
inadequate, the operating administration may, after consulting with
you, adjust your overall goal or require that you do so. The adjusted
overall goal is binding on you. In evaluating the adequacy or soundness
of the methodology used to derive the overall goal, the operating
administration will be guided by goal setting principles and best
practices identified by the Department in guidance issued pursuant to
Sec.  26.9.
* * * * *
    (g)(1) In establishing an overall goal, you must provide for
consultation and publication. This includes:
    (i) Consultation with minority, women's and general contractor
groups, community organizations, and other officials or organizations
which could be expected to have information concerning the availability
of disadvantaged and non-disadvantaged businesses, the effects of
discrimination on opportunities for DBEs, and your efforts to establish
a level playing field for the participation of DBEs. The consultation
must include a scheduled, direct, interactive exchange (e.g., a face-
to-face meeting, video conference, teleconference) with as many
interested stakeholders as possible focused on obtaining information
relevant to the goal setting process, and it must occur before you are
required to submit your methodology to the operating administration for
review pursuant to paragraph (f) of this section. You must document in
your goal submission the consultation process you engaged in.
Notwithstanding paragraph (f)(4) of this section, you may not implement
your proposed goal until you have complied with this requirement.
    (ii) A published notice announcing your proposed overall goal
before submission to the operating administration on August 1st. The
notice must be posted on your official Internet Web site and may be
posted in any other sources (e.g., minority-focused media, trade
association publications). If the proposed goal changes following
review by the operating administration, the revised goal must be posted
on your official Internet Web site.
    (2) At your discretion, you may inform the public that the proposed
overall goal and its rationale are available for inspection during
normal business hours at your principal office and for a 30-day comment
period. Notice of the comment period must include addresses to which
comments may be sent. The public comment period will not extend the
August 1st deadline set in paragraph (f) of this section.
* * * * *

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9. Revise Sec.  26.49 to read as follows:

Sec.  26.49  How are overall goals established for transit vehicle
manufacturers?

    (a) If you are an FTA recipient, you must require in your DBE
program that each transit vehicle manufacturer, as a condition of being
authorized to bid or propose on FTA-assisted transit vehicle
procurements, certify that it has complied with the requirements of
this section. You do not include FTA assistance used in transit vehicle
procurements in the base amount from which your overall goal is
calculated.
    (1) Only those transit vehicle manufacturers listed on FTA's
certified list of Transit Vehicle Manufacturers, or that have submitted
a goal methodology to FTA that has been approved or has not been
disapproved, at the time of solicitation are eligible to bid.
    (2) A TVM's failure to implement the DBE Program in the manner as
prescribed in this section and throughout 49 CFR part 26 will be deemed
as non-compliance, which will result in removal from FTA's certified
TVMs list, resulting in that manufacturer becoming ineligible to bid.
    (3) FTA recipient's failure to comply with the requirements set
forth in paragraph (a) of this section may result in formal enforcement
action or appropriate sanction as determined by FTA (e.g., FTA
declining to participate in the vehicle procurement).
    (4) FTA recipients are required to submit within 30 days of making
an award, the name of the successful bidder, and the total dollar value
of the contract in the manner prescribed in the grant agreement.
    (b) If you are a transit vehicle manufacturer, you must establish
and submit for FTA's approval an annual overall percentage goal.
    (1) In setting your overall goal, you should be guided, to the
extent applicable, by the principles underlying Sec.  26.45. The base
from which you calculate this goal is the amount of FTA financial
assistance included in transit vehicle contracts you will bid on during
the fiscal year in question, less the portion(s) attributable to the
manufacturing process performed entirely by the transit vehicle
manufacturer's own forces.
    (i) You must consider and include in your base figure all domestic
contracting opportunities made available to non-DBE firms; and
    (ii) You must exclude from this base figure funds attributable to
work performed outside the United States and its territories,
possessions, and commonwealths.
    (iii) In establishing an overall goal, the transit vehicle
manufacturer must

provide for public participation. This includes consultation with
interested parties consistent with Sec.  26.45(g).
    (2) The requirements of this part with respect to submission and
approval of overall goals apply to you as they do to recipients.
    (c) Transit vehicle manufacturers awarded must comply with the
reporting requirements of Sec.  26.11 of this part including the
requirement to submit the Uniform Report of Awards or Commitments and
Payments, in order to remain eligible to bid on FTA assisted transit
vehicle procurements.
    (d) Transit vehicle manufacturers must implement all other
applicable requirements of this part, except those relating to UCPs and
DBE certification procedures.
    (e) If you are an FHWA or FAA recipient, you may, with FHWA or FAA
approval, use the procedures of this section with respect to
procurements of vehicles or specialized equipment. If you choose to do
so, then the manufacturers of this equipment must meet the same
requirements (including goal approval by FHWA or FAA) as transit
vehicle manufacturers must meet in FTA-assisted procurements.
    (f) As a recipient you may, with FTA approval, establish project-
specific goals for DBE participation in the procurement of transit
vehicles in lieu of complying through the procedures of this section.

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10. In Sec.  26.51, revise paragraph (a) to read as follows:

Sec.  26.51  What means do recipients use to meet overall goals?

    (a) You must meet the maximum feasible portion of your overall goal
by using race-neutral means of facilitating race-neutral DBE
participation. Race-neutral DBE participation includes any time a DBE
wins a prime contract through customary competitive procurement
procedures or is awarded a subcontract on a prime contract that does
not carry a DBE contract goal.
* * * * *

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11. In Sec.  26.53, revise paragraph (b), redesignate paragraph (f)(1)
as (f)(1)(i) and add paragraph (f)(1)(ii), revise paragraphs (g) and
(h), and add paragraph (j) to read as follows:

Sec.  26.53  What are the good faith efforts procedures recipients
follow in situations where there are contract goals?

* * * * *
    (b) In your solicitations for DOT-assisted contracts for which a
contract goal has been established, you must require the following:
    (1) Award of the contract will be conditioned on meeting the
requirements of this section;
    (2) All bidders or offerors will be required to submit the
following information to the recipient, at the time provided in
paragraph (b)(3) of this section:
    (i) The names and addresses of DBE firms that will participate in
the contract;
    (ii) A description of the work that each DBE will perform. To count
toward meeting a goal, each DBE firm must be certified in a NAICS code
applicable to the kind of work the firm would perform on the contract;
    (iii) The dollar amount of the participation of each DBE firm
participating;
    (iv) Written documentation of the bidder/offeror's commitment to
use a DBE subcontractor whose participation it submits to meet a
contract goal; and
    (v) Written confirmation from each listed DBE firm that it is
participating in the contract in the kind and amount of work provided
in the prime contractor's commitment.
    (vi) If the contract goal is not met, evidence of good faith
efforts (see Appendix A of this part). The documentation of good faith
efforts must include copies of each DBE and non-DBE subcontractor quote
submitted to the bidder when a non-DBE subcontractor was selected over
a DBE for work on the contract; and
    (3)(i) At your discretion, the bidder/offeror must present the
information required by paragraph (b)(2) of this section--
    (A) Under sealed bid procedures, as a matter of responsiveness, or
with initial proposals, under contract negotiation procedures; or
    (B) No later than 7 days after bid opening as a matter of
responsibility. The 7 days shall be reduced to 5 days beginning January
1, 2017.
    (ii) Provided that, in a negotiated procurement, including a
design-build procurement, the bidder/offeror may make a contractually
binding commitment to meet the goal at the time of bid submission or
the presentation of initial proposals but provide the information
required by paragraph (b)(2) of this section before the final selection
for the contract is made by the recipient.
* * * * *
    (f)(1) * * *
    (ii) You must include in each prime contract a provision stating:
    (A) That the contractor shall utilize the specific DBEs listed to
perform the work and supply the materials for which each is listed
unless the contractor obtains your written consent as provided in this
paragraph (f); and
    (B) That, unless your consent is provided under this paragraph (f),
the contractor shall not be entitled to any payment for work or
material unless it is performed or supplied by the listed DBE.
* * * * *
    (g) When a DBE subcontractor is terminated as provided in paragraph
(f) of this section, or fails to complete its work on the contract for
any reason, you must require the prime contractor to make good faith
efforts to find another DBE subcontractor to substitute for the
original DBE. These good faith efforts shall be directed at finding
another DBE to perform at least the same amount of work under the
contract as the DBE that was terminated, to the extent needed to meet
the contract goal you established for the procurement. The good faith
efforts shall be documented by the contractor. If the recipient
requests documentation under this provision, the contractor shall
submit the documentation within 7 days, which may be extended for an
additional 7 days if necessary at the request of the contractor, and
the recipient shall provide a written determination to the contractor
stating whether or not good faith efforts have been demonstrated.
    (h) You must include in each prime contract the contract clause
required by Sec.  26.13(b) stating that failure by the contractor to
carry out the requirements of this part is a material breach of the
contract and may result in the termination of the contract or such
other remedies set forth in that section you deem appropriate if the
prime contractor fails to comply with the requirements of this section.
* * * * *
    (j) You must require the contractor awarded the contract to make
available upon request a copy of all DBE subcontracts. The
subcontractor shall ensure that all subcontracts or an agreement with
DBEs to supply labor or materials require that the subcontract and all
lower tier subcontractors be performed in accordance with this part's
provisions.

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12. In Sec.  26.55, revise paragraph (d)(5), redesignate paragraph
(d)(6) as (d)(7), and add new paragraph (d)(6) and paragraph (e)(4) to
read as follows:

Sec.  26.55  How is DBE participation counted toward goals?

* * * * *
    (d) * * *
    (5) The DBE may also lease trucks from a non-DBE firm, including
from an owner-operator. The DBE that leases

trucks equipped with drivers from a non-DBE is entitled to credit for
the total value of transportation services provided by non-DBE leased
trucks equipped with drivers not to exceed the value of transportation
services on the contract provided by DBE-owned trucks or leased trucks
with DBE employee drivers. Additional participation by non-DBE owned
trucks equipped with drivers receives credit only for the fee or
commission it receives as a result of the lease arrangement. If a
recipient chooses this approach, it must obtain written consent from
the appropriate DOT operating administration.

    Example to paragraph (d)(5):  DBE Firm X uses two of its own
trucks on a contract. It leases two trucks from DBE Firm Y and six
trucks equipped with drivers from non-DBE Firm Z. DBE credit would
be awarded for the total value of transportation services provided
by Firm X and Firm Y, and may also be awarded for the total value of
transportation services provided by four of the six trucks provided
by Firm Z. In all, full credit would be allowed for the
participation of eight trucks. DBE credit could be awarded only for
the fees or commissions pertaining to the remaining trucks Firm X
receives as a result of the lease with Firm Z.

    (6) The DBE may lease trucks without drivers from a non-DBE truck
leasing company. If the DBE leases trucks from a non-DBE truck leasing
company and uses its own employees as drivers, it is entitled to credit
for the total value of these hauling services.

    Example to paragraph (d)(6):  DBE Firm X uses two of its own
trucks on a contract. It leases two additional trucks from non-DBE
Firm Z. Firm X uses its own employees to drive the trucks leased
from Firm Z. DBE credit would be awarded for the total value of the
transportation services provided by all four trucks.

* * * * *
    (e) * * *
    (4) You must determine the amount of credit awarded to a firm for
the provisions of materials and supplies (e.g., whether a firm is
acting as a regular dealer or a transaction expediter) on a contract-
by-contract basis.
* * * * *

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13. In Sec.  26.65, revise paragraph (a), and in paragraph (b), remove
``in excess of $22.41 million'' and add in its place ``in excess of
$23.98 million''.
    The revision reads as follows:

Sec.  26.65  What rules govern business size determinations?

    (a) To be an eligible DBE, a firm (including its affiliates) must
be an existing small business, as defined by Small Business
Administration (SBA) standards. As a recipient, you must apply current
SBA business size standard(s) found in 13 CFR part 121 appropriate to
the type(s) of work the firm seeks to perform in DOT-assisted
contracts, including the primary industry classification of the
applicant.
* * * * *

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14. Revise Sec.  26.67 to read as follows:

Sec.  26.67  What rules determine social and economic disadvantage?

    (a) Presumption of disadvantage. (1) You must rebuttably presume
that citizens of the United States (or lawfully admitted permanent
residents) who are women, Black Americans, Hispanic Americans, Native
Americans, Asian-Pacific Americans, Subcontinent Asian Americans, or
other minorities found to be disadvantaged by the SBA, are socially and
economically disadvantaged individuals. You must require applicants to
submit a signed, notarized certification that each presumptively
disadvantaged owner is, in fact, socially and economically
disadvantaged.
    (2)(i) You must require each individual owner of a firm applying to
participate as a DBE, whose ownership and control are relied upon for
DBE certification, to certify that he or she has a personal net worth
that does not exceed $1.32 million.
    (ii) You must require each individual who makes this certification
to support it with a signed, notarized statement of personal net worth,
with appropriate supporting documentation. To meet this requirement,
you must use the DOT personal net worth form provided in appendix G to
this part without change or revision. Where necessary to accurately
determine an individual's personal net worth, you may, on a case-by-
case basis, require additional financial information from the owner of
an applicant firm (e.g., information concerning the assets of the
owner's spouse, where needed to clarify whether assets have been
transferred to the spouse or when the owner's spouse is involved in the
operation of the company). Requests for additional information shall
not be unduly burdensome or intrusive.
    (iii) In determining an individual's net worth, you must observe
the following requirements:
    (A) Exclude an individual's ownership interest in the applicant
firm;
    (B) Exclude the individual's equity in his or her primary residence
(except any portion of such equity that is attributable to excessive
withdrawals from the applicant firm). The equity is the market value of
the residence less any mortgages and home equity loan balances.
Recipients must ensure that home equity loan balances are included in
the equity calculation and not as a separate liability on the
individual's personal net worth form. Exclusions for net worth purposes
are not exclusions for asset valuation or access to capital and credit
purposes.
    (C) Do not use a contingent liability to reduce an individual's net
worth.
    (D) With respect to assets held in vested pension plans, Individual
Retirement Accounts, 401(k) accounts, or other retirement savings or
investment programs in which the assets cannot be distributed to the
individual at the present time without significant adverse tax or
interest consequences, include only the present value of such assets,
less the tax and interest penalties that would accrue if the asset were
distributed at the present time.
    (iv) Notwithstanding any provision of Federal or State law, you
must not release an individual's personal net worth statement nor any
documents pertaining to it to any third party without the written
consent of the submitter. Provided, that you must transmit this
information to DOT in any certification appeal proceeding under Sec.
26.89 of this part or to any other State to which the individual's firm
has applied for certification under Sec.  26.85 of this part.
    (b) Rebuttal of presumption of disadvantage. (1) An individual's
presumption of economic disadvantage may be rebutted in two ways.
    (i) If the statement of personal net worth and supporting
documentation that an individual submits under paragraph (a)(2) of this
section shows that the individual's personal net worth exceeds $1.32
million, the individual's presumption of economic disadvantage is
rebutted. You are not required to have a proceeding under paragraph
(b)(2) of this section in order to rebut the presumption of economic
disadvantage in this case.

    Example to paragraph (b)(1)(i):  An individual with very high
assets and significant liabilities may, in accounting terms, have a
PNW of less than $1.32 million. However, the person's assets
collectively (e.g., high income level, a very expensive house, a
yacht, extensive real or personal property holdings) may lead a
reasonable person to conclude that he or she is not economically
disadvantaged. The recipient may rebut the individual's presumption
of economic disadvantage under these circumstances, as provided in
this section, even though the individual's PNW is less than $1.32
million.

    (ii)(A) If the statement of personal net worth and supporting
documentation that an individual submits under paragraph (a)(2) of this
section

demonstrates that the individual is able to accumulate substantial
wealth, the individual's presumption of economic disadvantage is
rebutted. In making this determination, as a certifying agency, you may
consider factors that include, but are not limited to, the following:
    (1) Whether the average adjusted gross income of the owner over the
most recent three year period exceeds $350,000;
    (2) Whether the income was unusual and not likely to occur in the
future;
    (3) Whether the earnings were offset by losses;
    (4) Whether the income was reinvested in the firm or used to pay
taxes arising in the normal course of operations by the firm;
    (5) Other evidence that income is not indicative of lack of
economic disadvantage; and
    (6) Whether the total fair market value of the owner's assets
exceed $6 million.
    (B) You must have a proceeding under paragraph (b)(2) of this
section in order to rebut the presumption of economic disadvantage in
this case.
    (2) If you have a reasonable basis to believe that an individual
who is a member of one of the designated groups is not, in fact,
socially and/or economically disadvantaged you may, at any time, start
a proceeding to determine whether the presumption should be regarded as
rebutted with respect to that individual. Your proceeding must follow
the procedures of Sec.  26.87.
    (3) In such a proceeding, you have the burden of demonstrating, by
a preponderance of the evidence, that the individual is not socially
and economically disadvantaged. You may require the individual to
produce information relevant to the determination of his or her
disadvantage.
    (4) When an individual's presumption of social and/or economic
disadvantage has been rebutted, his or her ownership and control of the
firm in question cannot be used for purposes of DBE eligibility under
this subpart unless and until he or she makes an individual showing of
social and/or economic disadvantage. If the basis for rebutting the
presumption is a determination that the individual's personal net worth
exceeds $1.32 million, the individual is no longer eligible for
participation in the program and cannot regain eligibility by making an
individual showing of disadvantage, so long as his or her PNW remains
above that amount.
    (c) Transfers within two years. (1) Except as set forth in
paragraph (c)(2) of this section, recipients must attribute to an
individual claiming disadvantaged status any assets which that
individual has transferred to an immediate family member, to a trust a
beneficiary of which is an immediate family member, or to the applicant
firm for less than fair market value, within two years prior to a
concern's application for participation in the DBE program or within
two years of recipient's review of the firm's annual affidavit, unless
the individual claiming disadvantaged status can demonstrate that the
transfer is to or on behalf of an immediate family member for that
individual's education, medical expenses, or some other form of
essential support.
    (2) Recipients must not attribute to an individual claiming
disadvantaged status any assets transferred by that individual to an
immediate family member that are consistent with the customary
recognition of special occasions, such as birthdays, graduations,
anniversaries, and retirements.
    (d) Individual determinations of social and economic disadvantage.
Firms owned and controlled by individuals who are not presumed to be
socially and economically disadvantaged (including individuals whose
presumed disadvantage has been rebutted) may apply for DBE
certification. You must make a case-by-case determination of whether
each individual whose ownership and control are relied upon for DBE
certification is socially and economically disadvantaged. In such a
proceeding, the applicant firm has the burden of demonstrating to you,
by a preponderance of the evidence, that the individuals who own and
control it are socially and economically disadvantaged. An individual
whose personal net worth exceeds $1.32 million shall not be deemed to
be economically disadvantaged. In making these determinations, use the
guidance found in Appendix E of this part. You must require that
applicants provide sufficient information to permit determinations
under the guidance of appendix E of this part.

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15. In Sec.  26.69, revise paragraphs (a) and (c) to read as follows:

Sec.  26.69  What rules govern determinations of ownership?

    (a) In determining whether the socially and economically
disadvantaged participants in a firm own the firm, you must consider
all the facts in the record viewed as a whole, including the origin of
all assets and how and when they were used in obtaining the firm. All
transactions for the establishment and ownership (or transfer of
ownership) must be in the normal course of business, reflecting
commercial and arms-length practices.
* * * * *
    (c)(1) The firm's ownership by socially and economically
disadvantaged individuals, including their contribution of capital or
expertise to acquire their ownership interests, must be real,
substantial, and continuing, going beyond pro forma ownership of the
firm as reflected in ownership documents. Proof of contribution of
capital should be submitted at the time of the application. When the
contribution of capital is through a loan, there must be documentation
of the value of assets used as collateral for the loan.

    (2) Insufficient contributions include a promise to contribute
capital, an unsecured note payable to the firm or an owner who is not a
disadvantaged individual, mere participation in a firm's activities as
an employee, or capitalization not commensurate with the value for the
firm.
    (3) The disadvantaged owners must enjoy the customary incidents of
ownership, and share in the risks and be entitled to the profits and
loss commensurate with their ownership interests, as demonstrated by
the substance, not merely the form, of arrangements. Any terms or
practices that give a non-disadvantaged individual or firm a priority
or superior right to a firm's profits, compared to the disadvantaged
owner(s), are grounds for denial.
    (4) Debt instruments from financial institutions or other
organizations that lend funds in the normal course of their business do
not render a firm ineligible, even if the debtor's ownership interest
is security for the loan.

    Examples to paragraph (c):  (i) An individual pays $100 to
acquire a majority interest in a firm worth $1 million. The
individual's contribution to capital would not be viewed as
substantial.
    (ii) A 51% disadvantaged owner and a non-disadvantaged 49% owner
contribute $100 and $10,000, respectively, to acquire a firm
grossing $1 million. This may be indicative of a pro forma
arrangement that does not meet the requirements of (c)(1).
    (iii) The disadvantaged owner of a DBE applicant firm spends
$250 to file articles of incorporation and obtains a $100,000 loan,
but makes only nominal or sporadic payments to repay the loan. This
type of contribution is not of a continuing nature.
* * * * *

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16. In Sec.  26.71, revise paragraphs (e) and (l) to read as follows:

Sec.  26.71  What rules govern determinations concerning control?

* * * * *

    (e) Individuals who are not socially and economically disadvantaged
or immediate family members may be involved in a DBE firm as owners,
managers, employees, stockholders, officers, and/or directors. Such
individuals must not, however possess or exercise the power to control
the firm, or be disproportionately responsible for the operation of the
firm.
* * * * *
    (l) Where a firm was formerly owned and/or controlled by a non-
disadvantaged individual (whether or not an immediate family member),
ownership and/or control were transferred to a socially and
economically disadvantaged individual, and the nondisadvantaged
individual remains involved with the firm in any capacity, there is a
rebuttable presumption of control by the non-disadvantaged individual
unless the disadvantaged individual now owning the firm demonstrates to
you, by clear and convincing evidence, that:
    (1) The transfer of ownership and/or control to the disadvantaged
individual was made for reasons other than obtaining certification as a
DBE; and
    (2) The disadvantaged individual actually controls the management,
policy, and operations of the firm, notwithstanding the continuing
participation of a nondisadvantaged individual who formerly owned and/
or controlled the firm.
* * * * *

Sec.  26.73  [Amended]

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17. In Sec.  26.73, in paragraph (g), remove the words ``unless the
recipient requires all firms that participate in its contracts and
subcontracts to be prequalified'' and in paragraph (h), remove
``26.35'' and add in its place ``26.65''.

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18. In Sec.  26.83, revise paragraphs (c), (h), and (j), to read as
follows:

Sec.  26.83  What procedures do recipients follow in making
certification decisions?

* * * * *
    (c)(1) You must take all the following steps in determining whether
a DBE firm meets the standards of subpart D of this part:
    (i) Perform an on-site visit to the firm's principal place of
business. You must interview the principal officers and review their
r[eacute]sum[eacute]s and/or work histories. You may interview key
personnel of the firm if necessary. You must also perform an on-site
visit to job sites if there are such sites on which the firm is working
at the time of the eligibility investigation in your jurisdiction or
local area. You may rely upon the site visit report of any other
recipient with respect to a firm applying for certification;
    (ii) Analyze documentation related to the legal structure,
ownership, and control of the applicant firm. This includes, but is not
limited to, Articles of Incorporation/Organization; corporate by-laws
or operating agreements; organizational, annual and board/member
meeting records; stock ledgers and certificates; and State-issued
Certificates of Good Standing
    (iii) Analyze the bonding and financial capacity of the firm; lease
and loan agreements; bank account signature cards;
    (iv) Determine the work history of the firm, including contracts it
has received, work it has completed; and payroll records;
    (v) Obtain a statement from the firm of the type of work it prefers
to perform as part of the DBE program and its preferred locations for
performing the work, if any.
    (vi) Obtain or compile a list of the equipment owned by or
available to the firm and the licenses the firm and its key personnel
possess to perform the work it seeks to do as part of the DBE program;
    (vii) Obtain complete Federal income tax returns (or requests for
extensions) filed by the firm, its affiliates, and the socially and
economically disadvantaged owners for the last 3 years. A complete
return includes all forms, schedules, and statements filed with the
Internal Revenue Service.
    (viii) Require potential DBEs to complete and submit an appropriate
application form, except as otherwise provided in Sec.  26.85 of this
part.
    (2) You must use the application form provided in Appendix F to
this part without change or revision. However, you may provide in your
DBE program, with the written approval of the concerned operating
administration, for supplementing the form by requesting specified
additional information not inconsistent with this part.
    (3) You must make sure that the applicant attests to the accuracy
and truthfulness of the information on the application form. This shall
be done either in the form of an affidavit sworn to by the applicant
before a person who is authorized by State law to administer oaths or
in the form of an unsworn declaration executed under penalty of perjury
of the laws of the United States.
    (4) You must review all information on the form prior to making a
decision about the eligibility of the firm. You may request
clarification of information contained in the application at any time
in the application process.
* * * * *
    (h)(1) Once you have certified a DBE, it shall remain certified
until and unless you have removed its certification, in whole or in
part, through the procedures of Sec.  26.87 of this part, except as
provided in Sec.  26.67(b)(1) of this part.
    (2) You may not require DBEs to reapply for certification or
undergo a recertification process. However, you may conduct a
certification review of a certified DBE firm, including a new on-site
review, if appropriate in light of changed circumstances (e.g., of the
kind requiring notice under paragraph (i) of this section or relating
to suspension of certification under Sec.  26.88), a complaint, or
other information concerning the firm's eligibility. If information
comes to your attention that leads you to question the firm's
eligibility, you may conduct an on-site review on an unannounced basis,
at the firm's offices and job sites.
* * * * *
    (j) If you are a DBE, you must provide to the recipient, every year
on the anniversary of the date of your certification, an affidavit
sworn to by the firm's owners before a person who is authorized by
State law to administer oaths or an unsworn declaration executed under
penalty of perjury of the laws of the United States. This affidavit
must affirm that there have been no changes in the firm's circumstances
affecting its ability to meet size, disadvantaged status, ownership, or
control requirements of this part or any material changes in the
information provided in its application form, except for changes about
which you have notified the recipient under paragraph (i) of this
section. The affidavit shall specifically affirm that your firm
continues to meet SBA business size criteria and the overall gross
receipts cap of this part, documenting this affirmation with supporting
documentation of your firm's size and gross receipts (e.g., submission
of Federal tax returns). If you fail to provide this affidavit in a
timely manner, you will be deemed to have failed to cooperate under
Sec.  26.109(c).
* * * * *

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19. In Sec.  26.86, remove and reserve paragraph (b) and add a sentence
to the end of paragraph (c) to read as follows:

Sec.  26.86  What rules govern recipients' denials of initial requests
for certification?

* * * * *
    (c) * * * An applicant's appeal of your decision to the Department

pursuant to Sec.  26.89 does not extend this period.
* * * * *

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20. In Sec.  26.87, revise paragraphs (f) and (g) to read as follows:

Sec.  26.87  What procedures does a recipient use to remove a DBE's
eligibility?

* * * * *
    (f) Grounds for decision. You may base a decision to remove a
firm's eligibility only on one or more of the following grounds:
    (1) Changes in the firm's circumstances since the certification of
the firm by the recipient that render the firm unable to meet the
eligibility standards of this part;
    (2) Information or evidence not available to you at the time the
firm was certified;
    (3) Information relevant to eligibility that has been concealed or
misrepresented by the firm;
    (4) A change in the certification standards or requirements of the
Department since you certified the firm;
    (5) Your decision to certify the firm was clearly erroneous;
    (6) The firm has failed to cooperate with you (see Sec.
26.109(c));
    (7) The firm has exhibited a pattern of conduct indicating its
involvement in attempts to subvert the intent or requirements of the
DBE program (see Sec.  26.73(a)(2)); or
    (8) The firm has been suspended or debarred for conduct related to
the DBE program. The notice required by paragraph (g) of this section
must include a copy of the suspension or debarment action. A decision
to remove a firm for this reason shall not be subject to the hearing
procedures in paragraph (d) of this section.
    (g) Notice of decision. Following your decision, you must provide
the firm written notice of the decision and the reasons for it,
including specific references to the evidence in the record that
supports each reason for the decision. The notice must inform the firm
of the consequences of your decision and of the availability of an
appeal to the Department of Transportation under Sec.  26.89. You must
send copies of the notice to the complainant in an ineligibility
complaint or the concerned operating administration that had directed
you to initiate the proceeding. Provided that, when sending such a
notice to a complainant other than a DOT operating administration, you
must not include information reasonably construed as confidential
business information without the written consent of the firm that
submitted the information.
* * * * *

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21. Add Sec.  26.88 to read as follows:

Sec.  26.88  Summary suspension of certification.

    (a) A recipient shall immediately suspend a DBE's certification
without adhering to the requirements in Sec.  26.87(d) of this part
when an individual owner whose ownership and control of the firm are
necessary to the firm's certification dies or is incarcerated.
    (b)(1) A recipient may immediately suspend a DBE's certification
without adhering to the requirements in Sec.  26.87(d) when there is
adequate evidence to believe that there has been a material change in
circumstances that may affect the eligibility of the DBE firm to remain
certified, or when the DBE fails to notify the recipient or UCP in
writing of any material change in circumstances as required by Sec.
26.83(i) of this part or fails to timely file an affidavit of no change
under Sec.  26.83(j).
    (2) In determining the adequacy of the evidence to issue a
suspension under paragraph (b)(1) of this section, the recipient shall
consider all relevant factors, including how much information is
available, the credibility of the information and allegations given the
circumstances, whether or not important allegations are corroborated,
and what inferences can reasonably be drawn as a result.
    (c) The concerned operating administration may direct the recipient
to take action pursuant to paragraph (a) or (b) this section if it
determines that information available to it is sufficient to warrant
immediate suspension.
    (d) When a firm is suspended pursuant to paragraph (a) or (b) of
this section, the recipient shall immediately notify the DBE of the
suspension by certified mail, return receipt requested, to the last
known address of the owner(s) of the DBE.
    (e) Suspension is a temporary status of ineligibility pending an
expedited show cause hearing/proceeding under Sec.  26.87 of this part
to determine whether the DBE is eligible to participate in the program
and consequently should be removed. The suspension takes effect when
the DBE receives, or is deemed to have received, the Notice of
Suspension.
    (f) While suspended, the DBE may not be considered to meet a
contract goal on a new contract, and any work it does on a contract
received during the suspension shall not be counted toward a
recipient's overall goal. The DBE may continue to perform under an
existing contract executed before the DBE received a Notice of
Suspension and may be counted toward the contract goal during the
period of suspension as long as the DBE is performing a commercially
useful function under the existing contract.
    (g) Following receipt of the Notice of Suspension, if the DBE
believes it is no longer eligible, it may voluntarily withdraw from the
program, in which case no further action is required. If the DBE
believes that its eligibility should be reinstated, it must provide to
the recipient information demonstrating that the firm is eligible
notwithstanding its changed circumstances. Within 30 days of receiving
this information, the recipient must either lift the suspension and
reinstate the firm's certification or commence a decertification action
under Sec.  26.87 of this part. If the recipient commences a
decertification proceeding, the suspension remains in effect during the
proceeding.
    (h) The decision to immediately suspend a DBE under paragraph (a)
or (b) of this section is not appealable to the US Department of
Transportation. The failure of a recipient to either lift the
suspension and reinstate the firm or commence a decertification
proceeding, as required by paragraph (g) of this section, is appealable
to the U.S. Department of Transportation under Sec.  26.89 of this
part, as a constructive decertification.

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22. In Sec.  26.89, revise paragraphs (a)(1) and (3), (c), and (e) to
read as follows:

Sec.  26.89  What is the process for certification appeals to the
Department of Transportation?

    (a)(1) If you are a firm that is denied certification or whose
eligibility is removed by a recipient, including SBA-certified firms,
you may make an administrative appeal to the Department.
* * * * *
    (3) Send appeals to the following address: U.S. Department of
Transportation, Departmental Office of Civil Rights, 1200 New Jersey
Avenue SE., Washington, DC 20590-0001.
* * * * *
    (c) If you want to file an appeal, you must send a letter to the
Department within 90 days of the date of the recipient's final
decision, including information and setting forth a full and specific
statement as to why the decision is erroneous, what significant fact
that the recipient failed to consider, or what provisions of this Part
the recipient did not properly apply. The Department may accept an
appeal filed later than 90 days after the date of the decision if the
Department determines that there was good cause for the late

filing of the appeal or in the interest of justice.
* * * * *
    (e) The Department makes its decision based solely on the entire
administrative record as supplemented by the appeal. The Department
does not make a de novo review of the matter and does not conduct a
hearing. The Department may also supplement the administrative record
by adding relevant information made available by the DOT Office of
Inspector General; Federal, State, or local law enforcement
authorities; officials of a DOT operating administration or other
appropriate DOT office; a recipient; or a firm or other private party.
* * * * *

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23. Revise appendix A to part 26 to read as follows:

Appendix A to Part 26--Guidance Concerning Good Faith Efforts

    I. When, as a recipient, you establish a contract goal on a DOT-
assisted contract for procuring construction, equipment, services,
or any other purpose, a bidder must, in order to be responsible and/
or responsive, make sufficient good faith efforts to meet the goal.
The bidder can meet this requirement in either of two ways. First,
the bidder can meet the goal, documenting commitments for
participation by DBE firms sufficient for this purpose. Second, even